UNITED STATES
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, 2002
Commission file number: 24003
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)
(651) 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, 2002 and December 31, 2001
Statements for the Periods ended March 31, 2002 and 2001:
Income
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, 2002 AND DECEMBER 31, 2001
(Unaudited)
ASSETS
2002 2001
CURRENT ASSETS:
Cash and Cash Equivalents $ 801,987 $ 880,350
INVESTMENTS IN REAL ESTATE:
Land 4,912,902 4,912,902
Buildings and Equipment 7,902,754 7,902,754
Accumulated Depreciation (854,158) (769,823)
----------- -----------
Net Investments in Real Estate 11,961,498 12,045,833
----------- -----------
Total Assets $12,763,485 $12,926,183
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 9,434 $ 48,399
Distributions Payable 290,893 290,645
Unearned Rent 8,343 0
----------- -----------
Total Current Liabilities 308,670 339,044
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (2,325) 1,645
Limited Partners, $1,000 Unit Value;
24,000 Units authorized; 16,917 Units issued;
16,557 Units outstanding 12,457,140 12,585,494
----------- -----------
Total Partners' Capital 12,454,815 12,587,139
----------- -----------
Total Liabilities and Partners' Capital $12,763,485 $12,926,183
=========== ===========
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 MARCH 31
(Unaudited)
2002 2001
INCOME:
Rent $ 306,499 $ 291,937
Investment Income 2,779 29,818
----------- -----------
Total Income 309,278 321,755
----------- -----------
EXPENSES:
Partnership Administration - Affiliates 51,799 45,011
Partnership Administration and Property
Management - Unrelated Parties 9,811 10,795
Depreciation 84,335 78,156
----------- -----------
Total Expenses 145,945 133,962
----------- -----------
OPERATING INCOME 163,333 187,793
GAIN ON SALE OF REAL ESTATE 0 86,240
----------- -----------
NET INCOME $ 163,333 $ 274,033
=========== ===========
NET INCOME ALLOCATED:
General Partners $ 4,900 $ 8,221
Limited Partners 158,433 265,812
----------- -----------
$ 163,333 $ 274,033
=========== ===========
NET INCOME PER LIMITED PARTNERSHIP UNIT
(16,557 and 16,657 weighted average Units
outstanding in 2002 and 2001, respectively) $ 9.57 $ 15.96
=========== ===========
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)
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 163,333 $ 274,033
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 84,335 78,156
Gain on Sale of Real Estate 0 (86,240)
Increase in Receivables 0 (18,032)
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (38,965) 27,914
Increase in Unearned Rent 8,343 33,721
----------- -----------
Total Adjustments 53,713 35,519
----------- -----------
Net Cash Provided By
Operating Activities 217,046 309,552
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate 0 (146,548)
Proceeds from Sale of Real Estate 0 593,039
----------- -----------
Net Cash Provided By
Investing Activities 0 446,491
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Distributions Payable 248 (1,194)
Distributions to Partners (295,657) (303,958)
------------ -----------
Net Cash Used For
Financing Activities (295,409) (305,152)
------------ -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (78,363) 450,891
CASH AND CASH EQUIVALENTS, beginning of period 880,350 572,279
------------ -----------
CASH AND CASH EQUIVALENTS, end of period $ 801,987 $ 1,023,170
============ ===========
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
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2000 $(40,033) $12,959,915 $12,919,882 16,657.32
Distributions (7,907) (296,051) (303,958)
Net Income 8,221 265,812 274,033
-------- ----------- ----------- -----------
BALANCE, March 31, 2001 $(39,719) $12,929,676 $12,889,957 16,657.32
======== =========== =========== ===========
BALANCE, December 31, 2001 $ 1,645 $12,585,494 $12,587,139 16,556.63
Distributions (8,870) (286,787) (295,657)
Net Income 4,900 158,433 163,333
-------- ----------- ----------- -----------
BALANCE, March 31, 2002 $(2,325) $12,457,140 $12,454,815 16,556.63
======== =========== =========== ===========
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, 2002
(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. Robert P. Johnson, the
President and sole shareholder of AFM, serves as the
Individual General Partner and an affiliate of AFM, AEI Fund
Management, Inc. (AEI), 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. The Partnership
commenced operations on May 1, 1997 when minimum
subscriptions of 1,500 Limited Partnership Units
($1,500,000) were accepted. The offering terminated January
9, 1999 when the extended offering period expired. The
Partnership received subscriptions for 16,917.222 Limited
Partnership Units. Under the terms of the Limited
Partnership Agreement, the Limited Partners and General
Partners contributed funds of $16,917,222 and $1,000,
respectively.
During operations, any Net Cash Flow, as defined, which the
General Partners determine to distribute will be distributed
97% to the Limited Partners and 3% to the General Partners.
Distributions to Limited Partners will be made pro rata by
Units.
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the General Partners determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Partners and 1% to the General Partners until the
Limited Partners receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to 9%
of their Adjusted Capital Contribution per annum, cumulative
but not compounded, to the extent not previously distributed
from Net Cash Flow; (ii) any remaining balance will be
distributed 90% to the Limited Partners and 10% to the
General Partners. Distributions to the Limited Partners
will be made pro rata by Units.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of property, will be
allocated first in the same ratio in which, and to the
extent, Net Cash Flow is distributed to the Partners for
such year. Any additional profits will be allocated in the
same ratio as the last dollar of Net Cash Flow is
distributed. Net losses from operations will be allocated
99% to the Limited Partners and 1% to the General Partners.
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Partnership Agreement as follows: (i)
first, to those partners with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Partners
and 1% to the General Partners until the aggregate balance
in the Limited Partners' capital accounts equals the sum of
the Limited Partners' Adjusted Capital Contributions plus an
amount equal to 9% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, the balance of any
remaining gain will then be allocated 90% to the Limited
Partners and 10% to the General Partners. Losses will be
allocated 98% to the Limited Partners and 2% to the General
Partners.
The General Partners are not required to currently fund a
deficit capital balance. Upon liquidation of the
Partnership or withdrawal by a General Partner, the General
Partners will contribute to the Partnership an amount equal
to the lesser of the deficit balances in their capital
accounts or 1% of total Limited Partners' and General
Partners' capital contributions.
(3) Investments in Real Estate -
Through December 31, 2001, the Partnership sold 92.6155% of
the Children's World in DePere, Wisconsin, in six separate
transactions, to unrelated third parties. The Partnership
received total net sale proceeds of $1,248,116, which
resulted in a total net gain of $189,071. The total cost
and related accumulated depreciation of the interests sold
was $1,099,764 and $40,719, respectively. For the three
months ended March 31, 2001, the net gain was $18,543.
During 2001, the Partnership sold 36.032% of the Children's
World in Golden, Colorado, in four separate transactions, to
unrelated third parties. The Partnership received total net
sale proceeds of $748,177, which resulted in a total net
gain of $154,002. The total cost and related accumulated
depreciation of the interests sold was $605,199 and $11,024,
respectively. For the three months ended March 31, 2001,
the net gain was $67,697.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
During the first three months of 2001, the Partnership
distributed $60,606 of the net sale proceeds to the Limited
and General Partners as part of their regular quarterly
distributions which represented a return of capital of $3.60
per Limited Partnership Unit. The remaining net sale
proceeds will either be reinvested in additional property or
distributed to the Partners in the future.
On May 8, 2000, the Partnership purchased a 48% interest in
a parcel of land in Austin, Texas for $652,800. The land is
leased to Razzoo's, Inc. (RI) under a Lease Agreement with a
primary term of 15 years and annual rental payments of
$55,488. Effective October 4, 2000, the annual rent was
increased to $63,648. Simultaneously with the purchase of
the land, the Partnership entered into a Development
Financing Agreement under which the Partnership advanced
funds to RI for the construction of a Razzoo's restaurant on
the site. Initially the Partnership charged interest on the
advances at a rate of 8.5%. Effective October 4, 2000 and
April 15, 2001, the interest rate was increased to 9.75% and
15.0%, respectively. On June 27, 2001, after development
was completed, the Lease Agreement was amended to require
annual rental payments of $152,662. The Partnership's share
of the total acquisition costs, including the cost of the
land, was $1,544,215. The remaining interests in the
property are owned by AEI Real Estate Fund XV Limited
Partnership, AEI Real Estate Fund XVII Limited Partnership,
and AEI Net Lease Income & Growth Fund XIX Limited
Partnership, affiliates of the Partnership.
On May 14, 2001, the Partnership purchased a 25% interest in
a Children's World daycare center in Plainfield, Illinois
for $368,176. The property is leased to ARAMARK Educational
Resources, Inc. under a Lease Agreement with a primary term
of 15 years and annual rental payments of $35,269. The
remaining interests in the property are owned by AEI Real
Estate Fund 85-A Limited Partnership and AEI Private Net
Lease Millennium Fund Limited Partnership, affiliates of the
Partnership.
(4) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Partnership. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
For the three months ended March 31, 2002 and 2001, the
Partnership recognized rental income of $306,499 and $291,937,
respectively. During the same periods, the Partnership earned
investment income of $2,779 and $29,818, respectively. In 2002,
rental income increased as a result of additional rent received
from two property acquisitions in 2001 and rent increases on four
properties. These increases in rental income were partially
offset by a decrease in rental income due to property sales and a
decrease in investment income earned on net sale proceeds prior
to the purchase of property.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
During the three months ended March 31, 2002 and 2001, the
Partnership paid Partnership administration expenses to
affiliated parties of $51,799 and $45,011, 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 $9,811 and $10,795, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit and accounting
costs, taxes, insurance and other property costs.
As of March 31, 2002, the Partnership's annualized cash
distribution rate was 7.0%, based on the Adjusted Capital
Contribution. Pursuant to the Partnership Agreement,
distributions of Net Cash Flow were allocated 97% to the Limited
Partners and 3% to the General Partners.
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 three months ended March 31, 2002, the
Partnership's cash balances decreased $78,363 as the Partnership
distributed more cash to the Partners than it generated from
operating activities. Net cash provided by operating activities
decreased from $309,552 in 2001 to $217,046 in 2002 as a result
of a decrease in income and an increase in Partnership
administration expenses in 2002 and net timing differences in the
collection of payments from the lessees 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 three months ended
March 31, 2001, the Partnership generated cash flow from the sale
of real estate of $593,039. During the same period, the
Partnership expended $146,548 to invest in real properties
(inclusive of acquisition expenses) as the Partnership reinvested
cash generated from property sales.
Through December 31, 2001, the Partnership sold 92.6155%
of the Children's World in DePere, Wisconsin, in six separate
transactions, to unrelated third parties. The Partnership
received total net sale proceeds of $1,248,116, which resulted in
a total net gain of $189,071. The total cost and related
accumulated depreciation of the interests sold was $1,099,764 and
$40,719, respectively. For the three months ended March 31,
2001, the net gain was $18,543.
During 2001, the Partnership sold 36.032% of the
Children's World in Golden, Colorado, in four separate
transactions, to unrelated third parties. The Partnership
received total net sale proceeds of $748,177, which resulted in a
total net gain of $154,002. The total cost and related
accumulated depreciation of the interests sold was $605,199 and
$11,024, respectively. For the three months ended March 31,
2001, the net gain was $67,697.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
During the first three months of 2001, the Partnership
distributed $60,606 of the net sale proceeds to the Limited and
General Partners as part of their regular quarterly distributions
which represented a return of capital of $3.60 per Limited
Partnership Unit. The remaining net sale proceeds will either be
reinvested in additional property or distributed to the Partners
in the future.
On May 8, 2000, the Partnership purchased a 48% interest
in a parcel of land in Austin, Texas for $652,800. The land is
leased to Razzoo's, Inc. (RI) under a Lease Agreement with a
primary term of 15 years and annual rental payments of $55,488.
Effective October 4, 2000, the annual rent was increased to
$63,648. Simultaneously with the purchase of the land, the
Partnership entered into a Development Financing Agreement under
which the Partnership advanced funds to RI for the construction
of a Razzoo's restaurant on the site. Initially the Partnership
charged interest on the advances at a rate of 8.5%. Effective
October 4, 2000 and April 15, 2001, the interest rate was
increased to 9.75% and 15.0%, respectively. On June 27, 2001,
after development was completed, the Lease Agreement was amended
to require annual rental payments of $152,662. The Partnership's
share of the total acquisition costs, including the cost of the
land, was $1,544,215. The remaining interests in the property
are owned by AEI Real Estate Fund XV Limited Partnership, AEI
Real Estate Fund XVII Limited Partnership, and AEI Net Lease
Income & Growth Fund XIX Limited Partnership, affiliates of the
Partnership.
On May 14, 2001, the Partnership purchased a 25% interest
in a Children's World daycare center in Plainfield, Illinois for
$368,176. The property is leased to ARAMARK Educational
Resources, Inc. under a Lease Agreement with a primary term of 15
years and annual rental payments of $35,269. The remaining
interests in the property are owned by AEI Real Estate Fund 85-A
Limited Partnership and AEI Private Net Lease Millennium Fund
Limited Partnership, affiliates of the Partnership.
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. Redemption payments
are paid to redeeming Partners on a semi-annual basis.
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 2001, six Limited Partners redeemed a total of
100.69 Partnership Units for $75,503 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, eleven
Limited Partners redeemed a total of 259.90 Partnership Units for
$201,102. The redemptions increase the remaining Limited
Partner's ownership interest in the Partnership.
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)
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:
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
affects of these consequences for investors;
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.
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 - None.
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: April 30, 2002 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)