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: June 30, 2000
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)
(651) 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 June 30, 2000 and December 31, 1999
Statements for the Periods ended June 30, 2000 and 1999:
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
JUNE 30, 2000 AND DECEMBER 31, 1999
(Unaudited)
ASSETS
2000 1999
CURRENT ASSETS:
Cash and Cash Equivalents $ 282,627 $ 180,855
Receivables 0 10,000
----------- -----------
Total Current Assets 282,627 190,855
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 1,880,752 1,899,582
Buildings and Equipment 3,319,388 3,360,494
Accumulated Depreciation (851,650) (799,532)
----------- -----------
Net Investments in Real Estate 4,348,490 4,460,544
----------- -----------
Total Assets $ 4,631,117 $ 4,651,399
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 15,502 $ 8,229
Distributions Payable 90,818 90,724
Unearned Rent 7,059 0
----------- -----------
Total Current Liabilities 113,379 98,953
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (32,922) (32,575)
Limited Partners, $1,000 Unit value;
7,500 Units authorized and issued;
7,080 outstanding 4,550,660 4,585,021
----------- -----------
Total Partners' Capital 4,517,738 4,552,446
----------- -----------
Total Liabilities and Partners' Capital $ 4,631,117 $ 4,651,399
=========== ===========
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 JUNE 30
(Unaudited)
Three Months Ended Six Months Ended
6/30/00 6/30/99 6/30/00 6/30/99
INCOME:
Rent $ 132,048 $ 82,663 $ 270,590 $ 165,362
Investment Income 3,602 26,903 5,844 54,525
--------- --------- --------- ---------
Total Income 135,650 109,566 276,434 219,887
--------- --------- --------- ---------
EXPENSES:
Partnership Administration -
Affiliates 23,686 22,790 49,593 50,413
Partnership Administration
and Property Management -
Unrelated Parties 2,225 4,085 11,219 11,579
Depreciation 26,444 13,288 53,145 26,576
--------- --------- --------- ---------
Total Expenses 52,355 40,163 113,957 88,568
--------- --------- --------- ---------
OPERATING INCOME 83,295 69,403 162,477 131,319
GAIN ON SALE OF REAL ESTATE 5,189 0 5,189 0
--------- --------- --------- ---------
NET INCOME $ 88,484 $ 69,403 $ 167,666 $ 131,319
========= ========= ======== =========
NET INCOME ALLOCATED:
General Partners $ 885 $ 694 $ 1,677 $ 1,313
Limited Partners 87,599 68,709 165,989 130,006
--------- --------- --------- ---------
$ 88,484 $ 69,403 $ 167,666 $ 131,319
========= ========= ========= =========
NET INCOME PER
LIMITED PARTNERSHIP UNIT
(7,080 weighted average Units
outstandingin 2000 and 1999) $ 12.37 $ 9.70 $ 23.44 $ 18.36
========= ========= ========= =========
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 JUNE 30
(Unaudited)
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 167,666 $ 131,319
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 53,145 26,576
Gain on Sale of Real Estate (5,189) 0
Decrease in Receivable 10,000 4,539
Increase (Decrease) in Payable to
AEI Fund Management, Inc. 7,273 (6,620)
Increase in Unearned Rent 7,059 6,926
----------- -----------
Total Adjustments 72,288 31,421
----------- -----------
Net Cash Provided By
Operating Activities 239,954 162,740
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate 0 (418,877)
Proceeds from Sale of Real Estate 64,098 0
----------- -----------
Net Cash Provided By
Investing Activities 64,098 (418,877)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Distributions Payable 94 (3,642)
Distributions to Partners (202,374) (459,192)
----------- -----------
Net Cash Used For
Financing Activities (202,280) (462,834)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 101,772 (718,971)
CASH AND CASH EQUIVALENTS, beginning of period 180,855 2,572,249
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 282,627 $ 1,853,278
=========== ===========
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 JUNE 30
(Unaudited)
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 1998 $(28,931) $ 4,945,659 $ 4,916,728 7,079.63
Distributions (4,592) (454,600) (459,192)
Net Income 1,313 130,006 131,319
--------- ----------- ----------- ----------
BALANCE, June 30, 1999 $(32,210) $ 4,621,065 $ 4,588,855 7,079.63
========= =========== =========== ==========
BALANCE, December 31, 1999 $(32,575) $ 4,585,021 $ 4,552,446 7,079.63
Distributions (2,024) (200,350) (202,374)
Net Income 1,677 165,989 167,666
--------- ----------- ----------- ----------
BALANCE, June 30, 2000 $(32,922) $ 4,550,660 $ 4,517,738 7,079.63
========= =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(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. Robert P. Johnson, the President and sole
shareholder of NLM, serves as the Individual General Partner
and an affiliate of NLM, AEI Fund Management, Inc. (AEI)
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 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 operations, 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
JUNE 30, 2000
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of 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 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 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 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
JUNE 30, 2000
(Continued)
(3) Investments in Real Estate -
In 1998, the Partnership received $2,577,877 from the sale
of property. In March, 1999, the Partnership distributed
$252,525 of the net sale proceeds to the Limited and General
Partners which represented a return of capital of $35.31 per
Limited Partnership Unit. The majority of the remaining
proceeds were reinvested in additional properties.
On December 17, 1998, the Partnership purchased a 60%
interest in a parcel of land in Hudsonville, Michigan for
$198,600. The land is leased to RTM Mid-America, Inc. (RTM)
under a Lease Agreement with a primary term of 20 years and
annual rental payments of $16,881. Simultaneously with the
purchase of the land, the Partnership entered into a
Development Financing Agreement under which the Partnership
advanced funds to RTM for the construction of an Arby's
restaurant on the site. The Partnership charged interest on
the advances at a variable rate. On September 3, 1999,
after the development was completed, the Lease Agreement was
amended to require annual rental payments of $42,456. The
Partnership's share of the total acquisition costs,
including the cost of the land was $666,755. The remaining
interest in the property was purchased by Net Lease Income &
Growth Fund 84-A Limited Partnership, an affiliate of the
Partnership.
On September 28, 1999, the Partnership purchased a Marie
Callender's restaurant in Gresham, Oregon for $1,616,533.
The property is leased to Marie Callender Pie Shops, Inc.
under a Lease Agreement with a primary term of 15 years and
annual rental payments of $152,000.
On April 25, 2000, the Partnership sold 5.3936% of its
interest in the Arby's restaurant to an unrelated third
party. The Partnership received net sale proceeds of
$64,098 which resulted in a net gain of $5,189. The cost
and related accumulated depreciation of the interest sold
was $59,937 and $1,028, respectively.
(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 six months ended June 30, 2000 and 1999, the
Partnership recognized rental income of $270,590 and $165,362,
respectively. During the same periods, the Partnership earned
investment income of $5,844 and $54,525, respectively. In 2000,
rental income increased mainly as a result of additional rent
received from two property acquisitions in 1999. The increase in
rental income was partially offset by a decrease in investment
income earned on the net sale proceeds prior to the purchase of
the additional properties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
During the six months ended June 30, 2000 and 1999, the
Partnership paid Partnership administration expenses to
affiliated parties of $49,593 and $50,413, 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 $11,219 and $11,579, 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.
As of June 30, 2000, the Partnership's annualized cash
distribution rate was 6.5%, 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 six months ended June 30, 2000, the
Partnership's cash balances increased $101,772 as a result of
cash generated from the sale of a property and the Partnership
distributed less cash to Partners than it generated from
operating activities. Net cash provided by operating activities
increased from $162,740 in 1999 to $239,954 in 2000 due to an
increase in income in 2000 and net timing differences in the
collection of payments from the lessees and the payment of
expenses.
The major components of the Partnership's cash flow from
investing activities are investments in real estate and proceeds
from the sale of real estate. During the six months ended June
30, 2000, the Partnership generated cash flow from the sale of
real estate of $64,098. During the six months ended June 30,
1999, the Partnership expended $418,877 to invest in real
properties (inclusive of acquisition expenses) as the Partnership
reinvested cash generated from property sales.
In 1998, the Partnership received $2,577,877 from the sale
of property. In March, 1999, the Partnership distributed
$252,525 of the net sale proceeds to the Limited and General
Partners which represented a return of capital of $35.31 per
Limited Partnership Unit. The majority of the remaining proceeds
were reinvested in additional properties.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
On December 17, 1998, the Partnership purchased a 60%
interest in a parcel of land in Hudsonville, Michigan for
$198,600. The land is leased to RTM Mid-America, Inc. (RTM)
under a Lease Agreement with a primary term of 20 years and
annual rental payments of $16,881. Simultaneously with the
purchase of the land, the Partnership entered into a Development
Financing Agreement under which the Partnership advanced funds to
RTM for the construction of an Arby's restaurant on the site.
The Partnership charged interest on the advances at a variable
rate. On September 3, 1999, after the development was completed,
the Lease Agreement was amended to require annual rental payments
of $42,456. The Partnership's share of the total acquisition
costs, including the cost of the land was $666,755. The
remaining interest in the property was purchased by Net Lease
Income & Growth Fund 84-A Limited Partnership, an affiliate of
the Partnership.
On September 28, 1999, the Partnership purchased a Marie
Callender's restaurant in Gresham, Oregon for $1,616,533. The
property is leased to Marie Callender Pie Shops, Inc. under a
Lease Agreement with a primary term of 15 years and annual rental
payments of $152,000.
On April 25, 2000, the Partnership sold 5.3936% of its
interest in the Arby's restaurant to an unrelated third party.
The Partnership received net sale proceeds of $64,098 which
resulted in a net gain of $5,189. The cost and related
accumulated depreciation of the interest sold was $59,937 and
$1,028, respectively.
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. In the first six
months of 1999, distributions were higher when compared to the
same period in 2000, due to the distribution of sale proceeds in
March, 1999.
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. 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.
During 2000 and 1999, the Partnership did not redeem any
Units from the Limited Partners. In prior years, a total of
fifty-three Limited Partners redeemed 420.37 Partnership Units
for $315,321. The redemptions increase the remaining Limited
Partners' ownership interest in the Partnership.
The continuing rent payments from the properties, together
with cash generated from property sales, should be adequate to
fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
The foregoing Management's Discussion and Analysis
contains various "forward looking statements" within the meaning
of federal securities laws which represent management's
expectations or beliefs concerning future events, including
statements regarding anticipated application of cash, expected
returns from rental income, growth in revenue, taxation levels,
the sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward
looking statements made by the Partnership, must be evaluated in
the context of a number of factors that may affect the
Partnership's financial condition and results of operations,
including the following:
<BULLET> Market and economic conditions which affect
the value of the properties the Partnership owns and
the cash from rental income such properties generate;
<BULLET> the federal income tax consequences of rental
income, deductions, gain on sales and other items and
the affects of these consequences for investors;
<BULLET> resolution by the General Partners of
conflicts with which they may be confronted;
<BULLET> the success of the General Partners of
locating properties with favorable risk return
characteristics;
<BULLET> the effect of tenant defaults; and
<BULLET> the condition of the industries in which the
tenants of properties owned by the Partnership operate.
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.
PART II - OTHER INFORMATION
(Continued)
ITEM 5.OTHER INFORMATION
None.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -
Description
10.1 Purchase Agreement dated April 20,
2000 between the Partnership and Net
Lease Income & Growth Fund 84-A Limited
Partnership and Scorpion Enterprises, LLC
relating to the property at 4633-32nd
Avenue South, Hudsonville, Michigan.
10.2 Property Co-Tenancy Ownership
Agreement dated April 25, 2000 between
the Partnership and Net Lease Income &
Growth Fund 84-A Limited Partnership and
Scorpion Enterprises, LLC relating to the
property at 4633-32nd Avenue South,
Hudsonville, Michigan.
27 Financial Data Schedule for period
ended June 30, 2000.
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: August 2, 2000 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
(Principal Executive Officer)
By: /s/ Mark E. Larson
Mark E. Larson
Chief Financial Officer
(Principal Accounting Officer)
