SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
Commission file number 33-44980
THE CHESTNUT PARTNERSHIP THE CHESTNUT REAL ESTATE PARTNERSHIP
(exact name of registrants as specified in their charters)
Maryland
(State or other jurisdiction of incorporation or organization)
52-1640655 42-1352739
(IRS Employer (IRS Employer
Identification No.) Identification No.)
2330 West Joppa Road, Suite 210, Lutherville, Maryland 21093
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (301)-494-9200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
---------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrants (1) have 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) have been subject to such
filing requirements for the past 90 days. Yes X No
No voting interests of either partnership are held by non-affiliates.
Documents incorporated by reference: None
Total pages in this report 56.
Exhibit Index is at page 46.
Cover Page 1 of 1
<PAGE>
THE CHESTNUT PARTNERSHIP
AND
THE CHESTNUT REAL ESTATE PARTNERSHIP
1997 Form 10-K Annual Report
Table of Contents
PART I
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 14
Item 3. Legal Proceedings............................................. 14
Item 4. Submission of Matters to a Vote of Security Holders .......... 14
PART II
Item 5. Market for the Registrant's Common Equity and
Related Bondholder Matters.................................... 15
Item 6. Selected Financial Data ...................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation...................................... 16
Item 8. Financial Statements and Supplementary Data .................. 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .......................... 18
PART III
Item 10. Directors and Executive Officers of the Registrant............ 19
Item 11. Executive Compensation ...................................... 21
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................ 21
Item 13. Certain Relationships and Related Transactions................ 23
PART IV
Item 14. Exhibits and Financial Statement Schedules.................... 26
<PAGE>
PART I
Item 1. Business
DESCRIPTION OF BUSINESS
The Chestnut Partnership ("Partnership"), a Maryland general
partnership, was organized June 3, 1988, for the purpose of developing,
marketing, constructing, equipping, and operating a life-care
retirement community designed for the elderly to be located in the
Ruxton-Riderwood area near Towson, Baltimore County, Maryland, known as
Blakehurst ("Project or Community").
The Chestnut Real Estate Partnership ("Real Estate Partnership") a
Maryland general partnership, was organized on April 25, 1990, to own
the real estate of the Partnership. Real Estate Partnership has two
general partners, each owning 50%, West Joppa Road Limited Partnership
("West Joppa") and Blakehurst Joint Venture ("BJV") (together the
"partners").
On April 25, 1990, by assignment of interest from Partnership, Real
Estate Partnership received 98% of the partners' interest in
Partnership. Partnership and Real Estate Partnership have entered into
an operating and use agreement which obligates Partnership to develop,
operate, and manage the project at Partnership's expense. Real Estate
Partnership guarantees the performance by Partnership of all its
obligations under the Residency Agreements.
A life-care retirement community such as Blakehurst is intended to
address the needs of individuals, age 62 or older, who are in good
health but who no longer desire to reside in their own homes or
apartments. Fully-equipped private living units are provided together
with a variety of services, such as housekeeping, maintenance, and meal
arrangements which ease such everyday burdens as shopping, cooking, and
cleaning and substantially relieves senior adults of the burden of
procuring such goods and services themselves or relying on family
members or others to do so. In addition, residents are provided with
skilled nursing services and limited medical services through a health
care center that is part of the facility.
The Community is being built in several phases. The first phase of the
Community ("Phase I") consists of 177 residential units, a dining room,
a clubhouse, and a health care center with 36 comprehensive care beds
and 14 domiciliary care units. Cessation of major construction activity
associated with Phase I occurred in December 1993. The Community
commenced occupancy in late summer 1993 and by December 31, 1993 was
60% occupied; occupancy was 75% at December 31, 1994. Occupancy
increased to 87% by December 31, 1995; 92% by December 31, 1996; and
93% by December 31, 1997.
In Phase II, an auditorium was constructed and renovation of a carriage
house occurred in late 1995 and early 1996. The auditorium and
renovation were essentially completed in March 1996.
The Partnership filed with the Maryland Office on Aging, on February
28, 1996, an Application for Preliminary Certificate of Registration
for Phase III. The Application was approved on April 30, 1996. Phase
III consists of a 35 apartment unit addition, 12 surface garages, 20
under-building parking spaces, an enclosed swimming pool, an exercise
room and additional surface parking. Construction began in August 1996
and was scheduled to be completed in August 1997. Some construction,
primarily related to tenant improvements, continued as of December 31,
1997. As of December 31, 1996, all 35 apartment units had been reserved
by receipt of the Partnership of 10% of the Entrance Payments. At
December 31, 1997, 27 of the units were occupied, and 5 more units were
reserved. The partners are now beginning to plan a Phase IV, which
could consist of up to 65 units.
As of December 31, 1997, the Community had 118 full-time equivalent
employees, an increase in the year of one full-time equivalent
employee, none of whom were members of a collective bargaining
agreement.
<PAGE>
THE PROJECT
The residential units are in a six-story building with multiple wings.
The adjacent clubhouse includes the dining room, administrative
offices, a convenience shop, a library, a billiard room, an arts and
crafts studio, an exercise room, a beauty/barber shop, and a
woodworking shop. The residential units consist of a mixture of
one-bedroom and two-bedroom units. Each unit has complete kitchen
facilities with major appliances, individually controlled air
conditioning, and heating, carpet, and other amenities, and has been
designed with the special physical needs of the elderly in mind. Grab
rails are provided in all bathrooms; doors and cabinets are accessible
to persons in wheelchairs; and each bedroom and bathroom is equipped
with an emergency call system linked to the health care center. In
addition, each residential unit is equipped with safety features, such
as a sprinkler system and smoke alarm.
The following table sets forth information with respect to the types of
residential units available at the community:
Estimated
Type of Units (Quantity) Square Feet
One-Bedroom (10) 640
One-Bedroom Deluxe (30) 822
One-Bedroom Classic (12) 822
One-Bedroom with Den (6) 900
One-Bedroom Custom (17) 955
Two-Bedroom (48) 1,028
Two-Bedroom Classic (5) 1,028
Two-Bedroom Custom (10) 1,093
Two-Bedroom Master (12) 1,156
Two-Bedroom Deluxe (39) 1,233
Two-Bedroom Grand (23) 1,520
The health care center contains 36 comprehensive care beds, consisting
of 24 semiprivate beds and 12 private beds. This portion of the
Community contains all equipment and services necessary to provide
temporary to long-term nursing care. The health care center also
contains 14 domiciliary care units, each consisting of a private studio
apartment with bath and combination living/sleeping area. A domiciliary
care unit resident receives assistance with day to day tasks and
benefits from 24-hour supervision by the health care center staff.
The health care center contains a dining room, a physical therapy room,
an arts and crafts therapy area, and an outpatient clinic for use by
all community residents. Health care center residents who are able will
have ready access to other common areas of the facility, and thus to
the Community's recreational and social life.
The auditorium and renovated carriage house provide additional commons
areas for the resident activities.
ADMISSION OF RESIDENTS
In order to be accepted for residency in a residential unit at the
Community, a resident must execute a residency agreement (the
"Residency Agreement"). The Residency Agreement is a contract which
describes the rights and obligations of the resident and the
Partnership in connection with residency at the Community.
In 1994, the Community began offering a limited number of a second type
of Residency Agreement ("Traditional Plan") in addition to its original
Residency Agreement ("Return of Capital Plan"). The criteria for
admission to the community is identical under either plan. The plans
are different as to economic terms
<PAGE>
and conditions, however. The Traditional Plan requires a lower Entrance
Payment for the selected units on which it is offered, than the
Entrance Payment under the Return of Capital Plan. The Return of
Capital Plan defines a portion of the Entrance Payment received from
the new resident as a loan that must be repaid after the resident
leaves the Community. The Traditional Plan, however, does not have a
loan and limits any refund based on time at the Community--the longer
the time in residency, the lower the refund. After 50 months, the
Traditional Plan holder does not receive a refund.
In order to be accepted for residency in the Community, a resident must
be at least 62 years old or the spouse of a resident who is at least 62
years old, capable of independent living, be free of communicable
disease and have assets and income sufficient to pay the entrance
payments, the monthly fees and other ordinary and customary living
expenses.
The Residency Agreement requires at least one resident of each
residential unit who is at least 65 years old to be entitled to
Medicare Part A benefits, to be enrolled in the Medicare Part B program
at the time of initial occupancy, and to maintain coverage under
Medicare Part A, Medicare Part B, and one health insurance policy
acceptable to the Partnership to supplement Medicare coverage while a
resident of the community. If there is a second resident in any
residential unit, the Residency Agreement also requires that such
resident must be qualified and enroll for the above Medicare benefits
if he or she has reached the age entitling him or her to such benefits.
If the required health insurance coverage is not maintained by the
resident, the Partnership may revoke the resident's right to reside at
the Community and cancel the Residency Agreement.
Entrance Payments (Return of Capital Plan only). The payments which
must be made by all Community residents as condition to their initial
admission to the Community (the "Entrance Payments") consist of the
Admission Fee (as hereinafter defined) and the Residency Loan (as
hereinafter defined).
Entrance Payments (Traditional Plan only). The payments which must be
made by all Community residents as condition to their initial admission
to the Community (the "Entrance Payments") consist of the Admission Fee
(as hereinafter defined) and the Entrance Costs (as hereinafter
defined).
Admission Fee (Return of Capital Plan and Traditional Plan). Upon
execution of a Residency Agreement, the prospective resident must pay
an admission fee based upon the unit the resident wishes to occupy
(such amount, the "Admission Fee"). The Admission Fee increases for a
second resident of the unit. The Admission Fee is deposited in an
escrow account and, subject to the resident's rights to a refund prior
to occupancy, will be released to the Partnership as soon as (i)
Project construction is complete, (ii) a final certificate of
registration has been obtained from the Maryland Office on Aging, (iii)
a certificate of occupancy has been received from the appropriate local
authorities, and (iv) the appropriate licenses or certificates have
been issued by the Maryland Department of Health and Mental Hygiene or
by the Maryland Office on Aging.
Residency Loan (Return of Capital Plan only). Upon the earlier of (i)
occupancy of his or her unit or (ii) 15 days after the date the unit is
available for occupancy, the resident must loan to the Partnership an
amount based on the type of unit being occupied (the "Residency Loan").
The Residency Loan will be evidenced by a written loan agreement, and
the repayment in full of the principal of the loan will be fully and
unconditionally guaranteed by the Real Estate Partnership. The Real
Estate Partnership's guaranty of the Residency Loans are collateralized
by a mortgage on the Community, subordinate to the lien securing the
1992 Series I and Series II Bonds.
Upon cancellation of the Residency Agreement, the resident's Residency
Loan will be repaid upon the earlier of (i) the date that a successor
resident occupies the unit or (ii) the date that is 12 months after the
resident's death or cancellation of the Residency Agreement.
Entrance Costs (Traditional Plan only). Upon the earlier of (i)
occupancy of the unit or (ii) 15 days after the date the unit is
available for occupancy, the resident must pay the balance of the
entrance fee ("Entrance Costs") to the Partnership.
<PAGE>
Upon termination of the Residency Agreement, the resident's Entrance
Costs will be refunded less the greater of (i) the Admission Fee(s)
paid by the resident or (ii) an amount equal to two percent of the
Entrance Costs per month of occupancy by the resident to a maximum of
the Entrance Costs. The refunded portion of the Entrance Costs, if any,
will be repaid within 30 days of the date the apartment is reoccupied,
but in no event later than 12 months following the date of termination
of residency. Traditional contracts are no longer being offered.
The selected units for which the Traditional Plan was offered are no
longer available; during 1997 no Traditional Plans were sold.
The following table sets forth as of December 31, 1997, information
with respect to the ranges of total Entrance Payments for the Return of
Capital Plan for the types of residential units offered by the
Community:
First Person Entrance Payments (1)
Range of Entrance Payments (2)
------------------------------
Type of Unit (Quantity) Return of Capital Plan
----------------------- -----------------------
One-Bedroom (10) $166,000 - $166,800
One-Bedroom Deluxe (30) $218,700 - $219,700
One-Bedroom Classic (12) $223,200 - $224,200
One-Bedroom Custom (17) $237,900 - $238,700
One-Bedroom Den (6) $251,400 - $252,200
Two-Bedroom (48) $277,600 - $278,700
Two-Bedroom Classic (5) $284,400 - $287,500
Two-Bedroom Custom (10) $292,300 - $293,300
Two-Bedroom Master (12) $314,500 - $315,500
Two-Bedroom Deluxe (39) $344,000 - $346,000
Two-Bedroom Grand (23) $415,400 - $419,500
(1) The Admission Fee is increased by $9,000 for a second
resident.
(2) 90% of the Entrance Payment represents the Residency Loan
(Return of Capital Plan); 10% represents the Admission Fee.
Monthly Service Fee
Each month, residents reimburse the Community for their share of the
operating cash needs of the Community.
A resident's share of the total cash needs depends, among other things,
on the type of unit, the presence of a second occupant, and the
projected occupancy rate of the Community for the following year. The
total cash needs include the operating costs, capital repair and
replacement, and debt service of the Community.
<PAGE>
The following tables set forth as of December 31, 1997 and January 1,
1998, information with respect to the ranges of total Monthly Service
Fees for the types of units at the Community, including both apartment
phases:
Monthly Service Fees
As of Dec. 31, 1997 As of Jan. 1, 1998
------------------- ------------------
Type of Unit First Second First Second
(Quantity) Person Person Person Person
----------------------- ------- --------- -------- -------
One-Bedroom (10) $1,903 $815 $1,979 $848
One-Bedroom Deluxe (30) $2,012 $815 $2,092 $848
One-Bedroom Classic (12) --- --- $2,092 $848
One-Bedroom Custom (17) $2,117 $815 $2,202 $848
One-Bedroom Den (6) --- --- $2,236 $848
Two-Bedroom (48) $2,224 $815 $2,313 $848
Two-Bedroom Classic (5) --- --- $2,408 $848
Two-Bedroom Custom (10) $2,365 $815 $2,460 $848
Two-Bedroom Master (12) --- --- $2,503 $848
Two-Bedroom Deluxe (39) $2,581 $815 $2,684 $848
Two-Bedroom Grand (23) $2,936 $815 $3,052 $848
In addition to the Entrance Payments and Monthly Fees, at the time a
resident enters into a Residency Agreement, the resident is required to
pay a one-time capital reserve fee (the "Capital Reserve Fee") to the
Partnership in an amount equal to the then-current Monthly Service Fee.
The Capital Reserve Fee is not refundable, and the Partnership is
required to use the Capital Reserve Fee for purposes related to the
Community.
THE MARKET AREA
The Community is located in the Ruxton-Riderwood neighborhood west of
Towson, in southern Baltimore County, Maryland. Towson is located
approximately ten miles north of the center of Baltimore City, Maryland
and is largely suburban in character. The Community is located
approximately one mile south of Interstate 695 (the Baltimore Beltway)
and is in a primarily residential area, with a predominately commercial
area located approximately one mile to the east.
Under the Development Agreement, Life Care Services Corporation (LCS)
formulated and implemented an occupancy development program for the
Community. LCS is an Iowa corporation based in Des Moines, Iowa
specializing since 1961 (when it was a division of another company) in
the development of continuing care retirement communities (CCRC's). LCS
is affiliated with the Partnership through common ownership.
The primary market area for the Community is the surrounding local
area, including Towson, Ruxton, Lutherville, Timonium and northern
Baltimore City. Residents at Blakehurst have primarily come from the 16
zip code areas that are within approximately 5 to 10 miles of the
Project. Of the 234 residents that have moved into Blakehurst since the
community opened in August 1993, 181 (77%) have come from those zip
codes.
<PAGE>
The secondary market for the Project is comprised of the rest of the
Baltimore, Maryland metropolitan area and the Washington D.C. area.
Sixteen (approximately 8%) of the residents that had moved into
Blakehurst as of December 31, 1997 originated from this secondary
market.
Consistent with December 1995 and 1996, at December 1997 approximately
16%, (up from 13% at December 31, 1994 and 8% at December 31, 1993) of
the residents originated in markets beyond the primary and secondary
markets.
Residents typically sell their homes prior to moving into a retirement
community, and may use all or part of the proceeds to pay the entrance
fee. Of the 16 zip codes that make up the Project's primary market, 9
had median home values of $150,000 and above in 1997.
In order to qualify for residence at the Residential Center,
prospective residents generally must be at least 62 years of age, be
able to care for themselves at the time of occupancy and demonstrate
sufficient financial resources to pay the initial entrance payments as
well as the required fees, particularly the Monthly Service Fee.
The monthly service fees established for prospective single residents
during 1997 ranged from $22,836 to $35,323 per residential unit on an
annualized basis. The approximate weighted average first-person Monthly
Service Fee was $27,818 on an annualized basis. To provide for payment
of Monthly Service Fees and other expenses associated with independent
living, the Partnership would generally require prospective residents
to have incomes of two times the annualized Monthly Service Fee. Annual
income is defined by Management as total income received in a calendar
year by all household members. Therefore, in 1997 Management would
generally require residents to demonstrate annual incomes from
approximately $45,672 to $70,440 (approximately $55,636 weighted
average). Management therefore believes the target age- and
income-eligible market consists of those primary market area households
over 65 years old with annual incomes of $35,000 and above.
The income- and age-qualified market for the primary market area is
projected by an independent market research firm to increase
approximately 9.1% over the next 5-year period.
<PAGE>
Utilizing the above defined potential market available for the
Residential Center, both on the basis of 65 years of age and older and
75 years of age and older, the required market penetration rate for the
Residential Center to achieve full occupancy is estimated as follows:
Estimate of Required Project Penetration
Primary Market Area
<TABLE>
<CAPTION>
Eligible Market Likely Market
(65 and older) (75 and older)
--------------- -------------
<S> <C> <C>
Estimated age and income of qualified households 15,555 5,893
Less competitive occupied units 2,054 2,054
-------- ---------
Qualified households not currently residing in a
competitive facility (a) 13,501 3,839
======== =========
Project unit occupancy assumed to originate from
the primary market area (80%) 170 170
Divided by qualified households not currently
residing in a competitive facility (a) 13,501 3,839
-------- ---------
Required Project Penetration (b) 1.3% 4.4%
======== =========
</TABLE>
(a) Competitive facilities include Broadmead, Edenwald, Glen
Meadows (f/k/a Notchcliff), North Oaks, and Oak Crest.
(b) Required Project Penetration is the percentage of the age and
income qualified households the Project will need to draw to
achieve functional occupancy, assuming 80% of occupancy will
originate from the primary market area.
Estimate of Market Saturation
Eligible Market Likely Market
(65 and older) (75 and older)
--------------- --------------
Total units available (a)
(occupied and unoccupied)
expected to draw from primary market area 1,759 1,759
Divided by estimated age and income qualified
households (b) 15,555 5,893
--------- ------------
Required Market Saturation (c) 11.3% 29.8%
========= ============
(a) Facilities include Blakehurst, Broadmead, Edenwald, Glen
Meadows , North Oaks, and Oak Crest. Based on buyer origins to
date, it is expected that about 80% of the Blakehurst units
will be filled by households from the primary market area. For
this calculation, it is assumed that 70% of the competitor's
units will be filled from households from the same primary
market area. As discussed in the section "Competition," Oak
Crest Village added 197 units in 1997. The increase in Oak
Crest Village units represents the change in 1997 experience,
and is why the required market saturation increased
significantly.
<PAGE>
(b) Income qualified households for Blakehurst residency are those
with annual incomes of $35,000 and over. Competitors
(especially Glen Meadows) have lower fees and presumably also
draw from households earning less than $35,000; therefore,
this estimate of the qualified households is considered to be
lower than the number actually eligible for the units
available.
(c) Required Market Saturation measures the percentage of the age
and income qualified households that will be living in the
Project or a competitive facility when all have been fully
occupied. Although the market saturation rate for the age 75
and older group indicates that marketing opportunities require
moderate success rates, management believes that, based on the
estimates of required Project penetration of 1.3% to 4.4% and
on the re-marketing experience at similar facilities with
which LCS has been involved, the Project will be able to
market its remaining unoccupied units.
COMPETITION
Competitive Facilities. Management believes that certain other
facilities currently operating or marketing residential units represent
competition for the Project. In general, facilities considered to be
competitors:
1) offer independent retirement living with services
including dining, flat laundry, housekeeping,
utilities, activities, and other services.
2) offer nursing care in an on-site nursing center, and
3) are located within the Project's primary market area.
Those competitive facilities identified are:
* Broadmead
* Edenwald
* Glen Meadows (f/k/a Notchcliff)
* North Oaks
* Oak Crest
Broadmead. Broadmead opened in 1979, was developed and is owned and
managed by the Friends Lifetime Care Center of Baltimore. The project
consists of 269 units comprised of studio, one-bedroom, and two-bedroom
living units, predominantly single-level/garden apartments, as well as
a 95-bed health care center, situated on approximately 80 acres.
Residential units were 98% occupied and health care center beds 98%
occupied as of December 31, 1997. Broadmead is located in Cockeysville,
seven miles north of the Project.
Entrance fees range from $64,500 to $170,500, with a $20,000
second-person fee, and are refundable on a decreasing scale during the
first four years of occupancy. Monthly service fees range from $1,656
to $2,650, with a $994 second-person fee. Residents are entitled to
receive up to three meals per day, weekly linen and housekeeping
services, utilities, and scheduled transportation. Residents may also
receive unlimited nursing care in the on-site health care center should
the need arise. Management believes its superior location and service
package and the associated higher entrance fees differentiate the
Project from Broadmead in the marketplace.
Edenwald. Edenwald is located in Towson approximately 1.5 miles
northeast of Blakehurst. Edenwald is an 18-story high-rise community
situated on a 4.5-acre site, and includes 240 independent living units
which were approximately 96% occupied as of December 1997. The 116-bed
health care center was 86% occupied as of December 1997. The community
opened in 1985, and was developed and is owned and managed by the
General German Aged People's Home of Baltimore.
<PAGE>
Residents of Edenwald pay both an entrance fee and a monthly fee.
Entrance fees currently range from $59,000 to $195,000, with a $15,000
second-person fee, and the refund of those fees declines over time.
Monthly service fees range from $1,287 to $2,402, with a $687
second-person fee. Residents receive such services as one meal per day,
bi-weekly housekeeping, flat laundry, scheduled transportation, and
utilities, as well as unlimited nursing care in the on-site
comprehensive care unit nursing center. In-house facilities include a
bank, a store, and a beauty/barber shop. Management believes its
superior location and service package and the associated higher
entrance fees differentiate the Project from Edenwald in the
marketplace.
Glen Meadows (f/k/a Notchcliff). Glen Meadows is located in a rural
setting on a 483-acre site in Glen Arm, approximately 10 miles
northeast of the Project. The prior project owner, facing financial
difficulties resulting from unsuccessful marketing, filed for
reorganization under Chapter 11 in 1988. In 1990 Presbyterian Senior
Services, Inc. purchased Glen Meadows and appointed EMA Management,
Inc. to manage the operations. The 213 independent living units were
86% occupied, and the 31-bed health center was 99% occupied as of
December 1997.
Entrance fees at December 31, 1997 range from $44,100 to $171,300 and
are structured with a 100% refund upon resale of the unit. Monthly
service fees ranged from $960 to $1,395, with a $400 second-person fee.
Included are one meal per day, weekly housekeeping and flat laundry
service, utilities, scheduled transportation, and on-site nursing care.
Management does not believe the current marketing efforts of Glen
Meadows have significantly affected the marketing efforts of the
Project because of difficulties Glen Meadows has had marketing units
while experiencing financial instability and reorganization. Management
also believes its superior location and service package and the
associated higher entrance fees differentiate the Project from Glen
Meadows in the marketplace.
North Oaks. North Oaks is a life-care retirement community located on a
10-acre site in Owings Mills, approximately seven miles southwest of
the Project. North Oaks, which was completed in May 1991, consists of
182 one- and two- bedroom independent living units and a 49-bed health
care center. Occupancy, which began December 26, 1990, was 96% in the
independent living units and 98% in the health care center as of
December 1997. North Oaks is owned by affiliates of the Partnership,
with LCS providing development and management services.
Entrance payments for the independent living units under a 90%
refundable plan range from $99,000 to $249,600. There is a $5,000
second person entrance fee. As of July 1997, North Oaks discontinued
offering a traditional declining refund entrance fee plan. Monthly
service fees range from $1,663 to $3,078 with a $761 second-person fee.
Residents receive such services as one meal per day, utilities, weekly
housekeeping and linen service, scheduled transportation, and planned
activities, as well as certain nursing care in the on-site
comprehensive and domiciliary care nursing center. In-house facilities
include a bank, a convenience store, and beauty/barber shops.
Management believes that while the service package at North Oaks is
essentially the same as at the Project, the unique location and
associated higher entrance fees differentiate the Project from North
Oaks in the marketplace.
Oak Crest Village. Oak Crest Village is a project under construction on
85 acres in Parkville, approximately 7 miles east of Blakehurst. The
project opened March 1, 1995, and as of December 31,1997, there were
1,366 independent living apartments built which were 88% occupied. At
completion, the project will include 1,528 independent living
apartments. Oak Crest has added 197 apartments since December 31, 1996,
and will add the remaining 162 apartments during 1998. Senior Campus
Living, Inc., who also developed Charlestown in Catonsville, is the
developer of Oak Crest Village.
Entrance fees at the project range from $84,000 to $350,000. Monthly
service fees range from $845 to $1,492, with a $401 second-person fee.
<PAGE>
Oak Crest Village opened a 125-unit assisted living facility in 1996.
During 1997, they opened a nursing care center with 120 beds. The
nursing care center will add an additional 120 beds in late 1998 or
early 1999 for a total of 240 beds.
In addition to the competitive facilities discussed above, Management
has identified four other facilities which, while comparable in some
respects to the Project, are not considered primary competitors. These
comparable facilities are:
* Brightwood
* Charlestown Retirement Home
* Fairhaven
* Roland Park Place
Brightwood. Brightwood is a condominium project targeted to retirees
which opened in January 1991. It is located on a 60-acre site in
Lutherville, approximately two miles west of Blakehurst. Brightwood
consists of 80 independent living units. As of December 1997, 100% of
the units were occupied.
Maryland National Bank assumed ownership of Brightwood in November 1992
as part of a debt restructuring with developer, MacKenzie and
Associates, Inc. EMA Management, Inc., is managing the project as of
January 1, 1997.
Brightwood does not have an on-site health care center; however, it
does have an agreement with the nearby unaffiliated Meridian Nursing
Center - Brightwood to admit Brightwood residents on a priority basis.
It is because of the condominium ownership structure and the lack of
integrated health care that Brightwood is not considered to be a
competitor of Blakehurst.
Condominium prices range from $225,000 to $680,000. Monthly service
fees range from $1,775 to $1,905, with a $645 second-person fee.
Services include evening meal, weekly housekeeping and flat laundry
service and scheduled transportation.
Charlestown Retirement Home. Charlestown Retirement Home is located
approximately 12 miles southwest of Blakehurst in Catonsville. It
contains 1,614 independent living units situated on a 120-acre site,
and is owned and operated by a non-profit corporation, Charlestown
Community, Inc. The community, which opened in 1984, was developed from
a former Catholic college and seminary. The apartments were 98%
occupied as of December 1997. The on-site health care center, which
consists of 270 comprehensive care beds and a 133-unit assisted living
center, was 94% occupied as of December 1997.
Entrance fees as of December 1997 ranged from $48,000 to $307,000 and
are fully refundable. Monthly service fees range from $711 to $1,370,
with a $400 second-person fee. Residents receive one meal per day,
utilities, and scheduled transportation. Nursing care is provided on a
fee-for-service basis, with a guarantee to residents of access to the
nursing center. Charlestown Retirement Home is not located within the
Project's primary market area, and, therefore, is not considered to be
a competitor of Blakehurst.
Fairhaven. Fairhaven is located in Sykesville, approximately 20 miles
west of the Project. It was developed and is owned by Episcopal
Ministries to the Aging, Inc. and is managed by a subsidiary, EMA
Management, Inc. (which also manages Glen Meadows as discussed above).
Fairhaven consists of 275 independent living units situated on 300
acres, and was 99% occupied as of December 1997. The on-site health
center includes 101 nursing care beds and a 125 beds for Alzheimer's
patients, and was 100% occupied as of December 1997.
As of December 1997, entrance fees under a 50-month declining refund
plan range from $55,000 to $220,000, with a $15,000 second-person fee.
In January 1993, Fairhaven added a 90% refundable entrance fee plan
with entrance fees of $90,750 to $363,000 and a second-person fee of
$24,750. Monthly service fees under both plans range from $1,545 to
$2,780, with a second-person fee of $1,210. Services include three
<PAGE>
meals per day, weekly housekeeping and flat laundry, utilities, and
scheduled transportation. Unlimited nursing care is provided to
Fairhaven residents. Because Fairhaven is not located within the
Project's primary market area, it is not considered to be a competitor
of Blakehurst.
Roland Park Place. Located approximately six miles south of the Project
is Roland Park Place. This 234-unit community, situated on 9 acres, was
developed and is jointly operated by the First English Evangelical
Lutheran Church, Inc., the Lutheran Home and Hospital Association and
St. Luke Lutheran Health Care, Inc. The community offers both one- and
two-bedroom apartments, and occupancy stood at approximately 90% as of
December 1997. There are 71 beds in the on-site health care center
which were 90% occupied as of December 1997.
Traditional entrance fees range from $98,500 to $199,000, with a
$15,000 second-person fee, refundable on a declining basis during the
first five years of occupancy. In 1996, Roland Park Place added a 90%
refundable entrance fee plan. Under that plan entrance fees range from
$142,700 to $323,300, with a $15,000 second person fee. Monthly service
fees under both plans range from $1,968 to $3,606 with a $662
second-person fee. Services include one meal per day, weekly flat
laundry, bi-weekly apartment cleaning, utilities and scheduled
transportation, as well as unlimited access to the on-site nursing
center. Because Roland Park Place is not located within the Project's
primary market area, it is not considered to be a competitor of
Blakehurst.
Mercy Ridge. Management is aware of a project in preliminary planning
stages for a site within the Blakehurst primary market area. That
project, Mercy Ridge, is being planned by Mercy Medical Center and the
Roman Catholic Archdiocese of Baltimore. A 30-acre site has been
purchased for the project in zip code area 21093 in Timonium, Maryland.
The current plans for the facility include a total of 287 apartments in
a combination of independent living and assisted living units.
Currently the developers are in approval stages. Funding for the
project has not been secured. The development of this project is being
closely monitored by management. If the project progresses beyond a
conceptual stage, and approvals are granted, its impact on the
Blakehurst primary market will be carefully assessed.
REGULATORY APPROVALS
Certificate of Need and Licensure. In connection with the operation of
the comprehensive care beds in the health care center, the Partnership
has received an exemption from the certificate of need requirements
from the State of Maryland Health Resources Planning Commission
("HRPC"). HRPC has granted such exemption subject to the restrictions
that (i) the 36 comprehensive care beds will be available only for
occupancy by residents and other subscribers and (ii) the number of
comprehensive care beds may not exceed 20% of the number of residential
units in the Community.
Health Care Center Licensure. The Partnership received initial
licensure of the comprehensive and domiciliary care beds in August,
1993 and annually renews such license. Operation of comprehensive care
beds requires licensure by the state of Maryland Department of Health
and Mental Hygiene, Office of Licensing and Certification Program
("OLC") pursuant to Sections 19-318 through 19-326 of the Health-
General Article of the Annotated Code of Maryland.
Maryland Office on Aging. In 1975, the Maryland General Assembly
created the Office on Aging, by enacting the Office on Aging Statute
(currently codified in Article 70B of the Annotated Code of Maryland
1987 Cumulative Supplement). The Office on Aging was created as part of
the Executive Department and consists of a Director on Aging and the
Commission on Aging.
By the terms of the Office on Aging Statute, no provider of continuing
care, including the Partnership, is permitted to enter into or renew a
contract for continuing care in the state of Maryland without a
Certificate of Registration from the Office on Aging, which certificate
must be renewed annually within 120 days after the end of the
provider's fiscal year. The Partnership is operating under a
Certificate of Registration. The Partnership plans to renew the
Certificate of Registration prior to expiration.
<PAGE>
To the best of the Partnership's knowledge, licenses and permits
discussed above represent all authorizations required under Maryland
law to operate the Project. Additional licensing and permit
requirements, such as annual health department inspections and other
matters, also apply to the operation of the Project. The Partnership
believes that all necessary permits, licenses, and material authority
has been obtained.
Item 2. Properties
Pursuant to the terms of the June 8, 1988 Real Property Contract, as
amended, entered into between the Partnership and The Mission Helpers
of the Sacred Heart, an order of Catholic Nuns ("Seller"), the
Partnership purchased the Property on which the community is being
constructed. The Property consists of a parcel of approximately 40.5
acres out of a total of 45 acres owned by the Seller. See "Business -
The Project" for a more complete description of the Project.
The Real Estate Partnership was formed for the express purpose of
holding title to the Property. In accordance with the terms of the
Operating and Use Agreement, the Partnership purchased the Property in
the name of the Real Estate Partnership contemporaneous with the
closing on the Construction Loan and the sale of 1992 Series I Bonds,
utilizing a portion of the proceeds therefrom. See "Certain
Relationships and Related Transactions - Partnership - Real Estate
Partnership."
Item 3. Legal Proceeding
There are no legal proceedings involving the Partnership or Real Estate
Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
No matter has been submitted to a vote of the Bondholders.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Bondholder Matters
(a) Market Information
There is no established public trading market for the Bonds.
(b) Holder
There are 922 Series I Bondholders as of December 31, 1997, and 559
Series II Bondholders as of December 31, 1997.
Item 6. Selected Financial Data
The historical financial data set forth below present the combined financial
data of the Partnership and the Real Estate Partnership for the most recent five
year period. The Partnership was formed June 3, 1988 and the Real Estate
Partnership was formed April 25, 1990. The Project was initially occupied in
August, 1993. This data should be read in conjunction with the historical
financial statements and related notes included elsewhere herein. See "Certain
Relationships and Related Transactions."
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
------------ -------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Project under development/
operating property (net) $ 50,243,451 $ 49,024,846 $ 47,707,783 $ 48,920,626 $ 54,886,050
============ ============== =============== ============ ============
Funds held in escrow under
Residency Agreements $ 3,816,344 $ 1,426,884 $ 137,290 $ 1,280,777 $ 698,721
============ ============== =============== ============ ============
Total assets $ 56,347,679 $ 57,117,049 $ 54,710,509 $ 58,029,891 $ 65,103,190
============ ============== =============== ============ ============
Refundable deposits,
Residency Agreements $ 136,688 $ 664,036 $ 744,151 $ 1,635,717 $ 1,070,968
============ ============== =============== ============ ============
Bonds payable $ 14,000,000 $ 13,940,000 $ 13,935,000 $ 13,805,000 $ 13,655,000
============ ============== =============== ============ ============
Loans from residents $ 24,848,830 $ 32,033,010 $ 37,572,750 $ 39,059,790 $ 48,264,400
============ ============== =============== ============ ============
Notes payable to partners $ 12,791,217 $ 6,872,377 $ $ -- $ 1,600,000 $ 2,012,258
============ ============== =============== ============ ============
Total liabilities $ 55,871,597 $ 56,416,627 $ 54,941,497 $ 60,596,908 $ 70,985,387
============ ============== =============== ============ ============
Partners' equity (deficit) $ 476,082 $ 700,424 $ (230,988) $ (2,567,017) $ (5,882,197)
============ ============== =============== ============ ============
STATEMENT OF OPERATIONS DATA:
Total revenues $ 686,020 $ 3,980,861 $ 7,666,447 $ 7,560,999 $ 7,945,839
============ ============== =============== ============ ============
Operating expenses $ 210,144 $ 3,130,068 $ 7,527,620 $ 7,219,031 $ 7,501,988
============ ============== =============== ============ ============
Net income (loss) $ 475,876 $ 224,342 $ (1,281,390) $ (736,029) $ (395,180)
============ ============== =============== ============ ============
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Overall Financial Condition. Sustained, stabilized occupancy is a key
determinate of overall financial success of the Community, together with
successful expansion which realizes the economies of scale. The Community's
Phase I consists of 177 residential apartment units and a 50-bed health center.
As of December 31, 1997, 167 of the residential units (94.4%) had been reserved
or occupied. During 1997, occupancy of residential units averaged 92.3%
During 1997, emphasis was placed on move-ins and reselling and closing 12 of the
20 units in Phase I that became available due to attrition, and closing 8 units
for the first time. Because of attrition, net occupancy increased 2 units in
1997. At December 31, 1997, there are 7 units sold pending closing.
During 1996 the working capital funds of $1,350,000, as required by the Bond
documents, were established and the Phase II activities completed. Phase II
consisted of an auditorium addition and a renovation of a carriage house, both
of which provide more common areas.
In late 1995, the Partnership began the development of Phase III - a 35-unit
expansion. Regulatory approval was obtained in April 1996 and reservations in
the form of refundable deposits of Admission Fees were accepted. Occupancy of
Phase III began in late July 1997, and at December 31, 27 units were occupied.
As of December 31, 1997, 32 of the Phase III units were either reserved or
occupied.
The overall impact of Phase III will be to substantially increase the net
operating revenue without substantially increasing certain fixed operating
costs.
Distributions to the partners were made from the proceeds of closing Phase III
units, and closings of the remaining previously unsold Phase I units and from
net attrition income.
Results of Operations. Occupancy began in late August, 1993. Occupancy increased
from 133 units (75%) at December 31, 1994, to 154 units (87%) at December 31,
1995, to 163 units (92%) at December 31, 1996, to 165 units (93%) at December
31, 1997.
In 1997 total revenues increased 5%, even though apartment service fees revenue
increased almost 8%. The apartment service fee revenue increased because of a
fee increase of 5% effective January 1, 1997, and because the average number of
units occupied increased approximately 3%. Health Center revenues decreased
slightly in 1997 by 2% compared to 1996 Health Center revenues because of a
decline in average occupancy, increase in permanent assignments whose rate is
less than market, which were offset by a rate increase of approximately 5%
effective July 1, 1997. The amortization of non-refundable admission fees
declined to offset a portion of these increases. The amortization declined due
to fewer move-ins in 1997 when compared to 1996.
Total operating expenses increased 4% in 1997 compared to 1996 because of an
increase in cost of resident care and dietary and plant related expenditures.
Such operating expenses increased because of an average increase in occupancy of
3% and overall inflationary cost increases.
Net interest expense declined as cash reserves required under the Residency
Agreements grew substantially.
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 Partnership in May 1992 issued two types of taxable bonds. One type was
issued in an underwritten public offering of $8,000,000 principal amount of
Blakehurst 10 Year Put Option Mortgage Bonds 1992, Series I. Also in May 1992,
the Partnership issued in a private transaction to affiliates of the
Partnership, a total of $6,000,000
<PAGE>
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 affiliates of the Partnership
re-sold the 1992 Series II Bonds in the amount of $6,000,000 in August 1992.
During 1993, the construction loan was borrowed and repaid.
Scheduled repayment of Series I and II Bonds began in 1995, during which $65,000
of principal was paid to the bondholders; in 1996, $130,000 of principal was
paid; in 1997, $150,000 of principal was paid.
Also during 1995, Advances Payable to Partners in the amount of $6,872,377 were
paid. These advances from the Partners had been received in conjunction with the
original financing in 1992. During 1994, $5,918,840 of Advances Payable to
Partners had been repaid. As of December 31, 1995, there were no Advances
Payable to Partners.
All of the repayment of the construction loan and Advances Payable to Partners
was ultimately funded by Residency Loans. The majority of the capital
expenditures are made from Residency Loans.
During 1995, the Partners made capital contributions of $349,978 towards the
construction of the auditorium and renovation of a carriage house (Phase II),
which is complete.
Phase III expansion, described under Item 1, is estimated to cost approximately
$10,600,000, which includes the construction management fee to Mullan and
development fee to LCSD. To fund the expansion, the Partners obtained permanent
parity debt financing of $1,900,000 and resident loans and fees of $8,700,000.
Construction period financing is being provided by the West Joppa Road Limited
Partnership (WJR) and Life Care Services Corporation (LCS) in the total amount
of $7,600,000.
During 1996 the Partnership distributed $1,600,000 to the Partners after working
capital reserve requirements of $1,350,000 as defined in the bond documents were
established.
The Partners advanced $1,600,000 to the Partnerships in 1996 in connection with
Phase III. During 1997, the Partners advanced $6,000,000 for the construction of
Phase III, and received distributions of $2,920,000. At December 31, 1997,
$2,012,258 of such advances were still owed to the Partners.
During 1997, the Partners also funded $400,000 towards the beginning design work
for Phase IV.
Net cash provided by operating activities in 1997 improved approximately
$615,000. Major contributing factors to this were:
* Better operating results due to increased occupancy
and control of expenses $ 341,000
* Change in operating assets and liabilities (101,000)
* Increase in Admission fees due to more move-ins,
primarily in Phase III 351,000
Net cash provided by operating activities in 1996 improved approximately
$775,000, compared to 1995. Admission Fees received declined substantially due
to fewer move ins, offset by better operating results.
Net cash used in investing activities in 1997 increased significantly,
essentially because of these major contributing factors:
* Phase III expansion and move-ins. (7,668,000)
* Increase in health center reserves due to increased
permanent assignments (1,453,000)
* Change in funds escrowed under residency agreements 1,726,000
<PAGE>
In 1996, the substantial increase in net cash used in investing activities
relates primarily to much lower capital expenditures in 1995 compared to 1994.
In 1995, the auditorium addition was the major capital expenditure, and was
funded by the Partners.
Net cash provided by financing activities increased approximately $6,100,000 in
1997, compared to 1996, because of new resident loans of $6,261,000 (net change)
associated with the initial occupancy of Phase III.
Net cash provided by financing activities increased in 1996 compared to 1995,
primarily because of the commencement of financing activities and receipt of
escrowed funds from prospective residents, all related to Phase III.
Because occupancy of Phase I units continues to now exceed 90%, the introduction
of new residency agreement types in 1994 and 1997, the occupancy and sales of
Phase III, the resident financing, and the long-term financing described above,
the Partnership believes adequate capital resources are available.
The long-term success of the project is, however, ultimately dependent upon
marketing of substantially all available units and health center beds,
maintaining adequate levels of occupancy, and operating the Project efficiently.
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This recognition could result in a system failure or
miscalculations causing disruptions of operations. Among other things, this
problem could lead to a temporary inability to process transactions, send
invoices, or engage in similar normal business transactions.
The Partners are addressing the Year 2000 Issue with the third-party providers
of certain computing, communications, and administrative services, as well as
its significant suppliers of services and products to determine the extent to
which the Company is vulnerable to those parties' failure to remediate their own
Year 2000 Issue. In certain instances it has received indemnity from losses
which may arise from failure to address these issues. The Partners do not
presently believe that third-party Year 2000 Issues will have a material adverse
effect on the Partnership. However, there can be no guarantee that the systems
of other companies on which the Partnership's operations or systems rely will be
timely remediated or that a failure by another company to remediate its systems
in a timely manner would not have a material adverse effect on the Partnership.
Item 8. Financial Statements and Supplementary Data
See pages 27 through 45 for financial statement information.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has three general partners: West Joppa with a 1% interest,
Blakehurst Joint Venture with a 1% interest and the Real Estate Partnership with
a 98% interest. The Real Estate Partnership has in turn two general partners:
West Joppa and Blakehurst Joint Venture, each with a 50% interest.
GENERAL PARTNERS
Blakehurst Joint Venture (BJV). BJV is an Iowa general partnership formed
December 16, 1991, for the sole purpose of holding partnership interests in the
Partnership and the Real Estate Partnership. The general partners of BJV are
Chestnut Village, Inc. (Chestnut Village) and Wellmark Holdings, Inc. (Wellmark
Holdings). Wellmark, f/k/a Prime Holdings, Inc., changed its name on May 23,
1997. Both Chestnut Village and Wellmark Holdings were formed for the sole
purpose of acting as general partners of BJV.
Chestnut Village, Inc.. Chestnut Village is an Iowa corporation formed February
1, 1988. On February 28, 1995, Chestnut Village's only shareholder and parent,
Continuing Care Communities of America, Inc. (CCCA), an Iowa Corporation,
changed its name to Home Health Care Services Corporation (HHCSC) at the time of
HHCSC's merger into CCCA. At the same time, CCCA's only shareholder and parent,
The Weitz Corporation (Weitz), an Iowa corporation, changed its name to LCS
Holdings, Inc. (Holdings). Holdings, through one of its two principal
subsidiaries, LCS, engages in the development and operation of life care
facilities across the United States.
The directors and executive officers of Chestnut Village are as follows:
Stan G. Thurston, age 51, has served as a director and President and Chief
Executive Officer of Chestnut Village since February, 1990. He has also served
as a director and the President and Chief Operating Officer of LCS since 1990,
being named CEO in March, 1995. He is a director, President, and CEO of
Holdings. Mr. Thurston joined LCS in 1977 as project development manager, was
promoted to Vice President in 1979, and was responsible for managing LCS's
nationwide development until February of 1987. From then until 1990, Mr.
Thurston served as Vice President-Operations Management.
Stephen J. Hoover, age 47, has served as the Secretary of Chestnut since March
of 1995, and has been a director and Secretary for LCS and Holdings since March,
1995; Mr. Hoover is a director of Holdings. Mr. Hoover joined LCS as Project
Development Manager in 1984 and was promoted to Senior Project Development
Manager in 1986. Mr. Hoover was named Vice President/Director of Development in
1987 and Senior Vice President of Marketing and Sales in 1991. Prior to 1984,
Mr. Hoover served with The Weitz Company, Inc. as Project Engineer (1976),
Construction Manager (1977), Project Manager (1978), and Senior Project Manager
(1981).
Arthur V. Neis, age 57, a Certified Public Accountant, has served as the
Treasurer and Chief Financial Officer of Chestnut Village since February 1988,
and has been the Treasurer and Chief Financial Officer of Holdings, LCS and
Weitz since 1987. He has been a director of Holdings since March 1995. Mr. Neis
joined Weitz in 1986 as Controller. Prior to that, Mr. Neis was the Controller
of Fru-Con Corporation, a construction company located in St. Louis, Missouri.
Edward R. Kenny, age 42, has served as the Senior Vice President of Chestnut
Village since April 1990, and has been the Senior Vice President of LCS,
responsible for operations management since April 1990. He has been a director
of Chestnut Village and Holdings since March 1995. Mr. Kenny joined LCS in 1979
as administrator-in-training, was promoted to administrator in 1980, and
regional administrator in 1985 before being named Director of Operations
Management in 1987.
<PAGE>
Mary Harrison, age 47, has served as a director and Vice President of Chestnut
Village since March of 1995, and has been a Vice President/Director of
Operations Management of LCS since 1992. Ms. Harrison joined LCS in 1981 as
administrator-in-training and was promoted to administrator in 1983. In 1985,
she was promoted to regional administrator and acquired responsibility for
overseeing the various home health agencies affiliated with LCS. Ms. Harrison
became an assistant director of operations management in 1990 and was promoted
to Director of Operations Management in 1991.
All members of the Board of Directors of each of Chestnut Village, LCS, and
Holdings are elected by the stockholders of such companies at the annual
stockholders' meeting for a term of one year; all of the officers of each of
Chestnut Village, LCS, and Holdings are appointed by the directors of such
companies at the annual directors' meeting and serve for a term of one year.
Wellmark Holdings, Inc. Wellmark Holdings is an Iowa corporation and direct,
wholly-owned subsidiary of Wellmark, Inc. (WI), an Iowa corporation. The
directors of Wellmark Holdings are David N. Southwell, C. Craig Hennesy, and
Richard C. Anderson, all residents of Des Moines, Iowa.
Mr. Hennesy, age 53, has been a director of Wellmark Holdings since December
1991. Mr. Hennesy has also served as Group Vice President, Administrator of WI.
From 1987 to April 1989, Mr. Hennesy was Senior Vice President, Internal
Operations for WI; from 1989 to 1997, he was COO of WI.
Richard C. Anderson, age 45, is director of Wellmark Holdings. He also serves as
the CFO and treasurer of WI, since 1997, prior to which he was Senior Vice
President, Finance Division of WI since November 1983. Mr.Anderson was Treasurer
of Wellmark Holdings from December 1991 until 1997.
David N. Southwell, age 46, is a director and President since October 1997 of
Wellmark Holdings. He also serves as Group Vice President, Financial Operations
and Services for WI, to which he was named in August. Prior to joining WI, Mr.
Southwell was CFO of the University of Michigan Health Systems, having held
various financial and operating positions there since June 1973.
Jeffery W. Nelson, age 37, serves as Wellmark Holdings Secretary since May 1997.
He also serves as WI's general counsel since November 1995, having previously
been the assistant counsel since January 1995. Prior to that Mr. Nelson was
Assistant General Counsel to Lincoln National Corporation from June 1985 to
January 1995.
Scott A. Froyen, age 38, serves as Wellmark Holdings Treasurer since May 1997.
He is also the Vice President, Controller of WI since June 1996. Prior to that
he held various positions within the treasury/accounting functions of WI since
November 1987.
The West Joppa Road Limited Partnership. West Joppa Road is a limited
partnership organized under the laws of Maryland for the sole purpose of holding
partnership interests in the Partnerships. West Joppa Road has two general
partners, Rosedale Care, Inc., and Continental Care, Inc., and several limited
partnerships of which the majority partners are directly or indirectly Thomas F.
Mullan, III; John A. Luetkemeyer, Jr.; and J. Mark Schapiro.
Rosedale Care, Inc. Rosedale Care, Inc. is a Maryland corporation formed in 1991
for the purpose of acting as a corporate general partner of West Joppa Road
Limited Partnership in connection with the Project. The President, Treasurer,
and sole director of Rosedale Care, Inc. is Thomas F. Mullan, III.
Thomas F. Mullan, III, age 54, serves as President and Treasurer of Rosedale
Care, Inc. and has served in such capacities since Rosedale Care, Inc.'s
formation in December 1991. Mr. Mullan served as the Chairman and Chief
Executive Officer of both The Mullan Contracting Company, Inc. and Mullan
Enterprises, Inc. for the past six years, and owns 51% of the common stock of
Mullan Enterprises, Inc.
Norman W. Wilder, age 37, is Vice President and Secretary of Rosedale Care, Inc.
and President and Treasurer of Mullan Enterprises, Inc. Mr. Wilder has served as
the Chief Financial Officer of Rosedale Care, Inc. since December
<PAGE>
1991 and other Mullan Enterprises, Inc. affiliates since June 1991. Prior to
June 1991, Mr. Wilder was employed by the accounting firm of Wolpoff & Co. for
five years.
Directors of all of Rosedale Care, Inc., The Mullan contracting Company, Inc.,
and Mullan Enterprises, Inc. are each elected by the stockholders of such
companies to serve for a term of one year; officers are appointed by the
directors of such companies and serve for a term of one year.
Continental Care, Inc. Continental Care is a Maryland Subchapter S corporation
formed in 1985 for the purpose of acting as a corporate general partner of West
Joppa Road Limited Partnership in connection with the Project. John A.
Luetkemeyer, Jr., age 56, and J. Mark Schapiro, age 54, are the two directors of
Continental Care.
Mr. Luetkemeyer also serves as the President and Treasurer of Continental Care
and Mr. Schapiro is its Vice President, and Secretary. Since 1980, Mr.
Luetkemeyer has primarily been responsible for overseeing the development of the
real estate operations of Continental Realty Corporation, a Baltimore-based real
estate development and management company which holds and manages over 4,000
residential apartments and seventeen commercial and retail properties.
Mr. Schapiro, as Vice President of Continental Realty Corporation, has been
responsible primarily for the management of its properties since 1980. From 1982
to 1988, Mr. Schapiro and Mr. Luetkemeyer were also part owners of JF Theaters,
Inc., an owner/operator of 17 movie theaters located throughout the greater
Baltimore metropolitan area.
Messrs. Mullan, Wilder, Luetkemeyer, and Schapiro are all residents of Maryland.
None of the individual directors and/or officers of BJV, West Joppa, Chestnut
Village, Prime Holdings, Continental Care or Rosedale receive any salary or
other renumeration solely for serving as representatives of such entities.
Item 11. Executive Compensation
None
Item 12. Security Ownership of Certain Beneficial Owners and Management
On January 28, 1995, shareholders of Weitz approved a Split-Off Agreement and
Plans of Reorganization (Plan), which was effective March 1, 1995. Pursuant to
this Plan, Weitz split-off certain of its subsidiaries in a partially tax free
exchange of stock with certain of its shareholders and changed its name to LCS
Holdings, Inc.
Following this transaction, and as of December 31, 1997, the following table
sets forth certain information as to the number of shares of common stock of
Holdings owned by (i) each person who is known by Holdings to own beneficially
5% or more of the Holdings common stock, (ii) each director of Holdings, and
(iii) all directors and officers of Holdings as a group. As of such date, there
were 38,842 shares of Holdings common stock outstanding. Holdings common stock
was the only class of voting securities of Holdings outstanding.
Amount and Nature Percent
Name and Address (2) of Beneficial Ownership (1)(4) of Class
- -------------------- ------------------------------ --------
Stan G. Thurston, Director 20,330 (3) 51.8%
President & CEO
Stephen J. Hoover, Director 16,338 (3) 41.7%
Senior Vice President of
Marketing & Sales
<PAGE>
Amount and Nature Percent
Name and Address (2) of Beneficial Ownership (1)(4) of Class
- -------------------- ------------------------------ --------
Arthur V. Neis, Director 14,530 (3) 37.0%
Treasurer & CFO
Edward R. Kenny, Director 13,923 (3) 35.5%
Senior Vice President/Operations
Management
Mary J. Harrison, Director 13,587 (3) 34.6%
Vice President/Director of
Operations Management
LCS Holdings, Inc. 12,611 32.1%
Employee Stock Ownership Plan
c/o Bankers Trust, N.A., Trustee
665 Locust
Des Moines, IA 50309
Joseph M. Brucella, Director 963 2.5%
Vice President/Director of
Operations Management
Malcolm K. Booher, Director 1,327 3.4%
Vice President/Director of
Operations Management
Rick W. Exline, Director 1,025 2.6%
Vice President/Director of
Operations Management
Lise Everly, Director 0 0%
Director of Human Resources
Kent C. Larson, Director 1,176 3.0%
Vice President/Director of
Project Development
Joseph A. Martin, Director 1,316 3.4%
Vice President/Director of
Operations Management
Edward J. Nichols, Director 970 2.5%
Director of Finance & Property
Development
Richard L. Seibert, Director 909 2.3%
Director of Corporate
Marketing/Consulting
Terrance M. Ward, Director 1,124 2.9%
Vice President/Director of
Occupancy Development
All Officers and Directors
as a group (14 persons) 37,074 (3) 94.5%
(1) Except as otherwise indicated, each shareholder has sole power to vote
and to dispose of all of the Holdings common stock listed opposite
their name.
<PAGE>
(2) Address is c/o LCS Holdings, Inc., 800 Second Avenue, Suite 200, Des
Moines, Iowa 50309, unless otherwise noted.
(3) Includes 12,611 shares held by the LCS Holdings, Inc. Employee Stock
Ownership Plan over which the individual shares voting power and
investment power as a member of the ESOP Committee for the Plan.
(4) All directors participate in a Director Stock Compensation Plan which
has granted each the right to exercise an option for up to 150 shares
of stock of LCS Holdings, Inc. at a price per share that is less than
the fair market value at the date of the grant. Such options expire
March 31, 2004.
The following table sets forth as of December 31, 1996, certain information as
to the number of shares of non-voting preferred stock of Holdings owned by (i)
each person who is known by Holdings to own beneficially five percent (5%) or
more of the Holdings preferred stock, (ii) each director of Holdings, and (iii)
all directors and officers of Holdings as a group. As of such date there were
20,000 shares of Holdings preferred stock outstanding and the Holdings
non-voting preferred stock outstanding was the only class of equity security of
Holdings outstanding other than shares of Holdings common stock referenced
above.
Amount and Nature Percent
Name and Address of Beneficial Ownership (1) of Class
---------------- --------------------------- --------
Essex Meadows, Inc. and subsidiaries 20,000 100%
800 Second Avenue, Suite 110
Des Moines, IA 50309
(1) Direct ownership is held by a wholly owned subsidiary of Essex Meadows, Inc.
During 1997, Holdings redeemed all of the preferred stock held by Essex Meadows,
Inc.
Item 13. Certain Relationships and Related Transactions
Partnership - Real Estate Partnership. The Partnership was originally organized
June 3, 1988 and had two general partners, Chestnut Village and West Joppa, each
holding a 50% interest. The Real Estate Partnership was organized April 25, 1990
and had two general partners, Chestnut Village and West Joppa, each holding a
50% interest. On April 25, 1990, each of Chestnut Village and West Joppa
transferred and assigned 98% of their respective partnership to the Real Estate
Partnership. The transfer resulted in the Partnership being comprised of three
general partners: the Real Estate Partnership with a 98% interest, and Chestnut
Village and West Joppa, each with a 1% interest. On December 16, 1991, Chestnut
Village transferred its interests in the Partnership and the Real Estate
Partnership to BJV.
The Partnership and the Real Estate Partnership entered into an operating and
use agreement (the "Operating and Use Agreement"), which obligates the
Partnership to purchase the Property in the name of the Real Estate Partnership
and to develop, operate and manage the Project at the Partnership's expense.
Under the Operating and Use Agreement, the Partnership pays to the Real Estate
Partnership an annual use fee equal to the Real Estate Partnership's projected
taxable loss for federal income tax purposes for each year, to the extent
required for federal income tax purposes. As of this date, the Partnership
anticipates that no annual use fee will be required to be paid. During the term
of the Operating and Use Agreement, the Partnership has the right to receive and
retain all revenues from the Project. The Operating and Use Agreement will
terminate upon the dissolution, liquidation, or other termination of the
Partnership or upon acceleration by the Trustee of the principal of and accrued
interest on the 1992 Series I Bonds following an Event of Default under the
Indenture.
<PAGE>
Under the Operating and Use Agreement, the Real Estate Partnership has
guaranteed the performance by the Partnership of its obligations under the
Residency Agreements. The covenants, agreements and, undertakings contained in
the Operating and Use Agreement are for the express benefit of, and are
expressly enforceable by, residents of the Community.
Construction Manager. The Weitz Company, Inc. ("Weitz Construction"), until
March 1, 1995 a wholly-owned subsidiary of The Weitz Corporation, was the
construction manager for the Project. Weitz Construction was affiliated until
March 1, 1995 with Continuing Care Communities of America, Inc. (now renamed
Home Health Care Services Corporation), also a wholly-owned subsidiary of the
Weitz Corporation (now renamed LCS Holdings, Inc.), which in turn owns 100% of
Chestnut Village, Inc., one of the general partners of BJV, which is a general
partner of both the Partnership and the Real Estate Partnership. The
construction of Phase I was completed in early 1994. There are no contractual
matters yet to be resolved relating to this construction management agreement.
Mullan Contracting Company, an affiliate of Rosedale Care, Inc., is the
construction manager for Phase II, now completed, and Phase III, now underway.
Mullan Contracting is to receive a fixed fee and reimbursements of $371,571, of
which $33,029 was earned in 1997, $94,794 in 1996, and $25,001 in 1995, plus
reimbursement of certain costs. The contract contains a guaranteed maximum cost
and general conditions guarantee, together with a provision for sharing any
savings.
Developer. The Partnership retained LCS to assist it in the initial development
of the Project. Under the terms of the Development Agreement, the Partnership
agreed to pay LCS a Phase I development fee (the "Development Fee") consisting
of 4.75% of the total Project costs, excluding certain costs, as budgeted prior
to construction and approved by LCS and the Partnership. Additionally, the
Partnership has agreed to reimburse LCS for certain out-of-pocket costs incurred
by LCS in the performance of the Development Agreement. Such Development
Agreement was completely paid in 1993.
In December, 1994, the Development Agreement was amended (Amendment #1) to
include terms relative to Phase II. The Amendment #1 provided that Rosedale
Care, Inc. and Continental Care, Inc., partners of West Joppa, would jointly and
severally, with LCS, be responsible for providing marketing, interior
decoration, and be primarily responsible for community relations. Further, Phase
II development fees were to be paid one-half to LCS and one quarter each to
Rosedale Care, Inc. and Continental Care, Inc.
In October 1996 the Development Agreement was further amended (Amendment #2)
with regard to Phase III. The Amendment #2 provides that Life Care Services
Development Corporation, a subsidiary of LCS, shall provide development services
for Phase III, receiving a total fee of $585,000, which was paid in 1997. The
Amendment #2 also eliminated any development fee being paid to Rosedale Care,
Inc., or Continental Care, Inc.
Manager. The Partnership has retained LCS to manage the Project on a day-to-day
basis. LCS's management services include all aspects of the operation. In 1997,
1996, and 1995, LCS was paid a management fee of $371,291, $333,194, and
$293,882 respectively.
In 1996, LCS loaned $1,600,000 to the Partnership, for construction of Phase
III. In 1997, it loaned an additional $3,000,000 to the Partnership for the
Phase III, all of which earned interest at the applicable federal rate of 7.03%.
BJV - West Joppa. The Partners had advanced to the Partnership a total of
$6,872,377 as of December 31, 1994, which funds were used to defray certain
development, marketing and other costs of the initial Project. All such advances
were repaid in 1995.
In 1996 and 1997, West Joppa loaned the Partnership $1,600,000 and $3,000,000
respectively for the construction of Phase III, at the applicable federal rate
of 7.03%.
Trustee's Counsel. Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, Iowa
("Davis, Brown"), has acted as Trustee's counsel in connection with the issuance
of the 1992 Series I Bonds. A. Arthur Davis, a partner at Davis, Brown, was a
director of The Weitz Corporation through February, 1995. David S. Strutt, an
employee of Weitz
<PAGE>
Construction, served as General Counsel and Secretary through February, 1995 of
Chestnut Village, LCS, The Weitz Corporation, and Weitz Construction and was
formerly a partner at Davis, Brown.
During 1996, Donald J. Brown, a partner at Davis, Brown, has been outside
general counsel to LCS and Holdings.
<PAGE>
PART IV
Page No.
Item 14. Exhibits and Financial Statement Schedules
(a) Documents Filed as a Part Hereof
(1) Separate and Combined Financial Statements - The
Chestnut Real Estate Partnership and The Chestnut
Partnership
Report of Independent Auditors 27
Separate and Combined Balance Sheets, December 31, 1997
and 1996 28
Separate and Combined Statements of Operations for the
years ended December 31, 1997, 1996, and 1995 30
Separate and Combined Statements of Partner's Equity
(Deficit) for the years ended December 31, 1997, 1996,
and 1995 33
Separate and Combined Statements of Cash Flows for the
years ended December 31, 1997, 1996, and 1995 34
Notes to Financial Statements 37
(2) Exhibits. The Exhibits listed on the Index to
Exhibits appearing on page 46
(b) Reports on Form 8-K
None
<PAGE>
COOPERS Coopers & Lybrand L.L.P.
& LYBRAND a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
The Chestnut Real Estate Partnership
and The Chestnut Partnership:
We have audited the accompanying separate and combined balance sheets of The
Chestnut Real Estate Partnership (a general partnership) and The Chestnut
Partnership (a general partnership) as of December 31, 1997 and 1996, the
related separate and combined statements of operations, statements of partners'
equity (deficit) and cash flows for the years ended December 31, 1997, 1996 and
1995. These financial statements are the responsibility of the Partnerships'
management. Our responsibility is to express an opinion on these separate and
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the separate and combined financial statements referred to above
present fairly, in all material respects, the financial position of The Chestnut
Real Estate Partnership and The Chestnut Partnership as of December 31, 1997 and
1996, the results of their operations and cash flows for the years ended
December 31, 1997, 1996 and 1995, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Des Moines, Iowa
February 20,1998
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED BALANCE SHEETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
THE CHESTNUT
THE CHESTNUT REAL ESTATE COMBINED
PARTNERSHIP PARTNERSHIP PARTNERSHIPS
ASSETS
<S> <C> <C>
Current assets:
Cash and Cash Equivalents $ 1,242,588 $ 1,242,588
Accounts receivable 258,317 258,317
Prepaid expenses and other 307,057 307,057
Assets whose use is limited or restricted - Under bond
indenture agreements, held by trustee 398,426 398,426
------------ ------------
Total current assets 2,206,388 2,206,388
Assets whose use is limited or restricted:
Under bond indenture agreements, held by trustee 1,888,017 1,888,017
Under residency agreements, held in escrow 698,721 698,721
Health Center reserves 2,149,560 2,149,560
Phase III and IV construction funds 888,670 888,670
Operating property, at cost 672,690 $ 54,193,360 54,866,050
Costs of acquiring initial contracts 1,541,209 1,541,209
Deferred bond financing costs 864,575 864,575
------------ ------------ ------------
Total assets $ 10,909,830 $ 54,193,360 $ 65,103,190
============ ============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Current liabilities:
Bonds payable, current portion $ 155,000 $ 155,000
Note payable, current portion 37,524 37,524
Accounts payable 270,639 270,639
Accrued expenses 274,590 274,590
Accrued property taxes 144,013 144,013
Accrued interest payable 233,538 233,538
Advances payable 282,257 282,257
Refundable deposits, residency agreements 823,628 823,628
------------ ------------
Total current liabilities 2,221,189 2,221,189
Construction costs payable 194,578 194,578
Refundable deposits, escrowed 247,340 247,340
Bonds payable, less current portion 13,500,000 13,500,000
Note payable, less current portion 1,862,476 1,862,476
Loans from residents 48,264,400 48,264,400
Advances payable to partners and affiliates 2,012,258 2,012,258
Deferred revenues from admission fees 2,683,146 2,683,146
Equity in deficit of The Chestnut Partnership $ 60,075,557
------------ ------------ ------------
Total liabilities 70,985,387 60,075,557 70,985,387
Commitments and contingencies
Partners' deficit (60,075,557) (5,882,197) (5,882,197)
------------ ------------ ------------
Total liabilities and partners' deficit $ 10,909,830 $ 54,193,360 $ 65,103,190
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
SEPARATE AND COMBINED FINANCIAL STATEMENTS.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED BALANCE SHEETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
THE CHESTNUT
THE 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 by trustee 393,293 393,293
Under letter of credit agreements, 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 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 construction funds 555,721 555,721
Operating property, at cost 305,421 $ 48,615,205 48,920,626
Costs of acquiring initial contracts 1,701,335 1,701,335
Deferred bond financing costs 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
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
Refundable deposits, escrowed 892,550 892,550
Bonds payable, less current portion 13,655,000 13,655,000
Loans from residents 39,059,790 39,059,790
Advances payable to partners and affiliates 1,600,000 1,600,000
Deferred revenues from admission fees 2,052,312 2,052,312
Equity in deficit of The Chestnut Partnership $ 51,182,222
------------ ------------ ------------
Total liabilities 60,596,908 51,182,222 60,596,908
Commitments and contingencies
Partners' deficit (51,182,222) (2,567,017) (2,567,017)
------------ ------------ ------------
Total liabilities and partners' deficit $ 9,414,686 $ 48,615,205 $ 58,029,891
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
SEPARATE AND COMBINED FINANCIAL STATEMENTS.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
THE CHESTNUT
THE CHESTNUT REAL ESTATE COMBINED
PARTNERSHIP PARTNERSHIP PARTNERSHIPS
<S> <C> <C> <C>
Revenues:
Amortization of nonrefundable admission fees $ 872,056 $ 872,056
Apartment revenues 5,026,884 5,026,884
Health Center revenues 1,878,191 1,878,191
Capital reserve fees 139,328 139,328
Other revenue 29,380 29,380
Income from The Chestnut Partnership $ 839,566
----------- ----------- -----------
Total revenues 7,945,839 839,566 7,945,839
----------- ----------- -----------
Operating expenses:
Development fee amortization 217,731 217,731
General and administrative 1,676,116 1,676,116
Resident care 1,605,357 1,605,357
Dietary 1,332,802 1,332,802
Plant 872,543 872,543
Housekeeping 355,606 355,606
Depreciation and amortization 207,088 1,234,746 1,441,834
----------- ----------- -----------
Total expenses 6,267,243 1,234,746 7,501,989
----------- ----------- -----------
Income (loss) from operations 1,678,596 (395,180) 443,850
----------- ----------- -----------
Other income (expense):
Interest income 422,604 422,604
Interest expense (1,261,634) (1,261,634)
----------- -----------
(839,030) (839,030)
----------- ----------- -----------
Net income (loss) $ 839,566 $ (395,180) $ (395,180)
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
SEPARATE AND COMBINED FINANCIAL STATEMENTS.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
The Chestnut
The Chestnut Real Estate Combined
Partnership Partnership Partnerships
<S> <C> <C> <C>
Revenues:
Amortization of nonrefundable admission fees $ 895,120 $ 895,120
Apartment revenues 4,663,281 4,663,281
Health Center revenues 1,917,684 1,917,684
Capital reserve fees 50,304 50,304
Other revenue 34,610 34,610
Income from The Chestnut Partnership $ 483,601
----------- ----------- -----------
Total revenues 7,560,999 483,601 7,560,999
=========== =========== ===========
Operating expenses:
Development fee amortization 226,129 226,129
General and administrative 1,671,803 1,671,803
Resident care 1,450,840 1,450,840
Dietary 1,283,991 1,283,991
Plant 814,717 814,717
Housekeeping 338,769 338,769
Depreciation and amortization 213,152 1,219,630 1,432,782
----------- ----------- -----------
Total expenses 5,999,401 1,219,630 7,219,031
----------- ----------- -----------
Income (loss) from operations 1,561,598 (736,029) 341,968
----------- ----------- -----------
Other income (expense):
Interest income 246,019 246,019
Interest expense (1,324,016) (1,324,016)
----------- -----------
(1,077,997) (1,077,997)
----------- ----------- -----------
Net income (loss) $ 483,601 $ (736,029) $ (736,029)
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
SEPARATE AND COMBINED FINANCIAL STATEMENTS.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
THE CHESTNUT
THE CHESTNUT REAL ESTATE COMBINED
PARTNERSHIP PARTNERSHIP PARTNERSHIPS
<S> <C> <C> <C>
Revenues:
Amortization of nonrefundable admission fees $ 1,878,879 $ 1,878,879
Apartment revenues 3,920,710 3,920,710
Health Center revenues 1,740,580 1,740,580
Capital reserve fees 92,642 92,642
Other revenue 33,636 33,636
Loss from The Chestnut Partnership $ (70,280)
----------- ----------- -----------
Total revenues 7,666,447 (70,280) 7,666,447
----------- ----------- -----------
Operating expenses:
Development fee amortization 700,458 700,458
General and administrative 1,835,051 1,835,051
Resident care 1,330,434 1,330,434
Dietary 1,179,834 1,179,834
Plant 762,368 762,368
Housekeeping 295,214 295,214
Depreciation and amortization 213,151 1,211,110 1,424,261
----------- ----------- -----------
Total expenses 6,316,510 1,211,110 7,527,620
----------- ----------- -----------
Income (loss) from operations 1,349,937 (1,281,390) 138,827
----------- ----------- -----------
Other income (expense):
Interest income 232,282 232,282
Interest expense (1,652,499) (1,652,499)
----------- -----------
(1,420,217) (1,420,217)
----------- ----------- -----------
Net loss $ (70,280) $(1,281,390) $(1,281,390)
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
SEPARATE AND COMBINED FINANCIAL STATEMENTS.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
THE CHESTNUT
THE CHESTNUT REAL ESTATE COMBINED
PARTNERSHIP PARTNERSHIP PARTNERSHIPS
<S> <C> <C> <C>
Balance, January 1, 1995 $(47,092,819) $ 700,424 $ 700,424
Net loss (70,280) (1,281,390) (1,281,390)
Transfer of project under 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) (230,988) (230,988)
Net income (loss) 483,601 (736,029) (736,029)
Transfer of project under development assets to
The Chestnut Real Estate Partnership (2,658,197)
Distributions to partners (1,600,000) (1,600,000) (1,600,000)
----------- -------- --------
Balance, December 31, 1996 (51,182,222) (2,567,017) (2,567,017)
Net income (loss) 839,566 (395,180) (395,180)
Transfer of project under development assets to
The Chestnut Real Estate Partnership (6,812,901)
Distributions to partners (2,920,000) (2,920,000) (2,920,000)
------------ ------------ ------------
Balance, December 31, 1997 $(60,075,557) $ (5,882,197) $ (5,882,197)
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
SEPARATE AND COMBINED FINANCIAL STATEMENTS.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
THE CHESTNUT
THE CHESTNUT REAL ESTATE COMBINED
PARTNERSHIP PARTNERSHIP PARTNERSHIPS
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 839,566 $ (395,180) $ (395,180)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 1,234,746 1,234,746
Other amortization 207,088 207,088
Amortization of nonrefundable admission fees (872,056) (872,056)
Amortization of development fees 217,731 217,731
Admission fees received 1,502,890 1,502,890
Partnership income (839,566)
Change in operating assets and liabilities:
Accounts receivable (60,873) (60,873)
Prepaid expenses and other (32,924) (32,924)
Accounts payable 121,488 121,488
Accrued expenses 60,480 60,480
------------ ------------ ------------
Net cash provided by operating activities 1,983,390 -- 1,983,390
------------ ------------ ------------
Cash flows from investing activities:
Decrease in funds escrowed under residency agreements 582,056 582,056
Additions to operating property:
Construction in progress (6,746,184) (6,746,184)
Other additions (651,717) (651,717)
Decrease in construction payable (1,508,699) (1,508,699)
Increase in Phase III and IV construction funds (332,949) (332,949)
Increase in assets held by trustee (301,853) (301,853)
Decrease in funds escrowed under letter of credit agreement 57,874 57,874
Increase in Health Center reserves (1,397,933) (1,397,933)
------------ ------------ ------------
Net cash used in investing activities (10,299,405) -- (10,299,405)
------------ ------------ ------------
Cash flows from financing activities:
Distributions to partners (2,920,000) (2,920,000)
Proceeds from partner and affiliate advances 6,400,000 6,400,000
Repayment of partner and affiliate advances (5,987,742) (5,987,742)
Change in advances payable 282,257 282,257
Refunds of resident loans, advance fees and deposits (2,796,075) (2,796,075)
Proceeds from loans from residents and refundable deposits 11,435,936 11,435,936
Proceeds from note payable 1,900,000 1,900,000
Principal payments on bonds (150,000) (150,000)
------------ ------------ ------------
Net cash provided by financing activities 8,164,376 -- 8,164,376
------------ ------------ ------------
Net decrease in cash (151,639) (151,639)
Cash and cash equivalents, beginning of year 1,394,227 1,394,227
------------ ------------ ------------
Cash end cash equivalents, end of year $ 1,242,588 $ -- $ 1,242,588
============ ============ ============
</TABLE>
Supplemental disclosure of cash flow information:
Interest paid during the year was $1,879,493, of which interest capitalized
during the year was $465,802.
Supplemental schedule of noncash investing activities:
For the year ended December 31,1997, The Chestnut Partnership transferred
$6,812,901 of project under development assets to The Chestnut Real Estate
Partnership.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
SEPARATE AND COMBINED FINANCIAL STATEMENTS.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
THE CHESTNUT
THE CHESTNUT REAL ESTATE COMBINED
PARTNERSHIP PARTNERSHIP PARTNERSHIPS
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 483,601 $ (736,029) $ (736,029)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 1,219,330 1,219,630
Other amortization 213,152 213,152
Amortization of nonrefundable admission fees (895,120) (895,120)
Amortization of development fees 226,129 226,129
Admission fees received 1,151,840 1,151,840
Partnership income (483,601)
Change in operating assets and liabilities:
Accounts receivable 73,054 73,054
Prepaid expenses and other 22,977 22,977
Accounts payable 41,767 41,767
Accrued expenses 50,913 50,913
----------- ----------- -----------
Net cash provided by operating activities 1,368,313 -- 1,368,313
----------- ----------- -----------
Cash flows from investing activities:
Increase in funds escrowed under residency agreements (1,143,487) (1,143,487)
Additions to operating property (2,663,023) (2,663,023)
Increase in construction payable 1,647,558 1,647,558
Increase in Phase III construction funds (555,721) (555,721)
Increase in assets held by trustee (26,319) (26,319)
Decrease in funds escrowed under letter of credit agreement 51,823 51,823
Decrease in Health Center reserves 54,863 54,863
----------- ----------- -----------
Net cash used in investing activities (2,634,306) -- (2,634,306)
----------- ----------- -----------
Cash flows from financing activities:
Distributions to partners (1,600,000) (1,600,000)
Proceeds from partner and affiliate advances 1,600,000 1,600,000
Changes in advances payable (190,153) (190,153)
Refunds of resident loans, advance fees and deposits (3,361,071) (3,361,071)
Proceeds from loans from residents and refundable deposits 5,739,677 5,739,677
Principal payments on bonds (130,000) (130,000)
----------- ----------- -----------
Net cash provided by financing activities 2,058,453 -- 2,058,453
----------- ----------- -----------
Net increase in cash 792,460 792,460
Cash and cash equivalents, beginning of year 601,767 601,767
----------- ----------- -----------
Cash and cash equivalents, end of year $ 1,394,227 $ -- $ 1,394,227
=========== =========== ===========
</TABLE>
Supplemental disclosure of cash flow information:
Interest paid during the year $1,305,637
Supplemental schedule of noncash investing activities:
For the year ended December 31, 1996, The Chestnut Partnership transferred
$2,658,197 of project under development assets to The Chestnut Real Estate
Partnership.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
SEPARATE AND COMBINED FINANCIAL STATEMENTS.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
THE CHESTNUT
THE CHESTNUT REAL ESTATE COMBINED
PARTNERSHIP PARTNERSHIP PARTNERSHIPS
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (70,280) $(1,281,390) $(1,281,390)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 1,211,110 1,211,110
Other amortization 213,151 213,151
Amortization of nonrefundable admission fees (1,878,879) (1,878,879)
Amortization of development fees 700,458 700,458
Admission fees received 1,789,800 1,789,800
Partnership loss 70,280
Change in operating assets and liabilities:
Accounts receivable (101,066) (101,066)
Prepaid expenses and other (73,723) (73,723)
Accounts payable (33,503) (33,503)
Accrued expenses 47,821 47,821
----------- ----------- -----------
Net cash provided by operating activities 593,779 -- 593,779
----------- ----------- -----------
Cash flows from investing activities:
Decrease in funds escrowed under residency agreements 1,289,594 1,289,594
Additions to operating property (594,505) (594,505)
Increase in assets held by trustee (39,612) (39,612)
Increase in funds escrowed under letter of credit agreement (5,330) (5,330)
Increase in Health Center reserves (627,030) (627,030)
----------- ----------- -----------
Net cash provided by investing activities 23,117 -- 23,117
----------- ----------- -----------
Cash flows from financing activities:
Repayment of partner advances (6,872,377) (6,872,377)
Contributions from partners 349,978 349,978
Change in advances payable (82,845) (82,845)
Refunds of resident loans, advance fees and deposits (575,165) (575,165)
Proceeds from loans from residents and refundable deposits 6,195,020 6,195,020
Principal payments on bonds (65,000) (65,000)
----------- ----------- -----------
Net cash used in financing activities (1,050,389) -- (1,050,389)
----------- ----------- -----------
Net decrease in cash (433,493) (433,493)
Cash and cash equivalents, beginning of year 1,035,260 1,035,260
----------- ----------- -----------
Cash and cash equivalents, end of year $ 601,767 $ -- $ 601,767
=========== =========== ===========
</TABLE>
Supplemental disclosure of cash flow information:
Interest paid during the year $1,668,280
Supplemental schedule of noncash investing activities:
For the year ended December 31, 1995, The Chestnut Partnership transferred
$594,505 of project under development assets to The Chestnut Real Estate
Partnership.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
SEPARATE AND COMBINED FINANCIAL STATEMENTS.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
NOTES TO SEPARATE AND COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS:
ORGANIZATION: The separate and combined financial statements include The
Chestnut Real Estate Partnership (the "Real Estate Partnership") and its 98%
owned 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 (the "Venture") and 50% by
West Joppa Road Limited Partnership ("West Joppa"). The Venture is owned by
Chestnut Village, Inc., ("Chestnut Village") and Wellmark Holdings, Inc.
(formerly known as Prime Holdings, Inc.). The Venture and West Joppa own the
remaining 2% of the Partnership.
The Real Estate Partnership was formed to hold title to property which is being
developed for use as a life care facility under the terms of an operating and
use agreement with the Partnership.
The Real Estate Partnership and the Partnership are hereinafter referred to as
the "Partnerships". The Partnerships were formed to develop, own and operate a
life care community to be called Blakehurst Retirement Community (the
"Community") in the Towson area of Baltimore County, Maryland. The Community
contains a total of 177 residential apartment units, 14 domiciliary care units,
and 36 comprehensive care beds. Because the Partnerships have common ownership
and do not have independent operating activities, the accompanying financial
statements present the separate and combined statements of the Partnerships.
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.
OPERATING PROPERTY: Costs incurred relating to the acquisition of land and the
design, development, construction, marketing and interest (net of interest
income) of the Community have been capitalized. Upon completion of Phase I in
August, 1994, these costs were classified as land, buildings, equipment, and
other asset classifications, as appropriate, and are being depreciated or
amortized over the life of the respective assets or the period of anticipated
benefits.
These assets are classified as operating property and recorded at cost.
Depreciation is being computed by the straight-line method over the estimated
useful lives ranging from seven to fifty years.
In 1995-96, an auditorium was added, and a carriage house was renovated,
providing more common areas for the residents. In 1996, construction began on a
separate 35-apartment unit wing expansion (known as Phase III), which was not
yet complete at December 31, 1997. Phase III also includes construction of a
core tower, additional parking facilities and other amenities.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
NOTES TO SEPARATE AND COMBINED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS, CONTINUED:
CAPITALIZATION OF OPERATING EXPENSES AND CERTAIN REVENUES: The Community began
operations in August, 1993 when the initial occupancy of the Community occurred.
The Partnership's policy is to capitalize operating costs, net of revenues
(except for admission fees and capital reserve fees) prior to reaching
substantial occupancy of the Community or a period not to exceed one year.
Capitalization of net operating costs continued through August, 1994, at which
time recognition of revenues and expenses commenced.
Prior to that date, $816,404 in accumulated start-up losses were capitalized to
project under development, all of which had been incurred prior to the
completion of construction of the Community.
The Partnership has also capitalized operating revenues, net of costs (except
for admission fees and capital reserve fees) for Phase III from July 1997 (when
initial Phase III-related resident occupancy commenced) through December 31,
1997 in the amount of $98,992. The Phase III portion of the Community had not
reached substantial occupancy at December 31, 1997.
DEFERRED BOND FINANCING COSTS: Expenses directly related to the issuance of
bonds are deferred and amortized over the life of the related debt using the
interest method.
COSTS OF ACQUIRING INITIAL CONTRACTS: Costs incurred to originate a resident
contract that result from and are essential to acquire initial contracts through
August, 1994, were capitalized. These costs are being amortized on a
straight-line basis over the average expected remaining lives of the residents
under contract commencing in August, 1994.
REVENUES AND EXPENSES: Admission fees are recorded as deferred revenue when the
right to access a housing unit is established through the closing of the
transaction. These fees are subsequently amortized into income over a 24 month
period. Upon occupancy, an owner's supervision fee for each resident is billed
monthly and recognized as revenue. These fees are not refundable and are
unrestricted as to use.
At the time of initial occupancy, the resident pays a capital reserve fee equal
to the then current monthly service fee (described below). This one-time
nonrefundable charge is recognized as income when the right to access a housing
unit is established. Its use is restricted for purposes specified in the
residency agreement.
Residents pay a monthly service fee, determined annually. The residency
agreement provides that residents pay the funds required to operate the
Community, which includes all operating expenses, debt service for nonresident
debt, repairs and replacements, capital improvements, and working capital. The
monthly service fee may only be used for purposes specified in the residency
agreement.
Development fees incurred in connection with the development of the Community
are amortized pro rata as admission fee revenue is recognized.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
NOTES TO SEPARATE AND COMBINED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS, CONTINUED:
INCOME TAXES: The Partnerships are not subject to federal income taxes. Each
partner will be taxed on their share of the Partnerships' taxable income,
whether or not distributed, and will be entitled to deduct on their own tax
return, their share of any net loss of the Partnership and any separate tax
items, to the extent allowed under the Internal Revenue Code.
FUTURE SERVICE OBLIGATION: The Partnerships annually calculate the present value
of the net cost of future services and uses of facilities to be provided to
current residents, and compare this amount to the revenue anticipated from these
residents. The present value of the net cost of future services and uses of
facilities does not exceed the revenue anticipated, and therefore, no future
service obligation is recorded.
CASH AND CASH EQUIVALENTS: The Partnerships consider investments with maturities
of three months or less when purchased to be cash equivalents.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from these estimates.
2. RELATED PARTY TRANSACTIONS:
The Partnerships have agreements with Life Care Services Development Corp.
("LCSD") and Life Care Services Corporation ("LCS"), affiliates through common
ownership of Chestnut Village, for development and for management of the
Community, respectively. LCSD administers planning, development, financing and
marketing functions for the Partnership expansion. LCS also has been retained to
supervise the day-to-day operations of the Community.
The Partnerships entered into a construction management agreement with Mullan
Contracting Company ("Mullan"), an affiliate through common ownership of one
partner of West Joppa, for Phases II and III.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
NOTES TO SEPARATE AND COMBINED FINANCIAL STATEMENTS, CONTINUED
2. RELATED PARTY TRANSACTIONS, CONTINUED:
In 1997, $585,000 was paid to LCSD for Phase III development fees. There were no
fees incurred under the development agreements in 1996 and 1995. Management fees
of $371,291, $333,194 and $293,882 were paid to LCS during 1997, 1996 and 1995,
respectively. Additionally, LCS has funded Community costs incurred and is
subsequently reimbursed by the Partnership.
At December 31, 1997, advances payable to LCS were $282,257. Mullan earned a
construction management fee of $33,029, $94,794 and $25,001 in 1997, 1996 and
1995, respectively.
At December 31, 1996, a total of $1,600,000 had been advanced to the Partnership
by LCS and West Joppa in connection with Phase III and will be repaid at the
time residents move into Phase III. During the Phase III construction throughout
1997, an additional $6,000,000 was advanced to the Partnership by LCS and West
Joppa at the applicable federal interest rate of 7.03%. The Partnership repaid
$5,987,742 of these advances during 1997 which resulted in remaining advances to
the partners of $1,612,258 at December 31, 1997. The Partnership paid and
capitalized $398,445 in interest to the cost of Phase III construction project
during the year ended December 31, 1997.
Additionally, at December 31, 1997, a total of $400,000 had been advanced to the
Partnership by LCS and West Joppa in connection with the initial development
activities for Phase IV at the applicable federal interest rate of 7.03%.
The Partnership and the Real Estate Partnership entered into a long-term
operating and use agreement in 1992. This grants the Partnership use of the
property until dissolution, liquidation, or other termination by mutual
agreement. The agreement requires the Partnership to pay all costs associated
with the construction, equipping, and furnishing of the Community. The agreement
also provides for an annual fee to be paid by the Partnership to the Real Estate
Partnership if necessary for federal income tax purposes.
3. RESIDENCY AGREEMENTS:
The Partnership has entered into residency agreements with occupants and
prospective occupants of the Community. Until 1994, only a Return of Capital
Plan residency agreement was offered. In 1994, a second type of residency
agreement, the Traditional Plan Agreement, was also offered. The plans provide
for the lifetime use of an apartment with payment by the resident of an
admission fee and monthly charges sufficient to cover the operating cash needs
and long-term debt service and a loan to the Partnership under the Return of
Capital Plan or an entrance fee under the Traditional Plan.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
NOTES TO SEPARATE AND COMBINED FINANCIAL STATEMENTS, CONTINUED
3. RESIDENCY AGREEMENTS, CONTINUED:
The admission fees are deposited in an escrow account and will be released to
the Partnership after various contractual and regulatory requirements have been
met. The liability for refundable deposits of $823,628 and $743,167 at December
31, 1997 and 1996, respectively, includes the admission fees plus interest due
to residents and prospective residents.
Coincident with the marketing of Phase III which began in 1996, admission fees
have been received and deposited in an escrow account, to be released when the
newly constructed units are occupied. At December 31, 1997 and 1996,
respectively, the remaining liability for Phase III refundable deposits was
$247,340 and $892,500.
The funds held in escrow under residency agreements at December 31, 1997 and
1996 which are the result of admission fees received plus interest are invested
primarily in money market funds.
The Return of Capital Plan residency agreement also provides that the resident
will, upon occupancy, make a loan to the Partnership. These loans are
collateralized by a deed of trust on the real estate subject to certain
permitted encumbrances, including the revenue bonds referred to in Note 7. The
loans will be repaid upon the earlier of reoccupancy of the unit or 12 months
after termination of the residency agreement, 30 years from the date of the loan
agreement, or such other date as the resident and the Partnership may agree. The
loans are subject to interest; however, the Partnership will receive revenue in
the form of an annual fee from the residents in the same amount. These interest
payments have no effect on the financial statements, and are offset in the
accompanying financial statements. The outstanding loans totaled $47,616,113 and
$38,004,000 at December 31, 1997 and 1996, respectively.
The Traditional Plan residency agreement requires the payment of an entrance fee
(admission fee plus entrance cost) prior to the occupancy of a unit. Upon
termination of the Traditional Plan residency agreement, a calculated portion of
the entrance costs may be repaid. At December 31, 1997 and 1996, such refundable
entrance costs equaled $648,287 and $1,055,790, respectively and are included in
loans from residents.
Other funds held in escrow are being released to the Partnership for general use
upon the occurrence of certain events relating to the completion of the
Community. These amounts are valued at cost which approximates market.
The State of Maryland requires that an operating reserve be established in the
amount of 15% of operating expenses excluding depreciation and amortization. The
required $910,000 and $868,000 is included in cash and cash equivalents as of
December 31, 1997 and 1996, respectively.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
NOTES TO SEPARATE AND COMBINED FINANCIAL STATEMENTS, CONTINUED
4. OPERATING PROPERTY:
Upon Community completion in August, 1994, costs previously recorded as project
under development were classified as operating property. A summary of these
costs as of December 1997 and 1996, follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 6,178,644 $ 6,178,644
Land improvements 1,016,100 1,016,100
Buildings and fixed equipment 34,860,399 34,859,420
Equipment and furnishings 2,728,239 2,662,500
Other costs including accumulated start-up
loss through August 1994 of $816,404 6,906,772 6,321,772
Phase 111 and IV construction in progress 9,411,517 2,665,333
----------- -----------
61,101,671 53,703,769
Less accumulated depreciation of $3,792,103 and $2,864,564
and accumulated amortization of $2,443,517 and
$1,918,579, respectively 6,235,621 4,783,143
----------- -----------
$54,866,050 $48,920,626
=========== ===========
</TABLE>
5. ASSETS WHOSE USE IS LIMITED UNDER BOND INDENTURE AGREEMENTS:
Assets whose use is limited that are required for obligations classified as
current liabilities are reported in current assets. Funds held by bond trustees
represent those assets (cash, cash equivalents, U.S. government securities and
interest receivable) which are encumbered by covenants in revenue bond
indentures. These assets are classified as held to maturity and are carried at
cost which approximates market. The only investment not a cash equivalent is a
one-year Treasury Bill maturing in April 1998 and which is being held to
maturity. Amortized cost of $1,617,434 approximates market. The use of these
funds is restricted to the payments of obligations arising from bond issues. The
specific accounts provided for in the indentures and held by the bond trustees
are as follows:
FUND 1997 1996
Debt Service Reserve Fund $ 1,888,017 $ 1,591,297
Bond Fund 213,266 218,380
Construction Fund 42
Real Estate Tax Reserve Fund 185,160 174,871
Less funds held by trustee classified as current (398,426) (393,293)
----------- -----------
$ 1,888,017 $ 1,591,297
=========== ===========
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
NOTES TO SEPARATE AND COMBINED FINANCIAL STATEMENTS, CONTINUED
6. LETTER OF CREDIT AGREEMENTS:
The Partnership obtained a bank letter of credit for $98,900 in 1993. At
December 31, 1996, no borrowings were outstanding on this letter, and it was
collateralized by certificates of deposits totaling $57,874. On October 6, 1997,
the letter of credit was canceled and the collateral was returned to the
Partnership.
7. LONG-TERM DEBT:
A summary of the Partnership's long-term debt at December 31, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
9.5% Blakehurst Retirement Community 1992 Series I Mortgage Bonds, due in
varying semi-annual installments beginning November 1, 1995 through
November 1, 2022, collateralized by a mortgage on the land, buildings
and fixtures constituting the Community and also by an interest in the
equipment and other personal property of, and the revenues to be
generated by the Community, shared equally and ratably with the Series
II Bonds. The debt is guaranteed by the Real Estate Partnership. $ 7,815,000 $ 7,895,000
8.75% Blakehurst Retirement Community 1992 Series II
Mortgage Bonds, due in varying semi-annual installments
beginning November 1, 1995 through May 1, 2022,
collateralized by a mortgage on the land, buildings and
fixtures constituting the Community and also by an interest in
the equipment and other personal property of, and the
revenues to be generated by the Community, shares equally
and ratably with the Series I Bonds. The debt is
guaranteed by the Real Estate Partnership. 5,840,000 5,910,000
------------ ------------
13,655,000 13,805,000
Less current portion 155,000 150,000
------------ ------------
$ 13,500,000 $ 13,655,000
============ ============
</TABLE>
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
NOTES TO SEPARATE AND COMBINED FINANCIAL STATEMENTS, CONTINUED
7. LONG-TERM DEBT, CONTINUED:
Scheduled principal repayments on long-term debt are as follows:
1998 $ 155,000
1999 175,000
2000 190,000
2001 215,000
2002 230,000
Later years 12,690,000
-----------
$13,655,000
===========
The 1992 Series I and II Mortgage Bonds are subject to redemption without
premium or penalty by the Partnership prior to their stated maturity at a
redemption price equal to principal plus accrued interest to the date of
redemption.
8. NOTE PAYABLE:
During 1997, the Partnership received proceeds in the amount of $1,900,000 from
a bank for permanent parity debt financing (including a mortgage on the land,
buildings and fixtures constituting the Community) relative to the Phase III
expansion which is guaranteed by the following related parties: LCS Holdings,
Inc., Life Care Services Corporation, Home Health Care Services Corporation, and
The Chestnut Real Estate Partnership. The loan bears interest at a variable rate
which is equal to the sum of 3.0% per annum plus the LIBOR rate (the interest
rate was 8.75% at December 31, 1997). The Partnership paid and capitalized
$67,357 in interest to the cost of the Phase III construction project during the
year ended December 31, 1997.
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP AND
THE CHESTNUT PARTNERSHIP
NOTES TO SEPARATE AND COMBINED FINANCIAL STATEMENTS, CONTINUED
8. NOTE PAYABLE, CONTINUED:
Scheduled principal repayments on this loan are as follows:
1998 $ 37,524
1999 40,297
2000 45,107
2001 49,065
2002 58,359
Thereafter 1,669,648
----------
$1,900,000
==========
9. COMMITMENTS AND CONTINGENCIES:
The realization of the costs of the Community is ultimately dependent upon the
sale of the remaining units, and occupancy of the Community.
Maintenance and efficient operation of the Community are also critical to the
long-term success of the Community.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments.
The carrying value of cash and cash equivalents approximates fair value because
of the short maturity of those instruments. The investment in a U.S. government
security is valued based on quoted market prices (see Note 5). Based on the
borrowing rates currently available to the Partnership's debt with similar terms
and average maturities, the fair value of the bonds is $14,600,000. The
redemption price to the Partnership as of December 31, 1997 is 100% or
$13,655,000.
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
No. Description of Exhibit No.
------- ---------------------- ----
3.1 First Amended and Restated Agreement of Partnership of The
Chestnut Partnership dated as of April 25, 1990; Assignment,
Acceptance and Consent dated April 25, 1990; Assignment,
Acceptance and Consent dated December 16, 1992. (1)
3.2 Agreement of Partnership of The Chestnut Real Estate
Partnership dated as of April 25, 1990; Assignment, Acceptance
and Consent dated April 25, 1990; Assignment, Acceptance and
Consent dated December 16, 1991. (1)
4.1 Trust Indenture, dated as of May 1, 1992, Between The Chestnut
Partnership and Boatmen's National Bank of Des Moines, as
Trustee. (1)
4.1.1 First Supplemental Trust Indenture Dated as of August 1, 1992,
between The Boatmen's National Bank of Des Moines, as Trustee.
(1)
4.2 Guaranty Agreement dated as of May 1, 1992, between The
Chestnut Real Estate Partnership and Boatmen's National Bank
of Des Moines,. (1)
4.3 Owner's Guaranty of Payment and Performance dated as of May
28, 1992, made by The Chestnut Real Estate Partnership to The
Sumitomo Trust & Banking Co., Ltd., New York Branch. (1)
4.4 Indemnity Deed of Trust and Security Agreement dated as of May
28, 1992, among The Chestnut Real Estate Partnership;
Boatmen's National Bank of Des Moines, Des Moines, Iowa, as
Trustee; and The Sumitomo Trust & Banking Co., Ltd., New York
Branch. (1)
4.5 Form of Subordination Agreement between Life Care Services
Corporation, Continuing Care Communities of America, Inc.,
West Joppa Road Limited Partnership, and Boatmen's National
Bank of Des Moines, Des Moines, Iowa, as Trustee. (1)
4.6 Inter-creditor Agreement dated as of May 28, 1992, between
Boatmen's National Bank of Des Moines, Des Moines, Iowa, as
Trustee, and The Sumitomo Trust & Banking Co., Ltd., New York
Branch.
<PAGE>
Exhibit Page
No. Description of Exhibit No.
------- ---------------------- ----
10.1 Contract of Purchase and Sales dated as of June 8, 1988,
between The Chestnut Partnership and The Mission Helpers of
the Sacred Heart, as amended. (1)
10.1.1 Letter Agreement dated March 23, 1992, from the Chestnut Real
Estate Partnership to the Mission Helpers of Baltimore City.
(1)
10.1.2 License Agreement dated April 23, 1992, between The Chestnut
Real Estate Partnership, and Herbert R. O'Conor, III and
Kathalee M. O'Conor. (1)
10.2 Escrow Agreement dated June 8, 1988, among The Chestnut
Partnership, The Mission Helpers of the Sacred Heart and
O'Connor Piper & Flynn. (1)
10.3 License Agreement dated June 20, 1991, between Institute of
Mission Helpers of Baltimore City and The Chestnut Real Estate
Partnership. (1)
10.4 Restrictive Covenant Agreement dated October 13, 1988, among
The Chestnut Partnership and The Ruxton-Riderwood-Lake Roland
Area Improvement Association, Inc. and the Advisory Board, as
amended. (1)
10.5 Consent Order dated October 25, 1988. (1)
10.6 Form of Residency Agreement, with addendum. (1)
10.6.1 Form of Domiciliary Care Residency Agreement. (1)
10.6.2 Form of Addendum to Residency Agreement Regarding Admittance
to the Health Care Center. (1)
10.6.3 Form of Residency Agreement with amendment, September 7, 1993
(2)
10.6.35 Residency Agreement dated April 25, 1996 (3)
10.6.4 Form of Domiciliary Care Residency Agreement with addendum,
July 29, 1993 (2)
10.6.5 Residency Agreement for Traditional Plan, dated November 1,
1993 and approved for use in late summer, 1994 (2)
10.6.55 Residency Agreement for Traditional Plan, dated April 25, 1996
(3)
10.7 Form of Assignment of Rights to Repayments between
Resident/Assignor and Assignee. (1)
<PAGE>
Exhibit Page
No. Description of Exhibit No.
------- ---------------------- ----
10.8 Admission Fee Escrow Agreement dated as of January 19, 1990,
by and between The Chestnut Partnership and American Security
Bank, N.A. (1)
10.8.1 Amended and Restated Admission Fee Escrow Agreement - Phase I,
dated July 18, 1996, between The Chestnut Partnership and The
First National Bank of Maryland (3)
10.8.2 Amended and Restated Wait List Escrow Agreement, dated July
18, 1996, between The Chestnut Partnership and The First
National Bank of Maryland (3)
10.8.3 Amended and Restated Health Center Resident Loans Escrow
Agreement, dated July 18, 1996, between The Chestnut
Partnership and The First National Bank of Maryland (3)
10.8.4 Admission Fee Escrow Agreement - Phase II (Phase III), dated
April 29, 1996, between The Chestnut Partnership and The First
National Bank of Maryland (3)
10.9 Form of Guaranty Agreement by The Chestnut Real Estate
Partnership. (1)
10.10 Form of Indemnity Deed of Trust and Security Agreement from
The Chestnut Real Estate Partnership to ________________, as
trustee. (1)
10.11 Form of Subordination Agreement from ______________, as
trustee, to Boatmen's National Bank of Des Moines, as Trustee
and The Sumitomo Trust & Banking Co., Ltd. - New York Branch.
(1)
10.12 Health Center Resident Loans Escrow Agreement between The
Chestnut Partnership and _____________, as Escrow Agent. (1)
10.13 Development Agreement dated as of June 3, 1988, between The
Chestnut Partnership and Life Care Services Corporation. (1)
10.13.1 Amendment to Development Agreement dated December 30, 1994
between The Chestnut Partnership, Life Care Services
Corporation, Rosedale Care, Inc., and Continental Care, Inc.
(2)
10.13.2 Amendment #2 to Development Agreement dated October 30, 1996,
between The Chestnut Partnership, Life Care Services
Corporation, Rosedale Care, Inc., and Continental Care, Inc.
(3)
<PAGE>
Exhibit Page
No. Description of Exhibit No.
------- ---------------------- ----
10.14 Management Agreement dated as of September 28, 1990, between
The Chestnut Partnership and Life Care Services Corporation.
(1)
10.15 Services Agreement dated as of June 3, 1988, between The
Chestnut Partnership and West Joppa Road Limited Partnership.
(1)
10.16 Performance Agreement dated as of May 31, 1991, between
Chestnut Village, Inc. and Life Care Services Corporation. (1)
10.17 Operating and Use Agreement between The Chestnut Partnership
and The Chestnut Real Estate Partnership. (1)
10.18 Architect Agreement dated December 10, 1987, between The
Chestnut Partnership and D'Aleo, Inc., as amended. (1)
10.19 Construction Management Agreement dated November 22, 1991,
between The Chestnut Partnership and The Weitz Company, Inc.
(1)
10.19.1 Amendment No. 1 to Construction Management Agreement. (1)
10.19.2 Construction Management Agreement dated July 11, 1996, between
The Chestnut Partnership and The Mullan Contracting Company.
(3)
10.19.3 Supplement to Construction Management Agreement, dated October
30, 1996, between The Chestnut Partnership and The Mullan
Contracting Company. (3)
10.20 Asbestos and HazMat Abatement Engineering Agreement dated
August 11, 1988, between The Chestnut Partnership and ATEC
Associates. (1)
10.20.1 March 31, 1992, letter from Atec Associates, Inc. to Life Care
Services Corporation regarding Removal of Underground Fuel
Storage Tanks. (1)
10.21 Construction Contract dated August 6, 1991, between The
Chestnut Partnership and Marcor of Maryland, Inc. (1)
10.22 Retail Lease Agreement dated February 2, 1990, between
Cockney's Tavern Partnership and Life Care Services
Corporation, as amended. (1)
<PAGE>
Exhibit Page
No. Description of Exhibit No.
------- ---------------------- ----
10.23 Office Building Lease dated June 22, 1989, between Cockney's
Tavern Partnership and The Chestnut Partnership. (1)
10.25 Construction Loan Agreement dated as of May 28, 1992, between
The Sumitomo Trust & Banking Co., Ltd., New York Branch and
The Chestnut Partnership and The Chestnut Real Estate
Partnership. (1)
10.26 $20,000,000 Promissory Note dated May 28, 1992, from The
Chestnut Partnership to The Sumitomo Trust & Banking Co., Ltd.
- New York Branch. (1)
10.27 Guaranty of Payment Note dated as of May 28, 1992, from
Continuing Care Communities of America, Inc. to The Sumitomo
Trust & Banking Co., Ltd. New York Branch. (1)
10.28 Guaranty of Payment dated as of May 28, 1992, Continuing Care
Communities of America, Inc. to The Sumitomo Trust & Banking
Co., Ltd., New York Branch. (1)
10.29 Guaranty of Completion dated as of May 28, 1992, from Life
Care Services Corporation to The Sumitomo Trust & Banking Co.,
Ltd. - New York Branch. (1)
10.30 Purchase Money Mortgage dated as of March 23, 1992, from the
Chestnut Real Estate Partnership to the Mission Helpers of
Baltimore City. (1)
10.31 Environmental Indemnification Agreement dated as of May 28,
1992, from The Chestnut Partnership, The Chestnut Real Estate
Partnership, and The Sumitomo Trust & Banking Co., Ltd. - New
York Branch. (1)
10.32 Owner's Certification letter dated as of May 28, 1992, to
Boatmen's National Bank of Des Moines, Iowa, as Trustee, and
The Sumitomo Trust & Banking Co., Ltd., New York Branch. (1)
10.33 Letter Agreement dated as of May 28, 1992, from The Chestnut
Real Estate Partnership to Boatmen's National Bank of Des
Moines, Des Moines, Iowa, as Trustee, and The Sumitomo Trust &
Banking Co., Ltd., New York Branch. (1)
10.34 Assignment and Security Agreement dated as of May 28, 1992,
among The Chestnut Partnership and American Security Bank to
The Sumitomo Trust & Banking Co., Ltd., New York Branch. (1)
<PAGE>
Exhibit Page
No. Description of Exhibit No.
------- ---------------------- ----
10.35 Consent and Subordination Agreement dated as of May 28, 1992,
by The Chestnut Partnership. (1)
10.36 Assignment of Subcontracts dated as of May 28, 1992, from The
Weitz Company, Inc. to The Sumitomo Trust & Banking Co., Ltd.,
New York Branch and Boatmen's National Bank of Des Moines. (1)
10.41 Escrow Agreement I dated as of January 23, 1992, among Prime
Holdings, Inc., The Chestnut Partnership, The Chestnut Real
Estate Partnership, and The Sumitomo Trust & Banking Co.,
Ltd., New York Branch. (1)
10.42 Escrow Agreement II dated as of January 23, 1992, among West
Joppa Road Limited Partnership, The Chestnut Partnership, The
Chestnut Real Estate Partnership, and The Sumitomo Trust &
Banking Co., Ltd., New York Branch. (1)
10.43 Security Agreement dated as of May 28, 1992, between The
Chestnut Partnership, Boatmen's National Bank of Des Moines,
as Bond Trustee, and The Sumitomo Trust & Banking Co., Ltd.,
New York Branch. (1)
10.44 Indemnity Collateral Assignment of Leases, Residency
Agreements, Rents and Fees dated as of May 28, 1992, from The
Chestnut Real Estate Partnership to Boatmen's National Bank of
Des Moines, as Bond Trustee and The Sumitomo Trust & Banking
Co., Ltd., New York Branch. (1)
10.45 Collateral Assignment of Leases, Residence Agreements, Rents
and Fees dated as of May 28, 1992, among The Chestnut
Partnership to Boatmen's National Bank of Des Moines, Iowa, as
Trustee and The Sumitomo Trust & Banking Co., Ltd., New York
Branch. (1)
10.46 Collateral Assignment of Contracts, Plans and Permits dated as
of May 28, 1992, among The Chestnut Partnership to Boatmen's
National Bank of Des Moines, Des Moines, Iowa, as Trustee and
The Sumitomo Trust & Banking Co., Ltd., New York Branch. (1)
10.47 Term Loan Agreement dated July 3, 1997, between Norwest Bank
Iowa, N.A., and The Chestnut Partnership. (4)
<PAGE>
Exhibit Page
No. Description of Exhibit No.
------- ---------------------- ----
10.47.1 $1,900,000 Term Loan dated July 3, 1997, between Norwest Bank
Iowa, N.A., and The Chestnut Partnership. (4)
10.47.2 Guaranty Agreement dated July 3, 1997, between Norwest Bank
Iowa, N.A., and The Chestnut Partnership, Life Care Services
Corporation and Home Health Care Services Corporation. (4)
10.47.3 Indemnity Deed of Trust and Security Agreement dated July 3,
1997, between The Chestnut Real Estate Partnership and Norwest
Bank Iowa, N.A. (4)
10.50 Joint Venture Agreement of the Blakehurst Joint Venture dated
December 16, 1991, entered into by and between Chestnut
Village, Inc. and Prime Holdings, Inc. (1)
10.52 Indemnity Agreement dated as of March 11, 1992, among The
Chestnut Partnership, The Chestnut Real Estate Partnership,
Mullan-North Oaks Limited Partnership, Life Care Services
Corporation and North Oaks Properties, Inc. (1)
10.53 Construction Management Agreement with Mullan Contracting
Company, entered into July, 1994 (2)
27.1 Financial Data Schedule - The Chestnut Partnership (5) 53
27.2 Financial Data Schedule - The Chestnut Real Estate 54
Partnership (5)
- ----------
(1) Incorporated by reference from Registrants Statement on Form S-1
previously filed with Commission (Commission File No: 33-32197),
January 28, 1992, and August 7, 1992 and by Registrant's Form 10-K
filed December 31, 1992 and 1993.
(2) Incorporated by reference from the Registrant's Form 10-K, December 31,
1994, previously filed with the Commission.
(3) Incorporated by reference from the Registrant's Form 10-K, December 31,
1996, previously filed with the Commission.
(4) Incorporated by reference from the Registrant's Form 10-Q, June 30,
1997, previously filed with the Commission.
(5) Filed herewith.
<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: March 27, 1998 by: /s/ Stan G. Thurston
---------------------
Stan G. Thurston, President and Chief
Executive Officer
Date: March 27, 1998 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: March 27, 1998 by: /s/ T. F. Mullan
-----------------
Thomas F. Mullan III, President
Date: March 27, 1998 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: March 27, 1998 by: /s/ Stan G. Thurston
----------------------
Stan G. Thurston, President and
Chief Executive Officer
(Principal Executive Officer)
Date: March 27, 1998 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: March 27, 1998 by: /s/ T. F. Mullan
-----------------
Thomas F. Mullan III, President
Date: March 27, 1998 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: March 27, 1998 by: /s/ Stan G. Thurston
---------------------
Stan G. Thurston, President and
Chief Executive Officer
Date: March 27, 1998 by: /s/ Arthur V. Neis
-------------------
Arthur V. Neis, Treasurer
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<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<PERIOD-TYPE> YEAR
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<PERIOD-START> JAN-01-1997
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