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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/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, 1996 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
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NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2619298
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP UNITS
(Title of class)
DEPOSITARY RECEIPTS
(Title of class)
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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. / /
As of March 14, 1997, the aggregate market value of traded securities held
by non-affiliates of the registrant was $11,144,128, 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 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 ("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 was restructured as a requirement by the refinancing bank, so that
a number of such properties would now be owned by various subsidiary limited
partnerships. The Partnership directly or through 19 subsidiary limited
partnerships (collectively, the "Subsidiary Partnerships" and individually, a
"Subsidiary Partnership"), 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. The Partnership has
also made an investment in another real estate limited partnership. The
Partnership acquired one apartment complex containing thirty-six (36)
residential units and converted a three (3) bedroom unit at another apartment
complex, previously occupied by an on-site manager, to a rental unit in 1996.
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 properties and may 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 Ronald Brown and Harold Brown. The General Partner
has employed the Hamilton Company, Inc. (the "Hamilton Company"), the successor
to the Hamilton Company Limited Partnership, 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 59 individuals who
are primarily involved in the supervision and maintenance of specific
properties. The General Partner has no employees.
As of March 14, 1997, the Partnership and its Subsidiary Partnerships owned
and leased to residential tenants 1,647 apartment units in 18 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, one
1
condominium unit in a separate condominium complex, and one co-operative
apartment (the condominium unit and co-operative apartment are 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 14, 1997, 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 and Newton, Massachusetts. These properties are referred to
collectively as the "Commercial Properties." The Partnership also owns an
interest in a real estate limited partnership which owns an office building in
West Peabody, Massachusetts, and 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
Investment 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.
During the second quarter of 1996, the Partnership announced a plan to
repurchase up to $500,000 of its Depositary Receipts from existing holders of
securities. The repurchase of Depositary Receipts may take place over a period
of one year or more. The repurchase price will be equal to the price at which
such securities are traded on the NASDAQ Stock Market at the time of such
repurchase. At December 31, 1996, 15,915 Depositary Receipts had been
repurchased for a total cost of $110,060. See Note 8 to Notes to Financial
Statements included as part of this Form 10-K.
RECENT DEVELOPMENTS
In December, 1996 the Partnership acquired a residential complex containing
thirty-six (36) apartment units in Lowell, Massachusetts for a purchase price of
approximately $790,000. The purchase was paid from the Partnership's cash
reserves.
2
The Partnership believes it strengthened its portfolio by making significant
acquisitions of residential and mixed-use properties in 1995. The Partnership
acquired six properties for a total purchase price of approximately $32,123,000.
The properties were acquired from trusts, of which the majority shareholder of
the Partnership's General Partner was a substantial beneficial owner. In
substance, the properties were owned by the trust's secured lender under a
previous restructuring agreement whereby the lender received all of the
operating income from the properties as well as the proceeds from the sale to
the Partnership. The acquisitions were financed by mortgages on the acquired
properties totaling $23,956,000. Additional funds totaling $22,446,000 were
provided by 13 mortgages on refinanced or debt-free properties. Approximately
$10,900,000 was used to repay existing mortgages, and approximately $8,167,000
was used in the acquisition of the above properties. In connection with these
above mortgages, a substantial number of the Partnership's properties were
restructured into separate Subsidiary Partnerships.
The Subsidiary Partnerships recorded these purchases at the amount paid for
the properties. An entity owned by the majority shareholder of the Partnership's
General Partner received fees of $311,000 from the sellers of these properties.
See Note 2 to Notes to Financial Statements included as part of this Form 10-K.
At December 31, 1994 the Partnership made a deposit of $1,898,000 on one of
the properties it acquired in 1995. This deposit was funded from cash reserves
as well as a loan of $1,175,000 from an entity owned by the majority shareholder
of the Partnership's general partner. In May, 1995 the Partnership repaid the
$1,175,000 loan.
In conjunction with these mortgages, the lender required that escrow
accounts be established to fund future capital improvements. Approximately
$669,000 was used to establish these accounts. The Partnership is required to
make additional monthly payments of $34,000 to fund these escrow accounts.
The Partnership sold two unencumbered condominium units located in Stoneham
and Boston, Massachusetts for total proceeds of approximately $220,000 and
recorded a gain of approximately $152,000 in 1995 as a result of such sale. The
Partnership did not sell any properties in 1996.
Other than such purchases described above, the Partnership had not acquired
new properties since February 1989. See "ITEM 2. PROPERTIES--Commercial
Properties." During 1996, the Partnership made certain improvements to its
properties at a total cost of approximately $2,400,000. See "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Liquidity and Capital Resources."
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 of rent in 1996. The Timpany Plaza is currently 47% vacant and the
Partnership cannot determine the effect the vacancy rate Timpany Plaza will have
on the Partnership's rental income and net earnings in the future. The
Partnership is in active discussions and negotiations with other retail tenants
to rent the space.
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 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.
3
ITEM 2. PROPERTIES
As of March 14, 1997, the Partnership and its Subsidiary Partnerships own
the Apartment Complexes, the Condominium Units, the Commercial Properties, and
an interest in a real estate partnership which owns the Investment Property.
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 and the Condominium Units. 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.
APARTMENT COMPLEXES
The table below lists the location of each Apartment Complex, the number and
type of units in each complex, the range of rents and vacancies as of March 14,
1997, the principal amount outstanding under any mortgages as of December 31,
1996, and the maturity dates of such mortgages.
MORTGAGE
BALANCE
AND INTEREST
NUMBER AND RATE AS OF
APARTMENT TYPE OF RENT DECEMBER 31, MATURITY DATE
COMPLEX UNITS RANGE VACANCIES 1996 OF MORTGAGE
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Coach LP 48 units $765-825 0 $1,186,593 2005
53-55 Brook St. 24 two-bedrooms $675-725 8.25%
Acton, MA 20 one-bedrooms $595-605
4 studios
Westgate Woburn 221 units $1,225 3 $6,826,269 2000
2-20 Westgate Dr. 1 three-bedroom $705-905 10.99%
Woburn, MA 110 two-bedrooms $675-815
110 one-bedrooms
Avon Street Apts. LP 66 units $740-850 2 $1,773,465 2005
130 Avon Street 30 two-bedrooms $645-730 8.775%
Malden, MA 33 one-bedrooms $575-590
3 studios
Middlesex Apts. LP 18 units $1,250-1,550 0 $1,095,121 2005
132-144 Middlesex Rd 18 three-bedrooms 8.625%
Newton, MA
Clovelly Apts. LP 103 units $605-735 3 $2,074,129 2005
160-170 Concord St. 53 two-bedrooms $535-595 8.375%
Nashua, NH 50 one-bedrooms
Nashoba Apts. LP 32 units $795-1,020 4 $1,083,344 2005
284 Great Road 32 two-bedrooms 8.625%
Acton, MA
River Drive LP 72 units $655-725 3 $1,536,017 2005
3-17 River Drive 60 two-bedrooms $630-635 8.775%
Danvers, MA 5 one-bedrooms $520-540
7 studios
4
MORTGAGE
BALANCE
AND INTEREST
NUMBER AND RATE AS OF
APARTMENT TYPE OF RENT DECEMBER 31, MATURITY DATE
COMPLEX UNITS RANGE VACANCIES 1996 OF MORTGAGE
- --------------------------- -------------------------- -------------- ------------- ------------ ---------------
Executive Apts. LP 72 units $680-810 2 $1,779,375 2005
545-561 Worcester Road 48 two-bedrooms $640-775 8.775%
Framingham, MA 24 one-bedrooms
Willard Apts. LP 16 units $715-750 3 $ 291,838 2005
580 Willard St. 8 two-bedrooms $600-700 8.375%
Quincy, MA 8 one-bedrooms
Olde English Apts. LP 84 units $585-675 0 $1,397,278 2005
703-718 Chelmsford St. 47 two-bedrooms $555-610 8.5%
Lowell, MA 30 one-bedrooms $495-540
7 studios
Oak Ridge Apts. LP 61 units $780-895 2 $2,090,990 2005
Chestnut St. 41 three-bedrooms $670-840 8.5%
Foxboro, MA 20 two-bedrooms
Linhart LP 9 units $610-765 0 $1,305,832 2005
4-34 Lincoln St. 6 one-bedrooms $560-615 9.25%
Newton, MA 3 studios
Commonwealth 1137 LP 35 units $893-1,250 1 $1,260,875 2005
1131-1137 Comm. Ave. 28 three-bedrooms $775-925 8.375%
Allston, MA 5 two-bedrooms $395
1 one-bedroom $460
1 studio
Redwood Hills LP 180 units $645-800 5 $4,557,866 2005
376-384 Sunderland Rd. 90 two-bedroom $585-785 8.375%
Worcester, MA 90 one-bedrooms
Commonwealth 1144 LP 261 units $580-765 2 $5,268,093 2005
1144-1160 Comm. Ave. 11 two-bedrooms $650-895 8.375%
Allston, MA 108 one-bedrooms $450-735
142 studios
Boylston Downtown LP 269 units $445-1,295 15 $7,742,561 2005
62 Boylston St. 53 one-bedrooms $571-1,225 8.375%
Boston, MA 216 studios
North Beacon 140 LP 64 units $1,295-1,495 4 $3,459,526 2005
140-154 North Beacon St. 54 two-bedrooms $1,295-1,850 8.375%
Brighton, MA 10 two-bedrooms
Highland Street Apts. 36 Units $488-515 6 0 0
38-40 Highland Street 25 Two-Bedrooms $495-610
Lowell, MA 9 One Bedrooms $470
2 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.
5
CONDOMINIUM UNITS
The Partnership owns and leases to residential tenants 21 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 14, 1997. No Condominium Unit is subject to
an existing mortgage.
NUMBER OF NUMBER AND TYPE
UNITS IN OF UNITS OWNED RENT
APARTMENT COMPLEX COMPLEX BY PARTNERSHIP RANGE VACANCIES
- -------------------------------------------------------- ------------- ------------------- ---------- ---------------
Riverside Apartments.................................... 106 12 two-bedrooms $ 800-920 1
8-20 Riverside Street 5 one-bedrooms $ 745-800
Watertown, MA 2 studios $635-650
The Kenmore Tower(1).................................... 111 1 one-bedroom $ 1,200 0
566 Commonwealth Avenue
Boston, MA
Chateaux Westgate....................................... 252 1 two-bedroom $ 780 0
Oak Lane
Brockton, MA
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(1) This is a co-operative apartment. The Kenmore Tower Corporation is subject
to a debt secured by the apartment building, of which approximately $7,000
was allocated to the Partnership as of December 31, 1996.
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 52,500 square feet of rentable
space, rented primarily to commercial retail establishments. During 1995, this
Subsidiary Partnership 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, 1996, the mortgage had an outstanding balance of $1,412,639. As of March 14,
1997, the shopping center had a vacancy rate of 7%, and the average rent per
square foot was $5.02.
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, this Subsidiary Partnership 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, 1996, the mortgage had an outstanding balance of
$3,509,392. As of March 14, 1997, the shopping center had a vacancy rate of 47%,
and the average rent per square foot was $5.15. 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 paid approximately $347,000 of rent in
1995 and approximately $188,000 of rent in 1996. The Partnership is in active
discussions and negotiations with other retail tenants to rent space.
This Subsidiary Partnership has a ground lease with a major tenant of the
Timpany Plaza Shopping Center. Pursuant to the ground lease, the 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 1996 was $12,294.
6
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.
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, 1996, the mortgage had an outstanding balance of
$2,887,296. As of March 14, 1997, the Shopping Center had a 2% vacancy rate, and
the average rent per square foot was $4.08.
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 14, 1997, the commercial space had a 1% vacancy
rate, and the average rent per square foot was $16.34.
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 space. As of March 14, 1997, the
commercial space was fully rented, and the average rent per square foot was
$9.68.
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 14, 1997, the
commercial space was fully rented, and the average rent per square foot was
$8.95.
See Item 13 "Certain Relationships and Related Transactions" concerning
ownership interest in the above properties.
INVESTMENT PROPERTY
The Partnership has an investment in a real estate limited partnership which
owns an office building in West Peabody, Massachusetts. During 1996, two of the
three real estate limited partnerships (Commerce Way Limited Partnership and 125
Water Street Realty Associates Limited Partnership) of which the Partnership
previously held 10% limited partnership interests in each respectively,
effectively disposed of their real estate holdings. As a result of such
dispositions by these real estate limited partnerships, the Partnership's
investment interests as a limited partner were liquidated. The carrying value of
these investment interests had previously been reduced to zero. The Partnership
did not realize any income from these liquidations. As of December 31, 1996, the
Partnership's investment in the real estate limited partnership which owns the
Investment Property described below 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. The Partnership owns a 10% limited
partnership interest in the West Peabody Limited Partnership ("West Peabody
L.P."). West Peabody L.P. owns a 125,000 square foot office and warehouse
building in West Peabody, Massachusetts. As of March 14, 1997, the building had
a 8% vacancy rate. The Partnership's share of losses generated by the West
Peabody L.P. through the year ended December 31, 1996 exceeded the Partnership's
investment by approximately $650,000. As a limited partner, the Partnership is
not liable for amounts in excess of its investment and, accordingly, has not
recorded any excess losses. The carrying value of the investment interest has
been reduced to zero. There can be no assurance that this investment, which did
not produce any income for the Partnership during 1996, will be realized in the
future in excess of its carrying value.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
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 1996, the high and low bid quotations for the Receipts were $7.50 and
$5.875, respectively. The table below sets forth the high and low bids for each
quarter of 1996 and 1995:
1996 1995
---------------------------- ----------------------------
LOW BID HIGH BID LOW BID HIGH BID
------------- ------------- ------------- -------------
First Quarter........................................................... $ 57/8 $ 63/4 $ 51/2 $ 61/8
Second Quarter.......................................................... $ 61/16 $ 63/4 $ 51/2 $ 63/8
Third Quarter........................................................... $ 61/2 $ 71/4 $ 6 $ 65/8
Fourth Quarter.......................................................... $ 63/4 $ 71/2 $ 57/8 $ 65/8
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 1996 and 1995,
the Partnership made a total distribution of $6.80 per Partnership Unit ($.68
per Receipt), which was paid in equal installments in March and September. The
total value of the distribution in 1996 was $1,199,757, an amount determined by
the General Partner and the Partnership's Advisory Committee. In March 1997, the
Partnership made a regular semi-annual distribution of $3.90 per Partnership
Unit ($.39 per Receipt), plus an additional special distribution of $1.00 per
Partnership Unit ($.10 per Receipt). See Note 13 to Notes to Financial
Statements included as part of this Form 10-K.
In the past, assuming Partners hold Partnership Units or Receipts on the
record date for a distribution, distributions have exceeded the amount of the
individual income tax payable by Partners as a result of Partnership income
allocated to them. However, in 1996, the taxable income exceeded statement
income by approximately $1,000,000. The Partnership declared a special
distribution in March 1997 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
repurchase up to $500,000 of its Depositary Receipts from existing holders of
securities. The repurchase of Depositary Receipts may take place over a period
of one year or more. The repurchase price will be equal to the price at which
such securities are traded on the NASDAQ Stock Market at the time of such
repurchase. At December 31, 1996, 15,915 Depositary Receipts had been
repurchased for a total cost of $110,060. In order to restore the classes of
Partnership Units to the required ratios, the Partnership repurchased from the
General Partner 20 General Partnership Units and repurchased from Harold Brown
and Ronald Brown 284 and 94 Class B Units respectively, at an aggregate cost of
$27,517.
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 18 of this Form
10-K.
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
New England Realty Associates Limited Partnership and its Subsidiary
Partnerships incurred income from operations of $725,649 during the year ended
December 31, 1996, compared to a loss from operations of $3,116,087 for the year
ended December 31, 1995, an increase of $3,841,736. Excluding the effect of a
special non-cash impairment loss of $3,250,000 in 1995, income from operations
increased approximately $592,000. (See Note 2 to Notes to Financial Statements
included with this Form 10-K.) In 1996, income from operations before
depreciation and amortization and impairment loss was approximately $3,800,000
compared to approximately $2,474,000 in 1995, an increase of approximately
$1,326,000.
Rental income for the year ended December 31, 1996 was approximately
$16,449,000, compared to approximately $12,297,000 for the year ended December
31, 1995, an increase of approximately $4,152,000. This increase was primarily
due to rental income of $3,973,000 from the properties acquired in 1995. Rental
income from the existing residential properties increased primarily due to
increased rental rates and occupancy levels at Westgate Woburn, Chestnut Square
and Olde English apartments. Rental income at the Partnership's commercial
properties increased approximately $164,000 due to increases in percentage rents
and common area maintenance charges. Laundry and sundry income increased
approximately $41,000 due to the properties acquired in 1995.
Expenses for the year ended December 31, 1996 were approximately
$15,909,000, compared to approximately $15,576,000 for the year ended December
31, 1995, an increase of approximately $333,000. Expenses before the impairment
loss were approximately $12,326,000 in 1995, an increase of approximately
$3,583,000 compared to 1996. The year ended December 31, 1996 included twelve
months of expenses for the properties acquired in 1995 compared to six months
for the year ended December 31, 1995. Interest expense increased to
approximately $4,730,000 for the year ended December 31, 1996 from approximately
$3,432,000 for the year ended December 31, 1995, an increase of approximately
$1,298,000. This increase was primarily due to interest expense of $952,000 from
the properties acquired in 1995. Other significant changes to expenses relating
to these properties included an increase in depreciation and amortization
expense of approximately $664,000; an increase in repairs and maintenance
expense of approximately $310,000; an increase in operating expenses of
approximately $651,000; an increase in taxes and insurance of approximately
$386,000; and an increase in management fees of approximately $177,000. These
increases were partially offset by decreased renting expenses of approximately
$72,000 which were due to reduced rental advertising and commission costs.
Interest income was approximately $156,000 for the year ended December 31,
1996, compared to approximately $60,000 for the year ended December 31, 1995, an
increase of approximately $96,000. This increase was due to an increase in the
funds available for investment during the year.
The Partnership also sold two condominium units during 1995, for a total
gain of approximately $152,000.
The Partnership is a partner in a joint venture with a tenant at the Timpany
Plaza Shopping Center in Gardner, Massachusetts. Under the terms of the
agreement, the two parties have agreed to relet space formerly leased by the
tenant, and divide the net income or loss after paying to the Partnership an
annual minimum rent of approximately $84,000. The Partnership's investment in
the Timpany Plaza joint venture represents less than 1% of the Partnership's
assets.
9
The Partnership's share of income for 1996 in the joint venture at the
Timpany Plaza Shopping Center was approximately $13,000, compared to
approximately $29,000 in 1995, a decrease of approximately $16,000. This
decrease was due to an increase in vacancies in the relet space.
In 1996, the Partnership reported other income of approximately $18,000 from
the sale of real estate partnership interests whose carrying value had
previously been reduced to zero.
As a result of the changes discussed above, net income for the year ended
December 31, 1996 was approximately $912,000, compared to net loss for the year
ended December 31, 1995 of approximately $2,875,000, an increase of
approximately $3,787,000.
In March 1996, a major tenant at the Timpany Plaza Shopping Center filed for
protection under the Federal Bankruptcy Code, Chapter 11 and the tenant
subsequently vacated the premises on or about December 1996. The tenant occupied
approximately 71,000 square feet of space, and paid the Partnership
approximately $188,000 in 1996. This tenant has ceased making payments to the
Partnership, and at March 14, 1997, this location is currently unoccupied. In
addition, the Partnership is actively marketing the space. The Partnership is in
active discussions and negotiations with other retail tenants to rent the space.
YEARS ENDED DECEMBER 31, 1995 AND 1994
New England Realty Associates Limited Partnership and its Subsidiary
Partnerships incurred a loss from operations of $3,116,087 during the year ended
December 31, 1995 compared to income from operations of $847,980 for the year
ended December 31, 1994, a decrease of $3,964,067. This decrease is principally
a result of a special non-cash impairment loss of $3,250,000 on the Lewiston
Mall shopping center in the fourth quarter of 1995, related to an early adoption
of Statement of Financial Accounting Standards No. 121 (FAS No. 121). (See Note
2 to Notes to Financial Statements included as part of this Form 10-K.)
Excluding depreciation and amortization and impairment loss, income from
operations was approximately $2,474,000 in 1995, compared to approximately
$2,484,000 in 1994, a decrease of approximately $10,000.
Rental income for the year ended December 31, 1995 was approximately
$12,297,000, compared to approximately $8,385,000 for the year ended December
31, 1994, an increase of approximately $3,912,000. This increase was primarily
due to rental income of $3,706,000 from the newly acquired properties. Rental
income from the existing residential properties increased approximately
$266,000, primarily due to increased rental rates; residential occupancy levels
remained relatively stable. This increase was partially offset by decreased
rental income at existing commercial properties of $60,000. The decrease was
primarily due to a vacancy in the East Hampton Mall, a decrease in charges for
common area maintenance expenses at the Lewiston Mall, and a decrease in
percentage rents at the Timpany Plaza Shopping Center. Laundry and sundry income
increased approximately $41,000 due to the newly acquired properties.
Expenses for the year ended December 31, 1995 were approximately
$15,576,000, compared to approximately $7,658,000 for the year ended December
31, 1994, an increase of approximately $7,918,000. The most significant
component of this increase was the impairment loss of $3,250,000 recorded for
the Lewiston Mall in the fourth quarter of 1995. Other significant changes were
due to the acquisition of new properties. Interest expense increased to
approximately $3,432,000 for the year ended December 31, 1995 from approximately
$1,672,000 for the year ended December 31, 1994, an increase of approximately
$1,760,000. The increase was directly related to the increase in outstanding
mortgages. Other significant changes were also due to the acquisition of new
properties and consisted of an increase in depreciation and amortization expense
of approximately $703,000; an increase in operating expenses of approximately
$367,000; an increase in repairs and maintenance expenses of approximately
$793,000; and increases in administrative expenses, management fees, renting
expenses, and taxes and insurance of approximately $286,000, $206,000, $210,000,
and $343,000 respectively.
10
Interest income was approximately $60,000 for the year ended December 31,
1995, compared to approximately $52,000 for the year ended December 31, 1994, an
increase of approximately $8,000. This increase was due to an increase in funds
available for investment during the second half of 1995.
The Partnership also sold two condominium units during the year for a total
gain of approximately $152,000.
The Partnership is a partner in a joint venture with a tenant at the Timpany
Plaza Shopping Center in Gardner, Massachusetts. Under the terms of the
agreement, the two parties have agreed to relet space formerly leased by the
tenant and divide the net income or loss after paying to the Partnership an
annual minimum rent of approximately $84,000. The Partnership's investment in
the Timpany Plaza joint venture represents less than 1% of the Partnership's
assets.
The Partnership's share of income for 1995 in the joint venture at the
Timpany Plaza Shopping Center was approximately $29,000 compared to
approximately $43,000 in 1994, a decrease of approximately $14,000. This
decrease was due to an increase in the operating expenses in connection with the
joint venture.
In 1994, the Partnership reported other income of $130,000 of which $100,000
represented the cost of energy-saving devices installed at the Partnership's
properties by utility companies at no cost to the Partnership. The additional
$30,000 represents the elimination of a provision for estimated liabilities in
connection with the Partnership's investment in a partnership.
As a result of the changes discussed above, the net loss for the year ended
December 31, 1995 was approximately $2,875,000, compared to net income for the
year ended December 31, 1994 of approximately $1,073,000, a decrease of
approximately $3,948,000.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's principal sources of cash during 1996 and 1995 were the
collection of rents and the refinancing of Partnership properties. The majority
of cash and cash equivalents totaling $1,830,605 in 1996 and $2,706,124 in 1995
was principally invested in a U.S. government money market account. This
represents a decrease of $875,519 from 1995. Additionally, the Partnership has a
short-term investment of $51,528 at December 31, 1996, compared to $48,877 at
December 31, 1995. This investment consisted of a certificate of deposit with a
maturity of up to one year from the date of purchase.
In November 1996, the Partnership and its subsidiaries acquired a
residential apartment complex consisting of 36 apartments in Lowell,
Massachusetts. The total purchase price of this property was approximately
$790,000, and was funded from the Partnership's cash reserves.
During 1995, the Partnership acquired six properties for a total purchase
price of approximately $32,123,000. The acquisitions were financed by new
mortgages on the acquired properties totaling $23,956,000. Additional funds,
totaling $22,446,000 were provided by 13 mortgages on refinanced or debt-free
properties. Approximately $10,900,000 of this amount was used to repay existing
mortgages, and approximately $11,546,000 was used in the acquisition of the
above properties. In conjunction with these mortgages, the lender required that
separate escrow accounts totaling approximately $870,000 be established to fund
capital improvements at each of the properties. The Partnership is required to
make additional monthly payments of approximately $34,000 to fund these escrow
accounts. In connection with these new mortgages, a substantial number of the
Partnership's properties were restructured into separate Subsidiary
Partnerships.
In 1996, the Partnership announced a plan under which it may repurchase up
to $500,000 of its Depository Receipts from existing holders of securities. The
repurchase plan may take place over a period of one year or more. The purchase
price will be equal to the price at which such securities are traded on the
NASDAQ Stock Market at the time of the repurchase. In 1996, the Partnership
purchased 15,915
11
depository receipts for a total cost of $110,060. In addition, the Partnership
purchased Class B and General Partnership units for a total cost of $27,517 to
maintain the required ownership percentages.
During 1996, the Partnership and its Subsidiary Partnerships completed
certain capital improvements to their properties at a total cost of
approximately $2,400,000. These improvements were funded from the aforementioned
escrow accounts, as well as from cash reserves. The most significant
improvements were made at the Westgate apartments in Woburn, Massachusetts for a
total cost of approximately $437,000. Additional capital improvements of
approximately $341,000, $221,000, $196,000, $135,000 and $127,000 were made to
the Redwood Apartments, 1144 Commonwealth Avenue, Lewiston Mall, Boylston
Downtown and 1137 Commonwealth Avenue properties, respectively.
In 1997, the Partnership and its Subsidiary Partnerships plan to invest
approximately $2,200,000 in capital improvements, of which approximately
$1,900,000 is designated for residential properties and approximately $300,000
is designated 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 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 of this purpose. The Partnership will consider
refinancing existing properties if either insufficient funds exist from cash
reserves to repay existing mortgages or if funds for future acquisitions are not
available.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The discussion above and elsewhere in this Annual Report contain information
based upon management's belief and forward looking statements that involve a
number of risks, uncertainties and assumptions. There can be no assurances that
actual results will not differ materially as a result of various factors,
including but not limited to the following:
The Timpany Plaza Shopping Center in Gardner, Massachusetts is 47% vacant at
March 14, 1997. If the space remains unoccupied, the 1997 rental income would be
approximately $200,000 less than 1996. Should circumstances remain the same in
1997, the Partnership may need to review the carrying value of this property for
impairment in accordance with the Statement of Financial Accounting Standards
No. 121 (FAS No. 121).
A major tenant of the Lewiston Mall in Lewiston, Maine, which paid
approximately $240,000 in 1996, can terminate its lease with nine months notice
effective January 1, 1997. The Partnership is currently negotiating to obtain a
long-term lease. The Partnership, at this time, cannot make any assurances that
the tenant will renew its lease for this space.
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.
12
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 1996.
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.
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.......................... 61 Associate, Hamilton Realty Company (since 1967); Treasurer, R. Brown
President, Clerk and Director Partners Inc. (since 1985), President, Secretary and sole proprietor
(since 1984) (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.......................... 72 Sole proprietor, Hamilton Realty (since 1955); Trustee of Wedgestone
Company Treasurer and Director Realty Investors Trust (1982-1985); (since 1984) 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).
As discussed under "ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS," in 1996 the Partnership repurchased certain
Partnership Units from each of Harold Brown, Ronald Brown and the General
Partner, and the repurchase of these units will be reported by each of Harold
Brown and Ronald Brown on a Form 5 for 1996.
13
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%
shareholders are required by SEC regulation 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 1996 fiscal year, all filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with, except that Harold Brown and Ronald Brown failed to file
Forms 4 covering the sale of the Partnership's Class B Partnership Units and
General Partnership Units repurchased by the Partnership to maintain the
required ownership percentages. Each of Ronald Brown and Harold Brown are filing
a Form 5 Annual Statement of Changes in Beneficial Ownership contemporaneously
with the filing of this Annual Report.
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.
In accordance with the Partnership Agreement, the Management Fee, the
Administrative Fee and the Commission are paid to the management company, the
Hamilton Company. See "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT." The total Management Fee charged by the Hamilton Company during
1996 was approximately $677,000. In 1996, the Partnership and its Subsidiary
Limited Partnerships also paid to the Hamilton Company Administrative Fees of
approximately $511,000, inclusive of construction supervision and architectural
fees of $232,000, repairs and maintenance service fees of $115,000, legal fees
of $147,000 and rental fees of $17,000. No commission was paid to the management
company in 1996. In addition, during 1996 the Partnership paid the Hamilton
Company $50,000 for certain accounting services, which were provided by an
outside company prior to 1993.
The management services provided by the 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 the
Hamilton Company to provide asset management services to the Partnership for
which the Partnership paid approximately $29,000 in 1996.
Members of the Partnership's Advisory Committee and Ronald Brown and Harold
Brown receive $200 for each committee meeting attended. The Advisory Committee
held six meetings during 1996. In addition, in 1996 and 1995, the Partnership
paid the Hamilton Company additional construction supervision fees of $16,800
and $14,400 respectively, of which $16,800 and $12,000 were paid to Ronald
Brown.
14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 14, 1997, 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
March 14, 1997, pursuant to the Deposit Agreement, Boston EquiServe was serving
as the record holder of the Class A Units with respect to which 1,055,456
Depositary Receipts had been issued to 1,642 holders. As of March 14, 1997,
there were issued and outstanding 33,756 Class A Units held by 1,519 limited
partners and 33,234 Class B Units and 1,749 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 March 14, 1997 by (i) each person known
by the Partnership 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.
CLASS A CLASS B GENERAL PARTNERSHIP
---------------------------- ------------------------------ ------------------------------
% OF % OF % OF
NUMBER OF OUTSTANDING NUMBER OF OUTSTANDING NUMBER OF OUTSTANDING
UNITS UNITS UNITS UNITS UNITS UNITS
5% OWNERS DIRECTORS AND BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
OFFICERS OWNED OWNED OWNED OWNED OWNED OWNED
- ---------------------------- ------------- ------------- ------------- --------------- ------------- ---------------
Harold Brown
c/o New England
Realty Associates
Limited Partnership
39 Brighton Ave.
Allston, MA 02110
NERA 1994 Irrevocable Trust
c/o Lane & Altman
101 Federal St.
Boston, MA 02110 (1) (1) 24,925(2) 75%(2) (3) 100%(3)
Ronald Brown
c/o New England
Realty Associates
Limited Partnership
39 Brighton Ave.
Allston, MA 02110......... 755(4) 0.5%(4) 8,309 25% (3) 100%(3)
NewReal, Inc.
39 Brighton Ave.
Allston, MA 02134 0 0 0 0 1,749 100%
All directors and officers
as a group................ 7,064(5) 5.1%(5) 32,234(6) 100%(6) (3) 100%(3)
- ------------------------
(1) 2,000 Depositary Receipts are held of record by Harold Brown and 61,094
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 6,309 Class A Units and the Trust
may be deemed to beneficially own approximately 6,109 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 61,094 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.
15
(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 24,925 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 1,749 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 Apartment Complex, which was owned by
the Partnership prior to its conversion into condominiums, all of the buildings
in which the Condominium Units are 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 1995, Harold Brown, through an entity in which he is the majority
shareholder, loaned the Partnership $1,175,000 to purchase certain property. The
loan was repaid in May, 1995 with interest at rates from 8.5% to 9%. Total
interest paid on the loan was $38,073.
In addition, Harold Brown is a limited partner as well as a general partner
in the limited partnership which owns the Investment Property. Harold Brown's
interest in the Investment Property referred to herein as the West Peabody
Limited Partnership is 79.0%.
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, 1996 and 1995
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Changes in Partners' Capital for the years
ended December 31, 1996, 1995 and 1994
16
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995, and 1994
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
No reports on Form 8-K were filed during the last quarter.
17
SELECTED FINANCIAL INFORMATION
INCOME STATEMENT INFORMATION
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------ ------------- -------------
Revenues.............................. $ 16,634,883 $ 12,459,478 $ 8,506,195 $ 8,414,801 $ 8,296,670
Expenses.............................. 15,909,234 15,575,565 7,658,215 7,388,323 7,357,327
Income (Loss) from Operations......... 725,649 (3,116,087) 847,980 1,026,478 939,343
Other Income.......................... 186,781 241,276 224,571 113,537 164,500
Net Income (Loss)..................... 912,430 (2,874,811) 1,072,551 1,140,015 1,103,843
Net Income (Loss) per Unit............ 5.17 (16.23) 6.05 6.36 6.13
Net Income (Loss) per Depository
Receipt............................. .52 (1.62) .61 .64 .61
Distributions to Partners per Unit.... 6.80 6.80 6.80 6.80 6.80
Distributions to Partners per
Depository Receipt.................. .68 .68 .68 .68 .68
BALANCE SHEET INFORMATION
Total Assets.......................... $ 58,788,939 $ 59,750,970 28,321,816 $ 27,693,357 $ 28,624,502
Net Real Estate Investments........... 52,239,981 51,688,269 23,782,167 23,665,365 23,182,129
Total Debt Outstanding................ 52,538,499 53,072,037 18,742,909 17,884,116 18,693,789
Partners' Capital..................... 3,898,498 4,323,402 8,400,979 8,556,758 8,746,369
18
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: NewReal, Inc.,
its General Partner
By: /s/ RONALD BROWN
-----------------------------------------
Ronald Brown,
PRESIDENT
Dated: March 31, 1997
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.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
President and Director of
/s/ RONALD BROWN the General Partner
- ------------------------------ (Principal Executive March 31, 1997
Ronald Brown Officer)
Treasurer and Director of
/s/ HAROLD BROWN the General Partner
- ------------------------------ (Principal Financial March 31, 1997
Harold Brown Officer and Principal
Accounting Officer)
19
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
- ------------------------
(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.
INDEPENDENT AUDITORS' 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 its Subsidiary Partnerships as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, changes in partners' capital and cash flows for each of the years in
the three-year period ended December 31, 1996. 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, 1996 and 1995 and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in 1995 the
Partnership adopted the method of accounting for impairment of long-lived assets
prescribed by Statement of Financial Accounting Standards No. 121.
/s/ MILLER WACHMAN LLP
CERTIFIED PUBLIC ACCOUNTANTS
Boston, Massachusetts
March 14, 1997
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------------
1996 1995
------------- -------------
ASSETS
Rental Properties.................................................................. $ 52,293,981 $ 51,688,269
Cash and Cash Equivalents.......................................................... 1,830,605 2,706,124
Short-term Investments............................................................. 51,528 48,877
Rents Receivable................................................................... 688,245 684,409
Real Estate Tax Escrows............................................................ 503,234 538,945
Prepaid Expenses and Other Assets.................................................. 1,696,237 1,933,472
Investment in Joint Venture........................................................ 93,734 129,989
Financing and Leasing Fees......................................................... 1,631,375 2,020,885
------------- -------------
TOTAL ASSETS..................................................................... $ 58,788,939 $ 59,750,970
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Mortgages Payable.................................................................. $ 52,538,499 $ 53,072,037
Accounts Payable and Accrued Expenses.............................................. 684,626 804,865
Advance Rental Payments and Security Deposits...................................... 1,667,316 1,550,666
------------- -------------
Total Liabilities................................................................ 54,890,441 55,427,568
Commitments and Contingent Liabilities (Note 9)
Partners' Capital:
175,163 units outstanding in 1996 and 177,152 in 1995............................ 3,898,498 4,323,402
------------- -------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL............................................ $ 58,788,939 $ 59,750,970
------------- -------------
------------- -------------
See notes to consolidated financial statements.
F-1
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED
DECEMBER 31,
------------------------------------------
1996 1995 1994
------------- ------------- ------------
Revenues:
Rental income...................................................... $ 16,448,939 $ 12,296,735 $ 8,384,546
Laundry and sundry income.......................................... 185,944 162,743 121,649
------------- ------------- ------------
16,634,883 12,459,478 8,506,195
------------- ------------- ------------
Expenses:
Administrative..................................................... 854,337 836,048 550,142
Depreciation and amortization...................................... 3,055,786 2,339,883 1,636,390
Interest........................................................... 4,729,769 3,432,090 1,672,035
Management fees.................................................... 699,806 522,842 339,668
Operating.......................................................... 1,908,616 1,257,852 890,885
Renting............................................................ 287,485 359,053 149,310
Repairs and maintenance............................................ 2,577,952 2,175,014 1,359,490
Taxes and insurance................................................ 1,795,483 1,402,783 1,060,295
Impairment loss.................................................... -- 3,250,000 --
------------- ------------- ------------
15,909,234 15,575,565 7,658,215
------------- ------------- ------------
Income (Loss) from Operations...................................... 725,649 (3,116,087) 847,980
------------- ------------- ------------
Other Income:
Interest income.................................................... 156,127 59,909 51,826
Income from investments in partnerships and joint venture.......... 12,294 28,904 42,745
Gain on sale of rental properties.................................. -- 152,463 --
Other.............................................................. 18,360 -- 130,000
------------- ------------- ------------
186,781 241,276 224,571
------------- ------------- ------------
Net Income (Loss).................................................... $ 912,430 $ (2,874,811) $ 1,072,551
------------- ------------- ------------
------------- ------------- ------------
Net Income (Loss) per Unit........................................... $ 5.17 $ (16.23) $ 6.05
------------- ------------- ------------
------------- ------------- ------------
Weighted Average Number of Units Outstanding......................... 176,572 177,152 177,344
------------- ------------- ------------
------------- ------------- ------------
See notes to consolidated financial statements.
F-2
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
UNITS
------------------------------------------------------------
LESS
LIMITED TREASURY
---------------- GENERAL SUB- UNITS,
CLASS A CLASS B PARTNERSHIP TOTAL AT COST TOTAL
------- ------- ----------- ------- -------- -------
Balance, January
1, 1994........ 144,180 34,243 1,802 180,225 2,561 177,664
Unit Buyback..... -- -- -- -- 512 (512)
Distributions to
Partners....... -- -- -- -- -- --
Net Income....... -- -- -- -- -- --
------- ------- ----- ------- -------- -------
Balance, December
31, 1994....... 144,180 34,243 1,802 180,225 3,073 177,152
Distributions to
Partners....... -- -- -- -- -- --
Net Income
(Loss)......... -- -- -- -- -- --
------- ------- ----- ------- -------- -------
Balance, December
31, 1995....... 144,180 34,243 1,802 180,225 3,073 177,152
Unit Buyback..... -- -- -- -- 1,989 (1,989)
Distribution to
Partners....... -- -- -- -- -- --
Net Income....... -- -- -- -- -- --
------- ------- ----- ------- -------- -------
Balance, December
31, 1996....... 144,180 34,243 1,802 180,225 5,062 175,163
------- ------- ----- ------- -------- -------
------- ------- ----- ------- -------- -------
PARTNERS' CAPITAL
---------------------------------------------------
LIMITED
------------------------ GENERAL
CLASS A CLASS B PARTNERSHIP TOTAL
----------- ----------- ----------- -----------
Balance, January
1, 1994........ $ 6,821,992 $ 1,648,030 $ 86,736 $ 8,556,758
Unit Buyback..... -- (24,350) (1,250) (25,600)
Distributions to
Partners....... (962,184) (228,519) (12,027) (1,202,730)
Net Income....... 858,041 203,785 10,725 1,072,551
----------- ----------- ----------- -----------
Balance, December
31, 1994....... $ 6,717,849 $ 1,598,946 $ 84,184 $ 8,400,979
Distributions to
Partners....... (962,213) (228,526) (12,027) (1,202,766)
Net Income
(Loss)......... (2,299,849) (546,214) (28,748) (2,874,811)
----------- ----------- ----------- -----------
Balance, December
31, 1995....... $ 3,455,787 $ 824,206 $ 43,409 $ 4,323,402
Unit Buyback..... (110,060) (26,141) (1,376) (137,577)
Distribution to
Partners....... (959,806) (227,954) (11,997) (1,199,757)
Net Income....... 729,944 173,362 9,124 912,430
----------- ----------- ----------- -----------
Balance, December
31, 1996....... $ 3,115,865 $ 743,473 $ 39,160 $ 3,898,498
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
See notes to consolidated financial statements.
F-3
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
---------------------------------------------
1996 1995 1994
------------- -------------- --------------
Cash Flows from Operating Activities:
Net income (loss)............................................... $ 912,430 $ (2,874,811) $ 1,072,551
------------- -------------- --------------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization................................. 3,055,786 2,339,883 1,636,390
(Income) from investments in partnerships and joint venture... (12,294) (28,904) (42,745)
Impairment loss............................................... -- 3,250,000 --
(Gain) on sale of rental properties -- (152,463) --
Contribution by utility companies............................. -- -- (100,000)
(Increase) Decrease in rents receivable....................... (3,836) (41,305) 50,874
(Increase) in financing and leasing fees...................... (53,449) (1,970,607) (82,961)
Increase (Decrease) in accounts payable....................... (120,239) 183,876 (108,296)
(Increase) Decrease in real estate tax escrows................ 35,711 (515,387) 31,081
(Increase) Decrease in prepaid expenses and other assets...... 237,235 (1,444,689) (52,527)
Increase in advance rental payments and security deposits..... 116,650 993,727 33,741
------------- -------------- --------------
Total Adjustments............................................. 3,255,564 2,614,131 1,365,557
------------- -------------- --------------
Net cash provided by (used in) operating activities........... 4,167,994 (260,680) 2,438,108
------------- -------------- --------------
Cash Flows from Investing Activities:
Distribution from joint venture................................. 48,549 64,255 82,350
Payment for purchase and improvement of rental properties....... (3,218,539) (31,436,551) (3,474,764)
Maturity of short-term investments.............................. -- -- 793,787
Purchase of short-term investments.............................. (2,651) (3,322) (45,555)
Proceeds from sale of properties................................ -- 219,706 --
------------- -------------- --------------
Net cash (used in) investing activities........................... (3,172,641) (31,155,912) (2,644,182)
------------- -------------- --------------
Cash Flows from Financing Activities:
Principal payments and early repayment of mortgages payable..... (533,538) (10,897,871) (5,376,207)
Proceeds from mortgages......................................... -- 46,402,000 5,060,000
Distributions to partners....................................... (1,199,757) (1,202,766) (1,202,730)
Purchase of treasury units...................................... (137,577) -- (25,600)
Proceeds from (repayment of) note payable....................... -- (1,175,000) 1,175,000
------------- -------------- --------------
Net cash provided by (used in) financing activities........... (1,870,872) 33,126,363 (369,537)
Net (Decrease) Increase in Cash and Cash Equivalents.............. (875,519) 1,709,771 (575,611)
Cash and Cash Equivalents, Beginning.............................. 2,706,124 996,353 1,571,964
------------- -------------- --------------
Cash and Cash Equivalents, Ending................................. $ 1,830,605 $ 2,706,124 $ 996,353
------------- -------------- --------------
------------- -------------- --------------
See notes to consolidated financial statements.
F-4
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. The financial
statements for prior periods are unchanged.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of NERA and its subsidiary limited partnerships. NERA has a 99.67%
ownership interest in each of such subsidiary limited partnerships. The
consolidated group is referred to as the "Partnerships." Minority interests are
not recorded since they are insignificant. All significant intercompany accounts
and transactions are eliminated in consolidation. The Partnership accounts for
its investment in the joint venture on the equity method.
ACCOUNTING ESTIMATES: The preparation of the financial statements is in
accordance with generally accepted accounting principles (GAAP) requiring
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Accordingly, actual results could differ
from those estimates.
REVENUE RECOGNITION: Rental income from residential and commercial
properties is recognized ratably over the term of the related lease. Amounts
sixty days in arrears are charged against income. Certain leases of the
commercial properties provide for increasing stepped minimum rents, which are
accounted for on a straight-line basis over the term of the lease.
RENTAL PROPERTIES: Rental properties are stated at cost less accumulated
depreciation. Maintenance and repairs are charged to expense as incurred;
improvements and additions are capitalized. When assets are retired or otherwise
disposed of, the cost of the asset and related accumulated depreciation is
eliminated from the accounts, and any gain or loss on such disposition is
included in income. Rental properties are depreciated on the straight-line
method over their estimated useful lives. In the event that facts and
circumstances indicate that the carrying value of rental properties may be
impaired, an analysis of recoverability is performed. The estimated future
undiscounted cash flows are compared to the asset's carrying value to determine
if a write-down to fair value or discounted cash flow value is required. This
policy was adopted in 1995. Previously, impairment was considered on a
case-by-case basis. See Note 2 for the effect of this accounting change.
FINANCING AND LEASING FEES: Financing fees are capitalized and amortized,
using the interest method, over the life of the related mortgages. Leasing fees
are capitalized and amortized on a straight-line basis over the life of the
related lease.
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.
F-5
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS: The Partnerships consider cash equivalents to be all
highly liquid instruments purchased with a maturity of three months or less.
SHORT-TERM INVESTMENTS: The Partnerships consider short-term investments to
be any bank certificates of deposit, Treasury obligations, or commercial paper
with initial maturities between three and twelve months. These investments are
considered to be trading account securities and are carried at fair value.
CONCENTRATION OF CREDIT RISKS AND FINANCIAL INSTRUMENTS: The Partnerships'
tenants are located in New England, and the Partnerships are subject to the
general economic risks related thereto. No single tenant accounted for more than
5% of the Partnerships' revenues in 1996, 1995, or 1994. The Partnerships make
their temporary cash investments with high credit quality financial institutions
or purchase money market accounts invested in U.S. Government securities. At
December 31, 1996, approximately $1,212,000 of cash and cash equivalents
exceeded federally insured amounts of which approximately $1,200,000 was held in
a money market fund invested in U.S. Government securities.
NOTE 2--RENTAL PROPERTIES
Rental properties consist of the following:
DECEMBER 31,
----------------------------
USEFUL
1996 1995 LIFE
------------- ------------- -------------
Land................................................................ $ 9,710,733 $ 9,554,732 --
Buildings........................................................... 43,622,868 42,988,784 25-31 years
Building improvements............................................... 10,648,403 9,437,144 15-31 years
Kitchen cabinets.................................................... 940,870 1,089,407 5-10 years
Carpets............................................................. 977,574 1,028,473 5-10 years
Air conditioning.................................................... 233,995 87,745 7-10 years
Land improvements................................................... 599,909 422,646 10-31 years
Laundry equipment................................................... 45,248 46,994 5-7 years
Elevators........................................................... 16,842 16,842 20 years
Swimming pools...................................................... 42,450 42,450 10 years
Equipment........................................................... 311,809 166,132 5-7 years
Motor vehicles...................................................... 49,852 46,704 5 years
Fences.............................................................. 20,785 22,229 5-10 years
Furniture and fixtures.............................................. 201,638 95,793 5-7 years
Smoke alarms........................................................ 6,224 6,224 5-7 years
------------- -------------
67,429,200 65,052,299
Less accumulated depreciation....................................... 15,135,219 13,364,030
------------- -------------
------------- -------------
$ 52,293,981 $ 51,688,269
------------- -------------
------------- -------------
On December 11, 1996, the Partnership acquired a residential complex
containing 36 apartment units in Lowell, Massachusetts for a purchase price of
approximately $790,000. The purchase was paid from the Partnership's cash
reserves and is unencumbered.
F-6
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RENTAL PROPERTIES (CONTINUED)
On June 30, 1995, the Partnerships purchased for $30,198,000 five properties
containing an aggregate of 809 residential apartments and 18,400 square feet of
commercial space. The purchase was paid for in part with the proceeds from the
refinancing of thirteen of the Partnerships' properties and the issuance of new
mortgage notes payable aggregating $22,627,000 and maturing in ten years. The
properties were acquired from a trust owned nominally by the majority
shareholder of NERA's General Partner. In substance, the properties were owned
by the trust's secured lender under a previous restructuring agreement whereby
the lender received all of the operating income from the properties as well as
the proceeds from the sale to NERA. The Partnerships have recorded the purchase
at the amount paid for the properties and have allocated the amounts to the
individual properties acquired. In 1995, an entity owned by the majority
shareholder of the Partnership's General Partner received a fee of $300,000 from
the trust's secured lender.
Included in rental properties is a building in Newton, Massachusetts
acquired by the Partnership on January 25, 1995. The building consists of 21,223
square feet of commercial space, 9 residential units, and 29 parking spaces for
a total purchase price of $1,925,000. This building was acquired from an entity
in which the majority shareholder of NERA's General Partner had a substantial
ownership interest. The Partnership's management company received a fee of
approximately $11,000 from the seller in this transaction. To facilitate this
acquisition, the Partnership's management company, an entity owned by the
majority shareholder of NERA's General Partner, loaned the Partnership
$1,175,000 in December 1994. In May 1995, the Partnership refinanced this
property and obtained a $1,329,000 mortgage payable in 10 years with interest at
9.25%, and paid off the existing loan of $1,175,000 to the management company.
Total interest paid on this refinanced loan was $38,073.
The operating results of these acquired properties have been included in the
consolidated statements of operations since the date of acquisition. The
following unaudited proforma results assume the acquisitions in 1995 occurred at
the beginning of 1994 and are based on historical amounts adjusted for changes
in interest expense and depreciation and amortization (stated in thousands
except for per unit amounts):
YEAR ENDED
DECEMBER 31,
--------------------
1995 1994
--------- ---------
Rental income........................................................... $ 15,789 $ 15,168
Operating income (loss)................................................. (3,320) (71)
Net income (loss)....................................................... (3,078) 154
Income (loss) per unit.................................................. (17.38) .87
The proforma amounts do not include the immaterial impact of the December
1996 acquisition of the Highland Avenue property in Lowell, Massachusetts,
referred to above.
The proforma financial information is not necessarily indicative of the
operating results that would have occurred had the acquistion in 1995 been
consummated at January 1, 1994, nor are these results necessarily indicative of
future operating results.
In 1995, the Partnership sold two condominiums located in Stoneham and
Boston, Massachusetts. The sales price, net of closing costs, was $219,706, and
the gain of $152,463 is included in other income.
F-7
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RENTAL PROPERTIES (CONTINUED)
In the fourth quarter of 1995, the Partnerships recorded a special charge of
$3,250,000 relating to the early adoption of Statement of Financial Accounting
Standards No. 121 (FAS 121) on accounting for the impairment of long-lived
assets, effective for fiscal years beginning after December 15, 1995. This
statement requires that long-lived assets held and used by the entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. During 1995, the
Lewiston Mall, with a carrying value of approximately $8,200,000, was
remortgaged for $2,933,000. As part of this refinancing, the lender obtained an
appraisal of $5,000,000. A further analysis of estimated future cash flows, as
required by FAS 121, indicated an impairment. The carrying value of the Lewiston
Mall has been reduced to the net present value of expected future cash flows,
which approximates the aforementioned appraisal.
Included in other income in the fourth quarter of 1994 is $100,000
representing the approximate fair value of insulation and other energy saving
devices installed in residential properties by utility companies at no cost to
the Partnership. Statement of Financial Accounting Standards No. 116 (FAS No.
116) requires that contributions received shall be recognized as revenues or
gain in the period received and as assets. These building improvements will be
depreciated over their expected useful lives.
F-8
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RENTAL PROPERTIES
Real estate and accumulated depreciation as of December 31, 1996 is:
COST
INITIAL COST TO CAPITALIZED GROSS AMOUNT AT WHICH CARRIED AT CLOSE
SUBSEQUENT TO
PARTNERSHIPS (1) ACQUISITION OF PERIOD
ENCUMBRANCES -------------------------- (2) ----------------------------------------
(FIRST BUILDINGS & ------------- BUILDINGS &
MORTGAGES) LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTALS
---------------- ----------- ------------- ------------- ----------- ------------- ------------
Condominium Units
Residential Units
Massachusetts.......... $ 0 $ 33,746 $ 311,527 $ 53,165 $ 33,746 $ 364,692 $ 398,438
Westgate Woburn
Residential Apartments
Woburn,
Massachusetts.......... 6,826,269 461,300 2,424,636 4,349,209 461,300 6,773,845 7,235,145
Coach L.P.
Residential Apartments
Acton, Massachusetts... 1,186,593 140,600 445,791 471,443 140,600 917,234 1,057,834
Avon Street Apartments
L.P.
Residential Apartments
Malden,
Massachusetts.......... 1,773,465 62,700 837,318 253,001 62,700 1,090,319 1,153,019
Middlesex Apartments L.P.
Residential Apartments
Newton,
Massachusetts.......... 1,095,121 37,700 161,012 200,618 37,700 361,630 399,330
Clovelly Apartments L.P.
Residential Apartments
Nashua, New
Hampshire.............. 2,074,129 177,610 1,478,359 412,840 177,610 1,891,199 2,068,809
Nashoba Apartments L.P.
Residential Apartments
Acton, Massachusetts... 1,083,344 79,650 284,548 631,231 79,650 915,779 995,429
River Drive L.P.
Residential Apartments
Danvers,
Massachusetts.......... 1,536,017 72,525 587,777 974,861 72,525 1,562,638 1,635,163
Executive Apartments L.P.
Residential Apartments
Framingham,
Massachusetts.......... 1,779,375 91,400 740,360 814,360 91,400 1,554,720 1,646,120
Willard Apartments L.P.
Residential Apartments
Quincy,
Massachusetts.......... 291,838 15,825 63,477 141,480 15,825 204,957 220,782
Olde English Apartments
L.P.
Residential Apartments
Lowell,
Massachusetts.......... 1,397,278 46,181 878,323 486,959 46,181 1,365,282 1,411,463
ACCUMULATED
DEPRECIATION DATE
(3) ACQUIRED
--------------- -----------
Condominium Units
Residential Units
Massachusetts.......... $ 241,148 Various
Westgate Woburn
Residential Apartments
Woburn,
Massachusetts.......... 3,474,968 Sept. 1977
Coach L.P.
Residential Apartments
Acton, Massachusetts... 558,481 Sept. 1977
Avon Street Apartments
L.P.
Residential Apartments
Malden,
Massachusetts.......... 773,032 Sept. 1977
Middlesex Apartments L.P.
Residential Apartments
Newton,
Massachusetts.......... 163,577 Sept. 1977
Clovelly Apartments L.P.
Residential Apartments
Nashua, New
Hampshire.............. 1,245,319 Sept. 1977
Nashoba Apartments L.P.
Residential Apartments
Acton, Massachusetts... 437,221 Sept. 1977
River Drive L.P.
Residential Apartments
Danvers,
Massachusetts.......... 769,778 Sept. 1977
Executive Apartments L.P.
Residential Apartments
Framingham,
Massachusetts.......... 996,273 Sept. 1977
Willard Apartments L.P.
Residential Apartments
Quincy,
Massachusetts.......... 84,181 Sept. 1977
Olde English Apartments
L.P.
Residential Apartments
Lowell,
Massachusetts.......... 944,616 Sept. 1977
F-9
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RENTAL PROPERTIES (CONTINUED)
COST
INITIAL COST TO CAPITALIZED GROSS AMOUNT AT WHICH CARRIED AT CLOSE
SUBSEQUENT TO
PARTNERSHIPS (1) ACQUISITION OF PERIOD
ENCUMBRANCES -------------------------- (2) ----------------------------------------
(FIRST BUILDINGS & ------------- BUILDINGS &
MORTGAGES) LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTALS
---------------- ----------- ------------- ------------- ----------- ------------- ------------
Oak Ridge Apartments L.P.
Residential Apartments
Foxboro,
Massachusetts.......... 2,090,990 135,300 406,544 929,401 135,300 1,335,945 1,471,245
Commonwealth 1137 L.P.
Residential Apartments
Boston,
Massachusetts.......... 1,260,875 342,000 1,367,669 148,682 342,000 1,516,351 1,858,351
Commonwealth 1144 L.P.
Residential Apartments
Boston,
Massachusetts.......... 5,268,093 1,410,000 5,664,816 238,277 1,410,000 5,903,093 7,313,093
Boylston Downtown L.P.
Residential Apartments
Boston,
Massachusetts.......... 7,742,561 2,112,000 8,593,111 285,808 2,112,000 8,878,919 10,990,919
North Beacon 140 L.P.
Residential Units
Boston,
Massachusetts.......... 3,459,526 936,000 3,762,013 149,732 936,000 3,911,745 4,847,745
Redwood Hills L.P.
Residential Units
Worcester,
Massachusetts.......... 4,557,866 1,200,000 4,810,604 407,341 1,200,000 5,217,945 6,417,945
East Hampton L.P.
Strip Shopping Mall
East Hampton,
Connecticut............ 1,412,639 394,011 1,182,031 1,233,605 394,011 2,415,636 2,809,647
Timpany Plaza L.P.
Shopping Mall
Gardner,
Massachusetts.......... 3,509,392 378,125 4,729,978 332,191 378,125 5,062,169 5,440,294
Lewiston Mall L.P.(4)
Shopping Mall
Lewiston, Maine........ 2,887,296 1,043,059 3,694,731 369,120 1,043,059 4,063,851 5,106,910
Linhart L.P.
Residential/ Commercial
Newton,
Massachusetts.......... 1,305,832 385,000 1,540,000 236,434 385,000 1,776,434 2,161,434
Highland Street
Apartments, L.P.
Residential Apartments
Lowell,
Massachusetts.......... 0 156,000 634,085 0 156,000 634,085 790,085
---------------- ----------- ------------- ------------- ----------- ------------- ------------
$ 52,538,499 $ 9,710,732 $44,598,710 $13,119,758 $ 9,710,732 $57,718,468 $ 67,429,200
---------------- ----------- ------------- ------------- ----------- ------------- ------------
---------------- ----------- ------------- ------------- ----------- ------------- ------------
ACCUMULATED
DEPRECIATION DATE
(3) ACQUIRED
--------------- -----------
Oak Ridge Apartments L.P.
Residential Apartments
Foxboro,
Massachusetts.......... 600,644 Sept. 1977
Commonwealth 1137 L.P.
Residential Apartments
Boston,
Massachusetts.......... 88,788 July 1995
Commonwealth 1144 L.P.
Residential Apartments
Boston,
Massachusetts.......... 364,067 July 1995
Boylston Downtown L.P.
Residential Apartments
Boston,
Massachusetts.......... 562,550 July 1995
North Beacon 140 L.P.
Residential Units
Boston,
Massachusetts.......... 252,125 July 1995
Redwood Hills L.P.
Residential Units
Worcester,
Massachusetts.......... 321,422 July 1995
East Hampton L.P.
Strip Shopping Mall
East Hampton,
Connecticut............ 725,829 Sept. 1984
Timpany Plaza L.P.
Shopping Mall
Gardner,
Massachusetts.......... 2,181,393 Sept. 1985
Lewiston Mall L.P.(4)
Shopping Mall
Lewiston, Maine........ 217,897 Feb. 1989
Linhart L.P.
Residential/ Commercial
Newton,
Massachusetts.......... 130,946 Jan. 1995
Highland Street
Apartments, L.P.
Residential Apartments
Lowell,
Massachusetts.......... 964 Dec. 1996
---------------
$ 15,135,219
---------------
---------------
F-10
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
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 1996, rental properties were depreciated over the following estimated
useful lives:
Assets............................................................................................ Life
10-31
Buildings and Improvements........................................................................ years
Other Categories of Assets........................................................................ 5-10 years
(4) Initial costs and carrying values are net of $3,250,000 improvement loss.
F-11
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:
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
Rental Properties
Balance, Beginning................................................ $ 65,052,299 $ 37,753,503 $ 36,605,219
Additions Buildings, improvements, and other assets............. 3,218,539 33,334,751 1,676,564
------------- ------------- -------------
68,270,838 71,088,254 38,281,783
------------- ------------- -------------
Deduct:
Write-off of retired or disposed assets......................... 841,638 1,101,345 528,280
Loss on impairment of rental properties......................... -- 4,934,610 --
------------- ------------- -------------
841,638 6,035,955 528,280
------------- ------------- -------------
Balance, Ending................................................... $ 67,429,200 $ 65,052,299 $ 37,753,503
------------- ------------- -------------
------------- ------------- -------------
Accumulated Depreciation
Balance, Beginning................................................ $ 13,364,030 $ 13,971,336 $ 12,939,854
Add:
Depreciation for the year....................................... 2,612,827 2,111,405 1,559,762
------------- ------------- -------------
15,976,857 16,082,741 14,499,616
------------- ------------- -------------
Deduct:
Accumulated depreciation of retired or disposed assets.......... 841,638 1,034,101 528,280
Loss on impairment of rental properties......................... -- 1,684,610 --
------------- ------------- -------------
841,638 2,718,711 528,280
------------- ------------- -------------
Balance, Ending................................................... $ 15,135,219 $ 13,364,030 $ 13,971,336
------------- ------------- -------------
------------- ------------- -------------
F-12
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $677,006, $504,842,
and $334,868 in 1996, 1995, and 1994 respectively. Advance rental payments and
security deposits are held in escrow by the management company (see Note 6). The
management company also receives a mortgage servicing fee equal to an annual
rate of 1/2% of the monthly outstanding balance of mortgages receivable
resulting from the sale of property. There were no mortgage servicing fees paid
in 1996, 1995, and 1994.
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 1996, 1995, and 1994 approximately
$511,000, $231,000, and $130,000 was charged to NERA for legal, construction,
maintenance, and architectural services, and supervision of capital
improvements. Approximately $232,000, $50,000, and $74,000 was capitalized in
1996, 1995 and 1994 in leasehold improvements. Included in the 1996 expenses
referred to above, approximately $115,000 is recorded in repairs and
maintenance, $147,000 in administrative expense, and $17,000 in renting expense.
In 1995 and 1994 the balance of $181,000 and $56,000 was included in
administrative expense. Additionally in 1996, 1995 and 1994, the Partnership
paid to the management company $50,000, $30,000, and $30,000 respectively for
accounting services previously provided by an outside company.
The Partnership Agreement entitles the General Partner or a management
company to receive certain commissions upon the sale of Partnership property
only to the extent that total commissions do not exceed 3%. No such commissions
were paid in 1996, 1995, or 1994.
In 1996, an unrelated individual that performed asset management consulting
services to NERA and the management company was appointed President of the
management company. This individual continues to receive asset management fees
from NERA, receiving $28,800 in 1996.
Included in prepaid expenses and other assets were amounts due from related
parties of $416,317 and $366,258 at December 31, 1996 and 1995 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).
Also included in prepaid expenses and other assets is an insurance reserve
account funded by the Partnerships and held by the management company. The
insurance reserve includes funds from other properties which are also owned by
the related parties. The balance in the reserve was $82,856 and $105,924 at
December 31, 1996 and December 31, 1995 respectively.
See Note 10 for rental arrangements with the Timpany Plaza joint venture.
As described in Note 4, the Partnership has interests in certain entities in
which the majority shareholder of the General Partner is also involved.
See Note 2 for fees paid to related parties by the sellers of the
Partnerships' 1995 acquisitions.
NOTE 4--OTHER ASSETS
The short-term investment, totalling $51,528 at December 31, 1996 and
$48,877 at December 31, 1995, is carried at cost, which approximates fair value.
Such investment at December 31, 1996 is a 5.07% certificate of deposit at
Citizens Bank maturing in February 1997.
F-13
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--OTHER ASSETS (CONTINUED)
Included in prepaid expenses and other assets at December 31, 1996, is
approximately $669,000 held in escrow to fund projected capital improvements.
Additional payments of approximately $34,000 are paid monthly. As the
improvements are made, funds are used from these escrow accounts.
The carrying value of the Partnership's 50% interest in the Timpany Plaza
joint venture, at equity, is $93,734 and $129,989 at December 31, 1996 and
December 31, 1995 respectively.
The Partnership owns a 10% ownership interest in a real estate partnership
accounted for by the equity method and reduced to a carrying value of zero.
Losses in excess of cost in limited partnerships have not been recorded as the
Partnership is not liable for such amounts. In 1996, $18,360 is recorded in
other income for the amount received from the disposition of investment
partnerships in prior years that had previously been reduced to a carrying value
of zero. NERA recorded a $30,000 provision in 1990 representing the estimated
liabilities allocable to NERA in those partnerships where NERA was a General
Partner. No amounts were paid, and this amount was eliminated and included in
other income in 1994. During the fourth quarter of 1995, the real estate owned
by another partnership in which NERA had a 10% ownership interest was sold for
less than the mortgage debt. Accordingly, NERA did not receive proceeds from
this sale.
The majority shareholder of the General Partner is also the majority owner
of this partnership. There can be no assurance that any of NERA's partnership
investments will be realizable in the future in excess of their carrying value.
NOTE 5--MORTGAGES PAYABLE
At December 31, 1996 and December 31, 1995, the mortgages payable consisted
of various loans, substantially all of which were secured by first mortgages on
properties referred to in Note 2, with interest ranging from 8.25% to 10.99%,
payable in monthly installments currently aggregating approximately $431,000
including interest, to various dates through 2005. Although the loans mature
within ten years, they are being amortized on a basis between 25 and 27.5 years.
The carrying amounts of the Partnerships' mortgages payable approximate their
fair value.
The Partnerships have pledged tenant leases as additional collateral for
certain of these mortgages.
Approximate annual maturities are as follows:
1997--current maturities....................................... $ 581,000
1998........................................................... 634,000
1999........................................................... 692,000
2000........................................................... 7,334,000
2001........................................................... 743,000
Thereafter..................................................... 42,554,000
----------
$52,538,000
----------
----------
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).
F-14
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $6.80 per unit in 1996, 1995, and
1994. In March 1997, the Partnership declared a regular semi-annual dividend of
$3.90 and a special distribution of $1.00 per unit.
The Partnership has entered into a deposit agreement with an agent to
facilitate public trading of limited partners' interests in Class A units.
Under the terms of this agreement, the holders of Class A units have the
right to exchange each Class A unit for ten Depositary Receipts. The following
is information on the net income (loss) per Depositary Receipt:
YEAR ENDED
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
Net Income (Loss) per Depository Receipt.................................................. $ .52 $ (1.62) $ .61
NOTE 8--CAPITAL UNIT REPURCHASE PLAN
During the second quarter of 1996, the Partnership announced a plan to
repurchase up to $500,000 of its Depositary Receipts from existing holders of
securities. The repurchase of Depositary Receipts may take place over a period
of a year or more. The purchase price will be equal to the price at which such
securities are traded on the Nasdaq Stock Market at the time of the repurchase.
During the third and fourth quarter of 1996, the Partnership repurchased 15,915
depositary receipts for a total cost of $110,060.
In addition, 378 Class B and 20 General Partnership units were purchased for
a total of $27,517 to maintain the required ownership percentage (see note 7).
Treasury units at December 31, 1996 are as follows:
Class A.............................................................. 4,152
Class B.............................................................. 865
General Partner...................................................... 45
---------
5,062
---------
---------
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.
F-15
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--RENTAL INCOME
In 1996, approximately 86% of rental income is related to residential
apartments and condominium units with leases of one year or less. The remaining
14% is related to commercial properties which have minimum future rental income
on noncancellable operating leases as follows:
COMMERCIAL
PROPERTY
LEASES LAND LEASES TOTAL
------------ ------------ ------------
1997............................................................... $ 1,503,000 $ 130,000 $ 1,633,000
1998............................................................... 1,149,000 130,000 1,279,000
1999............................................................... 777,000 130,000 907,000
2000............................................................... 504,000 130,000 634,000
2001............................................................... 311,000 130,000 441,000
Thereafter......................................................... 1,197,000 1,366,000 2,563,000
------------ ------------ ------------
$ 5,441,000 $ 2,016,000 $ 7,457,000
------------ ------------ ------------
------------ ------------ ------------
In August 1988, the Partnership entered into a land lease agreement with an
existing tenant of the Timpany Plaza Shopping Center in Gardner, Massachusetts.
As part of this lease, the tenant, at its cost, demolished approximately
one-third of the mall and replaced it with a new store of comparable size. The
minimum fixed term of this lease is for 20 years, which commenced with the
opening of the new store in December 1989.
The minimum annual rents are $110,000 per year for the first five years,
increasing each subsequent five-year period, with the average being $137,500 per
year for the minimum twenty-year term. Included in rents receivable at December
31, 1996 and 1995 is $163,000 and $158,000 respectively, representing the
deferred rental income from this lease. There are also contingent rents based
upon sales volume, common area maintenance, and other charges. This lease also
provides for six extension periods of five years each at increased rents. The
minimum rents pertaining to this agreement are reflected in the foregoing table.
The ownership of this building addition transfers to the Partnership at the
termination of the lease. Accordingly, the Partnership included in property
assets approximately $1,400,000 of book value of the demolished building
allocable to the Partnership leasehold interest and is depreciating this amount
on a straight-line basis over a twenty-year period.
Concurrently, the Partnership entered into a joint venture with this same
tenant relating to the space formerly leased by the tenant. Under this
arrangement, the two parties have agreed to relet the space and divide the net
income or loss after paying to the Partnership an annual minimum rent of
$84,546. The Partnership's share of income was $12,294, $28,904, and $42,745 for
the years ended 1996, 1995, and 1994 respectively.
The aggregate minimum future rental income does not include contingent
rentals which may be received under various leases in connection with percentage
rents, common area charges, and real estate taxes. Aggregate contingent rentals
were $927,294, $730,613, and $792,510 for the years ended December 31, 1996,
1995, and 1994 respectively.
NOTE 11--CASH FLOW INFORMATION
During the years ended December 31, 1996, 1995, and 1994, cash paid for
interest was $4,644,058, $3,461,577, and $1,670,695 respectively.
F-16
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--CASH FLOW INFORMATION (CONTINUED)
In 1994, non-cash investing activities included $100,000 of building
improvements contributed by utility companies (see Note 2).
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 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 1996 is approximately
$1,000,000 greater than statement income. This is primarily due to the
reportablity for tax purposes of approximately $1,050,000 of previously deducted
losses in excess of basis for two equity investments disposed of in 1996. In
March 1997, the Partnership declared a special $.10 dividend per depository
receipt payable March 31, 1997 to assist partners with any negative tax
consequences of these transactions.
Cumulative tax basis at December 31, 1996 is approximately $2,100,000
greater than the statement basis.
F-17
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--QUARTERLY FINANCIAL DATA
THREE MONTHS ENDED,
----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
(UNAUDITED) 1996 1996 1996 1996 TOTAL
- ---------------------------------------- ------------ ------------ ------------- ------------ -------------
Revenues................................ $ 4,235,464 $ 4,187,671 $ 4,101,730 $4,110,018 $ 16,634,883
Expenses................................ 3,881,730 3,904,970 3,853,986 4,268,548 15,909,234
------------ ------------ ------------- ------------ -------------
Income (Loss) from Operations........... 353,734 282,701 247,744 (158,530) 725,649
Other Income............................ 59,268 40,522 42,125 44,866 186,781
------------ ------------ ------------- ------------ -------------
Net Income (Loss)....................... $ 413,002 $ 323,223 $ 289,869 $ (113,664) $ 912,430
------------ ------------ ------------- ------------ -------------
------------ ------------ ------------- ------------ -------------
Net Income (Loss) per Unit.............. $ 2.33 $ 1.82 $ 1.67 $ (.65) $ 5.17
Net Income (Loss) per Depositary
Receipt............................... $ .23 $ .18 $ .17 (.06) $ .52
THREE MONTHS ENDED,
-----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
(UNAUDITED) 1995 1995 1995 1995 TOTAL
- ---------------------------------------------- ------------ ------------ ------------- ------------- -------------
Revenues...................................... $ 2,278,487 $ 2,309,046 $ 3,861,853 $ 4,010,092 $ 12,459,478
Expenses...................................... 2,037,076 2,218,689 3,779,525 7,540,275 15,575,565
------------ ------------ ------------- ------------- -------------
Income (Loss) from Operations................. 241,411 90,357 82,328 (3,530,183) (3,116,087)
Other Income.................................. 20,848 13,027 83,144 124,257 241,276
------------ ------------ ------------- ------------- -------------
Net Income (Loss)............................. $ 262,259 $ 103,384 $ 165,472 $ (3,405,926) $ (2,874,811)
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
Net Income (Loss) per Unit.................... $ 1.48 $ .58 $ .93 $ (19.22) $ (16.23)
Net Income (Loss) per Depositary Receipt...... $ .15 $ .06 $ .09 $ (1.92) $ (1.62)
See Note 2 regarding the impairment loss recorded in the fourth quarter of
1995.
During the fourth quarter of 1996, the Partnership revised its estimates of
depreciation and amortization and recorded approximately $200,000 of expenses
applicable to earlier quarters during the year.
F-18