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AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
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AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
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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 MAY 31, 1996. 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 JUNE 30, 1996.
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, Columbus Cheddar's,
an office building in Kearney, Nebraska properties, and any other
sale that occurs prior to the liguidation 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 reinvest such proceeds in new properties, subject to
a continuing obligation 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. 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.
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 The Partnership holds a number of properties
Amendment: 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 sold its
ownership in three of its properties; an
Applebee's restaurant in Ft. Myers, Florida, for a
net cash gain of $467,203, its ownership
interest of a 20% interest in a Cheddar's
restaurant in Columbus, Ohio, for a net cash gain
of $8,115, and an office building in Kearney,
Nebraska for a net cash loss of $104,123. The
Partnership would like to reinvest the
proceeds therefrom.
Effects of the The Amendment will result in reinvestment
Amendment--Risks: 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 which it currently owns or
which may be acquired, 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, Cheddar's and office building 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 Amendment is not intended to extend the life of the
Partnership. The Prospectus pursuant to which the units of
limited partnership interest were sold indicated that the General
Partners expected that most of the properties would be sold or
refinanced eight to twelve years after acquisition. The Applebee's
property described below was acquired in 1988 and it remains the
intention to sell the properties in which sale proceeds are
reinvested, depending market conditions and the benefits of
continued ownership, by the year 2000. The Managing General
Partner believes that it can generate favorable returns through
the investment of proceeds in newly contructed properties that it
purchases at construction cost and the resale of those properties
within several years. There can, however, be no assurance that
favorable returns will be achieved.
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, the entire amount of reinvested proceeds can be
applied to the purchase price and expenses associated with
acquisition of 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, a Cheddar's restaurant in Columbus, Ohio
and an office building in Kearney, Nebraska. 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. 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.
The Partnership purchased the office building on December
13, 1986. The total cost was $434,623. The property was leased
to Myron Andersen Construction, Inc. under a 10-year
noncancellable triple-net Lease Agreement. In May, 1992, it
became apparent that Myron Andersen Construction, Inc. would not
be able to comply with the terms of the Lease Agreement and the
Partnership replaced them with another lessee who, in 1993, filed
for reorganization. Since 1993, the Partnership has had the
property for sale or lease.
On April 20, 1996, the property was sold to Sports West,
L.L.C. The Partnership received net proceeds of sale of
approximately $330,500 which resulted in a net cash loss of
approximately $104,123. The Partnership's adjusted basis in the
property, after depreciation was $311,500. Accordingly, the sale
of the property generated a taxable gain of approximately $19,000,
or $2.63 per outstanding limited partnership unit.
The Partnership has distributed approximately $263,000, or
approximately $36 per outstanding Limited Partnership Unit, of the
Net Proceeds of Sale to cover income tax liabilities generated by
the sales. The distribution of the Net Proceeds of Sale were made
in the third and fourth quarter of 1995 and the first quarter of
1996 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 reduced the Adjusted Capital
Contributions of Investors by $36 per outstanding limited
partnership unit. The remainder of the proceeds would be
reinvested in new properties, if the Investors approve the
Amendment.
In the event Investors do not approve the Amendment,
Investors will receive a distribution of approximately $2,200,000,
or approximately $305 per outstanding limited partnership unit,
from sale of the Applebee's, Cheddar's and office building properties.
The regular quarterly distribution for the third quarter of 1995 of
approximately $142,000, $82,000 of the fourth quarter of 1995 and
$39,000 of the first quarter of 1996 was a distribution of Net
Proceeds of Sale. The balance of the Net Proceeds of Sale
($1,937,000) to be distributed will be paid in the third quarter
of 1996. 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 $305 per outstanding limited
partnership unit.
The Applebee's, Cheddar's and office building 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, and therefore cash
distributions to investors, 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
May 1, 1996, there were 7,221.31667 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 May 1, 1996 as the record date for the determination of the
Investors entitled to vote on the proposed Amendment; the close of
business on June 30, 1996 as the date by which Consent Forms must
be received by the Managing General Partner in order to be
counted; and July 1, 1996 as the date on which the consents are to
be counted. An Investor may revoke his/her/its consent at any
time prior to June 30, 1996, 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
May 31, 1996. 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-KSB for the year ended December 31, 1995 and
Quarterly Report on Form 10-QSB for the quarter ended March
31, 1996 is hereby incorporated by reference. Copies of such
sections are being delivered to you with this consent statement.
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 June 30, 1996.
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: , 1996
Signature (if held jointly)
May 31, 1996
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 orginally 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 excatly what has occurred with your Applebee's property in Ft. Myers,
Florida. In addition, your Fund sold its Cheddar's property in Columbus,
Ohio and office building in Kearney, Nebraska.
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 Satement, 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.
The amendment will affect your investment in a number of ways, including
the following:
Rather than distributing proceeds from the sale of properties, the
amendment will allos the Fund to reinvest all of those proceeds,
other than an amount distributed to cover partner income tax
liabilities (at an assumed rate);
The General Partner will continue to be reimbursed for the costs
of managing the properties in which the proceeds are reinvested,
while it would no longer receive those reimbursements if the
proceeds were distributed;
The reinvestment of proceeds 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.
Your General Partner believes this is in the best interest for you and
your Fund and recommends you vote "FOR" this proposed Amendment. Please vote
"FOR" on the Consent Satement 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
