Attached files
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Fiscal Year Ended: December 31, 2009
Commission file number: 000-18289
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
State of Minnesota 41-1622463
(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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes [ ] No [X]
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. Yes [X] 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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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 Act). Yes [ ] No[X]
As of June 30, 2009, there were 18,952.133 Units of limited
partnership interest outstanding and owned by nonaffiliates of
the registrant, which Units had an aggregate market value (based
solely on the price at which they were sold since there is no
ready market for such Units) of $18,952,133.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has not incorporated any documents by reference
into this report.
PART I
ITEM 1. BUSINESS.
AEI Real Estate Fund XVIII Limited Partnership (the
"Partnership" or the "Registrant") is a limited partnership which
was organized pursuant to the laws of the State of Minnesota on
September 20, 1988. The registrant is comprised of AEI Fund
Management XVIII, Inc. (AFM) as Managing General Partner, Robert
P. Johnson, the President and sole director of AFM, as the
Individual General Partner, and purchasers of partnership units
as Limited Partners. The Partnership offered for sale up to
$30,000,000 of limited partnership interests (the "Units")
(30,000 Units at $1,000 per Unit) pursuant to a registration
statement effective December 5, 1988. The Partnership commenced
operations on February 15, 1989 when minimum subscriptions of
1,500 Limited Partnership Units ($1,500,000) were accepted. The
Partnership's offering terminated December 4, 1990 when the
extended offering period expired. The Partnership received
subscriptions for 22,783.05 Limited Partnership Units
($22,783,050).
The Partnership was organized to acquire, initially on a
debt-free basis, existing and newly constructed commercial
properties located in the United States and Canada, to lease such
properties to tenants under triple net leases, to hold such
properties and to eventually sell such properties. From
subscription proceeds, the Partnership purchased twenty-one
properties, including partial interests in five properties,
totaling $18,868,379. The balance of the subscription proceeds
was applied to organization and syndication costs, working
capital reserves and distributions, which represented a return of
capital. The properties are commercial, single tenant buildings
leased under triple net leases.
In January 2009, the Managing General Partner solicited by
mail a proxy statement seeking the consent of the Limited
Partners, as required by Section 6.1 of the Partnership
Agreement, to initiate the final disposition, liquidation and
distribution of all of the Partnership's properties and assets
within the next year. On February 24, 2009, the proposal was
approved with a majority of Units voted in favor of the proposal.
As a result, the Managing General Partner is proceeding with the
planned liquidation of the Partnership. At this time, the
Partnership anticipates that it will sell its remaining property
and liquidate prior to December 31, 2010.
Leases
Although there are variations in the specific terms of the
leases, the following is a summary of the general terms of the
Partnership's leases. The properties are leased to various
tenants under triple net leases, classified as operating leases.
Under a triple net lease, the tenant is responsible for all real
estate taxes, insurance, maintenance, repairs and operating
expenses for the property. At the time the properties were
acquired, the remaining primary lease terms varied from 15 to 20
years. The leases provide the tenant with two to three five-year
renewal options subject to the same terms and conditions as the
primary term. The leases provide for base annual rental
payments, payable in monthly installments, and contain rent
clauses which entitle the Partnership to receive additional rent
in future years based on stated rent increases.
ITEM 1. BUSINESS. (Continued)
Property Activity During the Last Three Years
Prior to the second quarter of 2005, the Partnership sold
some of its properties and reinvested the proceeds from such
sales in additional properties. In the second quarter of 2005,
the Partnership decided to discontinue the reinvestment of
proceeds from property sales in additional properties and to
distribute sales proceeds to the Partners going forward. As of
December 31, 2006, the Partnership owned a significant interest
in five properties and a minor interest in four properties with a
total original cost of $5,562,648, including acquisition
expenses. During the years ended December 31, 2007, 2008 and
2009, the Partnership sold five property interests and received
net sale proceeds of $2,160,636, $3,602,373 and $158,406,
respectively. As of December 31, 2009, the Partnership owned a
significant interest in one property and a minor interest in
three properties with a total original cost of $681,054 and a
total net realizable value of $648,600.
Major Tenants
During 2009, three tenants each contributed more than ten
percent of the Partnership's total rental revenue. The major
tenants in aggregate contributed 97% of total rental revenue in
2009. With the planned liquidation of the Partnership, the major
tenant information will no longer be applicable.
Competition
The Partnership is a minor factor in the commercial real
estate business. There are numerous entities engaged in the
commercial real estate business which have greater financial
resources than the Partnership. At the time the Partnership
elects to dispose of its properties, the Partnership will be in
competition with other persons and entities to find buyers for
its properties.
Employees
The Partnership has no direct employees. Management
services are performed for the Partnership by AEI Fund
Management, Inc., an affiliate of AFM.
ITEM 1A. RISK FACTORS.
Not required for a smaller reporting company.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not required for a smaller reporting company.
ITEM 2. PROPERTIES.
Investment Objectives
The Partnership's investment objectives were to acquire
existing or newly-developed commercial properties throughout the
United States and Canada that offer the potential for (i)
preservation and protection of the Partnership's capital; (ii)
partially tax-deferred cash distributions from operations which
may increase through rent participation clauses or mandated rent
increases; and (iii) long-term capital gains through appreciation
in value of the Partnership's properties realized upon sale. The
Partnership does not have a policy, and there is no limitation,
as to the amount or percentage of assets that may be invested in
any one property. However, to the extent possible, the General
Partners attempted to diversify the type and location of the
Partnership's properties.
Description of Properties
The Partnership's properties are commercial, single tenant
buildings. The properties were acquired on a debt-free basis and
are leased to various tenants under triple net leases, classified
as operating leases. The Partnership holds an undivided fee
simple interest in the properties. At any time prior to selling
the properties, the Partnership may mortgage one or more of its
properties in amounts not exceeding 50% of the aggregate purchase
price of all Partnership properties.
The Partnership's properties are subject to the general
competitive conditions incident to the ownership of single tenant
investment real estate. Since each property is leased under a
long-term lease, there is little competition until the
Partnership decides to sell the property. At this time, the
Partnership will be competing with other real estate owners, on
both a national and local level, in attempting to find buyers for
the properties. In the event of a tenant default, the
Partnership would be competing with other real estate owners, who
have property vacancies, to attract a new tenant to lease the
property. The Partnership's tenants operate in industries that
are very competitive and can be affected by factors such as
changes in regional or local economies, seasonality and changes
in consumer preference.
The following table is a summary of the properties that
the Partnership acquired and owned as of December 31, 2009.
Total Property Annual Annual
Purchase Acquisition Lease Rent Per
Property Date Costs Tenant Payment Sq. Ft.
Tractor Supply
Company Store
Bristol, VA Tractor Supply
(7.5158%) 4/10/96 $ 96,765 Company, Inc. $12,970 $ 9.20
Champps Americana
Restaurant Champps
Columbus, OH Operating
(.5061%) 8/29/96 $ 12,984 Corporation $ 1,875 $45.35
ITEM 2. PROPERTIES. (Continued)
Total Property Annual Annual
Purchase Acquisition Lease Rent Per
Property Date Costs Tenant Payment Sq. Ft.
Fuddruckers Restaurant
Thornton, CO
(.7606%) 7/30/97 $ 10,693 Fuddruckers, Inc. $ 1,473 $38.91
Tumbleweed Restaurant
Chillicothe, OH Tumbleweed,
(43.9634%) 11/20/98 $ 560,612 Inc. $58,017 $24.06
The properties listed above with a partial ownership
percentage are owned with affiliates of the Partnership and/or
unrelated third parties. The remaining interests in the
Tumbleweed restaurant are owned by AEI Net Lease Income & Growth
Fund XIX Limited Partnership and unrelated third parties. The
remaining interests in the Tractor Supply Company store, the
Fuddruckers restaurant and the Champps Americana restaurant are
owned by unrelated third parties.
The Partnership accounts for properties owned as tenants-
in-common with affiliated entities and/or unrelated third parties
using the proportionate consolidation method. Each tenant-in-
common owns a separate, undivided interest in the properties.
Any tenant-in-common that holds more than a 50% interest does not
control decisions over the other tenant-in-common interests. The
financial statements reflect only this Partnership's percentage
share of the properties' land, building and equipment,
liabilities, revenues and expenses.
At the time the properties were acquired, the remaining
primary lease terms varied from 15 to 20 years. The leases
provide the tenants with two to three five-year renewal options
subject to the same terms and conditions as the primary term.
Pursuant to the lease agreements, the tenants are required
to provide proof of adequate insurance coverage on the properties
they occupy. The General Partners believe the properties are
adequately covered by insurance and consider the properties to be
well-maintained and sufficient for the Partnership's operations.
For tax purposes, the Partnership's properties are
depreciated under the Modified Accelerated Cost Recovery System
(MACRS). The largest depreciable component of a property is the
building which is depreciated, using the straight-line method,
over 31.5 years or 39 years depending on the date when it was
placed in service. The remaining depreciable components of a
property are personal property and land improvements which are
depreciated, using an accelerated method, over 5 and 15 years,
respectively. Since the Partnership has tax-exempt Partners, the
Partnership is subject to the rules of Section 168(h)(6) of the
Internal Revenue Code which requires a percentage of the
properties' depreciable components to be depreciated over longer
lives using the straight-line method. In general, the federal
tax basis of the properties for tax depreciation purposes is the
same as the basis for book depreciation purposes.
At December 31, 2009, all properties listed above were
100% occupied.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCK-
HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) As of December 31, 2009, there were 1,401 holders of
record of the registrant's Limited Partnership Units. There is
no other class of security outstanding or authorized. The
registrant's Units are not a traded security in any market.
During the period covered by this report, the Partnership did not
sell any equity securities that are not registered under the
Securities Act of 1933.
Cash distributions of $1,717 and $36,215 were made to the
General Partners and $170,000 and $3,585,294 were made to the
Limited Partners for 2009 and 2008, respectively. The
distributions were made on a quarterly basis and represent Net
Cash Flow, as defined, except as discussed below. These
distributions should not be compared with dividends paid on
capital stock by corporations.
As part of the Limited Partner distributions discussed
above, the Partnership distributed net sale proceeds of $141,912
and $3,538,488 in 2009 and 2008, respectively. The distributions
reduced the Limited Partners' Adjusted Capital Contributions.
(b) Not applicable.
(c) Pursuant to Section 7.7 of the Partnership Agreement,
as amended, each Limited Partner has the right to present Units
to the Partnership for purchase by submitting notice to the
Managing General Partner. The purchase price of the Units is
equal to 90% of the net asset value per Unit as determined by the
Managing General Partner in accordance with the provisions of the
Partnership Agreement. Units tendered to the Partnership are
redeemed at the purchase price established for the quarter in
which the Partnership received a notice at least 60 days prior to
the repurchase dates of January 1st, April 1st, July 1st and
October 1st subject to the following limitations. The
Partnership is not obligated to purchase in any year more than 5%
of the number of Units outstanding at the beginning of the year.
In no event shall the Partnership be obligated to purchase Units
if, in the sole discretion of the Managing General Partner, such
purchase would impair the capital or operation of the
Partnership. During the last three months of 2009, the
Partnership did not purchase any Units.
ITEM 6. SELECTED FINANCIAL DATA.
Not required for a smaller reporting company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This section contains "forward-looking statements" which
represent management's expectations or beliefs concerning future
events, including statements regarding anticipated application of
cash, expected returns from rental income, growth in revenue, the
sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward-
looking statements, should be evaluated in the context of a
number of factors that may affect the Partnership's financial
condition and results of operations, including the following:
Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
effects of these consequences for the Partners;
resolution by the General Partners of conflicts with
which they may be confronted;
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Partnership operate.
Application of Critical Accounting Policies
The preparation of the Partnership's financial statements
requires management to make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. Management evaluates these estimates on an ongoing
basis, including those related to the carrying value of real
estate and the allocation by AEI Fund Management, Inc. of
expenses to the Partnership as opposed to other funds they
manage.
Effective October 1, 2007, the Partnership adopted the
liquidation basis of accounting because the General Partners
anticipated the liquidation of the Partnership during 2008. In
accordance with the liquidation basis of accounting, assets are
recorded at their estimated net realizable value (the amount of
cash expected to be received) and liabilities are recorded at the
amount estimated to be paid to creditors and Partners. At
December 31, 2009, the estimated real estate values were based
upon comparable sales of similar properties. Any changes in
these estimates may cause material changes in the net assets in
liquidation.
AEI Fund Management, Inc. allocates expenses to each of
the funds they manage primarily on the basis of the number of
hours devoted by their employees to each fund's affairs. They
also allocate expenses at the end of each month that are not
directly related to a fund's operations based upon the number of
investors in the fund and the fund's capitalization relative to
other funds they manage. The Partnership reimburses these
expenses subject to detailed limitations contained in the
Partnership Agreement.
Management of the Partnership has discussed the
development and selection of the above accounting estimates and
the management discussion and analysis disclosures regarding them
with the managing partner of the Partnership.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Results of Operations
For the years ended December 31, 2009 and 2008, while in
the liquidation phase, the Partnership recognized rental income
of $97,409 and $142,776, respectively. In 2009, rental income
decreased mainly as a result of property sales. During the same
periods, the Partnership recognized interest income of $8,144 and
$28,783, respectively. In 2008, interest income was higher due
to higher money market interest rates in 2008, when compared to
2009, and the Partnership had more money invested in a money
market account due to property sales. The majority of the sales
proceeds were subsequently distributed to the Partners.
For the years ended December 31, 2009 and 2008, while in
the liquidation phase, the Partnership incurred Partnership
administration expenses from affiliated parties of $55,007 and
$66,555, respectively. These administration expenses include
costs associated with the management of the properties,
processing distributions, reporting requirements and
communicating with the Limited Partners. As the Partnership's
asset base decreases due to property sales, it is allocated a
smaller share of expenses that are allocated by AEI Fund
Management, Inc. based on the relative assets of the funds under
management. During the same periods, the Partnership incurred
Partnership administration and property management expenses from
unrelated parties of $22,175 and $51,224, respectively. These
expenses represent direct payments to third parties for legal and
filing fees, direct administrative costs, outside audit costs,
taxes, insurance and other property costs. These expenses were
higher in 2008, when compared to 2009, as a result of expenses
incurred in 2008 related to the KinderCare daycare center in Blue
Springs, Missouri.
In March 2009, Tumbleweed, Inc., the tenant of the
Tumbleweed restaurant in Chillicothe, Ohio filed for Chapter 11
bankruptcy reorganization. In July 2009, the tenant contacted
the Partnership and offered to assume the Lease and extend the
Lease term five years in exchange for a 15% rent reduction. The
Partnership accepted this offer and agreed to a Lease Amendment,
which was subject to court approval of the tenant's Plan of
Reorganization. In December 2009, the bankruptcy court approved
the Plan of Reorganization. Under the Plan, Tumbleweed assumed
the Lease for this property and the Lease amendment became
effective. As of the date of this report, Tumbleweed has
complied with all Lease terms. At June 30, 2009, based on the
proposed rent reduction and an analysis of market conditions in
the area, the Partnership recognized a $110,000 adjustment to
decrease the estimated net realizable value of the property.
For the years ended December 31, 2009 and 2008, the
Partnership recognized adjustments of estimated values of
($427,775) and ($3,483,316), respectively, resulting from
adopting the liquidation basis of accounting and recording its
assets at estimated net realizable value and liabilities at the
amount estimated to be paid. For the year ended December 31,
2009, these adjustments included a $267,800 decrease in the
estimated net realizable values of the properties, of which
$139,800 was recognized at December 31, 2009 based on the
Partnership's valuation analysis.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Management believes inflation has not significantly
affected income from operations. Leases may contain rent
increases, based on the increase in the Consumer Price Index over
a specified period, which will result in an increase in rental
income over the term of the leases. Inflation also may cause the
real estate to appreciate in value. However, inflation and
changing prices may have an adverse impact on the operating
margins of the properties' tenants, which could impair their
ability to pay rent and subsequently reduce the Net Cash Flow
available for distributions.
Liquidity and Capital Resources
In January 2009, the Managing General Partner solicited by
mail a proxy statement seeking the consent of the Limited
Partners, as required by Section 6.1 of the Partnership
Agreement, to initiate the final disposition, liquidation and
distribution of all of the Partnership's properties and assets
within the next year. On February 24, 2009, the proposal was
approved with a majority of Units voted in favor of the proposal.
As a result, the Managing General Partner is proceeding with the
planned liquidation of the Partnership. At this time, the
Partnership anticipates that it will sell its remaining property
and liquidate prior to December 31, 2010.
During the year ended December 31, 2009, while in the
liquidation phase, the Partnership's Net Assets in Liquidation
decreased $410,740 as a result of decreases in the estimated net
realizable value of property and distributions paid to the
Partners in excess of cash generated from operating activities.
During the year ended December 31, 2008, while in the liquidation
phase, the Partnership's Net Assets in Liquidation decreased
$3,553,856 as a result of distributions of net sale proceeds to
the Partners.
On June 30, 2007, the Lease term expired for the
KinderCare daycare center in Blue Springs, Missouri. The tenant
reviewed their operations at the property and decided not to
enter into an agreement to extend the term of the Lease. While
the property was vacant, the Partnership was responsible for real
estate taxes and other costs associated with maintaining the
property. On July 23, 2008, the Partnership sold the daycare
center to an unrelated third party. The Partnership received net
sale proceeds of $549,943. At the time of sale, the estimated
net realizable value was $550,000.
On January 25, 2008, the Partnership sold the KinderCare
daycare center in Westerville, Ohio to an unrelated third party.
The Partnership received net sale proceeds of $1,423,596. At the
time of sale, the estimated net realizable value was $1,415,000.
On March 12, 2008, the Partnership sold the KinderCare
daycare center in Columbus, Ohio to an unrelated third party.
The Partnership received net sale proceeds of $1,628,834. At the
time of sale, the estimated net realizable value was $1,617,000.
On October 5, 2009, the Partnership sold its remaining
9.3699% interest in the Taco Cabana restaurant in San Antonio,
Texas to the tenant. The Partnership received net sale proceeds
of $158,406. At the time of sale, the estimated net realizable
value was $158,000. At June 30, 2009, based on the signed
purchase agreement, the Partnership recognized an $18,000
adjustment to decrease the estimated net realizable value of the
property.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Partnership's primary use of cash flow is distribution
payments to Partners. The Partnership declares its regular
quarterly distributions before the end of each quarter and pays
the distribution in the first week after the end of each quarter.
The Partnership attempts to maintain a stable distribution rate
from quarter to quarter.
For the years ended December 31, 2009 and 2008, the
Partnership declared distributions of $171,717 and $3,621,509,
respectively, which were distributed 99% to the Limited Partners
and 1% to the General Partners. The Limited Partners received
distributions of $170,000 and $3,585,294 and the General Partners
received distributions of $1,717 and $36,215 for the periods,
respectively. In March and September 2008, the Partnership
declared special distributions of net sale proceeds of $2,828,283
and $505,051, respectively, which resulted in higher
distributions in 2008.
During 2009 and 2008, the Partnership distributed net sale
proceeds of $143,345 and $3,574,230 to the Limited and General
Partners as part of their quarterly distributions, which
represented a return of capital of $7.49 and $186.66 per Limited
Partnership Unit, respectively.
The rent from the Partnership's four remaining properties
plus the interest earned on its cash reserve may not be
sufficient to pay the Partnership's administrative expenses and
the property management expenses related to the properties. To
the extent these expenses are greater than income, the
Partnership will need to use a portion of its cash reserve to pay
these expenses until the properties are sold and the Partnership
is liquidated. Future distributions declared, if any, prior to
the final liquidating distribution, will likely be paid from the
cash reserve. The cash reserve should be adequate to meet the
Partnership's obligations.
The Economy and Market Conditions
The impact of conditions in the current economy, including
the turmoil in the credit markets, has adversely affected many
real estate companies. However, the absence of mortgage
financing on the Partnership's properties eliminates the risks of
foreclosure and debt-refinancing that can negatively impact the
value and distributions of leveraged real estate companies.
Nevertheless, a prolonged economic downturn may adversely affect
the operations of the Partnership's tenants and their cash flows.
If a tenant were to default on its lease obligations, the
Partnership's income would decrease, its distributions would
likely be reduced and the value of its properties might decline.
Beginning in the fourth quarter of 2008, general economic
conditions caused the volume of property sales to slow
dramatically for all real estate sellers. These conditions may
make it more difficult for the Partnership to sell its remaining
properties at acceptable prices, which it must do in order to
complete its liquidation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See accompanying index to financial statements.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Statement of Net Assets Available for Liquidation
at December 31, 2009 and 2008
Statement of Liquidating Activities for the
Years Ended December 31, 2009 and 2008
Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners:
AEI Real Estate Fund XVIII Limited Partnership
St. Paul, Minnesota
We have audited the accompanying statements of net assets
available for liquidation of AEI Real Estate Fund XVIII Limited
Partnership (a Minnesota limited partnership) as of December 31,
2009 and 2008, and the related statements of liquidating
activities for each of the years then ended. The Partnership's
management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the company's internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As described in the Notes to the financial statements, the
General Partners of AEI Real Estate Fund XVIII Limited
Partnership anticipate the liquidation of the Partnership during
2010. Because liquidation was imminent, the Partnership changed
its basis of accounting after September 30, 2007, from the going
concern basis to the liquidation basis.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the net assets
available for liquidation of AEI Real Estate Fund XVIII Limited
Partnership as of December 31, 2009 and 2008, and the change in
net assets in liquidation for each of the years then ended, in
conformity with accounting principles generally accepted in the
United States of America.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
March 29, 2010
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
STATEMENT OF NET ASSETS AVAILABLE FOR LIQUIDATION
DECEMBER 31, 2009 AND 2008
2009 2008
ASSETS:
Cash $ 850,895 $ 833,860
Investments in Real Estate 648,600 1,074,400
----------- -----------
Total Assets 1,499,495 1,908,260
----------- -----------
LIABILITIES:
Payable to AEI Fund Management, Inc. 11,739 5,675
Distributions Payable 42,929 51,512
Unearned Rent 4,494 0
----------- -----------
Total Liabilities 59,162 57,187
----------- -----------
NET ASSETS (PARTNERS' CAPITAL) IN LIQUIDATION,
including 18,957 Limited Partnership
Units outstanding $ 1,440,333 $ 1,851,073
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
STATEMENT OF LIQUIDATING ACTIVITIES
FOR THE YEARS ENDED DECEMBER 31
2009 2008
SOURCES OF ADDITIONAL CASH:
Rent $ 101,903 $ 120,831
Interest Income 8,144 28,783
Proceeds from Sale of Real Estate 158,406 3,602,373
----------- -----------
Total Sources of Additional Cash 268,453 3,751,987
----------- -----------
USES OF ADDITIONAL CASH:
Partnership Administration - Affiliates 55,007 66,555
Partnership Administration and Property
Management - Unrelated Parties 16,111 70,085
Distributions Paid to Partners 180,300 3,685,887
----------- -----------
Total Uses of Additional Cash 251,418 3,822,527
----------- -----------
INCREASE (DECREASE) IN NET ASSETS IN
LIQUIDATION BEFORE ADJUSTMENTS 17,035 (70,540)
----------- -----------
ADJUSTMENTS OF ESTIMATED VALUES:
Change in Net Realizable values of:
Receivables 0 (6,500)
Real Estate (267,800) 0
Payable to AEI Fund Management, Inc. (6,064) 18,861
Distributions Payable 8,583 64,378
Unearned Rent (4,494) 21,945
Net Realizable Value of Real Estate Sold (158,000) (3,582,000)
----------- -----------
Total Adjustment of Estimated Values (427,775) (3,483,316)
----------- -----------
DECREASE IN NET ASSETS IN LIQUIDATION (410,740) (3,553,856)
BEGINNING NET ASSETS IN LIQUIDATION 1,851,073 5,404,929
----------- -----------
ENDING NET ASSETS IN LIQUIDATION $ 1,440,333 $ 1,851,073
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
(1) Organization -
AEI Real Estate Fund XVIII Limited Partnership
("Partnership") was formed to acquire and lease commercial
properties to operating tenants. The Partnership's
operations are managed by AEI Fund Management XVIII, Inc.
("AFM"), the Managing General Partner. Robert P. Johnson,
the President and sole director of AFM, serves as the
Individual General Partner. AFM is a wholly owned
subsidiary of AEI Capital Corporation of which Mr. Johnson
is the majority shareholder. AEI Fund Management, Inc.
("AEI"), an affiliate of AFM, performs the administrative
and operating functions for the Partnership.
The terms of the Partnership offering called for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. The Partnership
commenced operations on February 15, 1989 when minimum
subscriptions of 1,500 Limited Partnership Units
($1,500,000) were accepted. The offering terminated
December 4, 1990 when the extended offering period expired.
The Partnership received subscriptions for 22,783.05 Limited
Partnership Units. Under the terms of the Limited
Partnership Agreement, the Limited Partners and General
Partners contributed funds of $22,783,050, and $1,000,
respectively.
During operations, any Net Cash Flow, as defined, which the
General Partners determine to distribute will be distributed
90% to the Limited Partners and 10% to the General Partners;
provided, however, that such distributions to the General
Partners will be subordinated to the Limited Partners first
receiving an annual, noncumulative distribution of Net Cash
Flow equal to 10% of their Adjusted Capital Contribution, as
defined, and, provided further, that in no event will the
General Partners receive less than 1% of such Net Cash Flow
per annum. Distributions to Limited Partners will be made
pro rata by Units.
Any Net Proceeds of Sale as defined, from the sale or
financing of properties which the General Partners determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Partners and l% to the General Partners until the
Limited Partners receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to 6%
of their Adjusted Capital Contribution per annum, cumulative
but not compounded, to the extent not previously distributed
from Net Cash Flow; (ii) next, 99% to the Limited Partners
and 1% to the General Partners until the Limited Partners
receive an amount equal to 14% of their Adjusted Capital
Contribution per annum, cumulative but not compounded, to
the extent not previously distributed; (iii) next, to the
General Partners until cumulative distributions to the
General Partners under Items (ii) and (iii) equal 15% of
cumulative distributions to all Partners under Items (ii)
and (iii). Any remaining balance will be distributed 85% to
the Limited Partners and 15% to the General Partners.
Distributions to the Limited Partners will be made pro rata
by Units.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
(1) Organization - (Continued)
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of property, will be
allocated first in the same ratio in which, and to the
extent, Net Cash Flow is distributed to the Partners for
such year. Any additional profits will be allocated 90% to
the Limited Partners and 10% to the General Partners. In the
event no Net Cash Flow is distributed to the Limited
Partners, 90% of each item of income, gain or credit for
each respective year shall be allocated to the Limited
Partners, and 10% of each such item shall be allocated to
the General Partners. Net losses from operations will be
allocated 98% to the Limited Partners and 2% to the General
Partners.
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Partnership Agreement as follows: (i)
first, to those partners with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Partners
and 1% to the General Partners until the aggregate balance
in the Limited Partners' capital accounts equals the sum of
the Limited Partners' Adjusted Capital Contributions plus an
amount equal to 14% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, to the General Partners
until cumulative allocations to the General Partners equal
15% of cumulative allocations. Any remaining balance will
be allocated 85% to the Limited Partners and 15% to the
General Partners. Losses will be allocated 98% to the
Limited Partners and 2% to the General Partners.
The General Partners are not required to currently fund a
deficit capital balance. Upon liquidation of the
Partnership or withdrawal by a General Partner, the General
Partners will contribute to the Partnership an amount equal
to the lesser of the deficit balances in their capital
accounts or 1% of total Limited Partners' and General
Partners' capital contributions.
In January 2009, the Managing General Partner solicited by
mail a proxy statement seeking the consent of the Limited
Partners, as required by Section 6.1 of the Partnership
Agreement, to initiate the final disposition, liquidation
and distribution of all of the Partnership's properties and
assets within the next year. On February 24, 2009, the
proposal was approved with a majority of Units voted in
favor of the proposal. As a result, the Managing General
Partner is proceeding with the planned liquidation of the
Partnership. At this time, the Partnership anticipates that
it will sell its remaining property and liquidate prior to
December 31, 2010.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
(2) Summary of Significant Accounting Policies -
Financial Statement Presentation
Because liquidation was anticipated, the Partnership
changed its basis of accounting after September 30, 2007,
from the going concern basis to the liquidation basis.
Effective October 1, 2007, the Partnership measures its
assets and liabilities at the amounts of cash expected in
liquidation and reports changes in estimates when they
are known. The accounts of the Partnership are
maintained on the accrual basis of accounting for both
federal income tax purposes and financial reporting
purposes.
Accounting Estimates
Management uses estimates and assumptions in preparing
these financial statements in accordance with generally
accepted accounting principles. Those estimates and
assumptions may affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities and the reported revenues, expenses, and
sources and uses of additional cash. Actual results
could differ from those estimates. Significant items,
subject to such estimates and assumptions, include the
carrying value of investments in real estate and real
estate held for sale.
The Partnership regularly assesses whether market events
and conditions indicate that it is reasonably possible to
recover the carrying amounts of its investments in real
estate from future operations and sales. A change in
those market events and conditions could have a material
effect on the carrying amount of its real estate.
Cash Concentrations of Credit Risk
The Partnership's cash is deposited in one financial
institution and at times during the year it may exceed
FDIC insurance limits.
Receivables
Credit terms are extended to tenants in the normal course
of business. The Partnership performs ongoing credit
evaluations of its customers' financial condition and,
generally, requires no collateral.
Receivables are recorded at their estimated net
realizable value. The Partnership follows a policy of
providing an allowance for doubtful accounts; however,
based on historical experience, and its evaluation of the
current status of receivables, the Partnership is of the
belief that such accounts will be collectible in all
material respects and thus an allowance is not necessary.
Accounts are considered past due if payment is not made
on a timely basis in accordance with the Partnership's
credit terms. Receivables considered uncollectible are
written off.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
(2) Summary of Significant Accounting Policies - (Continued)
Income Taxes
The income or loss of the Partnership for federal income
tax reporting purposes is includable in the income tax
returns of the partners. In general, no recognition has
been given to income taxes in the accompanying financial
statements.
The tax return and the amount of distributable
Partnership income or loss are subject to examination by
federal and state taxing authorities. If such an
examination results in changes to distributable
Partnership income or loss, the taxable income of the
partners would be adjusted accordingly.
Revenue Recognition
The Partnership's real estate is leased under triple net
leases, classified as operating leases. The leases
provide for base annual rental payments payable in
monthly installments. The Partnership recognizes rental
revenue according to the terms of the individual leases.
For leases that contain stated rental increases, the
increases are recognized in the year in which they are
effective. Contingent rental payments are recognized
when the contingencies on which the payments are based
are satisfied and the rental payments become due under
the terms of the leases.
Investments in Real Estate
The Partnership accounts for properties owned as tenants-
in-common with affiliated entities and/or unrelated third
parties using the proportionate consolidation method.
Each tenant-in-common owns a separate, undivided interest
in the properties. Any tenant-in-common that holds more
than a 50% interest does not control decisions over the
other tenant-in-common interests. The financial
statements reflect only this Partnership's percentage
share of the properties' land, building and equipment,
liabilities, revenues and expenses.
The Partnership's properties are subject to environmental
laws and regulations adopted by various governmental
entities in the jurisdiction in which the properties are
located. These laws could require the Partnership to
investigate and remediate the effects of the release or
disposal of hazardous materials at these locations if
found. For each property, an environmental assessment is
completed prior to acquisition. In addition, the lease
agreements typically strictly prohibit the production,
handling, or storage of hazardous materials (except where
incidental to the tenant's business such as use of
cleaning supplies) in violation of applicable law to
restrict environmental and other damage. Environmental
liabilities are recorded when it is determined the
liability is probable and the costs can reasonably be
estimated. There were no environmental issues noted or
liabilities recorded at December 31, 2009 and 2008.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
(2) Summary of Significant Accounting Policies - (Continued)
Recently Issued Accounting Pronouncements
Management has reviewed recently issued, but not yet
effective, accounting pronouncements and does not expect
the implementation of these pronouncements to have a
significant effect on the Partnership's financial
statements.
(3) Related Party Transactions -
The Partnership owns a 43.9634% interest in a Tumbleweed
restaurant. The remaining interests in this property are
owned by AEI Net Lease Income & Growth Fund XIX Limited
Partnership, an affiliate of the Partnership, and an
unrelated third party. The Partnership owned a 50% interest
in an Eckerd drug store. AEI Net Lease Income & Growth Fund
XIX Limited Partnership owned a 50% interest in this
property until the interest was sold, in a series of
transactions, to unrelated third parties in 2007 and 2008.
AEI received the following reimbursements for costs and
expenses from the Partnership for the years ended December
31:
2009 2008
a.AEI is reimbursed for costs incurred in providing services
related to managing the Partnership's operations and
properties, maintaining the Partnership's books, and
communicating with the Limited Partners. $ 55,007 $ 66,555
======== ========
b.AEI is reimbursed for all direct expenses it paid on the
Partnership's behalf to third parties related to Partnership
administration and property management. These
expenses included printing costs, legal and filing fees,
direct administrative costs, outside audit costs, taxes
insurance and other property costs. $ 22,175 $ 51,224
======== ========
c.AEI is reimbursed for costs incurred in providing
services related to the sale of property. $ 605 $ 54,473
======== ========
The payable to AEI Fund Management, Inc. represents the
balance due for the services described in 3a, b and c. This
balance is non-interest bearing and unsecured and is to be
paid in the normal course of business.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
(4) Investments in Real Estate -
The Partnership leases its properties to various tenants
under triple net leases, classified as operating leases.
Under a triple net lease, the tenant is responsible for all
real estate taxes, insurance, maintenance, repairs and
operating expenses for the property. At the time the
properties were acquired, the remaining primary lease terms
varied from 15 to 20 years. The leases provide the tenants
with two to three five-year renewal options subject to the
same terms and conditions as the primary term.
The Partnership's properties are commercial, single-tenant
buildings. The Tractor Supply Company store and Champps
Americana restaurant were constructed and acquired in 1996.
The Fuddruckers restaurant was constructed and acquired in
1997. The Tumbleweed restaurant was constructed and
acquired in 1998. There have been no costs capitalized as
improvements subsequent to the acquisitions.
Effective with the decision to liquidate, the carrying
amounts of assets and liabilities were adjusted from their
historical bases to the amounts of cash expected from their
realization and settlement. Because of the expected short
liquidation period, the effects of discounting would not be
significant and have been ignored. At December 31, 2009 and
2008, the estimated real estate values were based upon
comparable sales of similar properties. At December 31,
2009, based on its valuation analysis, the Partnership
recognized a $139,800 adjustment to decrease the estimated
net realizable values of the properties. It is reasonably
possible that the amounts expected to be realized in the
liquidation process may change in the near term.
The historical cost and related accumulated depreciation and
estimated net realizable values of the properties at
December 31, 2009 are as follows:
Historical Cost Basis Liquidation Basis
Buildings and Accumulated Net Realizable
Property Land Equipment Total Depreciation Value
Tractor Supply Company,
Bristol, VA $ 31,092 $ 65,673 $ 96,765 $ 26,758 $118,000
Champps Americana,
Columbus, OH 4,373 8,611 12,984 3,352 15,000
Fuddruckers,
Thornton, CO 3,383 7,310 10,693 2,572 7,600
Tumbleweed,
Chillicothe, OH 229,387 331,225 560,612 104,814 508,000
------- ------- ------- ------- -------
$268,235 $412,819 $681,054 $137,496 $648,600
======= ======= ======= ======= ========
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
(4) Investments in Real Estate - (Continued)
The Partnership owns a 7.5158% interest in a Tractor Supply
Company store, a .5061% interest in a Champps Americana
restaurant and a .7606% interest in a Fuddruckers
restaurant. The remaining interests in these properties are
owned by unrelated third parties, who own the property with
the Partnership as tenants-in-common.
On June 30, 2007, the Lease term expired for the KinderCare
daycare center in Blue Springs, Missouri. The tenant
reviewed their operations at the property and decided not to
enter into an agreement to extend the term of the Lease.
While the property was vacant, the Partnership was
responsible for real estate taxes and other costs associated
with maintaining the property. On July 23, 2008, the
Partnership sold the daycare center to an unrelated third
party. The Partnership received net sale proceeds of
$549,943. At the time of sale, the estimated net realizable
value was $550,000.
On January 25, 2008, the Partnership sold the KinderCare
daycare center in Westerville, Ohio to an unrelated third
party. The Partnership received net sale proceeds of
$1,423,596. At the time of sale, the estimated net
realizable value was $1,415,000.
On March 12, 2008, the Partnership sold the KinderCare
daycare center in Columbus, Ohio to an unrelated third
party. The Partnership received net sale proceeds of
$1,628,834. At the time of sale, the estimated net
realizable value was $1,617,000.
On October 5, 2009, the Partnership sold its remaining
9.3699% interest in the Taco Cabana restaurant in San
Antonio, Texas to the tenant. The Partnership received net
sale proceeds of $158,406. At the time of sale, the
estimated net realizable value was $158,000. At June 30,
2009, based on the signed purchase agreement, the
Partnership recognized an $18,000 adjustment to decrease the
estimated net realizable value of the property.
During 2009 and 2008, the Partnership distributed net sale
proceeds of $143,345 and $3,574,230 to the Limited and
General Partners as part of their quarterly distributions,
which represented a return of capital of $7.49 and $186.66
per Limited Partnership Unit, respectively.
In March 2009, Tumbleweed, Inc., the tenant of the
Tumbleweed restaurant in Chillicothe, Ohio filed for Chapter
11 bankruptcy reorganization. In July 2009, the tenant
contacted the Partnership and offered to assume the Lease
and extend the Lease term five years in exchange for a 15%
rent reduction. The Partnership accepted this offer and
agreed to a Lease Amendment, which was subject to court
approval of the tenant's Plan of Reorganization. In
December 2009, the bankruptcy court approved the Plan of
Reorganization. Under the Plan, Tumbleweed assumed the
Lease for this property and the Lease amendment became
effective. As of the date of this report, Tumbleweed has
complied with all Lease terms. At June 30, 2009, based on
the proposed rent reduction and an analysis of market
conditions in the area, the Partnership recognized a
$110,000 adjustment to decrease the estimated net realizable
value of the property.
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
(4) Investments in Real Estate - (Continued)
For properties owned as of December 31, 2009, the minimum
future rent payments required by the leases are as follows:
2010 $ 65,547
2011 61,224
2012 61,224
2013 61,365
2014 61,365
Thereafter 234,163
---------
$ 544,888
=========
There were no contingent rents recognized in 2009 and 2008.
(5) Major Tenants -
The following schedule presents rent revenue from individual
tenants, or affiliated groups of tenants, who each
contributed more than ten percent of the Partnership's total
rent revenue for the years ended December 31:
Tenants Industry 2009 2008
Tumbleweed, Inc. Restaurant $ 64,843 $ 67,029
Texas Taco Cabana L.P. Restaurant 16,380 21,409
Tractor Supply Company, Inc. Retail 12,889 N/A
KinderCare Learning Centers, Inc Child Care N/A 38,517
-------- --------
Aggregate rent revenue of major tenants $ 94,112 $ 126,955
======== ========
Aggregate rent revenue of major tenants as
a percentage of total rent revenue 97% 89%
======== ========
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
(6) Partners' Capital -
For the years ended December 31, 2009 and 2008, the
Partnership declared distributions of $171,717 and
$3,621,509, respectively. The Limited Partners received
distributions of $170,000 and $3,585,294 and the General
Partners received distributions of $1,717 and $36,215 for
the years, respectively. The Limited Partners'
distributions represent $8.97 and $189.13 per Limited
Partnership Unit outstanding in 2009 and 2008, respectively,
using 18,957 weighted average Units for both years.
As part of the Limited Partner distributions discussed
above, the Partnership distributed net sale proceeds of
$141,912 and $3,538,488 in 2009 and 2008, respectively. The
distributions reduced the Limited Partners' Adjusted Capital
Contributions.
After the effect of redemptions and the return of capital
from the sale of property, the Adjusted Capital
Contribution, as defined in the Partnership Agreement, is
$46.58 per original $1,000 invested.
(7) Income Taxes -
With the change in the Partnership's basis of accounting
from the going concern basis to the liquidation basis,
effective October 1, 2007, the Partnership no longer reports
Net Income after this date. The following is a
reconciliation of net income for financial reporting
purposes to income reported for federal income tax purposes
for the years ended December 31:
2009 2008
Net Income for Financial Reporting
Purposes - Going Concern Basis $ 0 $ 0
Increase (Decrease) in Net Assets in Liquidation
Before Adjustment 17,035 (70,540)
Liquidation Basis of Accounting Not
Recognized for Tax Reporting Purposes 86,850 2,220,083
Depreciation for Tax Purposes Over
Depreciation for Financial Reporting Purposes (12,426) (29,485)
Income Accrued for Tax Purposes Over (Under)
Income for Financial Reporting Purposes 4,494 (21,945)
Gain on Sale of Real Estate for Tax Purposes
Over(Under) Gain fo Financial Reporting Purposes 600 (69,730)
-------- ----------
Taxable Income to Partners $ 96,553 $2,028,383
======== ==========
AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
(7) Income Taxes - (Continued)
The following is a reconciliation of Net Assets in
Liquidation for financial reporting purposes to Partners'
Capital reported for federal income tax purposes for the
years ended December 31:
2009 2008
Net Assets in Liquidation / Partners' Capital
for Financial Reporting Purposes $1,440,333 $1,851,073
Adjusted Tax Basis of Investments in Real Estate
Under Net Investments in Real Estate
for Financial Reporting Purposes (109,806) (440,888)
Income Accrued for Tax Purposes Over
Income for Financial Reporting Purposes 4,494 0
Syndication Costs Treated as Reduction
of Capital for Financial Reporting Purposes 3,336,442 3,336,442
--------- ---------
Partners' Capital for Tax Reporting Purposes $4,671,463 $4,746,627
========= =========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9AT.CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures.
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing General Partner of the Partnership evaluated the
effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based
upon that evaluation, the President and Chief Financial Officer
of the Managing General Partner concluded that, as of the end of
the period covered by this report, our disclosure controls and
procedures were effective in ensuring that information required
to be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in applicable rules and forms
and that such information is accumulated and communicated to
management, including the President and Chief Financial Officer
of the Managing General Partner, in a manner that allows timely
decisions regarding required disclosure.
(b) Internal Control Over Financial Reporting.
(i) Management's Report on Internal Control Over Financial
Reporting. The Managing General Partner, through its management,
is responsible for establishing and maintaining adequate internal
control over our financial reporting, as defined in Rule 13a-
15(f) under the Exchange Act, and for performing an assessment of
the effectiveness of our internal control over financial
reporting as of December 31, 2009. Internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our
system of internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
Partnership; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Partnership
are being made only in accordance with authorizations of
management of the Managing General Partner; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
Partnership's assets that could have a material effect on the
financial statements.
Management of the Managing General Partner performed an
assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2009 based upon criteria
in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission ("COSO").
Based on our assessment, management of the Managing General
Partner determined that our internal control over financial
reporting was effective as of December 31, 2009 based on the
criteria in Internal Control-Integrated Framework issued by the
COSO.
ITEM 9AT.CONTROLS AND PROCEDURES. (Continued)
This annual report does not include an attestation report
of our registered public accounting firm regarding internal
control over financial reporting. Management's report was not
subject to attestation by our registered public accounting firm
pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management's report in
this annual report.
(ii) Changes in Internal Control Over Financial
Reporting. During the most recent period covered by this report,
there has been no change in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The registrant is a limited partnership and has no
officers, directors, or direct employees. The General Partners
manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters
affecting the Partnership's business. The General Partners are
AEI Fund Management XVIII, Inc. (AFM), the Managing General
Partner, and Robert P. Johnson, Chief Executive Officer,
President and sole director of AFM, the Individual General
Partner. AFM is a wholly owned subsidiary of AEI Capital
Corporation of which Mr. Johnson is the majority shareholder.
AFM has only one senior financial executive, its Chief Financial
Officer. The Chief Financial Officer reports directly to Mr.
Johnson and is accountable for his actions to Mr. Johnson.
Although Mr. Johnson and AFM require that all of their personnel,
including the Chief Financial Officer, engage in honest and
ethical conduct, ensure full, fair, accurate, timely, and
understandable disclosure, comply with all applicable
governmental laws, rules and regulations, and report to Mr.
Johnson any deviation from these principles, because the
organization is composed of only approximately 35 individuals,
because the management of a partnership by an entity that has
different interests in distributions and income than investors
involves numerous conflicts of interest that must be resolved on
a daily basis, and because the ultimate decision maker in all
instances is Mr. Johnson, AFM has not adopted a formal code of
conduct. Instead, the materials pursuant to which investors
purchase Units disclose these conflicts of interest in detail and
Mr. Johnson, as the CEO and sole director of AFM, resolves
conflicts to the best of his ability, consistent with his
fiduciary obligations to AFM and the fiduciary obligations of AFM
to the Partnership. The director and officers of AFM are as
follows:
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
(Continued)
Robert P. Johnson, age 65, is Chief Executive Officer,
President and sole director and has held these positions since
the formation of AFM in September 1988, and has been elected to
continue in these positions until December 2010. From 1970 to
the present, he has been employed exclusively in the investment
industry, specializing in limited partnership investments. In
that capacity, he has been involved in the development, analysis,
marketing and management of public and private investment
programs investing in net lease properties as well as public and
private investment programs investing in energy development.
Since 1971, Mr. Johnson has been the president, a director and a
registered principal of AEI Securities, Inc., which is registered
with the SEC as a securities broker-dealer, is a member of the
Financial Industry Regulatory Authority (FINRA) and is a member
of the Security Investors Protection Corporation (SIPC). Mr.
Johnson has been president, a director and the principal
shareholder of AEI Fund Management, Inc., a real estate
management company founded by him, since 1978. Mr. Johnson is
currently a general partner or principal of the general partner
in ten limited partnerships and a managing member in five LLCs.
Patrick W. Keene, age 50, is Chief Financial Officer,
Treasurer and Secretary and has held these positions since
January 22, 2003 and has been elected to continue in these
positions until December 2010. Mr. Keene has been employed by
AEI Fund Management, Inc. and affiliated entities since 1987.
Prior to being elected to the positions above, he was Controller
of the various entities. From 1982 to 1986, Mr. Keene was with
KPMG Peat Marwick Certified Public Accountants, first as an
auditor and later as a tax manager. Mr. Keene is responsible for
all accounting functions of AFM and the registrant.
Since Mr. Johnson serves as the Individual General Partner
of the Partnership, as well as the sole director of AFM, all of
the duties that might be assigned to an audit committee are
assigned to Mr. Johnson. Mr. Johnson is not an audit committee
financial expert, as defined. As an officer and majority owner,
through a parent company, of AFM, and as the Individual General
Partner, Mr. Johnson is not a "disinterested director" and may be
subject to a number of conflicts of interests in his capacity as
sole director of AFM.
Before the independent auditors are engaged, Mr. Johnson,
as the sole director of AFM, approves all audit-related fees, and
all permissible nonaudit fees, for services of our auditors.
Section 16(a) Beneficial Ownership Reporting Compliance
Under federal securities laws, the directors and officers
of the General Partner of the Partnership, and any beneficial
owner of more than 10% of a class of equity securities of the
Partnership, are required to report their ownership of the
Partnership's equity securities and any changes in such ownership
to the Securities and Exchange Commission (the "Commission").
Specific due dates for these reports have been established by the
Commission, and the Partnership is required to disclose in this
Annual Report on 10-K any delinquent filing of such reports and
any failure to file such reports during the fiscal year ended
December 31, 2009. Based upon information provided by officers
and directors of the General Partner, all officers, directors and
10% owners filed all reports on a timely basis in the 2009 fiscal
year.
ITEM 11. EXECUTIVE COMPENSATION.
The General Partner and affiliates are reimbursed at cost
for all services performed on behalf of the registrant and for
all third party expenses paid on behalf of the registrant. The
cost for services performed on behalf of the registrant is actual
time spent performing such services plus an overhead burden.
These services include organizing the registrant and arranging
for the offer and sale of Units, reviewing properties for
acquisition and rendering administrative, property management and
property sales services. The amount and nature of such payments
are detailed in Item 13 of this annual report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information pertaining to
the ownership of the Units by each person known by the
Partnership to beneficially own 5% or more of the Units, by each
General Partner, and by each officer or director of the Managing
General Partner as of February 28, 2010:
Name and Address Number of Percent
of Beneficial Owner Units Held of Class
AEI Fund Management XVIII, Inc. 0 0.00%
Robert P. Johnson 5 0.03%
Patrick W. Keene 0 0.00%
Address for all:
1300 Wells Fargo Place
30 East 7th Street, St. Paul, Minnesota 55101
The persons set forth in the preceding table hold sole voting
power and power of disposition with respect to all of the Units
set forth opposite their names. The General Partners know of no
holders of more than 5% of the outstanding Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.
The registrant, AFM and its affiliates have common
management and utilize the same facilities. As a result, certain
administrative expenses are allocated among these related
entities. All of such activities and any other transactions
involving the affiliates of the General Partner of the registrant
are governed by, and are conducted in conformity with, the
limitations set forth in the Limited Partnership Agreement of the
registrant. Reference is made to Note 3 of the Financial
Statements, as presented, and is incorporated herein by
reference, for details of related party transactions for the
years ended December 31, 2009 and 2008.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE. (Continued)
Neither the registrant, nor the Managing General Partner
of the registrant, has a board of directors consisting of any
members who are "independent." The sole director of the Managing
General Partner, Robert P. Johnson, is also the Individual
General Partner of the registrant, and is the Chief Executive
Officer, and indirectly the principal owner, of the Managing
General Partner. Accordingly, there is no disinterested board,
or other functioning body, that reviews related party
transactions, or the transactions between the registrant and the
General Partners, except as performed in connection with the
audit of its financial statements.
The limitations included in the Partnership Agreement
require that the cumulative reimbursements to the General
Partners and their affiliates for administrative expenses not
allowed under the NASAA Guidelines ("Guidelines") will not exceed
the sum of (i) the front-end fees allowed by the Guidelines less
the front-end fees paid by the Partnership, (ii) the cumulative
property management fees allowed by the Guidelines but not paid,
(iii) any real estate commission allowed by the Guidelines, and
(iv) 10% of Net Cash Flow less the Net Cash Flow actually
distributed to the General Partners. The administrative expenses
not allowed under the Guidelines include a controlling person's
salary and fringe benefits, rent and depreciation. As of
December 31, 2009, the cumulative reimbursements to the General
Partners and their affiliates did not exceed those amounts.
The following table sets forth the forms of compensation,
distributions and cost reimbursements paid by the registrant to
the General Partners or their Affiliates in connection with the
operation of the Fund and its properties for the period from
inception through December 31, 2009.
Amount Incurred
Person or Entity From Inception
Receiving Form and Method (September 20, 1988) to
Compensation of Compensation December 31, 2009
AEI Securities, Inc. Selling Commissions equal to 7% of $2,278,305
proceeds plus a 3% nonaccountable
expense allowance, most of which was
reallowed to Participating Dealers.
General Partners and Reimbursement at Cost for other $1,064,137
Affiliates Organization and Offering Costs.
General Partners and Reimbursement at Cost for all $ 642,892
Affiliates Acquisition Expenses.
General Partners and Reimbursement at Cost for providing $4,406,274
Affiliates administrative services to the Fund,
including all expenses related to
management of the Fund's properties
and all other transfer agency,
reporting, partner relations and other
administrative functions.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE. (Continued)
Amount Incurred
Person or Entity From Inception
Receiving Form and Method (September 20, 1988) to
Compensation of Compensation December 31, 2009
General Partners and Reimbursement at Cost for providing $1,085,026
Affiliates services related to the disposition
of the Fund's properties.
General Partners 1% of Net Cash Flow in any fiscal year $ 268,346
until the Limited Partners have
received annual, non-cumulative
distributions of Net Cash Flow equal
to 10% of their Adjusted Capital
Contributions and 10% of any remaining
Net Cash Flow in such fiscal year.
General Partners 15% of distributions of Net Proceeds $ 221,212
of Sale other than distributions
necessary to restore Adjusted Capital
Contributions and provide a 6% cumulative
return to Limited Partners. The General
Partners will receive only 1% of
distributions of Net Proceeds of Sale
until Limited Partners have received an
amount equal to (a) their Adjusted Capital
Contributions, plus (b) an amount equal
to 14% of their Adjusted Capital
Contributions per annum, cumulative but
not compounded, less (c) all previous
cash distributions to the Limited Partners.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following is a summary of the fees billed to the
Partnership by Boulay, Heutmaker, Zibell & Co. P.L.L.P. for
professional services rendered for the years ended December 31,
2009 and 2008:
Fee Category 2009 2008
Audit Fees $ 8,437 $ 9,800
Audit-Related Fees 0 0
Tax Fees 0 0
All Other Fees 0 0
-------- -------
Total Fees $ 8,437 $ 9,800
======== =======
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. (Continued)
Audit Fees - Consists of fees billed for professional services
rendered for the audit of the Partnership's annual financial
statements and review of the interim financial statements
included in quarterly reports, and services that are normally
provided by Boulay, Heutmaker, Zibell & Co. P.L.L.P. in
connection with statutory and regulatory filings or engagements.
Audit-Related Fees - Consists of fees billed for assurance and
related services that are reasonably related to the performance
of the audit or review of financial statements and are not
reported under "Audit Fees." These services include consultations
concerning financial accounting and reporting standards.
Tax Fees - Consists of fees billed for professional services for
federal and state tax compliance, tax advice and tax planning.
All Other Fees - Consists of fees for products and services other
than the services reported above.
Policy for Preapproval of Audit and Permissible Non-Audit
Services of Independent Auditors
Before the Independent Auditors are engaged by the
Partnership to render audit or non-audit services, the engagement
is approved by Mr. Johnson acting as the Partnership's audit
committee.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) (1) A list of the financial statements contained
herein is set forth on page 12.
(a) (2) Schedules are omitted because of the absence of
conditions under which they are required or because
the required information is presented in the
financial statements or related notes.
(a) (3) The Exhibits filed in response to Item 601 of
Regulation S-K are listed below.
3.1 Certificate of Limited Partnership (incorporated by
reference to Exhibit 3.1 of the registrant's Registration
Statement on Form S-11 filed September 26, 1988 [File No. 33-
24419]).
3.2 Limited Partnership Agreement (incorporated by
reference to Exhibit 3.2 of the registrant's Registration
Statement on Form S-11 filed September 26, 1988 [File No. 33-
24419]).
10.1 Net Lease Agreement dated April 13, 1998 between the
Partnership, AEI Net Lease Income & Growth Fund XIX Limited
Partnership, Robert P. Johnson, and Tumbleweed, LLC relating
to the Property at 1150 North Bridge Street, Chillicothe,
Ohio (incorporated by reference to Exhibit 10.2 of Form 10-
QSB filed May 15, 1998).
10.2 First Amendment to Net Lease Agreement dated November
20, 1998 between the Partnership, AEI Net Lease Income &
Growth Fund XIX Limited Partnership, Robert P. Johnson and
Tumbleweed, LLC relating to the Property at 1150 North
Bridge Street, Chillicothe, Ohio (incorporated by reference
to Exhibit 10.70 of Form 10-KSB filed March 30, 1999).
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (Continued)
10.3 Purchase Agreement dated June 13, 2008 between the
Partnership and Norfleet, LLC relating to the Property at
2100 North Highway 7, Blue Springs, Missouri (incorporated
by reference to Exhibit 10.1 of Form 8-K filed July 29,
2008).
31.1 Certification of Chief Executive Officer of General
Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer of General
Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Officer of General Partner pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AEI REAL ESTATE FUND XVIII
Limited Partnership
By: AEI Fund Management XVIII, Inc.
Its Managing General Partner
March 29, 2010 By:/s/ ROBERT P JOHNSON
Robert P. Johnson, President
and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Name Title Date
/s/ROBERT P JOHNSON President (Principal Executive Officer) March 29, 2010
Robert P. Johnson and Sole Director of Managing General
Partner
/s/PATRICK W KEENE Chief Financial Officer and Treasurer March 29, 2010
Patrick W. Keene (Principal Accounting Officer