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 [Fee Required]
For the fiscal year ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
Commission File No. 0-25436
AAA NET REALTY FUND X, LTD.
(Name of small business issuer in its charter)
Nebraska 76-0381949
(State or other jurisdiction of (I.R.S.Employer or Identification No.)
Incorporation or organization)
8 Greenway Plaza, Suite 824
Houston, Texas 77046
(Address of principle 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
Units of Limited Partnership Interest
(Title of Class)
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: $1,071,549
DOCUMENTS INCORPORATED BY REFERENCE
The Prospectus of Issuer dated September 17, 1992 (included in
Registration Statement No. 33-47638 of Issuer) and as
supplemented October 8, 1992, October 29, 1992, November 5, 1992,
January 28, 1993, June 15, 1993, September 15, 1993 and February
15, 1994 is incorporated by reference into Part III.
PART I
Item 1. Business
AAA Net Realty Fund X, Ltd. (the "Issuer" or the "Partnership")
was formed in 1992 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"), and 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 X (a Nebraska corporation) is the
Managing General Partner and H. Kerr Taylor is the Individual
General Partner.
The Partnership acquired two properties in 1993, four properties
in 1994, one property in 1995 and one property in 1996. Six of
the properties were purchased directly and two through joint
ventures at a total price of $9,951,546 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 $40,000,000.
A further description of the Partnership's business is included
in Management's Discussion and Analysis of Financial Condition
and Results of Operations included as 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 produce long-term gains through appreciation of the
Partnership's properties;
(3) to provide the limited partners with quarterly cash distributions;
(4) 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, 1997, the Partnership owned eight properties
all in fee simple. Four of these properties are located in Texas
and one each in Arizona, Georgia, Minnesota and Missouri.
Although the specific terms of each lease vary, a summary of the
terms of the leases are as follows:
The primary term of the leases ranges from ten to twenty years.
Four of the leases also provide for two to four five-year 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 $52,908 to
$256,620. All 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.
-2-
During 1997, four 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:
<TABLE>
<CAPTION>
Golden Corral TGIFriday's Tandy One Care Health
Corporation Inc. Corporation Industries, Inc.
<S> <C> <C> <C> <C>
Lease Term 15 Years 10 Years 15 Years 10 Years
Expiration Date of Primary Term March 2008 January 2003 August 2009 January 2005
Renewal Options N/A N/A N/A 2 terms of 5
years each
Square Footage of Improvements 11,414 8,500 15,000 14,760
Base Annual Rental $ 172,956 $ 180,500 $ 256,620 $ 160,518
</TABLE>
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
Each property is managed by American Asset Advisers Realty
Corporation ("AAA"), an affiliate of the Managing General
Partner. 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 services at cost. The tenants are responsible, at
their expense, for day-to day on-site management and maintenance
of the properties.
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 will be 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
anticipate performing various substantial real estate brokerage
functions in connection with the sale of properties by the
Partnership.
-3-
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 X, which delegates certain day to day functions to
the officers of AAA, consultants and employees of AAA. The
Partnership itself has no employees.
Item 2. Properties
As of March 31, 1998, the Partnership owned eight properties in
fee simple, six directly and two through joint ventures with
affiliated entities. The properties are located in Texas,
Arizona, Georgia, Minnesota and Missouri. They are operated as
retail stores, as restaurants and as a medical facility.
Land - The Partnership's Property sites range from approximately
34,000 to 125,000 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.
Buildings - The buildings are all single tenant and are generally
rectangular. They are positioned for good exposure to traffic
flows and are 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
renovation or improvements.
Leases - Tenants are companies whose net worth exceeds a minimum
of $40,000,000. Tenants are diversified by business type and are
represented by the following types of business: automotive,
consumer electronics, consumer entertainment, consumer retail,
full service restaurants, fast food restaurants and medical
facilities.
Geographic Location - The properties are located within major
metropolitan areas with populations that exceed 250,000.
A total of $9,951,546 has been invested in properties as of
December 31, 1997, 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, 1997, no matter was
submitted to a vote of security holders through the solicitation
of proxies or otherwise.
-4-
PART II
Item 5. Market for the Issuer's Common Equity and Related Stockholder Matters
As of March 31, 1998, 728 limited partners had subscribed for
11,453.61 Units. No established public trading market currently
exists for the Units.
For the years ended December 31, 1997 and 1996 the Partnership
paid cash distributions to the Limited Partners (LPs) in the
amount of $923,254 and $916,861, respectively. The General
Partners (GPs) received distributions of $4,450 and $3,600,
respectively. The distributions were paid entirely from the
operating profits of the Partnership.
A summary of the distributions by quarter is as follows:
Quarter 1997 1996
Ended GPs LPs GPs LPs
March 31 $ 900 $ 230,218 $ 900 $ 229,072
June 30 $ 1,450 $ 230,561 $ 900 $ 229,072
September 30 $ 1,050 $ 230,997 $ 900 $ 229,072
December 31 $ 1,050 $ 231,478 $ 900 $ 229,645
The Partnership intends to continue the payment of 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 Partnerships
Financial Condition and Results of Operations.
The Partnership was organized on April 15, 1992, 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 resell 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.
AAA has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue.
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any
programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. AAA's hardware and
software are believed to be Year 2000 compliant. Accordingly, the
Partnership does not expect to incur any material costs in
connection with the compliance of the Year 2000 Issue.
-5-
LIQUIDITY AND CAPITAL RESOURCES
On September 17, 1992, the Partnership commenced an offering to
the public of up to $20,000,000 (20,000 Units) of limited
partnership units. The proceeds of the offering, rental income
from the Partnership's properties and interest income are the
Partnership's source of capital. The Partnership closed its
offering on September 1, 1994 having raised $11,453,610. Limited
partners are not required to make any additional capital
contributions.
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 initial or remaining terms of 10
to 20 years and provide for specified rental increases in excess
of the initial base rent, it is anticipated that Partnership
income will increase over time. In addition, because of low
operating expenses and ongoing cash flow, the General Partners do
not believe that large working capital reserves are necessary at
this time. Because all leases of the Partnership's properties
are on a net-lease basis, it is not anticipated that a large
reserve for maintenance and repairs will be necessary. 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, 1997, the Partnership had acquired eight
properties and had invested $9,951,546, 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 1997 and 1996,
distributing a total of $923,254 and $916,861 respectively to the
limited partners.
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, 1997 and 1996:
Rental income and equity income from investment in joint ventures
increased from $920,928 and $90,501, respectively, in 1996 to
$926,344 and $142,054, respectively, in 1997 as the Partnership
owned or had an interest in eight properties during 1997 while
seven properties were owned for the first nine months in 1996 and
the eighth property was purchased in September of 1996. Interest
income declined from $25,482 in 1996 to $3,151 in 1997 as funds
which had been held in short term investments were used to
acquire real estate properties. The Partnership's operating
expenses decreased by $6,769 primarily due to a decrease in legal
and professional fees. Net income increased to $778,619 from
$737,212.
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.
-6-
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 47, 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 the president, the sole
director and sole shareholder of AAA, a real estate operating
company he founded in 1988. Mr. Taylor has served in this
capacity since the company's formation.
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 X 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 X
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 organizational 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 49, is the Chairman of Securities America, Inc., a
registered broker/dealer, which was also the dealer/manager of
the Partnership during the offering period. Mr. Wild has served
as the Chairman of the Board of Securities America, Inc. since
1984 and also as its President from February 1991 to September
1997. Mr. Wild has also been the Chairman of Financial Dynamics,
Inc., the holding company for Securities America, Inc. and
certain other financial service companies since September 1985.
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 AAA. In addition
to Mr. Taylor as president, other officers of AAA include:
Tim Kelley, age 50, serves as Vice President of Operations of
AAA. 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.
-7-
Randal Garbs, age 44, serves as Vice President of Acquisitions of
AAA. Mr. Garbs is responsible for property acquisitions as well
as marketing services to its tenants and developers. Mr. Garbs
has over twenty years experience in marketing including acting as
CEO of a Houston based service company. Mr. Garbs has earned the
series 7 and 63 NASD licenses, the Texas Real Estate license and
is a candidate for 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 33, serves as Vice President of Finance of
AAA. Mr. Mangum is responsible for the financial accounting and
reporting relating to the AAA-sponsored partnerships and their
properties. He has over ten 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 AAA 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 AAA-sponsored partnerships, although
they do perform various services and activities for those
partnerships.
These individuals are:
Don Grieb, age 46, is the Director of Development and
Acquisitions of AAA. 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.
Joe Mayer, age 42, is a permanent advisor of AAA responsible for
debt and equity issues. Mr. Mayer has over twenty years of
experience in business, accounting, investments and real estate
transactions. Mr. Mayer is a certified public accountant and
worked for a national public accounting firm. Mr. Mayer received
his B.B.A. degree in accounting from the University of Kentucky
and is a licensed real estate broker.
Jane Costello, age 41, is a certified public accountant and is
responsible for the tax accounting related to the AAA-sponsored
partnerships and their properties. She has over eighteen years
experience as an accountant including over 4 years with a
national public accounting firm and the last eight 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 9 to the accompanying financial statements.
Item 11. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1997, 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.
-8-
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 year ended December 31, 1997 and 1996 of
$4,450 and $3,600, 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.
The Issuer has entered into arrangements with AAA pursuant to
which AAA 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. AAA 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, $68,932 and $65,883 was
incurred and paid to AAA in 1997 and 1996, respectively. See
Note 9 of the accompanying financial statements.
Mr. Taylor, President of AAA, receives compensation from AAA for
services performed for AAA, which may include services rendered
in connection with the Issuer. However, the Managing General
Partner believes that any compensation relating to services is
not material.
-9-
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, 1997
Statements of Income for the Years Ended December 31,
1997 and 1996
Statements of Partnership Equity for the Years Ended
December 31, 1997 and 1996
Statements of Cash Flows for the Years Ended December
31, 1997 and 1996
Notes to Financial Statements for the Years Ended
December 31, 1997 and 1996
(2) Financial Statement Schedules: See (d) below
(3) Exhibits: See (c) below
(b) Reports on Form 8-K filed after September 30, 1997:
None
(c) Exhibits
3 See Exhibit 4(a)
4 (a) Amended and Restated Certificate and Agreement
of Limited Partnership (included as Exhibit A to
the prospectus of Issuer dated September 17,
1992 contained in Registration Statement No.
33-47638 of Issuer (the "Prospectus") and
incorporated herein by reference).
4 (b) Subscription Agreement and Signature Page
(included as Exhibit D to the Prospectus and
incorporated herein by reference).
10 (a)(1) Joint Venture Agreement between Issuer and
AAA Net Realty Fund IX, 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)(2) Agreement of Purchase and Sale between
Golden Corral Corporation and AAA Realty
IX and X Joint Venture dated March 11,
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)(3) Lease Agreement between Golden Corral
Corporation and AAA Realty IX and X
Joint Venture dated March 11, 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-
10 (a)(4) Contract for Purchase and Sale of Real
Estate between Richard Motycka Trustee
and Issuer dated November 18, 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)(5) Assignment and Assumption of Lease
between Issuer and Southpoint Shopping
Center L.C. dated December 22, 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) Earnest Money Contract between Issuer
and Jefco Development Corporation
(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)(7) Assignment of Lease Agreement between Issuer
and Jefco Development Corporation dated
March 30, 1994 (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)(8) Real Estate Sales Agreement between
Issuer and America's Favorite Chicken
Company dated June 13, 1994
(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)(9) Lease Agreement between Issuer and America's
Favorite Chicken Company dated July 19, 1994
(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)(10) Contract for Purchase and Sale of Real
Estate between Issuer and Beechwood
Acquisitions, Inc. dated January 13,
1994 (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)(11) Assignment and Assumption of Lease
between Roseville Partnership No. 20 and
Issuer dated August 25, 1994
(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)(12) Joint Venture Agreement between Issuer
and American Asset Advisers Trust, Inc.
dated October 27, 1994 (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)(13) Agreement for Purchase and Sale of Real
Estate between Issuer and KCBB, Inc.
dated October 11, 1994 (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)(14) Assignment and Assumption of Lease
between KCBB, Inc. and AAA Joint Venture
94-1 dated November 11, 1994 (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)(15) Agreement for Purchase and Sale of Real
Estate between Issuer and TA/ Colony
Medical, Ltd. dated October 27, 1994
(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)
-11-
10 (a)(16) Assignment and Assumption of Lease
between TA/Colony Medical, Ltd. and
Issuer dated January 17, 1995
(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)(17) Joint Venture Agreement between American
Asset Advisers Trust, Inc. and AAA Net Realty Fund X,
Ltd. and AAA Net Realty Fund XI, Ltd., dated April 5,
1996. (Incorporated by reference to the exhibit filed
with the Issuer's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996)
27 Financial Data Schedule.
(d) Financial Statements Schedules
Schedule III - Real Estate Owned and Accumulated Depreciation
-12-
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 X, Ltd.
March 31, 1998 /s/ H. Kerr Taylor
Date H. Kerr Taylor, Individual General Partner
American Asset Advisers Management
Corporation X, Managing General Partner
March 31, 1998 By: /s/ H. Kerr Taylor
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 Registrant and in the capacities and on
the dates indicated.
March 31, 1998 /s/ H. Kerr Taylor
Date H. Kerr Taylor
President (Chief Executive Officer
and Chief Financial Officer) and
Director
March 31, 1998 /s/ Stephen K. Wild
Date Stephen K. Wild, Director
March 31, 1998 /s/ L. Larry Mangum
Date L. Larry Mangum (Principal Accounting
Officer)
-13-
ANNUAL REPORT ON FORM 10-KSB
ITEMS 7, 13 (a) (1) AND (2) AND 13 (d)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FINANCIAL STATEMENT SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 1997
AAA NET REALTY FUND X, LTD.
F-1
AAA NET REALTY FUND X, LTD.
INDEX TO FINANCIAL STATEMENTS
Page
FINANCIAL STATEMENTS:
Independent Auditors' Report F-3
Balance Sheet, December 31,1997 F-4
Statements of Income for the Years Ended
December 31, 1997 and 1996 F-5
Statements of Partnership Equity for the Years
Ended December 31, 1997 and 1996 F-6
Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996 F-7
Notes to Financial Statements for the Years Ended
December 31, 1997 and 1996 F-8 to F-12
FINANCIAL STATEMENT SCHEDULE:
Schedule III Real Estate Owned and Accumulated
Depreciation for the Year Ended December 31, 1997 F-13
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
INDEPENDENT AUDITORS' REPORT
AAA Net Realty Fund X, Ltd.
We have audited the accompanying balance sheet of AAA Net Realty
Fund X, Ltd. as of December 31, 1997 and the related statements
of income, partnership equity and cash flows for each of the two
years in the period ended December 31, 1997. Our audits also
included the financial statement schedule listed in the Index.
These financial statements and 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 fiancial statements present fairly, in all material
respects, the financial position of AAA Net Realty Fund X, Ltd. as of
December 31, 1997 and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 1997
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 10, 1998
F-3
AAA NET REALTY FUND X, LTD.
(A LIMITED PARTNERSHIP)
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash and cash equivalents $ 222,419
Accounts receivable 14,399
Property:
Land 2,566,250
Buildings 5,370,984
7,937,234
Accumulated depreciation (544,884)
Total property 7,392,350
Net investment in direct financing leases 614,958
Investment in joint ventures 1,374,557
Other assets:
Accrued rental income 100,794
Organization costs, net of accumulated amortization
of $272,245 27,755
Total other assets 128,549
TOTAL ASSETS $9,747,232
LIABILITIES AND PARTNERSHIP EQUITY
Liabilities:
Accounts payable $ 18,967
Security deposit 12,000
TOTAL LIABILITIES 30,967
Partnership equity:
General partners 14,441
Limited partners 9,701,824
TOTAL PARTNERSHIP EQUITY 9,716,265
TOTAL LIABILITIES AND PARTNERSHIP EQUITY $9,747,232
See Notes to Financial Statements.
F-4
AAA NET REALTY FUND X, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
For the Years Ended December 31,
1997 1996
Revenues:
Rental income from operating leases $ 856,318 $ 857,201
Earned income from direct financing leases 70,026 63,727
Interest income 3,151 25,482
Equity income from investment in joint ventures 142,054 90,501
Total revenues 1,071,549 1,036,911
Expenses:
Advisory fees to related party 68,932 65,883
Amortization 60,000 60,000
Depreciation 144,466 144,466
Professional fees 19,532 29,350
Total expenses 292,930 299,699
Net income $ 778,619 $ 737,212
Allocation of net income:
General partners $ 7,786 $ 7,372
Limited partners 770,833 729,840
$ 778,619 $ 737,212
Net income per unit $ 67.98 $ 64.36
Weighted average units outstanding 11,454 11,454
See Notes to Financial Statements.
F-5
AAA NET REALTY FUND X, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERSHIP EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
General Limited
Partners Partners Total
Balance at December 31, 1995 $ 7,333 $10,041,266 $10,048,599
Net income 7,372 729,840 737,212
Distributions ($80.05 per Limited
Partnership Unit) (3,600) (916,861) (920,461)
Balance at December 31, 1996 11,105 9,854,245 9,865,350
Net income 7,786 770,833 778,619
Distributions ($80.61 per Limited
Partnership Unit) (4,450) (923,254) (927,704)
Balance at December 31, 1997 $ 14,441 $ 9,701,824 $ 9,716,265
See Notes to Financial Statements.
F-6
AAA NET REALTY FUND X, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1997 1996
Cash flows from operating activities:
Net income $ 778,619 $ 737,212
Adjustments to reconcile net income to net cash
flows from operating activities:
Amortization 60,000 60,000
Depreciation 144,466 144,466
Decrease (increase) in accounts receivable (14,204) 14,585
Increase (decrease) in accounts payable 17,558 (7,036)
Cash received from direct financing leases
in excess of (less than) income recognized (2,922) 3,376
Investment in joint ventures:
Equity income (142,054) (90,501)
Distributions received 142,054 90,501
Increase in accrued rental income (31,342) (32,222)
Net cash provided by operating activities 952,175 920,381
Cash flows from investing activities:
Investment in joint venture - (662,242)
Joint venture distributions in excess of income 4,482 7,752
Change in prepaid acquisition costs - 23,231
Net cash provided by (used in) investing activities 4,482 (631,259)
Cash flows from financing activities:
Distributions paid to partners (927,704) (920,461)
Net cash used in financing activities (927,704) (920,461)
Net increase (decrease) in cash and cash equivalents 28,953 (631,339)
Cash and cash equivalents at beginning of year 193,466 824,805
Cash and cash equivalents at end of year $ 222,419 $ 193,466
See Notes to Financial Statements.
F-7
AAA NET REALTY FUND X, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
AAA Net Realty Fund X, Ltd. ("the Partnership") is a limited
partnership formed April 15, 1992, under the laws of the
State of Nebraska. The Partnership commenced operations as of
September 17, 1992. American Asset Advisers Management
Corporation X (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. The selection, acquisition and supervision of the
operations of the properties is managed by American Asset Advisers
Realty Corporation ("AAA"), 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 or the direct financing
lease method. Under the operating lease method, 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.
Under the direct financing lease method, the properties are
recorded at their net investment (see Note 5). Unearned
income is deferred and amortized to income over the life of
the lease so as to produce a constant periodic rate of return.
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
INVESTMENT IN JOINT VENTURES
The Partnership's interest in joint ventures are accounted
for under the equity method whereby the Partnership's
investment is increased or decreased by its share of earnings
or losses in the joint ventures and also decreased by any
distributions. The Partnership owns a minority interest and
does not exercise control over the management of the joint ventures.
DEPRECIATION
Buildings are depreciated using the straight-line method over
estimated useful lives ranging from 31.5 to 39 years.
ORGANIZATION COSTS
Organization costs incurred in the formation of the
Partnership are amortized on a straight-line basis over five years.
SYNDICATION COSTS
Syndication costs incurred in the raising of capital through
the sale of units are treated as a reduction of partnership equity.
STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
No cash was paid for income taxes or interest during 1997 or 1996.
INCOME TAXES
All income and expense items flow through to the partners for
tax purposes. Consequently, no provision 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 X, 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
F-9
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.
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's 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
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 94% to the limited partners and 6% to the General
Partners, and
(e) thereafter, the partners shall be allocated gain or loss
in order to meet Treasury Regulations 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, 1997 are as follows:
1998 $ 935,517
1999 $ 942,297
2000 $ 946,442
2001 $ 960,815
2002 $ 962,683
2003-2016 $ 4,303,175
F-10
5. NET INVESTMENT IN DIRECT FINANCING LEASE
The Partnership's net investment in a direct financing lease
at December 31, 1997 included:
Minimum lease payments receivable $ 1,328,957
Unguaranteed residual value 300,558
Less: Unearned income 1,014,557
$ 614,958
A summary of minimum future rentals, exclusive of any
renewals, under a noncancellable direct financing lease in
existence at December 31, 1997 are as follows:
1998 $ 67,103
1999 $ 70,237
2000 $ 73,892
2001 $ 73,892
2002 $ 73,892
2003-2016 $ 969,941
6. INVESTMENT IN JOINT VENTURES
On April 5, 1996, the Partnership formed a joint venture, AAA
Joint Venture 96-1, with AAA Net Realty Fund XI, Ltd. and
American Asset Advisers Trust, Inc., entities with common
management, for the purpose of acquiring a property which is
being operated as a Just For Feet retail store in Tucson,
Arizona. The property was purchased on September 11, 1996
after construction was completed. The Partnership's interest
in the joint venture is 18.25%.
On October 27, 1994, the Partnership formed a joint venture,
AAA Joint Venture 94-1, with American Asset Advisers Trust,
Inc., for the purpose of acquiring a property on lease to
BlockBuster Music Retail Inc. in Missouri. The Company's
interest in the joint venture is 45.16%.
Summarized financial information for the joint ventures at
December 31, 1997 and 1996, are as follows:
1997 1996
Land & building,
net of accumulated depreciation $ 2,645,823 $ 2,675,195
Net investment in direct financing lease $ 2,578,954 $ 2,572,325
Accounts receivable $ 2,435 $ 15,538
Accrued rental income $ 50,602 $ 23,148
Partners' capital $ 5,277,814 $ 5,286,206
Rental income from operating lease $ 179,670 $ 179,670
Equity income from direct financing lease $ 405,901 $ 123,244
Net income $ 556,201 $ 273,544
The Partnership recognized equity income of $142,054 and
$90,501 from the joint ventures in 1997 and 1996, respectively.
F-11
7. 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 1997 and 1996
under both operating lease and direct financing lease methods
of accounting:
1997 1996
Golden Corral Corporation (Texas) $ 172,956 $ 172,956
TGI Friday's, Inc. (Texas) $ 180,500 $ 180,500
Goodyear Tire & Rubber Company (Texas) $ 52,920 $ 52,920
Tandy Corporation (Minnesota) $ 256,620 $ 256,620
America's Favorite Chicken Company (Georgia) $ 102,830 $ 97,414
One Care Health Industries, Inc. (Texas) $ 160,518 $ 160,518
Total $ 926,344 $ 920,928
8. 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:
1997 1996
Net income for financial reporting purposes $ 778,619 $ 737,212
Direct financing lease recorded as operating
lease for tax reporting purposes (31,869) (16,520)
Accrued rental income (38,815) (37,188)
Income for tax reporting purposes $ 707,935 $ 683,504
9. 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, $68,932 and $65,883 was incurred and paid to AAA
in 1997 and 1996, respectively.
See Note 6 for joint venture agreements with entities with
common management.
F-12
AAA NET REALTY FUND X, LTD.
SCHEDULE III - REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIFE ON WHICH
DEPRECIATION
COST AT IN LATEST
PROPERTY ENCUM- IMPROVE- CLOSE OF YEAR ACCUMULATED DATE OF DATE INCOME STMT
DESCRIPTION BRANCES BUILDING LAND MENTS BUILDING LAND DEPRECIATION CONST. AQUIRED IS COMPUTED
PROPERTIES INVESTED IN
UNDER OPERATING LEASES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Golden Corral Restaurant,
Texas $0 $1,105,426 $473,754 $0 $1,105,426 $473,754 $167,689 N/A 03-15-93 31.5 Years
TGI Friday's Restaurant,
Texas $0 1,084,060 $464,597 $0 $1,084,060 $464,597 $111,187 N/A 12-23-93 39 Years
Goodyear Tire & Automotive
Store, Texas $0 $377,261 $161,684 $0 $377,261 $161,684 $36,274 N/A 03-31-94 39 Years
Popeye's Chicken
Restaurant, Georgia $0 $0 $264,400 $0 $0 $264,400 $0 N/A 07-19-94 N/A
Computer City Super
Center, Minnesota $0 1,769,749 $758,464 $0 $1,769,749 $758,464 $151,260 N/A 03-21-94 39 Years
One Care Health
Industries, Inc., Texas $0 $1,034,488 $443,351 $0 $1,034,488 $443,351 $78,474 N/A 01-18-95 39 Years
$0 $5,370,984 $2,566,250 $0 $5,370,984 $2,566,250 $544,884
PROPERTY OF JOINT VENTURES
IN WHICH THE PARTNERSHIP HAS
AN INTEREST AND HAS INVESTED
IN UNDER AN OPERATING LEASE
Blockbuster Music Store,
Missouri $0 $514,595 $220,541 $0 $514,595 $220,541 $41,234 N/A 11-14-94 39 Years
Just For Feet,
Arizona $0 $463,578 $198,664 $0 $463,578 $198,664 $15,485 N/A 09-11-96 39 Years
$0 $978,173 $419,205 $0 $978,173 $419,205 $56,719
PROPERTY INVESTED IN
UNDER DIRECT FINANCING LEASE
Popeye's Chicken
Restaurant, Georgia $0 $616,934 $0 $0 $616,934 $0 (2) N/A 07-19-94 N/A
(1) Transactions in real estate and accumulated depreciation during 1997 and 1996 for operating lease properties are summarized
as follows:
Accumulated
Cost Depreciation
Balance at December 31, 1995 $7,937,234 $255,950
Acquisitions $0 $0
Depreciation expense $0 $144,466
Balance at December 31, 1996 $7,937,234 $400,416
Acquisitions $0 $0
Depreciation expense $0 $144,468
Balance at December 31, 1997 $7,937,234 $544,884
(2) The portion of the lease relating to the building of this property has been recorded as a direct financing lease for financial
reporting purposes. Consequently, depreciation is not applicable.
(3) The aggregate cost of all properties for Federal Income Tax purposes is $9,951,546 at December 31, 1997.
</TABLE>
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 222,419
<SECURITIES> 0
<RECEIVABLES> 14,399
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 236,818
<PP&E> 7,937,234
<DEPRECIATION> 544,884
<TOTAL-ASSETS> 9,747,232
<CURRENT-LIABILITIES> 30,967
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,716,265
<TOTAL-LIABILITY-AND-EQUITY> 9,747,232
<SALES> 1,068,398
<TOTAL-REVENUES> 1,071,549
<CGS> 0
<TOTAL-COSTS> 292,930
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 778,619
<INCOME-TAX> 0
<INCOME-CONTINUING> 778,619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 778,619
<EPS-PRIMARY> 67.98
<EPS-DILUTED> 67.98
</TABLE>
