SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No 2)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
1
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
1300 Minnesota World Trade Center
30 East 7th Street
St. Paul, Minnesota 55101
CONSENT STATEMENT
For Amendments to Limited Partnership Agreement
to Permit Reinvestment of Sales Proceeds and
Change Unit Repurchase Provisions
THIS CONSENT STATEMENT IS BEING MAILED TO INVESTORS ON OR ABOUT
OCTOBER 24, 1997. TO BE COUNTED, A PROPERLY SIGNED CONSENT FORM
MUST BE RECEIVED BY THE MANAGING GENERAL PARTNER AT 1300 MINNESOTA
WORLD TRADE CENTER, 30 EAST 7TH STREET, ST. PAUL, MINNESOTA 55101,
ON OR BEFORE DECEMBER 1, 1997.
AEI Fund Management XVI, Inc., the Managing General Partner of
AEI Real Estate Fund XVI Limited Partnership (the "Fund"), and
Robert P. Johnson, the Individual General Partner of the Fund
(together, the "General Partners") are recommending the following
two amendments (the "Amendments") to the Fund's Limited Partnership
Agreement (the "Partnership Agreement"):
(a) An amendment to change Section 5.4 of the Partnership
Agreement (the "Reinvestment Amendment") so that, at any
time prior to the final liquidation of the Fund, the
proceeds from sales of Fund properties can be reinvested in
replacement net leased properties. The Partnership
Agreement currently provides that proceeds from the sale of
properties cannot be reinvested in new properties after
November 6, 1997.
(b) An amendment to Section 7.7 of the Partnership Agreement
(the "Repurchase Amendment") altering the Unit repurchase
provisions of the Partnership Agreement to allow repurchases
to occur more frequently and to allow the Managing General
Partner to establish a repurchase price that generally will
be higher than the repurchase price fixed under the formula
currently set forth in the Partnership Agreement, and to
provide that repurchases will be made quarterly rather than
once per year.
The General Partners believe that it is important for the Fund to
be able to take advantage of property sales, when available at
attractive prices, without depleting the capital base of the Fund.
Approval of the Reinvestment Amendment would allow the Managing
General Partner to continue to reinvest Fund proceeds from the sale
of properties in replacement properties until final liquidation of
the Fund. Accordingly, the General Partners recommend a vote "FOR"
the proposed Reinvestment Amendment.
2
The General Partners also believe that the Fund's current formula
for determining the purchase price of Units under Section 7.7 of
the Partnership Agreement no longer reflects a Unit valuation that
is closely related to market value, and that Investors should be
permitted to present Units for repurchase more frequently than once
per year. Approval of the Repurchase Amendment would provide an
alternate valuation formula that the General Partners believe more
accurately reflects the pricing of Units in the secondary market.
The provisions of Section 7.7, as proposed to be amended, will
provide that Investors will be entitled to the price under the
formula yielding the highest value. The amended provisions will
also provide for quarterly repurchases of Units and, if approved,
will be effective for repurchases starting in 1998. Accordingly,
the General Partners recommend a vote "FOR" the proposed Repurchase
Amendment.
THE PROPOSED AMENDMENTS WILL AFFECT YOUR INVESTMENT IN THE FUND
IN A NUMBER OF WAYS AND INVOLVE A NUMBER OF RISKS, INCLUDING THE
FOLLOWING:
Reinvestment Amendment:
There can be no assurance that any properties in which
proceeds from sale are reinvested if the Reinvestment Amendment is
approved will generate enough cash flow to support distributions in
excess of what an Investor would receive from an alternative
investment outside the Fund if such proceeds were distributed to
Investors. See "Summary-Risks of the Amendments-Reinvestment
Amendment-Deferred Cash Distributions."
The continuing reinvestments permitted by the
Reinvestment Amendment may make it more difficult to sell the
Fund's properties within the originally intended life of the Fund
and therefore could cause extension of the life of the Fund. See
"Summary-Risks of the Amendments-Reinvestment Amendment-Risk of
Extension of Fund Life."
The interests of the General Partners in approval of the
Reinvestment Amendment conflict with the interests of Investors
because if Fund proceeds are reinvested, the General Partners will
receive more reimbursements (but not necessarily profits) from the
Fund, and may have a greater opportunity to reach a distribution
level that results in payment of a promotional interest to the
General Partners. See "Summary-Risks of the Amendments-Reinvestment
Amendment-General Partner Conflicts of Interest."
If the Reinvestment Amendment is approved, Fund proceeds
will be reinvested in additional triple net leased commercial
properties that are subject to many of the same risks of
nonperformance, (including risks related to changing market values,
tenant defaults and difficulty of resale, among others) as the
original properties. See "Summary-Risks of the
Amendments-Reinvestment Amendment-Real Estate Risks on
Reinvestment."
3
Investors will not be able to review in advance the
properties in which proceeds are reinvested. See "Summary-Risks of
the Amendments-Reinvestment Amendment-Undesignated Properties."
Repurchase Amendment:
The Fund is not required to repurchase Units in excess of 5% of the
Units outstanding in any year, and is not required to repurchase
Units if doing so would impair the Funds ability to continue
operations. The Repurchase Amendment will not alter these
limitations. There may be circumstances under which Fund revenues
and borrowings are insufficient to fully fund such repurchases.
See "Summary-Risks of the Amendments-Repurchase
Amendment-Limitations on Repurchases."
Although the General Partners believe that the new alternative
repurchase price formula will generally yield a higher Unit price
than the existing formula, and Investors will be entitled to the
higher repurchase price determined under either formula, there is
no assurance that either formula price will pay an Investor the
market value of the Investor's Units. See "Summary-Risks of the
Amendments-Repurchase Amendment-Valuation of Units."
To the extent that the amendment causes more Units to be
repurchased, it may, decrease the amount of distributions to
Investors during the year of repurchase.
INVESTORS WILL NOT HAVE APPRAISAL OR DISSENTERS RIGHTS AND
THEREFORE WILL NOT HAVE THE RIGHT TO REQUIRE THE FUND TO PAY THEM
THE VALUE OF THEIR UNITS OF LIMITED PARTNER INTEREST IF THEY
DISAGREE WITH THE PROPOSED AMENDMENTS.
SUMMARY
The following summary is qualified by the more detailed discussion
set forth herein.
The Amendments
The General Partners are proposing an amendment to Section 5.4 of
the Partnership Agreement (the "Reinvestment Amendment"). This
Reinvestment Amendment will eliminate the requirement that the
Fund distribute all proceeds from sale of properties and allow
reinvestment of such proceeds until final liquidation of the Fund.
Even if the Reinvestment Amendment is approved, however, most, if
not all, gain from sales activity would continue to be distributed
to Investors. See "Reasons For and Effects of the Amendments-
Reinvestment Amendment."
4
The General Partners are also proposing an amendment to Section
7.7 of the Partnership Agreement (the "Repurchase Amendment").
The Repurchase Amendment will provide an alternative formula for
valuation of Units of limited partner interest in the Fund for
purposes of the Partnership Agreement's Unit repurchase
provisions. The Repurchase Amendment is intended to increase the
repurchase price over the existing formula, but the existing
formula will remain as an alternative, and Investors will be
entitled to the higher price yielded by either formula. The
Repurchase Amendment will also increase the frequency of
presentment opportunities from once per year to quarterly,
commencing in calendar 1998. See "Reason For and Effects of the
Amendments-Repurchase Amendment."
Reasons for the Amendments
The Fund may sell properties prior to final liquidation of the
Fund due to favorable market conditions, exercise of lease
purchase options, tenant restructuring or other reasons. Although
the General Partners cannot guarantee returns, they believe that
the Fund can generate favorable returns to Investors through the
acquisition of additional properties that can be resold. They
believe that the Fund should be in a position to reinvest the
proceeds from these and other sales into replacement net leased
properties.
The General Partners believe that the current formula for
determining the purchase price of Units under Section 7.7 of the
Partnership Agreement no longer reflects a Unit valuation that
closely approximates market value. They believe that the proposed
new formula provides an alternate valuation that more accurately
reflects the pricing of Units in the secondary market. The
provisions of Section 7.7, as proposed to be amended, will provide
that the formula yielding the highest value will control. In
addition, the new provisions will provide for the repurchase of
Units quarterly rather than once per year, thus increasing, to a
limited extent, the liquidity of an investment in the Units.
Risks of the Amendments
The Amendments will present several risks, including the
following:
5
Reinvestment Amendment:
1. Deferred Cash Distributions. Rather than distributing all
net cash proceeds on sale of a property, the Reinvestment
Amendment will allow the Fund (if the General Partners determine,
in their discretion, that it is advantageous to the Fund) to
reinvest such proceeds in new properties (subject to a continuing
obligation to distribute to Investors cash proceeds adequate to
pay the income tax liability generated by sales of property). The
distribution of cash that is reinvested will be delayed until the
Fund is finally liquidated. There can be no assurance that
properties in which proceeds will be reinvested if the
Reinvestment Amendment is approved will generate periodic
distributions in excess of the return that could be obtained by
Investors on an alternative investment of distributed proceeds, or
that such properties will eventually be sold at a gain.
2. Risk of Extension of Fund Life. The General Partners intend
to reinvest sales proceeds in new properties that could be sold
again within a few years. The Reinvestment Amendment could render
more difficult the final sale of properties within the original
intended life of the Fund. The General Partners intend to
commence liquidation of the Fund by the year 2001, although the
sale of any particular property may be delayed based on market and
other conditions. The Reinvestment Amendment could have the
effect of extending the life of the Fund for several years and
delaying the ultimate distribution of its assets. The Partnership
Agreement provides that the Fund must be liquidated, in any event,
by the year 2036 (an arbitrary date).
3. Real Estate Risks on Reinvestment. Proceeds will be
reinvested in new triple net leased commercial properties that are
subject to the same risks of performance as the properties
originally acquired by the Fund. The value of real estate is
subject to a number of factors beyond the control of the Fund,
including national economic conditions, changes in interest rates,
governmental rules and regulations and competition from other
forms of financing. If adverse changes in these general
conditions negatively affect market value, the final disposition
of the property and the distribution of cash to Investors may be
delayed or the disposition may result in a loss, or both. The
value of properties in which the Fund will invest will be affected
by the financial condition of the tenant. If a tenant is unable
to perform its lease obligations, the Fund may not be able to sell
the property or may be forced to sell the property at a loss.
Further, in the event of a bankruptcy of a tenant, the Fund might
not be able to obtain possession of the property for a
considerable period of time.
4. Undesignated Properties. Investors will not be able to
review in advance the properties in which proceeds would be
reinvested.
6
5. General Partner Conflicts of Interest. The interests of
the General Partners in proposing the Reinvestment Amendment
conflict with those of the Investors because the General Partners
will receive more reimbursements from the Fund if proceeds are
reinvested than they will if proceeds were not reinvested. The
Managing General Partner will be reimbursed for the costs it
incurs, including costs of its personnel, in reinvesting the
proceeds and managing the properties in which the proceeds are
reinvested. Such reimbursements will include the salaries of
personnel of the Managing General Partner for the time they spend
on such activities, plus a small portion (based on hours of
employees spent on Fund activities and the assets of the Fund as
compared to all real estate funds the General Partners manage) of
other overhead, such as rental expense, of the Managing General
Partner. Reimbursements to the General Partners for expenses
incurred have averaged approximately $213,000 per year during the
past two years and aggregated approximately $665,000 during the
three years ended December 31, 1996. Such reimbursements will
decrease if cash is distributed and fewer properties are under
management in the Fund.
Repurchase Amendment:
1. Limitation on Repurchases. The Fund is not required to
repurchase in any calendar year Units aggregating in excess of 5%
of the Units outstanding in such year, and is not required to
repurchase Units if doing so would impair the Funds ability to
continue operations. The Repurchase Amendment will not alter
these limitations. There may be circumstances under which Fund
revenues and borrowings are insufficient to fully fund such
repurchases.
2. Valuation of Units. Although the Fund's management believes
that the new alternative repurchase price formula will generally
yield a higher Unit price than the existing formula, and Investors
will be entitled to the higher repurchase price determined under
either formula, there is no assurance that either formula price
will pay an Investor the market value of the Investor's Units.
The repurchase price will be based on the value of the Fund's
assets under the new formula, which will in turn be based on a
number of factors that are somewhat judgmental. To the extent the
General Partners overvalue the Units that are repurchased through
such formula, the remaining Investors and the General Partners
will be disadvantaged. See "Reasons For and Effects of the
Amendments-Repurchase Amendment".
3. Effects on Distributions. The Fund will repurchase Units
out of capital available for distribution and the Partnership
interests represented by the repurchased Units will effectively be
allocated among, and will increase the percentage interests of,
remaining partners. To the extent that the amendment causes more
Units to be repurchased, it may, in the short-term, decrease the
amount of distributions to Investors.
7
General:
No Appraisal Rights. Investors will not have appraisal or
dissenters rights as a result of the Amendments. Accordingly,
Investors that disagree with the Amendments will not have the
right to require the Fund to pay out the value of their Units of
limited partnership interest. Instead, the Amendments will be
effective with respect to all Investors if approved by holders of
a majority of the Units and a dissenting Investor would be
required to find a different method of disposing of his or her
units, such as through the Fund's repurchase plan, or to hold his
or her units until liquidation of the Fund.
REASONS FOR AND EFFECTS OF THE AMENDMENTS
Reinvestment Amendment
General. If Investors approve the Reinvestment Amendment, the
Fund will have the opportunity, upon the sale or other disposition
of properties such as the properties described below, to reinvest
the Net Proceeds of Sale in additional triple net leased
properties. Under the terms of the Partnership Agreement as
amended in 1992, the Net Proceeds of Sale from the sale of
properties cannot be reinvested after November 6, 1997. By
consenting to the Reinvestment Amendment, Investors would permit
the Fund not to distribute all Net Proceeds of Sale, but instead
to acquire new properties with proceeds from the sale of the
properties (net of any distributions to Investors) that occur
prior to the final liquidation of the Fund.
The Reinvestment Amendment is not intended to extend the life of
the Fund. The Prospectus pursuant to which the Units were sold
indicated that the General Partners expected that most of the
properties would be sold or refinanced eight to twelve years after
acquisition. The Fund properties described below were acquired in
1987, 1988 and 1990 and it remains the intention of the General
Partners to commence liquidation of the Fund, depending on market
conditions and the benefits of continued ownership, by the year
2001.
The Reinvestment Amendment is being proposed for a number of
reasons, including the following:
Without the Amendment, the Managing General Partner
will be required to forgo all attractive proposals it
receives to sell Fund properties if it desires to avoid
depleting the Fund's capital base;
If the Amendment is approved, the Fund will be able
to (i) take advantage of any favorable purchase proposals
that are presented, (ii) seek out such proposals when
market conditions are favorable, and (iii) retain adequate
capital in the Fund to work toward the Fund's investment
objectives;
8
Without the Amendment, if a property is sold prior
to final liquidation of the Fund, the Fund's capital base,
and therefore its ability to generate the level of return
that was the objective when it was formed, will be reduced;
If the Amendment is approved, cash proceeds from
the sale of a property may be reinvested in a new property
and, subject to the same risks of real estate investment
that were assumed when the Fund was formed, such new
property could generate continuing cash flow from rents and
potential gain on sale;
Without the Amendment, an Investor wishing to
retain a similar investment in an AEI fund will be forced
to purchase units in a new fund with distributed cash and
to incur sales commissions and organization expense that
will decrease his or her ability to obtain gain on that
reinvestment;
If the Amendment is approved, no securities
brokerage commissions or other organizational expense will
be applied to the reinvestment in new properties of cash
from sale of properties.
The Fund incurs a significant amount of organization and
syndication expense at formation. The General Partners believe
that the Fund can generate the most favorable returns to Investors
only if the costs of forming the Fund, including commissions to
sales agents, filing fees and professional costs, can be amortized
against cash flow (primarily rents) from operation of all of the
properties over the intended life of the Fund. (10 to 12 years
after purchase of properties) If a significant portion of the
real property assets of the Fund are sold in advance of the
originally intended liquidation date of the Fund, the income and
gain, if any, for the assets remaining may not be adequate to
generate the returns that were the original objective of the Fund.
9
The General Partners believe, based on recent investments in and
resales of properties by other real estate funds affiliated with
the General Partners, that the Fund can generate favorable returns
through the investment of sale proceeds in newly constructed
replacement properties that the Fund purchases at construction
cost and resells within a few years. When a fund commits to
purchase a property upon completion of construction it reduces the
developer's refinancing risk and facilitates the construction of
properties for operators, such as franchisees of restaurants,
whose principal goal is not real estate capital appreciation.
Because the property is purchased at construction cost, the risk
of development and construction, for which the developer is
normally compensated, inures to the benefit of the Fund_the market
value of properties when purchased will normally exceed the cost
of development. Because no securities brokerage commissions will
be paid in connection with capital that is reinvested, the entire
amount of reinvested proceeds can be applied to the purchase price
and no additional organizational costs that will affect overall
return will be incurred. No assurances can be given, however,
that a new property acquired by the Fund will produce favorable
rentals, that such rentals will not be interrupted by events
outside the Managing General Partner's control, or that the market
value of any properties acquired will exceed their cost
immediately after acquisition or within the several years the Fund
proposes to hold the properties.
The Managing General Partner is currently evaluating a number of
properties for acquisition. Affiliates of the General Partners
have managed 13 public and 11 private real estate funds. As a
result of their activity in the sale-leaseback marketplace, the
General Partners have developed relationships with companies that,
either directly or through their franchisees, have a continuing
need for commercial real estate. The Managing General Partner
will not be obligated to obtain the consent of Investors as to the
type of property acquired if the Reinvestment Amendment is
approved. Nevertheless, any property acquired will comply with
the investment objectives and policies set forth in the Prospectus
pursuant to which the Units were initially offered. Any property
acquired will be an existing commercial property that will be
acquired on a debt-free basis and will likely be leased to a
single tenant pursuant to a triple net lease in the franchise
restaurant industry. No property will be acquired from the
General Partners or their affiliates.
Sales of Properties. The Reinvestment Amendment is being
proposed at this time to facilitate reinvestment of the net
proceeds from possible sales of properties after November 6, 1997.
Although much of the proceeds have been distributed, the Fund has
retained some of the proceeds from the eight properties described
below. The sales price and certain information about the gain
generated by such sales is set forth below:
10
Applebee's Applebee's Jiffy Lube Jiffy Lube Sizzler Super 8
Charleston, SC Columbia, SC Dallas, TX Garland, TX Cincinnati, OH Hot Springs, AK
Purchase date 11/19/87 5/6/88 12/10/87 12/10/87 1/30/90 4/11/88
Percentage of Total(F1)
Ownership Interest 100% 58.12% 25% 50% 30.81% 50%
Sale date 12/15/94 7/28/95 10/25/95 10/25/95 1/23/97 3/29/96
Sales price $1,626,781 $1,018,031 $ 162,500 $ 325,000 $ 158,660 $ 680,000
Selling expenses 13,494 27,578 1,282 2,558 9,459 16,614
Basis(F2)
Book 921,762 552,537 125,513 241,943 365,501 448,369
Tax 935,628 568,603 128,325 248,096 367,890 464,919
Gain (loss)
Book 691,525 437,916 35,705 80,499 (216,300) 215,017
Tax 677,659 421,850 32,893 74,346 (218,689) 198,467
Tax gain (loss)
per unit 47 29 2 5 (15) 14
(F1) The Fund owns partial interests in title to certain of the
properties, as indicated. The remaining interest was purchased
by an affiliated real estate fund managed by the General
Partners.
(F2) Purchase price less depreciation.
The Fund purchased the Charleston Applebee's restaurant property
in November 1987 and the Columbia property in May 1988. Both of
the Applebee's were newly constructed properties purchased upon
completion of construction and leased under 20-year triple net
leases to Apple South, Inc. simultaneous with the purchases. Each
of the leases included an option to Apple South, Inc. to purchase
the properties commencing in the seventh lease year at a price
equal to the greater of fair market value or an increase of 5% per
year over the original purchase price. Apple South, Inc.
exercised the option with respect to both properties in 1995. The
sale price listed in the table above represents the contractual
purchase price based on the 5% escalation.
The two Jiffy Lube auto care centers listed above were purchased
by the Fund in December 1987 and leased, under a 20 year triple-
net lease, to Jiffy Lube International of Maryland, Inc. Although
the lease did not specifically provide a repurchase option to the
lessee, the Fund negotiated and completed a sale of these
properties to the lessee in October 1995.
11
The Super 8 Motel was purchased by the Fund in April 1988 and
simultaneously leased to Motel Developers, Inc.. The lease
included an option to purchase the property, which was exercised
by the lessee in July 1995. Although the sale closed in March
1996, a portion of the gain on sale was recognized in 1995 based
on receipt in that year of nonrefundable deposits in connection
with the sale.
The Sizzler Restaurant was purchased by the Fund in January 1990
and simultaneously leased to Triple S Restaurants, Inc. In
January 1994, the restaurant was closed and listed for re-lease or
sale. In December 1996, the Fund accepted an offer from an
unaffiliated party to purchase the property at a price below the
Fund's basis. The offer was accepted after a review of the market
conditions in the area and the property management costs
associated with continuing to seek a new tenant for the property,
and the sale was completed in January 1997.
The Fund has distributed an aggregate of $1,755,800 ($ 122.85
per Unit) from the proceeds of these sales to cover the tax
liability of partners generated by the gains on sale. These
distributions of Net Proceeds on Sale, in the aggregate, reduced
the Adjusted Capital Contributions of Investors by $122.85 per
outstanding Unit.
In January 1996, the Fund also received $406,892 of insurance
proceeds, net of demolition and other costs, resulting from the
destruction by fire of a restaurant property in Indianapolis,
Indiana. These proceeds resulted in recognition of $88,207 of net
gain by the Fund. The Fund currently does not intend to rebuild
the property and has listed the land (which has a cost basis of
$253,747) for sale.
Properties Currently Held by the Fund. The Fund currently holds
interests in 15 properties (excluding the land resulting from the
fire in Indianapolis, Indiana) as summarized below:
12
Acquisition Annual Rental Rental as % of
Property Cost Payments Purchase Price
Creative Years Early Learning
Center, Houston, TX $ 483,128 $ 45,529 9.4%
Grand Rapids Teachers Credit Union,
Wyoming MI 626,239 32,370 5.1%
Arby's Restaurant, Grand Rapids, MI 652,880 24,000 3.6%
Fuddruckers Restaurant, Omaha, NE 1,151,543 145,081 12.6%
Children's World Daycare Center,
Sterling Heights, MI 729,486 105,117 14.4%
Jiffy Lube Auto Care Center,
Dallas, TX 154,891 21,822 14.1%
JEMCARE (Arkansas Lane),
Arlington, TX 450,475 41,796 9.3%
Zapata's Cantina and Cafe,
Waco, TX 674,285 29,752 4.4%
J.T. McCord's Restaurant,
Irving TX 1,147,333 (F1)
J.T. McCord's Restaurant,
Mesquite TX 520,109 17,500 3.3%
JEMCARE (Matlock Avenue),
Arlington, TX 603,641 45,907 7.6%
Cheddar's Restaurant,
Indianapolis, IN 253,747 (F2)
Fuddruckers Restaurant,
St. Louis, MO 761,053 92,164 12.1%
Applebee's Restaurant, Slidell, LA 746,465 111,288 14.9%
Applebee's Restaurant,
Victoria, TX 1,335,555 151,110 11.3%
Caribou Coffee, Atlanta, GA 1,235,000 142,025 11.5%
Total $11,525,830 $1,005,461
(F3) This property is vacant and listed for sale or lease.
(F4) This property was destroyed by fire and the vacant land is
listed for sale.
Effects of Amendment. In the event Investors approve the
Reinvestment Amendment, the proceeds from properties that are sold
or otherwise disposed of will be reinvested rather than
distributed. If such proceeds are reinvested the rental revenues
generated by the Fund would be increased and distributions from
rental revenues will be higher than they would if proceeds are not
reinvested. Distribution of sales proceeds will be reduced or
delayed until final liquidation of the Fund. Accordingly, the
General Partners believe approval of the Reinvestment Amendment
will result in a more steady rate of distribution during the life
of the Fund with a large distribution at the end of the life of
the Fund.
13
Interests of the General Partners in the Reinvestment Amendment.
In accordance with, and subject to the limitations in, the
Partnership Agreement, the General Partners will be reimbursed for
any costs (including a proportionate amount of employee salary,
benefit and overhead expense) they incur in completing any
property acquisition and in connection with management of the
property. Generally, costs are allocated to the Fund based on the
daily time sheets of employees. The Managing General Partner
establishes an hourly charge for each employee based on their
salaries, benefit expense and overhead expense (the portion of
rental, depreciation and other office charges necessary to
maintain the employee) and the Fund is charged for the amount of
time spent by the employee on Fund activities multiplied by the
time charge. If the Reinvestment Amendment is not approved, and
the proceeds from the sale of the properties are not reinvested,
the amount of capital under management by the General Partners
through the Fund, and the scope of the Fund's operations, will be
reduced and the Managing General Partner will have to deploy its
employees in other activities. Such reduced operations can be
expected to reduce the amount of reimbursements that the General
Partners receive from the Fund. Reimbursements to the General
Partners by the Fund for expenses incurred have averaged
approximately $213,000 per year during the past two years and
aggregated approximately over $665,000 during the three years
ended December 31, 1996. Such reimbursements will decrease if
cash is distributed and fewer properties are under management in
the Fund.
Further, the General Partners receive more than 1% of Fund cash
flow only to the extent the Fund has generated a 10% return to
Investors, and share in sales proceeds only to the extent the Fund
has paid cumulative distributions to Investors equal to their
Adjusted Capital Contributions plus a 14% cumulative return. To
the extent that proceeds are reinvested, the properties perform
well, and these returns can be achieved, the General Partners may
receive up to 10% of cash flow remaining after payment of the 10%
return to Investors and up to 15% of sales proceeds remaining
after payment of the 14% cumulative return to Investors.
Repurchase Amendment
General. Over the period of time since the Fund was formed, a
limited secondary market has developed for units of limited
partnership interest in real estate limited partnerships like the
Fund. Generally, this market is made by individuals and firms who
match willing sellers with buyers by posting sale proposals (but
not prices) and by maintaining a list of limited partner unit
holders who are willing to sell from time to time. In most cases,
these transactions are relatively time consuming and do not
represent an active market for such units. Accordingly, they may
not represent actual market value for the Units. In some cases,
individuals acquire units of limited partnership interest with the
intent to acquire control of partnerships for invested amounts
significantly less than the liquidation value of the partnerships'
properties and to then cause the liquidation of the partnerships
at a profit to themselves.
14
The development of this market has given Units held by Investors
a potential market value that may be different from and, in some
instances greater than, the Unit values currently established
under the terms of the Unit repurchase provisions of Section 7.7
of the Partnership Agreement. It has also provided some liquidity
of investment for holders of Units, because although purchases in
the secondary market remain subject to restrictions under the
terms of the Partnership Agreement (e.g., no more than 5% of the
outstanding Units can change hands in any one year), sales are not
subject to the limited annual presentment period (between July 1
and October 1 of each year) provided in the Partnership Agreement.
In order to offer Investors the opportunity to present their
Units to the Fund for repurchase more frequently, and at a price
that may more closely reflect the prices available in the
secondary market, the General Partners propose to amend Section
7.7 of the Partnership Agreement to provide an alternative
valuation formula and to allow for quarterly presentment of Units
for repurchase, rather than the current annual presentment period.
The provisions of Section 7.7, as proposed to be amended, will
provide that Investors will be entitled to the price under the
formula yielding the highest value. Because of changes that must
be made to the Partnership's information processing systems if the
Amendment is approved, the Amendment will be effective commencing
in calendar 1998 for Units tendered for repurchase during that
year.
Effects of Amendment. Although the General Partners believe
that the new alternative repurchase price formula will generally
yield a higher Unit price than the existing formula, and Investors
will be entitled to the higher repurchase price determined under
either formula, there is no assurance that either formula price
will pay an Investor the market value of the Investor's Units.
Moreover, the Fund is not required to repurchase in any calendar
year Units aggregating in excess of 5% of the Units outstanding in
such year, and is not required to repurchase Units if doing so
would impair the Funds ability to continue operations. The
Repurchase Amendment will not alter these limitations. There may
be circumstances under which Fund revenues and borrowings are
insufficient to fully fund such repurchases. As is currently the
case, if more Units are tendered for purchase than the General
Partners believe are prudent to repurchase given the capital
resources of the Fund, tendered Units will be repurchased on a
first come, first served basis.
15
Repurchases by the Fund, under either the existing or amended
repurchase provisions, are made out of cash available for
distribution and increase the percentage interests in income,
gain, deduction and distributions of the Fund of remaining
Investors, pro rata among such Investors based on their interests
before the repurchases. Although the Repurchase Amendment does
not allow the General Partners to establish a repurchase price
that is below the purchase price currently available under the
Partnership Agreement, it does allow the General Partners to
establish a repurchase price that is higher. To the extent that
the repurchase price established by the General Partners exceeds
the actual economic value (a theoretical value) of the Units that
are repurchased, the overall economic value afforded the General
Partners and the remaining Investors by their interest in the Fund
will be diminished. The General Partners believe that the current
formula establishes a price that is generally below the actual
value of the Units and that the price established by matching
services is also below the actual value. Accordingly, the General
Partners believe that the Repurchase Amendment will allow
repurchases at a higher price, thereby benefiting both withdrawing
and remaining Investors.
VOTING UNITS
Voting by Investors with respect to an amendment of the
Partnership Agreement is based upon ownership of Fund Units
("Voting Units"). As of September 1, 1997, there were 13,954.7
Voting Units outstanding. Each Voting Unit is entitled to one
vote. Fractions of Voting Units will be included in the total.
To the best of the Managing General Partner's knowledge, there
is no beneficial owner holding five percent or more of the Voting
Units, including Voting Units owned by the General Partners. The
Managing General Partner holds 10 Units as a limited partner, the
Individual General Partner holds six units as a limited partner,
and an affiliated corporation of the General Partners holds two
units as a limited partner, in the Fund. No other affiliate of
the General Partners holds any interest as a limited partner in
the Fund.
In order for either proposed Amendment to be adopted, a majority
of the Voting Units must be voted in favor of the Amendment.
Because an abstention will not be counted as a vote for an
Amendment, it would have the effect of a voted against an
amendment. The General Partners intend to vote all Units
controlled by them in favor of the Amendments.
PROCEDURES FOR VOTING
Accompanying this Consent Statement is a Consent Form for each
Investor with respect to his/her unit ownership in the Fund. By
checking the appropriate box, each Investor can indicate whether
he/she votes FOR or AGAINST or ABSTAINS as to each of the proposed
Amendments. If any Investor returns a Consent Form duly signed
without checking any box, he/she will be deemed to have voted FOR
the Amendments.
16
Investors do not have appraisal or similar rights under
Minnesota law with respect to the Amendments.
The Managing General Partner has fixed the close of business on
October 15, 1997 as the record date for the determination of the
Investors entitled to vote on the proposed Amendment, the close of
business on December 1, 1997 as the date by which Consent Forms
must be received by the Managing General Partner in order to be
counted, and December 2, 1997 as the date on which the consents
are to be counted. An Investor may revoke his/her or its consent
at any time prior to December 1, 1997, provided written revocation
is received by the Managing General Partner at the address set
forth on the cover of this consent statement prior to that date.
The cost of solicitation of consents of the Investors will be
borne by the Fund. The solicitations will be made by the mails.
This Consent Statement is being first mailed to Investors on or
about October 24, 1997. Staff of the Managing General Partner
will be available by telephone to answer any questions concerning
this Consent.
INCORPORATION BY REFERENCE
The information included in the Fund's Annual Report on Form 10-
KSB for the year ended December 31, 1996, the quarter report on
Form 10-QSB for the quarter ended June 30, 1997, and current
report on Form 8-K dated August 28, 1997 are hereby incorporated
by reference. Copies of such Reports are being delivered to each
Investor with this Consent Statement.
BY ORDER OF THE BOARD OF DIRECTORS
OF AEI FUND MANAGEMENT XVI, INC.
Robert P. Johnson, President
Exhibit A
PROPOSED AMENDMENT OF
LIMITED PARTNERSHIP AGREEMENT OF
AEI REAL ESTATE FUND XVI
Changes in the existing provisions of the Partnership
Agreement that would be made by the proposed Reinvestment
Amendment and the proposed Repurchase Amendment are shown below.
Existing provisions proposed to be omitted are lined through and
enclosed in brackets. New Provisions are printed in bold type.
Only the portion of Section 5.4 that will be changed by the
Reinvestment Amendment is shown. If approved, the Reinvestment
Amendment will be effective immediately, while the Repurchase
Amendment will be effective for Units tendered in calendar 1998
and after.
17
REINVESTMENT AMENDMENT
SECTION 5.4 DISTRIBUTION OF NET PROCEEDS OF SALE
5.4 Distribution of Net Proceeds of Sale. Upon financing,
refinancing, sale or other disposition of any of the Properties,
Net Proceeds of Sale may be reinvested in additional properties
until [a date 120 months after the date on which the offer and
sale of units pursuant to the Prospectus is terminated,] THE
GENERAL PARTNER DETERMINES THAT IT IS IN THE BEST INTERESTS OF THE
FUND TO BEGIN LIQUIDATION OF THE FUND; provided, however, that
sufficient cash is distributed to the Limited Partners to pay
state and federal income taxes (assuming Limited Partners are
taxable at the lesser of (i) a 40% rate on ordinary income and a
16% rate on capital gain income or (ii) the maximum marginal rates
then in effect) created as a result of such transaction.
18
REPURCHASE AMENDMENT
SECTION 7.7 RIGHT TO PRESENT UNITS FOR PURCHASE
7.7 Right to Present Units for Purchase. (a) [Beginning in
calendar year 1988,] Each Limited Partner shall have the right,
subject to the provisions of this Section 7.7, to present SUCH
PARTNER'S Units to the Partnership for purchase by submitting to
the Managing General Partner [written] notice [(postmarked after
July 1 but before October 1 of such year)] ON A FORM SUPPLIED BY
THE PARTNERSHIP (A "REDEMPTION NOTICE") specifying the number of
Units he OR SHE wishes repurchased. THE MANAGING GENERAL PARTNER
SHALL ESTABLISH ON EACH OF JANUARY 1, APRIL 1, JULY 1, AND OCTOBER
1 OF EACH YEAR (THE "PRICING DATES"), AND SHALL MAKE AVAILABLE TO
LIMITED PARTNERS UPON REQUEST, A REPURCHASE PRICE (THE "REPURCHASE
PRICE") FOR UNITS, DETERMINED IN ACCORDANCE WITH THE FORMULA SET
FORTH BELOW, THAT SHALL APPLY TO ALL UNITS TENDERED FOR REPURCHASE
DURING THE CALENDAR QUARTER FOLLOWING SUCH PRICING DATE. [On
November 1 of each year,] SUBJECT TO THE LIMITATIONS SET FORTH
BELOW, the Managing General Partner shall cause the Partnership to
purchase on January 1, April 1, July 1, and OCTOBER 1 OF EACH YEAR
(A "REPURCHASE DATE"), AT A REPURCHASE PRICE EQUAL TO WAS THE
REPURCHASE PRICE ESTABLISHED FOR THE QUARTER IN WHICH THE
REDEMPTION NOTICE RECEIVED BY THE PARTNERSHIP, the Units of
Limited Partners [who have tendered their Units to the
Partnership] from which the Partnership HAS RECEIVED A NOTICE OF
REDEMPTION AT LEAST SIXTY DAYS PRIOR TO SUCH REPURCHASE DATE. [For
purchases in 1992 and each year thereafter,] The Repurchase Price
shall be equal to [the tendering Limited Partner's Adjusted
Capital Contribution on October 1 of the year of purchase
multiplied by seventy-five percent (75%) for purchases in calendar
year 1988 and ninety percent (90%) for purchases in calendar year
1989. For purchases in 1990 and in each year thereafter, the
purchase price shall be equal to] THE GREATER OF (I) NINETY
PERCENT (90%) OF THE NET VALUE OF THE PARTNERSHIP'S ASSETS ON THE
PRICING DATE DIVIDED BY THE NUMBER OF UNITS OUTSTANDING ON SUCH
PRICING DATE, OR (ii) one hundred percent (100%) of the tendering
Limited Partner's Adjusted Capital Contribution on [October 1,]
SUCH PRICING DATE, less fifty percent (50%) of all Net Cash Flow
previously distributed to such Limited Partner throughout the term
of the Partnership. The Partnership will not be obligated to
purchase in any year more than five percent (5%) of the total
number of Units outstanding on January 1 of such year. In the
event requests for purchase of Units received in any given year
exceed the five percent (5%) limitation, the Units to be purchased
will be determined based on the postmark date of the written
notice of Limited Partners tendering Units. The MANAGING GENERAL
PARTNER MAY SUSPEND REPURCHASES DURING ANY PERIOD AFTER THE
PARTNERSHIP HAS DISTRIBUTED NET PROCEEDS OF SALE AND DURING WHICH
THE MANAGING GENERAL PARTNER REASONABLY BELIEVES THAT THE
REPURCHASE PRICE DOES NOT APPROPRIATELY REFLECT THE NET VALUE OF
THE PARTNERSHIP'S REMAINING ASSETS LESS LIABILITIES. Any Units
tendered but not selected for purchase in any given year will be
considered for purchase in subsequent years only if the Limited
Partner retenders his OR HER Units. 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.
19
(b) For purposes of all calculations pursuant to
Article V of this agreement, any Net Cash Flow or Net Proceeds of
Sale used to repurchase Units or to repay borrowings that were
used to repurchase Units shall be deemed distributed to the
remaining Limited Partners pro rata based on the ratio of the
number of Units owned to all Units outstanding after such
repurchase. FOR PURPOSES OF THE FORMULA IN SUBSECTION (A)(II)
ABOVE, "NET VALUE" MEANS THE AGGREGATE VALUE OF THE PARTNERSHIP'S
ASSETS LESS THE PARTNERSHIP'S LIABILITIES AND LESS THE MANAGING
GENERAL PARTNER'S REASONABLE ESTIMATE OF DISTRIBUTIONS OF NET
PROCEEDS OF SALE FOR THE PERIOD AFTER THE PRICING DATE BUT BEFORE
THE REPURCHASE DATE, AS DETERMINED BY THE MANAGING GENERAL
PARTNER. IN DETERMINING NET VALUE, THE GENERAL PARTNER MAY ALSO
TAKE INTO ACCOUNT (I) THE PRESENT VALUE OF FUTURE NET CASH FLOW
FROM RENTAL INCOME ON THE FUND'S PROPERTIES, (II) THE PRICE AT
WHICH UNITS OF THE PARTNERSHIP HAVE BEEN PURCHASED, AND (III) SUCH
OTHER FACTORS AS THE GENERAL PARTNERS DEEM RELEVANT.
IMPORTANT IMPORTANT
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
CONSENT OF LIMITED PARTNERS
This consent is solicited by the Board
of Directors of AEI Fund Management XVI, Inc.,
The Managing General Partner
The undersigned, a Limited Partner of AEI Real Estate Fund
XVI Limited Partnership (the "Fund"), hereby consents (unless
otherwise directed below) to the proposals identified below to
adopt (i) an Amendment to Section 5.4 of the Limited Partnership
Agreement (the "Partnership Agreement") of the Fund (the
"Reinvestment Amendment"), and (ii) an Amendment to Section 7.7 of
the Partnership Agreement (the "Repurchase Amendment"), as more
fully described in the accompanying Consent Statement (together,
the "Amendments"). By voting for the Amendments, or either of
them, the undersigned hereby appoints AEI Fund Management XVI,
Inc. as its attorney-in-fact with power to sign and acknowledge on
its behalf any instrument that may be necessary to evidence either
Amendment to the Partnership Agreement and any corresponding
Amendment to the Fund's Certificate of Limited Partnership.
20
Please date and sign this Consent below and return it in the
enclosed, postage paid envelope. To be counted, this Consent must
be received not later than the close of business on December 1,
1997.
1. Adoption of the Reinvestment Amendment to Section 5.4 of
the Partnership Agreement
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Adoption of the Repurchase Amendment to Section 7.7 of
the Partnership Agreement
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The Fund Units held by the signing Limited Partner will be
voted as directed. They will be voted "FOR" the an Amendment if
no box is checked.
Please sign exactly as your name appears below. When Fund
Units are held by joint tenants, both owners should sign. When
signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in
full corporate name by president or other authorized officer. If
a partnership, please sign in partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS CONSENT.
Dated: , 1997
Signature (if held jointly)
21