10-Q 1 area2q02.txt AETNA 10-Q ENDING JUNE 30, 2002 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, 2002 ------------- 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, 2002 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, 2002 and December 31, 2001 (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, 2002 and 2001 (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, 2002 and 2001 (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, 2002 and 2001 (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, 2001. The financial data included herein as of December 31, 2001 has been drawn from the consolidated financial statements of the Partnership which were audited by PricewaterhouseCoopers LLP. Reclassifications ----------------- Certain 2001 financial statement items have been reclassified to conform to the 2002 presentation. 2. INCOME TAXES Generally, no provision for federal or state income taxes are made in the condensed consolidated financial statements since income, losses and tax credits are generally passed through to the individual partners. For the six months ended June 30, 2001, the Partnership recorded state income tax expense of $105,800 for the Michigan and Illinois business taxes due to property sales. 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, 2002 and 2001, Aetna/AREA and AREA GP each earned fees of $305,572 and $664,177, respectively. 4. INVESTMENTS IN REAL ESTATE On January 1, 2002, the Partnership adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 144 establishes the accounting and reporting standards for the impairment or disposal of long-lived assets by requiring those assets to be measured at the lower of depreciated cost or fair value less selling costs, whether reported on continuing operations or in discontinued operations. This Standard does not change the fundamental provisions of SFAS No. 121; however, it resolves various implementation issues of SFAS No. 121. The adoption of this Standard did not have a material effect on the Partnership's consolidated financial position or results of operations for the six months ended June 30, 2002. -7- AETNA REAL ESTATE ASSOCIATES, L.P. (a Delaware limited partnership) Notes to Condensed Consolidated Financial Statements (unaudited) 4. INVESTMENTS IN REAL ESTATE (Continued) Town Center Business Park was classified as property held for sale prior to the adoption of SFAS No. 144 and accordingly its results of operations and loss on sale have been recorded in continuing operations. On March 21, 2002, Town Center Business Park was sold to an unaffiliated party. The gross sales price of $33,500,000 was $300,000 lower than the property's appraised value. After closing costs and adjustments aggregating approximately $381,000 and $300,000, respectively, net cash proceeds to the Partnership were approximately $32,819,000. Loss on the sale included in these condensed consolidated financial statements is approximately $928,000 for the six months ended June 30, 2002. The loss includes approximately $365,000 for the accrued rent receivable that had been recorded to recognize the building's rental income on a straight-line basis. At June 30, 2002, Summit Village Apartments, the only remaining property held by the Partnership, was classified as property held for disposition by the Partnership and accordingly, the results of its operations have been recorded as income from discontinued operations. As discussed in Note 7, Summit Village Apartments was sold on July 30, 2002. Included in other assets and liabilities from discontinued operations at June 30, 2002 are the following:

Included in income from discontinued operations for the three and six months ended June 30, 2002 and 2001 are the following components:

-8- AETNA REAL ESTATE ASSOCIATES, L.P. (a Delaware limited partnership) Notes to Condensed Consolidated Financial Statements (unaudited) 5. CAPITAL CONTRIBUTIONS / DISTRIBUTIONS In February 2002, the Partnership paid a special cash distribution aggregating $35,901,186 from the sale proceeds of Powell Street Plaza. Of this amount, the General Partners' special cash distributions aggregating $359,012 were withheld by the Partnership since these funds would have to be contributed to the Partnership as required by the Partnership Agreement. In March 2002, the Partnership paid cash distributions aggregating $2,313,554 which related to operations for the three months ended December 31, 2001. Of this amount, the General Partners' distributions aggregating $23,135 were withheld by the Partnership since these funds would have to be contributed to the Partnership as required by the Partnership Agreement. In May 2002, the Partnership paid a special cash distribution aggregating $31,818,565 from the sale proceeds of Town Center Business Park and $2,313,554 which related to operations for the three months ended March 31, 2002. Of these amounts, the General Partners' cash distributions aggregating $341,321 were withheld by the Partnership since these funds would have to be contributed to the Partnership as required by the Partnership Agreement. 6. SUPPLEMENTAL CASH FLOW INFORMATION Non cash investing activity: ---------------------------- For the six months ended June 30, 2001, the venture partner's share of net income 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 July 2002, the Partnership declared additional distributions of $1,285,308 pertaining to operations for the period from April 1, 2002 to June 30, 2002, of which $1,272,455, representing the limited partners' share, will be distributed in August 2002. The General Partners' distributions aggregating $12,853 will be withheld by the Partnership since these funds would have to be contributed to the Partnership as required by the Partnership Agreement. Summit Village Apartments ------------------------- On July 30, 2002, Summit Village Apartments was sold to an unaffiliated party. The gross sales price of $69,850,000 was $750,000 higher than the property's appraised value. After closing costs and adjustments aggregating approximately $481,000 and $209,000, respectively, net cash proceeds to the Partnership were approximately $69,160,000. Gain on sale of approximately $41,100,000 will be recognized in the consolidated financial statements for the quarter ended September 30, 2002. -9- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources ------------------------------- At December 31, 2001, the Registrant had working capital reserves ("Reserves") of approximately $4.4 million. During the six months ended June 30, 2002, the Registrant expended approximately $1.4 million for capital improvements. After cash distributions from the sale proceeds and excess cash reserves (see Notes 4 and 5 to the Condensed Consolidated Financial Statements), the Registrant had current Reserves of approximately $3.4 million as of June 30, 2002. The cash and cash equivalents balance in the accompanying financial statements primarily represents cash set aside by the General Partners for potential contingent obligations of the Registrant. On a regular basis, the General Partners will evaluate the availability of the Registrant's remaining cash for distribution. Summit Village Apartments, the only remaining property held by the Partnership at June 30, 2002, was sold on July 30, 2002. A special cash distribution from the sale proceeds of Summit Village Apartments is expected to be distributed during the third quarter of 2002. Upon completion of the sales process for Summit Village and resolution of Partnership affairs, the General Partners intend to liquidate the Partnership as rapidly as is possible. The General Partners expect to approve a liquidation plan during the third quarter of 2002. Results of Operations --------------------- Net income for the three and six months ended June 30, 2002 decreased in comparison to the corresponding periods in 2001, resulting primarily from the sales of properties. Investment portfolio fees for the three and six months ended June 30, 2002 decreased as a result of property sales and the subsequent distributions of sales proceeds and lower investment portfolio fee rates, as discussed in Note 3 to the Condensed Consolidated Financial Statements. The Registrant paid cash distributions of $5.63 and $1.60 per Unit to Unitholders for the six months ended June 30, 2002 and 2001, respectively. The Net Asset Value of each of the Registrant's Units, based upon quarterly independent appraisals, decreased to $5.66 at June 30, 2002 from $11.47 at June 30, 2001. The decrease in Net Asset Value per Unit is primarily attributable to the distributions of sales proceeds and partially offset by an increase in the appraised value of Summit Village Apartments. The increase in appraised value of Summit Village is a result of a decrease in the exit capitalization rate. Forward-Looking Information --------------------------- The information contained in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q 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, they 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, real estate, economic, competitive, and regulatory uncertainties and contingencies which are beyond the control of the General Partners. -10- Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable. -11- PART II - OTHER INFORMATION Item 5. Other Information none Item 6. Exhibits and Reports on Form 8-K (a) none (b) none -12- 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, 2002 BY: /s/ Mark J. Marcucci ----------------------------- Mark J. Marcucci President & Director -13- CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly report of Aetna Real Estate Associates, L.P. (the Registrant) on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Daniel R. Leary, Principal Executive Officer of AETNA/AREA Corporation, the General Partner of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/ Daniel R. Leary --------------------------------------- Daniel R. Leary President (Principal Executive Officer) and Director of AETNA/AREA Corporation August 14, 2002 -14- CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly report of Aetna Real Estate Associates, L.P. (the Registrant) on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Carol M. Kuta, Principal Financial and Accounting Officer of AETNA/AREA Corporation, the General Partner of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/ Carol M. Kuta ------------------------------------------------------ Carol M. Kuta Treasurer (Principal Financial and Accounting Officer) and Comptroller of AETNA/AREA Corporation August 14, 2002 -15- CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly report of Aetna Real Estate Associates, L.P. (the Registrant) on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Mark J. Marcucci, Director and President of AREA GP Corporation, the General Partner of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/ Mark J. Marcucci ------------------------- Mark J. Marcucci Director and President of AREA GP Corporation August 14, 2002 -16-

AETNA REAL ESTATE ASSOCIATES L P 10-Q