SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
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[ ] Definitive Proxy Statement
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AEI Real Estate Fund XVIII Limited Partnership
(Name of Registrant as Specified in its Charter)
[Insert Name]
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
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amount on which the filing fee is calculated and state how it
was determined):
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AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
1300 Minnesota World Trade Center
30 East 7th Street
St. Paul, Minnesota 55101
CONSENT STATEMENT
For Amendment to Limited Partnership Agreement
to Permit Reinvestment of Sales Proceeds
THIS CONSENT STATEMENT IS BEING MAILED TO INVESTORS ON OR ABOUT
NOVEMBER , 1996. 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 DECEMBER 15, 1996.
AEI Fund Management XVIII, Inc., the managing general partner of
AEI Real Estate Fund XVIII Limited Partnership (the "Fund"), is
recommending an amendment to the Fund's Limited Partnership
Agreement so that prior to the final liquidation of the Fund the
proceeds from sale of Fund properties can be reinvested in
replacement net leased properties. The Partnership Agreement
currently provides that proceeds from the sale of properties may be
reinvested for only five years after the termination of the
offering of units in the Fund--until December 5, 1995.
The Fund's management believes that it is important for the Fund
to be able to take advantage of property sales, when available at
attractive prices, without depleting the capital base of the Fund.
Approval of this Amendment would allow the Fund to continue to
reinvest proceeds from the sale of properties in replacement
properties until final liquidation of the Fund. Accordingly, THE
MANAGING GENERAL PARTNER RECOMMENDS A VOTE "FOR" THE PROPOSED
AMENDMENT.
THE PROPOSED AMENDMENT WILL AFFECT YOUR INVESTMENT IN THE FUND IN
A NUMBER OF WAYS AND INVOLVES A NUMBER OF RISKS, INCLUDING THE
FOLLOWING:
If the Amendment is approved, rather than distributing all the
cash generated upon sale of a property, the Partnership may
reinvest proceeds, including up to $1,475,000 of cash that would
otherwise be distributed to Investors absent approval of the
Amendment. Distribution of the cash that is reinvested will
depend on the successful sale of the property in which it is
reinvested and may be delayed until final liquidation of the
Fund. Limited Partners ("Investors") will have only limited
rights to present their units for repurchase before final
liquidation and therefore may not have the ability to obtain
cash prior to that time. There can be no assurances that the
properties in which proceeds are reinvested if the Amendment is
approved will generate enough cash flow for distributions in
excess of what an Investor would receive from an alternative
investment.
The Amendment may make it more difficult to sell the Fund's
properties within the originally intended life of the Fund. The
general partners intend to commence final sale of properties by
the year 2004, although the sale of any particular property may
be delayed based on market and other conditions. The
Partnership Agreement provides that the Fund must, in any event,
be liquidated by the year 2039.
The general partners have a conflict of interest in proposing
the Amendment because they will receive more aggregate
reimbursements (but not necessarily profits) from the Fund if
proceeds are reinvested than they would if proceeds were not
reinvested. Reimbursements to the general partners for expenses
incurred have averaged approximately $255,000 per year during
the past two years and aggregated $752,724 during the three
years ended December 31, 1995. Such reimbursements will
decrease if cash is distributed and fewer properties are under
management in the Fund. Limited partners should realize that
the general partners are reimbursed only for the expenditures
they incur on the Fund's behalf and such reimbursements do not
represent profit to the general partner.
Proceeds will be reinvested in additional triple net leased
commercial properties that are subject to many of the same risks
of nonperformance, (including risks related to changing market
values, tenant defaults, difficulty of resale, among others) as
the original properties.
Investors will not be able to review in advance the properties
in which proceeds are reinvested.
SUMMARY
The following summary is qualified by the more detailed discussion set
forth herein and in the text of the proposed Amendment.
THE AMENDMENT. The general partners are proposing an Amendment to
Section 5.4 of the Partnership Agreement. This Amendment would
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. If the Amendment is approved,
most, if not all, gain from sales activity would be distributed to
limited partners.
REASONS FOR THE AMENDMENT. The Fund holds properties which may be
sold 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 by acquisition of additional
properties that can also be resold. The Fund has sold a portion of
an interest in a Taco Cabana Restaurant in Texas and a Tractor
Supply in Virginia, and would like to be in a position to reinvest
the proceeds from these and other sales into replacement net leased
properties.
RISKS OF THE AMENDMENT. The Amendment will present several risks,
including the following:
1. Deferred Cash Distributions. Rather than distributing all net
cash proceeds on sale of a property, the 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
(at a tax rate of 35%) generated by the sale of property). The
distribution of cash that is reinvested will be delayed until the
Fund is finally liquidated. Initially, investors will be forego an
immediate distribution of $67.77 per unit if the Amendment is
approved in return for the possibility of increased distributions
and possible appreciation in the future. There can be, of course,
no assurance that properties in which proceeds will be reinvested
in the Amendment is approved will generate periodic distributions
in excess of the return that could be obtained on an alternative
investment or that such properties will be eventually be sold at a
gain.
2. Risk of Extension of Fund Life. The general partners intend
to reinvest sales proceeds in new properties that will be sold
again within a few years. The 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 2,004, although the sale of any
particular property may be delayed based on market and other
conditions. The Amendment could have the effect of extending the
life of the Fund for several years and delaying the ultimate
distribution of its assets. The Partnership Agreement provides that
the Fund must be liquidated, in any event, by the year 2039 (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 effected 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 and 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.
4. Undesignated Properties. Investors will not be able to
review in advance the properties in which proceeds would be
reinvested.
5. General Partner Conflicts of Interest. The general
partners have a conflict of interest in proposing the Amendment
because they will receive more reimbursements from the Fund if
proceeds are reinvested than they will if proceeds were not
reinvested. The general partner will be reimbursed for the costs
it incurs, including costs of its personnel, in reinvesting the
proceeds and managing the properties in which the proceeds are
reinvested. Such reimbursements will include the salaries of
personnel of the general partner during the time they spend on
such activities, plus a small portion (based on hours of
employees spent on partnership actives and the assets of the
partnership as compared to all partnerships the general partners
manage) of other overhead, such as rental expense, of the general
partners. Reimbursements to the general partners for expenses
incurred have averaged approximately $255,000 per year during the
past two years and aggregated approximately over $752,724 during
the three years ended December 31, 1995. Such reimbursements
will decrease if cash is distributed and fewer properties are
under management in the Fund.
REASONS FOR AND EFFECTS OF THE AMENDMENT
GENERAL
If Investors approve the Amendment, the Fund would have the
opportunity, upon the sale or other disposition of properties, to
reinvest the sale proceeds in additional triple net leased
properties. Under the original terms of the Partnership
Agreement, reinvestment of the Net Proceeds of Sale from the sale
of properties was limited to a period of five years after
termination of sale of units in the Fund, which period expired
December 5, 1995. By consenting to the Amendment of the
Partnership Agreement, Investors would permit the Fund to acquire
new properties with the Net Proceeds of Sale from the sale of the
properties described below (net of any distributions to
Investors) or any other sale of Fund property that occurs prior
to the final liquidation of the Fund.
The Amendment is not intended to extend the life of the
Fund. The Prospectus pursuant to which the units of limited
partnership interest (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
properties described below were acquired in 1990, 1992 and 1996
and it remains the intention to liquidate the Fund, depending
market conditions and the benefits of continued ownership, by the
year 2004.
This Amendment is being proposed for a number of reasons,
including the following:
Without the 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;
If the Amendment is approved, the Fund will be
able take advantage of any favorable purchase proposals
that are presented, and to seek out such proposals when
market conditions are favorable, and retain adequate
capital in the Fund to work toward the Fund's
investment objectives;
Without the 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;
If the Amendment is approved, cash proceeds from
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;
Without the Amendment, an Investor will be forced
to purchase units in a new fund with distributed cash
to retain a similar investment in an AEI fund and to
incur sales commissions and organization expense that
will decrease his or her ability to obtain gain on such
reinvestment;
If the 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 managing general partner believes that the Fund can
generate the most favorable returns to Investors only if the
costs of forming the partnerships, including commissions to sales
agents, filing fees and professional costs, can be amortized over
the intended life of the Fund. 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 will not be adequate to
generate the returns that were the original objective of the
Fund.
The managing general partner believes that it can continue
to 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. The managing general partner believes that, in most
cases, because the owner is compensated for the risk of
development and construction through increase in market value,
the market value of properties will 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 no additional organizational costs that will affect
overall return will be incurred. Further, the managing general
partner believes that, if allowed to reinvest the proceeds from
sale of properties, it can acquire properties that will generate
attractive net rental income for the Fund during the period they
are held. Recent acquisitions by the general partners for other
real estate limited partnerships that have investment objectives
substantially identical to the Fund have produced what the
general partners believe are favorable rental rates. No
assurances can be given, however, that a property acquired by the
Fund will produce similar rentals, that such rentals will not be
interrupted by events outside the managing general partners'
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 manage 11 public and 11 private real estate
partnerships. 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 this 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 in the franchise restaurant industry. No
property will be acquired from the general partners or their
Affiliates.
SALE OF PROPERTIES
The Amendment is being proposed, in part, to facilitate
reinvestment of net proceeds of sale from a Taco Cabana
restaurant in New Braunfels, Texas and the sale of partial
interests in a Taco Cabana restaurant in San Antonio, Texas and a
Tractor Supply retail store in Bristol, Virginia.
The Fund purchased the Taco Cabana restaurant in New
Braunfels, Texas on May 1, 1992 for $784,044. The property was
leased to Texas Taco Cabana LP, under a 15 year, noncancelable
triple-net lease agreement. On May 10, 1996, the property was
sold to an unaffiliated third party for $962,297, resulting in a
net cash gain of $178,253. The Fund's adjusted tax basis in the
property, after depreciation, was $706,750. Accordingly the
sale generated a taxable gain of $255,727 or $11.75 per
outstanding Limited Partnership unit.
The Fund purchased the Taco Cabana restaurant in San
Antonio, Texas on December 29, 1990 for $1,151,916. The property
is leased to Texas Taco Cabana LP under a 15-year, noncancelable
triple-net lease agreement. The Fund recently sold 24.3862% of
its interest (or $280,909 of the original cost), in this property
to unaffiliated third parties, receiving net proceeds of
approximately $391,235 and resulting in a net cash gain of
$110,326. The adjusted tax basis in the interest in the property
that was sold, after depreciation was, $261,588. Accordingly, the
sale of the partial interest generated a taxable gain of
approximately $129,647 or $5.96 per outstanding Limited
Partnership unit.
The Fund purchased the Tractor Supply in Bristol, Virginia
on April 10, 1996, for $1,094,367. The property is leased to
Tractor Supply Company under a 14-year, noncancelable triple-net
lease agreement. The Fund recently sold 21.5621% of its interest
(or $235,968 of the original cost), in this property to
unaffiliated third parties. The Fund received net proceeds of
sale of approximately $271,361 which resulted in a net cash gain
of $35,393 The adjusted tax basis in the interest in the
property that was sold, after depreciation was $233,016.
Accordingly, the sale of the partial interest generated a taxable
gain of approximately $38,345 or $1.76 per outstanding Limited
Partnership unit.
If the Investors approve the Amendment, the Fund will
distribute approximately $148,000, or approximately $6.80 per
outstanding Unit, of the Net Proceeds of Sale to cover income tax
liabilities generated by the sale. The distribution of Net
Proceeds on Sale would reduce the Adjusted Capital Contributions
of Investors by $6.80 per outstanding limited partnership unit.
The remainder of the proceeds would be reinvested in new
properties.
In the event Investors do not approve the Amendment,
Investors will receive a distribution of approximately
$1,475,000, or approximately $67.77 per outstanding Unit, from
sale of the these properties. The Net Proceeds of Sale not
distributed will be retained by the Fund as working capital
reserves. The distribution of Net Proceeds on Sale would reduce
the Adjusted Capital Contributions of Investors by $67.77 per
outstanding Unit.
The interest in these three properties that was sold would
have generated rental revenues of $171,884 during a full year.
If the proceeds from its sale are distributed, rather than
reinvested, future Fund revenues, and therefore cash
distributions to investors, will be reduced by a corresponding
amount.
INTEREST OF THE GENERAL PARTNER
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 acquisition and in
connection with management of the property in accordance with,
and subject to the limitations in the Partnership Agreement.
Generally, costs are allocated to the Fund based on the daily
timesheets of employees. The general partners establish 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 partnership activities multiplied by the time charge. To the
extent that the Amendment to the Partnership Agreement 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 general partners would have
to deploy its employees in other activities. Such reduced
operations can be expected to reduce the aggregate amount of
reimbursements that the general partners receive from the Fund.
Reimbursements to the general partners for expenses incurred have
averaged approximately $255,000 per year during the past two
years and aggregated $752,724 during the three years ended
December 31, 1995. Such reimbursements will decrease if cash is
distributed and fewer properties are under management in the
Fund.
The Managing General Partner holds 20 Units and the
Individual General Partner holds 26 units as a limited partner in
the Fund. No other Affiliate of the general partners holds any
interest as a limited partner in the Fund.
VOTING UNITS
Voting by Investors on an Amendment of the Partnership
Agreement is based upon Fund units ("Voting Units"). As of
October 1, 1996, there were 21,764.28 Voting Units outstanding.
Each Voting Unit is entitled to one vote. Fractions of Voting
Units will be included in the total.
To the best of the managing general partner's knowledge,
there is no beneficial owner holding five percent or more of the
Voting Units including the general partners.
In order for the proposed Amendment to be adopted, a
majority of the Voting Units must be voted in favor of the
Amendment. Because an abstention will not be counted as a vote
for the Amendment, it would have the effect of a vote against the
Amendment.
PROCEDURES FOR VOTING
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 Amendment. IF ANY INVESTOR RETURNS A CONSENT FORM DULY
SIGNED WITHOUT CHECKING ANY BOX, HE/SHE WILL BE DEEMED TO HAVE
VOTED FOR THE AMENDMENT.
An Investor who votes against, or abstains, does not have
appraisal or similar rights under Minnesota law.
The general partners have fixed the close of business on
October 1, 1996 as the record date for the determination of the
Investors entitled to vote on the proposed Amendment; the close
of business on December 15, 1996 as the date by which Consent
Forms must be received by the general partners in order to be
counted; and December 16, 1996 as the date on which the consents
are to be counted. An Investor may revoke his/her/its consent at
any time prior to December 15, 1996, provided written revocation
is received by the general partners prior to that date.
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 was first mailed to Investors on
November , 1996. Staff of the general partners will be
available by telephone to answer any questions concerning this
Consent.
INCORPORATION BY REFERENCE
The information included under the captions "Financial
Statements and Notes to Financial Statements," "Selected
Financial Data" and Management's Discussion and Analysis of
Financial Condition and Results of Operations" of the Fund's
Annual Report on Form 10-KSB for the year ended December 31,
1995, as amended by the Form 10-KSB dated August 19, 1996,
Quarterly Report on Form 10-QSB for the quarter ended March 31,
1996, Quarterly Report on Form 10-QSB for the quarter ended June
30, 1996 and Current Report on Form 8-K dated April 24, 1996 is
hereby incorporated by reference. Copies of such sections are
being delivered to you with this consent statement.
BY ORDER OF THE BOARD OF DIRECTORS
OF AEI FUND MANAGEMENT XVIII, INC.
Robert P. Johnson, President
Exhibit A
PROPOSED AMENDMENT OF
LIMITED PARTNERSHIP AGREEMENT OF
AEI REAL ESTATE FUND XVIII
Changes in the existing provisions of the Limited
Partnership Agreement that would be made by the proposed
Amendment are shown below. Existing provisions proposed to be
omitted are enclosed in brackets. New matter is printed in bold.
The amendment would alter only the first sentence of section 5.4.
The remainder of such section would remain unaltered.
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 five years 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 PARTNERSHIP TO BEGIN LIQUIDATION OF THE PARTNERSHIP;
provided, however, that sufficient cash is distributed to the
Limited Partners to pay state and federal income taxes (assuming
Limited Partners are taxable at a marginal rate of 28% for
federal income tax purposes or such greater rate as is the
maximum effective rate for federal income taxation applicable to
individuals) created as a result of such transaction.
IMPORTANT IMPORTANT
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
CONSENT OF LIMITED PARTNERS
This consent is solicited by the Board
of Directors of AEI Fund Management XVIII, Inc.,
The Managing General Partner
The undersigned, a Limited Partner of AEI Real Estate Fund
XVIII Limited Partnership (the "Partnership"), hereby consents
(unless otherwise directed below) to the proposal identified
below to adopt an Amendment to Section 5.4 of the Limited
Partnership Agreement of the Partnership (the "Partnership
Agreement"), as more fully described in the Consent Statement
(the "Proposal"). By voting for the Proposal, the undersigned
hereby appoints AEI Partnership Management XVIII, Inc. as its
attorney-in-fact with power to sign and acknowledge on its behalf
any instrument that may be necessary to evidence the Amendment to
the Partnership Agreement and any corresponding Amendment to the
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 December
15, 1996.
Adoption of Amendment to Section 5.4 of the Fund Agreement
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The Fund Units held by the signing Limited Partner will be
voted as directed. They will be voted "FOR" the Proposal 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: , 1996
Signature (if held jointly)
