UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 33-79766
AAA NET REALTY FUND XI, LTD.
TEXAS LIMITED PARTNERSHIP IRS IDENTIFICATION NO.
76-0451986
8 GREENWAY PLAZA, SUITE 824 HOUSTON, TX 77046
Indicate by check mark whether the registrant (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 registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION H (1) (a) AND (b) OF FORM 10-Q AND IS, THEREFORE,
FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AAA NET REALTY FUND XI, LTD.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
SEPTEMBER 30, DECEMBER 31,
1996 1995
(Unaudited)
ASSETS
CASH & CASH EQUIVALENTS $ 2,776,543 $ 1,642,729
ACCOUNTS RECEIVABLE 73 10,750
PROPERTY
Land 236,961 235,832
Building 552,911 550,275
789,872 786,107
Accumulated depreciation (11,222) (588)
TOTAL PROPERTY 778,650 785,519
INVESTMENT IN JOINT VENTURES 2,216,109 871,620
OTHER ASSETS:
Acquisition Costs 4,607 2,506
Accrued Rental Income 4,689 0
Organization Costs, net of accumulated amortization
of $54,113 and $20,890, respectively 245,887 151,643
TOTAL OTHER ASSETS 255,183 154,149
TOTAL ASSETS 6,026,558 3,464,767
LIABILITIES & PARTNERSHIP EQUITY
LIABILITIES
Accounts payable 70,120 21,926
TOTAL LIABILITIES 70,120 21,926
PARTNERSHIP EQUITY
General partners 3,209 1,773
Limited partners 5,953,229 3,441,068
TOTAL PARTNERSHIP EQUITY 5,956,438 3,442,841
TOTAL LIABILITIES & PARTNERSHIP EQUITY $ 6,026,558 $ 3,464,767
LIMITED PARTNERSHIP UNITS OUTSTANDING 6,676.0 3,828.5
See Notes to Financial Statements.
2
AAA NET REALTY FUND XI, LTD.
(A LIMITED PARTNERSHIP)
STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(Unaudited)
Quarter Year to Date
1996 1995 1996 1995
INCOME
Rental income $ 23,588 $ 0 $ 66,976 $ 0
Equity income from investment
in joint ventures 24,913 3,952 65,625 3,952
Interest income 38,761 32,416 90,175 62,988
TOTAL INCOME 87,262 36,368 222,776 66,940
EXPENSES
Administrative expense 3,999 0 11,997 0
Accounting fees 600 300 6,600 1,250
Amortization 13,623 6,764 33,223 12,813
Bank charges 65 192 205 665
Depreciation 3,578 0 10,633 0
Filing fees 1710 1635 2060 1635
Legal and professional fees 1,936 1,074 8,448 1,118
Printing 985 0 5,058 0
Other 74 15 930 15
TOTAL EXPENSES 26,570 9,980 79,154 17,496
NET INCOME $ 60,692 $ 26,388 $ 143,622 $ 49,444
ALLOCATION OF NET INCOME
General partners $ 607 $ 264 $ 1,436 $ 494
Limited partners 60,085 26,124 142,186 48,950
$ 60,692 $ 26,388 $ 143,622 $ 49,444
NET INCOME PER UNIT $ 10.04 $ 8.91 $ 29.16 $ 20.45
WEIGHTED AVERAGE UNITS
OUTSTANDING 6,044 2,963 4,926 2,418
See Notes to Financial Statements.
3
AAA NET REALTY FUND XI, LTD.
(A LIMITED PARTNERSHIP)
STATEMENT OF PARTNERSHIP EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
PARTNERSHIP EQUITY AT
DECEMBER 31, 1995 $ 1,773 $ 3,441,068 $ 3,442,841
CAPITAL CONTRIBUTIONS - NET 0 295,455 295,455
NET INCOME 360 35,652 36,012
DISTRIBUTIONS 0 (49,109) (49,109)
PARTNERSHIP EQUITY AT
MARCH 31, 1996 2,133 3,723,066 3,725,199
CAPITAL CONTRIBUTIONS - NET 0 688,653 688,653
NET INCOME 469 46,449 46,918
DISTRIBUTIONS 0 (60,604) (60,604)
PARTNERSHIP EQUITY AT
JUNE 30, 1996 2,602 4,397,564 4,400,166
CAPITAL CONTRIBUTIONS - NET 0 1,564,960 1,564,960
NET INCOME 607 60,085 60,692
DISTRIBUTIONS 0 (69,380) (69,380)
PARTNERSHIP EQUITY AT
SEPTEMBER 30, 1996 $ 3,209 $ 5,953,229 $ 5,956,438
See Notes to Financial Statements.
4
AAA NET REALTY FUND XI, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(Unaudited)
Quarter Year to Date
1996 1995 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 60,692 $ 26,388 $ 143,622 $ 49,444
Adjustments to reconcile net income to
net cash from operating activities:
Amortization 13,623 6,764 33,223 12,813
Depreciation 3,578 0 10,633 0
Decrease in accounts receivable 9,553 0 10,677 0
Increase in accounts payable 32,767 2,729 48,194 2,821
Investment in joint venture:
Equity income (24,913) (3,952) (65,625) (3,952)
Distributions received 24,913 3,952 65,625 3,952
Increase in accrued rental income (1,562) 0 (4,689) 0
Increase in organization costs (78,677) (35,382) (127,467) (148,309)
NET CASH FLOWS FROM OPERATING ACTIVITIES 39,974 499 114,193 (83,231)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition costs 27,579 24,367 (2,101) (25,645)
Investment in property (3,765) 0 (3,765) 0
Investment in joint ventures (1,322,515) (873,711) (1,352,365) (884,461)
Joint venture distributions in excess of income 2,536 653 7,877 653
NET CASH FLOWS FROM INVESTING ACTIVITIES (1,296,165) (848,691) (1,350,354) (909,453)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions - limited partners, net of
syndication costs 1,564,960 706,602 2,549,068 2,949,114
Distributions (69,380) (25,074) (179,093) (25,074)
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,495,580 681,528 2,369,975 2,924,040
NET INCREASE (DECREASE) IN CASH
and CASH EQUIVALENTS 239,389 (166,664) 1,133,814 1,931,356
CASH and CASH EQUIVALENTS at beginning of period 2,537,154 2,099,020 1,642,729 1,000
CASH and CASH EQUIVALENTS at end of period $ 2,776,543 $ 1,932,356 $ 2,776,543 $ 1,932,356
See Notes to Financial Statements.
5
AAA NET REALTY FUND XI, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,1996 AND SEPTEMBER 30,1995
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AAA Net Realty Fund XI, Ltd. ("the Partnership"), is a limited
partnership formed under the laws of the State of Texas.
American Asset Advisers Management Corporation XI (a Texas
corporation) is the managing general partner and H. Kerr Taylor
is the individual general partner. On March 3, 1995, the general
partners distributed the proceeds from the escrow account and
funded the Partnership. As of September 30, 1996, contributions
had been received for 6,676.0 units. The offering period for
subscriptions terminated on October 26, 1996 with a total of
7,086.2 units having been subscribed at an offering price of
$1,000.
The Partnership was formed to acquire commercial properties for
cash. The Partnership will own, lease, operate, manage and
eventually sell the properties. The selection, acquisition, and
supervision of the operations of the properties is managed by
American Asset Advisers Realty Corporation ("AAA"), 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 1996 or
1995.
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 lease is accounted for under
the operating method whereby the property is recorded at cost,
rental income is recognized ratably over the life of the lease
and depreciation is charged as incurred.
The Partnership's investment in joint ventures are accounted for
under the equity method whereby its initial investment in the
joint venture is recorded at its cost which is then increased or
decreased by its share of earnings or losses in the joint venture
and also decreased by any distributions.
Organization costs are amortized on a straight line basis over
five years.
Syndication costs are reflected as a reduction of the capital
contributions of the limited partners.
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.
6
The accompanying unaudited financial statements have been
prepared in accordance with the instructions to Form 10-Q and do
not 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 nine month periods ended September 30, 1996 and
September 30, 1995.
The financial statements of AAA Net Realty Fund XI, Ltd.
contained herein should be read in conjunction with the financial
statements included in the Partnership's annual report on Form
10-K for the year ended December 31, 1995.
2. PARTNERSHIP EQUITY
The managing general partner, American Asset Advisers Management
Corporation XI, 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 deficit
balances in their capital account.
3. RELATED PARTY TRANSACTIONS
Certain costs have been incurred by the General Partners and
affiliates in connection with the organization and syndication of
the Partnership. Reimbursement of these costs become obligations
of the Partnership in accordance with the terms of the offering.
The costs incurred to organize the Partnership have been
capitalized as Organization Costs. In connection therewith,
$63,000 and $77,269 were paid to AAA for costs incurred for the
three and nine months ended September 30, 1996, respectively and
$31,815 and $95,540 were paid to AAA for the three and nine
months ended September 30, 1995, respectively. In addition,
$43,334 and $75,363 of costs, reflected as Syndication Costs and
netted against Partnership Equity, were incurred by AAA for the
issuance and marketing of partnership units during the first
three and nine months of 1996, respectively and $18,555 and
$68,626 were paid to AAA for the three and nine months ended
September 30, 1995, respectively.
Acquisition expenses, including real estate commissions, finders
fees, consulting fees and any other non-recurring fees incurred
in connection with locating, evaluating and selecting properties
and structuring and negotiating the acquisition of properties are
included in the basis of the properties. $34,960 and $60,663 of
such fees were incurred and paid to AAA for the three and nine
months ended September 30, 1996, respectively. $12,390 and
$62,402 of such fees were incurred and paid to AAA for the three
and nine months ended September 30, 1995, respectively.
The Partnership Agreement provides for the reimbursement for
administrative 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, $3,999
and $11,997 were incurred and paid to AAA for the first three and
nine months of 1996, respectively. No administrative fees were
incurred in the first nine months of 1995.
7
On September 12, 1995, the Partnership acquired a 49% interest in
a joint venture with American Asset Advisers Trust, Inc.("ATI"),
an affiliated entity. The joint venture was formed for the
purpose of acquiring a property which is being operated as a
Blockbuster Music Store in Wichita, Kansas.
On April 5, 1996, the Partnership entered into a joint venture
with ATI and AAA Net Realty Fund X, Ltd., affiliates, for the
purpose of acquiring a property which is being operated as a Just
For Feet retail store in Tucson, Arizona. The Partnership's
interest in the joint venture is 29.85%. The property was
purchased on September 11, 1996 after the construction was
completed.
On September 23, 1996, the Partnership entered into a joint
venture with ATI for the purpose of acquiring property in The
Woodlands, Texas upon which a branch bank building will be
constructed. The Partnership s interest in the joint venture is
49%.
4. MAJOR LESSEE
The Partnership's operations are all related to the acquisition
and leasing of commercial real estate properties. Total rental
income of $23,588 and $66,976 was received from Blockbuster
Videos, Inc. (Oklahoma City, Oklahoma) for the three and nine
months ended September 30, 1996, respectively. The Partnership
did not receive any rental income for the three and nine months
ended September 30, 1995.
8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
AAA Net Realty Fund XI, Ltd., a Texas limited partnership, was
formed May 26, 1994 to acquire on a debt-free basis, existing and
newly constructed commercial properties to be held for
investment, lease and subsequent disposal. The leases will
provide for a base minimum annual rent and periodic increases in
rent. In addition, the major operating costs of the
Partnership's properties will either be paid for by the tenant or
the lease will limit the extent of the Partnership's obligation
for such expenses. The Offering for 20,000 limited partnership
units was effective October 27, 1994. As of September 30, 1996,
contributions had been received for 6,676.0 units. The offering
period for subscriptions terminated on October 26, 1996 with a
total of 7,086.2 units having been subscribed at an offering
price of $1,000.
LIQUIDITY AND CAPITAL RESOURCES
On April 5, 1996, the Partnership entered into a joint venture
with two affiliated entities for the purpose of acquiring a
property which is being operated as a Just For Feet retail store.
The Partnership's interest in the joint venture is 29.85% and the
Partnership s share of the purchase price for the property was
$1,044,077 plus $46,835 in acquisition fees paid to affiliates.
The property was purchased on September 11, 1996 after the
construction was completed.
On September 23, 1996, the Partnership entered into a joint
venture with American Asset Advisers Trust, Inc. for the purpose
of acquiring property in The Woodlands, Texas upon which a branch
bank building will be constructed. The Partnership s interest in
the joint venture is 49% and the Partnership s share of the
purchase price for the property was $250,368 plus $11,025 in
acquisition fees paid to affiliates.
The acquisitions of the above-mentioned properties result in a
decrease in the Partnership's liquidity. This is in keeping with
the Partnership's policy of acquiring commercial properties for
investment, lease and subsequent disposal. As funds are invested
in commercial properties, the Partnership's liquidity needs will
be met through the rental income received from these properties.
RESULTS OF OPERATIONS
For the three months ended September 30, 1996, revenues totaled
$87,262, which included $48,501 from real estate operations and
$38,761 of interest income. Revenues for the third quarter of
1996 increased $50,894 from those of the third quarter of 1995
when the Partnership had just begun operations and had acquired
its first real estate property on September 12, 1995. The
increase in the Partnership's activity also contributed to an
increase in expenses from $9,980 in the third quarter of 1995 to
$26,570 in the third quarter of 1996. The Partnership recorded
net income of $60,692 in the third quarter of 1996 compared to
$26,388 in the third quarter of 1995.
9
For the nine months ended September 30, 1996, revenues totaled
$222,776, which included $132,601 from real estate operations and
$90,175 of interest income. Revenues for the first nine months
of 1996 increased $155,836 from those of the first nine months of
1995 when the Partnership had just begun operations and had
acquired its first real estate property on September 12, 1995.
The increase in the Partnership's activity also contributed to an
increase in expenses from $17,496 in the first nine months of
1995 to $79,154 in the first nine months of 1996. The
Partnership recorded net income of $143,622 in the first nine
months of 1996 compared to $49,444 in the first nine months of
1995.
On March 3, 1995, the general partners distributed the proceeds
from the escrow account and funded the Partnership. For the nine
months ended September 30, 1995, revenues totaled $66,940, which
included $3,952 from real estate operations and $62,988 of
interest income and the Partnership's net income totaled $49,444.
For the three months ended September 30, 1995, revenues totaled
$36,368, which included $3,952 from real estate operations and
$32,416 of interest income and the Partnership's net income
totaled $26,388.
10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
Form 8-K was filed on October 8, 1996 to report the acquisition
of a property through a joint venture with an affiliate which
will be operated as a Bank United branch bank upon completion
of construction of the property.
Exhibit 27 - Financial Data Schedule
11
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 XI, Ltd
(Registrant)
November 14, 1996 H. Kerr Taylor
Date H. Kerr Taylor, President of
General Partner
November 14, 1996 H. Kerr Taylor
Date H. Kerr Taylor, Chief
Financial Officer
of General Partner
12