UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File No. 33-33504
AAA NET REALTY FUND IX, LTD.
(Name of small business issuer in its charter)
Nebraska 76-0318157
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
8 Greenway Plaza, Suite 824
Houston, Texas 77046
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code(713)850-1400.
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) has 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 issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of the issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
Issuer's revenues for its most recent fiscal year: $557,470
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of Issuer dated June 6, 1990, (included in
Registration Statement No. 33-33504 of Issuer) are incorporated by reference
into Part III.
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PART I
Item 1. Business
AAA Net Realty Fund IX, Ltd. (the "Issuer" or the "Partnership") was formed in
1990 and is engaged in the business of acquiring, operating and holding real
properties for investment. The Partnership was organized to acquire existing
real estate income-producing properties as well as land upon which such
income-producing properties are to be constructed (the "properties"), to be
leased to corporations. The properties will not be leased to franchisees of such
corporations (unless a tenant corporation was to fail and in such event a
release may involve a franchisee lessee). American Asset Advisers Management
Corporation IX (a Nebraska corporation) is the Managing General Partner and H.
Kerr Taylor is the Individual General Partner.
The Partnership acquired three properties in 1991, a fourth property in 1992 and
a fifth property in 1993 at a total price of $4,436,869 including acquisition
fees and certain acquisition expenses. Generally, the Partnership leases
properties on a "net lease" basis to corporations having a net worth at the time
of acquisition in excess of $40 million.
A further description of the Partnership's business is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Item 6 of this Form 10-KSB.
The Objectives of the Partnership are:
(1) to preserve and protect the limited partners' original capital
contributions by the free and clear "all cash" acquisition of
income-producing improved real estate properties;
(2) to utilize initial limited partner equity to purchase
income-producing properties at prices that are below appraised
values;
(3) to obtain capital appreciation through increases in the value of
the Partnership's properties;
(4) to provide the limited partners with quarterly cash
distributions;
(5) to realize certain limited tax benefits, principally through
depreciation deductions so that taxable income of the Partnership
will be offset to some extent by deductible items, with the
result that investors may receive distributions generated from
the Partnership's operation with a reduced income tax liability
associated with the distribution of income.
There can be no assurance that such objectives can be attained. It is not an
objective of the Partnership to shelter taxable income of investors that is
derived from sources other than the Partnership.
Properties
As of December 31, 1998, the Partnership owned five properties all in fee
simple. Four of these properties are located in Texas and one in Tennessee.
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Although the specific terms of each lease vary, a summary of the terms of the
leases is as follows:
The primary term of the leases ranges from ten to eighteen years. Two of the
leases also provide for renewal options. The leases are all "triple-net" leases
whereby the tenants are responsible for the property taxes, insurance and
operating costs. Annual rental income ranges from $8,723 to $208,680. Three of
the leases provide for either percentage rents based on sales in excess of
certain amounts, periodic escalations in the annual rental rates or both.
During 1998, two of the Partnership's leases each contributed more than 15% of
the Partnership's total rental income. Summarized as follows are the significant
items pertaining to each of these leases:
Golden Corral Baptist Memorial
Corporation (1) Health Services, Inc.
Lease Term 15 Years 10 Years
Expiration Date of Primary Term December 2007 August 2007
Renewal Options N/A 2 Terms of 5 Years each
Square Footage of Improvements ` 12,000 15,000
Base Annual Rental $ 182,994 $ 208,680
(1) The Partnership owns two properties on lease to Golden Corral Corporation,
one directly and one through a 4.8% joint venture. Information included
herein pertains only to the property owned 100% by the Partnership.
All of the Partnership's leases specify a minimum amount of insurance coverage
required to be carried by each tenant. Management of the Partnership believes
that the insurance policies required to be carried by the tenants will
adequately cover the replacement cost of the properties and any personal
liability losses which the tenants may sustain.
Property Management
Prior to June 5, 1998, the supervision of the operations of the properties was
managed by American Asset Advisers Realty Corporation, ("AAA"), a related party.
Beginning June 5, 1998, the supervision of the operations of the properties is
managed by AmREIT Realty Investment Corporation, ("ARIC"), a related party. Such
management includes providing leasing services in connection with identifying
and qualifying prospective tenants, assisting in the negotiation of the leases,
providing quarterly financial statements, receiving and depositing monthly lease
payments, periodic verification of tenants' payments of real estate taxes and
insurance coverage, and periodic inspection of properties and tenants' sales
records where applicable. The Managing General Partner or such affiliates are
reimbursed for administrative expenses at cost. The tenants are responsible, at
their expense, for day-to-day on-site management and maintenance of the
properties.
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Financing - Borrowing Policies - No Leverage
The General Partners expect that the Partnership will incur no indebtedness in
connection with the operation of the properties. However, in the exercise of
their fiduciary duties the General Partners may elect to borrow funds on behalf
of the Partnership, but only if necessary in their judgment to avoid what would
otherwise be substantial adverse consequences to the Partnership. All properties
were acquired on a debt-free basis.
The Partnership will not issue any senior securities nor will it invest in
junior mortgages, junior deeds of trust or similar obligations.
Sale of Properties
The General Partners expect that most of the properties will be sold eight to
twelve years after acquisition. The determination of whether a particular
property should be sold or otherwise disposed of will be made after
consideration of performance of the property and market conditions and will
depend, in part, on the economic benefits of continued ownership. In deciding
whether to sell properties, the General Partners will consider factors such as
potential capital appreciation, cash flow and federal income tax consequences.
The General Partners or their affiliates may perform various substantial real
estate brokerage functions in connection with the sale of properties by the
Partnership.
Competitive Conditions
The properties owned by the Partnership are leased to fast food and family style
restaurants, retail businesses and a medical facility. These businesses face
competition from similar establishments within the surrounding areas.
At the time a property is sold or otherwise disposed of, the Partnership will be
in competition with others who are also seeking buyers for their properties.
Employees
The overall management decisions of the Partnership are made by the Managing
General Partner, American Asset Advisers Management Corporation IX, who
delegates certain day-to-day functions to the officers of ARIC, consultants, and
employees of ARIC. The Partnership itself has no employees.
Item 2. Properties
As of March 31, 1999, the Partnership owned five properties in fee simple (four
directly and one through a joint venture with an affiliated partnership). The
properties are located in Texas and Tennessee. They are operated as retail
stores, restaurants and medical facilities.
Land - The Partnership's property sites range from approximately 34,000 to
60,000 square feet depending upon building size and local demographic factors.
Sites purchased by the Partnership are in high traffic corridors and have been
reviewed for traffic and demographic pattern and history.
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Buildings - The buildings are all single tenant and generally rectangular. They
are positioned for good exposure to traffic flows and constructed from various
combinations of stucco, steel, wood, brick and tile. Buildings range from
approximately 2,300 to 15,000 square feet. Buildings are suitable for possible
conversion to other uses, although modifications may be required prior to use
for other operations. There are no plans for renovations or improvements.
Leases - Tenants are companies whose net worth exceed a minimum of $40 million.
Tenants are diversified by business type and are represented by the following
types of businesses: medical facilities, retail clothing and accessories, full
service restaurants and fast food restaurants.
Geographic Location - The properties are located within major metropolitan areas
with populations that exceed 250,000.
A total of $4,436,869 has been invested in properties as of December 31, 1998,
for the Partnership. This includes land, building and acquisition costs. A
further description of the Partnership properties is included in Item 1 and in
Schedule III-Real Estate Owned and Accumulated Depreciation of this Form 10-KSB.
Item 3. Legal Proceedings
The Partnership does not have any material legal proceedings pending.
Item 4. Submission of Matters to a Vote of Security Holders
During the fiscal year ended December 31, 1998, no matter was submitted to a
vote of security holders through the solicitation of proxies or otherwise.
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PART II
Item 5. Market for the Issuer's Common Equity and Related Stockholder Matters
As of March 31, 1999, 323 limited partners had subscribed for 5,390.5 Units. No
established public trading market currently exists for the Units.
For the years ended December 31, 1998 and 1997, the Partnership paid cash
distributions to the Limited Partners (LPs) in the amount of $462,721 and
$460,593, respectively and to the General Partners (GPs) in the amount of $3,000
and $3,000, respectively. The distributions were paid entirely from the
operating profits of the Partnership.
A summary of the distributions by quarter is as follows:
1998 1997
Quarter ---- ----
Ended GPs LPs GPs LPs
----- --- --- --- ---
March 31 $ 750 $ 115,464 $ 750 $ 114,926
June 30 $ 750 $ 115,626 $ 750 $ 115,087
September 30 $ 750 $ 115,735 $ 750 $ 115,223
December 31 $ 750 $ 115,896 $ 750 $ 115,357
The Partnership intends to continue the payment of regular quarterly
distributions. There are currently no material legal restrictions that would
limit the Partnership's ability to pay distributions.
Item 6. Management's Discussion and Analysis of the Partnership's Financial
Condition and Results of Operations.
The Partnership was organized on February 1, 1990, to acquire, on a debt-free
basis, existing and newly constructed commercial properties located in the
continental United States and particularly in the Southwest, to lease these
properties to tenants under generally "triple net" leases, to hold the
properties with the expectation of equity appreciation and eventually to sell
the properties.
The Partnership's overall investment objectives are to acquire properties that
offer investors the potential for (i) preservation and protection of the
Partnership's capital; (ii) partially tax-deferred cash distributions from
operations; and (iii) long-term capital gains through appreciation in value of
the Partnership's properties realized upon sale.
LIQUIDITY AND CAPITAL RESOURCES
On June 6, 1990, the Partnership commenced an offering to the public of up to
$15,000,000 (15,000 Units) of limited partnership interests. The proceeds of the
offering, lease income from the Partnership's properties and interest income are
the Partnership's source of capital. The Partnership closed its offering on June
5, 1992, having raised $5,390,500. Limited partners are not required to make any
additional capital contributions.
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The Partnership's investment strategy of acquiring properties for all cash and
leasing them under net leases to corporations minimizes the Partnership's
operating expenses. The General Partners believe that net rental income from the
leases will generate cash flow in excess of Partnership operating expenses.
Since the leases generally have remaining terms ranging from 4 to 10 years and
provide for specified rental increases in excess of the initial base rent, it is
anticipated that Partnership income will increase over time. Approximately
$100,000 has been set aside for working capital reserves. The Partnership
intends to distribute a significant portion of its cash available for
distribution unless it becomes necessary to maintain additional reserves.
As of December 31, 1998, the Partnership had acquired five properties and had
invested $4,436,869 including certain acquisition expenses related to the
Partnership's investment in these properties. These expenditures resulted in a
corresponding decrease in the Partnership's liquidity.
The Partnership made cash distributions from operations to the limited partners
during each quarter of 1998 and 1997, distributing a total of $462,721 and
$460,593 to the limited partners, respectively.
Inflation has had very little effect on income from operations. Management
expects that increases in store sales volumes due to inflation as well as
increases in the Consumer Price Index (C.P.I.) may contribute to capital
appreciation of the Partnership properties. These factors, however, also may
have an adverse impact on the operating margins of the tenants of the
properties.
RESULTS OF OPERATIONS
Years Ended December 31, 1998 and 1997:
Rental income increased from $514,719 in 1997 to $551,395 in 1998 primarily as a
result of negotiating a lease on one property with a new tenant at a higher
rental rate. Interest income increased slightly from $5,474 in 1997 to $6,075 in
1998 as a result of an increase in average invested capital. Expenses increased
by $12,556 primarily from an increase in administrative expenses. The
Partnership recorded net income in 1998 of $414,920 as compared to $390,199 in
1997. Each of the four properties owned 100% by the Partnership contributed more
than 10% of the total rental income for 1998.
This information contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Partnership believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, the Partnership's actual results could differ materially from those
set forth in the forward-looking statements. Certain factors that might cause
such a difference include the following: changes in general economic conditions,
changes in real estate market conditions, the ability of the Partnership to
locate suitable tenants for its properties and the ability of tenants to make
payments under their respective leases.
YEAR 2000 COMPLIANCE
The operations of the Partnership are relatively simple and is managed by ARIC,
a subsidiary of AmREIT, Inc. (the "Company"). The following disclosures have
been made in the Form 10-KSB of the Company:
The Year 2000 problem ("Y2K") concerns the inability of information and
non-information technology systems to properly recognize and process
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date-sensitive information beyond January 1, 2000. The Company's information
technology system consists of a network of personal computers and servers built
using hardware and software from mainstream suppliers. The Company has no
internally generated programmed software coding to correct, as all of the
software utilized by the Company is purchased or licensed from external
providers.
In 1998, the Company formed a Year 2000 committee (the "Y2K Team") for the
purpose of identifying, understanding and addressing the various issues
associated with the Year 2000 problems. The Y2K Team consists of members from
the Company, including representatives from senior management, accounting and
computer consultants. The Y2K Team's initial step in assessing the Company's Y2K
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have potential Y2K problems. The Y2K Team is in the process
of conducting inspections, interviews and tests to identify which of the
Company's systems could have a potential Y2K problem.
The Company's information system is comprised of hardware and software
applications from mainstream suppliers; accordingly, the Y2K Team is in the
process of contacting the respective vendors and manufacturers to verify the Y2K
compliance of their products. In addition, the Y2K Team has also requested and
is evaluating documentation from other companies with which the Company has a
material third party relationship, including the Company's tenants, major
vendors, financial institutions and the Company's transfer agent. The Company
depends on its tenants for rents and cash flows, its financial institutions for
availability of cash and financing and its transfer agent to maintain and track
investor information. Although the Company continues to receive positive
responses from its third party relationships regarding their Y2K compliance, the
Company cannot be assured that the tenants, financial institutions, transfer
agent and other vendors have adequately considered the impact of the Year 2000.
The Company does not expect the Y2K impact of third parties to have a materially
adverse effect on its results of operation or financial position.
The Company has identified and has implemented upgrades for certain hardware
equipment. In addition, the Company has identified certain software applications
which will require upgrades to become Year 2000 compliant. The Company expects
all of these upgrades as well as any other necessary remedial measures on the
information technology systems used in the business activities and operations of
the Company to be completed by September 30, 1999. The Company does not expect
the aggregate cost of the Year 2000 remedial measures to exceed $10,000.
Based upon the progress the Company has made in addressing its Year 2000 issues,
the Company does not foresee significant risks associated with its Year 2000
compliance at this time. The Company plans to address its significant Year 2000
issues prior to being affected by them; therefore, it has not developed a
comprehensive contingency plan. However, if the Company identifies significant
risks related to its Year 2000 compliance, the Company will develop contingency
plans as deemed necessary at that time.
Item 7. Financial Statements and Supplementary Data
The response to this item is submitted in Item 13(a) of this report and is
incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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PART III
Item 9. Directors and Executive Officers of the Issuer
The Issuer has no officers or directors. The individual and Managing General
Partners are as follows:
H. Kerr Taylor, age 48, is the Individual General Partner of the Partnership.
Mr. Taylor is a graduate of Trinity University. Mr. Taylor also received a
Masters of Business Degree from Southern Methodist University and a Doctor of
Jurisprudence from South Texas College of Law. Mr. Taylor has over twenty years
experience and has participated in over 300 real estate transactions. Mr. Taylor
has served on a board and governing bodies of a bank, numerous private and
public corporations and charitable institutions.
Mr.Taylor is currently a general partner or principal of a general partner of
eleven affiliated limited partnerships. Mr.Taylor is a member of the National
Board of Realtors, Texas Association of Realtors and Texas Bar Association.
American Asset Advisers Management Corporation IX is a Nebraska corporation
which was organized for the sole purpose of acting as the Managing General
Partner of the Partnership. The Managing General Partner has a nominal net
worth. The two initial voting shareholders of American Asset Advisers Management
Corporation IX are Mr. Taylor and Realty Assets, Inc., a Nebraska corporation.
Mr. Taylor's ownership interest is 80% of the stock of the Managing General
Partner; Realty Assets, Inc. owns the remaining 20%. Realty Assets, Inc.
received its 20% interest as consideration for agreeing to assume the risks
associated with advancing a portion of the organization and offering costs
relating to this offering.
The President and Treasurer of the Managing General Partner is Mr. Taylor who is
also a Director. Stephen K. Wild, a resident of Omaha, Nebraska, has been named
Vice President, Secretary and a Director of the Managing General Partner.
Messrs. Taylor and Wild are the two Directors of the Managing General Partner.
Mr. Wild, age 50, is the former Chairman of Securities America, Inc., a
registered broker/dealer, which was also the dealer/manager of the Partnership
during the offering period. Mr. Wild served as the Chairman of the Board of
Securities America, Inc. from 1984 to 1998 and also as its President from
February 1991 to September 1997. Mr. Wild also served as the Chairman of
Financial Dynamics, Inc., the holding company for Securities America, Inc.
and certain other financial service companies from September 1985 until October
of 1998. Realty Assets, Inc., which owns 20 percent of the common stock of the
Managing General Partner, is an affiliate of the Dealer/Manager.
The affairs of the Partnership are conducted by ARIC. In addition to Mr. Taylor
as president, other officers of ARIC include:
Tim Kelley, age 51, serves as Vice President of Capital Markets of ARIC.
Mr. Kelley's career spans over twenty years of debt and equity industry
experience. Mr. Kelley has held senior management, compliance and sales
responsibilities in Broker/Dealers and in investment banking firms including
Lehman Brothers Kuhn Loeb, Oppenheimer and Co., Inc., and McKenna and Company.
Mr. Kelley holds the series 24, 27, 7, 3, 15, and 63 NASD licenses. He
received his B.S. degree from Kent State University.
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Randal Garbs, age 45, serves as Vice President of Capital Markets of ARIC.
Mr. Garbs is responsible for capital formation as well as marketing services
to its tenants and developers. Mr. Garbs has over twenty years experience
in marketing including acting as COO of a Houston based service company.
Mr. Garbs has earned the series 7 and 63 NASD licenses, the Texas Real Estate
license and the CCIM designation. Mr. Garbs received his B.S. and M.B.A. from
Houston Baptist University and is active in various community organizations and
charitable foundations.
L. Larry Mangum, age 34, serves as Chief Financial Officer of ARIC. Mr. Mangum
is responsible for the financial accounting and reporting relating to the
ARIC-sponsored partnerships and their properties. He has over eleven years of
accounting experience, including four years with a public accounting firm. He
previously worked for American General Corporation, a national insurance
company, from 1991-1996 as part of a team responsible for supervising their
reporting activities. Mr. Mangum received a B.B.A. degree in accounting from
Stephen F. Austin State University and subsequently earned the CPA designation.
Other individuals who are specialists in their respective fields are
periodically employed by ARIC and are engaged on an as-needed basis to perform
services on behalf of the Partnership or the Managing General Partner or both.
These individuals are not employees of the Partnership or the Managing General
Partner nor are they employees of other ARIC-sponsored partnerships, although
they do perform various services and activities for those partnerships.
These individuals are:
Don Grieb, age 47, is the Director of Development and Acquisitions of ARIC.
Mr. Grieb has over twenty years experience within the real estate industry
including development, investment analysis and administration. Mr. Grieb has
served within management of such real estate firms as Hines Interests and AEW.
Mr. Grieb received his B.S. and M.B.A. from the University of Illinois and is
a registered architect.
Jane Costello, age 42, is a certified public accountant and is responsible for
the tax accounting related to the ARIC-sponsored partnerships and their
properties. She has over nineteen years experience as an accountant including
over 4 years with a national public accounting firm and the last nine years with
her own accounting practice. Ms. Costello received a B.B.A. degree in accounting
from the University of Texas.
Item 10. Executive Compensation
Other than as discussed in Item 12, neither the Individual General Partner nor
any of the directors and officers of the Managing General Partner received any
remuneration from the Issuer. The Individual General Partner and his affiliates
received fees and reimbursements of expenses from the Partnership as discussed
in Note 7 in the accompanying financial statements.
Item 11. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1998, no person was known by the Issuer to be the beneficial
owner of more than 5% of the Units of the Issuer. Neither General Partner owns
any Units nor does any director or officer of the Managing General Partner own
any Units.
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Item 12. Certain Relationships and Related Transactions
The Individual General Partner and the Managing General Partner received cash
distributions from operations during, or with respect to, the fiscal years ended
December 31, 1998 and 1997 of $3,000 and $3,000, respectively. For a description
of the share of cash distributions from operations, if any, and fees to which
the General Partners are entitled, reference is made to the material contained
in the Prospectus under the headings CASH DISTRIBUTIONS AND TAX ALLOCATIONS and
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES.
Prior to June 5, 1998, the supervision of the operations of the properties was
managed by AAA, a related party. Beginning June 5, 1998, the supervision of the
operations of the properties is managed by ARIC, a related party. The Issuer has
entered into arrangements with ARIC pursuant to which ARIC has assumed direct
responsibility for day-to-day management of the Partnership's properties. This
service includes the supervision of leasing, rent collection, maintenance,
budgeting, employment of personnel, payment of operating expenses, etc. ARIC is
reimbursed for its actual costs associated with performing the foregoing
services, but does not receive a property management fee. In connection with
administrative services rendered to the Partnership, $30,378 and $17,678 was
paid to ARIC and AAA in 1998 and 1997, respectively. See Note 7 in the
accompanying financial statements.
Mr. Taylor, President of ARIC, receives compensation from ARIC for services
performed for ARIC, which may include services rendered in connection with the
Issuer. However, the Managing General Partner believes that any compensation
relating to such services is not material.
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PART IV
Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) (1) Financial Statements
Independent Auditors' Report
Balance Sheet, December 31, 1998
Statements of Income for the Years Ended December 31, 1998 and 1997
Statements of Partnership Equity (Deficit) for the Years Ended
December 31, 1998 and 1997 Statements of Cash Flows for the Years
Ended December 31, 1998 and 1997 Notes to Financial Statements for
the Years Ended December 31, 1998 and 1997
(2) Financial Statement Schedules: See (d) below
(3) Exhibits: See (c) below
(b) Reports on Form 8-K filed after September 30, 1998:
None
(c) Exhibits
3 See Exhibit 4 (a)
4 (a) Amended and Restated Certificate and Agreement of
Limited Partnership (Incorporated by reference to
Exhibit A to the Prospectus of Issuer dated October
27, 1990, contained in Registration Statement No.
33-33504 of Issuer ("the Prospectus")).
(b) Subscription Agreement and Signature Page
(Incorporated by reference to Exhibit D to the
Prospectus).
10 (a) (1) Lease Agreement between Issuer and Foodmaker, Inc.,
dated July 2, 1991. (Incorporated by reference to the
exhibit filed with the Issuer's Annual Report on Form
10-K for the fiscal year ended December 31, 1994).
10 (a) (2) Assignment of Lease between Issuer and Lads
Commercial Real Estate Developers dated October 4,
1991. (Incorporated by reference to the exhibit filed
with the Issuer's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
10 (a) (3) Assignment of Rents and Leases between Issuer and
Northwend Center LP dated November 8, 1991.
(Incorporated by reference to the exhibit filed with
the Issuer's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
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10 (a) (4) Lease Agreement between Issuer and Golden Corral
Corporation dated July 14, 1992. (Incorporated by
reference to the exhibit filed with the Issuer's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1994).
10 (a) (5) Joint Venture Agreement between Issuer and AAA Net
Realty Fund X, Ltd. dated March 15, 1993.
(Incorporated by reference to the exhibit filed with
the Issuer's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.)
10 (a) (6) Lease Agreement between Issuer and Baptist Memorial
Health Services, Inc. dated September 11, 1997.
(Incorporated by reference to the exhibit filed with
the Issuer's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997.)
27 Financial Data Schedule
(d) Financial Statement Schedules
Schedule III - Real Estate Owned and Accumulated
Depreciation
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Issuer has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AAA Net Realty Fund IX, Ltd.
/s/ H. Kerr Taylor
March 31, 1999 ------------------
Date H. Kerr Taylor, Individual General Partner
American Asset Advisers Management
Corporation IX, Managing General Partner
By /s/ H. Kerr Taylor
March 31, 1999 ---------------------
Date H. Kerr Taylor
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the Issuer and in the
capacities and on the dates indicated.
/s/ H. Kerr Taylor
March 31, 1999 ------------------
Date H. Kerr Taylor
President (Principal Executive Officer)
and Director
/s/ Stephen K. Wild
March 31, 1999 -------------------
Date Stephen K. Wild, Director
/s/ L. Larry Mangum
March 31, 1999 -------------------
Date L. Larry Mangum, Chief Financial Officer
(Principal Accounting Officer)
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ANNUAL REPORT ON FORM 10-KSB
ITEMS 7, 13 (a)(1) AND (2) AND 13(d)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FINANCIAL STATEMENT SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 1998
AAA NET REALTY FUND IX, LTD.
F-1
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AAA NET REALTY FUND IX, LTD.
INDEX TO FINANCIAL STATEMENTS
Page
FINANCIAL STATEMENTS
Independent Auditors' Report F-3
Balance Sheet, December 31, 1998 F-4
Statements of Income for the Years Ended
December 31, 1998 and 1997 F-5
Statements of Partnership Equity (Deficit)
for the Years Ended December 31, 1998 and 1997 F-6
Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 F-7
Notes to Financial Statements for the Years Ended
December 31, 1998 and 1997 F-8 to F-11
FINANCIAL STATEMENT SCHEDULE:
Schedule III Real Estate Owned and Accumulated Depreciation
for the Year Ended December 31, 1998 F-12
All other financial statement schedules are omitted as the required information
is either inapplicable or is included in the financial statements or related
notes.
F-2
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INDEPENDENT AUDITORS' REPORT
AAA Net Realty Fund IX, Ltd.
We have audited the accompanying balance sheet of AAA Net Realty Fund IX, Ltd.
as of December 31, 1998 and the related statements of income, partnership equity
(deficit) and cash flows for each of the two years in the period ended December
31, 1998. Our audits also included the financial statement schedule listed in
the Index. These financial statements and the financial statement schedule are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of AAA Net Realty Fund IX, Ltd. as of December
31, 1998 and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Houston, Texas
March 12, 1999
F-3
<PAGE>
AAA NET REALTY FUND IX, LTD.
(A LIMITED PARTNERSHIP)
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Cash and cash equivalents $ 216,302
Property:
Land 1,490,494
Buildings 2,946,375
----------------
4,436,869
Accumulated depreciation (640,101)
----------------
Total property 3,796,768
----------------
Other assets:
Accrued rental income 28,240
----------------
TOTAL ASSETS $ 4,041,310
================
LIABILITIES AND PARTNERSHIP EQUITY
Liabilities:
Accounts payable $ 13,427
----------------
TOTAL LIABILITIES 13,427
----------------
Partnership equity (deficit):
General partners (2,835)
Limited partners 4,030,718
----------------
TOTAL PARTNERSHIP EQUITY 4,027,883
----------------
TOTAL LIABILITIES AND PARTNERSHIP EQUITY $ 4,041,310
================
See Notes to Financial Statements.
F-4
<PAGE>
AAA NET REALTY FUND IX, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
For the Years Ended December 31,
1998 1997
---- ----
Revenues:
Rental income $ 551,395 $ 514,719
Interest income 6,075 5,474
----- -----
Total revenues 557,470 520,193
------- -------
Expenses:
Advisory fees to related party 30,378 17,678
Depreciation 93,536 93,536
Professional fees 18,636 18,780
------ ------
Total expenses 142,550 129,994
------- -------
Net income $ 414,920 $ 390,199
============== ==============
Allocation of net income:
General partners $ 4,149 $ 3,902
Limited partners 410,771 386,297
------- -------
$ 414,920 $ 390,199
============== ==============
Net income per unit $ 76.97 $ 72.39
============== ==============
Weighted average units outstanding 5,390.5 5,390.5
======= =======
See Notes to Financial Statements.
F-5
<PAGE>
AAA NET REALTY FUND IX, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERSHIP EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
General Limited
Partners Partners Total
-------- -------- -----
Balance at December 31, 1996 $ (4,886) $ 4,156,964 $ 4,152,078
Net income 3,902 386,297 390,199
Distributions ($85.45 per Limited
Partnership Unit) (3,000) (460,593) (463,593)
------ -------- --------
Balance at December 31, 1997 (3,984) 4,082,668 4,078,684
Net income 4,149 410,771 414,920
Distributions ($85.84 per Limited
Partnership Unit) (3,000) (462,721) (465,721)
------ -------- --------
Balance at December 31, 1998 $ (2,835) $ 4,030,718 $ 4,027,883
========= ============ =============
See Notes to Financial Statements.
F-6
<PAGE>
AAA NET REALTY FUND IX, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 414,920 $ 390,199
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 93,536 93,536
Decrease (increase) in accounts
receivable 46,875 (45,825)
Increase in accrued rental income (21,180) (7,060)
Increase (decrease) in accounts
payable (2,047) 2,520
------ -----
Net cash provided by operating
activities 532,104 433,370
------- -------
Cash flows from financing activities:
Distributions paid to partners (465,721) (463,593)
-------- --------
Net cash used in financing
activities (465,721) (463,593)
-------- --------
Net increase (decrease) in cash and
cash equivalents 66,383 (30,223)
Cash and cash equivalents at beginning of year 149,919 180,142
------- -------
Cash and cash equivalents at end of year $ 216,302 $ 149,919
============ ==============
See Notes to Financial Statements.
F-7
<PAGE>
AAA NET REALTY FUND IX, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
AAA Net Realty Fund IX, Ltd. (the "Partnership") is a limited partnership
formed February 1, 1990, under the laws of the State of Nebraska. The
Partnership commenced operations as of June 6, 1990. American Asset
Advisers Management Corporation IX (a Nebraska corporation) is the
Managing General Partner and H. Kerr Taylor is the Individual General
Partner.
The Partnership was formed to acquire commercial properties for cash,
own, lease, operate, manage and eventually sell the properties. Prior to
June 5, 1998, the supervision of the operations of the properties was
managed by American Asset Advisers Realty Corporation, ("AAA"), a related
party. Beginning June 5, 1998, the supervision of the operations of the
properties is managed by AmREIT Realty Investment Corporation, ("ARIC"),
a related party.
BASIS OF ACCOUNTING
The financial records of the Partnership are maintained on the accrual
basis of accounting whereby revenues are recognized when earned and
expenses are recorded when incurred.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Partnership considers
all highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents. Cash and cash equivalents
consist of demand deposits at commercial banks and money market funds.
PROPERTY
Property is leased to others on a net lease basis whereby all operating
expenses related to the properties including property taxes, insurance
and common area maintenance are the responsibility of the tenant. The
leases are accounted for under the operating lease method under which the
properties are recorded at cost. Rental income is recognized ratably over
the life of the lease and depreciation is charged based upon the
estimated useful life of the property.
The Partnership's lease agreements do not provide for contingent rentals.
The Partnership obtains an appraisal on each property prior to a
property's acquisition and also performs an annual valuation update to
evaluate potential impairment for each property for which an appraisal is
older than twelve months. This valuation is based on capitalization of
income for each property, a review of current market conditions and any
significant events or factors which would indicate a potential impairment
to the value of a property.
F-8
<PAGE>
The final property acquisition was completed as a joint venture. The
Partnership's interest in the joint venture is 4.8%. At December 31,
1998, the net book value of this property comprised 1.6% of total assets,
the rental income of $8,723 comprised 1.6% of total rental income and
2.1% of net income. Because of the immateriality of these amounts to the
financial statements as a whole, the initial purchase and the subsequent
rental income and depreciation have been accounted for on the
proportionate consolidation method.
DEPRECIATION
Buildings are depreciated using the straight-line method over an
estimated useful life of 31.5 years.
STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
No cash was paid for income taxes or interest during 1998 or 1997.
FEDERAL INCOME TAXES
All income and expense items flow through to the partners for tax
purposes. Consequently, no provisions for federal or state income taxes
is provided in the accompanying financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments, consisting of cash, cash
equivalents, accounts receivable and liabilities approximate their fair
value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. PARTNERSHIP EQUITY
The Managing General Partner, American Asset Advisers Management
Corporation IX, and the Individual General Partner, H. Kerr Taylor, have
made capital contributions in the amounts of $990 and $10, respectively.
All other contributions have been made by the limited partners. The
General Partners shall not be obligated to make any other contributions
to the capital of the Partnership, except that, in the event that the
General Partners have negative balances in their capital accounts after
dissolution and winding up of, or withdrawal from, the Partnership, the
General Partners will contribute to the Partnership an amount equal to
the lesser of the deficit balances in their capital accounts or 1.01% of
the total capital contributions of the limited partners over the amount
previously contributed by the General Partners.
F-9
<PAGE>
3. ALLOCATIONS AND DISTRIBUTIONS
All income, profits, gains and losses of the Partnership for each fiscal
year, other than any gain or loss realized upon the sale, exchange or
other disposition of any of the Partnership properties, shall be
allocated as follows: (a) net loss shall be allocated 99% to the limited
partners, .99% to the Managing General Partner and .01% to the Individual
General Partner; and (b) net income will be allocated first in the ratio,
and to the extent, net cash flow is distributed to the partners for such
year and any additional income for such year will be allocated 99% to the
limited partners, 1% to the General Partners.
For income tax purposes, the gain realized upon the sale, exchange or
other disposition of any property will be allocated as follows:
a. first, to and among the partners in an amount equal to the negative
balances in their respective capital accounts (pro rata based on
the relative amounts of such negative balances);
b. then, to each limited partner until the balance in such limited
partner's capital account equals the amount to be distributed to
such limited partner in the first tier of the distributions of net
proceeds of sale;
c. then, to the General Partners, until the balance in their capital
accounts equals the amounts to be distributed to the General
Partners in the second tier of distributions of net proceeds of
sale;
d. then, 85% to the limited partners and 15% to the General Partners;
and,
e. thereafter, the Partners shall be allocated gain or loss in order
to meet Treasury Regulation regarding qualified income offset
requirements.
Any loss on the sale, exchange, or other disposition of any property
shall be allocated 99% to the limited partners and 1% to the General
Partners.
4. OPERATING LEASES
A summary of minimum future rentals, exclusive of any renewals, under
noncancellable operating leases in existence at December 31, 1998 are as
follows:
1999 $ 530,215
2000 $ 535,840
2001 $ 547,090
2002 $ 511,923
2003 $ 472,193
2004-2009 $ 1,972,668
F-10
<PAGE>
5. MAJOR TENANTS
The Partnership's operations are related to the acquisition and leasing
of commercial real estate properties. The following schedule summarizes
rental income by lessee for 1998 and 1997:
1998 1997
---- ----
Foodmaker (Texas) $ 68,995 $ 66,212
Tandy Corporation (Tennessee) $ - $ 109,896 *
Baptist Memorial Health
Services, Inc. (Tennessee) $ 208,680 $ 69,560
Payless ShoeSource/WaldenBooks
(Texas) $ 82,000 $ 77,331
Golden Corral Corporation
(Texas) $ 191,720 $ 191,720
------------ -----------
Total $ 551,395 $ 514,719
============ ===========
* Lease terminated during 1997
6. INCOME RECONCILIATION
A reconciliation of net income for financial reporting purposes to income
for federal income tax purposes is as follows for the year ended December
31:
1998 1997
---- ----
Net income for financial
reporting purposes $ 414,920 $ 390,199
Accrued rental income (21,180) (7,060)
------------- -------------
Income for tax reporting
purposes $ 393,740 $ 383,139
============= =============
7. RELATED PARTY TRANSACTIONS
The Partnership Agreement provides for the reimbursement for
administrative services necessary for the prudent operation of the
Partnership and its assets with the exception that no reimbursement is
permitted for rent, utilities, capital equipment, salaries, fringe
benefits or travel expenses allocated to the Individual General Partner
or to any controlling persons of the Managing General Partner. In
connection with administrative services rendered to the Partnership,
$30,378 and $17,678 was incurred and paid to ARIC and AAA in 1998 and
1997, respectively.
F-11
<PAGE>
AAA NET REALTY FUND IX, LTD.
SCHEDULE III - REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
LIFE ON
WHICH
DEPREC.
IN LATEST
INCOME
PROPERTY ENCUM- IMPROVE- COST AT CLOSE OF YEAR ACCUM. DATE OF DATE STMT. IS
DESCRIPTION BRANCES BUILDING LAND MENTS BUILDING LAND DEPR. CONST. ACQUIRED COMPUTED
----------- ------- -------- ---- ----- -------- ---- ----- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jack in the Box, $0 $406,805 $174,345 $0 $406,805 $174,345 $96,320 N/A 07-12-91 31.5 Years
Texas
Baptist Memorial Health $0 $1,097,725 $470,454 $0 $1,097,725 $470,454 $252,651 N/A 10-4-91 31.5 Years
Services, Inc.
Tennessee
Payless Shoe Source, $0 $393,573 $168,674 $0 $393,573 $168,674 $89,300 N/A 11-07-91 31.5 Years
Texas
Golden Corral Restaurant, $0 $995,048 $654,211 $0 $995,048 $654,211 $192,044 N/A 08-20-92 31.5 Years
Texas
Golden Corral Restaurant, $0 $53,224 $22,810 $0 $53,224 $22,810 $9,786 N/A 03-15-93 31.5 Years
-- ------- ------- -- ------- ------- ------
Texas
$0 $2,946,375 $1,490,494 $0 $2,946,375 $1,490,494 $640,101
== ========== ========== == ========== ========== ========
</TABLE>
(1) Transactions in real estate and accumulated depreciation during 1998 and
1997 are summarized as follows:
Accumulated
Cost Depreciation
---- ------------
Balance at December 31, 1996 $4,436,869 $453,030
Acquisitions $0 $0
Depreciation expense $0 $93,535
---------- --------
Balance at December 31, 1997 $4,436,869 $546,565
Acquisitions $0 $0
Depreciation expense $0 $93,536
---------- --------
Balance at December 31, 1998 $4,436,869 $640,101
========== ========
(2) Aggregate cost for Federal income tax purposes $4,436,869
==========
F-12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 216,302
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 216,302
<PP&E> 4,436,869
<DEPRECIATION> 640,101
<TOTAL-ASSETS> 4,041,310
<CURRENT-LIABILITIES> 13,427
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,027,883
<TOTAL-LIABILITY-AND-EQUITY> 4,041,310
<SALES> 551,395
<TOTAL-REVENUES> 557,470
<CGS> 0
<TOTAL-COSTS> 142,550
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 414,920
<INCOME-TAX> 0
<INCOME-CONTINUING> 414,920
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 414,920
<EPS-PRIMARY> 76.97
<EPS-DILUTED> 76.97
</TABLE>
