SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL PERIOD ENDED March 31, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________________ to ___________________
Commission File Number: 33-44980
THE CHESTNUT REAL ESTATE PARTNERSHIP THE CHESTNUT PARTNERSHIP
(Exact names of registrants as specified in their charters)
MARYLAND
(State or other jurisdiction of incorporation or organization)
52-1640655 42-1352739
(IRS Employer Identification No.) (IRS Employer Identification No.)
2330 West Joppa Road Lutherville, Maryland 21093
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (515) 245-7616
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date N/A
<PAGE>
THE CHESTNUT PARTNERSHIP
AND
THE CHESTNUT REAL ESTATE PARTNERSHIP
INDEX
Page
Part I FINANCIAL INFORMATION
Item 1 Financial Statements
The Chestnut Real Estate Partnership
and The Chestnut Partnership
o Separate and Combined Balance Sheets,
March 31, 1998 and December 31, 1997 3
o Separate and Combined Statement of
Operations, for the three months ended
March 31, 1998 and March 31, 1997 5
o Separate and Combined Statements of Partner's
Equity (Deficit) for the three months ended
March 31, 1998 and March 31, 1997 7
o Separate and Combined Statement of Cash Flow,
for the three months ended March 31, 1998
and March 31, 1997 8
o Notes to Financial Statements 10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II OTHER INFORMATION
Item 1 Legal Proceedings 16
Item 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP - MARCH 31, 1998 -
AND THE CHESTNUT PARTNERSHIP The
SEPARATE AND COMBINED BALANCE SHEETS The Chestnut
Chestnut Real Estate Combined
(UNAUDITED) Partnership Partnership Partnerships
------------ ------------ ------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,360,941 $ -- $ 1,360,941
Accounts receivable 202,898 -- 202,898
Prepaid expenses and other 301,307 -- 301,307
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
by trustee 796,789 -- 796,789
Under letter of credit agreement, held in escrow 0 -- 0
------------ ------------ ------------
Total current assets 2,661,935 -- 2,661,935
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
by trustee 1,703,949 -- 1,703,949
Under residency agreements, held in escrow 740,339 -- 740,339
Health Center reserves 1,737,720 -- 1,737,720
Phase III and IV construction funds 647,614 -- 647,614
Operating property, at cost, net of depreciation 672,690 54,078,260 54,750,950
Costs of acquiring intitial contracts, net of amortization 1,501,177 -- 1,501,177
Deferred bond financing costs, net of amortization 852,302 -- 852,302
------------ ------------ ------------
Total assets $ 10,517,726 $ 54,078,260 $ 64,595,986
============ ============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Current liabilities:
Bonds payable, current portion $ 155,000 $ -- $ 155,000
Notes payable, current portion 37,524 -- 37,524
Accounts payable 130,873 -- 130,873
Accrued expenses 227,094 -- 227,094
Accrued property taxes 227,819 -- 227,819
Accrued interest payable 583,567 -- 583,567
Advances payable 606,978 -- 606,978
Refundable deposits, residency agreements 997,678 -- 997,678
------------ ------------ ------------
Total current liabilities 2,966,533 -- 2,966,533
Construction costs payable 150,770 -- 150,770
Bonds payable, less current portion 13,500,000 -- 13,500,000
Loan Payable 1,862,476 -- 1,862,476
Loans from residents 49,802,470 -- 49,802,470
Advances payable to partners 400,000 -- 400,000
Refundable deposits, escrowed 158,320 -- 158,320
Deferred revenues from admission fees 2,659,986 -- 2,659,986
Equity in deficit of the Chestnut Partnership -- 60,982,829 --
Commitments and Contingencies
------------ ------------ ------------
Total liabilities 71,500,555 60,982,829 71,500,555
Partners' equity (deficit) (60,982,829) (6,904,569) (6,904,569)
------------ ------------ ------------
Total liabilities and partners' equity (deficit) $ 10,517,726 $ 54,078,260 $ 64,595,986
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP - December 31, 1997 -
AND THE CHESTNUT PARTNERSHIP The
SEPARATE AND COMBINED BALANCE SHEETS The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
------------ ------------ ------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,242,588 $ -- $ 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 in escrow
by trustee 398,426 -- 398,426
Under letter of credit agreement, held in escrow 0 -- 0
------------ ------------ ------------
Total current assets 2,206,388 -- 2,206,388
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
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 constuction funds 888,670 -- 888,670
Operating property, at cost, net of depreciation 672,690 54,193,360 54,866,050
Costs of acquiring intitial contracts, net of amortization 1,541,209 -- 1,541,209
Deferred bond financing costs, net of amortization 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
Notes 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
Bonds payable, less current portion 13,500,000 -- 13,500,000
Loan Payable 1,862,476 -- 1,862,476
Loans from residents 48,264,400 -- 48,264,400
Advances payable to partners 2,012,258 -- 2,012,258
Refundable deposits, escrowed 247,340 -- 247,340
Deferred revenues from admission fees 2,683,146 -- 2,683,146
Equity in deficit of the Chestnut Partnership -- 60,075,557 --
Commitments and Contingencies
------------ ------------ ------------
Total liabilities 70,985,387 60,075,557 70,985,387
Partners' equity (deficit) (60,075,557) (5,882,197) (5,882,197)
------------ ------------ ------------
Total liabilities and partners' equity (deficit) $ 10,909,830 $ 54,193,360 $ 65,103,190
============ ============ ============
</TABLE>
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF OPERATIONS
For the quarter ended
March 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Amortization of nonrefundable admission fees $ 270,150 $ -- $ 270,150
Apartment service fees 1,312,784 -- 1,312,784
Health Center revenues 514,905 -- 514,905
Capital reserve fees 24,423 -- 24,423
Other revenue 3,877 -- 3,877
Income from The Chestnut Partnership -- 125,544 --
----------- ----------- -----------
Total revenues 2,126,139 125,544 2,126,139
----------- ----------- -----------
Operating expenses:
Development fee amortization 83,028 -- 83,028
General and administrative 579,969 -- 579,969
Resident care 404,160 -- 404,160
Dietary 317,596 -- 317,596
Plant 194,028 -- 194,028
Housekeeping 98,660 -- 98,660
Depreciation and amortization 52,305 309,780 362,085
----------- ----------- -----------
1,729,745 309,780 2,039,525
----------- ----------- -----------
Income (loss) from operations 396,394 (132,372) 86,614
----------- ----------- -----------
Other income (expense)
Interest income 92,623 -- 92,623
Interest expense (311,609) -- (311,609)
----------- ----------- -----------
(218,986) -- (218,986)
----------- ----------- -----------
Net income (loss) $ 177,408 $ (132,372) $ (132,372)
=========== =========== ===========
</TABLE>
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF OPERATIONS
For the quarter ended
March 31, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Amortization of nonrefundable admission fees $ 188,671 $ -- $ 188,671
Apartment service fees 1,233,434 -- 1,233,434
Health Center revenues 466,249 -- 466,249
Capital reserve fees 20,142 -- 20,142
Other revenue 4,511 -- 4,511
Income from The Chestnut Partnership -- 165,512 --
----------- ----------- -----------
Total revenues 1,913,007 165,512 1,913,007
----------- ----------- -----------
Expenses:
Development fee amortization 45,637 -- 45,637
General and administrative 408,048 -- 408,048
Resident care 385,974 -- 385,974
Dietary 320,369 -- 320,369
Plant 202,058 -- 202,058
Housekeeping 83,938 -- 83,938
Depreciation and amortization 53,288 307,267 360,555
----------- ----------- -----------
$ 1,499,312 $ 307,267 $ 1,806,579
----------- ----------- -----------
Income (loss) from operations 413,695 (141,755) 106,428
----------- ----------- -----------
Other income (expense)
Interest income 77,732 -- 77,732
Interest expense (325,915) -- (325,915)
----------- ----------- -----------
(248,183) 0 (248,183)
----------- ----------- -----------
Net income (loss) 165,512 (141,755) (141,755)
=========== =========== ===========
</TABLE>
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the three month period ended March 31, 1998
and the year ended December 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1996 $(51,182,222) $ (2,567,017) $ (2,567,017)
Net income (loss) 839,566 (395,180) (395,180)
Transfer ownership of land preacquisition and
project development assets to The Chestnut
Real Estate Partnership (6,812,901) --
Distribution to partners (2,920,000) (2,920,000) (2,920,000)
------------ ------------ ------------
Balance, December 31, 1997 $(60,075,557) $ (5,882,197) $ (5,882,197)
============ ============ ============
Balance, December 31, 1997 $(60,075,557) $ (5,882,197) $ (5,882,197)
Net income (loss) 177,408 (132,372) (132,372)
Transfer ownership of land preacquisition and
project development assets to The Chestnut
Real Estate Partnership (194,681) -- --
Contributions from partners -- -- --
Distributions to partners (890,000) (890,000) (890,000)
------------ ------------ ------------
Balance, March 31, 1998 $(60,982,829) $ (6,904,569) $ (6,904,569)
============ ============ ============
</TABLE>
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF CASH FLOWS
For the quarter ended March 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 177,408 $ (132,372) $ (132,372)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation -- 309,780 309,780
Other amortization 52,305 -- 52,305
Amortization of nonrefundable admission fees (270,150) -- (270,150)
Amortization of development fees 83,028 -- 83,028
Admission fees received 246,990 -- 246,990
Partnership income -- (177,408) --
Change in operating assets and liabilities:
Accounts receivable 55,419 -- 55,419
Prepaid expenses and other 5,750 -- 5,750
Accounts payable (139,766) -- (139,766)
Accrued expenses 386,340 -- 386,340
----------- ----------- -----------
Net cash provided by operating activities 597,324 -- 597,324
----------- ----------- -----------
Cash flows from investing activities:
Increase in funds escrowed under residency agreements (41,618) -- (41,618)
Additions to operating property (277,709) -- (277,709)
Decrease in construction payable (43,808) -- (43,808)
Increase in Loans Payable 0 -- 0
Decrease in Phase III and IV construction funds from partner advances 241,056 -- 241,056
Increase in assets held by trustee (214,296) -- (214,296)
Decrease in funds escrowed under letter of credit agreement 0 -- 0
Decrease in Health Center reserves 411,840 -- 411,840
----------- ----------- -----------
Net cash provided by investing activities 75,466 -- 75,466
----------- ----------- -----------
Cash flows from financing activities:
Repayment of partner advances -- -- --
Contributions from partners -- -- --
Distributions to partners (890,000) -- (890,000)
Repayments of partner advances (1,612,258) -- (1,612,258)
Increase in advances payable 324,721 -- 324,721
Principal payments on bonds 0 -- 0
Proceeds from loans from residents, deferred revenues
and refundable deposits, net 1,623,100 -- 1,623,100
----------- ----------- -----------
Net cash used in financing activities (554,437) -- (554,437)
----------- ----------- -----------
Net increase in cash 118,353 -- 118,353
Cash, beginning of period 1,242,588 -- 1,242,588
----------- ----------- -----------
Cash, end of period $ 1,360,941 $ -- $ 1,360,941
=========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF CASH FLOWS
For the quarter ended March 31, 1997
(UNAUDITED)
The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 165,512 $ (141,755) $ (141,755)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation -- 307,267 307,267
Other amortization 53,288 -- 53,288
Amortization of nonrefundable admission fees (188,671) -- (188,671)
Amortization of development fees 45,637 -- 45,637
Admission fees received 233,280 -- 233,280
Partnership income -- (483,601) --
Change in operating assets and liabilities:
Accounts receivable (15,534) -- (15,534)
Prepaid expenses and other 41,614 -- 41,614
Accounts payable (93,026) -- (93,026)
Accrued expenses 257,647 -- 257,647
----------- ----------- -----------
Net cash provided by operating activities 499,747 -- 499,747
----------- ----------- -----------
Cash flows from investing activities:
Increase in funds escrowed under residency agreements (114,377) -- (114,377)
Additions to project operating property (2,883,641) -- (2,883,641)
Increase in construction payable (328,216) -- (328,216)
Increase in Phase III construction funds from partner advances (3,120,697) -- (3,120,697)
Increase in assets held by trustee (320,328) -- (320,328)
Decrease in funds escrowed under letter of credit agreement 0 -- 0
Decrease in Health Center reserves (22,194) -- (22,194)
----------- ----------- -----------
Net cash used in investing activities (6,789,453) -- (6,789,453)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from partner advances 6,200,000 -- 6,200,000
Distribution to partners (1,450,000) -- (1,450,000)
Decrease in advances payable 205,362 -- 205,362
Principal payments on bonds 0 -- 0
Proceeds from loans from residents, deferred revenues
and refundable deposits 1,457,110 -- 1,457,110
----------- ----------- -----------
Net cash provided by financing activities 6,412,472 -- 6,412,472
----------- ----------- -----------
Net increase in cash 122,766 -- 122,766
Cash, beginning of period 1,394,227 -- 1,394,227
----------- ----------- -----------
Cash, end of period $ 1,516,993 $ -- $ 1,516,993
=========== =========== ===========
</TABLE>
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
A. Basis for Presentation
The accompanying unaudited financial statements of The Chestnut Real
Estate Partnership (the Real Estate Partnership) and its subsidiary The
Chestnut Partnership (the Partnership), in the opinion of management,
reflect all adjustments (none of which were other than normal recurring
items), eliminations, and reclassification considered necessary for a
fair statement of the results of the interim periods presented. For
purposes of preparing the combined financial statements, all material
transactions between the Partnerships have been eliminated but not
displayed, including the elimination of the Real Estate partnership's
obligation to the Partnership.
Both the Real Estate Partnership and the Partnership are general
partnerships, and are sometimes referred to as "the Partnerships."
The Real Estate Partnership is owned 50% by Blakehurst Joint Venture
(Venture) and 50% by West Joppa Road Limited Partnership (West Joppa)
(collectively the "Partners").
The Partnership is owned 1% by Venture, 1% by West Joppa, and 98% by
the Real Estate Partnership.
The Real Estate Partnership and the Partnership were formed to develop,
own, and operate a life care retirement community called Blakehurst
(Project) in the Towson area of Baltimore County, Maryland.
The Real Estate Partnership was organized by the Partnership solely for
the purpose of owning the property and buildings and other improvements
thereon that constitute the Project in order to minimize certain
mortgage recordation taxes, and to act as a general partner of the
Partnership. The publicly-held debt (both Series I and II) is a direct
obligation of the Partnership, and is guaranteed by the Real Estate
Partnership. The guaranty, however, is not intended to provide any
additional security for payment of the principal and interest on the
bonds than if the Partnership directly held the property and related
improvements itself. The partners of the Real Estate Partnership own no
other assets other than their interests in the Partnership. Therefore,
management believes the combining financial statements of the
Partnership and the Real Estate Partnership are the most informative,
because of the guaranty and because of the Operating and Use Agreement,
which obligates the Partnership to develop, operate and manage the
Project at its expense and which grants the Partnership use of the
property until dissolution, liquidation or other termination by mutual
agreement. The Partnerships have common, ultimate ownership and do not
have independent operating activities. Management believes this
presentation best portrays the relationship between the two entities.
B. Certain Accounting Policies
Cash
The Partnerships consider investments with maturities of three months
or less when purchased, to be cash equivalents.
Assets Where Use is Limited
Assets held by the Trustee under the escrow agreement are cash
equivalents as of March 31, 1998, and March 31, 1997. Construction
funds advanced by the partners are also cash equivalents as of March
31, 1998, and March 31, 1997.
<PAGE>
Deferred Revenues from Admission Fees
Admission fees are not advance fees in payment for future services of
for use of facility, because of the manner in which all operating
expenditures are allocated to the current residents. The non-refundable
admission fee is a payment in compensation to the Partnership for the
development risk and is non-refundable except in isolated cases where
the Partnership would cancel the Residency Agreement. In such cases,
the resident could be due a portion of the Administration Fee if
cancellation occurred within the first two years of the contract. The
refund is based on the remaining life of the resident, actuarially
determined. Accordingly, the Admission Fee and Resident Loan (together
the Entrance Payment) is amortized using the Life Table of the U.S.
Department of Health and Human Services, which in practice results in
amortization of the Admission Fee portion of the Entrance Payment on a
straight line over approximately two years. To date, the Partnership
has never cancelled a Residency Agreement and accordingly has never had
to refund any portion of the non-refundable admission fee after
occupancy. Nonetheless, the unamortized admission fees are reported as
deferred revenue.
Capitalization of Operating Expenses and Certain Revenues
Initial occupancy of the Project occurred in August of 1993, with
cessation of major construction of phase I occurring in December 1993,
at which time occupancy was 60%. Construction continued for tenant
requested improvements and an auditorium addition.
The Partnership ceased capitalization of operating expenses and certain
revenues of Phase I in August 1994, because of the extended time frame
between initial occupancy, completion of major construction, and
achievement of substantial occupancy.
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 March 31, 1998, in the amount of $77,858. The Phase III portion
of the Community had reached substantial occupancy at March 31, 1998,
with 32 of the 35 units occupied.
Costs of Acquiring Initial Contracts
Costs of acquiring initial contracts are expected to be recovered from
the future contract revenues and are therefore capitalized. These costs
capitalized are amortized over the life expectancy of the initial
residents, which based n actuarial data, is estimated to be
approximately 13 years.
Development Fee
The development fee incurred in connection with the development of the
Project is amortized on a pro rata basis as admission fee revenue is
recognized. Admission fees are being recognized over a 24 month period
from the date of move-in for those being received from Return of
Capital Contracts. Admission Fees from Traditional contracts are
amortized over the expected life of the resident.
C. Results of Operations
Admission fees are amortized over a twenty-four month period.
At the time of initial occupancy, residents are required to make a
non-refundable payment to a capital replacement reserve. This payment
is reported as income when received by the Partnerships.
The development fee incurred in connection with the development of the
Project (Phase I and Phase III) is amortized on a pro-rata basis as
admission fee revenue is recognized.
<PAGE>
D. Financing
In May, 1992, the Partnership completed the issuance of $14,000,000 of
Ten Year - Put Option Mortgage Bonds, 1992 Series I. The bonds carry an
initial rate of 9.5%.
In August, 1992, the Venture and West Joppa, each of which had
purchased $3,000,000 of Series I Bonds, sold their bonds back to the
Partnership in conjunction with the Partnership sales of $6,000,000 of
Ten Year - Put Option Mortgage Bonds, 1992 Series II. These bonds carry
an initial rate of 8.75%.
In addition, $20,000,000 has been provided by Venture and West Joppa.
As of December 31, 1995, all such advances from Partners had been
repaid, together with interest thereon.
For the construction of Phase II, an auditorium and miscellaneous
additional improvements, the Partners funded the cost of approximately
$800,000.
For construction of Phase III, a 35-unit addition, West Joppa and Life
Care Services Corporation (LCS) advanced $7,600,000 and the
Partnerships arranged to borrow an additional $1,900,000 of long-term
financing, for a total of $9,500,000. As of March 31, 1998, $7,600,000
plus interest thereon had been repaid to West Joppa and LCS, and
development fees of $70,299 to West Joppa and LCS.
West Joppa and LCS have also advanced $400,000 for initial design of
Phase IV.
E. Operating Property
As of March 31, 1998, $9,555,334 of costs had been incurred for Phase
III and IV construction in progress and are included in operating
property. As of December 31, 1997, $9,441,517 had been incurred for
construction of Phase III and IV.
F. Transactions with partners
The Partnerships have agreements with Life Care Services Development
Corporation (LCSD) and Life Care Services Corporation (LCS), affiliates
through common ownership of Chestnut Village, Inc., a general partner
of Venture for development and for management of the community
respectively. LCSD administers planning, development, financing, and
marketing functions for the partnerships. LCS has been retained to
supervise the day-to-day operations of the community.
The Partnerships have entered into a construction management agreement
with Mullan Contracting Company (Mullan), an affiliate through common
ownership of one partner of West Joppa for Phase III.
During the three months ended March 31, 1998, LCS was reimbursed
$113,971 for its services and $86,837 for the three months ended March
31, 1997. In addition, LCS was reimbursed in the three months ended
March 31, 1998, $48,791 for marketing of Phase III units, and $371,524
for the three months ended March 31, 1997.
In the three months ended March 31, 1998, LCSD was reimbursed $5,484
for development fees and was reimbursed $314,081 in the three months
ended March 31, 1997.
In the three months ended March 31, 1997, Mullan was paid $7,774 of
construction management fees, and reimbursed $1,982,297 for
construction costs; in the three months ended March 31, 1998, no
payments were made to Mullan.
G. Income Taxes
Income and losses of the Partnerships are included in the income tax
returns of the partners. Accordingly, the financial statements make no
provision for income taxes.
<PAGE>
H. Contingencies
The realization of the costs and long-term success of the Project is
contingent upon the resale of units vacated due to death or transfer to
the health center, and maintenance and efficient operation.
THE CHESTNUT PARTNERSHIP
AND
THE CHESTNUT REAL ESTATE PARTNERSHIP
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Overall Financial Condition
The Project contains a total of 212 (177 in Phase I and 35 in Phase III)
residential units, and a 50-bed health center. As of March 31, 1998, 171 (96.6%)
of the Phase I residential units were reserved or occupied, an increase of 4
since December 31, 1997. As of March 31, 1997, 173 (97.7%) of the residential
units have been reserved or occupied. In addition, 34 of 35 Phase III
residential units were reserved or occupied, an increase of 2 since December 31,
1997.
During the quarter ending March 31, 1998, there were 10 closings and 4 vacancies
which occurred, compared to 4 closings and 2 vacancies in the first quarter of
1997.
As of March 31, 1998, the project had 114 full-time equivalent employees, none
of whom were members of a collective bargaining agreement.
Results of Operations
As of March 31, 1998, 196 units (92.5%) were occupied and/or paying monthly
service fees. This occupancy compares to 161 (76%) of the units at March 31,
1997 (assuming Phase III had been available), and 192 units (91%) at December
31, 1997.
Amortization of non-refundable admission fees increased because more residents
moved in during the 3 months ended March 31, 1997 than moved in during the 3
months ended March 31, 1996. The two-year amortization period causes the decline
to not be apparent for one year.
On January 1, 1998, a 4.0% increase in the monthly service fees became
effective. That increase together with an increase in occupancy from March 31,
1997, to the three months ended March 31, 1998, and a 4.25% increase in double
occupancy accounted for the increase in revenue from apartment service fees.
Health center revenues increased even though patient days declined 3.7% in the
three months ended March 31, 1998, compared to the three months ended March 31,
1997. Reimbursable rates from Medicare and semi-private rates increased from
10-13% in the three months ended March 31, 1998, compared to the three months
ended March 31, 1997.
Capital reserve fees, which are a one-time payment from new residents increased
because more new residents moved in during the three months ended March 31, 1998
(6), than moved in during the three months ended March 31, 1997 (4).
Operating expenses, excluding depreciation and amortization, increased from
$1,446,024 during the first quarter of 1997 to $1,677,440 during the first
quarter of 1998. This was due primarily to the 16% increase in occupancy.
Depreciation and amortization increased because of the increase in operating
property since March 31, 1997.
A decline in net interest expense was the result of more interest income from
increased cash balances.
Liquidity and Capital Resources
During the first quarter of 1997, the partners received $1,450,000 in
distributions from Phase I; in the first quarter of 1998, they received
$890,000.
Phase III expansion, described under Item 1, was 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
<PAGE>
permanent parity debt financing of $1,900,000 and resident loans and fees of
$8,700,000. Construction period financing was provided by the West Joppa Road
Limited Partnership (WJR) and Life Care Services Corporation (LCS) in the total
amount of $7,600,000.
The Partners advanced $1,600,000 to the Partnerships in 1996 in connection with
Phase III. During the first quarter of 1997, the Partners advanced $6,000,000
for the construction of Phase III. At December 31, 1997, $2,012,258 of such
advances were still owed to the Partners, of which $1,772,800 was repaid in the
first quarter of 1998.
During 1997, the Partners also funded $400,000 towards the beginning design work
for Phase IV, of which $200,000 was advanced during the first quarter of 1997.
Net cash provided by operating activities in 1998 improved approximately
$100,000. Major contributing factors to this were:
* Smaller net operating loss due to increased occupancy $ 9,000
and control of expenses
* Change in operating assets and liabilities 117,000
* Increase in Admission fees received due to more move-ins 13,700
* Increase in amortization of non-refundable admission (81,500)
fees revenue due to more move-ins
* Increase in amortization of development fees operating 37,000
expense due to more move-ins
Net cash provided by investing activities in 1998 increased significantly,
essentially because major construction activity had been concluded by 1998, and
the increase in health center reserves due to increased permanent assignments.
Cash from financing activities declined in 1998 compared to 1997 because of
construction period funding not being required.
Because of the level of occupancy, the resident financing, and the long-term
financing described above, the Partnership believes adequate capital resources
are available to the Partnerships.
The long-term success of the Project is ultimately dependent upon maintaining
adequate levels of occupancy and operating of the Project efficiently.
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None
B. Reports on Form 8-K
None
<PAGE>
SIGNATURES
THE CHESTNUT REAL ESTATE PARTNERSHIP
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Chestnut Real Estate Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
THE CHESTNUT REAL ESTATE PARTNERSHIP
By: BLAKEHURST JOINT VENTURE, a
General Partner
By: CHESTNUT VILLAGE, INC.,
General Partner
Date: May 15, 1998 by: /s/ Stan G. Thurston
---------------------
Stan G. Thurston, President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 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: May 15, 1998 by: /s/ T. F. Mullan
-----------------
Thomas F. Mullan III, President
Date: May 15, 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: May 15, 1998 by: /s/ Stan G. Thurston
---------------------
Stan G. Thurston, President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 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: May 15, 1998 by: /s/ T. F. Mullan
-----------------
Thomas F. Mullan III, President
Date: May 15, 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: May 15, 1998 by: /s/ Stan G. Thurston
---------------------
Stan G. Thurston, President
Date: May 15, 1998 by: /s/ Arthur V. Neis
-------------------
Arthur V. Neis, Treasurer
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