Attached files
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, 2011
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 March 31, 2011 and December 31, 2010
Statements for the Three Months ended March 31, 2011 and 2010:
Income
Cash Flows
Changes in Partners' Capital (Deficit)
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, 2011 AND DECEMBER 31, 2010
ASSETS
2011 2010
CURRENT ASSETS:
Cash $ 2,231,896 $ 587,665
INVESTMENTS IN REAL ESTATE:
Land 4,942,951 4,945,875
Buildings and Equipment 10,579,884 10,586,290
Accumulated Depreciation (2,452,405) (2,368,086)
----------- -----------
13,070,430 13,164,079
Real Estate Held for Sale 700,000 1,542,762
----------- -----------
Net Investments in Real Estate 13,770,430 14,706,841
----------- -----------
Total Assets $16,002,326 $15,294,506
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 109,832 $ 81,655
Distributions Payable 342,423 343,435
Unearned Rent 46,654 20,961
----------- -----------
Total Current Liabilities 498,909 446,051
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners 7,719 (4,722)
Limited Partners, $1,000 per Unit;
24,000 Units authorized and issued;
21,845 Units outstanding 15,495,698 14,853,177
----------- -----------
Total Partners' Capital 15,503,417 14,848,455
----------- -----------
Total Liabilities and Partners' Capital $16,002,326 $15,294,506
=========== ===========
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
2011 2010
RENTAL INCOME $ 354,310 $ 335,550
EXPENSES:
Partnership Administration - Affiliates 63,893 57,802
Partnership Administration and Property
Management - Unrelated Parties 19,314 12,223
Depreciation 86,895 78,755
----------- -----------
Total Expenses 170,102 148,780
----------- -----------
OPERATING INCOME 184,208 186,770
OTHER INCOME:
Interest Income 1,814 5,535
----------- -----------
INCOME FROM CONTINUING OPERATIONS 186,022 192,305
Income from Discontinued Operations 811,363 42,893
----------- -----------
NET INCOME $ 997,385 $ 235,198
=========== ===========
NET INCOME ALLOCATED:
General Partners $ 15,865 $ 2,352
Limited Partners 981,520 232,846
----------- -----------
$ 997,385 $ 235,198
=========== ===========
NET INCOME PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ 8.43 $ 8.64
Discontinued Operations 36.50 1.93
----------- -----------
Total $ 44.93 $ 10.57
=========== ===========
Weighted Average Units Outstanding-Basic and Diluted 21,845 22,030
=========== ===========
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
2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 997,385 $ 235,198
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 86,939 85,364
Gain on Sale of Real Estate (777,808) 0
Decrease in Receivable 0 950
Increase (Decrease) in Payable to
AEI Fund Management, Inc. 28,177 (48,397)
Increase in Unearned Rent 25,693 46,380
----------- -----------
Total Adjustments (636,999) 84,297
----------- -----------
Net Cash Provided By
Operating Activities 360,386 319,495
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 1,627,280 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions Paid to Partners (343,435) (357,573)
----------- -----------
NET INCREASE (DECREASE) IN CASH 1,644,231 (38,078)
CASH, beginning of period 587,665 2,405,133
----------- -----------
CASH, end of period $ 2,231,896 $ 2,367,055
=========== ===========
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 (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
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
======== =========== =========== ==========
BALANCE, December 31, 2010 $ (4,722) $14,853,177 $14,848,455 21,845.28
Distributions Declared (3,424) (338,999) (342,423)
Net Income 15,865 981,520 997,385
-------- ----------- ----------- ----------
BALANCE, March 31, 2011 $ 7,719 $15,495,698 $15,503,417 21,845.28
======== =========== =========== ==========
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, 2011
(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.
In December 2008, the Managing General Partner solicited by
mail a proxy statement seeking the consent of the Limited
Partners to continue the Partnership for an additional 60
months or to initiate the final disposition, liquidation and
distribution of all of the Partnership's properties and
assets within 24 months. On January 9, 2009, the proposal
to continue the Partnership was approved with a majority of
Units voted in favor of the continuation proposal. As a
result, the Managing General Partner will continue the
operations of the Partnership for an additional 60 months at
which time it will again ask the Limited Partners to vote on
the same two proposals.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Reclassification -
Certain items related to discontinued operations in the
prior year's financial statements have been reclassified to
conform to 2011 presentation. These reclassifications had
no effect on Partners' capital, net income or cash flows.
(4) Investments in Real Estate -
On October 20, 2010, the Partnership purchased a 40%
interest in a Scott & White Clinic in College Station, Texas
for $1,470,224. The Partnership incurred $32,227 of
acquisition expenses related to the purchase that were
expensed. The property is leased to Scott & White
Healthcare under a Lease Agreement with a remaining primary
term of 9.7 years (as of the date of purchase) and initial
annual rent of $123,200 for the interest purchased. The
remaining interests in the property were purchased by AEI
Income & Growth Fund XXI Limited Partnership and AEI Income
& Growth Fund 25 LLC, affiliates of the Partnership.
On January 31, 2011, the Lease term expired for the HomeTown
Buffet restaurant in Albuquerque, New Mexico. The tenant
returned possession of the property to the Partnership. The
Partnership has listed the property for lease with a real
estate broker in the Albuquerque area. While the property
is vacant, the Partnership is responsible for its 40.1354%
share of real estate taxes and other costs associated with
maintaining the property. The property represents less than
3% of the Partnership's property portfolio. The loss of
rent from this property will have only a minor effect on the
Partnership's operations and financial situation. The
Partnership has evaluated the carrying value of the property
and decided that there is no impairment at this time.
(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.
AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations - (Continued)
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.
Based on additional marketing efforts and analysis of market
conditions in the area, the Partnership recognized an
additional real estate impairment of $200,000 to decrease
the carrying value to the estimated fair value of $700,000
at September 30, 2010. The charges were recorded against
the cost of the land and building. At March 31, 2011 and
December 31, 2010, the property was classified as Real
Estate Held for Sale.
In January 2011, the Partnership entered into an agreement
to sell the Applebee's restaurant in McAllen, Texas to an
unrelated third party. On March 10, 2011, the sale closed
with the Partnership receiving net proceeds of $1,618,981,
which resulted in a net gain of $776,219. At the time of
sale, the cost and related accumulated depreciation was
$1,320,104 and $477,342, respectively. At December 31,
2010, the property was classified as Real Estate Held for
Sale with a carrying value of $842,762.
On March 16, 2011, the Partnership sold its remaining .2706%
interest in the Champps Americana restaurant in Columbus,
Ohio to an unrelated third party. The Partnership received
net sale proceeds of $8,299, which resulted in a net gain of
$1,589. The cost and related accumulated depreciation of
the interest sold was $9,330 and $2,620, respectively.
During the first three months of 2011 and 2010, the
Partnership distributed net sale proceeds of $35,907 and
$37,010 to the Limited and General Partners as part of their
quarterly distributions, which represented a return of
capital of $1.63 and $1.66 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:
2011 2010
Rental Income $ 45,582 $ 60,530
Property Management Expenses (11,983) (11,028)
Depreciation (44) (6,609)
Gain on Disposal of Real Estate 777,808 0
--------- ---------
Income from Discontinued Operations $ 811,363 $ 42,893
========= =========
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.
As of March 31, 2011, 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 resulting impairment charge of $216,000 was
included in earnings for the third quarter of 2009. At
September 30, 2010, after completing our long-lived asset
valuation analysis, the Red Robin restaurant was further
written down to $700,000, its estimated fair value at that
date. The resulting impairment charge of $200,000 was
included in earnings for the third quarter of 2010. In both
instances, the fair value of the property was based upon
comparable sales of similar properties, which are considered
Level 2 inputs in the valuation hierarchy.
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
investments in real estate and the allocation by AEI Fund
Management, Inc. of expenses to the Partnership as opposed to
other funds they manage.
The Partnership purchases properties and records them in
the financial statements at cost (not including acquisition
expenses). 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 net
realizable value, an impairment loss is recorded to reduce the
carrying value of the property to its net 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
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, 2011 and 2010, the
Partnership recognized rental income from continuing operations
of $354,310 and $335,550 respectively. In 2011, rental income
increased due to additional rent received from one property
acquisition in 2010, which was partially offset by a loss of rent
for the HomeTown Buffet restaurant as discussed below. Based on
the scheduled rent for the properties owned as of April 30, 2011,
the Partnership expects to recognize rental income from
continuing operations of approximately $1,429,000 in 2011.
For the three months ended March 31, 2011 and 2010, the
Partnership incurred Partnership administration expenses from
affiliated parties of $63,893 and $57,802, 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 $19,314 and $12,223, 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.
On January 31, 2011, the Lease term expired for the
HomeTown Buffet restaurant in Albuquerque, New Mexico. The
tenant returned possession of the property to the Partnership.
The Partnership has listed the property for lease with a real
estate broker in the Albuquerque area. While the property is
vacant, the Partnership is responsible for its 40.1354% share of
real estate taxes and other costs associated with maintaining the
property. The property represents less than 3% of the
Partnership's property portfolio. The loss of rent from this
property will have only a minor effect on the Partnership's
operations and financial situation. The Partnership has
evaluated the carrying value of the property and decided that
there is no impairment at this time.
For the three months ended March 31, 2011 and 2010, the
Partnership recognized interest income of $1,814 and $5,535,
respectively. In 2011, interest income decreased due to the
Partnership having less money invested in a money market account
due to a property acquisition in October 2010.
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, 2011, the
Partnership recognized income from discontinued operations of
$811,363, representing rental income less property management
expenses and depreciation of $33,555 and gain on disposal of real
estate of $777,808. For the three months ended March 31, 2010,
the Partnership recognized income from discontinued operations of
$42,893, representing rental income less property management
expenses and depreciation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
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. Based on additional
marketing efforts and analysis of market conditions in the area,
the Partnership recognized an additional real estate impairment
of $200,000 to decrease the carrying value to the estimated fair
value of $700,000 at September 30, 2010. The charges were
recorded against the cost of the land and building. At March 31,
2011 and December 31, 2010, the property was classified as Real
Estate Held for Sale.
In January 2011, the Partnership entered into an agreement
to sell the Applebee's restaurant in McAllen, Texas to an
unrelated third party. On March 10, 2011, the sale closed with
the Partnership receiving net proceeds of $1,618,981, which
resulted in a net gain of $776,219. At the time of sale, the
cost and related accumulated depreciation was $1,320,104 and
$477,342, respectively. At December 31, 2010, the property was
classified as Real Estate Held for Sale with a carrying value of
$842,762.
On March 16, 2011, the Partnership sold its remaining
.2706% interest in the Champps Americana restaurant in Columbus,
Ohio to an unrelated third party. The Partnership received net
sale proceeds of $8,299, which resulted in a net gain of $1,589.
The cost and related accumulated depreciation of the interest
sold was $9,330 and $2,620, 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, 2011, the
Partnership's cash balances increased $1,644,231 as a result of
cash generated from the sale of property and cash generated from
operating activities in excess of distributions paid to the
Partners. 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.
Net cash provided by operating activities increased from
$319,495 in 2010 to $360,386 in 2011 as a result of net timing
differences in the collection of payments from the tenants and
the payment of expenses, which was partially offset by an
increase in Partnership administration and property management
expenses in 2011.
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 three months ended
March 31, 2011, the Partnership generated cash flow from the sale
of real estate of $1,627,280.
On October 20, 2010, the Partnership purchased a 40%
interest in a Scott & White Clinic in College Station, Texas for
$1,470,224. The property is leased to Scott & White Healthcare
under a Lease Agreement with a remaining primary term of 9.7
years (as of the date of purchase) and initial annual rent of
$123,200 for the interest purchased. The remaining interests in
the property were purchased by AEI Income & Growth Fund XXI
Limited Partnership and AEI Income & Growth Fund 25 LLC,
affiliates 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, 2011 and 2010, the
Partnership declared distributions of $342,423 and $357,572,
respectively, which were distributed 99% to the Limited Partners
and 1% to the General Partners. The Limited Partners received
distributions of $338,999 and $353,997 and the General Partners
received distributions of $3,424 and $3,575 for the periods,
respectively.
During the first three months of 2011 and 2010, the
Partnership distributed net sale proceeds of $35,907 and $37,010
to the Limited and General Partners as part of their quarterly
distributions, which represented a return of capital of $1.63 and
$1.66 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 the first three months of 2011, the Partnership did
not redeem any Units from the Limited Partners. During 2010,
nine Limited Partners redeemed a total of 184.76 Partnership
Units for $157,001 in accordance with the Partnership Agreement.
The Partnership acquired these Units using Net Cash Flow from
operations. In prior years, a total of 125 Limited Partners
redeemed 1,969.96 Partnership Units for $1,514,831. 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 $1,586 in 2010.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
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 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.
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, 2011 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