New England Realty Associates Limited Partnership — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited consolidated financial statements; comparisons are with Q1 2020 unless stated otherwise. The Partnership owns residential, mixed-use and commercial properties in Eastern Massachusetts and Southern New Hampshire, plus interests in seven unconsolidated joint ventures.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $15.09 million | $16.38 million | Down 7.9% |
| Rental income | $14.98 million | $16.25 million | Down 7.8% |
| Operating expenses | $11.69 million | $12.03 million | Down 2.8% |
| Income before other income (expense) | $3.40 million | $4.34 million | Down 21.9% |
| Net income (loss) | $(0.29) million | $1.37 million | Declined $1.66 million |
| Net income (loss) per unit | $(2.42) | $11.23 | |
| Operating cash flow | $4.34 million | $4.23 million |
Income before other income and expense was approximately 22.5% of revenue, versus 26.5% a year earlier; net margin was approximately negative 1.9%, versus 8.4%. These are simple calculations from reported figures.
- Cash and cash equivalents were $20.82 million at March 31, up from $18.65 million at year-end 2020. Cash increased $2.18 million in the quarter.
- Investing cash use was $0.45 million, including $0.63 million of rental-property improvements. Financing cash use was $1.72 million, including $0.55 million of mortgage principal payments and $1.17 million of partner distributions.
- Mortgage notes payable were $282.95 million and the revolving credit line balance was $17.00 million. The mortgage portfolio’s weighted average interest rate was 4.43%. The Partnership reported negative partners’ capital of $42.93 million and total liabilities of $333.06 million.
- Mortgage maturities include approximately $67.01 million in 2023 and $38.30 million in 2024. The Partnership’s proportionate share of unconsolidated joint-venture debt was approximately $71.00 million; this is not included in its consolidated debt balance.
Material changes and operating trends
- Rental income declined by $1.27 million. Management attributed the decrease principally to pandemic-related effects, with the largest property-level declines at 62 Boylston Street (about $759,000), 1144 Commonwealth (about $139,000) and Lincoln Street (about $55,000).
- Operating costs fell overall, largely because depreciation and amortization decreased by $0.66 million and repairs and maintenance decreased by $0.12 million. Operating expenses rose $0.38 million, primarily due to approximately $0.27 million more snow-removal expense.
- The Partnership’s share of joint-venture results shifted to a $0.33 million loss from $0.47 million of income. Management cited a 24.8% decrease in joint-venture rental revenue.
- Allowance for doubtful accounts was $1.27 million at March 31. Management reported that past-due rents had increased.
Outlook, risks and other notable matters
- COVID-19 and leasing: Management said pandemic disruption, remote or hybrid college instruction, and lower student-housing demand had increased vacancies, particularly near Boston colleges. As of May 1, residential vacancy was 6.2%, compared with 3.8% a year earlier; joint-venture vacancy was 9.2%, versus 2.5%. At 62 Boylston Street, 93 units were vacant (34.6%); Dexter Park had 33 vacant units (8.1%).
- Q1 rent collections were approximately 98% at wholly owned properties (98% residential, 99% commercial) and 74% at joint ventures. Management cautioned that first-quarter collections may not indicate future receipts. New leases in Q1 averaged 5.0% lower rents; renewals averaged 0.3% higher. Management was offering reduced rents and concessions, including up to two months free, and expected elevated vacancies into the remainder of 2021 and the first half of 2022. It said rental-market conditions were softening; no quantified earnings guidance was provided.
- Liquidity and credit line: Management expected operating cash to fund current operations, distributions, debt service and planned improvements. The $25 million revolving facility had $17 million drawn. As of April 30, 2021, renewal negotiations were incomplete and the Partnership had exercised a one-year extension, paying an approximately $37,500 fee. The Partnership reported compliance with the facility’s financial covenants at March 31.
- Debt and rate exposure: The Partnership reported approximately $451.23 million of long-term debt across itself, subsidiaries and joint ventures, substantially at fixed rates, and $27 million of variable-rate debt. A 100-basis-point change in variable rates would change annual interest costs by approximately $220,000, assuming interest-rate caps are not in effect. Certain mortgages have prepayment penalties; the Partnership also guarantees certain joint-venture obligations.
- Contingencies and governance: The Partnership reported no material pending legal proceedings. It has related-party management and service arrangements with Hamilton Company, which is owned by the General Partner’s majority shareholder. The Partnership intends to support joint-venture operating deficits if needed, although it says it has no legal obligation to fund them. No material change in internal control over financial reporting was reported.
- The quarterly distribution was $9.60 per unit ($0.32 per Depositary Receipt), paid March 31. The repurchase program remained temporarily suspended; no receipts were repurchased in Q1.
Investor verification priorities
- Track rent collections, delinquency and allowance levels, leasing concessions, vacancy trends and realized rents—especially at 62 Boylston Street and pandemic-sensitive locations.
- Confirm completion and terms of the revolving-credit renewal or extension, covenant compliance, and the capacity to meet upcoming debt maturities.
- Review joint-venture performance, its debt and guarantees, and the Partnership’s recorded losses in excess of investment balances.
- Assess whether operating cash flow can sustain distributions, required debt service and property improvements if vacancies remain elevated.
- Examine related-party management fees, service charges and governance arrangements, alongside the reported negative partners’ capital.