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, 1999
Commission file number: 0-18289
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer as Specified in its Charter)
State of Minnesota 41-1622463
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1300 Minnesota World Trade Center, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(651) 227-7333
(Issuer's telephone number)
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 XVIII LIMITED PARTNERSHIP
INDEX
PART I.Financial Information
Item 1.Balance Sheet as of September 30, 1999 and December 31, 1998
Statements for the Periods ended September 30, 1999 and 1998:
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 XVIII LIMITED PARTNERSHIP
BALANCE SHEET
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(Unaudited)
ASSETS
1999 1998
CURRENT ASSETS:
Cash and Cash Equivalents $ 612,291 $ 311,087
Receivables 12,085 52,928
----------- -----------
Total Current Assets 624,376 364,015
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 5,384,757 5,491,552
Buildings and Equipment 11,058,872 10,652,675
Construction in Progress 0 439,301
Property Acquisition Costs 407 22,316
Accumulated Depreciation (2,361,451) (2,159,173)
----------- -----------
Net Investments in Real Estate 14,082,585 14,446,671
----------- -----------
Total Assets $14,706,961 $14,810,686
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 34,443 $ 16,768
Distributions Payable 298,095 195,285
Security Deposit 12,500 12,500
Unearned Rent 53,624 5,000
----------- -----------
Total Current Liabilities 398,662 229,553
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (52,382) (49,653)
Limited Partners, $1,000 Unit Value;
30,000 Units authorized; 22,783 Issued;
20,625 and 20,910 Units outstanding
in 1999 and 1998, respectively 14,360,681 14,630,786
----------- -----------
Total Partners' Capital 14,308,299 14,581,133
----------- -----------
Total Liabilities and Partners' Capital $14,706,961 $14,810,686
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
Three Months Ended Nine Months Ended
9/30/99 9/30/98 9/30/99 9/30/98
INCOME:
Rent $ 471,589 $ 379,694 $ 1,426,130 $ 1,083,020
Investment Income 5,848 56,680 21,555 174,133
--------- --------- ----------- -----------
Total Income 477,437 436,374 1,447,685 1,257,153
--------- --------- ----------- -----------
EXPENSES:
Partnership Administration -
Affiliates 55,337 57,764 182,151 188,901
Partnership Administration
and Property Management -
Unrelated Parties 9,716 16,588 32,457 51,017
Depreciation 99,814 75,423 299,209 221,661
Real Estate Impairment 125,531 0 125,531 0
--------- --------- ----------- -----------
Total Expenses 290,398 149,775 639,348 461,579
--------- --------- ----------- -----------
OPERATING INCOME 187,039 286,599 808,337 795,574
GAIN (LOSS) ON SALE
OF REAL ESTATE 0 (22,345) 146,588 (22,345)
--------- --------- ----------- -----------
NET INCOME $ 187,039 $ 264,254 $ 954,925 $ 773,229
========= ========= =========== ===========
NET INCOME ALLOCATED:
General Partners $ 1,870 $ 2,642 $ 9,549 $ 7,732
Limited Partners 185,169 261,612 945,376 765,497
--------- --------- ----------- -----------
$ 187,039 $ 264,254 $ 954,925 $ 773,229
========= ========= =========== ===========
NET INCOME PER
LIMITED PARTNERSHIP UNIT
(20,625, 21,127, 20,815
and 21,314 weighted average
Units outstanding for the
periods, respectively) $ 8.98 $ 12.38 $ 45.42 $ 35.92
========= ========= =========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 954,925 $ 773,229
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 299,209 221,661
Real Estate Impairment 125,531 0
(Gain) Loss on Sale of Real Estate (146,588) 22,345
(Increase) Decrease in Receivables 40,843 (29,035)
Increase in Payable to
AEI Fund Management, Inc. 17,675 9,474
Increase in Unearned Rent 48,624 63,100
----------- -----------
Total Adjustments 385,294 287,545
----------- -----------
Net Cash Provided By
Operating Activities 1,340,219 1,060,774
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (337,666) (3,924,927)
Proceeds from Sale of Real Estate 423,600 350,635
----------- -----------
Net Cash Provided By (Used For)
Investing Activities 85,934 (3,574,292)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Distributions Payable 102,810 64,192
Distributions to Partners (999,241) (735,965)
Redemption Payments (228,518) (291,272)
----------- -----------
Net Cash Used For
Financing Activities (1,124,949) (963,045)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 301,204 (3,476,563)
CASH AND CASH EQUIVALENTS, beginning of period 311,087 4,213,283
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 612,291 $ 736,720
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND XVIII 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, 1997 $(46,818) $14,911,469 $14,864,651 21,487.28
Distributions (7,360) (728,605) (735,965)
Redemption Payments (2,912) (288,360) (291,272) (360.00)
Net Income 7,732 765,497 773,229
--------- ----------- ----------- -----------
BALANCE, September 30, 1998 $(49,358) $14,660,001 $14,610,643 21,127.28
========= =========== =========== ===========
BALANCE, December 31, 1998 $(49,653) $14,630,786 $14,581,133 20,910.48
Distributions (9,993) (989,248) (999,241)
Redemption Payments (2,285) (226,233) (228,518) (285.00)
Net Income 9,549 945,376 954,925
---------- ----------- ----------- -----------
BALANCE, September 30, 1999 $(52,382) $14,360,681 $14,308,299 20,625.48
========== =========== =========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(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 XVIII Limited Partnership (Partnership)
was formed to acquire and lease commercial properties to
operating tenants. The Partnership's operations are managed
by AEI Fund Management XVIII, 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 15, 1989 when minimum
subscriptions of 1,500 Limited Partnership Units
($1,500,000) were accepted. The Partnership's offering
terminated December 4, 1990 when the extended offering
period expired. The Partnership received subscriptions for
22,783.05 Limited Partnership Units ($22,783,050).
Under the terms of the Limited Partnership Agreement, the
Limited Partners and General Partners contributed funds of
$22,783,050, 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 XVIII 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 XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate -
The Partnership owned a 93.2478% interest in a Sizzler
restaurant in Springboro, Ohio. In November, 1993, after
reviewing the lessee's operating results, the Partnership
determined that the lessee would be unable to operate the
restaurant in a manner capable of maximizing the
restaurant's sales. Consequently, at the direction of the
Partnership, a multi-unit restaurant operator assumed
operation of the restaurant while the Partnership reviewed
the available options. In June, 1994, the Partnership
closed the restaurant and listed it for sale or lease.
While the property was vacant, the Partnership was
responsible for the real estate taxes and other costs
required to maintain the property.
In December, 1996, the Partnership, in order to avoid
additional property management expenses, decided to sell the
Sizzler property rather than to continue to attempt to re-
lease the property. In addition, based on an analysis of
market conditions in the area, it was determined that a sale
of the property would result in net proceeds of
approximately $400,000. The Partnership's share of the
proceeds would be approximately $373,000. A charge to
operations for real estate impairment of $693,500 was
recognized in the fourth quarter of 1996, which is the
difference between book value at December 31, 1996 of
$1,066,500 and the estimated market value of $373,000. The
charge was recorded against the cost of the land, building
and equipment.
On July 21, 1998, the Partnership sold its interest in the
Sizzler restaurant in Springboro, Ohio to an unrelated third
party. The Partnership received net sale proceeds of
$350,635, which resulted in a net loss on the sale of
$22,345.
In August, 1995, the lessee of the two Rally's properties
filed for reorganization. After reviewing the operating
results of the lessee, the Partnership agreed to amend the
Leases of the two properties. Effective December 1, 1995,
the Partnership amended the Leases to reduce the annual base
rent from $47,498 and $48,392 to $15,000 for each property.
The Partnership could receive additional rent in the future
equal to 6.75% of the amount by which gross receipts exceed
$275,000. In 1997, the Leases, as amended, were confirmed
as part of the reorganization plan. The lessee has agreed
to pay all pre-petition and post-petition rents due of
$84,525 and the Partnership's related administrative and
legal expenses. However, the Partnership does not believe
it will be successful in collecting these amounts and has
not accrued any of these amounts for financial reporting
purposes.
As of December 31, 1997, based on an analysis of market
conditions in the area, it was determined the fair value of
the Rally's properties was approximately $270,000. In the
fourth quarter of 1997, a charge to operations for real
estate impairment of $220,500 was recognized, which is the
difference between the book value at December 31, 1997 of
$490,500 and the estimated fair value of $270,000. The
charge was recorded against the cost of the building and
equipment. In October, 1999, the Partnership elected to
abandon one of the properties in order to avoid ongoing
expenses. The net book value of the property of $125,531
was recognized as a real estate impairment in the third
quarter of 1999.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
In 1997, the Partnership took possession of the Taco Cabana
restaurant in Brownsville, Texas and listed it for sale or
re-lease. The Partnership was scheduled to receive, but did
not collect, $89,134 in rent in the first nine months of
1998. These amounts were not accrued for financial
reporting purposes. While the property was vacant, the
Partnership was responsible for real estate taxes and other
costs required to maintain the property.
On November 18, 1998, the Partnership re-leased the
Brownsville property to Sergio Gonzalez under a Lease
Agreement with a primary term of two years and annual rental
payments of $37,200. The property is now operated as a Taco
Fiesta restaurant.
In December, 1998, Gulf Coast Restaurants, Inc. (GCR), the
lessee of the Applebee's restaurant in Slidell, Louisiana,
filed for reorganization. GCR is continuing to make the
lease payments to the Partnership under the supervision of
the bankruptcy court while they develop a reorganization
plan. If the Lease is assumed, GCR must comply with all
Lease terms and any unpaid rent must be paid. If the Lease
is rejected, GCR will be required to return possession of
the property to the Partnership and past due amounts will be
dismissed and the Partnership will be responsible for re-
leasing the property. At September 30, 1999, GCR owed
$7,100 for rent due prior to the date of the filing for
reorganization. An analysis of the operating statements of
this property indicate that it is generating profits and it
is management's belief that the Lease will be assumed by
GCR.
On December 23, 1997, the Partnership purchased a 23.95%
interest in a parcel of land in Troy, Michigan for $361,889.
The land is leased to Champps Entertainment, Inc. (Champps)
under a Lease Agreement with a primary term of 20 years and
annual rental payments of $25,332. Effective June 20, 1998,
the annual rent was increased to $37,998. Simultaneously
with the purchase of the land, the Partnership entered into
a Development Financing Agreement under which the
Partnership advanced funds to Champps for the construction
of a Champps Americana restaurant on the site. Initially,
the Partnership charged interest on the advances at a rate
of 7.0%. Effective June 20, 1998, the interest rate was
increased to 10.50%. On September 3, 1998, after the
development was completed, the Lease Agreement was amended
to require annual rental payments of $122,605. The
Partnership's share of the total acquisition costs,
including the cost of the land, was $1,192,496. The
remaining interests in the property are owned by AEI Real
Estate Fund XV Limited Partnership, AEI Real Estate Fund
XVII Limited Partnership and AEI Net Lease Income & Growth
Fund XIX Limited Partnership, affiliates of the Partnership.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
In January, 1998, the Partnership entered into an agreement
to purchase a 45% interest in a Tumbleweed restaurant in
Chillicothe, Ohio. On April 13, 1998, the Partnership
purchased its share of the land for $216,915. The land is
leased to Tumbleweed, Inc. (TWI) under a Lease Agreement
with a primary term of 15 years and annual rental payments
of $18,438. Effective August 10, 1998, the annual rent was
increased to $22,234. Simultaneously with the purchase of
the land, the Partnership entered into a Development
Financing Agreement under which the Partnership advanced
funds to TWI for the construction of a Tumbleweed restaurant
on the site. Initially, the Partnership charged interest on
the advances at a rate of 8.5%. Effective August 10, 1998,
the interest rate was increased to 10.25%. On November 20,
1998, after the development was completed, the Lease
Agreement was amended to require annual rental payments of
$57,314. The Partnership's share of the total acquisition
costs, including the cost of the land, was $573,831. The
remaining interests in the property are owned by the
Individual General Partner and AEI Net Lease Income & Growth
Fund XIX Limited Partnership.
In April, 1998, the Partnership entered into an agreement to
purchase a Tumbleweed restaurant in Columbus, Ohio. On May
1, 1998, the Partnership purchased the land for $503,832.
The land is leased to TWI under a Lease Agreement with a
primary term of 15 years and annual rental payments of
$42,826. Effective August 28, 1998, the annual rent was
increased to $51,643. Simultaneously with the purchase of
the land, the Partnership entered into a Development
Financing Agreement under which the Partnership advanced
funds to TWI for the construction of a Tumbleweed restaurant
on the site. Initially, the Partnership charged interest on
the advances at a rate of 8.5%. Effective August 28, 1998,
the interest rate was increased to 10.25%. On December 28,
1998, after the development was completed, the Partnership
assigned, for diversification purposes, 60% of its interest
in the property to an affiliated Partnership and the Lease
Agreement was amended to require annual rental payments of
$55,401. The Partnership's share of the total acquisition
costs, including the cost of the land, was $554,269. The
remaining interest in the property is owned by AEI Net Lease
Income & Growth Fund XIX Limited Partnership.
In April, 1998, the Partnership entered into an Agreement to
purchase an Old Country Buffet restaurant to be constructed
in Northlake, Illinois. On May 18, 1998, the Partnership
purchased the land for $330,000. The Partnership charged
interest on the land at a rate of 10% until September 27,
1998. On September 28, 1998, the tenant began paying annual
rent of $130,000. On September 30, 1998, the Partnership
advanced $370,000 for the construction of the property. On
December 29, 1998, after the construction was completed, the
Partnership paid $639,000 of additional construction costs.
The total acquisition cost was $1,350,804. The property is
leased to OCB Realty Co. under a Lease Agreement with a
primary term of 20 years.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
On August 28, 1998, the Partnership purchased a 38% interest
in a parcel of land in Centerville, Ohio for $703,376. The
land is leased to Americana Dining Corporation (ADC) under a
Lease Agreement with a primary term of 20 years and annual
rental payments of $49,236. Effective December 25, 1998,
the annual rent was increased to $73,854. Simultaneously
with the purchase of the land, the Partnership entered into
a Development Financing Agreement under which the
Partnership will advance funds to ADC for the construction
of a Champps Americana restaurant on the site. Initially,
the Partnership charged interest on the advances at a rate
of 7%. Effective December 25, 1998, the interest rate was
increased to 10.5%. On January 27, 1999, after the
development was completed, the Lease Agreement was amended
to require annual rental payments of $154,075. The
Partnership's share of the total acquisition costs,
including the cost of the land, were $1,502,252. The
remaining interests in the property are owned by AEI Real
Estate Fund XVII Limited Partnership, AEI Income & Growth
Fund XXI Limited Partnership and AEI Income & Growth Fund
XXII Limited Partnership, affiliates of the Partnership.
During the first three months of 1999, the Partnership sold
its interest in the HomeTown Buffet restaurant in three
separate transactions to unrelated third parties. The
Partnership received total net sale proceeds of $423,600
which resulted in a total net gain of $146,588. The total
cost and related accumulated depreciation of the interests
sold was $303,733 and $26,721, respectively.
(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.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
For the nine months ended September 30, 1999 and 1998, the
Partnership recognized rental income of $1,426,130 and
$1,083,020, respectively. During the same periods, the
Partnership earned investment income of $21,555 and $174,133,
respectively. In 1999, rental income increased as a result of
additional rent received from five property acquisitions in 1998
and 1999, rent increases on eleven properties, percentage rent
received on one property, and rent received from re-leasing the
Brownsville property. These increases in rental income were
partially offset by a decrease in rental income due to the
property sales discussed below, and a decrease in investment
income earned on net sale proceeds prior to the purchase of the
additional properties.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The Partnership owned a 93.2478% interest in a Sizzler
restaurant in Springboro, Ohio. In November, 1993, after
reviewing the lessee's operating results, the Partnership
determined that the lessee would be unable to operate the
restaurant in a manner capable of maximizing the restaurant's
sales. Consequently, at the direction of the Partnership, a
multi-unit restaurant operator assumed operation of the
restaurant while the Partnership reviewed the available options.
In June, 1994, the Partnership closed the restaurant and listed
it for sale or lease. While the property was vacant, the
Partnership was responsible for the real estate taxes and other
costs required to maintain the property.
In December, 1996, the Partnership, in order to avoid
additional property management expenses, decided to sell the
Sizzler property rather than to continue to attempt to re-lease
the property. In addition, based on an analysis of market
conditions in the area, it was determined that a sale of the
property would result in net proceeds of approximately $400,000.
The Partnership's share of the proceeds would be approximately
$373,000. A charge to operations for real estate impairment of
$693,500 was recognized in the fourth quarter of 1996, which is
the difference between book value at December 31, 1996 of
$1,066,500 and the estimated market value of $373,000. The
charge was recorded against the cost of the land, building and
equipment.
On July 21, 1998, the Partnership sold its interest in the
Sizzler restaurant in Springboro, Ohio to an unrelated third
party. The Partnership received net sale proceeds of $350,635,
which resulted in a net loss on the sale of $22,345.
In August, 1995, the lessee of the two Rally's properties
filed for reorganization. After reviewing the operating results
of the lessee, the Partnership agreed to amend the Leases of the
two properties. Effective December 1, 1995, the Partnership
amended the Leases to reduce the annual base rent from $47,498
and $48,392 to $15,000 for each property. The Partnership could
receive additional rent in the future equal to 6.75% of the
amount by which gross receipts exceed $275,000. In 1997, the
Leases, as amended, were confirmed as part of the reorganization
plan. The lessee has agreed to pay all pre-petition and post-
petition rents due of $84,525 and the Partnership's related
administrative and legal expenses. However, the Partnership does
not believe it will be successful in collecting these amounts and
has not accrued any of these amounts for financial reporting
purposes.
As of December 31, 1997, based on an analysis of market
conditions in the area, it was determined the fair value of the
Rally's properties was approximately $270,000. In the fourth
quarter of 1997, a charge to operations for real estate
impairment of $220,500 was recognized, which is the difference
between the book value at December 31, 1997 of $490,500 and the
estimated fair value of $270,000. The charge was recorded
against the cost of the building and equipment. In October,
1999, the Partnership elected to abandon one of the properties in
order to avoid ongoing expenses. The net book value of the
property of $125,531 was recognized as a real estate impairment
in the third quarter of 1999.
In 1997, the Partnership took possession of the Taco
Cabana restaurant in Brownsville, Texas and listed it for sale or
re-lease. The Partnership was scheduled to receive, but did not
collect, $89,134 in rent in the first nine months of 1998. These
amounts were not accrued for financial reporting purposes. While
the property was vacant, the Partnership was responsible for real
estate taxes and other costs required to maintain the property.
On November 18, 1998, the Partnership re-leased the
Brownsville property to Sergio Gonzalez under a Lease Agreement
with a primary term of two years and annual rental payments of
$37,200. The property is now operated as a Taco Fiesta
restaurant.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
In December, 1998, Gulf Coast Restaurants, Inc. (GCR), the
lessee of the Applebee's restaurant in Slidell, Louisiana, filed
for reorganization. GCR is continuing to make the Lease payments
to the Partnership under the supervision of the bankruptcy court
while they develop a reorganization plan. If the Lease is
assumed, GCR must comply with all lease terms and any unpaid rent
must be paid. If the Lease is rejected, GCR will be required to
return possession of the property to the Partnership and past due
amounts will be dismissed and the Partnership will be responsible
for re-leasing the property. At September 30, 1999, GCR owed
$7,100 for rent due prior to the date of the filing for
reorganization. An analysis of the operating statements of this
property indicate that it is generating profits and it is
management's belief that the Lease will be assumed by GCR.
During the nine months ended September 30, 1999 and 1998,
the Partnership paid Partnership administration expenses to
affiliated parties of $182,151 and $188,901, 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 $32,457 and $51,017, 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 decrease
in these expenses in 1999, when compared to 1998, is the result
of expenses incurred in 1998 related to the Sizzler and
Brownsville property situations discussed above.
As of September 30, 1999, the Partnership's annualized
cash distribution rate was 6.5%, based on the Adjusted Capital
Contribution. Distributions of Net Cash Flow to the General
Partners were subordinated to the Limited Partners as required in
the Partnership Agreement. As a result, 99% of distributions and
income were allocated to Limited Partners and 1% to the General
Partners.
Inflation has had a minimal effect on income from
operations. It is expected that increases in sales volumes of
the tenants due to inflation and real sales growth, will result
in an increase in rental income over the term of the Leases.
Inflation also may cause the Partnership's real estate to
appreciate in value. However, inflation and changing prices may
also have an adverse impact on the operating margins of the
properties' tenants which could impair their ability to pay rent
and subsequently reduce the Partnership's Net Cash Flow available
for distributions.
The Year 2000 issue is the result of computer systems that
use two digits rather than four to define the applicable year,
which may prevent such systems from accurately processing dates
ending in the Year 2000 and beyond. This could result in
computer system failures or disruption of operations, including,
but not limited to, an inability to process transactions, to send
or receive electronic data, or to engage in routine business
activities.
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. In 1998, AEI completed an
assessment of its computer hardware and software systems and has
replaced or upgraded certain computer hardware and software using
the assistance of outside vendors. AEI has received written
assurance from the equipment and software manufacturers as to
Year 2000 compliance. The costs associated with Year 2000
compliance have not been, and are not expected to be, material.
The Partnership intends to monitor and communicate with
tenants regarding Year 2000 compliance, although there can be no
assurance that the systems of the various tenants will be Year
2000 compliant.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Liquidity and Capital Resources
During the nine months ended September 30, 1999, the
Partnership's cash balances increased $301,204 as the Partnership
distributed less cash to the Partners than it generated from
operating activities. Net cash provided by operating activities
increased from $1,060,774 in 1998 to $1,340,219 in 1999 mainly as
a result of an increase in income and a decrease in expenses in
1999 and net timing differences in the collection of payments
from the lessees and the payment of expenses.
The major components of the Partnership's cash flow from
investing activities are investments in real estate and proceeds
from the sale of real estate. During the nine months ended
September 30, 1999 and 1998, the Partnership generated cash flow
from the sale of real estate of $423,600 and $350,635,
respectively. During the same periods, the Partnership expended
$337,666 and $3,924,927, respectively, to invest in real
properties (inclusive of acquisition expenses) as the Partnership
reinvested cash generated from property sales.
On December 23, 1997, the Partnership purchased a 23.95%
interest in a parcel of land in Troy, Michigan for $361,889. The
land is leased to Champps Entertainment, Inc. (Champps) under a
Lease Agreement with a primary term of 20 years and annual rental
payments of $25,332. Effective June 20, 1998, the annual rent
was increased to $37,998. Simultaneously with the purchase of
the land, the Partnership entered into a Development Financing
Agreement under which the Partnership advanced funds to Champps
for the construction of a Champps Americana restaurant on the
site. Initially, the Partnership charged interest on the
advances at a rate of 7.0%. Effective June 20, 1998, the
interest rate was increased to 10.50%. On September 3, 1998,
after the development was completed, the Lease Agreement was
amended to require annual rental payments of $122,605. The
Partnership's share of the total acquisition costs, including the
cost of the land, was $1,192,496. The remaining interests in the
property are owned by AEI Real Estate Fund XV Limited
Partnership, AEI Real Estate Fund XVII Limited Partnership and
AEI Net Lease Income & Growth Fund XIX Limited Partnership,
affiliates of the Partnership.
In January, 1998, the Partnership entered into an
agreement to purchase a 45% interest in a Tumbleweed restaurant
in Chillicothe, Ohio. On April 13, 1998, the Partnership
purchased its share of the land for $216,915. The land is leased
to Tumbleweed, Inc. (TWI) under a Lease Agreement with a primary
term of 15 years and annual rental payments of $18,438.
Effective August 10, 1998, the annual rent was increased to
$22,234. Simultaneously with the purchase of the land, the
Partnership entered into a Development Financing Agreement under
which the Partnership advanced funds to TWI for the construction
of a Tumbleweed restaurant on the site. Initially, the
Partnership charged interest on the advances at a rate of 8.5%.
Effective August 10, 1998, the interest rate was increased to
10.25%. On November 20, 1998, after the development was
completed, the Lease Agreement was amended to require annual
rental payments of $57,314. The Partnership's share of the total
acquisition costs, including the cost of the land, was $573,831.
The remaining interests in the property are owned by the
Individual General Partner and AEI Net Lease Income & Growth Fund
XIX Limited Partnership.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
In April, 1998, the Partnership entered into an agreement
to purchase a Tumbleweed restaurant in Columbus, Ohio. On May 1,
1998, the Partnership purchased the land for $503,832. The land
is leased to TWI under a Lease Agreement with a primary term of
15 years and annual rental payments of $42,826. Effective August
28, 1998, the annual rent was increased to $51,643.
Simultaneously with the purchase of the land, the Partnership
entered into a Development Financing Agreement under which the
Partnership advanced funds to TWI for the construction of a
Tumbleweed restaurant on the site. Initially, the Partnership
charged interest on the advances at a rate of 8.5%. Effective
August 28, 1998, the interest rate was increased to 10.25%. On
December 28, 1998, after the development was completed, the
Partnership assigned, for diversification purposes, 60% of its
interest in the property to an affiliated Partnership and the
Lease Agreement was amended to require annual rental payments of
$55,401. The Partnership's share of the total acquisition costs,
including the cost of the land, was $554,269. The remaining
interest in the property is owned by AEI Net Lease Income &
Growth Fund XIX Limited Partnership.
In April, 1998, the Partnership entered into an Agreement
to purchase an Old Country Buffet restaurant to be constructed in
Northlake, Illinois. On May 18, 1998, the Partnership purchased
the land for $330,000. The Partnership charged interest on the
land at a rate of 10% until September 27, 1998. On September 28,
1998, the tenant began paying annual rent of $130,000. On
September 30, 1998, the Partnership advanced $370,000 for the
construction of the property. On December 29, 1998, after the
construction was completed, the Partnership paid $639,000 of
additional construction costs. The total acquisition cost was
$1,350,804. The property is leased to OCB Realty Co. under a
Lease Agreement with a primary term of 20 years.
On August 28, 1998, the Partnership purchased a 38%
interest in a parcel of land in Centerville, Ohio for $703,376.
The land is leased to Americana Dining Corporation (ADC) under a
Lease Agreement with a primary term of 20 years and annual rental
payments of $49,236. Effective December 25, 1998, the annual
rent was increased to $73,854. Simultaneously with the purchase
of the land, the Partnership entered into a Development Financing
Agreement under which the Partnership will advance funds to ADC
for the construction of a Champps Americana restaurant on the
site. Initially, the Partnership charged interest on the
advances at a rate of 7%. Effective December 25, 1998, the
interest rate was increased to 10.5%. On January 27, 1999, after
the development was completed, the Lease Agreement was amended to
require annual rental payments of $154,075. The Partnership's
share of the total acquisition costs, including the cost of the
land, were $1,502,252. The remaining interests in the property
are owned by AEI Real Estate Fund XVII Limited Partnership, AEI
Income & Growth Fund XXI Limited Partnership and AEI Income &
Growth Fund XXII Limited Partnership, affiliates of the
Partnership.
During the first three months of 1999, the Partnership
sold its interest in the HomeTown Buffet restaurant in three
separate transactions to unrelated third parties. The
Partnership received total net sale proceeds of $423,600 which
resulted in a total net gain of $146,588. The total cost and
related accumulated depreciation of the interests sold was
$303,733 and $26,721, respectively.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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. Prior to 1998,
redemption payments were paid to redeeming Partners in the fourth
quarter of each year. Beginning in 1998, redemption payments
were paid to redeeming Partners on a quarterly basis. The
redemption payments generally are funded with cash that would
normally be paid as part of the regular quarterly distributions.
As a result, total distributions and distributions payable have
fluctuated from year to year due to cash used to fund redemption
payments.
The Partnership may acquire Units from Limited Partners
who have tendered their Units to the Partnership. Such Units may
be acquired at a discount. The Partnership is not obligated to
purchase in any year more than 5% of the number of Units
outstanding at the beginning of the year. In no event shall the
Partnership be obligated to purchase Units if, in the sole
discretion of the Managing General Partner, such purchase would
impair the capital or operation of the Partnership.
On July 1, 1999, twenty-one Limited Partners redeemed a
total of 285.0 Partnership Units for $226,233 in accordance with
the Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a total of
120 Limited Partners redeemed 1,872.32 Partnership Units for
$1,490,675 in accordance with the Partnership Agreement. The
redemptions increase the remaining Limited Partners' ownership
interest in the Partnership.
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.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
The foregoing Management's Discussion and Analysis
contains various "forward looking statements" within the meaning
of federal securities laws which represent management's
expectations or beliefs concerning future events, including
statements regarding anticipated application of cash, expected
returns from rental income, growth in revenue, taxation levels,
the sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward
looking statements made by the Partnership, must be evaluated in
the context of a number of factors that may affect the
Partnership's financial condition and results of operations,
including the following:
<BULLET> Market and economic conditions which affect
the value of the properties the Partnership owns and
the cash from rental income such properties generate;
<BULLET> the federal income tax consequences of rental
income, deductions, gain on sales and other items and
the affects of these consequences for investors;
<BULLET> resolution by the General Partners of
conflicts with which they may be confronted;
<BULLET> the success of the General Partners of
locating properties with favorable risk return
characteristics;
<BULLET> the effect of tenant defaults; and
<BULLET> the condition of the industries in which the
tenants of properties owned by the Partnership operate.
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.
PART II - OTHER INFORMATION
(Continued)
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -
Description
27 Financial Data Schedule for period
ended September 30, 1999.
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 8, 1999 AEI Real Estate Fund XVIII
Limited Partnership
By: AEI Fund Management XVIII, 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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<CIK> 0000840459
<NAME> AEI REAL ESTATE FUND XVIII LTD PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 612,291
<SECURITIES> 0
<RECEIVABLES> 12,085
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 624,376
<PP&E> 16,443,629
<DEPRECIATION> (2,361,451)
<TOTAL-ASSETS> 14,706,961
<CURRENT-LIABILITIES> 398,662
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,308,299
<TOTAL-LIABILITY-AND-EQUITY> 14,706,961
<SALES> 0
<TOTAL-REVENUES> 1,447,685
<CGS> 0
<TOTAL-COSTS> 639,348
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 954,925
<INCOME-TAX> 0
<INCOME-CONTINUING> 954,925
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