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: March 31, 1996
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 March 31, 1996 and December 31, 1995
Statements for the Periods ended March 31, 1996 and 1995:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
BALANCE SHEET
MARCH 31, 1996 AND DECEMBER 31, 1995
(Unaudited)
ASSETS
1996 1995
CURRENT ASSETS:
Cash $ 1,866,888 $ 1,822,519
Receivables 0 3,240
----------- -----------
Total Current Assets 1,866,888 1,825,759
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 1,810,273 1,810,273
Buildings and Equipment 2,956,027 2,956,027
Accumulated Depreciation (1,063,470) (1,031,715)
----------- -----------
Net Investments in Real Estate 3,702,830 3,734,585
----------- -----------
Total Assets $ 5,569,718 $ 5,560,344
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 55,853 $ 16,401
Distributions Payable 107,585 74,425
Security Deposit 5,000 5,000
----------- -----------
Total Current Liabilities 168,438 95,826
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (9,140) (8,507)
Limited Partners, $1,000 Unit value;
7,500 Units authorized and issued;
7,221 Units outstanding 5,410,420 5,473,025
----------- -----------
Total Partners' Capital 5,401,280 5,464,518
----------- -----------
Total Liabilities and Partners' Capital $ 5,569,718 $ 5,560,344
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
1996 1995
INCOME:
Rent $ 121,116 $ 183,633
Investment Income 25,630 102
----------- -----------
Total Income 146,746 183,735
----------- -----------
EXPENSES:
Partnership Administration - Affiliates 41,350 34,789
Partnership Administration and Property
Management - Unrelated Parties 18,699 17,099
Interest Expense 0 1,776
Depreciation 31,755 40,847
----------- -----------
Total Expenses 91,804 94,511
----------- -----------
NET INCOME $ 54,942 $ 89,224
=========== ===========
NET INCOME ALLOCATED:
General Partners $ 549 $ 892
Limited Partners 54,393 88,332
----------- -----------
$ 54,942 $ 89,224
=========== ===========
NET INCOME PER LIMITED PARTNERSHIP UNIT
(7,221 and 7,276 weighted average Units
outstanding in 1996 and 1995, respectively) $ 7.53 $ 12.14
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 54,942 $ 89,224
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 31,755 40,847
(Increase) Decrease in Receivables 3,240 (11,247)
Increase in Payable to
AEI Fund Management, Inc. 39,452 27,587
Increase in Unearned Rent 0 8,329
----------- -----------
Total Adjustments 74,447 65,516
----------- -----------
Net Cash Provided by
Operating Activities 129,389 154,740
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Distributions Payable 33,160 0
Distributions to Partners (118,180) (142,049)
Increase in Line of Credit 0 3,000
----------- -----------
Net Cash Used for
Financing Activities (85,020) (139,049)
----------- -----------
NET INCREASE IN CASH 44,369 15,691
CASH, beginning of period 1,822,519 9,802
----------- -----------
CASH, end of period $ 1,866,888 $ 25,493
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid During the Year $ 0 $ 1,776
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 1994 $ (13,701) $ 4,958,866 $ 4,945,165 7,276.25
Distributions (1,420) (140,629) (142,049)
Net Income 892 88,332 89,224
---------- ----------- ----------- ----------
BALANCE, March 31, 1995 $ (14,229) $ 4,906,569 $ 4,892,340 7,276.25
========== =========== =========== ==========
BALANCE, December 31, 1995 $ (8,507) $ 5,473,025 $ 5,464,518 7,221.32
Distributions (1,182) (116,998) (118,180)
Net Income 549 54,393 54,942
---------- ----------- ----------- ----------
BALANCE, March 31, 1996 $ (9,140) $ 5,410,420 $ 5,401,280 7,221.32
========== =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
(1) The condensed statements included herein have been prepared
by the Partnership, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Partnership
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
Partnership's latest annual report on Form 10-KSB.
(2) Organization -
AEI Real Estate Fund 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 total amount of
rent not collected in the first quarter of 1996 and 1995 was
$15,502 and $15,502, respectively. These amounts were not
accrued for financial reporting purposes. On April 24,
1996, the Partnership sold the property to an unrelated
third party. The Partnership received net sale proceeds of
approximately $330,500, which resulted in a net gain of
approximately $19,000.
On July 6, 1995, the Partnership sold the Cheddar's
restaurant in Columbus, Ohio, to the lessee. The
Partnership received net sale proceeds of $314,826, which
resulted in a net gain of $44,137. At the time of sale, the
cost and related accumulated depreciation of the property
was $306,711 and $36,022, respectively.
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 $1,646,608 which resulted in a net gain of $686,548. At
the time of sale, the cost and related accumulated
depreciation of the property was $1,179,405 and $219,345,
respectively.
During 1995 and the first three months of 1996, the
Partnership distributed $223,865 and $39,118 of the net sale
proceeds to the Limited and General Partners as part of
their regular quarterly distributions, which represented a
return of capital of $30.55 and $5.36 per Limited
Partnership Unit, respectively. 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 net 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 plus one percent on the outstanding balance,
which was 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. In September, 1995, the line of credit was
cancelled. In the first quarter of 1995, total interest
expense was $1,776.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
The Partnership's rental income is derived from long-term,
triple net lease agreements on the Partnership's properties. For
the three months ended March 31, 1996 and 1995, the Partnership
recognized rental income of $121,116 and $183,633, respectively.
During the same periods, the Partnership earned investment income
of $25,630 and $102, respectively. In 1996, rental income
decreased as a result of the sale of the Applebee's and Cheddar's
properties discussed below. The decrease in rental income was
partially offset by additional investment income earned on the
net proceeds from the property sales.
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. Since March 1994, the Partnership
has received no rent from the property. The total amount of rent
not collected in the first quarter of 1996 and 1995 was $15,502
and $15,502, respectively. These amounts were not accrued for
financial reporting purposes. On April 24, 1996, the Partnership
sold the property to an unrelated third party. The Partnership
received net sale proceeds of approximately $330,500, which
resulted in a net gain of approximately $19,000.
During the three months ended March 31, 1996 and 1995, the
Partnership paid Partnership administration expenses to
affiliated parties of $41,350 and $34,789, 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 $18,699 and $17,099, 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, 1995, the Partnership's annualized cash
distribution rate was 6.6%, based on the Adjusted Capital
Contribution. Distributions of Net Cash Flow to the General
Partners were subordinated to the Limited Partners as required in
the Partnership Agreement. As a result, 99% of distributions and
income were allocated to Limited Partners and 1% to the General
Partners.
Inflation has had a minimal effect on income from
operations. It is expected that increases in sales volumes of
the tenants, due to inflation and real sales growth, will result
in an increase in rental income over the term of the leases.
Inflation also may cause the Partnership's real estate to
appreciate in value. However, inflation and changing prices may
also have an adverse impact on the operating margins of the
properties' tenants which could impair their ability to pay rent
and subsequently reduce the Partnership's Net Cash Flow available
for distributions.
Liquidity and Capital Resources
During the three months ended March 31, 1996, the
Partnership's cash balances increased $44,369 as the Partnership
distributed less cash to the Partners than it generated from
operating activities. Net cash provided by operating activities
decreased from $154,740 in 1995 to $129,389 in 1996. The
decrease was due to a reduction in rental income, as a result of
the property sales, which was partially offset by additional
investment income earned on the net sale proceeds.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
On July 6, 1995, the Partnership sold the Cheddar's
restaurant in Columbus, Ohio, to the lessee. The Partnership
received net sale proceeds of $314,826, which resulted in a net
gain of $44,137. At the time of sale, the cost and related
accumulated depreciation of the property was $306,711 and
$36,022, respectively.
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 $1,646,608 which
resulted in a net gain of $686,548. At the time of sale, the
cost and related accumulated depreciation of the property was
$1,179,405 and $219,345, respectively.
During 1995 and the first three months of 1996, the
Partnership distributed $223,865 and $39,118 of the net sale
proceeds to the Limited and General Partners as part of their
regular quarterly distributions, which represented a return of
capital of $30.55 and $5.36 per Limited Partnership Unit,
respectively. 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 net proceeds in additional
properties.
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. The redemption payments generally are funded with cash
that would normally be paid as part of the regular quarterly
distributions. As a result, total distributions and the
distribution payable have fluctuated from year to year due to
cash used to fund redemption payments. In addition, in the first
three months of 1995, the Partnership made distributions at a
7.66% rate which resulted in distributions to the Partners of
approximately $142,000. Effective January 1, 1996, the
distribution rate was reduced to 6.6% which resulted in
distributions to the Partners of approximately $118,000.
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 operation of the Partnership.
During 1995, seventeen Limited Partners redeemed a total
of 55 Partnership Units for $34,815 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a total of
twenty-nine Limited Partners redeemed 223.75 Partnership Units
for $177,047. The redemptions increase the remaining Limited
Partners' ownership interest in the Partnership.
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 plus one
percent on the outstanding balance, which was 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. In September, 1995, the line of credit
was cancelled. In the first quarter of 1995, total interest
expense was $1,776.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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.
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 - See previously filed
report dated April 24, 1996.
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: May 13, 1996 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,866,888
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,866,888
<PP&E> 4,766,300
<DEPRECIATION> (1,063,470)
<TOTAL-ASSETS> 5,569,718
<CURRENT-LIABILITIES> 168,438
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,401,280
<TOTAL-LIABILITY-AND-EQUITY> 5,569,718
<SALES> 0
<TOTAL-REVENUES> 146,746
<CGS> 0
<TOTAL-COSTS> 91,804
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 54,942
<INCOME-TAX> 0
<INCOME-CONTINUING> 54,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,942
<EPS-PRIMARY> 7.53
<EPS-DILUTED> 7.53
</TABLE>
