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, 1998
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)
(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 NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Item 1. Balance Sheet as of September 30, 1998 and December 31, 1997
Statements for the Periods ended September 30, 1998 and 1997:
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, 1998 AND DECEMBER 31, 1997
(Unaudited)
ASSETS
1998 1997
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,926,137 $ 1,613,175
Receivables 9,595 40,876
Current Portion of Long-Term Notes Receivable 0 32,496
----------- -----------
Total Current Assets 1,935,732 1,686,547
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 5,409,247 5,198,411
Buildings and Equipment 9,234,665 8,496,976
Construction in Progress 267,162 43,208
Property Acquisition Costs 29,016 49,230
Accumulated Depreciation (1,266,333) (1,106,715)
----------- -----------
Net Investments in Real Estate 13,673,757 12,681,110
----------- -----------
OTHER ASSETS:
Long-Term Notes Receivable -
Net of Current Portion 0 1,460,299
----------- -----------
Total Assets $15,609,489 $15,827,956
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 87,251 $ 51,256
Distributions Payable 366,970 337,626
Unearned Rent 6,747 0
----------- -----------
Total Current Liabilities 460,968 388,882
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (30,072) (27,166)
Limited Partners, $1,000 Unit Value;
30,000 Units authorized; 21,152 Units issued;
20,975 Units outstanding 15,178,593 15,466,240
----------- -----------
Total Partners' Capital 15,148,521 15,439,074
----------- -----------
Total Liabilities and Partners' Capital $15,609,489 $15,827,956
=========== ===========
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
9/30/98 9/30/97 9/30/98 9/30/97
INCOME:
Rent $ 422,433 $ 357,201 $ 1,237,553 $ 1,082,039
Investment Income 46,284 88,991 147,602 263,950
--------- --------- ----------- -----------
Total Income 468,717 446,192 1,385,155 1,345,989
--------- --------- ----------- -----------
EXPENSES:
Partnership Administration -
Affiliates 63,306 61,422 207,787 188,521
Partnership Administration
and Property Management -
Unrelated Parties 26,079 31,585 101,293 98,059
Depreciation 74,153 77,294 217,854 234,656
--------- --------- ----------- -----------
Total Expenses 163,538 170,301 526,934 521,236
--------- --------- ----------- -----------
OPERATING INCOME 305,179 275,891 858,221 824,753
GAIN ON SALE OF REAL ESTATE 0 0 0 77,703
--------- --------- ----------- -----------
NET INCOME $ 305,179 $ 275,891 $ 858,221 $ 902,456
========= ========= =========== ===========
NET INCOME ALLOCATED:
General Partners $ 3,052 $ 2,759 $ 8,582 $ 9,025
Limited Partners 302,127 273,132 849,639 893,431
--------- --------- ----------- -----------
$ 305,179 $ 275,891 $ 858,221 $ 902,456
========= ========= =========== ===========
NET INCOME PER
LIMITED PARTNERSHIP UNIT
(20,975 and 21,015 weighted
average Units outstanding
in 1998 and 1997,
respectively) $ 14.41 $ 12.99 $ 40.51 $ 42.51
========= ========= =========== ===========
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)
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 858,221 $ 902,456
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 217,854 234,656
Gain on Sale of Real Estate 0 (77,703)
(Increase) Decrease in Receivables 31,281 (23,665)
Increase in Payable to
AEI Fund Management, Inc. 35,995 33,197
Increase in Unearned Rent 6,747 33,543
----------- -----------
Total Adjustments 291,877 200,028
----------- -----------
Net Cash Provided By
Operating Activities 1,150,098 1,102,484
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (1,210,501) (1,236,899)
Proceeds from Sale of Real Estate 0 675,838
Payments Received on Long-Term Note Receivable 1,492,795 669,444
----------- -----------
Net Cash Provided By
Investing Activities 282,294 108,383
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Distributions Payable 29,344 (3,427)
Distributions to Partners (1,148,774) (1,314,196)
----------- -----------
Net Cash Used For
Financing Activities (1,119,430) (1,317,623)
----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 312,962 (106,756)
CASH AND CASH EQUIVALENTS, beginning of period 1,613,175 2,477,783
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,926,137 $ 2,371,027
=========== ===========
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, 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
========= =========== =========== ==========
BALANCE, December 31, 1997 $ (27,166) $15,466,240 $15,439,074 20,974.63
Distributions (11,488) (1,137,286) (1,148,774)
Net Income 8,582 849,639 858,221
--------- ----------- ----------- ----------
BALANCE, September 30, 1998 $ (30,072) $15,178,593 $15,148,521 20,974.63
========= =========== =========== ==========
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, 1998
(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 Partnership's 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, 1998 are as follows:
Buildings and Accumulated
Property Land Equipment Total Depreciation
Taco Cabana, Houston, TX $ 334,414 $ 212,908 $ 547,322 $ 50,861
Taco Cabana, San Antonio, TX 598,533 548,741 1,147,274 124,509
Taco Cabana, Waco, TX 7,788 11,932 19,720 2,627
Applebee's, Aurora, CO 15,969 28,813 44,782 6,117
Red Line Burger, Houston, TX 0 57,519 57,519 57,519
Red Line Burger, Corpus Christi, TX 0 52,398 52,398 52,398
Applebee's, Crestwood, MO 0 803,418 803,418 154,444
Applebee's, Crestview Hills, KY 4,490 9,549 14,039 1,768
HomeTown Buffet, Tucson, AZ 329,136 281,619 610,755 49,675
Applebee's, Covington, LA 358,521 740,564 1,099,085 143,306
Applebee's, Temple Terrace, FL 44,568 51,694 96,262 9,594
Applebee's, Beaverton, OR 636,972 1,123,107 1,760,079 192,174
Denny's, Apple Valley, CA 461,013 716,642 1,177,655 111,103
Media Play, Apple Valley, MN 230,305 563,962 794,267 81,574
Garden Ridge, Pineville, NC 1,171,849 2,443,529 3,615,378 203,627
Party City, Gainesville, GA 642,964 792,345 1,435,309 22,734
Champps Americana, Troy, MI 379,912 795,925 1,175,837 2,303
Tumbleweed, Chillicothe, OH 192,813 0 192,813 0
---------- ---------- ---------- ---------
$ 5,409,247 $ 9,234,665 $14,643,912 $1,266,333
========== ========== ========== =========
Through December 31, 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, the net gain was $61,611.
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 earned interest at a 9% rate. On March 27, 1997,
the Partnership received the outstanding principal and
accrued interest on the Note.
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
During the first nine months of 1998 and 1997, the
Partnership distributed $72,698 and $237,417 of net sale
proceeds to the Limited and General Partners as part of
their regular quarterly distributions which represented a
return of capital of $3.43 and $11.18 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 December 18, 1997, the Partnership purchased a Party City
retail store in Gainesville, Georgia for $1,435,309. The
property is leased to Party City of Atlanta, Inc. under a
Lease Agreement with a primary term of 15 years and annual
rental payments of $150,752.
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%. Effective June 20, 1998, the interest rate was
increased to 10.5%. 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 $1,175,837. 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 Real Estate Fund XVIII
Limited Partnership, affiliates of the Partnership.
In January, 1998, the Partnership entered into an Agreement
to purchase a 40% interest in a Tumbleweed restaurant in
Chillicothe, Ohio. On April 13, 1998, the Partnership
purchased its share of the land for $192,813. The land is
leased to Tumbleweed, LLC (TLLC) under a Lease Agreement
with a primary term of 15 years and annual rental payments
of $16,389. Effective August 10, 1998, the annual rent was
increased to $19,763. Simultaneously with the purchase of
the land, the Partnership entered into a Development
Financing Agreement under which the Partnership will advance
funds to TLLC for the construction of a Tumbleweed
restaurant on the site. Through September 30, 1998, the
Partnership had advanced $267,162 for the construction of
the property and was charging interest on the advances at a
rate of 8.5%. Effective August 10, 1998, the interest rate
was increased to 10.25%. The Partnership's share of the
total purchase price, including the cost of the land, will
be approximately $542,800. After the construction is
complete, the Lease Agreement will be amended to require
annual rental payments of approximately $55,600. The
remaining interests in the property are owned by the
Individual General Partner and AEI Real Estate Fund XVIII
Limited Partnership, affiliates of the Partnership.
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
In August, 1995, the lessee of 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 agreed to pay
certain pre-petition and post-petition rents due of $150,338
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.
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. Due to the market
conditions for this type of building, the Partnership, in
the fourth quarter of 1997, recorded a real estate
impairment on the three Red Line Burgers of $715,384, which
equaled the net book value of the properties at December 31,
1997. The charge was recorded against the cost of the
buildings and equipment. In addition, in the second quarter
of 1998, the Partnership elected to abandon one of the
properties in order to avoid ongoing expenses. The
Partnership is reviewing its available options for the
remaining Red Line Burger rejected in the reorganization
plan.
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.
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 was 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.
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
As of December 31, 1997, based on an analysis of market
conditions in the area, it was determined the fair value of
the Partnership's interest in the Media Play was
approximately $726,000. In the fourth quarter of 1997, a
charge to operations for real estate impairment of $595,100
was recognized, which is the difference between the book
value at December 31, 1997 of $1,321,100 and the estimated
market value of $726,000. The charge was recorded against
the cost of the land, building and equipment.
The Partnership has incurred net costs of $576,994 relating
to the review of potential property acquisitions. Of these
costs, $547,978 have been capitalized and allocated to land,
building and equipment. The remaining costs of $29,016 have
been capitalized and will be allocated to properties
acquired subsequent to September 30, 1998.
Pursuant to the Partnership Agreement, Net Sale Proceeds may
be reinvested in additional properties until a date five
years after the date on which the offer and sale of Units
terminated. This period expired on February 5, 1998. The
Managing General Partner has prepared an amendment to the
Limited Partnership Agreement that would allow the
Partnership to reinvest Net Sale Proceeds in additional
properties. Voting on the amendment will continue until
December 11, 1998.
(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 December 31, 1997, the
outstanding principal due on the note was $1,492,795. On
April 8, 1998, the Partnership received the outstanding
principal and accrued interest due on the Note.
The Partnership received a Promissory Note from the sale of
the Taco Cabana restaurant as discussed in Note 3. The Note
earned 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.
(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, 1998 and 1997, the
Partnership recognized rental income of $1,237,553 and
$1,082,039, respectively. During the same periods, the
Partnership earned investment income of $147,602 and $263,950,
respectively. In 1998, rental income increased as a result of
additional rent received from three property acquisitions in 1997
and 1998, and rent increases on twelve properties. These
increases were partially offset by a reduction in rental income
due to the restructuring of the Media Play property and the
RallyOs/Red Line Burger situation discussed below. In 1998, the
Partnership received $11,290 and $5,750 less in monthly rent from
the two lessees, respectively. The increase in rental income was
partially offset by a decrease in investment income earned on the
net proceeds prior to the purchase of the additional properties.
In August, 1995, the lessee of 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 agreed to pay certain pre-petition
and post-petition rents due of $150,338 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.
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. Due to the market
conditions for this type of building, the Partnership, in the
fourth quarter of 1997, recorded a real estate impairment on the
three Red Line Burgers of $715,384, which equaled the net book
value of the properties at December 31, 1997. The charge was
recorded against the cost of the buildings and equipment. In
addition, in the second quarter of 1998, the Partnership elected
to abandon one of the properties in order to avoid ongoing
expenses. The Partnership is reviewing its available options for
the remaining Red Line Burger rejected in the reorganization
plan.
Musicland Group, Inc. (MGI), the lessee of the Media Play
retail store in Apple Valley, Minnesota experienced financial
difficulties and was aggressively 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.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
As of December 31, 1997, based on an analysis of market
conditions in the area, it was determined the fair value of the
Partnership's interest in the Media Play was approximately
$726,000. In the fourth quarter of 1997, a charge to operations
for real estate impairment of $595,100 was recognized, which is
the difference between the book value at December 31, 1997 of
$1,321,100 and the estimated market value of $726,000. The
charge was recorded against the cost of the land, building and
equipment.
During the nine months ended September 30, 1998 and 1997,
the Partnership paid Partnership administration expenses to
affiliated parties of $207,787 and $188,521, 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 $101,293 and $98,059, 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
Partnership administration and property management expenses both
increased in the first nine months of 1998 compared to the first
nine months of 1997 due to the additional management associated
with Media Play and the Red Line Burgers and additional review of
lease terms with other lessees of the Partnership.
As of September 30, 1998, the Partnership's annualized
cash distribution rate was 7.5%, 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.
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. AEI is currently analyzing its
computer hardware and software systems to determine what, if any,
resources need to be dedicated regarding Year 2000 issues. The
Partnership does not anticipate any significant operational
impact or incurring material costs as a result of AEI becoming
Year 2000 compliant.
Liquidity and Capital Resources
During the nine months ended September 30, 1998, the
Partnership's cash balances increased $312,962 mainly as a result
of payments received on a long-term note receivable, which was
partially offset by cash used to purchase additional properties.
Net cash provided by operating activities increased from
$1,102,484 in 1997 to $1,150,098 in 1998 mainly as the result of
an increase in income in 1998 and net timing differences in the
collection of payments from the lessees and the payment of
expenses.
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. During the nine months ended
September 30, 1997, the Partnership generated cash flow from the
sale of real estate of $675,838. During the nine months ended
September 30, 1998 and 1997, the Partnership received payments on
long-term notes receivable, received as the result of property
sales, of $1,492,795 and $669,444, respectively. During the same
periods, the Partnership expended $1,210,501 and $1,236,899
respectively, to invest in real properties (inclusive of
acquisition expenses), as the Partnership continued to reinvest
the cash generated from the property sales.
Through December 31, 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 six months ended
September 30, 1997, the net gain was $61,611.
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 1998 and 1997, the
Partnership distributed $72,698 and $237,417 of net sale proceeds
to the Limited and General Partners as part of their regular
quarterly distributions which represented a return of capital of
$3.43 and $11.18 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.
Pursuant to the Partnership Agreement, Net Sale Proceeds
may be reinvested in additional properties until a date five
years after the date on which the offer and sale of Units
terminated. This period expired on February 5, 1998. The
Managing General Partner has prepared an amendment to the Limited
Partnership Agreement that would allow the Partnership to
reinvest Net Sale Proceeds in additional properties. Voting on
the amendment will continue until December 11, 1998.
On December 18, 1997, the Partnership purchased a Party
City retail store in Gainesville, Georgia for $1,435,309. The
property is leased to Party City of Atlanta, Inc. under a Lease
Agreement with a primary term of 15 years and annual rental
payments of $150,752.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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%. Effective June 20, 1998, the interest
rate was increased to 10.5%. 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 $1,175,837. 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 Real Estate
Fund XVIII Limited Partnership, affiliates of the Partnership.
In January, 1998, the Partnership entered into an
Agreement to purchase a 40% interest in a Tumbleweed restaurant
in Chillicothe, Ohio. On April 13, 1998, the Partnership
purchased its share of the land for $192,813. The land is leased
to Tumbleweed, LLC (TLLC) under a Lease Agreement with a primary
term of 15 years and annual rental payments of $16,389.
Effective August 10, 1998, the annual rent was increased to
$19,763. Simultaneously with the purchase of the land, the
Partnership entered into a Development Financing Agreement under
which the Partnership will advance funds to TLLC for the
construction of a Tumbleweed restaurant on the site. Through
September 30, 1998, the Partnership had advanced $267,162 for the
construction of the property and was charging interest on the
advances at a rate of 8.5%. Effective August 10, 1998, the
interest rate was increased to 10.25%. The Partnership's share
of the total purchase price, including the cost of the land, will
be approximately $542,800. After the construction is complete,
the Lease Agreement will be amended to require annual rental
payments of approximately $55,600. The remaining interests in
the property are owned by the Individual General Partner and AEI
Real Estate Fund XVIII Limited Partnership, affiliates of the
Partnership.
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. Effective October 1, 1997, the Partnership's distribution
rate was reduced from 8.5% to 7.5%. As a result, distributions
during the first nine months of 1997 were higher when compared to
the same period in 1998.
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.
During, 1998, eight Limited Partners redeemed a total of
206.7 Partnership Units for $145,775 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a total of
sixteen Limited Partners redeemed 177.3 Partnership Units for
$139,225. The redemptions increase the remaining Limited
Partners' ownership interest in the Partnership.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The continuing rent payments from the properties, together
with cash generated from the property sales, should be adequate
to fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
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.
PART II - OTHER INFORMATION
(Continued)
ITEM 5.OTHER INFORMATION
None.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -
Description
10.1 First Amendment to Net Lease
Agreement dated September 3, 1998 between
the Partnership, AEI Real Estate Fund
XVII Limited Partnership, AEI Real Estate
Fund XVIII Limited Partnership, AEI Real
Estate Fund XV Limited Partnership and
Champps Entertainment, Inc. relating to
the property at 301 West Big Beaver Road,
Troy, Michigan.
27 Financial Data Schedule for period
ended September 30, 1998.
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 9, 1998 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)
FIRST AMENDMENT TO NET LEASE AGREEMENT
THIS AMENDMENT TO NET LEASE AGREEMENT, made and entered
into effective as of the 3rd day of September, 1998, by and
between AEI Real Estate Fund XV Limited Partnership (hereinafter
"Fund XV"), AEI Real Estate Fund XVII Limited Partnership
(hereinafter "Fund XVII"), AEI Real Estate Fund XVIII Limited
Partnership (hereinafter "Fund XVIII"), and AEI Net Lease Income
& Growth Fund XIX Limited Partnership (hereinafter "Fund XIX"),
(collectively "Lessor"),whose principal business address is 1300
Minnesota World Trade Center, 30 East Seventh Street, St. Paul,
Minnesota 55101, and Champps Entertainment, Inc., a Minnesota
corporation ("Lessee"), whose principal business address is One
Corporate Place, 55 Ferncroft Road, Danvers, Ma. 01923;
WITNESSETH:
WHEREAS, Lessor is the fee owner of a certain parcel of real
property and improvements located at Troy, Michigan, and legally
described in Exhibit "A", which is attached hereto and
incorporated herein by reference; and
WHEREAS, Lessee has constructed the building and
improvements (together the "Building") on the real property
described in Exhibit "A", which Building is described in the
plans and specifications heretofore submitted to Lessor; and
WHEREAS, Lessee and Lessor have entered into that certain
Net Lease Agreement dated December 23, 1997 (the "Lease")
providing for the lease of said real property and Building (said
real property and Building hereinafter referred to as the "Leased
Premises"), from Lessor upon the terms and conditions therein
provided in the Lease;
NOW, THEREFORE, in consideration of the Rents, terms,
covenants, conditions, and agreements hereinafter described to be
paid, kept, and performed by Lessee, including the completion of
the Building and other improvements constituting the Leased
Premises, Lessee and Lessor do hereby agree to amend the Lease as
follows:
1. Article 2(A) and (B) of the Lease shall henceforth read as
follows:
ARTICLE 2. TERM
(A) The term of this Lease ("Term") shall be Twenty (20)
consecutive "Lease Years", as hereinafter defined, commencing on
December 23, 1997 ("Occupancy Date"), plus the period ending
September 2, 1998, with the contemplated initial term hereof
ending on October 31, 2018.
(B) The first full Lease Year shall commence on the date of
this First Amendment and continue through October 31, 1999.
2. Article 4(A) of the Lease shall henceforth read as follows:
ARTICLE 4. RENT PAYMENTS
(A) Annual Rent Payable for the first, second, and third
Lease Years: Lessee shall pay to Lessor an annual Base Rent of
$511,922.67, which amount shall be payable in advance on the
first day of each month in monthly installments of $11,112.99 to
Fund XV, $11,112.99 to Fund XVII, $10,217.12 to Fund XVIII, and
$10,217.12 to Fund XIX. If the first day of the Lease Term is
not the first day of a calendar month, then the monthly Rent
payable for that partial month shall be a prorated portion of the
equal monthly installment of Base Rent.
3. Article 35 is hereby deleted in its entirety; Lessor and
Lessee agree that the referenced Development Financing Agreement
is terminated in accordance with its terms. All other terms and
conditions of the Lease shall remain in full force and effect.
4. Lessee has accepted delivery of the Leased Premises and has
entered into occupancy thereof;
5. Lessee has fully inspected the Premises and found the same
to be as required by the Lease, in good order and repair, and all
conditions under the Lease to be performed by the Lessor have
been satisfied;
6. As of this date, the Lessor is not in default under any of
the terms, conditions, provisions or agreements of the Lease and
the undersigned has no offsets, claims or defenses against the
Lessor with respect to the Lease.
7. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee have respectively signed
and sealed this Lease as of the day and year first above written.
LESSEE: CHAMPPS ENTERTAINMENT, INC.
By:/s/ Donna Deporan
Its:Vice President
STATE OF Massachusetts)
)SS.
COUNTY OF Essex)
The foregoing instrument was acknowledged before me this
27th day of August, 1998, by Donna Deporan, as VP of Champps
Entertainment, Inc. on behalf of said corporation.
/s/ Jane Blanchette
Notary Public
Remainder of page intentionally left blank
LESSOR:
AEI REAL ESTATE FUND XV LIMITED PARTNERSHIP,
a Minnesota limited partnership
By: AEI FUND MANAGEMENT 86-A, INC.,
a Minnesota corporation
By:/s/ Robert P Johnson
Robert P. Johnson, President
STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )
The foregoing instrument was acknowledged before me the 3rd
day of September, 1998, by Robert P. Johnson, the President of
AEI Fund Management 86-A, Inc., a Minnesota corporation,
corporate general partner of AEI Real Estate Fund XV Limited
Partnership, on behalf of said limited partnership.
/S/ Barbara J Kochevar
[notary seal] Notary Public
Remainder of page intentionally left blank
AEI REAL ESTATE FUND XVII LIMITED
PARTNERSHIP, a Minnesota limited
partnership
By: AEI FUND MANAGEMENT XVII, INC.,
a Minnesota corporation
By: /s/ Robert P Johsnon
Robert P. Johnson, President
STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )
The foregoing instrument was acknowledged before me the 3rd
day of September, 1998, by Robert P. Johnson, the President of
AEI Fund Management XVII, Inc., a Minnesota corporation,
corporate general partner of AEI Real Estate Fund XVII Limited
Partnership, on behalf of said limited partnership.
/s/ Barbara J Kochevar
[notary seal] Notary Public
Remainder of page intentionally left blank
AEI REAL ESTATE FUND XVIII LIMITED
PARTNERSHIP, a Minnesota limited
partnership
By: AEI FUND MANAGEMENT XVIII, INC.,
a Minnesota corporation
By:/s/ Robert P Johnson
Robert P. Johnson, President
STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )
The foregoing instrument was acknowledged before me the 3rd
day of September, 1998, by Robert P. Johnson, the President of
AEI Fund Management XVIII, Inc., a Minnesota corporation,
corporate general partner of AEI Real Estate Fund XVIII Limited
Partnership, on behalf of said limited partnership.
/S/ Barbara J Kochevar
[notary seal] Notary Public
Remainder of page intentionally left blank
AEI NET LEASE INCOME & GROWTH FUND XIX
LIMITED PARTNERSHIP, a Minnesota limited
partnership
By: AEI FUND MANAGEMENT XIX, INC.,
a Minnesota corporation
By:/s/ Robert P Johnson
Robert P. Johnson, President
STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )
The foregoing instrument was acknowledged before me the 3rd
day of September, 1998, by Robert P. Johnson, the President of
AEI Fund Management XIX, Inc., a Minnesota corporation, corporate
general partner of AEI Net Lease Income & Growth Fund XIX Limited
Partnership, on behalf of said limited partnership.
/s/ Barbara J Kochevar
[notary seal] Notary Public
Remainder of page intentionally left blank
Exhibit A
Lot 1, Big Beaver Park Condominium, a condominium, created by
Master Deed dated August 12, 1997, and recorded in Oakland County
Recorder's Office in Liver 17559, Page 647, Oakland County,
Michigan.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000868740
<NAME> AEI NET LEASE INCOME & GROWTH FUND XIX LTD PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,926,137
<SECURITIES> 0
<RECEIVABLES> 9,595
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,935,732
<PP&E> 14,940,090
<DEPRECIATION> (1,266,333)
<TOTAL-ASSETS> 15,609,489
<CURRENT-LIABILITIES> 460,968
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 15,148,521
<TOTAL-LIABILITY-AND-EQUITY> 15,609,489
<SALES> 0
<TOTAL-REVENUES> 1,385,155
<CGS> 0
<TOTAL-COSTS> 526,934
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 858,221
<INCOME-TAX> 0
<INCOME-CONTINUING> 858,221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 858,221
<EPS-PRIMARY> 40.51
<EPS-DILUTED> 40.51
</TABLE>
