NEN New England Realty Associates

Statement of Revenue and Certain Expenses for the Year ended December 31, 2018 and the unaudited Statement of Revenue and Certain Expenses for the Nine Months ended September 30, 2019

Notes to Statement of Revenue and Certain Expenses for the Year ended December 31, 2018 and the unaudited Statement of Revenue and Certain Expenses for the Nine Months ended September 30, 2019

See Notes to the Statement of Revenue and Certain Expenses

Country Club Garden Apartments

Notes to Statement of Revenue and Certain Expenses

Year ended December 31, 2018

And for the Nine Months ended September 30, 2019

(unaudited)

1. Organization

On October 2, 2019, The Hamilton Company, Inc., an affiliate of New England Realty Associates Limited Partnership, entered into a Purchase and Sale Agreement dated as of September 27, 2019 with Ninety-Three Realty Limited Partnership and the other sellers named therein to purchase the property known as Country Club Garden Apartments, a 181 unit apartment complex located at 57 Mill Street, Woburn, Massachusetts for an aggregate purchase price of $59,550,000.

On December 20, 2019, Mill Street Gardens, LLC (“Mill Street”), a wholly-owned subsidiary of the Partnership closed on a Purchase Agreement pursuant to which Mill Street acquired Country Club Garden Apartments, a 181 unit apartment complex located at 57 Mill Street, Woburn, Massachusetts (the “Property”) for an aggregate purchase price of $59,550,000. Mill Street funded $18,000,000 of the purchase price out of an existing line of credit, $10,550,000 of the cash portion of the purchase price out of cash reserves and the remaining $31,000,000 from the proceeds of the Loan described in Item 2.03. The Purchase Agreement was filed as Exhibit 10.1 to the Partnership’s Form 8-K filed with the Securities and Exchange Commission on October 8, 2019.

On December 20, 2019, Mill Street entered into a Loan Agreement with Insurance Strategy Funding Corp. LLC providing for a loan (the “Loan”) in the maximum principal amount of $35,000,000, consisting of an initial advance of $31,000,000 and a subsequent advance of up to $4,000,000 if certain conditions are met. Interest on the Note is payable on a monthly basis at a fixed interest rate of: (i) 3.586% per annum with respect to the initial advance and (ii) the greater of (A) the sum of the market spread rate and the interpolated (based on the remaining term of the Loan) US Treasury rate at the time of the advance and (B) 3.500% with respect to any subsequent advance. The principal amount of the Note is due and payable on January 1, 2035. The Note is secured by a mortgage on the Property pursuant to a Mortgage, Assignment of Leases and Rents and Security Agreement dated December 20, 2019 .The Note is guaranteed by the Partnership pursuant to a Guaranty Agreement dated December 20, 2019.

Mill Street intends to use the proceeds of the initial advance under the Loan to pay a portion of the purchase price for the Property. If it draws on the additional $4,000,000, it intends to use those proceeds to pay down the line of credit that partially funded the purchase of the Property and for other Partnership expenses. The description of the terms of the Note, Mortgage and Guaranty are qualified by reference to the text of the respective documents. 

2. Basis of Presentation and Significant Accounting Policies

The accompanying statement of revenue and certain expenses of Mill Street (the “statement”) has been prepared in accordance with the rules of Regulation S-X of the Securities and Exchange Commission for inclusion in the Partnership's Current Report on Form 8-K/A. Accordingly, the statement of revenue and certain expenses excludes certain expenses that may not be comparable to those expected to be incurred in the future operations of the aforementioned property. Items excluded consist of interest expense, depreciation, amortization, corporate expenses, and other costs not directly related to future property operations.

Use of Estimates

The preparation of the statement of revenue and certain expenses in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the statement of revenue and certain expenses and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

Rental revenue is recognized monthly over the terms of the lease. Leases are generally for a one-year term. No single tenant accounted for more than 5% of the Property’s revenue in the year ended December 31, 2018, or the nine months ended September 30, 2019.

Unaudited Interim Information

The statement of revenue and certain expenses for the nine months ended September 30, 2019 is unaudited. In the opinion of management, the statement reflects all adjustments necessary for a fair presentation of the results of the interim period. All such adjustments are of a normal recurring nature. The results of operations for the period are not necessarily indicative of the Property's future results of operations.

3. Income Taxes

Country Club Garden Apartments is a 181 unit apartment complex, and is not directly subject to income taxes.

4. Subsequent Events

Country Club Garden Apartments evaluated subsequent events through March 2, 2020, the date the statement was available to be issued.

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma consolidated balance sheet as of September 30, 2019 gives effect to the New England Realty Associates Limited Partnership acquisition and financing described in Note A as if such transaction had been completed as of September 30, 2019. The following unaudited pro forma consolidated income statements for the nine months ended September 30, 2019, and for the year ended December 31, 2018, which reflects amounts prior to the acquisition date that are based on historic operations under the property’s previous ownership, are presented as if the acquisition and financings were effective January 1, 2018.

The pro forma information is based on the historical financial statements of NERA and Country Club Garden Apartments and gives effect to the transactions, assumptions and adjustments described in the accompanying notes to the unaudited pro forma consolidated financial statements. In addition, these unaudited pro forma financial statements do not purport to project the future financial position or operating results of the entities.

The pro forma statements are not necessarily indicative of the results that actually would have been achieved if the acquisition and financing had occurred as assumed. They should be read in conjunction with the historical financial statements of NERA, included in its Form 10-K for the year ended December 31, 2018, its Forms 10-Q for the three, six, and nine months ended March 31, June 30, and September 30, 2019, and the historical operating summary of Country Club Garden Apartments elsewhere herein.

As previously mentioned, on December 20, 2019, Mill Street Gardens, LLC, a wholly-owned subsidiary of New England Realty Associates Limited Partnership closed on a Purchase Agreement dated as of September 27, 2019 with Ninety-Three Realty Limited Partnership pursuant to which Mill Street acquired Country Club Garden Apartments, a 181 unit apartment complex located at 57 Mill Street, Woburn, Massachusetts for an aggregate purchase price of $59,550,000 . Mill Street funded $18,000,000 of the purchase price out of an existing line of credit, $10,550,000 of the purchase price out of cash reserves and the remaining $31,000,000 from the proceeds of the Loan described in Item 2.03. The Purchase Agreement was filed as Exhibit 10.1 to the Partnership’s Form 8-K filed with the Securities and Exchange Commission on October 8, 2019.

The partnership’s management considered many factors in assessing the acquisition of the Country Club Garden Apartments property. These factors included the level of rental income of the property, the availability of rental units and Country Club’s competitors in the Woburn market place and its occupancy level. Management also considered potential changes in expenses due to economies of scale expected to be obtained via Country Club’s proximity to other properties of the Partnership, expense reductions expected from planned changes, potential increases in real estate taxes, as well as other matters.

The Partnership does not have a material relationship or significant business activities with the seller of the Property and the acquisition is not an affiliated transaction.

Pro forma information is intended to provide investors with information about the impact of transactions by showing how specific transactions might have affected historical financial statements, illustrating the scope of the change in the historical financial position and results of operations. The adjustments made to historical information give effect to events that are directly attributable to the acquisition of the property and are factually supportable. The unaudited Pro Forma Consolidated Financial Statements are prepared in accordance with Regulation S-X.

The unaudited Pro Forma Consolidated Financial Statements set forth below are not facts and there can be no assurance that the Partnership’s results would not have differed significantly from those set forth below if the acquisition had actually occurred on January 1, 2018. Accordingly, the unaudited Pro Forma Consolidated Financial Statements are presented for illustrative purposes only and do not purport to represent, and are not necessarily indicative of what our actual financial position and results of operations would have been had the acquisition of the property occurred on the dates indicated, nor are they indicative of our future financial position or results of operations. Readers are cautioned not to place undue reliance on such information and the Partnership makes no representations regarding the information set forth below or its ultimate performance compare to it. The unaudited Pro Forma Consolidated Financial Statements exclude any non-recurring charges or credits directly attributable to the acquisition.

ADJUSTMENTS TO PRO FORMA SEPTEMBER 30, 2019 BALANCE SHEET

The above reflects the pro forma acquisition cost of Country Club Garden Apartments in the amount of $59,550,000: $18,000,000 borrowed under the Partnership’s outstanding line of credit with KeyBank, NA, at the interest rate of 5.52% at September 30, 2019, and $31,000,000 from Insurance Strategy Funding Corp, LLC, with interest on the Note payable on a monthly basis at a fixed interest rate of 3.586% per annum. The principal amount of the note is due and payable on January 1, 2035. The Partnership has analyzed the fair value of in-place leases and other intangibles as well as the allocation of the building purchase price to specific assets classes. The mortgage note acquisition costs of approximately $211,000 have been offset against the mortgage note payable.

A. ADJUSTMENTS TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019:

B. ADJUSTMENTS TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2018:

C. NERA PRO FORMA TAXABLE INCOME

D. NERA PRO FORMA CASH AVAILABLE BY OPERATIONS