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: 000-19838
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
State of Minnesota 41-1677062
(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 NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
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 Partners' Capital
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 NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
BALANCE SHEET
SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
ASSETS
2009 2008
CURRENT ASSETS:
Cash $ 2,201,003 $ 369,055
INVESTMENTS IN REAL ESTATE:
Land 1,558,642 1,903,818
Buildings and Equipment 2,919,012 3,849,603
Accumulated Depreciation (603,159) (621,928)
----------- -----------
3,874,495 5,131,493
Real Estate Held for Sale 1,251,149 2,310,191
----------- -----------
Net Investments in Real Estate 5,125,644 7,441,684
----------- -----------
Total Assets $ 7,326,647 $ 7,810,739
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 19,357 $ 38,437
Distributions Payable 1,439,393 163,035
Unearned Rent 9,268 0
----------- -----------
Total Current Liabilities 1,468,018 201,472
----------- -----------
PARTNERS' CAPITAL:
General Partners 6,580 5,655
Limited Partners, $1,000 per Unit;
30,000 Units authorized; 21,152 Units issued;
20,166 Units outstanding 5,852,049 7,603,612
----------- -----------
Total Partners' Capital 5,858,629 7,609,267
----------- -----------
Total Liabilities and Partners'Capital $ 7,326,647 $ 7,810,739
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
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 $ 107,001 $ 106,697 $ 321,006 $ 318,707
EXPENSES:
Partnership Administration -
Affiliates 31,170 33,853 101,111 107,907
Partnership Administration and
Property Management -
Unrelated Parties 4,764 3,276 21,154 22,518
Depreciation 24,469 24,729 73,407 74,187
--------- --------- --------- ---------
Total Expenses 60,403 61,858 195,672 204,612
--------- --------- --------- ---------
OPERATING INCOME 46,598 44,839 125,334 114,095
OTHER INCOME:
Interest Income 5,006 16,691 10,403 32,013
--------- --------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS 51,604 61,530 135,737 146,108
Income from Discontinued
Operations 280,129 63,619 840,692 840,110
--------- --------- --------- ---------
NET INCOME $ 331,733 $ 125,149 $ 976,429 $ 986,218
========= ========= ========= =========
NET INCOME ALLOCATED:
General Partners $ 16,730 $ 19,871 $ 28,196 $ 28,482
Limited Partners 315,003 105,278 948,233 957,736
--------- --------- --------- ---------
$ 331,733 $ 125,149 $ 976,429 $ 986,218
========= ========= ========= =========
INCOME PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ 2.53 $ 3.02 $ 6.66 $ 7.17
Discontinued Operations 13.09 2.20 40.36 40.32
--------- --------- --------- ---------
Total $ 15.62 $ 5.22 $ 47.02 $ 47.49
========= ========= ========= =========
Weighted Average Units
Outstanding 20,166 20,166 20,166 20,166
========= ========= ========= =========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 976,429 $ 986,218
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 81,306 155,965
Gain on Sale of Real Estate (676,580) (584,999)
Decrease in Payable to
AEI Fund Management, Inc. (19,080) (57,131)
Increase in Unearned Rent 9,268 9,267
----------- -----------
Total Adjustments (605,086) (476,898)
----------- -----------
Net Cash Provided By
Operating Activities 371,343 509,320
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 2,911,314 2,974,814
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions Paid to Partners (1,450,709) (4,861,445)
----------- -----------
NET INCREASE (DECREASE) IN CASH 1,831,948 (1,377,311)
CASH, beginning of period 369,055 4,830,985
----------- -----------
CASH, end of period $ 2,201,003 $ 3,453,674
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2007 $ 14,625 $10,423,618 $10,438,243 20,165.79
Distributions Declared (37,445) (3,707,107) (3,744,552)
Net Income 28,482 957,736 986,218
-------- ----------- ----------- -----------
BALANCE, September 30, 2008 $ 5,662 $ 7,674,247 $ 7,679,909 20,165.79
======== =========== =========== ===========
BALANCE, December 31, 2008 $ 5,655 $ 7,603,612 $ 7,609,267 20,165.79
Distributions Declared (27,271) (2,699,796) (2,727,067)
Net Income 28,196 948,233 976,429
-------- ----------- ----------- -----------
BALANCE, September 30, 2009 $ 6,580 $ 5,852,049 $ 5,858,629 20,165.79
======== =========== =========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
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 Net Lease Income & Growth Fund XIX Limited Partnership
("Partnership") was formed to acquire and lease commercial
properties to operating tenants. The Partnership's
operations are managed by AEI Fund Management XIX, Inc.
("AFM"), the Managing General Partner. 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 May 31, 1991 when minimum
subscriptions of 1,500 Limited Partnership Units
($1,500,000) were accepted. The offering terminated
February 5, 1993 when the extended offering period expired.
The Partnership received subscriptions for 21,151.928
Limited Partnership Units. Under the terms of the Limited
Partnership Agreement, the Limited Partners and General
Partners contributed funds of $21,151,928, and $1,000,
respectively.
During 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.
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the General Partners determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Partners and 1% to the General Partners until the
Limited Partners receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to
12% of their Adjusted Capital Contribution per annum,
cumulative but not compounded, to the extent not previously
distributed from Net Cash Flow; (ii) any remaining balance
will be distributed 90% to the Limited Partners and 10% to
the General Partners. Distributions to the Limited Partners
will be made pro rata by Units.
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of property, will be
allocated first in the same ratio in which, and to the
extent, Net Cash Flow is distributed to the Partners for
such year. Any additional profits will be allocated in the
same ratio as the last dollar of Net Cash Flow is
distributed. Net losses from operations will be allocated
98% to the Limited Partners and 2% to the General Partners.
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Partnership Agreement as follows: (i)
first, to those partners with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Partners
and 1% to the General Partners until the aggregate balance
in the Limited Partners' capital accounts equals the sum of
the Limited Partners' Adjusted Capital Contributions plus an
amount equal to 12% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, the balance of any
remaining gain will then be allocated 90% to the Limited
Partners and 10% to the General Partners. Losses will be
allocated 98% to the Limited Partners and 2% to the General
Partners.
The General Partners are not required to currently fund a
deficit capital balance. Upon liquidation of the
Partnership or withdrawal by a General Partner, the General
Partners will contribute to the Partnership an amount equal
to the lesser of the deficit balances in their capital
accounts or 1% of total Limited Partners' and General
Partners' capital contributions.
(3) Reclassification -
Certain items related to discontinued operations in the
prior year's financial statements have been reclassified to
conform to 2009 presentation. These reclassifications had
no effect on Partners' capital, net income or cash flows.
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Investments in Real Estate -
In March 2009, Tumbleweed, Inc., the tenant of the
Tumbleweed restaurant in Chillicothe, Ohio filed for Chapter
11 bankruptcy reorganization. Rents are current and the
Partnership expects to continue to receive all scheduled
rents in future months unless the Lease is rejected by
Tumbleweed. If the Lease is assumed, Tumbleweed must comply
with all Lease terms. If the Lease is rejected, Tumbleweed
would be required to return possession of the property to
the Partnership and the Partnership would be responsible for
real estate taxes and other costs associated with
maintaining the property. 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 is subject to court
approval of the tenant's Plan of Reorganization. The
Partnership has evaluated the lease and property value and
decided that there is no impairment loss at this time. At
September 30, 2009, the book value of this property was
$390,388.
(5) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Partnership. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
(6) Discontinued Operations -
In October 2007, the tenant of the Applebee's restaurant in
Temple Terrace, Florida exercised its option to purchase the
property. On March 20, 2008, the sale closed with the
Partnership receiving net proceeds of $193,282 for its
9.0963% interest in the property, which resulted in a net
gain of $122,708. At the time of sale, the cost and related
accumulated depreciation was $96,262 and $25,688,
respectively.
During the first quarter of 2008, the Partnership sold its
remaining 4.1062% interest in the Eckerd drug store in
Auburn, New York, in two separate transactions, to unrelated
third parties. The Partnership received total net sale
proceeds of $203,264, which resulted in a net gain of
$24,346. The cost and related accumulated depreciation of
the interests sold was $187,841 and $8,923, respectively.
In March 2008, the Partnership entered into an agreement to
sell the Johnny Carino's restaurant in Brownsville, Texas to
an unrelated third party. On May 15, 2008, the sale closed
with the Partnership receiving net proceeds of $2,578,268,
which resulted in a net gain of $437,945. At the time of
sale, the cost and related accumulated depreciation was
$2,322,610 and $182,287, respectively.
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations - (Continued)
In February 2009, the Partnership entered into an agreement
to sell the Taco Cabana restaurant in San Antonio, Texas to
an unrelated third party. On March 13, 2009, the sale
closed with the Partnership receiving net proceeds of
$1,259,658, which resulted in a net gain of $419,943. At
the time of sale, the cost and related accumulated
depreciation was $1,147,274 and $307,559, respectively. At
December 31, 2008, the property was classified as Real
Estate Held for Sale with a carrying value of $839,715.
In May 2009, the Partnership entered into an agreement to
sell the Tractor Supply Company retail store in Mesquite,
Texas to an unrelated third party. On July 2, 2009, the
sale closed with the Partnership receiving net proceeds of
$1,331,175, which resulted in a net gain of $191,272. At
the time of sale, the cost and related accumulated
depreciation was $1,231,625 and $91,722, respectively.
On June 3, 2009, the Partnership sold its remaining 2.5775%
interest in the Marie Callender's restaurant in Henderson,
Nevada to an unrelated third party. The Partnership
received net sale proceeds of $45,359, which resulted in a
net gain of $9,570. The cost and related accumulated
depreciation of the interest sold was $44,142 and $8,353,
respectively.
On September 3, 2009, the Partnership sold 5.5187% of the
Winn-Dixie store in Panama City, Florida to an unrelated
third party. The Partnership received net sale proceeds of
$275,122, which resulted in a net gain of $55,795. The cost
and related accumulated depreciation of the interest sold
was $255,475 and $36,148, respectively. The Partnership is
attempting to sell its remaining 31.4813% 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 $1,251,149 and $1,470,476, respectively.
During the first nine months of 2009 and 2008, the
Partnership distributed net sale proceeds of $2,345,912 and
$3,187,369 to the Limited and General Partners as part of
their quarterly distributions, which represented a return of
capital of $115.17 and $156.48 per Limited Partnership Unit,
respectively.
AEI NET LEASE INCOME & GROWTH FUND XIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations - (Continued)
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 $ 33,260 $ 87,941 $ 177,343 $ 341,083
Property Management Expenses (198) (637) (5,332) (4,194)
Depreciation 0 (23,685) (7,899) (81,778)
Gain on Disposal of Real Estate 247,067 0 676,580 584,999
-------- -------- --------- ---------
Income from Discontinued
Operations $280,129 $ 63,619 $ 840,692 $ 840,110
======== ======== ========= =========
(7) Fair Value Measurements -
The Partnership 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 Partnership has no
assets or liabilities measured at fair value on a recurring
basis or nonrecurring basis that would require disclosure
under this new guidance.
(8) Subsequent Events -
The Partnership 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 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.
The Partnership purchased properties and recorded them in
the financial statements at cost (including capitalized
acquisition expenses). The Partnership tests long-lived assets
for recoverability when events or changes in circumstances
indicate that the carrying value may not be recoverable. For
properties the Partnership 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 Partnership reimburses these
expenses subject to detailed limitations contained in the
Partnership Agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Results of Operations
For the nine months ended September 30, 2009 and 2008, the
Partnership recognized rental income from continuing operations
of $321,006 and $318,707, respectively. In 2009, rental income
increased due to rent increases on two properties.
For the nine months ended September 30, 2009 and 2008, the
Partnership incurred Partnership administration expenses from
affiliated parties of $101,111 and $107,907, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and communicating with the Limited Partners. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $21,154 and $22,518, 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.
In March 2009, Tumbleweed, Inc., the tenant of the
Tumbleweed restaurant in Chillicothe, Ohio filed for Chapter 11
bankruptcy reorganization. Rents are current and the Partnership
expects to continue to receive all scheduled rents in future
months unless the Lease is rejected by Tumbleweed. If the Lease
is assumed, Tumbleweed must comply with all Lease terms. If the
Lease is rejected, Tumbleweed would be required to return
possession of the property to the Partnership and the Partnership
would be responsible for real estate taxes and other costs
associated with maintaining the property. 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 is subject to court approval of the
tenant's Plan of Reorganization. The Partnership has evaluated
the lease and property value and decided that there is no
impairment loss at this time. At September 30, 2009, the book
value of this property was $390,388.
For the nine months ended September 30, 2009 and 2008, the
Partnership recognized interest income of $10,403 and $32,013,
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.
Upon complete disposal of a property or classification of
a property as Real Estate Held for Sale, the Partnership includes
the operating results and sale of the property in discontinued
operations. In addition, the Partnership reclassifies the prior
periods' operating results of the property to discontinued
operations. For the nine months ended September 30, 2009, the
Partnership recognized income from discontinued operations of
$840,692, representing rental income less property management
expenses and depreciation of $164,112 and gain on disposal of
real estate of $676,580. For the nine months ended September 30,
2008, the Partnership recognized income from discontinued
operations of $840,110, representing rental income less property
management expenses and depreciation of $255,111 and gain on
disposal of real estate of $584,999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In October 2007, the tenant of the Applebee's restaurant
in Temple Terrace, Florida exercised its option to purchase the
property. On March 20, 2008, the sale closed with the
Partnership receiving net proceeds of $193,282 for its 9.0963%
interest in the property, which resulted in a net gain of
$122,708. At the time of sale, the cost and related accumulated
depreciation was $96,262 and $25,688, respectively.
During the first quarter of 2008, the Partnership sold its
remaining 4.1062% interest in the Eckerd drug store in Auburn,
New York, in two separate transactions, to unrelated third
parties. The Partnership received total net sale proceeds of
$203,264, which resulted in a net gain of $24,346. The cost and
related accumulated depreciation of the interests sold was
$187,841 and $8,923, respectively.
In March 2008, the Partnership entered into an agreement
to sell the Johnny Carino's restaurant in Brownsville, Texas to
an unrelated third party. On May 15, 2008, the sale closed with
the Partnership receiving net proceeds of $2,578,268, which
resulted in a net gain of $437,945. At the time of sale, the
cost and related accumulated depreciation was $2,322,610 and
$182,287, respectively.
In February 2009, the Partnership entered into an
agreement to sell the Taco Cabana restaurant in San Antonio,
Texas to an unrelated third party. On March 13, 2009, the sale
closed with the Partnership receiving net proceeds of $1,259,658,
which resulted in a net gain of $419,943. At the time of sale,
the cost and related accumulated depreciation was $1,147,274 and
$307,559, respectively. At December 31, 2008, the property was
classified as Real Estate Held for Sale with a carrying value of
$839,715.
In May 2009, the Partnership entered into an agreement to
sell the Tractor Supply Company retail store in Mesquite, Texas
to an unrelated third party. On July 2, 2009, the sale closed
with the Partnership receiving net proceeds of $1,331,175, which
resulted in a net gain of $191,272. At the time of sale, the
cost and related accumulated depreciation was $1,231,625 and
$91,722, respectively.
On June 3, 2009, the Partnership sold its remaining
2.5775% interest in the Marie Callender's restaurant in
Henderson, Nevada to an unrelated third party. The Partnership
received net sale proceeds of $45,359, which resulted in a net
gain of $9,570. The cost and related accumulated depreciation of
the interest sold was $44,142 and $8,353, respectively.
On September 3, 2009, the Partnership sold 5.5187% of the
Winn-Dixie store in Panama City, Florida to an unrelated third
party. The Partnership received net sale proceeds of $275,122,
which resulted in a net gain of $55,795. The cost and related
accumulated depreciation of the interest sold was $255,475 and
$36,148, respectively. The Partnership is attempting to sell its
remaining 31.4813% 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 $1,251,149 and
$1,470,476, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In the third quarter of 2006, the Partnership decided to
discontinue the reinvestment of proceeds from property sales in
additional properties. As a result, the Partnership's rental
income and operating income will decrease in the future as the
Partnership sells its remaining properties.
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
Partnership's cash balances increased $1,831,948 as a result of
cash generated from the sale of property, which was partially
offset by distributions paid to the Partners in excess of cash
generated from operating activities. During the nine months
ended September 30, 2008, the Partnership's cash balances
decreased $1,377,311 as a result of distributions paid to the
Partners in excess of cash generated from operating and investing
activities.
Net cash provided by operating activities decreased from
$509,320 in 2008 to $371,343 in 2009 as the result of a decrease
in total rental and interest income in 2009, which was partially
offset by a decrease in Partnership administration and property
management expenses in 2009 and net timing differences in the
collection of payments from the tenants and the payment of
expenses.
During the nine months ended September 30, 2009 and 2008,
the Partnership generated cash flow from the sale of real estate
of $2,911,314 and $2,974,814, respectively.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
For the nine months ended September 30, 2009 and 2008, the
Partnership declared distributions of $2,727,067 and $3,744,552,
respectively, which were distributed 99% to the Limited Partners
and 1% to the General Partners. The Limited Partners received
distributions of $2,699,796 and $3,707,107 and the General
Partners received distributions of $27,271 and $37,445 for the
periods, respectively. In June and September 2009, the
Partnership declared special distributions of net sale proceeds
of $1,010,101 and $1,313,131, respectively. In September 2008,
the Partnership declared a special distribution of net sale
proceeds of $3,030,303, which resulted in higher distributions in
2008. In 2009, regular distributions were lower due to decreases
in the distribution rate per Unit, effective July 1, 2008 and
January 1, 2009. In addition, the regular distributions in 2009
were paid on a capital balance that was reduced by the special
distribution of net sale proceeds in September 2008.
During the first nine months of 2009 and 2008, the
Partnership distributed net sale proceeds of $2,345,912 and
$3,187,369 to the Limited and General Partners as part of their
quarterly distributions, which represented a return of capital of
$115.17 and $156.48 per Limited Partnership Unit, respectively.
The continuing rent payments from the properties, together
with cash generated from property sales, should be adequate to
fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
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.
At the beginning of 2008, the Partnership anticipated that
it would sell its remaining properties and liquidate by the end
of 2009, depending on market conditions among other things.
Beginning in the fourth quarter of 2008, general economic
conditions caused the volume of property sales to slow
dramatically for all real estate sellers. As a result, it is
unlikely that the Partnership will be able to sell its remaining
properties in 2009. Until the economic conditions improve, it is
difficult to estimate when the Partnership may be able to sell
its remaining properties and liquidate.
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 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) 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 Partnership is a party or of which the Partnership's property
is subject.
ITEM 1A. RISK FACTORS.
Not required for a smaller reporting company.
PART II - OTHER INFORMATION
(Continued)
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) None.
(b) Not applicable.
(c) Pursuant to Section 7.7 of the Partnership Agreement,
each Limited Partner has the right to present Units to the
Partnership for purchase by submitting notice to the Managing
General Partner during September of each year. The purchase
price of the Units is based on a formula specified in the
Partnership Agreement. As of December 31, 2007, the formula
results in a purchase price of $-0-. Therefore, the Partnership
will no longer purchase Units from Limited Partners under this
provision of the Partnership Agreement. During the period
covered by this report, the Partnership did not purchase any
Units by any other arrangement.
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 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 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 Net Lease Income & Growth Fund XIX
Limited Partnership
By: AEI Fund Management XIX, Inc.
Its: Managing General Partner
By: /s/ ROBERT P JOHNSON
Robert P. Johnson
President
(Principal Executive Officer)
By: /s/ PATRICK W KEENE
Patrick W. Keene
Chief Financial Officer
(Principal Accounting Officer