AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP	Financial_Report.xls
EX-32 - AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP	ex32-20.htm
EX-31.1 - AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP	ex31-120.htm
EX-31.2 - AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP	ex31-220.htm

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, 2013

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 incorporation or organization)		(I.R.S. Employer Identification No.)

30 East 7th Street, Suite 1300 St. Paul, Minnesota 55101		(651) 227-7333
(Address of principal executive offices)		(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 o 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). x Yes o 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.

o Large accelerated filer	o Accelerated filer
o Non-accelerated filer	x Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP

INDEX

				Page
Part I – Financial Information

	Item 1.	Financial Statements (unaudited):

		Balance Sheet as of September 30, 2013 and December 31, 2012		3

		Statements for the Periods ended September 30, 2013 and 2012:

			Income	4

			Cash Flows	5

			Changes in Partners’ Capital	6

		Notes to Financial Statements		7 - 12

	Item 2.	Management's Discussion and Analysis of Financial
			Condition and Results of Operations	13 - 19

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		19

	Item 4.	Controls and Procedures		19

Part II – Other Information

	Item 1.	Legal Proceedings		20

	Item 1A.	Risk Factors		20

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		20

	Item 3.	Defaults Upon Senior Securities		20

	Item 4.	Mine Safety Disclosures		20

	Item 5.	Other Information		20

	Item 6.	Exhibits		21

Signatures				21

Page 2 of 21

AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP

BALANCE SHEET

ASSETS

		September 30,		December 31,
		2013		2012
Current Assets:
Cash	$	2,272,198	$	458,643
Receivables		0		1,843
Total Current Assets		2,272,198		460,486

Real Estate Held for Investment:
Land		3,832,758		4,938,442
Buildings and Equipment		8,167,032		10,986,868
Acquired Intangible Lease Assets		703,997		703,997
Real Estate Investments, at cost		12,703,787		16,629,307
Accumulated Depreciation and Amortization		(2,405,570)		(3,006,433)
Real Estate Held for Investment, Net		10,298,217		13,622,874
Real Estate Held for Sale		2,058,573		733,000
Total Real Estate		12,356,790		14,355,874
Total Assets	$	14,628,988	$	14,816,360

LIABILITIES AND PARTNERS' CAPITAL

Current Liabilities:
Payable to AEI Fund Management, Inc.	$	97,858	$	120,332
Distributions Payable		299,704		299,696
Unearned Rent		76,143		13,474
Total Current Liabilities		473,705		433,502
Long-term Liabilities:
Acquired Below-Market Lease Intangibles, Net		73,352		77,480

Partners’ Capital:
General Partners		4,986		4,274
Limited Partners – 24,000 Units authorized; 21,465 and 21,560 Units issued and outstanding in 2013 and 2012, respectively		14,076,945		14,301,104
Total Partners' Capital		14,081,931		14,305,378
Total Liabilities and Partners' Capital	$	14,628,988	$	14,816,360

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 3 of 21

AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP

STATEMENT OF INCOME

		Three Months Ended September 30				Nine Months Ended September 30
		2013		2012		2013		2012

Rental Income	$	298,963	$	290,199	$	896,888	$	811,105

Expenses:
Partnership Administration – Affiliates		55,431		59,595		169,120		181,049
Partnership Administration and Property Management – Unrelated Parties		12,419		20,785		50,685		54,971
Property Acquisition		0		29,133		0		51,342
Depreciation and Amortization		76,702		74,213		230,100		201,342
Total Expenses		144,552		183,726		449,905		488,704

Operating Income		154,411		106,473		446,983		322,401

Other Income:
Interest Income		1,079		771		1,534		4,573

Income from Continuing Operations		155,490		107,244		448,517		326,974

Income from Discontinued Operations		205,923		42,356		306,334		630,425

Net Income	$	361,413	$	149,600	$	754,851	$	957,399

Net Income Allocated:
General Partners	$	6,560	$	1,496	$	10,494	$	9,574
Limited Partners		354,853		148,104		744,357		947,825
Total	$	361,413	$	149,600	$	754,851	$	957,399

Income per Limited Partnership Unit:
Continuing Operations	$	7.17	$	4.89	$	20.66	$	14.89
Discontinued Operations		9.36		1.93		13.97		28.71
Total – Basic and Diluted	$	16.53	$	6.82	$	34.63	$	43.60

Weighted Average Units Outstanding – Basic and Diluted		21,465		21,712		21,496		21,737

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 4 of 21

AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP

STATEMENT OF CASH FLOWS

		Nine Months Ended September 30
		2013		2012
Cash Flows from Operating Activities:
Net Income	$	754,851	$	957,399

Adjustments to Reconcile Net Income To Net Cash Provided by Operating Activities:
Depreciation and Amortization		307,689		296,806
Real Estate Impairment		322,868		0
Gain on Sale of Real Estate		(504,826)		(430,939)
(Increase) Decrease in Receivables		1,843		(118)
Increase (Decrease) in Payable to AEI Fund Management, Inc.		(22,474)		10,114
Increase (Decrease) in Unearned Rent		62,669		31,882
Total Adjustments		167,769		(92,255)
Net Cash Provided By Operating Activities		922,620		865,144

Cash Flows from Investing Activities:
Investments in Real Estate		0		(2,750,400)
Proceeds from Sale of Real Estate		1,869,225		1,571,107
Net Cash Provided By (Used For) Investing Activities		1,869,225		(1,179,293)

Cash Flows from Financing Activities:
Distributions Paid to Partners		(899,096)		(1,013,137)
Redemption Payments		(79,194)		(59,580)
Net Cash Used For Financing Activities		(978,290)		(1,072,717)

Net Increase (Decrease) in Cash		1,813,555		(1,386,866)

Cash, beginning of period		458,643		2,008,010

Cash, end of period	$	2,272,198	$	621,144

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 5 of 21

AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP

STATEMENT OF CHANGES IN PARTNERS' CAPITAL

		General Partners		Limited Partners		Total	Limited Partnership Units Outstanding

Balance, December 31, 2011	$	7,673	$	15,040,698	$	15,048,371	21,786.28

Distributions Declared		(9,704)		(960,709)		(970,413)

Redemption Payments		(595)		(58,985)		(59,580)	(74.50)

Net Income		9,574		947,825		957,399

Balance, September 30, 2012	$	6,948	$	14,968,829	$	14,975,777	21,711.78


Balance, December 31, 2012	$	4,274	$	14,301,104	$	14,305,378	21,559.91

Distributions Declared		(8,990)		(890,114)		(899,104)

Redemption Payments		(792)		(78,402)		(79,194)	(95.13)

Net Income		10,494		744,357		754,851

Balance, September 30, 2013	$	4,986	$	14,076,945	$	14,081,931	21,464.78

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 6 of 21

AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

(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.

Page 7 of 21

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.

Page 8 of 21

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 2013 presentation. These reclassifications had no effect on Partners’ capital, net income or cash flows.

(4) Real Estate Held for Investment –

On February 23, 2012, the Partnership purchased a 47% interest in a Tractor Supply Company store in Starkville, Mississippi for $1,339,500. The Partnership allocated $228,586 of the purchase price to Acquired Intangible Lease Assets, representing in-place lease intangibles, and allocated $82,065 to Acquired Below-Market Lease Intangibles. The Partnership incurred $24,866 of acquisition expenses related to the purchase that were expensed. The property is leased to Tractor Supply Company under a Lease Agreement with a remaining primary term of 15 years (as of the date of purchase) and annual rent of $102,462 for the interest purchased. The remaining interest in the property was purchased by AEI Income & Growth Fund 26 LLC, an affiliate of the Partnership.

On July 23, 2012, the Partnership purchased a Family Dollar store in Mobile, Alabama for $1,410,900. The Partnership allocated $475,411 of the purchase price to Acquired Intangible Lease Assets, representing in-place lease intangibles of $190,845 and above-market lease intangibles of $284,566. The Partnership incurred $28,837 of acquisition expenses related to the purchase that were expensed. The property is leased to Family Dollar Stores of Alabama, Inc. under a Lease Agreement with a remaining primary term of 9.9 years and annual rent of $119,926.

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 or sale 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 HomeTown Buffet restaurant represents less than 2% of the fair value of the Partnership's property portfolio. The Partnership has evaluated the carrying value of the property and concluded that there is no impairment at September 30, 2013.

(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.

Page 9 of 21

AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

(Continued)

(6) Discontinued Operations –

On February 3, 2012, the Partnership sold its remaining 1.1177% interest in the Arby’s restaurant in Smyrna, Georgia to an unrelated third party. The Partnership received net sale proceeds of $4,300, which resulted in a net loss of $4,764. The cost and related accumulated depreciation of the interest sold was $13,866 and $4,802, respectively.

In February 2012, the Partnership entered into an agreement to sell its 50% interest in the Biaggi’s restaurant in Fort Wayne, Indiana to an unrelated third party. On March 29, 2012, the sale closed with the Partnership receiving net proceeds of $1,566,807, which resulted in a net gain of $435,703. At the time of sale, the cost and related accumulated depreciation was $1,379,346 and $248,242, respectively.

During 2012, the Partnership decided to sell its 44% interest in the Champps Americana restaurant in Utica, Michigan and classified it as Real Estate Held for Sale. In February 2013, Champps Operating Corporation, the tenant of the property, approached the Partnership with a request to adjust the rent on the property to a market rental rate based on the restaurant’s performance and the current conditions in the market. In April 2013, after reviewing financial information for the restaurant and the tenant, and analyzing the local real estate market for the property, the Partnership and the property’s other co-owners entered into an agreement to reduce the annual rent for the property by 63% to $90,880. The Partnership’s share of this rent is $39,987. The owners will have the right to replace Champps with a new tenant by giving 60 days’ notice to vacate the premises. Champps will have the right to match the terms of the new lease and remain in the premises. The Partnership anticipates that it will sell the property within the next 12 months.

Based on its long-lived asset valuation analysis, the Partnership determined the Champps restaurant was impaired. As a result, in the fourth quarter of 2012, a charge to discontinued operations for real estate impairment of $413,477 was recognized, which was the difference between the carrying value at December 31, 2012 of $1,146,477 and the estimated fair value of $733,000. The charge was recorded against the cost of the land and building. At September 30, 2013 and December 31, 2012, the property was classified as Real Estate Held for Sale.

Effective June 20, 2011, the Partnership entered into an agreement to lease the former Red Robin property in Colorado Springs, Colorado, to a local restaurant operator. The Lease Agreement had a term of two years with annual rental payments of $100,000. The tenant remodeled the building and converted it into a Chinese buffet restaurant called Royal Buffet. In July 2012, the tenant closed the restaurant due to lower than expected sales. The Partnership took possession of the property and listed the property for lease or 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.

Page 10 of 21

AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

(Continued)

(6) Discontinued Operations – (Continued)

In September 2013, the Partnership decided to sell the Royal Buffet restaurant and classified it as Real Estate Held for Sale. Based on its long-lived asset valuation analysis, the Partnership determined the Royal Buffet restaurant was impaired. As a result, in the third quarter of 2013, a charge to discontinued operations for real estate impairment of $322,868 was recognized, which was the difference between the carrying value at September 30, 2013 of $642,868 and the estimated fair value of $320,000. The charge was recorded against the cost of the land and building.

On August 2, 2013, the Partnership sold its 40% interest in the Scott & White Clinic in College Station, Texas to an unrelated third party. The Partnership received net sale proceeds of $1,869,225, which resulted in a net gain of $504,826. At the time of sale, the cost and related accumulated depreciation was $1,470,224 and $105,825, respectively.

The Partnership is attempting to sell its 45% interest in the Applebee’s restaurant in Sandusky, Ohio. At September 30, 2013, the property was classified as Real Estate Held for Sale with a carrying value of $1,005,573.

The financial results for these properties are reflected as Discontinued Operations in the accompanying financial statements. The following are the results of discontinued operations:

		Three Months Ended September 30				Nine Months Ended September 30
		2013		2012		2013		2012

Rental Income	$	46,732	$	83,945	$	214,053	$	320,375
Property Management Expenses		(9,215)		(10,383)		(29,482)		(26,999)
Depreciation		(13,552)		(31,206)		(60,195)		(93,890)
Real Estate Impairment		(322,868)		0		(322,868)		0
Gain on Disposal of Real Estate		504,826		0		504,826		430,939
Income from Discontinued Operations	$	205,923	$	42,356	$	306,334	$	630,425

Page 11 of 21

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.

At September 30, 2013, 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 Champps restaurant in Utica, Michigan, with a carrying amount of $1,146,477 at December 31, 2012, was written down to its fair value of $733,000 after completing our long-lived asset valuation analysis. The resulting impairment charge of $413,477 was included in earnings for the fourth quarter of 2012. The fair value of the property was based upon comparable sales of similar properties, which are considered Level 2 inputs in the valuation hierarchy.

The Royal Buffet restaurant in Colorado Springs, Colorado, with a carrying amount of $642,868 at September 30, 2013, was written down to its fair value of $320,000 after completing our long-lived asset valuation analysis. The resulting impairment charge of $322,868 was included in earnings for the third quarter of 2013. The fair value of the property was based upon comparable sales of similar properties, which are considered Level 2 inputs in the valuation hierarchy.

Page 12 of 21

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 Partnership’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). Preparing the financial statements requires management to use judgment in the application of these accounting policies, including making estimates and assumptions. These judgments will affect the reported amounts of the Partnership’s assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of the financial statements and will affect the reported amounts of revenue and expenses during the reporting periods. It is possible that the carrying amount of the Partnership’s assets and liabilities, or the results of reported operations, will be affected if management’s estimates or assumptions prove inaccurate.

Management of the Partnership evaluates the following accounting estimates on an ongoing basis, and has discussed the development and selection of these estimates and the management discussion and analysis disclosures regarding them with managing partner of the Partnership.

Allocation of Purchase Price of Acquired Properties

Upon acquisition of real properties, the Partnership records them in the financial statements at cost (not including acquisition expenses). The purchase price is allocated to tangible assets, consisting of land and building, and to identified intangible assets and liabilities, which may include the value of above market and below market leases and the value of in-place leases. The allocation of the purchase price is based upon the fair value of each component of the property. Although independent appraisals may be used to assist in the determination of fair value, in many cases these values will be based upon management’s assessment of each property, the selling prices of comparable properties and the discounted value of cash flows from the asset.

Page 13 of 21

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

The fair values of above market and below market in-place leases will be recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases measured over a period equal to the non-cancelable term of the lease including any bargain renewal periods. The above market and below market lease values will be capitalized as intangible lease assets or liabilities. Above market lease values will be amortized as an adjustment of rental income over the remaining terms of the respective leases. Below market leases will be amortized as an adjustment of rental income over the remaining term of the respective leases, including any bargain renewal periods. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of above market and below market in-place lease values relating to that lease would be recorded as an adjustment to rental income.

The fair values of in-place leases will include estimated direct costs associated with obtaining a new tenant, and opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease. Direct costs associated with obtaining a new tenant may include commissions, tenant improvements, and other direct costs and are estimated, in part, by management’s consideration of current market costs to execute a similar lease. These direct costs will be included in intangible lease assets on the balance sheet and will be amortized to expense over the remaining term of the respective leases. The value of opportunity costs will be calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These intangibles will be included in intangible lease assets on the balance sheet and will be amortized to expense over the remaining term of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of in-place lease assets relating to that lease would be expensed.

The determination of the fair values of the assets and liabilities acquired will require the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount and capitalization rates, interest rates and other variables. If management’s estimates or assumptions prove inaccurate, the result would be an inaccurate allocation of purchase price, which could impact the amount of reported net income.

Carrying Value of Properties

The carrying value of the properties is initially recorded 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.

Page 14 of 21

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

Allocation of Expenses

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.

Results of Operations

For the nine months ended September 30, 2013 and 2012, the Partnership recognized rental income from continuing operations of $896,888 and $811,105, respectively. In 2013, rental income increased due to additional rent received from two property acquisitions in 2012 and rent increases on two properties. Based on the scheduled rent for the properties owned as of October 31, 2013, the Partnership expects to recognize rental income from continuing operations of approximately $1,196,000 in both 2013 and 2014.

For the nine months ended September 30, 2013 and 2012, the Partnership incurred Partnership administration expenses from affiliated parties of $169,120 and $181,049, 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 $50,685 and $54,971, 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, 2012, the Partnership incurred property acquisition expenses of $23,079 related to the purchase of the Tractor Supply Company store in Starkville, Mississippi and $28,263 related to the purchase of the Family Dollar store in Mobile, Alabama.

For the nine months ended September 30, 2013 and 2012, the Partnership recognized interest income of $1,534 and $4,573, respectively. In 2013, interest income decreased primarily due to the Partnership having less money invested in a money market account due to two property acquisitions in 2012.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

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, 2013, the Partnership recognized income from discontinued operations of $306,334, representing rental income less property management expenses and depreciation of $124,376 and gain on disposal of real estate of $504,826, which were partially offset by a real estate impairment of $322,868. For the nine months ended September 30, 2012, the Partnership recognized income from discontinued operations of $630,425, representing rental income less property management expenses and depreciation of $199,486 and gain on disposal of real estate of $430,939.

Effective June 20, 2011, the Partnership entered into an agreement to lease the former Red Robin property in Colorado Springs, Colorado, to a local restaurant operator. The Lease Agreement had a term of two years with annual rental payments of $100,000. The tenant remodeled the building and converted it into a Chinese buffet restaurant called Royal Buffet. In July 2012, the tenant closed the restaurant due to lower than expected sales. The Partnership took possession of the property and has listed the property for lease or 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.

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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 nine months ended September 30, 2013, the Partnership's cash balances increased $1,813,555 as a result of cash generated from the sale of property, which was partially offset by distributions and redemption payments paid to the Partners in excess of cash generated from operating activities. During the nine months ended September 30, 2012, the Partnership's cash balances decreased $1,386,866 as a result of cash used to purchase property, and distributions and redemption payments paid to the Partners in excess of cash generated from operating activities, which were partially offset by cash generated from the sale of property.

Net cash provided by operating activities increased from $865,144 in 2012 to $922,620 in 2013 as a result of a decrease in Partnership administration and property management expenses in 2013, which was partially offset by a decrease in total rental and interest income in 2013. During 2012, cash from operations was reduced by $51,342 of acquisition expenses related to the purchase of real estate. Pursuant to 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.

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, 2013 and 2012, the Partnership generated cash flow from the sale of real estate of $1,869,225 and $1,571,107, respectively. During the nine months ended September 30, 2012, the Partnership expended $2,750,400 to invest in real properties as the Partnership reinvested cash generated from property sales.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

On February 23, 2012, the Partnership purchased a 47% interest in a Tractor Supply Company store in Starkville, Mississippi for $1,339,500. The property is leased to Tractor Supply Company under a Lease Agreement with a remaining primary term of 15 years (as of the date of purchase) and annual rent of $102,462 for the interest purchased. The remaining interest in the property was purchased by AEI Income & Growth Fund 26 LLC, an affiliate of the Partnership.

On July 23, 2012, the Partnership purchased a Family Dollar store in Mobile, Alabama for $1,410,900. The property is leased to Family Dollar Stores of Alabama, Inc. under a Lease Agreement with a remaining primary term of 9.9 years and annual rent of $119,926.

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 nine months ended September 30, 2013 and 2012, the Partnership declared distributions of $899,104 and $970,413, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners. The Limited Partners received distributions of $890,114 and $960,709 and the General Partners received distributions of $8,990 and $9,704 for the periods, respectively. In 2013, distributions were lower due to decreases in the distribution rate per Unit, effective April 1, 2012 and July 1, 2012.

During the first nine months of 2013 and 2012, the Partnership distributed net sale proceeds of $97,716 and $155,385 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $4.50 and $7.08 per Limited Partnership Unit. The Partnership anticipates the remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future.

The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership.

On April 1, 2013, fourteen Limited Partners redeemed a total of 95.13 Partnership Units for $78,402 in accordance with the Partnership Agreement. On April 1, 2012, seven Limited Partners redeemed a total of 74.50 Partnership Units for $58,985. The Partnership acquired these Units using Net Cash Flow from operations. 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 $792 and $595 in 2013 and 2012, respectively.

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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 economy over the last several years, 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.

Off-Balance Sheet Arrangements

As of September 30, 2013 and December 31, 2012, the Partnership had no material off-balance sheet arrangements that had or are reasonably likely to have current or future effects on its financial condition, results of operations, liquidity or capital resources.

ITEM 3. QUANTITATIVE & 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.

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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 & 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 4. MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5. OTHER INFORMATION.

None.

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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 13, 2013	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)

Page 21 of 21

AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP - FORM 10-Q - November 14, 2013

Attached files

AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP Reports