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: JuneSeptember 30, 2010
Commission File Number: 000-24003
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
State of Minnesota 41-1848181
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101
(Address of principal executive offices)
(651) 227-7333
(Registrant's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (232.405 of this chapter)
during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
[ ] Yes [ ] No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
INDEX
Part I - Financial Information
Item 1. Financial Statements:Statements (unaudited):
Balance Sheet as of JuneSeptember 30, 2010 and December 31, 2009
Statements for the Periods ended JuneSeptember 30, 2010 and 2009:
OperationsIncome
Cash Flows
Changes in Partners' Capital (Deficit)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 5. Other Information
Item 6. Exhibits
Signatures
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
BALANCE SHEET
JUNESEPTEMBER 30, 2010 AND DECEMBER 31, 2009
ASSETS
2010 2009
CURRENT ASSETS:
Cash $ 522,712523,374 $ 590,840
Receivables 12,056 0
----------- -----------
Total Current Assets 534,768 590,840
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 3,170,347 3,807,598
Buildings and Equipment 8,219,513 8,954,701
Accumulated Depreciation (1,459,372)(1,541,562) (1,603,038)
----------- -----------
9,930,4889,848,298 11,159,261
Real Estate Held for Sale 831,082800,000 0
----------- -----------
Net Investments in Real Estate 10,761,57010,648,298 11,159,261
----------- -----------
Total Assets $11,296,338$11,171,672 $11,750,101
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 25,66118,916 $ 47,396
Distributions Payable 212,883189,990 212,575
Unearned Rent 34,22145,457 34,665
----------- -----------
Total Current Liabilities 272,765254,363 294,636
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (16,520)(13,060) (3,616)
Limited Partners, $1,000 per Unit;
24,000 Units authorized; 16,917 Units issued;
15,698 and 15,699 Units outstanding in
2010 and 2009, respectively 11,040,09310,930,369 11,459,081
----------- -----------
Total Partners' Capital 11,023,57310,917,309 11,455,465
----------- -----------
Total Liabilities and Partners' Capital $11,296,338Partners'Capital $11,171,672 $11,750,101
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF OPERATIONSINCOME
FOR THE PERIODS ENDED JUNESEPTEMBER 30
Three Months Ended SixNine Months Ended
6/9/30/10 6/9/30/09 6/9/30/10 6/9/30/09
RENTAL INCOME $ 212,888 $ 210,347211,879 $ 425,594638,482 $ 420,514632,393
EXPENSES:
Partnership Administration -
Affiliates 39,223 36,058 78,483 77,61741,785 37,219 120,268 114,836
Partnership Administration
and Property Management -
Unrelated Parties 7,693 6,492 17,282 16,0634,272 2,449 21,554 18,512
Depreciation 82,190 82,190 164,380 163,486246,570 245,676
--------- --------- --------- ---------
Total Expenses 129,106 124,740 260,145 257,166128,247 121,858 388,392 379,024
--------- --------- --------- ---------
OPERATING INCOME 83,782 85,607 165,449 163,34884,641 90,021 250,090 253,369
OTHER INCOME:
Interest Income 1,126 1,238 2,300 2,7111,088 1,232 3,388 3,943
--------- --------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS 84,908 86,845 167,749 166,05985,729 91,253 253,478 257,312
Income (Loss) from Discontinued
Operations (199,538) 29,515 (172,961) 58,991(2,004) 29,261 (174,965) 88,252
--------- --------- --------- ---------
NET INCOME (LOSS) $(114,630) $ 116,36083,725 $ (5,212)120,514 $ 225,05078,513 $ 345,564
========= ========= ========= =========
NET INCOME (LOSS) ALLOCATED:
General Partners $ (3,387)7,947 $ 3,4913,615 $ (104)7,843 $ 6,75210,367
Limited Partners (111,243) 112,869 (5,108) 218,29875,778 116,899 70,670 335,197
--------- --------- --------- ---------
$(114,630) $ 116,36083,725 $ (5,212)120,514 $ 225,05078,513 $ 345,564
========= ========= ========= =========
INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ 5.255.30 $ 5.375.64 $ 10.3715.66 $ 10.2615.90
Discontinued Operations (12.34) 1.82 (10.70) 3.65(.47) 1.81 (11.16) 5.45
--------- --------- --------- ---------
Total $ (7.09)4.83 $ 7.197.45 $ (0.33)4.50 $ 13.9121.35
========= ========= ========= =========
Weighted Average Units Outstanding -
Basic and Diluted 15,698 15,699 15,698 15,699
========= ========= ========= =========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (5,212)78,513 $ 225,050345,564
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 179,084 178,190261,274 267,732
Real Estate Impairment 218,607 0
IncreaseGain on Sale of Real Estate (3,403) 0
Decrease in Receivables (12,056) (378)0 5,261
Decrease in Payable to
AEI Fund Management, Inc. (21,735) (5,595)(28,480) (5,439)
Increase (Decrease) in Unearned Rent (444) 3,97810,792 28,068
----------- -----------
Total Adjustments 363,456 176,195458,790 295,622
----------- -----------
Net Cash Provided By
Operating Activities 358,244 401,245537,303 641,186
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 34,485 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions Paid to Partners (425,462) (464,397)(638,344) (676,972)
Redemption Payments (910) 0
----------- -----------
Net Cash Used For
Financing Activities (426,372) (464,397)(639,254) (676,972)
----------- -----------
NET DECREASE IN CASH (68,128) (63,152)(67,466) (35,786)
CASH, beginning of period 590,840 639,409
----------- -----------
CASH, end of period $ 522,712523,374 $ 576,257603,623
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2008 $ 7,050 $11,847,737 $11,854,787 15,698.78
Distributions Declared (11,747) (413,503) (425,250)(18,134) (620,003) (638,137)
Net Income 6,752 218,298 225,05010,367 335,197 345,564
-------- ----------- ----------- ----------
BALANCE, June 30, 2009September 30,2009 $ 2,055 $11,652,532 $11,654,587(717) $11,562,931 $11,562,214 15,698.78
======== =========== =========== ==========
BALANCE, December 31, 2009 $ (3,616) $11,459,081 $11,455,465 15,698.78
Distributions Declared (12,773) (412,997) (425,770)(17,260) (598,499) (615,759)
Redemption Payments (27) (883) (910) (1.25)
Net Loss (104) (5,108) (5,212)Income 7,843 70,670 78,513
-------- ----------- ----------- ----------
BALANCE, June 30, 2010 $(16,520) $11,040,093 $11,023,573September 30,2010 $(13,060) $10,930,369 $10,917,309 15,697.53
======== =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2010
(1) The condensed statements included herein have been prepared
by the registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the registrant
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
registrant's latest annual report on Form 10-K.
(2) Organization -
AEI Income & Growth Fund XXII Limited Partnership
("Partnership") was formed to acquire and lease commercial
properties to operating tenants. The Partnership's
operations are managed by AEI Fund Management XXI, Inc.
("AFM"), the Managing General Partner. Robert P. Johnson,
the President and sole director of AFM, serves as the
Individual General Partner. AFM is a wholly owned
subsidiary of AEI Capital Corporation of which Mr. Johnson
is the majority shareholder. AEI Fund Management, Inc.
("AEI"), an affiliate of AFM, performs the administrative
and operating functions for the Partnership.
The terms of the Partnership offering called for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. The Partnership
commenced operations on May 1, 1997 when minimum
subscriptions of 1,500 Limited Partnership Units
($1,500,000) were accepted. The offering terminated January
9, 1999 when the extended offering period expired. The
Partnership received subscriptions for 16,917.222 Limited
Partnership Units. Under the terms of the Limited
Partnership Agreement, the Limited Partners and General
Partners contributed funds of $16,917,222 and $1,000,
respectively.
During operations, any Net Cash Flow, as defined, which the
General Partners determine to distribute will be distributed
97% to the Limited Partners and 3% to the General Partners.
Distributions to Limited Partners will be made pro rata by
Units.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the General Partners determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Partners and 1% to the General Partners until the
Limited Partners receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to 9%
of their Adjusted Capital Contribution per annum, cumulative
but not compounded, to the extent not previously distributed
from Net Cash Flow; (ii) any remaining balance will be
distributed 90% to the Limited Partners and 10% to the
General Partners. Distributions to the Limited Partners
will be made pro rata by Units.
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) Reclassification -
Certain items related to discontinued operations in the
prior year's financial statements have been reclassified to
conform to 2010 presentation. These reclassifications had
no effect on Partners' capital, net income or cash flows.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Partnership. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) Discontinued Operations -
On February 2, 2010, Hollywood Entertainment Corporation
(HEC), the tenant of the Hollywood Video stores in Minot,
North Dakota (100% ownership interest) and Saraland, Alabama
(3.08% ownership interest) filed for Chapter 11 bankruptcy
reorganization for the second time. In July 2010, HEC
closed its remaining stores, filed a motion with the
bankruptcy court to reject the Lease for the Minot store and
returned possession of the property to the Partnership. The
Partnership listed the property for sale with a real estate
broker in the Minot area. While the property is vacant, the
Partnership is responsible for real estate taxes and other
costs associated with maintaining the property. The Partnership is preparing to
market the property for sale. Based on an
analysis of market conditions in the area, the Partnership
determined the property was impaired. As a result, in the
second quarter of 2010, a charge to discontinued operations
for real estate impairment of $218,607 was recognized, which
was the difference between the bookcarrying value at June 30,
2010 of $1,018,607 and the estimated fair value of $800,000.
The charge was recorded against the cost of the land and
building. At JuneSeptember 30, 2010, the property was
classified as Real Estate Held for Sale.
In November 2010, the Partnership reached an agreement to
sell the Minot store to an unrelated third party. The sale
is subject to contingencies, including the negotiation of
a written purchase agreement, and may not be completed. If
the sale is completed, the Partnership expects to receive
net proceeds of approximately $870,000. If the sale is not
completed, the Partnership will seek another buyer for the
property and may not be able to negotiate a purchase
agreement with similar economic terms.
In February 2010, HEC closed the Saraland store and filed a
motion with the bankruptcy court to reject the Lease for
this property. The court approved the motion and HEC
returned possession of the property to the Partnership. The
Partnership listed the property for sale or lease with a
real estate broker in the Saraland area. While the property
iswas vacant, the Partnership iswas responsible for its 3.08%
share of real estate taxes and other costs associated with
maintaining the property. In May 2010, the Partnership
entered into an agreement to sell its interest in the
Hollywood Video store in Saraland, Alabama to an unrelated
third party. The sale is subject to contingencies and may
not be completed. IfOn August 20, 2010, the sale is completed,closed with the
Partnership expects to receivereceiving net sale proceeds of approximately $33,000,$34,485, which
will resultresulted in a small net gain. If the sale is not
completed, the Partnership will seek another buyer for the
property interestgain of $3,403. The cost and may not be able to negotiate a
purchase agreement with similar economic terms. At June 30,
2010, the propertyrelated
accumulated depreciation was classified as Real Estate Held for
Sale with a carrying value of $31,082.$42,439 and $11,357,
respectively.
During the first sixnine months of 2010 and 2009, the
Partnership distributed net sale proceeds of $60,606 and
$50,505 to the Limited and General Partners as part of their
quarterly distributions, which represented a return of
capital of $3.82 and $3.19 per Limited Partnership Unit.Unit,
respectively. The proceeds were generated from sales
completed prior to 2009.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) Discontinued Operations - (Continued)
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 JuneSeptember 30:
Three Months Ended SixNine Months Ended
6/9/30/10 6/9/30/09 6/9/30/10 6/9/30/09
Rental Income $ 36,16710,448 $ 37,28436,912 $ 72,33482,782 $ 74,568111,480
Property Management Expenses (9,746) (417) (11,984) (873)(15,855) (299) (27,839) (1,172)
Depreciation (7,352)0 (7,352) (14,704) (14,704)(22,056)
Real Estate Impairment (218,607)0 0 (218,607) 0
--------- ---------Gain on Disposal of Real Estate 3,403 0 3,403 0
-------- -------- --------- ---------
Income (Loss) from
Discontinued Operations $(199,538) $ 29,515 $(172,961)(2,004) $ 58,991
========= =========29,261 $(174,965) $ 88,252
======== ======== ========= =========
(6) Fair Value Measurements -
Fair value, as defined by United States Generally Accepted
Accounting Principles ("US GAAP"), is the price that would
be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date in the principal or most advantageous
market. US GAAP establishes a hierarchy in determining the
fair value of an asset or liability. The fair value
hierarchy has three levels of inputs, both observable and
unobservable. US GAAP requires the utilization of the lowest
possible level of input to determine fair value. Level 1
inputs include quoted market prices in an active market for
identical assets or liabilities. Level 2 inputs are market
data, other than Level 1 inputs, that are observable either
directly or indirectly. Level 2 inputs include quoted market
prices for similar assets or liabilities, quoted market
prices in an inactive market, and other observable
information that can be corroborated by market data. Level 3
inputs are unobservable and corroborated by little or no
market data.
At JuneSeptember 30, 2010, the Partnership had no financial
assets or liabilities measured at fair value on a recurring
basis or nonrecurring basis that would require disclosure
under this pronouncement.
The Hollywood Video store in Minot, North Dakota, with a
carrying amount of $1,108,607 at June 30, 2010, was written
down to its fair value of $800,000 after completing our long-
lived asset valuation analysis. The fair value of the
property was based upon comparable sales of similar
properties, which are considered Level 2 inputs in the
valuation hierarchy. The resulting impairment charge of
$218,607 was included in earnings for the second quarter of
2010.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
This section contains "forward-looking statements" which
represent management's expectations or beliefs concerning future
events, including statements regarding anticipated application of
cash, expected returns from rental income, growth in revenue, the
sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward-
looking statements, should be evaluated in the context of a
number of factors that may affect the Partnership's financial
condition and results of operations, including the following:
Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
effects of these consequences for the Partners;
resolution by the General Partners of conflicts with
which they may be confronted;
the success of the General Partners of locating
properties with favorable risk return characteristics;
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Partnership operate.
Application of Critical Accounting Policies
The preparation of the Partnership's financial statements
requires management to make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. Management evaluates these estimates on an ongoing
basis, including those related to the carrying value of real
estate and the allocation by AEI Fund Management, Inc. of
expenses to the Partnership as opposed to other funds they
manage.
Prior to January 1, 2009, the Partnership purchased
properties and recorded them in the financial statements at cost
(including capitalized acquisition expenses). For acquisitions
completed on or after January 1, 2009, acquisition-related
transaction costs will be expensed as incurred as a result of the
Partnership adopting new guidance on business combinations that
expands the scope of acquisition accounting. The Partnership
tests long-lived assets for recoverability when events or changes
in circumstances indicate that the carrying value may not be
recoverable. For properties the Partnership will hold and
operate, management determines whether impairment has occurred by
comparing the property's probability-weighted future undiscounted
cash flows to its current carrying value. For properties held
for sale, management determines whether impairment has occurred
by comparing the property's estimated fair value less cost to
sell to its current carrying value. If the carrying value is
greater than the 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 sixnine months ended JuneSeptember 30, 2010 and 2009, the
Partnership recognized rental income from continuing operations
of $425,594$638,482 and $420,514,$632,393, respectively. In 2010, rental income
increased due to rent increases on two properties.
For the sixnine months ended JuneSeptember 30, 2010 and 2009, the
Partnership incurred Partnership administration expenses from
affiliated parties of $78,483$120,268 and $77,617,$114,836, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and communicating with the Limited Partners. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $17,282$21,554 and $16,063,$18,512, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit costs, taxes,
insurance and other property costs.
For the sixnine months ended JuneSeptember 30, 2010 and 2009, the
Partnership recognized interest income of $2,300$3,388 and $2,711,$3,943,
respectively.
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 sixnine months ended JuneSeptember 30, 2010, the
Partnership recognized a loss from discontinued operations of
$172,961,$174,965, representing a real estate impairment loss of $218,607,
which was partially offset by rental income less property
management expenses and depreciation of $45,646.$40,239 and a gain on
disposal of real estate of $3,403. For the sixnine months ended
JuneSeptember 30, 2009, the Partnership recognized income from
discontinued operations of $58,991,$88,252, representing rental income
less property management expenses and depreciation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
On February 2, 2010, Hollywood Entertainment Corporation
(HEC), the tenant of the Hollywood Video stores in Minot, North
Dakota (100% ownership interest) and Saraland, Alabama (3.08%
ownership interest) filed for Chapter 11 bankruptcy
reorganization for the second time. In July 2010, HEC closed its
remaining stores, filed a motion with the bankruptcy court to
reject the Lease for the Minot store and returned possession of
the property to the Partnership. The Partnership listed the
property for sale with a real estate broker in the Minot area.
While the property is vacant, the Partnership is responsible for
real estate taxes and other costs associated with maintaining the
property. The Partnership
is preparing to market the property for sale. Based on an analysis of market conditions in the area,
the Partnership determined the property was impaired. As a
result, in the second quarter of 2010, a charge to discontinued
operations for real estate impairment of $218,607 was recognized,
which was the difference between the bookcarrying value at June 30,
2010 of $1,018,607 and the estimated fair value of $800,000. The
charge was recorded against the cost of the land and building.
At JuneSeptember 30, 2010, the property was classified as Real Estate
Held for Sale.
In November 2010, the Partnership reached an agreement to
sell the Minot store to an unrelated third party. The sale is
subject to contingencies, including the negotiation of a written
purchase agreement, and may not be completed. If the sale
is completed, the Partnership expects to receive net proceeds of
approximately $870,000. If the sale is not completed, the
Partnership will seek another buyer for the property and may not
be able to negotiate a purchase agreement with similar economic
terms.
In February 2010, HEC closed the Saraland store and filed
a motion with the bankruptcy court to reject the Lease for this
property. The court approved the motion and HEC returned
possession of the property to the Partnership. The Partnership
listed the property for sale or lease with a real estate broker
in the Saraland area. While the property iswas vacant, the
Partnership iswas responsible for its 3.08% share of real estate
taxes and other costs associated with maintaining the property.
In May 2010, the Partnership entered into an agreement to sell
its interest in the Hollywood Video store in Saraland, Alabama to
an unrelated third party. The sale is subject to contingencies
and may not be completed. IfOn August 20, 2010, the sale is completed,closed
with the Partnership expects to receivereceiving net sale proceeds of approximately
$33,000,$34,485,
which will resultresulted in a small net gain. If the sale is
not completed, the Partnership will seek another buyer for the
property interestgain of $3,403. The cost and may not be able to negotiate a purchase
agreement with similar economic terms. At June 30, 2010, the
propertyrelated
accumulated depreciation was classified as Real Estate Held for Sale with a
carrying value of $31,082.$42,439 and $11,357, respectively.
Management believes inflation has not significantly
affected income from operations. Leases may contain rent
increases, based on the increase in the Consumer Price Index over
a specified period, which will result in an increase in rental
income over the term of the leases. Inflation also may cause the
real estate to appreciate in value. However, inflation and
changing prices may have an adverse impact on the operating
margins of the properties' tenants, which could impair their
ability to pay rent and subsequently reduce the Net Cash Flow
available for distributions.
Liquidity and Capital Resources
During the sixnine months ended JuneSeptember 30, 2010, the
Partnership's cash balances decreased $68,128$67,466 as a result of
distributions paid to the Partners in excess of cash generated
from operating activities.activities, which was partially offset by cash
generated from the sale of property. During the sixnine months
ended JuneSeptember 30, 2009, the Partnership's cash balances
decreased $63,152$35,786 as a result of 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
$401,245$641,186 in 2009 to $358,244$537,303 in 2010 as a result of a decrease in
total rental and interest income in 2010, an increase in
Partnership administration and property management expenses in
2010 and net timing differences in the collection of payments
from the tenants and the payment of expenses, which were
partially offset by an increase in total rental and interest
income in 2010.expenses.
During the nine months ended September 30, 2010, the
Partnership generated cash flow from the sale of real estate of
$34,485.
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 sixnine months ended JuneSeptember 30, 2010 and 2009, the
Partnership declared distributions of $425,770$615,759 and $425,250,$638,137,
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 $412,997$598,499 and $413,503$620,003 and the General Partners
received distributions of $12,773$17,260 and $11,747$18,134 for the periods,
respectively. In 2010, distributions were lower due to a
decrease in the distribution rate per Unit, effective July 1,
2010.
During the first sixnine months of 2010 and 2009, the
Partnership distributed net sale proceeds of $60,606 and $50,505
to the Limited and General Partners as part of their quarterly
distributions, which represented a return of capital of $3.82 and
$3.19 per Limited Partnership Unit.Unit, respectively. The proceeds
were generated from sales completed prior to 2009.
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.
On April 1, 2010, one Limited Partner redeemed 1.25
Partnership Units for $883 in accordance with the Partnership
Agreement. The Partnership acquired these Units using Net Cash
Flow from operations. During 2009, the Partnership did not
redeem any Units from the Limited Partners. In prior years, a
total of 70 Limited Partners redeemed 1,218.44 Partnership Units
for $974,262. The redemptions increase the remaining Limited
Partner's ownership interest in the Partnership. As a result of
this redemption payment and pursuant to the Partnership
Agreement, the General Partners received distributions of $27 in
2010.
The continuing rent payments from the properties, together
with cash generated from property sales, should be adequate to
fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Economy and Market Conditions
The impact of conditions in the current economy, including
the turmoil in the credit markets, has adversely affected many
real estate investment funds. However, the absence of mortgage
financing on the Partnership's properties eliminates the risks of
foreclosure and debt-refinancing that can negatively impact the
value and distributions of leveraged real estate investment
funds. Nevertheless, a prolonged economic downturn may adversely
affect the operations of the Partnership's tenants and their cash
flows. If a tenant were to default on its lease obligations, the
Partnership's income would decrease, its distributions would
likely be reduced and the value of its properties might decline.
Historically, the Partnership has sold properties at a
gain and distributed the gain proceeds as part of its regular
quarterly distributions, and to make special distributions on
occasion. The remaining sales proceeds were reinvested in
additional properties. Beginning in the fourth quarter of 2008,
general economic conditions caused the volume of property sales
to slow dramatically for all real estate sellers. In 2010, the
Partnership will likely complete fewer property sales than it has
in the past. Until such time as economic conditions allow the
Partnership to begin selling properties at attractive prices,
quarterly distributions will reflect the distribution of net core
rental income and capital reserves, if any.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures.
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing General Partner of the Partnership evaluated the
effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based
upon that evaluation, the President and Chief Financial Officer
of the Managing General Partner concluded that, as of the end of
the period covered by this report, our disclosure controls and
procedures were effective in ensuring that information required
to be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in applicable rules and forms
and that such information is accumulated and communicated to
management, including the President and Chief Financial Officer
of the Managing General Partner, in a manner that allows timely
decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting.
During the most recent period covered by this report,
there has been no change in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which
the Partnership is a party or of which the Partnership's property
is subject.
ITEM 1A. RISK FACTORS.
Not required for a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) None.
(b) Not applicable.
(c) Pursuant to Section 7.7 of the Partnership Agreement,
each Limited Partner has the right to present Units to the
Partnership for purchase by submitting notice to the Managing
General Partner during January or July of each year. The
purchase price of the Units is equal to 90% of the net asset
value per Unit, as of the first business day of January or July
of each year, as determined by the Managing General Partner in
accordance with the provisions of the Partnership Agreement.
Units tendered to the Partnership during January and July are
redeemed on April 1st and October 1st, respectively, of each year
subject to the following limitations. The Partnership will not
be obligated to purchase in any year any number of Units that,
when aggregated with all other transfers of Units that have
occurred since the beginning of the same calendar year (excluding
Permitted Transfers as defined in the Partnership Agreement),
would exceed 5% of the total number of Units outstanding on
January 1 of such year. In no event shall the Partnership be
obligated to purchase Units if, in the sole discretion of the
Managing General Partner, such purchase would impair the capital
or operation of the Partnership. Small Business Issuer Purchases of Equity Securities
Total Number of Maximum Number
Units Purchased as of Units that May
Total Number Average Part of Publicly Yet Be Purchased
of Units Price Paid Announced Plans UnderDuring the Plans
Period Purchased per Unit or Programs or Programs
4/1/10 to 4/30/10 1.25 $706.50 1,219.70(1) (2)
5/1/10 to 5/31/10 -- -- -- --
6/1/10 to 6/30/10 -- -- -- --
(1) The Partnership's repurchase plan is mandatedperiod covered by
this report, the Partnership Agreement as included in the prospectus related to
the original offering of thedid not purchase any 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 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 11,November 10, 2010 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)