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: September 30, 1999
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)
(651) 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 September 30, 1999 and December 31, 1998
Statements for the Periods ended September 30, 1999 and 1998:
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
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(Unaudited)
ASSETS
1999 1998
CURRENT ASSETS:
Cash and Cash Equivalents $ 270,343 $ 218,312
Receivables 0 15,320
----------- -----------
Total Current Assets 270,343 233,632
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 1,585,834 1,585,834
Buildings and Equipment 1,876,850 1,876,850
Accumulated Depreciation (825,421) (782,855)
----------- -----------
Net Investments in Real Estate 2,637,263 2,679,829
----------- -----------
Total Assets $ 2,907,606 $ 2,913,461
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 40,303 $ 20,826
Distributions Payable 62,487 62,246
Security Deposit 5,000 5,000
----------- -----------
Total Current Liabilities 107,790 88,072
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (35,155) (34,899)
Limited Partners, $1,000 Unit value;
7,500 Units authorized and issued;
7,040 Units outstanding 2,834,971 2,860,288
----------- -----------
Total Partners' Capital 2,799,816 2,825,389
----------- -----------
Total Liabilities and Partners' Capital $ 2,907,606 $ 2,913,461
=========== ===========
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 SEPTEMBER 30
(Unaudited)
Three Months Ended Nine Months Ended
9/30/99 9/30/98 9/30/99 9/30/98
INCOME:
Rent $ 102,929 $ 103,214 $ 301,878 $ 315,741
Investment Income 2,892 2,894 7,809 18,927
--------- --------- --------- ---------
Total Income 105,821 106,108 309,687 334,668
--------- --------- --------- ---------
EXPENSES:
Partnership Administration-
Affiliates 25,014 22,677 76,763 81,422
Partnership Administration
and Property Management -
Unrelated Parties 3,474 8,594 10,586 20,775
Depreciation 14,189 14,189 42,566 44,264
--------- --------- --------- ---------
Total Expenses 42,677 45,460 129,915 146,461
--------- --------- --------- ---------
OPERATING INCOME 63,144 60,648 179,772 188,207
GAIN (LOSS) ON SALE
OF REAL ESTATE 0 (1,618) 0 553,124
--------- --------- --------- ---------
NET INCOME $ 63,144 $ 59,030 $ 179,772 $ 741,331
========= ========= ========= =========
NET INCOME ALLOCATED:
General Partners $ 632 $ 590 $ 1,798 $ 7,413
Limited Partners 62,512 58,440 177,974 733,918
--------- --------- --------- ---------
$ 63,144 $ 59,030 $ 179,772 $ 741,331
========= ========= ========= =========
NET INCOME PER
LIMITED PARTNERSHIP UNIT
(7,040 and 7,104 weighted average
Units outstanding in 1999 and 1998,
respectively) $ 8.88 $ 8.23 $ 25.28 $ 103.31
========= ========= ========= =========
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 SEPTEMBER 30
(Unaudited)
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 179,772 $ 741,331
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 42,566 44,264
Gain on Sale of Real Estate 0 (553,124)
Decrease in Receivables 15,320 6,173
Increase in Payable to
AEI Fund Management, Inc. 19,477 20,815
----------- -----------
Total Adjustments 77,363 (481,872)
----------- -----------
Net Cash Provided By
Operating Activities 257,135 259,459
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 0 980,786
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Distributions Payable 241 (16,291)
Distributions to Partners (205,345) (1,364,138)
----------- -----------
Net Cash Used For
Financing Activities (205,104) (1,380,429)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 52,031 (140,184)
CASH AND CASH EQUIVALENTS, beginning of period 218,312 382,424
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 270,343 $ 242,240
=========== ===========
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 SEPTEMBER 30
(Unaudited)
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 1997 $(28,611) $ 3,482,789 $ 3,454,178 7,104.32
Distributions (13,641) (1,350,497) (1,364,138)
Net Income 7,413 733,918 741,331
--------- ----------- ----------- -----------
BALANCE, September 30, 1998 $(34,839) $ 2,866,210 $ 2,831,371 7,104.32
========= =========== =========== ===========
BALANCE, December 31, 1998 $(34,899) $ 2,860,288 $ 2,825,389 7,040.32
Distributions (2,054) (203,291) (205,345)
Net Income 1,798 177,974 179,772
--------- ----------- ----------- -----------
BALANCE, September 30, 1999 $(35,155) $ 2,834,971 $ 2,799,816 7,040.32
========= =========== =========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(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. (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.
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 -
On February 20, 1998, the Partnership sold the am/pm Mini
Market in Carson City, Nevada to an unrelated third party.
The Partnership received net sale proceeds of $955,401,
which resulted in a net gain of $554,742. At the time of
sale, the cost and related accumulated depreciation of the
property was $779,896 and $379,237, respectively.
In April, 1998, the Partnership distributed $1,141,414 of
net sale proceeds to the Limited and General Partners, which
represented a return of capital of $159.06 per Limited
Partnership Unit.
The Partnership owned a 6.7522% interest in a Sizzler
restaurant in Springboro, Ohio. On July 21, 1998, the
Partnership sold the property to an unrelated third party.
The Partnership received net sale proceeds of $25,385, which
resulted in a net loss of $1,618. At the time of sale, the
cost and related accumulated depreciation of the property
was $43,597 and $16,594, respectively.
(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.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
For the nine months ended September 30, 1999 and 1998, the
Partnership recognized rental income of $301,878 and $315,741,
respectively. During the same periods, the Partnership earned
investment income of $7,809 and $18,927, respectively. In 1999,
rental income decreased mainly as a result of the sale of the
am/pm property discussed below. In 1998, investment income was
higher as the sale proceeds were invested in short-term
investments until they were distributed to the Partners in April,
1998.
During the nine months ended September 30, 1999 and 1998,
the Partnership paid Partnership administration expenses to
affiliated parties of $76,763 and $81,422, 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 $10,586 and $20,775, 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.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
As of September 30, 1999, the Partnership's annualized
cash distribution rate was 6.55%, 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.
The Year 2000 issue is the result of computer systems that
use two digits rather than four to define the applicable year,
which may prevent such systems from accurately processing dates
ending in the Year 2000 and beyond. This could result in
computer system failures or disruption of operations, including,
but not limited to, an inability to process transactions, to send
or receive electronic data, or to engage in routine business
activities.
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. In 1998, AEI completed an
assessment of its computer hardware and software systems and has
replaced or upgraded certain computer hardware and software using
the assistance of outside vendors. AEI has received written
assurance from the equipment and software manufacturers as to
Year 2000 compliance. The costs associated with Year 2000
compliance have not been, and are not expected to be, material.
The Partnership intends to monitor and communicate with
tenants regarding Year 2000 compliance, although there can be no
assurance that the systems of the various tenants will be Year
2000 compliant.
Liquidity and Capital Resources
During the nine months ended September 30, 1999, the
Partnership's cash balances increased $52,031 as the Partnership
distributed less cash to the Partners than it generated for
operating activities. Net cash provided by operating activities
decreased from $259,459 in 1998 to $257,135 in 1999 mainly as a
result of a decrease in total income in 1999, which was partially
offset by a decrease in expenses in 1999.
Net cash provided by investing activities was $980,786 in
1998, which represented cash generated from the sale of real
estate.
On February 20, 1998, the Partnership sold the am/pm Mini
Market in Carson City, Nevada to an unrelated third party. The
Partnership received net sale proceeds of $955,401, which
resulted in a net gain of $554,742. At the time of sale, the
cost and related accumulated depreciation of the property was
$779,896 and $379,237, respectively.
On July 21, 1998, the Partnership sold the Sizzler
property to an unrelated third party. The Partnership received
net sale proceeds of $25,385, which resulted in a net loss of
$1,618. At the time of sale, the cost and related accumulated
depreciation of the property was $43,597 and $16,594,
respectively.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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.
In April, 1998, the Partnership distributed $1,141,414 of
net sale proceeds to the Limited and General Partners as a
special distribution, which represented a return of capital of
$159.06 per Limited Partnership Unit. In 1999 and 1998, the
Partnership paid regular distributions at the same rate based on
the Limited Partner's Adjusted Capital Contribution. The special
distribution of sale proceeds reduced the Adjusted Capital
Contribution, which resulted in a reduction in distributions in
the first nine months of 1999.
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.
On October 1, 1999, two Limited Partners redeemed a total
of 4 Partnership Units for $504 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a total of
sixty-two Limited Partners redeemed 459.75 Partnership Units for
$287,332. The redemptions increase the remaining Limited
Partners' ownership interest in the Partnership.
The continuing rent payments from the properties 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.
PART II - OTHER INFORMATION
(Continued)
ITEM 5.OTHER INFORMATION
None.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -
Description
27 Financial Data Schedule for period
ended September 30, 1999.
b. Reports filed on Form 8-K - None.
SIGNATURES
In accordance with the requirements of the Exchange Act,
the Registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: November 8, 1999 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
(Principal Executive Officer)
By: /s/ Mark E. Larson
Mark E. Larson
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000785788
<NAME> AEI REAL ESTATE FUND 86-A LTD PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 270,343
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 270,343
<PP&E> 3,462,684
<DEPRECIATION> (825,421)
<TOTAL-ASSETS> 2,907,606
<CURRENT-LIABILITIES> 107,790
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,799,816
<TOTAL-LIABILITY-AND-EQUITY> 2,907,606
<SALES> 0
<TOTAL-REVENUES> 309,687
<CGS> 0
<TOTAL-COSTS> 129,915
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 179,772
<INCOME-TAX> 0
<INCOME-CONTINUING> 179,772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179,772
<EPS-BASIC> 25.28
<EPS-DILUTED> 25.28
</TABLE>
