<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
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)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2619298(I.R.S. Employer
(State or Other Jurisdiction Identification No.)
of Incorporation or
Organization)
</TABLE>
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 mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PART I--FINANCIAL INFORMATION
Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999....................................... 3
Consolidated Statements of Income for the Three Months
Ended September 30, 2000 and September 30, 1999 and the
Nine Months Ended September 30, 2000 and
September 30, 1999...................................... 4
Consolidated Statement of Changes in Partners' Capital.... 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and September 30, 1999......... 6
Condensed Notes to Consolidated Financial Statements...... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 14
PART II--OTHER INFORMATION
Signature................................................. 20
</TABLE>
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
______________ ______________
<S> <C> <C>
ASSETS
Rental Properties $ 74,894,601 $ 81,274,293
Cash and Cash Equivalents 9,652,590 1,244,438
Short-term Investments 3,000,000 21,787
Rents Receivable 637,662 686,706
Real Estate Tax Escrows 425,236 706,974
Prepaid Expenses and Other Assets 1,994,527 2,113,495
Investment in Joint Venture 9,491 29,035
Financing and Leasing Fees 919,542 1,110,520
Mortgage Notes Receivable 0 480,872
------------ ------------
TOTAL ASSETS $ 91,533,649 $ 87,668,120
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Note Payable $ 0 $ 750,000
Mortgages Payable 81,850,086 77,530,651
Accounts Payable and Accrued Expenses 1,196,511 1,103,458
Advance Rental Payments and Security Deposits 2,800,734 2,646,350
------------ ------------
Total Liabilities 85,847,331 82,030,459
Commitments and Contingent Liabilities (Note 9)
Partners' Capital
173,252 units outstanding in 2000 and 1999 5,686,318 5,637,661
------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 91,533,649 $ 87,668,120
============ ============
See notes to consolidated financial statements
</TABLE>
3
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues
Rental income $ 6,370,719 $ 5,079,121 $19,209,102 $14,681,709
Laundry and sundry income 61,296 59,418 188,370 131,465
-------------- ------------ ----------- -----------
6,432,015 5,138,539 19,397,472 14,813,174
-------------- ------------ ------------ -----------
Expenses
Administrative 280,134 246,677 880,556 782,867
Depreciation and amortization 1,125,504 903,154 3,456,378 2,634,460
Interest 1,632,189 1,262,990 4,797,340 3,623,619
Management Fees 268,607 200,598 822,590 613,967
Operating 413,579 393,671 1,821,787 1,399,765
Renting 42,685 107,541 148,172 235,808
Repairs and maintenance 876,351 752,519 2,268,387 1,974,780
Taxes and insurance 625,874 519,343 1,947,725 1,505,323
------------- ------------ ------------ -----------
5,264,923 4,386,493 16,142,935 12,770,589
------------- ------------ ------------ -----------
Income from Operations 1,167,092 752,046 3,254,537 2,042,585
------------- ------------- ------------ -----------
Other Income(Loss)
Interest income 166,247 100,421 238,418 276,490
Income from investment in joint venture 9,561 7,510 27,383 21,740
Unrealized appreciation (depreciation)
in investment 68 (83,567) 494 (353,196)
Gain on the sale of real estate 0 124,108 546,568 800,232
------------- ------------- ------------ -----------
175,876 148,472 812,863 745,266
------------- ------------- ------------ -----------
Income before extraordinary item 1,342,968 900,518 4,067,400 2,787,851
Extraordinary loss on extinguishment of debt (1,476,055) 0 (1,476,055) 0
------------- ------------- ------------ -----------
Net Income (loss) $ (133,087) $ 900,518 $2,591,345 $2,787,851
============= ============ ============ ===========
Earnings per unit:
Income before extraordinary items $ 7.75 $ 5.20 $ 23.48 $ 16.09
Extraordinary loss on extinguishment of debt (8.52) 0 (8.52) 0
------------- ------------ ------------ -----------
Net Income per Unit $ (0.77) $ 5.20 $ 14.96 $ 16.09
============= ============ ============ ===========
Weighted Average Number
of Units Outstanding 173,252 173,252 173,252 173,252
============= ============ ============ ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
Limited
---------------------------------- General
Class A Class B Partnership Total
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
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, Sept. 30, 1999 $3,818,268 $ 910,294 $ 47,939 $ 4,776,501
============= ============== ============== ==============
Units authorized and
issued, net of 6,973
Treasury Units at
Sept. 30, 1999 138,602 32,918 1,732 173,252
============= ============= ============== ==============
Balance, January 1, 2000 $4,510,129 $1,071,156 $ 56,376 $5,637,661
Distribution to Partners (2,034,150) (483,111) (25,427) (2,542,688)
Net Income 2,073,076 492,356 25,913 2,591,345
------------- ------------- -------------- --------------
Balance, Sept. 30, 2000 $4,549,055 $1,080,401 $ 56,862 $ 5,686,318
============= ============= ============== ==============
Units authorized and
issued, net of 6,973
Treasury Units at
Sept. 30, 2000 138,602 32,918 1,732 173,252
============= ============= ============== ==============
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
------------ --------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 2,591,345 $ 2,787,851
------------- -------------
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 3,456,378 2,634,460
Extraordinary loss on early extinguishment of debt 337,998 0
(Income) from investments in partnerships and joint venture (27,383) (21,740)
Gain on the sale of rental property (546,568) (800,232)
(Appreciation) depreciation on short-term investments (494) 353,196
Decrease (increase) in rents receivable 49,044 (42,869)
(Increase) decrease in financing and leasing fees (343,836) (68,368)
Increase in accounts payable 93,053 74,516
(Increase) decrease in real estate tax escrow 281,738 25,848
(Increase) decrease in prepaid expenses and other assets 118,968 (869,149)
Increase in advance rental payments and security deposits 154,384 260,381
------------- -------------
Total Adjustments 3,573,282 1,546,043
------------- -------------
Net cash provided by operating activities 6,164,627 4,333,894
------------- -------------
Cash Flows from Investing Activities
Distribution from joint venture 46,927 42,567
Purchase and improvement of rental properties (1,139,017) (9,504,028)
Maturity of short-term investments 22,281 4,501,074
Purchase of short-term investment (3,000,000) (7,419,653)
Net proceeds from the sale of rental property 2,070,649 948,947
(Increase) decrease in notes receivable 480,872 (480,872)
------------- -------------
Net cash provided by (used in) investing activities (1,518,288) (11,911,965)
------------- -------------
Cash Flows from Financing Activities
Payment of notes payable (750,000) 0
Principal payments of mortgages payable (764,000) (873,292)
Distributions to partners (2,542,688) (2,283,230)
Proceeds from the mortgages payable 7,818,501 5,283,025
Proceeds from notes payable 0 5,267,949
------------- -------------
Net cash provided by financing activities 3,761,813 7,394,452
------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents 8,408,152 (183,619)
Cash and Cash Equivalents, Beginning 1,244,438 623,078
------------- -------------
Cash and Cash Equivalents, Ending $ 9,652,590 $ 439,459
============= =============
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
LINE OF BUSINESS: New England Realty Associates Limited Partnership ("NERA" or
the "Partnership") was organized in Massachusetts during 1977. NERA and its
subsidiaries own and operate various residential apartment buildings,
condominium units, and commercial properties located in Massachusetts,
Connecticut and New Hampshire. NERA has also made investments in other real
estate partnerships and has participated in other real estate-related
activities, primarily located in Massachusetts. In connection with the mortgages
referred to in Note 5, a substantial number of NERA's properties 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 60 days in arrears are
charged against income. Certain leases of the commercial properties provide for
increasing stepped minimum rents, which are accounted for on a straight-line
basis over the term of the lease.
RENTAL PROPERTIES: Rental properties are stated at cost less accumulated
depreciation. Maintenance and repairs are charged to expense as incurred;
improvements and additions are capitalized. When assets are retired or otherwise
disposed of, the cost of the asset and related accumulated depreciation is
eliminated from the accounts, and any gain or loss on such disposition is
included in income. Rental properties are depreciated on the straight-line
method over their estimated useful lives. In the event that facts and
circumstances indicate that the carrying value of rental properties may be
impaired, an analysis of recoverability is performed. The estimated future
undiscounted cash flows are compared to the asset's carrying value to determine
if a write-down to fair value or discounted cash flow value is required.
FINANCING AND LEASING FEES: Financing fees are capitalized and amortized, using
the interest method, over the life of the related mortgages. Leasing fees are
capitalized and amortized on a straight-line basis over the life of the related
lease.
INCOME TAXES: The financial statements have been prepared under the basis that
NERA and its subsidiaries are entitled to tax treatment as partnerships.
Accordingly, no provision for income taxes on income has been recorded.
CASH EQUIVALENTS: The Partnerships consider cash equivalents to be all highly
liquid instruments purchased with a maturity of three months or less.
7
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHORT-TERM INVESTMENTS: The Partnership accounts for short-term investments in
accordance with Statement of Financial Accounting Standards (FAS) No. 115
"Accounting for Certain Investments in Debt and Equity Securities." The
Partnerships consider short-term investments to be mutual funds and bank
certificates of deposit, Treasury obligations, or commercial paper with initial
maturities between three and twelve months. These investments are considered to
be trading account securities and are carried at fair value with unrealized
holding gains or losses reflected in earnings.
CONCENTRATION OF CREDIT RISKS AND FINANCIAL INSTRUMENTS: The Partnerships'
tenants are located in New England, and the Partnerships are subject to the
general economic risks related thereto. No single tenant accounted for more than
5% of the Partnerships' revenues in 2000 or 1999. The Partnerships make their
temporary cash investments with high-credit-quality financial institutions or
purchase money market accounts invested in U.S. Government securities or mutual
funds invested in government bonds. At September 30, 2000 and 1999 approximately
$12,000,000 and $238,000 of cash and cash equivalents exceeded federally insured
amounts.
ADVERTISING EXPENSE: Advertising is expensed as incurred. Advertising expense
was $63,090, and $51,076 for the nine months ended September 30, 2000 and 1999,
respectively.
NOTE 2--RENTAL PROPERTIES
<TABLE>
Rental properties consist of the following:
<CAPTION>
SEPTEMBER 30, DECEMBER 31, USEFUL
2000 1999 LIFE
----------------- ---------------- -------------
<S> <C> <C> <C>
Land, improvements, and parking lots $ 15,954,140 $ 16,992,349 10-31 years
Buildings and improvements 78,926,880 82,422,016 15-31 years
Kitchen cabinets 1,374,517 1,218,362 5-10 years
Carpets 1,373,036 1,232,720 5-10 years
Air conditioning 224,666 279,807 7-10 years
Laundry equipment 53,670 53,672 5-7 years
Elevators 161,392 161,391 20 years
Swimming pools 60,850 42,450 10 years
Equipment 927,385 845,009 5-7 years
Motor vehicles 100,655 65,927 5 years
Fences 37,566 36,717 5-10 years
Furniture and fixtures 477,084 438,548 5-7 years
Smoke alarms 35,469 33,917 5-7 years
------------- --------------
99,707,310 103,822,885
Less accumulated depreciation 24,812,709 22,548,592
------------- --------------
$ 74,894,601 $ 81,274,293
============= ==============
</TABLE>
On June 28, 2000 the Partnership sold the Lewiston Mall Shopping Center, located
in Lewiston, Maine. The property was sold for $5,100,000 and the gain of
$546,568 on the sale is included in other income.
8
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 approximately
$809,000 and approximately $614,000 for the nine months ended September 30, 2000
and 1999, respectively. Security deposits are held in escrow by the management
company (see Note 6). The management company also receives a mortgage servicing
fee equal to an annual rate of 1/2% of the monthly outstanding balance of
mortgages receivable resulting from the sale of property. There was a mortgage
servicing fee of $122 paid in the nine months ended September 30, 2000 and $325
paid in the year ended December 31, 1999.
The Partnership Agreement also permits the General Partner or management company
to charge the costs of professional services (such as counsel, accountants, and
contractors) to NERA which would otherwise be paid to a third party for
professional services. During the nine months ended September 30, 2000 and 1999,
approximately $449,000 and $695,000 was charged to NERA for legal, construction,
maintenance, rental and architectural services and supervision of capital
improvements. Approximately $181,000 and $357,000 was capitalized during the
nine months ended September 30, 2000 and 1999 in rental properties. Included in
the 2000 expenses referred to above, approximately $113,000 is recorded in
repairs and maintenance, and $147,000 in administrative expense and $27,000 in
renting expenses. Included in the 1999 expenses referred to above, approximately
$147,000 is recorded in repairs and maintenance, and $109,000 in administrative
expense and $83,000 in renting expenses. Additionally in each of the nine months
ended September 30, 2000 and 1999, the Partnership paid to the management
company $56,025 and $48,750 respectively for in-house accounting services, which
were previously provided by an outside company. The Partnership Agreement
entitles the General Partner or the management company to receive certain
commissions upon the sale of Partnership property only to the extent that total
commissions do not exceed 3%. In connection with the sale of the Lewiston Mall
Shopping Center, the Partnership paid a commission of $153,000 to the management
company in September 2000. No such commissions were paid in 1999.
In 1996, prior to becoming an employee and President of The Hamilton Company,
the current President performed and continues to perform asset management
consultancy services to the Partnership. This individual continues to receive
asset management fees from the Partnership, receiving $30,000 during the nine
months ended September 30, 2000 and $32,650 during the year ended December 31,
1999.
Included in prepaid expenses and other assets were amounts due from related
parties of $1,072,521 at September 30, 2000 and $937,157 at December 31, 1999
representing Massachusetts tenant security deposits which are held for the
Partnerships by another entity also owned by one of the shareholders of the
General Partner (see Note 6).
See Note 10 for rental arrangements with Timpany Plaza joint venture.
On December 22, 1999, the Partnership borrowed $750,000 from the majority
shareholder of the General Partner. This amount was paid directly to the seller
of the Oak Apartments in Brockton, Massachusetts. This unsecured 10% note was
due on December 22, 2001 or prepayable without penalty. Interest expense on this
note was $20,000 for the period ended April 6, 2000 and $2,083 for the period
ending December 31, 1999. On April 6, 2000, this note was paid in full to the
majority shareholder of the General Partner.
9
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4--OTHER ASSETS
Short-term investments are considered to be trading securities per FAS No. 115
and are carried on the balance sheet at their fair value. At September 30, 2000
the Partnership held a $3,000,000 certificate of deposit which has an interest
rate of 6.2%. At September 30, 1999 mutual fund investments with a cost of
$5,506,499, was recorded at a market value of $5,153,303.
Included in prepaid expenses and other assets at September 30, 2000 and December
31, 1999 is approximately $336,000 and $456,000 respectively, held in escrow to
pay future capital improvements.
The carrying value of the Partnership's 50% interest in the Timpany Plaza joint
venture, at equity, is $9,491 and $29,035 at September 30, 2000 and
December 31, 1999 respectively.
Financing and leasing fees of $919,542 and $1,110,520 are net of accumulated
amortization of $551,522 and $1,261,148 at September 30, 2000 and December 31,
1999, respectively.
NOTE 5--MORTGAGES PAYABLE
At September 30, 2000 and December 31, 1999, 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, 2000 the interest rate on
these loans ranged from 6.52% to 8.78%, payable in monthly installments
aggregating approximately $631,000 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 majority of
the mortgages are subject to prepayment penalties.
The Partnerships have pledged tenant leases as additional collateral for certain
of these mortgages.
Approximate annual maturities at September 30, 2000 are as follows:
<TABLE>
<S> <C>
2001--current maturities $ 807,000
2002 872,000
2003 943,000
2004 1,016,000
2005 1,101,000
Thereafter 77,111,000
------------
$81,850,000
============
</TABLE>
During the third quarter of 2000, eleven of the Partnerships' mortgages were
refinanced and one new mortgage was incurred on a previously debt free property.
The total of the 12 new mortgages is approximately $32,000,000; the repaid
mortgages totaled approximately $24,000,000. The new 8.44% mortgages mature in
2010 and require interest only payments until maturity. The repaid mortgages had
interest rates ranging 8.25% to 9.25% and were to mature in 2005. As a result of
this new financing, the Partnership has recorded an extraordinary charge in the
third quarter of 2000 of approximately $1,476,000 representing prepayment
penalties of approximately $1,004,000 and the write off of deferred financing
costs of approximately $472,000. New deferred financing fees of approximately
$337,000 will be amortized over the 10 year maturities of the new mortgages
using the interest rate method.
10
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6--ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS
The lease agreements for certain properties require tenants to maintain a
one-month advance rental payment plus security deposits. Security deposits are
held 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 July, the Partnership declared a semi-annual distribution of $5.60 per unit
($.56 per depositary receipt) payable on September 30, 2000 to holders of record
as of September 15, 2000. In January 2000, the Partnership declared a
semi-annual dividend of $5.10 per unit and a special dividend of $4.00 per unit
payable March 31, 2000. The Partnership declared distributions of $13.20 per
unit in 1999. The 1999 distribution included a special dividend of $3.50 per
unit paid in March 1999.
The Partnership has entered into a deposit agreement with an agent to facilitate
public trading of limited partners' interests in Class A units. Under the terms
of this agreement, the holders of Class A units have the right to exchange each
Class A unit for 10 Depositary Receipts. The following is information on the net
income per unit:
<TABLE>
<CAPTION>
Nine Months Ended
SEPTEMBER 30,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
Earnings per Depositary Receipt:
Income before extraordinary item $2.35 $1.60
Extraordinary loss on extinguishment of debt (.85) 0
--------- ---------
Net income per Depositary Receipt $1.50 $1.60
========= =========
</TABLE>
NOTE 8--TREASURY UNITS
Treasury units at September 30, 2000 are as follows:
Class A 5,681
Class B 1,228
General Partnership 64
-------
6,973
=======
NOTE 9--COMMITMENTS AND CONTINGENCIES
From time to time, the Partnerships are involved in various ordinary routine
litigation incidental to their business. The Partnerships are not involved in
any material pending legal proceedings.
11
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 10--RENTAL INCOME
During the nine months ended September 30, 2000, approximately 85% of rental
income was related to residential apartments and condominium units with leases
of one year or less. The remaining 15% was related to commercial properties
which have minimum future rental income on noncancellable operating leases as
follows:
<TABLE>
<CAPTION>
COMMERCIAL
PROPERTY
YEAR ENDED LEASES LAND LEASES TOTAL
--------------- ------------------ ---------------- -------------
<S> <C> <C> <C>
2001 $ 2,001,000 $ 150,000 $ 2,151,000
2002 1,861,000 150,000 2,011,000
2003 1,765,000 150,000 1,915,000
2004 1,698,000 150,000 1,848,000
2005 1,281,000 157,500 1,438,500
Thereafter 8,774,000 680,000 9,454,000
------------------ ----------------- --------------
$17,380,000 $1,437,500 $18,817,500
================== ================= ==============
</TABLE>
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 $913,000 and $933,000, for the nine months ended September 30,
2000 and the year ended December 31, 1999, respectively.
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 20-year term. Included in rents receivable at September 30,
2000 and December 31, 1999 is $165,625 and $175,000 respectively, representing
the deferred rental income from this lease. There are also contingent rents
based upon sales volume, common area maintenance, and other charges. This lease
also provides for six extension periods of five years each at increased rents.
The minimum rents pertaining to this agreement are reflected in the foregoing
table.
Concurrently, the Partnership entered into a joint venture with this same tenant
relating to the space formerly leased by the tenant. Under this arrangement, the
two parties have agreed to relet the space and divide the net income or loss
after paying to the Partnership an annual minimum rent of $84,546. The
Partnership's share of income for the nine months ended September 30, 2000 and
1999 was $27,383 and $21,740, respectively.
Rents receivable are net of an allowance for doubtful accounts of $240,001 and
$149,386 at September 30, 2000 and December 31, 1999, 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.
12
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 12--CASH FLOW INFORMATION
Cash paid for interest for the nine months ended September 30, 2000 and 1999 was
approximately $4,718,000 and $3,571,000, respectively.
Non-cash investing and financing transactions are as follows:
<TABLE>
<CAPTION>
New Property Total
Mortgages Sold
----------------------------------------------------------
<S> <C> <C> <C>
Sale (purchase) of rental properties $ 0 $ 5,100,000 $ 5,100,000
New mortgages 31,650,000 0 31,650,000
---------- ----------- -----------
31,650,000 5,100,000 36,750,000
---------- ----------- -----------
Non-cash investing and financing
Mortgage debt (23,831,499) (2,735,066) (26,566,565)
---------- ----------- -----------
Total non-cash investing
and financing (23,831,499) (2,735,066) (26,566,565)
---------- ----------- -----------
Cash received (paid) $ 7,818,501 $ 2,364,934 $10,183,435
========== =========== ===========
</TABLE>
NOTE 13--TAXABLE INCOME AND TAX BASIS
Taxable income reportable by the Partners is different than financial statement
income because of accelerated depreciation, different tax lives for some
properties, impairment losses, and the inclusion for tax purposes of profits and
losses realized on equity investments. Taxable income for 1999 was approximately
$415,000 greater than financial statement income.
The sale of the Lewiston Mall Shopping Center in 2000 resulted in a statement
gain of approximately $550,000. This sale will result in a long term capital
loss for tax purposes of approximately $2,750,000 due to an impairment loss of
approximately $3,250,000 recorded in 1995.
NOTE 14--SUBSEQUENT EVENT
On October 18, 2000, the Partnership acquired a 44 unit residential apartment
complex know as the Brookside Apartments, located in Woburn, Massachusetts. The
purchase price of $3,800,000 was funded from the Partnership's cash reserves.
13
<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 $1,167,092 during the three months
ended September 30, 2000, compared to $752,046 for the three months ended
September 30, 1999, an increase of $415,046(56%). For the nine months ended
September 30, 2000, income from operations was $3,254,537 compared to $2,042,585
for the same period in 1999, an increase of $1,211,952(60%).
The rental activity is summarized as follows:
<TABLE>
<CAPTION>
Occupancy Rate
-------------------------------------------------
At September 30,
2000 1999
-------------------- ------------------
<S> <C> <C>
Residential
Units................ 2,099 1,632
Vacancies............ 25 22
Vacancy rate......... 1.2% 1.3%
Commercial
Total square feet.... 322,375 496,700
Vacancy.............. 54,000 81,000
Vacancy rate......... 17% 16%
Rental Income (in thousands)
-------------------------------------------------
Nine Months Ended
September 30,
2000 1999
------------------- -------------------
Total rents................... $ 19,209 $ 14,682
Residential percentage........ 85% 86%
Commercial percentage......... 15% 14%
Contingent rentals............ $ 913 $ 684
</TABLE>
14
<PAGE>
Rental income for the three months ended September 30, 2000 was $6,370,719
compared to $5,079,121 for the three months ended September 30, 1999, an
increase of $1,291,598(25%). Approximately $1,093,000(85%) of this increase
represents rental income from properties acquired during the last quarter of
1999. Rental income for the nine months ended September 30, 2000 was
$19,209,102 compared to $14,681,709 for the nine months ended September 30,
2000, an increase of $4,527,393(31%). The rental income increase of
approximately $4,527,000 for the nine months ended September 30, 2000
includes increases at the residential properties of approximately $4,002,000
and increases at the commercial properties of approximately $525,000. The
significant increase at the residential properties includes approximately
$3,185,000 at the two residential properties acquired at the end of 1999. The
remaining increase of approximately $817,000 represents rental rate increases
and high occupancy rates. The commercial increase for the nine months
includes an increase of approximately $552,000 at properties acquired in 1999
and held for the entire nine months of 2000. Commercial rents also increased
at the Timpany Plaza Shopping Center and at 62 Boylston Street totaling
approximately $183,000 due to increased occupancy. These increases were
offset by a reduction in rental income of approximately $215,000 at the
Lewiston Mall Shopping Center which was sold in June of 2000.
Expenses for the third quarter of 2000 were $5,264,923 compared to $4,386,493
for the same period in 1999, an increase of $878,430(20%). This increase
includes approximately $636,000 of expenses related to the properties acquired
during the latter part of 1999. Increases in expenses related to the
Partnership's existing properties include an increase in depreciation and
amortization expense of approximately $104,000(12%) due to ongoing capital
improvements to Partnership properties; an increase in interest expense of
approximately $110,000(9%) due to the refinancing of eleven of the Partnership
properties in August 2000 resulting in an increase in debt of approximately
$7,818,000; an increase in taxes and insurance of approximately $60,000(13%) due
to an increase in real estate taxes of $35,000 and an increase in the cost of
insurance. The Partnership increased its coverage on properties, added
earthquake and flood insurance in 2000 and it received a rebate of $7,000 in
workman's compensation insurance during 1999. These factors can be attributed to
the increase in insurance expense in 2000. The Partnership also experienced
decreases in expenses unrelated to the acquired properties. These decreases
include approximately $71,000(67%) in renting expenses due to lower rental
commissions due to a highly competitive residential rental market.
Expenses for the nine months ended September 30, 2000 were $16,142,935 compared
to $12,770,589 for the nine months ended September 30, 1999 an increase of
$3,372,346(26%). This increase includes approximately $3,394,000 which relates
to the three new properties acquired during 1999. Unrelated to the acquisitions
in 1999, interest expense increased approximately $270,000(8%) due to the
refinancing of eleven Partnership properties; depreciation and amortization
expense increased approximately $371,000(15%); taxes and insurance increased
approximately $237,000(17%); and operating expenses increased approximately
$69,000(5%). Repairs and maintenance and renting expenses decreased
approximately $55,000(3%) and approximately $114,000(50%), respectively. The
reasons for these fluctuations are discussed in the preceding paragraph.
15
<PAGE>
As a result of the changes discussed above, income from operations for the three
months ended September 30, 2000 was $1,167,092 compared to $752,046 for the
three months ended September 30, 1999, an increase of $415,046(55%). Income from
operations for the nine months ended September 30, 2000 was $3,254,537 compared
to $2,042,585 for the nine months ended September 30, 1999, an increase of
$1,211,952(59%).
Interest income was $166,247 for the three months ended September 30, 2000,
compared to $100,421 for the three months ended September 30, 1999, an increase
of $65,826. Interest income was $238,418 for the nine months ended September 30,
2000, compared to $276,490 for the same period in 1999, a decrease of $38,072.
This decrease is due to a decrease in the average cash and cash equivalents
available in 2000 compared to 1999.
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 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 $9,561 for the three months ended September 30, 2000 compared to
$7,510 for the same period in 1999, an increase of $2,051. For the nine months
ended September 30, 2000, the Partnership's share of income from the joint
venture was $27,383 compared to $21,740 for the same period in 1999, increase of
$5,643. These increases are due to rental rate increases in 2000.
As previously discussed, the Partnership refinanced eleven properties during the
third quarter of 2000. As a result of this refinancing, the Partnership recorded
an extraordinary charge in accordance with FAS 4 and FAS 64 in the third quarter
of $1,476,055 which represents prepayment penalties of $1,138,057 and the write
off of deferred financing costs of $337,998.
Included in other income for the nine months ended September 30, 2000 is a gain
of $546,568 on the sale of the Lewiston Mall Shopping Center. Included in other
income for the three and nine months ended September 30, 1999 is a gain of
$128,473 from the sale of a condominium and a gain of $671,759 on the sale of
the condominium and the Willard Street apartments, respectively.
As a result of the changes discussed above, the Partnership incurred a loss of
$133,087 for the three months ended September 30, 2000 compared to income of
$900,518 for the three months ended September 30, 1999, a decrease of
$1,033,605.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's principal source of cash during 2000 was the collection of
rents, refinancing of properties and the sale of a Partnership property. The
majority of cash and cash equivalents of $9,652,590 at September 30, 2000 and
$1,244,438 at December 31, 1999 was held in an interest bearing account.
The Partnership's short-term investment is $3,000,000 at September 30, 2000
which is a certificate of deposit with an interest rate of 6.2%. The
Partnership's short term investment at December 31, 1999 was approximately
$22,000 of which $7,000 was held in a Massachusetts Municipal Bond Fund and
$15,000 is invested in a U.S. Treasury Fund.
On June 28, 2000, the Partnership sold the Lewiston Mall Shopping Center. The
property was sold for $5,100,000. The mortgage of approximately $2,700,000 was
paid off and the net cash received by the Partnership after closing costs was
approximately $2,070,000. Rental income from the property was approximately
$600,000 and $1,035,000 for the six months ended June 30, 2000 and the year
ended December 31, 1999, respectively. Income from operations for the six months
ended June 30, 2000 and year ended December 31, 1999 was approximately $140,000
and $125,000, respectively.
During the third quarter of 2000, the Partnership refinanced eleven of the
Partnership properties and obtained a mortgage on a previously debt free
property. The total of the 12 new mortgages is approximately $32,000,000, the
repaid mortgages totaled approximately $24,000,000. After prepayment penalties
of approximately $1,138,000 and write off of deferred charges of $364,000, the
net proceeds from these refinancings is approximately $7,800,000.
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 was used for acquisitions as well
as the improvements of rental properties.
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 received from the sale of
this property in April 1999 was approximately $85,000. The $480,000 mortgage was
collected in full on January 14, 2000.
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 approximately $5,200,000 which matures in 2016 and the balance of
approximately $3,000,000 was funded from the Partnership's cash reserves.
17
<PAGE>
On December 3, 1999, the Partnership acquired through a controlled affiliate, a
180 unit residential complex located in Brockton, Massachusetts for a purchase
price of $8,900,000. This controlled affiliate assumed a 6.52% mortgage with an
outstanding balance of $5,207,172 which has a maturity date of October 2008. The
balance of the purchase price of $3,692,828 was paid from cash reserves.
On December 23, 1999, the Partnership acquired, through a controlled affiliate,
a 268-unit residential complex and a 6,075 square-foot commercial building
located in Brockton, Massachusetts for a purchase price of $14,500,000. The
purchase was funded by a $11,600,000 mortgage, a $750,000 loan from the majority
shareholder of the General Partner, and $2,150,000 paid from available cash. The
7.84% mortgage matures in 2009 and is being amortized over 30 years. The loan
from the majority shareholder of the General Partnership was paid in full on
April 6, 2000.
On October 18, 2000, the Partnership acquired a 44 unit residential apartment
complex known as Brookside Apartments located in Woburn, Massachusetts. The
purchase price was $3,800,000 which was funded from the Partnership cash
reserves.
During the nine months ended September 30, 2000, the Partnership and its
Subsidiary Partnerships completed certain improvements to their properties at a
total cost of approximately $1,139,000. The most significant improvements were
made at the following properties: approximately $293,000 at 140 North Beacon
Street in Boston, Massachusetts; approximately $139,000 at Westgate Apartments
in Woburn, Massachusetts; approximately $159,000 at 62 Boylston Street in
Boston, Massachusetts and approximately $90,000 at Redwood Hills in Worcester,
Massachusetts. These improvements were funded from the escrow accounts
previously established, as well as cash reserves.
In addition to the improvements made to date in 2000, the Partnership and its
Subsidiary Partnerships plan to invest an additional $500,000 in capital
improvements during 2000 primarily at 62 Boylston Street. 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.
18
<PAGE>
Factors That May Affect Future Results
Certain information contained herein includes forward-looking statements, the
realization of which may be impacted by the factors discussed below. The forward
looking statements are made pursuant to the safe harbor provisions of the
Private Securities Liquidation Reform Act of 1995 (the "Act"). This document
contains forward looking statements that are subject to risks and and
uncertainties, including, but not limited to, uncertainty as to future financial
results; fluctuations in the residential real estate market in the greater
metropolitan Boston, Massachusetts area and the commercial real estate rental
market in New England; heating and other utility costs, and other risks detailed
from time to time in the Partnership's filings with the Securities and Exchange
Commission. These risks could cause the Partnership's actual results for fiscal
year 2000 and beyond to differ materially from those expressed in any forward
looking statements made by or on behalf of the Partnership. The foregoing list
factors and the two more specific factors identified below should not be
construed as exhaustive or as an admission regarding the adequacy or disclosures
made by the Partnership prior to the date hereof or the effectiveness of said
Act.
The Partnership has signed a purchase and sale agreement, subject to further due
diligence and inspection, for the sale of the Timpany Plaza Shopping Center. The
sale price is approximately $4,900,000, and the gain and net cash received on
the sale will be approximately $1,500,000. Rental income at Timpany Plaza was
approximately $568,000 for the nine months ended September 30, 2000 and
approximately $640,000 for the year ended December 31, 1999. The loss from
operations was approximately $105,000 and $334,000 for the nine months ended
September 30, 2000 and year ended December 31, 1999, respectively. This
transaction is expected to be completed before November 30, 2000.
In connection with the acquisition of the Brookside Apartments in Woburn,
Massachusetts, the Partnership is in the process of obtaining a $2,000,000, 7.8%
interest only mortgage payable maturing in 10 years. These funds will be added
to the Partnership's cash reserves.
The Partnership is considering the payment of the outstanding 8.375% mortgage of
approximately $7,300,000 on the property at 62 Boylston Street. The source of
these funds would be the Partnership's cash reserves. Additionally, the
Partnership is considering the establishment of a $12,000,000 line of credit
secured by this then debt free property.
19
<PAGE>
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Copies of the following Exhibits are furnished with this report.
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<C> <S>
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
None.
SIGNATURE
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 14, 2000
<TABLE>
<S> <C> <C>
NEW ENGLAND REALTY ASSOCIATES LIMITED
PARTNERSHIP
By: NEWREAL, INC.
its General Partner
By: /s/ RONALD BROWN
-----------------------------------------
Ronald Brown
President
</TABLE>
20
