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, 1995
Commission file number: 0-16555
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer as Specified in its
Charter)
State of Minnesota 41-1571166
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1300 Minnesota World Trade Center, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(612) 227-7333
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Transitional Small Business Disclosure Format:
Yes No X
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Item 1. Balance Sheet as of September 30, 1995 and December 31, 1994
Statements for the Periods ended September 30, 1995 and 1994:
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>
<TABLE>
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
BALANCE SHEET
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(Unaudited)
ASSETS
<CAPTION>
1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash $1,746,900 $ 882,790
Receivables 70,548 65,157
---------- ----------
Total Current Assets 1,817,448 947,947
---------- ----------
INVESTMENTS IN REAL ESTATE:
Land 3,722,191 3,873,470
Buildings and Equipment 7,238,509 7,811,053
Accumulated Depreciation (2,289,229) (2,217,859)
---------- ----------
Net Investments in Real Estate 8,671,471 9,466,664
---------- ----------
Total Assets $10,488,919 $10,414,611
========== ==========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 73,709 $ 111,970
Distributions Payable 224,718 129,742
Current Portion of Contract Payable 65,385 38,698
Deferred Income 36,875 21,012
---------- ----------
Total Current Liabilities 400,687 301,422
---------- ----------
CONTRACT PAYABLE - Net of Current Portion 115,021 197,504
DEFERRED INCOME - Net of Current Portion 249,746 267,605
PARTNERS' CAPITAL (DEFICIT):
General Partners (31,963) (32,717)
Limited Partners, $1,000 Unit value;
15,000 Units authorized and issued;
14,226 Units outstanding 9,755,428 9,680,797
---------- ----------
Total Partners' Capital 9,723,465 9,648,080
---------- ----------
Total Liabilities and Partners' Capital $10,488,919 $10,414,611
========== ==========
<FN>
The accompanying Notes to Financial Statements are an
integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
9/30/95 9/30/94 9/30/95 9/30/94
<S> <C> <C> <C> <C>
INCOME:
Rent $ 270,063 $ 295,887 $ 817,262 $ 889,004
Investment Income 21,242 2,287 48,876 6,156
--------- --------- --------- ---------
Total Income 291,305 298,174 866,138 895,160
--------- --------- --------- ---------
EXPENSES:
Partnership Administration-Affiliates 55,317 56,331 172,654 182,159
Partnership Administration and Property
Management - Unrelated Parties 11,143 1,117,589 40,213 1,173,450
Interest Expense 3,970 11,249 12,713 36,416
Depreciation 78,260 89,434 242,656 268,301
--------- --------- --------- ---------
Total Expenses 148,690 1,274,603 468,236 1,660,326
--------- --------- --------- ---------
NET OPERATING INCOME (LOSS) 142,615 (976,429) 397,902 (765,166)
GAIN ON SALE OF REAL ESTATE 437,916 0 437,916 0
--------- --------- --------- ---------
NET INCOME (LOSS) $ 580,531 $ (976,429) $ 835,818 $(765,166)
========= ========= ========= =========
NET INCOME (LOSS) ALLOCATED:
General Partners $ 5,805 $ (19,529) $ 8,358 $ (15,303)
Limited Partners 574,726 (956,900) 827,460 (749,863)
--------- --------- --------- ---------
$ 580,531 $ (976,429) $ 835,818 $(765,166)
========= ========= ========= =========
NET INCOME (LOSS) PER
LIMITED PARTNERSHIP UNIT
(14,226 and 14,365 weighted average
Units outstanding in 1995 and 1994,
respectively) $ 40.40 $ (66.61) $ 58.17 $ (52.20)
======= ======= ======= =======
<FN>
The accompanying Notes to Financial Statements are an
integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
<CAPTION>
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 835,818 $ (765,166)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 242,656 268,301
Gain on Sale of Real Estate (437,916) 0
(Increase) Decrease in Receivables (5,391) 74,077
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (38,261) 244,036
Decrease in Contract Payable (55,796) 0
Decrease in Security Deposit 0 (15,361)
Increase (Decrease) in Deferred Income (1,996) 330,999
---------- ----------
Total Adjustments (296,704) 902,052
---------- ----------
Net Cash Provided by
Operating Activities 539,114 136,886
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 990,453 0
Decrease in Long-Term Receivables 0 392,287
---------- ----------
Net Cash Provided by
Investing Activities 990,453 392,287
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Distributions Payable 94,976 28,332
Distributions to Partners (760,433) (793,923)
Increase in Long-Term Debt 0 539,393
Decrease in Line of Credit 0 (263,000)
---------- ----------
Net Cash Used for
Financing Activities (665,457) (489,198)
---------- ----------
NET INCREASE IN CASH 864,110 39,975
CASH, beginning of period 882,790 52,210
---------- ----------
CASH, end of period $1,746,900 $ 92,185
========== ==========
<FN>
The accompanying Notes to Financial Statements are an
integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
<CAPTION>
General Limited
Partners Partners Total
<S> <C> <C> <C>
BALANCE, December 31, 1993 $(22,823) $10,660,295 $10,637,472
Distributions (7,939) (785,984) (793,923)
Net Loss (15,303) (749,863) (765,166)
----------- ------------ ------------
BALANCE, September 30, 1994 $(46,065) $9,124,448 $9,078,383
=========== ============ ============
BALANCE, December 31, 1994 $(32,717) $9,680,797 $9,648,080
Distributions (7,604) (752,829) (760,433)
Net Income 8,358 827,460 835,818
----------- ------------ ------------
BALANCE, September 30, 1995 $(31,963) $9,755,428 $9,723,465
=========== ============ ============
<FN>
The accompanying Notes to Financial Statements are an
integral part of this statement.
</TABLE>
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(Unaudited)
(1)The condensed statements included herein have been
prepared by the Partnership, without audit, 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 XVI Limited Partnership
(Partnership) was formed to acquire and lease
commercial properties to operating tenants. The
Partnership's operations are managed by AEI Fund
Management XVI, Inc. (AFM), the Managing General
Partner of the Partnership. Robert P. Johnson, the
President and sole shareholder of AFM, serves as the
Individual General Partner of the Partnership. An
affiliate of AFM, AEI Fund Management, Inc., performs
the administrative and operating functions for the
Partnership.
The terms of the Partnership offering call for a
subscription price of $1,000 per Limited Partnership
Unit, payable on acceptance of the offer. The
Partnership commenced operations on February 6, 1987
when minimum subscriptions of 2,000 Limited Partnership
Units ($2,000,000) were accepted. The Partnership's
offering terminated on November 6, 1987 when the
maximum subscription limit of 15,000 Limited
Partnership Units ($15,000,000) was reached.
Under the terms of the Limited Partnership Agreement,
the Limited Partners and General Partners contributed
funds of $15,000,000 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 XVI 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 XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3)Investments in Real Estate -
In May, 1990, Flagship, Inc. (Flagship), the lessee of
the J.T. McCord's properties, filed for reorganization,
after occupying the properties for approximately five
years. Flagship continued to operate the properties
while attempting to develop a plan of reorganization
which would be acceptable to the bankruptcy court and
its creditors. In 1992, it became apparent that
Flagship did not have the financial resources to
operate the properties in compliance with the leases.
In March, 1993, the Partnership, along with affiliated
Partnerships which also own J.T. McCord's properties,
filed its own plan of reorganization (the "Plan") with
the Court. That Plan provided for an assignee of the
Partnerships (a replacement tenant) to purchase the
assets of Flagship and operate the restaurants with
financial assistance from the Partnerships. This Plan
was expected to allow the Partnerships to avoid closing
these properties, allow operations to continue
uninterrupted, and avoid further costly litigation with
Flagship and its creditors. The Plan was confirmed by
the Court and the creditors April 16, 1993 and became
effective July 20, 1993. At that time, various claims
between Flagship and the Partnership were dismissed.
On April 21, 1993, the Partnership's assignee, WIM,
Inc. (WIM), took over management of the restaurants.
To entice WIM to operate the restaurants and enter into
the Lease Agreements, the Partnership provided funds to
renovate the restaurants and paid for operating
expenses. However, WIM was not able to operate the
properties profitably and was unable to make rental
payments as provided in the Lease Agreements. The
Partnership's share of renovation and operating
expenses during this period was $755,773 which was
expensed in the third quarter of 1994. To reduce
expenses and minimize the losses produced by these
properties, the Waco restaurant was closed and listed
for sale or lease and the Partnership amended the
agreements for the Irving and Mesquite locations to
provide for WIM to make annual rental payments of the
greater of $60,000 or 5.5% of sales beginning October
1, 1994.
As part of the transaction to redeem these properties
from the bankruptcy court action, the Partnerships,
which own these properties, are responsible for an
annual payment to the Creditors Trust of approximately
$110,000 for five years. This Partnership's share of
that annual payment is $69,702. The present value of
this obligation was recorded as a Contract Payable on
the accompanying Balance Sheet using a discount rate of
9%. In the third quarter of 1994, the Partnership
expensed $302,652 to record this liability and
administrative costs related to the bankruptcy.
The Partnership is negotiating with the trustee to
settle the outstanding amount due to the Creditors
Trust. The settlement will provide for a lump sum
payment of the minimum amount due over the remaining
term of the plan for release of the Partnership and WIM
from any other financial obligations and reporting
requirements to the trustee. The settlement is
expected to be completed in the fourth quarter of 1995.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
In June 1995, the Partnership re-leased the Waco
property to Tex-Mex Cocina of Waco, L.C. The Lease
Agreement has a primary term of eighteen months with an
annual rental payment of $29,752. The Partnership
could also receive additional rent if gross receipts
from the property exceed certain specified amounts.
The Lease contains renewal options which may extend the
lease term an additional 10 years. The property is now
operated as a Zapata's Cantina & Cafe.
In December, 1994, the lessee of the Applebee's
restaurant in Charleston, South Carolina, exercised an
option in the Lease Agreement to purchase the property.
On December 15, 1994, the sale closed with the
Partnership receiving net sale proceeds of $1,613,288
which resulted in a net gain of $691,525. At the time
of sale, the cost and related accumulated depreciation
of the property was $1,126,780 and $205,017,
respectively. A portion of the net sale proceeds was
used to pay off the bank note and satisfy the mortgage
on the property discussed in Note 7.
In March, 1995, the lessee of the Applebee's restaurant
in Columbia, South Carolina, exercised an option in the
Lease Agreement to purchase the property. On July 28,
1995, the sale closed with the Partnership receiving
net sale proceeds of $990,453 which resulted in a net
gain of $437,916. At the time of sale, the cost and
related accumulated depreciation of the property was
$723,823 and $171,286, respectively.
On October 25, 1995, the Partnership sold two of the
Jiffy Lube Auto Care Centers to the lessee. The
Partnership recognized net sale proceeds of
approximately $322,000, which resulted in a net gain of
approximately $80,000 for the Jiffy Lube in Garland,
Texas. The Partnership recognized net sale proceeds of
approximately $161,000, which resulted in a net gain of
approximately $35,000 for one of the Jiffy Lube's in
Dallas, Texas.
In 1995 and the fourth quarter of 1994, the Partnership
distributed $437,514 and $299,667, respectively, of the
net sale proceeds to the Partners as part of their
regular quarterly distributions and to pay for the
redemption of Partnership Units. The distributions
represented a return of capital of $30.44 and $20.85
per Limited Partnership Unit, respectively. The
majority of the remaining net proceeds will be
reinvested in additional properties.
In July 1995, the Partnership entered into an agreement
to sell the Super 8 Motel in Hot Springs, Arkansas, to
the lessee. The sale price for the Partnership's
interest in the property will be approximately
$680,000, which will result in a net gain of
approximately $220,000.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
The Partnership owns a 30.8078% interest in the Sizzler
restaurant in Cincinnati, Ohio. In November, 1992,
after reviewing the operating results of the lessee,
the Partnership agreed to amend the Lease Agreement of
the Sizzler restaurant. As of November, 1993, the
lessee was in default under the amended Lease
Agreement. After reviewing the lessee's operating
results, the Partnership determined that the lessee
would be unable to operate the restaurant in a manner
capable of maximizing the restaurant's sales.
Consequently, at the direction of the Partnership, a
multi-unit restaurant operator assumed operation of
this restaurant while the Partnership reviewed the
available options. In January, 1994, the Partnership
closed the restaurant and listed it for sale or lease.
While the property is being re-leased or sold, the
Partnership is responsible for the real estate taxes
and other costs required to maintain the properties.
The total amount of rent not collected in the first
nine months of 1995 and 1994 was $48,584 and $47,169,
respectively. These amounts were not accrued for
financial reporting purposes.
(4) Contract Payable -
Scheduled maturities of the contract payable, discussed
in Note 3 are as follows:
1996 $ 65,385
1997 59,987
1998 55,034
--------------
$ 180,406
==============
(5) 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.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Deferred Income -
In June, 1994, Fuddruckers, Inc., the restaurant
concept's franchisor, acquired the operations of the
Fuddruckers restaurants in St. Louis, Missouri and
Omaha, Nebraska, and assumed the lease obligations from
the original lessee. As part of the agreement, the
Partnership amended the Leases to reduce the base rent
from $109,033 to $92,164 for the St. Louis property and
$167,699 to $145,081 for the Omaha property. The
Partnership could receive additional rent in the future
if 10% of gross receipts from the properties exceed the
base rent. In consideration for the lease assumption
and amendment, the Partnership received a lump sum
payment from the original lessee of $299,723. The lump
sum payment will be recognized as income over the
remainder of the Lease terms which expire January 31,
2008 and November 30, 2007, using the straight line
method. As of September 30, 1995 and December 31,
1994, the Partnership had recognized $27,765 and
$11,106 of this payment as income. At September 30,
1995, the remaining deferred income of $14,663 was
prepaid rent related to certain other Partnership
properties.
(7)Long-Term Debt -
On January 31, 1994, the Partnership entered into a
five-year bank term Note for $570,287 with interest at
the prime rate plus one half percent. Proceeds from
the Note were advanced to WIM for renovation and other
restaurant costs related to the J.T. McCord's
properties. The Partnership provided a mortgage and a
Lease Assignment Agreement on the Applebee's restaurant
located in Charleston, South Carolina as collateral for
the loan. In the first six months of 1994, interest
expense on the Note was $15,208.
On December 15, 1994, a portion of the net proceeds
from the sale of the Applebee's property was used to
pay off the outstanding principal balance of the bank
note and satisfy the mortgage.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS
The Partnership's rental income is derived from long-
term lease agreements on the Partnership's properties. The
Partnership received $9,694 from the lessee of the Columbia
Applebee's as a result of an increase in restaurant sales
for the lease period ended July 28, 1995. During the first
nine months of 1995, pursuant to the Lease Agreements, the
monthly rent was increased for the following properties:
Property Effective Date Percentage Increase
Super 8 5/1/95 4.00%
Applebee's - Slidell 6/1/95 3.50%
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The Partnership acquired lease guarantee insurance
from United Guaranty Commercial Insurance Company of Iowa
for the three J.T. McCord's, the Columbia Applebee's, the
Houston, Texas child care center, and one of the Arlington,
Texas child care centers. The policies insure approximately
80% of the annual payments for periods of ten years for the
child care centers and a twelve month period (over seven
years) for the other properties. The rent guarantee begins
thirty days after the occurrence of all the following: (1)
the lessee is at least thirty days in default in the payment
of rent; (2) the lessee has been removed from the property;
(3) the property has been listed for rent with a real estate
broker and "For Rent" signs have been posted on the
property; and (4) certain other minor conditions. Once
these conditions have been satisfied, the Partnership will
receive lease insurance payments until either the property
is re-leased or the policy expires. On December 15, 1994,
the policies on the J.T. McCord's expired. On May 5, 1995,
the Applebee's policy expired.
In May, 1990, Flagship, Inc. (Flagship), the lessee
of the J.T. McCord's properties, filed for reorganization,
after occupying the properties for approximately five years.
Flagship continued to operate the properties while
attempting to develop a plan of reorganization which would
be acceptable to the bankruptcy court and its creditors. In
1992, it became apparent that Flagship did not have the
financial resources to operate the properties in compliance
with the leases. In March, 1993, the Partnership, along
with affiliated Partnerships which also own J.T. McCord's
properties, filed its own plan of reorganization (the
"Plan") with the Court. That Plan provided for an assignee
of the Partnerships (a replacement tenant) to purchase the
assets of Flagship and operate the restaurants with
financial assistance from the Partnerships. This Plan was
expected to allow the Partnerships to avoid closing these
properties, allow operations to continue uninterrupted, and
avoid further costly litigation with Flagship and its
creditors. The Plan was confirmed by the Court and the
creditors April 16, 1993 and became effective July 20, 1993.
At that time, various claims between Flagship and the
Partnership were dismissed. On April 21, 1993, the
Partnership's assignee, WIM, Inc. (WIM), took over
management of the restaurants.
To entice WIM to operate the restaurants and enter
into the Lease Agreements, the Partnership provided funds to
renovate the restaurants and paid for operating expenses.
However, WIM was not able to operate the properties
profitably and was unable to make rental payments as
provided in the Lease Agreements. The Partnership's share
of renovation and operating expenses during this period was
$755,773 which was expensed in the third quarter of 1994.
To reduce expenses and minimize the losses produced by these
properties, the Waco restaurant was closed and listed for
sale or lease and the Partnership amended the agreements for
the Irving and Mesquite locations to provide for WIM to make
annual rental payments of the greater of $60,000 or 5.5% of
sales beginning October 1, 1994.
As part of the transaction to redeem these properties
from the bankruptcy court action, the Partnerships, which
own these properties, are responsible for an annual payment
to the Creditors Trust of approximately $110,000 for five
years. This Partnership's share of that annual payment is
$69,702. In the third quarter of 1994, the Partnership
expensed $302,652 to record this liability and
administrative costs related to the bankruptcy.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The Partnership is negotiating with the trustee to
settle the outstanding amount due to the Creditors Trust.
The settlement will provide for a lump sum payment of the
minimum amount due over the remaining term of the plan for
release of the Partnership and WIM from any other financial
obligations and reporting requirements to the trustee. The
settlement is expected to be completed in the fourth quarter
of 1995.
On January 31, 1994, the Partnership entered into a
five-year bank term Note for $570,287 with interest at the
prime rate plus one half percent. Proceeds from the Note
were advanced to WIM for renovation and other restaurant
costs. The Partnership provided a mortgage and a Lease
Assignment Agreement on its Applebee's restaurant in
Charleston, South Carolina as collateral for the loan. In
the first nine months of 1994, interest expense on the Note
was $26,457.
In June 1995, the Partnership re-leased the Waco
property to Tex-Mex Cocina of Waco, L.C. The Lease
Agreement has a primary term of eighteen months with an
annual rental payment of $29,752. The Partnership could
also receive additional rent if gross receipts from the
property exceed certain specified amounts. The Lease
contains renewal options which may extend the lease term an
additional 10 years. The property is now operated as a
Zapata's Cantina & Cafe.
In December, 1994, the lessee of the Applebee's
restaurant in Charleston, South Carolina, exercised an
option in the Lease Agreement to purchase the property. On
December 15, 1994, the sale closed with the Partnership
receiving net sale proceeds of $1,613,288 which resulted in
a net gain of $691,525. At the time of sale, the cost and
related accumulated depreciation of the property was
$1,126,780 and $205,017, respectively. A portion of the net
sale proceeds was used to pay off the bank note and satisfy
the mortgage on the property discussed above.
In March, 1995, the lessee of the Applebee's
restaurant in Columbia, South Carolina, exercised an option
in the Lease Agreement to purchase the property. On July
28, 1995, the sale closed with the Partnership receiving net
sale proceeds of $990,453 which resulted in a net gain of
$437,916. At the time of sale, the cost and related
accumulated depreciation of the property was $723,823 and
$171,286, respectively.
On October 25, 1995, the Partnership sold two of the
Jiffy Lube Auto Care Centers to the lessee. The Partnership
recognized net sale proceeds of approximately $322,000,
which resulted in a net gain of approximately $80,000 for
the Jiffy Lube in Garland, Texas. The Partnership
recognized net sale proceeds of approximately $161,000,
which resulted in a net gain of approximately $35,000 for
one of the Jiffy Lube's in Dallas, Texas.
In 1995 and the fourth quarter of 1994, the
Partnership distributed $437,514 and $299,667, respectively,
of the net sale proceeds to the Partners as part of their
regular quarterly distributions and to pay for the
redemption of Partnership Units. The distributions
represented a return of capital of $30.44 and $20.85 per
Limited Partnership Unit, respectively. The majority of the
remaining net proceeds will be reinvested in additional
properties.
In July 1995, the Partnership entered into an
agreement to sell the Super 8 Motel in Hot Springs,
Arkansas, to the lessee. The sale price for the
Partnership's interest in the property will be approximately
$680,000, which will result in a net gain of approximately
$220,000.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The Partnership owns a 30.8078% interest in the
Sizzler restaurant in Cincinnati, Ohio. In November, 1992,
after reviewing the operating results of the lessee, the
Partnership agreed to amend the Lease Agreement of the
Sizzler restaurant. As of November, 1993, the lessee was in
default under the amended Lease Agreement. After reviewing
the lessee's operating results, the Partnership determined
that the lessee would be unable to operate the restaurant in
a manner capable of maximizing the restaurant's sales.
Consequently, at the direction of the Partnership, a multi-
unit restaurant operator assumed operation of this
restaurant while the Partnership reviewed the available
options. In January, 1994, the Partnership closed the
restaurant and listed it for sale or lease. While the
property is being re-leased or sold, the Partnership is
responsible for the real estate taxes and other costs
required to maintain the properties. The total amount of
rent not collected in the first nine months of 1995 and 1994
was $48,584 and $47,169, respectively. These amounts were
not accrued for financial reporting purposes.
In June, 1994, Fuddruckers, Inc., the restaurant
concept's franchisor, acquired the operations of the
Fuddruckers restaurants in St. Louis, Missouri and Omaha,
Nebraska, and assumed the lease obligations from the
original lessee. As part of the agreement, the Partnership
amended the Leases to reduce the base rent from $109,033 to
$92,164 for the St. Louis property and $167,699 to $145,081
for the Omaha property. The Partnership could receive
additional rent in the future if 10% of gross receipts from
the properties exceed the base rent. In consideration for
the lease assumption and amendment, the Partnership received
a lump sum payment from the original lessee of $299,723.
The lump sum payment will be recognized as income over the
remainder of the Lease terms which expire January 31, 2008
and November 30, 2007, using the straight line method.
Fuddruckers, Inc. is owned by DAKA International, which has
a net worth in excess of $31 million, making it a much
higher credit lessee than the original lessee.
During the first nine months of 1995 and 1994, the
Partnership incurred Partnership administration and property
management expenses from unrelated parties of $40,213 and
$1,173,450, respectively. These expenses represent direct
payments to third parties for legal and filing fees, direct
administrative costs, outside audit and accounting costs,
interest, taxes, insurance and other property costs. These
expenses were higher in 1994, when compared to the same
periods in 1995, due to the J.T. McCord's situation
discussed above. The Partnership administration expenses
incurred from affiliates include costs associated with the
management of the properties, processing distributions,
reporting requirements and correspondence to the Limited
Partners.
As of September 30, 1995, the Partnership's
annualized cash distribution rate was 7%, 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.
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 and in no event, obligated to purchase Units if such
purchase would impair the capital or operation of the
Partnership.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
On October 1, 1995, twelve Limited Partners redeemed
a total of 118 Partnership Units for $79,774 in accordance
with the Partnership Agreement. The Partnership acquired
these Units using Net Cash Flow from operations. In prior
years, a total of sixty-five Limited Partners redeemed 774.3
Partnership Units for $635,881. The redemptions increase
the remaining Limited Partners' ownership interest in the
Partnership.
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.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
There are no material pending legal proceedings to
which the Partnership is a party or of which the
Partnership's property is subject.
ITEM 2.CHANGES IN SECURITIES
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5.OTHER INFORMATION
None.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -
Description
27 Financial Data Schedule for period ended
September 30, 1995.
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 10, 1995 AEI Real Estate Fund XVI
Limited Partnership
By: AEI Fund Management XVI,Inc.
Its: Managing General Partner
By: /s/ Robert P. Johnson
Robert P. Johnson
President
By: /s/ Mark E. Larson
Mark E. Larson
Chief Financial Officer
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<NAME> AEI REAL ESTATE FUND XVI LTD PARTNERSHIP
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<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
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<INCOME-PRETAX> 835,818
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