10KSB 1 k224-01.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended: December 31, 2001 Commission file number: 24003 AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP (Name of Small Business Issuer 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) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Units (Title of class) 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 past 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 Check if disclosure of delinquent filers in response to Rule 405 of Regulation S-B is not contained in this Form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] The Issuer's revenues for year ended December 31, 2001 were $1,283,070. As of February 28, 2002, there were 16,534.635 Units of limited partnership interest in the registrant outstanding and owned by nonaffiliates of the registrant, which Units had an aggregate market value (based solely on the price at which they were sold since there is no ready market for such Units) of $16,534,635. DOCUMENTS INCORPORATED BY REFERENCE The registrant has not incorporated any documents by reference into this report. Transitional Small Business Disclosure Format: Yes No [X] PART I ITEM 1. DESCRIPTION OF BUSINESS. AEI Income & Growth Fund XXII Limited Partnership (the "Partnership" or the "Registrant") is a limited partnership which was organized pursuant to the laws of the State of Minnesota on July 31, 1996. The registrant is comprised of AEI Fund Management XXI, Inc. (AFM) as Managing General Partner, Robert P. Johnson as the Individual General Partner, and purchasers of partnership units as Limited Partners. The Partnership offered for sale up to $24,000,000 of limited partnership interests (the "Units") (24,000 Units at $1,000 per Unit) pursuant to a registration statement effective January 10, 1997. The Partnership commenced operations on May 1, 1997 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. The Partnership's 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). The Partnership was organized to acquire existing and newly constructed commercial properties located in the United States, to lease such properties to tenants under triple net leases, to hold such properties and to eventually sell such properties. From subscription proceeds, the Partnership purchased twelve properties, including partial interests in three properties, at a total cost of $13,363,547. The balance of the subscription proceeds was applied to organization and syndication costs, working capital reserves and distributions, which represented a return of capital. The properties are all commercial, single tenant buildings leased under triple net leases. The Partnership's properties were purchased with subscription proceeds without any indebtedness. The Partnership will not finance properties in the future to obtain proceeds for new property acquisitions. If it is required to do so, the Partnership may incur short-term indebtedness, which may be secured by a portion of the Partnership's properties, to finance day-to-day cash flow requirements (including cash flow necessary to repurchase Units). The amount of borrowings that may be secured by the properties is limited in the aggregate to 10% of the purchase price of all properties. The Partnership will not incur borrowings prior to application of the proceeds from sale of the Units, will not incur borrowings to pay distributions, and will not incur borrowings while there is cash available for distributions. The Partnership will hold its properties until the General Partners determine that the sale or other disposition of the properties is advantageous in view of the Partnership's investment objectives. In deciding whether to sell properties, the General Partners will consider factors such as potential appreciation, net cash flow and income tax considerations. In addition, certain lessees may be granted options to purchase properties after a specified portion of the lease term has elapsed. The Partnership expects to sell some or all of its properties prior to its final liquidation and to reinvest the proceeds from such sales in additional properties. The Partnership reserves the right, at the discretion of the General Partners, to either distribute proceeds from the sale of properties to the Partners or to reinvest such proceeds in additional properties, provided that sufficient proceeds are distributed to the Limited Partners to pay federal and state income taxes related to any taxable gain recognized as a result of the sale. It is anticipated that the Partnership will commence liquidation through the sale of its remaining properties twelve to fifteen years after its formation, although final liquidation may be delayed by a number of circumstances, including market conditions and seller financing of properties. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) Leases Although there are variations in the specific terms of the leases, the following is a summary of the general terms of the Partnership's leases. The properties are leased to various tenants under triple net leases, which are classified as operating leases. Under a triple net lease, the lessee is responsible for all real estate taxes, insurance, maintenance, repairs and operating expenses for the property. The initial lease terms are for 15 to 20 years. The leases provide for base annual rental payments, payable in monthly installments, and contain rent clauses which entitle the Partnership to receive additional rent in future years based on stated rent increases. The leases provide the lessees with two to four five-year renewal options subject to the same terms and conditions as the initial lease. Certain lessees have been granted options to purchase the property. Depending on the lease, the purchase price is either determined by a formula, or is the greater of the fair market value of the property or the amount determined by a formula. In all cases, if the option were to be exercised by the lessee, the purchase price would be greater than the original cost of the property. 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 1. DESCRIPTION OF BUSINESS. (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 was 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 $671,846. 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 $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. 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. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) 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. 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 years ended December 31, 2001 and 2000, the net gain was $61,518 and $127,553, respectively. During 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 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 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. Major Tenants During 2001, four tenants each contributed more than ten percent of the Partnership's total rental revenue. The major tenants in aggregate contributed 77% of total rental revenue in 2001. It is anticipated that, based on minimum rental payments required under the leases, each major tenant will continue to contribute more than ten percent of rental revenue in 2002 and future years. Any failure of these major tenants could materially affect the Partnership's net income and cash distributions. Competition The Partnership is a minor factor in the commercial real estate business. There are numerous entities engaged in the commercial real estate business which have greater financial resources than the Partnership. At the time the Partnership elects to dispose of its properties, the Partnership will be in competition with other persons and entities to find buyers for its properties. Employees The Partnership has no direct employees. Management services are performed for the Partnership by AEI Fund Management, Inc., an affiliate of AFM. ITEM 2. DESCRIPTION OF PROPERTIES. Investment Objectives The Partnership's investment objectives are to acquire existing or newly-developed commercial properties throughout the United States that offer the potential for (i) regular cash distributions of lease income; (ii) growth in lease income through rent escalation provisions; (iii) preservation of capital through all-cash transactions; (iv) capital growth through appreciation in the value of properties; and (v) stable property performance through long-term lease contracts. The Partnership does not have a policy, and there is no limitation, as to the amount or percentage of assets that may be invested in any one property. However, to the extent possible, the General Partners attempt to diversify the type and location of the Partnership's properties. Description of Properties The Partnership's properties are commercial, single tenant buildings. The properties were acquired on a debt-free basis and are leased to various tenants under triple net leases, which are classified as operating leases. The Partnership holds an undivided fee simple interest in the properties. The Partnership's properties are subject to the general competitive conditions incident to the ownership of single tenant investment real estate. Since each property is leased under a long-term lease, there is little competition until the Partnership decides to sell the property. At this time, the Partnership will be competing with other real estate owners, on both a national and local level, in attempting to find buyers for the properties. In the event of a tenant default, the Partnership would be competing with other real estate owners, who have property vacancies, to attract a new tenant to lease the property. The Partnership's tenants operate in industries that are very competitive and can be affected by factors such as changes in regional or local economies, seasonality and changes in consumer preference. The following table is a summary of the property that the Partnership acquired and owned as of December 31, 2001. Total Property Annual Annual Purchase Acquisition Lease Rent Per Property Date Costs Lessee Payment Sq. Ft. TGI Friday's Restaurant Greensburg, PA Ohio Valley (40.0%) 12/10/97 $ 668,144 Bistros, Inc. $ 69,969 $38.79 Hollywood Video Store Hollywood Saraland, AL Entertainment (64.4916%) 1/26/99 $ 888,624 Corporation $ 83,592 $17.31 Champps Americana Restaurant Champps Centerville, OH Operating (23.0%) 1/27/99 $ 924,843 Corporation $ 93,256 $43.28 Arby's Restaurant RTM Homewood, AL 7/9/99 $1,392,592 Alabama, Inc. $ 122,005 $37.47 Children's World ARAMARK Daycare Center Educational Abingdon, MD 7/14/99 $1,051,772 Resources, Inc. $ 91,677 $12.36 ITEM 2. DESCRIPTION OF PROPERTIES. (Continued) Total Property Annual Annual Purchase Acquisition Lease Rent Per Property Date Costs Lessee Payment Sq. Ft. Children's World ARAMARK Daycare Center Educational Houston, TX 7/14/99 $ 892,219 Resources, Inc. $ 79,093 $10.91 Children's World ARAMARK Daycare Center Educational Pearland, TX 7/14/99 $ 943,415 Resources, Inc. $ 83,635 $11.01 Children's World Daycare Center ARAMARK DePere, WI Educational (7.3845%) 7/14/99 $ 87,688 Resources, Inc. $ 7,839 $10.43 Hollywood Hollywood Video Store Entertainment Minot, ND 7/16/99 $1,330,000 Corporation $ 129,168 $17.21 Hollywood Hollywood Video Store Entertainment Muscle Shoals, AL 8/26/99 $1,340,626 Corporation $ 129,659 $19.29 Tumbleweed Restaurant Fort Wayne, IN 8/31/99 $1,316,695 Tumbleweed, Inc. $ 136,231 $24.44 Children's World Daycare Center ARAMARK Golden, CO Educational (3.968%) 9/28/00 $ 66,647 Resources, Inc. $ 6,581 $19.35 Children's World Daycare Center ARAMARK Plainfield, IL Educational (25.0%) 5/14/01 $ 368,176 Resources, Inc. $ 35,269 $15.76 Razzoo's Restaurant Austin, TX (48.0%) 6/27/01 $1,544,215 Razzoo's, Inc. $ 152,662 $32.45 The properties listed above with a partial ownership percentage are owned with affiliates of the Partnership and/or related third parties. The remaining interest in the TGI Friday's restaurant is owned by AEI Real Estate Fund XVII Limited Partnership. The remaining interests in the Champps Americana restaurant 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. The remaining interests in the Hollywood Video store in Saraland, Alabama and the Children's World daycare center in DePere, Wisconsin are owned by unrelated third parties. The remaining interests in the Children's World daycare center in Golden, Colorado are owned by AEI Private Net Lease Millennium Fund Limited Partnership and unrelated third parties. The remaining interests in the Children's World daycare center in Plainfield, Illinois are owned by AEI Real Estate Fund 85-A Limited Partnership and AEI Private Net Lease Millennium Fund Limited Partnership. The remaining interests in the Razzoo's restaurant 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. ITEM 2. DESCRIPTION OF PROPERTIES. (Continued) The Partnership accounts for properties owned as tenants- in-common with affiliated Partnerships and/or unrelated third parties using the proportionate consolidation method. Each tenant-in-common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in- common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building and equipment, liabilities, revenues and expenses. The initial Lease terms are 15 years, except for the Champps Americana and Arby's restaurants, which have Lease terms of 20 years. The Leases contain renewal options which may extend the Lease term an additional 15 years, except for the TGI Friday's, Arby's, Razzoo's and Tumbleweed restaurants, which have renewal options that may extend the Lease term an additional 10 years and the Hollywood Video store in Saraland, Alabama, which has renewal options that may extend the Lease term an additional 20 years. Pursuant to the Lease Agreement, the tenants are required to provide proof of adequate insurance coverage on the properties they occupy. The General Partners believe the properties are adequately covered by insurance and consider the properties to be well-maintained and sufficient for the Partnership's operations. For tax purposes, the Partnership's properties are depreciated under the Modified Accelerated Cost Recovery System (MACRS). The largest depreciable component of a property is the building which is depreciated, using the straight-line method, over 39 years. The remaining depreciable components of a property are personal property and land improvements which are depreciated, using an accelerated method, over 5 and 15 years, respectively. Since the Partnership has tax-exempt Partners, the Partnership is subject to the rules of Section 168(h)(6) of the Internal Revenue Code which requires a percentage of the properties' depreciable components to be depreciated over longer lives using the straight-line method. In general, the federal tax basis of the properties for tax depreciation purposes is the same as the basis for book depreciation purposes. Through December 31, 2001, all properties listed above were 100% occupied. ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY HOLDER MATTERS. As of December 31, 2001 there were 736 holders record of the registrant's Limited Partnership Units. There is no other class of security outstanding or authorized. The registrant's Units are not a traded security in any market. However, 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. 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. Cash distributions of $33,082 and $33,384 were made to the General Partners and $1,175,943 and $1,140,252 were made to the Limited Partners in 2001 and 2000, respectively. The distributions were made on a quarterly basis and represent Net Cash Flow, as defined, except as discussed below. These distributions should not be compared with dividends paid on capital stock by corporations. As part of the Limited Partnership distributions discussed above, the Partnership distributed $270,000 and $259,449 of proceeds from property sales in 2001 and 2000, respectively. The distributions reduced the Limited Partner's Adjusted Capital Contribution. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. Results of Operations For the years ended December 31, 2001 and 2000, the Partnership recognized rental income of $1,207,009 and $1,144,982, respectively. During the same periods, the Partnership earned investment income of $76,061 and $80,227, respectively. In 2001, rental income increased as a result of additional rent received from three property acquisitions in 2000 and 2001 and rent increases on three properties. These increases in rental income were partially offset by a decrease in rental income due to the property sales discussed below. During the years ended December 31, 2001 and 2000, the Partnership paid Partnership administration expenses to affiliated parties of $186,297 and $164,339, 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 $33,650 and $29,932, 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. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) As of December 31, 2001, 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 year ended December 31, 2001, the Partnership's cash balances increased $308,071 as a result of cash generated from the sale of property, which was partially offset by cash used to purchase property and the Partnership distributed more cash to the Partners than it generated from operating activities. Net cash provided by operating activities increased from $1,009,525 in 2000 to $1,117,956 in 2001 as a result of an increase in income in 2001 and net timing differences in the collection of payments from the lessees and the payment of expenses, which were partially offset by an increase in Partnership administration expenses in 2001. 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 years ended December 31, 2001 and 2000, the Partnership generated cash flow from the sale of real estate of $1,150,946 and $2,476,996, respectively. During the same periods, the Partnership expended $666,803 and $1,917,434, respectively, 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 years ended December 31, 2001 and 2000, the net gain was $61,518 and $127,553, respectively. During 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 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. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) 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. During 2001 and 2000, the Partnership distributed $272,728 and $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 $16.26 and $15.54 per Limited Partnership Unit, respectively. The remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. On September 28, 2000, the Partnership purchased a 40% interest in a Children's World daycare center in Golden, Colorado for $671,846. 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 $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. 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 ten days 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. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) 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. 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. ITEM 7. FINANCIAL STATEMENTS. See accompanying index to financial statements. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS Report of Independent Auditors Balance Sheet as of December 31, 2001 and 2000 Statements for the Years Ended December 31, 2001 and 2000: Income Cash Flows Changes in Partners' Capital Notes to Financial Statements REPORT OF INDEPENDENT AUDITORS To the Partners: AEI Income & Growth Fund XXII Limited Partnership St. Paul, Minnesota We have audited the accompanying balance sheet of AEI Income & Growth Fund XXII Limited Partnership (a Minnesota limited partnership) as of December 31, 2001 and 2000 and the related statements of income, cash flows and changes in partners' capital for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AEI Income & Growth Fund XXII Limited Partnership as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Minneapolis, Minnesota /s/ BOULAY, HEUTMAKER, ZIBELL & CO. P.L.L.P. January 23, 2002 Boulay, Heutmaker, Zibell & Co. P.L.L.P. Certified Public Accountants AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP BALANCE SHEET DECEMBER 31 ASSETS 2001 2000 CURRENT ASSETS: Cash and Cash Equivalents $ 880,350 $ 572,279 Receivables 0 28,040 ----------- ----------- Total Current Assets 880,350 600,319 ----------- ----------- INVESTMENTS IN REAL ESTATE: Land 4,912,902 5,010,783 Buildings and Equipment 7,902,754 7,491,306 Construction in Progress 0 616,286 Accumulated Depreciation (769,823) (477,061) ----------- ----------- Net Investments in Real Estate 12,045,833 12,641,314 ----------- ----------- Total Assets $12,926,183 $13,241,633 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 48,399 $ 21,606 Distributions Payable 290,645 300,145 ----------- ----------- Total Current Liabilities 339,044 321,751 ----------- ----------- PARTNERS' CAPITAL (DEFICIT): General Partners 1,645 (40,033) Limited Partners, $1,000 Unit Value; 24,000 Units authorized; 16,917 Units issued; 16,557 and 16,657 Units outstanding in 2001 and 2000, respectively 12,585,494 12,959,915 ----------- ----------- Total Partners' Capital 12,587,139 12,919,882 ----------- ----------- Total Liabilities and Partners' Capital $12,926,183 $13,241,633 =========== =========== 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 YEARS ENDED DECEMBER 31 2001 2000 INCOME: Rent $ 1,207,009 $ 1,144,982 Investment Income 76,061 80,227 ----------- ----------- Total Income 1,283,070 1,225,209 ----------- ----------- EXPENSES: Partnership Administration - Affiliates 186,297 164,339 Partnership Administration and Property Management - Unrelated Parties 33,650 29,932 Depreciation 326,858 318,756 ----------- ----------- Total Expenses 546,805 513,027 ----------- ----------- OPERATING INCOME 736,265 712,182 GAIN ON SALE OF REAL ESTATE 215,520 357,720 ----------- ----------- NET INCOME $ 951,785 $ 1,069,902 =========== =========== NET INCOME ALLOCATED: General Partners $ 74,760 $ 32,097 Limited Partners 877,025 1,037,805 ----------- ----------- $ 951,785 $ 1,069,902 =========== =========== NET INCOME PER LIMITED PARTNERSHIP UNIT (16,601 and 16,730 weighted average Units outstanding in 2001 and 2000, respectively) $ 52.83 $ 62.03 =========== =========== 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 YEARS ENDED DECEMBER 31 2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 951,785 $ 1,069,902 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation 326,858 318,756 Gain on Sale of Real Estate (215,520) (357,720) (Increase) Decrease in Receivables 28,040 (28,040) Increase in Payable to AEI Fund Management, Inc. 26,793 6,627 ----------- ----------- Total Adjustments 166,171 (60,377) ----------- ----------- Net Cash Provided By Operating Activities 1,117,956 1,009,525 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (666,803) (1,917,434) Proceeds from Sale of Real Estate 1,150,946 2,476,996 ----------- ----------- Net Cash Provided By Investing Activities 484,143 559,562 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (Decrease) in Distributions Payable (9,500) 43,298 Distributions to Partners (1,206,689) (1,170,114) Redemption Payments (77,839) (117,393) ----------- ----------- Net Cash Used For Financing Activities (1,294,028) (1,244,209) ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 308,071 324,878 CASH AND CASH EQUIVALENTS, beginning of period 572,279 247,401 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 880,350 $ 572,279 =========== =========== 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 YEARS ENDED DECEMBER 31 Limited Partnership General Limited Units Partners Partners Total Outstanding BALANCE, December 31, 1999 $(38,746) $13,176,233 $13,137,487 16,808.18 Distributions (29,862) (1,140,252) (1,170,114) Redemption Payments (3,522) (113,871) (117,393) (150.86) Net Income 32,097 1,037,805 1,069,902 -------- ----------- ----------- ---------- BALANCE, December 31, 2000 (40,033) 12,959,915 12,919,882 16,657.32 Distributions (30,746) (1,175,943) (1,206,689) Redemption Payments (2,336) (75,503) (77,839) (100.69) Net Income 74,760 877,025 951,785 -------- ----------- ----------- ---------- BALANCE, December 31, 2001 $ 1,645 $12,585,494 $12,587,139 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 DECEMBER 31, 2001 AND 2000 (1) 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. 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. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (1) Organization - (Continued) 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. (2) Summary of Significant Accounting Policies - Financial Statement Presentation The accounts of the Partnership are maintained on the accrual basis of accounting for both federal income tax purposes and financial reporting purposes. Accounting Estimates Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. The Partnership regularly assesses whether market events and conditions indicate that it is reasonably possible to recover the carrying amounts of its investments in real estate from future operations and sales. A change in those market events and conditions could have a material effect on the carrying amount of its real estate. Cash Concentrations of Credit Risk The Partnership's cash is deposited primarily in one financial institution and at times during the year it may exceed FDIC insurance limits. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (2) Summary of Significant Accounting Policies - (Continued) Statement of Cash Flows For purposes of reporting cash flows, cash and cash equivalents may include cash in checking, cash invested in money market accounts, certificates of deposit, federal agency notes and commercial paper with a term of three months or less. Income Taxes The income or loss of the Partnership for federal income tax reporting purposes is includable in the income tax returns of the partners. Accordingly, no recognition has been given to income taxes in the accompanying financial statements. The tax return, the qualification of the Partnership as such for tax purposes, and the amount of distributable Partnership income or loss are subject to examination by federal and state taxing authorities. If such an examination results in changes with respect to the Partnership qualification or in changes to distributable Partnership income or loss, the taxable income of the partners would be adjusted accordingly. Real Estate The Partnership's real estate is leased under triple net leases classified as operating leases. The Partnership recognizes rental revenue on the accrual basis according to the terms of the individual leases. For leases which contain rental increases based on cost of living increases, the increases are recognized in the year in which they are effective. Real estate is recorded at the lower of cost or estimated net realizable value. The Partnership compares the carrying amount of its properties to the estimated future cash flows expected to result from the property and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the property, the Partnership recognizes an impairment loss by the amount by which the carrying amount of the property exceeds the fair value of the property. The Partnership has capitalized as Investments in Real Estate certain costs incurred in the review and acquisition of the properties. The costs were allocated to the land, buildings and equipment. The buildings and equipment of the Partnership are depreciated using the straight-line method for financial reporting purposes based on estimated useful lives of 25 years and 5 years, respectively. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (2) Summary of Significant Accounting Policies - (Continued) The Partnership accounts for properties owned as tenants- in-common with affiliated Partnerships and/or unrelated third parties using the proportionate consolidation method. Each tenant-in-common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in-common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building and equipment, liabilities, revenues and expenses. Newly Issued Pronouncements The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (SFAS 143) and Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 143 will be applicable to the Partnership in the year ended December 31, 2003. SFAS 144 will be applicable to the Partnership in the year ended December 31, 2002. Management is currently evaluating the impact of SFAS 143 and SFAS 144 on its financial statements. (3) Related Party Transactions - The Partnership owns a 40.0% interest in a TGI Friday's restaurant. The remaining interest in this property is owned by AEI Real Estate Fund XVII Limited Partnership, an affiliate of the Partnership. The Partnership owns a 23.0% interest in a Champps Americana restaurant. The remaining interests in this 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. The Partnership owns a 3.968% interest in a Children's World daycare center in Golden, Colorado. The remaining interests in this property are owned by AEI Private Net Lease Millennium Fund Limited Partnership, an affiliate of the Partnership, and unrelated third parties. AEI Private Net Lease Fund 1998 Limited Partnership, an affiliate of the Partnership, owned a 42.0% interest in this property until the interest was sold, in a series of transactions, to unrelated third parties in 2001. The Partnership owns a 25.0% interest in a Children's World daycare center in Plainfield, Illinois. The remaining interests in this 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 owns a 48.0% interest in a Razzoo's restaurant. The remaining interests in this 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. The Partnership owned a 53.0% interest in a Marie Callender's restaurant. The remaining interests in this property are owned by AEI Net Lease Income & Growth Fund XIX Limited Partnership and unrelated third parties. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (3) Related Party Transactions - (Continued) AEI and AFM received the following compensation and reimbursements for costs and expenses from the Partnership: Total Incurred by the Partnership for the Years Ended December 31 2001 2000 a.AEI and AFM are reimbursed for all costs incurred in connection with managing the Partnership's operations, maintaining the Partnership's books and communicating the results of operations to the Limited Partners. $ 186,297 $ 164,339 ======== ======== b.AEI and AFM are reimbursed for all direct expenses they have paid on the Partnership's behalf to third parties relating to Partnership administration and property management. These expenses included printing costs, legal and filing fees, direct administrative costs, outside audit and accounting costs, taxes, insurance and other property costs. $ 33,650 $ 29,932 ======== ======== c.AEI is reimbursed for all costs and direct expenses incurred by it in acquiring properties on behalf of the Partnership. The amounts are net of financing and commitment fees and expense reimbursements received by the Partnership from the lessees in the amount of $8,859 and $45,923 for 2001 and 2000, respectively. $ (1,121) $ (23,489) ======== ======== d.AEI is reimbursed for all costs incurred in connection with the sale of property. $ 48,462 $ 95,103 ======== ======== The payable to AEI Fund Management, Inc. represents the balance due for the services described in 3a, b, c, and d. 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 DECEMBER 31, 2001 AND 2000 (4) Investments in Real Estate - The Partnership leases its properties to various tenants through triple net leases, which are classified as operating leases. Under a triple net lease, the lessee is responsible for all real estate taxes, insurance, maintenance, repairs and operating expenses of the property. The initial Lease terms are 15 years, except for the Champps Americana and Arby's restaurants, which have Lease terms of 20 years. The Leases contain renewal options which may extend the Lease term an additional 15 years, except for the TGI Friday's, Arby's, Razzoo's and Tumbleweed restaurants, which have renewal options that may extend the Lease term an additional 10 years, and the Hollywood Video store in Saraland, Alabama, which has renewal options that may extend the Lease term an additional 20 years. The Leases contain rent clauses which entitle the Partnership to receive additional rent in future years based on stated rent increases. The Partnership's properties are all commercial, single- tenant buildings. The TGI Friday's restaurant was constructed and acquired in 1997. The Hollywood Video stores in Alabama and the Children's World daycare center in DePere, Wisconsin were constructed in 1998 and acquired in 1999. The Children's World daycare centers in Abingdon, Maryland and Houston, Texas were constructed in 1995 and acquired in 1999. The Children's World daycare center in Pearland, Texas was constructed in 1997 and acquired in 1999. The Children's World daycare center in Golden, Colorado was constructed and acquired in 2000. The Children's World daycare center in Plainfield, Illinois and the Razzoo's restaurant were constructed and acquired in 2001. The remaining properties were constructed and acquired in 1999. There have been no costs capitalized as improvements subsequent to the acquisitions. The cost of the properties and related accumulated depreciation at December 31, 2001 are as follows: Buildings and Accumulated Property Land Equipment Total Depreciation TGI Friday's, Greensburg, PA $ 295,020 $ 373,124 $ 668,144 $ 64,768 Hollywood Video, Saraland, AL 369,668 518,956 888,624 61,410 Champps Americana, Centerville, OH 468,050 456,793 924,843 59,572 Arby's, Homewood, AL 748,169 644,423 1,392,592 86,404 Children's World, Abingdon, MD 208,416 843,356 1,051,772 82,930 Children's World, Houston, TX 124,577 767,642 892,219 75,485 Children's World, Pearland, TX 204,105 739,310 943,415 72,699 Children's World, DePere, WI 19,509 68,179 87,688 6,704 Hollywood Video, Minot, ND 619,597 710,403 1,330,000 69,856 Hollywood Video, Muscle Shoals, AL 600,315 740,311 1,340,626 70,329 AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (4) Investments in Real Estate - (Continued) Buildings and Accumulated Property Land Equipment Total Depreciation Tumbleweed, Fort Wayne, IN 489,027 827,668 1,316,695 91,065 Children's World, Golden, CO 15,274 51,373 66,647 2,569 Children's World, Plainfield, IL 104,061 264,115 368,176 6,603 Razzoo's, Austin, TX 647,114 897,101 1,544,215 19,429 ---------- ---------- ----------- -------- $4,912,902 $7,902,754 $12,815,656 $769,823 ========== ========== =========== ======== 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 years ended December 31, 2001 and 2000, the net gain was $61,518 and $127,553, respectively. During 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 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 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. During 2001 and 2000, the Partnership distributed $272,728 and $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 $16.26 and $15.54 per Limited Partnership Unit, respectively. The remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. On September 28, 2000, the Partnership purchased a 40% interest in a Children's World daycare center in Golden, Colorado for $671,846. 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 $66,344. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (4) Investments in Real Estate - (Continued) 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. 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 minimum future rentals on the Lease for years subsequent to December 31, 2001 are as follows: 2002 $ 1,222,000 2003 1,224,942 2004 1,228,680 2005 1,232,458 2006 1,236,276 Thereafter 10,668,801 ---------- $16,813,157 ========== There were no contingent rents recognized in 2001 or 2000. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (5) Major Tenants - The following schedule presents rent revenue from individual tenants, or affiliated groups of tenants, who each contributed more than ten percent of the Partnership's total rent revenue for the years ended December 31: 2001 2000 Tenants Industry Hollywood Entertainment Corporation Retail $ 342,419 $ 358,208 ARAMARK Educational Resources, Inc. Child Care 329,702 332,610 Tumbleweed, Inc. Restaurant 134,451 131,814 RTM Alabama, Inc. Restaurant 121,214 N/A --------- --------- Aggregate rent revenue of major tenants $ 927,786 $ 822,632 ========= ========= Aggregate rent revenue of major tenants as a percentage of total rent revenue 77% 72% ========= ========= (6) Partners' Capital - Cash distributions of $33,082 and $33,384 were made to the General Partners and $1,175,943 and $1,140,252 were made to the Limited Partners for the years ended December 31, 2001 and 2000, respectively. The Limited Partners' distributions represent $70.84 and $68.16 per Limited Partnership Unit outstanding using 16,601 and 16,730 weighted average Units in 2001 and 2000, respectively. The distributions represent $48.27 and $55.20 per Unit of Net Income and $22.57 and $12.96 per Unit of return of contributed capital in 2001 and 2000, respectively. As part of the Limited Partners' distributions discussed above, the Partnership distributed $270,000 and $259,449 of proceeds from property sales in 2001 and 2000, respectively. The distributions reduced the Limited Partner's Adjusted Capital Contribution. 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. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (6) Partners' Capital - (Continued) 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 2000, seven Limited Partners redeemed a total of 150.86 Partnership Units for $113,871. The redemptions increase the remaining Limited Partner's ownership interest in the Partnership. After the effect of redemptions and the return of capital from the sale of property, the Adjusted Capital Contribution, as defined in the Partnership Agreement, is $989.80 per original $1,000 invested. (7) Income Taxes - The following is a reconciliation of net income for financial reporting purposes to income reported for federal income tax purposes for the years ended December 31: 2001 2000 Net Income for Financial Reporting Purposes $ 951,785 $1,069,902 Depreciation for Tax Purposes Under Depreciation for Financial Reporting Purposes 84,202 69,271 Amortization of Start-Up and Organization Costs (65,198) (89,854) Gain on Sale of Real Estate for Tax Purposes Under Gain for Financial Reporting Purposes (12,230) (10,034) --------- ---------- Taxable Income to Partners $ 958,559 $1,039,285 ========= ========== AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (7) Income Taxes - (Continued) The following is a reconciliation of Partners' capital for financial reporting purposes to Partners' capital reported for federal income tax purposes for the years ended December 31: 2001 2000 Partners' Capital for Financial Reporting Purposes $12,587,139 $12,919,882 Adjusted Tax Basis of Investments in Real Estate Over Net Investments in Real Estate for Financial Reporting Purposes 169,880 97,907 Capitalized Start-Up Costs Under Section 195 319,994 319,994 Amortization of Start-Up and Organization Costs (182,419) (117,221) Organization and Syndication Costs Treated as Reduction of Capital for Financial Reporting Purposes 2,424,726 2,424,726 ----------- ----------- Partners' Capital for Tax Reporting Purposes $15,319,320 $15,645,288 =========== =========== (8) Fair Value of Financial Instruments - The estimated fair values of the financial instruments, none of which are held for trading purposes, are as follows at December 31: 2001 2000 Carrying Fair Carrying Fair Amount Value Amount Value Cash $ 1,661 $ 1,661 $ 1,764 $ 1,764 Money Market Funds 878,689 878,689 570,515 570,515 --------- --------- --------- --------- Total Cash and Cash Equivalents $ 880,350 $ 880,350 $ 572,279 $ 572,279 ========= ========= ========= ========= ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The registrant is a limited partnership and has no officers, directors, or direct employees. The General Partners of the registrant are Robert P. Johnson and AFM. The General Partners manage and control the Partnership's affairs and have general responsibility and the ultimate authority in all matters affecting the Partnership's business. The director and officers of AFM are as follows: Robert P. Johnson, age 57, is Chief Executive Officer, President and Director and has held these positions since the formation of AFM in August, 1994, and has been elected to continue in these positions until December, 2002. From 1970 to the present, he had been employed exclusively in the investment industry, specializing in tax-advantaged limited partnership investments. In that capacity, he has been involved in the development, analysis, marketing and management of public and private investment programs investing in net lease properties as well as public and private investment programs investing in energy development. Since 1971, Mr. Johnson has been the president, a director and a registered principal of AEI Securities, Inc., which is registered with the Securities and Exchange Commission as a securities broker-dealer, is a member of the National Association of Securities Dealers, Inc. (NASD) and is a member of the Security Investors Protection Corporation (SIPC). Mr. Johnson has been president, a director and the principal shareholder of AEI Fund Management, Inc., a real estate management company founded by him, since 1978. Mr. Johnson is currently a general partner or principal of the general partner in thirteen limited partnerships and a managing member in two LLCs. Mark E. Larson, age 49, is Executive Vice President, Secretary, Treasurer and Chief Financial Officer and has held these positions since the formation of AFM in August, 1994, and has been elected to continue in these positions until December, 2002. Mr. Larson has been employed by AEI Fund Management, Inc. and affiliated entities since 1985. From 1979 to 1985, Mr. Larson was with Apache Corporation as manager of Program Accounting responsible for the accounting and reports for approximately 46 public partnerships. Mr. Larson is responsible for supervising the accounting functions of AFM and the registrant. ITEM 10. EXECUTIVE COMPENSATION. The General Partner and affiliates are reimbursed at cost for all services performed on behalf of the registrant and for all third party expenses paid on behalf of the registrant. The cost for services performed on behalf of the registrant is actual time spent performing such services plus an overhead burden. These services include organizing the registrant and arranging for the offer and sale of Units, reviewing properties for acquisition and rendering administrative and management services. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth information pertaining to the ownership of the Units by each person known by the Partnership to beneficially own 5% or more of the Units, by each General Partner, and by each officer or director of the Managing General Partner as of February 28, 2002: Name and Address Number of Percent of Beneficial Owner Units Held of Class AEI Fund Management XXI, Inc. 22 * 1300 Minnesota World Trade Center 30 East 7th Street, St. Paul, Minnesota 55101 Robert P. Johnson 0 0% 1300 Minnesota World Trade Center 30 East 7th Street, St. Paul, Minnesota 55101 Mark E. Larson 0 0% 1300 Minnesota World Trade Center 30 East 7th Street, St. Paul, Minnesota 55101 * Less than 1% The persons set forth in the preceding table hold sole voting power and power of disposition with respect to all of the Units set forth opposite their names. The General Partners know of no holders of more than 5% of the outstanding Units. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The registrant, AFM and its affiliates have common management and utilize the same facilities. As a result, certain administrative expenses are allocated among these related entities. All of such activities and any other transactions involving the affiliates of the General Partner of the registrant are governed by, and are conducted in conformity with, the limitations set forth in the Limited Partnership Agreement of the registrant. The following table sets forth the forms of compensation, distributions and cost reimbursements paid by the registrant to the General Partners or their Affiliates in connection with the operation of the Fund and its properties for the period from inception through December 31, 2001. Person or Entity Amount Incurred From Receiving Form and Method Inception (July 31, 1996) Compensation of Compensation To December 31, 2001 AEI Securities, Inc. Selling Commissions equal to 8% $1,691,722 of proceeds plus a 2% nonaccountable expense allowance, most of which was reallowed to Participating Dealers. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. (Continued) Person or Entity Amount Incurred From Receiving Form and Method Inception (July 31, 1996) Compensation of Compensation To December 31, 2001 General Partners and Reimbursement at Cost for other $ 762,880 Affiliates Organization and Offering Costs. General Partners and Reimbursement at Cost for all $ 318,289 Affiliates Acquisition Expenses General Partners and Reimbursement at Cost for all $ 873,624 Affiliates Administrative Expenses attributable to the Fund, including all expenses related to management of the Fund's properties and all other transfer agency, reporting, partner relations and other administrative functions. General Partners and Reimbursement at Cost for all expenses $ 143,565 Affiliates related to the disposition of the Fund's properties. General Partners 3% of Net Cash Flow in any fiscal year. $ 127,338 General Partners 1% of distributions of Net Proceeds of $ 5,348 Sale until Limited Partners have received an amount equal to(a) their Adjusted Capital Contributions, plus (b) an amount equal to 9% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously distributed. 10% of distributions of Net Proceeds of Sale thereafter. The limitations included in the Partnership Agreement require that the cumulative reimbursements to the General Partners and their affiliates for administrative expenses not allowed under the NASAA Guidelines ("Guidelines") will not exceed the sum of (i) the front-end fees allowed by the Guidelines less the front-end fees paid, (ii) the cumulative property management fees allowed but not paid, (iii) any real estate commission allowed under the Guidelines, and (iv) 10% of Net Cash Flow less the Net Cash Flow actually distributed. The reimbursements not allowed under the Guidelines include a controlling person's salary and fringe benefits, rent and depreciation. As of December 31, 2001, the cumulative reimbursements to the General Partners and their affiliates did not exceed these amounts. PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. A. Exhibits - Description 3.1 Certificate of Limited Partnership (incorporated by reference to Exhibit 3.1 of the registrant's Registration Statement on Form SB-2 filed on September 13, 1996 [File No. 333-5604]). 3.2 Restated Limited Partnership Agreement to the Prospectus (incorporated by reference to Exhibit A of Amendment No. 2 of the registrant's Registration Statement on Form SB-2 filed on August 21, 1997 [File No. 333-5604]). ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued) A. Exhibits - Description 10.1 Net Lease Agreement dated December 10, 1997 between the Partnership, and AEI Real Estate Fund XVII Limited Partnership and Ohio Valley Bistros, Inc. relating to the property at #1507, Rural Route #6, Greensburg, Pennsylvania (incorporated by reference to Exhibit 10.1 of Form 8-K filed on December 18, 1997). 10.2 Net Lease Agreement dated June 29, 1998 between the Partnership and Americana Dining Corp. relating to the property at 7880 Washington Village Drive, Centerville, Ohio (incorporated by reference to Exhibit 10.2 of Form 10- QSB filed on July 31, 1998). 10.3 Net Lease Agreement dated November 20, 1998 between the Partnership and RTM Alabama, Inc. relating to the property at 159 State Farm Parkway, Homewood, Alabama (incorporated by reference to Exhibit 10.11 of Form 10-KSB filed on March 12, 1999). 10.4 Net Lease Agreement dated November 25, 1998 between the Partnership and Tumbleweed, Inc. relating to the property at 6040 Lima Road, Fort Wayne, Indiana (incorporated by reference to Exhibit 10.13 of Form 10-KSB filed on March 12, 1999). 10.5 Assignment of Lease Agreement dated January 12, 1999 between the Partnership and Centurion Video, Ltd. relating to the property at 1097 Industrial Parkway, Saraland, Alabama (incorporated by reference to Exhibit 10.14 of Form 10-KSB filed on March 12, 1999). 10.6 First Amendment to Net Lease Agreement dated January 27, 1999 between the Partnership, AEI Real Estate Fund XVII Limited Partnership, AEI Real Estate Fund XVIII Limited Partnership, AEI Income & Growth Fund XXI Limited Partnership and Americana Dining Corp. relating to the property at 7880 Washington Drive, Centerville, Ohio (incorporated by reference to Exhibit 10.15 of Form 10-KSB filed on March 12, 1999). 10.7 Assignment and Assumption of Lease dated June 29, 1999 between the Partnership and Magnum Video I, Inc. relating to the property at 1700 South Broadway, Minot, North Dakota (incorporated by reference to Exhibit 10.9 of Form 8-K filed on July 26, 1999). 10.8 Net Lease Agreement dated July 14, 1999 between the Partnership and ARAMARK Educational Resources, Inc. relating to the property at 3325 Trellis Lane, Abingdon, Maryland (incorporated by reference to Exhibit 10.5 of Form 8-K filed on July 26, 1999). 10.9 Net Lease Agreement dated July 14, 1999 between the Partnership and ARAMARK Educational Resources, Inc. relating to the property at 2325 County Road 90 Pearland, Texas (incorporated by reference to Exhibit 10.6 of Form 8- K filed on July 26, 1999). 10.10 Net Lease Agreement dated July 14, 1999 between the Partnership and ARAMARK Educational Resources, Inc. relating to the property at 1553 Arcadian Drive, DePere, Wisconsin (incorporated by reference to Exhibit 10.7 of Form 8-K filed on July 26, 1999). 10.11 Net Lease Agreement dated July 14, 1999 between the Partnership and ARAMARK Educational Resources, Inc. relating to the property at 18035 Forrest Height Drive, Houston, Texas (incorporated by reference to Exhibit 10.8 of Form 8-K filed on July 26, 1999). 10.12 First Amendment to Net Lease Agreement dated July 9, 1999 between the Partnership and RTM Alabama, Inc. relating to the property at 159 State Farm Parkway, Homewood, Alabama (incorporated by reference to Exhibit 10.2 of Form 8-K filed on July 20, 1999). 10.13 Assignment of Lease dated August 26, 1999 between the Partnership and NOM Muscle Shoals, Ltd. relating to the property at 1304 Woodward Avenue, Muscle Shoals, Alabama (incorporated by reference to Exhibit 10.11 of Form 10-QSB filed on November 8, 1999). 10.14 First Amendment to Net Lease Agreement dated August 31, 1999, between the Partnership and Tumbleweed, Inc. relating to the property at 6040 Lima Road, Fort Wayne, Indiana (incorporated by reference to Exhibit 10.1 of Form 8-K filed on September 1, 1999). ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued) A. Exhibits - Description 10.15 Property Co-Tenancy Ownership Agreement dated February 29, 2000 between the Partnership and the D & R Family Limited Partnership relating to the property at 1553 Arcadian Drive, DePere, Wisconsin (incorporated by reference to Exhibit 10.34 of Form 10-KSB filed on March 10, 2000). 10.16 Purchase Agreement dated March 16, 2000 between the Partnership and George M. Kunitake and Kay H. Kunitake, husband and wife, and Steven T. Kunitake relating to the property at 1553 Arcadian Drive, DePere, Wisconsin (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed on May 5, 2000). 10.17 Property Co-Tenancy Ownership Agreement dated March 24, 2000 between the Partnership and George M. Kunitake and Kay H. Kunitake, husband and wife, and Steven T. Kunitake relating to the property at 1553 Arcadian Drive, DePere, Wisconsin (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed on May 5, 2000). 10.18 Purchase Agreement dated March 27, 2000 between the Partnership and the Carl R. Whittington Trust relating to the property at 1553 Arcadian Drive, DePere, Wisconsin (incorporated by reference to Exhibit 10.3 of Form 10-QSB filed on May 5, 2000). 10.19 Purchase Agreement dated March 27, 2000 between the Partnership and the Carl R. Whittington Trust relating to the property at 530 North Stephanie Street, Henderson, Nevada (incorporated by reference to Exhibit 10.4 of Form 10-QSB filed on May 5, 2000). 10.20 Purchase Agreement dated March 27, 2000 between the Partnership and the Carl R. Whittington Trust relating to the property at 1097 Industrial Parkway, Saraland, Alabama (incorporated by reference to Exhibit 10.5 of Form 10-QSB filed on May 5, 2000). 10.21 Property Co-Tenancy Ownership Agreement dated March 30, 2000 between the Partnership and the Carl R. Whittington Trust relating to the property at 1097 Industrial Parkway, Saraland, Alabama (incorporated by reference to Exhibit 10.6 of Form 10-QSB filed on May 5, 2000). 10.22 Property Co-Tenancy Ownership Agreement dated March 30, 2000 between the Partnership and the Carl R. Whittington Trust relating to the property at 1553 Arcadian Drive, DePere, Wisconsin (incorporated by reference to Exhibit 10.7 of Form 10-QSB filed on May 5, 2000). 10.23 Purchase Agreement dated April 13, 2000 between the Partnership and Francis E. Quinn and Cecile Ann Quinn relating to the property at 530 North Stephanie Street, Henderson, Nevada (incorporated by reference to Exhibit 10.8 of Form 10-QSB filed on May 5, 2000). 10.24 Purchase Agreement dated April 18, 2000 between the Partnership and the Wuest Estate Company relating to the property at 1097 Industrial Parkway, Saraland, Alabama (incorporated by reference to Exhibit 10.9 of Form 10-QSB filed on May 5, 2000). 10.25 Property Co-Tenancy Ownership Agreement dated April 21, 2000 between the Partnership and the Wuest Estate Company relating to the property at 1097 Industrial Parkway, Saraland, Alabama (incorporated by reference to Exhibit 10.10 of Form 10-QSB filed on May 5, 2000). 10.26 Development Financing Agreement dated May 8, 2000 between the Partnership, AEI Real Estate Fund XV Limited Partnership, AEI Real Estate Fund XVII Limited Partnership, AEI Net Lease Income & Growth Fund XIX Limited Partnership and Razzoo's, Inc. relating to the property at 11617 Research Boulevard, Austin, Texas (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed on August 2, 2000). 10.27 Net Lease Agreement dated May 8, 2000 between the Partnership, AEI Real Estate Fund XV Limited Partnership, AEI Real Estate Fund XVII Limited Partnership, AEI Net Lease Income & Growth Fund XIX Limited Partnership and Razzoo's, Inc. relating to the property at 11617 Research Boulevard, Austin, Texas (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed on August 2, 2000). 10.28 Purchase Agreement dated June 1, 2000 between the Partnership, AEI Net Lease Income & Growth Fund XIX Limited Partnership and Grace Noltensmeier relating to the property at 530 North Stephanie Street, Henderson, Nevada (incorporated by reference to Exhibit 10.3 of Form 10-QSB filed on August 2, 2000). ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued) A. Exhibits - Description 10.29 Purchase Agreement dated June 22, 2000 between the Partnership and Patricia T. Dixon relating to the property at 1097 Industrial Parkway, Saraland, Alabama (incorporated by reference to Exhibit 10.4 of Form 10-QSB filed on August 2, 2000). 10.30 Property Co-Tenancy Ownership Agreement dated June 30, 2000 between the Partnership and Patricia T. Dixon relating to the property at 1097 Industrial Parkway, Saraland, Alabama (incorporated by reference to Exhibit 10.5 of Form 10-QSB filed on August 2, 2000). 10.31 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 (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed on November 7, 2000). 10.32 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 (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed on November 7, 2000). 10.33 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 ARAMARK Educational Resources, Inc. relating to the property at 18601 Eagle Ridge, Golden, Colorado (incorporated by reference to Exhibit 10.3 of Form 10-QSB filed on November 7, 2000). 10.34 Purchase Agreement dated January 29, 2001 between the Partnership and Dwight W. and Linda R. Peterson relating to the property at 1553 Arcadian Drive, DePere, Wisconsin (incorporated by reference to Exhibit 10.47 of Form 10-KSB filed on March 9, 2001). 10.35 Property Co-Tenancy Ownership Agreement dated January 31, 2001 between the Partnership and Dwight W. and Linda R. Peterson relating to the property at 1553 Arcadian Drive, DePere, Wisconsin (incorporated by reference to Exhibit 10.48 of Form 10-KSB filed on March 9, 2001). 10.36 Purchase Agreement dated March 5, 2001 between the Partnership and James and Mary Rea relating to the property at 18601 Eagle Ridge, Golden, Colorado (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed on May 10, 2001). 10.37 Property Co-Tenancy Ownership Agreement dated March 12, 2001 between the Partnership and James and Mary Rea relating to the property at 18601 Eagle Ridge, Golden, Colorado (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed on May 10, 2001). 10.38 Purchase Agreement dated March 14, 2001 between the Partnership and William C. Bashor relating to the property at 18601 Eagle Ridge, Golden, Colorado (incorporated by reference to Exhibit 10.3 of Form 10-QSB filed on May 10, 2001). 10.39 Property Co-Tenancy Ownership Agreement dated March 16, 2001 between the Partnership and William C. Bashor relating to the property at 18601 Eagle Ridge, Golden, Colorado (incorporated by reference to Exhibit 10.4 of Form 10-QSB filed on May 10, 2001). 10.40 Purchase and Sale Agreement and Escrow Instructions dated March 27, 2001 between the Partnership, AEI Real Estate Fund 85-A Limited Partnership, AEI Private Net Lease Millennium Fund Limited Partnership and ARAMARK Educational Resources, Inc. relating to the property at 15950 Fredrick Drive, Plainfield, Illinois (incorporated by reference to Exhibit 10.5 of Form 10-QSB filed on May 10, 2001). 10.41 Purchase Agreement dated April 3, 2001 between the Partnership and Lynn and Camille Bushman relating to the property at 18601 Eagle Ridge, Golden, Colorado (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed on August 7, 2001). 10.42 Property Co-Tenancy Ownership Agreement dated April 9, 2001 between the Partnership and Lynn and Camille Bushman relating to the property at 18601 Eagle Ridge, Golden, Colorado (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed on August 7, 2001). ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued) A. Exhibits - Description 10.43 Net Lease Agreement dated May 14, 2001 between the Partnership, AEI Real Estate Fund 85-A Limited Partnership, AEI Private Net Lease Millennium Fund Limited Partnership and ARAMARK Educational Resources, Inc. relating to the property at 15950 Fredrick Drive, Plainfield, Illinois (incorporated by reference to Exhibit 10.3 of Form 10-QSB filed on August 7, 2001). 10.44 First Amendment to Net Lease Agreement dated June 27, 2001 between the Partnership, AEI Real Estate Fund XV Limited Partnership, AEI Real Estate Fund XVII Limited Partnership, AEI Net Lease Income & Growth Fund XIX Limited Partnership and Razzoo's, Inc. relating to the property at 11617 Research Boulevard, Austin, Texas (incorporated by reference to Exhibit 10.4 of Form 10-QSB filed on August 7, 2001). 10.45 Purchase Agreement dated August 14, 2001 between the Partnership and Munkberg Farms Inc. relating to the property at 18601 Eagle Ridge, Golden, Colorado (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed on October 23, 2001). 10.46 Property Co-Tenancy Ownership Agreement dated August 17, 2001 between the Partnership and Munkberg Farms Inc. relating to the property at 18601 Eagle Ridge, Golden, Colorado (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed on October 23, 2001). 10.47 Purchase Agreement dated December 21, 2001 between the Partnership and the Gausewitz Family Limited Partnership relating to the property at 1553 Arcadian Drive, DePere, Wisconsin. 10.48 Property Co-Tenancy Ownership Agreement dated December 28, 2001 between the Partnership and the Gausewitz Family Limited Partnership relating to the property at 1553 Arcadian Drive, DePere, Wisconsin. B. Reports on Form 8-K - None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. AEI INCOME & GROWTH FUND XXII Limited Partnership By: AEI Fund Management XXI, Inc. Its Managing General Partner March 8, 2002 By: /s/ Robert P. Johnson Robert P. Johnson, President and Director (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Title Date /s/ Robert P. Johnson President (Principal Executive Officer) March 8, 2002 Robert P. Johnson and Sole Director of Managing General Partner /s/ Mark E. Larson Executive Vice President, Treasurer March 8, 2002 Mark E. Larson and Chief Financial Officer (Principal Accounting Officer)