UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2008March 31, 2009
Commission File Number: 000-51823
AEI INCOME & GROWTH FUND 26 LLC
(Exact name of registrant as specified in its charter)
State of Delaware 41-2173048
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101
(Address of principal executive offices)
(651) 227-7333
(Registrant's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
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. [X] Yes No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (232.405 of this chapter)
during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [X] No
AEI INCOME & GROWTH FUND 26 LLC
INDEX
Part I - Financial Information
Item 1. Financial Statements:
Balance Sheet as of June 30, 2008March 31, 2009 and December 31, 20072008
Statements for the PeriodsThree Months ended June 30, 2008March 31, 2009 and 2007:2008:
Income
Cash Flows
Changes in Members' Equity (Deficit)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4T.Controls4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk1A.Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
Signatures
AEI INCOME & GROWTH FUND 26 LLC
BALANCE SHEET
JUNE 30, 2008MARCH 31, 2009 AND DECEMBER 31, 20072008
ASSETS
2009 2008 2007
CURRENT ASSETS:
Cash and Cash Equivalents $ 572,304322,903 $ 4,249,562388,653
Receivables 288 4,10219,950 2,283
----------- -----------
Total Current Assets 572,592 4,253,664342,853 390,936
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 5,290,737 4,629,1105,294,367 5,294,367
Buildings and Equipment 7,845,370 4,781,3477,851,416 7,851,416
Accumulated Depreciation (340,087) (211,133)(575,701) (497,187)
----------- -----------
12,796,020 9,199,32412,570,082 12,648,596
Real Estate Held for Sale 2,126,435 2,126,435
----------- -----------
Net Investments in Real Estate 14,922,455 11,325,75914,696,517 14,775,031
----------- -----------
Total Assets $15,495,047 $15,579,423$15,039,370 $15,165,967
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 20,51011,233 $ 90,23928,015
Distributions Payable 247,988 233,595232,845 247,987
Unearned Rent 33,687 0
Construction Costs Payable 123,008 015,598 25,796
----------- -----------
Total Current Liabilities 425,193 323,834259,676 301,798
----------- -----------
MEMBERS' EQUITY (DEFICIT):
Managing Members (15,547) (9,975)(21,019) (21,717)
Limited Members, $10 per Unit;
10,000,000 Units authorized;
1,832,736 Units issued and outstanding 15,085,401 15,265,56414,800,713 14,885,886
----------- -----------
Total Members' Equity 15,069,854 15,255,58914,779,694 14,864,169
----------- -----------
Total Liabilities and Members' Equity $15,495,047 $15,579,423$15,039,370 $15,165,967
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 26 LLC
STATEMENT OF INCOME
FOR THE PERIODSTHREE MONTHS ENDED JUNE 30
Three Months Ended Six Months Ended
6/30/08 6/30/07 6/30/08 6/30/07MARCH 31
2009 2008
RENTAL INCOME $ 209,508231,925 $ 95,307 $ 375,091 $ 190,615165,583
EXPENSES:
LLC Administration - Affiliates 43,309 26,628 86,278 49,38544,952 42,969
LLC Administration and Property
Management - Unrelated Parties 6,676 4,204 18,382 9,52311,872 11,706
Depreciation 70,858 39,752 128,954 79,504
--------- --------- --------- ---------78,514 58,096
----------- -----------
Total Expenses 120,843 70,584 233,614 138,412
--------- --------- --------- ---------135,338 112,771
----------- -----------
OPERATING INCOME 88,665 24,723 141,477 52,20396,587 52,812
OTHER INCOME:
Interest Income 20,620 35,358 72,024 45,027
--------- --------- --------- ---------667 51,404
----------- -----------
INCOME FROM CONTINUING OPERATIONS 109,285 60,081 213,501 97,23097,254 104,216
Income fromFrom Discontinued Operations 45,723 32,534 96,739 65,111
--------- --------- --------- ---------51,116 51,016
----------- -----------
NET INCOME $ 155,008148,370 $ 92,615 $ 310,240 $ 162,341
========= ========= ========= =========155,232
=========== ===========
NET INCOME ALLOCATED:
Managing Members $ 4,6504,451 $ 2,778 $ 9,307 $ 4,8704,657
Limited Members 150,358 89,837 300,933 157,471
--------- --------- --------- ---------143,919 150,575
----------- -----------
$ 155,008148,370 $ 92,615 $ 310,240 $ 162,341
========= ========= ========= =========
NET155,232
=========== ===========
INCOME PER LLC UNIT:
Continuing Operations $ .06.05 $ .05
$ .11 $ .09
Discontinued Operations .02 .03 .05 .06
--------- --------- --------- ---------.03
----------- -----------
Total $ .08 $ .08
$ .16 $ .15
========= ========= ========= ==================== ===========
Weighted Average Units Outstanding 1,832,736 1,198,264 1,832,736
1,079,253
========= ========= ========= ==================== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 26 LLC
STATEMENT OF CASH FLOWS
FOR THE SIXTHREE MONTHS ENDED JUNE 30MARCH 31
2009 2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 310,240148,370 $ 162,341155,232
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 128,954 110,16878,514 58,096
(Increase) Decrease in Receivables (17,667) 3,814 (2,390)
Decrease in Payable to
AEI Fund Management, Inc. (69,729) (48,558)(16,782) (70,670)
Increase (Decrease) in Unearned Rent 33,687 5,973(10,198) 21,373
----------- -----------
Total Adjustments 96,726 65,19333,867 12,613
----------- -----------
Net Cash Provided By
Operating Activities 406,966 227,534182,237 167,845
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (3,602,642) 0 (3,069,656)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from Limited Members 0 4,838,469
Organization and Syndication Costs 0 (709,751)
Increase in Distributions Payable 14,393 66,496
DistributionsPaid to Members (495,975) (278,158)
----------- -----------
Net Cash Provided By (Used For)
Financing Activities (481,582) 3,917,056(247,987) (233,594)
----------- -----------
NET INCREASE (DECREASE)DECREASE IN CASH AND(65,750) (3,135,405)
CASH, EQUIVALENTS (3,677,258) 4,144,590
CASH AND CASH EQUIVALENTS, beginning of period 388,653 4,249,562 151,644
----------- -----------
CASH, AND CASH EQUIVALENTS, end of period $ 572,304322,903 $ 4,296,234
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Capitalized Construction Costs
Payable at Period End $ 123,008 $ 01,114,157
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 26 LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
FOR THE SIXTHREE MONTHS ENDED JUNE 30MARCH 31
Limited
Member
Managing Limited Units
Members Members Total Outstanding
BALANCE, December 31, 20062007 $ (1,278) $ 7,440,476 $ 7,439,198 882,126.8
Capital Contributions 0 4,838,469 4,838,469 483,846.9
Organization and
Syndication Costs 0 (709,751) (709,751)(9,975) $15,265,564 $15,255,589 1,832,736.0
Distributions (8,345) (269,813) (278,158)Declared (7,439) (240,548) (247,987)
Net Income 4,870 157,471 162,3414,657 150,575 155,232
-------- ----------- ----------- -----------
BALANCE, June 30, 2007 $ (4,753) $11,456,852 $11,452,099 1,365,973.7March 31, 2008 $(12,757) $15,175,591 $15,162,834 1,832,736.0
======== =========== =========== ===========
BALANCE, December 31, 2007 $ (9,975) $15,265,564 $15,255,5892008 $(21,717) $14,885,886 $14,864,169 1,832,736.0
Distributions (14,879) (481,096) (495,975)Declared (3,753) (229,092) (232,845)
Net Income 9,307 300,933 310,2404,451 143,919 148,370
-------- ----------- ----------- -----------
BALANCE, June 30, 2008 $(15,547) $15,085,401 $15,069,854March 31, 2009 $(21,019) $14,800,713 $14,779,694 1,832,736.0
======== =========== =========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008MARCH 31, 2009
(1) The condensed statements included herein have been prepared
by the registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the registrant
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
registrant's latest annual report on Form 10-KSB.10-K.
(2) Organization -
AEI Income & Growth Fund 26 LLC ("Company"), a Limited
Liability Company, was formed on March 14, 2005 to acquire
and lease commercial properties to operating tenants. The
Company's operations are managed by AEI Fund Management XXI,
Inc. ("AFM"), the Managing Member. Robert P. Johnson, the
President and sole director of AFM, serves as the Special
Managing Member. AFM is a wholly owned subsidiary of AEI
Capital Corporation of which Mr. Johnson is the majority
shareholder. AEI Fund Management, Inc. ("AEI"), an
affiliate of AFM, performs the administrative and operating
functions for the Company.
The terms of the offering call for a subscription price of
$10 per LLC Unit, payable on acceptance of the offer. The
Company commenced operations on April 3, 2006 when minimum
subscriptions of 150,000 LLC Units ($1,500,000) were
accepted. The offering terminated October 19, 2007, when
the extended offering period expired. The Company received
subscriptions for 1,832,736 Units. Under the terms of the
Operating Agreement, the Limited Members and Managing
Members contributed funds of $18,327,360 and $1,000,
respectively. The Company shall continue until December 31,
2055, unless dissolved, terminated and liquidated prior to
that date.
During operations, any Net Cash Flow, as defined, which the
Managing Members determine to distribute will be distributed
97% to the Limited Members and 3% to the Managing Members.
Distributions to Limited Members will be made pro rata by
Units.
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the Managing Members determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Members and 1% to the Managing Members until the
Limited Members receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to
6.5% of their Adjusted Capital Contribution per annum,
cumulative but not compounded, to the extent not previously
distributed from Net Cash Flow; (ii) any remaining balance
will be distributed 90% to the Limited Members and 10% to
the Managing Members. Distributions to the Limited Members
will be made pro rata by Units.
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of property, will be
allocated 97% to the Limited Members and 3% to the Managing
Members. Net losses from operations will be allocated 99%
to the Limited Members and 1% to the Managing Members.
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Operating Agreement as follows: (i)
first, to those Members with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Members
and 1% to the Managing Members until the aggregate balance
in the Limited Members' capital accounts equals the sum of
the Limited Members' Adjusted Capital Contributions plus an
amount equal to 6.5% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, the balance of any
remaining gain will then be allocated 90% to the Limited
Members and 10% to the Managing Members. Losses will be
allocated 99% to the Limited Members and 1% to the Managing
Members.
The Managing Members are not required to currently fund a
deficit capital balance. Upon liquidation of the Company or
withdrawal by a Managing Member, the Managing Members will
contribute to the Company an amount equal to the lesser of
the deficit balances in their capital accounts or 1.01% of
the total capital contributions of the Limited Members over
the amount previously contributed by the Managing Members.
(3) Reclassification -
Certain items related to discontinued operations in the
prior period's financial statements have been reclassified
to conform to 2008 presentation. These reclassifications
had no effect on Members' capital, net income or cash flows.
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Investments in Real Estate -
On August 10, 2007, the Company purchased a Starbucks store
in Bluffton, Indiana for $1,150,116. The property is leased
to Starbucks Corporation under a Lease Agreement with a
remaining primary term of 10 years and initial annual rent
of $79,800. In July 2008, Starbucks announced that it was
closing this store at the end of July. Starbucks has
contacted the Company to attempt to negotiate an agreement
to terminate the Lease. Unless an agreement is reached, the
Company expects Starbucks to comply with all of its Lease
obligations.
On December 17, 2007, the Company purchased a 27% interest
in a parcel of land in Fredericksburg, Virginia for
$1,374,913. The Company obtained title to the land in the
form of an undivided fee simple interest in the 27% interest
purchased. Simultaneous with the purchase of the land, the
Company entered into a Project Construction and Development
Financing Agreement under which the Company advanced funds
to Silver-Honaker Development Company, LLC ("Silver") for
the construction of a Dick's Sporting Goods store on the
site. At June 30, 2008, the balance due for construction
costs was $123,008, which was subsequently paid to Silver.
The Company's share of the total acquisition costs,
including the cost of the land, was $3,121,714.$3,126,603. The
remaining interests in the property were purchased by AEI
Income & Growth Fund 23 LLC, AEI Income & Growth Fund 24 LLC
and AEI Income & Growth Fund 25 LLC, affiliates of the
Company.
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
The property is leased to Dick's Sporting Goods, Inc. under
a Lease Agreement with a primary term of 10 years and
initial annual rent of $219,445.$219,445 for the interest purchased.
Pursuant to the Lease, the tenant commenced paying rent on
May 8, 2008. Pursuant to the development agreement, for the
period from December 17, 2007 through May 7, 2008, Silver
paid the Company interest at a rate of 6.75% on the purchase
price of the land and the amounts advanced for construction
of the store. Pursuant to the Lease, any improvements to
the land during the term of the Lease become the property of
the Company.
On December 28, 2007, the Company purchased 2.04 acres of
land in Beavercreek, Ohio for $1,533,655. The land is
leased to Red Robin International, Inc. under a Lease
Agreement with a remaining primary term of 11.3 years and
initial annual rent of $105,000. Red Robin International,
Inc. operates a Red Robin restaurant on the site. Ownership
of the building and improvements will transfer to the
Company upon termination of the lease.
On January 31, 2008, the Company purchased a 30% interest in
a Best Buy store in Eau Claire, Wisconsin for $2,016,375.$2,021,162.
The property is leased to Best Buy Stores, L.P. under a
Lease Agreement with a remaining primary term of 10 years
and initial annual rent of $142,222.$142,222 for the interest
purchased. The remaining interests in the property were
purchased by AEI Income & Growth Fund XXI Limited
Partnership and AEI Income & Growth Fund 23 LLC, affiliates
of the Company.
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(5)(4) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Company. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
(6)(5) Discontinued Operations -
In May 2008, theThe Company entered into an agreementis attempting to sell
its 40% interest in the Sports Authority store
in Wichita, Kansas to an unrelated third party. If the sale was
completed, the Company would have received net proceeds of
approximately $2,944,000. In JuneKansas. At March 31, 2009 and 2008, the buyer cancelled
the agreement. The Company is seeking another buyer for the
property and may not be able to negotiate a purchase
agreement with similar economic terms. At June 30, 2008 and
December 31, 2007, the
property was classified as Real Estate Held for Sale with a
book value of $2,126,435.
The financial results for this property are reflected as
Discontinued Operations in the accompanying financial
statements. The following are the results of discontinued
operations for the periodsthree months ended June 30:
Three Months Ended Six Months Ended
6/30/08 6/30/07 6/30/08 6/30/07March 31:
2009 2008
Rental Income $ 51,166 $ 51,166
$ 102,332 $ 99,231
Property Management Expenses (5,443) (3,300) (5,593) (3,456)
Depreciation 0 (15,332) 0 (30,664)
--------- --------(50) (150)
--------- --------
Income from Discontinued Operations $ 45,72351,116 $ 32,534 $ 96,739 $ 65,11151,016
========= ========
========= ========
(7) Recently Issued Accounting PronouncementsAEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Fair Value Measurements -
In December 2007,September 2006, the Financial Accounting Standards BoardFASB issued StatementSFAS No. 157, "Fair Value
Measurements," ("SFAS 157"). SFAS 157 provides enhanced
guidance for using fair value to measure assets and
liabilities. In February 2008, the FASB issued Staff
Position (FSP) No. 157-2, which deferred the effective date
of Financial Accounting Standards No.
141(R) ("SFAS 141(R)"), Business Combinations.157 for one year relative to certain nonfinancial
assets and liabilities. The Company adopted SFAS 141(R)
requires, among other things, the expensing of acquisition-
related transaction costs. Management anticipates that SFAS
141(R) will be effective157 for
property acquisitions completedfinancial assets and liabilities on or afterJanuary 1, 2008 and for
certain nonfinancial assets and liabilities on January 1,
2009. Management is evaluating the
effectThe Company has no assets or liabilities measured at
fair value on a recurring basis or nonrecurring basis that
the adoption of SFAS 141(R) will have on the
Company's results of operations, financial position, and the
related disclosures.would require disclosure under this pronouncement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The Management's Discussion and AnalysisThis section contains various "forward looking statements" within the meaning of federal
securities laws which
represent management's expectations or beliefs concerning future
events, including statements regarding anticipated application of
cash, expected returns from rental income, growth in revenue, the
sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward
looking statements, made by the Company,
mustshould be evaluated in the context of a
number of factors that may affect the Company's financial
condition and results of operations, including the following:
Market and economic conditions which affect the value
of the properties the Company owns and the cash from
rental income such properties generate;
the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
effects of these consequences for Members;
resolution by the Managing Members of conflicts with
which they may be confronted;
the success of the Managing Members of locating
properties with favorable risk return characteristics;
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Company operate.
The Application of Critical Accounting Policies
The preparation of the Company's financial statements
requires management to make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. Management evaluates these estimates on an ongoing
basis, including those related to the carrying value of real
estate and the allocation by AEI Fund Management, Inc. of
expenses to the Company as opposed to other funds they manage.
TheITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Prior to January 1, 2009, the Company purchasespurchased properties
and recordsrecorded them in the financial statements at cost (including
capitalized acquisition expenses). The Company anticipates that forFor acquisitions completed on
or after January 1, 2009, acquisition-related transaction costs
will be expensed as incurred as a result of the adoption of
Statement of Financial Accounting Standards No. 141(R), Business Combinations."Business
Combinations". The Company tests long-lived assets for
recoverability when events or changes in circumstances indicate
that the carrying value may not be recoverable. For properties
the Company will hold and operate, management determines whether
impairment has occurred by comparing the property's probability-weightedprobability-
weighted cash flows to its current carrying value. For
properties held for sale, management determines whether
impairment has occurred by comparing the property's estimated
fair value less cost to sell to its current carrying value. If
the carrying value is greater than the realizable value, an
impairment loss is recorded to reduce the carrying value of the
property to its realizable value. Changes in these assumptions
or analysis may cause material changes in the carrying value of
the properties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
AEI Fund Management, Inc. allocates expenses to each of
the funds they manage primarily on the basis of the number of
hours devoted by their employees to each fund's affairs. They
also allocate expenses at the end of each month that are not
directly related to a fund's operations based upon the number of
investors in the fund and the fund's capitalization relative to
other funds they manage. The Company reimburses these expenses
subject to detailed limitations contained in the Operating
Agreement.
Management of the Company has discussed the development
and selection of the above accounting estimates and the
management discussion and analysis disclosures regarding them
with the managing member of the Company.
Results of Operations
For the sixthree months ended June 30,March 31, 2009 and 2008, the
Company recognized rental income from continuing operations of
$375,091,
representing six months$231,925 and $165,583, respectively. In 2009, rental income
increased due to additional rent from five properties and rentreceived from two properties acquired during the period.property
acquisitions in 2008.
For the sixthree months ended June 30, 2007, the Company recognized rental income of
$190,615, representing six months rent from three properties.
For the six months ended June 30,March 31, 2009 and 2008, and 2007, the
Company incurred LLC administration expenses from affiliated
parties of $86,278$44,952 and $49,385,$42,969, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and correspondence tocommunicating with the Limited Members. During
the same periods, the Company incurred LLC administration and
property management expenses from unrelated parties of $18,382$11,872
and $9,523,$11,706, respectively. These expenses represent direct
payments to third parties for legal and filing fees, direct
administrative costs, outside audit costs, taxes, insurance and
other property costs.
As the Company raised additional
subscription proceeds and purchased additional properties, the
administration and property management expenses increased.
For the sixthree months ended June 30,March 31, 2009 and 2008, and 2007, the
Company recognized interest income of $72,024$667 and $45,027,$51,404,
respectively. In 2008,2009 interest income increased due to the
Company receiving interest from construction advances. This
increase was partially offset by a reduction in money market
interestdecreased due to the
Company having less money invested in a money market account due
to property acquisitions and lower money market rates in 2009.
In addition, the Company received $34,022 of interest income on
construction advances in 2008.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In accordance with Statement of Financial Accounting
Standards No. 144, Accounting"Accounting for the Impairment or Disposal of
Long-Lived Assets,Assets", upon complete disposal of a property or
classification of a property as Real Estate Held for Sale, the
Company includes the operating results and sale of the property
in discontinued operations. In addition, the Company
reclassifies the prior periods' operating results of the property
to discontinued operations. For the sixthree months ended June 30,March 31,
2009 and 2008, the Company recognized income from discontinued
operations of $96,739$51,116 and $51,016, respectively, representing
rental income less property management expenses.
For the six months ended June 30, 2007, theThe Company recognized income from discontinued operations of $65,111
representing rental income less property management expenses and
depreciation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In May 2008, the Company entered into an agreementis attempting to sell
its 40% interest in the Sports Authority
store in Wichita, Kansas
to an unrelated third party. If the sale was completed, the
Company would have received net proceeds of approximately
$2,944,000. In June 2008, the buyer cancelled the agreement.
The Company is seeking another buyer for the property and may not
be able to negotiate a purchase agreement with similar economic
terms.Kansas. At June 30, 2008March 31, 2009 and December 31,
2007,2008, the property was classified as Real Estate Held for Sale
with a book value of $2,126,435.
InflationManagement believes inflation has had a minimal effect onnot significantly
affected income from operations. Leases may contain rent
increases, based on the increase in the Consumer Price Index over
a specified period, which will result in an increase in rental income over the term
of the leases. In addition, leases may contain rent clauses
which entitle the Company to receive additional rent in future
years if gross receipts for the property exceed certain specified
amounts. Increases in sales volumes of the tenants, due to
inflation and real sales growth, may result in an increase in rental
income over the term of the leases. Inflation also may cause the
real estate to appreciate in value. However, inflation and
changing prices may have an adverse impact on the operating
margins of the properties' tenants, which could impair their
ability to pay rent and subsequently reduce the Net Cash Flow
available for distributions.
Liquidity and Capital Resources
TheDuring the three months ended March 31, 2009, the
Company's primary sourcescash balances decreased $65,750 as a result of
distributions paid to the Members in excess of cash are proceedsgenerated
from operating activities. During the salethree months ended March
31, 2008, the Company's cash balances decreased $3,135,405 as a
result of Units,cash used to purchase property and distributions paid
to the Members in excess of cash generated from operating
activities.
Net cash provided by operating activities increased from
$167,845 in 2008 to $182,237 in 2009 as a result of an increase
in total rental and interest income rental incomein 2009 and proceeds
from the sale of property. Its primary uses of cash are
investment in real properties, payment of expenses involved in
the sale of Units, the management of properties, the organization
and administration of the Company, and the payment of
distributions.
The Company generated $406,966 of cash from operations
during the six months ended June 30, 2008, representing net
income of $310,240 and a non-cash expense of $128,954 for
depreciation, which was partially offset by $32,228 in net timing
differences in the collection of payments from the tenants and
the payment of expenses. The Company generated $227,534 of cash
from operations during the six months ended June 30, 2007,
representing net income of $162,341 and a non-cash expense of
$110,168 for depreciation,expenses, which were partially offset by $44,975
of net timing differencesan
increase in the collection of payments from the
tenantsLLC administration and the payment of expenses.property management expenses
in 2009.
The major components of the Company's cash flow from
investing activities are investments in real estate and proceeds
from the sale of real estate. During the sixthree months ended
June
30,March 31, 2008, the Company expended $3,602,642$3,069,656 to invest in real
properties (inclusive of acquisition expenses). On January 31,
2008, as the Company
purchased a 30% interest in a Best Buy store in
Eau Claire, Wisconsin for $2,016,375. Also during the period,
the Company paid $1,586,267, including acquisition expenses, for
the construction of the Dick's Sporting Goods store in
Fredericksburg, Virginia.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
During the six months ended June 30, 2007, the Company did
not purchase any real properties. During the year ended December
31, 2007, the Company expended $4,096,210continued to invest in real
properties (inclusive of acquisition expenses). On August 10,
2007,cash raised from the Company purchased a Starbucks store in Bluffton,
Indiana for $1,150,116. On December 28, 2007, the Company
purchased land in Beavercreek, Ohio for $1,533,655.Unit offering.
On December 17, 2007, the Company purchased a 27% interest
in a parcel of land in Fredericksburg, Virginia for $1,412,439, including
acquisition expenses.$1,374,913.
The Company obtained title to the land in the form of an
undivided fee simple interest in the 27% interest purchased.
Simultaneous with the purchase of the land, the Company entered
into a Project Construction and Development Financing Agreement
under which the Company advanced funds to Silver-Honaker
Development Company, LLC ("Silver") for the construction of a
Dick's Sporting Goods store on the site. DuringThe Company's share of
the offeringtotal acquisition costs, including the cost of Units, the Company'sland, was
$3,126,603. The remaining interests in the property were
purchased by AEI Income & Growth Fund 23 LLC, AEI Income & Growth
Fund 24 LLC and AEI Income & Growth Fund 25 LLC, affiliates of
the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The property is leased to Dick's Sporting Goods, Inc.
under a Lease Agreement with a primary sourceterm of cash flow was from10 years and
initial annual rent of $219,445 for the sale of LLC Units. The Company
commenced the offering of LLC Unitsinterest purchased.
Pursuant to the publicLease, the tenant commenced paying rent on May 8,
2008. Pursuant to the development agreement, for the period from
December 17, 2007 through a
registration statement that became effective October 20, 2005 and
continued until October 19, 2007, when the extended offering
period expired. The Company raised a total of $18,327,360 from
the sale of 1,832,736 Units. From subscription proceeds,May 7, 2008, Silver paid the Company
paid organization and syndication costs (which constituteinterest at a reductionrate of capital) of $2,706,815.
After completion6.75% on the purchase price of the acquisition phase,land and
the amounts advanced for construction of the store. Pursuant to
the Lease, any improvements to the land during the term of the
Lease become the property of the Company.
On January 31, 2008, the Company purchased a 30% interest
in a Best Buy store in Eau Claire, Wisconsin for $2,021,162. The
property is leased to Best Buy Stores, L.P. under a Lease
Agreement with a remaining primary term of 10 years and initial
annual rent of $142,222 for the interest purchased. The
remaining interests in the property were purchased by AEI Income
& Growth Fund XXI Limited Partnership and AEI Income & Growth
Fund 23 LLC, affiliates of the Company.
The Company's primary use of cash flow, other than
investment in real estate, is distribution and redemption
payments to Members. The Company declares its regular quarterly
distributions before the end of each quarter and pays the
distribution in the first weekten days after the end of each quarter.
The Company attempts to maintain a stable distribution rate from
quarter to quarter. Redemption payments are paid to redeeming
Members on a semi-annual basis.
For the sixthree months ended June 30,March 31, 2009 and 2008, and 2007, the
Company declared distributions of $495,975$232,845 and $278,158, respectively,
which were allocated 97% to the$247,987,
respectively. The Limited Members received distributions of
$229,092 and 3% to$240,548 and the Managing Members.
BeginningMembers received
distributions of $3,753 and $7,439 for the periods, respectively.
In 2009, distributions were lower due to a decrease in April 2009, the
distribution rate per Unit, effective January 1, 2009.
The Company may acquire Units from Limited Members who
have tendered their Units to the Company. Such Units may be
acquired at a discount. The Company will not be obligated to
purchase in any year more than 2% of the total number of Units
outstanding on January 1 of such year. In no event shall the
Company be obligated to purchase Units if, in the sole discretion
of the Managing Member, such purchase would impair the capital or
operation of the Company.
UntilThe continuing rent payments from the properties should be
adequate to fund continuing distributions and meet other Company
obligations on both a short-term and long-term basis.
The Economy and Market Conditions
The impact of conditions in the current economy, including
the turmoil in the credit markets, has adversely affected many
real estate companies. However, the absence of mortgage
financing on the Company's properties eliminates the risks of
foreclosure and debt-refinancing that can negatively impact the
value and distributions of leveraged real estate companies.
Nevertheless, a prolonged economic downturn may adversely affect
the operations of the Company's tenants and their cash flows. If
a tenant were to default on its lease obligations, the Company's
income would decrease, its distributions would likely be reduced
and the value of its properties might decline.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Company's plan was to periodically sell properties to
generate capital is investedgains that would be included in properties,the Company's
regular quarterly distributions and to make special distributions
on occasion. Beginning in the fourth quarter of 2008, general
economic conditions caused the volume of property sales to slow
dramatically for all real estate sellers. In 2008, the Company
did not complete any property sales and may have difficulty
completing a property sale in 2009. Until property sales occur,
quarterly distributions going forward will remain extremely liquid. After completionreflect the
distribution of property
acquisitions,net core rental income and capital reserves, if
any. Distribution rates in 2009 are expected to be variable and
less than historical distribution rates until such time as
economic conditions allow the Company will attempt to maintain a cash reserve
of only approximately .5% of subscription proceeds. Becausebegin selling properties
are purchasedat acceptable prices and generating gains for cash and leased under net leases,
this is considered adequate to satisfy most contingencies.distribution.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.required for a smaller reporting company.
ITEM 4T.4. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures.
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing Member of the Company evaluated the effectiveness of
the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")). Based upon that
evaluation, the President and Chief Financial Officer of the
Managing Member concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures
were effective in ensuring that information required to be
disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in applicable rules and forms
and that such information is accumulated and communicated to
management, including the President and Chief Financial Officer
of the Managing Member, in a manner that allows timely decisions
regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting.
During the most recent period covered by this report,
there has been no change in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1.LEGAL1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which
the Company is a party or of which the Company's property is
subject.
ITEM 1A. RISK FACTORS.
Not applicable.required for a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) None.
(b) Not applicable.
(c) Beginning in March 2009, pursuantPursuant to Section 7.7 of the Operating Agreement,
each Limited Member has the right to present Units to the Company
for purchase by submitting notice to the Managing Member during
January or July of each year. The purchase price of the Units is
equal to 85% of the net asset value per Unit, as of the first
business day of January or July of each year, as determined by
the Managing Member in accordance with the provisions of the
Operating Agreement. The purchase price is equal to 100% of the
net asset value per Unit in the case of Units of a deceased
investor, who purchased the Units in the initial offering and who
is a natural person, including Units held by an investor that is
an IRA or other qualified plan for which the deceased person was
the primary beneficiary, or Units held by an investor that is a
grantor trust for which the deceased person was the grantor.
Units tendered to the Company during January and July are
redeemed on April 1st and October 1st, respectively, of each year
subject to the following limitations. The Company will not be
obligated to purchase in any year more than 2% of the total
number of Units outstanding on January 1 of such year. In no
event shall the Company be obligated to purchase Units if, in the
sole discretion of the Managing Member, such purchase would
impair the capital or operation of the Company. During the
period covered by this report, the Company did not purchase any
Units.
ITEM 3.DEFAULTS3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4.SUBMISSION4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NoneNone.
ITEM 5.OTHER5. OTHER INFORMATION.
None.
PART II - OTHER INFORMATION
(Continued)
ITEM 6.EXHIBITS.6. EXHIBITS.
31.1 Certification of Chief Executive Officer of Managing
Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer of Managing
Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Officer of Managing Member pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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.
Dated: August 8, 2008May 12, 2009 AEI Income & Growth Fund 26 LLC
By: AEI Fund Management XXI, Inc.
Its: Managing Member
By: /s/ Robert P Johnson
Robert P. Johnson
President
(Principal Executive Officer)
By: /s/ Patrick W Keene
Patrick W. Keene
Chief Financial Officer
(Principal Accounting Officer)