10-Q 1 area2q10q01.txt 2ND QUARTER 2001 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q --- / X / Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange --- Act of 1934 For the quarter ended: June 30, 2001 ------------- OR --- / / Transition Report Under Section 13 or 15 (d) of the Securities Exchange --- Act of 1934 For the transition period from: to ------------------- ------------------- Commission file number: 0-14986 ------- AETNA REAL ESTATE ASSOCIATES, L.P. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 11-2827907 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 242 Trumbull Street, Hartford, Connecticut 06103-1212 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (860) 616-9107 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- PART I - FINANCIAL INFORMATION Item 1. Financial Statements The summarized financial information contained herein is unaudited; however, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such financial information have been included. The results of operations for the three and six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year. -2- AETNA REAL ESTATE ASSOCIATES, L.P. Condensed Consolidated Balance Sheets As of June 30, 2001 and December 31, 2000 (in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements. -3- AETNA REAL ESTATE ASSOCIATES, L.P. Condensed Consolidated Statements of Income For the Three and Six Months Ended June 30, 2001 and 2000 (in thousands, except units and per unit amounts) (unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements. -4- AETNA REAL ESTATE ASSOCIATES, L.P. Condensed Consolidated Statements of Partners' Capital (Deficiency) For the Six Months Ended June 30, 2001 and 2000 (in thousands - unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements. -5- AETNA REAL ESTATE ASSOCIATES, L.P. Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2001 and 2000 (in thousands - unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements. -6- 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, 2000. The financial data included herein as of December 31, 2000 has been drawn from the consolidated financial statements of the Partnership which were audited by PricewaterhouseCoopers LLP. Reclassifications ----------------- Certain 2000 financial statement items have been reclassified to conform to the 2001 presentation. 2. INCOME TAXES The Partnership recorded state income tax expense of $105,800 for the Michigan and Illinois business taxes due to property sales. No other provision for federal or state income taxes 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 ------------------------ 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 decreased another .25% per annum as of June 19, 2001. For the six months ended June 30, 2001, Aetna/AREA and AREA GP each earned fees of $664,177. For the six months ended June 30, 2000, Aetna/AREA and AREA GP each earned fees of $851,119. 4. INVESTMENTS IN REAL ESTATE On March 5, 2001, Marina Bay Industrial Park was sold to an unaffiliated party. The gross sales price of $14,025,000 was $825,000 greater than the property's appraised value. After closing costs and adjustments aggregating approximately $279,000 and $346,000, respectively, net cash proceeds to the Partnership were approximately $13,400,000. Gain on the sale included in these condensed consolidated financial statements is approximately $5,855,000 for the six months ended June 30, 2001, including accrued rental income of $135,000. The General Partners are currently marketing the remaining four properties for sale. They have committed to the sale of three properties, however, at the present stage of negotiations 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. -7- 5. CAPITAL CONTRIBUTIONS / DISTRIBUTIONS On March 9, 2001, cash distributions paid by the Partnership aggregated $2,313,554 which related to operations for the three months ended December 31, 2000. On April 30, 2001, the Partnership paid a special cash distribution of $13,367,201 from the sale proceeds of Marina Bay Industrial Park. On June 8, 2001, cash distributions paid by the Partnership aggregated $4,884,170 which pertained to operations for the period January 1, 2001 to March 31, 2001 and a special distribution of excess cash reserves. The General Partners' distributions aggregating $434,207 were contributed to the Partnership during the second quarter of 2001 as required by the Partnership Agreement. 6. SUPPLEMENTAL CASH FLOW INFORMATION Non cash investing activity: ---------------------------- The venture partner's share of net income for the six months ended June 30, 2001 totals approximately $365,000, of which approximately $190,000 is included in accounts payable and accrued expenses at June 30, 2001. 7. SUBSEQUENT EVENTS Capital Contributions / Distributions ------------------------------------- In August 2001, the Partnership declared additional distributions of $2,313,554 pertaining to operations for the period from April 1, 2001 to June 30, 2001, of which $2,290,418, representing the limited partners' share, will be distributed in August 2001. The General Partners' distributions aggregating $23,136, will be withheld by the Partnership. -8- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources ------------------------------- At December 31, 2000, the Registrant had working capital reserves ("Reserves") of approximately $7.7 million. During the six months ended June 30, 2001, the Registrant expended approximately $.8 million for capital improvements. After cash distributions from the sale proceeds (see Note 5 to the Condensed Consolidated Financial Statements), the Registrant had current Reserves of approximately $5.1 million as of June 30, 2001. The Registrant had approximately $606,000 of outstanding commitments for capital improvements and approximately $1.7 million of projected capital improvements (collectively the "Capital Costs") related to existing Investments in Properties as of June 30, 2001. For the six months ended December 31, 2001, the Registrant will fund, if needed, approximately $1.5 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 2001 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 or negotiating a delay or other restructuring of the capital funding requirements related to an Investment in Properties. 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. The General Partners are currently marketing the remaining four properties for sale. They have committed to the sale of three properties, however, at the present stage of negotiations 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. Results of Operations --------------------- Net income for the six months ended June 30, 2001 decreased approximately $11,246,000 in comparison to the corresponding period in 2000, resulting primarily from the change in gain on sales of properties. Rental revenue decreased approximately $3,163,000 primarily as a result of the sales of properties. Interest income decreased approximately $201,000 as a result of changes in cash balances due to the sale of properties. Property operating expenses decreased approximately $1,137,000 and depreciation and amortization decreased approximately $698,000, both primarily the result of property sales. Investment portfolio fees decreased approximately $374,000, the result of the distributions of sales proceeds and lower investment portfolio fee rates. The Registrant paid cash distributions of $1.60 and $2.46 per Unit to Unitholders for the six months ended June 30, 2001 and 2000, respectively. -9- The Net Asset Value of each of the Registrant's Units, based upon quarterly independent appraisals, decreased to $11.47 at June 30, 2001 from $14.18 at June 30, 2000. The decrease in Net Asset Value per Unit is primarily attributable to the distributions of sales proceeds and a decrease in value of Powell Street Plaza, partially offset by a significant increase in the appraised value of Summit Village Apartments. The decrease in appraised value of Powell Street Plaza is a result of an increase in the discount and exit capitalization rates and a decrease in forecasted percentage rents. The increase in appraised value of Summit Village is a result of an increase in projected market rents. Net income for the three months ended June 30, 2001 decreased approximately $2,913,000 in comparison to the corresponding period in 2000, resulting primarily from a gain on sale of property. Rental revenue decreased approximately $1,610,000 primarily as a result of the sale of properties, partially offset by increases in rents at Powell Street Plaza and Summit Village Apartments. Interest income decreased approximately $45,000 as a result of changes in cash balances due to the sale of properties. Property operating expenses decreased approximately $477,000 and depreciation and amortization decreased approximately $83,000, both primarily the result of property sales. Investment portfolio fees decreased approximately $162,000, the result of property sales and lower investment portfolio fee rates. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable. -10- PART II - OTHER INFORMATION Item 5. Other Information none Item 6. Exhibits and Reports on Form 8-K (a) none (b) none -11- 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, 2001 BY: /s/ Mark J. Marcucci ------------------------------ Mark J. Marcucci President & Director -12-

AETNA REAL ESTATE ASSOCIATES L P 10-Q