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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-31568

New England Realty Associates Limited Partnership

(Exact name of registrant as specified in its charter)

Massachusetts

04-2619298

(State or other jurisdiction of

(I.R.S. employer

incorporation or organization)

identification no.)

39 Brighton Avenue, Allston, Massachusetts

02134

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617783-0039

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated Filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Class A

NEN

NYSE MKT Exchange

As of May 8, 2024, there were 93,791 of the registrant’s Class A units (2,813,732 Depositary Receipts) of limited partnership issued and outstanding and 22,275 Class B units issued and outstanding.

Table of Contents

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP

INDEX

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

3

Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

4

Consolidated Statements of Income for the Three Months Ended March 31, 2024 and 2023

5

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2024 and 2023

6

Consolidated Statements of Changes in Partners’ Capital for the Three Months Ended March 31, 2024 and 2023

7

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

8

Notes to Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosure

38

Item 5.

Other Information

38

Item 6.

Exhibits

39

SIGNATURES

40

2

Table of Contents

NEW ENGLAND REALTY ASSOCIATES, L.P.

PART 1 -- FINANCIAL INFORMATION

Item 1. Financial Statements

The accompanying unaudited consolidated balance sheets, statements of income, statements of comprehensive income, changes in partners’ capital, and cash flows and related notes thereto, have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. The financial statements reflect all adjustments consisting only of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair presentation for the interim periods.

The consolidated balance sheet as of December 31, 2023, has been derived from the audited consolidated balance sheet at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

The aforementioned financial statements should be read in conjunction with the notes to the aforementioned financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in New England Realty Associates L.P.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

The results of operations for the three month period ended March 31, 2024 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.

3

Table of Contents

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31,

December 31,

    

 

2024

    

2023

 

ASSETS

Rental Properties

$

270,256,700

$

269,804,946

Cash and Cash Equivalents

 

28,801,744

 

18,230,463

Rents Receivable

 

865,990

 

953,761

Real Estate Tax Escrows

 

2,332,010

 

2,229,703

Investment in U.S. Treasury bills

69,444,998

84,700,751

Prepaid Expenses and Other Assets

 

8,073,622

 

8,369,775

Investments in Unconsolidated Joint Ventures

 

1,416,930

 

1,441,291

Total Assets

$

381,191,994

$

385,730,690

LIABILITIES AND PARTNERS’ CAPITAL

Mortgage Notes Payable

$

408,060,293

$

408,660,292

Distribution and Loss in Excess of Investment in Unconsolidated Joint Venture

 

26,819,651

 

26,707,807

Accounts Payable and Accrued Expenses

 

5,416,975

 

5,720,088

Advance Rental Payments and Security Deposits

 

9,936,175

 

9,996,887

Total Liabilities

 

450,233,094

 

451,085,074

Commitments and Contingent Liabilities (Notes 3 and 9)

 

 

Partners’ Capital 117,312 and 117,431 units outstanding in 2024 and 2023 respectively

 

(69,041,100)

 

(65,354,384)

$

381,191,994

$

385,730,690

See notes to consolidated financial statements.

4

Table of Contents

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended March 31,

    

2024

    

2023

Revenues

Rental income

    

$

19,710,432

    

$

17,568,727

Laundry and sundry income

 

182,967

 

122,959

 

19,893,399

 

17,691,686

Expenses

Administrative

 

762,019

 

737,101

Depreciation and amortization

 

4,227,582

 

3,846,260

Management fee

 

788,607

 

697,764

Operating

 

2,645,493

 

2,533,796

Renting

 

387,599

 

191,585

Repairs and maintenance

 

2,847,957

 

2,763,136

Taxes and insurance

 

2,482,368

 

2,470,679

 

14,141,625

 

13,240,321

Income Before Other Income (Expense)

 

5,751,774

 

4,451,365

Other Income (Expense)

Interest income

 

1,177,547

 

974,546

Interest expense

 

(3,907,016)

 

(3,899,240)

Income from investments in unconsolidated joint ventures

 

441,291

 

227,704

 

(2,288,178)

 

(2,696,990)

Net Income

$

3,463,596

$

1,754,375

Net Income per Unit

$

29.51

$

14.72

Weighted Average Number of Units Outstanding

 

117,354

 

119,181

See notes to consolidated financial statements.

5

Table of Contents

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31,

    

2024

    

2023

Net income

$

3,463,596

$

1,754,375

Other comprehensive income (loss):

Net unrealized gain (loss) on derivative instruments for interest rate swaps

142,034

(165,887)

Comprehensive income

$

3,605,630

$

1,588,488

6

Table of Contents

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

(Unaudited)

Units

Partners' Capital

 

Accumulated

Limited

General

Treasury

Limited

General

Comprehensive

 

  

Class A

  

Class B

  

Partnership

  

Subtotal

  

Units

  

Total

  

Class A

  

Class B

  

Partnership

  

Income

  

Total

 

Balance January 1, 2023

 

144,180

34,243

1,802

180,225

60,970

119,255

$

(48,160,462)

$

(11,403,635)

$

(600,191)

$

294,931

$

(59,869,357)

Distribution to Partners

 

 

 

 

(4,563,508)

(1,083,833)

(57,044)

(5,704,385)

Stock Buyback

 

 

 

431

(431)

(755,666)

(179,411)

(9,443)

(944,520)

Net Income

 

 

 

 

1,403,500

333,331

17,544

1,754,375

Net unrealized (loss) on derivative instruments for interest rate swaps

(165,887)

(165,887)

Balance March 31 , 2023

 

144,180

34,243

1,802

180,225

61,401

118,824

(52,076,136)

(12,333,548)

(649,134)

129,044

(64,929,774)

 

Balance January 1, 2024

 

144,180

34,243

1,802

180,225

 

62,794

117,431

$

(52,503,128)

(12,433,251)

(654,383)

236,377

(65,354,385)

Distribution to Partners

 

 

 

 

(5,631,164)

(1,337,401)

(70,390)

(7,038,955)

Stock Buyback

 

 

 

 

119

(119)

(202,882)

(47,983)

(2,525)

(253,390)

Net Income

 

 

 

 

2,770,877

658,083

34,636

3,463,596

Net unrealized gain on derivative instruments for interest rate swaps

142,034

142,034

Balance March 31, 2024

 

144,180

 

34,243

 

1,802

 

180,225

 

62,913

 

117,312

$

(55,566,297)

$

(13,160,552)

$

(692,662)

378,411

$

(69,041,100)

See notes to consolidated financial statements.

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NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended March 31,

    

2024

    

2023

Cash Flows from Operating Activities

Net Income

    

$

3,463,596

    

$

1,754,375

Adjustments to reconcile net income to net cash provided by operating activities

Interest accrued on U.S. Treasury bills

(1,161,305)

(971,106)

Depreciation and amortization

 

4,227,582

 

3,846,260

Amortization of deferred finance costs

94,946

94,946

(Income) from investments in joint ventures

 

(441,291)

 

(227,704)

Change in operating assets and liabilities

Proceeds from unconsolidated joint ventures

 

52,500

 

30,000

Decrease (Increase) in rents receivable

 

87,771

 

(146,176)

(Decrease) in accounts payable and accrued expense

 

(303,116)

 

(2,176,919)

(Increase) in real estate tax escrow

 

(102,307)

 

(88,077)

Decrease (Increase) in prepaid expenses and other assets

 

266,086

 

(555,260)

(Decrease) Increase in advance rental payments and security deposits

 

(60,715)

 

105,204

Total Adjustments

 

2,660,151

 

(88,832)

Net cash provided by operating activities

 

6,123,747

 

1,665,543

Cash Flows From Investing Activities

Distribution in excess of investment in unconsolidated joint ventures

 

525,000

 

550,000

Investment in U.S. Treasury bills

(38,989,940)

(53,713,756)

Proceeds from U.S. Treasury bills

55,407,000

45,000,000

Developing of rental property and other related costs

(2,111,993)

Purchase of rental property

(8,974,242)

Improvement of rental properties

 

(2,395,243)

 

(2,172,877)

Net cash provided by (used in) investing activities

 

12,434,824

 

(19,310,875)

Cash Flows from Financing Activities

Principal payments of mortgage notes payable

 

(694,945)

 

(611,861)

Stock buyback

 

(253,390)

 

(944,520)

Distributions to partners

 

(7,038,955)

 

(5,704,385)

Net cash (used in) provided by financing activities

 

(7,987,290)

 

(7,260,766)

Net Increase (Decrease) in Cash and Cash Equivalents

 

10,571,281

 

(24,906,098)

Cash and Cash Equivalents, at beginning of period

 

18,230,463

 

49,560,723

Cash and Cash Equivalents, at end of period

$

28,801,744

$

24,654,625

See notes to consolidated financial statements.

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NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(Unaudited)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

Line of Business: New England Realty Associates Limited Partnership (“NERA”, the “Company” or the “Partnership”) was organized in Massachusetts in 1977. NERA and its subsidiaries own 31 properties which include 22 residential buildings; 5 mixed use residential, retail and office buildings; 4 commercial buildings and individual units at one condominium complex. These properties total 2,943 apartment units, 19 condominium units and approximately 130,000 square feet of commercial space. Additionally, the Partnership also owns a 40 - 50% interest in 7 residential and mixed use properties consisting of 688 apartment units, 12,500 square feet of commercial space and a 50 car parking lot. The properties are located in Eastern Massachusetts and Southern New Hampshire.

Basis of Presentation: The financial statements have been prepared in conformity with GAAP. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. These estimates and assumptions are based on management’s historical experience that are believed to be reasonable at the time. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgement. The Partnership’s critical accounting policies are those which require assumptions to be made about matters that are highly uncertain. Different estimates could have a material effect on the Partnership’s financial results. Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions and circumstances.

Principles of Consolidation: The consolidated financial statements include the accounts of NERA and its subsidiaries. NERA has a 99.67% to 100% ownership interest in each subsidiary except for the seven limited liability companies (the “Investment Properties” or “Joint Ventures”) in which the Partnership has a 40 - 50% ownership interest. The consolidated group is referred to as the “Partnership”. Minority interests are not recorded, since they are insignificant. All significant intercompany accounts and transactions are eliminated in consolidation. The Partnership accounts for its investment in the above-mentioned Investment Properties using the equity method of consolidation. (See Note 15: Investment in Unconsolidated Joint Ventures.)

The Partnership accounts for its investments in joint ventures using the equity method of accounting. These investments are recorded initially at cost, as Investments in Unconsolidated Joint Ventures, and subsequently adjusted for equity in earnings and cash contributions and distributions. Generally, the Partnership would discontinue applying the equity method when the investment (and any advances) is reduced to zero and would not provide for additional losses unless the Partnership has guaranteed obligations of the venture or is otherwise committed to providing further financial support for the investee. If the venture subsequently generates income, the Partnership only recognizes its share of such income to the extent it exceeds its share of previously unrecognized losses. In 2013 and beyond, the carrying values of some investments fell below zero. We intend to fund our share of the investments’ future operating deficits should the need arise. However, we have no legal obligation to pay for any of the liabilities of such investments nor do we have any legal obligation to fund operating deficits. (See Note 15: Investment in Unconsolidated Joint Ventures.)

The authoritative guidance on consolidation provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any, should consolidate the VIE (the “primary beneficiary”). Generally, the consideration of whether an entity is a VIE applies when either (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest, (2) the equity investment at risk is insufficient to finance that equity’s activities without additional subordinated financial support or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The primary beneficiary is defined by the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the

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variable interest entity’s performance; and (2) the obligation to absorb losses and rights to receive the returns from VIE that would be significant to the VIE.

Impairment: On an annual basis management assesses whether there are any indicators that the value of the Partnership’s rental properties or investments in unconsolidated subsidiaries may be impaired. In addition to identifying any specific circumstances which may affect a property or properties, management considers other criteria for determining which properties may require assessment for potential impairment. The criteria considered by management include reviewing low leased percentages, significant near term lease expirations, recently acquired properties, current and historical operating and/or cash flow losses, near term mortgage debt maturities or other factors that might impact the Partnership’s intent and ability to hold property. A property’s value is impaired only if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. 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 analyses may not be achieved.

Revenue Recognition: Rental income from residential and commercial properties is recognized over the term of the related lease. For residential tenants, amounts 60 days in arrears are charged against income. The commercial tenants are evaluated on a case by case basis. Certain leases of the commercial properties provide for increasing stepped minimum rents, which are accounted for on a straight-line basis over the term of the lease. Revenue from commercial leases also include reimbursements and recoveries received from tenants for certain costs as provided in the lease agreement. The costs generally include real estate taxes, utilities, insurance, common area maintenance and recoverable costs. Rental concessions are also accounted for on the straight-line basis.

Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the differences between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed-rate renewal options for below-market leases. 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.

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. The Partnership elected an allowed practical expedient. For (i) operating lease arrangements involving real estate that include common area maintenance services and (ii) all real estate arrangements that include real estate taxes and insurance costs, we present these amounts within lease revenues in our consolidated statements of income. We record amounts reimbursed by the lessee in the period in which the applicable expenses are incurred.

Rental Properties: Rental properties are stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred; improvements and additions which improve or extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost of the asset and related accumulated depreciation is eliminated from the accounts, and any gain or loss on such disposition is included in income. Fully depreciated assets are removed from the accounts. Rental properties are depreciated by both straight-line and accelerated methods over their estimated useful lives. Upon acquisition of rental property, the Partnership estimates the fair value of acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities assumed, generally consisting of the fair value of (i) above and below market leases, (ii) in-place leases and (iii) tenant relationships. The Partnership allocated the purchase price to the assets acquired and liabilities assumed based on their fair values. The Partnership records goodwill or a gain on bargain purchase (if any) if the net assets acquired/liabilities assumed exceed the purchase consideration of a transaction. In estimating the fair value of the tangible and intangible assets acquired, the Partnership considers information obtained about each property as a result of its due diligence and marketing and leasing

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activities, and utilizes various valuation methods, such as estimated cash flow projections utilizing appropriate discount and capitalization rates, estimates of replacement costs net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. Costs directly related to the acquisition, development and construction of rental properties are capitalized. Capitalized development and construction costs include pre-construction costs, development and construction costs, regulatory fees, interest, property taxes, insurance, construction oversight fees, and other project costs incurred during the period of development. The Partnership considers a construction project as substantially completed and held available for occupancy upon the substantial completion of improvements, but no later than one year from cessation of major construction activity.

Other intangible assets acquired include amounts for in-place lease values and tenant relationship values, which are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Partnership’s overall relationship with the respective tenant. Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses. Characteristics considered by management in valuing tenant relationships include the nature and extent of the Partnership’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals. The value of in-place leases are amortized to expense over the remaining initial terms of the respective leases. The value of tenant relationship intangibles are amortized to expense over the anticipated life of the relationships.

In the event that facts and circumstances indicate that the carrying value of a rental property may be impaired, an analysis of the value is prepared. The estimated future undiscounted cash flows are compared to the asset’s carrying value to determine if a write-down to fair value is required.

Leasing Fees: Leasing fees are capitalized and amortized on a straight-line basis over the life of the related lease. Unamortized balances are expensed when the corresponding fee is no longer applicable.

Deferred Financing Costs: Costs incurred in obtaining financing are capitalized and amortized over the term of the related indebtedness. Deferred financing costs are presented in the balance sheet as a direct deduction from the carrying value of the debt liability to which they relate, except deferred financing costs related to the revolving credit facility, which are presented in prepaid expenses and other assets. In all cases, amortization of such costs is included in interest expense and was approximately $95,000 and $95,000 for the three months ended March 31, 2024 and 2023, respectively.

Derivative Instruments: The Partnership measures derivative instruments, including certain derivative instruments embedded in other contracts, at fair value and records them as an asset or liability, depending upon the Partnership’s rights or obligations under the applicable derivative contract. For derivatives designated and qualifying as fair value hedges, the changes in the fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow hedges, the effective portions of the derivative are reported in other comprehensive income (“OCI”) and are subsequently reclassified into earnings when the hedged item affects earnings. Changes in fair value of derivative instruments not designated as hedging and ineffective portions of hedges are recognized in earnings in the affected period.

Income Taxes: The financial statements have been prepared on the basis that NERA and its subsidiaries are entitled to tax treatment as partnerships. Accordingly, no provision for income taxes has been recorded (See Note 14).

Cash Equivalents: The Partnership considers cash equivalents to be all highly liquid instruments purchased with a maturity of three months or less at the time of purchase, including its investment in money market funds.

Investments in Treasury Bills: Investments in U.S. Treasury bills are recorded at amortized cost and classified as held to maturity as the Partnership has the intent and the ability to hold them until they mature. The carrying value of the Treasury Bills are adjusted for accretion of discounts over the remaining life of the investment. Income related to the Treasury Bills is recognized in interest income in the Partnership’s consolidated statement of income.

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Segment Reporting: Operating segments are revenue producing components of the Partnership for which separate financial information is produced internally for management. Under the definition, NERA operated, for all periods presented, as one segment.

Other Comprehensive Income (Loss): Other comprehensive income (loss) includes items that are recorded in equity, such as effective portions of derivatives designated as cash flow hedges or unrealized holding gains or losses on marketable securities available for sale. NERA had comprehensive income of approximately $142,000 and a comprehensive loss of approximately $166,000 for the three months ended March 31, 2024 and 2023, respectively.

Income (Loss) Per Depositary Receipt: Effective January 3, 2012, the Partnership authorized a 3-for-1 forward split of its Depositary Receipts listed on the NYSE Amex and a concurrent adjustment of the exchange ratio of Depositary Receipts for Class A Units of the Partnership from 10-to-1 to 30-to-1, such that each Depositary Receipt represents one-thirtieth (1/30) of a Class A Unit of the Partnership. All references to Depositary Receipts in the report are reflective of the 3-for-1 forward split.

Income Per Unit: Net income per unit has been calculated based upon the weighted average number of units outstanding during each period presented. The Partnership has no dilutive units and, therefore, basic net income is the same as diluted net income per unit (see Note 7: Partner’s Capital).

Concentration of Credit Risks and Financial Instruments: The Partnership’s properties are located in New England, and the Partnership is subject to the general economic risks related thereto. No single tenant accounted for more than 5% of the Partnership’s revenues in 2024 or 2023. The Partnership makes its temporary cash investments with high-credit quality financial institutions. At March 31, 2024, substantially all of the Partnership’s cash and cash equivalents were held in interest-bearing accounts at financial institutions, earning interest at rates from 0.01% to 4.07%. At March 31, 2024 and December 31, 2023, respectively approximately $29,025,000, and $18,711,000 of cash and cash equivalents, and security deposits included in prepaid expenses and other assets exceeded federally insured amounts.

Advertising Expense: Advertising is expensed as incurred. Advertising expense was approximately $152,000 and $109,000 for the three months ended March 31, 2024, and 2023, respectively.

Rental Property Held for Sale: 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. 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.

Interest Capitalized: The Partnership follows the policy of capitalizing interest as a component of the cost of rental property when the time of construction exceeds one year. During the three months ended March 31, 2024, and 2023 there was no capitalized interest.

Extinguishment of Debt: When existing mortgages are refinanced with the same lender and it is determined that the refinancing is substantially different, then they are recorded as an extinguishment of debt. However, if it is determined that the refinancing is substantially the same, then they are recorded as an exchange of debt. All refinancings qualify as extinguishment of debt.

Reclassification: Certain reclassifications have been made to prior period amounts in order to conform to current period presentation.

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NOTE 2. RENTAL PROPERTIES

As of March 31, 2024, the Partnership and its Subsidiary Partnerships owned 2,943 residential apartment units in 27 residential and mixed-use complexes (collectively, the “Apartment Complexes”). The Partnership also owns 19 condominium units in a residential condominium complex, all of which are leased to residential tenants (collectively referred to as the “Condominium Units”). The Apartment Complexes and Condominium Units are located primarily in the metropolitan Boston area of Massachusetts.

Additionally, as of March 31, 2024, the Partnership and Subsidiary Partnerships owned two commercial shopping centers in Framingham, commercial buildings in Newton and Brookline and commercial space in mixed-use properties in Boston, Brockton and Newton, all in Massachusetts. These properties are referred to collectively as the “Commercial Properties.”

The Partnership also owned a 40% to 50% ownership interest in seven residential and mixed use complexes (the “Investment Properties”) at March 31, 2024 with a total of 688 apartment units, accounted for using the equity method of consolidation. See Note 15 for summary information on these investments.

The Partnership purchased a commercial retail property of approximately 20,700 square feet, located at 653 Worcester Road in Framingham, Massachusetts for the sum of 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, Massachusetts 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.

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 demolished the existing building structures and started construction in January 2024. 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. Total expected construction costs for the project are expected to be approximately $30,000,000 with construction completion anticipated during the fourth quarter of 2025.

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Rental properties consist of the following:

    

March 31, 2024

    

December 31, 2023

    

Useful Life

 

Land, improvements and parking lots

$

99,249,928

$

99,162,143

15

-

40

years

Buildings and improvements

 

278,027,649

 

277,986,334

15

-

40

years

Construction in progress

3,361,078

N/A

Kitchen cabinets

 

16,356,947

 

16,137,828

5

-

10

years

Carpets

 

13,429,753

 

13,127,838

5

-

10

years

Air conditioning

 

500,000

 

500,000

5

-

10

years

Laundry equipment

 

568,716

 

568,716

5

-

7

years

Elevators

 

1,885,265

 

1,885,265

20

-

40

years

Swimming pools

 

1,090,604

 

1,090,604

10

-

30

years

Equipment

 

21,599,934

 

21,348,556

5

-

30

years

Motor vehicles

 

232,954

 

232,954

5

years

Fences

 

91,620

 

91,620

5

-

15

years

Furniture and fixtures

 

8,609,685

 

8,365,039

5

-

7

years

Total fixed assets

 

445,004,133

 

440,496,897

Less: Accumulated depreciation

 

(174,747,433)

 

(170,691,951)

$

270,256,700

$

269,804,946

NOTE 3. RELATED PARTY TRANSACTIONS

The Partnership’s properties are managed by The Hamilton Company, Inc. (the “Management Company”), an entity that is owned by the majority shareholder of NewReal, Inc., the general partner of the Partnership (the “General Partner”). The management fee is equal to 4% of gross receipts of rental revenue and laundry income on the majority of the Partnership’s properties and 3% on Linewt. Total fees paid were approximately $789,000 and $698,000 for the three months ended March 31, 2024 and 2023, respectively.

The Partnership Agreement permits the General Partner or the Management Company to charge the costs of professional services (such as counsel, accountants and contractors) to NERA. During the three months ended March 31, 2024 and 2023, approximately $206,000 and $493,000 was charged to NERA for legal, accounting, construction, maintenance, brokerage fees, rental and architectural services and supervision of capital improvements. Of the 2024 expenses referred to above, approximately $22,000 consisted of repairs and maintenance, and $79,000 of administrative expense. Approximately $105,000 of expenses for construction, architectural services and supervision of capital projects were capitalized in rental properties. Additionally in 2024, the Hamilton Company received approximately $213,000 from the Investment Properties of which approximately $188,000 was the management fee, approximately $18,000 for construction, architectural services, and supervision of capital projects, and approximately $2,000 for repairs and maintenance, and approximately $5,000 for legal expense. The management fee is equal to 4% of gross receipts of rental income on the majority of the investment properties and 2% on Dexter Park.

The Partnership reimburses the Management Company for the payroll and related expenses of the employees who work at the properties. Total reimbursement was approximately $1,100,000 and $1,114,000 for the three months ended March 31, 2024 and 2023, respectively. The Management Company maintains a 401K plan for all eligible employees whereby the employees may contribute the maximum allowed by law. The plan also provides for discretionary contributions by the employer. For the three months ended March 31, 2024, the Partnership accrued $16,000 for the employer’s match portion to the plan. For the three months ended March 31, 2023, the Partnership contributed $16,000 for the employer’s match portion to the plan.

Bookkeeping and accounting functions are provided by the Management Company’s accounting staff, which consists of approximately 14 people. During the three months ended March 31, 2024 and 2023, the Management Company charged the Partnership $31,250 ($125,000 per year) for bookkeeping and accounting services included in administrative expenses above.

Sally Michael is a Director of New Real, Inc., and she is a Partner at Saul Ewing Arnstein & Lear LLP. Saul Ewing billed the Partnership for legal fees totaling approximately $46,000 and $37,000 for the three months ended March 31, 2024 and 2023, respectively.

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The Partnership has invested in seven limited partnerships, which have invested in mixed use residential apartment complexes. The Partnership has a 40% to 50% ownership interest in each investment property. The other investors are the Brown family related entities, and five current and previous employees of the Management Company. The Brown Family related entities’ ownership interest was between 47.6% and 59%. See Note 15 for a description of the properties and their operations.

NOTE 4. PREPAID EXPENSES and OTHER ASSETS

Approximately $3,582,000, and $3,601,000 of security deposits are included in prepaid expenses and other assets at March 31, 2024 and December 31, 2023, respectively. The security deposits and escrow accounts are restricted cash.

Also, included in prepaid expenses and other assets at March 31, 2024 and December 31, 2023 is approximately $1,903,000 and $1,784,000, respectively, held in escrow to fund future capital improvements.

Intangible assets on the acquisition of rental properties are included in prepaid expenses and other assets. Intangible assets are approximately $530,000 and $677,000 net of accumulated amortization of approximately $1,019,000 and $872,000 at March 31, 2024, and at December 31, 2023, respectively.

Financing fees in association with the line of credit of approximately $36,000 and $52,000 are net of accumulated amortization of approximately $146,000 and $130,000 at March 31, 2024 and December 31, 2023 respectively.

NOTE 5. MORTGAGE NOTES PAYABLE

At March 31, 2024 and December 31, 2023, the mortgages payable consisted of various loans, all of which were secured by first mortgages on properties referred to in Note 2. At March 31, 2024, the interest rates on these loans ranged from 2.97% to 4.95%, payable in monthly installments aggregating approximately $1,523,000 including principal, to various dates through 2035. The majority of the mortgages are subject to prepayment penalties. At March 31, 2024, the weighted average interest rate on the above mortgages was 3.68%. The effective rate of 3.77% includes the amortization expense of deferred financing costs. See Note 12 for fair value information. The Partnership’s mortgage debt and the mortgage debt of its unconsolidated joint ventures generally is non-recourse except for customary exceptions pertaining to misuse of funds and material misrepresentations.

Financing fees of approximately $2,684,000 and $2,779,000 are net of accumulated amortization of approximately $1,448,000 and $1,353,000 at March 31, 2024 and December 31, 2023, respectively, which offset the total mortgage notes payable.

The Partnership has pledged tenant leases as additional collateral for certain of these loans.

Approximate annual maturities at March 31, 2024 are as follows:

2025—current maturities

    

$

3,013,000

 

2026

 

22,043,000

2027

 

6,625,000

2028

 

23,180,000

2029

 

58,851,000

Thereafter

 

297,032,000

410,744,000

Less: unamortized deferred financing costs

2,684,000

$

408,060,000

Line of Credit

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

15

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per annum, plus the applicable margin of 2.5%. The agreement originally expired on July 31, 2017, and was extended until October 31, 2020. The costs associated with the line of credit extension were approximately $128,000. Prior to the line’s expiration in 2020, the Partnership exercised its option for a one-year extension until October 31, 2021. The Partnership paid an extension fee of approximately $37,500 in association with the extension.

On October 29, 2021, the 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 commitment amount is for $25 million but is restricted to $17 million during the modification period. The modification period phased out as of 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; from a maximum consolidated leverage ratio of 65% to a ratio of 70% until September 30, 2022 and from a minimum debt yield of 9.5% to a yield of 8.5% until September 30, 2022 and a yield of 9.0% until December 31, 2022. Once the financial performance of the Partnership meets the original covenant tests for the trailing 12-month period, the commitment amount will return to $25 million. As of March 31, 2024, the portfolio’s debt yield fell below the minimum of 9.5% to 9.0%, thus the Partnership did not comply with the debt yield financial covenant. As such, the Partnership is unable to draw 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 line of credit.

The interest rate for the new term was LIBOR plus 300 basis points. The costs associated with the modification and renewal of the line of credit was approximately $179,000.

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. The line may not be used to pay dividends, make distributions or acquire equity interests of the Partnership.

The line of credit is collateralized by varying percentages of the Partnership’s ownership interest in 23 of its subsidiary properties and joint ventures. Pledged interests range from 49% to 100% of the Partnership’s ownership interest in the respective entities.

NOTE 6. ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS

The Partnership’s residential lease agreements may require tenants to maintain a one-month advance rental payment and/or a security deposit. At March 31, 2024, amounts received for prepaid rents of approximately $3,158,000 are included in cash and cash equivalents, and security deposits of approximately $3,582,000 are included in prepaid expenses and other assets and are restricted cash.

NOTE 7. PARTNERS’ CAPITAL

The Partnership has two classes of Limited Partners (Class A and B) and one category of General Partner. Under the terms of the Partnership Agreement, distributions to holders of Class B Units and General Partnership Units must represent 19% and 1%, respectively, of the distributions made to the total units outstanding. All classes have equal profit sharing and distribution rights, in proportion to their ownership interests.

In March 2024, the Partnership approved a quarterly distribution of $12.00 per Unit ($0.40 per Receipt), payable on March 28, 2024. In addition to the quarterly distribution, there was a special distribution of $48.00 per Class A unit ($1.60 per Receipt) payable on March 28, 2024.

In 2023 the Partnership paid a total distribution of an aggregate $84.00 per Unit ($2.80 per Receipt) for a total payment of $9,954,888.

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The Partnership has entered into a deposit agreement with an agent to facilitate public trading of limited partners’ interests in Class A Units. Under the terms of this agreement, the holders of Class A Units have the right to exchange each Class A Unit for 30 Depositary Receipts. The following is information per Depositary Receipt:

Three Months Ended

 

March 31,

 

    

2024

    

2023

 

Net Income per Depositary Receipt

    

$

0.98

    

$

0.49

Distributions per Depositary Receipt

$

2.00

$

1.60

NOTE 8. TREASURY UNITS

Treasury Units at March 31, 2024 are as follows:

Class A

    

50,330

 

Class B

 

11,954

General Partnership

 

629

 

62,913

On August 20, 2007, NewReal, Inc., the General Partner authorized an equity repurchase program (“Repurchase Program”) under which the Partnership was permitted to purchase, over a period of twelve months, up to 300,000 Depositary Receipts (each of which is one-tenth of a Class A Unit). Over time, the General Partner has authorized increases in the equity repurchase program. On March 10, 2015, the General Partner authorized an increase in the Repurchase Program from 1,500,000 to 2,000,000 Depository Receipts and extended the Program for an additional five years from March 31, 2015 until March 31, 2020. On March 9, 2020, the General Partner extended the program for an additional five years from March 31, 2020 to March 31, 2025. The Repurchase Program requires the Partnership to repurchase a proportionate number of Class B Units and General Partner Units in connection with any repurchases of any Depositary Receipts by the Partnership based upon the 80%, 19% and 1% fixed distribution percentages of the holders of the Class A, Class B and General Partner Units under the Partnership’s Second Amended and Restated Contract of Limited Partnership. Repurchases of Depositary Receipts or Partnership Units pursuant to the Repurchase Program may be made by the Partnership from time to time in its sole discretion in open market transactions or in privately negotiated transactions.

From August 20, 2007 through March 31, 2024, the Partnership has repurchased 1,535,092 Depositary Receipts at an average price of $31.40 per receipt (or $942.04 per underlying Class A Unit), 4,416 Class B Units and 233 General Partnership Units, both at an average price of $1,263.00 per Unit, totaling approximately $54,674,000 including brokerage fees paid by the Partnership.

During the three months ended March 31, 2024, the Partnership purchased a total of 2,858 Depositary Receipts. The average price was $70.69 per receipt, or $2,120.70 per unit. The cost including commission was approximately $203,000. The Partnership was required to repurchase 22.6 Class B Units and 1.2 General Partnership units at a cost of $47,983 and $2,525 respectively.

NOTE 9. COMMITMENTS AND CONTINGENCIES

The Partnership, the Subsidiary Partnerships, and the Investment Properties and their properties are not presently subject to any material litigation, and, to management’s knowledge, there is not any material litigation presently threatened against them. The properties are occasionally subject to ordinary routine legal and administrative proceedings incident to the ownership of residential and commercial real estate. Some of the legal and other expenses related to these proceedings are covered by insurance and none of these costs and expenses are expected to have a material adverse effect on the Consolidated Financial Statements of the Partnership.

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NOTE 10. RENTAL INCOME

During the three months ended March 31, 2024, approximately 94% of rental income was related to residential apartments and condominium units with leases of one year or less. The majority of these leases expire in June, July and August. Approximately 6% was related to commercial properties, which have minimum future annual rental income on non-cancellable operating leases at March 31, 2024 as follows:

    

Commercial

 

Property Leases

 

2025

$

3,103,182

2026

 

2,809,317

2027

 

2,509,650

2028

 

2,223,676

2029

 

1,986,170

Thereafter

 

9,837,638

$

22,469,633

The aggregate minimum future rental income does not include contingent rentals that may be received under various leases in connection with common area charges and real estate taxes. Aggregate contingent rentals from continuing operations were approximately $211,000 and $147,000 for the three months ended March 31, 2024 and 2023 respectively. Trader Joe’s and Walgreen’s, tenants at Staples Plaza and 653 Worcester Road, Framingham, Massachusetts respectively, are approximately 16% of the total commercial rental income.

The following information is provided for commercial leases:

    

Annual base

    

    

    

Percentage of

 

rent for

Total square feet

Total number of

annual base rent for

 

Through March 31,

expiring leases

for expiring leases

leases expiring

expiring leases

 

2025

$

477,248

31,876

29

13

%

2026

 

211,470

6,145

9

6

%

2027

 

395,326

15,162

8

11

%

2028

 

189,605

5,493

2

5

%

2029

 

394,176

10,041

4

11

%

2030

 

291,029

12,026

1

8

%

2031

 

%

2032

 

%

2033

 

110,600

1,106

1

3

%

2034

 

533,784

20,897

2

15

%

Thereafter

947,722

27,140

3

28

%

Totals

$

3,550,960

 

129,886

 

59

 

100

%

Rents receivable are net of an allowance for doubtful accounts of approximately $1,043,000 and $1,195,000 at March 31, 2024 and December 31, 2023. Included in rents receivable at March 31, 2024 is approximately $538,000 resulting from recognizing rental income from non-cancelable commercial leases with future rental increases on a straight-line basis.

NOTE 11. CASH FLOW INFORMATION

During the three months ended March 31, 2024 and 2023, cash paid for interest was approximately $3,814,000, and $3,754,000 respectively. Cash paid for state income taxes was approximately $53,000 and $4,000 during the three months ended March 31, 2024 and 2023, respectively.

NOTE 12. FAIR VALUE MEASUREMENTS

Fair Value Measurements on a Recurring Basis

At March 31, 2024 and December 31, 2023, we do not have any significant financial assets or financial liabilities that are measured at fair value on a recurring basis in our consolidated financial statements.

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Financial Assets and Liabilities not Measured at Fair Value

At March 31, 2024 and December 31, 2023 the carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable, and note payable, accounts payable and accrued expenses were representative of their fair values due to the short-term nature of these instruments or, the recent acquisition of these items.

The Partnership has investments in U.S. Treasury bills, some of which mature over a period greater than 90 days and are classified as short-term investments. The U.S. Treasury bills are carried at amortized cost and classified as held to maturity as the Partnership has the intent and the ability to hold them until they mature. The carrying value of the U.S. Treasury bills are adjusted for accretion of discounts over the remaining life of the investment. Income related to the U.S. Treasury bills is recognized in interest income in the Partnership’s consolidated statement of income. The U.S. Treasury bills classified within Level I of the fair value hierarchy.

At March 31, 2024 and December 31, 2023 we estimated the fair value of our mortgage payable, derivative financial instrument, and other notes based upon quoted market prices for the same (Level 1) or similar (Level 2) issues when current quoted market prices are available. We estimated the fair value of our secured mortgage debt that does not have current quoted market prices available by discounting the future cash flows using rates currently available to us for debt with similar terms and maturities (Level 3). The differences in the fair value of our debt from the carrying value are the result of differences in interest rates and/or borrowing spreads that were available to us at March 31, 2024 and December 31, 2023, as compared with those in effect when the debt was issued or acquired. The secured mortgage debt contain pre-payment penalties or yield maintenance provisions that could make the cost of refinancing the debt at lower rates exceed the benefit that would be derived from doing so. At March 31, 2024 and at December 31, 2023, the Partnership’s line of credit had an outstanding balance of zero.

The following methods and assumptions were used by the Partnership in estimating the fair value of its financial instruments:

For cash and cash equivalents, accounts receivable, other assets, investment in partnerships, accounts payable, advance rents and security deposits: fair value approximates the carrying value of such assets and liabilities.
For mortgage notes payable: fair value is generally based on estimated future cash flows, which are discounted using the quoted market rate from an independent source for similar obligations. Refer to the table below for the carrying amount and estimated fair value of such instruments.

The following table reflects the carrying amounts and estimated fair value of our debt.

    

March 31, 2024

    

Dec 31, 2023

Carrying Value

    

Fair Value

Carrying Value

    

 Fair Value

Assets

Cash equivalents

28,801,744

28,801,744

18,230,463

18,230,463

Treasury bills

69,444,998

69,448,049

84,700,751

84,799,638

Total Assets

98,246,742

98,249,793

102,931,214

103,030,101

Liabilities

Mortgage payable *

- Partnership properties

408,060,293

353,236,985

408,660,292

359,092,343

- Investment properties

165,937,703

154,867,600

165,969,481

156,280,958

Total Liabilities

573,997,996

508,104,585

574,629,773

515,373,301

* Net of unamortized deferred financing costs

Disclosure about fair value of financial instruments is based on pertinent information available to management as of March 31, 2024 and December 31, 2023. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since March 31, 2024 and current estimates of fair value may differ significantly from the amounts presented herein.

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NOTE 13. DERIVATIVE FINANCIAL INSTRUMENTS

Cash Flow Hedges of Interest Rate Risk

The Partnership’s objectives in using rate derivatives are to manage its exposure to interest rate movements. To accomplish this objective, the Partnership uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Partnership making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Partnership’s variable rate debt. During the next 12 months, the Partnership estimates $123,000 will be reclassified as a decrease to interest expense.

As of March 31, 2024, the Partnership had one interest rate swap outstanding with a notional amount of approximately $378,000 designated as cash flow hedges of interest rate risk. As of March 31, 2024, the Partnership did not have any interest rate derivatives in a net liability position.

The table below presents the fair value of the Partnership’s derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2024 and December 31, 2023.

Fair Value

Asset Derivatives designated

March 31,

December 31,

as hedging instruments

    

2024

    

2023

    

Balance sheet location

Interest rate swaps

$

378,411

$

236,377

Prepaid Expenses and Other Assets

The table below presents the effect the Partnership’s derivative financial instruments on the consolidated statements of income for the quarters ended March 31, 2024 and 2023.