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, 1998
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 06103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 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 90 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, 1998 and December 31, 1997
(in thousands)
June 30, December 31,
1998 1997
(unaudited)
Assets
Investments in real estate:
Properties $ 244,454 $ 243,062
Less accumulated depreciation
and amortization (57,937) (54,496)
Total investments in real estate 186,517 188,566
Cash and cash equivalents 12,644 10,883
Rent and other receivables 3,928 3,954
Other 13 13
Total assets $ 203,102 $ 203,416
Liabilities and Partners' Capital
Liabilities:
Investment portfolio fee payable
to related parties $ 1,203 $ 1,168
Accounts payable and accrued expenses 462 463
Accrued property taxes 920 782
Security deposits 1,055 979
Unearned income 310 315
Total liabilities 3,950 3,707
Partners' capital (deficiency):
General Partners (72) (67)
Limited Partners 199,224 199,776
Total partners' capital 199,152 199,709
Total liabilities and partners'capital $ 203,102 $ 203,416
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Statements of Income
For the Three and Six Months Ended June 30, 1998 and 1997
(in thousands, except units and per unit amounts)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenue:
Rental $ 7,374 $ 7,190 $ 14,793 $ 14,249
Interest 136 93 264 181
Other income 171 92 249 229
7,681 7,375 15,306 14,659
Expenses:
Property operating 2,429 2,464 4,856 4,865
Depreciation and amortization 1,728 1,712 3,441 3,409
Investment portfolio
fee - related parties 1,203 1,150 2,388 2,353
General and administrative 159 168 295 329
Bad debt 217 132 256 309
5,736 5,626 11,236 11,265
Net income $ 1,945 $ 1,749 $ 4,070 $ 3,394
Net income allocated:
To the General Partners $ 20 $ 17 $ 41 $ 34
To the Limited Partners 1,925 1,732 4,029 3,360
$ 1,945 $ 1,749 $ 4,070 $ 3,394
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 $.15 $.14 $.32 $.27
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Statements of Partners' Capital (Deficiency)
For the Six Months Ended June 30, 1998 and 1997
(in thousands - unaudited)
General Limited
Partners Partners Total
Balance at January 1, 1998 $ (67) $ 199,776 $ 199,709
Distributions (46) (4,581) (4,627)
Net income 41 4,029 4,070
Balance at June 30, 1998 $ (72) $ 199,224 $ 199,152
Balance at January 1, 1997 $ (43) $ 202,213 $ 202,170
Distributions (46) (4,581) (4,627)
Net income 34 3,360 3,394
Balance at June 30, 1997 $ (55) $ 200,992 $ 200,937
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
(in thousands - unaudited)
Six Months Ended June 30,
1998 1997
Cash flows from operating activities:
Net income $ 4,070 $ 3,394
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,441 3,409
Bad debt expense 256 309
Accrued rental income 16 (25)
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Rent and other receivables (246) (161)
Investment portfolio fee payable to
related parties 35 (45)
Accounts payable and accrued expenses (1) (67)
Accrued property taxes 138 169
Security deposits 76 2
Unearned income (5) (32)
Net cash provided by operating activities 7,780 6,953
Cash flows from investing activities:
Investments in real estate (1,392) (1,636)
Net cash used in investing activities (1,392) (1,636)
Cash flows from financing activities:
Cash distributions (4,627) (4,627)
Net cash used in financing activities (4,627) (4,627)
Net increase in cash and cash equivalents 1,761 690
Cash and cash equivalents at beginning of period 10,883 9,133
Cash and cash equivalents at end of period $ 12,644 $ 9,823
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, 1997. The financial
data included herein as of December 31, 1997 has been drawn
from the consolidated financial statements of the Partnership
which were audited by Coopers & Lybrand L.L.P.
2. 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. The applicable percentage,
for the purpose of calculating this fee, declines to 2% per
annum for Investments in Properties held by the Partnership
more than 10 years but less than 15 years, and to 1.75% per
annum for Investments in Properties held more than 15 years.
For the six months ended June 30, 1998, Aetna/AREA and AREA
GP earned fees of $1,116,876 and $1,271,115, respectively.
For the similar period of the prior year, Aetna/AREA and
AREA GP earned fees of $1,006,314 and $1,346,344,
respectively.
3. CASH DISTRIBUTIONS
Cash distributions paid to Unitholders during the period
January 1, 1998 to June 30, 1998 by the Partnership
aggregated $4,580,837 which related to operations for the
quarters ended December 31, 1997 and March 31, 1998. Cash
distributions paid to the General Partners during the same
period by the Partnership aggregated $46,271 which related to
operations for the quarters ended December 31, 1997 and March
31, 1998.
4. SUBSEQUENT EVENTS
In July 1998, the Partnership declared cash distributions
aggregating $2,313,554 pertaining to the period from April 1,
1998 to June 30, 1998. On or about August 14, 1998
$2,290,418 ($.18 per Unit) is to be distributed to the
Limited Partners and $23,136 to the General Partners.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At December 31, 1997, the Partnership had working capital reserves
("Reserves") of approximately $6,201,000. During the six months
ended June 30, 1998, the Partnership expended approximately
$1,392,000 for capital improvements. The Partnership has current
Reserves of approximately $7,416,000, including approximately
$2,607,000 retained from operations for the six months ended June
30, 1998. At June 30, 1998, the Partnership had approximately
$1,161,000 of outstanding commitments for capital improvements and
approximately $4,967,000 of projected capital improvements
(collectively the "Capital Costs") related to existing Investments
in Properties. For the six months ended December 31, 1998 the
Partnership will fund if needed approximately $4,610,000 from
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 from operating cash flow to
its Reserves. 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, 1998 increased
approximately $676,000 in comparison to the corresponding period
in 1997, due primarily to an increase in rental revenue. An
increase in revenue of approximately $647,000 from the
corresponding period in 1997 resulted primarily from increases in
rental revenue at Town Center Business Park, Summit Village, and
Powell Street Plaza. Rental revenue at Town Center Business Park
increased as a result of improved occupancy and rental rates, as well
as approximately $72,000 charged to a tenant under the default
clause of their lease that was offset by that tenant's bad debt
expense as discussed below. Rental revenue at Summit Village and
Powell Street Plaza increased due to increased rental rates.
These increases were partially offset by a decrease in rental
revenue at Oakland Pointe Shopping Center resulting from lower
occupancy, and at Cross Pointe Centre as a result of reduced
expense reimbursements and decreased tenant rent. Expenses for
the six months ended June 30, 1998 decreased approximately
$29,000 in comparison to the corresponding period in 1997
primarily as a result of lower bad debt expense.
Bad debt expense, which resulted from the write-off of certain
tenant receivables and the need to increase the allowance for
doubtful accounts at certain properties for the six months ended
June 30, 1998, includes approximately $126,000 related primarily
to a tenant experiencing financial difficulties at Town Center
Business Park and approximately $62,000 related to two tenants
experiencing financial difficulties at Andover Research Park.
The Partnership made cash distributions of $.36 per Unit to
Unitholders for the six months ended June 30, 1998 and 1997.
The Net Asset Value of each of the Partnership's Units, based
upon quarterly independent appraisals, increased to $17.69 at
June 30, 1998 from $15.94 at June 30, 1997. 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 Town Center Business Park,
Village Square, Summit Village, and Powell Street Plaza. Summit
Village and Powell Street Plaza increased in appraised value
primarily as a result of increased projected market rents and
reduced discount and exit capitalization rate parameters. Town
Center Business Park and Village Square increased in appraised
value primarily as a result of improved occupancy and market rent
assumptions and reduced discount and exit capitalization rate
parameters. Village Square's appraised value is now based on the
assumption that the property will be converted to office use.
Leasing at Village Square has improved with the conversion from
retail space to office use.
Net income for the three months ended June 30, 1998 increased
approximately $196,000 as compared to the corresponding period in
1997. Increases in rental revenue of approximately $184,000 and
other income of approximately $79,000 were partially offset by an
increase of approximately $85,000 in bad debt expense. The most
significant increase in rental revenue occurred at Town Center
Business Park which was partially offset by a decrease at Cross
Pointe Centre, as discussed above. The increase in other income
resulted primarily from the receipt of lease termination fees from
two tenants at Powell Street Plaza.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On August 11, 1998, Oak Investors LLC and Cedar
Partners L.P. (collectively, "Oak"), filed suit against
the Partnership in the Court of Chancery of the State
of Delaware in and for New Castle County (the
"Complaint"). The Complaint alleges that the
Partnership failed to deliver a list of Unitholders
upon Oak's demand and that such failure constitutes a
breach of the Delaware Revised Uniform Limited
Partnership Act and a breach of the Partnership's
agreement of limited partnership. The Partnership has
been in contact with counsel for the plaintiff
concerning settling such litigation.
Item 5. Other Information
(a) In light of the relatively strong national real
estate and capital markets, the General Partners have
determined that it is in the best interests of the
Partnership and the Unitholders to market for sale the
following six properties owned by the Partnership: (i)
Gateway Square, (ii) Oakland Pointe Shopping Center,
(iii) Cross Pointe Centre, (iv) Three Riverside Drive,
(v) 115 Flanders Road and (vi) 117 Flanders Road. The
General Partners intend to retain one or more third-party
real estate brokers to market such properties. There can
be no assurance that such properties will be sold in the
near future, or that if sold, the sales prices will approximate
the estimated net asset value of such properties disclosed in
Part 1 of this From 10-Q. The General Partners are continuing
to actively review the potential sale of the other properties
owned by the Partnership. In addition, the Partnership from
time to time receives unsolicited expressions of interest in
purchasing some or all of the properties.
(b) In connection with Oak's complaint, Oak filed with
the Securities and Exchange Commission a Schedule 14D-1
offering to purchase up to 19.6% of the Partnership's
Units at $12.50 per Partnership Unit (the "Tender
Offer"). The General Partners are evaluating the
Tender Offer and will cause the Partnership to file a
Schedule 14D-9 with the Securities and Exchange
Commission in response to the Tender Offer within the
requisite time period.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. 27 - Financial Data Schedule
(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 19, 1998 BY: /s/ Mark J. Marcucci
President & Director
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