10-Q: AEI Fund XXII Reports Q3 Profit, Real Estate Sale Boosts Cash

AEI Income & Growth Fund XXII Limited Partnership reported a significant increase in net income for the nine months ended September 30, 2025, driven by a gain on real estate sale and improved cash flow.

Summary

• Net income for the nine months ended September 30, 2025, was $236,353, a substantial improvement from a net loss of $(31,701) for the same period in 2024.
• Net income for the three months ended September 30, 2025, was $225,143, up from $3,276 in the prior year's quarter.
• A gain of $200,237 was realized from the sale of a 65% interest in the Advance Auto Parts property in Indianapolis, Indiana, on July 29, 2025, generating net proceeds of $920,594.
• Cash balances increased by $653,928, reaching $1,568,774 as of September 30, 2025, compared to $914,846 at December 31, 2024.
• Rental income decreased slightly to $320,654 for the nine months ended September 30, 2025, from $329,070 in 2024, primarily due to the property sale, partially offset by rent increases on existing properties.
• Partnership administration expenses from affiliated parties decreased to $58,254 (from $91,682) due to lower property-related management expenses.
• Partnership administration and property management expenses from unrelated parties increased to $62,783 (from $59,526) due to the timing of tax and audit services.
• The Partnership repurchased 486.25 Limited Partnership Units for $269,139 from 21 Limited Partners on April 1, 2025, using net sales proceeds, which increased the ownership interest of remaining Limited Partners.
• Total Partners' Capital decreased to $5,206,130 as of September 30, 2025, from $6,456,623 at December 31, 2024, primarily due to distributions and unit repurchases.
• Distributions declared for the nine months ended September 30, 2025, totaled $1,214,988, significantly higher than $207,660 for the same period in 2024.

Sentiment

Score: 7

Explanation: The partnership reported a strong turnaround in net income and a significant increase in cash, largely driven by a strategic asset sale. While rental income saw a slight decline due to the sale, the overall financial health appears improved, and management expresses confidence in funding future distributions. The decrease in partners' capital is primarily due to distributions and unit repurchases, not operational losses.

Positives

• Net income for the nine months ended September 30, 2025, significantly improved to $236,353 from a loss of $(31,701) in the prior year.
• Cash balances increased substantially by $653,928 to $1,568,774, indicating strong liquidity.
• A strategic sale of a real estate interest generated a net gain of $200,237 and $920,594 in net proceeds.
• Partnership administration expenses from affiliated parties decreased, suggesting improved cost efficiency in management.
• The repurchase of 486.25 Limited Partnership Units enhances the ownership interest of the remaining Limited Partners.
• Management believes inflation has not significantly affected income from operations, and leases may include CPI-based rent increases.

Negatives

• Rental income for the nine months ended September 30, 2025, decreased to $320,654 from $329,070 in the prior year, primarily due to the property sale.
• Total Partners' Capital decreased significantly from $6,456,623 at December 31, 2024, to $5,206,130 at September 30, 2025.
• Real Estate Held for Investment, Net decreased from $5,694,299 to $4,770,445.
• Partnership administration and property management expenses from unrelated parties increased due to the timing of tax and audit services.

Risks

• Market and economic conditions can affect the value of properties and the cash generated from rental income.
• Federal income tax consequences of rental income, deductions, and gains on sales can impact partners.
• Potential conflicts of interest may arise for the General Partner.
• The success of the General Partner in locating properties with favorable risk-return characteristics is crucial.
• Tenant defaults could adversely affect the Partnership's financial condition.
• The condition of the industries in which the tenants operate can impact their ability to pay rent.
• Higher interest rates and global inflation may impact tenants and operating partners, potentially impairing their ability to pay rent and reducing Net Cash Flow available for distributions.
• Inaccurate management estimates or assumptions in allocating purchase prices of acquired properties could impact reported net income (loss).
• Changes in assumptions or analysis for testing long-lived assets for recoverability may cause material changes in the carrying value of properties.

Future Outlook

The Partnership expects to recognize approximately $418,000 in rental income in 2025 based on scheduled rent for properties owned as of October 31, 2025. Management believes that continuing rent payments from properties, combined with cash generated from property sales, will be sufficient to fund ongoing distributions and meet other Partnership obligations in both the short and long term. Leases may also contain rent increases tied to the Consumer Price Index, potentially boosting future rental income, and inflation may lead to real estate appreciation.

Management Comments

• "Management believes inflation has not significantly affected income from operations."
• "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 Partnership attempts to maintain a stable distribution rate from quarter to quarter."

Industry Context

The Partnership operates within the broader real estate sector, acknowledging that national economic conditions, including higher interest rates and global inflation, could impact its tenants and operating partners. This awareness suggests a proactive approach to managing its portfolio, as evidenced by the strategic property sale and unit repurchases, to maintain liquidity and partner returns amidst potential macroeconomic headwinds.

Comparison to Industry Standards

• NA

Legal Proceedings

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

Related Party Transactions

• Payable to AEI Fund Management, Inc. (an affiliate) for administrative and operating functions, with a balance of $20,339 as of September 30, 2025. This balance is non-interest bearing and unsecured.
• Partnership administration expenses from affiliated parties totaled $58,254 for the nine months ended September 30, 2025.
• Distributions of Net Cash Flow are allocated 97% to Limited Partners and 3% to the General Partner.
• Distributions of Net Proceeds of Sale are allocated 99% to Limited Partners and 1% to the General Partner.
• The General Partner received distributions of $2,719 in the second quarter of 2025 as a result of the repurchase of Partnership Units.

Stakeholder Impact

• Shareholders (Limited Partners) experienced a significant increase in net income and declared distributions, along with an increased ownership interest due to unit repurchases. However, total partners' capital decreased.
• The General Partner received allocated distributions and a share of distributions from unit repurchases.
• Tenants face potential impacts from higher interest rates and inflation, which could affect their ability to pay rent.
• AEI Fund Management, Inc. (an affiliate) continues to receive payments for administrative and operating functions.

Next Steps

• Continue to manage existing commercial properties and leases.
• Potentially repurchase tendered Units on April 1st and October 1st of each year, subject to limitations outlined in the Partnership Agreement.
• Monitor national economic conditions, interest rates, and inflation for potential impacts on tenants and property values.

Key Dates

Recommendation

While the partnership demonstrated strong net income growth and cash generation driven by a strategic asset sale, the underlying rental income saw a slight decline. The significant decrease in total partners' capital, even with unit repurchases, warrants caution. The outlook for continued distributions is positive, but the long-term growth trajectory without further asset acquisitions or significant rent increases remains to be seen. Investors should hold and monitor future operational performance and asset management strategies.

Keywords

Real Estate Investment, Limited Partnership, Commercial Property, SEC Filing, Quarterly Report, Net Income, Property Sale, Cash Flow, Distributions, Partnership Units, Asset Management, Financial Performance, Real Estate Fund