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, 1995
Commission file number: 0-14263
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer as Specified in its
Charter)
State of Minnesota 41-1511293
(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 85-A LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Item 1. Balance Sheet as of September 30, 1995 and December 31, 1994
Statements for the Periods ended September 30, 1995 and 1994:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Default 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
<PAGE>
<TABLE>
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
BALANCE SHEET
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(Unaudited)
ASSETS
<CAPTION>
1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash $2,436,996 $1,431,971
Receivables 9,469 6,490
---------- ----------
Total Current Assets 2,446,465 1,438,461
---------- ----------
INVESTMENTS IN REAL ESTATE:
Land 1,273,208 1,668,370
Buildings and Equipment 1,622,612 2,319,578
Accumulated Depreciation (771,370) (999,232)
---------- ----------
Net Investments in Real Estate 2,124,450 2,988,716
---------- ----------
Total Assets $4,570,915 $4,427,177
========== ==========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 26,938 $ 24,292
Distributions Payable 84,315 83,757
---------- ----------
Total Current Liabilities 111,253 108,049
---------- ----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (33,502) (34,908)
Limited Partners, $1,000 Unit value;
7,500 Units authorized and issued;
7,125 Units outstanding 4,493,164 4,354,036
---------- ----------
Total Partners' Capital 4,459,662 4,319,128
---------- ----------
Total Liabilities and Partners' Capital $4,570,915 $4,427,177
========== ==========
<FN>
The accompanying Notes to Financial Statements are an
integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
9/30/95 9/30/94 9/30/95 9/30/94
<S> <C> <C> <C> <C>
INCOME:
Rent $ 78,804 $132,519 $270,394 $383,075
Investment Income 29,710 4,497 77,428 7,393
-------- -------- -------- --------
Total Income 108,514 137,016 347,822 390,468
-------- -------- -------- --------
EXPENSES:
Partnership Administration - Affiliates 22,590 22,637 73,602 72,808
Partnership Administration and Property
Management - Unrelated Parties (1,822) 1,822 57,415 27,119
Depreciation 22,169 33,135 75,012 101,457
-------- -------- -------- --------
Total Expenses 42,937 57,594 206,029 201,384
-------- -------- -------- --------
NET OPERATING INCOME 65,577 79,422 141,793 189,084
GAIN ON SALE OF REAL ESTATE 281,170 632,469 281,170 638,110
-------- -------- -------- --------
NET INCOME $346,747 $711,891 $422,963 $827,194
======== ======== ======== ========
NET INCOME ALLOCATED:
General Partners $ 3,468 $ 7,119 $ 4,230 $ 8,272
Limited Partners 343,279 704,772 418,733 818,922
-------- -------- -------- --------
$346,747 $711,891 $422,963 $827,194
======== ======== ======== ========
NET INCOME PER
LIMITED PARTNERSHIP UNIT
(7,125 and 7,134 weighted average
Units outstanding in 1995 and 1994,
respectively) $ 48.18 $ 98.79 $ 58.77 $114.79
======= ======= ======= =======
<FN>
The accompanying Notes to Financial Statements are an
integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
<CAPTION>
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 422,963 $ 827,194
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 75,012 101,457
Gain on Sale of Real Estate (281,170) (638,110)
Increase in Receivables (2,979) (4,308)
Increase in Payable to
AEI Fund Management, Inc. 2,646 18,409
Increase in Unearned Rent 0 7,841
--------- ---------
Total Adjustments (206,491) (514,711)
--------- ---------
Net Cash Provided by
Operating Activities 216,472 312,483
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 1,070,424 1,263,837
Decrease in Long-Term Note Receivable 0 62,962
--------- ---------
Net Cash Provided by
Investing Activities 1,070,424 1,326,799
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Distributions Payable 558 (10,700)
Distributions to Partners (282,429) (260,610)
--------- ---------
Net Cash Used for
Financing Activities (281,871) (271,310)
--------- ---------
NET INCREASE IN CASH 1,005,025 1,367,972
CASH, beginning of period 1,431,971 99,378
--------- ---------
CASH, end of period $2,436,996 $1,467,350
========= =========
<FN>
The accompanying Notes to Financial Statements are an
integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
<CAPTION>
General Limited
Partners Partners Total
<S> <C> <C> <C>
BALANCE, December 31, 1993 $ (38,414) $4,006,945 $3,968,531
Distributions (2,606) (258,004) (260,610)
Net Income 8,272 818,922 827,194
---------- ---------- ----------
BALANCE, September 30, 1994 $ (32,748) $4,567,863 $4,535,115
========== ========== ==========
BALANCE, December 31, 1994 $ (34,908) $4,354,036 $4,319,128
Distributions (2,824) (279,605) (282,429)
Net Income 4,230 418,733 422,963
---------- ---------- ----------
BALANCE, September 30, 1995 $ (33,502) $4,493,164 $4,459,662
========== ========== ==========
<FN>
The accompanying Notes to Financial Statements are an
integral part of this statement.
</TABLE>
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(Unaudited)
(1)The condensed statements included herein have been
prepared by the Partnership, without audit, 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 85-A Limited Partnership
(Partnership) was formed to acquire and lease
commercial properties to operating tenants. The
Partnership's operations are managed by Net Lease
Management 85-A, Inc. (NLM), the Managing General
Partner of the Partnership. Robert P. Johnson, the
President and sole shareholder of NLM, serves as the
Individual General Partner of the Partnership. An
affiliate of NLM, 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 April 15, 1985 when
minimum subscriptions of 1,300 Limited Partnership
Units ($1,300,000) were accepted. The Partnership's
offering terminated on June 20, 1985 when the maximum
subscription limit of 7,500 Limited Partnership Units
($7,500,000) was reached.
Under the terms of the Limited Partnership Agreement,
the Limited Partners and General Partners contributed
funds of $7,500,000 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 85-A 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 85-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3)Investments in Real Estate -
In February, 1994, the Partnership sold 4,899 square
feet of land from the Perkins' property in Bozeman,
Montana pursuant to a Right of Way Agreement with the
State of Montana Department of Transportation. The
Partnership received net sale proceeds of $36,605 which
resulted in a net gain of $5,641. The original cost of
the parcel of land was $30,964.
On September 19, 1994, the Partnership sold the
remainder of the Perkins' property to the lessee. The
Partnership received net sale proceeds of $1,227,101
which resulted in a net gain of $632,338. At the time
of sale, the cost and related accumulated depreciation
of the property was $796,901 and $202,138,
respectively. In February, 1995, the Managing General
Partner filed a proxy statement to propose an Amendment
to the Limited Partnership Agreement that would allow
the Partnership to reinvest the net proceeds in
additional properties. The Amendment passed with a
majority of Units voting in favor of the Amendment.
On March 20, 1995, the Partnership sold the Hardee's
restaurant in Sierra Vista, Arizona to an unrelated
third party. The Partnership received net sale
proceeds of $296,020, which resulted in a net loss of
$166,000, which was recognized in the fourth quarter of
1994.
On July 19, 1995, the Partnership sold the Fair Muffler
in Ashwaubenon, Wisconsin to the lessee. The
Partnership received net sale proceeds of $299,874,
which resulted in a net gain of $130,181. At the time
of sale, the cost and related accumulated depreciation
of the property was $230,134 and $60,441, respectively.
On August 28, 1995, the Partnership sold the Hardee's
restaurant in Wayne, Nebraska to the lessee. The
Partnership received net sales proceeds of $474,530
which resulted in a net gain of $150,989. At the time
of sale, the cost and related accumulated depreciation
of the property was $447,944 and $124,403,
respectively.
During 1995, the Partnership distributed $61,880 of the
net sale proceeds to the Partners as part of their
regular quarterly distributions, which represented a
return of capital of $8.60 per Limited Partnership
Unit. The majority of the remaining net proceeds will
be reinvested in additional properties.
In July, 1995, the Partnership entered into a
commitment to purchase an Applebee's restaurant in
Harlingen, Texas. The purchase price will be
approximately $1,260,000. The property will be leased
to Renaissant Development Corporation under a Lease
Agreement with a primary term of 20 years and annual
rental payments of approximately $145,000.
In October, 1995, the Partnership entered into an
agreement to purchase a Tractor Supply Company Store in
Maryville, Tennessee. The purchase price will be
approximately $1,050,000. The property will be leased
to Tractor Supply Company under a Lease Agreement with
a primary term of 14 years and annual rental payments
of approximately $113,000.
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(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.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS
The Partnership's rental income is derived from long-
term Lease Agreements on the Partnership's properties. In
March, 1995, the Partnership recognized $7,981 from the
lessee of the Fair Muffler in Ashwaubenon, Wisconsin, as a
result of an increase in sales for the lease year ended
December 31, 1994. Rental income decreased in 1995, when
compared to the same periods in 1994, due to the property
sales discussed below. The decrease in rental income was
partially offset by additional investment income earned on
the net proceeds from the property sales.
In February, 1994, the Partnership sold 4,899 square
feet of land from the Perkins property in Bozeman, Montana
pursuant to a Right of Way Agreement with the State of
Montana Department of Transportation. The Partnership
received net sale proceeds of $36,605 which resulted in a
net gain of $5,641. The original cost of the parcel of land
was $30,964.
On September 19, 1994, the Partnership sold the
remainder of the Perkins' property to the lessee. The
Partnership received net sale proceeds of $1,227,101 which
resulted in a net gain of $632,338. At the time of sale,
the cost and related accumulated depreciation of the
property was $796,901 and $202,138, respectively. In
February, 1995, the Managing General Partner filed a proxy
statement to propose an Amendment to the Limited Partnership
Agreement that would allow the Partnership to reinvest the
net proceeds in additional properties. The Amendment passed
with a majority of Units voting in favor of the Amendment.
On March 20, 1995, the Partnership sold the Hardee's
restaurant in Sierra Vista, Arizona to an unrelated third
party. The Partnership received net sale proceeds of
$296,020, which resulted in a net loss of $166,000, which
was recognized in the fourth quarter of 1994.
On July 19, 1995, the Partnership sold the Fair
Muffler in Ashwaubenon, Wisconsin to the lessee. The
Partnership received net sale proceeds of $299,874, which
resulted in a net gain of $130,181. At the time of sale,
the cost and related accumulated depreciation of the
property was $230,134 and $60,441, respectively.
On August 28, 1995, the Partnership sold the Hardee's
restaurant in Wayne, Nebraska to the lessee. The
Partnership received net sales proceeds of $474,530 which
resulted in a net gain of $150,989. At the time of sale,
the cost and related accumulated depreciation of the
property was $447,944 and $124,403, respectively.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
During 1995, the Partnership distributed $61,880 of
the net sale proceeds to the Partners as part of their
regular quarterly distributions, which represented a return
of capital of $8.60 per Limited Partnership Unit. The
majority of the remaining net proceeds will be reinvested in
additional properties.
In July, 1995, the Partnership entered into a
commitment to purchase an Applebee's restaurant in
Harlingen, Texas. The purchase price will be approximately
$1,260,000. The property will be leased to Renaissant
Development Corporation under a Lease Agreement with a
primary term of 20 years and annual rental payments of
approximately $145,000.
In October, 1995, the Partnership entered into an
agreement to purchase a Tractor Supply Company Store in
Maryville, Tennessee. The purchase price will be
approximately $1,050,000. The property will be leased to
Tractor Supply Company under a Lease Agreement with a
primary term of 14 years and annual rental payments of
approximately $113,000.
During the first nine months of 1995 and 1994, the
Partnership incurred Partnership administration and property
management expenses from unrelated parties of $57,415 and
$27,119, respectively. These expenses represent direct
payments to third parties for legal and filing fees, direct
administrative costs, outside audit and accounting costs,
taxes, insurance and other property costs. The increase in
these expenses in 1995, when compared to the same period in
1994, is due to a $45,000 payment made to the original
lessee of the Sierra Vista property. The payment was a
reimbursement for a portion of the legal fees the lessee
incurred in obtaining a judgment of $390,000 against Western
in favor of the Partnership in 1992. The reimbursement was
contingent upon the sale of the property which was completed
in March, 1995.
The Partnership administration expenses incurred from
affiliates include costs associated with the management of
the properties processing distributions, reporting
requirements and correspondence to the Limited Partners.
As of September 30, 1995, the Partnership's
annualized cash distribution rate was 5.76%, 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 and income were allocated
to Limited Partners and 1% to the General Partners.
The Partnership may purchase 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 originally sold and in no event,
obligated to purchase Units if such purchase would impair
the capital or operation of the Partnership.
On October 1, 1995, five Limited Partners redeemed a
total of 18 Partnership Units for $9,104 in accordance with
the Partnership Agreement. The Partnership acquired these
Units using Net Cash Flow from operations. In prior years,
a total of forty-one Limited Partners redeemed 375.37
Partnership Units for $293,724. The redemptions increase
the remaining Limited Partners' ownership interest in the
Partnership.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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.
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.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -
Description
27 Financial Data Schedule for period ended
September 30, 1995.
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 10, 1995 AEI Real Estate Fund 85-A
Limited Partnership
By: Net Lease Management 85-A, Inc.
Its: Managing General Partner
By: /s/ Robert P. Johnson
Robert P. Johnson
President
By: /s/ Mark E. Larson
Mark E. Larson
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000759641
<NAME> AEI REAL ESTATE FUND 85-A LTD PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 2,436,996
<SECURITIES> 0
<RECEIVABLES> 9,469
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,446,465
<PP&E> 2,895,820
<DEPRECIATION> (771,370)
<TOTAL-ASSETS> 4,570,915
<CURRENT-LIABILITIES> 111,253
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 4,459,662
<TOTAL-LIABILITY-AND-EQUITY> 4,570,915
<SALES> 0
<TOTAL-REVENUES> 347,822
<CGS> 0
<TOTAL-COSTS> 206,029
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 422,963
<INCOME-TAX> 0
<INCOME-CONTINUING> 422,963
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 422,963
<EPS-PRIMARY> 58.77
<EPS-DILUTED> 58.77
</TABLE>
