EX-99.1 6 a2191562zex-99_1.htm EXHIBIT 99.1

Exhibit 99.1

HAMILTON ON MAIN LLC (a/k/a HAMILTON PLACE)

HAMILTON ON MAIN APARTMENTS LLC

HAMILTON 1025 LLC

Combined Financial Statements—Significant Joint Ventures

As of December 31, 2008 and 2007

and for the years ended December 31, 2008, 2007 and 2006

Together With Report of Independent

Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Joint Venture Participants

of Hamilton on Main LLC (a/k/a Hamilton Place), Hamilton on Main Apartments LLC and

Hamilton 1025 LLC

We have audited the accompanying combined balance sheets of Hamilton on Main LLC (a/k/a Hamilton Place), Hamilton on Main Apartments LLC and Hamilton 1025 LLC as of December 31, 2008 and 2007, and the related combined statements of income, changes in joint venture capital and cash flows for each of the years in the three-year period ended December 31, 2008. The combined financial statements are the responsibility of the Joint Ventures’ management. Our responsibility is to express an opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Hamilton on Main LLC, Hamilton on Main Apartments LLC and Hamilton 1025 LLC at December 31, 2008 and 2007 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

/s/ MILLER WACHMAN LLP

Boston, Massachusetts

March 13, 2009

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HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND

HAMILTON 1025 LLC

COMBINED BALANCE SHEETS

		December 31,
		2008			2007
ASSETS
Rental Properties		$	31,840,886		$	34,761,032
Cash and Cash Equivalents		170,152			519,254
Rents Receivable		1,430			9,550
Due from Joint Ventures		320,000			1,699,927
Real Estate Tax Escrows		136,016			463,787
Prepaid Expenses and Other Assets		416,059			383,917
Financing and Leasing Fees		83,001			99,791
Total Assets		$	32,967,544		$	37,937,258
LIABILITIES AND JOINT VENTURE CAPITAL
Mortgage Notes Payable		$	21,640,374		$	21,825,000
Accounts Payable and Accrued Expenses		179,610			145,394
Advance Rental Payments and Security Deposits		248,745			217,169
Total Liabilities		22,068,729			22,187,563
Commitments (Note 7)
Joint Venture Capital		10,898,815			15,749,695
Total Liabilities and Joint Venture Capital		$	32,967,544		$	37,937,258

See notes to combined financial statements.

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HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND

HAMILTON 1025 LLC

COMBINED STATEMENTS OF INCOME

		Year Ended December 31,
		2008			2007			2006
Revenues
Rental income		$	3,151,466		$	3,351,622		$	3,819,267
Laundry and sundry income		19,505			17,144			56,039
		3,170,971			3,368,766			3,875,306
Expenses
Administrative		78,292			90,880			158,943
Depreciation and amortization		1,920,588			2,162,532			2,337,808
Management fees		129,445			138,566			157,214
Operating		363,740			313,383			334,011
Renting		36,210			18,177			48,955
Repairs and maintenance		740,069			766,471			1,167,640
Taxes and insurance		447,113			516,676			717,725
		3,715,458			4,006,685			4,922,296
Operating Loss		(544,487		)	(637,919		)	(1,046,990		)
Other Income (Loss)
Interest expense		(1,177,265		)	(1,226,342		)	(1,780,049		)
Interest income		4,829			35,615			840
Gains on condominium sales		521,042			1,958,516			2,986,238
Other Income (expenses)		—			(37,428		)	50
		(651,394		)	730,361			1,207,079
Net Income		$	(1,195,881	)	$	92,442		$	160,089

See notes to combined financial statements.

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HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND

HAMILTON 1025 LLC

COMBINED STATEMENTS OF CHANGES IN JOINT VENTURE CAPITAL

		Hamilton 1025			Hamilton on Main Apts			Hamilton Place Sales			Total
Balance, January 1, 2006		$	4,125,866		$	13,675,819		$	2,995,480		20,797,165
Transfer of equity		—			(2,550,594		)	2,550,594			—
Investment by owners		—			600,000			—			600,000
Distribution to owners		(100,000		)	—			—			(100,000		)
Net Income (loss)		558,126			(1,150,258		)	752,220			160,088
Balance, December 31, 2006		4,583,992			10,574,967			6,298,294			21,457,253
Distribution to owners		(1,600,000		)	(600,000		)	(3,600,000		)	(5,800,000		)
Net Income (loss)		399,551			(1,209,113		)	902,004			92,442
Balance, December 31, 2007		3,383,543			8,765,854			3,600,298			15,749,695
Transfer of equity		—			1,797,991			(1,797,991		)	—
Distribution to owners		(1,230,000		)	(305,000		)	(2,120,000		)	(3,655,000		)
Net income (loss)		(192,332		)	(1,321,242		)	317,693			(1,195,881		)
Balance, December 31, 2008		$	1,961,211		$	8,937,603		$	—		$	10,898,814

See notes to combined financial statements.

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HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND

HAMILTON 1025 LLC

COMBINED STATEMENTS OF CASH FLOWS

		Year Ended December 31
		2008			2007			2006
Cash Flows from Operating Activities
Net income (loss)		$	(1,195,881	)	$	92,442		$	160,089
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Gain on sale of condominiums		(521,042		)	(1,958,516		)	(2,986,239		)
Depreciation and amortization		1,920,588			2,162,532			2,337,808
Rent Supplement		(3,245		)	(2,174		)	—
Changes in operating assets and liabilities:
(Increase) Decrease in rents receivable		8,121			(2,572		)	18,144
Decrease (increase) in accounts payable and accrued expense		34,216			(53,501		)	(52,696		)
Increase (Decrease) in real estate tax escrow		327,772			(89,694		)	(183,008		)
Increase (Decrease) in due from joint ventures		1,176,283			(1,699,927		)	—
(Increase) Decrease in financing and leasing fees		17,412			10,039			(42,205		)
(Increase) Decrease in prepaid expenses and other assets		(31,692		)	72,359			114,695
(Decrease) Increase in advance rental payments and security deposits		31,575			(10,082		)	(24,217		)
Total adjustments		2,959,988			(1,571,536		)	(817,718		)
Net cash provided by (used in) operating activities		1,764,107			(1,479,094		)	(657,629		)
Cash flows provided by (used in)investing activities
Proceeds from sales of condominiums and properties		2,084,500			10,593,794			11,530,646
Purchase and improvement of rental properties		(358,084		)	(739,430		)	(767,392		)
Net cash provided by investing activities		1,726,416			9,854,364			10,763,254
Cash flows used in Financing activities
Proceeds of mortgage notes payable		—			—			5,000,000
Principal payments of mortgage notes payable		(184,626		)	—			(4,818,886		)
Principal payments from sales proceeds		—			(2,380,745		)	(10,907,643		)
Distributions to/investment by investors		(3,655,000		)	(5,800,000		)	500,000
Net cash used in financing activities		(3,839,626		)	(8,180,745		)	(10,226,529		)
Net increase (decrease) in cash and cash equivalents		(349,102		)	194,525			(120,904		)
Cash and cash equivalents, at beginning of year		519,254			324,729			445,634
Cash and cash equivalents, at end of year		$	170,152		$	519,254		$	324,730

See notes to combined financial statements.

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HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND

HAMILTON 1025 LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2008

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

Principles of Combination:  The combined financial statements include the accounts of Hamilton on Main LLC (a/k/a Hamilton Place), Hamilton on Main Apartments LLC, and Hamilton 1025 LLC (“The Joint Ventures”) or (“The Investment Properties”), each of which is owned 50% by New England Realty Associates, LP (“NERA”) and are “significant subsidiaries” under Rule 3-09 of Regulation S-X requiring separate financial statements. All significant intercompany accounts and transactions are eliminated in the combined statements between these three entities.

Accounting Estimates:  The preparation of the financial statements, in conformity with accounting principles generally accepted in the United State of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Accordingly, actual results could differ from those estimates.

Revenue Recognition:  Rental income is recognized over the term of the related lease. Amounts 60 days in arrears are charged against income. Certain leases of commercial properties provide for increasing stepped minimum rents, which are accounted for on a straight-line basis over the term of the lease. Gain on condominium sales are recognized upon the closing of transactions.

Rental Properties:  Properties are stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred; improvements and additions are capitalized. When assets are retired or otherwise disposed of, the cost of the asset and related accumulated depreciation is eliminated from the accounts, and any gain or loss on such disposition is included in other income. Fully depreciated assets are removed from the accounts. Properties are depreciated by both straight-line and accelerated methods over their estimated useful lives.

In the event that facts and circumstances indicate that the carrying value of a property may be impaired, an analysis of the value is prepared. The estimated future undiscounted cash flows are compared to the asset’s carrying value to determine if a write-down to fair value is required.

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

Income Taxes:  The financial statements have been prepared on the basis that the joint ventures are entitled to tax treatment as partnerships. Accordingly, no provision for income taxes has been recorded.

Cash Equivalents:  The Joint Ventures considers cash equivalents to be all highly liquid instruments purchased with a maturity of three months or less.

Segment Reporting:  Operating segments are revenue-producing components of the joint venture for which separate financial information is produced internally for management. Under the definition, The Joint Ventures operated, for all periods presented, as one segment.

Concentration of Credit Risks and Financial Instruments:  The Joint Venture’s properties are located in Greater Boston, and are subject to the general economic risks related thereto. No single tenant

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accounted for more than 5% of the joint ventures revenues in 2008, 2007 or 2006. The joint ventures make its temporary cash investments with high-credit-quality financial institutions.

Advertising Expense:  Advertising is expensed as incurred. Advertising expense was insignificant in 2008, 2007 and 2006.

NOTE 2. RENTAL PROPERTIES

Properties consist of the following:

		Year Ended December 31,
		2008			2007			Useful Life
Land, improvements and parking lots		$	6,129,699		$	6,213,549		10–40 years
Buildings and improvements		29,504,497			30,708,163			15–40 years
Kitchen cabinets		564,335			513,409			5–10 years
Carpets		257,769			239,962			5–10 years
Air conditioning		73,406			62,308			7–10 years
Laundry equipment		3,272			5,129			5–7 years
Equipment		113,117			108,027			5–7 years
Motor vehicles		—			28,588			5 years
Fences		990			990			5–10 years
Furniture and fixtures		2,782,627			2,757,046			5–7 years
Smoke alarms		2,943			2,943			5–7 years
		39,432,657			40,640,114
Less accumulated depreciation		(7,591,771		)	(5,879,082		)
		$	31,840,886		$	34,761,032

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A reconciliation of rental properties and accumulated depreciation is as follows:

		Hamilton Place Sales			Hamilton On Main Apts			Hamilton 1025			Total
Rental Properties at Cost
Balance, January  1, 2006		$	14,812,006		$	30,084,047		$	12,590,163		$	57,486,216
Purchase of and addition to property		284,603			223,090			259,699			767,392
Transfers between affiliates		107,833			(107,833		)	—			—
Condominium sale		(5,965,515		)	—			(3,009,349		)	(8,974,864		)
Balance, December 31, 2006		9,238,927			30,199,304			9,840,513			49,278,744
Purchase of and addition to property		467,245			111,503			160,063			738,811
Condominium sale		(7,427,329		)	—			(1,950,111		)	(9,377,440		)
Balance, December 31, 2007		2,278,843			30,310,807			8,050,465			40,640,114
Purchases of and additions to property		(1,214,298		)	1,348,889			65,781			200,372
Condominium sales		(1,064,545		)	(28,588		)	(314,696		)	(1,407,829		)
Balance, December 31, 2008		$	—		$	31,631,108		$	7,801,550		$	39,432,657
Accumulated Depreciation
Balance, January 1, 2006		$	479,336		$	1,813,206		$	357,312		$	2,649,854
Depreciation for year		407,286			1,428,340			430,450			2,266,076
Depreciation of dispositions		(292,127		)	—			(138,330		)	(430,457		)
Balance, December 31, 2006		594,495			$	3,241,546		$	649,432		$	4,485,473
Depreciation for year		207,116			1,571,145			360,554			2,138,815
Depreciation of dispositions		(592,147		)	—			(153,059		)	(745,206		)
Balance, December 31, 2007		209,464			4,812,691			856,927			5,879,082
Depreciation for year		—			1,632,658			358,872			1,991,529
Depreciation of dispositions		209,464			(26,513		)	(42,863		)	(278,840		)
Balance, December 31, 2008		$	—		$	6,418,836		$	1,172,936		$	7,591,772
Book Value		$	—		$	25,212,272		$	6,628,614		$	31,840,885

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NOTE 3. RELATED PARTY TRANSACTIONS

The Joint Ventures’ properties are managed by an entity that is owned by the majority shareholder of the General Partner. The management fee is equal to 4% of rental revenue and laundry income. Total fees paid were approximately $128,000, $113,000 and $157,000 in 2008, 2007 and 2006, respectively.

In 2008, the Management Company also received approximately $1,500 for construction costs, $10,000 for construction supervision and architectural fees, $28,000 for maintenance services and $14,000 for administrative services. The Hamilton Company legal department acts as closing attorney on certain condo sales receiving approximately $8,500 during the year ended December 31, 2008. An entity partially owned by the majority shareholder of the General Partner is the sales agent for certain condominium sales receiving approximately $43,000 of commissions in 2008.

In 2007, the Management Company also received approximately $300 for construction costs, $1,700 for construction supervision and architectural fees, $23,000 for maintenance services and $10,000 for administrative services. The Hamilton Company legal department acts as closing attorney on certain condo sales receiving approximately $45,000 during the year ended December 31, 2007. An entity partially owned by the majority shareholder of the General Partner is the sales agent for certain condominium sales receiving approximately $252,000 of commissions in 2007.

In 2006, the Management Company also received approximately $9,500 for construction costs, $9,500 for construction supervision and architectural fees, $103,000 for maintenance services and $8,000 for administrative services. The Hamilton Company legal department acts as closing attorney on certain condo sales receiving approximately $47,000 during the year ended December 31, 2006. An entity partially owned by the majority shareholder of the General Partner is the sales agent for certain condominium sales receiving approximately $213,000 of commissions in 2006.

Inter company balances with related joint ventures are as follows:

		Due From			Due To		Total
Significant Combined Joint Ventures
Hamilton on Main due from 345 Franklin		$	185,000		—		$	185,000
Hamilton on Main due from Minuteman		45,000			—		45,000
Hamilton 1025 due from 345 Franklin		90,000			—		90,000
Total		$	320,000		—		$	320,000

NOTE 4. OTHER ASSETS

Financing and leasing fees of approximately $83,000 and $100,000 are net of accumulated amortization of approximately $45,000 and $31,000 at December 31, 2008 and, 2007, respectively.

NOTE 5. MORTGAGE NOTES PAYABLE

At December 31, 2008 and 2007, the mortgages payable consisted of various loans, all of which were secured by first mortgages on properties referred to in Note 2. At December 31, 2008, the interest rates on these loans ranged from 5.18% to 5.67%, payable in monthly installments aggregating approximately $117,000, including interest, to various dates through 2016. The majority of the mortgages are subject to prepayment penalties. At December 31, 2008, the weighted average interest rate on the above mortgages was 5.29%.

The Joint Ventures have pledged tenant leases as additional collateral for certain of these loans.

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Approximate annual maturities at December 31, 2008 are as follows:

		Hamilton Place Sale			Hamilton On Main Apartments			Hamilton 1025			Total
2009—Current Maturities		$	—		$	238,021		$	—		$	238,021
2010		—			250,827			—			250,827
2011		—			261,897			4,513			266,410
2012		—			278,413			60,747			339,160
2013		—			293,392			65,157			358,550
Thereafter		—			15,317,823			4,869,583			20,187,406
		$	—		$	16,640,374		$	5,000,000		$	21,640,374

NOTE 6. ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS

The Joint Ventures’ residential lease agreements may require tenants to maintain a one-month advance rental payment and/or a security deposit. At December 31, 2008, amounts received for prepaid rents of approximately $160,000 are included in cash and cash equivalents; security deposits of approximately $70,000 are included with other assets.

NOTE 7. COMMITMENTS AND CONTINGENCIES

From time to time, the Joint Ventures may be involved in various ordinary routine litigation incidental to their business. The Joint Ventures either have insurance coverage or have provided for any uninsured claims, which, in the aggregate, are not significant. The Joint Ventures are not involved in any material pending legal proceedings.

NOTE 8. RENTAL INCOME

Substantially all rental income was related to residential apartments and condominium units with leases of one year of less.

Rents receivable are net of allowances for doubtful accounts of approximately $21,000, $5,000 and $31,000 at December 31, 2008, 2007 and 2006, respectively.

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NOTE 9. CASH FLOW INFORMATION

During the years ended December 31, 2008, 2007 and 2006, cash paid for interest was approximately $1,200,000, $1,200,000 and $1,800,000 respectively.

NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Joint Ventures in estimating the fair value of their financial instruments:

· For cash and cash equivalents, other assets, investment in partnerships, accounts payable, advance rents and security deposits: fair value approximates the carrying value of such assets and liabilities.

· For mortgage notes payable: fair value is generally based on estimated future cash flows, which are discounted using the quoted market rate from an independent source for similar obligations. Refer to the table below for the carrying amount and estimated fair value of such instruments.

		Carrying Amount			Estimated Fair Value
Mortgage Notes Payable
At December 31, 2008		$	21,640,374		$	21,861,676
At December 31, 2007		$	21,825,000		$	21,213,414

Disclosure about fair value of financial instruments is based on pertinent information available to management as of December 31, 2008 and 2007. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 2008 and current estimates of fair value may differ significantly from the amounts presented herein.

NOTE 11. TAXABLE INCOME AND TAX BASIS

The Joint Ventures are not subject to income taxes as they file partnership tax returns whereby their income or loss is reportable by the owners.

Taxable income is different than financial statement income because of accelerated depreciation, different tax lives, and timing differences related to prepaid rents and allowances. Gains from sale of condominiums are taxable at ordinary rates. Taxable income is approximately $120,000 less than statement income for the year ended December 31, 2008. The cumulative tax basis of the Joint Ventures real estate at December 31, 2008 is approximately $200,000 less than the statement basis.

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HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND

HAMILTON 1025 LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2008

NOTE 12. COMBINING FINANCIAL STATEMENT SCHEDULES

		Hamilton 1025			Hamilton on Main Apartments			Hamilton Place Sales		Total
2008 Balance Sheet
ASSETS
Rental Properties		$	6,628,614		$	25,212,271		—		$	31,840,886
Cash & Cash Equivalents		164,181			5,972			—		170,152
Rent Receivable		(94		)	1,524			—		1,430
Real Estate Tax Escrow		41,079			94,937			—		136,016
Due From Joint Venture		90,000			230,000			—		320,000
Prepaid Expenses & Other Assets		63,631			352,429			—		416,059
Financing & Leasing Fees		39,751			43,250			—		83,001
Total Assets		$	7,027,162		$	25,940,382		—		$	32,967,544
LIABILITIES AND PARTNERS’ CAPITAL
Mortgage Notes Payable		$	5,000,000		$	16,640,374		—		$	21,640,374
Accounts Payable& Accrued Exp		7,827			171,783			—		179,610
Advance Rental Payments & Security Deposits		58,125			190,620			—		248,745
Total Liabilities		5,065,952			17,002,777			—		22,068,729
Partners’ Capital		1,961,209			8,937,605			—		10,898,815
Total Liabilities and Capital		7,027,162			25,940,382			—		32,967,544
Partners’ Capital—NERA 50%		$	980,605		$	4,468,803		—		$	5,449,407

		Hamilton 1025			Hamilton on Main Apartments			Hamilton Place Sales			Total
2008 Income Statement
Revenues
Rental Income		$	795,927		$	2,353,792		$	1,747		$	3,151,466
Laundry and Sundry Income		—			19,505			—			19,505
		795,927			2,373,297			1,747			3,170,971
Expenses
Administrative		18,376			56,078			3,839			78,292
Depreciation and Amortization		363,898			1,549,671			7,019			1,920,588
Management Fees		31,868			97,527			51			129,445
Operating		1,461			362,065			214			363,740
Renting		5,416			30,794			—			36,210
Repairs and Maintenance		325,415			408,826			5,828			740,069
Taxes and Insurance		125,898			316,355			4,861			447,113
		872,332			2,821,316			21,811			3,715,458
Income Before Other Income		(76,404		)	(448,019		)	(20,064		)	(544,487		)
Other Income (loss)
Interest Income		705			1,484			2,640			4,829
Interest Expense		(289,626		)	(887,633		)	(7		)	(1,177,265		)
Gain on Sale of Real Estate		172,993			12,925			335,124			521,042
		(115,928		)	(873,224		)	337,757			(651,394		)
Net Income (Loss)		(192,332		)	(1,321,242		)	317,693			(1,195,881		)
P&L—NERA 50%		(96,166		)	(660,621		)	158,846			(597,941		)

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		Hamilton 1025		Hamilton on Main Apartments		Hamilton Place Sales		Total
2008 Cash Flow Statement
Cash Flows from Operating Activities
Net Income (loss)		(192,332	)	(1,321,242	)	317,693		(1,195,881	)
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Gain on sale of condominiums		(172,993	)	(12,925	)	(335,124	)	(521,042	)
Depreciation and amortization		363,898		1,549,671		7,019		1,920,588
Rent Supplement		(3,245	)	—		—		(3,245	)
Changes in operating assets and liabilities:
(Increase) Decrease in rents receivable		(405	)	8,424		102		8,121
Decrease in accounts payable and accrued expenses		68		45,962		(11,814	)	34,216
(Increase)in real estate tax escrow		5,996		321,776		—		327,772
(Decrease) in due from joint venture		707,704		164,298		304,281		1,176,283
Decrease in financing and leasing fees		5,026		8,696		3,690		17,412
Decrease in prepaid expenses and other assets		226		(32,624	)	706		(31,692	)
(Decrease) increase in advance rental payments and security deposits		(4,778	)	37,671		(1,318	)	31,575
Total adjustments		901,497		2,090,949		(32,458	)	2,959,988
Net cash provided by (used in)operating activities		709,165		769,707		285,235		1,764,107
Cash flows provided by (used in) investing activities
Proceeds from sales of condominiums		480,500		15,000		1,589,000		2,084,500
Purchase and improvement of rental properties		(59,675	)	(134,590	)	(163,818	)	(358,084	)
Net cash provided by (used in) investing activities		420,825		(119,590	)	1,425,182		1,726,416
Cash flows provided by (used in) Financing activities
Principal payments of mortgage & notes payable		—		(184,626	)	—		(184,626	)
Distributions to investors		(1,230,000	)	(305,000	)	(2,120,000	)	(3,655,000	)
Net cash used in financing activities		(1,230,000	)	(489,626	)	(2,120,000	)	(3,839,626	)
Net increase (decrease) in cash and cash equivalents		(100,010	)	160,491		(409,583	)	(349,102	)
Cash and cash equivalents, at beginning of year		105,981		3,690		409,583		519,254
Cash and cash equivalents, at end of year		5,971		164,181		—		170,152

14

HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND

HAMILTON 1025 LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2008

NOTE 12. COMBINING FINANCIAL STATEMENT SCHEDULES (CONTINUED)

		Hamilton 1025		Hamilton on Main Apartments		Hamilton Place Sales		Total
2007 Balance Sheet
ASSETS
Rental Properties		7,193,537		25,498,116		2,069,379		34,761,032
Cash & Cash Equivalents		105,981		3,690		409,583		519,254
Rent Receivable		(499	)	9,948		102		9,550
Real Estate Tax Escrow		47,075		416,713		—		463,787
Due From Joint Venture		999,927		(430,591	)	1,130,591		1,699,927
Prepaid Expenses & Other Assets		63,405		319,805		706		383,917
Financing & Leasing Fees		44,777		51,946		3,068		99,791
Total Assets		8,454,203		25,869,625		3,613,430		37,937,258
LIABILITIES AND PARTNERS’ CAPITAL
Mortgage Notes Payable		5,000,000		16,825,000		—		21,825,000
Accounts Payable& Accrued Exp		7,759		125,821		11,814		145,394
Advance Rental Payments & Security Deposits		62,903		152,948		1,318		217,169
Total Liabilities		5,070,662		17,103,769		13,132		22,187,563
Partners’ Capital		3,383,543		8,765,854		3,600,298		15,749,695
Total Liabilities and Capital		8,454,205		25,869,623		3,613,430		37,937,258
Partners’ Capital—NERA 50%		1,691,772		4,382,927		1,800,149		7,874,848

15

		Hamilton 1025		Hamilton on Main Apartments		Hamilton Place Sales		Total
2007 Income Statement
Revenues
Rental Income		800,740		2,345,736		205,146		3,351,622
Laundry and Sundry Income		—		17,144		—		17,144
		800,740		2,362,880		205,146		3,368,766
Expenses
Administrative		22,818		51,461		16,601		90,880
Depreciation and Amortization		365,576		1,579,843		217,113		2,162,532
Management Fees		35,165		95,218		8,183		138,566
Operating		3,387		305,128		4,869		313,383
Renting		4,927		13,250		—		18,177
Repairs and Maintenance		270,217		351,000		145,255		766,471
Taxes and Insurance		151,350		288,929		76,397		516,676
		853,440		2,684,828		468,418		4,006,686
Income Before Other Income		(52,700	)	(321,948	)	(263,272	)	(637,920	)
Other Income (Loss)
Interest Income		13,437		720		21,458		35,615
Interest Expense		(288,307	)	(887,884	)	(50,151	)	(1,226,342	)
Gain on Sale of Real Estate		764,548		—		1,193,968		1,958,516
Other Income (Expenses)		(37,428	)	—		—		(37,428	)
		452,251		(887,164	)	1,165,275		730,362
Net Income (Loss)		399,551		(1,209,113	)	902,004		92,442
P&L—NERA 50%		199,776		(604,556	)	451,002		46,221

16

		Hamilton 1025		Hamilton on Main Apartments		Hamilton Place Sales		Total
2007 Cash Flow Statement
Cash Flows from Operating Activities
Net Income (loss)		399,551		(1,209,113	)	902,004		92,442
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Gain on sale of condominiums		(764,548	)	—		(1,193,968	)	(1,958,516	)
Depreciation and amortization		365,576		1,579,843		217,113		2,162,532
Rent Supplement		(2,174	)	—		—		(2,174	)
Changes in operating assets and liabilities:
(Increase) Decrease in rents receivable		7,478		(9,948	)	(102	)	(2,572	)
Decrease in accounts payable and accrued expenses		(6,544	)	(23,369	)	(23,588	)	(53,501	)
(Increase)in real estate tax escrow		(16,137	)	(73,557	)	—		(89,694	)
(Increase) in due from joint venture		(999,927	)	430,591		(1,130,591	)	(1,699,927	)
Decrease in financing and leasing fees		—		—		10,039		10,039
Decrease in prepaid expenses and other assets		37,493		3,145		31,721		72,359
(Decrease) increase in advance rental payments and security deposits		(3,270	)	10,912		(17,724	)	(10,082	)
Total adjustments		(1,382,053	)	1,917,617		(2,107,100	)	(1,571,536	)
Net cash provided by (used in)operating activities		(982,502	)	708,504		(1,205,096	)	(1,479,094	)
Cash flows provided by (used in) investing activities
Proceeds from sales of condominiums		2,564,026		—		8,029,768		10,593,794
Purchase and improvement of rental properties		(160,063	)	(111,503	)	(467,864	)	(739,430	)
Net cash provided by (used in) investing activities		2,403,963		(111,503	)	7,561,904		9,854,364
Cash flows provided by (used in) Financing activities
Principal payments from sales proceeds		—		—		(2,380,745	)	(2,380,745	)
Distributions to investors		(1,600,000	)	(600,000	)	(3,600,000	)	(5,800,000	)
Net cash used in financing activities		(1,600,000	)	(600,000	)	(5,980,745	)	(8,180,745	)
Net increase (decrease) in cash and cash equivalents		(178,539	)	(2,999	)	376,063		194,525
Cash and cash equivalents, at beginning of year		284,520		6,689		33,520		324,729
Cash and cash equivalents, at end of year		105,981		3,690		409,583		519,254

17

HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON
1025 LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2008

NOTE 12. COMBINING FINANCIAL STATEMENT SCHEDULES (CONTINUED)

2006 Balance Sheet		Hamilton 1025			Hamilton on Main Apartments			Hamilton Place Sales			Total
ASSETS
Rental Properties		$	9,191,080		$	26,957,758		$	8,644,432		$	44,793,270
Cash and Cash Equivalents		284,520			6,689			33,520			324,729
Rents Receivable		6,979			—			—			6,979
Real Estate Tax Escrows		30,938			343,155			—			374,094
Prepaid Expenses and Other Assets		100,898			322,950			32,427			456,275
Financing and Leasing Fees		50,051			60,642			23,106			133,798
Total Assets		$	9,664,467		$	27,691,193		$	8,733,484		$	46,089,145
LIABILITIES AND JOINT VENTURES’ CAPITAL
Mortgage Notes Payable		$	5,000,000		$	16,825,000		$	2,380,745		$	24,205,745
Accounts Payable and Accrued Expenses		14,303			149,190			35,402			198,896
Advance Rental Payments and Security Deposits		66,173			142,036			19,042			227,251
Total Liabilities		5,080,476			17,116,226			2,435,190			24,631,892
Joint Ventures’ Capital		4,583,992			10,574,967			6,298,294			21,457,253
Total Liabilities and Joint Ventures’ Capital		$	9,664,467		$	27,691,193		$	8,733,484		$	46,089,145
Joint Ventures’ Capital—NERA 50%		$	2,291,996		$	5,287,483		$	3,149,147		$	10,728,627

18

2006 Income Statement		Hamilton 1025			Hamilton on Main Apartments			Hamilton Place Sales			Total
Revenues
Rental Income		$	912,639		$	2,323,773		$	582,856		$	3,819,267
Laundry and Sundry Income		15,782			40,256			—			56,038
		928,421			2,364,029			582,856			3,875,306
Expenses
Administrative		85,710			64,496			8,736			158,943
Depreciation and Amortization		478,491			1,439,203			420,114			2,337,808
Management Fees		38,870			95,319			23,025			157,214
Operating		21,190			301,164			11,657			334,011
Renting		15,396			31,249			2,309			48,955
Repairs and Maintenance		442,363			353,424			371,852			1,167,640
Taxes and Insurance		209,530			340,074			168,121			717,725
		1,291,551			2,624,929			1,005,815			4,922,296
(Loss) Before Other Income		(363,130		)	(260,900		)	(422,959		)	(1,046,990		)
Other Income (Loss)
Interest Income		533			(1,933		)	2,240			840
Gain on Sale of Real Estate		1,394,028			—			1,592,211			2,986,239
Other Income (Expenses)		50			—			—			50
Interest Expense		(473,355		)	(887,425		)	(419,270		)	(1,780,049		)
		921,256			(889,358		)	1,175,181			1,207,079
Net Income (Loss)		$	558,126		$	(1,150,259	)	$	752,222		$	160,089
NERA 50%		$	279,063		$	(575,129	)	$	376,111		$	80,045

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2006 Cash Flow Statement		Hamilton 1025			Hamilton on Main Apartments			Hamilton Place Sales			Total
Cash Flows from Operating Activities
Net income (loss)		$	558,126		$	(1,150,259	)	$	752,222		$	160,089
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Gain on sale of condominiums		(1,394,028		)	—			(1,592,211		)	(2,986,239		)
Depreciation and amortization		478,491			1,439,203			420,114			2,337,808
Changes in operating assets and liabilities:
(Increase) Decrease in rents receivable		6,933			11,185			26			18,144
(Decrease) increase in accounts payable and accrued expense		(28,490		)	(18,169		)	(6,037		)	(52,696		)
(Increase) in real estate tax escrow		(30,938		)	(152,070		)	—			(183,008		)
(Increase) decrease in financing and leasing fees		(50,513		)	(2,167		)	10,475			(42,205		)
(Increase) Decrease in prepaid expenses and other assets		107,796			(148,940		)	155,839			114,695
(Decrease) Increase in advance rental payments and security deposits		(10,388		)	7,948			(21,777		)	(24,217		)
Total Adjustments		(921,138		)	1,136,991			(1,033,571		)	(817,718		)
Net cash provided by (used in) operating activities		(363,012		)	(13,268		)	(281,349		)	(657,629		)
Cash Flows Used in Investing Activities
Proceeds from sales of condominiums		4,265,047			—			7,265,599			11,530,646
Transfers between affiliates		—			107,833			(107,833		)	—
Purchase and improvement of rental properties		(259,699		)	(223,090		)	(284,603		)	(767,392		)
Net cash provided by (used in) investing activities		4,005,348			(115,257		)	6,873,163			10,763,254
Cash Flows Used in Financing Activities
Proceeds of mortgage notes payable		5,000,000			—			—			5,000,000
Principal payments of mortgage notes payable		(4,818,886		)	—			—			(4,818,886		)
Principal payments from sales proceeds		(4,432,114		)	—			(6,475,529		)	(10,907,643		)
Transfers between affiliates		—			823,071			(823,071		)	—
Distributions to/investment by investors		(100,000		)	600,000			—			500,000
Net cash provided by (used in) financing activities		(4,351,000		)	1,423,071			(7,298,600		)	(10,226,529		)
Net Increase (Decrease in) Cash and Cash Equivalents		(708,664		)	1,294,546			(706,786		)	(120,904		)
Cash and Cash Equivalents, at beginning of year		993,185			(1,287,856		)	740,305			445,634
Cash and Cash Equivalents, at end of year		$	284,521		$	6,690		$	33,518		$	324,730

20

HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND

HAMILTON 1025 LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2008

NOTE 13. NEW ACCOUNTING PRONOUNCEMENT

In June 2005, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) regarding EITF 04-05, “Investor’s Accounting for an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights.” The conclusion provides a framework for addressing the question of when a sole general partner, as defined in EITF 04-05, should consolidate a limited partnership. The EITF has concluded that the general partner of a limited partnership should consolidate a limited partnership, unless the limited partners have either (a) the substantive ability to dissolve the limited partnership or otherwise remove the general partner without cause, or (b) substantive participating rights. In addition, the EITF concluded that the guidance should be expanded to include all limited partnerships, including those with multiple general partners. We adopted EITF 04-05 as of January 1, 2006. We have assessed our investments in unconsolidated real estate joint ventures and have determined that EITF 04-05 did not have an impact on our financial condition or results of operations.

Fair Value Measurements—SFAS 157 & The Fair Value Option for Financial Assets and Financial Liabilities—SFAS 159, and FASB Staff Position No. 157-2

Effective January 1, 2008, the Partnership adopted Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS 157) and SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). SFAS 157 defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States (GAAP) and enhances disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The impact of adopting both SFAS 157 and SFAS 159 was immaterial to the Partnership.

In February 2008, the FASB issued FASB Staff Position 157-2, which deferred the effective date of SFAS 157 for one-year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value on a nonrecurring basis. SFAS 157 is now effective for those assets and liabilities for years beginning after November 15, 2008.

FASB Statement No. 141(R)—(revised 2007), (“FASB No. 141(R)”), Business Combinations

In December 2007, the FASB issued FASB No. 141(R) which establishes principles and requirements for how the acquirer shall recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed, any noncontrolling interest in the acquiree and goodwill acquired in a business combination. This statement is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

FASB Statement No. 160 (“FASB No. 160”), Noncontrolling Interests in Consolidated Financial Statements—an Amendment of ARB No. 51

21

In December 2007, the FASB issued No. 160, which establishes and expands accounting and reporting standards for minority interests, which will be recharacterized as noncontrolling interests, in a subsidiary and the deconsolidation of a subsidiary. FASB 160 is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. This statement is effective for fiscal years beginning on or after December 15, 2008. The Partnership is currently assessing the potential impact that the adoption of FASB No. 160 will have on its financial position and results of operations.

FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets

The FASB Staff Position (FSP) No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible assets under FASB Statement No. 142, Goodwill and Other Intangible Assets. The intent of the FSP is to improve the consistency between the useful life of a recognized intangible asset under FASB No. 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141 (revised 2007), Business Combinations, and other U.S. generally accepted accounting principles. The FSP shall be effective be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The guidance for determining the useful life of a recognized intangible asset if this FSP shall be applied prospectively to intangible assets acquired after the effective date. The disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The Partnership does not believe that the adoption of this FSP will have a material effect on the financial position and results of operations.

FASB Staff Position No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active

In October 2008, the FASB issued Staff Position No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (“FSP 157-3”). FSP 157-3 clarified the application of SFAS 157 in cases where a market is not active. FSB 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The Partnership has considered the guidance provided by FSP 157-3 in its determination of estimated fair values as of December 31, 2008, and the impact was not material.

FASB Statement No. 161 (“FASB No. 161”), Disclosures about Derivative Instruments and Hedging Activities—an Amendment of FASB Statement No. 133

In March 2008, the FASB issued FASB No. 161. FASB No. 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. FASB No. 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of SFAS 133 have been applied, and the impact that hedges have on an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Partnership does not anticipate the adoption of SFAS 161 will have a material impact on the disclosures contained in its financial statements.

In May 2008, the FASB issued SFAS no. 162, “The Hierarchy of Generally Accepted Accounting Principles.”  SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States.  We do not expect any significant changes to our financial accounting and reporting as a result of the issuance of SFAS No. 162.

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