UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.  20549





FORM 10-Q





QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended:  June 30, 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

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).     o 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 filero 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








PagePart I – Financial InformationItem 1.
Financial Statements (unaudited):Balance Sheet as of June 30, 2011 and December 31, 2010
3Statements for the Periods ended June 30, 2011 and 2010:Income
4Cash Flows
5Changes in Partners’ Capital (Deficit)
6Notes to Financial Statements
7 - 11Item 2.
Management's Discussion and Analysis of FinancialCondition and Results of Operations
12 - 16Item 3.
Quantitative and Qualitative Disclosures About Market Risk
17Item 4.
Controls and Procedures
17Part II – Other InformationItem 1.
Legal Proceedings
17Item 1A.
Risk Factors
17Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
18Item 3.
Defaults Upon Senior Securities
18Item 5.
Other Information
18Item 6.
Exhibits
18Signatures
19





Page 2 of 19


AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP


BALANCE SHEET





ASSETS





June 30,


December 31,2011


2010Current Assets:Cash

$
2,164,773


$
587,665Real Estate Held for Investment:Land


5,338,239



4,945,875Buildings and Equipment


11,362,949



10,586,290Accumulated Depreciation


(3,019,281
)


(2,368,086
)Real Estate Held for Investment, Net


13,681,907



13,164,079Real Estate Held for Sale


0



1,542,762Total Real Estate


13,681,907



14,706,841Total Assets

$
15,846,680


$
15,294,506





LIABILITIES AND PARTNERS' CAPITAL





June 30,


December 31,2011


2010Current Liabilities:Payable to AEI Fund Management, Inc.

$
49,815


$
81,655Distributions Payable


342,423



343,435Unearned Rent


120,682



20,961Total Current Liabilities


512,920



446,051Partners’ Capital (Deficit):General Partners


7,703



(4,722
)Limited Partners, $1,000 per Unit;

24,000 Units authorized and issued;

21,845 Units outstanding


15,326,057



14,853,177Total Partners' Capital


15,333,760



14,848,455Total Liabilities and Partners' Capital

$
15,846,680


$
15,294,506

















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




Page 3 of 19


AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP


STATEMENT OF INCOME








Three Months Ended June 30,


Six Months Ended June 30,2011


2010


2011


2010Rental Income

$
357,365


$
327,523


$
711,675


$
663,073Expenses:Partnership Administration – Affiliates


66,527



59,762



131,855



117,564Partnership Administration and Property

Management – Unrelated Parties


31,996



22,523



61,858



45,774Depreciation


88,523



78,755



175,418



157,510Total Expenses


187,046



161,040



369,131



320,848Operating Income


170,319



166,483



342,544



342,225Other Income:Interest Income


3,838



5,313



5,652



10,848Income from Continuing Operations


174,157



171,796



348,196



353,073Income (Loss) from Discontinued Operations


(1,392
)


51,208



821,954



105,129Net Income

$
172,765


$
223,004


$
1,170,150


$
458,202Net Income Allocated:General Partners

$
3,408


$
2,230


$
19,273


$
4,582Limited Partners


169,357



220,774



1,150,877



453,620Total

$
172,765


$
223,004


$
1,170,150


$
458,202Income (Loss) per Limited Partnership Unit:Continuing Operations

$
7.89


$
7.74


$
15.78


$
15.89Discontinued Operations


(.14
)


2.31



36.90



4.73Total

$
7.75


$
10.05


$
52.68


$
20.62Weighted Average Units Outstanding –

Basic and Diluted


21,845



21,960



21,845



21,995











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





Page 4 of 19


AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP


STATEMENT OF CASH FLOWS








Six Months Ended June 30,2011


2010Cash Flows from Operating Activities:Net Income

$
1,170,150


$
458,202Adjustments to Reconcile Net Income

To Net Cash Provided by Operating Activities:Depreciation


175,462



170,728Gain on Sale of Real Estate


(777,808
)


0(Increase) Decrease in Receivables


0



950Increase (Decrease) in Payable to

AEI Fund Management, Inc.


(31,840
)


(56,854
)Increase (Decrease) in Unearned Rent


99,721



53,641Total Adjustments


(534,465
)


168,465Net Cash Provided By

Operating Activities


635,685



626,667Cash Flows from Investing Activities:Proceeds from Sale of Real Estate


1,627,280



0Cash Flows from Financing Activities:Distributions Paid to Partners


(685,857
)


(715,146
)Redemption Payments


0



(61,305
)Net Cash Used For

Financing Activities


(685,857
)


(776,451
)Net Increase (Decrease) in Cash


1,577,108



(149,784
)Cash, beginning of period


587,665



2,405,133Cash, end of period

$
2,164,773


$
2,255,349




















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




Page 5 of 19


AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP


STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)








General Partners


Limited Partners


Total


Limited Partnership Units OutstandingBalance, December 31, 2009

$
5,883


$
15,703,077


$
15,708,960



22,030.04Distributions Declared


(7,010
)


(693,995
)


(701,005
)Redemption Payments


(613
)


(60,692
)


(61,305
)


(69.80
)Net Income


4,582



453,620



458,202Balance, June 30, 2010

$
2,842


$
15,402,010


$
15,404,852



21,960.24Balance, December 31, 2010

$
(4,722
)

$
14,853,177


$
14,848,455



21,845.28Distributions Declared


(6,848
)


(677,997
)


(684,845
)Net Income


19,273



1,150,877



1,170,150Balance, June 30, 2011

$
7,703


$
15,326,057


$
15,333,760



21,845.28



























































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




Page 6 of 19


AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP


NOTES TO FINANCIAL STATEMENTS


JUNE 30, 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.





Page 7 of 19


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 19


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 concluded 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 was vacant, the Partnership was responsible for real estate taxes and other costs associated with maintaining the property.  During 2010, based on marketing efforts and an analysis of market conditions in the area, the Partnership determined the former Red Robin property was impaired.  As a result, in the third quarter of 2010, a charge to discontinued operations for real estate impairment of $200,000 was recognized, which was the difference between the carrying value at September 30, 2010 of $900,000 and the estimated fair value of $700,000.  The charge was recorded against the cost of the land and building.




Page 9 of 19


AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP


NOTES TO FINANCIAL STATEMENTS


(Continued)





(6)  Discontinued Operations – (Continued)





Since December 31, 2007, the former Red Robin property has been classified as Real Estate Held for Sale.  After marketing the property for sale for several years without success, the Partnership entered into an agreement, effective June 20, 2011, to lease the property to a local restaurant operator. The Lease Agreement has a term of two years with annual rental payments of $100,000.  The tenant plans to remodel the building and convert it into a Chinese buffet restaurant. As a result of this agreement, the property was reclassified to Real Estate Held for Investment as of June 30, 2011. In addition, the operating results of the property, which were previously reported in Discontinued Operations, were reclassified to Continuing Operations for the periods presented.  Since the Partnership valued this property at fair value at June 30, 2011 and this amount is less than the carrying value at December 31, 2007 less catch-up depreciation of $120,666, no additional depreciation expense was recognized as a result of the reclassification.





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 six months of 2011 and 2010, the Partnership distributed net sale proceeds of $117,041 and $133,381 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $5.31 and $6.00 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.





Page 10 of 19


AEI NET LEASE INCOME & GROWTH FUND XX LIMITED PARTNERSHIP


NOTES TO FINANCIAL STATEMENTS


(Continued)





(6)  Discontinued Operations – (Continued)





The financial results for these properties are reflected as Discontinued Operations in the accompanying financial statements.  The following are the results of discontinued operations for the periods ended June 30:


Three Months Ended June 30,


Six Months Ended June 30,2011


2010


2011


2010Rental Income

$
0


$
60,531


$
45,582


$
121,061Property Management Expenses


(1,392
)


(2,714
)


(1,392
)


(2,714
)Depreciation


0



(6,609
)


(44
)


(13,218
)Gain on Disposal of Real Estate


0



0



777,808



0Income (Loss) from Discontinued Operations

$
(1,392
)

$
51,208


$
821,954


$
105,129





(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 June 30, 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 former Red Robin restaurant on Citadel Drive in Colorado Springs, Colorado, with a carrying amount of $900,000 at September 30, 2010, was written down to its fair value of $700,000 after completing our long-lived asset valuation analysis.  The fair value of the property was based upon comparable sales of similar properties, which are considered Level 2 inputs in the valuation hierarchy. The resulting impairment charge of $200,000 was included in earnings for the third quarter of 2010.





At June 30, 2011, the carrying value of $700,000 is still estimated to be the fair value of this property. The fair value was based upon comparable sales of similar properties, which are considered level 2 inputs in the valuation hierarchy.




Page 11 of 19


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.




Page 12 of 19


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 six months ended June 30, 2011 and 2010, the Partnership recognized rental income from continuing operations of $711,675 and $663,073 respectively.  In 2011, rental income increased due to additional rent received from one property acquisition in 2010 and rent received from releasing the former Red Robin restaurant, which were 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 July 31, 2011, the Partnership expects to recognize rental income from continuing operations of approximately $1,482,000 in 2011.





For the six months ended June 30, 2011 and 2010, the Partnership incurred Partnership administration expenses from affiliated parties of $131,855 and $117,564, 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 $61,858 and $45,774, 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.  The increase in these expenses in 2011, when compared to 2010, was mainly due expenses incurred related to the former Red Robin and HomeTown Buffet restaurants.





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 was vacant, the Partnership was responsible for real estate taxes and other costs associated with maintaining the property.  During 2010, based on marketing efforts and an analysis of market conditions in the area, the Partnership determined the former Red Robin property was impaired.  As a result, in the third quarter of 2010, a charge to discontinued operations for real estate impairment of $200,000 was recognized, which was the difference between the carrying value at September 30, 2010 of $900,000 and the estimated fair value of $700,000.  The charge was recorded against the cost of the land and building.





Page 13 of 19


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





Since December 31, 2007, the former Red Robin property has been classified as Real Estate Held for Sale.  After marketing the property for sale for several years without success, the Partnership entered into an agreement, effective June 20, 2011, to lease the property to a local restaurant operator. The Lease Agreement has a term of two years with annual rental payments of $100,000.  The tenant plans to remodel the building and convert it into a Chinese buffet restaurant. As a result of this agreement, the property was reclassified to Real Estate Held for Investment as of June 30, 2011. In addition, the operating results of the property, which were previously reported in Discontinued Operations, were reclassified to Continuing Operations for the periods presented.  Since the Partnership valued this property at fair value at June 30, 2011 and this amount is less than the carrying value at December 31, 2007 less catch-up depreciation of $120,666, no additional depreciation expense was recognized as a result of the reclassification.





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 concluded that there is no impairment at this time.





For the six months ended June 30, 2011 and 2010, the Partnership recognized interest income of $5,652 and $10,848, 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 six months ended June 30, 2011, the Partnership recognized income from discontinued operations of $821,954, representing rental income less property management expenses and depreciation of $44,146 and gain on disposal of real estate of $777,808.  For the six months ended June 30, 2010, the Partnership recognized income from discontinued operations of $105,129, representing rental income less property management expenses and depreciation.





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.





Page 14 of 19


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





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 six months ended June 30, 2011, the Partnership's cash balances increased $1,577,108 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.  During the six months ended June 30, 2010, the Partnership's cash balances decreased $149,784 as a result of distributions and redemption payments paid to the Partners in excess of cash generated from operating activities.





Net cash provided by operating activities increased from $626,667 in 2010 to $635,685 in 2011 as a result of net timing differences in the collection of payments from the tenants and the payment of expenses, which were partially offset by a decrease in total rental and interest income in 2011 and an increase in Partnership administration and property management expenses in 2011.





The major components of the Partnership's cash flow from investing activities are investments in real estate and proceeds from the sale of real estate.  During the six months ended June 30, 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.





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





For the six months ended June 30, 2011 and 2010, the Partnership declared distributions of $684,845 and $701,005, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners.  The Limited Partners received distributions of $677,997 and $693,995 and the General Partners received distributions of $6,848 and $7,010 for the periods, respectively.





During the first six months of 2011 and 2010, the Partnership distributed net sale proceeds of $117,041 and $133,381 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $5.31 and $6.00 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 six 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.





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.





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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.








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.





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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 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.





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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.








Dated:  August 12, 2011
AEI Net Lease Income & Growth Fund XXLimited PartnershipBy:
AEI Fund Management XX, Inc.Its:
Managing General PartnerBy:
/s/ROBERT P JOHNSONRobert P. JohnsonPresident(Principal Executive Officer)By:
/s/PATRICK W KEENEPatrick W. KeeneChief Financial Officer(Principal Accounting Officer)








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