<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 September 30, 1999 OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________________
Commission file number 0-12138
New England Realty Associates Limited Partnership
(Exact Name of Registrant as Specified in Its Charter)
Massachusetts 04-2619298
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
39 Brighton 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
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Item 1. Financial Statements.
Balance Sheets - September 30, 1999
and September 30, 1998 1
Statements of Operations - Nine Months
Ended September 30, 1999
and September 30, 1998 2
Statements of Cash Flows - Nine Months
Ended September 30, 1999 and 3
September 30, 1998
Notes to Financial Statements 5-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-18
PART II - OTHER INFORMATION
Item 5. Other Information
SIGNATURES 19
</TABLE>
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(Unaudited)
------------------ --------------------
<S> <C> <C>
ASSETS
Rental Properties $58,100,391 $50,868,382
Cash and Cash Equivalents 439,459 623,078
Short-term Investments 5,153,303 3,060,373
Rents Receivable 552,783 509,914
Real Estate Tax Escrows 513,004 538,852
Prepaid Expenses and Other Assets 2,579,686 1,710,537
Investment in Joint Venture 38,083 58,910
Financing and Leasing Fees 1,041,887 1,036,058
Mortgage Notes Receivable 480,872 --
----------- -----------
TOTAL ASSETS $68,899,468 $58,406,104
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Mortgages Payable $60,976,398 $51,322,552
Accounts Payable and Accrued Expenses 942,941 868,425
Advance Rental Payments and Security Deposits 2,203,628 1,943,247
----------- -----------
Total Liabilities 64,122,967 54,134,224
Commitments and Contingent Liabilities (Note 8)
Partners' Capital
173,252 units outstanding in 1999 and in 1998 4,776,501 4,271,880
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $68,899,468 $58,406,104
=========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED)
1999 1998 1999 1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $ 5,079,121 $ 4,566,164 $ 14,681,709 $ 13,647,899
Laundry and sundry income 59,418 49,829 131,465 135,232
------------ ------------ ------------ ------------
5,138,539 4,615,993 14,813,174 13,783,131
------------ ------------ ------------ ------------
Expenses:
Administrative 246,677 212,641 782,867 815,689
Depreciation and amortization 903,154 845,081 2,634,460 2,442,817
Interest 1,262,990 1,149,919 3,623,619 3,460,287
Management Fees 200,598 193,018 613,967 581,149
Operating 393,671 384,595 1,399,765 1,431,306
Renting 107,541 116,463 235,808 237,655
Repairs and Maintenance 752,519 739,200 1,974,780 1,962,495
Taxes and Insurance 519,343 464,605 1,505,323 1,424,870
------------ ------------ ------------ ------------
4,386,493 4,105,522 12,770,589 12,356,268
------------ ------------ ------------ ------------
Income from Operations 752,046 510,471 2,042,585 1,426,863
------------ ------------ ------------ ------------
Other Income (Loss)
Interest income 100,421 48,258 276,490 124,918
Income from investment in
partnership and joint venture 7,510 7,148 9,096 21,740
Unrealized appreciation (depreciation)
in investment (83,567) 85,631 84,455 (353,196)
Gain on the sale of real estate 124,108 -- 800,232 --
------------ ------------ ------------ ------------
148,472 141,037 745,266 218,469
------------ ------------ ------------ ------------
Net Income $ 900,518 $ 651,508 $ 2,787,851 $ 1,645,332
============ ============ ============ ============
Net Income per Unit $ 5.20 $ 3.76 $ 16.09 $ 9.50
============ ============ ============ ============
Weighted Average Number
of Units Outstanding 173,252 173,252 173,252 173,252
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED)
1999 1998
---------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 2,787,851 $ 1,645,332
---------- ----------
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 2,634,460 2,442,817
(Income) loss from investments in partnerships and joint venture (21,740) (9,096)
Gain on the sale of rental property (800,232) --
Unrealized depreciation (appreciation) on short-term investments 353,196 (84,455)
Decrease (Increase) in rents receivable (42,869) 101,969
(Increase) in financing and leasing fees (68,368) (14,016)
Increase (Decrease) in accounts payable 74,516 8,428
Decrease in real estate tax escrow 25,848 40,714
(Increase) in prepaid expenses and other assets (869,149) (212,953)
Increase in advance rental payments and security deposits 260,381 103,721
Increase in notes receivable (480,872) --
---------- ----------
Total Adjustments 1,065,171 2,377,129
---------- ----------
Net cash provided by operating activities 3,853,022 4,022,461
Cash Flows from Investing Activities
Distribution from joint venture 42,567 16,548
Purchase and improvement of rental properties (9,504,028) (1,660,564)
Maturity of short-term investments 4,501,074 --
Purchase of short-term investments (7,419,653) (616,169)
Proceeds from the sale of rental property 948,947 --
---------- ----------
Net cash (used in) investing activities (11,431,093) (2,260,185)
---------- ----------
Cash Flows from Financing Activities
Principal payments and early repayment of mortgages payable (873,292) (470,516)
Distributions to partners (2,283,230) (1,418,369)
Proceeds from the refinancing 5,283,025 --
Proceeds from notes payable 5,267,949 --
---------- ----------
Net cash provided by (used in) financing activities 7,394,452 (1,888,885)
---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents (183,619) (126,609)
Cash and Cash Equivalents, Beginning 623,078 456,277
---------- ----------
Cash and Cash Equivalents, Ending $ 439,459 $ 329,688
========== ==========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Units
- ------------------------------------------------------------------------------------------------------------------------------------
Limited General
-------------------------------- Partnership
Class A Class B Class C Total
------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 $ 2,769,251 $ 661,152 $ 34,827 $ 3,465,230
Distribution to Partners (1,134,695) (269,490) (14,184) (1,418,369)
Net Income 1,316,266 312,613 16,453 1,645,332
---------- ---------- ---------- ----------
Balance, Sept. 30, 1998 $ 2,950,822 $ 704,275 $ 37,096 $ 3,692,193
========== ========== ========== ==========
Units authorized and
issued, net of 6,973 Treasury Units
at September 30, 1998 138,499 33,014 1,739 173,252
========== ========== ========== ==========
Balance, January 1, 1999 $ 3,414,571 $ 814,416 $ 42,893 $ 4,271,880
Distribution to Partners (1,826,584) (433,814) (22,832) (2,283,230)
Net Income 2,230,281 529,692 27,878 2,787,851
---------- ---------- ---------- ----------
Balance, September 30, 1999 $ 3,818,268 $ 910,294 $ 47,939 $ 4,776,501
========== ========== ========== ==========
Units authorized and
issued, net of 6,973
Treasury Units at
September 30, 1999 138,499 33,014 1,739 173,252
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
4
<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 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 a joint venture on the equity method.
ACCOUNTING ESTIMATES: The preparation of the financial statements is in
accordance with generally accepted accounting principles (GAAP) requiring
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities, at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Accordingly, actual results could differ
from those estimates.
REVENUE RECOGNITION: Rental income from residential and commercial properties is
recognized over the term of the related lease. Amounts 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.
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 on the basis that
NERA and its subsidiaries are entitled to tax treatment as partnerships.
Accordingly, no provision for income taxes on income has been recorded.
CASH EQUIVALENTS: The Partnerships consider cash equivalents to be all highly
liquid instruments purchased with a maturity of three months or less.
5
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHORT-TERM INVESTMENTS: The Partnership accounts for short-term investments in
accordance with Statement 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; 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 1999 or 1998. 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
September 30, 1999 approximately $238,000 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.
ADVERTISING EXPENSE: Advertising is expensed as incurred. Advertising expense
was $51,076 and $67,752 for the nine months ended September 30, 1999, and
1998, respectively.
NOTE 2--RENTAL PROPERTIES Rental properties consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, USEFUL
1999 1998 LIFE
------------- ------------- --------------
<S> <C> <C> <C>
Land $12,968,325 $ 9,710,733 --
Buildings 48,441,894 43,627,173 25-31 years
Building improvements 13,355,095 12,610,196 15-31 years
Kitchen cabinets 1,269,534 1,138,588 5-10 years
Carpets 1,304,931 1,176,261 5-10 years
Air conditioning 281,776 281,776 7-10 years
Land improvements 823,540 684,850 10-31 years
Laundry equipment 58,791 58,081 5-7 years
Elevators 156,641 57,952 20 years
Swimming pools 42,450 42,450 10 years
Equipment 776,338 649,370 5-7 years
Motor vehicles 65,926 65,926 5 years
Fences 36,950 18,624 5-10 years
Furniture and fixtures 422,927 390,209 5-7 years
Smoke alarms 28,916 17,817 5-7 years
----------- -----------
80,034,034 70,530,006
Less accumulated depreciation 21,933,643 19,661,624
----------- -----------
$58,100,391 $50,868,382
=========== ===========
</TABLE>
6
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RENTAL PROPERTIES (CONTINUED)
On May 27, 1999 the Partnership purchased a 39,600 square foot commercial
property known as Staples Plaza, located in Framingham, Massachusetts. The
purchase price was $8,200,000. The Partnership assumed an 8% mortgage on the
property of $5,267,949, which matures in June 2017.
On April 30, 1999, the Partnership sold the Willard Street apartments located in
Quincy, Massachusetts for $850,000. The purchaser paid $85,000 in cash, assumed
the existing mortgage of approximately $285,000 and gave to the Partnership a
mortgage note for the remaining $480,000. This 7.5% mortgage note is
collateralized by other real estate owned by the purchaser and matures at the
earlier of the refinancing of the purchased property or July 31, 2005, the
maturity date of the assumed mortgage.
On August 5, 1999, the Partnership sold a condominium located at 566
Commonwealth Avenue in Boston, Massachusetts. The sale price was $168,000,
and the gain of $124,108 is included in other income.
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 $613,967 and $581,149
for the nine months ended September 30, 1999 and 1998, 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 nine months ended September 30, 1999 and the year
ended December 31, 1998.
The Partnership Agreement also permits the General Partner or management
company to charge the costs of in-house professional services (such as
counsel, accountants, and contractors that otherwise would be charged by
third party vendors) to NERA. During the nine months ended September 30, 1999
and 1998, approximately $364,000 and $336,000 was charged to NERA for legal,
maintenance, architectural services and supervision of capital improvements.
Approximately $113,000 and $128,000 was capitalized during the nine months
ended September 30, 1999 and 1998 in leasehold improvements. Included in the
1999 expenses referred to above, approximately $142,000 is recorded in
repairs and maintenance, and $109,000 in administrative expense. Included in
the 1998 expenses referred to above, approximately $104,000 is recorded in
repairs and maintenance, and approximately $104,000 is included in
administrative expenses. Additionally in each of the nine months ended
September 30, 1999 and 1998 the Partnership paid to the management company
$48,750 and $45,000 respectively for in-house accounting services, at a cost
savings, which were 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
1999 or 1998.
In 1996, an individual employed by the management company performed asset
management consulting services for NERA and the management company and
subsequently was appointed President of the management company. This individual
continues to receive asset management fees from NERA, receiving $22,650 during
the nine months ended September 30, 1999 and $31,200 during the year ended
December 31, 1998.
Included in prepaid expenses and other assets were amounts due from related
parties of $705,702 at September 30, 1999 and $534,357 at December 31, 1998
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).
7
<PAGE>
NEW ENGLAND REALTY ASSOCIATESLIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--RELATED PARTY TRANSACTIONS (CONTINUED)
See Note 9 for rental arrangements with Timpany Plaza joint venture. As
described in Note 4, the Partnership had interests in certain entities in which
the majority shareholder of the General Partner is also involved.
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 fair value. At September 30, 1999
mutual funds with a cost of $5,506,499 was recorded at its market value of
$5,153,303. At September 30, 1998 a mutual fund with a cost of $2,671,598 was
recorded at its market value of $2,756,053. The unrealized (loss) gain of
($353,196) and $84,455 is included in other (loss) income at September 30, 1999
and 1998 respectively.
Included in prepaid expenses and other assets at September 30, 1999, and
December 31, 1998 is approximately $906,000 and $567,000 respectively 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 $38,083 and $58,910 at September 30, 1999 and December
31, 1998 respectively. In 1998, the Partnership disposed of 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 had not been recorded, as the Partnership is not liable for such
amounts. This sale did not result in any proceeds to the Partnership. The
majority shareholder of the General Partner was also the majority owner of this
partnership.
NOTE 5--MORTGAGES PAYABLE
At September 30, 1999 and December 31, 1998, the mortgages payable consisted of
various loans, substantially all of which were secured by first mortgages on
properties referred to in Note 2. At September 30, 1999 the interest rate on
these loans ranged from 7.07% to 9.25% payable in monthly installments
aggregating approximately $495,000 including interest, to various dates through
2017. Although the majority of loans mature within ten years, they are being
amortized on a basis between 25 and 27.5 years. The carrying amounts of the
Partnerships' mortgages payable approximate their fair value.
The Partnerships have pledged tenant leases as additional collateral for certain
of these mortgages.
Approximate annual maturities are as follows:
2000--current maturities 1,005,000
2001 1,090,000
2002 1,182,000
2003 1,282,000
2004 1,390,000
Thereafter 55,027,000
----------
60,976,000
==========
8
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--MORTGAGES PAYABLE (CONTINUED)
On March 24, 1999, the Partnership refinanced the outstanding mortgage on the
Westgate Apartments located in Woburn, Massachusetts. The new loan is
$12,000,000 with an interest rate of 7.07%, and a term of 15 years, amortized
over 25 years. The net cash of approximately $5,000,000 from this refinancing
will be used for future acquisitions and redevelopment of the Westgate
Apartments.
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 September 1999, the Partnership declared a semi-annual dividend of $ 5.10 per
unit. In February 1999, the Partnership declared a regular semi-annual dividend
of $4.60 and a special dividend of $3.50 per unit. Total dividends paid in 1999
were $13.20 per unit. Total dividends paid in 1998 were $8.20 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:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Net Income per Depositary Receipt $ 1.60 $.95
===== ====
</TABLE>
NOTE 8--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.
9
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--RENTAL INCOME
During the nine months ended September 30, 1999, approximately 86 % of rental
income was related to residential apartments and condominium units with leases
of one year or less. The remaining 14% was 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>
2000 2,463,000 145,000 2,608,000
2001 2,135,000 150,000 2,285,000
2002 1,997,000 150,000 2,147,000
2003 1,841,000 150,000 1,991,000
2004 1,662,000 150,000 1,812,000
Thereafter 9,451,000 838,000 10,288,000
---------- ---------- -----------
19,549,000 1,583,000 21,131,000
========== ========== ===========
</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. 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 September 30, 1999 and December 31, 1998 is $201,875 and
$167,500 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 nine 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 is $21,740 and $9,096 for the nine months ended
September 30, 1999 and 1998 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 $755,775 and $694,807 for
the nine months ended September 30, 1999 and 1998 respectively.
Rents receivable are net of allowances for doubtful accounts of $110,453 at
September 30, 1999 and $135,559 at December 31, 1998.
10
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--CASH FLOW INFORMATION
During the nine months ended September 30, 1999 and 1998, cash paid for interest
was $3,571,412 and $3,412,683 respectively.
NOTE 11--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.
NOTE 12--SUBSEQUENT EVENT
In October 1999, the Partnership entered into an agreement to purchase a 180
unit residential apartment complex referred to as Westside Colonial
Apartments located in Brockton, Massachusetts. The purchase price is
$8,900,000. The Partnership plans to assume a first mortgage of $5,265,000
with a rate of 6.52%. The mortgage note is for a 10 year term, and matures in
September 2008. The note amortizes over 30 years. The balance of the purchase
price $3,635,000, will be funded from cash reserves which the Partnership
believes is adequate to support this acquisition. The Closing, subject to
normal conditions, is scheduled for December 1, 1999.
11
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
New England Realty Associates Limited Partnership and its Subsidiary
Partnerships earned income from operations of $752,046 during the three months
ended September 30, 1999, compared to $510,471 for the three months ended
September 30, 1998, an increase of $241,575. For the nine months ended September
30, 1999 income from operations was $2,042,585 compared to $1,426,863 for the
same period in 1998, an increase of $615,722.
The rental activity is summarized as follows:
<TABLE>
<CAPTION>
OCCUPANCY DATE
-------------------------------------------------------------------
AT SEPTEMBER 30,
1999 1998
--------------------------- ---------------------------
<S> <C> <C>
Residential
Units ...................... 1,632 1,668
Vacancies .................. 22 55
Vacancy rate ............... 1.3% 3.3%
Commercial
Total square feet........ 496,700 457,700
Vacancy.................. 81,000 93,000
Vacancy rate............. 16%(1) 20%
</TABLE>
<TABLE>
<CAPTION>
RENTAL INCOME
--------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
------------------- ----------------------
<S> <C> <C>
Total rents....................... $ 14,682,000 $ 13,648,000
Residential percentage......... 86% 85%
Commercial percentage........ 14% 15%
Contingent rentals.............. $ 684,000 $ 695,000
</TABLE>
(1) A significant percentage of this vacancy rate is representative of the
vacancy created at the Timpany Plaza Shopping Center in Gardner,
Massachusetts by a tenant which sought protection under the United States
Bankruptcy Code.
12
<PAGE>
Rental income for the three months ended September 30, 1999 was $5,079,121
compared to $4,566,164 for the three months ended September 30, 1998, an
increase of $512,957 (11.2%) Rental income for the nine months ended September
30, 1999 was $14,681,709 compared to $13,647,899 for the nine months ended
September 30, 1998, an increase of $1,033,810 (7.5%). Rental income at the
Partnership's commercial properties increased approximately $331,000 for the
nine months ended September 30, 1999. This increase is due to the acquisition of
the Staples Plaza in May 1999. Rental income from the Staples Plaza since the
acquisition through September 30, 1999 was $332,000. Rental income at the
existing commercial properties remained relatively stable. Rental income at the
residential properties increased approximately $660,000 for the nine months
ended September 30, 1999 due to increases in rental rates as well as a decrease
in vacancies. The demand for residential housing remains strong in the greater
Boston area. Approximately eighty six percent (86%) of the Partnership's rental
income is derived from its residential properties, a number of which properties
are located in greater Boston and surrounding communities. While the demand for
residential properties in greater Boston remains high, the Partnership cannot
make any assurances that the current demand for its residential properties will
continue in the future.
Expenses for the third quarter of 1999 were $4,386,493 compared to $4,105,522
for the same period in 1998, an increase of $280,971 (7%). A significant portion
of this increase can be attributed to the newly acquired Staples Plaza. The
operating expenses of the Staples Plaza for the three months ended September 30,
1999 were $131,034. Excluding the acquisition of Staples Plaza, expenses would
have increased $149,937(4%). Interest expense increased $113,071(10%) due to a
higher level of debt. The refinancing of the Westgate Apartments and the
acquisition of Staples Plaza resulted in additional debt for the Partnership of
approximately $10,400,000. Depreciation and amortization increased $58,073 (7%)
from $845,081 for the three months ended September 30, 1998 to $903,154 for the
three months ended September 30, 1999. This is due to the acquisition of the
Staples Plaza as well as ongoing capital improvements at the Partnership
properties. Taxes and insurance increased $54,738 (12%) from $464,605 for the
three months ended September 30, 1998 to $519,343 for the three months ended
September 30, 1999 due to an increase in real estate taxes. Administrative
expenses increased $34,036 (16%) from $212,641 for the three months ended
September 30, 1998 to $246,677 for the three months ended September 30, 1999.
This represents an increase in salaries and wages.
Expenses for the first nine months of 1999 were $12,770,589 compared to
$12,356,268 for the same period in 1998, an increase of $414,321 (3%). This
represents an increase of $191,643 (8%) in depreciation and amortization
expense from $2,442,817 for the nine months ended September 30, 1998 to
$2,634,460 for the nine months ended September 30, 1999. Interest expense
increased $163,332 (5%) from $3,460,287 for the nine months ended September
30, 1998 to $3,623,619 for the nine months ended September 30, 1999. Taxes
and insurance increased $80,453 (6%) from $1,424,870 for the nine months
ended September 30, 1998 to $1,505,323 for the nine months ended September
30, 1999. The reasons for these
13
<PAGE>
increases are discussed in the preceding paragraph. The management fee increased
$32,818 (6%) from $581,149 for the nine months ended September 30, 1998 to
$613,967 for the nine months ended September 30, 1999. This increase is due to
an increase in rental income. Administrative expenses decreased $32,822 (4%)
from $815,689 for the nine months ended September 30, 1998 to $782,867 for the
nine months ended September 30, 1999. This decrease is due to special projects
which were contracted for during the early part of 1998 which were not recurring
expenses in 1999. Operating expenses decreased $31,541(2%) from $1,431,306 for
the nine months ended September 30, 1998 to $1,505,323 for the nine months ended
September 30, 1999. This is due to a milder winter in 1999.
Interest income was $100,421 for the three months ended September 30, 1999,
compared to $48,258 for the three months ended September 30, 1998, an increase
of $52,163. Interest income was $276,490 for the nine months ended September 30,
1999, compared to $124,918 for the same period in 1998, an increase of $151,572.
This increase is due to an increase in the average cash balance available for
investment in 1999 compared to 1998.
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.
The Partnership's share of income in the joint venture at the Timpany Plaza
Shopping Center was $7,510 for the three months ended September 30, 1999
compared to $7,148 for the same period in 1998, an increase of $362. For the
nine months ended September 30, 1999, the Partnership's share of income from the
joint venture was $21,740 compared to $9,096 for the same period in 1998,
increase of $12,644. These increases in income in 1999 at the joint venture are
due to increases in the percentage rents received from two major tenants.
Included in other income during the three and nine months ended September 30,
1999 is a gain of $124,108 on the sale of a condominium unit at 566
Commonwealth Avenue. This unit was sold for $168,000 in August 1999. Also
included in other income for the nine months ended September 30, 1999 is a
gain of $676,124 on the sale of the Willard Street Apartments. This property
was sold for $850,000 in April 1999.
Also included in other income(loss) during the three months ended September 30,
1999 and September 30, 1998 is ($84,567) and $85,631 respectively in unrealized
(depreciation) appreciation in the Partnership's short-term investments. For the
nine months ended September 30, 1999 and September 30, 1998 the unrealized
(depreciation) appreciation in the Partnership's investment was $(353,196) and
$84,455 respectively.
14
<PAGE>
As a result of the changes discussed above, net income for the three months
ended September 30, 1999 was $900,518 compared to $651,508 for the three months
ended September 30, 1998, an increase of $249,010. Net income for the nine
months ended September 30, 1999 was $2,787,851 compared to $1,645,332 for the
nine months ended September 30, 1998, an increase of $1,142,519. The significant
increases in both of these periods is due primarily to the gain of $124,108 on
the sale of 566 Commonwealth Avenue, and the gain of $676,124 on the sale of the
Willard Street property.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's principal source of cash during 1999 was the collection of
rents, sale of two Partnership properties and the refinancing of a Partnership
property. The majority of cash and cash equivalents of $439,459 at September 30,
1999 and $623,078 at December 31, 1998 is held in an interest bearing account.
The Partnership's short-term investments are $5,153,303 at September 30, 1999 of
which $2,652,227 is invested in a Massachusetts Municipal Bond Fund and
$2,501,076 is invested in a U.S. Treasury Fund. At December 31, 1998, the
Partnership's short-term investments were $3,060,373, of which $1,921,123 was
invested in a Massachusetts Municipal Bond Fund and approximately $1,139,250 was
invested in a U.S. Treasury Fund.
On August 5, 1999, the Partnership sold a condominium located at 566
Commonwealth Avenue located in Boston, Massachusetts. The sale price was
$168,000. The net cash from the sale of this property was $157,643.
On April 30, 1999, the Partnership sold the Willard Street Apartments located
in Quincy, Massachusetts. The sale price was $850,000. The buyer assumed the
first mortgage of approximately $285,000, and the Partnership took back a
mortgage of approximately $480,000 at a rate of 7.5%. The net cash from the
sale of this property was approximately $85,000. The mortgage matures at the
earlier of the refinancing of the property or July 31, 2005.
On March 24, 1999, the Partnership refinanced the Westgate Apartments located in
Woburn, Massachusetts. The new loan is $12,000,000 with an interest rate of
7.07%, and a term of 15 years, amortized over 25 years. The net cash of
approximately $5,000,000 from this refinancing will be used for future
acquisitions and the redevelopment of the Westgate Apartments.
On May 27, 1999, the Partnership purchased a 39,600 square foot commercial
property known as Staples Plaza, located in Framingham, Massachusetts. The
purchase price was $8,200,000. The Partnership assumed an 8% mortgage on the
property of $5,267,949 which matures in 2017 and the balance of $2,932,051 was
funded from the Partnership's cash reserves, which were adequate to support this
purchase.
15
<PAGE>
On October 1, 1999, the Partnership entered into an agreement to purchase a 180
unit residential apartment complex referred to as Westside Colonial Apartments
located in Brockton, Massachusetts. The purchase price is $8,900,000. The
Partnership plans to assume a first mortgage of $5,265,000 with a rate of 6.52%.
The mortgage is a 10 year note, which matures in September 2008, however the
note will be amortized over 30 years. The balance of $3,635,000 will be funded
from cash reserves. The Partnership plans to close on the property on December
1, 1999.
During the third quarter of 1999 the Partnership and its Subsidiary
Partnerships completed certain improvements to their properties at a total
cost of approximately $571,000. These improvements were funded from cash
reserves which were adequate to support these improvements. The most
significant improvements were made at 62 Boylston Street for a total cost of
$216,247. These improvements were necessary in anticipation of new tenants
who will occupy the building. The Partnership also made improvements of
$79,751, $59,603, $39,184, and $32,442 to Timpany Plaza, Westgate Woburn,
Redwood Hills, and 1144 Commonwealth Avenue. These improvements were funded
from the escrow accounts previously established, as well as cash reserves.
In addition to the improvements made to date in 1999, the Partnership and its
Subsidiary Partnerships plan to invest an additional $800,000 in capital
improvements prior to the end of 1999 primarily at the residential properties.
These improvements will be funded from escrow accounts as well as from the
Partnership's cash reserves.
The Partnership anticipates that cash from operations and interest-bearing
investments will be sufficient to fund its current operations and to finance
current improvements to its properties. The Partnership's net income and cash
flow may fluctuate dramatically from year to year as a result of the sale of
properties, unanticipated increases in expenses, or the loss of significant
tenants.
Since the Partnership's long-term goals include the acquisition of additional
properties, a portion of the proceeds from the refinancing and sale of
properties is reserved for this purpose. The Partnership will consider
refinancing existing properties if insufficient funds exist from cash reserves
to repay existing mortgages or if funds for future acquisitions are not
available.
Factors That May Affect Future Results
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:
16
<PAGE>
A major tenant of the Lewiston Mall in Lewiston, Maine, which paid
approximately $329,000 during the year ended December 31, 1998 and
approximately $207,000 for the nine months ended September 30, 1999, can
terminate its lease with nine months' notice. The Partnership is currently
negotiating with this tenant 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.
The Year 2000 problem arises because older or noncompliant computer systems are
unable either to process data with accuracy, or to operate building systems
correctly, by reason of the inability of either software or elements of hardware
contained within such systems correctly to process dates after December 31,
1999. The Partnership has considered the Year 2000 problem as it relates to the
business of the Partnership in three areas: partnership operations, problems
with vendors, and problems with tenants.
OPERATIONS.
Partnership operations have been considered in two areas: financial operations
and building operations.
With respect to financial operations, all of the accounting and management
functions of the Partnership are discharged for the Partnership by its
contracted property manager, The Hamilton Company. The Partnership has been
advised by The Hamilton Company that, as part of routine computer software and
hardware updates which are presently in process, The Hamilton Company will be
able to continue to perform the financial operations of the Partnership in the
ordinary course. The costs of such compliance will be borne as operating costs
by The Hamilton Company and will not be a charge to the earnings of the
Partnership. The Partnership believes that the management fee paid by the
Partnership to The Hamilton Company will be adequate to support The Hamilton
Company's efforts in this regard, which understanding has been confirmed to the
Partnership by the Hamilton Company.
Specifically, The Hamilton Company has advised the Partnership as follows: that
it has retained professional Year 2000 consulting services to provide advice
concerning the installation of new hardware and software; that the newly
installed systems are used as standard systems by many real estate management
companies, and such systems are Year 2000 compliant; that of a total estimated
cost of $150,000 associated with the replacement of hardware and software by The
Hamilton Company, which replacement will address all Year 2000 compliance
issues, approximately $140,000 has already been incurred; that such expenses
include and will include the cost of training of employees and staff and all
fees and expenses of consultants; that The Hamilton Company during the last
calendar quarter of 1998 began validating the processes of its newly installed
computer hardware and software systems to assure reliability and provide testing
and verification; that as of July 31, 1999, the new computer systems are
believed by the Partnership to be Year 2000 compliant and operational, however
testing of such systems has not been but should be completed by September 30,
1999; and that the Partnership will obtain appropriate assurances in such regard
from The Hamilton Company
17
<PAGE>
The Partnership and its manager believe that its Year 2000 initiative will
adequately prepare the Partnership with respect to Year 2000 issues; the
Partnership has not developed any contingency plan for financial operations
should the current initiative prove to be unsuccessful, and believes that there
would be adequate time to effect a different and compliant systems installation
if the September 30, 1999 testing date is not met.
With respect to building operations, the Partnership has completed its review of
all computerized systems which are operant in the Partnership's real estate
holdings.
VENDORS
The Partnership further has reviewed its relationship with principal vendors.
The Partnership is soliciting written assurance that its third party vendors
which process the rents and deposits received from tenants, and its bank of
deposit and account, are Year 2000 compliant. During 1999, the Partnership has
been confirming such compliance, and believes that alternate servicing
arrangements of a compliant nature would be available to the Partnership in the
event any noncompliance is experienced.
TENANTS
Finally, the Partnership's entire income is derived from the payment of rents,
and the impact of Year 2000 problems on the viability and credit worthiness of
tenants could pose a significant economic threat to the income and profitability
of the Partnership. However, approximately 86% of the Partnership's tenants are
residential and are not subject to the same magnitude of risk that might be
incurred in a tenant mix which was more commercially oriented. Further, no
commercial tenant accounts for more than 2% of the gross rental income of the
Partnership, and the Partnership therefore does not consider its gross income or
profitability to be materially at risk by reason of possible impact of the Year
2000 problem on its tenant population. On or before September 30, 1999, the
Partnership intends to seek written assurance of substantial compliance by its
largest commercial tenants with Year 2000 issues, both on the part of such
tenants and their respective essential third-party trading partners.
RISKS SUMMARIZED
Failure of the Partnership adequately to provide for Year 2000 compliance with
respect to its financial operations could result in an inability to collect,
credit or track rental income. Failure to bring computerized operational systems
within its real estate holdings into compliance might cause liability on the
part of the Partnership for economic or physical loss to its tenants and the
invitees of those tenants in excess of applicable insurance coverages
(typically) expressly exclude damages caused by Year 2000 issues. The failure of
third-party vendors to provide adequate financial support to the rental
collection and crediting function could have a significant negative impact on
the gross income and net profit of the Partnership, and the inability of the
Partnership's tenants to sustain financial health would, in turn, result in a
reduction of gross rentals received by the Partnership.
18
<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: November 15, 1999
NEW ENGLAND REALTY ASSOCIATES
LIMITED PARTNERSHIP
By: NEW REAL, INC.,
its General Partner*
By: /s/ Ronald Brown
-------------------------------------
Ronald Brown, President
* Functional equivalent of Chief
Executive Officer, Principal
Financial Officer and Principal
Accounting Officer.
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> $ 439,459
<SECURITIES> 5,153,303
<RECEIVABLES> 552,783
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,238,235
<PP&E> 80,034,034
<DEPRECIATION> 21,933,643
<TOTAL-ASSETS> 68,899,468
<CURRENT-LIABILITIES> 3,146,569
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,776,501
<TOTAL-LIABILITY-AND-EQUITY> 68,899,468
<SALES> 14,681,709
<TOTAL-REVENUES> 14,813,174
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,146,970
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,623,619
<INCOME-PRETAX> 2,787,851
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,787,851
<EPS-BASIC> 16.09
<EPS-DILUTED> 16.09
</TABLE>
