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, 1995
Commission file number: 0-14090
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer as Specified in its
Charter)
State of Delaware 41-6273958
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1300 Minnesota World Trade Center, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(612) 227-7333
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Transitional Small Business Disclosure Format:
Yes No X
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Item 1. Balance Sheet as of June 30, 1995 and December 31, 1994
Statements for the Periods ended June 30, 1995 and 1994:
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
<TABLE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
BALANCE SHEET
JUNE 30, 1995 AND DECEMBER 31, 1994
(Unaudited)
ASSETS
<CAPTION>
1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash $ 15,851 $ 9,802
Receivables 16,649 11,604
---------- ----------
Total Current Assets 32,500 21,406
---------- ----------
INVESTMENTS IN REAL ESTATE:
Land 2,458,967 2,458,967
Buildings and Equipment 3,793,449 3,793,449
Accumulated Depreciation (1,220,795) (1,139,101)
---------- ----------
Net Investments in Real Estate 5,031,621 5,113,315
---------- ----------
Total Assets $5,064,121 $5,134,721
========== ==========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 18,135 $ 20,662
Distributions Payable 128,926 128,894
Security Deposit 5,000 5,000
Line of Credit 66,000 35,000
Unearned Rent 8,329 0
---------- ----------
Total Current Liabilities 226,390 189,556
---------- ----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (14,775) (13,701)
Limited Partners, $1,000 Unit value;
7,500 Units authorized and issued;
7,276 Units outstanding 4,852,506 4,958,866
---------- ----------
Total Partners' Capital 4,837,731 4,945,165
---------- ----------
Total Liabilities and Partners' Capital $5,064,121 $5,134,721
========== ==========
<FN>
The accompanying Notes to Financial Statements are an
integral part of this statement.
</TABLE>
<TABLE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
<CAPTION>
Second Quarter Ended Six Months Ended
6/30/95 6/30/94 6/30/95 6/30/94
<S> <C> <C> <C> <C>
INCOME:
Rent $167,014 $166,443 $350,647 $343,588
Investment Income 132 634 234 1,138
-------- -------- -------- --------
Total Income 167,146 167,077 350,881 344,726
-------- -------- -------- --------
EXPENSES:
Partnership Administration-Affiliates 27,504 34,887 62,293 64,682
Partnership Administration and Property
Management - Unrelated Parties 11,356 22,414 30,231 37,474
Depreciation 40,847 40,847 81,694 81,694
-------- -------- -------- --------
Total Expenses 79,707 98,148 174,218 183,850
-------- -------- -------- --------
NET INCOME $ 87,439 $ 68,929 $176,663 $160,876
======= ======= ======= =======
NET INCOME ALLOCATED:
General Partners $ 875 $ 689 $ 1,767 $ 1,609
Limited Partners 86,564 68,240 174,896 159,267
-------- -------- -------- --------
$ 87,439 $ 68,929 $176,663 $160,876
======== ======== ======== ========
NET INCOME PER
LIMITED PARTNERSHIP UNIT
(7,276 and 7,285 weighted average
Units outstanding in 1995 and 1994,
respectively) $ 11.90 $ 9.36 $ 24.04 $ 21.86
======= ======= ======= =======
<FN>
The accompanying Notes to Financial Statements are an
integral part of this statement.
</TABLE>
<TABLE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
<CAPTION>
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $176,663 $160,876
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 81,694 81,694
(Increase) Decrease in Receivables (5,045) 4,802
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (2,527) 12,512
Increase in Unearned Rent 8,329 24,875
-------- --------
Total Adjustments 82,451 123,883
-------- --------
Net Cash Provided by
Operating Activities 259,114 284,759
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Distributions Payable 32 27,274
Distributions to Partners (284,097) (284,090)
Increase in Line of Credit 31,000 0
-------- --------
Net Cash Used for
Financing Activities (253,065) (256,816)
-------- --------
NET INCREASE IN CASH 6,049 27,943
CASH, beginning of period 9,802 20,159
-------- --------
CASH, end of period $15,851 $48,102
======== ========
<FN>
The accompanying Notes to Financial Statements are an
integral part of this statement.
</TABLE>
<TABLE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
General Limited
Partners Partners Total
<S> <C> <C> <C>
BALANCE, December 31, 1993 $ (11,268) $5,199,758 $5,188,490
Distributions (2,841) (281,249) (284,090)
Net Income 1,609 159,267 160,876
---------- ---------- ----------
BALANCE, June 30, 1994 $ (12,500) $5,077,776 $5,065,276
========== ========== ==========
BALANCE, December 31, 1994 $ (13,701) $4,958,866 $4,945,165
Distributions (2,841) (281,256) (284,097)
Net Income 1,767 174,896 176,663
---------- ---------- ----------
BALANCE, June 30, 1995 $ (14,775) $4,852,506 $4,837,731
========== ========== ==========
<FN>
The accompanying Notes to Financial Statements are an
integral part of this statement.
</TABLE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
(Unaudited)
(1)The condensed statements included herein have been
prepared by the Partnership, without audit, and reflect
all adjustments which are, in the opinion of management,
necessary to a fair statement of the results of
operations for the interim period, on a basis consistent
with the annual audited statements. The adjustments
made to these condensed statements consist only of
normal recurring adjustments. Certain information,
accounting policies, and footnote disclosures normally
included in financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and
regulations, although the Partnership believes that the
disclosures are adequate to make the information
presented not misleading. It is suggested that these
condensed financial statements be read in conjunction
with the financial statements and the summary of
significant accounting policies and notes thereto
included in the Partnership's latest annual report on
Form 10-KSB.
(2)Organization -
AEI Real Estate Fund 86-A Limited Partnership
(Partnership) was formed to acquire and lease
commercial properties to operating tenants. The
Partnership's operations are managed by AEI Fund
Management 86-A, Inc. (AFM), the Managing General
Partner of the Partnership. Robert P. Johnson, the
President and sole shareholder of AFM, serves as the
Individual General Partner of the Partnership. An
affiliate of AFM, AEI Fund Management, Inc., performs
the administrative and operating functions for the
Partnership.
The terms of the Partnership offering call for a
subscription price of $1,000 per Limited Partnership
Unit, payable on acceptance of the offer. The
Partnership commenced operations on April 2, 1986 when
minimum subscriptions of 1,300 Limited Partnership
Units ($1,300,000) were accepted. The Partnership's
offering terminated on July 9, 1986 when the maximum
subscription limit of 7,500 Limited Partnership Units
($7,500,000) was reached.
Under the terms of the Limited Partnership Agreement,
the Limited Partners and General Partners contributed
funds of $7,500,000 and $1,000, respectively. During
the operation of the Partnership, any Net Cash Flow,
as defined, which the General Partners determine to
distribute will be distributed 90% to the Limited
Partners and 10% to the General Partners; provided,
however, that such distributions to the General
Partners will be subordinated to the Limited Partners
first receiving an annual, noncumulative distribution
of Net Cash Flow equal to 10% of their Adjusted
Capital Contribution, as defined, and, provided
further, that in no event will the General Partners
receive less than 1% of such Net Cash Flow per annum.
Distributions to Limited Partners will be made pro
rata by Units.
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2)Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of the Partnership's properties which the
General Partners determine to distribute will, after
provisions for debts and reserves, be paid in the
following manner: (i) first, 99% to the Limited
Partners and 1% to the General Partners until the
Limited Partners receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal
to 6% of their Adjusted Capital Contribution per
annum, cumulative but not compounded, to the extent
not previously distributed from Net Cash Flow; (ii)
next, 99% to the Limited Partners and 1% to the
General Partners until the Limited Partners receive an
amount equal to 14% of their Adjusted Capital
Contribution per annum, cumulative but not compounded,
to the extent not previously distributed; (iii) next,
to the General Partners until cumulative distributions
to the General Partners under Items (ii) and (iii)
equal 15% of cumulative distributions to all Partners
under Items (ii) and (iii). Any remaining balance
will be distributed 85% to the Limited Partners and
15% to the General Partners. Distributions to the
Limited Partners will be made pro rata by Units.
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of the Partnership's
property, will be allocated first in the same ratio in
which, and to the extent, Net Cash Flow is distributed
to the Partners for such year. Any additional profits
will be allocated 90% to the Limited Partners and 10%
to the General Partners. In the event no Net Cash
Flow is distributed to the Limited Partners, 90% of
each item of Partnership income, gain or credit for
each respective year shall be allocated to the Limited
Partners, and 10% of each such item shall be allocated
to the General Partners. Net losses from operations
will be allocated 98% to the Limited Partners and 2%
to the General Partners.
For tax purposes, profits arising from the sale,
financing, or other disposition of the Partnership's
property will be allocated in accordance with the
Partnership Agreement as follows: (i) first, to those
Partners with deficit balances in their capital
accounts in an amount equal to the sum of such deficit
balances; (ii) second, 99% to the Limited Partners and
1% to the General Partners until the aggregate balance
in the Limited Partners' capital accounts equals the
sum of the Limited Partners' Adjusted Capital
Contributions plus an amount equal to 14% of their
Adjusted Capital Contributions per annum, cumulative
but not compounded, to the extent not previously
allocated; (iii) third, to the General Partners until
cumulative allocations to the General Partners equal
15% of cumulative allocations. Any remaining balance
will be allocated 85% to the Limited Partners and 15%
to the General Partners. Losses will be allocated 98%
to the Limited Partners and 2% to the General
Partners.
The General Partners are not required to currently
fund a deficit capital balance. Upon liquidation of
the Partnership or withdrawal by a General Partner,
the General Partners will contribute to the
Partnership an amount equal to the lesser of the
deficit balances in their capital accounts or 1% of
total Limited Partners' and General Partners' capital
contributions.
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3)Investments in Real Estate -
Effective May 1, 1992, the Partnership replaced the
original tenant in the office building in Kearney,
Nebraska, with a new tenant who, in March, 1993, filed
for reorganization. The Partnership obtained
possession of the property and listed the property for
sale or lease. The Partnership received rent of $975
per month through March, 1994, from a tenant who was
sub-leasing part of the building. The total amount of
rent not collected in the first six months of 1995 and
1994 was $31,004 and $28,079, respectively. These
amounts were not accrued for financial reporting
purposes.
On July 6, 1995, the Partnership sold the Cheddar's
restaurant in Columbus, Ohio, to the lessee. The
Partnership received net sale proceeds of approximately
$315,000, which resulted in a net gain of approximately
$40,000.
In March, 1995, the lessee of the Applebee's restaurant
in Fort Myers, Florida, exercised an option in the
Lease Agreement to purchase the property. On July 28,
1995, the sale closed with the Partnership receiving
net sale proceeds of approximately $1,645,000 which
resulted in a net gain of approximately $685,000. The
Managing General Partner is in the process of preparing
a proxy statement to propose an amendment to the
Limited Partnership Agreement that would allow the
Partnership to reinvest the majority of the proceeds in
additional properties.
(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.
(5)Line of Credit -
In January, 1994, the Partnership established a
$100,000 unsecured line of credit at Fidelity Bank of
Edina, Minnesota. On January 5, 1995 the line of
credit was increased to $150,000. The line of credit
bears interest at the prime rate (9% on June 30, 1995)
plus one percent on the outstanding balance, which is
due on demand, but in any event no later than January
5, 1996. The line of credit was established to provide
short-term financing to cover any temporary cash
deficits. As of June 30, 1995 and December 31, 1994,
the amount due on the line of credit was $66,000 and
$35,000, respectively. In the first six months of 1995
and 1994, total interest expense was $3,913 and $318,
respectively.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS
The Partnership's rental income is derived from long-
term Lease Agreements on the Partnership's properties. In
March, 1995, the Partnership recognized $11,247 of
additional rent from the lessee of the Applebee's restaurant
as a result of an increase in sales for the lease year ended
January 31, 1995.
Effective May 1, 1992, the Partnership replaced the
original tenant in the office building in Kearney, Nebraska,
with a new tenant who, in March, 1993, filed for
reorganization. The Partnership obtained possession of the
property and listed the property for sale or lease. The
Partnership received rent of $975 per month through March,
1994, from a tenant who was sub-leasing part of the building
from the new tenant. The total amount of rent not collected
in the first six months of 1995 and 1994 was $31,004 and
$28,079, respectively. These amounts were not accrued for
financial reporting purposes.
On July 6, 1995, the Partnership sold the Cheddar's
restaurant in Columbus, Ohio, to the lessee. The
Partnership received net sale proceeds of approximately
$315,000, which resulted in a net gain of approximately
$40,000.
In March, 1995, the lessee of the Applebee's
restaurant in Fort Myers, Florida, exercised an option in
the Lease Agreement to purchase the property. On July 28,
1995, the sale closed with the Partnership receiving net
sale proceeds of approximately $1,645,000 which resulted in
a net gain of approximately $685,000. The Managing General
Partner is in the process of preparing a proxy statement to
propose an amendment to the Limited Partnership Agreement
that would allow the Partnership to reinvest the majority of
the proceeds in additional properties.
During the first six months of 1995 and 1994, the
Partnership incurred Partnership administration and property
management expenses of $30,231 and $37,474, respectively.
These expenses represent direct payments to third parties
for legal and filing fees, direct administrative costs,
outside audit and accounting costs, interest, taxes,
insurance and other property costs. The Partnership
administration expenses incurred from affiliates include
costs associated with the management of the properties,
processing distributions, reporting requirements and
correspondence to the Limited Partners.
In January, 1994, the Partnership established a
$100,000 unsecured line of credit at Fidelity Bank of Edina,
Minnesota. On January 5, 1995 the line of credit was
increased to $150,000. The line of credit bears interest at
the prime rate (9% on June 30, 1995) plus one percent on the
outstanding balance, which is due on demand, but in any
event no later than January 5, 1996. The line of credit was
established to provide short-term financing to cover any
temporary cash deficits. As of June 30, 1995 and December
31, 1994, the amount due on the line of credit was $66,000
and $35,000, respectively. In the first six months of 1995
and 1994, total interest expense was $3,913 and $318,
respectively.
As of March 31, 1995, the Partnership's annualized
cash distribution rate was 7.66%, 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.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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 outstanding at the beginning of the
year and in no event, obligated to purchase Units if such
purchase would impair the capital or operations of the
Partnership.
During 1994, three Limited Partners redeemed a total
of 9 Partnership Units for $6,282 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a
total of twenty-six Limited Partners redeemed 215
Partnership Units for $170,765. The redemptions increase
the remaining Limited Partners' ownership interest in the
Partnership.
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 terms of the
leases. Inflation also may cause the Partnership's real
estate to appreciate in value. However, inflation and
changing prices may also have an adverse impact on the
operating margins of the properties' tenants which could
impair their ability to pay rent and subsequently reduce the
Partnership's Net Cash Flow available for distributions.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
There are no material pending legal proceedings to
which the Partnership is a party or of which the
Partnership's property is subject.
ITEM 2.CHANGES IN SECURITIES
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5.OTHER INFORMATION
None.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - None.
b. Reports filed on Form 8-K - None.
SIGNATURES
In accordance with the requirements of the Exchange
Act, the Registrant has caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: August 10, 1995 AEI Real Estate Fund 86-A
Limited Partnership
By: AEI Fund Management 86-A,Inc.
Its: Managing General Partner
By: /s/ Robert P. Johnson
Robert P. Johnson
President
By: /s/ Mark E. Larson
Mark E. Larson
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000785788
<NAME> AEI REAL ESTATE FUND 86-A LTD PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<CASH> 15,851
<SECURITIES> 0
<RECEIVABLES> 16,649
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,500
<PP&E> 6,252,416
<DEPRECIATION> (1,220,795)
<TOTAL-ASSETS> 5,064,121
<CURRENT-LIABILITIES> 226,390
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 4,837,731
<TOTAL-LIABILITY-AND-EQUITY> 5,064,121
<SALES> 0
<TOTAL-REVENUES> 350,881
<CGS> 0
<TOTAL-COSTS> 174,218
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 176,663
<INCOME-TAX> 0
<INCOME-CONTINUING> 176,663
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176,663
<EPS-PRIMARY> 24.04
<EPS-DILUTED> 24.04
</TABLE>
