ITEM 1. BUSINESS.
AEI Real Estate Fund XVIII Limited Partnership (the "Partnership" or the "Registrant") is a limited partnership which was organized pursuant to the laws of the State of Minnesota on September 20, 1988. The registrant is comprised of AEI Fund Management XVIII, Inc. (AFM) as Managing General Partner, Robert P. Johnson, the President and sole director of AFM, as the Individual General Partner, and purchasers of partnership units as Limited Partners. The Partnership offered for sale up to $30,000,000 of limited partnership interests (the "Units") (30,000 Units at $1,000 per Unit) pursuant to a registration statement effective December 5, 1988. The Partnership commenced operations on February 15, 1989 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. The Partnership's offering terminated December 4, 1990 when the extended offering period expired. The Partnership received subscriptions for 22,783.05 Limited Partnership Units ($22,783,050).
The Partnership was organized to acquire, initially on a debt-free basis, existing and newly constructed commercial properties located in the United States and Canada, to lease such properties to tenants under triple net leases, to hold such properties and to eventually sell such properties. From subscription proceeds, the Partnership purchased twenty-one properties, including partial interests in five properties, totaling $18,868,379. The balance of the subscription proceeds was applied to organization and syndication costs, working capital reserves and distributions, which represented a return of capital. The properties are commercial, single tenant buildings leased under triple net leases.
In January 2009, the Managing General Partner solicited by mail a proxy statement seeking the consent of the Limited Partners, as required by Section 6.1 of the Partnership Agreement, to initiate the final disposition, liquidation and distribution of all of the Partnership's properties and assets within the next year. On February 24, 2009, the proposal was approved with a majority of Units voted in favor of the proposal. As a result, the Managing General Partner is proceeding with the planned liquidation of the Partnership. At this time, the Partnership anticipates that it will sell its remaining property and liquidate prior to December 31, 2010.
Leases
Although there are variations in the specific terms of the leases, the following is a summary of the general terms of the Partnership's leases. The properties are leased to various tenants under triple net leases, classified as operating leases. Under a triple net lease, the tenant is responsible for all real estate taxes, insurance, maintenance, repairs and operating expenses for the property. At the time the properties were acquired, the remaining primary lease terms varied from 15 to 20 years. The leases provide the tenant with two to three five-year renewal options subject to the same terms and conditions as the primary term. The leases provide for base annual rental payments, payable in monthly installments, and contain rent clauses which entitle the Partnership to receive additional rent in future years based on stated rent increases.
ITEM 1. BUSINESS. (Continued)
Property Activity During the Last Three Years
Prior to the second quarter of 2005, the Partnership sold some of its properties and reinvested the proceeds from such sales in additional properties. In the second quarter of 2005, the Partnership decided to discontinue the reinvestment of proceeds from property sales in additional properties and to distribute sales proceeds to the Partners going forward. As of December 31, 2006, the Partnership owned a significant interest in five properties and a minor interest in four properties with a total original cost of $5,562,648, including acquisition expenses. During the years ended December 31, 2007, 2008 and 2009, the Partnership sold five property interests and received net sale proceeds of $2,160,636, $3,602,373 and $158,406, respectively. As of December 31, 2009, the Partnership owned a significant interest in one property and a minor interest in three properties with a total original cost of $681,054 and a total net realizable value of $648,600.
Major Tenants
During 2009, three tenants each contributed more than ten percent of the Partnership's total rental revenue. The major tenants in aggregate contributed 97% of total rental revenue in 2009. With the planned liquidation of the Partnership, the major tenant information will no longer be applicable.
Competition
The Partnership is a minor factor in the commercial real estate business. There are numerous entities engaged in the commercial real estate business which have greater financial resources than the Partnership. At the time the Partnership elects to dispose of its properties, the Partnership will be in competition with other persons and entities to find buyers for its properties.
Employees
The Partnership has no direct employees. Management services are performed for the Partnership by AEI Fund Management, Inc., an affiliate of AFM.
ITEM 1A.
ITEM 1A. RISK FACTORS.
Not required for a smaller reporting company.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not required for a smaller reporting company.
ITEM 2.
ITEM 2. PROPERTIES.
Investment Objectives
The Partnership's investment objectives were to acquire existing or newly-developed commercial properties throughout the United States and Canada that offer the potential for (i) preservation and protection of the Partnership's capital; (ii) partially tax-deferred cash distributions from operations which may increase through rent participation clauses or mandated rent increases; and (iii) long-term capital gains through appreciation in value of the Partnership's properties realized upon sale. The Partnership does not have a policy, and there is no limitation, as to the amount or percentage of assets that may be invested in any one property. However, to the extent possible, the General Partners attempted to diversify the type and location of the Partnership's properties.
Description of Properties
The Partnership's properties are commercial, single tenant buildings. The properties were acquired on a debt-free basis and are leased to various tenants under triple net leases, classified as operating leases. The Partnership holds an undivided fee simple interest in the properties. At any time prior to selling the properties, the Partnership may mortgage one or more of its properties in amounts not exceeding 50% of the aggregate purchase price of all Partnership properties.
The Partnership's properties are subject to the general competitive conditions incident to the ownership of single tenant investment real estate. Since each property is leased under a long-term lease, there is little competition until the Partnership decides to sell the property. At this time, the Partnership will be competing with other real estate owners, on both a national and local level, in attempting to find buyers for the properties. In the event of a tenant default, the Partnership would be competing with other real estate owners, who have property vacancies, to attract a new tenant to lease the property. The Partnership's tenants operate in industries that are very competitive and can be affected by factors such as changes in regional or local economies, seasonality and changes in consumer preference.
The following table is a summary of the properties that the Partnership acquired and owned as of December 31, 2009.
Total Property Annual Annual Purchase Acquisition Lease Rent Per Property Date Costs Tenant Payment Sq. Ft.
Tractor Supply Company Store Bristol, VA Tractor Supply (7.5158%) 4/10/96 $ 96,765 Company, Inc. $12,970 $ 9.20
Champps Americana Restaurant Champps Columbus, OH Operating (.5061%) 8/29/96 $ 12,984 Corporation $ 1,875 $45.35
ITEM 2. PROPERTIES. (Continued)
Total Property Annual Annual Purchase Acquisition Lease Rent Per Property Date Costs Tenant Payment Sq. Ft.
Fuddruckers Restaurant Thornton, CO (.7606%) 7/30/97 $ 10,693 Fuddruckers, Inc. $ 1,473 $38.91
Tumbleweed Restaurant Chillicothe, OH Tumbleweed, (43.9634%) 11/20/98 $ 560,612 Inc. $58,017 $24.06
The properties listed above with a partial ownership percentage are owned with affiliates of the Partnership and/or unrelated third parties. The remaining interests in the Tumbleweed restaurant are owned by AEI Net Lease Income & Growth Fund XIX Limited Partnership and unrelated third parties. The remaining interests in the Tractor Supply Company store, the Fuddruckers restaurant and the Champps Americana restaurant are owned by unrelated third parties.
The Partnership accounts for properties owned as tenants- in-common with affiliated entities and/or unrelated third parties using the proportionate consolidation method. Each tenant-in- common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in-common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building and equipment, liabilities, revenues and expenses.
At the time the properties were acquired, the remaining primary lease terms varied from 15 to 20 years. The leases provide the tenants with two to three five-year renewal options subject to the same terms and conditions as the primary term.
Pursuant to the lease agreements, the tenants are required to provide proof of adequate insurance coverage on the properties they occupy. The General Partners believe the properties are adequately covered by insurance and consider the properties to be well-maintained and sufficient for the Partnership's operations.
For tax purposes, the Partnership's properties are depreciated under the Modified Accelerated Cost Recovery System (MACRS). The largest depreciable component of a property is the building which is depreciated, using the straight-line method, over 31.5 years or 39 years depending on the date when it was placed in service. The remaining depreciable components of a property are personal property and land improvements which are depreciated, using an accelerated method, over 5 and 15 years, respectively. Since the Partnership has tax-exempt Partners, the Partnership is subject to the rules of Section 168(h)(6) of the Internal Revenue Code which requires a percentage of the properties' depreciable components to be depreciated over longer lives using the straight-line method. In general, the federal tax basis of the properties for tax depreciation purposes is the same as the basis for book depreciation purposes.
At December 31, 2009, all properties listed above were 100% occupied.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCK- HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) As of December 31, 2009, there were 1,401 holders of record of the registrant's Limited Partnership Units. There is no other class of security outstanding or authorized. The registrant's Units are not a traded security in any market. During the period covered by this report, the Partnership did not sell any equity securities that are not registered under the Securities Act of 1933.
Cash distributions of $1,717 and $36,215 were made to the General Partners and $170,000 and $3,585,294 were made to the Limited Partners for 2009 and 2008, respectively. The distributions were made on a quarterly basis and represent Net Cash Flow, as defined, except as discussed below. These distributions should not be compared with dividends paid on capital stock by corporations.
As part of the Limited Partner distributions discussed above, the Partnership distributed net sale proceeds of $141,912 and $3,538,488 in 2009 and 2008, respectively. The distributions reduced the Limited Partners' Adjusted Capital Contributions.
(b) Not applicable.
(c) Pursuant to Section 7.7 of the Partnership Agreement, as amended, each Limited Partner has the right to present Units to the Partnership for purchase by submitting notice to the Managing General Partner. The purchase price of the Units is equal to 90% of the net asset value per Unit as determined by the Managing General Partner in accordance with the provisions of the Partnership Agreement. Units tendered to the Partnership are redeemed at the purchase price established for the quarter in which the Partnership received a notice at least 60 days prior to the repurchase dates of January 1st, April 1st, July 1st and October 1st subject to the following limitations. 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 the last three months of 2009, the Partnership did not purchase any Units.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Not required for a smaller reporting company.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This section contains "forward-looking statements" 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, the sufficiency of cash to meet operating expenses, rates of distribution, and other matters. These, and other forward- looking statements, should 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:
Market and economic conditions which affect the value of the properties the Partnership owns and the cash from rental income such properties generate;
the federal income tax consequences of rental income, deductions, gain on sales and other items and the effects of these consequences for the Partners;
resolution by the General Partners of conflicts with which they may be confronted;
the effect of tenant defaults; and
the condition of the industries in which the tenants of properties owned by the Partnership operate.
Application of Critical Accounting Policies
The preparation of the Partnership's financial statements requires management to make estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management evaluates these estimates on an ongoing basis, including those related to the carrying value of real estate and the allocation by AEI Fund Management, Inc. of expenses to the Partnership as opposed to other funds they manage.
Effective October 1, 2007, the Partnership adopted the liquidation basis of accounting because the General Partners anticipated the liquidation of the Partnership during 2008. In accordance with the liquidation basis of accounting, assets are recorded at their estimated net realizable value (the amount of cash expected to be received) and liabilities are recorded at the amount estimated to be paid to creditors and Partners. At December 31, 2009, the estimated real estate values were based upon comparable sales of similar properties. Any changes in these estimates may cause material changes in the net assets in liquidation.
AEI Fund Management, Inc. allocates expenses to each of the funds they manage primarily on the basis of the number of hours devoted by their employees to each fund's affairs. They also allocate expenses at the end of each month that are not directly related to a fund's operations based upon the number of investors in the fund and the fund's capitalization relative to other funds they manage. The Partnership reimburses these expenses subject to detailed limitations contained in the Partnership Agreement.
Management of the Partnership has discussed the development and selection of the above accounting estimates and the management discussion and analysis disclosures regarding them with the managing partner of the Partnership.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Results of Operations
For the years ended December 31, 2009 and 2008, while in the liquidation phase, the Partnership recognized rental income of $97,409 and $142,776, respectively. In 2009, rental income decreased mainly as a result of property sales. During the same periods, the Partnership recognized interest income of $8,144 and $28,783, respectively. In 2008, interest income was higher due to higher money market interest rates in 2008, when compared to 2009, and the Partnership had more money invested in a money market account due to property sales. The majority of the sales proceeds were subsequently distributed to the Partners.
For the years ended December 31, 2009 and 2008, while in the liquidation phase, the Partnership incurred Partnership administration expenses from affiliated parties of $55,007 and $66,555, respectively. These administration expenses include costs associated with the management of the properties, processing distributions, reporting requirements and communicating with the Limited Partners. As the Partnership's asset base decreases due to property sales, it is allocated a smaller share of expenses that are allocated by AEI Fund Management, Inc. based on the relative assets of the funds under management. During the same periods, the Partnership incurred Partnership administration and property management expenses from unrelated parties of $22,175 and $51,224, respectively. These expenses represent direct payments to third parties for legal and filing fees, direct administrative costs, outside audit costs, taxes, insurance and other property costs. These expenses were higher in 2008, when compared to 2009, as a result of expenses incurred in 2008 related to the KinderCare daycare center in Blue Springs, Missouri.
In March 2009, Tumbleweed, Inc., the tenant of the Tumbleweed restaurant in Chillicothe, Ohio filed for Chapter 11 bankruptcy reorganization. In July 2009, the tenant contacted the Partnership and offered to assume the Lease and extend the Lease term five years in exchange for a 15% rent reduction. The Partnership accepted this offer and agreed to a Lease Amendment, which was subject to court approval of the tenant's Plan of Reorganization. In December 2009, the bankruptcy court approved the Plan of Reorganization. Under the Plan, Tumbleweed assumed the Lease for this property and the Lease amendment became effective. As of the date of this report, Tumbleweed has complied with all Lease terms. At June 30, 2009, based on the proposed rent reduction and an analysis of market conditions in the area, the Partnership recognized a $110,000 adjustment to decrease the estimated net realizable value of the property.
For the years ended December 31, 2009 and 2008, the Partnership recognized adjustments of estimated values of ($427,775) and ($3,483,316), respectively, resulting from adopting the liquidation basis of accounting and recording its assets at estimated net realizable value and liabilities at the amount estimated to be paid. For the year ended December 31, 2009, these adjustments included a $267,800 decrease in the estimated net realizable values of the properties, of which $139,800 was recognized at December 31, 2009 based on the Partnership's valuation analysis.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Management believes inflation has not significantly affected income from operations. Leases may contain rent increases, based on the increase in the Consumer Price Index over a specified period, which will result in an increase in rental income over the term of the leases. Inflation also may cause the real estate to appreciate in value. However, inflation and changing prices may have an adverse impact on the operating margins of the properties' tenants, which could impair their ability to pay rent and subsequently reduce the Net Cash Flow available for distributions.
Liquidity and Capital Resources
In January 2009, the Managing General Partner solicited by mail a proxy statement seeking the consent of the Limited Partners, as required by Section 6.1 of the Partnership Agreement, to initiate the final disposition, liquidation and distribution of all of the Partnership's properties and assets within the next year. On February 24, 2009, the proposal was approved with a majority of Units voted in favor of the proposal. As a result, the Managing General Partner is proceeding with the planned liquidation of the Partnership. At this time, the Partnership anticipates that it will sell its remaining property and liquidate prior to December 31, 2010.
During the year ended December 31, 2009, while in the liquidation phase, the Partnership's Net Assets in Liquidation decreased $410,740 as a result of decreases in the estimated net realizable value of property and distributions paid to the Partners in excess of cash generated from operating activities. During the year ended December 31, 2008, while in the liquidation phase, the Partnership's Net Assets in Liquidation decreased $3,553,856 as a result of distributions of net sale proceeds to the Partners.
On June 30, 2007, the Lease term expired for the KinderCare daycare center in Blue Springs, Missouri. The tenant reviewed their operations at the property and decided not to enter into an agreement to extend the term of the Lease. While the property was vacant, the Partnership was responsible for real estate taxes and other costs associated with maintaining the property. On July 23, 2008, the Partnership sold the daycare center to an unrelated third party. The Partnership received net sale proceeds of $549,943. At the time of sale, the estimated net realizable value was $550,000.
On January 25, 2008, the Partnership sold the KinderCare daycare center in Westerville, Ohio to an unrelated third party. The Partnership received net sale proceeds of $1,423,596. At the time of sale, the estimated net realizable value was $1,415,000.
On March 12, 2008, the Partnership sold the KinderCare daycare center in Columbus, Ohio to an unrelated third party. The Partnership received net sale proceeds of $1,628,834. At the time of sale, the estimated net realizable value was $1,617,000.
On October 5, 2009, the Partnership sold its remaining 9.3699% interest in the Taco Cabana restaurant in San Antonio, Texas to the tenant. The Partnership received net sale proceeds of $158,406. At the time of sale, the estimated net realizable value was $158,000. At June 30, 2009, based on the signed purchase agreement, the Partnership recognized an $18,000 adjustment to decrease the estimated net realizable value of the property.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Partnership's primary use of cash flow is distribution 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.
For the years ended December 31, 2009 and 2008, the Partnership declared distributions of $171,717 and $3,621,509, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners. The Limited Partners received distributions of $170,000 and $3,585,294 and the General Partners received distributions of $1,717 and $36,215 for the periods, respectively. In March and September 2008, the Partnership declared special distributions of net sale proceeds of $2,828,283 and $505,051, respectively, which resulted in higher distributions in 2008.
During 2009 and 2008, the Partnership distributed net sale proceeds of $143,345 and $3,574,230 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $7.49 and $186.66 per Limited Partnership Unit, respectively.
The rent from the Partnership's four remaining properties plus the interest earned on its cash reserve may not be sufficient to pay the Partnership's administrative expenses and the property management expenses related to the properties. To the extent these expenses are greater than income, the Partnership will need to use a portion of its cash reserve to pay these expenses until the properties are sold and the Partnership is liquidated. Future distributions declared, if any, prior to the final liquidating distribution, will likely be paid from the cash reserve. The cash reserve should be adequate to meet the Partnership's obligations.
The Economy and Market Conditions
The impact of conditions in the current economy, including the turmoil in the credit markets, has adversely affected many real estate companies. However, the absence of mortgage financing on the Partnership's properties eliminates the risks of foreclosure and debt-refinancing that can negatively impact the value and distributions of leveraged real estate companies. Nevertheless, a prolonged economic downturn may adversely affect the operations of the Partnership's tenants and their cash flows. If a tenant were to default on its lease obligations, the Partnership's income would decrease, its distributions would likely be reduced and the value of its properties might decline.
Beginning in the fourth quarter of 2008, general economic conditions caused the volume of property sales to slow dramatically for all real estate sellers. These conditions may make it more difficult for the Partnership to sell its remaining properties at acceptable prices, which it must do in order to complete its liquidation.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for a smaller reporting company.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See accompanying index to financial statements.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
Report of Independent Registered Public Accounting Firm
Statement of Net Assets Available for Liquidation at December 31, 2009 and 2008
Statement of Liquidating Activities for the Years Ended December 31, 2009 and 2008
Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners: AEI Real Estate Fund XVIII Limited Partnership St. Paul, Minnesota
We have audited the accompanying statements of net assets available for liquidation of AEI Real Estate Fund XVIII Limited Partnership (a Minnesota limited partnership) as of December 31, 2009 and 2008, and the related statements of liquidating activities for each of the years then ended. The Partnership's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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.
As described in the Notes to the financial statements, the General Partners of AEI Real Estate Fund XVIII Limited Partnership anticipate the liquidation of the Partnership during 2010. Because liquidation was imminent, the Partnership changed its basis of accounting after September 30, 2007, from the going concern basis to the liquidation basis.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for liquidation of AEI Real Estate Fund XVIII Limited Partnership as of December 31, 2009 and 2008, and the change in net assets in liquidation for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P. Certified Public Accountants
Minneapolis, Minnesota March 29, 2010
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP STATEMENT OF NET ASSETS AVAILABLE FOR LIQUIDATION DECEMBER 31, 2009 AND 2008
2009 2008
ASSETS: Cash $ 850,895 $ 833,860 Investments in Real Estate 648,600 1,074,400 ----------- ----------- Total Assets 1,499,495 1,908,260 ----------- -----------
LIABILITIES: Payable to AEI Fund Management, Inc. 11,739 5,675 Distributions Payable 42,929 51,512 Unearned Rent 4,494 0 ----------- ----------- Total Liabilities 59,162 57,187 ----------- ----------- NET ASSETS (PARTNERS' CAPITAL) IN LIQUIDATION, including 18,957 Limited Partnership Units outstanding $ 1,440,333 $ 1,851,073 =========== ===========
The accompanying Notes to Financial Statements are an integral part of this statement.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP STATEMENT OF LIQUIDATING ACTIVITIES FOR THE YEARS ENDED DECEMBER 31
2009 2008
SOURCES OF ADDITIONAL CASH: Rent $ 101,903 $ 120,831 Interest Income 8,144 28,783 Proceeds from Sale of Real Estate 158,406 3,602,373 ----------- ----------- Total Sources of Additional Cash 268,453 3,751,987 ----------- -----------
USES OF ADDITIONAL CASH: Partnership Administration - Affiliates 55,007 66,555 Partnership Administration and Property Management - Unrelated Parties 16,111 70,085 Distributions Paid to Partners 180,300 3,685,887 ----------- ----------- Total Uses of Additional Cash 251,418 3,822,527 ----------- ----------- INCREASE (DECREASE) IN NET ASSETS IN LIQUIDATION BEFORE ADJUSTMENTS 17,035 (70,540) ----------- -----------
ADJUSTMENTS OF ESTIMATED VALUES: Change in Net Realizable values of: Receivables 0 (6,500) Real Estate (267,800) 0 Payable to AEI Fund Management, Inc. (6,064) 18,861 Distributions Payable 8,583 64,378 Unearned Rent (4,494) 21,945 Net Realizable Value of Real Estate Sold (158,000) (3,582,000) ----------- ----------- Total Adjustment of Estimated Values (427,775) (3,483,316) ----------- -----------
DECREASE IN NET ASSETS IN LIQUIDATION (410,740) (3,553,856)
BEGINNING NET ASSETS IN LIQUIDATION 1,851,073 5,404,929 ----------- ----------- ENDING NET ASSETS IN LIQUIDATION $ 1,440,333 $ 1,851,073 =========== ===========
The accompanying Notes to Financial Statements are an integral part of this statement.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
(1) Organization -
AEI Real Estate Fund XVIII Limited Partnership ("Partnership") was formed to acquire and lease commercial properties to operating tenants. The Partnership's operations are managed by AEI Fund Management XVIII, Inc. ("AFM"), the Managing General Partner. Robert P. Johnson, the President and sole director of AFM, serves as the Individual General Partner. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AEI Fund Management, Inc. ("AEI"), an affiliate of AFM, performs the administrative and operating functions for the Partnership.
The terms of the Partnership offering called for a subscription price of $1,000 per Limited Partnership Unit, payable on acceptance of the offer. The Partnership commenced operations on February 15, 1989 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. The offering terminated December 4, 1990 when the extended offering period expired. The Partnership received subscriptions for 22,783.05 Limited Partnership Units. Under the terms of the Limited Partnership Agreement, the Limited Partners and General Partners contributed funds of $22,783,050, and $1,000, respectively.
During operations, 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.
Any Net Proceeds of Sale as defined, from the sale or financing of 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 l% to the General Partners until the Limited Partners receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 6% of their Adjusted Capital Contribution per annum, cumulative but not compounded, to the extent not previously distributed from Net Cash Flow; (ii) next, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to 14% of their Adjusted Capital Contribution per annum, cumulative but not compounded, to the extent not previously distributed; (iii) next, to the General Partners until cumulative distributions to the General Partners under Items (ii) and (iii) equal 15% of cumulative distributions to all Partners under Items (ii) and (iii). Any remaining balance will be distributed 85% to the Limited Partners and 15% to the General Partners. Distributions to the Limited Partners will be made pro rata by Units.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
(1) Organization - (Continued)
For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of property, will be allocated first in the same ratio in which, and to the extent, Net Cash Flow is distributed to the Partners for such year. Any additional profits will be allocated 90% to the Limited Partners and 10% to the General Partners. In the event no Net Cash Flow is distributed to the Limited Partners, 90% of each item of income, gain or credit for each respective year shall be allocated to the Limited Partners, and 10% of each such item shall be allocated to the General Partners. Net losses from operations will be allocated 98% to the Limited Partners and 2% to the General Partners.
For tax purposes, profits arising from the sale, financing, or other disposition of property will be allocated in accordance with the Partnership Agreement as follows: (i) first, to those partners with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Partners and 1% to the General Partners until the aggregate balance in the Limited Partners' capital accounts equals the sum of the Limited Partners' Adjusted Capital Contributions plus an amount equal to 14% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously allocated; (iii) third, to the General Partners until cumulative allocations to the General Partners equal 15% of cumulative allocations. Any remaining balance will be allocated 85% to the Limited Partners and 15% to the General Partners. Losses will be allocated 98% to the Limited Partners and 2% to the General Partners.
The General Partners are not required to currently fund a deficit capital balance. Upon liquidation of the Partnership or withdrawal by a General Partner, the General Partners will contribute to the Partnership an amount equal to the lesser of the deficit balances in their capital accounts or 1% of total Limited Partners' and General Partners' capital contributions.
In January 2009, the Managing General Partner solicited by mail a proxy statement seeking the consent of the Limited Partners, as required by Section 6.1 of the Partnership Agreement, to initiate the final disposition, liquidation and distribution of all of the Partnership's properties and assets within the next year. On February 24, 2009, the proposal was approved with a majority of Units voted in favor of the proposal. As a result, the Managing General Partner is proceeding with the planned liquidation of the Partnership. At this time, the Partnership anticipates that it will sell its remaining property and liquidate prior to December 31, 2010.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
(2) Summary of Significant Accounting Policies -
Financial Statement Presentation
Because liquidation was anticipated, the Partnership changed its basis of accounting after September 30, 2007, from the going concern basis to the liquidation basis. Effective October 1, 2007, the Partnership measures its assets and liabilities at the amounts of cash expected in liquidation and reports changes in estimates when they are known. The accounts of the Partnership are maintained on the accrual basis of accounting for both federal income tax purposes and financial reporting purposes.
Accounting Estimates
Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues, expenses, and sources and uses of additional cash. Actual results could differ from those estimates. Significant items, subject to such estimates and assumptions, include the carrying value of investments in real estate and real estate held for sale.
The Partnership regularly assesses whether market events and conditions indicate that it is reasonably possible to recover the carrying amounts of its investments in real estate from future operations and sales. A change in those market events and conditions could have a material effect on the carrying amount of its real estate.
Cash Concentrations of Credit Risk
The Partnership's cash is deposited in one financial institution and at times during the year it may exceed FDIC insurance limits.
Receivables
Credit terms are extended to tenants in the normal course of business. The Partnership performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral.
Receivables are recorded at their estimated net realizable value. The Partnership follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Partnership is of the belief that such accounts will be collectible in all material respects and thus an allowance is not necessary. Accounts are considered past due if payment is not made on a timely basis in accordance with the Partnership's credit terms. Receivables considered uncollectible are written off.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
(2) Summary of Significant Accounting Policies - (Continued)
Income Taxes
The income or loss of the Partnership for federal income tax reporting purposes is includable in the income tax returns of the partners. In general, no recognition has been given to income taxes in the accompanying financial statements.
The tax return and the amount of distributable Partnership income or loss are subject to examination by federal and state taxing authorities. If such an examination results in changes to distributable Partnership income or loss, the taxable income of the partners would be adjusted accordingly.
Revenue Recognition
The Partnership's real estate is leased under triple net leases, classified as operating leases. The leases provide for base annual rental payments payable in monthly installments. The Partnership recognizes rental revenue according to the terms of the individual leases. For leases that contain stated rental increases, the increases are recognized in the year in which they are effective. Contingent rental payments are recognized when the contingencies on which the payments are based are satisfied and the rental payments become due under the terms of the leases.
Investments in Real Estate
The Partnership accounts for properties owned as tenants- in-common with affiliated entities and/or unrelated third parties using the proportionate consolidation method. Each tenant-in-common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in-common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building and equipment, liabilities, revenues and expenses.
The Partnership's properties are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which the properties are located. These laws could require the Partnership to investigate and remediate the effects of the release or disposal of hazardous materials at these locations if found. For each property, an environmental assessment is completed prior to acquisition. In addition, the lease agreements typically strictly prohibit the production, handling, or storage of hazardous materials (except where incidental to the tenant's business such as use of cleaning supplies) in violation of applicable law to restrict environmental and other damage. Environmental liabilities are recorded when it is determined the liability is probable and the costs can reasonably be estimated. There were no environmental issues noted or liabilities recorded at December 31, 2009 and 2008.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
(2) Summary of Significant Accounting Policies - (Continued)
Recently Issued Accounting Pronouncements
Management has reviewed recently issued, but not yet effective, accounting pronouncements and does not expect the implementation of these pronouncements to have a significant effect on the Partnership's financial statements.
(3) Related Party Transactions -
The Partnership owns a 43.9634% interest in a Tumbleweed restaurant. The remaining interests in this property are owned by AEI Net Lease Income & Growth Fund XIX Limited Partnership, an affiliate of the Partnership, and an unrelated third party. The Partnership owned a 50% interest in an Eckerd drug store. AEI Net Lease Income & Growth Fund XIX Limited Partnership owned a 50% interest in this property until the interest was sold, in a series of transactions, to unrelated third parties in 2007 and 2008.
AEI received the following reimbursements for costs and expenses from the Partnership for the years ended December 31: 2009 2008
a.AEI is reimbursed for costs incurred in providing services related to managing the Partnership's operations and properties, maintaining the Partnership's books, and communicating with the Limited Partners. $ 55,007 $ 66,555 ======== ======== b.AEI is reimbursed for all direct expenses it paid on the Partnership's behalf to third parties related to Partnership administration and property management. These expenses included printing costs, legal and filing fees, direct administrative costs, outside audit costs, taxes insurance and other property costs. $ 22,175 $ 51,224 ======== ======== c.AEI is reimbursed for costs incurred in providing services related to the sale of property. $ 605 $ 54,473 ======== ========
The payable to AEI Fund Management, Inc. represents the balance due for the services described in 3a, b and c. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
(4) Investments in Real Estate -
The Partnership leases its properties to various tenants under triple net leases, classified as operating leases. Under a triple net lease, the tenant is responsible for all real estate taxes, insurance, maintenance, repairs and operating expenses for the property. At the time the properties were acquired, the remaining primary lease terms varied from 15 to 20 years. The leases provide the tenants with two to three five-year renewal options subject to the same terms and conditions as the primary term.
The Partnership's properties are commercial, single-tenant buildings. The Tractor Supply Company store and Champps Americana restaurant were constructed and acquired in 1996. The Fuddruckers restaurant was constructed and acquired in 1997. The Tumbleweed restaurant was constructed and acquired in 1998. There have been no costs capitalized as improvements subsequent to the acquisitions.
Effective with the decision to liquidate, the carrying amounts of assets and liabilities were adjusted from their historical bases to the amounts of cash expected from their realization and settlement. Because of the expected short liquidation period, the effects of discounting would not be significant and have been ignored. At December 31, 2009 and 2008, the estimated real estate values were based upon comparable sales of similar properties. At December 31, 2009, based on its valuation analysis, the Partnership recognized a $139,800 adjustment to decrease the estimated net realizable values of the properties. It is reasonably possible that the amounts expected to be realized in the liquidation process may change in the near term.
The historical cost and related accumulated depreciation and estimated net realizable values of the properties at December 31, 2009 are as follows:
Historical Cost Basis Liquidation Basis Buildings and Accumulated Net Realizable Property Land Equipment Total Depreciation Value
Tractor Supply Company, Bristol, VA $ 31,092 $ 65,673 $ 96,765 $ 26,758 $118,000 Champps Americana, Columbus, OH 4,373 8,611 12,984 3,352 15,000 Fuddruckers, Thornton, CO 3,383 7,310 10,693 2,572 7,600 Tumbleweed, Chillicothe, OH 229,387 331,225 560,612 104,814 508,000 ------- ------- ------- ------- ------- $268,235 $412,819 $681,054 $137,496 $648,600 ======= ======= ======= ======= ========
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
(4) Investments in Real Estate - (Continued)
The Partnership owns a 7.5158% interest in a Tractor Supply Company store, a .5061% interest in a Champps Americana restaurant and a .7606% interest in a Fuddruckers restaurant. The remaining interests in these properties are owned by unrelated third parties, who own the property with the Partnership as tenants-in-common.
On June 30, 2007, the Lease term expired for the KinderCare daycare center in Blue Springs, Missouri. The tenant reviewed their operations at the property and decided not to enter into an agreement to extend the term of the Lease. While the property was vacant, the Partnership was responsible for real estate taxes and other costs associated with maintaining the property. On July 23, 2008, the Partnership sold the daycare center to an unrelated third party. The Partnership received net sale proceeds of $549,943. At the time of sale, the estimated net realizable value was $550,000.
On January 25, 2008, the Partnership sold the KinderCare daycare center in Westerville, Ohio to an unrelated third party. The Partnership received net sale proceeds of $1,423,596. At the time of sale, the estimated net realizable value was $1,415,000.
On March 12, 2008, the Partnership sold the KinderCare daycare center in Columbus, Ohio to an unrelated third party. The Partnership received net sale proceeds of $1,628,834. At the time of sale, the estimated net realizable value was $1,617,000.
On October 5, 2009, the Partnership sold its remaining 9.3699% interest in the Taco Cabana restaurant in San Antonio, Texas to the tenant. The Partnership received net sale proceeds of $158,406. At the time of sale, the estimated net realizable value was $158,000. At June 30, 2009, based on the signed purchase agreement, the Partnership recognized an $18,000 adjustment to decrease the estimated net realizable value of the property.
During 2009 and 2008, the Partnership distributed net sale proceeds of $143,345 and $3,574,230 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $7.49 and $186.66 per Limited Partnership Unit, respectively.
In March 2009, Tumbleweed, Inc., the tenant of the Tumbleweed restaurant in Chillicothe, Ohio filed for Chapter 11 bankruptcy reorganization. In July 2009, the tenant contacted the Partnership and offered to assume the Lease and extend the Lease term five years in exchange for a 15% rent reduction. The Partnership accepted this offer and agreed to a Lease Amendment, which was subject to court approval of the tenant's Plan of Reorganization. In December 2009, the bankruptcy court approved the Plan of Reorganization. Under the Plan, Tumbleweed assumed the Lease for this property and the Lease amendment became effective. As of the date of this report, Tumbleweed has complied with all Lease terms. At June 30, 2009, based on the proposed rent reduction and an analysis of market conditions in the area, the Partnership recognized a $110,000 adjustment to decrease the estimated net realizable value of the property.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
(4) Investments in Real Estate - (Continued)
For properties owned as of December 31, 2009, the minimum future rent payments required by the leases are as follows:
2010 $ 65,547 2011 61,224 2012 61,224 2013 61,365 2014 61,365 Thereafter 234,163 --------- $ 544,888 =========
There were no contingent rents recognized in 2009 and 2008.
(5) Major Tenants -
The following schedule presents rent revenue from individual tenants, or affiliated groups of tenants, who each contributed more than ten percent of the Partnership's total rent revenue for the years ended December 31:
Tenants Industry 2009 2008
Tumbleweed, Inc. Restaurant $ 64,843 $ 67,029 Texas Taco Cabana L.P. Restaurant 16,380 21,409 Tractor Supply Company, Inc. Retail 12,889 N/A KinderCare Learning Centers, Inc Child Care N/A 38,517 -------- -------- Aggregate rent revenue of major tenants $ 94,112 $ 126,955 ======== ======== Aggregate rent revenue of major tenants as a percentage of total rent revenue 97% 89% ======== ========
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
(6) Partners' Capital -
For the years ended December 31, 2009 and 2008, the Partnership declared distributions of $171,717 and $3,621,509, respectively. The Limited Partners received distributions of $170,000 and $3,585,294 and the General Partners received distributions of $1,717 and $36,215 for the years, respectively. The Limited Partners' distributions represent $8.97 and $189.13 per Limited Partnership Unit outstanding in 2009 and 2008, respectively, using 18,957 weighted average Units for both years.
As part of the Limited Partner distributions discussed above, the Partnership distributed net sale proceeds of $141,912 and $3,538,488 in 2009 and 2008, respectively. The distributions reduced the Limited Partners' Adjusted Capital Contributions.
After the effect of redemptions and the return of capital from the sale of property, the Adjusted Capital Contribution, as defined in the Partnership Agreement, is $46.58 per original $1,000 invested.
(7) Income Taxes -
With the change in the Partnership's basis of accounting from the going concern basis to the liquidation basis, effective October 1, 2007, the Partnership no longer reports Net Income after this date. The following is a reconciliation of net income for financial reporting purposes to income reported for federal income tax purposes for the years ended December 31: 2009 2008 Net Income for Financial Reporting Purposes - Going Concern Basis $ 0 $ 0
Increase (Decrease) in Net Assets in Liquidation Before Adjustment 17,035 (70,540)
Liquidation Basis of Accounting Not Recognized for Tax Reporting Purposes 86,850 2,220,083
Depreciation for Tax Purposes Over Depreciation for Financial Reporting Purposes (12,426) (29,485)
Income Accrued for Tax Purposes Over (Under) Income for Financial Reporting Purposes 4,494 (21,945)
Gain on Sale of Real Estate for Tax Purposes Over(Under) Gain fo Financial Reporting Purposes 600 (69,730) -------- ---------- Taxable Income to Partners $ 96,553 $2,028,383 ======== ==========
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008
(7) Income Taxes - (Continued)
The following is a reconciliation of Net Assets in Liquidation for financial reporting purposes to Partners' Capital reported for federal income tax purposes for the years ended December 31: 2009 2008 Net Assets in Liquidation / Partners' Capital for Financial Reporting Purposes $1,440,333 $1,851,073
Adjusted Tax Basis of Investments in Real Estate Under Net Investments in Real Estate for Financial Reporting Purposes (109,806) (440,888)
Income Accrued for Tax Purposes Over Income for Financial Reporting Purposes 4,494 0
Syndication Costs Treated as Reduction of Capital for Financial Reporting Purposes 3,336,442 3,336,442 --------- --------- Partners' Capital for Tax Reporting Purposes $4,671,463 $4,746,627 ========= =========
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9AT.CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures.
Under the supervision and with the participation of management, including its President and Chief Financial Officer, the Managing General Partner of the Partnership evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based upon that evaluation, the President and Chief Financial Officer of the Managing General Partner concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to management, including the President and Chief Financial Officer of the Managing General Partner, in a manner that allows timely decisions regarding required disclosure.
(b) Internal Control Over Financial Reporting.
(i) Management's Report on Internal Control Over Financial Reporting. The Managing General Partner, through its management, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a- 15(f) under the Exchange Act, and for performing an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2009. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Partnership are being made only in accordance with authorizations of management of the Managing General Partner; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Partnership's assets that could have a material effect on the financial statements.
Management of the Managing General Partner performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2009 based upon criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on our assessment, management of the Managing General Partner determined that our internal control over financial reporting was effective as of December 31, 2009 based on the criteria in Internal Control-Integrated Framework issued by the COSO.
ITEM 9AT.CONTROLS AND PROCEDURES. (Continued)
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.
(ii) Changes in Internal Control Over Financial Reporting. During the most recent period covered by this report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The registrant is a limited partnership and has no officers, directors, or direct employees. The General Partners manage and control the Partnership's affairs and have general responsibility and the ultimate authority in all matters affecting the Partnership's business. The General Partners are AEI Fund Management XVIII, Inc. (AFM), the Managing General Partner, and Robert P. Johnson, Chief Executive Officer, President and sole director of AFM, the Individual General Partner. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AFM has only one senior financial executive, its Chief Financial Officer. The Chief Financial Officer reports directly to Mr. Johnson and is accountable for his actions to Mr. Johnson. Although Mr. Johnson and AFM require that all of their personnel, including the Chief Financial Officer, engage in honest and ethical conduct, ensure full, fair, accurate, timely, and understandable disclosure, comply with all applicable governmental laws, rules and regulations, and report to Mr. Johnson any deviation from these principles, because the organization is composed of only approximately 35 individuals, because the management of a partnership by an entity that has different interests in distributions and income than investors involves numerous conflicts of interest that must be resolved on a daily basis, and because the ultimate decision maker in all instances is Mr. Johnson, AFM has not adopted a formal code of conduct. Instead, the materials pursuant to which investors purchase Units disclose these conflicts of interest in detail and Mr. Johnson, as the CEO and sole director of AFM, resolves conflicts to the best of his ability, consistent with his fiduciary obligations to AFM and the fiduciary obligations of AFM to the Partnership. The director and officers of AFM are as follows:
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. (Continued)
Robert P. Johnson, age 65, is Chief Executive Officer, President and sole director and has held these positions since the formation of AFM in September 1988, and has been elected to continue in these positions until December 2010. From 1970 to the present, he has been employed exclusively in the investment industry, specializing in limited partnership investments. In that capacity, he has been involved in the development, analysis, marketing and management of public and private investment programs investing in net lease properties as well as public and private investment programs investing in energy development. Since 1971, Mr. Johnson has been the president, a director and a registered principal of AEI Securities, Inc., which is registered with the SEC as a securities broker-dealer, is a member of the Financial Industry Regulatory Authority (FINRA) and is a member of the Security Investors Protection Corporation (SIPC). Mr. Johnson has been president, a director and the principal shareholder of AEI Fund Management, Inc., a real estate management company founded by him, since 1978. Mr. Johnson is currently a general partner or principal of the general partner in ten limited partnerships and a managing member in five LLCs.
Patrick W. Keene, age 50, is Chief Financial Officer, Treasurer and Secretary and has held these positions since January 22, 2003 and has been elected to continue in these positions until December 2010. Mr. Keene has been employed by AEI Fund Management, Inc. and affiliated entities since 1987. Prior to being elected to the positions above, he was Controller of the various entities. From 1982 to 1986, Mr. Keene was with KPMG Peat Marwick Certified Public Accountants, first as an auditor and later as a tax manager. Mr. Keene is responsible for all accounting functions of AFM and the registrant.
Since Mr. Johnson serves as the Individual General Partner of the Partnership, as well as the sole director of AFM, all of the duties that might be assigned to an audit committee are assigned to Mr. Johnson. Mr. Johnson is not an audit committee financial expert, as defined. As an officer and majority owner, through a parent company, of AFM, and as the Individual General Partner, Mr. Johnson is not a "disinterested director" and may be subject to a number of conflicts of interests in his capacity as sole director of AFM.
Before the independent auditors are engaged, Mr. Johnson, as the sole director of AFM, approves all audit-related fees, and all permissible nonaudit fees, for services of our auditors.
Section 16(a) Beneficial Ownership Reporting Compliance
Under federal securities laws, the directors and officers of the General Partner of the Partnership, and any beneficial owner of more than 10% of a class of equity securities of the Partnership, are required to report their ownership of the Partnership's equity securities and any changes in such ownership to the Securities and Exchange Commission (the "Commission"). Specific due dates for these reports have been established by the Commission, and the Partnership is required to disclose in this Annual Report on 10-K any delinquent filing of such reports and any failure to file such reports during the fiscal year ended December 31, 2009. Based upon information provided by officers and directors of the General Partner, all officers, directors and 10% owners filed all reports on a timely basis in the 2009 fiscal year.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The General Partner and affiliates are reimbursed at cost for all services performed on behalf of the registrant and for all third party expenses paid on behalf of the registrant. The cost for services performed on behalf of the registrant is actual time spent performing such services plus an overhead burden. These services include organizing the registrant and arranging for the offer and sale of Units, reviewing properties for acquisition and rendering administrative, property management and property sales services. The amount and nature of such payments are detailed in Item 13 of this annual report on Form 10-K.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information pertaining to the ownership of the Units by each person known by the Partnership to beneficially own 5% or more of the Units, by each General Partner, and by each officer or director of the Managing General Partner as of February 28, 2010:
Name and Address Number of Percent of Beneficial Owner Units Held of Class
AEI Fund Management XVIII, Inc. 0 0.00% Robert P. Johnson 5 0.03% Patrick W. Keene 0 0.00%
Address for all: 1300 Wells Fargo Place 30 East 7th Street, St. Paul, Minnesota 55101
The persons set forth in the preceding table hold sole voting power and power of disposition with respect to all of the Units set forth opposite their names. The General Partners know of no holders of more than 5% of the outstanding Units.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The registrant, AFM and its affiliates have common management and utilize the same facilities. As a result, certain administrative expenses are allocated among these related entities. All of such activities and any other transactions involving the affiliates of the General Partner of the registrant are governed by, and are conducted in conformity with, the limitations set forth in the Limited Partnership Agreement of the registrant. Reference is made to Note 3 of the Financial Statements, as presented, and is incorporated herein by reference, for details of related party transactions for the years ended December 31, 2009 and 2008.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. (Continued)
Neither the registrant, nor the Managing General Partner of the registrant, has a board of directors consisting of any members who are "independent." The sole director of the Managing General Partner, Robert P. Johnson, is also the Individual General Partner of the registrant, and is the Chief Executive Officer, and indirectly the principal owner, of the Managing General Partner. Accordingly, there is no disinterested board, or other functioning body, that reviews related party transactions, or the transactions between the registrant and the General Partners, except as performed in connection with the audit of its financial statements.
The limitations included in the Partnership Agreement require that the cumulative reimbursements to the General Partners and their affiliates for administrative expenses not allowed under the NASAA Guidelines ("Guidelines") will not exceed the sum of (i) the front-end fees allowed by the Guidelines less the front-end fees paid by the Partnership, (ii) the cumulative property management fees allowed by the Guidelines but not paid, (iii) any real estate commission allowed by the Guidelines, and (iv) 10% of Net Cash Flow less the Net Cash Flow actually distributed to the General Partners. The administrative expenses not allowed under the Guidelines include a controlling person's salary and fringe benefits, rent and depreciation. As of December 31, 2009, the cumulative reimbursements to the General Partners and their affiliates did not exceed those amounts.
The following table sets forth the forms of compensation, distributions and cost reimbursements paid by the registrant to the General Partners or their Affiliates in connection with the operation of the Fund and its properties for the period from inception through December 31, 2009.
Amount Incurred Person or Entity From Inception Receiving Form and Method (September 20, 1988) to Compensation of Compensation December 31, 2009
AEI Securities, Inc. Selling Commissions equal to 7% of $2,278,305 proceeds plus a 3% nonaccountable expense allowance, most of which was reallowed to Participating Dealers.
General Partners and Reimbursement at Cost for other $1,064,137 Affiliates Organization and Offering Costs.
General Partners and Reimbursement at Cost for all $ 642,892 Affiliates Acquisition Expenses.
General Partners and Reimbursement at Cost for providing $4,406,274 Affiliates administrative services to the Fund, including all expenses related to management of the Fund's properties and all other transfer agency, reporting, partner relations and other administrative functions.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. (Continued)
Amount Incurred Person or Entity From Inception Receiving Form and Method (September 20, 1988) to Compensation of Compensation December 31, 2009
General Partners and Reimbursement at Cost for providing $1,085,026 Affiliates services related to the disposition of the Fund's properties.
General Partners 1% of Net Cash Flow in any fiscal year $ 268,346 until the Limited Partners have received annual, non-cumulative distributions of Net Cash Flow equal to 10% of their Adjusted Capital Contributions and 10% of any remaining Net Cash Flow in such fiscal year.
General Partners 15% of distributions of Net Proceeds $ 221,212 of Sale other than distributions necessary to restore Adjusted Capital Contributions and provide a 6% cumulative return to Limited Partners. The General Partners will receive only 1% of distributions of Net Proceeds of Sale until Limited Partners have received an amount equal to (a) their Adjusted Capital Contributions, plus (b) an amount equal to 14% of their Adjusted Capital Contributions per annum, cumulative but not compounded, less (c) all previous cash distributions to the Limited Partners.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following is a summary of the fees billed to the Partnership by Boulay, Heutmaker, Zibell & Co. P.L.L.P. for professional services rendered for the years ended December 31, 2009 and 2008:
Fee Category 2009 2008
Audit Fees $ 8,437 $ 9,800 Audit-Related Fees 0 0 Tax Fees 0 0 All Other Fees 0 0 -------- ------- Total Fees $ 8,437 $ 9,800 ======== =======
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. (Continued)
Audit Fees - Consists of fees billed for professional services rendered for the audit of the Partnership's annual financial statements and review of the interim financial statements included in quarterly reports, and services that are normally provided by Boulay, Heutmaker, Zibell & Co. P.L.L.P. in connection with statutory and regulatory filings or engagements.
Audit-Related Fees - Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of financial statements and are not reported under "Audit Fees." These services include consultations concerning financial accounting and reporting standards.
Tax Fees - Consists of fees billed for professional services for federal and state tax compliance, tax advice and tax planning.
All Other Fees - Consists of fees for products and services other than the services reported above.
Policy for Preapproval of Audit and Permissible Non-Audit Services of Independent Auditors
Before the Independent Auditors are engaged by the Partnership to render audit or non-audit services, the engagement is approved by Mr. Johnson acting as the Partnership's audit committee.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) (1) A list of the financial statements contained herein is set forth on page 12.
(a) (2) Schedules are omitted because of the absence of conditions under which they are required or because the required information is presented in the financial statements or related notes.
(a) (3) The Exhibits filed in response to Item 601 of Regulation S-K are listed below.
3.1 Certificate of Limited Partnership (incorporated by reference to Exhibit 3.1 of the registrant's Registration Statement on Form S-11 filed September 26, 1988 [File No. 33- 24419]).
3.2 Limited Partnership Agreement (incorporated by reference to Exhibit 3.2 of the registrant's Registration Statement on Form S-11 filed September 26, 1988 [File No. 33- 24419]).
10.1 Net Lease Agreement dated April 13, 1998 between the Partnership, AEI Net Lease Income & Growth Fund XIX Limited Partnership, Robert P. Johnson, and Tumbleweed, LLC relating to the Property at 1150 North Bridge Street, Chillicothe, Ohio (incorporated by reference to Exhibit 10.2 of Form 10- QSB filed May 15, 1998).
10.2 First Amendment to Net Lease Agreement dated November 20, 1998 between the Partnership, AEI Net Lease Income & Growth Fund XIX Limited Partnership, Robert P. Johnson and Tumbleweed, LLC relating to the Property at 1150 North Bridge Street, Chillicothe, Ohio (incorporated by reference to Exhibit 10.70 of Form 10-KSB filed March 30, 1999).
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (Continued)
10.3 Purchase Agreement dated June 13, 2008 between the Partnership and Norfleet, LLC relating to the Property at 2100 North Highway 7, Blue Springs, Missouri (incorporated by reference to Exhibit 10.1 of Form 8-K filed July 29, 2008).
31.1 Certification of Chief Executive Officer of General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer of General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief Financial Officer of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AEI REAL ESTATE FUND XVIII Limited Partnership By: AEI Fund Management XVIII, Inc. Its Managing General Partner
March 29, 2010 By:/s/ ROBERT P JOHNSON Robert P. Johnson, President and Director (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ROBERT P JOHNSON President (Principal Executive Officer) March 29, 2010 Robert P. Johnson and Sole Director of Managing General Partner
/s/PATRICK W KEENE Chief Financial Officer and Treasurer March 29, 2010 Patrick W. Keene (Principal Accounting Officer)