Business Context and Reporting Period
Company: New England Realty Associates Limited Partnership (NERA)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: NERA owns and operates residential apartment buildings, condominium units, and commercial properties primarily in Massachusetts and New Hampshire. The partnership also holds 50% ownership interests in eight unconsolidated joint ventures.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenues | $8,460,695 | $8,031,967 |
| Net Income | $520,085 | $2,430,004 |
| Net Income per Unit | $3.87 | $16.05 |
| Cash from Operating Activities | $2,361,287 | $(2,940,622) |
| Cash and Cash Equivalents | $10,220,538 | $5,887,866 |
| Total Assets | $123,281,556 | $125,243,457 |
| Total Liabilities | $142,688,244 | $142,960,639 |
| Mortgage Notes Payable | $137,954,602 | $138,160,262 |
| Partners' Capital | $(19,406,688) | $(17,717,182) |
Note: Partners' Capital is negative due to significant share repurchases exceeding the book value of equity.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by 5% ($428,728) compared to Q1 2008. Rental income rose 6% to $8.37 million, driven by the acquisition of the Cypress Street property in late 2008 and higher occupancy (97%+).
- Net Income Decline: Net income decreased 79% to $520,085. This decline is primarily due to the absence of a $6.05 million gain on the sale of the Oak Ridge Apartments recorded in Q1 2008 (classified as discontinued operations).
- Operating Expenses: Total operating expenses decreased 1% to $5.74 million. Depreciation and amortization dropped 12% ($202,000), while operating expenses increased 7% due to higher utility and snow removal costs.
- Joint Venture Losses: The loss from unconsolidated joint ventures increased to $273,555 in Q1 2009 from $247,805 in Q1 2008.
- Debt Refinancing Impact: Q1 2008 included $3.7 million in mortgage prepayment penalties related to refinancing, which did not recur in Q1 2009.
Guidance, Outlook, and Risks
- Market Outlook: Management anticipates the real estate market in the Greater Boston area will remain soft through 2009 and 2010. They expect higher vacancy rates and slowing revenue increases in the second half of 2009.
- Liquidity: The partnership maintains cash reserves of over $10 million. Management believes current cash reserves and anticipated rental revenue are sufficient to fund operations, planned improvements, and continue distributions.
- Distributions: A quarterly distribution of $7.00 per unit ($0.70 per receipt) was paid on March 31, 2009.
- Share Repurchases: The partnership continues an active repurchase program. In Q1 2009, it repurchased 19,740 depositary receipts and other units for approximately $1.28 million. Management views this as accretive to remaining shareholders.
- Risks: Key risks include high unemployment in the local market, potential increases in bad debt, rising utility costs, and the inability to refinance debt on favorable terms. The partnership has not recorded impairment losses since 1995 but monitors properties annually.
Investor Verification Checklist
- Discontinued Operations: Verify the impact of the Q1 2008 property sale gain ($6.05M) on year-over-year net income comparisons.
- Negative Equity: Review the "Partners' Capital" line item, which is negative ($19.4M), and understand the impact of the aggressive share buyback program on book value.
- Joint Venture Exposure: Assess the $10.6 million investment in unconsolidated joint ventures and the associated $274k quarterly loss.
- Debt Maturities: Examine the mortgage maturity schedule; significant principal payments are due in 2013 ($19.9M) and 2014 ($24.7M).
- Related Party Transactions: Note that the management company (The Hamilton Company) is owned by the majority shareholder of the General Partner, and fees are charged for management, legal, and maintenance services.