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, 2006
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 Exchange Act during the past
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
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes No [X]
Transitional Small Business Disclosure Format: Yes No [X]
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Item 1. Statement of Net Assets Available for Liquidation
As of June 30, 2006 and December 31, 2005
Statement of Liquidating Activities for the
Periods ended June 30, 2006
Statements for the Periods ended June 30, 2005:
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
STATEMENT OF NET ASSETS AVAILABLE FOR LIQUIDATION
JUNE 30, 2006 AND DECEMBER 31, 2005
(Unaudited)
2006 2005
ASSETS:
Cash and Cash Equivalents $ 1,001,894 $ 2,637,924
Investments in Real Estate 2,060,000 2,196,000
----------- -----------
Total Assets 3,061,894 4,833,924
----------- -----------
LIABILITIES:
Payable to AEI Fund Management, Inc. 10,482 80,440
Distributions Payable 45,644 1,579,269
Unearned Rent 4,689 0
----------- -----------
Total Liabilities 60,815 1,659,709
----------- -----------
NET ASSETS (PARTNERS' CAPITAL) IN LIQUIDATION,
including 19,557 Limited Partnership
Units outstanding $ 3,001,079 $ 3,174,215
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
STATEMENT OF LIQUIDATING ACTIVITIES
FOR THE PERIODS ENDED JUNE 30, 2006
(Unaudited)
Three Months Six Months
SOURCES OF ADDITIONAL CASH:
Rent $ 38,896 $ 94,847
Interest Income 11,298 22,118
----------- -----------
Total Sources of Additional Cash 50,194 116,965
----------- -----------
USES OF ADDITIONAL CASH:
Partnership Administration - Affiliates 11,679 47,529
Partnership Administration and Property
Management - Unrelated Parties 3,603 11,804
Expenses Related to Sale of Real Estate 0 68,748
Distributions to Partners 45,645 1,624,914
----------- -----------
Total Uses of Additional Cash 60,927 1,752,995
----------- -----------
DECREASE IN NET ASSETS IN LIQUIDATION
BEFORE ADJUSTMENTS (10,733) (1,636,030)
----------- -----------
ADJUSTMENTS OF ESTIMATED VALUES:
Increase (Decrease) in Net Realizable values of:
Real Estate 0 (136,000)
Payable to AEI Fund Management, Inc. (10,463) 69,958
Distributions Payable 1 1,533,625
Unearned Rent (47) (4,689)
----------- -----------
Total Adjustment of Estimated Values (10,509) 1,462,894
----------- -----------
DECREASE IN NET ASSETS IN LIQUIDATION (21,242) (173,136)
BEGINNING NET ASSETS IN LIQUIDATION 3,022,321 3,174,215
----------- -----------
ENDING NET ASSETS IN LIQUIDATION $ 3,001,079 $ 3,001,079
=========== ===========
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, 2005
(Unaudited)
Three Months Six Months
INTEREST INCOME $ 10,594 $ 26,182
INCOME FROM DISCONTINUED OPERATIONS:
Rental Income 135,414 318,813
Partnership Administration - Affiliates (31,891) (66,854)
Partnership Administration and Property
Management - Unrelated Parties (14,158) (24,583)
Depreciation (26,173) (52,346)
Gain on Sale of Real Estate 811,572 2,282,297
----------- -----------
Total Income from Discontinued Operations 874,764 2,457,327
----------- -----------
NET INCOME $ 885,358 $ 2,483,509
=========== ===========
NET INCOME ALLOCATED:
General Partners $ 19,250 $ 40,091
Limited Partners 866,108 2,443,418
----------- -----------
$ 885,358 $ 2,483,509
=========== ===========
INCOME PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ .54 $ 1.33
Discontinued Operations 43.75 123.61
----------- -----------
Total $ 44.29 $ 124.94
=========== ===========
Weighted Average Units Outstanding 19,557 19,557
=========== ===========
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 PERIOD ENDED JUNE 30, 2005
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,483,509
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 52,346
Gain on Sale of Real Estate (2,282,297)
Increase in Payable to
AEI Fund Management, Inc. 12,709
Increase in Unearned Rent 12,276
-----------
Total Adjustments (2,204,966)
-----------
Net Cash Provided By
Operating Activities 278,543
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 5,698,579
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in Distributions Payable (3,144,777)
Distributions to Partners (5,338,772)
Redemption Payments (32,157)
-----------
Net Cash Used For
Financing Activities (8,515,706)
-----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (2,538,584)
CASH AND CASH EQUIVALENTS, beginning of period 4,876,376
-----------
CASH AND CASH EQUIVALENTS, end of period $ 2,337,792
===========
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 PERIOD ENDED JUNE 30, 2005
(Unaudited)
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
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, 2006
(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 called 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)
(2) Organization - (Continued)
In the third quarter of 2006, the Managing General Partner
plans to solicit by mail a proxy statement seeking the
consent of the Limited Partners, as required by Section 6.1
of the Partnership Agreement, to initiate the final
disposition, liquidation and distribution of all of the
Partnership's properties and assets within the next year.
If a majority of the voting Units are voted in favor of the
proposal, the Managing General Partner will proceed with the
planned liquidation of the Partnership. If the Partnership
sells its remaining property in 2006, the Partnership
anticipates liquidation to occur by December 31, 2006.
Financial Statement Presentation
Because liquidation was anticipated, the Partnership
changed its basis of accounting after September 30, 2005,
from the going concern basis to the liquidation basis.
Effective October 1, 2005, the Partnership measures its
assets and liabilities at the amounts of cash expected in
liquidation and reports changes in estimates when they
are known. The accounts of the Partnership are
maintained on the accrual basis of accounting for both
federal income tax purposes and financial reporting
purposes.
(3) Reclassification -
Certain items in the prior year's financial statements have
been reclassified to conform to 2006 presentation. These
reclassifications had no effect on Partners' capital, net
income or cash flows.
(4) Investments in Real Estate -
Effective with the decision to liquidate, the carrying
amounts of assets and liabilities were adjusted from their
historical bases to the amounts of cash expected from their
realization and settlement. Because of the expected short
liquidation period, the effects of discounting would not be
significant and have been ignored. At December 31, 2005,
the estimated real estate values were based upon comparable
sales of similar properties and a tenant purchase option
contained in a lease. The adjustment increased Investments
in Real Estate by $677,365. At March 31, 2006, the
estimated real estate values were based upon comparable
sales of similar properties, which resulted in an additional
adjustment that decreased Investments in Real Estate by
$136,000. At June 30, 2006, the estimated real estate
values were based upon comparable sales of similar
properties, which did not result in an additional
adjustment. It is at least reasonably possible that the
amounts expected to be realized in the liquidation process
will change in the near term.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(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 -
In July 2003, the tenant 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. In November 2004, the Partnership and the tenant
entered into an agreement to amend the Lease to provide the
tenant with options to purchase the property and terminate
the Lease. Under the purchase option, which expires October
31, 2006, the tenant can elect to purchase the Partnership's
interest in the property for $442,000. Under the
termination option, the tenant 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
tenant 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. The tenant has continued to
pay rent and comply with its lease obligations.
On April 30, 2006, the tenant exercised its option to
terminate the lease effective October 31, 2006. The tenant
is required to pay the Partnership a termination payment of
$56,263 prior to that date. The Partnership is actively
marketing the property for sale and has listed it with a
real estate broker in the Austin area. At March 31, 2006,
based on the lease termination and an analysis of market
conditions in the area, the Partnership recognized a
$136,000 adjustment to decrease the estimated net realizable
value of the property to $306,000.
During the first nine months of 2005, the Partnership sold
its remaining 21.3023% interest in the Champps Americana
restaurant in Utica, Michigan, in three separate
transactions, to unrelated third parties. The Partnership
received total net sale proceeds of $1,300,705, which
resulted in a net gain of $616,005. The cost and related
accumulated depreciation of the interests sold was $731,618
and $46,918, respectively. For the six months ended June
30, 2005, the net gain was $488,804.
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.
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
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.
On July 18, 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
$1,253,115, which resulted in a net gain of $583,121. At
the time of sale, the cost and related accumulated
depreciation was $1,159,242 and $489,248, respectively.
During the first quarter 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.
On November 10, 2005, the Partnership sold its remaining
6.5173% interest in the Eckerd drug store to an unrelated
third party. The Partnership received net sale proceeds of
$251,124. The cost and related accumulated depreciation of
the interest sold was $206,753 and $6,048, respectively.
During the fourth quarter of 2005, the Partnership sold its
50% interest in the Johnny Carino's restaurant in Longview,
Texas, in five separate transactions, to unrelated third
parties. On an accrual basis, the Partnership received
total net sale proceeds of $1,631,255. The cost and related
accumulated depreciation of the interests sold was
$1,179,878 and $55,058, respectively. The Partnership
incurred $68,748 of expenses related to the sale of this
property that were not paid until 2006. As a result, the
cash proceeds from these sales were $1,700,003 for the year
ended December 31, 2005.
During the first six months of 2006 and 2005, the
Partnership distributed $37,135 and $5,117,371 of net sale
proceeds to the Limited and General Partners, which
represented a return of capital of $1.88 and $259.04 per
Limited Partnership Unit, respectively.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations - (Continued)
On June 26, 2006, Timber Lodge Steakhouse, Inc. (TLS), the
tenant of the Timber Lodge restaurants filed for Chapter 11
bankruptcy reorganization. With the exception of June 2006,
rents are current and the Partnership expects to continue to
receive all scheduled rents in future months unless the
Lease is rejected by TLS. If the Leases are assumed, TLS
must comply with all Lease terms. If the Leases are
rejected, TLS would be required to return possession of the
properties to the Partnership and the Partnership would be
responsible for real estate taxes and other costs associated
with maintaining the properties. The Partnership has
evaluated the leases and property values and decided that no
adjustment to their net realizable values is necessary at
this time.
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 effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Partnership operate.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Through September 30, 2005, the Partnership purchased
properties and recorded them in the financial statements at the
lower of cost or estimated realizable value. The Partnership
initially recorded the properties at cost (including capitalized
acquisition expenses). The Partnership was required to
periodically evaluate the carrying value of properties to
determine whether their realizable value declined. For
properties the Partnership would hold and operate, management
determined whether impairment occurred by comparing the
property's probability-weighted cash flows to its then current
carrying value. For properties held for sale, management
determined whether impairment occurred by comparing the
property's estimated fair value less cost to sell to its then
current carrying value. If the carrying value was greater than
the realizable value, an impairment loss was recorded to reduce
the carrying value of the property to its realizable value. A
change in these assumptions or analysis may have caused material
changes in the carrying value of the properties.
Effective October 1, 2005, the Partnership adopted the
liquidation basis of accounting because, pending the approval of
the Limited Partners, the General Partners anticipate the
liquidation of the Partnership during 2006. In accordance with
the liquidation basis of accounting, assets are recorded at their
estimated net realizable value (the amount of cash expected to be
received) and liabilities are recorded at the amount estimated to
be paid to creditors and Partners. At June 30, 2006, the
estimated real estate values were based upon comparable sales of
similar properties. Any changes in these estimates could cause
material changes in the net assets in liquidation.
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, 2006 and 2005, while in
the liquidation and operating phases, the Partnership recognized
rental income of $90,158 and $318,813, respectively. During the
same periods, the Partnership recognized interest income of
$22,118 and $26,182, respectively. In 2006, rental income
decreased as a result of property sales.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
For the six months ended June 30, 2006 and 2005, while in
the liquidation and operating phases, the Partnership incurred
Partnership administration expenses from affiliated parties of
$46,319 and $66,854, 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 $11,804 and $24,583, 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. These expenses were
higher in 2005, when compared to 2006, as the result of expenses
incurred in 2005 related to a property that was sold.
At June 30, 2006 and December 31, 2005, the Partnership
recognized adjustments of estimated value of $1,462,894 and
($182,077), respectively, resulting from adopting the liquidation
basis of accounting and recording their assets at estimated net
realizable value and liabilities at the amount estimated to be
paid.
In July 2003, the tenant 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. In November 2004,
the Partnership and the tenant entered into an agreement to amend
the Lease to provide the tenant with options to purchase the
property and terminate the Lease. Under the purchase option,
which expires October 31, 2006, the tenant can elect to purchase
the Partnership's interest in the property for $442,000. Under
the termination option, the tenant 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 tenant 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. The tenant
has continued to pay rent and comply with its lease obligations.
On April 30, 2006, the tenant exercised its option to
terminate the lease effective October 31, 2006. The tenant is
required to pay the Partnership a termination payment of $56,263
prior to that date. The Partnership is actively marketing the
property for sale and has listed it with a real estate broker in
the Austin area. At March 31, 2006, based on the lease
termination and an analysis of market conditions in the area, the
Partnership recognized a $136,000 adjustment to decrease the
estimated net realizable value of the property to $306,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
On June 26, 2006, Timber Lodge Steakhouse, Inc. (TLS), the
tenant of the Timber Lodge restaurants filed for Chapter 11
bankruptcy reorganization. With the exception of June 2006,
rents are current and the Partnership expects to continue to
receive all scheduled rents in future months unless the Lease is
rejected by TLS. If the Leases are assumed, TLS must comply with
all Lease terms. If the Leases are rejected, TLS would be
required to return possession of the properties to the
Partnership and the Partnership would be responsible for real
estate taxes and other costs associated with maintaining the
properties. The Partnership has evaluated the leases and
property values and decided that no adjustment to their net
realizable values is necessary at this time.
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.
Liquidity and Capital Resources
In the third quarter of 2006, the Managing General Partner
plans to solicit by mail a proxy statement seeking the consent of
the Limited Partners, as required by Section 6.1 of the
Partnership Agreement, to initiate the final disposition,
liquidation and distribution of all of the Partnership's
properties and assets within the next year. If a majority of the
voting Units are voted in favor of the proposal, the Managing
General Partner will proceed with the planned liquidation of the
Partnership. If the Partnership sells its remaining property in
2006, the Partnership anticipates liquidation to occur by
December 31, 2006.
During the six months ended June 30, 2006, while in the
liquidation phase, the Partnership's Net Assets in Liquidation
decreased $173,136 mainly as a result of a decrease in the
estimated net realizable value of Investments in Real Estate.
During the six months ended June 30, 2005, while in the operating
phase, 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 first nine months of 2005, the Partnership sold
its remaining 21.3023% interest in the Champps Americana
restaurant in Utica, Michigan, in three separate transactions, to
unrelated third parties. The Partnership received total net sale
proceeds of $1,300,705, which resulted in a net gain of $616,005.
The cost and related accumulated depreciation of the interests
sold was $731,618 and $46,918, respectively. For the six months
ended June 30, 2005, the net gain was $488,804.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
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.
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.
On July 18, 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
$1,253,115, which resulted in a net gain of $583,121. At the
time of sale, the cost and related accumulated depreciation was
$1,159,242 and $489,248, respectively.
During the first quarter 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.
On November 10, 2005, the Partnership sold its remaining
6.5173% interest in the Eckerd drug store to an unrelated third
party. The Partnership received net sale proceeds of $251,124.
The cost and related accumulated depreciation of the interest
sold was $206,753 and $6,048, respectively.
During the fourth quarter of 2005, the Partnership sold
its 50% interest in the Johnny Carino's restaurant in Longview,
Texas, in five separate transactions, to unrelated third parties.
On an accrual basis, the Partnership received total net sale
proceeds of $1,631,255. The cost and related accumulated
depreciation of the interests sold was $1,179,878 and $55,058,
respectively. The Partnership incurred $68,748 of expenses
related to the sale of this property that were not paid until
2006. As a result, the cash proceeds from these sales were
$1,700,003 for the year ended December 31, 2005.
The Partnership's primary use of cash flow 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
For the six months ended June 30, 2006 and 2005, the
Partnership declared distributions of $91,289 and $5,338,772,
respectively, which were distributed 99% to the Limited Partners
and 1% to the General Partners. The Limited Partners received
distributions of $90,376 and $5,285,384 and the General Partners
received distributions of $913 and $53,388 for the periods,
respectively. In March, June, September and December 2005, the
Partnership declared special distributions of $4,040,404,
$1,010,101, $2,020,202 and $1,515,152, respectively, of net sale
proceeds.
During the first six months of 2006 and 2005, the
Partnership distributed $37,135 and $5,117,371 of net sale
proceeds to the Limited and General Partners, which represented a
return of capital of $1.88 and $259.04 per Limited Partnership
Unit, respectively.
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. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a total of
304 Limited Partners redeemed 3,762.7 Partnership Units for
$2,753,267. 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 in
2005.
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.
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.
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 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 4, 2006 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)