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: March 31, 2003
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
Page
PART I. FINANCIAL INFORMATION
Item 1. Balance Sheet as of March 31, 2003
and December 31, 2002 3
Statements for the Periods ended
March 31, 2003 and 2002:
Income 4
Cash Flows 5
Changes in Partners' Capital 6
Notes to Financial Statements 7 - 11
Item 2. Management's Discussion and Analysis 11 - 15
Item 3. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a
Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
Certifications 17 -18
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
BALANCE SHEET
MARCH 31, 2003 AND DECEMBER 31, 2002
(Unaudited)
ASSETS
2003 2002
CURRENT ASSETS:
Cash and Cash Equivalents $1,343,397 $ 503,979
Receivables 0 9,242
-------- --------
Total Current Assets 1,343,397 513,221
-------- --------
INVESTMENTS IN REAL ESTATE:
Land 774,799 1,091,754
Buildings and Equipment 2,286,196 2,776,970
Accumulated Depreciation (1,398,203) (1,704,551)
-------- --------
1,662,792 2,164,173
Real Estate Held for Sale 0 357,560
-------- --------
Net Investments in Real Estate 1,662,792 2,521,733
-------- --------
Total Assets $3,006,189 $3,034,954
========= =========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 27,722 $ 58,418
Distributions Payable 614,280 109,228
Deferred Income 14,983 13,983
-------- ---------
Total Current Liabilities 656,985 181,629
-------- ---------
DEFERRED INCOME - Net of Current Portion 43,592 46,565
PARTNERS' CAPITAL (DEFICIT):
General Partners 0 0
Limited Partners, $1,000 Unit value;
15,000 Units authorized and issued;
13,195 Units outstanding 2,305,612 2,806,760
--------- ---------
Total Partners' Capital 2,305,612 2,806,760
--------- ---------
Total Liabilities and
Partners' Capital $ 3,006,189 $ 3,034,954
========= =========
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 MARCH 31
(Unaudited)
2003 2002
INCOME:
Rent $ 129,174 $ 105,984
Investment Income 1,434 3,578
-------- --------
Total Income 130,608 109,562
-------- --------
EXPENSES:
Partnership Administration - Affiliates 29,015 56,594
Partnership Administration and Property
Management - Unrelated Parties 12,252 24,158
Depreciation 17,736 28,259
Real Estate Impairment 0 106,745
-------- --------
Total Expenses 59,003 215,756
-------- --------
OPERATING INCOME (LOSS) 71,605 (106,194)
GAIN ON SALE OF REAL ESTATE 52,771 59,273
-------- --------
NET INCOME (LOSS) $ 124,376 $(46,921)
======== ========
NET INCOME (LOSS) ALLOCATED:
General Partners $ 6,255 $ (938)
Limited Partners 118,121 (45,983)
-------- --------
$ 124,376 $ (46,921)
========= =========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT
(13,195 and 13,265 weighted average
Units outstanding in 2003 and 2002,
respectively) $ 8.95 $ (3.47)
========= =========
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 MARCH 31
(Unaudited)
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 124,376 $ (46,921)
Adjustments to Reconcile Net Income
To Net Cash Provided by Operating Activities:
Depreciation 17,736 28,259
Real Estate Impairment 0 106,745
Gain on Sale of Real Estate (52,771) (59,273)
Decrease in Receivables 9,242 16,716
Decrease in Payable to
AEI Fund Management, Inc. (30,696) (34,417)
Decrease in Deferred Income (1,973) (19,005)
--------- ---------
Total Adjustments (58,462) 39,025
--------- ---------
Net Cash Provided By (Used For)
Operating Activities 65,914 (7,896)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 893,976 59,273
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Distribution Payable 505,052 0
Distributions to Partners (625,524) (140,777)
--------- ---------
Net Cash Used For
Financing Activities (120,472) (140,777)
--------- ---------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 839,418 (89,400)
CASH AND CASH EQUIVALENTS,
beginning of period 503,979 1,102,307
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $1,343,397 $1,012,907
========= =========
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 MARCH 31
(Unaudited)
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2001 $ (42,383) $4,586,868 $4,544,485 13,264.85
Distributions (1,408) (139,369) (140,777)
Net Loss (938) (45,983) (46,921)
--------- --------- --------- ---------
BALANCE, March 31, 2002 $ (44,729) $4,401,516 $4,356,787 13,264.85
========= ========= ========= =========
BALANCE, December 31, 2002 $ 0 $2,806,760 $2,806,760 13,195.18
Distributions (6,255) (619,269) (625,524)
Net Income 6,255 118,121 124,376
--------- --------- --------- ---------
BALANCE, March 31, 2003 $ 0 $2,305,612 $2,305,612 13,195.18
========= ========= ========= =========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
(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. Robert P. Johnson, the President and sole
shareholder of AFM, serves as the Individual General Partner
and 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 offering terminated on
November 6, 1987 when the maximum subscription limit of
15,000 Limited Partnership Units 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 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 XVI 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
contributions.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) INVESTMENTS IN REAL ESTATE -
In November 2000, the Partnership sold 9,576 square feet of
land from the Fuddruckers' property in Omaha, Nebraska,
pursuant to a Right-Of-Way Agreement with the City of Omaha
Public Works. The Partnership received net proceeds of
$216,593, which resulted in a gain of $168,838. The
original cost of the parcel of land was $47,755. The
Partnership believed the City of Omaha undervalued the land
and negotiated to receive additional proceeds. In March
2002, the City of Omaha approved a settlement and paid the
Partnership additional gross proceeds of $69,795, which
resulted in a net gain of $59,273.
Due to the redevelopment of the roads adjacent to the
Fuddruckers' property and proceeds received from the city of
Omaha for easements during such redevelopment, the
Partnership agreed to a temporary modification of rent
payments through March 31, 2002. For the three months ended
March 31, 2002 and the year ended December 31, 2001, the
modification resulted in a reduction of base rent of $6,410
and $43,002, respectively. Due to the permanent changes to
the property and the proceeds received from the city of
Omaha, the Partnership may consider a long-term modification
of the Lease.
In August 2000, Renaissant Development Corp. (RDC), the
lessee of the Applebee's restaurant in Victoria, Texas filed
for reorganization. RDC closed the restaurant, rejected the
Lease and returned possession of the property to the
Partnership. For the period from January 1, 2002 through
July 2, 2002, and the year ended December 31, 2001, the
Partnership did not collect scheduled rent of $82,477 and
$142,687, respectively. These amounts were not accrued for
financial reporting purposes. The Partnership listed the
property for sale or lease. While the property was vacant,
the Partnership was responsible for real estate taxes and
other costs required to maintain the property.
In April 2002, the Partnership received an offer to buy the
restaurant for $725,000 from an unrelated third party. In
the first quarter of 2002, a charge to operations for real
estate impairment of $106,745 was recognized, which was the
difference between the book value at March 31, 2002 of
$776,745 and the estimated net sales proceeds of $670,000.
The charge was recorded against the cost of the land and
building. On July 3, 2002, the sale closed with the
Partnership receiving net sale proceeds of $673,665, which
resulted in a net gain of $3,665.
In July 2002, the Partnership entered into an agreement to
sell the Creative Years daycare center for $230,000 to the
lessee. The sale is subject to numerous contingencies and
may not be completed. In the fourth quarter of 2002, a
charge to operations for real estate impairment of $63,177
was recognized, which was the difference between book value
at December 31, 2002 of $288,177 and the estimated net sale
proceeds of $225,000. 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)
On December 31, 2002, the Lease term for the Grand Rapids
Teachers Credit Union in Wyoming, Michigan expired.
Originally, the lessee planned to move out of the building
and relocate to a new building in the area. On a month-to-
month basis, the lessee rented a portion of the property for
$1,250 per month while their new building was constructed.
The Partnership listed the property for sale with a local
real estate broker. Subsequently, the Credit Union decided
to purchase the property for $400,000. On March 28, 2003,
the sale closed with the Partnership receiving net sale
proceeds of $399,184, which resulted in a net gain of
$41,624. At the time of sale, the cost and related
accumulated depreciation was $626,240 and $268,680,
respectively. At December 31, 2002, the property was
classified as Real Estate Held for Sale.
In February 2003, the Partnership entered into an agreement
to sell the two JEMCARE daycare centers in Arlington, Texas
to the lessee for $175,000 for the property on Arkansas Lane
and $325,000 for the property on Matlock Avenue. In the
fourth quarter of 2002, a charge to operations for real
estate impairment of $114,648 was recognized for the
property on Arkansas Lane, which was the difference between
book value at December 31, 2002 of $282,648 and the
estimated net sale proceeds of $168,000. A charge to
operations for real estate impairment of $131,740 was
recognized for the property located on Matlock Avenue, which
was the difference between book value at December 31, 2002
of $449,740 and the estimated net sale proceeds of $318,000.
The charges were recorded against the cost of the land and
building. On March 7, 2003, the sale closed with the
Partnership receiving net sale proceeds of $172,822 for the
property on Arkansas Lane, which resulted in a net gain of
$5,935. At the time of sale, the cost and related
accumulated depreciation was $335,827 and $168,940,
respectively. The Partnership received $321,970 for the
property on Matlock Avenue, which resulted in a net gain of
$5,212. At the time of sale, the cost and related
accumulated depreciation was $471,902 and $155,144,
respectively.
During the first three months of 2003 and 2002, the
Partnership distributed $539,156 and $114,940 of net sale
proceeds to the Limited and General Partners, which
represented a return of capital of $40.45 and $8.58 per
Limited Partnership Unit, respectively. The remaining net
sale proceeds will be distributed to the Partners in the
future.
(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
restaurant in Omaha, Nebraska and assumed the lease
obligations from the original lessee. As part of the
agreement, the Partnership amended the Lease to reduce the
base rent from $167,699 to $145,081. The Partnership could
receive additional rent in the future if 10% of gross
receipts from the property exceed the base rent. In
consideration for the lease assumption and amendment, the
Partnership received a lump sum payment from the original
lessee of $159,539. The lump sum payment will be recognized
as income over the remainder of the Lease term, which
expires on November 30, 2007, using the straight line
method.
Through March 31, 2003 and December 31, 2002, the
Partnership had recognized $104,055 and $101,082 of the
payment as income. At March 31, 2003, the remaining
deferred income of $3,091 was prepaid rent related to
certain other Partnership properties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The Management's Discussion and Analysis contains various
"forward looking statements" within the meaning of federal
securities laws which represent management's expectations or
beliefs concerning future events, including statements regarding
anticipated application of cash, expected returns from rental
income, growth in revenue, taxation levels, the sufficiency of
cash to meet operating expenses, rates of distribution, and other
matters. These, and other forward looking statements made by the
Partnership, must be evaluated in the context of a number of
factors that may affect the Partnership's financial condition and
results of operations, including the following:
- Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
- the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
affects of these consequences for the Partners;
- resolution by the General Partners of conflicts with
which they may be confronted;
- the success of the General Partners of locating
properties with favorable risk return characteristics;
- the effect of tenant defaults; and
- the condition of the industries in which the tenants of
properties owned by the Partnership operate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The Application of Critical Accounting Policies
The preparation of the Partnership's financial statements
requires management to make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. Management evaluates these estimates on an ongoing
basis, including those related to the carrying value of real
estate and the allocation by AEI Fund Management, Inc. of
expenses to the Partnership as opposed to other funds they
manage.
The Partnership purchases properties and records them in
the financial statements at the lower of cost or estimated
realizable value. The Partnership initially records the
properties at cost (including capitalized acquisition expenses).
The Partnership is required to periodically evaluate the carrying
value of properties to determine whether their realizable value
has declined. For properties the Partnership will hold and
operate, management determines whether impairment has occurred by
comparing the property's probability-weighted cash flows to its
current carrying value. For properties held for sale, management
determines whether impairment has occurred by comparing the
property's estimated fair value less cost to sell to its current
carrying value. If the carrying value is greater than the
realizable value, an impairment loss is recorded to reduce the
carrying value of the property to its realizable value. A change
in these assumptions or analysis could cause material changes in
the carrying value of the properties.
AEI Fund Management Inc. allocates expenses to each of the
funds they manage primarily on the basis of the number of hours
devoted by their employees to each fund's affairs. They also
allocate some 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 three months ended March 31, 2003 and 2002, the
Partnership recognized rental income of $129,174 and $105,984,
respectively. During the same periods, the Partnership earned
investment income of $1,434 and $3,578, respectively. In 2003,
rental income was higher than in 2002 mainly as a result of a
percentage rent payment received on one property in 2003 and
temporary rent modifications on two properties reduced rental
income in 2002.
In August 2000, Renaissant Development Corp. (RDC), the
lessee of the Applebee's restaurant in Victoria, Texas filed for
reorganization. RDC closed the restaurant, rejected the Lease
and returned possession of the property to the Partnership. For
the period from January 1, 2002 through July 2, 2002, and the
year ended December 31, 2001, the Partnership did not collect
scheduled rent of $82,477 and $142,687, respectively. These
amounts were not accrued for financial reporting purposes. The
Partnership listed the property for sale or lease. While the
property was vacant, the Partnership was responsible for real
estate taxes and other costs required to maintain the property.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
In April 2002, the Partnership received an offer to buy
the restaurant for $725,000 from an unrelated third party. In
the first quarter of 2002, a charge to operations for real estate
impairment of $106,745 was recognized, which was the difference
between the book value at March 31, 2002 of $776,745 and the
estimated net sales proceeds of $670,000. The charge was
recorded against the cost of the land and building. On July 3,
2002, the sale closed with the Partnership receiving net sale
proceeds of $673,665, which resulted in a net gain of $3,665.
In July 2002, the Partnership entered into an agreement to
sell the Creative Years daycare center for $230,000 to the
lessee. The sale is subject to numerous contingencies and may
not be completed. In the fourth quarter of 2002, a charge to
operations for real estate impairment of $63,177 was recognized,
which was the difference between book value at December 31, 2002
of $288,177 and the estimated net sale proceeds of $225,000. The
charge was recorded against the cost of the land and building.
On December 31, 2002, the Lease term for the Grand Rapids
Teachers Credit Union in Wyoming, Michigan expired. Originally,
the lessee planned to move out of the building and relocate to a
new building in the area. On a month-to-month basis, the lessee
rented a portion of the property for $1,250 per month while their
new building was constructed. The Partnership listed the
property for sale with a local real estate broker. Subsequently,
the Credit Union decided to purchase the property for $400,000.
On March 28, 2003, the sale closed with the Partnership receiving
net sale proceeds of $399,184, which resulted in a net gain of
$41,624. At the time of sale, the cost and related accumulated
depreciation was $626,240 and $268,680, respectively. At
December 31, 2002, the property was classified as Real Estate
Held for Sale.
In February 2003, the Partnership entered into an
agreement to sell the two JEMCARE daycare centers in Arlington,
Texas to the lessee for $175,000 for the property on Arkansas
Lane and $325,000 for the property on Matlock Avenue. In the
fourth quarter of 2002, a charge to operations for real estate
impairment of $114,648 was recognized for the property on
Arkansas Lane, which was the difference between book value at
December 31, 2002 of $282,648 and the estimated net sale proceeds
of $168,000. A charge to operations for real estate impairment
of $131,740 was recognized for the property located on Matlock
Avenue, which was the difference between book value at December
31, 2002 of $449,740 and the estimated net sale proceeds of
$318,000. The charges were recorded against the cost of the land
and building. On March 7, 2003, the sale closed with the
Partnership receiving net sale proceeds of $172,822 for the
property on Arkansas Lane, which resulted in a net gain of
$5,935. At the time of sale, the cost and related accumulated
depreciation was $335,827 and $168,940, respectively. The
Partnership received $321,970 for the property on Matlock Avenue,
which resulted in a net gain of $5,212. At the time of sale, the
cost and related accumulated depreciation was $471,902 and
$155,144, respectively.
During the three months ended March 31, 2003 and 2002, the
Partnership paid Partnership administration expenses to
affiliated parties of $29,015 and $56,594, 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 $12,252 and $24,158, 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
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
During the three months ended March 31, 2003, the
Partnership's cash balances increased $839,418 as a result of
cash generated from the sale of property, which was partially
offset by distributions paid to the Partners in excess of cash
generated from operating activities. Net Cash provided by
operating activities increased from $(7,896) in 2002 to $65,914
in 2003 mainly as a result of an increase in income and a
decrease in Partnership administration expenses in 2003.
During the three months ended March 31, 2003 and 2002, the
Partnership generated cash flow from the sale of real estate of
$893,976 and $59,273, respectively.
In November 2000, the Partnership sold 9,576 square feet
of land from the Fuddruckers' property in Omaha, Nebraska,
pursuant to a Right-Of-Way Agreement with the City of Omaha
Public Works. The Partnership received net proceeds of $216,593,
which resulted in a gain of $168,838. The original cost of the
parcel of land was $47,755. The Partnership believed the City of
Omaha undervalued the land and negotiated to receive additional
proceeds. In March 2002, the City of Omaha approved a settlement
and paid the Partnership additional gross proceeds of $69,795,
which resulted in a net gain of $59,273.
Due to the redevelopment of the roads adjacent to the
Fuddruckers' property and proceeds received from the city of
Omaha for easements during such redevelopment, the Partnership
agreed to a temporary modification of rent payments through March
31, 2002. For the three months ended March 31, 2002 and the year
ended December 31, 2001, the modification resulted in a reduction
of base rent of $6,410 and $43,002, respectively. Due to the
permanent changes to the property and the proceeds received from
the city of Omaha, the Partnership may consider a long-term
modification of the Lease.
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.
During the first three months of 2003 and 2002, the
Partnership distributed $539,156 and $114,940 of net sale
proceeds to the Limited and General Partners, which represented a
return of capital of $40.45 and $8.58 per Limited Partnership
Unit, respectively. The remaining net sale proceeds will be
distributed to the Partners in the future.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The Partnership may acquire Units from Limited Partners
who have tendered their Units to the Partnership. Such Units may
be acquired at a discount. The Partnership is not obligated to
purchase in any year more than 5% of the number of Units
outstanding at the beginning of the year. In no event shall the
Partnership be obligated to purchase Units if, in the sole
discretion of the Managing General Partner, such purchase would
impair the capital or operation of the Partnership.
During 2002, eight Limited Partners redeemed a total of
69.67 Partnership Units for $10,137 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a total of
174 Limited Partners redeemed 1,735.15 Partnership Units for
$1,115,407. The redemptions increase the remaining Limited
Partners' ownership interest in the Partnership.
The continuing rent payments from the properties, together
with cash generated from property sales, should be adequate to
fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
ITEM 3. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing General Partner of the Partnership evaluated the
effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule [13a-14(c)/15d-14(c)]
under the Exchange Act) related to the Partnership as of a date
(the "Evaluation Date") within 90 days prior to the filing date
of this report. Based upon that evaluation, the President and
Chief Financial Officer of the Managing General Partner concluded
that, as of the Evaluation Date, the disclosure controls and
procedures are effective in timely alerting them to the material
information relating to the Partnership required to be included
in periodic SEC filings.
(b) Changes in internal controls
There were no significant changes made in the
Partnership's internal controls during the period covered by this
report or, to the Managing General Partner's knowledge, in other
factors that could significantly affect these controls subsequent
to the date of their evaluation.
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
99.1 Certification of Chief Executive Officer of General
Partner pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.2 Certification of Chief Financial Officer of General
Partner pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
b. Reports filed on Form 8-K - During the quarter ended
March 31, 2003, the Partnership
filed a Form 8-K dated March 8,
2003 reporting the disposition
of two JEMCARE daycare centers
in Arlington, Texas.
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: May 12, 2003 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/ Patrick W. Keene
Patrick W. Keene
Chief Financial Officer
(Principal Accounting Officer)
CERTIFICATIONS
I, Robert P. Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of AEI
Real Estate Fund XVI Limited Partnership;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge; the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and have;
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Dated: May 12, 2003 /s/ Robert P. Johnson
Robert P. Johnson, President
AEI Fund Management XVI, Inc.
Managing General Partner
CERTIFICATIONS
I, Patrick W. Keene, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of AEI
Real Estate Fund XVI Limited Partnership;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge; the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and have;
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Dated: May 12, 2003 /s/ Patrick W. Keene
Patrick W. Keene, Chief Financial Officer
AEI Fund Management XVI, Inc.
Managing General Partner