Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2009
Commission File Number: 000-24003
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
State of Minnesota 41-1848181
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101
(Address of principal executive offices)
(651) 227-7333
(Registrant's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (232.405 of this chapter)
during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
[ ] Yes [ ] No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited):
Balance Sheet as of September 30, 2009 and December 31, 2008
Statements for the Periods ended September 30, 2009 and 2008:
Income
Cash Flows
Changes in Partners' Capital (Deficit)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
Signatures
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
BALANCE SHEET
SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
ASSETS
2009 2008
CURRENT ASSETS:
Cash $ 603,623 $ 639,409
Receivables 0 5,261
----------- -----------
Total Current Assets 603,623 644,670
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 3,807,598 3,807,598
Buildings and Equipment 8,954,701 8,954,701
Accumulated Depreciation (1,513,497) (1,245,765)
----------- -----------
Net Investments in Real Estate 11,248,802 11,516,534
----------- -----------
Total Assets $11,852,425 $12,161,204
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 31,897 $ 37,336
Distributions Payable 212,887 251,722
Unearned Rent 45,427 17,359
----------- -----------
Total Current Liabilities 290,211 306,417
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (717) 7,050
Limited Partners, $1,000 per Unit;
24,000 Units authorized; 16,917 Units issued;
15,699 Units outstanding 11,562,931 11,847,737
----------- -----------
Total Partners' Capital 11,562,214 11,854,787
----------- -----------
Total Liabilities and Partners' Capital $11,852,425 $12,161,204
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
Three Months Ended Nine Months Ended
9/30/09 9/30/08 9/30/09 9/30/08
RENTAL INCOME $ 248,791 $ 211,275 $ 743,873 $ 646,435
EXPENSES:
Partnership Administration -
Affiliates 37,219 38,521 114,836 117,601
Partnership Administration
and Property Management -
Unrelated Parties 2,748 6,298 19,684 29,345
Depreciation 89,542 72,671 267,732 218,013
--------- --------- --------- ----------
Total Expenses 129,509 117,490 402,252 364,959
--------- --------- --------- ----------
OPERATING INCOME 119,282 93,785 341,621 281,476
OTHER INCOME:
Interest Income 1,232 13,014 3,943 35,191
--------- --------- --------- ----------
INCOME FROM CONTINUING
OPERATIONS 120,514 106,799 345,564 316,667
Income from Discontinued Operations 0 0 0 748,606
--------- --------- --------- ----------
NET INCOME $ 120,514 $ 106,799 $ 345,564 $1,065,273
========= ========= ========= ==========
NET INCOME ALLOCATED:
General Partners $ 3,615 $ 6,316 $ 10,367 $ 28,087
Limited Partners 116,899 100,483 335,197 1,037,186
--------- --------- --------- ----------
$ 120,514 $ 106,799 $ 345,564 $1,065,273
========= ========= ========= ==========
INCOME PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ 7.45 $ 6.40 $ 21.35 $ 19.52
Discontinued Operations 0 0 0 46.40
--------- --------- --------- ----------
Total $ 7.45 $ 6.40 $ 21.35 $ 65.92
========= ========= ========= ==========
Weighted Average
Units Outstanding 15,699 15,699 15,699 15,734
========= ========= ========= ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 345,564 $ 1,065,273
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 267,732 219,150
Gain on Sale of Real Estate 0 (719,466)
(Increase) Decrease in Receivables 5,261 (9,676)
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (5,439) 2,080
Increase in Unearned Rent 28,068 6,545
----------- -----------
Total Adjustments 295,622 (501,367)
----------- -----------
Net Cash Provided By
Operating Activities 641,186 563,906
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 0 2,171,839
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions Paid to Partners (676,972) (769,193)
Redemption Payments 0 (87,059)
----------- -----------
Net Cash Used For
Financing Activities (676,972) (856,252)
----------- -----------
NET INCREASE (DECREASE) IN CASH (35,786) 1,879,493
CASH, beginning of period 639,409 820,451
----------- -----------
CASH, end of period $ 603,623 $ 2,699,944
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2007 $ (1,336) $11,804,877 $11,803,541 15,804.56
Distributions Declared (17,052) (750,001) (767,053)
Redemption Payments (2,612) (84,447) (87,059) (105.78)
Net Income 28,087 1,037,186 1,065,273
-------- ----------- ----------- ----------
BALANCE, September 30, 2008 $ 7,087 $12,007,615 $12,014,702 15,698.78
======== =========== =========== ==========
BALANCE, December 31, 2008 $ 7,050 $11,847,737 $11,854,787 15,698.78
Distributions Declared (18,134) (620,003) (638,137)
Net Income 10,367 335,197 345,564
-------- ----------- ----------- ----------
BALANCE, September 30, 2009 $ (717) $11,562,931 $11,562,214 15,698.78
======== =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(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 Income & Growth Fund XXII Limited Partnership
("Partnership") was formed to acquire and lease commercial
properties to operating tenants. The Partnership's
operations are managed by AEI Fund Management XXI, 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 May 1, 1997 when minimum
subscriptions of 1,500 Limited Partnership Units
($1,500,000) were accepted. The offering terminated
January 9, 1999 when the extended offering period expired.
The Partnership received subscriptions for 16,917.222
Limited Partnership Units. Under the terms of the Limited
Partnership Agreement, the Limited Partners and General
Partners contributed funds of $16,917,222 and $1,000,
respectively.
During operations, any Net Cash Flow, as defined, which the
General Partners determine to distribute will be distributed
97% to the Limited Partners and 3% to the General Partners.
Distributions to Limited Partners will be made pro rata by
Units.
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 9%
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.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
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 9% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, the balance of any
remaining gain will then be allocated 90% to the Limited
Partners and 10% to the General Partners. Losses will be
allocated 98% to the Limited Partners and 2% to the General
Partners.
The General Partners are not required to currently fund a
deficit capital balance. Upon liquidation of the
Partnership or withdrawal by a General Partner, the General
Partners will contribute to the Partnership an amount equal
to the lesser of the deficit balances in their capital
accounts or 1% of total Limited Partners' and General
Partners' capital contributions.
(3) Investments in Real Estate -
In November 2007, Kona Restaurant Group, Inc. (KRG), the
tenant of the Johnny Carino's restaurant in Longmont,
Colorado, 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 March 2008, after reviewing
the financial statements for the restaurant and KRG, the
Partnership agreed to amend the Lease to reduce the current
annual rent for the property by 36% to $71,667. This amount
is scheduled to increase annually by 1.5%. In addition, the
amendment provides for additional rental payments if the
restaurant's sales exceed certain stated amounts. In August
2008, the Partnership received certification from Fired Up,
Inc., the parent company of KRG and guarantor of the Lease,
that it had achieved certain expense and debt reduction
measures required by the amendment. As a result, the
amendment will remain effective for the remainder of the
lease term.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
On October 6, 2008, the Partnership purchased a 33%
interest in a Best Buy store in Lake Geneva, Wisconsin for
$2,022,246. The property is leased to Best Buy Stores, L.P.
under a Lease Agreement with a remaining primary term of
10.3 years and initial annual rent of $144,325 for the
interest purchased. The remaining interests in the property
were purchased by AEI Income & Growth Fund 24 LLC and AEI
Income & Growth Fund 27 LLC, affiliates of the Partnership.
(4) 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.
(5) Discontinued Operations -
On February 27, 2008, the Partnership sold its 50% interest
in the Champps Americana restaurant in West Chester, Ohio to
an unrelated third party. The Partnership received net sale
proceeds of $2,057,022, which resulted in a net gain of
$668,133. At the time of sale, the cost and related
accumulated depreciation was $1,569,884 and $180,995,
respectively. Through March 31, 2008, the Partnership
recognized a net gain of $657,433. In the second quarter of
2008, the Partnership recorded a $10,700 adjustment to the
expenses of the sale.
On June 2, 2008, the Partnership sold its 7.3845% interest
in the KinderCare daycare center in DePere, Wisconsin to an
unrelated third party. The Partnership received net sale
proceeds of $114,817, which resulted in a net gain of
$51,333. The cost and related accumulated depreciation of
the interest sold was $87,687 and $24,203, respectively.
During the first nine months of 2009 and 2008, the
Partnership distributed net sale proceeds of $50,505 and
$297,980 to the Limited and General Partners as part of
their quarterly distributions, which represented a return of
capital of $3.19 and $18.76 per Limited Partnership Unit,
respectively. The Partnership anticipates the remaining net
sale proceeds will either be reinvested in additional
property or distributed to the Partners in the future.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) Discontinued Operations - (Continued)
The financial results for these properties are reflected as
Discontinued Operations in the accompanying financial
statements. The following are the results of discontinued
operations for the periods ended September 30:
Three Months Ended Nine Months Ended
9/30/09 9/30/08 9/30/09 9/30/08
Rental Income $ 0 $ 0 $ 0 $ 30,763
Property Management Expenses 0 0 0 (486)
Depreciation 0 0 0 (1,137)
Gain on Disposal of Real Estate 0 0 0 719,466
-------- -------- -------- ---------
Income from Discontinued
Operations $ 0 $ 0 $ 0 $ 748,606
======== ======== ======== =========
(6) Fair Value Measurements -
The Partnership adopted new guidance for measuring financial
assets and liabilities at fair value on a recurring basis on
January 1, 2008 and for certain nonfinancial assets and
liabilities on January 1, 2009. The Partnership has no
assets or liabilities measured at fair value on a recurring
basis or nonrecurring basis that would require disclosure
under this new guidance.
(7) Subsequent Events -
The Partnership has evaluated subsequent events through
November 10, 2009, the date which the financial statements
were available to be issued. Subsequent events, if any,
were disclosed in the appropriate note in the Notes to
Financial Statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
This section contains "forward-looking statements" which
represent management's expectations or beliefs concerning future
events, including statements regarding anticipated application of
cash, expected returns from rental income, growth in revenue, the
sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward-
looking statements, should be evaluated in the context of a
number of factors that may affect the Partnership's financial
condition and results of operations, including the following:
Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
effects of these consequences for the Partners;
resolution by the General Partners of conflicts with
which they may be confronted;
the success of the General Partners of locating
properties with favorable risk return characteristics;
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Partnership operate.
Application of Critical Accounting Policies
The preparation of the Partnership's financial statements
requires management to make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. Management evaluates these estimates on an ongoing
basis, including those related to the carrying value of real
estate and the allocation by AEI Fund Management, Inc. of
expenses to the Partnership as opposed to other funds they
manage.
Prior to January 1, 2009, the Partnership purchased
properties and recorded them in the financial statements at cost
(including capitalized acquisition expenses). For acquisitions
completed on or after January 1, 2009, acquisition-related
transaction costs will be expensed as incurred as a result of the
Partnership adopting new guidance on business combinations that
expands the scope of acquisition accounting. The Partnership
tests long-lived assets for recoverability when events or changes
in circumstances indicate that the carrying value may not be
recoverable. For properties the Partnership will hold and
operate, management determines whether impairment has occurred by
comparing the property's probability-weighted cash flows to its
current carrying value. For properties held for sale, management
determines whether impairment has occurred by comparing the
property's estimated fair value less cost to sell to its current
carrying value. If the carrying value is greater than the
realizable value, an impairment loss is recorded to reduce the
carrying value of the property to its realizable value. Changes
in these assumptions or analysis may cause material changes in
the carrying value of the properties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
AEI Fund Management, Inc. allocates expenses to each of
the funds they manage primarily on the basis of the number of
hours devoted by their employees to each fund's affairs. They
also allocate expenses at the end of each month that are not
directly related to a fund's operations based upon the number of
investors in the fund and the fund's capitalization relative to
other funds they manage. The Partnership reimburses these
expenses subject to detailed limitations contained in the
Partnership Agreement.
Management of the Partnership has discussed the
development and selection of the above accounting estimates and
the management discussion and analysis disclosures regarding them
with the managing partner of the Partnership.
Results of Operations
For the nine months ended September 30, 2009 and 2008,
the Partnership recognized rental income from continuing
operations of $743,873 and $646,435, respectively. In 2009,
rental income increased due to additional rent received from one
property acquisition in 2008 and a rent increase on one property.
These increases were partially offset by a reduction in rent for
the Johnny Carino's restaurant as discussed below.
For the nine months ended September 30, 2009 and 2008,
the Partnership incurred Partnership administration expenses from
affiliated parties of $114,836 and $117,601, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and communicating with the Limited Partners. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $19,684 and $29,345, 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.
In November 2007, Kona Restaurant Group, Inc. (KRG), the
tenant of the Johnny Carino's restaurant in Longmont, Colorado,
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 March
2008, after reviewing the financial statements for the restaurant
and KRG, the Partnership agreed to amend the Lease to reduce the
current annual rent for the property by 36% to $71,667. This
amount is scheduled to increase annually by 1.5%. In addition,
the amendment provides for additional rental payments if the
restaurant's sales exceed certain stated amounts. In August
2008, the Partnership received certification from Fired Up, Inc.,
the parent company of KRG and guarantor of the Lease, that it had
achieved certain expense and debt reduction measures required by
the amendment. As a result, the amendment will remain effective
for the remainder of the lease term.
For the nine months ended September 30, 2009 and 2008,
the Partnership recognized interest income of $3,943 and $35,191,
respectively. In 2009 interest income decreased due to the
Partnership having less money invested in a money market account
due to property acquisitions and lower money market rates in
2009.
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, 2008, the
Partnership recognized income from discontinued operations of
$748,606, representing rental income less property management
expenses and depreciation of $29,140 and gain on disposal of real
estate of $719,466.
On February 27, 2008, the Partnership sold its 50%
interest in the Champps Americana restaurant in West Chester,
Ohio to an unrelated third party. The Partnership received net
sale proceeds of $2,057,022, which resulted in a net gain of
$668,133. At the time of sale, the cost and related accumulated
depreciation was $1,569,884 and $180,995, respectively. Through
March 31, 2008, the Partnership recognized a net gain of
$657,433. In the second quarter of 2008, the Partnership
recorded a $10,700 adjustment to the expenses of the sale.
On June 2, 2008, the Partnership sold its 7.3845%
interest in the KinderCare daycare center in DePere, Wisconsin to
an unrelated third party. The Partnership received net sale
proceeds of $114,817, which resulted in a net gain of $51,333.
The cost and related accumulated depreciation of the interest
sold was $87,687 and $24,203, respectively.
Management believes inflation has not significantly
affected income from operations. Leases may contain rent
increases, based on the increase in the Consumer Price Index over
a specified period, which will result in an increase in rental
income over the term of the leases. Inflation also may cause
the real estate to appreciate in value. However, inflation and
changing prices may have an adverse impact on the operating
margins of the properties' tenants, which could impair their
ability to pay rent and subsequently reduce the Net Cash Flow
available for distributions.
Liquidity and Capital Resources
During the nine months ended September 30, 2009, the
Partnership's cash balances decreased $35,786 as a result of
distributions paid to the Partners in excess of cash generated
from operating activities. During the nine months ended
September 30, 2008, the Partnership's cash balances increased
$1,879,493 as a result of cash generated from the sale of
property, which was partially offset by distributions paid to the
Partners in excess of cash generated from operating activities.
Net cash provided by operating activities increased from
$563,906 in 2008 to $641,186 in 2009 as a result of a increase in
total rental and interest income in 2009, a decrease in
Partnership administration and property management expenses in
2009 and by net timing differences in the collection of payments
from the tenants and the payment of expenses.
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, 2008, the Partnership generated cash flow from the
sale of real estate of $2,171,839.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
On October 6, 2008, the Partnership purchased a 33%
interest in a Best Buy store in Lake Geneva, Wisconsin for
$2,022,246. The property is leased to Best Buy Stores, L.P.
under a Lease Agreement with a remaining primary term of 10.3
years and initial annual rent of $144,325 for the interest
purchased. The remaining interests in the property were
purchased by AEI Income & Growth Fund 24 LLC and AEI Income &
Growth Fund 27 LLC, affiliates of the Partnership.
The Partnership's primary use of cash flow, other than
investment in real estate, is distribution and redemption
payments to Partners. The Partnership declares its regular
quarterly distributions before the end of each quarter and pays
the distribution in the first week after the end of each quarter.
The Partnership attempts to maintain a stable distribution rate
from quarter to quarter. Redemption payments are paid to
redeeming Partners on a semi-annual basis.
For the nine months ended September 30, 2009 and 2008,
the Partnership declared distributions of $638,137 and $767,053,
respectively. Pursuant to the Partnership Agreement,
distributions of Net Cash Flow were allocated 97% to the Limited
Partners and 3% to the General Partners. Distributions of Net
Proceeds of Sale were allocated 99% to the Limited Partners and
1% to the General Partners. The Limited Partners received
distributions of $620,003 and $750,001 and the General Partners
received distributions of $18,134 and $17,052 for the periods,
respectively. In 2009, distributions were lower due to a
decrease in the distribution rate per Unit, effective January 1,
2009.
During the first nine months of 2009 and 2008, the
Partnership distributed net sale proceeds of $50,505 and $297,980
to the Limited and General Partners as part of their quarterly
distributions, which represented a return of capital of $3.19 and
$18.76 per Limited Partnership Unit, respectively. The
Partnership anticipates the remaining net sale proceeds will
either be reinvested in additional property or distributed to the
Partners in the future.
The Partnership may acquire Units from Limited Partners
who have tendered their Units to the Partnership. Such Units may
be acquired at a discount. The Partnership will not be obligated
to purchase in any year any number of Units that, when aggregated
with all other transfers of Units that have occurred since the
beginning of the same calendar year (excluding Permitted
Transfers as defined in the Partnership Agreement), would exceed
5% of the total number of Units outstanding on January 1 of such
year. In no event shall the Partnership be obligated to purchase
Units if, in the sole discretion of the Managing General Partner,
such purchase would impair the capital or operation of the
Partnership.
During 2009, the Partnership did not redeem any Units from
the Limited Partners. On April 1, 2008, seven Limited Partners
redeemed a total of 105.78 Partnership Units for $84,447 in
accordance with the Partnership Agreement. The Partnership
acquired these Units using Net Cash Flow from operations. In
prior years, a total of 63 Limited Partners redeemed 1,112.66
Partnership Units for $889,815. The redemptions increase the
remaining Limited Partner's ownership interest in the
Partnership. As a result of these redemption payments and
pursuant to the Partnership Agreement, the General Partners
received distributions of $2,612 in 2008.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The continuing rent payments from the properties, together
with cash generated from property sales, should be adequate to
fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
The Economy and Market Conditions
The impact of conditions in the current economy, including
the turmoil in the credit markets, has adversely affected many
real estate companies. However, the absence of mortgage
financing on the Partnership's properties eliminates the risks of
foreclosure and debt-refinancing that can negatively impact the
value and distributions of leveraged real estate companies.
Nevertheless, a prolonged economic downturn may adversely affect
the operations of the Partnership's tenants and their cash flows.
If a tenant were to default on its lease obligations, the
Partnership's income would decrease, its distributions would
likely be reduced and the value of its properties might decline.
Historically, the Partnership has sold properties at a
gain and distributed the gain proceeds as part of its regular
quarterly distributions, and to make special distributions on
occasion. The remaining sales proceeds were reinvested in
additional properties. Beginning in the fourth quarter of 2008,
general economic conditions caused the volume of property sales
to slow dramatically for all real estate sellers. In 2009, the
Partnership will likely complete fewer property sales than it has
in the past. Until property sales occur, quarterly distributions
going forward will reflect the distribution of net core rental
income and capital reserves, if any. Distribution rates in 2009
are expected to be variable and less than recent distribution
rates until such time as economic conditions allow the
Partnership to, once again, begin selling properties at
acceptable prices and generating gains for distribution.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures.
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing General Partner of the Partnership evaluated the
effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based
upon that evaluation, the President and Chief Financial Officer
of the Managing General Partner concluded that, as of the end of
the period covered by this report, our disclosure controls and
procedures were effective in ensuring that information required
to be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in applicable rules and forms
and that such information is accumulated and communicated to
management, including the President and Chief Financial Officer
of the Managing General Partner, in a manner that allows timely
decisions regarding required disclosure.
ITEM 4. CONTROLS AND PROCEDURES. (Continued)
(b) Changes in Internal Control Over Financial Reporting.
During the most recent period covered by this report,
there has been no change in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which
the Partnership is a party or of which the Partnership's property
is subject.
ITEM 1A. RISK FACTORS.
Not required for a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) None.
(b) Not applicable.
(c) Pursuant to Section 7.7 of the Partnership Agreement,
each Limited Partner has the right to present Units to the
Partnership for purchase by submitting notice to the Managing
General Partner during 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II - OTHER INFORMATION
(Continued)
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
31.1 Certification of Chief Executive Officer of General
Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer of General
Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Officer of General Partner pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Dated: November 10, 2009 AEI Income & Growth Fund XXII
Limited Partnership
By: AEI Fund Management XXI, 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