10-Q 1 q243-12.htm Unassociated Document
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:  September 30, 2012

Commission File Number:  000-49653

AEI INCOME & GROWTH FUND 24 LLC
(Exact name of registrant as specified in its charter)

State of Delaware
 
41-1990952
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
     
30 East 7th Street, Suite 1300
St. Paul, Minnesota 55101
 
(651) 227-7333
(Address of principal executive offices)
 
(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    o 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).     x Yes    o 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.

o Large accelerated filer
o Accelerated filer
o Non-accelerated filer
x Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     o Yes    x No

 
 
 

 


AEI INCOME & GROWTH FUND 24 LLC

INDEX


   
Page
Part I – Financial Information
 
       
 
Item 1.
Financial Statements (unaudited):
 
       
   
Balance Sheet as of September 30, 2012 and December 31, 2011
3
       
   
Statements for the Periods ended September 30, 2012 and 2011:
 
         
     
Income
4
         
     
Cash Flows
5
         
     
Changes in Members' Equity (Deficit)
6
         
   
Notes to Financial Statements
7 - 10
       
 
Item 2.
Management's Discussion and Analysis of Financial
 
     
Condition and Results of Operations
11 - 16
       
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
16
       
 
Item 4.
Controls and Procedures
16
       
Part II – Other Information
 
       
 
Item 1.
Legal Proceedings
17
       
 
Item 1A.
Risk Factors
17
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
17
       
 
Item 3.
Defaults Upon Senior Securities
17
       
 
Item 4.
Mine Safety Disclosures
17
       
 
Item 5.
Other Information
17
       
 
Item 6.
Exhibits
18
       
Signatures
18


Page 2 of 18
 
 

 

AEI INCOME & GROWTH FUND 24 LLC
BALANCE SHEET

ASSETS

   
September 30,
 
December 31,
   
2012
 
2011
Current Assets:
       
Cash
$
1,709,620
$
1,325,472
Receivables
 
3,094
 
11,138
Note Receivable
 
54,510
 
0
Total Current Assets
 
1,767,224
 
1,336,610
         
Real Estate Held for Investment:
       
Land
 
5,847,352
 
5,241,352
Buildings and Equipment
 
11,487,561
 
10,849,854
Acquired Intangible Lease Assets
 
646,934
 
0
Real Estate Investments, at cost
 
17,981,847
 
16,091,206
Accumulated Depreciation and Amortization
 
(2,287,245)
 
(1,983,515)
Real Estate Held for Investment, Net
 
15,694,602
 
14,107,691
Real Estate Held for Sale
 
173,371
 
1,705,235
Total Real Estate
 
15,867,973
 
15,812,926
Note Receivable – Net of Current Portion
 
1,290,224
 
1,361,730
Total Assets
$
18,925,421
$
18,511,266

LIABILITIES AND MEMBERS’ EQUITY

Current Liabilities:
       
Payable to AEI Fund Management, Inc.
$
112,884
$
35,716
Distributions Payable
 
491,098
 
309,280
Unearned Rent
 
0
 
39,106
Total Current Liabilities
 
603,982
 
384,102
         
Members’ Equity:
       
Managing Members
 
9,654
 
2,619
Limited Members:
   50,000 Units authorized; 24,831 Units issued;
   24,417 Units outstanding
 
18,311,785
 
18,124,545
Total Members’ Equity
 
18,321,439
 
18,127,164
Total Liabilities and Members’ Equity
$
18,925,421
$
18,511,266
 
 
 
The accompanying Notes to Financial Statements are an integral part of this statement.

Page 3 of 18
 
 

 

AEI INCOME & GROWTH FUND 24 LLC
STATEMENT OF INCOME


   
Three Months Ended September 30
 
Nine Months Ended September 30
   
2012
 
2011
 
2012
 
2011
                 
Rental Income
$
330,637
$
282,779
$
921,491
$
848,566
                 
Expenses:
               
LLC Administration – Affiliates
 
51,316
 
51,408
 
157,856
 
160,759
LLC Administration and Property
   Management – Unrelated Parties
 
6,113
 
7,156
 
30,444
 
28,411
Property Acquisition
 
30,009
 
0
 
58,870
 
0
Depreciation and Amortization
 
121,632
 
102,566
 
332,567
 
307,698
Total Expenses
 
209,070
 
161,130
 
579,737
 
496,868
                 
Operating Income
 
121,567
 
121,649
 
341,754
 
351,698
                 
Other Income:
               
Interest Income
 
25,535
 
24,473
 
77,226
 
73,775
                 
Income from Continuing Operations
 
147,102
 
146,122
 
418,980
 
425,473
                 
Income from Discontinued Operations
 
178,281
 
61,989
 
1,066,772
 
185,805
                 
Net Income
$
325,383
$
208,111
$
1,485,752
$
611,278
                 
Net Income Allocated:
               
Managing Members
$
12,755
$
6,243
$
38,506
$
18,338
Limited Members
 
312,628
 
201,868
 
1,447,246
 
592,940
Total
$
325,383
$
208,111
$
1,485,752
$
611,278
                 
Income per LLC Unit:
               
Continuing Operations
$
5.84
$
5.80
$
16.64
$
16.89
Discontinued Operations
 
6.96
 
2.46
 
42.63
 
7.38
Total
$
12.80
$
8.26
$
59.27
$
24.27
                 
Weighted Average Units Outstanding –
      Basic and Diluted
 
24,417
 
24,430
 
24,417
 
24,430
                 


The accompanying Notes to Financial Statements are an integral part of this statement.

Page 4 of 18
 
 

 

AEI INCOME & GROWTH FUND 24 LLC
STATEMENT OF CASH FLOWS


   
Nine Months Ended September 30
   
2012
 
2011
Cash Flows from Operating Activities:
       
Net Income
$
1,485,752
$
611,278
         
Adjustments to Reconcile Net Income
To Net Cash Provided by Operating Activities:
       
Depreciation and Amortization
 
344,276
 
363,132
Gain on Sale of Real Estate
 
(979,026)
 
0
(Increase) Decrease in Receivables
 
8,044
 
0
Increase (Decrease) in Payable to
   AEI Fund Management, Inc.
 
77,168
 
7,198
Increase (Decrease) in Unearned Rent
 
(39,106)
 
21,678
Total Adjustments
 
(588,644)
 
392,008
Net Cash Provided By
   Operating Activities
 
897,108
 
1,003,286
         
Cash Flows from Investing Activities:
       
Investments in Real Estate
 
(2,608,000)
 
0
Proceeds from Sale of Real Estate
 
3,187,703
 
0
Payments Received on Note Receivable
 
16,996
 
0
Net Cash Provided By
   Investing Activities
 
596,699
 
0
         
Cash Flows from Financing Activities:
       
Distributions Paid to Members
 
(1,109,659)
 
(927,833)
         
Net Increase (Decrease) in Cash
 
384,148
 
75,453
         
Cash, beginning of period
 
1,325,472
 
504,676
         
Cash, end of period
$
1,709,620
$
580,129
         





The accompanying Notes to Financial Statements are an integral part of this statement.

Page 5 of 18
 
 

 

AEI INCOME & GROWTH FUND 24 LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY (DEFICIT)


   
Managing Members
 
Limited Members
 
Total
 
Limited Member Units Outstanding
                 
Balance, December 31, 2010
$
(5,424)
$
18,271,657
$
18,266,233
 
24,430.20
                 
Distributions Declared
 
(27,835)
 
(899,998)
 
(927,833)
   
                 
Net Income
 
18,338
 
592,940
 
611,278
   
                 
Balance, September 30, 2011
$
(14,921)
$
17,964,599
$
17,949,678
 
24,430.20
                 
                 
Balance, December 31, 2011
$
2,619
$
18,124,545
$
18,127,164
 
24,416.70
                 
Distributions Declared
 
(31,471)
 
(1,260,006)
 
(1,291,477)
   
                 
Net Income
 
38,506
 
1,447,246
 
1,485,752
   
                 
Balance, September 30, 2012
$
9,654
$
18,311,785
$
18,321,439
 
24,416.70
                 





















The accompanying Notes to Financial Statements are an integral part of this statement.

Page 6 of 18
 
 

 

AEI INCOME & GROWTH FUND 24 LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2012

(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 24 LLC (“Company”), a Limited Liability Company, was formed on November 21, 2000 to acquire and lease commercial properties to operating tenants.  The Company's operations are managed by AEI Fund Management XXI, Inc. (“AFM”), the Managing Member.  Robert P. Johnson, the President and sole director of AFM, serves as the Special Managing Member.  AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder.  AEI Fund Management, Inc. (“AEI”), an affiliate of AFM, performs the administrative and operating functions for the Company.

The terms of the offering called for a subscription price of $1,000 per LLC Unit, payable on acceptance of the offer.  The Company commenced operations on October 31, 2001 when minimum subscriptions of 1,500 LLC Units ($1,500,000) were accepted.  The offering terminated May 17, 2003 when the extended offering period expired.  The Company received subscriptions for 24,831.283 Units.  Under the terms of the Operating Agreement, the Limited Members and Managing Members contributed funds of $24,831,283 and $1,000, respectively.  The Company shall continue until December 31, 2051, unless dissolved, terminated and liquidated prior to that date.

During operations, any Net Cash Flow, as defined, which the Managing Members determine to distribute will be distributed 97% to the Limited Members and 3% to the Managing Members.  Distributions to Limited Members will be made pro rata by Units.

Any Net Proceeds of Sale, as defined, from the sale or financing of properties which the Managing Members determine to distribute will, after provisions for debts and reserves, be paid in the following manner: (i) first, 99% to the Limited Members and 1% to the Managing Members until the Limited Members receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 7% of their Adjusted Capital Contribution per annum, cumulative but not compounded, to the extent not previously distributed from Net Cash Flow; (ii) any remaining balance will be distributed 90% to the Limited Members and 10% to the Managing Members.  Distributions to the Limited Members will be made pro rata by Units.

Page 7 of 18
 
 

 

AEI INCOME & GROWTH FUND 24 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)

(2)  Organization – (Continued)

For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of property, will be allocated 97% to the Limited Members and 3% to the Managing Members.  Net losses from operations will be allocated 99% to the Limited Members and 1% to the Managing Members.

For tax purposes, profits arising from the sale, financing, or other disposition of property will be allocated in accordance with the Operating Agreement as follows: (i) first, to those Members with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Members and 1% to the Managing Members until the aggregate balance in the Limited Members' capital accounts equals the sum of the Limited Members' Adjusted Capital Contributions plus an amount equal to 7% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously allocated; (iii) third, the balance of any remaining gain will then be allocated 90% to the Limited Members and 10% to the Managing Members.  Losses will be allocated 99% to the Limited Members and 1% to the Managing Members.

The Managing Members are not required to currently fund a deficit capital balance.  Upon liquidation of the Company or withdrawal by a Managing Member, the Managing Members will contribute to the Company an amount equal to the lesser of the deficit balances in their capital accounts or 1.01% of the total capital contributions of the Limited Members over the amount previously contributed by the Managing Members.

(3)  Reclassification –

Certain items related to discontinued operations in the prior year’s financial statements have been reclassified to conform to 2012 presentation.  These reclassifications had no effect on Members’ equity, net income or cash flows.

(4)  Real Estate Held for Investment –

On May 14, 2012, the Company purchased a Family Dollar store in McDonough, Georgia for $1,640,500.  The Company allocated $330,950 of the purchase price to Acquired Intangible Lease Assets, representing in-place lease intangibles of $236,463 and above-market lease intangibles of $94,487. The Partnership incurred $31,630 of acquisition expenses related to the purchase that were expensed.  The property is leased to Family Dollar Stores of Georgia, Inc., a subsidiary of Family Dollar Stores, Inc., under a Lease Agreement with a remaining primary term of 10.4 years (as of the date of purchase) and annual rent of $136,168.


Page 8 of 18
 
 

 


AEI INCOME & GROWTH FUND 24 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)

(4)  Real Estate Held for Investment – (Continued)

On July 25, 2012, the Company purchased a 50% interest in a Coliseum Health urgent care clinic in Macon, Georgia for $967,500.  The Company allocated $315,984 of the purchase price to Acquired Intangible Lease Assets, representing in-place lease intangibles of $125,082 and above-market lease intangibles of $190,902. The Partnership incurred $27,240 of acquisition expenses related to the purchase that were expensed.  The property is leased to Macon Healthcare, LLC under a Lease Agreement with a remaining primary term of 11.7 years and annual rent of $79,625 for the interest purchased.  The remaining interest in the property was purchased by AEI Income & Growth Fund 25 LLC, an affiliate of the Company.

For the nine months ended September 30, 2012 and 2011, the value of in-place lease intangibles amortized to expense was $9,415 and $0, respectively, and the decrease to rental income for above-market leases was $5,775 and $0, respectively.  For lease intangibles owned as of September 30, 2012, the weighted average remaining life is 129 months, the estimated amortization expense for in-place lease intangibles is $33,605 and the estimated decrease to rental income for above-market leases is $25,507 for each of the next five succeeding years.

(5)  Note Receivable –

On May 19, 2010, as a result of the sale of the Johnny Carino’s restaurant in Littleton, Colorado, the Company received a Note with a principal balance of $1,361,730 as a lease settlement payment from Fired Up, Inc., the parent company of the tenant and guarantor of the Lease.  The Note bears interest at a 7% rate.  The Note requires interest only quarterly payments of $23,830 for two years and monthly payments of principal and interest of $12,242 for the next three years. A balloon payment for the outstanding principal is due on May 19, 2015.

(6)  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.

(7)  Discontinued Operations –

During the last three months of 2011, the Company sold 15.5650% of the Jared Jewelry store in Pittsburgh, Pennsylvania, in five separate transactions, to unrelated third parties.  The Company received total net sale proceeds of $750,274, which resulted in a net gain of $279,963.  The cost and related accumulated depreciation of the interests sold was $566,586 and $96,275, respectively.

During the first nine months of 2012, the Company sold an additional 50.6973% of the Jared Jewelry store in Pittsburgh, Pennsylvania, in fifteen separate transactions, to unrelated third parties.  The Company received total net sale proceeds of $2,371,485, which resulted in a net gain of $839,621.  The cost and related accumulated depreciation of the interests sold was $1,845,447 and $313,583, respectively.

Page 9 of 18
 
 

 

AEI INCOME & GROWTH FUND 24 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)

(7)  Discontinued Operations – (Continued)

Subsequent to September 30, 2012, the Company sold its remaining 5.7377% interest in the Jared Jewelry store in Pittsburgh, Pennsylvania, in two separate transactions, to unrelated third parties.  The Company received total net sale proceeds of approximately $262,000, which resulted in a net gain of approximately $86,000.  The cost and related accumulated depreciation of the interests sold was $208,860 and $35,489, respectively.  At September 30, 2012 and December 31, 2011, the property was classified as Real Estate Held for Sale with a carrying value of $173,371 and $1,705,235, respectively.

During the first nine months of 2012, the Company sold its 31.0% interest in the Fresenius Medical Center in Hiram, Georgia, in four separate transactions, to unrelated third parties.  The Company received total net sale proceeds of $816,218, which resulted in a net gain of $139,405.  The cost and related accumulated depreciation of the interests sold was $717,359 and $40,546, respectively.

During the first nine months of 2012, the Company distributed net sale proceeds of $363,636 to the Limited and Managing Members as part of their quarterly distributions, which represented a return of capital of $14.74 per LLC Unit.  The Company anticipates the remaining net sale proceeds will either be reinvested in additional property or distributed to the Members in the future.

The financial results for these properties are reflected as Discontinued Operations in the accompanying financial statements.  The following are the results of discontinued operations:

   
Three Months Ended September 30
 
Nine Months Ended September 30
   
2012
 
2011
 
2012
 
2011
                 
Rental Income
$
7,279
$
81,421
$
102,762
$
244,262
Property Management Expenses
 
(1,258)
 
(954)
 
(9,082)
 
(3,023)
Depreciation
 
0
 
(18,478)
 
(5,934)
 
(55,434)
Gain on Disposal of Real Estate
 
172,260
 
0
 
979,026
 
0
Income from Discontinued Operations
$
178,281
$
61,989
$
1,066,772
$
185,805

(8)  Fair Value Measurements –

As of September 30, 2012, the Company had no assets or liabilities measured at fair value on a recurring basis or nonrecurring basis.


Page 10 of 18
 
 

 


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 Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP).  Preparing the financial statements requires management to use judgment in the application of these accounting policies, including making estimates and assumptions.  These judgments will affect the reported amounts of the Company’s assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of the financial statements and will affect the reported amounts of revenue and expenses during the reporting periods.  It is possible that the carrying amount of the Company’s assets and liabilities, or the results of reported operations, will be affected if management’s estimates or assumptions prove inaccurate.

Management of the Company evaluates the following accounting estimates on an ongoing basis, and has discussed the development and selection of these estimates and the management discussion and analysis disclosures regarding them with the managing member of the Company.

Allocation of Purchase Price of Acquired Properties

Upon acquisition of real properties, the Company records them in the financial statements at cost (not including acquisition expenses).  The purchase price is allocated to tangible assets, consisting of land and building, and to identified intangible assets and liabilities, which may include the value of above market and below market leases and the value of in-place leases.  The allocation of the purchase price is based upon the fair value of each component of the property.  Although independent appraisals may be used to assist in the determination of fair value, in many cases these values will be based upon management’s assessment of each property, the selling prices of comparable properties and the discounted value of cash flows from the asset.

Page 11 of 18
 
 

 


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

The fair values of above market and below market in-place leases will be recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases measured over a period equal to the non-cancelable term of the lease including any bargain renewal periods.  The above market and below market lease values will be capitalized as intangible lease assets or liabilities.  Above market lease values will be amortized as an adjustment of rental income over the remaining term of the respective leases.  Below market leases will be amortized as an adjustment of rental income over the remaining terms of the respective leases, including any bargain renewal periods.  If a lease were to be terminated prior to its stated expiration, all unamortized amounts of above market and below market in-place lease values relating to that lease would be recorded as an adjustment to rental income.
 
The fair values of in-place leases will include estimated direct costs associated with obtaining a new tenant, and opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease.  Direct costs associated with obtaining a new tenant may include commissions, tenant improvements, and other direct costs and are estimated, in part, by management’s consideration of current market costs to execute a similar lease.  These direct costs will be included in intangible lease assets on the balance sheet and will be amortized to expense over the remaining term of the respective leases.  The value of opportunity costs will be calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease.  These intangibles will be included in intangible lease assets on the balance sheet and will be amortized to expense over the remaining term of the respective leases.  If a lease were to be terminated prior to its stated expiration, all unamortized amounts of in-place lease assets relating to that lease would be expensed.

The determination of the fair values of the assets and liabilities acquired will require the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount and capitalization rates, interest rates and other variables.  If management’s estimates or assumptions prove inaccurate, the result would be an inaccurate allocation of purchase price, which could impact the amount of reported net income.

Carrying Value of Properties

The carrying value of the properties is initially recorded 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.


Page 12 of 18
 
 

 


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

Allocation of Expenses

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.

Results of Operations

For the nine months ended September 30, 2012 and 2011, the Company recognized rental income from continuing operations of $921,491 and $848,566, respectively.  In 2012, rental income increased due to additional rent received from two property acquisitions in 2012 and a rent increase on one property.  Based on the scheduled rent for the properties owned as of October 31, 2012, the Company expects to recognize rental income from continuing operations of approximately $1,268,000 and $1,372,000 in 2012 and 2013, respectively.

For the nine months ended September 30, 2012 and 2011, the Company incurred LLC administration expenses from affiliated parties of $157,856 and $160,759, 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 $30,444 and $28,411, 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 nine months ended September 30, 2012, the Partnership incurred property acquisition expenses of $31,630 related to the purchase of the Family Dollar store in McDonough, Georgia and $27,240 related to the purchase of the Coliseum Health urgent care clinic in Macon, Georgia.

For the nine months ended September 30, 2012 and 2011, the Company recognized interest income of $77,226 and $73,775, respectively.

Upon complete disposal of a property or classification of a property as Real Estate Held for Sale, the Company includes the operating results and sale of the property in discontinued operations.  In addition, the Company reclassifies the prior periods’ operating results of the property to discontinued operations.  For the nine months ended September 30, 2012, the Company recognized income from discontinued operations of $1,066,772, representing rental income less property management expenses and depreciation of $87,746 and a gain on disposal of real estate of $979,026.  For the nine months ended September 30, 2011, the Company recognized income from discontinued operations of $185,805, representing rental income less property management expenses and depreciation.

During the last three months of 2011, the Company sold 15.5650% of the Jared Jewelry store in Pittsburgh, Pennsylvania, in five separate transactions, to unrelated third parties.  The Company received total net sale proceeds of $750,274, which resulted in a net gain of $279,963.  The cost and related accumulated depreciation of the interests sold was $566,586 and $96,275, respectively.

Page 13 of 18
 
 

 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

During the first nine months of 2012, the Company sold an additional 50.6973% of the Jared Jewelry store in Pittsburgh, Pennsylvania, in fifteen separate transactions, to unrelated third parties.  The Company received total net sale proceeds of $2,371,485, which resulted in a net gain of $839,621.  The cost and related accumulated depreciation of the interests sold was $1,845,447 and $313,583, respectively.

Subsequent to September 30, 2012, the Company sold its remaining 5.7377% interest in the Jared Jewelry store in Pittsburgh, Pennsylvania, in two separate transactions, to unrelated third parties.  The Company received total net sale proceeds of approximately $262,000, which resulted in a net gain of approximately $88,600.  The cost and related accumulated depreciation of the interests sold was $208,860 and $35,489, respectively.  At September 30, 2012 and December 31, 2011, the property was classified as Real Estate Held for Sale with a carrying value of $173,371 and $1,705,235, respectively.

During the first nine months of 2012, the Company sold its 31.0% interest in the Fresenius Medical Center in Hiram, Georgia, in four separate transactions, to unrelated third parties.  The Company received total net sale proceeds of $816,218, which resulted in a net gain of $139,405.  The cost and related accumulated depreciation of the interests sold was $717,359 and $40,546, 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 nine months ended September 30, 2012, the Company's cash balances increased $384,148 as a result of cash generated from the sale of property, which was partially offset by cash used to purchase property and distributions paid to the Members in excess of cash generated from operating activities.  During the nine months ended September 30, 2011, the Company's cash balances increased $75,453 as a result of cash generated from operating activities in excess of distributions paid to the Members.

Net cash provided by operating activities decreased from $1,003,286 in 2011 to $897,108 in 2012 as a result of a decrease in total rental and interest income in 2012 and an increase in LLC administration and property management expenses in 2012, which were partially offset by net timing differences in the collection of payments from the tenants and the payment of expenses.  During 2012, cash from operations was also reduced by $58,870 of acquisition expenses related to the purchase of real estate.  Pursuant to accounting guidance, these expenses were reflected as operating cash outflows.  However, pursuant to the Company’s Operating Agreement, acquisition expenses were funded with proceeds from property sales.

Page 14 of 18
 
 

 


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

The major components of the Company's cash flow from investing activities are investments in real estate and proceeds from the sale of real estate.  During the nine months ended September 30, 2012, the Company generated cash flow from the sale of real estate of $3,187,703.  During the nine months ended September 30, 2012, the Company expended $2,608,000 to invest in real properties as the Company reinvested cash generated from property sales.

On May 14, 2012, the Company purchased a Family Dollar store in McDonough, Georgia for $1,640,500.  The property is leased to Family Dollar Stores of Georgia, Inc., a subsidiary of Family Dollar Stores, Inc., under a Lease Agreement with a remaining primary term of 10.4 years (as of the date of purchase) and annual rent of $136,168.

On July 25, 2012, the Company purchased a 50% interest in a Coliseum Health urgent care clinic in Macon, Georgia for $967,500.  The property is leased to Macon Healthcare, LLC under a Lease Agreement with a remaining primary term of 11.7 years and annual rent of $79,625 for the interest purchased.  The remaining interest in the property was purchased by AEI Income & Growth Fund 25 LLC, an affiliate of the Company.

The Company's primary use of cash flow, other than investment in real estate, is distribution and redemption payments to Members.  The Company declares its regular quarterly distributions before the end of each quarter and pays the distribution in the first week after the end of each quarter.  The Company attempts to maintain a stable distribution rate from quarter to quarter.  Redemption payments are paid to redeeming Members on a semi-annual basis.

For the nine months ended September 30, 2012 and 2011, the Company declared distributions of $1,291,477 and $927,833, respectively.  Pursuant to the Operating Agreement, distributions of Net Cash Flow were allocated 97% to the Limited Members and 3% to the Managing Members.  Distributions of Net Proceeds of Sale were allocated 99% to the Limited Members and 1% to the Managing Members.  The Limited Members received distributions of $1,260,006 and $899,998 and the Managing Members received distributions of $31,471 and $27,835 for the periods, respectively.  In March and September 2012, the Company declared special distributions of net sale proceeds of $181,818 for each period, which resulted in higher distributions in 2012 and a higher distributions payable at September 30, 2012.  The special distributions represented a return of capital of $14.74 per LLC Unit.  The Company anticipates the remaining net sale proceeds will either be reinvested in additional property or distributed to the Members in the future.

The Company may acquire Units from Limited Members who have tendered their Units to the Company.  Such Units may be acquired at a discount.  The Company will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Operating Agreement), would exceed 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.

Page 15 of 18
 
 

 


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

During the first nine months of 2012, the Company did not redeem any Units from the Limited Members.  On October 1, 2011, one Limited Member redeemed a total of 13.50 Units for $8,766 in accordance with the Operating Agreement.  The Company acquired these Units using Net Cash Flow from operations.  In prior years, a total of 16 Limited Members redeemed 401.08 Units for $314,561.  The redemptions increase the remaining Limited Members’ ownership interest in the Company.  As a result of these redemption payments and pursuant to the Operating Agreement, the Managing Members received distributions of $271 in 2011.

The continuing rent payments from the properties, together with cash generated from property sales, should be adequate to fund continuing distributions and meet other Company obligations on both a short-term and long-term basis.

The Economy and Market Conditions

The impact of conditions in the economy over the last few years, 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.

ITEM 3.  QUANTITATIVE & 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.

Page 16 of 18
 
 

 

PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

There are no material pending legal proceedings to which the Company is a party or of which the Company's property is subject.

ITEM 1A.  RISK FACTORS.

Not required for a smaller reporting company.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES & USE OF PROCEEDS.

(a) None.

(b) Not applicable.

(c) Pursuant to Section 7.7 of the Operating Agreement, each Limited Member has the right to present Units to the Company for purchase by submitting notice to the Managing Member during January or July of each year.  The purchase price of the Units is equal to 80% of the net asset value per Unit, as of the first business day of January or July of each year, as determined by the Managing Member in accordance with the provisions of the Operating Agreement.  Units tendered to the Company during January and July are redeemed on April 1st and October 1st, respectively, of each year subject to the following limitations.  The Company will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Operating Agreement), would exceed 2% of the total number of Units outstanding on January 1 of such year.  In no event shall the Company be obligated to purchase Units if, in the sole discretion of the Managing Member, such purchase would impair the capital or operation of the Company.  During the period covered by this report, the Company did not purchase any Units.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.  MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5.  OTHER INFORMATION.

None.


Page 17 of 18
 
 

 


ITEM 6.  EXHIBITS.

31.1
Certification of Chief Executive Officer of Managing Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002.

31.2
Certification of Chief Financial Officer of Managing Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002.

32
Certification of Chief Executive Officer and Chief Financial Officer of Managing Member pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Dated:  November 12, 2012
AEI Income & Growth Fund 24 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)





Page 18 of 18