New England Realty Associates Partnership(NEN) - 2020 Q4 - Annual Report

Part I Business The Partnership develops and operates residential and commercial real estate in Massachusetts and New Hampshire - The Partnership's capital structure is divided into three classes: Class A Units (80% ownership), Class B Units (19% ownership), and General Partnership Units (1% ownership)[12] - The COVID-19 pandemic presents material risks, including reduced demand for rental space, particularly student housing in Boston[25][31] - The Partnership's equity repurchase program was temporarily suspended as of April 15, 2020, due to economic uncertainty from the pandemic[34] - In 2019, the Partnership acquired Country Club Garden Apartments, a 181-unit complex, for $59.55 million[36] - As of December 31, 2020, the $25 million revolving line of credit had an outstanding balance of $17 million[46][47] Property Portfolio Overview (as of February 1, 2021) | Property Type | Unit/Space Count | | :--- | :--- | | Residential Apartment Units | 2,892 | | Condominium Units | 19 | | Joint Venture Residential Units | 688 | Distributions per Unit/Receipt | Year | Per Unit | Per Receipt | Total Payment | | :--- | :--- | :--- | :--- | | 2020 | $38.40 | $1.28 | $4,675,754 | | 2019 | $38.40 | $1.28 | $4,696,893 | Risk Factors The Partnership is exposed to risks from real estate ownership, the COVID-19 pandemic, and geographic concentration - The business is subject to risks inherent in real estate ownership, including economic changes, competition, and rising operating expenses[55][56] - The COVID-19 pandemic poses a significant threat, with risks of tenant financial deterioration and reduced demand for rental units[59][61] - The Partnership's properties are geographically concentrated in Eastern Massachusetts and Southern New Hampshire[64] - The potential discontinuation of LIBOR after 2021 creates uncertainty for contracts indexed to it, including variable rate debt[67][70] - As of December 31, 2020, the General Partner's directors and executive officers owned approximately 31% of the Partnership's depositary receipts[82] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[92] Properties This section details the Partnership's real estate portfolio of apartment complexes, condominiums, and investment properties Apartment Complexes Portfolio Summary (as of Feb 1, 2021) | Metric | Value | | :--- | :--- | | Total Apartment Units | 2,892 | | Total Mortgage Balance (as of Dec 31, 2020) | ~$284.8M (sum of balances) | | Interest Rate Range | 3.53% - 5.66% | | Maturity Dates | 2023 - 2035 | Investment Properties (Joint Venture) Portfolio Summary (as of Feb 1, 2021) | Metric | Value | | :--- | :--- | | Partnership Ownership Interest | 40% - 50% | | Total Residential Units | 688 | | Total Mortgage Balance (as of Dec 31, 2020) | ~$167.0M (sum of balances) | | Interest Rate Range | 2.33% - 4.34% | | Maturity Dates | 2024 - 2031 | Commercial Lease Expiration Schedule (Annual Base Rent) | Year | Expiring Base Rent | | :--- | :--- | | 2021 | $840,146 | | 2022 | $522,454 | | 2023 | $451,560 | | 2024 | $623,739 | | 2025+ | $275,008 | Legal Proceedings The Partnership is not currently subject to any material litigation - The Partnership and its subsidiaries are not presently subject to any material litigation[139] Mine Safety Disclosure This item is not applicable to the Partnership's business operations - Not applicable[140] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Partnership's Depositary Receipts trade on the NYSE MKT under the symbol 'NEN' - The Partnership's Depositary Receipts are listed and publicly traded on the NYSE MKT Exchange under the symbol 'NEN'[142] - No Depositary Receipts were purchased by the issuer during the fourth quarter of 2020[149] Distributions to Partners | Year | Total Distributions | | :--- | :--- | | 2020 | $4,675,754 | | 2019 | $4,696,893 | Selected Financial Data This section presents a five-year summary of key financial and operational data, highlighting trends in revenue and vacancy rates Selected Financial Data (2018-2020) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenues | $62.1M | $60.5M | $58.0M | | Net Income | $1.4M | $6.5M | $4.2M | | Total Assets | $291.7M | $294.3M | $247.0M | | Total Debt Outstanding | $300.4M | $299.8M | $254.4M | Vacancy Rate Trends (2018-2020) | Property Type | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Residential | 6.2% | 3.0% | 2.1% | | Commercial | 8.7% | 1.8% | 1.3% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial impact of COVID-19, which drove higher vacancies and a 78.2% drop in 2020 net income - The COVID-19 pandemic significantly impacted operations, with the residential vacancy rate increasing to 6.2% from 3.0% a year prior[168][171] - The Partnership plans to invest approximately $4.2 million in capital improvements in 2021[243] Results of Operations: 2020 vs. 2019 | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Rental Income | $61.7M | $60.0M | +2.7% | | Total Expenses | $47.1M | $43.2M | +9.1% | | Income from Joint Ventures | $0.16M | $1.68M | -90.4% | | Net Income | $1.4M | $6.5M | -78.2% | Results of Operations: 2019 vs. 2018 | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Rental Income | $60.0M | $57.5M | +4.3% | | Total Expenses | $43.2M | $43.1M | +0.3% | | Net Income | $6.5M | $4.2M | +57.0% | Cash Flow Summary (2020 vs. 2019) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $17.5M | $22.4M | | Net Cash (used in) Investing Activities | ($1.7M) | ($29.3M) | | Net Cash from (used in) Financing Activities | $0.4M | $14.1M | | Net Increase (Decrease) in Cash | $11.1M | ($1.5M) | Contractual Obligations by Period (as of Dec 31, 2020) | Period | Mortgage Debt | Line of Credit | Total | | :--- | :--- | :--- | :--- | | 2021 | $2.5M | $17.0M | $19.5M | | 2022 | $2.7M | $0 | $2.7M | | 2023 | $102.6M | $0 | $102.6M | | 2024 | $11.0M | $0 | $11.0M | | 2025 | $3.4M | $0 | $3.4M | | Thereafter | $162.6M | $0 | $162.6M | Quantitative and Qualitative Disclosures About Market Risk The Partnership's primary market risk exposure is to interest rate changes on its variable-rate debt - The primary market risk exposure for the Partnership is interest rate risk[259] - As of December 31, 2020, the Partnership and its joint ventures had approximately $27 million in variable-rate debt[260] Consolidated Financial Statements and Supplementary Data This item incorporates the Partnership's audited consolidated financial statements into the Form 10-K - The full financial statements of the Partnership are included starting on page F-3 of the Form 10-K[262] Changes In and Disagreements With Accountants on Accounting and Financial Disclosure The Partnership reports no changes in or disagreements with its accountants - None[263] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of year-end 2020 - Management concluded that the Partnership's disclosure controls and procedures are effective as of the end of the period covered by this report[264] - Management concluded that the Partnership's internal control over financial reporting was effective as of December 31, 2020[265] - There were no material changes in internal control over financial reporting during the fourth quarter of 2020[268] Other Information This section discloses a change in voting control of the General Partner following the death of Harold Brown - Following the death of Harold Brown in February 2019, voting control of the General Partner is now held by Brown family related entities[269] - Effective February 24, 2019, Jameson Brown was elected Treasurer and Chief Financial Officer of the General Partner[271] Part III Directors, Executive Officers, and Corporate Governance The Partnership is managed by its General Partner, NewReal, Inc, which is controlled by the Brown family - The General Partner, NewReal, Inc, is wholly owned by the Estate of Harold Brown and by Ronald Brown[275] - The General Partner engages The Hamilton Company, Inc, which is wholly owned by Brown family related entities, to manage the properties[276] - The Audit Committee consists of David Aloise and Eunice Harps, with David Aloise designated as an audit committee financial expert[278] Executive Compensation Executive officers are not directly compensated; instead, fees are paid to the affiliated management company, The Hamilton Company - The Partnership does not pay any direct compensation to its officers or the officers and directors of the General Partner[294] Fees Paid to The Hamilton Company (2020) | Fee Type | Amount Paid by Partnership | Amount Paid by Investment Properties | | :--- | :--- | :--- | | Management Fee | ~$2,453,000 | ~$580,000 | | Administrative & Other Fees | ~$1,080,000 | ~$194,000 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Ownership is highly concentrated among directors, officers, and related entities, who collectively control the Partnership Beneficial Ownership by Directors, Officers, and 5% Owners (as of Dec 31, 2020) | Owner/Group | Class A Units (%) | Class B Units (%) | General Partner Units (%) | | :--- | :--- | :--- | :--- | | Jameson Brown (via HBC) | 17.5% | 75% | - | | Ronald Brown | 3.2% | 25% | 100% (deemed) | | HJB 2009 Holdings, LLC | 9.8% | - | - | | Maura Brown | 5.5% | - | - | | All directors & officers (group) | 30.9% | 100% | 100% | Certain Relationships and Related Transactions, and Director Independence This section discloses key related-party relationships, including family ties and co-investments in joint ventures - Director Jameson Brown is the nephew of Director Ronald Brown[307] - The Partnership has invested approximately $34.9 million in seven joint ventures where related parties are also co-investors[311] - Directors David Aloise and Eunice Harps are determined to be independent under NYSE Amex Exchange and SEC rules[308] Principal Accounting Fees and Services The Partnership paid its independent auditor, Miller Wachman LLP, a total of $421,000 in fees for fiscal years 2020 and 2019 Fees Paid to Miller Wachman LLP | Fee Type | 2020 | 2019 | | :--- | :--- | :--- | | Audit Fees | $316,000 | $316,000 | | Tax Fees | $105,000 | $105,000 | | Total Fees | $421,000 | $421,000 | Part IV Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the Annual Report on Form 10-K - This item lists the financial statements and exhibits filed with the Form 10-K, with the full financial statements included within the report[317] Form 10-K Summary This item is not applicable to the filing - Not applicable[318] Report of Independent Registered Public Accounting Firm Auditor's Opinion The auditor issued an unqualified opinion on the financial statements and internal controls, identifying two critical audit matters - The auditor issued an unqualified opinion, stating the financial statements present fairly the financial position in conformity with U.S. GAAP[320] - The auditor also opined that the Partnership maintained effective internal control over financial reporting as of December 31, 2020[320] - Critical Audit Matters identified were the impairment of investment properties and the evaluation of related party transactions[327][330][333] Consolidated Financial Statements Consolidated Balance Sheets As of December 31, 2020, total assets were $291.7 million and total liabilities were $333.1 million Consolidated Balance Sheet Summary (as of Dec 31) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Total Assets | $291,669,602 | $294,293,649 | | Total Liabilities | $333,138,647 | $332,117,437 | | Partners' Capital | ($41,469,045) | ($37,823,788) | Consolidated Statements of Income The Partnership reported net income of $1.4 million in 2020, a significant decrease from $6.5 million in 2019 Consolidated Income Statement Summary (Year Ended Dec 31) | Account | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Total Revenues | $62,102,710 | $60,477,314 | $58,014,064 | | Total Expenses | $47,133,677 | $43,205,547 | $43,095,692 | | Income from Joint Ventures | $160,715 | $1,678,554 | $1,640,054 | | Net Income | $1,424,528 | $6,547,252 | $4,169,090 | Consolidated Statements of Cash Flows Cash and cash equivalents increased by $11.1 million in 2020, driven by reduced investing activities Consolidated Cash Flow Summary (Year Ended Dec 31) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $17,452,309 | $22,448,895 | | Net Cash (used in) Investing Activities | ($1,715,408) | ($29,277,643) | | Net Cash (used in) Financing Activities | ($4,636,253) | $5,315,171 | | Net Increase (Decrease) in Cash | $11,100,648 | ($1,513,577) | Notes to Consolidated Financial Statements The notes detail accounting policies, related-party transactions, debt maturities, and joint venture investments - The Partnership's properties are managed by The Hamilton Company, a related party, which was paid $2.45 million in management fees in 2020[399][400] - The Partnership has investments in seven unconsolidated joint ventures, with its share of net income declining to $160,715 in 2020 from $1,678,554 in 2019[471][490] - The equity repurchase program was extended to March 31, 2025, with $44.7 million in receipts repurchased since inception[444] Mortgage Notes Payable Maturities (as of Dec 31, 2020) | Year | Amount Due | | :--- | :--- | | 2021 | $2,531,000 | | 2022 | $2,697,000 | | 2023 | $102,569,000 | | 2024 | $10,965,000 | | Thereafter | $166,028,000 |