My Market Wizard

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

New England Realty Associates L

Filing date:

03/14/2025

TLDR:

ELI5:

NERA, a real estate company, made more money this year because they earned more from renting properties. However, they have some business dealings with related companies that need to be watched closely, and they mostly operate in one area, which could be risky.

Accession #:

0001558370-25-003015

Published on

Analyst Summary

  • Revenue increased by 8.1% due to strong rental activity and strategic acquisitions.
  • Net income increased significantly by 85.3% due to revenue growth and effective cost management.
  • Net Profit Margin increased from 11.3% to 19.5%, reflecting improved profitability.
  • Significant related-party transactions exist with The Hamilton Company, raising potential conflicts of interest.
  • Tenant renewals were approximately 68% with an average rental increase of approximately 5.8%. New leases accounted for approximately 32% with rental rate increases of approximately 4.8%.
  • Residential occupancy rate decreased from 99.1% in 2023 to 97.7% in 2024.
  • Commercial occupancy rate decreased from 99.0% in 2023 to 98.2% in 2024.
  • Gross Profit Margin is 31.50%.
  • Operating Profit Margin is 31.50%.
  • Net Profit Margin is 19.45%.
  • Return on Assets (ROA) is 3.98%.
  • Return on Equity (ROE) is -25.08%.
  • Current Ratio is 5.91.
  • Quick Ratio is 5.91.
  • Cash Ratio is 0.92.
  • Debt-to-Equity Ratio is -7.30.
  • Debt-to-Assets Ratio is 1.16.
  • Interest Coverage Ratio is 2.01.
  • Asset Turnover is 0.20.
  • Price-to-Earnings Ratio (P/E) is 0.61.
  • Price-to-Book Ratio (P/B) is -0.15.
  • Price-to-Sales Ratio (P/S) is 0.12.
  • Enterprise Value to EBITDA (EV/EBITDA) is 8.28.
  • Revenue Growth is 8.12%.
  • Net Income Growth is 85.25%.
  • EPS Growth is 87.59%.

Opportunities and Risks

  • Real Estate Market Risks: Dependence on the Eastern Massachusetts and Southern New Hampshire real estate markets exposes NERA to regional economic downturns.
  • Competition: Intense competition in the rental housing and commercial space markets could impact occupancy rates and rental income.
  • Debt Financing: Reliance on mortgage debt could strain cash flow if properties fail to generate sufficient income.
  • Climate Change: Potential physical effects of climate change on properties, operations, and business.
  • Development Project Costs: Potential for construction costs at the Mill Street development project to exceed original estimates or experience competition delays.
  • Property Improvements: Ongoing capital improvements to existing properties could enhance their attractiveness and rental income potential.
  • Strategic Acquisitions: Selective acquisitions of properties with income and capital appreciation potential could drive future growth.
  • Repurchase Program: The authorized repurchase program could enhance shareholder value.

Potential Implications

Company Performance

  • Continued revenue growth and profitability improvements are contingent on effective management of related-party transactions and geographic concentration risks.
  • Strategic acquisitions and property improvements could drive future growth, while rising interest rates and market competition could pose challenges.

Stock Price

  • Positive financial performance and strategic initiatives could positively impact the stock price.
  • However, concerns regarding related-party transactions and market risks could negatively affect investor sentiment.

SEC Filing Report: New England Realty Associates Limited Partnership (NEN) – 10-K (2024)

Executive Summary

This report analyzes New England Realty Associates Limited Partnership’s (NERA) 10-K filing for the year ended December 31, 2024. NERA operates in the real estate sector, focusing on residential and commercial properties primarily in the Boston metropolitan area. The analysis covers financial performance, management’s discussion, risk factors, and key operational aspects.

Overall Assessment: HOLD. NERA demonstrates stable revenue growth and improved profitability. However, significant related-party transactions and reliance on a concentrated geographic market warrant caution.

Key Findings:

  • Revenue increased by 8.1%, driven by rental income.
  • Net income increased significantly by 85.3% due to revenue growth and expense management.
  • Significant related-party transactions exist with The Hamilton Company.
  • The Partnership is expanding its portfolio with recent acquisitions and ongoing development projects.

Recommendations:

  • Monitor related-party transactions closely for potential conflicts of interest.
  • Assess the impact of rising interest rates on future profitability and property valuations.
  • Evaluate the risks associated with geographic concentration in the Eastern Massachusetts and Southern New Hampshire markets.

Company Overview

New England Realty Associates Limited Partnership (NERA) is a Massachusetts-based real estate investment and management company. The Partnership owns and operates residential apartments, condominium units, and commercial properties, primarily in the Boston metropolitan area and Southern New Hampshire. NERA’s strategy involves managing, renting, improving, and selectively acquiring properties with income and capital appreciation potential.

Financial Statement Analysis

Revenue Analysis

Rental income increased by 7.9% from $73.9 million in 2023 to $79.8 million in 2024. This growth is attributed to strong rental activity and strategic acquisitions.

Expense Analysis

Total expenses decreased slightly by 0.9% from $55.7 million in 2023 to $55.2 million in 2024, indicating effective cost management.

Profitability Ratios

  • Net Profit Margin: Increased from 11.3% in 2023 to 19.5% in 2024, reflecting improved profitability.

Key Balance Sheet Items

  • Cash and Cash Equivalents: Remained relatively stable at approximately $17.6 million.
  • Total Assets: Increased from $385.7 million to $393.5 million, driven by property acquisitions and improvements.
  • Mortgage Notes Payable: Decreased slightly from $408.7 million to $406.2 million.

Management’s Discussion and Analysis (MD&A) Insights

Management highlights the Partnership’s strategic focus on managing and improving existing properties, acquiring new properties, and selectively selling or refinancing assets. The MD&A emphasizes the competitive nature of the real estate market in the Boston area and the importance of attracting and retaining tenants.

Red Flags

  • Related-Party Transactions: Significant transactions with The Hamilton Company, owned by related parties, raise potential conflicts of interest and require careful scrutiny.

Uncommon Metrics

  • Tenant Renewal Rates: Tenant renewals were approximately 68% with an average rental increase of approximately 5.8%. New leases accounted for approximately 32% with rental rate increases of approximately 4.8%.

Risk and Opportunity Assessment

Risks

  • Real Estate Market Risks: Dependence on the Eastern Massachusetts and Southern New Hampshire real estate markets exposes NERA to regional economic downturns.
  • Competition: Intense competition in the rental housing and commercial space markets could impact occupancy rates and rental income.
  • Debt Financing: Reliance on mortgage debt could strain cash flow if properties fail to generate sufficient income.
  • Climate Change: Potential physical effects of climate change on properties, operations, and business.
  • Development Project Costs: Potential for construction costs at the Mill Street development project to exceed original estimates or experience competition delays.

Opportunities

  • Property Improvements: Ongoing capital improvements to existing properties could enhance their attractiveness and rental income potential.
  • Strategic Acquisitions: Selective acquisitions of properties with income and capital appreciation potential could drive future growth.
  • Repurchase Program: The authorized repurchase program could enhance shareholder value.

Conclusion and Actionable Insights

NERA demonstrates a solid financial performance with revenue growth and improved profitability. However, investors should carefully consider the risks associated with related-party transactions, geographic concentration, and debt financing.

Overall Assessment: HOLD

Recommendations:

  • Monitor related-party transactions closely for potential conflicts of interest.
  • Assess the impact of rising interest rates on future profitability and property valuations.
  • Evaluate the risks associated with geographic concentration in the Eastern Massachusetts and Southern New Hampshire markets.

1. Commentary

New England Realty Associates Limited Partnership (NEN) reported a strong increase in net income for the year ended December 31, 2024, driven by revenue growth and controlled expenses. The company’s focus on residential properties continues to be a key revenue driver, with a high percentage of rental income derived from this segment. However, the partnership’s capital decreased due to distributions and stock buybacks. The company’s fair value of mortgage payable is significantly lower than the carrying amount, indicating potential market perception of higher risk or interest rates. NEN’s occupancy rates remain high, reflecting stable demand for its properties.

2. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Metric: Since the cost of revenue is not explicitly provided, we will assume that administrative, depreciation, management fee, operating, renting, repairs and maintenance, taxes and insurance are all costs of revenue. Gross Profit = Revenue – Cost of Revenue = 80,532,550 – 55,161,297 = 25,371,253. Gross Profit Margin = Gross Profit / Revenue = 25,371,253 / 80,532,550 = 31.50%
  • Operating Profit Margin

    • Metric: Operating Income is the same as Income Before Other Income (Expense) = 25,371,253. Operating Profit Margin = Operating Income / Revenue = 25,371,253 / 80,532,550 = 31.50%
  • Net Profit Margin

    • Metric: Net Profit Margin = Net Income / Revenue = 15,661,587 / 80,532,550 = 19.45%
  • Return on Assets (ROA)

    • Metric: ROA = Net Income / Total Assets = 15,661,587 / 393,508,658 = 3.98%
  • Return on Equity (ROE)

    • Metric: ROE = Net Income / Partners’ Capital = 15,661,587 / (62,433,902) = -25.08%
  • Earnings Per Share (EPS) – Basic and Diluted

    • Metric: Net Income per Unit = $133.83

Liquidity

  • Current Ratio

    • Metric: Current Assets / Current Liabilities. Current Assets = Cash and Cash Equivalents + Rents Receivable + Real Estate Tax Escrows + Investment in U.S. Treasury Bills + Prepaid Expenses and Other Assets = 17,615,940 + 1,220,761 + 2,598,073 + 83,586,405 + 8,553,360 = 113,574,539. Current Liabilities = Accounts Payable and Accrued Expenses + Advance Rental Payments and Security Deposits = 9,004,962 + 10,199,807 = 19,204,769. Current Ratio = 113,574,539 / 19,204,769 = 5.91
  • Quick Ratio (Acid-Test Ratio)

    • Metric: (Current Assets – Inventory) / Current Liabilities. Since inventory is not listed, we will assume it is 0. Quick Ratio = 113,574,539 / 19,204,769 = 5.91
  • Cash Ratio

    • Metric: Cash and Cash Equivalents / Current Liabilities = 17,615,940 / 19,204,769 = 0.92

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Metric: Total Liabilities / Partners’ Capital = 455,942,560 / (62,433,902) = -7.30
  • Debt-to-Assets Ratio

    • Metric: Total Liabilities / Total Assets = 455,942,560 / 393,508,658 = 1.16
  • Interest Coverage Ratio (Times Interest Earned)

    • Metric: Income Before Interest and Taxes / Interest Expense = (Net Income + Interest Expense) / Interest Expense = (15,661,587 + 15,457,325) / 15,457,325 = 2.01

Activity/Efficiency

  • Asset Turnover

    • Metric: Revenue / Total Assets = 80,532,550 / 393,508,658 = 0.20

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Metric: Market Cap / Net Income. Market Cap = Stock Price * Units Outstanding = 82.50 * (116,676) = 9,625,770. P/E Ratio = 9,625,770 / 15,661,587 = 0.61
  • Price-to-Book Ratio (P/B)

    • Metric: Market Cap / Partners’ Capital = 9,625,770 / (62,433,902) = -0.15
  • Price-to-Sales Ratio (P/S)

    • Metric: Market Cap / Revenue = 9,625,770 / 80,532,550 = 0.12
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Metric: EV = Market Cap + Total Debt – Cash and Cash Equivalents = 9,625,770 + 406,205,910 – 17,615,940 = 398,215,740. EBITDA = Net Income + Interest Expense + Taxes + Depreciation and Amortization = 15,661,587 + 15,457,325 + 0 + 16,983,336 = 48,102,248. EV/EBITDA = 398,215,740 / 48,102,248 = 8.28

Growth Rates

  • Revenue Growth

    • Metric: (2024 Revenue – 2023 Revenue) / 2023 Revenue = (80,532,550 – 74,481,368) / 74,481,368 = 8.12%
  • Net Income Growth

    • Metric: (2024 Net Income – 2023 Net Income) / 2023 Net Income = (15,661,587 – 8,453,950) / 8,453,950 = 85.25%
  • EPS Growth

    • Metric: (2024 EPS – 2023 EPS) / 2023 EPS = (133.83 – 71.34) / 71.34 = 87.59%

Other Relevant Metrics

  • Occupancy Rate:
    • Residential: Occupancy rate increased from 99.1% in 2023 to 97.7% in 2024.
    • Commercial: Occupancy rate increased from 99.0% in 2023 to 98.2% in 2024.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️