Unassociated Document

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: September 30, 2013

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 incorporation or organization)		(I.R.S. Employer Identification No.)

30 East 7th Street, Suite 1300 St. Paul, Minnesota 55101		(651) 227-7333
(Address of principal executive offices)		(Registrant’s telephone number)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o 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.

o Large accelerated filer	o Accelerated filer
o Non-accelerated filer	x Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP

INDEX

				Page
Part I – Financial Information

	Item 1.	Financial Statements (unaudited):

		Balance Sheet as of September 30, 2013 and December 31, 2012		3

		Statements for the Periods ended September 30, 2013 and 2012:

			Income	4

			Cash Flows	5

			Changes in Partners’ Capital	6

		Notes to Financial Statements		7 - 11

	Item 2.	Management's Discussion and Analysis of Financial
			Condition and Results of Operations	12 - 18

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		18

	Item 4.	Controls and Procedures		18

Part II – Other Information

	Item 1.	Legal Proceedings		19

	Item 1A.	Risk Factors		19

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		19

	Item 3.	Defaults Upon Senior Securities		19

	Item 4.	Mine Safety Disclosures		19

	Item 5.	Other Information		19

	Item 6.	Exhibits		20

Signatures				20

Page 2 of 20

AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP

BALANCE SHEET

ASSETS

		September 30,		December 31,
		2013		2012
Current Assets:
Cash	$	1,732,260	$	899,910

Real Estate Held for Investment:
Land		2,367,033		3,021,973
Buildings and Equipment		6,628,822		7,229,951
Acquired Intangible Lease Assets		932,882		321,405
Real Estate Investments, at cost		9,928,737		10,573,329
Accumulated Depreciation and Amortization		(1,349,130)		(1,578,235)
Real Estate Held for Investment, Net		8,579,607		8,995,094
Real Estate Held for Sale		625,000		892,741
Total Real Estate		9,204,607		9,887,835
Total Assets	$	10,936,867	$	10,787,745

LIABILITIES AND PARTNERS' CAPITAL

Current Liabilities:
Payable to AEI Fund Management, Inc.	$	79,823	$	87,233
Distributions Payable		188,242		188,242
Unearned Rent		23,698		9,058
Total Current Liabilities		291,763		284,533

Partners’ Capital:
General Partners		9,411		4,649
Limited Partners – 24,000 Units authorized; 15,521 and 15,611 Units issued and outstanding in 2013 and 2012, respectively		10,635,693		10,498,563
Total Partners' Capital		10,645,104		10,503,212
Total Liabilities and Partners' Capital	$	10,936,867	$	10,787,745

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 3 of 20

AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP

STATEMENT OF INCOME

		Three Months Ended September 30				Nine Months Ended September 30
		2013		2012		2013		2012

Rental Income	$	176,162	$	153,607	$	489,598	$	449,976

Expenses:
Partnership Administration – Affiliates		34,799		36,187		109,562		115,229
Partnership Administration and Property Management – Unrelated Parties		667		6,219		25,281		26,451
Property Acquisition		4,919		0		33,587		21,557
Depreciation and Amortization		77,111		63,806		207,661		185,046
Total Expenses		117,496		106,212		376,091		348,283

Operating Income		58,666		47,395		113,507		101,693

Other Income:
Interest Income		706		238		3,182		1,816

Income From Continuing Operations		59,372		47,633		116,689		103,509

Income from Discontinued Operations		17,762		48,138		651,935		424,013

Net Income	$	77,134	$	95,771	$	768,624	$	527,522

Net Income Allocated:
General Partners	$	8,914	$	5,632	$	20,938	$	19,562
Limited Partners		68,220		90,139		747,686		507,960
Total	$	77,134	$	95,771	$	768,624	$	527,522

Income per Limited Partnership Unit:
Continuing Operations	$	3.71	$	2.96	$	7.28	$	6.42
Discontinued Operations		.69		2.81		40.80		26.05
Total – Basic and Diluted	$	4.40	$	5.77	$	48.08	$	32.47

Weighted Average Units Outstanding – Basic and Diluted		15,521		15,618		15,551		15,645

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 4 of 20

AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP

STATEMENT OF CASH FLOWS

		Nine Months Ended September 30
		2013		2012
Cash Flows from Operating Activities:
Net Income	$	768,624	$	527,522

Adjustments to Reconcile Net Income To Net Cash Provided by Operating Activities:
Depreciation and Amortization		265,040		264,528
Real Estate Impairment		382,526		0
Gain on Sale of Real Estate		(954,419)		(276,394)
Increase (Decrease) in Payable to AEI Fund Management, Inc.		(7,410)		(22,559)
Increase (Decrease) in Unearned Rent		14,640		(23,371)
Total Adjustments		(299,623)		(57,796)
Net Cash Provided By Operating Activities		469,001		469,726

Cash Flows from Investing Activities:
Investments in Real Estate		(1,680,000)		(824,500)
Proceeds from Sale of Real Estate		2,670,081		893,729
Net Cash Provided By Investing Activities		990,081		69,229

Cash Flows from Financing Activities:
Distributions Paid to Partners		(563,268)		(569,373)
Redemption Payments		(63,464)		(54,688)
Net Cash Used For Financing Activities		(626,732)		(624,061)

Net Increase (Decrease) in Cash		832,350		(85,106)

Cash, beginning of period		899,910		410,261

Cash, end of period	$	1,732,260	$	325,155

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 5 of 20

AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP

STATEMENT OF CHANGES IN PARTNERS' CAPITAL

		General Partners		Limited Partners		Total	Limited Partnership Units Outstanding

Balance, December 31, 2011	$	572	$	10,483,563	$	10,484,135	15,697.53

Distributions Declared		(15,823)		(552,004)		(567,827)

Redemption Payments		(1,641)		(53,047)		(54,688)	(79.33)

Net Income		19,562		507,960		527,522

Balance, September 30, 2012	$	2,670	$	10,386,472	$	10,389,142	15,618.20


Balance, December 31, 2012	$	4,649	$	10,498,563	$	10,503,212	15,611.20

Distributions Declared		(14,272)		(548,996)		(563,268)

Redemption Payments		(1,904)		(61,560)		(63,464)	(90.00)

Net Income		20,938		747,686		768,624

Balance, September 30, 2013	$	9,411	$	10,635,693	$	10,645,104	15,521.20

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 6 of 20

AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

(1) The condensed statements included herein have been prepared by the registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of operations for the interim period, on a basis consistent with the annual audited statements. The adjustments made to these condensed statements consist only of normal recurring adjustments. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the registrant’s latest annual report on Form 10-K.

(2) Organization –

AEI Income & Growth Fund XXII Limited Partnership (“Partnership”) was formed to acquire and lease commercial properties to operating tenants. The Partnership's operations are managed by AEI Fund Management XXI, Inc. (“AFM”), the Managing General Partner. Robert P. Johnson, the President and sole director of AFM, serves as the Individual General Partner. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AEI Fund Management, Inc. (“AEI”), an affiliate of AFM, performs the administrative and operating functions for the Partnership.

The terms of the Partnership offering called for a subscription price of $1,000 per Limited Partnership Unit, payable on acceptance of the offer. The Partnership commenced operations on May 1, 1997 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. The offering terminated January 9, 1999 when the extended offering period expired. The Partnership received subscriptions for 16,917.222 Limited Partnership Units. Under the terms of the Limited Partnership Agreement, the Limited Partners and General Partners contributed funds of $16,917,222 and $1,000, respectively.

During operations, any Net Cash Flow, as defined, which the General Partners determine to distribute will be distributed 97% to the Limited Partners and 3% to the General Partners. Distributions to Limited Partners will be made pro rata by Units.

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.

Page 7 of 20

AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

(Continued)

(2) Organization – (Continued)

For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of property, will be allocated first in the same ratio in which, and to the extent, Net Cash Flow is distributed to the Partners for such year. Any additional profits will be allocated in the same ratio as the last dollar of Net Cash Flow is distributed. Net losses from operations will be allocated 99% to the Limited Partners and 1% to the General Partners.

For tax purposes, profits arising from the sale, financing, or other disposition of property will be allocated in accordance with the Partnership Agreement as follows: (i) first, to those partners with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Partners and 1% to the General Partners until the aggregate balance in the Limited Partners' capital accounts equals the sum of the Limited Partners' Adjusted Capital Contributions plus an amount equal to 9% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously allocated; (iii) third, the balance of any remaining gain will then be allocated 90% to the Limited Partners and 10% to the General Partners. Losses will be allocated 98% to the Limited Partners and 2% to the General Partners.

The General Partners are not required to currently fund a deficit capital balance. Upon liquidation of the Partnership or withdrawal by a General Partner, the General Partners will contribute to the Partnership an amount equal to the lesser of the deficit balances in their capital accounts or 1% of total Limited Partners' and General Partners' capital contributions.

(3) Reclassification –

Certain items related to discontinued operations in the prior year’s financial statements have been reclassified to conform to 2013 presentation. These reclassifications had no effect on Partners’ capital, net income or cash flows.

(4) Real Estate Held for Investment –

On March 16, 2012, the Partnership purchased a 34% interest in a PetSmart store in Galveston, Texas for $824,500. The Partnership allocated $204,452 of the purchase price to Acquired Intangible Lease Assets, representing in-place lease intangibles of $121,149 and above-market lease intangibles of $83,303. The Partnership incurred $22,645 of acquisition expenses related to the purchase that were expensed. The property is leased to PetSmart, Inc. under a Lease Agreement with a remaining primary term of 10.0 years (as of the date of purchase) and annual rent of $65,560 for the interest purchased. The remaining interest in the property was purchased by AEI Accredited Investor Fund V LP, an affiliate of the Partnership.

Page 8 of 20

AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

(Continued)

(4) Real Estate Held for Investment – (Continued)

On June 6, 2013, the Partnership purchased a St. Vincent Medical Clinic in Lonoke, Arkansas for $1,680,000. The Partnership allocated $611,477 of the purchase price to Acquired Intangible Lease Assets, representing in-place lease intangibles of $179,987 and above-market lease intangibles of $431,490. The Partnership incurred $33,587 of acquisition expenses related to the purchase that were expensed. The property is leased to St. Vincent Health System under a Lease Agreement with a remaining primary term of 10.4 years and annual rent of $131,642.

For the nine months ended September 30, 2013 and 2012, the value of in-place lease intangibles amortized to expense was $25,269 and $15,470, respectively, and the decrease to rental income for above-market leases was $20,057 and $3,471, respectively. For lease intangibles owned as of September 30, 2013, the weighted average remaining life is 104 months for in-place lease intangibles and 118 months for above-market leases, the estimated amortization expense is $43,289 and the estimated decrease to rental income is $49,753 for each of the next five succeeding years.

(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 –

On January 6, 2012, the Partnership sold the KinderCare daycare center in Pearland, Texas to an unrelated third party. The Partnership received net sale proceeds of $859,968, which resulted in a net gain of $277,578. At the time of sale, the cost and related accumulated depreciation was $943,416 and $361,026, respectively.

On February 3, 2012, the Partnership sold its remaining interests in the KinderCare daycare centers in Golden, Colorado, and Plainfield, Illinois to an unrelated third party. The Partnership received total net sale proceeds of $26,200, which resulted in a net gain of $1,073. The cost and related accumulated depreciation of the interests sold was $38,173 and $13,046, respectively.

On May 10, 2012, the Partnership sold its remaining 0.8729% interest in the TGI Friday’s restaurant in Greensburg, Pennsylvania to an unrelated third party. The Partnership received net sale proceeds of $7,561, which resulted in a net loss of $2,257. The cost and related accumulated depreciation of the interest sold was $14,580 and $4,762, respectively.

Page 9 of 20

AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

(Continued)

(6) Discontinued Operations – (Continued)

In December 2012, the Partnership sold 10.136% of the Jared Jewelry store in Sugarland, Texas, in two separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $502,919, which resulted in a net gain of $199,918. The cost and related accumulated depreciation of the interests sold was $388,707 and $85,706, respectively.

During the three months ended March 31, 2013, the Partnership sold its remaining 29.864% interest in the Jared Jewelry store in Sugarland, Texas, in five separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,469,582, which resulted in a net gain of $576,841. The cost and related accumulated depreciation of the interests sold was $1,145,259 and $252,518, respectively. At December 31, 2012, the property was classified as Real Estate Held for Sale with a carrying value of $892,741.

In June 2013, the Partnership entered into an agreement to sell its 38% interest in the Applebee’s restaurant in Johnstown, Pennsylvania to an unrelated third party. On August 23, 2013, the sale closed with the Partnership receiving net sale proceeds of $1,200,499, which resulted in a net gain of $377,578. At the time of sale, the cost and related accumulated depreciation was $1,031,187 and $208,266, respectively.

In November 2013, the Partnership entered into a non-binding letter of intent to sell its 50% interest in the Johnny Carino’s restaurant in Longmont, Colorado, to an unrelated third party. The sale is subject to contingencies, including negotiating a written purchase agreement, and may not be completed. If the sale is completed, the Partnership expects to receive net proceeds of approximately $625,000. If the sale is not completed, the Partnership will likely seek another buyer for the property and may not be able to negotiate a purchase agreement with similar economic terms.

Based on its long-lived asset valuation analysis, the Partnership determined the Johnny Carino’s restaurant was impaired. As a result, in the third quarter of 2013, a charge to discontinued operations for real estate impairment of $382,526 was recognized, which was the difference between the carrying value at September 30, 2013 of $1,007,526 and the estimated fair value of $625,000. The charge was recorded against the cost of the land and building. At September 30, 2013, the property was classified as Real Estate Held for Sale.

Page 10 of 20

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:

		Three Months Ended September 30				Nine Months Ended September 30
		2013		2012		2013		2012

Rental Income	$	30,476	$	74,181	$	120,692	$	225,168
Property Management Expenses		(436)		(746)		(3,328)		(1,538)
Depreciation		(7,330)		(25,297)		(37,322)		(76,011)
Real Estate Impairment		(382,526)		0		(382,526)		0
Gain on Disposal of Real Estate		377,578		0		954,419		276,394
Income from Discontinued Operations	$	17,762	$	48,138	$	651,935	$	424,013

(7) Fair Value Measurements –

Fair value, as defined by United States Generally Accepted Accounting Principles (“US GAAP”), is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. US GAAP establishes a hierarchy in determining the fair value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. US GAAP requires the utilization of the lowest possible level of input to determine fair value. Level 1 inputs include quoted market prices in an active market for identical assets or liabilities. Level 2 inputs are market data, other than Level 1 inputs, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data.

At September 30, 2013, the Partnership had no financial assets or liabilities measured at fair value on a recurring basis or nonrecurring basis that would require disclosure under this pronouncement.

The Johnny Carino’s restaurant in Longmont, Colorado, with a carrying amount of $1,007,526 at September 30, 2013, was written down to its fair value of $625,000 after completing our long-lived asset valuation analysis. The resulting impairment charge of $382,526 was included in earnings for the third quarter of 2013. The fair value of the property was based upon a non-binding letter of intent and comparable sales of similar properties, which are considered Level 2 inputs in the valuation hierarchy.

Page 11 of 20

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS.

This section contains "forward-looking statements" which represent management's expectations or beliefs concerning future events, including statements regarding anticipated application of cash, expected returns from rental income, growth in revenue, the sufficiency of cash to meet operating expenses, rates of distribution, and other matters. These, and other forward-looking statements, should be evaluated in the context of a number of factors that may affect the Partnership's financial condition and results of operations, including the following:

—

Market and economic conditions which affect the value of the properties the Partnership owns and the cash from rental income such properties generate;

—

the federal income tax consequences of rental income, deductions, gain on sales and other items and the effects of these consequences for the Partners;

—

resolution by the General Partners of conflicts with which they may be confronted;

—

the success of the General Partners of locating properties with favorable risk return characteristics;

—

the effect of tenant defaults; and

—

the condition of the industries in which the tenants of properties owned by the Partnership operate.

Application of Critical Accounting Policies

The Partnership’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). Preparing the financial statements requires management to use judgment in the application of these accounting policies, including making estimates and assumptions. These judgments will affect the reported amounts of the Partnership’s assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of the financial statements and will affect the reported amounts of revenue and expenses during the reporting periods. It is possible that the carrying amount of the Partnership’s assets and liabilities, or the results of reported operations, will be affected if management’s estimates or assumptions prove inaccurate.

Management of the Partnership evaluates the following accounting estimates on an ongoing basis, and has discussed the development and selection of these estimates and the management discussion and analysis disclosures regarding them with managing partner of the Partnership.

Allocation of Purchase Price of Acquired Properties

Upon acquisition of real properties, the Partnership records them in the financial statements at cost (not including acquisition expenses). The purchase price is allocated to tangible assets, consisting of land and building, and to identified intangible assets and liabilities, which may include the value of above market and below market leases and the value of in-place leases. The allocation of the purchase price is based upon the fair value of each component of the property. Although independent appraisals may be used to assist in the determination of fair value, in many cases these values will be based upon management’s assessment of each property, the selling prices of comparable properties and the discounted value of cash flows from the asset.

Page 12 of 20

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

The fair values of above market and below market in-place leases will be recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases measured over a period equal to the non-cancelable term of the lease including any bargain renewal periods. The above market and below market lease values will be capitalized as intangible lease assets or liabilities. Above market lease values will be amortized as an adjustment of rental income over the remaining terms of the respective leases. Below market leases will be amortized as an adjustment of rental income over the remaining term of the respective leases, including any bargain renewal periods. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of above market and below market in-place lease values relating to that lease would be recorded as an adjustment to rental income.

The fair values of in-place leases will include estimated direct costs associated with obtaining a new tenant, and opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease. Direct costs associated with obtaining a new tenant may include commissions, tenant improvements, and other direct costs and are estimated, in part, by management’s consideration of current market costs to execute a similar lease. These direct costs will be included in intangible lease assets on the balance sheet and will be amortized to expense over the remaining term of the respective leases. The value of opportunity costs will be calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These intangibles will be included in intangible lease assets on the balance sheet and will be amortized to expense over the remaining term of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of in-place lease assets relating to that lease would be expensed.

The determination of the fair values of the assets and liabilities acquired will require the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount and capitalization rates, interest rates and other variables. If management’s estimates or assumptions prove inaccurate, the result would be an inaccurate allocation of purchase price, which could impact the amount of reported net income.

Carrying Value of Properties

The carrying value of the properties is initially recorded at cost, not including acquisition expenses. The Partnership tests long-lived assets for recoverability when events or changes in circumstances indicate that the carrying value may not be recoverable. For properties the Partnership will hold and operate, management determines whether impairment has occurred by comparing the property’s probability-weighted future undiscounted cash flows to its current carrying value. For properties held for sale, management determines whether impairment has occurred by comparing the property’s estimated fair value less cost to sell to its current carrying value. If the carrying value is greater than the net realizable value, an impairment loss is recorded to reduce the carrying value of the property to its net realizable value. Changes in these assumptions or analysis may cause material changes in the carrying value of the properties.

Page 13 of 20

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

Allocation of Expenses

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.

Results of Operations

For the nine months ended September 30, 2013 and 2012, the Partnership recognized rental income from continuing operations of $489,598 and $449,976, respectively. In 2013, rental income increased due to additional rent received from two property acquisitions in 2012 and 2013. Based on the scheduled rent for the properties owned as of October 31, 2013, the Partnership expects to recognize rental income from continuing operations of approximately $655,000 and $714,000 in 2013 and 2014, respectively.

For the nine months ended September 30, 2013 and 2012, the Partnership incurred Partnership administration expenses from affiliated parties of $109,562 and $115,229, respectively. These administration expenses include costs associated with the management of the properties, processing distributions, reporting requirements and communicating with the Limited Partners. During the same periods, the Partnership incurred Partnership administration and property management expenses from unrelated parties of $25,281 and $26,451, respectively. These expenses represent direct payments to third parties for legal and filing fees, direct administrative costs, outside audit costs, taxes, insurance and other property costs.

For the nine months ended September 30, 2013, the Partnership incurred property acquisition expenses of $33,587 related to the purchase of the St. Vincent Medical Clinic in Lonoke, Arkansas. For the nine months ended September 30, 2012, the Partnership incurred property acquisition expenses of $21,557 related to the purchase of the PetSmart store in Galveston, Texas.

For the nine months ended September 30, 2013 and 2012, the Partnership recognized interest income of $3,182 and $1,816, respectively.

Upon complete disposal of a property or classification of a property as Real Estate Held for Sale, the Partnership includes the operating results and sale of the property in discontinued operations. In addition, the Partnership reclassifies the prior periods’ operating results of the property to discontinued operations. For the nine months ended September 30, 2013, the Partnership recognized income from discontinued operations of $651,935, representing rental income less property management expenses and depreciation of $80,042 and gain on disposal of real estate of $954,419, which were partially offset by a real estate impairment of $382,526. For the nine months ended September 30, 2012, the Partnership recognized income from discontinued operations of $424,013, representing rental income less property management expenses and depreciation of $147,619 and gain on disposal of real estate of $276,394.

Page 14 of 20

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

Management believes inflation has not significantly affected income from operations. Leases may contain rent increases, based on the increase in the Consumer Price Index over a specified period, which will result in an increase in rental income over the term of the leases. Inflation also may cause the real estate to appreciate in value. However, inflation and changing prices may have an adverse impact on the operating margins of the properties' tenants, which could impair their ability to pay rent and subsequently reduce the Net Cash Flow available for distributions.

Liquidity and Capital Resources

During the nine months ended September 30, 2013, the Partnership's cash balances increased $832,350 as a result of cash generated from the sale of property, which was partially offset by cash used to purchase property and distributions and redemption payments paid to the Partners in excess of cash generated from operating activities. During the nine months ended September 30, 2012, the Partnership's cash balances decreased $85,106 as a result of cash used to purchase property and distributions and redemption payments paid to the Partners in excess of cash generated from operating activities, which were partially offset by cash generated from the sale of property.

Net cash provided by operating activities decreased from $469,726 in 2012 to $469,001 in 2013 as a result of a decrease in total rental and interest income in 2013 and an increase in acquisition expenses in 2013, which were partially offset by a decrease in Partnership administration and property management expenses in 2013 and net timing differences in the collection of payments from the tenants and the payment of expenses. During 2013 and 2012, cash from operations was reduced by $33,587 and $21,557, respectively, of acquisition expenses related to the purchase of real estate. Pursuant to accounting guidance, these expenses were reflected as operating cash outflows. However, pursuant to the Partnership Agreement, acquisition expenses were funded with proceeds from property sales.

The major components of the Partnership's cash flow from investing activities are investments in real estate and proceeds from the sale of real estate. During the nine months ended September 30, 2013 and 2012, the Partnership generated cash flow from the sale of real estate of $2,670,081 and $893,729, respectively. During the nine months ended September 30, 2013 and 2012, the Partnership expended $1,680,000 and $824,500, respectively, to invest in real properties as the Partnership reinvested cash generated from property sales.

On March 16, 2012, the Partnership purchased a 34% interest in a PetSmart store in Galveston, Texas for $824,500. The property is leased to PetSmart, Inc. under a Lease Agreement with a remaining primary term of 10.0 years (as of the date of purchase) and annual rent of $65,560 for the interest purchased. The remaining interest in the property was purchased by AEI Accredited Investor Fund V LP, an affiliate of the Partnership.

On June 6, 2013, the Partnership purchased a St. Vincent Medical Clinic in Lonoke, Arkansas for $1,680,000. The property is leased to St. Vincent Health System under a Lease Agreement with a remaining primary term of 10.4 years and annual rent of $131,642.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

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 nine months ended September 30, 2013 and 2012, the Partnership declared distributions of $563,268 and $567,827, 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 $548,996 and $552,004 and the General Partners received distributions of $14,272 and $15,823 for the periods, respectively.

During the first nine months of 2013 and 2012, the Partnership distributed net sale proceeds of $131,313 and $60,606 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $8.37 and $3.84 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.

On April 1, 2013, five Limited Partners redeemed a total of 90.0 Partnership Units for $61,560 in accordance with the Partnership Agreement. On April 1, 2012, six Limited Partners redeemed a total of 79.33 Partnership Units for $53,047. The Partnership acquired these Units using Net Cash Flow from operations. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. As a result of these redemption payments and pursuant to the Partnership Agreement, the General Partners received distributions of $1,904 and $1,641 in 2013 and 2012, 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.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

The Economy and Market Conditions

The impact of conditions in the economy over the last several years, including the turmoil in the credit markets, has adversely affected many real estate investment funds. However, the absence of mortgage financing on the Partnership's properties eliminates the risks of foreclosure and debt-refinancing that can negatively impact the value and distributions of leveraged real estate investment funds. Nevertheless, a prolonged economic downturn may adversely affect the operations of the Partnership's tenants and their cash flows. If a tenant were to default on its lease obligations, the Partnership's income would decrease, its distributions would likely be reduced and the value of its properties might decline.

Off-Balance Sheet Arrangements

As of September 30, 2013 and December 31, 2012, the Partnership had no material off-balance sheet arrangements that had or are reasonably likely to have current or future effects on its financial condition, results of operations, liquidity or capital resources.

ITEM 3. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES.

(a) Disclosure Controls and Procedures.

Under the supervision and with the participation of management, including its President and Chief Financial Officer, the Managing General Partner of the Partnership evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the President and Chief Financial Officer of the Managing General Partner concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to management, including the President and Chief Financial Officer of the Managing General Partner, in a manner that allows timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting.

During the most recent period covered by this report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

There are no material pending legal proceedings to which the Partnership is a party or of which the Partnership's property is subject.

ITEM 1A. RISK FACTORS.

Not required for a smaller reporting company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES & 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. During the period covered by this report, the Partnership did not purchase any Units.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5. OTHER INFORMATION.

None.

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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: November 13, 2013	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)

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