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, 1997
Commission file number: 0-19838
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer as Specified in its Charter)
State of Minnesota 41-1677062
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1300 Minnesota World Trade Center, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(612) 227-7333
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.
Yes [X] No
Transitional Small Business Disclosure Format:
Yes No [X]
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Item 1. Balance Sheet as of September 30, 1997 and December 31, 1996
Statements for the Periods ended September 30, 1997 and 1996:
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 NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
BALANCE SHEET
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Unaudited)
ASSETS
1997 1996
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,371,027 $ 2,477,783
Receivables 41,507 17,842
Current Portion of Long-Term Notes Receivable 31,699 69,049
----------- -----------
Total Current Assets 2,444,233 2,564,674
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 4,378,646 4,435,197
Buildings and Equipment 8,830,028 9,459,091
Construction Advances 1,163,869 0
Property Acquisition Costs 102,071 29,041
Accumulated Depreciation (1,028,226) (881,049)
----------- -----------
Net Investments in Real Estate 13,446,388 13,042,280
----------- -----------
OTHER ASSETS:
Long-Term Notes Receivable -
Net of Current Portion 1,468,825 2,100,919
----------- -----------
Total Assets $17,359,446 $17,707,873
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 70,614 $ 37,417
Distributions Payable 417,630 421,057
Unearned Rent 33,543 0
----------- -----------
Total Current Liabilities 521,787 458,474
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (12,044) (7,927)
Limited Partners, $1,000 Unit Value;
30,000 Units authorized; 21,152 Units issued;
21,015 Units outstanding 16,849,703 17,257,326
----------- -----------
Total Partners' Capital 16,837,659 17,249,399
----------- -----------
Total Liabilities and Partners' Capital $17,359,446 $17,707,873
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
Three Months Ended Nine Months Ended
9/30/97 9/30/96 9/30/97 9/30/96
INCOME:
Rent $ 357,201 $ 571,430 $1,082,039 $1,611,338
Investment Income 88,991 58,943 263,950 213,950
---------- ---------- ---------- ----------
Total Income 446,192 630,373 1,345,989 1,825,288
---------- ---------- ---------- ----------
EXPENSES:
Partnership Administration -
Affiliates 61,422 60,617 188,521 175,301
Partnership Administration
and Property Management -
Unrelated Parties 31,585 19,823 98,059 52,879
Depreciation 77,294 111,502 234,656 314,345
---------- ---------- ---------- ----------
Total Expenses 170,301 191,942 521,236 542,525
---------- ---------- ---------- ----------
OPERATING INCOME 275,891 438,431 824,753 1,282,763
GAIN ON SALE OF REAL ESTATE 0 0 77,703 171,013
MINORITY INTEREST IN
OPERATING INCOME 0 (107,472) 0 (304,199)
---------- ---------- ---------- ----------
NET INCOME $ 275,891 $ 330,959 $ 902,456 $1,149,577
========== ========== ========== ==========
NET INCOME ALLOCATED:
General Partners $ 2,759 $ 3,309 $ 9,025 $ 11,495
Limited Partners 273,132 327,650 893,431 1,138,082
---------- ---------- ---------- ----------
$ 275,891 $ 330,959 $ 902,456 $1,149,577
========== ========== ========== ==========
NET INCOME PER
LIMITED PARTNERSHIP UNIT
(21,015 and 21,121 weighted average
Units outstanding in 1997 and 1996,
respectively) $ 12.99 $ 15.51 $ 42.51 $ 53.88
========== ========== ========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 902,456 $ 1,149,577
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 234,656 314,345
Gain on Sale of Real Estate (77,703) (171,013)
(Increase) Decrease in Receivables (23,665) 114,127
Increase (Decrease) in Payable to
AEI Fund Management, Inc. 33,197 (78,350)
Increase in Unearned Rent 33,543 41,299
Minority Interest 0 (78,908)
----------- -----------
Total Adjustments 200,028 141,500
----------- -----------
Net Cash Provided By
Operating Activities 1,102,484 1,291,077
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (1,236,899) (3,546,516)
Proceeds from Sale of Real Estate
Net of Minority Interest 675,838 591,752
Payments Received on Long-Term Note Receivable 669,444 19,504
----------- -----------
Net Cash Provided By (Used For)
Investing Activities 108,383 (2,935,260)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in Distributions Payable (3,427) (78,166)
Distributions to Partners (1,314,196) (1,320,019)
----------- -----------
Net Cash Used For
Financing Activities (1,317,623) (1,398,185)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (106,756) (3,042,368)
CASH AND CASH EQUIVALENTS, beginning of period 2,477,783 4,702,376
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,371,027 $ 1,660,008
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI NET LEASE INCOME & GROWTH FUND XIX 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, 1995 $ (9,526) $17,099,100 $17,089,574 21,121.43
Distributions (13,200) (1,306,819) (1,320,019)
Net Income 11,495 1,138,082 1,149,577
-------- ----------- ----------- ----------
BALANCE, September 30, 1996 $(11,231) $16,930,363 $16,919,132 21,121.43
======== =========== =========== ==========
BALANCE, December 31, 1996 $ (7,927) $17,257,326 $17,249,399 21,015.23
Distributions (13,142) (1,301,054) (1,314,196)
Net Income 9,025 893,431 902,456
--------- ----------- ----------- ----------
BALANCE, September 30, 1997 $(12,044) $16,849,703 $16,837,659 21,015.23
========= =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(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,
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 PartnershipOs latest annual report on Form 10-KSB.
(2) Organization -
AEI Net Lease Income & Growth Fund XIX Limited Partnership
(Partnership) was formed to acquire and lease commercial
properties to operating tenants. The Partnership's
operations are managed by AEI Fund Management XIX, 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.
(AEI) 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 May 31, 1991 when minimum
subscriptions of 1,500 Limited Partnership Units
($1,500,000) were accepted. The Partnership's offering
terminated February 5, 1993 when the extended offering
period expired. The Partnership received subscriptions for
21,151.928 Limited Partnership Units ($21,151,928).
Under the terms of the Limited Partnership Agreement, the
Limited Partners and General Partners contributed funds of
$21,151,928, 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 NET LEASE INCOME & GROWTH FUND XIX 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 12% of their Adjusted Capital Contribution
per annum, cumulative but not compounded, to the extent not
previously distributed from Net Cash Flow; (ii) any
remaining balance will be distributed 90% to the Limited
Partners and 10% 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 in the same ratio as the last dollar of Net Cash
Flow is distributed. 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 12% of their Adjusted Capital
Contributions per annum, cumulative but not compounded, to
the extent not previously allocated; (iii) third, the
balance of any remaining gain will then be allocated 90% to
the Limited Partners and 10% 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 NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate -
The Partnership's properties are all commercial, single-
tenant buildings. For those properties in the table below
which do not have land costs, the lessee has entered into
long-term land leases with unrelated third parties. The
cost of the properties and related accumulated depreciation
at September 30, 1997 are as follows:
Buildings and Accumulated
Property Land Equipment Total Depreciation
Taco Cabana, Houston, TX $ 334,414 $ 212,908 $ 547,322 $ 43,765
Taco Cabana, San Antonio, TX 598,533 548,741 1,147,274 105,476
Taco Cabana, Waco, TX 7,788 11,932 19,720 2,218
Applebee's, Aurora, CO 15,969 28,813 44,782 5,084
Red Line Burger, Houston, TX 0 299,531 299,531 54,569
Red Line Burger, Houston, TX 0 303,629 303,629 55,250
Red Line Burger, Corpus Christi, TX 0 280,378 280,378 49,640
Applebee's, Crestwood, MO 0 803,418 803,418 126,149
Applebee's, Crestview Hills, KY 4,490 9,549 14,039 1,434
HomeTown Buffet, Tucson, AZ 329,136 281,619 610,755 40,287
Applebee's, Covington, LA 358,521 740,564 1,099,085 116,225
Applebee's, Temple Terrace, FL 44,568 51,694 96,262 7,676
Applebee's, Beaverton, OR 636,972 1,123,107 1,760,079 152,414
Denny's, Apple Valley, CA 461,013 716,642 1,177,655 85,947
Media Play, Apple Valley, MN 415,393 973,974 1,389,367 59,916
Garden Ridge, Pineville, NC 1,171,849 2,443,529 3,615,378 122,176
----------- ----------- ----------- ---------
$ 4,378,646 $ 8,830,028 $13,208,674 $1,028,226
=========== =========== =========== =========
Through September 30, 1997, the Partnership sold 90.9037% of
the Applebee's restaurant in Temple Terrace, Florida, in
seven separate transactions to unrelated third parties. The
Partnership received total net sale proceeds of $1,296,015
which resulted in a total net gain of $369,433. The total
cost and related accumulated depreciation of the interests
sold was $961,992 and $35,410, respectively. For the nine
months ended September 30, 1997 and 1996, the net gain was
$61,611 and $29,884, respectively.
Through September 30, 1997, the Partnership sold 98.8946% of
the Applebee's restaurant in Crestview Hills, Kentucky, in
nine separate transactions to unrelated third parties. The
Partnership received total net sale proceeds of $1,627,539
which resulted in a total net gain of $436,533. The total
cost and related accumulated depreciation of the interests
sold was $1,256,017 and $65,011, respectively. For the nine
months ended September 30, 1996, the net gain was $96,870.
On April 5, 1996, the Partnership sold a 12.7585% interest
in the HomeTown Buffet restaurant in Tucson, Arizona to an
unrelated third party. The Partnership received net sale
proceeds of $201,357 which resulted in a net gain of
$44,259. The total cost and related accumulated
depreciation of the interest sold was $164,251 and $7,153,
respectively.
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
On November 6, 1996, the Partnership sold the Taco Cabana
restaurant in Round Rock, Texas to an unrelated third party.
The Partnership recognized net sale proceeds of $963,049,
which resulted in a net gain of $262,803. The total cost
and related accumulated depreciation was $749,710 and
$49,464, respectively. As part of the net sale proceeds,
the Partnership received a Promissory Note for $660,000.
The Note bears interest at a 9% rate. On March 27, 1997,
the Partnership received the outstanding principal and
accrued interest on the Note.
During the first nine months of 1997 and the year 1996, the
Partnership distributed net sale proceeds of $237,417 and
$121,458, respectively, to the Limited and General Partners
as part of their regular quarterly distributions which
represented a return of capital of $11.18 and $5.69 per
Limited Partnership Unit, respectively. The remaining net
sale proceeds will either be re-invested in additional
properties or distributed to the Partners in the future.
On March 28, 1996, the Partnership purchased a 40.75%
interest in a Garden Ridge store in Pineville, North
Carolina for $3,615,378. The property is leased to Garden
Ridge L.P. under a Lease Agreement with a primary term of 20
years and annual rental payments of $383,973. The remaining
interest in the property was purchased by AEI Net Lease
Income & Growth Fund XX Limited Partnership and AEI Income &
Growth Fund XXI Limited Partnership, affiliates of the
Partnership.
In May, 1997, the Partnership entered into an agreement to
purchase a Party City retail store in Gainesville, Georgia
for approximately $1,450,000. The property will be leased
to Party City of Atlanta, Inc. under a Lease Agreement with
a primary term of 15 years and annual rental payments of
approximately $159,500. Through September 30, 1997, the
Partnership had advanced $1,163,869 for the construction of
the property and was charging interest on the Note at the
rate of 7.5%.
In August, 1995, the lessee of the three Red Line Burger and
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 Rally's
properties and one Red Line Burger property. Effective
December 1, 1995, the Partnership amended the Leases to
reduce the annual base rent from $43,742 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 reorganization plan
confirmed one Red Line Lease and rejected the other two
Leases. In addition, the plan allowed the Rally's
properties to be sold and on February 14, 1997, the
Partnership received net sale proceeds of $500,000, which
resulted in a net gain of $16,092. The lessee has agreed to
pay certain pre-petition and post-petition rents due of
$147,838 and the Partnership's related administrative and
legal expenses. However, due to the uncertainty of
collection, the Partnership has not accrued any of these
amounts for financial reporting purposes.
The Partnership is negotiating to re-lease or sell the two
Red Line Burger properties in Houston, Texas. Due to the
rejection of the Leases, $82,563 of pre-petition and post-
petition rent related to the two properties will not be
collected by the Partnership. These amounts were not
accrued for financial reporting purposes.
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
On December 21, 1995, the Partnership purchased a 33.0%
interest in a Media Play retail store in Apple Valley,
Minnesota for $1,389,367. The property was leased to The
Musicland Group, Inc. (MGI) under a Lease Agreement with a
primary term of 18 years and annual rental payments of
$135,482. The remaining interest in the property was
purchased by AEI Income & Growth Fund XXI Limited
Partnership and AEI Net Lease Income & Growth Fund XX
Limited Partnership, affiliates of the Partnership.
In December, 1996, the Partnership and MGI reached an
agreement in which MGI would buy out and terminate the Lease
Agreement by making a payment of $800,000, which is equal to
approximately two years' rent. The Partnership's share of
such payment was $264,000. Under the Agreement, MGI
remained in possession of the property and performed all of
its obligations under the net lease agreement through
January 31, 1997 at which time it vacated the property and
made it available for re-let to another tenant. MGI was
responsible for all maintenance and management costs of the
property through January31, 1997 after which date the
Partnership became responsible for its share of expenses
associated with the property until it is re-let or sold. A
specialist in commercial property leasing has been retained
to locate a new tenant for the property.
The Partnership has incurred net costs of $600,173 relating
to the review of potential property acquisitions. Of these
costs, $498,102 have been capitalized and allocated to land,
building and equipment. The remaining costs of $102,071
have been capitalized and will be allocated to properties
acquired subsequent to September 30, 1997.
(4) Long-Term Notes Receivable -
On July 26, 1995, the Partnership received a Promissory Note
from Jackson Shaw Partners No. 51 Ltd. from the sale of the
Black-Eyed Pea restaurant in Davie, Florida. The Note
requires forty-eight monthly principal and interest payments
of $15,025 with a balloon payment for the outstanding
principal and interest due September 1, 1999. Interest is
being charged on the Note at the rate of 10% on the
outstanding principal balance. The Note is secured by the
land, building and equipment. As of September 30, 1997 and
December31, 1996, the outstanding principal due on the note
was $1,500,524 and $1,522,211, respectively.
The Partnership received a Promissory Note from the sale of
the Taco Cabana restaurant as discussed in Note 3. The Note
bears interest at a 9% rate. The Note was secured by the
land, building and equipment. On March 27, 1997, the
Partnership received the outstanding principal and accrued
interest due on the Note.
Scheduled maturities of the long-term note receivable is as
follows:
1997 $ 7,729
1998 32,497
1999 1,460,298
-----------
$ 1,500,524
===========
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) Payable to AEI Fund Management, Inc. -
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, 1997 and 1996,
total rental income, which in 1996, includes the minority
interestsO share of rental income was $1,082,039 and $1,611,338,
respectively. The Partnership's share of 1996 rental income was
$1,247,153. In 1997, rental income decreased $159,706 as the
result of property sales in 1997 and 1996. Rental income also
decreased due to the restructuring of the Media Play property and
the RallyOs/Red Line Burger situation discussed below. In 1997,
the Partnership received $90,321 and $21,000 less in rent from
the two lessees, respectively. These decreases were partially
offset by additional rental income received from the acquisition
of a property in 1996 of $91,865 and rent increases on eight
properties, which resulted in a $14,048 increase in rental income
in 1997. During the same periods, the Partnership earned
investment income of $263,950 and $213,950, respectively. In
1997, additional investment income was earned on the net proceeds
from the property sales.
In August, 1995, the lessee of the three Red Line Burger
and 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 Rally's properties and one
Red Line Burger property. Effective December 1, 1995, the
Partnership amended the Leases to reduce the annual base rent
from $43,742 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
reorganization plan confirmed one Red Line Lease and rejected the
other two Leases. In addition, the plan allowed the Rally's
properties to be sold and on February 14, 1997, the Partnership
received net sale proceeds of $500,000, which resulted in a net
gain of $16,092. The lessee has agreed to pay certain pre-
petition and post-petition rents due of $147,838 and the
Partnership's related administrative and legal expenses.
However, due to the uncertainty of collection, the Partnership
has not accrued any of these amounts for financial reporting
purposes.
The Partnership is negotiating to re-lease or sell the two
Red Line Burger properties in Houston, Texas. Due to the
rejection of the Leases, $82,563 of pre-petition and post-
petition rent related to the two properties will not be collected
by the Partnership. These amounts were not accrued for financial
reporting purposes.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Musicland Group, Inc. (MGI), the lessee of the Media Play
retail store in Apple Valley, Minnesota has recently experienced
financial difficulties and has aggressively been restructuring
its organization. As part of the restructuring, the Partnership
and MGI reached an agreement in December, 1996 in which MGI would
buy out and terminate the Lease Agreement by making a payment of
$800,000, which is equal to approximately two years' rent. The
Partnership's share of such payment was $264,000. Under the
Agreement, MGI remained in possession of the property and
performed all of its obligations under the net lease agreement
through January 31, 1997 at which time it vacated the property
and made it available for re-let to another tenant. MGI was
responsible for all maintenance and management costs of the
property through January 31, 1997 after which date the
Partnership became responsible for its share of expenses
associated with the property until it is re-let or sold. A
specialist in commercial property leasing has been retained to
locate a new tenant for the property.
During the nine months ended September 30, 1997 and 1996,
the Partnership paid Partnership administration expenses to
affiliated parties of $188,521 and $175,301, 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 $98,059 and $52,879, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit and accounting
costs, taxes, insurance and other property costs. The increase
in these expenses in 1997, when compared to 1996, is the result
of expenses incurred in 1997 related to the Media Play and Red
Line/Rally's situations discussed above.
As of September 30, 1997, the Partnership's annualized
cash distribution rate was 8.50%, based on the Adjusted Capital
Contribution. Distributions of Net Cash Flow to the General
Partners are subordinated to the Limited Partners as required in
the Partnership Agreement. As a result, 99% of distributions and
income were allocated to Limited Partners and 1% to the General
Partners.
Inflation has had a minimal effect on income from
operations. It is expected that increases in sales volumes of
the tenants due to inflation and real sales growth, will result
in an increase in rental income over the term of the leases.
Inflation also may cause the Partnership's real estate to
appreciate in value. However, inflation and changing prices may
also have an adverse impact on the operating margins of the
properties' tenants which could impair their ability to pay rent
and subsequently reduce the Partnership's Net Cash Flow available
for distributions.
Liquidity and Capital Resources
During the nine months ended September 30, 1997, the
Partnership's cash balances decreased $106,756 as the Partnership
distributed more cash to the Partners than it generated from
operating activities. Net cash provided by operating activities
decreased from $1,291,077 in 1996 to $1,102,484 in 1997 mainly as
the result of a decrease in rental income and an increase in
expenses in 1997.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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. For the nine months ended
September30, 1997 and 1996, the Partnership generated cash flow
from the sale of real estate, as discussed below, of $675,838 and
$591,752, respectively. During the same periods, the Partnership
expended $1,236,899 and $3,546,516, respectively, to invest in
real properties (inclusive of acquisition expenses), as the
Partnership continued to reinvest the cash generated from the
property sales.
Through September 30, 1997, the Partnership sold 90.9037%
of the Applebee's restaurant in Temple Terrace, Florida, in seven
separate transactions to unrelated third parties. The
Partnership received total net sale proceeds of $1,296,015 which
resulted in a total net gain of $369,433. The total cost and
related accumulated depreciation of the interests sold was
$961,992 and $35,410, respectively. For the nine months ended
September 30, 1997 and 1996, the net gain was $61,611 and
$29,884, respectively.
Through September 30, 1997, the Partnership sold 98.8946%
of the Applebee's restaurant in Crestview Hills, Kentucky, in
nine separate transactions to unrelated third parties. The
Partnership received total net sale proceeds of $1,627,539 which
resulted in a total net gain of $436,533. The total cost and
related accumulated depreciation of the interests sold was
$1,256,017 and $65,011, respectively. For the nine months ended
September 30, 1996, the net gain was $96,870.
On April 5, 1996, the Partnership sold a 12.7585% interest
in the HomeTown Buffet restaurant in Tucson, Arizona to an
unrelated third party. The Partnership received net sale
proceeds of $201,357 which resulted in a net gain of $44,259.
The total cost and related accumulated depreciation of the
interest sold was $164,251 and $7,153, respectively.
On November 6, 1996, the Partnership sold the Taco Cabana
restaurant in Round Rock, Texas to an unrelated third party. The
Partnership recognized net sale proceeds of $963,049, which
resulted in a net gain of $262,803. The total cost and related
accumulated depreciation was $749,710 and $49,464, respectively.
As part of the net sale proceeds, the Partnership received a
Promissory Note for $660,000. The Note bears interest at a 9%
rate. On March 27, 1997, the Partnership received the
outstanding principal and accrued interest on the Note.
During the first nine months of 1997 and the year 1996,
the Partnership distributed net sale proceeds of $237,417 and
$121,458, respectively, to the Limited and General Partners as
part of their regular quarterly distributions which represented a
return of capital of $11.18 and $5.69 per Limited Partnership
Unit, respectively. The remaining net sale proceeds will either
be re-invested in additional properties or distributed to the
Partners in the future.
On March 28, 1996, the Partnership purchased a 40.75%
interest in a Garden Ridge store in Pineville, North Carolina for
$3,615,378. The property is leased to Garden Ridge L.P. under a
Lease Agreement with a primary term of 20 years and annual rental
payments of $383,973. The remaining interest in the property was
purchased by AEI Net Lease Income & Growth Fund XX Limited
Partnership and AEI Income & Growth Fund XXI Limited Partnership,
affiliates of the Partnership.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
In May, 1997, the Partnership entered into an agreement to
purchase a Party City retail store in Gainesville, Georgia for
approximately $1,450,000. The property will be leased to Party
City of Atlanta, Inc. under a Lease Agreement with a primary term
of 15 years and annual rental payments of approximately $159,500.
Through September 30, 1997, the Partnership had advanced
$1,163,869 for the construction of the property and was charging
interest on the Note at the rate of 7.5%.
The Partnership's primary use of cash flow is distribution
and redemption payments to Partners. The Partnership declares
its regular quarterly distributions before the end of each
quarter and pays the distribution in the first week after the end
of each quarter. The Partnership attempts to maintain a stable
distribution rate from quarter to quarter. Redemption payments
are paid to redeeming Partners in the fourth quarter of each
year.
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 October 1, 1997, six Limited Partners redeemed a total
of 40.6 Partnership Units for $30,666 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, ten Limited
Partners redeemed a total of 136.7 Partnership Units for
$108,611. 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.
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.
PART II - OTHER INFORMATION
(Continued)
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -
Description
27 Financial Data Schedule for period
ended September 30, 1997.
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 7, 1997 AEI Net Lease Income & Growth Fund XIX
Limited Partnership
By: AEI Fund Management XIX, Inc.
Its: Managing General Partner
By: /s/ Robert P Johnson
Robert P. Johnson
President
(Principal Executive Officer)
By: /s/ Mark E Larson
Mark E. Larson
Chief Financial Officer
(Principal Accounting Officer)
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<NAME> AEI NET LEASE INCOME & GROWTH FUND XIX LTD PARTNERSHIP
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
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