SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d)
Of The Securities Exchange Act Of 1934
For the Fiscal Year Ended: December 31, 1999
Commission file number: 0-14263
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
(Name of Small Business Issuer 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)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
(Title of class)
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 past 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
Check if disclosure of delinquent filers in response to Rule 405
of Regulation S-B is not contained in this Form, and no
disclosure will be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10.KSB. [X]
The Issuer's revenues for year ended December 31, 1999 were
$471,976.
As of February 29, 2000, there were 7,065.128 Units of limited
partnership interest in the registrant outstanding and owned by
nonaffiliates of the registrant, which Units had an aggregate
market value (based solely on the price at which they were sold
since there is no ready market for such Units) of $7,065,128.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has not incorporated any documents by reference
into this report.
Transitional Small Business Disclosure Format:
Yes [X] No X
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
AEI Real Estate Fund 85-A Limited Partnership (the
"Partnership" or the "Registrant") is a limited partnership which
was organized pursuant to the laws of the State of Minnesota on
April 15, 1985. The registrant is comprised of Net Lease
Management 85-A, Inc. (NLM) as Managing General Partner, Robert
P. Johnson as the Individual General Partner, and purchasers of
partnership units as Limited Partners. The Partnership offered
for sale up to $7,500,000 of limited partnership interests (the
"Units") (7,500 Units at $1,000 per Unit) pursuant to a
registration statement effective February 8, 1985. 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 June 20,
1985 when the maximum subscription limit of 7,500 Limited
Partnership Units ($7,500,000) was reached.
The Partnership was organized to acquire, initially on a
debt-free basis, existing and newly constructed commercial
properties located in the United States, to lease such properties
to tenants under triple net leases, to hold such properties and
to eventually sell such properties. From subscription proceeds,
the Partnership purchased eight properties, including partial
interests in two properties, totaling $6,103,065. The balance of
the subscription proceeds was applied to organization and
syndication costs, working capital reserves and distributions,
which represented a return of capital. The properties are all
commercial, single tenant buildings leased under triple net
leases.
The Partnership will hold its properties until the General
Partners determine that the sale or other disposition of the
properties is advantageous in view of the Partnership's
investment objectives. In deciding whether to sell properties,
the General Partners will consider factors such as potential
appreciation, net cash flow and income tax considerations. In
addition, certain lessees have been granted options to purchase
properties after a specified portion of the lease term has
elapsed. Prior to commencing the liquidation of the Partnership,
the General Partners may reinvest the proceeds from the sale of
properties in additional properties, provided that sufficient
proceeds are distributed to the Limited Partners to pay federal
and state income taxes related to any taxable gain recognized as
a result of the sale. At any time prior to selling the
properties, the Partnership may mortgage one or more of its
properties in amounts not exceeding 50% of the fair market value
of the property.
Leases
Although there are variations in the specific terms of the
leases, the following is a summary of the general terms of the
Partnership's leases. The properties are leased to various
tenants under triple net leases, which are classified as
operating leases. Under a triple net lease, the lessee is
responsible for all real estate taxes, insurance, maintenance,
repairs and operating expenses for the property. The initial
lease terms are for 5 to 20 years. The leases provide for base
annual rental payments, payable in monthly installments, and
contain rent clauses which entitle the Partnership to receive
additional rent in future years based on stated rent increases or
if gross receipts for the property exceed certain specified
amounts, among other conditions. The leases provide for one to
four five-year renewal options subject to the same terms and
conditions as the initial lease.
On July 31, 1998, the Partnership sold 9.1266% of its
interest in the Tractor Supply Company store to an unrelated
third party. The Partnership received net sale proceeds of
$133,251 which resulted in a net gain of $44,686. At the time of
sale, the cost and related accumulated depreciation of the
interest sold was $95,494 and $6,929, respectively.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
During 1998, the Partnership sold 37.3518% of its interest
in the Rio Bravo restaurant, in four separate transactions, to
unrelated third parties. The Partnership received total net sale
proceeds of $585,789 which resulted in a total net gain of
$172,422. The total cost and related accumulated depreciation of
the interests sold was $660,597 and $247,230, respectively.
On December 30, 1998, the Partnership sold the Applebee's
restaurant in Harlingen, Texas to the lessee. The Partnership
received net sales proceeds of $1,858,837 which resulted in a net
gain of $580,055. At the time of sale, the cost and related
accumulated depreciation of the property was $1,393,470 and
$114,688, respectively.
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 is owned 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.
Major Tenants
During 1999, four of the Partnership's lessees each
contributed more than ten percent of the Partnership's total
rental revenue. The major tenants in aggregate contributed 91%
of the Partnership's total rental revenue in 1999. It is
anticipated that, based on the minimum rental payments required
under the leases, each major tenant will continue to contribute
more than ten percent of the Partnership's total rental revenue
in 2000 and future years. Any failure of these major tenants or
business concepts could materially affect the Partnership's net
income and cash distributions.
Competition
The Partnership is a minor factor in the commercial real
estate business. There are numerous entities engaged in the
commercial real estate business which have greater financial
resources than the Partnership. At the time the Partnership
elects to dispose of its properties, the Partnership will be in
competition with other persons and entities to find buyers for
its properties.
Employees
The Partnership has no direct employees. Management
services are performed for the Partnership by AEI Fund
Management, Inc., an affiliate of NLM.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
Year 2000 Compliance
The Year 2000 issue is the result of computer systems that
use two-digits rather than four to define the applicable year,
which may prevent such systems from accurately processing dates
ending in the Year 2000 and beyond. This could result in
computer system failures or disruption of operations, including,
but not limited to, an inability to process transactions, to send
or receive electronic data, or to engage in routine business
activities.
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. In 1998, AEI completed an
assessment of its computer hardware and software systems and
replaced or upgraded certain computer hardware and software using
the assistance of outside vendors. AEI has received written
assurance from the equipment and software manufacturers as to
Year 2000 compliance. The costs associated with Year 2000
compliance have not been, and are not expected to be, material.
The Partnership is not aware of any issues related to Year 2000
non compliance with AEI systems or the systems of the various
tenants.
ITEM 2. DESCRIPTION OF PROPERTIES.
Investment Objectives
The Partnership's investment objectives were to acquire
existing or newly-developed commercial properties throughout the
United States that offer the potential for (i) preservation and
protection of the Partnership's capital; (ii) partially tax-
deferred cash distributions from operations which may increase
through rent participation clauses or mandated rent increases;
and (iii) long-term capital gains through appreciation in value
of the Partnership's properties realized upon sale. The
Partnership does not have a policy, and there is no limitation,
as to the amount or percentage of assets that may be invested in
any one property. However, to the extent possible, the General
Partners attempt to diversify the type and location of the
Partnership's properties.
Description of Properties
The Partnership's properties are all commercial, single
tenant buildings. All the properties were acquired on a debt-
free basis and are leased to various tenants under triple net
leases, which are classified as operating leases. The Partnership
holds an undivided fee simple interest in the properties. At any
time prior to selling the properties, the Partnership may
mortgage one or more of its properties in amounts not exceeding
50% of the fair market value of the property.
The Partnership's properties are subject to the general
competitive conditions incident to the ownership of single tenant
investment real estate. Since each property is leased under a
long-term lease, there is little competition until the
Partnership decides to sell the property. At this time, the
Partnership will be competing with other real estate owners, on
both a national and local level, in attempting to find buyers for
the properties. In the event of a tenant default, the
Partnership would be competing with other real estate owners, who
have property vacancies, to attract a new tenant to lease the
property. The Partnership's tenants operate in industries that
are very competitive and can be affected by factors such as
changes in regional or local economies, seasonality and changes
in consumer preference.
ITEM 2. DESCRIPTION OF PROPERTIES. (Continued)
The following table is a summary of the properties that
the Partnership acquired and owned as of December 31, 1999.
Total Property Annual Annual
Purchase Acquisition Lease Rent Per
Property Date Costs Lessee Payment Sq. Ft.
Rio Bravo Restaurant Innovative
St. Paul, MN Restaurant
(7.6482%) 12/13/85 $ 135,265 Concepts, Inc. $ 11,168 $ 12.81
Jack-In-The-Box Restaurant CKE
Fort Worth, TX 12/19/85 $1,005,586 Restaurants, Inc. $ 135,582 $ 34.71
Hops Grill & Bar Restaurant Hops Grill
Palm Harbor, FL 3/21/86 $1,094,373 & Bar, Inc. $ 87,659 $ 17.09
Tractor Supply
Company Store
Maryville, TN Tractor Supply
(70.8734%) 2/14/96 $ 741,564 Company, Inc. $ 83,108 $ 6.16
Arby's Restaurant
Hudsonville, MI RTM
(60%) 9/3/99 $ 666,755 Mid-America, Inc. $ 42,456 $ 21.41
Marie Callender's Restaurant Marie Callender
Gresham, OR 9/28/99 $1,616,533 Pie Shops, Inc. $ 152,000 $ 25.92
The properties listed above with a partial ownership
percentage are owned with affiliates of the Partnership and/or
unrelated third parties. The remaining interests in the Rio
Bravo restaurant are owned by unrelated third parties. The
remaining interests in the Tractor Supply Company store are owned
by AEI Real Estate Fund XV Limited Partnership and an unrelated
third party. The remaining interest in the Arby's restaurant is
owned by Net Lease Income & Growth Fund 84-A Limited Partnership.
The Partnership accounts for properties owned as tenants-
in-common with affiliated Partnerships and/or unrelated third
parties using the proportionate consolidation method. Each
tenant-in-common owns a separate, undivided interest in the
properties. Any tenant-in-common that holds more than a 50%
interest does not control decisions over the other tenant-in-
common interests. The financial statements reflect only this
Partnership's percentage share of the properties' land, building
and equipment, liabilities, revenues and expenses.
The initial Lease terms are for 20 years, except for the
Hops Grill & Bar restaurant which is 5 years, the Tractor Supply
Company store which is 14 years and the Marie Callender's
restaurant which is 15 years. The Leases have renewal options
which may extend the Lease term an additional 5 to 20 years. The
Hops Grill & Bar Lease has been extended to April 30, 2002.
Pursuant to the Lease Agreements, the tenants are required
to provide proof of adequate insurance coverage on the properties
they occupy. The General Partners believe the properties are
adequately covered by insurance and consider the properties to be
well-maintained and sufficient for the Partnership's operations.
ITEM 2. DESCRIPTION OF PROPERTIES. (Continued)
For tax purposes, the Partnership's properties are
depreciated under either the Accelerated Cost Recovery System
(ACRS) or the Modified Accelerated Cost Recovery System (MACRS),
depending on the date when it was placed in service. The largest
depreciable component of a property is the building which is
depreciated, using the straight-line method, over either 19 years
(ACRS) or 31.5 years or 40 years (MACRS) depending on the date
when it was placed in service. The remaining depreciable
components of a property are personal property and land
improvements which are depreciated, using an accelerated method,
over 5 and 15 years, respectively. Since the Partnership has tax-
exempt Partners, the Partnership is subject to the rules of
Section 168(h)(6) of the Internal Revenue Code which requires a
percentage of the properties' depreciable components to be
depreciated over longer lives using the straight-line method. In
general, the federal tax basis of the properties for tax
depreciation purposes is the same as the basis for book
depreciation purposes.
During the last five years or since the date of purchase,
if purchased after December31, 1994, all properties were 100
percent occupied by the lessees.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND
RELATED SECURITY HOLDER MATTERS.
As of December 31, 1999, there were 693 holders of record
of the registrant's Limited Partnership Units. There is no other
class of security outstanding or authorized. The registrant's
Units are not a traded security in any market. However, the
Partnership may acquire 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 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.
Cash distributions of $6,616 and $4,212 were made to the
General Partners and $654,950 and $417,001 were made to the
Limited Partners in 1999 and 1998, respectively. The
distributions were made on a quarterly basis and represent Net
Cash Flow, as defined, except as discussed below. These
distributions should not be compared with dividends paid on
capital stock by corporations.
As part of the Limited Partner distributions discussed
above, the Partnership distributed $250,000 of proceeds from
property sales in 1999. The distributions reduced the Limited
Partners' Adjusted Capital Contributions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
Results of Operations
For the years ended December 31, 1999 and 1998, the
Partnership recognized rental income of $389,612 and $532,564,
respectively. During the same periods, the Partnership earned
investment income of $82,364 and $16,842, respectively. In 1999,
rental income decreased mainly as a result of the property sales
discussed below. This decrease in rental income was partially
offset by rent received from two property acquisitions in 1998
and 1999 and additional investment income earned on the net
proceeds from the property sales.
During the years ended December 31, 1999 and 1998, the
Partnership paid Partnership administration expenses to
affiliated parties of $94,134 and $92,895, 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 $12,564 and $10,768, 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 December 31, 1999, the Partnership's annualized cash
distribution rate was 6.50%, 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.
The Year 2000 issue is the result of computer systems that
use two-digits rather than four to define the applicable year,
which may prevent such systems from accurately processing dates
ending in the Year 2000 and beyond. This could result in
computer system failures or disruption of operations, including,
but not limited to, an inability to process transactions, to send
or receive electronic data, or to engage in routine business
activities.
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. In 1998, AEI completed an
assessment of its computer hardware and software systems and
replaced or upgraded certain computer hardware and software using
the assistance of outside vendors. AEI has received written
assurance from the equipment and software manufacturers as to
Year 2000 compliance. The costs associated with Year 2000
compliance have not been, and are not expected to be, material.
The Partnership is not aware of any issues related to Year 2000
non compliance with AEI systems or the systems of the various
tenants.
Liquidity and Capital Resources
During 1999, the Partnership's cash balances decreased
$2,391,394 as a result of cash used to purchase additional
properties and distributions made in excess of cash generated
from operating activities. Net cash provided by operating
activities decreased from $456,896 in 1998 to $339,635 in 1999 as
a result of a decrease in total income in 1999 and net timing
differences in the collection of payments from the lessees and
the payment of expenses.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
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. In 1998, the Partnership generated
cash flow from the sale of real estate of $2,577,877. In 1999
and 1998, the Partnership expended $2,065,822 and $217,466,
respectively, to invest in real properties (inclusive of
acquisition expenses) as the Partnership reinvested the cash
generated from the property sales.
On July 31, 1998, the Partnership sold 9.1266% of its
interest in the Tractor Supply Company store to an unrelated
third party. The Partnership received net sale proceeds of
$133,251 which resulted in a net gain of $44,686. At the time of
sale, the cost and related accumulated depreciation of the
interest sold was $95,494 and $6,929, respectively.
During 1998, the Partnership sold 37.3518% of its interest
in the Rio Bravo restaurant, in four separate transactions, to
unrelated third parties. The Partnership received total net sale
proceeds of $585,789 which resulted in a total net gain of
$172,422. The total cost and related accumulated depreciation of
the interests sold was $660,597 and $247,230, respectively.
On December 30, 1998, the Partnership sold the Applebee's
restaurant in Harlingen, Texas to the lessee. The Partnership
received net sales proceeds of $1,858,837 which resulted in a net
gain of $580,055. At the time of sale, the cost and related
accumulated depreciation of the property was $1,393,470 and
$114,688, respectively.
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 property.
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 is owned 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.
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 1999, distributions were higher when compared to 1998
due to the distribution of sale proceeds in March, 1999.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Partnership may acquire 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 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 the property sales, should be adequate
to fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
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.
ITEM 7. FINANCIAL STATEMENTS.
See accompanying index to financial statements.
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors
Balance Sheet as of December 31, 1999 and 1998
Statements for the Years Ended December 31, 1999 and 1998:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
REPORT OF INDEPENDENT AUDITORS
To the Partners:
AEI Real Estate Fund 85-A Limited Partnership
St. Paul, Minnesota
We have audited the accompanying balance sheet of AEI Real
Estate Fund 85-A Limited Partnership (a Minnesota limited
partnership) as of December 31, 1999 and 1998 and the related
statements of income, cash flows and changes in partners' capital
for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of AEI Real Estate Fund 85-A Limited Partnership as of
December31, 1999 and 1998, and the results of its operations and
its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Minneapolis, Minnesota Boulay, Heutmaker, Zibell & Co. P.L.L.P.
January 25, 2000 Certified Public Accountants
<PAGE>
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31
ASSETS
1999 1998
CURRENT ASSETS:
Cash and Cash Equivalents $ 180,855 $ 2,572,249
Receivables 10,000 12,721
----------- -----------
Total Current Assets 190,855 2,584,970
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 1,899,582 1,367,380
Buildings and Equipment 3,360,494 1,808,008
Construction in Progress 0 16,981
Property Acquisition Costs 0 1,885
Accumulated Depreciation (799,532) (731,538)
----------- -----------
Net Investments in Real Estate 4,460,544 2,462,716
----------- -----------
Total Assets $ 4,651,399 $ 5,047,686
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 8,229 $ 36,593
Distributions Payable 90,724 94,365
----------- -----------
Total Current Liabilities 98,953 130,958
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (32,575) (28,931)
Limited Partners, $1,000 Unit value;
7,500 Units authorized and issued;
7,080 outstanding in 1999 and 1998 4,585,021 4,945,659
----------- -----------
Total Partners' Capital 4,552,446 4,916,728
----------- -----------
Total Liabilities and Partners' Capital $ 4,651,39 $ 5,047,686
=========== ===========
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 YEARS ENDED DECEMBER 31
1999 1998
INCOME:
Rent $ 389,612 $ 532,564
Investment Income 82,364 16,842
----------- -----------
Total Income 471,976 549,406
----------- -----------
EXPENSES:
Partnership Administration - Affiliates 94,134 92,895
Partnership Administration and Property
Management - Unrelated Parties 12,564 10,768
Depreciation 67,994 100,455
----------- -----------
Total Expenses 174,692 204,118
----------- -----------
OPERATING INCOME 297,284 345,288
GAIN ON SALE OF REAL ESTATE 0 797,163
----------- -----------
NET INCOME $ 297,284 $ 1,142,451
=========== ===========
NET INCOME ALLOCATED:
General Partners $ 2,972 $ 11,425
Limited Partners 294,312 1,131,026
----------- -----------
$ 297,284 $ 1,142,451
=========== ===========
NET INCOME PER LIMITED PARTNERSHIP UNIT
(7,080 Units outstanding in 1999 and 1998) $ 41.57 $ 159.75
=========== ===========
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 YEARS ENDED DECEMBER 31
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 297,284 $ 1,142,451
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 67,994 100,455
Gain on Sale of Real Estate 0 (797,163)
(Increase) Decrease in Receivables 2,721 (12,721)
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (28,364) 23,874
----------- -----------
Total Adjustments 42,351 (685,555)
----------- -----------
Net Cash Provided By
Operating Activities 339,635 456,896
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (2,065,822) (217,466)
Proceeds from Sale of Real Estate 0 2,577,877
----------- -----------
Net Cash Provided By (Used For)
Investing Activities (2,065,822) 2,360,411
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Distributions Payable (3,641) 1,472
Distributions to Partners (661,566) (421,213)
----------- -----------
Net Cash Used For
Financing Activities (665,207) (419,741)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,391,394) 2,397,566
CASH AND CASH EQUIVALENTS, beginning of period 2,572,249 174,683
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 180,855 $ 2,572,249
=========== ===========
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 YEARS ENDED DECEMBER 31
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 1997 $ (36,144) $ 4,231,634 $ 4,195,490 7,079.63
Distributions (4,212) (417,001) (421,213)
Net Income 11,425 1,131,026 1,142,451
--------- ----------- ----------- ----------
BALANCE, December 31, 1998 (28,931) 4,945,659 4,916,728 7,079.63
Distributions (6,616) (654,950) (661,566)
Net Income 2,972 294,312 297,284
--------- ----------- ----------- ----------
BALANCE, December 31, 1999 $ (32,575) $ 4,585,021 $ 4,552,446 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
DECEMBER 31, 1999 AND 1998
(1) 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.
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.
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) Organization - (Continued)
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.
(2) Summary of Significant Accounting Policies -
Financial Statement Presentation
The accounts of the Partnership are maintained on the
accrual basis of accounting for both federal income tax
purposes and financial reporting purposes.
Accounting Estimates
Management uses estimates and assumptions in preparing
these financial statements in accordance with generally
accepted accounting principles. Those estimates and
assumptions may affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Actual results could differ from those estimates.
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(2) Summary of Significant Accounting Policies - (Continued)
The Partnership regularly assesses whether market events
and conditions indicate that it is reasonably possible to
recover the carrying amounts of its investments in real
estate from future operations and sales. A change in
those market events and conditions could have a material
effect on the carrying amount of its real estate.
Cash Concentrations of Credit Risk
At times throughout the year, the Partnership's cash
deposited in financial institutions may exceed FDIC
insurance limits.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash
equivalents may include cash in checking, cash invested
in money market accounts, certificates of deposit,
federal agency notes and commercial paper with a term of
three months or less.
Income Taxes
The income or loss of the Partnership for federal income
tax reporting purposes is includable in the income tax
returns of the partners. Accordingly, no recognition has
been given to income taxes in the accompanying financial
statements.
The tax return, the qualification of the Partnership as
such for tax purposes, and the amount of distributable
Partnership income or loss are subject to examination by
federal and state taxing authorities. If such an
examination results in changes with respect to the
Partnership qualification or in changes to distributable
Partnership income or loss, the taxable income of the
partners would be adjusted accordingly.
Real Estate
The Partnership's real estate is leased under triple net
leases classified as operating leases. The Partnership
recognizes rental revenue on the accrual basis according
to the terms of the individual leases. For leases which
contain cost of living increases, the increases are
recognized in the year in which they are effective.
Real estate is recorded at the lower of cost or estimated
net realizable value. The Partnership compares the
carrying amount of its properties to the estimated future
cash flows expected to result from the property and its
eventual disposition. If the sum of the expected future
cash flows is less than the carrying amount of the
property, the Partnership recognizes an impairment loss
by the amount by which the carrying amount of the
property exceeds the fair value of the property.
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(2) Summary of Significant Accounting Policies - (Continued)
The Partnership has capitalized as Investments in Real
Estate certain costs incurred in the review and
acquisition of the properties. The costs were allocated
to the land, buildings and equipment.
The buildings and equipment of the Partnership are
depreciated using the straight-line method for financial
reporting purposes based on estimated useful lives of 30
years and 10 years respectively.
The Partnership accounts for properties owned as tenants-
in-common with affiliated Partnerships and/or unrelated
third parties using the proportionate consolidation
method. Each tenant-in-common owns a separate, undivided
interest in the properties. Any tenant-in-common that
holds more than a 50% interest does not control decisions
over the other tenant-in-common interests. The financial
statements reflect only this Partnership's percentage
share of the properties' land, building and equipment,
liabilities, revenues and expenses.
(3) Related Party Transactions -
The Partnership owns a 7.6482% interest in the Rio Bravo
restaurant. The remaining interests in this property are
owned by unrelated third parties. Net Lease Income & Growth
Fund 84-A Limited Partnership, an affiliate of the
Partnership, owned a 55% interest in this property until the
interest was sold in a series of transactions in 1997 and
1998. The Partnership owns a 70.8734% interest in the
Tractor Supply Company store. The remaining interests in
this property are owned by AEI Real Estate Fund XV Limited
Partnership, an affiliate of the Partnership and an
unrelated third party. The Partnership owns a 60% interest
in the Arby's restaurant. The remaining interest in this
property is owned by Net Lease Income & Growth Fund 84-A
Limited Partnership.
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(3) Related Party Transactions - (Continued)
AEI and NLM received the following compensation and
reimbursements for costs and expenses from the Partnership:
Total Incurred by the Partnership
for the Years Ended December 31
1999 1998
a.AEI and NLM are reimbursed for all costs
incurred in connection with managing the
Partnership's operations, maintaining the
Partnership's books and communicating
the results of operations to the Limited
Partners. $ 94,134 $ 92,895
========= =========
b.AEI and NLM are reimbursed for all direct
expenses they have paid on the Partnership's
behalf to third parties. These expenses included
printing costs, interest, legal and filing fees, direct
administrative costs, outside audit and accounting
costs, taxes, insurance and other property costs. $ 12,564 $ 10,768
========= =========
c.AEI is reimbursed for all property acquisition
costs incurred by it in acquiring properties on
behalf of the Partnership. The amounts are net
of financing and commitment fees and expense
reimbursements received by the Partnership from
the lessees in the amount of $48,235 and $13,292
for 1999 and 1998, respectively. $ 203 $ 1,885
========= =========
The payable to AEI Fund Management, Inc. represents the
balance due for the services described in 3a, b and c. This
balance is non-interest bearing and unsecured and is to be
paid in the normal course of business.
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(4) Investments in Real Estate -
The Partnership leases its properties to various tenants
through triple net leases, which are classified as operating
leases. Under a triple net lease, the lessee is responsible
for all real estate taxes, insurance, maintenance, repairs
and operating expenses of the property. The initial Lease
terms are for 20 years, except for the Hops Grill & Bar
restaurant which is 5 years, the Tractor Supply Company
store which is 14 years and the Marie Callender's restaurant
which is 15 years. The Leases have renewal options which
may extend the Lease term an additional 5 to 20 years. The
Hops Grill & Bar Lease has been extended to April 30, 2002.
The Leases contain clauses which entitle the Partnership to
receive additional rent in future years, based on stated
rent increases or if gross receipts for the property exceed
certain specified amounts, among other conditions.
The Partnership's properties are all commercial, single-
tenant buildings. The Rio Bravo was constructed in 1984 and
acquired in 1985. The Jack-In-The-Box was constructed and
acquired in 1985. The Hops Grill & Bar restaurant was
constructed and acquired in 1986. The Tractor Supply
Company store was constructed and acquired in 1996. The
land for the Arby's restaurant was acquired in 1998 and
construction of the restaurant was completed in 1999. The
Marie Callender's restaurant was constructed in 1998 and
acquired in 1999. There have been no costs capitalized as
improvements subsequent to the acquisitions.
The cost of the properties and the related accumulated
depreciation at December 31, 1999 are as follows:
Buildings and Accumulated
Property Land Equipment Total Depreciation
Rio Bravo, St. Paul, MN $ 49,251 $ 86,014 $ 135,265 $ 53,123
Jack-In-The-Box,
Fort Worth, TX 498,862 506,724 1,005,586 293,924
Hops Grill & Bar,
Palm Harbor, FL 484,570 609,803 1,094,373 352,824
Tractor Supply Company,
Maryville, TN 136,097 605,467 741,564 84,819
Arby's Restaurant,
Hudsonville, MI 209,470 457,285 666,755 5,715
Marie Callender's,
Gresham, OR 521,332 1,095,201 1,616,533 9,127
---------- ---------- ---------- ----------
$1,899,582 $3,360,494 $5,260,076 $ 799,532
========== ========== ========== ==========
On July 31, 1998, the Partnership sold 9.1266% of its
interest in the Tractor Supply Company store to an unrelated
third party. The Partnership received net sale proceeds of
$133,251 which resulted in a net gain of $44,686. At the
time of the sale, the cost and related accumulated
depreciation of the interest sold was $95,494 and $6,929,
respectively.
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(4) Investments in Real Estate - (Continued)
During 1998, the Partnership sold 37.3518% of its interest
in the Rio Bravo restaurant, in four separate transactions,
to unrelated third parties. The Partnership received total
net sale proceeds of $585,789 which resulted in a total net
gain of $172,422. The total cost and related accumulated
depreciation of the interests sold was $660,597 and
$247,230, respectively.
On December 30, 1998, the Partnership sold the Applebee's
restaurant in Harlingen, Texas to the lessee. The
Partnership received net sales proceeds of $1,858,837 which
resulted in a net gain of $580,055. At the time of sale,
the cost and related accumulated depreciation of the
property was $1,393,470 and $114,688, respectively.
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 property.
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.
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.
The minimum future rentals on the Leases for years
subsequent to December 31, 1999 are as follows:
2000 $ 527,308
2001 535,862
2002 478,204
2003 449,564
2004 453,863
Thereafter 3,380,509
----------
$5,825,310
==========
In 1999 and 1998, the Partnership recognized contingent
rents of $10,000 and $14,896, respectively.
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(5) Major Tenants -
The following schedule presents rent revenue from individual
tenants, or affiliated groups of tenants, who each
contributed more than ten percent of the Partnership's total
rent revenue for the years ended December 31:
1999 1998
Tenants Industry
CKE Restaurants, Inc. Restaurant $145,582 $150,478
Hops Grill & Bar, Inc. Restaurant 86,808 84,279
Tractor Supply Company, Inc. Retail 82,846 87,345
Marie Callender Pie Shops, Inc. Restaurant 39,267 0
Renaissant Development Corp. Restaurant 0 155,979
Innovative Restaurant
Concepts, Inc. Restaurant 0 53,802
--------- --------
Aggregate rent revenue of major tenants $354,503 $531,883
========= ========
Aggregate rent revenue of major tenants as
a percentage of total rent revenue 91% 100%
========= ========
(6) Partners' Capital-
Cash distributions of $6,616 and $4,212 were made to the
General Partners and $654,950 and $417,001 were made to the
Limited Partners for the years ended December 31, 1999 and
1998, respectively. The Limited Partners' distributions
represent $92.51 and $58.90 per Limited Partnership Unit
outstanding using 7,080 Units in 1999 and 1998. The
distributions represent $41.57 and $58.90 per Unit of Net
Income and $50.94 and $-0- per Unit of return of contributed
capital in 1999 and 1998, respectively.
As part of the Limited Partner distributions discussed
above, the Partnership distributed $250,000 of proceeds from
property sales in 1999. The distributions reduced the
Limited Partners' Adjusted Capital Contributions.
Distributions of Net Cash Flow to the General Partners
during 1999 and 1998 were subordinated to the Limited
Partners as required in the Partnership Agreement. As a
result, 99% of distributions and income were allocated to
the Limited Partners and 1% to the General Partners.
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(6) Partners' Capital- (Continued)
The Partnership may acquire 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 1999 and 1998, the Partnership did not redeem any
Units from the Limited Partners.
After the effect of redemptions and the return of capital
from the sale of property, the Adjusted Capital
Contribution, as defined in the Partnership Agreement, is
$870.64 per original $1,000 invested.
(7) Income Taxes -
The following is a reconciliation of net income for
financial reporting purposes to income reported for federal
income tax purposes for the years ended December 31:
1999 1998
Net Income For Financial
Reporting Purposes $ 297,284 $1,142,451
Depreciation for Tax Purposes
Over Depreciation For Financial
Reporting Purposes (16,476) (10,467)
Gain on Sale of Real Estate For
Tax Purposes Over Gain For
Financial Reporting Purposes 0 52,969
---------- ----------
Taxable Income to Partners $ 280,808 $1,184,953
========== ==========
AEI REAL ESTATE FUND 85-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(7) Income Taxes - (Continued)
The following is a reconciliation of Partners' capital for
financial reporting purposes to Partners' capital reported
for federal income tax purposes for the years ended
December 31:
1999 1998
Partners' Capital For
Financial Reporting Purposes $4,552,446 $4,916,728
Adjusted Tax Basis of Investments
In Real Estate Under Net Investments
In Real Estate for Financial
Reporting Purposes (155,359) (138,883)
Syndication Costs Treated as
Reduction of Capital For
Financial Reporting Purposes 978,377 978,377
---------- ----------
Partners' Capital For
Tax Reporting Purposes $5,375,464 $5,756,222
========== ==========
(8) Fair Value of Financial Instruments -
The estimated fair values of the financial instruments, none
of which are held for trading purposes, are as follows at
December 31:
1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash $ 403 $ 403 $ 317 $ 317
Money Market Funds 180,452 180,452 2,571,932 2,571,932
--------- --------- ----------- -----------
Total Cash and
Cash Equivalents $ 180,855 $ 180,855 $ 2,572,249 $ 2,572,249
========= ========= =========== ===========
ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
The registrant is a limited partnership and has no
officers, directors, or direct employees. The General Partners
of the registrant are Robert P. Johnson and NLM. The General
Partners manage and control the Partnership's affairs and have
general responsibility and the ultimate authority in all matters
affecting the Partnership's business. The director and officers
of NLM are as follows:
Robert P. Johnson, age 55, is Chief Executive Officer,
President and Director and has held these positions since the
formation of NLM in November, 1984, and has been elected to
continue in these positions until December, 2000. From 1970 to
the present, he has been employed exclusively in the investment
industry, specializing in tax-advantaged limited partnership
investments. In that capacity, he has been involved in the
development, analysis, marketing and management of public and
private investment programs investing in net lease properties as
well as public and private investment programs investing in
energy development. Since 1971, Mr. Johnson has been the
president, a director and a registered principal of AEI
Securities, Inc. (formerly AEI Incorporated), which is registered
with the Securities and Exchange Commission as a securities
broker-dealer, is a member of the National Association of
Securities Dealers, Inc. (NASD) and is a member of the Security
Investors Protection Corporation (SIPC). Mr. Johnson has been
president, a director and the principal shareholder of AEI Fund
Management, Inc., a real estate management company founded by
him, since 1978. Mr. Johnson is currently a general partner or
principal of the general partner in fifteen other limited
partnerships.
Mark E. Larson, age 47, is Executive Vice President,
Treasurer and Chief Financial Officer and has been elected to
continue in these positions until December, 2000. Mr. Larson has
been Treasurer and Executive Vice President since December, 1987
and Chief Financial Officer since January, 1990. In January,
1993, Mr. Larson was elected to serve as Secretary of NLM and
will continue to serve until December, 2000. Mr. Larson has been
employed by AEI Fund Management, Inc. and affiliated entities
since 1985. From 1979 to 1985, Mr. Larson was with Apache
Corporation as manager of Program Accounting responsible for the
accounting and reports for approximately 45 public partnerships.
Mr. Larson is responsible for supervising the accounting
functions of NLM and the registrant.
ITEM 10. EXECUTIVE COMPENSATION.
The General Partner and affiliates are reimbursed at cost
for all services performed on behalf of the registrant and for
all third party expenses paid on behalf of the registrant. The
cost for services performed on behalf of the registrant is actual
time spent performing such services plus an overhead burden.
These services include organizing the registrant and arranging
for the offer and sale of Units, reviewing properties for
acquisition and rendering administrative and management services.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information pertaining to
the ownership of the Units by each person known by the
Partnership to beneficially own 5% or more of the Units, by each
General Partner, and by each officer or director of the Managing
General Partner as of February 29, 2000:
Name and Address Number of Percent
of Beneficial Owner Units Held of Class
Net Lease Management 85-A, Inc. 14.5 *
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
Robert P. Johnson 0 0%
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
Mark E. Larson 0 0%
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
* Less than 1%
The persons set forth in the preceding table hold sole voting
power and power of disposition with respect to all of the Units
set forth opposite their names. The General Partners know of no
holders of more than 5% of the outstanding Units.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The registrant, NLM and its affiliates have common
management and utilize the same facilities. As a result, certain
administrative expenses are allocated among these related
entities. All of such activities and any other transactions
involving the affiliates of the General Partner of the registrant
are governed by, and are conducted in conformity with, the
limitations set forth in the Limited Partnership Agreement of the
registrant. Reference is made to Note 3 on Page 19 and 20, and
is incorporated herein by reference, for details of Related Party
Transactions.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A.
A. Exhibits -
Description
10.1 Purchase Agreement dated September 9,
1998 between the Partnership and Tom S.
Obata, Trustee of That Certain "Living
Trust" relating to the property at 389 N.
Hamline Avenue, St. Paul, Minnesota
(incorporated by reference to Exhibit 10.1
of Form 10-KSB filed with the Commission on
March 12, 1999).
PART II - OTHER INFORMATION
(Continued)
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
a. Exhibits -
Description
10.2 Purchase Agreement dated September 10,
1998 between the Partnership and Jack S.
Obata and Atsuko Obata, Trustee of the Jack
S. and Atsuko Obata Revocable Trust dated
12/30/74 relating to the property at 389 N.
Hamline Avenue, St. Paul, Minnesota
(incorporated by reference to Exhibit 10.2
of Form 10-KSB filed with the Commission on
March 12, 1999).
10.3 Property Co-Tenancy Ownership
Agreement dated September16, 1998 between
the Partnership and Tom S. Obata, Trustee
of That Certain "Living Trust" relating to
the property at 389 N. Hamline Avenue, St.
Paul, Minnesota (incorporated by reference
to Exhibit 10.3 of Form 10-KSB filed with
the Commission on March 12, 1999).
10.4 Property Co-Tenancy Ownership
Agreement dated September 16, 1998 between
the Partnership and Jack S. Obata and
Atsuko Obata, Trustee of the Jack S. and
Atsuko Obata Revocable Trust dated 12/30/74
relating to the property at 389 N. Hamline
Avenue, St. Paul, Minnesota (incorporated
by reference to Exhibit 10.4 of Form 10-KSB
filed with the Commission on March 12,
1999).
10.5 Purchase Agreement dated
October 27, 1998 between the Partnership
and Jean Ann Morrison, Trustee of The Jean
Morrison Trust, dated 4/26/85 relating to
the property at 389 N. Hamline Avenue, St.
Paul, Minnesota (incorporated by reference
to Exhibit 10.5 of Form 10-KSB filed with
the Commission on March 12, 1999).
10.6 Property Co-Tenancy
Ownership Agreement dated October 29, 1998
between the Partnership and Jean Ann
Morrison, Trustee of The Jean Morrison
Trust, dated 4/26/85 relating to the
property at 389 N. Hamline Avenue, St.
Paul, Minnesota (incorporated by reference
to Exhibit 10.6 of Form 10-KSB filed with
the Commission on March 12, 1999).
10.7 Purchase Agreement dated November 10,
1998 between the Partnership and Renaissant
Development Corporation relating to the
property at 1519 W. Harrison, Harlingen,
Texas (incorporated by reference to Exhibit
10.1 of Form 8-K filed with the Commission
on January 5, 1999).
10.8 Purchase Agreement dated
November 19, 1998 between the Partnership
and Joan G. Cairns relating to the property
at 389 N. Hamline Avenue, St. Paul,
Minnesota (incorporated by reference to
Exhibit 10.8 of Form 10-KSB filed with the
Commission on March 12, 1999).
PART II - OTHER INFORMATION
(Continued)
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
a. Exhibits -
Description
10.9 Property Co-Tenancy
Ownership Agreement dated November 25, 1998
between the Partnership and Joan G. Cairns
relating to the property at 389 N. Hamline
Avenue, St. Paul, Minnesota (incorporated
by reference to Exhibit 10.9 of Form 10-KSB
filed with the Commission on March 12,
1999).
10.10 Development Financing
Agreement dated December 17, 1998 between
the Partnership, Net Lease Income & Growth
Fund 84-A Limited Partnership and RTM Mid-
America, Inc. relating to the property at
4633 32nd Avenue, Hudsonville, Michigan
(incorporated by reference to Exhibit 10.10
of Form 10-KSB filed with the Commission on
March 12, 1999).
10.11 Net Lease Agreement
dated December 17, 1998 between the
Partnership, Net Lease Income & Growth Fund
84-A Limited Partnership and RTM Mid-
America, Inc. relating to the property at
4633 32nd Avenue, Hudsonville, Michigan
(incorporated by reference to Exhibit 10.11
of Form 10-KSB filed with the Commission on
March 12, 1999).
10.12 Sale and Purchase
Agreement and Escrow Instructions dated
June 2, 1999 between AEI Fund Management,
Inc. and Marie Callender Pie Shops, Inc.
relating to the property at 305 N.E.
Burnside Street, Gresham, Oregon
(incorporated by reference to Exhibit 10.1
of Form 10-QSB filed with the Commission on
July 30, 1999).
10.13 First Amendment to Sale
and Purchase Agreement and Escrow
Instructions dated July 8, 1999 between AEI
Fund Management, Inc. and Marie Callender
Pie Shops, Inc. relating to the property at
305 N.E. Burnside Street, Gresham, Oregon
(incorporated by reference to Exhibit 10.2
of Form 10-QSB filed with the Commission on
July 30, 1999).
10.14 Assignment of Purchase
and Sale Agreement and Escrow Instructions
dated July 23, 1999 between the
Partnership, AEI Income & Growth Fund XXII
Limited Partnership and AEI Fund
Management, Inc. and Marie Callender Pie
Shops, Inc. relating to the property at 305
N.E. Burnside Street, Gresham, Oregon
(incorporated by reference to Exhibit 10.3
of Form 10-QSB filed with the Commission on
July 30, 1999).
PART II - OTHER INFORMATION
(Continued)
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
a. Exhibits -
Description
10.15 First Amendment to Net
Lease Agreement dated September 3, 1999
between the Partnership, Net Lease Income &
Growth Fund 84-A Limited Partnership and
RTM, Mid-America, Inc. relating to the
property at 4633 32nd Avenue, Hudsonville,
Michigan (incorporated by reference to
Exhibit 10.2 of Form 8-K filed with the
Commission on September 9, 1999).
10.16 Second Amendment to Net
Lease Agreement dated September 3, 1999
between the Partnership, Net Lease Income &
Growth Fund 84-A Limited Partnership and
RTM, Mid-America, Inc. relating to the
property at 4633 32nd Avenue, Hudsonville,
Michigan (incorporated by reference to
Exhibit 10.5 of Form 10-QSB filed with the
Commission on November 8, 1999).
10.17 Net Lease Agreement
dated September 28, 1999 between the
Partnership and Marie Callender Pie Shops,
Inc. relating to the property at 305 N.E.
Burnside Street, Gresham, Oregon
(incorporated by reference to Exhibit 10.4
of Form 8-K filed with the Commission on
October 1, 1999).
27 Financial Data Schedule for
year ended December 31, 1999.
B. Reports on Form 8-K and 8-K/A -
During the quarter
ended December 31, 1999, the
Partnership filed a Form 8-K
dated September 28, 1999,
reporting the acquisition of
the Marie Callender's
restaurant in Gresham, Oregon.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AEI REAL ESTATE FUND 85-A
Limited Partnership
By: Net Lease Management 85-A, Inc.
Its Managing General Partner
March 10, 2000 By: /s/ Robert P. Johnson
Robert P. Johnson, President and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Name Title Date
/s/ Robert P. Johnson President (Principal Executive Officer) March 10, 2000
Robert P. Johnson and Sole Director of Managing General
Partner
/s/ Mark E. Larson Executive Vice President, Treasurer March 10, 2000
Mark E. Larson and Chief Financial Officer
(Principal Accounting Officer)
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<CIK> 0000759641
<NAME> AEI REAL ESTATE FUND 85-A LTD PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 180,855
<SECURITIES> 0
<RECEIVABLES> 10,000
<ALLOWANCES> 0
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<PP&E> 5,260,076
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<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,552,446
<TOTAL-LIABILITY-AND-EQUITY> 4,651,399
<SALES> 0
<TOTAL-REVENUES> 471,976
<CGS> 0
<TOTAL-COSTS> 174,692
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<INCOME-PRETAX> 297,284
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