Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2009
Commission File Number: 000-50609
AEI INCOME & GROWTH FUND 25 LLC
(Exact name of registrant as specified in its charter)
State of Delaware 75-3074973
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101
(Address of principal executive offices)
(651) 227-7333
(Registrant's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (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 registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (232.405 of this chapter)
during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
[ ] Yes [ ] No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
AEI INCOME & GROWTH FUND 25 LLC
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited):
Balance Sheet as of September 30, 2009 and December 31, 2008
Statements for the Periods ended September 30, 2009 and 2008:
Income
Cash Flows
Changes in Members' Equity (Deficit)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A.Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
Signatures
AEI INCOME & GROWTH FUND 25 LLC
BALANCE SHEET
SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
ASSETS
2009 2008
CURRENT ASSETS:
Cash $ 1,352,403 $ 808,826
Receivables 0 2,833
----------- -----------
Total Current Assets 1,352,403 811,659
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 9,571,675 9,571,675
Buildings and Equipment 20,176,306 20,176,306
Accumulated Depreciation (3,383,760) (2,767,962)
----------- -----------
26,364,221 26,980,019
Real Estate Held for Sale 5,447,465 5,888,052
----------- -----------
Net Investments in Real Estate 31,811,686 32,868,071
----------- -----------
Total Assets $33,164,089 $33,679,730
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 71,956 $ 78,182
Distributions Payable 544,949 545,152
Unearned Rent 30,104 47,735
----------- -----------
Total Current Liabilities 647,009 671,069
----------- -----------
MEMBERS' EQUITY:
Managing Members 977 188
Limited Members, $1,000 per Unit;
50,000 Units authorized; 42,435 Units issued;
42,019 Units outstanding 32,516,103 33,008,473
----------- -----------
Total Members' Equity 32,517,080 33,008,661
----------- -----------
Total Liabilities and Members' Equity $33,164,089 $33,679,730
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 25 LLC
STATEMENT OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
Three Months Ended Nine Months Ended
9/30/09 9/30/08 9/30/09 9/30/08
RENTAL INCOME $ 532,571 $ 525,905 $1,599,572 $1,505,234
EXPENSES:
LLC Administration -
Affiliates 82,918 87,511 255,348 261,928
LLC Administration and
Property Management -
Unrelated Parties 9,249 11,833 106,340 32,614
Depreciation 205,266 207,858 615,798 600,761
--------- --------- ---------- ----------
Total Expenses 297,433 307,202 977,486 895,303
--------- --------- ---------- ----------
OPERATING INCOME 235,138 218,703 622,086 609,931
OTHER INCOME:
Interest Income 2,271 1,991 5,636 75,737
--------- --------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS 237,409 220,694 627,722 685,668
Income from Discontinued
Operations 197,148 134,648 514,706 348,822
--------- --------- ---------- ----------
NET INCOME $ 434,557 $ 355,342 $1,142,428 $1,034,490
========= ========= ========== ==========
NET INCOME ALLOCATED:
Managing Members $ 16,959 $ 10,661 $ 48,799 $ 31,035
Limited Members 417,598 344,681 1,093,629 1,003,455
--------- --------- ---------- ----------
$ 434,557 $ 355,342 $1,142,428 $1,034,490
========= ========= ========== ==========
NET INCOME PER LLC UNIT:
Continuing Operations $ 5.48 $ 5.09 $ 14.49 $ 15.80
Discontinued Operations 4.46 3.11 11.54 8.04
--------- --------- ---------- ----------
Total $ 9.94 $ 8.20 $ 26.03 $ 23.84
========= ========= ========== ==========
Weighted Average
Units Outstanding 42,019 42,019 42,019 42,083
========= ========= ========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 25 LLC
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,142,428 $ 1,034,490
Adjustments To Reconcile Net Income to Net Cash
Provided By Operating Activities:
Depreciation 615,798 632,031
Gain on Sale of Real Estate (114,685) 0
Decrease in Receivables 2,833 5,773
Decrease in Payable to
AEI Fund Management, Inc. (6,226) (41,763)
Increase (Decrease) in Unearned Rent (17,631) 14,990
----------- -----------
Total Adjustments 480,089 611,031
----------- -----------
Net Cash Provided By
Operating Activities 1,622,517 1,645,521
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate 0 (2,057,791)
Proceeds from Sale of Real Estate 555,272 923,833
----------- -----------
Net Cash Provided By (Used For)
Investing Activities 555,272 (1,133,958)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions Paid to Members (1,634,212) (1,910,008)
Redemption Payments 0 (140,261)
----------- -----------
Net Cash Used For
Financing Activities (1,634,212) (2,050,269)
----------- -----------
NET INCREASE (DECREASE) IN CASH 543,577 (1,538,706)
CASH, beginning of period 808,826 2,185,133
----------- -----------
CASH, end of period $ 1,352,403 $ 646,427
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 25 LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30
Limited
Member
Managing Limited Units
Members Members Total Outstanding
BALANCE, December 31, 2007 $ 3,080 $34,105,924 $34,109,004 42,209.99
Distributions Declared (51,432) (1,750,501) (1,801,933)
Redemption Payments (4,207) (136,054) (140,261) (190.71)
Net Income 31,035 1,003,455 1,034,490
-------- ----------- ----------- ----------
BALANCE, September 30, 2008 $(21,524) $33,222,824 $33,201,300 42,019.28
======== =========== =========== ==========
BALANCE, December 31, 2008 $ 188 $33,008,473 $33,008,661 42,019.28
Distributions Declared (48,010) (1,585,999) (1,634,009)
Net Income 48,799 1,093,629 1,142,428
-------- ----------- ----------- ----------
BALANCE, September 30, 2009 $ 977 $32,516,103 $32,517,080 42,019.28
======== =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 25 LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(1) The condensed statements included herein have been prepared
by the registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the registrant
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
registrant's latest annual report on Form 10-K.
(2) Organization -
AEI Income & Growth Fund 25 LLC ("Company"), a Limited
Liability Company, was formed on June 24, 2002 to acquire
and lease commercial properties to operating tenants. The
Company's operations are managed by AEI Fund Management XXI,
Inc. ("AFM"), the Managing Member. Robert P. Johnson, the
President and sole director of AFM, serves as the Special
Managing Member. 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 Company.
The terms of the offering called for a subscription price of
$1,000 per LLC Unit, payable on acceptance of the offer.
The Company commenced operations on September 11, 2003 when
minimum subscriptions of 1,500 LLC Units ($1,500,000) were
accepted. The offering terminated May 12, 2005, when the
extended offering period expired. The Company received
subscriptions for 42,434.763 Units. Under the terms of the
Operating Agreement, the Limited Members and Managing
Members contributed funds of $42,434,763 and $1,000,
respectively. The Company shall continue until December 31,
2053, unless dissolved, terminated and liquidated prior to
that date.
During operations, any Net Cash Flow, as defined, which the
Managing Members determine to distribute will be distributed
97% to the Limited Members and 3% to the Managing Members.
Distributions to Limited Members will be made pro rata by
Units.
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the Managing Members determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Members and 1% to the Managing Members until the
Limited Members receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to 7%
of their Adjusted Capital Contribution per annum, cumulative
but not compounded, to the extent not previously distributed
from Net Cash Flow; (ii) any remaining balance will be
distributed 90% to the Limited Members and 10% to the
Managing Members. Distributions to the Limited Members will
be made pro rata by Units.
AEI INCOME & GROWTH FUND 25 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) 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 97% to the Limited Members and 3% to the Managing
Members. Net losses from operations will be allocated 99%
to the Limited Members and 1% to the Managing Members.
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Operating Agreement as follows: (i)
first, to those Members with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Members
and 1% to the Managing Members until the aggregate balance
in the Limited Members' capital accounts equals the sum of
the Limited Members' Adjusted Capital Contributions plus an
amount equal to 7% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, the balance of any
remaining gain will then be allocated 90% to the Limited
Members and 10% to the Managing Members. Losses will be
allocated 99% to the Limited Members and 1% to the Managing
Members.
The Managing Members are not required to currently fund a
deficit capital balance. Upon liquidation of the Company or
withdrawal by a Managing Member, the Managing Members will
contribute to the Company 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 Members over
the amount previously contributed by the Managing Members.
(3) Investments in Real Estate -
On December 17, 2007, the Company purchased a 38% interest
in a parcel of land in Fredericksburg, Virginia for
$1,935,063. The Company obtained title to the land in the
form of an undivided fee simple interest in the 38% interest
purchased. Simultaneous with the purchase of the land, the
Company entered into a Project Construction and Development
Financing Agreement under which the Company advanced funds
to Silver-Honaker Development Company, LLC ("Silver") for
the construction of a Dick's Sporting Goods store on the
site. On March 12, 2008, the Company sold an 11% interest
in the Dick's Sporting Goods property to AEI Income & Growth
Fund 23 LLC, an affiliate of the Company. The sales price
was equal to the amount the Company had invested in the 11%
interest, so no gain or loss was recognized. After the
sale, the Company's owns a 27% interest in the land and was
responsible for 27% of the construction costs of the
building. The Company's share of the total acquisition
costs, including the cost of the land, was $3,126,601. The
remaining interests in the property were purchased by AEI
Income & Growth Fund 24 LLC and AEI Income & Growth Fund 26
LLC, affiliates of the Company.
AEI INCOME & GROWTH FUND 25 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
The property is leased to Dick's Sporting Goods, Inc. under
a Lease Agreement with a primary term of 10 years and
initial annual rent of $219,445 for the interest purchased.
Pursuant to the Lease, the tenant commenced paying rent on
May 8, 2008. Pursuant to the development agreement, for the
period from December 17, 2007 through May 7, 2008, Silver
paid the Company interest at a rate of 6.75% on the purchase
price of the land and the amounts advanced for construction
of the store. Pursuant to the Lease, any improvements to
the land during the term of the Lease become the property of
the Company.
In November 2007, Kona Restaurant Group, Inc. (KRG), the
tenant of the Johnny Carino's restaurants, approached the
Company with a request to adjust the rent on the properties
to a market rental rate based on the restaurants'
performance and the current conditions in the market. In
March 2008, after reviewing the financial statements for the
restaurants and KRG, the Company agreed to amend the Leases
to reduce the current annual rent for the properties by 26%
to $217,395. This amount is scheduled to increase annually
by 1.5%. In addition, the amendments provide for additional
rental payments if the restaurants' sales exceed certain
stated amounts. In August 2008, the Partnership received
certification from Fired Up, Inc., the parent company of KRG
and guarantor of the Leases, that it had achieved certain
expense and debt reduction measures required by the
amendments. As a result, the amendments will remain
effective for the remainder of the lease terms.
(4) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Company. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
(5) Discontinued Operations -
On December 23, 2008, the Company sold 5.0278% of the
Applebee's restaurant in Macedonia, Ohio to an unrelated
third party. The Company received net sale proceeds of
$191,947, which resulted in a net gain of $47,438. The cost
and related accumulated depreciation of the interest sold
was $157,611 and $13,102, respectively.
AEI INCOME & GROWTH FUND 25 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) Discontinued Operations - (Continued)
During the first nine months of 2009, the Company sold an
additional 15.329% of the Applebee's restaurant in
Macedonia, Ohio, in two separate transactions, to unrelated
third parties. The Company received total net sale proceeds
of $555,272, which resulted in a net gain of $114,685. The
cost and related accumulated depreciation of the interests
sold was $480,533 and $39,946, respectively. The Company is
attempting to sell its remaining 79.6432% interest in the
property. At September 30, 2009 and December 31, 2008, the
property was classified as Real Estate Held for Sale with a
carrying value of $2,289,115 and $2,729,702, respectively.
The Company is attempting to sell the Sports Authority store
in Wichita, Kansas. At September 30, 2009 and December 31,
2008, the property was classified as Real Estate Held for
Sale with a carrying value of $3,158,350.
During the first nine months of 2009 and 2008, the Company
distributed $50,505 and $131,313 of net sale proceeds to the
Limited and Managing Members as part of their quarterly
distributions, which represented a return of capital of
$1.19 and $3.09 per LLC Unit, respectively. The Company
anticipates the remaining net sale proceeds will either be
reinvested in additional property or distributed to the
Members in the future.
The financial results for these properties are reflected as
Discontinued Operations in the accompanying financial
statements. The following are the results of discontinued
operations for the periods ended September 30:
Three Months Ended Nine Months Ended
9/30/09 9/30/08 9/30/09 9/30/08
Rental Income $ 131,563 $ 136,417 $ 404,569 $ 409,253
Property Management Expenses (809) (1,769) (4,548) (29,161)
Depreciation 0 0 0 (31,270)
Gain on Disposal of Real Estate 66,394 0 114,685 0
--------- --------- --------- ----------
Income from Discontinued
Operations $ 197,148 $ 134,648 $ 514,706 $ 348,822
========= ========= ========= ==========
(6) Fair Value Measurements -
The Company adopted new guidance for measuring financial
assets and liabilities at fair value on a recurring basis on
January 1, 2008 and for certain nonfinancial assets and
liabilities on January 1, 2009. The Company has no assets
or liabilities measured at fair value on a recurring basis
or nonrecurring basis that would require disclosure under
this new guidance.
AEI INCOME & GROWTH FUND 25 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(7) Subsequent Events -
The Company has evaluated subsequent events through November
10, 2009, the date which the financial statements were
available to be issued. Subsequent events, if any, were
disclosed in the appropriate note in the Notes to Financial
Statements.
ITEM 2. 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 Company's financial
condition and results of operations, including the following:
Market and economic conditions which affect the value
of the properties the Company 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 Members;
resolution by the Managing Members of conflicts with
which they may be confronted;
the success of the Managing Members of locating
properties with favorable risk return characteristics;
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Company operate.
Application of Critical Accounting Policies
The preparation of the Company'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 Company as opposed to other funds they manage.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Prior to January 1, 2009, the Company purchased properties
and recorded them in the financial statements at cost (including
capitalized acquisition expenses). For acquisitions completed on
or after January 1, 2009, acquisition-related transaction costs
will be expensed as incurred as a result of the Company adopting
new guidance on business combinations that expands the scope of
acquisition accounting. The Company tests long-lived assets for
recoverability when events or changes in circumstances indicate
that the carrying value may not be recoverable. For properties
the Company will hold and operate, management determines whether
impairment has occurred by comparing the property's probability-
weighted cash flows to its current carrying value. For
properties held for sale, management determines whether
impairment has occurred by comparing the property's estimated
fair value less cost to sell to its current carrying value. If
the carrying value is greater than the realizable value, an
impairment loss is recorded to reduce the carrying value of the
property to its realizable value. Changes in these assumptions
or analysis may cause material changes in the carrying value of
the properties.
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 Company reimburses these expenses
subject to detailed limitations contained in the Operating
Agreement.
Management of the Company has discussed the development
and selection of the above accounting estimates and the
management discussion and analysis disclosures regarding them
with the managing member of the Company.
Results of Operations
For the nine months ended September 30, 2009 and 2008, the
Company recognized rental income from continuing operations of
$1,599,572 and $1,505,234, respectively. In 2009, rental income
increased due to the acquisition of one property in 2008 and rent
increases on three properties, which were partially offset by a
reduction in rent for the Johnny Carino's restaurants as
discussed below.
For the nine months ended September 30, 2009 and 2008, the
Company incurred LLC administration expenses from affiliated
parties of $255,348 and $261,928, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and communicating with the Limited Members. During
the same periods, the Company incurred LLC administration and
property management expenses from unrelated parties of $106,340
and $32,614, 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. The increase in these expenses in 2009,
when compared to 2008, was mainly due to a one-time charge for
additional state taxes paid in 2009.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In November 2007, Kona Restaurant Group, Inc. (KRG), the
tenant of the Johnny Carino's restaurants, approached the Company
with a request to adjust the rent on the properties to a market
rental rate based on the restaurants' performance and the current
conditions in the market. In March 2008, after reviewing the
financial statements for the restaurants and KRG, the Company
agreed to amend the Leases to reduce the current annual rent for
the properties by 26% to $217,395. This amount is scheduled to
increase annually by 1.5%. In addition, the amendments provide
for additional rental payments if the restaurants' sales exceed
certain stated amounts. In August 2008, the Partnership received
certification from Fired Up, Inc., the parent company of KRG and
guarantor of the Leases, that it had achieved certain expense and
debt reduction measures required by the amendments. As a result,
the amendments will remain effective for the remainder of the
lease terms.
For the nine months ended September 30, 2009 and 2008, the
Company recognized interest income of $5,636 and $75,737,
respectively. In 2009 interest income decreased due to the
Company having less money invested in a money market account due
to property acquisitions and lower money market rates in 2009.
In addition, the Company received $62,165 of interest income on
construction advances in 2008.
Upon complete disposal of a property or classification of
a property as Real Estate Held for Sale, the Company includes the
operating results and sale of the property in discontinued
operations. In addition, the Company reclassifies the prior
periods' operating results of the property to discontinued
operations. For the nine months ended September 30, 2009, the
Company recognized income from discontinued operations of
$514,706 representing rental income less property management
expenses of $400,021 and gain on disposal of real estate of
$114,685. For the nine months ended September 30, 2008, the
Company recognized income from discontinued operations of
$348,822 representing rental income less property management
expenses and depreciation.
On December 23, 2008, the Company sold 5.0278% of the
Applebee's restaurant in Macedonia, Ohio to an unrelated third
party. The Company received net sale proceeds of $191,947, which
resulted in a net gain of $47,438. The cost and related
accumulated depreciation of the interest sold was $157,611 and
$13,102, respectively.
During the first nine months of 2009, the Company sold an
additional 15.329% of the Applebee's restaurant in Macedonia,
Ohio, in two separate transactions, to unrelated third parties.
The Company received total net sale proceeds of $555,272, which
resulted in a net gain of $114,685. The cost and related
accumulated depreciation of the interests sold was $480,533 and
$39,946, respectively. The Company is attempting to sell its
remaining 79.6432% interest in the property. At September 30,
2009 and December 31, 2008, the property was classified as Real
Estate Held for Sale with a carrying value of $2,289,115 and
$2,729,702, respectively.
The Company is attempting to sell the Sports Authority
store in Wichita, Kansas. At September 30, 2009 and December 31,
2008, the property was classified as Real Estate Held for Sale
with a carrying value of $3,158,350.
ITEM 2. 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
During the nine months ended September 30, 2009, the
Company's cash balances increased $543,577 as a result of cash
generated from the sale of property, which was partially offset
by distributions paid to the Members in excess of cash generated
from operating activities. During the nine months ended
September 30, 2008, the Company's cash balances decreased
$1,538,706 as a result of cash used to purchase property and
distributions paid to the Members in excess of cash generated
from operating activities, which were partially offset by cash
generated from the sale of property.
Net cash provided by operating activities decreased from
$1,645,521 in 2008 to $1,622,517 in 2009 as a result of an
increase in LLC administration and property management expenses
in 2009, which were partially offset by an increase in total
rental and interest income in 2009.
The major components of the Company's cash flow from
investing activities are investments in real estate and proceeds
from the sale of real estate. During the nine months ended
September 30, 2009 and 2008, the Company generated cash flow from
the sale of real estate of $555,272 and $923,833, respectively.
During the nine months ended September 30, 2008, the Company
expended $2,057,791 to invest in real properties (inclusive of
acquisition expenses) as the Company reinvested cash generated
from property sales.
On December 17, 2007, the Company purchased a 38% interest
in a parcel of land in Fredericksburg, Virginia for $1,935,063.
The Company obtained title to the land in the form of an
undivided fee simple interest in the 38% interest purchased.
Simultaneous with the purchase of the land, the Company entered
into a Project Construction and Development Financing Agreement
under which the Company advanced funds to Silver-Honaker
Development Company, LLC ("Silver") for the construction of a
Dick's Sporting Goods store on the site. On March 12, 2008, the
Company sold an 11% interest in the Dick's Sporting Goods
property to AEI Income & Growth Fund 23 LLC, an affiliate of the
Company. The sales price was equal to the amount the Company had
invested in the 11% interest, so no gain or loss was recognized.
After the sale, the Company's owns a 27% interest in the land and
was responsible for 27% of the construction costs of the
building. The Company's share of the total acquisition costs,
including the cost of the land, was $3,126,601. The remaining
interests in the property were purchased by AEI Income & Growth
Fund 24 LLC and AEI Income & Growth Fund 26 LLC, affiliates of
the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The property is leased to Dick's Sporting Goods, Inc.
under a Lease Agreement with a primary term of 10 years and
initial annual rent of $219,445 for the interest purchased.
Pursuant to the Lease, the tenant commenced paying rent on May 8,
2008. Pursuant to the development agreement, for the period from
December 17, 2007 through May 7, 2008, Silver paid the Company
interest at a rate of 6.75% on the purchase price of the land and
the amounts advanced for construction of the store. Pursuant to
the Lease, any improvements to the land during the term of the
Lease become the property of the Company.
The Company's primary use of cash flow, other than
investment in real estate, is distribution and redemption
payments to Members. The Company 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 Company attempts to maintain a stable distribution rate from
quarter to quarter. Redemption payments are paid to redeeming
Members on a semi-annual basis.
For the nine months ended September 30, 2009 and 2008, the
Company declared distributions of $1,634,009 and $1,801,933,
respectively. Pursuant to the Operating Agreement, distributions
of Net Cash Flow were allocated 97% to the Limited Members and 3%
to the Managing Members. Distributions of Net Proceeds of Sale
were allocated 99% to the Limited Members and 1% to the Managing
Members. The Limited Members received distributions of
$1,585,999 and $1,750,501 and the Managing Members received
distributions of $48,010 and $51,432 for the years, respectively.
In 2009, distributions were lower due to a decrease in the
distribution rate per Unit, effective October 1, 2008.
During the first nine months of 2009 and 2008, the Company
distributed $50,505 and $131,313 of net sale proceeds to the
Limited and Managing Members as part of their quarterly
distributions, which represented a return of capital of $1.19 and
$3.09 per LLC Unit, respectively. The Company anticipates the
remaining net sale proceeds will either be reinvested in
additional property or distributed to the Members in the future.
The Company may acquire Units from Limited Members who
have tendered their Units to the Company. Such Units may be
acquired at a discount. The Company will not be obligated to
purchase in any year more than 2% of the total number of Units
outstanding on January 1 of such year. In no event shall the
Company be obligated to purchase Units if, in the sole discretion
of the Managing Member, such purchase would impair the capital or
operation of the Company.
During 2009, the Company did not redeem any Units from the
Limited Members. On April 1, 2008, three Limited Members
redeemed a total of 190.71 Units for $136,054 in accordance with
the Operating Agreement. The Company acquired these Units using
Net Cash Flow from operations. In prior years, five Limited
Members redeemed a total of 224.77 Units for $169,626. The
redemptions increase the remaining Limited Member's ownership
interest in the Company. As a result of these redemption
payments and pursuant to the Operating Agreement, the Managing
Members received distributions of $4,207 in 2008.
The continuing rent payments from the properties, together
with cash generated from property sales, should be adequate to
fund continuing distributions and meet other Company obligations
on both a short-term and long-term basis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
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 Company'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 Company's tenants and their cash flows. If
a tenant were to default on its lease obligations, the Company's
income would decrease, its distributions would likely be reduced
and the value of its properties might decline.
Historically, the Company has sold properties at a gain
and distributed the gain proceeds as part of its regular
quarterly distributions, and to make special distributions on
occasion. The remaining sales proceeds were reinvested in
additional properties. Beginning in the fourth quarter of 2008,
general economic conditions caused the volume of property sales
to slow dramatically for all real estate sellers. In 2009, the
Company will likely complete fewer property sales than it has in
the past. Until property sales occur, quarterly distributions
going forward will reflect the distribution of net core rental
income and capital reserves, if any. Distribution rates are
expected to be variable and less than recent distribution rates
until such time as economic conditions allow the Company to, once
again, begin selling properties at acceptable prices and
generating gains for distribution.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for a smaller reporting company.
ITEM 4. 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 Member of the Company 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 Member 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 Member, in a manner that allows timely decisions
regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting.
(i) 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which
the Company is a party or of which the Company's property is
subject.
ITEM 1A. RISK FACTORS.
Not required for a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) None.
(b) Not applicable.
(c) Pursuant to Section 7.7 of the Operating Agreement,
each Limited Member has the right to present Units to the Company
for purchase by submitting notice to the Managing Member during
January or July of each year. The purchase price of the Units is
equal to 80% of the net asset value per Unit, as of the first
business day of January or July of each year, as determined by
the Managing Member in accordance with the provisions of the
Operating Agreement. Units tendered to the Company during
January and July are redeemed on April 1st and October 1st,
respectively, of each year subject to the following limitations.
The Company will not be obligated to purchase in any year more
than 2% of the total number of Units outstanding on January 1 of
such year. In no event shall the Company be obligated to
purchase Units if, in the sole discretion of the Managing Member,
such purchase would impair the capital or operation of the
Company. During the period covered by this report, the Company
did not purchase any Units.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
31.1 Certification of Chief Executive Officer of Managing
Member 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 Managing
Member 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 Managing Member pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Dated: November 10, 2009 AEI Income & Growth Fund 25 LLC
By: AEI Fund Management XXI, Inc.
Its: Managing Member
By: /s/ ROBERT P JOHNSON
Robert P. Johnson
President
(Principal Executive Officer)
By: /s/ PATRICK W KEENE
Patrick W. Keene
Chief Financial Officer
(Principal Accounting Officer