UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2010
Commission File Number: 000-23778
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
State of Minnesota 41-1729121
(State or other jurisdiction of (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
(Registrant's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (232.405 of this chapter)
during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
[ ] Yes [ ] No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer[ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
INDEX
Part I - Financial Information
Item 1. Financial Statements:
Balance Sheet as of March 31, 2010 and December 31, 2009
Statements for the Three Months ended March 31, 2010 and 2009:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 5. Other Information
Item 6. Exhibits
Signatures
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
BALANCE SHEET
MARCH 31, 2010 AND DECEMBER 31, 2009
ASSETS
2010 2009
CURRENT ASSETS:
Cash $ 2,367,055 $ 2,405,133
Receivables 0 950
----------- -----------
Total Current Assets 2,367,055 2,406,083
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 5,111,428 5,111,428
Buildings and Equipment 10,270,617 10,270,617
Accumulated Depreciation (2,592,668) (2,507,304)
----------- -----------
12,789,377 12,874,741
Real Estate Held for Sale 900,000 900,000
----------- -----------
Net Investments in Real Estate 13,689,377 13,774,741
----------- -----------
Total Assets $16,056,432 $16,180,824
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 44,933 $ 93,330
Distributions Payable 357,572 357,573
Unearned Rent 67,341 20,961
----------- -----------
Total Current Liabilities 469,846 471,864
----------- -----------
PARTNERS' CAPITAL:
General Partners 4,660 5,883
Limited Partners, $1,000 per Unit;
24,000 Units authorized and issued;
22,030 Units outstanding 15,581,926 15,703,077
----------- -----------
Total Partners' Capital 15,586,586 15,708,960
----------- -----------
Total Liabilities and Partners' Capital $16,056,432 $16,180,824
=========== ===========
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 THREE MONTHS ENDED MARCH 31
2010 2009
RENTAL INCOME $ 396,080 $ 335,669
EXPENSES:
Partnership Administration - Affiliates 57,802 63,173
Partnership Administration and Property
Management - Unrelated Parties 12,223 11,457
Depreciation 85,364 61,767
----------- -----------
Total Expenses 155,389 136,397
----------- -----------
OPERATING INCOME 240,691 199,272
OTHER INCOME:
Interest Income 5,535 12,605
----------- -----------
INCOME FROM CONTINUING OPERATIONS 246,226 211,877
Income (Loss) from Discontinued Operations (11,028) 398,918
----------- -----------
NET INCOME $ 235,198 $ 610,795
=========== ===========
NET INCOME ALLOCATED:
General Partners $ 2,352 $ 6,108
Limited Partners 232,846 604,687
----------- -----------
$ 235,198 $ 610,795
=========== ===========
NET INCOME PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ 11.07 $ 9.52
Discontinued Operations (.50) 17.91
----------- -----------
Total $ 10.57 $ 27.43
=========== ===========
Weighted Average Units Outstanding-Basic and Diluted 22,030 22,045
=========== ===========
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 THREE MONTHS ENDED MARCH 31
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 235,198 $ 610,795
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 85,364 69,359
Gain on Sale of Real Estate 0 (392,362)
Decrease in Receivable 950 0
Decrease in Payable to
AEI Fund Management, Inc. (48,397) (36,656)
Increase in Unearned Rent 46,380 46,733
----------- -----------
Total Adjustments 84,297 (312,926)
----------- -----------
Net Cash Provided By
Operating Activities 319,495 297,869
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 0 2,231,614
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions Paid to Partners (357,573) (415,153)
----------- -----------
NET INCREASE (DECREASE) IN CASH (38,078) 2,114,330
CASH, beginning of period 2,405,133 2,842,034
----------- -----------
CASH, end of period $ 2,367,055 $ 4,956,364
=========== ===========
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 THREE MONTHS ENDED MARCH 31
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2008 $ 9,847 $15,896,769 $15,906,616 22,045.04
Distributions Declared (3,576) (354,000) (357,576)
Net Income 6,108 604,687 610,795
-------- ----------- ----------- ---------
BALANCE, March 31, 2009 $ 12,379 $16,147,456 $16,159,835 22,045.04
======== =========== =========== =========
BALANCE, December 31, 2009 $ 5,883 $15,703,077 $15,708,960 22,030.04
Distributions Declared (3,575) (353,997) (357,572)
Net Income 2,352 232,846 235,198
-------- ----------- ----------- ---------
BALANCE, March 31, 2010 $ 4,660 $15,581,926 $15,586,586 22,030.04
======== =========== =========== =========
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, 2010
(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's latest annual report on Form 10-K.
(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 called for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. The Partnership
commenced operations on June 30, 1993 when minimum
subscriptions of 1,500 Limited Partnership Units
($1,500,000) were accepted. On January 19, 1995, the
offering terminated when the maximum subscription limit of
24,000 Limited Partnership Units was reached. Under the
terms of the Limited Partnership Agreement, the Limited
Partners and General Partners contributed funds of
$24,000,000 and $1,000, respectively.
During operations, any Net Cash Flow, as defined, which the
General Partners determine to distribute will be distributed
90% to the Limited Partners and 10% to the General Partners;
provided, however, that such distributions to the General
Partners will be subordinated to the Limited Partners first
receiving an annual, noncumulative distribution of Net Cash
Flow equal to 10% of their Adjusted Capital Contribution, as
defined, and, provided further, that in no event will the
General Partners receive less than 1% of such Net Cash Flow
per annum. Distributions to Limited Partners will be made
pro rata by Units.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the General Partners determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Partners and 1% to the General Partners until the
Limited Partners receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to
12% of their Adjusted Capital Contribution per annum,
cumulative but not compounded, to the extent not previously
distributed from Net Cash Flow; (ii) any remaining balance
will be distributed 90% to the Limited Partners and 10% to
the General Partners. Distributions to the Limited Partners
will be made pro rata by Units.
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of property, will be
allocated first in the same ratio in which, and to the
extent, Net Cash Flow is distributed to the Partners for
such year. Any additional profits will be allocated in the
same ratio as the last dollar of Net Cash Flow is
distributed. Net losses from operations will be allocated
99% to the Limited Partners and 1% to the General Partners.
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Partnership Agreement as follows: (i)
first, to those partners with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Partners
and 1% to the General Partners until the aggregate balance
in the Limited Partners' capital accounts equals the sum of
the Limited Partners' Adjusted Capital Contributions plus an
amount equal to 12% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, the balance of any
remaining gain will then be allocated 90% to the Limited
Partners and 10% to the General Partners. Losses will be
allocated 98% to the Limited Partners and 2% to the General
Partners.
The General Partners are not required to currently fund a
deficit capital balance. Upon liquidation of the
Partnership or withdrawal by a General Partner, the General
Partners will contribute to the Partnership an amount equal
to the lesser of the deficit balances in their capital
accounts or 1% of total Limited Partners' and General
Partners' capital contributions.
(3) Reclassification -
Certain items related to discontinued operations in the
prior year's financial statements have been reclassified to
conform to 2010 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 May 22, 2009, the Partnership purchased a 70% interest in
a Staples store in Vernon Hills, Illinois for $3,714,638.
The Partnership incurred $88,630 of acquisition expenses
related to the purchase. These costs were expensed as
incurred as the Partnership adopted new guidance on business
combinations that became effective January 1, 2009. The
property is leased to Staples the Office Superstore East,
Inc. under a Lease Agreement with a remaining primary term
of 9.4 years and initial annual rent of $308,315 for the
interest purchased. The remaining interest in the property
was purchased by AEI Income & Growth Fund 27 LLC, an
affiliate of the Partnership.
In September 2009, Champps Operating Corporation, the tenant
of the Champps Americana restaurant in Utica, Michigan,
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 December 2009, after reviewing the financial
statements for the restaurant and Champps, the Partnership
agreed to amend the Lease to reduce the annual rent for the
property by 45% to $108,033 for the next three years. On
January 1, 2013, the rent will revert to the original amount
due under the Lease. During the three-year period, the
amendment provides for additional rental payments if the
restaurant's sales exceed certain stated amounts.
(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 -
On November 30, 2008, the Lease term expired for the Red
Robin restaurant on Citadel Drive in Colorado Springs,
Colorado. The tenant reviewed their operations at the
property and decided not to enter into an agreement to
extend the term of the Lease. The Partnership listed the
property for sale with a real estate broker in the Colorado
Springs area. While the property is vacant, the Partnership
is responsible for real estate taxes and other costs
associated with maintaining the property.
Based on marketing efforts and an analysis of market
conditions in the area, the Partnership determined the Red
Robin restaurant was impaired. As a result, in the third
quarter of 2009, a charge to discontinued operations for
real estate impairment of $216,000 was recognized, which was
the difference between the carrying value at September 30,
2009 of $1,116,000 and the estimated fair value of $900,000.
The charge was recorded against the cost of the land and
building. At March 31, 2010 and December 31, 2009, the
property was classified as Real Estate Held for Sale.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations - (Continued)
On January 9, 2009, the Partnership sold the Johnny Carino's
restaurant in Alexandria, Louisiana to an unrelated third
party. The Partnership received net sale proceeds of
$2,231,614, which resulted in a net gain of $392,362. At
the time of sale, the cost and related accumulated
depreciation was $2,144,748 and $305,496, respectively.
On May 28, 2009, the Partnership sold its remaining
interests in the Champp's Americana restaurants in
Lyndhurst, Ohio and Schaumburg, Illinois to an unrelated
third party. The Partnership received net sale proceeds of
$11,692, which resulted in a net gain of $3,801. The cost
and related accumulated depreciation of the interests sold
was $10,622 and $2,731, respectively.
In May 2009, the Partnership entered into an agreement to
sell the Tractor Supply Company retail store in Mesquite,
Texas to an unrelated third party. On July 2, 2009, the
sale closed with the Partnership receiving net proceeds of
$1,332,125, which resulted in a net gain of $192,223. At
the time of sale, the cost and related accumulated
depreciation was $1,231,624 and $91,722, respectively.
During the first three months of 2010 and 2009, the
Partnership distributed net sale proceeds of $37,010 and
$69,785 to the Limited and General Partners as part of their
quarterly distributions, which represented a return of
capital of $1.66 and $3.13 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 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:
2010 2009
Rental Income $ 0 $ 29,932
Property Management Expenses (11,028) (15,784)
Depreciation 0 (7,592)
Gain on Disposal of Real Estate 0 392,362
--------- ---------
Income (Loss) from Discontinued Operations $ (11,028) $ 398,918
========= =========
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(7) 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.
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 Red Robin restaurant on Citadel Drive in Colorado
Springs, Colorado, with a carrying amount of $1,116,000 at
September 30, 2009, was written down to its fair value of
$900,000 after completing our long-lived asset valuation
analysis. 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 resulting
impairment charge of $216,000 was included in earnings for
the third quarter of 2009.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
This section contains "forward-looking statements" 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, the
sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward-
looking statements, should be evaluated in the context of a
number of factors that may affect the Partnership's financial
condition and results of operations, including the following:
Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
effects of these consequences for the Partners;
resolution by the General Partners of conflicts with
which they may be confronted;
the success of the General Partners of locating
properties with favorable risk return characteristics;
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Partnership operate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
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.
Prior to January 1, 2009, the Partnership purchased
properties and recorded them in the financial statements at cost
(including capitalized acquisition expenses). For acquisitions
completed on or after January 1, 2009, acquisition-related
transaction costs will be expensed as incurred as a result of the
Partnership adopting new guidance on business combinations that
expands the scope of acquisition accounting. The Partnership
tests long-lived assets for recoverability when events or changes
in circumstances indicate that the carrying value may not be
recoverable. For properties the Partnership will hold and
operate, management determines whether impairment has occurred by
comparing the property's probability-weighted future undiscounted
cash flows to its current carrying value. For properties held
for sale, management determines whether impairment has occurred
by comparing the property'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. Changes in these assumptions or analysis may cause
material changes in the carrying value of the properties.
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, 2010 and 2009, the
Partnership recognized rental income from continuing operations
of $396,080 and $335,669 respectively. In 2010, rental income
increased due to additional rent received from one property
acquisition in 2009 and a rent increase on one property, which
were partially offset by a reduction in rent for the Champps
Americana restaurant as discussed below.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
For the three months ended March 31, 2010 and 2009, the
Partnership incurred Partnership administration expenses from
affiliated parties of $57,802 and $63,173, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and communicating with the Limited Partners. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $12,223 and $11,457, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit costs, taxes,
insurance and other property costs.
In September 2009, Champps Operating Corporation, the
tenant of the Champps Americana restaurant in Utica, Michigan,
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
December 2009, after reviewing the financial statements for the
restaurant and Champps, the Partnership agreed to amend the Lease
to reduce the annual rent for the property by 45% to $108,033 for
the next three years. On January 1, 2013, the rent will revert
to the original amount due under the Lease. During the three-
year period, the amendment provides for additional rental
payments if the restaurant's sales exceed certain stated amounts
For the three months ended March 31, 2010 and 2009, the
Partnership recognized interest income of $5,535 and $12,605,
respectively. In 2010, interest income decreased due to the
Partnership having less money invested in a money market account
due to a property acquisition.
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 of the property to discontinued
operations. For the three months ended March 31, 2010, the
Partnership recognized a loss from discontinued operations of
$11,028, representing property management expenses. For the
three months ended March 31, 2009, the Partnership recognized
income from discontinued operations of $398,918, representing
rental income less property management expenses and depreciation
of $6,556 and gain on disposal of real estate of $392,362.
On November 30, 2008, the Lease term expired for the Red
Robin restaurant on Citadel Drive in Colorado Springs, Colorado.
The tenant reviewed their operations at the property and decided
not to enter into an agreement to extend the term of the Lease.
The Partnership listed the property for sale with a real estate
broker in the Colorado Springs area. While the property is
vacant, the Partnership is responsible for real estate taxes and
other costs associated with maintaining the property. The loss
of rent and increased expenses related to this property decreased
the Partnership's cash flow. Consequently, beginning with the
first quarter of 2009, the Partnership reduced its regular
distribution rate until the property can be sold and the proceeds
reinvested in additional property.
Based on marketing efforts and an analysis of market
conditions in the area, the Partnership determined the Red Robin
restaurant was impaired. As a result, in the third quarter of
2009, a charge to discontinued operations for real estate
impairment of $216,000 was recognized, which was the difference
between the carrying value at September 30, 2009 of $1,116,000
and the estimated fair value of $900,000. The charge was
recorded against the cost of the land and building. At March 31,
2010 and December 31, 2009, the property was classified as Real
Estate Held for Sale.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
On January 9, 2009, the Partnership sold the Johnny
Carino's restaurant in Alexandria, Louisiana to an unrelated
third party. The Partnership received net sale proceeds of
$2,231,614, which resulted in a net gain of $392,362. At the
time of sale, the cost and related accumulated depreciation was
$2,144,748 and $305,496, respectively.
On May 28, 2009, the Partnership sold its remaining
interests in the Champp's Americana restaurants in Lyndhurst,
Ohio and Schaumburg, Illinois to an unrelated third party. The
Partnership received net sale proceeds of $11,692, which resulted
in a net gain of $3,801. The cost and related accumulated
depreciation of the interests sold was $10,622 and $2,731,
respectively.
In May 2009, the Partnership entered into an agreement to
sell the Tractor Supply Company retail store in Mesquite, Texas
to an unrelated third party. On July 2, 2009, the sale closed
with the Partnership receiving net proceeds of $1,332,125, which
resulted in a net gain of $192,223. At the time of sale, the
cost and related accumulated depreciation was $1,231,624 and
$91,722, respectively.
Management believes inflation has not significantly
affected income from operations. Leases may contain rent
increases, based on the increase in the Consumer Price Index over
a specified period, which will result in an increase in rental
income over the term of the leases. Inflation also may cause the
real estate to appreciate in value. However, inflation and
changing prices may have an adverse impact on the operating
margins of the properties' tenants, which could impair their
ability to pay rent and subsequently reduce the Net Cash Flow
available for distributions.
Liquidity and Capital Resources
During the three months ended March 31, 2010, the
Partnership's cash balances decreased $38,078 as a result of
distributions paid to the Partners in excess of cash generated
from operating activities. During the three months ended March
31, 2009, the Partnership's cash balances increased $2,114,330 as
a result of cash generated from the sale of property, which was
partially offset by distributions paid to the Partners in excess
of cash generated from operating activities.
Net cash provided by operating activities increased from
$297,869 in 2009 to $319,495 in 2010 as a result of an increase
in total rental and interest income in 2010 and a decrease in
Partnership administration and property management expenses in
2010, which were partially offset by net timing differences in
the collection of payments from the tenants 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, 2009, the Partnership generated cash flow from the sale
of real estate of $2,231,614.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
On May 22, 2009, the Partnership purchased a 70% interest
in a Staples store in Vernon Hills, Illinois for $3,714,638. The
Partnership incurred $88,630 of acquisition expenses related to
the purchase. The property is leased to Staples the Office
Superstore East, Inc. under a Lease Agreement with a remaining
primary term of 9.4 years and initial annual rent of $308,315 for
the interest purchased. The remaining interest in the property
was purchased by AEI Income & Growth Fund 27 LLC, an affiliate of
the Partnership.
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 on a semi-annual basis.
For the three months ended March 31, 2010 and 2009, the
Partnership declared distributions of $357,572 and $357,576,
respectively, which were distributed 99% to the Limited Partners
and 1% to the General Partners. The Limited Partners received
distributions of $353,997 and $354,000 and the General Partners
received distributions of $3,575 and $3,576 for the periods,
respectively.
During the first three months of 2010 and 2009, the
Partnership distributed net sale proceeds of $37,010 and $69,785
to the Limited and General Partners as part of their quarterly
distributions, which represented a return of capital of $1.66 and
$3.13 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.
On October 1, 2009, one Limited Partner redeemed a total
of 15 Partnership Units for $14,118 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a total of
124 Limited Partners redeemed 1,954.96 Partnership Units for
$1,500,713. 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 $142 in
2009.
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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Economy and Market Conditions
The impact of conditions in the current economy, including
the turmoil in the credit markets, has adversely affected many
real estate investment funds. However, the absence of mortgage
financing on the Partnership's properties eliminates the risks of
foreclosure and debt-refinancing that can negatively impact the
value and distributions of leveraged real estate investment
funds. Nevertheless, a prolonged economic downturn may adversely
affect the operations of the Partnership's tenants and their cash
flows. If a tenant were to default on its lease obligations, the
Partnership's income would decrease, its distributions would
likely be reduced and the value of its properties might decline.
Historically, the Partnership has sold properties at a
gain and distributed the gain proceeds as part of its regular
quarterly distributions, and to make special distributions on
occasion. The remaining sales proceeds were reinvested in
additional properties. Beginning in the fourth quarter of 2008,
general economic conditions caused the volume of property sales
to slow dramatically for all real estate sellers. In 2010, the
Partnership will likely complete fewer property sales than it has
in the past. Until such time as economic conditions allow the
Partnership to begin selling properties at attractive prices,
quarterly distributions will reflect the distribution of net core
rental income and capital reserves, if any. Distribution rates in
2010 are expected to be consistent with distribution rates in
2009.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures.
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing General Partner of the Partnership evaluated the
effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based
upon that evaluation, the President and Chief Financial Officer
of the Managing General Partner concluded that, as of the end of
the period covered by this report, our disclosure controls and
procedures were effective in ensuring that information required
to be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in applicable rules and forms
and that such information is accumulated and communicated to
management, including the President and Chief Financial Officer
of the Managing General Partner, in a manner that allows timely
decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting.
During the most recent period covered by this report,
there has been no change in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which
the Partnership is a party or of which the Partnership's property
is subject.
ITEM 1A. RISK FACTORS.
Not required for a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) None.
(b) Not applicable.
(c) Pursuant to Section 7.7 of the Partnership Agreement,
as amended, each Limited Partner has the right to present Units
to the Partnership for purchase by submitting notice to the
Managing General Partner during January or July of each year.
The purchase price of the Units is equal to 90% of the net asset
value per Unit, as of the first business day of January or July
of each year, as determined by the Managing General Partner in
accordance with the provisions of the Partnership Agreement.
Units tendered to the Partnership during January and July are
redeemed on April 1st and October 1st, respectively, of each year
subject to the following limitations. The Partnership will not
be obligated to purchase in any year any number of Units that,
when aggregated with all other transfers of Units that have
occurred since the beginning of the same calendar year (excluding
Permitted Transfers as defined in the Partnership Agreement),
would exceed 5% of the total number of Units outstanding on
January 1 of such year. In no event shall the Partnership be
obligated to purchase Units if, in the sole discretion of the
Managing General Partner, such purchase would impair the capital
or operation of the Partnership. During the period covered by
this report, the Partnership did not purchase any Units.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
31.1 Certification of Chief Executive Officer of General
Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer of General
Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Officer of General Partner pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Dated: May 12, 2010 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)