UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For the Quarter Ended: March 31, 2004
Commission file number: 0-23778
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer as Specified in its Charter)
State of Minnesota 41-1729121
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(651) 227-7333
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.
Yes [X] No
Transitional Small Business Disclosure Format:
Yes No [X]
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Item 1. Balance Sheet as of March 31, 2004 and December 31, 2003
Statements for the Periods ended March 31, 2004 and 2003:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
Item 3. Controls and Procedures
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
BALANCE SHEET
MARCH 31, 2004 AND DECEMBER 31, 2003
(Unaudited)
ASSETS
2004 2003
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,057,986 $ 4,136,251
Receivables 5,141 43,901
----------- -----------
Total Current Assets 2,063,127 4,180,152
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 5,974,209 5,078,221
Buildings and Equipment 11,544,962 9,366,789
Construction in Progress 0 889,670
Accumulated Depreciation (1,439,486) (1,345,907)
----------- -----------
Net Investments in Real Estate 16,079,685 13,988,773
----------- -----------
Total Assets $18,142,812 $18,168,925
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 79,117 $ 71,212
Distributions Payable 410,975 410,975
Unearned Rent 93,315 16,378
----------- -----------
Total Current Liabilities 583,407 498,565
----------- -----------
PARTNERS' CAPITAL:
General Partners 26,376 27,485
Limited Partners, $1,000 per Unit;
24,000 Units authorized and issued;
22,371 Units outstanding 17,533,029 17,642,875
----------- -----------
Total Partners' Capital 17,559,405 17,670,360
----------- -----------
Total Liabilities and Partners' Capital $18,142,812 $18,168,925
=========== ===========
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 MARCH 31
(Unaudited)
2004 2003
RENTAL INCOME $ 462,596 $ 297,164
EXPENSES:
Partnership Administration - Affiliates 53,165 80,438
Partnership Administration and Property
Management - Unrelated Parties 12,549 12,418
Depreciation 93,579 50,008
----------- -----------
Total Expenses 159,293 142,864
----------- -----------
OPERATING INCOME 303,303 154,300
OTHER INCOME:
Interest Income 9,982 20,934
Gain on Sale of Real Estate 0 325,654
----------- -----------
Total Other Income 9,982 346,588
----------- -----------
INCOME FROM CONTINUING OPERATIONS 313,285 500,888
Income from Discontinued Operations 0 58,007
----------- -----------
NET INCOME $ 313,285 $ 558,895
=========== ===========
NET INCOME ALLOCATED:
General Partners $ 3,133 $ 5,589
Limited Partners 310,152 553,306
----------- -----------
$ 313,285 $ 558,895
=========== ===========
INCOME PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ 13.86 $ 22.03
Discontinued Operations 0 2.55
----------- -----------
Total $ 13.86 $ 24.58
=========== ===========
Weighted Average Units Outstanding 22,371 22,513
=========== ===========
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 PERIODS ENDED MARCH 31
(Unaudited)
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 313,285 $ 558,895
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 93,579 59,397
Gain on Sale of Real Estate 0 (325,654)
Decrease in Receivables 38,760 35,011
Increase (Decrease) in Payable to
AEI Fund Management, Inc. 7,905 (148,279)
Increase in Unearned Rent 76,937 63,277
----------- -----------
Total Adjustments 217,181 (316,248)
----------- -----------
Net Cash Provided By
Operating Activities 530,466 242,647
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (2,184,491) (224,355)
Proceeds from Sale of Real Estate 0 1,034,237
----------- -----------
Net Cash Provided By (Used For)
Investing Activities (2,184,491) 809,882
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in Distributions Payable 0 (363,636)
Distributions to Partners (424,240) (424,245)
----------- -----------
Net Cash Used For
Financing Activities (424,240) (787,881)
----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (2,078,265) 264,648
CASH AND CASH EQUIVALENTS, beginning of period 4,136,251 7,506,794
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,057,986 $ 7,771,442
=========== ===========
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 PERIODS ENDED MARCH 31
(Unaudited)
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2002 $ 25,541 $17,450,401 $17,475,942 22,513.29
Distributions (4,242) (420,003) (424,245)
Net Income 5,589 553,306 558,895
-------- ----------- ----------- -----------
BALANCE, March 31, 2003 $ 26,888 $17,583,704 $17,610,592 22,513.29
======== =========== =========== ===========
BALANCE, December 31, 2003 $ 27,485 $17,642,875 $17,670,360 22,370.54
Distributions (4,242) (419,998) (424,240)
Net Income 3,133 310,152 313,285
-------- ----------- ----------- -----------
BALANCE, March 31, 2004 $ 26,376 $17,533,029 $17,559,405 22,370.54
======== =========== =========== ===========
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
MARCH 31, 2004
(Unaudited)
(1) The condensed statements included herein have been prepared
by the Partnership, 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 Partnership
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
Partnership's latest annual report on Form 10-KSB.
(2) Organization -
AEI Net Lease Income & Growth Fund XX Limited 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), 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), an affiliate
of AFM, performs the administrative and operating functions
for the Partnership.
The terms of the Partnership offering call for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. The Partnership
commenced operations on June 30, 1993 when minimum
subscriptions of 1,500 Limited Partnership Units
($1,500,000) were accepted. On January 19, 1995, the
offering terminated when the maximum subscription limit of
24,000 Limited Partnership Units was reached. Under the
terms of the Limited Partnership Agreement, the Limited
Partners and General Partners contributed funds of
$24,000,000 and $1,000, respectively.
During operations, any Net Cash Flow, as defined, which the
General Partners determine to distribute will be distributed
90% to the Limited Partners and 10% to the General Partners;
provided, however, that such distributions to the General
Partners will be subordinated to the Limited Partners first
receiving an annual, noncumulative distribution of Net Cash
Flow equal to 10% of their Adjusted Capital Contribution, as
defined, and, provided further, that in no event will the
General Partners receive less than 1% of such Net Cash Flow
per annum. Distributions to Limited Partners will be made
pro rata by Units.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the General Partners determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Partners and 1% to the General Partners until the
Limited Partners receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to
12% of their Adjusted Capital Contribution per annum,
cumulative but not compounded, to the extent not previously
distributed from Net Cash Flow; (ii) any remaining balance
will be distributed 90% to the Limited Partners and 10% to
the General Partners. Distributions to the Limited Partners
will be made pro rata by Units.
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of property, will be
allocated first in the same ratio in which, and to the
extent, Net Cash Flow is distributed to the Partners for
such year. Any additional profits will be allocated in the
same ratio as the last dollar of Net Cash Flow is
distributed. Net losses from operations will be allocated
99% to the Limited Partners and 1% to the General Partners.
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Partnership Agreement as follows: (i)
first, to those partners with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Partners
and 1% to the General Partners until the aggregate balance
in the Limited Partners' capital accounts equals the sum of
the Limited Partners' Adjusted Capital Contributions plus an
amount equal to 12% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, the balance of any
remaining gain will then be allocated 90% to the Limited
Partners and 10% to the General Partners. Losses will be
allocated 98% to the Limited Partners and 2% to the General
Partners.
The General Partners are not required to currently fund a
deficit capital balance. Upon liquidation of the
Partnership or withdrawal by a General Partner, the General
Partners will contribute to the Partnership an amount equal
to the lesser of the deficit balances in their capital
accounts or 1% of total Limited Partners' and General
Partners' capital contributions.
(3) Reclassification -
Certain items in the prior year's financial statements have
been reclassified to conform to 2004 presentation. These
reclassifications had no effect on Partners' capital, net
income or cash flows.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Investments in Real Estate -
On January 1, 2003, the Partnership owned 22.8435% of the
Champps Americana restaurant in Columbus, Ohio. During the
first quarter of 2003, the Partnership sold 22.5729% of the
property, in four separate transactions, to unrelated third
parties. The Partnership received total net sale proceeds
of $1,034,237, which resulted in a net gain of $325,654.
The total cost and related accumulated depreciation of the
interests sold was $778,366 and $69,783.
During the first three months 2004 and 2003, the Partnership
distributed $6,737 and $131,609 of net sale proceeds to the
Limited and General Partners as part of their quarterly
distributions, which represented a return of capital of
$0.30 and $5.79 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.
On December 6, 2002, the Partnership purchased a 50%
interest in a parcel of land in West Chester, Ohio for
$506,000. The Partnership obtained title to the land in the
form of an undivided fee simple interest in the 50% interest
purchased. The land is leased to Champps Operating
Corporation (Champps) under a Lease Agreement with a primary
term of 20 years and annual rental payments of $50,600.
Simultaneously with the purchase of the land, the
Partnership entered into a Development Financing Agreement
under which the Partnership advanced funds to Champps for
the construction of a Champps Americana restaurant on the
site. Pursuant to the Lease, any improvements to the land
during the term of the Lease become the property of the
lessor. Through December 31, 2003, the Partnership had
advanced $889,670 for construction of the property. The
Partnership charged interest on the advances at a rate of
10.0%. On January 13, 2004, after the development was
completed, the Lease Agreement was amended to require annual
rental payments of $160,000. The Partnership's share of the
total acquisition costs, including the cost of the land, was
$1,569,884. The remaining interest in the property was
purchased by AEI Income & Growth Fund XXII Limited
Partnership, an affiliate of the Partnership.
On July 3, 2003, the Partnership purchased a 50% interest in
a Biaggi's restaurant in Fort Wayne, Indiana for $1,379,346.
The property is leased to Biaggi's Ristorante Italiano, LLC
under a Lease Agreement with a primary term of 15 years and
annual rental payments of $122,004. The remaining interest
in the property was purchased by AEI Net Lease Income &
Growth Fund XIX Limited Partnership, an affiliate of the
Partnership.
On November 13, 2003, the Partnership purchased a Johnny
Carino's restaurant in Alexandria, Louisiana for $2,144,748.
The property is leased to Kona Restaurant Group, Inc. under
a Lease Agreement with a primary term of 17 years and annual
rental payments of $198,875.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Investments in Real Estate - (Continued)
On November 21, 2003, the Partnership purchased a 50%
interest in an Eckerd drug store in Cicero, New York for
$1,586,183. The property is leased to Eckerd Corporation
under a Lease Agreement with a primary term of 20 years and
annual rental payments of $126,257. The remaining interest
in the property was purchased by AEI Real Estate Fund XVII
Limited Partnership, an affiliate of the Partnership.
On February 9, 2004, the Partnership purchased a 50%
interest in a Jared Jewelry store in Hanover, Maryland for
$1,981,828. The property is leased to Sterling Jewelers
Inc. under a Lease Agreement with a primary term of 20 years
and annual rental payments of $153,228. The remaining
interest in the property was purchased by AEI Income &
Growth Fund XXI Limited Partnership, an affiliate of the
Partnership.
Subsequent to March 31, 2004, the Partnership purchased a
45% interest in an Applebee's restaurant in Sandusky, Ohio
for approximately $1,255,000. The property is leased to
Apple Ohio LLC under a Lease Agreement with a primary term
of 20 years and annual rental payments of $97,254. The
remaining interest in the property was purchased by AEI
Income & Growth Fund 24 LLC, an affiliate of the
Partnership.
(5) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Partnership. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
(6) Discontinued Operations -
In August 2000, Renaissant Development Corp. (RDC), the
lessee of the Applebee's restaurants in McAllen and
Brownsville, Texas, filed for reorganization but continued
to make the lease payments to the Partnership. In January
2002, RDC confirmed its plan of reorganization. As part of
the plan of reorganization, the Lease on the McAllen
restaurant was assumed at the full rental amount and the
Partnership agreed to modify the monthly rent on the
Brownsville restaurant from $14,755 to $7,886. The
Partnership also agreed, for a period of one year, later
extended by two months, to allow the Brownsville restaurant
to be closed and the Lease rejected on thirty days written
notice. In January 2003, the reorganized debtor through its
Estate Manager notified the Partnership the Brownsville
restaurant was closed and the Lease was rejected. Per the
prior agreement, if the Brownsville lease is rejected, the
rent for the McAllen restaurant increases $2,126 per month.
The Partnership received all rent due on the Brownsville
restaurant through the date the Lease was terminated. The
Brownsville restaurant was vacant and listed for sale or
lease. While the property was vacant, the Partnership was
responsible for real estate taxes and other costs required
to maintain the property.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations - (Continued)
As of December 31, 2001, based on an analysis of market
conditions in the area, it was determined the fair value of
the Applebee's restaurant in Brownsville, Texas was
approximately $750,000. In the fourth quarter of 2001, a
charge to operations for real estate impairment of $415,370
was recognized, which was the difference between the book
value at December 31, 2001 of $1,165,370 and the estimated
market value of $750,000. The charge was recorded against
the cost of the land, building and equipment.
On April 17, 2003, the Partnership sold the property in
Brownsville to an unrelated third party. The Partnership
received net sale proceeds of $730,292, which resulted in a
net gain of $784. At the time of sale, the cost and related
accumulated depreciation was $963,367 and $233,859,
respectively.
On June 3, 2003, Concord Neighborhood Corporation, an
unrelated third party, assumed the operations of the
Applebee's restaurant in McAllen, Texas from the reorganized
debtor and entered into an agreement with the Partnership to
assume the Lease for the property. Through March 31, 2004,
the Partnership had received all rent due on this property.
The financial results of this property are reflected in
Continuing Operations.
During the last four months of 2003, the Partnership sold
its 18.5% interest in the Garden Ridge retail store, in
three separate transactions, to unrelated third parties.
The Partnership received total net sale proceeds of
$1,973,128, which resulted in a net gain of $588,847. The
total cost and related accumulated depreciation of the
interests sold was $1,667,092 and $282,811, respectively.
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 three months ended March 31:
2004 2003
Rental Income $ 0 $ 70,757
Property Management Expenses 0 (3,361)
Depreciation 0 (9,389)
--------- ---------
Income from Discontinued Operations $ 0 $ 58,007
========= =========
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS
The Management's Discussion and Analysis contains various
"forward looking statements" within the meaning of federal
securities laws which represent management's expectations or
beliefs concerning future events, including statements regarding
anticipated application of cash, expected returns from rental
income, growth in revenue, taxation levels, the sufficiency of
cash to meet operating expenses, rates of distribution, and other
matters. These, and other forward looking statements made by the
Partnership, must be evaluated in the context of a number of
factors that may affect the Partnership's financial condition and
results of operations, including the following:
Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
affects of these consequences for the Partners;
resolution by the General Partners of conflicts with
which they may be confronted;
the success of the General Partners of locating
properties with favorable risk return characteristics;
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Partnership operate.
The Application of Critical Accounting Policies
The preparation of the Partnership's financial statements
requires management to make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. Management evaluates these estimates on an ongoing
basis, including those related to the carrying value of real
estate and the allocation by AEI Fund Management, Inc. of
expenses to the Partnership as opposed to other funds they
manage.
The Partnership purchases properties and records them in
the financial statements at the lower of cost or estimated
realizable value. The Partnership initially records the
properties at cost (including capitalized acquisition expenses).
The Partnership is required to periodically evaluate the carrying
value of properties to determine whether their realizable value
has declined. For properties the Partnership will hold and
operate, management determines whether impairment has occurred by
comparing the property's probability-weighted cash flows to its
current carrying value. For properties held for sale, management
determines whether impairment has occurred by comparing the
property's estimated fair value less cost to sell to its current
carrying value. If the carrying value is greater than the
realizable value, an impairment loss is recorded to reduce the
carrying value of the property to its realizable value. A change
in these assumptions or analysis could cause material changes in
the carrying value of the properties.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
AEI Fund Management Inc. allocates expenses to each of the
funds they manage primarily on the basis of the number of hours
devoted by their employees to each fund's affairs. They also
allocate expenses at the end of each month that are not directly
related to a fund's operations based upon the number of investors
in the fund and the fund's capitalization relative to other funds
they manage. The Partnership reimburses these expenses subject
to detailed limitations contained in the Partnership Agreement.
Management of the Partnership has discussed the
development and selection of the above accounting estimates and
the management discussion and analysis disclosures regarding them
with the managing partner of the Partnership.
Results of Operations
For the three months ended March 31, 2004 and 2003, the
Partnership recognized rental income from continuing operations
of $462,596 and $297,164, respectively. In 2004, rental income
increased due to additional rent received from five property
acquisitions in 2003 and 2004 and rent increases on four
properties.
For the three months ended March 31, 2004 and 2003, the
Partnership incurred Partnership administration expenses from
affiliated parties of $53,165 and $80,438, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and correspondence to the Limited Partners. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $12,549 and $12,418, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit and accounting
costs, taxes, insurance and other property costs.
For the three months ended March 31, 2004 and 2003, the
Partnership recognized interest income of $9,982 and $20,934,
respectively. In 2004, interest income decreased due to the
Partnership having less money invested in a money market account
due to property acquisitions.
For the three months ended March 31, 2003, the Partnership
recognized gain on sale of real estate from continuing operations
of $325,654 from the sale of the Champps Americana restaurant in
Columbus, Ohio. Since the Partnership retains an ownership
interest in the property, the operating results and gain on sale
of the property were not classified as discontinued operations.
On January 1, 2003, the Partnership owned 22.8435% of the
Champps Americana restaurant in Columbus, Ohio. During the first
quarter of 2003, the Partnership sold 22.5729% of the property,
in four separate transactions, to unrelated third parties. The
Partnership received total net sale proceeds of $1,034,237, which
resulted in a net gain of $325,654. The total cost and related
accumulated depreciation of the interests sold was $778,366 and
$69,783.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, 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 operating results and
any partial sales of the property to discontinued operations.
For the three months ended March 31, 2003, the Partnership
recognized income from discontinued operations of $58,007,
representing rental income less property management expenses and
depreciation.
In August 2000, Renaissant Development Corp. (RDC), the
lessee of the Applebee's restaurants in McAllen and Brownsville,
Texas, filed for reorganization but continued to make the lease
payments to the Partnership. In January 2002, RDC confirmed its
plan of reorganization. As part of the plan of reorganization,
the Lease on the McAllen restaurant was assumed at the full
rental amount and the Partnership agreed to modify the monthly
rent on the Brownsville restaurant from $14,755 to $7,886. The
Partnership also agreed, for a period of one year, later extended
by two months, to allow the Brownsville restaurant to be closed
and the Lease rejected on thirty days written notice. In January
2003, the reorganized debtor through its Estate Manager notified
the Partnership the Brownsville restaurant was closed and the
Lease was rejected. Per the prior agreement, if the Brownsville
lease is rejected, the rent for the McAllen restaurant increases
$2,126 per month. The Partnership received all rent due on the
Brownsville restaurant through the date the Lease was terminated.
The Brownsville restaurant was vacant and listed for sale or
lease. While the property was vacant, the Partnership was
responsible for real estate taxes and other costs required to
maintain the property.
As of December 31, 2001, based on an analysis of market
conditions in the area, it was determined the fair value of the
Applebee's restaurant in Brownsville, Texas was approximately
$750,000. In the fourth quarter of 2001, a charge to operations
for real estate impairment of $415,370 was recognized, which was
the difference between the book value at December 31, 2001 of
$1,165,370 and the estimated market value of $750,000. The
charge was recorded against the cost of the land, building and
equipment.
On April 17, 2003, the Partnership sold the property in
Brownsville to an unrelated third party. The Partnership
received net sale proceeds of $730,292, which resulted in a net
gain of $784. At the time of sale, the cost and related
accumulated depreciation was $963,367 and $233,859, respectively.
On June 3, 2003, Concord Neighborhood Corporation, an
unrelated third party, assumed the operations of the Applebee's
restaurant in McAllen, Texas from the reorganized debtor and
entered into an agreement with the Partnership to assume the
Lease for the property. Through March 31, 2004, the Partnership
had received all rent due on this property. The financial
results of this property are reflected in Continuing Operations.
During the last four months of 2003, the Partnership sold
its 18.5% interest in the Garden Ridge retail store, in three
separate transactions, to unrelated third parties. The
Partnership received total net sale proceeds of $1,973,128, which
resulted in a net gain of $588,847. The total cost and related
accumulated depreciation of the interests sold was $1,667,092 and
$282,811, respectively.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In 2003, the Partnership realized significant gains from
the sale of property. While the real estate market is expected
to remain attractive for sellers of property, there can be no
assurance the Partnership will be able to achieve a similar level
of sales activity or sales profitability in 2004 due to
unforeseen changes in the real estate market. In addition, it
is likely the Partnership will curtail its selling activity as it
is becoming more difficult to find attractive property in which
to reinvest the proceeds from property sales.
Inflation has had a minimal effect on income from
operations. Leases may contain rent increases, based on the
increase in the Consumer Price Index over a specified period,
which will result in an increase in rental income over the term
of the leases. In addition, leases may contain rent clauses
which entitle the Partnership to receive additional rent in
future years if gross receipts for the property exceed certain
specified amounts. Increases in sales volumes of the tenants,
due to inflation and real sales growth, may result in an increase
in rental income over the term of the leases. Inflation also may
cause the real estate to appreciate in value. However, inflation
and changing prices may have an adverse impact on the operating
margins of the properties' tenants, which could impair their
ability to pay rent and subsequently reduce the Net Cash Flow
available for distributions.
Liquidity and Capital Resources
During the three months ended March 31, 2004, the
Partnership's cash balances decreased $2,078,265 as a result of
cash used to purchase property, which was partially offset by
cash generated from operating activities in excess of
distributions paid to the Partners. During the three months
ended March 31, 2003, the Partnership's cash balances increased
$264,648 as a result of cash generated from the sale of property,
which was partially offset by cash used to purchase property and
distributions paid to the Partners in excess of cash generated
from operating activities.
Net cash provided by operating activities increased from
$242,647 in 2003 to $530,466 in 2004 as the result of an increase
in total rental and interest income, a decrease in Partnership
administration and property management expenses in 2004 and net
timing differences in the collection of payments from the lessees
and the payment of expenses.
The major components of the Partnership's cash flow from
investing activities are investments in real estate and proceeds
from the sale of real estate. During the three months ended
March 31, 2003, the Partnership generated cash flow from the sale
of real estate of $1,034,237. During the three months ended
March 31, 2004 and 2003, the Partnership expended $2,184,491 and
$224,355, respectively, to invest in real properties (inclusive
of acquisition expenses), as the Partnership reinvested cash
generated from property sales.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
On December 6, 2002, the Partnership purchased a 50%
interest in a parcel of land in West Chester, Ohio for $506,000.
The Partnership obtained title to the land in the form of an
undivided fee simple interest in the 50% interest purchased. The
land is leased to Champps Operating Corporation (Champps) under a
Lease Agreement with a primary term of 20 years and annual rental
payments of $50,600. Simultaneously with the purchase of the
land, the Partnership entered into a Development Financing
Agreement under which the Partnership advanced funds to Champps
for the construction of a Champps Americana restaurant on the
site. Pursuant to the Lease, any improvements to the land during
the term of the Lease become the property of the lessor. Through
December 31, 2003, the Partnership had advanced $889,670 for
construction of the property. The Partnership charged interest
on the advances at a rate of 10.0%. On January 13, 2004, after
the development was completed, the Lease Agreement was amended to
require annual rental payments of $160,000. The Partnership's
share of the total acquisition costs, including the cost of the
land, was $1,569,884. The remaining interest in the property was
purchased by AEI Income & Growth Fund XXII Limited Partnership,
an affiliate of the Partnership.
On July 3, 2003, the Partnership purchased a 50% interest
in a Biaggi's restaurant in Fort Wayne, Indiana for $1,379,346.
The property is leased to Biaggi's Ristorante Italiano, LLC under
a Lease Agreement with a primary term of 15 years and annual
rental payments of $122,004. The remaining interest in the
property was purchased by AEI Net Lease Income & Growth Fund XIX
Limited Partnership, an affiliate of the Partnership.
On November 13, 2003, the Partnership purchased a Johnny
Carino's restaurant in Alexandria, Louisiana for $2,144,748. The
property is leased to Kona Restaurant Group, Inc. under a Lease
Agreement with a primary term of 17 years and annual rental
payments of $198,875.
On November 21, 2003, the Partnership purchased a 50%
interest in an Eckerd drug store in Cicero, New York for
$1,586,183. The property is leased to Eckerd Corporation under a
Lease Agreement with a primary term of 20 years and annual rental
payments of $126,257. The remaining interest in the property was
purchased by AEI Real Estate Fund XVII Limited Partnership, an
affiliate of the Partnership.
On February 9, 2004, the Partnership purchased a 50%
interest in a Jared Jewelry store in Hanover, Maryland for
$1,981,828. The property is leased to Sterling Jewelers Inc.
under a Lease Agreement with a primary term of 20 years and
annual rental payments of $153,228. The remaining interest in
the property was purchased by AEI Income & Growth Fund XXI
Limited Partnership, an affiliate of the Partnership.
Subsequent to March 31, 2004, the Partnership purchased a
45% interest in an Applebee's restaurant in Sandusky, Ohio for
approximately $1,255,000. The property is leased to Apple Ohio
LLC under a Lease Agreement with a primary term of 20 years and
annual rental payments of $97,254. The remaining interest in the
property was purchased by AEI Income & Growth Fund 24 LLC, an
affiliate of the Partnership.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Partnership's primary use of cash flow, other than
investment in real estate, is distribution and redemption
payments to Partners. The Partnership declares its regular
quarterly distributions before the end of each quarter and pays
the distribution in the first week after the end of each quarter.
The Partnership attempts to maintain a stable distribution rate
from quarter to quarter. Redemption payments are paid to
redeeming Partners in the fourth quarter of each year.
For the three months ended March 31, 2004 and 2003, the
Partnership declared distributions of $424,240 and $424,245,
respectively, which were distributed 99% to the Limited Partners
and 1% to the General Partners. The Limited Partners received
distributions of $419,998 and $420,003 and the General Partners
received distributions of $4,242 and $4,242 for the periods,
respectively.
During the first three months of 2004 and 2003, the
Partnership distributed $6,737 and $131,609 of net sale proceeds
to the Limited and General Partners as part of their quarterly
distributions, which represented a return of capital of $0.30 and
$5.79 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.
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 1 of such
year. In no event shall the Partnership be obligated to purchase
Units if, in the sole discretion of the Managing General Partner,
such purchase would impair the capital or operation of the
Partnership.
During 2003, thirteen Limited Partners redeemed a total of
142.75 Partnership Units for $95,376 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a total of
96 Limited Partners redeemed 1,486.71 Partnership Units for
$1,213,129. 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 $963 in
2003.
The continuing rent payments from the properties, together
with cash generated from property sales, should be adequate to
fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing General Partner of the Partnership evaluated the
effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-14(c) under the
Exchange Act). Based upon that evaluation, the President and
Chief Financial Officer of the Managing General Partner concluded
that, as of the end of the period covered by this report, the
disclosure controls and procedures of the Partnership are
adequately designed to ensure that information required to be
disclosed by us in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in applicable rules and forms.
(b) Changes in internal controls
There were no significant changes made in the
Partnership's internal controls during the most recent period
covered by this report that have materially affected, or are
reasonably likely to materially affect, the Partnership's
internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
There are no material pending legal proceedings to which
the Partnership is a party or of which the Partnership's property
is subject.
ITEM 2.CHANGES IN SECURITIES
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5.OTHER INFORMATION
None.
PART II - OTHER INFORMATION
(Continued)
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -
Description
10.1 Assignment of Purchase Agreement dated April 22, 2004
between the Partnership and AEI Fund Management, Inc.
relating to the Property at 5503 Milan Road, Sandusky, Ohio.
10.2 Assignment and Assumption of Lease dated April 30, 2004
between the Partnership, AEI Income & Growth Fund 24 LLC and
PRECO II CRIC LLC relating to the Property at 5503 Milan
Road, Sandusky, Ohio.
31.1 Certification of Chief Executive Officer of General
Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer of General
Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Officer of General Partner pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
b. Reports filed on Form 8-K - During the quarter ended
March 31, 2004, the
Partnership filed a Form
8-K dated February 17,2004,
reporting the acquisition
of a Jared Jewelry store
in Hanover, Maryland.
SIGNATURES
In accordance with the requirements of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: May 11, 2004 AEI Net Lease Income & Growth Fund
XX
Limited Partnership
By: AEI Fund Management XX, Inc.
Its: Managing General Partner
By: /s/ Robert P Johnson
Robert P. Johnson
President
(Principal Executive Officer)
By: /s/ Patrick W Keene
Patrick W. Keene
Chief Financial Officer
(Principal Accounting Officer)