UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the transition period from ---------- to ----------
Commission File Number: 0-25436
AAA NET REALTY FUND X, LTD.
NEBRASKA LIMITED PARTNERSHIP IRS IDENTIFICATION NO.
76-0381949
8 GREENWAY PLAZA, SUITE 824 HOUSTON, TX 77046
(713) 850-1400
Indicate by check mark whether the issuer (1) has 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 issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. X Yes No
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AAA NET REALTY FUND X, LTD.
(A LIMITED PARTNERSHIP)
BALANCE SHEET
JUNE 30, 1999
(Unaudited)
ASSETS
Cash and cash equivalents $ 251,269
Accounts receivable 781
Property:
Land 2,566,250
Buildings 5,370,984
------------
7,937,234
Accumulated depreciation (761,583)
------------
Total property 7,175,651
------------
Net investment in direct financing leases 620,010
Investment in joint ventures 1,366,816
Other assets:
Accrued rental income 135,654
Deferred lease costs 31,765
Accumulated amortization (1,568)
------------
Total other assets 165,851
------------
TOTAL ASSETS $ 9,580,378
============
LIABILITIES AND PARTNERSHIP EQUITY
Liabilities:
Accounts payable $ 32,666
Security deposit 12,000
------------
TOTAL LIABILITIES 44,666
------------
Partnership equity:
General partners 18,355
Limited partners 9,517,357
------------
TOTAL PARTNERSHIP EQUITY 9,535,712
------------
TOTAL LIABILITIES AND PARTNERSHIP EQUITY $ 9,580,378
============
See Notes to Financial Statements.
2
AAA NET REALTY FUND X, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
Quarter Year To Date
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Rental income from operating leases $ 217,281 $ 214,211 $ 434,564 $ 430,330
Earned income from direct financing
leases 17,668 17,594 35,336 35,188
Interest income 638 1,086 1,550 2,112
Equity income from investment in
joint ventures 35,582 35,544 71,156 71,079
---------- ---------- ---------- ----------
Total revenues 271,169 268,435 542,606 538,709
---------- ---------- ---------- ----------
Expenses:
Advisory fees to related party 19,716 17,283 39,432 34,566
Amortization 784 12,755 1,568 27,755
Depreciation 36,116 36,118 72,233 72,234
Professional fees 4,708 5,526 10,920 16,289
---------- ---------- ---------- ----------
Total expenses 61,324 71,682 124,153 150,844
---------- ---------- ---------- ----------
Net income $ 209,845 $ 196,753 $ 418,453 $ 387,865
========== ========== ========== ==========
Allocation of net income:
General partners $ 2,099 $ 1,968 $ 4,185 $ 3,879
Limited partners 207,746 194,785 414,268 383,986
---------- ---------- ---------- ----------
$ 209,845 $ 196,753 $ 418,453 $ 387,865
========== ========== ========== ==========
Net income per unit $ 18.32 $ 17.18 $ 36.53 $ 33.86
========== ========== ========== ==========
Weighted average units outstanding 11,454 11,454 11,454 11,454
========== ========== ========== ==========
See Notes to Financial Statements.
3
AAA NET REALTY FUND X, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
Quarter Year To Date
1999 1998 1999 1998
---- ---- ---- ----
Cash flows from operating activities:
Net income $ 209,845 $ 196,753 $ 418,453 $ 387,865
Adjustments to reconcile net income
to net cash flows from operating
activities:
Amortization 784 12,755 1,568 27,755
Depreciation 36,116 36,118 72,233 72,234
Decrease in accounts receivable 27,181 - 390 14,399
Increase (decrease)in accounts payable (823) (1,528) 31,052 (12,760)
Cash received from direct financing
leases less than income recognized (891) (817) (1,782) (1,634)
Investment in joint ventures:
Equity income (35,582) (35,544) (71,156) (71,079)
Distributions received 35,582 35,544 71,156 71,079
Increase in accrued rental income (7,511) (4,728) (15,311) (11,364)
Increase in leasing commissions - - (31,765) -
---------- ---------- ---------- ----------
Net cash provided by operating
activities 264,701 238,553 474,838 476,495
---------- ---------- ---------- ----------
Cash flows from investing activities:
Joint venture distributions in excess
of income 2,338 1,088 3,398 2,187
---------- ---------- ---------- ----------
Net cash provided by investing activities 2,338 1,088 3,398 2,187
---------- ---------- ---------- ----------
Cash flows from financing activities:
Distributions paid to partners (234,016) (232,871) (468,603) (466,213)
---------- ---------- ---------- ----------
Net cash used in financing activities (234,016) (232,871) (468,603) (466,213)
---------- ---------- ---------- ----------
Net increase in cash and cash equivalents 33,023 6,770 9,633 12,469
Cash and cash equivalents at beginning
of period 218,246 228,118 241,636 222,419
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period $ 251,269 $ 234,888 $ 251,269 $ 234,888
========== ========== ========== ==========
See Notes to Financial Statements.
4
AAA NET REALTY FUND X, LTD
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AAA Net Realty Fund X, Ltd. ("the Partnership"), is a limited partnership
formed April 15, 1992, under the laws of the State of Nebraska. American
Asset Advisers Management Corporation X (a Nebraska corporation) is the
managing general partner and H. Kerr Taylor is the individual general
partner.
The Partnership was formed to acquire commercial properties for cash, own,
lease, operate, manage and eventually sell the properties. Prior to June 5,
1998, the selection, acquisition, and supervision of the operations of the
properties was managed by American Asset Advisers Realty Corporation
("AAA"), a related party. Beginning June 5, 1998, the supervision of the
operations of the properties is managed by AmREIT Realty Investment
Corporation, ("ARIC"), a related party.
The financial records of the Partnership are maintained on the accrual
basis of accounting whereby revenues are recognized when earned and
expenses are reflected when incurred.
For purposes of the statement of cash flows, the Partnership considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. There has been no cash paid for income taxes
or interest during 1999 or 1998.
Real estate is leased to others on a net lease basis whereby all operating
expenses related to the properties including property taxes, insurance and
common area maintenance are the responsibility of the tenant. The leases
are accounted for under the operating method or the direct financing
method.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Under the operating method, the properties are recorded at cost. Rental
income is recognized ratably over the life of the lease and depreciation is
charged as incurred.
Under the direct financing method, the properties are recorded at their net
investment. Unearned income is deferred and amortized to income over the
life of the lease so as to produce a constant periodic rate of return.
The Partnership's interests in joint venture investments are accounted for
under the equity method whereby the Partnership's investment is increased
or decreased by its share of earnings or losses in the joint venture and
also decreased by any distributions. The Partnership owns a minority
interest and does not exercise control over the management of the joint
ventures.
5
All income and expense items flow through to the partners for tax purposes.
Consequently, no provision for federal or state income taxes is provided in
the accompanying financial statements.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and include all of the
disclosures required by generally accepted accounting principles. The
financial statements reflect all normal and recurring adjustments which
are, in the opinion of management, necessary to present a fair statement of
results for the three and six month periods ended June 30, 1999 and 1998.
The financial statements of AAA Net Realty Fund X, Ltd. contained herein
should be read in conjunction with the financial statements included in the
Partnership's annual report on Form 10-KSB for the year ended December 31,
1998.
2. PARTNERSHIP EQUITY
The managing general partner, American Asset Advisers Management
Corporation X, and the individual general partner, H. Kerr Taylor, have
made capital contributions in the amounts of $990 and $10, respectively.
The general partners shall not be obligated to make any other contributions
to the Partnership, except that, in the event that the general partners
have negative balances in their capital accounts after dissolution and
winding up of, or withdrawal from, the Partnership, the general partners
will contribute to the Partnership an amount equal to the lesser of the
deficit balances in their capital accounts or 1.01% of the total capital
contributions of the limited partners' over the amount previously
contributed by the general partners.
3. RELATED PARTY TRANSACTIONS
The Partnership Agreement provides for the payment for services necessary
for the prudent operation of the Partnership and its assets with the
exception that no reimbursement is permitted for rent, utilities, capital
equipment, salaries, fringe benefits or travel expenses allocated to the
individual general partner or to any controlling persons of the managing
general partner. In connection therewith, a total of $19,716 and $39,432
were incurred and paid to ARIC for the three and six months ended June 30,
1999, respectively and $17,283 and $34,566 were incurred and paid to AAA or
ARIC for the three and six months ended June 30, 1998, respectively.
4. MAJOR LESSEES
The following schedule summarizes total rental income by lessee for the
three and six months ended June 30, 1999 and 1998 under both operating and
direct financing leases:
Quarter Year to Date
1999 1998 1999 1998
---- ---- ---- ----
Golden Corral Corporation (Texas) $ 43,241 $ 43,241 $ 86,482 $ 86,482
TGI Friday's, Inc. (Texas) 45,126 45,126 90,252 90,252
Goodyear Tire & Rubber Company (Texas) 13,227 13,227 26,454 26,454
Tandy Corporation (Minnesota) 64,155 64,155 128,310 128,310
America's Favorite Chicken Company (Georgia) 25,664 25,926 51,330 51,852
One Care/Memorial Hermann Hospital (Texas) 43,536 40,130 87,072 82,168
--------- --------- --------- ---------
Total $ 234,949 $ 231,805 $ 469,900 $ 465,518
========= ========= ========= =========
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The Partnership was organized on April 15, 1992, to acquire, on a debt-free
basis, existing and newly constructed commercial properties located in the
continental United States and particularly in the Southwest, to lease these
properties to tenants under generally "triple net" leases, to hold the
properties with the expectation of equity appreciation and eventually to resell
the properties.
The Partnership's overall investment objectives are to acquire properties that
offer investors the potential for (i) preservation and protection of the
Partnership's capital; (ii) partially tax-deferred cash distributions from
operations; and (iii) long-term capital gains through appreciation in value of
the Partnership's properties realized upon sale.
The operations of the Partnership are relatively simple and are managed by ARIC,
a subsidiary of AmREIT, Inc. (the "Company"). The following disclosure has been
made in the Form 10-KSB of the Company.
The Year 2000 problem ("Y2K") concerns the inability of information and
non-information technology systems to properly recognize and process
date-sensitive information beyond January 1, 2000. The Company's information
technology system consists of a network of personal computers and servers built
using hardware and software from mainstream suppliers. The Company has no
internally generated programmed software coding to correct, as all of the
software utilized by the Company is purchased or licensed from external
providers.
In 1998, the Company formed a Year 2000 committee (the "Y2K Team") for the
purpose of identifying, understanding and addressing the various issues
associated with the Year 2000 problems. The Y2K Team consists of members from
the Company, including representatives from senior management, accounting and
computer consultants. The Y2K Team's initial step in assessing the Company's Y2K
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have potential Y2K problems. The Y2K Team is in the process
of conducting inspections, interviews and tests to identify which of the
Company's systems could have a potential Y2K problem.
The Company's information system is comprised of hardware and software
applications from mainstream suppliers; accordingly, the Y2K Team is in the
process of contacting the respective vendors and manufacturers to verify the Y2K
compliance of their products. In addition, the Y2K Team has also requested and
is evaluating documentation from other companies with which the Company has a
material third party relationship, including the Company's tenants, major
vendors, financial institutions and the Company's transfer agent. The Company
depends on its tenants for rents and cash flows, its financial institutions for
availability of cash and financing and its transfer agent to maintain and track
investor information. Although the Company continues to receive positive
responses from its third party relationships regarding their Y2K compliance, the
Company cannot be assured that the tenants, financial institutions, transfer
agent and other vendors have adequately considered the impact of the Year 2000.
The Company does not expect the Y2K impact of third parties to have a materially
adverse effect on its results of operation or financial position.
The Company has identified and has implemented upgrades for certain hardware
equipment. In addition, the Company has identified certain software applications
which will require upgrades to become Year 2000 compliant. The Company expects
all of these upgrades as well as any other necessary remedial measures on the
information technology systems used in the business activities and operations of
the Company to be completed by September 30, 1999. The Company does not expect
the aggregate cost of the Year 2000 remedial measures to exceed $10,000.
7
Based upon the progress the Company has made in addressing its Year 2000 issues,
the Company does not foresee significant risks associated with its Year 2000
compliance at this time. The Company plans to address its significant Year 2000
issues prior to being affected by them; therefore, it has not developed a
comprehensive contingency plan. However, if the Company identifies significant
risks related to its Year 2000 compliance, the Company will develop contingency
plans as deemed necessary at that time.
RESULTS OF OPERATIONS
For the three months ended June 30, 1999, revenues totaled $271,169 which
included $270,531 from real estate operations and $638 of interest income.
Revenues for the second quarter of 1999 increased slightly from those of the
second quarter of 1998. Expenses decreased from $71,682 in the second quarter of
1998 to $61,324 in the second quarter of 1999 primarily from a decrease in
amortization and professional expenses partially offset by an increase in
advisory fees. The Partnership recorded $209,845 of net income for the second
quarter of 1999 compared to $196,753 for the second quarter of 1998.
For the six months ended June 30, 1999, revenues totaled $542,606 which included
$541,056 from real estate operations and $1,550 of interest income. Revenues for
the first six months of 1999 increased $3,897 from those of the first six months
of 1998 which was attributable to a $4,234 increase in rental income and a
slight decrease of $562 in interest income. Rental income increased based upon a
specified rental adjustment during the first six months of 1999. Expenses
decreased from $150,844 in the first six months of 1998 to $124,153 in the first
six months of 1999 primarily from a decrease in professional and amortization
fees partially offset by an increase in advisory fees. The Partnership recorded
$418,453 of net income for the first six months of 1999 compared to $387,865 for
the first six months of 1998.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AAA Net Realty Fund X, Ltd.
(Issuer)
August 13, 1999 /s/ H. Kerr Taylor
- --------------- ------------------
Date H. Kerr Taylor, President of General Partner
August 13, 1999 /s/ L. Larry Mangum
- --------------- -------------------
Date L. Larry Mangum (Principal Accounting Officer)
10