SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ________________
Commission file number 0-14986
AETNA REAL ESTATE ASSOCIATES, L.P.
(Exact name of registrant as specified in its charter)
Delaware 11-2827907
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
242 Trumbull Street, Hartford, Connecticut 06103
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (203) 275-2178
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Depositary Units
(Title of class)
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_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant: $212,635,554 (1)
_____________
(1) This statement relates to Units which represent limited partnership
interests in the Registrant. The amount above is calculated based on the
Net Asset Value of Units of $16.71 at December 31, 1997.
PART 1
Item 1. Business.
Aetna Real Estate Associates, L.P. (the "Registrant") is a limited partnership
organized under the laws of the State of Delaware on September 11, 1986. The
general partners of the Registrant (the "General Partners") are Aetna/AREA
Corporation ("Aetna/AREA"), a Connecticut corporation that is an affiliate of
Aetna Life Insurance Company ("Aetna"), and AREA GP Corporation ("AREA GP"), a
Delaware corporation that is an affiliate of Lehman Brothers Inc. ("Lehman").
From March 1986 through December 31, 1990, the Registrant offered up to
$300,000,000 of units which represent the economic rights attributable to
limited partnership interests in the Registrant ("Units") through an ongoing
public offering (the "Primary Offering") and an additional $30,000,000 of Units
pursuant to the Registrant's Distribution Reinvestment Plan (the "DRIP"). In
addition, in conjunction with the Primary Offering, certain holders of Units
(the "Selling Unitholders") offered up to $30,000,000 of Units (the
"Remarketing Opportunity"). Since January 1, 1991, the Registrant has not
offered Units for sale in the Primary Offering, the Remarketing Opportunity, or
the DRIP. The Registrant received an aggregate of $265,521,423 of capital
contributions from the sale of 12,724,547 Units. The Registrant does not
anticipate raising additional capital through the sale of Units.
The Registrant is engaged in the business of investing in income-producing
apartment complexes, office buildings, shopping centers and other commercial
real estate offered by non-affiliated sellers ("Properties"). All investments
in Properties that the Registrant has made are referred to herein collectively
as "Investments in Properties". The Registrant acquired its interests in
Investments in Properties either directly or through joint ventures or other
partnerships that own Properties. The Registrant has acquired all of its
interests in Properties entirely with cash.
As of December 31, 1997, the Registrant held 13 Investments in Properties at a
total cost of approximately $243.1 million. (See Item 2 in this report for a
further description of the Investments in Properties.) Such Investments in
Properties have been funded from the proceeds of the sale of Units and from
cash retained by the Registrant from operations and from sales of Investments
in Properties.
The Registrant's principal objectives are to invest in Properties with the
goals of obtaining:
(1) cash distributions from rental and interest income;
(2) capital appreciation; and
(3) preservation and protection of capital.
In light of the relatively strong national real estate and capital markets, the
general partners are actively reviewing the potential sale of Properties. Any
change in the length of a property's ownership period from that currently
anticipated, could affect the real estate and leasing strategy to be followed
at such property, which could alter the level of capital expenditures to be
invested in the properties. These changes could affect the level of cash flow
received by the Partnership, which might affect the level of quarterly cash
distributions to limited partners.
In 1997, the Registrant made distributions of cash generated from operations of
$.18 per Unit per quarter. (See Item 5 below for additional information
regarding recent quarterly distributions.) The General Partners currently
anticipate that quarterly cash distributions will continue throughout 1998. The
level and timing of future distributions will be reviewed on a quarterly basis
by the General Partners.
Net Asset Value per Unit increased to $16.71 at December 31, 1997 from $15.59
at December 31, 1996. The increase in Net Asset Value per Unit is attributable
to the increases in the appraised values of certain of the Registrant's
properties, primarily Summit Village, Town Center Business Park, and 115 and
117 Flanders Road. The increase in appraised value of Summit Village and 115
and 117 Flanders Road is a result of an increase in projected market rents. The
increase in appraised value of Town Center Business Park is primarily due to
improved occupancy and market rent assumptions. These value increases were
partially offset by a decrease in the appraised value of Oakland Pointe
Shopping Center due to a decrease in its forecasted occupancy from the expected
departure of three major tenants, and a reduction in the market rent of some
space.
Competition
The Registrant competes with other real estate owners and developers for
tenants and potential buyers in the rental and sale of its Investments in
Properties. Each of the Investments in Properties faces competition from
similar properties within the same vicinity. Increases in the availability of
properties competitive with the Registrant's Investments in Properties may have
an adverse effect on the occupancy levels, revenues and marketability of the
Registrant's Investments in Properties. Should the Registrant be in the market
to acquire new or sell existing Investments in Properties, it would face
competition in connection with such acquisitions or sales from businesses,
individuals, fiduciary accounts and plans and other entities engaged in real
estate investment, which may include certain affiliates of the General
Partners. The number of entities interested and the amount of funds available
for investment in properties of a type suitable for investment by the
Registrant may change.
Employees
The Registrant has no employees. The officers, directors and employees of the
General Partners and their affiliates and agents perform services for the
benefit of the Registrant. These services are provided in consideration of the
fees paid to the General Partners as described under Item 13 below and the
expense of providing these services is not separately charged to the
Registrant. Aetna/AREA has retained Allegis Realty Investors LLC to provide
investment management services to the Registrant. First Data Investor Services
Group, Inc. has been retained by AREA GP to provide accounting and investor
communication services to the Registrant.
Item 2. Properties
As of December 31, 1997, the Registrant held 13 Investments in Properties.
(in thousands)
Historical
Property Cost (1)
- -----------------------------------------------
Cross Pointe Centre $ 22,783
Lincoln Square Apartments 13,622
Gateway Square 7,684
Summit Village 37,444
Village Square 5,547
Marina Bay Industrial Park 11,043
Town Center Business Park 44,415
Oakland Pointe Shopping Center 22,994
115 & 117 Flanders Road 12,774
Three Riverside Drive 10,607
Windmont Apartments 8,088
Powell Street Plaza 31,948
Westgate Distribution Center 14,113
--------
Total $243,062
--------
(1) Historical cost is before accumulated depreciation and may not equal cash
invested because of certain adjustments based on the application of
generally accepted accounting principles. For historical cost purposes,
properties are recorded at the lower of cost, net of impairment
write-downs, or estimated fair value. (See Footnote 3 to the consolidated
financial statements.)
The Registrant determines the current value of each of its Investments in
Properties quarterly based on independent appraisals of the underlying real
estate using generally accepted valuation techniques. These appraisals are
used to determine Net Asset Value per Unit on a quarterly basis and to prepare
the Registrant's current value financial statements.
Each appraisal is based on numerous assumptions, limiting conditions and
valuation techniques utilized by the independent appraisers retained by the
Registrant. Two of the many assumptions utilized by the appraisers are the
terminal capitalization rate and the discount rate. The terminal
capitalization rate is used to estimate the reversionary proceeds to be
received from the assumed sale of an investment at the end of a typical holding
period. The discount rate is used to determine the net present value of the
estimated annual cash flows of an investment, including the residual proceeds,
over the holding period. Terminal capitalization rates utilized in the
appraisals of the Investments in Properties at December 31, 1997 ranged from
8.75% to 12.00%. Discount rates utilized in the appraisals of the Investments
in Properties at December 31, 1997 ranged from 11.00% to 15.00%.
Current Properties
- ------------------
A brief description of all Investments in Properties is set forth below.
Neither the Registrant, if it owns a Property directly, nor any joint venture
or partnership in which the Registrant has invested, have incurred any debt to
acquire or maintain any of the Properties.
Cross Pointe Centre
- -------------------
The Registrant owns Cross Pointe Centre, a community shopping center with
approximately 211,345 square feet of net rentable space, located on a 25.8-acre
site in Centerville, Ohio. As of December 31, 1997, the shopping center was
79% leased and 75% occupied.
Lincoln Square Apartments
- -------------------------
The Registrant owns Lincoln Square Apartments, a 240-unit apartment project on
a 12.7-acre site located in Arlington Heights, Illinois. As of December 31,
1997, the project was 94% leased and 92% occupied.
Gateway Square
- --------------
The Registrant owns Gateway Square, a specialty retail center located in
Hinsdale, Illinois. The center contains approximately 40,366 square feet of
rentable space on a 3.7-acre site. As of December 31, 1997, the retail center
was 92% leased and 89% occupied.
Summit Village
- --------------
The Registrant owns Summit Village, a 366-unit apartment complex built in two
phases on a 6.2-acre site in the Rosslyn area of Arlington County, Virginia.
Historical leasing and occupancy information with respect to Summit Village for
the five most recent years is as follows:
Leased Occupied
------ --------
12/31/93 96% 94%
12/31/94 99% 98%
12/31/95 99% 99%
12/31/96 98% 98%
12/31/97 99% 99%
The current leases generally have terms of seven or twelve months at monthly
rental rates ranging from $1,055 to $1,435 per unit.
The Arlington County market includes approximately 13 Class A apartment
communities with almost 5,000 units. Two new competitive high-rise apartment
buildings, Stuart Park Apartments with 438 units and Courthouse Hill Apartments
with 566 units, are currently under construction and could have some negative
impact on Summit Village rents and occupancy.
Marina Bay Industrial Park
- --------------------------
The Registrant owns a controlling general partnership interest in a limited
partnership that owns the Marina Bay Industrial Park, a 165,780 square foot
industrial park located in Richmond, California on an 8.6-acre site. The
Marina Bay Industrial Park is a four-building complex that includes a
rehabilitated industrial distribution building (approximately 103,680 square
feet) and three newer research/development/light industrial buildings
(approximately 62,100 square feet). As of December 31, 1997, the complex was
98% leased and 93% occupied.
Village Square
- --------------
The Registrant owns Village Square in Hazelwood, Missouri, a community shopping
center that is undergoing conversion to a mixed use of office and retail. It
contains approximately 207,304 square feet of net rentable area on
approximately 20 acres of land. As of December 31, 1997, the property was 42%
leased and 31% occupied. A strategy for converting Village Square to
non-traditional retail and back office space is being implemented to capitalize
on market demand and to generate better lease-up. A lease, for back office
space, was signed in January 1998 which brings the leasing percentage to 48%.
Town Center Business Park
- -------------------------
The Registrant owns a controlling interest in a general partnership which owns
and operates Town Center Business Park, totaling approximately 456,700 square
feet of net rentable area on approximately 28 acres in Santa Fe Springs,
California. Town Center Business Park was developed in two phases. Phase I
consists of a three-story office building and six industrial buildings totaling
approximately 322,700 rentable square feet. Phase II consists of a two-story
office/service building and two industrial buildings containing approximately
134,000 square feet.
During 1998, seventeen leases covering 17% of the space in Town Center Business
Park are scheduled to expire. Two tenants totaling 7,532 square feet have
already renewed. Two tenants totaling 22,831 square feet are vacating at the
end of their lease term, however, 21,615 square feet of this space has already
been re-leased. Renewal negotiations are currently underway with four tenants
totaling 13,437 square feet. The remaining nine tenants, comprising 7% of the
space, expire in the third and fourth quarters, and these tenants will be
contacted in the first and second quarters to commence renewal discussions.
Also, the Registrant completed an office and an industrial lease for two new
tenants in early 1998 for 1.6% of space in Town Center Business Park.
Town Center Business Park has no single tenant which occupies 10% or more of
the rentable square footage. During 1999 and 2000, fifteen and sixteen leases,
respectively, are scheduled to expire covering 25% and 17%, respectively, of
the space in Town Center Business Park.
Historical leasing and occupancy information with respect to Town Center
Business Park for the five most recent years is as follows:
Leased Occupied
------ --------
12/31/93 67% 62%
12/31/94 76% 74%
12/31/95 84% 72%
12/31/96 85% 83%
12/31/97 93% 92%
Average annualized rental rates for December 1997 were $11.12 per square foot
as compared to $10.49 and $10.87 per square foot for December 1996 and 1995,
respectively.
Oakland Pointe Shopping Center
- ------------------------------
The Registrant owns a portion of the Oakland Pointe Shopping Center, a shopping
center containing approximately 434,150 square feet located on 49.8 acres in
Pontiac, Michigan. The portion owned by the Registrant (the "Oakland Project")
contains approximately 213,350 square feet of rentable area on approximately
32.1 acres. As of December 31, 1997, the Oakland Project was approximately 90%
leased and 88% occupied.
115 and 117 Flanders Road
- -------------------------
The Registrant owns 115 and 117 Flanders Road, two buildings containing
approximately 115,175 square feet of net rentable area and located on
approximately 26.6 acres in Westborough, Massachusetts. Each building has a
two-story office/research and development section and a one-story
office/warehouse section. As of December 31, 1997, the buildings were 100%
leased and occupied.
Three Riverside Drive
- ---------------------
The Registrant owns Three Riverside Drive, an office/research and development
building containing approximately 91,350 square feet of rentable area located
on approximately 8.8 acres in Andover, Massachusetts. As of December 31, 1997,
the building was 77% leased and occupied.
Windmont Apartments
- -------------------
The Registrant owns Windmont Apartments, a 178-unit apartment complex which is
located on 6.8 acres in DeKalb County, Georgia. As of December 31, 1997, the
complex was approximately 92% leased and 90% occupied.
Powell Street Plaza
- -------------------
The Registrant owns Powell Street Plaza, a shopping center with approximately
169,551 square feet of rentable space, located on approximately 12.9 acres in
Emeryville, California.
Certain governmental agencies in California, led by the Alameda County
Healthcare Services Agency, delivered a letter (the "Request Letter") to the
Registrant on June 4, 1993 requiring that it remediate certain soil and ground
water contamination by petroleum hydrocarbons existing on the Powell Street
property. The contamination is the result of a use of the property prior to
its acquisition by the Registrant in 1990. Pursuant to the agreement under
which the Registrant acquired Powell Street Plaza, the Registrant has made a
demand on the former owner from which it acquired the property (the "Former
Owner") to remediate the contamination. The Former Owner has agreed to respond
to the governmental agencies. The Former Owner prepared a site
characterization and submitted a remediation plan to the Alameda County
Healthcare Services Agency, which have been approved. The Registrant is
monitoring the process and anticipates that all costs of complying with the
Request Letter will be borne by the Former Owner. The Registrant has hired its
own consultant to analyze the extent of the pollution. Recent legislation has
been adopted that may ease the remediation requirements, but could restrict the
use of the land to certain non-residential use.
During 1998 and 1999 there are four leases each year that are scheduled to
expire covering 8% and 11% of the space, respectively. Two leases expire in
2000 covering 2% of the space in Powell Street Plaza. Powell Street Plaza has
two tenants with leases covering 10% or more of the rentable square footage of
the property. The first lease, for 27,275 square feet, expires in 2009 and
provided annual base rent of $358,666 (13% of total rent) in 1997. The lease
contains two consecutive five-year options to renew. The second lease, for
25,025 square feet, expires in 2003 and provided annual base rent of $290,791
(11% of total rent) in 1997. The lease contains four consecutive five-year
options to renew.
Historical leasing and occupancy information with respect to Powell Street
Plaza for the five most recent years is as follows:
Leased Occupied
------ --------
12/31/93 100% 86%
12/31/94 100% 100%
12/31/95 100% 100%
12/31/96 91% 91%
12/31/97 98% 95%
Average annualized base rental rates for December 1997 were $17.26 per square
foot as compared to $16.54 and $15.67 per square foot for December 1996 and
1995, respectively.
During 1996, a 450,000 square foot power center opened about one mile from
Powell Street. Tenants at the new center include Home Depot, Sportmart and
Toys-R-Us. The only direct competition is with Powell Street Plaza's Copeland
Sports.
On December 21, 1995, approximately 12,100 square feet of land at Powell Street
Plaza was condemned, for purposes of road construction, by the State of
California Department of Transportation. Net proceeds to the Registrant were
approximately $271,000, after paydown of a portion of the City's special
assessment. Loss on the sale included in the consolidated financial statements
was approximately $23,000 for the year ended December 31, 1995.
Westgate Distribution Center
- ----------------------------
The Registrant owns Westgate Distribution Center, which consists of three
warehouse/distribution buildings totaling approximately 324,200 rentable square
feet on 15.6 acres in Corona, California. As of December 31, 1997, the
buildings were 86% leased and occupied.
Item 3. Legal Proceedings.
Neither the Registrant nor any of the Registrant's Investments in Properties
are subject to any material pending legal proceedings, except for the following
lawsuits.
In November 1996, the Registrant and the General Partners were named as
defendants in two purported class action lawsuits filed in the Chancery Court
of Delaware in New Castle County, entitled Bobbitt v. Aetna Real Estate
Associates, L.P., et al. and Estes v. Aetna Real Estate Associates, L.P., et
al. The complaints in those actions allege, among other things, that
management fees that have been and are paid to the General Partners are
excessive and that a standstill agreement with a tender offeror which has had
the effect of limiting the number of Units that would be the subject of any
tender offer is unlawful. The defendants have moved to dismiss one of the
complaints and have not yet been served with the other. The General Partners
believe that the allegations in these complaints are without merit and intend
to defend the lawsuits vigorously. The tender offer referenced in the lawsuit
expired in December 1997 with less than 5% of the Units being tendered.
Although the parties have exchanged correspondence there have been no material
proceedings in the litigation.
Item 4. Submission of Matters to a Vote of Security Holders.
During the fourth quarter of the fiscal year ended December 31, 1997, no matter
was submitted to a vote of security holders, through the solicitation of
proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Units represent the economic rights attributable to limited partnership
interests in the Registrant. There is no established public trading market for
the Units. The Registrant's Units are listed on certain matching services (the
"Matching Programs") currently maintained by various broker-dealers. These
Matching Programs are computerized listing systems that put individuals who
wish to sell listed securities in contact with persons who wish to buy such
securities. Neither the broker-dealers nor the General Partners are required
to list the Registrant's Units on the Matching Program. There can be no
assurance that any Units listed on the Matching Program will be sold.
As of March 1, 1998, the number of Unitholders was approximately 18,400.
The Revised Limited Partnership Agreement dated December 1, 1988 by and among
Aetna/AREA Corporation, AREA GP Corporation and AREA Depositary Corporation
(the "Partnership Agreement") provides for distributions of net cash from
operations, if any, to be paid quarterly to Unitholders. Net cash from
operations, as defined in the Partnership Agreement, is equal to net income,
before depreciation, less any amounts set aside to increase or create reserves.
In the last three years, quarterly cash distributions of $.18 per Unit have
been paid to Unitholders.
Item 6. Selected Financial Data.
The following selected financial data of the Registrant have been selected by
the General Partners and derived from the consolidated financial statements for
the indicated periods, which have been audited by Coopers & Lybrand L.L.P.,
independent certified public accountants, whose report for the years 1997, 1996
and 1995 is included elsewhere herein. The information set forth below should
be read in conjunction with the Registrant's consolidated financial statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" also included elsewhere herein.
(Dollars in thousands, except per Unit data)
Years Ended December 31,
1997 1996 1995 1994 1993
------------------------------------------------
Revenue $ 29,597 $ 29,030 $ 28,438 $ 26,454 $ 26,389
Operating Income before
Impairment of Investment
in Real Estate 6,793 5,711 5,002 4,144 4,492
Impairment of Investment
in Real Estate - - 4,408 - -
Operating Income 6,793 5,711 594 4,144 4,492
Gain (Loss) on Sale of
Property - - (23) 355 2,358
Cash and Cash
Equivalents 10,883 9,133 8,971 9,373 13,234
Total Assets (Historical
Cost Basis) 203,416 205,750 209,334 217,854 225,248
Total Assets (Current
Value Basis) 218,719 204,222 199,709 195,916 190,237
Rental Income 28,604 28,242 27,455 25,831 25,782
Interest Income 404 336 367 301 339
Earnings per Weighted
Average Unit .53 .44 .04 .35 .54
Cash Distributions per
Unit .72 .72 .72 .91 1.92
Net Asset Value per
Unit 16.71 15.59 15.24 14.96 14.50
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
The Registrant has current Reserves of $6.2 million, including approximately
$4.8 million retained from cash generated from operations in 1997. During the
year ended December 31, 1997, the Partnership expended approximately $3.4
million for capital improvements. At December 31, 1997, the Registrant had
approximately $.7 million of outstanding commitments for capital improvements
and approximately $5.2 million of projected capital improvements (collectively
"Capital Costs") related to existing Investments in Properties. The projected
capital improvements 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
Registrant expects to fund Capital Costs throughout 1998 from existing Reserves
and the retention of a portion of cash generated from operations. The General
Partners will continue to review the Reserves quarterly to determine whether
cash distributions should be adjusted.
If sufficient capital is not available at the time of a funding of Capital
Costs, the General Partners will review such Capital Costs 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.
Year 2000 Issues
Management is evaluating the potential impact of the situation commonly
referred to as the "Year 2000" problem. The Year 2000 problem, which is common
to most businesses, concerns the inability of computer systems and devices to
properly recognize and process date-sensitive information when the year changes
to 2000. The Partnership owns real estate assets, and in connection with the
operation of such assets, utilizes certain software products and equipment such
as accounting, heating ventilation and air conditioning and security systems,
which may or may not be Year 2000 compliant. Management has formed teams to
identify Year 2000 issues, assess Year 2000 readiness and formulate remediation
plans where appropriate. It is expected that the cost of vendor (particularly
property management and related services) compliance with Year 2000 problems
will be borne primarily by vendors. Although it is not possible at present to
give an estimate of the cost of this work to the Partnership, the General
Partners do not expect such costs to have a material adverse impact on the
Partnership's long term results of operations.
Results of Operations
1997 versus 1996
Operating income for the year ended December 31, 1997 increased approximately
$1,082,000 from 1996. Revenue increased approximately $567,000 from 1996,
resulting primarily from an increase in rental revenue at the majority of the
residential and office/industrial properties, partially offset by decreases in
rental revenue at the majority of the retail properties. The most significant
increases in rental revenue occurred at 115 and 117 Flanders Road and Town
Center Business Park, as a result of increased occupancy, and at Summit
Village, as a result of an increase in rental rates. The most significant
decrease in rental revenue occurred at Village Square, the result of a
reduction of leased space. The increase in other income of approximately
$137,000 for the year ended December 31,1997 is attributable to the receipt of
lease termination fees at 115 and 117 Flanders Road and the receipt of
settlement proceeds at Westgate Distribution Center related to faulty roof
construction.
Property operating expenses for the year ended December 31, 1997 increased
approximately $375,000 in comparison to 1996. The most significant increases in
operating expenses occurred at Village Square, relating primarily to increased
parking lot maintenance, and at Town Center Business Park primarily as a result
of increased HVAC electric and repair and maintenance expenses. The decrease
in depreciation and amortization expense of approximately $448,000 is primarily
a result of the write-off of the unamortized cost of the tenant improvements
and leasing commissions associated with a tenant that vacated Powell Street
Plaza during 1996. The investment portfolio fee decreased approximately
$184,000 due to a decrease in the fee percentage for properties held more than
ten years, partially offset by an increase in net assets at current value as
discussed below. Bad debt expense declined approximately $167,000 in
comparison to 1996. Bad debt expense of approximately $448,000 for the year
ended December 31, 1997 includes approximately $180,000 related to a tenant in
bankruptcy at Powell Street Plaza and approximately $72,000 related to a tenant
that had vacated at Town Center Business Park.
Net Asset Value per Unit increased to $16.71 at December 31, 1997 from $15.59
at December 31, 1996. The increase in Net Asset Value per Unit is attributable
to the increases in the appraised values of certain of the Registrant's
properties, primarily, Summit Village, Town Center Business Park, and 115 and
117 Flanders Road. The increase in appraised value of Summit Village is a
result of an increase in projected market rents. The increase in appraised
value of Town Center Business Park and 115 and 117 Flanders Road is primarily
due to improved occupancy and market rent assumptions. These value increases
were partially offset by a decrease in the appraised value of Oakland Pointe
Shopping Center due to a decrease in anticipated occupancy from the expected
departure of three major tenants, and a reduction in the market rent of some
space.
1996 versus 1995
Operating income for the year ended December 31, 1996 increased approximately
$5,117,000 from 1995 resulting primarily from an impairment loss of
approximately $4,408,000 reflected in the 1995 Consolidated Statement of
Income. Revenue increased approximately $592,000 from 1995, resulting from an
increase in rental revenue at the majority of the residential and
office/industrial properties. The most significant increases in rental revenue
occurred at Town Center Business Park, as a result of increased occupancy, and
at Summit Village, as a result of an increase in rental rates. 1996 versus 1995
(continued) These increases were partially offset by certain decreases in
rental revenue, as a result of decreases in occupancy, at 117 Flanders Road,
Village Square Shopping Center and Oakland Pointe Shopping Center. The
decrease in other income of approximately $164,000 for the year ended December
1996 is attributable to the receipt of lease termination fees at Three
Riverside Drive and 117 Flanders Road during the year ended December 31, 1995.
Property operating expenses for the year ended December 31, 1996 increased
approximately $502,000 in comparison to 1995, primarily as a result of
increases in operating expenses at certain retail and office and industrial
properties. The majority of the increase is related to snow removal expenses
due to harsh winter conditions and increased electricity expenses, as a result
of vacated tenants who were paying 100% of their electricity expenses at
certain office/industrial properties, and higher operating expenses at Oakland
Pointe Shopping Center and Powell Street Plaza. The decrease in depreciation
and amortization expense is primarily a result of the write-off of the
unamortized cost of the tenant improvements and leasing commissions associated
with a tenant that vacated Village Square Shopping Center during the year ended
December 31, 1995. The investment portfolio fee increased slightly due to an
increase in the current value of net assets as discussed below, offset by a
decrease in the fee percentage for properties held more than ten years. Bad
debt expenses for the year ended December 31, 1996 were approximately $615,000
due primarily to the write-off of certain tenant receivables and an increase in
the allowance for doubtful accounts at the retail properties.
Net Asset Value per Unit increased to $15.59 at December 31, 1996 from $15.24
at December 31, 1995. The increase in Net Asset Value per Unit is attributable
to the increases in the appraised values of certain of the Registrant's
properties, primarily Summit Village, Town Center Business Park and Three
Riverside Drive. The increase in appraised value of Summit Village is a result
of an increase in projected market rents. The increase in appraised value of
Town Center Business Park and Three Riverside Drive is primarily due to
improved occupancy, from 72% to 83% and from 79% to 92%, respectively. These
value increases were partially offset by decreases in the appraised value of
certain of the Registrant's properties, primarily Oakland Pointe Shopping
Center due to the expected departure of three major tenants and the resulting
changes in the discount and exit capitalization rates to reflect the increased
risk associated with this property.
The Registrant made cash distributions, which were entirely from cash generated
from operations, of $.72 per Unit to Unitholders for each of the years ended
December 31, 1997 and 1996.
Item 8. Financial Statements and Supplementary Data.
See List of Financial Statements and Financial Statement Schedule on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Registrant has no officers or directors. Aetna/AREA Corporation and AREA
GP Corporation, the General Partners of the Registrant, jointly manage and
control the affairs of the Registrant and have general responsibility and
authority in all matters affecting its business.
Certain officers and directors of AREA GP are now serving (or in the past have
served) as officers or directors of entities which act as general partners of a
number of real estate limited partnerships, unrelated to the Registrant, which
have sought protection under the provisions of the Federal Bankruptcy Code. The
partnerships which have filed bankruptcy petitions own real estate which has
been adversely affected by the economic conditions in the markets in which the
real estate is located and, consequently, the partnerships sought protection of
the bankruptcy laws to protect the partnerships' assets from loss through
foreclosure. As compared to the Registrant, many of these partnerships had
different investment objectives, including the use of leverage.
Item 11. Executive Compensation.
No compensation was paid by the Registrant to the officers or directors of
either of the General Partners. See Item 13 below for a description of the
compensation and fees paid to the General Partners and their affiliates by the
Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 1, 1998, no person was known by the Registrant to be the beneficial
owner of more than five percent of the Units of the Registrant. The Registrant
has no directors or officers, and as of March 15, 1998, neither of the General
Partners of the Registrant owns any Units, though together they own a 1%
general partnership interest in the Registrant. As of March 1, 1998, no
directors or officers of AREA GP beneficially owned any Units. As of March 1,
1998, no directors of Aetna/AREA owned any Units, and as of such date, officers
of Aetna/AREA as a group beneficially owned approximately 232 Units, which
constituted less than 1% of the outstanding Units.
Aetna Life Insurance Company entered into an Option Purchase Agreement dated
June 7, 1996, with the managing member of Allegis Realty Investors LLC 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. This option has not been exercised to date.
Item 13. Certain Relationships and Related Transactions.
The General Partners and their affiliates have received or will receive certain
types of compensation, fees, or other distributions in connection with the
operations of the Registrant. The arrangements for payment of compensation and
fees were not determined in arms-length negotiations with the Registrant. The
General Partners are entitled to receive an investment portfolio fee based on
the net asset value of the Registrant's investments. The fee is payable
quarterly from available cash flow and may not exceed 2.5% per annum of net
asset value. For the year ended December 31, 1997, Aetna/AREA and AREA GP were
entitled to fees of $2,059,243 and $2,643,952, respectively, totaling
$4,703,195.
During the year ended December 31, 1997, $399,840 was paid to Aetna Life
Insurance Company, an affiliate of Aetna/AREA, primarily as reimbursement for
insurance expense paid on behalf of the Registrant by Aetna Life Insurance
Company to persons not affiliated with the Registrant.
Cash distributions paid to the General Partners during the year ended December
31, 1997 aggregated $92,542, which related to operations for the quarters ended
December 31, 1996, March 31, 1997, June 30, 1997 and September 30, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
The following documents are filed as part of this report:
(a) 1. Financial Statements:
See List of Financial Statements and Financial Statement
Schedule on page F-1.
2. Financial Statement Schedules:
See List of Financial Statements and Financial Statement
Schedule on page F-1.
3. Exhibits:
3.1 Form of Subscription Agreement (incorporated by reference to
Post-Effective Amendment No. 15 to the Registrant's
Registration Statement on Form S-11, File No. 33-2264).
3.2 Revised Limited Partnership Agreement of the Registrant
(incorporated by reference to Post-Effective Amendment No. 15
to the Registrant's Registration Statement on Form S-11, File
No. 33-2264).
3.3 Form of Certificate of Limited Partnership Interest
(incorporated by reference to Post-Effective Amendment No. 14
to the Registrant's Registration Statement on Form S-11, File
No. 33-2264).
3.4 Form of Distribution Reinvestment Plan Election Card
(incorporated by reference to Post-Effective Amendment No. 15
to the Registrant's Registration Statement on Form S-11, File
No. 33-2264).
4.1 Revised Depositary Agreement of the Registrant (incorporated
by reference to Post-Effective Amendment No. 14 to the
Registrant's Registration Statement on Form S-11, File No.
33-2264).
4.2 See Exhibits 3.1, 3.2, 3.3, and 3.4.
4.3 Distribution Reinvestment Plan of the Registrant
(incorporated by reference to Post-Effective Amendment No. 2
to the Registrant's Registration Statement on Form S-11, File
No. 33-2264).
4.4 Revised Form of Depositary Receipt of the Registrant
(incorporated by reference to Post-Effective Amendment No. 17
to the Registrant's Registration Statement on Form S-11, File
No. 33-2264). 4.5 Form of Distribution Reinvestment Plan
Administration Agreement (incorporated by reference to
Post-Effective Amendment No. 8 to the Registrant's
Registration Statement on Form S-11, File No. 33-2264).
10.1 Revised Escrow Agreement (incorporated by reference to
Post-Effective Amendment No. 15 to the Registrant's
Registration Statement on Form S-11, File No. 33-2264).
10.2 See Exhibits 4.1 and 4.5.
10.3 Custody Agreement (incorporated by reference to
Post-Effective Amendment No. 15 to the Registrant's
Registration Statement on Form S-11, File No. 33-2264).
10.4 Processing Agreement (incorporated by reference to
Post-Effective Amendment No. 15 to the Registrant's
Registration Statement on Form S-11, File No. 33-2264).
10.5 Amendment to Revised Escrow Agreement, dated March 4, 1991
(incorporated by reference to Form 10-K for the year ended
December 31, 1990).
10.6 Amendment to Custody Agreement, dated March 4, 1991
(incorporated by reference to Form 10-K for the year ended
December 31, 1990).
10.7 Amendment to Processing Agreement, dated March 4, 1991
(incorporated by reference to Form 10- K for the year ended
December 31, 1990).
21 Subsidiaries of the Registrant (incorporated by reference to
Post-Effective Amendment No. 11 to the Registrant's
Registration Statement on Form S-11, File No. 33-2264).
(b) There were no reports on Form 8-K filed in the fourth quarter of fiscal
year 1997.
(c) See Exhibit Index contained herein.
(d) See List of Financial Statements and Financial Statement Schedule
included on page F-1.
INDEX TO EXHIBITS
Exhibit Page
- ------- ----
3.1 Form of Subscription Agreement (incorporated by reference to
Post-Effective Amendment No. 15 to the Registrant's
Registration Statement on Form S-11, File No. 33-2264) *
3.2 Revised Limited Partnership Agreement of the Registrant
(incorporated by reference to Post-Effective Amendment No. 15
to the Registrant's Registration Statement on Form S-11, File
No. 33-2264) *
3.3 Form of Certificate of Limited Partnership Interest
(incorporated by reference to Post-Effective Amendment No. 14
to the Registrant's Registration Statement on Form S-11, File
No. 33-2264) *
3.4 Form of Distribution Reinvestment Plan Election Card
(incorporated by reference to Post-Effective Amendment No. 15
to the Registrant's Registration Statement on Form S-11, File
No. 33-2264) *
4.1 Revised Depositary Agreement of the Registrant (incorporated
by reference to Post-Effective Amendment No. 14 to the
Registrant's Registration Statement on Form S-11, File No.
33-2264) *
4.2 See Exhibits 3.1, 3.2, 3.3, and 3.4 *
4.3 Distribution Reinvestment Plan of the Registrant (incorporated
by reference to Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, File
No. 33-2264) *
4.4 Revised Form of Depositary Receipt of the Registrant
(incorporated by reference to Post-Effective Amendment No. 17
to the Registrant's Registration Statement on Form S-11, File
No. 33-2264) *
4.5 Form of Distribution Reinvestment Plan Administration
Agreement (incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's Registration Statement on
Form S-11, File No. 33-2264) *
10.1 Revised Escrow Agreement (incorporated by reference to
Post-Effective Amendment No. 15 to the Registrant's Registration
Statement on Form S-11, File No. 33-2264) *
10.2 See Exhibits 4.1 and 4.5 *
10.3 Custody Agreement (incorporated by reference to Post-Effective
Amendment No. 15 to the Registrant's Registration Statement on
Form S-11, File No. 33-2264) *
10.4 Processing Agreement (incorporated by reference to
Post-Effective Amendment No. 15 to the Registrant's Registration
Statement on Form S-11, File No. 33-2264) *
10.5 Amendment to Revised Escrow Agreement, dated March 4, 1991
(incorporated by reference to Form 10-K for the year ended
December 31, 1990) *
10.6 Amendment to Custody Agreement, dated March 4, 1991
(incorporated by reference to Form 10-K for the year ended
December 31, 1990) *
10.7 Amendment to Processing Agreement, dated March 4, 1991
(incorporated by reference to Form 10-K for the year ended
December 31, 1990) *
21 Subsidiaries of the Registrant (incorporated by reference to
Post-Effective Amendment No. 11 to the Registrant's Registration
Statement on Form S-11, File No. 33-2264) *
* Incorporated by reference
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 this 25 day of March 1998.
Aetna Real Estate Associates, L.P.
By: Aetna/AREA Corporation,
General Partner
By: /s/ Daniel R. Leary
Daniel R. Leary
President
By: AREA GP Corporation,
General Partner
By: /s/ Mark J. Marcucci
Mark J. Marcucci
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 25, 1998, by the following persons on
behalf of the Registrant and in the capacities indicated.
Signature Title
/s/ Daniel R. Leary President (Principal Executive Officer)
Daniel R. Leary and Director of Aetna/AREA Corporation
/s/ Carol M. Kuta Treasurer (Principal Financial Officer)
Carol M. Kuta and Comptroller of Aetna/AREA Corporation
/s/ James W. O'Keefe Chairman and Vice President of
James W. O'Keefe Aetna/AREA Corporation
/s/ Dean A. Lindquist Assistant Treasurer and Assistant Comptroller
Dean A. Lindquist of Aetna/AREA Corporation
/s/ Mark J. Marcucci Director and President of
Mark J. Marcucci AREA GP Corporation
AETNA REAL ESTATE ASSOCIATES, L.P.
(a Delaware limited partnership)
List of Financial Statements and Financial Statement Schedule
Page
----
Report of Independent Accountants F-2
Report of Hanford /Healy Appraisal Company F-3
Consolidated Balance Sheets (Historical Cost and Current Value)
December 31, 1997 and 1996 F-4
Consolidated Statements of Income (Historical Cost)
for the years ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Partners' Capital (Deficiency)
(Historical Cost) for the years ended December 31, 1997,
1996 and 1995 F-6
Consolidated Statements of Partners' Capital (Deficiency) (Current
Value) for the years ended December 31, 1997, 1996 and 1995 F-7
Consolidated Statements of Cash Flows (Historical Cost)
for the years ended December 31, 1997, 1996 and 1995 F-8
Consolidated Current Value Basis Statements of Changes in
Excess (Deficiency) of Current Value over Historical Cost
for the years ended December 31, 1997, 1996 and 1995 F-9
Notes to Consolidated Financial Statements F-10 - F-18
Report of Independent Accountants-
Supplementary Information F-19
The following financial statement schedule of Aetna
Real Estate Associates, L.P. required by Item 14 (d)
is included in this Item 8:
Schedule III -- Real Estate and Accumulated Depreciation F-20 - F-28
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission have been omitted since:
(1) the information required is disclosed in the financial statements and notes
thereto; (2) the schedules are not required under the related instructions; or
(3) the schedules are inapplicable.
Report of Independent Accountants
To the Partners of
Aetna Real Estate Associates, L.P.:
We have audited the consolidated historical cost balance sheets of Aetna Real
Estate Associates, L.P. ("the Partnership") as of December 31, 1997 and 1996,
and the related consolidated historical cost statements of income, partners'
capital (deficit) and cash flows for each of the three years in the period
ended December 31, 1996. We have also audited the supplemental consolidated
current value basis balance sheets of Aetna Real Estate Associates, L.P. as of
December 31, 1997 and 1996, and the supplemental consolidated current value
basis statements of partners' capital and changes in the excess of current
value over historical cost for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the historical cost financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Aetna Real Estate Associates, L.P. at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
As described in Note 3, during 1996, the Partnership adopted Financial
Accounting Standards Board Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long- Lived Assets to Be Disposed Of."
As described in Note 2, the supplemental consolidated current value financial
statements have been prepared by management to present relevant financial
information that is not provided by the consolidated historical cost financial
statements and are not intended to be a presentation in conformity with
generally accepted accounting principals. In addition, the supplemental
consolidated current value financial statements do not purport to present the
net realizable, liquidation, or market value of the Partnership as a whole.
Furthermore, amounts ultimately realized by the Partnership from the disposal
of properties may vary significantly from the current values presented.
In our opinion, the supplemental consolidated current value financial
statements referred to above present fairly, in all material respects, the
information set forth in them on the basis of accounting described in Note 2.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 18, 1998
Hanford/Healy Appraisal Company
February 11, 1998
Coopers & Lybrand
and The Unitholders of Aetna
Real Estate Associates, L.P.:
Re: Cross Pointe Center, Centerville, OH
Windmont Apartments, DeKalb Co., GA
Powell Street Plaza, Emeryville, CA
Lincoln Marina Bay, Richmond, CA
Village Square Shopping Center, Hazelwood, MO
Andover Research Park, Andover, MA
Metrowest Business Park I, Westborough, MA
Metrowest Business Park II, Westborough, MA
Gateway Square, Hinsdale, IL
Oakland Pointe Shopping Center, Pontiac, MI
Summit Village, Rosslyn, VA
Westgate Distribution Center, Corona, CA
Town Center Business Park, Santa Fee Springs, CA
Lincoln Square, Arlington Heights, IL
We have estimated the market value of certain real property (the "Properties")
owned by Aetna Real Estate Associates, L.P. (the "Partnership") as of December
31, 1997. The properties consist of the 14 Properties identified above.
Full annual valuation reports and three quarterly update reports were performed
for each of the properties during 1997. In accordance with an on-going
schedule, the dates of the full annual valuation varied from property to
property during the course of the year. The quarterly valuations, which were
more limited in scope, were based on and subject to the most recent full
valuation. Each property was inspected at least once during the course of the
assignment. The reports were prepared in accordance with the Code of
Professional Ethics and Standards of Professional Practice of the Appraisal
Institute.
The aggregate market value estimate reported below is subject to the detailed
assumptions and limiting conditions with respect to each property considered,
or incorporated by reference, in the Appraisal with respect to such Property.
The aggregate market value estimate is the sum of the individual property
market values and does not reflect any premium or discount for the properties
as a whole.
In our opinion, the aggregate market value of the Properties, as of December
31, 1996 was:
TWO HUNDRED SIX MILLION NINE HUNDRED THOUSAND DOLLARS
$206,900,000
Hanford/Healy Appraisal Company was not employed to provide legal analysis and
assumes no responsibility for any matters of a legal nature. Hanford/Healy
Appraisal Company was also not employed to perform engineering inspections and
assumes no responsibility for structural and mechanical, electrical or any
other construction matters, or the ability of the underlying properties to
withstand climatic or seismic disruptions.
Neither Hanford/Healy Appraisal Company, its officers, or any staff employed on
the valuations have any known present or contemplated future interest in the
Properties. We have no personal interest or bias with respect to the subject
matter or the parties involved. To the best of our knowledge and belief, the
facts upon which the analyses and conclusions are based are true and correct.
Hanford/Healy Appraisal Company's fee for the assignment was in no way
contingent upon the values reported.
HANFORD/HEALY APPRAISAL COMPANY
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Balance Sheets
(Historical Cost and Current Value)
As of December 31, 1997 and 1996
(in thousands)
1997 1996
-------------------- --------------------
Current Current
Value Historical Value Historical
(Note 2) Cost (Note 2) Cost
-------------------- --------------------
Assets
Investments in real estate:
Properties $206,777 $243,062 $193,565 $239,889
Less accumulated depreciation
and amortization - (54,496) - (47,772)
-------------------- --------------------
Total investments in
real estate 206,777 188,566 193,565 192,117
Cash and cash equivalents 10,883 10,883 9,133 9,133
Rent and other receivables 1,046 3,954 1,511 4,487
Other 13 13 13 13
-------------------- --------------------
Total assets $218,719 $203,416 $204,222 $205,750
-------------------- --------------------
Liabilities and Partners' Capital
Liabilities:
Investment portfolio fee
payable to related parties $ 1,168 $ 1,168 $ 1,195 $ 1,195
Accounts payable and accrued
expenses 463 463 496 496
Accrued property taxes 782 782 766 766
Security deposits 979 979 934 934
Unearned income 315 315 189 189
-------------------- --------------------
Total liabilities 3,707 3,707 3,580 3,580
-------------------- --------------------
Commitments (Note 14)
Partners' capital (deficiency):
General Partners 86 (67) (58) (43)
Limited Partners 214,926 199,776 200,700 202,213
-------------------- --------------------
Total partners' capital 215,012 199,709 200,642 202,170
-------------------- --------------------
Total liabilities and
partners' capital $218,719 $203,416 $204,222 $205,750
-------------------- --------------------
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Statements of Income (Historical Cost)
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands, except units and per unit amounts)
1997 1996 1995
--------- --------- ---------
Revenue:
Rental $ 28,604 $ 28,242 $ 27,455
Interest 404 336 367
Other income 589 452 616
--------- --------- ---------
29,597 29,030 28,438
--------- --------- ---------
Expenses:
Property operating 10,056 9,681 9,179
Depreciation and amortization 6,921 7,369 8,004
Investment portfolio
fee - related parties 4,703 4,887 4,814
General and administrative 676 767 725
Bad debt 448 615 714
--------- --------- ---------
22,804 23,319 23,436
--------- --------- ---------
Impairment of investment
in real estate - - (4,408)
--------- --------- ---------
Operating income 6,793 5,711 594
Loss on sale of property - - (23)
--------- --------- ---------
Net income $ 6,793 $ 5,711 $ 571
--------- --------- ---------
Net income allocated:
To the General Partners $ 68 $ 57 $ 6
To the Limited Partners 6,725 5,654 565
--------- --------- ---------
$ 6,793 $ 5,711 $ 571
--------- --------- ---------
Weighted average number of
limited partnership units
outstanding 12,724,547 12,724,547 12,724,547
---------- ---------- ----------
Earnings per limited
partnership unit $ .53 $ .44 $ .04
---------- ---------- ----------
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Statements of Partners' Capital (Deficiency) (Historical Cost)
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
General Limited
Partners Partners Total
------------------------------------
Balance at January 1, 1995 $ 79 $214,318 $214,397
Capital contributions 92 - 92
Net income 6 565 571
Cash distributions (92) (9,162) (9,254)
------------------------------------
Balance at December 31, 1995 85 205,721 205,806
Net income 57 5,654 5,711
Cash distributions (185) (9,162) (9,347)
------------------------------------
Balance at December 31, 1996 (43) 202,213 202,170
Net income 68 6,725 6,793
Cash distributions (92) (9,162) (9,254)
------------------------------------
Balance at December 31, 1997 $ (67) $199,776 $199,709
------------------------------------
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Statements of Partners' Capital (Deficiency) (Current Value)
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
General Limited
Partners Partners Total
-------------------------------------
Balance at January 1, 1995 $ (140) $192,599 $192,459
Capital contributions 92 - 92
Net income 6 565 571
Decrease in deficiency of current
value over historical cost 123 12,190 12,313
Cash distributions (92) (9,162) (9,254)
-------------------------------------
Balance at December 31, 1995 (11) 196,192 196,181
Net income 57 5,654 5,711
Decrease in deficiency of current
value over historical cost 81 8,016 8,097
Cash distributions (185) (9,162) (9,347)
-------------------------------------
Balance at December 31, 1996 (58) 200,700 200,642
Net income 68 6,725 6,793
Increase in excess of current
value over historical cost 168 16,663 16,831
Cash distributions (92) (9,162) (9,254)
-------------------------------------
Balance at December 31, 1997 $ 86 $214,926 $215,012
-------------------------------------
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Statements of Cash Flows (Historical Cost)
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
Cash flows from operating activities: ---------------------------
Net income $ 6,793 $ 5,711 $ 571
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 6,921 7,369 8,004
Impairment of investment in real estate - - 4,408
Loss on sale of property - - 23
Bad debt expense 448 615 714
Deferred (accrued) rental income 68 (118) (5)
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Rent and other receivables 17 (816) (763)
Investment portfolio fee payable to
related parties (27) (17) 24
Accounts payable and accrued expenses 1 10 (115)
Accrued property taxes 16 (49) 60
Security deposits 45 110 10
Unearned income 126 (36) 92
---------------------------
Net cash provided by operating activities 14,408 12,779 13,023
---------------------------
Cash flows from investing activities:
Investments in real estate (3,404) (3,270) (4,534)
Proceeds from sale of property - - 271
---------------------------
Net cash used in investing activities (3,404) (3,270) (4,263)
---------------------------
Cash flows from financing activities:
Cash distributions (9,254) (9,347) (9,254)
Partners' capital contributions - - 92
---------------------------
Net cash used in financing activities (9,254) (9,347) (9,162)
---------------------------
Net increase (decrease) in cash and
cash equivalents 1,750 162 (402)
---------------------------
Cash and cash equivalents at beginning of year 9,133 8,971 9,373
---------------------------
Cash and cash equivalents at end of year $10,883 $ 9,133 $ 8,971
---------------------------
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Current Value Basis Statements of Changes in
Excess (Deficiency) of Current Value Over Historical Cost
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
Deficiency of current value over historical cost at January 1, 1995 $(21,938)
Current value increase in properties 7,910
Write-down of property for permanent impairment 4,408
Increase in accrued rent (5)
--------
12,313
--------
Deficiency of current value over historical cost at December 31, 1995 (9,625)
Current value increase in properties 8,215
Increase in accrued rent (118)
--------
8,097
--------
Deficiency of current value over historical cost at December 31, 1996 (1,528)
Current value increase in properties 16,763
Decrease in accrued rent 68
--------
16,831
--------
Excess of current value over historical cost at December 31, 1997 $ 15,303
--------
AETNA REAL ESTATE ASSOCIATES, L.P.
(a Delaware limited partnership)
Notes to Consolidated Financial Statements
1. ORGANIZATION
Aetna Real Estate Associates, L.P. ("the Partnership") was organized on
September 11, 1986 as a limited partnership under the laws of the State
of Delaware pursuant to a Certificate and Agreement of Limited
Partnership (the "Partnership Agreement"), as amended and restated. The
Partnership was formed for the purpose of making acquisitions in and
operating certain types of residential and commercial real estate,
either directly or through joint venture arrangements and, subject to
certain limitations, making participating investments, construction
loans and conventional mortgage loans. The General Partners of the
Partnership are Aetna/AREA Corporation ("Aetna/AREA"), an affiliate of
Aetna Life Insurance Company, and AREA GP Corporation ("AREA GP"), an
affiliate of Lehman Brothers Inc. The Partnership will continue until
December 31, 2015 unless sooner terminated by law or in accordance with
the terms of the Partnership Agreement.
2. CURRENT VALUE BASIS FINANCIAL STATEMENTS
Current Value Reporting
The consolidated current value basis financial statements are presented
to provide supplementary information about the Partnership's financial
position and changes in partners' capital which is not provided by the
historical cost basis financial statements. The Partnership's
investments in real estate are subject to changes in value and,
therefore, their current values differ from their historical cost basis
net book values determined in conformity with generally accepted
accounting principles. Management believes that reporting the
financial position on a current value basis is a more realistic basis
for reporting the Partnership's activities because of the changing
economic conditions affecting the real estate market.
As more fully explained below, estimates of the current values of the
Partnership's assets and liabilities are determined by management. The
estimates of current values of the Partnership's investments in real
estate are based upon independent appraisals of the underlying real
estate using generally accepted valuation techniques. Such estimates
of current value represent the value of real estate assets held as
investments for purposes of obtaining the benefit of appreciation and
operating cash flows.
The estimates do not necessarily represent the realizable sales values
of these assets at the date of valuation. Additionally, partners'
capital on a current value basis is not intended to represent the
liquidation value of the Partnership or the market value of its net
assets taken as a whole.
Bases of Valuation
The following describes the bases of management's estimates of current
values:
* The current values of the Partnership's operating properties are
determined by independent appraisers. Independent appraisals of each
property are performed at the date of purchase and on a quarterly
basis thereafter. The value of future cash payments from joint
venture partners and additional capital costs, if any, are determined
by management to the extent they have not been considered in the
independent appraisals.
* All other assets and liabilities are carried in the current value
basis balance sheets at the lower of cost or net realizable value.
Accrued rent related to scheduled rent increases and tenant
concessions, included in rent and other receivables on the historical
cost basis balance sheets, is deemed to have a net realizable value
of zero on a current value basis.
* The aggregate difference between the current value basis and
historical cost basis of the Partnership's assets and liabilities is
reflected in the partners' capital accounts in the current value
basis balance sheets. The components of this difference at December
31, 1997 and 1996 are as follows:
(in thousands) 1997 1996
----------------------------------------------------------
Properties $18,211 $1,448
Accrued rent (2,908) (2,976)
Excess (deficiency) of current
value over historical cost $15,303 $(1,528)
----------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES
Financial Statements
The Partnership has a controlling interest in each of its joint venture
investments and, therefore, has consolidated the accounts of such joint
ventures in the financial statements. The consolidated financial
statements for 1997, 1996 and 1995 include the accounts of the
Partnership and its joint ventures Lincoln Marina Bay and Town Center
Associates. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Properties
The Partnership regularly evaluates the carrying value of its
properties. In 1995 the Partnership adopted Financial Accounting
Standards No. 121 (FAS 121), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. FAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of.
During the fourth quarter of 1995, a permanent impairment write-down of
one investment property to bring the property's carrying value to its
estimated fair value resulted in a reduction of operating income of
approximately $4,408,000, and is reflected in the 1995 Consolidated
Statement of Income. At December 31, 1995 the property had a high
vacancy rate with no new tenant prospects in the near future thus
causing the estimated undiscounted cash flows to be less than the
asset's carrying value. The estimated fair value represents the
property's current value, as discussed in Note 2. There were no such
write-downs required in 1997 or 1996.
Investments in properties, which the Partnership has the intent to hold
for the production of income, are carried at depreciated cost, which
includes the initial purchase price of the property, plus closing
costs, legal fees, and other miscellaneous acquisition costs, net of
impairment write-downs. Properties to be disposed of are carried at
the lower of depreciated cost or fair value less estimated selling
costs. Leases are accounted for under the operating method where
rental income is recognized on a straight-line basis. Lease
termination fees are included in income in the period in which the fee
is received. Expenses including advertising, maintenance and repairs
are charged to operations as incurred. Significant betterments and
improvements are capitalized and depreciated over their estimated
useful lives. Depreciation is computed using the straight-line method
based upon the estimated useful lives of the respective depreciable
properties and improvements, ranging from 5 to 40 years for land
improvements; 10 to 50 years for building and improvements; and 3 to 10
years for personal property, furniture, fixtures and equipment. Leasing
commissions and tenant improvements are amortized over the life of the
respective leases or the lives of the improvements, whichever is
shorter. Properties to be disposed of are not depreciated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expense during the reporting period. Actual results could differ
from those estimates.
Cash Equivalents
For purposes of the consolidated statements of cash flows, the
Partnership considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents. Included in
cash and cash equivalents are restricted security deposits of $77,041
and $85,844 at December 31, 1997 and 1996, respectively. Also,
included in cash and cash equivalents at December 31, 1997 and 1996 was
$8,742,070 and $6,080,343, respectively, held in a mutual fund
utilizing investments such as commercial paper, certificates of deposit
and government obligations, which are carried at market value. The
cost of cash equivalents approximates fair value at December 31, 1997
and 1996.
At December 31, 1997 and 1996, approximately $852,000 and $885,000,
respectively, of the bank balances of the Partnership's checking and
money market accounts were insured by the Federal Deposit Insurance
Corporation ("FDIC") while approximately $1,612,000 and $2,087,000,
respectively, were uninsured. Included in the uninsured bank balances
was approximately $832,000 and $1,522,000 held at one major financial
institution at December 31, 1997 and December 31, 1996, respectively.
The remainder of the uninsured balances were held in multiple banks,
minimizing the risk of an isolated bank failure.
Income Taxes
No provision for federal or state income taxes has been made in the
financial statements since income, losses and tax credits are generally
passed through to the individual partners.
Earnings Per Limited Partnership Unit
Earnings per unit is based upon net income allocated to the Limited
Partners and their weighted average number of units outstanding during
the year.
Reclassifications
Certain 1995 consolidated financial statement items have been
reclassified to conform to the 1996 presentation.
4. SALE OF INVESTMENT IN REAL ESTATE
On December 21, 1995 approximately 12,100 square feet of land at Powell
Street Plaza was condemned, for the purpose of road construction, by the
State of California Department of Transportation. Net proceeds to the
Partnership were approximately $271,000. Loss on the sale included in
these consolidated financial statements was approximately $23,000 for
the year ended December 31, 1995.
5. RENT AND OTHER RECEIVABLES
Rent and other receivables at December 31, 1997 and 1996 are summarized
as follows:
1997 1996
---------------------------------------------
Current Historical Current Historical
Value Cost Value Cost
---------------------------------------------
Rent and reimbursements
receivable $1,507,848 $1,507,848 $1,739,095 $1,739,095
Prepaids and other
receivables 269,960 269,960 275,605 275,605
Accrued rent - 2,907,877 - 2,975,752
---------------------------------------------
1,777,808 4,685,685 2,014,700 4,990,452
Less: allowance for
doubtful accounts (731,856 (731,856) (503,323) (503,323)
---------------------------------------------
Total rent and other
receivables $1,045,952 $3,953,829 $1,511,377 $4,487,129
---------------------------------------------
6. PARTNERSHIP ALLOCATIONS
Generally, net income and losses for any fiscal year and gains and
losses from sales are allocated 99% to the Limited Partners and 1% to
the General Partners.
The Partnership Agreement provides that net cash from operations, as
defined therein, and distributable proceeds from sale of investments
(other than from the sale of investments pursuant to the liquidation of
the Partnership) generally will be distributed, on a quarterly basis,
99% to the Limited Partners and 1% to the General Partners.
Distributable proceeds from the sale of investments in liquidation of
the Partnership will be distributed in accordance with the partners'
capital accounts after all allocations of income and loss. The
Partnership Agreement also provides for potentially substantial
compensation to be paid to the General Partners in the event the
Limited Partners elect to remove the General Partners.
7. JOINT VENTURES
The Partnership was a general partner in two consolidated joint
ventures as of December 31, 1997, 1996 and 1995. The joint venture
agreements in existence as of December 31, 1997 provide the Partnership
with priority cash payments from operations of the joint ventures
ranging from 9% to 13% per annum on all funds contributed by the
Partnership to the extent sufficient cash flows are generated by the
underlying properties. Any cash flows in excess of these payments to
the Partnership will be distributed to the Partnership and its joint
venture partners in accordance with their joint venture interests. The
Partnership's interests in its joint ventures range from 50% to 80%.
8. CAPITAL CONTRIBUTIONS/DISTRIBUTIONS
The Partnership initially offered up to $300,000,000 of depositary
partnership units representing units of limited partnership interests
and an additional $30,000,000 of units pursuant to the Partnership's
Distribution Reinvestment Plan ("DRIP"). Pursuant to such Plan,
Unitholders were entitled to elect to have their Partnership
distributions reinvested in new units.
Effective January 1, 1991, the Partnership suspended its initial
offering of $300,000,000 of units. In March 1992, the Partnership
terminated the offering and suspended sales of units pursuant to the
DRIP. During 1993, the Partnership received a favorable response to a
no-action request submitted to the Securities and Exchange Commission
regarding its ability to continue to sell units pursuant to the DRIP
without registration of such units under the Securities Act of 1933, as
amended. As of December 31, 1997, the Partnership had not reopened
sales of units pursuant to the DRIP. No additional units were issued
since 1991. Information related to Unitholders' distributions for the
years ended December 31, 1997, 1996 and 1995 is as follows:
Cash Distributions
------------------
Paid Per Unit
-----------------------------------
1997 $9,161,674 $ .72
1996 9,161,674 .72
1995 9,161,674 .72
-----------------------------------
Cash distributions paid to the General Partners during the year ended
December 31, 1997 aggregated $92,542 which related to operations for
the quarters ended December 31, 1996, March 31, 1997, June 30, 1997 and
September 30, 1997. Cash distributions paid to the General Partners
during the year ended December 31, 1996 aggregated $185,084, of which
$92,542 related to operations for the quarters ended December 31, 1995,
March 31, 1996, June 30, 1996 and September 30, 1996, and $92,542 was
for distributions that were withheld by the Partnership during 1995 and
became distributable within the provisions of the Partnership's Revised
Limited Partnership Agreement.
9. 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. As
specified in the Partnership Agreement, the fee is determined by
applying various percentages to the portion of net asset value
attributable to committed and uncommitted funds available for
investment. The fee is payable quarterly 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 years ended December
31, 1997, 1996 and 1995, Aetna/AREA and AREA GP were entitled to fees
as follows:
Aetna/AREA AREA GP
---------------------------------------------
1997 $2,059,243 $2,643,952
1996 1,972,562 2,914,167
1995 1,925,626 2,888,440
---------------------------------------------
Other
The General Partners are entitled to reimbursement of expenses paid on
behalf of the Partnership incurred in connection with the investments
and operation of the Partnership. Reimbursable expenses of $399,840,
$411,675 and $403,479, which consist primarily of insurance expense
paid to a third party, were reimbursed during 1997, 1996 and 1995
respectively, to an affiliate of Aetna/AREA.
10. LEASE AGREEMENTS
At December 31, 1997, the Partnership's principal assets subject to
lease agreements consisted of shopping centers, apartment complexes,
business parks and industrial parks. Apartment leases generally have
terms of 6 to 12 months and provide for a fixed minimum rent. Leases
with shopping center, industrial park and business park tenants
generally range in term from 1 to 10 years and provide for fixed
minimum rent and reimbursement of their proportionate share of
operating expenses. Included in rental revenue are $3,803,939,
$3,956,228 and $4,109,685 primarily consisting of expense
reimbursements for the years ended December 31, 1997, 1996 and 1995,
respectively. In addition, various leases with shopping center tenants
provide for additional rent based upon percentages of tenants' sales
volume. Percentage rent included in rental revenue is $329,730,
$458,715 and $426,272 for the years ended December 31, 1997, 1996 and
1995, respectively. The following table is a schedule of minimum
future rents to be received under noncancelable operating leases:
Year ending December 31,
-----------------------
1998 $19,160,651
1999 13,367,101
2000 11,269,417
2001 9,283,555
2002 7,596,910
Thereafter 16,516,607
-----------------------
Total $77,194,241
-----------------------
11. NET ASSET VALUE PER UNIT
Prior to the termination of the Offering and the Remarketing
Opportunity and the suspension of the DRIP in 1992, units offered to
new Unitholders or issued pursuant to the DRIP were purchased at Net
Asset Value per unit as defined in the Partnership Agreement. As
discussed in Note 8, the Partnership had not reopened sales of units
pursuant to the DRIP as of December 31, 1997. The Net Asset Value per
unit calculated in accordance with the Partnership Agreement, is
summarized as of December 31, 1997 and 1996 as follows:
1997 1996
------------ ------------
Limited Partners' capital - current
value basis $214,925,972 $200,700,247
Cash to be distributed to Limited Partners (2,290,418) (2,290,418)
------------ ------------
$212,635,554 $198,409,829
------------ -------------
Units outstanding 12,724,547 12,724,547
------------ -------------
Net Asset Value per unit $ 16.71 $ 15.59
------------ -------------
12. SUPPLEMENTARY INFORMATION
Maintenance and repairs, real estate taxes and advertising costs
included in property operating expenses for the years ended December
31, 1997, 1996 and 1995 are as follows:
1997 1996 1995
----------------------------------
Maintenance and repairs $1,261,142 $1,085,405 $ 983,635
Real estate taxes 3,010,819 2,898,371 2,990,923
Advertising costs 374,395 296,932 255,119
----------------------------------
13. RECONCILIATION OF FINANCIAL STATEMENT AND TAX INFORMATION
The following is a reconciliation of net income for financial statement
purposes to net income for federal income tax purposes for the years
ended December 31, 1997, 1996 and 1995:
1997 1996 1995
---------- ---------- ----------
Net income per financial statements $6,792,869 $5,710,699 $ 570,340
Joint venture net income for tax
purposes in excess of (less than)
joint venture net income per
financial statements 374,786 (38,240) 298,224
Depreciation deducted for tax purposes
less than depreciation expense per
financial statements 681,231 673,968 1,591,245
Permanent impairment not deductible
for tax purposes - - 4,407,851
Rental income related to accrued rent
on wholly owned properties 109,467 130,895 109,766
Bad debt expense deducted per
financial statements in excess of
(less than) bad debt expense
deducted for tax purposes 131,291 (415,238) 431,230
Other 20,597 (22,829) (58,719)
---------- ---------- ----------
Taxable net income $8,110,241 $6,039,255 $7,349,937
---------- ---------- ----------
The following is a reconciliation of partners' capital (historical
cost) for financial statement purposes to partners' capital for federal
income tax purposes as of December 31, 1997, 1996 and 1995:
1997 1996 1995
------------ ------------ ------------
Partners' capital per financial
statements $199,708,868 $202,170,215 $205,806,275
Adjustment for cumulative
difference between tax basis net
income and net income per
financial statements 12,492,589 11,175,217 10,846,661
------------ ------------ ------------
Partners' capital per tax return $212,201,457 $213,345,432 $216,652,936
------------ ------------ ------------
14. COMMITMENTS
As of December 31, 1997, the Partnership had outstanding commitments of
approximately $.7 million relating to previously acquired investments.
Of this amount, $.5 million relates to the Partnership's commitment to
fund additional tenant improvements, leasing commissions, and other
capital projects at certain retail properties, and $.2 million relates
to the Partnership's commitment to fund additional tenant and building
improvements at Town Center Business Park.
15. SUBSEQUENT EVENTS
Capital Contributions/Distributions
In February 1998, the Partnership declared cash distributions
aggregating $2,313,554 ($.18 per Unit) pertaining to the period from
October 1, 1997 to December 31, 1997, which was distributed on or about
February 13, 1998.
16. LITIGATION
In November 1996, the Partnership and the General Partners were named
as defendants in two purported class action lawsuits filed in the
Chancery Court of Delaware in New Castle County, entitled Bobbitt v.
Aetna Real Estate Associates, L.P., et al. and Estes v. Aetna Real
Estate Associates, L.P., et al. The complaints in those actions claim,
among other things, that management fees that have been and are paid to
the General Partners are excessive and that a standstill agreement with
a tender offeror which has had the effect of limiting the number of
units that would be the subject of any tender offer is unlawful. The
defendants have moved to dismiss the complaint that has been served
upon it. The General Partners believe that the allegations in these
complaints are without merit and intend to defend the lawsuits
vigorously. The tender offer referenced in the lawsuit expired in
December 1997 with less than 5% of the units being tendered. Although
the parties have exchanged correspondence there have been no material
proceedings in the litigation.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Unitholders of
Aetna Real Estate Associates, L.P.
In connection with our audits of the consolidated financial statements
of Aetna Real Estate Associates, L.P. as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997,
which financial statements are included herein, we have also audited
the related financial statement schedule listed in the index on page
F-1 herein.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information
required to be included therein.
/s/ Coopers & Lybrand L.L.P
Hartford, Connecticut
February 18, 1998
<TABLE>
<CAPTION>
AETNA REAL ESTATE ASSOCIATES L.P.
Schedule III - Real Estate and Accumulated Depreciation
As of December 31, 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs Capitalized Sub- Gross Amount at which
Initial Cost sequent to Acquisition Carried at End ofYear
------------------- ---------------------- ---------------------
Building Building Building
Encum- and and and
Description brances Land Improvements Land Improvements Land Improvements Total (a)
- ------------------------------------------------------------------------------------------------------------
Partnership Owned:
Cross Pointe $ - $3,300,000 $12,200,000 $ 16,751 $7,266,116 $3,316,751 $19,466,116 $22,782,867
Shopping Center
Centerville, OH
Gateway Square - 1,516,679 5,377,320 799 789,066 1,517,478 6,166,386 7,683,864
Shopping Center
Hinsdale, IL
Lincoln Square - 1,859,283 11,102,944 1,660 657,945 1,860,943 11,760,899 13,621,832
Apartment Complex
Arlington Hts., IL
Oakland Pointe - 3,412,062 16,981,319 7,112 2,592,977 3,419,174 19,574,296 22,993,470
Shopping Center
Pontiac, MI
Summit Village - 5,395,408 30,154,302 116,350 1,778,191 5,511,758 31,932,493 37,444,251
Apartment Complex
Rosslyn, VA
Partnership Owned
(Cont'd):
Three Riverside - 1,722,156 7,389,779 (22,892) 1,517,887 1,699,264 8,907,666 10,606,930
Riverside Drive
Office/R&D Bldg.
Andover, MA
Village Square (b) - 2,710,355 4,103,802 285,346 (1,552,163) 2,995,701 2,551,639 5,547,340
Shopping Center
Hazelwood, MO
Windmont Apartments - 1,429,226 6,093,017 28,430 537,754 1,457,656 6,630,771 8,088,427
Apartment Complex
Atlanta, GA
115 & 117 - 2,369,342 8,947,868 7,016 1,449,455 2,376,358 10,397,323 12,773,681
Flanders Road
R&D Warehouse Bldgs.
Westborough, MA
Powell Street Plaza (c) - 9,196,813 20,167,160 (68,973) 2,652,808 9,127,840 22,819,968 31,947,808
Shopping Center
Emeryville, CA
Partnership Owned
(Cont'd):
Westgate - 3,916,801 6,047,987 18,474 4,129,992 3,935,275 10,177,979 14,113,254
Distribution Center (d)
Industrial Park
Corona, CA
Consolidated Ventures:
Marina Bay - 1,777,110 5,212,740 166,987 3,886,444 1,944,097 9,099,184 11,043,281
Industrial Park
Richmond, CA
Town Center - 10,880,641 19,198,867 94,939 14,240,044 10,975,580 33,438,911 44,414,491
Business Park
Santa Fe Springs, CA
---------------------------------------------------------------------------------------
- 49,485,876 152,977,105 651,999 39,946,516 50,137,875 192,923,621 243,061,496(d)
---------------------------------------------------------------------------------------
See notes to schedule III
</TABLE>
AETNA REAL ESTATE ASSOCIATES L.P.
Schedule III - Real Estate and Accumulated Depreciation
As of December 31, 1997
Life on
which
Depreciation in
Latest Income
Accumulated Date of Date Statement
Description Depreciation(a) Construction Acquired is Computed
- -----------------------------------------------------------------------------
Partnership
Owned:
Cross Pointe $ 3,650,940 1985 10/3/86 40 years
Shopping Center
Centerville, OH
Gateway Square 2,053,512 1986 11/21/86 33 years
Shopping Center
Hinsdale,IL
Lincoln Square 4,421,319 1986 11/14/86 33 years
Apartment Complex
Arlington Hts., IL
Oakland Pointe 7,447,459 1987 1/26/88 33 years
Shopping Center
Pontiac, MI
Summit Village 8,662,407 1987/1989 6/09/87 and 40 years
Apartment Complex 8/31/89
Rosslyn, VA
Three Riverside Drive 3,035,373 1986 2/8/88 33 years
Office/R&D Bldg.
Andover, MA
Village Square (b) 442,255 1961/1988 6/24/87 33 years
Shopping Center
Hazelwood, MO
Windmont Apartments 2,001,002 1989 7/18/89 33 years
Apartment Complex
Atlanta, GA
115 & 117 Flanders 3,203,133 1986/1988 2/8/88 33 years
Road and
R&D Warehouse Bldgs. 8/31/89
Westborough, MA
Powell Street Plaza 5,675,782 1988 2/16/90 33 years
Shopping Center
Emeryville, CA
Westgate Distribution 2,301,486 1989 2/22/90 50 years
Center
Industrial Park
Corona,CA
Consolidated
Ventures:
Marina Bay 2,845,753 1962/1987 6/30/87 50 years
Industrial Park
Richmond, CA
Town Center 8,755,171 1982 12/18/87 33 years
Business Park
Santa Fe Springs, CA
-----------
$54,495,592 (d)
-----------
AETNA REAL ESTATE ASSOCIATES, L.P.
(a) Reconciliation of the carrying amount of real estate investments and
accumulated depreciation for the years ended Decenber 31, 1997, 1996 and
1994 is as follows:
1997 1996 1995
--------------------------------------------
Balance of real estate
investments at beginning
of year $239,888,792 $237,333,658 $241,332,804
Additions during year:
Improvements and additions 3,369,864 3,304,120 4,532,853
Deductions during year:
Cost of real estate sold (c) - - (293,615)
Impairment (b) - - (4,407,851)
New basis adjustment (b) - - (2,609,207)
Other (1) (197,160) (748,986) (1,221,326)
--------------------------------------------
Balance of real estate
investments at close of year $243,061,496 $239,888,792 $237,333,658
--------------------------------------------
Balance of accumulated deprec-
iation at beginning of year $47,771,997 $41,152,009 $36,978,911
Depreciation expense 6,920755 7,368,974 8,003,631
Accumulated depreciation of
real estate sold - - -
New basis adjustment (b) - - (2,609,207)
Other (1) (197,160) (748,986) (1,221,326)
--------------------------------------------
Balance of accumulated
depreciation at close of year $54,495,592 $47,771,997 $41,152,009
--------------------------------------------
(1) Write-off of tenant improvements and leasing commissions for vacated
tenants.
(b) In 1995, a property was written down by $4,407,851 for permanent
impairment. Accumulated depreciation and amortization of $2,609,207 at
the time of the permanent impairment has been adjusted against cost to
conform to the 1996 presentation.
(c) In 1995, approximately 12,100 square feet of land was condemned at Powell
Street Plaza for the purpose of road construction. The initial cost of
land was reduced by $293,615.
(d) For Federal income tax purposes, the aggregate cost of land, buildings and
improvements is $246,807,834. The amount of accumulated depreciation on
real property for Federal income tax purposes is $52,619,055.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,883,000
<SECURITIES> 000
<RECEIVABLES> 4,686,000
<ALLOWANCES> 732,000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 243,062,000
<DEPRECIATION> 54,496,000
<TOTAL-ASSETS> 203,416,000
<CURRENT-LIABILITIES> 000
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 199,709,000
<TOTAL-LIABILITY-AND-EQUITY> 203,416,000
<SALES> 28,604,000
<TOTAL-REVENUES> 29,597,000
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 22,804,000
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 6,793,000
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 000
</TABLE>
