SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d)
Of The Securities Exchange Act Of 1934
For the Fiscal Year Ended: December 31, 1996
Commission file number: 0-14090
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
(Name of Small Business Issuer 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)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
(Title of class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No
Check if disclosure of delinquent filers in response to Rule 405
of Regulation S-B is not contained in this Form, and no
disclosure will be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The Issuer's revenues for year ended December 31, 1996 were
$590,165.
As of February 28, 1997, there were 7,097.32 Units of limited
partnership interest in the registrant outstanding and owned by
nonaffiliates of the registrant, which Units had an aggregate
market value (based solely on the price at which they were sold
since there is no ready market for such Units) of $7,097,320.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has not incorporated any documents by reference
into this report.
Transitional Small Business Disclosure Format:
Yes No [X]
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
AEI Real Estate Fund 86-A Limited Partnership (the
"Partnership" or the "Registrant") is a limited partnership which
was organized pursuant to the laws of the State of Delaware on
April 2, 1986. The registrant is comprised of AEI Fund
Management 86-A, Inc. (AFM) as Managing General Partner, Robert
P. Johnson as the Individual General Partner, and purchasers of
partnership units as Limited Partners. The Partnership offered
for sale up to $7,500,000 of limited partnership interests (the
"Units") (7,500 Units at $1,000 per Unit) pursuant to a
registration statement effective February 18, 1986. 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 July 9,
1986 when the maximum subscription limit of 7,500 Limited
Partnership Units ($7,500,000) was reached.
The Partnership was organized to acquire, initially on a
debt-free basis, existing and newly constructed commercial
properties located in the United States, to lease such properties
to tenants under triple net leases, to hold such properties and
to eventually sell such properties. From subscription proceeds,
the Partnership purchased eight properties, including a partial
interest in one property, totaling $6,364,078. The balance of
the subscription proceeds was applied to organization and
syndication costs, working capital reserves and distributions,
which represented a return of capital. The properties are all
commercial, single tenant buildings, with the exception of the
Kearney office building, leased under triple net leases.
The Partnership will hold its properties until the General
Partners determine that the sale or other disposition of the
properties is advantageous in view of the Partnership's
investment objectives. In deciding whether to sell properties,
the General Partners will consider factors such as potential
appreciation, net cash flow and income tax considerations. In
addition, certain lessees have been granted options to purchase
properties after a specified portion of the lease term has
elapsed. It is anticipated that the Partnership will sell its
properties within twelve years after acquisition. At any time
prior to selling the properties, the Partnership may mortgage one
or more of its properties in amounts not exceeding 50% of the
fair market value of the property.
Leases
Although there are variations in the specific terms of the
leases, the following is a summary of the general terms of the
Partnership's leases. The properties are leased to various
tenants under noncancelable triple net leases, which are
classified as operating leases. Under a triple net lease, the
lessee is responsible for all real estate taxes, insurance,
maintenance, repairs and operating expenses for the property.
The initial lease terms are for 10 to 20 years. The leases
provide for base annual rental payments, payable in monthly
installments, and contain rent clauses which entitle the
Partnership to receive additional rent in future years based on
stated rent increases or if gross receipts for the property
exceed certain specified amounts, among other conditions.
The leases provide the lessees with two five-year renewal
options subject to the same terms and conditions as the initial
lease. Certain lessees have been granted options to purchase the
property. Depending on the lease, the purchase price is either
determined by a formula, or is the greater of the fair market
value of the property or the amount determined by a formula. In
all cases, if the option were to be exercised by the lessee, the
purchase price would be greater than the original cost of the
property.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
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. On April 24, 1996, the
Partnership sold the property to an unrelated third party. The
Partnership received net sale proceeds of $329,785, which
resulted in a net gain of $17,684. At the time of sale, the cost
and related accumulated depreciation of the property was $434,623
and $122,522, respectively.
The Partnership owns a 6.7522% interest in a Sizzler
restaurant in Springboro, Ohio. In November, 1993, after
reviewing the Sizzler's operating results, the Partnership
determined that the lessee would be unable to operate the
restaurants in a manner capable of maximizing the restaurant's
sales. Consequently, at the direction of the Partnership, a
multi-unit restaurant operator assumed operation of this
restaurant while the Partnership reviewed the available options.
In June, 1994, the Partnership closed the restaurant and listed
it for sale or lease. While the property is vacant, the
Partnership is responsible for the real estate taxes and other
costs required to maintain the property.
In December, 1996, the Partnership, in order to avoid
additional property management expenses, decided to sell the
Sizzler property rather than to continue to attempt to re-lease
the property. As a result, the property has been reclassified on
the balance sheet to Real Estate Held for Sale. In addition,
based on an analysis of market conditions in the area, it was
determined that a sale of the property would result in net
proceeds of approximately $400,000. The Partnership's share of
the proceeds would be approximately $27,000. A charge to
operations for real estate impairment of $45,500 was recognized,
which is the difference between book value at December 31, 1996
of $72,500 and the estimated market value of $27,000. The charge
was recorded against the cost of the land, building and
equipment. The Partnership's investment in this property
represents a minor portion of the Partnership's portfolio. The
loss of rent and the real estate impairment related to this
property have not had a material impact on the Partnership's Net
Cash Flow.
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.
In September, 1996, the Managing General Partner solicited
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 of Sale in additional
properties. The proposed Amendment did not receive a majority
vote for adoption.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
Major Tenants
During 1996, four of the Partnership's lessees each
contributed more than ten percent of the Partnership's total
rental revenue. The major tenants in aggregate contributed 83%
of the Partnership's total rental revenue in 1996. It is
anticipated that, based on the minimum rental payments required
under the leases, each major tenant will continue to contribute
more than ten percent of the Partnership's total rental revenue
in 1997 and future years. Any failure of these major tenants
could materially affect the Partnership's net income and cash
distributions.
Competition
The Partnership is a minor factor in the commercial real
estate business. There are numerous entities engaged in the
commercial real estate business which have greater financial
resources than the Partnership. At the time the Partnership
elects to dispose of its properties, the Partnership will be in
competition with other persons and entities to find buyers for
its properties.
Employees
The Partnership has no direct employees. Management
services are performed for the Partnership by AEI Fund
Management, Inc., an affiliate of AFM.
ITEM 2. DESCRIPTION OF PROPERTIES.
Investment Objectives
The Partnership's investment objectives were to acquire
existing or newly-developed commercial properties throughout the
United States that offer the potential for (i) preservation and
protection of the Partnership's capital; (ii) partially tax-
deferred cash distributions from operations which may increase
through rent participation clauses or mandated rent increases;
and (iii) long-term capital gains through appreciation in value
of the Partnership's properties realized upon sale. The
Partnership does not have a policy, and there is no limitation,
as to the amount or percentage of assets that may be invested in
any one property. However, to the extent possible, the General
Partners attempt to diversify the type and location of the
Partnership's properties.
Description of Properties
The Partnership's properties are all commercial, single
tenant buildings with the exception of the Kearney office
building, which was sold in 1996. All the properties were
acquired on a debt-free basis and are leased to various tenants
under noncancelable triple net leases, which are classified as
operating leases. The Partnership holds an undivided fee simple
interest in the properties. At any time prior to selling the
properties, the Partnership may mortgage one or more of its
properties in amounts not exceeding 50% of the fair market value
of the property.
ITEM 2. DESCRIPTION OF PROPERTIES. (Continued)
The Partnership's properties are subject to the general
competitive conditions incident to the ownership of single tenant
investment real estate. Since each property is leased under a
long-term lease, there is little competition until the
Partnership decides to sell the property. At this time, the
Partnership will be competing with other real estate owners, on
both a national and local level, in attempting to find buyers for
the properties. In the event of a tenant default, the
Partnership would be competing with other real estate owners, who
have property vacancies, to attract a new tenant to lease the
property. The Partnership's tenants operate in industries that
are very competitive and can be affected by factors such as
changes in regional or local economies, seasonality and changes
in consumer preference.
The following table is a summary of the properties that
the Partnership acquired and owned as of December 31, 1996.
<TABLE>
<C> <S> <S> <S> <S> <S>
Total Property Annual Annual
Purchase Acquisition Lease Rent Per
Property Date Costs Lessee Payment Sq. Ft.
Auto Max Automotive Center Thomas
Bloomington, MN 6/3/87 $ 838,749 Graffunder $ 110,400 $ 14.84
DeLisi's Italian DeLisi's
Restaurant and Lounge Italian Restaurant
Brooklyn Park, MN 6/16/87 $ 968,958 and Lounge, Inc. $ 72,000 $ 9.93
Auto Max Automotive Center Annabelle, Inc.and
Coon Rapids, MN 7/24/87 $ 795,818 Motorscope, Inc. $ 82,075 $ 11.42
am/pm Mini Market B. Wells
Carson City, NV 8/21/87 $ 779,896 O'Brien & Co. $ 99,947 $ 40.01
Sizzler Restaurant
Springboro, OH
(6.7522%) 8/24/90 $ 89,097 (F1)
Taco Cabana Restaurant
Houston, TX
(61.7638%) 7/31/91 $ 859,159 Taco Cabana, Inc. $ 124,245 $ 74.51
<F1> The property is vacant and listed for sale.
</TABLE>
The properties listed above with a partial ownership
percentage are owned with affiliates of the Partnership. AEI
Real Estate Fund XVIII Limited Partnership owns the remaining
interest in the Sizzler restaurant in Springboro, Ohio. AEI Net
Lease Income & Growth Fund XIX Limited Partnership owns the
remaining interest in the Taco Cabana restaurant in Houston,
Texas.
ITEM 2. DESCRIPTION OF PROPERTIES. (Continued)
Each Partnership owns a separate, undivided interest in
the properties. No specific agreement or commitment exists
between the Partnerships as to the management of their respective
interests in the properties, and the Partnership that holds more
than a 50% interest does not control decisions over the other
Partnership's interest.
The initial Lease terms are for 20 years except for the
Taco Cabana and Auto Max properties which are 15 years and the
DeLisi's property which is 10 years. The Leases have renewal
options which may extend the lease term an additional 10 years.
Pursuant to the Lease Agreements, the tenants are required
to provide proof of adequate insurance coverage on the properties
they occupy. The General Partners believe the properties are
adequately covered by insurance and consider the properties to be
well-maintained and sufficient for the Partnership's operations.
For tax purposes, the Partnership's properties are
depreciated under the Modified Accelerated Cost Recovery System
(MACRS). The largest depreciable component of a property is the
building which is depreciated, using the straight-line method,
over 31.5 years. The remaining depreciable components of a
property are personal property and land improvements which are
depreciated, using an accelerated method, over 5 and 15 years,
respectively. Since the Partnership has tax-exempt Partners, the
Partnership is subject to the rules of Section 168(h)(6) of the
Internal Revenue Code which requires a percentage of the
properties' depreciable components to be depreciated over longer
lives using the straight-line method. In general the federal tax
basis of the properties for tax depreciation purposes is the same
as the basis for book depreciation purposes.
During the last five years, all properties were 100
percent occupied by the lessees noted, with the exception of the
Sizzler property, which was 100 percent occupied until June,
1994. The Sizzler property has been 100 percent vacant since
June, 1994.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND
RELATED SECURITY HOLDER MATTERS.
As of December 31, 1996, there were 939 holders of record
of the registrant's Limited Partnership Units. There is no other
class of security outstanding or authorized. The registrant's
Units are not a traded security in any market. However, the
Partnership may 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. In no event shall the
Partnership be obligated to purchase Units if, in the sole
discretion of the Managing General Partner, such purchase would
impair the capital or operation of the Partnership.
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND
RELATED SECURITY HOLDER MATTERS. (Continued)
During 1996, ten Limited Partners redeemed a total of 101
Partnership Units for $60,593 in accordance with the Partnership
Agreement. In prior years, a total of forty-six Limited Partners
redeemed 278.75 Partnership Units for $211,862. The redemptions
increase the remaining Limited Partners' ownership interest in
the Partnership.
Cash distributions of $23,131 and $5,431 were made to the
General Partners and $2,229,375 and $502,883 were made to the
Limited Partners in 1996 and 1995, respectively. The
distributions were made on a quarterly basis and represent Net
Cash Flow, as defined, except as discussed below. These
distributions should not be compared with dividends paid on
capital stock by corporations.
As part of the Limited Partner distributions discussed
above, the Partnership distributed $1,857,761 and $221,627 of
proceeds from property sales in 1996 and 1995, respectively. The
distributions reduced the Limited Partners' Adjusted Capital
Contributions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
Results of Operations
For the years ended December 31, 1996 and 1995, the
Partnership recognized rental income of $494,374 and $616,054,
respectively. During the same periods, the Partnership earned
investment income of $95,791 and $45,564, 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 1996 and 1995 was $19,464 and $62,008,
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 owns a 6.7522% interest in a Sizzler
restaurant in Springboro, Ohio. In November, 1993, after
reviewing the Sizzler's operating results, the Partnership
determined that the lessee would be unable to operate the
restaurants in a manner capable of maximizing the restaurant's
sales. Consequently, at the direction of the Partnership, a
multi-unit restaurant operator assumed operation of this
restaurant while the Partnership reviewed the available options.
In June, 1994, the Partnership closed the restaurant and listed
it for sale or lease. While the property is vacant, the
Partnership is responsible for the real estate taxes and other
costs required to maintain the property.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In December, 1996, the Partnership, in order to avoid
additional property management expenses, decided to sell the
Sizzler property rather than to continue to attempt to re-lease
the property. As a result, the property has been reclassified on
the balance sheet to Real Estate Held for Sale. In addition,
based on an analysis of market conditions in the area, it was
determined that a sale of the property would result in net
proceeds of approximately $400,000. The Partnership's share of
the proceeds would be approximately $27,000. A charge to
operations for real estate impairment of $45,500 was recognized,
which is the difference between book value at December 31, 1996
of $72,500 and the estimated market value of $27,000. The charge
was recorded against the cost of the land, building and
equipment. The Partnership's investment in this property
represents a minor portion of the Partnership's portfolio. The
loss of rent and the real estate impairment related to this
property have not had a material impact on the Partnership's Net
Cash Flow.
During the years ended December 31, 1996 and 1995, the
Partnership paid Partnership administration expenses to
affiliated parties of $134,093 and $126,948, 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 $11,863 and $50,831, 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. The decrease
in these expenses in 1996, when compared to 1995, is the result
of increased reimbursements from the tenant of the DeLisi's
restaurant property which reduced the Partnership's real estate
tax expense.
As of December 31, 1996, the Partnership's annualized cash
distribution rate was 6.0%, 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 1996, the Partnership's cash balances decreased
$1,538,580 mainly due to the distribution of $1,818,183 of net
sale proceeds to the Partners as a special distribution in
November, 1996. Net cash provided by operating activities
decreased from $483,881 in 1995 to $447,187 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 and a reduction
of expenses in 1996.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Net cash provided by investing activities was $329,785 and
$1,961,434, respectively, in 1996 and 1995, which represents the
net cash proceeds from the sale of the Partnership's properties.
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.
On April 24, 1996, the Partnership sold the office
building in Kearney, Nebraska to an unrelated third party. The
Partnership received net sale proceeds of $329,785, which
resulted in a net gain of $17,684. At the time of sale, the cost
and related accumulated depreciation of the property was $434,623
and $122,522, respectively.
In September, 1996, the Managing General Partner solicited
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 of Sale in additional
properties. The proposed Amendment did not receive a majority
vote for adoption.
During 1996 and 1995, the Partnership distributed
$1,876,526 and $223,865 of the net sale proceeds to the Limited
and General Partners, which represented a return of capital of
$260.83 and $30.55 per Limited Partnership Unit, respectively.
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 1995, the Partnership made distributions at a 7.66%
rate which resulted in distributions to the Partners of
approximately $508,000. Effective January 1, 1996 and October 1,
1996, the distribution rate was reduced to 6.6% and 6.0%,
respectively, which resulted in regular distributions to the
Partners of approximately $434,000. In addition, in November,
1996, the Partnership distributed net sale proceeds of $1,818,183
to the Partners as a special distribution.
ITEM 6. 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. In no event shall the
Partnership be obligated to purchase Units if, in the sole
discretion of the Managing General Partner, such purchase would
impair the capital or operation of the Partnership.
During 1996, ten Limited Partners redeemed a total of 101
Partnership Units for $60,593 in accordance with the Partnership
Agreement. The Partnership acquired these Units using Net Cash
Flow from operations. In prior years, a total of forty-six
Limited Partners redeemed 278.75 Partnership Units for $211,862.
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 1995, total interest expense was $4,061.
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.
ITEM 7. FINANCIAL STATEMENTS.
See accompanying index to financial statements.
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report
Balance Sheet as of December 31, 1996 and 1995
Statements for the Years Ended December 31, 1996 and 1995:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
INDEPENDENT AUDITOR'S REPORT
To the Partners:
AEI Real Estate Fund 86-A Limited Partnership
St. Paul, Minnesota
We have audited the accompanying balance sheet of AEI REAL
ESTATE FUND 86-A LIMITED PARTNERSHIP (a Delaware limited
partnership) as of December 31, 1996 and 1995 and the related
statements of income, cash flows and changes in partners' capital
for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of AEI Real Estate Fund 86-A Limited Partnership as of December
31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended, in conformity with generally
accepted accounting principles.
Minneapolis, Minnesota /s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
January 31, 1997 Certified Public Accountants
<PAGE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31
ASSETS
1996 1995
CURRENT ASSETS:
Cash and Cash Equivalents $ 283,939 $ 1,822,519
Receivables 0 3,240
----------- -----------
Total Current Assets 283,939 1,825,759
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 1,721,594 1,810,273
Buildings and Equipment 2,520,986 2,956,027
Accumulated Depreciation (1,010,426) (1,031,715)
----------- -----------
3,232,154 3,734,585
Real Estate Held for Sale 27,003 0
----------- -----------
Net Investments in Real Estate 3,259,157 3,734,585
----------- -----------
Total Assets $ 3,543,096 $ 5,560,344
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 16,139 $ 16,401
Distributions Payable 71,972 74,425
Security Deposit 5,000 5,000
----------- -----------
Total Current Liabilities 93,111 95,826
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (28,653) (8,507)
Limited Partners, $1,000 Unit value;
7,500 Units authorized and issued;
7,120 and 7,221 outstanding in 1996
and 1995, respectively 3,478,638 5,473,025
----------- -----------
Total Partners' Capital 3,449,985 5,464,518
----------- -----------
Total Liabilities and Partners' Capital $ 3,543,096 $ 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 YEARS ENDED DECEMBER 3l
1996 1995
INCOME:
Rent $ 494,374 $ 616,054
Investment Income 95,791 45,564
---------- ----------
Total Income 590,165 661,618
---------- ----------
EXPENSES:
Partnership Administration - Affiliates 134,093 126,948
Partnership Administration and Property
Management - Unrelated Parties 11,863 50,831
Interest 0 4,061
Depreciation 117,827 147,981
Real Estate Impairment 45,500 0
---------- ----------
Total Expenses 309,283 329,821
---------- ----------
OPERATING INCOME 280,882 331,797
GAIN ON SALE OF REAL ESTATE 17,684 730,685
---------- ----------
NET INCOME $ 298,566 $1,062,482
========== ==========
NET INCOME ALLOCATED:
General Partners $ 2,985 $ 10,625
Limited Partners 295,581 1,051,857
---------- ----------
$ 298,566 $1,062,482
========== ==========
NET INCOME PER LIMITED PARTNERSHIP UNIT
(7,196 and 7,262 weighted average Units outstanding
in 1996 and 1995, respectively) $ 41.08 $ 144.84
========== ==========
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 YEARS ENDED DECEMBER 31
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 298,566 $ 1,062,482
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 117,827 147,981
Real Estate Impairment 45,500 0
Gain on Sale of Real Estate (17,684) (730,685)
Decrease in Receivables 3,240 8,364
Decrease in Payable to
AEI Fund Management, Inc. (262) (4,261)
----------- -----------
Total Adjustments 148,621 (578,601)
----------- -----------
Net Cash Provided By
Operating Activities 447,187 483,881
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 329,785 1,961,434
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in Distributions Payable (2,453) (54,469)
Distributions to Partners (2,251,894) (507,963)
Redemption Payments (61,205) (35,166)
Decrease in Line of Credit 0 (35,000)
----------- -----------
Net Cash Used For
Financing Activities (2,315,552) (632,598)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,538,580) 1,812,717
CASH AND CASH EQUIVALENTS, beginning of period 1,822,519 9,802
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 283,939 $ 1,822,519
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid During the Year $ 0 $ 4,061
=========== ===========
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 YEARS ENDED DECEMBER 31
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 (5,080) (502,883) (507,963)
Redemption Payments (351) (34,815) (35,166) (54.93)
Net Income 10,625 1,051,857 1,062,482
---------- ----------- ----------- ---------
BALANCE, December 31, 1995 (8,507) 5,473,025 5,464,518 7,221.32
Distributions (22,519) (2,229,375) (2,251,894)
Redemption Payments (612) (60,593) (61,205) (101.00)
Net Income 2,985 295,581 298,566
---------- ----------- ----------- ---------
BALANCE, December 31, 1996 $ (28,653) $ 3,478,638 $ 3,449,985 7,120.32
========== =========== =========== =========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) 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. (AEI), performs the
administrative and operating functions for the Partnership.
The terms of the Partnership offering call for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. The Partnership
commenced operations on April 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.
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 l% to the General
Partners until the Limited Partners receive an amount equal
to: (a) their Adjusted Capital Contribution plus (b) an
amount equal to 6% of their Adjusted Capital Contribution
per annum, cumulative but not compounded, to the extent not
previously distributed from Net Cash Flow; (ii) next, 99% to
the Limited Partners and 1% to the General Partners until
the Limited Partners receive an amount equal to 14% of their
Adjusted Capital Contribution per annum, cumulative but not
compounded, to the extent not previously distributed; (iii)
next, to the General Partners until cumulative distributions
to the General Partners under Items (ii) and (iii) equal 15%
of cumulative distributions to all Partners under Items (ii)
and (iii). Any remaining balance will be distributed 85% to
the Limited Partners and 15% to the General Partners.
Distributions to the Limited Partners will be made pro rata
by Units.
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) Organization - (Continued)
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.
(2) Summary of Significant Accounting Policies -
Financial Statement Presentation
The accounts of the Partnership are maintained on the
accrual basis of accounting for both federal income tax
purposes and financial reporting purposes.
Accounting Estimates
Management uses estimates and assumptions in preparing
these financial statements in accordance with generally
accepted accounting principles. Those estimates and
assumptions may affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Actual results could differ from those estimates.
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(2) Summary of Significant Accounting Policies - (Continued)
The Partnership regularly assesses whether market events
and conditions indicate that it is reasonably possible to
recover the carrying amounts of its investments in real
estate from future operations and sales. A change in
those market events and conditions could have a material
effect on the carrying amount of its real estate
Cash Concentrations of Credit Risk
At times throughout the year, the Partnership's cash
deposited in financial institutions may exceed FDIC
insurance limits.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash
equivalents include cash in checking, cash invested in
money market accounts, certificates of deposit, federal
agency notes and commercial paper with a term of three
months or less.
Income Taxes
The income or loss of the Partnership for federal income
tax reporting purposes is includable in the income tax
returns of the partners. Accordingly, no recognition has
been given to income taxes in the accompanying financial
statements.
The tax return, the qualification of the Partnership as
such for tax purposes, and the amount of distributable
Partnership income or loss are subject to examination by
federal and state taxing authorities. If such an
examination results in changes with respect to the
Partnership qualification or in changes to distributable
Partnership income or loss, the taxable income of the
partners would be adjusted accordingly.
Real Estate
The Partnership's real estate is leased under long-term
triple net leases classified as operating leases. The
Partnership recognizes rental revenue on the accrual
basis according to the terms of the individual leases.
For leases which contain cost of living increases, the
increases are recognized in the year in which they are
effective.
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(2) Summary of Significant Accounting Policies - (Continued)
Real estate is recorded at the lower of cost or estimated
net realizable value. The Financial Accounting Standards
Board issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" which is effective for the
Partnership's fiscal year ended December 31, 1996. This
standard requires the Partnership to compare the carrying
amount of its properties to the estimated future cash
flows expected to result from the property and its
eventual disposition. If the sum of the expected future
cash flows is less than the carrying amount of the
property, the Statement requires the Partnership to
recognize an impairment loss by the amount by which the
carrying amount of the property exceeds the fair value of
the property. Adoption of this Statement resulted in a
$45,500 real estate impairment loss on the Partnership's
1996 financial statements.
The Partnership has capitalized as Investments in Real
Estate certain costs incurred in the review and
acquisition of the properties. The costs were allocated
to the land, buildings and equipment.
The buildings and equipment of the Partnership are
depreciated using the straight-line method for financial
reporting purposes based on estimated useful lives of 30
years and 10 years respectively.
(3) Related Party Transactions -
On June 7, 1990, the Partnership acquired a 20% interest in
the Cheddar's restaurant. On August 24, 1990, the
Partnership acquired a 6.7522% interest in the Sizzler
restaurant. The remaining interest in these properties are
owned by AEI Real Estate Fund XVIII Limited Partnership, an
affiliate of the Partnership. On July 31, 1991, the
Partnership acquired a 61.7638% interest in the Taco Cabana
restaurant. The remaining interest in this property is
owned by AEI Net Lease Income & Growth Fund XIX Limited
Partnership, an affiliate of the Partnership.
Each Partnership owns a separate, undivided interest in the
properties. No specific agreement or commitment exists
between the Partnerships as to the management of their
respective interest in the properties, and the Partnership
that holds more than a 50% interest does not control
decisions over the other Partnership's interest. The
financial statements reflect only this Partnership's
percentage share of the properties' land, building and
equipment, liabilities, revenues and expenses.
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(3) Related Party Transactions - (Continued)
AFM and AEI received the following compensation and
reimbursements for costs and expenses from the Partnership:
Total Incurred by the Partnership
for the Years Ended December 3l
1996 1995
a.AEI and AFM are reimbursed for all costs
incurred in connection with managing the
Partnership's operations, maintaining the
Partnership's books and communicating
the results of operations to the Limited
Partners. $ 134,093 $ 126,948
========== ==========
b.AEI and AFM are reimbursed for all direct
expenses they have paid on the Partnership's
behalf to third parties. These expenses included
printing costs, legal and filing fees, direct
administrative costs, outside audit and
accounting costs, taxes, insurance and other
property costs. $ 11,863 $ 50,831
========== ==========
The payable to AEI Fund Management, Inc. represents the
balance due for the services described in 3a and b. This
balance is non-interest bearing and unsecured and is to be
paid in the normal course of business.
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(4) Investments in Real Estate -
The Partnership leases its properties to various tenants
through non-cancelable triple net leases, which are
classified as operating leases. Under a triple net lease,
the lessee is responsible for all real estate taxes,
insurance, maintenance, repairs and operating expenses of
the property. The initial Lease terms are for 20 years
except for the Taco Cabana and Auto Max properties which are
15 years and the DeLisi's property which is 10 years. The
Leases have renewal options which may extend the lease term
an additional 10 years. The Leases contain rent clauses
which entitle the Partnership to receive additional rent in
future years based on stated rent increases or if gross
receipts for the property exceed certain specified amounts,
among other conditions. The leases provide the lessees with
two five-year renewal options subject to the same terms and
conditions as the initial lease. Certain lessees have been
granted options to purchase the property. Depending on the
lease, the purchase price is either determined by a formula,
or is the greater of the fair market value of the property
or the amount determined by a formula. In all cases, if the
option were to be exercised by the lessee, the purchase
price would be greater than the original cost of the
property.
The Partnership's properties are all commercial, single-
tenant properties. The Sizzler restaurant, which has been
classified as Real Estate Held for Sale, was constructed and
acquired in 1990. The Taco Cabana restaurant was
constructed and acquired in 1991. All the remaining
properties were constructed and acquired in 1987. There
have been no costs capitalized as improvements subsequent to
the acquisitions.
The cost of the properties not held for sale and related
accumulated depreciation at December 31, 1996 are as
follows:
Buildings and Accumulated
Property Land Equipment Total Depreciation
Auto Max, Bloomington, MN $ 361,269 $ 477,480 $ 838,749 $ 173,882
DeLisi's, Brooklyn Park, MN 317,355 651,603 968,958 278,395
Auto Max, Coon Rapids, MN 382,263 413,555 795,818 148,638
am/pm Mini Market,
Carson City, NV 135,760 644,136 779,896 349,167
Taco Cabana, Houston, TX 524,947 334,212 859,159 60,344
---------- ---------- ---------- ----------
$1,721,594 $2,520,986 $4,242,580 $1,010,426
========== ========== ========== ==========
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(4) Investments in Real Estate - (Continued)
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 1996 and 1995 was
$19,464 and $62,008, 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
$329,785, which resulted in a net gain of $17,684. At the
time of sale, the cost and related accumulated depreciation
of the property was $434,623 and $122,522, respectively.
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.
In September, 1996, the Managing General Partner solicited 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 of Sale in
additional properties. The proposed Amendment did not
receive a majority vote for adoption.
During 1996 and 1995, the Partnership distributed $1,876,526
and $223,865 of the net sale proceeds to the Limited and
General Partners, which represented a return of capital of
$260.83 and $30.55 per Limited Partnership Unit,
respectively.
The Partnership owns a 6.7522% interest in a Sizzler
restaurant in Springboro, Ohio. In November, 1993, after
reviewing the Sizzler's operating results, the Partnership
determined that the lessee would be unable to operate the
restaurants in a manner capable of maximizing the
restaurant's sales. Consequently, at the direction of the
Partnership, a multi-unit restaurant operator assumed
operation of this restaurant while the Partnership reviewed
the available options. In June, 1994, the Partnership
closed the restaurant and listed it for sale or lease.
While the property is being vacant, the Partnership is
responsible for the real estate taxes and other costs
required to maintain the property.
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(4) Investments in Real Estate - (Continued)
In December, 1996, the Partnership, in order to avoid
additional property management expenses, decided to sell the
Sizzler property rather than to continue to attempt to re-
lease the property. As a result, the property has been
reclassified on the balance sheet to Real Estate Held for
Sale. In addition, based on an analysis of market
conditions in the area, it was determined that a sale of the
property would result in net proceeds of approximately
$400,000. The Partnership's share of the proceeds would be
approximately $27,000. A charge to operations for real
estate impairment of $45,500 was recognized, which is the
difference between book value at December 31, 1996 of
$72,500 and the estimated market value of $27,000. The
charge was recorded against the cost of the land, building
and equipment. The Partnership's investment in this
property represents a minor portion of the Partnership's
portfolio. The loss of rent and the real estate impairment
related to this property have not had a material impact on
the Partnership's Net Cash Flow.
The minimum future rentals on the non-cancelable Leases for
years subsequent to December 31, 1996 are as follows:
1997 $ 489,122
1998 489,812
1999 490,517
2000 491,235
2001 491,968
Thereafter 1,781,963
-----------
$ 4,234,617
===========
In 1996 and 1995, the Partnership recognized contingent
rents of $8,158 and $27,471, respectively.
(5) Security Deposit -
In April, 1992, the Partnership received a deposit from the
tenant of the DeLisi's Italian Restaurant as security for
future rent payments. The funds are invested in a short
term money market account and will be refunded at the end of
the Lease, without interest, to the tenant provided there is
no default in the Lease Agreement.
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(6) 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 1995, total interest expense was $4,061.
(7) Major Tenants -
The following schedule presents rent revenue from individual
tenants, or affiliated groups of tenants, who each
contributed more than ten percent of the Partnership's total
rent revenue for the years ended December 31:
Tenants who individually generate
10% or more of total rent revenue:
1996 1995
Tenants Industry
Taco Cabana, Inc. Restaurant 121,794 117,676
Thomas Graffunder Automotive Service 110,400 110,400
B. Wells O'Brien & Co. Convenience Store 108,105 110,687
DeLisi's Italian Restaurant
and Lounge, Inc. Restaurant 72,000 72,000
Apple South, Inc. Restaurant $ N/A $ 102,495
--------- ---------
Aggregate rent revenue of major tenants $ 412,299 $ 513,258
========= =========
Aggregate rent revenue of major tenants as
a percentage of total rent revenue 83% 83%
========= =========
(8) Partners' Capital -
Cash distributions of $23,131 and $5,431 were made to the
General Partners and $2,229,375 and $502,883 were made to
the Limited Partners for the years ended December 31, 1996
and 1995, respectively. The Limited Partners' distributions
represent $309.81 and $69.25 per Limited Partnership Unit
outstanding using 7,196 and 7,262 weighted average Units in
1996 and 1995, respectively. The distributions represent
$32.57 and $69.25 per Unit of Net Income and $277.24 and $-0-
per Unit of return of contributed capital in 1996 and 1995,
respectively.
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(8) Partners' Capital - (Continued)
As part of the Limited Partner distributions discussed
above, the Partnership distributed $1,857,761 and $221,627
of proceeds from property sales in 1996 and 1995,
respectively. The distributions reduced the Limited
Partners' Adjusted Capital Contributions.
Distributions of Net Cash Flow to the General Partners
during 1996 and 1995 were subordinated to the Limited
Partners as required in the Partnership Agreement. As a
result, 99% of distributions and income were allocated to
the Limited Partners and 1% to the General Partners.
The Partnership may acquire Units from Limited Partners who
have tendered their Units to the Partnership. Such Units
may be acquired at a discount. The Partnership is not
obligated to purchase in any year more than 5% of the total
number of Units outstanding at the beginning of the year.
In no event shall the Partnership be obligated to purchase
Units if, in the sole discretion of the Managing General
Partner, such purchase would impair the capital or operation
of the Partnership.
During 1996, ten Limited Partners redeemed a total of 101
Partnership Units for $60,593 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In 1995, seventeen
Limited Partners redeemed a total of 55 Partnership Units
for $34,815. The redemptions increase the remaining Limited
Partners' ownership interest in the Partnership.
After the effect of redemptions and the return of capital
from the sale of property, the Adjusted Capital
Contribution, as defined in the Partnership Agreement, is
$739.63 per original $1,000 invested.
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(9) Income Taxes -
The following is a reconciliation of net income for
financial reporting purposes to income reported for federal
income tax purposes for the years ended December 31:
1996 1995
Net Income For Financial
Reporting Purposes $ 298,566 $ 1,062,482
Depreciation for Tax Purposes
Under Depreciation For Financial
Reporting Purposes 40,751 46,656
Property Expenses For Tax Purposes
Under Expenses For Financial Reporting
Purposes 15,295 22,238
Gain on Sale of Real Estate For Tax Purposes
Over (Under) Gain For Financial Reporting
Purposes 33,424 (16,994)
----------- -----------
Taxable Income to Partners $ 388,036 $ 1,114,382
=========== ===========
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(9) Income Taxes - (Continued)
The following is a reconciliation of Partners' capital for
financial reporting purposes to Partners' capital reported
for federal income tax purposes for the years ended December
31:
1996 1995
Partners' Capital For
Financial Reporting Purposes $ 3,449,985 $ 5,464,518
Adjusted Tax Basis of Investments
in Real Estate Over Net Investments
in Real Estate for Financial
Reporting Purposes 159,667 39,992
Capitalized Start-Up Costs
Under Section 195 273,183 273,183
Amortization of Start-Up and
Organization Costs (280,829) (280,829)
Property Expenses For Tax Purposes
Under Expense For Financial Reporting
Purposes 72,435 102,639
Organization and Syndication Costs
Treated as Reduction of Capital
For Financial Reporting Purposes 1,093,184 1,093,184
----------- -----------
Partners' Capital For
Tax Reporting Purposes $ 4,767,625 $ 6,692,687
=========== ===========
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(10) Fair Value of Financial Instruments -
The estimated fair values of the financial instruments, none
of which are held for trading purposes, for the years ended
December 31:
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash $ 506 $ 506 $ 629 $ 629
Money Market Funds 283,433 283,433 1,821,890 1,821,890
---------- ---------- ---------- ----------
Total Cash and
Cash Equivalents $ 283,939 $ 283,939 $1,822,519 $1,822,519
========== ========== ========== ==========
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The registrant is a limited partnership and has no
officers, directors, or direct employees. The General Partners
of the registrant are Robert P. Johnson and AFM. The General
Partners manage and control the Partnership's affairs and have
general responsibility and the ultimate authority in all matters
affecting the Partnership's business. The director and officers
of AFM are as follows:
Robert P. Johnson, age 52, is Chief Executive Officer,
President and Director and has held these positions since the
formation of AFM in December, 1985, and has been elected to
continue in these positions until March, 1998. From 1970 to the
present, he has been employed exclusively in the investment
industry, specializing in tax-advantaged limited partnership
investments. In that capacity, he has been involved in the
development, analysis, marketing and management of public and
private investment programs investing in net lease properties as
well as public and private investment programs investing in
energy development. Since 1971, Mr. Johnson has been the
president, a director and a registered principal of AEI
Incorporated, which is registered with the Securities and
Exchange Commission as a securities broker-dealer, is a member of
the National Association of Securities Dealers, Inc. (NASD) and
is a member of the Security Investors Protection Corporation
(SIPC). Mr. Johnson has been president, a director and the
principal shareholder of AEI Fund Management, Inc., a real estate
management company founded by him, since 1978. Mr. Johnson is
currently a general partner or principal of the general partner
in fifteen other limited partnerships.
Mark E. Larson, age 44, is Executive Vice President,
Treasurer and Chief Financial Officer and has been elected to
continue in these positions until March, 1998. Mr. Larson has
been Treasurer and Executive Vice President since December, 1987
and Chief Financial Officer since January, 1990. In January
1993, Mr. Larson was elected to serve as Secretary of AFM and
will continue to serve until March, 1998. Mr. Larson has been
employed by AEI Fund Management, Inc. and affiliated entities
since 1985. From 1979 to 1985, Mr. Larson was with Apache
Corporation as manager of Program Accounting responsible for the
accounting and reports for approximately 45 public partnerships.
Mr. Larson is responsible for supervising the accounting
functions of AFM and the registrant.
ITEM 10. EXECUTIVE COMPENSATION.
The General Partner and affiliates are reimbursed at cost
for all services performed on behalf of the registrant and for
all third party expenses paid on behalf of the registrant. The
cost for services performed on behalf of the registrant is actual
time spent performing such services plus an overhead burden.
These services include organizing the registrant and arranging
for the offer and sale of Units, reviewing properties for
acquisition and rendering administrative and management services.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
AFM, the Managing General Partner of the registrant, and
Robert P. Johnson, its Individual General Partner, contributed
$1,000 in total for their interest in the registrant. See Item 1
for a discussion of their share of the registrant's profits and
losses. During 1989, AFM purchased 23 Limited Partnership Units
(less than 1% of the Units outstanding) from certain Limited
Partners.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The registrant, AFM and its affiliates have common
management and utilize the same facilities. As a result, certain
administrative expenses are allocated among these related
entities. All of such activities and any other transactions
involving the affiliates of the General Partner of the registrant
are governed by, and are conducted in conformity with, the
limitations set forth in the Limited Partnership Agreement of the
registrant. Reference is made to Note 3 on page 20 and 21, and
is incorporated herein by reference, for details of related party
transactions.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND FORM 8-K/A.
A. Exhibits -
Description
10.1 Purchase Agreement dated
March 20, 1996 between the Partnership,
Mark H. Meyer and David L. Meyer relating
to the property at 2501 30th Avenue,
Kearney, Nebraska (incorporated by
reference to Exhibit 10.1 of Form 8-K
filed with the Commission on May 6,
1996).
10.2 Assignment of Purchaser's
interest in Purchase Agreement dated
April 23, 1996 between Mark H. Meyer,
David L. Meyer and Sports West, L.L.C.
relating to the property at 2501 30th
Avenue, Kearney, Nebraska (incorporated
by reference to Exhibit 10.2 of Form 8-K
filed with the Commission on May 6,
1996).
27 Financial Data Schedule
for year ended December 31, 1996.
B. Reports on Form 8-K and Form 8-K/A - None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AEI REAL ESTATE FUND 86-A
Limited Partnership
By: AEI Fund Management 86-A, Inc.
Its Managing General Partner
March 17, 1997 By: /s/ Robert P. Johnson
Robert P. Johnson, President and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Name Title Date
/s/ Robert P. Johnson President (Principal Executive Officer) March 17, 1997
Robert P. Johnson and Sole Director of Managing General
Partner
/s/ Mark E. Larson Executive Vice President, Treasurer March 17, 1997
Mark E. Larson and Chief Financial Officer
(Principal Accounting Officer)
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<NAME> AEI REAL ESTATE FUND 86-A LTD PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
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0
0
<COMMON> 0
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<OTHER-EXPENSES> 0
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