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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 1999 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [NO FEE REQUIRED]
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 AVE., ALLSTON, MASSACHUSETTS 02134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 783-0039
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP UNITS
(Title of class)
DEPOSITARY RECEIPTS
(TITLE OF CLASS)
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 / /
Indicate by check mark if disclosure of deliquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
As of February 15, 2000, the aggregate market value of traded securities
held by non-affiliates of the registrant was $18,026,777, based on the price at
which the securities were sold.
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PART I
ITEM 1. BUSINESS
New England Realty Associates Limited Partnership ("NERA" or the
"Partnership"), a Massachusetts limited partnership, was formed on August 12,
1977 as the successor to five real estate limited partnerships (collectively,
the "Colonial Partnerships"), which filed for protection under Chapter XII of
the Federal Bankruptcy Act in September 1974. The bankruptcy proceedings were
terminated in late 1984. The Partnership terminates on December 31, 2017, except
the General Partner may extend the termination date for an additional forty
years.
The authorized capital of the Partnership is represented by three classes of
partnership units ("Partnership Units"). There are two categories of limited
partnership interests ("Class A Units" and "Class B Units"), and one category of
general partnership interests (the "General Partnership Units"). The Class A
Units were issued to creditors and limited partners of the Colonial Partnerships
and have been registered under Section 12(g) of the Securities Exchange Act of
1934. Each Class A Unit is exchangeable for ten publicly traded Depositary
Receipts ("Receipts"). The Class B Units were issued to the original general
partners of the Partnership. The General Partnership Units are held by the
current general partner of the Partnership, NewReal, Inc. (the "General
Partner").
The Partnership is engaged in the business of acquiring, developing, holding
for investment, operating and selling real estate. In connection with various
new mortgages obtained in 1995 by the Partnership on certain of its properties,
the ownership of such properties was placed in various subsidiary limited
partnerships as a requirement by the refinancing bank. The Partnership directly
or through 19 subsidiary limited partnerships owns and operates various
residential apartment buildings, condominium units and commercial properties
located in Massachusetts, Connecticut, New Hampshire and Maine. The Partnership
owns a 99.67% interest in each of the 19 Subsidiary Partnerships. The remaining
.33% interest of each Subsidiary Partnership is held by an unaffiliated third
party. The third party has entered into a lease agreement with the Partnership,
pursuant to which any benefit derived from its ownership interest in such
Subsidiary Partnerships will be returned to the Partnership.
In March 1999, in connection with a refinancing and as required by the
refinancing bank, the Partnership transferred the ownership of one apartment
complex located in Woburn, Massachusetts to Westgate Apartments, LLC, a
Massachusetts limited liability company ("Westgate"). The Partnership owns a
99.67% interest of Westgate, with the remaining .33% interest owned by Westgate
Apartments, Inc., a Massachusetts corporation. In April 1999, the Partnership
sold a 16-unit apartment building in Quincy, Massachusetts which was previously
owned by a Subsidiary Partnership. In May 1999, the Partnership acquired a
39,600 square foot commercial property known as "Staples Plaza", located in
Framingham, Massachusetts. In December 1999, the Partnership acquired two
apartment complexes in Brockton, Massachusetts through two controlled limited
liability companies, WCB Associates, LLC, a Massachusetts limited liability
company ("WCB"), and Hamilton Oaks Associates, LLC, a Delaware limited liability
company ("Hamilton Oaks"), both of which were formed for the specific purpose of
acquiring the properties. The Partnership owns a 99% interest in WCB, with the
remaining 1% interest owned by WCB Associates, Inc., a Massachusetts
corporation. The Partnership owns a 100% interest in Hamilton Oaks. (The
Partnership's subsidiary limited partnerships and limited liability companies
are collectively referred to as the "Subsidiary Partnerships" and individually,
a "Subsidiary Partnership".) SEE "ITEM 1, RECENT DEVELOPMENTS."
The long-term goals of the Partnership are to manage, rent and improve its
properties and, as suitable opportunities arise, to acquire additional
properties with income and capital appreciation potential. When appropriate, the
Partnership may sell or refinance selected properties with low debt-to-equity
ratios. Proceeds from any such sales or refinancings will be reinvested in
acquisitions of other properties, distributed to the partners, or used for
operating expenses or reserves, as determined by the General Partner.
OPERATIONS OF THE PARTNERSHIP
The Partnership is managed by the General Partner, which is a Massachusetts
corporation wholly-owned by Harold Brown and Ronald Brown. The General Partner
has employed the Hamilton Company, Inc. (the "Hamilton Company"), the successor
to the Hamilton Management Corporation, to perform the management functions for
the Partnership's properties. The Hamilton Company employs Ronald Brown and
Harold Brown. The Hamilton Company is wholly owned by Harold Brown. The
Partnership and its Subsidiary Partnerships currently employ 71 individuals who
are primarily involved in the supervision and maintenance of specific
properties. The General Partner has no employees.
As of March 9, 2000, the Partnership and its Subsidiary Partnerships owned
and leased to residential tenants 2,079 apartment units in 19 residential and
mixed-use complexes (collectively, the "Apartment Complexes"), 19 condominium
units retained by the Partnership as rental properties in a residential
apartment complex formerly owned by the Partnership which has been converted
into condominiums, and one condominium unit in a separate condominium complex
(collectively referred to as the "Condominium Units"). The Apartment Complexes
and the Condominium Units are located primarily in the greater metropolitan
Boston, Massachusetts area.
Additionally, as of March 9, 2000, the Subsidiary Partnerships owned
commercial shopping centers in East Hampton, Connecticut, Gardner,
Massachusetts, and Lewiston, Maine and commercial space in mixed-use buildings
in Boston, Brockton and Newton, Massachusetts. These properties are referred to
collectively as the "Commercial Properties." The Partnership is a party to a
joint venture which leases space at the Timpany Plaza Shopping Center (the
foregoing properties are referred to collectively as the "Investment
Properties"). See Note 2 to Notes to Financial Statements included as a part of
this Form 10-K.
The Apartment Complexes, Condominium Units, Commercial Properties, and Joint
Venture Properties are referred to collectively as the "Properties."
Harold Brown and, in certain cases, Ronald Brown, own or have owned
interests in certain of the Properties. See "ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
In general, the Properties face no unusual competition. The Apartment
Complexes and Condominium Units must compete for tenants with other residential
apartments and condominium units in the areas in which they are located. The
Commercial Properties and Investment Properties must compete for commercial
tenants with other shopping malls and office buildings in the areas in which
they are located.
In the opinion of the General Partner, the Properties are adequately covered
by insurance.
The General Partner is not limited in the number or amount of mortgages
which may be placed on any Property, nor is there a policy limiting the
percentage of Partnership assets which may be invested in any specific Property.
The Second Amended and Restated Contract of Limited Partnership of the
Partnership (the "Partnership Agreement") authorizes the General Partner to
acquire real estate and real estate related investments from or in participation
with either or both of Harold Brown and Ronald Brown, or their affiliates, upon
the satisfaction of certain terms and conditions, including the approval of the
Partnership's Advisory Committee, and limitations on the price paid by the
Partnership for such investments. The Partnership Agreement also permits the
Partnership's limited partners and the General Partner to make loans to the
Partnership, subject to certain limitations on the rate of interest which may be
charged to the Partnership. Except for the foregoing, the Partnership does not
have any policies prohibiting any limited partner, general partner, or any other
person from having any direct or indirect pecuniary interest in any investment
to be acquired or disposed of by the Partnership or in any transaction to which
the Partnership is a party or has an interest in or from engaging for their own
account in business activities of the types conducted or to be conducted by the
Partnership.
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RECENT DEVELOPMENTS
Timpany Plaza is currently 29% vacant and the Partnership has not made any
determination with respect to the impact, if any, the vacancy rate of Timpany
Plaza might have on the Partnerships income and net earnings in the future. The
Partnership is in active discussions and negotiations with other retail tenants
to rent the space.
As of the date of this Annual Report, the Partnership has received from an
unaffiliated third party an offer to purchase Timpany Plaza in Gardner,
Massachusetts and is currently negotiating a purchase and sale agreement for the
sale of Lewiston Mall in Lewiston, Maine. No assurances can be made that the
sales of these properties will be consummated.
On March 24, 1999, the Partnership refinanced an existing mortgage on the
Westgate Woburn Apartments, a 221 unit apartment complex in Woburn,
Massachusetts. The refinancing bank required the Partnership to transfer the
ownership of the Westgate Woburn property to a single purpose entity. Ownership
of the Westgate Woburn property was transferred to a Massachusetts limited
liability company in which the Partnership owns a 99.67% interest and the
remaining .33% interest is held by an unaffiliated third party. As a result of
the refinancing, the Partnership paid the existing debt of approximately
$6,700,000 and lowered the interest rate on the new mortgage of $12,000,000 from
10.99% to 7.07%. The new mortgage for Westgate Woburn has a term of fifteen
(15) years with a 25 year amortization. The Partnership is in the process of
obtaining the necessary permits and approvals with respect to these additional
apartment units.
The Partnership believes it strengthened its portfolio by making significant
acquisitions of residential mixed-use and commercial properties in 1999. The
Partnership acquired three properties for a total purchase price of $31,600,000.
The acquisitions were financed by mortgages on the acquired properties totaling
$22,025,121. Additionally, a $750,000 loan was provided by the majority
shareholder of the General Partner. The remaining balance of $8,774,879 was paid
from available cash.
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 2016 and the balance of $2,932,051 was
funded from the Partnership's cash reserves, which were adequate to support this
purchase.
On December 3, 1999, the Partnership acquired, through WCB, 180 residential
units, known as "West Colonial," located at 18 Westland Ave, Brockton,
Massachusetts for a purchase price of $8,900,000. The seller, WCA Limited
Partnership, has no relationship to the Partnership or WCB, which was formed for
the specific purpose of acquiring the property. WCB has two managers: WCB
Associates, Inc., a Massachusetts corporation; and an individual, Mel Herman.
The Partnership is the sole stockholder of WCB Associates, Inc. WCB
Associates, Inc. is also a one percent (1%) member of WCB and the Partnership
owns the remaining ninety-nine percent (99%) interest in WCB. Mr. Herman is
defined in the WCB Operating Agreement as a "special manager." With respect to
the activities of WCB, Mr. Herman's consent is only needed under limited
circumstances. For example, WCB requires the consent of Mr. Herman (i) to change
in the general character of the business of WCB; (ii) to make any loans to the
manager or the members or their affiliates; (ii) to sell of all or substantially
all of the assets of the WCB; (iii) to dissolve, wind up or liquidate WCB;
(iv) to merge, consolidate or acquire all or substantially all the assets of
another person or entity; and (v) to institute proceedings to be adjudicated
bankrupt or insolvent, or to consent to such proceedings against WCB. Ronald
Brown (the President of the Partnership's General Partner) is the President of
WCB Associates, Inc. and Harold Brown (the Treasurer of the Partnership's
General Partner) is the Treasurer.
Prior to the Partnership's acquisition of West Colonial through WCB, West
Colonial had an existing first mortgage of $5,265,000, which at the closing of
the acquisition had amortized to $5,207,172. The net difference ($3,692,828),
before adjustments, was provided by use of the Partnership's cash reserves which
3
had accumulated from operations and the refinancing of the Partnership's
Westgate Woburn property earlier in March 1999. The 10 year loan assumed by the
Partnership has a maturity date of Oct. 1, 2008 and is amortizing over 30 years
with an interest rate of 6.52%. The property's net operating income budgeted for
fiscal year 2000 is $872,000, with a debt service of $400,000, leaving a cash
flow before capital expenditure of $472,000 for a 12.7% cash on cash return. The
original conduit loan was made by Berkshire Mortgage Finance Corporation and is
presently serviced by Berkshire Mortgage Finance Corporation.
On December 23, 1999, the Partnership acquired, through Hamilton Oaks, 268
residential units from Oak Apartments, LLC for a purchase price of $14,500,000.
The property is located in Brockton, Massachusetts. The Partnership financed the
purchase price in part through the use of the Partnership's operating cash and
cash reserves. In addition, the Partnership obtained a loan in the amount of
$750,000 from Harold Brown, the Treasurer of the General Partner. Mr. Brown's
loan bears interest at a rate of 10% per annum and matures in two (2) years.
Mr. Brown's loan may be repaid by the Partnership at any time, without penalty.
The balance of the purchase price was financed through a first mortgage loan
from Arbor National Commercial Mortgage, LLC ("Arbor"), in an amount of
$11,600,000. The first mortgage loan from Arbor bears interest at a rate of
7.84% per annum and is amortized over a 30 year period, with a maturity in
10 years. The seller, Oaks Apartments, LLC, has no relationship to the
Partnership or Hamilton Oaks, which was formed for the specific purpose of
acquiring the property. The General Partner, is the sole manager of Hamilton
Oaks, and the Partnership is its sole member.
On August 5, 1999, the Partnership sold a co-operative apartment located at
566 Commonwealth Avenue, 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 Willard Street Apartments, a 16 unit
apartment building in Quincy, Massachusetts for $850,000. The Partnership
assigned to the purchaser the existing mortgage which had a current balance 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 by the
Partnership from the sale was approximately $85,000. The mortgage taken back by
the Partnership from the purchaser matures at the earlier of the refinancing of
the property or July 31, 2005. The $480,000 note was paid in full to the
Partnership on January 14, 2000.
The Partnership did not sell any properties in 1998, 1997 or 1996.
Other than such purchases described above, the Partnership had not acquired
new properties since December, 1996. See "ITEM 2. PROPERTIES--Commercial
Properties."
During 1999, the Partnership and its Subsidiary Partnerships completed
certain improvements to their properties at a total cost of approximately
$2,300,000. These improvements were funded from cash reserves which were
adequate to support these improvements. The most significant improvements were
made at 62 Boylston Street and Timpany Plaza, for total costs of $755,000 and
$352,000, respectively. These improvements were necessary in anticipation of new
tenants who will occupy the building. The Partnership also made improvements of
$293,000, $137,000, $103,000 and $131,000 to North Beacon, Westgate Woburn,
Redwood Hills, and 1144 Commonwealth Avenue, respectively. These improvements
were funded from escrow accounts previously established, as well as cash
reserves. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources."
ADVISORY COMMITTEE
The Partnership has an Advisory Committee composed of three limited partners
who are not general partners or affiliates of the Partnership. The Advisory
Committee meets with the General Partner to review the progress of the
Partnership, assist the General Partner with policy formation, review the
appropriateness, timing and amount of proposed distributions, approve or reject
proposed acquisitions and
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investments with affiliates and advise the General Partner on various other
Partnership affairs. The Advisory Committee has no binding power except with
respect to investments and acquisitions involving affiliates of the Partnership.
ITEM 2. PROPERTIES
As of March 9, 2000, the Partnership and its Subsidiary Partnerships own the
Apartment Complexes, the Condominium Units and the Commercial Properties.
See also "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" for
further information concerning affiliated transactions.
During 1995, limited partnerships were created to own each of the Apartment
Complexes and the Commercial Properties listed below, exclusive of the Westgate
Apartments, Oak Apartments, West Colonial Apartments (which are owned by limited
liability companies in which the Partnership has a controlling interest). In
addition to the foregoing, in 1996, the Partnership acquired the Highland Street
Apartment Complex in Lowell, Massachusetts, which is owned directly by the
Partnership and not through any Subsidiary Partnership. The Condominium Units
and Staples Plaza are also owned directly by the Partnership.
APARTMENT COMPLEXES
The table below lists the location of the 19 Apartment Complexes, the number
and type of units in each complex, the range of rents and vacancies as of
March 9, 2000, the principal amount outstanding under any mortgages as of
December 31, 1999, and the maturity dates of such mortgages.
MORTGAGE
BALANCE AND
INTEREST RATE
AS OF MATURITY
APARTMENT NUMBER AND TYPE RENT DECEMBER 31, DATE OF
COMPLEX OF UNITS RANGE VACANCIES 1999 MORTGAGE
- --------- ------------------ ---------- --------- ------------- ---------
Coach LP.................................... 48 units $ 830-960 0 $ 1,142,215 2005
53-55 Brook St. 0 three-bedroom $ 735-840 8.25%
Acton, MA 24 two-bedroom $ 670-685
20 one-bedroom
4 studios
Westgate Woburn............................. 221 units $ 1350 0 $11,864,999 2014
2-20 Westgate Dr. 1 three-bedroom $ 825-1175 7.07%
Woburn, MA 110 two-bedrooms $ 755-1055
110 one-bedrooms N/A
0 studios
Avon Street Apts. LP........................ 66 units N/A 1 $ 1,711,906 2005
130 Avon Street 0 three-bedrooms $ 800-920 8.775%
Malden, MA 30 two-bedrooms $ 660-820
33 one-bedrooms $ 605-650
3 studios
Middlesex Apts. LP.......................... 18 units $1475-1850 0 $ 1,056,509 2005
132-144 Middlesex Rd. 18 three-bedrooms N/A 8.625%
Newton, MA 0 two-bedrooms N/A
0 one-bedrooms N/A
0 studios
Clovelly Apts. LP........................... 103 units N/A 1 $ 1,999,830 2005
160-170 Concord St. 0 three-bedrooms $ 610-810 8.375%
Nashua, NH 53 two-bedrooms $ 570-640
50 one-bedrooms N/A
0 studios
5
MORTGAGE
BALANCE AND
INTEREST RATE
AS OF MATURITY
APARTMENT NUMBER AND TYPE RENT DECEMBER 31, DATE OF
COMPLEX OF UNITS RANGE VACANCIES 1999 MORTGAGE
- --------- ------------------ ---------- --------- ------------- ---------
Nashoba Apts. LP............................ 32 units N/A 1 $ 1,044,840 2005
284 Great Road 0 three-bedrooms $ 880-1305 8.625%
Acton, MA 32 two-bedrooms N/A
0 one-bedrooms N/A
0 studios
River Drive LP.............................. 72 units N/A 1 $ 1,482,698 2005
3-17 River Drive 0 three-bedrooms $ 720-820 1 8.775%
Danvers, MA 60 two-bedrooms $ 680-705
5 one-bedrooms $ 585-590
7 studios
Executive Apts. LP.......................... 72 units N/A 1 $ 1,717,611 2005
545-561 Worcester Road 0 two-bedrooms $ 775-970 8.775%
Framingham, MA 48 two-bedrooms $ 705-815
24 one-bedrooms N/A
0 studios
Olde English Apts. LP....................... 84 units $ 675-795 0 $ 1,347,031 2005
703-718 Chelmsford St 0 three-bedrooms $ 615-705 8.5%
Lowell, MA 47 two-bedrooms $ 575-610
30 one-bedrooms
7 studios
Oak Ridge Apts. LP.......................... 61 units $ 855-1000 1 $ 2,015,797 2005
Chestnut St. 42 three-bedrooms $ 695-820 8.5%
Foxboro, MA 19 two-bedrooms N/A
0 one-bedrooms N/A
0 studios
Linhart LP.................................. 9 units N/A 0 $ 1,251,488 2005
4-34 Lincoln St. 0 three-bedrooms N/A 9.25%
Newton, MA 0 two-bedrooms $ 685-825
6 one-bedrooms $ 625-645
3 studios
Commonwealth 1137 LP........................ 35 units $1195-1600 0 $ 1,214,633 2005
1131-1137 Comm. Ave. 28 three-bedrooms $ 925-1195 8.375%
Boston, MA 5 two-bedrooms $ 460
1 one-bedrooms $ 625
1 studio
Redwood Hills LP............................ 180 units N/A 1 $ 4,390,709 2005
376-384 Sunderland Rd. 0 three-bedrooms $ 705-950 1 8.375%
Worcester, MA 89 two-bedrooms $ 635-855
91 one-bedrooms N/A
0 studios
Commonwealth 1144 LP........................ 261 units N/A 1 $ 5,074,888 2005
1144-1160 Comm. Ave. 0 three-bedrooms $ 800-995 8.375%
Allston, MA 11 two-bedrooms $ 660-950
108 one-bedrooms $ 550-795
142 studios
Boylston Downtown LP........................ 269 units N/A 0 $ 7,458,607 2005
62 Boylston St. 0 three-bedrooms N/A 8.375%
Boston, MA 0 two-bedrooms $ 645-1480
53 one-bedrooms $ 545-1075
216 studios
6
MORTGAGE
BALANCE AND
INTEREST RATE
AS OF MATURITY
APARTMENT NUMBER AND TYPE RENT DECEMBER 31, DATE OF
COMPLEX OF UNITS RANGE VACANCIES 1999 MORTGAGE
- --------- ------------------ ---------- --------- ------------- ---------
North Beacon 140 LP......................... 64 units $1850-2050 0 $ 3,332,650 2005
140-154 North Beacon St. 10 three-bedrooms $1345-1650 8.375%
Brighton, MA 54 two-bedrooms N/A
0 one-bedrooms N/A
0 studios
Highland Street Apartments.................. 36 Units N/A 0 0 0
38-40 Highland Street 0 three-bedrooms $ 550-690
Lowell, MA 24 two-bedrooms $ 500-625
10 one-bedrooms $ 530
2 Studios
West Colonial Apartments.................... 180 Units $ 816 0 $ 5,197,976 2008
10-70 Westland St. 1 three-bedroom $ 750-830 6.52%
985-997 Pleasant St. 94 two-bedrooms $ 519-700
Brockton, MA 85 one-bedrooms N/A
0 Studios
Oak Apartments.............................. 268 Units N/A 8 $11,600,000 2009
30-50 Oak St. Extension 0 three-bedrooms $ 720-1015 5 7.84%
40-60 Reservoir 97 two-bedrooms $ 625-800
Brockton, MA 158 one-bedrooms $ 575-720
13 Studios
See Note 5 to Notes to Financial Statements included as part of this
Form 10-K for information relating to the Partnership's and its Subsidiary
Partnership mortgages payable.
CONDOMINIUM UNITS
The Partnership owns and leases to residential tenants 20 Condominium Units
in the greater Boston, Massachusetts area. All of the apartment complexes in
which the Condominium Units are located, with the exception of the Riverside
Apartments, were developed or partially owned by Harold Brown, and in certain
cases by Ronald Brown.
The table below lists the location of the Condominium Units, the number of
units in each complex, the number and type of units owned by the Partnership in
each complex, the range of rents received by the Partnership for such units, and
the number of vacancies as of March 9, 2000. No Condominium Unit is subject to
an existing mortgage.
NUMBER OF NUMBER AND TYPE OF
UNITS IN UNITS OWNED BY
APARTMENT COMPLEX COMPLEX PARTNERSHIP RENT RANGE VACANCIES
- ----------------- --------- ------------------ ---------- ---------
Riverside Apartments........................ 19 0 three-bedrooms N/A 0
8-20 Riverside Street 12 two-bedrooms $930-1195
Watertown, MA 5 one-bedrooms $810-875
2 studios $820
Chateaux Westgate........................... 1 0 three-bedrooms N/A 0
Oak Lane 1 two-bedroom $780
Brockton, MA 0 studios N/A
COMMERCIAL PROPERTIES
EAST HAMPTON MALL LP In 1984, the Partnership acquired the East Hampton
Mall in East Hampton, Connecticut (the "East Hampton Mall"). The shopping center
is set on 4.25 acres of land and consists of
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52,500 square feet of rentable space, rented primarily to commercial retail
establishments. During 1995, the Subsidiary Partnership organized to own this
property obtained a mortgage in the amount of $1,435,000 which carries an
interest rate of 8.375% and matures in the year 2005. As of December 31, 1999,
the mortgage had an outstanding balance of $1,348,419. As of March 9, 2000, the
shopping center had a vacancy rate of 5%, and the average rent per square foot
was $5.22.
TIMPANY PLAZA LP In 1985, the Partnership acquired the Timpany Plaza
Shopping Center in Gardner, Massachusetts ("Timpany Plaza"). The shopping center
is set on 16 acres of land and consists of 184,600 square feet of rentable
space. During 1995, the Subsidiary Partnership organized to own this property
obtained a mortgage in the amount of $3,561,000 which carries an interest rate
of 8.375% and matures in 2005. As of December 31, 1999, the mortgage had an
outstanding balance of $3,351,133. As of March 9, 2000, the shopping center had
a vacancy rate of 29%, and the average rent per square foot was $3.67.
In March, 1996 a major tenant in the Timpany Plaza Shopping Center filed for
protection under the Federal Bankruptcy Code, Chapter 11. Subsequently, in
December, 1996 the same tenant closed its doors to business. This tenant had
previously paid approximately $347,000 of rent in 1995 and approximately
$188,000 in 1996. In July, 1997 pursuant to an Order of the United States
Bankruptcy Court, this tenant paid the Partnership $118,050 which represented
all of the post-petition, pre-rejection rents due and owing by this tenant to
the Partnership.
This Subsidiary Partnership has a ground lease with another major tenant of
the Timpany Plaza Shopping Center. Pursuant to the ground lease, this tenant
demolished the existing structure and constructed a new store of approximately
60,000 square feet. The tenant moved into the new store in 1989. The Partnership
entered into a joint venture with this tenant to lease the space formerly
occupied by the tenant. The joint venture pays this Subsidiary Partnership
annual minimum rent of $84,546. The joint venture's net income (as defined in
the ground lease) earned from leasing the tenant's former space is being split
evenly between this Subsidiary Partnership and the tenant. This Subsidiary
Partnership's share of the joint venture's net income in 1999 was $34,188.
The term of the ground lease is 20 years, with automatic extension options
for an additional 30 years. At the termination of the ground lease, this
Subsidiary Partnership will retain sole title to the underlying property. The
Partnership is currently engaged in active discussions and negotiations to sell
Timpany Plaza. The Partnership can make no assurance that it will be successful
in consummating a sale of the property. Proceeds from the sale of the property
will be (i) used to reduce outstanding indebtedness; (ii) allocated to cash
reserves; (iii) used to fund capital improvements on other properties; (iv) or
fund future acquisitions.
LEWISTON MALL LP In 1989, the Partnership acquired the Lewiston Mall
shopping center in Lewiston, Maine (the "Lewiston Mall"). The shopping center is
set on 14 acres of land and consists of 181,000 square feet of rentable space.
During 1995, this Subsidiary Partnership obtained a mortgage in the amount of
$2,933,000 which carries an interest rate of 8.375% and matures in the year
2005. As of December 31, 1999, the mortgage had an outstanding balance of
$2,756,037. As of March 9, 2000, the Shopping Center had a 7% vacancy rate, and
the average rent per square foot was $3.99. The Partnership is currently engaged
in active discussions and negotiations to sell Lewiston Mall. The Partnership
can make no assurance that it will be successful in consummating a sale of the
property. Proceeds from the sale of the property will be (i) used to reduce
outstanding indebtedness; (ii) allocated to cash reserves; (iii) or used to fund
capital improvements on other properties; (iv) or fund future acquisitions.
LINHART LP During 1995, the Partnership acquired the Linhart property in
Newton, Massachusetts ("Linhart"). The property consists of 21,200 square feet
of rentable space. As of March 9, 2000, the commercial space had a 0% vacancy
rate, and the average gross rent per square foot was $19.49.
BOYLSTON DOWNTOWN LP During 1995, this Subsidiary Partnership acquired the
Boylston Downtown property in Boston, Massachusetts ("Boylston"). The property
consists of 17,400 square feet of rentable
8
space. As of March 9, 2000, the commercial space had a 23% vacancy rate, and the
average gross rent per square foot was $17.43. The Partnership is currently
negotiating with potential tenants to lease the entire vacant space.
NORTH BEACON 140 LP During 1995, this Subsidiary Partnership acquired the
North Beacon property in Boston, Massachusetts ("North Beacon"). The property
consists of 1,000 square feet of rentable space. As of March 9, 2000, the
commercial space was fully rented, and the average rent per square foot was
$14.15.
STAPLES PLAZA In May 1999, the Partnership acquired the Staples Plaza
shopping center in Framingham, Massachusetts ("Staples Plaza"). The shopping
center consists of 39,600 square feet of rentable space. The Partnership assumed
a mortgage in the amount of $5,267,949, which carries an interest rate of 8.00%
and matures in the year 2016. As of December 31, 1999, the mortgage had an
outstanding balance of $5,170,675. As of March 9, 2000 Staples Plaza was fully
occupied, and the average net rent per square foot was $19.74.
HAMILTON OAKS ASSOCIATES, LLC The Oaks Apartments complex acquired by the
Partnership in December 1999 through Hamilton Oaks Associates, LLC includes
6,075 square feet of rentable space, occupied by a daycare center. As noted
above under "Apartment Complexes," Hamilton Oaks Associates, LLC obtained a
mortgage in the amount of $11,600,000, which carries an interest rate of 7.84%
and matures in the Year 2009. As of December 31, 1999 the mortgage had an
outstanding balance of $11,600,000. As of March 9, 2000, the commercial space
was fully occupied, and the average rent per square foot was $8.00.
See Item 13 "Certain Relationships and Related Transactions" concerning
ownership interest in the above properties.
INVESTMENT PROPERTY
As of December 31, 1999, the Partnership's investment and its interest in
the joint venture with a Timpany Plaza tenant comprised less than 1% of the
Partnership's total assets.
WEST PEABODY LIMITED PARTNERSHIP Prior to September 9, 1998, the
Partnership owned a 10% limited partnership interest in the West Peabody Limited
Partnership ("West Peabody L.P."). West Peabody L.P. owned a 125,000 square foot
office and warehouse building in West Peabody, Massachusetts. On September 9,
1998, West Peabody L.P. was sold. As of the date of the sale and disposition of
West Peabody L.P., the Partnership's share of losses generated by the West
Peabody L.P. through the said date exceeded the Partnership's investment by
approximately $664,000. As a result of the disposition of West Peabody L.P.,
each of the limited partners recognized income in an amount equal to their
proportionate share of the Partnership's losses in excess of such limited
partner's tax basis.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Each Class A Unit is exchangeable, through Boston EquiServe Limited
Partnership, as Deposit Agent, for ten Depositary Receipts ("Receipts"). The
Receipts are publicly-traded on NASDAQ under the symbol "NEWRZ". There has never
been an established public market for the Class B Units or General Partnership
Units.
In 1999, the high and low bid quotations for the Receipts were $12.38 and
$10.00, respectively. The table below sets forth the high and low bids for each
quarter of 1999 and 1998:
1999 1998
---------------------- -----------------------
LOW BID HIGH BID LOW BID HIGH BID
---------- --------- ---------- ----------
First Quarter............................................... 10 12 9 3/16 11 1/2
Second Quarter.............................................. 10 12 1/2 9 1/2 11
Third Quarter............................................... 10 1/4 12 1/8 9 3/8 13
Fourth Quarter.............................................. 10 1/2 12 3/8 10 11 1/4
These quotations reflect inter-dealer prices without retail markup,
markdown, or commission and do not necessarily represent actual transactions.
Any portion of the Partnership's cash which the General Partner deems not
necessary for cash reserves is distributed to the Partners. The Partnership has
made annual distributions to its Partners since 1978. In each of 1999 and 1998,
the Partnership made total distributions of $13.20 and $8.20 per Partnership
Unit, respectively ($1.32 and $.82 per Receipt, respectively). The total value
of the distribution in 1999 was $2,283,230, an amount determined by the General
Partner and the Partnership's Advisory Committee. In January 2000, the
Partnership declared a regular semi-annual distribution of $5.10 per Partnership
Unit ($.51 per Receipt) and a special dividend of $4.00 per Unit ($.40 per
Receipt). See Note 13 to Notes to Financial Statements included as part of this
Form 10-K.
In 1999 and 1998, the taxable income exceeded statement income by
approximately $415,000 and $790,000, respectively. The Partnership declared a
special distribution in January 2000 to assist partners with any negative tax
consequences (as described above and in Note 13 to Notes to Financial Statements
included as part of this Form 10-K).
During the second quarter of 1996, the Partnership announced a plan to
purchase up to $500,000 of its Depositary Receipts from existing holders of
securities. The purchase of Depositary Receipts took place over a period of
eighteen months. The purchase prices paid for Depositary Receipts varied and
were equal to the price at which such securities are traded on the NASDAQ Stock
Market at the time of such purchases. During 1997 and 1996, the Partnership
purchased 15,288 and 15,915 Depositary Receipts for a total cost of $139,268 and
$110,060, respectively. In order to restore the classes of Partnership Units to
the required ratios, the Partnership purchased from the General Partner 39
General Partnership Units and purchased from Harold Brown and Ronald Brown 556
and 185 Class B Units respectively, at an aggregate cost of $62,335. The plan to
purchase Depositary Receipts was terminated on December 10, 1997.
See "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" for certain information relating to the number of holders of each
class of Partnership Units.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is included on page 21 of this
Form 10-K.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
New England Realty Associates Limited Partnership and its Subsidiary
Partnerships earned income from operations of $2,871,604 during the year ended
December 31, 1999, compared to $1,985,727 during the year ended December 31,
1998, an increase of $885,877.
The rental activity is summarized as follows:
OCCUPANCY DATE
---------------------------------
MARCH 9, 2000 FEBRUARY 26, 1999
------------- -----------------
RESIDENTIAL
Units......................................... 2099 1668
Vacancies..................................... 23 37
Vacancy rate.................................. 1.1% 2.2%
COMMERCIAL
Total square feet............................. 503,375 457,700
Vacancy....................................... 71,995 80,852
Vacancy rate.................................. 14% 18%
RENTAL INCOME
---------------------------
1999 1998
----------- -------------
(IN THOUSANDS)
Total rents..................................... $20,099 $18,271
Residential percentage.......................... 83% 86%
Commercial percentage........................... 17% 14%
Contingent rentals.............................. $ 933 $ 731
Rental income for the year ended December 31, 1999 was approximately
$20,099,000 compared to approximately $18,271,000 for the year ended
December 31, 1998, an increase of approximately $1,828,000 (10%). Approximately
$769,000 of this increase was the result of a net increase in rental income at
properties that were acquired or sold during 1999. More specifically, the
Partnership acquired two residential apartment complexes, comprising a total of
448 units, and a 39,600 square-foot commercial building. The Partnership also
sold a 16-unit residential apartment complex and a condominium unit. In addition
to the net increase in rental income at properties that were acquired or sold.
Rental income increased at the Partnership's existing residential and commercial
properties. The increase at the residential properties was due to increased
rental rates and improved occupancy levels resulting from the continued high
demand for residential units in the greater Boston area. Rental rates increased
2% to 9%, vacancies decreased from 37 units (a 2.2% vacancy rate) at
February 26, 1999 to 23 units (a 1.1% vacancy rate) at March 9, 2000. Among the
Partnership's commercial properties, Timpany Plaza had an increase in rental
income of approximately $69,000 (12%) due to a major tenant occupying previously
unoccupied space during the latter part of 1998 and throughout 1999.
Expenses for the year ended December 31, 1999 were approximately $17,407,000
compared to approximately $16,462,000 for the year ended December 31, 1998, an
increase of approximately $945,000. This increase includes approximately
$613,000 in expenses related to the acquired properties. Administrative expenses
increased to approximately $1,169,000 for the year ended December 31, 1999 from
approximately $1,053,000 for the year ended December 31, 1998, an increase of
approximately $116,000. This reflects an increase in salaries and employee
benefits related to the Partnership's ownership of additional properties in
1999, as well as an increase in professional fees due to ongoing special
projects. Depreciation
11
and amortization expense increased to approximately $3,574,000 for the year
ended December 31, 1999 from approximately $3,339,000 for the year ended
December 31, 1998, an increase of approximately $235,000. This increase is due
primarily to depreciation on the properties acquired in 1999 and ongoing capital
improvements to the Partnership properties. Management fees increased to
approximately $845,000 for the year ended December 31, 1999 from approximately
$773,000 for the year ended December 31, 1998, an increase of approximately
$72,000. This increase is directly related to the increase in rental income
during 1999. Interest expense increased to approximately $4,946,000 for the year
ended December 31, 1999 from approximately $4,608,000 for the year ended
December 31, 1998, an increase of approximately $338,000. This increase is due
to an increase in debt of approximately $27,000,000 resulting from recent
acquisitions as well as the refinancing of a Partnership property. Taxes and
insurance increased to approximately $2,089,000 for the year ended December 31,
1999 from approximately $1,883,000 for the year ended December 31, 1998, an
increase of approximately $206,000. The newly acquired properties account for
approximately $130,000 of this increase. Renting expenses increased to
approximately $303,000 for the year ended December 31, 1999 from approximately
$298,000 for the year ended December 31, 1998, an increase of approximately
$5,000. This increase is due to increased advertising expenses.
Repairs and maintenance, and operating expenses remained relatively
unchanged with decreases of less than 1%.
Interest income was approximately $361,000 for the year ended December 31,
1999, compared to approximately $171,000 for the year ended December 31, 1998,
an increase of approximately $190,000. This increase is due to an increase in
the average cash balance available for investment in 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 the
Timpany Plaza joint venture represents less than 1% of the Partnership's assets.
The Partnership's share of income for 1999 in the joint venture at the
Timpany Plaza Shopping Center was approximately $34,000, compared to
approximately $17,000 in 1998, an increase of approximately $17,000. This
increase in income is due to rental rate increases as well as the lack of
vacancies at the property during 1999.
Included in other income in 1999 is a gain of approximately $801,000 on the
sale of real estate. The Partnership sold the Willard Street apartments in
April 1999 for a gain of $672,140 and sold the condominium at 566 Commonwealth
Avenue in August 1999 for a gain of $128,473. Also included in other income is a
loss of approximately $418,000 for the year ended December 31, 1999 and a gain
of approximately $51,000 for the year ended December 31, 1998 in the value of
the Partnership's short-term investments. This change in value is due to
fluctuations in interest rates.
As a result of the changes discussed above, net income for the year ended
December 31, 1999 was approximately $3,649,000 compared to approximately
$2,225,000 for the year ended December 31, 1998, an increase of approximately
$1,424,000.
YEARS ENDED DECEMBER 31, 1998 AND 1997
New England Realty Associates Limited Partnership and its Subsidiary
Partnerships earned income from operations of $1,985,727 during the year ended
December 31, 1998, compared to $1,123,654 during the year ended December 31,
1997, an increase of $862,073.
12
The rental activity is summarized as follows:
OCCUPANCY DATE
---------------------------------
FEBRUARY 26, 1999 MARCH 4, 1998
----------------- -------------
Residential
Units......................................... 1,668 1,668
Vacancies..................................... 37 48
Vacancy rate.................................. 2.2% 2.9%
Commercial
Total square feet............................. 457,700 457,700
Vacancy....................................... 80,852 107,850
Vacancy rate.................................. 18% 24%
RENTAL INCOME
---------------------------
1998 1997
------------- -----------
(IN THOUSANDS)
Total rents..................................... $18,271 $17,313
Residential percentage.......................... 86% 84%
Commercial percentage........................... 14% 16%
Contingent rentals.............................. $ 731 $ 847
Rental income for the year ended December 31, 1998 was approximately
$18,271,000 compared to approximately $17,313,000 for the year ended
December 31, 1997, an increase of approximately $958,000 (5.5%). Rental income
increased at the residential properties approximately $1,067,000 (7%), while
rental income at the commercial properties decreased approximately $109,000
(4%). Due to the demand for residential rental property in the greater Boston
area, the Partnership has seen an average increase in rental rates of
approximately 5% as well as a decrease in vacancies. Vacancies at the
residential properties have decreased 23% to 37 vacancies at February 1999
compared to 48 at March 1998. The increase in rental income at the commercial
properties is due primarily to the vacancy rate at the Timpany Plaza Shopping
Center. The rental rates have remained relatively stable at the commercial
properties.
Expenses for the year ended December 31, 1998 were approximately $16,462,000
compared to approximately $16,383,000 for the year ended December 31, 1997, an
increase of approximately $79,000. Administrative expenses increased to
approximately $1,053,000 for the year ended December 31, 1998 from approximately
$991,000 for the year ended December 31, 1997, an increase of approximately
$62,000. This represents an increase in professional fees due in part to special
projects for which the Partnership contracted for during the early part of 1998.
Depreciation and amortization expense increased to approximately $3,339,000 for
the year ended December 31, 1998 from approximately $3,239,000 for the year
ended December 31, 1997, an increase of approximately $100,000. This increase is
due to ongoing capital improvements to the Partnership properties. Management
fees increased to approximately $773,000 for the year ended December 31, 1998
from approximately $738,000 for the year ended December 31, 1997, an increase of
approximately $35,000. The increase is due to the increase in rental income.
These increases are offset by a decrease in interest expense to
approximately $4,608,000 for the year ended December 31, 1998 from approximately
$4,651,000 for the year ended December 31, 1997, a decrease of approximately
$43,000. This is due to a lower level of mortgage debt. Operating expenses
decreased to approximately $1,900,000 for the year ended December 31, 1998 from
approximately $1,962,000 for the year ended December 31, 1997, a decrease of
approximately $62,000. This decrease is due to lower utility and heating costs
in 1998 due to a milder winter as well as a utility bill paid in 1997 which
related to prior years which was not an ongoing expense in 1998. Renting
expenses decreased to approximately $298,000 for the year ended December 31,
1998 from approximately $318,000 for the year
13
ended December 31, 1997, a decrease of approximately $20,000. This decrease is
due to a decrease in rental commissions resulting from lower tenant turnover.
Repairs and maintenance remained relatively unchanged at approximately
$2,607,000 and $2,601,000 for 1998 and 1997 respectively. Taxes and insurance
also remained relatively stable at approximately $1,883,000 and $1,882,000 for
1998 and 1997 respectively.
Interest income was approximately $171,000 for the year ended December 31,
1998 compared to approximately $133,000 for the year ended December 31, 1997, an
increase of approximately $38,000. This increase is due to an increase in the
average cash balance available for investment in 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 for 1998 in the joint venture at the
Timpany Plaza Shopping Center was approximately $17,000 compared to a loss of
approximately $11,000 in 1997, a fluctuation of approximately $28,000. This
increase in income at the joint venture is due to filling a vacancy of 10,000
square feet of space for the full year of 1998 which was vacant in 1997.
Included in other income in 1998 and 1997 is approximately $56,000 and
$37,000 respectively, in unrealized appreciation in the Partnership's short-term
investment.
As a result of the changes discussed above, net income for the year ended
December 31, 1998 was approximately $2,225,000 compared to approximately
$1,269,000 for the year ended December 31, 1997, an increase of approximately
$956,000.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's principal source of cash during 1999 and 1998 was the
collection of rents, sale of real estate, and the refinancing of a Partnership
property. The majority of cash and cash equivalents of approximately $1,244,000
at December 31, 1999 and approximately $623,000 at December 31, 1998 was held in
an interest-bearing account. The Partnership's short-term investments are
approximately $22,000 at December 31, 1999 of which approximately $7,000 is
invested in a Massachusetts Municipal Bond Fund and approximately $15,000 is
invested in a U.S. Treasury Fund. At December 31, 1998, the short term
investments are $3,060,000 of which approximately $1,921,000 is invested in a
Massachusetts Municipal Bond Fund and approximately $1,139,000 is invested in a
U.S. Treasury Fund. The decrease in short-term investments is due to the
Partnership's use of investment funds to make acquisitions of real estate in
1999.
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 improvement of rental properties.
On April 30, 1999, the Partnership sold the Willard Street apartments
located in Quincy, Massachusetts for $850,000. The Partnership received $85,000
in cash. The purchaser assumed the existing mortgage of approximately $285,000
and gave to the Partnership a mortgage 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 property or July 31, 2005. This
$480,000 note was paid in full to the Partnership 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
14
assumed an 8.5% mortgage of approximately $5,200,000 which matures in 2016. The
balance of $3,000,000 was funded from the Partnership's cash reserves.
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
available cash.
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.
During 1999, the Partnership completed certain improvements to their
properties at a total cost of approximately $2,300,000. The most significant
improvements were made at the following properties: approximately $755,000 at 62
Boylston Street, in Boston, Massachusetts; approximately $293,000 at the North
Beacon Street Apartments in Brighton, Massachusetts; and approximately $352,000
at the Timpany Plaza Shopping Center in Gardner, Massachusetts. Additional
capital improvements of approximately $137,000, $131,000, and $103,000 were made
to the Westgate Apartments, 1144-1160 Commonwealth Avenue, and Redwood Hills,
respectively.
In 2000, the Partnership plans to invest approximately $3,500,000 in capital
improvements, of which approximately $3,430,000 is designated for residential
properties and approximately $70,000 for commercial properties. These
improvements will be funded from escrow accounts as well as from the
Partnership's cash reserves.
The Partnership anticipates that cash from operations and interest-bearing
investments and mortgage refinancings 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
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 Annual
Report contains forward-looking statements that are subject to risks 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
of factors and the two more specific factors identified below should not be
construed as exhaustive or as an admission regarding the adequacy of disclosures
made by the Partnership prior to the date hereof or the effectiveness of said
Act.
The Partnership has received an offer to purchase Timpany Plaza in Gardner,
Massachusetts and is negotiating a purchase and sale agreement for Lewiston Mall
in Lewiston, Maine. No assurances can be made that the sales of these properties
will be consummated.
15
A major tenant of the Lewiston Mall LP in Lewiston, Maine, which paid
approximately $274,000 in 1999, can terminate its lease with nine months notice,
effective January 1, 1997. The Partnership is currently negotiating to obtain a
long term lease. The Partnership, at this time, cannot make any assurances that
the tenant will renew its lease for this space.
YEAR 2000
The Hamilton Company, Inc. (the "Hamilton Company"), the company employed by
the Partnership to perform the management functions for the Partnership's
properties, addressed the Partnership's "Year 2000 compliance" in three areas:
Partnership operations, potential problems with vendors, and potential problems
with tenants. The Hamilton Company incurred expenses in excess of $200,000 on
Year 2000 compliance matters in the three areas noted in the preceding sentence,
and believes that such expenditures were adequate to address Year 2000
compliance matters. The management fee paid by the Partnership to the Hamilton
Company was not increased as of result of these expenses, and such expenses were
not passed on to the Partnership in any manner. The Partnership has not yet
experienced any material difficulties or problems relating to Year 2000 problem
issues.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Partnership appear on pages F-1 through F-20
of this Form 10-K and are indexed herein under Item 14(a)(1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partner is a Massachusetts corporation wholly owned by Harold
Brown and Ronald Brown. Harold Brown and Ronald Brown were individual general
partners of the Partnership until May 1984 when NewReal, Inc. replaced them as
the sole general partner of the Partnership. The General Partner is responsible
for making all decisions and taking all action deemed by it necessary or
appropriate to conduct the business of the Partnership.
Since October 1992, the General Partner employed the Hamilton Partnership as
the management company to manage the Partnership's and its Subsidiary
Partnership's properties. During 1996, The Hamilton Partnership was dissolved
and its successor and general partner assumed the management functions of the
Hamilton Partnership. The Hamilton Company, a Massachusetts corporation, was the
99% general partner of Hamilton Partnership. The Hamilton Company was purchased
by Harold Brown in August 1993. Harold Brown also owned the corporation that was
the 1% limited partner of the Hamilton Partnership. See "ITEM 11. EXECUTIVE
COMPENSATION" for information concerning fees paid by the Partnership to the
Hamilton Company during 1999.
Because the General Partner has employed the Hamilton Company as the manager
for the Properties, the General Partner has no employees.
The directors and executive officers of the General Partner are Ronald Brown
and Harold Brown. Harold Brown and Ronald Brown are brothers. The directors of
the General Partner hold office until their successors are duly elected and
qualified. The executive officers of the General Partner serve at the pleasure
of the Board of Directors.
16
The following table sets forth the name and age of each director and officer
of the General Partner and each such person's principal occupation and
affiliation during the preceding five years.
NAME AND POSITION AGE OTHER POSITIONS
- ----------------- -------- --------------------------------------------------------
Ronald Brown......................... 64 Associate, Hamilton Realty Company (since 1967);
President, Clerk and Director Treasurer, R. Brown Partners Inc. (since 1985),
(since 1984) President, Secretary and sole proprietor (since April
1989); Member, Greater Boston Real Estate Board (since
1981); Director, Brookline Chamber of Commerce (since
1978); Trustee of Trustee of Reservations (since 1988);
Director, Brookline Music School (since 1993);
President, Brookline Chamber of Commerce (1990-1992);
Director, Coolidge Corner Theater Foundation
(1990-1993); President, Brookline Property Owner's
Association (1981-1990); Trustee, Brookline Hospital
(1982-1989), Director, Brookline Symphony Orchestra
(since 1996), Treasurer, Brookline Greenspace Alliance.
Harold Brown......................... 75 Sole proprietor, Hamilton Realty (since 1955); Trustee
Treasurer and Director (since 1984) of Wedgestone Realty Investors Trust (1982-1985);
Chairman of the Board and principal stockholder of the
Wedgestone Advisory Corporation (1980-1985); Director of
AFC Financial Corp. (1983-1985); Member, Greater Boston
Real Estate Board; Director, Coolidge Bank and Trust
(1980-1983).
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Partnership's directors and executive officers, and persons who own more than
10% of a registered class of the Partnership's equity securities, to file with
the Securities and Exchange Commission reports of ownership changes and changes
in ownership of the Partnership, officers, directors and greater than 10% of the
shareholders are required by SEC regulations to furnish the Partnership with
copies of all Section 16(a) forms they file.
Based solely on review of the copies of such reports furnished to the
Partnership or written or oral representations that no reports were required the
Partnership believes that during the 1999 fiscal year, all filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with, except that Harold Brown failed to timely file certain Forms
4 covering one or more transactions involving the purchase by Harold Brown of
Depositary Receipts through the open market.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to the Partnership Agreement, the General Partner, or any
management entity employed by the General Partner, is entitled to a management
fee equal to 4% of the rental and other operating income from the Properties and
a mortgage servicing fee equal to 0.5% of the unpaid principal balance of any
debt instruments received, held and serviced by the Partnership (the "Management
Fee"). The Partnership Agreement also authorizes the General Partner to charge
to the Partnership its cost for employing professionals to assist with the
administration of the Partnership Properties (the "Administrative Fee"). The
Administrative Fee is not charged against the Management Fee. In addition, upon
the sale or disposition of any Partnership Properties, the General Partner, or
any management entity which is the effective cause of such sale, is entitled to
a commission equal to 3% of the gross sale price (the "Commission"), provided
that should any other broker be entitled to a commission in connection with the
sale, the commission shall be the difference between 3% of the gross sale price
and the amount to be paid to such broker.
17
In accordance with the Partnership Agreement, the Management Fee, the
Administrative Fee and the Commission are paid to the management company,
Hamilton Company. See "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT." The total Management Fee charged by Hamilton Company during 1999
was approximately $820,000. In 1999, the Partnership and its Subsidiary
Partnerships also paid Hamilton Company Administrative Fees of approximately
$611,000 inclusive of construction supervision and architectural fees of
$178,000, repairs and maintenance service fees of $191,000, legal fees of
$154,000, and rental fees and miscellaneous charges of $88,000. No sales
commissions were paid to the management companies in 1999. In addition, during
1999 the Partnership paid Hamilton Company $65,000 for certain accounting
services, which were provided by an outside company prior to 1993, and
approximately $327,000 for construction costs capitalized in rental properties.
The management services provided by Hamilton Company include, but are not
limited to, collecting rents and other income, approving, ordering and
supervising all repairs and other decorations, terminating leases, evicting
tenants, purchasing supplies and equipment, financing and refinancing
properties, settling insurance claims, maintaining administrative offices and
employing personnel. In addition, the Partnership employs the president of
Hamilton Company to provide asset management services to the Partnership for
which the Partnership paid approximately $33,000 in 1999.
Members of the Partnership's Advisory Committee and Ronald Brown and Harold
Brown receive $300 for each committee meeting attended. The Advisory Committee
held 6 meetings during 1999. Included in the construction supervision fees
mentioned above is $24,000 in 1999 and 1998, respectively which were paid by
Hamilton Company to Ronald Brown.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 15, 2000, except as listed below, the General Partner was not
aware of any beneficial owner of more than 5% of the outstanding Class A Units
or the Depositary Receipts, other than Boston EquiServe Limited Partnership
("Boston EquiServe"), which under the Deposit Agreement, as Depositary, is the
record holder of the Class A Units exchanged for Depositary Receipts. As of
February 15, 2000, pursuant to the Deposit Agreement, Boston EquiServe was
serving as the record holder of the Class A Units with respect to which
1,110,416 Depositary Receipts had been issued to 1,342 holders. As of
February 15, 2000, there were issued and outstanding 27,336 Class A Units held
by 1,263 limited partners and 33,015 Class B Units and 1,738 General Partnership
Units held by the persons listed below.
The following table sets forth certain information regarding each class of
Partnership Units beneficially owned on February 15, 2000 by (i) each person
known by the Company to beneficially own more than 5% of any class of
Partnership Units, (ii) each director and officer of the General Partner and
(iii) all directors and officers of the General Partner as a group. The
inclusion in the table below of any units deemed beneficially owned does not
constitute an admission that the named persons are direct or indirect beneficial
owners of such units. Unless otherwise indicated, each person listed below has
sole voting and investment power with respect to the units listed.
18
GENERAL
CLASS A CLASS B PARTNERSHIP
----------------------------- ----------------------------- -----------------------------
% OF % OF % OF
NUMBER OF OUTSTANDING NUMBER OF OUTSTANDING NUMBER OF OUTSTANDING
5% OWNERS UNITS UNITS UNITS UNITS UNITS UNITS
DIRECTORS AND BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
OFFICERS OWNED OWNED OWNED OWNED OWNED OWNED
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Harold Brown................. (1) (1) 24,761(2) 75%(2) (3) 100%(3)
c/o New England
Realty Associates
Limited Partnership
39 Brighton Ave.
Allston, MA 02110
NERA 1994 Irrevocable (1) (1) 0 0 0 0
Trust......................
c/o Lane & Altman
101 Federal St.
Boston, MA 02110
Ronald Brown................. 755(4) 0.5%(4) 8,254 25% (3) 100%(3)
c/o New England
Realty Associates
Limited Partnership
39 Brighton Ave.
Allston, MA 02110
NewReal, Inc................. 0 0 0 0 1,738 100%
39 Brighton Ave.
Allston, MA 02134
All directors and officers
as a group................. 9,364(5) 6.8%(5) 33,015(6) 100%(6) (3) 100%(3)
- ------------------------------
(1) 1,600 Depositary Receipts are held of record by Harold Brown and 98,394
Depositary Receipts are held of record by the NERA 1994 Irrevocable Trust
(the "Trust"), a grantor trust established by Harold Brown. The
beneficiaries of the Trust are trusts for the benefit of children of
Mr. Brown. During his lifetime, Mr. Brown is entitled to receive the income
from the Trust and has the right to reacquire the Depositary Receipts held
by the Trust provided that substitute assets are transferred to the Trust.
Accordingly, Mr. Brown may be deemed to beneficially own the Depositary
Receipts held by the Trust. Because a Depositary Receipt represents
beneficial ownership of one-tenth of a Class A Unit, Harold Brown may be
deemed to beneficially own approximately 9,999 Class A Units and the Trust
may be deemed to beneficially own approximately 9,839 Class A Units.
Mr. Brown currently has no voting or investment power over the Depositary
Receipts held by the Trust and disclaims beneficial ownership of such
Depositary Receipts. Luci Daley Vincent and Robert Somma, as trustees of the
Trust (the "Trustees"), share voting and investment power over the
Depositary Receipts held by the Trust, subject to the provisions of the
Trust, and thus may each be deemed to beneficially own the 99,994 Depositary
Receipts held by the Trust. The Trustees have no pecuniary interest in the
Depositary Receipts held by the Trust and disclaim beneficial ownership of
such Depositary Receipts.
(2) Consists of Class B Units held by the Trust. See Note (1) above. Harold
Brown currently has no voting or investment power over the Class B Units
held by the Trust and disclaims beneficial ownership of such Class B Units.
The Trustees share voting and investment power over the Class B Units held
by the Trust, subject to the provisions of the Trust, and thus may each be
deemed to beneficially own the 24,761 Class B Units held by the Trust. The
Trustees have no pecuniary interest in the Class B Units held by the Trust
and disclaim beneficial ownership of such Class B Units.
(3) Since Harold Brown and Ronald Brown are the controlling stockholders,
executive officers and directors of NewReal, Inc., they may be deemed to
beneficially own all 1,738 of the General Partnership Units held of record
by NewReal, Inc.
(4) Consists of 7,548 Depositary Receipts held of record jointly by Ronald Brown
and his wife. Because a Depositary Receipt represents beneficial ownership
of one-tenth of a Class A Unit, Ronald Brown may be deemed to beneficially
own approximately 755 Class A Units.
(5) Consists of the Class A Units described in Notes (1) and (4) above.
(6) Includes the Class B Units described in Note (2) above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
With the exception of the Riverside Apartments, which was owned by the
Partnership prior to the conversion of that complex into condominiums, all of
the buildings in which the Condominium Units are
19
located were developed or partially owned by Harold Brown, together, in certain
instances, with Ronald Brown. In addition, certain Subsidiary Partnerships
purchased certain properties in 1995 from entities in which Harold Brown had
substantial equity interest. In each case, the General Partner believes that the
Partnership and its Subsidiary Partnerships acquired the Condominium Units and
the other properties purchased in 1995 at prices not in excess of fair market
value.
In 1999, Harold Brown loaned the Partnership $750,000 to purchase certain
property, with interest at 10%. Total interest on the loan in 1999 was $2,083.
In addition, Harold Brown was a limited partner as well as a general partner
in West Peabody L.P. which owned a 125,000 square foot office and warehouse
building in West Peabody, Massachusetts. Harold Brown's total interest in the
West Peabody L.P. was 79.0%. This property was disposed of in 1998.
See also "ITEM 2. PROPERTIES," "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT" and "ITEM 11. EXECUTIVE COMPENSATION" for information regarding
the fees paid to Hamilton Partnership, an affiliate of the General Partner and
"ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS"
for information regarding Units repurchased by the Partnership from Harold
Brown, Ronald Brown and the General Partner.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The following Financial Statements are included in this Form 10-K:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Changes in Partners' Capital for the years
ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
Notes to Financial Statements
(a) 2. Financial Statement Schedules:
All financial statement schedules are omitted because they are not
applicable, or not required, or because the required information is
included in the financial statements or notes thereto.
(a) 3. Exhibits:
The exhibits filed as part of this Annual Report on Form 10-K are
listed in the Exhibit Index included herewith.
(b) Reports on Form 8-K, together with an amendment to the same.
20
SELECTED FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
INCOME STATEMENT INFORMATION
Revenues...................... $20,278,146 $18,447,450 $17,506,971 $16,634,883 $12,459,478
Expenses...................... 17,406,542 16,461,723 16,383,317 15,909,234 15,575,565
Income (Loss) from
Operations.................. 2,871,604 1,985,727 1,123,654 725,649 (3,116,087)
Other Income.................. 777,407 239,292 144,977 186,781 241,276
Net Income (Loss)............. 3,649,011 2,225,019 1,268,631 912,430 (2,874,811)
Net Income (Loss) per Unit.... 21.06 12.84 7.30 5.17 (16.23)
Distributions to Partners per
Unit........................ 13.20 8.20 8.80 6.80 6.80
Net Income (Loss) per
Depositary Receipt.......... 2.11 1.28 .73 .52 (1.62)
Distributions to Partners per
Depositary Receipt.......... 1.32 .82 .88 .68 .68
BALANCE SHEET INFORMATION
Total Assets.................. 87,668,120 58,406,104 58,147,503 $58,788,939 $59,750,970
Net Real Estate Investments... 81,274,293 50,868,382 51,575,342 52,239,981 51,688,269
Total Debt Outstanding........ 77,530,651 51,322,552 51,956,821 52,538,499 53,072,037
Partners' Capital............. 5,637,661 4,271,880 3,465,230 3,898,498 4,323,402
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NEW ENGLAND REALTY ASSOCIATES
LIMITED PARTNERSHIP
By: /s/ NEWREAL, INC.,
-----------------------------------------
its General Partner
By: /s/ RONALD BROWN
-----------------------------------------
Ronald Brown, PRESIDENT
Dated: March 30, 2000
21
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President and Director
/s/ RONALD BROWN of the General Partner
------------------------------------------- (Principal Executive March 30, 2000
Ronald Brown Officer)
Treasurer and Director
/s/ HAROLD BROWN of the General Partner
------------------------------------------- (Principal Financial March 30, 2000
Harold Brown Officer and Principal
Accounting Officer)
22
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ----------- ------------------------------------------------------------ --------
(3) --Second Amended and Restated Contract of Limited --
Partnership(1)
(4) (a) --Specimen certificate representing Depositary Receipts(2) --
(b) --Description of rights of holders of Partnership --
securities*
(c) --Deposit Agreement, dated August 12, 1987, between the --
General Partner and the First National Bank of Boston(3)
(10) --Purchase and Sale Agreement by and between Sally A. Starr --
and Lisa Brown, Trustees of Omnibus Realty Trust, a
nominee trust.(4)
(21) --Subsidiaries of the Partnership.(5) --
(27) --Financial Data Schedule of Partnership --
(19) --8-K December 3, 1999 --
(19) --8-K December 23, 1999 --
(19) --Amended 8-K (Amended Reports Dated December 3, 1999 and --
December 23, 1999
- ------------------------
(1) Incorporated by reference to Exhibit A to the Partnership's Statement
Furnished in Connection with the Solicitation of Consents filed under the
Securities Exchange Act of 1934 on October 14, 1986.
(2) Incorporated herein by reference to Exhibit A to Exhibit 2(b) to the
Partnership's Registration Statement on Form 8-A, filed under the Securities
Exchange Act of 1934 on August 17, 1987.
(3) Incorporated herein by reference to Exhibit 2(b) to the Partnership's
Registration Statement on
Form 8-A, filed under the Securities Exchange Act of 1934 on August 17,
1987.
(4) Incorporated by reference to Exhibit 2.1 to the Partnership's Current Report
on Form 8-K dated
June 30, 1995.
(5) Incorporated by reference to Note 2 to Financial Statements included as part
of this Form 10-K.
23
INDEPENDENT AUDITOR'S REPORT
The Partners
New England Realty Associates Limited Partnership
We have audited the accompanying consolidated balance sheets of New England
Realty Associates Limited Partnership and Subsidiary Partnerships as of
December 31, 1999 and 1998, and the related consolidated statements of income,
changes in partners' capital, and cash flows for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of New England Realty
Associates Limited Partnership and its Subsidiary Partnerships at December 31,
1999 and 1998 and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1999 in conformity with
generally accepted accounting principles.
/S/ MILLER WACHMAN LLP
Certified Public Accountants
Boston, Massachusetts
February 18, 2000
F-1
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
ASSETS
Rental Properties........................................... $81,274,293 $50,868,382
Cash and Cash Equivalents................................... 1,244,438 623,078
Short-term Investments...................................... 21,787 3,060,373
Rents Receivable............................................ 686,706 509,914
Real Estate Tax Escrows..................................... 706,974 538,852
Prepaid Expenses and Other Assets........................... 2,113,495 1,710,537
Investment in Joint Venture................................. 29,035 58,910
Financing and Leasing Fees.................................. 1,110,520 1,036,058
Mortgage Notes Receivable................................... 480,872 --
----------- -----------
TOTAL ASSETS.............................................. $87,668,120 $58,406,104
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Note Payable................................................ $ 750,000 $ --
Mortgages Payable........................................... 77,530,651 51,322,552
Accounts Payable and Accrued Expenses....................... 1,103,458 868,425
Advance Rental Payments and Security Deposits............... 2,646,350 1,943,247
----------- -----------
TOTAL LIABILITIES....................................... 82,030,459 54,134,224
Commitments and Contingent Liabilities (Note 9)
Partners' Capital
173,252 units outstanding in 1999 and 1998................ 5,637,661 4,271,880
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL..................... $87,668,120 $58,406,104
=========== ===========
See notes to consolidated financial statements
F-2
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenue
Rental income....................................... $20,099,480 $18,271,479 $17,313,181
Laundry and sundry income........................... 178,666 175,971 193,790
----------- ----------- -----------
20,278,146 18,447,450 17,506,971
----------- ----------- -----------
Expense
Administrative...................................... 1,169,483 1,053,426 991,167
Depreciation and amortization....................... 3,573,658 3,338,924 3,239,186
Interest............................................ 4,945,943 4,607,860 4,650,806
Management fees..................................... 845,129 773,204 737,883
Operating........................................... 1,882,804 1,900,211 1,962,124
Renting............................................. 303,471 297,875 318,397
Repairs and maintenance............................. 2,596,650 2,607,103 2,601,470
Taxes and insurance................................. 2,089,404 1,883,120 1,882,284
----------- ----------- -----------
17,406,542 16,461,723 16,383,317
----------- ----------- -----------
Income from Operations.............................. 2,871,604 1,985,727 1,123,654
----------- ----------- -----------
Other Income (Loss)
Interest income..................................... 360,501 171,435 133,265
Income (loss) from investment in joint venture...... 34,188 16,714 (10,584)
Income (loss) on short-term investments............. (417,895) 51,143 22,296
Gain on the sale of real estate..................... 800,613 -- --
----------- ----------- -----------
777,407 239,292 144,977
----------- ----------- -----------
Net Income............................................ $ 3,649,011 $ 2,225,019 $ 1,268,631
=========== =========== ===========
Net Income per Unit................................... $ 21.06 $ 12.84 $ 7.30
=========== =========== ===========
Weighted Average Number of Units Outstanding.......... 173,252 173,252 173,855
=========== =========== ===========
See notes to consolidated financial statements
F-3
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
UNITS
-------------------------------------------------------------------
LIMITED LESS
------------------- TREASURY
GENERAL UNITS
CLASS A CLASS B PARTNERSHIP SUB-TOTAL AT COST TOTAL
-------- -------- ----------- --------- -------- --------
Balance, January 1, 1997............... 144,180 34,243 1,802 180,225 5,062 175,163
Unit Buyback........................... -- -- -- -- 1,911 (1,911)
Distributions to Partners.............. -- -- -- -- -- --
Net Income............................. -- -- -- -- -- --
------- ------ ----- ------- ----- -------
Balance, December 31, 1997 144,180 34,243 1,802 180,225 6,973 173,252
Distribution to Partners............... -- -- -- -- -- --
Net Income............................. -- -- -- -- -- --
------- ------ ----- ------- ----- -------
Balance, December 31, 1998 144,180 34,243 1,802 180,225 6,973 173,252
Distributions to Partners.............. -- -- -- -- -- --
Net Income............................. -- -- -- -- -- --
------- ------ ----- ------- ----- -------
Balance, December 31, 1999 144,180 34,243 1,802 180,225 6,973 173,252
======= ====== ===== ======= ===== =======
PARTNERS' CAPITAL
-----------------------------------------------------
LIMITED
-------------------------
GENERAL
CLASS A CLASS B PARTNERSHIP TOTAL
------------ ---------- ----------- -----------
Balance, January 1, 1997............... $ 3,115,865 $ 743,473 $ 39,160 $ 3,898,498
Unit Buyback........................... (139,268) (33,077) (1,741) (174,086)
Distributions to Partners.............. (1,222,251) (290,284) (15,278) (1,527,813)
Net Income............................. 1,014,905 241,040 12,686 1,268,631
------------ ---------- -------- -----------
Balance, December 31, 1997 $ 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............................. 1,780,015 422,754 22,250 2,225,019
------------ ---------- -------- -----------
Balance, December 31, 1998 $ 3,414,571 $ 814,416 $ 42,893 $ 4,271,880
Distributions to Partners.............. (1,826,584) (433,814) (22,832) (2,283,230)
Net Income............................. 2,919,209 693,312 36,490 3,649,011
------------ ---------- -------- -----------
Balance, December 31, 1999 $ 4,507,196 $1,073,914 $ 56,551 $ 5,637,661
============ ========== ======== ===========
See notes to consolidated financial statements.
F-4
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
------------ ----------- -----------
Cash Flows from Operating Activities
Net income.......................................... $ 3,649,011 $ 2,225,019 $ 1,268,631
------------ ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization....................... 3,573,658 3,338,924 3,239,186
(Income) Loss from investments in partnerships and
joint venture..................................... (34,188) (16,714) 10,584
Gain on the sale of rental property................. (800,613) -- --
Unrealized depreciation(appreciation) on short-term
investments....................................... 417,895 (56,143) (37,296)
Decrease in rents receivable........................ (176,792) 94,436 83,895
(Increase) in financing and leasing fees............ (344,110) (48,757) (20,524)
Increase (Decrease) in accounts payable............. 235,033 (35,005) 218,804
(Increase) Decrease in real estate tax escrow....... (168,122) 31,861 (67,479)
(Increase) Decrease in prepaid expenses and other
assets............................................ (402,958) (196,167) 181,867
Increase in advance rental payments and security
deposits.......................................... 703,103 121,225 154,706
(Increase) Decrease in short-term investments....... 2,620,691 (948,801) (1,966,605)
------------ ----------- -----------
Total Adjustments................................... 5,623,597 2,284,859 1,797,138
------------ ----------- -----------
Net cash provided by operating activities............. 9,272,608 4,509,878 3,065,769
------------ ----------- -----------
Cash Flows from Investing Activities
Distribution from joint venture..................... 64,064 33,271 7,684
Purchase and improvement of rental properties....... (11,030,171) (2,323,710) (2,164,204)
Sale of rental property............................. 180,984 -- --
------------ ----------- -----------
Net cash (used in) investing activities............... (10,785,123) (2,290,439) (2,156,520)
------------ ----------- -----------
Cash Flows from Financing Activities
Principal payments and early repayment of mortgages
payable........................................... (876,154) (634,269) (581,678)
Distributions to partners........................... (2,283,230) (1,418,369) (1,527,813)
Purchase of treasury units.......................... -- -- (174,086)
Proceeds from notes payable......................... 5,293,259 -- --
------------ ----------- -----------
Net cash provided by (used in) financing activities... 2,133,875 (2,052,638) (2,283,577)
------------ ----------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents......................................... 621,360 166,801 (1,374,328)
Cash and Cash Equivalents, Beginning.................. 623,078 456,277 1,830,605
------------ ----------- -----------
Cash and Cash Equivalents, Ending..................... $ 1,244,438 $ 623,078 $ 456,277
============ =========== ===========
See notes to consolidated financial statements
F-5
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 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.
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
F-6
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 1999, 1998 or 1997. The Partnerships make
their temporary cash investments with high-credit-quality financial institutions
or purchase money market accounts invested in U.S. Government securities or
mutual funds invested in government bonds. At December 31, 1999 approximately
$982,000 of cash and cash equivalents exceeded federally insured amounts. The
mutual fund investment of $21,787 at December 31, 1999 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 $87,777, $96,224, and $123,215 in 1999, 1998 and 1997, respectively.
NOTE 2--RENTAL PROPERTIES
Rental properties consist of the following:
DECEMBER
------------------------- USEFUL
1999 1998 LIFE
----------- ----------- -----------
Land, improvements, and parking lots... $16,992,349 $10,086,067 10-31 years
Buildings and improvements............. 82,422,016 56,546,885 15-31 years
Kitchen cabinets....................... 1,218,362 1,138,588 5-10 years
Carpets................................ 1,232,720 1,176,261 5-10 years
Air conditioning....................... 279,807 281,776 7-10 years
Laundry equipment...................... 53,672 58,081 5-7 years
Elevators.............................. 161,391 57,952 20 years
Swimming pools......................... 42,450 42,450 10 years
Equipment.............................. 845,009 649,370 5-7 years
Motor vehicles......................... 65,927 65,926 5 years
Fences................................. 36,717 18,624 5-10 years
Furniture and fixtures................. 438,548 390,209 5-7 years
Smoke alarms........................... 33,917 17,817 5-7 years
----------- -----------
103,822,885 70,530,006
Less accumulated depreciation.......... 22,548,592 19,661,624
----------- -----------
$81,274,293 $50,868,382
=========== ===========
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RENTAL PROPERTIES (CONTINUED)
Real estate and accumulated depreciation as of December 31, 1999 is:
INITIAL COST TO COST GROSS AMOUNT AT
PARTNERSHIPS(1) CAPITALIZED WHICH CARRIED AT
-------------------------- SUBSEQUENT TO CLOSE OF PERIOD
ENCUMBRANCES BUILDINGS ACQUISITION (2) BUILDINGS
(FIRST MORTGAGES) LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS
----------------- ----------- ------------ --------------- ----------- ----------------
Condominium Units
Residential Units
Massachusetts............... $ -- $ 27,164 $ 311,527 $ (28,004) $ 27,164 $ 283,523
Westgate Apartments LLC
Residential Apartments
Woburn, Massachusetts....... $11,864,999 $ 461,300 $ 2,424,636 $ 4,569,960 $ 461,300 $ 6,994,596
Coach L.P.
Residential Apartments
Acton, Massachusetts........ $ 1,142,215 $ 140,600 $ 445,791 $ 445,662 $ 140,600 $ 891,453
Avon Street Apartments L.P.
Residential Apartments
Malden, Massachusetts....... $ 1,711,906 $ 62,700 $ 837,318 $ 356,758 $ 62,700 $ 1,194,076
Middlesex Apartments L.P.
Residential Apartments
Newton, Massachusetts....... $ 1,056,509 $ 37,700 $ 161,012 $ 218,297 $ 37,700 $ 379,309
Clovelly Apartments L.P.
Residential Apartments
Nashua, New Hampshire....... $ 1,999,830 $ 177,610 $ 1,478,359 $ 428,870 $ 177,610 $ 1,907,229
Nashoba Apartments L.P.
Residential Apartments
Acton, Massachusetts........ $ 1,044,840 $ 79,650 $ 284,548 $ 665,049 $ 79,650 $ 949,597
River Drive L.P.
Residential Apartments
Danvers, Massachusetts...... $ 1,482,698 $ 72,525 $ 587,777 $ 1,032,432 $ 72,525 $ 1,620,209
Executive Apartments L.P.
Residential Apartments
Framingham, Massachusetts... $ 1,717,611 $ 91,400 $ 740,360 $ 873,879 $ 91,400 $ 1,614,239
Olde English Apartments L.P.
Residential Apartments
Lowell, Massachusetts....... $ 1,347,031 $ 46,181 $ 878,323 $ 371,570 $ 46,181 $ 1,249,893
Oak Ridge Apartments L.P.
Residential Apartments
Foxboro, Massachusetts...... $ 2,015,797 $ 135,300 $ 406,544 $ 1,071,842 $ 135,300 $ 1,478,386
Commonwealth 1137 L.P.
Residential Apartments
Boston, Massachusetts....... $ 1,214,633 $ 342,000 $ 1,367,669 $ 307,270 $ 342,000 $ 1,674,939
Commonwealth 1144 L.P.
Residential Apartments
ACCUMULATED DATE
TOTALS DEPRECIATION (3) ACQUIRED
------------ ---------------- ----------
Condominium Units
Residential Units
Massachusetts............... $ 310,687 $ 236,278 Various
Westgate Apartments LLC
Residential Apartments
Woburn, Massachusetts....... $ 7,455,896 $ 3,953,038 Sept. 1977
Coach L.P.
Residential Apartments
Acton, Massachusetts........ $ 1,032,053 $ 603,635 Sept. 1977
Avon Street Apartments L.P.
Residential Apartments
Malden, Massachusetts....... $ 1,256,776 $ 894,368 Sept. 1977
Middlesex Apartments L.P.
Residential Apartments
Newton, Massachusetts....... $ 417,009 $ 190,597 Sept. 1977
Clovelly Apartments L.P.
Residential Apartments
Nashua, New Hampshire....... $ 2,084,839 $ 1,428,921 Sept. 1977
Nashoba Apartments L.P.
Residential Apartments
Acton, Massachusetts........ $ 1,029,247 $ 524,937 Sept. 1977
River Drive L.P.
Residential Apartments
Danvers, Massachusetts...... $ 1,692,734 $ 943,358 Sept. 1977
Executive Apartments L.P.
Residential Apartments
Framingham, Massachusetts... $ 1,705,639 $ 1,127,956 Sept. 1977
Olde English Apartments L.P.
Residential Apartments
Lowell, Massachusetts....... $ 1,296,074 $ 902,749 Sept. 1977
Oak Ridge Apartments L.P.
Residential Apartments
Foxboro, Massachusetts...... $ 1,613,686 $ 782,051 Sept. 1977
Commonwealth 1137 L.P.
Residential Apartments
Boston, Massachusetts....... $ 2,016,939 $ 303,867 July 1995
Commonwealth 1144 L.P.
Residential Apartments
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RENTAL PROPERTIES (CONTINUED)
Real estate and accumulated depreciation as of December 31, 1999 is:
INITIAL COST TO COST GROSS AMOUNT AT
PARTNERSHIPS(1) CAPITALIZED WHICH CARRIED AT
-------------------------- SUBSEQUENT TO CLOSE OF PERIOD
ENCUMBRANCES BUILDINGS ACQUISITION (2) BUILDINGS
(FIRST MORTGAGES) LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS
----------------- ----------- ------------ --------------- ----------- ----------------
Boston, Massachusetts....... $ 5,074,888 $ 1,410,000 $ 5,664,816 $ 710,942 $ 1,410,000 $ 6,375,758
Boylston Downtown L.P.
Residential Apartments
Boston, Massachusetts....... $ 7,458,607 $ 2,112,000 $ 8,593,111 $ 1,729,919 $ 2,112,000 $10,323,030
North Beacon 140 L.P.
Residential Units
Boston, Massachusetts....... $ 3,332,650 $ 936,000 $ 3,762,013 $ 842,412 $ 936,000 $ 4,604,425
Redwood Hills L.P.
Residential Units
Worcester, Massachusetts.... $ 4,390,709 $ 1,200,000 $ 4,810,604 $ 943,833 $ 1,200,000 $ 5,754,437
East Hampton L.P.
Strip Shopping Mall
East Hampton, Connecticut... $ 1,348,419 $ 394,011 $ 1,182,031 $ 1,274,128 $ 394,011 $ 2,456,159
Timpany Plaza L.P.
Shopping Mall
Gardner, Massachusetts...... $ 3,351,133 $ 378,125 $ 4,729,978 $ 719,633 $ 378,125 $ 5,449,611
Lewiston Mall L.P. (4)
Shopping Mall
Lewiston, Maine............. $ 2,756,037 $ 1,043,059 $ 3,694,731 $ 475,127 $ 1,043,059 $ 4,169,858
Linhart L.P.
Residential/Commercial
Newton, Massachusetts....... $ 1,251,488 $ 385,000 $ 1,540,000 $ 795,062 $ 385,000 $ 2,335,062
Highland Street Apartments,
L.P.
Residential Apartments
Lowell, Massachusetts....... $ -- $ 156,000 $ 634,085 $ 194,185 $ 156,000 $ 828,270
Staples Plaza
Strip Mall
Framingham, Massachusetts... $ 5,170,675 $ 3,280,000 $ 4,920,000 $ -- $ 3,280,000 $ 4,920,000
Hamilton Oaks Associates LLC
Residential Apartments
Brockton, Massachusetts..... $11,600,000 $ 2,175,000 $12,325,000 $ -- $ 2,175,000 $12,325,000
WCB Associates LLC
Residential Apartments
Brockton, Massachusetts..... $ 5,197,976 $ 1,335,000 $ 7,565,501 $ -- $ 1,335,000 $ 7,565,501
$77,530,651 $16,478,325 $69,345,734 $17,998,826 $16,478,325 $87,344,560
ACCUMULATED DATE
TOTALS DEPRECIATION (3) ACQUIRED
------------ ---------------- ----------
Boston, Massachusetts....... $ 7,785,758 $ 1,246,639 July 1995
Boylston Downtown L.P.
Residential Apartments
Boston, Massachusetts....... $ 12,435,030 $ 1,886,282 July 1995
North Beacon 140 L.P.
Residential Units
Boston, Massachusetts....... $ 5,540,425 $ 856,444 July 1995
Redwood Hills L.P.
Residential Units
Worcester, Massachusetts.... $ 6,954,437 $ 1,161,373 July 1995
East Hampton L.P.
Strip Shopping Mall
East Hampton, Connecticut... $ 2,850,170 $ 959,197 Sept. 1984
Timpany Plaza L.P.
Shopping Mall
Gardner, Massachusetts...... $ 5,827,736 $ 2,819,344 Sept. 1985
Lewiston Mall L.P. (4)
Shopping Mall
Lewiston, Maine............. $ 5,212,917 $ 944,841 Feb. 1989
Linhart L.P.
Residential/Commercial
Newton, Massachusetts....... $ 2,720,062 $ 476,083 Jan. 1995
Highland Street Apartments,
L.P.
Residential Apartments
Lowell, Massachusetts....... $ 984,270 $ 165,555 Dec. 1996
Staples Plaza
Strip Mall
Framingham, Massachusetts... $ 8,200,000 $ 95,667 May 1999
Hamilton Oaks Associates LLC
Residential Apartments
Brockton, Massachusetts..... $ 14,500,000 $ 27,810 Dec. 1999
WCB Associates LLC
Residential Apartments
Brockton, Massachusetts..... $ 8,900,501 $ 17,602 Dec. 1999
$103,822,885 $22,548,592
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RENTAL PROPERTIES (CONTINUED)
- ------------------------
(1) The initial cost to the Partnerships represents both the balance of
mortgages assumed in September 1977, including subsequent adjustments to
such amounts, and subsequent acquisitions at cost.
(2) Net of retirements, which are not significant.
(3) In 1999, rental properties were depreciated over the following estimated
useful lives:
ASSETS LIFE
- ------ -----------
Buildings and Improvements.................................. 10-31 years
Other Categories of Assets.................................. 5-10 years
(4) Initial costs and carrying values are net of $3,250,000 impairment loss.
F-10
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RENTAL PROPERTIES (CONTINUED)
A reconciliation of rental properties and accumulated depreciation is as
follows:
DECEMBER 31,
----------------------------------------
1999 1998 1997
------------ ----------- -----------
Rental Properties
Balance, Beginning:................ $ 70,530,006 $68,597,312 $67,429,200
Additions:
Buildings, improvements, and
other assets................... 33,855,292 2,323,710 2,164,204
------------ ----------- -----------
104,385,298 70,921,022 69,593,404
Deduct:
Write-off of retired or disposed
assets........................... 562,413 391,016 996,092
------------ ----------- -----------
Balance, Ending...................... $103,822,885 $70,530,006 $68,597,312
============ =========== ===========
Accumulated Depreciation
Balance, Beginning............... $ 19,661,624 $17,021,970 $15,135,219
Add:
Depreciation for the year...... 3,304,010 3,030,670 2,882,843
------------ ----------- -----------
22,965,634 20,052,640 18,018,062
Deduct:
Accumulated depreciation of retired
or disposed assets............... 417,042 391,016 996,092
------------ ----------- -----------
Balance, Ending.................... $ 22,548,592 $19,661,624 $17,021,970
============ =========== ===========
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 2016.
On April 30, 1999, the Partnership sold the Willard Street apartments
located in Quincy, Massachusetts for $850,000, resulting in a gain of $672,140.
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. This mortgage was paid on January 14, 2000.
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 $128,473 is included in other income.
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
available cash.
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
F-11
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RENTAL PROPERTIES (CONTINUED)
majority shareholder of the General Partner (see Note 3) and $2,150,000 paid
from available cash. The 7.84% mortgage matures in 2009 and is being amortized
over 30 years.
The operating results of the above acquired properties have been included in
the consolidated statements of income since the dates of acquisition or sale.
The following unaudited proforma results assume the acquisitions occurred at the
beginning of 1998 and are based upon historical amounts adjusted for changes in
interest expense and depreciation and amortization (stated in thousands except
for per unit amounts):
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
Rental Income............................................. $24,281 $23,213
Operating Income (loss)................................... 1,807 1,456
Net Income (loss)......................................... 2,978 1,695
Income (loss) per unit.................................... 17.19 9.28
The proforma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been consummated
at January 1, 1998 nor are these results necessarily indicative of future
operating results.
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 $819,929, $749,302,
and $715,086 in 1999, 1998 and 1997, respectively. Advance rental payments and
security deposits are held in escrow by the management company (see Note 6). The
management company also receives a mortgage servicing fee equal to an annual
rate of 1/2% of the monthly outstanding balance of mortgages receivable
resulting from the sale of property. There was a mortgage servicing fee of $325
paid in 1999; no fees were paid in 1998 and 1997.
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. In 1999, 1998 and 1997, approximately
$939,000, $671,000, and $751,000 was charged to NERA for legal, construction,
maintenance, rental and architectural services and supervision of capital
improvements. Approximately $505,000, $244,000, and $295,000 was capitalized in
1999, 1998 and 1997 in rental properties. Included in the 1999 expenses referred
to above, approximately $192,000 is recorded in repairs and maintenance,
$215,000 in administrative expense and, $27,000 in renting expense. Included in
the 1998 expenses referred to above, approximately $219,000 is recorded in
repairs and maintenance, $173,000 in administrative expense, and $35,000 in
renting expense. Included in the 1997 expenses referred to above, approximately
$235,000 is recorded in repairs and maintenance, $165,000 in administrative
expense, and $47,000 in renting expense. Additionally in 1999, 1998 and 1997,
the Partnership paid to the management company $65,000, $60,000, and $50,000
respectively for in-house accounting services, which were previously provided by
an outside company. Included in accounts payable and accrued expenses at
December 31, 1999 and 1998 is $114,155 and $115,271 due to the management
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%. No such
commissions were paid in 1999, 1998 or 1997.
F-12
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--RELATED PARTY TRANSACTIONS
In 1996, prior to becoming an employee and President of 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 $32,650, $31,200, and
$30,600 in 1999, 1998 and 1997, respectively.
Included in prepaid expenses and other assets were amounts due from related
parties of $937,157 and $534,357 at December 31, 1999 and 1998, respectively,
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).
See Note 10 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.
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 (see Note 2). This unsecured
10% note is due on December 22, 2001 or prepaid without penalty. Interest
expense on this note was $2,083 for the period ended December 31, 1999.
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 December 31,
1999 mutual fund investments with a cost of $22,113 were recorded at a market
value of $21,787. At December 31, 1998 mutual fund investments with a cost of
$3,004,230, were recorded at a market value of $3,060,373.
Included in prepaid expenses and other assets at December 31, 1999 and 1998
is approximately $456,000 and $567,000 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 $29,035 and $58,910 at December 31, 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. 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.
Financing and leasing fees of $1,110,520 and $1,036,058 are net of
accumulated amortization of $1,261,148 and $1,215,506 in 1999 and 1998,
respectively.
NOTE 5--MORTGAGES PAYABLE
At December 31, 1999 and 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 December 31, 1999 the interest rate on these loans
ranged from 7.07% to 9.25%, payable in monthly installments aggregating
approximately $612,000 including interest, to various dates through 2016.
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.
F-13
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--MORTGAGES PAYABLE (CONTINUED)
Approximate annual maturities are as follows:
2000--current maturities.................................... $ 1,168,000
2001........................................................ 1,269,000
2002........................................................ 1,375,000
2003........................................................ 1,490,000
2004........................................................ 1,610,000
Thereafter.................................................. 70,619,000
-----------
$77,531,000
===========
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.
The Partnership declared distributions of $13.20 per unit in 1999, $8.20 per
unit in 1998, and $8.80 per unit in 1997. The 1999 distribution included a
special dividend of $3.50 per unit paid in March 1999. 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 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 Depositary Receipt:
YEAR ENDED
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
Net Income per Depositary Receipt....................... $2.11 $1.28 $.73
===== ===== ====
NOTE 8--CAPITAL REPURCHASE PLAN
During 1997, the Partnership purchased 15,288 Depositary Receipts for a
total cost of $139,268. In addition, 363 Class B and 19 General Partnership
units were purchased in 1997 for a total cost of $34,819. The plan to purchase
Depositary Receipts was terminated on December 10, 1997.
F-14
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--CAPITAL REPURCHASE PLAN (CONTINUED)
Treasury units at December 31, 1999 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.
NOTE 10--RENTAL INCOME
In 1999, approximately 83% of rental income was related to residential
apartments and condominium units with leases of one year or less. The remaining
17% was related to commercial properties which have minimum future rental income
on noncancellable operating leases as follows:
COMMERCIAL
PROPERTY
LEASES LAND LEASES TOTAL
---------- ----------- ----------
2000...................................... 2,493,000 150,000 2,643,000
2001...................................... 2,165,000 150,000 2,315,000
2002...................................... 2,055,000 150,000 2,205,000
2003...................................... 1,871,000 150,000 2,021,000
2004...................................... 1,604,000 150,000 1,754,000
Thereafter................................ 9,213,000 800,000 10,013,000
---------- --------- ----------
19,401,000 1,550,000 20,951,000
========== ========= ==========
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 $933,000, $731,000, and $847,000 for the years ended
December 31, 1999, 1998, and 1997 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 December 31,
1999 and 1998 is $175,000 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
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
F-15
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--RENTAL INCOME (CONTINUED)
Partnership's share of income for the year ended December 31, 1999 and 1998 was
$34,188 and $16,714, compared to a loss of $10,584 for the year ended
December 31, 1997.
Rents receivable are net of allowances for doubtful accounts of $149,386 and
$135,559 at December 31, 1999 and 1998, respectively.
NOTE 11--CASH FLOW INFORMATION
During the year ended December 31, 1999, 1998, and 1997 cash paid for
interest was $4,862,468, $4,543,330, and $4,595,922 respectively.
Schedule of non-cash investing and financing transactions:
MORTGAGE PROPERTY PROPERTIES
REFINANCED SOLD PURCHASED TOTAL
---------- -------- ------------ ------------
Sale (purchase) of rental properties........ $ -- $850,000 ($31,600,000) ($30,750,000)
New mortgage on Westgate Apartments......... 12,000,000 -- -- 12,000,000
---------- -------- ------------ ------------
12,000,000 850,000 (31,600,000) (18,750,000)
---------- -------- ------------ ------------
Non-cash investing and financing
Mortgage debt............................. -- -- 22,075,121 22,075,121
Note payable.............................. -- -- 750,000 750,000
Mortgage assumed by buyer................. -- (284,128) -- (284,128)
Mortgage note received.................... -- (480,872) -- (480,872)
Payment of existing mortgage.............. (6,706,741) -- -- (6,706,741)
---------- -------- ------------ ------------
Total non-cash investing and financing...... (6,706,741) (765,000) 22,825,121 15,353,380
---------- -------- ------------ ------------
Cash received (paid)........................ $5,293,259 $ 85,000 ($ 8,774,879) ($ 3,396,620)
========== ======== ============ ============
NOTE 12--FAIR VALUE OF FINANCIAL INSTRUMENTS
The Partnership considers the fair value of its financial instruments to
approximate their carrying values because conditions pertaining to the historic
carrying values approximate those in the current market.
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 is
approximately $415,000 greater than financial statement income. Cumulative tax
basis at December 31, 1999 is approximately $3,000,000 greater than the
financial statement basis including the impairment loss of $3,250,000 recognized
in 1995.
F-16
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
--------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999 TOTAL
---------- ---------- ------------- ------------ -----------
Revenues.............................. $4,808,232 $4,866,403 $5,138,539 $5,464,972 $20,278,146
Expenses.............................. 4,293,381 4,090,715 4,386,493 4,635,953 17,406,542
---------- ---------- ---------- ---------- -----------
Income from Operations................ 514,851 775,688 752,046 829,019 2,871,604
Other Income.......................... 218 596,576 148,472 32,141 777,407
---------- ---------- ---------- ---------- -----------
Net Income............................ $ 515,069 $1,372,264 $ 900,518 $ 861,160 $ 3,649,011
========== ========== ========== ========== ===========
Net Income per Unit................... $ 2.97 $ 7.92 $ 5.20 $ 4.97 $ 21.06
Net Income per Depositary Receipt..... .30 .79 .52 .50 2.11
THREE MONTHS ENDED
--------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998 TOTAL
---------- ---------- ------------- ------------ -----------
Revenues.............................. $4,581,114 $4,586,024 $4,615,993 $4,664,319 $18,447,450
Expenses.............................. 4,166,214 4,084,532 4,105,522 4,105,455 16,461,723
---------- ---------- ---------- ---------- -----------
Income from Operations................ 414,900 501,492 510,471 558,864 1,985,727
Other Income.......................... 28,808 48,624 141,037 20,823 239,292
---------- ---------- ---------- ---------- -----------
Net Income............................ $ 443,708 $ 550,116 $ 651,508 $ 579,687 $ 2,225,019
========== ========== ========== ========== ===========
Net Income per Unit................... $ 2.56 $ 3.18 $ 3.76 $ 3.34 $ 12.84
Net Income per Depositary Receipt..... $ .26 $ .32 $ .37 $ .33 $ 1.28
F-17