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: June 30, 2009
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 June 30, 2009 and December 31, 2008
Statements for the Periods ended June 30, 2009 and 2008:
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 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
BALANCE SHEET
JUNE 30, 2009 AND DECEMBER 31, 2008
ASSETS
2009 2008
CURRENT ASSETS:
Cash $ 1,169,585 $ 2,842,034
INVESTMENTS IN REAL ESTATE:
Land 5,111,428 4,560,445
Buildings and Equipment 10,270,617 8,349,208
Accumulated Depreciation (2,336,574) (2,288,065)
----------- -----------
13,045,471 10,621,588
Real Estate Held for Sale 2,255,902 2,955,252
----------- -----------
Net Investments in Real Estate 15,301,373 13,576,840
----------- -----------
Total Assets $16,470,958 $16,418,874
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 54,786 $ 98,024
Distributions Payable 357,577 405,522
Unearned Rent 81,021 8,712
----------- -----------
Total Current Liabilities 493,384 512,258
----------- -----------
PARTNERS' CAPITAL:
General Partners 10,557 9,847
Limited Partners, $1,000 per Unit;
24,000 Units authorized and issued;
22,045 Units outstanding 15,967,017 15,896,769
----------- -----------
Total Partners' Capital 15,977,574 15,906,616
----------- -----------
Total Liabilities and Partners'Capital $16,470,958 $16,418,874
=========== ===========
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 JUNE 30
Three Months Ended Six Months Ended
6/30/09 6/30/08 6/30/09 6/30/08
RENTAL INCOME $ 369,661 $ 333,840 $ 705,330 $ 665,488
EXPENSES:
Partnership Administration -
Affiliates 55,511 58,629 118,684 115,384
Partnership Administration
and Property Management -
Unrelated Parties 13,854 15,217 25,311 26,908
Property Acquisition 76,349 0 76,349 0
Depreciation 73,567 61,764 135,334 123,529
---------- ---------- ---------- ----------
Total Expenses 219,281 135,610 355,678 265,821
---------- ---------- ---------- ----------
OPERATING INCOME 150,380 198,230 349,652 399,667
OTHER INCOME:
Interest Income 7,770 13,181 20,375 25,076
---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS 158,150 211,411 370,027 424,743
Income from Discontinued
Operations 17,166 152,183 416,084 893,189
---------- ---------- ---------- ----------
NET INCOME $ 175,316 $ 363,594 $ 786,111 $1,317,932
========== ========== ========== ==========
NET INCOME ALLOCATED:
General Partners $ 1,753 $ 3,636 $ 7,861 $ 13,179
Limited Partners 173,563 359,958 778,250 1,304,753
---------- ---------- ---------- ----------
$ 175,316 $ 363,594 $ 786,111 $1,317,932
========== ========== ========== ==========
INCOME PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ 7.10 $ 9.49 $ 16.62 $ 19.07
Discontinued Operations .77 6.84 18.68 40.12
---------- ---------- ---------- ----------
Total $ 7.87 $ 16.33 $ 35.30 $ 59.19
========== ========== ========== ==========
Weighted Average Units
Outstanding 22,045 22,045 22,045 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 SIX MONTHS ENDED JUNE 30
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 786,111 $ 1,317,932
Adjustments to Reconcile Net Income
To Net Cash Provided by Operating Activities:
Depreciation 142,962 169,133
Gain on Sale of Real Estate (396,163) (682,938)
Decrease in Payable to
AEI Fund Management, Inc. (43,238) (32,721)
Increase in Unearned Rent 72,309 73,447
----------- -----------
Total Adjustments (224,130) (473,079)
----------- -----------
Net Cash Provided By
Operating Activities 561,981 844,853
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (3,714,638) 0
Proceeds from Sale of Real Estate 2,243,306 2,152,460
----------- -----------
Net Cash Provided By (Used For)
Investing Activities (1,471,332) 2,152,460
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions Paid to Partners (763,098) (963,414)
----------- -----------
NET INCREASE (DECREASE) IN CASH (1,672,449) 2,033,899
CASH, beginning of period 2,842,034 1,102,753
----------- -----------
CASH, end of period $ 1,169,585 $ 3,136,652
=========== ===========
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 SIX MONTHS ENDED JUNE 30
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2007 $ 12,328 $16,142,364 $16,154,692 22,045.04
Distributions Declared (11,262) (1,115,002) (1,126,264)
Net Income 13,179 1,304,753 1,317,932
-------- ----------- ----------- ----------
BALANCE, June 30, 2008 $ 14,245 $16,332,115 $16,346,360 22,045.04
======== =========== =========== ==========
BALANCE, December 31, 2008 $ 9,847 $15,896,769 $15,906,616 22,045.04
Distributions Declared (7,151) (708,002) (715,153)
Net Income 7,861 778,250 786,111
-------- ----------- ----------- ----------
BALANCE, June 30, 2009 $ 10,557 $15,967,017 $15,977,574 22,045.04
======== =========== =========== ==========
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
JUNE 30, 2009
(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 2009 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 $76,349 of acquisition expenses
related to the purchase. These costs were expensed as
incurred as the result of the adoption of Statement of
Financial Accounting Standards No. 141(R), "Business
Combinations", which 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.
(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 February 27, 2008, the Partnership sold its 50% interest
in the Champps Americana restaurant in West Chester, Ohio to
an unrelated third party. The Partnership received net sale
proceeds of $2,057,022, which resulted in a net gain of
$632,104. At the time of sale, the cost and related
accumulated depreciation was $1,569,884 and $144,966,
respectively. Through March 31, 2008, the Partnership
recognized a net gain of $621,404. In the second quarter of
2008, the Partnership recorded a $10,700 adjustment to the
expenses of the sale.
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 and related accumulated depreciation of
the interest sold was $69,106 and $24,502, respectively.
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 has 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.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations - (Continued)
Based on an analysis of market conditions in the area, the
Partnership determined the Red Robin restaurant was impaired
in accordance with the requirements of Statement of
Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". As a result,
in the fourth quarter of 2008, a charge to discontinued
operations for real estate impairment of $161,088 was
recognized, which was the difference between the carrying
value at December 31, 2008 of $1,277,088 and the estimated
fair value of $1,116,000. The charge was recorded against
the cost of the land and building. At June 30, 2009 and
December 31, 2008, the property was classified as Real
Estate Held for Sale.
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. At
December 31, 2008, the property was classified as Real
Estate Held for Sale with a carrying value of $1,839,252.
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. Subsequent to June 30,
2009, the sale closed with the Partnership receiving net
proceeds of approximately $1,331,000, which resulted in a
net gain of approximately $191,100. At the time of sale,
the cost and related accumulated depreciation was $1,231,624
and $91,722, respectively. At June 30, 2009, the property
was classified as Real Estate Held for Sale with a carrying
value of $1,139,902.
During the first six months of 2009 and 2008, the
Partnership distributed net sale proceeds of $105,896 and
$286,869 to the Limited and General Partners as part of
their quarterly distributions, which represented a return of
capital of $4.75 and $12.88 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.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations - (Continued)
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 periods ended June 30:
Three Months Ended Six Months Ended
6/30/09 6/30/08 6/30/09 6/30/08
Rental Income $ 25,305 $ 114,653 $ 55,237 $ 257,273
Property Management Expenses (11,904) (1,263) (27,688) (1,418)
Depreciation (36) (22,741) (7,628) (45,604)
Gain on Disposal of Real Estate 3,801 61,534 396,163 682,938
------- --------- --------- ---------
Income from Discontinued
Operations $ 17,166 $ 152,183 $ 416,084 $ 893,189
======= ========= ========= =========
(7) Fair Value Measurements -
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements," ("SFAS 157"). SFAS 157 provides enhanced
guidance for using fair value to measure assets and
liabilities. In February 2008, the FASB issued Staff
Position (FSP) No. 157-2, which deferred the effective date
of SFAS 157 for one year relative to certain nonfinancial
assets and liabilities. The Partnership adopted SFAS 157
for financial assets and liabilities on January 1, 2008 and
for certain nonfinancial assets and liabilities on January
1, 2009. The Partnership has no assets or liabilities
measured at fair value on a recurring basis or nonrecurring
basis that would require disclosure under this
pronouncement.
(8) Subsequent Events -
The Partnership has evaluated subsequent events through
August 11, 2009, the date which the financial statements
were available to be issued. Subsequent events, if any,
were disclosed in the appropriate note in the Notes to
Financial Statements.
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.
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
adoption of Statement of Financial Accounting Standards No.
141(R), "Business Combinations". 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 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.
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 six months ended June 30, 2009 and 2008, the
Partnership recognized rental income from continuing operations
of $705,330 and $665,488 respectively. In 2009, rental income
increased due to additional rent received from one property
acquisition in 2009 and rent increases on two properties.
For the six months ended June 30, 2009 and 2008, the
Partnership incurred Partnership administration expenses from
affiliated parties of $118,684 and $115,384, 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 $25,311 and $26,908, 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.
For the six months ended June 30, 2009, the Partnership
incurred property acquisition expenses of $76,349. These costs
were expensed as incurred as the result of the adoption of
Statement of Financial Accounting Standards No. 141(R), "Business
Combinations" ("SFAS 141(R)"), which became effective January 1,
2009.
For the six months ended June 30, 2009 and 2008, the
Partnership recognized interest income of $20,375 and $25,076,
respectively.
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 of
the property to discontinued operations. For the six months
ended June 30, 2009, the Partnership recognized income from
discontinued operations of $416,084, representing rental income
less property management expenses and depreciation of $19,921 and
gain on disposal of real estate of $396,163. For the six months
ended June 30, 2008, the Partnership recognized income from
discontinued operations of $893,189, representing rental income
less property management expenses and depreciation of $210,251
and gain on disposal of real estate of $682,938.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
On February 27, 2008, the Partnership sold its 50%
interest in the Champps Americana restaurant in West Chester,
Ohio to an unrelated third party. The Partnership received net
sale proceeds of $2,057,022, which resulted in a net gain of
$632,104. At the time of sale, the cost and related accumulated
depreciation was $1,569,884 and $144,966, respectively. Through
March 31, 2008, the Partnership recognized a net gain of
$621,404. In the second quarter of 2008, the Partnership
recorded a $10,700 adjustment to the expenses of the sale.
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 and related accumulated depreciation of the interest
sold was $69,106 and $24,502, respectively.
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 has 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 will
decrease the Partnership's cash flow in the future.
Consequently, beginning with the first quarter of 2009, the
Partnership is reducing its regular distribution rate until the
property can be sold and the proceeds reinvested in additional
property.
Based on an analysis of market conditions in the area, the
Partnership determined the Red Robin restaurant was impaired in
accordance with the requirements of Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. As a result, in the fourth
quarter of 2008, a charge to discontinued operations for real
estate impairment of $161,088 was recognized, which was the
difference between the carrying value at December 31, 2008 of
$1,277,088 and the estimated fair value of $1,116,000. The
charge was recorded against the cost of the land and building.
At June 30, 2009 and December 31, 2008, the property was
classified as Real Estate Held for Sale.
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. At December 31, 2008, the
property was classified as Real Estate Held for Sale with a
carrying value of $1,839,252.
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. Subsequent to June 30, 2009, the
sale closed with the Partnership receiving net proceeds of
approximately $1,331,000, which resulted in a net gain of
approximately $191,100. At the time of sale, the cost and
related accumulated depreciation was $1,231,624 and $91,722,
respectively. At June 30, 2009, the property was classified as
Real Estate Held for Sale with a carrying value of $1,139,902.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
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 six months ended June 30, 2009, the
Partnership's cash balances decreased $1,672,449 as a result of
cash used to purchase property and distributions paid to the
Partners in excess of cash generated from operating activities,
which were partially offset by cash generated from the sale of
property. During the six months ended June 30, 2008, the
Partnership's cash balances increased $2,033,899 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 decreased from
$844,853 in 2008 to $561,981 in 2009 as a result of a decrease in
total rental and interest income in 2009, an increase in
Partnership administration and property management expenses in
2009 and net timing differences in the collection of payments
from the tenants and the payment of expenses. During 2009, cash
from operations was also reduced by $76,349 of acquisition
expenses related to the purchase of real estate. Pursuant to
SFAS 141(R), these expenses were reflected as operating cash
outflows. However, pursuant to the Partnership Agreement,
acquisition expenses were funded with proceeds from property
sales.
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 six months ended June
30, 2009 and 2008, the Partnership generated cash flow from the
sale of real estate of $2,243,306 and $2,152,460, respectively.
During the six months ended June 30, 2009, the Partnership
expended $3,714,638 to invest in real properties as the
Partnership reinvested cash generated from property sales.
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 $76,349 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 in the fourth quarter of each year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
For the six months ended June 30, 2009 and 2008, the
Partnership declared distributions of $715,153 and $1,126,264,
respectively, which were distributed 99% to the Limited Partners
and 1% to the General Partners. The Limited Partners received
distributions of $708,002 and $1,115,002 and the General Partners
received distributions of $7,151 and $11,262 for the periods,
respectively. In March and June 2008, the Partnership declared
special distributions of net sale proceeds of $115,152 and
$171,717, respectively. In 2009, distributions were lower due to
a decrease in the distribution rate per Unit, effective January
1, 2009, and the special distributions in March and June 2008.
During the first six months of 2009 and 2008, the
Partnership distributed net sale proceeds of $105,896 and
$286,869 to the Limited and General Partners as part of their
quarterly distributions, which represented a return of capital of
$4.75 and $12.88 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 2009 and 2008, the Partnership did not redeem any
Units from the Limited Partners. 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.
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.
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 companies. 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 companies.
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.
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.
PART II - OTHER INFORMATION
(Continued)
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,
each Limited Partner has the right to present Units to the
Partnership for purchase by submitting notice to the Managing
General Partner during September of each year. The purchase
price of the Units is based on a formula specified in the
Partnership Agreement. Units tendered to the Partnership are
redeemed on October 1st of each year subject to the following
limitations. The Partnership will not be obligated to purchase
in any year any number of Units that, when aggregated with all
other transfers of Units that have occurred since the beginning
of the same calendar year (excluding Permitted Transfers as
defined in the Partnership Agreement), would exceed 5% of the
total number of Units outstanding on January 1 of such year. In
no event shall the Partnership be obligated to purchase Units if,
in the sole discretion of the Managing General Partner, such
purchase would impair the capital or operation of the
Partnership. During the period covered by this report, the
Partnership did not purchase any Units.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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: August 11, 2009 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)