Schedule 14A Information
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1934
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AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
(Name of Registrant as Specified in Its Charter)
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
(Name of Person(s) Filing Proxy Statement)
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AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
1300 Minnesota World Trade Center
30 East 7th Street
St. Paul, Minnesota 55101
CONSENT STATEMENT
For Amendment to Limited Partnership
Agreement to Permit Reinvestment
of Sales Proceeds
THIS CONSENT STATEMENT IS BEING MAILED TO INVESTORS ON OR
ABOUT OCTOBER 15, 1995. TO BE COUNTED, A PROPERLY SIGNED CONSENT
FORM MUST BE RECEIVED BY THE MANAGING GENERAL PARTNER AT 1300
MINNESOTA WORLD TRADE CENTER, 30 EAST 7TH STREET, ST. PAUL,
MINNESOTA 55101, ON OR BEFORE NOVEMBER 30, 1995.
AEI Fund Management 86-A, Inc., the managing general partner
(the "Managing General Partner"), of AEI Real Estate Fund 86-A
Limited Partnership (the "Partnership") is recommending an
amendment (the "Amendment") to the Partnership's Limited
Partnership Agreement (the "Partnership Agreement") to enable the
Partnership to reinvest the Net Proceeds of Sale of Partnership
properties until the final liquidation of the Partnership. The
Partnership Agreement was previously amended in December 1989 to
provide for a 60 month reinvestment period, which period has
expired. Approval of the Amendment will enable the Partnership to
reinvest a portion of the Net Proceeds of Sale resulting from
sale of the Partnership's Ft. Myers Applebee's and Columbus
Cheddar's properties, and any other sale that occurs prior to the
liquidation of this Partnership. This Amendment is not intended
to extend the life of the Partnership.
The proposed Amendment will affect your investment in the
Partnership in a number of ways, including the following:
Rather than distributing all net cash proceeds on sale of
a property, the Amendment will allow the Partnership (if
the Managing General Partner determines, in its
discretion, that it is advantageous to the Partnership) to
distribute to limited partners ("Investors") as much cash
proceeds as is necessary to pay the income tax liability
(at an assumed average blended tax rate) generated by the
sale of property, and to reinvest the balance of such
proceeds in new properties. There can be no assurance
that distributions will be adequate to cover income tax
liabilities generated by the gain on sale of any
properties, or that reinvested proceeds will generate
significant returns.
Proceeds will be reinvested in additional triple net
leased commercial properties that are subject to the same
risks of performance or nonperformance, (including risks
related to changing market values, tenant defaults,
difficulty of resale, among others) as the properties
originally acquired by the Partnership.
Investors will not be able to review in advance the
properties in which proceeds are reinvested.
The Managing General Partner will be reimbursed for the
costs it incurs, including costs of its personnel, in
reinvesting the proceeds and managing the properties in
which the proceeds are reinvested.
Because it believes reinvestment offers the potential for
increased overall profit, the Managing General Partner recommends
a vote "FOR" the proposed Amendment.
SUMMARY
The following summary is qualified in its entirety by the
more detailed discussion of the proposed Amendment set forth
herein and in the text of the proposed Amendment.
The Amendment: The Managing General Partner is proposing an
Amendment to Section 5.4 of the Partnership
Agreement that would eliminate the requirement
that the Partnership distribute all Net Proceeds
of Sale of properties and allow reinvestment of
such proceeds until final liquidation of the
Partnership.
Reasons for the
Amendment: The Partnership holds a number of properties
which may be sold prior to final
liquidation of the Partnership due to favorable
market conditions, exercise of lease purchase
options, tenant restructuring or other reasons.
Although the Managing General Partner cannot
guarantee returns, it believes it can continue
to generate favorable returns to Investors by
reinvestment of such proceeds in additional
properties. The Partnership recently sold an
Applebee's restaurant in Ft. Myers, Florida, for
a net cash gain of $467,203, or approximately
40% more than the initial purchase price. In
addition, the Partnership recently sold a 20%
interest in a Cheddar's restaurant in Columbus,
Ohio, for a net cash gain of $8,115. The
Partnership would like to reinvest the proceeds
therefrom.
Effects of the
Amendment--Risks: The Amendment will result in reinvestment
of Net Proceeds of Sale. The
reinvestment will involve many of the same
risks as the initial investment of Partnership
subscription proceeds, including risks related
to investment in real estate in general (such as
changing market values, tenant defaults, and
difficulty of resale, among others), the
inability of Investors to review properties
before purchase, certain expenses payable to the
Managing General Partner and federal income tax
risks.
REASONS FOR AND EFFECTS OF THE AMENDMENT
General
If Investors approve the Amendment of the Partnership
Agreement, the Partnership would have the opportunity, upon the
sale or other disposition of properties such as the Applebee's
and Cheddar's restaurants described below, to reinvest the Net
Proceeds of Sale in additional triple net leased properties.
Under the original terms of the Partnership Agreement,
reinvestment of the Net Proceeds of Sale from the sale of
properties was limited to a period of 24 months, which expired
July 9, 1988. In October 1989, the Partnership Agreement was
amended to allow for a 60 month period for reinvestment of Net
Proceeds of Sale, which expired July 9, 1991. By consenting to
the Amendment of the Partnership Agreement, Investors would
permit the Partnership to acquire new properties with the Net
Proceeds of Sale from the sale of the Applebee's and Cheddar's
properties (net of any distributions to Investors) or any other
sale of Partnership property that occurs prior to the final
liquidation of the Partnership.
The Managing General Partner believes that, if allowed to
reinvest the Net Proceeds of Sale remaining after a distribution
to Investors to cover income taxes (at an assumed average blended
tax rate), it can acquire properties that will continue to
generate attractive net rental income for the Partnership.
Because no commissions will be paid in connection with
reinvestment (other than possible real estate commissions), the
entire amount of reinvested proceeds can be placed in newly
acquired properties. Recent acquisitions by the General Partners
for other real estate limited partnerships that have investment
objectives substantially identical to the Partnership have
produced rental rates of 10.5% to 12.5% of the purchase price of
the properties. No assurances can be given, however, that a
property acquired by the Partnership will produce similar
rentals, or that such rentals will not be interrupted by events
outside the Managing General Partners' control.
The Managing General Partner of the Partnership is currently
evaluating a number of properties for acquisition, including
properties owned or being developed by companies that lease
properties from other partnerships managed by the General
Partners. The Managing General Partner will not be obligated to
obtain the consent of Investors as to the type of property
acquired if this Amendment is approved. Nevertheless, any
property acquired will comply with the investment objectives and
policies set forth in the Prospectus pursuant to which the Units
were initially offered. Any property acquired will be an
existing commercial property that will be acquired on a debt-free
basis and will likely be leased to a single tenant pursuant to a
triple-net lease in the franchise restaurant industry. No
property will be acquired from the General Partners or their
Affiliates.
Sale of Properties
The Amendment is being proposed at this time to facilitate
reinvestment of Net Proceeds of Sale of an Applebee's restaurant
in Ft. Myers, Florida and a Cheddar's restaurant in Columbus,
Ohio. The Partnership purchased the Applebee's restaurant
property on February 1, 1988. The property was leased to Apple
South, Inc. under a 20-year, non-cancelable triple-net lease
agreement. The total cost of the property to the Partnership was
$1,179,405. The lease agreement provided Apple South, Inc. with
an option to purchase the property after the seventh lease year.
The purchase price was the greater of a) $1,170,000 increased by
5% per annum per lease year, or b) the average rent paid by the
lessee over the immediately preceding two year period divided by
eleven percent, or c) the fair market value of the property
thirty days prior to the time of closing.
Apple South, Inc. exercised that option by notifying the
Partnership and the sale of the property closed on July 28, 1995.
The Partnership received Net Proceeds of Sale of $1,646,608 which
resulted in a net cash gain on sale of $467,203, or approximately
40% more than the initial purchase price. The Partnership's
adjusted basis in the property, after depreciation, was $978,299.
Accordingly, the sale of the property generated a taxable gain of
$668,309, or $90.98 per outstanding limited partnership unit.
The Partnership purchased a 20% interest in the Cheddar's
restaurant property on June 7, 1990. The remaining interest in
the property was purchased by AEI Real Estate Fund XVIII Limited
Partnership, an affiliate of the Partnership. The property was
leased to Heartland Restaurant Corporation under a 20-year, non-
cancelable triple-net lease agreement. The total cost of the
property to the Partnership was $306,711. On July 6, 1995, the
property was sold to Heartland Restaurant Corporation. The
Partnership received Net Proceeds of Sale of $314,826 which
resulted in a net cash gain on sale of $8,115. The Partnership's
adjusted basis in the property, after depreciation, was $269,419.
Accordingly, the sale of the property generated a taxable gain of
$45,407, or $6.24 per outstanding limited partnership unit.
If the Investors approve the Amendment, the Partnership will
distribute approximately $250,000, or approximately $34 per
outstanding Limited Partnership Unit, of the Net Proceeds of Sale
to cover income tax liabilities generated by the sale. The
distribution of the Net Proceeds of Sale will be made in the
third and fourth quarter of 1995 as part of the regular quarterly
distribution with the entire third quarter distribution of
approximately $142,000 representing a distribution of Net
Proceeds of Sale. The distribution of Net Proceeds on Sale would
reduce the Adjusted Capital Contributions of Investors by $34 per
outstanding limited partnership unit. The remainder of the
proceeds would be reinvested in new properties.
In the event Investors do not approve the Amendment,
Investors will receive a distribution of approximately
$1,900,000, or approximately $261 per outstanding limited
partnership unit, from sale of the Applebee's and Cheddar's
properties. The regular quarterly distribution for the third
quarter of 1995 of approximately $142,000 will be a distribution
of Net Proceeds of Sale. The balance of the Net Proceeds of Sale
($1,758,000) to be distributed will be paid in the fourth quarter
of 1995. The Net Proceeds of Sale not distributed will be
retained by the Partnership as working capital reserves. The
distribution of Net Proceeds on Sale would reduce the Adjusted
Capital Contributions of Investors by $261 per outstanding
limited partnership unit.
The Applebee's and Cheddar's properties generated rental
revenues of $197,010 during the year ended December 31, 1994. If
the proceeds from its sale are distributed, rather than
reinvested, future Partnership revenues will be reduced by a
corresponding amount.
Risks of Reinvestment
The reinvestment of proceeds from the sale of these
properties, like the original investment in properties by the
Partnership, is subject to a number of risks, including the
following:
Investors will not be able to review in advance the
properties in which proceeds are reinvested;
Investors will not receive the cash generated from
property sales until final liquidation of the Partnership
and will have only limited rights to present their units
for repurchase before then;
Investors will be taxed on the full amount of gain
generated from sale of properties but will receive
distributions designed to cover potential tax effects at
an assumed average blended tax rate that may not match
their tax obligations;
Proceeds will be reinvested in additional triple net
leased commercial properties that are subject to the same
risks of nonperformance, (including risks related to
changing market values, tenant defaults, difficulty of
resale, among others) as the original properties;
The General Partners may receive more aggregate
reimbursements from the Partnership if proceeds are
reinvested than they would if proceeds were not
reinvested.
Although the General Partners intend to reinvest any Net
Proceeds of Sale in properties that will further the objectives
of preserving capital, creating a favorable return through cash
distributions from rentals, and appreciation realized on resale,
there can be no assurances that such objectives will be achieved
or that the ultimate distribution of Net Proceeds of Sale will be
larger when the new properties are eventually sold.
Interest of the General Partner
Neither the General Partners, nor any of their affiliates,
will receive any fees for reinvestment of the Net Proceeds of
Sale or in connection with the acquisition of any property. The
General Partners will be reimbursed for any costs they incur in
completing any acquisition and in connection with management of
the property in accordance with, and subject to the limitations
in the Partnership Agreement. To the extent that the Amendment
to the Partnership Agreement is not approved, and the proceeds
from the sale of the properties are not reinvested, the amount of
capital under management by the General Partners through this
Partnership, and the scope of the Partnership's operations, will
be reduced. Such reduced operations can be expected to reduce
the aggregate amount of reimbursements that the General Partners
receive from the Partnership.
The Managing General Partner holds 23 Units as a limited
partner in the Partnership. No other General Partner or
Affiliate of the General Partners holds any interest as a limited
partner in the Partnership.
Voting Units
Voting by Investors on an Amendment of the Partnership
Agreement is based upon Partnership units ("Voting Units"). As
of October 1, 1995, there were _______ Voting Units
outstanding. Each Voting Unit is entitled to one vote.
Fractions of Voting Units will be included in the total.
To the best of the Managing General Partner's knowledge,
there is no beneficial owner holding five percent or more of the
Voting Units including the General Partners.
In order for the proposed Amendment to be adopted, a
majority of the Voting Units must be voted in favor of the
Amendment.
Procedures for Voting
Accompanying this Consent Statement is a Consent Form for
each Investor with respect to his/her unit ownership in the
Partnership. By checking the appropriate box, each Investor can
indicate whether he/she votes FOR or AGAINST or ABSTAINS as to
the proposed Amendment. If any Investor returns a Consent Form
duly signed without checking any box, he/she will be deemed to
have voted FOR the Amendment.
An Investor who votes against, or abstains, does not have
appraisal or similar rights under Minnesota law.
The Managing General Partner has fixed the close of business
on October 1, 1995 as the record date for the determination of
the Investors entitled to vote on the proposed Amendment; the
close of business on November 30, 1995 as the date by which
Consent Forms must be received by the Managing General Partner in
order to be counted; and December 1, 1995 as the date on which
the consents are to be counted. An Investor may revoke
his/her/its consent at any time prior to November 30, 1995,
provided written revocation is received by the Managing General
Partner prior to that date.
The cost of solicitation of consents of the Investors will
be borne by the Partnership. The solicitations will be made by
the mails. This Consent Statement was first mailed to Investors
on October 15, 1995. Staff of the Managing General Partner will
be available by telephone to answer any questions concerning this
Consent.
Incorporation By Reference
The information included under the captions "Financial
Statements and Notes to Financial Statements," "Selected
Financial Data" and Management's Discussion and Analysis of
Financial Condition and Results of operations" of the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1994 and Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 is hereby incorporated by reference.
BY ORDER OF THE BOARD OF DIRECTORS
OF AEI FUND MANAGEMENT 86-A, INC.
Robert P. Johnson, President
Exhibit A
PROPOSED AMENDMENT OF
LIMITED PARTNERSHIP AGREEMENT OF
AEI REAL ESTATE FUND 86-A
Changes in the existing provisions of the Limited
Partnership Agreement that would be made by the proposed
Amendment are shown below. Existing provisions proposed to be
omitted are enclosed in brackets. New matter is printed in bold.
SECTION 5.4 DISTRIBUTION OF NET PROCEEDS OF SALE
5.4 Distribution of Net Proceeds of Sale. Upon financing,
refinancing, sale or other disposition of any of the Properties,
Net Proceeds of Sale may be reinvested in additional properties
until [a date 60 months after the date on which the offer and
sale of units pursuant to the Prospectus is terminated], THE
GENERAL PARTNER DETERMINES THAT IT IS IN THE BEST INTERESTS OF
THE PARTNERSHIP TO BEGIN LIQUIDATION OF THE PARTNERSHIP;
provided, however, that sufficient cash is distributed to the
Limited Partners to pay state and federal income taxes (assuming
Limited Partners are taxable at the lesser of (i) a 40% rate on
ordinary income and a 16% rate on capital gain income or (ii) the
maximum marginal tax rates then in effect) created as a result of
such transaction.
IMPORTANT IMPORTANT
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
CONSENT OF LIMITED PARTNERS
This consent is solicited by the Board
of Directors of AEI Fund Management 86-A, Inc.,
The Managing General Partner
The undersigned, a Limited Partner of AEI Real Estate
Fund 86-A Limited Partnership (the "Partnership"), hereby
consents (unless otherwise directed below) to the proposal
identified below to adopt an Amendment to Section 5.4 of the
Limited Partnership Agreement of the Partnership (the
"Partnership Agreement"), as more fully described in the
Consent Statement (the "Proposal"). By voting for the
Proposal, the undersigned hereby appoints AEI Fund
Management 86-A, Inc. as its attorney-in-fact with power to
sign and acknowledge on its behalf any instrument that may
be necessary to evidence the Amendment to the Partnership
Agreement and any corresponding Amendment to the Certificate
of Limited Partnership.
Please date and sign this Consent below and return it
in the enclosed, postage paid envelope. To be counted, this
Consent must be received not later than the close of
business on November 30, 1995.
Adoption of Amendment to Section 5.4 of the Partnership
Agreement
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The Partnership Units held by the signing Limited
Partner will be voted as directed. They will be voted "FOR"
the Proposal if no box is checked.
Please sign exactly as your name appears below. When
Partnership units are held by joint tenants, both owners
should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS CONSENT.
Dated: _______________ , 1995
___________________________________________________________
Signature (if held jointly)
October ____ , 1995
Dear AEI Fund 86-A Investor:
The enclosed Consent Statement proposes an amendment to
the Partnership Agreement that will, if approved by a
majority of the Partners, allow this Fund to reinvest
proceeds from property sales into replacement net leased
properties. When a Fund such as this is originally
organized, it is intended that the properties acquired will
be held for an extended period of time -- usually 10 to 12
years. That provides time for the distribution of income
from rents and time for the property to potentially
appreciate in value. From time to time, however, it is
advantageous for the Fund to sell a property earlier than
anticipated if a substantial gain can be realized. That is
exactly what has occurred with your Applebee's property in
Ft. Myers, Florida. In addition, your Fund sold its
Cheddar's property in Columbus, Ohio.
Your Fund's Partnership Agreement requires the
distribution of all of the proceeds from any sale of
properties. For the reasons outlined in the enclosed
Consent Statement, we believe that it would be advantageous
for your Fund to be able to sell certain of its properties,
distribute a portion of any profits realized, and reinvest
the balance of such proceeds into replacement properties,
until the final liquidation of the Fund occurs. We believe
this will maximize your profit potential and avoid an
erosion of the Fund's asset base. To facilitate this, we
are proposing an amendment to the Partnership Agreement.
Your General Partner believes this is in the best
interests of you and your Fund and recommends you vote "FOR"
this proposed Amendment. Please vote "FOR" on the Consent
Statement vote form and return it in the prepaid envelope
today. If you have any questions regarding your Fund, or
this Consent Statement, please call AEI Investment Services
at 1-800-328-3519.
Thank you for your immediate attention to this matter.
Sincerely,
Robert P. Johnson
General Partner
