UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION
Proxy Statement Pursuant to Section 14(a) OF THE SECURITIES EXCHANGE ACT OFof
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
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Filed by a Party other than the Registrant [ ]
o
Check the appropriate box:
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| x | Preliminary Proxy Statement |
| o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| o | Definitive Proxy Statement |
| o | Definitive Additional Materials |
| o | Soliciting Material pursuant to §240.14a-12 |
AEI INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
(Name of Registrant as specified in its charter)
(Name of Person(s) Filing Proxy Statement, [ ] Confidential,if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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| (1) | Title of each class of securities to which transaction applies: |
| (2) | Aggregate number of securities to which transaction applies: |
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| (4) | Proposed maximum aggregate value of transaction: |
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| (1) | Amount Previously Paid: |
| (2) | Form, Schedule or Registration Statement No.: |
June __, 2014
Dear AEI Fund XX Limited Partner:
This letter and the enclosed documents are being provided to solicit your vote on important matters concerning the operation of your limited partnership: AEI Net Lease Income & Growth Fund XX. We refer to this partnership as “Fund XX” or “the Fund” throughout this document. The enclosed Consent Form provides you with the opportunity to vote on three proposals, the first and second of which are alternatives to each other:
Proposal #1. To authorize Fund XX to begin its liquidation by selling its properties and terminating its existence. If this proposal is approved, you will begin receiving capital distributions from the sale of properties and your quarterly distribution from rental income will decline over time to zero when the last remaining property is sold.
Proposal #2. As an alternative to Proposal #1 above, to authorize Fund XX to continue in operation for Usean additional 60 months from December 2013. If this proposal is approved, you will continue to receive quarterly distributions from Fund XX operations, rather than a return of capital from the sale of its properties.
Proposal #3. To amend Section 7.7 of the Commission only (as permittedlimited partnership agreement to increase the price at which units may be repurchased under the Fund’s unit repurchase plan from 90% of the estimated net asset value per unit to 95% of the estimated net asset value per unit.
If you like receiving quarterly income from the rents produced by Rule 14a-6(e)(2))
[X] Definitive Proxythe properties owned by this Fund, we recommend that you vote “FOR” Proposal #2 and Proposal #3 and vote “AGAINST” Proposal #1. Then, those partners who wish to continue owning an operating Fund can do so and those partners who wish to leave the Fund can have their units repurchased at 95% of estimated net asset value – a price that more closely approximates what we believe is the unit fair market value.
Prior to voting, you should read the Consent Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuantcarefully to 240.14a-12
understand what is being proposed and the risks presented by these proposals. If you have any questions about this communication, please call AEI Investor Relations, toll free, at 800-328-3519.
Sincerely,
AEI Fund Management XX, Inc.
General Partner
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11.
1) Title of each class of securities to which
transaction applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction :
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1) Amount Previously Paid
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
December 3, 2008
Dear AEI Net Lease Income & Growth Fund XX Limited Partner:
This letter, and the enclosed attachments, are being
provided to request your vote on an important matter concerning
the operation of your Fund XX. Through the consent form attached
to the enclosed consent statement, we are asking you to vote for
one of two courses of action:
PROPOSAL #1. To continue Fund XX's operations for an
additional 60 months, for the reasons explained herein.
If Fund XX continues in operation, you will continue to
receive quarterly distributions, but will not receive
the capital from the liquidation of Fund XX and its
properties, if that were to occur at this time.
PROPOSAL #2. To cause Fund XX to begin selling its
properties and liquidate. If Fund XX begins the
liquidation process, you will begin to receive
liquidating capital as the Fund's properties are sold,
but your quarterly distributions from rents will
diminish because there will be fewer properties
generating rent for distribution.
WE RECOMMEND A "YES" VOTE FOR PROPOSAL #1 - THE ALTERNATIVE
TO CONTINUE THE OPERATIONS OF FUND XX FOR AN ADDITIONAL 60
MONTHS. You should read the consent statement carefully to
understand what is being proposed, as well as the risks presented
by the two alternatives outlined above.
If you have any questions about this communication or
information, please call AEI Client Services, toll free at 800-
328-3519.
Sincerely,
AEI FUND MANAGEMENT XX, INC.
AEI NET LEASE INCOME & GROWTH FUND XX
1300 Wells Fargo Place
30 East 7thSeventh Street
St. Paul, Minnesota 55101
CONSENT STATEMENT
We are sendingproviding this consent statementConsent Statement to all limited partners of AEI Net Lease Income & Growth Fund XX L.P. ("Fund
XX")Limited Partnership who are unit owners of record on Novemberas of May 1, 2008.2014. We are soliciting your consent, through the enclosed consent form,Consent Form, to the three proposals below, the first two of which are alternative proposals forto each other:
Proposal #1. To cause Fund XX:
PROPOSAL #1. AmendmentsXX to begin selling its properties, followed by the Fund’s liquidation and termination;
Proposal #2. As an alternative to Proposal #1, to amend Section 11.3 of the limited partnership agreement of Fund XX to allowauthorize it to continue in operation for an additional 60 months andfrom December 2013.
Proposal #3. To amend Section 7.7 of the limited partnership agreement to increase the price at which units maywill be repurchased by the Fund under itsthe unit repurchase plan; or
PROPOSAL #2. Inplan from 90% of the alternativeestimated net asset value per unit to Proposal #1, a
proposal to commence95% of the sale of Fund XX properties,
followed by its liquidation.
estimated net asset value per unit;
To vote, for ONE of these alternatives, you must return a properly signed consent formConsent Form that is received by AEI Fund Management XX, Inc. at 1300 Wells Fargo Place, 30 East 7th Street, St. Paul, Minnesota 55101, on or before 5:00 P.M., Central Time, on Janury 8, 2009. PLEASE DO NOTE VOTE FOR BOTH
ALTERNATIVES: THEY ARE MUTUALLY EXCLUSIVE AND CANNOT BE PURSUED
SIMULTANEOUSLY. WE ENCOURAGE YOU TO SIGN AND RETURN THE ENCLOSED
CONSENT FORM - YOUR VOTE IS IMPORTANT.
June __, 2014. Please vote “FOR” only one of the first two proposals. Do not vote “FOR” both Proposal #1 and Proposal #2 at the same time: they are mutually exclusive and cannot be implemented simultaneously.
We are mailingencourage you to sign and return the enclosed Consent Form – your vote is important.
We mailed this Consent Statement to you, as a limited partner of Fund XX, on or about December 3, 2008.
June __, 2014.
| QUESTIONS AND ANSWERS ABOUT THE PROPOSALS AND THE CONSENT SOLICITATION | 3 |
| SUMMARY OF PROPOSALS | 8 |
| BACKGROUND OF THE FUND | 9 |
| Fund XX | 9 |
| Properties | 9 |
| Summary Financial Information | 11 |
| PROPOSAL #1 – LIQUIDATION | 12 |
| Reasons for the Liquidation Proposal | 12 |
| Effects of the Liquidation Proposal | 12 |
| Material Federal Income Tax Considerations of Liquidation | 12 |
| Risks of the Liquidation Proposal | 14 |
| PROPOSAL #2 – CONTINUE OPERATIONS FOR 60 MONTHS | 15 |
| Reasons for the Proposal to Continue Operations | 15 |
| Effects of the Proposal to Continue Operations | 15 |
| Amendment to the Limited Partnership Agreement | 15 |
| Conflicts of Interest with the Proposal to Continue Operations | 16 |
| Risks of the Proposal to Continue Operations | 16 |
| PROPOSAL #3 – AMEND THE FUND’S UNIT REPURCHASE PLAN | 17 |
| Reasons for the Proposed Amendment to the Unit Repurchase Plan | 17 |
| Effects of the Proposed Amendment to the Unit Repurchase Plan | 17 |
| Amendment to Limited Partnership Agreement | 18 |
| Conflicts of Interest with the Proposed Amendment to the Unit Repurchase Plan | 18 |
| Risks of the Proposed Amendment to the Unit Repurchase Plan | 18 |
| UNIT OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT | 19 |
| CONSENT PROCEDURES | 19 |
| Timing of the Consent Solicitation | 19 |
| Record Date and Votes Required for Approval | 19 |
| Procedures for Voting | 20 |
| Costs of Solicitation | 20 |
| Mailing | 20 |
| |
| Exhibit A – | Amendment to Limited Partnership Agreement (Proposal #2) | 21 |
| Exhibit B – | Amendment to Limited Partnership Agreement (Proposal #3) �� | 22 |
| Exhibit C – | Financial Statements at and for the years ended December 31, 2013 and 2012 and for the three months ended March 31, 2014 and 2013 | 23 |
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS AND THE CONSENT 3
SOLICITATION
SUMMARY OF PROPOSALS 8
INTRODUCTION AND BACKGROUND 9
Fund XX 9
Properties 9
Summary Financial Information 11
Background of the Proposals 11
PROPOSAL #1 - TO CONTINUE OPERATIONS 12
Amendments to the Limited Partnership Agreement 12
Reasons for the Proposal to Continue Operations 13
Effects of the Proposal to Continue Operations 13
Conflicts of Interest With the Proposal to Continue 14
Operations
Risks of the Proposal to Continue Operations 14
PROPOSAL #2 - LIQUIDATION 16
Reasons for the Liquidation Proposal 16
Effects of the Liquidation Proposal 16
Material Federal Income Tax Consequences 17
Risks of the Liquidation Proposal 18
UNIT OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT 19
CONSENT PROCEDURES 19
Exhibit A-Amendment to Limited Partnership Agreement 21
(Continuation Proposal)
Exhibit B-Financial Statements at and for the years ended 23
December 31, 2007 and 2006 and at and for the nine months
ended September 30, 2008 and 2007.
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS
AND THE CONSENT SOLICITATION
BACKGROUND
Q: WHAT ARE YOU ASKING?
A: WeWhat are you asking youme to either:
do?
| A: | We are asking you to vote by signing and returning the enclosed Consent Form: |
(1) voteOn a proposal to authorize Fund XX to begin its liquidation by selling its properties and terminating its existence;
(2) On an alternative proposal to authorize Fund XX to continue thein operation of Fund XX for an additional 60 months; or
(2) vote to begin selling Fund XX's propertiesmonths from December 2013; and to
liquidate Fund XX.
DO NOT VOTE FOR BOTH PROPOSALS: THEY ARE MUTUALLY EXCLUSIVE.
Q: WHY ARE YOU ASKING FOR MY VOTE AT THIS TIME?
A: When we formed Fund XX in 1993, we stated that we expected
to liquidate Fund XX in 12 to 15 years. To liquidate Fund
XX, or to amend the limited partnership agreement to have
Fund XX continue in business, requires
(3) On a vote of limited
partners.
Q: WHY AM I BEING PRESENTED WITH TWO ALTERNATIVE PROPOSALS?
A: Your General Partners believe that it is not the best real
estate market in which to begin liquidation and, considering
the low yields available from other investments, some Fund
XX investors may wish to have the Fund continue in business
with the expectation of continuing to receive on-going
quarterly distributions.
Your General Partners do not recommend liquidation at this
time. We do not believe that sale of properties and
liquidation of Fund XX is in the best interest of most of
our limited partners. Consequently, we want to provide an
alternative to those limited partners who would prefer that
Fund XX continues to operate. We believe that:
Fund XX is currently generating cash flow from its
properties that is as favorable as, or better than, the yields
from other investments. We believe that Fund XX remains an
attractive business as an on-going concern.
The current environment for sale of commercial properties is
not as favorable as it may be when the current credit situation
is behind us.
Continuation of Fund XX's operations may allow additional
capital gains to be generated from the sale of some properties
and the reinvestment of proceeds in replacement properties prior
to the final liquidation of Fund XX.
Continuation of Fund XX's operations will allow limited
partners to maintain their investment in income producing, net
leased commercial properties without incurring brokerage or other
up-front fees they could expect to incur if Fund XX is liquidated
and they elect to re-invest their capital in similar investments.
We cannot guarantee that these will be the consequences of
voting to continue the operation of Fund XX. The continued
operation of Fund XX will be subject to the same risks under
which it has been operating, including cyclical changes in
the real estate and credit markets, economic risks of
tenants who lease Fund XX properties, and conflicts of
interest faced by the General Partners in receiving fees and
reimbursements.
Q: MAY I VOTE FOR BOTH PROPOSALS?
A: NO, you should not vote for both proposals.
Proposal #1, if approved, will allow Fund XX to continue its
operations, while Proposal #2 will require the sale of its
properties and its liquidation. If neither proposal is
approved, Fund XX will continue in operation without a
specific time frame to liquidate and the enhanced repurchase
plan contained in Proposal #1 will not go into effect.
PROPOSAL #1 - TO CONTINUE OPERATIONS
Q: WHAT WILL HAPPEN IF LIMITED PARTNERS APPROVE THE FIRST
PROPOSAL: TO AMEND THE LIMITED PARTNERSHIP AGREEMENT TO
CONTINUE THE OPERATION OF FUND XX?
A: If a majority of the limited partners approve the proposal to amend the unit repurchase plan of the limited partnership agreement, then:
The General Partners willto increase the price at which units may be repurchased by Fund XX to 95% of the estimated net asset value per unit.
Do not commencevote “FOR” both Proposal #1 and Proposal #2 at the salesame time: they are mutually exclusive and cannot be implemented simultaneously.
Q: Why are you asking for my vote at this time?
| A: | We are asking for your vote on the first proposal because, in January 2009, a majority of the limited partners voted to amend the limited partnership agreement of Fund XX to continue operations for five years, after which the Managing General Partner would ask the limited partners to again vote on a proposal to liquidate the Fund or continue its operations. |
We are asking for your vote on the second proposal because Fund XX provides cash distributions from operations to its limited partners that are, we believe, favorable when compared to the income they might receive from other investments, and we believe many of all
properties and liquidationthe Fund’s limited partners may prefer to see a continuation of those cash distributions as opposed to a termination of the Fund.
The Fund will continue in operation
We are asking for at least an
additional 60 months;
After 60 months,your vote on the General Partners will, again, solicit
the vote ofthird proposal to provide limited partners the opportunity to continue or liquidateincrease the Fund;
The Fund will continue to operate as it has operated prior
toprice at which units may be repurchased under the vote - owning commercial properties occupied by corporate
tenants under net leases, distributing rental income generated by
those properties, and periodically selling some properties to
generate capital gains for distribution while reinvesting the
remaining proceeds in replacement properties;
The Fund will offer an enhancedFund’s unit repurchase plan under which
(i) the repurchase price for units tendered will be equal tofrom 90% of the estimated net asset value per unit (rather thanto 95% of the current
repurchase pricing formula which equates to approximately 42% of
theestimated net asset value per unit), and (ii)unit. This will result in a repurchase price that more closely approximates what the opportunity to tender
units for repurchase will be offered twice a year rather than
once a year.
Managing General Partner believes is the unit fair market value.
Q: ARE THERE RISKS ASSOCIATED WITH THE May I vote “FOR” all proposals?
| A: | No. Vote “FOR” only one of the first two proposals. Do not vote “FOR” Proposal #1 and “FOR” Proposal #2 at the same time. Proposal #1, if approved, will require the sale of the Fund’s properties and the Fund’s liquidation, while Proposal #2 will authorize the Fund to continue in operation. If none of the proposals are approved, Fund XX will continue in operation without a specific time frame to liquidate and the increased unit repurchase price described in Proposal #3 will not take effect. |
PROPOSAL TO#1 – LIQUIDATION
| Q: | Why is Proposal #1 being presented? |
| A: | In January 2009, the limited partners voted to add Section 11.3 to the limited partnership agreement of Fund XX to require the Managing General Partner to ask the limited partners to vote on a proposal to liquidate the Fund in five years. Under Section 6.1 of the limited partnership agreement, we are required to obtain the consent of holders of a majority of the outstanding units to sell all or substantially all of the Fund’s assets. It is now time to solicit that vote. |
| Q: | What will happen if limited partners approve Proposal #1? |
| A: | Proposal #1, if approved, will authorize the General Partners of Fund XX to commence the orderly sale of the Fund’s nine properties. We anticipate that all sales could be completed within 24 to 36 months. As sales are completed, Fund XX would distribute the proceeds to you and other limited partners, less expenses, less the General Partners’ interest in the proceeds, and less a reasonable operating reserve. Reserve funds would be distributed as part of the final dissolution of the Fund. |
| Q: | If Proposal #1 is approved, how much cash might I receive? |
| A: | We cannot know how much cash can be generated from the sale of the properties until the sales are actually completed. The value of the properties depends upon market conditions. Any amount that the Fund would be able to distribute would depend upon the terms of sale as well as expenses incurred to complete each sale. Based upon current market conditions and capitalization rates for similarly situated properties, and our own internal analysis without independent appraisal, we estimate that the “liquidation value” of the assets of Fund XX is approximately $19,088,000 or approximately $884 per unit as of March 31, 2014. In making this estimate, we are assuming that Fund properties are sold in the normal course of business without extraordinary expense, that the properties continue to generate rental income during the sales period, and that the General Partners’ interest is subtracted prior to calculating the liquidation value per unit. It is likely that the actual proceeds will vary from this estimate. Any variation could be material. |
| Q: | Are there any negative factors that limited partners should consider in connection with liquidation? |
| A: | The General Partners believe that: |
| · | It may be difficult for limited partners to redeploy liquidation proceeds: that is, to locate other investments that generate a return on invested capital as high as the return being generated by Fund XX. |
| · | Although the General Partners would attempt to follow an orderly process, a more rapid sale of properties may generate lower overall proceeds than might be available from timing sales to local market conditions. |
| · | The sale of properties through a liquidation process in a short period of time may generate a concentration of gain that has adverse tax consequences to limited partners. |
Q: What are the tax consequences of liquidation?
| A: | The sale of the properties and distribution of the liquidation proceeds may generate both ordinary income and capital gain or loss to the limited partners for United States federal income tax purposes. Tax matters are complicated. Your tax consequences may depend on your financial situation and whether you purchased your units in the original offering or the secondary market. Please consult your tax advisor to determine the tax consequences of liquidation to you. |
| Q: | What if Proposal #1 is not approved? |
| A: | If Proposal #1 to liquidate is not approved, then Fund XX will not liquidate and will continue in operation until the limited partners vote to authorize the sale of all of the Fund’s properties or December 31, 2043, as stated in the limited partnership agreement. However, in approximately five years, we would expect to again submit the question to liquidate to a vote by the Fund’s limited partners. |
PROPOSAL #2 – CONTINUE OPERATIONS?
A: If neither Proposal #1 nor #2 is approved, there will be no
definite date on which the partnership will liquidate and
the repurchase plan will remain at the current price level.
Although weOPERATIONS FOR 60 MONTHS
| Q: | Why is Proposal #2 being presented? |
| A: | The General Partners believe that: |
| · | Fund XX continues to be an attractive business as a going concern and is currently generating cash distributions from its properties that are higher than distributions investors could realize from other income-generating investments with similar risk profiles. |
| · | Continuation of Fund XX’s operations may allow capital gains to be generated from the sale of properties prior to the final liquidation of the Fund. |
| · | Continuation of Fund XX’s operations will allow limited partners to maintain their investment in income-producing, net leased, commercial properties without incurring the costs that they could expect to incur if Fund XX were to liquidate and they re-invested their proceeds in other similar investments. |
We cannot assure you that Proposal #1 reduces some of the
risks an indefinite continuation of Fund XX might present,
if Proposal #1 is approved, distributions of cash from final
sale of properties would be delayed until a subsequent
liquidation proposal is approved. Further, if Proposal #1 is
approved, the operations of Fund XX will continue to be
subject toachieve these objectives if you vote for the risks of an investment holding real estate,
including the following:
Market and economic conditions may adversely affect the
value of properties which Fund XX owns, or may purchase;
Any defaults by tenants may reduce rental income or delay
sale of Fund properties;
There will continue to be no public market for your limited
partnership units, and although Proposal #1 (to continue
operations) includes changes to Fund XX's repurchase plan, you
may not be able to dispose of your units through this plan, or
otherwise, at the time you wish;
If limited partners voteproposal to continue the operation of Fund
XX after 60 months, your ability to receive proceeds from the
final sale of the Fund's properties may be further delayed;
The General Partners receive reimbursements of expenses
based on the capital value of the Fund and may not have the same
interest as limited partners in approving Proposal #1.
operations.
| Q: | What will happen if limited partners approve Proposal #2? |
| A: | If Proposal #2 is approved, then: |
| · | Fund XX will not commence liquidation at this time. |
| · | Fund XX will continue to operate: owning net leased, commercial properties occupied by national and regional corporate tenants, distributing rental income generated by those properties, and periodically selling properties to generate capital gains for distribution while reinvesting the remaining proceeds into similar properties. |
| · | After 60 months, Fund XX will again solicit a vote to continue in operation or liquidate. |
Q: Are there risks associated with continuing operations?
| A: | Fund XX will continue to be subject to the risks of investment in real estate, including the following: |
| · | Changing market and economic conditions may adversely affect the value of properties which Fund XX owns, or may purchase; |
| · | Any default by tenants may reduce rental income or delay sale of Fund properties; |
| · | The absence of a public market for the limited partnership units, and the limited capacity of Fund XX to repurchase units under its repurchase plan; |
| · | Delay in final sale of the Fund’s properties and receipt of proceeds from sales; |
| · | Conflicts of interest with respect to the General Partners and their affiliates receiving reimbursements of expenses based upon the capital value of the Fund that may cause them to have a different interest than limited partners for approving Proposal #2. |
You should read the risk factors presented later in this consent statementConsent Statement to fully understand the risks involved.
| Q: | Do the General Partners, or management of the General Partners, have any interest in seeing Proposal #2 approved? |
| A: | Potentially, yes. The General Partners and their affiliates are reimbursed for the expenses incurred in operating Fund XX, including expenses of administering the Fund’s properties. If the Fund is liquidated, these reimbursements would terminate. Although the reimbursements are at cost, they are calculated on the fully-loaded costs of the General Partners and their affiliates in providing the services and, therefore, include a portion of the salaries and other compensation expenses of the General Partners and their affiliates. On the other hand, if the Fund is liquidated, the General Partners will receive a share of the liquidation proceeds. |
| Q: | Will Proposal #2 have any tax consequences for me? |
| A: | We do not believe there should be any tax consequences resulting from the approval of Proposal #2. |
PROPOSAL #3 – AMEND THE FUND’S UNIT REPURCHASE PLAN
Q: DO THE GENERAL PARTNERS RECOMMEND THAT I VOTE FOR PROPOSAL #1?
A: YES. AEI FUND MANAGEMENT XX, INC., THE MANAGING GENERAL
PARTNER OF FUND XX, AND ROBERT P. JOHNSON, THE INDIVIDUAL
GENERAL PARTNER OF FUND XX, BOTH RECOMMEND A VOTE IN FAVOR
OF PROPOSAL #1.
Nevertheless, the General Partners believe that a decision
to vote for, or against, Proposal #1 depends upon the
financial objectives of each limited partner. If a limited
partner believes that he or she can generate a more
favorable return from other investments of similar risk, or
has an immediate need for cash, that limited partner may
wish to vote for Proposal #2. For most limited partners,
however, the General Partners believe that continued
ownership of income-producing commercial, net leased real
estate with leases that generate rental payments at the
level generated byAt what price does Fund XX remains a favorable investment
that will be difficultcurrently repurchase units?
| A: | Section 7.7 of the limited partnership agreement of Fund XX, as amended in January 2009, currently provides that repurchases by Fund XX are made at a price equal to 90% of the estimated net asset value per unit. At March 31, 2014, we estimate the net asset value per unit was approximately $884. |
| Q: | Why do you want to increase the repurchase price? |
| A: | We believe that it is appropriate to provide the limited partners the opportunity to increase the price at which units are repurchased to a price that more closely approximates what we believe is the unit fair market value. |
| Q: | Isn’t a lower repurchase price under the unit repurchase plan favorable to the limited partners who do not wish to sell their units? |
| A: | Yes. A lower repurchase price, if accepted by a tendering limited partner, would be more favorable to limited partners who remain in the Fund, than a higher price. However, at some point, a limited partner may need liquidity and the higher price would result in that limited partner receiving a price that the General Partners believe is closer to the unit fair market value. |
Q: Are there risks related to replace if the Fund is liquidated.
Q: WHY DOES PROPOSAL #1 INCLUDE AN AMENDMENT TO THE LIMITED
PARTNERSHIP AGREEMENT TO CHANGE THE REPURCHASE PLAN?
A: The change in the repurchase plan is intended to address
potential liquidity constraints that may be concerns of some
partners. Under the existing repurchase plan, as mandated by
the limited partnership agreement, repurchases are made at a
price equal to the adjusted capital contribution of a
limited partner, reduced by all prior distributions of net
cash flow. At September 30, 2008, this value was
approximately $459 per unit, while we estimate the net asset
value per unit on that date was approximately $1,097. We
represented when Fund XX first sold units that we expected
to commence liquidation of the Fund in 12 to 15 years. We
believe that, if limited partners approve a change in this
timetable, it is appropriate to provide a liquidity option
through the repurchase plan that more closely approximates
net asset value per unit. Accordingly, if Proposal #1 is
approved, Fund XX will price the repurchase of units at 90%
of the net asset value per unit at the time.
Q: DO THE GENERAL PARTNERS, OR MANAGEMENT OF THE GENERAL
PARTNERS, HAVE ANY INTEREST IN SEEING THESE AMENDMENTS
APPROVED?
A: Yes, the General Partners are reimbursed for the expenses
incurred in operating Fund XX, including expenses of
administering the Fund properties. If the Fund is
liquidated, these reimbursements would terminate. Although
the reimbursements are at cost, they are calculated on the
fully-loaded costs of the General Partners in providing the
services and, therefore, include a portion of the salaries
and other compensation expenses of the General Partners.
Although the General Partners also share in distributions
from Fund XX, we believe those distributions cannot exceed
1% of cash flow and 1% of sales proceeds. THEREFORE, WE
BELIEVE THAT THE GENERAL PARTNERS ARE IN THE SAME POSITION
AS LIMITED PARTNERS WITH RESPECT TO THESE DISTRIBUTIONS IN
MAKING A DECISION TO CONTINUE OR LIQUIDATE FUND XX.
Q: WILL THE PROPOSAL TO CONTINUE OPERATIONS HAVE ANY TAX
CONSEQUENCES FOR ME?
A: We do not believe there should be any tax consequences
resulting from the adoption of Proposal #1.
PROPOSAL #2 repurchases?
| A: | In addition to the possibility that repurchases may not be available, limited partners should consider the following risks in connection with the Fund’s unit repurchase plan: |
| · | The calculation of net asset value per unit is based upon estimates and assumptions and the knowledge and expertise of the General Partners and Fund XX may, eventually, realize values per unit that are more or less than the Fund’s stated repurchase price; |
| · | Units will be repurchased at a discount from the estimated net asset value per unit; |
| · | Limited partners whose units are repurchased may incur a tax liability; |
| · | Repurchases by the Fund may utilize cash that would otherwise be available for distribution to limited partners whose units are not repurchased, thereby decreasing their current distributions. |
- LIQUIDATION
Q: IF THE GENERAL PARTNERS BELIEVE THAT CONTINUATION OF FUND XX
IS IN MY BEST INTERESTS, WHY IS THE LIQUIDATION PROPOSAL
ALSO BEING PRESENTED?
A: When we formed Fund XX in 1993, the offering documents
indicated that it was our intention to sell the properties
in 12 to 15 years, or when market conditions were most
advantageous. Under Section 6.1 of the limited partnership
agreement of Fund XX, we are required to obtain your
consent, as limited partners, to the sale of all or
substantially all of Fund XX's assets. Although we do not
believe that current market conditions are particularly
favorable, it is 15 years since the first admission of
limited partners to Fund XX. Accordingly, we have determined
to present our limited partners with the two proposals.
Q: WHAT WILL HAPPEN IF LIMITED PARTNERS APPROVE THE SECOND
PROPOSAL: TO HAVE FUND XX LIQUIDATED?
A: If limited partners approve the proposal to sell its
properties and liquidate Fund XX, the General Partners will
commence the orderly liquidation and sale of Fund XX's 15
real estate properties to independent buyers. We anticipate
that all sales could be completed within 24 months following
approval of the proposal. If Proposal #2 is approved, as the
sales are completed, Fund XX would distribute the proceeds
to you and other limited partners, less expenses, less the
General Partners' interest in the proceeds, and less a
reasonable reserve.
Q: IF THE LIQUIDATION PROPOSAL IS APPROVED, HOW MUCH WILL I
RECEIVE?
A: We will not know how much cash will be generated from the
sale of the properties until the sales are completed-the
value of the properties depends upon market conditions, and
the amount that we will be able to distribute depends upon
the terms of sale as well as expenses incurred to complete
the sale. Based upon current market conditions and
capitalization rates for similarly situated properties, and
on their own internal analysis without independent
appraisal, the General Partners estimate that the
"liquidation value" of the assets of Fund XX is
approximately $24,430,000 or approximately $1,097 per unit.
We are assuming in making this estimate that the properties
are sold in the normal course of business and without
extraordinary expense (such as might be incurred if a tenant
filed for protection under bankruptcy laws), that the
properties continue to generate rental income during the
sales period, and that the General Partners' interests are
subtracted prior to calculating the liquidation value per
unit. It is likely that the actual proceeds will vary from
this estimate and that any variation may be material.
Q: ARE THERE ANY NEGATIVE FACTORS THAT LIMITED PARTNERS SHOULD
CONSIDER IN CONNECTION WITH THE LIQUIDATION PROPOSAL?
A: The General Partners believe that:
This is not the most opportune time to sell properties: the
commercial real estate market is beginning to feel the effects of
the economy and sales have become more difficult to complete; and
It may be difficult for limited partners to redeploy sales
proceeds-to locate other investments that generate a return on
invested capital as high as the return being generated by Fund
XX.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE LIQUIDATION?
A: The sale of the properties and distribution of the
liquidation proceeds may generate both ordinary income and
capital gain or loss to the limited partners for United
States federal income tax purposes. Tax matters are very
complicated. Your tax consequences may depend on your
financial situation and whether you purchased your units in
the original offering or the secondary market. Please
consult your tax advisor to determine the tax consequences
of the liquidation.
Q: WHAT IF THE LIQUIDATION IS NOT APPROVED?
A: If the liquidation proposal is not approved by a majority of
units held by limited partners, then Fund XX will continue
to operate as a legal entity with its assets and
liabilities. If neither the liquidation proposal nor the
proposal to continue operations is approved, the repurchase
plan will remain at the current, lower, valuation per unit
level and the term of the partnership may continue until
2043.
THE CONSENT SOLICITATION PROCESS
Q: AM I REQUIRED TO VOTE ON EITHER PROPOSAL?
A: No. You are not required to vote. However, we cannot
complete the liquidation, or amend the limited partnership
to accommodate the enhanced repurchase plan that is a
feature of Proposal #1 (to continue operations), without the
approval of holders of at least a majority of the
outstanding units entitled to vote.
Q: How do I vote?
A: Please mark your VOTE, SIGN AND RETURN THE CONSENT FORM
using the enclosed postage paid envelope. Your consent form
must be received by 5:00 p.m., Central Time, on January 8,
2009 (unless this date and time is extended by Fund XX).
Q: MAY I REVOKE MY CONSENT?
A: Yes. Limited partners may withdraw or revoke their consent
at any time prior to the earlier of 5:00 p.m., Central Time,
on January 8, 2009. To be effective, a written or
facsimile revocation or withdrawal of the consent form must
be received prior to such time and addressed to AEI Fund
Management XX, Inc. at 1300 Wells Fargo Place, 30 East 7th
Street, St. Paul, Minnesota 55101 A notice of revocation or
withdrawal must specify the limited partner's name and the
number of units being withdrawn.
Q: DO LIMITED PARTNERS HAVE APPRAISAL RIGHTS?
A: Under Minnesota law, limited partners are not entitled to
appraisal rights with respect to the value of their units.
There will not be any procedure by which a limited partner
can seek an alternative valuation of his or her units,
regardless of whether the limited partner does or does not
consent to either proposal.
6 -
| Q: | Do the General Partners, or management of the General Partners, have any interest in seeing Proposal #3 approved? |
| A: | We believe that the General Partners and limited partners, who wish to continue to participate in Fund XX, have the same interest in seeing this proposal approved. |
| Q: | Will Proposal #3 have any tax consequences for me? |
| A: | We do not believe there should be any tax consequences resulting from the approval of Proposal #3. However, a limited partner who presents units for repurchase by the Fund should consult with his or her personal tax advisor about the possible tax effects of the transaction. |
| THE CONSENT SOLICITATION PROCESS |
| Q: | Am I required to vote on these proposals? |
| A: | No. You are not required to vote. However, not voting would have the effect of a vote against the proposals. If Proposal #1 to liquidate is not approved by limited partners holding a majority of the outstanding units, then Fund XX will continue in operation until the limited partners vote to authorize the sale of all of the Fund’s properties or December 31, 2043. If Proposal #3 is not approved by a majority of the units held by limited partners, Fund XX will continue to offer a unit repurchase price equal to 90% of the estimated net asset value per unit. |
| A: | Mark your vote, sign and return the Consent Form using the enclosed postage paid envelope. Your Consent Form must be received by 5:00 p.m., Central Time, on June __, 2014 (unless this date and time is extended). |
| Q: | May I revoke my consent? |
| A: | Yes. You may withdraw or revoke your consent at any time prior to 5:00 p.m. Central Time, on June __, 2014. To be effective, a written or facsimile revocation or withdrawal of the Consent Form must be received prior to such time and addressed to AEI Fund Management XX, Inc. at 1300 Wells Fargo Place, 30 East 7th Street, St. Paul, Minnesota 55101. A notice of revocation or withdrawal must specify the limited partner’s name and the number of units being withdrawn. |
| Q: | Do limited partners have appraisal rights? |
| A: | With respect to this vote, limited partners are not entitled to appraisal rights with respect to the value of their units. There will not be any procedure by which a limited partner can seek an alternative valuation of his or her units, regardless of whether the limited partner does or does not consent to any of the proposals. |
SUMMARY OF PROPOSALS
The following summarizes the proposals being presented to the limited partners of Fund XX. You should read this entire Consent Statement to fully understand the proposals.
PROPOSAL #1-TO CONTINUE OPERATIONS:
Effect:
Proposal #1 – Liquidation:
| Effect: | If liquidation is authorized, the General Partners will commence the orderly sale of the Fund’s properties and the winding up of its affairs, including distribution of proceeds to partners in accordance with the limited partnership agreement. Authorization to liquidate is required in accordance with Section 6.1 of the limited partnership agreement prior to the sale of all or substantially all of the assets of the Fund. |
| Vote Required: | Approval of the liquidation proposal requires the affirmative vote of holders of a majority of the outstanding units (excluding any units held by the General Partners for their own account). |
Proposal #2 – Continue Operations For 60 Months:
| Effect: | If the proposal to continue operations is approved, the Fund’s limited partnership agreement will be amended to set the year of 2018 as the date at which limited partners would again vote on continuing operations or liquidating. |
| Vote Required: | Approval of the proposal to continue operations requires the affirmative vote of holders of a majority of the outstanding units (excluding any units held by the General Partners for their own account). |
Proposal #3 – Amend the proposal to
continue operations is approved, the limited
partnership agreementFund’s Unit Repurchase Plan
| Effect: | If the proposal to amend the repurchase plan is approved, Fund XX will be allowed to repurchase units at 95% of the estimated net asset value per unit, reduced by distributions made to limited partners after the repurchase price is calculated and prior to the repurchase date. |
| Vote Required: | Approval of the proposal to amend the unit repurchase plan requires the affirmative vote of holders of a majority of the outstanding units (excluding any units held by the General Partners for their own account). |
| Solicitation: | This Consent Statement was prepared by, and consents are being solicited by and |
| on behalf of, AEI Fund Management XX, Inc., the Managing General Partner of Fund XX. |
| Interest of General | The General Partners have interests in the liquidation proposal and the proposal to |
| Partners: | continue operations that are different from the interests of limited partners because: |
| · | The General Partners and their affiliates receive reimbursements of the costs they incur and services they provide to Fund XX, including the compensation expense of their employees based upon the hours they spent for the services they performed. These reimbursements will terminate if the liquidation proposal is approved and Fund XX is dissolved. |
| · | The General Partners are entitled to indemnification in instances defined in the limited partnership agreement. |
| · | If the Fund is liquidated, the General Partners will receive a share of the liquidation proceeds. |
BACKGROUND OF THE FUND
Fund XX will be amended
to (a) set the year in which limited partners
would again vote on continuing or liquidating Fund
XX at 2013; (b) increase the repurchase price
contained in the repurchase provisions to 90% of
the net asset value per unit and cause the
opportunity to tender units for repurchase to be
offered twice, rather than once, per year. If the
proposal to continue operations is approved, you
will be asked to vote on these same two proposals
again in 2013.
Vote Required: Approval of the proposal to
continue operations requires the affirmative vote
of holders of a majority, by interest, of the
limited partners (excluding any units held by the
General Partners for their own account).
PROPOSAL #2-LIQUIDATION:
Effect: Approval of the
liquidation proposal is required in accordance
with Section 6.1 of the limited partnership
agreement prior to the sale of all of the assets
of Fund XX. If the liquidation proposal is
approved, the General Partners will commence the
orderly sale of Fund XX's properties and winding
up of its affairs, including distribution of
proceeds to partners in accordance with the
limited partnership agreement.
Vote Required: Approval of the liquidation
proposal requires the affirmative vote of the
Individual General Partner and holders of a
majority, by interest, of the limited partners
(excluding any units held by the General Partners
for their own account).
SOLICITATION AND This consent statement was prepared by, and
RECOMMENDATION: consents are being solicited by and
on behalf of, AEI Fund Management XX, Inc.,
the Managing General Partner of Fund XX. THE
GENERAL PARTNERS RECOMMEND A VOTE FOR PROPOSAL #1.
INTEREST OF GENERAL The General Partners have interests in the
PARTNERS: proposal to continue operations and
the liquidation proposal that are different from
the interests of limited partners because:
The General Partners receive reimbursements for the costs
they incur and services they provide to Fund XX, including
the compensation expense of their employees based on the
hours of services performed. These reimbursements will
terminate if the liquidation proposal is adopted and
Fund XX is dissolved.
The General Partners are entitled to indemnification in
instances defined in the limited partnership agreement
APPRAISAL RIGHTS: If you disagree with either proposal, you
will not have appraisal rights, or any right to
demand payment of the fair market value of your
units of limited partnership interest in Fund XX.
INTRODUCTION AND BACKGROUND
FUND XX
AEI Net Lease Income & Growth Fund XX Limited Partnership is a Minnesota limited partnership formedorganized in 1993. It raised $24 million through a public offering of its units. These proceeds were used to purchase, for cash, commercial real estate leasedoccupied by tenants under net leases. Fund XX initially purchased 14 properties with the net proceeds from the offering, including partial interests in somefive of these properties. The prospectus underby which the units were originally offered indicated that properties would be sold from time to time and the cash proceeds invested in additionalsimilar net leased properties.
Although we haveFund XX has not commenced the sale of properties in final liquidation, we have, during the operation of Fund XX,has sold
several properties and reinvested the majority of the proceeds in replacementsimilar net leased properties. In all cases, we havethe Fund has distributed enough cash for limited partners to pay the taxes generated by any income or gain recognized by them on sale of thesuch properties.
PROPERTIES
Properties
As of September 30, 2008,March 31, 2014, Fund XX held interests in 15nine net leased properties. It also held cash from two recent property sales totaling $2,152,460. All$2,151,000. Seven of the properties are subject to net leases under which the tenant pays substantially all of the property operating costs of the property.costs. The tenants for all of thein these properties are current with their rental payments and all of the properties are fully occupied. The other two properties are currently vacant as discussed below.
On January 31, 2011, the original lease for one of property
expires on November 30, 2008term expired and the tenant has advised us that
they do not intendreturned possession of the HomeTown Buffet restaurant in Albuquerque, New Mexico to renew it.the Fund XX has retainedand the property’s other co-owners. The owners listed the property for lease or sale with a real estate broker in the Albuquerque area. While the property is vacant, the Fund is responsible for its 40.14% share of real estate taxes and other costs associated with maintaining the property.
On December 15, 2013, Champps Operating Corporation (“Champps”), the tenant of the Champps Americana restaurant in Utica, Michigan, filed for Chapter 11 bankruptcy reorganization. In February 2014, Champps closed the restaurant, filed a motion with the bankruptcy court to marketreject the lease and returned possession of the property to the Fund and the property’s other co-owners. The owners listed the property for sale or lease.
lease with a real estate broker in the Utica area. While the property is vacant, the Fund is responsible for its 44% share of real estate taxes and other costs associated with maintaining the property. In April 2014, Fund XX and the other co-owners of the property received a non-binding letter of intent from an unrelated third party for the purchase of the property. The sale is subject to contingencies, including negotiating a written purchase agreement, and may not be completed. If the sale is completed, the Fund expects to receive net proceeds of approximately $718,000. If the sale is not completed, the owners will seek another buyer for the property and may not be able to negotiate a purchase agreement with similar economic terms.
The following table sets forth the properties held by Fund XX as of September 30, 2008,March 31, 2014, the date each property was acquired, the ownership interest in the property, the acquisition cost, the date the baseinitial lease term expires, the annual rental amount, and the Managing General Partners'Partner’s estimate of the current value of the property:
Date Ownership Acquisition Lease Annual Estimated
Property Acquired Interest% Cost Expiration Rent Value(1)
HomeTown Buffet
Albuquerque, NM 9/30/93 40.14 $ 531,331 1/31/11 $48,162 $ 481,600
Red Robin
Colorado
Springs, CO 2/24/94 100.00 2,229,190 12/31/17 325,000 4,391,900
Red Robin
Colorado
Springs, CO 2/24/94 100.00 1,755,441 11/30/08 156,060 1,116,000
Applebee's
McAllen, TX 12/8/94 100.00 1,320,104 12/31/14 224,994 2,647,000
Champps Americana
Utica, MI 2/12/02 44.00 1,511,134 2/28/22 190,780 1,837,300
KinderCare
Mayfield
Heights, OH 6/14/02 100.00 1,407,058 6/30/17 146,985 2,070,200
Biaggi's
Ristorante
Italiano
Ft. Wayne, IN 7/3/03 50.00 1,379,346 7/31/16 130,540 1,695,300
Johnny Carino's
Alexandria, LA 11/13/03 100.00 2,144,748 11/30/20 206,950 2,463,700
Jared Jewelry
Hanover, MD 2/9/04 50.00 1,989,105 1/31/22 168,551 2,478,700
Applebee's
Sandusky, OH 4/30/04 45.00 1,276,943 10/31/23 97,254 1,430,200
Tractor Supply
Company
Mesquite, TX 3/10/06 50.00 1,231,624 8/14/13 100,344 1,356,000
Four micellaneous
fractional
property Less 33,818 Various 4,522 44,800
interests Various than 2%
(1) Fund XX has not obtained appraisals of these properties. The
General Partners have valued the properties based upon rental
rates and prevailing capitalization rates which they believe are
applicable. We cannot assure you that we could sell the
properties at the estimated values set forth in the table.
SUMMARY FINANCIAL INFORMATION
Property | Date Acquired | Ownership Interest (%) | Acquisition Cost | Lease Expiration | Annual Rent | Estimated Value (1) |
HomeTown Buffet Albuquerque, NM | 9/30/93 | 40.14 | $ 531,331 | Vacant | $ 0 | $ 275,000 |
Red Robin Colorado Springs, CO | 2/24/94 | 100.00 | 2,302,267 | 12/31/17 | 341,250 | 3,489,000 |
Champps Americana Utica, MI | 2/12/02 | 44.00 | 1,511,134 | Vacant | 0 | 718,000 |
KinderCare Mayfield Heights, OH | 6/14/02 | 100.00 | 1,407,058 | 6/30/17 | 161,684 | 1,653,000 |
Jared Jewelry Hanover, MD | 2/9/04 | 50.00 | 1,989,105 | 1/31/22 | 185,406 | 2,437,000 |
Applebee’s Sandusky, OH | 4/30/04 | 40.60 | 1,152,069 | 10/31/23 | 101,399 | 1,493,000 |
Staples Vernon Hills, IL | 5/22/09 | 70.00 | 3,803,268 | 10/31/18 | 308,315 | 3,783,000 |
Tractor Supply Company Starkville, MS | 2/23/12 | 47.00 | 1,364,366 | 1/31/27 | 102,462 | 1,423,000 |
Family Dollar Mobile, AL | 7/23/12 | 100.00 | 1,439,737 | 6/30/22 | 119,926 | 1,666,000 |
| (1) | Estimated value at March 31, 2014. Fund XX has not obtained appraisals of these properties. The Managing General Partner has valued the properties based upon rental rates and prevailing capitalization rates which they believe are applicable. If a property is vacant, the marketability of the property is analyzed to determine a fair value. We cannot assure you that we could sell the properties at the estimated values set forth in the table. |
Summary Financial Information
The following table provides operational data about Fund XX for the ninethree months ended September 30, 2008March 31, 2014 and 20072013 and for the years ended December 31, 20072013 and 2006,2012, on the basis of Fund XX continuing as a going concern:
Nine Months Ended Year Ended
September 30 December 31
2008 2007 2007 2006
Rental income $1,222,720 $1,256,170 $1,689,206 $1,620,066
Partnership 212,576 196,117 255,832 258,511
Administration &
Property Management
Expenses
Depreciation 252,781 252,786 338,525 332,241
Total Expenses 465,357 448,903 594,357 590,752
Operating Income 757,363 807,267 1,094,849 1,029,314
Other Income -
Interest 38,650 34,841 45,129 46,415
Income from Continuing
Operations 796,013 842,108 1.139,978 1,075,729
Income from Discontinued
Operations 829,788 194,971 252,179 363,653
Net Income 1,625,801 1,037,079 1,392,157 1,439,382
Net Income Allocated
to Limited Partners 1,609,543 1,026,708 1,378,235 1,424,988
Net Income Per LP Unit 73.01 46.52 62.47 64.40
Distributions Per
LP Unit 69.22 59.68 78.73 86.18
| | Three Months Ended March 31 | Year Ended December 31 |
| | 2014 | 2013 | 2013 | 2012 |
| Rental income | $298,963 | $298,963 | $1,195,849 | $1,106,004 |
Partnership Administration & Property Management Expenses | 74,154 | 73,953 | 278,976 | 323,408 |
| Acquisition Expenses | 0 | 0 | 0 | 53,703 |
| Depreciation | 76,700 | 76,700 | 306,804 | 278,048 |
| Real Estate Impairment | 0 | 0 | 61,002 | 0 |
| Total Expenses | 150,854 | 150,653 | 646,782 | 655,159 |
| Operating Income | 148,109 | 148,310 | 549,067 | 450,845 |
| Other Income – Interest | 1,739 | 270 | 3,044 | 4,830 |
| Income from Continuing Operations | 149,848 | 148,580 | 552,111 | 455,675 |
| Income from Discontinued Operations | 92,422 | 55,078 | 263,481 | 255,803 |
| Net Income | 242,270 | 203,658 | 815,592 | 711,478 |
| Net Income Allocated to Limited Partners | 239,847 | 201,621 | 801,132 | 700,332 |
| Net Income Per LP Unit | 11.23 | 9.35 | 37.32 | 32.29 |
| Distributions Per LP Unit | 13.78 | 13.76 | 55.29 | 57.97 |
The following table provides data on the financial condition of Fund XX on a historical cost basis at September 30, 2008March 31, 2014 and 2007,2013, and December 31, 20072013 and 2006:
September 30 December 31
2008 2007 2007 2006
Cash and Cash
Equivalents $ 2,874,062 $ 1,098,409 $ 1,102,753 $ 1,083,159
Investments2012:
| | March 31 | December 31 |
| | 2014 | 2013 | 2013 | 2012 |
| Cash | $2,601,031 | $ 482,154 | $2,414,005 | $458,643 |
| Receivables | 0 | 0 | 0 | 1,843 |
| Investments in Real Estate, net | 11,624,700 | 14,248,679 | 11,806,910 | 14,355,874 |
| Total Assets | 14,225,731 | 14,730,833 | 14,220,915 | 14,816,360 |
| Payable to Affiliate | 75,932 | 137,154 | 74,979 | 120,332 |
| Distributions Payable | 297,472 | 299,696 | 299,700 | 299,696 |
| Unearned Rent | 76,143 | 8,539 | 13,474 | 13,474 |
| Acquired Below-Market Lease Intangible | 70,602 | 76,104 | 71,978 | 77,480 |
| Total Liabilities | 520,149 | 521,493 | 460,131 | 510,982 |
| General Partners’ Capital | 4,581 | 3,314 | 5,133 | 4,274 |
| Limited Partners’ Capital | 13,701,001 | 14,206,026 | 13,755,651 | 14,301,104 |
PROPOSAL #1 – LIQUIDATION
Reasons for the Liquidation Proposal
In January 2009, the limited partners voted to add Section 11.3 to the limited partnership agreement of Fund XX to require the Managing General Partner to ask the limited partners to vote on a proposal to liquidate the Fund in Real
Estate, net 13,822,186 15,647,512 15,545,103 15,954,727
Total Assets 16,696,248 16,745,921 16,647,856 17,037,886
Payable to Affiliate 40,022 41,966 67,148 84,418
Distributions Payable 404,901 413,773 413,767 413,582
Total Liabilities 457,172 510,385 493,164 509,135
General Partners'
Capital 13,172 13,136 12,328 16,068
Limited Partners'
Capital 16,225,904 16,222,400 16,142,364 16,512,683
BACKGROUND OF THE PROPOSALSfive years. Under Section 6.1 of the limited partnership agreement, of
Fund XX, we are required to obtain your consent, as limited
partners, to the sale of all or substantially all of Fund XX's
assets. Although the limited partnership agreement does not
specify a date, prior to 2043, at which Fund XX must terminate,
the prospectus under which units were initially sold indicated
that it was our intention to sell the properties in 12 to 15
years, or when market conditions were most advantageous.
Although we do not believe that current market conditions
are particularly favorable, it is 15 years since the first
admission of limited partners to Fund XX. Accordingly, we have
determined to present to our limited partners two proposals: (1)
a proposal to continue operating Fund XX for an additional 60
months, after which we will again solicit the consent of the
limited partners with respect to liquidation, and (2) a proposal
to cause Fund XX to begin selling its properties and liquidate.
THE GENERAL PARTNERS RECOMMEND A VOTE "FOR" THE PROPOSAL TO
CONTINUE THE OPERATIONS OF FUND XX FOR AN ADDITIONAL 60 MONTHS.
PROPOSAL #1-TO CONTINUE OPERATIONS
AMENDMENTS TO THE LIMITED PARTNERSHIP AGREEMENT
The proposal to continue the operations of Fund XX will be
implemented, if approved by limited partners, through several
amendments to the limited partnership agreement that are set
forth in Exhibit A to this consent statement. These amendments
will:
1. Amend Article XI of the limited partnership
agreement to add a new Section 11.3 that requires the
General Partners to prepare a new consent or proxy statement
before December 31, 2013, to solicit another vote of limited
partners to either liquidate Fund XX, or extend its
operation for an additional period of years;
2. Amend Section 7.7 of the limited partnership
agreement to provide that (1) the repurchase price for units
purchased in the repurchase plan of Fund XX will be
increased to 90% of the net asset value per unit, and (2)
the Fund will offer to repurchase twice, rather than once,
per year.
Although we indicated in the prospectus under which the
units were initially sold that we intended to liquidate Fund XX
12 to 15 years after it was formed, there currently is no
contractual requirement in the limited partnership agreement of
Fund XX to terminate its existence, or sell its properties and
liquidate, prior to 2043. The addition of new Section 11.3 is
intended to create an obligation to solicit the interest of
limited partners in liquidating Fund XX at a definite point in
time. This is intended both to eliminate conflicts that could
cause the General Partners to delay liquidation of Fund XX and to
give limited partners a time horizon for final liquidation. The
amendment does not, however, require liquidation and if limited
partners were to again vote to continue its operations, the
operation of Fund XX, and the time at which limited partners
would receive a final distribution of the value of its assets,
would be further extended.
We are also proposing amendment to the repurchase provisions
of the limited partnership agreement contained in Section 7.7 so
that limited partners who so desire to do so may present their
units for repurchase at a price that more closely approximates
what we believe is the unit fair value. Currently, Section 7.7
provides that units repurchased under Fund XX's repurchase plan
will be repurchased at a price equal to the adjusted capital
contributions of units, less 50% of all distributions of cash
flow previously made. Adjusted capital contributions are equal to
the initial capital contributions of limited partners as reduced
for capital distributions to the extent not required to produce a
12% cumulative return. After reduction for such capital
distributions, and for cash distributions, the repurchase price
at September 30, 2008, the last repurchase date, was
approximately $459 per unit. Nevertheless, the General Partners'
estimate of the net asset value per unit, which the General
Partners have computed without independent appraisal based upon
the cash flow from rentals on the properties divided by a
capitalization rate that they believe represents a market
comparable capitalization rate for each property, was
approximately $1,097 at September 30, 2008.
As amended, Section 7.7 will provide that repurchases will
be conducted at a price equal to 90% of the net asset value per
unit. Net asset value per unit will be computed solely by the
General Partners using valuation methods that they consider
appropriate for such purposes. These valuation methods will, in
most cases, consist of determining the rental capitalization
rates that, based on their own research, the General Partners
believe represent the capitalization rates being applied to the
sale of properties in the same industry and markets. From this
valuation for each property, the General Partners deduct
estimated disposition costs and the General Partners'
participation in proceeds from sale, and divide the result by the
number of units outstanding.
To further increase the utility of the repurchase plan in
providing liquidity to limited partners, the amendments, if
approved, will allow repurchases to occur twice each year.
Although Section 7.7 currently provides that repurchase will
occur on December 1 of each year for units tendered during the
month of September, the amendments would provide that repurchases
will occur as of March 31, and September 30 of each year for
units tendered during January and July, respectively.
REASONS FOR THE PROPOSAL TO CONTINUE OPERATIONS
The proposal to continue operations is being presented
because:
Fund XX is currently generating cash flow from rentals that
the General Partners believe is more favorable to investors than
available from other investments of a similar risk profile and
remains an attractive business as an ongoing concern;
The General Partners do not believe that the current
environment for sale of commercial properties is the most
favorable to the Fund;
The continuation of Fund XX may allow additional capital
gains to be generated from the sale of some properties and the
reinvestment of proceeds in replacement properties prior to the
final liquidation of Fund XX; and
Continuation of Fund XX's operations will allow limited
partners to continue to have their funds invested in income
producing properties without the brokerage or other up-front fees
that they would likely need to expend if their funds are
redeployed in new investments of a similar nature.
The current upheaval in residential real estate and credit
markets, as well as the economy, has begun to effect the market
for commercial real estate. The General Partners believe that
timing sales to more closely match cyclical highs in these
markets will generate higher overall gains and that forcing a
liquidation of properties is not advantageous in times like
these.
EFFECTS OF THE PROPOSAL TO CONTINUE OPERATIONS
The proposal to continue operations will allow Fund XX to
continue to operate for an additional 60 months in the same
manner in which it has historically operated. Our operations
will continue to be reported to you, and to regulatory
authorities, in a manner consistent with historical financial
results. Subject to the normal risks of operating Fund XX as
summarized below, we anticipate that Fund XX will continue to
make quarterly distributions of cash flow from rental income.
If the proposal to continue operations is approved, we
expect to actively engage in a search for replacement real
properties in which Fund XX would invest the $2,152,460 of cash
generated from the recent sale of two properties.
The proposal to continue operations, if approved, will also
move into the future the date that limited partners will receive
proceeds from final sale of properties and liquidation of Fund
XX. Further, because repurchases of units under the repurchase
provisions of the limited partnership agreement are funded with
cash flow that might otherwise be available for distribution,
increase of the price for repurchases, and expansion of the time
periods for repurchases, may decrease the amount of cash
available for distribution. HOWEVER, THE REPURCHASE OF UNITS
DECREASES THE NUMBER OF UNITS OUTSTANDING AND INCREASES THE
OWNERSHIP INTEREST OF EACH LIMITED PARTNER WHO REMAINS IN THE
FUND.
If the proposal to continue in operation is not approved,
and the liquidation proposal is approved, Fund XX will commence
the process of disposing of its properties. If neither Proposal
#1 nor Proposal #2 is approved, we will continue to operate in
the ordinary course of business.
CONFLICTS OF INTEREST WITH THE PROPOSAL TO CONTINUE OPERATIONS
The General Partners are reimbursed for their expenses,
including the salaries and compensation expense of employees,
based upon the time those employees spend on the affairs of the
programs they manage. To the extent the General Partners and
their affiliates have more programs and more operations under
management, the aggregate amount of such reimbursements is
larger, and the salaries that are justifiable for their
management may be higher. Accordingly the General Partners have
an incentive to maintain funds and properties under management.
Note, however, that reimbursements for operations is at cost and
does not represent a profit center for the General Partners or
their affiliates.
RISKS OF THE PROPOSAL TO CONTINUE OPERATIONS
If the proposal to continue operations is approved, the
business of Fund XX will continue to be subject to the risks
associated with ownership of real property, and the illiquidity
of investment in a limited partnership, including the following:
LIMITED PARTNERS WILL HAVE NO RIGHT TO LIQUIDATION PROCEEDS
UNTIL FUND XX IS LIQUIDATED, WHICH WILL BE DELAYED FOR AT LEAST
FIVE YEARS. If the proposal to continue operation is approved,
and although the ability to present units for repurchase will be
enhanced, limited partners will not have a right to receive the
proceeds from the final disposition of properties and
liquidation of Fund XX for at least an additional five years.
THERE WILL CONTINUE TO BE NO PUBLIC MARKET FOR THE UNITS
AND SUBSTANTIAL RESTRICTIONS ON SALE OR DISPOSITION OF THE
UNITS. To avoid being classified as a publicly traded limited
partnership for tax purposes, the limited partnership agreement
of Fund XX continues to place substantial restrictions on sale
or transfer of units. There is no trading market for the units
and the restrictions in the limited partnership agreement are
designed to ensure that no public trading market develops.
Accordingly, it will continue to be difficult to dispose of
units if the proposal to continue operations is approved, or to
receive full value for units when they are sold.
IF LIMITED PARTNERS APPROVE THE PROPOSAL TO CONTINUE
OPERATIONS, THE ABILITY OF LIMITED PARTNERS TO RECEIVE ALL OF
THE VALUE OF THEIR INVESTMENT IN CASH MAY BE FURTHER DELAYED.
The proposal requires that the General Partners again seek the
consent of the limited partners to commence the liquidation of
the fund in five years. The General Partners may again determine
to solicit the consent of limited partners to continue Fund XX's
operations at that time and, if continuation is again approved,
further delay the final distribution of cash from sale of all of
Fund XX's properties.
ALTHOUGH THE PROPOSAL TO CONTINUE FUND XX'S OPERATION
INCLUDES AN AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT TO
INCREASE THE REPURCHASE PRICE AND THE AVAILABILITY OF THE PLAN,
SUCH REPURCHASES WILL REDUCE THE AMOUNT OF CASH THEN AVAILABLE
FOR DISTRIBUTIONS. Unit repurchases are funded with cash
otherwise available for distribution to limited partners and to
the extent the repurchase price is increased and more units are
repurchased, cash available for distribution to remaining
partners will be reduced. Although remaining partners will have
a proportionately larger interest in Fund XX after such
repurchases, if the General Partners over estimate the net asset
value per unit for purposes of repurchases, or properties
decline in value after repurchases, remaining limited partners
may not obtain the benefit of such larger interest.
THE OPERATIONS OF FUND XX WILL CONTINUE TO BE SUBJECT TO
THE RISKS OF REAL ESTATE INVESTMENT. If the proposal to continue
operations is approved, the properties of Fund XX will be retained
for investment and the principal proceeds from any sale of Fund XX's
properties may not be distributed to partners during the following
five years except to the extent necessary to pay income tax related
to the taxable gain allocated to limited partners (assuming the highest
marginal rates for federal income tax purposes). The net leased
commercial properties of Fund XX will be subject to the same
risks of performance as the properties originally acquired by
Fund XX. The value of real estate is subject to a number of
factors beyond the control of Fund XX, including national
economic conditions, changes in interest rates, governmental
rules and regulations and competition from other forms of
financing. There has been a downturn in some real estate markets
during the past 18 months that is beginning to effect the prices
for commercial real estate. It is possible that this downturn
will continue or deepen, depressing the value of the properties
Fund XX holds. In addition, the value of the properties is
effected by the financial condition of the tenants. To the
extent there is a general economic downturn, the restaurant
industry or retail industry in which most of Fund XX's tenants
operate, may be adversely effected, causing increased rates of
default in rental payments or renegotiation of lease terms. To
the extent Fund XX's lease rates decline in the future, or if
there is an increased level of default, the value of real estate
held by the Fund may decline.
LIMITED PARTNERS WILL CONTINUE TO BE DEPENDENT UPON THE
GENERAL PARTNERS FOR ALL DECISIONS RELATING TO OPERATION OF FUND
XX. If the proposal to continue operations is approved, limited
partners will continue to be required to rely almost exclusively
on the General Partners of Fund XX for successful operations.
The General Partners have complete authority to make decisions
regarding our day-to-day operations and the acquisition or
disposition of properties, and there are no limitations that
limited partners may enforce regarding the types of commercial,
net leased properties that may be acquired. The General Partners
may take actions with which limited partners disagree. Limited
partners do not have any right to object to most management
decisions unless the General Partners breach their duties.
Limited partners are able to remove the General Partners only by
majority vote of investors or in other limited instances.
THE GENERAL PARTNERS MAY BENEFIT FROM THE PROPOSAL TO
CONTINUE OPERATIONS IN WAYS THAT CREATE CONFLICTS OF INTEREST.
The interests of the General Partners in proposing the proposal
to continue operations may be different from your interests
because the General Partners will continue to receive
reimbursements from Fund XX if the proposal to continue
operations is approved. The General Partners are reimbursed at
cost, which includes a portion of the salaries of the General
Partners' personnel and other overhead, for services the General
Partners provide to Fund XX and the proposal to continue
operations, if adopted, will allow those reimbursements to
continue.
LIMITED PARTNERS WILL NOT HAVE APPRAISAL RIGHTS IN
CONNECTION WITH THE PROPOSAL TO CONTINUE OPERATIONS. You will
not have appraisal or dissenters rights as a result of the
proposal to continue operations. Accordingly, if you disagree
with the proposal to continue operations you will not have the
right to require Fund XX to pay out the value of your units.
Instead, the proposal to continue operations will be effective
with respect to you if approved by holders of a majority of the
units. If you disagree, you will be required to find a different
method of disposing of your units, such as through Fund XX's
repurchase plan, or to hold your units until liquidation of Fund
XX.
PROPOSAL #2-LIQUIDATION
REASONS FOR THE LIQUIDATION PROPOSAL
If the liquidation proposal is approved, we will commence
the final sale and liquidation of Fund XX's properties in
accordance with the limited partnership agreement. Section 6.1 of
the limited partnership agreement requires that we obtain the
prior consent of holders of a majority of the outstanding units prior to liquidationsell all or sale of substantially all of Fund XX'sthe Fund’s assets. Further,It is now time to solicit that vote.
Effects of the prospectus under whichLiquidation Proposal
Operations. If limited partners holding a majority of the outstanding units vote in favor of limited
partnership interest were initially sold indicated that it was
our intent to commence the sale of properties and liquidation of
Fund XX 12 to 15 years after its formation. The liquidation
proposal is consistent with this timeframe.
EFFECTS OF THE LIQUIDATION PROPOSAL
OPERATIONS. If partners approve the liquidation proposal, the Managing General PartnersPartner will take action to commence the orderly
dispositionsale of Fund XX's properties.XX’s properties and the liquidation of the Fund. The Managing General PartnersPartner will, from time to time, distribute the proceeds from the sale of properties to the extent they believe,it believes, in theirits sole discretion, that such proceeds are not required to Fund XX'sfor operations during liquidation, not required to pay itsFund obligations, or required to deal with contingent obligations. Once all of the Fund’s properties are sold, the Managing General Partners intend toPartner would wind up the affairs of the Fund XX and distribute any net sales proceeds and remaining reserves to the limited partners and the General Partners. The Fund XX willwould then dissolvebe dissolved and all of its
operations will cease.cease operations. Under Section 12.1 of the limited partnership agreement, of Fund XX, this dissolution does not require, and wethe Fund will not ask you for, any additional vote.
DISTRIBUTIONS.
Distributions. As set forth under the caption "Introduction
and Background-Properties"“Background of the Fund – Properties”, the Managing General Partners' estimatePartner estimates the current value of Fund XX'sXX’s properties at approximately $22,012,700.$16,937,000, not including cash from recent property sales of approximately $2,151,000. Neither the Managing General PartnersPartner nor Fund XX havehas obtained any independent appraisal or opinion regarding the value of the Fund’s properties. TheThis valuation described above is based onupon the rental rates generated by each property and the capitalization rates that the Managing General Partners believePartner believes are appliedapplicable in the markets wherein which the properties are located. If a property is vacant, the marketability of the property is analyzed to determine a fair value.
It is not possible for the Managing General PartnersPartner to predict the timing of the sale of the Fund’s properties. Assuming that (a) the sale of properties can be completed over the next 24 to 36 months, (b) there are no adverse events, such as tenant defaults or bankruptcies, that adversely effect Fund XX'saffect the Fund’s ability to sell its properties or the market value that can be obtained in such sales, (c) there are no increases or decreases in the market value of the properties and they can be sold at the amounts estimated by the Managing General Partners,Partner, and (d) there are no other extraordinary partnership expenses, the Managing General Partners estimatePartner estimates that approximately $24,430,000$19,088,000 of proceeds will be available for distribution from sale of properties and cash reserves in accordance with the liquidation
proposal, $24,185,700reserves. Of that amount, approximately $18,897,000 or $1,097$884 per unit of which would be available for distribution to limited partners. Because some of these assumptions will inevitably be inaccurate, and the Managing General Partners'Partner’s estimates of value are notcannot be precise, the actual amounts available for distribution amountsto partners will vary from these estimates and the variation is likely tomay be material.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS.
Material Federal Income Tax Considerations of Liquidation
The federal income tax discussion set forth below addresses the material federal income tax consequences of the liquidation of a partnership, butpartnership. It does not purport to deal with all aspects of federal income taxation that may be relevant to a particular limited partner in the light ofwith respect to such a limited partner'spartner’s personal circumstances. The discussion is directed solely to limited partners who hold the units as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended
(the "Code"), and have acquired suchthe units for investment and not as a dealer or for resale. This discussion may not be applicable to certain classes of taxpayers, including insurance companies, securities dealers, non-resident alien individuals, foreign entities, foreign trusts and estates and beneficiaries, thereof, financial institutions, real estate investment trusts, regulated investment companies, tax exempt organizations, trusts or persons who acquired Partnership interests as compensation. This discussion is based upon the Code, Department of Treasury regulations, court decisions, published rulings of the Internal Revenue Service (the "IRS") and other applicable authorities, all as in effect on the date hereof and all of which are subject to change or differing interpretation (possibly on a retroactive basis). Limited partners are urged to consult their own tax advisors as to the specific tax consequences to them of the liquidation of Fund XX, including the applicability and effect of federal, state, local and other tax laws.
IN GENERAL.
General. Fund XX, as a partnership for federal income tax purposes, is not subject to federal income tax; rather,instead, each partner is required to take into account itssuch partner’s distributive share of the Fund XX'sFund’s income, gains, losses, deductions, credits and tax preference items in computing such limited partner'sthe partner’s federal income tax liability for any taxable year, without regard to whether the limited partner has received any distribution from Fund XX.
the Fund.
For federal income tax purposes, the liquidation proposalprocess consists of two separate components: (1) the sale by Fund XX of its assets;properties; and (2) the distribution of cash to each limited partner in liquidation (a "liquidating distribution") of such
limitedthe partner's interest in Fund XX. Each of these is separately discussed below
SALE OF FUND XX'S ASSETS.
Sale of Fund XX's properties. For federal income tax purposes, each limited partner will be required to include in its income itssuch partner’s allocable share of the gain or loss realized by Fund XX upon the sale of Fund XX's assets
pursuant to the liquidation proposal.Fund’s properties. Gain will result primarily from the sale of a property, including both the real property and any improvements. Gain whichthat falls within the definition of "depreciation recapture" will be treated as ordinary income for tax purposes. Other gain, as well as other items of partnership gain or loss, will be capital or ordinary gain or loss, depending upon the nature of the asset insold.
Distribution to the hands of Fund XX.
DISTRIBUTION TO THE LIMITED PARTNERS.limited partners. A limited partner will recognize capital gain to the extent the amount of the liquidating distribution received by the limited partner exceeds the limited partner's tax basis for its units. Any
such gain will be capital gain. Because a limited partner's
tax basis for its units will be increased by both the limited partner's allocable share ofpartner’s units, as such basis is adjusted to reflect any gain or loss realized by Fund XX on the sale of Fund XX's assets, and by the amount of the
limited partner's allocable share of income from normal
partnership operations for the year of the liquidation, a
limited partner will not realize any gain by reason of the
distribution of such gain and operating income pursuant to
the liquidation. Nevertheless, a limited partner's allocable
share of Fund XX cash may exceed its basis for its units,
and thereby cause the limited partner to recognize gain.assets. A limited partner will recognize a capital loss to the extent that the amount of the liquidating distribution received by the limited partner is less than the limited partner's tax basis for its units, as such basis is adjusted to
reflect any gain or loss realized by Fund XX on the sale of
its assets.
PASSIVE ACTIVITY RULES.adjusted.
Passive Activity Rules. Limited partners that are individuals, trusts, estates, closely held corporations or personal service corporations are subject to the passive activity loss limitations rules of Section 469 of the Code. A limited partner's allocable share of partnership income, gain or loss from the sale of Fund XX's assetsproperties is generally treated as derived from a passive activity. Limited partners may generally deduct losses from passive activities only to the extent of their income from passive activities. Passive activity losses that are not allowed in any taxable year are suspended and may be used only tocarried forward indefinitely and allowed in subsequent years as an offset loss,
income or gain from a limited partner's otheragainst passive activity investments.income. However, because the liquidating distribution is a
fully taxable transaction, Section 469upon final liquidation of the Code generally
allowsFund, any suspended passive activity losses of thea limited partner with respect to its investment in the partnership toFund XX may be used to reduce other income of the limited partner.
RISKS OF THE LIQUIDATION PROPOSAL
THE GENERAL PARTNERS MAY NOT BE ABLE TO DISPOSE OF
PROPERTIES AT THE VALUES THEY HAVE ESTIMATED.
Risks of the Liquidation Proposal
The Managing General Partner may not be able to dispose of properties at the estimated market values.
The Managing General Partner has estimated the market value of the properties has been estimated by the General Partners based onupon rental rates and market capitalization rates. The rate at which such rental isrents are capitalized is largely dependent upon prevailing interest rates in the markets where the properties are located. To the extent prevailing interest rates increase, the value of the properties calculated using these methods would decline. Further, the market value of properties is dependent upon the financial
strength of the tenants. The current economic downturn has
effected the value of real properties, and may effect the financial strength of the tenants occupying the properties owned by Fund XX. Recently, several national restaurant chains have
filed for protection under federal bankruptcy laws becauseA general economic downturn may affect the economy has caused a general decline infinancial strength of the restaurant business.tenants. If these trends effecttenants occupying the Fund’s properties are adversely affected, the Fund XX's tenants, Fund XX may experience an increased level of defaultsdefault in rental payment,payments, or a general decrease in the willingness of purchasers to acquire its properties because of the increased risk involved.
THE RAPID DISPOSITION OF PROPERTIES IN A DECLINING ECONOMY
MAY CAUSE FUND
The rapid disposition of properties may cause Fund XX TO FAIL TO REALIZE THE FULL VALUE OF ITS
PROPERTIES. to fail to realize the full value of its properties.
If the liquidation proposal to liquidate Fund XX is approved, the Managing General PartnersPartner will attempt to dispose of Fund XX'sXX’s properties during the next two years. Currently the economy, and the market for the
goods and services of Fund XX's tenants, is depressed and may
become further depressed during this period.24 to 36 months. The disposition of properties during such periods is likely tocould generate less value to Fund XX and its limited partners than estimated, particularly if sales must be conductedcompleted rapidly.
IF TENANTS DEFAULT ON RENTAL PAYMENTS, OR FILE FOR
PROTECTION UNDER BANKRUPTCY LAWS, THE VALUE OF PROPERTIES WILL BE
FURTHER DEPRESSED, AND THE FINAL DISPOSITION OF THOSE PROPERTIES
MAY BE DELAYED.
If tenants default on their lease obligations, or file for protection under bankruptcy laws, the value of properties may be depressed, and the final disposition of those properties may be delayed.
If a tenant were to default in payingdefaults on its rentallease obligations, or abandonabandons a property, prior to its sale by Fund XX, the value of the property would likely be adversely effected andaffected, the Fund XX might have difficulty selling the property, and the sale might be delayed until an alternative tenant can be located. If a tenant filed for protection under applicable bankruptcy laws, the tenant (if a debtor in possession) or the bankruptcy trustee would have a period of time to assume or reject the lease and the Fund XX may be delayed in its disposition of the property and therefore final liquidation of the partnership.
LIMITED PARTNERS WILL BE REQUIRED TO PAY TAX ONFund.
Limited partners will be required to pay tax on any capital gain that Fund XX realizes on the sale of its properties and a portion of the gain may be taxed at higher tax rates.
Sales of properties will generate an income and gain recognition event for federal income tax purposes with respect to the value of the properties and proceeds received, while continued operation of properties would generate income for tax purposes primarily related to rental income received. For properties that Fund XX has held and depreciated for tax purposes for a significant period of time, a significant portion of the sales price could represent depreciation recapture taxable to limited partners at higher tax rates.
PROPOSAL #2 – CONTINUE OPERATIONS FOR 60 MONTHS
Reasons for the Proposal to Continue Operations
The proposal to continue operations is being presented because the General Partners believe:
| · | Fund XX continues to be an attractive business as a going concern and is currently generating cash distributions from its properties that are higher than distributions investors could realize from other income-generating investments with similar risk profiles. |
| · | Continuation of Fund XX’s operations may allow capital gains to be generated from the sale of properties prior to the final liquidation of the Fund. |
| · | Continuation of Fund XX’s operations will allow limited partners to maintain their investment in income-producing, net leased, commercial properties without incurring the costs that they could expect to incur if Fund XX were to liquidate and they re-invested their proceeds in other similar investments. |
We cannot assure you that Fund XX will achieve these objectives if you vote for the proposal to continue operations.
Effects of the Proposal to Continue Operations
The proposal to continue operations for an additional 60 months from December 2013 will allow Fund XX to continue to operate in the same manner in which it has operated historically. The Fund’s operations will continue to be reported to you in a manner consistent with historical financial results. Subject to the normal risks of operating as summarized below, we anticipate that the Fund will continue to make quarterly distributions of cash flow from rental income. The continuation of operations will move into the future the date that limited partners could receive proceeds from the final sale of properties and liquidation of Fund XX. After 60 months, Fund XX will again solicit a vote of the limited partners to continue in operation or liquidate.
As of March 31, 2014, Fund XX held cash totaling approximately $2,151,000 from recent property sales. If the proposal to continue operations is approved, we expect to invest this cash in additional net leased properties, less a reserve to pay for any anticipated unit repurchase requests that may be received in July 2014.
If the proposal to continue operations is not approved, and the liquidation proposal is approved, Fund XX will commence the process of disposing of its properties. If neither Proposal #1 nor Proposal #2 is approved, the Fund will continue to operate in the ordinary course of business.
Amendment to the Limited Partnership Agreement
The proposal to continue the operations of Fund XX will be implemented, if approved by limited partners, through the amendment to Section 11.3 of the limited partnership agreement that is set forth in Exhibit A to this Consent Statement. This amendment will require the Managing General Partner to prepare a new consent statement before December 31, 2018 to solicit another vote of limited partners to either liquidate Fund XX or extend its operation for an additional period of years.
There is no contractual requirement in the limited partnership agreement of Fund XX to terminate its existence, or sell its properties and liquidate, prior to 2043. In January 2009, the limited partners voted to add Section 11.3 to the limited partnership agreement, which was intended to create an obligation to solicit the vote of limited partners in liquidating Fund XX at a definite point in time. This was intended
both to eliminate conflicts that could cause the General Partners to delay liquidation of Fund XX and to give limited partners a time horizon for final liquidation. Section 11.3 does not, however, require liquidation and if limited partners were to again vote to continue its operations in 60 months, the operation of Fund XX, and the time at which limited partners would receive a final distribution of cash from the sale of its assets, would be moved to a future date.
Conflicts of Interest with the Proposal to Continue Operations
The General Partners and their affiliates are reimbursed for their expenses, including the salaries and compensation expense of employees, based upon the time those employees spend on the affairs of the investment funds they manage. To the extent the General Partners and their affiliates have more investment funds under management, the aggregate amount of such reimbursements is larger and the salaries that are justifiable for their management may be higher. Accordingly the General Partners have an incentive to maintain funds and properties under management. On the other hand, reimbursements to the General Partners and their affiliates for operations are at cost and do not represent a profit center for the General Partners or their affiliates. Further, if the Fund does not liquidate, the General Partners will not receive cash distributions representing their share of liquidation proceeds.
Risks of the Proposal to Continue Operations
If the proposal to continue operations is approved, the business of Fund XX will continue to be subject to the risks associated with the ownership of real property and the illiquidity of investment in a limited partnership, including the following:
Limited partners will have no right to liquidation proceeds until Fund XX is liquidated.
If the proposal to continue operations is approved, limited partners will likely not have a right to receive the proceeds from the final disposition of properties and liquidation of Fund XX for at least an additional five years.
There will continue to be no public market for the units and substantial restrictions on sale or disposition of the units.
To avoid being classified as a publicly traded limited partnership for tax purposes, the limited partnership agreement of Fund XX continues to place substantial restrictions on sale or transfer of units. There is no trading market for the units and the restrictions in the limited partnership agreement are designed to ensure that no public trading market develops. Accordingly, it may be difficult to dispose of units or to receive full value for units when they are sold if the proposal to liquidate is not approved.
The operations of Fund XX will continue to be subject to the risks of real estate
investment.
If the proposal to continue operations is approved, the properties of Fund XX will continue to be held for investment and the proceeds from any sale of Fund properties may not be distributed to partners during the following five years, except to the extent necessary to pay income taxes resulting from any taxable gain on sale that is allocated to limited partners. The value of real estate is subject to a number of factors beyond the control of the Fund, including national economic conditions, changes in interest rates, governmental rules and regulations and competition from other forms of financing. In addition, the value of the properties is affected by the financial condition of the tenants. To the extent there is a general economic downturn, the industries in which the Fund’s tenants operate may be adversely affected, causing defaults or renegotiation of lease terms. To the extent the Fund’s lease rates decline in the future, or if there are tenant defaults, the value of real estate held by the Fund may decline.
Limited partners will continue to be dependent upon the General Partners for all decisions relating to the operation of Fund XX.
If Fund XX continues to operate, limited partners will continue to rely almost exclusively on the General Partners of the Fund for its operations. The General Partners have complete authority to make decisions regarding the Fund’s day-to-day operations and the acquisition or disposition of properties. There are no limitations that limited partners may enforce regarding the types of net leased, commercial properties that may be acquired. The General Partners may take actions with which limited partners disagree. Limited partners do not have any right to object to most management decisions unless the General Partners breach their duties. Limited partners are able to remove the General Partners only by a majority vote of limited partners or in other limited instances.
The General Partners may benefit from continuing operations in ways that create conflicts of interest.
The interests of the General Partners in continuing operations may be different from those of the limited partners’ interests because the General Partners and their affiliates will continue to receive reimbursements from Fund XX. The General Partners and their affiliates are reimbursed at cost, which includes a portion of salaries of personnel and other overhead, for services they provide to the Fund and the proposal to continue operations, if adopted, will allow those reimbursements to continue.
Limited partners will not have appraisal rights in connection with continuing operations.
You will not have appraisal or dissenters rights as a result of continuing operations. Accordingly, if you disagree with the proposal to continue operations you will not have the right to require Fund XX to pay out the value of your units. If you disagree, and wish to sell your units, you will be required to find a different method of doing so, such as utilizing the Fund’s unit repurchase plan or holding your units until the Fund is liquidated.
PROPOSAL #3 –AMEND THE GAIN
FUNDFUND’S UNIT REPURCHASE PLAN
Reasons for the Proposed Amendment to the Unit Repurchase Plan
We are proposing an amendment to the unit repurchase provisions of the limited partnership agreement contained in Section 7.7 so that limited partners may present their units to the Fund for repurchase at a price that more closely approximates what we believe is the unit fair market value.
Effects of the Proposed Amendment to the Unit Repurchase Plan
If this proposal is approved, limited partners will be able to present their units to Fund XX REALIZES ON SALE OF PROPERTIES AND A PORTION OF THE GAIN
MAY BE TAXED AS ORDINARY INCOME.
for repurchase at a price equal to 95% of the estimated net asset value per unit, instead of 90% of the estimated net asset value per unit. In both cases, the repurchase price is reduced by any distributions to the tendering limited partner after the date for which the estimated net asset value per unit is calculated and prior to the repurchase date.
Fund XX will repurchase units with cash that might otherwise be available for distribution to limited partners. Because of this, increasing the price for repurchases may increase the number of repurchases and correspondingly decrease the amount of cash available for distribution. Repurchase of units will, however, result in the remaining limited partners owning a proportionately larger interest in the Fund, which should, under normal conditions, produce larger distributions per unit in the future. In addition, units will be repurchased by the Fund at a 5% discount to net asset value, thereby accruing a potential financial benefit to the limited partners remaining in the Fund.
The Fund cannot assure limited partners that revenues or cash reserves will be available for repurchases and that it will be able to repurchase any or all of the units tendered. Repurchase of units may result in certain adverse tax consequences to the tendering limited partner. Repurchase of units will likely result in smaller distributions to remaining limited partners in the year of repurchase, yet will not result in a reduction of taxable income allocated to such limited partners.
Amendment to Limited Partnership Agreement
The proposal to increase the purchase price under Fund XX’s unit repurchase plan will be implemented, if approved by limited partners, through the amendment to Section 7.7 of the limited partnership agreement that is set forth in Exhibit B to this Consent Statement. The amendment will provide that the repurchase price for units purchased under the unit repurchase plan will be increased to 95% of the estimated net asset value per unit.
Conflicts of Interest with the Proposed Amendment to the Unit Repurchase Plan
The General Partners believe that their interests in amending the repurchase plan are aligned with those limited partners who wish to continue to participate in Fund XX.
Risks of the Proposed Amendment to the Unit Repurchase Plan
If the proposal to amend the repurchase plan is approved, the ability to repurchase units, and the consequences of repurchase, will present additional risks, including the following:
Repurchases may reduce the amount of cash then available for distributions.
Unit repurchases are funded with cash otherwise available for distribution to limited partners and, to the extent units are repurchased, cash available for distribution to remaining partners will be reduced. Although remaining partners will have a proportionately larger interest in Fund XX after such repurchases, if the Managing General Partner overestimates the net asset value per unit for purposes of repurchases, or properties decline in value after repurchases, remaining limited partners may not obtain the benefit of such larger ownership interest.
Regardless of the amendment, because of limitations under the unit repurchase plan, limited partners may find it difficult to have their units repurchased.
The amount of units Fund XX will repurchase in any year will be limited even if the amendment to the repurchase plan is approved. Among other things:
| · | During any year, Fund XX will not repurchase more than 5% of the units that were outstanding at the end of the previous year; |
| · | Fund XX will not repurchase units to the extent it does not have cash available for such repurchases; and |
| · | Fund XX will not repurchase units if the Managing General Partner believes repurchases would negatively impact the Fund’s operations or cash flow. |
Accordingly, there may be periods during which Fund XX does not repurchase all units, or any units, that are tendered for repurchase. If more units are tendered than can be repurchased, repurchases will be considered in the order tendered.
UNIT OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT
The following table sets forth information about the number of limited partnership units owned by each person known to us to beneficially own 5% or more of the units, by AEI Fund Management XX, Inc. (Fund XX'sXX’s Managing General Partner), by Robert P. Johnson (Fund XX'sXX’s Individual General Partner) and by each officer or director of the Managing General Partner as of September 30, 2008:
NAME AND ADDRESS NUMBER OF PERCENT
OF BENEFICIAL OWNER UNITS HELD OF CLASS
AEI Fund Management XX, Inc. 0 0%
1300 Wells Fargo Place
30 East 7th Street
St. Paul, MN 55101
Robert P.Johnson 28 *
1300 Wells Fargo Place
30 East 7th Street
St. Paul, MN 55101
Patrick W. Keene 0 0%
1300 Wells Fargo Place
30 East 7th Street
St. Paul, MN 55101
*Less than 1%
The persons set forth in the preceding table hold sole
voting power and power of disposition with respect to all of the
limited partnership units set forth opposite their names. March 31, 2014:
Name and Address of Beneficial Owner | Number of Units Held | Percent of Class |
| | | |
| AEI Fund Management XX, Inc. | 0 | 0.00% |
| Robert P. Johnson | 28 | 0.13% |
| Patrick W. Keene | 0 | 0.00% |
| | | |
| Address for all: | | |
1300 Wells Fargo Place 30 East 7th Street, St. Paul, Minnesota 55101 | | |
To the best of our knowledge, there is no beneficial owner holding five
percent5% or more of the units.
CONSENT PROCEDURES
Your vote is important. Each limited partner is urged to mark,initial, date and sign the enclosed consent formConsent Form and return it in the enclosed postage prepaid envelope. If you require assistance completing the consent form,Consent Form, please call AEI Client Services,Investor Relations, toll free at 800-328-3519.
TIMING OF THE CONSENT SOLICITATION
Timing of the Consent Solicitation
We have fixed the close of business on NovemberMay 1, 20082014 as the record date for the determination of the limited partners entitled to vote on the proposal to continue operations or the
liquidation proposal;proposals; the close of business on January 8, 2009June __, 2014 as the date by which Consent Forms must be received by us in order to be counted; and Janaury 9, 2009June __, 2014 as the date on which the consents will be counted. You may revoke your consent at any time prior to Janaury 9, 2009,June __, 2014, provided we receive written revocation prior to that date.
To vote for one of these proposals, you must return a properly signed consent formConsent Form that is received by AEI Fund Management XX, Inc. at 1300 Wells Fargo Place, 30 East 7th Street, St. Paul, Minnesota 55101, on or before 5:00 P.M., Central Time, on January 8, 2009.June __, 2014. The votesGeneral Partners will be tabulated
bytabulate the General Partners.
RECORD DATE AND VOTES REQUIRED FOR APPROVAL
votes.
Record Date and Votes Required for Approval
Only holders of record of units of limited partnership interest as of NovemberMay 1, 2008,2014, the record date, will be entitled to vote on the proposal to continue operations or
liquidation proposal.proposals. Voting by the limited partners on the
proposal to continue operations and the liquidation proposal is based upon the number of units held. As of NovemberMay 1, 2008,2014, there were 22,04521,154.86 units outstanding, 28 of which were held by the
General Partners.outstanding. Each unit is entitled to one vote. Fractions of units will be included in the total.
Pursuant to the limited partnership agreement of Fund XX, in order for any of the proposal to continue operations or the liquidation
proposalthree proposals to be approved, a majority of the outstanding units (excluding any units held by the General Partners) must be voted in favor of the proposal. Accordingly, 11,008.610,563.44 units must be voted FOR“FOR” the liquidation proposal, “FOR” the proposal to continue operations, or “FOR” the liquidation proposal to amend the unit repurchase plan for the respective proposal to be approved. Because an abstention would not be counted as a vote for a proposal, it would have the effect of a vote against thea proposal. WE RECOMMEND A VOTE "FOR"
THE PROPOSAL TO CONTINUE OPERATIONS.
PROCEDURES FOR VOTING
Procedures for Voting
Accompanying this Consent Statement is a Consent Form for each limited partner. By checkinginitialing the appropriate box ON THE
CONSENT FORM,line on the Consent Form, you can indicate whether you vote FOR“FOR” or AGAINST“AGAINST” or ABSTAIN“ABSTAIN” as to the proposalproposals. Please do not vote “FOR” both Proposal #1 and Proposal #2 at the same time: they are mutually exclusive and cannot be implemented simultaneously. If you return your Consent Form signed without initialing any line, you will be deemed to have voted “AGAINST” Proposal #1 – to commence liquidation, “FOR” Proposal #2 – to continue operations, orand “FOR” Proposal #3 – to amend the liquidation proposal. PLEASE DO NOTE VOTE FOR BOTH ALTERNATIVES
AT THE SAME TIME: THEY ARE INCONSISTENT AND CANNOT BE PURSUED
SIMULTANEOUSLY. IF YOU RETURN YOUR CONSENT FORM SIGNED WITHOUT
CHECKING ANY BOX, YOU WILL BE DEEMED TO HAVE VOTED FOR THE
PROPOSAL TO CONTINUE OPERATIONS AND AGAINST THE LIQUIDATION
PROPOSAL.
unit repurchase plan.
Limited partners who vote against, or abstain,“FOR” Proposal #1 – to commence liquidation, do not have appraisal or similar rights under Minnesota law.
COSTS OF SOLICITATION
Costs of Solicitation
The cost of solicitation of consents of the limited partners will be borne by Fund XX. The solicitations will be made by the
mails..mail. Our staff will be available by telephone at 800-328-3519 to answer any questions concerning this Consent.
MAILING
Mailing
This Consent Statement was first mailed to limited partners on or about December 3, 2008.
BY ORDER OF THE BOARD OF DIRECTORS
OF June __, 2014.
AEI FUND MANAGEMENTFund Management XX, INC.
Inc.
General Partner
Robert P. Johnson, President
EXHIBIT A
AMENDMENT TO LIMITED PARTNERSHIP AGREEMENT
(CONTINUATION PROPOSAL)
(PROPOSAL #2)
We are proposing the following amendments to amend and restate Section 11.3 of the Limited Partnership Agreement of AEI Net Lease Income & Growth Fund XX Limited Partnership as heretofore amended (the "Agreement"):
1. Article XI of the Agreement shall be amended to add an
additional Section 11.3 which shall read in its entirety as follows:
11.3 LIQUIDATION PROPOSAL.
Liquidity Event.
(a) The Managing General Partner shall, on or before December 31, 2013,2018, prepare and if required file with the
Securities and Exchange Commission, a proxy or consent statement pursuant to which it shall solicit the consent of Limited Partners to vote with respect to a proposal to commence the sale of all of the Properties and the dissolution and liquidation of the Partnership in accordance with Article XXII.XII. The Managing General Partner shall distribute and commence the solicitation of such consents or proxies promptly after the same may be conducted in accordance with applicable laws.
(b) Notwithstanding Section 11.3(a), the Managing General Partner shall not be required to recommend such sale, dissolution and liquidation, and may present in addition to such proposal and as an alternative to the same, a proposal to extend the time period during which the Partnership shall continue to operate, provided that the Managing General Partner commits to again submit a proposal consistent with Section 11.3(a) by approximately the end of the calendar year in which the fifth anniversary of the date onupon which the vote onupon such proposal occurs.
2.
EXHIBIT B
AMENDMENT TO LIMITED PARTNERSHIP AGREEMENT
(PROPOSAL #3)
We are proposing to amend and restate Section 7.7 of the Limited Partnership Agreement is hereby amendedof AEI Net Lease Income & Growth Fund XX Limited Partnership to read in its entirety as set forth
(and shown with corrections) below:
follows:
7.7 RIGHT TO PRESENT UNITS FOR PURCHASE.
Right to Present Units for Repurchase.
(a) (Beginning in calendar year 1994,) Each Limited Partner shall have the right, subject to the provisions of this Section 7.7, to present his OR HERor her Units to the Partnership for purchaserepurchase by submitting a proper written request to the Managing General Partner notice on a form supplied
by the Partnership specifying the number of Units he OR
SHEor she wishes repurchased. Such notice must be postmarked after (September )January 1 but before (October)
February 1, OR AFTER JULY 1 BUT BEFORE AUGUST 1in January or July of each year (THE "PRESENTMENT PERIODS"(a “Presentment Period”). On (December 1) MARCHMarch 31 AND SEPTEMBERst and September 30th of each year (HEREAFTER, A
"REPURCHASE DATE"(a “Repurchase Date”), and subject to the limitations set forth in Section 7.7(c), the Managing General Partner shall cause the Partnership to purchaserepurchase the Units of Limited Partners who have properly tendered their Units to the Partnership. The purchaserepurchase price per Unit shall be equal to 90% OF
THE NET VALUE PER UNIT (AS DEFINED IN SECTION 7.7(D)) AS
OF THE PRECEDING DECEMBER 31 (IN THE CASE OF REPURCHASES
AS OF MARCH 31) OR JUNE 30 (IN THE CASE OF REPURCHASES
AS OF SEPTEMBER 30) (SUCH DATES BEING HEREAFTER REFERRED
TO AS A "DETERMINATION DATE"). THE REPURCHASE PRICE
SHALL, HOWEVER, BE ADJUSTED TO SUBTRACT ANY
DISTRIBUTIONS TO THE TENDERING LIMITED PARTNER AFTER THE
DETERMINATION DATE AND PRIOR TO THE REPURCHASE DATE. THE
MANAGING GENERAL PARTNER SHALL PUBLISH THE REPURCHASE
PRICE OFFERED FOR UNITS BASED ON ITS DETERMINATION OF
THE NET VALUE PER UNIT AS SOON AS POSSIBLE AFTER EACH
DETERMINATION DATE. (the tendering Limited Partner's
Adjusted Capital Contribution on October 1 of the year
of purchase multiplied by seventy-fiveninety-five percent (75%) for
purchases in calendar year 1994 and ninety percent (90%)
for purchases in calendar year 1995. For purchases in
1996 and in each year thereafter, the purchase price
shall be equal to one hundred percent (100%(95%) of the Net Asset Value Per Unit as of the preceding December 31st (in the case of repurchases as of March 31st) or June 30th (in the case of repurchases as of September 30th) (such dates being hereafter referred to as a “Determination Date”). The repurchase price shall, however, be adjusted to subtract any distributions to the tendering Limited Partner's Adjusted Capital
ContributionPartner after the Determination Date and prior to the Repurchase Date. The Managing General Partner shall calculate the repurchase price offered for Units based on October 1, less fifty percent (50%) of
all Net Cash Flow previously distributed to such Limited
Partner throughout the termits determination of the Partnership.)
Net Asset Value Per Unit as soon as possible after each Determination Date.
(b) Net Asset Value Per Unit shall mean the aggregate value of the Partnership’s assets less the Partnership’s liabilities, and less the interest of the General Partners, divided by the number of Units outstanding. Such aggregate value shall be determined by the Managing General Partner, after taking into account (i) the present value of future net cash flow from rental income on the Partnership’s Properties, (ii) the price at which Units of the Partnership have last been repurchased, and (ii) such other factors as the Managing General Partners deems relevant.
(c) The Partnership will not be obligated to purchaserepurchase in any year any number of Units such that such Units, when
aggregated with all other transfers of Units that have
occurred since the beginning of the same calendar year
(excluding Permitted Transfers) would exceedmore than five percent (5%) of the total number of Units outstanding on January 1 of such year. In the event requests for purchaserepurchase of Units received in any given year exceed the five percent (5%) limitation, the Partnership shall accept the Units to be purchased will be determinedrepurchased based onupon the postmark date of the written notice of Limited Partners tendering such Units. Any Units tendered but not selected for purchaserepurchase in any given yearPresentment Period will be considered for purchaserepurchase in subsequent yearsthe next Presentment Period only if the Limited Partner retendersre-tenders his or her Units. In no event shall the Partnership be obligated to purchaserepurchase Units if, in the sole discretion of the Managing General Partner, such purchaserepurchase would impair the capital or operation of the Partnership nor shall the Partnership purchaserepurchase any Units in violation of applicable legal requirements.
(c)
(d) For purposes of all calculations pursuant to Article V of this agreement,Agreement, any Net Cash Flow or Net Proceeds of Sale used to repurchase Units or to repay borrowings that were used to repurchase Units shall be deemed distributed to the remaining Limited Partners pro rata based on the ratio of the number of Units owned to all Units outstanding after such repurchase.
FOR PURPOSES OF THIS SECTION 7.7, "NET VALUE PER UNIT
SHALL MEAN THE AGGREGATE VALUE OF THE PARTNERSHIP'S
ASSETS LESS THE PARTNERSHIP'S LIABILITIES, AND LESS THE
VALUE ATTRIBUTABLE TO THE INTEREST OF THE GENERAL
PARTNERS, DIVIDED BY THE NUMBER OF UNITS OUTSTANDING.
SUCH AGGREGATE VALUE SHALL BE AS DETERMINED BY THE
MANAGING GENERAL PARTNER, AFTER TAKING INTO ACCOUNT (I)
THE VALUE OF THE PARTNERSHIP'S PROPERTIES BASED ON THE
APPLICATION OF RENTAL CAPITALIZATION RATES FOR SIMILARLY
SITUATED PROPERTIES, BASED ON PENDING OR PROPOSED
TRANSACTIONS RELATING TO THE PROPERTIES, OR BASED ON
SUCH OTHER METHODS AS THE MANAGING GENERAL PARTNER DEEMS
REASONABLE, (II) THE PRICE AT WHICH UNITS OF THE COMPANY
HAVE LAST BEEN PURCHASED, AND (III) SUCH OTHER FACTORS
AS THE MANAGING GENERAL PARTNER DEEMS RELEVANT.
EXHIBIT B
C
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm 24
Balance Sheet as of December 31, 2007 and 2006 25
Statements for the Years Ended December 31, 2007 and 2006:
Income 26
Cash Flows 27
Changes in Partners' Capital 28
Notes to Financial Statements at December 31, 2007 29-39
Balance Sheet as of September 30, 2008 and December 31, 2007 40
Statements for the for the Periods ended September 30, 2008 and
2007:
Income 41
Cash Flows 42
Changes in Partners' Capital 43
Notes to Financial Statements at September 30, 2008 44-46
| Page |
| |
| Report of Independent Registered Public Accounting Firm | 24 |
| |
| Balance Sheet as of December 31, 2013 and 2012 | 25 |
| |
| Statements for the Years Ended December 31, 2013 and 2012: | |
| |
| Income | 26 |
| | |
| Cash Flows | 27 |
| | |
| Changes in Partners’ Capital | 28 |
| |
| Notes to Financial Statements at December 31, 2013 | 29 – 41 |
| |
| |
| Balance Sheet as of March 31, 2014 and December 31, 2013 | 42 |
| |
| Statements for the Periods ended March 31, 2014 and 2013: | |
| |
| Income | 43 |
| | |
| Cash Flows | 44 |
| | |
| Changes in Partners' Capital | 45 |
| |
| Notes to Financial Statements at March 31, 2014 | 46 – 50 |
| |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners:
AEI Net Lease Income & Growth Fund XX Limited Partnership
St. Paul, Minnesota
We have audited the accompanying balance sheet of AEI Net Lease Income & Growth Fund XX Limited Partnership (a Minnesota limited partnership) as of December 31, 20072013 and 2006,2012, and the related statements of income, cash flows and changes in partners' capital for each of the years then ended. TheseThe Partnership's management is responsible for these financial statements are
the responsibility of the Partnership's management.statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The companypartnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our auditaudits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company'spartnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AEI Net Lease Income & Growth Fund XX Limited Partnership as of December 31, 20072013 and 2006,2012, and the results of its operations and its cash flows for each of the years then ended, in conformity with U.S.accounting principles generally accepted accounting principles.
BOULAY, HEUTMAKER, ZIBELL & CO. P.L.L.P.
BOULAY, HEUTMAKER, ZIBELL & CO. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
in the United States of America.
| /s/ BOULAY PLLP |
| Boulay PLLP |
| Certified Public Accountants |
| |
| Minneapolis, Minnesota | |
| March 28, 2014 | |
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31
ASSETS
2007 2006
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,102,753 $ 1,083,159
INVESTMENTS IN REAL ESTATE:
Land 5,130,957 6,367,762
Buildings and Equipment 9,992,550 12,081,070
Accumulated Depreciation (2,280,410) (2,494,105)
----------- -----------
12,843,097 15,954,727
Real Estate Held for Sale 2,702,006 0
----------- -----------
Net Investments in Real Estate 15,545,103 15,954,727
----------- -----------
Total Assets $16,647,856 $17,037,886
=========== ===========
| | | December 31, | | | December 31, | |
| | | | | | | |
| Current Assets: | | | | | | |
| Cash | | $ | 2,414,005 | | | $ | 458,643 | |
| Receivables | | | 0 | | | | 1,843 | |
| Total Current Assets | | | 2,414,005 | | | | 460,486 | |
| | | | | | | | | |
| Real Estate Held for Investment: | | | | | | | | |
| Land | | | 3,788,830 | | | | 4,938,442 | |
| Buildings and Equipment | | | 8,149,958 | | | | 10,986,868 | |
| Acquired Intangible Lease Assets | | | 703,997 | | | | 703,997 | |
| Real Estate Investments, at cost | | | 12,642,785 | | | | 16,629,307 | |
| Accumulated Depreciation and Amortization | | | (2,489,448 | ) | | | (3,006,433 | ) |
| Real Estate Held for Investment, Net | | | 10,153,337 | | | | 13,622,874 | |
| Real Estate Held for Sale | | | 1,653,573 | | | | 733,000 | |
| Total Real Estate | | | 11,806,910 | | | | 14,355,874 | |
| Total Assets | | $ | 14,220,915 | | | $ | 14,816,360 | |
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 67,148 $ 84,418
Distributions Payable 413,767 413,582
Unearned Rent 12,249 11,135
----------- -----------
Total Current Liabilities 493,164 509,135
----------- -----------
PARTNERS' CAPITAL:
General Partners 12,328 16,068
Limited Partners, $1,000 per Unit;
24,000 Units authorized and issued;
22,045 and 22,068 Units outstanding in
2007 and 2006, respectively 16,142,364 16,512,683
----------- -----------
Total Partners' Capital 16,154,692 16,528,751
----------- -----------
Total Liabilities and Partners' Capital $16,647,856 $17,037,886
=========== ===========
| Current Liabilities: | | | | | | |
| Payable to AEI Fund Management, Inc. | | $ | 74,979 | | | $ | 120,332 | |
| Distributions Payable | | | 299,700 | | | | 299,696 | |
| Unearned Rent | | | 13,474 | | | | 13,474 | |
| Total Current Liabilities | | | 388,153 | | | | 433,502 | |
| Long-term Liabilities: | | | | | | | | |
| Acquired Below-Market Lease Intangibles, Net | | | 71,978 | | | | 77,480 | |
| | | | | | | | | |
| Partners’ Capital: | | | | | | | | |
| General Partners | | | 5,133 | | | | 4,274 | |
Limited Partners – 24,000 Units authorized; 21,367 and 21,560 Units issued and outstanding in 2013 and 2012, respectively | | | 13,755,651 | | | | 14,301,104 | |
| Total Partners' Capital | | | 13,760,784 | | | | 14,305,378 | |
| Total Liabilities and Partners' Capital | | $ | 14,220,915 | | | $ | 14,816,360 | |
The accompanying Notes to Financial Statements are an integral part of this statement.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31
2007 2006
RENTAL INCOME $ 1,689,206 $ 1,620,066
EXPENSES:
Partnership Administration - Affiliates 219,885 229,040
Partnership Administration and Property
Management - Unrelated Parties 35,947 29,471
Depreciation 338,525 332,241
----------- -----------
Total Expenses 594,357 590,752
----------- -----------
OPERATING INCOME 1,094,849 1,029,314
OTHER INCOME:
Interest Income 45,129 46,415
----------- -----------
INCOME FROM CONTINUING OPERATIONS 1,139,978 1,075,729
Income from Discontinued Operations 252,179 363,653
----------- -----------
NET INCOME $ 1,392,157 $ 1,439,382
=========== ===========
NET INCOME ALLOCATED:
General Partners $ 13,922 $ 14,394
Limited Partners 1,378,235 1,424,988
----------- -----------
$ 1,392,157 $ 1,439,382
=========== ===========
INCOME PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ 51.15 $ 48.13
Discontinued Operations 11.32 16.27
----------- -----------
Total $ 62.47 $ 64.40
=========== ===========
Weighted Average Units Outstanding 22,062 22,128
=========== ===========
| | | | |
| | | | | | | |
| | | | | | | |
| Rental Income | | $ | 1,195,849 | | | $ | 1,106,004 | |
| | | | | | | | | |
| Expenses: | | | | | | | | |
| Partnership Administration – Affiliates | | | 221,968 | | | | 235,888 | |
Partnership Administration and Property Management – Unrelated Parties | | | 57,008 | | | | 87,520 | |
| Property Acquisition | | | 0 | | | | 53,703 | |
| Depreciation and Amortization | | | 306,804 | | | | 278,048 | |
| Real Estate Impairment | | | 61,002 | | | | 0 | |
| Total Expenses | | | 646,782 | | | | 655,159 | |
| | | | | | | | | |
| Operating Income | | | 549,067 | | | | 450,845 | |
| | | | | | | | | |
| Other Income: | | | | | | | | |
| Interest Income | | | 3,044 | | | | 4,830 | |
| | | | | | | | | |
| Income from Continuing Operations | | | 552,111 | | | | 455,675 | |
| | | | | | | | | |
| Income from Discontinued Operations | | | 263,481 | | | | 255,803 | |
| | | | | | | | | |
| Net Income | | $ | 815,592 | | | $ | 711,478 | |
| | | | | | | | | |
| Net Income Allocated: | | | | | | | | |
| General Partners | | $ | 14,460 | | | $ | 11,146 | |
| Limited Partners | | | 801,132 | | | | 700,332 | |
| Total | | $ | 815,592 | | | $ | 711,478 | |
| | | | | | | | | |
| Income per Limited Partnership Unit: | | | | | | | | |
| Continuing Operations | | $ | 25.47 | | | $ | 20.80 | |
| Discontinued Operations | | | 11.85 | | | | 11.49 | |
| Total – Basic and Diluted | | $ | 37.32 | | | $ | 32.29 | |
| | | | | | | | | |
Weighted Average Units Outstanding – Basic and Diluted | | | 21,464 | | | | 21,692 | |
| | | | | | | | | |
The accompanying Notes to Financial Statements are an integral part of this statement.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,392,157 $ 1,439,382
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 409,624 403,340
Gain on Sale of Real Estate 0 (109,143)
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (17,270) 15,010
Increase (Decrease) in Unearned Rent 1,114 (16,378)
----------- -----------
Total Adjustments 393,468 292,829
----------- -----------
Net Cash Provided By
Operating Activities 1,785,625 1,732,211
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate 0 (1,231,624)
Proceeds From Sale of Real Estate 0 578,025
----------- -----------
Net Cash Used For
Investing Activities 0 (653,599)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Distributions Payable 185 (41)
Distributions to Partners (1,754,537) (1,926,253)
Redemption Payments (11,679) (44,677)
----------- -----------
Net Cash Used For
Financing Activities (1,766,031) (1,970,971)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 19,594 (892,359)
CASH AND CASH EQUIVALENTS, beginning of period 1,083,159 1,975,518
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,102,753 $ 1,083,159
=========== ===========
| | | | |
| | | | | | | |
| | | | | | | |
| Cash Flows from Operating Activities: | | | | | | |
| Net Income | | $ | 815,592 | | | $ | 711,478 | |
| | | | | | | | | |
Adjustments to Reconcile Net Income To Net Cash Provided by Operating Activities: | | | | | | | | |
| Depreciation and Amortization | | | 390,193 | | | | 410,514 | |
| Real Estate Impairment | | | 468,870 | | | | 413,477 | |
| Gain on Sale of Real Estate | | | (524,340 | ) | | | (430,939 | ) |
| (Increase) Decrease in Receivables | | | 1,843 | | | | (118 | ) |
Increase (Decrease) in Payable to AEI Fund Management, Inc. | | | (45,353 | ) | | | 52,146 | |
| Increase (Decrease) in Unearned Rent | | | 0 | | | | (29,432 | ) |
| Total Adjustments | | | 291,213 | | | | 415,648 | |
Net Cash Provided By Operating Activities | | | 1,106,805 | | | | 1,127,126 | |
| | | | | | | | | |
| Cash Flows from Investing Activities: | | | | | | | | |
| Investments in Real Estate | | | 0 | | | | (2,750,400 | ) |
| Proceeds from Sale of Real Estate | | | 2,208,739 | | | | 1,571,107 | |
Net Cash Provided By (Used For) Investing Activities | | | 2,208,739 | | | | (1,179,293 | ) |
| | | | | | | | | |
| Cash Flows from Financing Activities: | | | | | | | | |
| Distributions Paid to Partners | | | (1,198,800 | ) | | | (1,312,838 | ) |
| Redemption Payments | | | (161,382 | ) | | | (184,362 | ) |
Net Cash Used For Financing Activities | | | (1,360,182 | ) | | | (1,497,200 | ) |
| | | | | | | | | |
| Net Increase (Decrease) in Cash | | | 1,955,362 | | | | (1,549,367 | ) |
| | | | | | | | | |
| Cash, beginning of year | | | 458,643 | | | | 2,008,010 | |
| | | | | | | | | |
| Cash, end of year | | $ | 2,414,005 | | | $ | 458,643 | |
| | | | | | | | | |
The accompanying Notes to Financial Statements are an integral part of this statement.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2005 $ 21,383 $17,038,916 $17,060,299 22,147.74
Distributions (19,262) (1,906,991) (1,926,253)
Redemption Payments (447) (44,230) (44,677) (80.00)
Net Income 14,394 1,424,988 1,439,382
-------- ----------- ----------- ----------
BALANCE, December 31, 2006 16,068 16,512,683 16,528,751 22,067.74
Distributions (17,545) (1,736,992) (1,754,537)
Redemption Payments (117) (11,562) (11,679) (22.70)
Net Income 13,922 1,378,235 1,392,157
-------- ----------- ----------- ----------
BALANCE, December 31, 2007 $ 12,328 $16,142,364 $16,154,692 22,045.04
======== =========== =========== ==========
| | | | | | | | | | | | Limited Partnership Units Outstanding | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, December 31, 2011 | | $ | 7,673 | | | $ | 15,040,698 | | | $ | 15,048,371 | | | | 21,786.28 | |
| | | | | | | | | | | | | | | | | |
| Distributions Declared | | | (12,701 | ) | | | (1,257,408 | ) | | | (1,270,109 | ) | | | | |
| | | | | | | | | | | | | | | | | |
| Redemption Payments | | | (1,844 | ) | | | (182,518 | ) | | | (184,362 | ) | | | (226.37 | ) |
| | | | | | | | | | | | | | | | | |
| Net Income | | | 11,146 | | | | 700,332 | | | | 711,478 | | | | | |
| | | | | | | | | | | | | | | | | |
| Balance, December 31, 2012 | | | 4,274 | | | | 14,301,104 | | | | 14,305,378 | | | | 21,559.91 | |
| | | | | | | | | | | | | | | | | |
| Distributions Declared | | | (11,987 | ) | | | (1,186,817 | ) | | | (1,198,804 | ) | | | | |
| | | | | | | | | | | | | | | | | |
| Redemption Payments | | | (1,614 | ) | | | (159,768 | ) | | | (161,382 | ) | | | (192.49 | ) |
| | | | | | | | | | | | | | | | | |
| Net Income | | | 14,460 | | | | 801,132 | | | | 815,592 | | | | | |
| | | | | | | | | | | | | | | | | |
| Balance, December 31, 2013 | | $ | 5,133 | | | $ | 13,755,651 | | | $ | 13,760,784 | | | | 21,367.42 | |
| | | | | | | | | | | | | | | | | |
The accompanying Notes to Financial Statements are an integral part of this statement.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 20072013 AND 2006
2012
(1) ORGANIZATION -
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. 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. Johnson is the majority shareholder. 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.
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.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
(1) ORGANIZATION - (Continued)
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.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
(1) Organization – (Continued)
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 December 2008, the Managing General Partner solicited by mail a proxy statement 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’s properties and assets within 24 months. On January 9, 2009, the proposal to continue the Partnership was approved with a majority of Units voted in favor of the continuation proposal. As a result, the Managing General Partner will continue the operations of the Partnership for an additional 60 months at which time it will again ask the Limited Partners to vote on the same two proposals. The Managing General Partner anticipates mailing a proxy statement in April 2014 asking the Limited Partners to vote on these two proposals.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Summary of Significant Accounting Policies –
Financial Statement Presentation
The accounts of the Partnership are maintained on the accrual basis of accounting for both federal income tax purposes and financial reporting purposes.
Accounting Estimates
Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. Significant items, subject to such estimates and assumptions, include the carrying value of real estate held for investment, real estate held for sale and related intangible assets.
The Partnership regularly assesses whether market events and conditions indicate that it is reasonably possible to recover the carrying amounts of its investments in real estate from future operations and sales. A change in those market events and conditions could have a material effect on the carrying amount of its real estate.
Cash Concentrations of Credit Risk
The Partnership's cash is deposited primarily in one financial institution and at times during the year it may exceed FDIC insurance limits.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash
equivalents may include cash in checking, cash invested
in money market accounts, certificates of deposit,
federal agency notes and commercial paper with a term of
three months or less.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 20072013 AND 2006
2012
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -Summary of Significant Accounting Policies – (Continued)
Receivables
Credit terms are extended to tenants in the normal course of business. The Partnership performs ongoing credit evaluations of its customers'customers’ financial condition and, generally, requires no collateral.
Receivables are recorded at their estimated net realizable value. The Partnership follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Partnership is of the belief that such accounts, if any, will be collectible in all material respects and thus an allowance is not necessary. Accounts are considered past due if payment is not made on a timely basis in accordance with the Partnership'sPartnership’s credit terms. Receivables considered uncollectible are written off.
Income Taxes
The income or loss of the Partnership for federal income tax reporting purposes is includable in the income tax returns of the partners. In general, no recognition has been given to income taxes in the accompanying financial statements.
The tax return and the amount of distributable Partnership income or loss are subject to examination by federal and state taxing authorities. If such an examination results in changes to distributable Partnership income or loss, the taxable income of the partners would be adjusted accordingly. Real Estate
Primarily due to its tax status as a partnership, the Partnership has no significant tax uncertainties that require recognition or disclosure. The Partnership is no longer subject to U.S. federal income tax examinations for tax years before 2010, and with few exceptions, is no longer subject to state tax examinations for tax years before 2010.
Revenue Recognition
The Partnership's real estate is leased under triple net leases, classified as operating leases. The leases provide for base annual rental payments payable in monthly installments. The Partnership recognizes rental revenueincome according to the terms of the individual leases. For leases whichthat contain stated rental increases, the increases are recognized in the year in which they are effective. Contingent rental payments 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.
The
Real Estate
Upon acquisition of real properties, the Partnership purchases properties and 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 fair value of each component of the property. Although independent appraisals may be used to assist in the determination of fair value, in many cases these values will be based upon management’s assessment of each property, the selling prices of comparable properties and the discounted value of cash flows from the asset.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
(2) Summary of Significant Accounting Policies – (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 terms of the respective leases. Below market leases 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’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 Partnership tests real estate 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, it compares the carrying amount of its
propertiesthe property to the estimated probability-weighted future undiscounted cash flows expected to result from the property and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the property, the Partnership recognizes an impairment loss by the amount by which the carrying amount of the property exceeds the fair value of the property. TheFor properties held for sale, the Partnership determines whether impairment has capitalized as Investments in Real
Estate certain costs incurred inoccurred by comparing the review and
acquisitionproperty’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 properties. The costs were allocatedproperty to the land, buildings and equipment.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
its net realizable value.
The buildings and equipment of the Partnership are depreciated using the straight-line method for financial reporting purposes based on estimated useful lives of 30 years and 10 years, respectively. In accordance with StatementIntangible lease assets are amortized using the straight-line method for financial reporting purposes based on the remaining life of Financial Accounting
Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, uponlease.
Upon complete disposal of a property or classification of a property as Real Estate Held for Sale, the Partnership includes the operating results and sale of the property in discontinued operations. In addition, the Partnership reclassifies the prior periods'periods’ operating results of the property to discontinued operations.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
(2) Summary of Significant Accounting Policies – (Continued)
The Partnership accounts for properties owned as tenants-
in-commontenants-in-common with affiliated Partnershipsentities and/or unrelated third parties using the proportionate consolidation method. Each tenant-in-common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in-common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building and equipment, liabilities, revenues and expenses.
The Partnership's properties are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which the properties are located. These laws could require the Partnership to investigate and remediate the effects of the release or disposal of hazardous materials at these locations if found. For each property, an environmental assessment is completed prior to acquisition. In addition, the lease agreements typically strictly prohibit the production, handling, or storage of hazardous materials (except where incidental to the tenant'stenant’s business such as use of cleaning supplies) in violation of applicable law to restrict environmental and other damage. Environmental liabilities are recorded when it is determined the liability is probable and the costs can reasonably be estimated. There were no environmental issues noted or liabilities recorded at December 31, 20072013 and 2006.
2012.
Fair Value Measurements
Fair value, as defined by United States Generally Accepted Accounting Principles (“US GAAP”), is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. US GAAP establishes a hierarchy in determining the fair value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. US GAAP requires the utilization of the lowest possible level of input to determine fair value. Level 1 inputs include quoted market prices in an active market for identical assets or liabilities. Level 2 inputs are market data, other than Level 1 inputs, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data.
At December 31, 2013, the Partnership had no financial assets or liabilities measured at fair value on a recurring basis or nonrecurring basis that would require disclosure under this pronouncement.
The Champps restaurant in Utica, Michigan, with a carrying amount of $1,146,477 at December 31, 2012, was written down to its estimated fair value of $733,000 after completing our long-lived asset valuation analysis. The resulting impairment charge of $413,477 was included in earnings for the fourth quarter of 2012. At December 31, 2013, after completing our long-lived asset valuation analysis, the property was further written down to $648,000, its estimated fair value at that date. The resulting impairment charge of $85,000 was included in earnings for the fourth quarter of 2013. In both instances, the fair value of the property was based upon comparable sales of similar properties, which are considered Level 2 inputs in the valuation hierarchy.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
(2) Summary of Significant Accounting Policies – (Continued)
The Royal Buffet restaurant in Colorado Springs, Colorado, with a carrying amount of $642,868 at September 30, 2013, was written down to its estimated fair value of $320,000 after completing our long-lived asset valuation analysis. The resulting impairment charge of $322,868 was included in earnings for the third quarter of 2013. The fair value of the property was based upon comparable sales of similar properties, which are considered Level 2 inputs in the valuation hierarchy.
The HomeTown Buffet restaurant in Albuquerque, New Mexico, with a carrying amount of 336,002 at December 31, 2013, was written down to its estimated fair value of $275,000 after completing our long-lived asset valuation analysis. The resulting impairment charge of $61,002 was included in earnings for the fourth quarter of 2013. The fair value of the property was based upon comparable sales of similar properties, which are considered Level 2 inputs in the valuation hierarchy.
Income Per Unit
Income per Limited Partnership Unit is calculated based on the weighted average number of Limited Partnership Units outstanding during each period presented. Diluted income per Limited Partnership Unit considers the effect of any potentially dilutive Unit equivalents, of which the Partnership had none for each of the years ended December 31, 2013 and 2012.
Reportable Segments
The Partnership invests in single tenant commercial properties throughout the United States that are net leased to tenants in various industries. Because these net leased properties have similar economic characteristics, the Partnership evaluates operating performance on an overall portfolio basis. Therefore, the Partnership’s properties are classified as one reportable segment.
Reclassification
Certain items related to discontinued operations in the prior year'syear’s financial statements have been reclassified to conform to 20072013 presentation. These reclassifications had no effect on Partners'Partners’ capital, net income or cash flows.
Recently Issued Accounting Pronouncements
Management has reviewed recently issued, but not yet effective, accounting pronouncements and does not expect the implementation of these pronouncements to have a significant effect on the Partnership'sPartnership’s financial statements.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 20072013 AND 2006
2012
(3) RELATED PARTY TRANSACTIONS -
Related Party Transactions –
The Partnership owns a 44%the percentage interest shown below in athe following properties as tenants-in-common with the affiliated entities listed: Champps Americana restaurant in Utica, Michigan. The remaining interests in
this property are owned by(44% – AEI Net Lease Income & Growth Fund XIX Limited Partnership an affiliate of the
Partnership, and unrelated third parties. parties); Jared Jewelry store (50% – AEI Income & Growth Fund XXI Limited Partnership); Applebee’s restaurant (45% – AEI Income & Growth Fund 24 LLC and unrelated third parties); Staples store (70% – AEI Income & Growth Fund 27 LLC); and Tractor Supply Company store (47% – AEI Income & Growth Fund 26 LLC).
The Partnership ownsowned a 50% interest in a Biaggi's restaurant and a 50%
interest in a Tractor Supply Company store. The remaining
interests in these properties are owned byBiaggi’s restaurant. AEI Net Lease Income & Growth Fund XIX Limited Partnership. At December
31, 2007, the Partnership owned a 50% interest in a Champps
Americana restaurant in West Chester, Ohio. The remaining
interest in this property until the property was owned by AEI Income & Growth
Fund XXII Limited Partnership,sold to an affiliate of the
Partnership.unrelated third party in 2012. The Partnership ownsowned a 50%40% interest in a Jared
Jewelry store. The remaining interest in this property is
owned byScott & White Clinic. AEI Income & Growth Fund XXI Limited Partnership an affiliate of the Partnership. The Partnership owns a 45%
interest in an Applebee's restaurant in Sandusky, Ohio. The
remaining interest in this property is owned byand AEI Income & Growth Fund 2425 LLC owned the remaining 60% interest in this property until the property was sold to an affiliate of the Partnership.
unrelated third party in 2013.
AEI and AFM received the following compensation and reimbursements for costs and expenses from the Partnership:
Total Incurred by the Partnership for the Years Endedyears ended December 31
2007 2006
a.AEI and AFM are reimbursed for all costs
incurred in connection with managing the
Partnership's operations, maintaining the
Partnership's books and communicating
the results of operations to the Limited
Partners. $ 219,885 $ 229,040
======== ========
b.AEI and AFM are reimbursed for all direct
expenses they have paid on the Partnership's
behalf to third parties relating to Partnership
administration and property management. These
expenses included printing costs, legal and
filing fees, direct administrative costs,
outside audit costs, taxes, insurance and
other property costs. $ 36,704 $ 33,940
======== ========
c.AEI is reimbursed for all costs and direct
expenses incurred by it in acquiring
properties on behalf of the Partnership. $ 0 $ 16,824
======== ========
d.AEI is reimbursed for all costs incurred
in connection with the sale of property. $ 0 $ 22,890
======== ========
31:
| | | | 2013 | | 2012 |
| | | | | | |
| a. | AEI is reimbursed for costs incurred in providing services related to managing the Partnership's operations and properties, maintaining the Partnership's books, and communicating with the Limited Partners. These amounts included $2,977 and $3,211 of expenses related to Discontinued Operations in 2013 and 2012, respectively. | $ | | $ | |
| | | | | | |
| b. | AEI is reimbursed for all direct expenses it paid on the Partnership's behalf to third parties related to Partnership administration and property management. These expenses included printing costs, legal and filing fees, direct administrative costs, outside audit costs, taxes, insurance and other property costs. These amounts included $41,312 and $37,675 of expenses related to Discontinued Operations in 2013 and 2012, respectively. | $ | | $ | |
| | | | | | |
| c. | AEI is reimbursed for costs incurred in providing services and direct expenses related to the acquisition of properties on behalf of the Partnership. | $ | | $ | |
| | | | | | |
| d. | AEI is reimbursed for costs incurred in providing services related to the sale of property. | $ | | $ | |
| | | | | | |
The payable to AEI Fund Management, Inc. represents the balance due for the services described in 3a, b, c and d. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 20072013 AND 2006
2012
(4) INVESTMENTS IN REAL ESTATE -
Real Estate Held for Investment –
The Partnership leases its properties to various tenants under triple net leases, classified as operating leases. Under a triple net lease, the tenant is responsible for all real estate taxes, insurance, maintenance, repairs and operating expenses for the property. For some leases, the Partnership 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 1310 to 20 years, except for the Tractor Supply
Company store, which had a remaining primary term of 7.4 years. The Lease for the Red Robin restaurant in continuing
operations was extended to expire on December 31, 2017. The
Lease for the Red Robin restaurant in discontinued
operations expires on November 30, 2008. Most of the leases provide the tenant with two to foursix five-year renewal options subject to the same terms and conditions as the primary term. The leases contain rent clauses which entitle
the Partnership to receive additional rent in future years
based on stated rent increases.
The Partnership's properties are commercial, single-tenant buildings. The HomeTown Buffet restaurant was constructed and acquired in 1993. The Red Robin restaurants, which wererestaurant was constructed in 1984 and 1987, were acquired in 1994. The
Champps Americana restaurant in Lyndhurst, Ohio was
constructed and acquired in 1996. The Champps Americana
restaurant in Schaumburg, Illinois was constructed and
acquired in 1997. The land for the Champps Americana restaurant in Columbus, Ohio was acquired in 1998 and
construction of the restaurant was completed in 1999. The
land for the Champps Americana restaurant in Utica, Michigan was acquired in 2001 and construction of the restaurant was completed in 2002. The KinderCare daycare center was constructed in 1999 and acquired in 2002. The land for the
Champps Americana restaurant in West Chester, Ohio was
acquired in 2002 and construction of the restaurant was
completed in 2004. The Biaggi's restaurant was constructed
in 2001 and acquired in 2003. The Johnny Carino's restaurant
was constructed and acquired in 2003. The Jared Jewelry store was constructed in 2001 and acquired in 2004. The Applebee'sApplebee’s restaurant in Sandusky, Ohio was constructed in 1995 and acquired in 2004. The Tractor Supply CompanyStaples store was constructed in 19982008 and acquired in 2006.2009. The remaining
propertiesTractor Supply store and the Family Dollar store were constructed and acquired in 1994.2012. There have been no costs capitalized as improvements subsequent to the acquisitions.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
(4) INVESTMENTS IN REAL ESTATE - (Continued)
The cost of the properties not held for sale and related accumulated depreciation at December 31, 20072013 are as follows:
Buildings
| Property | Land | Buildings and Equipment | Total | Accumulated Depreciation |
| | | | | | | | | |
| HomeTown Buffet, Albuquerque, NM | $ | 198,032 | $ | 272,297 | $ | 470,329 | $ | 195,329 |
| Red Robin, Colorado Springs, CO | | 905,980 | | 1,323,210 | | 2,229,190 | | 876,627 |
| KinderCare, Mayfield Heights, OH | | 289,266 | | 1,117,792 | | 1,407,058 | | 430,042 |
| Jared Jewelry, Hanover, MD | | 861,052 | | 1,128,053 | | 1,989,105 | | 371,320 |
| Staples, Vernon Hills, IL | | 882,000 | | 2,832,638 | | 3,714,638 | | 436,697 |
| Tractor Supply, Starkville, MS | | 352,500 | | 840,479 | | 1,192,979 | | 52,530 |
| Family Dollar, Mobile, AL | | | | | | | | |
| | $ | | $ | | $ | | $ | |
| | | | | | | | | |
For the years ended December 31, 2013 and Accumulated
Property Land Equipment Total Depreciation
HomeTown Buffet,
Albuquerque, NM $ 241,960 $ 289,371 $ 531,331 $ 137,453
Red Robin,
Colorado Springs, CO 905,980 1,323,210 2,229,190 611,985
Arby's/Mrs. Winner's,
Smyrna, GA 5,775 8,091 13,866 3,738
Applebee's, Middletown, OH 20,844 48,262 69,106 23,888
Applebee's, McAllen, TX 463,553 856,551 1,320,104 411,772
Champps Americana,
Lyndhurst, OH 1,024 2,477 3,501 984
Champps Americana,
Schaumburg, IL 3,026 4,095 7,121 1,443
Champps Americana,
Columbus, OH 2,924 6,406 9,330 1,931
Champps Americana,
Utica, MI 543,318 967,816 1,511,134 198,023
KinderCare,
Mayfield Heights, OH 289,266 1,117,792 1,407,058 206,482
Biaggi's, Ft. Wayne, IN 503,204 876,142 1,379,346 131,422
Johnny Carino's,
Alexandria, LA 549,668 1,595,080 2,144,748 245,887
Jared Jewelry, Hanover, MD 861,052 1,128,053 1,989,105 145,708
Applebee's, Sandusky, OH 412,396 864,547 1,276,943 105,666
Tractor Supply,
Mesquite, TX 326,967 904,657 1,231,624 54,028
---------- ---------- ----------- ----------
$5,130,957 $9,992,550 $15,123,507 $2,280,410
========== ========== =========== ==========
2012, the Partnership recognized depreciation expense for properties not held for sale of $272,235 and $257,259, respectively.
On March 10, 2006,February 23, 2012, the Partnership purchased a 50%47% interest in a Tractor Supply Company store in Mesquite, TexasStarkville, Mississippi for $1,231,624.$1,339,500. The Partnership allocated $228,586 of the purchase price to Acquired Intangible Lease Assets, representing in-place lease intangibles, and allocated $82,065 to Acquired Below-Market Lease Intangibles. The Partnership incurred $24,866 of acquisition expenses related to the purchase that were expensed. The property is leased to Tractor Supply Company under a Lease Agreement with a remaining primary term of 7.415 years (as of the date of purchase) and initial annual rent of $87,258.
$102,462 for the interest purchased.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
(4) Real Estate Held for Investment – (Continued)
On July 23, 2012, the Partnership purchased a Family Dollar store in Mobile, Alabama for $1,410,900. The Partnership allocated $475,411 of the purchase price to Acquired Intangible Lease Assets, representing in-place lease intangibles of $190,845 and above-market lease intangibles of $284,566. The Partnership incurred $28,837 of acquisition expenses related to the purchase that were expensed. The property is leased to Family Dollar Stores of Alabama, Inc. under a Lease Agreement with a remaining primary term of 9.9 years and annual rent of $119,926.
The following schedule presents the cost and related accumulated amortization of acquired lease intangibles not held for sale at December 31:
| | | | | |
| | | | | | | | | |
In-Place Lease Intangibles (weighted average life of 132 and 144 months, respectively) | $ | 419,431 | $ | 55,358 | $ | 419,431 | $ | 20,789 |
| | | | | | | | | |
Above-Market Lease Intangibles (weighted average life of 102 and 114 months, respectively) | | | | | | | | |
| Acquired Intangible Lease Assets | $ | | $ | | $ | | $ | |
| | | | | | | | | |
Acquired Below-Market Lease Intangibles (weighted average life of 157 and 169 months, respectively) | $ | | $ | | $ | | $ | |
| | | | | | | | | |
For the year ended December 31, 2013 and 2012, the value of in-place lease intangibles amortized to expense was $34,569 and $20,789, respectively, the decrease to rental income for above-market leases was $28,696 and $11,957, respectively, and the increase to rental income for below-market leases was $5,502 and $4,585, respectively. For lease intangibles not held for sale at December 31, 2013, the estimated amortization expense is $34,569, the estimated decrease to rental income for above-market leases is $28,696 and the estimated increase to rental income for below-market leases is $5,502 for each of the next five succeeding years.
The Partnership owns a 40.1354% interest in a HomeTown Buffet restaurant a 1.1177% interest in an Arby's/Mrs.
Winner's restaurant, a 5.925% interest in an Applebee's
restaurant in Middletown, Ohio, a .12905% interest in a
Champps Americana restaurant in Lyndhurst, Ohio, a .1572%
interest in a Champps Americana restaurant in Schaumburg,
Illinois and a .2706% interest in a Champps Americana
restaurant in Columbus, Ohio.Albuquerque, New Mexico. The remaining interests in these propertiesthis property are owned by unrelated third parties, who own the property with the Partnership as tenants-in-common. On January 31, 2011, the lease term expired and the tenant returned possession of the property to the owners. The owners listed the property for lease or sale with a real estate broker in the Albuquerque area. While the property is vacant, the Partnership is responsible for its share of real estate taxes and other costs associated with maintaining the property.
Based on its long-lived asset valuation analysis, the Partnership determined the HomeTown Buffet restaurant was impaired. As a result, in the fourth quarter of 2013, a charge to continuing operations for real estate impairment of $61,002 was recognized, which was the difference between the carrying value at December 31, 2013 of $336,002 and the estimated fair value of $275,000. The charge was recorded against the cost of the land and building.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 20072013 AND 2006
2012
(4) INVESTMENTS IN REAL ESTATE -Real Estate Held for Investment – (Continued)
For properties owned as of December 31, 2007,2013, the minimum future rent payments required by the leases are as follows:
2008 $ 1,995,237
2009 1,875,070
2010 1,893,617
2011 1,910,003
2012 1,940,070
Thereafter 11,950,658
-----------
$21,564,655
===========
| 2014 | $ | 1,371,420 |
| 2015 | | 1,371,420 |
| 2016 | | 1,377,338 |
| 2017 | | 1,318,511 |
| 2018 | | 847,292 |
| Thereafter | | |
| | $ | |
| | | |
There were no contingent rents recognized in 20072013 and 2006.
2012.
(5) MAJOR TENANTS -
Major Tenants –
The following schedule presents rent revenuerental income from individual tenants, or affiliated groups of tenants, who each contributed more than ten percent of the Partnership's total rent revenuerental income for the years ended December 31:
Tenants Industry 2007 2006
Red Robin West, Inc. Restaurant $ 509,023 $ 475,152
Champps Operating
Corporation Restaurant 350,958 340,116
Concord Neighborhood
Corporation Restaurant 224,994 226,595
Kona Restaurant
Group, Inc. Restaurant 205,072 203,041
---------- ----------
Aggregate rent revenue of major tenants $1,290,047 $1,244,904
========== ==========
Aggregate rent revenue of major tenants as
a percentage of total rent revenue 64% 64%
========== ==========
| Tenants | | Industry | | 2013 | | 2012 |
| | | | | | | |
| Red Robin West, Inc. | | Restaurant | $ | 341,250 | $ | 325,000 |
| Staples the Office Superstore East, Inc. | | Retail | | 308,315 | | 308,315 |
| Sterling Jewelers Inc. | | Retail | | 185,406 | | 185,406 |
| KinderCare Learning Centers LLC | | Retail | | | | |
| Aggregate rental income of major tenants | | | $ | | $ | |
Aggregate rental income of major tenants as a percentage of total rental income | | | | | | |
| | | | | | | |
(6) DISCONTINUED OPERATIONS -
During the first nine months of 2006,Discontinued Operations –
On February 3, 2012, the Partnership sold its remaining 15.5376%1.1177% interest in the Eckerd drug storeArby’s restaurant in Cicero, New York, in two separate transactions,Smyrna, Georgia to an unrelated third parties.party. The Partnership received total net sale proceeds of $578,025,$4,300, which resulted in a net gainloss of $109,143.$4,764. The cost and related accumulated depreciation of the interestsinterest sold was $492,910$13,866 and $24,028,$4,802, respectively.
In February 2012, the Partnership entered into an agreement to sell its 50% interest in the Biaggi’s restaurant in Fort Wayne, Indiana to an unrelated third party. On March 29, 2012, the sale closed with the Partnership receiving net proceeds of $1,566,807, which resulted in a net gain of $435,703. At the time of sale, the cost and related accumulated depreciation was $1,379,346 and $248,242, respectively.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 20072013 AND 2006
2012
(6) DISCONTINUED OPERATIONS -Discontinued Operations – (Continued)
Subsequent to December 31, 2007,
During 2012, the Partnership solddecided to sell its 50%44% interest in the Champps Americana restaurant in West
Chester,Utica, Michigan and classified it as Real Estate Held for Sale. In February 2013, Champps Operating Corporation (“Champps’), the tenant of the property, approached the Partnership with a request to adjust the rent on the property to a market rental rate based on the restaurant’s performance and the current conditions in the market. In April 2013, after reviewing financial information for the restaurant and the tenant, and analyzing the local real estate market for the property, the Partnership and the property’s other co-owners entered into an agreement to reduce the annual rent for the property by 63% to $90,880. The Partnership’s share of this rent was $39,987. Based on its long-lived asset valuation analysis, the Partnership determined the property was impaired. As a result, in the fourth quarter of 2012, a charge to discontinued operations for real estate impairment of $413,477 was recognized, which was the difference between the carrying value at December 31, 2012 of $1,146,477 and the estimated fair value of $733,000.
On December 15, 2013, Champps filed for Chapter 11 bankruptcy reorganization. In February 2014, Champps closed the restaurant, filed a motion with the bankruptcy court to reject the lease and returned possession of the property to the owners. The owners listed the property for sale or lease with a real estate broker in the Utica area. While the property is vacant, the Partnership is responsible for its 44% share of real estate taxes and other costs associated with maintaining the property. Based on its long-lived asset valuation analysis, in the fourth quarter of 2013, the Partnership recognized an additional real estate impairment of $85,000 to decrease the carrying value to the estimated fair value of $648,000 as of December 31, 2013. The charge was recorded against the cost of the land and building. Even if the property is leased to a new tenant, the Partnership anticipates that it will sell the property within the next 12 months.
Effective June 20, 2011, the Partnership entered into an agreement to lease the former Red Robin property in Colorado Springs, Colorado, to a local restaurant operator. The Lease Agreement had a term of two years with annual rental payments of $100,000. The tenant remodeled the building and converted it into a Chinese buffet restaurant called Royal Buffet. In July 2012, the tenant closed the restaurant due to lower than expected sales. The Partnership took possession of the property and listed the property for lease or sale with a real estate broker in the Colorado Springs area. While the property was vacant, the Partnership was responsible for real estate taxes and other costs associated with maintaining the property.
In September 2013, the Partnership decided to sell the Royal Buffet restaurant and classified it as Real Estate Held for Sale. Based on its long-lived asset valuation analysis, the Partnership determined the Royal Buffet restaurant was impaired. As a result, in the third quarter of 2013, a charge to discontinued operations for real estate impairment of $322,868 was recognized, which was the difference between the carrying value at September 30, 2013 of $642,868 and the estimated fair value of $320,000. The charge was recorded against the cost of the land and building. On December 20, 2013, the Partnership sold the property to an unrelated third party. The Partnership received net sale proceeds of $339,514, which resulted in a net gain of $19,514.
On August 2, 2013, the Partnership sold its 40% interest in the Scott & White Clinic in College Station, Texas to an unrelated third party. The Partnership received net sale proceeds of $1,869,225, which resulted in a net gain of $504,826. At the time of sale, the cost and related accumulated depreciation was $1,470,224 and $105,825, respectively.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
(6) Discontinued Operations – (Continued)
Subsequent to December 31, 2013, the Partnership sold 4.4006% of the Applebee’s restaurant in Sandusky, Ohio to an unrelated third party. The Partnership received net sale proceeds of approximately $2,045,000,$163,000, which resulted in a net gain of approximately $620,100. At
the time of sale, the$64,700. The cost and related accumulated depreciation of the interest sold was $1,569,884$124,874 and $144,966,$26,538, respectively. The Partnership is attempting to sell its remaining 40.5994% interest in the property. At December 31, 2007,2013, the property was classified as Real Estate Held for Sale with a bookcarrying value of $1,424,918.
The Partnership is attempting to sell its Red Robin
restaurant on Citadel Drive in Colorado Springs, Colorado.
At December 31, 2007, the property was classified as Real
Estate Held for Sale with a book value of $1,277,088.
During 2007 and 2006, the Partnership distributed net sale
proceeds of $57,576 and $229,293 to the Limited and General
Partners as part of their quarterly distributions, which
represented a return of capital of $2.57 and $10.25 per
Limited Partnership Unit, respectively. The Partnership
anticipates the remaining net sale proceeds will either be
reinvested in additional property or distributed to the
Partners in the future.
$1,005,573.
The financial results for these properties are reflected as Discontinued Operations in the accompanying financial statements. The following are the results of discontinued operations for the years ended December 31:
2007 2006
Rental Income $ 324,035 $ 330,078
Property Management Expenses (757) (4,469)
Depreciation (71,099) (71,099)
Gain on Disposal of Real Estate 0 109,143
---------- ----------
Income from Discontinued Operations $ 252,179 $ 363,653
========== ==========
| | | 2013 | | 2012 |
| | | | | |
| Rental Income | $ | 251,493 | $ | 404,321 |
| Property Management Expenses | | (44,289) | | (40,886) |
| Depreciation | | (60,195) | | (125,094) |
| Real Estate Impairment | | (407,868) | | (413,477) |
| Gain on Disposal of Real Estate | | | | |
| Income from Discontinued Operations | $ | | $ | |
| | | | | |
(7) PARTNERS' CAPITAL -
Cash distributions of $17,545 and $19,262 were made to the
General Partners and $1,736,992 and $1,906,991 were made to
the Limited Partners forPartners’ Capital
For the years ended December 31, 20072013 and 2006,2012, the Partnership declared distributions of $1,198,804 and $1,270,109, respectively. The Limited Partners received distributions of $1,186,817 and $1,257,408 and the General Partners received distributions of $11,987 and $12,701 for the years, respectively. The Limited Partners' distributions represent $78.73represented $55.29 and $86.18$57.97 per Limited Partnership Unit outstanding using 22,06221,464 and 22,12821,692 weighted average Units in 20072013 and 2006,2012, respectively. The distributions represent
$61.95represented $29.84 and $62.40$23.82 per Unit of Net Income and $16.78$25.45 and $23.78$34.15 per Unit of return of capital in 20072013 and 2006,2012, respectively.
As part of the Limited Partner distributions discussed above, the Partnership distributed net sale proceeds of $57,000$209,872 and $227,000$296,237 in 20072013 and 2006,2012, respectively. AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
(7) PARTNERS' CAPITAL - (Continued)
The Limited Partners received distributions of $207,773 and $293,275 and the General Partners received distributions of $2,099 and $2,962 for the years, respectively. The Limited Partners’ distributions represented $9.70 and $13.55 per Unit for the years, respectively.
The Partnership may acquire 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 #11 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 2007, two2013, 24 Limited Partners redeemed a total of 22.7192.49 Partnership Units for $11,562$159,768 in accordance with the Partnership Agreement. During 2006, two2012, 18 Limited Partners redeemed a total of 80226.37 Partnership Units for $44,230.$182,518. The Partnership acquired these Units using Net Cash Flow from operations. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. As a result of these redemption payments and pursuant to the Partnership Agreement, the General Partners received distributions of $117$1,614 and $447$1,844 in 20072013 and 2006,2012, respectively.
After the effect of redemptions, the Adjusted Capital
Contribution, as defined in the Partnership Agreement, is
$1,088.68 per original $1,000 invested.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
(8) INCOME TAXES -
Income Taxes –
The following is a reconciliation of net income for financial reporting purposes to income reported for federal income tax purposes for the years ended December 31:
2007 2006
Net Income for Financial Reporting Purposes $1,392,157 $1,439,382
Depreciation for Tax Purposes Under
Depreciation for Financial Reporting Purposes 72,151 59,183
Income Accrued for Tax Purposes Over (Under)
Income for Financial Reporting Purposes 1,114 (16,378)
Gain on Sale of Real Estate for Tax Purposes
Over Gain for Financial Reporting Purposes 0 1,427
---------- ----------
Taxable Income to Partners $1,465,422 $1,483,614
========== ==========
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
(8) INCOME TAXES - (Continued)
| | | 2013 | | 2012 |
| | | | | |
| Net Income for Financial Reporting Purposes | $ | 815,592 | $ | 711,478 |
| | | | | |
Depreciation for Tax Purposes Under Depreciation and Amortization for Financial Reporting Purposes | | 39,952 | | 64,662 |
| | | | | |
Income Accrued for Tax Purposes Under Income for Financial Reporting Purposes | | 0 | | (29,432) |
| | | | | |
Acquisition Costs Expensed for Financial Reporting Purposes, Capitalized for Tax Purposes | | 0 | | 53,703 |
| | | | | |
Real Estate Impairment Loss Not Recognized for Tax Purposes | | 468,870 | | 413,477 |
| | | | | |
Gain on Sale of Real Estate for Tax Purposes Under Gain for Financial Reporting Purposes | | | | |
| Taxable Income to Partners | $ | | $ | |
| | | | | |
The following is a reconciliation of Partners' capital for financial reporting purposes to Partners' capital reported for federal income tax purposes for the years ended December 31:
2007 2006
Partners' Capital for Financial Reporting
Purposes $16,154,692 $16,528,751
Adjusted Tax Basis of Investments in Real Estate
Over Net Investments in Real Estate
for Financial Reporting Purposes 500,239 428,088
Income Accrued for Tax Purposes Over
Income for Financial Reporting Purposes 12,249 11,135
Syndication Costs Treated as Reduction
of Capital for Financial Reporting Purposes 3,271,273 3,271,273
----------- -----------
Partners' Capital for Tax Reporting Purposes $19,938,453 $20,239,247
=========== ===========
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
| | | 2013 | | 2012 |
| | | | | |
| Partners' Capital for Financial Reporting Purposes | $ | 13,760,784 | $ | 14,305,378 |
| | | | | |
Adjusted Tax Basis of Investments in Real Estate Over Net Investments in Real Estate for Financial Reporting Purposes | | 1,224,971 | | 1,676,375 |
| | | | | |
Income Accrued for Tax Purposes Over Income for Financial Reporting Purposes | | 39,562 | | 39,561 |
| | | | | |
Property Expenses for Tax Purposes Under Expenses for Financial Reporting Purposes | | 8,934 | | 8,935 |
| | | | | |
Syndication Costs Treated as Reduction of Capital For Financial Reporting Purposes | | | | |
| Partners' Capital for Tax Reporting Purposes | $ | | $ | |
| | | | | |
-
The estimated fair values of the financial instruments, none
of which are held for trading purposes, are as follows at
December 31:
2007 2006
Carrying Fair Carrying Fair
Amount Value Amount Value
Money Market Funds $1,102,753 $1,102,753 $1,083,159 $1,083,159
---------- ---------- ---------- ----------
Total Cash and
Cash Equivalents $1,102,753 $1,102,753 $1,083,159 $1,083,159
========== ========== ========== ==========
41 -
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
BALANCE SHEET
SEPTEMBER 30, 2008 AND DECEMBER 31, 2007
ASSETS
2008 2007
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,874,062 $ 1,102,753
INVESTMENTS IN REAL ESTATE:
Land 5,110,113 5,130,957
Buildings and Equipment 9,944,288 9,992,550
Accumulated Depreciation (2,509,303) (2,280,410)
----------- -----------
12,545,098 12,843,097
Real Estate Held for Sale 1,277,088 2,702,006
----------- -----------
Net Investments in Real Estate 13,822,186 15,545,103
----------- -----------
Total Assets $16,696,248 $16,647,856
=========== ===========
| | | March 31, | | | December 31, | |
| | | | | | | |
| | | (unaudited) | | | | |
| Current Assets: | | | | | | |
| Cash | | $ | 2,601,031 | | | $ | 2,414,005 | |
| | | | | | | | | |
| Real Estate Held for Investment: | | | | | | | | |
| Land | | | 3,788,830 | | | | 3,788,830 | |
| Buildings and Equipment | | | 8,149,958 | | | | 8,149,958 | |
| Acquired Intangible Lease Assets | | | 703,997 | | | | 703,997 | |
| Real Estate Investments, at cost | | | 12,642,785 | | | | 12,642,785 | |
| Accumulated Depreciation and Amortization | | | (2,573,322 | ) | | | (2,489,448 | ) |
| Real Estate Held for Investment, Net | | | 10,069,463 | | | | 10,153,337 | |
| Real Estate Held for Sale | | | 1,555,237 | | | | 1,653,573 | |
| Total Real Estate | | | 11,624,700 | | | | 11,806,910 | |
| Total Assets | | $ | 14,225,731 | | | $ | 14,220,915 | |
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 40,022 $ 67,148
Distributions Payable 404,901 413,767
Unearned Rent 12,249 12,249
----------- -----------
Total Current Liabilities 457,172 493,164
----------- -----------
PARTNERS' CAPITAL:
General Partners 13,172 12,328
Limited Partners, $1,000 per Unit;
24,000 Units authorized and issued;
22,045 Units outstanding 16,225,904 16,142,364
----------- -----------
Total Partners' Capital 16,239,076 16,154,692
----------- -----------
Total Liabilities and Partners' Capital $16,696,248 $16,647,856
=========== ===========
| Current Liabilities: | | | | | | |
| Payable to AEI Fund Management, Inc. | | $ | 75,932 | | | $ | 74,979 | |
| Distributions Payable | | | 297,472 | | | | 299,700 | |
| Unearned Rent | | | 76,143 | | | | 13,474 | |
| Total Current Liabilities | | | 449,547 | | | | 388,153 | |
| Long-term Liabilities: | | | | | | | | |
| Acquired Below-Market Lease Intangibles, Net | | | 70,602 | | | | 71,978 | |
| | | | | | | | | |
| Partners’ Capital: | | | | | | | | |
| General Partners | | | 4,581 | | | | 5,133 | |
Limited Partners – 24,000 Units authorized; 21,367 Units issued and outstanding | | | 13,701,001 | | | | 13,755,651 | |
| Total Partners' Capital | | | 13,705,582 | | | | 13,760,784 | |
| Total Liabilities and Partners' Capital | | $ | 14,225,731 | | | $ | 14,220,915 | |
The accompanying Notes to Financial Statements are an integral part of this statement.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
Three Months Ended Nine Months Ended
9/30/08 9/30/07 9/30/08 9/30/07
RENTAL INCOME $ 409,437 $ 421,898 $1,222,720 $1,256,170
EXPENSES:
Partnership Administration -
Affiliates 57,202 57,591 172,586 167,898
Partnership Administration
and Property Management -
Unrelated Parties 12,331 6,548 39,990 28,219
Depreciation 84,262 84,262 252,781 252,786
---------- ---------- ---------- ----------
Total Expenses 153,795 148,401 465,357 448,903
---------- ---------- ---------- ----------
OPERATING INCOME 255,642 273,497 757,363 807,267
OTHER INCOME:
Interest Income 13,574 11,427 38,650 34,841
---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS 269,216 284,924 796,013 842,108
Income from Discontinued
Operations 38,653 64,997 829,788 194,971
---------- ---------- ---------- ----------
NET INCOME $ 307,869 $ 349,921 $1,625,801 $1,037,079
========== ========== ========== ==========
NET INCOME ALLOCATED:
General Partners $ 3,079 $ 3,499 $ 16,258 $ 10,371
Limited Partners 304,790 346,422 1,609,543 1,026,708
---------- ---------- ---------- ----------
$ 307,869 $ 349,921 $1,625,801 $1,037,079
========== ========== ========== ==========
INCOME PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ 12.09 $ 12.77 $ 35.75 $ 37.77
Discontinued Operations 1.74 2.93 37.26 8.75
---------- ---------- ---------- ----------
Total $ 13.83 $ 15.70 $ 73.01 $ 46.52
========== ========== ========== ==========
Weighted Average Units
Outstanding 22,045 22,068 22,045 22,068
========== ========== ========== ==========
(unaudited)
| | | Three Months Ended March 31 | |
| | | | | | | |
| | | | | | | |
| Rental Income | | $ | 298,963 | | | $ | 298,963 | |
| | | | | | | | | |
| Expenses: | | | | | | | | |
| Partnership Administration – Affiliates | | | 56,787 | | | | 58,996 | |
Partnership Administration and Property Management – Unrelated Parties | | | 17,367 | | | | 14,957 | |
| Depreciation and Amortization | | | 76,700 | | | | 76,700 | |
| Total Expenses | | | 150,854 | | | | 150,653 | |
| | | | | | | | | |
| Operating Income | | | 148,109 | | | | 148,310 | |
| | | | | | | | | |
| Other Income: | | | | | | | | |
| Interest Income | | | 1,739 | | | | 270 | |
| | | | | | | | | |
| Income from Continuing Operations | | | 149,848 | | | | 148,580 | |
| | | | | | | | | |
| Income from Discontinued Operations | | | 92,422 | | | | 55,078 | |
| | | | | | | | | |
| Net Income | | $ | 242,270 | | | $ | 203,658 | |
| | | | | | | | | |
| Net Income Allocated: | | | | | | | | |
| General Partners | | $ | 2,423 | | | $ | 2,037 | |
| Limited Partners | | | 239,847 | | | | 201,621 | |
| Total | | $ | 242,270 | | | $ | 203,658 | |
| | | | | | | | | |
| Income per Limited Partnership Unit: | | | | | | | | |
| Continuing Operations | | $ | 6.94 | | | $ | 6.82 | |
| Discontinued Operations | | | 4.29 | | | | 2.53 | |
| Total – Basic and Diluted | | $ | 11.23 | | | $ | 9.35 | |
| | | | | | | | | |
Weighted Average Units Outstanding – Basic and Diluted | | | 21,367 | | | | 21,560 | |
| | | | | | | | | |
The accompanying Notes to Financial Statements are an integral part of this statement.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,625,801 $ 1,037,079
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 253,395 307,215
Gain on Sale of Real Estate (682,938) 0
Decrease in Payable to
AEI Fund Management, Inc. (27,126) (42,452)
Increase in Unearned Rent 0 43,511
----------- -----------
Total Adjustments (456,669) 308,274
----------- -----------
Net Cash Provided By
Operating Activities 1,169,132 1,345,353
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 2,152,460 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Distributions Payable (8,866) 191
Distributions to Partners (1,541,417) (1,330,294)
----------- -----------
Net Cash Used For
Financing Activities (1,550,283) (1,330,103)
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 1,771,309 15,250
CASH AND CASH EQUIVALENTS, beginning of period 1,102,753 1,083,159
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,874,062 $ 1,098,409
=========== ===========
(unaudited)
| | | Three Months Ended March 31 | |
| | | | | | | |
| Cash Flows from Operating Activities: | | | | | | |
| Net Income | | $ | 242,270 | | | $ | 203,658 | |
| | | | | | | | | |
Adjustments to Reconcile Net Income To Net Cash Provided by Operating Activities: | | | | | | | | |
| Depreciation and Amortization | | | 82,498 | | | | 105,819 | |
| Gain on Sale of Real Estate | | | (63,797 | ) | | | 0 | |
| (Increase) Decrease in Receivables | | | 0 | | | | 1,843 | |
Increase (Decrease) in Payable to AEI Fund Management, Inc. | | | 953 | | | | 16,822 | |
| Increase (Decrease) in Unearned Rent | | | 62,669 | | | | (4,935 | ) |
| Total Adjustments | | | 82,323 | | | | 119,549 | |
Net Cash Provided By Operating Activities | | | 324,593 | | | | 323,207 | |
| | | | | | | | | |
| Cash Flows from Investing Activities: | | | | | | | | |
| Proceeds from Sale of Real Estate | | | 162,133 | | | | 0 | |
| | | | | | | | | |
| Cash Flows from Financing Activities: | | | | | | | | |
| Distributions Paid to Partners | | | (299,700 | ) | | | (299,696 | ) |
| | | | | | | | | |
| Net Increase (Decrease) in Cash | | | 187,026 | | | | 23,511 | |
| | | | | | | | | |
| Cash, beginning of period | | | 2,414,005 | | | | 458,643 | |
| | | | | | | | | |
| Cash, end of period | | $ | 2,601,031 | | | $ | 482,154 | |
| | | | | | | | | |
The accompanying Notes to Financial Statements are an integral part of this statement.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2006 $ 16,068 $16,512,683 $16,528,751 22,067.74
Distributions (13,303) (1,316,991) (1,330,294)
Net Income 10,371 1,026,708 1,037,079
-------- ----------- ----------- ----------
BALANCE, September 30, 2007 $ 13,136 $16,222,400 $16,235,536 22,067.74
======== =========== =========== ==========
BALANCE, December 31, 2007 $ 12,328 $16,142,364 $16,154,692 22,045.04
Distributions (15,414) (1,526,003) (1,541,417)
Net Income 16,258 1,609,543 1,625,801
-------- ----------- ----------- ----------
BALANCE, September 30, 2008 $ 13,172 $16,225,904 $16,239,076 22,045.04
======== =========== =========== ==========
(unaudited)
| | | | | | | | | | | | Limited Partnership Units Outstanding | |
| | | | | | | | | | | | | |
| Balance, December 31, 2012 | | $ | 4,274 | | | $ | 14,301,104 | | | $ | 14,305,378 | | | | 21,559.91 | |
| | | | | | | | | | | | | | | | | |
| Distributions Declared | | | (2,997 | ) | | | (296,699 | ) | | | (299,696 | ) | | | | |
| | | | | | | | | | | | | | | | | |
| Net Income | | | 2,037 | | | | 201,621 | | | | 203,658 | | | | | |
| | | | | | | | | | | | | | | | | |
| Balance, March 31, 2013 | | $ | 3,314 | | | $ | 14,206,026 | | | $ | 14,209,340 | | | | 21,559.91 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Balance, December 31, 2013 | | $ | 5,133 | | | $ | 13,755,651 | | | $ | 13,760,784 | | | | 21,367.42 | |
| | | | | | | | | | | | | | | | | |
| Distributions Declared | | | (2,975 | ) | | | (294,497 | ) | | | (297,472 | ) | | | | |
| | | | | | | | | | | | | | | | | |
| Net Income | | | 2,423 | | | | 239,847 | | | | 242,270 | | | | | |
| | | | | | | | | | | | | | | | | |
| Balance, March 31, 2014 | | $ | 4,581 | | | $ | 13,701,001 | | | $ | 13,705,582 | | | | 21,367.42 | |
| | | | | | | | | | | | | | | | | |
The accompanying Notes to Financial Statements are an integral part of this statement.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
MARCH 31, 2014
(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 generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the registrant'sregistrant’s latest annual report on Form 10-KSB.
10-K.
(2) ORGANIZATION -
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. 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. Johnson is the majority shareholder. 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.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization – (Continued)
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 December 2008, the Managing General Partner solicited by mail a proxy statement 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’s properties and assets within 24 months. On January 9, 2009, the proposal to continue the Partnership was approved with a majority of Units voted in favor of the continuation proposal. As a result, the Managing General Partner will continue the operations of the Partnership for an additional 60 months at which time it will again ask the Limited Partners to vote on the same two proposals. The Managing General Partner anticipates mailing a proxy statement in May 2014 asking the Limited Partners to vote on these two proposals.
(3) RECLASSIFICATIONRecently Adopted Accounting Standards -
In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This topic amends the requirements for reporting discontinued operations. The disposal of a component must represent a strategic shift that will have a major effect on the Partnership’s operations and financial results in order to be reported as discontinued operations, and require certain additional interim and annual disclosures. The amendments in this ASU are effective for reporting periods beginning after December 15, 2014 with early adoption permitted. The Partnership has early adopted this standard effective January 1, 2014 and has applied the provisions prospectively. As a result, the Partnership anticipates that properties will not be considered discontinued operations when the properties are sold after January 1, 2014, with the exception of properties that were classified as Real Estate Held for Sale at December 31, 2013.
(4) Reclassification –
Certain items related to discontinued operations in the prior period'syear’s financial statements have been reclassified to conform to 20082014 presentation. These reclassifications had no effect on Partners'Partners’ capital, net income or cash flows.
(4) PAYABLE
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) Real Estate Held for Investment –
The Partnership owns a 40.1354% interest in a HomeTown Buffet restaurant in Albuquerque, New Mexico. The remaining interests in this property are owned by unrelated third parties, who own the property with the Partnership as tenants-in-common. On January 31, 2011, the lease term expired and the tenant returned possession of the property to the owners. The owners listed the property for lease or sale with a real estate broker in the Albuquerque area. While the property is vacant, the Partnership is responsible for its 40.1354% share of real estate taxes and other costs associated with maintaining the property.
Based on its long-lived asset valuation analysis, the Partnership determined the HomeTown Buffet restaurant was impaired. As a result, in the fourth quarter of 2013, a charge to continuing operations for real estate impairment of $61,002 was recognized, which was the difference between the carrying value at December 31, 2013 of $336,002 and the estimated fair value of $275,000. The charge was recorded against the cost of the land and building.
(6) Payable to AEI FUND MANAGEMENT, INC. -
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.
(7) Discontinued Operations –
During 2012, the Partnership decided to sell its 44% interest in the Champps Americana restaurant in Utica, Michigan and classified it as Real Estate Held for Sale. In February 2013, Champps Operating Corporation (“Champps’), the tenant of the property, approached the Partnership with a request to adjust the rent on the property to a market rental rate based on the restaurant’s performance and the current conditions in the market. In April 2013, after reviewing financial information for the restaurant and the tenant, and analyzing the local real estate market for the property, the Partnership and the property’s other co-owners entered into an agreement to reduce the annual rent for the property by 63% to $90,880. The Partnership’s share of this rent was $39,987. On December 15, 2013, Champps filed for Chapter 11 bankruptcy reorganization. In February 2014, Champps closed the restaurant, filed a motion with the bankruptcy court to reject the lease and returned possession of the property to the owners. The owners listed the property for sale or lease with a real estate broker in the Utica area. While the property is vacant, the Partnership is responsible for its 44% share of real estate taxes and other costs associated with maintaining the property.
Based on its long-lived asset valuation analysis, the Partnership determined the Champps property was impaired. As a result, in the fourth quarter of 2013, a charge to discontinued operations for real estate impairment of $85,000 was recognized, which was the difference between the carrying value at December 31, 2013 of $733,000 and the estimated fair value of $648,000. The charge was recorded against the cost of the land and building.
In April 2014, the Partnership and the other co-owners of the Champps property received a non-binding letter of intent for the purchase of the property from an unrelated third party. The sale is subject to contingencies, including negotiating a written purchase agreement, and may not be completed. If the sale is completed, the Partnership expects to receive net proceeds of approximately $718,000. If the sale is not completed, the owners will seek another buyer for the property and may not be able to negotiate a purchase agreement with similar economic terms.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) DISCONTINUED OPERATIONS -
(7) Discontinued Operations – (Continued)
In September 2013, the Partnership decided to sell the Royal Buffet restaurant in Colorado Springs, Colorado and classified it as Real Estate Held for Sale. Based on its long-lived asset valuation analysis, the Partnership determined the Royal Buffet restaurant was impaired. As a result, in the third quarter of 2013, a charge to discontinued operations for real estate impairment of $322,868 was recognized, which was the difference between the carrying value at September 30, 2013 of $642,868 and the estimated fair value of $320,000. The charge was recorded against the cost of the land and building. On February 27, 2008,December 20, 2013, the Partnership sold the property to an unrelated third party. The Partnership received net sale proceeds of $339,514, which resulted in a net gain of $19,514.
On August 2, 2013, the Partnership sold its 50%40% interest in the Champps AmericanaScott & White Clinic in College Station, Texas to an unrelated third party. The Partnership received net sale proceeds of $1,869,225, which resulted in a net gain of $504,826. At the time of sale, the cost and related accumulated depreciation was $1,470,224 and $105,825, respectively.
On February 26, 2014, the Partnership sold 4.4006% of the Applebee’s restaurant in West Chester,Sandusky, Ohio to an unrelated third party. The Partnership received net sale proceeds of $2,057,022,$162,133, which resulted in a net gain of $632,104. At the time of sale, the$63,797. The cost and related accumulated depreciation of the interest sold was $1,569,884$124,874 and $144,966,$26,538, respectively.
Subsequent to March 31, 2014, the Partnership sold an additional 8.2855% of the Applebee’s restaurant in Sandusky, Ohio, in two separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of approximately $304,000, which resulted in a net gain of approximately $118,900. The cost and related accumulated depreciation of the interests sold was $235,113 and $49,965, respectively. The Partnership is attempting to sell its remaining 32.3139% interest in the property. At March 31, 2014 and December 31, 2007,2013, the property was classified as Real Estate Held for Sale with a bookcarrying value of $1,424,918.
On June 30, 2008, the Partnership sold its 5.9250% interest
in the Applebee's restaurant in Middletown, Ohio to an
unrelated third party. The Partnership received net sale
proceeds of $95,438, which resulted in a net gain of
$50,834. The cost$907,237 and related accumulated depreciation of
the interest sold was $69,106 and $24,502,$1,005,573, respectively.
The Partnership is attempting to sell its Red Robin
restaurant on Citadel Drive in Colorado Springs, Colorado.
At September 30, 2008 and December 31, 2007, the property
was classified as Real Estate Held for Sale with a book
value of $1,277,088.
During the first ninethree months of 2008 and 2007,2014, the Partnership distributed net sale proceeds of $286,869$36,501. The Limited Partners received distributions of $36,136 and $57,576 to the Limited and General Partners as partreceived distributions of their
quarterly$365 for the period. The Limited Partners’ distributions which represented a return of
capital of $12.88 and $2.58$1.69 per Limited Partnership Unit respectively. The Partnership anticipatesfor the remaining net
sale proceeds will either be reinvested in additional
property or distributed to the Partners in the future.
period.
The financial results for these properties are reflected as Discontinued Operations in the accompanying financial statements. The following are the results of discontinued operations for the periodsthree months ended September 30:
Three Months Ended Nine Months Ended
9/30/08 9/30/07 9/30/08 9/30/07
Rental Income $ 39,015 $ 83,754 $ 148,493 $ 250,281
Property Management Expenses (362) (614) (1,029) (881)
Depreciation 0 (18,143) (614) (54,429)
Gain on Disposal of Real Estate 0 0 682,938 0
--------- --------- --------- ---------
Income from Discontinued
Operations $ 38,653 $ 64,997 $ 829,788 $ 194,971
========= ========= ========= =========
(6) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS March 31:
| | | 2014 | | 2013 |
| | | | | |
| Rental Income | $ | 33,748 | $ | 90,110 |
| Property Management Expenses | | (5,123) | | (11,711) |
| Depreciation | | 0 | | (23,321) |
| Gain on Disposal of Real Estate | | | | |
| Income from Discontinued Operations | $ | | $ | |
| | | | | |
- In December 2007, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
141(R) ("SFAS 141(R)"), Business Combinations. SFAS 141(R)
requires, among other things, the expensing of acquisition-
related transaction costs. Management anticipates that SFAS
141(R) will be effective for property acquisitions completed
on or after January 1, 2009. Management is evaluating the
effect that the adoption of SFAS 141(R) will have on the
Partnership's results of operations, financial position, and
the related disclosures.
49 -
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(7) Discontinued Operations – (Continued)
| | | 2014 | | 2013 |
| Cash Flows from Discontinued Operations: | | | | |
| Operating Activities | $ | | $ | |
| Investing Activities | $ | | $ | |
| | | | | |
(8) Fair Value Measurements –
Fair value, as defined by United States Generally Accepted Accounting Principles (“US GAAP”), is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. US GAAP establishes a hierarchy in determining the fair value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. US GAAP requires the utilization of the lowest possible level of input to determine fair value. Level 1 inputs include quoted market prices in an active market for identical assets or liabilities. Level 2 inputs are market data, other than Level 1 inputs, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data.
At March 31, 2014 and December 31, 2013, the Partnership had no financial assets or liabilities measured at fair value on a recurring basis or nonrecurring basis that would require disclosure under this pronouncement. The Partnership had the following nonfinancial assets measured on a nonrecurring basis that were recorded at fair value during 2013.
The Champps restaurant in Utica, Michigan, with a carrying amount of $733,000 at December 31, 2013, was written down to its estimated fair value of $648,000 after completing our long-lived asset valuation analysis. The resulting impairment charge of $85,000 was included in earnings for the fourth quarter of 2013. The fair value of the property was based upon comparable sales of similar properties, which are considered Level 2 inputs in the valuation hierarchy.
The Royal Buffet restaurant in Colorado Springs, Colorado, with a carrying amount of $642,868 at September 30, 2013, was written down to its estimated fair value of $320,000 after completing our long-lived asset valuation analysis. The resulting impairment charge of $322,868 was included in earnings for the third quarter of 2013. The fair value of the property was based upon comparable sales of similar properties, which are considered Level 2 inputs in the valuation hierarchy.
The HomeTown Buffet restaurant in Albuquerque, New Mexico, with a carrying amount of $336,002 at December 31, 2013, was written down to its estimated fair value of $275,000 after completing our long-lived asset valuation analysis. The resulting impairment charge of $61,002 was included in earnings for the fourth quarter of 2013. The fair value of the property was based upon comparable sales of similar properties, which are considered Level 2 inputs in the valuation hierarchy.
CONSENT FORM
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
CONSENT OF LIMITED PARTNERS
THIS CONSENT IS SOLICITED BY THE BOARD
OF DIRECTORS OF
This consent is presented by
AEI FUND MANAGEMENTFund Management XX, INC.Inc., THE MANAGING GENERAL PARTNER
Managing General Partner
The undersigned, a Limited Partner of AEI Net Lease Income & Growth Fund XX Limited Partnership ("(“Fund XX"XX”), hereby consents (unless otherwise directed below) to the proposals identified below as indicated below. PLEASE DO NOT VOTE FOR BOTH
PROPOSALS-THEY ARE MUTUALLY EXCLUSIVE.
Indicate your vote by placing your initials on the appropriate line. Please vote “FOR” only one of the first two proposals. Do not vote “FOR” both Proposal #1 and Proposal #2 at the same time: they are mutually exclusive and cannot be implemented simultaneously. Failure to vote will have the effect of voting “AGAINST” each proposal.
Proposal #1. Approval of continuation ofto begin selling Fund XX for 60
monthsXX’s properties, followed by the Fund’s liquidation and dissolution.
FOR _____ AGAINST ______ ABSTAIN ______
Proposal #2. Approval of amendment to Sections 7.7 andSection 11.3 of the Limited Partnership Agreement (theto continue Fund XX’s operations for an additional 60 months.
FOR _____ AGAINST ______ ABSTAIN ______
Proposal #3. Approval of amendment to Section 7.7 of the Limited Partnership Agreement to increase the price at which units may be repurchased under Fund XX’s unit repurchase plan to 95% of the estimated net asset value per unit (the General Partners recommend a vote FOR“FOR” this proposal).
FOR [ ] _____ AGAINST [ ] ______ ABSTAIN [ ]
Proposal #2. Approval to begin selling Fund XX's
properties and to liquidate Fund XX (THE GENERAL PARTNERS
RECOMMEND A VOTE AGAINST THIS PROPOSAL).
FOR [ ] AGAINST [ ] ABSTAIN [ ]
______
Please date and sign this Consent below and return it in the enclosed, postage paid envelope. To be counted, this Consent must be received not later than the close of business on January 8,
2009.
June __, 2014.
The limited partnership units held by the signing Limited Partner will be voted as directed. They will be voted "FOR"
Proposal #1 and against Proposal #2 if no box is checked.
Please sign exactly as your name appears below. All owners of record and trustees must sign. When Units are held by joint tenants, both owners shouldmust sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person.
PLEASE MARK,INITIAL, SIGN, DATE, AND PROMPTLY RETURN THIS CONSENT.
Dated: __________________________ ______________________________
Signature (if held jointly)
________________________
_____________________________________ _____________________________________
Signatory #1 Signatory #2
_____________________________________ _____________________________________
Signatory #3 Signatory #4