UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For the Quarter Ended: June 30, 2005
Commission file number: 0-17467
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer as Specified in its Charter)
State of Minnesota 41-1603719
(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
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.
Yes [X] No
Transitional Small Business Disclosure Format:
Yes No [X]
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
INDEX
PART I.Financial Information
Item 1. Balance Sheet as of June 30, 2005 and December 31, 2004
Statements for the Periods ended June 30, 2005 and 2004:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
Item 3. Controls and Procedures
PART II.Other Information
Item 1. Legal Proceedings
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 REAL ESTATE FUND XVII LIMITED PARTNERSHIP
BALANCE SHEET
JUNE 30, 2005 AND DECEMBER 31, 2004
(Unaudited)
ASSETS
2005 2004
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,337,792 $ 4,876,376
INVESTMENTS IN REAL ESTATE:
Land 924,320 1,206,850
Buildings and Equipment 2,084,688 2,961,400
Accumulated Depreciation (332,583) (783,080)
----------- -----------
2,676,425 3,385,170
Real Estate Held for Sale 1,000,621 3,760,504
----------- -----------
Net Investments in Real Estate 3,677,046 7,145,674
----------- -----------
Total Assets $ 6,014,838 $12,022,050
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 76,112 $ 63,403
Distributions Payable 1,116,801 4,261,578
Unearned Rent 12,276 0
----------- -----------
Total Current Liabilities 1,205,189 4,324,981
----------- -----------
PARTNERS' CAPITAL:
General Partners 22,669 36,287
Limited Partners, $1,000 per Unit;
30,000 Units authorized; 23,389 Units issued;
19,557 and 19,626 Units outstanding in
2005 and 2004, respectively 4,786,980 7,660,782
----------- -----------
Total Partners' Capital 4,809,649 7,697,069
----------- -----------
Total Liabilities and Partners' Capital $ 6,014,838 $12,022,050
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
Three Months Ended Six Months Ended
6/30/05 6/30/04 6/30/05 6/30/04
RENTAL INCOME $ 77,166 $ 76,073 $ 154,334 $ 152,148
EXPENSES:
Partnership Administration -
Affiliates 31,891 48,178 66,854 98,565
Partnership Administration
and Property Management -
Unrelated Parties 5,923 14,082 16,203 25,955
Depreciation 19,375 19,375 38,750 38,750
---------- ---------- ---------- ----------
Total Expenses 57,189 81,635 121,807 163,270
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) 19,977 (5,562) 32,527 (11,122)
OTHER INCOME:
Interest Income 10,594 10,507 26,182 17,142
---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS 30,571 4,945 58,709 6,020
Income from Discontinued
Operations 854,787 2,504,040 2,424,800 2,760,916
---------- ---------- ---------- ----------
NET INCOME $ 885,358 $2,508,985 $2,483,509 $2,766,936
========== ========== ========== ==========
NET INCOME ALLOCATED:
General Partners $ 19,250 $ 25,089 $ 40,091 $ 27,669
Limited Partners 866,108 2,483,896 2,443,418 2,739,267
---------- ---------- ---------- ----------
$ 885,358 $2,508,985 $2,483,509 $2,766,936
========== ========== ========== ==========
INCOME PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ .57 $ .25 $ 2.97 $ .31
Discontinued Operations 43.72 125.86 121.97 138.51
---------- ---------- ---------- ----------
Total $ 44.29 $ 126.11 $ 124.94 $ 138.82
========== ========== ========== ==========
Weighted Average Units
Outstanding 19,557 19,696 19,557 19,732
========== ========== ========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30
(Unaudited)
2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,483,509 $ 2,766,936
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 52,346 127,393
Gain on Sale of Real Estate (2,282,297) (2,317,016)
Increase (Decrease) in Payable to
AEI Fund Management, Inc. 12,709 (2,648)
Increase in Unearned Rent 12,276 29,240
----------- -----------
Total Adjustments (2,204,966) (2,163,031)
----------- -----------
Net Cash Provided By
Operating Activities 278,543 603,905
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate 0 (1,952,879)
Proceeds from Sale of Real Estate 5,698,579 4,068,109
----------- -----------
Net Cash Provided By
Investing Activities 5,698,579 2,115,230
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Distributions Payable (3,144,777) 226,575
Distributions to Partners (5,338,772) (1,095,041)
Redemption Payments (32,157) (173,730)
----------- -----------
Net Cash Used For
Financing Activities (8,515,706) (1,042,196)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,538,584) 1,676,939
CASH AND CASH EQUIVALENTS, beginning of period 4,876,376 2,980,144
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,337,792 $ 4,657,083
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2003 $ 16,201 $12,521,603 $12,537,804 19,941.50
Distributions (10,951) (1,084,090) (1,095,041)
Redemption Payments (1,737) (171,993) (173,730) (246.00)
Net Income 27,669 2,739,267 2,766,936
-------- ----------- ----------- -----------
BALANCE, June 30, 2004 $ 31,182 $14,004,787 $14,035,969 19,695.50
======== =========== =========== ===========
BALANCE, December 31, 2004 $ 36,287 $ 7,660,782 $ 7,697,069 19,626.00
Distributions (53,388) (5,285,384) (5,338,772)
Redemption Payments (321) (31,836) (32,157) (69.00)
Net Income 40,091 2,443,418 2,483,509
-------- ----------- ----------- -----------
BALANCE, June 30, 2005 $ 22,669 $ 4,786,980 $ 4,809,649 19,557.00
======== =========== =========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2005
(Unaudited)
(1) The condensed statements included herein have been prepared
by the Partnership, 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 Partnership
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
Partnership's latest annual report on Form 10-KSB.
(2) Organization -
AEI Real Estate Fund XVII Limited Partnership (Partnership)
was formed to acquire and lease commercial properties to
operating tenants. The Partnership's operations are managed
by AEI Fund Management XVII, Inc. (AFM), the Managing
General Partner. Robert P. Johnson, the President and sole
director of AFM, serves as the Individual General Partner.
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 Partnership.
The terms of the Partnership offering call for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. The Partnership
commenced operations on February 10, l988 when minimum
subscriptions of 2,000 Limited Partnership Units
($2,000,000) were accepted. The offering terminated on
November 1, 1988 when the one-year offering period expired.
The Partnership received subscriptions for 23,388.7 Limited
Partnership Units. Under the terms of the Limited
Partnership Agreement, the Limited Partners and General
Partners contributed funds of $23,388,700 and $1,000,
respectively.
During operations, any Net Cash Flow, as defined, which the
General Partners determine to distribute will be distributed
90% to the Limited Partners and 10% to the General Partners;
provided, however, that such distributions to the General
Partners will be subordinated to the Limited Partners first
receiving an annual, noncumulative distribution of Net Cash
Flow equal to 10% of their Adjusted Capital Contribution, as
defined, and, provided further, that in no event will the
General Partners receive less than 1% of such Net Cash Flow
per annum. Distributions to Limited Partners will be made
pro rata by Units.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the General Partners determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Partners and 1% to the General Partners until the
Limited Partners receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to 6%
of their Adjusted Capital Contribution per annum, cumulative
but not compounded, to the extent not previously distributed
from Net Cash Flow; (ii) next, 99% to the Limited Partners
and 1% to the General Partners until the Limited Partners
receive an amount equal to 14% of their Adjusted Capital
Contribution per annum, cumulative but not compounded, to
the extent not previously distributed; (iii) next, to the
General Partners until cumulative distributions to the
General Partners under Items (ii) and (iii) equal 15% of
cumulative distributions to all Partners under Items (ii)
and (iii). Any remaining balance will be distributed 85% to
the Limited Partners and 15% to the General Partners.
Distributions to the Limited Partners 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 first in the same ratio in which, and to the
extent, Net Cash Flow is distributed to the Partners for
such year. Any additional profits will be allocated 90% to
the Limited Partners and 10% to the General Partners. In the
event no Net Cash Flow is distributed to the Limited
Partners, 90% of each item of income, gain or credit for
each respective year shall be allocated to the Limited
Partners, and 10% of each such item shall be allocated to
the General Partners. Net losses from operations will be
allocated 98% to the Limited Partners and 2% to the General
Partners.
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Partnership Agreement as follows: (i)
first, to those partners with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Partners
and 1% to the General Partners until the aggregate balance
in the Limited Partners' capital accounts equals the sum of
the Limited Partners' Adjusted Capital Contributions plus an
amount equal to 14% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, to the General Partners
until cumulative allocations to the General Partners equal
15% of cumulative allocations. Any remaining balance will
be allocated 85% to the Limited Partners and 15% to the
General Partners. Losses will be allocated 98% to the
Limited Partners and 2% to the General Partners.
The General Partners are not required to currently fund a
deficit capital balance. Upon liquidation of the
Partnership or withdrawal by a General Partner, the General
Partners will contribute to the Partnership an amount equal
to the lesser of the deficit balances in their capital
accounts or 1% of total Limited Partners' and General
Partners' capital contribution.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Reclassification -
Certain items in the prior year's financial statements have
been reclassified to conform to 2005 presentation. These
reclassifications had no effect on Partners' capital, net
income or cash flows.
(4) Investments in Real Estate -
In July 2003, the lessee of the Razzoo's restaurant in
Austin, Texas notified the Partnership that it was
experiencing financial difficulty stemming from lower than
expected sales and that it might not be able to pay future
rents. However, rents are current. In November 2004, the
Partnership and the lessee entered into an agreement to
amend the Lease to provide the lessee with options to
purchase the property and terminate the Lease. Under the
purchase option, which expires October 31, 2006, the lessee
can elect to purchase the Partnership's interest in the
property for $442,000. Under the termination option, the
lessee can elect to terminate the Lease by providing no less
than six months prior written notice and paying a
termination payment equal to one year's rent. The lease
cannot be terminated prior to October 31, 2006. As part of
this agreement, the Partnership received a personal
guarantee from the majority shareholder of the lessee for
payment of the rent through October 31, 2006. In addition,
the Partnership was reimbursed for certain expenses it
incurred related to legal action it pursued in connection
with this situation.
(5) Payable to AEI Fund Management -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Partnership. 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) Discontinued Operations -
On December 23, 2003, the Partnership entered into an
agreement to sell its 75% interest in the Jiffy Lube
automotive center in Dallas, Texas, to an unrelated third
party. In the fourth quarter of 2003, a charge to
operations for real estate impairment of $60,454 was
recognized, which was the difference between book value at
December 31, 2003 of $300,454 and the estimated net sale
proceeds of $240,000. The charge was recorded against the
cost of the land and building. On February 23, 2004, the
sale closed with the Partnership receiving net sale proceeds
of $242,485, which resulted in a net gain of $2,485.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations - (Continued)
In January 2004, the Partnership entered into an agreement
to sell the Children's World daycare center in Palatine,
Illinois to an unrelated third party. On April 20, 2004,
the sale closed with the Partnership receiving net sale
proceeds of $1,298,032, which resulted in a net gain of
$839,357. At December 31, 2003, the property was classified
as Real Estate Held for Sale with a book value of $458,675.
In February 2004, the Partnership entered into an agreement
to sell the Cheddar's restaurant in Davenport, Iowa to an
unrelated third party. On April 27, 2004, the sale closed
with the Partnership receiving net sale proceeds of
$2,527,592, which resulted in a net gain of $1,475,174. At
December 31, 2003, the property was classified as Real
Estate Held for Sale with a book value of $1,052,418.
In September 2004, the Partnership entered into an agreement
to sell the Children's World daycare center in Chino,
California to an unrelated third party. On September 30,
2004, the sale closed with the Partnership receiving net
sale proceeds of $1,631,193, which resulted in a net gain of
$839,787. At the time of sale, the cost and related
accumulated depreciation was $1,305,518 and $514,112,
respectively.
On April 30, 2004, the Partnership purchased an Applebee's
restaurant in Ashland, Ohio for $1,959,272. The property is
leased to Apple Ohio LLC under a Lease Agreement with a
primary term of 20 years and annual rental payments of
$149,066.
On October 19, 2004, the Partnership sold the Applebee's
restaurant in Ashland, Ohio to an unrelated third party.
The Partnership received net sale proceeds of $2,290,043,
which resulted in a net gain of $345,057. At the time of
sale, the cost and related accumulated depreciation was
$1,959,272 and $14,286, respectively.
On December 30, 2004, the Partnership sold 6.6977% of the
Champps Americana restaurant in Utica, Michigan to an
unrelated third party. The Partnership received net sale
proceeds of $411,252, which resulted in a net gain of
$195,974. The cost and related accumulated depreciation of
the interest sold was $230,029 and $14,751, respectively.
During the first six months of 2005, the Partnership sold an
additional 16.8372% of the Champps Americana restaurant, in
two separate transactions, to unrelated third parties. The
Partnership received total net sale proceeds of $1,029,987,
which resulted in a net gain of $488,804. The cost and
related accumulated depreciation of the interests sold was
$578,266 and $37,083, respectively. The Partnership is
attempting to sell its remaining 4.4651% interest in the
property. At June 30, 2005 and December 31, 2004, the
property was classified as Real Estate Held for Sale with a
book value of $143,517 and $684,700, respectively.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations - (Continued)
During the first six months of 2005, the Partnership sold
43.4827% of the Eckerd drug store in Cicero, New York, in
two separate transactions, to unrelated third parties. The
Partnership received total net sale proceeds of $1,667,361,
which resulted in a net gain of $328,279. The cost and
related accumulated depreciation of the interests sold was
$1,379,430 and $40,348, respectively. The Partnership is
attempting to sell its remaining 6.5173% interest in the
property. At June 30, 2005 and December 31, 2004, the
property was classified as Real Estate Held for Sale with a
book value of $200,705 and $1,539,787, respectively.
During the first six months of 2005, the Partnership sold
its 50% interest in the Johnny Carino's restaurant in
Mansfield, Texas, in four separate transactions, to
unrelated third parties. The Partnership received total net
sale proceeds of $1,460,795, which resulted in a net gain of
$464,329. The cost and related accumulated depreciation of
the interests sold was $1,028,885 and $32,419, respectively.
At December 31, 2004, the property was classified as Real
Estate Held for Sale with a book value of $996,466.
During the first six months of 2005, the Partnership sold
the Children's World daycare center in St. Louis, Missouri,
in four separate transactions, to unrelated third parties.
The Partnership received total net sale proceeds of
$1,540,436, which resulted in a net gain of $1,000,885. The
cost and related accumulated depreciation of the interests
sold was $950,627 and $411,076, respectively. At December
31, 2004, the property was classified as Real Estate Held
for Sale with a book value of $539,551.
Subsequent to June 30, 2005, the Partnership sold the
Children's World daycare center in Merrimack, New Hampshire
to an unrelated third party. The Partnership received net
sale proceeds of approximately $1,252,700, which resulted in
a net gain of approximately $582,700. The cost and related
accumulated depreciation at the time of sale was $1,159,242
and $489,248, respectively. At June 30, 2005, the property
was classified as Real Estate Held for Sale with a book
value of $669,994.
During the first six months of 2005 and 2004, the
Partnership distributed $5,117,371 and $676,312 of net sale
proceeds to the Limited and General Partners, which
represented a return of capital of $259.04 and $33.99 per
Limited Partnership Unit, respectively.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations - (Continued)
The financial results for these properties are reflected as
Discontinued Operations in the accompanying financial
statements. The following are the results of discontinued
operations for the periods ended June 30:
Three Months Ended Six Months Ended
6/30/05 6/30/04 6/30/05 6/30/04
Rental Income $ 58,248 $ 239,972 $ 164,479 $ 539,528
Property Management Expenses (8,235) (3,293) (8,380) (6,985)
Depreciation (6,798) (47,170) (13,596) (88,643)
Gain on Disposal of Real Estate 811,572 2,314,531 2,282,297 2,317,016
---------- ---------- ---------- ----------
Income from Discontinued
Operations $ 854,787 $2,504,040 $2,424,800 $2,760,916
========== ========== ========== ==========
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS
The Management's Discussion and Analysis 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, taxation levels, the sufficiency of
cash to meet operating expenses, rates of distribution, and other
matters. These, and other forward looking statements made by the
Partnership, must be evaluated in the context of a number of
factors that may affect the Partnership's financial condition and
results of operations, including the following:
Market and economic conditions which affect the value
of the properties the Partnership 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
affects of these consequences for the Partners;
resolution by the General Partners of conflicts with
which they may be confronted;
the success of the General Partners 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 Partnership operate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Application of Critical Accounting Policies
The preparation of the Partnership'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 Partnership as opposed to other funds they
manage.
The Partnership purchases properties and records them in
the financial statements at the lower of cost or estimated
realizable value. The Partnership initially records the
properties at cost (including capitalized acquisition expenses).
The Partnership is required to periodically evaluate the carrying
value of properties to determine whether their realizable value
has declined. For properties the Partnership will hold and
operate, management determines whether impairment has occurred by
comparing the property's probability-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. A change
in these assumptions or analysis could cause material changes in
the carrying value of the properties.
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 Partnership reimburses these expenses subject
to detailed limitations contained in the Partnership Agreement.
Management of the Partnership has discussed the
development and selection of the above accounting estimates and
the management discussion and analysis disclosures regarding them
with the managing partner of the Partnership.
Results of Operations
For the six months ended June 30, 2005 and 2004, the
Partnership recognized rental income from continuing operations
of $154,334 and $152,148, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
For the six months ended June 30, 2005 and 2004, the
Partnership incurred Partnership administration expenses from
affiliated parties of $66,854 and $98,565, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and correspondence to the Limited Partners. As the
Partnership's asset base decreases due to property sales, it is
allocated a smaller share of expenses that are allocated by AEI
Fund Management, Inc. based on the relative assets of the funds
under management. During the same periods, the Partnership
incurred Partnership administration and property management
expenses from unrelated parties of $16,203 and $25,955,
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.
In July 2003, the lessee of the Razzoo's restaurant in
Austin, Texas notified the Partnership that it was experiencing
financial difficulty stemming from lower than expected sales and
that it might not be able to pay future rents. However, rents
are current. In November 2004, the Partnership and the lessee
entered into an agreement to amend the Lease to provide the
lessee with options to purchase the property and terminate the
Lease. Under the purchase option, which expires October 31,
2006, the lessee can elect to purchase the Partnership's interest
in the property for $442,000. Under the termination option, the
lessee can elect to terminate the Lease by providing no less than
six months prior written notice and paying a termination payment
equal to one year's rent. The lease cannot be terminated prior
to October 31, 2006. As part of this agreement, the Partnership
received a personal guarantee from the majority shareholder of
the lessee for payment of the rent through October 31, 2006. In
addition, the Partnership was reimbursed for certain expenses it
incurred related to legal action it pursued in connection with
this situation.
For the six months ended June 30, 2005 and 2004, the
Partnership recognized interest income of $26,182 and $17,142,
respectively. In 2005, interest income increased due to higher
money market interest rates in 2005.
In accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, upon complete disposal of a property or
classification of a property as Real Estate Held for Sale, the
Partnership includes the operating results and sale of the
property in discontinued operations. In addition, the
Partnership reclassifies the prior periods operating results and
any partial sales of the property to discontinued operations.
For the six months ended June 30, 2005, the Partnership
recognized income from discontinued operations of $2,424,800,
representing rental income less property management expenses of
$142,503 and gain on disposal of real estate of $2,282,297. For
the six months ended June 30, 2004, the Partnership recognized
income from discontinued operations of $2,760,916, representing
rental income less property management expenses of $443,900 and
gain on disposal of real estate of $2,317,016.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
On December 23, 2003, the Partnership entered into an
agreement to sell its 75% interest in the Jiffy Lube automotive
center in Dallas, Texas, to an unrelated third party. In the
fourth quarter of 2003, a charge to operations for real estate
impairment of $60,454 was recognized, which was the difference
between book value at December 31, 2003 of $300,454 and the
estimated net sale proceeds of $240,000. The charge was recorded
against the cost of the land and building. On February 23, 2004,
the sale closed with the Partnership receiving net sale proceeds
of $242,485, which resulted in a net gain of $2,485.
In January 2004, the Partnership entered into an agreement
to sell the Children's World daycare center in Palatine, Illinois
to an unrelated third party. On April 20, 2004, the sale closed
with the Partnership receiving net sale proceeds of $1,298,032,
which resulted in a net gain of $839,357. At December 31, 2003,
the property was classified as Real Estate Held for Sale with a
book value of $458,675.
In February 2004, the Partnership entered into an
agreement to sell the Cheddar's restaurant in Davenport, Iowa to
an unrelated third party. On April 27, 2004, the sale closed
with the Partnership receiving net sale proceeds of $2,527,592,
which resulted in a net gain of $1,475,174. At December 31,
2003, the property was classified as Real Estate Held for Sale
with a book value of $1,052,418.
In September 2004, the Partnership entered into an
agreement to sell the Children's World daycare center in Chino,
California to an unrelated third party. On September 30, 2004,
the sale closed with the Partnership receiving net sale proceeds
of $1,631,193, which resulted in a net gain of $839,787. At the
time of sale, the cost and related accumulated depreciation was
$1,305,518 and $514,112, respectively.
On October 19, 2004, the Partnership sold the Applebee's
restaurant in Ashland, Ohio to an unrelated third party. The
Partnership received net sale proceeds of $2,290,043, which
resulted in a net gain of $345,057. At the time of sale, the
cost and related accumulated depreciation was $1,959,272 and
$14,286, respectively.
On December 30, 2004, the Partnership sold 6.6977% of the
Champps Americana restaurant in Utica, Michigan to an unrelated
third party. The Partnership received net sale proceeds of
$411,252, which resulted in a net gain of $195,974. The cost and
related accumulated depreciation of the interest sold was
$230,029 and $14,751, respectively.
During the first six months of 2005, the Partnership sold
an additional 16.8372% of the Champps Americana restaurant, in
two separate transactions, to unrelated third parties. The
Partnership received total net sale proceeds of $1,029,987, which
resulted in a net gain of $488,804. The cost and related
accumulated depreciation of the interests sold was $578,266 and
$37,083, respectively. The Partnership is attempting to sell its
remaining 4.4651% interest in the property. At June 30, 2005 and
December 31, 2004, the property was classified as Real Estate
Held for Sale with a book value of $143,517 and $684,700,
respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
During the first six months of 2005, the Partnership sold
43.4827% of the Eckerd drug store in Cicero, New York, in two
separate transactions, to unrelated third parties. The
Partnership received total net sale proceeds of $1,667,361, which
resulted in a net gain of $328,279. The cost and related
accumulated depreciation of the interests sold was $1,379,430 and
$40,348, respectively. The Partnership is attempting to sell its
remaining 6.5173% interest in the property. At June 30, 2005 and
December 31, 2004, the property was classified as Real Estate
Held for Sale with a book value of $200,705 and $1,539,787,
respectively.
During the first six months of 2005, the Partnership sold
its 50% interest in the Johnny Carino's restaurant in Mansfield,
Texas, in four separate transactions, to unrelated third parties.
The Partnership received total net sale proceeds of $1,460,795,
which resulted in a net gain of $464,329. The cost and related
accumulated depreciation of the interests sold was $1,028,885 and
$32,419, respectively. At December 31, 2004, the property was
classified as Real Estate Held for Sale with a book value of
$996,466.
During the first six months of 2005, the Partnership sold
the Children's World daycare center in St. Louis, Missouri, in
four separate transactions, to unrelated third parties. The
Partnership received total net sale proceeds of $1,540,436, which
resulted in a net gain of $1,000,885. The cost and related
accumulated depreciation of the interests sold was $950,627 and
$411,076, respectively. At December 31, 2004, the property was
classified as Real Estate Held for Sale with a book value of
$539,551.
Subsequent to June 30, 2005, the Partnership sold the
Children's World daycare center in Merrimack, New Hampshire to an
unrelated third party. The Partnership received net sale
proceeds of approximately $1,252,700, which resulted in a net
gain of approximately $582,700. The cost and related accumulated
depreciation at the time of sale was $1,159,242 and $489,248,
respectively. At June 30, 2005, the property was classified as
Real Estate Held for Sale with a book value of $669,994.
In the third quarter of 2004, the Partnership decided to
discontinue the reinvestment of proceeds from property sales in
additional properties and to take the initial steps toward
liquidating the Partnership. As a result, the Partnership's
rental income and operating income will decrease in the future as
the Partnership sells its remaining properties. It is too early
to estimate when the liquidation process will be completed.
Inflation has had a minimal effect on 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 Partnership 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Liquidity and Capital Resources
During the six months ended June 30, 2005, the
Partnership's cash balances decreased $2,538,584 as a result of
distributions paid to the Partners in excess of cash generated
from operating and investing activities. During the six months
ended June 30, 2004, the Partnership's cash balances increased
$1,676,939 as a result of cash generated from the sale of
property, which was partially offset by cash used to purchase
property and distributions paid to the Partners in excess of cash
generated from operating activities.
Net cash provided by operating activities decreased from
$603,905 in 2004 to $278,543 in 2005 due to a decrease in total
rental and interest income in 2005 and net timing differences in
the collection of payments from lessees and the payment of
expenses, which were partially offset by a decrease in
Partnership administration and property management expenses in
2005.
The major components of the Partnership's cash flow from
investing activities are investments in real estate and proceeds
from the sale of real estate. During the six months ended June
30, 2005 and 2004, the Partnership generated cash flow from the
sale of real estate of $5,698,579 and $4,068,109, respectively.
During the six months ended June 30, 2004, the Partnership
expended $1,952,879 to invest in real properties (inclusive of
acquisition expenses) as the Partnership reinvested cash
generated from property sales.
On April 30, 2004, the Partnership purchased an Applebee's
restaurant in Ashland, Ohio for $1,959,272. The property is
leased to Apple Ohio LLC under a Lease Agreement with a primary
term of 20 years and annual rental payments of $149,066.
The Partnership's primary use of cash flow, other than
investment in real estate, is distribution and redemption
payments to Partners. The Partnership declares its regular
quarterly distributions before the end of each quarter and pays
the distribution in the first week after the end of each quarter.
The Partnership attempts to maintain a stable distribution rate
from quarter to quarter. Redemption payments are paid to
redeeming Partners on a quarterly basis.
For the six months ended June 30, 2005 and 2004, the
Partnership declared distributions of $5,338,772 and $1,095,041,
respectively, which were distributed 99% to the Limited Partners
and 1% to the General Partners. The Limited Partners received
distributions of $5,285,384 and $1,084,090 and the General
Partners received distributions of $53,388 and $10,951 for the
periods, respectively. In June 2004, the Partnership declared a
special distribution of $505,051 of net sale proceeds. In March
and June 2005, the Partnership declared special distributions of
$4,040,404 and $1,010,101, respectively, of net sale proceeds,
which resulted in higher distributions in 2005.
During the first six months of 2005 and 2004, the
Partnership distributed $5,117,371 and $676,312 of net sale
proceeds to the Limited and General Partners, which represented a
return of capital of $259.04 and $33.99 per Limited Partnership
Unit, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Partnership may acquire Units from Limited Partners
who have tendered their Units to the Partnership. Such Units may
be acquired at a discount. The Partnership is not obligated to
purchase in any year more than 5% of the number of Units
outstanding at the beginning of the year. In no event shall the
Partnership be obligated to purchase Units if, in the sole
discretion of the Managing General Partner, such purchase would
impair the capital or operation of the Partnership.
On January 1, 2005, six Limited Partners redeemed a total
of 69 Partnership Units for $31,836 in accordance with the
Partnership Agreement. During the first six months of 2004, 17
Limited Partners redeemed a total of 246 Partnership Units for
$171,993. The Partnership acquired these Units using Net Cash
Flow from operations. In prior years, a total of 274 Limited
Partners redeemed 3,447.2 Partnership Units for $2,533,136. The
redemptions increase the remaining Limited Partners' ownership
interest in the Partnership. As a result of these redemption
payments and pursuant to the Partnership Agreement, the General
Partners received distributions of $321 and $1,737 in 2005 and
2004, respectively.
The continuing rent payments from the properties, together
with cash generated from property sales, should be adequate to
fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
ITEM 3. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing General Partner of the Partnership evaluated the
effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-14(c) under the
Exchange Act). Based upon that evaluation, the President and
Chief Financial Officer of the Managing General Partner concluded
that, as of the end of the period covered by this report, the
disclosure controls and procedures of the Partnership are
adequately designed to ensure that information required to be
disclosed by us in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in applicable rules and forms.
(b) Changes in internal controls
There were no significant changes made in the
Partnership's internal controls during the most recent period
covered by this report that have materially affected, or are
reasonably likely to materially affect, the Partnership's
internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
There are no material pending legal proceedings to which
the Partnership is a party or of which the Partnership's
property is subject.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
(a) During the period covered by this report, the
Partnership did not sell any equity securities that are not
registered under the Securities Act of 1933.
(b) Not applicable.
(c) Pursuant to Section 7.7 of the Partnership Agreement,
as amended, each Limited Partner has the right to present Units
to the Partnership for purchase by submitting notice to the
Managing General Partner. The purchase price of the Units is
equal to 90% of the net asset value of the Units as determined by
the Managing General Partner in accordance with the provisions of
the Partnership Agreement. Units tendered to the Partnership are
redeemed at the purchase price established for the quarter in
which the Partnership received a notice at least 60 days prior to
the repurchase dates of January 1st, April 1st, July 1st and
October 1st subject to the following limitations. The
Partnership is not obligated to purchase in any year more than 5%
of the number of Units outstanding at the beginning of the year.
In no event shall the Partnership be obligated to purchase Units
if, in the sole discretion of the Managing General Partner, such
purchase would impair the capital or operation of the
Partnership. During the period covered by this report, the
Partnership did not purchase any Units.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5.OTHER INFORMATION
None.
PART II - OTHER INFORMATION
(Continued)
ITEM 6.EXHIBITS
Description
10.1 Purchase Agreement dated May 8, 2005 between the
Partnership and Joan T. Simpson relating to the Property at
325 Daniel Webster Highway, Merrimack, New Hampshire
(incorporated by reference to Exhibit 10.1 of Form 8-K filed
July 21, 2005).
31.1 Certification of Chief Executive Officer of General
Partner 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 General
Partner 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 General Partner pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: August 5, 2005 AEI Real Estate Fund XVII
Limited Partnership
By: AEI Fund Management XVII, Inc.
Its: Managing General Partner
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)