10-Q 1 q222-08.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2008 Commission File Number: 000-24003 AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) State of Minnesota 41-1848181 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101 (Address of principal executive offices) (651) 227-7333 (Registrant's telephone number) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP INDEX Part I - Financial Information Item 1. Financial Statements: Balance Sheet as of June 30, 2008 and December 31, 2007 Statements for the Periods ended June 30, 2008 and 2007: Income Cash Flows Changes in Partners' Capital Notes to Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4T. Controls and Procedures Part II - Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits Signatures AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP BALANCE SHEET JUNE 30, 2008 AND DECEMBER 31, 2007 ASSETS 2008 2007 CURRENT ASSETS: Cash and Cash Equivalents $ 2,787,696 $ 820,451 Receivables 2,749 0 ----------- ----------- Total Current Assets 2,790,445 820,451 ----------- ----------- INVESTMENTS IN REAL ESTATE: Land 3,472,456 3,491,965 Buildings and Equipment 7,267,597 7,335,775 Accumulated Depreciation (1,085,471) (963,195) ----------- ----------- 9,654,582 9,864,545 Real Estate Held for Sale 0 1,388,889 ----------- ----------- Net Investments in Real Estate 9,654,582 11,253,434 ----------- ----------- Total Assets $12,445,027 $12,073,885 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 17,049 $ 8,064 Distributions Payable 250,742 253,550 Unearned Rent 13,983 8,730 ----------- ----------- Total Current Liabilities 281,774 270,344 ----------- ----------- PARTNERS' CAPITAL (DEFICIT): General Partners 7,119 (1,336) Limited Partners, $1,000 per Unit; 24,000 Units authorized; 16,917 Units issued; 15,699 and 15,805 Units outstanding in 2008 and 2007, respectively 12,156,134 11,804,877 ----------- ----------- Total Partners' Capital 12,163,253 11,803,541 ----------- ----------- Total Liabilities and Partners' Capital $12,445,027 $12,073,885 =========== =========== 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 JUNE 30 Three Months Ended Six Months Ended 6/30/08 6/30/07 6/30/08 6/30/07 RENTAL INCOME $ 217,287 $ 220,891 $ 435,160 $ 436,829 EXPENSES: Partnership Administration - Affiliates 39,391 40,003 79,080 82,925 Partnership Administration and Property Management - Unrelated Parties 11,269 6,623 23,047 14,413 Depreciation 72,671 72,686 145,342 143,394 ---------- ---------- ---------- ---------- Total Expenses 123,331 119,312 247,469 240,732 ---------- ---------- ---------- ---------- OPERATING INCOME 93,956 101,579 187,691 196,097 OTHER INCOME: Interest Income 12,082 10,976 22,177 26,331 ---------- ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS 106,038 112,555 209,868 222,428 Income from Discontinued Operations 62,703 35,723 748,606 67,225 ---------- ---------- ---------- ---------- NET INCOME $ 168,741 $ 148,278 $ 958,474 $ 289,653 ========== ========== ========== ========== NET INCOME ALLOCATED: General Partners $ 7,401 $ 4,449 $ 21,771 $ 8,690 Limited Partners 161,340 143,829 936,703 280,963 ---------- ---------- ---------- ---------- $ 168,741 $ 148,278 $ 958,474 $ 289,653 ========== ========== ========== ========== INCOME PER LIMITED PARTNERSHIP UNIT: Continuing Operations $ 6.55 $ 6.89 $ 12.92 $ 13.60 Discontinued Operations 3.73 2.19 46.55 4.11 ---------- ---------- ---------- ---------- Total $ 10.28 $ 9.08 $ 59.47 $ 17.71 ========== ========== ========== ========== Weighted Average Units Outstanding 15,699 15,838 15,752 15,861 ========== ========== ========== ========== 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 SIX MONTHS ENDED JUNE 30 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 958,474 $ 289,653 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation 146,479 167,620 Gain on Sale of Real Estate (719,466) 0 (Increase) Decrease in Receivables (2,749) 2,070 Increase (Decrease) in Payable to AEI Fund Management, Inc. 8,985 (45,753) Increase in Unearned Rent 5,253 24,973 ----------- ----------- Total Adjustments (561,498) 148,910 ----------- ----------- Net Cash Provided By Operating Activities 396,976 438,563 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments In Real Estate 0 (1,403,565) Proceeds from Sale of Real Estate 2,171,839 0 Payments Received on Note Receivable 0 54,924 ----------- ----------- Net Cash Provided By (Used For) Investing Activities 2,171,839 (1,348,641) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in Distributions Payable (2,808) (23,345) Distributions to Partners (511,703) (519,235) Redemption Payments (87,059) (40,109) ----------- ----------- Net Cash Used For Financing Activities (601,570) (582,689) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,967,245 (1,492,767) CASH AND CASH EQUIVALENTS, beginning of period 820,451 2,386,110 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 2,787,696 $ 893,343 =========== =========== 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 SIX MONTHS ENDED JUNE 30 Limited Partnership General Limited Units Partners Partners Total Outstanding BALANCE, December 31, 2006 $ 10,828 $12,322,770 $12,333,598 15,884.14 Distributions (13,456) (505,779) (519,235) Redemption Payments (1,203) (38,906) (40,109) (46.58) Net Income 8,690 280,963 289,653 -------- ----------- ----------- ---------- BALANCE, June 30, 2007 $ 4,859 $12,059,048 $12,063,907 15,837.56 ======== =========== =========== ========== BALANCE, December 31, 2007 $ (1,336) $11,804,877 $11,803,541 15,804.56 Distributions (10,704) (500,999) (511,703) Redemption Payments (2,612) (84,447) (87,059) (105.78) Net Income 21,771 936,703 958,474 -------- ----------- ----------- ---------- BALANCE, June 30, 2008 $ 7,119 $12,156,134 $12,163,253 15,698.78 ======== =========== =========== ========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 (1) The condensed statements included herein have been prepared by the registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of operations for the interim period, on a basis consistent with the annual audited statements. The adjustments made to these condensed statements consist only of normal recurring adjustments. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the registrant's latest annual report on Form 10-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 called for a subscription price of $1,000 per Limited Partnership Unit, payable on acceptance of the offer. The Partnership commenced operations on May 1, 1997 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. The offering terminated January 9, 1999 when the extended offering period expired. The Partnership received subscriptions for 16,917.222 Limited Partnership Units. Under the terms of the Limited Partnership Agreement, the Limited Partners and General Partners contributed funds of $16,917,222 and $1,000, respectively. During operations, any Net Cash Flow, as defined, which the General Partners determine to distribute will be distributed 97% to the Limited Partners and 3% to the General Partners. Distributions to Limited Partners will be made pro rata by Units. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (2) Organization - (Continued) Any Net Proceeds of Sale, as defined, from the sale or financing of properties which the General Partners determine to distribute will, after provisions for debts and reserves, be paid in the following manner: (i) first, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 9% of their Adjusted Capital Contribution per annum, cumulative but not compounded, to the extent not previously distributed from Net Cash Flow; (ii) any remaining balance will be distributed 90% to the Limited Partners and 10% to the General Partners. Distributions to the Limited Partners will be made pro rata by Units. For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of property, will be allocated first in the same ratio in which, and to the extent, Net Cash Flow is distributed to the Partners for such year. Any additional profits will be allocated in the same ratio as the last dollar of Net Cash Flow is distributed. Net losses from operations will be allocated 99% to the Limited Partners and 1% to the General Partners. For tax purposes, profits arising from the sale, financing, or other disposition of property will be allocated in accordance with the Partnership Agreement as follows: (i) first, to those partners with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Partners and 1% to the General Partners until the aggregate balance in the Limited Partners' capital accounts equals the sum of the Limited Partners' Adjusted Capital Contributions plus an amount equal to 9% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously allocated; (iii) third, the balance of any remaining gain will then be allocated 90% to the Limited Partners and 10% to the General Partners. Losses will be allocated 98% to the Limited Partners and 2% to the General Partners. The General Partners are not required to currently fund a deficit capital balance. Upon liquidation of the Partnership or withdrawal by a General Partner, the General Partners will contribute to the Partnership an amount equal to the lesser of the deficit balances in their capital accounts or 1% of total Limited Partners' and General Partners' capital contributions. (3) Reclassification - Certain items related to discontinued operations in the prior period's financial statements have been reclassified to conform to 2008 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 - On January 19, 2007, the Partnership purchased a 50% interest in a Tractor Supply Company store in Grand Forks, North Dakota for $1,403,874. The property is leased to Tractor Supply Company under a Lease Agreement with a remaining primary term of 13.9 years and initial annual rent of $102,351. The remaining interest in the property was purchased by AEI Income & Growth Fund 24 LLC, an affiliate of the Partnership. On October 16, 2007, Hollywood Entertainment Corporation ("HEC"), the tenant of the Hollywood Video stores in Minot, North Dakota (100% ownership interest) and Saraland, Alabama (3.08% ownership interest) filed for Chapter 11 bankruptcy reorganization. In May 2008, the bankruptcy court approved HEC's Plan of Reorganization and the Plan became effective. Under the Plan, HEC assumed the Leases for these stores under the original terms without any rent concessions. As of the date of this report, HEC has complied with all Lease terms. In November 2007, Kona Restaurant Group, Inc. (KRG), the tenant of the Johnny Carino's restaurant in Longmont, Colorado, approached the Partnership with a request to adjust the rent on the property to a market rental rate based on the restaurant's performance and the current conditions in the market. In March 2008, after reviewing the financial statements for the restaurant and KRG, the Partnership agreed to amend the Lease to reduce the current annual rent for the property by 36% to $71,667. This amount is scheduled to increase annually by 1.5%. In addition, the amendment provides for additional rental payments if the restaurant's sales exceed certain stated amounts. The amendment will expire and the original Lease terms will be reinstated on February 28, 2010, unless Fired Up, Inc., the parent company of KRG and guarantor of the Lease, achieves certain other expense and debt reduction measures. (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. AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (6) Discontinued Operations - On February 27, 2008, the Partnership sold its 50% interest in the Champps Americana restaurant in West Chester, Ohio to an unrelated third party. The Partnership received net sale proceeds of $2,057,022, which resulted in a net gain of $668,133. At the time of sale, the cost and related accumulated depreciation was $1,569,884 and $180,995, respectively. At December 31, 2007, the property was classified as Real Estate Held for Sale with a book value of $1,388,889. On June 2, 2008, the Partnership sold its 7.3845% interest in the KinderCare daycare center in DePere, Wisconsin to an unrelated third party. The Partnership received net sale proceeds of $114,817, which resulted in a net gain of $51,333. The cost and related accumulated depreciation of the interest sold was $87,687 and $24,203, respectively. During the first six months of 2008 and 2007, the Partnership distributed net sale proceeds of $232,323 and $106,061 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $14.62 and $6.62 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 financial results for these properties are reflected as Discontinued Operations in the accompanying financial statements. The following are the results of discontinued operations for the periods ended June 30: Three Months Ended Six Months Ended 6/30/08 6/30/07 6/30/08 6/30/07 Rental Income $ 1,461 $ 45,096 $ 30,763 $ 89,212 Property Management Expenses (336) 2,740 (486) 2,239 Depreciation (455) (12,113) (1,137) (24,226) Gain on Disposal of Real Estate 62,033 0 719,466 0 -------- --------- --------- --------- Income from Discontinued Operations $ 62,703 $ 35,723 $ 748,606 $ 67,225 ======== ========= ========= ========= (7) Recently Issued Accounting Pronouncements - In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141(R) ("SFAS 141(R)"), Business Combinations. SFAS 141(R) requires, among other things, the expensing of acquisition- related transaction costs. Management anticipates that SFAS 141(R) will be effective for property acquisitions completed on or after January 1, 2009. Management is evaluating the effect that the adoption of SFAS 141(R) will have on the Partnership's results of operations, financial position, and the related disclosures. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 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, 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 effects of these consequences for the Partners; resolution by the General Partners of conflicts with which they may be confronted; the success of the General Partners of locating properties with favorable risk return characteristics; the effect of tenant defaults; and the condition of the industries in which the tenants of properties owned by the Partnership operate. 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 cost (including capitalized acquisition expenses). The Partnership anticipates that for acquisitions completed on or after January 1, 2009, acquisition- related transaction costs will be expensed as incurred as a result of the adoption of Statement of Financial Accounting Standards No. 141(R), Business Combinations. The Partnership tests long-lived assets for recoverability when events or changes in circumstances indicate that the carrying value may not be recoverable. For properties the Partnership will hold and operate, management determines whether impairment has occurred by comparing the property's probability-weighted cash flows to its current carrying value. For properties held for sale, management determines whether impairment has occurred by comparing the property's estimated fair value less cost to sell to its current carrying value. If the carrying value is greater than the realizable value, an impairment loss is recorded to reduce the carrying value of the property to its realizable value. Changes in these assumptions or analysis may cause material changes in the carrying value of the properties. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) AEI Fund Management, Inc. allocates expenses to each of the funds they manage primarily on the basis of the number of hours devoted by their employees to each fund's affairs. They also allocate expenses at the end of each month that are not directly related to a fund's operations based upon the number of investors in the fund and the fund's capitalization relative to other funds they manage. The Partnership reimburses these expenses subject to detailed limitations contained in the Partnership Agreement. Management of the Partnership has discussed the development and selection of the above accounting estimates and the management discussion and analysis disclosures regarding them with the managing partner of the Partnership. Results of Operations For the six months ended June 30, 2008 and 2007, the Partnership recognized rental income from continuing operations of $435,160 and $436,829, respectively. In 2008, rental income decreased due to a reduction in rent for the Johnny Carino's restaurant as discussed below. This decrease was partially offset by additional rent received from one property acquisition in 2007 and prepetition rent received in May 2008 for the Hollywood Video stores. For the six months ended June 30, 2008 and 2007, the Partnership incurred Partnership administration expenses from affiliated parties of $79,080 and $82,925, 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 $23,047 and $14,413, respectively. These expenses represent direct payments to third parties for legal and filing fees, direct administrative costs, outside audit costs, taxes, insurance and other property costs. On October 16, 2007, Hollywood Entertainment Corporation ("HEC"), the tenant of the Hollywood Video stores in Minot, North Dakota (100% ownership interest) and Saraland, Alabama (3.08% ownership interest) filed for Chapter 11 bankruptcy reorganization. In May 2008, the bankruptcy court approved HEC's Plan of Reorganization and the Plan became effective. Under the Plan, HEC assumed the Leases for these stores under the original terms without any rent concessions. As of the date of this report, HEC has complied with all Lease terms. In November 2007, Kona Restaurant Group, Inc. (KRG), the tenant of the Johnny Carino's restaurant in Longmont, Colorado, approached the Partnership with a request to adjust the rent on the property to a market rental rate based on the restaurant's performance and the current conditions in the market. In March 2008, after reviewing the financial statements for the restaurant and KRG, the Partnership agreed to amend the Lease to reduce the current annual rent for the property by 36% to $71,667. This amount is scheduled to increase annually by 1.5%. In addition, the amendment provides for additional rental payments if the restaurant's sales exceed certain stated amounts. The amendment will expire and the original Lease terms will be reinstated on February 28, 2010, unless Fired Up, Inc., the parent company of KRG and guarantor of the Lease, achieves certain other expense and debt reduction measures. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) For the six months ended June 30, 2008 and 2007, the Partnership recognized interest income of $22,177 and $26,331, respectively. Interest income decreased due to lower money market interest rates in 2008, when compared to the same period in 2007. 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 of the property to discontinued operations. For the six months ended June 30, 2008, the Partnership recognized income from discontinued operations of $748,606, representing rental income less property management expenses and depreciation of $29,140 and gain on disposal of real estate of $719,466. For the six months ended June 30, 2007, the Partnership recognized income from discontinued operations of $67,225, representing rental income and property management expenses less depreciation. On February 27, 2008, the Partnership sold its 50% interest in the Champps Americana restaurant in West Chester, Ohio to an unrelated third party. The Partnership received net sale proceeds of $2,057,022, which resulted in a net gain of $668,133. At the time of sale, the cost and related accumulated depreciation was $1,569,884 and $180,995, respectively. At December 31, 2007, the property was classified as Real Estate Held for Sale with a book value of $1,388,889. On June 2, 2008, the Partnership sold its 7.3845% interest in the KinderCare daycare center in DePere, Wisconsin to an unrelated third party. The Partnership received net sale proceeds of $114,817, which resulted in a net gain of $51,333. The cost and related accumulated depreciation of the interest sold was $87,687 and $24,203, respectively. 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 six months ended June 30, 2008, the Partnership's cash balances increased $1,967,245 as a result of cash generated from the sale of property, which was partially offset by distributions paid to the Partners in excess of cash generated from operating activities. During the six months ended June 30, 2007, the Partnership's cash balances decreased $1,492,767 as a result of cash used to purchase property and distributions paid to the Partners in excess of cash generated from operating activities. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) Net cash provided by operating activities decreased from $438,563 in 2007 to $396,976 in 2008 as a result of a decrease in total rental and interest income in 2008 and an increase in Partnership administration and property management expenses in 2008, which were partially offset by net timing differences in the collection of payments from the tenants 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 six months ended June 30, 2008, the Partnership generated cash flow from the sale of real estate of $2,171,839. During the six months ended June 30, 2007, the Partnership expended $1,403,565 to invest in real properties (inclusive of acquisition expenses) as the Partnership reinvested cash generated from property sales completed in 2006. On January 19, 2007, the Partnership purchased a 50% interest in a Tractor Supply Company store in Grand Forks, North Dakota for $1,403,874. The property is leased to Tractor Supply Company under a Lease Agreement with a remaining primary term of 13.9 years and initial annual rent of $102,351. The remaining interest in the property was purchased by AEI Income & Growth Fund 24 LLC, 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 week after the end of each quarter. The Partnership attempts to maintain a stable distribution rate from quarter to quarter. Redemption payments are paid to redeeming Partners on a semi-annual basis. For the six months ended June 30, 2008 and 2007, the Partnership declared distributions of $511,703 and $519,235, 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 $500,999 and $505,779 and the General Partners received distributions of $10,704 and $13,456 for the periods, respectively. During the first six months of 2008 and 2007, the Partnership distributed net sale proceeds of $232,323 and $106,061 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $14.62 and $6.62 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) On April 1, 2008, seven Limited Partners redeemed a total of 105.78 Partnership Units for $84,447 in accordance with the Partnership Agreement. On April 1, 2007, four Limited Partners redeemed a total of 46.58 Partnership Units for $38,906. The Partnership acquired these Units using Net Cash Flow from operations. In prior years, a total of 55 Limited Partners redeemed 1,033.08 Partnership Units for $823,466. 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 $2,612 and $1,203 in 2008 and 2007, respectively. 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.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 4T.CONTROLS AND PROCEDURES. (a) Disclosure Controls and Procedures. Under the supervision and with the participation of management, including its President and Chief Financial Officer, the Managing General Partner of the Partnership evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based upon that evaluation, the President and Chief Financial Officer of the Managing General Partner concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to management, including the President and Chief Financial Officer of the Managing General Partner, in a manner that allows timely decisions regarding required disclosure. (b) Changes in Internal Control Over Financial Reporting. During the most recent period covered by this report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1.LEGAL PROCEEDINGS. There are no material pending legal proceedings to which the Partnership is a party or of which the Partnership's property is subject. ITEM 1A. RISK FACTORS. Not applicable. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. (a) None. (b) Not applicable. (c) Pursuant to Section 7.7 of the Partnership Agreement, each Limited Partner has the right to present Units to the Partnership for purchase by submitting notice to the Managing General Partner during January or July of each year. The purchase price of the Units is equal to 90% of the net asset value per Unit, as of the first business day of January or July of each year, as determined by the Managing General Partner in accordance with the provisions of the Partnership Agreement. Units tendered to the Partnership during January and July are redeemed on April 1st and October 1st, respectively, of each year subject to the following limitations. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. Small Business Issuer Purchases of Equity Securities Maximum Number of Units that Total Number of Units May Yet Be Total Number Average Purchased as Part of Purchased Under of Units Price Paid Publicly Announced the Plans or Period Purchased per Unit Plans or Programs Programs 4/1/08 to 4/30/08 105.78 $798.29 1,218.45 (1) (2) 5/1/08 to 5/31/08 -- -- -- -- 6/1/08 to 6/30/08 -- -- -- -- (1) The Partnership's repurchase plan is mandated by the Partnership Agreement as included in the prospectus related to thed original offering of the Units. (2) The Partnership Agreement contains annual limitations on repurchases described in the paragraph above and has no expiration date. PART II - OTHER INFORMATION (Continued) ITEM 3.DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5.OTHER INFORMATION. None. ITEM 6.EXHIBITS. 31.1 Certification of Chief Executive Officer of General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer of General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 8, 2008 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)