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Item 7. Management’s Discussion and Analysis

2024-03-14 compared with 2023-03-13 · 92 added, 146 removed, 296 unchanged (45% of the section changed)

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Forward Looking Statements

Certain information contained herein includes forward looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Liquidation Reform Act of 1995 (the “Act”).

Certain information contained herein includes forward looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Liquidation Reform Act of 1995.

Forward looking statements in this report, or which management may make orally or in written form from time to time, reflect management’s good faith belief when those statements are made, and are based on information currently available to management.

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Accordingly, investors should use caution in relying on past forward looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.

Along with risks detailed in Item 1A and from time to time in the Partnership’s filings with the Securities and Exchange Commission, some factors that could cause the Partnership’s actual results, performance or achievements to differ materially from those expressed or implied by forward looking statements include but are not limited to the following:

Along with risks detailed in Item “1A Risk Factors” and from time to time in the Partnership’s filings with the Securities and Exchange Commission, some factors that could cause the Partnership’s actual results, performance or achievements to differ materially from those expressed or implied by forward looking statements include but are not limited to the following:

● The Partnership depends on the real estate markets where its properties are located, primarily in Eastern Massachusetts, and these markets may be adversely affected by local economic market conditions, which are beyond the Partnership’s control.

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● Ongoing compliance with Sarbanes-Oxley Act of 2002 may require additional personnel or systems changes.

The foregoing factors should not be construed as exhaustive or as an admission regarding the adequacy of disclosures made by the Partnership prior to the date hereof or the effectiveness of said Act.

The foregoing factors should not be construed as exhaustive or as an admission regarding the adequacy of disclosures made by the Partnership.

The Partnership expressly disclaims any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Over the past year, the Partnership took advantage of the low interest rate environment and refinanced fifteen properties, increased their loan balances, and raised approximately $130,000,000.

With interest rates rising, and a threat of an economic slowdown, the Partnership increased the debt level and built cash reserves to acquire additional properties when opportunities become available.

Currently, approximately $88,000,000 of these reserves are invested in short-term US Treasury bills maturing in 6 months or less with interest rates between 2.74% and 4.60%.

Since the Partnership’s long-term goals include the acquisition of additional properties, a portion of the proceeds from the refinancing and sale of properties is reserved for this purpose.

If available acquisitions do not meet the Partnership’s investment criteria, the Partnership may purchase additional depositary receipts.

The Partnership will consider refinancing existing properties if the Partnership’s cash reserves are insufficient to repay existing mortgages or if the Partnership needs additional funds for future acquisitions.

On February 24, 2019, Harold Brown, the owner of 75% of the outstanding voting securities of NewReal, Inc.

(“NewReal”), the general partner of New England Realty Associates Limited Partnership, passed away.

As a result, the estate of Harold Brown currently holds voting control over the NewReal shares.

At February 1, 2023, Harold Brown related entities and Ronald Brown collectively own approximately 31.8% of the Depositary Receipts representing the Partnership Class A Units (including Depositary Receipts held by trusts for the benefit of such persons’ family members).

Harold Brown related entities also control 75% of the Partnership’s Class B Units, and 75% of the capital stock of NewReal, the Partnership’s sole general partner.

Ronald Brown also owns 25% of the Partnership’s Class B Units and 25% of NewReal’s capital stock.

In addition, Ronald Brown is the President and director of NewReal and Jameson Brown is NewReal’s Treasurer and a director.

The 75% of the issued and outstanding Class B units of the Partnership, are owned by HBC Holdings LLC, an entity of which Jameson Brown is the manager.

As a result, the estate of Harold Brown held voting control over the capital stock of NewReal.

On January 2, 2024, the estate was settled, with Jameson Brown and Harley Brown each assuming 37.5% ownership in NewReal.

As of February 1, 2024, the Brown family related entities and Ronald Brown collectively own approximately 32.4% of the Depositary Receipts representing the Partnership Class A Units (including Depositary Receipts held by trusts for the benefit of such persons’ family members).

Brown family related entities also control 75% of the Partnership’s Class B Units, and 75% of the capital stock of NewReal, the Partnership’s sole general partner.

Ronald Brown also owns 25% of the Partnership’s Class B Units and 25% of the capital stock of NewReal.

In addition, Ronald Brown is the President and a director of NewReal and Jameson Brown is Treasurer and a director of NewReal.

Moreover, 75% of the issued and outstanding

Class B units of the Partnership are owned by HBC Holdings LLC, an entity of which Jameson Brown is the manager.

The outstanding stock of The Hamilton Company, Inc.

is controlled by Jameson Brown and Harley Brown.

The 75% of the issued and outstanding capital stock of NewReal, is owned by the Harold Brown 2013 Revocable Trust (the “2013 Trust”), an entity of which Sally Michaels and David Reier are the trustees.

As reported on Form 8-K dated October 1, 2021, Robert Somma, a trustee of the 2013 Trust, passed away.

Reier replaced him as trustee of the 2013 Trust.

Reier was elected on November 5, 2021 as a director of New Real, Inc.

Effective as of May 3, 2019, the Board of Directors of New Real elected Andrew Bloch as a member of the Board.

Bloch was the Co-CEO and CFO of the Hamilton Company, Inc.

the Manager of the Partnership’s properties.

On December 5, 2022, Mr.

Bloch resigned as Chief Financial Officer.

Bloch will continue to work with Hamilton on a consultative basis to ensure a smooth transition of responsibilities to the new CFO.

Bloch remains a director of the General Partner, and of the Management Company.

Effective as of December 5, 2022, the Board of Directors of the Management Company elected Karen N.

Zermani as CFO of the Management Company to fill the vacancy created by the resignation of Mr.

Bloch as CFO.

Harps, a director of NewReal, retired as a director of NewReal effective March 14, 2022.

On April 25, 2022, Martina N.

Alibrandi was appointed to the Board of Directors of NewReal and as a member of the Audit Committee of the NewReal Board.

In the fiscal year ended December 31, 2022, the Partnership took advantage of the low interest rate environment and refinanced fifteen properties, increased their loan balances, and raised approximately $130,000,000.

Currently, approximately $84,000,000 of these reserves are invested in short-term US Treasury bills maturing in 6 months or less with interest rates between 5.29% and 5.45%.

Since the Partnership’s long-term goals include the acquisition of additional properties, a portion of the proceeds from the refinancing and sale of properties is reserved for this purpose.

If available acquisitions do not meet the Partnerhip’s investment criteria, the Partnership may purchase additional Depositary Receipts.

The vacancy rate for the Partnership’s residential properties as of February 1, 2024 was 0.9% as compared with a vacancy rate of 1.9% as of February 1, 2023.

The vacancy rate for the Joint Venture properties as of February 1, 2024 was 2.2%, as compared to 1.7% for the same period last year.

The current vacancy rates are in line with those experienced prior to the Pandemic.

The current vacancy rates are in line with those experienced prior to the Covid-19 Pandemic.

Residential tenants generally have lease terms of 12 months.

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For 2023, management expects the local real estate market to remain strong as we move from the winter into the spring rental season.

For the year ending December 31, 2022, consolidated revenue increased by 8.7%, operating expenses increased by 3.7% and Income before Other Income (Expense) increased by 27.0%.

For the fourth quarter of 2022, consolidated revenue increased by 7.9%, operating expenses decreased by 3.7% and Income before Other Income (Expense) increased by 65.3%, as compared to the fourth quarter of 2021.

The Partnership purchased a commercial retail property of approximately 20,700 square feet, located at 653 Worcester Road in Framingham, Massachusetts for approximately $10,151,000 on January 18, 2023.

This acquisition was funded from the Partnership’s cash reserves and closing costs were approximately $59,000.

From the purchase price, the Partnership allocated approximately $585,000 for in- place leases, and approximately $378,000 to the value of tenant relationships.

These amounts are being amortized over 12 and 156 months respectively.

On July 14, 2023, the Partnership purchased a 52 unit mixed use property in the South End neighborhood of Boston, MA comprised of three buildings at 26-30 Rutland Street, 105-117 West Concord Street and 475 Shawmut Avenue, and approximately 3,400 square feet of commercial space for a purchase price of approximately $27,500,000.

This acquisition was funded from the Partnership’s cash reserves and closing costs were approximately $81,000.

From the purchase price, the Partnership allocated approximately $525,000 for in-place leases, approximately $61,000 to the value of tenant relationships and $241,000 to the value of below-market leases.

These amounts are being amortized over 12 and 36 months respectively.

For the year ending December 31, 2023, excluding the increase in income and expense from 653 Worcester Road and the Shawmut Apartments, consolidated revenue increased by 6.8%, operating expenses increased by 6.1% (including impairment) and Income before Other Income (Expense) increased by 7.5%.

For the fourth quarter of 2023, excluding the increase in income and expense from 653 Worcester Road and the Shawmut Apartments, consolidated revenue increased by 8.6%, operating expenses increased by 11.9 % and Income before Other Income (Expense) decreased by 4.8 %, as compared to the fourth quarter of 2022.

On November 30, 2021, New England Realty Associates Limited Partnership (the “Partnership”), entered into a Master Credit Facility Agreement ( the “Facility Agreement”) with KeyBank National Association (“KeyBank”) dated as of November 30, 2021, with an initial advance in the amount of $156,000,000.

Interest only on the debt at a fixed interest rate of 2.97% is payable on a monthly basis through December 31, 2031.

The Partnership’s obligations under the Facility Agreement are secured by mortgages on certain properties pursuant to certain Mortgage, Assignment of Leases and

Rents, and Security Agreement and Fixture Filings (“Mortgages ”).

Interest only on the debt at a fixed interest

rate of 2.97% is payable on a monthly basis through December 31, 2031.

The Partnership’s obligations under the Facility Agreement are secured by mortgages on certain properties pursuant to certain Mortgage, Assignment of Leases and Rents, and Security Agreement and Fixture Filings (“Mortgages ”).

See schedule in Note 5, Mortgage Notes Payable, for the details of the transaction as it relates to the specific properties.

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The agreement also allows for an earn out of up to an additional $1,495,453.86 once the property performance reaches a 1.35x debt service coverage ratio and the loan to value equates to at most 65%.

On March 31, 2020, Nera Brookside Associates, LLC (“Brookside Apartments”), entered into a Mortgage Note with KeyBank National Associates (KeyBank) in the principal amount of $6,175,000.

Interest only payments on the Note are payable on a monthly basis at a fixed interest rate of 3.53% per annum, and the principal amount of the Note is due and payable on April 1, 2035.

The Note is secured by a mortgage on the Brookside apartment complex located at 5-12 Totman Drive, Woburn, Massachusetts pursuant to a Mortgage, Assignment of Leases and Rents and Security Agreement dated March 31, 2020.

The Note is guaranteed by the Partnership pursuant to a Guaranty Agreement dated March 31, 2020.

Brookside Apartments used the proceeds of the loan to pay off an outstanding loan of approximately $2,390,000, with the remaining portion of the proceeds added to cash reserves.

In connection with this refinancing, there were closing costs of approximately $136,000.

On July 31, 2014, the Partnership entered into an agreement for a $25,000,000 revolving line of credit.

The term of the line is three years with a floating interest rate equal to a base rate of the greater of (a) the Prime Rate (b) the Federal Funds Rate plus one-half of one percent per annum, or (c) the LIBOR Rate for a period of one month plus 1% per annum, plus an applicable margin of 2.5%.

The agreement originally expired on July 31, 2017, and was subsequently extended until October 31, 2020.The costs associated with the line of credit extension were approximately $128,000.

The agreement originally expired on July 31, 2017, and was subsequently extended until October 31, 2020.

The costs associated with the line of credit extension were approximately $128,000.

On October 29, 2021, t he Partnership closed on the modification of its existing line of credit.

The agreement extends the credit line for three years until October 29, 2024.

The agreement extended the line of credit.until October 29, 2024.

The commitment amount is for $25 million but is restricted to $17 million during the modification period.

The modification period covers the current period and phases out by December 31, 2022.

During this period, the loan covenants are modified from a minimum consolidated debt service ratio of 1.60 to a ratio of 1.35 until September 30, 2022;

The modification period was phased out by December 31, 2022.

During this period, the loan covenants were modified from a minimum consolidated debt service ratio of 1.60 to a ratio of 1.35 until September 30, 2022;

from a minimum tangible net worth requirement of $200 million to a net worth of $175 million until September 30, 2022;

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Consequently, as of December 31,2023, the Partnership did not comply with the debt yield financial covenant.

As such, the Partnership is restricted from drawing down any amount from the

line of credit until the Partnership meets the required financial covenants.

The Stock Repurchase Program that was initiated in 2007 has purchased 1,488,460 Depositary Receipts through December 31, 2022, or approximately 34% of the outstanding Class A Depositary Receipts.

As such, the Partnership is restricted from drawing down any amount from the line of credit until the Partnership meets the required financial covenants.

The Partnership is currently in discussions with a lender for a replacement of the line of credit.

See Note 19, Subsequent Events, for additional information.

The Repurchase Program that was initiated in 2007 has purchased 1,532,234 Depositary Receipts through December 31, 2023, or approximately 35% of the outstanding Depositary Receipts.

The Partnership purchased 43,774 Depositary Receipts in 2023.

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As always, management continues to weigh investment alternatives of stock repurchase, new property acquisitions and dispositions when considering its cash balances and performance of the portfolio.

Given the economic uncertainty caused by the coronavirus issue, as of April 15, 2020, the Partnership elected to temporarily suspend the repurchase program, With the improving economic outlook and the return of students to universities in the Greater Boston area in the fall of 2021, the repurchase program was reinstated in November of 2021.

The Partnership has retained the Hamilton Company (“Hamilton”) to manage and administer the Partnership’s and Joint Ventures’ Properties.

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The Partnership’s Second Amended and Restated Contract of Limited Partnership (the “Partnership Agreement”) expressly provides that the general partner may employ a management company to manage the properties, and that such management company may be paid a fee of up to 4% of rental receipts for administrative and management services (the “Management Fee”).

The Partnership pays Hamilton the full annual Management Fee, in monthly installments.

In addition to the Management Fee, the Partnership Agreement further provides for the employment of outside professionals to provide services to the Partnership and allows NewReal to charge the Partnership for the cost of employing professionals to assist with the administration of the Partnership’s properties.

The Partnership pays Hamilton the annual Management Fee in monthly installments.

In addition to the Management Fee, the Partnership Agreement further provides for the employment of outside professionals to provide services to the Partnership and allows the General Partner to charge the Partnership for the cost of employing professionals to assist with the administration of the Partnership’s properties.

Additionally, from time to time, the Partnership pays Hamilton for repairs and maintenance services, legal services, construction services and accounting services.

The costs charged by Hamilton for these services are at the same hourly rate charged to all entities managed by Hamilton, and management believes such rates are competitive in the marketplace.

In 2022, tenant renewals were approximately 69% with an average rental increase of approximately 6.3 %, new leases accounted for approximately 31% with rental rate increases of approximately 15.4%.

In 2022, leasing commissions were approximately $334,000 compared to approximately $835,000 in 2021, a decrease of approximately $501,000 (60.0%) from 2021.

Tenant concessions were approximately $50,000 in 2022 compared to approximately $50,000 in 2021.Tenant improvements were approximately $2,333,000 in 2022 compared to approximately $1,991,000 in 2021, an increase of approximately $342,000 (17.2%).

In 2023, tenant renewals were approximately 71% with an average rental increase of approximately 6.1%.

New leases accounted for approximately 29% with rental rate increases of approximately 8.9%.In 2023, leasing commissions were approximately $545,000 compared to approximately $334,000 in 2022, an increase of approximately $211,000 (63.2%) from 2022.Tenant concessions were approximately $68,000 in 2023 compared to approximately $50,000 in 2022, an increase of approximately $18,000 (36.0%).

Tenant improvements, excluding any improvements at 653 Worcester Road and the Shawmut Apartments, were approximately $3,471,000 in 2023 compared to approximately $2,333,000 in 2022, an increase of approximately $1,138,000 (48.8%).

Hamilton accounted for approximately 2.0% of the repair and maintenance expense paid for by the Partnership in the year ended December 31, 2023 and 2.3% in the year ended December 31, 2022.

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Hamilton’s legal department handles most of the Partnership’s eviction and collection matters.

Additionally, it prepares most long-term commercial lease agreements and represents the Partnership in selected purchase and sale transactions.

Additionally, Hamilton prepares most long-term commercial lease agreements and represents the Partnership in selected purchase and sale transactions.

Overall, Hamilton provided approximately 63.9% and 70.7% of the legal services paid for by the Partnership during the years ended December 31, 2023 and 2022, respectively.

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The capitalized above-market lease amounts are accounted for as a reduction of base rental revenue over the remaining term of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed-rate renewal options of the respective leases.

Under this standard, the Partnership evaluates the non-lease components (lease arrangements that include common area maintenance services) with related lease components (lease revenues).

The Partnership evaluates the non-lease components (lease arrangements that include common area maintenance services) with related lease components (lease revenues).

If both the timing and pattern of transfer are the same for the non-lease component and related lease component, the lease component is the predominant component.

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When assets are identified by management as held for sale, the Partnership discontinues depreciating the assets and estimates the sales price, net of selling costs, of such assets.

The Partnership generally considers assets to be held for sale when the transaction has received appropriate corporate authority, and there

are no significant contingencies relating to the sale.

The Partnership generally considers assets to be held for sale when the transaction has received appropriate corporate authority, and there are no significant contingencies relating to the sale.

If, in management’s opinion, the estimated net sales price, net of selling costs, of the assets which have been identified as held for sale is less than the carrying value of the assets, a valuation allowance is established.

If circumstances arise that previously were considered unlikely and, as a result, the Partnership decides not to sell a property previously classified as held for sale, the property is reclassified as held and used.

A property that is reclassified is measured and recorded individually at the lower of (a) its carrying value before the property was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the property been continuously classified as held and used, or (b) the fair value at the date of the subsequent decision not to sell.

A property that is

reclassified is measured and recorded individually at the lower of (a) its carrying value before the property was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the property been continuously classified as held and used, or (b) the fair value at the date of the subsequent decision not to sell.

Rental Properties:

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To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the property over the fair value of the property.

The Partnership’s estimates of aggregate future cash flows expected to be generated by each property are based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates,

and costs to operate each property.

As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the future cash flows estimated by management in its impairment analysis may not be achieved.

Investments in Joint Ventures:

The Partnership accounts for its 40%-50% ownership in the Investment Properties under the equity method of accounting, as it exercises significant influence over, but does not control these entities.

The Partnership accounts for its 40%-50% ownership in the Investment Properties under the equity method of accounting, as it exercises significant influence over, but does not control these

These investments are recorded initially at cost, as Investments in Joint Ventures, and subsequently adjusted for the Partnership’s share in earnings, cash contributions and distributions.

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Taxes and insurance

Property impairment

Income Before Other Income (Expense)

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Other Income (Expense)

Net Income (Loss)

Rental income from continuing operations for the year ended December 31, 2023 was approximately $73,892,000, compared to approximately $67,560,000 for the year ended December 31, 2022, an increase of approximately $6,332,000 (9.4%).

The Partnership Properties with the largest increases in rental income include 62 Boylston Street Apartments, 1144 Commonwealth Apartments, Mill Street Gardens, Westgate Apartments, and Hamilton Green, with increases of approximately $1,891,000, $814,000, $402,000, $341,000 and $302,000, respectively.

Excluding revenues from Walgreen’s and Shawmut’s of approximately $1,753,000, there was an increase of approximately $4,579,000 (6.8%).

The Partnership Properties with the largest increases in rental income include 62 Boylston Street Apartments, 1144 Commonwealth Apartments, Westgate Apartments, Woodland Park, and Hamilton Green, with increases of approximately $769,000, $747,000, $456,000, $339,000 and $294,000, respectively.

Included in rental income is contingent rentals collected on commercial properties.

Contingent rentals include such chares as bill backs of common area maintenance charges, real estate taxes, and utility charges.

Contingent rentals include such charges as bill backs of common area maintenance charges, real estate taxes, and utility charges.

Total expenses from continuing operations for the year ended December 31, 2023 were approximately $55,667,000 compared to approximately $50,205,000 for the year ended December 31, 2022, an increase of approximately $5,461,000 (10.9%).

Factors which contributed to the increase were an increase in Repairs and Maintenance expense of approximately $1,201,000 (11.9%), primarily due to an increase in apartment units turnover costs, an increase in Operating expenses of approximately $853,000 (13.2%), primarily due to an increase in snow removal and utility expense, and an increase in Administrative expense of approximately $255,000 (10.3%), partially due to an increase in professional fees, offset in part by a decrease in Depreciation and Amortization expense of approximately $298,000 (1.8%), due to fully depreciated assets.

Excluding expenses from Walgreen’s and Shawmut’s of approximately $2,388,000, there was an increase of approximately $3,073,000 (6.1%).

Factors which contributed to the increase were an increase in Repairs and Maintenance expense of approximately $2,020,000 (17.9%), primarily due to an increase in apartment units turnover costs, an increase in Taxes and Insurance costs of approximately $600,000 (6.6%), and an increase in Renting expense of approximately $359,000 (56.2%), partially due to an increase in commissions, offset in part by a decrease in Depreciation and Amortization expense of approximately $1,480,000 (9.0%), due to fully depreciated assets.

Interest income for the year ended December 31, 2023, was approximately $4,486,000 compared to approximately $1,055,000 for the year ended December 31, 2022, an increase of approximately $3,431,000.

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Interest expense for the year ended December 31, 2023 was approximately $15,723,000 compared to approximately $15,045,000 for the year ended December 31, 2022, an increase of approximately $678,000 (4.5%), The increase is due to the refinancing of properties, increasing the amount of debt, which increased the interest expense for the period.

In December, 2023, the Partnership received approval from MassHousing to construct a 72 unit apartment building in accordance with Chapter 40B to include 17 affordable units on the Mill Street Development site.

In order to initiate construction, the Partnership expects to demolish the current building structures and start construction in 2024.

No tenants are now occupying the property and with the resulting loss of future cash, management has recorded an impairment charge of approximately $971,000, the net book value of the building for the Mill Street Development property.

In order to comply with the permanent financing requirements for a 40B project, Mill Street Development signed a term sheet for a loan of up to $15 million, to be funded upon completion of the development project.

In addition, Mill Street Development deposited $75,000 into escrow to comply with the 40B project requirement of a cost certification of total development costs upon completion of the project.

At December 31, 2023, the Partnership has between a 40% and 50% ownership interests in seven different Investment Properties.

See a description of these properties included in the section titled Investment Properties as well as Note 14 to the Consolidated Financial Statements for a detail of the financial information of each Investment Property.

As described in Note 15 to the Consolidated Financial Statements, the Partnership’s share of the net income from the Investment Properties was approximately $500,000 for the year ended December 31, 2022, compared to a net loss of approximately $567,000 for the year ended December 31, 2021, an increase in income of approximately $1,067,000 (188.1%).

As described in Note 15 to the Consolidated Financial Statements, the Partnership’s share of the net income from the Investment Properties was approximately $876,000 for the year ended December 31, 2023, compared to net income of approximately $500,000 for the year ended December 31, 2022, an increase in income of approximately $376,000 (75.3%).

This increase is primarily due to rental revenue of approximately $11,132,000 for the year ended December 31, 2023 compared to approximately $10,261,000 for the year ended December 31, 2022, an increase of approximately $871,000 (8.50).%.

Included in the income for the year ended December 31, 2022 is depreciation and amortization expense of approximately $2,593,000.

On November 30, 2021, New England Realty Associates Limited Partnership (the “Partnership”), entered into a Master Credit Facility Agreement (the “Facility Agreement”) with KeyBank National Association (“KeyBank”) dated as of November 30, 2021, with an initial advance in the amount of $156,000,000.

Interest only on the debt at a fixed interest rate of 2.97% is payable on a monthly basis through December 31, 2031.

See schedule in Note 5, Mortgage Notes Payable, for the details of the transaction as it relates to the specific properties.

On June 16, 2022, the Partnership entered into an amendment to the Facility Agreement.

The additional advance under the Amended Agreement is in the amount of $80,284,000, at a fixed interest rate of 4.33%.

The Partnership used the proceeds to pay down approximately $37,065,000 of existing debt secured by four properties, along with approximately $854,000 in prepayment penalties.

The remaining balance of approximately $42,384,000 will be used for general partnership purposes.

On October 14, 2022, the Partnership entered into a loan agreement with Brookline Bank refinancing its loan on 659-665 Worcester Road, Framingham, MA.

The agreement pays down the loan on the existing debt of $5,954,546.14,

extends the maturity until October 14, 2032 at a variable interest rate of the SOFR rate plus 1.7%, interest only for 2 years and amortizing using a thirty-year schedule for the balance of the term.

At closing, the Partnership entered into an interest rate swap contract with Brookline Bank with a notional amount equivalent to the underlying loan principal amortization, resulting in a fixed rate of 4.60% through the expiration of the interest rate swap contract.

The agreement also allows for an earn out of up to an additional $1,495,453.86 once the property performance reaches a 1.35x debt service coverage ratio and the loan to value equates to at most 65%.

As described in Note 5, Mortgage Notes Payable, to the Consolidated Financial Statements, on November 30, 2021, New England Realty Associates Limited Partnership (the “Partnership”), entered into a Master Credit Facility Agreement ( the “Facility Agreement”) with KeyBank National Association (“KeyBank”) dated as of November 30, 2021, with the initial advance in the amount of $156,000,000.

Interest only on the debt at a fixed interest rate of 2.97% is payable on a monthly basis through December 31, 2031.

The Partnership used the proceeds to pay down approximately $65,305,000 of existing debt secured by 11 properties, along with approximately $2,700,000 in prepayment penalties, which is included in other expenses, resulting in a charge to other expense.

This charge had a material effect on the 2021 net income.

The remaining balance of approximately $89,000,000 shall be used for general partnership purposes .

As a result of the changes discussed above, net income for the year ended December 31, 2022 was approximately $3,723,000 compared to a net loss of approximately $2,700,000 for the year ended December 31, 2021, an increase in income of approximately $6,423,000 (237.9%).

As a result of the changes discussed above, net income for the year ended December 31, 2023 was approximately $8,454,000 compared to net income of approximately $3,723,000 for the year ended December 31, 2022, an increase in income of approximately $4,731,000 (127.1%).

Years Ended December 31, 2022 and December 31, 2021

The Partnership and its Subsidiary Partnerships earned income before interest expense, income from investments in unconsolidated joint ventures and other income and loss of approximately $14,242,000 during the year ended December 31, 2021, compared to approximately $14,969,000 for the year ended December 31, 2020, a decrease of approximately $727,000 (4.9%).

The Partnership and its Subsidiary Partnerships earned income before interest expense, income from investments in unconsolidated joint ventures and other income and loss of approximately $18,088,000 during the year ended December 31, 2022, compared to approximately $14,242,000 for the year ended December 31, 2021, an increase of approximately $3,846,000 (27.0%).

The rental activity is summarized as follows:

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Rental income from continuing operations for the year ended December 31, 2022 was approximately $67,560,000, compared to approximately $62,175,000 for the year ended December 31, 2021, an increase of approximately $5,385,000 (8.7%).

Although rental income has increased at other properties, due to the effect of the Covid pandemic there have been a number of properties incurring a decrease in their rental income.

The Partnership Properties with the largest increases in rental income include Hamilton Green, Hamilton Oaks, and Clovelly Apartments, with increases of approximately $227,000, $169,000, and $100,000, respectively.

These are offset by certain properties with the largest decreases in rental income which include 62 Boylston, 1144 Commonwealth, and Woodland Park with decreases of approximately $1,003,000, $329,000, and $146,000, respectively.

Included in rental income is contingent rentals collected on commercial properties.

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Total expenses from continuing operations for the year ended December 31, 2022 were approximately $50,206,000 compared to approximately $48,396,000 for the year ended December 31, 2021, an increase of approximately $1,810,000 (3.7%).

Factors which contributed to the increase were an increase in Repairs and Maintenance expense of approximately $1,288,000, (14.7%), primarily due to a increase in appliance and pool repairs, an increase in Operating expenses of approximately $705,000 (12.2%), primarily due to an increase in utility expense, and an increase in Renting expense of approximately $377,000 (43.6%), partially due to an increase in leasing commission expense, offset in part by a decrease in Depreciation and Amortization expense of approximately $1,740,000 (9.4%), due to fully depreciated assets.

Interest expense for the year ended December 31, 2021 was approximately $13,629,000 compared to approximately $13,705,000 for the year ended December 31, 2020, a decrease of approximately $76,000 (0.6%), primarily due to a decrease in interest expense on the line of credit of approximately $143,000.

Interest income for the year ended December 31, 2022, was approximately $1,055,000 compared to approximately $0 for the year ended December 31, 2021, an increase of approximately $1,055,000.

The increase is due to investments in Treasury Bills which mature over a period less than 180 days, with interest rates between 2.74% to 4.6%.

Interest expense for the year ended December 31, 2022 was approximately $15,045,000 compared to approximately $13,629,000 for the year ended December 31, 2021, an increase of approximately $1,416,000 (10.4%), The increase is due to the refinancing of properties, increasing the amount of debt, which increased the interest expense for the period.

At December 31, 2022, the Partnership has between a 40% and 50% ownership interests in seven different Investment Properties.

As described in Note 15 to the Consolidated Financial Statements, the Partnership’s share of the net loss from the Investment Properties was approximately $567,000 for the year ended December 31, 2021, compared to a net income of approximately $161,000 for the year ended December 31, 2020, a decrease in income of approximately $728,000 (453.0%).

This decrease is primarily due to the decrease in net income at Dexter Park from net income of approximately $105,000 for the year ended December 31, 2020 to a loss of approximately $815,000 for the year ended December 31, 2021, a decrease of $920,000 (876.2%), primarily due to lower rental rates and higher vacancy in early 2021.

This increase is primarily due to rental revenue of approximately $10,261,000 for the year ended December 31, 2022 compared to approximately $9,132,000 for the year ended December 31, 2021, an increase of approximately $1,129,000 (12.40 %).

Included in the income for the year ended December 31, 2022 is depreciation and amortization expense of approximately $2,638,000.

On November 30, 2021, New England Realty Associates Limited Partnership (the “Partnership”), entered into a Master Credit Facility Agreement (the “Facility Agreement”) with KeyBank National Association (“KeyBank”) dated as of November 30, 2021, with an initial advance in the amount of $156,000,000.

Interest only on the debt at a fixed interest rate of 2.97% is payable on a monthly basis through December 31, 2031.

See schedule in Note 5, Mortgage Notes Payable, for the details of the transaction as it relates to the specific properties.

As describe in Note 5, Mortgage Notes Payable, to the Consolidated Financial Statements, on November 30, 2021, New England Realty Associates Limited Partnership (the “Partnership”), entered into a Master Credit Facility Agreement ( the “Facility Agreement”) with KeyBank National Association (“KeyBank”) dated as of November 30, 2021, with the initial advance in the amount of $156,000,000.

Interest only on the debt at a fixed interest rate of 2.97% is payable on a monthly basis through December 31, 2031.

This charge had a material effect on the 2021 net income.

The remaining balance of approximately $89,000,000 shall be used for general partnership purposes.

As a result of the changes discussed above, net loss for the year ended December 31, 2021 was approximately $2,700,000 compared to net income of approximately $1,424,000 for the year ended December 31, 2020, a decrease in income of approximately $4,124,000 (289.5%).

LIQUIDITY AND CAPITAL RESOURCES

The Partnership’s principal source of cash during 2023 was the collection of rents, and interest income generated from the purchase of Treasury Bills.

The Partnership’s principal use of cash during 2023 was the purchase of Treasury Bills and the purchase of two properties:

the commercial property at 653 Worcester Road for approximately $10,000,000, and the purchase of a mixed use property in the South End neighborhood of Boston, MA for approximately $27,500,000.

The Partnership’s principal sources of cash during 2022 was the proceeds from the refinancing of 5 properties for approximately $43,000,000, interest income generated from the purchase of Treasury Bills, and the collection of rents.

In 2021, the principal sources of cash was the proceeds from the refinancing of 11 properties for approximately $156,000,000 and the collection of rents.

The majority of cash and cash equivalents of $18,230,463 at December 31, 2023 and $49,560,723 at December 31, 2022 were held in interest bearing accounts at creditworthy financial institutions.

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Cash (used in) investing activities

Cash provided by financing activities

Cash (used in) provided by financing activities

Repurchase of Depositary Receipts, Class B and General Partner Units

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The change in cash provided by operating activities is due to various factors, including a change in depreciation expense, a change in income and distribution from joint ventures, and other factors.

The decrease in cash used in investing activities is primarily due to improvements to rental properties, and the purchase of Treasury Bills.

in cash used in financing activities is due to the refinancing of 4 properties, the pay down of mortgages, the repurchase of depositary receipts, and distributions.

The decrease in cash used in investing activities is primarily due to improvements to rental properties, and the purchase of new properties.

The change in cash used in financing activities is due to the pay down of mortgages, the repurchase of Depositary Receipts, and distributions to partners.

During 2023, the Partnership and its Subsidiary Partnerships completed improvements to certain of the Properties at a total cost of approximately $9,289,000.

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These sources have been adequate to fully fund improvements.

The most significant improvements were made at Hamilton Oaks, Westside Colonial, 1144 Commonwealth, Captain Parker, Hamilton Green, and River Drive Apartments, at a cost of $1,193,000, $636,000, $566,000, $507,000, $390,000, and $294,000 respectively.

The most significant improvements were made at 1144 Commonwealth, Hamilton Oaks, School Street, Redwood Hills, Westgate Apartments, and Hamilton Green, at a cost of

$1,982,000, $1,687,000, $701,000, $468,000, $431,000, and $421,000 respectively.

The Partnership plans to invest approximately $22,284,000 in capital improvements in 2024.

On November 30, 2021, New England Realty Associates Limited Partnership (the “Partnership”), entered into a Master Credit Facility Agreement (the “Facility Agreement”) with KeyBank National Association (“KeyBank”) dated as of November 30, 2021, with an initial advance in the amount of $156,000,000.

Interest only on the debt at a fixed interest rate of 2.97% is payable on a monthly basis through December 31, 2031.

See schedule in Note 5, Mortgage Notes Payable, for the details of the transaction as it relates to the specific properties.

The Partnership used the proceeds to pay down approximately $65,300,000 of existing debt secured by 11 properties, along with approximately $2,700,000 in prepayment penalties.

The remaining balance of approximately $89,000,000 will be used for general partnership purposes.

On June 16, 2022, the Partnership entered into an amendment to the Facility Agreement.

The additional advance under the Amended Agreement is in the amount of $80,284,000, at a fixed interest rate of 4.33%.

The Partnership used the proceeds to pay down approximately $37,065,000 of existing debt secured by four properties, along with approximately $854,000 in prepayment penalties.

The remaining balance of approximately $42,384,000 will be used for general partnership purposes.

On October 14, 2022, the Partnership entered into a loan agreement with Brookline Bank refinancing its loan on 659-665 Worcester Road, Framingham, MA.

The agreement pays down the loan on the existing debt of $5,954,546.14, extends the maturity until October 14, 2032 at a variable interest rate of the SOFR rate plus 1.7%, interest only for 2 years and amortizing using a thirty-year schedule for the balance of the term.

The agreement also allows for an earn out of up to an additional $1,495,453.86 once the property performance reaches a 1.35x debt service coverage ratio and the loan to value equates to at most 65%.

On March 31, 2020, Nera Brookside Associates, LLC (“Brookside Apartments”), entered into a Mortgage Note with KeyBank National Associates (KeyBank) in the principal amount of $6,175,000.

Interest only payments on the Note are payable on a monthly basis at a fixed interest rate of 3.53% per annum, and the principal amount of the Note is due and payable on April 1, 2035.

The Note is guaranteed by the Partnership pursuant to a Guaranty Agreement dated March 31, 2020.

Brookside Apartments used the proceeds of the loan to pay off an outstanding loan of approximately $2,390,000, with the remaining portion of the proceeds added to cash reserves.

In connection with this refinancing, there were closing costs of approximately $136,000.

During the year ended December 31, 2022, the Partnership received net distributions of approximately $1,945,000 from the investment properties of which $237,000 was from Hamilton on Main and $1,280,000 was from Dexter Park.

In 2022 the Partnership paid a total distribution of an aggregate $76.80 per Unit ($2.56 per Receipt) for a total payment of $9,267,981 in 2022.

In 2021 the Partnership paid a total distribution of an aggregate $38.40 per Unit ($1.28 per Receipt) for a total payment of $4,673,140.

In March 2023, the Partnership approved a quarterly distribution of $9.60 per Unit ($0.32 per Receipt), payable on March 31, 2023.

In addition to the quarterly distribution, there will be a special distribution of $38.40 per Class A unit ($1.28 per Receipt).

This amount includes approximately $10,067,000 toward the development of a 72 unit apartment complex at Mill Street Development.

On December 29, 2023, the Partnership signed a contract with a general contractor, NEI General Contracting, Inc., for the construction of the Mill Street Development project for approximately $29,700,000.

It is anticipated that approximately $10,100,000 will be incurred in 2024 with the balance of $19,600,000 to be incurred in 2025.

Project costs will initially be funded from Partnership reserves, but upon completion, the Partnership anticipates closing on a permanent loan, as required by MassHousing under the Chapter 40B program.

In connection with these requirements, the Partnership received a term sheet from Brookline Bank for a $15,000,000 loan to be funded upon completion of the project, which is currently anticipated in the fourth quarter of 2025.

Line of Credit

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On October 29, 2021, t he Partnership closed on the modification of its existing line of credit.

The agreement extends the credit line for three years until October 29, 2024.

The agreement extended the line of credit until October 29, 2024.

The commitment amount is for $25 million but is restricted to $17 million during the modification period.

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until the Partnership meets the required financial covenants.

The interest rate for the new term is LIBOR plus 300 basis points.

The costs associated with the modification and renewal of the line of credit is approximately $179,000 .

On December 3, 2021, the Partnership paid off the outstanding balance of $17,000,000 on the Line of Credit.

The Partnership is currently in discussions with a lender for a replacement line of credit.

See Note 19, Subsequent Events, for additional information.

After June 30, 2023, the remaining tenors of U.S.-dollar LIBOR ceased publication, prompting the need for an alternative benchmark rate.

On April 14, 2023, the partnership amended the line of credit to convert its base rate of interest from LIBOR to the Secured Overnight Financing Rate (SOFR) plus 10 basis points.

The line of credit may be used for acquisition, refinancing, improvements, working capital and other needs of the Partnership.

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Pledged interests range from 49% to 100% of the Partnership’s ownership interest in the respective entities.

The Partnership paid fees to secure the line of credit.

Any unused balance of the line of credit, prior to the extension on October 29, 2021, was subject to a fee ranging from 15 to 20 basis points per annum.

The Partnership, under the current modification, is no longer subject to this fee.

The Partnership anticipates that cash from operations and interest bearing accounts will be sufficient to fund its current operations, pay distributions, make required debt payments and to finance current improvements to its properties.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis