<PAGE>   1
                       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 quarterly period ended March 31, 1999
                                 --------------

                                       OR

  [ ]      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 0-23917
                                                -------

                          Chastain Capital Corporation
      (Exact name of registrant as specified in its governing instrument)

<TABLE>
<S>                                                                              <C>
                           Georgia                                                             58-2354416
(State or Other Jurisdiction of Incorporation or Organization)                   (I.R.S. Employer Identification No.)

3424 Peachtree Road N.E., Suite 800, Atlanta, Georgia                                            30326
(Address of principal executive office)                                                        (Zip Code)
</TABLE>

       (Registrant's telephone number, including area code) (404) 848-8850

         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
                                             ---   ---

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 7,346,778 shares of
                                                            -------------------
common stock outstanding as of May 10, 1999
------------------------------------------


<PAGE>   2


                          CHASTAIN CAPITAL CORPORATION

                                    CONTENTS

PART  I - FINANCIAL INFORMATION

         Item 1 - Financial Statements:

                  Consolidated Balance Sheets as of March 31, 1999 (Unaudited)
                    and December 31, 1998 (Audited)
                  Consolidated Statement of Operations for the three months
                    ended March 31, 1999 (Unaudited)
                  Consolidated Statement of Changes in Shareholders' Equity
                    for the three months ended March 31, 1999 (Unaudited)
                  Consolidated Statement of Cash Flows for the three
                    months ended March 31, 1999 (Unaudited)
                  Notes to Consolidated Financial Statements

         Item 2 - Management's Discussion and Analysis of Financial Condition
                  and Results of Operations

         Item 3 - Quantitative and Qualitative Disclosure about Market Risk

PART II - OTHER INFORMATION

         Items 1 through 6
         Signatures



                                       2
<PAGE>   3


PART I.         FINANCIAL INFORMATION

Item 1.   Financial Statements

                          CHASTAIN CAPITAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                         MARCH 31, 1999 (Unaudited) AND
                           DECEMBER 31, 1998 (Audited)

<TABLE>
<CAPTION>
                                                                          March 31,          December 31,
                                                                            1999                1998
                                                                        -------------       -------------
<S>                                                                     <C>                    <C>
ASSETS
Commercial mortgage-backed securities (CMBS) available-for-sale,
   at fair value                                                        $  20,973,395       $  71,567,475
Mezzanine loan investments                                                 44,115,499          44,374,346
Mortgage loan investments                                                          --          15,150,400
Real estate investment held for sale, net                                   3,496,460           7,294,583
Cash and short-term investments                                             8,875,695          11,957,616
Escrow cash                                                                        --           2,138,011
Accrued interest receivable                                                   277,214           1,153,989
Other assets                                                                  440,245             876,006
                                                                        =============       =============

       Total assets                                                     $  78,178,508       $ 154,512,426
                                                                        =============       =============

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES:
Short-term borrowings                                                   $          --       $  61,918,156
Subordinated debt to related party                                          8,500,000           9,000,000
Borrowings under repurchase agreement                                              --           7,926,375
Treasury locks payable                                                     10,845,075          10,887,660
Accrued management fees                                                       279,469             438,842
Accrued interest expense                                                       28,713             374,759
Accrued expenses and other liabilities                                        281,348           4,127,931
                                                                        -------------       -------------

       Total liabilities                                                   19,934,605          94,673,723
                                                                        -------------       -------------

SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value. Authorized 25,000,000 shares, no
   shares issued
Common stock, $.01 par value.  Authorized 200,000,000 shares,
   7,346,778 issued and outstanding at March 31, 1999 and
   December 31, 1998                                                           73,468              73,468
Additional paid-in capital                                                108,692,169         108,692,169
Distributions in excess of earnings:
   Accumulated losses from operations                                     (37,036,193)        (38,105,018)
   Accumulated losses from sale of assets                                 (10,230,302)         (7,566,677)
   Dividends paid                                                          (3,255,239)         (3,255,239)
                                                                        -------------       -------------

       Total distributions in excess of earnings                          (50,521,734)        (48,926,934)
                                                                        -------------       -------------

       Total shareholders' equity                                          58,243,903          59,838,703
                                                                        -------------       -------------

       Total liabilities and shareholders' equity                       $  78,178,508       $ 154,512,426
                                                                        =============       =============
</TABLE>


          See accompanying Notes to Consolidated Financial Statements.



                                       3
<PAGE>   4


                          CHASTAIN CAPITAL CORPORATION
                      CONSOLIDATED STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED MARCH 31, 1999
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                  For the Three
                                                   Months Ended
                                                  March 31, 1999
                                                  --------------
<S>                                               <C>
REVENUE:
Interest income on CMBS                            $ 1,833,192
Interest income on mezzanine loan investments        1,208,003
Interest income on mortgage loan investments             9,739
Rental income                                          297,005
Other income                                            11,497
Other interest income                                   90,906
                                                   -----------

       Total revenue                                 3,450,342
                                                   -----------

OPERATING EXPENSES:
Interest expense                                     1,236,354
Management fees                                        279,469
General and administrative expense                      99,326
Real estate operating expenses                         110,914
Depreciation and amortization                          135,926
Impairment loss on CMBS                                470,528
Loss on termination of interest rate collar             49,000
                                                   -----------

       Total operating expenses                      2,381,517
                                                   -----------

OPERATING INCOME BEFORE ASSET SALES                  1,068,825
REALIZED LOSSES ON SALE OF ASSETS
Loss on sale of CMBS                                 2,561,102
Loss on sale and settlement of mortgage loans           97,929
Loss on sale of real estate                              4,594
                                                   -----------

NET LOSS                                           $(1,594,800)
                                                   ===========

NET LOSS PER COMMON SHARE:
Basic and Diluted                                  $     (0.22)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and Diluted                                    7,346,778
</TABLE>

Chastain Capital Corporation was incorporated on December 16, 1997 and commenced
operations on April 23, 1998 (see Note 1).

          See accompanying Notes to Consolidated Financial Statements.



                                       4
<PAGE>   5


                          CHASTAIN CAPITAL CORPORATION
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                    FOR THE THREE MONTHS ENDED MARCH 31, 1999
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                     Distributions in Excess of
                                                                     --------------------------
                                                                               Earnings
                                                                               --------
                     Number of                  Additional                                                       Total
                       Shares        Common      Paid-in       Accumulated   Losses from                      Shareholders'
                    Outstanding       Stock      Capital       Operations    Sale of Assets  Dividends Paid      Equity
                    -----------       -----      -------       ----------    --------------  ---------------     ------
<S>                 <C>             <C>       <C>             <C>            <C>             <C>              <C>
Balance at
December 31, 1998      7,346,778    $ 73,468  $108,692,169    $(38,105,018)   $ (7,566,677)   $(3,255,239)     59,838,703

Net loss                                                         1,068,825      (2,663,625)                    (1,594,800)
                    ======================================================================================================

Balance at
March 31, 1999         7,346,778    $ 73,468  $108,692,169    $(37,036,193)   $(10,230,302)   $(3,255,239)    $58,243,903
                    ======================================================================================================
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.



                                       5
<PAGE>   6


                          CHASTAIN CAPITAL CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                    FOR THE THREE MONTHS ENDED MARCH 31, 1999
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                    For the three
                                                                     months ended
                                                                    March 31, 1999
                                                                    --------------
<S>                                                                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                           $ (1,594,800)
 Adjustments to reconcile net loss to net cash provided by
   operating activities:
   Impairment loss on investments                                        470,528
   Loss on sale of CMBS                                                2,561,102
   Losses on termination of interest rate collar                          49,000
   Non-cash interest expense on rate lock agreements                     173,415
   Loss on sale and settlement of mortgage loan investments               97,929
   Loss on sale of real estate                                             4,594
   Depreciation and amortization                                         135,926
   Amortization of discount/premium on CMBS available-for-sale          (210,342)
   Amortization of premium on mezzanine loan investment                   75,141
   Net decrease in assets:
      Accrued interest receivable                                        876,775
      Other assets                                                     2,437,846
   Net decrease in liabilities:
      Accrued interest expense                                          (346,047)
      Accrued management fees                                           (159,373)
      Accrued expenses and other liabilities                          (2,955,788)
                                                                    ------------

         Net cash provided by operating activities                     1,615,906
                                                                    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of CMBS available-for-sale                         47,772,792
Proceeds from sale of mortgage loan investment                        15,052,470
Proceeds from sale of real estate investment                           2,904,612
Repayments on loans                                                      183,707
Capital additions to real estate                                          (1,877)
                                                                    ------------

         Net cash provided by investing activities                    65,911,704
                                                                    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of loan facilities                                        (78,344,531)
Proceeds from loan facilities                                          8,000,000
Repayments of interest rate collar                                      (265,000)
                                                                    ------------

    Net cash used by financing activities                            (70,609,531)
                                                                    ------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                             (3,081,921)
Cash and cash equivalents at beginning of period                      11,957,616

                                                                    ------------
Cash and cash equivalents at end of period                          $  8,875,695
                                                                    ============
Cash paid for interest                                              $  1,408,985
                                                                    ============
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.



                                       6
<PAGE>   7


                          CHASTAIN CAPITAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION

Chastain Capital Corporation (the "Company") was incorporated in Georgia on
December 16, 1997 and was initially capitalized on such date through the sale of
100 shares of common stock, par value $0.01 per share ("Common Stock") for an
aggregate purchase price of $1,000. On April 23, 1998, the Company commenced
operations through the consummation of an initial public offering ("IPO") of
7,380,000 shares of its Common Stock, with gross proceeds of $110,700,000 and
net proceeds to the Company of $102,951,000. Additional public offering costs of
$1,215,750 were incurred in connection with the IPO.

The Company also issued, pursuant to two separate private placements, an
aggregate of 897,678 shares of Common Stock to Lend Lease Investments Holdings,
Inc. ("LLIH", formerly ERE Yarmouth Holdings, Inc.), an indirect wholly-owned
subsidiary of Lend Lease Corporation Limited ("Lend Lease"), and 700,000 shares
of Common Stock to FBR Asset Investment Corporation, an affiliate of Friedman,
Billings, Ramsey & Co., Inc. (lead underwriter of the Company's IPO). The two
private placements closed concurrently with the closing of the IPO, at $13.95
per share, with total proceeds to the Company of $22,287,608.

Pursuant to the Company's Directors Stock Plan, each of the Company's three
independent directors received, as of the consummation of the IPO, $15,000 worth
of Common Stock equal to 1,000 shares as part of their annual director's fee.

The Company was organized to originate first lien commercial and multifamily
mortgage loans for the purpose of issuing collateralized mortgage obligations
("CMOs") collateralized by its mortgage loans and retaining the mortgage loans
subject to the CMO debt. The Company also was organized to acquire subordinated
interests in commercial mortgage-backed securities ("CMBS"), originate and
acquire loans on real property that are subordinated to first lien mortgage
loans and acquire real property and other real estate related assets.

On October 23, 1998, the Company announced that due to turmoil in the credit
markets, it was necessary to obtain temporary waivers from Morgan Guaranty Trust
Company of New York ("Morgan Guaranty Trust") and Merrill Lynch Mortgage
Capital, Inc. ("Merrill Lynch") to avoid being in default of tangible net worth
covenants under the Company's credit facilities. The Board of Directors decided
to discontinue new investment activity and concluded that the Company needed to
be restructured. On November 13, 1998, the Company reached an agreement with
Morgan Guaranty Trust and Merrill Lynch to restructure its credit facilities and
to dispose of certain assets to reduce the size and stabilize the volatility of
the overall portfolio. Proceeds from the asset sales were used to reduce
outstanding indebtedness on both credit facilities. Through the asset sales and
indebtedness reduction, the Company was able to satisfy its immediate liquidity
needs. The remaining portfolio consists primarily of CMBS, mezzanine loan
investments and real estate.

In connection with the credit facility amendments, LLIH agreed to provide the
Company with up to $40 million of unsecured subordinated debt. An initial
advance of $17 million was drawn on November 13, 1998 and the remaining funds
were available to be drawn from time to time by the Company through maturity on
April 5, 1999. The advances incured interest at the rate of 14% per annum
through January 31, 1999 and 16% thereafter. The terms of the subordinated debt
were reviewed and approved by a special committee of the Board of Directors
consisting of independent directors not affiliated with Lend Lease. The special
committee obtained the advice of independent financial advisors and legal
counsel in negotiating the terms of the loan.

The amended credit facilities and new subordinated debt agreement provided the
Company with the necessary liquidity in the short term to fund its mortgage loan
commitments, meet margin calls and hold investments. The Merrill Lynch amendment
required the $19 million in outstanding borrowings be repaid on or before
January 31, 1999. On January 27, 1999, the Merrill Lynch Agreement was further
amended, requiring the borrowings to be repaid on or before February 26, 1999.
On February 25, 1999, the Merrill Lynch agreement was again amended, extending
the maturity date to March 25, 1999. All outstanding indebtedness under the
Merrill Lynch agreement was repaid on March 25, 1999, and the facility was
terminated. All indebtedness under the Morgan Guaranty Trust agreement was
repaid on March 31, 1999. The LLIH subordinated debt agreement was repaid and
terminated on April 5, 1999. The Company continues to evaluate various strategic
alternatives available to maximize shareholder value.



                                       7
<PAGE>   8


                          CHASTAIN CAPITAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On January 25, 1999, the Board of Directors approved a plan of action to sell
off existing assets to meet the debt maturities. From January 25, 1999 to March
31, 1999, the Company sold certain CMBS for total proceeds of $47.8 million,
resulting in a realized loss of $14.2 million, of which $11.7 million was
recognized in 1998. On March 25, 1999, the Company sold a real estate asset for
$3.8 million, resulting in a realized loss of $262,392, of which $257,797 was
recognized in 1998.

On April 5, 1999, the Company consummated an agreement (the "GMAC Repo") to sell
an office mezzanine loan with a face value of $21 million to General Motors
Acceptance Corporation ("GMAC"). The agreement allows the Company to repurchase
the investment no later than April 1, 2000. The GMAC Repo generated proceeds of
$10.5 million. The repurchase price of the GMAC Repo will be adjusted such that
GMAC will receive an 8% annualized yield on its investment prior to October 1,
1999. After October 1, 1999, the repurchase price is fixed at $9.6 million. The
Company used $8.5 million of the proceeds of the GMAC Repo to repay borrowings
from LLIH and will use the remaining proceeds to meet its remaining corporate
obligations, which primarily consist of hedging liabilities. The Company is
accounting for the GMAC Repo as a financing transaction.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of the
Company and its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.

Cash and Short-term Investments

All highly liquid investments with maturities of three months or less when
purchased are considered to be short-term investments.

Comprehensive Income

Comprehensive income is defined as the change in equity of a business during a
period from transactions and other events and circumstances, excluding those
resulting from investments by and distributions to owners. For the period ended
March 31, 1999, there is no difference between net loss and comprehensive net
loss.

CMBS

The Company classifies its CMBS as available-for-sale. Available-for-sale
securities are reported at fair value with net unrealized gains and losses
reported in comprehensive income (loss) as a separate component of shareholders'
equity. The Company recognizes income from CMBS under the effective interest
method, using the anticipated yield over the projected life of the investment.
The Company recognizes impairment on its CMBS when it determines that the
decline in the estimated fair value of its CMBS below cost is other than
temporary. Impairment losses are determined by comparing the estimated fair
value of a CMBS to its current carrying amount, the difference being recognized
as a loss. The Company uses specific identification in determining realized
gains/losses on its CMBS.

Mezzanine Loan Investments

The Company purchased and originated certain mezzanine loans to be held as
long-term investments. Loans held for investment are recorded at cost at the
date of purchase. Premiums and discounts related to these loans are amortized
over their estimated lives using the effective interest method. Any origination
fee income, application fee income and direct costs associated with originating
or purchasing mezzanine investments have been deferred and the net amount is
added to the basis of the loans on the balance sheet. The Company recognizes
impairment on the loans when it is probable that the Company will not be able to
collect all amounts due according to the contractual terms of the loan
agreement, or when the fair value of the loans is below amortized cost and the
Company determines that it may not be able to hold the loans until amortized
cost is recovered. As a result of the Company's November restructuring and the
Board's decision to discontinue new investment activity and to sell assets to
repay the Company's indebtedness, it is currently unlikely that the Company will
hold its mezzanine loan investments until maturity. The Company measures
impairment based on the present value of expected future cash flows discounted
at the loan's effective interest rate or Management's estimate of the fair value
of the loan.



                                       8
<PAGE>   9


                          CHASTAIN CAPITAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Real Estate Investments

Real estate assets are stated at cost when purchased and are subsequently
reduced by depreciation charges using the straight-line method over the
estimated useful lives of the assets. At March 31, 1999, the Company's
investment in real estate is classified as held for sale and is carried at the
lower of cost or fair value less estimated selling costs.

Rental income was being recognized over the life of the tenant leases using the
straight-line method. The Company eliminated the effect of the straight-line
adjustment when the properties were reclassified as held for sale.

Interest Rate Protection Agreements

The Company acquired interest rate protection agreements, in the form of forward
treasury locks, to reduce its exposure to interest rate risk on anticipated
long-term borrowings. At the time the treasury locks were acquired it was
anticipated that they would hedge the Company's exposure to future financing
costs and thus qualify for hedge accounting. Under hedge accounting, any gain or
loss on the treasury lock settlements would be amortized over the term of the
anticipated financing agreement. To qualify for hedge accounting, these interest
rate protection agreements must meet certain criteria including: (1) the debt to
be hedged exposes the Company to interest rate risk, (2) the interest rate
protection agreement reduces the Company's exposure to interest rate risk, and
(3) it is probable that the anticipated financing will occur. In the event these
interest rate protection agreements do not qualify as hedges, such agreements
are reclassified to be investments accounted for at fair value, with any gain or
loss included as a component of income or loss in the statement of operations.

As a result of the turmoil in the credit markets in October 1998, the Company
determined that its ability to obtain long-term, fixed-rate financing was no
longer probable. On October 23, 1998 the Company terminated all of its treasury
locks and incurred a realized loss of $13.3 million in 1998.

On July 13, 1998 the Company entered into a Libor collar in the notional amount
of $89 million to mature on July 1, 1999, in order to hedge against rising short
term borrowing costs. The collar contract effectively locked in the Company's
Libor base rate between a floor of 5.51% and a ceiling of 5.80% during the term.
The Company terminated the collar contract on January 27, 1999 and realized a
loss of $265,000, of which $216,000 was recognized in 1998.

Income Taxes

The Company elected to be taxed as a REIT under the Internal Revenue Code of
1986 (the "Code"), as amended, commencing with its first REIT taxable year ended
on December 31, 1998. As a REIT, the Company generally is not subject to federal
corporate income taxes on net income that it distributes to shareholders,
provided that the Company meets certain other requirements for qualification as
a REIT under the Code. Because the Company qualifies as a REIT and because the
Company is reporting net losses year to date for 1999, no provision has been
made for federal income taxes for the Company and its subsidiaries in the
accompanying consolidated financial statements.



                                       9
<PAGE>   10


                          CHASTAIN CAPITAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net Loss Per Share

Basic net loss per share is computed on the basis of the weighted average number
of shares outstanding for the period. Diluted net loss per share is computed on
the basis of the weighted average number of shares and dilutive common
equivalent shares outstanding for the period. For the three months ending March
31, 1999, all outstanding options to purchase 1,246,253 shares of Common Stock
were anti-dilutive. Accordingly, there is no difference between basic and
diluted net loss per common share.

Use of Estimates

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 disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.

New Accounting Pronouncement

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 133 "Accounting for Derivative Instruments and for
Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge. The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. FAS 133 is
effective for the Company beginning January 1, 2000. The Company is evaluating
the eventual impact of FAS 133 on its financial statements.

NOTE 3 - SEGMENT DISCLOSURE

The Company has one reportable segment, real estate investments. At March 31,
1999, the Company's real estate investments included CMBS, mezzanine real estate
loans, and a commercial real estate property. The Company uses net income (loss)
to measure profit or loss. The Company separately discloses assets, revenue and
capital expenditures by type of real estate investment in the consolidated
financial statements.

Except for interest income earned on the Company's investment in a British
pounds Sterling mezzanine loan, discussed in Note 6, all of the Company's
revenue is attributed to investments located in the United States. Revenue
information by country is summarized below:

<TABLE>
<CAPTION>
                                     March 31,
                                       1999
                                       ----
         <S>                        <C>
         United States ......       $3,001,393
         United Kingdom .....       $  448,949
                  Total .....       $3,450,342
</TABLE>

At March 31, 1999, the carrying amount of the Company's British pounds Sterling
loan was $16,764,264.

During the three months ending March 31, 1999, the following Company investments
accounted for more than 10% of revenue:

<TABLE>
<S>                                                           <C>
Mezzanine loan on an office building in New York              18%
Mezzanine loan on multiple hotels in London, England          13%
B rated CMBS sold in March 1999                               14%
</TABLE>



                                       10
<PAGE>   11


                          CHASTAIN CAPITAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - MANAGEMENT FEES

The Company entered into a Management Agreement (the "Management Agreement")
with ERE Yarmouth, Inc., an indirect wholly-owned subsidiary of Lend Lease
Corporation Limited, under which ERE Yarmouth, Inc. advises the Company on
various facets of its business and manages its day-to-day operations, subject to
the supervision of the Company's Board of Directors. On July 13, 1998, the name
of ERE Yarmouth, Inc. was changed to Lend Lease Real Estate Investments, Inc.
("Lend Lease" or the "Manager" or "Management"). Lend Lease continues as the
advisor to the Company.

Pursuant to the Management Agreement, the Company will pay the Manager a
quarterly base management fee equal to the following:

<TABLE>
<S>                                         <C>
For the first four fiscal quarters
     Commencing with the fiscal
     Quarter ended June 30, 1998.....       1.00% per annum of the Average
                                            Invested Assets (1) of the Company


     During each fiscal quarter
     Thereafter......................       0.85% per annum of the Average
                                            Invested Assets up to $1 billion

                                            0.75% per annum of the Average
                                            Invested Assets from $1 billion to
                                            $1.25 billion

                                            0.50% per annum of the Average
                                            Invested Assets in excess of
                                            $1.25 billion
</TABLE>


The Company incurred base management fees of $279,469 for the three months ended
March 31, 1999.

The Management Agreement also provides for a quarterly incentive management fee
equal to the product of (A) 25% of the dollar amount by which (1) (a) Funds From
Operations (2) (before the incentive fee) of the Company for the applicable
quarter per weighted average number of shares of Common Stock outstanding plus
(b) gains (or minus losses) from debt restructuring or sales of assets not
included in Funds From Operations of the Company for such quarter per weighted
average number of shares of Common Stock outstanding, exceed (2) an amount equal
to (a) the weighted average of the price per share at initial offering and the
prices per share at any secondary offerings by the Company multiplied by (b) 25%
of the sum of the Ten-Year U.S. Treasury Rate plus four percent, and (B) the
weighted average number of shares of Common Stock outstanding. No incentive
management fees have been earned for the three months ended March 31, 1999.

The Management Agreement is for an initial term of two years, and can be
successively extended for two year periods subject to an affirmative vote of a
majority of the Independent Directors. In addition, the Management Agreement
provides for a termination fee equal to the sum of the base management fee and
incentive management fee, if any, earned during the immediately preceding four
fiscal quarters.


---------------------------
(1)  The term "Average Invested Assets" for any period means the average of the
     aggregate book value of the assets of the Company, including a
     proportionate amount of the assets of all of its direct and indirect
     subsidiaries, before reserves for depreciation or bad debts or other
     similar non-cash reserves less (i) uninvested cash balances and (ii) the
     book value of the Company's CMO liabilities, computed by dividing (a) the
     sum of such values for each of the three months during such quarter (based
     on the book value of such assets as of the last day of each month) by (b)
     three.
(2)  The term "Funds From Operations" as defined by the National Association of
     Real Estate Investment Trusts, Inc. means net income (computed in
     accordance with GAAP) excluding gains (or losses) from debt restructuring,
     sales of property and any unusual or non-recurring transactions, plus
     depreciation and amortization on real estate assets, and after deduction of
     preferred stock dividends, if any, and similar adjustments for
     unconsolidated partnerships and joint ventures. Funds From Operations does
     not represent cash generated from operating activities in accordance with
     GAAP and should not be considered as an alternative to net income as an
     indication of the Company's performance or to cash flows as a measure of
     liquidity or ability to make distributions.



                                       11
<PAGE>   12


                          CHASTAIN CAPITAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - INVESTMENT IN CMBS

The amortized cost and estimated fair value of commercial mortgage-backed
securities classified as available-for-sale securities at March 31, 1999 are
summarized below. The face value of CMBS was $31,015,870 at March 31, 1999.

<TABLE>
<CAPTION>
                         Weighted                                                          Estimated
                       Average Life      Amortized       Impairment     Amortized Cost       Fair
Security Rating         (in years)         Cost            Losses          Adjusted          Value
---------------         ----------         ----            ------          --------          -----
<S>                    <C>             <C>              <C>             <C>               <C>
  CMBS:
  BB+                       14.2       $15,884,875      $ 3,257,525      $12,627,350      $12,627,350
  BB                        14.9        10,517,695        2,171,650        8,346,045        8,346,045
                                       -----------      -----------      -----------      -----------
Total                                  $26,402,570      $ 5,429,175      $20,973,395      $20,973,395
                                                        ===========      ===========      ===========
</TABLE>

The estimated fair value of the CMBS is based on either i) the price obtained
from the investment banking institutions, which sold the CMBS to the Company, or
ii) an average of at least three quotes received on similarly structured and
rated CMBS. The use of different market assumptions, valuation methodologies,
changing interest rates, interest rate spreads for CMBS over the U.S. Treasury
yields and the timing and magnitude of credit losses may have a material effect
on the estimates of fair value. The fair value estimates presented herein are
based on pertinent information available as of March 31, 1999.

The CMBS tranches owned by the Company provide credit support to the more senior
tranches of the related commercial securitization. Cash flow from the underlying
mortgages is generally allocated first to the senior tranches, with the most
senior tranches having a priority right to cash flow. Any remaining cash flow is
generally allocated among the other tranches based on their seniority. To the
extent there are defaults and unrecoverable losses on the underlying mortgages,
resulting in reduced cash flows, the subordinate tranches will bear those losses
first. To the extent there are losses in excess of the most subordinate tranches
stated right to principal and interest, the remaining tranches will bear such
losses in order of their relative subordination.

At March 31, 1999, the amortized cost of the Company's investments in CMBS
exceeded estimated fair value by $5,429,175. Impairment losses of $4,958,647 on
these investments were recognized in 1998. Due to the uncertainty of the
Company's ability to hold its CMBS investments until the cost of the CMBS is
recovered, the Company determined that the decline in the fair value of its CMBS
below amortized cost at March 31, 1999 was other than temporary. Accordingly,
the Company carries its investment in CMBS at estimated fair value at March 31,
1999. During the first quarter, the Company sold seven of its investment in CMBS
securities for $47.8 million, resulting in a realized loss of $14.2 million of
which $11.7 million was recognized in 1998. The proceeds from the sale of CMBS
were used to repay the Company's obligations under its debt agreements. (See
Note 9)



                                       12
<PAGE>   13


                          CHASTAIN CAPITAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - MEZZANINE LOAN INVESTMENTS

As of March 31, 1999, the Company's investment in mezzanine loans consisted of
the following:

<TABLE>
<CAPTION>
                                                                                                      Estimated
  Underlying      Interest      Maturity        Face        Amortized     Impairment     Carrying        Fair
   Security         Rate          Date          Value         Cost           Loss          Value         Value
  ----------      --------      --------        ----        ---------     ----------     --------     ---------
<S>               <C>          <C>          <C>           <C>             <C>           <C>           <C>
Commercial
real estate:
Office             12.00%      05/01/2007   $21,000,000   $24,560,333     $4,260,059   $20,300,274   $21,000,000
Hotel              11.77%      06/30/2003    19,647,200    19,722,940      2,958,676    16,764,264    16,881,936
Multi-family       10.63%      08/01/2008     2,800,000     2,705,233        372,308     2,332,925     2,394,087
Retail              9.69%      05/01/2005     4,570,896     4,361,465        459,590     3,901,875     3,901,875
Other              10.57%      07/01/2008     1,000,000       961,019        144,858       816,161       830,473
                                            -----------   -----------     ----------   -----------   -----------
Total                                       $49,018,096   $52,310,990     $8,195,491   $44,115,499   $45,008,371
                                            ===========   ===========     ==========   ===========   ===========
</TABLE>

At March 31, 1999, the amortized cost of the Company's investments in mezzanine
loans exceeds their aggregate carrying value. The Company carries its
investments in mezzanine loans at the lower of amortized cost after impairment
losses or fair value. The fair value of mezzanine loan investments is based on
Management's best estimate of market conditions at March 31, 1999. The use of
different market assumptions, valuation methodologies, changing interest rates,
interest rate spreads and the timing and magnitude of credit losses may have a
material effect on the estimates of fair value. The Company's ability to hold
its mezzanine loans to maturity has been negatively affected by the recent
turmoil in the financial markets and its effect on the value of the loans, along
with the restructuring of its debt agreements (See Note 9). The $8,195,491
impairment loss on mezzanine loan investments was recognized in 1998.

The Company's $19,647,200 face value mezzanine loan investment is a British
pounds Sterling loan. The Company purchased the investment for 11.98 million in
British pounds Sterling. Interest on the loan is based on Sterling Libor ("Base
Rate") plus 4.00%. The exchange rate at the date of investment was $1.64 dollars
per pound. In order to reduce the risk of foreign currency exchange rate
fluctuations, the Company entered into a foreign currency swap arrangement with
Merrill Lynch Capital Services, Inc. The swap arrangement provides the Company
with an exchange rate of $1.64 per pound on the return of its principal
regardless of exchange rate fluctuation. The swap arrangement also converts the
Base Rate to US$ Libor minus 0.06% regardless of movements in the Sterling
Libor. The Company is subject to foreign currency risk on the spread portion
(4.00%) of the quarterly interest payments. The market value of the currency
swap at March 31, 1999 was an asset of $269,998. The foreign currency swap
arrangement expires on the maturity date of the related loan. The Company is
exposed to credit loss in the event of nonperformance by the counterparty to the
currency swap agreement. However, the Company does not anticipate nonperformance
by the counterparty.

On April 5, 1999, the Company consummated the GMAC Repo to sell an office
mezzanine loan with a face value of $21 million to GMAC. The agreement allows
the Company to repurchase the investment no later than April 1, 2000. The GMAC
Repo generated proceeds of $10.5 million. The repurchase price of the GMAC Repo
will be adjusted such that GMAC will receive an 8% annualized yield on its
investment if the Company repurchases the investment prior to October 1, 1999.
After October 1, 1999, the repurchase price is fixed at $9.6 million. The
Company used $8.5 million of the proceeds of the GMAC Repo to repay borrowings
from LLIH and will use the remaining proceeds to meet its remaining corporate
obligations, which primarily consist of hedging liabilities. The Company is
accounting for the GMAC Repo as a financing transaction.

NOTE 7 - MORTGAGE LOAN INVESTMENTS

On January 4, 1999, the Company accepted a discounted payoff of its one
remaining mortgage loan for $15,150,400, resulting in a realized loss of
$797,810, which was recognized in 1998.



                                       13
<PAGE>   14


                          CHASTAIN CAPITAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - REAL ESTATE INVESTMENT HELD FOR  SALE

As of March 31, 1999, the Company's investment in real estate consisted of the
following:

<TABLE>
<CAPTION>
Date Acquired           Property            Location            Property Type
-------------------     ----------------    ----------------    -----------------
<S>                     <C>                 <C>                 <C>
6/26/98                 Lakeside Plaza      Stockton, CA        Retail
</TABLE>

The carrying value of real estate investment held for sale at March 31, 1999 is
summarized below:

<TABLE>
         <S>                                                 <C>
         Real estate investment held for sale - at cost
                  Land                                       $ 1,470,000
                  Buildings                                    2,225,869
                  Tenant Improvements                              1,909
                  Capitalized Costs                               20,670
         Less accumulated depreciation and amortization          (32,280)
         Less impairment charge                                 (189,708)
                                                             -----------
         Real estate investment held for sale - net          $ 3,496,460
                                                             ===========
</TABLE>

In connection with the Company's decision to discontinue its initial investment
strategies, the Company also decided to sell its real estate investments and
accordingly, at March 31, 1999, the Company's real estate investment is
classified as held for sale. The Company expects to dispose of the real estate
in 1999. The real estate investment was written down to market value less
estimated selling costs in 1998.

On March 25, 1999, the Company sold its Bryarwood 85 real estate investment for
$3.8 million. Primarily due to the buyer's assumption of tenant improvement
liabilities, net cash proceeds were $2,881,543, resulting in a realized loss of
$262,392 of which $257,797 was recognized in 1998.



                                       14
<PAGE>   15


                          CHASTAIN CAPITAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - BORROWING ARRANGEMENTS

On May 15, 1998, the Company entered into two Master Loan and Security
Agreements, to provide financing for the Company's investments. The facilities
required assets to be pledged as collateral. The first loan agreement, which was
with Morgan Stanley Mortgage Capital, Inc. (the "Morgan Stanley Agreement")
permitted the Company to borrow up to $250,000,000 and was scheduled to
terminate on May 14, 1999. The facility was intended to finance first-mortgage
loans originated by the Company. On October 26, 1998, the Company terminated the
agreement with Morgan Stanley at no cost to the Company. There were no
borrowings outstanding under the Morgan Stanley Agreement. The second agreement,
which is with Morgan Guaranty Trust Company of New York (the "Morgan Guaranty
Agreement"), permitted the Company to borrow up to $450,000,000 and was
scheduled to terminate on May 14, 1999. As discussed below, this agreement has
been amended and on March 31, 1999, all amounts were repaid and the agreement 
terminated.  As of December 31, 1998, there were $52,412,238 in borrowings 
outstanding under the Morgan Guaranty Agreement secured by the Company's 
assets with an aggregate value of $70,745,575 at December 31, 1998.

On August 21, 1998, the Company entered into a Master Assignment Agreement with
Merrill Lynch Mortgage Capital, Inc. and Merrill Lynch Capital Services, Inc.
(the "Merrill Lynch Agreement"), to provide financing for the Company's
investments. The facility required assets to be pledged as collateral. The
Merrill Lynch Agreement permitted the Company to borrow up to $35,000,000 and
was scheduled to terminate on August 20, 1999. As discussed below, this
agreement has been amended and terminated on March 25, 1999. Outstanding
borrowings against this line of credit accrued interest based on the Libor rate
plus 1.25%. The Merrill Lynch Agreement allowed the lender to establish a margin
requirement on each borrowing, and to request payments from the Company, at any
time, if the market value of the collateral fell below the applicable margin
requirement. As of December 31, 1998, there were $9,505,918 in borrowings
outstanding under the Merrill Lynch Agreement, secured solely by the Company's
hotel mezzanine investment which had a carrying value of $16,764,264 at 
December 31, 1998.

As a result of the financial turmoil in the credit markets in October 1998 and
the related widening of spreads between rates on mortgage investments and
treasury securities, the Company experienced significant losses in its
investment portfolio. Because of these losses, on October 23, 1998 the Company
announced it was necessary to obtain temporary waivers from Morgan Guaranty
Trust and Merrill Lynch to avoid being in default of tangible net worth
covenants under the Company's credit facilities. On November 13, 1998 the
Company reached an agreement with Morgan Guaranty Trust and Merrill Lynch to
restructure its credit facilities and terminated the Morgan Stanley Agreement.

Under its amended agreement with Morgan Guaranty Trust, the Company's credit
facility was reduced to $90 million. The facility reduced to $50 million on
January 31, 1999. The interest rate was Libor plus 1.5% from November 13, 1998
to December 31, 1998 and Libor plus 2.0% from January 1, 1999 until the facility
matured on March 31, 1999.

Under the amended agreement with Merrill Lynch, the Company agreed to pay down
the outstanding borrowings to $19.0 million, and further agreed that no
additional borrowings would be permitted under the agreement through its
maturity on January 31, 1999. On January 27, 1999, this agreement was further
amended, extending the maturity to February 26, 1999. On February 25, 1999, the
Merrill Lynch agreement was again amended, extending the maturity date to March
25, 1999.

In connection with the credit facility restructurings, on November 13, 1998,
LLIH agreed to provide the Company with up to $40 million of unsecured
subordinated indebtedness ("LLIH Agreement") through March 31, 1999. An
initial advance of $17 million was drawn on November 13, 1998. On March 30,
1999, the agreement was amended extending the maturity date to April 5, 1999.
The advances incurred interest at the rate of 14% per annum through January
31, 1999 and 16% thereafter. As of March 31, 1999 and December 31, 1998,
borrowings outstanding under the LLIH Agreement were $8,500,000 and $9,000,000
respectively. Interest expense for the three months ending March 31, 1999
under the LLIH Agreement was $132,658, an annualized interest rate of 15.4%.
Interest expense from April 1, 1999 through April 5, 1999 was $14,904.



                                       15
<PAGE>   16


                          CHASTAIN CAPITAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company was required to meet certain debt covenants on its borrowings to
avoid default on its obligations. The Morgan Guaranty Trust agreement had three
debt covenants. Maintenance of Tangible Net Worth required that the Company's
Tangible Net Worth, as defined, be at least $100,000,000. The first amendment to
the Morgan Guaranty Trust agreement reduced the threshold to $65,000,000 for the
period from November 13, 1998 to January 1, 1999 and to $50,000,000 thereafter.
The Company was in compliance with this covenant for the three months ended
March 31, 1999. Maintenance of Ratio of Indebtedness to Tangible Net Worth
required that the ratio of the Company's total debt to its Tangible Net Worth
not exceed 5 to 1. This covenant was met for the three months ended March 31,
1999. Maintenance of Interest Coverage Ratio required that the ratio of the
Company's interest expense to Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA"), as defined, shall not be less than 1.45 to 1. The
Company met the Interest Coverage Ratio covenant for the three months ended
March 31, 1999. The first amendment to the Morgan Guaranty Trust agreement also
provided that the Company must maintain a cash position on its balance sheet of
a minimum of $10,000,000, free and clear of all encumbrances. This covenant was
in effect until January 29, 1999, when the second amendment to the agreement
reduced the requirement to $5,000,000.

The original Merrill Lynch agreement included three debt covenants. Book Net
Worth required that, in any given period, the Company's ending Book Net Worth,
as defined, shall not be less than 80% of beginning Book Net Worth, and that
total Book Net Worth shall be at least $100,000,000. The first amendment to the
Merrill Lynch agreement reduced the threshold to $50,000,000 for the period from
October 23, 1998 to November 13, 1998, and to $65,000,000 thereafter. The second
amendment to the Merrill Lynch agreement reduced the threshold back to
$50,000,000. Maximum Debt to Equity Ratio required that the ratio of the
Company's total debt to total equity shall not exceed 8 to 1. Merrill Lynch also
had a cross-default covenant which provided that if the Company failed to meet
any of its covenants under its other borrowing arrangements, that it was also in
default under the Merrill Lynch agreement. The first amendment to the Merrill
Lynch agreement also provided that the Company must maintain a cash position on
its balance sheet of a minimum of $10,000,000, free and clear of all
encumbrances. This covenant was in effect until January 27, 1999, when the
second amendment to the agreement reduced the requirement to $5,000,000. The
company was in compliance with these covenants for the three months ended March
31, 1999.

The LLIH agreement contained a cross-default covenant which provided that if the
Company fails to meet any of its covenants under its other borrowing
arrangements, that it was also in default under the LLIH Agreement. The LLIH
agreement had no other covenant requirements. On April 5, 1999, the Company
repaid all its outstanding borrowing under the LLIH Agreement with proceeds from
the GMAC Repo (See Note 10).

Under its borrowing arrangements with Morgan Guaranty Trust and LLIH, the
Company was allowed to pay distributions to meet the requirements of a REIT. The
Company was not required to pay any dividends in the first quarter of 1999
due to net taxable losses incurred for the quarter.

NOTE 10 - REPURCHASE AGREEMENTS

On August 25, 1998, the Company entered into a Master Repurchase Agreement with
Deutsche Bank Securities, Inc. (the "Deutsche Bank Agreement"), which provided
financing for the Company's investments. The Deutsche Bank Agreement allowed
Deutsche Bank to establish a margin requirement on each transaction, and to
request payment from the Company at any time, if the market value of the
underlying assets or securities fell below the applicable margin requirement. On
February 19, 1999, the CMBS collateralizing the borrowing was sold, and the
remaining borrowings under the agreement were paid. As of December 31, 1998,
there were $7,926,375 in borrowings outstanding under the Deutsche Bank
Agreement, secured solely by one of the Company's BBB- rated CMBS with an
estimated fair value of $8,911,200 at December 31, 1998. On February 19, 1999,
the Company sold the BBB- CMBS for $8.8 million and repaid all amounts owed 
under the Deutsche Bank Agreement.

On April 5, 1999, the Company consummated the GMAC Repo agreement to sell an
office mezzanine loan with a face value of $21 million to GMAC. The agreement
allows the Company to repurchase the investment no later than April 1, 2000. The
GMAC Repo generated proceeds of $10.5 million. The repurchase price of the GMAC
Repo will be adjusted such that GMAC will receive an 8% annualized yield on its
investment if the Company repurchases the investment prior to October 1, 1999.
After October 1, 1999, the repurchase price is fixed at $9.6 million. The
Company used $8.5 million of the proceeds of the GMAC Repo to repay borrowings
from LLIH and will use the remaining proceeds to meet its remaining corporate
obligations, which primarily consist of hedging liabilities. The Company
accounted for the GMAC Repo as a financing transaction.



                                       16
<PAGE>   17


                          CHASTAIN CAPITAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - STOCK OPTION PLAN

The Company has a stock option plan for the Company's executive officers and the
Manager, which provides for the issuance of up to 2,500,000 shares of Common
Stock. At the closing of the IPO, the Company granted the Manager a fully vested
option to purchase 1,166,667 shares of Common Stock exercisable at the IPO price
of $15.00 per share. The Manager received the stock option as compensation for
its efforts in completing the IPO. One-fourth of the Manager's options become
exercisable on each of the first four anniversaries of the IPO. Unless
exercised, these options expire in 2008.

The underwriters sold in the IPO 79,586 shares of Common Stock to directors and
officers of the Company and the Manager for $15.00 per share. Pursuant to the
Company's Directed Share Program, such individuals were granted an option to
purchase one share of Common Stock for each share purchased in the IPO at an
exercise price of $15.00 per share. One-fifth of the options became exercisable
immediately, and one-fifth of the options become exercisable on each of the
first four anniversaries of the IPO. Unless exercised, these options expire in
2008.

The Company accounts for stock options in accordance with FAS 123, "Accounting
for Stock-Based Compensation". FAS 123 applies a market value based approach to
valuing the options. The Company estimated the market value of the options
granted using the Black-Scholes option-pricing model, with the following
assumptions:

<TABLE>
         <S>                                 <C>
         Risk-free rate of interest           5.62%
         Expected life of options             2.42 years
         Volatility                          24.05%
         Dividend rate                       12.76%
</TABLE>

The estimated weighted average grant date market value of stock options granted
by the Company in 1998 was approximately $0.75 per share or $932,196. The
Company expensed the $877,197 value of the fully vested options granted to the
Manager upon completion of the IPO.

The following table summarizes the status of the Company's stock options at
March 31, 1999:

<TABLE>
<CAPTION>
                                 Granted             Per Share                                  Remaining
                                   And                Exercise                                 Contractual
                               Outstanding             Price             Exercisable              Life
                               -----------             -----             -----------              ----
<S>                            <C>                   <C>                 <C>                   <C>
Manager                          1,166,667             $15.00               None                 9 years
Others                              79,586             $15.00              15,917                9 years
Total                            1,246,253             $15.00              15,917                9 years
</TABLE>

NOTE 12 - INTEREST RATE PROTECTION AGREEMENTS

In order to hedge the risk of a material change in interest rates that would
affect the Company's borrowing rate on its lines of credit and on anticipated
future long-term borrowings secured by the Company's investments, the Company
entered into forward treasury lock agreements and an interest rate collar. None
of these agreements were held for trading purposes. The Company's policy was to
purchase a forward treasury lock whenever a fixed rate mortgage loan closed or
when a borrower requested a rate lock under an executed loan application.
Depending on the size of fixed rate mortgage loans, the Company in some cases
aggregated loans and purchased a single treasury lock for a pool of small loans.
The Company also entered into forward treasury locks in anticipation of
long-term financing of its CMBS and mezzanine investments that were expected to
close in 1999.

As a result of the financial turmoil in the credit markets in October 1998, and
the Company's failure to comply with its debt agreements, the Company determined
that its ability to obtain long-term, fixed-rate financing was not probable. The
turmoil also created uncertainty as to the Company's ability to hold the
investments, and thus the treasury locks no longer qualified for hedge
accounting. On October 23, 1998 the Company terminated all of its treasury locks
and incurred a realized loss of $13.3 million, which was recognized as a
component of income.



                                       17
<PAGE>   18


                          CHASTAIN CAPITAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On January 23, 1999 the Company terminated its interest rate collar contract at
a loss of $265,000, of which $216,000 was recognized in 1998.

On March 31, 1999, the Company had no exposures to interest rate protection
agreements.

NOTE 13 - SUBSEQUENT EVENTS

On April 5, 1999, the Company consummated the GMAC Repo to sell an office
mezzanine loan with a face value of $21 million to GMAC. The agreement allows
the Company to repurchase the investment no later than April 1, 2000. The GMAC
Repo generated proceeds of $10.5 million. The repurchase price of the GMAC Repo
will be adjusted such that GMAC will receive an 8% annualized yield on its
investment if the Company repurchases the investment prior to October 1, 1999.
After October 1, 1999, the repurchase price is fixed at $9.6 million. The
Company used $8.5 million of the proceeds of the GMAC Repo to repay borrowings
from LLIH and will use the remaining proceeds to meet its remaining corporate
obligations, which primarily consist of hedging liabilities. The Company is
accounting for the GMAC Repo as a financing transaction.

On April 30, 1999 and May 3, 1999, the Company paid $4,771,187 and $1,149,570
respectively, toward its Treasury locks liability.




                                       18
<PAGE>   19


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

         The following discussion of the Company's consolidated financial
condition, results from operations, and capital resources and liquidity should
be read in conjunction with the Financial Statements and related Notes included
in Item 1.

Capital Resources and Liquidity

         Liquidity is the ability for the Company to meet its cash requirements
including any ongoing commitments, borrowings, shareholder distributions,
lending and general business activities. The Company's source of liquidity
during the period ended March 31, 1999 consisted of net proceeds from the
Offering, borrowings under the Master Loan and Security Agreement with Morgan
Guaranty Trust (the "Morgan Guaranty Trust Agreement"), borrowings under the
Merrill Lynch Agreement, borrowings under the LLIH Agreement and repurchase
financing from the Deutsche Bank Agreement and the GMAC Repo. The net proceeds
from the Offering were $102,951,000.

         From the date of the Offering until the funds were invested in real
estate assets, the Offering proceeds were held in a short-term investment
account earning an annualized yield of 6.15%. Once the Offering proceeds were
fully invested, the Company began to utilize the Master Loan and Security
Agreement that was established with Morgan Guaranty Trust in the amount of
$450,000,000, the Merrill Lynch Agreement in the amount of $35,000,000 and the
Deutsche Bank Agreement with unlimited transactions subject to the approval of
both Deutsche Bank and the Company. After the Company's disclosure in October
1998 that it would need to restructure its debt in order to avoid default status
under the debt covenants with Merrill Lynch and Morgan Guaranty Trust, the
Company negotiated amendments to both lines and a new subordinated debt
agreement with LLIH. The Morgan Guaranty Trust debt had two amendments dated
November 13, 1998 and January 29, 1999, respectively. The first amendment
reduced the available line of credit to $90,000,000 until January 31, 1999 and
$50,000,000 thereafter. The interest rate was increased to 150 basis points over
Libor until December 31, 1998 and 200 basis points over Libor until March 31,
1999, the new termination date. The second amendment reduced the required cash
on hand by the Company from $10,000,000 to $5,000,000. On February 8, 1999,
Morgan Guaranty Trust agreed to a waiver of the Maintenance of Interest Coverage
Ratio, one of its debt covenants, for the fourth quarter of 1998. The Merrill
Lynch Agreement has been amended three times, first on October 23, 1998, second
on January 27, 1999 and third on February 25, 1999. The first amendment granted
an extension for repayment until January 31, 1999. The second amendment
increased the borrowing rate to 500 basis points over Libor, reduced the line to
$8,005,918 and extended the maturity date until February 26, 1999. The third
amendment extended the maturity date until March 25, 1999. The LLIH subordinated
debt agreement was in the amount of $40,000,000. The debt originally matured on
March 31, 1999, but was extended to April 5, 1999, and has an annual interest
rate of 14% until January 31, 1999 and 16% thereafter. The balance outstanding
at March 31, 1999 was $8.5 million and on April 5, 1999 the subordinated debt
was completely paid off.

         In order to meet the Company's liquidity needs in early 1999, the Board
of Directors, on January 25, 1999, approved a plan of action to sell a portion
of the Company's assets in order to meet the Company's outstanding obligations.
On February 19, 1999, the Company sold a CMBS for total proceeds of $8.8
million. The proceeds were used to repay the Company's indebtedness under the
Deutsche Bank Agreement. On March 31, 1999, the Company completed the sale of a
package of CMBS. The total proceeds from the sale were $39.0 million. The
Company used the proceeds to repay its borrowings from Morgan Guaranty Trust. In
connection with its sale of investments on March 31, 1999, the Company entered
into an agreement to sell a Mezzanine Investment with a face value of $21
million to GMAC. The agreement allows the Company to repurchase the investment
no later than April 1, 2000. The GMAC Repo was closed on April 5, 1999 and
generated proceeds of $10.5 million. The repurchase price of the GMAC Repo will
be adjusted such that GMAC will receive an 8% annualized yield on its investment
if the Company repurchases the investment prior to October 1, 1999. After
October 1, 1999, the repurchase price is fixed at $9.6 million. The Company used
$8.5 million of the proceeds of the GMAC Repo to repay borrowings from LLIH and
the remaining monies will be used to meet its remaining corporate obligations,
which primarily consist of hedging liabilities.

         The Company has paid off and terminated all of its existing credit
facilities as of April 5, 1999. The Company's remaining material liability is
$10.5 million for the GMAC Repo and $10.9 million of accrued losses on
terminated forward Treasury locks. $4.8 million and $1.1 million of the forward
Treasury lock liability was due and paid on April 30, 1999 and May 3, 1999,
respectively. The remaining $5 million of the forward Treasury lock liability
is due on July 2, 1999. The Company believes its net working capital and net
operating cash flow will be sufficient to meet the Company's remaining
liabilities.

Working Capital Reserves

         At March 31, 1999 the Company had $8,875,695 in cash and short-term
investments. Included in the November 1998 debt restructuring were covenants
requiring the Company to maintain a minimum cash balance of $10,000,000. These



                                       19
<PAGE>   20


covenants were included in its borrowing agreements with Morgan Guaranty Trust
and Merrill Lynch. As of January 31, 1999, the covenants were amended requiring
the Company to maintain a minimum balance of $5,000,000. The excess cash was
used to reduce its outstanding debt. As of March 31, 1999, the minimum cash
requirements were terminated with the termination of the Morgan Guaranty Trust
Agreement.

Financial Condition

Securities available-for-sale. Due to uncertainty of the Company's ability to
hold its CMBS investments until the cost of the CMBS could be recovered, the
Company determined that the decline in the market value of its CMBS below
amortized cost for the period ended March 31, 1999 was other than temporary.
Accordingly, the Company wrote down its investment in CMBS to fair value and
recognized an impairment loss of $470,528 for the period ended March 31, 1999.
The company sold a CMBS on February 19, 1999 for $8,827,344 resulting in a
realized loss of $627,488, of which $541,562 was recognized at December 31,
1998. On March 31, 1999, the Company sold $38,962,296 million of CMBS in order
to repay its obligations under its borrowing agreements resulting in a realized
loss of $13,592,790 of which $11,176,359 was recognized at December 31, 1999.

         Mezzanine Investment Portfolio. In connection with its sale of CMBS on
March 31, 1999, the Company entered into a repurchase agreement to sell an
office Mezzanine loan with a face value of $21 million to GMAC. The agreement
allows the Company to repurchase the investment no later than April 1, 2000. The
GMAC Repo closed on April 5, 1999, and generated proceeds of $10.5 million. The
repurchase price of the GMAC Repo will be adjusted such that GMAC will receive
an 8% annualized yield on its investment if the Company repurchases the
investment prior to October 1, 1999. After October 1, 1999, the repurchase price
is fixed at $9.6 million. The Company used $8.5 million of the proceeds of the
GMAC Repo to repay borrowings from LLIH and will use the remaining monies to
meet its remaining corporate obligations, which primarily consist of hedging
liabilities.

         Mortgage Loan Portfolio. The Company accepted a discounted pay off of
the remaining Mortgage Loan on January 4, 1999 at a loss of $797,810. This loss
was recognized by the Company as an operating loss for the year ended December
31, 1998. The loss on sale and settlement of mortgage loans in the amount of
$97,929 resulted from changes in estimates that were used to accrue for third
party costs relating to the sale and settlement of previously committed loans.

         Real Estate Investments. At March 31, 1999, the Company's real estate
investment was classified as held for sale. Preliminary offers determined that
the value of the property was less than book value. Impairment losses of
$447,505 were recognized in 1998. On March 25, 1999 the Company sold one real
estate investment for $3.8 million in order to meet its debt obligations.

         Short-term borrowings. During the first quarter of 1999, the Company
repaid its borrowings with Morgan Guaranty Trust and Merrill Lynch and extended
the maturity date of its agreement with LLIH, as further discussed in "Liquidity
and Capital Resources" and in the footnotes to the Company's consolidated
financial statements as of and for the period ended March 31, 1999 included
herein. The Company used its short-term borrowing arrangements to finance its
investments in certain CMBS, Mortgage Loans and Mezzanine Investments. As of
March 31, 1999, the Company had short-term borrowings totaling $8,500,000. The
total amount was comprised of:

<TABLE>
<CAPTION>
      LOAN FACILITY                                   AMOUNT BORROWED       ASSETS PLEDGED
      -------------                                   ---------------       --------------

      <S>                                             <C>                   <C>
      LLIH...................................           8,500,000              Unsecured
</TABLE>

         Treasury locks payable. As a result of the turmoil in the credit market
during the fourth quarter of 1998 and the Company's failure to comply with its
debt agreements, the Company determined that its ability to obtain long-term
fixed rate financing was not probable. The turmoil also created uncertainty as
to the Company's ability to hold its investments. Accordingly, the Company
discontinued hedge accounting for its Treasury locks and incurred a loss of
$13,070,685 on these agreements. As part of its debt restructuring on November
13, 1998, the Company paid $2,390,000 to settle its Treasury locks payable with
Merrill Lynch. The remaining amounts payable and dates due are provided in the
table below. On January 27, 1999, the Company canceled an interest rate collar
at a cost of $265,000.

<TABLE>
<CAPTION>
                     AMOUNT DUE         DUE DATE
                     ----------         --------
                     <S>              <C>
                     $4,771,187       April 30, 1999
                      1,149,570       May 3, 1999
                      5,034,953       July 2, 1999
</TABLE>

The hedging liabilities due on April 30, 1999 and on May 3, 1999 were paid on
their respective due dates.



                                       20
<PAGE>   21


         Shareholders' Equity. Shareholder's equity decreased by $1,594,800 from
December 31, 1998 due entirely to net losses for the period ended March 31,
1999.

Results from Operations

         Revenue. Revenue totaled $3,450,342 for the period ended March 31,
1999. Revenue is comprised primarily of interest income on CMBS investments and
Mezzanine Investments and rental income from real estate. For the three months
ended March 31, 1999, rental income consisted of two real estate investments.
The real estate investments include a retail property in Stockton, California
and an office building in Atlanta, Georgia. The office building was sold on
March 25, 1999.

         Operating Expenses. Operating expenses consist of expenses incurred in
operating the Company, property and investment operations, and totaled
$2,381,517 for the period ended March 31, 1999. Included in the amount were
impairment losses totaling $470,528 and losses on the termination of interest
rate collar of $49,000. These losses are due to financial market conditions and
the increase in Treasury rates for the three months ended March 31, 1999.
Management fees were calculated at 1% per annum of the Average Invested Assets
per quarter and totaled $279,469 for period ended March 31, 1999. The Company
also recorded general and administrative expenses of $99,326 for the period
ended March 31, 1999. These costs consist of professional fees, insurance costs
and other miscellaneous expenses.

         Loss on Sale of CMBS. The loss on sale of CMBS was a result of the
disposal of CMBS during first quarter for $47,789,640. The losses totaled
$14,219,707 of which $11,717,920 was recognized in 1998.

REIT Status

         The Company made an election to be taxed as a REIT under the Code,
commencing with its first REIT taxable year ending on December 31, 1998. The
Company qualifies for taxation as a REIT and therefore will not be subject to
federal corporate income tax on its net income that is distributed currently to
its shareholders.

         To qualify as a REIT under the Code, the Company must meet several
requirements regarding, among other things, the ownership of its outstanding
stock, the sources of its gross income, the nature of its assets, and the levels
of distributions to its shareholders. These requirements are highly technical
and complex, and the Company's determination that it qualifies as a REIT
requires an analysis of various factual matters and circumstances that may not
be entirely within the Company's control. Accordingly, there can be no assurance
that the Company will remain qualified as a REIT.

         If the Company fails to qualify for taxation as a REIT in any taxable
year, and certain relief provisions of the Code do not apply, the Company will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to the Company's
shareholders in any year in which the Company fails to qualify will not be
deductible by the Company nor will they be required to be made. In such event,
to the extent of the Company's current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company also will be disqualified from taxation as a REIT for
the four taxable years following the year during which the Company ceased to
qualify as a REIT. It is impossible to predict whether the Company would be
entitled to such statutory relief.

Year 2000

         The inability of computers, software and other equipment to recognize
and properly process data fields containing a two-digit year is commonly
referred to as the Year 2000 compliance issue ("Y2K"). As the year 2000
approaches, such systems may be unable to accurately process certain date-based
information.

         Y2K exposures of the Company are currently being assessed. Potential
critical exposures include reliance on third party vendors and building systems
that are not Y2K compliant. The Company has begun to communicate with third
party service vendors such as the Manager and property managers in an effort to
assess their Y2K compliance status and the adequacy of their Y2K efforts.

         The Manager has made Y2K compliance a high priority for replacement
applications and is in the process of updating and replacing other
applications that are not Y2K compliant. The Manager expects to materially
complete all mission critical system projects by the modified date of July 31,
1999, which will allow for Y2K systems testing to resolve any remaining Y2K
compliance issues. However, if any of the vendors of the Manager's Y2K
compliant software fail to perform pursuant to their contracts with the
Manager, the Manager's Y2K compliance could be jeopardized,



                                       21
<PAGE>   22


and could materially adversely affect the Company. The Manager does not believe
that the costs to remediate any Y2K issues will materially affect its
business, operations or financial condition, or will have an adverse affect on
its clients, including the Company.

         Each property owned by the Company is being individually assessed in an
effort to identify critical Y2K issues specific to each property. Required
remediation strategies will depend on the outcome of the assessments and
therefore will not be developed until the property assessments are complete. The
inventory survey for Lakeside Plaza, the only real property owned by the
Company, is expected to be complete by May 31, 1999. The assessment process will
follow, with the expected completion date for any remediation by July 31, 1999.

         The Company has not incurred any material costs to date relating to
Y2K. Total property assessment costs to the Company are expected to total
approximately $4,300 and the total cost for quality assurance for third party
engineers and consultants is expected to be approximately $1,000. Remediation
efforts may vary significantly from one building to the next. Therefore
remediation costs can not be reasonably estimated until the assessments are
complete and remediation strategies determined.

         The failure to adequately address the Y2K issue may result in the
closure of buildings owned by the Company. In order to reduce the potential
impact on the operations of the Company, contingency plans will be developed by
July 31, 1999.

         Building contingency plans will be developed by July 31, 1999, once
assessments have been completed. This will allow the efficient development of
contingency plans that take into account individual circumstances surrounding
each property. Contingency plans may involve the engagement of additional
security services, implementation of temporary systems modifications, and the
identification and engagement of alternate service vendors. Additional
contingency plans may be developed as circumstances warrant.

         With respect to the Company's Mezzanine Investments, the primary Year
2000 issue relates to potential borrower defaults caused by:

-       increased expenses or legal claims related to failures of embedded
        technology in building systems,

-       reductions in collateral value due to failure of one or more building
        systems,

-       interruptions in building cash flows due to tenant's inability to make
        timely lease payments, inaccurate or incomplete accounting of rents, or
        decreases in building occupancy levels,

-       the borrower's inability to address all material Y2K issues that may
        potentially impact the borrower's operations.

         These risks are also applicable to the Company's portfolio of CMBS as
these securities are dependent upon the pool of Mortgage Loans underlying them.
If the investors in these types of securities demand higher returns in
recognition of these potential risks, the market value of the CMBS portfolio of
the Company could also be adversely affected.

FORWARD LOOKING STATEMENTS

Certain statements contained herein are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Act of
1934, as amended. These forward-looking statements may be identified by
reference to a future period(s) or by the use of forward-looking terminology,
such as "may", "will", "intend", "should", "expect", "anticipate", "estimate",
or "continue" or the negatives thereof or other comparable terminology. The
Company's actual results could differ materially from those anticipated in such
forward-looking statements due to a variety of factors, including, but not
limited to, changes in national, regional or local economic environments,
competitive products and pricing, government fiscal and monetary policies,
changes in prevailing interest rates, the course of negotiations, the
fulfillment of contractual conditions, factors inherent to the valuation and
pricing of interests in commercial mortgage-backed securities, credit risk
management, asset/liability management, the financial and securities markets,
the availability of and costs associated with the sources of liquidity, other
factors generally understood to affect the real estate acquisition, mortgage and
leasing markets and security investments, and other risks detailed in the
Company's registration statement on Form S-11, as amended, filed with the SEC,
the Company's annual report on Form 10-K and quarterly reports on Form 10-Q
filed with the SEC, and other filings made by the Company with the SEC. The
Company does not undertake, and specifically disclaims any obligation, to
publicly release the results of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.



                                       22
<PAGE>   23


Item 3.  Quantitative and Qualitative Disclosure about Market Risk

Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. The Company
is primarily exposed to interest rate and spread risk. Interest rates and
spreads are sensitive to many external forces including, but not limited to,
governmental monetary and tax policies and domestic and international economic
and political factors. These forces are beyond the control of the Manager and
the Company. Changes in the general level of interest rates can affect the
Company's net interest income, which is the difference between the interest
income earned on interest-earning assets and the interest expense incurred in
connection with its interest-bearing liabilities, by affecting the spread
between the Company's interest-earning assets and interest-bearing liabilities.
Changes in the level of interest rates also can affect, among other things, the
ability of the Company to originate and acquire loans, the value of the
Company's mortgage-related securities and other interest-earning assets, and its
ability to realize gains from the sale of such assets.

The Company may utilize a variety of financial instruments, including interest
rate swaps, caps, floors, and other interest rate contracts, in order to limit
the effects of interest rates on its operations. The use of these types of
derivatives to hedge interest-earning assets and/or interest-bearing liabilities
carries certain risks, including the risk that losses on a hedge position will
reduce the funds available for payments to holders of securities and, indeed,
that such losses may exceed the amount invested in such instruments. A hedge may
not perform its intended purpose of offsetting losses or increased costs.
Moreover, with respect to certain of the instruments used as hedges, the Company
is exposed to the risk that the counterparties with which the Company trades may
cease making markets and quoting prices in such instruments, which may render
the Company unable to enter into an offsetting transaction with respect to an
open position.

The following table quantifies the potential changes in net interest income and
net asset value should interest rates rise or fall. The table below calculates
the changes in the assets owned by the Company as of March 31, 1999 and includes
the adjustment to payoff LLIH debt with proceeds from the GMAC Repo. The table
represents the effect over the next four quarters. The results assume that yield
curves of the rate changes will be parallel to each other. Net asset value is
calculated as the sum of the present value of cash in-flows generated from
interest-earning assets net of cash outflows in respect of interest-bearing
liabilities. The base interest rate scenario assumes interest rates at March 31,
1999. All changes in the net asset value are a result of valuing assets based on
changes in interest rates. These changes do not include the effects of income or
dividends. The net interest income is interest income (excluding interest income
on cash) netted with interest expense. All changes are measured by percentage
changes from the base interest rate. Actual results could differ significantly
from these estimates.

<TABLE>
<CAPTION>
                                                                                                    NET
 CHANGE IN INTEREST RATE                                         NET INTEREST INCOME            ASSET VALUE
 -----------------------                                         -------------------            -----------
 <S>                                                             <C>                            <C>
         +400...........................................                 15.6%                     (16.5)
         +300...........................................                 11.7                      (12.9)
         +200...........................................                  7.8                       (9.0)
         +100...........................................                  3.9                       (4.7)
       Base.............................................                  0.0                        0.0
         -100...........................................                 (3.9)                       5.2
         -200...........................................                 (7.8)                      10.9
         -300...........................................                (11.7)                      17.2
         -400...........................................                (15.6)                      24.1
</TABLE>



                                       23
<PAGE>   24


PART II: OTHER INFORMATION

Item 1.       Legal Proceedings

              None

Item 2.       Changes in Securities and Use of Proceeds

              None

Item 3.       Default Upon Senior Securities

              None

Item 4.       Submission of matters to a Vote of Security Holders

              None.

Item 5.       Other Information

              None.

Item 6.       Exhibits and Reports on Form 8-K

              a)  Exhibits

                  27.1    Financial Data Schedule (for SEC filing purposes only)

              b) Reports

                  None



                                       24
<PAGE>   25


                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                    Chastain Capital Corporation




                                    By:    /s/Steve Grubenhoff
                                       -----------------------------------------
                                           Steve Grubenhoff
                                           Chief Financial Officer


Date:  May 7, 1999



                                       25