NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP Forward Looking Statements
Certain information contained herein includes forward looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Liquidation Reform Act of 1995 (the "Act"). Forward looking statements in this report, or which management may make orally or in written form from time to time, reflect management's good faith belief when those statements are made, and are based on information currently available to management. Caution should be exercised in interpreting and relying on such forward looking statements, the realization of which may be impacted by known and unknown risks and uncertainties, events that may occur subsequent to the forward looking statements, and other factors which may be beyond the Partnership's control and which can materially affect the Partnership's actual results, performance or achievements for 2022 and beyond. Should one or more of the risks or uncertainties mentioned below materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We expressly disclaim any responsibility to update our forward looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends. Along with risks detailed in Item 1A and from time to time in the Partnership's filings with theSecurities and Exchange Commission , some factors that could cause the Partnership's actual results, performance or achievements to differ materially from those expressed or implied by forward looking statements include but are not limited to the following:
The Partnership depends on the real estate markets where its properties are
? located, primarily in
affected by local economic market conditions, which are beyond the Partnership's control.
The Partnership is subject to the general economic risks affecting the real
? estate industry, such as dependence on tenants' financial condition, the need
to enter into new leases or renew leases on terms favorable to tenants in order
to generate rental revenues and our ability to collect rents from our tenants.
The Partnership is also impacted by changing economic conditions making
alternative housing arrangements more or less attractive to the Partnership's
? tenants, such as the interest rates on single family home mortgages and the
availability and purchase price of single family homes in the
metropolitan area.
The Partnership is subject to significant expenditures associated with each
? investment, such as debt service payments, real estate taxes, insurance and
maintenance costs, which are generally not reduced when circumstances cause a
reduction in revenues from a property.
The Partnership is subject to increases in heating and utility costs that may
? arise as a result of economic and market conditions and fluctuations in
seasonal weather conditions.
? Civil disturbances, earthquakes and other natural disasters may result in
uninsured or underinsured losses.
? Actual or threatened terrorist attacks may adversely affect our ability to
generate revenues and the value of our properties.
? Financing or refinancing of Partnership properties may not be available to the
extent necessary or desirable, or may not be available on favorable terms.
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The Partnership properties face competition from similar properties in the same
? market. This competition may affect the Partnership's ability to attract and
retain tenants and may reduce the rents that can be charged.
Given the nature of the real estate business, the Partnership is subject to
potential environmental liabilities. These include environmental contamination
in the soil at the Partnership's or neighboring real estate, whether caused by
? the Partnership, previous owners of the subject property or neighbors of the
subject property, and the presence of hazardous materials in the Partnership's
buildings, such as asbestos, lead, mold and radon gas. Management is not aware
of any material environmental liabilities at this time.
Insurance coverage for and relating to commercial properties is increasingly
costly and difficult to obtain. In addition, insurance carriers have excluded
certain specific items from standard insurance policies, which have resulted in
? increased risk exposure for the Partnership. These include insurance coverage
for acts of terrorism and war, and coverage for mold and other environmental
conditions. Coverage for these items is either unavailable or prohibitively
expensive.
? Market interest rates could adversely affect market prices for Class A
Partnership Units and Depositary Receipts as well as performance and cash flow.
Changes in income tax laws and regulations may affect the income taxable to
? owners of the Partnership. These changes may affect the after-tax value of
future distributions.
The Partnership may fail to identify, acquire, construct or develop additional
properties; may develop or acquire properties that do not produce a desired or
? expected yield on invested capital; may be unable to sell poorly- performing or
otherwise undesirable properties quickly; or may fail to effectively integrate
acquisitions of properties or portfolios of properties.
? Risk associated with the use of debt to fund acquisitions and developments.
? Competition for acquisitions may result in increased prices for properties.
Any weakness identified in the Partnership's internal controls as part of the
? evaluation being undertaken could have an adverse effect on the Partnership's
business.
? Ongoing compliance with Sarbanes-Oxley Act of 2002 may require additional
personnel or systems changes.
The foregoing factors should not be construed as exhaustive or as an admission regarding the adequacy of disclosures made by the Partnership prior to the date hereof or the effectiveness of said Act. The Partnership expressly disclaims any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Over the past year, the Partnership took advantage of the low interest rate environment and refinanced fifteen properties, increased their loan balances, and raised approximately$130,000,000 . With interest rates rising, and a threat of an economic slowdown, the Partnership increased the debt level and built cash reserves to acquire additional properties when opportunities become available. Currently, approximately$88,000,000 of these reserves are invested in short-termUS Treasury bills maturing in 6 months or less with interest rates between 2.74% and 4.60%. Since the Partnership's long-term goals include the acquisition of additional properties, a portion of the proceeds from the refinancing and sale of properties is reserved for this purpose. If available acquisitions do not meet the Partnership's investment criteria, the Partnership may purchase additional depositary receipts. The Partnership will consider refinancing existing properties if the Partnership's cash reserves are insufficient to repay existing mortgages or if the Partnership needs additional funds for future acquisitions. 26 Table of Contents OnFebruary 24, 2019 ,Harold Brown , the owner of 75% of the outstanding voting securities ofNewReal, Inc. ("NewReal"), the general partner ofNew England Realty Associates Limited Partnership passed away. As a result, the estate ofHarold Brown currently holds voting control over the NewReal shares. AtFebruary 1, 2023 ,Harold Brown related entities andRonald Brown collectively own approximately 31.8% of the Depositary Receipts representing the Partnership Class A Units (including Depositary Receipts held by trusts for the benefit of such persons' family members).Harold Brown related entities also control 75% of the Partnership's ClassB Units , and 75% of the capital stock of NewReal, the Partnership's sole general partner.Ronald Brown also owns 25% of the Partnership's ClassB Units and 25% of NewReal's capital stock. In addition,Ronald Brown is the President and director of NewReal andJameson Brown is NewReal's Treasurer and a director. The 75% of the issued and outstanding Class B units of the Partnership, are owned byHBC Holdings LLC , an entity of whichJameson Brown is the manager. The outstanding stock of TheHamilton Company, Inc. is controlled byJameson Brown andHarley Brown . The 75% of the issued and outstanding capital stock of NewReal, is owned by the Harold Brown 2013Revocable Trust (the "2013 Trust"), an entity of whichSally Michaels andDavid Reier are the trustees. As reported on Form 8-K datedOctober 1, 2021 ,Robert Somma , a trustee of the 2013 Trust, passed away.Mr. Reier replaced him as trustee of the 2013 Trust.Mr. Reier was elected onNovember 5, 2021 as a director ofNew Real, Inc. Effective as ofMay 3, 2019 , the Board of Directors of New Real electedAndrew Bloch as a member of the Board.Mr. Bloch was the Co-CEO and CFO of theHamilton Company, Inc. the Manager of the Partnership's properties. OnDecember 5, 2022 ,Mr. Bloch resigned as Chief Financial Officer.Mr. Bloch will continue to work with Hamilton on a consultative basis to ensure a smooth transition of responsibilities to the new CFO.Mr. Bloch remains a director of the General Partner, and of theManagement Company .
Effective as of
On
The vacancy rate for the Partnership's residential properties as ofFebruary 1, 2023 was 1.9% as compared with a vacancy rate of 1.7% as ofFebruary 1, 2022 . The vacancy rate for the Joint Venture properties as ofFebruary 1, 2022 was 1.7%, as compared to 1.5% for the same period last year. The current vacancy rates are in line with those experienced prior to the Pandemic. Residential tenants generally have lease terms of 12 months. The majority of these leases will mature during the second and third quarters of the year. Rental activity continues to be strong as we move from 2022 into 2023 and all indications are that we will have low vacancy rates for the foreseeable future. During the fourth quarter of 2022, rents increased on average 7.1% for renewals and increased on average 11.0% for new leases. For all of 2022, renewal rents increased approximately 6.3% and increased approximately 15.4% for new leases. For 2023, management expects the local real estate market to remain strong as we move from the winter into the spring rental season. For the year endingDecember 31, 2022 , consolidated revenue increased by 8.7%, operating expenses increased by 3.7% and Income before Other Income (Expense) increased by 27.0%. For the fourth quarter of 2022, consolidated revenue increased by 7.9%, operating expenses decreased by 3.7% and Income before Other Income (Expense) increased by 65.3%, as compared to the fourth quarter of 2021. OnNovember 30, 2021 ,New England Realty Associates Limited Partnership (the "Partnership"), entered into a Master Credit Facility Agreement ( the "Facility Agreement") withKeyBank National Association ("KeyBank") dated as ofNovember 30, 2021 , with an initial advance in the amount of$156,000,000 . Interest only on the debt at a fixed interest rate of 2.97% is payable on a monthly basis throughDecember 31, 2031 . The Partnership's obligations under the Facility Agreement are secured by mortgages on certain properties pursuant to certain Mortgage, Assignment of Leases and 27
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Rents, and Security Agreement and Fixture Filings ("Mortgages"). See schedule in
Note 5, Mortgage Notes Payable, for the details of the transaction as it relates
to the specific properties.
The Partnership used the proceeds to pay down approximately $65,300,000 of
existing debt secured by 11 properties, along with approximately $2,700,000 in
prepayment penalties. The remaining balance of approximately $89,000,000 will be
used for general partnership purposes. See schedule in Note 5, Mortgage Notes
Payable, for the details of the transaction as it relates to the specific
properties.
On June 16, 2022 , the Partnership entered into an amendment to the Facility
Agreement. The additional advance under the Amended Agreement is in the amount
of $80,284,000 , at a fixed interest rate of 4.33%. The Partnership's obligations
under the Facility Agreement are secured by mortgages on certain properties
pursuant to certain Mortgage, Assignment of Leases and Rents, and Security
Agreement and Fixture Filings.
The Partnership used the proceeds to pay down approximately $37,065,000 of
existing debt secured by four properties, along with approximately $854,000 in
prepayment penalties. The remaining balance of approximately $42,384,000 will be
used for general partnership purposes.
On October 14, 2022 , the Partnership entered into a loan agreement with
Brookline Bank refinancing its loan on 659-665 Worcester Road , Framingham, MA.
The agreement pays down the loan on the existing debt of $5,954,546.14 , extends
the maturity until October 14, 2032 at a variable interest rate of the SOFR rate
plus 1.7%, interest only for 2 years and amortizing using a thirty-year schedule
for the balance of the term. At closing, the Partnership entered into an
interest rate swap contract with Brookline Bank with a notional amount
equivalent to the underlying loan principal amortization, resulting in a fixed
rate of 4.60% through the expiration of the interest rate swap contract. The
agreement also allows for an earn out of up to an additional $1,495,453.86 once
the property performance reaches a 1.35x debt service coverage ratio and the
loan to value equates to at most 65%.
On March 31, 2020 , Nera Brookside Associates, LLC ("Brookside Apartments "),
entered into a Mortgage Note with KeyBank National Associates (KeyBank ) in the
principal amount of $6,175,000 . Interest only payments on the Note are payable
on a monthly basis at a fixed interest rate of 3.53% per annum, and the
principal amount of the Note is due and payable on April 1, 2035 . The Note is
secured by a mortgage on the Brookside apartment complex located at 5-12 Totman
Drive , Woburn, Massachusetts pursuant to a Mortgage, Assignment of Leases and
Rents and Security Agreement dated March 31, 2020 . The Note is guaranteed by the
Partnership pursuant to a Guaranty Agreement dated March 31, 2020 . Brookside
Apartments used the proceeds of the loan to pay off an outstanding loan of
approximately $2,390,000 , with the remaining portion of the proceeds added to
cash reserves. In connection with this refinancing, there were closing costs of
approximately $136,000 .
On July 31, 2014 , the Partnership entered into an agreement for a $25,000,000
revolving line of credit. The term of the line is three years with a floating
interest rate equal to a base rate of the greater of (a) the Prime Rate (b) the
Federal Funds Rate plus one-half of one percent per annum, or (c) the LIBOR Rate
for a period of one month plus 1% per annum, plus an applicable margin of 2.5%.
The agreement originally expired on July 31, 2017 , and was subsequently extended
until October 31 , 2020.The costs associated with the line of credit extension
were approximately $128,000 .
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 covers the
current period and phases out by December 31, 2022 . During this period, the loan
covenants are modified from a minimum consolidated debt service ratio of 1.60 to
a ratio of 1.35 until September 30, 2022 ; 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 .
The portfolio's debt yield fell below the minimum of 9.0% to 8.3%. Consequently,
as of December 31,2022 , the Partnership did not comply with the debt yield
financial covenant. As such, the Partnership is restricted from drawing down any
amount from the
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line of credit until the Partnership meets the required financial covenants.
The Stock Repurchase Program that was initiated in 2007 has purchased 1,488,460
Depositary Receipts through
In March of 2020, theBoard of Advisors and Board of Directors unanimously approved an extension of the Repurchase Program untilMarch 31, 2025 . Management believes that the$25,000,000 line of credit, net cash flow from operations and cash on hand have put the Partnership in position to capitalize on investment opportunities should they reveal themselves in the near future. As always, Management continues to weigh investment alternatives of stock repurchase, new property acquisitions and dispositions when considering its cash balances and performance of the portfolio. Given the economic uncertainty caused by the coronavirus issue, as ofApril 15, 2020 , the Partnership elected to temporarily suspend the repurchase program, With the improving economic outlook and the return of students to universities in theGreater Boston area in the fall of 2021, the repurchase program was reinstated in November of 2021. The Partnership has retained TheHamilton Company ("Hamilton") to manage and administer thePartnership's and Joint Ventures' Properties . Hamilton is a full-service real estate management company, which has legal, construction, maintenance, architectural, accounting and administrative departments. The Partnership's properties represent approximately 44% of the total properties and 50% of the residential properties managed by Hamilton. Substantially all of the other properties managed by Hamilton are owned, wholly or partially, directly or indirectly, by the Brown Family related entities. The Partnership's Second Amended and Restated Contract of Limited Partnership (the "Partnership Agreement") expressly provides that the general partner may employ a management company to manage the properties, and that such management company may be paid a fee of up to 4% of rental receipts for administrative and management services (the "Management Fee"). The Partnership pays Hamilton the full annual Management Fee, in monthly installments. In addition to the Management Fee, the Partnership Agreement further provides for the employment of outside professionals to provide services to the Partnership and allows NewReal to charge the Partnership for the cost of employing professionals to assist with the administration of the Partnership's properties. Additionally, from time to time, the Partnership pays Hamilton for repairs and maintenance services, legal services, construction services and accounting services. The costs charged by Hamilton for these services are at the same hourly rate charged to all entities managed by Hamilton, and management believes such rates are competitive in the marketplace. In 2022, tenant renewals were approximately 69% with an average rental increase of approximately 6.3 %, new leases accounted for approximately 31% with rental rate increases of approximately 15.4%. In 2022, leasing commissions were approximately$334,000 compared to approximately$835,000 in 2021, a decrease of approximately$501,000 (60.0%) from 2021. Tenant concessions were approximately$50,000 in 2022 compared to approximately$50,000 in 2021.Tenant improvements were approximately$2,333,000 in 2022 compared to approximately$1,991,000 in 2021, an increase of approximately$342,000 (17.2%). Hamilton accounted for approximately 2.3% of the repair and maintenance expense paid for by the Partnership in the year endedDecember 31, 2022 and 2.2% in the year endedDecember 31, 2021 . Of the funds paid to Hamilton for this purpose, the great majority was to cover the cost of services provided by the Hamilton maintenance department, including plumbing, electrical, carpentry services, and snow removal for those properties close to Hamilton's headquarters. Several of the larger Partnership properties have their own maintenance staff. Those properties that do not have their own maintenance staff and are located more than a reasonable distance from Hamilton's headquarters inAllston, Massachusetts are generally serviced by local, independent companies. Hamilton's legal department handles most of the Partnership's eviction and collection matters. Additionally, it prepares most long-term commercial lease agreements and represents the Partnership in selected purchase and sale transactions. Overall, Hamilton provided approximately 70.7% and 67.4% of the legal services paid for by the Partnership during the years endedDecember 31, 2022 and 2021, respectively.
Additionally, as described in Note 3 to the consolidated financial statements,
The
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The Partnership requires that three bids be obtained for construction contracts in excess of$15,000 . Hamilton may be one of the three bidders on a particular project and may be awarded the contract if its bid and its ability to successfully complete the project are deemed appropriate. For contracts that are not awarded to Hamilton, Hamilton charges the Partnership a construction supervision fee equal to 5% of the contract amount. Hamilton's architectural department also provides services to the Partnership on an as-needed basis. In 2022, Hamilton provided the Partnership approximately$114,000 in construction and architectural services, compared to$581,000 for the year endedDecember 31, 2021 . Bookkeeping and accounting functions have been provided by Hamilton's accounting staff, which consists of approximately 15 people. In 2022, Hamilton charged the Partnership$125,000 per year ($31,250 per quarter) for bookkeeping and accounting services. For more information on related party transactions, see Note 3 to the Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the consolidated financial statements, in accordance with accounting principles generally accepted inthe United States of America , requires the Partnership to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. The Partnership regularly and continually evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate properties and its investments in and advances to joint ventures. The Partnership bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment. The Partnership's critical accounting policies are those which require assumptions to be made about such 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. See Note 1 to the Consolidated Financial Statements, Principles of Consolidation. 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. Concessions made on residential leases 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. Under this standard, 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 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 30
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are no significant contingencies relating to the sale. If, in management's opinion, the estimated net sales price, net of selling costs, of the assets which have been identified as held for sale is less than the carrying value of the assets, a valuation allowance is established.
If circumstances arise that previously were considered unlikely and, as a result, the Partnership decides not to sell a property previously classified as held for sale, the property is reclassified as held and used. A property that is reclassified is measured and recorded individually at the lower of (a) its carrying value before the property was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the property been continuously classified as held and used, or (b) the fair value at the date of the subsequent decision not to sell.Rental Properties : Rental properties are stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred; improvements and additions 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 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. Investments in Treasury Bills: Investments in 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. Intangible assets acquired include amounts for in-place lease values above and below market leases 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. Impairment: On an annual basis management assesses whether there are any indicators that the value of the Partnership's rental properties may be impaired. 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, 31
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and costs to operate each property. As these factors are difficult to predict
and are subject to future events that may alter management's assumptions, the
future cash flows estimated by management in its impairment analysis may not be
achieved.
Investments in Joint Ventures: The Partnership accounts for its 40%-50%
ownership in the Investment Properties under the equity method of accounting, as
it exercises significant influence over, but does not control these entities.
These investments are recorded initially at cost, as Investments in Joint
Ventures, and subsequently adjusted for the Partnership's share in earnings,
cash contributions and distributions. Under the equity method of accounting, our
net equity is reflected on the consolidated balance sheets, and our share of net
income or loss from the Partnership is included on the consolidated statements
of income. 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.
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 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.
With respect to investments in and advances to the Investment Properties, the
Partnership looks to the underlying properties to assess performance and the
recoverability of carrying amounts for those investments in a manner similar to
direct investments in real estate properties. An impairment charge is recorded
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.
Legal Proceedings: The Partnership is subject to various legal proceedings and
claims that arise, from time to time, in the ordinary course of business. These
matters are frequently covered by insurance. If it is determined that a loss is
likely to occur, the estimated amount of the loss is recorded in the financial
statements. Both the amount of the loss and the point at which its occurrence is
considered likely can be difficult to determine.
RESULTS OF OPERATIONS
Years Ended
The Partnership and its Subsidiary Partnerships earned income before interest expense, income from investments in unconsolidated joint ventures and other income and loss of approximately$18,088,000 during the year endedDecember 31, 2022 , compared to approximately$14,243,000 for the year endedDecember 31, 2021 , an increase of approximately$3,846,000 (27.0%). 32
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The rental activity is summarized as follows:
Occupancy Date
February 1, 2023 February 1, 2022
Residential
Units 2,911 2,911
Vacancies 56 50
Vacancy rate 1.9 % 1.7 %
Commercial
Total square feet 108,043 108,043
Vacancy - -
Vacancy rate 0.0 % 0.0 %
Rental Income (in thousands)
Year Ended December 31,
2022 2021
Total Continuing Total Continuing
Operations Operations Operations Operations
Total rents $ 67,561 67,561 $ 62,176 $ 62,176
Residential percentage 95 % 95 % 95 % 95 %
Commercial percentage 5 % 5 % 5 % 5 %
Contingent rentals $ 541 541 $ 563 $ 563 Year Ended
Year Ended December 31, Dollar Percent
2022 2021 Change Change
Revenues
Rental income $ 67,560,662 $ 62,175,592 $ 5,385,070 8.7%
Laundry and sundry income 733,064 462,862 270,202 58.4%
68,293,726 62,638,454 5,655,272 9.0%
Expenses
Administrative 2,731,284 2,476,593 254,691 10.3%
Depreciation and amortization 16,373,429 16,671,076 (297,647) (1.8%)
Management fee 2,716,514 2,523,943 192,571 7.6%
Operating 7,324,692 6,471,250 853,442 13.2%
Renting 639,235 1,241,298 (602,063) (48.5%)
Repairs and maintenance 11,270,589 10,069,325 1,201,264 11.9%
Taxes and insurance 9,149,837 8,942,469 207,368 2.3%
50,205,580 48,395,954 1,809,626 3.7%
Income Before Other Income (Expense) 18,088,146 14,242,500 3,845,646 27.0%
Other Income (Expense)
Interest income 1,055,338 87 1,055,251 100.0%
Interest expense (15,045,477) (13,629,463) (1,416,014) 10.4%
Income from investments in
unconsolidated joint ventures 499,783 (567,308) 1,067,091 188.1%
Other Income (Expense) (874,517) (2,745,979) 1,871,462 68.2%
(14,364,873) (16,942,663) 2,577,790 15.2%
Net Income (Loss) $ 3,723,273 $
(2,700,163)
Rental income from continuing operations for the year endedDecember 31, 2022 was approximately$67,560,000 , compared to approximately$62,175,000 for the year endedDecember 31, 2021 , an increase of approximately$5,385,000 (8.7%).The Partnership Properties with the largest increases in rental income include 62Boylston Street Apartments , 1144Commonwealth Apartments ,Mill Street Gardens ,Westgate Apartments , andHamilton Green , with increases of approximately$1,891,000 ,$814,000 ,$402,000 ,$341,000 and$302,000 , respectively. 33 Table of Contents
Included in rental income is contingent rentals collected on commercial properties. Contingent rentals include such chares as bill backs of common area maintenance charges, real estate taxes, and utility charges.
Total expenses from continuing operations for the year endedDecember 31, 2022 were approximately$50,206,000 compared to approximately$48,396,000 for the year endedDecember 31, 2021 , an increase of approximately$1,810,000 (3.7%). Factors which contributed to the increase were an increase in Repairs and Maintenance expense of approximately$1,201,000 (11.9%), primarily due to an increase in apartment units turnover costs, an increase in Operating expenses of approximately$853,000 (13.2%), primarily due to an increase in snow removal and utility expense, and an increase in Administrative expense of approximately$255,000 (10.3%), partially due to an increase in professional fees, offset in part by a decrease in Depreciation and Amortization expense of approximately$298,000 (1.8%), due to fully depreciated assets.
Interest income for the year ended
Interest expense for the year endedDecember 31, 2022 was approximately$15,045,000 compared to approximately$13,629,000 for the year endedDecember 31, 2021 , an increase of approximately$1,416,000 (10.4%), The increase is due to the refinancing of properties, increasing the amount of debt, which increased the interest expense for the period. AtDecember 31, 2022 , the Partnership has between a 40% and 50% ownership interests in seven different Investment Properties. See a description of these properties included in the section titled Investment Properties as well as Note 14 to the Consolidated Financial Statements for a detail of the financial information of each Investment Property. As described in Note 15 to the Consolidated Financial Statements, the Partnership's share of the net income from the Investment Properties was approximately$500,000 for the year endedDecember 31, 2022 , compared to a net loss of approximately$567,000 for the year endedDecember 31, 2021 , an increase in income of approximately$1,067,000 (188.1%). This increase is primarily due to rental revenue of approximately$10,261,000 for the year endedDecember 31, 2022 compared to approximately$9,132,000 for the year endedDecember 31, 2021 , an increase of approximately$1,129,000 (12.40).%. Included in the income for the year endedDecember 31, 2022 is depreciation and amortization expense of approximately$2,638,000 . OnNovember 30, 2021 ,New England Realty Associates Limited Partnership (the "Partnership"), entered into a Master Credit Facility Agreement (the "Facility Agreement") withKeyBank National Association ("KeyBank") dated as ofNovember 30, 2021 , with an initial advance in the amount of$156,000,000 . Interest only on the debt at a fixed interest rate of 2.97% is payable on a monthly basis throughDecember 31, 2031 . The Partnership's obligations under the Facility Agreement are secured by mortgages on certain properties pursuant to certain Mortgage, Assignment of Leases and Rents, and Security Agreement and Fixture Filings ("Mortgages"). See schedule in Note 5, Mortgage Notes Payable, for the details of the transaction as it relates to the specific properties. OnJune 16, 2022 , the Partnership entered into an amendment to the Facility Agreement. The additional advance under the Amended Agreement is in the amount of$80,284,000 , at a fixed interest rate of 4.33%. The Partnership's obligations under the Facility Agreement are secured by mortgages on certain properties pursuant to certain Mortgage, Assignment of Leases and Rents, and Security Agreement and Fixture Filings. The Partnership used the proceeds to pay down approximately$37,065,000 of existing debt secured by four properties, along with approximately$854,000 in prepayment penalties. The remaining balance of approximately$42,384,000 will be used for general partnership purposes.
On
34
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extends the maturity untilOctober 14, 2032 at a variable interest rate of the SOFR rate plus 1.7%, interest only for 2 years and amortizing using a thirty-year schedule for the balance of the term. At closing, the Partnership entered into an interest rate swap contract withBrookline Bank with a notional amount equivalent to the underlying loan principal amortization, resulting in a fixed rate of 4.60% through the expiration of the interest rate swap contract. The agreement also allows for an earn out of up to an additional$1,495,453.86 once the property performance reaches a 1.35x debt service coverage ratio and the loan to value equates to at most 65%. As described in Note 5, Mortgage Notes Payable, to the Consolidated Financial Statements, onNovember 30, 2021 ,New England Realty Associates Limited Partnership (the "Partnership"), entered into a Master Credit Facility Agreement ( the "Facility Agreement") withKeyBank National Association ("KeyBank") dated as ofNovember 30, 2021 , with the initial advance in the amount of$156,000,000 . Interest only on the debt at a fixed interest rate of 2.97% is payable on a monthly basis throughDecember 31, 2031 . The Partnership used the proceeds to pay down approximately$65,305,000 of existing debt secured by 11 properties, along with approximately$2,700,000 in prepayment penalties, which is included in other expenses, resulting in a charge to other expense. This charge had a material effect on the 2021 net income. The remaining balance of approximately$89,000,000 shall be used for general partnership purposes.
As a result of the changes discussed above, net income for the year ended
Years Ended
The Partnership and its Subsidiary Partnerships earned income before interest expense, income from investments in unconsolidated joint ventures and other income and loss of approximately$14,242,000 during the year endedDecember 31, 2021 , compared to approximately$14,969,000 for the year endedDecember 31, 2020 , a decrease of approximately$727,000 (4.9%).
The rental activity is summarized as follows:
Occupancy Date
February 1, 2022 February 1, 2021
Residential
Units 2,911 2,911
Vacancies 50 181
Vacancy rate 1.7 % 6.2 %
Commercial
Total square feet 108,043 108,043
Vacancy - 9,376
Vacancy rate 0.0 % 8.7 %
Rental Income (in thousands)
Year Ended December 31,
2021 2020
Total Continuing Total Continuing
Operations Operations Operations Operations
Total rents $ 62,176 62,176 $ 61,662 $ 61,662 Residential percentage 95 % 95 % 95 % 95 % Commercial percentage 5 % 5 % 5 % 5 % Contingent rentals$ 563 563$ 512 $
512
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Year Ended
Year Ended December 31, Dollar Percent
2021 2020 Change Change
Revenues
Rental income $ 62,175,592 $ 61,661,551 $ 514,041 0.8%
Laundry and sundry income 462,862 441,159 21,703 4.9%
62,638,454 62,102,710 535,744 0.9%
Expenses
Administrative 2,476,593 2,209,780 266,813 12.1%
Depreciation and amortization 16,671,076 18,410,811 (1,739,735) (9.4%)
Management fee 2,523,943 2,452,814 71,129 2.9%
Operating 6,471,250 5,766,160 705,090 12.2%
Renting 1,241,298 864,542 376,756 43.6%
Repairs and maintenance 10,069,325 8,781,789 1,287,536 14.7%
Taxes and insurance 8,942,469 8,647,781 294,688 3.4%
48,395,954 47,133,677 1,262,277 2.7%
Income Before Other Income ( Expense) 14,242,500 14,969,033 (726,533) (4.9)%
Other Income (Expense)
Interest income 87 195 (108) (55.4%)
Interest (expense) (13,629,463) (13,705,415) 75,952 (0.6%)
Income (Loss) from investments in
unconsolidated joint ventures (567,308) 160,715 (728,023) (453.0%)
Other (Expense) (2,745,979) - (2,745,979) 100.0%
(16,942,663) (13,544,505) (3,398,158) 25.1%
Net (Loss) Income $ (2,700,163) $ 1,424,528 Rental income from continuing operations for the year endedDecember 31, 2021 was approximately$62,175,000 , compared to approximately$61,661,000 for the year endedDecember 31, 2020 , an increase of approximately$514,000 (0.8%). Although rental income has increased at other properties, due to the effect of the Covid pandemic there have been a number of properties incurring a decrease in their rental income.The Partnership Properties with the largest increases in rental income includeHamilton Green ,Hamilton Oaks , andClovelly Apartments , with increases of approximately$227,000 ,$169,000 , and$100,000 , respectively. These are offset by certain properties with the largest decreases in rental income which include 62 Boylston, 1144 Commonwealth, andWoodland Park with decreases of approximately$1,003,000 ,$329,000 , and$146,000 , respectively. Included in rental income is contingent rentals collected on commercial properties. Contingent rentals include such charges as bill backs of common area maintenance charges, real estate taxes, and utility charges. Total expenses from continuing operations for the year endedDecember 31, 2021 were approximately$48,396,000 compared to approximately$47,134,000 for the year endedDecember 31, 2020 , an increase of approximately$1,262,000 (2.7%). Factors which contributed to the increase were an increase in Repairs and Maintenance expense of approximately$1,288,000 , (14.7%), primarily due to a increase in appliance and pool repairs, an increase in Operating expenses of approximately$705,000 (12.2%), primarily due to an increase in utility expense, and an increase in Renting expense of approximately$377,000 (43.6%), partially due to an increase in leasing commission expense, offset in part by a decrease in Depreciation and Amortization expense of approximately$1,740,000 (9.4%), due to fully depreciated assets.
Interest expense for the year ended
AtDecember 31, 2021 , the Partnership has between a 40% and 50% ownership interests in seven different Investment Properties. See a description of these properties included in the section titled Investment Properties as well as Note 14 to the Consolidated Financial Statements for a detail of the financial information of each Investment Property. 36
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As described in Note 15 to the Consolidated Financial Statements, the Partnership's share of the net loss from the Investment Properties was approximately$567,000 for the year endedDecember 31, 2021 , compared to a net income of approximately$161,000 for the year endedDecember 31, 2020 , a decrease in income of approximately$728,000 (453.0%). This decrease is primarily due to the decrease in net income atDexter Park from net income of approximately$105,000 for the year endedDecember 31, 2020 to a loss of approximately$815,000 for the year endedDecember 31, 2021 , a decrease of$920,000 (876.2%), primarily due to lower rental rates and higher vacancy in early 2021. Included in the income for the year endedDecember 31, 2021 is depreciation and amortization expense of approximately$2,634,000 . OnNovember 30, 2021 ,New England Realty Associates Limited Partnership (the "Partnership"), entered into a Master Credit Facility Agreement (the "Facility Agreement") withKeyBank National Association ("KeyBank") dated as ofNovember 30, 2021 , with an initial advance in the amount of$156,000,000 . Interest only on the debt at a fixed interest rate of 2.97% is payable on a monthly basis throughDecember 31, 2031 . The Partnership's obligations under the Facility Agreement are secured by mortgages on certain properties pursuant to certain Mortgage, Assignment of Leases and Rents, and Security Agreement and Fixture Filings ("Mortgages"). See schedule in Note 5, Mortgage Notes Payable, for the details of the transaction as it relates to the specific properties. As describe in Note 5, Mortgage Notes Payable, to the Consolidated Financial Statements, onNovember 30, 2021 ,New England Realty Associates Limited Partnership (the "Partnership"), entered into a Master Credit Facility Agreement ( the "Facility Agreement") withKeyBank National Association ("KeyBank") dated as ofNovember 30, 2021 , with the initial advance in the amount of$156,000,000 . Interest only on the debt at a fixed interest rate of 2.97% is payable on a monthly basis throughDecember 31, 2031 . The Partnership used the proceeds to pay down approximately$65,305,000 of existing debt secured by 11 properties, along with approximately$2,700,000 in prepayment penalties, which is included in other expenses, resulting in a charge to other expense. This charge had a material effect on the 2021 net income. The remaining balance of approximately$89,000,000 shall be used for general partnership purposes.
As a result of the changes discussed above, net loss for the year ended
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's principal sources of cash during 2022 was the proceeds from the refinancing of 5 properties for approximately$43,000,000 , interest income generated from the purchase of Treasury Bills, and the collection of rents. In 2021, the principal sources of cash was the proceeds from the refinancing of 11 properties for approximately$156,000,000 and the collection of rents. The majority of cash and cash equivalents of$49,560,723 atDecember 31, 2022 and$96,083,508 atDecember 31, 2021 were held in interest bearing accounts at creditworthy financial institutions. The decrease in cash of$46,522,785 atDecember 31, 2022 is summarized as follows: Year EndedDecember 31, 2022 2021
Cash provided by operating activities$ 21,539,727 $ 15,783,158 Cash (used in) investing activities (93,073,258)
(2,332,446)
Cash provided by financing activities 39,605,700
69,109,222
Repurchase of Depositary Receipts, Class B and General Partner Units (5,326,973)
(450,258)
Distributions paid (9,267,981)
(4,673,140)
Net increase in cash and cash equivalents$ (46,522,785)
The change in cash provided by operating activities is due to various factors,
including a change in depreciation expense, a change in income and distribution
from joint ventures, and other factors. The decrease in cash used in investing
activities is primarily due to improvements to rental properties, and the
purchase of Treasury Bills. The change
37
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in cash used in financing activities is due to the refinancing of 4 properties, the pay down of mortgages, the repurchase of depositary receipts, and distributions.
During 2022, the Partnership and its Subsidiary Partnerships completed improvements to certain of the Properties at a total cost of approximately$5,981,000 . These improvements were funded from cash reserves and, to some extent, escrow accounts established in connection with the financing or refinancing of the applicable Properties. These sources have been adequate to fully fund improvements. The most significant improvements were made at Hamilton Oaks, Westside Colonial, 1144 Commonwealth,Captain Parker ,Hamilton Green , andRiver Drive Apartments , at a cost of$1,193,000 ,$636,000 ,$566,000 ,$507,000 ,$390,000 , and$294,000 respectively. The Partnership plans to invest approximately$12,500,000 in capital improvements in 2023. OnNovember 30, 2021 ,New England Realty Associates Limited Partnership (the "Partnership"), entered into a Master Credit Facility Agreement (the "Facility Agreement") withKeyBank National Association ("KeyBank") dated as ofNovember 30, 2021 , with an initial advance in the amount of$156,000,000 . Interest only on the debt at a fixed interest rate of 2.97% is payable on a monthly basis throughDecember 31, 2031 . The Partnership's obligations under the Facility Agreement are secured by mortgages on certain properties pursuant to certain Mortgage, Assignment of Leases and Rents, and Security Agreement and Fixture Filings ("Mortgages"). See schedule in Note 5, Mortgage Notes Payable, for the details of the transaction as it relates to the specific properties. The Partnership used the proceeds to pay down approximately$65,300,000 of existing debt secured by 11 properties, along with approximately$2,700,000 in prepayment penalties. The remaining balance of approximately$89,000,000 will be used for general partnership purposes. OnJune 16, 2022 , the Partnership entered into an amendment to the Facility Agreement. The additional advance under the Amended Agreement is in the amount of$80,284,000 , at a fixed interest rate of 4.33%. The Partnership's obligations under the Facility Agreement are secured by mortgages on certain properties pursuant to certain Mortgage, Assignment of Leases and Rents, and Security Agreement and Fixture Filings. The Partnership used the proceeds to pay down approximately$37,065,000 of existing debt secured by four properties, along with approximately$854,000 in prepayment penalties. The remaining balance of approximately$42,384,000 will be used for general partnership purposes. OnOctober 14, 2022 , the Partnership entered into a loan agreement withBrookline Bank refinancing its loan on659-665 Worcester Road ,Framingham, MA. The agreement pays down the loan on the existing debt of$5,954,546.14 , extends the maturity untilOctober 14, 2032 at a variable interest rate of the SOFR rate plus 1.7%, interest only for 2 years and amortizing using a thirty-year schedule for the balance of the term. At closing, the Partnership entered into an interest rate swap contract withBrookline Bank with a notional amount equivalent to the underlying loan principal amortization, resulting in a fixed rate of 4.60% through the expiration of the interest rate swap contract. The agreement also allows for an earn out of up to an additional$1,495,453.86 once the property performance reaches a 1.35x debt service coverage ratio and the loan to value equates to at most 65%. OnMarch 31, 2020 ,Nera Brookside Associates, LLC ("Brookside Apartments "), entered into a Mortgage Note withKeyBank National Associates (KeyBank ) in the principal amount of$6,175,000 . Interest only payments on the Note are payable on a monthly basis at a fixed interest rate of 3.53% per annum, and the principal amount of the Note is due and payable onApril 1, 2035 . The Note is secured by a mortgage on the Brookside apartment complex located at5-12 Totman Drive ,Woburn, Massachusetts pursuant to a Mortgage, Assignment of Leases and Rents and Security Agreement datedMarch 31, 2020 . The Note is guaranteed by the Partnership pursuant to a Guaranty Agreement datedMarch 31, 2020 .Brookside Apartments used the proceeds of the loan to pay off an outstanding loan of approximately$2,390,000 , with the remaining portion of the proceeds added to cash reserves. In connection with this refinancing, there were closing costs of approximately$136,000 . During the year endedDecember 31, 2022 , the Partnership received net distributions of approximately$1,945,000 from the investment properties of which$237,000 was from Hamilton on Main and$1,280,000 was fromDexter Park . 38 Table of Contents In 2022 the Partnership paid a total distribution of an aggregate$76.80 per Unit ($2.56 per Receipt) for a total payment of$9,267,981 in 2022. In 2021 the Partnership paid a total distribution of an aggregate$38.40 per Unit ($1.28 per Receipt) for a total payment of$4,673,140 . InMarch 2023 , the Partnership approved a quarterly distribution of$9.60 per Unit ($0.32 per Receipt), payable onMarch 31, 2023 . In addition to the quarterly distribution, there will be a special distribution of$38.40 per Class A unit ($1.28 per Receipt).
Line of Credit
OnJuly 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% per annum, plus the applicable margin of 2.5%. The agreement originally expired onJuly 31, 2017 , and was extended untilOctober 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 untilOctober 31, 2021 . The Partnership paid an extension fee of approximately$37,500 in association with the extension. OnOctober 29, 2021 , the Partnership closed on the modification of its existing line of credit. The agreement extends the credit line for three years untilOctober 29, 2024 . The commitment amount is for$25 million but is restricted to$17 million during the modification period. The modification period covers the current period and phased out onDecember 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 untilSeptember 30, 2022 ; from a minimum tangible net worth requirement of$200 million to a net worth of$175 million untilSeptember 30, 2022 ; from a maximum consolidated leverage ratio of 65% to a ratio of 70% untilSeptember 30, 2022 and from a minimum debt yield of 9.5% to a yield of 8.5% untilSeptember 30, 2022 and a yield of 9.0% untilDecember 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 . The portfolio's debt yield fell below the minimum of 9.0% to 8.3%. Consequently, as ofDecember 31, 2022 , the Partnership did not comply with the debt yield financial covenant. As such, the Partnership is restricted to draw down any amount from the line of credit. until the Partnership meets the required financial covenants.
The interest rate for the new term is LIBOR plus 300 basis points. The costs
associated with the modification and renewal of the line of credit is
approximately
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. The Partnership paid fees to secure the line of credit. Any unused balance of the line of credit, prior to the extension onOctober 29, 2021 , was subject to a fee ranging from 15 to 20 basis points per annum. The Partnership, under the current modification, is no longer subject to this fee. The Partnership anticipates that cash from operations and interest bearing accounts will be sufficient to fund its current operations, pay distributions, make required debt payments and to finance current improvements to its properties. The Partnership may also sell or refinance properties. The Partnership's net income and cash flow may fluctuate dramatically from year to year as a result of the sale or refinancing of properties, increases or decreases in rental income or expenses, or the loss of significant tenants. 39
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Off-Balance Sheet Arrangements-Joint Venture Indebtedness
As ofDecember 31, 2022 , the Partnership had a 40%-50% ownership interest in seven Joint Ventures, which all have mortgage indebtedness exceptHancock 1025, andHamilton Essex Development . We do not have control of these partnerships and therefore we account for them using the equity method of consolidation. AtDecember 31, 2022 , our proportionate share of the non-recourse debt before unamortized deferred financing costs related to these investments was approximately$70,807,000 . See Note 15 to the Consolidated Financial Statements.
Contractual Obligations
As ofDecember 31, 2022 , we are subject to contractual payment obligations as described in the table below. Payments due by period 2023 2024 2025 2026 2027 Thereafter Total Contractual Obligations Long -term debt Mortgage debt$ 2,705,500 2,860,908 3,613,415 25,080,732 23,251,421 356,613,257$ 414,125,233 Total Contractual Obligations$ 2,705,500 $ 2,860,908 $ 3,613,415 $ 25,080,732 $ 23,251,421 $ 356,613,257 $ 414,125,233 We have various standing or renewable service contracts with vendors related to our property management. In addition, we have certain other contracts we enter into in the ordinary course of business that may extend beyond one year. These contracts are not included as part of our contractual obligations because they include terms that provide for cancellation with insignificant or no cancellation penalties.
See Notes 5 and 15 to the Consolidated Financial Statements for a description of mortgage notes payable. The Partnership has no other material contractual obligations to be disclosed.
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