**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

 

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**Form 10-Q**

 
| **(Mark One)**                                                                                                                                                                                                                                   | ** ** |                                                                                               |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                       | ** ** |                                                                                               |
| **ý**                                                                                                                                                                                                                                       | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                                                                                                                                                                       | ** ** | ** **                                                                                         |
| **For the quarterly period ended March 31,  2005**                                                                                                                                                                                               |
| ** **                                                                                                                                                                                                                                       | ** ** | ** **                                                                                         |
| **OR**                                                                                                                                                                                                                                           |
| ** **                                                                                                                                                                                                                                       | ** ** | ** **                                                                                         |
| **o**                                                                                                                                                                                                                                            | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                       | ** ** | ** **                                                                                         |
| **For the transition period from                 to                 ** |

 

**Commission file number 0-12138****              **

 

**NewEngland Realty Associates Limited Partnership**

(Exact name of registrant as specified in itscharter)

 

| **Massachusetts**                                               | ** ** | **04-2619298**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) | ** ** | (I.R.S. employer  identification no.) |
| ** **                                                      | ** ** | ** **                            |
| **39 Brighton Avenue, Allston,  Massachusetts**                 | ** ** | **02134**                             |
| (Address of principal executive offices)                        | ** ** | (Zip code)                            |

 

Registrant’s telephone number, including area code: **(617) 783-0039**

 

**Not Applicable**

(Former Name, Former Address and Former Fiscal Year, if Changed SinceLast Report)

 

Indicate by check ýwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes o  Noý

 

 

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**INDEX**

 
|           | **PART I – FINANCIAL INFORMATION**                                                                                              |   |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                                                 |   |
| Item 1.        | Financial Statements                                                                                                                 |   |
|           |                                                                                                                                 |   |
|           | Consolidated Balance Sheets as of March 31, 2005 (unaudited) and  December 31, 2004 (audited)                                        |   |
|           |                                                                                                                                 |   |
|           | Unaudited Consolidated Statements of Income  for the Three Months Ended March 31, 2005 and March 31, 2004                            |   |
|           |                                                                                                                                 |   |
|           | Unaudited Consolidated Statement of Changes  in Partners’ Capital for the Three Months Ended March 31, 2005 and March 31,  2004 |   |
|           |                                                                                                                                 |   |
|           | Unaudited Consolidated Statements of Cash  Flows for the Three Months Ended March 31, 2005 and March 31, 2004                        |   |
|           |                                                                                                                                 |   |
|           | Notes to Unaudited Consolidated Financial  Statements                                                                                |   |
|           |                                                                                                                                 |   |
| Item 2.        | Management’s Discussion and Analysis of Financial Condition and  Results of Operations                                          |   |
|           |                                                                                                                                 |   |
| Item 3.        | Quantitative and Qualitative Disclosures  About Market Risk                                                                          |   |
|           |                                                                                                                                 |   |
| Item 4.        | Controls and Procedures                                                                                                              |   |
|           |                                                                                                                                 |   |
|           | **PART II – OTHER INFORMATION**                                                                                                 |   |
|           |                                                                                                                                 |   |
| Item 1.        | Legal Proceedings                                                                                                                    |   |
|           |                                                                                                                                 |   |
| Item 2.        | Unregistered Sales of Securities and Use of  Proceeds                                                                                |   |
|           |                                                                                                                                 |   |
| Item 3.        | Defaults Upon Senior Securities                                                                                                      |   |
|           |                                                                                                                                 |   |
| Item 4.        | Submission of Matters to a Vote of Security  Holders                                                                                 |   |
|           |                                                                                                                                 |   |
| Item 5.        | Other Information                                                                                                                    |   |
|           |                                                                                                                                 |   |
| Item 6.        | Exhibits and Reports on Form 8-K                                                                                                     |   |
|           |                                                                                                                                 |   |
| **SIGNATURES** |                                                                                                                                 |   |

 

2

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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 ofincome, changes in partners’ capital, and cash flows and related notes thereto,have been prepared in accordance with generally accepted accounting principlesin the United States of America (“GAAP”) for interim financial information andin conjunction with the rules and regulations of the Securities and ExchangeCommission (“SEC”).  Accordingly, they donot include all of the disclosures required by GAAP for complete financialstatements.  The financial statementsreflect all adjustments consisting only of normal, recurring adjustments, whichare in the opinion of management, necessary for a fair presentation for theinterim periods.

 

The aforementioned financial statements should be read in conjunctionwith the notes to the aforementioned financial statements and Management’sDiscussion and Analysis of Financial Condition and Results of Operations andthe financial statements and notes thereto included in New England RealtyAssociates L.P.’s Annual Report on Form 10-K for the fiscal year ended December31, 2004.

 

The results of operations for the three month period ended March 31,2005 are not necessarily indicative of the results to be expected for theentire fiscal year or any other period.

 

**NEW ENGLAND REALTY ASSOCIATES LIMITEDPARTNERSHIP AND SUBSIDIARIES**

 

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                         | ** ** | **March 31,  2005** | ** **  | **December 31,  2004** | ** ** |
|--------------------------------------------------------------------|------------|---------------------|-------------|------------------------|------------|
| ** **                                                         | ** ** | **(Unaudited)**     | ** **  | **(Audited)**          | ** ** |
| **ASSETS**                                                         |       |                |        |                   |       |
| Rental Properties                                                  |       | $                   | 104,987,084 |                   | $          | 105,884,559 |   |
| Rental Properties Held for Sale                                    |       | —              |        | 406,805                |       |
| Cash and Cash Equivalents                                          |       | 12,487,887          |        | 9,862,810              |       |
| Rents Receivable                                                   |       | 496,597             |        | 586,983                |       |
| Real Estate Tax Escrows                                            |       | 704,319             |        | 736,608                |       |
| Prepaid Expenses and Other Assets                                  |       | 2,524,674           |        | 2,625,798              |       |
| Investment in Partnerships                                         |       | 14,444,064          |        | 10,233.188             |       |
| Financing and Leasing Fees                                         |       | 631,092             |        | 640,542                |       |
|                                                               |       |                |        |                   |       |
| **Total Assets**                                                   |       | $                   | 136,275,717 |                   | $          | 130,977,293 |   |
|                                                               |       |                |        |                   |       |
| **LIABILITIES AND PARTNERS’ CAPITAL**                         |       |                |        |                   |       |
| Mortgage Notes Payable                                             |       | $                   | 116,133,627 |                   | $          | 115,615,800 |   |
| Accounts Payable and Accrued Expenses                              |       | 1,439,096           |        | 1,505,390              |       |
| Advance Rental Payments and Security  Deposits                     |       | 3,264,439           |        | 3,386,547              |       |
|                                                               |       |                |        |                   |       |
| **Total Liabilities**                                              |       | 120,837,162         |        | 120,507,737            |       |
|                                                               |       |                |        |                   |       |
| Commitments and Contingent Liabilities  (Note 9)                   |       |                |        |                   |       |
|                                                               |       |                |        |                   |       |
| Partners’ Capital 173,252 units outstanding  in 2005 and 2004 |       | 15,438,555          |        | 10,469,556             |       |
|                                                               |       |                |        |                   |       |
| **Total Liabilities and Partners’ Capital**                   |       | $                   | 136,275,717 |                   | $          | 130,977,293 |   |

 

See notes to consolidated financialstatements.

 

3

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**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME**

 
| ** **                                                | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                | ** ** | **(Unaudited)**                   | ** ** |
| ** **                                                | ** ** | **2005**                          | ** ** | **2004** | ** ** |
| Revenue                                                   | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Rental income                                             | ** ** | $                                 | 7,797,298  |   | $ | 7,642,718 |   |
| Laundry and sundry income                                 |       | 116,112                           |       | 81,450 |   |
|                                                      |       | 7,913,410                         |       | 7,724,168 |   |
| Expenses                                                  |       |                              |       |   |   |
|                                                      |       |                              |       |   |   |
| Administrative                                            |       | 339,791                           |       | 326,391 |   |
| Depreciation and amortization                             |       | 1,519,491                         |       | 1,463,624 |   |
| Interest                                                  |       | 1,937,475                         |       | 1,974,775 |   |
| Management fees                                           |       | 315,708                           |       | 314,154 |   |
| Operating                                                 |       | 1,411,457                         |       | 1,079,888 |   |
| Renting                                                   |       | 102,852                           |       | 104,399 |   |
| Repairs and maintenance                                   |       | 1,014,471                         |       | 1,060,565 |   |
| Taxes and insurance                                       |       | 904,150                           |       | 872,191 |   |
|                                                      |       | 7,545,395                         |       | 7,195,987 |   |
|                                                      |       |                              |       |   |   |
| Income Before Other Income and Discontinued  Operations   |       | 368,015                           |       | 528,181 |   |
|                                                      |       |                              |       |   |   |
| Other Income (Loss)                                       |       |                              |       |   |   |
| Interest income                                           |       | 38,327                            |       | 70,167 |   |
| Loss from investment in joint ventures                    |       | (41,624                           | )          | (32,030 | ) |
|                                                      |       | (3,297                            | )          | 38,137 |   |
|                                                      |       |                              |       |   |   |
| Income from Continuing Operations                         | ** ** | $                                 | 364,718    |   | $ | 566,318 |   |
|                                                      |       |                              |       |   |   |
| Discontinued Operations                                   |       |                              |       |   |   |
| Income from discontinued operations                       |       | 3,501                             |       | 16,301 |   |
| Gain on sale of real estate from  discontinued operations |       | 5,811,584                         |       | — |   |
|                                                      |       | 5,815,085                         |       | 16,301 |   |
|                                                      |       |                              |       |   |   |
| Net Income                                                | ** ** | $                                 | 6,179,803  |   | $ | 582,619 |   |
|                                                      |       |                              |       |   |   |
| Income per Unit                                           |       |                              |       |   |   |
| Income before discontinued operations                     | ** ** | $                                 | 2.10       |   | $ | 3.27 |   |
| Income from discontinued operations                       |       | 33.56                             |       | .09 |   |
|                                                      |       |                              |       |   |   |
| Net Income per Unit                                       | ** ** | $                                 | 35.66      |   | $ | 3.36 |   |
|                                                      |       |                              |       |   |   |
| Weighted Average Number of Units  Outstanding             |       | 173,252                           |       | 173,252 |   |

 

See notes to consolidatedfinancial statements.

 

4

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**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

**CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL**

 

**(UNAUDITED**)

 
| ** **                                                                  | ** ** | **Limited** | ** ** | **General  Partnership** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------|------------|--------------------------|------------|------------|------------|
| **Class A**                                                                 | ** ** | **Class B** | **Total**  |
| Balance, January 1, 2004                                                    |       | $           | 10,846,650 |                     | $          | 2,579,532  |       | $ | 135,795 |   | $ | 13,561,977 |   |
|                                                                        |       |        |       |                     |       |       |       |   |   |
| Distribution to Partners                                                    |       | (913,662    | )          | (216,995                 | )          | (11,420    | )          | (1,142,077 | ) |
|                                                                        |       |        |       |                     |       |       |       |   |   |
| Net Income                                                                  |       | 466,095     |       | 110,698                  |       | 5,826      |       | 582,619 |   |
|                                                                        |       |        |       |                     |       |       |       |   |   |
| Balance, March 31, 2004                                                     |       | $           | 10,399,083 |                     | $          | 2,473,235  |       | $ | 130,201 |   | $ | 13,002,519 |   |
|                                                                        |       |        |       |                     |       |       |       |   |   |
| Units authorized and Issued, net of 6,973  Treasury Units at March 31, 2004 |       | 138,602     |       | 32,918                   |       | 1,732      |       | 173,252 |   |
|                                                                        |       |        |       |                     |       |       |       |   |   |
| Balance, January 1, 2005                                                    |       | $           | 8,372,714  |                     | $          | 1,991,972  |       | $ | 104,870 |   | $ | 10,469,556 |   |
|                                                                        |       |        |       |                     |       |       |       |   |   |
| Distribution to Partners                                                    |       | (968,643    | )          | (230,053                 | )          | (12,108    | )          | (1,210,804 | ) |
|                                                                        |       |        |       |                     |       |       |       |   |   |
| Net Income                                                                  |       | 4,943,842   |       | 1,174,163                |       | 61,798     |       | 6,179,803 |   |
|                                                                        |       |        |       |                     |       |       |       |   |   |
| Balance, March 31, 2005                                                     |       | $           | 12,347,913 |                     | $          | 2,936,082  |       | $ | 154,560 |   | $ | 15,438,555 |   |
|                                                                        |       |        |       |                     |       |       |       |   |   |
| Units authorized and Issued, net of 6,973  Treasury Units at March 31, 2005 |       | 138,602     |       | 32,918                   |       | 1,732      |       | 173,252 |   |

 

See notes to consolidatedfinancial statements

 

5

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**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                         | ** ** | **(Unaudited)**                   | ** ** |
| ** **                                                                         | ** ** | **2005**                          | ** ** | **2004** | ** ** |
| Cash Flows from Operating Activities                                               |       |                              |       |   |   |
| Net income                                                                         | ** ** | $                                 | 6,179,804  |   | $ | 582,619 | ** ** |
|                                                                               |       |                              |       |   |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                              |       |   |   |
| Depreciation and amortization                                                      |       | 1,538,396                         |       | 1,474,388 |   |
| Loss from investments in joint venture                                             |       | 41,624                            |       | 32,030 |   |
| (Gain) on sale of rental properties                                                |       | (5,811,584                        | )          | — |   |
| Change in operating assets and liabilities                                         |       |                              |       |   |   |
| Decrease in rents receivable                                                       |       | 90,386                            |       | 15,126 |   |
| (Increase) in financing and leasing fees                                           |       | (29,855                           | )          | — |   |
| (Increase) in accounts payable and accrued  expense                                |       | (66,294                           | )          | (271,658 | ) |
| (Increase) Decrease in real estate tax  escrow                                     |       | 32,289                            |       | (70,581 | ) |
| Decrease in prepaid expenses and other  assets                                     |       | 96,776                            |       | 24,329 |   |
| (Increase) in advance rental payments and  security deposits                       |       | (122,108                          | )          | 143,103 |   |
|                                                                               |       |                              |       |   |   |
| Total Adjustments                                                                  |       | (4,230,370                        | )          | 1,346,737 |   |
|                                                                               |       |                              |       |   |   |
| Net cash provided by operating activities                                          |       | 1,949,434                         |       | 1,929,356 |   |
|                                                                               |       |                              |       |   |   |
| Cash Flows Used in Investing Activities                                            |       |                              |       |   |   |
| (Investment in) joint venture                                                      |       | (4,252,500                        | )          | — |   |
| Purchase and improvement of rental  properties                                     |       | (554,360                          | )          | (1,482,015 | ) |
| Net proceeds from the sale of rental  properties                                   |       | 6,175,481                         |       | — |   |
|                                                                               |       |                              |       |   |   |
| Net cash provided by (used in) investing  activities                               |       | 1,368,621                         |       | (1,482,015 | ) |
|                                                                               |       |                              |       |   |   |
| Cash Flows Used in Financing Activities                                            |       |                              |       |   |   |
| Proceeds of mortgage notes payable                                                 |       | 2,000,000                         |       | — |   |
| Principal payments of mortgage notes  payable                                      |       | (1,482,173                        | )          | (176,345 | ) |
| Distributions to partners                                                          |       | (1,210,803                        | )          | (1,142,077 | ) |
|                                                                               |       |                              |       |   |   |
| Net cash (used in) financing activities                                            |       | (692,978                          | )          | (1,318,422 | ) |
|                                                                               |       |                              |       |   |   |
| Net Increase (Decrease) in Cash and Cash  Equivalents                              |       | 2,625,077                         |       | (871,081 | ) |
| Cash and Cash Equivalents, at beginning of  period                                 |       | 9,862,810                         |       | 24,362,328 |   |
|                                                                               |       | ** **                        | ** ** | ** ** |   |
| Cash and Cash Equivalents, at end of period                                        | ** ** | $                                 | 12,487,887 |   | $ | 23,491,247 | ** ** |

 

See notes to consolidated financial statements.

 

6

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**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIPAND SUBSIDIARIES NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS****MARCH 31, 2005**

 

**NOTE1.    SIGNIFICANT ACCOUNTING POLICIES**

 

*Line ofBusiness:*    New England RealtyAssociates Limited Partnership (“NERA” or the “Partnership”) was organized inMassachusetts during 1977. NERA and its subsidiaries own and operate variousresidential apartment buildings, condominium units and commercial propertieslocated in Massachusetts and New Hampshire. NERA has also made investments inother real estate partnerships and has participated in other realestate-related activities, primarily located in Massachusetts. In connectionwith the mortgages referred to in Note 5, a substantial number of NERA’sproperties are owned by separate subsidiaries without any change in thehistorical cost basis.

 

*Principlesof Consolidation:*    The consolidatedfinancial statements include the accounts of NERA and its subsidiaries. NERAhas a 99.67% to 100% ownership interest in each subsidiary except for threelimited liability companies (the “Investment Properties”) in which thePartnership has a 50% ownership interest. The consolidated group is referred toas the “Partnerships.” Minority interests are not recorded, since they areinsignificant. All significant intercompany accounts and transactions areeliminated in consolidation. The Partnership accounts for its investment in theabove-mentioned limited liability companies using the equity method ofconsolidation. (See Note 14 for information on the Investment Properties).

 

*AccountingEstimates:*    The preparation of thefinancial statements, in conformity with accounting principles generallyaccepted in the United State of America, requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosures of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereported period. Accordingly, actual results could differ from those estimates.

 

*RevenueRecognition:*    Rental income fromresidential and commercial properties is recognized over the term of therelated lease. Amounts 60 days in arrears are charged against income.Certain leases of the commercial properties provide for increasing steppedminimum rents, which are accounted for on a straight-line basis over the termof the lease.

 

*RentalProperties:*    Rental properties arestated at cost less accumulated depreciation. Maintenance and repairs arecharged to expense as incurred; improvements and additions are capitalized.When assets are retired or otherwise disposed of, the cost of the asset andrelated accumulated depreciation is eliminated from the accounts, and any gainor loss on such disposition is included in income. Fully depreciated assets areremoved from the accounts.  Rentalproperties are depreciated on a straight-line basis over their estimated usefullives.

 

In the event that factsand circumstances indicate that the carrying value of a rental property may beimpaired, an analysis of recoverability is prepared. The estimated futureundiscounted cash flows are compared to the assets carrying value to determineif a write-down to fair value is required.

 

*Financingand Leasing Fees:*    Financing fees arecapitalized and amortized, using the interest method, over the life of therelated mortgages. Leasing fees are capitalized and amortized on astraight-line basis over the life of the related lease.  Unamortized balances are expensed when thecorresponding fee is no longer applicable.

 

*IncomeTaxes:*    The financial statements havebeen prepared under the basis that NERA and its subsidiaries are entitled totax treatment as partnerships. Accordingly, no provision for income taxes hasbeen recorded.

 

*CashEquivalents:*    The Partnership considerscash equivalents to be all highly liquid instruments purchased with a maturityof three months or less.

 

*SegmentReporting:*    Operating segments arerevenue-producing components of the Partnership for which separate financialinformation is produced internally for management. Under the definition, NERAoperated, for all periods presented, as one segment.

 

*ComprehensiveIncome:*    Comprehensive income isdefined as changes in partners’ equity, exclusive of transactions with owners(such as capital contributions and dividends). NERA did not have anycomprehensive income items in 2005 or 2004 other than net income as reported.

 

7

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*IncomePer Unit:*    Net income per unit has beencalculated based upon the weighted average number of units outstanding duringeach year presented. The Partnership has no dilutive units and, therefore,basic net income is the same as diluted net income per unit (see Note 7).

 

*Concentrationof Credit Risks and Financial Instruments:*    ThePartnerships’ properties are located in New England, and the Partnerships aresubject to the general economic risks related thereto.  No single tenantaccounted for more than 5% of the Partnerships’ revenues in 2005 or 2004. The Partnerships make their temporary cash investments with high-credit-qualityfinancial institutions.  At March 31, 2005, substantially all of thePartnerships’ cash and cash equivalents were held in interest-bearing accountsat financial institutions, earning interest at rates from 1.33% to 2.65%. At March 31, 2005 and December 31, 2004 approximately $11,000,000 and$9,000,000 of cash and cash equivalents exceeded federally insured amounts.

 

*AdvertisingExpense:*    Advertising is expensed asincurred. Advertising expense was $46,515 and $57,881 for the three monthsended March 31, 2005 and 2004, respectively.

 

*DiscontinuedOperations and Rental Property Held for Sale:*When assets areidentified by management as held for sale, the Partnership discontinuesdepreciating the assets and estimates the sales price, net of selling costs, ofsuch assets.  If, in management’sopinion, the net sales price of the assets which have been identified as heldfor sale is less than the net book of the assets, a valuation allowance isestablished.  Properties identified asheld for sale and/or sold are presented in discontinued operations for allperiods presented.

 

If circumstances arisethat previously were considered unlikely and, as a result, the Partnershipdecides not to sell a property previously classified as held for sale, theproperty is reclassified as held and used. A property that is reclassified is measured and recorded individually atthe lower of (a) its carrying amount before the property was classified as heldfor sale, adjusted for any depreciation (amortization) expense that would hadbeen recognized that the property been continuously classified as held andused, or (b) the fair value at the date of the subsequent decision not to sell.

 

*InterestCapitalized:*  TheCompany follows the policy of capitalizing interest as a component of the costof rental property when the time of construction exceeds one year.  During the year ended December 31, 2004, theCompany capitalized interest of approximately $125,000.

 

*Reclassifications:*  Certainreclassifications have been made to prior period amounts in order to conformwith current period presentation.

 

**NOTE2.    RENTAL PROPERTIES**

 

As of March 31, 2005, thePartnership and its Subsidiary Partnerships owned 2,377 residential apartmentunits in 22 residential and mixed-use complexes (collectively, the “ApartmentComplexes”).  The Partnership also owns 24 condominium units in tworesidential condominium complexes, all of which are leased to residentialtenants (collectively referred to as the “Condominium Units”).  TheApartment Complexes and Condominium Units are located primarily in the greatermetropolitan Boston, Massachusetts area.

 

Additionally, as of March31, 2005, the Subsidiary Partnerships owned commercial shopping centers inFramingham, Massachusetts and mixed-use properties in Boston, Brockton andNewton, Massachusetts.  These properties are referred to collectively asthe “Commercial Properties.”

 

In March 2005, the Partnership sold the Middlesex Apartments to anentity wholly owned by the majority shareholder of the General Partner.  The selling price was $6,500,000 whichresulted in a capital gain for the Partnership of approximately $5,800,000 andan increase in the Partnership’s cash reserves by approximately $4,800,000after payment of the existing $1,300,000 mortgage, prepayment penalties andother selling expenses. The buyer is selling the property as condominium units.An entity 31% owned by the majority shareholder of the General Partner and 5%owned by the President of the management company is the sales agent and willreceive a variable commission of 3% to 5% on each sale.  Although the buyer is assuming the costs andeconomic risks of converting and selling the condominium units, if the net gainsfrom the sale of these units exceed $500,000, the excess will be split equallybetween the buyer and the Partnership.

 

In September 2004, thePartnership completed the construction of twenty residential units at theWestgate Apartments in Woburn, Massachusetts. The total cost of these twentyunits was approximately $5,100,000 and is included in buildings andimprovements above. In January 2005, the Partnership obtained a $2,000,000mortgage on this property.

 

8

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Rental properties consistof the following:

 
| ** **                          | ** ** | **March 31, 2005** | ** **  | **December 31, 2004** | ** ** | **Useful Life** | ** ** |
|-------------------------------------|------------|--------------------|-------------|-----------------------|------------|-----------------|------------|
| Land, improvements and parking lots |       | $                  | 23,168,229  |                  | $          | 23,168,229      |       | 10-31 years |   |
| Buildings and improvements          |       | 105,730,918        |        | 105,631,294           |       | 15-31 years     |       |
| Kitchen cabinets                    |       | 3,564,584          |        | 3,371,139             |       | 5-10 years      |       |
| Carpets                             |       | 3,048,449          |        | 2,895,045             |       | 5-10 years      |       |
| Air conditioning                    |       | 739,443            |        | 737,030               |       | 7-10 years      |       |
| Laundry equipment                   |       | 191,425            |        | 185,254               |       | 5-7 years       |       |
| Elevators                           |       | 606,532            |        | 560,838               |       | 20 years        |       |
| Swimming pools                      |       | 142,429            |        | 142,429               |       | 10 years        |       |
| Equipment                           |       | 1,527,685          |        | 1,504,555             |       | 5-7 years       |       |
| Motor vehicles                      |       | 126,483            |        | 126,483               |       | 5 years         |       |
| Fences                              |       | 246,016            |        | 244,869               |       | 5-10 years      |       |
| Furniture and fixtures              |       | 4,317,430          |        | 4,236,547             |       | 5-7 years       |       |
| Smoke alarms                        |       | 120,423            |        | 116,496               |       | 5-7 years       |       |
| Construction in progress            |       | 0                  |        | 17,692                |       |            |       |
|                                |       |               |        |                  |       |            |       |
|                                |       | 143,530,046        |        | 142,937,900           |       |            |       |
| Less accumulated depreciation       |       | 38,542,962         |        | 37,053,341            |       |            |       |
|                                |       |               |        |                  |       |            |       |
|                                |       | $                  | 104,987,084 |                  | $          | 105,884,559     |       |   |   |

 

Additionally, as of March31, 2005, the Partnership owned a 50% ownership interest in five residentialand condominium complexes (the Investment Properties) with a total of 562units.  See Note 14 to the consolidatedfinancial statements for additional information on these investments.

 

**NOTE3.    RELATED PARTY TRANSACTIONS**

 

The Partnerships’properties are managed by an entity that is owned by the majority shareholderof the General Partner. The management fee is equal to 4% of rental revenue andlaundry income. Total fees paid were $318,350 and $318,461 for the three monthsended March 31, 2005 and 2004, respectively.

 

The Partnership Agreementpermits the General Partner or management company to charge the costs ofprofessional services (such as counsel, accountants and contractors) to NERA.In the three months ended March 31, 2005 and 2004, approximately $194,000 and$864,000 respectively, was charged to NERA for legal, construction,maintenance, rental and architectural services and supervision of capitalimprovements. Of the 2005 expenses referred to above, approximately $102,000consisted of repairs and maintenance and $33,000 of administrative expense;approximately $53,000 of construction, architectural services and supervisionof capital projects was capitalized in rental properties and approximately$6,000 for rental commissions.  Of the2004 expenses referred to above, approximately $52,000 consisted of repairs andmaintenance and $41,000 of administrative expense; approximately $771,000 ofconstruction, architectural services and supervision of capital projects wascapitalized in rental properties. Additionally in each of the quarters endedMarch 31, 2005 and 2004, the Partnership paid to the management company $20,000for in-house accounting services. Included in accounts payable and accruedexpenses at March 31, 2005 and December 31, 2004 is $201,203 and $147,195,respectively, due to the management company. The Partnership Agreement entitlesthe General Partner or the management company to receive certain commissionsupon the sale of Partnership property only to the extent that total commissionsdo not exceed 3%. No commissions were paid during the year ended December 31,2004 and through March 31, 2005.

 

Additionally, theManagement Company received fees of approximately $142,000 from the InvestmentProperties of which approximately $60,000 was the management fee and $67,000for construction, construction supervision and architectural fees and $15,000for other services.

 

On January 1,2004, NERA’S employees were transferred to the management company’spayroll.  The Partnership and InvestmentProperties reimbursed the management company for the payroll and relatedexpenses of the employees directly employed by the NERA properties.  Total reimbursement was approximately $549,000for the three months ended March 31, 2005.

 

9

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In 1996, prior tobecoming an employee and President of the management company, the currentPresident performed asset management consulting services to the Partnership.This individual continues to perform this service and to receive an assetmanagement fee from the Partnership, receiving $12,500 for the three monthsended March 31, 2004 and $50,000 for the year ended December 31, 2004.

 

The Partnership has investedin five limited liability companies to purchase five residential apartmentcomplexes (the “Investment Properties”). The Partnership owns 50% of each entity and the majority shareholder ofthe General Partner owns 471⁄2% and the President of Hamilton owns 21⁄2%respectively.  See Note 14 for adescription of the properties and their operations.

 

The Partnership owns 5condominiums in a 42-unit condominium building managed by an entity whollyowned by the 25% shareholder and President of the General Partner.  Thatentity will receive annual management fees from the five units of approximately$1,500, and Hamilton will reduce its management fees to approximately 2%, sothat the total management fee will not exceed the 4% allowed by the Partnership’sPartnership Agreement.

 

In March 2005, thePartnership sold Middlesex Apartments to the majority shareholder of theGeneral Partner.  See Note 2 for thedescription of the transaction.

 

**NOTE4.    OTHER ASSETS**

 

Included in prepaidexpenses and other assets at March 31, 2005 and December 31, 2004 isapproximately $453,000 and $536,000, respectively, held in escrow to fundfuture capital improvements.

 

Financing and leasingfees of $631,092 and $640,542 are net of accumulated amortization of $386,224and $371,604 at March 31, 2005 and December 31, 2004, respectively.

 

**NOTE5.    MORTGAGE NOTES PAYABLE**

 

At March 31, 2005 andDecember 31, 2004, the mortgages payable consisted of various loans, all ofwhich were secured by first mortgages on properties referred to in Note2.  At March 31, 2005, the fixed interest rates on these loans ranged from4.84% to 8.46%, payable in monthly installments aggregating approximately$704,000, including interest, to various dates through 2016.  The majorityof the mortgages are subject to prepayment penalties.  At March 31, 2005,the weighted average interest rate on the above mortgages was 5.89%.  The effective rate of approximately 7.0%includes the amortization expense of deferred financing costs.  See Note 12 for fair value information.

 

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

 

Approximate annualmaturities at March 31, 2005 are as follows:

 
| 2006- current maturities |   | $          | 728,000     |   |
|--------------------------|--------|------------|-------------|--------|
| 2007                     |   | 2,582,000  |        |
| 2008                     |   | 1,093,000  |        |
| 2009                     |   | 5,712,000  |        |
| 2010                     |   | 11,497,000 |        |
| Thereafter               |   | 94,522,000 |        |
|                     |   |       |        |
|                     |   | $          | 116,134,000 |   |

 

In January 2005, the Partnership obtained a mortgage on the Courtyardat Westgate for $2,000,000 which was added to cash reserves at an interest rateof 5.25%.  The loan requiresinterest-only payments through December 2014, when the entire balance is due.

 

On December 1, 2004, the Partnership refinanced the Dean StreetAssociates, LLC with outstanding balances totaling approximately $5,237,000with an interest rate of 7.08% that would mature in 2008.  The new mortgage is $5,650,000 with aninterest rate of 5.13% and requires interest-only payments until December 2007and interest and principal payments amounting to $30,781 monthly throughNovember 2014. The remaining balance of approximately $5,025,000 becomes due inDecember 2014. The Partnership recorded a loss on the early extinguishment ofdebt of approximately $411,000 because of prepayment penalties of $387,000 andthe write-off of deferred financing fees of approximately $24,000.

 

10

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**NOTE 6.    ADVANCE RENTAL PAYMENTS AND SECURITYDEPOSITS**

 

The lease agreements require the majority of tenants to maintain aone-month advance rental payment plus security deposits.  Amounts receivedfor prepaid rents of approximately $1,957,000 are included in cash and cashequivalents and security deposits of approximately $1,117,000 are included withother assets.

 

**NOTE 7.    PARTNERS’ CAPITAL**

 

The Partnership has twoclasses of Limited Partners (Class A and B) and one category of GeneralPartner.  Under the terms of the Partnership Agreement, Class B Units andGeneral Partnership Units must represent 19% and 1%, respectively, of the totalunits outstanding.  All classes have equal profit sharing and distributionrights, in proportion to their ownership interests.

 

In February 2005, thePartnership approved a quarterly distribution of $7.00 per unit ($.70 perreceipt) payable on March 31, 2005.

 

In 2004, the Partnershippaid a quarterly distribution $6.60 per unit ($.66 per receipt) on March 31,2004, and June 30, 2004.  On September30, 2004 and December 31, 2004, the Partnership paid a quarterly distributionof  $7.00 per unit ($0.70 per receipt)for a total distribution of $27.20 for 2004.

 

The Partnership hasentered into a deposit agreement with an agent to facilitate public trading oflimited partners’ interests in Class A units.  Under the terms of thisagreement, the holders of Class A units have the right to exchange each Class Aunit for 10 depositary receipts.  The following is information perdepositary receipt:

 
| ** **                                                       | ** ** | **Three months ended March 31,** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                       | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| Income per Depositary Receipt before  Discontinued Operations    |       | $                                | .21        |   | $ | .33 |   |
| Income from Discontinued Operations                              |       |                             |       |   |   |
| Net Income per Depositary Receipt after  Discontinued Operations |       | 3.35                             |       | .01 |   |
|                                                             |       |                             |       |   |   |
| Distributions per Depositary Receipt                             |       | $                                | 3.56       |   | $ | .34 |   |

 

**NOTE8.    TREASURY UNITS**

 

Treasury units at March31, 2005 are as follows:

 
| Class A             |   | 5,681 |   |
|---------------------|--------|-------|--------|
| Class B             |   | 1,228 |   |
| General Partnership |   | 64    |   |
|                |   | 6,973 |   |

 

**NOTE9.    COMMITMENTS AND CONTINGENCIES**

 

From time to time, thePartnerships are involved in various ordinary routine litigation incidental totheir business. The Partnership either has insurance coverage or has provided forany uninsured claims which, in the aggregate, are not significant. ThePartnerships are not involved in any material pending legal proceedings.

 

11

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**NOTE10.    RENTAL INCOME**

 

During the three monthsended March 31, 2005, approximately 93% of rental income was related toresidential apartments and condominium units with leases of one year orless.  The remaining 7% was related to commercial properties, which haveminimum future rental income on noncancellable operating leases as follows:

 
| ** ** | ** ** | **Commercial  Property  Leases** | ** ** |
|------------|------------|----------------------------------|------------|
| 2006       |       | $                                | 1,629,000  |   |
| 2007       |       | 1,572,000                        |       |
| 2008       |       | 1,495,000                        |       |
| 2009       |       | 1,448,000                        |       |
| 2010       |       | 1,121,000                        |       |
| Thereafter |       | 4,625,000                        |       |
|       |       |                             |       |
|       |       | $                                | 11,890,000 |   |

 

The aggregate minimumfuture rental income does not include contingent rentals that may be receivedunder various leases in connection with percentage rents, common area chargesand real estate taxes. Aggregate contingent rentals from continuing operationswere approximately $100,000 for the three months ended March 31, 2005 and$364,000 for the year ended December 31, 2004, respectively.

 

Rents receivable are netof allowances for doubtful accounts of $342,562 and $276,046 at March 31, 2005and December 31, 2004, respectively. Included in rents receivable isapproximately $402,000 resulting from recognizing rental income fromnon-cancelable commercial leases with future rental increases on astraight-line basis.  The majority of this amount is for a long-term leasewith Staples at Staples Plaza in Framingham, Massachusetts.

 

**NOTE11.    CASH FLOW INFORMATION**

 

During the three monthsended March 31, 2005 and 2004, cash paid for interest was $1,947,076 and$1,977,740 respectively. The 2004 amount is net of capitalization ofconstruction period interest of approximately $40,000 for the construction ofCourtyard at Westgate in Woburn, MA.

 

Non-cash investing andfinancing activities were as follows:

 
| ** **                                              | ** ** | **Year Ended December 31, 2004** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                              | ** ** | **Investing  Activities**        | ** ** | **Financing  Activities** | ** ** | **Total** | ** ** |
| New Mortgage Debt                                       |       | $                                | —     |   | $ | 5,650,000 |   | $ | 5,650,000 |   |
|                                                    |       |                             |       |   |   |   |   |
| Non-cash investing and financing:                       |       |                             |       |   |   |   |   |
| Mortgage debt paid from refinancings                    |       | —                           |       | 5,236,782 |   | 5,236,782 |   |
|                                                    |       |                             |       |   |   |   |   |
| Total non-cash investing and financing  activity        |       | —                           |       | 5,236,782 |   | 5,236,782 |   |
|                                                    |       |                             |       |   |   |   |   |
| Cash received (used) before other  transaction expenses |       | $                                | —     |   | $ | 413,218 |   | $ | 413,218 |   |
|                                                         |            |                                  |            |  |  |  |  |  |  |  |  |

 

12

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**NOTE12.    FAIR VALUE OF FINANCIAL INSTRUMENTS**

 

The following methods andassumptions were used by the Partnership in estimating the fair value of itsfinancial instruments:

 

•                                          Forcash and cash equivalents, other assets, investment in partnerships, accountspayable, advance rents and security deposits: fair value approximates thecarrying value of such assets and liabilities.

 

•                                          Formortgage notes payable: fair value is generally based on estimated future cashflows, which are discounted using the quoted market rate from an independentsource for similar obligations. Refer to the table below for the carryingamount and estimated fair value of such instruments.

 
| ** **             | ** ** | **Carrying  Amount** | ** **  | **Estimated  Fair Value** | ** ** |
|------------------------|------------|----------------------|-------------|---------------------------|------------|
| Mortgage Notes Payable |       |                 |        |                      |       |
| At March 31, 2005      |       | $                    | 116,133,627 |                      | $          | 121,844,092 |   |
| At December 31, 2004   |       | $                    | 115,615,800 |                      | $          | 122,123,808 |   |

 

Disclosure about fairvalue of financial instruments is based on pertinent information available tomanagement as of March 31, 2005 and December 31, 2004.  Although management is not aware of anyfactors that would significantly affect the fair value amounts, such amountshave not been comprehensively revalued for purposes of these financialstatements since December 31, 2004 and current estimates of fair value maydiffer significantly from the amounts presented herein.

 

**NOTE13.    TAXABLE INCOME AND TAX BASIS**

 

Taxable income reportableby the Partnership and includable in its partner’s tax returns is differentthan financial statement income because of accelerated depreciation, differenttax lives, and timing differences related to prepaid rents andallowances.  Taxable income is approximately $150,000 greater thanstatement income for the quarter ended March 31, 2005 and approximately$1,400,000 less than statement income for the year ended December 31,2004.  The cumulative tax basis of the Partnership’s real estate at March31, 2005 is approximately $25,000 less than the statement basis. Thedepreciation rules that generated substantial deductions in 2004 and 2003expired in 2004, accordingly taxable income in future years is expected toincrease.

 

**NOTE 14—INVESTMENT IN PARTNERSHIPS**

 

Since November 2001, the Partnership has invested in five limitedpartnerships, each of which has invested primarily in residential apartmentcomplexes.  The Partnership has a 50%ownership interest in each investment. The other investors are Harold Brown and the President of the managementcompany, who have a 47.5% and 2.5% ownership interest respectively.  A description of each investment is asfollows:

 

On March 7, 2005, the Partnership invested $2,000,000 for a 50%ownership interest in a building comprising 49 apartments, one commercial spaceand a 50-car surface parking lot located in Boston, Massachusetts. The purchaseprice was $14,300,000, and a $10,750,000 30-month mortgage with a floatinginterest rate of 2% over the 30 day Libor Index (4.85% at March 7, 2005) wasobtained to finance this acquisition. The Partnership plans to operate the building and initiate developmentof the parking lot. The plan may also include disposition of selected units, ascondominiums in order to reduce the above mentioned mortgage.  Any profits from the condominium sales willbe taxed at ordinary rates.  Mr. Brownhas guaranteed 25% of this mortgage until such time as $2,687,500 of principalhas been paid.  The Partnership and theother investor have, in turn agreed to indemnify Mr. Brown for theirproportional share of any losses incurred by this guarantee.  This investment is referred to as EssexStreet.

 

On March 2, 2005, the Partnership invested $2,300,000 for a 50%ownership interest in a 176-unit apartment complex with an additional smallcommercial building located in Quincy, Massachusetts. The purchase price was$23,750,000, and a $19,200,000 30-month mortgage with a floating interest rateof 2% over the 30 day Libor Index (4.85% at March 2, 2005) was obtained tofinance this acquisition.  ThePartnership plans to sell the majority of units as condominiums and retain 40to 50 units for long-term investment. The proceeds from the condominium sales will primarily be used to reducethe above-mentioned mortgage.  It isestimated that it will take longer than one year to sell these units. HaroldBrown has guaranteed 30% of this mortgage until such time as $5,760,000 ofprincipal has been paid.  The Partnershipand other investor have, in turn agreed to indemnify Mr. Brown theirproportionate share of any losses incurred by this guarantee.  As of May 10, 2005, one unit has been sold,11 units have a signed purchase and sales agreement, and 30 units havereservation agreements.  Gains from thesales of units (currently estimated to average $60,000 per condominium) will betaxed at ordinary income rates.  Thisinvestment is referred to as 1025 Hamilton.

 

13

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In September 2004, the Partnership invested approximately $5,075,000for a 50% ownership interest in a 42-unit apartment complex located inLexington, Massachusetts. The purchase price was $10,100,000.  In October 2004, the Partnership obtained amortgage on the property in the amount of $8,025,000 and returned $3,775,000 tothe Partnership.  This investment isreferred to as Hamilton Minuteman.

 

In August 2004, the Partnership invested $8,000,000 for a 50% ownershipinterest in a 280-unit apartment complex located in Watertown,Massachusetts.  The total purchase pricewas $56,000,000.  This investment isreferred to as Hamilton Place.

 

In November 2001, the Partnership formed a limited liability company topurchase a 40-unit apartment building in Cambridge, Massachusetts. Thisproperty has a 12-year mortgage, which is amortized on a 30-year schedule, witha final payment of approximately $6,000,000 in 2014. The Partnership is a 50%owner in this investment and is referred to as Franklin Street.

 

Hamilton Place is planning to sell, over time, three buildings with atotal of 136 units as condominiums commencing in January 2005.  Hamilton Minuteman may also, from time totime, sell units.   Minuteman is notbeing marketed at this time.  Themajority of the proceeds from these sales will be used to reduce theirmortgages.  Commencing in 2005, thesemortgages require minimum principal payments (“Curtailment Payments”) andadditional investment by the Partnership will be required if the proceeds fromsales cannot provide for these payments. As of May 10, 2005, 25 units have beensold and an additional 10 units are under contract at Hamilton Place. An entitypartially owned by the majority shareholder of the General Partner and thePresident of the management company, 31% and 5% respectively, is the salesagent and will receive a variable commission on each sale of 3% to 5%.  Approximately $162,500 of commissions waspaid through March 31, 2005.

 

As required by the lender for the 2004 acquisitions, the Treasurer ofthe General Partner has provided a limited repayment guarantee equal to twentypercent (20%) of the outstanding balance, reducing to zero percent (0%) uponthe completion of the Curtailment Payments. In the event that he is obligated to make payments to the lender as aresult of this guaranty, the Partnership and other investors have, in turn,agreed to indemnify him for their proportionate share of any such payments.

 

On February 10, 2005, Hamilton Place, Watertown, MA obtained a new 10year mortgage on the three buildings to be retained for $16,825,000, payable asto interest-only at 5.18% for 3 years and amortizing on a 30 year schedule forthe remaining 7 years when the balance is due. The net proceeds after funding escrow accounts and closing costs on thenew mortgage was approximately $16,700,000, which was used to reduce theexisting mortgage. Hamilton Place paid an approximate $400,000 penalty toobtain the new financing.

 

14

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**Summaryfinancial information for the three months ended March 31, 2005 (unaudited)**

 
| ** **                                                     | ** ** | **Franklin  Street** | ** ** | **Hamilton  Place** | ** ** | **Hamilton  Place**   | ** ** | **Hamilton  Minuteman** | ** ** | **Essex  81**   | ** ** | **1025  Hamilton** | ** ** | **Total**  | ** ** |
|----------------------------------------------------------------|------------|----------------------|------------|---------------------|------------|-----------------------|------------|-------------------------|------------|-----------------|------------|--------------------|------------|------------|------------|
| ** **                                                     | ** ** | ** **           | ** ** | ** **          | ** ** | **(for sale  units)** | ** ** | ** **              | ** ** | ** **      | ** ** | ** **         | ** ** | ** ** | ** ** |
| **Acquisition Date**                                           | ** ** | **November  2001**   | ** ** | **August  2004**    | ** ** | **August  2004**      | ** ** | **September  2004**     | ** ** | **March  2005** | ** ** | **March  2005**    | ** ** | ** ** | ** ** |
| Property assets – net                                     |       | $                    | 10,251,215 |                | $          | 28,559,752            |       | $                       | 22,961,365 |            | $          | 9,876,859          |       | $          | 14,183,969 |   | $ | 23,720,084 |   | $ | 109,553,244 |   |
| Mortgages payable                                              |       | 7,900,292            |       | 16,825,000          |       | 19,411,658            |       | 7,717,360               |       | 10,750,000      |       | 19,200,000         |       | 81,804,310 |       |
| Total Equity                                                   |       | 2,285,112            |       | 14,588,602          |       | 1,177,148             |       | 2,207,340               |       | 3,975,651       |       | 4,654,274          |       | 28,888,127 |       |
| NERA - 50% equity                                              |       | 1,142,556            |       | 7,294,301           |       | 588,574               |       | 1,103,670               |       | 1,987,826       |       | 2,327,137          |       | 14,444,064 |       |
|                                                           |       |                 |       |                |       |                  |       |                    |       |            |       |               |       |       |       |
| Summary income statement:                                      |       |                 |       |                |       |                  |       |                    |       |            |       |               |       |       |       |
| Rental income                                                  |       | 246,328              |       | 586,231             |       | 421,163               |       | 152,734                 |       | 72,941          |       | 183,696            |       | 1,663,093  |       |
| Operating expenses                                             |       | 54,142               |       | 368,448             |       | 217,461               |       | 59,969                  |       | 15,864          |       | 77,003             |       | 792,887    |       |
| Management fees                                                |       | 9,289                |       | 23,618              |       | 7,079                 |       | 6,145                   |       | 4,372           |       | 6,352              |       | 56,855     |       |
| Interest expense                                               |       | 137,421              |       | 223,436             |       | 237,275               |       | 91,797                  |       | 36,934          |       | 78,900             |       | 805,763    |       |
| Depreciation & amortization                                |       | 89,205               |       | 356,095             |       | 205,085               |       | 130,167                 |       | 40,120          |       | 72,167             |       | 892,839    |       |
| Miscellaneous expense                                          |       | —               |       | 404,881             |       | —                |       | —                  |       | —          |       | —             |       | 404,881    |       |
| Gain on sale of condominiums                                   |       | —               |       | —              |       | 1,272,885             |       | —                  |       | —          |       | —             |       | 1,272,885  |       |
|                                                           |       |                 |       |                |       |                  |       |                    |       |            |       |               |       |       |       |
| Net profit (loss)                                              |       | (43,729              | )          | (856,247            | )          | 1,027,148             |       | (135,344                | )          | (24,349         | )          | (50,726            | )          | (83,247    | )          |
| NERA - 50%                                                     |       | $                    | (21,865    | )                   | $          | (428,124              | )          | $                       | 513,574    |            | $          | (67,672            | )          | $          | (12,175    | ) | $ | (25,363 | ) | $ | (41,624 | ) |
|                                                           |       |                 |       |                |       |                  |       |                    |       |            |       |               |       |       |       |
| Total units/ condominiums                                      |       | 40                   |       | 144                 |       | 136                   |       | 42                      |       | 49              |       | 176                |       | 587        |       |
| Units to be retained                                           |       | 40                   |       | 144                 |       | 0                     |       | 42                      |       | 49              |       | 48                 |       | 323        |       |
| Units to be sold                                               |       | 0                    |       | 0                   |       | 136                   |       | 0                       |       | 0               |       | 128                |       | 264        |       |
| Units sold through March 31, 2005                              |       | 0                    |       | 0                   |       | 25                    |       | 0                       |       | 0               |       | 0                  |       | 25         |       |
| Balance of unsold units                                        |       | 0                    |       | 0                   |       | 111                   |       | 0                       |       | 0               |       | 128                |       | 239        |       |
| Unsold units with deposits for future sale  as of May 10, 2005 |       | 0                    |       | 0                   |       | 10                    |       | 0                       |       | 0               |       | 41                 |       | 51         |       |

 

15

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**NOTE15.    NEW ACCOUNTING PRONOUNCEMENTS**

 

SFAS No. 153, *Accounting for Non-monetary Transactions*

 

In December 2004, theFASB issued SFAS No. 153, “*Accounting forNon-monetary Transactions*” (“SFAS 153”).  SFAS 153 requires non-monetary exchanges tobe accounted for at fair value, recognizing any gain or loss, if thetransactions meet a commercial-substance criterion and fair value isdeterminable.  SFAS No. 153 is effectivefor non-monetary transactions occurring in fiscal years beginning after June15, 2005.  The Company believes that theimplementation of this standard will not have a material effect on the Company’sconsolidated financial position or results of operations.

 

The Partnership adoptedthe Financial Accounting Standards Board’s (FASB) Statement of FinancialAccounting Standard 144 (“FAS 144”), “Accounting for the Impairment orDisposal of Long-lived Assets” on January 1, 2002. FAS 144 supersedesFAS 121, “Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to Be Disposed Of.” The primary objectives of FAS 144are to develop one accounting model, based on the framework established inFAS 121, for long-lived assets to be disposed of by sale, and to addresssignificant implementation issues regarding impairment of long-lived assetsheld for use. FAS 144 requires separate presentation of discontinuedoperations for an operating property sold or considered held for sale for yearsbeginning on January 1, 2002. In accordance with FAS 144, thePartnership classifies real estate assets as held for sale in the period inwhich all of the following criteria are met: (a) management, having theauthority to approve the action, commits to a plan to sell the asset;(b) the asset is available for immediate sale in its present conditionsubject only to terms that are usual and customary for sales of such assets;(c) an active program to locate a buyer and other actions required tocomplete the plan to sell the asset have been initiated; (d) the sale ofthe asset is probable and the transfer of the asset is expected to qualify forrecognition as a completed sale within one year; (e) the asset is beingactively marketed for sale at a price that is reasonable in relation to itscurrent fair value; and (f) actions required to complete the plan indicatethat it is unlikely that significant changes to the plan will be made or thatthe plan will be withdrawn.

 

The Partnership’sadoption of FAS 144 resulted in: (i) the net operating results ofproperties held for sale at December 31, 2004 and sold during 2002 beingpresented as income from discontinued operations for all periods presented and(ii) the gain on the sale of operating properties sold, net of sale costs,being presented as income from discontinued operations for the year 2002.Implementation of FAS 144 will impact how information is classified on theincome statement but will have no effect on net income (see Note 17).

 

EIFT 03-13, *Applying the Conditions in Paragraph 42 of FASB Statement No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets,” in Determining Whether toReport Discontinued Operations*

 

At its September 2004meeting, the Task Force reached the following conclusions:

 

•                                          Areassessment period is necessary in evaluating whether a disposal meets thecriteria for discounted operations reporting; the reassessment period shouldinclude the point at which the component initially meets the criteria to beclassified as held for sale through one year after the component’s disposaldate.  However, the Task Force concludedthat the reassessment will be required only when significant changes in eventsor circumstances make it likely that the criteria in paragraph 42 of SFAS 144will, or will no longer, be met after the disposal date.

•                                          Thereis a presumption that the continued sale of a commodity in an active marketshould be considered a migration of customers.

•                                          Forthe purpose of determining whether operations and cash flows are eliminated,the determination will be limited to evaluating gross cash inflows (revenues)and outflows (costs) versus evaluating other operating measures such as grossprofit or net income.

•                                          Theretention of risks associated with the ongoing operations of the disposedcomponent or the ability to obtain benefits associated with the ongoingoperations of the disposed component should be considered in evaluating whetherthe entity has the ability to influence the operating and/or financial policiesof the disposed component.

 

As a result, factors (b)and (c) were eliminated from paragraph 9 of the draft abstract.

 

The Task Force affirmedthe consensus as previously exposed with the followingmodifications/clarifications:

 

•                                          Theperiod for assessing whether a component has met the criteria for discontinuedoperations could extend beyond one year if events or circumstances beyond anentity’s control extend the period required to eliminate direct cash flows ofthe disposed component or eliminate significant continuing involvement in theongoing operations of the disposed component provided that the entity (1) takesactions necessary to respond to those situations, and (2) expects to eliminatethe direct cash flows and the significant continuing involvement.  The extension of the assessment period isonly for determining whether a component has met the criteria for discontinuedoperations, and is not an extension of the assessment period for theheld-for-sale classification of the component.

 

16

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In January 2003, the FASBissued FIN 46, which provides guidance on how to identify a variable interestentity (VIE) and determine when the assets, liabilities, noncontrollinginterests, and results of operations of a VIE are to be included in an entity’sconsolidated financial statements. A VIE exists when either the total equityinvestment at risk is not sufficient to permit the entity to finance itsactivities by itself, or the equity investors lack one of three characteristicsassociated with owning a controlling financial interest. In December 2003, theFASB reissued FIN 46 with certain modifications and clarifications. Applicationof this guidance was effective for interests in certain VIEs commonly referredto as special-purpose entities (SPEs) as of December 31, 2003. Application forall other types of entities is required for periods ending after March 15,2004, unless previously applied. The Partnership does not believe that theapplication of FIN 46, if required, will have a material impact on itsfinancial position, results of operations, or liquidity.

 

**NOTE16.    DISCONTINUED OPERATIONS and SALES of REAL ESTATE**

 

The following tablessummarize income from discontinued operations and the related realized gain onsale of rental property for the three months ended March 31, 2005 and 2004.

 
| ** **                          | ** ** | **Three Months Ended  March 31** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| Total Revenues                      |       | $                                | 78,256     |   | $ | 103,094 |   |
|                                |       |                             |       |   |   |
| Operating and other expenses        |       | 55,849                           |       | 76,140 |   |
| Depreciation and amortization       |       | 18,906                           |       | 10,653 |   |
|                                |       | 74,755                           |       | 86,793 |   |
|                                |       |                             |       |   |   |
| Income from discontinued operations |       | $                                | 3,501      |   | $ | 16,301 |   |

 

17

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| Item 2 — | MANAGEMENTS  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION |
|---------------|--------------------------------------------------------------------------------------|

 

The followingdiscussion should be read in conjunction with the financial statements andnotes thereof appearing elsewhere in this Report.  This Report, on Form 10-Q, containsforward-looking statements within the meaning of the securities law.  Actual results or developments could differmaterially from those projected in such statements as a result of certainfactors set forth in the section below entitled “Factors That May Affect FutureResults” and elsewhere in this Report.

 

While thenational economy has largely recovered from the recession of the late 1990s andearly 2000s, Massachusetts’ local economy continues to lag behind. Job growthremains sluggish. Vacancy rates for downtown office space are approximately20%, and similar vacancy rates are seen in suburban areas. In the face of theseeconomic realities, the Partnership has kept its residential vacancy rate belowthe 5% local industry average. However, doing so has required incentives suchas lower rent, and payment of rental commissions. Additionally, new housingproduct in the residential market and low mortgage interest rates thatattracted first-time home buyers resulted in higher turnover in the portfolioand, in turn, higher turnover expenses and unit renovation costs. Finally, witha rise in utility rates, and in abnormally cold winter and higher than expectedsnowfall, increases in operating expenses outpaced any modest increases, inrental revenue that the Partnership’s properties may have experienced.

 

ThePartnership expects similar conditions to prevail in 2005. Revenue is expectedto remain flat while increases in operating expenses are expected to be muted.Competition continues to be strong; there has been no change in fundamentalconditions that would shift the burden of paying rental commissions from thePartnership to the tenants or mitigate high tenant turnover. As a result, thePartnership’s future earning may be negatively impacted. Lastly, tax reformallowed the Partnership to accelerate depreciation on improvements andacquisitions over the past few years. The tax incentives expired in 2004, and,as such, we expect income taxable to partners to increase for 2005.

 

The Partnershiphas retained The Hamilton Company (“Hamilton”) to manage and administer thePartnership’s properties.  Hamilton is afull-service real estate management company, which has legal, construction,maintenance, architectural, accounting and administrative departments.  The Partnership’s properties representapproximately 40% of the total properties and 70% of the residential propertiesmanaged by Hamilton.  Substantially allof the other properties managed by Hamilton are owned - wholly or partially, directlyor indirectly - by Harold Brown.  ThePartnership’s Second Amended and Restated Contract of Limited Partnership (the “PartnershipAgreement”) expressly provides that the general partner may employ a managementcompany to manage the properties, and that such management company may be paida fee of 4% of rental receipts for administrative and management services (the “ManagementFee”).  The Partnership annually paysHamilton the full Management Fee, in monthly installments.

 

Harold Brown,his brother Ronald Brown and the President of Hamilton, Carl Valeri,collectively own approximately 19.9% of the depositary receipts representingthe Partnership Class A Units (including depositary receipts held by trusts forthe benefit of such persons’ family members). Harold Brown also owns 75% of the Partnership’s Class B Units, 75% ofthe capital stock of NewReal,

 

18

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Inc. (“NewReal”), thePartnership’s sole general partner, and all of the outstanding stock of Hamilton.  Ronald Brown also owns 25% of the Partnership’sClass B Units and 25% of NewReal’s capital stock.  In addition, Ronald Brown is the Presidentand director of NewReal and Harold Brown is NewReal’s Treasurer and also adirector.  Three of NewReal’s otherdirectors, Thomas Raffoul, Conrad DiGregorio, and Edward Sarkisian, also ownimmaterial amounts of the Partnership’s Class A Units.

 

Beyond theManagement Fee, the Partnership Agreement further provides for the employmentof outside professionals to provide services to the Partnership and allowsNewReal to charge the Partnership for the cost of employing professionals toassist with the administration of the Partnership’s properties.  In addition to the Management Fee, from timeto time the Partnership pays Hamilton for repairs and maintenance services,legal services, construction services and accounting services.  The costs charged by Hamilton for theseservices are at the same hourly rate charged to all entities managed byHamilton, and management believes such rates are competitive in themarketplace.

 

Hamiltonaccounted for approximately 8% and 5% of the repair and maintenance expensepaid for by the Partnership in the three months ended March 31, 2005 and theyear ended December 31, 2004, respectively. Of the funds paid to Hamilton for this purpose, the great majority wasto cover the cost of services provided by the Hamilton maintenance department,including plumbing, electrical, carpentry services, and snow removal.   However, several of the larger Partnershipproperties have their own maintenance staff. Further, those properties that do not have their own maintenance staffbut are located more than a reasonable distance from Hamilton’s headquarters inAllston, Massachusetts are generally serviced by local, independent companies.

 

Hamilton’slegal department handles most of the Partnership’s eviction and collectionmatters.  Additionally, it prepares mostlong-term commercial lease agreements and represents the Partnership inselected purchase and sale transactions. Overall, Hamilton provided approximately 82% of the legal services paidfor by the Partnership during the three months ended March 31, 2005 andapproximately 81% for the year ended December 31, 2004.

 

R. BrownPartners, which is owned by Ronald Brown, manages 5 condominium units locatedin Brookline, Massachusetts.  That entitywill receive annual management fees from the five units of approximately$1,500, and Hamilton will reduce its management fees to approximately 2%, sothat the total management fee will not exceed the 4% allowed by the Partnership’sPartnership Agreement.

 

ThePartnership requires that three bids be obtained for construction contracts inexcess of $5,000.  Hamilton may be one ofthe three bidders on a particular project and may be awarded the contract ifits bid and its ability to successfully complete the project are deemedappropriate.  For contracts that are notawarded to Hamilton, Hamilton charges the Partnership a constructionsupervision fee equal to 5% of the contract amount.  Hamilton’s architectural department alsoprovides services to the Partnership on an as-needed basis.  In 2005, Hamilton charged the Partnershipapproximately $53,000 in construction and architectural services.  In 2004, Hamilton provided construction andarchitectural services paid for by the Partnership totaling $3,781,000including approximately $3,500,000 for the construction of 20 additionalresidential units at Westgate Apartments in Woburn, Massachusetts.

 

19

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Prior to 1991,the Partnership employed an outside, unaffiliated company to perform itsbookkeeping and accounting functions. Since that time, such services have been provided by Hamilton’saccounting staff, which consists of approximately ten people.  Hamilton currently charges the Partnership$80,000 ($20,000 per quarter) per year for bookkeeping and accounting services.

 

For moreinformation on related party transactions, see Note 3 to the ConsolidatedFinancial Statements.

 

CRITICAL ACCOUNTING POLICIESAND ESTIMATES

 

Thepreparation of consolidated financial statements, in accordance with accountingprinciples generally accepted in the United States of America, requires thePartnership to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses and related disclosures ofcontingent assets and liabilities.  ThePartnership regularly and continually evaluates its estimates, including thoserelated to acquiring, developing and assessing the carrying values of its realestate properties and its investments in and advances to joint ventures.  The Partnership bases its estimates onhistorical experience, current market conditions, and on various otherassumptions that are believed to be reasonable under the circumstances.  However, because future events and theireffects cannot be determined with certainty, the determination of estimatesrequires the exercise of judgment.  ThePartnership’s critical accounting policies are those which require assumptionsto be made about such matters that are highly uncertain.  Different estimates could have a materialeffect on the Partnership’s financial results. Judgments and uncertainties affecting the application of these policiesand estimates may result in materially different amounts being reported underdifferent conditions and circumstances. See Note 1 to the Consolidated Financial Statements, Principles ofConsolidation.

 

RevenueRecognition: Revenues from rental property are recognized when due fromtenants.  Residential leases aregenerally for terms of one year and commercial leases are generally for five toten years, with renewal options at increased rents.  Significant commercial leases with steppedincreases over the term of the lease are recorded on the straight-line basis.

 

Real Estateand Depreciation: Real estate assets are stated at the lower of cost or fairvalue, less accumulated depreciation. Costs related to the acquisition, development, construction andimprovement of properties are capitalized, including interest, internal wagesand benefits, real estate taxes and insurance. Capitalization usually begins with commencement of development activityand ends when the property is ready for leasing.  Replacements and improvements— such as HVACequipment, structural replacements, windows, appliances, flooring, carpetingand kitchen/bath replacements and renovations — are capitalized and depreciatedover their estimated useful lives as follows:

 

•                  Depreciationis computed on a straight-line basis over the estimated useful lives of therelated assets.  In assessing estimateduseful lives, the Partnership makes assumptions based on historical experienceacquired from both within and outside the Partnership.  These assumptions have a direct impact on thePartnership’s net income.

 

20

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•                  Ordinaryrepairs and maintenance, such as unit cleaning and painting and appliancerepairs, are expensed.

 

If there is anevent or change in circumstances that indicates an impairment in the value of aproperty, the Partnership’s policy is to assess the impairment by making acomparison of the current and projected operating cash flows of the propertyover its remaining useful life, on an undiscounted basis, to the carryingamount of the property.  If the carryingvalue is in excess of the estimated projected operating cash flows of theproperty, the Partnership would recognize an impairment loss equivalent to theamount required to adjust the carrying amount to its estimated fair value.  The Partnership has not recognized animpairment loss since 1995.

 

RentalProperty Held for Sale and Discontinued Operations:  When assets are identified by management asheld for sale, the Partnership discontinues depreciating the assets andestimates the sales price, net of selling costs, of such assets.  If, in management’s opinion, the net salesprice of the assets which have been identified as held for sale is less thanthe net book value of the assets, a valuation allowance is established.  Properties identified as held for sale and/orsold are presented in discontinued operations for all periods presented.

 

Investments inPartnerships:  The Partnership accountsfor its 50% owned Investment Properties under the equity method of accounting,as it exercises significant influence over, but does not control theseentities.  These investments are recordedinitially at cost, as Investments in Partnerships, and subsequently adjustedfor equity in earnings, cash contributions and distributions.  Under the equity method of accounting, ournet equity is reflected on the consolidated balance sheets, and our share ofnet income or loss from the Partnership is included on the consolidatedstatements of income.

 

With respectto investments in and advances to the Investment Properties, the Partnershiplooks to the underlying properties to assess performance and the recoverabilityof carrying amounts for those investments in a manner similar to directinvestments in real estate properties. An impairment charge is recorded if the carrying value of the investmentexceeds its fair value.

 

LegalContingencies: The Partnership is subject to various legal proceedings andclaims that arise, from time to time, in the ordinary course of business.  These matters are frequently covered byinsurance.  If it is determined that aloss is likely to occur, the estimated amount of the loss is recorded in thefinancial statements.  Both the amount ofthe loss and the point at which its occurrence is considered likely can bedifficult to determine.

 

**RESULTS OFOPERATIONS**

 

**Comparisonof the three months ended March 31, 2005 to the three months ended March 31,2004 (as adjusted for discontinued operations)**

 

21

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The Partnership and itsSubsidiary Partnerships earned income before other income and discontinuedoperations of $368,015 during the three months ended March 31, 2005 compared to$528,181 for the three months ended March 31, 2004, a decrease of $160,166(30%).

 

The rental activity is summarized as follows:

 
| ** **        | ** ** | **Occupancy Date** | ** ** |
|-------------------|------------|--------------------|------------|
| ** **        | ** ** | **May 9, 2005**    | ** ** | **February 25, 2005** | ** ** | **May 3, 2004** | ** ** |
| **Residential**   |       |               |       |   |   |   |   |
| Units             |       | 2,377              |       | 2,382 |   | 2,400 |   |
| Vacancies         |       | 32                 |       | 37 |   | 72 |   |
| Vacancy rate      |       | 1.4                | %          | 1.6 | % | 3.0 | % |
|              |       |               |       |   |   |   |   |
| **Commercial**    |       |               |       |   |   |   |   |
| Total square feet |       | 85,275             |       | 85,275 |   | 85,275 |   |
| Vacancy           |       | 0                  |       | 0 |   | 0 |   |
| Vacancy rate      |       | 0                  | %          | 0 | % | 0 | % |

 
| ** **             | ** ** | **Rental Income (in thousands)  Three Months Ended March** | ** ** |
|------------------------|------------|------------------------------------------------------------|------------|
| ** **             | ** ** | **2005**                                                   | ** ** | **2004** | ** ** |
| ** **             | ** ** | **Total  Operations**                                      | ** ** | **Continuing  Operations** | ** ** | **Total  Operations** | ** ** | **Continuing  Operations** | ** ** |
| Total rents            |       | $                                                          | 7,875      |   | $ | 7,797 |   | $ | 7,746 |   | $ | 7,643 |   |
| Residential percentage |       | 93                                                         | %          | 93 | % | 93 | % | 93 | % |
| Commercial percentage  |       | 7                                                          | %          | 7 | % | 7 | % | 7 | % |
| Contingent rentals     |       | $                                                          | 99         |   | $ | 99 |   | $ | 136 |   | $ | 136 |   |

 

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***Three Months Ended March 31,2005 Compared to Three Months Ended March 31, 2004***

 
| ** **                                                     | ** ** | **March 31,  2005** | ** ** | **March 31,  2004** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|----------------------------------------------------------------|------------|---------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
| ** **                                                     | ** ** | ** **          | ** ** | ** **          | ** ** | ** **         | ** ** | ** **          | ** ** |
| Revenues:                                                      |       |                |       |                |       |               |       |                |       |
| Rental income                                                  |       | $                   | 7,797,298  |                | $          | 7,642,718          |       | 154,580             |       | 2 | % |
| Laundry and sundry income                                      |       | 116,112             |       | 81,450              |       | 34,662             |       | 43                  | %          |
|                                                           |       | 7,913,410           |       | 7,724,168           |       | 189,242            |       | 2.4                 | %          |
|                                                           |       |                |       |                |       |               |       |                |       |
| Expenses:                                                      |       |                |       |                |       |               |       |                |       |
| Administrative                                                 |       | 339,791             |       | 326,391             |       | 13,400             |       | 4                   | %          |
| Depreciation and amortization                                  |       | 1,519,491           |       | 1,463,624           |       | 55,867             |       | 4                   | %          |
| Interest                                                       |       | 1,937,475           |       | 1,974,775           |       | (37,300            | )          | -2                  | %          |
| Management fees                                                |       | 315,708             |       | 314,154             |       | 1,554              |       | 1                   | %          |
| Operating                                                      |       | 1,411,457           |       | 1,079,888           |       | 331,569            |       | 31                  | %          |
| Renting                                                        |       | 102,852             |       | 104,399             |       | (1,547             | )          | -1                  | %          |
| Repairs and maintenance                                        |       | 1,014,471           |       | 1,060,565           |       | (46,094            | )          | -4                  | %          |
| Taxes and insurance                                            |       | 904,150             |       | 872,191             |       | 31,959             |       | 4                   | %          |
|                                                           |       | 7,545,395           |       | 7,195,987           |       | 349,408            |       | 5                   | %          |
|                                                           |       |                |       |                |       |               |       |                |       |
| Income Before Other Income and  Discontinued Operations   |       | 368,015             |       | 528,181             |       | (160,166           | )          | -30                 | %          |
|                                                           |       |                |       |                |       |               |       |                |       |
| Other Income (Loss)                                            |       |                |       |                |       |               |       |                |       |
| Interest income                                                |       | 38,327              |       | 70,167              |       | (31,840            | )          | -45                 | %          |
| (Loss) from investment in joint  ventures                      |       | (41,624             | )          | (32,030             | )          | (9,594             | )          | -29                 | %          |
|                                                           |       | (3,297              | )          | 38,138              |       | (41,434            | )          | -129                | %          |
|                                                           |       |                |       |                |       |               |       |                |       |
| Income from Continuing  Operations                             |       | $                   | 364,718    |                | $          | 566,317            |       | $                   | (201,600   | ) | -36 | % |
|                                                           |       |                |       |                |       |               |       |                |       |
| Discontinued Operations                                        |       |                |       |                |       |               |       |                |       |
| Income from discontinued  operations                           |       | 3,501               |       | 16,301              |       | (12,800            | )          | 79                  | %          |
| Gain on sale of real estate  from discontinued operations |       | 5,811,584           |       | —              |       | 5,811,584          |       | 100                 | %          |
|                                                           |       | 5,815,085           |       | 16,301              |       | 5,798,784          |       | 356                 | %          |
|                                                           |       |                |       |                |       |               |       |                |       |
| Net Income                                                     |       | $                   | 6,179,803  |                | $          | 582,619            |       | $                   | 5,597,184  |   | 961 | % |

 

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The following is a comparativeschedule for the three months ended March 31, 2005 and three months ended March31, 2004 of the changes in revenue from rental operations excluding the 2004acquisitions.

 
| ** **                    | ** ** | **Total  Partnership  2005** | ** ** | **Less  Acquired  Properties** | ** ** | **Same  Properties  in 2005** | ** ** | **Same  Properties  in 2004*** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|-------------------------------|------------|------------------------------|------------|--------------------------------|------------|-------------------------------|------------|--------------------------------|------------|--------------------|------------|---------------------|------------|
| **Revenues**                  |       |                         |       |                           |       |                          |       |                           |       |               |       |                |       |
| Rental income                 |       | $                            | 7,797,298  |                           | $          | 84,349                        |       | $                              | 7,712,949  |               | $          | 7,642,718           |       | $ | 70,231 |   | 0.9 | % |
| Laundry and sundry income     |       | 116,112                      |       | —                         |       | 116,112                       |       | 81,450                         |       | 34,662             |       | 42.6                | %          |
|                          |       | 7,913,410                    |       | $                              | 84,349.00  |                          | 7,829,061  |                           | 7,724,168  |               | 104,893    |                | 1.4        | % |
|                          |       |                         |       |                           |       |                          |       |                           |       |               |       |                |       |
| **Expenses**                  |       |                         |       |                           |       |                          |       |                           |       |               |       |                |       |
| Administrative                |       | 339,791                      |       | —                         |       | 339,791                       |       | 326,391                        |       | 13,400             |       | 4.1                 | %          |
| Depreciation and amortization |       | 1,519,491                    |       | 60,778                         |       | 1,458,713                     |       | 1,463,624                      |       | (4,911             | )          | -0.3                | %          |
| Interest                      |       | 1,937,475                    |       | 25,667                         |       | 1,911,808                     |       | 1,974,775                      |       | (62,967            | )          | -3.2                | %          |
| Management fees               |       | 315,708                      |       | 3,316                          |       | 312,392                       |       | 314,154                        |       | (1,762             | )          | -0.6                | %          |
| Operating                     |       | 1,411,457                    |       | 7,225                          |       | 1,404,232                     |       | 1,079,888                      |       | 324,344            |       | 30.0                | %          |
| Renting                       |       | 102,852                      |       | 404                            |       | 102,448                       |       | 104,399                        |       | (1,951             | )          | -1.9                | %          |
| Repairs and maintenance       |       | 1,014,471                    |       | 1,345                          |       | 1,013,126                     |       | 1,060,565                      |       | (47,439            | )          | -4.5                | %          |
| Taxes and insurance           |       | 904,150                      |       | 10,029                         |       | 894,121                       |       | 872,191                        |       | 21,930             |       | 2.5                 | %          |
|                          |       | 7,545,395                    |       | 108,764                        |       | 7,436,631                     |       | 7,195,987                      |       | 240,644            |       | 3.3                 | %          |
|                          |       |                         |       |                           |       |                          |       |                           |       |               |       |                |       |
| Income Before Other Income    |       | 368,015                      |       | (24,415                        | )          | 392,430                       |       | 528,181                        |       | (135,751           | )          | -25.7               | %          |
|                               |            |                              |            |                                |            |                               |            |                                |            |                    |            |                     |            |  |  |  |  |  |

 

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* Discontinued operations are excluded in thequarter-to-quarter comparison

 

Rental incomefrom continuing operations for the three months ended March 31, 2005 wasapproximately $7,797,000 compared to approximately $7,643,000 for the threemonths ended March 31, 2004, an increase of approximately $155,000 (2%). Thisincrease was due to rental revenue of approximately $84,000 from the newlycompleted units at Courtyard at Westgate as well as increases in rental revenueof approximately $27,000 at 62 Boylston Street and an increase of approximately$20,000 at School Street. There were insignificant changes at other properties.

 

Total expensesfrom continuing operations for the three months ended March 31, 2005 wereapproximately $7,545,000 compared to approximately $7,196,000 for the threemonths ended March 31, 2004, an increase of approximately $349,000 (5%). Themost significant increase was in operating expenses with an increase ofapproximately $332,000 (31%).  The costfor snow removal increased approximately $200,000, more than double theprevious year, due to the snowy winter of 2005, and utility costs alsoincreased approximately $70,000 due to the cold winter.   Taxes and insurance increased approximately $32,000(4%) due to increases in real estate taxes. In addition, the operating expenses of the newly completed units atCourtyard at Westgate account for approximately $109,000 of this increase.

 

Theseincreases are offset by decreases in repairs and maintenance expenses ofapproximately $47,000 (4%) due to significant repairs done at many of thePartnership properties in the first quarter of 2004.

 

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At March 31,2005, the Partnership has a 50% ownership interest in five different InvestmentProperties.  See Note 14 for summary offinancial information of these investment properties. The details are asfollows:

 

FranklinStreet, Cambridge, Massachusetts

 

The Partnershipinvested in a 40-unit property in 2001. The Partnership’s share of loss on this investment for the three monthsended March 31, 2005 was $21,865 compared to $32,030 for the three months endedMarch 31, 2004, a decrease of $10,165. There are 0 units vacant at May 10, 2005.

 

HamiltonPlace, Watertown, Massachusetts

 

The Partnershipinvested in 280 units in six buildings in August 2004.  The Partnership plans to sell 136 unitslocated in three buildings as condominiums. At March 31, 2005, the Partnership has sold 25 units.  The Partnership’s share of income for thethree months ended March 31, 2005 is $85,451, which includes the gain on thesale of 25 units of approximately $1,273,000. There were 16 units vacant at May 10, 2005.  Operating expenses include approximately$400,000 of expenses on the early extinguishment on the refinancing of thethree buildings to be retained.

 

#### **Hamilton Minuteman, Lexington, Massachusetts**

 

The Partnershipinvested in a 42-unit residential complex in September 2004.  The Partnership may market this property ascondominiums in the future however it is not being marketed at this time.  The Partnership’s share of loss on thisinvestment is $67,672 for the three months ended March 31, 2005.  There are 0 units vacant at May 10, 2005.

 

Essex81, Boston, Massachusetts

 

ThePartnership invested in this property in March 2005.  The property consists of 49 residentialunits, one commercial space, and a 50 car surface parking lot.  The Partnership’s share of loss on thisinvestment is $12,175 for the three months ended March 31, 2005.  There are 8 units vacant at May 10, 2005.

 

1025Hamilton, Quincy, Massachusetts

 

The Partnershipinvested in a 176-unit property in March 2005. The Partnership plans to sell 128 units as condominiums.  As of May 10, 2005, one unit has been sold,11 have signed purchase and sales agreements and 30 units have been reserved.The Partnership’s share of loss on this investment is $25,363 for the threemonths ended March 31, 2005.  There are11 units vacant at May 10, 2005.

 

On March 22,2005, the Partnership sold the Middlesex Apartments located in Newton,Massachusetts.  The selling price was$6,500,000.  The operating profit for thethree months ended March 31, 2005 of $3,501 and the gain of $5,811,584, net ofmortgage prepayment penalties of approximately $382,000 and selling expenses,are included in income from discontinued operations. See Note 2 to theConsolidated Financial Statements.

 

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Interestincome was approximately $38,000 for the three months ended March 31, 2005,compared to approximately $70,000 for the three months ended March 31, 2004, adecrease of $32,000 (45%).  This decreaseis primarily due to a decrease in the cash available for investment.

 

As a result ofthe changes discussed above, net income for the three months ended March 31,2005 was $6,179,803 compared to $582,619 for the three months ended March 31,2004, an increase of $5,597,184.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Partnership’s principalsource of cash during 2005 and 2004 was the sale of properties, collection ofrents, and the refinancing of Partnership properties.

 

The majority of cash and cashequivalents of $12,487,887 at March 31, 2005 and $9,682,810 at December 31,2004 were held in interest bearing accounts at creditworthy financialinstitutions.

 

The increase of $2,625,077 forthe three months ended March 31, 2005 is summarized as follows:

 
| ** **                                             | ** ** | **Three Months Ended March** | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|
| ** **                                             | ** ** | **2005**                     | ** ** | **2004** | ** ** |
| Cash provided by operating activities                  |       | $                            | 1,949,434  |   | $ | 1,929,356 |   |
| Cash provided by (used in) investing  activities       |       | 1,368,621                    |       | (1,482,015 | ) |
| Cash provided by (used in) other financing  activities |       | 517,827                      |       | (176,345 | ) |
| Dividends paid                                         |       | (1,210,803                   | )          | (1,142,077 | ) |
| Net increase (decrease) in cash and cash  equivalents  |       | $                            | 2,625,077  |   | $ | (871,081 | ) |

 

The cashprovided by operating activities is primarily due to the net operating incomeplus depreciation expense.  The increasein cash provided by investing activities is due to the sale of a rentalproperty in March 2005.  The increase incash provided by financing activities is due to the refinancing of aPartnership property in January 2005.

 

As discussedpreviously, the Partnership invested approximately $4,253,000 for a 50%ownership interest in two partnerships during the three months ended March 31,2005. This brings the Partnership’s investments to five InvestmentProperties.  See Note 14 to theConsolidated Financial Statements for a discussion of the Investment Propertiesand the related operations on these investments.

 

During thethree months ended March 31, 2005, the Partnership and its SubsidiaryPartnerships completed improvements to certain of the properties at a totalcost of approximately $554,000.  Theseimprovements were funded from cash reserves as well as escrow accounts establishedin connection with the financing or refinancing of the applicableProperties.  These sources have beenadequate to

 

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fully fund improvements.  The most significant improvements were madeat Westgate Woburn, Westside Colonial, School Street, 62 Boylston and OldeEnglish at a cost of approximately $119,000, $51,000, $41,000, $36,000, and$35,000, respectively.

 

ThePartnership paid a quarterly distribution of $7.00 per unit ($0.70 perdepositary receipts) on March 31, 2005 for a total distribution of $1,210,804.Management anticipates that similar quarterly distributions will be made during2005.

 

During theyear ended December 2004, the Partnership completed the construction of 20residential units at Courtyard at Westgate in Woburn, Massachusetts for a totalcost of approximately $5,100,000.  InJanuary 2005, the Partnership obtained a $2,000,000 mortgage on the propertywith 5.25% interest only payments, maturing in December 2014.

 

In addition to the improvements made to datein 2005, the Partnership and its Subsidiary Partnerships plan to investapproximately $1,750,000 in capital improvements during the balance of 2005,the majority of which will be spent at 1144 Commonwealth Avenue, WestsideColonial, and 62 Boylston Street.  Theseimprovements will be funded from escrow accounts established in connection withthe refinancing of applicable properties, as well as from the Partnership’scash.

 

ThePartnership anticipates that cash from operations and interest-bearinginvestments will be sufficient to fund its current operations and to financecurrent improvements to its properties. The Partnership’s net income and cash flow may fluctuate dramaticallyfrom year to year as a result of the sale of properties, mortgage financings,unanticipated increases in expenses, or the loss of significant tenants.

 

Off-Balance Sheet Arrangements-Joint Venture Indebtedness

 

As of March31, 2005, the Partnership had a 50% ownership in five joint ventures, all ofwhich have mortgage indebtedness. We do not have control of these partnershipsand, therefore, we account for them using the equity method of consolidation.At March 31, 2005, our proportionate share of the non-recourse debt related tothese investments was equal to approximately $40,902,000. See Note 14 to theconsolidated financial statements.

 

Factors That May Affect FutureResults

 

Certaininformation contained herein includes forward-looking statements, which aremade pursuant to the safe harbor provisions of the Private SecuritiesLiquidation Reform Act of 1995 (the “Act”). Forward-looking statements in this report, or which management may makeorally or in written form from time to time, reflect management’s good faithbeliefs when those statements are made, and are based on information currentlyavailable to management.  Caution shouldbe exercised in interpreting and relying on such forward looking statements,the realization of which may be impacted by known and unknown risks anduncertainties, events that may occur subsequent to the forward-lookingstatements, and other factors which may be beyond the Partnership’s control andwhich can materially affect the Partnership’s actual results, performance orachievements for 2005 and beyond.

 

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Should one or more of the risksor uncertainties mentioned below materialize, or should underlying assumptionsprove incorrect, actual results may vary materially from those anticipated,estimated or projected.  We expresslydisclaim any responsibility to update our forward-looking statements, whetheras a result of new information, future events, or otherwise.  Accordingly, investors should use caution inrelying on past forward-looking statements, which are based on results andtrends at the time they are made, to anticipate future results or trends.

 

Along withrisks detailed from time to time in the Partnership’s filings with theSecurities and Exchange Commission, some factors that could cause thePartnership’s actual results, performance or achievements to differ materiallyfrom those expressed or implied by forward-looking statements include but arenot limited to the following:

 

ThePartnership depends on the real estate markets where its properties arelocated, primarily in Eastern Massachusetts and these markets may be adverselyaffected by local economic market conditions, which are beyond the Partnership’scontrol.

 

ThePartnership is subject to the general economic risks affecting the real estateindustry, such as dependence on tenant’s financial condition, the need to enterinto new leases or renew leases on terms favorable to tenants in order togenerate rental revenues and our ability to collect rents from ourtenants.  The Partnership is alsoimpacted by changing economic conditions making alternative housingarrangements more or less attractive to the Partnership’s tenants, such as theinterest rates on single-family home mortgages and the availability andpurchase price of single-family homes in the Greater Boston metropolitan area.

 

The Partnershipis subject to significant expenditures associated with each investment, such asdebt service payments, real estate taxes, insurance and maintenance costs,which are generally not reduced when circumstances cause a reduction inrevenues from a property.

 

ThePartnership is subject to increases in heating and utility costs that my ariseas a result of economic and market conditions and fluctuations in seasonalweather conditions.

 

Civildisturbances, earthquakes and other natural disasters may result in uninsuredor underinsured losses.

 

Actual orthreatened terrorist attacks may adversely affect our ability to generaterevenues and the value of our properties.

 

Financing orrefinancing of Partnership properties may not be available to the extentnecessary or desirable, or may not be available on favorable terms.

 

ThePartnership properties face competition from similar properties in the samemarket.  This competition may affect thePartnership’s ability to attract and retain tenants and may reduce the rentsthat can be charged.

 

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Given thenature of the real estate business, the Partnership is subject to potentialenvironmental liabilities.  These includeenvironmental contamination in the soil at the Partnership’s or neighboringreal estate, whether caused by the Partnership, previous owners of the subjectproperty or neighbors of the subject property, and the presence of hazardousmaterials in the Partnership’s buildings, such as asbestos, mold and radon gas.  Management is not aware of any materialenvironmental liabilities at this time.

 

Insurancecoverage for and relating to commercial properties is increasingly costly anddifficult to obtain.  In addition,insurance carriers have excluded certain specific items from standard insurancepolicies, which have resulted in increased risk exposure for thePartnership.  These include insurancecoverage for acts of terrorism and war, and coverage for mold and otherenvironmental conditions.  Coverage forthese items is either unavailable, or prohibitively expensive.

 

Marketinterest rates could adversely affect the market prices for Class A PartnershipUnits and Depositary Receipts as well as performance and cash flow.

 

Changes in thetax laws and regulations may affect the income taxable to owners of thePartnership.  These changes may affectthe after-tax value of future distributions.

 

ThePartnership may fail to identify, acquire, construct or develop additionalproperties; may develop or acquire properties that do not produce a desired orexpected yield on invested capital; may be unable to sell poorly performing orotherwise undesirable properties; or may fail to effectively integrateacquisitions of properties or portfolios of properties.

 

Risksassociated with the use of debt to fund acquisitions and developments.

 

Competitionfor acquisitions may result in increased prices for properties.

 

The sale ofcondominium units may not generate enough net proceeds to pay the minimum curtailmentpayments required at Hamilton Place and Hamilton Minuteman.  The Partnership may be required to fund anydeficiencies,

 

Any weaknessidentified in the Partnership’s internal controls as part of the evaluationbeing undertaken by the Company and its independent public accountants pursuantto Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effecton the Company’s business.

 

Ongoingcompliance with Sarbanes-Oxley Act of 2002 may require additional personnel orsystem changes.

 

The foregoing factors shouldnot be construed as exhaustive or as an admission regarding the adequacy ofdisclosures made by the Partnership prior to the date hereof or theeffectiveness of said Act.  ThePartnership expressly disclaims any obligation to publicly update or revise anyforward-looking statement, whether as a result of new information, futureevents or otherwise.

 

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The residential real estatemarket in the Greater Boston area has softened and the Partnership anticipatesthe climate will remain the same in the foreseeable future.  This may result in increases in vacancy ratesand or/a reduction in rents. The Partnership believes its present cash reservesas well as anticipated rental revenue will be sufficient to fund its current operations,finance current planned improvements to its properties and continue dividendpayments in the foreseeable future.

 

Since the Partnership’slong-term goals include the acquisition of additional properties, a portion ofthe proceeds from the refinancing and sale of properties is reserved for thispurpose.  The Partnership will considerrefinancing existing properties if the Partnership’s cash reserves are insufficientto repay existing mortgages or if the Partnership needs additional funds forfuture acquisitions.

 

Item 3 –QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As of March 31, 2005, thePartnership and its subsidiary Partnerships collectively have approximately$116,100,000 in long-term debt, all of which have fixed interest rates.  Accordingly, the fair value of these debtinstruments is affected by changes in market interest rates.  For information regarding the fair value andmaturity dates of these debt obligations, see Notes 5 and 12 to theConsolidated Financial Statements.

 

For additional disclosuresabout market risk, see “Item 2 – Management’s Discussion and Analysis ofFinancial Condition and Results of Operations – Factors that May Affect FutureResults.”

 

Item4—CONTROLS AND PROCEDURES

 

Our principal executive officerand principal financial officer have within 90 days of the filing date of thisquarterly report, evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rule 13a-14(c) and 15d-14(c) under the Securities andExchange Act of 1934, as amended) and have determined that such disclosurecontrols and procedures are adequate. There have been no significant changes in internal controls or in otherfactors that could significantly affect our internal controls since the date ofevaluation.  We do not believe anysignificant deficiencies or material weaknesses exist in our internalcontrols.  Accordingly, no correctiveactions have been taken. We continue to review and document our disclosurecontrols and procedures, including our internal controls over financialreporting, and may from time to time, make changes aimed at enhancing theireffectiveness and to ensure our systems evolve with our business.

 

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PART II - OTHER INFORMATION

 

Item 1.   Legal Proceedings

 

None.

 

Item 2.    Unregistered Sale of Equity Securities andUse of Proceeds

 

None.

 

Item 3.    Defaults Upon Senior Securities

 

None.

 

Item 4.    Submission of Matters to a Vote of SecurityHolders

 

None.

 

Item5.    Other Information

 

None.

 

Item6.    Exhibits

 

(a)                                    See the exhibit index below.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
| Date:    May 16, 2005 |   |                                              |
|-------------------------------------------|--------|---------------------------------------------------|
|                                      |   |                                              |
|                                      |   | NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP |
|                                      |   |                                              |
|                                      |   | By:                                               | NEWREAL,  INC., |
|                                      |   |                                              | its General  Partner* |
|                                      |   |                                              |   |
|                                      |   |                                              |   |
|                                      |   | By:                                               | /s/   Ronald Brown |   |
|                                      |   |                                              | Ronald Brown, President |
|                                      |   |                                              |   |

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|   |   | * | Functional equivalent of Chief Executive Officer  and Chief Accounting Officer |
|--------|--------|---|--------------------------------------------------------------------------------|

 

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**EXHIBIT INDEX**

 
| **Exhibit  No.** | ** ** | **Description  of Exhibit**                                                                                                                                                                                                       |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **       | ** ** | ** **                                                                                                                                                                                                                        |
| (31.1)           |       | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Ronald Brown,  Principal Executive Officer of the Partnership (President and a Director of  NewReal, Inc., sole General Partner of the Partnership)   |
|             |       |                                                                                                                                                                                                                              |
| (31.2)           |       | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Harold Brown,  Principal Financial Officer of the Partnership (Treasurer and a Director of  NewReal, Inc., sole General Partner of the Partnership)   |
|             |       |                                                                                                                                                                                                                              |
| (32.1)           |       | Certification  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Ronald Brown,  Principal Executive Officer of the Partnership (President and a Director of  NewReal, Inc., sole General Partner of the Partnership). |
|             |       |                                                                                                                                                                                                                              |
| (32.2)           |       | Certification  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Harold Brown,  Principal Financial Officer of the Partnership (Treasurer and a Director of  NewReal, Inc., sole General Partner of the Partnership). |

 

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