Business Context and Reporting Period
Company: New England Realty Associates Limited Partnership (NERA)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2002
Business Overview: NERA owns and operates residential apartment buildings, condominium units, and commercial properties primarily in Massachusetts, Connecticut, and New Hampshire. As of June 30, 2002, the portfolio included 2,192 residential units across 21 complexes and commercial shopping centers.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2002 | Six Months Ended June 30, 2001 |
|---|---|---|
| Total Revenue | $14,786,157 | $13,545,887 |
| Net Income | $3,771,479 | $3,103,020 |
| Net Income Per Unit | $21.77 | $17.91 |
| Operating Cash Flow | $5,898,631 | $5,264,820 |
| Total Assets | $103,211,272 | $96,428,956 |
| Total Liabilities | $89,173,430 | $83,947,784 |
| Mortgages Payable | $84,578,053 | $79,613,051 |
| Cash and Cash Equivalents | $16,789,882 | $16,690,943 |
Dividends: The Partnership changed its distribution policy from semi-annual to quarterly in February 2002. Distributions of $6.40 per unit were declared for the quarters ending March 31 and June 30, 2002.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased by 9.2% ($1.25 million) compared to the prior six-month period, driven primarily by rental rate increases at residential properties.
- Profitability: Net income increased by 21.5% ($668,459). Operating income rose 30% to $3.55 million.
- Expense Increases:
- Taxes and Insurance: Increased 25% ($299,158) due to real estate tax reassessments and higher premiums.
- Depreciation: Increased 6.6% ($139,411) due to capital improvements.
- Renting Expenses: Increased 165% ($90,307) due to higher tenant turnover and commissions paid to unaffiliated agents in a softening market.
- Interest Income: Decreased 62% ($229,306) due to lower market interest rates.
- Portfolio Activity:
- Acquisition: Purchased a 69-unit complex in Norwood, MA for $7.2 million (June 2002).
- Disposition: Sold a condominium unit in Brockton, MA for a net gain of $92,778 (June 2002).
Outlook, Risks, and Unusual Items
- Subsequent Event: On July 16, 2002, NERA executed an agreement to sell the East Hampton LP shopping mall for $3.025 million. The expected net cash flow is approximately $1.6 million, with an estimated gain of $1.2 million.
- Capital Expenditures: The Partnership plans to invest approximately $2 million in capital improvements for the remainder of 2002, primarily at 62 Boylston Street. Additionally, a $3.5 million expansion of 20 units at Westgate Apartments is committed.
- Market Risks: Management notes the residential real estate market in Greater Boston has softened, potentially leading to increased vacancies or rent reductions. However, cash reserves are deemed sufficient to fund operations and improvements.
- Debt Profile: All long-term debt ($84.6 million) is at fixed interest rates, mitigating immediate interest rate risk. Significant maturities are scheduled for 2006 ($10.5 million).
Investor Verification Checklist
- Debt Maturities: Verify the refinancing strategy for the $10.5 million mortgage maturing in 2006 and the $2.6 million maturing in 2007.
- Related Party Transactions: Review the $603,154 in management fees and $369,000 in professional services charged to the Partnership by entities owned by the General Partner.
- Occupancy Trends: Monitor vacancy rates closely given the reported softening of the Boston market and the 181% increase in renting expenses.
- Subsequent Sale Closing: Confirm the closing of the East Hampton shopping mall sale and the realization of the projected $1.2 million gain.
- Cash Reserves: Assess the impact of the $3.5 million Westgate expansion and $2 million in planned improvements on liquidity, noting that cash reserves are currently $16.8 million.