NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP - Quarter Report: 2010 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

 

FORM 10-Q

 

(Mark One)

 

x           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2010

 

OR

 

o              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

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)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes o No x

 

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):

 

 

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 June 30, 2010, there were 105,188 of the registrant’s Class A units (1,051,876 Depositary Receipts) of limited partnership issued and outstanding and 24,982 Class B units issued and outstanding.

 

 

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NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP

 

INDEX

 

	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009
	Consolidated Statements of Income for the Three Months Ended June 30, 2010 and 2009 and Six Months ended June 30, 2010 and 2009
	Consolidated Statements of Changes in Partners’ Capital for the Six Months Ended June 30, 2010 and June 30, 2009
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and June 30, 2009
	Notes to Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	(Removed and Reserved)
Item 5.	Other Information
Item 6.	Exhibits
SIGNATURES

 

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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, 2009 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, 2009.

 

The results of operations for the six month period ended June 30, 2010 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

 

		June 30, 2010			December 31, 2009
		(Unaudited)			(Audited)
ASSETS
Rental Properties		$	94,026,488		$	95,971,937
Cash and Cash Equivalents		5,030,399			2,879,663
Rents Receivable		763,898			1,038,820
Real Estate Tax Escrows		308,784			311,582
Prepaid Expenses and Other Assets		3,154,584			2,857,288
Investments in Unconsolidated Joint Ventures		22,295,882			24,964,453
Financing and Leasing Fees		1,005,154			1,065,993
Total Assets		$	126,585,189		$	129,089,736
LIABILITIES AND PARTNERS’ CAPITAL
Note Payable		$	7,168,600		$	7,168,600
Mortgage Notes Payable		138,121,811			137,641,354
Accounts Payable and Accrued Expenses		2,197,871			2,195,245
Advance Rental Payments and Security Deposits		3,414,862			3,417,361
Total Liabilities		150,903,144			150,422,560
Commitments and Contingent Liabilities (Notes 3 and 9)
Partners’ Capital 131,484 and 132,346 units outstanding in 2010 and 2009, respectively		(24,317,955		)	(21,332,824		)
Total Liabilities and Partners’ Capital		$	126,585,189		$	129,089,736

 

See notes to consolidated financial statements.

 

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NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME

 

(Unaudited)

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2010			2009			2010			2009
Revenues
Rental income		$	8,116,004		$	8,179,090		$	16,312,820		$	16,544,672
Laundry and sundry income		114,726			97,257			235,926			192,370
		8,230,730			8,276,347			16,548,746			16,737,042
Expenses
Administrative		431,564			386,417			922,600			852,347
Depreciation and amortization		1,418,408			1,504,877			2,797,319			2,921,497
Management fees		341,577			333,898			680,219			676,787
Operating		824,583			868,593			2,106,245			2,374,329
Renting		107,946			83,170			174,996			144,129
Repairs and maintenance		1,254,860			1,167,345			2,252,603			2,145,631
Taxes and insurance		1,041,412			926,639			2,119,437			1,891,506
		5,420,350			5,270,939			11,053,419			11,006,226
Income Before Other Income and Discontinued Operations		2,810,380			3,005,408			5,495,327			5,730,816
Other Income (loss)
Interest income		1,754			14,228			2,513			32,591
Interest expense		(2,047,512		)	(1,962,093		)	(4,076,672		)	(3,907,240		)
Gain on the sale of equipment		—			—			—			4,190
(Loss) from investment in unconsolidated joint ventures		(1,019,074		)	(281,733		)	(2,018,571		)	(555,288		)
		(3,064,832		)	(2,229,598		)	(6,092,730		)	(4,425,747		)
Income (loss) from Continuing Operations		(254,452		)	775,810			(597,403		)	1,305,069
Discontinued Operations
Gain (loss) on the sale of real estate		—			2,165			—			(7,009		)
		—			2,165			—			(7,009		)
Net Income		$	(254,542	)	$	777,975		$	(597,403	)	$	1,298,060
Income per Unit
Income (loss) before discontinued operations		$	(1.93	)	$	5.84		$	(4.53	)	$	9.77
Income (loss) from discontinued operations		—			0.02			—			(0.05		)
Net Income (Loss) per Unit		$	(1.93	)	$	5.86		$	(4.53	)	$	9.72
Weighted Average Number of Units Outstanding		131,512			132,784			131,911			133,489

 

See notes to consolidated financial statements.

 

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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, 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		—		—		—		—		—		—		(1,488,791		)	(353,588		)	(18,610		)	(1,860,989		)
Stock Buyback		—		—		—		—		2,468		(2,468	)	(1,025,734		)	(239,738		)	(12,618		)	(1,278,090		)
Net Income		—		—		—		—		—		—		1,038,448			246,631			12,981			1,298,060
Balance, June 30, 2009		144,180		34,243		1,802		180,225		47,442		132,783		$	(15,649,822	)	$	(3,712,960	)	$	(195,419	)	$	(19,558,201	)
Balance, January 1, 2010		144,180		34,243		1,802		180,225		47,879		132,346		$	(17,069,520	)	$	(4,050,138	)	$	(213,165	)	$	(21,332,823	)
Distribution to Partners		—		—		—		—						(1,477,454		)	(350,895		)	(18,468		)	(1,846,817		)
Stock Buyback		—		—		—		—		862		(862	)	(432,920		)	(102,591		)	(5,400		)	(540,911		)
Net (Loss)		—		—		—		—						(477,923		)	(113,507		)	(5,974		)	(597,404		)
Balance, June 30, 2010		144,180		34,243		1,802		180,225		48,741		131,484		$	(19,457,817	)	$	(4,617,131	)	$	(243,007	)	$	(24,317,955	)

 

See notes to consolidated financial statements.

 

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NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

		Six Months Ended June 30,
		2010			2009
Cash Flows from Operating Activities
Net income (loss)		$	(597,403	)	$	1,298,060
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization		2,797,319			2,921,497
Loss from investment in joint ventures		2,018,571			555,288
Gain on the sale of equipment		—			(4,190		)
Changes in operating assets and liabilities
(Increase) decrease in rents receivable		274,922			(71,914		)
(Decrease) increase in accounts payable and accrued expense		2,626			(283,094		)
Decrease in real estate tax escrow		2,799			4,129
(Increase) Decrease in prepaid expenses and other assets		(297,295		)	371,865
Increase (Decrease) in advance rental payments and security deposits		(2,498		)	147,997
Total Adjustments		4,796,444			3,641,578
Net cash provided by (used in) operating activities		4,199,041			4,939,638
Cash Flows provided by (used in) Investing Activities
Net proceeds from the sale of equipment		—			20,648
Investment in consolidated joint venture		(25,000		)	—
Proceeds from unconsolidated joint ventures		675,000			167,500
Purchase and improvement of rental properties		(787,727		)	(1,275,163		)
Net cash provided by (used in) investing activities		(137,727		)	(1,087,015		)
Cash Flows provided by (used in) Financing Activities
Payment of financing costs		(3,308		)	(6,549		)
Principal payments of mortgage notes payable		(423,664		)	(409,661		)
Stock buyback		(540,911		)	(1,278,090		)
Proceeds of mortgage notes payable		904,122			—
Distributions to partners		(1,846,817		)	(1,860,989		)
Net cash provided by (used in) financing activities		(1,910,578		)	(3,555,289		)
Net Increase in Cash and Cash Equivalents		2,150,736			297,334
Cash and Cash Equivalents, at beginning of period		2,879,663			10,752,931
Cash and Cash Equivalents, at end of period		$	5,030,399		$	11,050,265

 

See notes to consolidated financial statements.

 

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NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

JUNE 30, 2010

 

(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 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 nine limited liability companies (the “Investment Properties” or “Joint Ventures”) in which the Partnership has a 40 - 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.

 

On January 1, 2010, the Partnership adopted the updated provisions of ASC 810, pursuant to FASB No. 167, which amends FIN 46® to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity.  Additionally, FASB No. 167 amends FIN 46® to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity, which was based on determining which enterprise absorbs the majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both.  FASB No. 167 amends certain guidance in Interpretation 46® for determining whether an entity is a variable interest entity. Also, FASB No. 167 amends FIN 46® to require enhanced disclosures that will provide users of financial

 

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statements with more transparent information about an enterprise’s involvement in a variable interest entity.  The enhanced disclosures are required for any enterprise that holds a variable interest in a variable interest entity.  The adoption of this guidance did not have a material impact to these financial statements.

 

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 Partnership’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 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.

 

Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the differences between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed —rate renewal options for below-market leases.  The capitalized above-market lease values for acquired properties are amortized as a reduction of base rental revenue over the remaining term of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed-rate renewal options of the respective leases.

 

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. Upon acquisition of rental property, the Partnership estimates the fair value of acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities assumed, generally consisting of the fair value of (i) above and below market leases, (ii) in-place leases and (iii) tenant relationships.  The Partnership allocated the purchase price to the assets acquired and liabilities assumed based on their fair values.  The Partnership records goodwill or a gain on bargain purchase (if any) if the net assets acquired/liabilities assumed exceed the purchase consideration of a transaction.  In estimating the fair value of the tangible and intangible assets acquired, the Partnership considers information obtained about each property as a result of its due diligence and marketing and leasing activities, and utilizes various valuation methods, such as estimated cash flow projections utilizing appropriate discount and capitalization rates, estimates of replacement costs net of depreciation, and available market information.  The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

 

Other intangible assets acquired include amounts for in-place lease values and tenant relationship values, which are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Partnership’s overall relationship with the respective tenant.  Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases at market rates during the expected lease-up periods, depending on local market conditions.  In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses.  Characteristics considered by management in valuing tenant relationships include the nature and extent of the Partnership’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals.  The value of in-place leases are amortized to expense over the

 

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remaining initial terms of the respective leases.  The value of tenant relationship intangibles are amortized to expense over the anticipated life of the relationships.

 

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 2010 and 2009 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 2010 or 2009.  The Partnership makes its temporary cash investments with high-credit quality financial institutions. At June 30, 2010, 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 1.24%.  At June 30, 2010 and December 31, 2009, respectively approximately $6,018,000 and $4,026,000 of cash and cash equivalents, and security deposits included in prepaid expenses and other assets exceeded federally insured amounts.

 

Advertising Expense: Advertising is expensed as incurred. Advertising expense was $32,661 and $38,466 for the six months ended June 30, 2010 and 2009, 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 six months ended June 30, 2010 and year ended December 31, 2009, there was no capitalized interest.

 

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

 

NOTE 2. RENTAL PROPERTIES

 

As of June 30, 2010, the Partnership and its Subsidiary Partnerships owned 2,269 residential apartment units in 20 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 June 30, 2010, 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 40% or 50% ownership interest in nine residential and mixed use complexes (the “Investment Properties”) at June 30, 2010 with a total of 798 residential units, two commercial spaces and one parking lot, accounted for using the equity method of consolidation. See Note 14 for summary information on these investments.

 

Rental properties consist of the following:

 

		June 30, 2010			December 31, 2009			Useful Life
Land, improvements and parking lots		$	26,087,105		$	26,072,100		15—40 years
Buildings and improvements		111,133,633			111,016,179			15—40 years
Kitchen cabinets		4,194,322			3,977,528			5—10 years
Carpets		3,818,375			3,506,481			5—10 years
Air conditioning		897,793			882,354			7—10 years
Laundry equipment		368,369			367,209			5—7 years
Elevators		1,021,676			984,506			20 years
Swimming pools		157,489			157,489			10 years
Equipment		2,121,524			2,087,287			5—7 years
Motor vehicles		142,520			142,520			5 years
Fences		51,882			51,882			5—10 years
Furniture and fixtures		1,099,991			1,063,897			5—7 years
Smoke alarms		104,603			102,123			5—7 years
		151,199,282			150,411,555
Less accumulated depreciation		(57,172,794		)	(54,439,618		)
		$	94,026,488		$	95,971,937

 

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 on the majority of the Partnership’s properties and 3% on Linewt.  Total management fees paid were approximately $680,000 and $677,000 during the six months ended June 30, 2010 and 2009, 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 six months ended June 30, 2010 and 2009, approximately $334,000 and $362,000 was charged to NERA for legal, accounting, construction, maintenance, rental and architectural services and supervision of capital improvements.  Of the 2010 expenses referred to above, approximately $156,000 consisted of repairs and maintenance and $167,000 of administrative expense. Approximately $11,000 of expenses for construction, architectural services and supervision of capital projects were capitalized in rental properties. Additionally in 2010, the Hamilton Company received approximately $331,000 from the Investment

 

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Properties of which approximately $261,000 was the management fee, approximately $2,000 was for construction supervision and architectural fees, and approximately $56,000 was for maintenance services and approximately $12,000 was for administrative services.  The management fee is equal to 4% of rental income at the majority of investment properties and 2% at Dexter Park.

 

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 $1,261,000 and $1,115,000 during the six months ended June 30, 2010 and 2009, 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 2010 and 2009.

 

Prior to 1991, the Partnership employed an outside, unaffiliated company to perform its bookkeeping and accounting functions. Since that time, such services have been provided by the Management Company’s accounting staff, which consists of approximately 14 people. During the six months ended June 30, 2010, the Management Company charged the Partnership $62,500 ($125,000 per year) for bookkeeping and accounting services included in administrative expenses of $167,000 above.

 

In 1996, prior to becoming an employee of the Management Company, the President of the Management Company performed asset management consulting services for the Partnership. This individual continues to perform this service and receives an asset management fee from the Partnership.  During the six months ended June 30, 2010, this individual received $56,250 which includes a bonus of $25,000, a quarterly fee of $12,500 for the first quarter of 2010 and a quarterly fee of $18,750 for the second quarter of 2010. Going forward, the quarterly fee payable to this individual will be $18,750.

 

The Partnership has invested in nine limited partnerships, which have invested in mixed use residential apartment complexes. The Partnership has a 40% or 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 60%. See Note 14 for a description of the properties and their operations.

 

See Note 8 for information regarding the repurchase of Class B and General Partnership Units.

 

On October 28, 2009, the Partnership borrowed approximately $7,168,000 with an interest rate of 6% from HBC Holdings, LLC, an entity owned by Harold Brown and his affiliates.  The term of the loan is four years with a provision requiring payment upon six month notice. The interest paid during the six months ended June 30, 2010 was approximately $216,000 and $78,000 for the year ended December 31, 2009. This loan is collateralized by the Partnerships 99% ownership interest in 62 Boylston Street.

 

NOTE 4. OTHER ASSETS

 

Approximately $1,499,000 and $1,426,000 of security deposits are included in prepaid expenses and other assets at June 30, 2010 and December 31, 2009, respectively.

 

Included in prepaid expenses and other assets at June 30, 2010 and December 31, 2009 is approximately $820,000 and $829,000, respectively, held in escrow to fund future capital improvements. The security deposits and escrow accounts are restricted cash.

 

Financing and leasing fees of approximately $1,005,000 and $1,066,000 are net of accumulated amortization of approximately $481,000 and $450,000 at June30, 2010 and December 31, 2009, respectively.

 

NOTE 5. MORTGAGE NOTES PAYABLE

 

At June 30, 2010 and December 31, 2009, the mortgages payable consisted of various loans, all of which were secured by first mortgages on properties referred to in Note 2. At June 30, 2010, the fixed interest rates on these loans ranged from 4.84% to 7.07%, payable in monthly installments aggregating approximately $726,000, including principal, to various dates through 2023. The majority of the mortgages are subject to prepayment penalties.  At June 30, 2010, the weighted average interest rate on the above mortgages was 5.55%. The effective rate of 5.64% 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 June 30, 2010 are as follows:

 

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2011—current maturities		$	914,000
2012		985,000
2013		19,861,000
2014		31,974,000
2015		9,066,000
Thereafter		75,322,000
		$	138,122,000

 

In December 2009, the Partnership refinanced Linhart, LLP, located in Newton, Massachusetts.  The new loan is $2,000,000, with a rate of 3.75% over the Libor rate or 4.25% whichever is greater and matures five years from the date of closing.  The interest rate as of June 30, 2010 was 4.25%.  The loan agreement calls for interest only payments for twenty four months and principal and interest payments for the remainder of the five year period based on a thirty year amortization.  The loan proceeds were used to pay off the prior loan of approximately $1,700,000, and closing costs of approximately $38,000.

 

On March 25, 2010, the Partnership refinanced the Brookside Apartments.  The new loan is $2,820,000, matures in 2020 and has an interest rate of 5.81%.  The loan is a ten year note however it is being amortized over 30 years. The proceeds of the loan were used to pay off the old mortgage of approximately $1,900,000.  There were no prepayment penalties.

 

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 June30, 2010, amounts received for prepaid rents of approximately $1,540,000 are included in cash and cash equivalents, and security deposits of approximately $1,611,000 are included in other assets and are restricted cash.

 

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 2010, the Partnership approved quarterly distributions of $7.00 per unit ($0.70 per receipt) payable on March 31, June 30, and September 30, 2010.

 

In 2009, the Partnership paid quarterly distributions of $7.00 per unit ($0.70 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:

 

		Six Months Ended June 30,
		2010			2009
Income (loss) per Depositary Receipt before Discontinued Operations		$	(0.45	)	$	0.98
Income (loss) from Discontinued Operations		—			(0.01		)
Net (loss)income per Depositary Receipt after Discontinued Operations		$	(0.45	)	$	0.97
Distributions per Depositary Receipt		$	1.40		$	1.40

 

NOTE 8. TREASURY UNITS

 

Treasury Units at June 30, 2010 are as follows:

 

Class A		38,993
Class B		9,260
General Partnership		488
		48,741

 

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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.  On March 22, 2010, the General Partner re-authorized and renewed the Repurchase Program that expired on August 19, 2009.  Under the terms of the renewed Repurchase Program, the Partnership may purchase up to 500,000 Depositary Receipts from the start of the program in 2007 through March 31, 2015.  The Repurchase Program requires 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.  From August 20, 2007 through June 30, 2010, the Partnership has repurchased 398,320 Depositary Receipts at an average price of $73.59 per receipt (or $735.90 per underlying Class A Unit), 1,724 Class B Units and 91 General Partnership Units, both at an average price of $585.05 per Unit, totaling approximately $30,480,000 including brokerage fees paid by the Partnership.

 

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 six months ended June 30, 2010 the Partnership purchased 6,896 receipts for $432,920, 164 Class B Units for $102,591 and 9 General Partnership units for $5,400.

 

As of June 30, 2010, the equity repurchase program described above resulted in the Partnership having a negative Partners’ Capital of approximately $24,318,000.

 

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 provides for any uninsured claims when appropriate. The Partnerships are not involved in any material pending legal proceedings.

 

NOTE 10. RENTAL INCOME

 

During the six months ended June 30, 2010, approximately 90% of rental income was related to residential apartments and condominium units with leases of one year or less. Approximately 10% was related to commercial properties, which have minimum future annual rental income on non-cancellable operating leases at June 30, 2010 as follows:

 

		Commercial Property Leases
2011		$	2,856,000
2012		2,562,000
2013		1,928,000
2014		1,716,000
2015		1,148,000
Thereafter		1,468,000
		$	11,678,000

 

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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 $315,000 for the six months ended June 30, 2010 and approximately $583,000 for the year ended December 31, 2009.

 

Rents receivable are net of an allowance for doubtful accounts of approximately $689,000 at June 30, 2010 and $476,000 at December 31, 2009.  Included in rents receivable at June 30, 2010 is approximately $257,000 resulting from recognizing rental income from non-cancelable commercial leases with future rental increases on a straight-line basis.  The majority of this amount is for long-term leases with Staples and Trader Joe’s at Staples Plaza in Framingham, Massachusetts.

 

Rents receivable also includes approximately $238,000 representing the straight-line of rental concessions.

 

In 2010, rent at the commercial properties includes approximately $5,600 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 six months ended June 30, 2010 and 2009, cash paid for interest was approximately $4,076,000, and $3,907,000 respectively.

 

NOTE 12. FAIR VALUE MEASUREMENTS

 

Fair Value Measurements on a Recurring Basis

 

At June 30, 2010 and December 31, 2009, we do not have any significant financial assets or financial liabilities that are measured at fair value on a recurring basis in our consolidated financial statements.

 

Financial Assets and Liabilities not Measured at Fair Value

 

At June 30, 2010 and December 31, 2009 the carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts  receivable, and note payable, accounts payable and accrued expenses were representative of their fair values due to the short-term nature of these instruments or, the recent acquisition of these items.

 

At June 30, 2010 and December 31, 2009, we estimated the fair value of our mortgages payable and other notes based upon quoted market prices for the same (Level 1) or similar (Level 2) issues when current quoted market prices are available.  We estimated the fair value of our secured mortgage debt that does not have current quoted market prices available by discounting the future cash flows using rates currently available to us for debt with similar terms and maturities (Level 3).  The differences in the fair value of our debt from the carrying value are the result of differences in interest rates and/or borrowing spreads that were available to us at June 30, 2010 and December 31, 2009, as compared with those in effect when the debt was issued or acquired.  The secured mortgage debt contain pre-payment penalties or yield maintenance provisions that could make the cost of refinancing the debt at lower rates exceed the benefit that would be derived from doing so.

 

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.

 

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The following table reflects the carrying amounts and estimated fair value of our debt.

 

		Carrying Amount			Estimated Fair Value
Mortgage Notes Payable
Partnership Properties
At June 30, 2010		$	138,121,811		$	145,818,793
At December 31, 2009		$	137,641,354		$	139,997,718
Investment Properties
At June 30, 2010		$	141,120,762		$	147,050,173

 

Disclosure about fair value of financial instruments is based on pertinent information available to management as of June 30, 2010 and December 31, 2009. 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, 2009 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, allowances and intangible assets at significant acquisitions. Taxable income was approximately $300,000 greater than statement income for the year ended December 31, 2009 and approximately $7,500,000 less than statement income for the year ended December 31, 2008. The cumulative tax basis of the Partnership’s real estate at December 31, 2009 is approximately $5,200,000 less than the statement basis. The primary reason for 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 $1,500,000 greater than statement basis. Certain entities included in the Partnership’s consolidated financial statements are subject to certain state taxes.  These taxes are not significant and are recorded as operating expenses in the accompanying consolidates financial statements.

 

The Partnership adopted the amended provisions related to uncertain tax provisions of ASC 740, Income Taxes.  As a result of the implementation of the guidance, the Partnership recognized no material adjustments regarding its tax accounting treatment.  The Partnership expects to recognize interest and penalties related to uncertain tax positions, if any, as income tax expense, which would be included in general and administrative expense.

 

In the normal course of business the Partnership or one of its subsidiaries is subject to examination by federal, state and local jurisdictions in which it operates, where applicable.  As of  June 30, 2010, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations is from the year 2003 forward.

 

NOTE 14. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

 

Since November 2001, the Partnership has invested in nine limited partnerships and limited liability companies, the majority of which have invested in residential apartment complexes, with three partnerships investing in commercial property. The Partnership has between a 40%- 50% ownership interests 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 60%, with the balance owned by the others. A description of each investment is as follows:

 

On October 28, 2009 the Partnership invested approximately $15,925,000 in a joint venture to acquire a 40% interest in a residential property located in Brookline, Massachusetts.  The property, referred to as Dexter Park, is a 409 unit residential complex. The purchase price was $129,500,000.  The total mortgage is $89,914,000 with an interest rate of 5.57% and it matures in 2019.  The mortgage calls for interest only payments for the first two years of the loan and amortized over 30 years thereafter.  In order to fund this investment, the Partnership used approximately $8,757,000 of its cash reserves and borrowed approximately $7,168,000 with an interest rate of 6% from HBC Holdings, LLC, an entity owned by Harold Brown and his affiliates.  The term of the loan is four years with a provision requiring payment upon six months notice.  The Partnership has pledged its ownership in 62 Boylston Street as security for this note.   A majority of the apartments were leased at the time of the acquisition.  As a result, the Partnership is amortizing the intangible assets associated with the “in place” leases over a 12 month period which began in November 2009.  The total monthly amortization is approximately $407,000 which at 40% reduces the Partnership’s income by approximately $163,000 per month. For the six months ended June 30, 2010 the total amortization in connection with these leases is approximately $2,442,000, of which the Partnership’s share is approximately $976,000.  In November 2010, the intangible assets will be fully amortized which will result in lower amortization expense.  For the six months ended June 30, 2010, the

 

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Partnership’s share of loss on Dexter Park is approximately $1,560,000.  This investment, Hamilton Park Towers, LLC is referred to as Dexter Park.

 

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. This investment is referred to as Hamilton Bay Apartments, LLC. 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 July 26, 2010, 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 June 30, 2010. This investment is referred to as Hamilton Bay, 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 and commercial space 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, or the parking lot is $2,162,000 with a variable interest rate of 2.25% over the daily Libor rate (0.35% at June 30, 2010) 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 sold 127 of the units as condominiums and retained 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.   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 loan required a cash contribution by the Partnership of $1,250,000 in December 2006. 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 137 units as condominiums. 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 were 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 received 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 ten year mortgage on the three buildings to be retained. The 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 mortgage were approximately $16,700,000, which were used to reduce the existing mortgage. Hamilton on Main LLC paid a fee of approximately $400,000 in connection with this early extinguishment of debt.  At June 30, 2010, the remaining balance on the mortgage is approximately $16,275,000.

 

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 June 30, 2010 of approximately $7,252,000

 

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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 financial information as of June 30, 2010

 

		Hamilton Essex 81		Hamilton Essex Development		345 Franklin		Hamilton 1025		Hamilton Bay Sales		Hamilton Bay Apts		Hamilton Minuteman Apts		Hamilton on Main Apts		Dexter Park		Total
ASSETS
Rental Properties		10,021,631		2,576,552		8,841,772		6,206,631		2,048,679		7,743,968		7,706,619		23,294,573		121,100,206		189,540,630
Cash & Cash Equivalents		2,630		40,037		1,433		5,676		23,381		1,016		50,165		100,765		649,943		875,046
Rent Receivable		30,748		—		14,371		9,232		1,731		3,664		3,792		14,223		154,871		232,633
Real Estate Tax Escrow		67,262		—		18,929		50,556		—		78,948		33,480		97,753		381,920		728,847
Prepaid Expenses & Other Assets		85,714		—		91,827		96,763		233,502		86,797		68,650		387,322		2,637,834		3,688,408
Financing & Leasing Fees		107,701		7,302		28,579		32,211		14,167		42,147		25,871		31,734		548,053		837,766
Total Assets		10,315,687		2,623,891		8,996,909		6,401,069		2,321,459		7,956,541		7,888,577		23,926,371		125,472,827		195,903,331
LIABILITIES AND PARTNERS’ CAPITAL
Mortgage Notes Payable		8,600,000		2,162,000		7,251,704		5,000,000		1,668,000		4,750,000		5,500,000		16,275,058		89,914,000		141,120,762
Accounts Payable& Accrued Exp		54,748		5,853		73,038		44,985		15,775		9,437		73,758		204,957		762,024		1,244,574
Advance Rental Payments & Security Deposits		164,643		—		149,341		61,992		20,143		79,758		65,760		241,928		1,504,128		2,287,693
Total Liabilities		8,819,391		2,167,853		7,474,083		5,106,977		1,703,918		4,839,196		5,639,517		16,721,944		92,180,152		144,653,029
Partners’ Capital		1,496,296		456,039		1,522,826		1,294,093		617,541		3,117,345		2,249,060		7,204,427		33,292,675		51,250,301
Total Liabilities and Capital		10,315,687		2,623,891		8,996,909		6,401,069		2,321,459		7,956,541		7,888,577		23,926,371		125,472,827		195,903,331
Partners’ Capital NERA 50%		748,148		228,020		761,413		647,047		308,771		1,558,673		1,124,530		3,602,214				8,978,815
NERA 40%																		13,317,070		13,317,070
																				22,295,886
Total units/condominiums
Apartments		48		—		40		175		120		48		42		148		409		1,030
Commercial		1		1		—		1		—		—		—		—		—		3
Total		49		1		40		176		120		48		42		148		409		1,033
Units to be retained		49		1		40		49		—		48		42		148		409		786
Units to be sold		—		—		—		127		120		—		—		—		—		247
Units sold through July 26, 2010		—		—		—		127		105		—		—		—		—		232
Unsold units		—		—		—		—		15		—		—		—				15
Unsold units with deposits for future sale as of July 26, 2010		—		—		—		—		—		—		—		—		—		—

 

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Table of Contents

 

Summary financial information for the six months ended June 30, 2010

 

		Hamilton Essex 81		Hamilton Essex Development		345 Franklin		Hamilton 1025		Hamilton Bay Sales		Hamilton Bay Apts		Hamilton Minuteman Apts		Hamilton on Main Apts		Dexter Park		Total
Revenues
Rental Income		567,486		138,000		551,869		398,369		106,940		418,116		381,019		1,223,349		5,622,380		9,407,527
Laundry and Sundry Income		7,827		—		702		—		—		—		265		10,656		48,784		68,233
		575,312		138,000		552,570		398,369		106,940		418,116		381,284		1,234,005		5,671,164		9,475,760
Expenses
Administrative		7,723		(166	)	18,772		3,685		2,580		8,076		5,362		21,790		76,085		143,906
Depreciation and Amortization		213,002		3,127		219,651		134,840		48,064		179,067		160,258		490,917		5,091,729		6,540,654
Management Fees		24,175		5,520		23,422		15,735		4,682		16,560		15,944		49,048		120,505		275,589
Operating		71,442		(137	)	30,631		947		(138	)	313		36,097		181,155		490,850		811,160
Renting		10,413		—		35,100		2,968		200		2,043		1,892		8,967		123,286		184,869
Repairs and Maintenance		68,035		—		29,173		126,667		50,129		219,270		39,419		172,544		379,873		1,085,110
Taxes and Insurance		94,361		24,244		50,567		63,423		21,524		75,265		50,500		159,532		766,817		1,306,233
		489,152		32,587		407,316		348,264		127,041		500,593		309,472		1,083,953		7,049,145		10,347,522
Income Before Other Income		86,161		105,413		145,255		50,106		(20,101	)	(82,477	)	71,812		150,052		(1,137,981	)	(871,762	)
Other Income (Loss)
Interest Income		2		1		23		45		6,310		—		2		4		5		6,396
Interest Expense		(251,848	)	(30,943	)	(253,576	)	(143,317	)	(48,538	)	(134,628	)	(157,375	)	(428,388	)	(2,522,654	)	(3,971,267	)
Gain on Sale of Real Estate		—		—		—		—		—		9,478		—		—		—		9,478
Other Income (Expenses)		—		—		—		—		7,721		—		—		2,168		—		9,889
		(251,846	)	(30,942	)	(253,554	)	(143,272	)	(34,507	)	(125,150	)	(157,373	)	(426,216	)	(2,522,649	)	(3,945,507	)
Net Income (Loss)		(165,686	)	74,471		(108,299	)	(93,166	)	(54,608	)	(207,627	)	(85,561	)	(276,164	)	(3,900,630	)	(4,817,270	)
Net Loss - NERA 50%		(82,843	)	37,236		(54,149	)	(46,583	)	(27,304	)	(103,813	)	(42,781	)	(138,082	)			(458,320	)
NERA 40%																		(1,560,252	)	(1,560,252	)
																				(2,018,572	)

 

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