ITEM 1. 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, the President and sole director of AFM, as the Individual General Partner, and purchasers of partnership units as Limited Partners. The Partnership offered for sale up to $24,000,000 of limited partnership interests (the "Units") (24,000 Units at $1,000 per Unit) pursuant to a registration statement effective January 10, 1997. The Partnership commenced operations on May 1, 1997 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. The Partnership's offering terminated January 9, 1999 when the extended offering period expired. The Partnership received subscriptions for 16,917.222 Limited Partnership Units ($16,917,222).
The Partnership was organized to acquire existing and newly constructed commercial properties located in the United States, to lease such properties to tenants under net leases, to hold such properties and to eventually sell such properties. From subscription proceeds, the Partnership purchased twelve properties, including partial interests in three properties, at a total cost of $13,363,547. The balance of the subscription proceeds was applied to organization and syndication costs, working capital reserves and distributions, which represented a return of capital. The properties are commercial, single tenant buildings leased under net leases.
The Partnership's properties were purchased without any indebtedness. The Partnership will not finance properties in the future to obtain proceeds for new property acquisitions. If it is required to do so, the Partnership may incur short-term indebtedness, which may be secured by a portion of the Partnership's properties, to finance day-to-day cash flow requirements (including cash flow necessary to repurchase Units). The amount of borrowings that may be secured by the properties is limited in the aggregate to 10% of the purchase price of all properties. The Partnership will not incur borrowings prior to application of the proceeds from sale of the Units, will not incur borrowings to pay distributions, and will not incur borrowings while there is cash available for distributions.
The Partnership will hold its properties until the General Partners determine that the sale or other disposition of the properties is advantageous in view of the Partnership's investment objectives. In deciding whether to sell properties, the General Partners will consider factors such as potential appreciation, net cash flow and income tax considerations. 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. BUSINESS. (Continued)
Leases
Although there are variations in the specific terms of the leases, the following is a summary of the general terms of the Partnership's leases. The properties are leased to various tenants under net leases, classified as operating leases. Under a net lease, the tenant is responsible for real estate taxes, insurance, maintenance, repairs and operating expenses for the property. For some leases, the Partnership is responsible for repairs to the structural components of the building, the roof, and the parking lot. At the time the properties were acquired, the remaining primary lease terms varied from 13 to 20 years, except for the Best Buy store, which had a remaining primary term of 10.3 years. The leases provide the tenants with two to four five-year renewal options subject to the same terms and conditions as the primary term. 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.
Property Activity During the Last Three Years
As of December 31, 2007, the Partnership owned a significant interest in nine properties and a minor interest in six properties with a total original cost of $12,397,624. During the years ended December 31, 2008 and 2010, the Partnership sold three property interests and received net sale proceeds of $2,171,839 and $34,485, which resulted in net gains of $719,466 and $3,403, respectively. During 2008, the Partnership expended $2,022,246 to purchase one additional property as it reinvested cash generated from property sales. As of December 31, 2010, the Partnership owned a significant interest in nine properties and a minor interest in four properties with a total original cost of $12,719,860.
Major Tenants
During 2010, five tenants each contributed more than ten percent of the Partnership's total rental revenue. The major tenants in aggregate contributed 74% of total rental revenue in 2010. It is anticipated that, based on minimum rental payments required under the leases, each major tenant will continue to contribute more than ten percent of rental revenue in 2011 and future years. Any failure of these major tenants could materially affect the Partnership's net income and cash distributions.
Competition
The Partnership is a minor factor in the commercial real estate business. There are numerous entities engaged in the commercial real estate business which have greater financial resources than the Partnership. At the time the Partnership elects to dispose of its properties, the Partnership will be in competition with other persons and entities to find buyers for its properties.
Employees
The Partnership has no direct employees. Management services are performed for the Partnership by AEI Fund Management, Inc., an affiliate of AFM.
ITEM 1A.
ITEM 1A. RISK FACTORS.
Not required for a smaller reporting company.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not required for a smaller reporting company.
ITEM 2.
ITEM 2. PROPERTIES.
Investment Objectives
The Partnership's investment objectives are to acquire existing or newly-developed commercial properties throughout the United States that offer the potential for (i) regular cash distributions of lease income; (ii) growth in lease income through rent escalation provisions; (iii) preservation of capital through all-cash transactions; (iv) capital growth through appreciation in the value of properties; and (v) stable property performance through long-term lease contracts. The Partnership does not have a policy, and there is no limitation, as to the amount or percentage of assets that may be invested in any one property. However, to the extent possible, the General Partners attempt to diversify the type and location of the Partnership's properties.
Description of Properties
The Partnership's properties are commercial, single tenant buildings. The properties were acquired on a debt-free basis and are leased to various tenants under net leases, classified as operating leases. The Partnership holds an undivided fee simple interest in the properties.
The Partnership's properties are subject to the general competitive conditions incident to the ownership of single tenant investment real estate. Since each property is leased under a long-term lease, there is little competition until the Partnership decides to sell the property. At this time, the Partnership will be competing with other real estate owners, on both a national and local level, in attempting to find buyers for the properties. In the event of a tenant default, the Partnership would be competing with other real estate owners, who have property vacancies, to attract a new tenant to lease the property. The Partnership's tenants operate in industries that are very competitive and can be affected by factors such as changes in regional or local economies, seasonality and changes in consumer preference.
The following table is a summary of the properties that the Partnership acquired and owned as of December 31, 2010.
Annual Annual Purchase Property Lease Rent Per Property Date Cost Tenant Payment Sq. Ft.
TGI Friday's Restaurant Greensburg, PA Ohio Valley (.8729%) 12/10/97 $ 14,580 Bistros, Inc. $ 1,546 $39.28
ITEM 2. PROPERTIES. (Continued)
Annual Annual Purchase Property Lease Rent Per Property Date Cost Tenant Payment Sq. Ft.
Arby's Restaurant Homewood, AL RTM (.5877%) 7/9/99 $ 8,184 Alabama, LLC $ 775 $40.49
KinderCare Daycare Center KinderCare Learning Pearland, TX 7/14/99 $ 943,416 Centers, Inc. $101,199 $13.32
Hollywood Video Store Minot, ND 7/16/99 $1,330,000 (1)
KinderCare Daycare Center Golden, CO KinderCare Learning (1.9962%) 9/28/00 $ 33,528 Centers, Inc. $ 4,006 $23.42
KinderCare Daycare Center Plainfield, IL KinderCare Learning (.3154%) 5/14/01 $ 4,645 Centers, Inc. $ 489 $17.32
Johnny Carino's Restaurant Longmont, CO Kona Restaurant (50%) 12/30/03 $1,293,405 Group, Inc. $ 73,833 $22.80
Jared Jewelry Store Sugar Land, TX Sterling Jewelers (40%) 7/15/04 $1,533,966 Inc. $127,919 $52.29
Applebee's Restaurant Johnstown, PA (38%) 9/21/06 $1,031,187 B.T. Woodlipp, Inc. $ 74,370 $37.68
Advance Auto Parts Store Indianapolis, IN Advance Stores (65%) 12/21/06 $1,244,173 Company, Inc. $ 87,168 $19.16
Applebee's Restaurant Crawfordsville, IN Apple Indiana (60%) 12/29/06 $1,856,656 II LLC $133,933 $42.44
Tractor Supply Company Store Grand Forks, ND Tractor Supply (50%) 1/19/07 $1,403,874 Company $108,697 $ 9.86
Best Buy Store Lake Geneva, WI Best Buy (33%) 10/6/08 $2,022,246 Stores, L.P. $144,325 $14.40
(1)The property was vacant at December 31, 2010. It was sold in January 2011.
ITEM 2. PROPERTIES. (Continued)
The properties listed above with a partial ownership percentage are owned with the following affiliated entities: Johnny Carino's restaurant (AEI Accredited Investor Fund 2002 Limited Partnership); Jared Jewelry store (AEI Accredited Investor Fund 2002 Limited Partnership); Applebee's restaurant in Johnstown, Pennsylvania (AEI Income & Growth Fund XXI Limited Partnership); Advance Auto Parts store (AEI Income & Growth Fund 25 LLC); Applebee's restaurant in Crawfordsville, Indiana (AEI Income & Growth Fund 26 LLC); Tractor Supply Company store (AEI Income & Growth Fund 24 LLC); and Best Buy store (AEI Income & Growth Fund 24 LLC and AEI Income & Growth Fund 27 LLC). The remaining interests in the TGI Friday's restaurant, the Arby's restaurant and the KinderCare daycare centers in Golden, Colorado and Plainfield, Illinois are owned by unrelated third parties.
The Partnership accounts for properties owned as tenants- in-common with affiliated entities and/or unrelated third parties using the proportionate consolidation method. Each tenant-in- common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in-common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building and equipment, liabilities, revenues and expenses.
At the time the properties were acquired, the remaining primary lease terms varied from 13 to 20 years, except for the Best Buy store, which had a remaining primary term of 10.3 years. The leases provide the tenants with two to four five-year renewal options subject to the same terms and conditions as the primary term.
Pursuant to the lease agreements, the tenants are required to provide proof of adequate insurance coverage on the properties they occupy. The General Partners believe the properties are adequately covered by insurance and consider the properties to be well-maintained and sufficient for the Partnership's operations.
For tax purposes, the Partnership's properties are depreciated under the Modified Accelerated Cost Recovery System (MACRS). The largest depreciable component of a property is the building which is depreciated, using the straight-line method, over 39 years. The remaining depreciable components of a property are personal property and land improvements which are depreciated, using an accelerated method, over 5 and 15 years, respectively. Since the Partnership has tax-exempt Partners, the Partnership is subject to the rules of Section 168(h)(6) of the Internal Revenue Code which requires a percentage of the properties' depreciable components to be depreciated over longer lives using the straight-line method. In general, the federal tax basis of the properties for tax depreciation purposes is the same as the basis for book depreciation purposes except for properties whose carrying value was reduced by a real estate impairment. The real estate impairment, which was recorded against the book cost of the land and depreciable property, was not recognized for tax purposes.
At December 31, 2010, all properties listed above were 100% occupied. The only exception is the Hollywood Video store that became vacant in July 2010.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4.
ITEM 4. REMOVED AND RESERVED.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCK- HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) As of December 31, 2010, there were 742 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. During the period covered by this report, the Partnership did not sell any equity securities that are not registered under the Securities Act of 1933.
Cash distributions of $22,373 and $24,208 were made to the General Partners and $784,001 and $826,504 were made to the Limited Partners for 2010 and 2009, respectively. The distributions were made on a quarterly basis and represent Net Cash Flow, as defined, except as discussed below. These distributions should not be compared with dividends paid on capital stock by corporations.
As part of the Limited Partnership distributions discussed above, the Partnership distributed net sale proceeds of $90,000 and $65,000 in 2010 and 2009, respectively. The distributions reduced the Limited Partners' Adjusted Capital Contributions.
(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 last three months of 2010, the Partnership did not purchase any Units.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Not required for a smaller reporting company.
ITEM 7.
ITEM 7. 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 preparation of the Partnership's financial statements requires management to make estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management evaluates these estimates on an ongoing basis, including those related to the carrying value of investments in real estate and the allocation by AEI Fund Management, Inc. of expenses to the Partnership as opposed to other funds they manage.
The Partnership purchases properties and records them in the financial statements at cost (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.
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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Management of the Partnership has discussed the development and selection of the above accounting estimates and the management discussion and analysis disclosures regarding them with the managing partner of the Partnership.
Results of Operations
For the years ended December 31, 2010 and 2009, the Partnership recognized rental income from continuing operations of $851,989 and $845,039, respectively. In 2010, rental income increased due to rent increases on two properties. Based on the scheduled rent for the properties owned as of February 28, 2011, the Partnership expects to recognize rental income from continuing operations of approximately $872,000 in 2011.
For the years ended December 31, 2010 and 2009, the Partnership incurred Partnership administration expenses from affiliated parties of $169,362 and $163,770, 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 $23,952 and $21,097, 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 years ended December 31, 2010 and 2009, the Partnership recognized interest income of $4,455 and $5,182, 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 year ended December 31, 2010, the Partnership recognized a loss from discontinued operations of $185,249, representing a real estate impairment of $218,607, which was partially offset by rental income less property management expenses and depreciation of $29,955 and a gain on disposal of real estate of $3,403. For the year ended December 31, 2009, the Partnership recognized income from discontinued operations of $113,902, representing rental income less property management expenses and depreciation.
On February 2, 2010, Hollywood Entertainment Corporation (HEC), the tenant of the Hollywood Video stores in Minot, North Dakota (100% ownership interest) and Saraland, Alabama (3.08% ownership interest) filed for Chapter 11 bankruptcy reorganization for the second time. In July 2010, HEC closed its remaining stores, filed a motion with the bankruptcy court to reject the Lease for the Minot store and returned possession of the property to the Partnership. The Partnership listed the property for sale with a real estate broker in the Minot area. While the property was vacant, the Partnership was responsible for real estate taxes and other costs associated with maintaining the property. Based on an analysis of market conditions in the area, the Partnership determined the property was impaired. As a result, in the second quarter of 2010, a charge to discontinued operations for real estate impairment of $218,607 was recognized, which was the difference between the carrying value at June 30, 2010 of $1,018,607 and the estimated fair value of $800,000. The charge was recorded against the cost of the land and building.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In November 2010, the Partnership entered into an agreement to sell the Minot store to an unrelated third party. On January 14, 2011, the sale closed with the Partnership receiving net proceeds of approximately $882,000, which resulted in a net gain of approximately $82,000. At December 31, 2010, the property was classified as Real Estate Held for Sale.
In February 2010, HEC closed the Saraland store and filed a motion with the bankruptcy court to reject the Lease for this property. The court approved the motion and HEC returned possession of the property to the Partnership. The Partnership listed the property for sale or lease with a real estate broker in the Saraland area. While the property was vacant, the Partnership was responsible for its 3.08% share of real estate taxes and other costs associated with maintaining the property. In May 2010, the Partnership entered into an agreement to sell its interest in the Saraland store to an unrelated third party. On August 20, 2010, the sale closed with the Partnership receiving net sale proceeds of $34,485, which resulted in a net gain of $3,403. The cost and related accumulated depreciation was $42,439 and $11,357, respectively.
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 year ended December 31, 2010, the Partnership's cash balances decreased $81,073 as a result of distributions paid to the Partners in excess of cash generated from operating and investing activities. During the year ended December 31, 2009, the Partnership's cash balances decreased $48,569 as a result of distributions paid to the Partners in excess of cash generated from operating activities.
Net cash provided by operating activities decreased from $841,290 in 2009 to $713,687 in 2010 as a result of a decrease in total rental and interest income in 2010, an increase in Partnership administration and property management expenses in 2010 and net timing differences in the collection of payments from the tenants and the payment of expenses.
During the year ended December 31, 2010, the Partnership generated cash flow from the sale of real estate of $34,485.
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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
For the years ended December 31, 2010 and 2009, the Partnership declared distributions of $806,374 and $850,712, 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 $784,001 and $826,504 and the General Partners received distributions of $22,373 and $24,208 for the periods, respectively. In 2010, distributions were lower due to a decrease in the distribution rate per Unit, effective July 1, 2010.
During 2010 and 2009, the Partnership distributed net sale proceeds of $90,909 and $65,657 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $5.73 and $4.15 per Limited Partnership Unit, respectively. The proceeds were generated from sales completed prior to 2009.
The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership.
During 2010, one Limited Partner redeemed 1.25 Partnership Units for $883 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. During 2009, the Partnership did not redeem any Units from the Limited Partners. In prior years, a total of 70 Limited Partners redeemed 1,218.44 Partnership Units for $974,262. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. As a result of this redemption payment and pursuant to the Partnership Agreement, the General Partners received distributions of $27 in 2010.
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.
The Economy and Market Conditions
The impact of conditions in the current economy, 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Historically, the Partnership has sold properties at a gain and distributed the gain proceeds as part of its regular quarterly distributions, and to make special distributions on occasion. The remaining sales proceeds were reinvested in additional properties. Beginning in the fourth quarter of 2008, general economic conditions caused the volume of property sales to slow dramatically for all real estate sellers. Until such time as economic conditions allow the Partnership to begin selling properties at attractive prices, quarterly distributions will reflect the distribution of net core rental income and capital reserves, if any.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for a smaller reporting company.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See accompanying index to financial statements.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
Report of Independent Registered Public Accounting Firm
Balance Sheet as of December 31, 2010 and 2009
Statements for the Years Ended December 31, 2010 and 2009:
Income
Cash Flows
Changes in Partners' Capital (Deficit)
Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2010 and 2009, and the related statements of income, cash flows and changes in partners' capital (deficit) for the years then ended. The Partnership's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, 2010 and 2009, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/Boulay, Heutmaker, Zibell & Co. P.L.L.P. Certified Public Accountants
Minneapolis, Minnesota March 25, 2011
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP BALANCE SHEET DECEMBER 31
ASSETS
2010 2009 CURRENT ASSETS: Cash $ 509,767 $ 590,840
INVESTMENTS IN REAL ESTATE: Land 3,170,347 3,807,598 Buildings and Equipment 8,219,513 8,954,701 Accumulated Depreciation (1,623,752) (1,603,038) ----------- ----------- 9,766,108 11,159,261 Real Estate Held for Sale 800,000 0 ----------- ----------- Net Investments in Real Estate 10,566,108 11,159,261 ----------- ----------- Total Assets $11,075,875 $11,750,101 =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 52,734 $ 47,396 Distributions Payable 190,614 212,575 Unearned Rent 35,225 34,665 ----------- ----------- Total Current Liabilities 278,573 294,636 ----------- ----------- PARTNERS' CAPITAL (DEFICIT): General Partners (16,055) (3,616) Limited Partners, $1,000 per Unit; 24,000 Units authorized; 16,917 Units issued; 15,698 and 15,699 Units outstanding in 2010 and 2009, respectively 10,813,357 11,459,081 ----------- ----------- Total Partners' Capital 10,797,302 11,455,465 ----------- ----------- Total Liabilities and Partners' Capital $11,075,875 $11,750,101 =========== ===========
The accompanying Notes to Financial Statements are an integral part of this statement.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31
2010 2009
RENTAL INCOME $ 851,989 $ 845,039
EXPENSES: Partnership Administration - Affiliates 169,362 163,770 Partnership Administration and Property Management - Unrelated Parties 23,952 21,097 Depreciation 328,760 327,866 ---------- ---------- Total Expenses 522,074 512,733 ---------- ----------
OPERATING INCOME 329,915 332,306
OTHER INCOME: Interest Income 4,455 5,182 ---------- ----------
INCOME FROM CONTINUING OPERATIONS 334,370 337,488
Income (Loss) from Discontinued Operations (185,249) 113,902 ---------- ---------- NET INCOME $ 149,121 $ 451,390 ========== ========== NET INCOME ALLOCATED: General Partners $ 9,961 $ 13,542 Limited Partners 139,160 437,848 ---------- ---------- $ 149,121 $ 451,390 ========== ========== INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT: Continuing Operations $ 20.66 $ 20.85 Discontinued Operations (11.80) 7.04 ---------- ---------- Total $ 8.86 $ 27.89 ========== ========== Weighted Average Units Outstanding - Basic and Diluted 15,698 15,699 ========== ==========
The accompanying Notes to Financial Statements are an integral part of this statement.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31
2010 2009 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 149,121 $ 451,390
Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation 343,464 357,273 Real Estate Impairment 218,607 0 Gain on Sale of Real Estate (3,403) 0 Decrease in Receivables 0 5,261 Increase in Payable to AEI Fund Management, Inc. 5,338 10,060 Increase in Unearned Rent 560 17,306 ---------- ---------- Total Adjustments 564,566 389,900 ---------- ---------- Net Cash Provided By Operating Activities 713,687 841,290 ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Sale of Real Estate 34,485 0 ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES: Distributions Paid to Partners (828,335) (889,859) Redemption Payments (910) 0 ---------- ---------- Net Cash Used For Financing Activities (829,245) (889,859) ---------- ----------
NET DECREASE IN CASH (81,073) (48,569)
CASH, beginning of year 590,840 639,409 ---------- ---------- CASH, end of year $ 509,767 $ 590,840 ========== ==========
The accompanying Notes to Financial Statements are an integral part of this statement.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) FOR THE YEARS ENDED DECEMBER 31
Limited Partnership General Limited Units Partners Partners Total Outstanding
BALANCE, December 31, 2008 $ 7,050 $11,847,737 $11,854,787 15,698.78
Distributions Declared (24,208) (826,504) (850,712)
Net Income 13,542 437,848 451,390 -------- ----------- ----------- ---------- BALANCE, December 31, 2009 (3,616) 11,459,081 11,455,465 15,698.78
Distributions Declared (22,373) (784,001) (806,374)
Redemption Payments (27) (883) (910) (1.25)
Net Income 9,961 139,160 149,121 -------- ----------- ----------- ---------- BALANCE, December 31, 2010 $(16,055) $10,813,357 $10,797,302 15,697.53 ======== =========== =========== ==========
The accompanying Notes to Financial Statements are an integral part of this statement.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009
(1) Organization -
AEI Income & Growth Fund XXII Limited Partnership ("Partnership") was formed to acquire and lease commercial properties to operating tenants. The Partnership's operations are managed by AEI Fund Management XXI, Inc. ("AFM"), the Managing General Partner. Robert P. Johnson, the President and sole 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.
For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of property, will be allocated first in the same ratio in which, and to the extent, Net Cash Flow is distributed to the Partners for such year. Any additional profits will be allocated in the same ratio as the last dollar of Net Cash Flow is distributed. Net losses from operations will be allocated 99% to the Limited Partners and 1% to the General Partners.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009
(1) Organization - (Continued)
For tax purposes, profits arising from the sale, financing, or other disposition of property will be allocated in accordance with the Partnership Agreement as follows: (i) first, to those partners with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Partners and 1% to the General Partners until the aggregate balance in the Limited Partners' capital accounts equals the sum of the Limited Partners' Adjusted Capital Contributions plus an amount equal to 9% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously allocated; (iii) third, the balance of any remaining gain will then be allocated 90% to the Limited Partners and 10% to the General Partners. Losses will be allocated 98% to the Limited Partners and 2% to the General Partners.
The General Partners are not required to currently fund a deficit capital balance. Upon liquidation of the Partnership or withdrawal by a General Partner, the General Partners will contribute to the Partnership an amount equal to the lesser of the deficit balances in their capital accounts or 1% of total Limited Partners' and General Partners' capital contributions.
(2) Summary of Significant Accounting Policies -
Financial Statement Presentation
The accounts of the Partnership are maintained on the accrual basis of accounting for both federal income tax purposes and financial reporting purposes.
Accounting Estimates
Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. Significant items, subject to such estimates and assumptions, include the carrying value of investments in real estate.
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.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009
(2) Summary of Significant Accounting Policies - (Continued)
Cash Concentrations of Credit Risk
The Partnership's cash is deposited in one financial institution and at times during the year it may exceed FDIC insurance limits.
Receivables
Credit terms are extended to tenants in the normal course of business. The Partnership performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral.
Receivables are recorded at their estimated net realizable value. The Partnership follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Partnership is of the belief that such accounts, if any, will be collectible in all material respects and thus an allowance is not necessary. Accounts are considered past due if payment is not made on a timely basis in accordance with the Partnership's credit terms. Receivables considered uncollectible are written off.
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. In general, no recognition has been given to income taxes in the accompanying financial statements.
The tax return 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 to distributable Partnership income or loss, the taxable income of the partners would be adjusted accordingly. Primarily due to its tax status as a partnership, the Partnership has no significant tax uncertainties that require recognition or disclosure.
Revenue Recognition
The Partnership's real estate is leased under net leases, classified as operating leases. The leases provide for base annual rental payments payable in monthly installments. The Partnership recognizes rental revenue according to the terms of the individual leases. For leases that contain stated rental increases, the increases are recognized in the year in which they are effective. Contingent rental payments are recognized when the contingencies on which the payments are based are satisfied and the rental payments become due under the terms of the leases.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009
(2) Summary of Significant Accounting Policies - (Continued)
Investments in Real Estate
The Partnership purchases properties and records them at cost. The Partnership tests real estate 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, it compares the carrying amount of the property to the estimated probability-weighted future undiscounted cash flows expected to result from the property and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the property, the Partnership recognizes an impairment loss by the amount by which the carrying amount of the property exceeds the fair value of the property. For properties held for sale, the Partnership 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.
Prior to January 1, 2009, the Partnership capitalized as Investments in Real Estate certain costs incurred in the review and acquisition of the properties. The costs were allocated to the land, buildings and equipment. For acquisitions completed on or after January 1, 2009, acquisition-related transaction costs will be expensed as incurred as a result of the Partnership adopting new guidance on business combinations that expands the scope of acquisition accounting.
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.
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.
The Partnership accounts for properties owned as tenants- in-common with affiliated entities and/or unrelated third parties using the proportionate consolidation method. Each tenant-in-common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in-common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building and equipment, liabilities, revenues and expenses.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009
(2) Summary of Significant Accounting Policies - (Continued)
The Partnership's properties are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which the properties are located. These laws could require the Partnership to investigate and remediate the effects of the release or disposal of hazardous materials at these locations if found. For each property, an environmental assessment is completed prior to acquisition. In addition, the lease agreements typically strictly prohibit the production, handling, or storage of hazardous materials (except where incidental to the tenant's business such as use of cleaning supplies) in violation of applicable law to restrict environmental and other damage. Environmental liabilities are recorded when it is determined the liability is probable and the costs can reasonably be estimated. There were no environmental issues noted or liabilities recorded at December 31, 2010 and 2009.
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 December 31, 2010, 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 Hollywood Video store in Minot, North Dakota, with a carrying amount of $1,018,607 at June 30, 2010, was written down to its fair value of $800,000 after completing our long-lived asset valuation analysis. The fair value of the property was based upon comparable sales of similar properties, which are considered Level 2 inputs in the valuation hierarchy. The resulting impairment charge of $218,607 was included in earnings for the second quarter of 2010.
Recently Issued Accounting Pronouncements
Management has reviewed recently issued, but not yet effective, accounting pronouncements and does not expect the implementation of these pronouncements to have a significant effect on the Partnership's financial statements.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009
(2) Summary of Significant Accounting Policies - (Continued)
Reclassification
Certain items related to discontinued operations in the prior year's financial statements have been reclassified to conform to 2010 presentation. These reclassifications had no effect on Partners' capital, net income or cash flows.
(3) Related Party Transactions -
The Partnership owns the percentage interest shown below in the following properties as tenants-in-common with the affiliated entities listed: Johnny Carino's restaurant (50% - AEI Accredited Investor Fund 2002 Limited Partnership); Jared Jewelry store (40% - AEI Accredited Investor Fund 2002 Limited Partnership); Applebee's restaurant in Johnstown, Pennsylvania (38% - AEI Income & Growth Fund XXI Limited Partnership); Advance Auto Parts store (65% - AEI Income & Growth Fund 25 LLC); Applebee's restaurant in Crawfordsville, Indiana (60% - AEI Income & Growth Fund 26 LLC); Tractor Supply Company store (50% - AEI Income & Growth Fund 24 LLC); and Best Buy store (33% - AEI Income & Growth Fund 24 LLC and AEI Income & Growth Fund 27 LLC).
AEI received the following reimbursements for costs and expenses from the Partnership for the years ended December 31: 2010 2009
a.AEI is reimbursed for costs incurred in providing services related to managing the Partnership's operations and properties, maintaining the Partnership's books, and communicating with the Limited Partners. These amounts included $2,042 and $2,365 of expenses related to Discontinued Operations in 2010 and 2009, respectively. $ 171,404 $ 166,135 ======== ======== b.AEI is reimbursed for all direct expenses it paid on the Partnership's behalf to third parties related to Partnership administration and property management. These expenses included printing costs, legal and filing fees, direct administrative costs, outside audit costs, taxes insurance and other property costs. These amounts included $36,081 and $1,973 of expenses related to Discontinued Operations in 2010 and 2009, respectively.$ 60,033 $ 23,070 ======== ======== c.AEI is reimbursed for costs incurred in providing services related to the sale of property. $ 203 $ 0 ======== ======== The payable to AEI Fund Management, Inc. represents the balance due for the services described in 3a, b, and c. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009
(4) Investments in Real Estate -
The Partnership leases its properties to various tenants under net leases, classified as operating leases. Under a net lease, the tenant is responsible for real estate taxes, insurance, maintenance, repairs and operating expenses for the property. For some leases, the Partnership is responsible for repairs to the structural components of the building, the roof, and the parking lot. At the time the properties were acquired, the remaining primary lease terms varied from 13 to 20 years, except for the Best Buy store, which had a remaining primary term of 10.3 years. The leases provide the tenants with two to four five-year renewal options subject to the same terms and conditions as the primary term.
The Partnership's properties are commercial, single-tenant buildings. The TGI Friday's restaurant was constructed and acquired in 1997. The Arby's restaurant and the Hollywood Video store in Minot, North Dakota were constructed and acquired in 1999. The KinderCare daycare center in Pearland, Texas was constructed in 1997 and acquired in 1999. The KinderCare daycare center in Golden, Colorado was constructed and acquired in 2000. The KinderCare daycare center in Plainfield, Illinois was constructed and acquired in 2001. The Johnny Carino's restaurant was constructed in 1999 and acquired in 2003. The Jared Jewelry store was constructed in 2001 and acquired in 2004. The Applebee's restaurants were constructed in 1996 and acquired in 2006. The Advance Auto Parts store was constructed in 2005 and acquired in 2006. The Tractor Supply Company store was constructed in 2005 and acquired in 2007. The Best Buy store was constructed and acquired in 2008. There have been no costs capitalized as improvements subsequent to the acquisitions.
The cost of the properties not held for sale and related accumulated depreciation at December 31, 2010 are as follows: Buildings and Accumulated Property Land Equipment Total Depreciation
TGI Friday's, Greensburg, PA $ 6,439 $ 8,141 $ 14,580 $ 4,322 Arby's, Homewood, AL 4,396 3,788 8,184 1,924 KinderCare, Pearland, TX 204,105 739,311 943,416 338,847 KinderCare, Golden, CO 7,684 25,844 33,528 10,598 KinderCare, Plainfield, IL 1,313 3,332 4,645 1,281 Johnny Carino's, Longmont, CO 560,383 733,022 1,293,405 205,247 Jared Jewelry, Sugar Land, TX 503,837 1,030,129 1,533,966 266,116 Applebee's, Johnstown, PA 264,557 766,630 1,031,187 131,604 Advance Auto Parts, Indianapolis, IN 537,914 706,259 1,244,173 114,176 Applebee's, Crawfordsville, IN 506,030 1,350,626 1,856,656 216,100 Tractor Supply, Grand Forks, ND 238,547 1,165,327 1,403,874 184,510 Best Buy, Lake Geneva, WI 335,142 1,687,104 2,022,246 149,027 ---------- ---------- ----------- ---------- $3,170,347 $8,219,513 $11,389,860 $1,623,752 ========== ========== =========== ==========
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009
(4) Investments in Real Estate - (Continued)
The Partnership owns a .8729% interest in a TGI Friday's restaurant, a .5877% interest in an Arby's restaurant, a 1.9962% interest in a KinderCare daycare center in Golden, Colorado and a .3154% interest in a KinderCare daycare center in Plainfield, Illinois. The remaining interests in these properties are owned by unrelated third parties, who own the properties with the Partnership as tenants-in- common.
For properties owned as of December 31, 2010, the minimum future rent payments required by the leases are as follows:
2011 $ 872,061 2012 888,759 2013 889,924 2014 853,502 2015 801,035 Thereafter 5,013,244 ---------- $9,318,525 ==========
There were no contingent rents recognized in 2010 and 2009.
(5) Major Tenants -
The following schedule presents rent revenue from individual tenants, or affiliated groups of tenants, who each contributed more than ten percent of the Partnership's total rent revenue for the years ended December 31:
Tenants Industry 2010 2009
Apple American Group Restaurant $ 208,303 $ 208,303 Best Buy Stores, L.P. Retail 144,325 144,325 Sterling Jewelers Inc. Retail 127,919 127,919 KinderCare Learning Centers,Inc. Child Care 105,421 99,963 Tractor Supply Company Retail 102,881 102,352 Hollywood Entertainment Corporation Retail N/A 147,647 ---------- ---------- Aggregate rent revenue of major tenants $ 688,849 $ 830,509 ========== ========== Aggregate rent revenue of major tenants as a percentage of total rent revenue 74% 84% ========== ==========
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009
(6) Discontinued Operations -
On February 2, 2010, Hollywood Entertainment Corporation (HEC), the tenant of the Hollywood Video stores in Minot, North Dakota (100% ownership interest) and Saraland, Alabama (3.08% ownership interest) filed for Chapter 11 bankruptcy reorganization for the second time. In July 2010, HEC closed its remaining stores, filed a motion with the bankruptcy court to reject the Lease for the Minot store and returned possession of the property to the Partnership. The Partnership listed the property for sale with a real estate broker in the Minot area. While the property was vacant, the Partnership was responsible for real estate taxes and other costs associated with maintaining the property. Based on an analysis of market conditions in the area, the Partnership determined the property was impaired. As a result, in the second quarter of 2010, a charge to discontinued operations for real estate impairment of $218,607 was recognized, which was the difference between the carrying value at June 30, 2010 of $1,018,607 and the estimated fair value of $800,000. The charge was recorded against the cost of the land and building.
In November 2010, the Partnership entered into an agreement to sell the Minot store to an unrelated third party. On January 14, 2011, the sale closed with the Partnership receiving net proceeds of approximately $882,000, which resulted in a net gain of approximately $82,000. At December 31, 2010, the property was classified as Real Estate Held for Sale.
In February 2010, HEC closed the Saraland store and filed a motion with the bankruptcy court to reject the Lease for this property. The court approved the motion and HEC returned possession of the property to the Partnership. The Partnership listed the property for sale or lease with a real estate broker in the Saraland area. While the property was vacant, the Partnership was responsible for its 3.08% share of real estate taxes and other costs associated with maintaining the property. In May 2010, the Partnership entered into an agreement to sell its interest in the Saraland store to an unrelated third party. On August 20, 2010, the sale closed with the Partnership receiving net sale proceeds of $34,485, which resulted in a net gain of $3,403. The cost and related accumulated depreciation was $42,439 and $11,357, respectively.
During 2010 and 2009, the Partnership distributed net sale proceeds of $90,909 and $65,657 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $5.73 and $4.15 per Limited Partnership Unit, respectively. The proceeds were generated from sales completed prior to 2009.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009
(6) Discontinued Operations - (Continued)
The financial results for these properties are reflected as Discontinued Operations in the accompanying financial statements. The following are the results of discontinued operations for the years ended December 31:
2010 2009
Rental Income $ 82,782 $ 147,647 Property Management Expenses (38,123) (4,338) Depreciation (14,704) (29,407) Real Estate Impairment (218,607) 0 Gain on Disposal of Real Estate 3,403 0 --------- --------- Income (Loss) from Discontinued Operations $(185,249) $ 113,902 ========= =========
(7) Partners' Capital -
For the years ended December 31, 2010 and 2009, the Partnership declared distributions of $806,374 and $850,712, respectively. The Limited Partners received distributions of $784,001 and $826,504 and the General Partners received distributions of $22,373 and $24,208 for the years, respectively. The Limited Partners' distributions represent $49.94 and $52.65 per Limited Partnership Unit outstanding using 15,698 and 15,699 weighted average Units in 2010 and 2009, respectively. The distributions represent $8.80 and $27.89 per Unit of Net Income and $41.14 and $24.76 per Unit of return of contributed capital in 2010 and 2009, respectively.
As part of the Limited Partners' distributions discussed above, the Partnership distributed net sale proceeds of $90,000 and $65,000 in 2010 and 2009, respectively. The distributions reduced the Limited Partners' Adjusted Capital Contributions.
The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009
(7) Partners' Capital - (Continued)
During 2010, one Limited Partner redeemed 1.25 Partnership Units for $883 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. During 2009, the Partnership did not redeem any Units from the Limited Partners. In prior years, a total of 70 Limited Partners redeemed 1,218.44 Partnership Units for $974,262. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. As a result of this redemption payment and pursuant to the Partnership Agreement, the General Partners received distributions of $27 in 2010.
After the effect of redemptions and the return of capital from the sale of property, the Adjusted Capital Contribution, as defined in the Partnership Agreement, is $913.70 per original $1,000 invested.
(8) 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:
2010 2009
Net Income for Financial Reporting Purposes $ 149,121 $ 451,390
Depreciation for Tax Purposes Under Depreciation for Financial Reporting Purposes 98,840 110,077
Income Accrued for Tax Purposes Over Income for Financial Reporting Purposes 945 18,797
Property Expenses for Tax Purposes Under Expenses for Financial Reporting Purposes 267 0
Real Estate Impairment Not Recognized for Tax Purposes 218,607 0
Gain on Sale of Real Estate for Tax Purposes Under Gain for Financial Reporting Purposes (1,843) 0 --------- --------- Taxable Income to Partners $ 465,937 $ 580,264 ========= =========
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009
(8) 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: 2010 2009
Partners'Capital for Financial Reporting Purposes $10,797,302 $11,455,465
Adjusted Tax Basis of Investments in Real Estate Over Net Investments in Real Estate for Financial Reporting Purposes 861,191 545,587
Income Accrued for Tax Purposes Over Income for Financial Reporting Purposes 37,100 36,155
Property Expenses for Tax Purposes Under Expenses for Financial Reporting Purposes 267 0
Syndication Costs Treated as Reduction of Capital for Financial Reporting Purposes 2,418,726 2,418,726 ---------- ---------- Partners' Capital for Tax Reporting Purposes $14,114,586 $14,455,933 ========== ==========
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A.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) Internal Control Over Financial Reporting.
(i) Management's Report on Internal Control Over Financial Reporting. The Managing General Partner, through its management, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a- 15(f) under the Exchange Act, and for performing an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2010. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Partnership are being made only in accordance with authorizations of management of the Managing General Partner; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Partnership's assets that could have a material effect on the financial statements.
Management of the Managing General Partner performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2010 based upon criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on our assessment, management of the Managing General Partner determined that our internal control over financial reporting was effective as of December 31, 2010 based on the criteria in Internal Control-Integrated Framework issued by the COSO.
ITEM 9A. CONTROLS AND PROCEDURES. (Continued)
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.
(ii) 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.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The registrant is a limited partnership and has no officers, directors, or direct employees. 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 General Partners are AEI Fund Management XXI, Inc. ("AFM"), the Managing General Partner, and Robert P. Johnson, Chief Executive Officer, President and sole director of AFM, the Individual General Partner. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AFM has only one senior financial executive, its Chief Financial Officer. The Chief Financial Officer reports directly to Mr. Johnson and is accountable for his actions to Mr. Johnson. Although Mr. Johnson and AFM require that all of their personnel, including the Chief Financial Officer, engage in honest and ethical conduct, ensure full, fair, accurate, timely, and understandable disclosure, comply with all applicable governmental laws, rules and regulations, and report to Mr. Johnson any deviation from these principles, because the organization is composed of only approximately 35 individuals, because the management of a partnership by an entity that has different interests in distributions and income than investors involves numerous conflicts of interest that must be resolved on a daily basis, and because the ultimate decision maker in all instances is Mr. Johnson, AFM has not adopted a formal code of conduct. Instead, the materials pursuant to which investors purchase Units disclose these conflicts of interest in detail and Mr. Johnson, as the CEO and sole director of AFM, resolves conflicts to the best of his ability, consistent with his fiduciary obligations to AFM and the fiduciary obligations of AFM to the Partnership. The director and officers of AFM are as follows:
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. (Continued)
Robert P. Johnson, age 66, is Chief Executive Officer, President and sole director and has held these positions since the formation of AFM in August 1994, and has been elected to continue in these positions until December 2011. From 1970 to the present, he has been employed exclusively in the investment industry, specializing in limited partnership investments. In that capacity, he has been involved in the development, analysis, marketing and management of public and private investment programs investing in net lease properties as well as public and private investment programs investing in energy development. Since 1971, Mr. Johnson has been the president, a director and a registered principal of AEI Securities, Inc., which is registered with the SEC as a securities broker-dealer, is a member of the Financial Industry Regulatory Authority (FINRA) 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 nine limited partnerships and a managing member in five LLCs.
Patrick W. Keene, age 51, is Chief Financial Officer, Treasurer and Secretary and has held these positions since January 22, 2003 and has been elected to continue in these positions until December 2011. Mr. Keene has been employed by AEI Fund Management, Inc. and affiliated entities since 1986. Prior to being elected to the positions above, he was Controller of the various entities. From 1982 to 1986, Mr. Keene was with KPMG Peat Marwick Certified Public Accountants, first as an auditor and later as a tax manager. Mr. Keene is responsible for all accounting functions of AFM and the registrant.
Since Mr. Johnson serves as the Individual General Partner of the Partnership, as well as the sole director of AFM, all of the duties that might be assigned to an audit committee are assigned to Mr. Johnson. Mr. Johnson is not an audit committee financial expert, as defined. As an officer and majority owner, through a parent company, of AFM, and as the Individual General Partner, Mr. Johnson is not a "disinterested director" and may be subject to a number of conflicts of interests in his capacity as sole director of AFM.
Before the independent auditors are engaged, Mr. Johnson, as the sole director of AFM, approves all audit-related fees, and all permissible nonaudit fees, for services of our auditors.
Section 16(a) Beneficial Ownership Reporting Compliance
Under federal securities laws, the directors and officers of the General Partner of the Partnership, and any beneficial owner of more than 10% of a class of equity securities of the Partnership, are required to report their ownership of the Partnership's equity securities and any changes in such ownership to the Securities and Exchange Commission (the "Commission"). Specific due dates for these reports have been established by the Commission, and the Partnership is required to disclose in this Annual Report on 10-K any delinquent filing of such reports and any failure to file such reports during the fiscal year ended December 31, 2010. Based upon information provided by officers and directors of the General Partner, all officers, directors and 10% owners filed all reports on a timely basis in the 2010 fiscal year.
ITEM 11.
ITEM 11. 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 based on 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, property management, and property sales services. The amount and nature of such payments are detailed in Item 13 of this annual report on Form 10-K.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
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, 2011:
Name and Address Number of Percent of Beneficial Owner Units Held of Class
AEI Fund Management XXI, Inc. 22 0.14% Robert P. Johnson 0 0.00% Patrick W. Keene 0 0.00%
Address for all: 1300 Wells Fargo Place, 30 East 7th Street, St. Paul, Minnesota 55101
Andrea B. Currier 824.74227 5.25% P.O. Box E, The Plains, Virginia 20198
The persons set forth in the preceding table hold sole voting power and power of disposition with respect to all of the Units set forth opposite their names.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
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. Reference is made to Note 3 of the Financial Statements, as presented, and is incorporated herein by reference, for details of related party transactions for the years ended December 31, 2010 and 2009.
Neither the registrant, nor the Managing General Partner of the registrant, has a board of directors consisting of any members who are "independent." The sole director of the Managing General Partner, Robert P. Johnson, is also the Individual General Partner of the registrant, and is the Chief Executive Officer, and indirectly the principal owner, of the Managing General Partner. Accordingly, there is no disinterested board, or other functioning body, that reviews related party transactions, or the transactions between the registrant and the General Partners, except as performed in connection with the audit of its financial statements.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. (Continued)
The limitations included in the Partnership Agreement require that the cumulative reimbursements to the General Partners and their affiliates for certain expenses will not exceed an amount equal to the sum of (i) 20% of gross offering proceeds, (ii) 5% of Net Cash Flow for property management, (iii) 3% of Net Proceeds of Sale, and (iv) 10% of Net Cash Flow less the Net Cash Flow actually distributed to the General Partners. The cumulative reimbursements subject to this limitation are reimbursements for (i) organization and offering expenses, including commissions, (ii) acquisition expenses, (iii) services provided in the sales effort of properties, and (iv) expenses of controlling persons and overhead expenses directly attributable to the forgoing services or attributable to administrative services. As of December 31, 2010, these cumulative reimbursements to the General Partners and their affiliates did not exceed the limitation amount.
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, 2010.
Person or Entity Amount Incurred From Receiving Form and Method Inception (July 31, 1996) Compensation of Compensation To December 31, 2010
AEI Securities, Inc. Selling Commissions equal to 8% of $1,691,722 proceeds plus a 2% nonaccountable expense allowance, most of which was reallowed to Participating Dealers.
General Partners and Reimbursement at Cost for other $ 762,880 Affiliates Organization and Offering Costs.
General Partners and Reimbursement at Cost for all $ 503,997 Affiliates Acquisition Expenses.
General Partners and Reimbursement at Cost for providing $2,359,244 Affiliates administrative services to the Fund, including all expenses related to management of the Fund's properties and all other transfer agency, reporting, partner relations and other administrative functions.
General Partners and Reimbursement at Cost for providing $ 532,196 Affiliates services related to the disposition of the Fund's properties.
General Partners 3% of Net Cash Flow in any fiscal year. $ 378,896
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. (Continued)
Person or Entity Amount Incurred From Receiving Form and Method Inception (July 31, 1996) Compensation of Compensation To December 31, 2010
General Partners 1% of distributions of Net Proceeds of $ 26,004 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.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following is a summary of the fees billed to the Partnership by Boulay, Heutmaker, Zibell & Co. P.L.L.P. for professional services rendered for the years ended December 31, 2010 and 2009:
Fee Category 2010 2009 Audit Fees $ 14,770 $ 14,425 Audit-Related Fees 0 0 Tax Fees 0 0 All Other Fees 0 0 --------- -------- Total Fees $ 14,770 $ 14,425 ========= ========
Audit Fees - Consists of fees billed for professional services rendered for the audit of the Partnership's annual financial statements and review of the interim financial statements included in quarterly reports, and services that are normally provided by Boulay, Heutmaker, Zibell & Co. P.L.L.P. in connection with statutory and regulatory filings or engagements.
Audit-Related Fees - Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of financial statements and are not reported under "Audit Fees." These services include consultations concerning financial accounting and reporting standards.
Tax Fees - Consists of fees billed for professional services for federal and state tax compliance, tax advice and tax planning.
All Other Fees - Consists of fees for products and services other than the services reported above.
Policy for Preapproval of Audit and Permissible Non-Audit Services of Independent Auditors
Before the Independent Auditors are engaged by the Partnership to render audit or non-audit services, the engagement is approved by Mr. Johnson acting as the Partnership's audit committee. PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) (1) A list of the financial statements contained herein is set forth on page 14.
(a) (2) Schedules are omitted because of the absence of conditions under which they are required or because the required information is presented in the financial statements or related notes.
(a) (3) The Exhibits filed in response to Item 601 of Regulation S-K are listed below.
3.1 Certificate of Limited Partnership (incorporated by reference to Exhibit 3.1 of the registrant's Registration Statement on Form SB-2 filed September 13, 1996 [File No. 333-5604]).
3.2 Restated Limited Partnership Agreement to the Prospectus (incorporated by reference to Exhibit A of Amendment No. 2 of the registrant's Registration Statement on Form SB-2 filed August 21, 1997 [File No. 333-5604]).
10.1 Net Lease Agreement dated July 14, 1999 between the Partnership and ARAMARK Educational Resources, Inc. relating to the Property at 2325 County Road 90 Pearland, Texas (incorporated by reference to Exhibit 10.6 of Form 8-K filed July 26, 1999).
10.2 Net Lease Agreement dated December 30, 2003 between the Partnership, AEI Accredited Investor Fund 2002 Limited Partnership and Kona Restaurant Group, Inc. relating to the Property at 2033 Ken Pratt Boulevard., Longmont, Colorado (incorporated by reference to Exhibit 10.23 of Form 10-KSB filed March 30, 2004).
10.3 Assignment and Assumption of Lease dated July 15, 2004 between the Partnership, AEI Accredited Investor Fund 2002 Limited Partnership and Transugar Limited Partnership relating to the Property at 16010 Kensington Drive, Sugar Land, Texas (incorporated by reference to Exhibit 10.2 of Form 8-K filed July 30, 2004).
10.4 Net Lease Agreement dated September 21, 2006 between the Partnership, AEI Income & Growth Fund XXI Limited Partnership and B.T. Woodlipp, Inc. relating to the Property at 425 Galleria Drive, Johnstown, Pennsylvania (incorporated by reference to Exhibit 10.3 of Form 10-QSB filed November 14, 2006).
10.5 Assignment and Assumption of Lease dated December 29, 2006 between the Partnership, AEI Income & Growth Fund 26 LLC and AEI Fund Management XVII, Inc. relating to the Property at 1516 South Washington Street, Crawfordsville, Indiana (incorporated by reference to Exhibit 10.1 of Form 8- K filed January 8, 2007).
10.6 Assignment and Assumption of Lease dated January 19, 2007 between the Partnership, AEI Income & Growth Fund 24 LLC and AEI Fund Management, Inc. relating to the Property at 4460 32nd Avenue South, Grand Forks, North Dakota (incorporated by reference to Exhibit 10.2 of Form 8-K filed January 25, 2007).
10.7 Assignment and Assumption of Lease dated October 6, 2008 between the Partnership, AEI Income & Growth Fund 24 LLC, AEI Income & Growth Fund 27 LLC and Ryan Companies US, Inc. relating to the Property at 700 North Edwards Boulevard, Lake Geneva, Wisconsin (incorporated by reference to Exhibit 10.2 of Form 8-K filed October 10, 2008).
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (Continued)
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 Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant 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 25, 2011 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 25, 2011 Robert P. Johnson and Sole Director of Managing General Partner
/s/PATRICK W KEENE Chief Financial Officer and Treasurer March 25, 2011 Patrick W. Keene (Principal Accounting Officer)