June 14, 2005
Ms. Cicely D. Luckey
Accounting Branch Chief
Securities and Exchange Commission
Division of Corporation Finance
Washington D.C. 20549
Re: Form 10-KSB for the year ended December 31, 2004 and
Form 10-QSB for the quarter ended March 31, 2005 for
AEI Real Estate Fund XV Limited Partnership - File No. 0-14089
AEI Real Estate Fund XVII Limited Partnership - File No. 0-17467
AEI Net Lease Income & Growth Fund XX Ltd Partnership - File No. 0-23778
AEI Income & Growth Fund XXI Limited Partnership - File No.0-29274
AEI Income & Growth Fund XXII Limited Partnership - File No. 0-24003
AEI Income & Growth Fund 23 LLC - File No. 0-30449
AEI Income & Growth Fund 24 LLC - File No. 0-49653
Dear Ms. Luckey:
This letter will respond to comments and requests for
supplemental information contained in your letters dated May 24,
2005 for the above registrants. Since the letters for each of
the registrants contain similar comments and the registrants use
the same accounting and reporting procedures, we have responded
to your comments in one letter for the seven registrants. A copy
of the letter was filed as correspondence on EDGAR for each
registrant. The responses in this letter are referenced to the
numbered paragraphs in your letters.
COMMENT #1 - ALL SEVEN REGISTRANTS
We recognize rental revenue according to the terms of the
individual lease for each property. We recognize contingent
rental revenue in accordance with SAB 101; namely ".when the
changes in the factor(s) on which the contingent lease payments
is (are) based actually occur." Contingent rental payments, based
on future sales volume, are recognized when the contingencies on
which the payments are based are satisfied and the rental
payments become due under the terms of the leases. For leases
that contain rent increases based upon future CPI increases, such
increases are recorded similarly to contingent rents.
For leases that contain stated rental increases, the increases
are recognized in the year in which they are effective. The
nature of our business includes not only the rental of property,
but also the sale of property and reinvestment of sales proceeds
in new property. Historically, across all our real estate funds,
the average holding period for properties that have been sold is
less than six years, far less than the original lease term, which
is typically 15 to 20 years. For this reason, as well as the
uncertainty of collection due to potential tenant default, we
follow a less aggressive policy by recording these rents as
realized, and not on a straight-line basis.
COMMENT #2 - ALL SEVEN REGISTRANTS
We consistently follow a policy of proportionate consolidation to
report our investment in partially owned properties. We have
responded to SEC inquiries on this matter on previous occasions
and our policy has been accepted.
SOP 78-9, Paragraph 11 indicates that if " the approval of two or
more of the owners is not required for decisions regarding the
financing, development, sale or operations of real estate owned
and each investor is entitled to only its pro rata share of
income, is responsible to pay only its pro rata share of
expenses, and is severally liable only for indebtedness it incurs
in connection with its interest in the property, the investment
may be presented by recording the undivided interest in the
assets, liabilities, revenue, and expenses of the venture". The
notes to financial statements consistently disclose the lack of
joint control over properties owned with tenants-in-common and
affiliated entities. For these properties, each owner owns a
separate undivided interest in the property, is free to sell or
mortgage their interest in the property, receives only their pro
rata share of income and is charged with their pro rata share of
expenses.
We are aware of EITF 00-1 which we believe does not change our
accounting or reporting considering our facts and circumstances.
Our investments are made in specific properties rather than in
legal entities described in this pronouncement.
COMMENT #3 - FUND XX, FUND XXI, FUND XXII, FUND 23, FUND 24
For property purchased with in-place leases, we evaluated the
dollar impact, as well as the presentation impact, of SFAS 141.
We determined that for the users of our financial statements,
separation of the lease value from the land and building would
not be material to the financial statements for the year ended
December 31, 2004 and for the quarter ended March 31, 2005.
The registrants purchase single tenant commercial properties
leased to tenants through triple net leases. At the time of
purchase, the registrants obtain an independent third-party
appraisal of the value of the property. With minor exceptions,
the appraised value is equal to or greater than the purchase
price of the property. Our properties typically have very low
vacancy rates. Currently, our real estate funds own over 100
properties and only one property is vacant. As single tenant
properties, absorption ratios do not apply. The lease terms on
the properties vary but are typically 15 to 20 years before
considering renewal options. The registrants depreciate
buildings over 25 years, except for Fund XX, which depreciates
buildings over 30 years. As a result, the net effect on the
income statement is not significant. In future quarterly and
annual filings, we will assess the impact of SFAS 141 for any
purchases of property with in-place leases.
COMMENT #4 - FUND XXII, FUND 23
This comment applies only to Fund 23 as Fund XXII does not own an
interest in the properties mentioned. In preparing Form 10-KSB,
we determined the Razzoo's restaurants in Alpharetta, Georgia and
San Antonio, Texas met the criteria of FAS 144 and the properties
were classified accordingly as "Held for Sale" at December 31,
2004 and 2003. Disclosure was included in the MD&A and financial
statement footnotes regarding the status of the properties.
In late 2003, the tenant closed the restaurant in Alpharetta and
indicated they were no longer interested in operating a
restaurant at the site. The tenant continued to pay rent and
comply with the lease obligations. The tenant was encouraged to
find a buyer or new tenant for the property in order to relieve
the tenant of the on-going financial obligations of the lease.
On February 9, 2004, Fund 23 listed the property for sale or
lease with a real estate broker in the Alpharetta area. Based on
the initial interest in the property and our experience with this
type of situation, it appeared selling the property was a more
likely outcome than re-leasing the property. Later, Fund 23 and
the tenant reached an agreement, effective November 1, 2004, to
terminate the lease for the property in Alpharetta and return
possession of the property to Fund 23. On December 16, 2004,
Fund 23 entered into an agreement to sell the property to an
unrelated third party. On March 29, 2005, after Fund 23 filed
its Form 10-KSB for the year ended December 31, 2004, the sale
closed.
During the summer of 2003, the tenant closed the restaurant in
San Antonio. On December 5, 2003, the Company terminated the
lease effective December 31, 2003. Shortly thereafter, Fund 23
and the tenant exchanged legal filings related to the lease of
the property. On January 26, 2004, Fund 23 listed the property
for sale or lease with a real estate broker in the San Antonio
area. Fund 23's goal was to sell the property and invest the
proceeds from the sale in replacement income-producing property.
In October 2004, Fund 23 entered into an agreement to lease the
property to an unrelated third party. The lease became effective
on February 16, 2005, when the new tenant's feasibility period
expired. The lease requires the new tenant to begin paying rent
120 days after the end of the feasibility period or June 16,
2005. After the tenant starts to pay rent, Fund 23 intends to
sell the property and invest the proceeds from the sale in
replacement income-producing property.
In connection with this response, the registrants acknowledge the
following:
The registrants are responsible for the adequacy and
accuracy of the disclosure in the filings;
Staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with respect to the filings; and
The registrants may not assert staff comments as a defense
in any proceeding initiated by the Commission or any person under
the federal securities laws of the United States.
If you have any questions, please give me a call at 651-225-7738.
Sincerely,
/s/ Patrick W Keene
Patrick W. Keene
Chief Financial Officer
Managing General Partner of Limited Partnerships and
Managing Member of LLCs
cc: Thomas Flinn - SEC via fax
Jim Warner - Boulay, Heutmaker, Zibell & Co.