Real Estate Investments

12 Months Ended

Dec. 31, 2022

(4) Real Estate Investments –

The Company leases its properties to tenants under net leases, classified as operating leases. Under a net lease, the tenant is responsible for real estate taxes, insurance, maintenance, repairs and operating expenses for the property. For some leases, the Company is responsible for repairs to the structural components of the building, the roof and the parking lot. At the time the properties were acquired, the remaining primary lease terms varied from 10 to 20 years. The leases provide the tenants with three to four five-year renewal options subject to the same terms and conditions as the primary term.

The Company's properties are commercial, single-tenant buildings. The building in Wichita, Kansas was constructed in 1996, renovated in 2001 and acquired in 2006. The Cellualar Connection store was constructed and acquired in 2007. The Fresenius Medical Center was constructed in 2012 and acquired in 2014. There have been no costs capitalized as improvements subsequent to the acquisitions, except for $30,000 of tenant improvements related to the Cellular Connection store.

The cost of the property not held for sale and related accumulated depreciation at December 31, 2022 is as follows:


Property	Land		Buildings		Total		Accumulated Depreciation

Cellular Connection, Bluffton, IN		344,008		836,108		1,180,116		524,396
	$	344,008	$	836,108	$	1,180,116	$	524,396

For the years ended December 31, 2022 and 2021, the Company recognized depreciation expense of $135,503 and $281,594, respectively.

The following schedule presents the cost and related accumulated amortization of acquired lease intangibles not held for sale at December 31:


		2022				2021
		Cost		Accumulated Amortization		Cost		Accumulated Amortization
In-Place Lease Intangibles (weighted average life of 0 and 43 months, respectively)	$	0	$	0	$	502,569	$	321,955

Above-Market Lease Intangibles (weighted average life of 0 and 34 months, respectively)		0		0		72,606		51,138
Acquired Intangible Lease Assets	$	0	$	0	$	575,175	$	373,093

Acquired Below-Market Lease Intangibles (weighted average life of 0 and 0 months, respectively)	$	0	$	0	$	0	$	0

For the years ended December 31, 2022 and 2021, the value of in-place lease intangibles amortized to expense was $28,482 and $79,358, the decrease to rental income for above-market leases was $1,894 and $7,576, and the increase to rental income for below-market leases was $0 and $27,119, respectively.

The Company owned a 40% interest in a former Sports Authority store in Wichita, Kansas. On March 2, 2016, the tenant, TSA Stores, Inc., and its parent company, The Sports Authority, Inc., the guarantor of the lease, filed for Chapter 11 bankruptcy reorganization. In June 2016, the tenant filed a motion with the bankruptcy court to reject the lease for this store effective June 30, 2016, at which time the tenant returned possession of the property to the owners. As of December 31, 2020, the tenant owed $19,366 of past due rent, which was not recorded for financial reporting purposes. On March 23, 2021, a motion to dismiss the bankruptcy case was issued by a federal judge to The Sports Authority, Inc., the Company will therefore not be receiving any of the past due rent. The owners listed the property for lease with a real estate broker in the Wichita area. While the property was vacant, the Company was responsible for its 40% share of real estate taxes and other costs associated with maintaining the property.

On September 21, 2017, the Company entered into a lease agreement with a primary term of 10 years with Biomat USA, Inc. (“Biomat”) as a replacement tenant for 28% of the square footage of the property. The tenant operates a Biomat USA Plasma Center in the space. The Company’s 40% share of annual rent, which commenced on June 18, 2018, is $37,071. Biomat agreed to pay for the costs to divide the building into two separate spaces, the costs of tenant improvements to remodel the Biomat space and 28% of the cost to replace the roof.

On August 27, 2019, the Company entered into a lease agreement with a primary term of 10 years with BigTime Fun Center, LLC as a replacement tenant for 57% of the square footage of the property. The tenant will operate an indoor sports entertainment center in the space. The Company’s 40% share of annual rent, which was to commence on February 23, 2020, is $78,000. As part of the agreement, the Company was to pay a tenant improvement allowance of $64,000 when certain conditions were met by the tenant. Due to ongoing difficulties relating to the COVID-19 pandemic, the Company was negotiating a rent commencement date of April 1, 2021. As a part of the negotiations, the tenant improvement allowance was to be replaced with a ten month rent abatement starting April 1, 2021. Additionally, this agreement would forebear rent and additional charges for the period from February 23, 2020 to March 31, 2021. In September 2019, the Company paid $32,760 to a real estate broker for its 40% share of the lease commission due as part of the lease transaction. This amount was capitalized and was to be amortized over the term of the lease. On January 22, 2021 the owner of Big Time Fun Center, LLC informed the Company that it did not intend to open the Wichita property. As a result of the tenant informing the Company of their intention not to open, the full amount of the lease commission was amortized in the fourth quarter of 2020.

In September 2022, the Company entered into an agreement to sell its 40% interest in the Biomat Clinic in Wichita, Kansas to an unrelated third party. The property was classified as real estate held for sale at December 31, 2022. On February 9, 2023, the sale closed with the Company receiving net proceeds of approximately $944,000, which resulted in a gain of approximately $23,000. At the time of the sale, the cost and related accumulated depreciation and amortization was $1,871,978 and $951,437, respectively.

The Company owned a 55% interest in an Advance Auto Parts store in Middletown, Ohio. The remaining interest in the property was owned by an affiliate of the Company. On July 31, 2019, the lease term ended, and the tenant returned possession of the property to the owners. While the property was vacant, the Company was responsible for its 55% share of real estate taxes and other costs associated with maintaining the property. The owners listed the property for sale or lease with a real estate broker in the Middletown area, and the property was sold to an unaffiliated third party on June 29, 2021. The annual rent from this property represented approximately 11% of the total annual rent of the Company’s property portfolio. The loss of rent and increased expenses related to this property decreased the Company’s cash flow.

Based on its long-lived asset valuation analysis in the fourth quarter of 2020, the Company determined the Advance Auto store was impaired and recognized an additional real estate impairment of $78,376 to decrease the carrying value to the estimated fair value of $82,500. The charge was recorded against the cost of the land and building.

In April 2021, the Company entered into an agreement to sell its 55% interest in the Advance Auto Parts store in Middletown, Ohio to an unrelated third party. On June 29, 2021, the sale closed with the Company receiving net proceeds of $99,069, which resulted in a gain of $18,606. At the time of sale, the cost and related accumulated depreciation and amortization was $576,598 and $496,135, respectively.

In November 2021, the Company entered into an agreement to sell its Dollar Tree store in West Point, Mississippi to an unrelated third party. On December 10, 2021, the sale closed with the Company receiving net proceeds of $1,597,785, which resulted in a gain of $338,872. At the time of the sale, the cost and related accumulated depreciation and amortization was $1,535,714 and $276,801, respectively.

In March 2022, the Company entered into an agreement to sell its Zales store in Enid, Oklahoma to an unrelated third party. On April 29, 2022, the sale closed with the Company receiving net proceeds of $1,607,072, which resulted in a gain of $448,851. At the time of the sale, the cost and related accumulated depreciation and amortization was $1,600,000 and $441,779, respectively.

In April 2022, the Company entered into an agreement with the tenant of the Fresenius Medical Care in Chicago, Illinois to extend the lease term five years to end on April 30, 2032. As part of the agreement, the annual rent will continue to increase annually at 2.5%.

On May 11, 2022, the Company sold its 46% joint-venture interest in the Best Buy property in Eau Claire, Wisconsin to AEI Income & Growth Fund XXI LP, an affiliate of the Company that owns an interest in the property. The sale price of the property interest was based upon the property’s fair market value as determined by an independent, third-party, commercial property appraiser. The Company received net proceeds of $3,710,665, which resulted in a gain of $1,686,377. At the time of the sale, the cost and related accumulated depreciation and amortization was $3,031,012 and $1,006,724, respectively.

In January 2023, the Company entered into an agreement to sell its Fresenius Medical Care in Chicago, Illinois to an unrelated third party. The sale is subject to contingencies and may not be completed. The property was classified as real estate held for sale at December 31, 2022. If the sale is completed, the Company expects to receive net proceeds of approximately $1,687,000, which will result in a net gain of approximately $717,000.

For properties owned as of December 31, 2022, the minimum future rent payments required by the leases are as follows:

2023	$	187,211
2024		190,890
2025		193,659
2026		196,497
2027		199,406
Thereafter		714,787
	$	1,682,450

There were no contingent rents recognized in 2022 and 2021.

The Biomat Clinic in Wichita, Kansas and the Fresenius Medical Care in Chicago, Illinois were classified as held for sale as of December 31, 2022. The carrying value for the Biomat Clinic and the Fresenius Medical Care properties were $920,541 and $973,852, respectively, as of December 31, 2022.