New England Realty Associates Limited Partnership — Q1 2024 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2024, compared with Q1 2023. The Partnership owns residential, mixed-use, and commercial real estate primarily in Eastern Massachusetts and Southern New Hampshire, and holds 40%–50% interests in seven unconsolidated joint ventures. Its consolidated portfolio includes 2,943 apartments, 19 condominium units, and approximately 130,000 square feet of commercial space.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $19.89 million | $17.69 million | +12.4% |
| Income before other income (expense) | $5.75 million | $4.45 million | +29.2% |
| Net income | $3.46 million | $1.75 million | +97.4% |
| Net income per unit | $29.51 | $14.72 | — |
| Net cash from operations | $6.12 million | $1.67 million | — |
Rental income rose 12.2% to $19.71 million; laundry and sundry income increased 48.8% to $183,000. Expenses increased 6.8% to $14.14 million. Renting expense more than doubled to $388,000, primarily reflecting tenant concessions associated with construction disruptions. Interest expense was essentially flat at $3.91 million; interest income rose to $1.18 million, largely from Treasury bills. The reported net margin was approximately 17.4%, versus 9.9% in Q1 2023.
Cash and cash equivalents were $28.80 million at March 31, up from $18.23 million at year-end. Treasury bills were $69.44 million, bringing cash and Treasury bill holdings to approximately $98.25 million. Investing activities provided $12.43 million, primarily as Treasury bill proceeds exceeded purchases; the Partnership also spent $2.11 million on development and $2.40 million on property improvements. Distributions paid were $7.04 million, and mortgage principal payments were $695,000.
Consolidated mortgage notes payable were $408.06 million, net of financing costs, with a weighted-average stated rate of 3.68%; the balance-sheet total liabilities exceeded assets, leaving partners’ capital negative $69.04 million. Separately, the Partnership reports approximately $70.66 million as its proportionate share of non-recourse joint-venture debt. The line of credit had no outstanding balance, but the Partnership could not draw on it at quarter-end because it failed the debt-yield covenant.
Changes versus the prior period
- Revenue growth was driven by higher rents and the contribution of properties acquired in 2023. Excluding 653 Worcester Road and the Shawmut Apartments, management reported revenue growth of 8.7% and operating-expense growth of 3.4%.
- Income from unconsolidated joint ventures increased 93.8% to $441,000. Management attributed the increase primarily to higher joint-venture rental revenue.
- Residential vacancy was 1.2% in early May 2024, down from 2.1% a year earlier; joint-venture vacancy was 1.3%, versus 2.5%.
- Q1 2024 distributions were $2.00 per Depositary Receipt, including a special distribution, versus $1.60 in Q1 2023. A quarterly distribution of $0.40 per receipt was approved for payment June 28, 2024.
Outlook, risks, and notable items
- Management expects a strong rental market and continued rent growth for the balance of 2024. In Q1, renewal rents increased an average 5.8% and new-lease rents 5.4%. Management expects operating cash flow to fund current operations, distributions, and required debt payments. These are expectations, not formal earnings guidance.
- The Mill Street project is planned as a 72-unit building, including 17 affordable units. Estimated total cost is approximately $30 million, with about $10 million expected to be spent in 2024 and $20 million in 2025; completion is anticipated in Q4 2025. A term sheet provides for up to $15 million of permanent financing upon completion.
- The revolving credit facility is scheduled to expire October 29, 2024. Covenant noncompliance currently prevents any draw, and management is discussing a replacement facility with a lender. This financing constraint is a key liquidity risk despite the reported cash and Treasury bill reserves.
- Interest-rate exposure is primarily to fixed-rate debt; the Partnership reports $10 million of variable-rate debt across the Partnership and joint ventures. Management estimates a 100-basis-point rate change would alter annual interest costs on variable-rate debt by approximately $50,000. Most consolidated mortgages bear fixed rates and mature through 2035.
- Management identifies local real-estate conditions, tenant demand and collections, operating and development costs, refinancing availability, interest rates, competition, and environmental or insurance exposures as risks. No material litigation or material changes to the prior annual report’s risk factors were reported.
- A joint venture’s lender had asserted a default related to an ownership transfer at Hamilton on Main Apartments. The lender gave conditional consent in March; amended loan documents were executed April 18, 2024, with a courtesy reduction of half the transfer fee. The Partnership’s share of related costs was approximately $107,000.
- Related-party management and services are provided by The Hamilton Company, an entity controlled by owners of the general partner. Q1 management fees were approximately $789,000; the filing also describes payroll reimbursements and other professional and property-service charges.
Investor verification points
- Confirm the status, terms, and timing of a replacement credit facility before the existing facility expires, and monitor covenant compliance.
- Track Mill Street construction costs, funding, and schedule against the approximately $30 million estimate and expected completion in Q4 2025.
- Assess whether rental growth and low vacancy persist while monitoring concessions, leasing costs, and operating expenses.
- Review mortgage maturities, refinancing needs, and joint-venture debt and guarantees; the filing notes a Partnership guarantee associated with the Dexter Park joint-venture mortgage.
- Reconcile distributions with earnings and cash generation, and consider the negative partners’ capital and the distinction between consolidated debt and joint-venture debt.