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: SeptemberJune 30, 20172022
Commission File Number: 000-23778
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
State of Minnesota | | 41-1729121 |
(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'sRegistrant’s telephone number) |
Not Applicable |
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
NONE | | NONE | | NONE |
Securities registered pursuant to Section 12(g) of the Act:
| Limited Partnership Units | |
| (Title of class) | |
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. ☒ 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, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer,” “smaller reporting company,” and "smaller reporting company"“emerging growth company” in Rule 12b-2 of the Exchange Act.
☐ Large accelerated filer | ☐ Accelerated filer |
☐☒ Non-accelerated filer
| ☒ Smaller reporting company |
☐ Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of July 31, 2022, there were 18,219.68 Units of limited partnership interest outstanding and owned by nonaffiliates of the registrant.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
INDEX
| | | | |
| | Page |
Part I – Financial Information | |
| | | |
| Item 1. | Financial Statements:Statements (unaudited): | |
| | | |
| | Balance Sheets as of SeptemberJune 30, 20172022 and December 31, 20162021 | 3 |
| | | |
| | Statements for the Periods ended SeptemberJune 30, 20172022 and 2016:2021: | |
| | | | |
| | | Income | 4 |
| | | | |
| | | Cash Flows | 5 |
| | | | |
| | | Changes in Partners'Partners’ Capital | 6 |
| | | | |
| | Condensed Notes to Financial Statements | 7 - 10 |
| | | |
| Item 2. | Management's Discussion and Analysis of Financial | |
| | | Condition and Results of Operations | 11 - 1614 |
| | | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 15 |
| | | |
| Item 4. | Controls and Procedures | 15 |
| | | |
Part II – Other Information | |
| | | |
| Item 1. | Legal Proceedings | 15 |
| | | |
| Item 1A. | Risk Factors | 15 |
| | | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
| | | |
| Item 4.3. | Controls and ProceduresDefaults Upon Senior Securities | 16 |
| | | |
Part II – Other Information | |
Item 4. | | | |
| Item 1. | Legal ProceedingsMine Safety Disclosures | 17 |
| | | |
| Item 1A.5. | Risk FactorsOther Information | 1717-18 |
| | | |
| 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 | 1819 |
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
| | September 30, | | | December 31, | |
| | 2017 | | | 2016 | |
| | (unaudited) | | | | |
Current Assets: | | | | | | |
Cash | | $ | 1,187,635 | | | $ | 1,152,822 | |
| | | | | | | | |
Real Estate Investments: | | | | | | | | |
Land | | | 3,759,032 | | | | 4,048,298 | |
Buildings | | | 8,724,155 | | | | 9,841,947 | |
Acquired Intangible Lease Assets | | | 959,720 | | | | 959,720 | |
Real Estate Held for Investment, at cost | | | 13,442,907 | | | | 14,849,965 | |
Accumulated Depreciation and Amortization | | | (3,034,587 | ) | | | (3,285,703 | ) |
Real Estate Held for Investment, Net | | | 10,408,320 | | | | 11,564,262 | |
Real Estate Held for Sale | | | 899,271 | | | | 0 | |
Total Real Estate Investments | | | 11,307,591 | | | | 11,564,262 | |
Total Assets | | $ | 12,495,226 | | | $ | 12,717,084 | |
| | June 30, | | December 31, |
| | 2022 | | 2021 |
| | (unaudited) | | |
Current Assets: | | | | |
Cash | $ | 991,696 | $ | 5,307,993 |
Rent Receivable | | 0 | | 2,833 |
Total Current Assets | | 991,696 | | 5,310,826 |
| | | | |
Real Estate Investments: | | | | |
Land | | 0 | | 300,000 |
Buildings | | 0 | | 635,489 |
Acquired Intangible Lease Assets | | 0 | | 475,411 |
Real Estate Held for Investment, at cost | | 0 | | 1,410,900 |
Accumulated Depreciation and Amortization | | 0 | | (651,801) |
Real Estate Held for Investment, Net | | 0 | | 759,099 |
Real Estate Held for Sale | | 374,536 | | 1,316,981 |
Total Real Estate Investments | | 374,536 | | 2,076,080 |
Total Assets | $ | 1,366,232 | $ | 7,386,906 |
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities: | | | | | | |
Payable to AEI Fund Management, Inc. | | $ | 127,467 | | | $ | 94,166 | |
Distributions Payable | | | 279,801 | | | | 282,119 | |
Unearned Rent | | | 67,604 | | | | 13,474 | |
Total Current Liabilities | | | 474,872 | | | | 389,759 | |
| | | | | | | | |
Partners' Capital (Deficit): | | | | | | | | |
General Partners | | | (4,918 | ) | | | (1,848 | ) |
Limited Partners – 24,000 Units authorized; 20,134 and 20,163 Units issued and outstanding as of 9/30/2017 and 12/31/2016, respectively | | | 12,025,272 | | | | 12,329,173 | |
Total Partners' Capital | | | 12,020,354 | | | | 12,327,325 | |
Total Liabilities and Partners' Capital | | $ | 12,495,226 | | | $ | 12,717,084 | |
Current Liabilities: | | | | |
Payable to AEI Fund Management, Inc. | $ | 4,260 | $ | 7,599 |
Distributions Payable | | 78,488 | | 4,236,774 |
Total Current Liabilities | | 82,748 | | 4,244,373 |
| | | | |
Partners’ Capital: | | | | |
General Partners | | 11,079 | | 7,700 |
Limited Partners – 24,000 Units authorized; 18,219.68 Units issued and outstanding as of 6/30/2022 and 12/31/2021 | | 1,272,405 | | 3,134,833 |
Total Partners' Capital | | 1,283,484 | | 3,142,533 |
Total Liabilities and Partners' Capital | $ | 1,366,232 | $ | 7,386,906 |
The accompanying Condensed Notes to Financial Statements are an integral part of these statements.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
STATEMENTS OF INCOME
(unaudited)
| | Three Months Ended September 30 | | | Nine Months Ended September 30 | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| | | | | | | | | | | | |
Rental Income | | $ | 307,881 | | | $ | 344,428 | | | $ | 1,004,134 | | | $ | 1,028,149 | |
| | | | | | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | | | | | |
Partnership Administration – Affiliates | | | 41,554 | | | | 42,023 | | | | 131,892 | | | | 134,476 | |
Partnership Administration and Property Management – Unrelated Parties | | | 9,792 | | | | 11,850 | | | | 73,312 | | | | 58,983 | |
Property Acquisition | | | 0 | | | | 0 | | | | 0 | | | | 47,902 | |
Depreciation and Amortization | | | 89,728 | | | | 99,043 | | | | 278,499 | | | | 293,539 | |
Total Expenses | | | 141,074 | | | | 152,916 | | | | 483,703 | | | | 534,900 | |
| | | | | | | | | | | | | | | | |
Operating Income | | | 166,807 | | | | 191,512 | | | | 520,431 | | | | 493,249 | |
| | | | | | | | | | | | | | | | |
Other Income: | | | | | | | | | | | | | | | | |
Miscellaneous Income | | | 0 | | | | 0 | | | | 35,705 | | | | 0 | |
Interest Income | | | 758 | | | | 822 | | | | 2,293 | | | | 2,641 | |
Total Other Income | | | 758 | | | | 822 | | | | 37,998 | | | | 2,641 | |
| | | | | | | | | | | | | | | | |
Net Income | | $ | 167,565 | | | $ | 192,334 | | | $ | 558,429 | | | $ | 495,890 | |
| | | | | | | | | | | | | | | | |
Net Income Allocated: | | | | | | | | | | | | | | | | |
General Partners | | $ | 1,675 | | | $ | 1,923 | | | $ | 5,584 | | | $ | 4,959 | |
Limited Partners | | | 165,890 | | | | 190,411 | | | | 552,845 | | | | 490,931 | |
Total | | $ | 167,565 | | | $ | 192,334 | | | $ | 558,429 | | | $ | 495,890 | |
| | | | | | | | | | | | | | | | |
Net Income per Limited Partnership Unit | | $ | 8.24 | | | $ | 9.40 | | | $ | 27.44 | | | $ | 24.18 | |
| | | | | | | | | | | | | | | | |
Weighted Average Units Outstanding – Basic and Diluted | | | 20,134 | | | | 20,265 | | | | 20,144 | | | | 20,303 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Three Months Ended June 30 | | Six Months Ended June 30 |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Rental Income | $ | 22,809 | $ | 237,995 | $ | 70,794 | $ | 503,297 |
| | | | | | | | |
Expenses: | | | | | | | | |
Partnership Administration – Affiliates | | 17,860 | | 27,620 | | 55,672 | | 73,612 |
Partnership Administration and Property Management – Unrelated Parties | | 24,799 | | 20,680 | | 40,520 | | 44,402 |
Depreciation and Amortization | | 10,109 | | 64,556 | | 20,219 | | 155,140 |
Real Estate Impairment | | 350,000 | | 546,923 | | 350,000 | | 546,923 |
Total Expenses | | 402,768 | | 659,779 | | 466,411 | | 820,077 |
| | | | | | | | |
Operating Income (Loss) | | (379,959) | | (421,784) | | (395,617) | | (316,780) |
| | | | | | | | |
Other Income: | | | | | | | | |
Gain on Sale of Real Estate | | 0 | | 913,017 | | 1,133,641 | | 913,017 |
Interest Income | | 411 | | 899 | | 1,014 | | 1,590 |
Total Other Income | | 411 | | 913,916 | | 1,134,655 | | 914,607 |
| | | | | | | | |
Net Income (Loss) | $ | (379,548) | $ | 492,132 | $ | 739,038 | $ | 597,827 |
| | | | | | | | |
Net Income (Loss) Allocated: | | | | | | | | |
General Partners | $ | 704 | $ | 4,921 | $ | 29,360 | $ | 5,978 |
Limited Partners | | (380,252) | | 487,211 | | 709,678 | | 591,849 |
Total | $ | (379,548) | $ | 492,132 | $ | 739,038 | $ | 597,827 |
| | | | | | | | |
Net Income (Loss) per Limited Partnership Unit | $ | (20.87) | $ | 26.59 | $ | 38.95 | $ | 31.68 |
| | | | | | | | |
Weighted Average Units Outstanding – Basic and Diluted | | 18,220 | | 18,320 | | 18,220 | | 18,685 |
| | | | | | | | |
The accompanying Condensed Notes to Financial Statements are an integral part of these statements.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(unaudited)
| | Nine Months Ended September 30 | |
| | 2017 | | | 2016 | |
Cash Flows from Operating Activities: | | | | | | |
Net Income | | $ | 558,429 | | | $ | 495,890 | |
| | | | | | | | |
Adjustments to Reconcile Net Income To Net Cash Provided by Operating Activities: | | | | | | | | |
Depreciation and Amortization | | | 300,021 | | | | 315,061 | |
(Increase) Decrease in Receivables | | | 0 | | | | 9,031 | |
Increase (Decrease) in Payable to AEI Fund Management, Inc. | | | 33,301 | | | | (6,264 | ) |
Increase (Decrease) in Unearned Rent | | | 54,130 | | | | 54,130 | |
Total Adjustments | | | 387,452 | | | | 371,958 | |
Net Cash Provided By (Used For) Operating Activities | | | 945,881 | | | | 867,848 | |
| | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | |
Investments in Real Estate | | | (43,350 | ) | | | (1,739,074 | ) |
| | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | |
Distributions Paid to Partners | | | (841,720 | ) | | | (850,093 | ) |
Repurchase of Partnership Units | | | (25,998 | ) | | | (99,294 | ) |
Net Cash Provided By (Used For) Financing Activities | | | (867,718 | ) | | | (949,387 | ) |
| | | | | | | | |
Net Increase (Decrease) in Cash | | | 34,813 | | | | (1,820,613 | ) |
| | | | | | | | |
Cash, beginning of period | | | 1,152,822 | | | | 3,069,560 | |
| | | | | | | | |
Cash, end of period | | $ | 1,187,635 | | | $ | 1,248,947 | |
| | | | | | | | |
| | | | |
| | Six Months Ended June 30 |
| | 2022 | | 2021 |
Cash Flows from Operating Activities: | | | | |
Net Income | $ | 739,038 | $ | 597,827 |
| | | | |
Adjustments to Reconcile Net Income To Net Cash Provided by Operating Activities: | | | | |
Depreciation and Amortization | | 34,563 | | 151,838 |
Real Estate Impairment | | 350,000 | | 546,923 |
Gain on Sale of Real Estate | | (1,133,641) | | (913,017) |
(Increase) Decrease in Rent Receivable | | 2,833 | | 35,074 |
Increase (Decrease) in Payable to AEI Fund Management, Inc. | | (3,339) | | 28,682 |
Total Adjustments | | (749,584) | | (150,500) |
Net Cash Provided By (Used For) Operating Activities | | (10,546) | | 447,327 |
| | | | |
Cash Flows from Investing Activities: | | | | |
Proceeds from Sale of Real Estate | | 2,450,622 | | 4,168,888 |
| | | | |
Cash Flows from Financing Activities: | | | | |
Distributions Paid to Partners | | (6,756,373) | | (396,762) |
Repurchase of Partnership Units | | 0 | | (541,730) |
Net Cash Provided By (Used For) Financing Activities | | (6,756,373) | | (938,492) |
| | | | |
Net Increase (Decrease) in Cash | | (4,316,297) | | 3,677,723 |
| | | | |
Cash, beginning of period | | 5,307,993 | | 2,882,411 |
| | | | |
Cash, end of period | $ | 991,696 | $ | 6,560,134 |
| | | | |
The accompanying Condensed Notes to Financial Statements are an integral part of these statements.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(unaudited)
| | General Partners | | | Limited Partners | | | Total | | | Limited Partnership Units Outstanding | |
| | | | | | | | | | | | |
Balance, December 31, 2015 | | $ | 4,508 | | | $ | 12,958,439 | | | $ | 12,962,947 | | | | 20,380.05 | |
| | | | | | | | | | | | | | | | |
Distributions Declared | | | (8,464 | ) | | | (837,890 | ) | | | (846,354 | ) | | | | |
| | | | | | | | | | | | | | | | |
Repurchase of Partnership Units | | | (993 | ) | | | (98,301 | ) | | | (99,294 | ) | | | (115.00 | ) |
| | | | | | | | | | | | | | | | |
Net Income | | | 4,959 | | | | 490,931 | | | | 495,890 | | | | | |
| | | | | | | | | | | | | | | | |
Balance, September 30, 2016 | | $ | 10 | | | $ | 12,513,179 | | | $ | 12,513,189 | | | | 20,265.05 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance, December 31, 2016 | | $ | (1,848 | ) | | $ | 12,329,173 | | | $ | 12,327,325 | | | | 20,163.04 | |
| | | | | | | | | | | | | | | | |
Distributions Declared | | | (8,394 | ) | | | (831,008 | ) | | | (839,402 | ) | | | | |
| | | | | | | | | | | | | | | | |
Repurchase of Partnership Units | | | (260 | ) | | | (25,738 | ) | | | (25,998 | ) | | | (28.72 | ) |
| | | | | | | | | | | | | | | | |
Net Income | | | 5,584 | | | | 552,845 | | | | 558,429 | | | | | |
| | | | | | | | | | | | | | | | |
Balance, September 30, 2017 | | $ | (4,918 | ) | | $ | 12,025,272 | | | $ | 12,020,354 | | | | 20,134.32 | |
| | | | | | | | | | | | | | | | |
| | General Partners | | Limited Partners | | Total | | Limited Partnership Units Outstanding |
| | | | | | | | |
Balance, December 31, 2020 | $ | 38,384 | $ | 13,944,984 | $ | 13,983,368 | | 19,051.11 |
| | | | | | | | |
Distributions Declared | | (1,984) | | (196,397) | | (198,381) | | |
| | | | | | | | |
Net Income | | 1,057 | | 104,638 | | 105,695 | | |
| | | | | | | | |
Balance, March 31, 2021 | | 37,457 | | 13,853,225 | | 13,890,682 | | 19,051.11 |
| | | | | | | | |
Distributions Declared | | (22,170) | | (2,194,806) | | (2,216,976) | | |
| | | | | | | | |
Repurchase of Partnership Units | | (5,417) | | (536,313) | | (541,730) | | (731.58) |
| | | | | | | | |
Net Income | | 4,921 | | 487,211 | | 492,132 | | |
| | | | | | | | |
Balance, June 30, 2021 | $ | 14,791 | $ | 11,609,317 | $ | 11,624,108 | | 18,319.53 |
| | | | | | | | |
Balance, December 31, 2021 | $ | 7,700 | $ | 3,134,833 | $ | 3,142,533 | | 18,219.68 |
| | | | | | | | |
Distributions Declared | | (25,196) | | (2,494,403) | | (2,519,599) | | |
| | | | | | | | |
Net Income | | 28,656 | | 1,089,930 | | 1,118,586 | | |
| | | | | | | | |
Balance, March 31, 2022 | | 11,160 | | 1,730,360 | | 1,741,520 | | 18,219.68 |
| | | | | | | | |
Distributions Declared | | (785) | | (77,703) | | (78,488) | | |
| | | | | | | | |
Net Income (Loss) | | 704 | | (380,252) | | (379,548) | | |
| | | | | | | | |
Balance, June 30, 2022 | $ | 11,079 | $ | 1,272,405 | $ | 1,283,484 | | 18,219.68 |
| | | | | | | | |
The accompanying Condensed Notes to Financial Statements are an integral part of these statements.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
CONDENSED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER
JUNE 30, 20172022
(unaudited)
(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 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'sregistrant’s latest annual report on Form 10‑K.10K.
(2) Organization –
AEI Net Lease Income & Growth Fund XX Limited Partnership ("Partnership"(“Partnership”) was formed to acquire and lease commercial properties to operating tenants. The Partnership's operations are managed by AEI Fund Management XX, Inc. ("AFM"(“AFM”), the Managing General Partner. The Estate of Robert P. Johnson the President and sole director of AFM, serves as the Individual General Partner. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr.the Robert P. Johnson is theTrust and Patricia Johnson, own a majority shareholder.interest. AEI Fund Management, Inc. ("AEI"(“AEI”), an affiliate of AFM, performs the administrative and operating functions for the Partnership.
The terms of the Partnership offering called for a subscription price of $1,000 per Limited Partnership Unit, payable on acceptance of the offer. The Partnership commenced operations on June 30, 1993 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. On January 19, 1995, the offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units was reached. Under the terms of the Limited Partnership Agreement, the Limited Partners and General Partners contributed funds of $24,000,000 and $1,000, respectively.
During operations, any Net Cash Flow, as defined, which the General Partners determine to distribute will be distributed 90% to the Limited Partners and 10% to the General Partners; provided, however, that such distributions to the General Partners will be subordinated to the Limited Partners first receiving an annual, noncumulative distribution of Net Cash Flow equal to 10% of their Adjusted Capital Contribution, as defined, and, provided further, that in no event will the General Partners receive less than 1% of such Net Cash Flow per annum. Distributions to Limited Partners will be made pro rata by Units.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization – (Continued)
Any Net Proceeds of Sale, as defined, from the sale or financing of properties which the General Partners determine to distribute will, after provisions for debts and reserves, be paid in the following manner: (i) first, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 12% 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 Partners and 10% to the General Partners. Distributions to the Limited Partners 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 first in the same ratio in which, and to the extent, Net Cash Flow is distributed to the Partners for such year. Any additional profits will be allocated in the same ratio as the last dollar of Net Cash Flow is distributed. Net losses from operations will be allocated 99% to the Limited Partners and 1% to the General Partners.
For tax purposes, profits arising from the sale, financing, or other disposition of property will be allocated in accordance with the Partnership Agreement as follows: (i) first, to those partners with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Partners and 1% to the General Partners until the aggregate balance in the Limited Partners' capital accounts equals the sum of the Limited Partners' Adjusted Capital Contributions plus an amount equal to 12% 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 Partners and 10% to the General Partners. Losses will be allocated 98% to the Limited Partners and 2% to the General Partners.
The General Partners are not required to currently fund a deficit capital balance. Upon liquidation of the Partnership or withdrawal by a General Partner, the General Partners will contribute to the Partnership an amount equal to the lesser of the deficit balances in their capital accounts or 1% of total Limited Partners' and General Partners' capital contributions.
In June 2014,January 2021, the Managing General Partner mailed a Consent Statement (Proxy) seeking the consent of the Limited Partners to continue the Partnership for an additional 60 months or to initiate the final disposition, liquidation and distribution of all of the Partnership'sPartnership’s properties and assets within 24 to 36 months. Approval of either proposal required the affirmative vote of holders of a majority of the outstanding units. On July 23, 2014,March 3, 2021, the votes were counted and neither proposal receivedwas approved with a majority of Units voting in favor of the required majority vote.proposal. As a result, the Partnership will not liquidate and will continue in operation until the Limited Partners vote to authorize the sale of all of the Partnership's properties or December 31, 2043, as stated in the Limited Partnership Agreement. However, in approximately five years, the Managing General Partner expects to again submitis proceeding with the question to liquidate to a vote byplanned liquidation of the Limited Partners.Partnership.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Recently Issued Accounting Pronouncements –
In April 2020, the Financial Accounting Standards Board (FASB) issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of COVID-19. Under existing lease guidance, the Partnership would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant or if a lease concession was under the enforceable rights and obligations within the existing lease agreement. The Lease Modification Q&A clarifies that entities may elect to not evaluate whether lease-related relief that lessors provide to mitigate the economic effects of COVID-19 on lessees is a lease modification under current lease guidance. Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 is a modification can then elect whether to apply the modification guidance.
Other accounting standards that have been issued or proposed by the FASB are currently not applicable to the Partnership or are not expected to have a significant impact on the Partnership’s financial position, results of operations and cash flows.
(4) Real Estate Investments –
On January 8, 2016,
In March 2021, the Partnership purchased aentered into an agreement to sell the Dollar Tree store in Indianapolis, Indiana for $1,739,074. Theto an unrelated third party. On April 20, 2021, the sale closed with the Partnership allocated $241,360receiving net proceeds of $1,608,689, which resulted in a net gain of $187,451. At the purchase price to Acquired Intangible Lease Assets, representing in-place lease intangibles. The Partnership incurred $47,902time of acquisition expensessale, the cost and related to the purchase that were expensed. The property is leased to Dollar Tree Stores, Inc. under a lease agreement with a remaining primary term of 9.7 years (as of the date of purchase)accumulated depreciation and annual rent of $117,387.amortization was $1,739,074 and $317,836, respectively.
In March 2017,May 2021, the Partnership entered into an agreement with the tenant of the KinderCare daycare center in Mayfield Heights, Ohio to extend the lease term five years to expire on June 30, 2022. The annual rent will remain the same throughout the remainder of the extended lease term. As part of the agreement, the Partnership paid a tenant improvement allowance of $43,350 that was capitalized. In addition, beginning on July 1, 2017, the tenant received free rent for three months that equaled $40,421. In the first quarter of 2017, the Partnership decided to sell the property.Fresenius Medical Center in Green, Ohio to an unrelated third party. On June 29, 2021, the sale closed with the Partnership receiving net proceeds of $2,560,199, which resulted in a net gain of $725,566. At Septemberthe time of sale, the cost and related accumulated depreciation and amortization was $2,360,000 and $525,367, respectively.
In May 2021, the Partnership entered into an agreement to sell 2.36 acres of land in Fredericksburg, Virginia to an unrelated third party. Based on its long-lived asset valuation analysis, the Partnership determined the land was impaired. As a result, in the second quarter of 2021, a charge to operations for real estate impairment of $133,134 was recognized, which was the difference between the carrying value at June 30, 2017,2021 of $3,155,134 and the estimated fair value of $3,022,000. The charge was recorded against the cost of the land. On July 23, 2021, the sale closed with the Partnership receiving net proceeds of $3,022,000, which resulted in no gain or loss due to the impairment charge recorded in the second quarter of 2021. At the time of sale, the cost and related accumulated amortization was $3,032,763 and $10,763, respectively. At June 30, 2021, the property was classified as Real Estate Held for Sale with a carrying value of $899,271.$3,022,000.
The Partnership owned a 40.1354% interest in a HomeTown Buffet restaurant in Albuquerque, New Mexico. The remaining interests in this property were owned by unrelated third parties, who owned the property with the Partnership as tenants-in-common. On November 10, 2015, the Partnership sold the property to an unrelated third party. In December 2014, the Partnership and three of the other co-owners of the property (the "Plaintiffs") commenced legal action against a fourth co‑owner ("Defendant") for breach of contract related to a prior attempt to sell the property. The Plaintiffs are suing to recover damages and attorney's fees. In July 2015, the judge ruled that the Defendant had breached the contract. On March 24, 2016, the judge heard the Plaintiffs' motion for summary judgment as to damages. The judge ruled that the Plaintiffs are entitled to attorney's fees, but declined to award damages until additional proof of damages could be provided. On March 22, 2017, the Plaintiffs signed a settlement agreement with the Defendant for damages related to the breach of contract. The Partnership's share of the settlement is $35,705. This amount was recognized as Miscellaneous Income in the first quarter of 2017.
In addition, on April 30, 2017, the Plaintiffs filed a motion with the court that details the Plaintiffs' legal and other costs related to the legal action and why the Plaintiffs believe the costs should be recovered from the Defendant. On July 7, 2017, the judge issued a ruling that set the amount that the Plaintiffs can recover from the Defendant. The Partnership's share of this amount is $50,689. The Defendant subsequently filed a motion requesting that the judge reconsider the amount awarded. The Plaintiffs filed a response to the Defendant's motion. On September 6, 2017, the judge denied the Defendant's motion to reconsider. Subsequently, the Defendant filed an appeal with the Court of Appeals. The Plaintiffs are waiting to find out if the Court will hear the appeal. Due to the uncertainty of this situation, the Partnership did not accrue a receivable for the recovery of any legal costs. Through September 30, 2017, the Partnership's share of the legal and other costs incurred related to the legal action was $137,396. For the nine months ended September 30, 2017 and 2016, the legal and other costs were $27,941 and $11,202, respectively.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
CONDENSED NOTES TO FINANCIAL STATEMENTS
(4) Real Estate Investments – (Continued)
(4)
In July 2021, the Partnership entered into an agreement to sell its 70% interest in the Staples retail store in Vernon Hills, Illinois to an unrelated third party. Based on its long-lived asset valuation analysis, the Partnership determined the Staples store was impaired. As a result, in the second quarter of 2021, a charge to operations for real estate impairment of $413,789 was recognized, which was the difference between the carrying value at June 30, 2021 of $2,569,789 and the estimated fair value of $2,156,000. The charge was recorded against the cost of the land and building. At June 30, 2021, the property was classified as Real Estate Held for Sale with a carrying value of $2,156,000. On September 10, 2021, the sale closed with the Partnership receiving net proceeds of $2,108,832, which resulted in a net loss of $47,168. At the time of sale, the cost and related accumulated depreciation and amortization was $3,300,849 and $1,144,849, respectively.
In December 2021, the Partnership entered into an agreement to sell its 50% interest in the Jared Jewelry store in Hanover, Maryland to an unrelated third party. On February 14, 2022, the sale closed with the Partnership receiving net proceeds of $2,450,622, which resulted in a net gain of $1,133,641. At the time of sale, the cost and related accumulated depreciation was $1,989,105 and $672,124, respectively.
In June 2022, the Partnership performed a long-lived asset valuation analysis and determined the Family Dollar store in Mobile, Alabama was impaired. As a result, in the second quarter of 2022, the Partnership recognized real estate impairment of $350,000 to decrease the carrying value to the estimated fair value of approximately $375,000. The charge was recorded against the land, building, in-place lease and above market lease. This property has been classified as Real Estate Held for Sale on the balance sheet as of June 30, 2022 with a carrying value of $375,000.
(5) Payable to AEI Fund Management, Inc. –
AEI Fund Management, Inc. performs the administrative and operating functions for the Partnership. 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.
(5) Partners'
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
CONDENSED NOTES TO FINANCIAL STATEMENTS
(6) Partners’ Capital –
For the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, the Partnership declared distributions of $839,402$2,598,087 and $846,354,$2,415,357, respectively. The Limited Partners receivedwere allocated distributions of $831,008$2,572,106 and $837,890$2,391,203 and the General Partners receivedwere allocated distributions of $8,394$25,981 and $8,464$24,154 for the periods, respectively. The Limited Partners'Partners’ distributions represented $41.25$141.17 and $41.27$127.97 per Limited Partnership Unit outstanding using 20,14418,220 and 20,30318,685 weighted average Units in 20172022 and 2016,2021, respectively. The distributions represented $26.16$38.95 and $19.33$31.68 per Unit of Net Income and $15.09$102.22 and $21.94$96.29 per Unit of return of contributed capital in 20172022 and 2016,2021, respectively.
As part of the distributions discussed above, the Partnership distributed net sale proceeds (from property sales completedof $2,595,860 and $2,020,202 in 2015) of $107,756 in 2016.2022 and 2021, respectively. The Limited Partners received distributions of $106,678$2,569,902 and $2,000,000 and the General Partners received distributions of $1,078.$25,958 and $20,202 for the periods, respectively. The Limited Partners'Partners’ distributions represented $5.26$141.05 and $109.17 per Unit.
On April 1, 2017,Unit for the Partnership repurchased a total of 28.72 Units for $25,738 from three Limited Partners in accordance with the Partnership Agreement. On April 1, 2016, the Partnership repurchased a total of 115.00 Units for $98,301 from three Limited Partners. The Partnership acquired these Units using Net Cash Flow from operations. The repurchases increase the remaining Limited Partners' ownership interest in the Partnership. As a result of these repurchases and pursuant to the Partnership Agreement, the General Partners received distributions of $260 and $993 in 2017 and 2016,periods, respectively.
(6)
(7) Fair Value Measurements –
As of September 30, 2017June, 2022 and December 31, 2016,2021, the Partnership had no assets or liabilities measured at fair value on a recurring basis or nonrecurring basis. During 2022, the Partnership impaired the Family Dollar store in Mobile, Alabama to its fair value of approximately $375,000. Fair value was determined using feedback provided by a local broker less costs to sell based on the held for sale classification (level 2 in the fair value hierarchy). An impairment of $350,000 was recognized during the second quarter of 2022.
ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This section contains "forward-looking statements"“forward-looking statements” which represent management'smanagement’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 Partnership'sPartnership’s financial condition and results of operations, including the following:
| — | Market and economic conditions which affect the value of the properties the Partnership 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 the Partners; |
| — | resolution by the General Partners of conflicts with which they may be confronted; |
| — | the success of the General Partners of locating properties with favorable risk return characteristics; |
Market and economic conditions which affect the value of the properties the Partnership owns and the cash from rental income such properties generate; | — | the effect of tenant defaults; and |
| — | the condition of the industries in which the tenants of properties owned by the Partnership operate. |
the federal income tax consequences of rental income, deductions, gain on sales and other items and the effects of these consequences for the Partners;
—
resolution by the General Partners of conflicts with which they may be confronted;
—
the success of the General Partners 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 Partnership operate.
Application of Critical Accounting Policies
The Partnership'sPartnership’s financial statements have been prepared in accordance with US 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 Partnership'sPartnership’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 Partnership'sPartnership’s assets and liabilities, or the results of reported operations, will be affected if management'smanagement’s estimates or assumptions prove inaccurate.
Management of the Partnership 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 partner of the Partnership.
Allocation of Purchase Price of Acquired Properties
Upon acquisition of real properties, the Partnership records them in the financial statements at cost. 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 relative 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'smanagement’s assessment of each property, the selling prices of comparable properties and the discounted value of cash flows from the asset.
ITEM 2. MANAGEMENT'SMANAGEMENT’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 lease values will be amortized as an adjustment of rental income over the remaining term 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'smanagement’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 relative 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'smanagement’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
Properties are carried at original cost, less accumulated depreciation and amortization. The Partnership tests long-lived assets for recoverability when events or changes in circumstances indicate that the carrying value may not be recoverable. For properties the Partnership will hold and operate, management determines whether impairment has occurred by comparing the property'sproperty’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'sproperty’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.
ITEM 2. MANAGEMENT'SMANAGEMENT’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'sfund’s affairs. They also allocate expenses at the end of each month that are not directly related to a fund'sfund’s operations based upon the number of investors in the fund and the fund'sfund’s capitalization relative to other funds they manage. The Partnership reimburses these expenses subject to detailed limitations contained in the Partnership Agreement.
Factors Which May Influence Results of Operations
The Partnership is not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues and investment property value. However, due to the outbreak and continuing effect of the coronavirus (COVID-19) in the U.S. and globally, our tenants and operating partners may be impacted.
Results of Operations
For the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, the Partnership recognized rental income of $1,004,134$70,794 and $1,028,149,$503,297, respectively. In 2017,2022, rental income decreased due to the tenantsale of five properties. The Family Dollar in Mobile, Alabama was the KinderCare daycare center receiving free rent,final property, which is classified as discussed below. This decrease was partially offset by additional rent received from one property acquisition in 2016 and rent increases on two properties. Based on the scheduled rentReal Estate Held for the propertiesSale as of October 31, 2017, theJune 30, 2022. The Partnership expects to recognize rental income from continuing operations of approximately $1,352,000in 2022 to total $70,794, as the Family Dollar lease matured on June 30, 2022 and $1,361,000 in 2017 and 2018, respectively.was not renewed.
For the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, the Partnership incurred Partnership administration expenses from affiliated parties of $131,892$55,672 and $134,476,$73,612, respectively. These administration expenses include costs associated with the management of the properties, processing distributions, reporting requirements and communicating with the Limited Partners. During the same periods, the Partnership incurred Partnership administration and property management expenses from unrelated parties of $73,312$40,520 and $58,983,$44,402, 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. These expenses were higher in 2017, when compared to 2016, due to expenses related to the legal action involving the owners of the HomeTown Buffet restaurant, as discussed below.
For the ninesix months ended September 30, 2016, the Partnership incurred property acquisition expenses of $47,902 related to the purchase of the Dollar Tree store in Indianapolis, Indiana.
The Partnership owned a 40.1354% interest in a HomeTown Buffet restaurant in Albuquerque, New Mexico. The remaining interests in this property were owned by unrelated third parties, who owned the property with the Partnership as tenants-in-common. On November 10, 2015, the Partnership sold the property to an unrelated third party. In December 2014, the Partnership and three of the other co-owners of the property (the "Plaintiffs") commenced legal action against a fourth co‑owner ("Defendant") for breach of contract related to a prior attempt to sell the property. The Plaintiffs are suing to recover damages and attorney's fees. In July 2015, the judge ruled that the Defendant had breached the contract. On March 24, 2016, the judge heard the Plaintiffs' motion for summary judgment as to damages. The judge ruled that the Plaintiffs are entitled to attorney's fees, but declined to award damages until additional proof of damages could be provided. On March 22, 2017, the Plaintiffs signed a settlement agreement with the Defendant for damages related to the breach of contract. The Partnership's share of the settlement is $35,705. This amount was recognized as Miscellaneous Income in the first quarter of 2017.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In addition, on April 30, 2017, the Plaintiffs filed a motion with the court that details the Plaintiffs' legal and other costs related to the legal action and why the Plaintiffs believe the costs should be recovered from the Defendant. On July 7, 2017, the judge issued a ruling that set the amount that the Plaintiffs can recover from the Defendant. The Partnership's share of this amount is $50,689. The Defendant subsequently filed a motion requesting that the judge reconsider the amount awarded. The Plaintiffs filed a response to the Defendant's motion. On September 6, 2017, the judge denied the Defendant's motion to reconsider. Subsequently, the Defendant filed an appeal with the Court of Appeals. The Plaintiffs are waiting to find out if the Court will hear the appeal. Due to the uncertainty of this situation, the Partnership did not accrue a receivable for the recovery of any legal costs. Through September 30, 2017, the Partnership's share of the legal and other costs incurred related to the legal action was $137,396. For the nine months ended September 30, 2017 and 2016, the legal and other costs were $27,941 and $11,202, respectively.
In March 2017, the Partnership entered into an agreement with the tenant of the KinderCare daycare center in Mayfield Heights, Ohio to extend the lease term five years to expire on June 30, 2022. The annual rent will remain the same throughout the remainder of the extended lease term. As part of the agreement, the Partnership paid a tenant improvement allowance of $43,350 that was capitalized. In addition, beginning on July 1, 2017, the tenant received free rent for three months that equaled $40,421. In the first quarter of 2017, the Partnership decided to sell the property. At September 30, 2017, the property was classified as Real Estate Held for Sale with a carrying value of $899,271.
For the nine months ended September 30, 20172022 and 2016,2021, the Partnership recognized interest income of $2,293$1,014 and $2,641,$1,590, 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Liquidity and Capital Resources
During the ninesix months ended SeptemberJune 30, 2017,2022, the Partnership's cash balance decreased $4,316,297 as a result of distributions paid to the Partners in excess of cash generated from operating activities, which was partially offset by cash generated from the sale of property. During the six months ended June 30, 2021, the Partnership's cash balances increased $34,813$3,677,723 as a result of cash generated from operating activities in excessthe sale of distributions paid to the Partners and cash used to repurchase Units,property, which was partially offset by cash paid for a tenant improvement allowance. During the nine months ended September 30, 2016, the Partnership's cash balances decreased $1,820,613 as a result of cash used to purchase property, and distributions paid to the Partners and cash used to repurchase Units in excess of cash generated from operating activities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Net cash provided by or used for operating activities increaseddecreased from $867,848$447,327 in 20162021 to $945,881($10,546) in 20172022 as a result of an increasea decrease in total rental and interest income in 2017, a decrease in acquisition expenses in 2016,2022 and net timing differences in the collection of payments from the tenants and the payment of expenses, which werewas partially offset by an increasea decrease in PartnershipLLC administration and property management expenses in 2017. During 2016, cash from operations was reduced by $47,902 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 Partnership Agreement, acquisition expenses were funded with proceeds from property sales.2022.
The major components of the Partnership's cash flow from investing activities are investments in real estate and proceeds from the sale of real estate. During the ninesix months ended SeptemberJune 30, 2017 and 2016,2022, the Partnership expended $43,350 and $1,739,074, respectively, to invest ingenerated cash flow from the sale of real properties asestate of $2,450,622.
In March 2021, the Partnership reinvested cash generated from property sales completed in 2015.
On January 8, 2016,entered into an agreement to sell the Partnership purchased a Dollar Tree store in Indianapolis, Indiana to an unrelated third party. On April 20, 2021, the sale closed with the Partnership receiving net proceeds of $1,608,689, which resulted in a net gain of $187,451. At the time of sale, the cost and related accumulated depreciation and amortization was $1,739,074 and $317,836, respectively.
In May 2021, the Partnership entered into an agreement to sell the Fresenius Medical Center in Green, Ohio to an unrelated third party. On June 29, 2021, the sale closed with the Partnership receiving net proceeds of $2,560,199, which resulted in a net gain of $725,566. At the time of sale, the cost and related accumulated depreciation and amortization was $2,360,000 and $525,367, respectively.
In May 2021, the Partnership entered into an agreement to sell 2.36 acres of land in Fredericksburg, Virginia to an unrelated third party. Based on its long-lived asset valuation analysis, the Partnership determined the land was impaired. As a result, in the second quarter of 2021, a charge to operations for $1,739,074.real estate impairment of $133,134 was recognized, which was the difference between the carrying value at June 30, 2021 of $3,155,134 and the estimated fair value of $3,022,000. The charge was recorded against the cost of the land. On July 23, 2021, the sale closed with the Partnership receiving net proceeds of $3,022,000, which resulted in no gain or loss due to the impairment charge recorded in the second quarter of 2021. At the time of sale, the cost and related accumulated amortization was $3,032,763 and $10,763, respectively. At June 30, 2021, the property is leased to Dollar Tree Stores, Inc. under a lease agreementwas classified as Real Estate Held for Sale with a remaining primary termcarrying value of 9.7 years (as$3,022,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In July 2021, the Partnership entered into an agreement to sell its 70% interest in the Staples retail store in Vernon Hills, Illinois to an unrelated third party. Based on its long-lived asset valuation analysis, the Partnership determined the Staples store was impaired. As a result, in the second quarter of 2021, a charge to operations for real estate impairment of $413,789 was recognized, which was the difference between the carrying value at June 30, 2021 of $2,569,789 and the estimated fair value of $2,156,000. The charge was recorded against the cost of the dateland and building. At June 30, 2021, the property was classified as Real Estate Held for Sale with a carrying value of purchase)$2,156,000. On September 10, 2021, the sale closed with the Partnership receiving net proceeds of $2,108,832, which resulted in a net loss of $47,168. At the time of sale, the cost and annual rentrelated accumulated depreciation and amortization was $3,300,849 and $1,144,849, respectively.
In December 2021, the Partnership entered into an agreement to sell its 50% interest in the Jared Jewelry store in Hanover, Maryland to an unrelated third party. On February 14, 2022, the sale closed with the Partnership receiving net proceeds of $117,387.$2,450,622, which resulted in a net gain of $1,133,641. At the time of sale, the cost and related accumulated depreciation was $1,989,105 and $672,124, respectively.
In June 2022, the Partnership performed a long-lived asset valuation analysis and determined the Family Dollar store in Mobile, Alabama was impaired. As a result, in the second quarter of 2022, the Partnership recognized real estate impairment of $350,000 to decrease the carrying value to the estimated fair value of approximately $375,000. The charge was recorded against the land, building, in-place lease and above market lease. This property has been classified as Real Estate Held for Sale on the balance sheet as of June 30, 2022 with a carrying value of $375,000.
The Partnership's primary use of cash flow, other than investment in real estate, is distribution payments to Partners and cash used to repurchase Units. The Partnership 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 Partnership attempts to maintain a stable distribution rate from quarter to quarter. The Partnership may repurchase tendered Units on April 1st and October 1st of each year subject to limitations.
For the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, the Partnership declared distributions of $839,402$2,598,087 and $846,354,$2,415,357, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners. The Limited Partners receivedwere allocated distributions of $831,008$2,572,106 and $837,890$2,391,203 and the General Partners receivedwere allocated distributions of $8,394$25,981 and $8,464$24,154 for the periods, respectively.
As part of the distributions discussed above, the Partnership distributed net sale proceeds (from property sales completedof $2,595,860 and $2,020,202 in 2015) of $107,756 in 2016.2022 and 2021, respectively. The Limited Partners received distributions of $106,678$2,569,902 and $2,000,000 and the General Partners received distributions of $1,078.$25,958 and $20,202 for the periods, respectively. The Limited Partners'Partners’ distributions represented $5.26$141.05 and $109.17 per Unit.Unit for the periods, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Partnership may repurchase Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership 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 Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
On April 1, 2017,2022, the Partnership did not repurchase any Units from the Limited Partners. On April 1, 2021, the Partnership repurchased a total of 28.72731.58 Units for $25,738$536,313 from three34 Limited Partners in accordance with the Partnership Agreement. On April 1, 2016, the Partnership repurchased a total of 115.00 Units for $98,301 from three Limited Partners. The Partnership acquired these Units using Net Cash Flow from operations.net sales proceeds. The repurchases increase the remaining Limited Partners' ownership interest in the Partnership. As a result of these repurchases and pursuant to the Partnership Agreement, the General Partners received distributions of $260 and $993$5,417 in 2017 and 2016, respectively.2021.
The continuing rent payments from the properties, together with cash generated from property sales, should be adequate to fund continuing distributions and meet other Partnership obligations on both a short-term and long-term basis.
Off-Balance Sheet Arrangements
As of SeptemberJune 30, 20172022 and December 31, 2016,2021, the Partnership had no material off-balance sheet arrangements that had or are reasonably likely to have current or future effects on its financial condition, results of operations, liquidity or capital resources.
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 General Partner of the Partnership 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"“Exchange Act”)). Based upon that evaluation, the President and Chief Financial Officer of the Managing General Partner 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 General Partner, 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 Partnership is a party or of which the Partnership'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 Partnership Agreement, as amended, each Limited Partner has the right to present Units to the Partnership for purchase by submitting notice to the Managing General Partner during January or July of each year. The purchase price of the Units is equal to 90% 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 General Partner in accordance with the provisions of the Partnership Agreement. Units tendered to the Partnership during January and July may be repurchased on April 1st and October 1st, respectively, of each year subject to the following limitations. The Partnership 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 Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During the period covered by this report, the Partnership 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 18None.
ITEM 6. EXHIBITS.
31.1 | Certification of Chief Executive Officer of General Partner 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 General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. |
31.1
Certification of President of General Partner 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 General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
31.2
Certification of Chief Financial Officer of General Partner 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 President and Chief Financial Officer of General Partner 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 13, 2017August 10, 2022 | AEI Net Lease Income & Growth Fund XX |
| Limited Partnership |
| By: | AEI Fund Management XX, Inc. |
| Its: | Managing General Partner |
| | |
| | |
| | |
| By: | /s/ ROBERT P JOHNSONMarni J Nygard |
| | Robert P. JohnsonMarni J. Nygard |
| | President |
| | (Principal Executive Officer) |
| | |
| | |
| | |
| By: | /s/ PATRICK W KEENEKeith E Petersen
|
| | Patrick W. KeeneKeith E. Petersen |
| | Chief Financial Officer |
| | (Principal Accounting Officer) |
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