-----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, ViSLveKkMhBOUbuCpUIrMcDU5yx0mndFru8N43uuTIxmSlZoIBrdTUgMnvPEHjsR La5j6cZU4LFs5iph+OTJFA== 0000912057-02-012674.txt : 20020415 0000912057-02-012674.hdr.sgml : 20020415 ACCESSION NUMBER: 0000912057-02-012674 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 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: 1934 Act SEC FILE NUMBER: 000-12138 FILM NUMBER: 02594708 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 a2073898z10-k.txt FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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 (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: CLASS A DEPOSITARY RECEIPTS LIMITED PARTNERSHIP UNITS (Title of class) (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 delinquent 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. / / As of March 22, 2002, the aggregate market value of traded securities held by non-affiliates of the registrant was $43,258,350, based on the average bid and asked price of such traded securities on such date. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL 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. While the Partnership terminates on December 31, 2017, 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 ("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 Class A Units represent an 80% ownership interest, the Class B Units represent a 19% ownership interest and the General Partnership Units represent a 1% ownership interest. The Partnership is engaged in the business of acquiring, developing, holding for investment, operating and selling real estate. The Partnership, directly or through 23 subsidiary limited partnerships or limited liability companies, owns and operates various residential apartment buildings, condominium units and commercial properties located in Massachusetts, Connecticut and New Hampshire. As used herein, the Partnership's subsidiary limited partnerships and limited liability companies are each referred to as a "Subsidiary Partnership" and are collectively referred to as the "Subsidiary Partnerships". In November 2001, the Partnership, together with two other investors, including Harold Brown, the majority shareholder, Director and Treasurer of the General Partner, formed a new Subsidiary Partnership, a limited liability company (the "Investment LLC"). The Investment LLC purchased a 40-unit apartment building in Cambridge, Massachusetts (the "Investment Property"). The Partnership owns a 50% interest in the Investment LLC. See "Item 1. Business--Recent Developments". The Partnership's interest in the Investment LLC is accounted for on the equity method of consolidation in the Consolidated Financial Statements. See Note 1 to the Consolidated Financial Statements--"Principles of Consolidation". Except for the Investment LLC, the Partnership owns between a 99.67% to 100% interest in each of the Subsidiary Partnerships. Of those Subsidiary Partnerships not wholly owned by the Partnership, again except for the Investment LLC, the remaining ownership interest is held by an unaffiliated third party. In each such case, the third party has entered into a lease agreement with the Partnership, pursuant to which any benefit derived from its ownership interest in the applicable Subsidiary Partnerships will be returned to the Partnership. The long-term goals of the Partnership are to manage, rent and improve its properties, and to acquire additional properties with income and capital appreciation potential as suitable opportunities arise. 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. 1 OPERATIONS OF THE PARTNERSHIP The Partnership is managed by the General Partner, NewReal, Inc., a Massachusetts corporation wholly-owned by Harold Brown and Ronald Brown. The General Partner has engaged The Hamilton Company, Inc. (the "Hamilton Company") to perform general management functions for the Partnership's properties in exchange for management fees. The Hamilton Company is wholly owned by Harold Brown and employs Ronald Brown and Harold Brown. The Partnership and its Subsidiary Partnerships currently employ 75 individuals who are primarily involved in the supervision and maintenance of specific properties. The General Partner has no employees. As of March 1, 2002, the Partnership and its Subsidiary Partnerships owned 2,123 residential apartment units in 20 residential and mixed-use complexes (collectively, the "Apartment Complexes"). The Partnership also owns 19 condominium units from a residential condominium complex and one condominium unit in a separate residential condominium complex, all of which are leased to residential tenants (collectively referred to as the "Condominium Units"). Further, the Partnership owns a 50% interest in the Investment Property through its membership in the Investment LLC. The Apartment Complexes, the Condominium Units and the Investment Property are located primarily in the greater metropolitan Boston, Massachusetts area. Additionally, as of March 1, 2002, the Subsidiary Partnerships owned commercial shopping centers in East Hampton, Connecticut and Framingham, Massachusetts and commercial space in mixed-use buildings in Boston, Brockton and Newton, Massachusetts. These properties are referred to collectively as the "Commercial Properties." See Note 2 to the Consolidated Financial Statements included as a part of this Form 10-K. The Apartment Complexes, Investment Property, Condominium Units and Commercial 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 and the Investment LLC. See "Item 13. Certain Relationships and Related Transactions." In general, the Properties face no unusual competition. The Apartment Complexes, Condominium Units and the Investment Property must compete for tenants with other residential apartments and condominium units in the areas in which they are located. The Commercial 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 In March 2002, the Partnership signed a purchase and sales agreement to acquire a 69-unit residential apartment complex located in Norwood, Massachusetts. If this transaction closes, the Partnership will assume a first mortgage of $3,800,000 with an interest rate of 7.08% amortizing over 25 years, with a maturity in 2007 requiring a final "balloon" payment of approximately $3,468,000. The seller will lend the Partnership $1,750,000 at a rate of 6%, for a term of 5 years or a shorter period if the first mortgage is refinanced, and the Partnership will pay only accrued interest during the term of this loan. The balance of $1,650,000 will be funded from the Partnership's cash reserves. The completion of this transaction is dependent on the assumption of the first mortgage and receipt of acceptable inspections and other due diligence reports. On November 8, 2001, the Investment LLC, in which the Partnership holds a 50% membership interest, purchased a 40-unit residential property in Cambridge, Massachusetts. The other 50% membership interest in this limited liability company is owned by Harold Brown and the President of the Hamilton Company. The total purchase price was $11,265,000. The Partnership contributed $8,265,000 in capital to the Investment LLC and the other members contributed $3,000,000 total, all of which capital contributions were used to acquire the property. A mortgage of approximately $8,000,000 was taken out on this property on December 27, 2001, and funds in excess of the required equity have been returned to the members in proportion to their membership interest so their respective capital contribution are currently proportionate to their membership interest. Further, 8% interest per annum was paid to the Partnership on the funds advanced for the benefit of the other members described above. This transaction was approved by the Partnership's advisory committee prior to its consummation. In April 2001, the Partnership obtained a line of credit in the amount of $12,000,000 secured by the property at 62 Boylston Street which is renewable annually through April 2006. The Partnership has not drawn on the line and has informed the lender that it will not renew the line of credit in April 2002. In March 2001, the Partnership paid a dividend of $6.10 per Unit ($0.61 per Receipt) and a special dividend of $5.00 per Unit ($0.50 per Receipt) for a total payment of $1,919,989. In September 2001, the Partnership paid a dividend of $6.60 per Unit ($0.66 per Receipt) for a total payment of $1,141,615. Thus, aggregate dividends of $3,061,604 were paid in 2001, compared with total dividends of $2,542,688 paid in 2000. During 2001, the Partnership and its Subsidiary Partnerships completed improvements to certain of the Properties at a total cost of approximately $2,803,000. These improvements were funded from cash reserves and, to some extent, escrow accounts established in connection with the financing or refinancing of the applicable Properties. These sources have been adequate to fully fund improvements. The most significant improvements were made at 62 Boylston Street, Redwood Hills and Westgate Woburn, for total costs of approximately $1,533,000, $235,000 and $170,000, respectively. 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 investments with affiliates and advise the General Partner on various other Partnership affairs. The advisory committee has no binding power, except that it must approve certain investments and acquisitions by the Partnership from or with affiliates of the Partnership. 3 Two members of the Advisory Committee were elected directors of the General Partner and appointed members of the General Partner's Audit Committee on March 11, 2002. See "Item 10. Directors and Executive Officers of the Registrant." ITEM 2. PROPERTIES As of March 1, 2002, the Partnership and its Subsidiary Partnerships own the Apartment Complexes, the Condominium Units and the Commercial Properties. In addition, the Partnership owns a 50% interest in the Investment LLC, which owns the Investment Property. See also "Item 13. Certain Relationships and Related Transactions" for information concerning affiliated transactions. APARTMENT COMPLEXES The table below lists the location of the 20 Apartment Complexes, the number and type of units in each complex, the range of rents and vacancies as of March 1, 2002, the principal amount outstanding under any mortgages as of December 31, 2001, the fixed interest rates applicable to such mortgages and the maturity dates of such mortgages.
MORTGAGE BALANCE AND INTEREST RATE MATURITY NUMBER AND AS OF DATE OF APARTMENT COMPLEX TYPE OF UNITS RENT RANGE VACANCIES DECEMBER 31, 2001 MORTGAGE - ----------------- ----------------- ------------ --------- ----------------- -------- Avon Street Apartments 66 units N/A 3 $1,660,922 2005 L.P.......................... 0 three-bedrooms $940-1,130 8.78% 130 Avon Street 30 two-bedrooms $760-1,045 Malden, MA 33 one-bedrooms $780-880 3 studios Boylston Downtown L.P........ 269 units N/A 1 $7,225,722 2005 62 Boylston Street 0 three-bedrooms N/A 8.38% Boston, MA 0 two-bedrooms $718-1,975 53 one-bedrooms $650-1,365 216 studios Brookside Associates, LLC.... 44 units N/A 2 $2,000,000 2011 5-7-10-12 Totman Road 0 three-bedrooms $875-1,155 7.63% Woburn, MA 34 two-bedrooms $920-1,155 10 one-bedrooms N/A 0 studios Clovelly Apartments L.P...... 103 units N/A 0 $2,200,000 2010 160-170 Concord Street 0 three-bedrooms $730-1,030 8.44% Nashua, NH 53 two-bedrooms $625-760 50 one-bedrooms N/A 0 studios Coach L.P.................... 48 units N/A 0 $1,500,000 2010 53-55 Brook Street 0 three-bedrooms $950-1,110 8.46% Acton, MA 24 two-bedrooms $880-980 20 one-bedrooms $740-800 4 studios
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MORTGAGE BALANCE AND INTEREST RATE MATURITY NUMBER AND AS OF DATE OF APARTMENT COMPLEX TYPE OF UNITS RENT RANGE VACANCIES DECEMBER 31, 2001 MORTGAGE - ----------------- ----------------- ------------ --------- ----------------- -------- Commonwealth 1137 L.P........ 35 units $1,380-2,200 0 $1,800,000 2010 1131-1137 Commonwealth Ave. 28 three-bedrooms $1,000-1,470 8.44% Allston, MA 5 two-bedrooms $530 1 one-bedrooms $750 1 studios Commonwealth 1144 L.P........ 261 units N/A 1 $7,500,000 2010 1144-1160 Commonwealth Ave. 0 three-bedrooms $975-1,225 8.44% Allston, MA 11 two-bedrooms $800-1,250 108 one-bedrooms $650-1,030 142 studios Executive Apartments L.P..... 72 units N/A 1 $1,900,000 2010 545-561 Worcester Road 0 three-bedrooms $840-1,175 8.44% Framingham, MA 48 two-bedrooms $815-1,030 24 one-bedrooms N/A 0 studios Hamilton Oaks Associates, 268 units N/A 3 $11,421,432 2009 LLC.......................... 0 three-bedrooms $700-1,150 7.84% 30-50 Oak Street Extension 97 two-bedrooms $745-940 40-60 Reservoir Street 158 one-bedrooms $630-800 Brockton, MA 13 studios Highland Street Apartments 36 units N/A 0 $800,000 2010 L.P.......................... 0 three-bedrooms $640-820 8.44% 38-40 Highland Street 24 two-bedrooms $585-750 Lowell, MA 10 one-bedrooms $620 2 studios Linhart L.P.................. 9 units N/A 0 $1,700,000 2010 4-34 Lincoln Street 0 three-bedrooms N/A 8.46% Newton, MA 0 two-bedrooms $900-1,000 6 one-bedrooms $780-830 3 studios Middlesex Apartments L.P..... 18 units $1,600-2,500 1 $1,300,000 2010 132-144 Middlesex Road 18 three-bedrooms N/A 8.44% Newton, MA 0 two-bedrooms N/A 0 one-bedrooms N/A 0 studios Nashoba Apartments L.P....... 32 units N/A 0 $1,013,067 2005 284 Great Road 0 three-bedrooms $1,120-1,570 8.63% Acton, MA 32 two-bedrooms N/A 0 one-bedrooms N/A 0 studios
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MORTGAGE BALANCE AND INTEREST RATE MATURITY NUMBER AND AS OF DATE OF APARTMENT COMPLEX TYPE OF UNITS RENT RANGE VACANCIES DECEMBER 31, 2001 MORTGAGE - ----------------- ----------------- ------------ --------- ----------------- -------- 140 North Beacon L.P......... 64 units $2,150-2,400 1 $4,500,000 2010 140-154 North Beacon Street 10 three-bedrooms $1,600-2,100 8.44% Brighton, MA 54 two-bedrooms N/A 0 one-bedrooms N/A 0 studios Oak Ridge Apartments L.P..... 61 units $945-1,215 0 $1,953,938 2005 135 Chestnut Street 42 three-bedrooms $840-970 8.50% Foxboro, MA 19 two-bedrooms N/A 0 one-bedrooms N/A 0 studios Olde English Apartments 84 units N/A 0 $1,850,000 2005 L.P.......................... 0 three-bedrooms $760-980 8.44% 703-718 Chelmsford Street 47 two-bedrooms $730-900 Lowell, MA 30 one-bedrooms $700-860 7 studios Redwood Hills L.P............ 180 units N/A 3 $4,750,000 2010 376-384 Sunderland Road 0 three-bedrooms $835-1,200 8.44% Worcester, MA 89 two-bedrooms $735-975 91 one-bedrooms N/A 0 studios River Drive L.P.............. 72 units N/A 1 $1,850,000 2010 3-17 River Drive 0 three-bedrooms $840-1,000 8.44% Danvers, MA 60 two-bedrooms $800-940 5 one-bedrooms $750-810 7 studios Westside Colonial Apts, 180 units $930 0 $5,078,337 2008 LLC.......................... 1 three-bedrooms $734-950 6.52% 10-70 Westland Street 94 two-bedrooms $635-840 985-997 Pleasant Street 85 one-bedrooms N/A Brockton, MA 0 studios Westgate Apartments, LLC..... 221 units N/A 6 $11,468,071 2014 2-20 Westgate Drive 0 three-bedrooms $1,050-1,570 7.07% Woburn, MA 111 two-bedrooms $835-1,390 110 one-bedrooms N/A 0 studios
See Note 5 to the Consolidated Financial Statements included as part of this Form 10-K for information relating to the Partnership's and its Subsidiary Partnership mortgages payable. 6 CONDOMINIUM UNITS The Partnership owns and leases to residential tenants 20 Condominium Units in the greater Boston, Massachusetts area. Prior to its conversion into condominium units, one of the properties, Chateaux Westgate, was owned by Harold 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 1, 2002. No Condominium Unit is subject to an existing mortgage.
NUMBER OF NUMBER AND TYPE OF UNITS IN UNITS OWNED APARTMENT COMPLEX COMPLEX BY PARTNERSHIP RENT RANGE VACANCIES - ----------------- --------- ------------------ ------------ --------- Riverside Apartments...................... 19 0 three-bedrooms N/A 0 8-20 Riverside Street 12 two-bedrooms $1,140-1,600 Watertown, MA 5 one-bedrooms $890-1,075 2 studios $935-950 Chateaux Westgate......................... 1 0 three-bedrooms N/A 0 Oak Lane 1 two-bedrooms $850 Brockton, MA 0 one-bedrooms N/A 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 52,500 square feet of rentable space, rented primarily to commercial retail establishments. During 1995, the Subsidiary Partnership which owns this property obtained a mortgage in the amount of $1,435,000 which carries a fixed interest rate of 8.375% and matures in the year 2005. As of December 31, 2001, the mortgage had an outstanding balance of $1,295,749. As of March 1, 2002, the shopping center had a vacancy rate of 0%, and the average rent per square foot was $6.19. LINHART LP. During 1995, the Partnership acquired the Linhart property in Newton, Massachusetts ("Linhart"). This mixed-use property includes 21,200 square feet of rentable commercial space. As of March 1, 2002, the commercial space had a 0% vacancy rate, and the average gross rent per square foot was $19.89. BOYLSTON DOWNTOWN LP. During 1995, this Subsidiary Partnership acquired the Boylston Downtown property in Boston, Massachusetts ("Boylston"). This mixed-use property includes 17,218 square feet of rentable commercial space. As of March 1, 2002, the commercial space had a 0% vacancy rate, and the average gross rent per square foot was $22.42. The Partnership also rents roof space for a cellular phone antenna at an average rent of approximately $19,000 per year through July, 2006. 140 NORTH BEACON LP. During 1995, this Subsidiary Partnership acquired the North Beacon property in Boston, Massachusetts ("North Beacon"). This mixed-use property includes 1,000 square feet of commercial rentable space, which was fully rented as of March 1, 2002. The average rent per square foot as of that date was $17.92. 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 a fixed interest rate of 8.00% and matures in the year 2016. As of December 31, 2001, the mortgage had a 7 outstanding balance of $4,845,814. As of March 1, 2002 Staples Plaza was fully occupied, and the average net rent per square foot was $19.81. 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 of March 1, 2002, the commercial space was fully occupied, and the average rent per square foot was 10.83. The Partnership also rents roof space for a cellular phone antenna at an average rent of approximately $25,000 per year through November, 2005. INVESTMENT PROPERTY 345 FRANKLIN LLC. In November, the Partnership acquired, through this LLC, a 50% interest in a 40-unit apartment building in Cambridge, Massachusetts summarized as follows:
MORTGAGE BALANCE AND MATURITY NUMBER AND INTEREST RATE DATE OF APARTMENT COMPLEX TYPE OF UNITS RANGE VACANCIES DECEMBER 31, 2001 MORTGAGE - ----------------- ----------------- ------------ --------- ----------------- -------- 345 Franklin LLC.......... 40 Units N/A 0 $8,199,000 2014 335-355 Franklin Street 0 three-bedrooms $1,750-2,600 6.90% Cambridge, MA 39 two-bedrooms $1,900 1 one-bedrooms N/A 0 studios
This property has a 12 year mortgage which is amortized on a 30 year schedule with a final payment of approximately $6,000,000 in 2004. See Item 13 "Certain Relationships and Related Transactions" concerning current and former ownership interests held by related parties in certain of the above properties. ITEM 3. LEGAL PROCEEDINGS In July 2001, the Partnership reached an agreement in principle to settle certain claims of national origin and familial status discrimination brought by two adult tenants and their minor children. See the Partnership's Form 10-Q for the second fiscal quarter of 2001, filed on August 14, 2001. The settlement of this matter was finalized on March 12, 2002. Neither the Partnership nor any of the Subsidiary Partnerships are presently subject to any material litigation, nor to management's knowledge is any litigation presently threatened against them. The Partnership and Subsidiary Partnerships are occasionally subject to routine legal and administrative proceedings, and the legal and other expenses related to these proceedings are either covered by insurance or paid out of cash reserves. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the limited partners of the Partnership during the fourth quarter of the year ended December 31, 2001. 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Each Class A Unit is exchangeable, through Equiserve LP, the Partnership's Depositary Agent, for ten Depositary Receipts ("Receipts"). The Receipts are publicly traded on Nasdaq under the symbol "NEWRZ". There has never been an established trading market for the Class B Units or General Partnership Units. In 2001, the high and low bid quotations for the Receipts were $34.60 and $17.25, respectively. The table below sets forth the high and low bids for each quarter of 2001 and 2000:
2001 2000 ------------------- ------------------- LOW BID HIGH BID LOW BID HIGH BID -------- -------- -------- -------- First Quarter............................. $17.25 $24.00 $11.00 $16.88 Second Quarter............................ $19.00 $23.95 $12.63 $15.25 Third Quarter............................. $22.25 $34.60 $14.56 $19.00 Fourth Quarter............................ $26.50 $31.55 $15.25 $21.50
These quotations reflect inter-dealer bids 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 2001 and 2000, the Partnership made total distributions of $17.70 and $14.70 per Unit, respectively ($1.77 and $1.47 per Receipt, respectively). The total value of the distribution in 2001 was $3,061,604, and the total value for 2000 was $2,542,688. In February 2002, the Partnership voted to change its dividend policy from semi-annually to quarterly, and declared a quarterly dividend of $6.40 per Unit ($0.64 per Receipt) payable on March 31, 2002. In 2001 and 2000, taxable income excluding capital gains was approximately $500,000 and $900,000 respectively, greater than comparable statement income. See "Item 12. Security Ownership of Certain Beneficial Owners and Management" for certain information relating to the number of holders of each class of Units. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is included on page 23 of this Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2001 AND 2000 The Partnership and its Subsidiary Partnerships earned income from operations of approximately $5,998,000 during the year ended December 31, 2001, compared to approximately $4,400,000 during the year ended December 31, 2000, an increase of approximately $1,598,000 (36%). The primary factor contributing to the increase was increased rental income resulting from continued strength in the residential real estate market in 2001. 9 An analysis of the rental activity, exclusive of the property acquired in November 2001, is as follows:
OCCUPANCY DATE ----------------------- MARCH 4, MARCH 8, 2002 2001 -------- -------- RESIDENTIAL Units................................................ 2,143 2,143 Vacancies............................................ 23 13 Vacancy Rate......................................... 1.1% 0.6% COMMERCIAL Total square feet.................................... 137,775 137,775 Vacancy (in square feet)............................. 0 3,850 Vacancy rate......................................... 0% 2.8%
RENTAL INCOME ----------------------- YEAR ENDED DECEMBER 31, ----------------------- 2001 2000 -------- -------- (IN THOUSANDS) Total rents.......................................... $27,767 $25,583 Residential percentage............................... 91% 87% Commercial percentage................................ 9% 13% Contingent rentals................................... $ 618 $ 1,039
Rental income for the year ended December 31, 2001 was approximately $27,767,000, compared to approximately $25,583,000 for the year ended December 31, 2000, an increase of approximately $2,184,000 (9%). The Partnership completed significant improvements at some of the larger residential properties, including the Westgate Apartments, 62 Boylston Street and 1144 Commonwealth Avenue, resulting in the ability to charge higher rates at these properties. Income from the Partnership's residential properties represents approximately 91% of rental income for the year ended December 31, 2001, up from approximately 87% for the year ended December 31, 2000. In 2000, the Partnership acquired the 44-unit Brookside Apartments complex and sold the Timpany Plaza Shopping Center and Lewiston Mall Shopping Center, which have a combined total of approximately 366,000 square feet. While these transactions, taken together, produced a decrease in rental income of approximately $646,000 in 2001, this was more than offset by a decrease in operating expenses of approximately $845,000, for a net increase in income of approximately $199,000. In addition, in 2001 the Partnership realized approximately $50,000 of income from the investment property purchased in November 2001. Expenses for the year ended December 31, 2001 were approximately $22,022,000, compared to approximately $21,434,000 for the year ended December 31, 2000, an increase of approximately $588,000 (3%). Administrative expenses increased approximately $136,000 (11%) due to an increase in salaries and wages. Repairs and maintenance expenses increased approximately $415,000 (14%) due to an increase in the salaries for the maintenance staff as well as significant refurbishing at the residential properties. Operating expenses increased approximately $126,000 (5%) largely as a result of an increase in the cost of snow removal and utilities due to a colder and snowier winter during the first quarter of 2001 compared to 2000. Interest expense increased approximately $69,000 (1%) due to a higher level of debt. Management fees increased approximately $66,000 (6%) due to increases in rental income. Depreciation and amortization expense decreased approximately $190,000 (4%) largely due to the sale of the two commercial properties in 2000. The aggregate book value of the properties sold was 10 approximately $7,000,000. Renting expenses decreased approximately $6,000 (3%) due to lower rental commissions. Interest income was approximately $605,000 for the year ended December 31, 2001, compared to approximately $425,000 for the year ended December 30, 2000, an increase of approximately $180,000 (42%). This increase was a result of the higher average cash balance available for investment in 2001, although declining interest rates offset the increase to some extent. Included in other income for the year ended December 31, 2000 is a gain of approximately $660,000 on the sale of the Lewiston Mall Shopping Center and a gain of approximately $1,870,000 on the sale of the Timpany Plaza Shopping Center. There were no sales in 2001. As a result of the changes discussed above, net income for the year ended December 31, 2001 was approximately $6,647,000, compared to approximately $5,801,000 for the year ended December 31, 2000, an increase of approximately $846,000 (15%). RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2000 AND 1999 New England Realty Associates Limited Partnership and its Subsidiary Partnerships earned income from operations of $4,399,696 during the year ended December 31, 2000, compared to $2,871,604 during the year ended December 31, 1999, an increase of $1,528,092. The rental activity is summarized as follows:
OCCUPANCY DATE ----------------------- MARCH 8, MARCH 9, 2001 2000 -------- -------- RESIDENTIAL Units................................................ 2,143 2,099 Vacancies............................................ 13 23 Vacancy Rate......................................... 0.6% 1.1% COMMERCIAL Total square feet.................................... 137,775 503,375 Vacancy.............................................. 3,850 71,995 Vacancy rate......................................... 2.8% 14%
RENTAL INCOME ----------------------- 2000 1999 -------- -------- (IN THOUSANDS) Total rents.......................................... $25,583 $20,099 Residential percentage............................... 87% 83% Commercial percentage................................ 13% 17% Contingent rentals................................... $ 1,039 $ 933
Rental income for the year ended December 31, 2000 was approximately $25,583,000 compared to approximately $20,099,000 for the year ended December 31, 1999, an increase of approximately $5,484,000 (27%). This increase in rental income is primarily from the residential properties. Residential rental rates increased approximately 12% during 2000, occupancy levels have remained stable. The Partnership acquired two residential complexes in December 1999 resulting in a full year's rental income in 2000, an increase from these properties of approximately $4,124,000. In addition to the acquisitions in December 1999, the Partnership acquired the Brookside Apartments in October 2000. This complex consists of 44 residential units located in Woburn, Massachusetts. Its rental 11 income was approximately $100,000 in 2000. The purchase price of $3,800,000 was originally funded from cash reserves. In December 2000, the Partnership obtained a mortgage on the Brookside Apartments in the amount of $2,000,000. In November 2000, the Partnership sold the Timpany Plaza Shopping Center in Gardner, Massachusetts. The property consisted of 184,600 square feet of commercial space and was sold for $5,000,000. In June 2000, the Partnership sold the Lewiston Mall Shopping Center, located in Lewiston, Maine. This mall consisted of 181,000 square feet of commercial space and was sold for $5,100,000. As a result of these sales, rental income from the commercial properties decreased approximately $680,000. This was substantially offset by an increase of approximately $470,000 from the full year's rental income at the Staples Plaza shopping center purchased in May 1999. Rental rates and occupancy levels at the remaining commercial properties remain stable. Expenses for the year ended December 31, 2000 were approximately $21,434,000 compared to approximately $17,407,000 for the year ended December 31, 1999, an increase of approximately $4,027,000, including approximately $3,301,000 at the acquired properties. Depreciation and amortization expense increased to approximately $4,497,000 for the year ended December 31, 2000 from approximately $3,574,000 for the year ended December 31, 1999, an increase of approximately $923,000. This increase reflects significant improvements made to the Partnership properties in 2000 as well as a full year of depreciation on the properties acquired by the Partnership in the latter part of 1999. The acquisitions made in 1999 represent approximately $658,000 of this increase. Management fees increased to approximately $1,090,000 for the year ended December 31, 2000 from approximately $845,000 for the year ended December 31, 1999, an increase of approximately $245,000. This increase is due to the increase in rental income as discussed above. Interest expense increased to approximately $6,456,000 for the year ended December 31, 2000 from approximately $4,946,000 for the year ended December 31, 1999, an increase of approximately $1,510,000. Approximately $1,210,000 of the increase is attributable to a full year's interest on properties purchased in December 1999 and the remaining approximately $300,000 is attributable to the net increase in other mortgages. Taxes and insurance increased to approximately $2,529,000 for the year ended December 31, 2000 from approximately $2,089,000 for the year ended December 31, 1999, an increase of approximately $440,000. The newly acquired properties represent approximately $271,000 of this increase. Real estate taxes increased at the existing properties, specifically at 62 Boylston Street and 140 North Beacon Street, totaling approximately $90,000. Insurance expenses also increased due to higher premiums. Administrative expenses increased to approximately $1,230,000 for the year ended December 31, 2000 from approximately $1,169,000 for the period ended December 31, 1999, an increase of approximately $61,000. The newly acquired properties represent most of this increase. Operating expenses increased to approximately $2,435,000 for the year ended December 31, 2000 from approximately $1,883,000 for the year ended December 31, 1999, an increase of approximately $552,000. The newly acquired properties represent approximately $400,000 of this increase. Operating expenses increased at the existing properties substantially due to the increase in the cost of oil. Renting expenses decreased to approximately $179,000 for the year ended December 31, 2000 from approximately $303,000 for the year ended December 31, 1999, a decrease of approximately $124,000. Due to the strong rental market in the greater Boston area, advertising has dropped significantly. The Partnership refinanced 11 properties during 2000. As a result of these refinancings, the Partnership recorded an extraordinary charge of approximately $1,592,000 which includes mortgage prepayment penalties of approximately $1,255,000 and the expensing of related deferred financing costs of approximately $337,000. Interest income was approximately $425,000 for the year ended December 31, 2000 compared to approximately $361,000 for the year ended December 31, 1999, an increase of approximately $64,000. 12 This increase is due to an increase in the average cash balance available for investment in 2000 partially offset by declining interest rates. Included in other income for the year ended December 31, 2000 is a gain of approximately $660,000 on the sale of the Lewiston Mall Shopping Center, and a gain of approximately $1,870,000 on the sale of the Timpany Plaza Shopping Center. Included in other income for the year ended December 31, 1999, is a gain of approximately $128,000 on the sale of a condominium and a gain of approximately $672,000 on the sale of the Willard Street Apartments, a total of $800,000. Also included in other income for the year ended December 31, 1999 is a loss of approximately $418,000 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, 2000, was approximately $5,801,000 compared to approximately $3,649,000 for the year ended December 31, 1999, an increase of approximately $2,152,000. LIQUIDITY AND CAPITAL RESOURCES The Partnership's principal source of cash during 2001 was the collection of rents; its principal sources of cash during 2000 were the collection of rents, the sale of real estate and the refinancing of Partnership properties. The majority of cash and cash equivalents of $16,690,943 at December 30, 2001 and $14,478,972 at December 31, 2000 was held in interest-bearing accounts at creditworthy financial institutions. This increase of $2,211,971 is summarized as follows:
YEAR ENDED DECEMBER 31, ------------------------- 2001 2000 ----------- ----------- Cash provided by operating activities.............. $10,731,854 $10,040,470 Cash (used in) investing activities................ (4,703,300) (1,130,489) Cash provided by (used in) financing activities.... (3,816,583) 4,324,553 Net increase in cash and cash equivalents.......... -- -- ----------- ----------- $ 2,211,971 $13,234,534 =========== ===========
The increase in cash provided by operating activities is primarily due to the increase in operating income before depreciation expense. The increase in cash used in investment activities is primarily due to the purchase and improvement of rental and investment properties, offset by the proceeds from the sale of commercial properties in 2000. The cash used in financing activities in 2001 is primarily due to the dividend distributions and mortgage debt payments. The cash provided by financing activities in 2000 is primarily due to the proceeds from refinancing mortgages, reduced by dividend distributions and mortgage debt payments. The Partnership has liquidated all of its short-term investments (not including cash equivalents, as defined in Note 1 to the Consolidated Financial Statements). On November 8, 2001, a newly formed limited liability company in which the Partnership has a 50% ownership interest acquired a 40-unit residential property in Cambridge, Massachusetts. The remaining 50% ownership interest in this limited liability company is owned by Harold Brown and the President of The Hamilton Company. The total purchase price was $11,265,000. At closing, the Partnership paid $8,265,000, and the other owners paid $3,000,000. A mortgage of approximately $8,000,000 has since been obtained, and the funds in excess of the required equity have been returned to the partners so that their capital contributions are proportionate to their respective ownership interests. In April 2001, the Partnership obtained a one-year line of credit in the amount of $12,000,000, secured by the property located at 62 Boylston Street; the line of credit is renewable annually. As of 13 December 31, 2001, the Partnership has not drawn on the line. The Partnership has informed the lender that a renewal of this line of credit, effective for April 2002, will not be requested. The Partnership distributed dividends totaling $17.70 per Unit in 2001 and $14.70 per Unit in 2000. In February 2002, the Partnership voted to change its dividend policy from a semi-annual to a quarterly distribution and declared a quarterly dividend of $6.40 per Unit, payable on March 31, 2002. On November 20, 2000, the Partnership sold the Timpany Plaza Shopping Center 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 mortgage provides that during its term only interest, earned at a rate of 7.625% per year, shall be repaid. At maturity in 2011, the entire principal balance will be due. On June 28, 2000, the Partnership sold the Lewiston Mall Shopping Center 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. In addition to the Brookside mortgage discussed above, the Partnership refinanced 11 of the Partnership properties and obtained a mortgage on a previously debt-free property during 2000. The total of these 12 mortgages is approximately $31,650,000, while the total of the mortgages on the 11 refinanced properties prior to such refinancings was approximately $23,800,000. After prepayment penalties of approximately $1,255,000, the net proceeds from these 11 refinancings were approximately $6,600,000. No new mortgages were undertaken in 2001 except for the mortgage on the 40-unit residential property in Cambridge, Massachusetts, discussed above. During 2001, the Partnership and its Subsidiary Partnerships completed certain improvements to their properties at a total cost of approximately $2,803,000. The most significant improvements were made at the following properties: approximately $1,533,000 at 62 Boylston Street in Boston, Massachusetts; approximately $235,000 at Redwood Hills Apartments in Worcester, Massachusetts; approximately $170,000 at Westgate Apartments in Woburn, Massachusetts; approximately $88,000 at the Hamilton Oaks Apartments in Brockton, Massachusetts; approximately $76,000 at the North Beacon Apartments in Brighton, Massachusetts; and approximately $58,000 at Westside Colonial Apartments in Brockton, Massachusetts. In addition to the improvements made in 2001, the Partnership and its Subsidiary Partnerships plan to invest approximately $3,589,000 in capital improvements during 2002; approximately $1,821,000 of this amount is designated for 62 Boylston Street. These improvements will be funded from escrow accounts established in connection with the refinancing of the applicable properties, as well as from the Partnership's cash reserves. Further, the Partnership intends to construct 20 additional residential units at the Westgate Apartments in Woburn, Massachusetts. Presently, the Partnership is awaiting final zoning board approval. The total cost is estimated to be $3,500,000, which will initially be funded from cash reserves. In March 2002, the Partnership signed a purchase and sales agreement to acquire a 69-unit residential apartment complex located in Norwood, Massachusetts for $7,200,000. The Partnership will assume a first mortgage of $3,800,000 with an interest rate of 7.08%; the mortgage will be amortized over 25 years and will mature in 2007, with a final "balloon" payment of approximately $3,468,000 required. The seller will lend the Partnership $1,750,000 at a rate of 6%, interest only, for a term of 5 years or a shorter period if the first mortgage is refinanced. The balance of $1,650,000 will be funded from the Partnership's cash reserves. The completion of this transaction is dependent on the assumption of the first mortgage and receipt of acceptable inspections and other due diligence reports. 14 FACTORS THAT MAY AFFECT FUTURE RESULTS FORWARD-LOOKING STATEMENTS Certain information contained herein includes forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Liquidation Reform Act of 1995 (the "Act"). While forward-looking statements reflect management's good-faith beliefs when those statements are made, caution should be exercised in interpreting and relying on such forward-looking statements, the realization of which may be impacted by known and unknown risks and uncertainties, events that may occur subsequent to the forward-looking statements, and other factors which may be beyond the Partnership's control and which can materially affect the Partnership's actual results, performance or achievements for 2002 and beyond. Along with risks detailed from time to time in the Partnership's filings with the Securities and Exchange Commission, some factors that could cause the Partnership's actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include but are not limited to the following: - The Partnership depends on the real estate markets where its properties are located, and these markets may be adversely affected by local economic and market conditions, which are beyond the Partnership's control. - The Partnership is subject to general risks affecting the real estate industry, such as dependence on tenants' financial condition and the need to enter into new leases or renew leases on terms favorable to tenants in order to generate rental revenues. - The Partnership is subject to increases in heating and utility costs that may arise as a result of economic and market conditions. - The Partnership may fail to identify, acquire, construct or develop additional properties; may develop properties that do not produce a desired yield on invested capital; or may fail to effectively integrate acquisitions of properties or portfolios of properties. - Financing or refinancing of Partnership properties may not be available to the extent necessary or desirable, or may not be available on favorable terms. - Given the nature of the real estate business, the Partnership is subject to potential environmental liabilities, although management is not aware of any material environmental liabilities at this time. - Market interest rates could adversely affect the market prices for Class A Partnership Units and Depositary Receipts as well as performance and cash flow. The foregoing factors 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 expressly disclaims any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. The residential real estate market in the Greater Boston area softened during the fourth quarter of 2001, and the Partnership anticipates the climate will remain the same in 2002. This may result in increases in vacancy rates and/or a reduction in some rents. Despite this change in the market, the Partnership does not foresee a significant effect on its cash flow. The Partnership believes its present cash reserves as well as anticipated rental revenue will be sufficient to fund its current operations and to finance current and planned improvements to its properties. 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 15 Partnership will consider refinancing existing properties if the Partnership's cash reserves are insufficient to repay existing mortgages or if the Partnership needs additional funds for future acquisitions. NEWLY ISSUED ACCOUNTING STANDARDS On June 29, 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations," and No. 142, "Goodwill and Other Intangible Assets." The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. SFAS No. 142 becomes effective beginning January 1, 2002. The Partnership does not anticipate that these standards will have a material adverse effect on its liquidity, financial position or results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment of disposal of long-lived assets. This standard harmonizes the accounting for impaired assets and resolves some of the implementation issues as originally described in SFAS No. 121. The new standard becomes effective for the year ending December 31, 2002. NERA does not expect this pronouncement will have a material impact on the Partnership's liquidity, financial position or results of operations. INFLATION We believe that inflation has not been a material factor in historic operations. The majority of NERA's tenants are residential tenants and do not pay additional rents based on increases in operating expenses. Future unusual inflation that increases NERA's operating expenses may not be recoverable through increased rents. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership and its Subsidiary Partnerships collectively have approximately $79,613,000 in long-term debt, all of which earns interest at fixed rates. Accordingly, the fair value of these debt instruments is affected by changes in the market interest rates. For information regarding the fair values and maturity dates of these debt obligations, see Notes 5 and 12 to the Consolidated Financial Statements. For additional disclosure about market risk, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Factors That May Affect Future Results". ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements of the Partnership appear on pages F-1 through F-15 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, who are brothers. 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 16 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. From October 1992 until 1996, the General Partner engaged the Hamilton Partnership as the management company to manage the Partnership's and its Subsidiary Partnerships' properties. The Hamilton Company, a Massachusetts corporation, was the 99% general partner of Hamilton Partnership. During 1996, the Hamilton Partnership was dissolved and its successor and general partner assumed the management functions of the Hamilton Partnership. The Hamilton Company continues to manage the Properties. 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 2001. Because the General Partner has engaged the Hamilton Company as the manager for the Properties, the General Partner has no employees. The directors of the General Partner are Ronald Brown, Harold Brown, Guilliaem Aertsen, Conrad DiGregorio and Thomas Raffoul. Messrs. Aertsen, DiGregorio and Raffoul were elected directors on March 11, 2002, pursuant to a joint unanimous written consent of the only two shareholders and the only two directors (at that time) of the General Partner, Ronald Brown and Harold Brown. The directors of the General Partner hold office until their successors are duly elected and qualified. Ronald Brown and Harold Brown hold all of the executive officer positions of the General Partner. The executive officers of the General Partner serve at the pleasure of the Board of Directors. On June 14, 2001, the Board of Directors created an Audit Committee consisting of three members, its first and only committee, and approved the charter of the Audit Committee. The Audit Committee was not filled until March 11, 2002, on which date Messrs. Aertsen, DiGregorio and Raffoul were appointed as its members. 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 POSITION - ----------------- -------- -------------- Ronald Brown, President 66 Associate, Hamilton Realty Company (since 1967); President, Treasurer, Clerk and Director of R. Brown Partners Inc. (since 1985); Member, Greater Boston Real Estate Board (since 1981); Director, Brookline Chamber of Commerce (since 1978); 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 (since 1999). Harold Brown, Treasurer 77 Sole proprietor, Hamilton Realty (since 1955); Trustee, and Director (since Treasurer and Director of Wedgestone Realty Investors Trust 1984) (1982-1985); Chairman of the Board and principal stockholder of the Wedgestone Advisory Corporation (1980-1985); Director of AFC Financial Corp. (1983-1985); Director, Coolidge Bank and Trust (1980-1983).
17
NAME AND POSITION AGE OTHER POSITION - ----------------- -------- -------------- Guilliaem Aertsen 54 Chief Executive Officer, Aertsen Ventures LLC (since 1999); Co-Chairman of AGS Realty Advisors (since 1999); Director and CFO of CineCast LLC (since 1999); Member of Premier Capital LLC (since 2000); Chairman of the Board of Directors of the Massachusetts Housing Investment Corporation (since 1997); Chairman of the Board of Trustees of the Old South Church (1992-2002); Executive Vice President of BankBoston (1996-1998). Conrad DiGregorio 76 Member of Advisory Committee of the Partnership (since 1984) (see "Item 1. Business--Advisory Committee"); retired from past employment. Thomas Raffoul 76 Member of Advisory Committee of the Partnership (since 1997) (see "Item 1. Business--Advisory Committee"); retired from past employment.
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% 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 2001 fiscal year, all filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with, except that Harold Brown inadvertently did not file a Form 4 with the SEC in connection with his purchase of 1,900 Receipts on December 7, 2001, but Mr. Brown did report that purchase on a Form 5 filed on February 14, 2002. 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. 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 The Hamilton Company during 2001 was approximately $1,156,000. In 2001, the Partnership and its Subsidiary Partnerships also paid Administrative Fees to The Hamilton Company of approximately $643,000 inclusive of construction supervision and architectural fees of $196,000, repairs and maintenance service fees of $194,000, legal fees of $191,000, and rental fees and miscellaneous charges of $62,000. In 18 addition, during 2001 the Partnership paid The Hamilton Company $80,000 for certain accounting services, which were provided by an outside company prior to 1993, and approximately $3,000 for construction costs capitalized in rental properties. Additionally, the Administrative Fees included $24,000 which was paid by the Partnership to Ronald Brown for construction supervision services. The management services provided by The Hamilton Company include, but are no 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 The Hamilton Company to provide asset management services to the Partnership, for which the Partnership paid approximately $50,000 in 2001. Members of the Partnership's Advisory Committee and Ronald Brown and Harold Brown receive $400 for each committee meeting attended. The Advisory Committee held 6 meetings during 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of March 19, 2002, 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 EquiServe LP ("EquiServe"), which under the Deposit Agreement, as Depositary, is the record holder of the Class A Units exchanged for Depositary Receipts. As of March 19, 2002, pursuant to the Deposit Agreement, EquiServe was serving as the record holder of the Class A Units with respect to which 1,173,089 Depositary Receipts had been issued to 1,196 holders. As of March 19, 2002, there were issued and outstanding 24,285 Class A Units (not including the Depositary Receipts) held by 1,107 limited partners, 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 as of March 19, 2002 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. For purposes of this table, all Depositary Receipts are included as if they were converted back into Class A Units. 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. 19
CLASS A CLASS B GENERAL PARTNERSHIP --------------------------- --------------------------- --------------------------- % OF % OF % OF NUMBER OF OUTSTANDING NUMBER OF OUTSTANDING NUMBER OF OUTSTANDING UNITS UNITS UNITS UNITS UNITS UNITS BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY 5% OWNERS, DIRECTORS AND 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 02134 NERA 1994..................... (1) (1) 0 0 0 0 Irrevocable Trust c/o Posternak Blankstein & Lund LLP 100 Charles River Plaza Boston, MA 02114 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 02134 Guilliaem Aertsen............. 0 0 0 0 0 0 175 West Brookline Street Boston, MA 02118 Conrad DiGregorio............. 40 0.03 0 0 0 0 34 Gladstone Street East Boston, MA 02128 Thomas Raffoul................ 907 0.6 0 0 0 0 2219 Centre Street West Roxbury, MA 02132 NEWREAL, Inc.................. 0 0 0 0 1,738 100% 39 Brighton Ave. Allston, MA 02134 All directors and officers as a 19,579(5) 13.8%(5) 33,015(6) 100%(6) (3) 100%(3) group.........................
- ------------------------ (1) 80,371 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 17,877 Class A Units (approximately 12.6% of the outstanding Class A Units) and the Trust may be deemed to beneficially own approximately 9,839 Class A Units (approximately 7.0% of the outstanding 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 98,394 20 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, plus those held by Messrs. DiGregorio and Raffoul, as indicated in the table. (6) Includes the Class B Units described in Note (2) above. On November 13, 2000, The Partnership adopted a Policy for Establishment of Rule 10b5-1 Trading Plans. Pursuant to this Policy, the Partnership authorized its officers, directors and certain employees, shareholders and affiliates who are deemed "insiders" of the Partnership to adopt individual plans for trading the Partnership's securities ("Trading Plans"), and established certain procedural requirements relating to the establishment, modification and termination of such Trading Plans. On May 14, 2001, the Partnership approved a Trading Plan of Harold Brown, providing for the purchase of up to 20,000 Depositary Receipts of the Partnership as such become available during the period from May 14, 2001 through May 13, 2002. Mr. Brown amended and restated this Trading Plan on November 19, 2001 to increase the number of Depositary Receipts which were to be purchased pursuant thereto from 20,000 to 50,000, expanding the date through which purchases could be made to September 30, 2002, and to provide that purchases under his Trading Plan were to be made only if the price per Depositary Receipt was $45.00 or less. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On November 8, 2001, a limited liability company in which the Partnership had a 50% membership interest purchased a 40-unit residential property in Cambridge, Massachusetts. The remaining membership interest in this entity is held by Harold Brown and the President of The Hamilton Company. The Partnership originally advanced the majority of the funds used for such acquisition, but the excess of the amount it advanced beyond its proportionate capital contribution was repaid, with 8% interest, after the property was mortgaged. For further details, see "Item 1. Business--Recent Developments." Chateaux Westgate, the condominium complex in which the Partnership owns 1 residential unit, was owned by Harold Brown prior to its conversion into a condominium complex. In addition, certain Subsidiary Partnerships purchased certain properties in 1995 from entities in which Harold Brown had substantial equity interests. In each case, the General Partner believes that the Partnership and its Subsidiary Partnerships acquired the condominium unit 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%. This loan was paid in full on April 6, 2000. Interest on the loan was $20,000 and $2,083 in 2000 and 1999 respectively. 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 The Hamilton Company, an affiliate of the General Partner. 21 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, 2001 and 2000 Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999 Consolidated Statements of Changes in Partners' Capital for the years ended December 31, 2001, 2000 and 1999 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 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) Report on Form 8-K filed on July 12, 2001 (reporting only as to Item 5, "Other Events"). 22 SELECTED FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 2001 2000 1999 1998 1997 ----------- ----------- ----------- ----------- ----------- INCOME STATEMENT INFORMATION Revenue....................... $28,020,334 $25,833,731 $20,278,146 $18,447,450 $17,506,971 Expenses...................... 22,022,222 21,434,035 17,406,542 16,461,723 16,383,317 Income from Operations........ 5,998,112 4,399,696 2,871,604 1,985,727 1,123,654 Other Income.................. 648,844 2,993,419 777,407 239,292 144,977 Income before extraordinary item........................ 6,646,956 7,393,115 3,649,011 2,225,019 1,268,631 Extraordinary item............ -- (1,592,268) -- -- -- Net Income.................... 6,646,956 5,800,847 3,649,011 2,225,109 1,268,631 Income before extraordinary item per Unit............... 38.37 42.67 21.06 12.84 7.30 Extraordinary loss on extinguishment of debt per Unit........................ -- (9.19) -- -- -- Net Income per Unit........... 38.37 33.48 21.06 12.84 7.30 Distributions to Partners per Unit........................ 17.70 14.70 13.20 8.20 8.80 Income per Depositary receipt..................... 3.84 4.27 2.11 1.28 0.73 Extraordinary loss on extinguishment of debt per Depositary Receipt.......... -- (0.92) -- -- -- Net Income per Depositary Receipt..................... 3.84 3.35 2.11 1.28 0.73 Distributions to partners per Depositary Receipt.......... 1.77 1.47 1.32 0.82 0.88 BALANCE SHEET INFORMATION Total Assets.................. $96,428,956 $93,302,937 $87,668,120 $58,406,104 $58,147,503 Net Real Estate Investments... 73,941,098 75,307,036 81,274,293 50,868,382 51,575,342 Total Debt Outstanding........ 79,613,051 80,368,031 77,530,651 51,322,552 51,956,821 Partners' Capital............. 12,481,172 8,895,820 5,637,661 4,271,880 3,465,230
The partnership may purchase and/or sell properties at any time. The table below reflects the totals of property available for rental at each December 31,
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 2001 2000 1999 1998 1997 ----------- ----------- ----------- ----------- ----------- Residential Units....................... 2,143 2,143 2,099 1,668 1,668 Vacancies................... 23 13 23 37 48 Vacancy Rate................ 1.1% 0.6% 1.1% 2.2% 2.9% Commercial Total square feet........... 137,775 137,775 503,375 457,700 457,700 Vacancy (in square feet).... 0 3,850 71,995 80,852 107,850 Vacancy rate................ 0% 3% 14% 18% 24%
See Item 7 for factors that may effect future operations. The above tables may not be indicative of future results. 23 INDEPENDENT AUDITORS' 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, 2001 and 2000, 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, 2001. 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 auditing standards generally accepted in the United States of America. 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, 2001 and 2000 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. /s/ MILLER WACHMAN LLP Certified Public Accountants Boston, Massachusetts February 22, 2002 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------- 2001 2000 ----------- ----------- ASSETS Rental Properties........................................... $73,941,098 $75,307,036 Cash and Cash Equivalents................................... 16,690,943 14,478,972 Rents Receivable............................................ 513,181 402,376 Real Estate Tax Escrows..................................... 332,282 378,039 Prepaid Expenses and Other Assets........................... 2,190,978 1,857,267 Investment in Partnership................................... 1,944,060 -- Financing and Leasing Fees.................................. 816,414 879,247 ----------- ----------- TOTAL ASSETS.............................................. $96,428,956 $93,302,937 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Mortgages Payable........................................... $79,613,051 $80,368,031 Accounts Payable and Accrued Expenses....................... 1,163,606 1,146,287 Advance Rental Payments and Security Deposits............... 3,171,127 2,892,799 ----------- ----------- TOTAL LIABILITIES......................................... 83,947,784 84,407,117 Commitments and Contingent Liabilities (Note 9) Partners' Capital 173,252 units outstanding in 2001 and 2000.................. 12,481,172 8,895,820 ----------- ----------- TOTAL LIABILITIES AND PARTNERS' CAPITAL................... $96,428,956 $93,302,937 =========== ===========
See notes to consolidated financial statements. F-1 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, --------------------------------------- 2001 2000 1999 ----------- ----------- ----------- Revenue Rental income....................................... $27,767,139 $25,583,498 $20,099,480 Laundry and sundry income........................... 253,195 250,233 178,666 ----------- ----------- ----------- 28,020,334 25,833,731 20,278,146 ----------- ----------- ----------- Expense Administrative...................................... 1,365,112 1,229,550 1,169,483 Depreciation and amortization....................... 4,306,578 4,496,500 3,573,658 Interest............................................ 6,524,401 6,455,566 4,945,943 Management fees..................................... 1,155,521 1,090,007 845,129 Operating........................................... 2,561,536 2,435,308 1,882,804 Renting............................................. 173,053 178,802 303,471 Repairs and maintenance............................. 3,434,395 3,019,235 2,596,650 Taxes and insurance................................. 2,501,626 2,529,067 2,089,404 ----------- ----------- ----------- 22,022,222 21,434,035 17,406,542 ----------- ----------- ----------- Income from Operations................................ 5,998,112 4,399,696 2,871,604 ----------- ----------- ----------- Other Income (Loss) Interest income..................................... 605,143 424,765 360,501 Income from investment in partnership & joint venture........................................... 43,701 38,261 34,188 Income (Loss) on short-term investments............. -- 493 (417,895) Gain on the sale of real estate..................... -- 2,529,900 800,613 ----------- ----------- ----------- 648,844 2,993,419 777,407 ----------- ----------- ----------- Income Before Extraordinary Item...................... 6,646,956 7,393,115 3,649,011 Extraordinary Loss on Extinguishment of Debt.......... -- (1,592,268) -- ----------- ----------- ----------- Net Income............................................ $ 6,646,956 $ 5,800,847 $ 3,649,011 =========== =========== =========== Income per Unit: Income before extraordinary item.................... $ 38.37 $ 42.67 $ 21.06 Extraordinary loss on extinguishment of debt........ -- (9.19) -- ----------- ----------- ----------- Net Income per Unit................................... $ 38.37 $ 33.48 $ 21.06 =========== =========== =========== Weighted Average Number of Units Outstanding.......... 173,252 173,252 173,252 =========== =========== ===========
See notes to consolidated financial statements. F-2 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
UNITS PARTNERS' CAPITAL ------------------------------------------------------------------- ------------------------ LESS LIMITED TREASURY LIMITED ------------------- GENERAL UNITS AT ------------------------ CLASS A CLASS B PARTNERSHIP SUB-TOTAL COST TOTAL CLASS A CLASS B -------- -------- ----------- --------- -------- -------- ----------- ---------- Balance, January 1, 1999........ 144,180 34,243 1,802 180,225 6,973 173,252 $ 3,414,571 $ 814,416 Distributions to Partners....... -- -- -- -- -- -- (1,826,584) (433,814) Net Income...................... -- -- -- -- -- -- 2,919,209 693,312 ------- ------ ----- ------- ----- ------- ----------- ---------- Balance, December 31, 1999...... 144,180 34,243 1,802 180,225 6,973 173,252 $ 4,507,196 $1,073,914 Distributions to Partners....... -- -- -- -- -- -- (2,034,150) (483,111) Net Income...................... -- -- -- -- -- -- 4,640,678 1,102,161 ------- ------ ----- ------- ----- ------- ----------- ---------- Balance, December 31, 2000...... 144,180 34,243 1,802 180,225 6,973 173,252 $ 7,113,724 $1,692,964 Distributions to Partners....... -- -- -- -- -- -- (2,449,283) (581,705) Net Income...................... -- -- -- -- -- -- 5,317,565 1,262,921 ------- ------ ----- ------- ----- ------- ----------- ---------- Balance, December 31, 2001...... 144,180 34,243 1,802 180,225 6,973 173,252 $ 9,982,006 $2,374,180 ======= ====== ===== ======= ===== ======= =========== ========== PARTNERS' CAPITAL ------------------------- GENERAL PARTNERSHIP TOTAL ----------- ----------- Balance, January 1, 1999........ $ 42,893 $ 4,271,880 Distributions to Partners....... (22,832) (2,283,230) Net Income...................... 36,490 3,649,011 -------- ----------- Balance, December 31, 1999...... $ 56,551 $ 5,637,661 Distributions to Partners....... (25,427) (2,542,688) Net Income...................... 58,008 5,800,847 -------- ----------- Balance, December 31, 2000...... $ 89,132 $ 8,895,820 Distributions to Partners....... (30,616) (3,061,604) Net Income...................... 66,470 6,646,956 -------- ----------- Balance, December 31, 2001...... $124,986 $12,481,172 ======== ===========
See notes to consolidated financial statements. F-3 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------------------- 2001 2000 1999 ----------- ----------- ------------ Cash Flows from Operating Activities Net income.......................................... $ 6,646,956 $ 5,800,847 $ 3,649,011 ----------- ----------- ------------ Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization....................... 4,306,578 4,496,500 3,573,658 (Income) from investment in joint venture........... (43,701) (38,261) (34,188) Extraordinary loss on extinguishment of debt........ -- 1,592,268 -- Gain on the sale of rental property................. -- (2,529,900) (800,613) Unrealized depreciation (appreciation) on short-term investments....................................... -- (494) 417,895 Change in assets and liabilities (Increase) decrease in rents receivable............. (110,805) 284,330 (176,792) (Increase) in financing and leasing fees............ (74,865) (461,542) (344,110) Increase in accounts payable........................ 17,318 42,829 235,033 (Increase) decrease in real estate tax escrow....... 45,756 328,935 (168,122) (Increase) decrease in prepaid expenses and other assets............................................ (333,710) 256,228 (402,958) Increase in advance rental payments and security deposits.......................................... 278,327 246,449 703,103 Decrease in short-term investments.................. -- 22,281 2,620,691 ----------- ----------- ------------ Total Adjustments................................... 4,084,898 4,239,623 5,623,597 ----------- ----------- ------------ Net cash provided by operating activities............. 10,731,854 10,040,470 9,272,608 ----------- ----------- ------------ Cash Flows from Investing Activities (Investment in) distribution from Partnership....... (1,900,358) 67,296 64,064 Purchase and improvement of rental properties....... (2,802,942) (5,349,331) (11,030,171) Net proceeds from sale of rental property........... -- 3,670,674 180,984 Decrease in notes receivable........................ -- 480,872 -- ----------- ----------- ------------ Net cash (used in) investing activities............... (4,703,300) (1,130,489) (10,785,123) ----------- ----------- ------------ Cash Flows from Financing Activities Payment of notes payable............................ -- (750,000) (876,154) Principal payments of mortgages payable............. (754,979) (946,384) -- Distributions to partners........................... (3,061,604) (2,542,688) (2,283,230) Proceeds from mortgages payable..................... -- 9,818,501 5,293,259 Cash paid for extraordinary expense................. -- (1,254,876) -- ----------- ----------- ------------ Net cash provided by financing activities............. (3,816,583) 4,324,553 2,133,875 ----------- ----------- ------------ Net Increase in Cash and Cash Equivalents............. 2,211,971 13,234,534 621,360 Cash and Cash Equivalents, at beginning of year....... 14,478,972 1,244,438 623,078 ----------- ----------- ------------ Cash and Cash Equivalents, at end of year............. $16,690,943 $14,478,972 $ 1,244,438 =========== =========== ============
See notes to consolidated financial statements. F-4 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 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 except for the limited liability company formed in November 2001, in which the Partnership has a 50% interest. 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 its fifty-percent owned Investment limited liability company using the equity method. ACCOUNTING ESTIMATES. The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires 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. F-5 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SEGMENT REPORTING. Operating segments are revenue-producing components of the Partnership for which separate financial information is produced internally for management. Under the definition, NERA operated, for all periods presented, as a single segment. COMPREHENSIVE INCOME. Comprehensive income is defined as changes in partners' equity exclusive of transactions with owners (such as capital contributions and dividends). NERA did not have any comprehensive income items in 2001, 2000 or 1999, other than net income as reported. INCOME PER UNIT. Net income per unit has been calculated based upon the weighted average number of units outstanding during each year presented. The Partnership has no dilutive units and, therefore, basic net income per unit is the same as deducted net income per unit. CONCENTRATION OF CREDIT RISKS AND FINANCIAL INSTRUMENTS. The Partnerships' properties 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, 2000 or 1999. 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, 2001, substantially all of the Partnerships' cash and cash equivalents were held in interest-bearing accounts at financial institutions, earning interest at rates from 1.32 to 1.99 percent. At December 31, 2001 and 2000, approximately $16,000,000 and $14,000,000 of cash and cash equivalents exceeded federally insured amounts. ADVERTISING EXPENSE. Advertising is expensed as incurred. Advertising expense was $72,318, $73,928 and $87,777 in 2001, 2000 and 1999, respectively. NOTE 2. RENTAL PROPERTIES Rental properties consist of the following:
DECEMBER ------------------------- 2001 2000 USEFUL LIFE ----------- ----------- ----------- Land, improvements, and parking lots................... $16,185,485 $16,106,171 10-31 years Buildings and improvements............................. 78,671,755 76,975,338 15-31 years Kitchen cabinets....................................... 1,646,814 1,351,868 5-10 years Carpets................................................ 1,578,655 1,346,358 5-10 years Air conditioning....................................... 184,735 204,903 7-10 years Laundry equipment...................................... 43,802 46,441 5-7 years Elevators.............................................. 175,557 161,391 20 years Swimming pools......................................... 80,198 80,198 10 years Equipment.............................................. 1,082,807 967,093 5-7 years Motor vehicles......................................... 90,543 100,655 5 years Fences................................................. 39,654 24,815 5-10 years Furniture and fixtures................................. 584,045 460,708 5-7 years Smoke alarms........................................... 54,338 38,195 5-7 years ----------- ----------- 100,418,389 97,864,134 Less accumulated depreciation.......................... 26,477,291 22,557,098 ----------- ----------- $73,941,098 $75,307,036 =========== ===========
F-6 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. RENTAL PROPERTIES (CONTINUED) Real estate and accumulated depreciation as of December 31, 2001 is:
COST INITIAL COST TO CAPITALIZED PARTNERSHIPS(1) SUBSEQUENT --------------------------- TO ENCUMBRANCES ACQUISITION(2) (FIRST BUILDINGS -------------- MORTGAGES) LAND IMPROVEMENTS IMPROVEMENTS ------------- ----------- ------------- -------------- Avon Street Apartments $ 1,660,922 $ 62,700 $ 837,318 $ 422,566 L.P...................... Residential Apartments Malden, Massachusetts Boylston Downtown L.P.... $ 7,225,722 $ 2,112,000 $ 8,593,111 $ 3,553,838 Residential/Commercial Boston, Massachusetts Brookside Associates $ 2,000,000 $ 684,000 $ 3,116,000 $ 76,029 LLC...................... Residential Apartments Woburn, Massachusetts Clovelly Apartments $ 2,200,000 $ 177,610 $ 1,478,359 $ 470,286 L.P...................... Residential Apartments Nashua, New Hampshire Coach L.P................ $ 1,500,000 $ 140,600 $ 445,791 $ 461,450 Residential Apartments Acton, Massachusetts Commonwealth 1137 L.P.... $ 1,800,000 $ 342,000 $ 1,367,669 $ 377,718 Residential Apartments Boston, Massachusetts Commonwealth 1144 L.P.... $ 7,500,000 $ 1,410,000 $ 5,664,816 $ 805,933 Residential Apartments Boston, Massachusetts East Hampton L.P......... $ 1,295,749 $ 394,011 $ 1,182,031 $ 1,294,843 Strip Shopping Mall East Hampton, Connecticut Executive Apartments $ 1,900,000 $ 91,400 $ 740,360 $ 929,939 L.P...................... Residential Apartments Framingham, Massachusetts Hamilton Oaks $11,421,432 $ 2,175,000 $12,325,000 $ 174,211 Associates LLC........... Residential/Commercial Brockton, Massachusetts Highland Street $ 800,000 $ 156,000 $ 634,085 $ 249,166 Apartments, L.P.......... Residential Apartments Lowell, Massachusetts Linhart L.P.............. $ 1,700,000 $ 385,000 $ 1,540,000 $ 827,181 Residential/Commercial Newton, Massachusetts Middlesex Apartments $ 1,300,000 $ 37,700 $ 161,012 $ 239,535 L.P...................... Residential Apartments Newton, Massachusetts Nashoba Apartments $ 1,013,067 $ 79,650 $ 284,548 $ 696,458 L.P...................... Residential Apartments Acton, Massachusetts 140 North Beacon L.P..... $ 4,500,000 $ 936,000 $ 3,762,013 $ 1,240,352 Residential/Commercial Boston, Massachusetts Oak Ridge Apartments $ 1,953,938 $ 135,300 $ 406,544 $ 1,076,585 L.P...................... Residential Apartments Foxboro, Massachusetts GROSS AMOUNT AT WHICH CARRIED AT CLOSE OF PERIOD ------------------------------------------ BUILDINGS ACCUMULATED DATE LAND IMPROVEMENTS TOTALS DEPRECIATION(3) ACQUIRED ----------- ------------- ------------ --------------- ---------- Avon Street Apartments $ 62,700 $ 1,259,884 $ 1,322,584 $ 1,013,084 Sept. 1977 L.P...................... Residential Apartments Malden, Massachusetts Boylston Downtown L.P.... $ 2,112,000 $12,146,949 $ 14,258,949 $ 2,949,484 July 1995 Residential/Commercial Boston, Massachusetts Brookside Associates $ 684,000 $ 3,192,029 $ 3,876,029 $ 177,997 Oct. 2000 LLC...................... Residential Apartments Woburn, Massachusetts Clovelly Apartments $ 177,610 $ 1,948,645 $ 2,126,255 $ 1,598,801 Sept. 1977 L.P...................... Residential Apartments Nashua, New Hampshire Coach L.P................ $ 140,600 $ 907,241 $ 1,047,841 $ 674,992 Sept. 1977 Residential Apartments Acton, Massachusetts Commonwealth 1137 L.P.... $ 342,000 $ 1,745,387 $ 2,087,387 $ 444,268 July 1995 Residential Apartments Boston, Massachusetts Commonwealth 1144 L.P.... $ 1,410,000 $ 6,470,749 $ 7,880,749 $ 1,790,457 July 1995 Residential Apartments Boston, Massachusetts East Hampton L.P......... $ 394,011 $ 2,476,874 $ 2,870,885 $ 1,091,477 Sept. 1984 Strip Shopping Mall East Hampton, Connecticut Executive Apartments $ 91,400 $ 1,670,299 $ 1,761,699 $ 1,289,132 Sept. 1977 L.P...................... Residential Apartments Framingham, Massachusetts Hamilton Oaks $ 2,175,000 $12,499,211 $ 14,674,211 $ 1,423,984 Dec. 1999 Associates LLC........... Residential/Commercial Brockton, Massachusetts Highland Street $ 156,000 $ 883,251 $ 1,039,251 $ 282,569 Dec. 1996 Apartments, L.P.......... Residential Apartments Lowell, Massachusetts Linhart L.P.............. $ 385,000 $ 2,367,181 $ 2,752,181 $ 721,873 Jan. 1995 Residential/Commercial Newton, Massachusetts Middlesex Apartments $ 37,700 $ 400,547 $ 438,247 $ 229,439 Sept. 1977 L.P...................... Residential Apartments Newton, Massachusetts Nashoba Apartments $ 79,650 $ 981,006 $ 1,060,656 $ 592,118 Sept. 1977 L.P...................... Residential Apartments Acton, Massachusetts 140 North Beacon L.P..... $ 936,000 $ 5,002,365 $ 5,938,365 $ 1,281,777 July 1995 Residential/Commercial Boston, Massachusetts Oak Ridge Apartments $ 135,300 $ 1,483,129 $ 1,618,429 $ 908,383 Sept. 1977 L.P...................... Residential Apartments Foxboro, Massachusetts
F-7 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. RENTAL PROPERTIES (CONTINUED)
COST INITIAL COST TO CAPITALIZED PARTNERSHIPS(1) SUBSEQUENT --------------------------- TO ENCUMBRANCES ACQUISITION(2) (FIRST BUILDINGS -------------- MORTGAGES) LAND IMPROVEMENTS IMPROVEMENTS ------------- ----------- ------------- -------------- Olde English $ 1,850,000 $ 46,181 $ 878,323 $ 386,737 Apartments L.P........... Residential Apartments Lowell, Massachusetts Redwood Hills L.P........ $ 4,750,000 $ 1,200,000 $ 4,810,604 $ 1,349,497 Residential Units Worcester, Massachusetts River Drive L.P.......... $ 1,850,000 $ 72,525 $ 587,777 $ 1,082,073 Residential Apartments Danvers, Massachusetts Staples Plaza............ $ 4,845,814 $ 3,280,000 $ 4,920,000 $ 6,075 Strip Mall Framingham, Massachusetts WCB Associates LLC....... $ 5,078,337 $ 1,335,000 $ 7,565,501 $ 95,480 Residential Apartments Brockton, Massachusetts Westgate Apartments LLC.. $11,468,071 $ 461,300 $ 2,424,636 $ 4,864,893 Residential Apartments Woburn, Massachusetts Condominium Units........ $ -- $ 27,164 $ 311,527 $ (40,621) Residential Units Massachusetts ----------- ----------- ----------- ----------- $79,613,051 $15,741,141 $64,037,025 $20,640,223 =========== =========== =========== =========== GROSS AMOUNT AT WHICH CARRIED AT CLOSE OF PERIOD ------------------------------------------ BUILDINGS ACCUMULATED DATE LAND IMPROVEMENTS TOTALS DEPRECIATION(3) ACQUIRED ----------- ------------- ------------ --------------- ---------- Olde English $ 46,181 $ 1,265,060 $ 1,311,241 $ 994,278 Sept. 1977 Apartments L.P........... Residential Apartments Lowell, Massachusetts Redwood Hills L.P........ $ 1,200,000 $ 6,160,101 $ 7,360,101 $ 1,722,656 July 1995 Residential Units Worcester, Massachusetts River Drive L.P.......... $ 72,525 $ 1,669,850 $ 1,742,375 $ 1,070,766 Sept. 1977 Residential Apartments Danvers, Massachusetts Staples Plaza............ $ 3,280,000 $ 4,926,075 $ 8,206,075 $ 426,255 May 1999 Strip Mall Framingham, Massachusetts WCB Associates LLC....... $ 1,335,000 $ 7,660,981 $ 8,995,981 $ 889,758 Dec. 1999 Residential Apartments Brockton, Massachusetts Westgate Apartments LLC.. $ 461,300 $ 7,289,529 $ 7,750,829 $ 4,661,169 Sept. 1977 Residential Apartments Woburn, Massachusetts Condominium Units........ $ 27,164 $ 270,906 $ 298,070 $ 242,574 Various Residential Units Massachusetts ----------- ----------- ------------ ----------- $15,741,141 $84,677,248 $100,418,389 $26,477,291 =========== =========== ============ ===========
- ---------------------------------- (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 2001, 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
F-8 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, ------------------------------------------ 2001 2000 1999 ------------ ------------ ------------ Rental Properties Balance, Beginning............... $ 97,864,134 $103,822,885 $ 70,530,006 Additions: Buildings, improvements and other assets................. 2,802,942 5,349,330 33,855,292 ------------ ------------ ------------ 100,667,076 109,172,215 104,385,298 Deduct: Write-off of retired or disposed assets......................... 248,687 11,308,081 562,413 ------------ ------------ ------------ Balance, Ending.................... $100,418,389 $ 97,864,134 $103,822,885 ============ ============ ============ Accumulated Depreciation Balance, Beginning............... $ 22,557,098 $ 22,548,592 $ 19,661,624 Add: Depreciation for the year...... 4,168,880 4,302,306 3,304,010 ------------ ------------ ------------ 26,725,978 26,850,898 22,965,634 Deduct: Accumulated depreciation of retired or disposed assets..... 248,687 4,293,800 417,042 ------------ ------------ ------------ Balance, Ending.................... $ 26,477,291 $ 22,557,098 $ 22,548,592 ============ ============ ============
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 $1,155,521, $1,076,807 and $819,929 in 2001, 2000 and 1999, 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 and $325 paid in 2000 and 1999. 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 2001, 2000 and 1999, approximately $643,000, $656,000 and $939,000 was charged to NERA for legal, construction, maintenance, rental and architectural services and supervision of capital improvements. Approximately $196,000, $275,000 and $505,000 was capitalized in 2001, 2000 and 1999 in rental properties. Included in the 2001 expenses referred to above, approximately $194,000 is recorded in repairs and maintenance, $191,000 in administrative expense, and $62,000 in renting expense. Included in the 2000 expenses referred to above, approximately $138,000 is recorded in repairs and maintenance, $199,000 in administrative expense, and $44,000 in renting expense. Included in the 1999 expenses referred to above, approximately $192,000 is recorded in repairs and maintenance, $215,000 in F-9 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3. RELATED PARTY TRANSACTIONS (CONTINUED) administrative expense, and $27,000 in renting expense. Additionally in 2001, 2000 and 1999, the Partnership paid to the management company $80,000, $74,700 and $65,000, respectively, for in-house accounting services, which were previously provided by an outside company. Included in accounts payable and accrued expenses at December 31, 2001 and 2000 is $155,206 and $138,753 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%. 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 1996, prior to becoming an employee and President of the management company, the current President performed asset management consulting services to the Partnership. This individual continues to perform this service and to receive an asset management fee from the Partnership, receiving $50,000, $42,500 and $32,650 in 2001, 2000 and 1999, respectively. Included in prepaid expenses and other assets were amounts due from related parties of $1,038,081, $1,036,639, and $937,157 at December 31, 2001, 2000 and 1999, respectively, 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). On November 8, 2001, the Partnership, the majority shareholder of the General Partner and the President of the management company formed a Limited Liability Company to purchase a 40-unit apartment building in Cambridge, Massachusetts. The ownership percentages are 50%, 47 1/2% and 2 1/2%, respectively. As part of this transaction, the Partnership advanced funds in excess of its 50% interest and received interest income on this excess, at 8%. This interest income totaled $30,003 in 2001. 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 Hamilton Oaks Apartments in Brockton, Massachusetts (see Note 2). This unsecured 10% note was due on December 22, 2001 or could be prepaid without penalty. On April 6, 2000, this note was paid in full. Interest expense on this note was $20,000 and $2,083 for the period ending December 31, 2000 and 1999, respectively. NOTE 4. OTHER ASSETS Included in prepaid expenses and other assets at December 31, 2001 and 2000 is approximately $552,311 and $349,000, respectively, held in escrow to pay future capital improvements. Financing and leasing fees of $816,414 and $879,247 are net of accumulated amortization of $1,157,600 and $983,363 in 2001 and 2000, respectively. NOTE 5. MORTGAGES PAYABLE AND EXTRAORDINARY ITEM At December 31, 2001 and 2000, the mortgages payable consisted of various loans, all of which were secured by first mortgages on properties referred to in Note 2. At December 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 majority of the mortgages are subject to prepayment penalties. See Note 12 for fair value information. F-10 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5. MORTGAGES PAYABLE AND EXTRAORDINARY ITEM (CONTINUED) The Partnerships have pledged tenant leases as additional collateral for certain of these mortgages. Approximate annual maturities are as follows: 2002--current maturities.................................... $ 816,000 2003........................................................ 881,000 2004........................................................ 949,000 2005........................................................ 13,066,000 2006........................................................ 770,000 Thereafter.................................................. 63,131,000 ----------- $79,613,000 ===========
During 2000, eleven of the Partnerships' mortgages were refinanced and two new mortgages were incurred on previously debt-free property. The total of the 13 new mortgages is approximately $33,650,000; the repaid mortgages totaled approximately $24,000,000. The new mortgages mature in 2010 and 2011 and require interest only, at rates from 7.63% to 8.46%. The repaid mortgages had interest rates ranging from 8.25% to 9.25% and were to mature in 2005. As a result of this new financing, the Partnership has recorded an extraordinary charge in 2000 of approximately $1,592,000, inclusive of prepayment penalties of $1,255,000 and the expensing of previously deferred financing costs of $337,000. New deferred financing fees of approximately $369,000 will be amortized over the 10-year maturities of the new mortgages, using the interest rate method. In April 2001, the Partnership obtained a one-year line of credit in the amount of $12,000,000, secured by the property located at 62 Boylston Street. At December 31, 2001, the Partnership had 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. The Partnership informed the lender that a renewal of this line of credit, effective for April 2002, will not be requested. 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. Security deposits are held 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 $17.70 per unit in 2001, $14.70 per unit in 2000 and $13.20 per unit in 1999. The 1999 distribution included a special dividend of $3.50 per unit paid in March 1999. The 2000 distribution included a special dividend of $4.00 per unit, paid in March 2000. In February 2002, the Partnership voted to change its dividend policy from semi-annual to quarterly and declared a quarterly dividend of $6.40 per unit, payable on March 31, 2002. F-11 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7. PARTNERS' CAPITAL (CONTINUED) 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, ------------------------------ 2001 2000 1999 -------- -------- -------- Earnings per Depositary Receipt: Income before extraordinary item..................... $3.84 $4.27 $2.11 Net income........................................... $3.84 $3.35 $2.11
NOTE 8. TREASURY UNITS Treasury units at December 31, 2001 are as follows: Class A..................................................... 5,681 Class B..................................................... 1,228 General Partnership......................................... 64 ----- 6,973 =====
NOTE 9. COMMITMENTS AND CONTINGENCIES From time to time, the Partnerships are involved in various ordinary routine litigation incidental to their business. The Partnerships are not involved in any material pending legal proceedings. The Partnership has committed, subject to final approvals, to construct 20 additional residential units at the Westgate Apartments in Woburn, Massachusetts. The total cost of these units will be approximately $3,500,000, to be funded from cash reserves. F-12 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10. RENTAL INCOME In 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........................................................ $ 2,028,000 2003........................................................ 2,017,000 2004........................................................ 1,867,000 2005........................................................ 1,496,000 2006........................................................ 1,282,000 Thereafter.................................................. 8,496,000 ----------- $17,186,000 ===========
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 $461,000, $1,039,000 and $933,000 for the years ended December 31, 2001, 2000 and 1999, respectively. Rents receivable are net of allowances for doubtful accounts of $77,752, $249,332 and $149,386 at December 31, 2001, 2000 and 1999, respectively. NOTE 11. CASH FLOW INFORMATION During the year ended December 31, 2001, 2000 and 1999, cash paid for interest was $6,450,342, $6,351,413, and $4,862,468, respectively. NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Partnership in estimating the fair value of its financial instruments: Cash and cash equivalents, other assets, investment in partnerships, accounts payable, and advance rents and security deposits: Fair value approximates the carrying value of such assets and liabilities. Mortgage notes payable: Fair value is generally based on estimated future cash flows discounted using the quoted market rate for an independent source of similar obligations. Refer to the table below for the carrying amount and estimated fair value of such instruments.
AT DECEMBER 31, 2001 AT DECEMBER 31, 2000 ------------------------- ------------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE ----------- ----------- ----------- ----------- Mortgage notes payable.................... $79,613,051 $83,864,053 $80,368,031 $80,368,031
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, and timing differences related to prepaid rents and F-13 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13. TAXABLE INCOME AND TAX BASIS (CONTINUED) allowances. Taxable income is approximately $500,000 greater than statement income because of depreciation differences, non-deductible allowances and an increase in tenants' prepaid rental deposits. The cumulative tax basis of the Partnership's real estate at December 31, 2001 is approximately $1,900,000 greater than the statement basis. NOTE 14. SUBSEQUENT EVENT In March 2002, the Partnership signed a purchase and sale agreement to acquire a 69-unit residential apartment complex located in Norwood, Massachusetts for $7,200,000. The Partnership will assume a first mortgage of approximately $3,800,000 with an interest rate of 7.08%, amortizing over 25 years and maturing in 2007. The seller is financing $1,750,000 at a rate of 6%, interest only, for 5 years. The balance of $1,650,000 will be funded from cash reserves. The completion of this transaction is dependent on the assumption of the first mortgage and receipt of acceptable inspections and other due diligence reports. F-14 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED -------------------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2001 2001 2001 2001 TOTAL ---------- ---------- ------------- ------------ ----------- Revenues........................ $6,714,053 $6,831,834 $7,108,272 $7,366,175 $28,020,334 Expenses........................ 5,372,152 5,437,660 5,602,856 5,609,554 22,022,222 ---------- ---------- ---------- ---------- ----------- Income from Operations.......... 1,341,901 1,394,174 1,505,416 1,756,621 5,998,112 Other Income.................... 212,028 154,917 140,247 141,652 648,844 ---------- ---------- ---------- ---------- ----------- Net Income...................... $1,553,929 $1,549,091 $1,645,663 $1,898,273 $ 6,646,956 ========== ========== ========== ========== =========== Net Income per Unit............. $ 8.97 $ 8.94 $ 9.50 $ 10.96 $ 38.37 ========== ========== ========== ========== =========== Net Income per Depositary Receipt....................... $ .90 $ .89 $ .95 $ 1.10 $ 3.84 ========== ========== ========== ========== ===========
THREE MONTHS ENDED -------------------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2000 2000 2000 2000 TOTAL ---------- ---------- ------------- ------------ ----------- Revenues........................ $6,436,245 $6,529,212 $6,432,015 $6,436,259 $25,833,731 Expenses........................ 5,545,494 5,332,520 5,264,923 5,291,098 21,434,035 ---------- ---------- ---------- ---------- ----------- Income from Operations.......... 890,751 1,196,692 1,167,092 1,145,161 4,399,696 Gain on the Sale of Real Estate........................ 0 662,781 0 1,867,119 2,529,900 Other Income.................... 47,114 43,305 175,876 197,224 463,519 ---------- ---------- ---------- ---------- ----------- Net Income Before Extraordinary Item.......................... 937,865 1,902,778 1,342,968 3,209,504 7,393,115 Extraordinary Loss on Extinguishment of Debt........ -- (116,213) (1,476,055) -- (1,592,268) ---------- ---------- ---------- ---------- ----------- Net Income (Loss)............... $ 937,865 $1,786,565 $ (133,087) $3,209,504 $ 5,800,847 ========== ========== ========== ========== =========== Per Unit Income before extraordinary item........................ $ 5.41 $ 10.98 $ 7.75 $ 18.53 $ 42.67 Extraordinary item............ -- (0.67) (8.52) -- (9.19) ---------- ---------- ---------- ---------- ----------- Net income.................... $ 5.41 $ 10.31 $ (0.77) $ 18.53 $ 33.48 ========== ========== ========== ========== =========== Per Depositary Receipt Income before extraordinary item........................ $ 0.54 $ 1.10 $ 0.78 $ 1.85 $ 4.27 Extraordinary item............ -- (0.07) (0.85) -- (0.92) ---------- ---------- ---------- ---------- ----------- Net income.................... $ 0.54 $ 1.03 $ (0.08) $ 1.85 $ 3.35 ========== ========== ========== ========== ===========
F-15 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 29, 2002
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 --------- ----- ---- /s/ RONALD BROWN President and Director of the ------------------------------------------- General Partner (Principal March 29, 2002 Ronald Brown Executive Officer) Treasurer and Director of the /s/ HAROLD BROWN General Partner (Principal ------------------------------------------- Financial Officer and March 29, 2002 Harold Brown Principal Accounting Officer) /s/ GUILLIAEM AERTSEN ------------------------------------------- Director of the General March 29, 2002 Guilliaem Aertsen Partner
S-1 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- ---------------------- (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)
- ------------------------ (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. S-2 -----END PRIVACY-ENHANCED MESSAGE-----