SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
___
/ X / Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarter ended: June 30, 1996
OR
___
/___/ Transition Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from: __________________ to __________________
Commission file number: 0-14986
AETNA REAL ESTATE ASSOCIATES, L.P.
(Exact name of registrant as specified in its charter)
Delaware 11-2827907
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
242 Trumbull Street, Hartford, Connecticut 06156
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 275-2178
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 30 days. Yes X No __
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The summarized financial information contained herein is
unaudited; however, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a
fair presentation of such financial information have been
included.
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Balance Sheets
As of June 30, 1996 and December 31, 1995
(in thousands)
June 30, December 31,
1996 1995
(unaudited)
Assets
Investments in real estate:
Properties $243,140 $241,742
Less write-down of property
for permanent impairment (4,408) (4,408)
Less accumulated depreciation
and amortization (44,619) (41,152)
Total investments in real estate 194,113 196,182
Cash and cash equivalents 9,143 8,971
Rent and other receivables 4,397 4,168
Other 13 13
Total assets $207,666 $209,334
Liabilities and Partners' Capital
Liabilities:
Investment portfolio fee payable
to related parties $ 1,236 $ 1,212
Accounts payable and accrued expenses 404 452
Accrued property taxes 950 815
Security deposits 856 824
Unearned income 85 225
Total liabilities 3,531 3,528
Partners' capital (deficiency):
General Partners (24) 85
Limited Partners 204,159 205,721
Total partners' capital 204,135 205,806
Total liabilities and partners' capital $207,666 $209,334
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Statements of Income
For the Three and Six Months Ended June 30, 1996 and 1995
(in thousands, except units and per unit amounts)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Revenue:
Rental $ 6,936 $ 6,911 $13,950 $13,833
Interest 77 92 165 179
Other income 167 86 270 142
7,180 7,089 14,385 14,154
Expenses:
Property operating 2,300 2,273 4,727 4,527
Depreciation and amortization 1,724 1,805 3,499 3,540
Investment portfolio
fee - related parties 1,237 1,195 2,452 2,402
General and administrative 148 184 287 376
Bad debt 100 222 371 302
5,509 5,679 11,336 11,147
Net income $ 1,671 $ 1,410 $ 3,049 $ 3,007
Net income allocated:
To the General Partners $ 16 $ 14 $ 30 $ 30
To the Limited Partners 1,655 1,396 3,019 2,977
$ 1,671 $ 1,410 $ 3,049 $ 3,007
Weighted average number of limited
partnership units outstanding 12,724,547 12,724,547 12,724,547 12,724,547
Earnings per limited
partnership unit $ .13 $ .11 $ .24 $ .23
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Statements of Partners' Capital (Deficiency)
For the Six Months Ended June 30, 1996 and 1995
(in thousands - unaudited)
Limited General
Partners Partners Total
Balance at January 1, 1996 $ 85 $ 205,721 $ 205,806
Distributions (139) (4,581) (4,720)
Net income 30 3,019 3,049
Balance at June 30, 1996 $ (24) $ 204,159 $ 204,135
Balance at January 1, 1995 $ 79 $ 214,318 $ 214,397
Capital contributions 46 - 46
Distributions (46) (4,581) (4,627)
Net income 30 2,977 3,007
Balance at June 30, 1995 $ 109 $ 212,714 $ 212,823
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
(in thousands - unaudited)
Six Months Ended June 30, 1996 1995
Cash flows from operating activities:
Net income $ 3,049 $ 3,007
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,499 3,540
Bad debt expense 371 302
Accrued rental income 46 (112)
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Rent and other receivables (646) (227)
Investment portfolio fee payable to
related parties 24 7
Accounts payable and accrued expenses (48) (76)
Accrued property taxes 135 173
Security deposits 32 3
Unearned income (140) (26)
Net cash provided by operating activities 6,322 6,591
Cash flows from investing activities:
Investments in real estate (1,430) (1,918)
Net cash used in investing activities (1,430) (1,918)
Cash flows from financing activities:
Cash distributions (4,720) (4,627)
Capital contributions - 46
Net cash used in financing activities (4,720) (4,581)
Net increase in cash and cash equivalents 172 92
Cash and cash equivalents at beginning of period 8,971 9,373
Cash and cash equivalents at end of period $ 9,143 $ 9,465
AETNA REAL ESTATE ASSOCIATES, L.P.
(a Delaware limited partnership)
Notes to Consolidated Financial Statements
(unaudited)
1. GENERAL
The accompanying financial statements and related notes
should be read in conjunction with the Partnership's annual
report for the year ended December 31, 1995. The financial
data included herein as of December 31, 1995 has been drawn
from the consolidated financial statements of the Partnership
which were audited by Coopers & Lybrand L.L.P.
2. SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Under Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, the carrying value of one
investment property was reduced to its estimated fair value
in connection with a permanent impairment write-down
recognized at December 31, 1995. The 1995 consolidated
balance sheet amount for accumulated depreciation and
amortization related to that property at the time of
impairment of approximately $2,609,000 has been reclassified
to Properties in 1996 to reflect the new basis.
In addition, certain other 1995 consolidated financial
statement items have been reclassified to conform to the
1996 presentation.
3. TRANSACTIONS WITH AFFILIATES
Investment Portfolio Fee
The General Partners are entitled to receive an investment
portfolio fee based on the net asset value of the
Partnership's investments. The fee is payable quarterly, in
arrears, from available cash flow and may not exceed 2.5%
per annum of net asset value. For the six months ended June
30, 1996, Aetna/AREA and AREA GP earned fees of $980,721
and $1,471,081, respectively. For the similar period of the
prior year, Aetna/AREA and AREA GP earned fees of $960,740
and $1,441,111, respectively.
4. CAPITAL CONTRIBUTIONS/DISTRIBUTIONS
On or about May 15, 1996, cash distributions paid by the
Partnership aggregated $2,313,554 which related to
operations for the three months ended March 31, 1996. Also
in May 1996, $115,678 was paid to the General Partners as
distributions that were withheld by the Partnership during
1995 and the first quarter of 1996, and became distributable
within the provisions of the Partnership's Revised Limited
Partnership Agreement.
5. SUBSEQUENT EVENTS
In July 1996, the Partnership declared cash distributions
aggregating $2,313,554 ($.18 per Unit) pertaining to the
three months ended June 30, 1996, which is to be distributed
on or about August 15, 1996.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At December 31, 1995, the Partnership had working capital reserves
("Reserves") of approximately $4,475,000. During the six months
ended June 30, 1996, the Partnership expended approximately
$1,430,000 for capital improvements. The Partnership has current
Reserves of approximately $4,883,000, including approximately
$1,838,000 retained from cash generated from operations for the six
months ended June 30, 1996. At June 30, 1996, the Partnership had
approximately $1,100,000 of outstanding commitments for capital
improvements and approximately $3,241,000 of projected capital
improvements (collectively the "Capital Costs") related to existing
Investments in Properties of which the Partnership will fund in
1996, if needed, approximately $2,803,000 from its Reserves for
these Capital Costs. These Capital Costs consist primarily of
estimated tenant improvements and leasing commissions for
speculative leasing activity at certain properties, which, based on
activity in the marketplace, may or may not materialize. The
Partnership anticipates funding these Capital Costs from existing
Reserves and through additions to its Reserves from operating cash
flow. To ensure that the Partnership has adequate Reserves to fund
its Capital Costs, the General Partners will continue to review the
Reserves quarterly.
If sufficient capital is not available at the time of a funding of
a Capital Cost, the General Partners will review such Capital Cost
and take such steps as they consider appropriate, including
decreasing future cash distributions from operations, negotiating a
delay or other restructuring of the capital funding requirements
related to an Investment in Properties or borrowing money, as
provided in the Partnership Agreement, on a short-term basis to pay
Capital Costs.
Results of Operations
Net income for the six months ended June 30, 1996 increased
approximately $42,000 in comparison to the corresponding period in
1995. Rental revenue increased approximately $117,000 from the
corresponding period in 1995 as a result of increases at several
properties. The most significant increases occurred at Cross
Pointe Centre and Town Center Business Park, due to increased
occupancy, and at Summit Village, as a result of an increase in
rental rates. These increases were partially offset by a decrease
in rental revenue at 117 Flanders Road, the result of a decrease in
occupancy. The increase in other income of approximately $128,000
from the corresponding period in 1995 is mainly attributable to
receipt of a lease termination fee at Powell Street Plaza and prior
year tax refunds received at Powell Street Plaza and Town Center
Business Park.
Property operating expenses for the six months ended June 30, 1996
increased approximately $200,000 in comparison to the corresponding
period in 1995. The majority of this increase related to snow
removal expenses due to harsh winter conditions at certain retail
and office/industrial properties and increased electricity expenses
at certain office/industrial properties as a result of vacated
tenants who were paying 100% of their electricity expenses. The
decrease in general and administrative expenses is primarily a
result of overaccrued costs in 1995 and lower rates charged for
Limited Partnership unit tracking in 1996. Bad debt expenses for
the six months ended June 30, 1996 were approximately $371,000.
Cross Pointe Centre and Town Center Business Park incurred bad debt
expense for the six months ended June 30, 1996 of approximately
$87,700 and $65,800, respectively, due primarily to the write-off
of certain tenant receivables at these properties.
In addition, based on an analysis performed on each property it was
necessary to increase the allowance for doubtful accounts at
certain properties, including approximately $181,800 related to a
tenant that vacated Village Square and approximately $31,000
related to a tenant at Powell Street Plaza that declared
bankruptcy.
The Partnership made cash distributions of $.36 per Unit to
Unitholders for the six months ended June 30, 1996 and June 30,
1995.
The Net Asset Value of each of the Partnership's Units, based upon
quarterly independent appraisals, increased to $15.55 at June 30,
1996 from $15.03 at June 30, 1995. The increase in Net Asset Value
per Unit is primarily the result of increases in the appraised
values of certain of the Registrant's properties, including
significant increases in Cross Pointe Centre, Town Center Business
Park, and Summit Village Apartments. The increase in appraised
value of Cross Pointe Centre is a result of improved occupancy in
conjunction with a stronger tenant mix, including an expansion of a
proven anchor tenant and a reduced vacancy allowance. Town Center
Business Park's increase in appraised value is primarily due to
improved occupancy, from 72% to 84%. The increase in the appraised
value of Summit Village Apartments is a result of an increase in
projected market rents. These increases in appraised value were
partially offset by a decrease in value at Oakland Pointe Shopping
Center due to a decrease in anticipated occupancy, resulting from
the expected departure of three major tenants, in conjunction with
changes in the discount and exit capitalization rates, reflecting
the increased risk associated with this property.
PART II - OTHER INFORMATION
Item 5. Other Information
On June 28, 1994, effective as of January 1, 1994, Aetna/AREA
Corporation ("Aetna/AREA") entered into a Real Estate Investment
Advisory, Asset Management and Support Services Agreement with
Aetna Realty Investors, Inc. ("ARI"), an affiliate of Aetna/AREA.
On May 31, 1996, ARI entered into an Assignment and Assumption
Agreement ("Agreement") with Allegis Realty Investors LLC
("Allegis"), a Massachusetts limited liability company. The
assignment was made in connection with Aetna Life Insurance
Company's sale of its real estate investment advisory and
management business to a newly formed company owned by the senior
management of ARI and TA Associates, a private equity capital firm
in Boston, Massachusetts. Pursuant to the Agreement, Allegis will
provide investment advisory, asset management and support services
regarding the acquisition, management, development, improvement,
leasing and sale of properties, investments and other assets now or
hereafter owned by or allocable to the Partnership. In carrying
out its responsibilities, Allegis will be acting as Aetna/AREA's
agent and the individuals formerly providing such services on
behalf of ARI will generally continue to provide such services on
behalf of Allegis. Neither the Agreement nor the assignment to
Allegis alters Aetna/AREA's status as a general partner of the
Partnership or its obligations and fiduciary duties to the
Partnership and Unitholders resulting from its status as general
partner.
The term of the Agreement is automatically renewed on December 31
of each year. Allegis may terminate the Agreement without cause
upon not less than one hundred eighty days prior written notice to
Aetna/AREA, and Aetna/AREA may terminate the Agreement at any time
without cause upon not less than 30 days prior written notice to
Allegis. If not terminated earlier, the Agreement will terminate
upon the earlier to occur of (a) the date that the Partnership
ceases to exist or (b) the date that Aetna/AREA ceases to be a
general partner of the Partnership.
In addition, as part of the transaction leading to the formation of
Allegis, Aetna Life Insurance Company entered into an Option
Purchase Agreement dated June 7, 1996, with the managing member of
Allegis by which such managing member is granted the right to
purchase the stock of Aetna/AREA for nominal consideration during
the twelve-year period following the date of the option. During
the period of the option, such managing member is also granted the
right to designate the directors of Aetna/AREA regardless of
whether the option is exercised. The directors have been ARI
officers in the past and it is expected that the former directors,
now Allegis officers, will continue in this capacity. A condition
to exercise the option is the issuance by the managing member of
Allegis of a note in the amount of $5,870,000 made payable to
Aetna/AREA, if required to maintain the classification of the
Registrant as a partnership for federal income tax purposes, in
substitution for the existing note issued by Aetna/AREA's
shareholder. The option has not been exercised to date.
Item 6. Exhibits and Reports on Form 8K
(a) None
(b) None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Aetna Real Estate Associates, L.P.
BY: AREA GP Corporation
General Partner
Date: August 13, 1996 BY: /s/ Paul L. Abbott
Name: Paul L. Abbott
Title: President, Chief
Executive Officer,
and Chief Financial Officer
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,143,000
<SECURITIES> 000
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<OTHER-SE> 204,135,000
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