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: September 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 (unaudited): Balance Sheet as of September 30, 2009 and December 31, 2008 Statements for the Periods ended September 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 Signatures AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP BALANCE SHEET SEPTEMBER 30, 2009 AND DECEMBER 31, 2008 ASSETS 2009 2008 CURRENT ASSETS: Cash $ 2,458,301 $ 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 (2,421,938) (2,288,065) ----------- ----------- 12,960,107 10,621,588 Real Estate Held for Sale 900,000 2,955,252 ----------- ----------- Net Investments in Real Estate 13,860,107 13,576,840 ----------- ----------- Total Assets $16,318,408 $16,418,874 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 60,547 $ 98,024 Distributions Payable 357,577 405,522 Unearned Rent 46,654 8,712 ----------- ----------- Total Current Liabilities 464,778 512,258 ----------- ----------- PARTNERS' CAPITAL: General Partners 9,317 9,847 Limited Partners, $1,000 per Unit; 24,000 Units authorized and issued; 22,045 Units outstanding 15,844,313 15,896,769 ----------- ----------- Total Partners' Capital 15,853,630 15,906,616 ----------- ----------- Total Liabilities and Partners'Capital $16,318,408 $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 SEPTEMBER 30 Three Months Ended Nine Months Ended 9/30/09 9/30/08 9/30/09 9/30/08 RENTAL INCOME $ 412,777 $ 333,845 $1,118,107 $ 999,333 EXPENSES: Partnership Administration - Affiliates 56,523 57,202 175,207 172,586 Partnership Administration and Property Management - Unrelated Parties 3,556 11,581 28,867 38,489 Property Acquisitions 3,325 0 79,674 0 Depreciation 85,364 61,767 220,698 185,296 --------- --------- ---------- ---------- Total Expenses 148,768 130,550 504,446 396,371 --------- --------- ---------- ---------- OPERATING INCOME 264,009 203,295 613,661 602,962 OTHER INCOME: Interest Income 5,836 13,574 26,211 38,650 --------- --------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS 269,845 216,869 639,872 641,612 Income (Loss) from Discontinued Operations (36,212) 91,000 379,872 984,189 --------- --------- ---------- ---------- NET INCOME $ 233,633 $ 307,869 $1,019,744 $1,625,801 ========= ========= ========== ========== NET INCOME ALLOCATED: General Partners $ 2,336 $ 3,079 $ 10,197 $ 16,258 Limited Partners 231,297 304,790 1,009,547 1,609,543 --------- --------- ---------- ---------- $ 233,633 $ 307,869 $1,019,744 $1,625,801 ========= ========= ========== ========== INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT: Continuing Operations $ 12.12 $ 9.74 $ 28.74 $ 28.81 Discontinued Operations (1.63) 4.09 17.05 44.20 --------- --------- ---------- ---------- Total $ 10.49 $ 13.83 $ 45.79 $ 73.01 ========= ========= ========== ========== 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 NINE MONTHS ENDED SEPTEMBER 30 2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 1,019,744 $ 1,625,801 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 228,326 253,395 Real Estate Impairment 216,000 0 Gain on Sale of Real Estate (587,436) (682,938) Decrease in Payable to AEI Fund Management, Inc. (37,477) (27,126) Increase in Unearned Rent 37,942 0 ----------- ----------- Total Adjustments (142,645) (456,669) ----------- ----------- Net Cash Provided By Operating Activities 877,099 1,169,132 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (3,714,638) 0 Proceeds from Sale of Real Estate 3,574,481 2,152,460 ----------- ----------- Net Cash Provided By (Used For) Investing Activities (140,157) 2,152,460 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions Paid to Partners (1,120,675) (1,550,283) ----------- ----------- NET INCREASE (DECREASE) IN CASH (383,733) 1,771,309 CASH, beginning of period 2,842,034 1,102,753 ----------- ----------- CASH, end of period $ 2,458,301 $ 2,874,062 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE NINE MONTHS ENDED SEPTEMBER 30 Limited Partnership General Limited Units Partners Partners Total Outstanding BALANCE, December 31, 2007 $ 12,328 $16,142,364 $16,154,692 22,045.04 Distributions (15,414) (1,526,003) (1,541,417) Net Income 16,258 1,609,543 1,625,801 -------- ----------- ----------- ---------- BALANCE, September 30, 2008 $ 13,172 $16,225,904 $16,239,076 22,045.04 ======== =========== =========== ========== BALANCE, December 31, 2008 $ 9,847 $15,896,769 $15,906,616 22,045.04 Distributions (10,727) (1,062,003) (1,072,730) Net Income 10,197 1,009,547 1,019,744 -------- ----------- ----------- ---------- BALANCE, September 30, 2009 $ 9,317 $15,844,313 $15,853,630 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 SEPTEMBER 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 $79,674 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. (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. 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. 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. Based on marketing efforts to date and a recent analysis of market conditions in the area, the Partnership recognized an additional real estate impairment of $216,000 to decrease the carrying value to the estimated fair value of $900,000 as of September 30, 2009. The charges were recorded against the cost of the land and building. At September 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. On July 2, 2009, the sale closed with the Partnership receiving net proceeds of $1,331,175, which resulted in a net gain of $191,273. At the time of sale, the cost and related accumulated depreciation was $1,231,624 and $91,722, respectively. During the first nine months of 2009 and 2008, the Partnership distributed net sale proceeds of $116,423 and $286,869 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $5.22 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 September 30: Three Months Ended Nine Months Ended 9/30/09 9/30/08 9/30/09 9/30/08 Rental Income $ 270 $ 114,607 $ 55,507 $ 371,880 Property Management Expenses (11,755) (1,112) (39,443) (2,530) Depreciation 0 (22,495) (7,628) (68,099) Real Estate Impairment (216,000) 0 (216,000) 0 Gain on Disposal of Real Estate 191,273 0 587,436 682,938 --------- --------- --------- --------- Income (Loss) from Discontinued Operations $ (36,212) $ 91,000 $ 379,872 $ 984,189 ========= ========= ========= ========= (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 3 inputs in the valuation hierarchy. The resulting impairment charge in the third quarter of $216,000 was included in earnings for the period. AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (8) Subsequent Events - The Partnership has evaluated subsequent events through November 10, 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) 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 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 nine months ended September 30, 2009 and 2008, the Partnership recognized rental income from continuing operations of $1,118,107 and $999,333 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 nine months ended September 30, 2009 and 2008, the Partnership incurred Partnership administration expenses from affiliated parties of $175,207 and $172,586, 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 $28,867 and $38,489, 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 nine months ended September 30, 2009, the Partnership incurred property acquisition expenses of $79,674. These costs were expensed as incurred as the result of the adoption of new guidance on business combinations that became effective January 1, 2009. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) For the nine months ended September 30, 2009 and 2008, the Partnership recognized interest income of $26,211 and $38,650, respectively. In 2009, interest income decreased due to the Partnership having less money invested in a money market account due to property acquisitions and lower money market rates in 2009. 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 nine months ended September 30, 2009, the Partnership recognized income from discontinued operations of $379,872, representing rental income less property management expenses and depreciation of $8,436 and gain on disposal of real estate of $587,436, which were partially offset by a real estate impairment loss of $216,000. For the nine months ended September 30, 2008, the Partnership recognized income from discontinued operations of $984,189, representing rental income less property management expenses and depreciation of $301,251 and gain on disposal of real estate of $682,938. 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. 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. 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. Based on marketing efforts to date and a recent analysis of market conditions in the area, the Partnership recognized an additional real estate impairment of $216,000 to decrease the carrying value to the estimated fair value of $900,000 as of September 30, 2009. The charges were recorded against the cost of the land and building. At September 30, 2009 and December 31, 2008, 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. 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. On July 2, 2009, the sale closed with the Partnership receiving net proceeds of $1,331,175, which resulted in a net gain of $191,273. 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 nine months ended September 30, 2009, the Partnership's cash balances decreased $383,733 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 nine months ended September 30, 2008, the Partnership's cash balances increased $1,771,309 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 $1,169,132 in 2008 to $877,099 in 2009 as a result of a decrease in total rental and interest income in 2009 and an increase in Partnership administration and property management expenses in 2009, which was partially offset by 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 $79,674 of acquisition expenses related to the purchase of real estate. Pursuant to new accounting guidance, these expenses were reflected as operating cash outflows. However, pursuant to the Partnership Agreement, acquisition expenses were funded with proceeds from property sales. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) 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 nine months ended September 30, 2009 and 2008, the Partnership generated cash flow from the sale of real estate of $3,574,481 and $2,152,460, respectively. During the nine months ended September 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 $79,674 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. For the nine months ended September 30, 2009 and 2008, the Partnership declared distributions of $1,072,730 and $1,541,417, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners. The Limited Partners received distributions of $1,062,003 and $1,526,003 and the General Partners received distributions of $10,727 and $15,414 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 2008. During the first nine months of 2009 and 2008, the Partnership distributed net sale proceeds of $116,423 and $286,869 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $5.22 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) 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. During 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. As a result of these redemption payments and pursuant to the Partnership Agreement, the General Partners received distributions of $143 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. 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. 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: November 10, 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)