New England Realty Associates Partnership(NEN) - 2025 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents unaudited financial statements, management's discussion, market risk, and internal controls Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements of New England Realty Associates Limited Partnership (NERA) for the three months ended March 31, 2025, and comparative periods - Financial statements are unaudited and prepared in accordance with GAAP for interim information[8] - They include only normal, recurring adjustments deemed necessary for fair presentation[8] - Results for the three months ended March 31, 2025, are not necessarily indicative of the full fiscal year[11] Consolidated Balance Sheets The consolidated balance sheets show the financial position of NERA and its subsidiaries as of March 31, 2025, and December 31, 2024 Consolidated Balance Sheet Summary | Metric | March 31, 2025 | December 31, 2024 | | :--------------------------------------- | :------------- | :---------------- | | Total Assets | $385,217,652 | $393,508,658 | | Total Liabilities | $456,595,436 | $455,942,560 | | Partners' Capital | $(71,377,784) | $(62,433,902) | | Investment in U.S. Treasury Bills | $58,032,985 | $83,586,405 | | Cash and Cash Equivalents | $30,863,737 | $17,615,940 | Consolidated Statements of Income For the three months ended March 31, 2025, NERA reported an increase in net income compared to the same period in 2024, driven by higher rental income and lower interest expense, despite increased operating expenses Consolidated Income Statement Summary | Metric | 2025 | 2024 | Change | % Change | | :------------------------------------ | :----------- | :----------- | :--------- | :------- | | Revenues | $20,688,894 | $19,893,399 | $795,495 | 4.0% | | Expenses | $14,455,447 | $14,141,625 | $313,822 | 2.2% | | Income Before Other Income (Expense) | $6,233,447 | $5,751,774 | $481,673 | 8.4% | | Net Income | $3,795,719 | $3,463,596 | $332,123 | 9.6% | | Net Income per Unit | $32.53 | $29.51 | $3.02 | 10.2% | - Rental income increased by 4.0% YoY, from $19,710,432 in 2024 to $20,496,120 in 2025[17] - Operating expenses increased by 23.9% YoY, from $2,645,493 in 2024 to $3,278,374 in 2025[17] Consolidated Statements of Comprehensive Income The company reported a comprehensive loss of $129,890 for the three months ended March 31, 2025, a significant decrease from the comprehensive income of $142,034 in the prior year, primarily due to net unrealized losses on derivative instruments for interest rate swaps Consolidated Comprehensive Income Summary | Metric | 2025 | 2024 | | :------------------------------------------------ | :----------- | :----------- | | Net income | $3,795,719 | $3,463,596 | | Net unrealized (loss) gain on derivative instruments for interest rate swaps | $(129,890) | $142,034 | | Comprehensive income | $3,665,829 | $3,605,630 | - Net unrealized loss on derivative instruments for interest rate swaps was $(129,890) in 2025, compared to a gain of $142,034 in 2024[19] Consolidated Statements of Changes in Partners' Capital Partners' Capital decreased from $(62,433,902) at January 1, 2025, to $(71,377,784) at March 31, 2025, primarily due to significant distributions to partners totaling $12,600,657, partially offset by net income Consolidated Changes in Partners' Capital Summary | Item | Amount | | :------------------------------------------------ | :------------- | | Balance January 1, 2025 | $(62,433,902) | | Distribution to Partners | $(12,600,657) | | Stock Buyback | $(9,053) | | Net Income | $3,795,719 | | Net unrealized (loss) on derivative instruments for interest rate swaps | $(129,890) | | Balance March 31, 2025 | $(71,377,784) | - Distributions to partners significantly increased to $12,600,657 in Q1 2025 from $7,038,955 in Q1 2024[21] Consolidated Statements of Cash Flows Net cash provided by operating activities decreased in Q1 2025 compared to Q1 2024, while net cash provided by investing activities significantly increased, largely due to proceeds from U.S. Treasury Bills Consolidated Cash Flow Summary | Cash Flow Activity | 2025 | 2024 | Change | | :------------------------------------ | :----------- | :----------- | :--------- | | Net cash provided by operating activities | $5,477,629 | $6,123,747 | $(646,118) | | Net cash provided by investing activities | $21,196,355 | $12,434,824 | $8,761,531 | | Net cash (used in) provided by financing activities | $(13,426,187) | $(7,987,290) | $(5,438,897) | | Net Increase in Cash and Cash Equivalents | $13,247,797 | $10,571,281 | $2,676,516 | - Proceeds from U.S. Treasury Bills increased to $56,508,589 in 2025 from $55,407,000 in 2024[26] - Distributions to partners increased to $12,600,657 in 2025 from $7,038,955 in 2024[26] Notes to Consolidated Financial Statements This section provides detailed disclosures on the accounting policies, financial instruments, and specific transactions that underpin the consolidated financial statements NOTE 1. SIGNIFICANT ACCOUNTING POLICIES NERA, organized in Massachusetts in 1977, operates as a real estate limited partnership owning 31 properties and minority interests in 7 joint ventures, with financial statements prepared under GAAP requiring management estimates - NERA owns 31 properties (22 residential, 5 mixed-use, 4 commercial) totaling 2,943 apartment units, 19 condominium units, and ~130,000 sq ft commercial space[29] - The Partnership also holds 40-50% interests in 7 residential and mixed-use properties (688 apartment units, 12,500 sq ft commercial space, 50-car parking lot), accounted for using the equity method[29][31] - Revenue recognition for residential and commercial properties is over the lease term, with certain commercial leases accounted for on a straight-line basis[35] - Investments in U.S. Treasury Bills were reclassified to "available for sale" in anticipation of the upcoming purchase of the Hill Estate Properties[47] - The Partnership operates as a single segment, focusing on ownership, operation, and development of multifamily and commercial real estate in Eastern Massachusetts and Southern New Hampshire[48][137] NOTE 2. RENTAL PROPERTIES NERA's rental property portfolio includes 2,943 residential units and 19 condominium units primarily in metropolitan Boston, along with commercial properties in Massachusetts, and is actively developing a 72-unit apartment building at Mill Street Development - NERA owns 2,943 residential apartment units and 19 condominium units in 27 residential and mixed-use complexes, primarily in metropolitan Boston[58] - A 72-unit apartment building is under construction at Mill Street Development in Woburn, MA, with an estimated total cost of $30,000,000 and completion by Q4 2025[60][61] - Total investment in the Mill Street Development project to date is approximately $23,195,000, with an anticipated total investment of $33 million upon completion[61] Rental Property Assets | Asset Category | March 31, 2025 | December 31, 2024 | | :----------------------------- | :------------- | :---------------- | | Land, improvements and parking lots | $101,397,349 | $101,397,349 | | Buildings and improvements | $280,080,887 | $279,272,215 | | Construction in progress | $23,194,891 | $16,758,245 | | Total fixed assets | $469,754,757 | $461,409,491 | | Less: Accumulated depreciation | $(186,757,051) | $(182,892,842) | | Net Rental Properties | $282,997,706 | $278,516,649 | NOTE 3. RELATED PARTY TRANSACTIONS The Hamilton Company, owned by the General Partner's majority shareholders, manages NERA's properties, charging a management fee of 4% (3% on Linewt) of gross rental and laundry income, and NERA also reimburses for payroll and professional services - Management fee paid to The Hamilton Company was approximately $818,000 in Q1 2025, up from $789,000 in Q1 2024[64] - Reimbursement for employee payroll and related expenses was approximately $1,074,000 in Q1 2025, down from $1,100,000 in Q1 2024[66] - Legal fees paid to Saul Ewing Arnstein & Lear LLP (where a Director is a Partner) decreased significantly from $46,000 in Q1 2024 to $9,000 in Q1 2025[68] - The Partnership has 40-50% ownership in seven limited partnerships/LLCs, with other investors including Brown family related entities (47.6%-59%) and Management Company employees[69][113] NOTE 4. PREPAID EXPENSES and OTHER ASSETS Prepaid expenses and other assets primarily include security deposits ($3.54 million), funds held in escrow for future capital improvements ($2.38 million), and intangible assets ($0.32 million net of amortization), along with financing fees for the line of credit - Security deposits included in prepaid expenses and other assets: $3,543,000 (March 31, 2025) vs $3,463,000 (December 31, 2024)[70] - Escrow for future capital improvements: $2,379,000 (March 31, 2025) vs $2,260,000 (December 31, 2024)[70] - Intangible assets (net of accumulated amortization): $322,000 (March 31, 2025) vs $334,000 (December 31, 2024)[71] - Financing fees for the line of credit (net of accumulated amortization): $199,000 (March 31, 2025) vs $217,000 (December 31, 2024)[73] NOTE 5. MORTGAGE NOTES PAYABLE As of March 31, 2025, NERA's mortgage notes payable totaled $405,484,379, secured by first mortgages on properties, with a weighted average interest rate of 3.68%, and the Partnership also has a new $25 million revolving line of credit established in November 2024 - Mortgage Notes Payable: $405,484,379 (March 31, 2025) vs $406,205,910 (December 31, 2024)[14] - Weighted average interest rate on mortgages: 3.68% (March 31, 2025)[74] Mortgage Maturity Schedule | Year | Amount | | :--- | :------------- | | 2026 | $22,056,000 | | 2027 | $6,601,000 | | 2028 | $23,239,000 | | 2029 | $58,851,000 | | 2030 | $814,000 | | Thereafter | $296,228,000 | | Total | $407,789,000 | - New $25,000,000 revolving line of credit established on November 21, 2024, with a floating interest rate (SOFR + 2.5%)[78] - The Partnership was in compliance with all loan covenants for the line of credit as of March 31, 2025[78][153] NOTE 6. ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS As of March 31, 2025, the Partnership held approximately $3.46 million in advance rental payments and $3.54 million in security deposits, both classified as restricted cash - Advance rental payments: $3,457,000 (March 31, 2025)[80] - Security deposits: $3,543,000 (March 31, 2025)[80] - Both advance rental payments and security deposits are considered restricted cash[80] NOTE 7. PARTNERS' CAPITAL The Partnership has Class A, Class B, and General Partner units with equal profit-sharing and distribution rights proportionate to ownership, and in March 2025, a quarterly distribution of $12.00 per unit and a special distribution of $96.00 per Class A unit were approved - Class B and General Partnership units receive 19% and 1% of total distributions, respectively[81] - March 2025 distributions: $12.00 per Unit quarterly ($0.40 per Receipt) plus a special distribution of $96.00 per Class A unit ($3.20 per Receipt)[82] Per Unit Financials | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------ | :-------------------------------- | :-------------------------------- | | Net Income per Depositary Receipt | $1.08 | $0.98 | | Distributions per Depositary Receipt | $3.60 | $2.00 | NOTE 8. TREASURY UNITS As of March 31, 2025, the Partnership held 63,553 treasury units, and the General Partner authorized a new equity repurchase program on March 12, 2025, allowing for repurchases up to $5 million or 10% of cash and treasury bills, not exceeding $95 per Depositary Receipt, for 12 months - Total Treasury Units at March 31, 2025: 63,553 (Class A: 50,843; Class B: 12,075; General Partnership: 635)[84] - New Repurchase Plan authorized on March 12, 2025, for up to $5 million or 10% of cash and treasury bills, with a maximum price of $95 per Depositary Receipt, for 12 months[87][155] - From August 20, 2007, through March 31, 2025, the Partnership repurchased 1,550,442 Depositary Receipts at an average price of $32.21 per receipt, totaling approximately $56.1 million[88] - In Q1 2025, 84 Depositary Receipts were purchased at an average price of $80.34 per receipt, costing approximately $6,900[89] NOTE 9. COMMITMENTS AND CONTINGENCIES The Partnership is not currently subject to any material litigation, but has a significant contractual commitment of approximately $30,369,000 related to the ongoing construction of the Mill Street Development project - No material litigation currently threatened or ongoing[90] - Contractual commitment of approximately $30,369,000 for the Mill Street Development construction project[90] NOTE 10. RENTAL INCOME In Q1 2025, 94% of rental income came from residential properties and 6% from commercial properties, with commercial leases having minimum future annual rental income totaling $22.3 million, and Trader Joe's, Blue Pearl, and Walgreen's accounting for approximately 30% of commercial rental income - Residential properties accounted for approximately 94% of rental income in Q1 2025[91] - Commercial properties accounted for approximately 6% of rental income in Q1 2025[91] Future Commercial Lease Income | Year | Commercial Property Leases | | :--- | :------------------------- | | 2026 | $3,567,112 | | 2027 | $3,112,257 | | 2028 | $2,519,739 | | 2029 | $2,160,265 | | 2030 | $1,632,872 | | Thereafter | $9,319,917 | | Total | $22,312,162 | - Trader Joe's, Blue Pearl, and Walgreen's represent approximately 30% of total commercial rental income[91] - Rents receivable are net of an allowance for doubtful accounts of approximately $1,009,000 (March 31, 2025) and $1,085,000 (December 31, 2024)[93] NOTE 11. CASH FLOW INFORMATION Cash paid for interest in Q1 2025 was approximately $3.70 million, and for state income taxes was $82,000, with non-cash investing activities including $3.64 million in construction in progress through accounts payable and accruals, and $149,000 in capitalized interest - Cash paid for interest: $3,696,000 (Q1 2025) vs $3,814,000 (Q1 2024)[94] - Cash paid for state income taxes: $82,000 (Q1 2025) vs $53,000 (Q1 2024)[94] - Non-cash investing activity: $3,643,000 for construction in progress through accounts payable and accruals in 2025[94] - Interest capitalized: $149,000 for Q1 2025[94] NOTE 12. FAIR VALUE MEASUREMENTS The Partnership does not have significant financial assets or liabilities measured at fair value on a recurring basis, with carrying amounts of short-term instruments approximating fair value, and mortgage payable fair values estimated by discounting future cash flows, showing a significant difference from carrying values due to interest rate changes - No significant financial assets or liabilities measured at fair value on a recurring basis[95] - U.S. Treasury bills reclassified to "available for sale" are carried at amortized cost, approximating fair value[97] Mortgage Fair Value vs. Carrying Value | Item | Carrying Value | Fair Value | | :---------------------- | :------------- | :------------- | | Mortgage payable - Partnership properties | $405,484,379 | $355,043,778 | | Mortgage payable - Investment properties | $172,254,789 | $163,319,352 | | Total Liabilities | $577,739,168 | $518,363,130 | - The difference between carrying and fair value of debt is due to changes in interest rates and borrowing spreads[100] NOTE 13. DERIVATIVE FINANCIAL INSTRUMENTS NERA uses interest rate swaps as cash flow hedges to manage interest rate risk, with changes in fair value recorded in accumulated other comprehensive income and reclassified to interest expense when hedged items affect earnings, and the Partnership estimates $62,000 will be reclassified as a decrease to interest expense in the next 12 months - Uses interest rate swaps as cash flow hedges to manage interest rate risk[103] - Fair value changes of cash flow hedges are recorded in OCI and reclassified to interest expense[104] - Estimated $62,000 will be reclassified as a decrease to interest expense in the next 12 months[104] - As of March 31, 2025, one interest rate swap outstanding with a notional amount of approximately $279,000[106] Derivative Instruments Summary | Instrument | March 31, 2025 | December 31, 2024 | Balance Sheet Location | | :----------------- | :------------- | :---------------- | :----------------------- | | Interest rate swaps | $279,072 | $408,962 | Prepaid Expenses and Other Assets | NOTE 14. TAXABLE INCOME AND TAX BASIS Taxable income differs from financial statement income due to tax-free exchanges, different depreciation methods, and timing differences, with federal taxable income approximately $5.44 million higher than statement income for FY2024, and the federal cumulative tax basis of real estate about $10 million less than the statement basis - Federal taxable income for FY2024 was approximately $21,102,000, which was $5,440,000 more than statement income[109] - Federal cumulative tax basis of real estate at December 31, 2024, was approximately $10,000,000 less than the statement basis[109] - Primary reasons for differences: tax-free exchanges, accelerated depreciation, bonus depreciation, and other timing differences[109] - Tax years generally subject to examination by major tax jurisdictions are from 2021 forward[112] NOTE 15. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES NERA holds 40-50% ownership interests in seven unconsolidated joint ventures, primarily residential apartment complexes, accounted for using the equity method, with several investments having carrying values below zero due to distributions exceeding initial investments, and total mortgage notes payable for these joint ventures was $172,254,789 at March 31, 2025 - NERA has 40-50% ownership in seven joint ventures, primarily residential apartment complexes, with three also investing in commercial property[113] - Several joint ventures (Dexter Park, Hamilton Essex 81, Hamilton Minuteman, Hamilton on Main, 345 Franklin) have carrying values below zero due to distributions[116][117][121] - NERA accounts for these investments using the equity method and intends to fund its share of future operating deficits if needed, despite no legal obligation[116][117][121] Joint Venture Consolidated Financials | Metric | Total | | :------------------------------------------------ | :------------- | | Total Assets | $110,078,871 | | Total Liabilities | $178,960,761 | | Mortgage Notes Payable | $172,254,790 | | Partners' Capital | $(68,881,890) | | Total Investment in Unconsolidated Joint Ventures (Net) | $(29,234,278) | Joint Venture Income Contribution | Joint Venture | Net (Loss) Income | NERA's Share | | :-------------------- | :---------------- | :------------- | | Hamilton Essex 81 | $(14,318) | $(7,159) | | Hamilton Essex Development | $37,001 | $18,501 | | 345 Franklin | $150,197 | $75,099 | | Hamilton 1025 | $17,667 | $8,834 | | Hamilton Minuteman Apts | $75,477 | $37,739 | | Hamilton on Main Apts | $(58,464) | $(29,232) | | Dexter Park | $647,123 | $258,849 | | Total | $854,683 | $362,629 | - Weighted average interest rate on joint venture mortgages was 4.32% at March 31, 2025[127] NOTE 16. EMPLOYEE BENEFIT 401(k) PLANS Employees meeting age and service requirements can participate in the Management Company's 401(k) Plan, with NERA matching 50% of employee contributions up to 6% of compensation, and the Partnership's expense for the employer's match in Q1 2025 was $16,000 - Partnership matches 50% of employee contributions up to 6% of compensation[133] - Total expense for the 401(k) Plan for Q1 2025 was $16,000[133] NOTE 17. IMPACT OF RECENTLY-ISSUED ACCOUNTING STANDARDS NERA is evaluating the impact of two recently issued accounting standards: a FASB standard on disaggregation of income statement expenses (effective FY2026/FY2027) and an SEC rule on climate-related disclosures (stayed, but would have been effective FY2025/FY2026) - Evaluating FASB standard on disaggregation of income statement expenses (effective FY2026/FY2027)[134] - Evaluating SEC final rules on climate-related information (stayed, but would have been effective FY2025/FY2026)[135] NOTE 18. SEGMENT REPORTING NERA operates as a single business segment, focusing on the ownership, operation, and development of its multifamily and commercial real estate portfolio in the Boston area and Southern New Hampshire, with the Chief Operating Decision Maker (CODM) evaluating performance on a consolidated basis using "Income Before Other Income (Expense)" - Operates as a single business segment: ownership, operation, and development of multifamily and commercial real estate[137] - CODM (Treasurer and Director) evaluates performance on a consolidated basis using "Income Before Other Income (Expense)"[138] NOTE 19. SUBSEQUENT EVENTS On April 15, 2025, NERA entered into a Purchase and Sale Agreement to acquire the Hill Estates Properties (396 residential units, commercial properties) and Off Campus Properties for a total of $175 million, expected to close on June 18, 2025, financed by cash, treasury bills, and debt - Entered Purchase and Sale Agreement on April 15, 2025, to acquire Hill Estates Properties (396 residential units, commercial) and Off Campus Properties[141] - Total purchase price: $175,000,000 ($172,000,000 for Hill Estates/commercial, $3,000,000 for Off Campus)[142] - Expected closing date: June 18, 2025, financed with cash, treasury bills, and debt[142] - Signed Rate Lock Authorization Agreement with Key Bank for $18,759,000 refinancing and $40,000,000 borrow-up on master credit facility[143] - Approved a quarterly distribution of $12.00 per Unit ($0.40 per Receipt) payable on May 30, 2025[144] - Purchased 1,443 Depositary Receipts from April 1, 2025, through May 6, 2025[145] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on NERA's financial condition and operational results for the three months ended March 31, 2025, compared to the prior year Forward Looking Statements This subsection cautions readers that the report contains forward-looking statements based on management's current beliefs and available information, which are subject to known and unknown risks and uncertainties that could materially affect actual results, and the Partnership disclaims any obligation to update them - Report contains forward-looking statements subject to risks and uncertainties[147] - Actual results may vary materially from projections due to factors beyond the Partnership's control[147] - The Partnership disclaims responsibility to update forward-looking statements[147] Overview NERA strategically increased debt and built cash reserves ($58 million in short-term US Treasury bills) in 2021-2022 to acquire properties amidst rising interest rates, with residential vacancy rates at 1.6% for NERA and 2.0% for Joint Ventures as of May 1, 2025, and Q1 2025 seeing a 6.0% average rent increase for renewals and a 0.2% decrease for new leases, with overall revenue up 4.0% and income before other income (expense) up 8.4% - Partnership increased debt and cash reserves (approx $130 million) in 2021-2022 for future acquisitions[148] - Currently, $58,032,000 of reserves are invested in short-term US Treasury bills (4.19%-4.37% interest)[148] - Residential vacancy rates as of May 1, 2025: NERA 1.6% (vs 1.2% in 2024), Joint Ventures 2.0% (vs 1.3% in 2024)[150] - Q1 2025 rent changes: 6.0% increase for renewals, 0.2% decrease for new leases[151] - Q1 2025 consolidated revenue increased by 4.0%, operating expenses by 2.2%, and Income before Other Income (Expense) by 8.4% YoY[151] - New $25,000,000 revolving line of credit secured on November 21, 2024, with a floating interest rate (SOFR + 2.5%)[152] - The General Partner authorized a new equity repurchase program on March 12, 2025, for up to $5 million or 10% of cash/treasury bills, not exceeding $95 per Depositary Receipt[155] - Brown family related entities and Ronald Brown collectively own approximately 34.7% of Class A Depositary Receipts, 75% of Class B Units, and control 75% of NewReal, Inc. (General Partner)[156] Critical Accounting Policies and Estimates The preparation of financial statements requires significant management estimates and judgments, particularly concerning real estate property valuations, investments in joint ventures, and revenue recognition, with key policies including recognizing rental income over lease terms, accounting for above/below-market leases, and assessing asset impairment based on future undiscounted cash flows - Critical accounting policies involve significant estimates and judgments, especially for real estate valuations and joint venture investments[165] - Revenue recognition for rental income is over the lease term, with specific treatment for commercial leases and concessions[166] - Impairment is recognized if estimated aggregate future undiscounted cash flows are less than the carrying value[175] - Investments in U.S. Treasury bills reclassified to "available for sale" due to potential sale for Hill Estate Properties acquisition[176] - Investments in joint ventures (40%-50% ownership) are accounted for using the equity method, with impairment assessed similarly to direct real estate investments[177][179] Results of Operations For Q1 2025, NERA's income before other income (expense) increased by 8.4% to $6.23 million, total revenues rose 4.0% to $20.69 million, driven by a 4.0% increase in rental income, and total expenses increased 2.2% to $14.46 million, primarily due to a 23.9% rise in operating expenses, partially offset by lower depreciation and renting expenses, with net income increasing 9.6% to $3.80 million Key Operating Results | Metric | 2025 | 2024 | Dollar Change | Percent Change | | :------------------------------------ | :----------- | :----------- | :------------ | :------------- | | Income Before Other Income (Expense) | $6,233,447 | $5,751,774 | $481,673 | 8.4% | | Total Revenues | $20,688,894 | $19,893,399 | $795,495 | 4.0% | | Rental income | $20,496,120 | $19,710,432 | $785,688 | 4.0% | | Total Expenses | $14,455,447 | $14,141,625 | $313,822 | 2.2% | | Operating expenses | $3,278,374 | $2,645,493 | $632,881 | 23.9% | | Taxes and insurance | $2,695,817 | $2,482,368 | $213,449 | 8.6% | | Depreciation and amortization | $3,904,983 | $4,227,582 | $(322,599) | (7.6%) | | Renting expenses | $278,329 | $387,599 | $(109,270) | (28.2%) | | Interest expense | $(3,791,432) | $(3,907,016) | $115,584 | (3.0%) | | Interest income | $991,075 | $1,177,547 | $(186,472) | (15.8%) | | Income from unconsolidated joint ventures | $362,629 | $441,291 | $(78,662) | (17.8%) | | Net Income | $3,795,719 | $3,463,596 | $332,123 | 9.6% | - Residential vacancy rate: 1.6% (May 1, 2025) vs 1.2% (May 1, 2024)[183] - Operating expense increase driven by snow removal ($464,000) and heating expense ($262,000)[188] Liquidity and Capital Resources NERA's primary cash source is rent collection, with major uses including the Mill Street Development construction, property improvements, mortgage payments, U.S. Treasury bill purchases, and partner distributions, and cash and cash equivalents increased by $13.25 million in Q1 2025, with the Mill Street project expected to cost $30.3 million, funded by cash reserves and future financing - Primary cash source: rent collection[194] - Primary cash uses: Mill Street Development, property improvements, mortgage payments, Treasury bill purchases, partner distributions[194] Cash Flow Summary | Activity | 2025 | 2024 | | :------------------------------------ | :----------- | :----------- | | Cash provided by operating activities | $5,477,629 | $6,123,747 | | Cash provided by investing activities | $21,196,355 | $12,434,824 | | Principal payments of mortgage notes payable | $(816,477) | $(694,945) | | Repurchase of Depositary Receipts, Class B and General Partner Units | $(9,053) | $(253,390) | | Distributions paid | $(12,600,657) | $(7,038,955) | | Net increase in cash and cash equivalents | $13,247,797 | $10,571,281 | - Mill Street Development project costs: $6,233,000 from cash reserves in Q1 2025; total expected cost $30.3 million, with $15.3 million anticipated in 2025[197][200] - Proportionate share of non-recourse debt from unconsolidated joint ventures: approximately $73,885,000 as of March 31, 2025[201] Mortgage debt | Year | Mortgage debt | | :--- | :------------- | | 2026 | $22,055,985 | | 2027 | $6,600,769 | | 2028 | $23,239,096 | | 2029 | $58,851,200 | | 2030 | $813,627 | | Thereafter | $296,228,222 | | Total | $407,788,899 | Factors That May Affect Future Results NERA's future results are subject to various risks, including adverse local economic conditions in Eastern Massachusetts, dependence on tenant financial health, competition, significant operating expenditures, and the availability of favorable financing, along with development cost overruns, environmental liabilities, increasing insurance costs, market interest rate fluctuations, and changes in tax laws - Dependence on real estate markets in Eastern Massachusetts and local economic conditions[207] - Risks related to tenant financial condition, lease renewals, and rent collection[207] - Significant expenditures (debt service, taxes, insurance, maintenance) not reduced by revenue decreases[207] - Potential for development costs to exceed budgets[208] - Financing/refinancing may not be available on favorable terms[210] - Competition from similar properties affecting tenant attraction/retention and rental rates[210] - Exposure to environmental liabilities (contamination, hazardous materials)[210] - Increasingly costly and difficult insurance coverage, with exclusions for terrorism, war, mold, etc[210] - Market interest rates could adversely affect Class A Partnership Units and Depositary Receipts[210] - Changes in income tax laws and regulations may affect after-tax value of distributions[210] Item 3. Quantitative and Qualitative Disclosures About Market Risk NERA's primary market risk is interest rate risk, affecting the spread between asset yield and cost of funds, with approximately $580.56 million in long-term debt as of March 31, 2025, mostly fixed-rate, and a 100 basis point change in variable interest rates would impact annual interest costs by approximately $50,000 and fixed-rate debt fair value by $22.78 million - Primary market risk: interest rate risk[211] - Total long-term debt (Partnership, Subsidiary Partnerships, Investment Properties): approximately $580,559,000 as of March 31, 2025[212] - Substantially all long-term debt is fixed-rate, maturing through 2035[212] - Variable rate debt: $10,000,000 (SOFR plus 170-250 basis points)[212] - A 100 basis point change in variable interest rates would result in an approximate $50,000 annual change in interest costs[212] - A 100 basis point change would result in an approximate $22,777,000 change in the fair value of fixed-rate debt[212] Item 4. Controls and Procedures As of March 31, 2025, NERA's management concluded that the Partnership's disclosure controls and procedures were effective, and no material changes in internal control over financial reporting were identified during the quarter - Disclosure controls and procedures were effective as of March 31, 2025[213] - No material changes in internal control over financial reporting identified during Q1 2025[214] PART II—OTHER INFORMATION This section addresses legal proceedings, risk factors, equity sales, defaults, and report exhibits Item 1. Legal Proceedings The Partnership is not currently involved in any material legal proceedings, beyond routine litigation incidental to its real estate business - No material legal proceedings are currently ongoing or threatened[216] - Properties are occasionally subject to ordinary routine legal and administrative proceedings[90] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - No material changes to the risk factors from the prior Form 10-K[217] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Partnership repurchased 84 Depositary Receipts in Q1 2025 at an average price of $80.34 per receipt, and a new equity repurchase program was authorized on March 12, 2025, allowing for repurchases up to $5 million or 10% of cash/treasury bills, not exceeding $95 per Depositary Receipt, for 12 months Depositary Receipt Repurchase Activity | Period | Average Price Paid | Depositary Receipts Purchased | Remaining Receipts under Plan | | :----------------- | :----------------- | :---------------------------- | :---------------------------- | | January 1-31, 2025 | $83.00 | 56 | 449,584 | | February 1-29, 2025 | $— | — | 449,584 | | March 1-31, 2025 | $75.01 | 28 | 449,556 | | Total | | 84 | | - New equity repurchase program authorized on March 12, 2025, for up to $5 million or 10% of cash and treasury bills, not exceeding $95 per Depositary Receipt, for 12 months[219] - From August 20, 2007, through March 31, 2025, 1,550,442 Depositary Receipts were repurchased at an average price of $32.21 per receipt, totaling approximately $56.1 million[221] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities[223] Item 4. Mine Safety Disclosure This item is not applicable to the Partnership - Not applicable[224] Item 5. Other Information No other material information is reported under this item - None[225] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Purchase and Sale Agreement for the Hill Estates Properties, certifications under the Sarbanes-Oxley Act, and financial statements in Inline XBRL format - Includes Purchase and Sale Agreement for Hill Estates Properties (Exhibit 10.1)[228] - Includes Section 302 and Section 906 certifications by Principal Executive and Financial Officers (Exhibits 31.1, 31.2, 32.1)[228] - Financial statements are provided in Inline XBRL format (Exhibit 101.1)[228] SIGNATURES The report was duly signed on May 9, 2025, by Ronald Brown as President and Principal Executive Officer of NewReal, Inc. (the General Partner), and Jameson Brown as Treasurer, Principal Financial Officer, and Principal Accounting Officer, along with other directors - Report signed by Ronald Brown (President and Principal Executive Officer) and Jameson Brown (Treasurer, Principal Financial Officer and Principal Accounting Officer) on May 9, 2025[231][232]