NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP - Quarter Report: 2009 September (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

Form 10-Q

(Mark One)

 

For the quarterly period ended September 30, 2009

OR

 

 

For the transition period from              to            

 

Commission file number 0-12138

 

 

New England Realty Associates Limited Partnership

(Exact name of registrant as specified in its charter)

 

 

Registrant’s telephone number, including area code: (617) 783-0039

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act:

 

Class A

Limited Partnership Units

(Title of class)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o    No o (the Registrant is not yet required to submit Interactive Data)

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o		Accelerated filer x		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller
				reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

 

As of October 26, 2009, there were 105,877 Class A units (1,058,772 Depositary Receipts) 25,146 Class B units of limited partnership units and 1,323 of General Partnership units issued and outstanding.

 

 

 

INDEX

 

				Page
		PART I—FINANCIAL INFORMATION
Item 1.		Financial Statements (unaudited)		3
		Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008		3
		Consolidated Statements of Income for the Three Months Ended September 30, 2009 and September 30, 2008, and the Nine Months Ended September 30, 2009 and September 30, 2008		4
		Consolidated Statement of Changes in Partners’ Capital for the Nine Months Ended September 30, 2009 and 2008		5
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008		6
		Notes to Financial Statements		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		32
Item 4.		Controls and Procedures		33
		PART II—OTHER INFORMATION
Item 1.		Legal Proceedings		33
Item 1A.		Risk Factors		33
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		33
Item 3.		Defaults Upon Senior Securities		34
Item 4.		Submission of Matters to a Vote of Security Holders		34
Item 5.		Other Information		34
Item 6.		Exhibits		34
SIGNATURES				35

 

2

Table of Contents

 

NEW ENGLAND REALTY ASSOCIATES, L.P.

 

PART 1 — FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

The accompanying unaudited consolidated balance sheets, statements of income, changes in partners’ capital, and cash flows and related notes thereto, have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements.  The financial statements reflect all adjustments consisting only of normal, recurring adjustments, which are in the opinion of management, necessary for a fair presentation for the interim periods.

 

The consolidated balance sheet as of December 31, 2008 has been derived from the audited consolidated balance sheet at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

 

The aforementioned financial statements should be read in conjunction with the notes to the aforementioned financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in New England Realty Associates L.P.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

 

The results of operations for the nine month period ended September 30, 2009 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.

 

 

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

		September 30, 2009			December 31, 2008
ASSETS
Rental Properties		$	96,471,172		$	98,560,454
Cash and Cash Equivalents		8,035,415			10,752,931
Rents Receivable		703,037			553,392
Real Estate Tax Escrows		272,943			275,619
Prepaid Expenses and Other Assets		2,780,032			3,018,714
Deposit on Future Acquisition		2,660,500			—
Investments in Unconsolidated Joint Ventures		9,860,209			11,023,611
Financing and Leasing Fees		983,445			1,058,736
Total Assets		$	121,766,753		$	125,243,457
LIABILITIES AND PARTNERS’ CAPITAL
Mortgage Notes Payable		$	137,547,734		$	138,160,262
Accounts Payable and Accrued Expenses		1,433,129			1,592,610
Advance Rental Payments and Security Deposits		3,207,461			3,207,767
Total Liabilities		142,188,324			142,960,639
Commitments and Contingent Liabilities (Note 9)
Partners’ Capital 132,346 and 135,251 units outstanding in 2009 and 2008, respectively		(20,421,571		)	(17,717,182		)
Total Liabilities and Partners’ Capital		$	121,766,753		$	125,243,457

 

See notes to consolidated financial statements.

 

3

Table of Contents

 

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME

 

(Unaudited)

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2009			2008			2009			2008
Revenues
Rental income		$	8,089,673		$	7,981,479		$	24,634,345		$	23,778,488
Laundry and sundry income		119,893			95,907			312,263			304,905
		8,209,566			8,077,386			24,946,608			24,083,393
Expenses
Administrative		416,398			424,363			1,277,745			1,305,968
Depreciation and amortization		1,591,668			1,655,560			4,513,165			4,846,979
Management fees		334,745			327,079			1,011,531			978,507
Operating		689,871			784,581			3,064,201			3,117,155
Renting		262,234			218,896			406,363			405,761
Repairs and maintenance		1,435,264			1,429,528			3,580,895			3,653,203
Taxes and insurance		891,239			867,119			2,773,745			2,630,404
		5,621,419			5,707,126			16,627,645			16,937,977
Income Before Other Income and Discontinued Operations		2,588,147			2,370,260			8,318,963			7,145,416
Other Income (loss)
Interest income		15,270			39,357			47,861			119,979
Interest expense		(1,978,591		)	(1,930,302		)	(5,885,831		)	(5,725,270		)
Casualty loss		—			—			—			—
Gain(Loss) on the sale of equipment		93			—			(2,726		)	—
Mortgage prepayment penalties		—			—			—			(4,487,706		)
(Loss) from investment in unconsolidated joint ventures		(325,614		)	(300,352		)	(880,902		)	(765,370		)
		(2,288,842		)	(2,191,297		)	(6,721,598		)	(10,858,367		)
Income (loss) from Continuing Operations		299,305			178,963			1,597,365			(3,712,951		)
Discontinued Operations
Gain on the sale of real estate		—			67,650			—			10,054,392
(Loss) from discontinued operations		—			(22,229		)	—			(113,408		)
		—			45,421			—			9,940,984
Net Income		$	299,305		$	224,384		$	1,597,365		$	6,228,033
Income per Unit
Income (loss) before discontinued operations		$	2.26		$	1.35		$	11.99		$	(26.86	)
Income from discontinued operations		—			0.34			—			71.92
Net Income per Unit		$	2.26		$	1.69		$	11.99		$	45.06
Weighted Average Number of Units Outstanding		132,556			132,979			133,175			138,224

 

See notes to consolidated financial statements.

 

4

Table of Contents

 

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

 

(UNAUDITED)

 

		Unit												Partner’s Capital
		Limited				General				Treasury				Limited						General
		Class A		Class B		Partnership		Subtotal		Units		Total		Class A			Class B			Partnership			Total
Balance January 1, 2008		144,180		34,243		1,802		180,225		14,109		166,116		$	1,052,816		$	1,531,414		$	80,629		$	2,664,859
Distribution to Partners		—		—		—		—		—		—		(2,376,778		)	(564,485		)	(29,710		)	(2,970,973		)
Stock Buyback										26,501		(26,501	)	(20,398,884		)	(156,141		)	(8,218		)	(20,563,243		)
Stock transfer										389		(389	)	5,027,360			(4,775,965		)	(251,395		)	—
Net Income		—		—		—		—		—		—		4,982,426			1,183,326			62,281			6,228,033
Balance September 30, 2008		144,180		34,243		1,802		180,225		40,999		139,226		$	(11,713,060	)	$	(2,781,851	)	$	(146,413	)	$	(14,641,324	)
Balance January 1, 2009		144,180		34,243		1,802		180,225		44,974		135,251		$	(14,173,745	)	$	(3,366,265	)	$	(177,172	)	$	(17,717,182	)
Distribution to Partners		—		—		—		—		—		—		(2,229,931		)	(529,609		)	(27,874		)	(2,787,414		)
Stock Buyback		—		—		—		—		2,905		(2,905	)	(1,214,734		)	(284,626		)	(14,980		)	(1,514,340		)
Net Income		—		—		—		—		—		—		1,277,892			303,499			15,974			1,597,365
Balance September 30 , 2009		144,180		34,243		1,802		180,225		47,879		132,346		$	(16,340,518	)	$	(3,877,001	)	$	(204,052	)	$	(20,421,571	)

 

See notes to consolidated financial statements.

 

5

Table of Contents

 

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

		Nine Months Ended September 30,
		2009			2008
Cash Flows from Operating Activities
Net income		$	1,597,365		$	6,228,033
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization		4,513,165			4,846,979
Loss from investment in joint ventures		880,902			765,370
Loss on the sale of equipment		2,726			—
Income from the sale of real estate from discontinued operations		—			(10,054,392		)
Changes in operating assets and liabilities
(Increase) in rents receivable		(149,645		)	(116,574		)
(Decrease) in accounts payable and accrued expense		(159,481		)	(95,075		)
Decrease in real estate tax escrow		2,676			197,793
(Increase) Decrease in prepaid expenses and other assets		238,682			(2,299,487		)
(Increase) in advance rental payments and security deposits		(306		)	(50,082		)
Total Adjustments		5,328,719			(6,805,468		)
Net cash provided by (used in) operating activities		6,926,084			(577,435		)
Cash Flows provided by (used in) Investing Activities
Net proceeds from the sale of equipment		13,733			—
Net proceeds from the sale of rental properties		—			7,423,853
Proceeds from joint ventures		282,500			2,835,000
Deposit on future acquisition		(2,660,500		)	—
Purchase and improvement of rental properties		(2,346,364		)	(2,250,301		)
Net cash provided by (used in) investing activities		(4,710,631		)	8,008,552
Cash Flows provided by (used in) Financing Activities
Payment of mortgage notes payable		—			(3,224,419		)
Payment of financing costs		(18,687		)	(867,377		)
Principal payments of mortgage notes payable		(612,528		)	(566,493		)
Stock buyback		(1,514,340		)	(20,563,243		)
Proceeds of mortgage notes payable		—			27,127,100
Distributions to partners		(2,787,414		)	(2,970,973		)
Net cash provided by (used in) financing activities		(4,932,969		)	(1,065,405		)
Net (Decrease) Increase in Cash and Cash Equivalents		(2,717,516		)	6,365,712
Cash and Cash Equivalents, at beginning of period		10,752,931			6,890,525
Cash and Cash Equivalents, at end of period		$	8,035,415		$	13,256,237

 

See notes to consolidated financial statements.

 

6

Table of Contents

 

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2009

 

(UNAUDITED)

 

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

 

Line of Business:  New England Realty Associates Limited Partnership (“NERA” or the “Partnership”) was organized in Massachusetts in 1977. NERA and its subsidiaries own and operate various residential apartment buildings, condominium units and commercial properties located in Massachusetts and New Hampshire. NERA has also made investments in other real estate partnerships and has participated in other real estate-related activities, primarily located in Massachusetts.

 

Accounting Standards: On July 1, 2009, the Financial Accounting Standards Board (“FASB”) issued the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, also known as FASB Accounting Standards Codification (“ASC”) 105-10, General Accepted Accounting Principles (“ASC 105-10”).  ASC 105-10 established the FASB Accounting Standards Codification (“Codification”) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities.  Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  The Codification supersedes all existing non-SEC accounting and reporting standards.  All other non -grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative.  Following the Codification, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.  Instead, it will issue Accounting Standards Updates, which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification.  GAAP was not intended to be changed as a result of the FASB’s Codification project, but it will change the way the guidance is organized and presented.  As a result, these changes will have a significant impact on how companies reference GAAP in their financial statements and in their accounting policies for financial statements issued for interim and annual periods ending after September 15, 2009.  The Partnership has implemented the Codification in this quarterly report by providing references to the Codification topics, as appropriate.

 

Principles of Consolidation: The consolidated financial statements include the accounts of NERA and its subsidiaries. NERA has a 99.67% to 100% ownership interest in each subsidiary except for the eight limited liability companies (the “Investment Properties” or “Joint Ventures”) in which the Partnership has a 50% ownership interest. The consolidated group is referred to as the “Partnerships.” Minority interests are not recorded, since they are insignificant. All significant intercompany accounts and transactions are eliminated in consolidation. The Partnership accounts for its investment in the above-mentioned Investment Properties using the equity method of consolidation. (See Note 14: Investments in Unconsolidated Joint Ventures).

 

The Partnership accounts for its investments in joint ventures using the equity method of accounting. These investments are recorded initially at cost, as Investments in Unconsolidated Joint Ventures, and subsequently adjusted for equity in earnings and cash contributions and distributions. The authoritative guidance on consolidation provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any, should consolidate the VIE (the “primary beneficiary”).  Generally, the consideration of whether an entity is a VIE applies when either (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest, (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest.

 

Impairment:  On an annual basis management assesses whether there are any indicators that the value of the Partnership’s rental properties or investments in unconsolidated subsidiaries may be impaired.  A property’s value is impaired only if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property.  To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the property over the fair value of the property.  The Company’s estimates of aggregate future cash flows expected to be generated by each property are based on a number of assumptions that are subject to

 

7

Table of Contents

 

economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates, and costs to operate each property.  As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the future cash flows estimated by management in its impairment analyses may not be achieved. The Partnership has not recognized an impairment loss since 1995.

 

Accounting Estimates: The preparation of the financial statements, in conformity with accounting principles generally accepted in the United State of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Accordingly, actual results could differ from those estimates.

 

Revenue Recognition:  Rental income from residential and commercial properties is recognized over the term of the related lease. For residential tenants, amounts 60 days in arrears are charged against income. The commercial tenants are evaluated on a case by case basis. Certain leases of the commercial properties provide for increasing stepped minimum rents, which are accounted for on a straight-line basis over the term of the lease. Concessions made on residential leases are also accounted for on the straight-line basis.

 

Rental Properties:  Rental properties are stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred; improvements and additions are capitalized. When assets are retired or otherwise disposed of, the cost of the asset and related accumulated depreciation is eliminated from the accounts, and any gain or loss on such disposition is included in income. Fully depreciated assets are removed from the accounts. Rental properties are depreciated by both straight-line and accelerated methods over their estimated useful lives. Significant acquisitions with long term leases are evaluated to determine if a portion of the purchase price is allocable to intangibles such as non market rate rents.

 

In the event that facts and circumstances indicate that the carrying value of a rental property may be impaired, an analysis of the value is prepared. The estimated future undiscounted cash flows are compared to the asset’s carrying value to determine if a write-down to fair value is required.

 

Financing and Leasing Fees: Financing fees are capitalized and amortized, using the interest method, over the life of the related mortgages. Leasing fees are capitalized and amortized on a straight-line basis over the life of the related lease. Unamortized balances are expensed when the corresponding fee is no longer applicable.

 

Income Taxes: The financial statements have been prepared on the basis that NERA and its subsidiaries are entitled to tax treatment as partnerships. Accordingly, no provision for income taxes has been recorded.

 

Cash Equivalents: The Partnership considers cash equivalents to be all highly liquid instruments purchased with a maturity of three months or less.

 

Segment Reporting: Operating segments are revenue-producing components of the Partnership for which separate financial information is produced internally for management. Under the definition, NERA operated, for all periods presented, as one segment.

 

Comprehensive Income: Comprehensive income is defined as changes in partners’ equity, exclusive of transactions with owners (such as capital contributions and dividends). NERA did not have any comprehensive income items in 2009 or 2008 other than net income as reported.

 

Income Per Unit: Net income per unit has been calculated based upon the weighted average number of units outstanding during each period presented. The Partnership has no dilutive units and, therefore, basic net income is the same as diluted net income per unit (see Note 7).

 

Concentration of Credit Risks and Financial Instruments: The Partnership’s properties are located in New England, and the Partnership is subject to the general economic risks related thereto. No single tenant accounted for more than 5% of the Partnership’s revenues in 2009 or 2008. The Partnership makes its temporary cash investments with high-credit-quality financial institutions. At September 30, 2009, substantially all of the Partnership’s cash and cash equivalents were held in interest-bearing accounts at financial institutions, earning interest at rates from 0.05 % to 1.44 %.  At September 30, 2009 and December 31, 2008, respectively approximately $4,723,000 and $10,300,000 of cash and cash equivalents, and cash included in prepaid expenses and other assets exceeded federally insured amounts.

 

8

Table of Contents

 

Advertising Expense: Advertising is expensed as incurred. Advertising expense was $58,884 and $80,224 for the nine months ended September 30, 2009 and 2008, respectively.

 

Discontinued Operations and Rental Property Held for Sale:  When assets are identified by management as held for sale, the Partnership discontinues depreciating the assets and estimates the sales price, net of selling costs, of such assets. If, in management’s opinion, the net sales price of the assets which have been identified as held for sale is less than the net book value of the assets, a valuation allowance is established. Properties identified as held for sale and/or sold are presented in discontinued operations for all periods presented.

 

If circumstances arise that previously were considered unlikely and, as a result, the Partnership decides not to sell a property previously classified as held for sale, the property is reclassified as held and used. A property that is reclassified is measured and recorded individually at the lower of (a) its carrying amount before the property was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the property been continuously classified as held and used, or (b) the fair value at the date of the subsequent decision not to sell.

 

Interest Capitalized: The Partnership follows the policy of capitalizing interest as a component of the cost of rental property when the time of construction exceeds one year. During the nine months ended September 30, 2009 and the year ended December 31, 2008, there was no capitalized interest.

 

Extinguishment of Debt: When existing mortgages are refinanced with the same lender and it is determined that the refinancing is substantially different then they will be recorded as an extinguishment of debt.  However if it is determined that the refinancing is substantially the same then they will be recorded as an exchange of debt. All refinancings qualify as extinguishment of debt.

 

Reclassifications:  Certain reclassifications have been made to prior period amounts in order to conform to current period presentation.

 

Subsequent Events:  The Partnership has evaluated subsequent events through November 6, 2009, the date the financial statements were issued.

 

NOTE 2. RENTAL PROPERTIES

 

As of September 30, 2009, the Partnership and its Subsidiary Partnerships owned 2,269 residential apartment units in 19 residential and mixed-use complexes (collectively, the “Apartment Complexes”). The Partnership also owns 19 condominium units in a residential condominium complex, all of which are leased to residential tenants (collectively referred to as the “Condominium Units”). The Apartment Complexes and Condominium Units are located primarily in the metropolitan Boston area of Massachusetts.

 

Additionally, as of September 30, 2009, the Partnership and Subsidiary Partnerships owned a commercial shopping center in Framingham, commercial buildings in Newton and Brookline and mixed-use properties in Boston, Brockton and Newton, all in Massachusetts. These properties are referred to collectively as the “Commercial Properties.”

 

The Partnership also owned a 50% ownership interest in eight residential and mixed use complexes (the “Investment Properties”) at September 30, 2009 with a total of 392 units, accounted for using the equity method of consolidation. See Note 14 for summary information on these investments.

 

Rental properties consist of the following:

 

		September  30, 2009			December 31, 2008			Useful Life
Land, improvements and parking lots		$	26,017,803		$	25,997,753		15—40 years
Buildings and improvements		110,748,760			110,467,865			15—40 years
Kitchen cabinets		4,632,843			4,254,120			5—10 years
Carpets		4,119,496			3,650,238			5—10 years
Air conditioning		936,633			900,610			7—10 years
Laundry equipment		470,748			216,629			5—7 years
Elevators		984,506			984,506			20 years
Swimming pools		157,489			126,275			10 years
Equipment		2,284,832			1,690,142			5—7 years
Motor vehicles		170,445			139,453			5 years
Fences		163,907			163,907			5—10 years
Furniture and fixtures		1,823,212			1,641,487			5—7 years
Smoke alarms		127,247			111,814			5—7 years
		152,637,921			150,344,799
Less accumulated depreciation		(56,166,749		)	(51,784,345		)
		$	96,471,172		$	98,560,454

 

9

Table of Contents

 

On January 3, 2008, the Partnership sold the Oak Ridge Apartments, a 61-unit residential apartment complex located in Foxboro, Massachusetts. The sale price was $7,150,000, which resulted in a gain of approximately $6,000,000.  In November 2007, the Partnership purchased a fully occupied commercial building located in Newton, Massachusetts, known as Linewt LLC. The purchase price was $3,475,000 and the building consists of 5,850 square feet of commercial space. The Partnership utilized Section 1031 of the IRS code to affect a tax free exchange on the gain of Oak Ridge up to the purchase price of the Newton property. In accordance with Section 1031, the Newton property was owned by a Qualified Intermediary for the period from the purchase date of the Newton property and the sale date of the Foxboro property. The Qualified Intermediary borrowed $3,225,112 from Harold Brown, Treasurer of the General Partner, to purchase the Newton property. This loan was paid in full, with interest at 6% of $34,401, from the proceeds of the Oak Ridge sale on January 3, 2008. On January 22, 2008, the Partnership financed the Newton property with a first mortgage of $1,700,000 at 5.75% interest only until maturity in January 2018.

 

In April 2008, the Partnership sold the Coach Apartments, a 48 unit residential apartment complex located in Acton, Massachusetts. The sale price was $4,600,000, which resulted in a gain of approximately $3,800,000 and recorded in the second quarter of 2008.  In October 2008, the Partnership purchased a fully occupied medical office building located in Brookline, Massachusetts, referred to as “the Barn.” The purchase price of the Barn was $7,000,000 and it consists 20,000 square feet of commercial space.  The Partnership utilized Section 1031 of the IRS code to affect a tax free exchange on the gain of Coach up to the purchase price of the Barn.  This acquisition was funded from the assumption of the existing mortgage of approximately $4,000,000, the cash from the sale of Coach of approximately $2,600,000, and the balance of $400,000 was funded from cash reserves.

 

As more fully described in Note 3, the Partnership sold the five condominiums located in Brookline, Massachusetts in 2008. The net proceeds from the sale of the five units were approximately $740,000 which resulted in a gain of approximately $240,000, which is included in gain from the sale of rental properties in the second and third quarter of 2008.

 

NOTE 3. RELATED PARTY TRANSACTIONS

 

The Partnership’s properties are managed by an entity that is owned by the majority shareholder of the General Partner. The management fee is equal to 4% of rental revenue and laundry income. Total fees paid were approximately $1,012,000 and $976,000 during the nine months ended September 30, 2009 and 2008, respectively.

 

The Partnership Agreement permits the General Partner or management company to charge the costs of professional services (such as counsel, accountants and contractors) to NERA. During the nine months ended September 30, 2009 and 2008, approximately $597,000 and $412,000 was charged to NERA for legal, accounting, construction, maintenance, rental and architectural services and supervision of capital improvements.  Of the 2009 expenses referred to above, approximately $310,000 consisted of repairs and maintenance and $250,000 of administrative expense. Approximately $37,000 of expenses for construction, architectural services and supervision of capital projects were capitalized in rental properties. Additionally in 2009, the Hamilton Company received approximately $301,000 from the Investment Properties of which approximately $201,000 was the management fee, approximately $3,800 was for construction supervision and architectural fees, approximately $79,000 was for maintenance services and approximately $17,000 was for administrative services.

 

On January 1, 2004, all employees were transferred to the management company’s payroll. The Partnership reimburses the management company for the payroll and related expenses of the employees who work at the properties. Total reimbursement was approximately $1,680,000 and $1,672,000 for the nine months ended September 30, 2009 and 2008, respectively. The Management Company maintains a 401K plan for all eligible employees whereby the employees may contribute the maximum allowed by law. The plan also provides for discretionary contributions by the employer. There were no employer contributions in 2009 and 2008.

 

In 1996, prior to becoming an employee and President of the Management Company, the current President of the Management Company performed asset management consulting services to the Partnership. This individual continues to

 

10

Table of Contents

 

perform this service and receives an asset management fee from the Partnership, receiving $37,500 during the nine months ended September 30, 2009 and 2008.

 

The Partnership has invested in eight limited partnerships, which have invested in mixed use residential apartment complexes. The Partnership has a 50% ownership interest in each investment. The other investors are Harold Brown, the President of the Management Company and five other employees of the Management Company. Harold Brown’s ownership interest is between 43.2% and 47.5%, with the balance of 6.8% and 2.5% owned by others. See Note 14 for a description of the properties and their operations.

 

On June 30, 2003, the Partnership purchased five condominium units in a 42-unit building located in Brookline, Massachusetts. These were purchased from Harvard 45 Associates LLC (“Harvard 45”) which is owned 70% by the 75% shareholder and treasurer of the General Partner, and 5% by the President of Hamilton. The total purchase price for these condominiums was approximately $2,416,000 and was approved both by the Partnership’s Advisory Committee and the General Partner. Harvard 45 realized a gain of approximately $648,000 from these sales. Harvard 45 also sold 16 units to unrelated parties; the prices for all 21 units sold were comparable.  The Partnership sold all of these units in 2008 and realized a gain of approximately $240,000.  The above mentioned gains are recorded as gain on the sale of real estate from discontinued operations.   In addition, the Partnership paid The Hamilton Company or its affiliate approximately $16,000 in legal fees and approximately $62,000 in commissions in connection with the sale of these condominiums in 2008.

 

The above 42-unit condominium building was managed by an entity wholly owned by the 25% shareholder and President of the General Partner. That entity received annual management fees from the five units of approximately $1,500, and Hamilton reduced its management fees to approximately 2%, so that the total management fee will not exceed the 4% allowed by the Partnership’s Partnership Agreement.

 

In March 2005, the Partnership sold the Middlesex Apartments to an entity wholly owned by the majority shareholder of the General Partner. The selling price was $6,500,000 which resulted in a capital gain for the Partnership of approximately $5,800,000 and an increase in the Partnership’s cash reserves of approximately $4,800,000 after paying off the existing $1,300,000 mortgage, prepayment penalties and other selling expenses. The buyer sold the property as condominium units. An entity 31% owned by the majority shareholder of the General Partner and 5% owned by the President of the management company was the sales agent and received a variable commission of 3% to 5% on each sale. Total commissions paid were approximately $138,000.  Although the buyer assumed the costs and economic risks of converting and selling the condominium units, if the net gain from the sale of these units exceeded $500,000, the excess were to be split equally between the buyer and Partnership.  The last remaining unit was sold in October 2008, which resulted in a gain of approximately $50,000.

 

On September 17, 2008, the Partnership completed the issuance of an aggregate of 6,642 Class A Units held in treasury to current holders of Class B and General Partner Units upon the simultaneous retirement to treasury of 6,309 Class B Units and 333 General Partner Units pursuant to an equity distribution plan authorized by the Board of Directors of the General Partner on August 8, 2008 and as further described under Item 3.02 of the Partnership’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on September 18, 2008, which is incorporated herein by reference. Harold Brown, the treasurer of the General Partner, owns 75% of the issued and outstanding Class B Units of the Partnership and 75% of the issued and outstanding equity of the General Partner, Ronald Brown, the brother of Harold Brown and the president of the General Partner, owns 25% of the issued and outstanding Class B Units of the Partnership and 25% of the issued and outstanding equity of the General Partner.

 

In 2008, the Partnership borrowed a total of approximately $8,510,000 from Harold Brown.  Approximately $5,285,000 was used to repurchase depositary receipts and approximately $3,225,000 was used to facilitate the purchase of Linewt.  These loans were repaid in 2008 with interest of approximately $72,300.

 

See Note 17 — Subsequent Events for information about a $7.8 million loan from HBC Holdings, LLC.

 

11

Table of Contents

 

NOTE 4. OTHER ASSETS

 

Approximately $1,406,000 and $1,382,000 of security deposits and prepaid rent deposits are included in prepaid expenses and other assets at September 30, 2009 and December 31, 2008, respectively.

 

Included in prepaid expenses and other assets at September 30, 2009 and December 31, 2008 is approximately $791,000 and $984,000, respectively, held in escrow to fund future capital improvements.

 

Financing and leasing fees of approximately $983,000 and $1,059,000 are net of accumulated amortization of approximately $449,000 and $363,000 at September 30, 2009 and December 31, 2008, respectively.

 

NOTE 5. MORTGAGE NOTES PAYABLE

 

At September 30, 2009 and December 31, 2008, the mortgages payable consisted of various loans, all of which were secured by first mortgages on properties referred to in Note 2. At September 30, 2009, the fixed interest rates on these loans ranged from 4.84% to 8.46%, payable in monthly installments aggregating approximately $727,000, including principal, to various dates through 2023. The majority of the mortgages are subject to prepayment penalties.  At September 30, 2009, the weighted average interest rate on the above mortgages was 5.63%. The effective rate of 5.72% includes the amortization expense of deferred financing costs. See Note 12 for fair value information.

 

The Partnerships have pledged tenant leases as additional collateral for certain of these loans.

 

Approximate annual maturities at September 30, 2009 are as follows:

 

2010—current maturities		$	2,560,000
2011		2,781,000
2012		944,000
2013		43,752,000
2014		7,726,000
Thereafter		79,785,000
		$	137,548,000

 

In January 2008, the Partnership obtained a $1,700,000 mortgage on an unencumbered commercial property in Newton, Massachusetts known as Linewt LLC. The mortgage which matures in January 2018 requires interest only payments at 5.75% for the term of the mortgage.

 

In February 2008, the Partnership refinanced ten properties with outstanding 8.44% mortgages of approximately $37,800,000 with new mortgages totaling $58,000,000. The new mortgages which mature in February 2023 require interest only payments at interest rates from 5.6% to 5.7%. Deferred costs associated with these mortgages totaled approximately $710,000 and, accordingly, the effective interest rates are 5.7% to 5.8%. Prepayment penalties of approximately $3,700,000 were incurred in these transactions. After payment of existing mortgages, prepayment penalties and other costs of the transactions, approximately $16,000,000 was received by the Partnership.

 

In April 2008, the Partnership refinanced the property located at 659 Worcester Road with a mortgage balance of approximately $3,500,000 at 7.84% with a new $6,000,000 mortgage at 5.97% interest only mortgage which matures in March 2018. Deferred financing costs associated with this mortgage totaled approximately $86,000 and accordingly the effective interest rate is 6.1%. Prepayment penalties of approximately $783,000 were incurred in this transaction.  After payment of the existing mortgage and prepayment penalties, approximately $1,700,000 was received by the Partnership.

 

In June 2008, the Partnership refinanced the Westside Colonial Apartments with a balance of approximately $4,600,000 maturing in 2008 with interest at a rate of 6.52% with $7,000,000 at 5.66% interest only mortgage maturing in June 2023. Deferred financing costs associated with this mortgage totaled approximately $62,000 and accordingly the effective interest rate is 5.8%.  Closing costs were approximately $100,000. There were no prepayment penalties. After payment of the existing mortgage and closing costs, approximately $2,377,000 was received by the Partnership.

 

See Note 17 — Subsequent Events for refinancing of Linhart Limited Partnership.

 

12

Table of Contents

 

NOTE 6. ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS

 

The Partnership’s residential lease agreements may require tenants to maintain a one-month advance rental payment and/or a security deposit. At September 30, 2009, amounts received for prepaid rents of approximately $1,426,000 are included in cash and cash equivalents, and security deposits of approximately $1,406,000 are included in other assets.

 

NOTE 7. PARTNERS’ CAPITAL

 

The Partnership has two classes of Limited Partners (Class A and B) and one category of General Partner. Under the terms of the Partnership Agreement, distributions to holders of Class B Units and General Partnership Units must represent 19% and 1%, respectively, of the total units outstanding. All classes have equal profit sharing and distribution rights, in proportion to their ownership interests.

 

In 2009 the Partnership approved quarterly distributions of $7.00 per unit ($0.70 per receipt) payable on March 31, June 30, and September 30, 2009.

 

In 2008, the Partnership paid quarterly distributions of $7.00 per unit ($.70 per receipt) in March, June, September, and December for a total distribution of $28.00 per unit ($2.80 per receipt).

 

The Partnership has entered into a deposit agreement with an agent to facilitate public trading of limited partners’ interests in Class A Units. Under the terms of this agreement, the holders of Class A Units have the right to exchange each Class A Unit for 10 Depositary Receipts. The following is information per Depositary Receipt:

 

		Nine Months Ended September 30,
		2009			2008
Income (loss) per Depositary Receipt before Discontinued Operations		$	1.20		$	(2.69	)
Income from Discontinued Operations		—			7.19
Net Income per Depositary Receipt after Discontinued Operations		$	1.20		$	4.50
Distributions per Depositary Receipt		$	2.10		$	2.10

 

NOTE 8. TREASURY UNITS

 

Treasury Units at September 30, 2009 are as follows:

 

Class A		38,303
Class B		9,097
General Partnership		479
		47,879

 

On August 20, 2007, NewReal, Inc., the General Partner authorized an equity repurchase program (“Repurchase Program”) under which the Partnership was permitted to purchase, over a period of twelve months, up to 100,000 Depositary Receipts (each of which is one-tenth of a Class A Unit).  On January 15, 2008, the General Partner authorized an increase in the Repurchase Program from 100,000 to 200,000 Depositary Receipts. On January 30, 2008 the General Partner authorized an increase the Repurchase Program from 200,000 to 300,000 Depositary Receipts.  On March 6, 2008, the General Partner authorized the increase in the total number of Depositary Receipts that could be repurchased pursuant to the Repurchase Program from 300,000 to 500,000.  On August 8, 2008, the General Partner re-authorized and renewed the Repurchase Program for an additional 12-month period ended August 19, 2009.  In addition, the General Partner also authorized the expansion of the Repurchase Program to require the Partnership to repurchase a proportionate number of Class B Units and General Partner Units in connection with any repurchases of any Depositary Receipts by the Partnership based upon the 80%, 19% and 1% fixed distribution percentages of the holders of the Class A, Class B and General Partner Units under the Partnership’s Second Amended and Restate Contract of Limited Partnership.  Repurchases of Depositary Receipts or Partnership Units pursuant to the Repurchase Program may be made by the Partnership from time to time in its sole discretion in open market transactions or in privately negotiated transactions.  As of September 30, 2009, the Partnership has repurchased 391,424 Depositary Receipts at an average price of $74.05 per receipt (or $740.50 per underlying Class A Unit), 1,560 Class B Units and 82 General Partnership Units, both at an average price of $580.71 per Unit, totaling approximately $29,939,000 including brokerage fees paid by the Partnership.

 

13

Table of Contents

 

On September 17, 2008, the Partnership completed the issuance of an aggregate of 6,642 Class A Units held in treasury to current holders of Class B and General Partner Units upon the simultaneous retirement to treasury of 6,309 Class B Units and 333 General Partner Units pursuant to an equity distribution plan authorized by the Board of Directors of the General Partner on August 8, 2008 and as further described under Item 3.02 of the Partnership’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on September 18, 2008, which is incorporated herein by reference. Harold Brown, the treasurer of the General Partner, owns 75% of the issued and outstanding Class B Units of the Partnership and 75% of the issued and outstanding equity of the General Partner, Ronald Brown, the brother of Harold Brown and the president of the General Partner, owns 25% of the issued and outstanding Class B Units of the Partnership and 25% of the issued and outstanding equity of the General Partner.

 

On January 18, 2008, 113,518 Depositary Receipts included above became available to purchase at a price of $75.50 per receipt. In order for the Partnership to take advantage of this opportunity, the Partnership borrowed $5,285,000 from Harold Brown, the Treasurer of the General Partner. This loan was paid in full, with interest at 6% of $37,899, on February 29, 2008.

 

During the nine months ended September 30, 2009, the Partnership purchased 23,240 receipts for approximately $1,215,000, 552 Class B Units for approximately $285,000 and 29 General Partnership units for approximately $15,000.

 

As of September 30, 2009, the equity repurchase program described above resulted in the Partnership having a negative Partners’ Capital of approximately $20,422,000.

 

During the three months ended September 30, 2009, the Partnership purchased 3,500 Depositary Receipts at a price of $54.00 for a total cost of $189,000, 83 Class B Units at a price of $540.00 for a total cost of $45,000, and 4 General Partnership Units at a price of $540.00 for a total cost of $2,400.

 

NOTE 9. COMMITMENTS AND CONTINGENCIES

 

From time to time, the Partnerships are involved in various ordinary routine litigation incidental to their business. The Partnership either has insurance coverage or has provided for any uninsured claims which, in the aggregate, are not significant. The Partnerships are not involved in any material pending legal proceedings.

 

NOTE 10. RENTAL INCOME

 

During the nine months ended September 30, 2009, approximately 90% of rental income was related to residential apartments and condominium units with leases of one year or less. The remaining 10% was related to commercial properties, which have minimum future annual rental income on non-cancellable operating leases at September 30, 2009 as follows:

 

		Commercial Property Leases
2010		$	2,673,000
2011		2,522,000
2012		2,073,000
2013		1,611,000
2014		1,378,000
Thereafter		1,861,000
		$	12,118,000

 

 

The aggregate minimum future rental income does not include contingent rentals that may be received under various leases in connection with percentage rents, common area charges and real estate taxes. Aggregate contingent rentals from continuing operations were approximately $443,000 for the nine months ended September 30, 2009 and approximately $477,000 for the year ended December 31, 2008.

 

Rents receivable are net of an allowance for doubtful accounts of approximately $687,000 at September 30, 2009 and approximately $460,000 at December 31, 2008.  Included in rents receivable at September 30, 2009 is approximately $386,000 resulting from recognizing rental income from non-cancelable commercial leases with future rental increases on a straight-line

 

14

Table of Contents

 

 

basis.  The majority of this amount is for long-term leases with Staples and Trader Joe’s at Staples Plaza in Framingham, Massachusetts.

 

In 2009, rent at the commercial properties includes approximately $8,500 of amortization of deferred rents arising from the fair values assigned to in-place leases upon the purchase of Cypress Street in Brookline, Massachusetts.

 

NOTE 11. CASH FLOW INFORMATION

 

During the nine months ended September 30, 2009 and 2008, cash paid for interest was $5,885,817, and $5,774,892, respectively.

 

Non-cash financing activity — exchange of depositary receipts for Class B and General Partnership Units in 2008 (Note 8).

 

NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The following methods and assumptions were used by the Partnership in estimating the fair value of its financial instruments:

 

·                  For cash and cash equivalents, other assets, investment in partnerships, accounts payable, advance rents and security deposits: fair value approximates the carrying value of such assets and liabilities.

 

·                  For mortgage notes payable: fair value is generally based on estimated future cash flows, which are discounted using the quoted market rate from an independent source for similar obligations. Refer to the table below for the carrying amount and estimated fair value of such instruments.

 

		Carrying Amount			Estimated Fair Value
Mortgage Notes Payable
Partnership Properties
At September 30, 2009		$	137,547,733		$	130,486,584
At December 31, 2008		$	138,160,262		$	143,432,532
Investment Properties
At September 30, 2009		$	51,500,542		$	49,551,650

 

Disclosure about fair value of financial instruments is based on pertinent information available to management as of September 30, 2009 and December 31, 2008. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 2008 and current estimates of fair value may differ significantly from the amounts presented herein.

 

NOTE 13. TAXABLE INCOME AND TAX BASIS

 

Taxable income reportable by the Partnership and includable in its partners’ tax returns is different than financial statement income because of a tax free exchanges, accelerated depreciation, different tax lives, and timing differences related to prepaid rents and allowances. Taxable income was approximately $7,500,000 less than statement income for the year ended December 31, 2008 and approximately $1,000,000 greater than statement income for the year ended December 31, 2007. The cumulative tax basis of the Partnership’s real estate at December 31, 2008 is approximately $5,000,000 less than the statement basis. The primary reason for the lower taxable income and the lower tax basis is the acquisition of Linewt and Cypress Street utilizing tax free exchanges in 2008. The Partnership’s tax basis in its joint venture investments is approximately $200,000 less than statement basis. The tax free exchanges and mortgage prepayment penalties in 2008 generated substantial tax deductions in 2008, accordingly taxable income in future years may exceed statement income.

 

NOTE 14. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

 

Since November 2001, the Partnership has invested in eight limited partnerships, the majority of which has invested in residential apartment complexes, with one partnership investing in commercial property. The Partnership has a 50% ownership

 

15

Table of Contents

 

interest in each investment. The other investors are Harold Brown, the President of the Management Company and five other employees of the Management Company. Harold Brown’s ownership interest is between 43.2% and 47.5%, with the balance of 6.8% and 2.5% owned by the others. A description of each investment is as follows:

 

On October 3, 2005, the Partnership invested $2,500,000 for a 50% ownership interest in a 168-unit apartment complex in Quincy, Massachusetts. The purchase price was $30,875,000. The Partnership plans to sell the majority of units as condominium and retain 48 units for long-term investment. Gains from the sales of units will be taxed at ordinary income rates (approximately $47,000 per unit). In February 2007, the Partnership refinanced the 48 units which will be retained with a new mortgage in the amount of $4,750,000 with an interest rate of 5.57%, interest only for five years. The loan will be amortized over 30 years thereafter and matures in March 2017. In April 2008, the Partnership refinanced an additional 20 units and obtained a new mortgage in the amount of $2,368,000 with interest at 5.75%, interest only, which matures in 2013.  As of October 26, 2009, the Partnership sold 105 units, the proceeds of which went to pay down the mortgage on the property.  The balance on the new mortgage is approximately $1,668,000 at September 30, 2009. Gain from the sale of units (approximately $38,000 will be taxed at ordinary income rates.  This investment is referred to as Hamilton Bay Apartments, LLC.

 

On March 7, 2005, the Partnership invested $2,000,000 for a 50% ownership interest in a building comprising 49 apartments, one commercial space and a 50-car surface parking lot located in Boston, Massachusetts. The purchase price was $14,300,000, with a $10,750,000 mortgage. The Partnership plans to operate the building and initiate development of the parking lot.  In June 2007, the Partnership separated the parcels, formed an additional limited liability company for the residential apartments and obtained a mortgage on the property. The new limited liability company formed for the residential apartments is referred to as Hamilton Essex 81, LLC.  In August 2008, the Partnership restructured the mortgages on both parcels at Essex 81 and transferred the residential apartments to Hamilton Essex 81, LLC.  The mortgage on Hamilton Essex 81, LLC is $8,600,000 with interest only at 5.79% due in August 2015.  The mortgage on Essex Development, LLC is $2,162,000 with a variable interest rate of 2.25% over the daily Libor rate (0.245% at September 30, 2009) and is due in August 2011.  Harold Brown has issued a personal guaranty up to $1,000,000 of this mortgage. In the event that he is obligated to make payments to the lender as a result of this guaranty, the Partnership and other investors have, in turn, agreed to indemnify him for their proportionate share of any such payments.  The investment in the parking lot is referred to as Hamilton Essex Development, LLC; the investment in the apartments is referred to as Hamilton Essex 81, LLC.

 

On March 2, 2005, the Partnership invested $2,352,000 for a 50% ownership interest in a 176-unit apartment complex with an additional small commercial building located in Quincy, Massachusetts. The purchase price was $23,750,000. The Partnership plans to sell the majority of units as condominiums and retain 49 units for long-term investment. The Partnership obtained a new 10-year mortgage in the amount of $5,000,000 on the units to be retained by the Partnership. The interest on the new loan is 5.67% fixed for the 10 year term with interest only payments for five years and amortized over a 30 year period for the balance of the loan term.  As of September 30, 2009, all of the 127 units have been sold.  Gains from the sales of units (approximately $60,000 per unit) were taxed at ordinary income rates. This investment is referred to as Hamilton 1025, LLC.

 

In September 2004, the Partnership invested approximately $5,075,000 for a 50% ownership interest in a 42-unit apartment complex located in Lexington, Massachusetts. The purchase price was $10,100,000. In October 2004, the Partnership obtained a mortgage on the property in the amount of $8,025,000 and returned $3,775,000 to the Partnership. The Partnership obtained a new 10-year mortgage in the amount of $5,500,000 in January 2007. The interest on the new loan is 5.67% fixed for the ten year term with interest only payments for five years and amortized over a 30 year period for the balance of the loan. This new loan required a cash contribution by the Partnership of $1,250,000 in December 2006. The unamortized deferred financing costs of approximately $30,000 were written off in the first quarter of 2007. This investment is referred to as Hamilton Minuteman, LLC.

 

In August 2004, the Partnership invested $8,000,000 for a 50% ownership interest in a 280-unit apartment complex located in Watertown, Massachusetts. The total purchase price was $56,000,000. As of May 2008, the Partnership sold all of the 137 units as condominiums which were located in three buildings. Gains from these sales were taxed as ordinary income (approximately $50,000 per unit). The majority of the sales proceeds were applied to reduce the mortgage with the final payment made during the second quarter of 2007. With the sale of the units and the payments of the liabilities, the assets will be combined with Hamilton on Main Apartments, LLC.  An entity partially owned by the majority shareholder of the General Partner and the President of the management company, 31% and 5%, respectively, was the sales agent and will receive a variable commission on each sale of 3% to 5%. Hamilton on Main, LLC is known as Hamilton Place.

 

In 2005, Hamilton on Main Apartments, LLC obtained a new ten year mortgage on the three buildings to be retained. The new mortgage is $16,825,000, with interest only of 5.18% for three years and amortizing on a 30 year schedule for the remaining seven years when the balance is due. The net proceeds after funding escrow accounts and closing costs on the new mortgage were approximately $16,700,000, which were used to reduce the existing mortgage. Hamilton on Main LLC paid a

 

16

Table of Contents

 

fee of approximately $400,000 in connection with this early extinguishment of debt.  At September 30, 2009, the remaining balance on the mortgage is approximately $16,461,000.

 

In November 2001, the Partnership invested approximately $1,533,000 for a 50% ownership interest in a 40-unit apartment building in Cambridge, Massachusetts. This property has a 12-year mortgage, with a remaining balance at September 30, 2009 of approximately $7,359,000 at 6.9% which is amortized on a 30-year schedule, with a final payment of approximately $6,000,000 in 2014. This investment is referred to as 345 Franklin, LLC.

 

As required by the lender, the Treasurer of the General Partner has provided a limited repayment guaranty equal to fifty percent (50%) of the outstanding balance for the loan on the for sale units at Hamilton Bay and a limited guaranty of $1,000,000 for the loan on Hamilton Essex Development.  In the event that he is obligated to make payments to the lenders as a result of these guaranties, the Partnership and other investors have, in turn, agreed to indemnify him for their proportionate share of any such payments.

 

Summary balance sheet as of September 30, 2009 (unaudited)

 

		Hamilton Essex 81		Hamilton Essex Development		345 Franklin		Hamilton 1025		Hamilton Bay Sales		Hamilton Bay Apts		Hamilton Minuteman Apts		Hamilton on Main Apts		Hamilton Place Sales		Total
ASSETS
Rental Properties		10,304,195		2,576,552		9,121,848		6,406,791		2,111,056		8,007,066		7,964,514		24,125,422				70,617,444
Cash & Cash Equivalents		3,959		13,547		872		3,432		12,595		526		25,485		47,376				107,791
Rent Receivable		261		—		—		2,893		—		—		(4,044	)	6,358				5,468
Real Estate Tax Escrow		62,575		—		36,908		25,490		—		63,274		51,624		97,881				337,751
Due From Investment Properties		80,000		—		—		70,000		100,000		24,000		—		222,000				496,000
Prepaid Expenses & Other Assets		78,558		796		85,015		79,725		273,366		63,860		65,947		319,002				966,268
Financing & Leasing Fees		125,095		11,992		34,703		35,981		17,965		46,919		28,848		36,881				338,383
Total Assets		10,654,642		2,602,888		9,279,346		6,624,313		2,514,982		8,205,644		8,132,373		24,854,920				72,869,106
LIABILITIES AND PARTNERS’ CAPITAL
Mortgage Notes Payable		8,600,000		2,162,000		7,359,299		5,000,000		1,668,000		4,750,000		5,500,000		16,461,242				51,500,542
Due to Investment Properties		—		—		417,000		—		28,000		26,000		25,000		—				496,000
Accounts Payable & Accrued Expense		47,890		9,783		129,135		15,283		22,232		14,747		49,571		201,294				489,936
Advance Rental Pymts & Security Dep		135,068		—		124,457		55,496		15,886		78,620		49,269		203,408				662,205
Total Liabilities		8,782,958		2,171,783		8,029,891		5,070,779		1,734,119		4,869,367		5,623,840		16,865,945				53,148,682
Partners’ Capital		1,871,683		431,105		1,249,455		1,553,533		780,863		3,336,277		2,508,532		7,988,975				19,720,424
Total Liabilities & Capital		10,654,642		2,602,888		9,279,346		6,624,313		2,514,982		8,205,644		8,132,373		24,854,920				72,869,106
Partners’ Capital-NERA50%		935,842		215,552		624,727		776,767		390,432		1,668,139		1,254,266		3,994,487				9,860,212
Total units/ Condominiums
Apartments		48		—		40		175		120		48		42		148		137		758
Commercial		1		1		—		1		—		—		—		—		—		3
Total		49		1		40		176		120		48		42		148		137		761
Units to be retained		49		1		40		49		—		48		42		148		—		377
Units to be sold		—		—		—		127		120		—		—		—		137		384
Units sold through October 26, 2009		—		—		—		127		105		—		—		—		137		369
Unsold units		—		—		—		—		15		—		—		—		—		15
Unsold units with deposits for future sale as of October 26, 2009		—		—		—		—		—		—		—		—		—		—

 

17

Table of Contents

 

Summary financial information for the nine months ended September 30, 2009 (unaudited)

 

		Hamilton Essex 81		Hamilton Essex Development		345 Franklin		Hamilton 1025		Hamilton Bay Sales		Hamilton Bay Apts		Hamilton  Minuteman Apts		Hamilton on Main Apts		Hamilton Place Sales		Total
Revenues
Rental Income		839,738		214,248		820,442		596,044		171,391		602,117		571,656		1,805,764				5,621,400
Laundry and Sundry Income		2,129		—		1,341		—		—		—		567		16,265				20,302
		841,868		214,248		821,782		596,044		171,391		602,117		572,223		1,822,029				5,641,703
Expenses
Administrative		12,620		12,157		17,056		18,142		7,332		12,363		7,454		27,332				114,458
Depreciation and Amortization		324,135		3,483		326,096		234,872		79,602		299,197		344,364		1,125,466				2,737,213
Management Fees		35,472		8,301		33,246		23,470		6,775		23,734		22,089		73,464				226,551
Operating		101,052		—		46,074		3,185		415		3,915		61,489		252,105				468.236
Renting		29,350		—		34,795		4,141		369		1,584		3,337		11,717				85,294
Repairs and Maintenance		83,989		3,930		80,008		197,010		44,391		194,281		56,424		219,761				879,795
Taxes and Insurance		102,155		55,381		59,989		96,836		34,629		102,652		76,349		225,972				753,962
		688,774		83,252		597,265		577,655		173,514		637,726		571,506		1,935,816				5,265,508
Income Before Other Income		153,094		130,996		224,517		18,389		(2,123	)	(35,610	)	717		(113,787	)			376,195
Other Income (Loss)
Interest Expense		(380,094	)	(48,369	)	(386,837	)	(216,120	)	(75,518	)	(202,915	)	(237,305	)	(654,846	)			(2,202,004	)
Interest Income		2		—		43		54		11,035		—		1		2				11,137
Gain on Sale of Real Estate		—		—		—		—		52,867		—		—		—				52,867
		(380,092	)	(48,369	)	(386,794	)	(216,065	)	(11,616	)	(202,915	)	(237,304	)	(654,844	)			(2,138,000	)
Net Income (Loss)		(226,998	)	82,628		(162,277	)	(197,676	)	(13,739	)	(238,525	)	(236,587	)	(768,631	)			(1,761,806	)
Net Income (loss)—NERA 50%		(113,499	)	41,314		(81,139	)	(98,838	)	(6,869	)	(119,262	)	(118,293	)	(384,316	)			(880,903	)

 

Summary financial information for the three months ended September 30, 2009 (unaudited)

 

		Hamilton Essex 81		Hamilton Essex Development		345 Franklin		Hamilton 1025		Hamilton Bay Sales		Hamilton Bay Apts		Hamilton  Minuteman Apts		Hamilton on Main Apts		Hamilton Place Sales		Total
Revenues
Rental Income		231,232		65,950		261,486		192,111		57,414		202,201		193,671		602,926				1,806,989
Laundry and Sundry Income		237		—		48		—		—		—				5,100				5,385
		231,469		65,950		261,533		192,111		57,414		202,201		193,671		608,026				1,812,374
Expenses
Administrative		4,299		2,406		5,888		9,103		3,156		4,408		1,275		10,589				41,123
Depreciation and Amortization		108,024		1,563		112,858		78,723		26,534		100,040		115,607		376,095				919,445
Management Fees		10,530		2,760		10,655		7,447		2,298		8,162		7,781		24,093				73,726
Operating		30,789		—		14,394		1,777		285		198		14,768		65,404				127,613
Renting		13,850		—		12,245		1,143		369		774		722		4,353				33,456
Repairs and Maintenance		31,989		—		40,489		64,413		14,515		62,781		18,030		82,979				315,195
Taxes and Insurance		40,170		11,082		20,304		21,311		10,565		16,497		25,669		76,276				221,875
		239,651		17,811		216,832		183,916		57,722		192,861		183,852		639,789				1,732,434
Income Before Other Income		(8,182	)	48,139		44,701		8,194		(308	)	9,340		9,819		(31,764	)			79,940
Other Income (Loss)
Interest Expense		(128,179	)	(15,737	)	(128,355	)	(72,805	)	(24,681	)	(68,399	)	(79,957	)	(219,837	)			(737,951	)
Interest Income		—		—		14		20		3,525		—		—		—				3,559
Gain on Sale of Real Estate		—		—		—		—		3,221		—		—		—				3,221
		(128,179	)	(15,737	)	(128,341	)	(72,785	)	(17,936	)	(68,399	)	(79,957	)	(219,837	)			(731,170	)
Net Income (Loss)		(136,361	)	32,403		(83,640	)	(64,591	)	(18,244	)	(59,059	)	(70,138	)	(251,601	)			(651,230	)
Net Income (loss)—NERA 50%		(68,181	)	16,201		(41,820	)	(32,295	)	(9,122	)	(29,530	)	(35,069	)	(125,800	)			(325,615	)

 

18