<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996 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 (I.R.S. Employer Identification No.)
of Incorporation or Organization)
39 BRIGHTON AVENUE, ALLSTON, MASSACHUSETTS 02134
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (617) 783-0039
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year,
if Changed Since LastReport)
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
------------ ------------
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
PAGE NO.
Item 1. Financial Statements.
Balance Sheets - June 30, 1996
and June 30, 1995 3
Statements of Operations - Six Months
Ended June 30,1996
and June 30, 1995 4
Statements of Cash Flows - Six Months
Ended June 30, 1996 and
June 30, 1995 5
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 17
PART II - OTHER INFORMATION
Item 5. Other Information 21
SIGNATURES 22
2
<PAGE>
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited)
----------- ------------
ASSETS
<S> <C> <C>
Rental Properties $ 51,142,114 $ 51,688,269
Cash and Cash Equivalents 3,247,474 2,706,124
Short-term Investments 50,214 48,877
Rents Receivable 753,890 684,409
Real Estate Tax Escrows 474,941 538,945
Prepaid Expenses and Other Assets 1,863,875 1,933,472
Investment in Joint Venture 117,476 129,989
Financing and Leasing Fees 1,839,132 2,020,885
------------ ------------
TOTAL ASSETS $ 59,489,116 $ 59,750,970
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS` CAPITAL
Mortgages Payable $ 52,811,010 $ 53,072,037
Accounts Payable and Accrued
Expenses 653,454 804,865
Advance Rental Payments and Security
Deposits 1,566,302 1,550,666
------------ ------------
Total Liabilities 55,030,766 55,427,568
Commitments and Contingent
Liabilities (Notes 9 and 12)
Partners' Capital:
177,152 units outstanding in 1996
and 1995 4,458,350 4,323,402
------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 59,489,116 $ 59,750,970
------------ ------------
------------ ------------
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(Unaudited) (Unaudited)
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 4,139,699 $ 2,274,773 $ 8,314,114 $ 4,519,007
Laundry & sundry income 47,972 34,273 109,021 68,526
----------- ----------- ----------- -----------
4,187,671 2,309,046 8,423,135 4,587,533
----------- ----------- ----------- -----------
Expenses:
Administrative 229,642 171,080 399,785 314,689
Depreciation and amortization 682,821 431,826 1,373,787 853,114
Interest 1,212,447 580,526 2,379,609 1,060,782
Management fees 172,609 96,652 353,021 198,853
Operating 409,547 191,010 1,061,129 470,807
Renting 47,276 42,240 62,209 72,189
Repairs & maintenance 685,896 422,013 1,232,609 745,012
Taxes & insurance 464,732 283,342 924,551 540,319
----------- ----------- ----------- -----------
3,904,970 2,218,689 7,786,700 4,255,765
----------- ----------- ----------- -----------
Income from Operations 282,701 90,357 636,435 331,768
----------- ----------- ----------- -----------
Other income(loss):
Interest income 35,294 13,775 88,344 25,023
Income(loss) from
investment in the joint
venture 5,228 (748) 11,535 8,852
40,522 13,027 99,879 33,875
----------- ----------- ----------- -----------
Net Income $ 323,223 $ 103,384 $ 736,314 $ 365,643
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net Income per
Unit $ 1.82 $ .58 $ 4.16 $ 2.06
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted Average Number
of Units Outstanding 177,152 177,152 177,152 177,152
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(Unaudited)
1996 1995*
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 736,314 $ 365,643
------------- -------------
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,373,787 853,114
(Income) on investments in
partnerships and joint venture (11,535) (8,852)
Decrease(Increase) in rents receivable (69,481) 55,041
(Increase) in financing and leasing fees (26,255) (518,108)
(Decrease) in accounts payable and
accrued expenses (151,411) (239,889)
Decrease(Increase) in real estate tax escrows 64,004 (129,710)
Decrease(Increase)in prepaid expenses
and other assets 69,597 (1,308,356)
Increase in advance rental payments and
security deposits 15,636 29,970
------------- -------------
Total Adjustments 1,264,342 (1,266,790)
------------- -------------
Net cash provided by (used in)
operating activities 2,000,656 (901,147)
------------- -------------
Cash Flows from Investing Activities:
Distribution from the joint venture 24,048 32,773
Payment for purchase and improvement
of rental properties (619,624) (30,372,784)
Purchase of short-term investments (1,337) (1,844)
------------- -------------
Net cash (used in)
investing activities (596,913) (30,341,855)
------------- -------------
</TABLE>
See notes to consolidated financial statements.
*Certain items have been re-classified for comparative purposes.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(Unaudited)
1996 1995
------------- -------------
<S> <C> <C>
Cash Flows from Financing Activities:
Principal payments and early
repayment of mortgages payable (261,027) (3,256,125)
Distributions to partners (601,366) (598,366)
Proceeds from refinancing of
Partnership properties - 13,450,000
Decrease in notes payable to related party - (1,175,000)
Increase in mortgages payable - 22,627,000
------------- -------------
Net cash (used in) provided by
financing activities (862,393) 31,047,509
------------- -------------
Net Increase(Decrease) in Cash and
Cash Equivalents 541,350 (195,493)
Cash and Cash Equivalents, Beginning 2,706,124 996,353
------------- -------------
Cash and Cash Equivalents, Ending $3,247,474 $ 800,860
------------- -------------
------------- -------------
See notes to consolidated financial statements.
</TABLE>
6
<PAGE>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
Partners' Capital
------------------------------------------------------------------------------
Limited General
------------------------------------- ---------------
Class A Class B Class C Total
------------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 $ 6,717,849 $ 1,598,946 $ 84,184 $ 8,400,979
Distributions to
Partners (478,693) (113,690) (5,983) (598,366)
Net Income 292,514 69,472 3,657 365,643
------------- ----------- --------------- -------------
Balance, June 30, 1995 $ 6,531,670 $ 1,554,728 $ 81,858 $ 8,168,258
------------- ----------- --------------- -------------
------------- ----------- --------------- -------------
Units authorized and
issued, net of 3,073
Treasury Units, at
June 30, 1995 141,722 33,659 1,265 177,152
------------- ----------- --------------- -------------
------------- ----------- --------------- -------------
Balance, January 1, 1996 $ 3,455,787 $ 824,206 $ 43,409 $ 4,323,402
Distributions to
Partners (481,093) (114,260) (6,013) (601,366)
Net Income 589,051 139,900 7,363 736,314
------------- ----------- --------------- -------------
Balance, June 30, 1996 $ 3,563,745 $ 849,846 $ 44,759 $ 4,458,350
------------- ----------- --------------- -------------
------------- ----------- --------------- -------------
Units authorized and
issued, net of 3,073
Treasury Units at
June 30, 1996 141,722 33,659 1,771 177,152
------------- ----------- --------------- -------------
------------- ----------- --------------- -------------
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
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
subsidiary partnerships 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 new
mortgages referred to in Note 5, a substantial number of NERA's properties were
restructured into separate subsidiary limited partnerships. The financial
statements for prior periods are unchanged.
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.
Revenue Recognition: 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.
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.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes: The financial statements have been prepared under the basis that
NERA and its subsidiary limited partnerships are entitled to tax treatment as
partnerships. Accordingly, no provision for income taxes on income has been
recorded.
Cash Equivalents: The Partnerships consider all highly liquid instruments
purchased with a maturity of three months or less to be cash equivalents.
Short-Term Investments: The Partnerships consider short-term investments to be
any 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.
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 1996 or 1995. 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
June 30, 1996, approximately $2,798,000 of cash and cash equivalents exceeded
federally insured amounts of which approximately $2,540,000 was invested in a
money market fund invested in U.S. Goverment securities.
NOTE 2--RENTAL PROPERTIES
Rental properties consist of the following:
<TABLE>
<CAPTION>
June 30, December 31, Useful
1996 1995 Life
------------- ------------- -------------
<S> <C> <C> <C>
Land $ 9,554,732 $ 9,554,732 --
Buildings 42,988,784 42,988,784 25-31 years
Building improvements 9,820,052 9,437,144 15-31 years
Kitchen cabinets 1,195,768 1,089,407 5-10 years
Carpets 1,109,094 1,028,473 5-10 years
Air conditioning 90,021 87,745 7-10 years
Land improvements 434,382 422,646 10-31 years
Laundry equipment 51,234 46,994 5-7 years
Elevators 16,842 16,842 20 years
Swimming pools 42,450 42,450 10 years
Equipment 184,515 166,132 5-7 years
Motor vehicles 46,704 46,704 5 years
Fences 22,229 22,229 5-10 years
Furniture and fixtures 106,997 95,793 5-7 years
Smoke alarms 6,224 6,224 5-7 years
------------- -------------
65,670,028 65,052,299
Less accumulated
depreciation 14,527,914 13,364,030
------------- -------------
$ 51,142,114 $ 51,688,269
------------- -------------
------------- -------------
</TABLE>
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 2--RENTAL PROPERTIES (CONTINUED)
On June 30, 1995, the Partnerships purchased for $30,198,000 five properties
containing an aggregate of 809 residential apartments and 18,400 square feet of
commercial space. The purchase was paid for in part with the proceeds of the
refinancing of thirteen of the Partnerships' properties and the issuance of new
mortgage notes payable aggregating $22,627,000 and maturing in ten years. The
properties were acquired from a trust owned nominally by the majority
shareholder of NERA's general partner. In substance, the properties were owned
by the trust's secured lender under a previous restructuring agreement whereby
the lender received all of the operating income from the properties as well as
the proceeds from the sale to NERA. The Partnerships have recorded the purchase
at the amount paid for the properties and have allocated the amounts to the
individual properties acquired. An entity owned by the majority shareholder of
the Partnership's general partner received a fee of $300,000 from the trust's
secured lender.
Included in rental properties at June 30, 1996 is a building in Newton,
Massachusetts acquired by the Partnership on January 25, 1995. The building
consists of 21,223 square feet of commercial space, 9 residential units and 29
parking spaces for a total purchase price of $1,925,000. This building was
acquired from an entity in which the majority shareholder of NERA's general
partner had a substantial ownership interest. The Partnership's management
company received a fee of approximately $11,000 from the seller in this
transaction. To facilitate this acquisition, the Partnership's management
company, an entity owned by the majority shareholder of NERA's general partner,
loaned the Partnership $1,175,000 in December 1994. In May 1995, the
Partnership refinanced this property and obtained a $1,329,000 mortgage payable
in 10 years with interest at 9.25%, and paid off the existing loan of $1,175,000
to the management company. Total interest paid on this loan was $38,073.
In 1995, the Partnership sold two condominiums located in Stoneham and Boston
Massachusetts. The gain of $152,463 is included in net income for the year
ended December 31, 1995.
In the fourth quarter of 1995, the Partnerships recorded a special charge of
$3,250,000 relating to the early adoption of Statement of Financial Accounting
Standards No. 121 (FAS 121) on accounting for the impairment of long-lived
assets effective for fiscal years beginning after December 15, 1995. This
statement requires that long-lived assets held and used by the entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. During 1995, the
Lewiston Mall with a carrying value of approximately $8,200,000 was remortgaged
for $2,933,000. As part of this refinancing, the lender obtained an appraisal
of $5,000,000. A further analysis of estimated future cash flows as required by
FAS 121 indicated an impairment. The carrying value of the Lewiston Mall has
been reduced to the net present value of expected future cash flows, which
approximates the aforementioned appraisal. Similiar analysis of the other
properties did not result in impairment.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 3--RELATED PARTY TRANSACTIONS
The Partnerships' properties are managed by an entity which is owned by the
majority shareholder of the General Partner (see Note 12). The management fee
is equal to 4% of rental revenue and laundry income. Total fees paid were
$353,021, and $198,853 for the six months ended June 30, 1996 and 1995,
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 1996 and 1995.
The Partnership Agreement also permits the General Partner or management company
to charge the costs of professional services (such as counsel, accountants,
contractors) to NERA. During the six months ended June 30, 1996 and 1995
approximately $142,000, and $42,000 was charged to NERA for legal, maintenance,
and architectural services, and supervision of capital improvements.
Approximately $40,000 was capitalized in leasehold improvements, approximately
$73,000 is included in administrative expenses, and approximately $27,000 is
included in repairs and maintenance expense during the six months ended June 30,
1996. Additionally in 1995, the Partnership paid to the management company
$30,000 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 1996 or 1995.
Included in prepaid expenses and other assets were amounts due from related
parties of $357,604 at June 30, 1996 and $366,258 at
December 31, 1995, 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 $124,211 at June 30, 1996
and $105,924 at December 31, 1995.
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.
See Note 2 for fees paid to related parties by the sellers of the
Partnerships' 1995 acquisitions.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 4--OTHER ASSETS
The short term investment totalling $50,214 at June 30, 1996 and $48,877 at
December 31, 1995 is carried at cost which approximates fair value. Such
investment at June 30, 1996 is a 5.07% certificate of deposit maturing in
February 1997. The issuer and amount of this investment is as follows:
June 30, December 31,
1996 1995
----------- -----------
Citizens Bank - Certificate of deposit 50,214 48,877
----------- -----------
$ 50,214 $ 48,877
----------- -----------
----------- -----------
The carrying value of the Partnership's 50% interest in the Timpany Plaza Joint
Venture, at equity, is $117,476 at June 30, 1996 and $129,989 at December 31,
1995.
The Partnership owns a 10% ownership interest in three real estate
partnerships 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. During the fourth
quarter of 1995 the real estate owned by another partnership in which NERA had a
10% ownership interest was sold for less than the mortgage debt. Accordingly,
NERA did not receive proceeds from this sale.
The majority shareholder of the General Partner is also the majority owner of
these partnerships (see Note 12). 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 June 30, 1996 and December 31, 1995 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.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 5--MORTGAGES PAYABLE (CONTINUED)
The Partnerships have pledged tenant leases as additional collateral for certain
of their mortgages.
Approximate annual maturities are as follows:
1997 - current maturities $ 550,200
1998 606,803
1999 661,687
2000 721,575
2001 786,928
Thereafter 49,483,817
-----------
$52,811,010
-----------
-----------
NOTE 6--ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS
The lease agreements for certain properties require tenants to maintain a one-
month advance rental payment and security deposits. The funds are held in
escrow by another entity owned by the majority shareholder of the General
Partner (See Notes 3 and 12).
NOTE 7--PARTNERS' CAPITAL
The Partnership has two categories of limited partners (Classes 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 $3.40 unit in the first quarters of
1996 and 1995.
The Partnership has entered into a deposit agreement with a bank to facilitate
public trading of limited partners' interests in Class A units.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 7--PARTNERS' CAPITAL (CONTINUED)
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 of the net income per Depositary Receipt:
Six Months Ended
June 30,
1996 1995
---- ----
Net Income Per Depositary Receipt $.42 $.21
---- ----
---- ----
NOTE 8--STOCK 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 repurchase of Depositary Receipts may take place over a period
of a year or more. The purchase price would be equal to the price at which such
securities are traded on the Nasdaq Stock Market at the time of the repurchase.
At June 30, 1996, no Depositary Receipts had been
repurchased, however, on July 3, 1996, the Partnership repurchased 7,000
depositary receipts for a total cost of approximatley $47,000.
NOTE 9--COMMITMENTS AND CONTINGENCIES
From time to time, the Partnerships are involved in various ordinary routine
litigation incidental to their business. The Partnerships are not involved in
any material pending legal proceedings.
NOTE 10--RENTAL INCOME
In 1996, approximately 83% of rental income is related to residential apartment
and condominium units with leases of one year or less. The remaining 17% is
related to commercial properties which have minimum future rental income on
noncancellable operating leases as follows:
Commercial
Property
Leases Land Leases Total
------------ ------------ ------------
1997 $ 1,650,600 $ 146,667 $ 1,797,267
1998 1,512,219 146,667 1,658,886
1999 1,203,527 146,667 1,350,194
2000 875,871 146,667 1,022,538
2001 596,985 146,667 743,652
Thereafter 1,981,932 1,173,336 3,155,268
------------ ------------ ------------
$ 7,821,134 $1,906,671 $ 9,727,805
------------ ------------ ------------
------------ ------------ ------------
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
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. As part of this lease, the tenant, at its cost, demolished
approximately one-third of the mall and replaced it with a new store of
comparable size. The minimum fixed term of this lease is for 20 years which
commenced with the opening of the new store in December 1989.
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 June 30,
1996 and December 31, 1995 is $171,750 and $158,000 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.
The ownership of this new building addition transfers to the Partnership at the
termination of the lease. Accordingly, the Partnership included in property
assets approximately $1,400,000 of book value of the demolished building
allocable to the Partnership leasehold interest and is depreciating this amount
on a straight-line basis over a twenty-year period.
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 was approximately $11,500 and $8,900, for the six
months ended June 30, 1996 and 1995 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 $486,000, and $401,000 for the six months ended June 30, 1996 and
1995 respectively.
NOTE 11--CASH FLOW INFORMATION
During the six months ended June 30, 1996 and 1995, cash paid for interest on
debt was $2,327,771, and $1,114,582 respectively.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 12--BANKRUPTCY OF RELATED PARTIES
As described in Notes 3, 4 and 6, the Partnerships had transactions with and
have interests in certain entities in which the majority shareholder of the
General Partner is involved. Such shareholder had guaranteed certain notes
receivable and had agreed to indemnify the Partnerships for losses incurred from
certain partnerships in which NERA is a General Partner. During March 1991,
this shareholder, the Partnerships' management company, and other related
entities filed for protection from their creditors under Chapter 11 of the
Federal Bankruptcy Code.
In September 1992, the U.S. Bankruptcy Court confirmed a reorganization plan
pursuant to which this shareholder was discharged of all liabilities including
all guarantees and indemnifications.
The management of the Partnership believes that the proceedings described above
will not adversely affect the Partnerships' properties or operations.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Results of Operations
Income from operations for the second quarter of 1996 was approximately
$283,000, compared to approximately $90,000 for the same period in 1995, an
increase of approximately $193,000. For the six months ended June 30, 1996,
income from operations was approximately $636,000 compared to approximately
$332,000 for the same period in 1995, an increase of approximately $304,000.
Net cash provided by operations during the six months ended June 30, 1996 was
approximately $2,001,000 compared to cash used in operations approximately
$901,000 during the same period in 1995, a fluctuation of approximately
$2,902,000. This significant increase in the source of funds is due to an
increase in net income during the six months ended June 30, 1996 as well as the
acquisition of six properties during the six months ended June 30, 1995. In
connection with these 1995 acquisitions, the bank required that the Partnership
fund real estate tax escrow accounts and insurance reserves for the newly
acquired properties. In addition, nine properties were refinanced during the
second quarter of 1995 and the prepaid financing fees, related to the
refinancing also affected the Partnerships cash flow.
Rental income during the second quarter of 1996 was approximately
$4,140,000 compared with approximately $2,275,000, for the same period in 1995,
an increase of approximately $1,865,000. Rental income from the properties
acquired in June 1995 represent approximately $1,836,000 of this increase. For
the six months ended June 30, 1996, rental income was approximately $8,314,000
compared with approximately $4,519,000 for the same period in 1995, an increase
of approximately $3,795,000. Rental income from the properties acquired in June
1995 represent approximately $3,625,000 of this increase. Rental income from
the Partnership's existing residential and commercial properties remained
relatively stable.
Expenses for the second quarter of 1996 were approximately $3,905,000
compared to approximately $2,219,000 for the same period in 1995, an increase of
approximately $1,686,000. This increase reflects an increase in interest
expense of approximately $632,000 due to the higher level of debt from the new
acquisitions and the refinancing of Partnership properties; an increase of
approximately $263,000 in repairs and maintenance expenses to the new
properties; an increase of approximately $219,000 in operating expenses due to
additional heat, rubbish removal, water, sewer and other
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expenses associated with the acquisition of new properties; an increase in
depreciation and amortization of approximately $251,000 due to the property
acquisitions made in June 1995 which doubled the size of the Partnerships real
estate holdings; an increase in taxes and insurance of approximately $181,000
due to the additional real estate taxes and insurance associated with the new
acquisitions. The management fee has also increased approximately $76,000 which
is directly related to the increase in rental income.
Expenses for the first six months of 1996 were approximately $7,787,000
compared with approximately $4,256,000 for the same period in 1995, an increase
of approximately $3,531,000. This represents an increase in interest expense of
approximately $1,319,000; an increase in repairs and maintenance expenses of
approximately $488,000; an increase in depreciation and amortization of
approximately $521,000; an increase in the management fee of approximately
$154,000; and an increase in operating expenses of
approximately $590,000. The reason for these increases are discussed in the
preceding paragraph.
Interest income for the three months ended June 30, 1996
was approximately $35,000, compared to approximately $14,000 for the same period
in 1995, an increase of approximately $21,000. Interest income for the six
months ended June 30, 1996 was approximately $88,000, compared to approximately
$25,000 for the same period in 1995, an increase of approximately $63,000.
These increases are due to the increase in cash available for investment as well
as a slight increase in the interest rates.
During the year ended December 31, 1995, the Partnership
sold two condominium units for a total gain of approximately $152,000.
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 parties have agreed to relet the space and divide the net income
or loss after paying to the Partnership an annual minimum rent of approximately
$84,000. The Partnership's investment in the Timpany Plaza joint venture
represents less than 1% of NERA's assets.
The Partnership's share of income in the joint venture at the Timpany Plaza
Shopping Center was approximately $5,000 for the second quarter of 1996 compared
to a loss of approximately $1,000 for the second quarter of 1995, a fluctuation
of approximately $6,000. For the six months ended June 30, 1996, the
Partnership's share of income from the joint venture at Timpany Plaza Shopping
Center was
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approximately $11,500 compared to approximately $8,900 for the same period in
1995, an increase of approximately $2,000. This represents an increase in rental
income, primarily the common area maintenance charges in connection with the
joint venture.
In March 1996, a major tenant in the Timpany Plaza Shopping Center filed
for bankruptcy under Chapter 11. This tenant paid approximately $347,000 of
rent in 1995 and was current through August 1996. The tenant is considering
keeping the space in the mall thru the end of the year.
As a result of the changes discussed above, net income for the three months
ended June 30, 1996 was $323,223 compared to $103,384 for the same period in
1995, an increase of $219,839.
Liquidity and Capital Resources
The Partnership's principal source of cash during 1996 and 1995 has been
the collection of rents and the refinancing of Partnership properties. The
majority of cash and cash equivalents of $3,247,474 at June 30, 1996 and
$2,706,124 at December 31, 1995 is invested in commercial paper and certificates
of deposit maturing in less than 90 days. Additionally, the Partnership
purchased a short term investment valued at $50,214 at June 30, 1996 and $48,877
at December 31, 1995. This investment is a certificate of deposit maturing in
February 1997.
The Partnership believes it strengthened its portfolio by making
significant acquisitions of rental and mixed-use properties in 1995. During
1995, the Partnership acquired six properties for a total purchase price of
approximately $32,123,000. The acquisitions were financed by $23,956,000 of new
mortgages on the acquired properties. Additional funds of $22,446,000 were
provided by obtaining 13 mortgages on refinanced or debt-free properties.
Approximately $10,900,000 of this amount was used to repay existing mortgages
and approximately $11,546,000 was used in the acquisition of the above
properties. In connection with these mortgages, the lender required that
separate escrow accounts totaling approximately $870,000 be established to fund
capital improvements at the properties. The Partnership is also required by the
lender to make additional monthly payments of approximately $34,000 to fund
these escrow accounts. The monthly payments to these escrow accounts are in
addition to the monthly mortgage payments. In connection with these new
mortgages, a substantial number of the Partnership's properties were
restructured into separate subsidiary Partnerships.
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During the second quarter of 1996, the Partnership announced a plan under
which it may repurchase up to $500,000 of its Depositary Receipts from existing
holders of securities. The repurchase plan may take place over a period of one
year or more. The purchase price will be equal to the price at which such
securities are traded on the Nasdaq Stock Market at the time of the repurchase.
On July 3, 1996, the Partnership repurchased 7,000 shares for a total purchase
price of approximately $47,000. Any funds pursuant to this program will come
from cash reserves. Management believes this repurchase plan of up to $500,000
will not have a negative impact on liquidity and cash reserves and management
believes that it will have adequate liquidity for reasonable anticipated needs.
During the second quarter of 1996, the Partnership completed approximately
$412,000 of capital improvements to its properties. These improvements were
funded from cash reserves and escrow accounts. The most significant
improvements were made at the Westgate Woburn Apartments in Woburn,
Massachusetts for a total cost of approximately $83,000, as well as improvements
of approximately $73,000 at the Redwood Hills Apartments in Worcester,
Massachusetts; approximately $72,000 at the Courtyard On North Beacon Apartments
in Brighton, Massachusetts; and approximately $32,000 at the Apartments at 1144
Commonwealth Avenue in Brighton, Massachusetts.
The Partnership plans to invest an additional $800,000 in capital
improvements in the residential and commercial properties this year. These
improvements will be funded from cash reserves and escrow accounts.
The Partnership anticipates that available cash and interest-bearing
investments, collection of rents, and proceeds from the sale and refinancing of
Partnership properties will be sufficient to finance current improvements to its
properties. As a result of the sale of properties, unanticipated increases in
expenses, or a loss of a significant tenant, the Partnership's net income and
cash flow may fluctuate dramatically from year to year.
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 either insufficient funds exist from cash
reserves to repay existing mortgages or if funds required for future
acquisitions are not available.
The Partnership paid a distribution of $3.40 per Partnership unit ($0.34
per depositary receipt) during each of the six months ended June 30, 1996 and
1995.
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PART II - OTHER INFORMATION
ITEM 5. Other Information.
On May 20, 1996, the Partnership authorized a plan to
repurchase up to $500,000 of its Depository Receipts from
existing holders of securities. The repurchase of such
Depository Receipts may take place over a period of a year
or more. The purchase price for each such Depository Receipt
will be equal to the price at which such securities are
traded on the Nasdaq Stock Market at the time of the
repurchase. On July 3, 1996, the Partnership had recorded
repurchases of 7,000 Depository Receipts for a total cost of
approximately $47,000. Conditions of the Partnership's
repurchase of Depository Receipts include the timing of
purchases, volume of purchases, price, and use of a single
broker.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1996
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.
22
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,247,474
<SECURITIES> 50,214
<RECEIVABLES> 753,890
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,390,394
<PP&E> 65,670,028
<DEPRECIATION> 14,527,914
<TOTAL-ASSETS> 59,489,116
<CURRENT-LIABILITIES> 2,219,758
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,458,350
<TOTAL-LIABILITY-AND-EQUITY> 59,489,116
<SALES> 8,314,114
<TOTAL-REVENUES> 8,423,135
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,407,091
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,379,609
<INCOME-PRETAX> 736,314
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<EXTRAORDINARY> 0
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<NET-INCOME> 736,314
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