10-Q 1 a2049221z10-q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------- FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to _____________________ Commission file number 0-12138 New England Realty Associates Limited Partnership (Exact Name of Registrant as Specified in Its Charter) Massachusetts 04-2619298 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 39 Brighton Avenue, Allston, Massachusetts 02134 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (617) 783-0039 Not Applicable (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check /X/ whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No ___________ INDEX PART I - FINANCIAL INFORMATION
Page No. Item 1. Financial Statements. Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 3 Consolidated Statements of Income for the Three Months Ended March 31, 2001 and March 31, 2000 4 Consolidated Statement of Changes in Partners' Capital 5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 6 March 31, 2000 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II - OTHER INFORMATION Item 5. Other Information SIGNATURES 18
2 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2001 2000 (UNAUDITED) ---------- -------------- ASSETS Rental Properties $ 74,609,763 $ 75,307,036 Cash and Cash Equivalents 14,519,918 14,478,972 Rents Receivable 423,766 402,376 Real Estate Tax Escrows 383,248 378,039 Prepaid Expenses and Other Assets 1,803,657 1,857,267 Financing and Leasing Fees 906,535 879,247 ------------ ------------ TOTAL ASSETS $ 92,646,887 $ 93,302,937 ============ ============ LIABILITIES AND PARTNERS' CAPITAL Mortgages Payable $ 80,180,393 $ 80,368,031 Accounts Payable and Accrued Expenses 1,018,946 1,146,287 Advance Rental Payments and Security Deposits 2,917,788 2,892,799 ------------ ------------ TOTAL LIABILITIES 84,117,127 84,407,117 Commitments and Contingent Liabilities (Note 9) Partners' Capital 173,252 units outstanding in 2001 and 2000 8,529,760 8,895,820 ------------ ------------ TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 92,646,887 $ 93,302,937 ============ ============
See notes to consolidated financial statements 3 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, (UNAUDITED) 2001 2000 -------------- -------------- Revenue Rental income $ 6,651,487 $ 6,377,062 Laundry and sundry income 62,566 59,183 -------------- -------------- 6,714,053 6,436,245 --------------- --------------- Expense Administrative 300,832 314,775 Depreciation and amortization 1,033,607 1,158,566 Interest 1,616,955 1,595,377 Management fees 273,151 282,058 Operating 882,561 855,506 Renting 26,310 43,160 Repairs and maintenance 629,794 632,043 Taxes and insurance 608,942 664,009 -------------- -------------- 5,372,152 5,545,494 -------------- -------------- Income from Operations 1,341,901 890,751 -------------- -------------- Other Income Interest income 212,028 40,074 Income from investment in joint venture 0 6,594 Income on short-term investments 0 446 --------------- --------------- 212,028 47,114 --------------- --------------- Net Income $ 1,553,929 $ 937,865 =============== =============== Net Income per Unit $ 8.97 $ 5.41 =============== =============== Weighted Average Number Of Units Outstanding 173,252 173,252 =============== ===============
See notes to consolidated financial statements 4 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
LIMITED --------------------------------- GENERAL CLASS A CLASS B PARTNERSHIP TOTAL ------------- ------------- ------------------ ------------- Balance, January 1, 2000 $4,510,129 $1,071,156 $ 56,376 $5,637,661 Distribution to Partners (1,259,236) (299,069) (15,740) (1,574,045) Net Income 750,292 178,194 9,379 937,865 ---------- ---------- ----------- ---------- Balance, March 31, 2000 $4,001,185 $ 950,281 $ 50,015 $5,001,481 ========== ========== =========== ========== Units authorized and issued, net of 6,973 Treasury Units at March 31, 2000 138,602 32,918 1,732 173,252 ========== ========== =========== ========== Balance, January 1, 2001 $7,113,724 $1,692,964 $ 89,132 $8,895,820 Distribution to Partners (1,535,991) (364,798) (19,200) (1,919,989) Net Income 1,243,143 295,247 15,539 1,553,929 ---------- ---------- ----------- ---------- Balance, March 31, 2001 $6,820,876 $1,623,413 $ 85,471 $8,529,760 ========== ========== =========== ========== Units authorized and issued, net of 6,973 Treasury Units at March 31, 2001 138,602 32,918 1,732 173,252 ========== ========== =========== ==========
See notes to consolidated financial statements 5 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, (UNAUDITED) -------------------------------------- 2001 2000 ---------------- ---------------- Cash Flows from Operating Activities Net income $ 1,553,929 $ 937,865 -------------- -------------- Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 1,033,607 1,158,566 (Income) from investment in joint venture 0 (6,594) Unrealized depreciation (appreciation) on short-term investments 0 (446) (Increase) decrease in rents receivable (21,390) 188,606 (Increase) in financing and leasing fees (60,337) (12,098) (Increase) decrease in accounts payable (127,341) 51,717 (Increase) in real estate tax escrow (5,209) (11,119) Decrease (increase) in prepaid expenses and other assets 53,610 (28,737) Increase in advance rental payments and security deposits 24,989 39,349 (Increase) decrease in short-term investments 0 (753) -------------- -------------- Total Adjustments 897,929 1,378,491 -------------- -------------- Net cash provided by operating activities 2,451,858 2,316,356 Cash Flows from Investing Activities Distribution from joint venture 0 15,370 Purchase and improvement of rental properties (303,285) (287,708) Decrease in notes receivable 0 480,872 -------------- -------------- Net cash (used in) provided by investing activities (303,285) 208,534 -------------- -------------- Cash Flows from Financing Activities Principal payments of mortgages payable (187,638) (284,900) Distributions to partners (1,919,989) (1,574,045) -------------- -------------- Net cash provided by (used in) financing activities (2,107,627) (1,858,945) -------------- -------------- Net Increase in Cash and Cash Equivalents 40,946 665,945 Cash and Cash Equivalents, Beginning 14,478,972 1,244,438 -------------- -------------- Cash and Cash Equivalents, Ending $ 14,519,918 $ 1,910,383 ============== ==============
See notes to consolidated financial statements 6 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES LINE OF BUSINESS: New England Realty Associates Limited Partnership ("NERA" or the "Partnership") was organized in Massachusetts during 1977. NERA and its subsidiaries own and operate various residential apartment buildings, condominium units, and commercial properties located in Massachusetts, Connecticut and New Hampshire. NERA has also made investments in other real estate partnerships and has participated in other real estate-related activities, primarily located in Massachusetts. In connection with the mortgages referred to in Note 5, a substantial number of NERA's properties are owned by separate subsidiaries without any change in the historical cost basis. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of NERA and its subsidiaries. NERA has a 99.67% to 100% ownership interest in each of such subsidiary. The consolidated group is referred to as the "Partnerships." Minority interests are not recorded since they are insignificant. All significant intercompany accounts and transactions are eliminated in consolidation. The Partnership accounts for its investment in a joint venture on the equity method. ACCOUNTING ESTIMATES: The preparation of the financial statements is in accordance with generally accepted accounting principles (GAAP) requiring management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Accordingly, actual results could differ from those estimates. REVENUE RECOGNITION: Rental income from residential and commercial properties is recognized over the term of the related lease. Amounts 60 days in arrears are charged against income. Certain leases of the commercial properties provide for increasing stepped minimum rents, which are accounted for on a straight-line basis over the term of the lease. RENTAL PROPERTIES: Rental properties are stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred; improvements and additions are capitalized. When assets are retired or otherwise disposed of, the cost of the asset and related accumulated depreciation is eliminated from the accounts, and any gain or loss on such disposition is included in income. Rental properties are depreciated on the straight-line method over their estimated useful lives. In the event that facts and circumstances indicate that the carrying value of rental properties may be impaired, an analysis of recoverability is performed. The estimated future undiscounted cash flows are compared to the asset's carrying value to determine if a write-down to fair value or discounted cash flow value is required. FINANCING AND LEASING FEES: Financing fees are capitalized and amortized, using the interest method, over the life of the related mortgages. Leasing fees are capitalized and amortized on a straight-line basis over the life of the related lease. INCOME TAXES: The financial statements have been prepared under the basis that NERA and its subsidiaries are entitled to tax treatment as partnerships. Accordingly, no provision for income taxes on income has been recorded. CASH EQUIVALENTS: The Partnerships consider cash equivalents to be all highly liquid instruments purchased with a maturity of three months or less. 7 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SHORT-TERM INVESTMENTS: The Partnership accounts for short-term investments in accordance with Statement of Financial Accounting Standards (FAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities." The Partnerships consider short-term investments to be mutual funds and bank certificates of deposit, Treasury obligations, or commercial paper with initial maturities between three and twelve months. These investments are considered to be trading account securities and are carried at fair value with unrealized holding gains or losses reflected in earnings. CONCENTRATION OF CREDIT RISKS AND FINANCIAL INSTRUMENTS: The Partnerships' tenants are located in New England, and the Partnerships are subject to the general economic risks related thereto. No single tenant accounted for more than 5% of the Partnerships' revenues in 2001 and 2000. The Partnerships make their temporary cash investments with high-credit-quality financial institutions. At March 31, 2001, substantially all of the Partnerships' cash and cash equivalents were held in interest-bearing accounts at financial institutions earning interest at rates from 4.45 to 5.125 percent. At March 31, 2001 approximately $14,320,000 of cash and cash equivalents exceeded federally insured amounts. ADVERTISING EXPENSE: Advertising is expensed as incurred. Advertising expense was $15,729, and $20,156 for the three months ended March 31, 2001 and 2000, respectively. NOTE 2--RENTAL PROPERTIES Rental properties consist of the following:
MARCH 31, DECEMBER 31, USEFUL 2001 2000 LIFE -------------- --------------- -------- Land, improvements, and parking lots $16,106,171 $16,106,171 10-31 years Buildings and improvements 77,133,408 76,975,338 15-31 years Kitchen cabinets 1,387,853 1,351,868 5-10 years Carpets 1,375,858 1,346,358 5-10 years Air conditioning 204,903 204,903 7-10 years Laundry equipment 46,441 46,441 5-7 years Elevators 165,187 161,391 20 years Swimming pools 80,198 80,198 10 years Equipment 1,025,801 967,093 5-7 years Motor vehicles 100,655 100,655 5 years Fences 24,816 24,816 5-10 years Furniture and fixtures 476,984 460,708 5-7 years Smoke alarms 39,145 38,195 5-7 years --------------- --------------- 98,167,420 97,864,135 Less accumulated depreciation 23,557,657 22,557,099 --------------- --------------- $74,609,763 $75,307,036 =============== ===============
8 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 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 $273,151 and $282,058 for the three months ended March 31, 2001 and 2000, respectively. Security deposits are held in escrow by the management company (see Note 6). The management company also receives a mortgage servicing fee equal to an annual rate of 1/2% of the monthly outstanding balance of mortgages receivable resulting from the sale of property. There was a mortgage servicing fee of $325 paid in the year ended December 31, 2000. No fee was paid in the three months ended March 31, 2001. The Partnership Agreement also permits the General Partner or management company to charge the costs of professional services (such as counsel, accountants, and contractors) to NERA. During the three months ended March 31, 2001 and 2000, approximately $172,000 and $112,000 was charged to NERA for legal, construction, maintenance, rental and architectural services and supervision of capital improvements. Approximately $30,000 and $25,000 was capitalized during the three months ended March 31, 2001 and 2000 in rental properties. Included in the 2001 expenses referred to above, approximately $58,000 is recorded in repairs and maintenance and $43,000 in administrative expense. Included in the 2000 expenses referred to above, approximately $40,000 is recorded in repairs and maintenance and $47,000 in administrative expense. Additionally in each of the quarters ended March 31, 2001 and 2000, the Partnership paid to the management company $20,000 and $18,675 respectively for in-house accounting services, which were previously provided by an outside company. The Partnership Agreement entitles the General Partner or the management company to receive certain commissions upon the sale of Partnership property only to the extent that total commissions do not exceed 3%. No such fees were paid in 2001. In connection with the sale of the Lewiston Mall Shopping Center in 2000, the Partnership paid a commission of $153,000 to the management company in 2000. In 1996, prior to becoming an employee and President of the management company, the current President performed and continues to perform asset management consulting services to the Partnership. This individual continues to perform these services and receives an asset management fee from the Partnership. He received $12,500 for the three months ended March 31, 2001 and $42,500 for the year ended December 31, 2000. Included in prepaid expenses and other assets were amounts due from related parties of $965,136 at March 31, 2001 and $1,036,639 at December 31, 2000 representing Massachusetts tenant security deposits which are held for the Partnerships by another entity also owned by one of the shareholders of the General Partner (see Note 6). NOTE 4--OTHER ASSETS Included in prepaid expenses and other assets at March 31, 2001 and December 31, 2000 is approximately $400,000 and $349,000 respectively, held in escrow to pay future capital improvements. Financing and leasing fees of $906,535 and $879,247 are net of accumulated amortization of $1,016,412 and $983,363 at March 31, 2001 and December 31, 2000, respectively. 9 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5--MORTGAGES PAYABLE At March 31, 2001 and December 31, 2000, the mortgages payable consisted of various loans, substantially all of which were secured by first mortgages on properties referred to in Note 2. At March 31, 2001 the interest rate on these loans ranged from 6.52% to 8.78%, payable in monthly installments aggregating approximately $600,000 including interest, to various dates through 2016. Although the majority of loans mature within ten years, they are being amortized on a basis between 25 and 27.5 years. The carrying amounts of the Partnerships' mortgages payable approximate their fair value. The majority of the mortgages are subject to prepayment penalties. The Partnerships have pledged tenant leases as additional collateral for certain of these mortgages. Approximate annual maturities are as follows: 2002--current maturities $ 769,000 2003 831,000 2004 895,000 2005 971,000 2006 1,049,000 Thereafter 75,665,000 ----------- $80,180,000 ===========
In April 2001, the Partnership obtained a standby line of credit in the amount of $12,000,000 secured by the property at 62 Boylston Street. At this point, the Partnership has not drawn on the line. If the Partnership draws on the line, the existing mortgage of approximately $7,300,000 will be paid in full from cash reserves. 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. 10 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 7--PARTNERS' CAPITAL (CONTINUED) In January 2001, the Partnership declared a semi-annual dividend of $6.10 per unit and a special dividend of $5.00 per unit payable March 31, 2001. The Partnership declared distributions of $14.70 per unit in 2000. The 2000 distribution included a special dividend of $4.00 per unit paid in March 2000. The Partnership has entered into a deposit agreement with an agent to facilitate public trading of limited partners' interests in Class A units. Under the terms of this agreement, the holders of Class A units have the right to exchange each Class A unit for 10 Depositary Receipts. The following is information on the net income per Depositary Receipt:
THREE MONTHS ENDED MARCH 31, ------------------ 2001 2000 ---- ---- Net Income per Depositary Receipt $.90 $.54 ==== ====
NOTE 8--CAPITAL REPURCHASE PLAN Treasury units at March 31, 2001 are as follows: Class A 5,681 Class B 1,228 General Partnership 64 ----- 6,973 =====
NOTE 9--COMMITMENTS AND CONTINGENCIES Two adult tenants and their two minor children filed a complaint against the Partnership with the Massachusetts Commission Against Discrimination (MCAD) and the United States Department of Housing and Urban Development, alleging that the Partnership's policy of limiting the number of persons who could occupy each apartment according to the number of bedrooms in the apartment amounted to discrimination on the basis of national origin and familial status. The Company filed a position statement opposing the claim. In November 2000, MCAD issued a probable cause determination crediting the claim based on familial status, but dismissing the national origin claim. The matter was certified for a public hearing before MCAD and the parties are now in the process of conducting discovery. The Partnership intends to contest the remaining claim vigorously. 11 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 10--RENTAL INCOME During the three months ended March 31, 2001, approximately 91% of rental income was related to residential apartments and condominium units with leases of one year or less. The remaining 9% was related to commercial properties which have minimum future rental income on noncancellable operating leases as follows:
COMMERCIAL PROPERTY YEAR ENDED LEASES -------------------- 2002 $ 1,846,000 2003 1,807,000 2004 1,798,000 2005 1,570,000 2006 1,207,000 Thereafter 8,544,000 ----------- $16,772,000 ===========
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 $146,000 for the three months ended March 31, 2001. Rents receivable are net of allowances for doubtful accounts of $273,872 and $249,332 at March 31, 2001 and December 31, 2000, respectively. NOTE 11--CASH FLOW INFORMATION During the three months ended March 31 2001 and 2000, cash paid for interest was $1,603,886 and $1,595,377, respectively. NOTE 12--FAIR VALUE OF FINANCIAL INSTRUMENTS The Partnership considers the fair value of its financial instruments to approximate their carrying values because conditions pertaining to the historic carrying values approximate those in the current market. 12 RESULTS OF OPERATIONS Three months ended March 31, 2001 and 2000 New England Realty Associates Limited Partnership and its Subsidiary Partnerships earned income from operations of $1,341,901 during the three months ended March 31, 2001, compared to $890,751 during the three months ended March 31, 2000, an increase of $451,150. The rental activity is summarized as follows:
Occupancy Date May 4, 2001 May 5, 2000 ------------------------------------------------------------------------------------------------- RESIDENTIAL Units 2,143 2,099 Vacancies 29 24 Vacancy rate 1.4% 1.1% COMMERCIAL Total square feet 137,775 503,375 Vacancy 3,850 65,000 Vacancy rate 2.8% 13% ------------------------------------------------------------------------------------------------- Rental Income (in thousands) 2001 2000 ------------------------------------------------------------------------------------------------- Total rents $ 6,651 $ 6,377 Residential percentage 91% 83% Commercial percentage 9% 17% Contingent rentals $ 146 $ 361
Rental income for the three months ended March 31, 2001 was $6,651,487 compared to $6,377,062 for the three months ended March 31, 2000 an increase of $274,425 (4%). During the year ended December 31, 2000, the Partnership sold two commercial properties totaling approximately 366,000 square feet and acquired a 44 unit residential apartment complex. The following is a rental income analysis of the effect of the sales and acquisition of the properties for the quarter ended March 31, 2001:
THREE MONTHS ENDED INCREASE MARCH 31, 2001 MARCH 31, 2000 (DECREASE) ----------------------------------------------------- Rental income Sales: Timpany Plaza - commercial $ 0 $ 200,379 ($200,379) Lewiston Mall - commercial 0 320,810 (320,810) Acquisitions: Brookside Apartments - residential 119,526 0 119,526 ------------ ----------- -------- Total $ 119,526 $ 521,189 ($401,663) ============ =========== ========
13 As indicated above, the sale of the commercial properties resulted in a decrease in rental income of $521,189. This decrease is offset by an increase in rental income of $119,526 due to the acquisition of the residential complex. Rental income from the Partnerships existing properties increased $676,088 due to rental rate increases of approximately 12% resulting from the strong demand for residential apartments in the greater Boston area. Expenses for the three months ended March 31, 2001 were $5,372,152 compared to $5,545,494 for the three months ended March 31, 2000, a decrease of $173,342. This decrease is substantially due to the sale of the two properties discussed above. The following is an analysis of the operating expenses for the quarters ended March 31, 2001 and 2000 of the properties sold and acquired:
THREE MONTHS ENDED MARCH 31, INCREASE 2001 2000 (DECREASE) ------------------------------------- Expenses Sales: Timpany Plaza - commercial $ 0 $ 114,375 ($114,375) Lewiston Mall - commercial 0 122,101 (122,101) Acquisitions: Brookside Apartments - residential 56,385 0 56,385 --------- ---------- --------- Total $ 56,385 $ 236,476 ($180,091) ========= ========== =========
The total decrease in expenses for the three months ended March 31, 2001 was $173,342. As indicated in the chart above, the net decrease in expenses attributable to the sale of Timpany Plaza and the Lewiston Mall Shopping Center and the acquisition of the Brookside Apartments during 2000 was $180,091. Expenses at the Partnership's other properties increased $6,749. Interest expense increased $21,578 from $1,595,377 for the three months ended March 31, 2000 to $1,616,955 for the three months ended March 31, 2000. This increase reflects a number of factors as follows: the refinancing of eleven properties in 2000 resulting in an increase in debt of approximately $7,019,000; the mortgage of $2,000,000 on the Brookside Apartments in 2000; a mortgage of $800,000 on a previously debt free property; and the payoff of approximately $6,200,000 on the properties sold in 2000. Operating expenses increased from $855,506 for the three months ended March 31, 2000 to $882,561 for the three months ended March 31, 2001, an increase of $27,055. The operating expenses at the existing properties increased $88,552 due to higher utility and snow removal costs. Taxes and insurance decreased to $608,942 for the three months ended March 31, 2001 from $664,009 for the three months ended March 31, 2000, a decrease of $55,067. This decrease is due to the properties sold in 2000. Taxes and insurance at the properties other than the Brookside Apartments increased $18,689 due to increases in real estate taxes primarily at 62 Boylston Street and 140 North Beacon Street. 14 Renting expenses decreased to $26,310 for the three months ended March 31, 2001 from $43,160 for the three months ended March 31, 2000, a decrease of $16,850. This decrease is due to lower advertising costs and rental commissions due to a strong rental market. Interest income was $212,028 for three months ended March 31, 2001 compared to $38,772 for three months ended March 31, 2000, an increase of $173,256. This increase is due to an increase in the average cash balance available for investment in 2001 offset by declining interest rates. As a result of the changes discussed above, net income for the three months ended March 31, 2001, was $1,553,929 compared to $937,865 for the three months ended March 31, 2000, an increase of $616,064. LIQUIDITY AND CAPITAL RESOURCES The Partnership's principal source of cash during 2001 and 2000 was the collection of rents, sale of real estate, and the refinancing of Partnership properties. The majority of cash and cash equivalents of $14,519,918 at March 31, 2001 and $14,478,972 at December 31, 2000 was held in interest bearing accounts at credit worthy financial institutions. In March 2001, the Partnership paid a dividend of $6.10 per unit and a special dividend of $5.00 per unit for a total payment of $1,919,989. Total dividends paid in 2000 were $14.70 per unit including a special dividend of $3.50 per unit totaling $2,542,688. On November 20, 2000, the Partnership sold the Timpany Plaza Shopping Center. The property was sold for $5,000,000. The mortgage of approximately $3,300,000 was paid off and the net cash received by the Partnership after closing costs and operating adjustments was approximately $1,459,000. Rental income from the property was approximately $438,000 for the year ended December 31, 2000. In October 2000, the Partnership acquired the Brookside Apartments located in Woburn, Massachusetts. The purchase price of $3,800,000 was originally funded from cash reserves. In December 2000, the Partnership obtained a mortgage of $2,000,000 on the property. The terms of the mortgage are interest only at a rate of 7.625% and the mortgage matures in 2011. On June 28, 2000, the Partnership sold the Lewiston Mall Shopping Center. The property was sold for $5,100,000. The mortgage of approximately $2,900,000 was paid off and the net cash received by the Partnership after closing costs and operating adjustments was approximately $1,942,000. Rental income from the property was approximately $600,000 for the year ended December 31, 2000. 15 During the three months ended March 31, 2001, the Partnership completed certain improvements to its properties at a total cost of $303,285. The most significant costs were incurred at the following properties: $158,428 at 62 Boylston Street in Boston, Massachusetts; $45,475 at the Redwood Hills Apartments in Worcester, Massachusetts; $13,574 at the Brookside Apartments in Woburn, Massachusetts and $12,745 at the Hamilton Oaks apartments in Brockton, Massachusetts. In addition to the improvements made in the first quarter of 2001, the Partnership plans to invest approximately $4,200,000 in capital improvements in 2001. Approximately $3,000,000 is designated for 62 Boylston Street and the balance at other residential properties. These improvements will be funded from escrow accounts as well as from the Partnership's cash reserves. The Partnership anticipates that cash from operations and interest-bearing investments 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, and vacancies. 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 document 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 2001 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 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. 16 In April 2001, the Partnership obtained a standby line of credit in the amount of $12,000,000 secured by the property at 62 Boylston Street. At this point, the Partnership has not drawn on the line. If the Partnership draws on the line, the existing mortgage of approximately $7,300,000 will be paid in full from cash reserves, as required by the standby line of credit. This line of credit is intended to provide liquidity to make acquisitions, if any, in the future. The Partnership's properties have minimal vacancy rates and the residential properties have experienced average rental increases during 2000 of 12%. The Partnership's ability to sustain this performance is dependent upon the general economic conditions in New England that affect real estate and is not assured. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 15, 2001 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP By: NEW REAL, INC., its General Partner* By: /s/ RONALD BROWN ------------------------ Ronald Brown, President * Functional equivalent of Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer. 18