SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14986
AETNA REAL ESTATE ASSOCIATES, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 11-2827907
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
242 Trumbull Street, Hartford, Connecticut 06103
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (860) 275-2178
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Depositary Units
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(Title of class)
<PAGE>
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: $206,201,383 (1)
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(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 $16.21 at December 31, 1999.
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<PAGE>
PART 1
Item 1. Business.
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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, and has acquired all of its interests in
Properties entirely with cash. The Registrant conducts its operations in one
segment, rental real estate.
As of December 31, 1999, the Registrant held nine Investments in Properties at a
total cost of approximately $182.1 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.
Four properties were sold during 1999: i) Gateway Square; ii) 115 and 117
Flanders Road; iii) Three Riverside Drive; and iv) Cross Pointe Centre for an
aggregate gain of approximately $4,563,000. Subsequent to December 31, 1999 the
Registrant sold Windmont Apartments on January 19, 2000 and Lincoln Square
Apartments on February 22, 2000. See Note 15 to the Consolidated Financial
Statements for more information regarding these sales. The Registrant entered
into an agreement to
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<PAGE>
sell one of the three buildings and parcel of land at Westgate Distribution
Center, with a closing anticipated during the quarter ended June 30, 2000. The
General Partners have commenced a plan to market for potential sale the other
properties owned by the Registrant. There can be no assurances that any
properties will be sold in the near future, or that if sold, the sales prices
will approximate the estimated net asset values of the properties. In addition,
the Registrant from time to time receives unsolicited expressions of interest in
purchasing some or all of the 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 Registrant, which
might affect the level of quarterly cash distributions to limited partners.
During 1999, the Registrant made distributions aggregating $4.17 per unit of
which $.72 per unit was generated from cash from operations. (See Item 5 below
for additional information regarding recent quarterly distributions.) The
General Partners currently anticipate that quarterly cash distributions will
continue throughout 2000. The level and timing of future distributions will be
reviewed on a quarterly basis by the General Partners.
Net Asset Value per Unit decreased to $16.21 at December 31, 1999 from $18.12 at
December 31, 1998. The decrease in Net Asset Value per Unit is primarily
attributable to the distribution of sales proceeds and a reduction of working
capital reserves, partially offset by increases in the appraised values of each
of the Registrant's properties, most notably Summit Village, Powell Street Plaza
and Lincoln Square Apartments. The increases in appraised value of Summit
Village and Lincoln Square Apartments are a result of an increase in market
rents. Powell Street Plaza's increase in appraised value was primarily due to
the commencement of several new leases and an increase in projected market
rents.
Competition
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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. When the Registrant is in the market to sell existing
Investments in Properties, it faces competition in connection with such 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 in properties held by the
Registrant may change.
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<PAGE>
Employees
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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 UBS Brinson Realty Investors LLC, formerly known as
Allegis Realty Investors LLC, to provide investment management services to the
Registrant.
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<PAGE>
Item 2. Properties.
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As of December 31, 1999, the Registrant held nine Investments in Properties.
<TABLE>
<CAPTION>
(in thousands)
Historical
Property Cost(1)
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<S> <C>
Lincoln Square Apartments 13,794 (2)
Summit Village 38,081
Village Square 8,211
Marina Bay Industrial Park 11,310
Town Center Business Park 45,839
Oakland Pointe Shopping Center 10,422
Windmont Apartments 8,247 (2)
Powell Street Plaza 32,085
Westgate Distribution Center 14,148
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Total $182,137
========
<FN>
(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 Note 3 to the Consolidated
Financial Statements.)
(2) Subsequent to December 31, 1999 Lincoln Square Apartments and Windmont
Apartments were sold. See Note 15 to the Consolidated Financial Statements
for more information regarding these sales.
</FN>
</TABLE>
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, 1999 ranged from 8.50% to 10.75%.
Discount rates utilized in the appraisals of the Investments in Properties at
December 31, 1999 ranged from 10.50% to 12.75%.
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<PAGE>
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.
Lincoln Square Apartments
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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, 1999,
the project was 98% leased and 95% occupied.
On February 22, 2000 Lincoln Square Apartments was sold to an unaffiliated
party. See Note 15 to the Consolidated Financial Statements for more information
regarding the sale.
Summit Village
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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
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12/31/95 99% 99%
12/31/96 98% 98%
12/31/97 99% 99%
12/31/98 99% 99%
12/31/99 100% 99%
The current leases generally have terms of seven or twelve months at monthly
rental rates ranging from $1,139 to $1,596 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 have recently been added: Meridian at Ballston Apartments with 435
units completed lease-up and Arlington Courthouse Place, formerly known as
Courthouse Hill Apartments with 564 units also completed lease-up during 1999,
each with minimal impact on Summit Village rents and occupancy.
Marina Bay Industrial Park
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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, 1999, the complex was 100% leased and occupied.
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<PAGE>
Village Square
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The Registrant owns Village Square in Hazelwood, Missouri, a former community
shopping center that was converted to primarily back office use during 1998. It
contains approximately 207,304 square feet of net rentable area on approximately
20 acres of land. As of December 31, 1999, the property was 90% leased and
occupied.
Town Center Business Park
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The Registrant owns a controlling interest in a general partnership which owns
and operates Town Center Business Park, totaling approximately 457,500 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 323,100 rentable square feet. Phase II consists of a two-story
office/service building and two industrial buildings containing approximately
134,400 square feet.
During 2000, 24 leases covering 27% of the space in Town Center Business Park
are scheduled to expire. One tenant totaling 4,781 square feet has already
renewed. Six tenants occupying 22,139 square feet are vacating at the end of
their lease term and lease negotiations are underway with potential tenants.
Renewal negotiations have begun with four tenants totaling 36,683 square feet.
The remaining 13 tenants, comprising 13% of the space, expire in the latter part
of the year, 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 one new tenant in early 2000 for one percent
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 2001 and 2002, 8 and 14 leases, respectively,
are scheduled to expire, each covering 16% 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
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12/31/95 84% 72%
12/31/96 85% 83%
12/31/97 93% 92%
12/31/98 93% 89%
12/31/99 97% 93%
Average annualized rental rates for December 1999 were $11.55 per square foot as
compared to $11.16 and $11.12 per square foot for December 1998 and 1997,
respectively.
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<PAGE>
Oakland Pointe Shopping Center
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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, 1999, the Oakland Project was approximately 87%
leased and 78% occupied.
Windmont Apartments
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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, 1999, the
complex was approximately 95% leased and 92% occupied.
On January 19, 2000 Windmont Apartments was sold to an unaffiliated party. See
Note 15 to the Consolidated Financial Statements for more information regarding
the sale.
Powell Street Plaza
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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 Health
Care Services Agency (the "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 has been approved. On October 15, 1997 the Agency determined the
site was low risk and agreed to close the case pending an approved Long-term
Site Management Plan. 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 prepare a Long-term Site
Management Plan.
During 2000, two leases are scheduled to expire covering 2% of the space, and
during 2001 one lease is scheduled to expire totaling 4% of the space. Four
leases expire in 2002 covering 5% 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 $337,563 (11% of total rent) in 1999.
The lease contains two consecutive five-year options to renew. The second lease,
for 25,025 square feet, expires in 2009 and provided annual base rent of
$353,999 (12% of total rent) in 1999. The lease contains four consecutive
five-year options to renew.
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<PAGE>
Powell Street Plaza (continued)
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Historical leasing and occupancy information with respect to Powell Street Plaza
for the five most recent years is as follows:
Leased Occupied
------ --------
12/31/95 100% 100%
12/31/96 91% 91%
12/31/97 98% 95%
12/31/98 100% 100%
12/31/99 100% 100%
Average annualized base rental rates for December 1999 were $18.45 per square
foot as compared to $17.27 and $17.26 per square foot for December 1998 and
1997, respectively.
In spring 2000, a 250,000 square foot Ikea furniture and home furnishing store
is scheduled to open approximately one-half mile south of Powell Street. In
addition, Madison Marquette Inc. is developing a 340,000 square foot commercial
development, including a 60,000 to 80,000 square foot multiplex theater, 230 to
300 residential units and a 150 to 200 room hotel that is anticipated to be open
in two to three years. The retail component of this development is expected to
be specialty retail and entertainment that should not compete directly with
Powell Street. However, The Gap Inc. may execute a lease to place the whole line
of Gap stores in the project, including Old Navy, which leases approximately
14,845 square feet at Powell Street. Discussions with The Gap Inc. indicate that
they currently plan to keep both stores open, provided they are able to generate
sufficient sales.
Westgate Distribution Center
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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, 1999, the buildings
were 100% leased and occupied.
Subsequent to December 31, 1999 the Registrant entered into an agreement with an
unaffiliated third party to sell one of the three buildings, approximately
98,000 square feet, and a parcel of land, approximately 5.1 acres. A closing is
anticipated during the quarter ended June 30, 2000.
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<PAGE>
Properties Sold During 1999
Gateway Square
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On March 17, 1999 the Registrant sold Gateway Square, a specialty retail center
located in Hinsdale, Illinois to an unaffiliated party for a gross sales price
of $6,940,000. Gain included in the December 31, 1999 consolidated financial
statements was approximately $1,211,000.
Three Riverside Drive
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On October 18, 1999 the Registrant sold Three Riverside Drive, an
office/research and development building located in Andover, Massachusetts to an
unaffiliated party for a gross sales price of $8,025,000. Gain included in the
December 31, 1999 consolidated financial statements was $319,695.
115 and 117 Flanders Road
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On October 18, 1999 the Registrant sold 115 and 117 Flanders Road, two
office/research buildings located in Westborough, Massachusetts to an
unaffiliated party for a gross sales price of $9,975,000. Gain included in the
December 31, 1999 consolidated financial statements was $634,953.
Cross Pointe Centre
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On October 26, 1999 the Registrant sold Cross Pointe Centre, a community
shopping center located in Centerville, Ohio to an unaffiliated party for a
gross sales price of $17,254,444. Gain included in the December 31, 1999
consolidated financial statements was $2,397,321.
For additional information regarding the sold properties, see Note 4 to the
Consolidated Financial Statements.
Item 3. Legal Proceedings.
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The Registrant has not been notified that it or any of the Registrant's
Investments in Properties are subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
During the fourth quarter of the year ended December 31, 1999, no matter was
submitted to a vote of security holders, through the solicitation of proxies or
otherwise.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
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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, 2000, the number of Unitholders was approximately 17,000.
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.
Quarterly cash distributions per Unit for the three years ended December 31,
1999 have been paid to Unitholders as follows:
<TABLE>
<CAPTION>
Per Unit
Quarter Ended Amount
------------- ------
<S> <C>
March 31, 1997 $ .18
June 30, 1997 .18
September 30, 1997 .18
December 31, 1997 .18
March 31, 1998 .18
June 30, 1998 .18
September 30, 1998 .18
December 31, 1998 .18
March 31, 1999 .18
June 30, 1999 .88 (1)
September 30, 1999 .18
December 31, 1999 2.93 (2)
<FN>
(1) Per Unit Amount includes a distribution from operations of $.18 per unit, a
special distribution from cash reserves paid April 14, 1999 of $.20 per unit,
and a distribution of $.50 per unit paid May 17, 1999 representing proceeds from
the sale of Gateway Square.
(2) In October 1999 a distribution from operations of $.18 per unit was paid,
and on November 24, 1999 a distribution of $2.75 per Unit was paid representing
proceeds from the sales of 115 and 117 Flanders Road, Three Riverside Drive, and
Cross Pointe Centre, and a reduction of cash reserves.
</FN>
</TABLE>
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<PAGE>
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 PricewaterhouseCoopers LLP,
independent certified public accountants, whose report for the years 1999, 1998
and 1997 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.
<TABLE>
(Dollars in thousands, except per Unit data)
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<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue..................... $ 31,437 $ 30,689 $ 29,597 $ 29,030 $ 28,438
Operating Income before
Impairment of Investment
in Real Estate............ 7,764 7,894 6,793 5,711 5,002
Impairment of Investment
in Real Estate(a)......... - 9,007 - - 4,408
Operating Income (Loss)..... 7,764 (1,113) 6,793 5,711 594
Gain (Loss) on Sales of
Properties................ 4,563 - - - (23)
Cash and Cash
Equivalents............... 10,419 12,597 10,883 9,133 8,971
Total Assets (Historical
Cost Basis)............... 151,089 193,184 203,416 205,750 209,334
Total Assets (Current
Value Basis).............. 211,530 236,917 218,719 204,222 199,709
Rental Income............... 30,230 29,716 28,604 28,242 27,455
Interest Income............. 753 538 404 336 367
Earnings (Loss) per
Weighted Average Unit..... .96 (.09) .53 .44 .04
Cash Distributions per
Unit...................... 4.17 .72 .72 .72 .72
Net Asset Value per
Unit...................... 16.21 18.12 16.71 15.59 15.24
<FN>
(a) See Note 3 to the Consolidated Financial Statements with respect to
accounting policy for permanent impairment of properties.
</FN>
</TABLE>
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
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Liquidity and Capital Resources
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At December 31, 1999, the Registrant had working capital reserves ("Reserves")
of $5.6 million, including approximately $1.3 million retained from cash
generated from operations in 1999. During the year ended December 31, 1999, the
Partnership expended approximately $3.3 million for capital improvements. At
December 31, 1999, the Registrant had approximately $1.8 million of outstanding
commitments for capital improvements and approximately $4.3 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
2000 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
- ---------
The Year 2000 issue concerned the inability of computer systems and devices to
properly recognize and process date-sensitive information when the year changed
to 2000. The Registrant owns real estate assets, and in connection with the
operation of such assets, utilizes certain software products and equipment such
as accounting, heating, ventilating and cooling systems and security systems. A
comprehensive risk-based plan designed to make such systems Year 2000 ready was
executed. The plan covered five stages, including: (i) inventory, (ii)
assessment, (iii) contingency planning, (iv) remediation and, (v) testing where
appropriate. Subsequent to December 31, 1999, follow up assessment of the Year
2000 issues revealed no significant problems. The Registrant did not incur any
significant costs to remediate systems for Year 2000 issues.
The Registrant communicated with its critical external relationships to
determine the extent to which the Registrant may be vulnerable to such parties'
failure to resolve their own Year 2000 issues. Where practicable, contingency
plans were developed in an attempt to mitigate risks with respect to the failure
of these entities to be Year 2000 ready. Most of the costs of vendor
(particularly property management and related services) compliance with Year
2000 problems were borne by vendors. Subsequent to December 31, 1999 there has
been no effect on the Registrant's results of operations from the failure of
such parties to be Year 2000 ready, although there can be no assurance that
future problems will not develop. The Registrant will continue to monitor
critical systems and dates throughout the year 2000.
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<PAGE>
Results of Operations
- ---------------------
1999 versus 1998
- ----------------
Net income for the year ended December 31, 1999 increased approximately
$13,440,000 from 1998. This increase was primarily the result of an impairment
for approximately $9,007,000 recognized in 1998 to write-down the carrying value
of two investments to their estimated fair value, and a gain on sales of
properties of approximately $4,563,000 realized in 1999, offset in part by legal
expenses of $2,408,000 in 1999 related to litigation, see Note 16 to the
Consolidated Financial Statements for more information regarding litigation.
Revenue increased approximately $748,000 from 1998, resulting primarily from an
increase in rental revenue at most of the properties, offset in part by a
reduction in rental revenue resulting from the sale of four properties. The most
significant increases in rental revenue occurred at Village Square by
approximately $1,109,000 as a result of increased occupancy, and at Powell
Street Plaza by approximately $447,000 as a result of an increase in rental
rates. The increase in interest income of approximately $215,000 for the year
ended December 31, 1999 is attributable to a temporary increase in cash balances
due primarily to the sale of four properties.
Property operating expenses for the year ended December 31, 1999 decreased
approximately $147,000 in comparison to 1998, due primarily to the sales of
properties, partially offset by increases at certain properties. The most
significant increases in operating expenses occurred at Village Square, relating
primarily to increased real estate taxes and repairs and maintenance, and at
Lincoln Square primarily as a result of increased real estate taxes. The
decrease in depreciation and amortization expense of approximately $840,000 is
primarily a result of properties sold during 1999 and the impairment recognized
at December 31, 1998 to write-down the carrying value of two investments to
their estimated fair value. The investment portfolio fee decreased approximately
$513,000 primarily the result of the distribution of sales proceeds and cash
reserves, and lower rates as provided under the Settlement Agreement as
discussed in Note 16 to the Consolidated Financial Statements.
Net Asset Value per Unit decreased to $16.21 at December 31, 1999 from $18.12 at
December 31, 1998. The decrease in Net Asset Value per Unit is primarily
attributable to the distribution of sales proceeds and a reduction of working
capital reserves, partially offset by increases in the appraised values of the
Registrant's properties, most notably Summit Village, Powell Street Plaza and
Lincoln Square Apartments. The increases in appraised value of Summit Village
and Lincoln Square Apartments are a result of an increase in market rents.
Powell Street Plaza's increase in appraised value was primarily due to the
commencement of several new leases and an increase in projected market rents.
The Registrant made cash distributions, of $4.17 and $.72 per Unit to
Unitholders for the years ended December 31, 1999 and 1998, respectively. The
distributions of $.72 per Unit were paid from cash generated from operations for
each year, and during 1999 special distributions of $3.14 per Unit were paid
from sales proceeds and $.31 per Unit was paid from cash reserves.
-14-
<PAGE>
1998 versus 1997
- ----------------
Net income for the year ended December 31, 1998 decreased approximately
$7,906,000 from 1997 resulting primarily from an impairment loss of
approximately $9,007,000 reflected in the 1998 Consolidated Statement of Income
(Loss). Revenue increased approximately $1,092,000 from 1997, 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 Village Square and Town Center Business Park, as a result of
increased occupancy, and at 115 Flanders Road and Summit Village, as a result of
an increase in rental rates. These increases were partially offset by certain
decreases in rental revenue, as a result of decreases in occupancy, at Three
Riverside Drive and Oakland Pointe Shopping Center. Other income for the year
ended December 31, 1998 decreased approximately $154,000 from 1997 primarily
because lease termination fees and settlement proceeds related to faulty roof
construction were received during the year ended December 31, 1997.
Property operating expenses for the year ended December 31, 1998 decreased
approximately $51,000 in comparison to 1997. The most significant decreases in
operating expenses occurred at Village Square, relating primarily to decreased
parking lot maintenance, and at Three Riverside Drive from lower utility
expenses caused by two tenants assuming direct responsibility for their meters,
and lower repair and maintenance expenses due to significant HVAC repairs during
1997. The investment portfolio fee increased approximately $137,000 due to an
increase in the current value of net assets as discussed below, partially offset
by a decrease in the fee percentage for properties held more than ten years. Bad
debt expense for the year ended December 31, 1998 was approximately $320,000 due
primarily to the write-off of certain tenant receivables and an increase in the
allowance for doubtful accounts at Town Center Business Park.
Net Asset Value per Unit increased to $18.12 at December 31, 1998 from $16.71 at
December 31, 1997. 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 Village Square, Town Center Business Park and Summit Village. The
increase in appraised value of Summit Village is a result of an increase in
market rents. The increase in appraised value of Village Square and Town Center
Business Park is primarily due to improved occupancy and market rent
assumptions. Village Square's appraised value is now based on the assumption
that the property is converted to office use. Leasing at Village Square has
improved with the conversion from retail to office use. These value increases
were partially offset by a decrease in the appraised value of Cross Pointe
Centre and Oakland Pointe Shopping Center. The decrease in appraised value at
Cross Pointe Centre is due to an assumed longer lease-up period and reduced rent
on the space of a former anchor tenant. The appraised value of Oakland Pointe
decreased primarily as the result of a change in the interpretation of a lease
clause and an increase in forecasted capital expenditures.
-15-
<PAGE>
Forward Looking Information
- ---------------------------
The above information in Management's Discussion and Analysis of Financial
Condition and Results of Operations includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Although the General Partners believe that their plans, intentions and
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such plans, intentions or expectations will be achieved.
The forward-looking information disclosed herein is based upon the assumptions
and estimates that, while considered reasonable by the General Partners as of
the date hereof, are inherently subject to business, economic, competitive, and
regulatory uncertainties and contingencies which are beyond the control of the
General Partners.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
----------------------------------------------------------
Not applicable.
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.
-16-
<PAGE>
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 February 11, 2000, there was one group known by the Registrant to be the
beneficial owner of more than five percent of the Units of the Registrant.
<TABLE>
<CAPTION>
Number Percent
Number of Units of Units
Of Units Beneficially Beneficially
Name and Address Owned Owned Owned
- ---------------- ----- ----- -----
<S> <C> <C> <C>
Oak Investors, LLC 638,516 654,321 5.14%
1650 Hotel Circle North, Suite 200, San Diego, CA
Arlen Capital LLC Profit Sharing Plan 3,847 654,321 5.14
1650 Hotel Circle North, Suite 200, San Diego, CA
Don & Barbara Augustine Family Trust 6,930 654,321 5.14
1650 Hotel Circle North, Suite 200, San Diego, CA
Dimension Investments, Ltd. 5,028 654,321 5.14
1650 Hotel Circle North, Suite 200, San Diego, CA
</TABLE>
-17-
<PAGE>
The Registrant has no directors or officers, and as of March 1, 2000, 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, 2000, no
directors or officers of AREA GP beneficially owned any Units. As of March 1,
2000, 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 UBS Brinson Realty Investors LLC
(formerly known as 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 2.25% per annum of net
asset value. See Note 9 to the Consolidated Financial Statements for additional
information regarding the fee. For the year ended December 31, 1999, Aetna/AREA
and AREA GP were entitled to fees of $2,029,436 and $2,297,914, respectively,
totaling $4,327,350.
During the year ended December 31, 1999, $284,868 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, 1999 aggregated $535,974 which related to operations for the quarters ended
December 31, 1998, March 31, 1999, June 30, 1999 and September 30, 1999, a
reduction of cash reserves, and the distribution of sales proceeds from
properties sold during 1999.
-18-
<PAGE>
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).
-19-
<PAGE>
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 1999.
(c) See Exhibit Index contained herein.
(d) See List of Financial Statements and Financial Statement Schedule
included on page F-1.
-20-
<PAGE>
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......................................... *
* Incorporated by reference
-21-
<PAGE>
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
-22-
<PAGE>
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 30th day of March
2000.
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
-23-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 30, 2000, by the following persons on
behalf of the Registrant and in the capacities indicated.
Signature Title
--------- -----
/s/ Daniel R. Leary President (Principal Executive Officer)
- ------------------------------ and Director of Aetna/AREA Corporation
Daniel R. Leary
/s/Carol M. Kuta Treasurer (Principal Financial and
- ------------------------------ Accounting Officer) and Comptroller
Carol M. Kuta of Aetna/AREA Corporation
/s/James W. O'Keefe Chairman and Vice President of
- ------------------------------ Aetna/AREA Corporation
James W. O'Keefe
/s/Dean A. Lindquist Assistant Treasurer and Assistant
- ------------------------------ Comptroller of Aetna/AREA Corporation
Dean A. Lindquist
/s/Mark J. Marcucci Director and President of
- ------------------------------ AREA GP Corporation
Mark J. Marcucci
-24-
<PAGE>
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 Realty Services International, Inc. F-3 - F-4
Consolidated Balance Sheets (Historical Cost and Current Value)
December 31, 1999 and 1998 F-5
Consolidated Statements of Income (Loss) (Historical Cost)
for the years ended December 31, 1999, 1998 and 1997 F-6
Consolidated Statements of Partners' Capital (Deficiency)
(Historical Cost) for the years ended December 31, 1999,
1998 and 1997 F-7
Consolidated Statements of Partners' Capital (Deficiency)
(Current Value) for the years ended December 31, 1999, 1998
and 1997 F-8
Consolidated Statements of Cash Flows (Historical Cost)
for the years ended December 31, 1999, 1998 and 1997 F-9
Consolidated Current Value Basis Statements of Changes in Excess
(Deficiency) of Current Value over Historical Cost for the
years ended December 31, 1999, 1998 and 1997 F-10
Notes to Consolidated Financial Statements F-11 - F-21
Report of Independent Accountants-
Supplementary Information F-22
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-23 - F-27
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.
F-1
<PAGE>
PRICEWATERHOUSECOOPERS
Report of Independent Accountants
To the Unitholders of
Aetna Real Estate Associates, L.P.
We have audited the accompanying consolidated historical cost balance sheets of
Aetna Real Estate Associates, L.P. (the "Partnership") as of December 31, 1999
and 1998, and the related consolidated historical cost statements of income,
partners' capital and of cash flows for each of the three years in the period
ended December 31, 1999. We have also audited the supplemental consolidated
current value basis balance sheets of Aetna Real Estate Associates, L.P. as of
December 31, 1999 and 1998, 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, 1999. 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 auditing standards generally accepted
in the United States. 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 of disclosures in the financial statements presentation.
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, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
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
accounting principles generally accepted in the United States. 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.
PRICEWATERHOUSECOOPERS LLP
February 10, 2000 except Note 15
for which the date is February 22, 2000
F-2
<PAGE>
REALTY SERVICES INTERNATIONAL, INC.
A subsidiary of GMAC Commercial Mortgage
February 10, 2000
PricewaterhouseCoopers
And the Unitholders of Aetna
Real Estate Associates, L.P.
Re: Windmont Apartments, Dekalb County, GA
Powell Street Plaza, Emeryville, CA
Lincoln Marina Bay, Richmond, CA
Village Square Shopping Center, Hazelwood, MO
Oakland Pointe Shopping Center, Pontiac, MI
Summit Village, Rosslyn, VA
Westgate Distribution Center, Corona, CA
Town Center Business Park, Santa Fe Springs, CA
Lincoln Square, Arlington Heights, IL
Dear Sirs:
REALTY SERVICES International, Inc. ("RSI") has estimated the market value of
certain real property ("the Properties") owned by Aetna Real Estate Associates,
L.P. ("the Partnership") as of December 31, 1999. The Properties consist of the
nine (9) properties identified above.
Full annual valuation reports and quarterly update reports were performed for
each of the Properties during 1999. In accordance with an ongoing schedule, the
dates for 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 data contained in 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 the opinion of RSI, the aggregate market value of the Properties, as of
December 31, 1999 was:
TWO HUNDRED TWO MILLION NINE HUNDRED THOUSAND DOLLARS
($202,900,000)
RSI was not employed to provide legal analysis and assumes no responsibility for
any matters of a legal nature. RSI 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.
F-3
<PAGE>
Neither RSI, its officers, nor staff have any known present or contemplated
future interest in the Properties. RSI has 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. RSI's fee for the assignments was in no way
contingent upon the values reported.
Sincerely,
REALTY SERVICES International, Inc.
/s/Wayne R. Miller
Wayne R. Miller, MAI, ASA
Vice President/Regional Manager
F-4
<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Balance Sheets
(Historical Cost and Current Value)
As of December 31, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
Current Current
Value Historical Value Historical
(Note 2) Cost (Note 2) Cost
-------- -------- -------- --------
Assets
- ------
<S> <C> <C> <C> <C>
Investments in real estate:
Properties held for investment $179,022 $163,469 $223,343 $225,833
Less accumulated depreciation
and amortization - (41,679) - (48,915)
-------- -------- -------- --------
179,022 121,790 223,343 176,918
Properties held for sale (net of historical
cost accumulated depreciation of $2,972) 21,079 15,696 - -
-------- -------- -------- --------
Total investments in real estate 200,101 137,486 223,343 176,918
Cash and cash equivalents 10,419 10,419 12,597 12,597
Rent and other receivables 997 3,171 964 3,656
Other 13 13 13 13
-------- -------- -------- --------
Total assets $211,530 $151,089 $236,917 $193,184
======== ======== ======== ========
Liabilities and Partners' Capital
- ---------------------------------
Liabilities:
Investment portfolio fee payable
to related parties $ 967 $ 967 $ 1,232 $ 1,232
Accounts payable and accrued expenses 635 635 525 525
Accrued property taxes 537 537 770 770
Unearned income 195 195 252 252
Security deposits 683 683 1,063 1,063
-------- -------- -------- --------
Total liabilities 3,017 3,017 3,842 3,842
-------- -------- -------- --------
Commitments (Note 14)
Partners' capital (deficiency):
General Partners 20 (584) 266 (171)
Limited Partners 208,493 148,656 232,809 189,513
-------- -------- -------- --------
Total partners' capital 208,513 148,072 233,075 189,342
-------- -------- -------- --------
Total liabilities and partners' capital $211,530 $151,089 $236,917 $193,184
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Statements of Income (Loss) (Historical Cost)
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands, except units and per unit amounts)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Rental $ 30,230 $ 29,716 $ 28,604
Interest 753 538 404
Other income 454 435 589
-------- -------- --------
31,437 30,689 29,597
-------- -------- --------
Expenses:
Property operating 9,858 10,005 10,056
Depreciation and amortization 6,092 6,932 6,921
Investment portfolio
fee - related parties 4,327 4,840 4,703
General and administrative 725 698 676
Bad debt 263 320 448
-------- -------- --------
21,265 22,795 22,804
-------- -------- --------
Legal expenses - litigation (2,408) - -
Gain on sales of properties 4,563 - -
Impairment of investment in real estate - (9,007) -
-------- -------- --------
Net income (loss) $ 12,327 $ (1,113) $ 6,793
======== ======== ========
Net income (loss) allocated:
To the General Partners $ 123 $ (11) $ 68
To the Limited Partners 12,204 (1,102) 6,725
-------- -------- --------
$ 12,327 $ (1,113) $ 6,793
======== ======== ========
Weighted average number of
limited partnership units
outstanding 12,724,547 12,724,547 12,724,547
========== ========== ==========
Earnings (Loss) per limited
partnership unit $ .96 $ (.09) $ .53
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Statements of Partners' Capital (Deficiency) (Historical Cost)
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1, 1997 $ (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
Net loss (11) (1,102) (1,113)
Cash distributions (93) (9,161) (9,254)
-------- -------- --------
Balance at December 31, 1998 (171) 189,513 189,342
Net income 123 12,204 12,327
Cash distributions (536) (53,061) (53,597)
-------- -------- --------
Balance at December 31, 1999 $ (584) $148,656 $148,072
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Statements of Partners' Capital (Deficiency) (Current Value)
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1, 1997 $ (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
Net loss (11) (1,102) (1,113)
Increase in excess of current value over
historical cost 284 28,146 28,430
Cash distributions (93) (9,161) (9,254)
-------- -------- --------
Balance at December 31, 1998 266 232,809 233,075
Net income 123 12,204 12,327
Increase in excess of current value over
historical cost 167 16,541 16,708
Cash distributions (536) (53,061) (53,597)
-------- -------- --------
Balance at December 31, 1999 $ 20 $208,493 $208,513
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
Consolidated Statements of Cash Flows (Historical Cost)
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 12,327 $ (1,113) $ 6,793
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 6,092 6,932 6,921
Gain on sales of properties (4,563) - -
Bad debt expense 263 320 448
Impairment of investment in real estate - 9,007 -
Deferred (accrued) rental income 518 216 68
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Rent and other receivables (296) (238) 17
Investment portfolio fee payable to
related parties (265) 64 (27)
Accounts payable and accrued expenses 110 62 1
Accrued property taxes (233) (12) 16
Unearned income (57) (63) 126
Security deposits (380) 84 45
-------- -------- --------
Net cash provided by operating activities 13,516 15,259 14,408
-------- -------- --------
Cash flows from investing activities:
Proceeds from sales of properties 41,191 - -
Investments in real estate (3,288) (4,291) (3,404)
-------- -------- --------
Net cash provided by (used in) investing
activities 37,903 (4,291) (3,404)
-------- -------- --------
Cash flows from financing activities:
Cash distributions (53,597) (9,254) (9,254)
-------- -------- --------
Net cash used in financing activities (53,597) (9,254) (9,254)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (2,178) 1,714 1,750
Cash and cash equivalents at beginning of year 12,597 10,883 9,133
-------- -------- --------
Cash and cash equivalents at end of year $ 10,419 $ 12,597 $ 10,883
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
<PAGE>
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, 1999, 1998 and 1997
(in thousands)
<TABLE>
<S> <C>
Deficiency of current value over historical cost at January 1, 1997 $(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
-------
Current value increase in properties 19,207
Write-down of properties for permanent impairment 9,007
Decrease in accrued rent 216
-------
28,430
-------
Excess of current value over historical cost at December 31, 1998 43,733
-------
Current value increase in properties 16,219
Decrease in excess of current value over historical
cost resulting from sales of properties (29)
Decrease in accrued rent 518
-------
16,708
-------
Excess of current value over historical cost at December 31, 1999 $60,441
=======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
<PAGE>
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 Partnership's primary source of revenue is from rental real
estate operations. 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.
F-11
<PAGE>
2. CURRENT VALUE BASIS FINANCIAL STATEMENTS (Continued)
Bases of Valuation
------------------
The following describes the bases of management's estimates of current
values:
o 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.
o 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.
o 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, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Properties $62,615 $46,425
Accrued rent (2,174) (2,692)
------- -------
Excess of current value over historical cost $60,441 $43,733
======= =======
</TABLE>
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 1999, 1998 and 1997 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.
F-12
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Properties
----------
The Partnership regularly evaluates the carrying value of its properties.
During the fourth quarter of 1998, permanent impairments totaling
approximately $9,007,000 were recorded to write-down the carrying value of
two investment properties to their estimated fair value. This amount is
reflected in the 1998 Consolidated Statement of Income (Loss). At December
31, 1998 each property's estimated undiscounted cash flows over the
expected holding period was 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 1999 or 1997.
Properties held for investment, 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 are considered held for sale at the time management
accepts a purchase offer or otherwise commits to the sale of a property. In
accordance with FAS 121, Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to Be Disposed Of, these properties to be disposed of
are carried at the lower of depreciated cost or fair value less estimated
selling costs, and classified as Properties held for sale in the
accompanying Consolidated Balance Sheets. 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 held for sale
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.
F-13
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 $102,442 and $87,519 at
December 31, 1999 and 1998, respectively. Also, included in cash and cash
equivalents at December 31, 1999 and 1998 was $7,220,087 and $6,689,916,
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, 1999 and 1998.
At December 31, 1999 and 1998, approximately $770,000 and $1,023,000,
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 $2,755,000 and $5,834,000, respectively, were
uninsured. Included in the uninsured bank balances was approximately
$2,578,000 and $4,522,000 held at one major financial institution at
December 31, 1999 and December 31, 1998, respectively. The remainder of the
uninsured balances were held in multiple banks.
Income Taxes
------------
No provision for federal or state income taxes has been made in the
consolidated 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.
4. SALES OF INVESTMENTS IN REAL ESTATE
On March 17, 1999, Gateway Square was sold to an unaffiliated party. The
gross sales price of $6,940,000 was approximately $640,000 greater than the
property's appraised value. After closing costs and adjustments aggregating
approximately $211,000 and $235,000, respectively, net cash proceeds to the
Partnership were approximately $6,494,000. Gain on the sale included in
these consolidated financial statements for the year ended December 31,
1999 is approximately $1,211,000.
On October 18, 1999, Three Riverside Drive was sold to an unaffiliated
party. The gross sales price of $8,025,000 was approximately $825,000
greater than the property's appraised value. After closing costs and
adjustments aggregating approximately $206,000 and $177,000, respectively,
net cash proceeds to the Partnership were approximately $7,642,000. Gain on
the sale included in these consolidated financial statements for the year
ended December 31, 1999 is approximately $320,000.
F-14
<PAGE>
4. SALE OF INVESTMENTS IN REAL ESTATE (Continued)
On October 18, 1999, 115 and 117 Flanders Road was sold to an unaffiliated
party. The gross sales price of $9,975,000 was approximately $275,000
greater than the property's appraised value. After closing costs and
adjustments aggregating approximately $254,000 and $178,000, respectively,
net cash proceeds to the Partnership were approximately $9,543,000. Gain on
the sale included in these consolidated financial statements for the year
ended December 31, 1999 is approximately $635,000.
On October 26, 1999, Cross Pointe Centre was sold to an unaffiliated party.
The gross sales price of $17,254,444 was approximately $1,354,000 greater
than the property's appraised value. After closing costs and adjustments
aggregating approximately $315,000 and $168,000, respectively, net cash
proceeds to the Partnership were approximately $16,772,000. Gain on the
sale included in these consolidated financial statements for the year ended
December 31, 1999 is approximately $2,397,000.
5. RENT AND OTHER RECEIVABLES
Rent and other receivables at December 31, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
Current Historical Current Historical
Value Cost Value Cost
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Rent and reimbursements receivable $1,091,398 $1,091,398 $1,626,087 $1,626,087
Prepaids and other receivables 209,572 209,572 235,475 235,475
Accrued rent - 2,173,798 - 2,691,723
---------- ---------- ---------- ----------
1,300,970 3,474,768 1,861,562 4,553,285
Less: allowance for doubtful accounts (304,039) (304,039) (897,084) (897,084)
---------- ---------- ---------- ----------
Total rent and other receivables $ 996,931 $3,170,729 $ 964,478 $3,656,201
========== ========== ========== ==========
</TABLE>
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.
F-15
<PAGE>
7. JOINT VENTURES
The Partnership was a general partner in two consolidated joint ventures as
of December 31, 1999, 1998 and 1997. The joint venture agreements in
existence as of December 31, 1999 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,
1999, 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, 1999, 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
Cash Distributions
------------------
Paid Per Unit
---- --------
<S> <C> <C>
1999 $53,061,424 $4.17
1998 9,161,674 .72
1997 9,161,674 .72
</TABLE>
Cash distributions paid to the General Partners during the year ended
December 31, 1999 aggregated $535,974, of which $92,542 related to
operations for the quarters ended December 31, 1998, March 31, 1999, June
30, 1999 and September 30, 1999, and $443,432 related to a reduction of
cash reserves, and the distribution of sales proceeds from properties sold
during 1999. Cash distributions paid to the General Partners during the
year ended December 31, 1998 aggregated $92,542, which related to
operations for the quarters ended December 31, 1997, March 31, 1998, June
30, 1998 and September 30, 1998.
F-16
<PAGE>
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. The fee is
payable quarterly, in arrears, from available cash flow and may not exceed
2.25% per annum of net asset value. The applicable percentage, for the
purpose of calculating this fee, declines to 1.75% per annum for
Investments in Properties held by the Partnership more than 10 years but
less than 15 years, and to 1.5% per annum for Investments in Properties
held more than 15 years. These rates became effective on March 15, 1999 in
accordance with the Settlement Agreement discussed in Note 16. Prior to
March 15, 1999, each of the rates were .25% higher. The current rates will
decrease another .25% per annum as of June 19, 2001 pursuant to the
Settlement Agreement. For the years ended December 31, 1999, 1998 and 1997,
Aetna/AREA and AREA GP were entitled to fees as follows:
<TABLE>
<CAPTION>
Aetna/AREA AREA GP
---------- ----------
<S> <C> <C>
1999 $2,029,436 $2,297,914
1998 2,265,203 2,574,862
1997 2,059,243 2,643,952
</TABLE>
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 $284,868, $347,439
and $399,840, which consist primarily of insurance expense paid to a third
party, were reimbursed during 1999, 1998 and 1997 respectively, to an
affiliate of Aetna/AREA.
10. LEASE AGREEMENTS
At December 31, 1999, 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 $3,519,975, $3,630,246 and $3,803,939 primarily consisting of expense
reimbursements for the years ended December 31, 1999, 1998 and 1997,
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 $619,872, $438,369
and $329,730 for the years ended December 31, 1999, 1998 and 1997,
respectively.
F-17
<PAGE>
10. LEASE AGREEMENTS (Continued)
The following table is a schedule of minimum future rents to be received
under noncancelable operating leases:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
2000 $18,057,142
2001 12,045,874
2002 10,757,488
2003 9,146,317
2004 6,873,377
Thereafter 14,652,578
-----------
Total $71,532,776
===========
</TABLE>
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, 1999. The Net Asset Value per unit calculated in accordance
with the Partnership Agreement, is summarized as of December 31, 1999 and
1998 as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Limited Partners' capital - current value basis $208,491,801 $232,808,194
Cash to be distributed to Limited Partners (2,290,418) (2,290,418)
------------ ------------
$206,201,383 $230,517,776
============ ============
Units outstanding 12,724,547 12,724,547
============ ============
Net Asset Value per unit $ 16.21 $ 18.12
============ ============
</TABLE>
12. SUPPLEMENTARY INFORMATION
Maintenance and repairs, real estate taxes and advertising costs included
in property operating expenses for the years ended December 31, 1999, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs $1,261,180 $1,095,761 $1,261,142
Real estate taxes 2,908,669 3,021,543 3,010,819
Advertising costs 307,628 375,714 374,395
</TABLE>
F-18
<PAGE>
13. RECONCILIATION OF FINANCIAL STATEMENT AND TAX INFORMATION
The following is a reconciliation of net income for financial statement
purposes to net income (loss) for federal income tax purposes for the years
ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income (loss) per financial
statements $ 12,327,452 $ (1,112,562) $ 6,792,869
Gain on sale of properties for tax
purposes less than gain on sale
of properties per financial
statements (4,826,918) - -
Joint venture net income for tax
purposes in excess of (less than)
joint venture net income per
financial statements (134,804) 491,758 374,786
Depreciation deducted for tax
purposes greater (less) than
depreciation expense per financial
statements (169,993) 143,694 681,231
Permanent impairment not deductible
for tax purposes - 9,006,619 -
Rental income related to accrued
rent on wholly owned properties 574,457 16,460 109,467
Bad debt expense deducted per
financial statements in excess
of (less than) bad debt expense
deducted for tax purposes (251,640) (79,323) 131,291
Other 5,221 (35,137) 20,597
------------ ------------ ------------
Taxable net income $ 7,523,775 $ 8,431,509 $ 8,110,241
============ ============ ============
</TABLE>
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, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Partners' capital per financial
statements $148,072,144 $189,342,090 $199,708,868
Adjustment for cumulative difference
between tax basis net income and
net income (loss) per financial
statements 17,232,983 22,036,660 12,492,589
------------ ------------ ------------
Partners' capital per tax return $165,305,127 $211,378,750 $212,201,457
============ ============ ============
</TABLE>
F-19
<PAGE>
14. COMMITMENTS
As of December 31, 1999, the Partnership had outstanding commitments of
approximately $1.8 million relating to previously acquired investments. Of
this amount, $.9 million relates to the Partnership's commitment to fund
additional tenant improvements at Village Square, and $.6 million relates
to the Partnership's commitment to fund additional leasing commissions,
tenant and building improvements at Town Center Business Park.
15. SUBSEQUENT EVENTS
Windmont Apartments Sale
------------------------
On January 19, 2000 Windmont Apartments was sold to an unaffiliated party
for a gross sales price of $10,310,000. After closing costs and
adjustments, net cash proceeds to the Partnership were approximately
$10,002,000. Gain on sale of approximately $4,322,000 will be recognized in
the consolidated financial statements for the quarter ended March 31, 2000.
Lincoln Square Apartments Sale
------------------------------
On February 22, 2000 Lincoln Square Apartments was sold to an unaffiliated
party for a gross sales price of $18,050,000. After closing costs and
adjustments, net cash proceeds to the Partnership were approximately
$17,090,000. Gain on sale of approximately $9,273,000 will be recognized in
the consolidated financial statements for the quarter ended March 31, 2000.
Capital Contributions/Distributions
-----------------------------------
In February 2000, the Partnership declared cash distributions aggregating
$2,313,554 ($.18 per Unit) pertaining to the period from October 1, 1999 to
December 31, 1999, which will be distributed on or about February 28, 2000.
The General Partners expect to distribute a portion of the net proceeds
from the sales of Windmont Apartments and Lincoln Square Apartments in the
form of a special distribution during the quarter ended March 31, 2000.
16. LITIGATION
In November 1996, the Partnership and its general partners, Aetna/AREA
Corporation and AREA GP Corporation (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 (collectively, the "Complaints"). The Complaints alleged, among
other things, that management fees that had been paid to the General
Partners were excessive and that a standstill agreement with a then tender
offeror which had the effect of limiting the number of Partnership Units
that would be the subject of any tender offer was unlawful.
F-20
<PAGE>
16. LITIGATION (continued)
On March 15, 1999, the parties entered into a Stipulation and Agreement of
Compromise, Settlement and Release (the "Settlement Agreement"), which was
filed with and subject to approval by the Delaware Chancery Court. The
Court approved the Settlement Agreement on May 19, 1999, and no appeal was
filed within the applicable period.
Upon the approval by the court of the Settlement Agreement, the Applicable
Percentage, as defined in Section 6.6 of the Partnership Agreement, used to
calculate the Investment Portfolio Fee per quarter which is paid to the
General Partners, was reduced by 0.0625% (the "First Reduction"). The First
Reduction was effective on June 19, 1999 (the "Final Date") and was applied
retroactively to March 15, 1999, the date of the execution of the
Settlement Agreement. The First Reduction resulted in a 0.25% reduction of
the annual Investment Portfolio Fee otherwise provided in the Partnership
Agreement. Effective on the second anniversary of the Final Date, the
Applicable Percentage will be reduced by an additional 0.0625% per quarter
(the "Second Reduction"). The First and Second Reductions will apply
cumulatively so that the annual Investment Portfolio Fee from the second
anniversary of the Final Date through the termination of the Partnership
will be a total of 0.50% below the annual Investment Portfolio Fee
otherwise provided in the Partnership Agreement.
Pursuant to the terms of the Settlement Agreement, the Partnership made a
special cash distribution out of Partnership cash reserves on April 14,
1999 of $2,544,909 ($0.20 per Unit) to Limited Partners and $25,706 to the
General Partners.
As part of the Settlement Agreement the plaintiff's attorneys were paid
fees and out-of-pocket expenses totaling $2,195,757 during the year ended
December 31, 1999. In addition, legal expenses on behalf of the Partnership
and the General Partners amounting to $212,346 were paid or accrued as of
December 31, 1999. The total legal expense of the litigation for the year
ended December 31, 1999 aggregated $2,408,103.
F-21
<PAGE>
PRICEWATERHOUSECOOPERS
Report of Independent Accountants - Supplementary Information
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, 1999 and 1998, and for each of
the three years in the period ended December 31, 1999, 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.
February 10, 2000 except Note 15
for which the date is February 22, 2000
F-22
<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
Schedule III - Real Estate and Accumulated Depreciation
As of December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent Gross Amount at Which
Initial Cost to Acquisition Carried at End of Year
-------------------------- ---------------------- -----------------------------------------
Encum- Building & Building & Building &
Description brances Land Improvements Land Improvements Land Improvements Total(a)
- --------------------- ------- ----------- ------------ -------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Partnership Owned:
Lincoln Square $ - $ 1,859,283 $ 11,102,944 $ 1,660 $ 829,924 $ 1,860,943 $ 11,932,868 $ 13,793,811
Apartments
Arlington Heights, IL
Oakland Pointe(b) - 3,412,062 16,981,319 15,443 (9,987,051) 3,427,505 6,994,268 10,421,773
Shopping Center
Pontiac, MI
Summit Village - 5,395,408 30,154,302 116,350 2,415,632 5,511,758 32,569,934 38,081,692
Apartment Complex
Rosslyn, VA
Village Square - 2,710,355 4,103,802 285,346 1,111,504 2,995,701 5,215,306 8,211,007
Office Building
Hazelwood, MO
Windmont Apartments - 1,429,226 6,093,017 28,430 696,249 1,457,656 6,789,266 8,246,922
Apartment Complex
Atlanta, GA
Powell Street Plaza - 9,196,813 20,167,160 (68,973) 2,789,777 9,127,840 22,956,937 32,084,777
Shopping Center
Emeryville, CA
</TABLE>
See Notes to Schedule III
F-23
<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
Schedule III - Real Estate and Accumulated Depreciation (Continued)
As of December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent Gross Amount at Which
Initial Cost to Acquisition Carried at End of Year
-------------------------- ---------------------- -----------------------------------------
Encum- Building & Building & Building &
Description brances Land Improvements Land Improvements Land Improvements Total(a)
- --------------------- ------- ----------- ------------ -------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Partnership Owned (Cont'd)
Westgate Distribution
Center - 3,916,801 6,047,987 18,474 4,164,825 3,935,275 10,212,812 14,148,087
Industrial Park
Corona, CA
Consolidated Ventures:
Marina Bay - 1,777,110 5,212,740 166,987 4,153,146 1,944,097 9,365,886 11,309,983
Industrial Park
Richmond, CA
Town Center - 10,880,641 19,198,867 94,939 15,664,926 10,975,580 34,863,793 45,839,373
Business Park
Santa Fe Springs, CA
------- ----------- ------------ -------- ----------- ----------- ------------ ------------
$ - $40,577,699 $119,062,138 $658,656 $21,838,932 $41,236,355 $140,901,070 $182,137,425
======= =========== ============ ======== =========== =========== ============ ============
</TABLE>
See Notes to Schedule III
F-24
<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
Schedule III - Real Estate and Accumulated Depreciation (Continued)
As of December 31, 1999
<TABLE>
<CAPTION>
Life on which
Depreciation in
Latest Income
Accumulated Date of Date Statement
Description Depreciation(a) Construction Acquired is Computed
- ----------- --------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
Lincoln Square
Apartments
Arlington Heights, IL 5,265,849 1986 11/14/86 33 years
Oakland Pointe(b)(d)
Shopping Center
Pontiac, MI 496,568 1987 1/26/88 33 years
Summit Village
Apartment Complex 10,481,608 1987/1989 6/9/87 and 40 years
Rosslyn, VA 8/31/89
Village Square
Office Building
Hazelwood, MO 1,043,109 1961/1988 6/24/87 33 years
Windmont Apartments(d)
Apartment Complex
Atlanta, GA 2,476,003 1989 7/18/89 33 years
Powell Street Plaza
Shopping Center
Emeryville, CA 7,000,275 1988 2/16/90 33 years
</TABLE>
See Notes to Schedule III
F-25
<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
Schedule III - Real Estate and Accumulated Depreciation (Continued)
As of December 31, 1999
<TABLE>
<CAPTION>
Life on which
Depreciation in
Latest Income
Accumulated Date of Date Statement
Description Depreciation(a) Construction Acquired is Computed
- ----------- --------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
Partnership Owned (Cont'd)
Westgate Distribution
Center
Industrial Park
Corona, CA 3,126,270 1989 2/22/90 50 years
Consolidated Ventures:
Marina Bay
Industrial Park
Richmond, CA 3,506,859 1962/1987 6/30/87 50 years
Town Center
Business Park
Santa Fe Springs, CA 11,254,461 1982 12/18/87 33 years
$44,651,002 (c)
===========
</TABLE>
See Notes to Schedule III
F-26
<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
Notes to Schedule III
(a) Reconciliation of the carrying amount of real estate investments and
accumulated depreciation for the years ended December 31, 1999, 1998, and
1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Balance of real estate investments
at beginning of year $225,833,129 $243,061,496 $239,888,792
Additions during year:
Improvements and additions 3,288,219 4,290,989 3,369,864
Deductions during year:
Cost of real estate sold (46,542,985) - -
Impairment(b) - (9,006,619) -
New basis adjustment(b) - (12,404,058) -
Other(1) (440,938) (108,679) (197,160)
------------ ------------ ------------
Balance of real estate investments
at close of year $182,137,425 $225,833,129 $243,061,496
============ ============ ============
Balance of accumulated depreciation
at beginning of year $48,914,701 $54,495,592 $47,771,997
Depreciation expense 6,092,490 6,931,846 6,920,755
Accumulated depreciation of real estate sold (9,915,251) - -
New basis adjustment(b) - (12,404,058) -
Other(1) (440,938) (108,679) (197,160)
-------------- -------------- -------------
Balance of accumulated depreciation
at close of year $44,651,002 $48,914,701 $54,495,592
=========== =========== ===========
<FN>
(1) Write-off of tenant improvements and leasing commissions for vacated
tenants.
</FN>
</TABLE>
(b) In 1998, two properties were written-down for permanent impairments
aggregating $9,006,619. Accumulated depreciation and amortization totaling
$12,404,058 at the time of the permanent impairments has been adjusted
against each property's respective cost.
(c) For Federal income tax purposes, the aggregate cost of land, buildings and
improvements is $196,979,331. The amount of accumulated depreciation on
real property for Federal income tax purposes is $51,270,864.
(d) Oakland Pointe Shopping Centre and Windmont Apartments were considered held
for sale on December 1, 1999. The Registrant stopped depreciating these
properties as of November 30, 1999, see Note 3 to the Consolidated
Financial Statements for addition detail on accounting policies.
F-27
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 10,419,000
<SECURITIES> 000
<RECEIVABLES> 3,475,000
<ALLOWANCES> 304,000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 182,137,000
<DEPRECIATION> 44,651,000
<TOTAL-ASSETS> 151,089,000
<CURRENT-LIABILITIES> 000
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 148,072,000
<TOTAL-LIABILITY-AND-EQUITY> 151,089,000
<SALES> 30,230,000
<TOTAL-REVENUES> 31,437,000
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 23,673,000
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 12,327,000
<EPS-BASIC> 0.96
<EPS-DILUTED> 000
</TABLE>
