<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 March 31, 1997 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, Including Area Code (617)783-0039
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check /X/ whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---------- ---------
<PAGE>
INDEX
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
Balance Sheets-March 31, 1997
and March 31, 1996 2
Statements of Operations-Three Months
Ended March 31, 1997 and March 31, 1996 3
Statements of Cash Flows-Three Months
Ended March 31, 1997 and March 31, 1996 4
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
SIGNATURES 18
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1997 DECEMBER 31,
(UNAUDITED) 1996
------------------- -------------
<S> <C> <C>
ASSETS
Rental Properties...................... $52,102,570 $ 52,293,981
Cash and Cash Equivalents.............. 1,617,354 1,830,605
Short-term Investments................. 0 51,528
Rents Receivable....................... 551,475 688,245
Real Estate Tax Escrows................ 504,394 503,234
Prepaid Expenses and Other Assets...... 1,672,463 1,696,237
Investment in Joint Venture............ 89,619 93,734
Financing and Leasing Fees............. 1,546,511 1,631,375
------------------- -------------
TOTAL ASSETS......................... $58,084,386 $ 58,788,939
------------------- -------------
------------------- -------------
LIABILITIES AND PARTNERS` CAPITAL
Mortgages Payable...................... $52,397,764 $ 52,538,499
Accounts Payable and Accrued Expens.... 790,463 684,626
Advance Rental Payments and Security
Deposits............................. 1,720,262 1,667,316
------------------- -------------
Total Liabilities.................... 54,908,489 54,890,441
Commitments and Contingent Liabilities
(Note 9)
Partners' Capital:
167,519 units outstanding in 1997 and
175,163 in 1996....................... 3,175,897 3,898,498
------------------- -------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL... $58,084,386 $ 58,788,939
------------------- -------------
------------------- -------------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Revenues:
Rental income.................................................... $ 4,220,254 $ 4,174,415
Laundry and sundry income........................................ 52,576 61,049
------------ ------------
4,272,830 4,235,464
------------ ------------
Expenses:
Administrative................................................... 248,759 170,143
Depreciation and amortization.................................... 791,802 690,966
Interest......................................................... 1,163,576 1,167,162
Management fees.................................................. 187,008 180,412
Operating........................................................ 628,525 651,582
Renting.......................................................... 38,937 14,933
Repairs and maintenance.......................................... 588,290 546,713
Taxes and insurance.............................................. 457,626 459,819
------------ ------------
4,104,523 3,881,730
------------ ------------
Income from Operations............................................ 168,307 353,734
------------ ------------
Other Income:
Interest income................................................. 28,332 52,961
Income from investments in partnership and joint venture........ 965 6,307
------------ ------------
29,297 59,268
------------ ------------
Net Income........................................................ $ 197,604 $ 413,002
------------ ------------
------------ ------------
Net Income per Unit............................................... $ 1.16 $ 2.33
------------ ------------
------------ ------------
Weighted Average Number of Units Outstanding...................... 169,812 177,152
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income........................................................ $ 197,604 $ 413,002
---------- ----------
Ajustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization................................... 791,802 690,966
(Income) from investments in partnerships and joint venture..... (965) (6,307)
Decrease in rents receivable.................................... 136,770 695
(Increase) in financing and leasing fees........................ (4,808) (9,467)
Increase (Decrease) in accounts payable and accrued expenses.... 105,837 (38,242)
(Increase) Decrease in real estate tax escrows.................. (1,160) 68,810
Decrease in prepaid expenses and other assets................... 23,774 53,158
Increase (Decrease) in advance rental payments and security
deposits...................................................... 52,946 (14,823)
---------- ----------
Total Adjustments............................................... 1,104,196 744,790
---------- ----------
Net cash provided by operating activities....................... 1,301,800 1,157,792
---------- ----------
Cash Flows from Investing Activities: Distribution from joint
venture........................................................... 5,080 11,367
Payment for purchase and improvement of rental properties........... (510,719) (207,393)
Maturity of short-term investments.................................. 51,528 --
Purchase of short-term investments.................................. -- (706)
---------- ----------
Net cash (used in) investing activities............................... (454,111) (196,732)
---------- ----------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
---------------------------
<S> <C> <C>
1997 1996
------------- ------------
Cash Flows from Financing Activities:
Principal payments and early
repayment of mortgages payable................................. (140,735) (129,140)
Distributions to partners....................................... (853,222) (601,366)
Purchase of treasury units...................................... (66,983) --
------------- ------------
Net cash (used in) financing
activities.................................................. (1,060,940) (730,506)
------------- ------------
Net (Decrease) Increase in Cash and
Cash Equivalents................................................ (213,251) 230,554
Cash and Cash Equivalents, Beginning............................ 1,830,605 2,706,124
------------- ------------
Cash and Cash Equivalents, Ending............................... $ 1,617,354 $ 2,936,678
------------- ------------
------------- ------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
UNITS
------------------------------------------------------
LIMITED GENERAL
-------------------------- PARTNERSHIP
CLASS A CLASS B CLASS C TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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................................ 330,402 78,470 4,130 413,002
------------ ------------ ------------ ------------
Balance, March 31, 1996................... $ 3,305,096 $ 788,416 $ 41,526 $ 4,135,038
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Units authorized and
issued, net of 3,073
Treasury Units, at
March 31, 1996.......................... 141,722 33,659 1,265 177,152
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
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) (162,112) (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 12,706
Treasury Units at
March 31, 1997........................... 133,980 31,866 1,673 167,519
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
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 an investment in a real
estate partnership and a joint venture. In connection with the 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. 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.
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.
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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, 1995, or 1994. 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, 1997, approximately $805,000 of cash and
cash equivalents exceeded federally insured amounts of which approximately
$905,000 was held in a money market fund invested in U.S. Government
securities.
NOTE 2--RENTAL PROPERTIES
RENTAL PROPERTIES CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, USEFUL
1997 1996 LIFE
------------- ------------- -------------
<S> <C> <C> <C>
Land................................................................ $ 9,710,733 $ 9,710,733 --
Buildings........................................................... 43,622,868 43,622,868 25-31 years
Building improvements............................................... 10,892,800 10,648,403 15-31 years
Kitchen cabinets.................................................... 1,033,315 940,870 5-10 years
Carpets............................................................. 1,070,915 977,574 5-10 years
Air conditioning.................................................... 235,109 233,995 7-10 years
Land improvements................................................... 599,909 599,909 10-31 years
Laundry equipment................................................... 48,075 45,248 5-7 years
Elevators........................................................... 16,842 16,842 20 years
Swimming pools...................................................... 42,450 42,450 10 years
Equipment........................................................... 361,581 311,809 5-7 years
Motor vehicles...................................................... 49,852 49,852 5 years
Fences.............................................................. 20,785 20,785 5-10 years
Furniture and fixtures.............................................. 227,240 201,638 5-7 years
Smoke alarms........................................................ 7,444 6,224 5-7 years
------------- -------------
67,939,918 67,429,200
Less accumulated depreciation....................................... 15,837,348 15,135,219
------------- -------------
$ 52,102,570 $ 52,293,981
------------- -------------
------------- -------------
</TABLE>
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RENTAL PROPERTIES (continued)
On December 11, 1996, the Partnership acquired a residential complex
containing 36 apartment units in Lowell, Massachusetts for a purchase price
of approximately $790,000. The purchase was paid from the Partnership's cash
reserves and is unencumbered.
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 $187,008 and
$180,412 for the three months ended March 31, 1997 and 1996, 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 1997 and 1996.
The Partnership Agreement also permits the General Partner or a management
company to charge the costs of professional services (such as counsel,
accountants, and contractors) to NERA. During the three months ended March
31, 1997 and 1996, approximately $133,000 and $66,000 was charged to NERA for
legal, maintenance, architectural services and supervision of capital
improvements. Approximately $34,000 and $14,000 was capitalized during the
three months ended March 31, 1997 and 1996 in leasehold improvements and the
balance was included in administrative expense and repairs and maintenance
expenses. In addition, the Partnership paid to the management company $12,500
in each of the quarters ended March 31, 1997, and 1996 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 1997 or 1996.
In 1997 and 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 $10,800 during the three months
ended March 31, 1997 and $28,800 during the year ended December 31, 1996.
Included in prepaid expenses and other assets were amounts due from
related parties of $436,917 at March 31, 1997 and $416,317 at December 31,
1996 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).
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3--RELATED PARTY TRANSACTIONS (CONTINUED)
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 $79,757 at March 31,
1997 and $82,856 at December 31, 1996.
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.
NOTE 4--OTHER ASSETS
The short-term investment totalling $51,528 at December 31, 1996, is carried
at cost, which approximates fair value. Such investment is a 5.07%
certificate of deposit at Citizens Bank which matured in February 1997.
Included in prepaid expenses and other assets at March 31, 1997 and December
31, 1996 is approximately $554,000 and $669,000 held in escrow to pay future
capital improvements. Additional payments of approximately $34,000 are paid
monthly. As the improvements are made, funds are used from these escrow
accounts.
The carrying value of the Partnership's 50% interest in the Timpany Plaza
joint venture, at equity, is $89,619 and $93,734 at March 31, 1997 and
December 31, 1996 respectively.
The Partnership owns a 10% ownership interest in a real estate partnership
which is accounted for by the equity method and reduced to a carrying value
of zero. The loss in excess of cost in this limited partnership has not been
recorded as the Partnership is not liable for such amounts. In 1996, $18,360
was recorded in other income for the amount received from the disposition of
limited partnership investments that had previously been reduced to a carrying
value of zero.
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.
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--MORTGAGES PAYABLE
At March 31, 1997 and December 31, 1996, 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:
<TABLE>
<S> <C>
1998--current maturities $ 594,000
1999 648,000
2000 7,342,000
2001 697,000
2002 759,000
Thereafter 42,358,000
----------
$ 52,398,000
----------
----------
</TABLE>
NOTE 6--ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS
The lease agreements for certain properties require tenants to maintain a
one-month advance rental payment plus security deposits. The funds are held
in escrow by another entity owned by the majority shareholder of the General
Partner (see Note 3).
NOTE 7--PARTNERS' CAPITAL
The Partnership has two categories of limited partners (Class A and B) and
one category of General Partner (General Partner). Under the terms of the
Partnership Agreement, Class B units and General Partnership units must
represent 19% and 1% respectively of the total units outstanding. All classes
have equal profit-sharing and distribution rights in proportion to their
ownership interests.
In March 1997, the Partnership declared a regular semi annual dividend of
$3.90 and a special distribution of $1.00 per unit. In March 1996, the
Partnership declared a distribution of $3.40 per unit.
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--PARTNERS' CAPITAL (CONTINUED)
The Partnership has entered into a deposit agreement with an agent to
facilitate public trading of limited partners' interests in Class A units.
Under the terms of this agreement, the holders of Class A units have the
right to exchange each Class A unit for ten Depository Receipts. The
following is information on the net income per Depository Receipt:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Net Income per Depository Receipt.....................$ .12 $ .23
--------- ---------
--------- ---------
</TABLE>
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 Depository Receipts from existing holders of
securities. The repurchase of Depository 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. In January 1997, the partnership repurchased 6,048 depository
receipts for a total cost of $53,586 and repurchased Class B and General
Partnership units for a total cost of $13,397. During the third and fourth
quarters of 1996, the Partnership repurchased 15,915 depository receipts for
a total cost of $110,060 and repurchased Class B and General Partnership
units for a total cost of $27,517. The Class B and General Partnership units
were repurchased to maintain the required ownership percentage (See note 7).
Treasury units at March 31, 1997 are as follows:
<TABLE>
<S> <C>
Class A 10,200
Class B 2,377
General Partner 129
-------
12,706
-------
-------
</TABLE>
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.
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--RENTAL INCOME
During the three months ended March 31, 1997, 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:
<TABLE>
<CAPTION>
COMMERCIAL
PROPERTY
LEASES LAND LEASES TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
1998 $ 1,486,991 $ 146,667 $ 1,633,658
1999 1,156,867 146,667 1,303,534
2000 840,063 146,667 986,730
2001 543,712 146,667 690,379
2002 382,740 146,667 529,407
Thereafter 1,132,781 1,063,336 2,196,117
------------ ------------ ------------
$ 5,543,154 $ 1,796,671 $ 7,339,825
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
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
March 31, 1997 and December 1996 is $164,875 and $163,000 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 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 $965 and $6,307 for the three
months ended March 31, 1997 and 1996 respectively.
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--RENTAL INCOME (CONTINUED)
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 $217,000, and $195,000 for the three
months ended March 31, 1997 and 1996 respectively.
NOTE 11--CASH FLOW INFORMATION
During the three months ended March 31, 1997 and 1996, cash paid for
interest was $1,153,664 and $1,165,258 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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Results of Operations
Income from operations for the three months ended March 31, 1997 was
approximately $168,000, compared to approximately $354,000 for the same
period in 1996, a decrease of approximately $186,000. Net cash provided by
operations for the three months ended March 31, 1997 was approximately
$1,302,000 compared to approximately $1,158,000 during the same period in
1996, an increase of approximately $144,000. This increase is the result of
a decrease in rents receivable, an increase in accounts payable, and an
increase in advance rental payments and security deposits.
Rental income during the three months ended March 31, 1997 was approximately
$4,220,000 compared to approximately $4,174,000 for the same period in 1996,
an increase of approximately $46,000. This increase is due to an increase in
rental income from the residential properties as a result of increased rental
rates. The commercial properties saw a decrease in rental income due a
settlement of $85,000 received in the first quarter of 1996 from an early
termination of a lease at the Shopping Mall located in Lewiston, Maine. In
addition, a major tenant in the Timpany Plaza Shopping Center filed for
bankruptcy under Chapter 11 in March 1996. The annual rent paid by this
tenant was approximately $347,000. To date this space remains vacant and the
Partnership is actively marketing the space.
Expenses for the three months ended March 31, 1997 were approximately
$4,105,000 compared to approximately $3,882,000 for the same period in 1996,
an increase of approximately $223,000. Administrative expenses increased
approximately $79,000 due to an increase in staffing as well as an increase
in consulting fees. Depreciation and amortization increased approximately
$101,000 due to ongoing capital improvements at the Partnership properties.
Interest income for the three months ended March 31, 1997 was approximately
$28,000 compared to approximately $52,000 for the same period in 1996, a
decrease of approximately $24,000. This decrease is due to the receipt of
$19,790 during the first quarter of 1996 from interest on the funds held in
escrow related to properties acquired in 1995. There was also a slight
decrease in cash available for investment during the first quarter of 1997
compared to 1996.
<PAGE>
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 the Partnership's assets.
The Partnership's share of income in the joint venture at the Timpany Plaza
Shopping Center was approximately $1,000 for the first quarter of 1997
compared to approximately $6,300 for the first quarter of 1996.
As a result of the changes discussed above, net income for the three months
ended March 31, 1997 was $197,604 compared to $413,002 for the same period in
1996, a decrease of $215,398.
Liquidity and Capital Resources
The Partnership's principal source of cash during 1997 and 1996 was the
collection of rents. The majority of cash and cash equivalents of $1,617,354
at March 31, 1997 and $1,830,605 at December 31, 1996 is invested in a U.S.
government money market account. Additionally, the Partnership purchased a
short term investment valued at $51,528 at December 31, 1996. This
investment is a certificate of deposit which matured in February 1997.
In November 1996, the Partnership and its subsidiaries acquired a residential
apartment complex consisting of 36 apartments in Lowell, Massachusetts. The
total purchase price of this property was approximately $790,000, and was
funded from the Partnership's cash reserves.
In 1996, the Partnership announced a plan under which it may repurchase up to
$500,000 of its Depository 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. In 1997, the
Partnership purchased 6,048 depository receipts for a total cost of $53,586,
and purchased Class B and General Partnership units for a total cost of
$13,397. In addition, during the second and third quarters of 1996, the
Partnership purchased 15,915 depository receipts for a total cost of $110,060
and Class B and General Partnership units for a total cost of $27,517. The
Class B and General Partnership units were purchased to maintain the required
ownership percentages.
<PAGE>
During the first quarter of 1997, the Partnership and its Subsidiary
Partnerships completed approximately $511,000 of capital improvements to
their properties. These improvements were funded from escrow accounts
previously established for this purpose and from cash reserves. The most
significant improvements were made at the apartments located at 1144
Commonwealth Avenue, in Allston, Massachusetts for a total cost of
approximately $82,000. Significant improvements were also made at the
Westgate Woburn Apartments in Woburn, Massachusetts for a total cost of
approximately $66,000; approximately $50,000 at the Highland Street
Apartments located in Lowell, Massachusetts; approximately $42,000 at the
Shopping Mall in Lewiston, Maine; and approximately $40,000 at the Courtyard
Apartments in Brighton, Massachusetts.
In keeping with its five year capital improvement program, the Partnership and
its Subsidiary Partnerships plan to invest an additional $1,600,000 in
capital improvements in 1997, of which $1,350,000 is designated for
residential properties and $250,000 is designated for commercial properties.
These improvements will be funded from escrow accounts as well as from cash
reserves.
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. 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 a loss of a significant tenant.
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 $3.90 per Partnership unit ($0.39 per
depository receipt) during the first quarter of 1997 and $3.40 per
Partnership unit ($0.34 per depository receipt) during the first quarter of
1996.
Factors that may affect future results
The discussion above contains information based on 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:
<PAGE>
The Timpany Plaza Shopping Center in Gardner, Massachusetts is 47% vacant at
May 15, 1997. If the space remains unoccupied, the 1997 rental income would
be approximately $200,000 less than 1996. Should circumstances remain in
1997, the Partnership may need to review the carrying value of this property
for impairment in accordance with the Statement of Financial Accounting
Standards No. 121 (FAS No. 121).
A major tenant of the Lewiston Mall in Lewiston, Maine, which paid
approximately $240,000 in 1996, 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.
<PAGE>
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 14, 1997
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
<TABLE> <S> <C>
<PAGE>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,617,354
<SECURITIES> 0
<RECEIVABLES> 551,475
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,345,686
<PP&E> 67,939,918
<DEPRECIATION> 15,837,348
<TOTAL-ASSETS> 58,084,386
<CURRENT-LIABILITIES> 2,510,725
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,175,897
<TOTAL-LIABILITY-AND-EQUITY> 58,084,386
<SALES> 4,220,254
<TOTAL-REVENUES> 4,272,830
<CGS> 0
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<OTHER-EXPENSES> 2,940,947
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<INCOME-PRETAX> 197,604
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