SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 September 30, 2001 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 0-12138
New England Realty Associates Limited Partnership
(Exact Name of Registrant as Specified in Its Charter)
Massachusetts 04-2619298
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
39 Brighton Avenue, Allston, Massachusetts 02134
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (617) 783-0039
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check X 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 |_|
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements.
Consolidated Balance Sheets as of September 30, 2001
and December 31, 2000 1
Consolidated Statements of Income for the Three Months Ended
September 30, 2001 and September 30, 2000, and the Nine Months
Ended September 30, 2001 and September 30, 2000 2
Consolidated Statement of Changes in Partners'
Capital 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2001 and 4
September 30, 2000
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
SIGNATURES 17
<Page>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
2001 DECEMBER 31,
(UNAUDITED) 2000
----------- ------------
ASSETS
Rental Properties $ 74,399,030 $ 75,307,036
Cash and Cash Equivalents 16,031,229 14,478,972
Rents Receivable 448,160 402,376
Real Estate Tax Escrows 334,718 378,039
Prepaid Expenses and Other Assets 2,487,764 1,857,267
Financing and Leasing Fees 902,325 879,247
------------- -------------
TOTAL ASSETS $ 94,603,226 $ 93,302,937
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Mortgages Payable $ 79,804,700 $ 80,368,031
Accounts Payable and Accrued Expenses 1,101,091 1,146,287
Advance Rental Payments and Security Deposits 3,114,536 2,892,799
------------- -------------
Total Liabilities 84,020,327 84,407,117
Commitments and Contingent Liabilities (Note 9)
Partners' Capital
173,252 units outstanding in 2001 and 2000 10,582,899 8,895,820
------------- -------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 94,603,226 $ 93,302,937
============= =============
See notes to consolidated financial statements
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Revenues
Rental income $ 7,030,896 $ 6,370,719 $20,445,897 $19,209,102
Laundry and sundry income 77,376 61,296 208,262 188,370
--------------- --------------- --------------- ---------------
7,108,272 6,432,015 20,654,159 19,397,472
--------------- --------------- --------------- ---------------
Expenses
Administrative 311,379 280,134 969,497 880,556
Depreciation and amortization 1,110,676 1,125,504 3,215,275 3,456,378
Interest 1,639,766 1,632,189 4,890,826 4,797,340
Management Fees 296,708 268,607 855,142 822,590
Operating 497,470 413,579 1,961,666 1,821,787
Renting 40,042 42,685 94,765 148,172
Repairs and maintenance 1,051,620 876,351 2,559,615 2,268,387
Taxes and insurance 655,195 625,874 1,865,882 1,947,725
--------------- --------------- --------------- ---------------
5,602,856 5,264,923 16,412,669 16,142,935
--------------- --------------- --------------- ---------------
Income from Operations 1,505,416 1,167,092 4,241,491 3,254,537
--------------- --------------- --------------- ---------------
Other Income(Loss)
Interest income 140,247 166,247 507,192 238,418
Income from investment in joint venture 0 9,561 0 27,383
Income(loss) on short-term investments 0 68 0 494
Gain on the sale of real estate 0 0 0 546,568
--------------- --------------- --------------- ---------------
140,247 175,876 507,192 812,863
--------------- --------------- --------------- ---------------
Income before extraordinary item 1,645,663 1,342,968 4,748,683 4,067,400
Extraordinary loss on extinguishment of debt 0 (1,476,055) 0 (1,476,055)
0
--------------- --------------- --------------- ---------------
Net Income(loss) $ 1,645,663 $ (133,087) $ 4,748,683 $ 2,591,345
=============== =============== =============== ===============
Earnings per unit:
Income before extraordinary items $ 9.49 $ 7.75 $ 27.40 $ 23.48
Extraordinary loss on extinguishment of debt 0 (8.52) 0 (8.52)
--------------- --------------- --------------- ---------------
Net Income per Unit $ 9.49 $ (0.77) $ 27.40 $ 14.96
=============== =============== =============== ===============
Weighted Average Number
of Units Outstanding 173,252 173,252 173,252 173,252
=============== =============== =============== ===============
See notes to consolidated financial statements
2
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(UNAUDITED)
Limited
------------------------- General
Class A Class B Partnership Total
----------- ----------- ----------- -----------
Balance, January 1, 2000 ................... $ 4,510,129 $ 1,071,156 $ 56,376 $ 5,637,661
Distribution to Partners ................... (2,034,150) (483,111) (25,427) (2,542,688)
Net Income ................................. 2,073,076 492,356 25,913 2,591,345
----------- ----------- ----------- -----------
Balance, Sept. 30, 2000 .................... $ 4,549,055 $ 1,080,401 $ 56,862 $ 5,686,318
=========== =========== =========== ===========
Units authorized and
Issued, net of 6,973
Treasury Units at
Sept. 30, 2000 ........................... 138,602 32,918 1,732 173,252
=========== =========== =========== ===========
Balance, January 1, 2001 ................... $ 7,113,724 $ 1,692,964 $ 89,132 $ 8,895,820
Distribution to Partners ................... (2,449,283) (581,705) (30,616) (3,061,604)
Net Income ................................. 3,798,946 902,250 47,487 4,748,683
----------- ----------- ----------- -----------
Balance, Sept. 30, 2001 .................... $ 8,463,387 $ 2,013,509 $ 106,003 $10,582,899
=========== =========== =========== ===========
Units authorized and
Issued, net of 6,973
Treasury Units at
Sept. 30, 2001 ........................... 138,602 32,918 1,732 173,252
=========== =========== =========== ===========
See notes to consolidated financial statements
3
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2001 2000
------------ ------------
Cash Flows from Operating Activities
Net income .................................................................. $ 4,748,683 $ 2,591,345
------------ ------------
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization ............................................... 3,215,275 3,456,378
Extraordinary loss on early extinguishment of debt ......................... 0 337,998
(Income) from investments in joint venture ................................... 0 (27,383)
Gain on the sale of rental property ......................................... 0 (546,568)
Unrealized (appreciation) on short-term investments .......................... 0 (494)
(Increase)decrease in rents receivable ....................................... (45,784) 49,044
(Increase) in financing and leasing fees ..................................... (138,099) (343,836)
(Decrease) increase in accounts payable ...................................... (45,196) 93,053
Decrease in real estate tax escrow .......................................... 43,321 281,738
(Increase) decrease in prepaid expenses and other assets ..................... (630,497) 118,968
Increase in advance rental payments and security deposits .................... 221,737 154,384
------------ ------------
Total Adjustments ............................................................ 2,620,757 3,573,282
------------ ------------
Net cash provided by operating activities ...................................... 7,369,440 6,164,627
------------ ------------
Cash Flows from Investing Activities
Distribution from joint venture .............................................. 0 46,927
Purchase and improvement of rental properties ................................ (2,192,248) (1,139,017)
Maturity of short-term investments ........................................... 0 22,281
Purchase of short-term investment ............................................ 0 (3,000,000)
Net proceeds from the sale of rental property ................................ 0 2,070,649
Decrease in notes receivable ................................................. 0 480,872
------------ ------------
Net cash (used in) investing activities ........................................ (2,192,248) (1,518,288)
------------ ------------
Cash Flows from Financing Activities
Principal payments of mortgages payable ...................................... (563,331) (764,000)
Payment of notes payable ..................................................... 0 (750,000)
Distributions to partners .................................................... (3,061,604) (2,542,688)
Proceeds from the refinancing ................................................ 0 7,818,501
------------ ------------
Net cash (used in) provided by financing activities ............................ (3,624,935) 3,761,813
------------ ------------
Net Increase in Cash and Cash Equivalents ...................................... 1,552,257 8,408,152
Cash and Cash Equivalents, Beginning ........................................... 14,478,972 1,244,438
------------ ------------
Cash and Cash Equivalents, Ending .............................................. $ 16,031,229 $ 9,652,590
============ ============
See notes to consolidated financial statements
4
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
LINE OF BUSINESS: New England Realty Associates Limited Partnership ("NERA" or
the "Partnership") was organized in Massachusetts during 1977. NERA and its
subsidiaries own and operate various residential apartment buildings,
condominium units, and commercial properties located in Massachusetts,
Connecticut and New Hampshire. NERA has also made investments in other real
estate partnerships and has participated in other real estate-related
activities, primarily located in Massachusetts. In connection with the mortgages
referred to in Note 5, a substantial number of NERA's properties are owned by
separate subsidiaries without any change in the historical cost basis.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of NERA and its subsidiaries. NERA has a 99.67% to 100% ownership
interest in each subsidiary. The consolidated group is referred to as the
"Partnerships." Minority interests are not recorded since they are
insignificant. All significant intercompany accounts and transactions are
eliminated in consolidation. The Partnership accounts for its investment in a
joint venture on the equity method.
ACCOUNTING ESTIMATES: The preparation of the financial statements is in
accordance with generally accepted accounting principles (GAAP) requiring
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 revenues and
expenses during the reported period. Accordingly, actual results could differ
from those estimates.
REVENUE RECOGNITION: Rental income from residential and commercial properties is
recognized over the term of the related lease. Amounts 60 days in arrears are
charged against income. Certain leases of the commercial properties provide for
increasing stepped minimum rents, which are accounted for on a straight-line
basis over the term of the lease.
RENTAL PROPERTIES: Rental properties are stated at cost less accumulated
depreciation. Maintenance and repairs are charged to expense as incurred;
improvements and additions are capitalized. When assets are retired or otherwise
disposed of, the cost of the asset and related accumulated depreciation is
eliminated from the accounts, and any gain or loss on such disposition is
included in income. Rental properties are depreciated on the straight-line
method over their estimated useful lives. In the event that facts and
circumstances indicate that the carrying value of rental properties may be
impaired, an analysis of recoverability is performed. The estimated future
undiscounted cash flows are compared to the asset's carrying value to determine
if a write-down to fair value or discounted cash flow value is required.
FINANCING AND LEASING FEES: Financing fees are capitalized and amortized, using
the interest method, over the life of the related mortgages. Leasing fees are
capitalized and amortized on a straight-line basis over the life of the related
lease.
INCOME TAXES: The financial statements have been prepared under the basis that
NERA and its subsidiaries are entitled to tax treatment as partnerships.
Accordingly, no provision for income taxes on income has been recorded.
CASH EQUIVALENTS: The Partnerships consider cash equivalents to be all highly
liquid instruments purchased with a maturity of three months or less.
5
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHORT-TERM INVESTMENTS: The Partnership accounts for short-term investments in
accordance with Statement of Financial Accounting Standards (FAS) No. 115
"Accounting for Certain Investments in Debt and Equity Securities." The
Partnerships consider short-term investments to be mutual funds and bank
certificates of deposit, Treasury obligations, or commercial paper with initial
maturities between three and twelve months. These investments are considered to
be trading account securities and are carried at fair value with unrealized
holding gains or losses reflected in earnings.
CONCENTRATION OF CREDIT RISKS AND FINANCIAL INSTRUMENTS: The Partnerships'
tenants are located in New England, and the Partnerships are subject to the
general economic risks related thereto. No single tenant accounted for more than
5% of the Partnerships' revenues in 2000 or 2001. The Partnerships make their
temporary cash investments with high-credit-quality financial institutions. At
September 30, 2001, substantially all of the Partnerships cash and cash
equivalents were held in interest-bearing accounts at financial institutions
earning interest at rates from 3.00 to 4.35 percent. At September 30, 2001 and
2000 approximately $15,800,000 and $9,500,000 of cash and cash equivalents
exceeded federally insured amounts.
ADVERTISING EXPENSE: Advertising is expensed as incurred. Advertising expense
was $50,578, and $63,090 for the nine months ended September 30, 2001 and 2000,
respectively.
NOTE 2 - RENTAL PROPERTIES
Rental properties consist of the following:
SEPTEMBER 30, DECEMBER 31, USEFUL
2001 2000 LIFE
------------ ------------ -------------
Land, improvements, and parking lots $ 16,147,233 $ 16,106,171 10-31 years
Buildings and improvements 78,407,336 76,975,338 15-31 years
Kitchen cabinets 1,626,030 1,351,868 5-10 years
Carpets 1,555,944 1,346,358 5-10 years
Air conditioning 206,457 204,903 7-10 years
Laundry equipment 46,441 46,441 5-7 years
Elevators 171,407 161,391 20 years
Swimming pools 80,198 80,198 10 years
Equipment 1,074,701 967,093 5-7 years
Motor vehicles 100,655 100,655 5 years
Fences 26,217 24,816 5-10 years
Furniture and fixtures 563,975 460,708 5-7 years
Smoke alarms 49,788 38,195 5-7 years
------------ ------------
100,056,382 97,864,135
Less accumulated depreciation 25,657,352 22,557,099
------------ ------------
$ 74,399,030 $ 75,307,036
============ ============
6
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3 - RELATED PARTY TRANSACTIONS
The Partnerships' properties are managed by an entity that is owned by the
majority shareholder of the General Partner. The management fee is equal to 4%
of rental revenue and laundry income. Total fees paid were approximately
$855,000 and approximately $809,000 for the nine months ended September 30, 2001
and 2000, respectively. Security deposits are held in escrow by the management
company (see Note 6). The management company also receives a mortgage servicing
fee equal to an annual rate of 1/2% of the monthly outstanding balance of
mortgages receivable resulting from the sale of property. There was a mortgage
servicing fee of $122 paid in the year ended December 31, 2000. No fee was paid
in the nine months ended September 30, 2001.
The Partnership Agreement also permits the General Partner or management company
to charge the costs of professional services (such as counsel, accountants, and
contractors) to NERA. During the nine months ended September 30, 2001 and 2000,
approximately $470,000 and $449,000 was charged to NERA for legal, construction,
maintenance, rental and architectural services and supervision of capital
improvements. Of the 2001 expenses referred to above, approximately $140,000
consisted of repairs and maintenance, $62,000 of rental expenses, $136,000 of
administrative expense and approximately $132,000 of architectural services and
supervision of capital projects was capitalized in rental properties. Of the
2000 expenses referred to above, approximately $113,000 is recorded in repairs
and maintenance, $126,000 in administrative expense, approximately $29,000 in
renting expense and approximately $181,000 of architectural services and
supervision of capital projects was capitalized in rental properties.
Additionally in each of the nine months ended September 30, 2001 and 2000, the
Partnership paid to the management company $60,000 and $56,025 respectively for
in-house accounting services, which were previously provided by an outside
company. The Partnership Agreement entitles the General Partner or the
management company to receive certain commissions upon the sale of Partnership
property only to the extent that total commissions do not exceed 3%. In
connection with the sale of the Lewiston Mall Shopping Center in September 2000,
the Partnership paid a commission of $153,000 to the management company.
In 1996, prior to becoming an employee of the management company, the current
President performed and continues to perform asset management consulting
services to the Partnership. He received $37,500 during the nine months ended
September 30, 2001 and $42,500 during the year ended December 31, 2000.
Included in prepaid expenses and other assets were amounts due from related
parties of $1,020,999 at September 30, 2001 and $1,036,639 at December 31, 2000
representing Massachusetts tenant security deposits which are held for the
Partnerships by another entity also owned by one of the shareholders of the
General Partner (see Note 6).
NOTE 4 - OTHER ASSETS
Included in prepaid expenses and other assets at September 30, 2001 and December
31, 2000 is approximately $502,000 and $349,000 respectively, held in escrow to
pay future capital improvements.
Financing and leasing fees of $902,325 and $879,247 are net of accumulated
amortization of $1,137,590 and $1,022,569 at September 30, 2001 and
December 31, 2000, respectively.
7
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5 - MORTGAGES PAYABLE AND EXTRAORDINARY ITEM
At September 30, 2001 and December 31, 2000, the mortgages payable consisted of
various loans, substantially all of which were secured by first mortgages on
properties referred to in Note 2. At September 30, 2001 the interest rate on
these loans ranged from 6.52% to 8.78%, payable in monthly installments
aggregating approximately $600,000 including interest, to various dates through
2016. Although the majority of loans mature within ten years, they are being
amortized on a basis between 25 and 27.5 years. The carrying amounts of the
Partnerships' mortgages payable approximate their fair value. The majority of
the mortgages are subject to prepayment penalties.
The Partnerships have pledged tenant leases as additional collateral for certain
of these mortgages.
Approximate annual maturities at September 30, 2001 are as follows:
2002--current maturities $ 800,000
2003 864,000
2004 931,000
2005 1,009,000
2006 1,090,000
Thereafter 75,110,000
-----------
$79,804,000
===========
During the third quarter of 2000, 11 of the Partnership's mortgages were
refinanced and two new mortgages were incurred on previously debt-free property.
The total of the 13 new mortgages is approximately $33,650,000; the repaid
mortgages totaled approximately $24,000,000. The new mortgages mature in 2010
and 2011 and require interest only at rates from 7.63% to 8.46%. The repaid
mortgages had interest rates ranging from 8.25% to 9.25% and were to mature in
2005. As a result of this new financing, the Partnership has recorded an
extraordinary charge in 2000 of approximately $1,592,000 inclusive of prepayment
penalties of $1,255,000 and the expensing of previously deferred financing costs
of approximately $337,000. New deferred financing fees of approximately $369,000
are being amortized over the ten-year maturities of the new mortgages using the
interest method.
In April 2001, the Partnership obtained a line of credit in the amount of
$12,000,000 secured by the property located at 62 Boylston Street. At this
point, the Partnership has not drawn on the line. If the Partnership draws on
this line, the existing mortgage of approximately $7,300,000 will be paid in
full from cash reserves. This line of credit is renewable annually through April
2006.
NOTE 6 - ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS
The lease agreements for certain properties require tenants to maintain
one-month advance rental payment plus security deposits. The security deposits
are held in escrow by another entity owned by the majority shareholder of the
General Partner (see Note 3).
NOTE 7 - PARTNERS' CAPITAL
The Partnership has two categories of limited partners (Class A and B) and one
category of General Partner (General Partner). Under the terms of the
Partnership Agreement, Class B units and General Partnership units must
represent 19% and 1% respectively of the total units outstanding. All classes
have equal profit sharing and distribution rights in proportion to their
ownership interests.
8
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7 - PARTNERS' CAPITAL (CONTINUED)
In January 2001, the Partnership declared a semi-annual dividend of $6.10 per
unit and a special dividend of $5.00 per unit payable March 31, 2001. The
Partnership declared a regular dividend of $6.60 per unit payable September 30,
2001 to the holders of record on September 14, 2001. Accordingly the total
dividend for 2001 will be $17.70 per unit ($1.77 per receipt). The Partnership
declared distributions of $14.70 per unit ($1.47 per receipt) in 2000. The 2000
distribution included a special dividend of $4.00 per unit paid in March 2000.
The Partnership has entered into a deposit agreement with an agent to facilitate
public trading of limited partners' interests in Class A units. Under the terms
of this agreement, the holders of Class A units have the right to exchange each
Class A unit for 10 Depositary Receipts. The following is information on the net
income per Depositary Receipt:
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
2001 2000
---- ----
Net Income per Depositary Receipt ........ $2.74 $1.50
===== =====
NOTE 8 - TREASURY UNITS
Treasury units at September 30, 2001 are as follows:
Class A 5,681
Class B 1,228
General Partnership 64
------
6,973
======
NOTE 9 - COMMITMENTS AND CONTINGENCIES
From time to time, the Partnerships are involved in various ordinary routine
litigation incidental to their business. The Partnership either has insurance
coverage or has provided for any uninsured claims which in the aggregate are not
significant.
9
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 10 - RENTAL INCOME
During the nine months ended September 30, 2001, approximately 92% of rental
income was related to residential apartments and condominium units with leases
of one year or less. The remaining 8% was related to commercial properties which
have minimum future rental income on noncancellable operating leases as follows:
COMMERCIAL
PROPERTY
LEASES
-----------
2002 $ 2,037,000
2003 2,019,000
2004 1,969,000
2005 1,576,000
2006 1,314,000
Thereafter 8,761,000
-----------
$17,676,000
===========
The aggregate minimum future rental income does not include contingent rentals
that may be received under various leases in connection with percentage rents,
common area charges, and real estate taxes. Aggregate contingent rentals were
approximately $430,000 and $1,039,000, for the nine months ended September 30,
2001 and the year ended December 31, 2000, respectively.
Rents receivable are net of allowances for doubtful accounts of $355,331 and
$249,332 at September 30, 2001 and December 31, 2000, respectively.
NOTE 11 - CASH FLOW INFORMATION
During the nine months ended September 30, 2001 and 2000 cash paid for interest
was approximately $4,835,000 and $4,718,000, respectively.
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Partnership considers the fair value of its financial instruments to
approximate their carrying values because conditions pertaining to the historic
carrying values approximate those in the current market.
NOTE 13 - SUBSEQUENT EVENT
On November 8, 2001, the Partnership purchased a 50% ownership interest in a
40 unit residential property in Cambridge, Massachusetts. The other 50% owner
is the majority shareholder in the Partnership's General Partner. The total
purchase price is $11,265,000. At closing, the Partnership paid $8,265,000
and the partner paid $3,000,000. A mortgage of approximately $8,000,000 is
being obtained on this acquisition. When financed, funds in excess of the
required equity will be returned to the partners in proportion to their
ownership interest so their respective capital contributions will be equal.
Interest at 8% will be paid to the Partnership for funds advanced for the
benefit of the other 50% partner described above. This transaction was
approved by the Partnership's Advisory Committee prior to its consummation.
10
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
New England Realty Associates Limited Partnership and its Subsidiary
Partnerships earned income from operations of $1,505,416 during the three months
ended September 30, 2001 compared to $1,167,092 for the three months ended
September 30, 2000, an increase of $338,324(28%).
During 2000, the Partnership acquired a 44 unit residential apartment complex
and sold two commercial properties which consisted of approximately 366,000
square feet. Comparing the three months ended September 30, 2001 to the three
months ended September 30, 2000, the effect of these transactions is a
decrease in rental income of $63,270, and a decrease in operating expenses of
$79,234, resulting in a net increase in income of $15,964. Presently, there
is no vacant space at the Partnership's commercial properties and a slight
increase in vacancies at the residential properties as compared to September
30, 2000.
An analysis of the rental activity is as follows:
OCCUPANCY DATE
--------------------------------------------
AT SEPTEMBER 30,
2001 2000
-------------------- --------------------
Residential
Units..................... 2,143 2,099
Vacancies................. 30 25
Vacancy rate.............. 1.4% 1.2%
Commercial
Total square feet......... 137,775 322,375
Vacancy................... 0 54,000
Vacancy rate.............. 0 17%
11
Rental income for the three months ended September 30, 2001 was $7,030,896
compared to $6,370,719 for the three months ended September 30, 2000, an
increase of $660,177(10%). This increase is largely due to an increase in rental
rates primarily at the residential properties. Income from the Partnership's
residential properties represents 91% of rental income for the three months
ended September 30, 2001 up from 88% for the three months ended September 30,
2000.
The following is a summary of the Partnership's rental income for the three
months ended September 30, 2001 and 2000:
RENTAL INCOME (IN THOUSANDS)
----------------------------
THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
---- ----
Total rents................... $7,031 $6,371
Residential percentage........ 91% 88%
Commercial percentage........ 9% 12%
Contingent rentals............ $ 160 $ 227
Expenses for the three months ended September 30, 2001 were $5,602,856 compared
to $5,264,923 for the three months ended September 30, 2000 an increase of
$337,933(6%). Administrative expenses increased $31,245(11%) due to an increase
in salaries and wages. Repairs and maintenance expense increased $175,269(20%)
due to significant cosmetic repairs done to many of the Partnership's
properties. Operating expenses increased $83,891(20%) due to increases in
utility costs, primarily the cost of water and sewer. Management fees increased
$28,101(10%) due to the increase in rental income. Taxes and insurance increased
$29,321(5%) due to increases in insurance premiums. Beginning in 2001, the
Partnership's insurance rates were adjusted after a three-year rate lock
resulting in a significant increase in insurance premiums.
These increases are offset by a small decrease in depreciation and amortization
expense due to the sale of two commercial properties in 2000. The aggregate book
value of the properties sold was approximately $7,000,000.
Interest income was $140,247 for the three months ended September 30, 2001,
compared to $166,247 for the three months ended September 30, 2000, a decrease
of $26,000(16%). This decrease is due to a decline in interest rates in 2001.
During the three months ended September 30, 2000, the Partnership refinanced
eleven of the Partnership properties and obtained a mortgage on a previously
debt free property. As a result of this new financing, the Partnership recorded
an extraordinary charge in 2000 of $1,476,055 which represents prepayment
penalties and the write off of deferred charges.
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As a result of the changes discussed above, net income for the three months
ended September 30, 2001 was $1,645,663 compared to a loss of $133,087 for the
three months ended September 30, 2000, an increase of $1,778,750.
For the nine months ended September 30, 2001, rental income was $20,445,897
compared to $19,209,102 for the nine months ended September 30, 2000, an
increase of $1,236,795(6%). Comparing the nine months ended September 30, 2001
to the nine months ended September 30, 2000, the sale of the two commercial
properties and the purchase of the residential property in 2000 resulted in a
decrease in rental income of $806,566 and a decrease in operating expenses of
$762,543. The net effect of these transactions is a decrease in operating income
of $44,023 on a comparable basis to the nine months ended September 30, 2000.
The following is a summary of the Partnership's rental income for the nine
months ended September 30, 2001 and 2000:
RENTAL INCOME (IN THOUSANDS)
----------------------------
Nine Months Ended
September 30,
2001 2000
---- ----
Total rents........................ $20,446 $19,209
Residential percentage............. 92% 85%
Commercial percentage.............. 8% 15%
Contingent rentals................. $ 430 $ 913
As demonstrated above, the Partnership has seen a shift in rental income with an
increase in revenue from residential properties and a decrease in rental income
from commercial properties. During 2001, rental rates increased at the
residential properties, the number of residential units increased due to the
acquisition of Brookside Apartments in November 2000 and occupancy rates
remained relatively stable.
Expenses for the nine months ended September 30, 2001 were $16,412,669 compared
to $16,142,935 for the nine months ended September 30, 2000, an increase of
$269,734(2%) for the same reasons discussed above. The most significant
increases were in administrative expense $88,941(10%), operating expenses
$139,879(7%), interest expense $93,486(2%) and repairs and maintenance expenses
$291,228(13%).
These increases are offset by decreases in depreciation and amortization expense
of $241,103(7%), renting expense $53,407(36%) and taxes and insurance
$81,843(4%). Despite the increase in insurance costs noted above, real estate
tax payments were significantly lower in 2001 due to an under accrual in 1999
which resulted in greater tax payments in 2000. Real estate tax rates remained
relatively unchanged in 2001. The decrease in renting expenses is due to the
change in the Partnership's policy regarding rental commissions. Effective June
2000, new tenants are required to pay the rental commission that previously was
paid by the Partnership. The reason for the decrease in depreciation and
amortization expense is discussed above.
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Interest income was $507,192 for the nine months ended September 30, 2001,
compared to $238,418 for the nine months ended September 30, 2000, an increase
of $268,774. This increase is due to an increase in the average cash balance
available for investment in 2001, although it is offset by declining interest
rates.
Included in other income for the nine months ended September 30, 2000 is a gain
of $546,568 relating to the sale of the Lewiston Mall Shopping Center. There
have been no sales of properties in 2001.
As a result of the changes discussed above, net income for the nine months ended
September 30, 2001 was $4,748,683 compared to $2,591,345 for the nine months
ended September 30, 2000 an increase of $2,157,338.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's principal source of cash during 2001 and 2000 was the
collection of rents, the sale of real estate and the refinancing of Partnership
properties. The majority of cash and cash equivalents of $16,031,229 at
September 30, 2001 and $14,478,972 at December 31, 2000 was held in interest
bearing accounts at credit worthy financial institutions.
On November 8, 2001, the Partnership purchased a 50% ownership interest in a
40 unit residential property in Cambridge, Massachusetts. The other 50% owner
is the majority shareholder in the Partnership's General Partner. The total
purchase price is $11,265,000. At closing, the Partnership paid $8,265,000
and the partner paid $3,000,000. A mortgage of approximately $8,000,000 is
being obtained on this acquisition. When financed, funds in excess of the
required equity will be returned to the partners in proportion to their
ownership interest so their respective capital contribution will be equal.
Interest at 8% will be paid to the Partnership for funds advanced for the
benefit of the other 50% partner described above. This transaction was
approved by the Partnership's Advisory Committee prior to its consummation.
In April 2001, the Partnership obtained a line of credit in the amount of
$12,000,000 secured by the property at 62 Boylston Street which is renewable
annually through April 2006. At this point, the Partnership has not drawn on the
line. If the Partnership draws on the line, the existing mortgage of
approximately $7,300,000 will be paid in full from cash reserves, as required by
the line of credit. This line of credit is intended to provide liquidity to make
possible future acquisitions.
In March 2001, the Partnership paid a dividend of $6.10 per unit($0.61 per
receipt) and a special dividend of $5.00 per unit ($0.50 per receipt) for a
total payment of $1,919,989. In September 2001, the Partnership paid a dividend
of $6.60 per unit ($0.66 per receipt) for a total payment of $1,141,615. Total
dividends paid in 2000 were $14.70 per unit ($1.47 per receipt) including a
special dividend of $4.00 per unit ($0.40 per receipt) for a total of
$2,542,688.
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On November 20, 2000, the Partnership sold the Timpany Plaza Shopping Center.
The property was sold for $5,000,000. The mortgage of approximately $3,300,000
was paid off and the net cash received by the Partnership after closing costs
and operating adjustments was approximately $1,459,000. Rental income from the
property was approximately $438,000 for the year ended December 31, 2000, prior
to the sale.
In October 2000, the Partnership acquired the Brookside Apartments located in
Woburn, Massachusetts. The purchase price of $3,800,000 was originally funded
from cash reserves. In December 2000, the Partnership obtained a mortgage of
$2,000,000 on the property. The terms of the mortgage are interest only at a
rate of 7.625% and the mortgage matures in 2011.
On June 28, 2000, the Partnership sold the Lewiston Mall Shopping Center. The
property was sold for $5,100,000. The mortgage of approximately $2,900,000 was
paid off and the net cash received by the Partnership after closing costs and
operating adjustments was approximately $1,942,000. Rental income from the
property was approximately $600,000 for the year ended December 31, 2000.
During 2000, as a result of refinancing 11 properties and obtaining financing on
two previously debt free properties, the Partnership received approximately
$9,800,000, net of paying existing debt and financing costs. The Partnership has
not obtained any additional financing on its properties nor has it refinanced
any or its properties during the nine months ended September 30, 2001.
During the nine months ended September 30, 2001, the Partnership and its
Subsidiary Partnerships completed certain improvements to their properties at a
total cost of approximately $2,200,000. The most significant improvements were
made at the following properties: approximately $1,298,000 at 62 Boylston Street
in Boston, Massachusetts; approximately $194,000 at Redwood Hills Apartments in
Worcester, Massachusetts; approximately $72,000 at the Hamilton Oaks Apartments
in Brockton, Massachusetts; approximately $133,000 at Westgate Apartments in
Woburn, Massachusetts; approximately $50,000 at North Beacon Street in Boston,
Massachusetts; approximately $49,000 at 1144 Commonwealth Avenue in Boston,
Massachusetts; and approximately $59,000 at Brookside Apartments in Woburn,
Massachusetts.
In addition to the improvements made to date in 2001, the Partnership and its
Subsidiary Partnerships plan to invest an additional $2,620,000 in capital
improvements during 2001. Approximately $2,118,000 is designated for 62 Boylston
Street, some of which will be incurred in 2002 and the balance is designated for
other residential properties. These improvements will be funded from escrow
accounts as well as from the Partnership's cash reserves.
The Partnership anticipates that cash from operations and interest-bearing
investments will be sufficient to fund its current operations and to finance
current improvements to its properties. The Partnership's net income and cash
flow may fluctuate dramatically from year to year as a result of the sale of
properties, unanticipated increases in expenses, or the loss of significant
tenants.
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Since the Partnership's long-term goals include the acquisition of additional
properties, a portion of the proceeds from the refinancing and sale of
properties is reserved for this purpose. The Partnership will consider
refinancing existing properties if insufficient funds exist from cash reserves
to repay existing mortgages or if funds for future acquisitions are not
available.
The Partnership, subject to final zoning board approval, is planning to
construct 20 additional residential units at the Westgate Apartments in Woburn,
Massachusetts. Total costs are estimated at $3,500,000 to be initially funded
from cash reserves.
Factors That May Affect Future Results
Certain information contained herein includes forward-looking statements, the
realization of which may be impacted by the factors discussed below. The
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Liquidation Reform Act of 1995 (the "Act"). This document
contains forward looking statements that are subject to risks and and
uncertainties, including, but not limited to, uncertainty as to future financial
results; fluctuations in the residential real estate market in the greater
metropolitan Boston, Massachusetts area and the commercial real estate rental
market in New England; heating and other utility costs, and other risks detailed
from time to time in the Partnership's filings with the Securities and Exchange
Commission. These risks could cause the Partnership's actual results for fiscal
year 2001 and beyond to differ materially from those expressed in any forward
looking statements made by or on behalf of the Partnership. The foregoing
factors and those identified below should not be construed as exhaustive or as
an admission regarding the adequacy or disclosures made by the Partnership prior
to the date hereof or the effectiveness of said Act. The Partnership's
properties have minimal vacancy rates and the residential properties have
experienced average rental increases during 2000 and 2001 of 12%. The
Partnership's ability to sustain this performance is dependent upon the general
economic conditions in New England that affect real estate and is not assured.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Part II, Item 1 to the Form 10-Q filed for the second fiscal quarter
of 2001. The status of the MCAD matter referenced therein is unchanged.
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.
Date: November 14, 2001
NEW ENGLAND REALTY ASSOCIATES
LIMITED PARTNERSHIP
By: NEW REAL, INC.,
its General Partner*
By: /S/ RONALD BROWN
-----------------------
Ronald Brown, President
* Functional equivalent of Chief
Executive Officer, Principal
Financial Officer and Principal
Accounting Officer.
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