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: September 30, 2000
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OR
--
/ / 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 nine months ended September 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 September 30, 2000 and December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(unaudited)
--------- ---------
<S> <C> <C>
Assets
------
Investments in real estate:
Properties held for investment $138,598 $163,469
Less accumulated depreciation
and amortization (36,794) (41,679)
-------- --------
101,804 121,790
Properties held for sale (net of accumulated
depreciation of $1,342 and $2,972) 7,749 15,696
-------- --------
Total investments in real estate 109,553 137,486
Cash and cash equivalents 23,829 10,419
Rent and other receivables 1,902 3,171
Other 13 13
-------- --------
Total assets $135,297 $151,089
======== ========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Investment portfolio fee payable
to related parties $ 794 $ 967
Accounts payable and accrued expenses 330 635
Accrued property taxes 560 537
Unearned income 164 195
State income tax payable 200 -
Security deposits 560 683
-------- --------
Total liabilities 2,608 3,017
-------- --------
Partners' capital (deficiency):
General Partners (738) (584)
Limited Partners 133,427 148,656
-------- --------
Total partners' capital 132,689 148,072
-------- --------
Total liabilities and partners' capital $135,297 $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 Nine Months Ended September 30, 2000 and 1999
(in thousands, except units and per unit amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Rental $ 5,268 $ 7,901 $17,257 $23,637
Interest 275 91 843 381
Other income 91 157 242 298
------- ------- ------- -------
5,634 8,149 18,342 24,316
------- ------- ------- -------
Expenses:
Property operating 1,719 2,495 5,402 7,524
Depreciation and amortization 952 1,470 3,193 4,769
Investment portfolio
fee - related parties 794 1,079 2,496 3,361
General and administrative 127 184 526 600
Bad debt (2) 13 74 219
------- ------- ------- -------
3,590 5,241 11,691 16,473
------- ------- ------- -------
Legal expenses - litigation - - - 2,472
Gain on sale of properties 1,398 - 16,983 1,211
------- ------- ------- -------
Income before tax expense 3,442 2,908 23,634 6,582
State income tax expense 200 - 200 -
------- ------- ------- -------
Net income $ 3,242 $ 2,908 $23,434 $ 6,582
======= ======= ======= =======
Net income allocated:
To the General Partners $ 32 $ 29 $ 234 $ 66
To the Limited Partners 3,210 2,879 23,200 6,516
------- ------- ------- -------
$ 3,242 $ 2,908 $23,434 $ 6,582
======= ======= ======= =======
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 $ .25 $ .22 $ 1.82 $ .51
========== ========== ========== ==========
</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 Nine Months Ended September 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 (388) (38,429) (38,817)
Net income 234 23,200 23,434
----- -------- --------
Balance at September 30, 2000 $(738) $133,427 $132,689
===== ======== ========
Balance at January 1, 1999 $(171) $189,513 $189,342
Distributions (159) (15,779) (15,938)
Net income 66 6,516 6,582
----- -------- --------
Balance at September 30, 1999 $(264) $180,250 $179,986
===== ======== ========
</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 Nine Months Ended September 30, 2000 and 1999
(in thousands - unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,434 $ 6,582
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,193 4,769
Gain on sale of properties (16,983) (1,211)
Bad debt expense 74 219
Accrued rental income 114 86
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Rent and other receivables 431 (299)
Investment portfolio fee payable to related parties (173) (153)
Accounts payable and accrued expenses (305) 115
Accrued property taxes 23 539
Accrued litigation costs - 276
Unearned income (31) (30)
State income tax payable 200 -
Security deposits (123) (47)
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Net cash provided by operating activities 9,854 10,846
-------- --------
Cash flows from investing activities:
Proceeds from sale of properties, net of closing costs 44,570 6,712
Investments in real estate (2,197) (2,646)
-------- --------
Net cash provided by investing activities 42,373 4,066
-------- --------
Cash flows from financing activities:
Cash distributions (38,817) (15,938)
-------- --------
Net cash used in financing activities (38,817) (15,938)
-------- --------
Net increase (decrease) in cash and cash equivalents 13,410 (1,026)
Cash and cash equivalents at beginning of period 10,419 12,597
-------- --------
Cash and cash equivalents at end of period $ 23,829 $ 11,571
======== ========
</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. INCOME TAXES
The Partnership recorded an estimated state income tax expense of $200,000
for the Michigan Single Business Tax in connection with the August 2000
sale of Oakland Point Shopping Center (see note 4). No other provision for
federal or state income was made in the condensed consolidated financial
statements since income, losses and tax credits are generally passed
through to the individual partners.
3. TRANSACTIONS WITH AFFILIATES
Investment Portfolio Fee
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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
nine months ended September 30, 2000, Aetna/AREA and AREA GP each earned
fees of $1,248,134. For the nine months ended September 30, 1999,
Aetna/AREA and AREA GP earned fees of $1,575,142 and $1,785,420
respectively.
4. 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 nine months ended September 30, 2000.
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<PAGE>
4. SALE OF INVESTMENTS IN REAL ESTATE (continued)
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 nine months ended September 30, 2000.
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 nine months ended September 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.
On August 18, 2000, Oakland Pointe Shopping Center was sold to an
unaffiliated party. The gross sales price of $12,000,000 was $100,000
greater than the property's appraised value. Net cash proceeds to the
Partnership were approximately $11,833,000 including adjustments of
approximately $104,000 and after closing costs of approximately $271,000.
Gain on the sale included in these condensed consolidated financial
statements is approximately $1,398,000 for the three and nine months ended
September 30, 2000. The gain was reduced approximately $318,000 for the
accrued rent receivable that had been recorded to recognize the building's
rental income on a straight-line basis.
5. CASH DISTRIBUTIONS
On or about August 14, 2000, the Partnership paid a special cash
distribution of $4,884,170 from the sales proceeds of Bonnie Circle, one
of three buildings at Westgate Distribution Center.
On August 24, 2000, cash distributions paid by the Partnership aggregated
$2,313,554 which related to operations for the three months ended June 30,
2000.
6. SUBSEQUENT EVENTS
On or about November 8, 2000, the Partnership paid a special cash
distribution of $11,824,831 from the sales proceeds Oakland Pointe
Shopping Center.
In October 2000, the Partnership declared additional distributions of
$2,313,554 pertaining to operations for the period from July 1, 2000 to
September 30, 2000.
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<PAGE>
6. SUBSEQUENT EVENTS (continued)
Village Square
On November 1, 2000 Village Square was sold to an unaffiliated party for a
gross sales price of $11,500,000. After closing costs and adjustments, net
cash proceeds to the Partnership were approximately $11,033,000. Gain on
sale of approximately $3,548,000 will be recognized in the consolidated
financial statements for the period ended December 31, 2000.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
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At December 31, 1999, the Registrant had working capital reserves ("Reserves")
of approximately $5.6 million. During the nine months ended September 30, 2000,
the Registrant expended approximately $2.2 million for capital improvements.
After cash distributions from the sale proceeds (see Notes 5 and 6 to the
Condensed Consolidated Financial Statements), the Registrant had current
Reserves of approximately $7.7 million as of September 30, 2000. The Registrant
had approximately $300,000 of outstanding commitments for capital improvements
and approximately $1.9 million of projected capital improvements (collectively
the "Capital Costs") related to existing Investments in Properties as of
September 30, 2000. For the three months ended December 31, 2000, the Registrant
will fund, if needed, approximately $1.1 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 nine months ended September 30, 2000 increased approximately
$16,852,000 in comparison to the corresponding period in 1999, resulting
primarily from gains on sales of properties, and no litigation-related legal
expenses for the nine months ended September 30, 2000. Rental revenue decreased
approximately $6,380,000 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 $462,000 as a result of
temporary increases in cash balances due to the sales of properties. Property
operating expenses decreased approximately $2,122,000 and depreciation and
amortization decreased approximately $1,576,000, both primarily the result of
property sales. Investment portfolio fees decreased approximately $865,000, the
result of the distribution of sales proceeds and lower investment portfolio fee
rates.
The Registrant paid cash distributions of $3.02 and $1.24 per Unit to
Unitholders for the nine months ended September 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 $14.28 at September 30, 2000 from $18.21 at
September 30, 1999. The decrease in Net Asset Value per Unit is primarily
attributable to the distributions of sales proceeds and cash reserves of $5.23
per unit and a decrease in the appraised value of Village Square, partially
offset by a significant increase in the appraised value of Summit Village
Apartments. The value of Village Square was reduced as a result of a lower
rental rate growth assumptions and a higher vacancy projection combined with an
increase in 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 September 30, 2000 increased approximately
$334,000 in comparison to the corresponding period in 1999, resulting primarily
from a gain on sale of property. Rental revenue decreased approximately
$2,633,000 primarily as a result of the sale of properties. Interest income
increased approximately $184,000 as a result of temporary increases in cash
balances due to the sales of properties. Property operating expenses decreased
approximately $776,000 and depreciation and amortization decreased approximately
$518,000, both primarily the result of property sales. Investment portfolio fees
decreased approximately $285,000, the result of the distribution of sales
proceeds and lower investment portfolio fee rates. A state income tax expense of
$200,000 was recognized for the three months ended September 30, 2000, related
to the sale of Oakland Pointe Shopping Center.
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 8-K
(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: November 14, 2000 BY: /s/ Jaime Fuertes
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Jaime Fuertes
Vice President & Chief Financial Officer
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