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: SeptemberJune 30, 20092010
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 (unaudited):Statements:
Balance Sheet as of SeptemberJune 30, 20092010 and December 31, 20082009
Statements for the Periods ended SeptemberJune 30, 20092010 and 2008:2009:
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 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. 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
SEPTEMBERJUNE 30, 20092010 AND DECEMBER 31, 20082009
ASSETS
2010 2009 2008
CURRENT ASSETS:
Cash $ 402,741341,417 $ 388,653
Receivables 0 2,283
----------- -----------
Total Current Assets 402,741 390,936
----------- -----------375,652
INVESTMENTS IN REAL ESTATE:
Land 5,294,367 5,294,3675,991,984 5,991,984
Buildings and Equipment 7,851,416 7,851,4169,384,552 9,384,552
Accumulated Depreciation (732,729) (497,187)
----------- -----------
12,413,054 12,648,596
Real Estate Held for Sale 2,126,435 2,126,435(1,225,905) (1,038,213)
----------- -----------
Net Investments in Real Estate 14,539,489 14,775,03114,150,631 14,338,323
----------- -----------
Total Assets $14,942,230 $15,165,967$14,492,048 $14,713,975
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 19,86319,588 $ 28,01522,391
Distributions Payable 236,083 236,177 247,987
Unearned Rent 50,27134,100 25,796
----------- -----------
Total Current Liabilities 306,311 301,798289,771 284,364
----------- -----------
MEMBERS' EQUITY (DEFICIT):
Managing Members (25,332) (21,717)(38,341) (31,521)
Limited Members, $10 per Unit;
10,000,000 Units authorized; 1,832,736 Units issuedissued;
1,827,736 and 1,832,736 Units outstanding 14,661,251 14,885,886in
2010 and 2009, respectively 14,240,618 14,461,132
----------- -----------
Total Members' Equity 14,635,919 14,864,16914,202,277 14,429,611
----------- -----------
Total Liabilities and Members' Equity $14,942,230 $15,165,967$14,492,048 $14,713,975
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 26 LLC
STATEMENT OF INCOME
FOR THE PERIODS ENDED SEPTEMBERJUNE 30
Three Months Ended NineSix Months Ended
9/6/30/10 6/30/09 9/6/30/08 9/10 6/30/09 9/30/08
RENTAL INCOME $ 234,549285,715 $ 231,923289,549 $ 704,857571,431 $ 607,014572,640
EXPENSES:
LLC Administration - Affiliates 39,679 42,557 124,174 128,83541,672 39,543 83,086 84,495
LLC Administration and Property
Management - Unrelated Parties 3,755 6,127 20,452 24,5097,919 7,421 17,544 19,343
Depreciation 93,846 78,514 78,455 235,542 207,409187,692 157,028
---------- ---------- ---------- ----------
Total Expenses 121,948 127,139 380,168 360,753143,437 125,478 288,322 260,866
---------- ---------- ---------- ----------
OPERATING INCOME 112,601 104,784 324,689 246,261142,278 164,071 283,109 311,774
OTHER INCOME:
Interest Income 632 1,525 1,845 73,549
---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS 113,233 106,309 326,534 319,810
Income from Discontinued
Operations 50,729 50,161 150,415 146,900557 546 1,224 1,213
---------- ---------- ---------- ----------
NET INCOME $ 163,962142,835 $ 156,470164,617 $ 476,949284,333 $ 466,710312,987
========== ========== ========== ==========
NET INCOME ALLOCATED:
Managing Members $ 4,9184,285 $ 4,6944,939 $ 14,3088,530 $ 14,0019,390
Limited Members 159,044 151,776 462,641 452,709138,550 159,678 275,803 303,597
---------- ---------- ---------- ----------
$ 163,962142,835 $ 156,470164,617 $ 476,949284,333 $ 466,710312,987
========== ========== ========== ==========
NET INCOME PER LLC UNIT:
Continuing OperationsUNIT $ .06 $ .06 $ .17 $ .17
Discontinued Operations .03 .02 .08 .08
---------- ---------- ---------- ----------
Total $ .09 $ .08.15 $ .25 $ .25.17
========== ========== ========== ==========
Weighted Average Units Outstanding -
Basic and Diluted 1,827,736 1,832,736 1,832,736 1,832,7361,830,236 1,832,736
========== ========== ========== ==========
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 NINESIX MONTHS ENDED SEPTEMBERJUNE 30
2010 2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 476,949284,333 $ 466,710312,987
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 235,542 207,409
Decrease187,692 157,028
Increase in Receivables 2,283 4,1020 (45,549)
Decrease in Payable to
AEI Fund Management, Inc. (8,152) (82,347)(2,803) (13,155)
Increase (Decrease) in Unearned Rent 24,475 12,6238,304 (10,198)
----------- -----------
Total Adjustments 254,148 141,787193,193 88,126
----------- -----------
Net Cash Provided By
Operating Activities 731,097 608,497
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate 0 (3,725,773)477,526 401,113
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions Paid to Members (717,009) (729,570)(472,354) (480,832)
Redemption Payments (39,407) 0
----------- -----------
Net Cash Used For
Financing Activities (511,761) (480,832)
----------- -----------
NET INCREASE (DECREASE)DECREASE IN CASH 14,088 (3,846,846)(34,235) (79,719)
CASH, beginning of period 375,652 388,653 4,249,562
----------- -----------
CASH, end of period $ 402,741341,417 $ 402,716308,934
=========== ===========
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 NINESIX MONTHS ENDED SEPTEMBERJUNE 30
Limited
Member
Managing Limited Units
Members Members Total Outstanding
BALANCE, December 31, 20072008 $ (9,975) $15,265,564 $15,255,589(21,717) $14,885,886 $14,864,169 1,832,736.0
Distributions Declared (22,318) (721,644) (743,962)(10,838) (458,184) (469,022)
Net Income 14,001 452,709 466,710
--------9,390 303,597 312,987
--------- ----------- ----------- -----------
BALANCE, SeptemberJune 30, 2008 $(18,292) $14,996,629 $14,978,3372009 $ (23,165) $14,731,299 $14,708,134 1,832,736.0
================= =========== =========== ===========
BALANCE, December 31, 2008 $(21,717) $14,885,886 $14,864,1692009 $ (31,521) $14,461,132 $14,429,611 1,832,736.0
Distributions Declared (17,923) (687,276) (705,199)(14,168) (458,092) (472,260)
Redemption Payments (1,182) (38,225) (39,407) (5,000.0)
Net Income 14,308 462,641 476,949
--------8,530 275,803 284,333
--------- ----------- ----------- -----------
BALANCE, SeptemberJune 30, 2009 $(25,332) $14,661,251 $14,635,919 1,832,736.0
========2010 $ (38,341) $14,240,618 $14,202,277 1,827,736.0
========= =========== =========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20092010
(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-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 called 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.
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.
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
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) Investments in Real EstateReclassification -
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 landCertain items 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 fundsprior period's financial statements
have been reclassified to Silver-Honaker Development Company, LLC ("Silver") for
the construction of a Dick's Sporting Goods storeconform to 2010 presentation.
These reclassifications had no effect on the
site. The Company's share of the total acquisition costs,
including the cost of the land, 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.
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 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 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.Members' capital,
net income or cash flows.
(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.
(5) Discontinued Operations -
The Company is attempting to sell the Sports Authority store
in Wichita, Kansas. At September 30, 2009 and December 31,
2008, the property was classified as Real Estate Held for
Sale with a carrying 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 periods ended September 30:
Three Months Ended Nine Months Ended
9/30/09 9/30/08 9/30/09 9/30/08
Rental Income $ 51,167 $ 51,167 $ 153,499 $ 153,499
Property Management Expenses (438) (1,006) (3,084) (6,599)
-------- -------- --------- ---------
Income from Discontinued
Operations $ 50,729 $ 50,161 $ 150,415 $ 146,900
======== ======== ========= =========
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Fair Value Measurements -
The Company adopted new guidance for measuring financial
assets and liabilities at fair value on a recurring basis on
January 1, 2008 and for certain nonfinancial assets and
liabilities on January 1, 2009. TheAs of June 30, 2010, the Company has no assets or
liabilities measured at fair value on a recurring basis or
nonrecurring basis that would require disclosure under
this new guidance.
(7) Subsequent Events -
The Company has evaluated subsequent events through November
10, 2009, the date which the financial statements were
available to be issued. Subsequent events, if any, were
disclosed in the appropriate note in the Notes to Financial
Statements.basis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
This section contains "forward-looking statements" 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, should 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.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Prior to January 1, 2009, the Company purchased properties
and recorded them in the financial statements at cost (including
capitalized acquisition expenses). For acquisitions completed on
or after January 1, 2009, acquisition-related transaction costs
will be expensed as incurred as a result of the Company adopting
new guidance on business combinations that expands the scope of
acquisition accounting. 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-
weighted future undiscounted 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 ninesix months ended SeptemberJune 30, 20092010 and 2008,2009, the
Company recognized rental income from continuing operations of $704,857$571,431 and $607,014,$572,640,
respectively. In 2009, rental income
increased due to additional rent received from two property
acquisitions in 2008, a rent increase on one property and
contingent rent, based on store sales, received from one
property.
For the ninesix months ended SeptemberJune 30, 20092010 and 2008,2009, the
Company incurred LLC administration expenses from affiliated
parties of $124,174$83,086 and $128,835,$84,495, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and communicating with the Limited Members. During
the same periods, the Company incurred LLC administration and
property management expenses from unrelated parties of $20,452$17,544
and $24,509,$19,343, 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.
For the ninesix months ended SeptemberJune 30, 2010 and 2009,
depreciation expense was $187,692 and 2008,$157,028, respectively.
The increase was due to the Company reclassifying the Sports
Authority store in Wichita, Kansas from held-for-sale status to
held-for-use status during the fourth quarter of 2009.
For the six months ended June 30, 2010 and 2009, the
Company recognized interest income of $1,845$1,224 and $73,549,$1,213,
respectively. In 2009 interest income decreased 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 $52,033 of interest income on
construction advances in 2008.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
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 nine months ended September 30, 2009 and
2008, the Company recognized income from discontinued operations
of $150,415 and $146,900, respectively, representing rental
income less property management expenses.
The Company is attempting to sell the Sports Authority
store in Wichita, Kansas. At September 30, 2009 and December 31,
2008, the property was classified as Real Estate Held for Sale
with a carrying value of $2,126,435.
Management believes inflation has not 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. 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Liquidity and Capital Resources
During the ninesix months ended SeptemberJune 30, 2010, the Company's
cash balances decreased $34,235 as a result of distributions and
redemption payments paid to the Members in excess of cash
generated from operating activities. During the six months ended
June 30, 2009, the Company's cash balances increased $14,088decreased $79,719 as a
result of cash
generated from operating activities in excess of distributions
paid to the Members. During the nine months ended September 30,
2008, the Company's cash balances decreased $3,846,846 as a
result of 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
$608,497$401,113 in 20082009 to $731,097$477,526 in 20092010 as a result of an increase
in total rental and interest income in 2009, a decrease in
LLC administration and property management expenses in 20092010 and
net timing differences in the collection of payments from the
tenants and the payment of expenses.
The major components of the Company's cash flow from
investing activities are investmentsexpenses, which were partially offset
by a decrease in real estatetotal rental and proceeds
from the sale of real estate. During the nine months ended
September 30, 2008, the Company expended $3,725,773 to investinterest income in real properties (inclusive of acquisition expenses) as the
Company continued to invest cash raised from the Unit offering.
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. The Company's share of
the total acquisition costs, including the cost of the land, 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 term of 10 years and
initial annual rent of $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 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.2010.
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 ten daysweek 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 ninesix months ended SeptemberJune 30, 20092010 and 2008,2009, the
Company declared distributions of $705,199$472,260 and $743,962,$469,022,
respectively. The Limited Members received distributions of
$687,276$458,092 and $721,644$458,184 and the Managing Members received
distributions of $17,923$14,168 and $22,318$10,838 for the periods,
respectively. In 2009, distributions were lower due to a
decrease in 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.
On April 1, 2010, one Limited Member redeemed a total of
5,000 Units for $38,225 in accordance with the Operating
Agreement. The Company acquired these Units using Net Cash Flow
from operations. During 2009, the Company did not redeem any
Units from the Limited Members. The redemptions increase the
remaining Limited Member's ownership interest in the Company. As
a result of this redemption payment and pursuant to the Operating
Agreement, the Managing Members received distributions of $1,182
in 2010.
The 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
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.investment funds. 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.investment
funds. 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 wasis to periodically sell properties to
generate capital gains that would be included in 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. InDuring 2008, 2009 and
2010, the Company did not complete any property sales and may have difficulty
completing a property sale in 2009.sales. Until
property sales occur,such time as economic conditions allow the Company to begin
selling properties at attractive prices, quarterly distributions going forward
will reflect the distribution of net core rental income and
capital reserves, if any. Distribution rates in 20092010 are
expected to be variable and
less than historicalconsistent with distribution rates until such time as
economic conditions allow the Company to begin selling properties
at acceptable prices and generating gains for distribution.in 2009.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for a smaller reporting company.
ITEM 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. 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 required for a smaller reporting company.
PART II - OTHER INFORMATION
(Continued)
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) None.
(b) Not applicable.
(c) Pursuant 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.
DuringSmall Business Issuer Purchases of Equity Securities
Maximum Number
Total Number of of Units that
Units Purchased May Yet Be
Total Number Average as Part of Purchased Under
of Units Price Paid Publicly Announced the period coveredPlans
Period Purchased per Unit Plans or Programs or Programs
4/1/10 to 4/30/10 5,000.0 $7.65 5,000.0 (1) (2)
5/1/10 to 5/31/10 -- -- -- --
6/1/10 to 6/30/10 -- -- -- --
(1) The Company's repurchase plan is mandated by this report, the Company did not purchase anyOperating
Agreement as included in the prospectus related to the original
offering of the Units.
(2) The Operating Agreement contains annual limitations on
repurchases described in the paragraph above and has no
expiration date.
PART II - OTHER INFORMATION
(Continued)
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 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: November 10, 2009August 11, 2010 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/ PATRICKWPATRICK W KEENE
Patrick W. Keene
Chief Financial Officer
(Principal Accounting Officer)