SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
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AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
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[X] No fee required.
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1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount Previously Paid:
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AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
CONSENT STATEMENT
For Amendments to Limited Partnership Agreement to Permit
Reinvestment of Sales Proceeds and Change Unit Repurchase Provisions
THIS CONSENT STATEMENT IS BEING MAILED TO INVESTORS ON OR ABOUT
DECEMBER 15, 1997. TO BE COUNTED, A PROPERLY SIGNED CONSENT FORM
MUST BE RECEIVED BY THE MANAGING GENERAL PARTNER AT 1300 MINNESOTA
WORLD TRADE CENTER, 30 EAST 7TH STREET, ST. PAUL, MINNESOTA 55101,
ON OR BEFORE JANUARY 30, 1998.
AEI Fund Management XVI, Inc., the Managing General Partner,
and Robert P. Johnson, the Individual General Partner (together, the
"General Partners") of AEI Real Estate Fund XVI Limited Partnership
(the "Fund") are recommending two amendments (the "Amendments") to
the Fund's Limited Partnership Agreement (the "Fund Agreement"):
(a) An amendment to change Section 5.4 of the Fund
Agreement (the "Reinvestment Amendment") to allow proceeds
from sale of Fund properties to be reinvested in replacement
properties until final liquidation of the Fund. The Fund
Agreement currently requires that reinvestments end November
6, 1997.
(b) An amendment to Section 7.7 of the Fund Agreement (the
"Repurchase Amendment") to allow Unit repurchases to occur
more frequently (quarterly) and to allow the Managing
General Partner to establish a repurchase price that will be
higher than the repurchase price under the current formula.
The General Partners believe that the Fund should be able to
take advantage of property sales, when available at attractive
prices, without depleting the capital base of the Fund. Approval of
the Reinvestment Amendment would allow the Managing General Partner
to continue to reinvest proceeds from the sale of properties in
replacement properties until final liquidation of the Fund. The
General Partners also believe that the Fund's current formula for
determining the purchase price of Units no longer reflects the
market value of Units, and that Investors should be permitted to
present Units for repurchase more frequently than once per year.
Approval of the Repurchase Amendment would provide an alternate
valuation formula that the General Partners believe more accurately
reflects the pricing of Units in the secondary market. Accordingly,
THE GENERAL PARTNERS RECOMMEND A VOTE "FOR" BOTH PROPOSED
AMENDMENTS.
THE PROPOSED AMENDMENTS WILL AFFECT YOUR INVESTMENT IN THE FUND
IN A NUMBER OF WAYS AND INVOLVE A NUMBER OF RISKS THAT ARE DISCUSSED
IN MORE DETAIL UNDER THE CAPTION SUMMARY--RISKS OF THE AMENDMENTS,
INCLUDING THE FOLLOWING:
If the Reinvestment Amendment is approved:
bullet Distributions of some sales proceeds will be delayed.
bullet The reinvestments could cause extension of the life of the
Fund.
bullet The interests of the General Partners in approval of the
Reinvestment Amendment may conflict with the interests of
Investors.
bullet Properties in which proceeds are reinvested will be subject
to many of the same risks of nonperformance as the original
properties.
bullet Investors will not be able to review in advance the
properties in which proceeds are reinvested.
If the Repurchase Amendment is approved:
bullet Limitations in the Fund Agreement on the number of Units
that will be repurchased will not be changed and there may
be circumstances under which Fund cannot, or is obligated
not to, make repurchases.
bullet Distributions to investors may decrease during the years of
repurchase.
bullet There can be no assurance that the new formula price will
pay an Investor the market value of the Units.
INVESTORS WILL NOT HAVE APPRAISAL OR DISSENTERS RIGHTS AND
THEREFORE WILL NOT HAVE THE RIGHT TO REQUIRE THE FUND TO PAY THEM
THE VALUE OF THEIR UNITS OF LIMITED PARTNER INTEREST IF THEY
DISAGREE WITH THE PROPOSED AMENDMENTS.
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SUMMARY
The following summary is qualified by the more detailed discussion
set forth herein.
The Amendments
The General Partners are proposing an amendment to Section
5.4 of the Fund Agreement (the "Reinvestment Amendment"). The
Reinvestment Amendment will eliminate the requirement that the
Fund distribute all proceeds from sale of properties and allow
reinvestment of such proceeds until final liquidation of the Fund.
Even if the Reinvestment Amendment is approved, however, most, if
not all, gain from sales activity would continue to be distributed
to Investors. The Reinvestment Amendment is intended primarily to
allow the Fund to reinvest the portion of sales proceeds that
constitutes the original investment in a property, while
distributing the "gain" (the excess of sales proceeds over the
original investment). Because the portion of proceeds
representing the original investment will be reinvested,
distributions of sales proceeds will initially decrease if the
Reinvestment Amendment is approved and will be delayed until
liquidation of the Partnership. See "Reasons for and Effects of
the Amendments--Reinvestment Amendment."
The General Partners are also proposing an amendment to
Section 7.7 of the Fund Agreement (the "Repurchase Amendment").
The Repurchase Amendment will provide an alternative formula for
valuation of Units of limited partner interest in the Fund for
purposes of the Fund Agreement's Unit repurchase provisions. The
Repurchase Amendment is intended to increase the repurchase price
over the existing formula, but the existing formula will remain as
an alternative, and Investors will be entitled to the higher price
yielded by either formula. The Repurchase Amendment will also
increase the frequency of presentment opportunities from once per
year to quarterly, commencing in calendar 1998. See "Reasons For
and Effects of the Amendments--Repurchase Amendment."
Reasons for the Amendments
The Fund may sell properties prior to final liquidation of
the Fund due to favorable market conditions, exercise of lease
purchase options, tenant restructuring or other reasons. Although
the General Partners cannot guarantee returns, they believe that
the Fund can generate favorable returns to Investors through the
acquisition of additional properties that can be resold. They
believe that the Fund should be in a position to reinvest the
proceeds from these and other sales into replacement net leased
properties.
The General Partners believe that the current formula for
determining the purchase price of Units under Section 7.7 of the
Fund Agreement no longer reflects a Unit valuation that closely
approximates market value. The current formula bases the
repurchase price on the initial capital contribution of an
investor less 50% of distributions to the investor. The new
formula will provide an alternate valuation based on 90% of the
"net value" of the Fund, after taking into account the market
value of units, the present value of future net cash flow from the
Fund and such other factors as the General Partners may apply.
The provisions of Section 7.7, as proposed to be amended, will
provide that the formula yielding the highest value will control.
In addition, the new provisions will provide for the repurchase of
Units quarterly rather than once per year, thus increasing, to a
limited extent, the liquidity of an investment in the Units.
Benefits to Insiders
The General Partners may benefit from the Reinvestment
Amendment in several respects. If the Reinvestment Amendment is
approved, the Fund will retain more properties under management
and the General Partners will receive more reimbursements from the
Fund. Further, to the extent funds are reinvested and properties
perform well, the likelihood that the General Partners will
receive a higher percentage of cash flow may be increased. See
"Reasons for the Amendments--The Reinvestment Amendment--Interests
of the General Partners."
Voting/Units Held by General Partners
Each Amendment will require the affirmative vote of holders
of a majority of the outstanding Units. There were 13,879.40 Units
outstanding at December 1, 1997. The General Partners and their
affiliates held a total of 18 Units as of such date and intend to
vote all such Units in favor of the Amendments. See "Unit
Ownership of Principal Holders and General Partners."
-3-
Risks of the Amendments
Reinvestment Amendment:
1.Deferred Cash Distributions. Rather than distributing all
net cash proceeds on sale of a property, the Reinvestment
Amendment will allow the Fund (if the General Partners
determine, in their discretion, that it is advantageous to
the Fund) to reinvest such proceeds in new properties
(subject to a continuing obligation to distribute to
Investors cash proceeds adequate to pay the income tax
liability generated by sales of property). The
distribution of cash that is reinvested will be delayed
until the Fund is finally liquidated.
2.Risk of Extension of Fund Life. The General Partners
intend to reinvest sales proceeds in new properties that
could be sold again within a few years. The Reinvestment
Amendment could render more difficult the final sale of
properties within the original intended life of the Fund.
The General Partners intend to commence liquidation of the
Fund by the year 2001, although the sale of any particular
property may be delayed based on market and other
conditions. The Reinvestment Amendment could have the
effect of extending the life of the Fund for several years
and delaying the ultimate distribution of its assets. The
Fund Agreement provides that the Fund must be liquidated,
in any event, by the year 2038 (an arbitrary date).
3.Real Estate Risks on Reinvestment. Proceeds will be
reinvested in new triple net leased commercial properties
that are subject to the same risks of performance as the
properties originally acquired by the Fund. The value of
real estate is subject to a number of factors beyond the
control of the Fund, including national economic
conditions, changes in interest rates, governmental rules
and regulations and competition from other forms of
financing. If adverse changes in these general conditions
negatively affect market value, the final disposition of
the property and the distribution of cash to Investors may
be delayed or the disposition may result in a loss, or
both. The value of properties in which the Fund will
invest will be affected by the financial condition of the
tenant. If a tenant is unable to perform its lease
obligations, the Fund may not be able to sell the property
or may be forced to sell the property at a loss. Further,
in the event of a bankruptcy of a tenant, the Fund might
not be able to obtain possession of the property for a
considerable period of time. See "Reasons For and Effects
of the Amendments--Repurchase Amendment."
4.Undesignated Properties. Investors will not be able to
review in advance the properties in which proceeds would
be reinvested.
5.Conflicts of Interest. The interests of the General
Partners in proposing the Reinvestment Amendment conflict
with those of Investors because the General Partners will
receive more reimbursements from the Fund if proceeds are
reinvested than they will if proceeds are not reinvested.
The Managing General Partner is reimbursed at its cost,
which costs includes a portion of salaries of its
personnel and other overhead, for services it provides to
the Fund. Such Reimbursements will decrease if cash is
distributed and fewer properties are under management in
the Fund. See "Reasons For and Effects of the
Amendments--Reinvestment Amendment--Interests of the General
Partner in the Reinvestment Amendment."
Repurchase Amendment:
1.Limitation on Repurchases. The Fund is not required to
repurchase in any calendar year Units aggregating in
excess of 5% of the Units outstanding in such year, and is
not required to repurchase Units if doing so would impair
the Fund's ability to continue operations. The Repurchase
Amendment will not alter these limitations. There may be
circumstances under which Fund revenues and borrowings are
insufficient to fully fund such repurchases.
-4-
2.Valuation of Units. Although the Fund's management
believes that the new alternative repurchase price formula
will generally yield a higher Unit price than the existing
formula, and Investors will be entitled to the higher
repurchase price determined under either formula, there is
no assurance that either formula price will pay an
Investor the market value of the Investor's Units. The
repurchase price will be based on the value of the Fund's
assets under the new formula, which will in turn be based
on a number of factors that are somewhat judgmental. To
the extent the General Partners overvalue the Units that
are repurchased through such formula, the remaining
Investors and the General Partners will be disadvantaged.
3.Effects on Distributions. The Fund will repurchase Units
out of capital available for distribution and the
Partnership interests represented by the repurchased Units
will effectively be allocated among, and will increase the
percentage interests of, remaining partners. To the
extent that the amendment causes more Units to be
repurchased, it may, in the short-term, decrease the
amount of distributions to Investors.
General:
No Appraisal Rights. Investors will not have appraisal or
dissenters rights as a result of the Amendments. Accordingly,
Investors that disagree with the Amendments will not have the
right to require the Fund to pay out the value of their Units of
limited partnership interest. Instead, the Amendments will be
effective with respect to all Investors if approved by holders of
a majority of the Units and a dissenting Investor would be
required to find a different method of disposing of his or her
units, such as through the Fund's repurchase plan, or to hold his
or her units until liquidation of the Fund.
REASONS FOR AND EFFECTS OF THE AMENDMENTS
Reinvestment Amendment
General. If Investors approve the Reinvestment Amendment,
the Fund will have the opportunity, upon the sale or other
disposition of properties such as the properties described below,
to reinvest the Net Proceeds of Sale in additional triple net
leased properties. Under the terms of the Fund Agreement as
amended in 1992, the Net Proceeds of Sale from the sale of
properties cannot be reinvested after November 6, 1997. By
consenting to the Reinvestment Amendment, Investors would permit
the Fund to acquire new properties with the Net Proceeds of Sale
from the sale of the properties (net of any distributions to
Investors) that occur prior to the final liquidation of the Fund.
Because proceeds will be reinvested, distributions of sales
proceeds will be decreased until further liquidation of the
properties in which the proceeds are reinvested, or until
liquidation of the Fund.
The Reinvestment Amendment is not intended to extend the life
of the Fund. The Prospectus pursuant to which the Units were sold
indicated that the General Partners expected that most of the
properties would be sold or refinanced eight to twelve years after
acquisition. The Fund properties described below were acquired in
1987, 1988 and 1990 and it remains the intention of the General
Partners to commence liquidation of the Fund, depending on market
conditions and the benefits of continued ownership, by the year
2001.
The Reinvestment Amendment is being proposed for a number of
reasons, including the following:
bullet Without the Reinvestment Amendment, the Managing General
Partner will be required to forgo all attractive proposals
it receives to sell Fund properties if it desires to avoid
depleting the Fund's capital base.
bullet If the Reinvestment Amendment is approved, the Fund will
be able to (i) take advantage of any favorable purchase
proposals that are presented, (ii) seek out such proposals
when market conditions are favorable, and (iii) retain
adequate capital in the Fund to work toward the Fund's
investment objectives.
-5-
bullet Without the Reinvestment Amendment, if a property is sold
prior to final liquidation of the Fund, the Fund's capital
base, and therefore its ability to generate the level of
return that was the objective when it was formed, will be
reduced.
bullet If the Reinvestment Amendment is approved, cash proceeds
from the sale of a property may be reinvested in a new
property and, subject to the same risks of real estate
investment that were assumed when the Fund was formed,
such new property could generate continuing cash flow from
rents and potential gain on sale.
bullet Without the Reinvestment Amendment, an Investor wishing to
apply distributed sales proceeds (which constitute a
return of a portion of the Investor's original investment
in the Fund) to a similar investment such as an AEI fund
would be forced to purchase units in a new fund with
distributed cash. Real estate funds are initially offered
subject to sales commissions and organization expense that
decrease the amount invested in properties and, therefore,
the asset base that generates income and gain on an
investment.
bullet If the Reinvestment Amendment is approved, no securities
brokerage commissions or other organizational expense will
be applied to the reinvestment in new properties of cash
from sale of properties.
The Fund incurs a significant amount of organization and
syndication expense at formation. The General Partners believe
that the Fund can generate the most favorable returns to Investors
only if the costs of forming the Fund, including commissions to
sales agents, filing fees and professional costs, can be amortized
against cash flow (primarily rents) from operation of all
properties over the intended life of the Fund (10 to 12 years
after purchase of properties). If a significant portion of the
real property assets of the Fund are sold in advance of the
originally intended liquidation date of the Fund, the income and
gain, if any, for the assets remaining may not be adequate to
generate the returns that were the original objective of the Fund.
The General Partners believe, based on recent investments in
and resales of properties by other real estate funds affiliated
with the General Partners, that the Fund can generate favorable
returns through the investment of sale proceeds in newly
constructed replacement properties that the Fund purchases at
construction cost and resells within a few years. When a fund
commits to purchase a property upon completion of construction it
reduces the developer's refinancing risk and facilitates the
construction of properties for operators, such as franchisees of
restaurants, whose principal goal is not real estate capital
appreciation. Because the property is purchased at construction
cost, the risk of development and construction, for which the
developer is normally compensated, inures to the benefit of the
Fund--the market value of properties when purchased will normally
exceed the cost of development. Because no securities brokerage
commissions will be paid in connection with capital that is
reinvested, the entire amount of reinvested proceeds can be
applied to the purchase price and acquisition expense and no
additional organizational costs that will affect overall return
will be incurred. No assurances can be given, however, that a new
property acquired by the Fund will produce favorable rentals, that
such rentals will not be interrupted by events outside the
Managing General Partner's control, or that the market value of
any properties acquired will exceed their cost immediately after
acquisition or within the several years the Fund proposes to hold
the properties.
The Managing General Partner is currently evaluating a number
of properties for acquisition. Affiliates of the General Partners
have managed 13 public and 11 private real estate funds. As a
result of their activity in the sale-leaseback marketplace, the
General Partners have developed relationships with companies that,
either directly or through their franchisees, have a continuing
need for commercial real estate. The Managing General Partner
will not be obligated to obtain the consent of Investors as to the
type of property acquired if the Reinvestment Amendment is
approved. Nevertheless, any property acquired will comply with
the investment objectives and policies set forth in the Prospectus
pursuant to which the Units were initially offered. Any property
acquired will be an existing commercial property that will be
acquired on a debt-free basis and will likely be leased to a
single tenant pursuant to a triple net lease. No property will be
acquired from the General Partners or their affiliates.
-6-
Sales of Properties. The Reinvestment Amendment is being
proposed at this time to facilitate reinvestment of the net
proceeds from possible sales of properties after November 6, 1997.
Although much of the proceeds have been distributed, the Fund has
retained some of the proceeds from the eight properties described
below. The sales price and certain information about the gain
generated by such sales is set forth below:
<TABLE>
<CAPTION>
Applebee's Applebee's Jiffy Lube Jiffy Lube Sizzler Super 8
Charleston, SC Columbia, SC Dallas, TX Garland, TX Cincinnati, OH Hot Springs, AK
<S> <C> <C> <C> <C> <C> <C>
Purchase date 11/19/87 5/6/88 12/10/87 12/10/87 1/30/90 4/11/88
Percentage of Total(1) 100% 58.12% 25% 50% 30.81% 50%
Ownership Interest
Sale date 12/15/94 7/28/95 10/25/95 10/25/95 1/23/97 3/29/96
Sales price $ 1,626,781 $ 1,018,031 $ 162,500 $ 325,000 $ 158,660 $ 680,000
Selling expenses 13,494 27,578 1,282 2,558 9,459 16,614
Basis(2)
Book 921,762 552,537 125,513 241,943 365,501 448,369
Tax 935,628 568,603 128,325 248,096 367,890 464,919
Gain (loss)
Book 691,525 437,916 35,705 80,499 (216,300) 215,017
Tax 677,659 421,850 32,893 74,346 (218,689) 198,467
Tax gain (loss)
per unit 47 29 2 5 (15) 14
</TABLE>
(1) The Fund owns partial interests in title to certain of the
properties, as indicated. The remaining interest was purchased
by an affiliated real estate fund managed by the General
Partners.
(2) Purchase price less depreciation.
The Fund purchased the Charleston Applebee's restaurant
property in November 1987 and the Columbia property in May 1988.
Both of the Applebee's were newly constructed properties purchased
upon completion of construction and leased under 20-year triple
net leases to Apple South, Inc. simultaneous with the purchases.
Each of the leases included an option to Apple South, Inc. to
purchase the properties commencing in the seventh lease year at a
price equal to the greater of fair market value or an increase of
5% per year over the original purchase price. Apple South, Inc.
exercised the option with respect to both properties in 1995. The
sale price listed in the table above represents the contractual
purchase price based on the 5% escalation.
The two Jiffy Lube auto care centers listed above were
purchased by the Fund in December 1987 and leased, under a 20 year
triple-net lease, to Jiffy Lube International of Maryland, Inc.
Although the lease did not specifically provide a repurchase
option to the lessee, the Fund negotiated and completed a sale of
these properties to the lessee in October 1995.
The Super 8 Motel was purchased by the Fund in April 1988 and
simultaneously leased to Motel Developers, Inc. The lease
included an option to purchase the property, which was exercised
by the lessee in July 1995. Although the sale closed in March
1996, a portion of the gain on sale was recognized in 1995 based
on receipt in that year of nonrefundable deposits in connection
with the sale.
-7-
The Sizzler Restaurant was purchased by the Fund in January
1990 and simultaneously leased to Triple S Restaurants, Inc. In
January 1994, the restaurant was closed and listed for re-lease or
sale. In December 1996, the Fund accepted an offer from an
unaffiliated party to purchase the property at a price below the
Fund's basis. The offer was accepted after a review of the market
conditions in the area and the property management costs
associated with continuing to seek a new tenant for the property,
and the sale was completed in January 1997.
The Fund has distributed an aggregate of $1,755,800 ($ 122.85
per Unit) from the proceeds of these sales to cover the tax
liability of partners generated by the gains on sale. These
distributions of Net Proceeds on Sale, in the aggregate, reduced
the Adjusted Capital Contributions of Investors by $122.85 per
outstanding Unit.
In January 1996, the Fund also received $406,892 of insurance
proceeds, net of demolition and other costs, resulting from the
destruction by fire of a restaurant property in Indianapolis,
Indiana. These proceeds resulted in recognition of $88,207 of net
gain by the Fund. The Fund currently does not intend to rebuild
the property and has listed the land (which has a cost basis of
$253,747) for sale.
Properties Currently Held by the Fund. The Fund currently
holds interests in 15 properties (excluding the land resulting
from the fire in Indianapolis, Indiana) as summarized below:
Property Acquisition Cost Annual Rental Payments
Creative Years Early Learning Center,
Houston, TX $ 483,128 $ 45,529
Grand Rapids Teachers Credit Union,
Wyoming MI 626,239 32,370
Arby's Restaurant, Grand Rapids, MI 652,880 24,000
Fuddruckers Restaurant, Omaha, NE 1,151,543 145,081
Children's World Daycare Center, Sterling
Heights, MI 729,486 105,117
Jiffy Lube Auto Care Center, Dallas, TX 154,891 21,822
JEMCARE (Arkansas Lane), Arlington, TX 450,475 41,796
Zapata's Cantina and Cafe, Waco, TX(3) 674,285 29,752
J.T. McCord's Restaurant, Irving TX 1,147,333 (1)
J.T. McCord's Restaurant, Mesquite TX(1) 520,109 17,500
JEMCARE (Matlock Avenue), Arlington, TX 603,641 45,907
Cheddar's Restaurant, Indianapolis, IN 253,747 (2)
Fuddruckers Restaurant, St. Louis, MO 761,053 92,164
Applebee's Restaurant, Slidell, LA 746,465 111,288
Applebee's Restaurant, Victoria, TX 1,335,555 151,110
Caribou Coffee, Atlanta GA 1,235,000 142,025
----------- -----------
Total $11,525,830 $ 1,005,461
=========== ===========
(1) This property is vacant but is subject to a purchase offer
of $792,000. The purchase offer is subject to the buyers
investigation and it is not anticipated that any sale wold
occur until January 1998.
(2) This property was destroyed by fire and the vacant land is
listed for sale.
(3) The Lessee of this property has notified the Fund that it
intends to vacate the property at expiration of the lease -
December 31, 1997.
Effects of Amendment. In the event Investors approve the
Reinvestment Amendment, a portion of the proceeds from properties
sold or otherwise disposed of will be reinvested rather than
distributed. The Fund will not change its investment objectives
or policies and, accordingly, new properties in which such
proceeds are invested will consist primarily of single tenant,
triple net leased properties that are purchased without
indebtedness, many of which are leased to tenants in the
restaurant industry. See "Reinvestment Amendment-General" above.
If the proceeds are reinvested, the rental revenues generated
by the Fund would be increased and distributions from rental revenues
will be higher than they will if proceeds are not reinvested.
Distribution of sales proceeds would be reduced or delayed until
-8-
liquidation of the Fund. Accordingly, the General Partners
believe approval of the Reinvestment Amendment will result in a
more steady rate of distribution during the life of the Fund with
a large distribution at the end of the life of the Fund.
Interests of the General Partners in the Reinvestment
Amendment. In accordance with, and subject to the limitations in,
the Fund Agreement, the General Partners will be reimbursed for
any costs (including a proportionate amount of employee salary,
benefit and overhead expense) they incur in completing any
property acquisition and in connection with management of the
property. Generally, costs are allocated to the Fund based on the
daily time sheets of employees. The Managing General Partner
establishes an hourly charge for each employee based on their
salaries, benefit expense and overhead expense (the portion of
rental, depreciation and other office charges necessary to
maintain the employee) and the Fund is charged for the amount of
time spent by the employee on Fund activities multiplied by the
time charge. If the Reinvestment Amendment is not approved, and
the proceeds from the sale of the properties are not reinvested,
the amount of capital under management by the General Partners
through the Fund, and the scope of the Fund's operations, will be
reduced and the Managing General Partner will have to deploy its
employees in other activities. Such reduced operations can be
expected to reduce the amount of reimbursements that the General
Partners receive from the Fund. Reimbursements to the General
Partners by the Fund for expenses incurred have averaged
approximately $213,000 per year during the past two years and
aggregated approximately over $665,000 during the three years
ended December 31, 1996. Such reimbursements will decrease if
cash is distributed and fewer properties are under management in
the Fund.
Further, the General Partners receive more than 1% of Fund
cash flow only to the extent the Fund has generated a 10% return
to Investors, and share in sales proceeds only to the extent the
Fund has paid cumulative distributions to Investors equal to their
Adjusted Capital Contributions plus a 14% cumulative return. To
the extent that proceeds are reinvested, the properties perform
well, and these returns can be achieved, the General Partners may
receive up to 10% of the cash flow remaining after payment of the
10% return to Investors and up to 15% of sales proceeds remaining
after payment of the 14% cumulative return to Investors.
Repurchase Amendment
General. Over the period of time since the Fund was formed,
a limited secondary market has developed for units of limited
partnership interest in real estate limited partnerships like the
Fund. Generally, this market is made by individuals and firms who
match willing sellers with buyers by posting sale proposals (but
not prices) and by maintaining a list of limited partner
unitholders who are willing to sell from time to time. In most
cases, these transactions are relatively time consuming and do not
represent an active market for such units. Accordingly, they may
not represent actual market value for the Units. In some cases,
individuals acquire units of limited partnership interest with the
intent to acquire control of partnerships for invested amounts
significantly less than the liquidation value of the partnerships'
properties and to then cause the liquidation of the partnerships
at a profit to themselves.
The development of this market has given Units held by
Investors a potential market value that may be different from and,
in some instances greater than, the Unit values currently
established under the terms of the Unit repurchase provisions of
Section 7.7 of the Fund Agreement. It has also provided some
liquidity of investment for holders of Units, because although
purchases in the secondary market remain subject to restrictions
under the terms of the Fund Agreement (e.g., no more than 5% of
the outstanding Units can change hands in any one year), sales are
not subject to the relatively limited annual presentment period
(between July 1 and October 1 of each year) provided in the Fund
Agreement.
In order to offer Investors the opportunity to present their
Units to the Fund for repurchase more frequently, and at a price
that may more closely reflect the prices available in the
secondary market, the General Partners propose to amend Section
7.7 of the Fund Agreement to provide an alternative valuation
formula and to allow for quarterly presentment of Units for
repurchase, rather than the current annual presentment period.
The repurchase formula currently contained in the Fund Agreement
bases the repurchase price on the initial capital contribution of
an investor less 50% of distributions to the investor. The new
formula will provide an alternate valuation based on 90% of the
"net value" of the Fund (assets less liabilities and intervening
distributions), after taking into account the market value of units,
the present value of future net cash flow from the Fund and such
other factors as the General Partners may apply. The provisions
of Section 7.7, as proposed to be amended, will provide that
Investors will be entitled to the price under the formula yielding
the highest value. Because of changes that must be made to the
Partnership's information processing systems if the Amendment is
approved, the Amendment will be effective commencing in calendar
1998 for Units tendered for repurchase during that year.
-9-
Effects of Amendment. Although the General Partners believe
that the new alternative repurchase price formula will generally
yield a higher Unit price than the existing formula, and Investors
will be entitled to the higher repurchase price determined under
either formula, there is no assurance that either formula price
will pay an Investor the market value of the Investor's Units.
Moreover, the Fund is not required to repurchase in any calendar
year Units aggregating in excess of 5% of the Units outstanding in
such year, and is not required to repurchase Units if doing so
would impair the Fund's ability to continue operations. The
Repurchase Amendment will not alter these limitations. There may
be circumstances under which Fund revenues and borrowings are
insufficient to fully fund such repurchases. As is currently
the case, if more Units are tendered for purchase than the General
Partners believe are prudent to repurchase given the capital
resources of the Fund, tendered Units will be repurchased on a
first come, first served basis.
Repurchases by the Fund, under either the existing or amended
repurchase provisions, are made out of cash available for
distribution and increase the percentage interests in income,
gain, deduction and distributions of the Fund of remaining
Investors, pro rata among such Investors based on their interests
before the repurchases. Although the Repurchase Amendment does
not allow the General Partners to establish a repurchase price
that is below the purchase price currently available under the
Fund Agreement, it does allow the General Partners to establish a
repurchase price that is higher. To the extent that the
repurchase price established by the General Partners exceeds the
actual economic value (a theoretical value) of the Units that are
repurchased, the overall economic value afforded the General
Partners and the remaining Investors by their interest in the Fund
will be diminished. The General Partners believe that the current
formula establishes a price that is generally below the actual
value of the Units and that the price established by matching
services is also below the actual value. Accordingly, the General
Partners believe that the Repurchase Amendment will allow
repurchases at a higher price, thereby benefiting both withdrawing
and remaining Investors.
-10-
UNIT OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT
The following table sets forth information pertaining to the
ownership of the Units by each person known by the Fund to
beneficially own 5% or more of the Units, by each General
Partner, and by each officer or director of the Managing General
Partners as of December 1, 1997:
Name and Address Number of Percent
of Beneficial Owner Units Held of Class
AEI Fund Management XVI, Inc. 10 *
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
AEI Fund Management, Inc.** 2 *
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
Robert P. Johnson 6 *
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
Mark E. Larson 0 0
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
* Less than 1%
** A corporation controlled by Mr. Johnson and that provides
administrative services to the Fund.
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.
VOTE REQUIRED AND PROCEDURES FOR VOTING
Voting by Investors with respect to an amendment of the Fund
Agreement is based upon ownership of limited partner Units
("Units"). As of December 1, 1997, there were 13,879.40 Units
outstanding. Each Unit is entitled to one vote. Fractions of
Units will be included in the total.
In order for of either the proposed Amendments to be adopted,
a majority of the Units must be voted in favor of the Amendment.
Because an abstention would not be counted as a vote for an
amendment, it would have the effect of a vote against an
amendment. The General Partners intend to vote all 18 Units
controlled by them in favor of the Amendments.
Accompanying this Consent Statement is a Consent Form for
each Investor with respect to his/her unit ownership in the Fund.
By checking the appropriate box, each Investor can indicate
whether he/she votes FOR or AGAINST or ABSTAINS as to the proposed
Amendments. IF ANY INVESTOR RETURNS A CONSENT FORM DULY SIGNED
WITHOUT CHECKING ANY BOX, HE/SHE WILL BE DEEMED TO HAVE VOTED FOR
THE AMENDMENTS. An Investor who votes against, or abstains with
respect to, the Amendments does not have appraisal or similar
rights under Minnesota law.
The Managing General Partner has fixed the close of business
on December 1, 1997 as the record date for the determination of
the Investors entitled to vote on the proposed Amendment, the
close of business on January 30, 1998 as the date by which Consent
Forms must be received by the Managing General Partner in order to
be counted, and February 2, 1998 as the date on which the consents
are to be counted. An Investor may revoke his/her or its consent
at any time prior to January 30, 1998, provided written revocation
is received by the Managing General Partner prior to that date.
-11-
The cost of solicitation of consents of the Investors will be
borne by the Fund. The solicitations will be made by the mails.
This Consent Statement is being first mailed to Investors on or
about December 15, 1997. Staff of the Managing General Partner
will be available by telephone to answer any questions concerning
this Consent.
INCORPORATION BY REFERENCE/FORWARD LOOKING STATEMENTS
The information included in the Fund's Annual Report on Form
10-KSB for the year ended December 31, 1996 and the FundOs 10-QSBs
for the quarters ended March 31, 1997, June 30, 1997 and September
30, 1997 is hereby incorporated by reference. Copies of such
Reports are being delivered to each Investor with this Consent
Statement.
Such incorporated documents, and this Consent Statement,
contain statements that are intended as "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Act"). The words or phrases
"expects", "will continue", "should", "is anticipated",
"believes", "estimate", "hopes", or expressions of a similar
nature denote forward looking statements. Those statements are
subject to risks and uncertainties that could cause actual results
to differ materially from the results presently anticipated or
projected. The Fund cautions readers not to place undue reliance
on such forward looking statements and all readers should consider
carefully risks that may effect the attainment of those
statements, including the risks summarized above under
"Summary--Risks of the Amendments."
BY ORDER OF THE BOARD OF DIRECTORS
OF AEI FUND MANAGEMENT XVI, INC.
Robert P. Johnson, President
-12-
Exhibit A
PROPOSED AMENDMENT OF
LIMITED PARTNERSHIP AGREEMENT OF
AEI REAL ESTATE FUND XVI
Changes in the existing provisions of the Partnership
Agreement that would be made by the proposed Reinvestment
Amendment and the proposed Repurchase Amendment are shown below.
Existing provisions proposed to be omitted are lined through and
enclosed in brackets. New Provisions are printed in bold type.
Only the portion of Section 5.4 that will be changed by the
Reinvestment Amendment is shown. If approved, the Reinvestment
Amendment will be effective immediately, while the Repurchase
Amendment will be effective for Units tendered in calendar 1998
and after.
REINVESTMENT AMENDMENT
SECTION 5.4 DISTRIBUTION OF NET PROCEEDS OF SALE
5.4 Distribution of Net Proceeds of Sale. Upon
financing, refinancing, sale or other disposition of any
of the Properties, Net Proceeds of Sale may be reinvested
in additional properties until [a date 120 months after
the date on which the offer and sale of units pursuant to
the Prospectus is terminated,] THE GENERAL PARTNER
DETERMINES THAT IT IS IN THE BEST INTERESTS OF THE FUND
TO BEGIN LIQUIDATION OF THE FUND; provided, however, that
sufficient cash is distributed to the Limited Partners to
pay state and federal income taxes (assuming Limited
Partners are taxable at the lesser of (i) a 40% rate on
ordinary income and a 16% rate on capital gain income or
(ii) the maximum marginal rates then in effect) created
as a result of such transaction.
REPURCHASE AMENDMENT
SECTION 7.7--RIGHT TO PRESENT UNITS FOR PURCHASE
7.7 Right to Present Units for Purchase. (a) [Beginning in
calendar year 1988,] Each Limited Partner shall have the
right, subject to the provisions of this Section 7.7, to
present SUCH PARTNER'S Units to the Partnership for
purchase by submitting to the Managing General Partner
[written] notice [(postmarked after July 1 but before
October 1 of such year)] ON A FORM SUPPLIED BY THE
PARTNERSHIP (A "REDEMPTION NOTICE") specifying the number
of Units he OR SHE wishes repurchased. The MANAGING
GENERAL PARTNER SHALL ESTABLISH ON EACH OF JANUARY 1,
APRIL 1, JULY 1, AND OCTOBER 1 OF EACH YEAR (THE "PRICING
DATES"), AND SHALL MAKE AVAILABLE TO LIMITED PARTNERS
UPON REQUEST, A REPURCHASE PRICE (THE "REPURCHASE PRICE")
FOR UNITS, DETERMINED IN ACCORDANCE WITH THE FORMULA SET
FORTH BELOW, THAT SHALL APPLY TO ALL UNITS TENDERED FOR
REPURCHASE DURING THE CALENDAR QUARTER FOLLOWING SUCH
PRICING DATE. [On November 1 of each year,] SUBJECT TO
THE LIMITATIONS SET FORTH BELOW, the Managing General
Partner shall cause the Partnership to purchase on
JANUARY 1, APRIL 1, JULY 1, AND OCTOBER 1 OF EACH YEAR (A
"REPURCHASE DATE"), AT A REPURCHASE PRICE EQUAL TO THE
REPURCHASE PRICE ESTABLISHED FOR THE QUARTER IN WHICH THE
REDEMPTION NOTICE WAS RECEIVED BY THE PARTNERSHIP, the
Units of Limited Partners [who have tendered their Units
to the Partnership] FROM WHICH THE PARTNERSHIP HAS
RECEIVED A NOTICE OF REDEMPTION AT LEAST SIXTY DAYS PRIOR
TO SUCH REPURCHASE DATE. The [purchase] REPURCHASE
Price shall be equal to [the tendering Limited Partner's
Adjusted Capital Contribution on October 1 of the year of
purchase multiplied by seventy-five percent (75%) for
purchases in calendar year 1988 and ninety percent (90%)
for purchases in calendar year 1989. For purchases in
1990 and in each year thereafter, the purchase price
shall be equal to] THE GREATER OF (I) NINETY PERCENT
(90%) OF THE NET VALUE OF THE PARTNERSHIP'S ASSETS ON THE
PRICING DATE DIVIDED BY THE NUMBER OF UNITS OUTSTANDING
ON SUCH PRICING DATE, OR (II) one hundred percent (100%)
of the tendering Limited Partner's Adjusted Capital
Contribution on [October 1,] SUCH PRICING DATE, less
fifty percent (50%) of all Net Cash Flow previously
distributed to such Limited Partner throughout he term of
the Partnership. The Partnership will not be obligated to
purchase in any year more than five percent (5%) of the
total number of Units outstanding on January 1 of
-13-
such year. In the event requests for purchase of Units
received in any given year exceed the five percent
(5%) limitation, the Units to be purchased will be
determined based on the postmark date of the written
notice of Limited Partners tendering Units. THE MANAGING
GENERAL PARTNER MAY SUSPEND REPURCHASES DURING ANY PERIOD
AFTER THE PARTNERSHIP HAS DISTRIBUTED NET PROCEEDS OF
SALE AND DURING WHICH THE MANAGING GENERAL PARTNER
REASONABLY BELIEVES THAT THE REPURCHASE PRICE DOES NOT
APPROPRIATELY REFLECT THE NET VALUE OF THE PARTNERSHIP'S
REMAINING ASSETS LESS LIABILITIES. Any Units tendered
but not selected for purchase in any given year will be
considered for purchase in subsequent years only if the
Limited Partner retenders his OR HER Units. 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.
(b) For purposes of all calculations pursuant to
Article V of this agreement, any Net Cash Flow or Net
Proceeds of Sale used to repurchase Units or to repay
borrowings that were used to repurchase Units shall be
deemed distributed to the remaining Limited Partners
pro rata based on the ratio of the number of Units
owned to all Units outstanding after such repurchase.
FOR PURPOSES OF THE FORMULA IN SUBSECTION (A)(II)
ABOVE, "NET VALUE" MEANS THE AGGREGATE VALUE OF THE
PARTNERSHIP'S ASSETS LESS THE PARTNERSHIP'S LIABILITIES
AND LESS THE MANAGING GENERAL PARTNER'S REASONABLE
ESTIMATE OF DISTRIBUTIONS OF NET PROCEEDS OF SALE FOR
THE PERIOD AFTER THE PRICING DATE BUT BEFORE THE
REPURCHASE DATE, AS DETERMINED BY THE MANAGING GENERAL
PARTNER. IN DETERMINING NET VALUE, THE GENERAL
PARTNERS MAY ALSO TAKE INTO ACCOUNT (I) THE PRESENT
VALUE OF FUTURE NET CASH FLOW FROM RENTAL INCOME ON THE
FUND'S PROPERTIES, (II) THE PRICE AT WHICH UNITS OF THE
PARTNERSHIP HAVE BEEN PURCHASED, AND (III) SUCH OTHER
FACTORS AS THE GENERAL PARTNERS DEEM RELEVANT.
-14-
IMPORTANT IMPORTANT
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
CONSENT OF LIMITED PARTNERS
This consent is solicited by the Board
of Directors of AEI Fund Management XVI, Inc.,
The Managing General Partner
The undersigned, a Limited Partner of AEI Real Estate Fund
XVI Limited Partnership (the "Fund"), hereby consents (unless
otherwise directed below) to the proposals identified below to
adopt (i) an Amendment to Section 5.4 of the Limited Partnership
Agreement (the "Partnership Agreement") of the Fund (the
"Reinvestment Amendment"), and (ii) an Amendment to Section 7.7 of
the Partnership Agreement (the "Repurchase Amendment"), as more
fully described in the accompanying Consent Statement (together,
the "Amendments"). By voting for the Amendments, or either of
them, the undersigned hereby appoints AEI Fund Management XVI,
Inc. as its attorney-in-fact with power to sign and acknowledge on
its behalf any instrument that may be necessary to evidence either
Amendment to the Partnership Agreement and any corresponding
Amendment to the Fund's Certificate of Limited Partnership.
Please date and sign this Consent below and return it in the
enclosed, postage paid envelope. To be counted, this Consent must
be received not later than the close of business on January 30,
1998.
1. Adoption of the Reinvestment Amendment to Section 5.4 of
the Partnership Agreement
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Adoption of the Repurchase Amendment to Section 7.7 of
the Partnership Agreement
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The Fund Units held by the signing Limited Partner will be
voted as directed. They will be voted "FOR" the Amendments if no
box is checked.
Please sign exactly as your name appears below. When Fund
Units are held by joint tenants, both owners should sign. When
signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in
full corporate name by president or other authorized officer. If
a partnership, please sign in partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS CONSENT.
Dated: , 199_
Signature (if held jointly)
-15-
