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: March 31, 2011
Commission File Number: 000-51823
AEI INCOME & GROWTH FUND 26 LLC
(Exact name of registrant as specified in its charter)
State of Delaware 41-2173048
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101
(Address of principal executive offices)
(651) 227-7333
(Registrant's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (232.405 of this chapter)
during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
[ ] Yes [ ] No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
AEI INCOME & GROWTH FUND 26 LLC
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited):
Balance Sheet as of March 31, 2011 and December 31, 2010
Statements for the Three Months ended March 31, 2011 and 2010:
Income
Cash Flows
Changes in Members' Equity (Deficit)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 5. Other Information
Item 6. Exhibits
Signatures
AEI INCOME & GROWTH FUND 26 LLC
BALANCE SHEET
MARCH 31, 2011 AND DECEMBER 31, 2010
ASSETS
2011 2010
CURRENT ASSETS:
Cash $ 352,774 $ 327,898
INVESTMENTS IN REAL ESTATE:
Land 5,991,984 5,991,984
Buildings and Equipment 9,384,552 9,384,552
Accumulated Depreciation (1,507,442) (1,413,596)
----------- -----------
Net Investments in Real Estate 13,869,094 13,962,940
----------- -----------
Total Assets $14,221,868 $14,290,838
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 19,053 $ 11,813
Distributions Payable 236,083 236,083
Unearned Rent 43,621 25,796
----------- -----------
Total Current Liabilities 298,757 273,692
----------- -----------
MEMBERS' EQUITY (DEFICIT):
Managing Members (46,716) (43,895)
Limited Members, $10 per Unit;
10,000,000 Units authorized; 1,832,736 Units issued;
1,827,736 Units outstanding 13,969,827 14,061,041
----------- -----------
Total Members' Equity 13,923,111 14,017,146
----------- -----------
Total Liabilities and Members' Equity $14,221,868 $14,290,838
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 26 LLC
STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31
2011 2010
RENTAL INCOME $ 285,716 $ 285,716
EXPENSES:
LLC Administration - Affiliates 40,356 41,414
LLC Administration and Property
Management - Unrelated Parties 10,003 9,625
Depreciation 93,846 93,846
----------- -----------
Total Expenses 144,205 144,885
----------- -----------
OPERATING INCOME 141,511 140,831
OTHER INCOME:
Interest Income 536 667
----------- -----------
NET INCOME $ 142,047 $ 141,498
=========== ===========
NET INCOME ALLOCATED:
Managing Members $ 4,261 $ 4,245
Limited Members 137,786 137,253
----------- -----------
$ 142,047 $ 141,498
=========== ===========
INCOME PER LLC UNIT $ .08 $ .07
=========== ===========
Weighted Average Units Outstanding-
Basic and Diluted 1,827,736 1,832,736
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 26 LLC
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 142,047 $ 141,498
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 93,846 93,846
Increase (Decrease) in Payable to
AEI Fund Management, Inc. 7,240 (14,580)
Increase in Unearned Rent 17,825 24,475
----------- -----------
Total Adjustments 118,911 103,741
----------- -----------
Net Cash Provided By
Operating Activities 260,958 245,239
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions Paid to Members (236,082) (236,177)
----------- -----------
NET INCREASE IN CASH 24,876 9,062
CASH, beginning of period 327,898 375,652
----------- -----------
CASH, end of period $ 352,774 $ 384,714
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 26 LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31
Limited
Member
Managing Limited Units
Members Members Total Outstanding
BALANCE, December 31, 2009 $ (31,521) $14,461,132 $14,429,611 1,832,736.0
Distributions Declared (7,085) (229,092) (236,177)
Net Income 4,245 137,253 141,498
--------- ----------- ----------- -----------
BALANCE, March 31, 2010 $ (34,361) $14,369,293 $14,334,932 1,832,736.0
========= =========== =========== ===========
BALANCE, December 31, 2010 $ (43,895) $14,061,041 $14,017,146 1,827,736.0
Distributions Declared (7,082) (229,000) (236,082)
Net Income 4,261 137,786 142,047
--------- ----------- ----------- -----------
BALANCE, March 31, 2011 $ (46,716) $13,969,827 $13,923,111 1,827,736.0
========= =========== =========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
(1) The condensed statements included herein have been prepared
by the registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the registrant
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
registrant's latest annual report on Form 10-K.
(2) Organization -
AEI Income & Growth Fund 26 LLC ("Company"), a Limited
Liability Company, was formed on March 14, 2005 to acquire
and lease commercial properties to operating tenants. The
Company's operations are managed by AEI Fund Management XXI,
Inc. ("AFM"), the Managing Member. Robert P. Johnson, the
President and sole director of AFM, serves as the Special
Managing Member. AFM is a wholly owned subsidiary of AEI
Capital Corporation of which Mr. Johnson is the majority
shareholder. AEI Fund Management, Inc. ("AEI"), an
affiliate of AFM, performs the administrative and operating
functions for the Company.
The terms of the offering called for a subscription price of
$10 per LLC Unit, payable on acceptance of the offer. The
Company commenced operations on April 3, 2006 when minimum
subscriptions of 150,000 LLC Units ($1,500,000) were
accepted. The offering terminated October 19, 2007, when
the extended offering period expired. The Company received
subscriptions for 1,832,736 Units. Under the terms of the
Operating Agreement, the Limited Members and Managing
Members contributed funds of $18,327,360 and $1,000,
respectively. The Company shall continue until December 31,
2055, unless dissolved, terminated and liquidated prior to
that date.
During operations, any Net Cash Flow, as defined, which the
Managing Members determine to distribute will be distributed
97% to the Limited Members and 3% to the Managing Members.
Distributions to Limited Members will be made pro rata by
Units.
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the Managing Members determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Members and 1% to the Managing Members until the
Limited Members receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to
6.5% of their Adjusted Capital Contribution per annum,
cumulative but not compounded, to the extent not previously
distributed from Net Cash Flow; (ii) any remaining balance
will be distributed 90% to the Limited Members and 10% to
the Managing Members. Distributions to the Limited Members
will be made pro rata by Units.
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of property, will be
allocated 97% to the Limited Members and 3% to the Managing
Members. Net losses from operations will be allocated 99%
to the Limited Members and 1% to the Managing Members.
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Operating Agreement as follows: (i)
first, to those Members with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Members
and 1% to the Managing Members until the aggregate balance
in the Limited Members' capital accounts equals the sum of
the Limited Members' Adjusted Capital Contributions plus an
amount equal to 6.5% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, the balance of any
remaining gain will then be allocated 90% to the Limited
Members and 10% to the Managing Members. Losses will be
allocated 99% to the Limited Members and 1% to the Managing
Members.
The Managing Members are not required to currently fund a
deficit capital balance. Upon liquidation of the Company or
withdrawal by a Managing Member, the Managing Members will
contribute to the Company an amount equal to the lesser of
the deficit balances in their capital accounts or 1.01% of
the total capital contributions of the Limited Members over
the amount previously contributed by the Managing Members.
(3) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Company. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
(4)Fair Value Measurements -
As of March 31, 2011, the Company had no assets or
liabilities measured at fair value on a recurring basis or
nonrecurring basis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This section contains "forward-looking statements" which
represent management's expectations or beliefs concerning future
events, including statements regarding anticipated application of
cash, expected returns from rental income, growth in revenue, the
sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward-
looking statements, should be evaluated in the context of a
number of factors that may affect the Company's financial
condition and results of operations, including the following:
Market and economic conditions which affect the value
of the properties the Company owns and the cash from
rental income such properties generate;
the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
effects of these consequences for Members;
resolution by the Managing Members of conflicts with
which they may be confronted;
the success of the Managing Members of locating
properties with favorable risk return characteristics;
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Company operate.
Application of Critical Accounting Policies
The preparation of the Company's financial statements
requires management to make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. Management evaluates these estimates on an ongoing
basis, including those related to the carrying value of
investments in real estate and the allocation by AEI Fund
Management, Inc. of expenses to the Company as opposed to other
funds they manage.
The Company purchases properties and records them in the
financial statements at cost (not including acquisition
expenses). The Company tests long-lived assets for
recoverability when events or changes in circumstances indicate
that the carrying value may not be recoverable. For properties
the Company will hold and operate, management determines whether
impairment has occurred by comparing the property's probability-
weighted future undiscounted 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 net realizable
value, an impairment loss is recorded to reduce the carrying
value of the property to its net realizable value. Changes in
these assumptions or analysis may cause material changes in the
carrying value of the properties.
AEI Fund Management, Inc. allocates expenses to each of
the funds they manage primarily on the basis of the number of
hours devoted by their employees to each fund's affairs. They
also allocate expenses at the end of each month that are not
directly related to a fund's operations based upon the number of
investors in the fund and the fund's capitalization relative to
other funds they manage. The Company reimburses these expenses
subject to detailed limitations contained in the Operating
Agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Management of the Company has discussed the development
and selection of the above accounting estimates and the
management discussion and analysis disclosures regarding them
with the managing member of the Company.
Results of Operations
For the three months ended March 31, 2011 and 2010, the
Company recognized rental income of $285,716 during each period.
Based on the scheduled rent for the properties owned as of April
30, 2011, the Company expects to recognize rental income of
approximately $1,149,000 in 2011.
For the three months ended March 31, 2011 and 2010, the
Company incurred LLC administration expenses from affiliated
parties of $40,356 and $41,414, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and communicating with the Limited Members. During
the same periods, the Company incurred LLC administration and
property management expenses from unrelated parties of $10,003
and $9,625, 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.
For the three months ended March 31, 2011 and 2010, the
Company recognized interest income of $536 and $667,
respectively.
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 three months ended March 31, 2011, the
Company's cash balances increased $24,876 as a result of cash
generated from operating activities in excess of distributions
paid to the Members. During the three months ended March 31,
2010, the Company's cash balances increased $9,062 as a result of
cash generated from operating activities in excess of
distributions paid to the Members.
Net cash provided by operating activities increased from
$245,239 in 2010 to $260,958 in 2011 mainly as a result of net
timing differences in the collection of payments from the tenants
and the payment of expenses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Company's primary use of cash flow, other than
investment in real estate, is distribution and redemption
payments to Members. The Company declares its regular quarterly
distributions before the end of each quarter and pays the
distribution in the first week after the end of each quarter.
The Company attempts to maintain a stable distribution rate from
quarter to quarter. Redemption payments are paid to redeeming
Members on a semi-annual basis.
For the three months ended March 31, 2011 and 2010, the
Company declared distributions of $236,082 and $236,177,
respectively. The Limited Members received distributions of
$229,000 and $229,092 and the Managing Members received
distributions of $7,082 and $7,085 for the periods, respectively.
The Company may acquire Units from Limited Members who
have tendered their Units to the Company. Such Units may be
acquired at a discount. The Company will not be obligated to
purchase in any year more than 2% of the total number of Units
outstanding on January 1 of such year. In no event shall the
Company be obligated to purchase Units if, in the sole discretion
of the Managing Member, such purchase would impair the capital or
operation of the Company.
During the first three months of 2011, the Company did not
redeem any Units from the Limited Members. On April 1, 2010, one
Limited Member redeemed a total of 5,000 Units for $38,225 in
accordance with the Operating Agreement. The Company acquired
these Units using Net Cash Flow from operations. The redemptions
increase the remaining Limited Members' ownership interest in the
Company. As a result of this redemption payment and pursuant to
the Operating Agreement, the Managing Members received
distributions of $1,182 in 2010.
The continuing rent payments from the properties should be
adequate to fund continuing distributions and meet other
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 investment funds. However, the absence of mortgage
financing on the Company's properties eliminates the risks of
foreclosure and debt-refinancing that can negatively impact the
value and distributions of leveraged real estate investment
funds. Nevertheless, a prolonged economic downturn may adversely
affect the operations of the Company's tenants and their cash
flows. If a tenant were to default on its lease obligations, the
Company's income would decrease, its distributions would likely
be reduced and the value of its properties might decline.
The Company's plan is to periodically sell properties to
generate capital gains that would be included in the Company's
regular quarterly distributions and to make special distributions
on occasion. Beginning in the fourth quarter of 2008, general
economic conditions caused the volume of property sales to slow
dramatically for all real estate sellers. Until such time as
economic conditions allow the Company to begin selling properties
at attractive prices, quarterly distributions will reflect the
distribution of net core rental income and capital reserves, if
any. Distribution rates in 2011 are expected to be consistent
with distribution rates in 2010.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures.
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing Member of the Company evaluated the effectiveness of
the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")). Based upon that
evaluation, the President and Chief Financial Officer of the
Managing Member concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures
were effective in ensuring that information required to be
disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in applicable rules and forms
and that such information is accumulated and communicated to
management, including the President and Chief Financial Officer
of the Managing Member, in a manner that allows timely decisions
regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting.
During the most recent period covered by this report,
there has been no change in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which
the Company is a party or of which the Company's property is
subject.
ITEM 1A. RISK FACTORS.
Not required for a smaller reporting company.
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 Operating Agreement,
each Limited Member has the right to present Units to the Company
for purchase by submitting notice to the Managing Member during
January or July of each year. The purchase price of the Units is
equal to 85% of the net asset value per Unit, as of the first
business day of January or July of each year, as determined by
the Managing Member in accordance with the provisions of the
Operating Agreement. The purchase price is equal to 100% of the
net asset value per Unit in the case of Units of a deceased
investor, who purchased the Units in the initial offering and who
is a natural person, including Units held by an investor that is
an IRA or other qualified plan for which the deceased person was
the primary beneficiary, or Units held by an investor that is a
grantor trust for which the deceased person was the grantor.
Units tendered to the Company during January and July are
redeemed on April 1st and October 1st, respectively, of each year
subject to the following limitations. The Company will not be
obligated to purchase in any year more than 2% of the total
number of Units outstanding on January 1 of such year. In no
event shall the Company be obligated to purchase Units if, in the
sole discretion of the Managing Member, such purchase would
impair the capital or operation of the Company. During the
period covered by this report, the Company did not purchase any
Units.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
31.1 Certification of Chief Executive Officer of Managing
Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer of Managing
Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Officer of Managing Member pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Dated: May 12, 2011 AEI Income & Growth Fund 26 LLC
By: AEI Fund Management XXI, Inc.
Its: Managing Member
By: /s/ ROBERT P JOHNSON
Robert P. Johnson
President
(Principal Executive Officer)
By: /s/ PATRICK W KEENE
Patrick W. Keene
Chief Financial Officer
(Principal Accounting Officer
