Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2011
Commission File Number: 000-24003
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 March 31, 2011 and December 31, 2010
Statements for the Three Months ended March 31, 2011 and 2010:
Income
Cash Flows
Changes in Partners' Capital (Deficit)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 5. Other Information
Item 6. Exhibits
Signatures
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
BALANCE SHEET
MARCH 31, 2011 AND DECEMBER 31, 2010
ASSETS
2011 2010
CURRENT ASSETS:
Cash $ 1,355,041 $ 509,767
INVESTMENTS IN REAL ESTATE:
Land 3,165,951 3,170,347
Buildings and Equipment 8,215,725 8,219,513
Accumulated Depreciation (1,703,983) (1,623,752)
----------- -----------
9,677,693 9,766,108
Real Estate Held for Sale 0 800,000
----------- -----------
Net Investments in Real Estate 9,677,693 10,566,108
----------- -----------
Total Assets $11,032,734 $11,075,875
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 28,927 $ 52,734
Distributions Payable 189,583 190,614
Unearned Rent 38,194 35,225
----------- -----------
Total Current Liabilities 256,704 278,573
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners 651 (16,055)
Limited Partners, $1,000 per Unit;
24,000 Units authorized; 16,917 Units issued;
15,698 Units outstanding 10,775,379 10,813,357
----------- -----------
Total Partners' Capital 10,776,030 10,797,302
----------- -----------
Total Liabilities and Partners' Capital $11,032,734 $11,075,875
=========== ===========
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 THREE MONTHS ENDED MARCH 31
2011 2010
RENTAL INCOME $ 214,468 $ 212,512
EXPENSES:
Partnership Administration - Affiliates 40,551 39,894
Partnership Administration and Property
Management - Unrelated Parties 8,040 8,955
Depreciation 82,155 82,155
----------- -----------
Total Expenses 130,746 131,004
----------- -----------
OPERATING INCOME 83,722 81,508
OTHER INCOME:
Interest Income 2,704 1,174
----------- -----------
INCOME FROM CONTINUING OPERATIONS 86,426 82,682
Income from Discontinued Operations 81,885 26,736
----------- -----------
NET INCOME $ 168,311 $ 109,418
=========== ===========
NET INCOME ALLOCATED:
General Partners $ 21,787 $ 3,283
Limited Partners 146,524 106,135
----------- -----------
$ 168,311 $ 109,418
=========== ===========
INCOME PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ 5.34 $ 5.11
Discontinued Operations 3.99 1.65
----------- -----------
Total $ 9.33 $ 6.76
=========== ===========
Weighted Average Units Outstanding-Basic and Diluted 15,698 15,699
=========== ===========
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 THREE MONTHS ENDED MARCH 31
2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 168,311 $ 109,418
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 82,184 89,542
Gain on Sale of Real Estate (83,734) 0
Increase in Receivables 0 (12,056)
Decrease in Payable to
AEI Fund Management, Inc. (23,807) (17,011)
Increase in Unearned Rent 2,969 10,762
----------- -----------
Total Adjustments (22,388) 71,237
----------- -----------
Net Cash Provided By
Operating Activities 145,923 180,655
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 889,965 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions Paid to Partners (190,614) (212,575)
----------- -----------
NET INCREASE (DECREASE) IN CASH 845,274 (31,920)
CASH, beginning of period 509,767 590,840
----------- -----------
CASH, end of period $ 1,355,041 $ 558,920
=========== ===========
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 THREE MONTHS ENDED MARCH 31
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2009 $ (3,616) $11,459,081 $11,455,465 15,698.78
Distributions Declared (6,386) (206,501) (212,887)
Net Income 3,283 106,135 109,418
-------- ----------- ----------- ---------
BALANCE, March 31, 2010 $ (6,719) $11,358,715 $11,351,996 15,698.78
======== =========== =========== =========
BALANCE, December 31, 2010 $(16,055) $10,813,357 $10,797,302 15,697.53
Distributions Declared (5,081) (184,502) (189,583)
Net Income 21,787 146,524 168,311
-------- ----------- ----------- ---------
BALANCE, March 31, 2011 $ 651 $10,775,379 $10,776,030 15,697.53
======== =========== =========== =========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
(1) The condensed statements included herein have been prepared
by the registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the registrant
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
registrant's latest annual report on Form 10-K.
(2) Organization -
AEI 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.
AEI INCOME & GROWTH FUND XXII 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 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.
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) 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.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(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 2, 2010, Hollywood Entertainment Corporation
(HEC), the tenant of the Hollywood Video stores in Minot,
North Dakota (100% ownership interest) and Saraland, Alabama
(3.08% ownership interest) filed for Chapter 11 bankruptcy
reorganization for the second time. In July 2010, HEC
closed its remaining stores, filed a motion with the
bankruptcy court to reject the Lease for the Minot store and
returned possession of the property to the Partnership. The
Partnership listed the property for sale with a real estate
broker in the Minot area. While the property was vacant,
the Partnership was responsible for real estate taxes and
other costs associated with maintaining the property. Based
on an analysis of market conditions in the area, the
Partnership determined the property was impaired. As a
result, in the second quarter of 2010, a charge to
discontinued operations for real estate impairment of
$218,607 was recognized, which was the difference between
the carrying value at June 30, 2010 of $1,018,607 and the
estimated fair value of $800,000. The charge was recorded
against the cost of the land and building.
In November 2010, the Partnership entered into an agreement
to sell the Minot store to an unrelated third party. On
January 14, 2011, the sale closed with the Partnership
receiving net proceeds of $881,953, which resulted in a net
gain of $81,953. At December 31, 2010, the property was
classified as Real Estate Held for Sale.
In February 2010, HEC closed the Saraland store and filed a
motion with the bankruptcy court to reject the Lease for
this property. The court approved the motion and HEC
returned possession of the property to the Partnership. The
Partnership listed the property for sale or lease with a
real estate broker in the Saraland area. While the property
was vacant, the Partnership was responsible for its 3.08%
share of real estate taxes and other costs associated with
maintaining the property. In May 2010, the Partnership
entered into an agreement to sell its interest in the
Saraland store to an unrelated third party. On August 20,
2010, the sale closed with the Partnership receiving net
sale proceeds of $34,485, which resulted in a net gain of
$3,403. The cost and related accumulated depreciation of
the interest sold was $42,439 and $11,357, respectively.
On March 17, 2011, the Partnership sold its remaining .5877%
interest in the Arby's restaurant in Homewood, Alabama to an
unrelated third party. The Partnership received net sale
proceeds of $8,012, which resulted in a net gain of $1,781.
The cost and related accumulated depreciation of the
interest sold was $8,184 and $1,953, respectively.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) Discontinued Operations - (Continued)
During the first three months of 2011, the Partnership
distributed net sale proceeds of $30,303 to the Limited and
General Partners as part of their quarterly distributions,
which represented a return of capital of $1.91 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 financial results for these properties are reflected as
Discontinued Operations in the accompanying financial
statements. The following are the results of discontinued
operations for the three months ended March 31:
2011 2010
Rental Income $ 163 $ 36,361
Property Management Expenses (1,983) (2,238)
Depreciation (29) (7,387)
Gain on Disposal of Real Estate 83,734 0
--------- --------
Income from Discontinued Operations $ 81,885 $ 26,736
========= ========
(6) Fair Value Measurements -
Fair value, as defined by United States Generally Accepted
Accounting Principles ("US GAAP"), is the price that would
be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date in the principal or most advantageous
market. US GAAP establishes a hierarchy in determining the
fair value of an asset or liability. The fair value
hierarchy has three levels of inputs, both observable and
unobservable. US GAAP requires the utilization of the lowest
possible level of input to determine fair value. Level 1
inputs include quoted market prices in an active market for
identical assets or liabilities. Level 2 inputs are market
data, other than Level 1 inputs, that are observable either
directly or indirectly. Level 2 inputs include quoted market
prices for similar assets or liabilities, quoted market
prices in an inactive market, and other observable
information that can be corroborated by market data. Level 3
inputs are unobservable and corroborated by little or no
market data.
The Hollywood Video store in Minot, North Dakota, with a
carrying amount of $1,018,607 at June 30, 2010, was written
down to its fair value of $800,000 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
$218,607 was included in earnings for the second quarter of
2010. The property was sold on January 14, 2011.
As of March 31, 2011, the Partnership had no assets or
liabilities measured at fair value on a recurring basis or
nonrecurring basis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This section contains "forward-looking statements" which
represent management's expectations or beliefs concerning future
events, including statements regarding anticipated application of
cash, expected returns from rental income, growth in revenue, the
sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward-
looking statements, should be evaluated in the context of a
number of factors that may affect the Partnership's financial
condition and results of operations, including the following:
Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
effects of these consequences for the Partners;
resolution by the General Partners of conflicts with
which they may be confronted;
the success of the General Partners of locating
properties with favorable risk return characteristics;
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Partnership operate.
Application of Critical Accounting Policies
The preparation of the Partnership's financial statements
requires management to make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. Management evaluates these estimates on an ongoing
basis, including those related to the carrying value of
investments in real estate and the allocation by AEI Fund
Management, Inc. of expenses to the Partnership as opposed to
other funds they manage.
The Partnership purchases properties and records them in
the financial statements at cost (not including acquisition
expenses). The Partnership tests long-lived assets for
recoverability when events or changes in circumstances indicate
that the carrying value may not be recoverable. For properties
the Partnership will hold and operate, management determines
whether impairment has occurred by comparing the property's
probability-weighted future undiscounted cash flows to its
current carrying value. For properties held for sale, management
determines whether impairment has occurred by comparing the
property's estimated fair value less cost to sell to its current
carrying value. If the carrying value is greater than the net
realizable value, an impairment loss is recorded to reduce the
carrying value of the property to its net realizable value.
Changes in these assumptions or analysis may cause material
changes in the carrying value of the properties.
AEI Fund Management, Inc. allocates expenses to each of
the funds they manage primarily on the basis of the number of
hours devoted by their employees to each fund's affairs. They
also allocate expenses at the end of each month that are not
directly related to a fund's operations based upon the number of
investors in the fund and the fund's capitalization relative to
other funds they manage. The Partnership reimburses these
expenses subject to detailed limitations contained in the
Partnership Agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Management of the Partnership has discussed the
development and selection of the above accounting estimates and
the management discussion and analysis disclosures regarding them
with the managing partner of the Partnership.
Results of Operations
For the three months ended March 31, 2011 and 2010, the
Partnership recognized rental income from continuing operations
of $214,468 and $212,512, respectively. In 2011, rental income
increased due to rent increases on two properties. Based on the
scheduled rent for the properties owned as of April 30, 2011, the
Partnership expects to recognize rental income from continuing
operations of approximately $871,000 in 2011.
For the three months ended March 31, 2011 and 2010, the
Partnership incurred Partnership administration expenses from
affiliated parties of $40,551 and $39,894, 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 $8,040 and $8,955, 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 three months ended March 31, 2011 and 2010, the
Partnership recognized interest income of $2,704 and $1,174,
respectively. In 2011, interest income increased due to the
Partnership having more money invested in a money market account
due to property sales.
Upon complete disposal of a property or classification of
a property as Real Estate Held for Sale, the Partnership includes
the operating results and sale of the property in discontinued
operations. In addition, the Partnership reclassifies the prior
periods' operating results of the property to discontinued
operations. For the three months ended March 31, 2011, the
Partnership recognized income from discontinued operations of
$81,885, representing gain on disposal of real estate of $83,734
and rental income of $163, which were partially offset by
property management expenses and depreciation of $2,012. For the
three months ended March 31, 2010, the Partnership recognized
income from discontinued operations of $26,736, representing
rental income less property management expenses and depreciation.
On February 2, 2010, Hollywood Entertainment Corporation
(HEC), the tenant of the Hollywood Video stores in Minot, North
Dakota (100% ownership interest) and Saraland, Alabama (3.08%
ownership interest) filed for Chapter 11 bankruptcy
reorganization for the second time. In July 2010, HEC closed its
remaining stores, filed a motion with the bankruptcy court to
reject the Lease for the Minot store and returned possession of
the property to the Partnership. The Partnership listed the
property for sale with a real estate broker in the Minot area.
While the property was vacant, the Partnership was responsible
for real estate taxes and other costs associated with maintaining
the property. Based on an analysis of market conditions in the
area, the Partnership determined the property was impaired. As a
result, in the second quarter of 2010, a charge to discontinued
operations for real estate impairment of $218,607 was recognized,
which was the difference between the carrying value at June 30,
2010 of $1,018,607 and the estimated fair value of $800,000. The
charge was recorded against the cost of the land and building.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In November 2010, the Partnership entered into an
agreement to sell the Minot store to an unrelated third party.
On January 14, 2011, the sale closed with the Partnership
receiving net proceeds of $881,953, which resulted in a net gain
of $81,953. At December 31, 2010, the property was classified as
Real Estate Held for Sale.
In February 2010, HEC closed the Saraland store and filed
a motion with the bankruptcy court to reject the Lease for this
property. The court approved the motion and HEC returned
possession of the property to the Partnership. The Partnership
listed the property for sale or lease with a real estate broker
in the Saraland area. While the property was vacant, the
Partnership was responsible for its 3.08% share of real estate
taxes and other costs associated with maintaining the property.
In May 2010, the Partnership entered into an agreement to sell
its interest in the Saraland store to an unrelated third party.
On August 20, 2010, the sale closed with the Partnership
receiving net sale proceeds of $34,485, which resulted in a net
gain of $3,403. The cost and related accumulated depreciation of
the interest sold was $42,439 and $11,357, respectively.
On March 17, 2011, the Partnership sold its remaining
.5877% interest in the Arby's restaurant in Homewood, Alabama to
an unrelated third party. The Partnership received net sale
proceeds of $8,012, which resulted in a net gain of $1,781. The
cost and related accumulated depreciation of the interest sold
was $8,184 and $1,953, respectively.
Management believes inflation has not significantly
affected income from operations. Leases may contain rent
increases, based on the increase in the Consumer Price Index over
a specified period, which will result in an increase in rental
income over the term of the leases. Inflation also may cause the
real estate to appreciate in value. However, inflation and
changing prices may have an adverse impact on the operating
margins of the properties' tenants, which could impair their
ability to pay rent and subsequently reduce the Net Cash Flow
available for distributions.
Liquidity and Capital Resources
During the three months ended March 31, 2011, the
Partnership's cash balances increased $845,274 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 three months
ended March 31, 2010, the Partnership's cash balances decreased
$31,920 as a result of distributions paid to the Partners in
excess of cash generated from operating activities.
Net cash provided by operating activities decreased from
$180,655 in 2010 to $145,923 in 2011 as a result of a decrease in
total rental and interest income in 2011 and net timing
differences in the collection of payments from the tenants and
the payment of expenses, which were partially offset by a
decrease in Partnership administration and property management
expenses in 2011.
During the three months ended March 31, 2011, the
Partnership generated cash flow from the sale of real estate of
$889,965.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Partnership's primary use of cash flow, other than
investment in real estate, is distribution and redemption
payments to Partners. The Partnership declares its regular
quarterly distributions before the end of each quarter and pays
the distribution in the first week after the end of each quarter.
The Partnership attempts to maintain a stable distribution rate
from quarter to quarter. Redemption payments are paid to
redeeming Partners on a semi-annual basis.
For the three months ended March 31, 2011 and 2010, the
Partnership declared distributions of $189,583 and $212,887,
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 $184,502 and $206,501 and the General Partners
received distributions of $5,081 and $6,386 for the periods,
respectively. In 2011, distributions were lower due to a
decrease in the distribution rate per Unit, effective July 1,
2010.
During the first three months of 2011, the Partnership
distributed net sale proceeds of $30,303 to the Limited and
General Partners as part of their quarterly distributions, which
represented a return of capital of $1.91 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.
During the first three months of 2011, the Partnership did
not redeem any Units from the Limited Partners. On April 1,
2010, one Limited Partner redeemed 1.25 Partnership Units for
$883 in accordance with the Partnership Agreement. The
Partnership acquired these Units using Net Cash Flow from
operations. In prior years, a total of 70 Limited Partners
redeemed 1,218.44 Partnership Units for $974,262. The
redemptions increase the remaining Limited Partners' ownership
interest in the Partnership. As a result of this redemption
payment and pursuant to the Partnership Agreement, the General
Partners received distributions of $27 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
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.
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. Until such
time as economic conditions allow the Partnership to begin
selling properties at attractive prices, quarterly distributions
will reflect the distribution of net core rental income and
capital reserves, if any. Distribution rates in 2011 are
expected to be consistent with distribution rates in the second
half of 2010.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures.
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing General Partner of the Partnership evaluated the
effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based
upon that evaluation, the President and Chief Financial Officer
of the Managing General Partner concluded that, as of the end of
the period covered by this report, our disclosure controls and
procedures were effective in ensuring that information required
to be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in applicable rules and forms
and that such information is accumulated and communicated to
management, including the President and Chief Financial Officer
of the Managing General Partner, in a manner that allows timely
decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting.
During the most recent period covered by this report,
there has been no change in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which
the Partnership is a party or of which the Partnership's property
is subject.
ITEM 1A. RISK FACTORS.
Not required for a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) None.
(b) Not applicable.
(c) Pursuant to Section 7.7 of the Partnership Agreement,
each Limited Partner has the right to present Units to the
Partnership for purchase by submitting notice to the Managing
General Partner during January or July of each year. The
purchase price of the Units is equal to 90% of the net asset
value per Unit, as of the first business day of January or July
of each year, as determined by the Managing General Partner in
accordance with the provisions of the Partnership Agreement.
Units tendered to the Partnership during January and July are
redeemed on April 1st and October 1st, respectively, of each year
subject to the following limitations. The Partnership will not
be obligated to purchase in any year any number of Units that,
when aggregated with all other transfers of Units that have
occurred since the beginning of the same calendar year (excluding
Permitted Transfers as defined in the Partnership Agreement),
would exceed 5% of the total number of Units outstanding on
January 1 of such year. In no event shall the Partnership be
obligated to purchase Units if, in the sole discretion of the
Managing General Partner, such purchase would impair the capital
or operation of the Partnership. During the period covered by
this report, the Partnership did not purchase any Units.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
31.1 Certification of Chief Executive Officer of General
Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer of General
Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Officer of General Partner pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Dated: May 12, 2011 AEI 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
