-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GJj5a+zWZ+ow5ju6iq7H7x7LIg7aZDcsFiP1a/fuWxAcu5os/qIlF76VnJgebLD/ JvXFLa5p/FPOFvo20DjdGw== 0000771677-04-000027.txt : 20040514 0000771677-04-000027.hdr.sgml : 20040514 20040514133236 ACCESSION NUMBER: 0000771677-04-000027 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEI INCOME & GROWTH FUND XXII LTD PARTNERSHIP CENTRAL INDEX KEY: 0001023458 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 411848181 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-24003 FILM NUMBER: 04806089 BUSINESS ADDRESS: STREET 1: 1300 MINNESOTA WORLD TRADE CENTER STREET 2: 30 EAST SEVENTH ST CITY: ST PAUL STATE: MN ZIP: 55101 BUSINESS PHONE: 6512277333 MAIL ADDRESS: STREET 1: 1300 MINNESOTA WORLD TRADE CENTER STREET 2: 30 SEVENTH ST EAST CITY: ST PAUL STATE: MN ZIP: 55101 10QSB 1 q221-04.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Quarter Ended: March 31, 2004 Commission file number: 24003 AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP (Exact Name of Small Business Issuer as Specified in its Charter) State of Minnesota 41-1848181 (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101 (Address of Principal Executive Offices) (651) 227-7333 (Issuer's telephone number) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Transitional Small Business Disclosure Format: Yes No [X] AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP INDEX PART I. Financial Information Item 1. Balance Sheet as of March 31, 2004 and December 31, 2003 Statements for the Periods ended March 31, 2004 and 2003: Income Cash Flows Changes in Partners' Capital Notes to Financial Statements Item 2. Management's Discussion and Analysis Item 3. Controls and Procedures PART II. Other Information Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP BALANCE SHEET MARCH 31, 2004 AND DECEMBER 31, 2003 (Unaudited) ASSETS 2004 2003 CURRENT ASSETS: Cash and Cash Equivalents $ 2,636,492 $ 875,777 Receivables 0 44,191 ----------- ----------- Total Current Assets 2,636,492 919,968 ----------- ----------- INVESTMENTS IN REAL ESTATE: Land 4,080,987 4,042,900 Buildings and Equipment 7,820,594 6,766,348 Construction in Progress 0 889,670 Accumulated Depreciation (806,649) (727,204) ----------- ----------- 11,094,932 10,971,714 Real Estate Held for Sale 0 1,564,145 ----------- ----------- Net Investments in Real Estate 11,094,932 12,535,859 ----------- ----------- Total Assets $13,731,424 $13,455,827 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 40,174 $ 77,508 Distributions Payable 279,731 281,412 Unearned Rent 8,999 0 ----------- ----------- Total Current Liabilities 328,904 358,920 ----------- ----------- PARTNERS' CAPITAL: General Partners 13,994 12,908 Limited Partners, $1,000 per Unit; 24,000 Units authorized; 16,917 Units issued; 16,326 Units outstanding 13,388,526 13,083,999 ----------- ----------- Total Partners' Capital 13,402,520 13,096,907 ----------- ----------- Total Liabilities and Partners' Capital $13,731,424 $13,455,827 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP STATEMENT OF INCOME FOR THE PERIODS ENDED MARCH 31 (Unaudited) 2004 2003 RENTAL INCOME $ 268,432 $ 187,501 EXPENSES: Partnership Administration - Affiliates 39,594 52,148 Partnership Administration and Property Management - Unrelated Parties 12,467 12,286 Depreciation 79,445 49,295 ----------- ----------- Total Expenses 131,506 113,729 ----------- ----------- OPERATING INCOME 136,926 73,772 OTHER INCOME: Interest Income 8,480 8,954 Gain on Sale of Real Estate 0 298,050 ----------- ----------- Total Other Income 8,480 307,004 ----------- ----------- INCOME FROM CONTINUING OPERATIONS 145,406 380,776 Income from Discontinued Operations 444,596 56,561 ----------- ----------- NET INCOME $ 590,002 $ 437,337 =========== =========== NET INCOME ALLOCATED: General Partners $ 9,012 $ 7,160 Limited Partners 580,990 430,177 ----------- ----------- $ 590,002 $ 437,337 =========== =========== INCOME PER LIMITED PARTNERSHIP UNIT: Continuing Operations $ 8.64 $ 22.73 Discontinued Operations 26.95 3.32 ----------- ----------- Total $ 35.59 $ 26.05 =========== =========== Weighted Average Units Outstanding 16,326 16,516 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS FOR THE PERIODS ENDED MARCH 31 (Unaudited) 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 590,002 $ 437,337 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation 79,445 69,410 Gain on Sale of Real Estate (434,401) (298,050) (Increase) Decrease in Receivables 44,191 (14,989) Increase (Decrease) in Payable to AEI Fund Management, Inc. (37,334) 45,151 Increase in Unearned Rent 8,999 8,343 ----------- ----------- Total Adjustments (339,100) (190,135) ----------- ----------- Net Cash Provided By Operating Activities 250,902 247,202 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (202,663) (224,354) Proceeds from Sale of Real Estate 1,998,546 1,499,486 ----------- ----------- Net Cash Provided By Investing Activities 1,795,883 1,275,132 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in Distributions Payable (1,681) 0 Distributions to Partners (284,389) (291,852) ----------- ----------- Net Cash Used For Financing Activities (286,070) (291,852) ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,760,715 1,230,482 CASH AND CASH EQUIVALENTS, beginning of period 875,777 2,108,482 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 2,636,492 $ 3,338,964 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE PERIODS ENDED MARCH 31 (Unaudited) Limited Partnership General Limited Units Partners Partners Total Outstanding BALANCE, December 31, 2002 $ 3,792 $12,442,255 $12,446,047 16,516.29 Distributions (7,342) (284,510) (291,852) Net Income 7,160 430,177 437,337 -------- ----------- ----------- ----------- BALANCE, March 31, 2003 $ 3,610 $12,587,922 $12,591,532 16,516.29 ======== =========== =========== =========== BALANCE, December 31, 2003 $ 12,908 $13,083,999 $13,096,907 16,325.90 Distributions (7,926) (276,463) (284,389) Net Income 9,012 580,990 590,002 -------- ----------- ----------- ----------- BALANCE, March 31, 2004 $ 13,994 $13,388,526 $13,402,520 16,325.90 ======== =========== =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS MARCH 31, 2004 (Unaudited) (1) The condensed statements included herein have been prepared by the Partnership, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of operations for the interim period, on a basis consistent with the annual audited statements. The adjustments made to these condensed statements consist only of normal recurring adjustments. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Partnership believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the Partnership's latest annual report on Form 10-KSB. (2) Organization - AEI Income & Growth Fund XXII Limited Partnership (Partnership) was formed to acquire and lease commercial properties to operating tenants. The Partnership's operations are managed by AEI Fund Management XXI, Inc. (AFM), the Managing General Partner. Robert P. Johnson, the President and sole 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 call for a subscription price of $1,000 per Limited Partnership Unit, payable on acceptance of the offer. The Partnership commenced operations on May 1, 1997 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. The offering terminated January 9, 1999 when the extended offering period expired. The Partnership received subscriptions for 16,917.222 Limited Partnership Units. Under the terms of the Limited Partnership Agreement, the Limited Partners and General Partners contributed funds of $16,917,222 and $1,000, respectively. During operations, any Net Cash Flow, as defined, which the General Partners determine to distribute will be distributed 97% to the Limited Partners and 3% to the General Partners. Distributions to Limited Partners will be made pro rata by Units. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (2) Organization - (Continued) Any Net Proceeds of Sale, as defined, from the sale or financing of properties which the General Partners determine to distribute will, after provisions for debts and reserves, be paid in the following manner: (i) first, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 9% of their Adjusted Capital Contribution per annum, cumulative but not compounded, to the extent not previously distributed from Net Cash Flow; (ii) any remaining balance will be distributed 90% to the Limited Partners and 10% to the General Partners. Distributions to the Limited Partners will be made pro rata by Units. For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of property, will be allocated first in the same ratio in which, and to the extent, Net Cash Flow is distributed to the Partners for such year. Any additional profits will be allocated in the same ratio as the last dollar of Net Cash Flow is distributed. Net losses from operations will be allocated 99% to the Limited Partners and 1% to the General Partners. For tax purposes, profits arising from the sale, financing, or other disposition of property will be allocated in accordance with the Partnership Agreement as follows: (i) first, to those partners with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Partners and 1% to the General Partners until the aggregate balance in the Limited Partners' capital accounts equals the sum of the Limited Partners' Adjusted Capital Contributions plus an amount equal to 9% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously allocated; (iii) third, the balance of any remaining gain will then be allocated 90% to the Limited Partners and 10% to the General Partners. Losses will be allocated 98% to the Limited Partners and 2% to the General Partners. The General Partners are not required to currently fund a deficit capital balance. Upon liquidation of the Partnership or withdrawal by a General Partner, the General Partners will contribute to the Partnership an amount equal to the lesser of the deficit balances in their capital accounts or 1% of total Limited Partners' and General Partners' capital contributions. (3) Reclassification - Certain items in the prior year's financial statements have been reclassified to conform to 2004 presentation. These reclassifications had no effect on Partners' capital, net income or cash flows. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (4) Investments in Real Estate - Through March 31, 2003, the Partnership sold 24.6846% of the Children's World daycare center in Plainfield, Illinois, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $450,673, which resulted in a net gain of $103,162. The total cost and related accumulated depreciation of the interests sold was $363,531 and $16,020, respectively. For the three months ended March 31, 2003, the net gain was $53,648. During the first nine months of 2003, the Partnership sold 99.4123% of the Arby's restaurant, in five separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,562,751, which resulted in a net gain of $306,567. The total cost and related accumulated depreciation of the interests sold was $1,384,408 and $128,224, respectively. For the three months ended March 31, 2003, the net gain was $244,402. During the first three months of 2004 and 2003, the Partnership distributed $30,303 and $70,707 of net sale proceeds to the Limited and General Partners as part of their regular quarterly distributions, which represented a return of capital of $1.84 and $4.24 per Limited Partnership Unit, respectively. The Partnership anticipates the remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. On December 6, 2002, the Partnership purchased a 50% interest in a parcel of land in West Chester, Ohio for $506,000. The Partnership obtained title to the land in the form of an undivided fee simple interest in the 50% interest purchased. The land is leased to Champps Operating Corporation (Champps) under a Lease Agreement with a primary term of 20 years and annual rental payments of $50,600. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Pursuant to the Lease, any improvements to the land during the term of the Lease become the property of the lessor. Through December 31, 2003, the Partnership had advanced $889,670 for construction of the property. The Partnership charged interest on the advances at a rate of 10.0%. On January 13, 2004, after the development was completed, the Lease Agreement was amended to require annual rental payments of $160,000. The Partnership's share of the total acquisition costs, including the cost of the land, was $1,569,884. The remaining interest in the property was purchased by AEI Net Lease Income & Growth Fund XX Limited Partnership, an affiliate of the Partnership. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (4) Investments in Real Estate - (Continued) On August 27, 2003, the Company purchased a 32% interest in a Garden Ridge retail store in Woodlands, Texas for $2,661,132. The property is leased to Garden Ridge, L.P. under a Lease Agreement with a primary term of 20 years and annual rental payments of $301,611. The remaining interests in the property were purchased by AEI Real Estate Fund XVIII Limited Partnership, AEI Income & Growth Fund 24 LLC and AEI Real Estate Fund XV Limited Partnership, affiliates of the Partnership. In February 2004, Garden Ridge, L.P. (GR) filed for Chapter 11 bankruptcy reorganization. In press releases, GR has stated their intent to close eight of 44 stores and attempt to renegotiate lease terms for certain other stores. The Woodlands store was not identified as one of the eight to be closed and GR has verbally communicated that they are interested in confirming the Lease for this site. In April 2004, GR submitted a written proposal requesting a 28% reduction in monthly rent. The Partnership is gathering market information about the site to prepare a counter- proposal. With the exception of February, GR was current on all rents due through May 2004. The rent for February is considered a pre-petition obligation, which may be paid from the bankruptcy court, on a prorata basis with other claims, to the extent available. The Partnership expects to continue to receive all scheduled rents in future months unless the Lease is rejected by GR. If the Lease is confirmed, GR must comply with all Lease terms. If the Lease is rejected, GR would be required to return possession of the property to the Partnership and the Partnership would be responsible for real estate taxes and other costs required to maintain the property. On December 30, 2003, the Partnership purchased a 50% interest in a Johnny Carino's restaurant in Longmont, Colorado for $1,293,405. The property is leased to Kona Restaurant Group, Inc. under a Lease Agreement with a primary term of 13 years and annual rental payments of $107,992. The remaining interest in the property was purchased by AEI Accredited Investor Fund 2002 Limited Partnership, an affiliate of the Partnership. In July 2003, the lessee of the Razzoo's restaurant in Austin, Texas notified the Partnership that they are experiencing financial difficulty and may not be able to pay future rents. However, rents are current and the Partnership holds a personal guarantee from the majority shareholder of the lessee for payment of all rents. The personal guarantee expires on June 27, 2004. Due to this notification, the Partnership is evaluating the lease and property value and has decided that it is premature to recognize an impairment loss at this time. It is reasonably possible that this decision may change in the future. At March 31, 2004, the book value of this property was $1,437,353. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (5) Payable to AEI Fund Management, Inc. - AEI Fund Management, Inc. performs the administrative and operating functions for the Partnership. The payable to AEI Fund Management represents the balance due for those services. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business. (6) Discontinued Operations - During the second quarter of 2003, the Partnership sold the Children's World daycare center in Houston, Texas, in four separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,056,594, which resulted in a net gain of $279,298. The total cost and related accumulated depreciation of the interests sold was $892,219 and $114,923, respectively. During the second quarter of 2003, the Partnership sold its 23% interest in the Champps Americana restaurant in Centerville, Ohio, in two separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,314,145, which resulted in a net gain of $476,562. The total cost and related accumulated depreciation of the interests sold was $924,843 and $87,260, respectively. During the fourth quarter of 2003, the Partnership sold 56.7837% of the Hollywood Video store in Muscle Shoals, Alabama, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $871,473, which resulted in a net gain of $182,491. The total cost and related accumulated depreciation of the interests sold was $761,257 and $72,275, respectively. During the first quarter of 2004, the Partnership sold its remaining 43.2163% interest in the Hollywood Video store in Muscle Shoals, Alabama, in two separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $668,266, which resulted in a net gain of $144,885. At December 31, 2003, the property was classified as Real Estate Held for Sale with a book value of $523,381. On December 10, 2003, the Partnership purchased a 50% interest in a Tia's Tex-Mex restaurant in Killeen, Texas for $1,041,935. The property was leased to Tia's Texas - Alamo LLC under a Lease Agreement with a primary term of 15 years and annual rental payments of $105,570. The remaining interest in the property was purchased by AEI Private Net Lease Millennium Fund Limited Partnership, an affiliate of the Partnership. During the first quarter of 2004, the Partnership sold its interest in the Tia's Tex-Mex restaurant, in four separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,330,280, which resulted in a net gain of $289,516. At December 31, 2003, the property was classified as Real Estate Held for Sale with a book value of $1,040,764. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (6) 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 three months ended March 31: 2004 2003 Rental Income $ 10,381 $ 77,216 Property Management Expenses (186) (540) Depreciation 0 (20,115) Gain on Disposal of Real Estate 434,401 0 ---------- --------- Income from Discontinued Operations $ 444,596 $ 56,561 ========== ========= ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. The Management's Discussion and Analysis contains various "forward looking statements" within the meaning of federal securities laws which represent management's expectations or beliefs concerning future events, including statements regarding anticipated application of cash, expected returns from rental income, growth in revenue, 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 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) The Application of Critical Accounting Policies The preparation of the Partnership's financial statements requires management to make estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management evaluates these estimates on an ongoing basis, including those related to the carrying value of real estate and the allocation by AEI Fund Management, Inc. of expenses to the Partnership as opposed to other funds they manage. The Partnership purchases properties and records them in the financial statements at the lower of cost or estimated realizable value. The Partnership initially records the properties at cost (including capitalized acquisition expenses). The Partnership is required to periodically evaluate the carrying value of properties to determine whether their realizable value has declined. For properties the Partnership will hold and operate, management determines whether impairment has occurred by comparing the property's probability-weighted cash flows to its current carrying value. For properties held for sale, management determines whether impairment has occurred by comparing the property's estimated fair value less cost to sell to its current carrying value. If the carrying value is greater than the realizable value, an impairment loss is recorded to reduce the carrying value of the property to its realizable value. A change in these assumptions or analysis could cause material changes in the carrying value of the properties. 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 three months ended March 31, 2004 and 2003, the Partnership recognized rental income from continuing operations of $268,432 and $187,501, respectively. In 2004, rental income increased due to additional rent received from four property acquisitions in 2003 and 2004 and rent increases on two properties. These increases were partially offset by a decrease in rental income due to sales of two properties discussed below. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) For the three months ended March 31, 2004 and 2003, the Partnership incurred Partnership administration expenses from affiliated parties of $39,594 and $52,148, 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 $12,467 and $12,286, 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. In July 2003, the lessee of the Razzoo's restaurant in Austin, Texas notified the Partnership that they are experiencing financial difficulty and may not be able to pay future rents. However, rents are current through May 31, 2004 and the Partnership holds a personal guarantee from the majority shareholder of the lessee for payment of all rents. The personal guarantee expires on June 27, 2004. Due to this notification, the Partnership is evaluating the lease and property value and has decided that it is premature to recognize an impairment loss at this time. It is reasonably possible that this decision may change in the future. At March 31, 2004, the book value of this property was $1,437,353. In February 2004, Garden Ridge, L.P. (GR), the lessee of the Garden Ridge retail store in Woodlands, Texas, filed for Chapter 11 bankruptcy reorganization. In press releases, GR has stated their intent to close eight of 44 stores and attempt to renegotiate lease terms for certain other stores. The Woodlands store was not identified as one of the eight to be closed and GR verbally communicated that they are interested in confirming the Lease for this site. In April 2004, GR submitted a written proposal requesting a 28% reduction in monthly rent. The Partnership is gathering market information about the site to prepare a counter-proposal. With the exception of February, GR was current on all rents due through May 2004. The rent for February is considered a pre-petition obligation, which may be paid from the bankruptcy court, on a prorata basis with other claims, to the extent available. The Partnership expects to continue to receive all scheduled rents in future months unless the Lease is rejected by GR. If the Lease is confirmed, GR must comply with all Lease terms. If the Lease is rejected, GR would be required to return possession of the property to the Partnership and the Partnership would be responsible for real estate taxes and other costs required to maintain the property. For the three months ended March 31, 2004 and 2003, the Partnership recognized interest income of $8,480 and $8,954, respectively. For the three months ended March 31, 2003, the Partnership recognized gain on sale of real estate from continuing operations of $298,050 from the sale of two properties. Since the Partnership retains an ownership interest in the properties, the operating results and gain on sale of the properties were not classified as discontinued operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) Through March 31, 2003, the Partnership sold 24.6846% of the Children's World daycare center in Plainfield, Illinois, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $450,673, which resulted in a net gain of $103,162. The total cost and related accumulated depreciation of the interests sold was $363,531 and $16,020, respectively. For the three months ended March 31, 2003, the net gain was $53,648. During the first nine months of 2003, the Partnership sold 99.4123% of the Arby's restaurant, in five separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,562,751, which resulted in a net gain of $306,567. The total cost and related accumulated depreciation of the interests sold was $1,384,408 and $128,224, respectively. For the three months ended March 31, 2003, the net gain was $244,402. In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, upon complete disposal of a property or classification of a property as Real Estate Held for Sale, the Partnership includes the operating results and sale of the property in discontinued operations. In addition, the Partnership reclassifies the prior periods operating results and any partial sales of the property to discontinued operations. For the three months ended March 31, 2004, the Partnership recognized income from discontinued operations of $444,596, representing rental income less property management expenses of $10,195 and gain on disposal of real estate of $434,401. For the three months ended March 31, 2003, the Partnership recognized income from discontinued operations of $56,561, representing rental income less property management expenses and depreciation. During the second quarter of 2003, the Partnership sold the Children's World daycare center in Houston, Texas, in four separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,056,594, which resulted in a net gain of $279,298. The total cost and related accumulated depreciation of the interests sold was $892,219 and $114,923, respectively. During the second quarter of 2003, the Partnership sold its 23% interest in the Champps Americana restaurant in Centerville, Ohio in two separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,314,145, which resulted in a net gain of $476,562. The total cost and related accumulated depreciation of the interests sold was $924,843 and $87,260, respectively. During the fourth quarter of 2003, the Partnership sold 56.7837% of the Hollywood Video store in Muscle Shoals, Alabama, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $871,473, which resulted in a net gain of $182,491. The total cost and related accumulated depreciation of the interests sold was $761,257 and $72,275, respectively. During the first quarter of 2004, the Partnership sold its remaining 43.2163% interest in the Hollywood Video store in Muscle Shoals, Alabama, in two separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $668,266, which resulted in a net gain of $144,885. At December 31, 2003, the property was classified as Real Estate Held for Sale with a book value of $523,381. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) During the first quarter of 2004, the Partnership sold its interest in the Tia's Tex-Mex restaurant in Killeen, Texas, in four separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,330,280, which resulted in a net gain of $289,516. At December 31, 2003, the property was classified as Real Estate Held for Sale with a book value of $1,040,764. In 2003 and the first quarter of 2004, the Partnership realized significant gains from the sale of property. While the real estate market is expected to remain attractive for sellers of property, there can be no assurance the Partnership will be able to achieve a similar level of sales activity or sales profitability during the remainder of 2004 due to unforeseen changes in the real estate market. In addition, it is likely the Partnership will curtail its selling activity as it is becoming more difficult to find attractive property in which to reinvest the proceeds from property sales. Inflation has had a minimal effect on income from operations. Leases may contain rent increases, based on the increase in the Consumer Price Index over a specified period, which will result in an increase in rental income over the term of the leases. In addition, leases may contain rent clauses which entitle the Partnership to receive additional rent in future years if gross receipts for the property exceed certain specified amounts. Increases in sales volumes of the tenants, due to inflation and real sales growth, may result in an increase in rental income over the term of the leases. Inflation also may cause the real estate to appreciate in value. However, inflation and changing prices may have an adverse impact on the operating margins of the properties' tenants, which could impair their ability to pay rent and subsequently reduce the Net Cash Flow available for distributions. Liquidity and Capital Resources During the three months ended March 31, 2004, the Partnership's cash balances increased $1,760,715 as a result of cash generated from the sale of property, which was partially offset by cash used to purchase property and distributions paid to the Partners in excess of cash generated from operating activities. During the three months ended March 31, 2003, the Partnership's cash balances increased $1,230,482 as a result of cash generated from the sale of property, which was partially offset by cash used to purchase property and distributions paid to the Partners in excess of cash generated from operating activities. Net cash provided by operating activities increased from $247,202 in 2003 to $250,902 in 2004 as a result of an increase in total rental and interest income and a decrease in Partnership administration and property management expenses in 2004, which were partially offset by net timing differences in the collection of payments from the lessees and the payment of expenses. The major components of the Partnership's cash flow from investing activities are investments in real estate and proceeds from the sale of real estate. During the three months ended March 31, 2004 and 2003, the Partnership generated cash flow from the sale of real estate of $1,998,546 and $1,499,486, respectively. During the same periods, the Partnership expended $202,663 and $224,354, respectively, to invest in real properties (inclusive of acquisition expenses) as the Partnership reinvested cash generated from property sales. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) On December 6, 2002, the Partnership purchased a 50% interest in a parcel of land in West Chester, Ohio for $506,000. The Partnership obtained title to the land in the form of an undivided fee simple interest in the 50% interest purchased. The land is leased to Champps Operating Corporation (Champps) under a Lease Agreement with a primary term of 20 years and annual rental payments of $50,600. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Pursuant to the Lease, any improvements to the land during the term of the Lease become the property of the lessor. Through December 31, 2003, the Partnership had advanced $889,670 for construction of the property. The Partnership charged interest on the advances at a rate of 10.0%. On January 13, 2004, after the development was completed, the Lease Agreement was amended to require annual rental payments of $160,000. The Partnership's share of the total acquisition costs, including the cost of the land, was $1,569,884. The remaining interest in the property was purchased by AEI Net Lease Income & Growth Fund XX Limited Partnership, an affiliate of the Partnership. On August 27, 2003, the Company purchased a 32% interest in a Garden Ridge retail store in Woodlands, Texas for $2,661,132. The property is leased to Garden Ridge, L.P. under a Lease Agreement with a primary term of 20 years and annual rental payments of $301,611. The remaining interests in the property were purchased by AEI Real Estate Fund XVIII Limited Partnership, AEI Income & Growth Fund 24 LLC and AEI Real Estate Fund XV Limited Partnership, affiliates of the Partnership. On December 10, 2003, the Partnership purchased a 50% interest in a Tia's Tex-Mex restaurant in Killeen, Texas for $1,041,935. The property is leased to Tia's Texas - Alamo LLC under a Lease Agreement with a primary term of 15 years and annual rental payments of $105,570. The remaining interest in the property was purchased by AEI Private Net Lease Millennium Fund Limited Partnership, an affiliate of the Partnership. On December 30, 2003, the Partnership purchased a 50% interest in a Johnny Carino's restaurant in Longmont, Colorado for $1,293,405. The property is leased to Kona Restaurant Group, Inc. under a Lease Agreement with a primary term of 13 years and annual rental payments of $107,992. The remaining interest in the property was purchased by AEI Accredited Investor Fund 2002 Limited Partnership, an affiliate of the Partnership. The Partnership's primary use of cash flow, other than investment in real estate, is distribution and redemption payments to Partners. The Partnership declares its regular quarterly distributions before the end of each quarter and pays the distribution in the first 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) For the three months ended March 31, 2004 and 2003, the Partnership declared distributions of $284,389 and $291,852, 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 $276,463 and $284,510 and the General Partners received distributions of $7,926 and $7,342 for the periods, respectively. During the first three months of 2004 and 2003, the Partnership distributed $30,303 and $70,707 of net sale proceeds to the Limited and General Partners as part of their regular quarterly distributions, which represented a return of capital of $1.84 and $4.24 per Limited Partnership Unit, respectively. The Partnership anticipates the remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During 2003, ten Limited Partners redeemed a total of 190.39 Partnership Units for $143,963 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. In prior years, a total of 23 Limited Partners redeemed 400.93 Partnership Units for $306,536. The redemptions increase the remaining Limited Partner's ownership interest in the Partnership. As a result of these redemption payments and pursuant to the Partnership Agreement, the General Partners received distributions of $4,452 in 2003. The continuing rent payments from the properties, together with cash generated from property sales, should be adequate to fund continuing distributions and meet other Partnership obligations on both a short-term and long-term basis. ITEM 3. CONTROLS AND PROCEDURES. (a) Evaluation of 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 its disclosure controls and procedures (as defined in Rule 13a-14(c) under 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, the disclosure controls and procedures of the Partnership are adequately designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in applicable rules and forms. (b) Changes in internal controls There were no significant changes made in the Partnership's internal controls during the most recent period covered by this report that have materially affected, or are reasonably likely to materially affect, the Partnership's 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 2.CHANGES IN SECURITIES None. ITEM 3.DEFAULTS UPON SENIOR SECURITIES None. ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5.OTHER INFORMATION None. PART II - OTHER INFORMATION (Continued) ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits - Description 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. b. Reports filed on Form 8-K - During the quarter ended March 31, 2004, the Partnership filed a Form 8-K dated January 21,2004, reporting the acquisition of a Champps Americana restaurant in West Chester, Ohio. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: May 11, 2004 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) EX-31.1 3 e311-04.txt Exhibit 31.1 CERTIFICATIONS I, Robert P. Johnson, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of AEI Income & Growth Fund XXII Limited Partnership; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge; the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal control over financial reporting; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Dated: May 11, 2004 /s/ Robert P Johnson Robert P. Johnson, President AEI Fund Management XXI, Inc. Managing General Partner EX-31.2 4 e3121-04.txt Exhibit 31.2 CERTIFICATIONS I, Patrick W. Keene, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of AEI Income & Growth Fund XXII Limited Partnership; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge; the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal control over financial reporting; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Dated: May 11, 2004 /s/ Patrick W Keene Patrick W. Keene, Chief Financial Officer AEI Fund Management XXI, Inc. Managing General Partner EX-32 5 e321-04.txt Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of AEI Income & Growth Fund XXII Limited Partnership (the "Partnership") on Form 10-QSB for the period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Robert P. Johnson, President of AEI Fund Management XXI, Inc., the Managing General Partner of the Partnership, and Patrick W. Keene, Chief Financial Officer of AEI Fund Management XXI, Inc., each certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ Robert P Johnson Robert P. Johnson, President AEI Fund Management XXI, Inc. Managing General Partner May 11, 2004 /s/ Patrick W Keene Patrick W. Keene, Chief Financial Officer AEI Fund Management XXI, Inc. Managing General Partner May 11, 2004 -----END PRIVACY-ENHANCED MESSAGE-----