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: March 31, 1996
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 March 31, 1996 and December 31, 1995
Statements for the Periods ended March 31, 1996 and 1995:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
BALANCE SHEET
MARCH 31, 1996 AND DECEMBER 31, 1995
(Unaudited)
ASSETS
1996 1995
CURRENT ASSETS:
Cash $ 98,752 $ 1,017,632
Receivables 5,469 8,514
----------- -----------
Total Current Assets 104,221 1,026,146
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 1,877,226 1,723,603
Buildings and Equipment 3,249,122 2,565,687
Property Acquisition Costs 0 2,333
Accumulated Depreciation (818,352) (792,710)
----------- -----------
Net Investments in Real Estate 4,307,996 3,498,913
----------- -----------
Total Assets $ 4,412,217 $ 4,525,059
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 20,181 $ 26,857
Distributions Payable 84,541 160,298
----------- -----------
Total Current Liabilities 104,722 187,155
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (35,024) (34,720)
Limited Partners, $1,000 Unit value;
7,500 Units authorized and issued;
7,107 Units outstanding 4,342,519 4,372,624
----------- -----------
Total Partners' Capital 4,307,495 4,337,904
----------- -----------
Total Liabilities and Partners' Capital $ 4,412,217 $ 4,525,059
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
1996 1995
INCOME:
Rent $ 118,060 $ 99,514
Investment Income 6,346 22,320
----------- -----------
Total Income 124,406 121,834
----------- -----------
EXPENSES:
Partnership Administration - Affiliates 27,869 28,828
Partnership Administration and Property
Management - Unrelated Parties 6,455 54,411
Depreciation 25,642 28,327
----------- -----------
Total Expenses 59,966 111,566
----------- -----------
NET INCOME $ 64,440 $ 10,268
=========== ===========
NET INCOME ALLOCATED:
General Partners $ 644 $ 103
Limited Partners 63,796 10,165
----------- -----------
$ 64,440 $ 10,268
=========== ===========
NET INCOME PER LIMITED PARTNERSHIP UNIT
(7,107 and 7,125 weighted average Units
outstanding in 1996 and 1995, respectively) $ 8.98 $ 1.43
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 64,440 $ 10,268
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 25,642 28,327
(Increase) Decrease in Receivables 3,045 (9,542)
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (6,676) 42,691
Increase in Unearned Rent 0 7,841
----------- -----------
Total Adjustments 22,011 69,317
----------- -----------
Net Cash Provided By
Operating Activities 86,451 79,585
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Real Estate (834,725) 0
Proceeds from Sale of Real Estate 0 296,020
----------- -----------
Net Cash Provided By (Used For)
Investing Activities (834,725) 296,020
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in Distributions Payable (75,757) 0
Distributions to Partners (94,849) (93,941)
----------- -----------
Net Cash Used For
Financing Activities (170,606) (93,941)
----------- -----------
NET INCREASE (DECREASE) IN CASH (918,880) 281,664
CASH, beginning of period 1,017,632 1,431,971
----------- -----------
CASH, end of period $ 98,752 $ 1,713,635
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 1994 $ (34,908) $ 4,354,036 $ 4,319,128 7,124.63
Distributions (939) (93,002) (93,941)
Net Income 103 10,165 10,268
--------- ----------- ----------- ----------
BALANCE, March 31, 1995 $ (35,744) $ 4,271,199 $ 4,235,455 7,124.63
========= =========== =========== ==========
BALANCE, December 31, 1995 $ (34,720) $ 4,372,624 $ 4,337,904 7,106.63
Distributions (948) (93,901) (94,849)
Net Income 644 63,796 64,440
--------- ----------- ----------- ----------
BALANCE, March 31, 1996 $ (35,024) $ 4,342,519 $ 4,307,495 7,106.63
========= =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
(1) The condensed statements included herein have been prepared
by the Partnership, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Partnership
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
Partnership's latest annual report on Form 10-KSB.
(2) Organization -
AEI Real Estate Fund 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 -
On March 20, 1995, the Partnership sold the Hardee's
restaurant in Sierra Vista, Arizona to an unrelated third
party. The Partnership received net sales proceeds of
$296,020, which resulted in a net loss of $166,000, which
was recognized in 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 and the first quarter of 1996, the Partnership
distributed $162,299 and $4,223 of the net sale proceeds to
the Limited and General Partners as part of their regular
quarterly distributions, which represented a return of
capital of $22.59 and $.59 per Limited Partnership Unit,
respectively. The remaining net proceeds were reinvested in
additional properties.
On December 21, 1995, the Partnership purchased an
Applebee's restaurant in Harlingen, Texas for $1,393,470.
The property is leased to Renaissant Development Corporation
under a Lease Agreement with a primary term of 20 years and
annual rental payments of $156,400.
On February 14, 1996, the Partnership purchased an 80%
interest in a Tractor Supply Company store in Maryville,
Tennessee for $837,058. The property is leased to Tractor
Supply Company under a Lease Agreement with a primary term
of 14 years and annual rental payments of $90,300. The
remaining interest in the property was purchased by AEI Real
Estate Fund XV Limited Partnership, an affiliate of the
Partnership.
(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
Results of Operations
For the three months ended March 31, 1996 and 1995, the
Partnership recognized rental income of $118,060 and $99,514,
respectively. During the same periods, the Partnership earned
investment income of $6,346 and $22,320, respectively. In 1996,
rental income increased as a result of the reinvestment of net
sale proceeds in additional properties discussed below. The
increase in rental income was partially offset by a decrease in
investment income earned on the net proceeds prior to the
purchase of the additional properties.
During the three months ended March 31, 1996 and 1995, the
Partnership paid Partnership administration expenses to
affiliated parties of $27,869 and $28,828, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and correspondence to the Limited Partners. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $6,455 and $54,411, 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 decrease
in these expenses in 1996, when compared to 1995, 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 the sublessee in favor of the Partnership in
1992. The reimbursement was contingent upon the sale of the
property which was completed in March, 1995.
As of March 31, 1996, the Partnership's annualized cash
distribution rate was 5.85%, 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.
Inflation has had a minimal effect on income from
operations. It is expected that increases in sales volumes of
the tenants, due to inflation and real sales growth, will result
in an increase in rental income over the term of the leases.
Inflation also may cause the Partnership's real estate to
appreciate in value. However, inflation and changing prices may
also have an adverse impact on the operating margins of the
properties' tenants which could impair their ability to pay rent
and subsequently reduce the Partnership's Net Cash Flow available
for distributions.
Liquidity and Capital Resources
During the three months ended March 31, 1996, the
Partnership's cash balances decreased $918,880 mainly as the
result of reinvesting sale proceeds in additional property as
discussed below. Net cash provided by operating activities
increased from $79,535 in 1995 to $86,451 in 1996.
In the first three months of 1995, net cash provided by
investing activities was $296,020 as a result of the sale of the
Sierra Vista Hardees. In 1996, net cash used for investing
activities was $834,725, as the Partnership completed the
reinvestment of sale proceeds in additional properties.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
On March 20, 1995, the Partnership sold the Hardee's
restaurant in Sierra Vista, Arizona to an unrelated third party.
The Partnership received net sales proceeds of $296,020, which
resulted in a net loss of $166,000, which was recognized in 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 and the first quarter of 1996, the Partnership
distributed $162,299 and $4,223 of the net sale proceeds to the
Limited and General Partners as part of their regular quarterly
distributions, which represented a return of capital of $22.59
and $.59 per Limited Partnership Unit, respectively. The
remaining net proceeds were reinvested in additional properties.
On December 21, 1995, the Partnership purchased an
Applebee's restaurant in Harlingen, Texas for $1,393,470. The
property is leased to Renaissant Development Corporation under a
Lease Agreement with a primary term of 20 years and annual rental
payments of $156,000.
On February 14, 1996, the Partnership purchased an 80%
interest in a Tractor Supply Company store in Maryville,
Tennessee for $837,058. The property is leased to Tractor Supply
Company under a Lease Agreement with a primary term of 14 years
and annual rental payments of $90,300. The remaining interest in
the property was purchased by AEI Real Estate Fund XV Limited
Partnership, an affiliate of the Partnership.
The Partnership's primary use of cash flow is distribution
and redemption payments to Partners. The Partnership declares
its regular quarterly distributions before the end of each
quarter and pays the distribution in the first week after the end
of each quarter. The Partnership attempts to maintain a stable
distribution rate from quarter to quarter. Redemption payments
are paid to redeeming Partners in the fourth quarter of each
year. In 1996, net cash used for financing activities increased,
when compared to 1995, as a result of an additional distribution
of net sale proceeds of approximately $75,000, which was accrued
in December, 1995, but not paid until January, 1996.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
During 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.
The continuing rent payments from the properties should be
adequate to fund continuing distributions and meet other
Partnership obligations on both a short-term and long-term basis.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which
the Partnership is a party or of which the Partnership's
property is subject.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - None.
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: May 13, 1996 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 98,752
<SECURITIES> 0
<RECEIVABLES> 5,469
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 104,221
<PP&E> 5,126,348
<DEPRECIATION> (818,352)
<TOTAL-ASSETS> 4,412,217
<CURRENT-LIABILITIES> 104,722
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,307,495
<TOTAL-LIABILITY-AND-EQUITY> 4,412,217
<SALES> 0
<TOTAL-REVENUES> 124,406
<CGS> 0
<TOTAL-COSTS> 59,966
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 64,440
<INCOME-TAX> 0
<INCOME-CONTINUING> 64,440
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,440
<EPS-PRIMARY> 8.98
<EPS-DILUTED> 8.98
</TABLE>
