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, 1996
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)
(612) 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, 1996 and December 31, 1995
Statements for the Periods ended September 30, 1996 and 1995:
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, 1996 AND DECEMBER 31, 1995
(Unaudited)
ASSETS
1996 1995
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,461,203 $ 1,873,834
Receivables 37,014 54,661
----------- -----------
Total Current Assets 1,498,217 1,928,495
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 3,557,678 3,537,198
Buildings and Equipment 6,947,545 6,966,837
Property Acquisition Costs 12,948 14,813
Accumulated Depreciation (2,177,459) (2,274,424)
----------- -----------
8,340,712 8,244,424
Land Held for Resale 253,747 0
----------- -----------
Net Investments in Real Estate 8,594,459 8,244,424
----------- -----------
Total Assets $10,092,676 $10,172,919
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 118,122 $ 153,644
Distributions Payable 190,569 190,172
Deferred Income 34,819 22,212
----------- -----------
Total Current Liabilities 343,510 366,028
----------- -----------
DEFERRED INCOME - Net of Current Portion 227,534 244,193
PARTNERS' CAPITAL (DEFICIT):
General Partners (33,981) (33,570)
Limited Partners, $1,000 Unit value;
15,000 Units authorized and issued;
14,108 Units outstanding 9,555,613 9,596,268
----------- -----------
Total Partners' Capital 9,521,632 9,562,698
----------- -----------
Total Liabilities and Partners' Capital $10,092,676 $10,172,919
=========== ===========
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
9/30/96 9/30/95 9/30/96 9/30/95
INCOME:
Rent $ 225,386 $ 270,063 $ 738,838 $ 817,262
Investment Income 18,287 21,242 59,052 48,876
--------- --------- --------- ---------
Total Income 243,673 291,305 797,890 866,138
--------- --------- --------- ---------
EXPENSES:
Partnership Administration-
Affiliates 53,563 55,317 157,633 172,654
Partnership Administration and
Property Management -
Unrelated Parties 27,599 11,143 113,049 40,213
Interest 0 3,970 0 12,713
Depreciation 73,123 78,260 216,601 242,656
--------- --------- --------- ---------
Total Expenses 154,285 148,690 487,283 468,236
--------- --------- --------- ---------
OPERATING INCOME 89,388 142,615 310,607 397,902
GAIN ON SALE OF REAL ESTATE 0 437,916 284,690 437,916
--------- --------- --------- ---------
NET INCOME $ 89,388 $ 580,531 $ 595,297 $ 835,818
========= ========= ========= =========
NET INCOME ALLOCATED:
General Partners $ 894 $ 5,805 $ 5,953 $ 8,358
Limited Partners 88,494 574,726 589,344 827,460
--------- --------- --------- ---------
$ 89,388 $ 580,531 $ 595,297 $ 835,818
========= ========= ========= =========
NET INCOME PER
LIMITED PARTNERSHIP UNIT
(14,108 and 14,226 weighted
average Units outstanding in
1996 and 1995 respectively) $ 6.27 $ 40.40 $ 41.77 $ 58.17
========= ========= ========= =========
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)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 595,297 $ 835,818
Adjustments to Reconcile Net Income
To Net Cash Provided by Operating Activities:
Depreciation 216,601 242,656
Gain on Sale of Real Estate (284,690) (437,916)
(Increase) Decrease in Receivables 17,647 (5,391)
Decrease in Payable to
AEI Fund Management, Inc. (35,522) (38,261)
Decrease in Contract Payable 0 (55,796)
Decrease in Deferred Income (4,052) (1,996)
----------- -----------
Total Adjustments (90,016) (296,704)
----------- -----------
Net Cash Provided By
Operating Activities 505,281 539,114
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (1,333,690) 0
Proceeds from Sale of Real Estate 1,051,744 990,453
----------- -----------
Net Cash Provided By (Used For)
Investing Activities (281,946) 990,453
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Distributions Payable 397 94,976
Distributions to Partners (636,363) (760,433)
----------- -----------
Net Cash Used For
Financing Activities (635,966) (665,457)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (412,631) 864,110
CASH AND CASH EQUIVALENTS, beginning of period 1,873,834 882,790
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,461,203 $ 1,746,900
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid During the Period $ 0 $ 2,144
=========== ===========
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, 1994 $ (32,717) $ 9,680,797 $ 9,648,080 14,225.70
Distributions (7,604) (752,829) (760,433)
Net Income 8,358 827,460 835,818
--------- ----------- ----------- -----------
BALANCE, September 30, 1995 $ (31,963) $ 9,755,428 $ 9,723,465 14,225.70
========= =========== =========== ===========
BALANCE, December 31, 1995 $ (33,570) $ 9,596,268 $ 9,562,698 14,107.70
Distributions (6,364) (629,999) (636,363)
Net Income 5,953 589,344 595,297
--------- ----------- ----------- ----------
BALANCE, September 30, 1996 $ (33,981) $ 9,555,613 $ 9,521,632 14,107.70
========= =========== =========== ==========
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, 1996
(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., 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 -
In 1995, the Partnership elected early adoption of the
Statement of Financial Accounting Standards No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of." This standard requires the
Partnership to compare the carrying amount of its properties
to the estimated future cash flows expected to result from
the property and its eventual disposition. If the sum of
the expected future cash flows is less than the carrying
amount of the property, the Statement requires the
Partnership to recognize an impairment loss by the amount by
which the carrying amount of the property exceeds the fair
value of the property. Adoption of this Statement is not
expected to have a material effect on the Partnership's
financial statements.
In May, 1990, Flagship, Inc. (Flagship), the lessee of the
J.T. McCord's properties, filed for reorganization, after
occupying the properties for approximately five years. In
March, 1993, the Partnership, along with affiliated
Partnerships which also own J.T. McCord's properties, filed
its own plan of reorganization (the "Plan") with the Court.
That Plan provided for an assignee of the Partnerships (a
replacement tenant) to purchase the assets of Flagship and
operate the restaurants with financial assistance from the
Partnerships. This Plan was expected to allow the
Partnerships to avoid closing these properties, allow
operations to continue uninterrupted, and avoid further
costly litigation with Flagship and its creditors. The Plan
was confirmed by the Court and the creditors April 16, 1993
and became effective July 20, 1993.
To entice the assignee, WIM, Inc. (WIM) to operate the
restaurants and enter into the Lease Agreements, the
Partnership provided funds to renovate the restaurants and
paid for operating expenses. The Partnership's share of
renovation and operating expenses during this period was
$755,773 which was expensed in the fourth quarter of 1994.
However, WIM was not able to operate the properties
profitably and was unable to make rental payments as
provided in the Lease Agreements. To reduce expenses and
minimize the losses produced by these properties, the Waco
restaurant was closed and listed for sale or lease and the
Partnership amended the agreements for the Irving and
Mesquite locations to provide for WIM to make annual rental
payments of the greater of $60,000 or 5.5% of sales
beginning October 1, 1994. In December, 1995, the
Partnership took possession of the properties after WIM was
unable to perform under the terms of the Leases. The
properties are currently listed for sale or lease. While
the properties are being re-leased or sold, the Partnership
is responsible for the real estate taxes and other costs
required to maintain the properties.
As part of the Plan, the Partnerships, which own these
properties, were responsible for an annual payment to the
Creditors Trust of approximately $110,000 for the next five
years. The Partnership's share of the annual payment was
$69,702. In 1994, the Partnership expensed $302,652 to
record this liability and administrative costs related to
the bankruptcy.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
In 1995, the Partnership negotiated a settlement, with the
trustee, for a lump sum payment of the minimum amount due
over the remaining term of the Plan for release of the
Partnership and WIM from any other financial obligations and
reporting requirements to the trustee. The settlement of
$215,442 was completed in the fourth quarter of 1995.
In June 1995, the Partnership re-leased the Waco property to
Tex-Mex Cocina of Waco, L.C. The Lease Agreement has a
primary term of two years with an annual rental payment of
$29,752. The Partnership could also receive additional rent
if gross receipts from the property exceed certain specified
amounts. The Lease contains renewal options which may
extend the lease term an additional 10 years. The property
is now operated as a Zapata's Cantina & Cafe.
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.
In March, 1995, the lessee of the Applebee's restaurant in
Columbia, South Carolina, exercised an option in the Lease
Agreement to purchase the property. On July 28, 1995, the
sale closed with the Partnership receiving net sale proceeds
of $990,453 which resulted in a net gain of $437,915. At
the time of sale, the cost and related accumulated
depreciation of the property was $723,823 and $171,285,
respectively.
On October 25, 1995, the Partnership sold two of the Jiffy
Lube Auto Care Centers to the lessee. The Partnership
recognized net sale proceeds of $322,443 for the Jiffy Lube
in Garland, Texas, which resulted in a net gain of $80,500.
At the time of sale, the cost and related accumulated
depreciation of the property was $301,884 and $59,941,
respectively. The Partnership recognized net sale proceeds
of $161,218 for the Jiffy Lube in Dallas, Texas, which
resulted in a net gain of $35,705. At the time of sale, the
cost and related accumulated depreciation of the property
was $154,781 and $29,268.
In July 1995, the lessee of the Super 8 Motel in Hot
Springs, Arkansas, exercised an option in the Lease
Agreement to purchase the property. On March 29, 1996, the
sale closed with the Partnership receiving net sale proceeds
of $665,692 which resulted in a net gain of $215,017. The
Partnership recognized $18,534 of this gain in 1995 due to
nonrefundable deposits received from the purchaser. At the
time of sale, the cost and related accumulated depreciation
of the property was $583,653 and $135,284, respectively.
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. The
Partnership's cost of the land is $253,747.
During the first nine months of 1996 and the year 1995, the
Partnership distributed $602,376 and $730,214 of the net
sale proceeds to the Limited and General Partners as part of
their regular quarterly distributions and to pay for the
redemption of Partnership Units. The distributions
represented a return of capital of $42.28 and $50.98 per
Limited Partnership Unit, respectively. The majority of the
remaining net proceeds will be reinvested in additional
properties.
In November, 1995, the Partnership entered into an Agreement
to purchase an Applebee's restaurant in Victoria, Texas.
The property was acquired on March 22, 1996 for $1,335,555.
The property is leased to Renaissant Development Corporation
under a Lease Agreement with a primary term of 20 years and
annual rental payments of approximately $151,000.
In August, 1996, the Partnership entered into an agreement
to purchase a Caribou Coffee store in Atlanta, Georgia. The
purchase price will be approximately $1,231,000. The
property will be leased to Caribou Coffee Company, Inc.
under a Lease Agreement with a primary term of 18 years and
annual rental payments of approximately $141,500. The
Partnership has incurred net costs of $12,948 related to the
acquisition of the property. The costs have been
capitalized and will be allocated to land, building and
equipment.
The Partnership owns a 30.8078% interest in the Sizzler
restaurant in Cincinnati, Ohio. In January, 1994, the
Partnership closed the restaurant and listed it for sale or
lease. While the property is being re-leased or sold, the
Partnership is responsible for the real estate taxes and
other costs required to maintain the properties. No rent
was received in 1996 or 1995 from the property.
(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 $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, 1996 and December 31, 1995, the Partnership
had recognized $49,977 and $33,318 of this payment as
income. At September 30, 1996, the remaining deferred
income of $12,607 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, 1996 and 1995, the
Partnership recognized rental income of $738,838 and $817,262,
respectively. During the same periods, the Partnership earned
investment income of $59,052 and $48,876, respectively. In 1996,
rental income decreased as a result of the property sales
discussed below and no rental income was recognized for the J.T.
McCord's properties in Irving and Mesquite, Texas. The decrease
in rental income was partially offset by rental income received
from re-leasing the property in Waco, Texas, rental income
received from the Applebee's in Victoria, Texas, rent increases
on five properties and additional investment income earned on the
net proceeds from property sales.
In May, 1990, Flagship, Inc. (Flagship), the lessee of the
J.T. McCord's properties, filed for reorganization, after
occupying the properties for approximately five years. In March,
1993, the Partnership, along with affiliated Partnerships which
also own J.T. McCord's properties, filed its own plan of
reorganization (the "Plan") with the Court. That Plan provided
for an assignee of the Partnerships (a replacement tenant) to
purchase the assets of Flagship and operate the restaurants with
financial assistance from the Partnerships. This Plan was
expected to allow the Partnerships to avoid closing these
properties, allow operations to continue uninterrupted, and avoid
further costly litigation with Flagship and its creditors. The
Plan was confirmed by the Court and the creditors April 16, 1993
and became effective July 20, 1993.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
To entice WIM to operate the restaurants and enter into
the Lease Agreements, the Partnership provided funds to renovate
the restaurants and paid for operating expenses. The
Partnership's share of renovation and operating expenses during
this period was $755,773, which was expensed in the fourth
quarter of 1994. However, WIM was not able to operate the
properties profitably and was unable to make rental payments as
provided in the Lease Agreements. To reduce expenses and
minimize the losses produced by these properties, the Waco
restaurant was closed and listed for sale or lease and the
Partnership amended the agreements for the Irving and Mesquite
locations to provide for WIM to make annual rental payments of
the greater of $60,000 or 5.5% of sales beginning October 1,
1994. In December, 1995, the Partnership took possession of the
properties after WIM was unable to perform under the terms of the
Leases. The properties are currently listed for sale or lease.
While the properties are being re-leased or sold, the Partnership
is responsible for the real estate taxes and other costs required
to maintain the properties.
As part of the Plan, the Partnerships, which own these
properties, were responsible for an annual payment to the
Creditors Trust of approximately $110,000 for the next five
years. The Partnership's share of the annual payment was
$69,702. In 1994, the Partnership expensed $302,652 to record
this liability and administrative costs related to the
bankruptcy.
In 1995, the Partnership negotiated a settlement, with the
trustee, for a lump sum payment of the minimum amount due over
the remaining term of the Plan for release of the Partnership and
WIM from any other financial obligations and reporting
requirements to the trustee. The settlement of $215,442 was
completed in the fourth quarter of 1995.
In June 1995, the Partnership re-leased the Waco property
to Tex-Mex Cocina of Waco, L.C. The Lease Agreement has a
primary term of two years with an annual rental payment of
$29,752. The Partnership could also receive additional rent if
gross receipts from the property exceed certain specified
amounts. The Lease contains renewal options which may extend the
lease term an additional 10 years. The property is now operated
as a Zapata's Cantina & Cafe.
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 Partnership owns a 30.8078% interest in the Sizzler
restaurant in Cincinnati, Ohio. In January, 1994, the
Partnership closed the restaurant and listed it for sale or
lease. While the property is being re-leased or sold, the
Partnership is responsible for the real estate taxes and other
costs required to maintain the properties. No rent was received
in 1996 or 1995 from the property.
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 $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.
Fuddruckers, Inc. is owned by DAKA International, which has a net
worth in excess of $82 million at June 29, 1996, making it a much
higher credit lessee than the original lessee.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
During the nine months ended September 30, 1996 and 1995,
the Partnership paid partnership administration expenses to
affiliated parties of $157,633 and $172,654, 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 $113,049 and $40,213, respectively. The increase in
these expenses in 1996, when compared to the same period in 1995,
is due to costs related to the vacant J. T. McCord's properties
and Sizzler property. In addition, the 1995 amount was reduced
by $17,319 of insurance proceeds received as a result of
vandalism to the Sizzler restaurant.
As of September 30, 1996, the Partnership's annualized
cash distribution rate was 6.44%, 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
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.
Liquidity and Capital Resources
During the nine months ended September 30, 1996, the
Partnership's cash balances decreased $421,631. Net cash
provided by operating activities decreased from $539,114 in 1995
to $505,281 in 1996 as a result of a decrease in rental income
and an increase in expenses in 1996. The decrease was partially
offset by net timing differences in the collection of payments
from the lessees and the payment of expenses by the Partnership.
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. In the nine months ended September
30, 1996, the Partnership generated cash flow from the sale of
real estate, as discussed below, of $1,051,744. During the same
period, the Partnership expended $1,333,690 to invest in real
properties (inclusive of acquisition expenses) as the Partnership
reinvested the cash generated from the property sales.
In March, 1995, the lessee of the Applebee's restaurant in
Columbia, South Carolina, exercised an option in the Lease
Agreement to purchase the property. On July 28, 1995, the sale
closed with the Partnership receiving net sale proceeds of
$990,453 which resulted in a net gain of $437,915. At the time
of sale, the cost and related accumulated depreciation of the
property was $723,823 and $171,285, respectively.
On October 25, 1995, the Partnership sold two of the Jiffy
Lube Auto Care Centers to the lessee. The Partnership recognized
net sale proceeds of $322,443 for the Jiffy Lube in Garland,
Texas, which resulted in a net gain of $80,500. At the time of
sale, the cost and related accumulated depreciation of the
property was $301,884 and $59,941, respectively. The Partnership
recognized net sale proceeds of $161,218 for the Jiffy Lube in
Dallas, Texas, which resulted in a net gain of $35,705. At the
time of sale, the cost and related accumulated depreciation of
the property was $154,781 and $29,268.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
In July 1995, the lessee of the Super 8 Motel in Hot
Springs, Arkansas, exercised an option in the Lease Agreement to
purchase the property. On March 29, 1996, the sale closed with
the Partnership receiving net sale proceeds of $665,692 which
resulted in a net gain of $215,017. The Partnership recognized
$18,534 of this gain in 1995 due to nonrefundable deposits
received from the purchaser. At the time of sale, the cost and
related accumulated depreciation of the property was $583,653 and
$135,284, respectively.
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. The Partnership's cost of the land is
$253,747.
During the first nine months of 1996 and the year 1995,
the Partnership distributed $602,376 and $730,214 of the net sale
proceeds to the Limited and General Partners as part of their
regular quarterly distributions and to pay for the redemption of
Partnership Units. The distributions represented a return of
capital of $42.28 and $50.98 per Limited Partnership Unit,
respectively. The majority of the remaining net proceeds will be
reinvested in additional properties.
In November, 1995, the Partnership entered into an
agreement to purchase an Applebee's restaurant in Victoria,
Texas. The property was acquired on March 22, 1996 for
$1,335,555. The property is leased to Renaissant Development
Corporation under a Lease Agreement with a primary term of 20
years and annual rental payments of approximately $151,000.
In August, 1996, the Partnership entered into an agreement
to purchase a Caribou Coffee store in Atlanta, Georgia. The
purchase price will be approximately $1,231,000. The property
will be leased to Caribou Coffee Company, Inc. under a Lease
Agreement with a primary term of 18 years and annual rental
payments of approximately $141,500. The Partnership has incurred
net costs of $12,948 related to the acquisition of the property.
The costs have been capitalized and will be allocated to land,
building and equipment.
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 October 1,
1995, the Partnership's distribution rate was reduced from 7% to
6%. As a result, distributions during the first nine months of
1995 were higher when compared to the same period in 1996.
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 total 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, 1996, thirteen Limited Partners redeemed a
total of 113 Partnership Units for $69,640 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a total of
seventy-seven Limited Partners redeemed 892.3 Partnership Units
for $715,655. 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.
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 Assignment of Construction
Loan Commitment and Sale and Leaseback
Financing Commitment dated August 8,
1996, concerning those documents with
Caribou Coffee store and AEI Fund
Management, Inc. to the Partnership,
relating to the sale and leaseback of a
Caribou Coffee store at Johnson Ferry
Road in Atlanta, Georgia.
27 Financial Data Schedule for period
ended September 30, 1996.
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 13, 1996 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)