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, 1998
Commission file number: 0-14089
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
(Name of Small Business Issuer in its Charter)
State of Delaware 93-0926134
(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)
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, 1998 were
$682,468.
As of February 28, 1999, there were 7,322.55 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 $7,322,550.
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 XV Limited Partnership (the
"Partnership" or the "Registrant") is a limited partnership which
was organized pursuant to the laws of the State of Delaware on
October 3, 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 July 31, 1986. The Partnership
commenced operations on October 3, 1986 when minimum
subscriptions of 1,300 Limited Partnership Units ($1,300,000)
were accepted. The Partnership's offering terminated December
30, 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 partial
interests in three properties, totaling $6,409,650. 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 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. Prior to
commending the liquidation of the Partnership, the General
Partners may reinvest the proceeds from the sale of properties in
additional properties, provided that sufficient proceeds are
distributed to the Limited Partners to pay federal and state
income taxes related to any taxable gain recognized as a result
of the sale. 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 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.
Most of the leases provide the lessee with two to three
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)
The Partnership owns a 44.9042% interest in a restaurant
in Waco, Texas, which was previously closed. In June 1995, the
Partnership re-leased the restaurant to Tex-Mex Cocina of Waco,
L.C. The Lease Agreement had a primary term of eighteen months
with an annual rental payment of $24,248. In December, 1997, the
lessee elected not to exercise the renewal option in the lease.
The restaurant was closed and is listed 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.
As of December 31, 1997, based on an analysis of market
conditions in the area, it was determined the fair value of the
Partnership's interest in the Waco property was approximately
$314,400. In the fourth quarter of 1997, a charge to operations
for real estate impairment of $80,300 was recognized, which is
the difference between the book value at December 31, 1997 of
$394,700 and the estimated fair value of $314,400. The charge
was recorded against the cost of the land and building. In
December, 1998, the Partnership re-analyzed the market conditions
in the area and determined the fair value of the Partnership's
interest declined to approximately $126,000. In the fourth
quarter of 1998, a charge to operations for real estate
impairment of $180,000 was recognized, which is the difference
between the book value at December 31, 1998 of $306,000 and the
estimated fair value of $126,000. The charge was recorded
against the cost of the land and building.
On January 10, 1996, the Partnership purchased a Denny's
restaurant in Greenville, Texas for $1,028,432. The property is
leased to Huntington Restaurants Group, Inc. under a Lease
Agreement with a primary term of 20 years and annual rental
payments of $113,625.
On February 14, 1996, the Partnership purchased a 20%
interest in a Tractor Supply Company store in Maryville,
Tennessee for $219,405. The property is leased to Tractor Supply
Company under a Lease Agreement with a primary term of 14 years
and annual rental payments of $22,575. The remaining interest in
the property was purchased by AEI Real Estate Fund 85-A Limited
Partnership, an affiliate of the Partnership.
In July 1995, the lessee of the Super 8 motel in Hot
Springs, Arkansas, exercised an option in the Lease Agreement to
purchase the property. On March 29, 1996, the sale closed with
the Partnership receiving net sale proceeds of $663,386 which
resulted in a net gain of $216,645. The Partnership recognized
$18,534 of this gain in 1995 due to nonrefundable deposits
received from the purchaser. At the time of sale, the cost and
related accumulated depreciation of the property was $581,541 and
$134,800, respectively.
On January 24, 1997, the Partnership sold the Children's
World daycare center in Moreno Valley, California, to an
unrelated third party. The Partnership recognized net sale
proceeds of $1,301,342, which resulted in a net gain of $655,641.
At the time of sale, the cost and related accumulated
depreciation of the property was $963,717 and $318,016,
respectively. As part of the sale proceeds, the Partnership
received a Promissory Note for $1,003,000. The Note bears
interest at a 10% rate. On April 23, 1997, the Partnership
received the principal balance and outstanding accrued interest
on the Note. Investment income earned on the Note was $24,456.
On November 18, 1997, the Partnership purchased a 30.794%
interest in a Timber Lodge Steakhouse in St. Cloud, Minnesota for
$510,635. The property is leased to Timber Lodge Steakhouse,
Inc. under a Lease Agreement with a primary term of 20 years and
annual rental payments of $51,537. The remaining interests in
the property are owned by AEI Real Estate Fund XVII Limited
Partnership and AEI Institutional Net Lease Fund '93 Limited
Partnership, affiliates of the Partnership.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
On December 23, 1997, the Partnership purchased a 26.05%
interest in a parcel of land in Troy, Michigan for $393,620. The
land is leased to Champps Entertainment, Inc. (Champps) under a
Lease Agreement with a primary term of 20 years and annual rental
payments of $27,553. Effective June 20, 1998, the annual rent
was increased to $41,330. Simultaneously with the purchase of
the land, the Partnership entered into a Development Financing
Agreement under which the Partnership advanced funds to Champps
for the construction of a Champps Americana restaurant on the
site. Initially, the Partnership charged interest on the
advances at a rate of 7.0%. Effective June 20, 1998, the
interest rate was increased to 10.50%. On September 3, 1998,
after the development was completed, the Lease Agreement was
amended to require annual rental payments of $133,356. The
Partnership's share of the total acquisition costs, including the
cost of the land, was $1,330,265. The remaining interests in the
property are owned by AEI Real Estate Fund XVII Limited
Partnership, AEI Real Estate Fund XVIII Limited Partnership and
AEI Net Lease Income & Growth Fund XIX Limited Partnership,
affiliates of the Partnership.
Major Tenants
During 1998, 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 75%
of the Partnership's total rental revenue in 1998. 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 1999 and future years. Any failure of these major tenants or
business concepts 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.
Year 2000 Compliance
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.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
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.
ITEM 2. DESCRIPTION OF PROPERTIES.
Investment Objectives
The Partnership's investment objectives are 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. All the properties were acquired on a debt-
free basis and are leased to various tenants under 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.
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, 1998 .
<TABLE>
<CAPTION>
Total Property
Purchase Acquisition Annual Lease Annual Rent
Property Date Costs Lessee Payment Per Sq. Ft.
<S> <C> <C> <C> <C> <C>
Children's World ARAMARK
Daycare Center Educational
Franconia Hills, VA 3/24/87 $ 962,069 Resources, Inc. $ 144,905 $ 29.27
JEMCARE Learning Center
Haltom City, TX 4/3/87 $ 417,213 JEMCARE, Inc. $ 28,657 $ 6.82
Arby's Restaurant RTM
Marshall, MI 7/30/87 $ 586,425 Mid-America, Inc. $ 24,000 $ 7.75
</TABLE>
ITEM 2. DESCRIPTION OF PROPERTIES. (Continued)
<TABLE>
<CAPTION>
Total Property
Purchase Acquisition Annual Lease Annual Rent
Property Date Costs Lessee Payment Per Sq. Ft.
<S> <C> <C> <C> <C> <C>
Zapata's Cantina & Cafe
Waco, TX
(44.9042%) 12/16/87 $ 548,010 (1)
Fuddruckers Restaurant
St. Louis, MO
(60%) 3/25/88 $1,138,296 Fuddruckers, Inc. $ 138,246 $ 26.40
Huntington
Denny's Restaurant Restaurants
Greenville, TX 1/10/96 $1,028,432 Group, Inc. $ 118,042 $ 23.96
Tractor Supply
Company Store
Maryville, TN Tractor Supply
(20%) 2/14/96 $ 219,405 Company, Inc. $ 23,010 $ 6.04
Timber Lodge
Steakhouse Restaurant
St. Cloud, MN Timber Lodge
(30.794%) 11/18/97 $ 510,635 Steakhouse, Inc. $ 51,537 $ 23.97
Champps
Americana Restaurant
Troy, MI Champps
(26.05%) 9/3/98 $1,330,265 Entertainment, Inc. $ 133,356 $ 46.16
</TABLE>
(1) The property is vacant and listed for sale or lease.
The properties listed above with a partial ownership
percentage are owned with an affiliate of the Partnership and/or
unrelated third parties. The remaining interest in the Zapata's
Cantina & Cafe restaurant and the Fuddruckers restaurant is owned
by AEI Real Estate Fund XVI Limited Partnership. The remaining
interests in the Tractor Supply Company store are owned by AEI
Real Estate Fund 85-A Limited Partnership and an unrelated third
party. The remaining interests in the Timber Lodge Steakhouse
restaurant are owned by AEI Real Estate Fund XVII Limited
Partnership, AEI Institutional Net Lease Fund '93 Limited
Partnership and an unrelated third party. The remaining
interests in the Champps Americana restaurant are owned by AEI
Real Estate Fund XVII Limited Partnership, AEI Real Estate Fund
XVIII Limited Partnership and AEI Net Lease Income & Growth Fund
XIX Limited Partnership.
The Partnership accounts for properties owned as tenants-
in-common with affiliated Partnerships and/or unrelated third
parties using the proportionate consolidation method. Each
tenant-in-common owns a separate, undivided interest in the
properties. Any tenant-in-common that holds more than a 50%
interest does not control decisions over the other tenant-in-
common interests. The financial statements reflect only this
Partnership's percentage share of the properties' land, building
and equipment, liabilities, revenues and expenses.
ITEM 2. DESCRIPTION OF PROPERTIES. (Continued)
The initial Lease terms are 20 years except for the
JEMCARE property (10 years), the Tractor Supply Company store (14
years), and the Arby's (15 years). The Leases contain renewal
options which may extend the Lease term an additional 9 to 15
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 or 40 years depending on the date when it was placed in
service. 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 except for properties whose book value was
reduced by a real estate impairment loss pursuant to Financial
Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." The real estate impairment loss, which was
recorded against the book cost of the land and depreciable
property, was not recognized for tax purposes.
During the last five years or since the date of purchase,
if purchased after December 31, 1993, all properties were 100
percent occupied by the lessees noted, with the exception of the
Zapata's Cantina & Cafe, which was 100 percent occupied until
January, 1993. The property was re-leased and 100% occupied from
June, 1995 to December, 1997.
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, 1998, there were 660 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 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.
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND
RELATED SECURITY HOLDER MATTERS. (Continued)
During 1998, the Partnership did not redeem any Units from
the Limited Partners. In prior years, a total of twenty-one
Limited Partners redeemed 163.5 Units for $115,460. The
redemptions increase the remaining Limited Partners' ownership in
the Partnership.
Cash distributions of $5,213 and $7,403 were made to the
General Partners and $516,002 and $724,242 were made to the
Limited Partners in 1998 and 1997, 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 $200,000 of proceeds from
property sales in 1997. 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, 1998 and 1997, the
Partnership recognized rental income of $639,164 and $540,414,
respectively. During the same periods, the Partnership earned
investment income of $43,304 and $113,822, respectively. In
1998, rental income increased as a result of the reinvestment of
net sale proceeds in additional properties discussed below. The
increase in rental income was partially offset by a decrease in
rental income from the property in Waco, Texas and a decrease in
investment income earned on the net proceeds prior to the
purchase of the additional properties.
The Partnership owns a 44.9042% interest in a restaurant
in Waco, Texas, which was previously closed. In June 1995, the
Partnership re-leased the restaurant to Tex-Mex Cocina of Waco,
L.C. The Lease Agreement had a primary term of eighteen months
with an annual rental payment of $24,248. In December, 1997, the
lessee elected not to exercise the renewal option in the lease.
The restaurant was closed and is listed 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.
As of December 31, 1997, based on an analysis of market
conditions in the area, it was determined the fair value of the
Partnership's interest in the Waco property was approximately
$314,400. In the fourth quarter of 1997, a charge to operations
for real estate impairment of $80,300 was recognized, which is
the difference between the book value at December 31, 1997 of
$394,700 and the estimated fair value of $314,400. The charge
was recorded against the cost of the land and building. In
December, 1998, the Partnership re-analyzed the market conditions
in the area and determined the fair value of the Partnership's
interest declined to approximately $126,000. In the fourth
quarter of 1998, a charge to operations for real estate
impairment of $180,000 was recognized, which is the difference
between the book value at December 31, 1998 of $306,000 and the
estimated fair value of $126,000. The charge was recorded
against the cost of the land and building.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
During the years ended December 31, 1998 and 1997, the
Partnership paid Partnership administration expenses to
affiliated parties of $105,990 and $103,929, 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 $31,492 and $17,853, 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 increase
in expenses in 1998, when compared to 1997, is mainly due to
expenses incurred in 1998 related to the Waco property.
As of December 3l, 1998, the Partnership's annualized cash
distribution rate was 7.5%, 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 1998, the Partnership's cash balances decreased
$831,350 mainly as a result of the reinvestment of net sale
proceeds in an additional property. Net cash provided by
operating activities decreased from $517,224 in 1997 to $511,756
in 1998.
The major components of the Partnership's cash flow from
investing activities are investments in real estate and proceeds
from the sale of real estate. In 1998 and 1997, the Partnership
generated cash flow from the sale of real estate of $-0- and
$1,301,342, respectively. During the same periods, the
Partnership expended $822,125 and $1,018,775, respectively, to
invest in real properties (inclusive of acquisition expenses) as
the Partnership reinvested the cash generated from the property
sales.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
On January 24, 1997, the Partnership sold the Children's
World daycare center in Moreno Valley, California, to an
unrelated third party. The Partnership recognized net sale
proceeds of $1,301,342, which resulted in a net gain of $655,641.
At the time of sale, the cost and related accumulated
depreciation of the property was $963,717 and $318,016,
respectively. As part of the sale proceeds, the Partnership
received a Promissory Note for $1,003,000. The Note bears
interest at a 10% rate. On April 23, 1997, the Partnership
received the principal balance and outstanding accrued interest
on the Note. Investment income earned on the Note was $24,456.
During 1997, the Partnership distributed $202,020 of the
net sale proceeds to the Limited and General Partners, which
represented a return of capital of $27.20 per Limited Partnership
Unit. The majority of the remaining proceeds were reinvested in
additional property.
On November 18, 1997, the Partnership purchased a 30.794%
interest in a Timber Lodge Steakhouse in St. Cloud, Minnesota for
$510,635. The property is leased to Timber Lodge Steakhouse,
Inc. under a Lease Agreement with a primary term of 20 years and
annual rental payments of $51,537. The remaining interests in
the property are owned by AEI Real Estate Fund XVII Limited
Partnership and AEI Institutional Net Lease Fund '93 Limited
Partnership, affiliates of the Partnership.
On December 23, 1997, the Partnership purchased a 26.05%
interest in a parcel of land in Troy, Michigan for $393,620. The
land is leased to Champps Entertainment, Inc. (Champps) under a
Lease Agreement with a primary term of 20 years and annual rental
payments of $27,553. Effective June 20, 1998, the annual rent
was increased to $41,330. Simultaneously with the purchase of
the land, the Partnership entered into a Development Financing
Agreement under which the Partnership advanced funds to Champps
for the construction of a Champps Americana restaurant on the
site. Initially, the Partnership charged interest on the
advances at a rate of 7.0%. Effective June 20, 1998, the
interest rate was increased to 10.50%. On September 3, 1998,
after the development was completed, the Lease Agreement was
amended to require annual rental payments of $133,356. The
Partnership's share of the total acquisition costs, including the
cost of the land, was $1,330,265. The remaining interests in the
property are owned by AEI Real Estate Fund XVII Limited
Partnership, AEI Real Estate Fund XVIII Limited Partnership and
AEI Net Lease Income & Growth Fund XIX Limited Partnership,
affiliates of the Partnership.
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 June, 1997, the Partnership distributed net sale
proceeds of $202,020 to the Partners as part of their regular
quarterly distribution. As a result, distributions during 1997
were higher than in 1998.
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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
During 1998, the Partnership did not redeem any Units from
the Limited Partners. In prior years, a total of twenty-one
Limited Partners redeemed 163.5 Units for $115,460. The
redemptions increase the remaining Limited Partners' ownership 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.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
The foregoing Management's Discussion and Analysis
contains various "forward looking statements" within the meaning
of federal securities laws which represent management's
expectations or beliefs concerning future events, including
statements regarding anticipated application of cash, expected
returns from rental income, growth in revenue, taxation levels,
the sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward
looking statements made by the Partnership, must be evaluated in
the context of a number of factors that may affect the
Partnership's financial condition and results of operations,
including the following:
<BULLET> Market and economic conditions which affect
the value of the properties the Partnership owns and
the cash from rental income such properties generate;
<BULLET> the federal income tax consequences of rental
income, deductions, gain on sales and other items and
the affects of these consequences for investors;
<BULLET> resolution by the General Partners of
conflicts with which they may be confronted;
<BULLET> the success of the General Partners of
locating properties with favorable risk return
characteristics;
<BULLET> the effect of tenant defaults; and
<BULLET> the condition of the industries in which the
tenants of properties owned by the Partnership operate.
ITEM 7. FINANCIAL STATEMENTS.
See accompanying Index to Financial Statements.
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors
Balance Sheet as of December 31, 1998 and 1997
Statements for the Years Ended December 31, 1998 and 1997:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
REPORT OF INDEPENDENT AUDITORS
To the Partners:
AEI Real Estate Fund XV Limited Partnership
St. Paul, Minnesota
We have audited the accompanying balance sheet of AEI REAL
ESTATE FUND XV LIMITED PARTNERSHIP (a Delaware limited
partnership) as of December 31, 1998 and 1997 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 XV Limited Partnership as of December 31,
1998 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Minneapolis, Minnesota Boulay, Heutmaker, Zibell & Co. P.L.L.P.
January 27, 1999 Certified Public Accountants
<PAGE>
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31
ASSETS
1998 1997
CURRENT ASSETS:
Cash and Cash Equivalents $ 108,619 $ 939,969
Receivables 29,698 15,446
----------- -----------
Total Current Assets 138,317 955,415
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 1,986,854 2,036,860
Buildings and Equipment 4,493,596 3,686,945
Construction in Progress 0 46,997
Property Acquisition Costs 0 67,523
Accumulated Depreciation (1,246,791) (1,120,795)
----------- -----------
Net Investments in Real Estate 5,233,659 4,717,530
----------- -----------
Total Assets $ 5,371,976 $ 5,672,945
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 28,932 $ 32,430
Distributions Payable 116,905 116,671
Deferred Income 15,480 15,480
----------- -----------
Total Current Liabilities 161,317 164,581
----------- -----------
DEFERRED INCOME - Net Of Current Portion 125,137 140,617
PARTNERS' CAPITAL (DEFICIT):
General Partners (12,606) (9,783)
Limited Partners, $1,000 Unit value;
7,500 Units authorized and issued;
7,337 outstanding in 1998 and 1997 5,098,128 5,377,530
----------- -----------
Total Partners' Capital 5,085,522 5,367,747
----------- -----------
Total Liabilities and Partners' Capital $ 5,371,976 $ 5,672,945
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 3l
1998 1997
INCOME:
Rent $ 639,164 $ 540,414
Investment Income 43,304 113,822
----------- -----------
Total Income 682,468 654,236
----------- -----------
EXPENSES:
Partnership Administration - Affiliates 105,990 103,929
Partnership Administration and Property
Management - Unrelated Parties 31,492 17,853
Depreciation 125,996 126,322
Real Estate Impairment 180,000 80,300
----------- -----------
Total Expenses 443,478 328,404
----------- -----------
OPERATING INCOME 238,990 325,832
GAIN ON SALE OF REAL ESTATE 0 655,641
----------- -----------
NET INCOME $ 238,990 $ 981,473
=========== ===========
NET INCOME ALLOCATED:
General Partners $ 2,390 $ 9,815
Limited Partners 236,600 971,658
----------- -----------
$ 238,990 $ 981,473
=========== ===========
NET INCOME PER LIMITED PARTNERSHIP UNIT
(7,337 and 7,349 weighted average Units outstanding
in 1998 and 1997, respectively) $ 32.25 $ 132.22
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 238,990 $ 981,473
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 125,996 126,322
Real Estate Impairment 180,000 80,300
Gain on Sale of Real Estate 0 (655,641)
Decrease in Receivables (14,252) (5,501)
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (3,498) 5,751
Decrease in Deferred Income (15,480) (15,480)
----------- -----------
Total Adjustments 272,766 (464,249)
----------- -----------
Net Cash Provided By
Operating Activities 511,756 517,224
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (822,125) (1,018,775)
Proceeds from Sale of Real Estate 0 298,342
Payments Received on Note Receivable 0 1,003,000
----------- -----------
Net Cash Provided By (Used For)
Investing Activities (822,125) 282,567
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Distributions Payable 234 (3,679)
Distributions to Partners (521,215) (731,558)
Redemption Payments 0 (8,705)
----------- -----------
Net Cash Used For
Financing Activities (520,981) (743,942)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (831,350) 55,849
CASH AND CASH EQUIVALENTS, beginning of period 939,969 884,120
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 108,619 $ 939,969
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Note Receivable Acquired in Sale of Property $ 0 $ 1,003,000
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND XV 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, 1996 $ (12,195) $ 5,138,732 $ 5,126,537 7,353.55
Distributions (7,316) (724,242) (731,558)
Redemption Payments (87) (8,618) (8,705) (17.00)
Net Income 9,815 971,658 981,473
---------- ----------- ----------- ----------
BALANCE, December 31, 1997 (9,783) 5,377,530 5,367,747 7,336.55
Distributions (5,213) (516,002) (521,215)
Net Income 2,390 236,600 238,990
---------- ----------- ----------- ----------
BALANCE, December 31, 1998 $ (12,606) $ 5,098,128 $ 5,085,522 7,336.55
========== =========== =========== ==========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) Organization -
AEI Real Estate Fund XV 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 called for a
subscription price of $1,000 per limited partnership unit,
payable on acceptance of the offer. The Partnership
commenced operations on October 3, 1986 when minimum
subscriptions of 1,300 Limited Partnership Units
($1,300,000) were accepted. On December 30, 1986, the
Partnership's offering terminated 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 the 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 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.
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(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 XV LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(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 may 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 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.
Real estate is recorded at the lower of cost or estimated
net realizable value. The Partnership compares 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 Partnership recognizes an impairment loss
by the amount by which the carrying amount of the
property exceeds the fair value of the property.
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.
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(2) Summary of Significant Accounting Policies - (Continued)
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.
The Partnership accounts for properties owned as tenants-
in-common with affiliated Partnerships and/or unrelated
third parties using the proportionate consolidation
method. Each tenant-in-common owns a separate, undivided
interest in the properties. Any tenant-in-common that
holds more than a 50% interest does not control decisions
over the other tenant-in-common interests. The financial
statements reflect only this Partnership's percentage
share of the properties' land, building and equipment,
liabilities, revenues and expenses.
(3) Related Party Transactions -
The Partnership owns a 44.9042% interest in the restaurant
in Waco, Texas and a 60% interest in the Fuddruckers
restaurant. The remaining interests in these properties are
owned by AEI Real Estate Fund XVI Limited Partnership, an
affiliate of the Partnership. The Partnership owns a 20%
interest in the Tractor Supply Company store. The remaining
interests in this property are owned by AEI Real Estate Fund
85-A Limited Partnership, an affiliate of the Partnership,
and an unrelated third party. The Partnership owns a
30.794% interest in the Timber Lodge Steakhouse. The
remaining interests in this property are owned by AEI Real
Estate Fund XVII Limited Partnership and AEI Institutional
Net Lease Fund '93 Limited Partnership, affiliates of the
Partnership, and an unrelated third party. The Partnership
owns a 26.05% interest in the Champps Americana restaurant.
The remaining interests in this property are owned by AEI
Real Estate Fund XVII Limited Partnership, AEI Real Estate
Fund XVIII Limited Partnership and AEI Net Lease Income &
Growth Fund XIX Limited Partnership, affiliates of the
Partnership.
AEI and AFM received the following compensation and
reimbursements for costs and expenses from the Partnership:
Total Incurred by the Partnership
for the Years Ended December 3l
1998 1997
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. $ 105,990 $ 103,929
======== ========
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(3) Related Party Transactions - (Continued)
Total Incurred by the Partnership
for the Years Ended December 3l
1998 1997
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. $ 31,492 $ 17,853
======== ========
c.AEI is reimbursed for all property acquisition
costs incurred by it in acquiring properties on
behalf of the Partnership. The amounts are net
of financing and commitment fees and expense
reimbursements received by the Partnership from
the lessees in the amount of $42,126 and $6,927
for 1998 and 1997, respectively. $ (32,464) $ 93,152
======== ========
The payable to AEI Fund Management, Inc. represents the
balance due for the services described in 3a, b and c. This
balance is non-interest bearing and unsecured and is to be
paid in the normal course of business.
(4) Investments in Real Estate -
The Partnership leases its properties to various tenants
through 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 20 years except for the JEMCARE property (10
years), the Tractor Supply Company store (14 years), and the
Arby's (15 years). The Leases have renewal options which
may extend the lease term an additional 9 to 15 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. 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.
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(4) Investments in Real Estate - (Continued)
The Partnership's properties are all commercial, single-
tenant properties. The Arby's restaurant was built in 1972
and extensively remodeled in 1987. The restaurant in Waco,
Texas was constructed in 1980 and enlarged in 1982 and 1983.
The JEMCARE Learning Center was constructed in 1986. The
Children's World Daycare Center and the Fuddruckers
restaurant were newly-constructed in 1987. The Partnership
acquired all of these properties during 1987 and 1988. The
Denny's restaurant and Tractor Supply Company store were
newly-constructed in 1995 and acquired in 1996. The Timber
Lodge Steakhouse was newly-constructed and acquired in 1997.
The Champps Americana restaurant was newly-constructed and
acquired in 1998. There have been no costs capitalized as
improvements subsequent to the acquisitions.
The cost of the properties and related accumulated
depreciation at December 31, 1998 are as follows:
Buildings and Accumulated
Property Land Equipment Total Depreciation
Children's World,
Franconia Hills, VA $ 165,952 $ 796,117 $ 962,069 $ 348,427
JEMCARE Learning Center,
Haltom City, TX 132,925 284,288 417,213 148,610
Arby's, Marshall, MI 120,499 465,926 586,425 215,395
Zapata's, Waco, TX 60,312 227,398 287,710 161,760
Fuddruckers, St. Louis, MO 593,703 544,593 1,138,296 256,032
Denny's, Greenville, TX 332,077 696,355 1,028,432 71,932
Tractor Supply Company,
Maryville, TN 40,267 179,138 219,405 18,619
Timber Lodge Steakhouse,
St. Cloud, MN 111,311 399,324 510,635 15,596
Champps Americana, Troy, MI 429,808 900,457 1,330,265 10,420
---------- ---------- ---------- ----------
$1,986,854 $4,493,596 $6,480,450 $1,246,791
========== ========== ========== ==========
On January 24, 1997, the Partnership sold the Children's
World daycare center in Moreno Valley, California, to an
unrelated third party. The Partnership recognized net sale
proceeds of $1,301,342, which resulted in a net gain of
$655,641. At the time of sale, the cost and related
accumulated depreciation of the property was $963,717 and
$318,016, respectively. As part of the sale proceeds, the
Partnership received a Promissory Note for $1,003,000. The
Note bears interest at a 10% rate. On April 23, 1997, the
Partnership received the principal balance and outstanding
accrued interest on the Note. Investment income earned on
the Note was $24,456.
During 1997, the Partnership distributed $202,020 of the net
sale proceeds to the Limited and General Partners which
represented a return of capital of $27.20 per Limited
Partnership Unit. The majority of the remaining proceeds
were reinvested in additional property.
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(4) Investments in Real Estate - (Continued)
On November 18, 1997, the Partnership purchased a 30.794%
interest in a Timber Lodge Steakhouse in St. Cloud,
Minnesota for $510,635. The property is leased to Timber
Lodge Steakhouse, Inc. under a Lease Agreement with a
primary term of 20 years and annual rental payments of
$51,537.
On December 23, 1997, the Partnership purchased a 26.05%
interest in a parcel of land in Troy, Michigan for $393,620.
The land is leased to Champps Entertainment, Inc. (Champps)
under a Lease Agreement with a primary term of 20 years and
annual rental payments of $27,553. Effective June 20, 1998,
the annual rent was increased to $41,330. Simultaneously
with the purchase of the land, the Partnership entered into
a Development Financing Agreement under which the
Partnership advanced funds to Champps for the construction
of a Champps Americana restaurant on the site. Initially,
the Partnership charged interest on the advances at a rate
of 7.0%. Effective June 20, 1998, the interest rate was
increased to 10.50%. On September 3, 1998, after the
development was completed, the Lease Agreement was amended
to require annual rental payments of $133,356. The
Partnership's share of the total acquisition costs,
including the cost of the land, was $1,330,265.
The Partnership owns a 44.9042% interest in a restaurant in
Waco, Texas, which was previously closed. In June 1995, the
Partnership re-leased the restaurant to Tex-Mex Cocina of
Waco, L.C. The Lease Agreement had a primary term of
eighteen months with an annual rental payment of $24,248.
In December, 1997, the lessee elected not to exercise the
renewal option in the lease. The restaurant was closed and
is listed 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.
As of December 31, 1997, based on an analysis of market
conditions in the area, it was determined the fair value of
the Partnership's interest in the Waco property was
approximately $314,400. In the fourth quarter of 1997, a
charge to operations for real estate impairment of $80,300
was recognized, which is the difference between the book
value at December 31, 1997 of $394,700 and the estimated
fair value of $314,400. The charge was recorded against the
cost of the land and building. In December, 1998, the
Partnership re-analyzed the market conditions in the area
and determined the fair value of the Partnership's interest
declined to approximately $126,000. In the fourth quarter
of 1998, a charge to operations for real estate impairment
of $180,000 was recognized, which is the difference between
the book value at December 31, 1998 of $306,000 and the
estimated fair value of $126,000. The charge was recorded
against the cost of the land and building.
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(4) Investments in Real Estate - (Continued)
The minimum future rental on the Leases for years subsequent
to December 31, 1998 are as follows:
1999 $ 680,629
2000 685,270
2001 658,697
2002 662,599
2003 666,577
Thereafter 6,002,149
-----------
$ 9,355,921
===========
In 1998 and 1997, the Partnership recognized contingent
rents of $30,861 and $14,697, respectively.
(5) Deferred Income -
In June, 1994, Fuddruckers, Inc., the restaurant concept's
franchisor, acquired the operations of the Fuddruckers
restaurant in St. Louis, Missouri, and assumed the lease
obligations from the original lessee. As part of the
agreement, the Partnership amended the Lease to reduce the
base rent from the current annual rent of $163,550 to
$138,246. The Partnership could receive additional rent in
the future if 10% of gross receipts from the property exceed
the base rent. In consideration for the lease assumption
and amendment, the Partnership received a lump sum payment
from the original lessee of $210,277. The lump sum payment
will be recognized as income over the remainder of the Lease
term, which expires January 31, 2008, using the straight
line method. As of December 31, 1998 and 1997, the
Partnership has recognized $69,660 and $54,180,
respectively, of this payment as income.
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(6) 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:
1998 1997
Tenants Industry
Fuddruckers Inc. Restaurant $ 153,727 $ 153,726
ARAMARK Educational
Resources, Inc. Child Care 144,562 150,892
Huntington Restaurants
Group, Inc. Restaurant 117,856 115,630
Champps Entertainment, Inc. Restaurant 65,027 N/A
---------- ----------
Aggregate rent revenue of major tenants $ 481,172 $ 420,248
========== ==========
Aggregate rent revenue of major tenants as
a percentage of total rent revenue 75% 78%
========== ==========
(7) Partners' Capital -
Cash distributions of $5,213 and $7,403 were made to the
General Partners and $516,002 and $724,242 were made to the
Limited Partners for the years ended December 31, 1998 and
1997, respectively. The Limited Partners' distributions
represent $70.33 and $98.55 per Limited Partnership Unit
outstanding using 7,337 and 7,349 weighted average Units in
1998 and 1997, respectively. The distributions represent
$32.25 and $98.55 per Unit of Net Income and $38.08 and $-0-
per Unit of return of contributed capital in 1998 and 1997,
respectively.
As part of the Limited Partner distributions discussed
above, the Partnership distributed $200,000 of proceeds from
property sales in 1997. The distributions reduced the
Limited Partners' Adjusted Capital Contributions.
Distributions of Net Cash Flow to the General Partners
during 1998 and 1997 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.
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(7) Partners' Capital - (Continued)
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 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 1998, the Partnership did not redeem any Units from
the Limited Partners. In 1997, two Limited Partners
redeemed a total of 17 Partnership Units for $8,618. The
Partnership acquired these Units using Net Cash Flow from
operations. The redemptions increase the remaining Limited
Partners' ownership 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
$938.68 per original $1,000 invested.
(8) 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:
1998 1997
Net Income for Financial
Reporting Purposes $ 238,990 $ 981,473
Depreciation for Tax Purposes
(Over) Under Depreciation for Financial
Reporting Purposes (1,337) 17,656
Income Accrued for Tax Purposes
Under Income for Financial
Reporting Purposes (15,480) (15,480)
Real Estate Impairment Loss
Not Recognized for
Tax Purposes 180,000 80,300
Gain on Sale of Real Estate for Tax Purposes
Under Gain for Financial Reporting Purposes 0 (3,377)
---------- ----------
Taxable Income to Partners $ 402,173 $1,060,572
========== ==========
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(8) 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:
1998 1997
Partners' Capital for
Financial Reporting Purposes $5,085,522 $5,367,747
Adjusted Tax Basis of Investments
in Real Estate Over Net Investments
in Real Estate for Financial
Reporting Purposes 412,509 233,846
Income Accrued for Tax Purposes
Over Income for Financial
Reporting Purposes 140,617 156,097
Syndication Costs
Treated as Reduction of Capital
for Financial Reporting Purposes 1,054,819 1,054,819
---------- ----------
Partners' Capital for
Tax Reporting Purposes $6,693,467 $6,812,509
========== ==========
(9) Fair Value of Financial Instruments -
The estimated fair values of the financial instruments, none
of which are held for trading purposes, are as follows at
December 31:
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash $ 250 $ 250 $ 205 $ 205
Money Market Funds 108,369 108,369 939,764 939,764
--------- --------- --------- ---------
Total Cash and
Cash Equivalents $ 108,619 $ 108,619 $ 939,969 $ 939,969
========= ========= ========= =========
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 54, 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 December, 1999. 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
Securities, Inc. (formerly 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 seventeen other limited
partnerships.
Mark E. Larson, age 46, is Executive Vice President,
Treasurer and Chief Financial Officer and has been elected to
continue in these positions until December, 1999. 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 December, 1999. 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.
The following table sets forth information pertaining to
the ownership of the Units by each person known by the
Partnership to beneficially own 5% or more of the Units, by each
General Partner, and by each officer or director of the Managing
General Partner as of February 28, 1998:
Name and Address Number of Percent
of Beneficial Owner Units Held of Class
AEI Fund Management 86-A, Inc. 3 *
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
Robert P. Johnson 0 0%
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
Mark E. Larson 11 *
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
* Less than 1%
The persons set forth in the preceding table hold sole voting
power and power of disposition with respect to all of the Units
set forth opposite their names. The General Partners know of no
holders of more than 5% of the outstanding Units.
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 Pages 21 and 22 and
is incorporated herein by reference, for details of related party
transactions.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND FORM 8-K/A.
A. Exhibits -
Description
10.1 Net Lease Agreement dated
January 10, 1996, between the Partnership
and Huntington Restaurants Group, Inc.
relating to the property at 3103 W. I-30,
Greenville, Texas (incorporated by
reference to Exhibit 10.1 of Form 8-K
filed with the Commission on January 17,
1996).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND FORM 8-K/A.
(Continued)
A. Exhibits -
Description
10.2 Assignment of Sale and
Leaseback Financing Commitment dated
November 17, 1997 between the Partnership
and AEI Fund Management, Inc. relating to
the sale and leaseback of a Timber Lodge
Steakhouse restaurant at 3590 Second
Street South, St. Cloud, Minnesota
(incorporated by reference to Exhibit
10.6 of Form 10-KSB filed with the
Commission on March 23, 1998).
10.3 Net Lease Agreement dated
November 18, 1997 between the
Partnership, AEI Real Estate Fund XVII
Limited Partnership, AEI Institutional
Net Lease Fund '93 Limited Partnership
and Timber Lodge Steakhouse, Inc.
relating to the property at 3590 Second
Street South, St. Cloud, Minnesota
(incorporated by reference to Exhibit
10.7 of Form 10-KSB filed with the
Commission on March 23, 1998).
10.4 Development Financing
Agreement dated December 23, 1997 between
the Partnership, AEI Net Lease Income &
Growth Fund XIX Limited Partnership, AEI
Real Estate Fund XVIII Limited
Partnership, AEI Real Estate Fund XVII
Limited Partnership and Champps
Entertainment, Inc. relating to the
property at 301 West Big Beaver Road,
Troy, Michigan (incorporated by reference
to Exhibit 10.8 of Form 10-KSB filed with
the Commission on March 23, 1998).
10.5 Net Lease Agreement dated
December 23, 1997 between the
Partnership, AEI Net Lease Income &
Growth Fund XIX Limited Partnership, AEI
Real Estate Fund XVIII Limited
Partnership, AEI Real Estate Fund XVII
Limited Partnership and Champps
Entertainment, Inc. relating to the
property at 301 West Big Beaver Road,
Troy, Michigan (incorporated by reference
to Exhibit 10.9 of Form 10-KSB filed with
the Commission on March 23, 1998).
10.6 First Amendment to Net
Lease Agreement dated September 3, 1998
between the Partnership, AEI Net Lease
Income & Growth Fund XIX Limited
Partnership, AEI Real Estate Fund XVIII
Limited Partnership, AEI Real Estate Fund
XVII Limited Partnership and Champps
Entertainment, Inc. relating to the
property at 301 West Big Beaver Road,
Troy, Michigan (incorporated by reference
to Exhibit 10.2 of Form 8-K filed with
the Commission on September 15, 1998).
27 Financial Data Schedule
for year ended December 31, 1998.
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 XV
Limited Partnership
By: AEI Fund Management 86-A, Inc.
Its Managing General Partner
March 12, 1999 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 12, 1999
Robert P. Johnson and Sole Director of Managing General
Partner
/s/ Mark E. Larson Executive Vice President, Treasurer March 12, 1999
Mark E. Larson and Chief Financial Officer
(Principal Accounting Officer)
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<NAME> AEI REAL ESTATE FUND XV LTD PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 108,619
<SECURITIES> 0
<RECEIVABLES> 29,698
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<CURRENT-ASSETS> 138,317
<PP&E> 6,480,450
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0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 5,470,576
<SALES> 0
<TOTAL-REVENUES> 682,468
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<INCOME-PRETAX> 238,990
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<INCOME-CONTINUING> 238,990
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