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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

OR

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)

Massachusetts

04-2619298

(State or other jurisdiction of

(I.R.S. employer

incorporation or organization)

identification no.)

39 Brighton Avenue, Allston, Massachusetts

02134

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617783-0039

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  No 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted 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   No 

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

Large accelerated filer

Accelerated Filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

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

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Class A

NEN

NYSE MKT Exchange

As of August 6, 2021, there were 97,405 of the registrant’s Class A units (2,922,151 Depositary Receipts) of limited partnership issued and outstanding and 23,134 Class B units issued and outstanding.

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP

INDEX

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

3

Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

4

Consolidated Statements of Income for the Three and Six Months Ended June 30, 2021 and 2020

5

Consolidated Statements of Changes in Partners’ Capital for the Six Months Ended June 30, 2021 and 2020

6

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

7

Notes to Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

Controls and Procedures

39

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 3.

Defaults Upon Senior Securities

40

Item 4.

Mine Safety Disclosure

40

Item 5.

Other Information

40

Item 6.

Exhibits

40

SIGNATURES

42

2

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, 2020 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, 2020.

The results of operations for the three and six month period ended June 30, 2021 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.

3

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 30,

December 31,

 

    

2021

    

2020

 

ASSETS

(Unaudited)

Rental Properties

$

258,204,893

$

264,609,887

Cash and Cash Equivalents

 

23,367,379

 

18,646,972

Rents Receivable

 

1,150,860

 

1,412,074

Real Estate Tax Escrows

 

566,228

 

534,941

Prepaid Expenses and Other Assets

 

5,501,597

 

5,054,959

Investments in Unconsolidated Joint Ventures

 

1,416,958

 

1,410,769

Total Assets

$

290,207,915

$

291,669,602

LIABILITIES AND PARTNERS’ CAPITAL

Mortgage Notes Payable

282,438,864

283,444,533

Notes Payable

17,000,000

17,000,000

Distribution and Loss in Excess of Investment in Unconsolidated Joint Venture

 

22,328,026

 

21,339,743

Accounts Payable and Accrued Expenses

 

4,312,362

 

3,888,237

Advance Rental Payments and Security Deposits

 

7,659,718

 

7,466,134

Total Liabilities

 

333,738,970

 

333,138,647

Commitments and Contingent Liabilities (Notes 3 and 9)

 

 

Partners’ Capital 121,756 and 121,756 units outstanding in 2021 and 2020 respectively

 

(43,531,055)

 

(41,469,045)

Total Liabilities and Partners’ Capital

$

290,207,915

$

291,669,602

See notes to consolidated financial statements.

4

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

    

2020

    

2021

    

2020

 

Revenues

Rental income

$

15,333,216

$

15,646,814

$

30,313,332

$

31,900,244

Laundry and sundry income

 

114,128

 

112,292

 

222,801

 

234,446

 

15,447,344

 

15,759,106

 

30,536,133

 

32,134,690

Expenses

Administrative

 

559,818

 

512,195

 

1,212,004

 

1,096,853

Depreciation and amortization

 

3,943,664

 

4,601,617

 

7,849,582

 

9,167,084

Management fee

 

616,348

 

615,541

 

1,221,739

 

1,264,534

Operating

 

1,407,646

 

1,291,781

 

3,453,614

 

2,960,183

Renting

 

221,275

 

128,608

 

483,241

 

325,479

Repairs and maintenance

 

2,334,403

 

2,049,174

 

4,304,490

 

4,135,392

Taxes and insurance

 

2,176,958

 

2,115,721

 

4,429,092

 

4,396,262

 

11,260,112

 

11,314,637

 

22,953,762

 

23,345,787

Income Before Other Income (Expense)

 

4,187,232

 

4,444,469

 

7,582,371

 

8,788,903

Other Income (Expense)

Interest income

 

25

 

52

46

159

Interest expense

 

(3,378,942)

 

(3,423,583)

(6,743,111)

(6,873,908)

Income (Loss) from investments in unconsolidated joint ventures

 

(238,424)

 

444,113

(563,595)

918,680

 

(3,617,341)

 

(2,979,418)

 

(7,306,660)

 

(5,955,069)

Net Income

$

569,891

$

1,465,051

$

275,711

$

2,833,834

Net Income per Unit

$

4.68

$

12.03

$

2.26

$

23.26

Weighted Average Number of Units Outstanding

 

121,756

 

121,756

 

121,756

 

121,816

See notes to consolidated financial statements.

5

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNER’S 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, 2020

 

144,180

 

34,243

 

1,802

 

180,225

 

58,247

 

121,978

$

(30,287,245)

$

(7,159,715)

$

(376,827)

$

(37,823,787)

Distribution to Partners

 

 

 

 

 

 

 

(1,870,428)

 

(444,226)

 

(23,380)

 

(2,338,034)

Stock Buyback

 

 

 

 

222

 

(222)

 

(315,220)

 

(74,870)

 

(3,941)

 

(394,031)

Net Income

 

 

 

 

 

 

 

2,267,068

 

538,428

 

28,338

 

2,833,834

Balance June 30, 2020

 

144,180

 

34,243

 

1,802

 

180,225

 

58,469

121,756

$

(30,205,825)

(7,140,383)

(375,810)

(37,722,018)

Balance January 1 , 2021

144,180

34,243

1,802

180,225

58,469

121,756

$

(33,203,447)

$

(7,852,318)

$

(413,280)

$

(41,469,045)

Distribution to Partners

 

 

 

 

 

 

 

(1,870,177)

 

(444,167)

 

(23,377)

 

(2,337,721)

Stock Buyback

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

220,569

 

52,385

 

2,757

 

275,711

Balance June 30, 2021

 

144,180

 

34,243

 

1,802

 

180,225

 

58,469

 

121,756

$

(34,853,055)

$

(8,244,100)

$

(433,900)

$

(43,531,055)

See notes to consolidated financial statements.

6

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended June 30,

    

2021

    

2020

 

Cash Flows from Operating Activities

Net income

$

275,711

$

2,833,834

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

 

7,849,582

 

9,167,084

Amortization of deferred financing costs

119,919

119,835

Loss (Income) from investments in joint ventures

 

563,595

 

(918,680)

Allowance for doubtful accounts

1,176,554

729,653

Change in operating assets and liabilities

Proceeds from unconsolidated joint ventures

 

18,500

 

5,000

(Increase) in rents receivable

 

(915,340)

 

(1,259,948)

Increase (Decrease) in accounts payable and accrued expense

 

424,125

 

(676,850)

(Increase) Decrease in real estate tax escrow

 

(31,287)

 

9,279

(Increase) Decrease in prepaid expenses and other assets

 

(505,968)

 

188,556

Increase (Decrease) in advance rental payments and security deposits

 

193,584

 

(672,890)

Total Adjustments

 

8,893,264

6,691,039

Net cash provided by operating activities

 

9,168,975

9,524,873

Cash Flows From Investing Activities

Distribution in excess of investment in unconsolidated joint ventures

 

400,000

 

1,060,585

(Investment) in unconsolidated joint ventures

 

 

(10,585)

Improvement of rental properties

 

(1,385,258)

 

(1,504,059)

Net cash (used in) investing activities

 

(985,258)

(454,059)

Cash Flows from Financing Activities

Payment of financing costs

 

(136,325)

Proceeds of mortgage notes payable

 

3,781,877

Payment of note payable

(1,000,000)

Principal payments of mortgage notes payable

 

(1,125,589)

(1,134,602)

Stock buyback

 

(394,031)

Distributions to partners

 

(2,337,721)

(2,338,034)

Net cash provided by (used in) financing activities

 

(3,463,310)

 

(1,221,115)

Net Increase in Cash and Cash Equivalents

 

4,720,407

7,849,699

Cash and Cash Equivalents, at beginning of period

 

18,646,972

 

7,546,324

Cash and Cash Equivalents, at end of period

$

23,367,379

$

15,396,023

See notes to consolidated financial statements.

7

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

(Unaudited)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

Line of Business: New England Realty Associates Limited Partnership (“NERA” or the “Partnership”) was organized in Massachusetts in 1977. NERA and its subsidiaries own 29 properties which include 21 residential buildings; 4 mixed use residential, retail and office buildings; 3 commercial buildings and individual units at one condominium complex. These properties total 2,892 apartment units, 19 condominium units and 108,043 square feet of commercial space. Additionally, the Partnership also owns a 40 - 50% interest in 7 residential and mixed use properties consisting of 688 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 financial statements have been prepared in conformity with GAAP. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. These estimates and assumptions are based on management’s historical experience that are believed to be reasonable at the time. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgement. The Partnership’s critical accounting policies are those which require assumptions to be made about matters that are highly uncertain. Different estimates could have a material effect on the Partnership’s financial results. Judgements and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions and circumstances.

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 seven 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: Investment 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. Generally, the Partnership would discontinue applying the equity method when the investment (and any advances) is reduced to zero and would not provide for additional losses unless the Partnership has guaranteed obligations of the venture or is otherwise committed to providing further financial support for the investee. If the venture subsequently generates income, the Partnership only recognizes its share of such income to the extent it exceeds its share of previously unrecognized losses. In 2013 and beyond, the carrying values of some investments fell below zero. We intend to fund our share of the investments’ future operating deficits should the need arise. However, we have no legal obligation to pay for any of the liabilities of such investments nor do we have any legal obligation to fund operating deficits. (See Note 14: Investment in Unconsolidated Joint Ventures.)

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 equity’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 primary beneficiary is defined by the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the

8

variable interest entity’s performance; and (2) the obligation to absorb losses and rights to receive the returns from VIE that would be significant to the VIE.

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, 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. Revenue from commercial leases also include reimbursements and recoveries 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. Rental concessions 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 amounts are accounted for 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.

The Partnership evaluates the non-lease components (lease arrangements that include common area maintenance services) with related lease components (lease revenues). If both the timing and pattern of transfer are the same for the non-lease component and related lease component, the lease component is the predominant component. The Partnership elected an allowed practical expedient. For (i) operating lease arrangements involving real estate that include common area maintenance services and (ii) all real estate arrangements that include real estate taxes and insurance costs, we present these amounts within lease revenues in our consolidated statements of income. We record amounts reimbursed by the lessee in the period in which the applicable expenses are incurred.

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

9

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.

Leasing Fees: 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.

Deferred Financing Costs: Costs incurred in obtaining financing are capitalized and amortized over the term of the related indebtedness. Deferred financing costs are presented in the balance sheet as a direct deduction from the carrying value of the debt liability to which they relate, except deferred financing costs related to the revolving credit facility, which are presented in prepaid expenses and other assets. In all cases, amortization of such costs is included in interest expense and was approximately $120,000 and $120,000 for the six months ended June 30, 2021 and 2020, respectively.

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 2021 or 2020 other than net income as reported.

Income (Loss) 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: Partner’s Capital).

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

10

than 5% of the Partnership’s revenues in 2021 or 2020. The Partnership makes its temporary cash investments with high-credit quality financial institutions. At June 30, 2021, 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 0.03%. At June 30, 2021 and December 31, 2020, respectively approximately $23,473,000, and $18,830,000 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 $154,569 and $145,803 for the six months ended June 30, 2021 and 2020, respectively.

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. The Partnership generally considers assets to be held for sale when the transaction has received appropriate corporate authority, and there are no significant contingencies relating to the sale. If, in management’s opinion, the estimated net sales price, net of selling costs, of the assets which have been identified as held for sale is less than the carrying value of the assets, a valuation allowance is established.

Interest Capitalized: The Partnership follows the policy of capitalizing interest as a component of the cost of rental property when the time of construction exceeds one year. During the six months ended June 30, 2021 and 2020 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. All refinancing qualify as extinguishment of debt.

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

NOTE 2. RENTAL PROPERTIES

As of June 30, 2021, the Partnership and its Subsidiary Partnerships owned 2,892 residential apartment units in 25 residential and mixed-use complexes (collectively, the “Apartment Complexes”). The Partnership also owns 19 condominium units in a residential condominium complex, all of which are leased to residential tenants (collectively referred to as the “Condominium Units”). The Apartment Complexes and Condominium Units are located primarily in the metropolitan Boston area of Massachusetts.

Additionally, as of June 30, 2021, 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 seven residential and mixed use complexes (the “Investment Properties”) at June 30, 2021 with a total of 688 apartment units, accounted for using the equity method of consolidation. See Note 14 for summary information on these investments.

11

Rental properties consist of the following:

    

June 30, 2021

    

December 31, 2020

    

Useful Life

 

Land, improvements and parking lots

$

86,880,375

$

86,867,393

15

-

40

years

Buildings and improvements

 

253,649,590

 

253,322,865

15

-

40

years

Kitchen cabinets

 

17,369,285

 

17,157,121

5

-

10

years

Carpets

 

11,520,222

 

11,146,634

5

-

10

years

Air conditioning

 

501,697

 

501,697

5

-

10

years

Laundry equipment

 

608,271

 

608,271

5

-

7

years

Elevators

 

1,885,265

 

1,885,265

20

-

40

years

Swimming pools

 

1,092,194

 

1,092,194

10

-

30

years

Equipment

 

17,895,940

 

17,596,043

5

-

30

years

Motor vehicles

 

211,660

 

211,660

5

years

Fences

 

46,872

 

46,872

5

-

15

years

Furniture and fixtures

 

7,857,039

 

7,697,137

5

-

7

years

Smoke alarms

 

496,641

 

496,641

5

-

7

years

Total fixed assets

 

400,015,051

 

398,629,793

Less: Accumulated depreciation

 

(141,810,158)

 

(134,019,906)

$

258,204,893

$

264,609,887

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 of rental revenue and laundry income on the majority of the Partnership’s properties and 3% on Linewt. Total fees paid were approximately $1,222,000 and $1,265,000 for the six months ended June 30, 2021 and 2020, respectively.

The Partnership Agreement permits the General Partner or Management Company to charge the costs of professional services (such as counsel, accountants and contractors) to NERA. During the six months ended June 30, 2021 and 2020, approximately $529,000 and $533,000, was charged to NERA for legal, accounting, construction, maintenance, brokerage fees, rental and architectural services and supervision of capital improvements. Of the 2021 expenses referred to above, approximately $105,000 consisted of repairs and maintenance, and $122,000 of administrative expense. Approximately $302,000 of expenses for construction, architectural services and supervision of capital projects were capitalized in rental properties. Additionally in 2021, the Hamilton Company received approximately $289,000 from the Investment Properties of which approximately $257,000 was the management fee, approximately $19,000 was for maintenance services, approximately $12,000 was for administrative services and approximately $1,000 for architectural services and supervision of capital projects. The management fee is equal to 4% of gross receipts of rental income on the majority of investment properties and 2% on Dexter Park.

The Partnership reimburses the management company for the payroll and related expenses of the employees who work at the properties. Total reimbursement was approximately $1,782,000 and $1,738,000 for the six months ended June 30, 2021 and 2020, 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. For the six months ended June 30, 2021, the Partnership accrued $22,000 for the employer’s match portion to the plan. For the six months ended june 30, 2020, the Partnership contributed $22,000 for the employer’s match portion to the plan.

Bookkeeping and accounting functions are provided by the Management Company’s accounting staff, which consists of approximately 14 people. During the six months ended June 30, 2021 and 2020, the Management Company charged the Partnership $62,500 ($125,000 per year) for bookkeeping and accounting services included in administrative expenses above.

The Partnership has invested in seven 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

12

investors are the Brown family related entities, and five current and previous employees of the Management Company. The Brown Family related entities’ ownership interest was between 47.6% and 59%. See Note 14 for a description of the properties and their operations.

NOTE 4. PREPAID EXPENSES and OTHER ASSETS

Approximately $2,907,000, and $2,830,000 of security deposits are included in prepaid expenses and other assets at June 30, 2021 and December 31, 2020, respectively. The security deposits and escrow accounts are restricted cash.

Also, included in prepaid expenses and other assets at June 30, 2021 and December 31, 2020 is approximately $1,378,000 and $1,073,000, respectively, held in escrow to fund future capital improvements.

Intangible assets on the acquisition of Mill Street Apartments are included in prepaid expenses and other assets. Intangible assets are approximately $38,000 net of accumulated amortization of approximately $1,379,000 and approximately $51,000 net of accumulated amortization of approximately $1,367,000 at June 30, 2021 and December 31, 2020, respectively.

Financing fees in association with the line of credit of approximately $19,000 and $42,000 are net of accumulated amortization of approximately $25,000 and $6,000 at June 30, 2021 and December 31, 2020 respectively.

NOTE 5. MORTGAGE NOTES PAYABLE

At June 30, 2021 and December 31, 2020, the mortgages payable consisted of various loans, all of which were secured by first mortgages on properties referred to in Note 2. At June 30, 2021, the interest rates on these loans ranged from 3.53% to 5.66%, payable in monthly installments aggregating approximately $1,257,000 including principal, to various dates through 2035. The majority of the mortgages are subject to prepayment penalties. At June 30, 2021, the weighted average interest rate on the above mortgages was 4.43%. The effective rate of 4.51% 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.

Financing fees of approximately $1,225,000 and $1,345,000 are net of accumulated amortization of approximately $1,684,000 and $1,564,000 at June 30, 2021 and December 31, 2020, respectively, which offset the total mortgage notes payable.

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

Approximate annual maturities at June 30, 2021 are as follows:

2022—current maturities

    

$

2,549,000

 

2023

 

79,941,000

2024

 

25,419,000

2025

 

11,269,000

2026

 

21,709,000

Thereafter

 

142,777,000

283,664,000

Less: unamortized deferred financing costs

(1,225,000)

$

282,439,000

On March 31, 2020, Nera Brookside Associates, LLC (“Brookside Apartments”), entered into a Mortgage Note with KeyBank National Associates ( KeyBank) in the principal amount of $6,175,000. Interest only payments on the Note are payable on a monthly basis at a fixed interest rate of 3.53% per annum, and the principal amount of the Note is due and payable on April 1, 2035. The Note is secured by a mortgage on the Brookside apartment complex located at 5-12 Totman Drive, Woburn, Massachusetts pursuant to a Mortgage, Assignment of Leases and Rents and Security Agreement dated March 31, 2020. The Note is guaranteed by the Partnership pursuant to a Guaranty Agreement dated March 31, 2020. Brookside Apartments used the proceeds of the loan to pay off an outstanding loan of approximately

13

$2,390,000, with the remaining portion of the proceeds added to cash reserves. In connection with this refinancing, there were closing costs of approximately $136,000.

Line of Credit

On July 31, 2014, the Partnership entered into an agreement for a $25,000,000 revolving line of credit. The term of the line was for three years with a floating interest rate equal to a base rate of the greater of (a) the Prime Rate (b) the Federal Funds Rate plus one-half of one percent per annum, or (c) the LIBOR Rate for a period of one month plus 1% per annum, plus the applicable margin of 2.5%. The agreement originally expired on July 31, 2017, and was extended until October 31, 2020. The costs associated with the line of credit extension in 2017 were approximately $128,000. Prior to the line’s expiration in 2020, the Partnership exercised its option for a one-year extension until October 31, 2021. The Partnership paid an extension fee of approximately $37,500 in association with the extension. Management has a signed term sheet with the lender and is working to close on a three year extension and modification of the line of credit in August 2021.

The line of credit may be used for acquisition, refinancing, improvements, working capital and other needs of the Partnership. The line may not be used to pay distributions, make distributions or acquire equity interests of the Partnership.

The line of credit is collateralized by varying percentages of the Partnership’s ownership interest in 23 of its subsidiary properties and joint ventures. Pledged interests range from 49% to 100% of the Partnership’s ownership interest in the respective entities.

The Partnership paid fees to secure the line of credit. Any unused balance of the line of credit is subject to a fee ranging from 15 to 20 basis points per annum. The Partnership paid approximately $6,000 in fees for the six months ended June 30, 2021.

On December 19, 2019, the Partnership drew down on the line of credit in the amount of $20,000,000, used in conjunction with the purchase of Mill Street Apartments. On December 20, 2019, the Partnership paid down $2,000,000. On January 22, 2020, the Partnership paid down $1,000,000. As of June 30, 2021, the line of credit had an outstanding balance of $17,000,000.

The line of credit agreement has several covenants, such as providing cash flow projections and compliance certificates, as well as other financial information. The covenants include, but are not limited to the following: maintain a leverage ratio that does not exceed 65%; aggregate increase in indebtedness of the subsidiaries and joint ventures should not exceed $15,000,000; maintain a tangible net worth (as defined in the agreement) of a minimum of $150,000,000; a minimum ratio of net operating income to total indebtedness of at least 9.5%; debt service coverage ratio of at least 1.6 to 1, as well as other items. As of June 30, 2021, the Partnership is not in compliance with the loan covenants required by the terms of the line of credit, eliminating any additional advances. In anticipation of this, Management has been working with the lender to extend and modify the terms of the credit line. On July 30, 2021, the Partnership signed a term sheet to modify the covenant terms and extend the maturity of the credit line. The Partnership will be in compliance with the loan covenants under the terms of loan extension and modification. See Note 17. Subsequent Events for details.

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 June 30, 2021, amounts received for prepaid rents of approximately $2,097,000 are included in cash and cash equivalents, and security deposits of approximately $2,907,000 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

14

must represent 19% and 1%, respectively, of the total units outstanding. All classes have equal profit sharing and distribution rights, in proportion to their ownership interests.

In January 2021, the Partnership approved a quarterly distribution of $9.60 per Unit ($0.32 per Receipt), payable on March 31, 2021. In April 2021, the Partnership approved a quarterly distribution of $9.60 per Unit ($0.32 per Receipt), payable on June 30, 2021.

In 2020, regular quarterly distributions of $9.60 per unit ($0.32 per receipt), were paid in March, June, September and December.

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:

Six Months Ended

 

June 30,

 

    

2021

    

2020

 

Net Income per Depositary Receipt

$

0.08

$

0.78

Distributions per Depositary Receipt

$

0.64

$

0.64

NOTE 8. TREASURY UNITS

Treasury Units at June 30, 2021 are as follows:

Class A

    

46,775

 

Class B

 

11,109

General Partnership

 

585

 

58,469

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). Over time, the General Partner has authorized increases in the equity repurchase program. On March 10, 2015, the General Partner authorized an increase in the Repurchase Program from 1,500,000 to 2,000,000 Depository Receipts and extended the Program for an additional five years from March 31, 2015 until March 31, 2020. On March 9, 2020, the General Partner extended the program for an additional five years from March 31, 2020 to March 31, 2025. 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 June 30, 2021, the Partnership has repurchased 1,428,437 Depositary Receipts at an average price of $28.43 per receipt (or $852.90 per underlying Class A Unit), 3,572 Class B Units and 188 General Partnership Units, both at an average price of $1,033.00 per Unit, totaling approximately $44,718,000 including brokerage fees paid by the Partnership.

During the six months ended June 30, 2021, the Partnership did not purchase any Depositary Receipts.

Given the economic uncertainty caused by the coronavirus issue, as of April 15, 2020, the Partnership has elected to temporarily suspend the repurchase program.

NOTE 9. COMMITMENTS AND CONTINGENCIES

From time to time, the Partnership is involved in various ordinary routine litigation incidental to its 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.

15

The Massachusetts economy has opened significantly since the spring of 2021 with the lifting of COVID-19 restrictions and the state of emergency. Colleges and universities are scheduled to resume on-campus learning in the fall. Vacancy rates at the Partnership’s properties are back in line with pre-COVID levels. However, the COVID-19 pandemic continues to spread as new variants emerge even as the percentage of the population who have been vaccinated increases. There is considerable uncertainty as to when the pandemic will end and what effects it will have on the economy as it continues. The COVID-19 pandemic may cause financial hardships to our residential and commercial tenants leading to their inability to pay rent. The pandemic may also cause reduced demand for our commercial space and residential units which would have a negative impact on the Partnership’s financial performance.

NOTE 10. RENTAL INCOME

During the six months ended June 30, 2021, approximately 94% 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 6% was related to commercial properties, which have minimum future annual rental income on non-cancellable operating leases at June 30, 2021 as follows:

    

Commercial

 

Property Leases

 

2022

$

2,268,000

2023

 

1,507,000

2024

 

996,000

2025

 

437,000

2026

 

260,000

Thereafter

 

450,000

$

5,918,000

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 $290,000 and $251,000 for the six months ended June 30, 2021 and 2020 respectively. Staples and Trader Joe’s, tenants at Staples Plaza, are approximately 30% of the total commercial rental income.

The following information is provided for commercial leases:

    

Annual base

    

    

    

Percentage of

 

rent for

Total square feet

Total number of

annual base rent for

 

Through June 30,

expiring leases

for expiring leases

leases expiring

expiring leases

 

2022

$

1,011,281

59,188

20

39

%

2023

 

428,967

11,761

8

16

%

2024

 

491,548

14,668

8

18

%

2025

 

414,562

14,674

7

15

%

2026

 

172,427

3,289

4

6

%

2027

 

23,340

724

1

1

%

2028

 

%

2029

 

%

2030

 

142,450

3,850

1

5

%

2031

 

%

Totals

$

2,684,575

 

108,154

 

49

 

100

%

Rents receivable are net of an allowance for doubtful accounts of approximately $1,177,000 and $1,454,000 at June 30, 2021 and December 31, 2020. Included in rents receivable at June 30, 2021 is approximately $285,000 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 at 62 Boylston Street, Cypress Street, and Staples Plaza in Massachusetts.

Rents receivable at June 30, 2021 also includes approximately $227,000 representing the deferral of rental concession primarily related to the residential properties.

16

NOTE 11. CASH FLOW INFORMATION

During the six months ended June 30, 2021 and 2020, cash paid for interest was approximately $6,650,000, and $6,611,000 respectively. Cash paid for state income taxes was approximately $60,000 and $81,000 during the six months ended June 30, 2021 and 2020 respectively. Additionally, during the six months ended June 30, 2020, the Partnership was involved in a non-cash financing activity of approximately $2,393,000 in connection with the refinancing of Brookside Apartments.

NOTE 12. FAIR VALUE MEASUREMENTS

Fair Value Measurements on a Recurring Basis

At June 30, 2021 and December 31, 2020, we do not have any significant financial assets or financial liabilities that are measured at fair value on a recurring basis in our consolidated financial statements.

Financial Assets and Liabilities not Measured at Fair Value

At June 30, 2021 and December 31, 2020 the carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable, and note payable, accounts payable and accrued expenses were representative of their fair values due to the short-term nature of these instruments or, the recent acquisition of these items.

At June 30, 2021 and December 31, 2020, we estimated the fair value of our mortgages payable and other notes based upon quoted market prices for the same (Level 1) or similar (Level 2) issues when current quoted market prices are available. We estimated the fair value of our secured mortgage debt that does not have current quoted market prices available by discounting the future cash flows using rates currently available to us for debt with similar terms and maturities (Level 3). The differences in the fair value of our debt from the carrying value are the result of differences in interest rates and/or borrowing spreads that were available to us at June 30, 2021 and December 31, 2020, 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 June 30, 2021

*

$

282,438,864

$

299,691,938

At December 31, 2020

*

$

283,444,533

$

303,993,142

Investment Properties

At June 30, 2021

*

$

166,256,899

$

177,372,824

At December 31, 2020

*

$

166,308,029

$

179,647,759

* Net of unamortized deferred financing costs

17

Disclosure about fair value of financial instruments is based on pertinent information available to management as of June 30, 2021 and December 31, 2020. 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 June 30, 2021 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, different depreciation methods, different tax lives, other items with limited tax deductibility and timing differences related to prepaid rents, allowances and intangible assets at significant acquisitions. Federal taxable income of approximately $8,578,000 was approximately $7,153,000 more than statement income for the year ended December 31, 2020.The Federal cumulative tax basis of the Partnership’s real estate at December 31, 2020 is approximately $7,332,000 more than the statement basis. The primary reasons for the difference in tax basis are tax free exchanges, accelerated depreciation and bonus depreciation. The Partnership’s Federal tax basis in its joint venture investments is approximately $1,476,000 more than statement basis. State taxable income may be significantly different due to different tax treatments for certain items.

Certain entities included in the Partnership’s consolidated financial statements are subject to certain state taxes. These taxes are not significant and are recorded as operating expenses in the accompanying consolidates financial statements.

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

In the normal course of business the Partnership or one of its subsidiaries is subject to examination by federal, state and local jurisdictions in which it operates, where applicable. As of June 30, 2021, the tax years that generally remain subject to examination by the major tax jurisdictions under the statute of limitations is from the year 2017 forward.

NOTE 14. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

The Partnership has invested in seven limited partnerships and limited liability companies, the majority of which have invested in residential apartment complexes, with three Joint Ventures investing in commercial property. The Partnership has between a 40%-50% ownership interests in each investment. The other investors are the Brown Family related entities and five current and former employees of the Management Company. The Brown Family’s ownership interest was between 47.6% and 59%, 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, Hamilton Park Towers LLC, referred to as Dexter Park, or Hamilton Park, is a 409 unit residential complex. The purchase price was $129,500,000. The original mortgage was $89,914,000 with an interest rate of 5.57% and was to mature in 2019. The mortgage called for interest only payments for the first two years of the loan and amortized over 30 years thereafter.

On May 31, 2018, Hamilton Park Towers, LLC , entered into a Mortgage Note with John Hancock Life Insurance Company (U.S.A.) in the principal amount of $125,000,000. Interest only payments on the Note are payable on a monthly basis at a fixed interest rate of 3.99% per annum, and the principal amount of the Note is due and payable on June 1, 2028. The Note is secured by a mortgage on the Dexter Park apartment complex located at 175 Freeman Street, Brookline, Massachusetts pursuant to a Mortgage, Assignment of Leases and Rents and Security Agreement dated May 31, 2018. The Note is guaranteed by the Partnership and HBC Holdings, LLC pursuant to a Guaranty Agreement dated May 31, 2018.

18

Hamilton Park used the proceeds of the loan to pay off an outstanding loan of approximately $82,000,000 and distributed approximately $41,200,000 to its’ owners. The Partnership’s share of the distribution was approximately $16,500,000. As a result of the distribution, the carrying value of the investment fell below zero. The Partnership will continue to account for the investment using the equity method of accounting, although the Partnership has no legal obligation to fund its’ share of any future operating deficiencies as needed. In connection with this refinancing, the property incurred a defeasance charge of approximately $3,830,000. Based on its’ ownership in the property, the Partnership incurred 40% of this charge, an expense of approximately $1,532,000.

At June 30, 2021, the balance on this mortgage before unamortized deferred financing costs is $125,000,000. This investment, Hamilton Park Towers, LLC is referred to as Dexter Park.

On March 7, 2005, the Partnership invested $2,000,000 for a 50% ownership interest in a building comprising 48 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 Joint Venture planned to operate the building and initiate development of the parking lot. In June 2007, the Joint Venture 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 Joint Venture restructured the mortgages on both parcels at Essex 81. On September 28, 2015, Hamilton Essex Development, LLC paid off the outstanding mortgage balance of $1,952,286. The Partnership made a capital contribution of $978,193 to Hamilton Essex Development LLC for its share of the funds required for the transaction. Additionally, the Partnership made a capital contribution of $100,000 to Hamilton Essex 81, LLC. On September 30, 2015, Hamilton Essex 81, LLC obtained a new 10 year mortgage in the amount of $10,000,000, interest only at 2.18% plus the one month Libor rate. The proceeds of the note were used to pay off the existing mortgage of $8,040,719 and the Partnership received a distribution of $978,193 for its share of the excess proceeds. As a result of the distribution, the carrying value of the investment fell below zero. The Partnership will continue to account for this investment using the equity method of accounting. Although the Partnership has no legal obligation, the Partnership intends to fund its share of any future operating deficits if needed. At June 30, 2021, the balance on this mortgage before unamortized deferred financing costs is approximately $10,000,000. 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 Joint Venture sold 127 of the units as condominiums and retained 49 units for long-term investment. The Joint Venture obtained a new 10-year mortgage in the amount of $5,000,000 on the units to be retained by the Joint Venture. The interest on the new loan was 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. On July 8, 2016, Hamilton 1025 LLC paid off the outstanding balance of the mortgage balance. The Partnership made a capital contribution of $2,359,500 to Hamilton 1025, LLC for its share of the funds required for the transaction. After paying off the mortgage, the Partnership began to sell off the individual units. In 2019, all residential units were sold. The Partnership still owns the commercial building. 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 Joint Venture obtained a mortgage on the property in the amount of $8,025,000 and returned $3,775,000 to the Partnership. The Joint Venture obtained a new 10-year mortgage in the amount of $5,500,000 in January 2007. The interest on the new loan was 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. On September 12, 2016, the property was refinanced with a 15 year mortgage in the amount of $6,000,000, at 3.71%, interest only. The Joint Venture Partnership paid off the prior mortgage of approximately $5,158,000 with the proceeds of the new mortgage and made a distribution of $385,000 to the Partnership. The cost associated with the refinancing was approximately $123,000. At June 30, 2021, the balance on this mortgage before unamortized deferred financing costs is approximately $6,000,000. In 2018, the carrying value of the investment fell below zero. The Partnership will continue to account for this investment using the equity method of accounting, although the Partnership has no legal obligation to fund its share of any future operating deficiencies, if needed. This investment is referred to as Hamilton Minuteman, LLC.

19

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. The Joint Venture sold 137 units as condominiums. The assets were combined with Hamilton on Main Apartments. 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. In August 2014, the property was refinanced with a 10 year mortgage in the amount of $16,900,000 at 4.34% interest only. The Joint Venture paid off the prior mortgage of approximately $15,205,000 with the proceeds of the new mortgage and distributed $850,000 to the Partnership. The costs associated with the refinancing were approximately $161,000. At June 30, 2021, the balance of the mortgage before unamortized deferred finance is $16,900,000. In 2018, the carrying value of the investment fell below zero. The Partnership will continue to account for this investment using the equity method of accounting, although the Partnership has no legal obligation to fund its share of any future operating deficiencies, if needed. The investment is referred to as Hamilton on Main LLC.

In November 2001, the Partnership invested approximately $1,533,000 for a 50% ownership interest in a 40-unit apartment building in Cambridge, Massachusetts. In June 2013, the property was refinanced with a 15 year mortgage in the amount of $10,000,000 at 3.87%, interest only for 3 years and is amortized on a 30-year schedule for the balance of the term. The Joint Venture paid off the prior mortgage of approximately $6,776,000 with the proceeds of the new mortgage. After the refinancing, the Joint Venture made a distribution of $1,610,000 to the Partnership. As a result of the distribution, the carrying value of the investment fell below zero.The Partnership will continue to account for this investment using the equity method of accounting. Although the Partnership has no legal obligation, the Partnership intends to fund its share of any future operating deficits if needed. At June 30, 2021, the balance of this mortgage before unamortized deferred financing costs is approximately $9,043,000. This investment is referred to as 345 Franklin, LLC.

Summary financial information at June 30, 2021

  

  

Hamilton

  

  

  

Hamilton

  

Hamilton

  

  

Hamilton

Essex

345

Hamilton

Minuteman

on Main

Dexter

Essex 81

Development

Franklin

1025

Apts

Apts

Park

Total

ASSETS

Rental Properties

  

$

6,476,479

  

$

2,589,414

  

$

5,224,951

  

$

83,187

  

$

4,847,230

  

$

14,739,183

  

$

79,408,476

  

$

113,368,920

Cash & Cash Equivalents

 

22,648

20,622

203,017

9,049

132,985

640,754

3,846,947

 

4,876,022

Rent Receivable

 

81,081

57,240

31,630

4,627

5,580

63,123

451,301

 

694,582

Real Estate Tax Escrow

 

77,015

23,088

41,918

121,206

 

263,227

Prepaid Expenses & Other Assets

 

296,522

72,420

99,238

342

19,670

186,140

1,397,029

 

2,071,361

Total Assets

$

6,953,745

$

2,739,696

$

5,581,924

$

97,205

$

5,047,383

$

15,750,406

$

85,103,753

$

121,274,112

LIABILITIES AND PARTNERS’ CAPITAL

Mortgage Notes Payable

$

9,941,396

$

$

8,996,847

$

$

5,916,460

$

16,849,171

$

124,553,024

$

166,256,898

Accounts Payable & Accrued Expense

 

95,536

1,500

103,668

1,485

49,723

207,351

843,393

 

1,302,656

Advance Rental Pmts & Security Deposits

 

161,990

234,348

140,039

425,766

3,291,355

 

4,253,498

Total Liabilities

 

10,198,922

1,500

9,334,863

1,485

6,106,222

17,482,288

128,687,772

171,813,052

Partners’ Capital

 

(3,245,177)

2,738,196

(3,752,939)

95,720

(1,058,839)

(1,731,882)

(43,584,019)

 

(50,538,940)

Total Liabilities and Capital

$

6,953,745

$

2,739,696

$

5,581,924

$

97,205

$

5,047,383

$

15,750,406

$

85,103,753

$

121,274,112

Partners’ Capital %—NERA

 

50

%  

 

50

%  

 

50

%  

 

50

%  

 

50

%  

 

50

%  

 

40

%  

Investment in Unconsolidated Joint Ventures

$

$

1,369,098

$

$

47,860

$

$

$

1,416,958

Distribution and Loss in Excess of investments in Unconsolidated Joint Ventures

$

(1,622,589)

$

$

(1,876,470)

$

$

(529,420)

$

(865,941)

$

(17,433,608)

(22,328,026)

Total Investment in Unconsolidated Joint Ventures (Net)

$

(20,911,068)

Total units/condominiums

Apartments

 

48

 

 

40

 

175

 

42

 

148

 

409

 

862

Commercial

 

1

 

1

 

 

1

 

 

 

 

3

Total

 

49

 

1

 

40

 

176

 

42

 

148

 

409

 

865

Units to be retained

 

49

 

1

 

40

 

1

 

42

 

148

 

409

 

690

Units to be sold

 

 

 

 

175

 

 

 

 

175

Units sold through August 1, 2021

 

 

 

 

175

 

 

 

 

175

20

Financial information for the six months ended June 30, 2021

    

    

Hamilton

    

    

    

Hamilton

Hamilton

    

    

Hamilton

Essex

345

Hamilton

Minuteman

on Main

Dexter

Essex 81

Development

Franklin

1025

Apts

Apts

Park

Total

Revenues

Rental Income

$

442,072

$

57,240

$

675,791

$

48,739

$

571,208

$

1,664,274

$

6,212,808

$

9,672,132

Laundry and Sundry Income

 

6,208

112

3,305

18,041

49,361

77,027

 

448,280

57,240

675,903

48,739

574,513

1,682,315

6,262,169

9,749,159

Expenses

Administrative

 

53,869

1,353

15,522

1,490

7,660

34,780

94,730

209,404

Depreciation and Amortization

 

238,522

10,149

170,865

1,632

168,353

540,561

1,857,642

2,987,724

Management Fees

 

11,846

26,345

1,571

22,875

64,431

129,462

256,530

Operating

 

69,168

26,077

176

54,496

213,689

501,060

864,666

Renting

 

54,877

33,934

720

51,559

192,557

333,647

Repairs and Maintenance

 

82,132

520

64,496

56,381

269,025

907,270

1,379,824

Taxes and Insurance

 

131,175

29,811

87,380

9,901

70,212

221,305

1,197,927

1,747,711

 

641,589

41,833

424,619

14,770

380,697

1,395,350

4,880,648

7,779,506

Income Before Other Income

 

(193,309)

15,407

251,284

33,969

193,816

286,965

1,381,521