NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP - Quarter Report: 2013 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, 2013

 

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)

 

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, 2013, there were 104,032 of the registrant’s Class A units (3,120,952 Depositary Receipts) of limited partnership issued and outstanding and 24,708 Class B units issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE:  None.

 

 

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NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP

 

INDEX

 

	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012	3
	Consolidated Statements of Income for the Three Months Ended March 31, 2013 and 2012	4
	Consolidated Statements of Changes in Partners’ Capital for the Three Months Ended March 31, 2013 and 2012	5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosure	32
Item 5.	Other Information	32
Item 6.	Exhibits	32
SIGNATURES		32

 

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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, 2012 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, 2012.

 

The results of operations for the three month period ended March 31, 2013 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,
		2013			2012
		Unaudited
ASSETS
Rental Properties		$	94,756,338		$	94,973,600
Property held for Sale		475,237			462,250
Cash and Cash Equivalents		3,379,431			6,981,906
Rents Receivable		391,760			475,083
Real Estate Tax Escrows		345,585			449,652
Prepaid Expenses and Other Assets		2,656,323			3,073,890
Investments in Unconsolidated Joint Ventures		13,329,316			13,986,173
Financing and Leasing Fees		1,239,526			1,135,936
Total Assets		$	116,573,516		$	121,538,490
LIABILITIES AND PARTNERS’ CAPITAL
Mortgage Notes Payable		133,867,404			138,055,522
Accounts Payable and Accrued Expenses		1,966,494			2,361,942
Advance Rental Payments and Security Deposits		3,728,455			3,636,704
Total Liabilities		139,562,353			144,054,168
Commitments and Contingent Liabilities (Notes 3 and 9)		—			—
Partners’ Capital 130,040 and 130,444 units outstanding in 2013 and 2012 respectively		(22,988,837		)	(22,515,678		)
Total Liabilities and Partners’ Capital		$	116,573,516		$	121,538,490

 

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 March 31,
		2013			2012
Revenues
Rental income		$	8,924,007		$	8,640,863
Laundry and sundry income		95,686			92,139
		9,019,693			8,733,002
Expenses
Administrative		452,619			485,493
Depreciation and amortization		1,454,131			1,495,048
Management fee		369,252			347,181
Operating		1,432,175			1,225,750
Renting		29,851			46,383
Repairs and maintenance		1,081,279			1,052,344
Taxes and insurance		1,160,930			1,130,192
		5,980,237			5,782,391
Income Before Other Income and Discontinued Operations		3,039,456			2,950,611
Other Income (loss)
Interest income		364			638
Interest expense		(1,841,069		)	(1,934,463		)
(Loss) from investments in unconsolidated joint ventures		(316,857		)	(403,117		)
		(2,157,562		)	(2,336,942		)
Income From Continuing Operations		881,894			613,669
Discontinued Operations
Income from discontinued operations		19,731			13,284
Net Income		$	901,625		$	626,953
Income per Unit
Income before discontinued operations		$	6.77		$	4.67
Income from discontinued operations		0.15			0.10
Net Income per Unit		$	6.92		$	4.77
Weighted Average Number of Units Outstanding		130,244			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												Partners’s Capital
		Limited				General				Treasury				Limited						General
		Class A		Class B		Partnership		Subtotal		Units		Total		Class A			Class B			Partnership			Total
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	)
Balance January 1, 2013		144,180		34,243		1,802		180,225		49,781		130,444		$	(18,017,082	)	$	(4,273,666	)	$	(224,929	)	$	(22,515,677	)
Distribution to Partners		—		—		—		—		—		—		(780,238		)	(185,307		)	(9,753		)	(975,298		)
Stock Buyback		—		—		—		—		404		(404	)	(321,240		)	(74,335		)	(3,912		)	(399,487		)
Net Income		—		—		—		—		—		—		721,299			171,309			9,016			901,625
Balance March 31, 2013		144,180		34,243		1,802		180,225		50,185		130,040		$	(18,397,261	)	$	(4,361,999	)	$	(229,578	)	$	(22,988,837	)

 

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,
		2013			2012
Cash Flows from Operating Activities
Net income		$	901,625		$	626,953
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		1,454,131			1,495,048
Loss from investments in joint venture		316,857			403,117
Depreciation and amortization - discontinued operations		903			18,997
Change in operating assets and liabilities
Decrease in rents receivable		83,323			10,955
Increase (Decrease) in accounts payable and accrued expense		(395,448		)	27,629
(Increase) Decrease in real estate tax escrow		104,067			(21,937		)
Decrease in prepaid expenses and other assets		410,909			88,870
Increase (decrease) in advance rental payments and security deposits		91,751			(48,486		)
Total Adjustments		2,066,493			1,974,193
Net cash provided by operating activities		2,968,118			2,601,146
Cash Flows from Investing Activities
Proceeds from unconsolidated joint ventures		347,659			330,000
(Investment in) unconsolidated joint ventures		(7,659		)
Improvement of rental properties		(1,207,528		)	(365,918		)
Net cash (used in) investing activities		(867,528		)	(35,918		)
Cash Flows from Financing Activities
Payment of financing costs		(140,162		)	(25,927		)
Principal payments of note payable		—			(750,000		)
Proceeds of mortgage notes payable		15,000,000
Principal payments and payoffs of mortgage notes payable		(19,188,118		)	(274,496		)
Stock buyback		(399,487		)	—
Distributions to partners		(975,298		)	(986,134		)
Net cash (used in) financing activities		(5,703,065		)	(2,036,557		)
Net (Decrease) Increase in Cash and Cash Equivalents		(3,602,475		)	528,671
Cash and Cash Equivalents, at beginning of period		6,981,906			4,050,157
Cash and Cash Equivalents, at end of period		$	3,379,431		$	4,578,828

 

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, 2013

 

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 9 residential and mixed use properties consisting of 798 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 a 40 - 50% ownership interest. The consolidated group is referred to as the “Partnership.” Minority interests are not recorded, since they are insignificant. All significant intercompany accounts and transactions are eliminated in consolidation. The Partnership accounts for its investment in the above-mentioned Investment Properties using the equity method of consolidation. (See Note 14: Investments in Unconsolidated Joint Ventures).

 

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

 

Impairment:  On an annual basis management assesses whether there are any indicators that the value of the Partnership’s rental properties or investments in unconsolidated subsidiaries may be impaired.  In addition to identifying any 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,

 

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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.

 

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.

 

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.

 

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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 2013 and 2012 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 2013 and 2012. The Partnership makes its temporary cash investments with high-credit quality financial institutions.  At March 31, 2013, 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 0.45%.  At March 31, 2013 and 2012, respectively approximately $4,393,000 and $5,604,000 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 $11,535 and $22,737 for the three months ended March 31, 2013 and 2012, 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, 2013 and 2012 there was no capitalized interest.

 

Extinguishment of Debt: When existing mortgages are refinanced with the same lender and it is determined that the refinancing is substantially different then they 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. Reclassifications:  Certain reclassifications have been made to prior period amounts in order to conform to current period presentation.

 

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NOTE 2. RENTAL PROPERTIES

 

As of March 31, 2013, 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, 2013, the Partnership and its 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, 2013 with a total of 798 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, 2013			December 31, 2012			Useful Life
Land, improvements and parking lots		$	27,782,939		$	27,743,726		15—40 years
Buildings and improvements		119,520,197			118,739,283			15—40 years
Kitchen cabinets		3,746,148			3,544,868			5—10 years
Carpets		3,313,859			3,218,975			5—10 years
Air conditioning		746,043			746,043			5—10 years
Laundry equipment		378,806			378,806			5—7 years
Elevators		1,139,296			1,139,296			20-40 years
Swimming pools		235,242			235,242			10-30 years
Equipment		1,593,094			1,529,904			5—7 years
Motor vehicles		101,657			101,657			5 years
Fences		22,445			22,445			5—15 years
Furniture and fixtures		1,046,409			1,031,348			5—7 years
Smoke alarms		193,298			193,298			5—7 years
Total fixed assets		159,819,433			158,624,893
Less: Accumulated depreciation		(65,063,095		)	(63,651,293		)
		$	94,756,338		$	94,973,600

 

On April 8, 2013, the Partnership entered into a purchase and sales agreement to sell the Nashoba Apartments in Acton, Massachusetts.  As of March 31, 2013, the book value of the property at Nashoba Apartments is $475,237, which is included as Property Held for Sale in the consolidated balance sheets.  The total sales price is $4,300,000.  The closing date is expected to occur in May 2013. The Partnership’s net proceeds from the sale of Nashoba will be approximately $2,150,000 and the gain on the sale will be approximately $3,830,000.

 

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 gross receipts rental revenue and laundry income on the majority of the Partnership’s properties and 3% on Linewt, LLC.  Total fees paid including discontinued operations were approximately $374,000 and $352,000 during the three months ended March 31, 2013 and 2012.

 

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, 2013 and 2012, approximately $214,000 and $153,000 was charged to NERA for legal, accounting, construction, maintenance, rental and architectural services and supervision of capital improvements.  Of the 2013 expenses referred to above, approximately $88,000 consisted of repairs and maintenance and $88,000 of administrative expense.  Approximately $38,000 of expenses for construction, architectural services and supervision of capital projects were capitalized in rental properties. Additionally in 2013, the Hamilton Company received approximately $186,000 from the Investment Properties of which approximately $145,000 was the management fee, approximately $2,000 was for construction, architectural services and supervision of capital

 

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projects, approximately $28,000 was for maintenance services and approximately $11,000 was for administrative services. The management fee is equal to 4% of gross receipts 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 $752,000, and $657,000 for the three months ended March 31, 2013 and 2012, 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 2013 and 2012.

 

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, 2013 and 2012 the Management Company charged the Partnership $31,250 ($125,000 per year) for bookkeeping and accounting services included in administrative expenses 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, 2013 and 2012 this individual received a quarterly fee of $18,750.

 

The Partnership has invested in nine limited partnerships, which have invested in mixed use residential apartment complexes. The Partnership has a 40% to 50% ownership interest in each investment property. 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%. See Note 14 for a description of the properties and their operations.

 

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 (“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 and the balance of $918,600 was paid in full in April 2012. The interest paid during the year ended December 31, 2012 was $18,960.

 

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

 

NOTE 4. OTHER ASSETS

 

Approximately $1,935,000 and $1,919,000 of security deposits are included in prepaid expenses and other assets at March 31, 2013 and December 31, 2012, respectively. The security deposits and escrow accounts are restricted cash.

 

Included in prepaid expenses and other assets at March 31, 2013 and December 31, 2012 is approximately $101,000 and $420,000, respectively, held in escrow to fund future capital improvements.

 

Financing fees of approximately $1,240,000 and $1,136,000 are net of accumulated amortization of approximately $741,000 and $772,000 at March 31, 2013 and December 31, 2012, respectively.

 

NOTE 5. MORTGAGE NOTES PAYABLE

 

At March 31, 2013 and December 31, 2012, 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, 2013, the interest rates on these loans ranged from 3.25% to 7.07%, payable in monthly installments aggregating approximately $665,000, including principal, to various dates through 2026. The majority of the mortgages are subject to prepayment penalties.  At March 31, 2013, the weighted average interest rate on the above mortgages was 5.3%. The effective rate of 5.4% 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

 

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unconsolidated joint ventures generally is non-recourse except for customary exceptions pertaining to misuse of funds and material misrepresentations.

 

The Partnership has pledged tenant leases as additional collateral for certain of these loans.

 

Approximate annual maturities at March 31, 2013 are as follows:

 

2014—current maturities		$	22,304,000
2015		16,522,000
2016		197,000
2017		481,000
2018		1,720,000
Thereafter		92,643,000
		$	133,867,000

 

On February 25, 2013, the Partnership paid off the mortgage of approximately $3,697,000 on Hamilton Cypress LLC. There was no penalty on the early payoff.  The funds used to pay off the mortgage were from the Partnerships cash reserves.

 

On March 11, 2013, the Partnership refinanced the property located at School Street.  The new loan is $15,000,000 with an interest rate of 3.7% due in 2023.  The loan calls for interest only for three years followed by principal and interest payments over the remainder of the loan term. The costs associated with this refinancing were approximately $159,000.

 

The Partnership is currently in the process of refinancing the mortgages at Boylston Downtown LLC, and Westgate Apartments LLC.  The total amount expected to be refinanced is approximately $27,000,000. The amount of the new loans will total approximately $47,000,000 resulting in additional debt of approximately $20,000,000.  As of March 31, 2013, the Partnership has paid approximately $301,000 of financing costs related to the expected refinancing.  This amount is included in financing and leasing fees in consolidated balance sheets.  The Partnership may incur prepayment penalties of approximately $125,000 in connection with this refinancing.  The Partnership has no lender commitment at this time and anticipates closing on these mortgages by the end of the third quarter of 2013.

 

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, 2013, amounts received for prepaid rents of approximately $1,358,000 are included in cash and cash equivalents, and security deposits of approximately $1,935,000 are included in prepaid expenses and 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 distributable cash. 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 February 4, 2013, 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, 2013 and payable on March 31, 2013, of $7.50 per unit and $0.25 per receipt.

 

In 2012, the Partnership paid quarterly distributions of $7.50 per unit ($0.25 per receipt) in March, June, September, and December for a total distribution of $30.00 per unit ($1.00 per receipt).

 

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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,
		2013			2012
Income per Depositary Receipt before Discontinued Operations		$	0.23		$	0.16
Income from Discontinued Operations		—			—
Net Income per Depositary Receipt after Discontinued Operations		$	0.23		$	0.16
Distributions per Depositary Receipt		$	0.25		$	0.25

 

NOTE 8. TREASURY UNITS

 

Treasury Units at March 31, 2013 are as follows:

 

Class A		40,148
Class B		9,535
General Partnership		502
		50,185

 

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 300,000 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 300,000 to 600,000 Depositary Receipts. On January 30, 2008 the General Partner authorized an increase the Repurchase Program from 600,000 to 900,000 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 900,000 to1, 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 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 B and General Partner Units under the Partnership’s Second Amended and Restated 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, 2013, the Partnership has repurchased 1,229,636 Depositary Receipts at an average price of $24.68 per receipt (or $740.40 per underlying Class A Unit), 1,998 Class B Units and 105 General Partnership Units, both at an average price of $627.53 per Unit, totaling approximately $31,786,000 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.

 

During the three months ended March 31, 2013, the Partnership purchased 9,709 Depositary Receipts for a cost of $321,240, 77 Class B Units for a cost of $74,335 and 4 General Partnership Units for a cost of $3,912 for a total cost of $399,487.

 

From April 1, 2013 through May 10, 2013, the Partnership did not purchase any Depositary Receipts.

 

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NOTE 9. COMMITMENTS AND CONTINGENCIES

 

From time to time, the Partnership is 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 Partnership is not involved in any material pending legal proceedings.

 

NOTE 10. RENTAL INCOME

 

During the three months ended March 31, 2013, approximately 91% 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 9% was related to commercial properties, which have minimum future annual rental income on non-cancellable operating leases at March 31, 2013 as follows:

 

		Commercial Property Leases
2014		$	2,294,000
2015		1,926,000
2016		1,528,000
2017		1,094,000
2018		432,000
Thereafter		679,000
		$	7,953,000

 

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 $175,000 and $156,000 for the three months ended March 31, 2013 and 2012, respectively.

 

The following information is provided for commercial leases:

 

		Annual base rent for expiring leases			Total square feet for expiring leases		Total number of leases expiring		Percentage of Annual base rent for expiring leases
Through March 31,
2014		$	117,290		4,243		5		5	%
2015		664,999			32,537		13		28	%
2016		189,521			5,457		5		8	%
2017		657,732			29,023		4		27	%
2018		383,715			10,047		5		16	%
2019		58,050			1,262		1		2	%
2020		200,375			5,800		2		8	%
2021		64,657			1,106		1		3	%
2022		64,800			1,800		1		3	%
2023		0			0		0		0	%
Totals		$	2,401,138		91,275		37		100	%

 

Rents receivable are net of an allowance for doubtful accounts of approximately $449,000 and $381,000 at March 31, 2013 and December 31, 2012.  Included in rents receivable at March 31, 2013 is approximately $194,000 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 at March 31, 2013 also includes approximately $27,000 representing the deferral of rental concession primarily related to the residential properties.

 

For the three months ended March 31, 2013 rent at the commercial properties includes approximately $550 of amortization of deferred rents arising from the fair values assigned to in-place leases upon the purchase of Cypress Street in Brookline, Massachusetts.

 

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NOTE 11. CASH FLOW INFORMATION

 

During the three months ended March 31, 2013 and 2012, cash paid for interest was approximately $1,869,000, and $1,961,000 respectively.  Cash paid for state income taxes was approximately $19,000, $30,000 during the three months ended March 31, 2013 and 2012 respectively.

 

NOTE 12. FAIR VALUE MEASUREMENTS

 

Fair Value Measurements on a Recurring Basis

 

At March 31, 2013 and December 31, 2012, 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, 2013 and December 31, 2012 the carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable,  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, 2013 and December 31, 2012, 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, 2013 and December 31, 2012, 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, accounts receivable, 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, 2013		$	133,867,404		$	148,516,305
At December 31, 2012		$	138,055,523		$	155,942,880
Investment Properties
At March 31, 2013		$	137,732,039		$	154,828,019
At December 31, 2012		$	138,256,711		$	157,983,030

 

Disclosure about fair value of financial instruments is based on pertinent information available to management as of March 31, 2013 and December 31, 2012. 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, 2013 and current estimates of fair value may differ significantly from the amounts presented herein.

 

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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 $530,000 greater than statement income for the year ended December 31, 2012. The primary reason for the increase is reduced tax depreciation due to tax free exchanges and accelerated depreciation in prior years.  The cumulative tax basis of the Partnership’s real estate at December 31, 2012 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 $1,700,000 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.

 

Allowable accelerated depreciation deductions have been reduced for 2013.  This may result in higher taxable income.  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, 2013, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations is from the year 2007 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 was $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 $88,301,000 at March 31, 2013.  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 (“HBC”).  The term of the loan was 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 1, 2011, and an additional $1,000,000 on December 15, 2011 reducing the loan balance to $1,668,600 at December 31, 2011.  In February 2012, the Partnership elected to make an additional principal payment of $750,000 to HBC Holdings and the balance of $918,600 was paid in April 2012. The interest paid during the three months ended March 31, 2012 was $18,807.  There was no interest paid on this loan in 2013.  A majority of the apartments were leased at the time of the acquisition.  As a result, the Partnership amortized the intangible assets associated with the “in place” leases over a 12 month period which began in November 2009.  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 were taxed at ordinary income rates. In February 2007, the Partnership refinanced the 48 units 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.  As of

 

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March 31, 2013, the balance of the mortgage is approximately $ 4,686,000.  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.  At March 31, 2013, 15 of the 20 units are still owned by the Partnership.  As of May 1, 2013, 105 units have been sold, the proceeds of which went to pay down the mortgage on the property.  No unit was sold during the three months ended March 31, 2013. The balance on the new mortgage is approximately $1,668,000 at March 31, 2013. Hamilton Bay is in the process of refinancing the mortgage on this property.  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 balance on Hamilton Essex 81, LLC on March 31, 2013 is approximately $8,322,000 amortizing over 30 years at 5.79% due in August 2016.  The mortgage balance on Essex Development, LLC, at March 31, 31, 2013 or the parking lot is approximately $2,080,000 with a variable interest rate of 2.25% over the daily Libor rate (0.2037% at March 31, 2013). This loan was extended to August 2014 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 $6,000. 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 approximately $4,918,000 at March 31, 2013.  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.  At March 31, 2013, the balance of this mortgage is approximately $5,415,000.  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. 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 was $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, 2013, the remaining balance on the mortgage is approximately $15,536,000.

 

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,

 

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2013 of approximately $6,806,000 at 6.9% which is amortized on a 30-year schedule, with a final payment of approximately $6,000,000 in 2014. The Partnership plans to refinance the mortgage on Franklin Street in June 2013.  The new mortgage will be $10,000,000; the interest rate is 3.87% and the note will be amortized over 30years.  This investment is referred to as 345 Franklin, LLC.

 

Summary financial information as of March 31, 2013

 

					Hamilton															Hamilton			Hamilton
		Hamilton			Essex			345			Hamilton			Hamilton			Hamilton			Minuteman			on Main			Dexter
		Essex 81			Development			Franklin			1025			Bay Sales			Bay Apts			Apts			Apts			Park			Total
ASSETS
Rental Properties		$	9,015,547		$	2,609,952		$	7,788,886		$	5,563,140		$	1,824,421		$	6,900,646		$	6,965,331		$	20,884,885		$	106,099,815		$	167,652,622
Cash & Cash Equivalents		11,201			19,577			25,807			7,151			16,776			20,043			20,106			125,776			998,232			1,244,669
Rent Receivable		39,722			—			251			5,179			4,816			958			4,444			2,510			26,486			84,365
Real Estate Tax Escrow		49,793			—			45,617			74,350			—			47,332			39,197			72,665			392,816			721,770
Prepaid Expenses & Other Assets		70,830			202			102,039			36,541			135,511			16,689			48,597			202,059			1,429,338			2,041,805
Financing & Leasing Fees		59,745			2,703			21,122			18,389			4,239			24,652			14,958			12,865			384,849			543,522
Total Assets		$	9,246,838		$	2,632,434		$	7,983,722		$	5,704,750		$	1,985,762		$	7,010,321		$	7,092,631		$	21,300,760		$	109,331,535		$	172,288,753
LIABILITIES AND PARTNERS’ CAPITAL
Mortgage Notes Payable		$	8,321,852		$	2,080,281		$	6,806,096		$	4,917,835		$	1,668,000		$	4,685,952		$	5,414,951		$	15,536,345		$	88,300,726		$	137,732,039
Accounts Payable & Accrued Expense		39,583			6,605			139,062			50,520			24,837			25,610			70,985			200,054			868,482			1,425,738
Advance Rental Pmts& Security Deposits		160,144			—			162,681			83,076			25,592			81,290			69,598			275,348			1,977,679			2,835,409
Total Liabilities		8,521,579			2,086,886			7,107,839			5,051,431			1,718,430			4,792,851			5,555,535			16,011,748			91,146,887			141,993,186
Partners’ Capital		725,259			545,549			875,883			653,319			267,333			2,217,470			1,537,096			5,289,012			18,184,648			30,295,567
Total Liabilities and Capital		$	9,246,838		$	2,632,434		$	7,983,722		$	5,704,750		$	1,985,762		$	7,010,321		$	7,092,631		$	21,300,760		$	109,331,535		$	172,288,753
Partners’ Capital - NERA 50%		$	362,629		$	272,774		$	437,941		$	326,659		$	133,666		$	1,108,735		$	768,548		$	2,644,506					6,055,460
Partners’ Capital - NERA 40%																										$	7,273,859		7,273,859
																													$	13,329,319
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 April 30, 2013		—			—			—			127			105			—			—			—			—			232
Unsold units		—			—			—			—			15			—			—			—			—			15
Unsold units with deposits for future sale as of April 30, 2013		—			—			—			—			—			—			—			—			—			—

 

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