NEN

Business Context and Reporting Period

Company: New England Realty Associates Limited Partnership (NERA)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2001
Business Overview: NERA owns and operates residential apartment buildings, condominium units, and commercial properties primarily in Massachusetts, Connecticut, and New Hampshire. The partnership consists of 173,252 units outstanding.

Key Financial Metrics

Dividends: Total dividends declared for 2001 are $17.70 per unit ($1.77 per receipt). Distributions paid in the first nine months of 2001 totaled $3,061,604.

Material Changes vs. Prior Period

• Revenue Growth: Rental income increased 10% ($660,177) for the three months ended September 30, 2001, compared to the same period in 2000. This was driven by increased rental rates at residential properties, which now account for 91% of rental income (up from 88%).
• Profitability: Net income for the three months ended September 30, 2001, was $1,645,663, a significant improvement from a net loss of $133,087 in the same period in 2000. The 2000 loss included an extraordinary charge of $1,476,055 related to debt extinguishment.
• Expense Increases: Operating expenses rose due to higher utility costs, increased insurance premiums following a rate lock expiration, and significant cosmetic repairs ($175,269 increase in repairs and maintenance for the quarter).
• Portfolio Composition: The sale of two commercial properties in 2000 (Lewiston Mall and Timpany Plaza) reduced commercial rental income but also lowered operating expenses. Residential vacancy rates remained low at 1.4%.

Outlook, Risks, and Unusual Items

• Subsequent Acquisition: On November 8, 2001, NERA purchased a 50% interest in a 40-unit residential property in Cambridge, MA, for a total price of $11,265,000. NERA paid $8,265,000 at closing and is securing an $8,000,000 mortgage. Funds advanced to the co-owner will earn 8% interest.
• Liquidity and Capital Resources: The partnership holds $16.0 million in cash and has an undrawn $12.0 million line of credit secured by the 62 Boylston Street property. Management anticipates cash from operations will fund current operations and planned capital improvements.
• Capital Improvements: Approximately $2.2 million was spent on improvements in the first nine months of 2001. An additional $2.62 million is planned for the remainder of 2001, primarily for the 62 Boylston Street property.
• Risks: Future results depend on general economic conditions in New England, fluctuations in the residential and commercial real estate markets, and utility costs. The filing notes that actual results may differ materially from forward-looking statements.
• Legal Proceedings: Routine litigation is ongoing; the status of the MCAD matter referenced in the Q2 filing remains unchanged.

Investor Verification Checklist

• Debt Maturities: Verify the schedule of mortgage maturities, noting $800,000 due in 2002 and significant balances maturing thereafter.
• Related Party Transactions: Review fees paid to the management company (4% of revenue) and the recent 50% joint venture acquisition with the majority shareholder of the General Partner.
• Insurance Costs: Confirm the impact of the expired three-year rate lock on future operating expenses.
• Capital Expenditures: Monitor the funding of the planned $2.62 million in capital improvements and the $3.5 million expansion at Westgate Apartments.
• Dividend Sustainability: Assess whether operating cash flow remains sufficient to support the $17.70 per unit dividend target for 2001.