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: September 30, 2000 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 September 30, 2000 and December 31, 1999 3 Statements for the Periods ended September 30, 2000 and 1999: 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 SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 ASSETS 2000 1999 CURRENT ASSETS: Cash and Cash Equivalents $ 1,268,117 $ 247,401 Receivables 23,152 0 ----------- ----------- Total Current Assets 1,291,269 247,401 ----------- ----------- INVESTMENTS IN REAL ESTATE: Land 5,011,005 4,981,547 Buildings and Equipment 7,487,286 8,382,000 Construction in Progress 113,657 0 Accumulated Depreciation (397,584) (201,635) ----------- ----------- Net Investments in Real Estate 12,214,364 13,161,912 ----------- ----------- Total Assets $13,505,633 $13,409,313 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 29,990 $ 14,979 Distributions Payable 402,672 256,847 Unearned Rent 35,626 0 ----------- ----------- Total Current Liabilities 468,288 271,826 ----------- ----------- PARTNERS' CAPITAL (DEFICIT): General Partners (36,509) (38,746) Limited Partners, $1,000 Unit Value; 24,000 Units authorized; 16,917 Units issued; 16,657 and 16,799 Units outstanding in 2000 and 1999, respectively 13,073,854 13,176,233 ----------- ----------- Total Partners' Capital 13,037,345 13,137,487 ----------- ----------- Total Liabilities and Partners' Capital $13,505,633 $13,409,313 =========== =========== 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 SEPTEMBER 30 (Unaudited) Three Months Ended Nine Months Ended 9/30/00 9/30/99 9/30/00 9/30/99 INCOME: Rent $277,210 $231,138 $848,902 $410,376 Investment Income 27,904 44,905 59,672 268,716 -------- -------- -------- -------- Total Income 305,114 276,043 908,574 679,092 -------- -------- -------- -------- EXPENSES: Partnership Administration - Affiliates 45,252 40,511 123,290 125,014 Partnership Administration and Property Management - Unrelated Parties 4,349 5,790 21,568 17,948 Depreciation 75,313 64,862 239,278 96,558 -------- -------- -------- -------- Total Expenses 124,914 111,163 384,136 239,520 -------- -------- -------- -------- OPERATING INCOME 180,200 164,880 524,438 439,572 GAIN ON SALE OF REAL ESTATE 29,748 0 357,720 0 -------- -------- -------- -------- NET INCOME $209,948 $164,880 $882,158 $439,572 ======== ======== ======== ======== NET INCOME ALLOCATED: General Partners $ 6,299 $ 4,946 $ 26,465 $ 13,187 Limited Partners 203,649 159,934 855,693 426,385 -------- -------- -------- -------- $209,948 $164,880 $882,158 $439,572 ======== ======== ======== ======== NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT 16,657, 16,808, 16,755 and 16,769 weighted average Units outstanding for the periods, respectively) $ 12.23 $ 9.52 $ 51.07 $ 25.43 ======== ======== ======== ======== 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 SEPTEMBER 30 (Unaudited) 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 882,158 $ 439,572 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 239,278 96,558 Gain on Sale of Real Estate (357,720) 0 (Increase) Decrease in Receivables (23,152) 46,634 Increase (Decrease) in Payable to AEI Fund Management, Inc. 15,011 (126,122) Increase in Unearned Rent 35,626 30,047 ----------- ----------- Total Adjustments (90,957) 47,117 ----------- ----------- Net Cash Provided By Operating Activities 791,201 486,689 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (1,411,006) (10,301,472) Proceeds from Sale of Real Estate 2,476,996 0 ----------- ----------- Net Cash Provided By (Used For) Investing Activities 1,065,990 (10,301,472) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital Contributions from Limited Partners 0 972,059 Organization and Syndication Costs 0 (143,785) Increase in Distributions Payable 145,825 89,161 Distributions to Partners (864,907) (842,647) Redemption Payments (117,393) (89,929) ----------- ----------- Net Cash Used For Financing Activities (836,475) (15,141) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,020,716 (9,829,924) CASH AND CASH EQUIVALENTS, beginning of period 247,401 10,206,442 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 1,268,117 $ 376,518 =========== =========== 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 SEPTEMBER 30 (Unaudited) Limited Partnership General Limited Units Partners Partners Total Outstanding BALANCE, December 31, 1998 $(21,135) $12,917,288 $12,896,153 15,945.16 Capital Contributions 0 972,059 972,059 972.06 Organization and Syndication Costs 0 (143,785) (143,785) Redemptions (2,698) (87,231) (89,929) (109.04) Distributions (25,279) (817,368) (842,647) Net Income 13,187 426,385 439,572 -------- ----------- ----------- ---------- BALANCE, September 30, 1999 $(35,925) $13,267,348 $13,231,423 16,808.18 ======== =========== =========== ========== BALANCE, December 31, 1999 $(38,746) $13,176,233 $13,137,487 16,808.18 Distributions (20,706) (844,201) (864,907) Redemption Payments (3,522) (113,871) (117,393) (150.86) Net Income 26,465 855,693 882,158 -------- ----------- ----------- ---------- BALANCE, September 30, 2000 $(36,509) $13,073,854 $13,037,345 16,657.32 ======== =========== =========== ========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (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 ($16,917,222). 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 SEPTEMBER 30, 2000 (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 - On June 29, 1998, the Partnership purchased a parcel of land in Centerville, Ohio for $1,850,988. On August 28, 1998, the Partnership assigned, for diversification purposes, 77% of its interest in the property to three affiliated partnerships. The land is leased to Americana Dining Corporation (ADC) under a Lease Agreement with a primary term of 20 years and annual rental payments of $29,801. Effective December 25, 1998, the annual rent was increased to $44,701. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to ADC for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective December 25, 1998, the interest rate was increased to 10.5%. On January 27, 1999, after the development was completed, the Lease Agreement was amended to require annual rental payments of $93,256. The Partnership's share of total acquisition costs, including the cost of the land, was $924,843. The remaining interests in the property are owned by AEI Real Estate Fund XVII Limited Partnership, AEI Real Estate Fund XVIII Limited Partnership and AEI Income & Growth Fund XXI Limited Partnership, affiliates of the Partnership. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (Continued) (3) Investments in Real Estate - (Continued) On November 20, 1998, the Partnership purchased a parcel of land in Homewood, Alabama for $696,000. The land is leased to RTM Alabama, Inc. (RTM) under a Lease Agreement with a primary term of 20 years and annual rental payments of $46,980. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to RTM for the construction of an Arby's restaurant on the site. The Partnership charged interest on the advances at a rate of 6.75%. On July 9, 1999, after the development was completed, the Lease Agreement was amended to require annual rental payments of $87,135. Total acquisition costs, including the cost of the land, were $1,392,592. On November 25, 1998, the Partnership purchased a parcel of land in Fort Wayne, Indiana for $470,000. The land is leased to Tumbleweed, Inc. (TWI) under a Lease Agreement with a primary term of 15 years and annual rental payments of $39,950. Effective March 24, 1999, the annual rent was increased to $48,175. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to TWI for the construction of a Tumbleweed restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 8.5%. Effective March 24, 1999, the interest rate was increased to 10.25%. On August 31, 1999, after the development was completed, the Lease Agreement was amended to require annual rental payments of $130,941. Total acquisition costs, including the cost of the land, were $1,316,695. On January 26, 1999, the Partnership purchased a Hollywood Video store in Saraland, Alabama for $1,377,891. The property is leased to Hollywood Entertainment Corp. under a Lease Agreement with a primary term of 15 years and annual rental payments of $129,617. On July 14, 1999, the Partnership purchased four Children's World daycare centers located in Abingdon, Maryland, Houston, Texas, Pearland, Texas and DePere, Wisconsin. The properties were purchased for $1,051,772, $892,219, $943,415 and $1,187,452, respectively. The properties are leased to ARAMARK Educational Resources, Inc. under Lease Agreements with primary terms of 15 years and annual rental payments of $91,677, $79,093, $83,635 and $106,157, respectively. On July 16, 1999, the Partnership purchased a Hollywood Video store in Minot, North Dakota for $1,330,000. The property is leased to Hollywood Entertainment Corporation under a Lease Agreement with a primary term of 15 years and annual rental payments of $129,168. On August 26, 1999, the Partnership purchased a Hollywood Video store in Muscle Shoals, Alabama for $1,340,627. The property is leased to Hollywood Entertainment Corporation under a Lease Agreement with a primary term of 15 years and annual rental payments of $129,659. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (Continued) (3) Investments in Real Estate - (Continued) On September 28, 1999, the Partnership purchased a 53% interest in a Marie Callender's restaurant in Henderson, Nevada for $937,897. The property is leased to Marie Callender Pie Shops, Inc. under a Lease Agreement with a primary term of 15 years and annual rental payments of $85,595. The remaining interest in the property was purchased by AEI Net Lease Income & Growth Fund XIX Limited Partnership, an affiliate of the Partnership. On September 28, 2000, the Partnership purchased a 40% interest in a Children's World daycare center in Golden, Colorado for $666,629. The property is leased to Children's World Learning Centers, Inc. under a Lease Agreement with a primary term of 15 years and annual rental payments of $66,344. The remaining interests in the property were purchased by AEI Private Net Lease Millennium Fund Limited Partnership and AEI Private Net Lease Fund 1998 Limited Partnership, affiliates of the Partnership. 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. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership will advance funds to RI for the construction of a Razzoo's restaurant on the site. Through September 30, 2000, the Partnership had advanced $113,657 for the construction of the property and was charging interest on the advances at a rate of 8.5%. The Partnership's share of the total purchase price, including the cost of the land, will be approximately $1,646,000. After the construction is complete, the Lease Agreement will be amended to require annual rental payments of approximately $160,500. 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. During the nine months ended September 30, 2000, the Partnership sold 61.9344% of the Children's World in DePere, Wisconsin in four separate transactions to unrelated third parties. The Partnership received total net sale proceeds of $845,347, which resulted in a total net gain of $127,553. The total cost and related accumulated depreciation of the interests sold was $735,441 and $17,647, respectively. During the nine months ended September 30, 2000, the Partnership sold its interest in the Marie Callender's restaurant in five separate transactions to unrelated third parties. The Partnership received total net sale proceeds of $1,035,799, which resulted in a total net gain of $108,736. The total cost and related accumulated depreciation of the interests sold was $937,897 and $10,834, respectively. During the nine months ended September 30, 2000, the Partnership sold 35.5084% of the Hollywood Video store in Saraland, Alabama in three separate transactions to unrelated third parties. The Partnership received total net sale proceeds of $595,850, which resulted in a total net gain of $121,431. The total cost and related accumulated depreciation of the interests sold was $489,267 and $14,848, respectively. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (Continued) (3) Investments in Real Estate - (Continued) During the first nine months of 2000, the Partnership distributed $262,069 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 $15.54 per Limited Partnership Unit. The remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. (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 nine months ended September 30, 2000 and 1999, the Partnership recognized rental income of $848,902 and $410,376, respectively. During the same periods, the Partnership earned $59,672 and $268,716, respectively, in investment income from subscription proceeds and property sales proceeds which were invested in short-term money market accounts. This investment income constituted 7% and 40%, respectively, of total income. The percentage of total income represented by investment income declines as subscription proceeds are invested in properties. During the nine months ended September 30, 2000 and 1999, the Partnership paid Partnership administration expenses to affiliated parties of $123,290 and $125,014, 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 period, the Partnership incurred Partnership administration and property management expenses from unrelated parties of $21,568 and $17,948, 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 September 30, 2000, the Partnership's cash distribution rate was 7.0% on an annualized basis. Pursuant to the Partnership Agreement, distributions of Net Cash Flow and Net Income 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. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) Liquidity and Capital Resources During the nine months ended September 30, 2000, the Partnership's cash balances increased $1,020,716 mainly as a result of cash generated from the sale of property, which was partially offset by cash used to purchase property. Net cash provided by operating activities increased from $486,689 in 1999 to $791,201 in 2000 as a result of an increase in income in 2000 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 nine months ended September 30, 2000 and 1999, the Partnership expended $1,411,006 and $10,301,472, respectively, to invest in real properties (inclusive of acquisition expenses). During the nine months ended September 30, 2000, the Partnership generated cash flow from the sale of real estate of $2,476,996. On June 29, 1998, the Partnership purchased a parcel of land in Centerville, Ohio for $1,850,988. On August 28, 1998, the Partnership assigned, for diversification purposes, 77% of its interest in the property to three affiliated partnerships. The land is leased to Americana Dining Corporation (ADC) under a Lease Agreement with a primary term of 20 years and annual rental payments of $29,801. Effective December 25, 1998, the annual rent was increased to $44,701. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to ADC for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective December 25, 1998, the interest rate was increased to 10.5%. On January 27, 1999, after the development was completed, the Lease Agreement was amended to require annual rental payments of $93,256. The Partnership's share of total acquisition costs, including the cost of the land, was $924,843. The remaining interests in the property are owned by AEI Real Estate Fund XVII Limited Partnership, AEI Real Estate Fund XVIII Limited Partnership and AEI Income & Growth Fund XXI Limited Partnership, affiliates of the Partnership. On November 20, 1998, the Partnership purchased a parcel of land in Homewood, Alabama for $696,000. The land is leased to RTM Alabama, Inc. (RTM) under a Lease Agreement with a primary term of 20 years and annual rental payments of $46,980. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to RTM for the construction of an Arby's restaurant on the site. The Partnership charged interest on the advances at a rate of 6.75%. On July 9, 1999, after the development was completed, the Lease Agreement was amended to require annual rental payments of $87,135. Total acquisition costs, including the cost of the land, were $1,392,592. On November 25, 1998, the Partnership purchased a parcel of land in Fort Wayne, Indiana for $470,000. The land is leased to Tumbleweed, Inc. (TWI) under a Lease Agreement with a primary term of 15 years and annual rental payments of $39,950. Effective March 24, 1999, the annual rent was increased to $48,175. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to TWI for the construction of a Tumbleweed restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 8.5%. Effective March 24, 1999, the interest rate was increased to 10.25%. On August 31, 1999, after the development was completed, the Lease Agreement was amended to require annual rental payments of $130,941. Total acquisition costs, including the cost of the land, were $1,316,695. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) On January 26, 1999, the Partnership purchased a Hollywood Video store in Saraland, Alabama for $1,377,891. The property is leased to Hollywood Entertainment Corp. under a Lease Agreement with a primary term of 15 years and annual rental payments of $129,617. On July 14, 1999, the Partnership purchased four Children's World daycare centers located in Abingdon, Maryland, Houston, Texas, Pearland, Texas and DePere, Wisconsin. The properties were purchased for $1,051,772, $892,219, $943,415 and $1,187,452, respectively. The properties are leased to ARAMARK Educational Resources, Inc. under Lease Agreements with primary terms of 15 years and annual rental payments of $91,677, $79,093, $83,635 and $106,157, respectively. On July 16, 1999, the Partnership purchased a Hollywood Video store in Minot, North Dakota for $1,330,000. The property is leased to Hollywood Entertainment Corporation under a Lease Agreement with a primary term of 15 years and annual rental payments of $129,168. On August 26, 1999, the Partnership purchased a Hollywood Video store in Muscle Shoals, Alabama for $1,340,627. The property is leased to Hollywood Entertainment Corporation under a Lease Agreement with a primary term of 15 years and annual rental payments of $129,659. On September 28, 1999, the Partnership purchased a 53% interest in a Marie Callender's restaurant in Henderson, Nevada for $937,897. The property is leased to Marie Callender Pie Shops, Inc. under a Lease Agreement with a primary term of 15 years and annual rental payments of $85,595. The remaining interest in the property was purchased by AEI Net Lease Income & Growth Fund XIX Limited Partnership, an affiliate of the Partnership. On September 28, 2000, the Partnership purchased a 40% interest in a Children's World daycare center in Golden, Colorado for $666,629. The property is leased to Children's World Learning Centers, Inc. under a Lease Agreement with a primary term of 15 years and annual rental payments of $66,344. The remaining interests in the property were purchased by AEI Private Net Lease Millennium Fund Limited Partnership and AEI Private Net Lease Fund 1998 Limited Partnership, affiliates of the Partnership. 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. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership will advance funds to RI for the construction of a Razzoo's restaurant on the site. Through September 30, 2000, the Partnership had advanced $113,657 for the construction of the property and was charging interest on the advances at a rate of 8.5%. The Partnership's share of the total purchase price, including the cost of the land, will be approximately $1,646,000. After the construction is complete, the Lease Agreement will be amended to require annual rental payments of approximately $160,500. 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. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) During the nine months ended September 30, 2000, the Partnership sold 61.9344% of the Children's World in DePere, Wisconsin in four separate transactions to unrelated third parties. The Partnership received total net sale proceeds of $845,347, which resulted in a total net gain of $127,553. The total cost and related accumulated depreciation of the interests sold was $735,441 and $17,647, respectively. During the nine months ended September 30, 2000, the Partnership sold its interest in the Marie Callender's restaurant in five separate transactions to unrelated third parties. The Partnership received total net sale proceeds of $1,035,799, which resulted in a total net gain of $108,736. The total cost and related accumulated depreciation of the interests sold was $937,897 and $10,834, respectively. During the nine months ended September 30, 2000, the Partnership sold 35.5084% of the Hollywood Video store in Saraland, Alabama in three separate transactions to unrelated third parties. The Partnership received total net sale proceeds of $595,850, which resulted in a total net gain of $121,431. The total cost and related accumulated depreciation of the interests sold was $489,267 and $14,848, respectively. During the first nine months of 2000, the Partnership distributed $262,069 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 $15.54 per Limited Partnership Unit. The remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. 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 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. On April 1, 2000, two Limited Partners redeemed a total of 9.67 Partnership Units for $7,099 in accordance with the Partnership Agreement. On July 1, 2000, five Limited Partners redeemed a total of 141.19 Partnership Units for $106,772. The Partnership acquired these Units using Net Cash Flow from operations. In 1999, four Limited Partners redeemed a total of 109.04 Partnership Units for $87,231. The redemptions increase the remaining Limited Partners' 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 PART II - OTHER INFORMATION (Continued) ITEM 5.OTHER INFORMATION None. ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits - Description 10.1 Purchase Agreement dated August 23, 2000 between the Partnership and Maricopa Land & Cattle Company, Inc. relating to the property at 1553 Arcadian Drive, DePere, Wisconsin. 10.2 Property Co-Tenancy Ownership Agreement dated September 12, 2000 between the Partnership and Maricopa Land & Cattle Company, Inc. relating to the property at 1553 Arcadian Drive, DePere, Wisconsin. 10.3 Net Lease Agreement dated September 28, 2000 between the Partnership, AEI Private Net Lease Millennium Fund Limited Partnership, AEI Private Net Lease Fund 1998 Limited Partnership and Children's World Learning Centers, Inc. relating to the property at 18601 Eagle Ridge, Golden, Colorado. 27 Financial Data Schedule for period ended September 30, 2000. 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: November 7, 2000 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)