Business Context and Reporting Period
Company: New England Realty Associates Limited Partnership (NERA)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 1998
Business Overview: NERA owns and operates residential apartment buildings, condominium units, and commercial properties primarily in Massachusetts, Connecticut, New Hampshire, and Maine. The partnership also holds investments in other real estate partnerships and joint ventures.
Key Financial Metrics
| Metric | Q1 1998 | Q1 1997 |
|---|---|---|
| Total Revenues | $4,581,114 | $4,272,830 |
| Net Income | $443,708 | $197,604 |
| Net Income per Unit | $2.56 | $1.13 |
| Operating Cash Flow | $1,229,120 | $1,301,800 |
| Cash and Equivalents (Ending) | $630,429 | $1,617,354 |
| Short-term Investments | $1,663,447 | $2,055,429 |
| Total Assets | $57,686,620 | $58,147,503 |
| Mortgages Payable | $51,803,366 | $51,956,821 |
| Partners' Capital | $3,199,753 | $3,465,230 |
Occupancy Rates (March 31, 1998): Residential vacancy rate improved to 1.7% (from 3.1% in 1997). Commercial vacancy rate improved to 20% (from 21% in 1997).
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by $308,284 (7.2%) year-over-year. Rental income rose $315,936, driven by higher residential rates and increased contingent rentals at the Lewiston Mall Shopping Center.
- Profitability Surge: Net income more than doubled, increasing $246,104 (124.5%). Income from operations rose $248,593 to $414,900.
- Expense Variance: Total expenses increased $61,691. Administrative expenses rose $51,138 due to higher legal and accounting fees. Taxes and insurance increased $39,519, partly due to the absence of a $28,237 insurance abatement received in the prior year. Conversely, repairs and maintenance decreased $45,448 following significant repairs in 1997.
- Investment Loss: The partnership recorded an unrealized loss of $6,477 on short-term investments (Massachusetts Municipal Bond Fund) and a $3,122 loss from the Timpany Plaza joint venture, compared to a gain in the prior year.
Outlook, Risks, and Management Commentary
- Capital Improvements: The partnership spent $584,310 on property improvements in Q1 1998. Management plans to invest approximately $2.3 million in further capital improvements, funded by escrow accounts and cash reserves.
- Liquidity: Management anticipates cash from operations and interest-bearing investments will be sufficient to fund current operations and improvements. No new debt financing is currently required for operations.
- Key Risk - Tenant Lease: A major tenant at the Lewiston Mall Shopping Center (contributing ~$69,000 in Q1 1998) has the right to terminate its lease with nine months' notice. The partnership is negotiating a long-term lease but cannot assure renewal.
- Joint Venture Status: The Timpany Plaza joint venture space, which previously caused a vacancy loss, was completely relet as of March 31, 1998.
- Dividends: A regular semi-annual dividend of $4.10 per unit was declared in March 1998.
Investor Verification Checklist
- Lease Renewal: Verify the status of negotiations with the major tenant at Lewiston Mall Shopping Center to assess revenue stability.
- Debt Maturities: Review the mortgage maturity schedule; $7.3 million is due in 2001, with significant balances maturing thereafter.
- Related Party Transactions: Confirm the terms of management fees (4% of revenue) and the handling of escrowed funds held by entities owned by the General Partner's majority shareholder.
- Investment Volatility: Monitor the fair value of the Massachusetts Municipal Bond Fund, as unrealized gains/losses directly impact net income.
- Capital Expenditure Funding: Assess whether the planned $2.3 million in capital improvements will be fully funded by existing reserves or require additional financing.