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: September 30, 1998
Commission file number: 0-16555
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer as Specified in its Charter)
State of Minnesota 41-1571166
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1300 Minnesota World Trade Center, 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 XVI LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Item 1. Balance Sheet as of September 30, 1998 and December 31, 1997
Statements for the Periods ended September 30, 1998 and 1997:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
BALANCE SHEET
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Unaudited)
ASSETS
1998 1997
CURRENT ASSETS:
Cash and Cash Equivalents $ 217,239 $ 835,702
Receivables 2,305 23,306
----------- -----------
Total Current Assets 219,544 859,008
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 3,580,192 3,580,192
Buildings and Equipment 6,457,129 6,457,129
Accumulated Depreciation (2,270,723) (2,120,686)
----------- -----------
7,766,598 7,916,635
Real Estate Held for Sale 199,747 199,747
----------- -----------
Net Investments in Real Estate 7,966,345 8,116,382
----------- -----------
Total Assets $ 8,185,889 $ 8,975,390
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 41,263 $ 60,310
Distributions Payable 138,182 137,297
Deferred Income 44,786 22,212
----------- -----------
Total Current Liabilities 224,231 219,819
----------- -----------
DEFERRED INCOME - Net of Current Portion 183,110 199,769
PARTNERS' CAPITAL (DEFICIT):
General Partners (51,412) (43,639)
Limited Partners, $1,000 Unit value;
15,000 Units authorized and issued;
13,919 Units outstanding 7,829,960 8,599,441
----------- -----------
Total Partners' Capital 7,778,548 8,555,802
----------- -----------
Total Liabilities and Partners' Capital $ 8,185,889 $ 8,975,390
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
Three Months Ended Nine Months Ended
9/30/98 9/30/97 9/30/98 9/30/97
INCOME:
Rent $ 253,830 $ 246,879 $ 765,927 $ 698,703
Investment Income 1,910 14,910 16,608 59,007
--------- --------- --------- ---------
Total Income 255,740 261,789 782,535 757,710
--------- --------- --------- ---------
EXPENSES:
Partnership Administration-
Affiliates 43,113 52,797 158,220 152,813
Partnership Administration
and Property Management -
Unrelated Parties 10,138 23,769 42,113 72,243
Depreciation 49,588 68,129 150,037 204,109
--------- --------- --------- ---------
Total Expenses 102,839 144,695 350,370 429,165
--------- --------- --------- ---------
NET INCOME $ 152,901 $ 117,094 $ 432,165 $ 328,545
========= ========= ========= =========
NET INCOME ALLOCATED:
General Partners $ 1,530 $ 1,171 $ 4,322 $ 3,285
Limited Partners 151,371 115,923 427,843 325,260
--------- --------- --------- ---------
$ 152,901 $ 117,094 $ 432,165 $ 328,545
========= ========= ========= =========
NET INCOME PER
LIMITED PARTNERSHIP UNIT
(13,919 and 13,995 weighted average
Units outstanding in 1998 and 1997,
respectively) $ 10.88 $ 8.28 $ 30.74 $ 23.24
========= ========= ========= =========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 432,165 $ 328,545
Adjustments to Reconcile Net Income
To Net Cash Provided by Operating Activities:
Depreciation 150,037 204,109
Decrease in Receivables 21,001 7,979
Decrease in Payable to
AEI Fund Management, Inc. (19,047) (27,089)
Increase in Security Deposit 0 26,897
Increase in Deferred Income 5,915 5,755
----------- -----------
Total Adjustments 157,906 217,651
----------- -----------
Net Cash Provided By
Operating Activities 590,071 546,196
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate 0 (524,976)
Proceeds from Sale of Real Estate 0 149,202
----------- -----------
Net Cash Used For
Investing Activities 0 (375,774)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Distributions Payable 885 (15,160)
Distributions to Partners (1,209,419) (603,109)
----------- -----------
Net Cash Used For
Financing Activities (1,208,534) (618,269)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (618,463) (447,847)
CASH AND CASH EQUIVALENTS, beginning of period 835,702 645,302
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 217,239 $ 197,455
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 1996 $ (37,794) $ 9,178,141 $ 9,140,347 13,994.70
Distributions (6,031) (597,078) (603,109)
Net Income 3,285 325,260 328,545
--------- ----------- ----------- ----------
BALANCE, September 30, 1997 $ (40,540) $ 8,906,323 $ 8,865,783 13,994.70
========= =========== =========== ==========
BALANCE, December 31, 1997 $ (43,639) $ 8,599,441 $ 8,555,802 13,919.40
Distributions (12,095) (1,197,324) (1,209,419)
Net Income 4,322 427,843 432,165
--------- ----------- ----------- ----------
BALANCE, September 30, 1998 $ (51,412) $ 7,829,960 $ 7,778,548 13,919.40
========= =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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 XVI Limited Partnership (Partnership)
was formed to acquire and lease commercial properties to
operating tenants. The Partnership's operations are managed
by AEI Fund Management XVI, Inc. (AFM), the Managing General
Partner of the Partnership. Robert P. Johnson, the
President and sole shareholder of AFM, serves as the
Individual General Partner of the Partnership. An affiliate
of AFM, AEI Fund Management, Inc. (AEI), 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 6, 1987 when minimum
subscriptions of 2,000 Limited Partnership Units
($2,000,000) were accepted. The Partnership's offering
terminated on November 6, 1987 when the maximum subscription
limit of 15,000 Limited Partnership Units ($15,000,000) was
reached.
Under the terms of the Limited Partnership Agreement, the
Limited Partners and General Partners contributed funds of
$15,000,000 and $1,000, respectively. During the operation
of the Partnership, 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 XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of the Partnership's 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 the Partnership's
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 Partnership
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 the Partnership's 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
contributions.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate -
The Partnership owns a 35% interest in a J.T. McCord's
restaurant in Mesquite, Texas and a 100% interest in a J.T.
McCord's restaurant in Irving, Texas. In December, 1995,
the Partnership took possession of the properties after the
lessee was unable to perform under the terms of the Leases.
In July, 1996, the Partnership entered into an agreement to
sell the J.T. McCord's in Mesquite, Texas to an unrelated
third party. In September, 1996, the Agreement was
terminated by the purchaser. The property was listed for
sale or lease until March, 1997 when it was re-leased to
Texas Sports City Cafe, Ltd. under a triple net lease
agreement with a primary term of 12 years which may be
renewed for up to two consecutive five-year periods. The
Partnership's share of the annual base rent is $17,500 for
the first lease year and $31,500 for the second lease year,
with rent increases in each subsequent lease year of either
three percent of the prior year's rent or three percent of
gross receipts in years two and three and six percent of
gross receipts thereafter, to the extent they exceed the
base rent.
On December 22, 1997, the Partnership sold the J.T. McCord's
restaurant in Irving, Texas to an unrelated third party.
The Partnership received net sales proceeds of $741,635
which resulted in a net loss of $109,144. At the time of
sale, the cost and related accumulated depreciation of the
property was $1,147,333 and $296,554, respectively. While
the properties were being re-leased or sold, the Partnership
was responsible for the real estate taxes and other costs
required to maintain the properties.
The Partnership owns a 55.0958% interest in a restaurant in
Waco, Texas, which was previously closed. In June 1995, the
Partnership re-leased the restaurant to Tex-Mex Cocina of
Waco, L.C. The Lease Agreement had a primary term of
eighteen months with an annual rental payment of $29,752.
The Partnership could also receive additional rent if gross
receipts from the property exceeded certain specified
amounts. In December, 1997, the lessee elected not to
exercise the renewal option in the lease. The restaurant
was closed and is listed for sale or lease. While the
property is vacant, the Partnership is responsible for the
real estate taxes and other costs required to maintain the
property.
As of December 31, 1997, based on an analysis of market
conditions in the area, it was determined the fair value of
the Partnership's interest in the Waco property was
approximately $385,600. In the fourth quarter of 1997, a
charge to operations for real estate impairment of $100,000
was recognized, which is the difference between the book
value at December 31, 1997 of $485,600 and the estimated
fair value of $385,600. The charge was recorded against the
cost of the land and building.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
In January, 1996, the Cheddar's restaurant in Indianapolis,
Indiana was destroyed by a fire. The Partnership reached an
agreement with the tenant and insurance company which calls
for termination of the Lease, demolition of the building and
payment to the Partnership of $407,282 for the building and
equipment and $49,688 for lost rent. The property will not
be rebuilt and the Partnership listed the land for sale.
The Partnership recognized net disposition proceeds of
$406,892 which resulted in a net gain of $88,207. At the
time of disposition, the cost and related accumulated
depreciation was $496,967 and $178,282, respectively. As of
December 31, 1997, based on an analysis of market conditions
in the area, it was determined the fair value of the
Partnership's interest in the land was approximately
$200,000. In the fourth quarter of 1997, a charge to
operations for real estate impairment of $54,000 was
recognized, which is the difference between the book value
at December 31, 1997 of $253,747 and the estimated fair
value of $200,000.
The Partnership owned a 30.8078% interest in a Sizzler
restaurant at the King's Island Theme Park near Cincinnati,
Ohio. In January, 1994, the Partnership closed the
restaurant and listed it for sale or lease. On January 23,
1997, the Partnership sold its interest in the property to
an unrelated third party. The Partnership received net sale
proceeds of $149,201, which resulted in a net loss of
$216,300, which was recognized as a real estate impairment
in the fourth quarter of 1996. Prior to the sale, the
Partnership was responsible for the real estate taxes and
other costs required to maintain the property.
In November, 1997, the Partnership entered into an agreement
to sell the Fuddruckers restaurant in St. Louis, Missouri to
an unrelated third party. In March, 1998, the agreement was
terminated by the purchaser.
In August, 1996, the Partnership entered into an agreement
to purchase a Caribou Coffee store in Atlanta, Georgia. The
property was acquired on August 15, 1997 for $1,247,571.
The property is leased to Caribou Coffee Company, Inc. under
a Lease Agreement with a primary term of 18 years and annual
rental payments of $142,025.
Pursuant to the Partnership Agreement, as amended, net sale
proceeds may be reinvested in additional properties until a
date ten years after the date on which the offer and sale of
Units is terminated. This period expired on November 6,
1997. In February, 1998, the Managing General Partner
proposed an Amendment to the Limited Partnership Agreement
that would allow the Partnership to reinvest the majority of
the sale proceeds from the J.T. McCord's restaurant in
Irving, Texas and subsequent property sales in additional
properties. The proposed Amendment did not receive a
majority vote for adoption.
During the first nine months of 1998 and 1997, the
Partnership distributed $720,416 and $71,631 of the net sale
proceeds to the Limited and General Partners which
represented a return of capital of $51.24 and $5.07 per
Limited Partnership Unit, respectively.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) 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.
(5) Deferred Income -
In June, 1994, Fuddruckers, Inc., the restaurant concept's
franchisor, acquired the operations of the Fuddruckers
restaurants in St. Louis, Missouri and Omaha, Nebraska, and
assumed the lease obligations from the original lessee. As
part of the agreement, the Partnership amended the Leases to
reduce the annual base rent from $109,033 to $92,164 for the
St. Louis property and $167,699 to $145,081 for the Omaha
property. The Partnership could receive additional rent in
the future if 10% of gross receipts from the properties
exceed the base rent. In consideration for the lease
assumption and amendment, the Partnership received a lump
sum payment from the original lessee of $299,723. The lump
sum payment will be recognized as income over the remainder
of the Lease terms which expire January 31, 2008 and
November 30, 2007, using the straight line method. As of
September 30, 1998 and December 31, 1997, the Partnership
has recognized $94,401 and $77,742 of this payment as
income. At September 30, 1998, the remaining deferred
income of $22,574 was prepaid rent related to certain other
Partnership properties.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
For the nine months ended September 30, 1998 and 1997, the
Partnership recognized rental income of $765,927 and $698,703,
respectively. During the same periods, the Partnership earned
investment income of $16,608 and $59,007, respectively. In 1998,
rental income increased as the result of rental income received
from the Caribou Coffee in Atlanta, Georgia, rental income
received from re-leasing the restaurant in Mesquite, Texas and
rent increases on four properties. This increase was offset by a
reduction in rental income due to the vacancy of the restaurant
in Waco, Texas, the expiration of lease guarantee insurance
policies on two properties in 1997, and the reduction of
percentage rent on one property in 1998. The increase in rental
income was offset by a decrease in investment income earned on
the net proceeds prior to the purchase of the additional
property.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The Partnership owns a 35% interest in a J.T. McCord's
restaurant in Mesquite, Texas and a 100% interest in a J.T.
McCord's restaurant in Irving, Texas. In December, 1995, the
Partnership took possession of the properties after the lessee
was unable to perform under the terms of the Leases. In July,
1996, the Partnership entered into an agreement to sell the J.T.
McCord's in Mesquite, Texas to an unrelated third party. In
September, 1996, the Agreement was terminated by the purchaser.
The property was listed for sale or lease until March, 1997 when
it was re-leased to Texas Sports City Cafe, Ltd. under a triple
net lease agreement with a primary term of 12 years which may be
renewed for up to two consecutive five-year periods. The
Partnership's share of the annual base rent is $17,500 for the
first lease year and $31,500 for the second lease year, with rent
increases in each subsequent lease year of either three percent
of the prior year's rent or three percent of gross receipts in
years two and three and six percent of gross receipts thereafter,
to the extent they exceed the base rent. In December, 1997, the
Irving property was sold as discussed below. While the
properties were being re-leased or sold, the Partnership was
responsible for the real estate taxes and other costs required to
maintain the properties.
The Partnership owns a 55.0958% interest in a restaurant
in Waco, Texas, which was previously closed. In June 1995, the
Partnership re-leased the restaurant to Tex-Mex Cocina of Waco,
L.C. The Lease Agreement had a primary term of eighteen months
with an annual rental payment of $29,752. The Partnership could
also receive additional rent if gross receipts from the property
exceeded certain specified amounts. In December, 1997, the
lessee elected not to exercise the renewal option in the lease.
The restaurant was closed and is listed for sale or lease. While
the property is vacant, the Partnership is responsible for the
real estate taxes and other costs required to maintain the
property.
As of December 31, 1997, based on an analysis of market
conditions in the area, it was determined the fair value of the
Partnership's interest in the Waco property was approximately
$385,600. In the fourth quarter of 1997, a charge to operations
for real estate impairment of $100,000 was recognized, which is
the difference between the book value at December 31, 1997 of
$485,600 and the estimated fair value of $385,600. The charge
was recorded against the cost of the land and building.
The Partnership owned a 30.8078% interest in a Sizzler
restaurant at the King's Island Theme Park near Cincinnati, Ohio.
In January, 1994, the Partnership closed the restaurant and
listed it for sale or lease. On January 23, 1997, the
Partnership sold its interest in the property to an unrelated
third party. The Partnership received net sale proceeds of
$149,201, which resulted in a net loss of $216,300, which was
recognized as a real estate impairment in the fourth quarter of
1996. Prior to the sale, the Partnership was responsible for the
real estate taxes and other costs required to maintain the
property.
During the nine months ended September 30, 1998 and 1997,
the Partnership paid Partnership administration expenses to
affiliated parties of $158,220 and $152,813, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and correspondence to the Limited Partners. The
increase in expenses in 1998, when compared to 1997, is due to
expenses incurred in 1998 related to a proxy statement. During
the same periods, the Partnership incurred partnership
administration and property management expenses from unrelated
parties of $42,113 and $72,243, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit and accounting
costs, taxes, insurance and other property costs. The decrease
in expenses in 1998, when compared to 1997, is mainly due to
expenses incurred in 1997 related to the J.T. McCordOs restaurant
in Irving, Texas.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
As of September 30, 1998, the Partnership's annualized
cash distribution rate was 5%, based on the Adjusted Capital
Contribution. Distributions of Net Cash Flow to the General
Partners were subordinated to the Limited Partners as required in
the Partnership Agreement. As a result, 99% of distributions and
income were allocated to Limited Partners and 1% to the General
Partners.
Inflation has had a minimal effect on income from
operations. It is expected that increases in sales volumes of the
tenants, due to inflation and real sales growth, will result in
an increase in rental income over the term of the leases.
Inflation also may cause the Partnership's real estate to
appreciate in value. However, inflation and changing prices may
also have an adverse impact on the operating margins of the
properties' tenants which could impair their ability to pay rent
and subsequently reduce the Partnership's Net Cash Flow available
for distributions.
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. AEI is currently analyzing its
computer hardware and software systems to determine what, if any,
resources need to be dedicated regarding Year 2000 issues. The
Partnership does not anticipate any significant operational
impact or incurring material costs as a result of AEI becoming
Year 2000 compliant.
Liquidity and Capital Resources
During the nine months ended September 30, 1998, the
Partnership's cash balances decreased $618,463 mainly due to the
distribution of $707,071 of net sale proceeds to the Partners as
a special distribution in April, 1998. Net cash provided by
operating activities increased from $546,196 in 1997 to $590,071
in 1998 mainly as a result of an increase in income and a
decrease in expenses in 1998.
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 nine months ended
September 30, 1997, the Partnership generated cash flow from the
sale of real estate of $149,202. During the same period, the
Partnership expended $524,976 to invest in real properties
(inclusive of acquisition expenses), as the Partnership
reinvested cash generated from property sales.
In January, 1996, the Cheddar's restaurant in
Indianapolis, Indiana was destroyed by a fire. The Partnership
reached an agreement with the tenant and insurance company which
calls for termination of the Lease, demolition of the building
and payment to the Partnership of $407,282 for the building and
equipment and $49,688 for lost rent. The property will not be
rebuilt and the Partnership listed the land for sale. The
Partnership recognized net disposition proceeds of $406,892 which
resulted in a net gain of $88,207. At the time of disposition,
the cost and related accumulated depreciation was $496,967 and
$178,282, respectively. As of December 31, 1997, based on an
analysis of market conditions in the area, it was determined the
fair value of the Partnership's interest in the land was
approximately $200,000. In the fourth quarter of 1997, a charge
to operations for real estate impairment of $54,000 was
recognized, which is the difference between the book value at
December 31, 1997 of $253,747 and the estimated fair value of
$200,000.
On December 22, 1997, the Partnership sold the J.T.
McCord's restaurant in Irving, Texas to an unrelated third party.
The Partnership received net sales proceeds of $741,635 which
resulted in a net loss of $109,144. At the time of sale, the
cost and related accumulated depreciation of the property was
$1,147,333 and $296,554, respectively.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
In August, 1996, the Partnership entered into an agreement
to purchase a Caribou Coffee store in Atlanta, Georgia. The
property was acquired on August 15, 1997 for $1,247,571. The
property is leased to Caribou Coffee Company, Inc. under a Lease
Agreement with a primary term of 18 years and annual rental
payments of $142,025.
Pursuant to the Partnership Agreement, as amended, net
sale proceeds may be reinvested in additional properties until a
date ten years after the date on which the offer and sale of
Units is terminated. This period expired on November 6, 1997.
In February, 1998, the Managing General Partner proposed an
Amendment to the Limited Partnership Agreement that would allow
the Partnership to reinvest the majority of the sale proceeds
from the J.T. McCord's restaurant in Irving, Texas and subsequent
property sales in additional properties. The proposed Amendment
did not receive a majority vote for adoption.
During the first nine months of 1998 and 1997, the
Partnership distributed $720,416 and $71,631 of the net sale
proceeds to the Limited and General Partners which represented a
return of capital of $51.24 and $5.07 per Limited Partnership
Unit, respectively.
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 in the fourth quarter of each
year. The redemption payments generally are funded with cash
that would normally be paid as part of the regular quarterly
distributions. As a result, total distributions and
distributions payable have fluctuated from year to year due to
cash used to fund redemption payments. Effective April 1, 1997,
the Partnership's distribution rate was reduced from 6.5% to 6.0%
which resulted in regular distributions to the Partners of
$603,109 for the first nine months of 1997. In April, 1998, the
Partnership distributed net sale proceeds of $707,071 to the
Partners as a special distribution, which reduced the Limited
PartnersO Adjusted Capital Contribution. Effective April 1,
1998, the Partnership made distributions at a 5.0% rate on the
reduced capital balance, which resulted in regular distributions
to the Partners of $502,348 for the first nine months of 1998.
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 October 1, 1998, twenty-seven Limited Partners redeemed
a total of 313.25 Partnership Units for $161,072 in accordance
with the Partnership Agreement. The Partnership acquired these
Units using Net Cash Flow from operations. In prior years, a
total of 101 Limited Partners redeemed 1,080.6 Partnership Units
for $829,400. The redemptions increase the remaining Limited
Partners' ownership interest in the Partnership.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The continuing rent payments from the properties should be
adequate to fund continuing distributions and meet other
Partnership obligations on both a short-term and long-term basis.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
The foregoing 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:
<bullet> Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
<bullet> the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
affects of these consequences for investors;
<bullet> resolution by the General Partners of conflicts with
which they may be confronted;
<bullet> the success of the General Partners of locating
properties with favorable risk return characteristics;
<bullet> the effect of tenant defaults; and
<bullet> the condition of the industries in which the tenants of
properties owned by the Partnership operate.
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.CHANGES IN SECURITIES
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
PART II - OTHER INFORMATION
(Continued)
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5.OTHER INFORMATION
None.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -
Description
27 Financial Data Schedule for period
ended September 30, 1998.
b. Reports filed on Form 8-K -None.
SIGNATURES
In accordance with the requirements of the Exchange Act,
the Registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: November 9, 1998 AEI Real Estate Fund XVI
Limited Partnership
By: AEI Fund Management XVI, Inc.
Its: Managing General Partner
By: /s/ Robert P Johnson
Robert P. Johnson
President
(Principal Executive Officer)
By: /s/ Mark E Larson
Mark E. Larson
Chief Financial Officer
(Principal Accounting Officer)