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, 1996
Commission file number: 0-17467
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer as Specified in its Charter)
State of Minnesota 41-1603719
(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 XVII LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Item 1. Balance Sheet as of September 30, 1996 and December 31, 1995
Statements for the Periods ended September 30, 1996 and 1995:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
BALANCE SHEET
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(Unaudited)
ASSETS
1996 1995
CURRENT ASSETS:
Cash and Cash Equivalents $ 7,961,286 $ 6,467,946
Receivables 34,571 79,092
----------- -----------
Total Current Assets 7,995,857 6,547,038
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 3,718,282 4,852,325
Buildings and Equipment 8,826,334 10,154,639
Accumulated Depreciation (2,578,751) (2,796,130)
----------- -----------
9,965,865 12,210,834
Land Held for Resale 261,644 0
----------- -----------
Net Investments in Real Estate 10,227,509 12,210,834
----------- -----------
Total Assets $18,223,366 $18,757,872
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 44,906 $ 53,187
Distributions Payable 433,536 715,773
Security Deposit 37,307 37,307
Unearned Rent 69,111 0
----------- -----------
Total Current Liabilities 584,860 806,267
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (25,027) (21,896)
Limited Partners, $1,000 Unit value;
30,000 Units authorized; 23,389 Units
issued; 23,107 Units outstanding 17,663,533 17,973,501
----------- -----------
Total Partners' Capital 17,638,506 17,951,605
----------- -----------
Total Liabilities and Partners' Capital $18,223,366 $18,757,872
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
Three Months Ended Nine Months Ended
9/30/96 9/30/95 9/30/96 9/30/95
INCOME:
Rent $ 348,769 $ 552,088 $ 1,108,861 $ 1,706,114
Investment Income 82,269 16,798 245,577 18,490
Other Income 0 0 0 36,592
--------- ----------- ----------- -----------
Total Income 431,038 568,886 1,354,438 1,761,196
--------- ----------- ----------- -----------
EXPENSES:
Partnership Administration -
Affiliates 75,136 77,125 221,490 227,125
Partnership Administration
and Property Management -
Unrelated Parties 38,160 30,394 139,416 75,624
Interest 0 5,973 0 22,942
Depreciation 103,378 136,010 311,103 418,570
--------- ----------- ----------- -----------
Total Expenses 216,674 249,502 672,009 744,261
--------- ----------- ----------- -----------
OPERATING INCOME 214,364 319,384 682,429 1,016,935
GAIN ON SALE OF REAL
ESTATE 347,224 978,599 425,514 978,599
MINORITY INTEREST IN
OPERATING INCOME 0 (5,814) 0 (17,443)
--------- ----------- ----------- -----------
NET INCOME $ 561,588 $ 1,292,169 $ 1,107,943 $ 1,978,091
========= =========== =========== ===========
NET INCOME ALLOCATED:
General Partners $ 5,615 $ 12,922 $ 11,079 $ 19,781
Limited Partners 555,973 1,279,247 1,096,864 1,958,310
--------- ----------- ----------- -----------
$ 561,588 $ 1,292,169 $ 1,107,943 $ 1,978,091
========= =========== =========== ===========
NET INCOME PER
LIMITED PARTNERSHIP UNIT
(23,107 and 23,162 weighted average
Units outstanding in 1996 and 1995,
respectively) $ 24.06 $ 55.23 $ 47.47 $ 84.55
========= =========== =========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,107,943 $ 1,978,091
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 311,103 418,570
Gain on Sale of Real Estate (425,514) (978,599)
(Increase) Decrease in Receivables 44,521 (707)
Decrease in Payable to
AEI Fund Management, Inc. (8,281) (38,056)
Decrease in Contract Payable 0 (15,702)
Increase in Unearned Rent 69,111 60,859
Minority Interest 0 (3,405)
----------- -----------
Total Adjustments (9,060) (557,040)
----------- -----------
Net Cash Provided By
Operating Activities 1,098,883 1,421,051
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 2,097,736 2,472,238
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in Distributions Payable (282,237) (108,160)
Distributions to Partners (1,421,042) (1,188,033)
Decrease in Long-Term Debt - Net 0 (24,165)
----------- -----------
Net Cash Used For
Financing Activities (1,703,279) (1,320,358)
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 1,493,340 2,572,931
CASH AND CASH EQUIVALENTS, beginning of period 6,467,946 106,795
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 7,961,286 $ 2,679,726
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid During the Period $ 0 $ 19,292
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 1994 $ (39,245) $16,255,941 $16,216,696 23,161.79
Distributions (11,880) (1,176,153) (1,188,033)
Net Income 19,781 1,958,310 1,978,091
--------- ----------- ----------- ----------
BALANCE, September 30, 1995 $ (31,344) $17,038,098 $17,006,754 23,161.79
========= =========== =========== ==========
BALANCE, December 31, 1995 $ (21,896) $17,973,501 $17,951,605 23,106.79
Distributions (14,210) (1,406,832) (1,421,042)
Net Income 11,079 1,096,864 1,107,943
--------- ----------- ----------- ----------
BALANCE, September 30, 1996 $ (25,027) $17,663,533 $17,638,506 23,106.79
========= =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
(1) The condensed statements included herein have been prepared
by the Partnership, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Partnership
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
Partnership's latest annual report on Form 10-KSB.
(2) Organization -
AEI Real Estate Fund XVII Limited Partnership (Partnership)
was formed to acquire and lease commercial properties to
operating tenants. The Partnership's operations are managed
by AEI Fund Management XVII, 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 10, 1988 when minimum
subscriptions of 2,000 Limited Partnership Units
($2,000,000) were accepted. The Partnership's offering
terminated on November 1, 1988 when the one-year offering
period expired. The Partnership received subscriptions for
23,388.7 Limited Partnership Units ($23,388,700).
Under the terms of the Limited Partnership Agreement, the
Limited Partners and General Partners contributed funds of
$23,388,700 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 XVII 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 XVII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate -
In 1995, the Partnership elected early adoption of the
Statement of Financial Accounting Standards No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of." This standard requires the
Partnership to compare the carrying amount of its properties
to the estimated future cash flows expected to result from
the property and its eventual disposition. If the sum of
the expected future cash flows is less than the carrying
amount of the property, the Statement requires the
Partnership to recognize an impairment loss by the amount by
which the carrying amount of the property exceeds the fair
value of the property. Adoption of this Statement is not
expected to have a material effect on the Partnership's
financial statements.
On April 22, 1993, the Partnership sold a 13.4893% interest
in the Applebee's restaurant in Virginia Beach, Virginia to
an unrelated third party. The Partnership owned the
Virginia Beach property as tenants-in-common with the
unrelated third party. The management of the property was
governed by a co-tenancy agreement between the Partnership
and the unrelated third party, which granted the Partnership
the authority to control the management of the property.
The Partnership accounted for its interest under the full
consolidation method whereby the unrelated third party's
interest in the property is reflected in the Partnership's
financial statements as a minority interest.
In September, 1995, the lessee exercised an option in the
Lease Agreement to purchase the property. On November 8,
1995, the sale closed with the parties receiving net sale
proceeds of $1,741,224, which resulted in a net gain of
$679,964. At the time of sale, the cost and related
accumulated depreciation was $1,279,192 and $217,932,
respectively. The Partnership's share of the net sale
proceeds and net gain was $1,496,613 and $596,181,
respectively.
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 $715,545 which resulted in a net gain of $307,167. At
the time of sale, the cost and related accumulated
depreciation was $534,974 and $126,596, respectively.
In July 1995, the lessee of the Applebee's restaurant in
Hampton, Virginia, exercised an option in the Lease
Agreement to purchase the property. On August 31, 1995, the
sale closed with the Partnership receiving net sale proceeds
of $1,747,127 which resulted in a net gain of $661,866. At
the time of sale, the cost and related accumulated
depreciation was $1,287,072 and $201,811, 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 $322,442, which resulted in
a net gain of $78,244 for the Jiffy Lube in Garland, Texas.
At the time of sale, the cost and related accumulated
depreciation was $303,108 and $58,910, respectively. The
Partnership recognized net sale proceeds of $483,653, which
resulted in a net gain of $112,985 for one of the Jiffy
Lube's in Dallas, Texas. At the time of sale, the cost and
related accumulated depreciation was $454,300 and $83,632,
respectively.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
In September, 1995, the lessee of the Applebee's restaurant
in Richmond, Virginia exercised an option in the Lease
Agreement to purchase the property. On October 30, 1995,
the sale closed with the Partnership receiving net sale
proceeds of $1,905,438, which resulted in a net gain of
$746,293. At the time of sale, the cost and related
accumulated depreciation was $1,375,732 and $216,587,
respectively. A portion of the net sale proceeds was used
to pay off the bank note and satisfy the mortgage on the
property.
In January, 1996, the Cheddar's restaurant in Indianapolis,
Indiana was destroyed by a fire. The Partnership reached an
agreement with the tenant and insurance company which called
for termination of the Lease, demolition of the building and
payment to the Partnership of $407,282 for the building and
equipment and $49,688 for lost rent. The property will not
be rebuilt and the Partnership listed the land for sale.
The Partnership recognized net disposition proceeds of
$406,892 which resulted in a net gain of $78,290. At the
time of disposition, the cost and related accumulated
depreciation was $512,433 and $183,831, respectively. The
Partnership's cost of the land is $261,644.
In June, 1996, the Partnership entered into an agreement to
sell the Danny's Family Car Wash in Phoenix, Arizona to the
lessee. On September 25, 1996, the sale closed with the
Partnership receiving net sale proceeds of $1,690,844 which
resulted in a net gain of $347,224. At the time of sale,
the cost and related accumulated depreciation was $1,688,271
and $344,651, respectively.
During the first nine months of 1996 and the year 1995, the
Partnership distributed $427,510 and $930,047 of the net
sale proceeds to the Limited and General Partners which
represented a return of capital of $18.32 and $39.82 per
Limited Partnership Unit, respectively. In November, 1996,
the Partnership will distribute an additional $2,828,283 of
net proceeds to the Partners as a special distribution.
This represents an additional return of capital of $122.16.
The Managing General Partner is in the process of preparing
a proxy statement to propose an amendment to the Limited
Partnership Agreement that would allow the Partnership to
reinvest the majority of the remaining net proceeds in
additional properties.
In May, 1990, Flagship, Inc. (Flagship), the lessee of the
J.T. McCord's property, filed for reorganization, after
occupying the property for approximately five years. 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.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
To entice the assignee, WIM, Inc. (WIM), to operate the
restaurants and enter into the Lease Agreements, the
Partnership provided funds to renovate the restaurants and
paid for operating expenses. The Partnership's share of
renovation and operating expenses during this period was
$222,976, which was expensed in the fourth quarter of 1994.
However, WIM was not able to operate the properties
profitably and was unable to make rental payments as
provided in the Lease Agreements. To reduce expenses and
minimize the losses produced by this property, the
Partnership amended the agreement to provide for WIM to make
annual rental payments of the greater of $60,000 or 5.5% of
sales beginning October 1, 1994. In December, 1995, the
Partnership took possession of the property after WIM was
unable to perform under the terms of the 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 property.
As part of the plan, the Partnerships which own these
properties, were responsible for an annual payment to the
Creditors Trust of approximately $110,000 for the next five
years. The Partnership's share of the annual payment is
$23,833. In 1994, the Partnership expensed $103,595 to
record this liability and administrative costs related to
the bankruptcy.
In 1995, the Partnership negotiated a settlement, with the
trustee, 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 of
$73,667 was completed in the fourth quarter of 1995.
In July, 1996, the Partnership entered into an agreement to
sell the J.T. McCord's in Mesquite, Texas to an unrelated
third party. In September, 1996, the Agreement was
terminated by the purchaser.
The Partnership owns a 65.09% interest in the Sizzler
restaurant at the King's Island Theme Park near Cincinnati,
Ohio and a 100% interest in a Sizzler restaurant on Fields
Ertel Road in Cincinnati, Ohio. In January, 1994, the
Partnership closed the restaurant at King's Island 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
property. No rent was received in 1996 or 1995 from the
property.
In September, 1995, the Partnership re-leased the property
on Fields Ertel Road to FFT Cincinnati Ltd. under a triple
net lease agreement with a primary term of 20 years which
may be renewed for up to four consecutive five-year periods.
The annual base rent is $19,750 for the first lease year and
$75,000 for the second lease year, with rent increases each
subsequent lease year of two percent of the prior year's
rent. The Partnership may also receive percentage rent if
sales exceed certain amounts. The property is now operated
as a Bennigan's restaurant.
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Payable to AEI Fund Management -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Partnership. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
(5) Long Term Debt -
On January 31, 1994, the Partnership entered into a five-
year bank term Note for $195,000 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 property. The Partnership
provided a mortgage and a Lease Assignment Agreement on the
Applebee's restaurant in Richmond, Virginia as collateral
for the loan. On October 30, 1995, 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. In the first nine months of
1995, interest expense on the Note was $11,651.
(6) Line of Credit -
In September, 1994, the Partnership established a $150,000
unsecured line of credit at Fidelity Bank of Edina,
Minnesota. On January 5, 1995, the line of credit was
increased to $400,000. The line of credit bears interest at
the prime rate plus one percent on the outstanding balance,
which was due on demand, but in any event no later than
January 5, 1996. The line of credit was established to
provide short-term financing to cover any temporary cash
deficits. In January, 1996, the line of credit expired. In
the first nine months of 1995, interest expense related to
the line of credit was $7,016.
(7) Other Income -
In March, 1995, the Partnership received $36,592 of
insurance proceeds for vandalism to the Kings Island Sizzler
restaurant. Damage to the property was minor and the
Partnership has elected not to make repairs at this time.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
For the nine months ended September 30, 1996 and 1995, the
Partnership recognized rental income of $1,108,861 and
$1,706,114, respectively. During the same periods, the
Partnership earned investment income of $245,577 and $18,490,
respectively. In 1996, rental income decreased as a result of
the property sales discussed below. The decrease in rental
income was partially offset by rent increases on ten properties
and additional investment income earned on the net proceeds from
the property sales.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
In March, 1995, the Partnership received $36,592 of
insurance proceeds for vandalism to the Kings Island Sizzler
restaurant. Damage to the property was minor and the Partnership
has elected not to make repairs at this time. The insurance
proceeds are shown as Other Income on the Income Statement.
In May, 1990, Flagship, Inc. (Flagship), the lessee of the
J.T. McCord's property, filed for reorganization, after occupying
the property for approximately five years. 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.
To entice the assignee, WIM, Inc. (WIM), to operate the
restaurants and enter into the Lease Agreements, the Partnership
provided funds to renovate the restaurants and paid for operating
expenses. The Partnership's share of renovation and operating
expenses during this period was $222,976, which was expensed in
the fourth quarter of 1994. However, WIM was not able to operate
the properties profitably and was unable to make rental payments
as provided in the Lease Agreements. To reduce expenses and
minimize the losses produced by this property, the Partnership
amended the agreement to provide for WIM to make annual rental
payments of the greater of $60,000 or 5.5% of sales beginning
October 1, 1994. In December, 1995, the Partnership took
possession of the property after WIM was unable to perform under
the terms of the 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 property.
As part of the Plan, the Partnerships which own these
properties, were responsible for an annual payment to the
Creditors Trust of approximately $110,000 for the next five
years. The Partnership's share of the annual payment is $23,833.
In 1994, the Partnership expensed $103,595 to record this
liability and administrative costs related to the bankruptcy.
In 1995, the Partnership negotiated a settlement, with the
trustee, 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 of $73,667 was
completed in the fourth quarter of 1995.
In July, 1996, the Partnership entered into an agreement
to sell the J.T. McCord's in Mesquite, Texas to an unrelated
third party. In September, 1996, the Agreement was terminated by
the purchaser.
The Partnership owns a 65.09% interest in the Sizzler
restaurant at the King's Island Theme Park near Cincinnati, Ohio
and a 100% interest in a Sizzler restaurant on Fields Ertel Road
in Cincinnati, Ohio. In January, 1994, the Partnership closed
the restaurant at King's Island 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 property. No rent was received in 1996 or 1995 from
the property.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
In September, 1995, the Partnership re-leased the property
on Fields Ertel Road to FFT Cincinnati Ltd. under a triple net
lease agreement with a primary term of 20 years which may be
renewed for up to four consecutive five-year periods. The annual
base rent is $19,750 for the first lease year and $75,000 for the
second lease year, with rent increases each subsequent lease year
of two percent of the prior year's rent. The Partnership may
also receive percentage rent if sales exceed certain amounts.
The property is now operated as a Bennigan's restaurant.
During the nine months ended September 30, 1996 and 1995,
the Partnership paid Partnership administration expenses to
affiliated parties of $221,490 and $227,125, 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 $139,416 and $75,624, 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 these expenses in 1996, when compared to 1995, is the result
of expenses incurred in 1996 related to the J.T. McCord's and
Sizzler situations discussed above.
As of September 30, 1996, the Partnership's annualized
cash distribution rate was 7.45%, based on the Adjusted Capital
Contribution. Distributions of Net Cash Flow to the General
Partners were subordinated to the Limited Partners as required in
the Partnership Agreement. As a result, 99% of distributions and
income were allocated to Limited Partners and 1% to the General
Partners.
Inflation has had a minimal effect on income from
operations. It is expected that increases in sales volumes of
the tenants, due to inflation and real sales growth, will result
in an increase in rental income over the term of the leases.
Inflation also may cause the Partnership's real estate to
appreciate in value. However, inflation and changing prices may
also have an adverse impact on the operating margins of the
properties' tenants which could impair their ability to pay rent
and subsequently reduce the Partnership's Net Cash Flow available
for distributions.
Liquidity and Capital Resources
During the nine months ended September 30, 1996, the
Partnership's cash balances increased $1,493,340. Net cash
provided by operating activities decreased from $1,421,051 in
1995 to $1,098,883 in 1996 mainly as the result of a decrease in
revenues as a result of the property sales discussed below and an
increase in expenses in 1996.
For the nine months ended September 30, 1996 and 1995, net
cash provided by investing activities was $2,097,736 and
$2,472,238, respectively, which represented cash generated from
the sale of real estate, as discussed below.
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
$715,545 which resulted in a net gain of $307,167. At the time
of sale, the cost and related accumulated depreciation was
$534,974 and $126,596, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
In July 1995, the lessee of the Applebee's restaurant in
Hampton, Virginia, exercised an option in the Lease Agreement to
purchase the property. On August 31, 1995, the sale closed with
the Partnership receiving net sale proceeds of $1,747,127 which
resulted in a net gain of $661,866. At the time of sale, the
cost and related accumulated depreciation was $1,287,072 and
$201,811, 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 $322,442, which resulted in a net gain of
$78,244 for the Jiffy Lube in Garland, Texas. At the time of
sale, the cost and related accumulated depreciation was $303,108
and $58,910, respectively. The Partnership recognized net sale
proceeds of $483,653, which resulted in a net gain of $112,985
for one of the Jiffy Lube's in Dallas, Texas. At the time of
sale, the cost and related accumulated depreciation was $454,300
and $83,632, respectively.
In September, 1995, the lessee of the Applebee's
restaurant in Richmond, Virginia exercised an option in the Lease
Agreement to purchase the property. On October 30, 1995, the
sale closed with the Partnership receiving net sale proceeds of
$1,905,438, which resulted in a net gain of $746,293. At the
time of sale, the cost and related accumulated depreciation was
$1,375,732 and $216,587, respectively. A portion of the net sale
proceeds was used to pay off the bank note and satisfy the
mortgage on the property as discussed below.
On April 22, 1993, the Partnership sold a 13.4893%
interest in the Applebee's restaurant in Virginia Beach, Virginia
to an unrelated third party. The Partnership owned the Virginia
Beach property as tenants-in-common with the unrelated third
party. The management of the property was governed by a co-
tenancy agreement between the Partnership and the unrelated third
party, which granted the Partnership the authority to control the
management of the property. The Partnership accounted for its
interest under the full consolidation method whereby the
unrelated third party's interest in the property is reflected in
the Partnership's financial statements as a minority interest.
In September, 1995, the lessee exercised an option in the
Lease Agreement to purchase the property. On November 8, 1995,
the sale closed with the parties receiving net sale proceeds of
$1,741,224, which resulted in a net gain of $679,964. At the time
of sale, the cost and related accumulated depreciation was
$1,279,192 and $217,932, respectively. The Partnership's share of
the net sale proceeds and net gain was $1,496,613 and $596,181,
respectively.
In January, 1996, the Cheddar's restaurant in
Indianapolis, Indiana was destroyed by a fire. The Partnership
reached an agreement with the tenant and insurance company which
called for termination of the Lease, demolition of the building
and payment to the Partnership of $407,282 for the building and
equipment and $49,688 for lost rent. The property will not be
rebuilt and the Partnership listed the land for sale. The
Partnership recognized net disposition proceeds of $406,892 which
resulted in a net gain of $78,290. At the time of disposition,
the cost and related accumulated depreciation was $512,433 and
$183,831, respectively. The Partnership's cost of the land is
$261,644.
In June, 1996, the Partnership entered into an agreement
to sell the Danny's Family Car Wash in Phoenix, Arizona to the
lessee. On September 25, 1996, the sale closed with the
Partnership receiving net sale proceeds of $1,690,844 which
resulted in a net gain of $347,224. At the time of sale, the
cost and related accumulated depreciation was $1,688,271 and
$344,651, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
During the first nine months of 1996 and the year 1995,
the Partnership distributed $427,510 and $930,047 of the net sale
proceeds to the Limited and General Partners which represented a
return of capital of $18.32 and $39.82 per Limited Partnership
Unit, respectively. In November, 1996, the Partnership will
distribute an additional $2,828,283 of net proceeds to the
Partners as a special distribution. This represents an
additional return of capital of $122.16. The Managing General
Partner is in the process of preparing a proxy statement to
propose an amendment to the Limited Partnership Agreement that
would allow the Partnership to reinvest the majority of the
remaining net proceeds in additional properties.
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. During 1996, the Partnership will be distributing
approximately $354,000 of net sale proceeds in addition to the
regular quarterly distributions of net cash flow and in addition
to the special distribution discussed above. The distributions
will be made in equal quarterly installments. As a result,
distributions are higher in 1996, when compared to 1995. For the
nine months ended September 30, 1996, the other use of cash flow
for financing activities was related to the decrease in
distributions payable which was mainly the result of a special
distribution of net sale proceeds of approximately $354,000 which
was accrued in December 1995, but not paid until January 1996.
The Partnership may purchase Units from Limited Partners
who have tendered their Units to the Partnership. Such Units may
be acquired at a discount. The Partnership is not obligated to
purchase in any year more than 5% of the total number of Units
outstanding at the beginning of the year. In no event shall the
Partnership be obligated to purchase Units if, in the sole
discretion of the Managing General Partner, such purchase would
impair the capital or operation of the Partnership.
On October 1, 1996, seven Limited Partners redeemed a
total of 186.5 Partnership Units for $109,813 in accordance with
the Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a total of
twenty-three Limited Partners redeemed 282 Partnership Units for
$228,029. The redemptions increase the remaining Limited
Partners' ownership interest in the Partnership.
On January 31, 1994, the Partnership entered into a five-
year bank term Note for $195,000 with interest equal to the prime
rate plus one half percent. Proceeds from the Note were advanced
to WIM for renovation and other restaurant operating costs
related to the J.T. McCord's property. The Partnership provided
a mortgage and a Lease Assignment Agreement on its Applebee's
restaurant in Richmond, Virginia as collateral for the loan. On
October 30, 1995, the Partnership sold the property and a portion
of the net proceeds was used to pay off the outstanding principal
balance of the bank Note and satisfy the mortgage. In the first
nine months of 1995, interest expense on the Note was $11,651.
In September, 1994, the Partnership established a $150,000
unsecured line of credit at Fidelity Bank of Edina, Minnesota.
On January 5, 1995, the line of credit was increased to $400,000.
The line of credit bears interest at the prime rate plus one
percent on the outstanding balance, which was due on demand, but
in any event no later than January 5, 1996. The line of credit
was established to provide short-term financing to cover any
temporary cash deficits. In January, 1996, the line of credit
expired. In the first nine months of 1995, interest expense
related to the line of credit was $7,016.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The continuing rent payments from the properties, together
with cash generated from the property sales, should be adequate
to fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
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, 1996.
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 14, 1996 AEI Real Estate Fund XVII
Limited Partnership
By: AEI Fund Management XVII, Inc.
Its: Managing General Partner
By: /s/ Robert P. Johnson
Robert P. Johnson
President
(Principal Executive Officer)
By: /s/ Mark E. Larson
Mark E. Larson
Chief Financial Officer
(Principal Accounting Officer)
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<NAME> AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
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