Item 1. Business.
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 and Casualty 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. The Registrant has acquired all of its interests in Properties entirely with cash.
As of December 31, 1995, the Registrant held 13 Investments in Properties at a total cost of approximately $239.9 million. (See Item 2
Item 2. Properties.
As of December 31, 1995, the Registrant held 13 Investments in Properties.
(in thousands) Historical Property Cost (1)
Cross Pointe Centre $ 22,261 Lincoln Square Apartments 13,458 Gateway Square 7,346 Summit Village 37,183 Village Square Shopping Center 8,109 Marina Bay Industrial Park 10,880 Town Center Business Park 41,865 Oakland Pointe Shopping Center 22,643 115 & 117 Flanders Road 12,267 Three Riverside Drive 10,122 Windmont Apartments 7,834 Powell Street Plaza 31,829 Westgate Distribution Center 14,146 Total $239,943
(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-down or estimated fair value. At December 31, 1995, an impairment loss was recorded for approximately $4,408,000. (See Footnote 3 to the consolidated financial statements.)
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, 1995 ranged from 9.00% to 10.00%. Discount rates utilized in the appraisals of the Investments in Properties at December 31, 1995 ranged from 11.50% to 13.00%.
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.
Cross Pointe Centre
The Registrant owns Cross Pointe Centre, a community shopping center with approximately 211,345 square feet of net rentable space, located on a 25.8-acre site in Centerville, Ohio. As of December 31, 1995, the shopping center was 90% leased and 85% occupied.
Lincoln Square Apartments
On November 14, 1986, the Registrant acquired a controlling general partnership interest in a limited partnership which owns the Lincoln Square Apartments, a 240-unit apartment project on a 12.7-acre site located in Arlington Heights, Illinois. Effective December 1, 1993 the Registrant acquired its partner's interest in Lincoln Square Apartments and now owns 100% of the property. As of December 31, 1995, the project was 97% leased and 95% occupied.
Gateway Square
The Registrant owns Gateway Square, a specialty retail center located in Hinsdale, Illinois. The center contains approximately 40,366 square feet of rentable space on a 3.7-acre site. As of December 31, 1995, the retail center was 98% leased and occupied.
Summit Village
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 12/31/91 94% 92% 12/31/92 99% 96% 12/31/93 96% 94% 12/31/94 99% 98% 12/31/95 99% 99%
The current leases generally have terms of seven or twelve months at monthly rental rates ranging from $945 to $1,349 per unit.
There are plans to construct a second phase to Meridian Courthouse, an indirect competitor, which is located less than one mile from Summit Village. The proposed midrise will include 316 additional apartment units. Construction has begun and completion is scheduled for the end of 1996. Rents will be the same as the existing tower at Meridian, which are significantly higher than Summit Village. Leasing is anticipated to begin in late spring 1996.
Marina Bay Industrial Park
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, 1995, the complex was 98% leased and occupied.
Village Square Shopping Center
The Registrant owns Village Square Shopping Center, a community shopping center in Hazelwood, Missouri containing approximately 207,304 square feet of net rentable area on approximately 20 acres of land. As of December 31, 1995, the shopping center was 63% leased and 35% occupied.
A tenant with a lease totaling 22,282 square feet, included in the leased percentage above, vacated the property during 1992 but continues to pay rent until 1997 when the lease expires. Another tenant, who occupied approximately 36,000 square feet vacated its space during 1995. At this time, the General Partner is considering options for the future strategy of this property. Part of this strategy includes a change in the property management firm, effective in April 1996.
Town Center Business Park
The Registrant owns a controlling interest in a general partnership which owns and operates the Town Center Business Park, totaling approximately 456,700 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 322,700 rentable square feet. Phase II, which opened in February 1990, consists of a two-story office/service building and two industrial buildings containing approximately 134,000 square feet.
During 1996, ten leases covering 10% of the space in Town Center Business Park are scheduled to expire. Contact has been made with all tenants and renewal discussions are currently underway with five of them. The Registrant anticipates that tenants holding leases for 6% of the space will renew their leases and 4% will vacate the property. Also the Registrant is currently negotiating a lease with a current tenant in the park to expand into approximately 1% 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 1997 and 1998, twelve and eight leases, respectively, are scheduled to expire covering 18% and 6%, respectively, 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 12/31/91 81% 71% 12/31/92 87% 66% 12/31/93 67% 62% 12/31/94 76% 74% 12/31/95 84% 72%
Average annualized rental rates for December 1995 were $10.87 per square foot as compared to $10.75 per square foot in December 1994 and $10.62 per square foot for December 1993.
Oakland Pointe Shopping Center
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, 1995, the Oakland Project was approximately 89% leased and occupied.
During 1996, three leases covering 4% of the space in Oakland Pointe Shopping Center are scheduled to expire. Contact has been made with each of the tenants. One is expected to terminate, one has executed a renewal and final negotiations are underway with the last tenant. The Registrant is also negotiating a lease with one new tenant to occupy approximately 1% of the space in Oakland Pointe Shopping Center.
During 1997 and 1998 three and eleven leases, respectively, are scheduled to expire covering 9% and 33% of the space, respectively.
Oakland Pointe Shopping Center has two tenants which occupy 10% or more of the rentable square footage. A lease for 27,001 square feet expires in 1998 and provides annual base rent of $189,007 (10% of total base rent) in 1996. Another lease for 27,060 square feet expires in 2004 and provides annual base rent of $216,480 (11% of total base rent) in 1996.
Historical leasing and occupancy information with respect to Oakland Pointe Shopping Center for the five most recent years is as follows:
Leased Occupied 12/31/91 83% 81% 12/31/92 84% 84% 12/31/93 74% 74% 12/31/94 90% 90% 12/31/95 89% 88%
Average annualized rental rates for December 1995 were $13.45 per square foot.
115 and 117 Flanders Road
The Registrant owns 115 and 117 Flanders Road, two buildings containing approximately 115,175 square feet of net rentable area and located on approximately 26.6 acres in Westborough, Massachusetts. Each building has a two-story office/research and development section and a one-story office/warehouse section. As of December 31, 1995, 115 Flanders was 100% leased and occupied, while 117 Flanders was 30% leased and occupied. The low occupancy at 117 Flanders Road is attributable to the early termination of a lease for a major tenant occupying 70% of the property. As a result, a lease termination fee of approximately $115,000 was received in November 1995. The space is currently being marketed to potential replacement tenants however, no lease negotiations have commenced as of March 15, 1996.
Three Riverside Drive
The Registrant owns Three Riverside Drive, an office/research and development building containing approximately 91,350 square feet of rentable area located on approximately 8.8 acres in Andover, Massachusetts. As of December 31, 1995, the building was 79% leased and occupied. The change in occupancy from 95% as of December 31, 1994 to the current 79% is attributable to the early termination of a lease for a tenant. As a result, a lease termination fee of approximately $171,000 was received in September 1995. The space is currently being marketed to potential replacement tenants however, no lease negotiations have commenced as of March 15, 1996.
Windmont Apartments
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, 1995, the complex was approximately 99% leased and 97% occupied.
Powell Street Plaza
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 Healthcare Services 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 have been approved. 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 their own consultant to analyze the extent of the pollution and the most likely method to perform the cleanup. The consultant's analysis will be used as a benchmark for gauging future progress by the Former Owner.
In each of the years 1996 and 1997 there is one lease scheduled to expire covering 1.4% and .1%, respectively, of the space in Powell Street Plaza. Six leases expire in 1998 covering 13% of the space in Powell Street Plaza. Additionally, subsequent to December 31, 1995, one tenant, occupying 3.7% of the space, terminated its lease. Negotiations have commenced with potential replacement tenants for this space, including potential expansion by existing tenants.
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 provides annual base rent of $358,666 (13% of total rent) in 1996. The lease contains two consecutive five-year options to renew. The second lease, for 25,025 square feet, expires in 2003 and provides annual base rent of $287,788 (11% of total rent) in 1996. The lease contains four consecutive five-year options to renew.
Historical leasing and occupancy information with respect to Powell Street Plaza for the five most recent years is as follows:
Leased Occupied 12/31/91 100% 95% 12/31/92 100% 100% 12/31/93 100% 86% 12/31/94 100% 100% 12/31/95 100% 100%
Average annualized rental rates for December 1995 were $15.67 per square foot as compared to $15.28 per square foot for December 1994 and $14.20 per square foot for December 1993.
The trade area gained a major new development at the East Bay Bridge site, a 450,000 square foot power center about one mile from Powell Street. The property opened with a Home Depot, Sportmart and Toys R Us. The only direct competition is with Powell Street Plaza's Copeland Sports.
On December 21, 1995 approximately 12,100 square feet of land at Powell Street Plaza was condemned, for purposes of road construction, by the State of California Department of Transportation. Net proceeds to the Registrant were approximately $271,000, after paydown of a portion of the City's special assessment. Loss on the sale included in the consolidated financial statements was approximately $23,000 for the year ended December 31, 1995.
Westgate Distribution Center
The Registrant owns Westgate Distribution Center, which consists of three warehouse/distribution buildings totaling approximately 430,300 rentable square feet on 20.6 acres in Corona, California. Westgate Distribution Center was developed in two phases. Phase One consists of two buildings containing approximately 226,200 rentable square feet. Phase Two consisted of two parcels, one containing a 98,000 square foot building constructed during 1994 and the other containing a 96,400 square foot building constructed in December 1992, and sold to its tenant in October 1994. The three remaining buildings were 100% leased and occupied as of December 31, 1995.
Properties Sold During 1995
On December 21, 1995 approximately 12,100 square feet of land at Powell Street Plaza was condemned, for the purpose of road construction, by the State of California Department of Transportation. Net proceeds to the Partnership were approximately $271,000, after paydown of a portion of the City's special assessment. Loss on the sale included in the consolidated financial statements was approximately $23,000 for the year ended December 31, 1995.
Item 3.
Item 3. Legal Proceedings.
Neither the Registrant nor any of the Registrant's Investments in Properties are subject to any material pending legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
During the fourth quarter of the fiscal year ended December 31, 1995, no matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
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, 1996, the number of Unitholders was approximately 19,657.
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, according to the Partnership Agreement, is equal to net income, before depreciation, less any amounts set aside to increase or create reserves. In the last two years, quarterly cash distributions of $.18 per Unit have been paid to Unitholders. In addition the Registrant made special cash distributions of $.19 per Unit on December 29, 1994, of which $.16 represents a return of capital, from proceeds from the sale of the building at Westgate Distribution Center.
Item 6.
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 Coopers & Lybrand L.L.P., independent certified public accountants, whose report thereon 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.
(Dollars in thousands, except per Unit data) Years Ended December 31,
1995 1994 1993 1992 1991
Revenue . . . . . . . . . $ 28,438 $ 26,454 $ 26,389 $ 29,507 $ 30,948 Operating Income before impairment of investment in real estate . . . . . . . 5,002 4,144 4,492 4,457 4,258 Impairment of investment in real estate . . . . . . 4,408 -- -- -- -- Operating Income . . . 594 4,144 4,492 4,457 4,258 Gain (Loss) on Sale of Property . . . . . . . . . (23) 355 2,358 4,111 -- Cash and Cash Equivalents . . . . . 8,971 9,373 13,234 13,299 9,258 Total Assets (Historical Cost Basis) . . . . . . 209,334 217,854 225,248 244,264 254,299 Total Assets (Current Value Basis) . . . . . 199,709 195,916 190,237 214,807 255,452 Rental Income . . . . . 27,455 25,831 25,782 28,681 30,174 Interest Income . . . . 367 301 339 372 336 Earnings per Weighted Average Unit . . . . .04 .35 .54 .67 .33 Cash Distributions per Unit . . . . . . . . . . . . .72 .91 1.92 1.31 .50 Net Asset Value per Unit . . . . . . . . . . . . 15.24 14.96 14.50 16.32 19.39
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
On December 21, 1995 approximately 12,100 square feet of land at Powell Street Plaza was condemned, for purposes of road construction, by the State of California Department of Transportation. Net proceeds to the Partnership were approximately $271,000, after paydown of a portion of the City's special assessment.
The Registrant has current Reserves of $4.5 million, including approximately $3.8 million retained from cash generated from operations in 1995 and $.3 million from the proceeds for the land condemned at Powell Street Plaza. During the year ended December 31, 1995, the Partnership expended approximately $4.5 million for capital improvements. At December 31, 1995, the Registrant had approximately $.9 million of outstanding commitments for capital improvements and approximately $4.8 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 1996 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.
Results of Operations
1995 versus 1994 Operating income for the year ended December 31, 1995 decreased approximately $3,550,000 from 1994 resulting primarily from an impairment loss of approximately $4,408,000 reflected in the 1995 Statement of Income. Revenue increased approximately $1,984,000 from 1994, resulting primarily from an increase in rental revenue at the majority of the properties. The most significant increases in rental revenue occurred at Oakland Pointe and Marina Bay Industrial Park, as a result of increased occupancy, and at Summit Village, as a result of an increase in rental rates. The increase in other income of approximately $294,000 for the year ended December 1995 is attributable to receipt of lease termination fees at Three Riverside Drive and 117 Flanders Road.
Property operating expenses for the year ended December 31, 1995 decreased approximately $200,000 in comparison to 1994, primarily as a result of decreases in operating expenses at certain retail and office and industrial properties. The majority of the decrease is due to decreased operating expenses at Town Center Business Park and Oakland Pointe. The increase in depreciation and amortization expense is primarily a result of the write-off of the unamortized cost of the tenant improvements and leasing commissions associated with a tenant that vacated Village Square Shopping Center. The investment portfolio fee increased slightly due to an increase in net assets at current value as discussed below. Based on an analysis performed on each property, it was necessary to increase the allowance for doubtful accounts at certain properties, including approximately $319,000 related to the tenant that vacated Village Square and approximately $140,000 related to Town Center Business Park.
Cash generated from operations per Unit, excluding the proceeds from the sale of the building at Westgate Distribution Center, for 1995 and 1994 was $1.02 and $.90, respectively. The Registrant made cash distributions of $.72 and $.91 per Unit to Unitholders for the years ended December 31, 1995 and 1994, respectively, including the $.19 per Unit special distribution made in December 1994 from the proceeds from the sale of the building at Westgate Distribution Center.
Net Asset Value per Unit increased to $15.24 at December 31, 1995 from $14.96 at December 31, 1994. 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 Cross Pointe Centre and Powell Street Plaza. The increase in value in Cross Pointe Centre is a result of an increase in leased percentage, from 82% to approximately 90%, in conjunction with a stronger tenant mix, including an expansion of a proven anchor tenant and a reduced vacancy allowance. Powell Street Plaza's increase in value is primarily due to an increase in percentage rent with stable cash flow and modest lease expirations projected over the next few years. These value increases were partially offset by decreases in the appraised value of Village Square Shopping Center and Oakland Pointe Shopping Center. The decrease in appraised value of Village Square Shopping Center is a result of a significant decrease in its occupancy rate. The General Partners are currently considering options for the future strategy of this property. Part of this strategy includes a change in the property management firm, effective in April 1996. The majority of the decrease in appraised value of Oakland Pointe Shopping Center is a result of a change in renewal assumptions associated with a major tenant and an increase in the vacancy assumptions.
1994 versus 1993
Operating income for the year ended December 31, 1994 decreased approximately $348,000 from 1993, resulting primarily from the increased amortization expense due to the write-off of the unamortized cost of certain tenant improvements and leasing commissions for certain retail properties. Rental revenue increased slightly for the year ended 1994. Increases in revenues at certain residential and retail properties, in particular Powell Street and Village Square, were partially offset by reduced revenues at certain of the office/industrial properties, primarily Town Center and Marina Bay. The effect of the loss of income at Westgate Distribution Center due to the sale of the building was more than offset by the increase in operating income from 1993, partially attributable to the completion of the third building in Phase II. Other income increased approximately $54,000 for the year ended December 1994 due mainly to increases at the residential properties partially offset by a decrease in other income due to the sale of Lincoln Harbour in January 1993.
Property operating expenses for the year ended December 31, 1994 remained stable in comparison to 1993; increases in operating expenses at certain residential and office/industrial properties were offset by decreases at most of the retail properties and, to a lesser extent, a decrease due to the sale of Lincoln Harbour in January 1993.
Cash generated from operations per Unit, excluding the proceeds from the sales of the building at Westgate Distribution Center and Lincoln Harbour, for 1994 and 1993 was $.90 and $.89, respectively. The Registrant made cash distributions of $.91 and $1.92 per Unit to Unitholders for the years ended December 31, 1994 and 1993, respectively, including the $.19 per Unit special distribution made in December 1994 and the $1.20 per Unit special distribution made in February 1993 from the proceeds from the sales of the building at Westgate Distribution Center and Lincoln Harbour, respectively.
The net asset value of the Registrant's Units, based upon quarterly independent appraisals, increased to $14.96 at December 31, 1994 from $14.50 at December 31, 1993. 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 Oakland Pointe and Powell Street. The increase in appraised value in Oakland Pointe is a result of improved occupancy, from 74% to 90%, capital costs incurred, a reduced vacancy allowance and a reduction in operating expenses, primarily real estate taxes, for future years. Powell Street's increase in appraised value is primarily due to an increase in percentage rent with stable cash flow and modest lease expirations over the next few years. These increases were partially offset by a decrease in Net Asset Value per Unit attributable to the special distribution of a portion of the sale proceeds related to the sale of a building at Westgate Distribution Center in December 1994. Although there was no significant impact on net asset value, Town Center's occupancy continues to be low. Town Center saw some improvement in occupancy, from 62% to 74%, however market rents were adjusted, resulting in lower effective rents and a slight decrease in appraised value. While efforts to secure tenants for the property are ongoing, the weak economic conditions in Southern California have made it difficult to attract qualified lessees.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Registrant has no officers or directors. Aetna/AREA and AREA GP, 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.
Certain Matters Involving Affiliates of AREA GP Corporation
On July 31, 1993 Shearson Lehman Brothers Inc. ("Shearson") sold certain of its domestic retail brokerage and asset management businesses to Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to this sale Shearson changed its name to Lehman Brothers, Inc. The transaction did not affect the ownership of AREA GP. However as a result of this transaction, the general partner changed its name from Hutton/AREA Corporation to AREA GP Corporation.
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 March 15, 1996, no person was known by the Registrant to be the beneficial owner of more than five percent of the Units of the Registrant. The Registrant has no directors or officers, and as of March 15, 1996, 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 15, 1996, no directors or officers of AREA GP owned or beneficially owned any Units. As of March 15, 1996, no directors of Aetna/AREA owned any Units, and as of such date, officers of Aetna/AREA as a group beneficially owned approximately 340 Units, which constituted less than 1% of the outstanding Units. The Registrant knows of no arrangements, the operation or the terms of which may at a subsequent date result in a change in control of the Registrant.
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 2.5% per annum of net asset value. For the year ended December 31, 1995, Aetna/AREA and AREA GP were entitled to fees of $1,925,626 and $2,888,439, respectively, totaling $4,814,066.
During the year ended December 31, 1995, $403,479 was paid to Aetna Life Insurance Company, an affiliate of Aetna/AREA, primarily as reimbursement for insurance expense previously paid on behalf of the Registrant by Aetna Life Insurance Company to persons not affiliated with the Registrant.
As required by the Registrant's Revised Limited Partnership Agreement, the General Partners' distributions aggregating $92,542 which pertain to operations for the quarters ended September 30, 1995, June 30, 1995, March 31, 1995 and December 31, 1994, were withheld by the Registrant since funds of equal amount would have to be contributed to the Registrant at the end of the year.
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 in Item 8.
Item 8. Financial Statements and Supplementary Data.
AETNA REAL ESTATE ASSOCIATES, L.P. (a Delaware limited partnership)
List of Financial Statements and Financial Statement Schedule Page
Report of Independent Accountants
Report of Landauer Associates, Inc.
Consolidated Balance Sheets (Historical Cost and Current Value) December 31, 1995 and 1994
Consolidated Statements of Income (Historical Cost) for the years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Partners' Capital (Deficiency) (Historical Cost) for the years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Partners' Capital (Deficiency) (Current Value) for the years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows (Historical Cost) for the years ended December 31, 1995, 1994 and 1993
Consolidated Current Value Basis Statements of Changes in Excess (Deficiency) of Current Value over Historical Cost for the years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements -
Report of Independent Accountants- Supplementary Information
The following financial statement schedule of Aetna Real Estate Associates, L.P. required by Item 14