**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

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**FORM10-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, 2004**                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                         |   |   |
| **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**                                                                                                                                                                                                                                                                                           |

 

| **New  England Realty Associates Limited Partnership**                              |
|-------------------------------------------------------------------------------------|
| (Exact Name of Registrant as Specified in Its Charter)                              |
|                                                                                |   |   |
| **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 Since  Last Report) |

 

Indicate by check ý whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes  ý    No o

 

Indicate bycheck mark whether the registrant is an accelerated filer (as defined inExchange Act Rule 12b-2).  Yes  o  No ý

 

 

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INDEX

 
| PART I - FINANCIAL  INFORMATION |                                                                                                                                        |
|---------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|
|                            |                                                                                                                                        |   |
| Item 1.                         | Financial Statements.                                                                                                                       |   |
|                            |                                                                                                                                        |   |
|                            | Consolidated Balance Sheets  as of March 31, 2004 (unaudited) and December 31, 2003 (audited)                                               |   |
|                            |                                                                                                                                        |   |
|                            | Consolidated Statements  of Income for the Three Months Ended March 31, 2004 and March 31, 2003 (all  unaudited)                            |   |
|                            |                                                                                                                                        |   |
|                            | Consolidated  Statements of Changes in Partners’ Capital for the Three Months Ended March  31, 2004 and March 31, 2003 (all unaudited) |   |
|                            |                                                                                                                                        |   |
|                            | Consolidated Statements  of Cash Flows for the Three Months Ended March 31, 2004 and March 31, 2003  (all unaudited)                        |   |
|                            |                                                                                                                                        |   |
|                            | Notes to  Financial Statements                                                                                                              |   |
|                            |                                                                                                                                        |   |
| Item  2.                        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                 |   |
|                            |                                                                                                                                        |   |
| Item  3.                        | Quantitative  and Qualitative Disclosures About Market Risk                                                                                 |   |
|                            |                                                                                                                                        |   |
| Item 4.                         | Controls and Procedures                                                                                                                     |   |
|                            |                                                                                                                                        |   |
| PART II - OTHER INFORMATION     |                                                                                                                                        |
|                            |                                                                                                                                        |   |
| Item  1.                        | Legal  Proceedings                                                                                                                          |   |
|                            |                                                                                                                                        |   |
| Item 2.                         | Changes in 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                      |                                                                                                                                        |

 

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**NEW ENGLAND REALTY ASSOCIATES, L.P.**

 

PART I –FINANCIAL INFORMATION

 

Item I.Financial Statements

 

Theaccompanying unaudited consolidated balance sheets, statements of income,changes in partners’ capital, and cash flows and related notes thereto, havebeen prepared in accordance with generally accepted accounting principles inthe United States of America (“GAAP”) for interim financial information and inconjunction with the rules and regulations of the Securities and ExchangeCommission (“SEC”). Accordingly, they do not include all of the disclosuresrequired by GAAP for complete financial statements. 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.

 

Theaforementioned financial statements should be read in conjunction with thenotes to the aforementioned financial statements and Management’s Discussionand Analysis of Financial Condition and Results of Operations and the financialstatements and notes thereto included in New England Realty Associates L.P.’sAnnual Report on Form 10-K for the fiscal year ended December 31, 2003.

 

The results ofoperations for the three month period ended March 31, 2004 are not necessarilyindicative of the results to be expected for the entire fiscal year or anyother period.

 

**NEW ENGLANDREALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

 
|                                                    |   | **March 31,  2004** |        | **December  31,  2003** |   |
|---------------------------------------------------------|--------|---------------------|-------------|-------------------------|--------|
|                                                    |   | **(Unaudited)**     |        |                    |   |
| **Assets**                                              |   |                |        |                    |   |
| Rental Properties                                       |   | $                   | 104,231,420 |                    | $      | 104,192,876 |   |
| Cash and Cash Equivalents                               |   | 23,491,247          |        | 24,362,328              |   |
| Rents Receivable                                        |   | 535,646             |        | 550,772                 |   |
| Real Estate Tax Escrows                                 |   | 738,530             |        | 667,949                 |   |
| Prepaid Expenses and Other Assets                       |   | 2,620,639           |        | 2,649,617               |   |
| Investment in Partnership                               |   | 1,283,353           |        | 1,315,383               |   |
| Financing and Leasing Fees                              |   | 699,103             |        | 725,371                 |   |
|                                                    |   |                |        |                    |   |
| **Total Assets**                                        |   | $                   | 133,599,938 |                    | $      | 134,464,296 |   |
|                                                    |   |                |        |                    |   |
| Liabilities and Partners’ Capital                  |   |                |        |                    |   |
| Mortgage Notes Payable                                  |   | $                   | 115,734,864 |                    | $      | 115,911,209 |   |
| Accounts Payable and Accrued Expenses                   |   | 1,348,365           |        | 1,620,023               |   |
| Advance Rental Payments and Security  Deposits          |   | 3,514,190           |        | 3,371,087               |   |
|                                                    |   |                |        |                    |   |
| **Total Liabilities**                                   |   | 120,597,419         |        | 120,902,319             |   |
|                                                    |   |                |        |                    |   |
| Commitments and Contingent Liabilities  (Notes 2 and 9) |   |                |        |                    |   |
|                                                    |   |                |        |                    |   |
| Partners’   Capital                           |   |                |        |                    |   |
| 173,252 units outstanding in 2004 and 2003              |   | 13,002,519          |        | 13,561,977              |   |
|                                                    |   |                |        |                    |   |
| **Total Liabilities and Partners’ Capital**        |   | $                   | 133,599,938 |                    | $      | 134,464,296 |   |

 

Seenotes to consolidated financial statements.

 

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**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF INCOME**

 
|                                          |   | **Three  Months Ended  March 31,** |      |
|-----------------------------------------------|--------|------------------------------------|-----------|
|                                          |   | **(Unaudited)**                    |      |
|                                          |   | **2004**                           |      | **2003** |   |
| Revenue                                       |   |                               |      |   |   |
| Rental income                                 |   | $                                  | 7,745,812 |   | $ | 7,461,292 |   |
| Laundry and sundry income                     |   | 81,450                             |      | 70,800 |   |
|                                          |   | 7,827,262                          |      | 7,532,092 |   |
| Expense                                       |   |                               |      |   |   |
| Administrative                                |   | 329,886                            |      | 363,816 |   |
| Depreciation and amortization                 |   | 1,474,388                          |      | 1,112,863 |   |
| Interest                                      |   | 2,002,895                          |      | 1,659,167 |   |
| Management fees                               |   | 318,461                            |      | 296,338 |   |
| Operating                                     |   | 1,092,141                          |      | 990,816 |   |
| Renting                                       |   | 109,198                            |      | 62,965 |   |
| Repairs and maintenance                       |   | 1,073,007                          |      | 813,111 |   |
| Taxes and insurance                           |   | 882,804                            |      | 795,209 |   |
|                                          |   | 7,282,780                          |      | 6,094,285 |   |
|                                          |   |                               |      |   |   |
| Income Before Other Income                    |   | 544,482                            |      | 1,437,807 |   |
|                                          |   |                               |      |   |   |
| Other Income (Loss)                           |   |                               |      |   |   |
| Interest income                               |   | 70,167                             |      | 55,528 |   |
| (Loss) from investment in joint venture       |   | (32,030                            | )         | (20,677 | ) |
|                                          |   | 38,137                             |      | 34,851 |   |
|                                          |   |                               |      |   |   |
| Net Income                                    |   | $                                  | 582,619   |   | $ | 1,472,658 |   |
|                                          |   |                               |      |   |   |
| Net Income per Unit                           |   | $                                  | 3.36      |   | $ | 8.50 |   |
|                                          |   |                               |      |   |   |
| Weighted Average Number of Units  Outstanding |   | 173,252                            |      | 173,252 |   |

 

Seenotes to consolidated financial statements.

 

2

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# **NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP ANDSUBSIDIARIES**

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

 

**(UNAUDITED**)

 
|                                                                                    |   | **Limited** |       |        |   |                     |   |
|-----------------------------------------------------------------------------------------|--------|-------------|------------|-------------|--------|--------------------------|--------|
|                                                                                    |   | **Class A** |       | **Class B** |   | **General  Partnership** |   | **Total** |   |
| Balance, January 1, 2003                                                                |   | $           | 12,699,650 |        | $      | 3,019,620                |   | $ | 158,956 |   | $ | 15,878,226 |   |
|                                                                                    |   |        |       |        |   |                     |   |   |   |
| Distribution to Partners                                                                |   | (1,328,425  | )          | (315,501    | )      | (16,605                  | )      | (1,660,531 | ) |
|                                                                                    |   |        |       |        |   |                     |   |   |   |
| Net Income                                                                              |   | 1,178,126   |       | 279,805     |   | 14,727                   |   | 1,472,658 |   |
|                                                                                    |   |        |       |        |   |                     |   |   |   |
| Balance, March 31, 2003                                                                 |   | $           | 12,549,351 |        | $      | 2,983,924                |   | $ | 157,078 |   | $ | 15,690,353 |   |
|                                                                                    |   |        |       |        |   |                     |   |   |   |
| Units authorized and  Issued, net of 6,973 Treasury Units  at  March 31, 2003 |   | 138,602     |       | 32,918      |   | 1,732                    |   | 173,252 |   |
|                                                                                    |   |        |       |        |   |                     |   |   |   |
| 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 |   |

 

Seenotes to consolidated financial statements.

 

3

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**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP ANDSUBSIDIARIES**

##### **CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 
|                                                                              |   | **Three  Months Ended  March 31,** |       |
|-----------------------------------------------------------------------------------|--------|------------------------------------|------------|
|                                                                              |   | **(Unaudited)**                    |       |
|                                                                              |   | **2004**                           |       | **2003** |   |
| Cash Flows from Operating Activities                                              |   |                               |       |   |   |
| Net income                                                                        |   | $                                  | 582,619    |   | $ | 1,472,658 |   |
|                                                                              |   |                               |       |   |   |
| Adjustments to reconcile net income to net  cash provided by operating activities |   |                               |       |   |   |
| Depreciation and amortization                                                     |   | 1,474,388                          |       | 1,112,863 |   |
| Loss from investments in joint venture                                            |   | 32,030                             |       | 20,677 |   |
| Change in operating assets and liabilities                                        |   |                               |       |   |   |
| (Increase) Decrease in rents receivable                                           |   | 15,126                             |       | (140,117 | ) |
| (Increase) Decrease in financing and  leasing fees                                |   | —                             |       | (4,649 | ) |
| (Decrease) in accounts payable and accrued  expense                               |   | (271,658                           | )          | (467,137 | ) |
| (Increase) in real estate tax escrow                                              |   | (70,581                            | )          | (101,632 | ) |
| (Increase) Decrease in prepaid expenses and  other assets                         |   | 24,329                             |       | (27,525 | ) |
| Increase (Decrease) in advance rental  payments and security deposits             |   | 143,103                            |       | (65,282 | ) |
|                                                                              |   |                               |       |   |   |
| Total Adjustments                                                                 |   | 1,346,737                          |       | 327,198 |   |
|                                                                              |   |                               |       |   |   |
| Net cash provided by operating activities                                         |   | 1,929,356                          |       | 1,799,856 |   |
|                                                                              |   |                               |       |   |   |
| Cash Flows (used in) investing activities                                         |   |                               |       |   |   |
| Distribution from joint venture                                                   |   | —                             |       | 15,000 |   |
| Purchase and improvement of rental  properties                                    |   | (1,482,015                         | )          | (511,752 | ) |
|                                                                              |   |                               |       |   |   |
| Net cash (used in) investing activities                                           |   | (1,482,015                         | )          | (996,752 | ) |
|                                                                              |   |                               |       |   |   |
| Cash Flows (used in) financing activities                                         |   |                               |       |   |   |
| Principal payments of mortgages payable                                           |   | (176,345                           | )          | (223,586 | ) |
| Distributions to partners                                                         |   | (1,142,077                         | )          | (1,660,531 | ) |
|                                                                              |   |                               |       |   |   |
| Net cash (used in) financing activities                                           |   | (1,318,422                         | )          | (1,884,117 | ) |
|                                                                              |   |                               |       |   |   |
| Net Decrease in Cash and Cash Equivalents                                         |   | (871,081                           | )          | (1,081,013 | ) |
| Cash and Cash Equivalents, at beginning of  period                                |   | 24,362,328                         |       | 18,974,446 |   |
|                                                                              |   |                               |       |   |   |
| Cash and Cash Equivalents, at end of period                                       |   | $                                  | 23,491,247 |   | $ | 17,893,433 |   |

 

Seenotes to consolidated financial statements.

 

4

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**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

NOTE1—SIGNIFICANT ACCOUNTING POLICIES

 

*Line of Business: *New England Realty Associates LimitedPartnership (“NERA” or the “Partnership”) was organized in Massachusetts during1977. NERA and its subsidiaries own and operate various residential apartmentbuildings, condominium units and commercial properties located in Massachusettsand New Hampshire. NERA has also made investments in other real estatepartnerships and has participated in other real estate-related activities,primarily located in Massachusetts. In connection with the mortgages referredto in Note 5, a substantial number of NERA’s properties are owned by separatesubsidiaries without any change in the historical cost basis.

 

*Principles of Consolidation:*  Theconsolidated financial statements include the accounts of NERA and itssubsidiaries. NERA has a 99.67% to 100% ownership interest in each subsidiaryexcept for the limited liability company formed in November 2001, 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 company using the equity method.

 

*Accounting Estimates:*  Thepreparation of the financial statements, in conformity with accountingprinciples generally accepted in the United State of America, requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosures of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reported period. Accordingly, actual results coulddiffer from those estimates.

 

*Revenue Recognition:* Rental income from residential and commercial properties is recognizedover the term of the related lease. Amounts 60 days in arrears are chargedagainst income. Certain leases of the commercial properties provide forincreasing stepped minimum rents, which are accounted for on a straight-linebasis over the term of the lease.

 

*Rental Properties:*  Rental properties are statedat cost less accumulated depreciation. Maintenance and repairs are charged toexpense as incurred; improvements and additions are capitalized. When assetsare retired or otherwise disposed of, the cost of the asset and relatedaccumulated depreciation is eliminated from the accounts, and any gain or losson such disposition is included in income. Fully depreciated assets are removedfrom the accounts.  Rental propertiesare depreciated on a straight-line basis over their estimated useful lives.

 

In the event that facts and circumstancesindicate that the carrying value of a rental property may be impaired, ananalysis of recoverability is prepared. The estimated future undiscounted cashflows are compared to the asset’s carrying value to determine if a write-downto fair value is required.

 

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

 

*Income Taxes:*  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.

 

*Cash Equivalents:*  The Partnership considers cashequivalents to be all highly liquid instruments purchased with maturity ofthree months or less.

 

*Segment Reporting:*  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.

 

*Comprehensive Income:* Comprehensive income is defined as changes in partners’ equity,exclusive of transactions with owners (such as capital contributions anddividends). NERA did not have any comprehensive income items in 2004 or 2003other than net income as reported.

 

5

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*Income Per Unit:*  Net income per unit has beencalculated based on 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).

 

*Concentration of 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 tenant accounted for more than 5%of the Partnerships’ revenues in 2004 or 2003. The Partnerships make their temporary cash investments withhigh-credit-quality financial institutions. At March 31, 2004, substantially all of the Partnerships’ cash and cashequivalents were held in interest-bearing accounts at financial institutions,earning interest at rates from 0.44% to 1.34%. At March 31, 2004 and December 31, 2003, approximately $23,000,000 and$24,000,000 of cash and cash equivalents exceeded federally insured amounts.

 

*Advertising Expense:* Advertising is expensed as incurred. Advertising expense was $57,881 and$28,673 for the three months ended March 31, 2004 and 2003, respectively.

 

*Reclassifications:*  Certain reclassifications havebeen made to prior period amounts in order to conform with current periodpresentation.

 

NOTE2—RENTAL PROPERTIES

 

Asof March 31, 2004, the Partnership and its Subsidiary Partnerships owned 2,376residential apartment units in residential and mixed-use complexes(collectively, the “Apartment Complexes”). The Partnership also owns 24 condominium units in two residentialcondominium complexes, all of which are leased to residential tenants(collectively referred to as the “Condominium Units”).  The Apartment Complexes and CondominiumUnits are located primarily in the greater metropolitan Boston, Massachusettsarea.

 

Additionally,as of March 31, 2004, the Subsidiary Partnerships owned commercial shoppingcenters in Framingham, Massachusetts and mixed-use properties in Boston,Brockton and Newton, Massachusetts. These properties are referred to collectively as the “CommercialProperties.”

 

OnJune 30, 2003, the Partnership purchased five condominium units from a group ofinvestors who are also affiliated with the Partnership.  The total purchase price for the five unitswas $2,421,286 including closing costs. The Partnership obtained a $1,600,000 mortgage on thesecondominiums.  See Notes 3 and 5 for adiscussion of certain related parties associated with this acquisition.  The majority owner of the General Partnerhas agreed to indemnify the Partnership for any losses incurred from the saleof any of these units for a three-year period from acquisition.

 

OnApril 25, 2003, the Partnership acquired a 184-unit residential propertylocated at 9 School Street in Framingham, Massachusetts for a total purchaseprice of approximately $23,368,000.  ThePartnership obtained a mortgage of $17,000,000 with an interest rate of5.47%.  The balance of the purchase wasfunded from cash reserves.  The mortgagehas a 10-year term and is amortized over 30 years, with interest only paymentsfor the first three years.  There is asignificant prepayment penalty if the mortgage is paid prior to maturity.

 

6

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Rentalproperties consist of the following:

 
|                                 |   | **MARCH 31,  2004** |        | **DECEMBER  31,  2003** |   | **USEFUL  LIFE** |   |
|--------------------------------------|--------|---------------------|-------------|-------------------------|--------|------------------|--------|
| Land, improvements, and parking lots |   | $                   | 22,994,131  |                    | $      | 22,992,176       |   | 10-31 years |   |
| Buildings and improvements           |   | 101,627,254         |        | 101,538,576             |   | 15-31 years      |   |
| Kitchen cabinets                     |   | 2,881,351           |        | 2,403,447               |   | 5-10 years       |   |
| Carpets                              |   | 2,470,165           |        | 2,292,225               |   | 5-10 years       |   |
| Air conditioning                     |   | 695,818             |        | 691,408                 |   | 7-10 years       |   |
| Laundry equipment                    |   | 81,836              |        | 79,580                  |   | 5-7 years        |   |
| Elevators                            |   | 373,964             |        | 328,097                 |   | 20 years         |   |
| Swimming pools                       |   | 105,425             |        | 98,105                  |   | 10 years         |   |
| Equipment                            |   | 1,462,041           |        | 1,348,725               |   | 5-7 years        |   |
| Motor vehicles                       |   | 126,236             |        | 126,236                 |   | 5 years          |   |
| Fences                               |   | 136,623             |        | 127,276                 |   | 5-10 years       |   |
| Furniture and fixtures               |   | 3,672,858           |        | 3,566,543               |   | 5-7 years        |   |
| Smoke alarms                         |   | 92,342              |        | 88,157                  |   | 5-7 years        |   |
| Construction in progress             |   | 1,998,483           |        | 1,555,960               |   | —           |   |
|                                 |   | 138,718,527         |        | 137,236,511             |   |             |   |
| Less accumulated depreciation        |   | 34,487,107          |        | 33,043,635              |   |             |   |
|                                 |   | $                   | 104,231,420 |                    | $      | 104,192,876      |   |   |   |

 

AtMarch 31, 2004, construction in progress consists of $1,998,483 at WestgateApartments LLC for design, approvals, site work, and the commencement ofconstruction of 20 additional residential units.  Estimated total costs will be $4,000,000, with constructionscheduled to be completed in the third quarter of 2004.

 

 

NOTE3—RELATED PARTY TRANSACTIONS

 

ThePartnerships’ properties are managed by an entity that is owned by the majorityshareholder of the General Partner. The management fee is equal to 4% of rentalrevenue and laundry income. Total fees paid were $318,461 and $296,329 for thethree months ended March 31, 2004 and 2003, respectively.

 

ThePartnership Agreement permits the General Partner or management company tocharge the costs of professional services (such as counsel, accountants andcontractors) to NERA.  During the threemonths ended March 31, 2004 and 2003, approximately $864,000 and $165,000 wascharged to NERA for legal, construction, maintenance, rental and architecturalservices and supervision of capital improvements. Of the 2004 expenses referredto above, approximately $52,000 consisted of repairs and maintenance and$41,000 of administrative expense; approximately $771,000 of construction,architectural services and supervision of capital projects was capitalized inrental properties.  Of the 2003 expensesreferred to above, approximately $88,000 consisted of repairs and maintenanceand $52,000 of administrative expense; approximately $25,000 of construction,architectural services and supervision of capital projects was capitalized inrental properties. Additionally in each of the quarters ended March 31, 2004and 2003 the Partnership paid to the management company $20,000, for in-houseaccounting services, which were previously provided by an outside company.Included in accounts payable and accrued expenses at March 31, 2004 andDecember 31, 2003 is $150,294 and $455,299 due to the management company.  The Partnership Agreement entitles theGeneral Partner or the management company to receive certain commissions uponthe sale of Partnership property only to the extent that total commissions donot exceed 3%.

 

7

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Nocommissions were paid during the year ended December 31, 2003 and through March31, 2004.

 

On January 1, 2004, NERA’semployees were transferred to the management company’s payroll. The Partnershipreimburses the management company for the payroll and related expenses of theemployees working directly on NERA properties. Total reimbursement wasapproximately $110,000 for the three months ended March 31, 2004.

 

In1996, prior to becoming an employee and President of the management company, thecurrent President performed asset management consulting services to thePartnership. This individual continues to perform this service and to receivean asset management fee from the Partnership, receiving $12,500 for the threemonths ended March 31, 2004 and $50,000 for the year ended December 31, 2003.

 

OnNovember 8, 2001, the Partnership, the majority shareholder of the GeneralPartner and the President of the management company formed a limited liabilitycompany to purchase a 40-unit apartment building in Cambridge, Massachusetts.The ownership percentages are 50%, 471/2% and 21/2%,respectively.

 

OnJune 30, 2003, the Partnership purchased five condominium units in a 42-unitbuilding located in Brookline, Massachusetts. These were purchased from Harvard 45 Associates LLC (“Harvard 45”) whichis owned 70% by the 75% shareholder and treasurer of the General Partner, and5% by the President of Hamilton.  Thetotal purchase price for these condominiums was approximately $2,416,000 andwas approved both by the Partnership’s Advisory Committee and the AuditCommittee of the General Partner. Harvard 45 realized a gain of approximately $648,000 from thesesales.  Harvard 45 also sold 16 units tounrelated parties; the prices for all of the 21 units sold are comparable.  See Note 5 for a description of theguarantee given on a $1,600,000 mortgage on these five units.

 

Theabove 42-unit condominium building is managed by an entity wholly owned by the25% shareholder and President of the General Partner.  That entity will receive annual management fees from the fiveunits of approximately $1,500, and Hamilton will reduce its management fees toapproximately 2%, so that the total management fee will not exceed the 4%allowed by the Partnership’s Partnership Agreement.

 

NOTE4—OTHER ASSETS

 

Includedin prepaid expenses and other assets at March 31, 2004 and December 31, 2003 isapproximately $678,000 and $653,000, respectively, held in escrow to fundfuture capital improvements.

 

Financingand leasing fees of $699,103 and $725,371 are net of accumulated amortizationof $312,372 and $286,104 at March 31, 2004 and December 31, 2003, respectively.

 

NOTE5—MORTGAGES NOTES PAYABLE

 

AtMarch 31, 2004 and December 31, 2003, the mortgages payable consisted ofvarious loans, all of which were secured by first mortgages on propertiesreferred to in Note 2.  At March 31,2004, the fixed interest rates on these

 

8

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loansranged from 4.84% to 8.46%, payable in monthly installments aggregatingapproximately $732,000, including interest, to various dates through 2016.  The majority of the mortgages are subject toprepayment penalties.  At December 31,2003, the weighted average effective interest rate on the above mortgages was6.86%.  The effective rate includes theamortization expense of deferred financing costs.  The weighted average of the fixed debt interest rate was 6.78%.  See Note 12 for fair value information.

 

ThePartnerships have pledged tenant leases as additional collateral for certain ofthese loans. Approximate annual maturities at December 31, 2003 are as follows:

 
| 2005 - current maturities |   | $          | 735,000     |   |
|---------------------------|--------|------------|-------------|--------|
| 2006                      |   | 792,000    |        |
| 2007                      |   | 2,651,000  |        |
| 2008                      |   | 6,147,000  |        |
| 2009                      |   | 5,633,000  |        |
| Thereafter                |   | 99,777,000 |        |
|                      |   | $          | 115,735,000 |   |

 

OnAugust 1, 2003, the Partnership refinanced four mortgage loans with outstandingbalances totaling approximately $11,526,000 and interest rates that ranged from8.38% to 8.75%. These four mortgages were scheduled to mature in 2005, withfinal payments totaling approximately $11,000,000 due in 2005. The total of thefour new mortgage loans is $26,750,000, with interest rates from 4.84% to5.30%.  These new loans require interestpayments for 10 years, when the entire $26,750,000 becomes due.  The total monthly payments on the old loanswere approximately $101,000 including principal of approximately $20,000.  The total monthly interest payments on thenew mortgages are approximately $109,000, resulting in an increased monthlypayment for these four properties of $8,000 or $96,000 per year.  Annual interest expense increasedapproximately $340,000 due to the increased debt.  The new mortgages also contain substantial prepayment penaltiesif paid before maturity.  ThePartnership’s cash reserves were increased approximately $13,000,000 as aresult of these refinancings.

 

ThePartnership recorded a loss in the third quarter of 2003 on the earlyextinguishment of debt of approximately $1,435,000 because of prepaymentpenalties of approximately $1,355,000, and the write-off of deferred financingfees of approximately $80,000.  Deferredfinancing fees on the new mortgages, of approximately $132,000 will beamortized over their 10-year term.

 

InAugust 2003, the Partnership obtained a $1,600,000 mortgage loan for threeyears, with interest -only payments at 5.25% and no prepayment penalties,secured by the five condominium units acquired by the Partnership in June 2003.Total origination and closing costs of approximately $18,000, will be amortizedover three years.  The majority owner ofthe General Partner has guaranteed to the bank 50% of the outstanding mortgage.

 

NOTE6—ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS

 

Thelease agreements require the majority of tenants to maintain a one-monthadvance rental payment plus security deposits. Amounts received for prepaid rents of approximately $2,000,000 areincluded with cash and cash equivalents and security deposits of approximately$1,000,000 are included with other assets.

 

9

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NOTE7—PARTNERS’ CAPITAL

 

ThePartnership has two classes of Limited Partners (Class A and B) and onecategory of General Partner.  Under theterms of the Partnership Agreement, Class B Units and General Partnership Unitsmust represent 19% and 1%, respectively, of the total units outstanding.  All classes have equal profit sharing anddistribution rights, in proportion to their ownership interests.

 

InFebruary 2003, the Partnership voted to increase the quarterly distribution to$6.60 per unit and pay an additional one-time distribution of $3.00 per unitfor a total distribution of $9.60 per unit payable on March 31, 2003.  Additionally, the Partnership paid quarterlydistributions of $6.60 per unit on June 30, September 30 and December 31, for atotal distribution of $29.40 for 2003.

 

InFebruary 2004, the Partnership voted to pay a quarterly distribution $6.60 perunit payable on March 31, 2004.

 

ThePartnership has entered into a deposit agreement with an agent to facilitatepublic trading of limited partners’ interests in Class A Units.  Under the terms of this agreement, theholders of Class A Units have the right to exchange each Class A Unit for tendepositary receipts.  The following isinformation per depositary receipt:

 
|                              |   | **Three months  ended March 31,** |   |
|-----------------------------------|--------|-----------------------------------|--------|
|                              |   | **2004**                          |   | **2003** |   |
|                              |   |                              |   |   |   |
| Net income per depositary receipt |   | $                                 | 0.34   |   | $ | 0.85 |   |
|                                   |        |                                   |        |  |  |  |  |

 

NOTE8—TREASURY UNITS

 

Treasuryunits at March 31, 2004 are as follows:

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

 

NOTE9—COMMITMENTS AND CONTINGENCIES

 

Fromtime to time, the Partnerships are involved in various ordinary routinelitigation incidental to their business. The Partnership either has insurancecoverage or has provided for any uninsured claims, which, in the aggregate, arenot significant. The Partnerships are not involved in any material pendinglegal proceedings.

 

 

NOTE10—RENTAL INCOME

 

Duringthe three months ended March 31, 2004, approximately 93% of rental income wasrelated to residential apartments and condominium units with leases of one yearor less.  The remaining 7% was relatedto commercial properties, which have minimum future rental income onnon-cancelable operating leases as follows:

 

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|       |   | **Commercial  Property Leases** |       |
|------------|--------|---------------------------------|------------|
|       |   |                            |       |
| 2005       |   | $                               | 1,520,000  |   |
| 2006       |   | 1,265,000                       |       |
| 2007       |   | 1,222,000                       |       |
| 2008       |   | 1,204,000                       |       |
| 2009       |   | 1,163,000                       |       |
| Thereafter |   | 5,281,000                       |       |
|       |   | $                               | 11,655,000 |   |

 

Theaggregate minimum future rental income does not include contingent rentals thatmay be received under various leases in connection with percentage rents,common area charges and real estate taxes. Aggregate contingent rentals were approximately $136,000 for the threemonths ended March 31, 2004 and $382,000 for the year ended December 31, 2003,respectively.

 

Rentsreceivable are net of allowances for doubtful accounts of  $307,510 and $221,942 at March 31, 2004 andDecember 31, 2003, respectively. Included in rents receivable is approximately $350,000 resulting fromrecognizing rental income from non-cancelable commercial leases with futurerental increases on a straight-line basis. The majority of this amount is for a long-term lease with Staples atStaples Plaza in Framingham, Massachusetts.

 

NOTE11—CASH FLOW INFORMATION

 

Duringthe three months ended March 31, 2004 and 2003, cash paid for interest was$1,977,740 and $1,636,700 respectively.

 

 

NOTE12—FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Thefollowing methods and assumptions were used by the Partnership in estimatingthe fair value of its financial instruments:

 

•                  Cash and cash equivalents, other assets,investment in partnerships, accounts payable, and advance rents and securitydeposits:  fair value approximates thecarrying value of such assets and liabilities.

 

•                  Mortgage notes payable:  fair value is generally based on estimatedfuture cash flows which are discounted using the quoted market rate for anindependent source of similar obligations. Refer to the table below for the carrying amount and estimated fairvalue of such instruments.

 
|                   |   | **Carrying  Amount** |        | **Estimated  Fair Value** |   |
|------------------------|--------|----------------------|-------------|---------------------------|--------|
|                   |   |                 |        |                      |   |
| Mortgage notes payable |   |                 |        |                      |   |
| At March 31, 2004      |   | $                    | 115,734,864 |                      | $      | 124,381,089 |   |
| At December 31, 2003   |   | 115,911,209          |        | 121,997,197               |   |
|                        |        |                      |             |                           |        |  |  |

 

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Disclosureabout fair value of financial instruments is based on pertinent informationavailable to management as of March 31, 2004 and December 31, 2003.  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 March 31, 2004 and current estimates of fair value may differsignificantly from the amounts presented herein.

 

NOTE13—TAXABLE INCOME AND TAX BASIS

 

Taxableincome reportable by the Partnership and includable in its partner’s taxreturns is different than financial statement income because of accelerateddepreciation, different tax lives, and timing differences related to prepaidrents and allowances.  Taxable income isapproximately $275,000 less than statement income for the quarter ended March31, 2004 and approximately $700,000 less than statement income for the yearended December 31, 2003.  The cumulativetax basis of the Partnership’s real estate at March 31, 2004 is approximately$1,025,000 greater than the statement basis.

 

NOTE14—NEW ACCOUNTING PRONOUNCEMENTS

 

ThePartnership adopted the Financial Accounting Standards Board’s (FASB) Statementof Financial Accounting Standard 144 (“FAS 144”), “Accounting for theImpairment or Disposal of Long-lived Assets,” on January 1, 2002. FAS 144supersedes FAS 121, “Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to Be Disposed Of.” The primary objectives of FAS 144 are todevelop one accounting model, based on the framework established in FAS 121,for long-lived assets to be disposed of by sale, and to address significantimplementation issues regarding impairment of long-lived assets held for use.FAS 144 requires separate presentation of discontinued operations for anoperating property sold or considered held for sale for years beginning onJanuary 1, 2002. In accordance with FAS 144, the Partnership classifies realestate assets as held for sale in the period in which all of the followingcriteria are met: (a) management, having the authority to approve the action,commits to a plan to sell the asset; (b) the asset is available for immediatesale in its present condition, subject only to terms that are usual andcustomary for sales of such assets; (c) an active program to locate a buyer andother actions required to complete the plan to sell the asset have beeninitiated; (d) the sale of the asset is probable and the transfer of the assetis expected to qualify for recognition as a completed sale within one year; (e)the asset is being actively marketed for sale at a price that is reasonable inrelation to its current fair value; and (f) actions required to complete theplan indicate that it is unlikely that significant changes to the plan will bemade or that the plan will be withdrawn.

 

ThePartnership’s adoption of FAS 144 resulted in: (i) the net operating results ofproperties sold during 2002 being presented as income from discontinuedoperations for all periods presented and (ii) the gain on the sale of operatingproperties sold, net of sale costs, being presented as income from discontinuedoperations for the year 2002. Implementation of FAS 144 will impact howinformation is classified on the income statement but will have no effect onnet income (see Note 17).

 

InApril 2002, the FASB issued FAS 145, “Rescission of FASB Statements No. 4, 44,and 64, Amendment of FAS Statement No. 13, and Technical Corrections.” FAS 145eliminates extraordinary accounting treatment for or loss on debtextinguishment and amends other existing authoritative pronouncements; it makesvarious technical corrections, clarifies meanings, and describes theirapplicability under changed conditions. The provisions of FAS 145 becameeffective for the Partnership beginning in 2003. However, early application ofFAS 145 was encouraged, and the Partnership adopted FAS 145 in 2002. Debtextinguishments reported as extraordinary items prior to scheduled or earlyadoptions of FAS 145 would be reclassified in most cases following adoption.

 

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InApril 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 onDerivative Instruments and Hedging Activities.” SFAS No. 149 amends andclarifies the accounting guidance on (1) derivative instruments (includingcertain derivative instruments embedded in other contracts) and (2) hedgingactivities that fall within the scope of SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities.” SFAS No. 149 also amendscertain other existing pronouncements, which will result in more consistentreporting of contracts that are derivatives in their entirety or that containembedded derivatives that warrant separate accounting. SFAS No. 149 iseffective (1) for contracts entered into or modified after June 30, 2003, withcertain exceptions, and (2) for hedging relationships designated after June 30,2003. The guidance is to be applied prospectively. The Partnership does notexpect the adoption of SFAS No. 149, if required, to have a material impact onthe Partnership’s financial position or results of operations or cash flows.

 

InMay 2003, the FASB issued SFAS No. 150, “Accounting for Certain FinancialInstruments with Characteristics of Both Liabilities and Equity.” SFAS No. 150establishes standards for how an issuer classifies and measures in itsstatement of financial position certain financial instruments withcharacteristics of both liabilities and equity. In accordance with thestandard, financial instruments that embody obligations for the issuer requireclassification as liabilities. SFAS No. 150 is effective for financialinstruments entered into or modified after May 31, 2003, and otherwise shall beeffective at the beginning of the first interim period beginning afterSeptember 15, 2003. The Partnership does not expect the adoption of SFAS No.150, if required, to have a material impact on the Partnership’s financialposition or results of operations or cash flows.

 

InJanuary 2003, the FASB issued FIN No. 46, which provides guidance on how toidentify a variable interest entity (VIE) and determine when the assets,liabilities, noncontrolling interests, and results of operations of a VIE areto be included in an entity’s consolidated financial statements. A VIE existswhen either the total equity investment at risk is not sufficient to permit theentity to finance its activities by itself, or the equity investors lack one ofthree characteristics associated with owning a controlling financial interest.In December 2003, the FASB reissued FIN No. 46 with certain modifications andclarifications. Application of this guidance was effective for interests incertain VIEs commonly referred to as special-purpose entities (SPEs) as ofDecember 31, 2003. Application for all other types of entities is required forperiods ending after March 15, 2004, unless previously applied. The Partnershipdoes not believe that the application of FIN No. 46, if required, will have amaterial impact on its financial position, results of operations, or liquidity.

 

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Item 2 — MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATION

 

Thefollowing discussion should be read in conjunction with the financialstatements and notes

thereofappearing elsewhere in this report. This Report, on Form 10-Q, contains forward-looking statements withinthe meaning of the securities law. Actual results or developments could differ materially from thoseprojected in such statements as a result of certain factors set forth in thesection below entitled “Factors That May Affect Future Results” and elsewherein this Report.

 

ThePartnership has retained The Hamilton Company (“Hamilton”) to manage andadminister the Partnership’s properties. Hamilton is a full-service real estate management company, which haslegal, construction, maintenance, architectural, accounting and administrativedepartments.  The Partnership’sproperties represent approximately 33% of the total properties and 67% of the

residentialproperties managed by Hamilton. Substantially all of the other properties managed by Hamilton are owned,wholly or partially, directly or indirectly, by Harold Brown.  The Partnership’s Second Amended andRestated Contract of Limited Partnership (the “Partnership Agreement”)expressly provides that the general partner may employ a management company tomanage the properties, and that such management company may be paid a fee of 4%of rental receipts for administrative and management services (the “ManagementFee”).  The Partnership annually paysHamilton the full Management Fee, in monthly installments.

 

Mr.Brown, his brother Ronald Brown and the President of Hamilton, Carl Valeri,collectivelyownapproximately 19.6% of the depositary receipts representing the PartnershipClass A Units (includingdepositary receipts held by trusts for the benefit for such persons’ familymembers). Harold Brown also owns75% of the Partnership’s Class B Units, 75% of the capital stock of NewReal, Inc. (“NewReal”), the Partnership’ssole general partner, and all of the outstanding stock of Hamilton.  Ronald Brown also owns 25% of thePartnership’s Class B Units and 25% of NewReal’s capital stock.  Inaddition, Ronald Brown is the President and director of NewReal and HaroldBrown is NewReal’s Treasurer and also a director.  Three of NewReal’s other directors, Thomas Raffoul, ConradDiGregorio, and Edward Sarkesian, also own immaterial amounts of thePartnership’s Class A Units.

 

Beyondthe Management Fee, the Partnership Agreement further provides for theemployment ofoutsideprofessionals to provide services to the Partnership and allows NewReal tocharge the Partnership for thecost of employing professionals to assist with the administration of thePartnership’s properties.  In addition to the Management Fee, from timeto time the Partnership paysHamilton for repairs and maintenance services, legal services, constructionservices and accountingservices.  The costs charged by Hamiltonfor these services are at the same hourly rate charged to all entities managedby Hamilton, and management believes such rates are competitive in themarketplace.

 

Hamiltonaccounted for approximately 5% and 6% of the repair and maintenance expensepaidfor by thePartnership in the first quarter of 2004 and the year ended December 31, 2003,respectively.  Of the funds paid to Hamilton for this purpose, the greatmajority was to cover the

 

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costof services provided by the Hamilton maintenance department, includingplumbing, electrical, and carpentry services, snow removal and the use ofequipment such as fork lifts.   However,several of the larger Partnership properties have their own maintenancestaff.  Further, those properties thatdo not have their own maintenance staff but are located more than a reasonabledistance from Hamilton’s headquarters in Allston, Massachusetts are generallyserviced 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 first quarter of 2004 and approximately 66%during the year ended December 31, 2003.

 

ThePartnership requires that three bids be obtained for construction contracts inexcess of $5,000.  Hamilton may be oneof the 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.  The architectural department at Hamilton also provides servicesto the Partnership on an as-needed basis. In 2004 and 2003, Hamilton provided the majority of the constructionservices and architectural services paid for by the Partnership.

 

Priorto 1991, the Partnership employed an outside, unaffiliated company to performits bookkeeping 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 per year for bookkeeping and accounting services.

 

Formore information on related party transactions, see Note 3 to the ConsolidatedFinancial Statements.

 

CRITICALACCOUNTING POLICIES AND 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 those relatedto acquiring, developing and assessing the carrying values of its real estateproperties 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.  See Note 1 to the Consolidated FinancialStatements, Principles of Consolidation.

 

RevenueRecognition: Revenues from rental property are recognized when due fromtenants.

 

15

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Residentialleases are generally for terms of one year or less, and commercial leases aregenerally for five to ten 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.

 

RealEstate and Depreciation: Real estate assets are stated at the lower of cost orfair value, as appropriate, less accumulated depreciation.  Costs related to the acquisition,development, construction and improvement of properties are capitalizedincluding interest, internal wages and benefits, real estate taxes andinsurance.  Capitalization usuallybegins with commencement of development activity and ends when the property isready for leasing.  Replacements andimprovements— such as HVAC equipment, structural replacements, windows,appliances, flooring, carpeting and kitchen/bath replacements and renovationsare capitalized and depreciated over 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 onthe Partnership’s net income.

 

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

 

Ifthere is an event or change in circumstances that indicates an impairment inthe value of a property, the Partnership’s policy is to assess the impairmentby making a comparison of the current and projected operating cash flows of theproperty over its remaining useful life, on an undiscounted basis, to thecarrying amount of the property.  If thecarrying value is in excess of the estimated projected operating cash flows ofthe property, we would recognize an impairment loss equivalent to the amountrequired to adjust the carrying amount to its estimated fair value.  The Partnership has not recognized animpairment loss since 1995.

 

Withrespect to investments in and advances to joint ventures, the Partnership looksto the underlying properties to assess performance and the recoverability ofcarrying 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

 

ThePartnership is subject to various legal proceedings and claims that arise, fromtime to time, in the ordinary course of business.  These matters are frequently covered by insurance.  If it is determined that a loss is likely tooccur, the estimated amount of the loss is recorded in the financialstatements.  Both the amount of the lossand the point at which its occurrence is considered likely can be difficult todetermine.

 

Results of Operations

 

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Threemonths ended March 31, 2004 and March 31, 2003

 

ThePartnership and its Subsidiary Partnerships earned income before other incomeof  $544,582 during the three monthsended March 31, 2004 compared to $1,437,807 for the three months ended March31, 2003, a decrease of $893,325(62%). As more fully described in the tables below, this decrease in operatingincome is largely due to an increase in operating expenses and increases invacancy rates.  Due to the softeningresidential rental market, rental income at many of the properties decreased inthe three months ended March 31, 2004 and expenses continued to increase.

 

Therental activity is summarized as follows:

 
|              |   | **Occupancy  Date** |   |
|-------------------|--------|---------------------|--------|
|              |   | **May 3,  2004**    |   | **February  25,  2004** |   | **May 5,  2003** |   |
| Residential       |   |                |   |   |   |   |   |
| Units             |   | 2,400               |   | 2,400 |   | 2,395 |   |
| Vacancies         |   | 72                  |   | 37 |   | 58 |   |
| Vacancy rate      |   | 3.0                 | %      | 1.5 | % | 2.4 | % |
| Commercial        |   |                |   |   |   |   |   |
| Total square feet |   | 85,275              |   | 85,275 |   | 85,275 |   |
| Vacancy           |   | 4,700               |   | 0 |   | 0 |   |
| Vacancy rate      |   | 5.5                 | %      | 0 | % | 0 | % |

 
|                   |   | **Rental  Income (in thousands)  Three Months Ended** |   |
|------------------------|--------|-------------------------------------------------------|--------|
|                   |   | **2004**                                              |   | **2003** |   |
|                   |   |                                                  |   |   |   |
| Total rents            |   | $                                                     | 7,446  |   | $ | 7,461 |   |
| Residential percentage |   | 93                                                    | %      | 93 | % |
| Commercial percentage  |   | 7                                                     | %      | 7 | % |
| Contingent rentals     |   | $                                                     | 136    |   | $ | 143 |   |

 

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Three Months Ended March 31,2004 Compared to Three Months Ended March 31, 2003

 
|                                           |   | **Three  Months Ended** |      |       |   |        |   |
|------------------------------------------------|--------|-------------------------|-----------|------------|--------|-------------|--------|
|                                           |   | **March 31,**           |      | **Dollar** |   | **Percent** |   |
|                                           |   | **2004**                |      | **2003**   |   | **Change**  |   | **Change** |   |
|                                           |   |                    |      |       |   |        |   |   |   |
| Revenues:                                      |   |                    |      |       |   |        |   |   |   |
| Rental income                                  |   | $                       | 7,745,812 |       | $      | 7,461,292   |   | $ | 284,520 |   | 3.8 | % |
| Laundry and sundry income                      |   | 81,450                  |      | 70,800     |   | 10,650      |   | 15.0 | % |
|                                           |   | 7,827,262               |      | 7,532,092  |   | 295,170     |   | 3.9 | % |
|                                           |   |                    |      |       |   |        |   |   |   |
| Expenses                                       |   |                    |      |       |   |        |   |   |   |
| Administrative                                 |   | 329,886                 |      | 363,816    |   | (33,930     | )      | —9.3 | % |
| Depreciation and amortization                  |   | 1,474,388               |      | 1,112,863  |   | 361,525     |   | 32.5 | % |
| Interest                                       |   | 2,002,895               |      | 1,659,167  |   | 343,728     |   | 20.7 | % |
| Management fees                                |   | 318,461                 |      | 296,338    |   | 22,123      |   | 7.5 | % |
| Operating                                      |   | 1,092,141               |      | 990,816    |   | 101,325     |   | 10.2 | % |
| Renting                                        |   | 109,198                 |      | 62,965     |   | 46,233      |   | 73.4 | % |
| Repairs and maintenance                        |   | 1,073,007               |      | 813,111    |   | 259,896     |   | 32.0 | % |
| Taxes and insurance                            |   | 882,804                 |      | 795,209    |   | 87,595      |   | 11.0 | % |
|                                           |   | 7,282,780               |      | 6,094,285  |   | 1,188,495   |   | 19.5 | % |
|                                           |   |                    |      |       |   |        |   |   |   |
| Income before other income                     |   | 544,482                 |      | 1,437,807  |   | (893,325    | )      | —62.1 | % |
|                                           |   |                    |      |       |   |        |   |   |   |
| Other Income (Loss)                            |   |                    |      |       |   |        |   |   |   |
| Interest income                                |   | 70,167                  |      | 55,528     |   | 14,639      |   | 26.4 | % |
| Income (loss) from investment in joint venture |   | (32,030                 | )         | (20,677    | )      | (11,353     | )      | 54.9 | % |
|                                           |   | 38,137                  |      | 34,851     |   | 3,286       |   | 9.4 | % |
|                                           |   |                    |      |       |   |        |   |   |   |
| Net Income                                     |   | 582,619                 |      | 1,472,658  |   | (890,039    | )      | —60.4 | % |
|                                                |        |                         |           |            |        |             |        |  |  |  |  |  |

 

18

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The following is a comparativeschedule for the three months ended March 31, 2004, of the changes in revenuefrom rental operations excluding the 2003 acquisitions.

 
|                          |   | **Total  Partnership  2004** |      | **Less  Acquired  Properties** |   | **Same  Properties  in 2004** |   | **Same  Properties  in 2003** |      | **Dollar  Change** |   | **Percent  Change** |   |
|-------------------------------|--------|------------------------------|-----------|--------------------------------|--------|-------------------------------|--------|-------------------------------|-----------|--------------------|--------|---------------------|--------|
| Revenues:                     |   |                         |      |                           |   |                          |   |                          |      |               |   |                |   |
| Rental income                 |   | $                            | 7,745,812 |                           | $      | 582,991                       |   | $                             | 7,162,821 |               | $      | 7,461,292           |   | $ | (298,471 | ) | —4.0 | % |
| Laundry and sundry income     |   | 81,450                       |      | 11,080                         |   | 70,370                        |   | 70,800                        |      | (430               | )      | —0.6           | %      |
|                          |   | 7,827,262                    |      | 594,071                        |   | 7,233,191                     |   | 7,532,092                     |      | (298,901           | )      | —4.0           | %      |
|                          |   |                         |      |                           |   |                          |   |                          |      |               |   |                |   |
| Expenses                      |   |                         |      |                           |   |                          |   |                          |      |               |   |                |   |
| Administrative                |   | 329,886                      |      | 14,469                         |   | 315,417                       |   | 363,816                       |      | (48,399            | )      | —13.3          | %      |
| Depreciation and amortization |   | 1,474,388                    |      | 327,392                        |   | 1,146,996                     |   | 1,112,863                     |      | 34,133             |   | 3.1                 | %      |
| Interest                      |   | 2,002,895                    |      | 257,801                        |   | 1,745,094                     |   | 1,659,167                     |      | 85,927             |   | 5.2                 | %      |
| Management fees               |   | 318,461                      |      | 23,599                         |   | 294,862                       |   | 296,338                       |      | (1,476             | )      | —0.5           | %      |
| Operating                     |   | 1,092,141                    |      | 93,204                         |   | 998,937                       |   | 990,816                       |      | 8,121              |   | 0.8                 | %      |
| Renting                       |   | 109,198                      |      | 8,745                          |   | 100,453                       |   | 62,965                        |      | 37,488             |   | 59.5                | %      |
| Repairs and maintenance       |   | 1,073,007                    |      | 96,154                         |   | 976,853                       |   | 813,111                       |      | 163,742            |   | 20.1                | %      |
| Taxes and insurance           |   | 882,804                      |      | 64,425                         |   | 818,379                       |   | 795,209                       |      | 23,170             |   | 2.9                 | %      |
|                          |   | 7,282,780                    |      | 885,788                        |   | 6,396,992                     |   | 6,094,285                     |      | 302,707            |   | 5.0                 | %      |
|                          |   |                         |      |                           |   |                          |   |                          |      |               |   |                |   |
| Income before other income    |   | 544,482                      |      | (291,717                       | )      | 836,199                       |   | 1,437,807                     |      | (601,608           | )      | —41.8          | %      |
|                               |        |                              |           |                                |        |                               |        |                               |           |                    |        |                     |        |  |  |  |  |  |

 

Rentalincome for the three months ended March 31, 2004 was approximately $7,746,000compared to approximately $7,461,000 for the three months ended March 31, 2003,an increase of approximately $285,000(4%). The increase is due in large part to the acquisition of a 184 unitresidential apartment complex located on School Street in Framingham,Massachusetts (referred to as “School Street”).  School Street was acquired in April 2003, therefore there was norental income from School Street for the three months ended March 31,2003.  Rental income for the threemonths ended March 31, 2004 from School Street was approximately $562,000.   This increase in rental income from SchoolStreet is offset by decreases in rental income due to increased vacancies,rental concessions and some reductions in rents for new leases.  Rental income at the Westgate Apartments inWoburn, Massachusetts decreased approximately $127,000 (17%) due to vacanciesand rental credits given to new tenants during the first quarter of 2004 in theongoing effort to stay competitive in a relatively soft rental market.   Rental income at Redwood Hills decreasedapproximately $33,000(6%) due to increased vacancies at the property.  Most residential properties experiencedsmaller decreases in rental income. Additionally, bad debts increased approximately $31,000.

 

Totalexpenses for the three months ended March 31, 2004 were $7,282,780 compared to$6,094,285 for the three months ended March 31 2003, an increase of $1,188,495(20%). Expenses related to the School Street acquisition representapproximately $831,000 (70%) of this increase. Unrelated to the acquisition ofSchool Street, there was an increase in expenses of approximately $303,000.  Repairs and maintenance expenses increasedapproximately $164,000 due to ongoing refurbishment, repair and clean up ofrental units in an effort to reduce vacancies.

 

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Taxesand insurance increased approximately $23,000 due to increases in insurancepremiums. Renting expenses increased approximately $37,000 due to increases inadvertising and promotion expenses due to a soft rental market.  Operating expenses increased slightly dueto  higher heating costs ofapproximately $55,000 offset by decreases in snow removal expenses.Administrative expenses decreased approximately $48,000 primarily due to areduction in  professional fees.

 

Totaldepreciation and amortization increased approximately $362,000 primarily due tothe 2003 acquisitions.

 

ThePartnership has a 50% ownership interest in a limited liability Partnershipthat owns a 40 unit residential property in Cambridge, Massachusetts.  For the three months ended March 31, 2004,the Partnership’s share of loss on this investment is $32,030 compared to aloss of $ 20,677 for the three months ended March 30, 2003, an increase of$11,353.  This is due to an increase invacancies.  There were two units vacantat March 31, 2004.

 

Interestincome was approximately $70,167 for the three months ended March 31, 2004compared to $55,528 for the three months ended March 31, 2003 an of increased$14,639 (26%).  This increase is dueprimarily due to an increase in the cash available for investment.  Total interest expense increasedapproximately $344,000 due to the increased mortgage debt.

 

Asa result of the changes discussed above, net income for the three months endedMarch 31, 2004 was $582,619 compared to $1,472,658 for the three months endedMarch 31, 2003, a decrease of $890,039 (60%).

 

LIQUIDITYAND CAPITAL RESOURCES

 

ThePartnership’s principal source of cash during 2004 and 2003 was the collectionof rents as well as the refinancing of Partnership properties during 2003.

 

Themajority of cash and cash equivalents of $23,491,247 at March 31, 2004 and$24,362,328 at December 31, 2003 was held in interest bearing accounts atcredit worthy financial institutions.

 

Thisdecrease of $871,081 at March 31, 2004 is summarized as follows:

 
|                                                  |   | **Three  Months Ended March 31,** |      |
|-------------------------------------------------------|--------|-----------------------------------|-----------|
|                                                  |   | **2004**                          |      | **2003** |   |
|                                                  |   |                              |      |   |   |
| Cash provided by operating activities                 |   | $                                 | 1,929,356 |   | $ | 1,799,856 |   |
| Cash (used in) investing activities                   |   | (1,482,015                        | )         | (996,752 | ) |
| Cash (used in) other financing activities             |   | (176,345                          | )         | (223,586 | ) |
| Distributions paid                                    |   | (1,142,077                        | )         | (1,660,531 | ) |
| Net (decrease) increase in cash and cash  equivalents |   | $                                 | (871,081  | ) | $ | (1,081,013 | ) |

 

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Thecash provided by operating activities is primarily due to the net income plusdepreciation expense.  The increase incash used in investing activities is due to significant capital improvementsmade in the first quarter of 2004.  Thedecrease in cash used in financing activities was due to the decrease in thedistribution.

 

OnAugust 1, 2003, the Partnership refinanced four mortgage loans with a totaloutstanding balance of approximately $11,526,000, earning interest at ratesranging from 8.38% to 8.75%.  All ofthese loans matured in 2005.  ThePartnership borrowed a total of $26,750,000, with interest rates ranging from4.84% to 5.30%.  The new loans arerepresented by ten-year notes with interest only payments during their entireterms.  The total monthly payment on theold loans was approximately $101,000 including principal of approximately$20,000.  The total monthly payment onthe new loan is approximately $109,000, resulting in an increase in annualpayments of approximately $96,000. Annual interest expense will increase approximately $340,000 due to theincreased debt.  The Partnership’s cashreserves have increased approximately $13,000,000 as a result of thisrefinancing.  There are substantialprepayment penalties if paid before maturity.

 

OnJune 30, 2003, the Partnership purchased five condominium units from a group ofinvestors who are also affiliated with the Partnership.  In the event any of these units are soldduring the three year period commencing on the date of acquisition and the saleprice is less than the price paid by the Partnership for such units, HaroldBrown has agreed to indemnify the Partnership for the difference.  The total purchase price for the five unitswas $2,421,286 including closing costs. This acquisition was funded from cash reserves.  In August 2003, the Partnership obtained a$1,600,000 mortgage loan for three years, with interest only payments at 5.25%and no prepayment penalties, secured by these five condominium units.

 

OnApril 25, 2003, the Partnership acquired a 184 unit residential propertylocated at 9 School Street in Framingham, Massachusetts for a total purchaseprice of $23,368,000.  The Partnershipobtained a mortgage of $17,000,000 with an interest rate of 5.47%.  The balance of approximately $6,368,000 wasfunded from cash reserves.  The mortgagehas a ten-year term and is amortized over 30 years, with interest only paymentsfor the first three years.  There is asignificant prepayment penalty if the mortgage is prepaid prior to its ten-yearmaturity.

 

InFebruary 2004, the Partnership voted to pay a quarterly distribution of $6.60($0.66 per depositary receipts) per unit payable on March 31, 2004.  The total distribution paid on March 31,2004 was $1,142,077.  Additionally, inApril 2004 the Partnership voted to pay the same quarterly distribution on June30, 2004.

 

InFebruary 2003, the Partnership voted to increase the quarterly distribution to$6.60 per unit ($0.66 per depositary receipt) and pay an additional one-timedistribution of $3.00 per unit for a total distribution of $9.60 per unitpayable on March 31, 2003.  The totaldistribution paid to the partners on March 31, 2003 was $1,660,531.

 

Duringthe three months ended March 31, 2004, the Partnership and its SubsidiaryPartnerships

 

21

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completedcertain improvements to their properties at a total cost of approximately$1,044,000.  The most significantimprovements were made at the following properties: $218,498 at WestgateApartments in Woburn, Massachusetts; $127,682 at 62 Boylston Street, Boston,Massachusetts; $104,019 at Westside Colonial Apartments in Brockton,Massachusetts and $102,755 at Hamilton Oaks Apartments in Brockton,Massachusetts.  All such improvementswere funded from the Partnership’s cash reserves and escrow accountsestablished in connection with the refinancing of applicable properties.

 

Inaddition to the improvements made to date in 2004, the Partnership and itsSubsidiary Partnerships plan to invest an additional $1,416,000 in capitalimprovements during 2004, the majority of which will be spent at Westgate,Middlesex, Redwood Hills, 62 Boylston Street, and Hamilton Oaks.  These improvements will be funded fromescrow accounts established in connection with the refinancing of applicableproperties, as well as from the Partnership’s cash reserves.

 

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, unanticipatedincreases in expenses, or the loss of significant tenants.

 

ThePartnership is constructing 20 additional residential units at a cost ofapproximately $4,000,000 at the Westgate Apartments in Woburn, Massachusettsavailable for occupancy in the fall of 2004.  The construction costs incurred to date of approximately $1,998,000,including approximately $438,000 in the first quarter of 2004, have beencapitalized as construction in progress.

 

FactorsThat May Affect Future Results

 

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”). While forward looking statements reflect management’s good faith beliefswhen those statements are made, caution should be exercised in interpreting andrelying on such forward looking statements, the realization of which may beimpacted by known and unknown risks and uncertainties, events that may occursubsequent to the forward-looking statements, and other factors which may bebeyond the Partnership’s control and which can materially affect thePartnership’s actual results, performance or achievements for 2004 and beyond.

 

Alongwith risks 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:

 

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ThePartnership depends on the real estate markets where its properties are locatedand these markets may be adversely affected by local economic marketconditions, which are beyond the Partnership’s control.

 

ThePartnership is subject to the general economic risks affecting the real estateindustry, such as dependence on tenant’s financial condition and the need toenter into new leases or renew leases on terms favorable to tenants in order togenerate rental revenues.  ThePartnership is also impacted by changing economic conditions making alternativehousing arrangements more or less attractive to the Partnership’s tenants, suchas the interest rates on single family home mortgages and the availability andpurchase price of single-family homes in the greater Boston metropolitan area.

 

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

 

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 quickly; or may fail to effectively integrateacquisitions of properties or portfolios of properties.

 

Giventhe nature of the real estate business, the Partnership is subject to potentialenvironmental liabilities.  Theseinclude environmental contamination in the soil at the Partnership’s orneighboring real estate, whether caused by the Partnership, previous owners ofthe subject property or neighbors of the subject property, and the presence ofhazardous materials in the Partnership’s buildings, such as asbestos, mold andradon gas.  Management is not aware ofany material environmental liabilities at this time.

 

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

 

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.

 

Theforegoing factors should not be construed as exhaustive or as an admissionregarding theadequacy ofdisclosures made by the Partnership prior to the date hereof or theeffectiveness of said Act.  The Partnership expressly disclaims anyobligation to publicly update or revise any forward-looking statement, whether as a result of new information,future events or otherwise.

 

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The residential real estate market in the Greater Boston area hassoftened and the Partnership anticipates the climate will remain the same inthe foreseeable future.  This may resultin increases in vacancy rates and or/a reduction in rents. The Partnershipbelieves its present cash reserves as well as anticipated rental revenue willbe sufficient to fund its current operations, and to finance current plannedimprovements to its properties and continue dividend payments in theforeseeable future. 

 

Sincethe Partnership’s long-term goals include the acquisition of additionalproperties, a portionofthe proceeds from the refinancing and sale of properties is reserved for thispurpose.  The Partnership will consider refinancingexisting properties if the Partnership’s cash reserves are insufficient to repay existing mortgages orif the Partnership needs additional funds for future acquisitions.

 

Item 3 –QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Asof March 31, 2004, the Partnership and its subsidiary Partnerships collectivelyhaveapproximately$115,735,000 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 and maturity dates of thesedebt obligations, see Notes 5and 12 to the Consolidated Financial Statements.

 

Foradditional disclosures about market risk, see “Item 2 - Management’s Discussionand Analysis of Financial Condition and Results of Operations - Factors thatMay Affect Future Results.”

 

Item 4—CONTROLS ANDPROCEDURES

 

Ourprincipal executive officer and principal financial officer have within 90 daysof the filing date of this quarterly report, evaluated the effectiveness of ourdisclosure controls and procedures (as defined in Rule 13a-14(c) and 15d-14(c)under the Securities and Exchange Act of 1934, as amended) and have determinedthat such disclosure controls and procedures are adequate.  There have been no significant changes ininternal controls or in other factors that could significantly affect ourinternal controls since the date of evaluation.  We do not believe any significant deficiencies or materialweaknesses exist in our internal controls. Accordingly, no corrective actions have been taken. We continue toreview and document our disclosure controls and procedures, including ourinternal controls over financial reporting, and may from time to time, makechanges aimed at enhancing their effectiveness and to ensure our systems evolvewith our business.

 

24

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PARTII - OTHER INFORMATION

 

Item1.             Legal Proceedings

 

None.

 

Item2.             Changes in Securities

 

None.

 

Item 3.             Defaults Upon Senior Securities

 

None.

 

Item 4.             Submission of Matters to a Vote of Security Holders

 

None.

 

Item5.             Other Information

 

None.

 

Item 6.             Exhibits and Reports on Form 8-K

 

(a)                                  See the exhibit index below.

 

(b)                                 None.

 

25

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SIGNATURES

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 
| Date:  May 17, 2004 |                                                |
|--------------------------|-----------------------------------------------------|
|                     |                                                |
|                     | NEW  ENGLAND REALTY ASSOCIATES  LIMITED PARTNERSHIP |
|                     |                                                |
|                     | By:                                                 | NEW  REAL, INC., |
|                     |                                                | its  General Partner* |
|                     |                                                |
|                     | By:                                                 |        /s/  Ronald Brown |   |
|                     |                                                | Ronald  Brown, President |
|                     |                                                |
|                     | *                                                   | Functional  equivalent of Chief Executive Officer,  Principal Financial Officer and Principal Accounting  Officer |
|                          |                                                     |  |  |  |  |

 

26

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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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