New England Realty NEN
December 28, 2002 - 6:24pm EST by
2002 2003
Price: 40.00 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 69 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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New England Realty owns and operates residential apartment buildings in the Boston area. NEN is very cheap stock with a great operating track record. As on November 11, 2002 the company had 2,211 Units and the vacancy rate was 3.2%. New England Realty moved from the NASDAQ to the AMEX recently.

At $40 a share, NEN trades for 7.2x the 3rd quarters annualize AFFO and 6.6x trailing AFFO. The implied Cap. rate if you annualize the 3rd quarter is 12.5% and the implied cap rate on the trailing 4 quarters is 13%. Currently, apartment REITS trade at 11.5x 2002 AFFO and an implied cap rate of 8%. The private market value of NEN is around $80-$85 per share. The General Partner, Harold Brown, is 77 years old and may decide to retire soon. A sale of the company would be a windfall but management hasn’t expressed too much interest in selling. Harold Brown has been actively buying the stock over the last year and he is still active today at these prices.

The company pays a dividend of $2.56 per share, which is a 6.4% yield. NEN doesn’t use much leverage. Currently the net debt of the company is about 1/3 of the value of the real estate.

Risks. The major risk is that the real estate market deteriorates further. Boston is a pretty strong residential market but NEN started to see rents soften in the Q3. About 42% of the rents come from college students. While a lot of their tenants are students, cash flow could decline with market conditions.

Two brothers Harold Brown and Ronald Brown operate the company. Their strategy is to purchase and renovate poorly maintained properties. They have been successful over the last few years. Since 1996 the CAGR of the NOI is in the mid teens and higher for the AFFO.


Strong operating results in the future should drive the stock price higher. The company could also be sold at some point.
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