-----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, EK9h/cq8s0bFrRY9M3MI1DLdtTAn2tBeREaNRGlp5Z1kFmGnue1+yb/Jhofw0Tk+ cTQJWaYpN9YlTa9etNkuzA== 0000912057-01-528505.txt : 20010815 0000912057-01-528505.hdr.sgml : 20010815 ACCESSION NUMBER: 0000912057-01-528505 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12138 FILM NUMBER: 1710858 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-Q 1 a2056755z10-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 June 30, 2001 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ________________________ Commission file number 0-12138 New England Realty Associates Limited Partnership (Exact Name of Registrant as Specified in Its Charter) Massachusetts 04-2619298 (State or Other Jurisdiction of 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 June 30, 2001 and December 31, 2000 1 Consolidated Statements of Income for the Three Months Ended June 30, 2001 and June 30, 2000, and the Six Months Ended June 30, 2001 and June 30, 2000 2 Consolidated Statement of Changes in Partners' Capital 3 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and June 30, 2000 4 Notes to Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II - OTHER INFORMATION Item 1. Legal Proceedings 17 SIGNATURES 18
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 2001 2000 (UNAUDITED) --------------- -------------- ASSETS Rental Properties $ 74,490,975 $ 75,307,036 Cash and Cash Equivalents 16,232,135 14,478,972 Rents Receivable 558,200 402,376 Real Estate Tax Escrows 385,615 378,039 Prepaid Expenses and Other Assets 2,091,917 1,857,267 Financing and Leasing Fees 939,684 879,247 --------------- --------------- TOTAL ASSETS $ 94,698,526 $ 93,302,937 =============== =============== LIABILITIES AND PARTNERS' CAPITAL Mortgages Payable $ 79,992,646 $ 80,368,031 Accounts Payable and Accrued Expenses 1,470,864 1,146,287 Advance Rental Payments and Security Deposits 3,156,165 2,892,799 ---------------- --------------- Total Liabilities 84,619,675 84,407,117 Commitments and Contingent Liabilities (Note 9) Partners' Capital 173,252 units outstanding in 2001 and 2000 10,078,851 8,895,820 --------------- ---------------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 94,698,526 $ 93,302,937 =============== ===============
See notes to consolidated financial statements 1 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2001 2000 2001 2000 --------------- --------------- --------------- --------------- Revenues Rental income $ 6,763,514 $ 6,461,321 $13,415,001 $12,838,383 Laundry and sundry income 68,320 67,891 130,886 127,074 ------------- ------------ -------------- ---------- 6,831,834 6,529,212 13,545,887 12,965,457 ------------- ------------ -------------- ---------- Expenses Administrative 357,286 285,647 658,118 600,422 Depreciation and amortization 1,070,992 1,172,308 2,104,599 2,330,874 Interest 1,634,105 1,569,774 3,251,060 3,165,151 Management Fees 285,283 271,925 558,434 553,983 Operating 581,635 552,702 1,464,196 1,408,208 Renting 28,413 62,328 54,723 105,488 Repairs and maintenance 878,201 759,993 1,507,995 1,392,036 Taxes and insurance 601,745 657,843 1,210,687 1,321,852 ------------- ------------ -------------- ---------- 5,437,660 5,332,520 10,809,812 10,878,014 ------------- ------------ -------------- ---------- Income from Operations 1,394,174 1,196,692 2,736,075 2,087,443 ------------- ------------ -------------- ---------- Other Income (Loss) Interest income 154,917 32,097 366,945 72,171 Income from investment in joint venture 0 11,228 0 17,822 Income (loss) on short-term investments 0 (20) 0 426 Gain on the sale of real estate 0 546,568 0 546,568 ------------- ------------ -------------- ---------- 154,917 589,873 366,945 636,987 ------------- ------------ -------------- ---------- Net Income $ 1,549,091 $ 1,786,565 $ 3,103,020 $ 2,724,430 ============= ============ ============== ========== Net Income per Unit $ 8.94 $ 10.31 $ 17.91 $ 15.73 ============= ============ ============== ========== Weighted Average Number of Units Outstanding 173,252 173,252 173,252 173,252 ============= ============ ============== ==========
See notes to consolidated financial statements 2 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
Limited --------------------------------------------- General Class A Class B Partnership Total ---------------- ------------- ------------------ ----------------- Balance, January 1, 2000 $4,510,129 $1,071,156 $ 56,376 $5,637,661 Distribution to Partners (1,259,236) (299,069) (15,740) (1,574,045) Net Income 2,179,544 517,642 27,244 2,724,430 -------------- ------------- ------------------ ----------------- Balance, June 30, 2000 $5,430,437 $1,289,729 $ 67,880 $6,788,046 ============== ============= ================== ================= Units authorized and issued, net of 6,973 Treasury Units at June 30, 2000 138,602 32,918 1,732 173,252 ============== ============= ================== ================= Balance, January 1, 2001 $7,113,724 $1,692,964 $ 89,132 $8,895,820 Distribution to Partners (1,535,991) (364,798) (19,200) (1,919,989) Net Income 2,482,416 589,574 31,030 3,103,020 -------------- ------------- ------------------ ----------------- Balance, June 30, 2001 $8,060,149 $1,917,740 $ 100,962 $10,078,851 ============== ============= ================== ================= Units authorized and issued, net of 6,973 Treasury Units at June 30, 2001 138,602 32,918 1,732 173,252 ============== ============= ================== =================
See notes to consolidated financial statements 3 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2001 2000 ---------------- ---------------- Cash Flows from Operating Activities Net income $ 3,103,020 $ 2,724,430 ---------------- ---------------- Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 2,104,599 2,330,874 (Income) from investment in joint venture 0 (17,822) Gain on the sale of rental property 0 (546,568) Unrealized depreciation (appreciation) on short-term investments 0 (426) (Increase) decrease in rents receivable (155,824) 3,172 (Increase) in financing and leasing fees (132,692) (37,414) Increase (decrease) in accounts payable 324,577 73,919 (Increase) in real estate tax escrow (7,576) (30,530) Decrease (increase) in prepaid expenses and other assets (234,650) (843,169) Increase in advance rental payments and security deposits 263,366 193,345 ---------------- ---------------- Total Adjustments 2,161,800 1,125,381 ---------------- ---------------- Net cash provided by operating activities 5,264,820 3,849,811 Cash Flows from Investing Activities Distribution from joint venture 0 30,432 Purchase and improvement of rental properties (1,216,283) (601,130) Decrease in notes receivable 0 480,782 Net proceeds from the sale of rental property 0 4,805,715 ---------------- ---------------- Net cash (used in) provided by investing activities (1,216,283) 4,715,799 ---------------- ---------------- Cash Flows from Financing Activities Principal payments of mortgages payable (375,385) (3,306,347) Payment of notes payable 0 (750,000) Distributions to partners (1,919,989) (1,574,045) ---------------- ---------------- Net cash provided by (used in) financing activities (2,295,374) (5,630,392) ---------------- ---------------- Net Increase in Cash and Cash Equivalents 1,753,163 2,935,218 Cash and Cash Equivalents, Beginning 14,478,972 1,244,438 ---------------- ---------------- Cash and Cash Equivalents, Ending $ 16,232,135 $4,179,656 ================ ===============
See notes to consolidated financial statements 4 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 subsidiary. The consolidated group is referred to as the "Partnerships." Minority interests are not recorded since they are insignificant. All significant intercompany accounts and transactions are eliminated in consolidation. The Partnership accounts for its investment in a joint venture on the equity method. ACCOUNTING ESTIMATES: The preparation of the financial statements is in accordance with generally accepted accounting principles (GAAP) requiring management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Accordingly, actual results could differ from those estimates. REVENUE RECOGNITION: Rental income from residential and commercial properties is recognized over the term of the related lease. Amounts 60 days in arrears are charged against income. Certain leases of the commercial properties provide for increasing stepped minimum rents, which are accounted for on a straight-line basis over the term of the lease. RENTAL PROPERTIES: Rental properties are stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred; improvements and additions are capitalized. When assets are retired or otherwise disposed of, the cost of the asset and related accumulated depreciation is eliminated from the accounts, and any gain or loss on such disposition is included in income. Rental properties are depreciated on the straight-line method over their estimated useful lives. In the event that facts and circumstances indicate that the carrying value of rental properties may be impaired, an analysis of recoverability is performed. The estimated future undiscounted cash flows are compared to the asset's carrying value to determine if a write-down to fair value or discounted cash flow value is required. FINANCING AND LEASING FEES: Financing fees are capitalized and amortized, using the interest method, over the life of the related mortgages. Leasing fees are capitalized and amortized on a straight-line basis over the life of the related lease. INCOME TAXES: The financial statements have been prepared under the basis that NERA and its subsidiaries are entitled to tax treatment as partnerships. Accordingly, no provision for income taxes on income has been recorded. CASH EQUIVALENTS: The Partnerships consider cash equivalents to be all highly liquid instruments purchased with a maturity of three months or less. 5 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES 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 or 2000. The Partnerships make their temporary cash investments with high-credit-quality financial institutions. At June 30, 2001, substantially all of the Partnerships' cash and cash equivalents were held in interest-bearing accounts at financial institutions earning interest at rates from 3.52 to 4.35 percent. At June 30, 2001 and 2000, approximately $16,000,000 and $3,900,000 of cash and cash equivalents exceeded federally insured amounts. ADVERTISING EXPENSE: Advertising is expensed as incurred. Advertising expense was $33,865 and $41,383 for the six months ended June 30, 2001 and 2000, respectively. NOTE 2--RENTAL PROPERTIES Rental properties consist of the following:
JUNE 30, DECEMBER 31, USEFUL 2001 2000 LIFE ------------------ ---------------- ------------------ Land, improvements, and parking lots $16,129,259 $16,106,171 10-31 years Buildings and improvements 77,758,995 76,975,338 15-31 years Kitchen cabinets 1,501,256 1,351,868 5-10 years Carpets 1,452,802 1,346,358 5-10 years Air conditioning 206,625 204,903 7-10 years Laundry equipment 46,441 46,441 5-7 years Elevators 171,407 161,391 20 years Swimming pools 80,198 80,198 10 years Equipment 1,039,879 967,093 5-7 years Motor vehicles 100,655 100,655 5 years Fences 26,217 24,816 5-10 years Furniture and fixtures 524,248 460,708 5-7 years Smoke alarms 42,436 38,195 5-7 years ---------------- --------------- 99,080,418 97,864,135 Less accumulated depreciation 24,589,443 22,557,099 ---------------- --------------- $74,490,975 $75,307,036 ================ ===============
6 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 $558,000 and $541,000 for the six months ended June 30, 2001 and 2000, respectively. Security deposits are held in escrow by the management company (see Note 6). The management company also receives a mortgage servicing fee equal to an annual rate of 1/2 % of the monthly outstanding balance of mortgages receivable resulting from the sale of property. There was a mortgage servicing fee of $122 paid in the year ended December 31, 2000. No fee was paid in the six months ended June 30, 2001. The Partnership Agreement also permits the General Partner or management company to charge the costs of professional services (such as counsel, accountants, and contractors) to NERA. During the six months ended June 30, 2001 and 2000, approximately $324,000 and $369,000 was charged to NERA for legal, construction, maintenance, rental and architectural services and supervision of capital improvement costs. Approximately $98,000 and $138,000 was capitalized during the six months ended June 30, 2001 and 2000 in rental properties. Of the 2001 expenses referred to above, approximately $95,000 consisted of repairs and maintenance, $41,000 of rental expenses and $91,000 of administrative expense. Of the 2000 expenses referred to above, approximately $91,000 consisted of repairs and maintenance and $87,000 of administrative expense and approximately $16,000 of renting expense. Additionally in each of the six months ended June 30, 2001 and 2000, the Partnership paid to the management company $40,000 and $37,350 respectively for in-house accounting services, which were previously provided by an outside company. The Partnership Agreement entitles the General Partner or the management company to receive certain commissions upon the sale of Partnership property only to the extent that total commissions do not exceed 3%. In connection with the sale of the Lewiston Mall Shopping Center in June 2000, the Partnership paid a commission of $153,000 to the management company. 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 $25,000 for the six months ended June 30, 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 $1,017,814 at June 30, 2001 and $1,036,639 at December 31, 2000 representing Massachusetts tenant security deposits which are held for the Partnerships by another entity also owned by one of the shareholders of the General Partner (see Note 6). NOTE 4--OTHER ASSETS Included in prepaid expenses and other assets at June 30, 2001 and December 31, 2000 is approximately $451,000 and $349,000 respectively, held in escrow to pay future capital improvements. Financing and leasing fees of $939,684 and $879,247 are net of accumulated amortization of $1,022,569 and $983,363 at June 30, 2001 and December 31, 2000, respectively. 7 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5--MORTGAGES PAYABLE At June 30, 2001 and December 31, 2000, the mortgages payable consisted of various loans, substantially all of which were secured by first mortgages on properties referred to in Note 2. At June 30, 2001 the interest rate on these loans ranged from 6.52 % to 8.78 %, payable in monthly installments aggregating approximately $600,000 including interest, to various dates through 2016. Although the majority of loans mature within ten years, they are being amortized on a basis between 25 and 27.5 years. The carrying amounts of the Partnerships' mortgages payable approximate their fair value. The majority of the mortgages are subject to prepayment penalties. The Partnerships have pledged tenant leases as additional collateral for certain of these mortgages. Approximate annual maturities at June 30, 2001 are as follows: 2002--current maturities $ 785,000 2003 848,000 2004 913,000 2005 990,000 2006 1,069,000 Thereafter 75,388,000 --------------- $79,993,000 ===============
In April 2001, the Partnership obtained a line of credit in the amount of $12,000,000 secured by the property at 62 Boylston Street. At this point, the Partnership has not drawn on the line. If the Partnership draws on this line, the existing mortgage of approximately $7,300,000 will be paid in full from cash reserves. This line of credit expires in April 2006. 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 security deposits are held in escrow by another entity owned by the majority shareholder of the General Partner (see Note 3). NOTE 7--PARTNERS' CAPITAL The Partnership has two categories of Limited Partners (Class A and B) and one category of General Partner (General Partner). Under the terms of the Partnership Agreement, Class B units and General Partnership units must represent 19% and 1% respectively of the total units outstanding. All classes have equal profit-sharing and distribution rights in proportion to their ownership interests. 8 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES 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 has declared a regular dividend of $6.60 per unit payable September 30, 2001 to the holders of record on September 14, 2001. Accordingly, the total dividend for 2001 will be $17.70 per unit ($1.77 per receipt). The Partnership declared distributions of $14.70 per unit ($1.47 per receipt) in 2000. The 2000 distribution included a special dividend of $4.00 per unit paid in March 2000. The Partnership has entered into a deposit agreement with an agent to facilitate public trading of limited partners' interests in Class A units. Under the terms of this agreement, the holders of Class A units have the right to exchange each Class A unit for 10 Depositary Receipts. The following is information on the net income per Depositary Receipt:
Six Months Ended June 30, -------------------------------- 2001 2000 ---- ---- Net Income per Depositary Receipt $1.79 $1.57 ==== ====
NOTE 8--TREASURY UNITS Treasury units at June 30, 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 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 Partnership 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. In July 2001, however, the Partnership and the claimants reached an agreement in principle to resolve the litigation by the Partnership paying an amount not material to this report to the claimants. An agreement to this effect is currently being drafted. 9 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 10--RENTAL INCOME During the six months ended June 30, 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 LEASES -------------------- 2002 $ 1,878,000 2003 1,831,000 2004 1,829,000 2005 1,471,000 2006 1,160,000 Thereafter 8,389,000 ---------------- $16,558,000 ================
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 $270,000 and $1,039,000 for the six months ended June 30, 2001 and the year ended December 31, 2000, respectively. Rents receivable are net of allowances for doubtful accounts of $303,366 and $249,332 at June 30, 2001 and December 31, 2000, respectively. NOTE 11--CASH FLOW INFORMATION During the six months ended June 30, 2001 and 2000, cash paid for interest was approximately $3,216,000 and $3,100,000 respectively. NOTE 12--FAIR VALUE OF FINANCIAL INSTRUMENTS The Partnership considers the fair value of its financial instruments to approximate their carrying values because conditions pertaining to the historic carrying values approximate those in the current market. 10 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION RESULTS OF OPERATIONS New England Realty Associates Limited Partnership and its Subsidiary Partnerships earned income from operations of $1,394,174 during the three months ended June 30, 2001 compared to $1,196,692 for the three months ended June 30, 2000, an increase of $197,482(17%). For the six months ended June 30, 2001, income from operations was $2,736,075 compared to $2,087,443 for the same period in 2000, an increase of $648,632 (31%). The rental activity is summarized as follows:
Occupancy Date ------------------------------------------------------------ At June 30, 2001 2000 --------------------------- ---------------------- Residential Units.................... 2,143 2,099 Vacancies................ 39 33 Vacancy rate............. 1.8% 1.6% Commercial Total square feet........ 137,775 322,375 Vacancy.................. 0 56,000 Vacancy rate............. 0 17%
Rental Income (in thousands) -------------------------------------------------------- Six Months Ended June 30, 2001 2000 ------------------- ---------------------- Total rents.................... $ 13,415 $ 12,838 Residential percentage......... 91% 83% Commercial percentage.......... 9% 17% Contingent rentals............. $ 210 $ 686
Rental income for the three months ended June 30, 2001 was $6,763,514 compared to $6,461,321 for the three months ended June 30, 2000, an increase of $302,193(5%). 11 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 these properties for the three months ended June 30, 2001.
THREE MONTHS ENDED JUNE 30, INCREASE 2001 2000 (DECREASE) - ------------------------------------------------------------------------------------------------- Rental income Sales: Timpany Plaza - commercial $ 0 $ 191,315 ($ 191,315) Lewiston Mall - commercial 0 263,345 ( 263,345) Acquisitions: Brookside Apartments 123,799 0 123,799 ------------ ---------- ------------ Total $ 123,799 $454,660 ($ 330,861) ============ ========== ============
As indicated in the chart above, the sale of the commercial properties resulted in a decrease in rental income of $454,660 for the three months ended June 30, 2001. This decrease is offset by an increase in rental income of $123,799 due to the acquisition of the residential complex, and an increase in the rental income at the Partnership's existing properties of approximately $630,000 due to improved occupancy at the commercial properties, as well as an increase in rental rates. Expenses for the three months ended June 30, 2001 were $5,437,660 compared to $5,332,520 for the three months ended June 30, 2000, an increase of $105,140 (2%). The following is an expense analysis of the effects of the sale of the two commercial properties and the purchase of the residential property for the three months ended June 30, 2001.
THREE MONTHS ENDED JUNE 30, INCREASE 2001 2000 (DECREASE) - ------------------------------------------------------------------------------------------------------- Expenses Sales: Timpany Plaza - commercial $ 0 $ 219,630 ($ 219,630) Lewiston Mall - commercial 0 216,578 (216,578) Acquisitions: Brookside Apartments - residential 120,835 0 120,835 ------------ ---------- ------------ $ 120,835 $ 436,208 ($ 315,373) ============ ========== ============
12 As indicated in the chart above, the sale of the two commercial properties resulted in a decrease in expenses of $436,208 for the three months ended June 30, 2001 offset by an increase in expenses of $120,835 for the three months ended due to the purchase of the residential complex. Unrelated to the sales and acquisition, expenses for the three months ended June 30, 2001 increased approximately $420,000 at the Partnership's existing properties. Administrative expenses increased $65,577 (23%) due to increased professional fees. Interest expense increased $151,123 (10%) due to the refinancing of 11 of the partnership properties in 2000 resulting in a higher level of debt. Repairs and maintenance expense increased approximately $148,000 (12%) due to an increase in salaries and wages. Operating expenses increased $45,833 (9%) due to the high cost of snow removal, and utility costs as a result of a colder and snowier spring in 2001. Taxes and insurance at the existing properties increased $12,893 (2%) due to an increase in insurance premiums. These increases were offset by a decrease in renting expenses due to lower rental commissions. For the three months ended June 30, 2001, the new tenants paid all rental commissions. For the three months ended June 30, 2000, the Partnership paid all rental commissions. For the six months ended June 30, 2001, rental income was $13,415,001 compared to $12,838,383 for the six months ended June 30, 2000, an increase of $576,618 (4%). As discussed above, the Partnership sold two commercial properties and acquired a residential complex in 2000. The following is an analysis of the effects of these sales and acquisitions for the six months ended June 30, 2001 and 2000.
SIX MONTHS ENDED JUNE 30, INCREASE 2001 2000 (DECREASE) - -------------------------------------------------------------------------------------------------------- Rental income Sales: Timpany Plaza - commercial $ 0 $ 348,149 ( $348,149) Lewiston Mall - commercial 0 595,473 ( 595,473) Acquisitions: Brookside Apartments - residential 243,325 0 243,325 ------------ ----------- ----------- Total $243,325 $ 943,622 ($700,297) ============ =========== ===========
As indicated in the chart above, the sale of the commercial properties resulted in a decrease in rental income of $943,622 for the six months ended June 30, 2001, offset by an increase in rental income of $243,325 due to the acquisition of the residential complex. Rental income from the Partnership's existing properties increased approximately $1,300,000 for the six months ended June 30, 2001 due to rental rate increases at the residential apartments and a decrease in vacancies at the remaining commercial properties. 13 Expenses for the six months ended June 30, 2001 were $10,809,812 compared to $10,878,014 for the six months ended June 30, 2000, a decrease of $68,202. This decrease is due primarily to the sale of the two commercial properties discussed above. The following is an analysis of the operating expenses for the six months ended June 30, 2001 and 2000 of the properties acquired and sold.
SIX MONTHS ENDED JUNE 30, INCREASE 2001 2000 (DECREASE) - ----------------------------------------------------------------------------------------------- Expenses Sales: Timpany Plaza - commercial $ 0 $ 465,256 ($ 465,256) Lewiston Mall - commercial 0 466,919 ( 466,919) Acquisitions: Brookside Apartments - residential 245,962 0 245,962 ----------- ------------ ------------- Total $245,962 $ 932,175 ($ 686,213) =========== ============ =============
The net effect of the sale of the two commercial properties is a decrease in expenses of $932,175 for the six months ended June 30, 2001 offset by an increase in expenses of $245,962 for the six months ended June 30, 2001 due to the acquisition of the residential complex. Expenses at the Partnership's existing properties increased $561,799. The most significant increases were in interest expense $262,748 (9%), operating expenses $134,385 (10%), and repairs and maintenance expenses $157,292 (12%). The reasons for these increases are discussed above. Interest income was $154,917 for the three months ended June 30, 2001, compared to $32,097 for the three months ended June 30, 2000, an increase of $122,820. Interest income was $366,945 for the six months ended June 30, 2001, compared to $72,171 for the same period in 2000, an increase of $294,774. This increase is due to an increase in the Partnership's average cash balance available for investment in 2001 offset by declining interest rates. In June 2000, the Partnership had a gain of $546,568 from the sale of the Lewiston Mall. Through the date hereof, there have not been any sales in 2001. As a result of the changes discussed above, net income for the three months ended June 30, 2001 was $1,549,091 compared to $1,786,565 for the three months ended June 30, 2000, a decrease of $237,474. Net income for the six months ended June 30, 2001was $3,103,020 compared to $2,724,430 for the six months ended June 30, 2000, an increase of $378,590. 14 LIQUIDITY AND CAPITAL RESOURCES The Partnership's principal source of cash during 2001 and 2000 was the collection of rents, the sale of real estate and the refinancing of Partnership properties. The majority of cash and cash equivalents of $16,232,135 at June 30, 2001 and $14,478,972 at December 31, 2000 was held in interest bearing accounts at credit worthy financial institutions. In April 2001, the Partnership obtained a line of credit in the amount of $12,000,000 secured by the property at 62 Boylston Street which expires in 2006. At this point, the Partnership has not drawn on the line. If the Partnership draws on the line, the existing mortgage of approximately $7,300,000 will be paid in full from cash reserves, as required by the line of credit. This line of credit is intended to provide liquidity to make possible future acquisitions. In March 2001, the Partnership paid a dividend of $6.10 per unit and a special dividend of $5.00 per unit for a total payment of $1,919,989. The Partnership has declared a regular dividend of $6.60 per unit payable September 30, 2001 to the holders of record on September 14, 2001, for a total payment of $17.70 per unit ($1.77 per receipt). Total dividends paid in 2000 were $14.70 per unit ($1.47 per receipt) 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. During 2000, as a result of refinancing 13 properties, the Partnership received approximately $13,000,000, net of paying existing debt and financing costs. There have not been any new mortgages yet in 2001. 15 During the six months ended June 30, 2001, the Partnership and its Subsidiary Partnerships completed certain improvements to their properties at a total cost of approximately $900,000. The most significant improvements were made at the following properties: approximately $595,000 at 62 Boylston Street in Boston, Massachusetts; approximately $83,000 at Redwood Hills Apartments in Worcester, Massachusetts; approximately $50,000 at the Hamilton Oaks Apartments in Brockton, Massachusetts; and approximately $22,000 at Westgate Apartments in Woburn, Massachusetts. In addition to the improvements made to date in 2001, the Partnership and its Subsidiary Partnerships plan to invest an additional $3,596,000 in capital improvements during 2001. Approximately $2,663,000 is designated for 62 Boylston Street, and the balance is designated for other residential properties. These improvements will be funded from escrow accounts as well as from the Partnership's cash reserves. The Partnership anticipates that cash from operations and interest-bearing investments will be sufficient to fund its current operations and to finance current improvements to its properties. The Partnership's net income and cash flow may fluctuate dramatically from year to year as a result of the sale of properties, unanticipated increases in expenses, or the loss of significant tenants. 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 and uncertainties, including, but not limited to, uncertainty as to future financial results; fluctuations in the residential real estate market in the greater metropolitan Boston, Massachusetts area and the commercial real estate rental market in New England; heating and other utility costs, and other risks detailed from time to time in the Partnership's filings with the Securities and Exchange Commission. These risks could cause the Partnership's actual results for fiscal year 2001 and beyond to differ materially from those expressed in any forward looking statements made by or on behalf of the Partnership. The foregoing factors and those identified below should not be construed as exhaustive or as an admission regarding the adequacy or disclosures made by the Partnership prior to the date hereof or the effectiveness of said Act. 16 The Partnership's properties have minimal vacancy rates and the residential properties have experienced average rental increases during 2000 and 2001 of 12%. The Partnership's ability to sustain this performance is dependent upon the general economic conditions in New England that affect real estate and is not assured. PART II - OTHER INFORMATION Item 1. Legal Proceedings See discussion in Note 9 to the Financial Statements. 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: August 14, 2001 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP By: NEW REAL, INC., its General Partner* By: /s/ RONALD BROWN ----------------------------- Ronald Brown, President * Functional equivalent of Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer. 18 -----END PRIVACY-ENHANCED MESSAGE-----