Business Context and Reporting Period
Company: New England Realty Associates Limited Partnership (NERA)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 1999
Business Overview: NERA owns and operates residential apartment buildings, condominium units, and commercial properties primarily in Massachusetts, Connecticut, New Hampshire, and Maine. The partnership is managed by an entity owned by the majority shareholder of the General Partner.
Key Financial Metrics (Nine Months Ended Sept 30, 1999)
| Metric | 1999 (Unaudited) | 1998 (Unaudited) |
|---|---|---|
| Total Revenues | $14,813,174 | $13,783,131 |
| Net Income | $2,787,851 | $1,645,332 |
| Net Income Per Unit | $16.09 | $9.50 |
| Operating Cash Flow | $3,853,022 | $4,022,461 |
| Total Assets | $68,899,468 | $58,406,104 |
| Total Liabilities | $64,122,967 | $54,134,224 |
| Mortgages Payable | $60,976,398 | $51,322,552 |
| Cash & Short-term Investments | $5,592,762 | $3,683,451 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by $1,030,043 (7.5%) driven by a $1,033,810 increase in rental income. This was due to higher rental rates, reduced residential vacancies (1.3% vs 3.3%), and the acquisition of Staples Plaza.
- Profitability Surge: Net income increased by $1,142,519 (69.4%). This significant jump is primarily attributable to non-recurring gains: $676,124 from the sale of Willard Street Apartments and $124,108 from the sale of a Commonwealth Avenue condominium.
- Expense Increases: Total expenses rose by $414,321 (3.4%). Interest expense increased by $163,332 due to higher debt levels from refinancing and acquisitions. Depreciation increased by $191,643 due to new assets.
- Balance Sheet Expansion: Total assets grew by $10.5 million, largely due to the acquisition of rental properties ($9.5M net cash outflow for purchases/improvements) and an increase in short-term investments.
Outlook, Risks, and Unusual Items
Management Commentary & Guidance
- Acquisitions: NERA purchased Staples Plaza ($8.2M) in May 1999 and agreed to purchase Westside Colonial Apartments ($8.9M) in October 1999, closing scheduled for December 1, 1999.
- Refinancing: Refinanced Westgate Apartments for $12M, generating ~$5M net cash for future acquisitions and redevelopment.
- Dividends: Total dividends paid in 1999 were $13.20 per unit, compared to $8.20 in 1998.
- Capital Improvements: Plans to invest an additional $800,000 in capital improvements prior to year-end 1999.
Risks and Contingencies
- Tenant Concentration: A major tenant at Lewiston Mall (Maine) can terminate its lease with nine months' notice; negotiations for a long-term lease are ongoing.
- Year 2000 Compliance: Management believes financial and building operations are compliant. Risks include potential failure of third-party vendors or tenants to comply, which could impact rent collection or property operations.
- Market Conditions: While demand for residential housing in Greater Boston is strong, management notes no assurance that current demand will continue.
Investor Verification Checklist
- Non-Recurring Gains: Verify the sustainability of net income by excluding the ~$800,000 in gains from property sales.
- Debt Service: Confirm the impact of the new $12M Westgate loan and $5.2M Staples Plaza mortgage on future interest coverage ratios.
- Lease Renewals: Monitor the status of the Lewiston Mall tenant lease renewal, as it represents a material portion of commercial income.
- Year 2000 Status: Confirm that the property manager (The Hamilton Company) has completed all testing and that no material costs were passed through to the partnership.
- Related Party Fees: Review the $613,967 management fee and $364,000 in in-house professional service charges to ensure alignment with market rates.