NEN

Business Context and Reporting Period

Company: New England Realty Associates Limited Partnership (NERA)
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2011
Business Overview: NERA owns and operates residential apartment buildings, condominium units, and commercial properties primarily in Massachusetts and New Hampshire. The portfolio includes 2,269 residential units in 20 complexes and various commercial properties. The Partnership also holds 40% to 50% equity interests in nine unconsolidated joint ventures.

Key Financial Metrics

Note: Total Debt includes Mortgage Notes Payable ($137,445,891) and Note Payable ($4,668,600).

Material Changes vs. Prior Period

• Profitability Turnaround: The Partnership reported a Net Income of $172,812 in Q1 2011, a significant improvement from a Net Loss of $342,951 in Q1 2010. This $515,763 swing was driven primarily by a reduction in losses from unconsolidated joint ventures.
• Revenue Growth: Total revenues increased by 2.4% ($194,502). Rental income rose 2.6% to $8.18 million, attributed to reduced free rent incentives and lower bad debt expense.
• Expense Increases: Total operating expenses increased 5.1% to $5.77 million. Notable increases included operating expenses (up 18.5% due to unseasonably high snow removal costs), repairs and maintenance (up 8.7%), and renting expenses (up 34.3%).
• Joint Venture Performance: The loss from investments in unconsolidated joint ventures improved significantly, decreasing from $999,497 in Q1 2010 to $454,047 in Q1 2011.
• Discontinued Operations: Income from discontinued operations (Avon Street Apartments) was $65,389, slightly higher than the $62,693 reported in the prior year.

Guidance, Outlook, and Risks

• Market Outlook: Management expects the multifamily sector to see improved occupancy and modest revenue increases. They anticipate low single-digit vacancy rates and higher rents upon turnover over the next 18 to 36 months due to limited new supply.
• Property Disposition: On March 1, 2011, NERA entered an agreement to sell the Avon Street Apartments for $8.75 million, expecting a gain of approximately $7.8 million. Closing is expected in May 2011. Proceeds (~$5.7 million) may be used for acquisitions, debt reduction, or share repurchases.
• Distributions: A quarterly distribution of $7.00 per unit ($0.70 per receipt) was paid on March 31, 2011. A subsequent distribution of the same amount was approved for payment on June 30, 2011.
• Capital Improvements: The Partnership plans to invest approximately $1.21 million in capital improvements for the remainder of 2011.
• Risks: Key risks include dependence on the Greater Boston real estate market, potential increases in operating costs (utilities, snow removal), refinancing risks (significant debt maturities in 2013-2014), and environmental liabilities.

Investor Verification Checklist

• Sale of Avon Street Apartments: Verify the closing date (expected May 2011) and the actual net proceeds received versus the estimated $5.7 million.
• Joint Venture Debt: Review the $61.4 million proportionate share of non-recourse debt in joint ventures and the impact of principal payments beginning in Q4 2011 on future distributions.
• Related Party Transactions: Confirm the terms of the $4.67 million note payable to HBC Holdings, LLC (owned by Harold Brown), which is subject to demand payment with six months' notice.
• Operating Cost Volatility: Monitor the impact of seasonal weather on operating expenses, as snow removal costs significantly impacted Q1 2011 results.
• Refinancing Schedule: Assess the ability to refinance approximately $45 million of debt maturing in 2013 and 2014 on favorable terms.