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: 000-53691
AEI INCOME & GROWTH FUND 27 LLC
(Exact name of registrant as specified in its charter)
State of Delaware 20-8657207
(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 27 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:
Operations
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 27 LLC
BALANCE SHEET
SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
ASSETS
2009 2008
CURRENT ASSETS:
Cash $ 2,064,008 $ 1,059,127
Receivables 0 2,955
----------- -----------
Total Current Assets 2,064,008 1,062,082
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 1,227,003 904,146
Buildings and Equipment 4,949,616 2,870,765
Construction in Progress 0 42,852
Accumulated Depreciation (163,478) (55,727)
----------- -----------
Net Investments in Real Estate 6,013,141 3,762,036
----------- -----------
Total Assets $ 8,077,149 $ 4,824,118
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 36,164 $ 23,905
Distributions Payable 116,194 70,507
Unearned Rent 30,788 0
Construction Costs Payable 45,360 0
----------- -----------
Total Current Liabilities 228,506 94,412
----------- -----------
MEMBERS' EQUITY (DEFICIT):
Managing Members (22,033) (14,413)
Limited Members, $10 per Unit;
10,000,000 Units authorized;
962,535 and 567,726 Units issued and
outstanding in 2009 and 2008, respectively 7,870,676 4,744,119
----------- -----------
Total Members' Equity 7,848,643 4,729,706
----------- -----------
Total Liabilities and Members' Equity $ 8,077,149 $ 4,824,118
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 27 LLC
STATEMENT OF 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 $ 105,121 $ 23,250 $ 238,347 $ 60,931
EXPENSES:
LLC Administration - Affiliates 21,241 8,223 57,983 14,478
LLC Administration and Property
Management - Unrelated Parties 2,627 545 11,630 3,771
Property Acquisition 1,735 0 58,773 0
Depreciation 45,172 11,554 107,751 28,886
--------- -------- --------- ---------
Total Expenses 70,775 20,322 236,137 47,135
--------- -------- --------- ---------
OPERATING INCOME 34,346 2,928 2,210 13,796
OTHER INCOME (EXPENSE):
Interest Income 9,380 4,533 35,351 4,826
Interest Expense 0 0 0 (22,528)
--------- -------- --------- ---------
NET INCOME (LOSS) $ 43,726 $ 7,461 $ 37,561 $ (3,906)
========= ======== ========= =========
NET INCOME (LOSS) ALLOCATED:
Managing Members $ 1,312 $ 224 $ 1,127 $ (12,348)
Limited Members 42,414 7,237 36,434 8,442
--------- -------- --------- ---------
$ 43,726 $ 7,461 $ 37,561 $ (3,906)
========= ======== ========= =========
NET INCOME PER LLC UNIT $ .05 $ .03 $ .05 $ .04
========= ======== ========= =========
Weighted Average Units
Outstanding 901,661 259,915 754,179 237,064
========= ======== ========= =========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 27 LLC
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 37,561 $ (3,906)
Adjustments To Reconcile Net Income (Loss)
To Net Cash Provided By Operating Activities:
Depreciation 107,751 28,886
Decrease in Receivables 2,955 0
Increase in Payable to
AEI Fund Management, Inc. 12,259 34,430
Increase in Unearned Rent 30,788 7,750
----------- -----------
Total Adjustments 153,753 71,066
----------- -----------
Net Cash Provided By
Operating Activities 191,314 67,160
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (2,313,496) (1,365,331)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Note Payable 0 1,301,000
Payment on Note Payable 0 (1,301,000)
Capital Contributions from Limited Members 3,948,089 4,089,966
Organization and Syndication Costs (575,149) (574,033)
Distributions Paid to Members (245,877) (7,528)
----------- -----------
Net Cash Provided By
Financing Activities 3,127,063 3,508,405
----------- -----------
NET INCREASE IN CASH 1,004,881 2,210,234
CASH, beginning of period 1,059,127 1,038
----------- -----------
CASH, end of period $ 2,064,008 $ 2,211,272
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid for Interest $ 0 $ 22,528
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Capitalized Construction Costs
Payable at Period End $ 45,360 $ 0
Syndication Costs Payable to
AEI Fund Management $ 0 $ 33,694
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 27 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 $ 1,038 $ 0 $ 1,038 0
Capital Contributions 0 4,089,966 4,089,966 408,996.6
Organization and
Syndication Costs 0 (607,727) (607,727)
Distributions Declared (1,432) (46,289) (47,721)
Net Income (Loss) (12,348) 8,442 (3,906)
-------- ---------- ---------- ---------
BALANCE, September 30, 2008 $(12,742) $3,444,392 $3,431,650 408,996.6
======== ========== ========== =========
BALANCE, December 31, 2008 $(14,413) $4,744,119 $4,729,706 567,725.6
Capital Contributions 0 3,948,089 3,948,089 394,808.9
Organization and
Syndication Costs 0 (575,149) (575,149)
Distributions Declared (8,747) (282,817) (291,564)
Net Income 1,127 36,434 37,561
-------- ---------- ---------- ---------
BALANCE, September 30, 2009 $(22,033) $7,870,676 $7,848,643 962,534.5
======== ========== ========== =========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 27 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 27 LLC ("Company"), a Limited
Liability Company, was formed on January 26, 2007 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 call for a subscription price of
$10 per LLC Unit, payable on acceptance of the offer. Under
the terms of the Operating Agreement, 10,000,000 LLC Units
are available for subscription which, if fully subscribed,
will result in contributed Limited Members' capital of
$100,000,000. The Company commenced operations on June 5,
2008 when minimum subscriptions of 150,000 LLC Units
($1,500,000) were accepted. At September 30, 2009,
962,534.5 Units ($9,625,345) were subscribed and accepted by
the Company. The Managing Members have contributed capital
of $1,000.
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
6.5% 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 27 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
For tax purposes, the items of income, gain, loss and
deduction of the Company will be allocated among the Members
in a manner that will give economic effect to the
distributions made by the Company.
(3) Investments in Real Estate -
On February 5, 2008, the Company purchased a Starbucks store
in Shreveport, Louisiana for $1,369,132 from an unrelated
third party. The property is leased to Starbucks Corporation
under a lease agreement with a remaining primary term of 10
years and initial annual rent of $93,000.
On October 6, 2008, the Company purchased a 33% interest in
a Best Buy store in Lake Geneva, Wisconsin for $2,052,214.
The property is leased to Best Buy Stores, L.P. under a
Lease Agreement with a remaining primary term of 10.3 years
and initial annual rent of $144,325 for the interest
purchased. The remaining interests in the property were
purchased by AEI Income & Growth Fund XXII Limited
Partnership and AEI Income & Growth Fund 24 LLC, affiliates
of the Company.
On November 21, 2008, the Company purchased a 37% interest
in a parcel of land in Rapid City, South Dakota for
$338,446. The Company obtained title to the land in the
form of an undivided fee simple interest in the 37% interest
purchased. Simultaneous with the purchase of the land, the
Company entered into a Development Financing Agreement under
which the Company advanced funds to Brad and Dad, LLC for
the construction of a Tractor Supply Company store on the
site. At September 30, 2009, the balance due for
construction costs was $45,360, which was subsequently paid
to Brad and Dad, LLC. The Company's share of the total
acquisition costs, including the cost of the land, was
$1,163,286. The remaining interest in the property was
purchased by AEI Income & Growth Fund XXI Limited
Partnership, an affiliate of the Company.
The property is leased to Tractor Supply Company under a
Lease Agreement with a primary term of 15 years and initial
annual rent of $83,250 for the interest purchased. Pursuant
to the Lease, the tenant commenced paying rent on August 6,
2009, the day the store opened for business. Pursuant to
the development agreement, for the period from November 21,
2008 to August 5, 2009, Brad and Dad, LLC paid the Company
interest at a rate of 6.9% on the purchase price of the land
and the amounts advanced for construction of the building.
Pursuant to the Lease, any improvements to the land during
the term of the Lease become the property of the Company.
AEI INCOME & GROWTH FUND 27 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
On May 22, 2009, the Company purchased a 30% interest in a
Staples store in Vernon Hills, Illinois for $1,591,987. The
Company incurred $58,773 of acquisition expenses related to
the purchase. These costs were expensed as incurred as the
Company adopted new guidance on business combinations that
became effective January 1, 2009. The property is leased to
Staples the Office Superstore East, Inc. under a Lease
Agreement with a remaining primary term of 9.4 years and
initial annual rent of $132,135 for the interest purchased.
The remaining interest in the property was purchased by AEI
Net Lease Income & Growth Fund XX Limited Partnership, an
affiliate of the Company.
(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) Note Payable -
In order to facilitate the purchase of its first property,
the Company entered into a Line of Credit Agreement with
Fidelity Bank, Edina, Minnesota, for $1,301,000. The Note
was due on August 1, 2008 and called for interest at the
prime rate minus 0.25% with the interest due on the first
day of each month. The Note was secured by all of the
Company's assets and was guaranteed by the Special Managing
Member and AEI Capital Corporation, the parent company of
the Managing Member. For the nine months ended September
30, 2008, interest expense related to the Note was $22,528.
On June 5, 2008, the Company used the majority of the net
proceeds released from escrow to pay the outstanding
principal and interest due on the Note. Although the
registration statement indicates that no properties will be
acquired using debt financing, debt was used to acquire this
property solely to finance its purchase prior to the
admission of Limited Members. No property will be acquired
using debt financing after the initial admission of Limited
Members.
(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 27 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, the Company
recognized rental income of $238,347, representing nine months
rent from two properties and rent from two properties acquired
during the period. At September 30, 2009, the scheduled annual
rent for the properties was $452,710. For the nine months ended
September 30, 2008, the Company recognized rental income of
$60,931, representing rent from one property acquired during the
period.
For the nine months ended September 30, 2009 and 2008, the
Company incurred LLC administration expenses from affiliated
parties of $57,983 and $14,478, 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 $11,630
and $3,771, 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. As the Company raised additional
subscription proceeds and purchased additional properties, the
administration and property management expenses increased.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
For the nine months ended September 30, 2009, the Company
incurred property acquisition expenses of $58,773. These costs
were expensed as incurred as the result of the adoption of new
guidance on business combinations that became effective January
1, 2009.
For the nine months ended September 30, 2009 and 2008, the
Company recognized interest income of $35,351 and $4,826,
respectively. In 2009, interest income increased as result of
$23,603 of interest received on construction advances in 2009 and
the Company had more subscription proceeds temporarily invested
in a money market account.
For the nine months ended September 30, 2008, interest
expense related to the Note on the Starbucks store in Shreveport,
Louisiana was $22,528. The Note called for interest at the prime
rate minus 0.25% with the interest due on the first day of each
month.
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
The Company's primary sources of cash are proceeds from
the sale of Units, interest income, rental income and proceeds
from the sale of property. Its primary uses of cash are
investment in real properties, payment of expenses involved in
the sale of Units, the management of properties, the organization
and administration of the Company, and the payment of
distributions.
The Company generated $191,314 of cash from operations
during the nine months ended September 30, 2009, representing net
income of $37,561, a non-cash expense of $107,751 for
depreciation and $46,002 in net timing differences in the
collection of payments from the tenants and the payment of
expenses. During this period, cash from operations was reduced
by $58,773 of acquisition expenses related to the purchase of
real estate. Pursuant to new accounting guidance, these expenses
were reflected as operating cash outflows. However, pursuant to
the Company's Operating Agreement, acquisition expenses are
funded with subscription proceeds. The Company generated $67,160
of cash from operations during the nine months ended September
30, 2008, representing $42,180 in net timing differences in the
collection of payments from the tenants and the payment of
expenses, and a non-cash expense of $28,886 for depreciation,
which were partially offset by a net loss of $3,906.
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, the Company expended $2,313,496 to invest in
real properties. On May 22, 2009, the Company purchased a 30%
interest in a Staples store in Vernon Hills, Illinois for
$1,591,987. In addition, during the period, the Company expended
$721,509 for the construction of the Tractor Supply store in
Rapid City, South Dakota.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
During the year ended December 31, 2008, the Company
expended $3,817,763 to invest in real properties (inclusive of
acquisition expenses). On February 5, 2008, the Company
purchased a Starbucks store in Shreveport, Louisiana for
$1,369,132. On October 6, 2008, the Company purchased a 33%
interest in a Best Buy store in Lake Geneva, Wisconsin for
$2,052,214. On November 21, 2008, the Company purchased a 37%
interest in a parcel of land in Rapid City, South Dakota for
$353,565, including acquisition expenses. Simultaneous with the
purchase of the land, the Company entered into a Development
Financing Agreement under which the Company advanced funds for
the construction of a Tractor Supply Company store on the site.
Through December 31, 2008, the Company had advanced $42,852 for
the construction of the building.
In order to facilitate the purchase of its first property,
the Company entered into a Line of Credit Agreement with Fidelity
Bank, Edina, Minnesota, for $1,301,000. The Note was due on
August 1, 2008, and was secured by all of the Company's assets
and was guaranteed by the Special Managing Member and AEI Capital
Corporation, the parent company of the Managing Member. On June
5, 2008, the Company paid the outstanding principal and accrued
interest due on the Note. Although the registration statement
indicates that no properties will be acquired using debt
financing, debt was used to acquire this property solely to
finance its purchase prior to the admission of Limited Members.
No property will be acquired using debt financing after the
initial admission of Limited Members.
During the offering of Units, the Company's primary source
of cash flow is from the sale of LLC Units. The Company
commenced its offering of LLC Units to the public through a
registration statement that became effective November 19, 2007
and will continue until November 18, 2009, unless all 10,000,000
LLC Units are sold before then. The registration statement
indicated that the Company would not be capitalized, and all
subscription funds would be held in escrow, until the Company had
received subscriptions for 150,000 units ($1,500,000). The
Company obtained subscriptions for the 150,000 Units required for
release of escrow proceeds and on June 5, 2008, the Company
accepted subscriptions for 168,513.6 Units for aggregate proceeds
of $1,685,136. Through September 30, 2009, the Company raised a
total of $9,625,345 from the sale of 962,534.5 Units. From
subscription proceeds, the Company incurred organization and
syndication costs (which constitute a reduction of capital) of
$1,416,415.
After completion of the acquisition phase, the Company's
primary use of cash flow will be distribution 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.
For the nine months ended September 30, 2009 and 2008, the
Company declared distributions of $291,564 and $47,721,
respectively, which were allocated 97% to the Limited Members and
3% to the Managing Members.
Beginning in May 2010, 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Operating Agreement requires that all proceeds from
the sale of Units, subject to a reasonable reserve for ongoing
operations, be invested or committed to investment in properties
by the later of two years after the date of the registration
statement or twelve months after the offering terminates. As of
September 30, 2009, the Company had no formal contractual
commitments to expend capital.
Until capital is invested in properties, the Company will
remain extremely liquid. After completion of property
acquisitions, the Company will attempt to maintain a cash reserve
of only approximately .5% of subscription proceeds. Because
properties are purchased for cash and leased under net leases,
this is considered adequate to satisfy most contingencies.
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.
The Company's plan was to periodically sell properties to
generate capital gains that would be included in the Company's
regular quarterly distributions and to make special distributions
on occasion. 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 2008, the Company
did not complete any property sales and may have difficulty
completing a property sale in 2009. Until property sales occur,
quarterly distributions going forward will reflect the
distribution of net core rental income and capital reserves, if
any. Distribution rates in 2009 are expected to be variable and
less than historical distribution rates until such time as
economic conditions allow the Company to 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.
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) The registration statement for the offering (No. 333-
144961) was declared effective on November 19, 2007. The
offering commenced on November 19, 2007 and is ongoing. AEI
Securities, Inc. (ASI) is the dealer manager of the offering.
The registration statement covers 10,000,000 Units of limited
liability company interest at an aggregate price of up to $100
million. Through September 30, 2009, the Company had sold
962,534.5 Units for gross offering proceeds of $9,625,345.
PART II - OTHER INFORMATION
(Continued)
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
From gross offering proceeds, the Company paid $918,812 in
selling commissions to ASI, an affiliate of the Managing Members.
Of this amount, $598,853 was re-allowed by ASI to participating
broker-dealers not affiliated with the Managing Members. The
gross offering proceeds were further reduced by underwriting
discounts of $16,336 and other organization and syndication costs
of $481,267 of which $281,914 was paid to AEI Fund Management,
Inc., an affiliate of the Managing Members, for costs incurred in
connection with managing the Company's offering and organization.
From inception to September 30, 2009, the Company incurred
commissions, organization and syndication costs totaling
$1,416,415.
From the net offering proceeds, the Company expended
$6,235,392 to acquire real estate of which $6,009,207 represented
cash paid to unaffiliated sellers of real estate, $90,138
represented an acquisition administration fee paid to the
Managing Member and $136,047 represented cash paid to reimburse
AEI Fund Management, Inc. for costs and direct expenses incurred
by it in acquiring properties on behalf of the Company.
(c) Beginning in May 2010, 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. From May
2010 through November 2011, the purchase price of the Units is
equal to 90% 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. After November 2011, the purchase price is
equal to 95% of the net asset value per Unit. The purchase price
is equal to 100% of the net asset value per Unit in the case of
Units of a deceased investor, who purchased the Units in the
initial offering and who is a natural person, including Units
held by an investor that is an IRA or other qualified plan for
which the deceased person was the primary beneficiary, or Units
held by an investor that is a grantor trust for which the
deceased person was the grantor.
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.
PART II - OTHER INFORMATION
(Continued)
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
10.1 Assignment and Assumption of Lease dated November 21,
2008 between the Company, AEI Income & Growth Fund XXI
Limited Partnership and Brad and Dad LLC relating to the
Property at 3430 East Mall Drive, Rapid City, South Dakota.
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 27 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
