SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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/ X / Quarterly Report Under Section 13 or 15 (d) of the
--- Securities Exchange Act of 1934
For the quarter ended: June 30, 2000
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OR
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/ / Transition Report Under 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
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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 of (I.R.S. Employer
incorporation or organization) Identification No.)
242 Trumbull Street, Hartford, Connecticut 06103-1212
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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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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
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The summarized financial information contained herein is unaudited;
however, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of such
financial information have been included. The results of operations for the
three and six months ended June 30, 2000 are not necessarily indicative of the
results to be expected for the full year.
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<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
Condensed Consolidated Balance Sheets
As of June 30, 2000 and December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(unaudited)
--------- ---------
<S> <C> <C>
Assets
------
Investments in real estate:
Properties held for investment $147,103 $163,469
Less accumulated depreciation
and amortization (37,185) (41,679)
-------- --------
109,918 121,790
Properties held for sale (net of accumulated
depreciation of $497 and $2,972) 10,006 15,696
-------- --------
Total investments in real estate 119,924 137,486
Cash and cash equivalents 16,208 10,419
Rent and other receivables 2,575 3,171
Other 13 13
-------- --------
Total assets $138,720 $151,089
======== ========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Investment portfolio fee payable
to related parties $ 788 $ 967
Accounts payable and accrued expenses 351 635
Accrued property taxes 130 537
Unearned income 204 195
Security deposits 602 683
-------- --------
Total liabilities 2,075 3,017
-------- --------
Partners' capital (deficiency):
General Partners (698) (584)
Limited Partners 137,343 148,656
-------- --------
Total partners' capital 136,645 148,072
-------- --------
Total liabilities and partners' capital $138,720 $151,089
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
Condensed Consolidated Statements of Income
For the Three and Six Months Ended June 30, 2000 and 1999
(in thousands, except units and per unit amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenue:
Rental $ 5,766 $ 7,926 $11,989 $15,736
Interest 218 145 568 290
Other income 62 71 151 141
------- ------- ------- -------
6,046 8,142 12,708 16,167
------- ------- ------- -------
Expenses:
Property operating 1,775 2,570 3,683 5,029
Depreciation and amortization 935 1,670 2,241 3,299
Investment portfolio
fee - related parties 788 1,045 1,702 2,282
General and administrative 175 225 399 416
Bad debt 24 123 76 206
------- ------- ------- -------
3,697 5,633 8,101 11,232
------- ------- ------- -------
Legal expenses - litigation - - - 2,472
Gain on sale of properties 1,990 - 15,585 1,211
------- ------- ------- -------
Net income $ 4,339 $ 2,509 $20,192 $ 3,674
======= ======= ======= =======
Net income allocated:
To the General Partners $ 43 $ 25 $ 202 $ 37
To the Limited Partners 4,296 2,484 19,990 3,637
------- ------- ------- -------
$ 4,339 $ 2,509 $20,192 $ 3,674
======= ======= ======= =======
Weighted average number of limited
partnership units outstanding 12,724,547 12,724,547 12,724,547 12,724,547
========== ========== ========== ==========
Earnings per limited partnership unit $ .34 $ .20 $ 1.57 $ .29
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
Condensed Consolidated Statements of Partners' Capital (Deficiency)
For the Six Months Ended June 30, 2000 and 1999
(in thousands - unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1, 2000 $(584) $148,656 $148,072
Distributions (316) (31,303) (31,619)
Net income 202 19,990 20,192
----- -------- --------
Balance at June 30, 2000 $(698) $137,343 $136,645
===== ======== ========
Balance at January 1, 1999 $(171) $189,513 $189,342
Distributions (136) (13,488) (13,624)
Net income 37 3,637 3,674
----- -------- --------
Balance at June 30, 1999 $(270) $179,662 $179,392
===== ======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999
(in thousands - unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 20,192 $ 3,674
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,241 3,299
Gain on sale of properties (15,585) (1,211)
Bad debt expense 76 206
Accrued rental income 69 66
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Rent and other receivables 119 (467)
Investment portfolio fee payable to related parties (179) (187)
Accounts payable and accrued expenses (284) 133
Accrued property taxes (407) 107
Accrued litigation costs - 204
Unearned income 9 (5)
Security deposits (81) (51)
-------- --------
Net cash provided by operating activities 6,170 5,768
-------- --------
Cash flows from investing activities:
Proceeds from sale of properties, net of closing costs 32,842 6,712
Investments in real estate (1,604) (1,981)
-------- --------
Net cash provided by investing activities 31,238 4,731
-------- --------
Cash flows from financing activities:
Cash distributions (31,619) (13,624)
-------- --------
Net cash used in financing activities (31,619) (13,624)
-------- --------
Net increase (decrease) in cash and cash equivalents 5,789 (3,125)
Cash and cash equivalents at beginning of period 10,419 12,597
-------- --------
Cash and cash equivalents at end of period $ 16,208 $ 9,472
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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<PAGE>
AETNA REAL ESTATE ASSOCIATES, L.P.
(a Delaware limited partnership)
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. GENERAL
The accompanying financial statements and related notes should be read
in conjunction with the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1999. The financial data included herein
as of December 31, 1999 has been drawn from the condensed consolidated
financial statements of the Partnership which were audited by
PricewaterhouseCoopers LLP.
2. TRANSACTIONS WITH AFFILIATES
Investment Portfolio Fee
------------------------
The General Partners are entitled to receive an investment portfolio
fee based on the net asset value of the Partnership's investments. The
fee is payable quarterly, in arrears, from available cash flow and may
not exceed 2.25% 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. Prior to March 15, 1999, each of these
rates were .25% higher. The current rates will decrease another .25%
per annum as of June 19, 2001. For the six months ended June 30, 2000,
Aetna/AREA and AREA GP earned fees of $851,119 and $851,119,
respectively. For the six months ended June 30, 1999, Aetna/AREA and
AREA GP earned fees of $1,044,725 and $1,236,932, respectively.
3. SALE OF INVESTMENTS IN REAL ESTATE
On January 19, 2000, Windmont Apartments was sold to an unaffiliated
party. The gross sales price of $10,310,000 was $310,000 greater than
the property's appraised value. After closing costs and adjustments
aggregating approximately $211,000 and $97,000, respectively, net cash
proceeds to the Partnership were approximately $10,002,000. Gain on
the sale included in these condensed consolidated financial statements
is approximately $4,322,000 for the six months ended June 30, 2000.
On February 22, 2000, Lincoln Square Apartments was sold to an
unaffiliated party. The gross sales price of $18,050,000 was
$1,050,000 greater than the property's appraised value. After closing
costs and adjustments aggregating approximately $240,000 and $720,000,
respectively, net cash proceeds to the Partnership were approximately
$17,090,000. Gain on the sale included in these condensed consolidated
financial statements is approximately $9,273,000 for the six months
ended June 30, 2000.
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<PAGE>
3. SALE OF INVESTMENTS IN REAL ESTATE (continued)
On May 4, 2000, 344 Bonnie Circle, one of three buildings at Westgate
Distribution Center was sold to an unaffiliated party. The gross sales
price of $5,050,000 was $750,000 greater than the property's appraised
value. After closing costs and adjustments aggregating approximately
$117,000 and $30,000, respectively, net cash proceeds to the
Partnership were approximately $4,903,000. Gain on the sale included
in these condensed consolidated financial statements is approximately
$1,990,000 for the three and six months ended June 30, 2000. The gain
was reduced approximately $332,000 for the accrued rent receivable
that had been recorded to recognize the building's rental income on a
straight-line basis.
4. CASH DISTRIBUTIONS
On April 10, 2000, the Partnership paid a special cash distribution of
$26,991,463 from the sales proceeds of Windmont Apartments and Lincoln
Square Apartments.
On May 17, 2000, cash distributions paid by the Partnership aggregated
$2,313,554 which related to operations for the three months ended
March 31, 2000.
5. SUBSEQUENT EVENTS
On or about August 14, 2000, the Partnership paid a special cash
distribution of $4,883,681 from the sales proceeds of Bonnie Circle,
one of three buildings at Westgate Distribution Center.
In August 2000, the Partnership declared additional distributions of
$2,313,554 pertaining to operations for the period from April 1, 2000
to June 30, 2000.
6. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commissions issued Staff
Accounting Bulletin Number 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 requires that a lessor defer
recognition of percentage rents until a specified gross sales target
is achieved by the lessee. The Partnership adopted SAB 101 effective
for the quarter ending June 30, 2000, with no effect on net income for
the six months ended June 30, 2000. Prior to adoption the Partnership
had accrued interim percentage rent as the lessee's sales targets were
met or the achievement of the sales targets became probable. Had the
Partnership adopted SAB 101 as of March 31, 2000 percentage rent
income of approximately $95,000 would have been deferred to the
quarter ended June 30, 2000. Due to immateriality the adoption was not
reported as a change in accounting principle in accordance with APB 20.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
-------------------------------
At December 31, 1999, the Registrant had working capital reserves ("Reserves")
of approximately $5.6 million. During the six months ended June 30, 2000, the
Registrant expended approximately $1.6 million for capital improvements. After
cash distributions from the sale proceeds (see Notes 4 and 5 to the Condensed
Consolidated Financial Statements), the Registrant had current Reserves of
approximately $7.6 million as of June 30, 2000. The Registrant had approximately
$200,000 of outstanding commitments for capital improvements and approximately
$2.5 million of projected capital improvements (collectively the "Capital
Costs") related to existing Investments in Properties as of June 30, 2000. For
the six months ended December 31, 2000, the Registrant will fund, if needed,
approximately $1.8 million from Reserves for these Capital Costs. These Capital
Costs consist primarily of estimated tenant improvements and leasing commissions
for speculative leasing activity at certain properties, which, based on activity
in the marketplace, may or may not materialize. The Registrant expects to fund
Capital Costs throughout 2000 from existing Reserves and the retention of a
portion of cash generated from operations. To ensure that the Registrant has
adequate Reserves to fund its Capital Costs, the General Partners will continue
to review the Reserves quarterly.
If sufficient capital is not available at the time of a funding of a Capital
Cost, the General Partners will review such Capital 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.
Future distributions from operations may be reduced from the current amount of
$.18 per unit as a result of recent and potential future sales of properties.
The level and timing of future distributions will be reviewed on a quarterly
basis by the General Partners.
Results of Operations
---------------------
Net income for the six months ended June 30, 2000 increased approximately
$16,518,000 in comparison to the corresponding period in 1999, resulting
primarily from gains on sales of properties, and no litigation-related legal
expenses for the six months ended June 30, 2000. Rental revenue decreased
approximately $3,747,000 primarily as a result of the sales of properties,
partially offset by increases in rents, most significantly at Summit Village
Apartments. Interest income increased approximately $278,000 as a result of
temporary increases in cash balances due to the sales of properties. Property
operating expenses decreased approximately $1,346,000 and depreciation and
amortization decreased approximately $1,058,000, both primarily the result of
property sales. Investment portfolio fees decreased approximately $580,000, the
result of the distribution of sales proceeds and lower investment portfolio fee
rates.
The Registrant paid cash distributions of $2.46 and $1.06 per Unit to
Unitholders for the six months ended June 30, 2000 and 1999, respectively.
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<PAGE>
The Net Asset Value of each of the Registrant's Units, based upon quarterly
independent appraisals, decreased to $14.18 at June 30, 2000 from $17.79 at June
30, 1999. The decrease in Net Asset Value per Unit is primarily attributable to
the distributions of sales proceeds of $4.85 per unit and a decrease in the
appraised value of Village Square, partially offset by significant increases in
the appraised values of certain of the Registrant's properties, primarily Summit
Village Apartments. The value of Village Square was reduced as a result of a
more conservative rental rate growth and a higher vacancy projection combined
with additional forecasted capital expenditures. The increase in appraised value
of Summit Village Apartments is a result of an increase in projected market
rents.
Net income for the three months ended June 30, 2000 increased approximately
$1,830,000 in comparison to the corresponding period in 1999, resulting
primarily from gain on sale of property. Rental revenue decreased approximately
$2,160,000 primarily as a result of the sales of properties, partially offset by
increases in rents, most notably at Summit Village Apartments. Interest income
increased approximately $73,000 as a result of temporary increases in cash
balances due to the sales of properties. Property operating expenses decreased
approximately $795,000 and depreciation and amortization decreased approximately
$735,000, both primarily the result of property sales. Investment portfolio fees
decreased approximately $257,000, the result of the distribution of sales
proceeds and lower investment portfolio fee rates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
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<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
none
Item 6. Exhibits and Reports on Form 8K
(a) Exhibit No. 27 - Financial Data Schedule
(b) none
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AETNA REAL ESTATE ASSOCIATES, L.P.
BY: AREA GP Corporation
General Partner
Date: August 14, 2000 BY: /s/Jaime Fuertes
----------------------------------------
Jaime Fuertes
Vice President & Chief Financial Officer
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