UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2008
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
(orfor 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 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:
Balance Sheet as of June 30, 2008 and December 31, 2007
Statements for the Periods ended June 30, 2008 and 2007:
Income
Cash Flows
Changes in Partners' Capital
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 4T. 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
JUNE 30, 2008 AND DECEMBER 31, 2007
ASSETS
2008 2007
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,787,696 $ 820,451
Receivables 2,749 0
----------- -----------
Total Current Assets 2,790,445 820,451
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 3,472,456 3,491,965
Buildings and Equipment 7,267,597 7,335,775
Accumulated Depreciation (1,085,471) (963,195)
----------- -----------
9,654,582 9,864,545
Real Estate Held for Sale 0 1,388,889
----------- -----------
Net Investments in Real Estate 9,654,582 11,253,434
----------- -----------
Total Assets $12,445,027 $12,073,885
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 17,049 $ 8,064
Distributions Payable 250,742 253,550
Unearned Rent 13,983 8,730
----------- -----------
Total Current Liabilities 281,774 270,344
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners 7,119 (1,336)
Limited Partners, $1,000 per Unit;
24,000 Units authorized; 16,917 Units issued;
15,699 and 15,805 Units outstanding in
2008 and 2007, respectively 12,156,134 11,804,877
----------- -----------
Total Partners' Capital 12,163,253 11,803,541
----------- -----------
Total Liabilities and Partners' Capital $12,445,027 $12,073,885
=========== ===========
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 JUNE 30
Three Months Ended Six Months Ended
6/30/08 6/30/07 6/30/08 6/30/07
RENTAL INCOME $ 217,287 $ 220,891 $ 435,160 $ 436,829
EXPENSES:
Partnership Administration -
Affiliates 39,391 40,003 79,080 82,925
Partnership Administration
and Property Management -
Unrelated Parties 11,269 6,623 23,047 14,413
Depreciation 72,671 72,686 145,342 143,394
---------- ---------- ---------- ----------
Total Expenses 123,331 119,312 247,469 240,732
---------- ---------- ---------- ----------
OPERATING INCOME 93,956 101,579 187,691 196,097
OTHER INCOME:
Interest Income 12,082 10,976 22,177 26,331
---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS 106,038 112,555 209,868 222,428
Income from Discontinued
Operations 62,703 35,723 748,606 67,225
---------- ---------- ---------- ----------
NET INCOME $ 168,741 $ 148,278 $ 958,474 $ 289,653
========== ========== ========== ==========
NET INCOME ALLOCATED:
General Partners $ 7,401 $ 4,449 $ 21,771 $ 8,690
Limited Partners 161,340 143,829 936,703 280,963
---------- ---------- ---------- ----------
$ 168,741 $ 148,278 $ 958,474 $ 289,653
========== ========== ========== ==========
INCOME PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ 6.55 $ 6.89 $ 12.92 $ 13.60
Discontinued Operations 3.73 2.19 46.55 4.11
---------- ---------- ---------- ----------
Total $ 10.28 $ 9.08 $ 59.47 $ 17.71
========== ========== ========== ==========
Weighted Average Units
Outstanding 15,699 15,838 15,752 15,861
========== ========== ========== ==========
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 SIX MONTHS ENDED JUNE 30
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 958,474 $ 289,653
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 146,479 167,620
Gain on Sale of Real Estate (719,466) 0
(Increase) Decrease in Receivables (2,749) 2,070
Increase (Decrease) in Payable to
AEI Fund Management, Inc. 8,985 (45,753)
Increase in Unearned Rent 5,253 24,973
----------- -----------
Total Adjustments (561,498) 148,910
----------- -----------
Net Cash Provided By
Operating Activities 396,976 438,563
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments In Real Estate 0 (1,403,565)
Proceeds from Sale of Real Estate 2,171,839 0
Payments Received on Note Receivable 0 54,924
----------- -----------
Net Cash Provided By (Used For)
Investing Activities 2,171,839 (1,348,641)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in Distributions Payable (2,808) (23,345)
Distributions to Partners (511,703) (519,235)
Redemption Payments (87,059) (40,109)
----------- -----------
Net Cash Used For
Financing Activities (601,570) (582,689)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,967,245 (1,492,767)
CASH AND CASH EQUIVALENTS, beginning of period 820,451 2,386,110
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,787,696 $ 893,343
=========== ===========
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 SIX MONTHS ENDED JUNE 30
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2006 $ 10,828 $12,322,770 $12,333,598 15,884.14
Distributions (13,456) (505,779) (519,235)
Redemption Payments (1,203) (38,906) (40,109) (46.58)
Net Income 8,690 280,963 289,653
-------- ----------- ----------- ----------
BALANCE, June 30, 2007 $ 4,859 $12,059,048 $12,063,907 15,837.56
======== =========== =========== ==========
BALANCE, December 31, 2007 $ (1,336) $11,804,877 $11,803,541 15,804.56
Distributions (10,704) (500,999) (511,703)
Redemption Payments (2,612) (84,447) (87,059) (105.78)
Net Income 21,771 936,703 958,474
-------- ----------- ----------- ----------
BALANCE, June 30, 2008 $ 7,119 $12,156,134 $12,163,253 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
JUNE 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-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. 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 period's financial statements have been reclassified
to conform to 2008 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) Investments in Real Estate -
On January 19, 2007, the Partnership purchased a 50%
interest in a Tractor Supply Company store in Grand Forks,
North Dakota for $1,403,874. The property is leased to
Tractor Supply Company under a Lease Agreement with a
remaining primary term of 13.9 years and initial annual rent
of $102,351. The remaining interest in the property was
purchased by AEI Income & Growth Fund 24 LLC, an affiliate
of the Partnership.
On October 16, 2007, 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. In May 2008, the bankruptcy court approved
HEC's Plan of Reorganization and the Plan became effective.
Under the Plan, HEC assumed the Leases for these stores
under the original terms without any rent concessions. As
of the date of this report, HEC has complied with all Lease
terms.
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. The
amendment will expire and the original Lease terms will be
reinstated on February 28, 2010, unless Fired Up, Inc., the
parent company of KRG and guarantor of the Lease, achieves
certain other expense and debt reduction measures.
(5) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Partnership. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) 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. At December 31, 2007, the property was
classified as Real Estate Held for Sale with a book value of
$1,388,889.
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 six months of 2008 and 2007, the
Partnership distributed net sale proceeds of $232,323 and
$106,061 to the Limited and General Partners as part of
their quarterly distributions, which represented a return of
capital of $14.62 and $6.62 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 financial results for these properties are reflected as
Discontinued Operations in the accompanying financial
statements. The following are the results of discontinued
operations for the periods ended June 30:
Three Months Ended Six Months Ended
6/30/08 6/30/07 6/30/08 6/30/07
Rental Income $ 1,461 $ 45,096 $ 30,763 $ 89,212
Property Management Expenses (336) 2,740 (486) 2,239
Depreciation (455) (12,113) (1,137) (24,226)
Gain on Disposal of Real Estate 62,033 0 719,466 0
-------- --------- --------- ---------
Income from Discontinued
Operations $ 62,703 $ 35,723 $ 748,606 $ 67,225
======== ========= ========= =========
(7) Recently Issued Accounting Pronouncements -
In December 2007, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
141(R) ("SFAS 141(R)"), Business Combinations. SFAS 141(R)
requires, among other things, the expensing of acquisition-
related transaction costs. Management anticipates that SFAS
141(R) will be effective for property acquisitions completed
on or after January 1, 2009. Management is evaluating the
effect that the adoption of SFAS 141(R) will have on the
Partnership's results of operations, financial position, and
the related disclosures.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The 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, 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:
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.
The 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.
The Partnership purchases properties and records them in
the financial statements at cost (including capitalized
acquisition expenses). The Partnership anticipates that for
acquisitions completed on or after January 1, 2009, acquisition-
related transaction costs will be expensed as incurred as a
result of the adoption of Statement of Financial Accounting
Standards No. 141(R), Business Combinations. 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 six months ended June 30, 2008 and 2007, the
Partnership recognized rental income from continuing operations
of $435,160 and $436,829, respectively. In 2008, rental income
decreased due to a reduction in rent for the Johnny Carino's
restaurant as discussed below. This decrease was partially offset
by additional rent received from one property acquisition in 2007
and prepetition rent received in May 2008 for the Hollywood Video
stores.
For the six months ended June 30, 2008 and 2007, the
Partnership incurred Partnership administration expenses from
affiliated parties of $79,080 and $82,925, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and correspondence to the Limited Partners. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $23,047 and $14,413, 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.
On October 16, 2007, 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. In May 2008, the bankruptcy court approved HEC's
Plan of Reorganization and the Plan became effective. Under the
Plan, HEC assumed the Leases for these stores under the original
terms without any rent concessions. As of the date of this
report, HEC has complied with all Lease terms.
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. The amendment
will expire and the original Lease terms will be reinstated on
February 28, 2010, unless Fired Up, Inc., the parent company of
KRG and guarantor of the Lease, achieves certain other expense
and debt reduction measures.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
For the six months ended June 30, 2008 and 2007, the
Partnership recognized interest income of $22,177 and $26,331,
respectively. Interest income decreased due to lower money
market interest rates in 2008, when compared to the same period
in 2007.
In accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, upon complete disposal of a property or
classification of a property as Real Estate Held for Sale, the
Partnership includes the operating results and sale of the
property in discontinued operations. In addition, the
Partnership reclassifies the prior periods' operating results of
the property to discontinued operations. For the six months
ended June 30, 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. For the six months
ended June 30, 2007, the Partnership recognized income from
discontinued operations of $67,225, representing rental income
and property management expenses less depreciation.
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. At
December 31, 2007, the property was classified as Real Estate
Held for Sale with a book value of $1,388,889.
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.
Inflation has had a minimal effect on 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. In addition, leases may contain rent clauses
which entitle the Partnership to receive additional rent in
future years if gross receipts for the property exceed certain
specified amounts. Increases in sales volumes of the tenants,
due to inflation and real sales growth, may result in an increase
in rental income over the term of the leases. Inflation also may
cause the real estate to appreciate in value. However, inflation
and changing prices may have an adverse impact on the operating
margins of the properties' tenants, which could impair their
ability to pay rent and subsequently reduce the Net Cash Flow
available for distributions.
Liquidity and Capital Resources
During the six months ended June 30, 2008, the
Partnership's cash balances increased $1,967,245 as a result of
cash generated from the sale of property, which was partially
offset by distributions paid to the Partners in excess of cash
generated from operating activities. During the six months ended
June 30, 2007, the Partnership's cash balances decreased
$1,492,767 as a result of cash used to purchase property and
distributions paid to the Partners in excess of cash generated
from operating activities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Net cash provided by operating activities decreased from
$438,563 in 2007 to $396,976 in 2008 as a result of a decrease in
total rental and interest income in 2008 and an increase in
Partnership administration and property management expenses in
2008, which were partially offset 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 six months ended June
30, 2008, the Partnership generated cash flow from the sale of
real estate of $2,171,839. During the six months ended June 30,
2007, the Partnership expended $1,403,565 to invest in real
properties (inclusive of acquisition expenses) as the Partnership
reinvested cash generated from property sales completed in 2006.
On January 19, 2007, the Partnership purchased a 50%
interest in a Tractor Supply Company store in Grand Forks, North
Dakota for $1,403,874. The property is leased to Tractor Supply
Company under a Lease Agreement with a remaining primary term of
13.9 years and initial annual rent of $102,351. The remaining
interest in the property was purchased by AEI Income & Growth
Fund 24 LLC, an affiliate 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 six months ended June 30, 2008 and 2007, the
Partnership declared distributions of $511,703 and $519,235,
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 $500,999 and $505,779 and the General Partners
received distributions of $10,704 and $13,456 for the periods,
respectively.
During the first six months of 2008 and 2007, the
Partnership distributed net sale proceeds of $232,323 and
$106,061 to the Limited and General Partners as part of their
quarterly distributions, which represented a return of capital of
$14.62 and $6.62 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
On April 1, 2008, seven Limited Partners redeemed a total
of 105.78 Partnership Units for $84,447 in accordance with the
Partnership Agreement. On April 1, 2007, four Limited Partners
redeemed a total of 46.58 Partnership Units for $38,906. The
Partnership acquired these Units using Net Cash Flow from
operations. In prior years, a total of 55 Limited Partners
redeemed 1,033.08 Partnership Units for $823,466. 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 and $1,203 in 2008 and
2007, respectively.
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 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4T.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 applicable.
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.
Small Business Issuer Purchases of Equity Securities Maximum Number
of Units that
Total Number of Units May Yet Be
Total Number Average Purchased as Part of Purchased Under
of Units Price Paid Publicly Announced the Plans or
Period Purchased per Unit Plans or Programs Programs
4/1/08 to 4/30/08 105.78 $798.29 1,218.45 (1) (2)
5/1/08 to 5/31/08 -- -- -- --
6/1/08 to 6/30/08 -- -- -- --
(1) The Partnership's repurchase plan is mandated by the
Partnership Agreement as included in the prospectus related to
thed original offering of the Units.
(2) The Partnership Agreement contains annual limitations on
repurchases described in the paragraph above and has no
expiration date.
PART II - OTHER INFORMATION
(Continued)
ITEM 3.DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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: August 8, 2008 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)