NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP - Quarter Report: 2012 March (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 March 31, 2012

 

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 001-31568

 

 

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 x No o

 

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 March 31, 2012, there were 105,188 of the registrant’s Class A units (3,155,628 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 March 31, 2012 and December 31, 2011
	Consolidated Statements of Income for the Three Months Ended March 31, 2012 and 2011
	Consolidated Statements of Changes in Partners’ Capital for the Three Months Ended March 31, 2012 and 2011
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011
	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.	Mine Safety Disclosure
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, 2011 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, 2011.

 

The results of operations for the three month period ended March 31, 2012 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

 

		March 31,			December 31,
		2012			2011
		(Unaudited)			(Audited)
ASSETS
Rental Properties		$	97,860,840		$	98,924,534
Cash and Cash Equivalents		4,578,828			4,050,157
Rents Receivable		423,297			434,252
Real Estate Tax Escrows		423,262			401,325
Prepaid Expenses and Other Assets		3,725,037			3,866,652
Investments in Unconsolidated Joint Ventures		16,047,540			16,780,657
Financing and Leasing Fees		913,426			919,187
Total Assets		$	123,972,230		$	125,376,764
LIABILITIES AND PARTNERS’ CAPITAL
Note Payable		$	918,600		$	1,668,600
Mortgage Notes Payable		138,887,116			139,161,612
Accounts Payable and Accrued Expenses		2,281,325			2,253,696
Advance Rental Payments and Security Deposits		3,555,222			3,603,708
Total Liabilities		$	145,642,263		$	146,687,616
Commitments and Contingent Liabilities (Notes 3 and 9)
Partners’ Capital 131,484 units outstanding in 2012 and 2011		(21,670,033		)	(21,310,852		)
Total Liabilities and Partners’ Capital		$	123,972,230		$	125,376,764

 

See notes to consolidated financial statements.

 

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NEW ENGLAND REALTY ASSOIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME

 

(Unaudited)

 

		Three Months Ended March 31,
		2012			2011
Revenues
Rental income		$	8,759,703		$	8,178,851
Laundry and sundry income		92,679			102,043
		8,852,382			8,280,894
Expenses
Administrative		489,775			425,743
Depreciation and amortization		1,514,045			1,353,609
Management fees		351,745			333,350
Operating		1,242,103			1,458,686
Renting		46,751			87,886
Repairs and maintenance		1,124,883			1,062,141
Taxes and insurance		1,092,392			1,052,526
		5,861,694			5,773,941
Income Before Other Income and Discontinued Operations		2,990,688			2,506,953
Other Income (Loss)
Interest expense		(1,961,256		)	(1,946,709		)
Interest income		638			1,226
(Loss) from investments in unconsolidated joint ventures		(403,117		)	(454,047		)
		(2,363,735		)	(2,399,530		)
Income From Continuing Operations		626,953			107,423
Discontinued Operations
Income from discontinued operations		—			65,389
Net Income		$	626,953		$	172,812
Income per Unit
Income before discontinued operations		$	4.77		$	0.82
Income from discontinued operations		—			0.49
Net Income per Unit		$	4.77		$	1.31
Weighted Average Number of Units Outstanding		131,484			131,484

 

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)

 

		Units												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, 2011		144,180		34,243		1,802		180,225		48,741		131,484		$	(21,539,906	)	$	(5,111,628	)	$	(269,033	)	$	(26,920,567	)
Distribution to Partners		—		—		—		—		—		—		(736,314		)	(174,874		)	(9,204		)	(920,392		)
Net Income		—		—		—		—		—		—		138,250			32,834			1,728			172,812
Balance, March 31, 2011		144,180		34,243		1,802		180,225		48,741		131,484		$	(22,137,970	)	$	(5,253,668	)	$	(276,509	)	$	(27,668,147	)
Balance January 1, 2012		144,180		34,243		1,802		180,225		48,741		131,484		$	(17,052,134	)	$	(4,045,783	)	$	(212,935	)	$	(21,310,852	)
Distribution to Partners		—		—		—		—		—		—		(788,907		)	(187,365		)	(9,862		)	(986,134		)
Net Income		—		—		—		—		—		—		501,562			119,121			6,270			626,953
Balance, March 31, 2012		144,180		34,243		1,802		180,225		48,741		131,484		$	(17,339,479	)	$	(4,114,027	)	$	(216,527	)	$	(21,670,033	)

 

See notes to consolidated financial statements.

 

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NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Three Months Ended March 31,
		2012			2011
Cash Flows from Operating Activities
Net income		$	626,953		$	172,812
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		1,514,045			1,353,609
Loss from investments in joint ventures		403,117			454,047
Depreciation and amortization - discontinued operations		—			11,360
Changes in operating assets and liabilities
(Increase) Decrease in rents receivable		10,955			(84,786		)
Increase in accounts payable and accrued expense		27,629			144,208
(Increase) in real estate tax escrow		(21,937		)	(70,128		)
Decrease in prepaid expenses and other assets		88,870			46,056
Increase (decrease) in advance rental payments and security deposits		(48,486		)	88,822
Total Adjustments		1,974,193			1,943,187
Net cash provided by operating activities		2,601,146			2,115,999
Cash Flows From Investing Activities
Proceeds from unconsolidated joint ventures		330,000			312,500
Purchase and improvement of rental properties		(365,918		)	(765,385		)
Net cash (used in) investing activities		(35,918		)	(452,885		)
Cash Flows From Financing Activities
Payment of financing costs		(25,927		)	(1,018		)
Principal payment of notes payable		(750,000		)
Principal payments of mortgage notes payable		(274,496		)	(234,769		)
Distributions to partners		(986,134		)	(920,392		)
Net cash (used in) financing activities		(2,036,557		)	(1,156,179		)
Net Increase in Cash and Cash Equivalents		528,671			506,935
Cash and Cash Equivalents, at beginning of period		4,050,157			3,245,361
Cash and Cash Equivalents, at end of period		$	4,578,828		$	3,752,296

 

See notes to consolidated financial statements.

 

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NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

MARCH 31, 2012

 

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 24 properties which include 16 residential buildings; 4 mixed use residential, retail and office buildings; 3 commercial buildings and individual units at one condominium complex.  These properties total 2,251 apartment units, 19 condominium units and 110,949 square feet of commercial space.  Additionally, the Partnership also owns a 40-50% interest in nine residential and mixed use properties consisting of 799 apartment units, 12,500 square feet of commercial space and a 50 car parking lot. The properties are located in Eastern Massachusetts and Southern New Hampshire.

 

Basis of Presentation: 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.

 

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 between 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.

 

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 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.  In addition to identifying any

 

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specific circumstances which may affect a property or properties, management considers other criteria for determining which properties may require assessment for potential impairment.  The criteria considered by management include reviewing low leased percentages, significant near term lease expirations, recently acquired properties, current and historical operating and/or cash flow losses, near term mortgage debt maturities or other factors that might impact the Partnership’s intent and ability to hold property.  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.

 

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. Contingent rent for commercial properties are received from tenants for certain costs as provided in the lease agreement.  The costs generally include real estate taxes, utilities, insurance, common area maintenance and recoverable costs. 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 which improve or extend the life of the assets 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 remaining initial terms of the respective leases.  The value of tenant relationship intangibles are amortized to expense over the anticipated life of the relationships.

 

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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 have been recorded (See Note 13).

 

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 2012 or 2011 other than net income as reported.

 

Income Per Depositary Receipt: Effective January 3, 2012, the Partnership authorized a 3-for-1 forward split of its Depositary Receipts listed on the NYSE Amex and a concurrent adjustment of the exchange ratio of Depositary Receipts for Class A Units of the Partnership from 10-to-1 to 30-to-1, such that each Depositary Receipt represents one-thirtieth (1/30) of a Class A Unit of the Partnership. All references to Depositary Receipts in the report are reflective of the 3-for-1 forward split.

 

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 2012 or 2011. The Partnership makes its temporary cash investments with high-credit quality financial institutions. At March 31, 2012, substantially all of the Partnership’s cash and cash equivalents were held in interest-bearing accounts at financial institutions, earning interest at rates from 0.01% to 0.55%.  At March 31, 2012 and December 31, 2011, respectively approximately $5,604,000, and $5,051,000 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 $22,737, and $14,841 for the three months ended March 31, 2012 and 2011, 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 three months ended March 31, 2012 and the year ended December 31, 2011 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. Historically, all our refinancing has qualified  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 May 10, 2012, the date the financial statements were issued.

 

NOTE 2. RENTAL PROPERTIES

 

As of March 31, 2012, the Partnership and its Subsidiary Partnerships owned 2,251 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 March 31, 2012, 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% to 50% ownership interest in nine residential and mixed use complexes (the “Investment Properties”) at March 31, 2012 with a total of 799 units, accounted for using the equity method of consolidation. See Note 14 for summary information on these investments.

 

Rental properties consist of the following:

 

		March 31, 2012			December 31, 2011			Useful Life
Land, improvements and parking lots		$	27,614,537		$	27,614,537		15—40 years
Buildings and improvements		119,165,722			119,097,186			15—40 years
Kitchen cabinets		3,639,618			3,542,249			5—10 years
Carpets		3,426,482			3,307,499			5—10 years
Air conditioning		793,466			788,146			7—10 years
Laundry equipment		368,955			368,955			5—7 years
Elevators		1,139,296			1,139,296			20 years
Swimming pools		235,242			235,242			10 years
Equipment		1,775,298			1,744,006			5—7 years
Motor vehicles		107,788			107,788			5 years
Fences		22,974			22,974			5—10 years
Furniture and fixtures		1,048,274			1,039,439			5—7 years
Smoke alarms		152,064			116,482			5—7 years
Total fixed assets		$	159,489,716		$	159,123,799
Less: Accumulated depreciation		(61,628,876		)	(60,199,265		)
		$	97,860,840		$	98,924,534

 

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On May 18, 2011, the Partnership sold Avon Street Apartments, a 66 unit residential apartment complex located at 130 Avon Street, Malden, Massachusetts.  The sales price was $8,750,000, which resulted in a gain of approximately $7,700,000.  The net proceeds of the sale, of approximately $5,444,000 were held by a qualified intermediary in order for the Partnership to structure a tax free exchange in accordance with Section 1031 of the IRS code.  This tax free exchange was completed with the purchase of Battle Green Apartments described below.

 

On June 1, 2011, the Partnership purchased the Battle Green Apartments, a 48 unit residential apartment complex located at 34-42 Worthen Road, Lexington, Massachusetts.  The purchase price was $10,000,000.  The Partnership used cash reserves, the proceeds from the sale of Avon Street and borrowed $3,998,573 from Harold Brown, Treasurer of the General Partner to make this purchase.  This loan had an interest rate of 6% and was secured by the Partnership’s ownership interest in Battle Green Apartments, LLC.  The term of the loan is four years with a provision requiring payment in whole or in part upon demand within six months of notice or prepay without penalty.  On July 27, 2011, the Partnership financed the Battle Green Apartments with a new $5,000,000 mortgage at 4.95% which matures in August 2026.  Principal payments will be made using a 30 year amortization schedule.  Deferred financing costs associated with this mortgage totaled approximately $100,000 and accordingly the effective interest rate is 5.07%.  After paying off the existing loan of $3,998,573, approximately $1,000,000 was received by the Partnership. The interest paid on this loan to Harold Brown was $38,123.

 

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 fees paid were approximately $352,000 and $343,000 during the three months ended March 31, 2012 and 2011, 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 three months ended March 31, 2012 and 2011, approximately $153,000, and $211,000, was charged to NERA for legal, accounting, construction, maintenance, rental and architectural services and supervision of capital improvements.  Of the 2012 expenses referred to above, approximately $68,000 consisted of repairs and maintenance and $83,000 of administrative expense.  Approximately $2,200 of expenses for construction, architectural services and supervision of capital projects were capitalized in rental properties. Additionally in 2012, the Management Company received approximately $163,000 from the Investment Properties of which approximately $137,000 was the management fee, approximately $13,000 was for maintenance services and approximately $13,000 was for administrative services. The management fee is equal to 4% of rental income on the majority of investment properties and 2% on 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 $657,000 and $662,000 for the three months ended March 31, 2012 and 2011, 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 2012 and 2011.

 

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 three months ended March 31, 2012 and 2011, the Management Company charged the Partnership $31,250 ($125,000 per year) for bookkeeping and accounting services included in administrative expenses of $83,000 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.  The Partnership does not have a written agreement with this individual.  During each of the three months ended March 31, 2012 and 2011, this individual received $18,750.

 

The Partnership has invested in nine limited partnerships, which have invested in mixed use residential apartment complexes. The Partnership has between a 40% and 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.

 

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

 

On October 28, 2009, the Partnership borrowed $7,168,600 with an interest rate of 6% from HBC Holdings, LLC, an entity owned by Harold Brown and his affiliates (“HBC”).  The term of the loan is four years with a provision requiring payment in whole or in part upon demand by HBC with six months notice.  The Partnership may also prepay the note without penalty.  On August 17, 2010, HBC gave six months written notice to the Partnership requesting a principal pay down of $2,500,000.  During the fourth quarter of 2010, the Partnership paid HBC $2,500,000 as requested.  During 2011, the Partnership elected to make principal payments of $1,000,000 on August 1, 2011, $1,000,000 on October 1, 2011 and $1,000,000 on December 15, 2011 reducing the loan balance to $1,668,600.  In February 2012, the Partnership elected to make an additional principal payment of $750,000 to HBC Holdings leaving the loan balance at $918,600. The interest paid during the three months ended March 31, 2012 and  2011 was $18,807 and $70,029, respectively.  On April 2, 2012, the balance of the loan, $918,600 was repaid to HBC and the interest for April was $153.  This loan was collateralized by the Partnership’s 99% ownership interest in 62 Boylston Street.

 

NOTE 4. OTHER ASSETS

 

Approximately $1,907,000 and $1,879,000 of security deposits and prepaid rent deposits are included in prepaid expenses and other assets at March 31, 2012 and December 31, 2011, respectively.

 

Included in prepaid expenses and other assets at March 31, 2012 and December 31, 2011 is approximately $1,052,000 and $1,014,000, respectively, held in escrow to fund future capital improvements. The security deposits and escrow accounts are restricted cash.

 

Financing and leasing fees of approximately $913,000 and $919,000 are net of accumulated amortization of approximately $667,000 and $636,000 at March 31, 2012 and December 31, 2011, respectively.

 

NOTE 5. MORTGAGE NOTES PAYABLE

 

At March 31, 2012 and December 31, 2011, the mortgages payable consisted of various loans, all of which were secured by first mortgages on properties referred to in Note 2. At March 31, 2012, the interest rates on these loans ranged from 4.25% to 7.07%, payable in monthly installments aggregating approximately $742,000, including principal, to various dates through 2026. The majority of the mortgages are subject to prepayment penalties.  At March 31, 2012, the weighted average interest rate on the above mortgages was 5.53%. The effective rate of 5.62% includes the amortization expense of deferred financing costs. See Note 12 for fair value information. The Partnership’s mortgage debt and the mortgage debt of its unconsolidated joint ventures generally is non-recourse except for customary exceptions pertaining to misuse of funds and material misrepresentations.

 

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

 

Approximate annual maturities at March 31, 2012 are as follows:

 

2013—current maturities		$	1,127,000
2014		41,185,000
2015		16,513,000
2016		186,000
2017		197,000
Thereafter		79,679,000
		$	138,887,000

 

On July 27, 2011, the Partnership financed the Battle Green Apartments with a new $5,000,000 mortgage at 4.95% which matures in August 2026.  Principal payments will be made using a 30 year amortization schedule.  Deferred financing costs associated with this mortgage totaled approximately $100,000 and accordingly the effective interest rate is 5.07%.  After paying off the existing loan of $3,998,573, approximately $1,000,000 was received by the Partnership. The interest paid on this loan to Harold Brown was $38,123.

 

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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 March 31, 2012, amounts received for prepaid rents of approximately $1,325,000 are included in cash and cash equivalents, and security deposits of approximately $1,907,000 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.

 

Effective January 3, 2012, the Partnership authorized a 3-for-1 forward split of its Depositary Receipts listed on the NYSE Amex and a concurrent adjustment of the exchange ratio of Depositary Receipts for Class A Units of the Partnership from 10-to-1 to 30-to-1, such that each Depositary Receipt represents one-thirtieth (1/30) of a Class A Unit of the Partnership.

 

On January 17, 2012, the Partnership announced the approval of a quarterly distribution to its Class A Limited Partners and holders of Depositary Receipts of record as of March 15, 2012 and payable on March 30, 2012.  The quarterly distribution per Class A Limited Partnership Unit was increased from $7.00 per unit to $7.50 per unit.  Taking into consideration the 3-for-1 forward split of Depositary Receipts that was completed on January 3, 2012, the quarterly distribution per Depositary Receipt was increased from $0.23 to $0.25.

 

In 2012, the Partnership approved quarterly distributions of $7.50 per unit ($0.25 per receipt) the first of which was paid on March 30, 2012.  In April 2012, the Partnership approved a quarterly distribution of $7.50 per unit ($0.25 per receipt) payable on June 30, 2012.

 

In 2011 the Partnership paid quarterly distributions of $7.00 per unit ($0.23 per receipt, adjusted for 3 for 1 forward split of Depositary Receipts in January 2012) in March, June, September, and December for a total distribution of $28.00 per unit ($0.93 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 30 Depositary Receipts. The following is information per Depositary Receipt:

 

		Three Months Ended March 31,
		2012			2011
Income per Depositary Receipt before Discontinued Operations		$	0.16		$	0.03
Income from Discontinued Operations		—			0.02
Net Income per Depositary Receipt after Discontinued Operations		$	0.16		0.05
Distributions per Depositary Receipt		$	0.25		$	0.23

 

NOTE 8. TREASURY UNITS

 

Treasury Units at March 31, 2012 are as follows:

 

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

 

On August 20, 2007, NewReal, Inc., the General Partner authorized an equity repurchase program (“Repurchase Program”).   Under the terms of the  Repurchase Program, the Partnership may purchase up to 1,500,000 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

 

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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 March 31, 2012, the Partnership has repurchased 1,194,960 Depositary Receipts at an average price of $24.62 per receipt (or $738.60 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 $30,481,000 including brokerage fees paid by the Partnership.

 

The Partnership did not purchase any Depositary Receipts during the three months ended March 31, 2012.

 

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 three months ended March 31, 2012, approximately 90% of rental income was related to residential apartments and condominium units with leases of one year or less. The majority of these leases expire in June, July and August. Approximately 10% was related to commercial properties, which have minimum future annual rental income on non-cancellable operating leases at March 31, 2012 as follows:

 

		Commercial Property Leases
2013		$	2,585,000
2014		2,130,000
2015		1,691,000
2016		1,408,000
2017		785,000
Thereafter		778,000
		$	9,377,000

 

The aggregate minimum future rental income does not include contingent rentals that may be received under various leases in connection with common area charges and real estate taxes. Aggregate contingent rentals from continuing operations were approximately $156,000 and $153,000 for the three months ended March 31, 2012 and 2011 respectively.

 

The following information is provided for commercial leases:

 

									Percentage of
		Annual base rent			Total square feet		Total number		Annual base rent for
Through March 31,		for expiring leases			for expiring leases		of leases expiring		expiring leases
2013		$	877,128		26,879		13		28	%
2014		129,675			4,784		6		4	%
2015		603,167			29,816		10		19	%
2016		173,189			4,762		4		7	%
2017		1,065,382			37,808		8		34	%
2018		0			0		0		0	%
2019		0			0		0		0	%
2020		123,200			3,850		1		4	%
2021		64,657			1,106		1		2	%
2022		64,800			1,800		1		2	%
Totals		$	3,101,197		110,805		44		100	%

 

Rents receivable are net of an allowance for doubtful accounts of approximately $480,000 and $537,000 at March 31, 2012 and 2011, respectively.  Included in rents receivable at March 31, 2012 is approximately $280,000 resulting from

 

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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 $27,000 representing the deferral of rental concession primarily related to the residential properties.

 

For the three months ended March 31, 2012 rent at the commercial properties includes approximately $2,500 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 three months ended March 31, 2012 and 2011, cash paid for interest was approximately $1,961,000 and $1,980,000 respectively.  Cash paid for state income taxes was approximately $30,000 and $26,000 during the three months ended March 31, 2012 and 2011 respectively.

 

NOTE 12. FAIR VALUE MEASUREMENTS

 

Fair Value Measurements on a Recurring Basis

 

At March 31, 2012 and December 31, 2011, 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 March 31, 2012 and December 31, 2011 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 March 31, 2012 and December 31, 2011, 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 March 31, 2012 and December 31, 2011, 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.

 

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 March 31, 2012		$	138,887,116		$	153,486,682
At December 31, 2011		$	139,161,612		$	158,050,039
Investment Properties
At March 31, 2012		$	139,691,783		$	156,923,150

 

 

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Disclosure about fair value of financial instruments is based on pertinent information available to management as of March 31, 2012 and December 31, 2011.  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 March 31, 2012 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 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 $8,856,000 less than statement income for the year ended December 31, 2011. The primary reason for the decrease is the tax free sale of Avon Street and accelerated depreciation. The cumulative tax basis of the Partnership’s real estate at December 31, 2011 is approximately $12,000,000, less than the statement basis. The primary reasons for the lower tax basis are tax free exchanges, and accelerated depreciation. The Partnership’s tax basis in its joint venture investments is approximately $2,000,000 less than statement basis because of accelerated depreciation.

 

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.

 

Certain allowable accelerated depreciation deductions have been reduced by 50% in 2012 from 2011 and will be eliminated for 2013.  This will result in higher taxable income in those years.  Future tax law changes may significantly affect taxable income.

 

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 March 31, 2012, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations is from the year 2004 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 57%, 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.  The balance of this mortgage is approximately $89,452,000 at March 31, 2012.  In order to fund this investment, the Partnership used approximately $8,757,000 of its cash reserves and borrowed $7,168,600 with an interest rate of 6% from HBC Holdings, LLC, an entity owned by Harold Brown and his affiliates (“HBC”).  The term of the loan is four years with a provision requiring payment in whole or in part upon demand by HBC with six months notice.  On August 17, 2010, HBC gave six months written notice to the Partnership requesting a principal pay down of $2,500,000.  During the fourth quarter of 2010, the Partnership paid HBC $2,500,000 as requested. During 2011, the Partnership elected to make principal payments of $1,000,000 on August 1, 2011, $1,000,000 on October 3, 2011, and an additional $1,000,000 on December 15, 2011 reducing the loan balance to $1,668,600.  In February 2012, the Partnership elected to make an additional principal payment of $750,000 to HBC Holdings leaving the loan balance at $918,600.  The interest paid during the three months ended March 31, 2012 and 2011 was approximately $18,807 and $70,029 respectively.  On April 2, 2012, the balance of the loan, $918,600 was repaid to HBC and the interest for April was $153.  This loan was collateralized by the Partnership’s 99% ownership interest in 62 Boylston Street.   This investment, Hamilton Park Towers, LLC is referred to as Dexter Park.

 

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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.  The balance of this mortgage is $4,745,604 at March 31, 2012.  This investment is referred to as Hamilton Bay Apartments, LLC. 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 May 1, 2012, 105 units have been sold, 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 March 31, 2012. 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 $8,434,538 with interest only at 5.79% due in August 2016.  The mortgage on Essex Development, LLC, or the parking lot is  $2,131,893 with a variable interest rate of 2.25% over the daily Libor rate (0.24% at March 31, 2012). This loan was extended to August 2013 with the same conditions except for the addition of fixed principal payments in the amount of $4,301 per month. The cost associated with the extension was approximately $10,000. 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.   The balance of this mortgage is $4,980,237 at March 31, 2012.  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. The balance of this mortgage is $5,483,296 at March 31, 2012.  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.  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.  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 March 31, 2012, the remaining balance on the mortgage is approximately $15,818,000.

 

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 March 31, 2012 of approximately $6,978,000 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.

 

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Summary financial information as of March 31, 2012

 

		Hamilton Essex 81		Hamilton Essex Development		345 Franklin		Hamilton 1025		Hamilton Bay Sales		Hamilton Bay Apts		Hamilton Minuteman		Hamilton on  Main Apts		Dexter Park		Total
ASSETS
Rental Properties		9,356,056		2,612,441		8,130,633		5,803,255		1,900,710		7,187,774		7,226,200		21,732,865		111,614,723		175,564,657
Cash & Cash Equivalents		728		10,310		18		36		14,195		6,335		53,389		27,052		925,695		1,037,758
Rent Receivable		38,562				4,214		12,710		662		9,517		802		8,519		71,771		146,757
Real Estate Tax Escrow		97,575				37,805		66,735		—		91,144		42,984		104,274		532,983		973,500
Prepaid Expenses & Other Assets		79,815		197		85,712		91,752		168,599		98,145		74,321		256,429		1,240,741		2,095,713
Financing & Leasing Fees		68,301		4,367		14,288		23,415		5,303		31,014		18,926		19,727		444,166		629,507
Total Assets		9,641,037		2,627,315		8,272,669		5,997,904		2,089,470		7,423,929		7,416,622		22,148,866		114,830,078		180,447,892
LIABILITIES AND PARTNERS’ CAPITAL
Mortgage Notes Payable		8,434,538		2,131,893		6,977,967		4,980,237		1,668,000		4,745,604		5,483,296		15,818,388		89,451,858		139,691,783
Accounts Payable & Accrued Expense		48,138		5,459		74,832		49,511		23,664		31,671		138,907		210,546		935,504		1,518,234
Advance Rental Pmts & Security Deposits		144,534		—		127,574		76,067		18,342		88,727		65,361		249,290		1,855,441		2,625,336
Total Liabilities		8,627,211		2,137,352		7,180,373		5,105,816		1,710,006		4,866,003		5,687,565		16,278,224		92,242,803		143,835,352
Partners’ Capital		1,013,827		489,963		1,092,296		892,089		379,464		2,557,926		1,729,057		5.870,642		22,587,275		36,612,540
Total Liabilities & Capital		9,641,037		2,627,315		8,272,669		5,997,904		2,089,470		7,423,929		7,416,622		22,148,866		114,830,078		180,447,892
Partners’ Capital — NERA 50%		506,913		244,982		546,148		446,044		189,732		1,278,963		864,529		2,935,321				7,012,632
NERA 40%																		9,034,910		9,034,910
																				16,047,542
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 May 1, 2012		—		—		—		127		105		—		—		—		0		232
Unsold units		—		—		—		—		15		—		—		—		—		15
Unsold units with deposits for future sale as of May 1, 2012		—		—		—		—		0		—		—		—		—		—

 

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Table of Contents

 

Summary financial information for the three months ended March 31, 2012

 

		Hamilton Essex 81		Hamilton Essex Development		345 Franklin		Hamilton 1025		Hamilton Bay Sales		Hamilton Bay Apts		Hamilton Minuteman		Hamilton on Main Apts		Dexter Park		Total
Revenues
Rental Income		292,493		72,046		291,651		210,028		51,478		219,663		196,703		647,884		3,011,578		4,993,524
Laundry and Sundry Income		3,533		—		588		—		—		—		408		5,363		22,500		32,392
		296,026		72,046		292,239		210,028		51,478		219,663		197,111		653,246		3,034,078		5,025,915
Expenses
Administrative		3,275		567		6,505		291		2,207		8,360		950		13,795		42,862		78,811
Depreciation and Amortization		103,123		3,242		109,982		63,117		19,736		74,364		78,933		236,657		1,432,044		2,121,198
Management Fees		12,818		2,882		12,002		8,552		2,050		8,393		8,038		25,509		63,261		143,505
Operating		30,322				15,144		66		671		688		24,707		104,387		303,347		479,331
Renting		1,940				139		1,669		915		894		910		2,024		30,991		39,483
Repairs and Maintenance		22,552		375		15,845		69,794		16,767		64,381		11,976		94,359		144,769		440,817
Taxes and Insurance		50,186		12,342		25,265		36,921		11,642		40,775		25,410		85,124		380,130		667,794
		224,216		19,408		184,879		180,410		53,988		197,856		150,925		561,854		2,397,403		3,970,939
Income Before Other Income		71,810		52,638		107,360		29,618		(2,510	)	21,807		46,186		91,392		636,675		1,054,976
Other Income (Loss)
Interest Expense		(124,483	)	(15,293	)	(124,599	)	(72,020	)	(24,426	)	(67,690	)	(79,357	)	(209,719	)	(1,272,739	)	(1,990,325	)
Interest Income		—		—		12		20		61		—		—		—		—		92
Interest Income from Note		—		—		—		—		1,808		—		—		—		—		1,808
		(124,483	)	(15,293	)	(124,587	)	(72,000	)	(22,557	)	(67,690	)	(79,357	)	(209,719	)	(1,272,739	)	(1,988,425	)
Net Income (loss)		(52,672	)	37,345		(17,228	)	(42,382	)	(25,068	)	(45,882	)	(33,171	)	(118,326	)	(636,064	)	(933,448	)
Net Income (loss) - NERA 50%		(26,336	)	18,672		(8,614	)	(21,191	)	(12,534	)	(22,941	)	(16,586	)	(59,163	)			(148,692	)
NERA 40%																		(254,425	)	(254,425	)
																				(403,118	)

 

Future annual mortgage maturities at March 31, 2012 are as follows:

 

		Hamilton Essex 81		Hamilton Essex Development		345 Franklin		Hamilton 1025		Hamilton Bay Sales		Hamilton Bay Apts		Hamilton Minuteman		Hamilton on  Main Apts		Dexter Park
Period End		March 2005		March 2005		November 2001		March 2005		October 2005		October 2005		August 2004		August 2004		October 2009		Total
March 31, 2013		128,963		2,131,893		171,872		62,402				64,197		68,345		281,870		1,251,775		4,161,318
March 31, 2014		127,488				6,806,096		66,085		1,668,000		67,089		72,379		297,208		1,293,683		10,398,029
March 31, 2015		135,069						69,986				70,922		76,651		15,239,310		1,367,610		16,959,548
March 31, 2016		8,043,019						73,370				74,975		80,353				1,445,761		9,717,478
March 31, 2017								4,708,394				4,468,420		5,185,568				1,528,378		15,890,760
Thereafter																		82,564,652		82,564,652
		8,434,538		2,131,893		6,977,967		4,980,237		1,668,000		4,745,604		5,483,296		15,818,388		89,451,858		139,691,783

 

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