SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d)
Of The Securities Exchange Act Of 1934
For the Fiscal Year Ended: December 31, 1997
Commission file number: 333-5604
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
(Name of Small Business Issuer in its Charter)
State of Minnesota 41-1848181
(State or other Jurisdiction of (I.R.S. Employer)
Incorporation or Organization) Identification No.)
1300 Minnesota World Trade Center, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(612) 227-7333
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
(Title of class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No
Check if disclosure of delinquent filers in response to Rule 405
of Regulation S-B is not contained in this Form, and no
disclosure will be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The Issuer's revenues for year ended December 31, 1997 were
$116,807.
As of February 28, 1998, there were 8,496.652 Units of limited
partnership interest in the registrant outstanding and owned by
nonaffiliates of the registrant, which Units had an aggregate
market value (based solely on the price at which they were sold
since there is no ready market for such Units) of $8,496,652.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has not incorporated any documents by reference
into this report.
Transitional Small Business Disclosure Format:
Yes No [X]
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
AEI Income & Growth Fund XXII Limited Partnership (the
"Partnership" or the "Registrant") is a limited partnership which
was organized pursuant to the laws of the State of Minnesota on
July 31, 1996. The registrant is comprised of AEI Fund
Management XXI, Inc. (AFM) as Managing General Partner, Robert P.
Johnson as the Individual General Partner, and purchasers of
partnership units as Limited Partners. The Partnership offered
for sale up to $24,000,000 of limited partnership interests (the
"Units") (24,000 Units at $1,000 per Unit) pursuant to a
registration statement effective January 10, 1997. The
Partnership commenced operations on May 1, 1997 when minimum
subscriptions of 1,500 Limited Partnership Units ($1,500,000)
were accepted. Through December 31, 1997, the Partnership raised
a total of $7,655,996 from the sale of 7,655.996 Units. The
Managing General Partner has extended the offering of Units to
the earlier of completion of sale of all Units or January 9,
1999.
The Partnership was organized to acquire existing and
newly constructed commercial properties located in the United
States, to lease such properties to tenants under triple net
leases, to hold such properties and to eventually sell such
properties. As of December 31, 1997, the Partnership had
purchased a partial interest in one property at a total cost of
$668,144. The property is a commercial, single tenant building
leased under a triple net lease. The Partnership is continuing
to review various properties for acquisition until available
subscription proceeds are fully committed.
The Partnership's properties will be purchased with
subscription proceeds without any indebtedness. The Partnership
will not finance properties in the future to obtain proceeds for
new property acquisitions. If it is required to do so, the
Partnership may incur short-term indebtedness, which may be
secured by a portion of the Partnership's properties, to finance
the day-to-day cash flow requirements of the Partnership
(including cash flow necessary to repurchase Units). The amount
of borrowings that may be secured by the Partnership's properties
is limited in the aggregate to 10% of the purchase price of all
Partnership properties. The Partnership will not incur
borrowings prior to application of the proceeds from sale of the
Units, will not incur borrowings to pay distributions, and will
not incur borrowings while there is cash available for
distributions.
The Partnership will hold its properties until the General
Partners determine that the sale or other disposition of the
properties is advantageous in view of the Partnership's
investment objectives. In deciding whether to sell properties,
the General Partners will consider factors such as potential
appreciation, net cash flow and income tax considerations. In
addition, certain lessees may be granted options to purchase
properties after a specified portion of the lease term has
elapsed. The Partnership expects to sell some or all of its
properties prior to its final liquidation and to reinvest the
proceeds from such sales in additional properties. The
Partnership reserves the right, at the discretion of the General
Partners, to either distribute proceeds from the sale of
properties to the Partners or to reinvest such proceeds in
additional properties, provided that sufficient proceeds are
distributed to the Limited Partners to pay federal and state
income taxes related to any taxable gain recognized as a result
of the sale. It is anticipated that the Partnership will
commence liquidation through the sale of its remaining properties
twelve to fifteen years after its formation, although final
liquidation may be delayed by a number of circumstances,
including market conditions and seller financing of properties.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
Leases
Although there will be variations in the specific terms of
the leases, the following is a summary of the general terms in
which the Partnership may enter into Lease Agreements. The
properties are or will be leased to various tenants under triple
net leases, which are classified as operating leases. Under a
triple net lease, the lessee is responsible for all real estate
taxes, insurance, maintenance, repairs and operating expenses for
the property. The initial lease terms will be for 15 to 20
years. The leases provide for base annual rental payments,
payable in monthly installments, and contain rent clauses which
entitle the Partnership to receive additional rent in future
years based on stated rent increases.
The leases provide the lessees with renewal options
subject to the same terms and conditions as the initial lease.
Certain lessees may be granted options to purchase the property.
Depending on the lease, the purchase price is either determined
by a formula, or is the greater of the fair market value of the
property or the amount determined by a formula. In all cases, if
the option were to be exercised by the lessee, the purchase price
would be greater than the original cost of the property.
On December 10, 1997, the Partnership purchased a 40.0%
interest in a TGI Friday's restaurant in Greensburg, Pennsylvania
for $668,144. The property is leased to Ohio Valley Bistros,
Inc. under a Lease Agreement with a primary term of 15 years and
annual rental payments of $67,650. The remaining interest in the
property was purchased by AEI Real Estate Fund XVII Limited
Partnership, an affiliate of the Partnership.
Major Tenants
The major tenant contributed 100% of the Partnership's
total rental revenue in 1997. Because the Partnership has not
completed its acquisition of properties, it is not possible to
determine which tenants will contribute more than ten percent of
the Partnership's rental income in 1998 and future years. In the
event that certain tenants contribute more than ten percent of
the Partnership's rental income in future years, any failure of
these major tenants could materially affect the Partnership's net
income and cash distributions.
Competition
The Partnership is a minor factor in the commercial real
estate business. There are numerous entities engaged in the
commercial real estate business which have greater financial
resources than the Partnership. At the time the Partnership
elects to dispose of its properties, the Partnership will be in
competition with other persons and entities to find buyers for
its properties.
Employees
The Partnership has no direct employees. Management
services are performed for the Partnership by AEI Fund
Management, Inc., an affiliate of AFM.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
Year 2000
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. AEI is currently analyzing its
computer hardware and software systems to determine what, if any,
resources need to be dedicated regarding Year 2000 issues. The
Partnership does not anticipate any significant operational
impact or incurring material costs as a result of AEI becoming
Year 2000 compliant.
ITEM 2. DESCRIPTION OF PROPERTIES.
Investment Objectives
The Partnership's investment objectives are to acquire
existing or newly-developed commercial properties throughout the
United States that offer the potential for (i) regular cash
distributions of lease income; (ii) growth in lease income
through rent escalation provisions; (iii) preservation of capital
through all-cash transactions; (iv) capital growth through
appreciation in the value of properties; and (v) stable property
performance through long-term lease contracts. The Partnership
does not have a policy, and there is no limitation, as to the
amount or percentage of assets that may be invested in any one
property. However, to the extent possible, the General Partners
attempt to diversify the type and location of the Partnership's
properties.
Description of Properties
The Partnership's properties are or will be commercial,
single tenant buildings. The properties will be acquired on a
debt-free basis and leased to various tenants under triple net
leases, which will be classified as operating leases. The
Partnership will hold an undivided fee simple interest in the
properties.
The Partnership's properties will be subject to the
general competitive conditions incident to the ownership of
single tenant investment real estate. Since each property will
be leased under a long-term lease, there is little competition
until the Partnership decides to sell the property. At this
time, the Partnership will be competing with other real estate
owners, on both a national and local level, in attempting to find
buyers for the properties. In the event of a tenant default, the
Partnership would be competing with other real estate owners, who
have property vacancies, to attract a new tenant to lease the
property. The Partnership's tenants operate in industries that
are very competitive and can be affected by factors such as
changes in regional or local economies, seasonality and changes
in consumer preference.
ITEM 2. DESCRIPTION OF PROPERTIES. (Continued)
The following table is a summary of the property that the
Partnership acquired and owned as of December 31, 1997.
Total Property Annual
Purchase Acquisition Lease Annual Rent
Property Date Costs Lessee Payment Per Sq. Ft.
TGI Friday's Restaurant
Greensburg, PA Ohio Valley
(40.0%) 12/10/97 $ 668,144 Bistros, Inc. $ 67,650 $ 37.50
The remaining interest in the TGI Friday's property is
owned by AEI Real Estate Fund XVII Limited Partnership, an
affiliate of the Partnership.
Each Partnership owns a separate, undivided interest in
the property. No specific agreement or commitment exists between
the Partnerships as to the management of their respective
interests in the property, and the Partnership that holds more
than a 50% interest does not control decisions over the other
Partnership's interest.
The initial Lease term is 15 years. The Lease contains
renewal options which may extend the Lease term an additional 10
years.
Pursuant to the Lease Agreement, the tenant is required to
provide proof of adequate insurance coverage on the property.
The General Partners believe the property is adequately covered
by insurance and consider the property to be well-maintained and
sufficient for the Partnership's operations.
For tax purposes, the Partnership's properties are
depreciated under the Modified Accelerated Cost Recovery System
(MACRS). The largest depreciable component of a property is the
building which is depreciated, using the straight-line method,
over 40 years. The remaining depreciable components of a
property are personal property and land improvements which are
depreciated, using an accelerated method, over 5 and 15 years,
respectively. Since the Partnership has tax-exempt Partners, the
Partnership is subject to the rules of Section 168(h)(6) of the
Internal Revenue Code which requires a percentage of the
properties' depreciable components to be depreciated over longer
lives using the straight-line method. In general the federal tax
basis of the properties for tax depreciation purposes is the same
as the basis for book depreciation purposes.
Through December 31, 1997, the property is 100 percent
occupied by the lessee.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND
RELATED SECURITY HOLDER MATTERS.
As of December 31, 1997, there were 391 holders of record
of the registrant's Limited Partnership Units. There is no other
class of security outstanding or authorized. The registrant's
Units are not a traded security in any market. However,
beginning in 1998, the Partnership may purchase Units from
Limited Partners who have tendered their Units to the
Partnership. Such Units may be acquired at a discount. The
Partnership is not obligated to purchase in any year more than 5%
of the total number of Units outstanding at the beginning of the
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.
Cash distributions of $5,331 were made to the General
Partners and $172,361 were made to the Limited Partners in 1997.
The distributions were made on a quarterly basis and represent
Net Cash Flow, as defined, and a partial return of contributed
capital. These distributions should not be compared with
dividends paid on capital stock by corporations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
Results of Operations
For the year ended December 31, 1997, the Partnership
recognized rental income of $4,001. During the same period, the
Partnership also earned $112,806 in investment income from
subscription proceeds which were invested in short-term money
market accounts. This investment income constituted 97% of total
income. The percentage of total income represented by investment
income declines as subscription proceeds are invested in
properties.
During the year ended December 31, 1997, the Partnership
paid Partnership administration expenses to affiliated parties of
$137,699. These administration expenses include initial start-up
costs and expenses associated with processing distributions,
reporting requirements and correspondence to the Limited
Partners. The administrative expenses decrease after completion
of the offering and acquisition phases of the Partnership's
operations. During the same period, the Partnership incurred
Partnership administration and property management expenses from
unrelated parties of $640. These expenses represent direct
payments to third parties for legal and filing fees, direct
administrative costs, outside audit and accounting costs,
insurance and other property costs.
The Partnership distributes all of its net income during
the offering and acquisition phases, and if net income after
deductions for depreciation is not sufficient to fund the
distributions, the Partnership may distribute other available
cash that constitutes capital for accounting purposes.
As of December 31, 1997, the Partnership's cash
distribution rate was 7.0% on an annualized basis. Pursuant to
the Partnership Agreement, distributions of Net Cash Flow were
allocated 97% to the Limited Partners and 3% to the General
Partners.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Since the Partnership has only recently purchased its real
estate, inflation has had a minimal effect on income from
operations. The Leases may contain cost of living increases
which will result in an increase in rental income over the term
of the Leases. Inflation also may cause the Partnership's real
estate to appreciate in value. However, inflation and changing
prices may also have an adverse impact on the operating margins
of the properties' tenants which could impair their ability to
pay rent and subsequently reduce the Partnership's Net Cash Flow
available for distributions.
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. AEI is currently analyzing its
computer hardware and software systems to determine what, if any,
resources need to be dedicated regarding Year 2000 issues. The
Partnership does not anticipate any significant operational
impact or incurring material costs as a result of AEI becoming
Year 2000 compliant.
Liquidity and Capital Resources
The Partnership's primary sources of cash are from
proceeds from the sale of Units, investment income, rental income
and proceeds from the sale of property. Its primary uses of cash
are investment in real properties, payment of expenses involved
in the sale of units, the organization of the Partnership, the
acquisition of properties, the management of properties, the
administration of the Partnership, and the payment of
distributions.
The Partnership Agreement requires that no more than 15%
of the proceeds from the sale of Units be applied to expenses
involved in the sale of Units (including Commissions) and that
such expenses, together with acquisition expenses, not exceed 20%
of the proceeds from the sale of Units. As set forth under the
caption "Estimated Use of Proceeds" of the Prospectus, the
General Partners anticipate that 14% of such proceeds will be
applied to cover such expenses if the maximum proceeds are
obtained. To the extent organization and offering expenses
actually incurred exceed 15% of proceeds, they are borne by the
General Partners.
During the offering of Units, the Partnership's primary
source of cash flow will be from the sale of Limited Partnership
Units. The Partnership offered for sale up to $24,000,000 of
limited partnership interests (the "Units") (24,000 Units at
$1,000 per Unit) pursuant to a registration statement effective
January 10, 1997. From January 10, 1997 to May 1, 1997, the
minimum number of Limited Partnership Units (1,500) needed to
form the Partnership were sold and on May 1, 1997, a total of
1,629.201 Units ($1,629,201) were transferred into the
Partnership. Through December 31, 1997, the Partnership raised a
total of $7,655,996 from the sale of 7,655.996 Units. The
Managing General Partner has extended the offering of Units to
the earlier of completion of sale of all Units or January 9,
1999. From subscription proceeds, the Partnership paid
organization and syndication costs (which constitute a reduction
of capital) of $1,148,400.
Before the acquisition of properties, cash flow from
operating activities is not significant. Net income, after
adjustment for depreciation, is lower during the first few years
of operations as administrative expenses remain high and a large
amount of the Partnership's assets remain invested on a short-
term basis in lower-yielding cash equivalents. Net income will
become the largest component of cash flow from operating
activities and the largest component of cash flow after the
completion of the acquisition phase.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Partnership Agreement requires that all proceeds from
the sale of Units be invested or committed to investment in
properties by the later of two years after the date of the
Prospectus or six months after termination of the offer and sale
of Units. While the Partnership is purchasing properties, cash
flow from investing activities (investment in real property) will
remain negative and will constitute the principal use of the
Partnership's available cash flow.
On December 10, 1997, the Partnership purchased a 40.0%
interest in a TGI Friday's restaurant in Greensburg, Pennsylvania
for $668,144. The property is leased to Ohio Valley Bistros,
Inc. under a Lease Agreement with a primary term of 15 years and
annual rental payments of $67,650. The remaining interest in the
property was purchased by AEI Real Estate Fund XVII Limited
Partnership, an affiliate of the Partnership.
After completion of the acquisition phase, the
Partnership's primary use of cash flow is distribution and
redemption payments to Partners. The Partnership declares its
regular quarterly distributions before the end of each quarter
and pays the distribution in the first week after the end of each
quarter. The Partnership attempts to maintain a stable
distribution rate from quarter to quarter.
Beginning in 1998, 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 is not obligated to purchase in any year more than 5%
of the number of Units outstanding at the beginning of the 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.
Until capital is invested in properties, the Partnership
will remain extremely liquid. At December 31, 1997, $5,808,792
or 88% of the Partnership's assets were in cash or cash
equivalents (including accrued interest receivable). After
completion of property acquisitions, the Partnership will attempt
to maintain a cash reserve of only approximately 1% of
subscription proceeds. Because properties are purchased for cash
and leased under triple-net leases, this is considered adequate
to satisfy most contingencies.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
The foregoing Management's Discussion and Analysis
contains various "forward looking statements" within the meaning
of federal securities laws which represent management's
expectations or beliefs concerning future events, including
statements regarding anticipated application of cash, expected
returns from rental income, growth in revenue, taxation levels,
the sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward
looking statements made by the Partnership, must be evaluated in
the context of a number of factors that may affect the
Partnership's financial condition and results of operations,
including the following:
<bullet> Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
<bullet> the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
affects of these consequences for investors;
<bullet> resolution by the General Partners of conflicts with
which they may be confronted;
<bullet> the success of the General Partners of locating
properties with favorable risk return characteristics;
<bullet> the effect of tenant defaults; and
<bullet> the condition of the industries in which the tenants of
properties owned by the Partnership operate.
These and other risks to which the Partnership may be subject are
discussed in more detail in Exhibit 99 to this Form 10-KSB.
ITEM 7. FINANCIAL STATEMENTS.
See accompanying index to financial statements.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors
Balance Sheet as of December 31, 1997 and 1996
Statements for the Year Ended December 31, 1997 and for the
Period From Inception (July 31, 1996) to December 31, 1996:
Operations
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
REPORT OF INDEPENDENT AUDITORS
To the Partners:
AEI Income & Growth Fund XXII Limited Partnership
St. Paul, Minnesota
We have audited the accompanying balance sheet of AEI INCOME
& GROWTH FUND XXII LIMITED PARTNERSHIP (a Minnesota limited
partnership) as of December 31, 1997 and 1996 and the related
statements of operations, cash flows and changes in partners'
capital for the year ended December 31, 1997 and for the period
from inception (July 31, 1996) to December 31, 1996. These
financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of AEI Income & Growth Fund XXII Limited Partnership as of
December 31, 1997 and 1996, and the results of its operations and
its cash flows for the year ended December 31, 1997 and for the
period from inception (July 31, 1996) to December 31, 1996, in
conformity with generally accepted accounting principles.
Minneapolis, Minnesota
February 4, 1998 Boulay, Heutmaker, Zibell &Co. P.L.L.P.
Certified Public Accountants
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31
ASSETS
1997 1996
CURRENT ASSETS:
Cash and Cash Equivalents $ 5,808,792 $ 943
INVESTMENTS IN REAL ESTATE:
Land 295,020 0
Buildings and Equipment 373,124 0
Property Acquisition Costs 93,860 0
Accumulated Depreciation (668) 0
----------- -----------
Net Investments in Real Estate 761,336 0
----------- -----------
Total Assets $ 6,570,128 $ 943
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 161,446 $ 300
Distributions Payable 100,335 0
----------- -----------
Total Current Liabilities 261,781 300
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (4,970) 643
Limited Partners, $1,000 Unit Value;
24,000 Units authorized; 7,656 Units
issued and outstanding in 1997 6,313,317 0
----------- -----------
Total Partners' Capital 6,308,347 643
----------- -----------
Total Liabilities and Partners' Capital $ 6,570,128 $ 943
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE
PERIOD FROM INCEPTION (JULY 31, 1996) TO DECEMBER 31, 1996
1997 1996
INCOME:
Rent $ 4,001 $ 0
Investment Income 112,806 0
--------- ---------
Total Income 116,807 0
--------- ---------
EXPENSES:
Partnership Administration - Affiliates 137,699 165
Partnership Administration and Property
Management - Unrelated Parties 640 192
Depreciation 668 0
--------- ---------
Total Expenses 139,007 357
--------- ---------
NET LOSS $ (22,200) $ (357)
========= =========
NET LOSS ALLOCATED:
General Partners $ (222) $ (357)
Limited Partners (21,978) 0
--------- ---------
$ (22,200) $ (357)
========= =========
NET LOSS PER LIMITED PARTNERSHIP UNIT
(3,736 weighted average Units outstanding
in 1997) $ (5.88) $ 0
========= =========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE
PERIOD FROM INCEPTION (JULY 31, 1996) TO DECEMBER 31, 1996
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (22,200) $ (357)
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 668 0
Increase in Payable to AEI Fund Management, Inc. 161,146 300
----------- -----------
Total Adjustments 161,814 300
----------- -----------
Net Cash Provided By (Used For)
Operating Activities 139,614 (57)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (762,004) 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from General Partners 0 1,000
Capital Contributions from Limited Partners 7,655,996 0
Organization and Syndication Costs (1,148,400) 0
Increase in Distributions Payable 100,335 0
Distributions to Partners (177,692) 0
----------- -----------
Net Cash Provided By
Financing Activities 6,430,239 1,000
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,807,849 943
CASH AND CASH EQUIVALENTS, beginning of period 943 0
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 5,808,792 $ 943
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE
PERIOD FROM INCEPTION (JULY 31, 1996) TO DECEMBER 31, 1996
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, July 31, 1996 $ 0 $ 0 $ 0 0
Capital Contributions 1,000 0 1,000 0
Net Loss (357) 0 (357)
--------- ----------- ----------- ---------
BALANCE, December 31, 1996 643 0 643 0
Capital Contributions 0 7,655,996 7,655,996 7,656.00
Organization & Syndication Costs (60) (1,148,340) (1,148,400)
Distributions (5,331) (172,361) (177,692)
Net Loss (222) (21,978) (22,200)
--------- ----------- ----------- ---------
BALANCE, December 31, 1997 $ (4,970) $ 6,313,317 $ 6,308,347 7,656.00
========= =========== =========== =========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) Organization -
AEI Income & Growth Fund XXII Limited Partnership
(Partnership) was formed to acquire and lease commercial
properties to operating tenants. The Partnership's
operations are managed by AEI Fund Management XXI, Inc.
(AFM), the Managing General Partner of the Partnership.
Robert P. Johnson, the President and sole shareholder of
AFM, serves as the Individual General Partner of the
Partnership. An affiliate of AFM, AEI Fund Management, Inc.
(AEI), performs the administrative and operating functions
for the Partnership.
The terms of the Partnership offering call for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. Under the terms of the
Restated Limited Partnership Agreement, 24,000 Limited
Partnership Units are available for subscription which, if
fully subscribed, will result in contributed Limited
Partners' capital of $24,000,000. The Partnership commenced
operations on May 1, 1997 when minimum subscriptions of
1,500 Limited Partnership Units ($1,500,000) were accepted.
At December 31, 1997, 7,655.996 Units ($7,655,996) were
subscribed and accepted by the Partnership. The General
Partners have contributed capital of $1,000. The Managing
General Partner has extended the offering of Units to the
earlier of completion of sale of all Units or January 9,
1999.
During the operation of the Partnership, 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 the Partnership's 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 the Partnership's
property, will be allocated first in the same ratio in
which, and to the extent, Net Cash Flow is distributed to
the Partners for such year. Any additional profits will be
allocated in the same ratio as the last dollar of Net Cash
Flow is distributed. Net losses from operations will be
allocated 99% to the Limited Partners and 1% to the General
Partners.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) Organization - (Continued)
For tax purposes, profits arising from the sale, financing,
or other disposition of the Partnership's property will be
allocated in accordance with the Partnership Agreement as
follows: (i) first, to those partners with deficit balances
in their capital accounts in an amount equal to the sum of
such deficit balances; (ii) second, 99% to the Limited
Partners and 1% to the General Partners until the aggregate
balance in the Limited Partners' capital accounts equals the
sum of the Limited Partners' Adjusted Capital Contributions
plus an amount equal to 9% of their Adjusted Capital
Contributions per annum, cumulative but not compounded, to
the extent not previously allocated; (iii) third, the
balance of any remaining gain will then be allocated 90% to
the Limited Partners and 10% to the General Partners.
Losses will be allocated 98% to the Limited Partners and 2%
to the General Partners.
The General Partners are not required to currently fund a
deficit capital balance. Upon liquidation of the
Partnership or withdrawal by a General Partner, the General
Partners will contribute to the Partnership an amount equal
to the lesser of the deficit balances in their capital
accounts or 1% of total Limited Partners' and General
Partners' capital contributions.
(2) Summary of Significant Accounting Policies -
Newly Issued Accounting Standards
In June, 1997, Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" was approved for
issuance for fiscal years beginning after December 15,
1997. The Partnership adopted this Statement in the
fourth quarter of 1997. The effect of this Statement has
been determined that net income/loss for financial
statements and comprehensive income/loss is primarily the
same in all material respects.
Financial Statement Presentation
The accounts of the Partnership are maintained on the
accrual basis of accounting for both federal income tax
purposes and financial reporting purposes.
Accounting Estimates
Management uses estimates and assumptions in preparing
these financial statements in accordance with generally
accepted accounting principles. Those estimates and
assumptions may affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Actual results could differ from those estimates.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(2) Summary of Significant Accounting Policies - (Continued)
The Partnership regularly assesses whether market events
and conditions indicate that it is reasonably possible to
recover the carrying amounts of its investments in real
estate from future operations and sales. A change in
those market events and conditions could have a material
effect on the carrying amount of its real estate
Cash Concentrations of Credit Risk
At times throughout the year, the Partnership's cash
deposited in financial institutions may exceed FDIC
insurance limits.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash
equivalents may include cash in checking, cash invested
in money market accounts, certificates of deposit,
federal agency notes and commercial paper with a term of
three months or less.
Income Taxes
The income or loss of the Partnership for federal income
tax reporting purposes is includable in the income tax
returns of the partners. Accordingly, no recognition has
been given to income taxes in the accompanying financial
statements.
The tax return, the qualification of the Partnership as
such for tax purposes, and the amount of distributable
Partnership income or loss are subject to examination by
federal and state taxing authorities. If such an
examination results in changes with respect to the
Partnership qualification or in changes to distributable
Partnership income or loss, the taxable income of the
partners would be adjusted accordingly.
Real Estate
The Partnership's real estate is or will be leased under
long-term triple net leases classified as operating
leases. The Partnership recognizes rental revenue on the
accrual basis according to the terms of the individual
leases. For leases which contain rental increases based
on cost of living increases, the increases are recognized
in the year in which they are effective.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(2) Summary of Significant Accounting Policies - (Continued)
Real estate is recorded at the lower of cost or estimated
net realizable value. The Financial Accounting Standards
Board issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" which was effective for the
Partnership's fiscal year ended December 31, 1996. This
standard requires the Partnership to compare the carrying
amount of its properties to the estimated future cash
flows expected to result from the property and its
eventual disposition. If the sum of the expected future
cash flows is less than the carrying amount of the
property, the Statement requires the Partnership to
recognize an impairment loss by the amount by which the
carrying amount of the property exceeds the fair value of
the property.
The Partnership has capitalized as Investments in Real
Estate certain costs incurred in the review and
acquisition of the properties. The costs will be
allocated to the land, buildings and equipment.
The buildings and equipment of the Partnership are
depreciated using the straight-line method for financial
reporting purposes based on estimated useful lives of 25
years and 5 years, respectively.
(3) Related Party Transactions -
The Partnership owns a 40.0% interest in a TGI Friday's
restaurant in Greensburg, Pennsylvania. The remaining
interest in the property is owned by AEI Real Estate Fund
XVII Limited Partnership, an affiliate of the Partnership.
Each Partnership owns a separate, undivided interest in the
property. No specific agreement or commitment exists
between the Partnerships as to the management of their
respective interests in the property, and the Partnership
that holds more than a 50% interest does not control
decisions over the other Partnership's interest. The
financial statements reflect only this Partnership's
percentage share of the property's land, building and
equipment, liabilities, revenues and expenses.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(3) Related Party Transactions - (Continued)
AEI, AFM and AEI Securities, Inc. (ASI) (formerly AEI
Incorporated) received the following compensation and
reimbursements for costs and expenses from the Partnership:
Total Incurred by the Partnership
for the Year Ended December 31, 1997
and for the Period From Inception
(July 31, 1996) to December 31, 1996
1997 1996
a.AEI and AFM are reimbursed for all costs
incurred in connection with managing the
Partnership's operations, maintaining the
Partnership's books and communicating
the results of operations to the Limited
Partners. $ 137,699 $ 165
======== ========
b.AEI and AFM are reimbursed for all direct
expenses they have paid on the Partnership's
behalf to third parties. These expenses included
printing costs, legal and filing fees, direct
administrative costs, outside audit and accounting
costs, insurance and other property costs. $ 640 $ 192
======== ========
c.AEI is reimbursed for all property acquisition
costs incurred by it in acquiring properties on
behalf of the Partnership. The amounts are net
of financing and commitment fees and expense
reimbursements received by the Partnership from
the lessees in the amount of $11,414 for 1997. $ 102,004 $ 0
======== ========
d.ASI was the underwriter of the Partnership offering.
Robert P. Johnson is the sole stockholder of ASI,
which is a member of the National Association of
Securities Dealers, Inc. ASI received, as
underwriting commissions 8% for sale of certain
subscription Units ($80 per unit sold, of which it
re-allowed up to $80 per unit to other participating
broker/dealers). ASI also received a 2%
non-accountable expense allowance for all Units
it sold through broker/dealers. These costs
are treated as a reduction of partners' capital. $ 765,600 $ 0
======== ========
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(3) Related Party Transactions - (Continued)
Total Incurred by the Partnership
for the Year Ended December 31, 1997
and for the Period From Inception
(July 31, 1996) to December 31, 1996
1997 1996
e.AEI is reimbursed for all costs incurred in
connection with managing the Partnership's
offering and organization. $ 153,495 $ 0
======== ========
f.AEI is reimbursed for all expenses it has paid
on the Partnership's behalf relating to the
offering and organization of the Partnership.
These expenses included printing costs, legal
and filing fees, direct administrative costs,
underwriting costs and due diligence fees. $ 229,305 $ 0
======== ========
The payable to AEI Fund Management, Inc. represents the
balance due for the services described in 3a, b, c, e and f.
This balance is non-interest bearing and unsecured and is to
be paid in the normal course of business.
(4) Investments in Real Estate -
The Partnership leases its properties to various tenants
through triple net leases, which are classified as operating
leases. Under a triple net lease, the lessee is responsible
for all real estate taxes, insurance, maintenance, repairs
and operating expenses of the property. The initial Lease
term is 15 years. The Lease contains renewal options which
may extend the Lease term an additional 10 years. The Lease
contains rent clauses which entitle the Partnership to
receive additional rent in future years based on stated rent
increases.
The Partnership's property is a commercial, single-tenant
building and was constructed and acquired in 1997. There
have been no costs capitalized as improvements subsequent to
the acquisition.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(4) Investments in Real Estate - (Continued)
The cost of the property and related accumulated
depreciation at December 31, 1997 are as follows:
Buildings and Accumulated
Property Land Equipment Total Depreciation
TGI Friday's
Greensburg, PA $ 295,020 $ 373,124 $ 668,144 $ 668
On December 10, 1997, the Partnership purchased a 40.0%
interest in a TGI Friday's restaurant in Greensburg,
Pennsylvania for $668,144. The property is leased to Ohio
Valley Bistros, Inc. under a Lease Agreement with a primary
term of 15 years and annual rental payments of $67,650.
The Partnership has incurred net costs of $102,004 relating
to the review of potential property acquisitions. Of these
costs, $8,144 have been capitalized and allocated to land,
building and equipment. The remaining costs of $93,860 have
been capitalized and will be allocated to properties
acquired subsequent to December 31, 1997.
The minimum future rentals on the Lease for years subsequent
to December 31, 1997 are as follows:
1998 $ 67,650
1999 68,414
2000 69,187
2001 69,969
2002 70,760
Thereafter 753,110
----------
$ 1,099,090
==========
There were no contingent rents recognized in 1997.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(5) Major Tenants -
The following schedule presents rent revenue from individual
tenants, or affiliated groups of tenants, who each
contributed more than ten percent of the Partnership's total
rent revenue for the year ended December 31:
1997
Tenants Industry
Ohio Valley Bistros, Inc. Restaurant $ 4,001
----------
Aggregate rent revenue of major tenants $ 4,001
==========
Aggregate rent revenue of major tenants as
a percentage of total rent revenue 100%
==========
(6) Partners' Capital -
Cash distributions of $5,331 were made to the General
Partners and $172,361 were made to the Limited Partners for
the year ended December 31, 1997. The Limited Partners'
distributions represent $46.14 per Limited Partnership Unit
outstanding using 3,736 weighted average Units in 1997. The
distributions represent $-0- per Unit of Net Income and
$46.14 per Unit of return of contributed capital in 1997.
Beginning in 1998, 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 is not obligated to purchase in any year more
than 5% of the number of Units outstanding at the beginning
of the year. In no event shall the Partnership be obligated
to purchase Units if, in the sole discretion of the Managing
General Partner, such purchase would impair the capital or
operation of the Partnership.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(7) Income Taxes -
The following is a reconciliation of net income for
financial reporting purposes to income reported for federal
income tax purposes for the years ended December 31:
1997 1996
Net Loss for Financial
Reporting Purposes $ (22,200) $ (357)
Depreciation for Tax Purposes
Over Depreciation for Financial
Reporting Purposes (388) 0
Capitalized Start-Up Costs
Under Section 195 137,668 357
Amortization of Start-Up and
Organization Costs (167) 0
---------- ----------
Taxable Income to Partners $ 114,913 $ 0
========== ==========
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(7) Income Taxes - (Continued)
The following is a reconciliation of Partners' capital for
financial reporting purposes to Partners' capital reported
for federal income tax purposes for the years ended
December 31:
1997 1996
Partners' Capital for
Financial Reporting Purposes $ 6,308,347 $ 643
Depreciation for Tax Purposes
Over Depreciation for Financial
Reporting Purposes (388) 0
Capitalized Start-Up Costs
Under Section 195 138,024 357
Amortization of Start-Up and
Organization Costs (167) 0
Organization and Syndication Costs
Treated as Reduction of Capital
for Financial Reporting Purposes 1,148,400 0
----------- -----------
Partners' Capital for
Tax Reporting Purposes $ 7,594,216 $ 1,000
=========== ===========
(8) Fair Value of Financial Instruments -
The estimated fair values of the financial instruments, none
of which are held for trading purposes, for the years ended
December 31:
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash $ 307 $ 307 $ 943 $ 943
Money Market Funds 5,808,485 5,808,485 0 0
----------- ----------- --------- ---------
Total Cash and
Cash Equivalents $ 5,808,792 $ 5,808,792 $ 943 $ 943
=========== =========== ========= =========
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The registrant is a limited partnership and has no
officers, directors, or direct employees. The General Partners
of the registrant are Robert P. Johnson and AFM. The General
Partners manage and control the Partnership's affairs and have
general responsibility and the ultimate authority in all matters
affecting the Partnership's business. The director and officers
of AFM are as follows:
Robert P. Johnson, age 53, is Chief Executive Officer,
President and Director and has held these positions since the
formation of AFM in August, 1994, and has been elected to
continue in these positions until August, 1998. From 1970 to the
present, he had been employed exclusively in the investment
industry, specializing in tax-advantaged limited partnership
investments. In that capacity, he has been involved in the
development, analysis, marketing and management of public and
private investment programs investing in net lease properties as
well as public and private investment programs investing in
energy development. Since 1971, Mr. Johnson has been the
president, a director and a registered principal of AEI
Securities, Inc. (formerly AEI Incorporated), which is registered
with the Securities and Exchange Commission as a securities
broker-dealer, is a member of the National Association of
Securities Dealers, Inc. (NASD) and is a member of the Security
Investors Protection Corporation (SIPC). Mr. Johnson has been
president, a director and the principal shareholder of AEI Fund
Management, Inc., a real estate management company founded by
him, since 1978. Mr. Johnson is currently a general partner or
principal of the general partner in sixteen other limited
partnerships.
Mark E. Larson, age 45, is Executive Vice President,
Secretary, Treasurer and Chief Financial Officer and has held
these positions since the formation of AFM in August, 1994, and
has been elected to continue in these positions until August,
1998. Mr. Larson has been employed by AEI Fund Management, Inc.
and affiliated entities since 1985. From 1979 to 1985, Mr.
Larson was with Apache Corporation as manager of Program
Accounting responsible for the accounting and reports for
approximately 46 public partnerships. Mr. Larson is responsible
for supervising the accounting functions of AFM and the
registrant.
ITEM 10. EXECUTIVE COMPENSATION.
The General Partner and affiliates are reimbursed at cost
for all services performed on behalf of the registrant and for
all third party expenses paid on behalf of the registrant. The
cost for services performed on behalf of the registrant is actual
time spent performing such services plus an overhead burden.
These services include organizing the registrant and arranging
for the offer and sale of Units, reviewing properties for
acquisition and rendering administrative and management services.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information pertaining to
the ownership of the Units by each person known by the
Partnership to beneficially own 5% or more of the Units, by each
General Partner, and by each officer or director of the Managing
General Partner as of February 28, 1998:
Name and Address Number of Percent
of Beneficial Owner Units Held of Class
AEI Fund Management XXI, Inc. 0 0%
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
Robert P. Johnson 0 0%
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
Mark E. Larson 0 0%
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
The General Partners know of no holders of more than 5% of the
outstanding Units.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The registrant, AFM and its affiliates have common
management and utilize the same facilities. As a result, certain
administrative expenses are allocated among these related
entities. All of such activities and any other transactions
involving the affiliates of the General Partner of the registrant
are governed by, and are conducted in conformity with, the
limitations set forth in the Limited Partnership Agreement of the
registrant.
The following table sets forth the forms of compensation,
distributions and cost reimbursements paid by the registrant to
the General Partners or their Affiliates in connection with the
operation of the Fund and its properties for the period from
inception through December 31, 1997.
Person or Entity Amount Incurred From
Receiving Form and Method Inception (July 31, 1996)
Compensation of Compensation To December 31, 1997
AEI Securities, Inc. Selling Commissions equal $765,600
(formerly AEI to 8% of proceeds plus a 2%
Incorporated) nonaccountable expense
allowance, most of which was
reallowed to Participating
Dealers.
General Partners and Reimbursement at Cost for $382,800
Affiliates other Organization and
Offering Costs.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(Continued)
Person or Entity Amount Incurred From
Receiving Form and Method Inception (July 31, 1996)
Compensation of Compensation To December 31, 1997
General Partners and Reimbursement at Cost for $102,004
Affiliates all Acquisition Expenses
General Partners 3% of Net Cash Flow in any $ 5,331
fiscal year.
General Partners and Reimbursement at Cost for $137,864
Affiliates all Administrative Expenses
attributable to the Fund,
including all expenses related
to management and disposition
of the Fund's properties and all
other transfer agency, reporting,
partner relations and other
administrative functions.
General Partners 1% of distributions of Net $ 0
Proceeds of Sale until Limited
Partners have received an amount
equal to (a) their Adjusted Capital
Contributions, plus (b) an amount
equal to 9% of their Adjusted Capital
Contributions per annum, cumulative
but not compounded, to the extent not
previously distributed. 10% of
distributions of Net Proceeds of Sale
thereafter.
The limitations included in the Partnership Agreement
require that the cumulative reimbursements to the General
Partners and their affiliates for administrative expenses not
allowed under the NASAA Guidelines ("Guidelines") will not exceed
the sum of (i) the front-end fees allowed by the Guidelines less
the front-end fees paid, (ii) the cumulative property management
fees allowed but not paid, (iii) any real estate commission
allowed under the Guidelines, and (iv) 10% of Net Cash Flow less
the Net Cash Flow actually distributed. The reimbursements not
allowed under the guidelines include a controlling person's
salary and fringe benefits, rent and depreciation. As of
December 31, 1997, the cumulative reimbursements to the General
Partners and their affiliates did not exceed these amounts.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A.
A. Exhibits -
Description
3.1 Certificate of Limited
Partnership (incorporated by reference to
Exhibit 3.1 of the registrant's
Registration Statement on Form SB-2 filed
with the Commission on September 13, 1996
[File No. 333-5604]).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued)
A. Exhibits -
Description
3.2 Restated Limited Partnership
Agreement to the Prospectus (incorporated
by reference to Exhibit A of Amendment No.
2 of the registrant's Registration
Statement on Form SB-2 filed with the
Commission on August 21, 1997 [File No. 333-
5604]).
10.1 Form of Impoundment
Agreement with Fidelity Bank (incorporated
by reference to Exhibit 10 of the
registrant's Registration Statement on Form
SB-2 filed with the Commission on September
13, 1996 [File No. 333-5604]).
10.2 Sale and Leaseback Financing
Commitment dated May 13, 1997 between AEI
Fund Management, Inc. and Ohio Valley
Bistros, Inc. relating to the sale and
leaseback of a TGI Friday's restaurant at
#1507, Rural Route #6, Greensburg,
Pennsylvania (incorporated by reference to
Exhibit 10.1 of Form 10-QSB filed with the
Commission on November 7, 1997).
10.3 Assignment of Sale and
Leaseback Financing Commitment dated
November 14, 1997, between the Partnership
and AEI Fund Management, Inc. relating to
the sale and leaseback of a TGI Friday's
restaurant at #1507, Rural Route #6,
Greensburg, Pennsylvania (incorporated by
reference to Exhibit 10.2 of Form 10-QSB
filed with the Commission on November 7,
1997).
10.4 Net Lease Agreement dated
December 10, 1997 between the Partnership,
and AEI Real Estate Fund XVII Limited
Partnership and Ohio Valley Bistros, Inc.
relating to the property at #1507, Rural
Route #6, Greensburg, Pennsylvania
(incorporated by reference to Exhibit 10.1
of Form 8-K filed with the Commission on
December 18, 1997).
27 Financial Data Schedule for
year ended December 31, 1997.
99 Forward Looking Statements -
Cautionary Statement
B. Reports on Form 8-K - During
the quarter ended December 31, 1997,
the Partnership filed a Form 8-K,
dated December 18, 1997, reporting
the acquisition of a TGI Friday's
restaurant in Greensburg,
Pennsylvania.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AEI INCOME & GROWTH FUND XXII
Limited Partnership
By: AEI Fund Management XXI, Inc.
Its Managing General Partner
March 9, 1998 By: /s/ Robert P. Johnson
Robert P. Johnson, President and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Name Title Date
/s/ Robert P. Johnson President (Principal Executive Officer) March 9, 1998
Robert P. Johnson and Sole Director of Managing General
Partner
/s/ Mark E. Larson Executive Vice President, Treasurer March 9, 1998
Mark E. Larson and Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001023458
<NAME> AEI INVOME& GROWTH FUND XXII LTD PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,808,792
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,808,792
<PP&E> 762,004
<DEPRECIATION> (668)
<TOTAL-ASSETS> 6,570,128
<CURRENT-LIABILITIES> 261,781
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,308,347
<TOTAL-LIABILITY-AND-EQUITY> 6,570,128
<SALES> 0
<TOTAL-REVENUES> 116,807
<CGS> 0
<TOTAL-COSTS> 139,007
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (22,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,200)
<EPS-PRIMARY> (5.88)
<EPS-DILUTED> (5.88)
</TABLE>
EXHIBIT 99
FORWARD LOOKING STATEMENTS
CAUTIONARY STATEMENT
Statements regarding the future prospects of the Partnership
must be evaluated in the context of a number of factors that may
materially affect its financial condition and results of
operations. Disclosure of these factors is intended to permit
the Partnership to take advantage of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Most of
these factors have been discussed in prior filings by the Company
with the Securities and Exchange Commission. Although the
Partnership has attempted to list the factors that it is
currently aware may have an impact on its operations, other
factors may in the future prove to be important and the following
list should not necessarily be considered comprehensive.
General
Purchase of Unspecified Properties. Although the cash
available to the Partnership will be used to acquire non-
residential commercial properties (including single-tenant
properties in the restaurant and retail industry) that are
subject to long-term triple net leases, the Partnership may not
have identified all of the properties for acquisition. Whenever
a reasonable probability arises that the Partnership will invest
in any other property, the property will be identified in the
next quarterly filing by the Partnership with the SEC, or if the
property is very material to the Partnership, in a current
filing. Investors will not have an opportunity to evaluate the
relevant economic, financial and other factors regarding the
properties in which cash will be invested. Investors must rely
upon the ability of the General Partners with respect to the
investment of such cash and management of the properties. No
assurance can be given that the Partnership will be successful in
obtaining suitable investments or that the objectives of the
Partnership will be achieved.
Conflicts of Interest. The General Partners and their
Affiliates provide substantially all of the management services
to the Partnership and have an interest in the Partnership. In
addition, the General Partners manage a number of other
Partnerships engaged in investment in net leased real estate,
some of which may have purchased, or may purchase in the future,
joint interests in the properties the Partnership acquires. The
operation of the Partnership involves various conflicts of
interest for the General Partners.
Reliance On Management. Except for certain voting rights
afforded Limited Partners by the Limited Partnership Agreement,
the Limited Partners have no control over the management of the
Partnership or its properties, but must rely almost exclusively
upon the General Partners.
Financial Position of General Partners. The Managing
General Partner, was formed in 1994 to serve as general partner
of AEI Income and Growth Fund XXI Limited Partnership, an
affiliated limited partnership with substantially the same
structure and investment objectives as the Partnership. The
Managing General Partner does not have substantial net worth.
The Individual General Partner, Robert P. Johnson, who represents
that he has a net worth in excess of $2,400,000, has been
involved as a general partner in public and private net lease
real estate partnerships and energy partnerships for more than
twenty years. Mr. Johnson could become subject to claims of
creditors for liabilities unrelated to the Partnership's business
in an amount that could adversely affect the Partnership. A
substantial portion of the assets of the Individual General
Partner consist of illiquid investments that were valued using
valuation formulae established by, and which are believed
reasonable by, the Individual General Partner. There can be no
assurance that such assets could be sold at their estimated
value.
Death or Withdrawal of General Partners. In the event of
the death, removal, bankruptcy or withdrawal of both of the
General Partners, the Partnership will be dissolved. While the
Limited Partners may elect, under such circumstances, to continue
the Partnership and its business with a new general partner, the
Limited Partners may not be able to find, or agree upon, a person
willing to act as general partner. In such event, the
Partnership would be liquidated. Sale of properties under such
circumstances might not produce an advantageous price and the
investors might suffer adverse tax and economic consequences.
The Partnership will not have the benefit of insurance on the
life of the Individual General Partner.
Indemnification of General Partners. Under the Limited
Partnership Agreement, the General Partners are not liable to the
Partnership or to the Limited Partners for any act or omission
that they determine in good faith is in the best interest of the
Partnership, except for acts of negligence or misconduct, and
under certain circumstances the General Partners will be entitled
to indemnification from the Partnership for certain losses.
Not a Real Estate Investment Trust or Investment Company.
The Partnership is not a mutual fund or a real estate investment
trust and it will not operate in a manner as to be classified as
an "investment company" for purposes of the Investment Company
Act of 1940. The management and the investment practices and
policies of the Partnership are not supervised or regulated by
any federal or state authority.
Representation by Attorneys and Accountants. The
Partnership, its Limited Partners and the General Partners are
not represented by separate counsel. The legal counsel and
accountants for the Partnership have not been retained, and will
not be available, to provide legal counseling or tax advice to
investors. Therefore, investors should retain their own legal
and tax advisors.
No Market for Units/Restrictions on Transfer. There is no
public market for the Units. In addition, under section 9.1 of
the Partnership Agreement, Units may not be assigned without
notice to and approval by the Managing General Partner. Although
such approval is required when the assignment or transfer is not
in violation of the Partnership Agreement, the Partnership
Agreement places substantial restrictions on the form and number
of transfers that may be made in order to retain the treatment of
the Partnership as a partnership for income tax purposes under
Internal Revenue Service definitions of "Publicly Traded
Partnerships."
Limited Liability. Although investors are limited partners
in a limited partnership, certain events under the Uniform
Limited Partnership Act can result in general liability being
imposed upon them. For example, if a Limited Partner takes part
in control of the business of the Partnership, he or she may
become liable as a general partner. Also, it is possible that a
failure on the part of the Partnership to file certain documents
in some jurisdictions in which it operates may jeopardize their
limited liability. Under the Minnesota Revised Uniform Limited
Partnership Act, however, an investor generally will be liable to
a Partnership or its creditors only for any difference between
such investor's contributions to the capital of the Partnership
and the amount of such contribution the investor has committed in
writing to make, for amounts or property wrongfully distributed
to such investor by the Partnership, and for any return of such
investor's contributions to the capital of the Partnership, plus
interest, to the extent that a creditor extended credit or had a
claim against the Partnership prior to such return.
Repurchase of Units. The Partnership Agreement provides
that Partners may tender Units to the Partnership for repurchase
by it commencing in 1998. In 1998 and 1999, the repurchase price
will be equal to 80% of the Limited PartnerOs Adjusted Capital
Contribution. In each year thereafter the repurchase price will
be calculated by the General Partners twice a year based on the
value of the PartnershipOs assets. The Partnership is not
required, however, to repurchase Units in excess of five percent
of the Units outstanding in any year and is not required to
repurchase Units if such repurchase would impair the
Partnership's ability to continue operations. The repurchase
price for any Units must be paid out of either (i) Partnership
revenues otherwise distributable to Limited Partners or (ii)
Partnership borrowings. Accordingly, to the extent that the
Partnership repurchases Units, distributions to remaining Limited
Partners may initially be reduced. Moreover, there may be
circumstances under which Partnership revenues and borrowings
will be insufficient to fully fund such repurchases.
Distributions of Capital. During the acquisition phase of
the Partnership's operations, the General Partners intend to
distribute all interest income earned on proceeds that are
temporarily invested. To the extent that net operating revenues
are not sufficient to fund all such distributions, they may
constitute a return of capital.
Temporarily Invested Proceeds. Pending investment in
properties, the offering proceeds will be invested in short-term
government securities or in insured deposits with a financial
institution and will earn interest at short-term deposit rates.
The amount invested in insured accounts may periodically exceed
insurance limits and there can be no assurance that the
Partnership would recover the full amount of the account if the
financial institution in which they are deposited were placed in
receivership. No such funds, however, will be invested in the
accounts of an institution with less than $100 million in assets
or capital of less than seven percent of assets.
Risks Involved in Real Estate Transactions
Risks of Real Estate Ownership. The Partnership's
investment in non-residential commercial properties will be
subject to the risks generally incident to the ownership of real
property, including risks related to national economic
conditions, changes in the investment climate for real estate,
changes in local market conditions, changes in interest rates,
changes in real estate tax rates, other operating expenses,
governmental rules and fiscal policies, uninsured losses, the
financial condition of tenants, and other factors beyond the
control of the General Partners. The Partnership's properties
are subject to the risk of the inability to retain tenants or of
the default by tenants (and the inability to lease properties to
new tenants thereafter), which could result from adverse changes
in local real estate markets or other factors. The General
Partners believe that because the Partnership will be investing
in triple net lease properties on an all-cash basis, some of the
general risks associated with investments in real property will
be reduced.
No Assurance of Property Appreciation or Partnership
Profits. There is no assurance that the properties to be
acquired by the Partnership will operate at a profit, will
appreciate in value, or will be sold at a profit. The
marketability and value of each property will depend upon many
factors beyond the control of the General Partners. Since
investments in real property are generally illiquid, there is no
assurance that there will be a market for any property.
Adequacy of Reserves. Because the Partnership's properties
will be subject to triple net leases, the General Partners will
retain only a small working capital reserve. There can be no
assurance that adequate reserves will be available.
Tenant Default. The financial failure of a tenant of the
Partnership may cause a reduction in the Net Cash Flow of the
Partnership and a decline in the value of the property leased to
such tenant. In the event of such default, there is no assurance
that the Partnership would be able to find a new tenant for the
property at the same rental, or to sell the property without
incurring a loss. Like most entities that invest in real estate,
prior Partnerships sponsored by Affiliates of the General
Partners have purchased properties that have been leased to
tenants who have defaulted on lease obligations. In the event of
the bankruptcy of a tenant, there can be no assurance that the
Partnership could rapidly recover leased property from a trustee
in bankruptcy proceedings or that the Partnership would receive
rent in such proceedings sufficient to cover its expenses, if
any, with respect to such property. Bankruptcies have caused
several months' interruption in rental payments from lessees of
properties in some prior partnerships.
Net Leases. Net leases frequently give the tenant greater
discretion in the use of the property than do ordinary property
leases (e.g., with respect to rights to sublease, to make
alterations in the leased premises and to terminate the lease in
certain circumstances). Although the value of such properties
might be adversely affected by the failure of tenants to renew
such leases, the General Partners will attempt to reduce this
risk by entering into long-term leases of 10 or more years.
Single Use Properties. The properties which the Partnership
purchases may be designed or built primarily for a particular
tenant such as a specific restaurant franchisee. If the
Partnership holds such a property upon termination of the lease
and the tenant elects not to renew its lease, or if such a tenant
otherwise defaults on its lease obligations, the property may not
be readily marketable to a new tenant without substantial capital
improvements or remodeling. Such improvements might require
expenditure of funds otherwise available for distribution or the
sale of the property at a lower price.
The Restaurant and Retail Industry. It is anticipated that
many of the properties acquired or to be acquired will be leased
to operators in the restaurant industry or in the retail
industry. Both of these industries are highly competitive and
can be affected by factors such as changes in regional or local
economies, seasonality and changes in consumer preference.
Although the General Partners will attempt to limit these risks
by emphasizing acquisition of properties for cash that are leased
to established national and regional companies, there can be no
assurance that a downturn affecting such industries would not
have an adverse effect on the Partnership.
Construction Lending. The Partnership may advance funds to
certain seller/lessees prior to acquisition to assist in
financing the construction of such properties. Although all of
such advances will be secured by the property and all
improvements thereon, and although none of the ten public funds
previously sponsored by the General Partners have ever
experienced a default on a construction loan, construction
lending is subject to a number of risks. Risks incurred by
owners during construction, including cost overruns,
nonperforming contractors, changes in construction codes and
changes in cost, can cause financial difficulty and increase the
likelihood of default on a construction loan. If a borrower
defaults on an advance during construction, the Partnership's
primary recourse is to foreclose on the property. Such
foreclosure is normally subject to a period of redemption,
depending upon the applicable laws of the jurisdiction in which
the property is located, of up to one year during which time the
Partnership would not be able to dispose of the property and
during which time the property would not produce income. In
addition, if the Partnership acquired title to a property through
foreclosure, there can be no assurance that the property could be
resold at a price equal to the principal amount of the loan. If,
as is likely, the property were only partially complete at the
time of foreclosure, the Partnership might be required to expend
capital to complete the property to enhance its sale. Although
in many cases it is anticipated that the Partnership may have
recourse against an individual guarantor in the event of a
default, there can be no assurances that the ability of the
guarantor to satisfy the default would not be impaired by the
same financial circumstances that caused the default.
Sale of Properties and Reinvestment of Proceeds. The
General Partners may, from time to time, sell properties and
reinvest the proceeds therefrom in additional net lease
properties. Limited Partners will not have the right to receive
cash upon sale of the properties other than cash representing a
majority of the gain, and must rely on the ability of the General
Partners to find appropriate properties in which to reinvest such
proceeds. Upon the final sale of all Partnership properties, if
the Partnership provides financing to purchasers, the liquidation
of the Partnership could be delayed until such financing is fully
collected.
Uninsured Losses. The General Partners will arrange for
comprehensive insurance coverage on the properties. However,
certain types of losses (generally of a catastrophic nature) may
be either uninsurable or not economically insurable. Should such
a disaster occur, the Partnership could suffer a complete loss of
capital invested in, and any profits expected from, the affected
properties.
Federal Income Tax Risks
Audits. A ruling from the Internal Revenue Service (the
"Service") has not been obtained with respect to any tax aspect
of an investment in the Partnership. Availability of certain tax
consequences intended to be realized by Limited Partners may be
challenged upon audit by the Service. Any adjustment resulting
from an audit by the Service also could result in adjustments to
the tax returns of the Limited Partners and may lead to an
examination of other items unrelated to the Partnership or an
examination of prior tax returns. Moreover, Limited Partners
could incur substantial legal and accounting costs in connection
with any challenge by the Service of the position taken by the
Partnership on its tax returns regardless of the outcome of such
a challenge.
Partnership Allocations. The Partnership Agreement
allocates to each Partner his or her distributive share of
Partnership tax items. Whether such allocations will be
respected for federal income tax purposes is governed by Section
704(b) of the Code and regulations promulgated thereunder.
Section704(b) generally requires that Partnership allocations
must have substantial economic effect. The allocations contained
in the Partnership Agreement appear to satisfy the requirements
of regulations under Section 704(b) as to allocations that do not
cause or increase a deficit balance in a Partner's capital
account. Counsel for the Partnership has concluded, therefore,
as of the date of this Prospectus, that it is more likely than
not that the allocations under the Partnership Agreement will be
recognized for federal income tax purposes under Section 704(b)
of the Code so long as such conditions are satisfied. Compliance
with the regulations depends, in certain cases, on the individual
tax situations of the Partners, and counsel's opinion does not
extend to such situations.
New Tax Legislation--Changes in Federal Tax Laws,
Regulations and Interpretations Thereof. Investors should not
rely unduly on the prospect that tax consequences provided by
existing law will continue to be afforded or that changes in the
interpretation of applicable income tax laws will not be made by
administrative or judicial action that will adversely affect the
tax consequences of an investment in the Partnership. Tax
benefits of an investment in the Partnership could be reduced or
tax liabilities could be incurred by reason of changes in the tax
law. Any legislative, administrative or judicial changes may or
may not be retroactive with respect to transactions entered into
prior to the effective date of such changes.
Partnership Income. For any year in which the Partnership
has taxable net income or any gain on sale of properties,
individual Partners will be required to report their allocable
share of such income or gain, whether or not net cash in a
corresponding amount is distributed to them, on their federal and
state tax returns and will be liable for the payment of taxes
thereon. Such taxes could be greater than cash distributions
received by a Partner from the Partnership for the year,
particularly in years in which the Partnership sells properties
and reinvests the proceeds therefrom or uses distributable Net
Cash Flow to repurchase Units. Partners participating in a
Distribution Reinvestment Plan will be required to report the net
income from the Partnership that might otherwise have been
covered by distributions that are reinvested even though they
will not receive any cash from such distributions.
Tax Liability Upon Sale or Disposition of Property or Units.
A sale or other disposition of a property or a disposition of
Units by a Limited Partner may result in substantial tax
liability to such Limited Partner. Furthermore, under certain
circumstances, the taxes payable by a Limited Partner resulting
from the sale of a property or from the disposition of Units by
such Limited Partner could exceed the cash available to such
Limited Partner from such sale or the proceeds from such
disposition of Units.
