-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HDWcHaumx1com06am7gzYEKXNFpqkaihTAPnkoL3bWg9naz0Mv5NyVe5RBngjDMv f45XUiY4IoFoTeW6L1b/tg== 0000912057-00-014514.txt : 20000411 0000912057-00-014514.hdr.sgml : 20000411 ACCESSION NUMBER: 0000912057-00-014514 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000746514 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 042619298 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12138 FILM NUMBER: 583843 BUSINESS ADDRESS: STREET 1: 39 BRIGHTON AVE CITY: ALLSTON STATE: MA ZIP: 02134 BUSINESS PHONE: 6177830039 MAIL ADDRESS: STREET 1: 39 BRIGHTON AVE CITY: ALLSTON STATE: MA ZIP: 02134 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [FEE REQUIRED] For the fiscal year ended DECEMBER 31, 1999 or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [NO FEE REQUIRED] 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 AVE., ALLSTON, MASSACHUSETTS 02134 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 783-0039 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - --------------------------------- --------------------------------- None None
Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP UNITS (Title of class) DEPOSITARY RECEIPTS (TITLE OF CLASS) 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 by check mark if disclosure of deliquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ As of February 15, 2000, the aggregate market value of traded securities held by non-affiliates of the registrant was $18,026,777, based on the price at which the securities were sold. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS New England Realty Associates Limited Partnership ("NERA" or the "Partnership"), a Massachusetts limited partnership, was formed on August 12, 1977 as the successor to five real estate limited partnerships (collectively, the "Colonial Partnerships"), which filed for protection under Chapter XII of the Federal Bankruptcy Act in September 1974. The bankruptcy proceedings were terminated in late 1984. The Partnership terminates on December 31, 2017, except the General Partner may extend the termination date for an additional forty years. The authorized capital of the Partnership is represented by three classes of partnership units ("Partnership Units"). There are two categories of limited partnership interests ("Class A Units" and "Class B Units"), and one category of general partnership interests (the "General Partnership Units"). The Class A Units were issued to creditors and limited partners of the Colonial Partnerships and have been registered under Section 12(g) of the Securities Exchange Act of 1934. Each Class A Unit is exchangeable for ten publicly traded Depositary Receipts ("Receipts"). The Class B Units were issued to the original general partners of the Partnership. The General Partnership Units are held by the current general partner of the Partnership, NewReal, Inc. (the "General Partner"). The Partnership is engaged in the business of acquiring, developing, holding for investment, operating and selling real estate. In connection with various new mortgages obtained in 1995 by the Partnership on certain of its properties, the ownership of such properties was placed in various subsidiary limited partnerships as a requirement by the refinancing bank. The Partnership directly or through 19 subsidiary limited partnerships owns and operates various residential apartment buildings, condominium units and commercial properties located in Massachusetts, Connecticut, New Hampshire and Maine. The Partnership owns a 99.67% interest in each of the 19 Subsidiary Partnerships. The remaining .33% interest of each Subsidiary Partnership is held by an unaffiliated third party. The third party has entered into a lease agreement with the Partnership, pursuant to which any benefit derived from its ownership interest in such Subsidiary Partnerships will be returned to the Partnership. In March 1999, in connection with a refinancing and as required by the refinancing bank, the Partnership transferred the ownership of one apartment complex located in Woburn, Massachusetts to Westgate Apartments, LLC, a Massachusetts limited liability company ("Westgate"). The Partnership owns a 99.67% interest of Westgate, with the remaining .33% interest owned by Westgate Apartments, Inc., a Massachusetts corporation. In April 1999, the Partnership sold a 16-unit apartment building in Quincy, Massachusetts which was previously owned by a Subsidiary Partnership. In May 1999, the Partnership acquired a 39,600 square foot commercial property known as "Staples Plaza", located in Framingham, Massachusetts. In December 1999, the Partnership acquired two apartment complexes in Brockton, Massachusetts through two controlled limited liability companies, WCB Associates, LLC, a Massachusetts limited liability company ("WCB"), and Hamilton Oaks Associates, LLC, a Delaware limited liability company ("Hamilton Oaks"), both of which were formed for the specific purpose of acquiring the properties. The Partnership owns a 99% interest in WCB, with the remaining 1% interest owned by WCB Associates, Inc., a Massachusetts corporation. The Partnership owns a 100% interest in Hamilton Oaks. (The Partnership's subsidiary limited partnerships and limited liability companies are collectively referred to as the "Subsidiary Partnerships" and individually, a "Subsidiary Partnership".) SEE "ITEM 1, RECENT DEVELOPMENTS." The long-term goals of the Partnership are to manage, rent and improve its properties and, as suitable opportunities arise, to acquire additional properties with income and capital appreciation potential. When appropriate, the Partnership may sell or refinance selected properties with low debt-to-equity ratios. Proceeds from any such sales or refinancings will be reinvested in acquisitions of other properties, distributed to the partners, or used for operating expenses or reserves, as determined by the General Partner. OPERATIONS OF THE PARTNERSHIP The Partnership is managed by the General Partner, which is a Massachusetts corporation wholly-owned by Harold Brown and Ronald Brown. The General Partner has employed the Hamilton Company, Inc. (the "Hamilton Company"), the successor to the Hamilton Management Corporation, to perform the management functions for the Partnership's properties. The Hamilton Company employs Ronald Brown and Harold Brown. The Hamilton Company is wholly owned by Harold Brown. The Partnership and its Subsidiary Partnerships currently employ 71 individuals who are primarily involved in the supervision and maintenance of specific properties. The General Partner has no employees. As of March 9, 2000, the Partnership and its Subsidiary Partnerships owned and leased to residential tenants 2,079 apartment units in 19 residential and mixed-use complexes (collectively, the "Apartment Complexes"), 19 condominium units retained by the Partnership as rental properties in a residential apartment complex formerly owned by the Partnership which has been converted into condominiums, and one condominium unit in a separate condominium complex (collectively referred to as the "Condominium Units"). The Apartment Complexes and the Condominium Units are located primarily in the greater metropolitan Boston, Massachusetts area. Additionally, as of March 9, 2000, the Subsidiary Partnerships owned commercial shopping centers in East Hampton, Connecticut, Gardner, Massachusetts, and Lewiston, Maine and commercial space in mixed-use buildings in Boston, Brockton and Newton, Massachusetts. These properties are referred to collectively as the "Commercial Properties." The Partnership is a party to a joint venture which leases space at the Timpany Plaza Shopping Center (the foregoing properties are referred to collectively as the "Investment Properties"). See Note 2 to Notes to Financial Statements included as a part of this Form 10-K. The Apartment Complexes, Condominium Units, Commercial Properties, and Joint Venture Properties are referred to collectively as the "Properties." Harold Brown and, in certain cases, Ronald Brown, own or have owned interests in certain of the Properties. See "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." In general, the Properties face no unusual competition. The Apartment Complexes and Condominium Units must compete for tenants with other residential apartments and condominium units in the areas in which they are located. The Commercial Properties and Investment Properties must compete for commercial tenants with other shopping malls and office buildings in the areas in which they are located. In the opinion of the General Partner, the Properties are adequately covered by insurance. The General Partner is not limited in the number or amount of mortgages which may be placed on any Property, nor is there a policy limiting the percentage of Partnership assets which may be invested in any specific Property. The Second Amended and Restated Contract of Limited Partnership of the Partnership (the "Partnership Agreement") authorizes the General Partner to acquire real estate and real estate related investments from or in participation with either or both of Harold Brown and Ronald Brown, or their affiliates, upon the satisfaction of certain terms and conditions, including the approval of the Partnership's Advisory Committee, and limitations on the price paid by the Partnership for such investments. The Partnership Agreement also permits the Partnership's limited partners and the General Partner to make loans to the Partnership, subject to certain limitations on the rate of interest which may be charged to the Partnership. Except for the foregoing, the Partnership does not have any policies prohibiting any limited partner, general partner, or any other person from having any direct or indirect pecuniary interest in any investment to be acquired or disposed of by the Partnership or in any transaction to which the Partnership is a party or has an interest in or from engaging for their own account in business activities of the types conducted or to be conducted by the Partnership. 2 RECENT DEVELOPMENTS Timpany Plaza is currently 29% vacant and the Partnership has not made any determination with respect to the impact, if any, the vacancy rate of Timpany Plaza might have on the Partnerships income and net earnings in the future. The Partnership is in active discussions and negotiations with other retail tenants to rent the space. As of the date of this Annual Report, the Partnership has received from an unaffiliated third party an offer to purchase Timpany Plaza in Gardner, Massachusetts and is currently negotiating a purchase and sale agreement for the sale of Lewiston Mall in Lewiston, Maine. No assurances can be made that the sales of these properties will be consummated. On March 24, 1999, the Partnership refinanced an existing mortgage on the Westgate Woburn Apartments, a 221 unit apartment complex in Woburn, Massachusetts. The refinancing bank required the Partnership to transfer the ownership of the Westgate Woburn property to a single purpose entity. Ownership of the Westgate Woburn property was transferred to a Massachusetts limited liability company in which the Partnership owns a 99.67% interest and the remaining .33% interest is held by an unaffiliated third party. As a result of the refinancing, the Partnership paid the existing debt of approximately $6,700,000 and lowered the interest rate on the new mortgage of $12,000,000 from 10.99% to 7.07%. The new mortgage for Westgate Woburn has a term of fifteen (15) years with a 25 year amortization. The Partnership is in the process of obtaining the necessary permits and approvals with respect to these additional apartment units. The Partnership believes it strengthened its portfolio by making significant acquisitions of residential mixed-use and commercial properties in 1999. The Partnership acquired three properties for a total purchase price of $31,600,000. The acquisitions were financed by mortgages on the acquired properties totaling $22,025,121. Additionally, a $750,000 loan was provided by the majority shareholder of the General Partner. The remaining balance of $8,774,879 was paid from available cash. On May 27, 1999, the Partnership purchased a 39,600 square foot commercial property known as Staples Plaza, located in Framingham, Massachusetts. The purchase price was $8,200,000. The Partnership assumed an 8% mortgage on the property of $5,267,949 which matures in 2016 and the balance of $2,932,051 was funded from the Partnership's cash reserves, which were adequate to support this purchase. On December 3, 1999, the Partnership acquired, through WCB, 180 residential units, known as "West Colonial," located at 18 Westland Ave, Brockton, Massachusetts for a purchase price of $8,900,000. The seller, WCA Limited Partnership, has no relationship to the Partnership or WCB, which was formed for the specific purpose of acquiring the property. WCB has two managers: WCB Associates, Inc., a Massachusetts corporation; and an individual, Mel Herman. The Partnership is the sole stockholder of WCB Associates, Inc. WCB Associates, Inc. is also a one percent (1%) member of WCB and the Partnership owns the remaining ninety-nine percent (99%) interest in WCB. Mr. Herman is defined in the WCB Operating Agreement as a "special manager." With respect to the activities of WCB, Mr. Herman's consent is only needed under limited circumstances. For example, WCB requires the consent of Mr. Herman (i) to change in the general character of the business of WCB; (ii) to make any loans to the manager or the members or their affiliates; (ii) to sell of all or substantially all of the assets of the WCB; (iii) to dissolve, wind up or liquidate WCB; (iv) to merge, consolidate or acquire all or substantially all the assets of another person or entity; and (v) to institute proceedings to be adjudicated bankrupt or insolvent, or to consent to such proceedings against WCB. Ronald Brown (the President of the Partnership's General Partner) is the President of WCB Associates, Inc. and Harold Brown (the Treasurer of the Partnership's General Partner) is the Treasurer. Prior to the Partnership's acquisition of West Colonial through WCB, West Colonial had an existing first mortgage of $5,265,000, which at the closing of the acquisition had amortized to $5,207,172. The net difference ($3,692,828), before adjustments, was provided by use of the Partnership's cash reserves which 3 had accumulated from operations and the refinancing of the Partnership's Westgate Woburn property earlier in March 1999. The 10 year loan assumed by the Partnership has a maturity date of Oct. 1, 2008 and is amortizing over 30 years with an interest rate of 6.52%. The property's net operating income budgeted for fiscal year 2000 is $872,000, with a debt service of $400,000, leaving a cash flow before capital expenditure of $472,000 for a 12.7% cash on cash return. The original conduit loan was made by Berkshire Mortgage Finance Corporation and is presently serviced by Berkshire Mortgage Finance Corporation. On December 23, 1999, the Partnership acquired, through Hamilton Oaks, 268 residential units from Oak Apartments, LLC for a purchase price of $14,500,000. The property is located in Brockton, Massachusetts. The Partnership financed the purchase price in part through the use of the Partnership's operating cash and cash reserves. In addition, the Partnership obtained a loan in the amount of $750,000 from Harold Brown, the Treasurer of the General Partner. Mr. Brown's loan bears interest at a rate of 10% per annum and matures in two (2) years. Mr. Brown's loan may be repaid by the Partnership at any time, without penalty. The balance of the purchase price was financed through a first mortgage loan from Arbor National Commercial Mortgage, LLC ("Arbor"), in an amount of $11,600,000. The first mortgage loan from Arbor bears interest at a rate of 7.84% per annum and is amortized over a 30 year period, with a maturity in 10 years. The seller, Oaks Apartments, LLC, has no relationship to the Partnership or Hamilton Oaks, which was formed for the specific purpose of acquiring the property. The General Partner, is the sole manager of Hamilton Oaks, and the Partnership is its sole member. On August 5, 1999, the Partnership sold a co-operative apartment located at 566 Commonwealth Avenue, Boston, Massachusetts. The sale price was $168,000. The net cash from the sale of this property was $157,643. On April 30, 1999, the Partnership sold Willard Street Apartments, a 16 unit apartment building in Quincy, Massachusetts for $850,000. The Partnership assigned to the purchaser the existing mortgage which had a current balance of approximately $285,000, and the Partnership took back a mortgage of approximately $480,000, at a rate of 7.5%. The net cash received by the Partnership from the sale was approximately $85,000. The mortgage taken back by the Partnership from the purchaser matures at the earlier of the refinancing of the property or July 31, 2005. The $480,000 note was paid in full to the Partnership on January 14, 2000. The Partnership did not sell any properties in 1998, 1997 or 1996. Other than such purchases described above, the Partnership had not acquired new properties since December, 1996. See "ITEM 2. PROPERTIES--Commercial Properties." During 1999, the Partnership and its Subsidiary Partnerships completed certain improvements to their properties at a total cost of approximately $2,300,000. These improvements were funded from cash reserves which were adequate to support these improvements. The most significant improvements were made at 62 Boylston Street and Timpany Plaza, for total costs of $755,000 and $352,000, respectively. These improvements were necessary in anticipation of new tenants who will occupy the building. The Partnership also made improvements of $293,000, $137,000, $103,000 and $131,000 to North Beacon, Westgate Woburn, Redwood Hills, and 1144 Commonwealth Avenue, respectively. These improvements were funded from escrow accounts previously established, as well as cash reserves. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources." ADVISORY COMMITTEE The Partnership has an Advisory Committee composed of three limited partners who are not general partners or affiliates of the Partnership. The Advisory Committee meets with the General Partner to review the progress of the Partnership, assist the General Partner with policy formation, review the appropriateness, timing and amount of proposed distributions, approve or reject proposed acquisitions and 4 investments with affiliates and advise the General Partner on various other Partnership affairs. The Advisory Committee has no binding power except with respect to investments and acquisitions involving affiliates of the Partnership. ITEM 2. PROPERTIES As of March 9, 2000, the Partnership and its Subsidiary Partnerships own the Apartment Complexes, the Condominium Units and the Commercial Properties. See also "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" for further information concerning affiliated transactions. During 1995, limited partnerships were created to own each of the Apartment Complexes and the Commercial Properties listed below, exclusive of the Westgate Apartments, Oak Apartments, West Colonial Apartments (which are owned by limited liability companies in which the Partnership has a controlling interest). In addition to the foregoing, in 1996, the Partnership acquired the Highland Street Apartment Complex in Lowell, Massachusetts, which is owned directly by the Partnership and not through any Subsidiary Partnership. The Condominium Units and Staples Plaza are also owned directly by the Partnership. APARTMENT COMPLEXES The table below lists the location of the 19 Apartment Complexes, the number and type of units in each complex, the range of rents and vacancies as of March 9, 2000, the principal amount outstanding under any mortgages as of December 31, 1999, and the maturity dates of such mortgages.
MORTGAGE BALANCE AND INTEREST RATE AS OF MATURITY APARTMENT NUMBER AND TYPE RENT DECEMBER 31, DATE OF COMPLEX OF UNITS RANGE VACANCIES 1999 MORTGAGE - --------- ------------------ ---------- --------- ------------- --------- Coach LP.................................... 48 units $ 830-960 0 $ 1,142,215 2005 53-55 Brook St. 0 three-bedroom $ 735-840 8.25% Acton, MA 24 two-bedroom $ 670-685 20 one-bedroom 4 studios Westgate Woburn............................. 221 units $ 1350 0 $11,864,999 2014 2-20 Westgate Dr. 1 three-bedroom $ 825-1175 7.07% Woburn, MA 110 two-bedrooms $ 755-1055 110 one-bedrooms N/A 0 studios Avon Street Apts. LP........................ 66 units N/A 1 $ 1,711,906 2005 130 Avon Street 0 three-bedrooms $ 800-920 8.775% Malden, MA 30 two-bedrooms $ 660-820 33 one-bedrooms $ 605-650 3 studios Middlesex Apts. LP.......................... 18 units $1475-1850 0 $ 1,056,509 2005 132-144 Middlesex Rd. 18 three-bedrooms N/A 8.625% Newton, MA 0 two-bedrooms N/A 0 one-bedrooms N/A 0 studios Clovelly Apts. LP........................... 103 units N/A 1 $ 1,999,830 2005 160-170 Concord St. 0 three-bedrooms $ 610-810 8.375% Nashua, NH 53 two-bedrooms $ 570-640 50 one-bedrooms N/A 0 studios
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MORTGAGE BALANCE AND INTEREST RATE AS OF MATURITY APARTMENT NUMBER AND TYPE RENT DECEMBER 31, DATE OF COMPLEX OF UNITS RANGE VACANCIES 1999 MORTGAGE - --------- ------------------ ---------- --------- ------------- --------- Nashoba Apts. LP............................ 32 units N/A 1 $ 1,044,840 2005 284 Great Road 0 three-bedrooms $ 880-1305 8.625% Acton, MA 32 two-bedrooms N/A 0 one-bedrooms N/A 0 studios River Drive LP.............................. 72 units N/A 1 $ 1,482,698 2005 3-17 River Drive 0 three-bedrooms $ 720-820 1 8.775% Danvers, MA 60 two-bedrooms $ 680-705 5 one-bedrooms $ 585-590 7 studios Executive Apts. LP.......................... 72 units N/A 1 $ 1,717,611 2005 545-561 Worcester Road 0 two-bedrooms $ 775-970 8.775% Framingham, MA 48 two-bedrooms $ 705-815 24 one-bedrooms N/A 0 studios Olde English Apts. LP....................... 84 units $ 675-795 0 $ 1,347,031 2005 703-718 Chelmsford St 0 three-bedrooms $ 615-705 8.5% Lowell, MA 47 two-bedrooms $ 575-610 30 one-bedrooms 7 studios Oak Ridge Apts. LP.......................... 61 units $ 855-1000 1 $ 2,015,797 2005 Chestnut St. 42 three-bedrooms $ 695-820 8.5% Foxboro, MA 19 two-bedrooms N/A 0 one-bedrooms N/A 0 studios Linhart LP.................................. 9 units N/A 0 $ 1,251,488 2005 4-34 Lincoln St. 0 three-bedrooms N/A 9.25% Newton, MA 0 two-bedrooms $ 685-825 6 one-bedrooms $ 625-645 3 studios Commonwealth 1137 LP........................ 35 units $1195-1600 0 $ 1,214,633 2005 1131-1137 Comm. Ave. 28 three-bedrooms $ 925-1195 8.375% Boston, MA 5 two-bedrooms $ 460 1 one-bedrooms $ 625 1 studio Redwood Hills LP............................ 180 units N/A 1 $ 4,390,709 2005 376-384 Sunderland Rd. 0 three-bedrooms $ 705-950 1 8.375% Worcester, MA 89 two-bedrooms $ 635-855 91 one-bedrooms N/A 0 studios Commonwealth 1144 LP........................ 261 units N/A 1 $ 5,074,888 2005 1144-1160 Comm. Ave. 0 three-bedrooms $ 800-995 8.375% Allston, MA 11 two-bedrooms $ 660-950 108 one-bedrooms $ 550-795 142 studios Boylston Downtown LP........................ 269 units N/A 0 $ 7,458,607 2005 62 Boylston St. 0 three-bedrooms N/A 8.375% Boston, MA 0 two-bedrooms $ 645-1480 53 one-bedrooms $ 545-1075 216 studios
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MORTGAGE BALANCE AND INTEREST RATE AS OF MATURITY APARTMENT NUMBER AND TYPE RENT DECEMBER 31, DATE OF COMPLEX OF UNITS RANGE VACANCIES 1999 MORTGAGE - --------- ------------------ ---------- --------- ------------- --------- North Beacon 140 LP......................... 64 units $1850-2050 0 $ 3,332,650 2005 140-154 North Beacon St. 10 three-bedrooms $1345-1650 8.375% Brighton, MA 54 two-bedrooms N/A 0 one-bedrooms N/A 0 studios Highland Street Apartments.................. 36 Units N/A 0 0 0 38-40 Highland Street 0 three-bedrooms $ 550-690 Lowell, MA 24 two-bedrooms $ 500-625 10 one-bedrooms $ 530 2 Studios West Colonial Apartments.................... 180 Units $ 816 0 $ 5,197,976 2008 10-70 Westland St. 1 three-bedroom $ 750-830 6.52% 985-997 Pleasant St. 94 two-bedrooms $ 519-700 Brockton, MA 85 one-bedrooms N/A 0 Studios Oak Apartments.............................. 268 Units N/A 8 $11,600,000 2009 30-50 Oak St. Extension 0 three-bedrooms $ 720-1015 5 7.84% 40-60 Reservoir 97 two-bedrooms $ 625-800 Brockton, MA 158 one-bedrooms $ 575-720 13 Studios
See Note 5 to Notes to Financial Statements included as part of this Form 10-K for information relating to the Partnership's and its Subsidiary Partnership mortgages payable. CONDOMINIUM UNITS The Partnership owns and leases to residential tenants 20 Condominium Units in the greater Boston, Massachusetts area. All of the apartment complexes in which the Condominium Units are located, with the exception of the Riverside Apartments, were developed or partially owned by Harold Brown, and in certain cases by Ronald Brown. The table below lists the location of the Condominium Units, the number of units in each complex, the number and type of units owned by the Partnership in each complex, the range of rents received by the Partnership for such units, and the number of vacancies as of March 9, 2000. No Condominium Unit is subject to an existing mortgage.
NUMBER OF NUMBER AND TYPE OF UNITS IN UNITS OWNED BY APARTMENT COMPLEX COMPLEX PARTNERSHIP RENT RANGE VACANCIES - ----------------- --------- ------------------ ---------- --------- Riverside Apartments........................ 19 0 three-bedrooms N/A 0 8-20 Riverside Street 12 two-bedrooms $930-1195 Watertown, MA 5 one-bedrooms $810-875 2 studios $820 Chateaux Westgate........................... 1 0 three-bedrooms N/A 0 Oak Lane 1 two-bedroom $780 Brockton, MA 0 studios N/A
COMMERCIAL PROPERTIES EAST HAMPTON MALL LP In 1984, the Partnership acquired the East Hampton Mall in East Hampton, Connecticut (the "East Hampton Mall"). The shopping center is set on 4.25 acres of land and consists of 7 52,500 square feet of rentable space, rented primarily to commercial retail establishments. During 1995, the Subsidiary Partnership organized to own this property obtained a mortgage in the amount of $1,435,000 which carries an interest rate of 8.375% and matures in the year 2005. As of December 31, 1999, the mortgage had an outstanding balance of $1,348,419. As of March 9, 2000, the shopping center had a vacancy rate of 5%, and the average rent per square foot was $5.22. TIMPANY PLAZA LP In 1985, the Partnership acquired the Timpany Plaza Shopping Center in Gardner, Massachusetts ("Timpany Plaza"). The shopping center is set on 16 acres of land and consists of 184,600 square feet of rentable space. During 1995, the Subsidiary Partnership organized to own this property obtained a mortgage in the amount of $3,561,000 which carries an interest rate of 8.375% and matures in 2005. As of December 31, 1999, the mortgage had an outstanding balance of $3,351,133. As of March 9, 2000, the shopping center had a vacancy rate of 29%, and the average rent per square foot was $3.67. In March, 1996 a major tenant in the Timpany Plaza Shopping Center filed for protection under the Federal Bankruptcy Code, Chapter 11. Subsequently, in December, 1996 the same tenant closed its doors to business. This tenant had previously paid approximately $347,000 of rent in 1995 and approximately $188,000 in 1996. In July, 1997 pursuant to an Order of the United States Bankruptcy Court, this tenant paid the Partnership $118,050 which represented all of the post-petition, pre-rejection rents due and owing by this tenant to the Partnership. This Subsidiary Partnership has a ground lease with another major tenant of the Timpany Plaza Shopping Center. Pursuant to the ground lease, this tenant demolished the existing structure and constructed a new store of approximately 60,000 square feet. The tenant moved into the new store in 1989. The Partnership entered into a joint venture with this tenant to lease the space formerly occupied by the tenant. The joint venture pays this Subsidiary Partnership annual minimum rent of $84,546. The joint venture's net income (as defined in the ground lease) earned from leasing the tenant's former space is being split evenly between this Subsidiary Partnership and the tenant. This Subsidiary Partnership's share of the joint venture's net income in 1999 was $34,188. The term of the ground lease is 20 years, with automatic extension options for an additional 30 years. At the termination of the ground lease, this Subsidiary Partnership will retain sole title to the underlying property. The Partnership is currently engaged in active discussions and negotiations to sell Timpany Plaza. The Partnership can make no assurance that it will be successful in consummating a sale of the property. Proceeds from the sale of the property will be (i) used to reduce outstanding indebtedness; (ii) allocated to cash reserves; (iii) used to fund capital improvements on other properties; (iv) or fund future acquisitions. LEWISTON MALL LP In 1989, the Partnership acquired the Lewiston Mall shopping center in Lewiston, Maine (the "Lewiston Mall"). The shopping center is set on 14 acres of land and consists of 181,000 square feet of rentable space. During 1995, this Subsidiary Partnership obtained a mortgage in the amount of $2,933,000 which carries an interest rate of 8.375% and matures in the year 2005. As of December 31, 1999, the mortgage had an outstanding balance of $2,756,037. As of March 9, 2000, the Shopping Center had a 7% vacancy rate, and the average rent per square foot was $3.99. The Partnership is currently engaged in active discussions and negotiations to sell Lewiston Mall. The Partnership can make no assurance that it will be successful in consummating a sale of the property. Proceeds from the sale of the property will be (i) used to reduce outstanding indebtedness; (ii) allocated to cash reserves; (iii) or used to fund capital improvements on other properties; (iv) or fund future acquisitions. LINHART LP During 1995, the Partnership acquired the Linhart property in Newton, Massachusetts ("Linhart"). The property consists of 21,200 square feet of rentable space. As of March 9, 2000, the commercial space had a 0% vacancy rate, and the average gross rent per square foot was $19.49. BOYLSTON DOWNTOWN LP During 1995, this Subsidiary Partnership acquired the Boylston Downtown property in Boston, Massachusetts ("Boylston"). The property consists of 17,400 square feet of rentable 8 space. As of March 9, 2000, the commercial space had a 23% vacancy rate, and the average gross rent per square foot was $17.43. The Partnership is currently negotiating with potential tenants to lease the entire vacant space. NORTH BEACON 140 LP During 1995, this Subsidiary Partnership acquired the North Beacon property in Boston, Massachusetts ("North Beacon"). The property consists of 1,000 square feet of rentable space. As of March 9, 2000, the commercial space was fully rented, and the average rent per square foot was $14.15. STAPLES PLAZA In May 1999, the Partnership acquired the Staples Plaza shopping center in Framingham, Massachusetts ("Staples Plaza"). The shopping center consists of 39,600 square feet of rentable space. The Partnership assumed a mortgage in the amount of $5,267,949, which carries an interest rate of 8.00% and matures in the year 2016. As of December 31, 1999, the mortgage had an outstanding balance of $5,170,675. As of March 9, 2000 Staples Plaza was fully occupied, and the average net rent per square foot was $19.74. HAMILTON OAKS ASSOCIATES, LLC The Oaks Apartments complex acquired by the Partnership in December 1999 through Hamilton Oaks Associates, LLC includes 6,075 square feet of rentable space, occupied by a daycare center. As noted above under "Apartment Complexes," Hamilton Oaks Associates, LLC obtained a mortgage in the amount of $11,600,000, which carries an interest rate of 7.84% and matures in the Year 2009. As of December 31, 1999 the mortgage had an outstanding balance of $11,600,000. As of March 9, 2000, the commercial space was fully occupied, and the average rent per square foot was $8.00. See Item 13 "Certain Relationships and Related Transactions" concerning ownership interest in the above properties. INVESTMENT PROPERTY As of December 31, 1999, the Partnership's investment and its interest in the joint venture with a Timpany Plaza tenant comprised less than 1% of the Partnership's total assets. WEST PEABODY LIMITED PARTNERSHIP Prior to September 9, 1998, the Partnership owned a 10% limited partnership interest in the West Peabody Limited Partnership ("West Peabody L.P."). West Peabody L.P. owned a 125,000 square foot office and warehouse building in West Peabody, Massachusetts. On September 9, 1998, West Peabody L.P. was sold. As of the date of the sale and disposition of West Peabody L.P., the Partnership's share of losses generated by the West Peabody L.P. through the said date exceeded the Partnership's investment by approximately $664,000. As a result of the disposition of West Peabody L.P., each of the limited partners recognized income in an amount equal to their proportionate share of the Partnership's losses in excess of such limited partner's tax basis. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Each Class A Unit is exchangeable, through Boston EquiServe Limited Partnership, as Deposit Agent, for ten Depositary Receipts ("Receipts"). The Receipts are publicly-traded on NASDAQ under the symbol "NEWRZ". There has never been an established public market for the Class B Units or General Partnership Units. In 1999, the high and low bid quotations for the Receipts were $12.38 and $10.00, respectively. The table below sets forth the high and low bids for each quarter of 1999 and 1998:
1999 1998 ---------------------- ----------------------- LOW BID HIGH BID LOW BID HIGH BID ---------- --------- ---------- ---------- First Quarter............................................... 10 12 9 3/16 11 1/2 Second Quarter.............................................. 10 12 1/2 9 1/2 11 Third Quarter............................................... 10 1/4 12 1/8 9 3/8 13 Fourth Quarter.............................................. 10 1/2 12 3/8 10 11 1/4
These quotations reflect inter-dealer prices without retail markup, markdown, or commission and do not necessarily represent actual transactions. Any portion of the Partnership's cash which the General Partner deems not necessary for cash reserves is distributed to the Partners. The Partnership has made annual distributions to its Partners since 1978. In each of 1999 and 1998, the Partnership made total distributions of $13.20 and $8.20 per Partnership Unit, respectively ($1.32 and $.82 per Receipt, respectively). The total value of the distribution in 1999 was $2,283,230, an amount determined by the General Partner and the Partnership's Advisory Committee. In January 2000, the Partnership declared a regular semi-annual distribution of $5.10 per Partnership Unit ($.51 per Receipt) and a special dividend of $4.00 per Unit ($.40 per Receipt). See Note 13 to Notes to Financial Statements included as part of this Form 10-K. In 1999 and 1998, the taxable income exceeded statement income by approximately $415,000 and $790,000, respectively. The Partnership declared a special distribution in January 2000 to assist partners with any negative tax consequences (as described above and in Note 13 to Notes to Financial Statements included as part of this Form 10-K). During the second quarter of 1996, the Partnership announced a plan to purchase up to $500,000 of its Depositary Receipts from existing holders of securities. The purchase of Depositary Receipts took place over a period of eighteen months. The purchase prices paid for Depositary Receipts varied and were equal to the price at which such securities are traded on the NASDAQ Stock Market at the time of such purchases. During 1997 and 1996, the Partnership purchased 15,288 and 15,915 Depositary Receipts for a total cost of $139,268 and $110,060, respectively. In order to restore the classes of Partnership Units to the required ratios, the Partnership purchased from the General Partner 39 General Partnership Units and purchased from Harold Brown and Ronald Brown 556 and 185 Class B Units respectively, at an aggregate cost of $62,335. The plan to purchase Depositary Receipts was terminated on December 10, 1997. See "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" for certain information relating to the number of holders of each class of Partnership Units. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is included on page 21 of this Form 10-K. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999 AND 1998 New England Realty Associates Limited Partnership and its Subsidiary Partnerships earned income from operations of $2,871,604 during the year ended December 31, 1999, compared to $1,985,727 during the year ended December 31, 1998, an increase of $885,877. The rental activity is summarized as follows:
OCCUPANCY DATE --------------------------------- MARCH 9, 2000 FEBRUARY 26, 1999 ------------- ----------------- RESIDENTIAL Units......................................... 2099 1668 Vacancies..................................... 23 37 Vacancy rate.................................. 1.1% 2.2% COMMERCIAL Total square feet............................. 503,375 457,700 Vacancy....................................... 71,995 80,852 Vacancy rate.................................. 14% 18%
RENTAL INCOME --------------------------- 1999 1998 ----------- ------------- (IN THOUSANDS) Total rents..................................... $20,099 $18,271 Residential percentage.......................... 83% 86% Commercial percentage........................... 17% 14% Contingent rentals.............................. $ 933 $ 731
Rental income for the year ended December 31, 1999 was approximately $20,099,000 compared to approximately $18,271,000 for the year ended December 31, 1998, an increase of approximately $1,828,000 (10%). Approximately $769,000 of this increase was the result of a net increase in rental income at properties that were acquired or sold during 1999. More specifically, the Partnership acquired two residential apartment complexes, comprising a total of 448 units, and a 39,600 square-foot commercial building. The Partnership also sold a 16-unit residential apartment complex and a condominium unit. In addition to the net increase in rental income at properties that were acquired or sold. Rental income increased at the Partnership's existing residential and commercial properties. The increase at the residential properties was due to increased rental rates and improved occupancy levels resulting from the continued high demand for residential units in the greater Boston area. Rental rates increased 2% to 9%, vacancies decreased from 37 units (a 2.2% vacancy rate) at February 26, 1999 to 23 units (a 1.1% vacancy rate) at March 9, 2000. Among the Partnership's commercial properties, Timpany Plaza had an increase in rental income of approximately $69,000 (12%) due to a major tenant occupying previously unoccupied space during the latter part of 1998 and throughout 1999. Expenses for the year ended December 31, 1999 were approximately $17,407,000 compared to approximately $16,462,000 for the year ended December 31, 1998, an increase of approximately $945,000. This increase includes approximately $613,000 in expenses related to the acquired properties. Administrative expenses increased to approximately $1,169,000 for the year ended December 31, 1999 from approximately $1,053,000 for the year ended December 31, 1998, an increase of approximately $116,000. This reflects an increase in salaries and employee benefits related to the Partnership's ownership of additional properties in 1999, as well as an increase in professional fees due to ongoing special projects. Depreciation 11 and amortization expense increased to approximately $3,574,000 for the year ended December 31, 1999 from approximately $3,339,000 for the year ended December 31, 1998, an increase of approximately $235,000. This increase is due primarily to depreciation on the properties acquired in 1999 and ongoing capital improvements to the Partnership properties. Management fees increased to approximately $845,000 for the year ended December 31, 1999 from approximately $773,000 for the year ended December 31, 1998, an increase of approximately $72,000. This increase is directly related to the increase in rental income during 1999. Interest expense increased to approximately $4,946,000 for the year ended December 31, 1999 from approximately $4,608,000 for the year ended December 31, 1998, an increase of approximately $338,000. This increase is due to an increase in debt of approximately $27,000,000 resulting from recent acquisitions as well as the refinancing of a Partnership property. Taxes and insurance increased to approximately $2,089,000 for the year ended December 31, 1999 from approximately $1,883,000 for the year ended December 31, 1998, an increase of approximately $206,000. The newly acquired properties account for approximately $130,000 of this increase. Renting expenses increased to approximately $303,000 for the year ended December 31, 1999 from approximately $298,000 for the year ended December 31, 1998, an increase of approximately $5,000. This increase is due to increased advertising expenses. Repairs and maintenance, and operating expenses remained relatively unchanged with decreases of less than 1%. Interest income was approximately $361,000 for the year ended December 31, 1999, compared to approximately $171,000 for the year ended December 31, 1998, an increase of approximately $190,000. This increase is due to an increase in the average cash balance available for investment in 1999. The Partnership is a partner in a joint venture with a tenant at the Timpany Plaza Shopping Center in Gardner, Massachusetts. Under the terms of the agreement, the two parties have agreed to relet the space formerly leased by the tenant, and divide the net income or loss after paying to the Partnership an annual rent of approximately $84,000. The Partnership's investment in the Timpany Plaza joint venture represents less than 1% of the Partnership's assets. The Partnership's share of income for 1999 in the joint venture at the Timpany Plaza Shopping Center was approximately $34,000, compared to approximately $17,000 in 1998, an increase of approximately $17,000. This increase in income is due to rental rate increases as well as the lack of vacancies at the property during 1999. Included in other income in 1999 is a gain of approximately $801,000 on the sale of real estate. The Partnership sold the Willard Street apartments in April 1999 for a gain of $672,140 and sold the condominium at 566 Commonwealth Avenue in August 1999 for a gain of $128,473. Also included in other income is a loss of approximately $418,000 for the year ended December 31, 1999 and a gain of approximately $51,000 for the year ended December 31, 1998 in the value of the Partnership's short-term investments. This change in value is due to fluctuations in interest rates. As a result of the changes discussed above, net income for the year ended December 31, 1999 was approximately $3,649,000 compared to approximately $2,225,000 for the year ended December 31, 1998, an increase of approximately $1,424,000. YEARS ENDED DECEMBER 31, 1998 AND 1997 New England Realty Associates Limited Partnership and its Subsidiary Partnerships earned income from operations of $1,985,727 during the year ended December 31, 1998, compared to $1,123,654 during the year ended December 31, 1997, an increase of $862,073. 12 The rental activity is summarized as follows:
OCCUPANCY DATE --------------------------------- FEBRUARY 26, 1999 MARCH 4, 1998 ----------------- ------------- Residential Units......................................... 1,668 1,668 Vacancies..................................... 37 48 Vacancy rate.................................. 2.2% 2.9% Commercial Total square feet............................. 457,700 457,700 Vacancy....................................... 80,852 107,850 Vacancy rate.................................. 18% 24%
RENTAL INCOME --------------------------- 1998 1997 ------------- ----------- (IN THOUSANDS) Total rents..................................... $18,271 $17,313 Residential percentage.......................... 86% 84% Commercial percentage........................... 14% 16% Contingent rentals.............................. $ 731 $ 847
Rental income for the year ended December 31, 1998 was approximately $18,271,000 compared to approximately $17,313,000 for the year ended December 31, 1997, an increase of approximately $958,000 (5.5%). Rental income increased at the residential properties approximately $1,067,000 (7%), while rental income at the commercial properties decreased approximately $109,000 (4%). Due to the demand for residential rental property in the greater Boston area, the Partnership has seen an average increase in rental rates of approximately 5% as well as a decrease in vacancies. Vacancies at the residential properties have decreased 23% to 37 vacancies at February 1999 compared to 48 at March 1998. The increase in rental income at the commercial properties is due primarily to the vacancy rate at the Timpany Plaza Shopping Center. The rental rates have remained relatively stable at the commercial properties. Expenses for the year ended December 31, 1998 were approximately $16,462,000 compared to approximately $16,383,000 for the year ended December 31, 1997, an increase of approximately $79,000. Administrative expenses increased to approximately $1,053,000 for the year ended December 31, 1998 from approximately $991,000 for the year ended December 31, 1997, an increase of approximately $62,000. This represents an increase in professional fees due in part to special projects for which the Partnership contracted for during the early part of 1998. Depreciation and amortization expense increased to approximately $3,339,000 for the year ended December 31, 1998 from approximately $3,239,000 for the year ended December 31, 1997, an increase of approximately $100,000. This increase is due to ongoing capital improvements to the Partnership properties. Management fees increased to approximately $773,000 for the year ended December 31, 1998 from approximately $738,000 for the year ended December 31, 1997, an increase of approximately $35,000. The increase is due to the increase in rental income. These increases are offset by a decrease in interest expense to approximately $4,608,000 for the year ended December 31, 1998 from approximately $4,651,000 for the year ended December 31, 1997, a decrease of approximately $43,000. This is due to a lower level of mortgage debt. Operating expenses decreased to approximately $1,900,000 for the year ended December 31, 1998 from approximately $1,962,000 for the year ended December 31, 1997, a decrease of approximately $62,000. This decrease is due to lower utility and heating costs in 1998 due to a milder winter as well as a utility bill paid in 1997 which related to prior years which was not an ongoing expense in 1998. Renting expenses decreased to approximately $298,000 for the year ended December 31, 1998 from approximately $318,000 for the year 13 ended December 31, 1997, a decrease of approximately $20,000. This decrease is due to a decrease in rental commissions resulting from lower tenant turnover. Repairs and maintenance remained relatively unchanged at approximately $2,607,000 and $2,601,000 for 1998 and 1997 respectively. Taxes and insurance also remained relatively stable at approximately $1,883,000 and $1,882,000 for 1998 and 1997 respectively. Interest income was approximately $171,000 for the year ended December 31, 1998 compared to approximately $133,000 for the year ended December 31, 1997, an increase of approximately $38,000. This increase is due to an increase in the average cash balance available for investment in 1998. The Partnership is a partner in a joint venture with a tenant at the Timpany Plaza Shopping Center in Gardner, Massachusetts. Under the terms of the agreement, the two parties have agreed to relet the space formerly leased by the tenant, and divide the net income or loss after paying to the Partnership an annual rent of approximately $84,000. The Partnership's investment in the Timpany Plaza joint venture represents less than 1% of the Partnership's assets. The Partnership's share of income for 1998 in the joint venture at the Timpany Plaza Shopping Center was approximately $17,000 compared to a loss of approximately $11,000 in 1997, a fluctuation of approximately $28,000. This increase in income at the joint venture is due to filling a vacancy of 10,000 square feet of space for the full year of 1998 which was vacant in 1997. Included in other income in 1998 and 1997 is approximately $56,000 and $37,000 respectively, in unrealized appreciation in the Partnership's short-term investment. As a result of the changes discussed above, net income for the year ended December 31, 1998 was approximately $2,225,000 compared to approximately $1,269,000 for the year ended December 31, 1997, an increase of approximately $956,000. LIQUIDITY AND CAPITAL RESOURCES The Partnership's principal source of cash during 1999 and 1998 was the collection of rents, sale of real estate, and the refinancing of a Partnership property. The majority of cash and cash equivalents of approximately $1,244,000 at December 31, 1999 and approximately $623,000 at December 31, 1998 was held in an interest-bearing account. The Partnership's short-term investments are approximately $22,000 at December 31, 1999 of which approximately $7,000 is invested in a Massachusetts Municipal Bond Fund and approximately $15,000 is invested in a U.S. Treasury Fund. At December 31, 1998, the short term investments are $3,060,000 of which approximately $1,921,000 is invested in a Massachusetts Municipal Bond Fund and approximately $1,139,000 is invested in a U.S. Treasury Fund. The decrease in short-term investments is due to the Partnership's use of investment funds to make acquisitions of real estate in 1999. On March 24, 1999, the Partnership refinanced the Westgate Apartments located in Woburn, Massachusetts. The new loan is $12,000,000, with an interest rate of 7.07%, and a term of 15 years, amortized over 25 years. The net cash of approximately $5,000,000 from this refinancing was used for acquisitions as well as the improvement of rental properties. On April 30, 1999, the Partnership sold the Willard Street apartments located in Quincy, Massachusetts for $850,000. The Partnership received $85,000 in cash. The purchaser assumed the existing mortgage of approximately $285,000 and gave to the Partnership a mortgage for the remaining $480,000. This 7.5% mortgage note is collateralized by other real estate owned by the purchaser and matures at the earlier of the refinancing of the property or July 31, 2005. This $480,000 note was paid in full to the Partnership on January 14, 2000. On May 27, 1999, the Partnership purchased a 39,600 square-foot commercial property known as Staples Plaza, located in Framingham, Massachusetts. The purchase price was $8,200,000. The Partnership 14 assumed an 8.5% mortgage of approximately $5,200,000 which matures in 2016. The balance of $3,000,000 was funded from the Partnership's cash reserves. On December 3, 1999, the Partnership acquired through a controlled affiliate, a 180-unit residential complex located in Brockton, Massachusetts for a purchase price of $8,900,000. This controlled affiliate assumed a 6.52% mortgage with an outstanding balance of $5,207,172 which has a maturity date of October 2008. The balance of the purchase price of $3,692,828 was paid from available cash. On December 23, 1999, the Partnership acquired, through a controlled affiliate, a 268-unit residential complex and a 6,075 square-foot commercial building located in Brockton, Massachusetts for a purchase price of $14,500,000. The purchase was funded by a $11,600,000 mortgage, a $750,000 loan from the majority shareholder of the General Partner and $2,150,000 paid from available cash. The 7.84% mortgage matures in 2009 and is being amortized over 30 years. During 1999, the Partnership completed certain improvements to their properties at a total cost of approximately $2,300,000. The most significant improvements were made at the following properties: approximately $755,000 at 62 Boylston Street, in Boston, Massachusetts; approximately $293,000 at the North Beacon Street Apartments in Brighton, Massachusetts; and approximately $352,000 at the Timpany Plaza Shopping Center in Gardner, Massachusetts. Additional capital improvements of approximately $137,000, $131,000, and $103,000 were made to the Westgate Apartments, 1144-1160 Commonwealth Avenue, and Redwood Hills, respectively. In 2000, the Partnership plans to invest approximately $3,500,000 in capital improvements, of which approximately $3,430,000 is designated for residential properties and approximately $70,000 for commercial 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 and mortgage refinancings 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. 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. 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 Annual Report contains forward-looking statements that are subject to risks 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 2000 and beyond to differ materially from those expressed in any forward looking statements made by, or on behalf of, the Partnership. The foregoing list of factors and the two more specific factors identified below should not be construed as exhaustive or as an admission regarding the adequacy of disclosures made by the Partnership prior to the date hereof or the effectiveness of said Act. The Partnership has received an offer to purchase Timpany Plaza in Gardner, Massachusetts and is negotiating a purchase and sale agreement for Lewiston Mall in Lewiston, Maine. No assurances can be made that the sales of these properties will be consummated. 15 A major tenant of the Lewiston Mall LP in Lewiston, Maine, which paid approximately $274,000 in 1999, can terminate its lease with nine months notice, effective January 1, 1997. The Partnership is currently negotiating to obtain a long term lease. The Partnership, at this time, cannot make any assurances that the tenant will renew its lease for this space. YEAR 2000 The Hamilton Company, Inc. (the "Hamilton Company"), the company employed by the Partnership to perform the management functions for the Partnership's properties, addressed the Partnership's "Year 2000 compliance" in three areas: Partnership operations, potential problems with vendors, and potential problems with tenants. The Hamilton Company incurred expenses in excess of $200,000 on Year 2000 compliance matters in the three areas noted in the preceding sentence, and believes that such expenditures were adequate to address Year 2000 compliance matters. The management fee paid by the Partnership to the Hamilton Company was not increased as of result of these expenses, and such expenses were not passed on to the Partnership in any manner. The Partnership has not yet experienced any material difficulties or problems relating to Year 2000 problem issues. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements of the Partnership appear on pages F-1 through F-20 of this Form 10-K and are indexed herein under Item 14(a)(1). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The General Partner is a Massachusetts corporation wholly owned by Harold Brown and Ronald Brown. Harold Brown and Ronald Brown were individual general partners of the Partnership until May 1984 when NewReal, Inc. replaced them as the sole general partner of the Partnership. The General Partner is responsible for making all decisions and taking all action deemed by it necessary or appropriate to conduct the business of the Partnership. Since October 1992, the General Partner employed the Hamilton Partnership as the management company to manage the Partnership's and its Subsidiary Partnership's properties. During 1996, The Hamilton Partnership was dissolved and its successor and general partner assumed the management functions of the Hamilton Partnership. The Hamilton Company, a Massachusetts corporation, was the 99% general partner of Hamilton Partnership. The Hamilton Company was purchased by Harold Brown in August 1993. Harold Brown also owned the corporation that was the 1% limited partner of the Hamilton Partnership. See "ITEM 11. EXECUTIVE COMPENSATION" for information concerning fees paid by the Partnership to the Hamilton Company during 1999. Because the General Partner has employed the Hamilton Company as the manager for the Properties, the General Partner has no employees. The directors and executive officers of the General Partner are Ronald Brown and Harold Brown. Harold Brown and Ronald Brown are brothers. The directors of the General Partner hold office until their successors are duly elected and qualified. The executive officers of the General Partner serve at the pleasure of the Board of Directors. 16 The following table sets forth the name and age of each director and officer of the General Partner and each such person's principal occupation and affiliation during the preceding five years.
NAME AND POSITION AGE OTHER POSITIONS - ----------------- -------- -------------------------------------------------------- Ronald Brown......................... 64 Associate, Hamilton Realty Company (since 1967); President, Clerk and Director Treasurer, R. Brown Partners Inc. (since 1985), (since 1984) President, Secretary and sole proprietor (since April 1989); Member, Greater Boston Real Estate Board (since 1981); Director, Brookline Chamber of Commerce (since 1978); Trustee of Trustee of Reservations (since 1988); Director, Brookline Music School (since 1993); President, Brookline Chamber of Commerce (1990-1992); Director, Coolidge Corner Theater Foundation (1990-1993); President, Brookline Property Owner's Association (1981-1990); Trustee, Brookline Hospital (1982-1989), Director, Brookline Symphony Orchestra (since 1996), Treasurer, Brookline Greenspace Alliance. Harold Brown......................... 75 Sole proprietor, Hamilton Realty (since 1955); Trustee Treasurer and Director (since 1984) of Wedgestone Realty Investors Trust (1982-1985); Chairman of the Board and principal stockholder of the Wedgestone Advisory Corporation (1980-1985); Director of AFC Financial Corp. (1983-1985); Member, Greater Boston Real Estate Board; Director, Coolidge Bank and Trust (1980-1983).
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Partnership's directors and executive officers, and persons who own more than 10% of a registered class of the Partnership's equity securities, to file with the Securities and Exchange Commission reports of ownership changes and changes in ownership of the Partnership, officers, directors and greater than 10% of the shareholders are required by SEC regulations to furnish the Partnership with copies of all Section 16(a) forms they file. Based solely on review of the copies of such reports furnished to the Partnership or written or oral representations that no reports were required the Partnership believes that during the 1999 fiscal year, all filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with, except that Harold Brown failed to timely file certain Forms 4 covering one or more transactions involving the purchase by Harold Brown of Depositary Receipts through the open market. ITEM 11. EXECUTIVE COMPENSATION Pursuant to the Partnership Agreement, the General Partner, or any management entity employed by the General Partner, is entitled to a management fee equal to 4% of the rental and other operating income from the Properties and a mortgage servicing fee equal to 0.5% of the unpaid principal balance of any debt instruments received, held and serviced by the Partnership (the "Management Fee"). The Partnership Agreement also authorizes the General Partner to charge to the Partnership its cost for employing professionals to assist with the administration of the Partnership Properties (the "Administrative Fee"). The Administrative Fee is not charged against the Management Fee. In addition, upon the sale or disposition of any Partnership Properties, the General Partner, or any management entity which is the effective cause of such sale, is entitled to a commission equal to 3% of the gross sale price (the "Commission"), provided that should any other broker be entitled to a commission in connection with the sale, the commission shall be the difference between 3% of the gross sale price and the amount to be paid to such broker. 17 In accordance with the Partnership Agreement, the Management Fee, the Administrative Fee and the Commission are paid to the management company, Hamilton Company. See "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT." The total Management Fee charged by Hamilton Company during 1999 was approximately $820,000. In 1999, the Partnership and its Subsidiary Partnerships also paid Hamilton Company Administrative Fees of approximately $611,000 inclusive of construction supervision and architectural fees of $178,000, repairs and maintenance service fees of $191,000, legal fees of $154,000, and rental fees and miscellaneous charges of $88,000. No sales commissions were paid to the management companies in 1999. In addition, during 1999 the Partnership paid Hamilton Company $65,000 for certain accounting services, which were provided by an outside company prior to 1993, and approximately $327,000 for construction costs capitalized in rental properties. The management services provided by Hamilton Company include, but are not limited to, collecting rents and other income, approving, ordering and supervising all repairs and other decorations, terminating leases, evicting tenants, purchasing supplies and equipment, financing and refinancing properties, settling insurance claims, maintaining administrative offices and employing personnel. In addition, the Partnership employs the president of Hamilton Company to provide asset management services to the Partnership for which the Partnership paid approximately $33,000 in 1999. Members of the Partnership's Advisory Committee and Ronald Brown and Harold Brown receive $300 for each committee meeting attended. The Advisory Committee held 6 meetings during 1999. Included in the construction supervision fees mentioned above is $24,000 in 1999 and 1998, respectively which were paid by Hamilton Company to Ronald Brown. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of February 15, 2000, except as listed below, the General Partner was not aware of any beneficial owner of more than 5% of the outstanding Class A Units or the Depositary Receipts, other than Boston EquiServe Limited Partnership ("Boston EquiServe"), which under the Deposit Agreement, as Depositary, is the record holder of the Class A Units exchanged for Depositary Receipts. As of February 15, 2000, pursuant to the Deposit Agreement, Boston EquiServe was serving as the record holder of the Class A Units with respect to which 1,110,416 Depositary Receipts had been issued to 1,342 holders. As of February 15, 2000, there were issued and outstanding 27,336 Class A Units held by 1,263 limited partners and 33,015 Class B Units and 1,738 General Partnership Units held by the persons listed below. The following table sets forth certain information regarding each class of Partnership Units beneficially owned on February 15, 2000 by (i) each person known by the Company to beneficially own more than 5% of any class of Partnership Units, (ii) each director and officer of the General Partner and (iii) all directors and officers of the General Partner as a group. The inclusion in the table below of any units deemed beneficially owned does not constitute an admission that the named persons are direct or indirect beneficial owners of such units. Unless otherwise indicated, each person listed below has sole voting and investment power with respect to the units listed. 18
GENERAL CLASS A CLASS B PARTNERSHIP ----------------------------- ----------------------------- ----------------------------- % OF % OF % OF NUMBER OF OUTSTANDING NUMBER OF OUTSTANDING NUMBER OF OUTSTANDING 5% OWNERS UNITS UNITS UNITS UNITS UNITS UNITS DIRECTORS AND BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY OFFICERS OWNED OWNED OWNED OWNED OWNED OWNED - ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ Harold Brown................. (1) (1) 24,761(2) 75%(2) (3) 100%(3) c/o New England Realty Associates Limited Partnership 39 Brighton Ave. Allston, MA 02110 NERA 1994 Irrevocable (1) (1) 0 0 0 0 Trust...................... c/o Lane & Altman 101 Federal St. Boston, MA 02110 Ronald Brown................. 755(4) 0.5%(4) 8,254 25% (3) 100%(3) c/o New England Realty Associates Limited Partnership 39 Brighton Ave. Allston, MA 02110 NewReal, Inc................. 0 0 0 0 1,738 100% 39 Brighton Ave. Allston, MA 02134 All directors and officers as a group................. 9,364(5) 6.8%(5) 33,015(6) 100%(6) (3) 100%(3)
- ------------------------------ (1) 1,600 Depositary Receipts are held of record by Harold Brown and 98,394 Depositary Receipts are held of record by the NERA 1994 Irrevocable Trust (the "Trust"), a grantor trust established by Harold Brown. The beneficiaries of the Trust are trusts for the benefit of children of Mr. Brown. During his lifetime, Mr. Brown is entitled to receive the income from the Trust and has the right to reacquire the Depositary Receipts held by the Trust provided that substitute assets are transferred to the Trust. Accordingly, Mr. Brown may be deemed to beneficially own the Depositary Receipts held by the Trust. Because a Depositary Receipt represents beneficial ownership of one-tenth of a Class A Unit, Harold Brown may be deemed to beneficially own approximately 9,999 Class A Units and the Trust may be deemed to beneficially own approximately 9,839 Class A Units. Mr. Brown currently has no voting or investment power over the Depositary Receipts held by the Trust and disclaims beneficial ownership of such Depositary Receipts. Luci Daley Vincent and Robert Somma, as trustees of the Trust (the "Trustees"), share voting and investment power over the Depositary Receipts held by the Trust, subject to the provisions of the Trust, and thus may each be deemed to beneficially own the 99,994 Depositary Receipts held by the Trust. The Trustees have no pecuniary interest in the Depositary Receipts held by the Trust and disclaim beneficial ownership of such Depositary Receipts. (2) Consists of Class B Units held by the Trust. See Note (1) above. Harold Brown currently has no voting or investment power over the Class B Units held by the Trust and disclaims beneficial ownership of such Class B Units. The Trustees share voting and investment power over the Class B Units held by the Trust, subject to the provisions of the Trust, and thus may each be deemed to beneficially own the 24,761 Class B Units held by the Trust. The Trustees have no pecuniary interest in the Class B Units held by the Trust and disclaim beneficial ownership of such Class B Units. (3) Since Harold Brown and Ronald Brown are the controlling stockholders, executive officers and directors of NewReal, Inc., they may be deemed to beneficially own all 1,738 of the General Partnership Units held of record by NewReal, Inc. (4) Consists of 7,548 Depositary Receipts held of record jointly by Ronald Brown and his wife. Because a Depositary Receipt represents beneficial ownership of one-tenth of a Class A Unit, Ronald Brown may be deemed to beneficially own approximately 755 Class A Units. (5) Consists of the Class A Units described in Notes (1) and (4) above. (6) Includes the Class B Units described in Note (2) above. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS With the exception of the Riverside Apartments, which was owned by the Partnership prior to the conversion of that complex into condominiums, all of the buildings in which the Condominium Units are 19 located were developed or partially owned by Harold Brown, together, in certain instances, with Ronald Brown. In addition, certain Subsidiary Partnerships purchased certain properties in 1995 from entities in which Harold Brown had substantial equity interest. In each case, the General Partner believes that the Partnership and its Subsidiary Partnerships acquired the Condominium Units and the other properties purchased in 1995 at prices not in excess of fair market value. In 1999, Harold Brown loaned the Partnership $750,000 to purchase certain property, with interest at 10%. Total interest on the loan in 1999 was $2,083. In addition, Harold Brown was a limited partner as well as a general partner in West Peabody L.P. which owned a 125,000 square foot office and warehouse building in West Peabody, Massachusetts. Harold Brown's total interest in the West Peabody L.P. was 79.0%. This property was disposed of in 1998. See also "ITEM 2. PROPERTIES," "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT" and "ITEM 11. EXECUTIVE COMPENSATION" for information regarding the fees paid to Hamilton Partnership, an affiliate of the General Partner and "ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS" for information regarding Units repurchased by the Partnership from Harold Brown, Ronald Brown and the General Partner. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements: The following Financial Statements are included in this Form 10-K: Independent Auditors' Report Consolidated Balance Sheets at December 31, 1999 and 1998 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Changes in Partners' Capital for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 Notes to Financial Statements (a) 2. Financial Statement Schedules: All financial statement schedules are omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto. (a) 3. Exhibits: The exhibits filed as part of this Annual Report on Form 10-K are listed in the Exhibit Index included herewith. (b) Reports on Form 8-K, together with an amendment to the same. 20 SELECTED FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- INCOME STATEMENT INFORMATION Revenues...................... $20,278,146 $18,447,450 $17,506,971 $16,634,883 $12,459,478 Expenses...................... 17,406,542 16,461,723 16,383,317 15,909,234 15,575,565 Income (Loss) from Operations.................. 2,871,604 1,985,727 1,123,654 725,649 (3,116,087) Other Income.................. 777,407 239,292 144,977 186,781 241,276 Net Income (Loss)............. 3,649,011 2,225,019 1,268,631 912,430 (2,874,811) Net Income (Loss) per Unit.... 21.06 12.84 7.30 5.17 (16.23) Distributions to Partners per Unit........................ 13.20 8.20 8.80 6.80 6.80 Net Income (Loss) per Depositary Receipt.......... 2.11 1.28 .73 .52 (1.62) Distributions to Partners per Depositary Receipt.......... 1.32 .82 .88 .68 .68 BALANCE SHEET INFORMATION Total Assets.................. 87,668,120 58,406,104 58,147,503 $58,788,939 $59,750,970 Net Real Estate Investments... 81,274,293 50,868,382 51,575,342 52,239,981 51,688,269 Total Debt Outstanding........ 77,530,651 51,322,552 51,956,821 52,538,499 53,072,037 Partners' Capital............. 5,637,661 4,271,880 3,465,230 3,898,498 4,323,402
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP By: /s/ NEWREAL, INC., ----------------------------------------- its General Partner By: /s/ RONALD BROWN ----------------------------------------- Ronald Brown, PRESIDENT Dated: March 30, 2000
21 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- President and Director /s/ RONALD BROWN of the General Partner ------------------------------------------- (Principal Executive March 30, 2000 Ronald Brown Officer) Treasurer and Director /s/ HAROLD BROWN of the General Partner ------------------------------------------- (Principal Financial March 30, 2000 Harold Brown Officer and Principal Accounting Officer)
22 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE - ----------- ------------------------------------------------------------ -------- (3) --Second Amended and Restated Contract of Limited -- Partnership(1) (4) (a) --Specimen certificate representing Depositary Receipts(2) -- (b) --Description of rights of holders of Partnership -- securities* (c) --Deposit Agreement, dated August 12, 1987, between the -- General Partner and the First National Bank of Boston(3) (10) --Purchase and Sale Agreement by and between Sally A. Starr -- and Lisa Brown, Trustees of Omnibus Realty Trust, a nominee trust.(4) (21) --Subsidiaries of the Partnership.(5) -- (27) --Financial Data Schedule of Partnership -- (19) --8-K December 3, 1999 -- (19) --8-K December 23, 1999 -- (19) --Amended 8-K (Amended Reports Dated December 3, 1999 and -- December 23, 1999
- ------------------------ (1) Incorporated by reference to Exhibit A to the Partnership's Statement Furnished in Connection with the Solicitation of Consents filed under the Securities Exchange Act of 1934 on October 14, 1986. (2) Incorporated herein by reference to Exhibit A to Exhibit 2(b) to the Partnership's Registration Statement on Form 8-A, filed under the Securities Exchange Act of 1934 on August 17, 1987. (3) Incorporated herein by reference to Exhibit 2(b) to the Partnership's Registration Statement on Form 8-A, filed under the Securities Exchange Act of 1934 on August 17, 1987. (4) Incorporated by reference to Exhibit 2.1 to the Partnership's Current Report on Form 8-K dated June 30, 1995. (5) Incorporated by reference to Note 2 to Financial Statements included as part of this Form 10-K. 23 INDEPENDENT AUDITOR'S REPORT The Partners New England Realty Associates Limited Partnership We have audited the accompanying consolidated balance sheets of New England Realty Associates Limited Partnership and Subsidiary Partnerships as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in partners' capital, and cash flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New England Realty Associates Limited Partnership and its Subsidiary Partnerships at December 31, 1999 and 1998 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles. /S/ MILLER WACHMAN LLP Certified Public Accountants Boston, Massachusetts February 18, 2000 F-1 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------- 1999 1998 ----------- ----------- ASSETS Rental Properties........................................... $81,274,293 $50,868,382 Cash and Cash Equivalents................................... 1,244,438 623,078 Short-term Investments...................................... 21,787 3,060,373 Rents Receivable............................................ 686,706 509,914 Real Estate Tax Escrows..................................... 706,974 538,852 Prepaid Expenses and Other Assets........................... 2,113,495 1,710,537 Investment in Joint Venture................................. 29,035 58,910 Financing and Leasing Fees.................................. 1,110,520 1,036,058 Mortgage Notes Receivable................................... 480,872 -- ----------- ----------- TOTAL ASSETS.............................................. $87,668,120 $58,406,104 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Note Payable................................................ $ 750,000 $ -- Mortgages Payable........................................... 77,530,651 51,322,552 Accounts Payable and Accrued Expenses....................... 1,103,458 868,425 Advance Rental Payments and Security Deposits............... 2,646,350 1,943,247 ----------- ----------- TOTAL LIABILITIES....................................... 82,030,459 54,134,224 Commitments and Contingent Liabilities (Note 9) Partners' Capital 173,252 units outstanding in 1999 and 1998................ 5,637,661 4,271,880 ----------- ----------- TOTAL LIABILITIES AND PARTNERS' CAPITAL..................... $87,668,120 $58,406,104 =========== ===========
See notes to consolidated financial statements F-2 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, --------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Revenue Rental income....................................... $20,099,480 $18,271,479 $17,313,181 Laundry and sundry income........................... 178,666 175,971 193,790 ----------- ----------- ----------- 20,278,146 18,447,450 17,506,971 ----------- ----------- ----------- Expense Administrative...................................... 1,169,483 1,053,426 991,167 Depreciation and amortization....................... 3,573,658 3,338,924 3,239,186 Interest............................................ 4,945,943 4,607,860 4,650,806 Management fees..................................... 845,129 773,204 737,883 Operating........................................... 1,882,804 1,900,211 1,962,124 Renting............................................. 303,471 297,875 318,397 Repairs and maintenance............................. 2,596,650 2,607,103 2,601,470 Taxes and insurance................................. 2,089,404 1,883,120 1,882,284 ----------- ----------- ----------- 17,406,542 16,461,723 16,383,317 ----------- ----------- ----------- Income from Operations.............................. 2,871,604 1,985,727 1,123,654 ----------- ----------- ----------- Other Income (Loss) Interest income..................................... 360,501 171,435 133,265 Income (loss) from investment in joint venture...... 34,188 16,714 (10,584) Income (loss) on short-term investments............. (417,895) 51,143 22,296 Gain on the sale of real estate..................... 800,613 -- -- ----------- ----------- ----------- 777,407 239,292 144,977 ----------- ----------- ----------- Net Income............................................ $ 3,649,011 $ 2,225,019 $ 1,268,631 =========== =========== =========== Net Income per Unit................................... $ 21.06 $ 12.84 $ 7.30 =========== =========== =========== Weighted Average Number of Units Outstanding.......... 173,252 173,252 173,855 =========== =========== ===========
See notes to consolidated financial statements F-3 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
UNITS ------------------------------------------------------------------- LIMITED LESS ------------------- TREASURY GENERAL UNITS CLASS A CLASS B PARTNERSHIP SUB-TOTAL AT COST TOTAL -------- -------- ----------- --------- -------- -------- Balance, January 1, 1997............... 144,180 34,243 1,802 180,225 5,062 175,163 Unit Buyback........................... -- -- -- -- 1,911 (1,911) Distributions to Partners.............. -- -- -- -- -- -- Net Income............................. -- -- -- -- -- -- ------- ------ ----- ------- ----- ------- Balance, December 31, 1997 144,180 34,243 1,802 180,225 6,973 173,252 Distribution to Partners............... -- -- -- -- -- -- Net Income............................. -- -- -- -- -- -- ------- ------ ----- ------- ----- ------- Balance, December 31, 1998 144,180 34,243 1,802 180,225 6,973 173,252 Distributions to Partners.............. -- -- -- -- -- -- Net Income............................. -- -- -- -- -- -- ------- ------ ----- ------- ----- ------- Balance, December 31, 1999 144,180 34,243 1,802 180,225 6,973 173,252 ======= ====== ===== ======= ===== ======= PARTNERS' CAPITAL ----------------------------------------------------- LIMITED ------------------------- GENERAL CLASS A CLASS B PARTNERSHIP TOTAL ------------ ---------- ----------- ----------- Balance, January 1, 1997............... $ 3,115,865 $ 743,473 $ 39,160 $ 3,898,498 Unit Buyback........................... (139,268) (33,077) (1,741) (174,086) Distributions to Partners.............. (1,222,251) (290,284) (15,278) (1,527,813) Net Income............................. 1,014,905 241,040 12,686 1,268,631 ------------ ---------- -------- ----------- Balance, December 31, 1997 $ 2,769,251 $ 661,152 $ 34,827 3,465,230 Distribution to Partners............... (1,134,695) (269,490) (14,184) (1,418,369) Net Income............................. 1,780,015 422,754 22,250 2,225,019 ------------ ---------- -------- ----------- Balance, December 31, 1998 $ 3,414,571 $ 814,416 $ 42,893 $ 4,271,880 Distributions to Partners.............. (1,826,584) (433,814) (22,832) (2,283,230) Net Income............................. 2,919,209 693,312 36,490 3,649,011 ------------ ---------- -------- ----------- Balance, December 31, 1999 $ 4,507,196 $1,073,914 $ 56,551 $ 5,637,661 ============ ========== ======== ===========
See notes to consolidated financial statements. F-4 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------------------- 1999 1998 1997 ------------ ----------- ----------- Cash Flows from Operating Activities Net income.......................................... $ 3,649,011 $ 2,225,019 $ 1,268,631 ------------ ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization....................... 3,573,658 3,338,924 3,239,186 (Income) Loss from investments in partnerships and joint venture..................................... (34,188) (16,714) 10,584 Gain on the sale of rental property................. (800,613) -- -- Unrealized depreciation(appreciation) on short-term investments....................................... 417,895 (56,143) (37,296) Decrease in rents receivable........................ (176,792) 94,436 83,895 (Increase) in financing and leasing fees............ (344,110) (48,757) (20,524) Increase (Decrease) in accounts payable............. 235,033 (35,005) 218,804 (Increase) Decrease in real estate tax escrow....... (168,122) 31,861 (67,479) (Increase) Decrease in prepaid expenses and other assets............................................ (402,958) (196,167) 181,867 Increase in advance rental payments and security deposits.......................................... 703,103 121,225 154,706 (Increase) Decrease in short-term investments....... 2,620,691 (948,801) (1,966,605) ------------ ----------- ----------- Total Adjustments................................... 5,623,597 2,284,859 1,797,138 ------------ ----------- ----------- Net cash provided by operating activities............. 9,272,608 4,509,878 3,065,769 ------------ ----------- ----------- Cash Flows from Investing Activities Distribution from joint venture..................... 64,064 33,271 7,684 Purchase and improvement of rental properties....... (11,030,171) (2,323,710) (2,164,204) Sale of rental property............................. 180,984 -- -- ------------ ----------- ----------- Net cash (used in) investing activities............... (10,785,123) (2,290,439) (2,156,520) ------------ ----------- ----------- Cash Flows from Financing Activities Principal payments and early repayment of mortgages payable........................................... (876,154) (634,269) (581,678) Distributions to partners........................... (2,283,230) (1,418,369) (1,527,813) Purchase of treasury units.......................... -- -- (174,086) Proceeds from notes payable......................... 5,293,259 -- -- ------------ ----------- ----------- Net cash provided by (used in) financing activities... 2,133,875 (2,052,638) (2,283,577) ------------ ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents......................................... 621,360 166,801 (1,374,328) Cash and Cash Equivalents, Beginning.................. 623,078 456,277 1,830,605 ------------ ----------- ----------- Cash and Cash Equivalents, Ending..................... $ 1,244,438 $ 623,078 $ 456,277 ============ =========== ===========
See notes to consolidated financial statements F-5 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 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. In connection with the mortgages referred to in Note 5, a substantial number of NERA's properties were restructured into separate subsidiary limited partnerships without any change in the historical cost basis. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of NERA and its subsidiary limited partnerships. NERA has a 99.67% ownership interest in each of such subsidiary limited partnerships. 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. 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 F-6 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 1999, 1998 or 1997. The Partnerships make their temporary cash investments with high-credit-quality financial institutions or purchase money market accounts invested in U.S. Government securities or mutual funds invested in government bonds. At December 31, 1999 approximately $982,000 of cash and cash equivalents exceeded federally insured amounts. The mutual fund investment of $21,787 at December 31, 1999 is subject to price volatility associated with any interest-bearing investment. Fluctuations in actual interest rates affect the value of these investments. ADVERTISING EXPENSE: Advertising is expensed as incurred. Advertising expense was $87,777, $96,224, and $123,215 in 1999, 1998 and 1997, respectively. NOTE 2--RENTAL PROPERTIES Rental properties consist of the following:
DECEMBER ------------------------- USEFUL 1999 1998 LIFE ----------- ----------- ----------- Land, improvements, and parking lots... $16,992,349 $10,086,067 10-31 years Buildings and improvements............. 82,422,016 56,546,885 15-31 years Kitchen cabinets....................... 1,218,362 1,138,588 5-10 years Carpets................................ 1,232,720 1,176,261 5-10 years Air conditioning....................... 279,807 281,776 7-10 years Laundry equipment...................... 53,672 58,081 5-7 years Elevators.............................. 161,391 57,952 20 years Swimming pools......................... 42,450 42,450 10 years Equipment.............................. 845,009 649,370 5-7 years Motor vehicles......................... 65,927 65,926 5 years Fences................................. 36,717 18,624 5-10 years Furniture and fixtures................. 438,548 390,209 5-7 years Smoke alarms........................... 33,917 17,817 5-7 years ----------- ----------- 103,822,885 70,530,006 Less accumulated depreciation.......... 22,548,592 19,661,624 ----------- ----------- $81,274,293 $50,868,382 =========== ===========
F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2--RENTAL PROPERTIES (CONTINUED) Real estate and accumulated depreciation as of December 31, 1999 is:
INITIAL COST TO COST GROSS AMOUNT AT PARTNERSHIPS(1) CAPITALIZED WHICH CARRIED AT -------------------------- SUBSEQUENT TO CLOSE OF PERIOD ENCUMBRANCES BUILDINGS ACQUISITION (2) BUILDINGS (FIRST MORTGAGES) LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS ----------------- ----------- ------------ --------------- ----------- ---------------- Condominium Units Residential Units Massachusetts............... $ -- $ 27,164 $ 311,527 $ (28,004) $ 27,164 $ 283,523 Westgate Apartments LLC Residential Apartments Woburn, Massachusetts....... $11,864,999 $ 461,300 $ 2,424,636 $ 4,569,960 $ 461,300 $ 6,994,596 Coach L.P. Residential Apartments Acton, Massachusetts........ $ 1,142,215 $ 140,600 $ 445,791 $ 445,662 $ 140,600 $ 891,453 Avon Street Apartments L.P. Residential Apartments Malden, Massachusetts....... $ 1,711,906 $ 62,700 $ 837,318 $ 356,758 $ 62,700 $ 1,194,076 Middlesex Apartments L.P. Residential Apartments Newton, Massachusetts....... $ 1,056,509 $ 37,700 $ 161,012 $ 218,297 $ 37,700 $ 379,309 Clovelly Apartments L.P. Residential Apartments Nashua, New Hampshire....... $ 1,999,830 $ 177,610 $ 1,478,359 $ 428,870 $ 177,610 $ 1,907,229 Nashoba Apartments L.P. Residential Apartments Acton, Massachusetts........ $ 1,044,840 $ 79,650 $ 284,548 $ 665,049 $ 79,650 $ 949,597 River Drive L.P. Residential Apartments Danvers, Massachusetts...... $ 1,482,698 $ 72,525 $ 587,777 $ 1,032,432 $ 72,525 $ 1,620,209 Executive Apartments L.P. Residential Apartments Framingham, Massachusetts... $ 1,717,611 $ 91,400 $ 740,360 $ 873,879 $ 91,400 $ 1,614,239 Olde English Apartments L.P. Residential Apartments Lowell, Massachusetts....... $ 1,347,031 $ 46,181 $ 878,323 $ 371,570 $ 46,181 $ 1,249,893 Oak Ridge Apartments L.P. Residential Apartments Foxboro, Massachusetts...... $ 2,015,797 $ 135,300 $ 406,544 $ 1,071,842 $ 135,300 $ 1,478,386 Commonwealth 1137 L.P. Residential Apartments Boston, Massachusetts....... $ 1,214,633 $ 342,000 $ 1,367,669 $ 307,270 $ 342,000 $ 1,674,939 Commonwealth 1144 L.P. Residential Apartments ACCUMULATED DATE TOTALS DEPRECIATION (3) ACQUIRED ------------ ---------------- ---------- Condominium Units Residential Units Massachusetts............... $ 310,687 $ 236,278 Various Westgate Apartments LLC Residential Apartments Woburn, Massachusetts....... $ 7,455,896 $ 3,953,038 Sept. 1977 Coach L.P. Residential Apartments Acton, Massachusetts........ $ 1,032,053 $ 603,635 Sept. 1977 Avon Street Apartments L.P. Residential Apartments Malden, Massachusetts....... $ 1,256,776 $ 894,368 Sept. 1977 Middlesex Apartments L.P. Residential Apartments Newton, Massachusetts....... $ 417,009 $ 190,597 Sept. 1977 Clovelly Apartments L.P. Residential Apartments Nashua, New Hampshire....... $ 2,084,839 $ 1,428,921 Sept. 1977 Nashoba Apartments L.P. Residential Apartments Acton, Massachusetts........ $ 1,029,247 $ 524,937 Sept. 1977 River Drive L.P. Residential Apartments Danvers, Massachusetts...... $ 1,692,734 $ 943,358 Sept. 1977 Executive Apartments L.P. Residential Apartments Framingham, Massachusetts... $ 1,705,639 $ 1,127,956 Sept. 1977 Olde English Apartments L.P. Residential Apartments Lowell, Massachusetts....... $ 1,296,074 $ 902,749 Sept. 1977 Oak Ridge Apartments L.P. Residential Apartments Foxboro, Massachusetts...... $ 1,613,686 $ 782,051 Sept. 1977 Commonwealth 1137 L.P. Residential Apartments Boston, Massachusetts....... $ 2,016,939 $ 303,867 July 1995 Commonwealth 1144 L.P. Residential Apartments
F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2--RENTAL PROPERTIES (CONTINUED) Real estate and accumulated depreciation as of December 31, 1999 is:
INITIAL COST TO COST GROSS AMOUNT AT PARTNERSHIPS(1) CAPITALIZED WHICH CARRIED AT -------------------------- SUBSEQUENT TO CLOSE OF PERIOD ENCUMBRANCES BUILDINGS ACQUISITION (2) BUILDINGS (FIRST MORTGAGES) LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS ----------------- ----------- ------------ --------------- ----------- ---------------- Boston, Massachusetts....... $ 5,074,888 $ 1,410,000 $ 5,664,816 $ 710,942 $ 1,410,000 $ 6,375,758 Boylston Downtown L.P. Residential Apartments Boston, Massachusetts....... $ 7,458,607 $ 2,112,000 $ 8,593,111 $ 1,729,919 $ 2,112,000 $10,323,030 North Beacon 140 L.P. Residential Units Boston, Massachusetts....... $ 3,332,650 $ 936,000 $ 3,762,013 $ 842,412 $ 936,000 $ 4,604,425 Redwood Hills L.P. Residential Units Worcester, Massachusetts.... $ 4,390,709 $ 1,200,000 $ 4,810,604 $ 943,833 $ 1,200,000 $ 5,754,437 East Hampton L.P. Strip Shopping Mall East Hampton, Connecticut... $ 1,348,419 $ 394,011 $ 1,182,031 $ 1,274,128 $ 394,011 $ 2,456,159 Timpany Plaza L.P. Shopping Mall Gardner, Massachusetts...... $ 3,351,133 $ 378,125 $ 4,729,978 $ 719,633 $ 378,125 $ 5,449,611 Lewiston Mall L.P. (4) Shopping Mall Lewiston, Maine............. $ 2,756,037 $ 1,043,059 $ 3,694,731 $ 475,127 $ 1,043,059 $ 4,169,858 Linhart L.P. Residential/Commercial Newton, Massachusetts....... $ 1,251,488 $ 385,000 $ 1,540,000 $ 795,062 $ 385,000 $ 2,335,062 Highland Street Apartments, L.P. Residential Apartments Lowell, Massachusetts....... $ -- $ 156,000 $ 634,085 $ 194,185 $ 156,000 $ 828,270 Staples Plaza Strip Mall Framingham, Massachusetts... $ 5,170,675 $ 3,280,000 $ 4,920,000 $ -- $ 3,280,000 $ 4,920,000 Hamilton Oaks Associates LLC Residential Apartments Brockton, Massachusetts..... $11,600,000 $ 2,175,000 $12,325,000 $ -- $ 2,175,000 $12,325,000 WCB Associates LLC Residential Apartments Brockton, Massachusetts..... $ 5,197,976 $ 1,335,000 $ 7,565,501 $ -- $ 1,335,000 $ 7,565,501 $77,530,651 $16,478,325 $69,345,734 $17,998,826 $16,478,325 $87,344,560 ACCUMULATED DATE TOTALS DEPRECIATION (3) ACQUIRED ------------ ---------------- ---------- Boston, Massachusetts....... $ 7,785,758 $ 1,246,639 July 1995 Boylston Downtown L.P. Residential Apartments Boston, Massachusetts....... $ 12,435,030 $ 1,886,282 July 1995 North Beacon 140 L.P. Residential Units Boston, Massachusetts....... $ 5,540,425 $ 856,444 July 1995 Redwood Hills L.P. Residential Units Worcester, Massachusetts.... $ 6,954,437 $ 1,161,373 July 1995 East Hampton L.P. Strip Shopping Mall East Hampton, Connecticut... $ 2,850,170 $ 959,197 Sept. 1984 Timpany Plaza L.P. Shopping Mall Gardner, Massachusetts...... $ 5,827,736 $ 2,819,344 Sept. 1985 Lewiston Mall L.P. (4) Shopping Mall Lewiston, Maine............. $ 5,212,917 $ 944,841 Feb. 1989 Linhart L.P. Residential/Commercial Newton, Massachusetts....... $ 2,720,062 $ 476,083 Jan. 1995 Highland Street Apartments, L.P. Residential Apartments Lowell, Massachusetts....... $ 984,270 $ 165,555 Dec. 1996 Staples Plaza Strip Mall Framingham, Massachusetts... $ 8,200,000 $ 95,667 May 1999 Hamilton Oaks Associates LLC Residential Apartments Brockton, Massachusetts..... $ 14,500,000 $ 27,810 Dec. 1999 WCB Associates LLC Residential Apartments Brockton, Massachusetts..... $ 8,900,501 $ 17,602 Dec. 1999 $103,822,885 $22,548,592
F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2--RENTAL PROPERTIES (CONTINUED) - ------------------------ (1) The initial cost to the Partnerships represents both the balance of mortgages assumed in September 1977, including subsequent adjustments to such amounts, and subsequent acquisitions at cost. (2) Net of retirements, which are not significant. (3) In 1999, rental properties were depreciated over the following estimated useful lives:
ASSETS LIFE - ------ ----------- Buildings and Improvements.................................. 10-31 years Other Categories of Assets.................................. 5-10 years
(4) Initial costs and carrying values are net of $3,250,000 impairment loss. F-10 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2--RENTAL PROPERTIES (CONTINUED) A reconciliation of rental properties and accumulated depreciation is as follows:
DECEMBER 31, ---------------------------------------- 1999 1998 1997 ------------ ----------- ----------- Rental Properties Balance, Beginning:................ $ 70,530,006 $68,597,312 $67,429,200 Additions: Buildings, improvements, and other assets................... 33,855,292 2,323,710 2,164,204 ------------ ----------- ----------- 104,385,298 70,921,022 69,593,404 Deduct: Write-off of retired or disposed assets........................... 562,413 391,016 996,092 ------------ ----------- ----------- Balance, Ending...................... $103,822,885 $70,530,006 $68,597,312 ============ =========== =========== Accumulated Depreciation Balance, Beginning............... $ 19,661,624 $17,021,970 $15,135,219 Add: Depreciation for the year...... 3,304,010 3,030,670 2,882,843 ------------ ----------- ----------- 22,965,634 20,052,640 18,018,062 Deduct: Accumulated depreciation of retired or disposed assets............... 417,042 391,016 996,092 ------------ ----------- ----------- Balance, Ending.................... $ 22,548,592 $19,661,624 $17,021,970 ============ =========== ===========
On May 27, 1999 the Partnership purchased a 39,600 square foot commercial property known as Staples Plaza, located in Framingham, Massachusetts. The purchase price was $8,200,000. The Partnership assumed an 8% mortgage on the property of $5,267,949, which matures in June 2016. On April 30, 1999, the Partnership sold the Willard Street apartments located in Quincy, Massachusetts for $850,000, resulting in a gain of $672,140. The purchaser paid $85,000 in cash, assumed the existing mortgage of approximately $285,000, and gave to the Partnership a mortgage note for the remaining $480,000. This 7.5% mortgage note is collateralized by other real estate owned by the purchaser and matures at the earlier of the refinancing of the purchased property or July 31, 2005, the maturity date of the assumed mortgage. This mortgage was paid on January 14, 2000. On August 5, 1999, the Partnership sold a condominium located at 566 Commonwealth Avenue in Boston, Massachusetts. The sale price was $168,000, and the gain of $128,473 is included in other income. On December 3, 1999, the Partnership acquired through a controlled affiliate, a 180-unit residential complex located in Brockton, Massachusetts for a purchase price of $8,900,000. This controlled affiliate assumed a 6.52% mortgage with an outstanding balance of $5,207,172 which has a maturity date of October 2008. The balance of the purchase price of $3,692,828 was paid from available cash. On December 23, 1999, the Partnership acquired through a controlled affiliate, a 268-unit residential complex and a 6,075 square-foot commercial building located in Brockton, Massachusetts for a purchase price of $14,500,000. The purchase was funded by a $11,600,000 mortgage, a $750,000 loan from the F-11 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2--RENTAL PROPERTIES (CONTINUED) majority shareholder of the General Partner (see Note 3) and $2,150,000 paid from available cash. The 7.84% mortgage matures in 2009 and is being amortized over 30 years. The operating results of the above acquired properties have been included in the consolidated statements of income since the dates of acquisition or sale. The following unaudited proforma results assume the acquisitions occurred at the beginning of 1998 and are based upon historical amounts adjusted for changes in interest expense and depreciation and amortization (stated in thousands except for per unit amounts):
YEAR ENDED DECEMBER 31, ------------------- 1999 1998 -------- -------- Rental Income............................................. $24,281 $23,213 Operating Income (loss)................................... 1,807 1,456 Net Income (loss)......................................... 2,978 1,695 Income (loss) per unit.................................... 17.19 9.28
The proforma financial information is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated at January 1, 1998 nor are these results necessarily indicative of future operating results. NOTE 3--RELATED PARTY TRANSACTIONS The Partnerships' properties are managed by an entity which 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 $819,929, $749,302, and $715,086 in 1999, 1998 and 1997, respectively. Advance rental payments and 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 $325 paid in 1999; no fees were paid in 1998 and 1997. 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. In 1999, 1998 and 1997, approximately $939,000, $671,000, and $751,000 was charged to NERA for legal, construction, maintenance, rental and architectural services and supervision of capital improvements. Approximately $505,000, $244,000, and $295,000 was capitalized in 1999, 1998 and 1997 in rental properties. Included in the 1999 expenses referred to above, approximately $192,000 is recorded in repairs and maintenance, $215,000 in administrative expense and, $27,000 in renting expense. Included in the 1998 expenses referred to above, approximately $219,000 is recorded in repairs and maintenance, $173,000 in administrative expense, and $35,000 in renting expense. Included in the 1997 expenses referred to above, approximately $235,000 is recorded in repairs and maintenance, $165,000 in administrative expense, and $47,000 in renting expense. Additionally in 1999, 1998 and 1997, the Partnership paid to the management company $65,000, $60,000, and $50,000 respectively for in-house accounting services, which were previously provided by an outside company. Included in accounts payable and accrued expenses at December 31, 1999 and 1998 is $114,155 and $115,271 due to the management 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%. No such commissions were paid in 1999, 1998 or 1997. F-12 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3--RELATED PARTY TRANSACTIONS In 1996, prior to becoming an employee and President of Hamilton Company, the current President performed and continues to perform asset management consultancy services to the Partnership. This individual continues to receive asset management fees from the Partnership, receiving $32,650, $31,200, and $30,600 in 1999, 1998 and 1997, respectively. Included in prepaid expenses and other assets were amounts due from related parties of $937,157 and $534,357 at December 31, 1999 and 1998, respectively, representing Massachusetts tenant security and prepaid rent deposits which are held for the Partnerships by another entity also owned by one of the shareholders of the General Partner (see Note 6). See Note 10 for rental arrangements with Timpany Plaza joint venture. As described in Note 4, the Partnership had interests in certain entities in which the majority shareholder of the General Partner is also involved. On December 22, 1999, the Partnership borrowed $750,000 from the majority shareholder of the General Partner. This amount was paid directly to the seller of the Oak Apartments in Brockton, Massachusetts (see Note 2). This unsecured 10% note is due on December 22, 2001 or prepaid without penalty. Interest expense on this note was $2,083 for the period ended December 31, 1999. NOTE 4--OTHER ASSETS Short-term investments are considered to be trading securities per FAS No. 115 and are carried on the balance sheet at their fair value. At December 31, 1999 mutual fund investments with a cost of $22,113 were recorded at a market value of $21,787. At December 31, 1998 mutual fund investments with a cost of $3,004,230, were recorded at a market value of $3,060,373. Included in prepaid expenses and other assets at December 31, 1999 and 1998 is approximately $456,000 and $567,000 respectively, held in escrow to pay future capital improvements. The carrying value of the Partnership's 50% interest in the Timpany Plaza joint venture, at equity, is $29,035 and $58,910 at December 31, 1999 and December 31, 1998 respectively. In 1998, the Partnership disposed of a 10% ownership interest in a real estate partnership accounted for by the equity method and reduced to a carrying value of zero. This sale did not result in any proceeds to the Partnership. The majority shareholder of the General Partner was also the majority owner of this partnership. Financing and leasing fees of $1,110,520 and $1,036,058 are net of accumulated amortization of $1,261,148 and $1,215,506 in 1999 and 1998, respectively. NOTE 5--MORTGAGES PAYABLE At December 31, 1999 and 1998, the mortgages payable consisted of various loans, substantially all of which were secured by first mortgages on properties referred to in Note 2. At December 31, 1999 the interest rate on these loans ranged from 7.07% to 9.25%, payable in monthly installments aggregating approximately $612,000 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 Partnerships have pledged tenant leases as additional collateral for certain of these mortgages. F-13 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5--MORTGAGES PAYABLE (CONTINUED) Approximate annual maturities are as follows: 2000--current maturities.................................... $ 1,168,000 2001........................................................ 1,269,000 2002........................................................ 1,375,000 2003........................................................ 1,490,000 2004........................................................ 1,610,000 Thereafter.................................................. 70,619,000 ----------- $77,531,000 ===========
NOTE 6--ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS The lease agreements for certain properties require tenants to maintain a one-month advance rental payment plus security deposits. The funds 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. The Partnership declared distributions of $13.20 per unit in 1999, $8.20 per unit in 1998, and $8.80 per unit in 1997. The 1999 distribution included a special dividend of $3.50 per unit paid in March 1999. In January 2000, the Partnership declared a semi-annual dividend of $5.10 per unit and a special dividend of $4.00 per unit payable March 31, 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:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Net Income per Depositary Receipt....................... $2.11 $1.28 $.73 ===== ===== ====
NOTE 8--CAPITAL REPURCHASE PLAN During 1997, the Partnership purchased 15,288 Depositary Receipts for a total cost of $139,268. In addition, 363 Class B and 19 General Partnership units were purchased in 1997 for a total cost of $34,819. The plan to purchase Depositary Receipts was terminated on December 10, 1997. F-14 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8--CAPITAL REPURCHASE PLAN (CONTINUED) Treasury units at December 31, 1999 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 Partnerships are not involved in any material pending legal proceedings. NOTE 10--RENTAL INCOME In 1999, approximately 83% of rental income was related to residential apartments and condominium units with leases of one year or less. The remaining 17% was related to commercial properties which have minimum future rental income on noncancellable operating leases as follows:
COMMERCIAL PROPERTY LEASES LAND LEASES TOTAL ---------- ----------- ---------- 2000...................................... 2,493,000 150,000 2,643,000 2001...................................... 2,165,000 150,000 2,315,000 2002...................................... 2,055,000 150,000 2,205,000 2003...................................... 1,871,000 150,000 2,021,000 2004...................................... 1,604,000 150,000 1,754,000 Thereafter................................ 9,213,000 800,000 10,013,000 ---------- --------- ---------- 19,401,000 1,550,000 20,951,000 ========== ========= ==========
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 $933,000, $731,000, and $847,000 for the years ended December 31, 1999, 1998, and 1997 respectively. In August 1988, the Partnership entered into a land lease agreement with an existing tenant of the Timpany Plaza Shopping Center in Gardner, Massachusetts. The minimum annual rents are $110,000 per year for the first five years increasing each subsequent five-year period, with the average being $137,500 per year for the minimum 20-year term. Included in rents receivable at December 31, 1999 and 1998 is $175,000 and $167,500 respectively, representing the deferred rental income 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. 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 the space and divide the net income or loss after paying to the Partnership an annual minimum rent of $84,546. The F-15 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10--RENTAL INCOME (CONTINUED) Partnership's share of income for the year ended December 31, 1999 and 1998 was $34,188 and $16,714, compared to a loss of $10,584 for the year ended December 31, 1997. Rents receivable are net of allowances for doubtful accounts of $149,386 and $135,559 at December 31, 1999 and 1998, respectively. NOTE 11--CASH FLOW INFORMATION During the year ended December 31, 1999, 1998, and 1997 cash paid for interest was $4,862,468, $4,543,330, and $4,595,922 respectively. Schedule of non-cash investing and financing transactions:
MORTGAGE PROPERTY PROPERTIES REFINANCED SOLD PURCHASED TOTAL ---------- -------- ------------ ------------ Sale (purchase) of rental properties........ $ -- $850,000 ($31,600,000) ($30,750,000) New mortgage on Westgate Apartments......... 12,000,000 -- -- 12,000,000 ---------- -------- ------------ ------------ 12,000,000 850,000 (31,600,000) (18,750,000) ---------- -------- ------------ ------------ Non-cash investing and financing Mortgage debt............................. -- -- 22,075,121 22,075,121 Note payable.............................. -- -- 750,000 750,000 Mortgage assumed by buyer................. -- (284,128) -- (284,128) Mortgage note received.................... -- (480,872) -- (480,872) Payment of existing mortgage.............. (6,706,741) -- -- (6,706,741) ---------- -------- ------------ ------------ Total non-cash investing and financing...... (6,706,741) (765,000) 22,825,121 15,353,380 ---------- -------- ------------ ------------ Cash received (paid)........................ $5,293,259 $ 85,000 ($ 8,774,879) ($ 3,396,620) ========== ======== ============ ============
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--TAXABLE INCOME AND TAX BASIS Taxable income reportable by the Partners is different than financial statement income because of accelerated depreciation, different tax lives for some properties, impairment losses, and the inclusion for tax purposes of profits and losses realized on equity investments. Taxable income for 1999 is approximately $415,000 greater than financial statement income. Cumulative tax basis at December 31, 1999 is approximately $3,000,000 greater than the financial statement basis including the impairment loss of $3,250,000 recognized in 1995. F-16 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED -------------------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1999 1999 1999 1999 TOTAL ---------- ---------- ------------- ------------ ----------- Revenues.............................. $4,808,232 $4,866,403 $5,138,539 $5,464,972 $20,278,146 Expenses.............................. 4,293,381 4,090,715 4,386,493 4,635,953 17,406,542 ---------- ---------- ---------- ---------- ----------- Income from Operations................ 514,851 775,688 752,046 829,019 2,871,604 Other Income.......................... 218 596,576 148,472 32,141 777,407 ---------- ---------- ---------- ---------- ----------- Net Income............................ $ 515,069 $1,372,264 $ 900,518 $ 861,160 $ 3,649,011 ========== ========== ========== ========== =========== Net Income per Unit................... $ 2.97 $ 7.92 $ 5.20 $ 4.97 $ 21.06 Net Income per Depositary Receipt..... .30 .79 .52 .50 2.11
THREE MONTHS ENDED -------------------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1998 1998 1998 1998 TOTAL ---------- ---------- ------------- ------------ ----------- Revenues.............................. $4,581,114 $4,586,024 $4,615,993 $4,664,319 $18,447,450 Expenses.............................. 4,166,214 4,084,532 4,105,522 4,105,455 16,461,723 ---------- ---------- ---------- ---------- ----------- Income from Operations................ 414,900 501,492 510,471 558,864 1,985,727 Other Income.......................... 28,808 48,624 141,037 20,823 239,292 ---------- ---------- ---------- ---------- ----------- Net Income............................ $ 443,708 $ 550,116 $ 651,508 $ 579,687 $ 2,225,019 ========== ========== ========== ========== =========== Net Income per Unit................... $ 2.56 $ 3.18 $ 3.76 $ 3.34 $ 12.84 Net Income per Depositary Receipt..... $ .26 $ .32 $ .37 $ .33 $ 1.28
F-17 EX-27 2 EX-27
5 12-MOS DEC-31-1999 DEC-31-1999 1,244,438 21,787 686,706 0 0 4,773,400 103,822,885 22,548,592 87,668,120 3,749,808 0 0 0 0 5,637,661 87,668,120 20,099,480 20,278,146 0 0 12,460,599 0 4,945,943 3,649,011 0 0 0 0 0 3,649,011 21.06 21.06
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