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AEI INCOME & GROWTH FUND 26 LLC
DE
41-2173048
30 East 7th Street, Suite 1300
St. Paul
MN
55101
651
227-7333
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<div style="text-align: justify;">
<span style="font-weight: bold;">(1)</span><span> 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 United States Generally Accepted Accounting Principles (US GAAP) 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.</span>
</div>
<div style="text-align: justify; font-weight: bold;">
<span>(2) Organization – </span>
</div><div style="text-align: justify;">
</div><div style="text-align: justify;">
<span>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 previous Chief Executive Officer and sole director of AFM, served as the Special Managing Member until his withdrawal date effective March 31, 2020. AFM is a wholly owned subsidiary of AEI Capital Corporation of which the Robert P. Johnson Trust and Patricia Johnson own a majority interest. AEI Fund Management, Inc. (“AEI”), an affiliate of AFM, performs the administrative and operating functions for the Company.</span>
</div><div style="text-align: justify;">
</div><div style="text-align: justify;">
<span>In August 2021, the Managing Member mailed a Consent Statement (Proxy) seeking the consent of the Limited Members, as required by Section 6.1 of the Operating Agreement, to initiate the final disposition, liquidation and distribution of all of the Company’s properties and assets within the next 12 to 24 months. On October 12, 2021, the proposal was approved with a majority of Units voting in favor of the proposal. As a result, the Managing Member is proceeding with the planned liquidation of the Company.</span>
</div>
<div>
<span style="font-weight: bold;">(3) Recently Adopted Accounting Pronouncements –</span>
</div><div style="text-align: center;">
<span> </span>
</div><div style="text-align: justify;"> <span>Effective January 1, 2023, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326). This guidance changes the methodology to be used to measure credit losses for certain financial instruments and financial assets, including receivables. The new methodology requires the recognition of an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial assets. The adoption of the guidance did not have a material impact on the Company's financial statements. </span> </div><div style="text-align: justify;">
</div><div style="text-align: justify;">
<span>Other accounting standards that have been issued or proposed by the FASB are currently not applicable to the Company or are expected to have a significant impact on the Company's financial position, results of operations, and cash flows.</span>
</div>
2023, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326). This guidance changes the methodology to be used to measure credit losses for certain financial instruments and financial assets, including receivables. The new methodology requires the recognition of an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial assets. The adoption of the guidance did not have a material impact on the Company's financial statements.
Other accounting standards that have been issued or proposed by the FASB are currently not applicable to the Company or are expected to have a significant impact on the Company's financial position, results of operations, and cash flows.
<div style="text-align: justify; font-weight: bold;">
<span>(4) Real Estate Investments – </span>
</div><div style="text-align: justify;">
</div><div style="text-align: justify;">
<span>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.</span>
</div><div style="text-align: justify;">
</div><div style="text-align: justify;"> <span>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.</span> </div><div style="text-align: justify;">
</div><div style="text-align: justify;"> <span>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 was to 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, was $78,000. As part of the agreement, the Company would pay a tenant improvement allowance of $64,000 when certain conditions were met by the tenant. Due to ongoing difficulties due 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 Fund 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. </span> </div><div style="text-align: justify;">
</div><div style="text-align: justify;"> <span>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 $945,486, which resulted in a gain of $24,945. At the time of the sale, the cost and related accumulated depreciation and amortization was $1,871,978 and $951,437, respectively. </span> </div><div style="text-align: justify;">
</div><div style="text-align: justify;"> <span>In January 2023, the Company entered into an agreement to sell its 54% interest in the Fresenius clinic in Chicago, Illinois to an unrelated third party. On May 8, 2023, the sale closed with the Company receiving net proceeds of approximately $1,677,402, which resulted in a net gain of approximately $707,000. At the time of the sale, the cost and related accumulated depreciation was $1,292,220 and $321,684, respectively. The property was classified as real estate held for sale on the balance sheet as of March 31, 2023.</span> </div><div style="text-align: justify;">
</div><div style="text-align: justify;"> <span>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%.</span> </div><div style="text-align: justify;">
</div><div style="text-align: justify;"> <span>In March 2023, the Company performed a long-lived asset valuation analysis and determined The Cellular Connection store in Bluffton, Indiana was impaired. As a result, in the first quarter of 2023, a charge to operations for real estate impairment of $132,000 was recognized, which was the difference between the carrying value at March 31, 2023 of approximately $640,000 and the estimated fair value of $508,000. The charge was recorded against the land and building in the amount of $38,280 and $93,720, respectively.</span> </div><div style="text-align: justify; font-weight: bold;">
<span style="font-weight: normal;">In May 2023, the Company entered into an agreement to sell its interest in The Cellular Connection store in Bluffton, Indiana to an unrelated third party. The sale is subject to contingencies and may not be completed.</span><span> </span><span style="font-weight: normal;">If the sale is completed, the Company expects to receive net sale proceeds of approximately $508,000, which will result in no gain or loss.</span>
</div>
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.
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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.
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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
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<div style="text-align: justify; font-weight: bold;">
<span>(5) Payable to AEI Fund Management, Inc. – </span>
</div><div style="text-align: justify;">
</div><div style="text-align: justify;">
<span>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.</span>
</div>
<div style="text-align: justify; font-weight: bold;">
<span>(6) Members’ Equity –</span>
</div><div style="text-align: justify;">
</div><div style="text-align: justify;"> <span>For the three months ended March 31, 2023 and 2022, the Company declared distributions of $59,175 and $92,887, respectively. The Limited Members were allocated distributions of $57,400 and $90,100 and the Managing Members were allocated distributions of $1,775 and $2,787 for the periods ended March 31, 2023 and 2022, respectively. The Limited Members' distributions represented $0.03 and $0.05 per LLC Unit outstanding using 1,669,943 and 1,678,443 weighted average Units in 2023 and 2022, respectively. The distributions represented $0.00 and $0.00 per Unit of Net Income and $0.00 and $0.05 per Unit of return of contributed capital in 2023 and 2022, respectively.</span> </div>
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<div style="text-align: justify; font-weight: bold;">
<span>(7) Fair Value Measurements – </span>
</div><div style="text-align: justify;">
</div><div style="text-align: justify;">
<span>At March 31, 2023 and December 31, 2022, the Company had no financial assets or liabilities measured at fair value on a recurring basis or nonrecurring basis. </span>
</div><div style="text-align: justify;">
</div><div style="text-align: justify;"> <span>During 2023, the Company impaired The Cellular Connection store in Bluffton, Indiana to its fair value of approximately $508,000. Fair value was determined using figures included in a purchase agreement entered into in May 2023 to sell the property, which is classified as level 2. An impairment of $132,000 was recognized during the first quarter of 2023.</span> </div>
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