Business Context and Reporting Period
Company: New England Realty Associates Limited Partnership (NERA)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 1998
Business Overview: NERA owns and operates residential apartment buildings, condominium units, and commercial properties primarily in Massachusetts, Connecticut, New Hampshire, and Maine. The partnership also holds investments in other real estate entities.
Key Financial Metrics (Six Months Ended June 30, 1998)
| Metric | 1998 (Unaudited) | 1997 (Unaudited) |
|---|---|---|
| Total Revenues | $9,167,138 | $8,531,937 |
| Net Income | $993,824 | $516,923 |
| Net Income per Unit | $5.74 | $3.10 |
| Operating Cash Flow | $2,960,066 | $2,360,746 |
| Total Assets | $58,207,130 | $58,147,503 |
| Mortgages Payable | $51,646,550 | $51,956,821 |
| Cash & Equivalents | $827,785 | $456,277 |
| Short-term Investments | $2,540,598 | $2,055,429 |
Occupancy Rates (as of June 30, 1998): Residential vacancy rate improved to 2.2% (from 3.7% in 1997). Commercial vacancy rate increased to 20% (from 18% in 1997).
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by 7.4% ($635,201) driven by a 7.6% increase in rental income. Residential rental rates increased approximately 5-10% since 1997.
- Profitability Surge: Net income nearly doubled, increasing by 92.3% ($476,901). Income from operations rose by 98.4% ($454,504).
- Expense Variance: Total expenses increased by 2.2%. Notable increases included renting expenses (up 61% due to advertising and commissions) and administrative expenses (up 15% due to professional fees). Interest expense decreased slightly due to lower debt levels.
- Investment Activity: Net cash used in investing activities was $1,569,102, primarily for the purchase and improvement of rental properties ($1,083,933) and short-term investments ($485,169).
- Joint Venture Performance: The Timpany Plaza joint venture shifted from a loss of $6,181 in 1997 to income of $1,948 in 1998, attributed to the occupancy of previously vacant space.
Guidance, Outlook, and Risks
Capital Improvements: Management plans to invest approximately $1,800,000 in capital improvements for the remainder of the year ($1,540,000 for residential, $260,000 for commercial), funded by escrow accounts and cash reserves.
Liquidity: The partnership anticipates that cash from operations and interest-bearing investments will be sufficient to fund current operations and improvements. No share repurchases occurred during the six months ended June 30, 1998.
Risks and Contingencies:
- Tenant Concentration Risk: A major tenant at the Lewiston Mall Shopping Center (contributing ~$169,000 in the first half of 1998) can terminate its lease with nine months' notice. Renewal negotiations are ongoing, but no assurance of renewal exists.
- Market Volatility: Short-term investments (municipal bond funds) are subject to price volatility and interest rate fluctuations.
- Commercial Vacancy: Commercial vacancy remains elevated at 20%, specifically driven by 71,000 square feet of vacant space at Timpany Plaza Shopping Center.
Investor Verification Checklist
- Lease Renewal Status: Verify the outcome of negotiations with the major Lewiston Mall tenant regarding lease renewal.
- Commercial Occupancy: Monitor progress in leasing the 71,000 square feet of vacant space at Timpany Plaza Shopping Center.
- Capital Expenditure Execution: Confirm the completion and cost-effectiveness of the planned $1.8 million in capital improvements.
- Debt Maturities: Review the schedule of mortgage maturities, noting $7.33 million due in 2001 and significant balances thereafter.
- Related Party Fees: Review the 4% management fee structure and associated professional service charges to the management company.