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, 1995 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
Incorporation or Organization) Identification No.)
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.
Balance Sheets - September 30, 1995
and December 31, 1994 5
Statements of Operations - Three and Nine
Months Ended September 30, 1995
and September 30, 1994 6
Statements of Cash Flows - Nine Months
Ended September 30, 1995 8
Notes to Financial Statements 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 18
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits 22
Exhibit 27 - Financial Data Schedule 24
b. Reports on Form 8-K. 22
SIGNATURES 23
BALANCE SHEETS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
September 30, December 31,
1995 1994
(Unaudited)
------------ -------------
ASSETS
Rental Properties (Notes 1, 3 and 10) $ 55,094,538 $ 23,782,167
Deposit on Acquisition (Note 3) - 1,898,200
Cash and Cash Equivalents (Notes 1 and 6) 1,727,778 996,353
Short-term Investments (Notes 1 and 5) 48,132 45,555
Rents Receivable (Note 10) 787,289 643,104
Real Estate Tax Escrows 440,142 23,558
Prepaid Expenses and Other Assets (Note 4) 2,520,836 488,783
Investment in Joint Venture (Notes 1 and 5) 139,358 165,340
Financing and Leasing Fees (Note 1) 1,475,682 278,756
------------ ------------
TOTAL ASSETS $ 62,233,755 $ 28,321,816
============ ============
LIABILITIES AND PARTNERS` CAPITAL
Mortgages Payable (Note 6) $ 52,109,278 $ 17,567,909
Note Payable - Related Party (Note 3) - 1,175,000
Accounts Payable and Accrued Expenses 745,270 620,989
Advance Rental Payments and Security
Deposits (Notes 4 and 7) 1,641,927 556,939
------------ -----------
Total Liabilities 54,496,475 19,920,837
Commitments and Contingent
Liabilities (Note 9 and Note 12)
Partners' Capital (Note 8):
177,152 units outstanding 7,737,280 8,400,979
------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 62,233,755 $ 28,321,816
============ ============
See notes to financial statements.
STATEMENTS OF OPERATIONS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
(Unaudited) (Unaudited)
------------------------ ------------------------
Revenues:
Rental income (Notes 2
and 10) $ 3,816,626 $ 2,104,686 $ 8,335,633 $ 6,156,877
Laundry income 45,227 32,432 113,753 91,050
----------- ----------- ----------- -----------
3,861,853 2,137,118 8,449,386 6,247,927
----------- ----------- ----------- -----------
Expenses:
Administrative (Note 4) 164,961 112,165 479,650 392,980
Depreciation and
amortization 659,008 405,049 1,512,122 1,204,852
Interest 1,069,833 427,067 2,130,615 1,232,323
Management fees (Note 4) 172,759 86,521 371,612 255,552
Operating 327,862 172,806 798,669 712,362
Renting 193,041 38,433 265,230 106,955
Repairs & maintenance 757,377 374,413 1,502,389 1,014,673
Taxes & insurance 434,684 267,798 975,003 801,052
----------- ----------- ----------- -----------
3,779,525 1,884,252 8,035,290 5,720,749
----------- ----------- ----------- -----------
Income from Operations 82,328 252,866 414,096 527,178
----------- ----------- ----------- -----------
Other income:
Interest income 7,166 12,765 32,189 37,449
Income from investment
in the joint venture
(Note 5) 6,914 4,658 15,766 28,078
Gain on the sale of
property (Note 3) 69,064 - 69,064 -
----------- ----------- ----------- -----------
83,144 17,423 117,019 65,527
----------- ----------- ----------- -----------
Net Income $ 165,472 $ 270,289 $ 531,115 $ 592,705
=========== =========== =========== ===========
Net Income per
Unit $ .93 $ 1.52 $ 3.00 $ 3.34
=========== =========== =========== ===========
Weighted Average Number
of Units Issued and
Outstanding (Note 8) 177,152 177,664 177,152 177,664
=========== =========== =========== ===========
See notes to financial statements.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
(Unaudited)
Partners' Capital
-----------------------------------------------
Limited General
------------------------ ----------
Class A Class B Class C Total
----------- ----------- ---------- -----------
Balance, January 1, 1994 $ 6,821,992 $ 1,648,030 $ 86,736 $ 8,556,758
Distributions to
Partners (Note 8) (962,178) (228,517) (12,027) (1,202,722)
Net Income 474,164 112,614 5,927 592,705
Stock buyback (Note 8) - (31,860) (1,660) (33,520)
----------- ----------- ---------- -----------
Balance, Sept. 30, 1994 $ 6,333,978 $ 1,500,267 $ 78,976 $ 7,913,221
=========== =========== ========== ============
Units authorized and
issued, net of 2,561
Treasury Units, at
Sept. 30, 1994 142,131 33,756 1,777 177,664
=========== =========== ========== ============
Balance, January 1, 1995 $ 6,717,849 $ 1,598,946 $ 84,184 $ 8,400,979
Distributions to
Partners (Note 8) (962,188) (228,519) (12,027) (1,202,734)
Net Income 424,892 100,912 5,311 531,115
Stock buyback (Note 8) - 7,920 - 7,920
----------- ----------- ---------- -----------
Balance, Sept. 30, 1995 $ 6,180,553 $ 1,479,259 $ 77,468 $ 7,737,280
=========== =========== ========== ============
Units authorized and
issued, net of 3,073
Treasury Units at
Sept. 30, 1995 141,722 33,659 1,771 177,152
=========== =========== ========== ============
See notes to financial statements
STATEMENTS OF CASH FLOWS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
Nine Months Ended
September 30,
(Unaudited)
1995 1994
---------- ----------
Cash Flows from Operating Activities:
Net income $ 531,115 $ 592,705
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 1,512,122 1,204,852
(Income) on investment in
partnerships & joint venture (15,766) (28,078)
(Gain) on the sale of property (69,064) -
Decrease (increase) in rents receivable (144,185) 77,769
(Increase) in financing and
leasing fees (1,344,556) (66,332)
(Decrease) increase in accounts payable 124,281 (99,284)
(Increase) in prepaid and other expenses (2,032,053) (99,170)
Increase in advance rental payments
and security deposits 1,084,988 37,233
Other items, net (418,144) (219,000)
----------- ----------
Total Adjustments (1,302,377) 807,990
----------- ----------
Net cash provided by (used in)
operating activities (771,262) 1,400,695
----------- ----------
Cash Flows from Investing Activities:
Distribution from joint venture 41,866 57,732
Payment for purchase of rental
properties (30,808,861) (1,230,373)
Maturity of short-term investments - 793,787
Purchase of short-term investments - (45,555)
----------- ----------
Net cash (used in) investing
activities (30,766,995) (424,409)
----------- ----------
See notes to financial statements.
STATEMENTS OF CASH FLOWS (CONTINUED)
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
Nine Months Ended
September 30,
(Unaudited)
1995 1994
----------- ----------
Cash Flows from Financing Activities:
Principal payments and early
repayment of mortgages payable (8,299,631) (223,005)
Proceeds from refinancing of
Partnership properties 20,214,000 -
Decrease in notes payable to
related party (1,175,000) -
Distribution to partners (1,202,734) (1,202,722)
Increase in mortgages payable 22,627,000 -
Proceeds (payments) on stock
buyback (Note 8) 7,920 (33,520)
Proceeds from the sale of
property (Note 3) 98,127 -
------------ -----------
Net cash provided by (used in)
financing activities 32,269,682 (1,459,247)
----------- -----------
Net (Decrease) Increase in Cash
Cash Equivalents 731,425 (482,961)
Cash and Cash Equivalents, Beginning 996,353 1,571,964
----------- -----------
Cash and Cash Equivalents, Ending $ 1,727,778 $ 1,089,003
=========== ===========
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES ("NERA" OR THE "PARTNERSHIP")
Revenue Recognition: 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 are 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.
Investment in Joint Venture: The Partnership accounts for investment in the
joint venture on the equity method.
Financing and Leasing Fees: Financing fees are capitalized and amortized
over the life of the related mortgages. Leasing fees are capitalized and
amortized over the life of the related lease.
Income Taxes: The financial statements have been prepared under the basis
that NERA is entitled to tax treatment as a partnership. Accordingly, no
provision for income taxes on income has been recorded.
Cash Equivalents: The Partnership considers all highly liquid instruments
purchased with a maturity of three months or less to be cash equivalents.
Short Term Investments: The Partnership considers short term investments as
bank certificates of deposit, treasury obligations or commercial paper with
maturities between three and twelve months. These investments are considered
to be trading account securities and are carried at fair value.
Concentration of Credit Risks and Financial Instruments: The Partnership's
tenants are located in New England and the Partnership is subject to the
general economic risks related thereto. No single tenant accounted for
more than 5% of the Partnership's revenue in 1995 and 1994. The Partnership
invests its temporary cash investments with high credit quality financial
institutions or purchases U.S. Government backed commercial paper.
Basis of Presentation: The accompanying unaudited condensed financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management
the accompanying financial statements include all adjustments, consisting of
NOTES TO FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES ("NERA" OR THE "PARTNERSHIP")
(CONTINUED)
normal recurring adjustments, necessary for a fair presentation of the
financial position, results of operations and changes in financial position
for the periods presented.
Please refer to the audited financial statements and footnotes thereto
included in the Partnership Annual Report on Form 10-K for the year ended
December 31, 1994.
NOTE 2--LINE OF BUSINESS
NERA was organized in Massachusetts during 1977. It owns and operates
various residential apartment buildings, condominium units and commercial
properties located in Massachusetts, Connecticut, New Hampshire and Maine.
NERA has also made investments in other real estate partnerships and has
participated in other real estate related activities primarily located in
Massachusetts.
NOTE 3--RENTAL PROPERTIES
Rental properties consist of the following:
September 30, December 31, Useful
1995 1994 Life
------------- ----------- ------------
Land $ 7,538,599 $ 4,153,599 --
Buildings 49,476,002 20,649,836 25-31 years
Building improvements 9,675,293 9,426,477 15-31 years
Kitchen cabinets 1,334,311 1,270,295 5-10 years
Carpets 1,181,928 1,098,770 5-10 years
Air conditioning 139,876 135,455 7-10 years
Land improvements 427,164 423,414 10-31 years
Laundry equipment 81,179 79,490 5-7 years
Elevators 16,842 16,842 20 years
Swimming pools 42,450 42,450 10 years
Equipment 154,909 140,909 5-7 years
Motor vehicles 79,816 78,842 5 years
Fences 99,748 96,447 5-10 years
Furniture and fixtures 111,844 98,594 5-7 years
Smoke alarms 42,083 42,083 5-7 years
----------- -----------
70,402,044 37,753,503
Less accumulated
depreciation 15,307,506 13,972,472
----------- -----------
$55,094,538 $23,781,031
=========== ===========
NOTES TO FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
NOTE 3--RENTAL PROPERTIES (CONTINUED)
On June 30, 1995, the Partnership purchased for $30,376,000 five properties
containing an aggregate of 809 residential apartments. The purchase was paid
for in part with the proceeds of the refinancing of nine of the Partnership's
properties and the issuance of new 8.375% mortgage notes payable aggregating
$22,627,000 and maturing in ten years. The properties were acquired from a
trust owned nominally by the majority shareholder of NERA's general partner.
In substance the properties were owned by the trust's secured lender under a
previous restructuring agreement whereby the lender received all of the
operating income from the properties as well as the proceeds from the sale
to NERA. The Partnership has recorded the purchase at the amount paid for
the properties.
Included in rental properties at September 30, 1995 is a building in Newton,
Massachusetts acquired by the Partnership on January 25, 1995. The building
consists of 21,223 square feet of commercial space, 9 residential units and
29 parking spaces for a total purchase price of $1,925,000. This building
was acquired from an entity in which the majority shareholder of NERA's
general partner had a substantial ownership interest. The Partnership's
management company received a fee of approximately $11,000 from the seller in
this transaction. To facilitate this acquisition, the Partnership's
management company, an entity owned by the majority shareholder of NERA's
general partner, loaned the Partnership $1,175,000 in December 1994. In
May 1995, the Partnership refinanced this property and obtained a mortgage
payable in 10 years with interest at 9.25%, and paid off the existing loan of
$1,175,000 to the management company.
In July 1995, the Partnership sold a condominium located in Stoneham,
Massachusetts. The sale price was $98,127 and the gain of $69,064 is
included in net income.
NOTE 4-RELATED PARTY TRANSACTIONS
The Partnership properties are managed by an entity which is owned by the
majority shareholder of the general partner (see Note 12). The management
fee is equal to 4% of rental revenue and laundry income. Total fees paid
were $371,612 and $255,552 for the nine months ended September 30, 1995 and
1994, respectively. Advance rental payments and security deposits are held
in escrow by the management company (see Note 7). 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 were no mortgage servicing fees paid in 1995 or 1994.
The Partnership Agreement also permits the general partner or management
company to charge the costs of professional services (such as counsel,
accountants, contractors) to NERA. In the third quarter of 1995,
approximately $68,000 was charged to NERA for legal, maintenance,
architectural services, and supervision of capital improvements.
NOTES TO FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
NOTE 4--RELATED PARTY TRANSACTIONS (CONTINUED)
During the year ended December 31, 1994, approximately $74,000 was
capitalized in leasehold improvements and the balance of $56,000 was included
in administrative expense. Additionally in 1994, the Partnership paid to the
management company $30,000 for accounting services previously provided by an
outside company.
The Partnership Agreement entitles the general partner or the management
company to receive commissions upon the sale of partnership property
only to the extent that total commissions do not exceed 3%. No such
commissions were paid in 1995 or 1994.
Included in prepaid expenses and other assets were amounts due from
related parties of $335,177 at September 30, 1995 and $55,582 at
December 31, 1994 representing Massachusetts tenant security and prepaid rent
deposits, which are held for the Partnership by another entity also owned by
one of the shareholders of the general partner (see Note 7).
Also included in prepaid expenses and other assets is an insurance reserve
account funded by the Partnership and held by the management company. The
insurance reserve includes funds from other properties which are also
owned by the related parties. The balance in the reserve was $90,514
at September 30, 1995 and $39,212 at December 31, 1994.
See Note 10 for rental arrangements with the Timpany Plaza joint venture.
As described in Note 5, the Partnership has interests in certain entities in
which the majority shareholder of the general partner is also involved.
NOTE 5--INVESTMENTS
The short term investment totalling $48,132 at September 30, 1995 and $45,555
at December 31, 1994 is carried at cost which approximates fair value. Such
investment at September 30, 1995 is a 6% certificate of deposit maturing in
February 1996. The issuer and amount of this investment is as follows:
September 30, December 31,
1995 1994
----------- ----------
Citizens Bank - Certificate of deposit $ 48,132 $ 45,555
========== ==========
The carrying value of the Partnership's 50% interest in the Timpany Plaza
Joint Venture, at equity, is $139,358 and $165,340 at September 30, 1995 and
December 31, 1994, respectively.
NOTES TO FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
NOTE 5--INVESTMENTS (CONTINUED)
The Partnership owns a 10% interest in four real estate partnerships
accounted for by the equity method and reduced to a carrying value of zero.
Losses in excess of cost in limited partnerships have not been recorded as
the Partnership is not liable for such amounts.
The majority shareholder of the general partner is also the majority owner of
these partnerships (see Note 12). There can be no assurance that any of
NERA's partnership investments will be realizable in the future in excess of
their carrying value.
NOTE 6--MORTGAGES PAYABLE
At September 30, 1995 and December 31, 1994, the mortgages payable consisted
of various loans, substantially all of which were secured by first mortgages,
on rental properties referred to in Note 3, with interest ranging from 8.25%
to 9.25% and prime plus 1.5%, payable in monthly installments currently
aggregating approximately $424,000, including interest, to various dates
through 2005.
The Partnership has pledged tenant leases as additional collateral for
certain of its mortgages.
Approximate annual maturities are as follows:
1996 - current maturities $ 2,927,755
1997 521,647
1998 568,926
1999 620,524
2000 676,841
Thereafter 46,793,585
-----------
$52,109,278
===========
During the third quarter of 1995, the Partnership refinanced the mortgages on
four properties; the Clovelly apartments in Nashua, New Hampshire;
Willard apartments in Quincy, Massachusetts; the shopping mall in Lewiston,
Maine; and the shopping mall in East Hampton, Connecticut. The total amount
of the mortgages paid off was approximately $7,967,000 and the new mortgages
issued were approximately $6,764,000. Each mortgage has a rate of 8.38%,
and a maturity of 10 years.
Included in prepaid expense and other assets at December 31, 1994 is $140,000
which had not yet been received on a previously refinanced mortgage. This amount
was collected in April 1995 as a result of the completion of certain
improvements to the property underlying the mortgage.
NOTES TO FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
NOTE 7--ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS
The lease agreements for certain properties require tenants to maintain
a one-month advance rental payment and security deposit. The funds are held
in escrow by another entity owned by the majority shareholder of the general
partner (see Notes 4 and 12).
NOTE 8--PARTNERS' CAPITAL
The Partnership has two categories of limited partners (Classes A and B)
and one category of general partner (Class C). Under the terms of the
Partnership Agreement, Classes B and C 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.
The Partnership declared distributions of $3.40 per unit in the first and
third quarters of 1995 and 1994 for a total distribution of $6.80 for the
nine months ended September 30, 1995 and 1994.
The Partnership has entered into a deposit agreement with a bank 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 ten depositary receipts. The
following is information of the net income per depositary receipt:
Nine Months Ended
September 30,
1995 1994
---- ----
Net Income Per Depositary Receipt $.30 $.33
==== ====
In March 1993, the Partnership announced that it would offer to purchase
Depositary Receipts from all holders of less than 100 Depositary Receipts.
A total of 23,391 depositary receipts were purchased at $5 per receipt.
During 1994 and 1995, Class A, B, and C units were restored to the required
percentage relationship mentioned above by the purchase of B and C units at
$50 per unit ($5 per receipt).
NOTE 9--COMMITMENTS AND CONTINGENCIES
From time to time, the Partnership is involved in various ordinary routine
litigation incidental to its business. The Partnership is not involved in
any material pending legal proceedings.
NOTES TO FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
NOTE 10--RENTAL INCOME
In the first three quarters of 1995, approximately 77% of rental income is
related to residential apartment and condominium units with leases of one
year or less. The remaining 23% is related to commercial properties which
have minimum future rental income on noncancellable operating leases as
follows:
Commercial
Property
Leases Land Leases Total
1996 $1,299,354 $ 130,000 $1,429,354
1997 1,162,695 130,000 1,292,695
1998 945,337 130,000 1,075,337
1999 690,455 130,000 820,455
2000 484,043 130,000 614,043
Thereafter 1,985,030 1,625,833 3,610,863
---------- ---------- ----------
$6,566,914 $2,275,833 $8,842,747
========== ========== ==========
In August 1988, the Partnership entered into a land lease agreement, with an
existing tenant, in the Timpany Shopping Plaza Center in Gardner,
Massachusetts. As part of this lease, the tenant, at its cost, demolished
approximately one-third of the mall and replaced it with a new store of
comparable size. The minimum fixed term of this lease is for 20 years which
commenced with the opening of the new store in December 1989.
The minimum annual rents are $110,000 per year for the first five years and
increase each subsequent five-year period with the average being $137,500 per
year for the minimum twenty-year term. Included in rents receivable at
September 30, 1995 and December 31, 1994 is $103,125 and $137,500,
respectively, representing the deferred rental income of $137,500 per year
from this lease. There are also contingent rents based upon sales volume,
common area maintenance, and other charges. This lease also provides for six
extension periods of five years each at increased rents. The minimum rents
pertaining to this agreement are reflected in the foregoing table.
The ownership of this new building addition transfers to the Partnership at
the termination of the lease. Accordingly, the Partnership included in
property assets approximately $1,400,000 of book value of the demolished
building allocable to the Partnership leasehold interest and is depreciating
this amount on a straight-line basis over a 20-year period.
NOTES TO FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
NOTE 10--RENTAL INCOME (CONTINUED)
Concurrently, the Partnership entered into a joint venture with this same
tenant relating to the space formerly leased by the tenant. Under this
arrangement, the two parties have agreed to relet space and divide the net
income or loss after paying to the Partnership an annual minimum rent of
$84,546. The Partnership's share of income was approximately $16,000 and
$28,000 for the nine months ended September 30, 1995 and 1994, respectively.
The aggregate minimum future rental income does not include contingent
rentals which may be received under various leases in connection with
percentage rents, common area charges and real estate taxes. Aggregate
contingent rentals were approximately $589,000 and $612,000 for the nine
months ended September 30, 1995 and 1994, respectively.
NOTE 11--CASH FLOW INFORMATION
During the nine months ended September 30, 1995 and 1994, cash paid for
interest was $2,166,095 and $1,228,708, respectively.
NOTE 12--BANKRUPTCY OF RELATED PARTIES
As described in notes 4, 5 and 7, the Partnership had transactions with and
has interests in certain entities in which the majority shareholder of the
general partner is involved. Such shareholder had guaranteed certain notes
receivable and had agreed to indemnify the Partnership for losses incurred
from certain partnerships in which New England Realty Associates Limited
Partnership is a general partner. During March 1991, this shareholder, the
Partnership's management company, and other related entities filed for
protection from their creditors under Chapter 11 of the Federal Bankruptcy
Code.
In September 1992, the U.S. Bankruptcy Court confirmed a reorganization plan
pursuant to which this shareholder was discharged of all liabilities
including all guarantees and indemnifications.
Certain of the partnership investments described in Note 5 are subject to
restructuring stipulations with their respective lenders. There can be no
assurance that the investment partnerships will realize any future value.
As part of the restructuring, management of the NERA properties was
transferred to a newly formed partnership owned 1% by the majority
shareholder of NERA's general partner. In August 1993, this majority
shareholder purchased the other 99% ownership interest.
The management of the Partnership believes that the proceedings described
above will not adversely affect the Partnership's properties or operations.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Results of Operations
Income from operations for the third quarter of 1995 was approximately
$82,000, compared to approximately $253,000 for the same period in 1994, a
decrease of approximately $171,000. For the nine months ended September 30,
1995, income from operations was approximately $414,000 compared to
approximately $527,000 for the same period in 1994, a decrease of approximately
$113,000. Net cash used in operations during the nine months ended September 30,
1995 was approximately $717,000 compared to cash provided by operations of
approximately $1,400,000 during the same period in 1994, a decrease of
approximately $2,117,000. The decrease in income from operations and the
increase in the level of cash used in operations is due both to the acquisition
of new properties as well as the refinancing of existing Partnership properties.
The level of rental income and operating expenses remained relatively stable at
the existing Partnership properties. Interest expense on the existing
Partnership properties has increased as the Partnership is servicing a higher
level of debt. This increase will affect both cash flow and net income. Prepaid
financing fees in connection with the acquisitions and the refinancings were
approximately $616,000 and the increase in the real estate tax escrow balances
were approximately $416,000.
Rental income during the third quarter of 1995 was approximately $3,817,000
compared with approximately $2,105,000 for the same period in 1994, an increase
of approximately $1,712,000. A significant portion of this increase,
approximately $1,673,000, represents the rental income from the properties
acquired in June 1995 for which there would not be any rental income for the
comparable quarter in 1994. For the nine months ended September 30, 1995, rental
income was approximately $8,336,000 compared to approximately $6,157,000 for the
same period in 1994, an increase of approximately $2,179,000. The new properties
represent approximately $1,936,000 of this increase. The Partnership has also
seen increases in rental income at the existing residential properties due to
improved occupancy levels, offset by a decrease in the rental income from the
commercial properties, specifically the mall in East Hampton, Connecticut. The
Partnership lost a tenant in December of 1994 and continues to seek a new tenant
for the space.
Expenses for the third quarter of 1995 were approximately $3,780,000
compared to approximately $1,884,000 for the same period in 1994, an increase of
approximately $1,896,000. This increase represents expenses for six new
properties acquired during the nine months ended September 30, 1995, one in
January 1995 and five in June 1995. The expenses on the new properties represent
approximately $1,694,000 of this increase. In addition, interest expense on the
existing properties has increased approximately $100,000 in the third quarter of
1995 due to the higher level of debt compared to 1994.
Expenses for the first nine months of 1995 were approximately $8,035,000
compared with approximately $5,720,000 for the same period in 1994, an increase
of approximately $2,315,000. The majority of this increase represents the new
acquisitions in 1995. Expenses for the new properties would not be reflected in
the financial information for the nine months ended September 30, 1994,
resulting in these fluctuations. Repairs and maintenance expenses on existing
properties increased approximately $348,000 due to ongoing repairs and
maintenance in an effort to maintain the properties, depreciation and
amortization expense increased approximately $300,000 due to ongoing capital
improvements as well as new acquisitions.
Interest income for the three months ended September 30, 1995 was
approximately $7,000 compared to approximately $13,000 for the same period in
1994, a decrease of approximately $6,000. Interest income for the nine months
ended September 30, 1995 was approximately $32,000 compared to approximately
$37,000 for the same period in 1994, a decrease of approximately $5,000. These
decreases reflect a decline in the interest rates.
Investment in partnerships and the Timpany Plaza joint venture represents
NERA's interest in commercial real estate not wholly-owned by the Partnership.
NERA is not liable for losses in excess of its investment in limited
partnerships in which it is a limited partner. NERA's investment in the
partnerships has been reduced to zero due to losses incurred since the time of
investment. There has been no loss recorded on the investment in the
partnerships since 1991. The Partnership's investment in the Timpany Plaza joint
venture represents less than 1% of NERA's assets.
The Partnership's share of income in the joint venture at the Timpany Plaza
Shopping Center was approximately $7,000 for the third quarter of 1995 compared
to approximately $5,000 for the third quarter of 1994. For the nine months ended
September 30, 1995, the Partnership's share of income from the joint venture at
the Timpany Plaza Shopping Center was approximately $16,000 compared to
approximately $28,000 for the same period in 1994. This decrease in income
represents an increase in 1995 in the real estate taxes and the common area
maintenance charges, in connection with the joint venture.
In July 1995, the Partnerhsip sold a condominium located in Stoneham,
Massachusetts. The sale price of the unit was approximately $98,000 and the gain
of approximately $69,000 is included in net income.
As a result of the changes discussed above, net income for the three months
ended September 30, 1995 was $165,472 compared to $270,289 for the three months
ended September 30, 1994, a decrease of $104,817; and the net income for the
nine months ended September 30, 1995 was $531,115 compared to $592,705 for the
nine months ended September 30, 1994, a decrease of $61,590.
Liquidity and Capital Resources
The Partnership's principal source of cash during 1995 has been the
collection of rents, the refinancing of Partnership properties, and the sale of
a condominium. The majority of cash and cash equivalents totalling $1,727,778 at
September 30, 1995 and $996,353 at December 31, 1994 is invested in commercial
paper and certificates of deposit maturing in less than 90 days. Additionally,
the Partnership has purchased a short term investment valued at $48,132 at
September 30, 1995 and $45,555 at December 31, 1994. This investment is a
certificate of deposit which matures in February 1996.
In June 1995, the Partnership acquired 5 buildings consisting of 809
residential units. The buildings were purchased from an entity in which the
majority shareholder of NERA'S general partner had a substantial ownership
interest. The total purchase price for the 5 buildings was $30,376,000. The
Partnership obtained 5 individual mortgages which total $22,627,000. Each
mortgage has a maturity of 10 years with an interest rate of 8.375%. The balance
of $7,749,000 was paid in cash. In connection with this acquisition, the
Partnership refinanced 9 other properties during the second quarter of 1995 for
which it incurred prepaid financing fees of approximately $498,000. The amount
of this refinancing was $13,450,000 of which $3,000,000 was used to pay off the
existing debt and the remaining $10,450,000 was used in connection with the
acquisition of the new buildings. These transactions have had and are expected
to have a negative impact on the Partnerships cash flow.
During the third quarter of 1995, the Partnership refinanced 4 Partnership
properties for which it incurred prepaid financing fees of approximately
$118,000. The total amount of the 4 new mortgages is $6,764,000; the mortgages
paid off were approximately $7,967,000, and the balance of approximately
$1,203,000 was paid from cash reserves. These transactions had a negative impact
on cash flow during the third quarter of 1995, however should have a positive
impact in future quarters.
During the third quarter of 1995, the Partnership completed certain
improvements to its properties at a total cost of approximately $398,000. These
improvements were funded from cash reserves. The most significant improvements
were made at the shopping mall in Lewiston, Maine for a total cost of $101,000,
and approximately $101,000 of improvements at the apartments on Boylston Street
in Boston, Massachusetts. The Partnership also completed capital improvements of
approximately $41,000 at the Westgate apartments in Woburn, Massachusetts and
$28,000 at the Linhart apartments in Newton, Massachusetts.
During the next 12 months, the Partnership plans to invest an additional
$170,000 in capital improvements at the Westgate apartments in Woburn,
Massachusetts; approximately $100,000 at the Redwood apartments in Worcester,
Massachusetts; and approximatley $75,000 at the apartments on Boylston Street in
Boston, Massachusetts. These improvements will be funded from cash reserves.
The Partnership anticipates that available cash and interest bearing
investments, collection of rents, and proceeds from the sale and refinancing of
Partnership properties will be sufficient to finance future routine improvements
to properties, as well as overall operations for the remainder of 1995.
Unanticipated increases in expenses or a loss of a significant tenant could have
a negative impact on the Partnership's cash flow.
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. If the cash required for such
acquisition is not available as needed, the General Partner will consider
refinancing mortgaged properties which have lower debt-to-equity ratios in order
to raise the necessary cash. The General Partner will also consider refinancing
mortgaged properties in the event there is insufficient cash available from cash
reserves to repay such obligations as they mature. NERA's net income may
fluctuate dramatically from year to year as a result of the acquisition or sale
of properties.
The Partnership paid distributions totalling $6.80 per Partnership unit
($0.68 per depository receipt) during each of the nine months ended September
30, 1995 and 1994.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
On July 14, 1995, the Registrant filed a
Form 8-K Current Report dated June 30, 1995,
including "Item 2. Acquisition or Disposition
of Assets" with respect to its acquisition of
certain residential properties.
On September 13, 1995, the Registrant filed a
Form 8-K/A Current Report dated June 30, 1995,
including Item 7 which was amended to include
combined historical summary of revenues and
certain expenses and pro forma financial
information.
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 13, 1995
NEW ENGLAND REALTY ASSOCIATES
LIMITED PARTNERSHIP
By: NEWREAL, INC.,
its General Partner*
By: /s/ Ronald Brown
Ronald Brown,
President
* Functional equivalent of Chief
Executive Officer, Principal
Financial Officer and Principal
Accounting Officer.
65717@D/DD 11/06 Form 10-Q