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, 1999
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, 1999 and December 31, 1998
Statements for the Periods ended September 30, 1999 and 1998:
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, 1999 AND DECEMBER 31, 1998
(Unaudited)
ASSETS
1999 1998
CURRENT ASSETS:
Cash and Cash Equivalents $ 358,526 $ 78,013
Receivables 19,197 35,703
----------- -----------
Total Current Assets 377,723 113,716
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 3,003,540 3,474,363
Buildings and Equipment 5,698,443 6,341,958
Accumulated Depreciation (2,083,628) (2,320,311)
----------- -----------
6,618,355 7,496,010
Real Estate Held for Sale 174,747 174,747
----------- -----------
Net Investments in Real Estate 6,793,102 7,670,757
----------- -----------
Total Assets $ 7,170,825 $ 7,784,473
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 42,848 $ 64,626
Distributions Payable 130,921 138,384
Deferred Income 13,710 22,212
----------- -----------
Total Current Liabilities 187,479 225,222
----------- -----------
DEFERRED INCOME - Net of Current Portion 85,214 177,557
PARTNERS' CAPITAL (DEFICIT):
General Partners (60,216) (55,381)
Limited Partners, $1,000 Unit value;
15,000 Units authorized and issued;
13,606 outstanding 6,958,348 7,437,075
----------- -----------
Total Partners' Capital 6,898,132 7,381,694
----------- -----------
Total Liabilities and Partners' Capital $ 7,170,825 $ 7,784,473
=========== ===========
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
9/30/99 9/30/98 9/30/99 9/30/98
INCOME:
Rent $ 234,474 $ 253,830 $ 841,627 $ 765,927
Investment Income 3,757 1,910 8,025 16,608
--------- --------- --------- ---------
Total Income 238,231 255,740 849,652 782,535
--------- --------- --------- ---------
EXPENSES:
Partnership Administration-
Affiliates 43,706 43,113 140,929 158,220
Partnership Administration
and Property Management -
Unrelated Parties 5,471 10,138 24,524 42,113
Depreciation 44,498 49,588 139,688 150,037
--------- --------- --------- ---------
Total Expenses 93,675 102,839 305,141 350,370
--------- --------- --------- ---------
OPERATING INCOME 144,556 152,901 544,511 432,165
GAIN ON SALE OF REAL ESTATE 0 0 183,775 0
--------- --------- --------- ---------
NET INCOME $ 144,556 $ 152,901 $ 728,286 $ 432,165
========= ========= ========= =========
NET INCOME ALLOCATED:
General Partners $ 1,446 $ 1,530 $ 7,283 $ 4,322
Limited Partners 143,110 151,371 721,003 427,843
--------- --------- --------- ---------
$ 144,556 $ 152,901 $ 728,286 $ 432,165
========= ========= ========= =========
NET INCOME PER
LIMITED PARTNERSHIP UNIT
(13,606 and 13,919 weighted
average Units outstanding
in 1999 and 1998,
respectively) $ 10.52 $ 10.88 $ 52.99 $ 30.74
========= ========= ========= =========
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)
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 728,286 $ 432,165
Adjustments to Reconcile Net Income
To Net Cash Provided by Operating Activities:
Depreciation 139,688 150,037
Gain on Sale of Real Estate (183,775)
Decrease in Receivables 16,506 21,001
Decrease in Payable to
AEI Fund Management, Inc. (21,778) (19,047)
Increase (Decrease)in Deferred Income (100,845) 5,915
----------- -----------
Total Adjustments (150,204) 157,906
----------- -----------
Net Cash Provided By
Operating Activities 578,082 590,071
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 921,742 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Distributions Payable (7,463) 885
Distributions to Partners (1,211,848) (1,209,419)
----------- -----------
Net Cash Used For
Financing Activities (1,219,311) (1,208,534)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 280,513 (618,463)
CASH AND CASH EQUIVALENTS, beginning of period 78,013 835,702
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 358,526 $ 217,239
=========== ===========
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, 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
======== =========== =========== ===========
BALANCE, December 31, 1998 $(55,381) $ 7,437,075 $ 7,381,694 13,606.15
Distributions (12,118) (1,199,730) (1,211,848)
Net Income 7,283 721,003 728,286
-------- ----------- ----------- -----------
BALANCE, September 30, 1999 $(60,216) $ 6,958,348 $ 6,898,132 13,606.15
======== =========== =========== ===========
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, 1999
(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 owned 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.
In December, 1997, the lessee elected not to exercise the
renewal option in the lease. The restaurant was closed and
listed for sale or lease. While the property was vacant,
the Partnership was 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. In December, 1998, the
Partnership re-analyzed the market conditions in the area
and determined the fair value of the Partnership's interest
declined to approximately $154,300. In the fourth quarter
of 1998, a charge to operations for real estate impairment
of $221,000 was recognized, which is the difference between
book value at December 31, 1998 of $375,300 and the
estimated fair value of $154,300. The charge was recorded
against the cost of the land and building.
In March, 1999, the Partnership entered into an agreement to
sell the Waco property to an unrelated third party. On May
10, 1999, the sale closed with the Partnership receiving net
sale proceeds of $158,131 which resulted in a net gain of
$5,441. At the time of sale, the cost and related
accumulated depreciation was $353,285 and $200,595,
respectively.
In December, 1998, Gulf Coast Restaurants, Inc. (GCR), the
lessee of the Applebee's restaurant in Slidell, Louisiana,
filed for reorganization. GCR is continuing to make the
lease payments to the Partnership under the supervision of
the bankruptcy court while they develop a reorganization
plan. If the Lease is assumed, GCR must comply with all
Lease terms and any unpaid rent must be paid. If the Lease
is rejected, GCR will be required to return possession of
the property to the Partnership and past due amounts will be
dismissed and the Partnership will be responsible for re-
leasing the property. At September 30, 1999, GCR owed
$19,197 for rent due prior to the date of the filing for
reorganization. An analysis of the operating statements of
this property indicate that it is generating profits and it
is management's belief that the Lease will be assumed by
GCR.
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 called
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. 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. In December, 1998, the Partnership re-
analyzed the market conditions in the area and determined
the fair value of the Partnership's interest in the land
declined to approximately $175,000. In the fourth quarter
of 1998, a charge to operations for real estate impairment
of $25,000 was recognized, which is the difference between
the book value at December 31, 1998 of $200,000 and the
estimated fair value of $175,000.
In February, 1999, the Partnership entered into an agreement
to sell the Fuddruckers restaurant in St. Louis, Missouri to
an unrelated third party. On June 16, 1999, the sale closed
with the Partnership receiving net sale proceeds of $763,611
which resulted in a net gain of $178,334. At the time of
sale, the cost and related accumulated depreciation was
$761,053 and $175,776, respectively.
During the first three months of 1998, the Partnership
distributed $13,345 of net sale proceeds to the Limited and
General Partners as a part of their regular quarterly
distributions, which represented a return of capital of
$0.95 per Limited Partnership Unit. In April, 1998, the
Partnership distributed $707,071 of net sale proceeds to the
Limited and General Partners, which represented a return of
capital of $50.29 per Limited Partnership Unit. In June,
1999, the Partnership distributed $757,576 of net sale
proceeds to the Limited and General Partners, which
represented a return of capital of $55.12 per Limited
Partnership Unit.
(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.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(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 base rent from the current annual rent of
$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 lump sum payments from the original
lessee of $140,184 for the St. Louis property and $159,539
for the Omaha property. The lump sum payments will be
recognized as income over the remainder of the Lease terms
which expire January 31, 2008 and November 30, 2007,
respectively, using the straight line method.
As of March 31, 1999 and December 31, 1998, the Partnership
had recognized $49,020 and $46,440 of the payment for the
St. Louis property as income. On June 16, 1999, the
Partnership sold the St. Louis property and the Lease
Agreement was terminated. As a result, the Partnership
recognized the balance of the deferred income related to
that property of $91,164 in the second quarter of 1999.
As of September 30, 1999 and December 31, 1998, the
Partnership had recognized $62,433 and $53,514 of the
payment for the Omaha property as income. At September 30,
1999, the remaining deferred income of $1,818 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, 1999 and 1998, the
Partnership recognized rental income of $841,627 and $765,927,
respectively. During the same periods, the Partnership earned
investment income of $8,025 and $16,608, respectively. In 1999,
rental income increased as the result of deferred income
recognized as a result of the sale of the Fuddruckers restaurant
discussed below. In 1998, investment income was higher as sale
proceeds received in December, 1997 were invested in short-term
investments until they were distributed to the Partners in April,
1998.
The Partnership owned 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. In December, 1997, the
lessee elected not to exercise the renewal option in the lease.
The restaurant was closed and listed for sale or lease. While
the property was vacant, the Partnership was responsible for the
real estate taxes and other costs required to maintain the
property.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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. In
December, 1998, the Partnership re-analyzed the market conditions
in the area and determined the fair value of the Partnership's
interest declined to approximately $154,300. In the fourth
quarter of 1998, a charge to operations for real estate
impairment of $221,000 was recognized, which is the difference
between book value at December 31, 1998 of $375,300 and the
estimated fair value of $154,300. The charge was recorded
against the cost of the land and building.
In March, 1999, the Partnership entered into an agreement
to sell the Waco property to an unrelated third party. On May
10, 1999, the sale closed with the Partnership receiving net sale
proceeds of $158,131 which resulted in a net gain of $5,441. At
the time of sale, the cost and related accumulated depreciation
was $353,285 and $200,595, respectively.
In December, 1998, Gulf Coast Restaurants, Inc. (GCR), the
lessee of the Applebee's restaurant in Slidell, Louisiana, filed
for reorganization. GCR is continuing to make the lease payments
to the Partnership under the supervision of the bankruptcy court
while they develop a reorganization plan. If the Lease is
assumed, GCR must comply with all Lease terms and any unpaid rent
must be paid. If the Lease is rejected, GCR will be required to
return possession of the property to the Partnership and past due
amounts will be dismissed and the Partnership will be responsible
for re-leasing the property. At September 30, 1999, GCR owed
$19,197 for rent due prior to the date of the filing for
reorganization. An analysis of the operating statements of this
property indicate that it is generating profits and it is
management's belief that the Lease will be assumed by GCR.
During the nine months ended September 30, 1999 and 1998,
the Partnership paid Partnership administration expenses to
affiliated parties of $140,929 and $158,220, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and correspondence to the Limited Partners. During
the same periods, the Partnership incurred partnership
administration and property management expenses from unrelated
parties of $24,524 and $42,113, 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 1999, when compared to 1998, is the result of
expenses incurred in 1998 related to a proxy statement and the
Waco property.
As of September 30, 1999, 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.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The Year 2000 issue is the result of computer systems that
use two digits rather than four to define the applicable year,
which may prevent such systems from accurately processing dates
ending in the Year 2000 and beyond. This could result in
computer system failures or disruption of operations, including,
but not limited to, an inability to process transactions, to send
or receive electronic data, or to engage in routine business
activities.
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. In 1998, AEI completed an
assessment of its computer hardware and software systems and has
replaced or upgraded certain computer hardware and software using
the assistance of outside vendors. AEI has received written
assurance from the equipment and software manufacturers as to
Year 2000 compliance. The costs associated with Year 2000
compliance have not been, and are not expected to be, material.
The Partnership intends to monitor and communicate with
tenants regarding Year 2000 compliance, although there can be no
assurance that the systems of the various tenants will be Year
2000 compliant.
Liquidity and Capital Resources
During the nine months ended September 30, 1999, the
Partnership's cash balances increased $280,513 mainly as a result
of cash generated from the sale of two properties. Net cash
provided by operating activities decreased from $590,071 in 1998
to $578,082 in 1999 mainly as a result of net timing differences
in the collection of payments from the lessees and the payment of
expenses which were partially offset by an increase in income and
a decrease in expenses in 1999.
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
called 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. 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. In December, 1998, the
Partnership re-analyzed the market conditions in the area and
determined the fair value of the Partnership's interest in the
land declined to approximately $175,000. In the fourth quarter
of 1998, a charge to operations for real estate impairment of
$25,000 was recognized, which is the difference between the book
value at December 31, 1998 of $200,000 and the estimated fair
value of $175,000.
In February, 1999, the Partnership entered into an
agreement to sell the Fuddruckers restaurant in St. Louis,
Missouri to an unrelated third party. On June 16, 1999, the sale
closed with the Partnership receiving net sale proceeds of
$763,611 which resulted in a net gain of $178,334. At the time
of sale, the cost and related accumulated depreciation was
$761,053 and $175,776, respectively.
In June, 1994, the Partnership received a lump sum payment
of $140,184 as compensation for certain modifications made to the
St. Louis Fuddruckers Lease. The lump sum payment was recognized
as income over the Lease term using the straight line method. As
a result of the sale, the Lease Agreement was terminated and the
Partnership recognized the balance of the deferred income of
$91,164 in the second quarter of 1999.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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.
During the first three months of 1998, the Partnership
distributed $13,345 of net sale proceeds to the Limited and
General Partners as a part of their regular quarterly
distributions, which represented a return of capital of $0.95
per Limited Partnership Unit. In April, 1998, the Partnership
distributed $707,071 of net sale proceeds to the Limited and
General Partners, which represented a return of capital of
$50.29 per Limited Partnership Unit. In June, 1999, the
Partnership distributed $757,576 of net sale proceeds to the
Limited and General Partners, which represented a return of
capital of $55.12 per Limited Partnership Unit.
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 numbers 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, 1999, twenty-one Limited Partners redeemed a
total of 138 Partnership Units for $60,581 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a total of
128 Limited Partners redeemed 1,393.85 Partnership Units for
$990,472. The redemptions increase the remaining Limited
Partners' ownership interest in the Partnership.
The continuing rent payments from the properties, together
with cash generated from the property sales, should be adequate
to fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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.
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 AND REPORTS ON FORM 8-K
a. Exhibits -
Description
10.1 Purchase Agreement dated March 24,
1999 between the Partnership, AEI Real
Estate Fund XV Limited Partnership and
Tom Salome relating to the property at
1812 North Valley Mills Drive, Waco,
Texas (incorporated by reference to
Exhibit 10.1 of Form 10-QSB filed with
the Commission on July 30, 1999).
10.2 Purchase Agreement dated February 4,
1999 between the Partnership, AEI Real
Estate Fund XV Limited Partnership and
Elizabeth Cockrum relating to the
property at 2175 Barrett Station Road,
St. Louis, Missouri (incorporated by
reference to Exhibit 10.1 of Form 8-K
filed with the Commission on June 21,
1999).
10.3 Amendment to Purchase Agreement
dated May 19, 1999 between the
Partnership, AEI Real Estate Fund XV
Limited Partnership and Elizabeth Cockrum
relating to the property at 2175 Barrett
Station Road, St. Louis, Missouri
(incorporated by reference to Exhibit
10.2 of Form 8-K filed with the
Commission on June 21, 1999).
27 Financial Data Schedule for period
ended September 30, 1999.
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 8, 1999 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)