-----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, CTMk6TBfhwpkiDgRaNrgz4qRlks7s32UklwH3LM+NBalPY22hp4RV9zS8K//QkOa Dy3h6iurvD6B44wvJhhlsg== 0001047469-98-020496.txt : 19980518 0001047469-98-020496.hdr.sgml : 19980518 ACCESSION NUMBER: 0001047469-98-020496 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000746514 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 042619298 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12138 FILM NUMBER: 98622669 BUSINESS ADDRESS: STREET 1: 39 BRIGHTON AVE CITY: ALLSTON STATE: MA ZIP: 02134 BUSINESS PHONE: 6177830039 MAIL ADDRESS: STREET 1: 39 BRIGHTON AVE CITY: ALLSTON STATE: MA ZIP: 02134 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------- FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE - --- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 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 Identification No.) Incorporation or Organization) 39 Brighton Avenue, Allston, Massachusetts 02134 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, (617) 783-0039 Including Area Code Not Applicable (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by Check X whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------------- -------------- INDEX PART I - FINANCIAL INFORMATION
Page No. Item 1. Financial Statements. Balance Sheets - March 31, 1998 and March 31, 1997 4 Statements of Operations - Three Months Ended March 31, 1998 and March 31, 1997 5 Statements of Cash Flows - Three Months Ended March 31, 1998 and March 31, 1997 6 Notes to Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 PART II - OTHER INFORMATION Item 5. Other Information SIGNATURES 3
2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 15, 1998 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP By: NEWREAL, INC., its General Partner* By: /s/ Ronald Brown ----------------------------- Ronald Brown, President * Functional equivalent of Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer. 3 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1998 1997 (Unaudited) ------------ ------------- ASSETS Rental Properties $ 51,439,541 $ 51,575,342 Cash and Cash Equivalents 630,429 456,277 Short-term Investments 1,663,447 2,055,429 Rents Receivable 544,219 604,350 Real Estate Tax Escrows 565,930 570,713 Prepaid Expenses and Other Assets 1,546,237 1,514,370 Investment in Joint Venture 72,344 75,467 Financing and Leasing Fees 1,224,473 1,295,555 ------------ ------------ TOTAL ASSETS $ 57,686,620 $ 58,147,503 ------------ ------------ ------------ ------------ LIABILITIES AND PARTNERS' CAPITAL Mortgages Payable $ 51,803,366 $ 51,956,821 Accounts Payable and Accrued Expenses 837,768 903,430 Advance Rental Payments and Security Deposits 1,845,733 1,822,022 ------------ ------------ Total Liabilities 54,486,867 54,682,273 Commitments and Contingent Liabilities (Note 9) Partners' Capital: 173,252 units outstanding in 1998 and 1997 3,199,753 3,465,230 ------------ ------------ TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 57,686,620 $ 58,147,503 ------------ ------------ ------------ ------------
See notes to consolidated financial statements. 4 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, (Unaudited) 1998 1997 ----------- ----------- Revenues: Rental income $ 4,536,190 $ 4,220,254 Laundry and sundry income 44,924 52,576 ----------- ----------- 4,581,114 4,272,830 ----------- ----------- Expenses: Administrative 299,897 248,759 Depreciation and amortization 796,023 791,802 Interest 1,156,258 1,163,576 Management fees 194,096 187,008 Operating 639,863 628,525 Renting 40,090 38,937 Repairs and maintenance 542,842 588,290 Taxes and insurance 497,145 457,626 ----------- ----------- 4,166,214 4,104,523 ----------- ----------- Income from Operations 414,900 168,307 ----------- ----------- Other Income (Loss): Interest income 38,407 28,332 Income (loss) from investments in partnership and joint venture (3,122) 965 Unrealized depreciation in investment (6,477) -- ----------- ----------- 28,808 29,297 ----------- ----------- Net Income $ 443,708 $ 197,604 ----------- ----------- ----------- ----------- Net Income per Unit $ 2.56 $ 1.13 ----------- ----------- ----------- ----------- Weighted Average Number of Units Outstanding 173,252 174,634 ----------- ----------- ----------- -----------
See notes to consolidated financial statements. 5 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, (Unaudited) 1998 1997 ----------- ----------- Cash Flows from Operating Activities: Net income $ 443,708 $ 197,604 ----------- ----------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 796,023 791,802 (Income) Loss from investments in partnerships and joint venture 3,122 (965) Decrease in rents receivable 60,131 136,770 (Increase) in financing and leasing fees (4,829) (4,808) Increase (Decrease) in accounts payable and accrued expenses (65,662) 105,837 (Increase) Decrease in real estate tax escrows 4,783 (1,160) (Increase) Decrease in prepaid expenses and other assets (31,867) 23,774 Increase in advance rental payments and security deposits 23,711 52,946 ----------- ----------- Total Adjustments 785,412 1,104,196 ----------- ----------- Net cash provided by operating activities 1,229,120 1,301,800 ----------- ----------- Cash Flows from Investing Activities: Distribution from joint venture -- 5,080 Payment for purchase and improvement of rental properties (584,310) (510,719) Maturity of short-term investments 391,982 51,528 Purchase of short-term investments -- -- ----------- ----------- Net cash (used in) investing activities (192,328) (454,111) ----------- -----------
See notes to consolidated financial statements. 6 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, (Unaudited) 1998 1997 ----------- ----------- Cash Flows from Financing Activities: Principal payments and early repayment of mortgages payable (153,455) (140,735) Distributions to partners (709,185) (853,222) Purchase of treasury units -- (66,983) ----------- ----------- Net cash (used in) financing activities (862,640) (1,060,940) ----------- ----------- Net Increase in Cash and Cash Equivalents 174,152 213,251 Cash and Cash Equivalents, Beginning 456,277 1,830,605 ----------- ----------- Cash and Cash Equivalents, Ending $ 630,429 $1,617,354 ----------- ----------- ----------- -----------
See notes to consolidated financial statements. 7 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited)
Units ------------------------------------------------- Limited General ------------------------- Partnership Class A Class B Class C Total ----------- ------------ ----------- ---------- Balance, January 1, 1997 $3,115,865 $ 743,473 $ 39,160 $3,898,498 Unit Buyback (53,586) (12,727) (670) (66,983) Distributions to Partners (682,578) (62,112) (8,532) (853,222) Net Income 158,083 37,545 1,976 197,604 ---------- ---------- ----------- ---------- Balance, March 31, 1997 $2,537,784 $ 606,179 $ 31,934 $3,175,897 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- Units authorized and issued, net of 5,818 Treasury Units, at March 31, 1997 139,423 33,234 1,750 174,407 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- Balance, January 1, 1998 $2,769,251 $ 661,152 $ 34,827 $3,465,230 Distributions to Partners (567,348) (134,745) (7,092) (709,185) Net Income 354,966 84,304 4,438 443,708 ---------- ---------- ----------- ---------- Balance, March 31, 1998 $2,556,869 $ 610,711 $ 32,173 $3,199,753 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- Units authorized and issued, net of 6,973 Treasury Units at March 31, 1998 138,602 32,918 1,732 173,252 ----------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
See notes to consolidated financial statements. 8 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SIGNIFICANT ACCOUNTING POLICIES Line of Business: New England Realty Associates Limited Partnership ("NERA" or the "Partnership") was organized in Massachusetts during 1977. NERA and its subsidiaries own and operate various residential apartment buildings, condominium units, and commercial properties located in Massachusetts, Connecticut, New Hampshire, and Maine. NERA has also made investments in other real estate partnerships and has participated in other real estate- related activities, primarily located in Massachusetts. In connection with the mortgages referred to in Note 5, a substantial number of NERA's properties were restructured into separate subsidiary limited partnerships without any change in the historical cost basis. Principles of Consolidation: The consolidated financial statements include the accounts of NERA and its subsidiary limited partnerships. NERA has a 99.67% ownership interest in each of such subsidiary limited partnerships. The consolidated group is referred to as the "Partnerships." Minority interests are not recorded since they are insignificant. All significant intercompany accounts and transactions are eliminated in consolidation. The Partnership accounts for its investment in the joint venture on the equity method. Accounting Estimates: The preparation of the financial statements is in accordance with generally accepted accounting principles (GAAP) requiring management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Accordingly, actual results could differ from those estimates. Revenue Recognition: Rental income from residential and commercial properties is recognized ratably over the term of the related lease. Amounts sixty 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. This policy was adopted in 1995. Previously, impairment was considered on a case-by-case basis. See Note 2 for the effect of this accounting change. 9 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 and its Subsidiary Partnerships consider cash equivalents to be all highly liquid instruments purchased with a maturity of three months or less. Short-term Investments: The Partnership accounts for short-term investments in accordance with Statements of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities." The Partnerships consider short-term investments to be mutual funds, and bank certificates of deposit, Treasury obligations, or commercial paper with initial maturities between three and twelve months. These investments are considered to be trading account securities and are carried at fair value with unrealized holding gains or losses reflected in earnings. Concentration of Credit Risks and Financial Instruments: The Partnerships' tenants are located in New England, and the Partnerships are subject to the general economic risks related thereto. No single tenant accounted for more than 5% of the Partnerships' revenues in 1998 or 1997. The Partnerships make their temporary cash investments with high credit quality financial institutions or purchase money market accounts invested in U.S. Government securities. At March 31, 1998, approximately $59,566 of cash and cash equivalents exceeded federally insured amounts. The mutual fund investment is subject to price volatility associated with any interest bearing investment. Fluctuations in actual interest rates affect the value of these investments. 10 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2--RENTAL PROPERTIES Rental properties consist of the following:
March 31, December 31, Useful 1998 1997 Life ----------- ----------- ----------- Land $ 9,710,733 $ 9,710,733 -- Buildings 43,627,173 43,627,173 25-31 years Building improvements 11,710,515 11,351,613 15-31 years Kitchen cabinets 1,075,900 1,029,671 5-10 years Carpets 1,107,880 1,028,065 5-10 years Air conditioning 251,950 251,950 7-10 years Land improvements 627,453 623,453 10-31 years Laundry equipment 62,899 62,899 5-7 years Elevators 55,480 45,592 20 years Swimming pools 42,450 42,450 10 years Equipment 541,055 471,263 5-7 years Motor vehicles 65,926 65,926 5 years Fences 20,785 20,785 5-10 years Furniture and fixtures 266,965 255,033 5-7 years Smoke alarms 14,458 10,706 5-7 years ----------- ----------- 69,181,622 68,597,312 Less accumulated depreciation 17,742,081 17,021,970 ----------- ----------- $51,439,541 $51,575,342 ----------- ----------- ----------- -----------
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 $194,096 and $187,008 for the three months ended March 31, 1998 and 1997, respectively. Advance rental payments and security deposits are held in escrow by the management company (see Note 6). The management company also receives a mortgage servicing fee equal to an annual rate of 1/2% of the monthly outstanding balance of mortgages receivable resulting from the sale of property. There were no mortgage servicing fees paid in the three months ended March 31, 1998 and the year ended December 31, 1997. 11 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3--RELATED PARTY TRANSACTIONS (CONTINUED) The Partnership Agreement also permits the General Partner or management company to charge the costs of professional services (such as counsel, accountants, and contractors) to NERA. During the three months ended March 31, 1998 and 1997, approximately $124,000 and $133,000 was charged to NERA for legal, maintenance, architectural services and supervision of capital improvements. Approximately $44,000 and $34,000 was capitalized during the three months ended March 31, 1998 and 1997 in leasehold improvements. Included in the 1998 expenses referred to above, approximately $41,000 is recorded in repairs and maintenance, and approximately $39,000 is included in administrative expenses. Included in the 1997 expenses referred to above, approximately $46,000 is recorded in repairs and maintenance, approximately $41,000 is recorded in administrative expenses and approximately $12,000 is recorded in renting expenses. Additionally in each of the quarters ended March 31, 1998 and 1997 the Partnership paid to the management company $15,000 and $12,500 respectively for accounting services previously provided by an outside company. The Partnership Agreement entitles the General Partner or a management company to receive certain commissions upon the sale of Partnership property only to the extent that total commissions do not exceed 3%. No such commissions were paid in 1998 or 1997. In 1996, an unrelated individual that performed asset management consulting services to NERA and the management company was appointed President of the management company. This individual continues to receive asset management fees from NERA, receiving $9,000 during the three months ended March 31, 1998 and $30,600 during the year ended December 31, 1997. Included in prepaid expenses and other assets were amounts due from related parties of $488,928 at March 31, 1998 and $487,321 at December 31, 1997 representing Massachusetts tenant security and prepaid rent deposits, which are held for the Partnerships by another entity also owned by one of the shareholders of the General Partner (see Note 6). Also included in prepaid expenses and other assets is an insurance reserve account funded by the Partnerships and held by the management company. The insurance reserve includes funds from other properties which are also owned by the related parties. The balance in the reserve was $155,949 at March 31, 1998 and $155,072 at December 31, 1997. See Note 10 for rental arrangements with the Timpany Plaza joint venture. As described in Note 4, the Partnership has interests in certain entities in which the majority shareholder of the General Partner is also involved. 12 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4--OTHER ASSETS Short-term investments are considered to be trading securities per FAS 115 and are carried on the balance sheet at their market value. At March 31, 1998, a mutual fund with a cost of $1,669,924 was recorded at its market value of $1,663,447. The unrealized loss of $6,477 is included in other income (loss). Included in prepaid expenses and other assets at March 31, 1998 and December 31, 1997 is approximately $355,000 and $389,000 held in escrow to pay future capital improvements (see Note 5). The carrying value of the Partnership's 50% interest in the Timpany Plaza joint venture, at equity, is $72,344 and $75,467 at March 31, 1998 and December 31, 1997 respectively. The Partnership owns a 10% ownership interest in a real estate partnership accounted for by the equity method and reduced to a carrying value of zero. Losses in excess of cost in limited partnerships have not been recorded as the Partnership is not liable for such amounts. The majority shareholder of the General Partner is also the majority owner of this partnership. There can be no assurance that any of NERA's partnership investments will be realizable in the future in excess of their carrying value. NOTE 5--MORTGAGES PAYABLE At March 31, 1998 and December 31, 1997, the mortgages payable consisted of various loans, substantially all of which were secured by first mortgages on properties referred to in Note 2, with interest ranging from 8.25% to 10.99%, payable in monthly installments currently aggregating approximately $431,000 including interest, to various dates through 2005. Although the loans mature within ten years, they are being amortized on a basis between 25 and 27.5 years. The carrying amounts of the Partnerships' mortgages payable approximate their fair value. The Partnerships have pledged tenant leases as additional collateral for certain of these mortgages. Approximate annual maturities are as follows: 1999 - current maturities $ 648,000 2000 707,000 2001 7,333,000 2002 758,000 2003 825,000 Thereafter 41,532,000 ----------- $51,803,000 ----------- -----------
13 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6--ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS The lease agreements for certain properties require tenants to maintain a one-month advance rental payment plus security deposits. The funds are held in escrow by another entity owned by the majority shareholder of the General Partner (see Note 3). NOTE 7--PARTNERS' CAPITAL The Partnership has two categories of limited partners (Class A and B) and one category of General Partner (General Partner). Under the terms of the current form of Partnership Agreement, the required percentages of Class B units and General Partnership units are 19% and 1% respectively of the total units outstanding. All classes have equal profit-sharing and distribution rights in proportion to their ownership interests. In March 1998 the Partnership declared a regular semi annual dividend of $4.10 per unit. In March 1997, the Partnership declared a regular semi annual dividend of $3.90 and a special distribution of $1.00 per unit. 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 ten Depositary Receipts. The following is information on the net income per Depositary Receipt: Three Months Ended March 31, 1998 1997 ---- ---- Net Income per Depositary Receipt $ .26 $ .11 ----- ----- ----- -----
NOTE 8--CAPITAL UNIT REPURCHASE PLAN During the second quarter of 1996, the Partnership announced a plan to repurchase up to $500,000 of its Depositary Receipts from existing holders of securities. The purchase of Depositary Receipts took place over a period of eighteen months. The purchase prices paid for Depositary Receipts varied and were equal to the price at which such securities were traded on the Nasdaq Stock Market at the time of purchase. During 1997 and 1996, the Partnership purchased 15,288 and 15,915 Depositary Receipts for a total cost of $139,268 and $110,060, respectively. 14 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8--CAPITAL UNIT REPURCHASE PLAN (CONTINUED) In addition, 363 Class B and 19 General Partnership units were purchased in 1997 for a total cost of $34,819 and 378 Class B and 20 General Partnership units were purchased in 1996 for a total cost of $27,517 to maintain the ownership percentages required by the current form of Partnership Agreement (see Note 7). Treasury units at March 31, 1998 are as follows: Class A 5,681 Class B 1,228 General Partner 64 ----- 6,973 ----- -----
NOTE 9--COMMITMENTS AND CONTINGENCIES From time to time, the Partnerships are involved in various ordinary routine litigation incidental to their business. The Partnerships are not involved in any material pending legal proceedings. NOTE 10--RENTAL INCOME During the three months ended March 31, 1998, approximately 85% of rental income is related to residential apartments and condominium units with leases of one year or less. The remaining 15% is related to commercial properties which have minimum future rental income on noncancellable operating leases as follows:
Commercial Property Leases Land Leases Total ------ ----------- ----- 1999 $1,591,000 $ 130,500 $1,721,500 2000 1,249,000 136,500 1,385,500 2001 1,023,000 150,000 1,173,000 2002 769,000 150,000 919,000 2003 628,000 150,000 778,000 Thereafter 1,725,000 1,049,500 2,774,500 ---------- ---------- ---------- $6,985,000 $1,766,500 $8,751,500 ---------- ---------- ---------- ---------- ---------- ----------
15 NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10--RENTAL INCOME (CONTINUED) In August 1988, the Partnership entered into a land lease agreement with an existing tenant of the Timpany Plaza Shopping Center in Gardner, Massachusetts. The minimum annual rents are $110,000 per year for the first five years, increasing each subsequent five-year period, with the average being $137,500 per year for the minimum twenty-year term. Included in rents receivable at March 31, 1998 and December 1997 is $205,375 and $171,000 respectively, representing the deferred rental income from this lease. There are also contingent rents based upon sales volume, common area maintenance, and other charges. This lease also provides for six extension periods of five years each at increased rents. The minimum rents pertaining to this agreement are reflected in the foregoing table. Concurrently, the Partnership entered into a joint venture with this same tenant relating to the space formerly leased by the tenant. Under this arrangement, the two parties have agreed to relet the space and divide the net income or loss after paying to the Partnership an annual minimum rent of $84,546. The Partnership's share of income (loss) is $(3,122) and $965 for the three months ended March 31, 1998 and 1997 respectively. The aggregate minimum future rental income does not include contingent rentals which may be received under various leases in connection with percentage rents, common area charges, and real estate taxes. Aggregate contingent rentals were approximately $271,000, and $217,000 for the three months ended March 31, 1998 and 1997 respectively. NOTE 11--CASH FLOW INFORMATION During the three months ended March 31, 1998 and 1997, cash paid for interest was $1,140,943 and $1,153,664 respectively. NOTE 12--FAIR VALUE OF FINANCIAL INSTRUMENTS The Partnership considers the fair value of its financial instruments to approximate their carrying values because conditions pertaining to the historic carrying values approximate those in the current market. 16 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION RESULTS OF OPERATIONS New England Realty Associates Limited Partnership and its Subsidiary Partnerships incurred income from operations of $414,900 during the three months ended March 31, 1998, compared to $168,307 for the three months ended March 31, 1997 an increase of $248,593. The rental activity is summarized as follows:
OCCUPANCY DATE ---------------------------------- MARCH 31, 1998 MARCH 31, 1997 --------------- -------------- Residential Units................ 1,668 1,668 Vacancies............ 30 56 Vacancy rate......... 1.7% 3.1% Commercial Total square feet.... 457,700 457,700 Vacancy.............. 92,000 95,000 Vacancy rate......... 20% 21%
RENTAL INCOME -------------------------------------------- 1998 1997 ------------------- ------------------- (IN THOUSANDS) Total rents.............. $4,536 $4,220 Residential percentage... 85% 85% Commercial percentage.... 15% 15% Contingent rentals....... $ 271 $ 217
Rental income for the three months ended March 31, 1998 was $4,536,190 compared to $4,220,254 for the three months ended March 31, 1997, an increase of $315,936. There has been a steady increase in the residential rates due to the demand in 17 rental units. Vacancies have also declined at the residential properties during the three months ended March 31, 1998 compared to the same period in 1997. Rental income increased at the commercial properties due primarily to increases in the contingent rentals at the Lewiston Mall Shopping Center. Timpany Plaza Shopping Center continues to have available space, and the Partnership plans to subdivide the vacant space created by the vacancy of a major tenant in 1996, in an effort to make it more marketable. Expenses for the three months ended March 31, 1998 were $4,166,214 compared to $4,104,523 for the three months ended March 31, 1997 an increase of $61,691. Administrative expenses increased $51,138 from $248,759 for the three months ended March 31, 1997 to $299,897 for the three months ended March 31, 1998. This represents an increase in legal and accounting fees. Interest expense decreased to $1,156,258 for the three months ended March 31, 1998 from $1,163,576 for the three months ended March 31, 1997, a decrease of $7,318. This decrease is due to a lower level of debt. Operating expenses increased to $639,863 at March 31, 1998 from $628,525 at March 31, 1997, an increase of $11,338. This represents an increase in utility costs, primarily the cost of water. Water and sewer rates have increased since 1997 and the usage has also increased due to a higher level of occupancy at the Partnership's residential properties. Repairs and maintenance expenses decreased to $542,842 at March 31, 1998 from $588,290 at March 31, 1997, a decrease of $45,448. The Partnership performed significant repairs to Partnership properties in 1997 in an effort to improve occupancy levels. Taxes and insurance increased to $497,145 for the three months ended March 31, 1998 from $457,626 at March 31, 1997, an increase of $39,519. Real estate taxes as well as filing fees associated with the various entities increased in 1998 compared to 1997. In addition, the Partnership received an insurance abatement of $28,237 during the three months ended March 31, 1997, resulting in a lower than usual insurance expense in 1997. Interest income was $38,407 for the three months ended March 31, 1998, compared to $28,332 for the three months ended March 31, 1997, an increase of $10,075. This increase is due to an increase in the average cash balance available for investment in 1998 compared to 1997. The Partnership is a partner in a joint venture with a tenant at the Timpany Plaza Shopping Center in Gardner, Massachusetts. Under the terms of the agreement, the two parties have agreed to relet the space formerly leased by the tenant, and divide the net income or loss after paying to the Partnership an annual rent of approximately $84,000. The Partnership's investment in the Timpany Plaza joint venture represents less than 1% of the Partnership's assets. 18 The Partnership's share of loss for 1998 in the joint venture at the Timpany Plaza Shopping Center was $3,122 compared to income of $965 in 1997, a fluctuation of $4,087. The income from the joint venture is down due to a vacancy at the Timpany Plaza Shopping Center during the three months ended March 31, 1998. As of March 31, 1998, the space at the Timpany Plaza Shopping Center relating to the joint venture was completely relet. Included in other income (loss) in the three months ended March 31, 1998 is $6,477 which represents the unrealized loss in the value of the Partnership's short term investments. The Partnership's short-term investments consists of a Massachusetts Municipal Bond Fund, the value of which will fluctuate daily. The Partnership records the investment at its fair market value, which will result in unrealized income or loss based on the purchase price of the investment and its fair market value. As a result of the changes discussed above, net income for the three months ended March 31, 1998 was $443,708 compared to $197,604 for the three months ended March 31, 1997, an increase of $246,104. LIQUIDITY AND CAPITAL RESOURCES The Partnership's principal source of cash during the first quarter of 1998 and the year ended December 31, 1997 were the collection of rents. The majority of cash and cash equivalents of $630,429 at March 31, 1998 and $456,277 at December 31, 1997 is held in an interest bearing account. The Partnership's short-term investments of $1,663,447 at March 31, 1998 and $2,055,429 at December 31, 1997 is invested in a Massachusetts Municipal Bond Fund. During the second quarter of 1996, the Partnership announced a plan to repurchase up to $500,000 of its Depositary Receipts from existing holders of securities. The purchase of Depositary Receipts took place over a period of eighteen months. The purchase prices paid for Depositary Receipts varied and were equal to the price at which such securities were traded on the Nasdaq Stock Market at the time of purchase. During 1997 and 1996, the Partnership purchased 15,288 and 15,915 Depositary Receipts for a total cost of $139,268 and $110,060, respectively. 19 In addition, 363 Class B and 19 General Partnership units were purchased for a total cost of $34,819 in 1997 and 378 Class B and 20 General Partnership units for a total cost of $27,517 in 1996 to maintain the required ownership percentages. During the first quarter of 1998, the Partnership and its Subsidiary Partnerships completed certain improvements to their properties at a total cost of $584,307. The most significant improvements were made at Boylston Downtown, located in Boston, Massachusetts for a total cost of $161,459. Additional capital improvements of $75,088, $65,044, $51,276, $33,184 and $31,030 were made to Lincoln Street, 1144-1160 Commonwealth Avenue, the Westgate Apartments, Avon Street, and Executive, respectively. In addition to the improvements made in the first quarter of 1998, the Partnership and its Subsidiary Partnerships plan to invest approximately $2,300,000 in capital improvements, of which approximately $2,020,000 is designated for residential properties and approximately $280,000 for commercial properties. These improvements will be funded from escrow accounts as well as from the Partnership's cash reserves. The Partnership anticipates that cash from operations and interest-bearing investments will be sufficient to fund its current operations and to finance current improvements to its properties. The Partnership's net income and cash flow may fluctuate dramatically from year to year as a result of the sale of properties, unanticipated increases in expenses, or the loss of significant tenants. Since the Partnership's long-term goals include the acquisition of additional properties, a portion of the proceeds from the refinancing and sale of properties is reserved for this purpose. The Partnership will consider refinancing existing properties if insufficient funds exist from cash reserves to repay existing mortgages or if funds for future acquisitions are not available. Factors That May Affect Future Results The discussions above contains information based upon management's belief and forward-looking statements that involve a number of risks, uncertainties, and assumptions. There can be no assurances that actual results will not differ materially as a result of various factors, including but not limited to the following: 20 A major tenant of the Lewiston Mall in Lewiston, Maine, which paid approximately $269,000 during the year ended December 31, 1997 and approximately $69,000 for the three months ended March 31, 1998, can terminate its lease with nine months notice, effective January 1, 1997. The Partnership is currently negotiating to obtain a long term lease. The Partnership, at this time, cannot make any assurances that the tenant will renew its lease for this space. 21 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 630,429 1,663,447 544,219 0 0 4,950,262 69,181,622 17,742,081 57,686,620 2,683,501 0 0 0 0 3,199,753 57,686,620 4,536,190 4,581,114 0 0 3,009,956 0 1,156,258 443,708 0 0 0 0 0 443,708 2.56 2.56
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