SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For the Quarter Ended: March 31, 1998
Commission file number: 333-5604
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer as Specified in its Charter)
State of Minnesota 41-1848181
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1300 Minnesota World Trade Center, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(612) 227-7333
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) 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.
Yes [X] No
Transitional Small Business Disclosure Format:
Yes No [X]
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Item 1. Balance Sheet as of March 31, 1998 and December 31, 1997
Statements for the Periods ended March 31, 1998 and 1997:
Operations
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
BALANCE SHEET
MARCH 31, 1998 AND DECEMBER 31, 1997
ASSETS
1998 1997
CURRENT ASSETS:
Cash and Cash Equivalents $ 7,868,949 $ 5,808,792
INVESTMENTS IN REAL ESTATE:
Land 295,020 295,020
Buildings and Equipment 373,124 373,124
Property Acquisition Costs 168,666 93,860
Accumulated Depreciation (4,674) (668)
----------- -----------
Net Investments in Real Estate 832,136 761,336
----------- -----------
Total Assets $ 8,701,085 $ 6,570,128
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 219,225 $ 161,446
Distributions Payable 142,592 100,335
Unearned Rent 5,637 0
----------- -----------
Total Current Liabilities 367,454 261,781
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (8,223) (4,970)
Limited Partners, $1,000 Unit Value;
24,000 Units authorized; 10,166 and
7,656 Units issued and outstanding in
1998 and 1997, respectively 8,341,854 6,313,317
----------- -----------
Total Partners' Capital 8,333,631 6,308,347
----------- -----------
Total Liabilities and Partners' Capital $ 8,701,085 $ 6,570,128
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
1998 1997
INCOME:
Rent $ 16,913 $ 0
Investment Income 82,404 0
----------- -----------
Total Income 99,317 0
----------- -----------
EXPENSES:
Partnership Administration - Affiliates 50,134 17,566
Partnership Administration and Property
Management - Unrelated Parties 8,177 50
Depreciation 4,006 0
----------- -----------
Total Expenses 62,317 17,616
----------- -----------
NET INCOME (LOSS) $ 37,000 $ (17,616)
=========== ===========
NET INCOME (LOSS) ALLOCATED:
General Partners $ 1,110 $ (17,616)
Limited Partners 35,890 0
----------- -----------
$ 37,000 $ (17,616)
=========== ===========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT
(8,100 weighted average Units outstanding
in 1998) $ 4.43 $ 0
=========== ===========
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 PERIODS ENDED MARCH 31
(Unaudited)
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 37,000 $ (17,616)
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 4,006 0
Increase in Payable to AEI Fund Management, Inc. 57,779 17,566
Increase in Unearned Rent 5,637 0
----------- -----------
Total Adjustments 67,422 17,566
----------- -----------
Net Cash Provided By (Used For)
Operating Activities 104,422 (50)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (74,806) 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from Limited Partners 2,510,270 0
Organization and Syndication Costs (376,540) 0
Increase in Distributions Payable 42,257 0
Distributions to Partners (145,446) 0
----------- -----------
Net Cash Provided By
Financing Activities 2,030,541 0
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,060,157 (50)
CASH AND CASH EQUIVALENTS, beginning of period 5,808,792 943
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 7,868,949 $ 893
=========== ===========
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
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
Limited
Partnershiip
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 1996 $ 643 $ 0 $ 643
Net Loss (17,616) 0 (17,616)
--------- ----------- ----------- -----------
BALANCE, March 31, 1997 $ (16,973) $ 0 $ (16,973)
========= =========== =========== ===========
BALANCE, December 31, 1997 $ (4,970) $6,313,317 $6,308,347 7,656.00
Capital Contributions 0 2,510,270 2,510,270 2,510.27
Organization and
Syndication Costs 0 (376,540) (376,540)
Distributions (4,363) (141,083) (145,446)
Net Income 1,110 35,890 37,000
--------- ----------- ----------- -----------
BALANCE, March 31, 1998 $ (8,223) $8,341,854 $8,333,631 10,166.27
========= =========== =========== ===========
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, 1998
(Unaudited)
(1) The condensed statements included herein have been prepared
by the Partnership, 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 Partnership
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
Partnership's latest annual report on Form 10-KSB.
(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 of the Partnership.
Robert P. Johnson, the President and sole shareholder of
AFM, serves as the Individual General Partner of the
Partnership. An affiliate of AFM, AEI Fund Management,
Inc., performs the administrative and operating functions
for the Partnership.
The terms of the Partnership offering call for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. Under the terms of the
Restated Limited Partnership Agreement, 24,000 Limited
Partnership Units are available for subscription which, if
fully subscribed, will result in contributed Limited
Partners' capital of $24,000,000. The Partnership commenced
operations on May 1, 1997 when minimum subscriptions of
1,500 Limited Partnership Units ($1,500,000) were accepted.
At March 31, 1998, 10,166.265 Units ($10,166,265) were
subscribed and accepted by the Partnership. The General
Partners have contributed capital of $1,000. The Managing
General Partner has extended the offering of Units to the
earlier of completion of sale of all Units or January 9,
1999.
During the operation of the Partnership, 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 the Partnership's 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 the Partnership's
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 the Partnership's 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 -
The Partnership will lease its properties to various tenants
through triple net leases, which will be classified as
operating leases. Under a triple net lease, the lessee is
responsible for all real estate taxes, insurance,
maintenance, repairs and operating expenses of the property.
The Partnership's property is a commercial, single-tenant
building. The cost of the property and related accumulated
depreciation at March 31, 1998 are as follows:
Buildings and Accumulated
Property Land Equipment Total Depreciation
TGI Friday's
Greensburg, PA $ 295,020 $ 373,124 $ 668,144 $ 4,674
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
On December 10, 1997, the Partnership purchased a 40.0%
interest in a TGI Friday's restaurant in Greensburg,
Pennsylvania for $668,144. The property is leased to Ohio
Valley Bistros, Inc. under a Lease Agreement with a primary
term of 15 years and annual rental payments of $67,650. The
Lease contains renewal options which may extend the Lease
term an additional 10 years. The Lease contains rent
clauses which entitle the Partnership to receive additional
rent in future years based on stated rent increases. The
remaining interest in the property was purchased by AEI Real
Estate Fund XVII Limited Partnership, an affiliate of the
Partnership.
The Partnership has incurred net costs of $176,810 relating
to the review of potential property acquisitions. Of these
costs, $8,144 have been capitalized and allocated to land,
building and equipment. The remaining costs of $168,666
have been capitalized and will be allocated to properties
acquired subsequent to March 31, 1998.
(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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
For the three months ended March 31, 1998, the Partnership
recognized rental income of $16,913. During the same period, the
Partnership also earned $82,404 in investment income from
subscription proceeds which were invested in short-term money
market accounts. This investment income constituted 83% of total
income. The percentage of total income represented by investment
income declines as subscription proceeds are invested in
properties.
During the three months ended March 31, 1998 and 1997, the
Partnership paid Partnership administration expenses to
affiliated parties of $50,134 and $17,566, respectively. These
administration expenses include initial start-up costs and
expenses associated with processing distributions, reporting
requirements and correspondence to the Limited Partners. The
administrative expenses decrease after completion of the offering
and acquisition phases of the Partnership's operations. During
the same period, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $8,177 and $50, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit and accounting
costs, insurance and other property costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The Partnership distributes all of its net income during
the offering and acquisition phases, and if net income after
deductions for depreciation is not sufficient to fund the
distributions, the Partnership may distribute other available
cash that constitutes capital for accounting purposes.
As of March 31, 1998, the Partnership's cash distribution
rate was 7.0% on an annualized basis. Pursuant to the
Partnership Agreement, distributions of Net Cash Flow were
allocated 97% to the Limited Partners and 3% to the General
Partners.
Since the Partnership has only recently purchased its real
estate, inflation has had a minimal effect on income from
operations. The Leases may contain cost of living increases
which will result in an increase in rental income over the term
of the Leases. Inflation also may cause the Partnership's real
estate to appreciate in value. However, inflation and changing
prices may also have an adverse impact on the operating margins
of the properties' tenants which could impair their ability to
pay rent and subsequently reduce the Partnership's Net Cash Flow
available for distributions.
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. AEI is currently analyzing its
computer hardware and software systems to determine what, if any,
resources need to be dedicated regarding Year 2000 issues. The
Partnership does not anticipate any significant operational
impact or incurring material costs as a result of AEI becoming
Year 2000 compliant.
Liquidity and Capital Resources
The Partnership's primary sources of cash are from
proceeds from the sale of Units, investment income, rental income
and proceeds from the sale of property. Its primary uses of cash
are investment in real properties, payment of expenses involved
in the sale of units, the organization of the Partnership, the
acquisition of properties, the management of properties, the
administration of the Partnership, and the payment of
distributions.
The Partnership Agreement requires that no more than 15%
of the proceeds from the sale of Units be applied to expenses
involved in the sale of Units (including Commissions) and that
such expenses, together with acquisition expenses, not exceed 20%
of the proceeds from the sale of Units. As set forth under the
caption "Estimated Use of Proceeds" of the Prospectus, the
General Partners anticipate that 14% of such proceeds will be
applied to cover such expenses if the maximum proceeds are
obtained. To the extent organization and offering expenses
actually incurred exceed 15% of proceeds, they are borne by the
General Partners.
During the offering of Units, the Partnership's primary
source of cash flow will be from the sale of Limited Partnership
Units. The Partnership offered for sale up to $24,000,000 of
limited partnership interests (the "Units") (24,000 Units at
$1,000 per Unit) pursuant to a registration statement effective
January 10, 1997. From January 10, 1997 to May 1, 1997, the
minimum number of Limited Partnership Units (1,500) needed to
form the Partnership were sold and on May 1, 1997, a total of
1,629.201 Units ($1,629,201) were transferred into the
Partnership. Through March 31, 1998, the Partnership raised a
total of $10,166,265 from the sale of 10,166.265 Units. The
Managing General Partner has extended the offering of Units to
the earlier of completion of sale of all Units or January 9,
1999. From subscription proceeds, the Partnership paid
organization and syndication costs (which constitute a reduction
of capital) of $1,524,940.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Before the acquisition of properties, cash flow from
operating activities is not significant. Net income, after
adjustment for depreciation, is lower during the first few years
of operations as administrative expenses remain high and a large
amount of the Partnership's assets remain invested on a short-
term basis in lower-yielding cash equivalents. Net income will
become the largest component of cash flow from operating
activities and the largest component of cash flow after the
completion of the acquisition phase.
The Partnership Agreement requires that all proceeds from
the sale of Units be invested or committed to investment in
properties by the later of two years after the date of the
Prospectus or six months after termination of the offer and sale
of Units. While the Partnership is purchasing properties, cash
flow from investing activities (investment in real property) will
remain negative and will constitute the principal use of the
Partnership's available cash flow.
On December 10, 1997, the Partnership purchased a 40.0%
interest in a TGI Friday's restaurant in Greensburg, Pennsylvania
for $668,144. The property is leased to Ohio Valley Bistros,
Inc. under a Lease Agreement with a primary term of 15 years and
annual rental payments of $67,650. The remaining interest in the
property was purchased by AEI Real Estate Fund XVII Limited
Partnership, an affiliate of the Partnership.
After completion of the acquisition phase, the
Partnership's primary use of cash flow 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.
Beginning in 1998, 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 is not obligated to purchase in any year more than 5%
of the number of Units outstanding at the beginning of the 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.
Until capital is invested in properties, the Partnership
will remain extremely liquid. At March 31, 1998, $7,868,949 or
90% of the Partnership's assets were in cash or cash equivalents
(including accrued interest receivable). After completion of
property acquisitions, the Partnership will attempt to maintain a
cash reserve of only approximately 1% of subscription proceeds.
Because properties are purchased for cash and leased under triple-
net leases, this is considered adequate to satisfy most
contingencies.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
The foregoing Management's Discussion and Analysis
contains various "forward looking statements" within the meaning
of federal securities laws 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, taxation levels,
the sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward
looking statements made by the Partnership, must 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:
<bullet> Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
<bullet> the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
affects of these consequences for investors;
<bullet> resolution by the General Partners of conflicts with
which they may be confronted;
<bullet> the success of the General Partners of locating
properties with favorable risk return characteristics;
<bullet> the effect of tenant defaults; and
<bullet> the condition of the industries in which the tenants of
properties owned by the Partnership operate.
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 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
PART II - OTHER INFORMATION
(Continued)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -
Description
27 Financial Data Schedule for period
ended March 31, 1998.
b. Reports filed on Form 8-K - None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: May 12, 1998 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/ Mark E Larson
Mark E. Larson
Chief Financial Officer
(Principal Accounting Officer)