-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WtF3nrEC7PBhKSfR6JN4ty0C9R4ZfDgVE72th6n3XcinBg35prY107J5BbsTawpr YtMmcYWok4XmKey67uLB5w== 0000785788-99-000008.txt : 19990331 0000785788-99-000008.hdr.sgml : 19990331 ACCESSION NUMBER: 0000785788-99-000008 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP CENTRAL INDEX KEY: 0000931755 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 411789725 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 033-85076 FILM NUMBER: 99577766 BUSINESS ADDRESS: STREET 1: 1300 MINNESOTA WORLD TRADE CENTER STREET 2: 30 EAST SEVENTH ST CITY: ST PAUL STATE: MN ZIP: 55101 BUSINESS PHONE: 6122277333 MAIL ADDRESS: STREET 1: 1300 MINNESOTA WORLD TRADE CENTER STREET 2: 30 EAST SEVENTH STREET CITY: ST PAUL STATE: MN ZIP: 55101 10KSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB Annual Report Under Section 13 or 15(d) Of The Securities Exchange Act Of 1934 For the Fiscal Year Ended: December 31, 1998 Commission file number: 0-29274 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP (Name of Small Business Issuer in its Charter) State of Minnesota 41-1789725 (State or other Jurisdiction of (I.R.S. Employer) Incorporation or Organization) Identification No.) 1300 Minnesota World Trade Center, St. Paul, Minnesota 55101 (Address of Principal Executive Offices) (651) 227-7333 (Issuer's telephone number) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Units (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Check if disclosure of delinquent filers in response to Rule 405 of Regulation S-B is not contained in this Form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] The Issuer's revenues for year ended December 31, 1998 were $1,854,751. As of February 28, 1999, there were 23,828.87 Units of limited partnership interest in the registrant outstanding and owned by nonaffiliates of the registrant, which Units had an aggregate market value (based solely on the price at which they were sold since there is no ready market for such Units) of $23,828,870. DOCUMENTS INCORPORATED BY REFERENCE The registrant has not incorporated any documents by reference into this report. Transitional Small Business Disclosure Format: Yes No [X] PART I ITEM 1. DESCRIPTION OF BUSINESS. AEI Income & Growth Fund XXI Limited Partnership (the "Partnership" or the "Registrant") is a limited partnership which was organized pursuant to the laws of the State of Minnesota on August 31, 1994. The registrant is comprised of AEI Fund Management XXI, Inc. (AFM) as Managing General Partner, Robert P. Johnson as the Individual General Partner, and purchasers of partnership units as Limited Partners. The Partnership offered for sale up to $24,000,000 of limited partnership interests (the "Units") (24,000 Units at $1,000 per Unit) pursuant to a registration statement effective February 1, 1995. The Partnership commenced operations on April 14, 1995 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. On January 31, 1997, the Partnership offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units ($24,000,000) was reached. The Partnership was organized to acquire existing and newly constructed commercial properties located in the United States, to lease such properties to tenants under triple net leases, to hold such properties and to eventually sell such properties. From subscription proceeds, the Partnership had purchased ten properties including partial interests in seven properties, at a total cost of $19,686,525. 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 triple net leases. The Partnership's properties were purchased with subscription proceeds without any indebtedness. The Partnership will not finance properties in the future to obtain proceeds for new property acquisitions. If it is required to do so, the Partnership may incur short-term indebtedness, which may be secured by a portion of the Partnership's properties, to finance the day-to-day cash flow requirements of the Partnership (including cash flow necessary to repurchase Units). The amount of borrowings that may be secured by the Partnership's properties is limited in the aggregate to 10% of the purchase price of all Partnership properties. The Partnership will not incur borrowings prior to application of the proceeds from sale of the Units, will not incur borrowings to pay distributions, and will not incur borrowings while there is cash available for distributions. The Partnership will hold its properties until the General Partners determine that the sale or other disposition of the properties is advantageous in view of the Partnership's investment objectives. In deciding whether to sell properties, the General Partners will consider factors such as potential appreciation, net cash flow and income tax considerations. In addition, certain lessees may be granted options to purchase properties after a specified portion of the lease term has elapsed. The Partnership expects to sell some or all of its properties prior to its final liquidation and to reinvest the proceeds from such sales in additional properties. The Partnership reserves the right, at the discretion of the General Partners, to either distribute proceeds from the sale of properties to the Partners or to reinvest such proceeds in additional properties, provided that sufficient proceeds are distributed to the Limited Partners to pay federal and state income taxes related to any taxable gain recognized as a result of the sale. It is anticipated that the Partnership will commence liquidation through the sale of its remaining properties twelve to fifteen years after its formation, although final liquidation may be delayed by a number of circumstances, including market conditions and seller financing of properties. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) Leases Although there 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 triple net leases, which are classified as operating leases. Under a triple net lease, the lessee is responsible for all real estate taxes, insurance, maintenance, repairs and operating expenses for the property. The initial lease terms are for 18 to 20 years. The leases provide for base annual rental payments, payable in monthly installments, and contain rent clauses which entitle the Partnership to receive additional rent in future years based on stated rent increases. The leases provide the lessees with two to five five-year renewal options subject to the same terms and conditions as the initial lease. Certain lessees have been granted options to purchase the property. Depending on the lease, the purchase price is either determined by a formula, or is the greater of the fair market value of the property or the amount determined by a formula. In all cases, if the option were to be exercised by the lessee, the purchase price would be greater than the original cost of the property. On March 28, 1996, the Partnership purchased a 40.75% interest in a Garden Ridge retail store in Pineville, North Carolina for $3,644,391. The property is leased to Garden Ridge, L.P. under a Lease Agreement with a primary term of 20 years and annual rental payments of $383,973. The remaining interest in the property was purchased by AEI Net Lease Income & Growth Fund XIX Limited Partnership and AEI Net Lease Income & Growth Fund XX Limited Partnership, affiliates of the Partnership. On August 29, 1996, the Partnership purchased a 67.8% interest in a Champps Americana restaurant in Columbus, Ohio for $1,808,880. The property is leased to Americana Dining Corporation under a Lease Agreement with a primary term of 20 years and annual rental payments of $191,259. The remaining interest in the property was purchased by AEI Real Estate Fund XVIII Limited Partnership, an affiliate of the Partnership. On March 14, 1997, the Partnership purchased a parcel of land in San Antonio, Texas for $1,032,299. The land is leased to Champps Americana, Inc. (Champps) under a Lease Agreement with a primary term of 20 years and annual rental payments of $83,451. Effective September 9, 1997, the annual rent was increased to $128,156. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective September 9, 1997, the interest rate was increased to 10.75%. On December 23, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $296,023. Total acquisition costs, including the cost of the land, were $2,833,357. On March 19, 1997, the Partnership purchased a Denny's restaurant in Covington, Louisiana for $1,304,948. The property is leased to Huntington Restaurants Group, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $141,243. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) On April 21, 1997, the Partnership purchased a 49.6% interest in a parcel of land in Schaumburg, Illinois for $876,387. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $66,906. Effective October 17, 1997, the annual rent was increased to $102,749. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective October 17, 1997, the interest rate was increased to 10.75%. On December 31, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $236,479. The Partnership's share of the total acquisition costs, including the cost of the land, was $2,256,462. The remaining interests in the property are owned by AEI Net Lease Income & Growth Fund XX Limited Partnership and Net Lease Income & Growth Fund 84-A Limited Partnership, affiliates of the Partnership. On July 8, 1997, the Partnership purchased a parcel of land in Livonia, Michigan for $1,074,384. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $75,207. Effective January 3, 1998, the annual rent was increased to $115,496. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective January 3, 1998, the interest rate was increased to 10.75%. On May 19, 1998, after the development was completed, the Lease Agreement was amended to require annual rental payments of $429,135. Total acquisition costs, including the cost of the land, were $4,150,061. On July 31, 1997, the Partnership purchased a 93.1% interest in a Caribou Coffee store in Charlotte, North Carolina for $1,310,598. The property is leased to Caribou Coffee Company, Inc. under a Lease Agreement with a primary term of 18 years and annual rental payments of $146,438. The remaining interest in the property is owned by AEI Institutional Net Lease Fund '93 Limited Partnership, an affiliate of the Partnership. On August 28, 1998, the Partnership purchased a 25% interest in a parcel of land in Centerville, Ohio for $462,747. The land is leased to Americana Dining Corporation (ADC) under a Lease Agreement with a primary term of 20 years and annual rental payments of $32,392. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership will advance funds to ADC for the construction of a Champps Americana restaurant on the site. Through December 31, 1998, the Partnership had advanced $289,014 for the construction of the property and was charging interest on the advances at a rate of 7%. Effective December 25, 1998, the interest rate was increased to 10.5%. On January 27, 1999, after the development was completed, the Lease Agreement was amended to require annual rental payments of $101,365. The Partnership's share of the total acquisition costs, including the cost of the land, was approximately $984,500. The remaining interests in the property are owned by AEI Real Estate Fund XVII Limited Partnership, AEI Real Estate Fund XVIII Limited Partnership and AEI Income & Growth Fund XXII Limited Partnership, affiliates of the Partnership. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) Through December 31, 1998, the Partnership sold 40.7615% of its interest in the Champps Americana restaurant in Columbus, Ohio, in six separate transactions to unrelated third parties. The Partnership received total net sale proceeds of $1,383,508 which resulted in a total net gain of $341,928. The total cost and related accumulated depreciation of the interests sold was $1,087,502 and $45,922, respectively. For the years ended December 31, 1998 and 1997, the net gain was $235,377 and $106,551, respectively. As of December 31, 1997, based on an analysis of market conditions, it was determined the fair value of the Partnership's interest in the Media Play retail store was approximately $748,000. In the fourth quarter of 1997, a charge to operations for real estate impairment of $580,200 was recognized, which is the difference between the book value at December 31, 1997 of $1,328,200 and the estimated market value of $748,000. The charge was recorded against the cost of the land, building and equipment. Major Tenants During 1998, two of the Partnership's lessees each contributed more than ten percent of the Partnership's total rental revenue. The major tenants in aggregate contributed 78% of the Partnership's total rental revenue in 1998. 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 the Partnership's rental income in 1998 and future years. Any failure of these major tenants or business concepts 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. Year 2000 Compliance The Year 2000 issue is the result of computer systems that use two digits rather than four to define the applicable year, which may prevent such systems from accurately processing dates ending in the Year 2000 and beyond. This could result in computer system failures or disruption of operations, including, but not limited to, an inability to process transactions, to send or receive electronic data, or to engage in routine business activities. AEI Fund Management, Inc. (AEI) performs all management services for the Partnership. In 1998, AEI completed an assessment of its computer hardware and software systems and has replaced or upgraded certain computer hardware and software using the assistance of outside vendors. AEI has received written assurance from the equipment and software manufacturers as to Year 2000 compliance. The costs associated with Year 2000 compliance have not been, and are not expected to be, material. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) The Partnership intends to monitor and communicate with tenants regarding Year 2000 compliance, although there can be no assurance that the systems of the various tenants will be Year 2000 compliant. ITEM 2. DESCRIPTION OF PROPERTIES. Investment Objectives The Partnership's investment objectives are to acquire existing or newly-developed commercial properties throughout the United States that offer the potential for (i) regular cash distributions of lease income; (ii) growth in lease income through rent escalation provisions; (iii) preservation of capital through all-cash sale-leaseback 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 triple net leases, which are 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, 1998.
Total Property Purchase Acquisition Annual Lease Annual Rent Property Date Costs Lessee Payment Per Sq. Ft. Arby's Restaurant Montgomery, AL RTM Gulf (87.7193%) 5/31/95 $ 754,104 Coast, Inc. $ 81,367 $31.28 Media Play Retail Store Apple Valley, MN (34.0%) 12/21/95 $1,414,060 (1) ITEM 2. DESCRIPTION OF PROPERTIES. (Continued) Total Property Purchase Acquisition Annual Lease Annual Rent Property Date Costs Lessee Payment Per Sq. Ft. Garden Ridge Retail Store Pineville, NC Garden (40.75%) 3/28/96 $ 3,644,391 Ridge, L.P. $ 383,973 $ 6.65 Champps Americana Restaurant Americana Columbus, OH Dining (27.0385%) 8/29/96 $ 721,377 Corporation $ 76,273 $ 34.53 Huntington Denny's Restaurant Restaurants Covington, LA 3/19/97 $ 1,304,948 Group, Inc. $ 143,961 $ 33.49 Caribou Coffee Store Charlotte, NC Caribou Coffee (93.1%) 7/31/97 $ 1,310,598 Company, Inc. $ 146,438 $ 35.66 Champps Champps Americana Restaurant Entertainment San Antonio, TX 12/23/97 $ 2,833,357 of Texas, Inc. $ 296,023 $ 34.10 Champps Americana Restaurant Schaumburg, IL Champps (49.6%) 12/31/97 $ 2,256,462 Americana, Inc. $ 236,479 $ 42.73 Champps Americana Restaurant Champps Livonia, MI 5/19/98 $ 4,150,061 Americana, Inc. $ 429,135 $ 46.88 Champps Americana Restaurant Centerville, OH Americana (25.0%) Dining (land only) (2) 8/28/98 $ 462,747 Corporation $ 32,392 $ 13.83 (1) The property was vacated on January 31, 1997 and listed for sale or lease. (2) Restaurant is under construction as of December 31, 1998.
ITEM 2. DESCRIPTION OF PROPERTIES. (Continued) The properties listed above with a partial ownership percentage are owned with affiliates of the Partnership and/or unrelated third parties. The remaining interests in the Arby's and Caribou Coffee store are owned by AEI Institutional Net Lease Fund '93 Limited Partnership. The remaining interests in the Media Play and Garden Ridge retail stores are owned by AEI Net Lease Income & Growth Fund XIX Limited Partnership and AEI Net Lease Income & Growth Fund XX Limited Partnership. The remaining interest in the Champps Americana restaurant in Columbus, Ohio is owned by AEI Real Estate Fund XVIII Limited Partnership and unrelated third parties. The remaining interest in the Champps Americana restaurant in Schaumburg, Illinois is owned by Net Lease Income & Growth Fund 84-A Limited Partnership and AEI Net Lease Income & Growth Fund XX Limited Partnership. The remaining interests in the Champps Americana restaurant in Centerville, Ohio are owned by AEI Real Estate Fund XVII Limited Partnership, AEI Real Estate Fund XVIII Limited Partnership and AEI Income & Growth Fund XXII Limited Partnership. The Partnership accounts for properties owned as tenants- in-common with affiliated Partnerships 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. The initial Lease terms are 20 years except for the Caribou Coffee store, which is 18 years. The Leases contain renewal options which may extend the Lease term an additional 10 years for the Arby's and Caribou Coffee, an additional 15 years for the Champps and Denny's, and an additional 25 years for the Garden Ridge retail store. 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 40 years. The remaining depreciable components of a property are personal property and land improvements which are depreciated, using an accelerated method, over 5 and 15 years, respectively. Since the Partnership has tax-exempt Partners, the Partnership is subject to the rules of Section 168(h)(6) of the Internal Revenue Code which requires a percentage of the properties' depreciable components to be depreciated over longer lives using the straight-line method. In general the federal tax basis of the properties for tax depreciation purposes is the same as the basis for book depreciation purposes except for properties whose book value was reduced by a real estate impairment loss pursuant to Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The real estate impairment loss, which was recorded against the book cost of the land and depreciable property, was not recognized for tax purposes. Through December 31, 1998, all properties were 100% occupied by the lessees, except the Media Play retail store which has been 100% vacant since January 31, 1997. ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY HOLDER MATTERS. As of December 31, 1998, there were 1,312 holders of record of the registrant's Limited Partnership Units. There is no other class of security outstanding or authorized. The registrant's Units are not a traded security in any market. However, the Partnership may purchase Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership is not obligated to purchase in any year more than 5% of the total number of Units outstanding at the beginning of the year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During 1998, the Partnership did not redeem any Units from the Limited Partners. In 1997, three Limited Partners redeemed a total of 171.1 Partnership Units for $154,021 in accordance with the Partnership Agreement. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. Cash distributions of $19,091 and $17,788 were made to the General Partners and $1,890,001 and $1,761,087 were made to the Limited Partners in 1998 and 1997, respectively. The distributions were made on a quarterly basis and represent Net Cash Flow, as defined, and a partial return of contributed capital. These distributions should not be compared with dividends paid on capital stock by corporations. As part of the Limited Partner distributions discussed above, the Partnership distributed $407,119 and $348,489 of proceeds from property sales in 1998 and 1997, respectively. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. Results of Operations For the years ended December 31, 1998 and 1997, the Partnership recognized rental income of $1,704,282 and $1,005,113, respectively. During the same periods, the Partnership also earned $150,469 and $507,981, respectively, in investment income from subscription proceeds which were invested in short-term money market accounts, commercial paper, federal agency notes and construction and development advances. This investment income constituted 8% and 34%, respectively, of total income. The percentage of total income represented by investment income declines as subscription proceeds are invested in properties. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) Musicland Group, Inc. (MGI), the lessee of the Media Play retail store in Apple Valley, Minnesota experienced financial difficulties and was aggressively restructuring its organization. As part of the restructuring, the Partnership and MGI reached an agreement in December, 1996 in which MGI would buy out and terminate the Lease Agreement by making a payment of $800,000, which is equal to approximately two years' rent. The Partnership's share of such payment was $272,000. Under the Agreement, MGI remained in possession of the property and performed all of its obligations under the net lease agreement through January 31, 1997 at which time it vacated the property and made it available for re-let to another tenant. MGI was responsible for all maintenance and management costs of the property through January 31, 1997 after which date the Partnership became responsible for its share of expenses associated with the property until it is re-let or sold. A specialist in commercial property leasing has been retained to locate a new tenant for the property. As of December 31, 1997, based on an analysis of market conditions in the area, it was determined the fair value of the Partnership's interest in the Media Play was approximately $748,000. In the fourth quarter of 1997, a charge to operations for real estate impairment of $580,200 was recognized, which is the difference between the book value at December 31, 1997 of $1,328,200 and the estimated market value of $748,000. The charge was recorded against the cost of the land, building and equipment. During the years ended December 31, 1998 and 1997, the Partnership paid Partnership administration expenses to affiliated parties of $248,958 and $233,717, respectively. These administration expenses include initial start-up costs and expenses associated with processing distributions, reporting requirements and correspondence to the Limited Partners. The administrative expenses decrease after completion of the offering and acquisition phases of the Partnership's operations. During the same periods, the Partnership incurred Partnership administration and property management expenses from unrelated parties of $107,932 and $115,217, respectively. These expenses represent direct payments to third parties for legal and filing fees, direct administrative costs, outside audit and accounting costs, taxes, insurance and other property costs. The Partnership distributes all of its net income during the offering and acquisition phases, and if net income after deductions for depreciation is not sufficient to fund the distributions, other available cash that constitutes capital for accounting purposes may be distributed. As of December 31, 1998, the Partnership's cash distribution rate was 7.5% on an annualized basis. Distributions of Net Cash Flow to the General Partners were subordinated to the Limited Partners as required in the Partnership Agreement. As a result, 99% of distributions and income were allocated to Limited Partners and 1% to the General Partners. Since the Partnership has only recently purchased its real estate, inflation has had a minimal effect on income from operations. The Leases contain cost of living increases which will result in an increase in rental income over the term of the Leases. Inflation also may cause the Partnership's real estate to appreciate in value. However, inflation and changing prices may also have an adverse impact on the operating margins of the properties' tenants which could impair their ability to pay rent and subsequently reduce the Partnership's Net Cash Flow available for distributions. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) The Year 2000 issue is the result of computer systems that use two digits rather than four to define the applicable year, which may prevent such systems from accurately processing dates ending in the Year 2000 and beyond. This could result in computer system failures or disruption of operations, including, but not limited to, an inability to process transactions, to send or receive electronic data, or to engage in routine business activities. AEI Fund Management, Inc. (AEI) performs all management services for the Partnership. In 1998, AEI completed an assessment of its computer hardware and software systems and has replaced or upgraded certain computer hardware and software using the assistance of outside vendors. AEI has received written assurance from the equipment and software manufacturers as to Year 2000 compliance. The costs associated with Year 2000 compliance have not been, and are not expected to be, material. The Partnership intends to monitor and communicate with tenants regarding Year 2000 compliance, although there can be no assurance that the systems of the various tenants will be Year 2000 compliant. Liquidity and Capital Resources The Partnership's primary sources of cash are from proceeds from the sale of Units, investment income, rental income and proceeds from the sale of property. Its primary uses of cash are investment in real properties, payment of expenses involved in the sale of units, the organization of the Partnership, the acquisition of properties, the management of properties, the administration of the Partnership, and the payment of distributions. Until the offering of Units was completed, the Partnership's primary source of cash flow was from the sale of Limited Partnership Units. The Partnership offered for sale up to $24,000,000 of limited partnership interests (the "Units") (24,000 Units at $1,000 per Unit) pursuant to a registration statement effective February 1, 1995. From February 1, 1995 to April 14, 1995, the minimum number of Limited Partnership Units (1,500) needed to form the Partnership were sold and on April 14, 1995, a total of 2,937.444 Units ($2,937,444) were transferred into the Partnership. On January 31, 1997, the Partnership offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units ($24,000,000) was reached. From subscription proceeds, the Partnership paid organization and syndication costs (which constitute a reduction of capital) of $3,277,000. Before the acquisition of properties, cash flow from operating activities is not significant. Net income, after adjustment for depreciation, is lower during the first few years of operations as administrative expenses remain high and a large amount of the Partnership's assets remain invested on a short- term basis in lower-yielding cash equivalents. Net income will become the largest component of cash flow from operating activities and the largest component of cash flow after the completion of the acquisition phase. The major components of the Partnership's cash flow from investing activities are investments in real estate and proceeds from the sale of real estate. In 1998 and 1997, the Partnership expended $2,671,415 and $8,078,957, respectively, to invest in real properties (inclusive of acquisition expenses). During the same periods, the Partnership generated cash flow from the sale of real estate of $862,718 and $520,790, respectively. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) On March 14, 1997, the Partnership purchased a parcel of land in San Antonio, Texas for $1,032,299. The land is leased to Champps Americana, Inc. (Champps) under a Lease Agreement with a primary term of 20 years and annual rental payments of $83,451. Effective September 9, 1997, the annual rent was increased to $128,156. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective September 9, 1997, the interest rate was increased to 10.75%. On December 23, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $296,023. Total acquisition costs, including the cost of the land, were $2,833,357. On March 19, 1997, the Partnership purchased a Denny's restaurant in Covington, Louisiana for $1,304,948. The property is leased to Huntington Restaurants Group, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $141,243. On April 21, 1997, the Partnership purchased a 49.6% interest in a parcel of land in Schaumburg, Illinois for $876,387. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $66,906. Effective October 17, 1997, the annual rent was increased to $102,749. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective October 17, 1997, the interest rate was increased to 10.75%. On December 31, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $236,479. The Partnership's share of the total acquisition costs, including the cost of the land, was $2,256,462. The remaining interests in the property are owned by AEI Net Lease Income & Growth Fund XX Limited Partnership and Net Lease Income & Growth Fund 84-A Limited Partnership, affiliates of the Partnership. On July 8, 1997, the Partnership purchased a parcel of land in Livonia, Michigan for $1,074,384. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $75,207. Effective January 3, 1998, the annual rent was increased to $115,496. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective January 3, 1998, the interest rate was increased to 10.75%. On May 19, 1998, after the development was completed, the Lease Agreement was amended to require annual rental payments of $429,135. Total acquisition costs, including the cost of the land, were $4,150,061. On July 31, 1997, the Partnership purchased a 93.1% interest in a Caribou Coffee store in Charlotte, North Carolina for $1,310,598. The property is leased to Caribou Coffee Company, Inc. under a Lease Agreement with a primary term of 18 years and annual rental payments of $146,438. The remaining interest in the property is owned by AEI Institutional Net Lease Fund '93 Limited Partnership, an affiliate of the Partnership. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) On August 28, 1998, the Partnership purchased a 25% interest in a parcel of land in Centerville, Ohio for $462,747. The land is leased to Americana Dining Corporation (ADC) under a Lease Agreement with a primary term of 20 years and annual rental payments of $32,392. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership will advance funds to ADC for the construction of a Champps Americana restaurant on the site. Through December 31, 1998, the Partnership had advanced $289,014 for the construction of the property and was charging interest on the advances at a rate of 7%. Effective December 25, 1998, the interest rate was increased to 10.5%. On January 27, 1999, after the development was completed, the Lease Agreement was amended to require annual rental payments of $101,365. The Partnership's share of the total acquisition costs, including the cost of the land, was approximately $984,500. The remaining interests in the property are owned by AEI Real Estate Fund XVII Limited Partnership, AEI Real Estate Fund XVIII Limited Partnership and AEI Income & Growth Fund XXII Limited Partnership, affiliates of the Partnership. Through December 31, 1998, the Partnership sold 40.7615% of its interest in the Champps Americana restaurant in Columbus, Ohio, in six separate transactions to unrelated third parties. The Partnership received total net sale proceeds of $1,383,508 which resulted in a total net gain of $341,928. The total cost and related accumulated depreciation of the interests sold was $1,087,502 and $45,922, respectively. For the years ended December 31, 1998 and 1997, the net gain was $235,377 and $106,551, respectively. During 1998 and 1997, the Partnership distributed net sale proceeds of $411,231 and $352,009 to the Limited and General Partners as part of their regular quarterly distributions which represented a return of capital of $17.09 and $14.57 per Limited Partnership Unit, respectively. The remaining net sale proceeds were reinvested in additional property. After completion of the acquisition phase, the Partnership's primary use of cash flow is distribution and redemption payments to Partners. The Partnership declares its regular quarterly distributions before the end of each quarter and pays the distribution in the first week after the end of each quarter. The Partnership attempts to maintain a stable distribution rate from quarter to quarter. Redemption payments are paid to redeeming Partners in the fourth quarter of each year. The redemption payments generally are funded with cash that would normally be paid as part of the regular quarterly distributions. As a result, total distributions and distributions payable have fluctuated from year to year due to cash used to fund redemption payments. The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership is not obligated to purchase in any year more than 5% of the number of Units outstanding at the beginning of the year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During 1998, the Partnership did not redeem any Units from the Limited Partners. In 1997, three Limited Partners redeemed a total of 171.1 Partnership Units for $154,021 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) The continuing rent payments from the properties, together with cash generated from the property sales, should be adequate to fund continuing distributions and meet other Partnership obligations on both a short-term and long-term basis. Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 The foregoing Management's Discussion and Analysis contains various "forward looking statements" within the meaning of federal securities laws which represent management's expectations or beliefs concerning future events, including statements regarding anticipated application of cash, expected returns from rental income, growth in revenue, taxation levels, the sufficiency of cash to meet operating expenses, rates of distribution, and other matters. These, and other forward looking statements made by the Partnership, must be evaluated in the context of a number of factors that may affect the Partnership's financial condition and results of operations, including the following: 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 affects of these consequences for investors; 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. These and other risks to which the Partnership may be subject are discussed in more detail in Exhibit 99 to this Form 10-KSB. ITEM 7. FINANCIAL STATEMENTS. See accompanying index to financial statements. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS Report of Independent Auditors Balance Sheet as of December 31, 1998 and 1997 Statements for the Years Ended December 31, 1998 and 1997: Income Cash Flows Changes in Partners' Capital Notes to Financial Statements REPORT OF INDEPENDENT AUDITORS To the Partners: AEI Income & Growth Fund XXI Limited Partnership St. Paul, Minnesota We have audited the accompanying balance sheet of AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP (a Minnesota limited partnership) as of December 31, 1998 and 1997 and the related statements of income, cash flows and changes in partners' capital for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AEI Income & Growth Fund XXI Limited Partnership as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Minneapolis, Minnesota /s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P. January 27, 1999 Boulay, Heutmaker, Zibell & Co. P.L.L.P. Certified Public Accountants AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP BALANCE SHEET DECEMBER 31 ASSETS 1998 1997 CURRENT ASSETS: Cash and Cash Equivalents $ 557,646 $ 2,506,790 Receivables 16,052 162,677 ----------- ----------- Total Current Assets 573,698 2,669,467 ----------- ----------- INVESTMENTS IN REAL ESTATE: Land 6,921,884 6,612,866 Buildings and Equipment 11,350,021 8,779,112 Construction in Progress 289,014 1,078,108 Property Acquisition Costs 10,782 88,696 Accumulated Depreciation (816,805) (399,150) ----------- ----------- Net Investments in Real Estate 17,754,896 16,159,632 ----------- ----------- Total Assets $18,328,594 $18,829,099 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 54,136 $ 56,307 Distributions Payable 451,171 324,841 ----------- ----------- Total Current Liabilities 505,307 381,148 ----------- ----------- PARTNERS' CAPITAL (DEFICIT): General Partners (30,953) (24,706) Limited Partners, $1,000 Unit Value; 24,000 Units authorized and issued; 23,829 Units outstanding in 1998 and 1997 17,854,240 18,472,657 ----------- ----------- Total Partners' Capital 17,823,287 18,447,951 ----------- ----------- Total Liabilities and Partners' Capital $18,328,594 $18,829,099 =========== =========== The accompanying notes to financial statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31 1998 1997 INCOME: Rent $ 1,704,282 $ 1,005,113 Investment Income 150,469 507,981 ----------- ----------- Total Income 1,854,751 1,513,094 ----------- ----------- EXPENSES: Partnership Administration - Affiliates 248,958 233,717 Partnership Administration and Property Management - Unrelated Parties 107,932 115,217 Depreciation 448,810 251,272 Real Estate Impairment 0 580,200 ----------- ----------- Total Expenses 805,700 1,180,406 ----------- ----------- OPERATING INCOME 1,049,051 332,688 GAIN ON SALE OF REAL ESTATE 235,377 106,551 ----------- ----------- NET INCOME $ 1,284,428 $ 439,239 =========== =========== NET INCOME ALLOCATED: General Partners $ 12,844 $ 4,392 Limited Partners 1,271,584 434,847 ----------- ----------- $ 1,284,428 $ 439,239 =========== =========== NET INCOME PER LIMITED PARTNERSHIP UNIT (23,829 and 23,921 weighted average Units outstanding in 1998 and 1997, respectively) $ 53.36 $ 18.18 =========== =========== The accompanying notes to financial statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 1,284,428 $ 439,239 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation 448,810 251,272 Real Estate Impairment 0 580,200 Gain on Sale of Real Estate (235,377) (106,551) (Increase) Decrease in Receivables 146,625 (121,005) Decrease in Payable to AEI Fund Management, Inc. (2,171) (76,593) ----------- ----------- Total Adjustments 357,887 527,323 ------------ ----------- Net Cash Provided By Operating Activities 1,642,315 966,562 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (2,671,415) (8,078,957) Proceeds from Sale of Real Estate 862,718 520,790 ------------ ----------- Net Cash Used For Investing Activities (1,808,697) (7,558,167) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital Contributions from Limited Partners 0 436,651 Organization and Syndication Costs 0 (28,010) Increase (Decrease) in Distributions Payable 126,330 (104,827) Distributions to Partners (1,909,092) (1,778,875) Redemption Payments 0 (155,577) ----------- ----------- Net Cash Used For Financing Activities (1,782,762) (1,630,638) ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (1,949,144) (8,222,243) CASH AND CASH EQUIVALENTS, beginning of period 2,506,790 10,729,033 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 557,646 $ 2,506,790 =========== =========== The accompanying notes to financial statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31 Limited Partnership General Limited Units Partners Partners Total Outstanding BALANCE, December 31, 1996 $ (9,754) $19,544,277 $19,534,523 23,563.35 Capital Contributions 0 436,651 436,651 436.65 Organization & Syndication Costs 0 (28,010) (28,010) Distributions (17,788) (1,761,087) (1,778,875) Redemption Payments (1,556) (154,021) (155,577) (171.13) Net Income 4,392 434,847 439,239 --------- ----------- ----------- ---------- BALANCE, December 31, 1997 (24,706) 18,472,657 18,447,951 23,828.87 Distributions (19,091) (1,890,001) (1,909,092) Net Income 12,844 1,271,584 1,284,428 --------- ----------- ----------- ---------- BALANCE, December 31, 1998 $ (30,953) $17,854,240 $17,823,287 23,828.87 ========= =========== =========== ========== The accompanying notes to financial statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (1) Organization - AEI Income & Growth Fund XXI Limited Partnership (Partnership) was formed to acquire and lease commercial properties to operating tenants. The Partnership's operations are managed by AEI Fund Management XXI, Inc. (AFM), the Managing General Partner of the Partnership. Robert P. Johnson, the President and sole shareholder of AFM, serves as the Individual General Partner of the Partnership. An affiliate of AFM, AEI Fund Management, Inc. (AEI), performs the administrative and operating functions for the Partnership. The terms of the Partnership offering call for a subscription price of $1,000 per Limited Partnership Unit, payable on acceptance of the offer. The Partnership commenced operations on April 14, 1995 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. On January 31, 1997, the Partnership offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units ($24,000,000) was reached. Under the terms of the Limited Partnership Agreement, the Limited Partners and General Partners contributed funds of $24,000,000 and $1,000, respectively. During the operation of the Partnership, any Net Cash Flow, as defined, which the General Partners determine to distribute will be distributed 90% to the Limited Partners and 10% to the General Partners; provided, however, that such distributions to the General Partners will be subordinated to the Limited Partners first receiving an annual, noncumulative distribution of Net Cash Flow equal to 10% of their Adjusted Capital Contribution, as defined, and, provided further, that in no event will the General Partners receive less than 1% of such Net Cash Flow per annum. Distributions to Limited Partners will be made pro rata by Units. Any Net Proceeds of Sale, as defined, from the sale or financing of the Partnership's properties which the General Partners determine to distribute will, after provisions for debts and reserves, be paid in the following manner: (i) first, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 10% 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. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (1) Organization - (Continued) For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of the Partnership's property, will be allocated first in the same ratio in which, and to the extent, Net Cash Flow is distributed to the Partners for such year. Any additional profits will be allocated in the same ratio as the last dollar of Net Cash Flow is distributed. Net losses from operations will be allocated 99% to the Limited Partners and 1% to the General Partners. For tax purposes, profits arising from the sale, financing, or other disposition of the Partnership's property will be allocated in accordance with the Partnership Agreement as follows: (i) first, to those partners with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Partners and 1% to the General Partners until the aggregate balance in the Limited Partners' capital accounts equals the sum of the Limited Partners' Adjusted Capital Contributions plus an amount equal to 10% 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. 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 XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (2) Summary of Significant Accounting Policies - (Continued) Cash Concentrations of Credit Risk At times throughout the year, the Partnership's cash deposited in financial institutions may exceed FDIC insurance limits. Statement of Cash Flows For purposes of reporting cash flows, cash and cash equivalents may include cash in checking, cash invested in money market accounts, certificates of deposit, federal agency notes and commercial paper with a term of three months or less. Income Taxes The income or loss of the Partnership for federal income tax reporting purposes is includable in the income tax returns of the partners. Accordingly, no recognition has been given to income taxes in the accompanying financial statements. The tax return, the qualification of the Partnership as such for tax purposes, and the amount of distributable Partnership income or loss are subject to examination by federal and state taxing authorities. If such an examination results in changes with respect to the Partnership qualification or in changes to distributable Partnership income or loss, the taxable income of the partners would be adjusted accordingly. Real Estate The Partnership's real estate is leased under triple net leases classified as operating leases. The Partnership recognizes rental revenue on the accrual basis according to the terms of the individual leases. For leases which contain cost of living increases, the increases are recognized in the year in which they are effective. Real estate is recorded at the lower of cost or estimated net realizable value. The Partnership compares the carrying amount of its properties to the estimated future cash flows expected to result from the property and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the property, the Partnership recognizes an impairment loss by the amount by which the carrying amount of the property exceeds the fair value of the property. The Partnership has capitalized as Investments in Real Estate certain costs incurred in the review and acquisition of the properties. The costs were allocated to the land, buildings and equipment. The buildings and equipment of the Partnership are depreciated using the straight-line method for financial reporting purposes based on estimated useful lives of 25 years and 5 years, respectively. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (2) Summary of Significant Accounting Policies - (Continued) The Partnership accounts for properties owned as tenants- in-common with affiliated Partnerships 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. (3) Related Party Transactions - The Partnership owns a 87.7193% interest in an Arby's restaurant and a 93.1% interest in a Caribou Coffee store. The remaining interests in these properties are owned by AEI Institutional Net Lease Fund '93 Limited Partnership, an affiliate of the Partnership. The Partnership owns a 34.0% interest in a Media Play retail store and a 40.75% interest in a Garden Ridge retail store. The remaining interests in these properties are owned by AEI Net Lease Income & Growth Fund XIX Limited Partnership and AEI Net Lease Income & Growth Fund XX Limited Partnership, affiliates of the Partnership. As of December 31, 1998, the Partnership owns a 27.0385% interest in a Champps Americana restaurant in Columbus, Ohio. The remaining interests in this property are owned by AEI Real Estate Fund XVIII Limited Partnership, an affiliate of the Partnership, and unrelated third parties. The Partnership owns a 49.6% interest in a Champps Americana restaurant in Schaumburg, Illinois. The remaining interests in this property are owned by Net Lease Income & Growth Fund 84-A Limited Partnership and AEI Net Lease Income & Growth Fund XX Limited Partnership, affiliates of the Partnership. The Partnership owns a 25.0% interest in a Champps Americana restaurant in Centerville, Ohio. The remaining interests in this property are owned by AEI Real Estate Fund XVII Limited Partnership, AEI Real Estate Fund XVIII Limited Partnership and AEI Income & Growth Fund XXII Limited Partnership, affiliates of the Partnership. AEI, AFM and AEI Securities, Inc. (ASI) (formerly AEI Incorporated) received the following compensation and reimbursements for costs and expenses from the Partnership: Total Incurred by the Partnership for the Years Ended December 31 1998 1997 a.AEI and AFM are reimbursed for all costs incurred in connection with managing the Partnership's operations, maintaining the Partnership's books and communicating the results of operations to the Limited Partners. $ 248,958 $ 233,717 ======== ======== AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (3) Related Party Transactions - (Continued) Total Incurred by the Partnership for the Years Ended December 31 1998 1997 b.AEI and AFM are reimbursed for all direct expenses they have paid on the Partnership's behalf to third parties. These expenses included printing costs, legal and filing fees, direct administrative costs, outside audit and accounting costs, taxes, insurance and other property costs. $ 107,932 $ 115,217 ======== ======== c.AEI is reimbursed for all property acquisition costs incurred by it in acquiring properties on behalf of the Partnership. The amounts are net of financing and commitment fees and expense reimbursements received by the Partnership from the lessees in the amount of $58,649 and $112,388 for 1998 and 1997, respectively. $ (14,854) $ 65,970 ======== ======== d.ASI was the underwriter of the Partnership offering. Robert P. Johnson is the sole stockholder of ASI, which is a member of the National Association of Securities Dealers, Inc. ASI received, as underwriting commissions, 8% for sale of certain subscription Units ($80 per unit sold, of which it re-allowed up to $80 per unit to other participating broker/dealers). ASI also received a 2% non- accountable expense allowance for all Units it sold through broker/dealers. These costs are treated as a reduction of partners' capital. $ 0 $ 43,665 ======== ======== e.AEI is reimbursed for all costs incurred in connection with managing the Partnership's offering and organization. $ 0 $ 9,104 ======== ======== AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (3) Related Party Transactions - (Continued) Total Incurred by the Partnership for the Years Ended December 31 1998 1997 f.AEI is reimbursed for all expenses it has paid on the Partnership's behalf relating to the offering and organization of the Partnership. These expenses included printing costs, legal and filing fees, direct administrative costs, underwriting costs and due diligence fees. $ 0 $ (24,759) ======== ======== The payable to AEI Fund Management, Inc. represents the balance due for the services described in 3a, b, c, e and f. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business. (4) Investments in Real Estate - The Partnership leases its properties to various tenants through triple net leases, which are classified as operating leases. Under a triple net lease, the lessee is responsible for all real estate taxes, insurance, maintenance, repairs and operating expenses of the property. The initial Lease terms are 20 years except for the Caribou Coffee , which is 18 years, and the Media Play retail store discussed below. The Leases contain renewal options which may extend the Lease term an additional 10 years for the Arby's and Caribou Coffee store, an additional 15 years for the Denny's and Champps Americana restaurants and 25 years for the Garden Ridge retail store. The Leases contain rent clauses which entitle the Partnership to receive additional rent in future years based on stated rent increases. Certain lessees have been granted options to purchase the property. Depending on the lease, the purchase price is either determined by a formula, or is the greater of the fair market value of the property or the amount determined by a formula. In all cases, if the option were to be exercised by the lessee, the purchase price would be greater than the original cost of the property. The Partnership's properties are commercial, single-tenant buildings. The Arby's restaurant and Media Play were constructed and acquired in 1995. The Champps Americana restaurant in Livonia, Michigan was constructed and acquired in 1998. The land for the Champps Americana restaurant in Centerville, Ohio was acquired in 1998 and construction of the restaurant will be completed in 1999. The remaining properties were constructed and acquired in 1996 or 1997. There have been no costs capitalized as improvements subsequent to the acquisitions. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (4) Investments in Real Estate - (Continued) The cost of the property and related accumulated depreciation at December 31, 1998 are as follows: Buildings and Accumulated Property Land Equipment Total Depreciation Arby's, Montgomery, AL $ 328,310 $ 425,794 $ 754,104 $ 61,030 Media Play, Apple Valley, MN 239,690 594,170 833,860 107,964 Garden Ridge, Pineville, NC 1,181,253 2,463,138 3,644,391 270,945 Champps Americana, Columbus, OH 242,937 478,440 721,377 50,240 Denny's, Covington, LA 532,844 772,104 1,304,948 62,959 Caribou Coffee, Charlotte, NC 705,394 605,204 1,310,598 36,830 Champps Americana, San Antonio, TX 1,127,016 1,706,341 2,833,357 83,585 Champps Americana, Schaumburg, IL 959,278 1,297,184 2,256,462 57,703 Champps Americana, Livonia, MI 1,142,415 3,007,646 4,150,061 85,549 Champps Americana, Centerville, OH 462,747 0 462,747 0 ----------- ----------- ----------- ---------- $ 6,921,884 $11,350,021 $18,271,905 $ 816,805 =========== =========== =========== ========== On December 21, 1995, the Partnership purchased a 34.0% interest in a Media Play retail store in Apple Valley, Minnesota for $1,414,060. The property was leased to The Musicland Group, Inc. (MGI) under a Lease Agreement with a primary term of 18 years and annual rental payments of $139,587. In December, 1996, the Partnership and MGI reached an agreement in which MGI would buy out and terminate the Lease Agreement by making a payment of $800,000, which was equal to approximately two years' rent. The Partnership's share of such payment was $272,000. Under the Agreement, MGI remained in possession of the property and performed all of its obligations under the net lease agreement through January 31, 1997 at which time it vacated the property and made it available for re-let to another tenant. MGI was responsible for all maintenance and management costs of the property through January 31, 1997 after which date the Partnership became responsible for its share of expenses associated with the property until it is re-let or sold. A specialist in commercial property leasing has been retained to locate a new tenant for the property. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (4) Investments in Real Estate - (Continued) As of December 31, 1997, based on an analysis of market conditions in the area, it was determined the fair value of the Partnership's interest in the Media Play was approximately $748,000. In the fourth quarter of 1997, a charge to operations for real estate impairment of $580,200 was recognized, which is the difference between the book value at December 31, 1997 of $1,328,200 and the estimated market value of $748,000. The charge was recorded against the cost of the land, building and equipment. On March 14, 1997, the Partnership purchased a parcel of land in San Antonio, Texas for $1,032,299. The land is leased to Champps Americana, Inc. (Champps) under a Lease Agreement with a primary term of 20 years and annual rental payments of $83,451. Effective September 9, 1997, the annual rent was increased to $128,156. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective September 9, 1997, the interest rate was increased to 10.75%. On December 23, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $296,023. Total acquisition costs, including the cost of the land, were $2,833,357. On March 19, 1997, the Partnership purchased a Denny's restaurant in Covington, Louisiana for $1,304,948. The property is leased to Huntington Restaurants Group, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $141,243. On April 21, 1997, the Partnership purchased a 49.6% interest in a parcel of land in Schaumburg, Illinois for $876,387. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $66,906. Effective October 17, 1997, the annual rent was increased to $102,749. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective October 17, 1997, the interest rate was increased to 10.75%. On December 31, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $236,479. The Partnership's share of the total acquisition costs, including the cost of the land, was $2,256,462. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (4) Investments in Real Estate - (Continued) On July 8, 1997, the Partnership purchased a parcel of land in Livonia, Michigan for $1,074,384. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $75,207. Effective January 3, 1998, the annual rent was increased to $115,496. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective January 3, 1998, the interest rate was increased to 10.75%. On May 19, 1998, after the development was completed, the Lease Agreement was amended to require annual rental payments of $429,135. Total acquisition costs, including the cost of the land, were $4,150,061. On July 31, 1997, the Partnership purchased a 93.1% interest in a Caribou Coffee store in Charlotte, North Carolina for $1,310,598. The property is leased to Caribou Coffee Company, Inc. under a Lease Agreement with a primary term of 18 years and annual rental payments of $146,438. On August 28, 1998, the Partnership purchased a 25% interest in a parcel of land in Centerville, Ohio for $462,747. The land is leased to Americana Dining Corporation (ADC) under a Lease Agreement with a primary term of 20 years and annual rental payments of $32,392. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership will advance funds to ADC for the construction of a Champps Americana restaurant on the site. Through December 31, 1998, the Partnership had advanced $289,014 for the construction of the property and was charging interest on the advances at a rate of 7%. Effective December 25, 1998, the interest rate was increased to 10.5%. On January 27, 1999, after the development was completed, the Lease Agreement was amended to require annual rental payments of $101,365. The Partnership's share of the total acquisition costs, including the cost of the land, was approximately $984,500. Through December 31, 1998, the Partnership sold 40.7615% of its interest in the Champps Americana restaurant in Columbus, Ohio, in six separate transactions to unrelated third parties. The Partnership received total net sale proceeds of $1,383,508 which resulted in a total net gain of $341,928. The total cost and related accumulated depreciation of the interests sold was $1,087,502 and $45,922, respectively. For the years ended December 31, 1998 and 1997, the net gain was $235,377 and $106,551, respectively. During 1998 and 1997, the Partnership distributed net sale proceeds of $411,231 and $352,009 to the Limited and General Partners as part of their regular quarterly distributions which represented a return of capital of $17.09 and $14.57 per Limited Partnership Unit, respectively. The remaining net sale proceeds were reinvested in additional property. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (4) Investments in Real Estate - (Continued) The Partnership has incurred net costs of $433,447 relating to the review of potential property acquisitions. Of these costs, $422,665 have been capitalized and allocated to land, building and equipment. The remaining costs of $10,782 have been capitalized and will be allocated to properties acquired subsequent to December 31, 1998. The minimum future rentals on the Leases for years subsequent to December 31, 1998 are as follows: 1999 $ 1,845,028 2000 1,849,070 2001 1,853,185 2002 1,857,374 2003 1,861,638 Thereafter 24,968,567 ----------- $34,234,862 =========== There were no contingent rents recognized in 1998 or 1997. (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: 1998 1997 Tenants Industry Champps Americana Group Restaurant $ 949,723 $ 357,559 Garden Ridge, L.P. Retail 383,973 383,973 Huntington Restaurants Group, Inc. Restaurant N/A 110,868 ---------- ---------- Aggregate rent revenue of major tenants $1,333,696 $ 852,400 ========== ========== Aggregate rent revenue of major tenants as a percentage of total rent revenue 78% 85% ========== ========== AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (6) Partners' Capital - Cash distributions of $19,091 and $17,788 were made to the General Partners and $1,890,001 and $1,761,087 were made to the Limited Partners for the years ended December 31, 1998 and 1997, respectively. The Limited Partners' distributions represent $79.32 and $73.62 per Limited Partnership Unit outstanding using 23,829 and 23,921 weighted average Units in 1998 and 1997, respectively. The distributions represent $53.36 and $11.59 per Unit of Net Income and $25.96 and $62.03 per Unit of return of contributed capital in 1998 and 1997, respectively. As part of the Limited Partner distributions discussed above, the Partnership distributed $407,119 and $348,489 of proceeds from property sales in 1998 and 1997, respectively. Distributions of Net Cash Flow to the General Partners during 1998 and 1997 were subordinated to the Limited Partners as required in the Partnership Agreement. As a result, 99% of distributions and income were allocated to the Limited Partners and 1% to the General Partners. The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership is not obligated to purchase in any year more than 5% of the number of Units outstanding at the beginning of the year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During 1998, the Partnership did not redeem any Units from the Limited Partners. In 1997, three Limited Partners redeemed a total of 171.1 Partnership Units for $154,021 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. After the effect of redemptions, the Adjusted Capital Contribution, as defined in the Partnership Agreement, is $1,007.18 per original $1,000 invested. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (7) Income Taxes - The following is a reconciliation of net income for financial reporting purposes to income reported for federal income tax purposes for the years ended December 31: 1998 1997 Net Income for Financial Reporting Purposes $ 1,284,428 $ 439,239 Depreciation for Tax Purposes Under Depreciation for Financial Reporting Purposes 122,145 74,859 Amortization of Start-Up and Organization Costs (67,172) (50,373) Real Estate Impairment Loss Not Recognized for Tax Purposes 0 580,200 Gain on Sale of Real Estate for Tax Purposes Under Gain for Financial Reporting Purposes (5,937) (3,952) ----------- ----------- Taxable Income to Partners $ 1,333,464 $ 1,039,973 =========== =========== AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (7) Income Taxes - (Continued) The following is a reconciliation of Partners' capital for financial reporting purposes to Partners' capital reported for federal income tax purposes for the years ended December 31: 1998 1997 Partners' Capital for Financial Reporting Purposes $17,823,287 $18,447,951 Adjusted Tax Basis of Investments in Real Estate Over Net Investments in Real Estate for Financial Reporting Purposes 814,732 698,524 Capitalized Start-Up Costs Under Section 195 329,865 329,865 Amortization of Start-Up and Organization Costs (130,803) (63,631) Organization and Syndication Costs Treated as Reduction of Capital for Financial Reporting Purposes 3,214,043 3,214,043 ----------- ----------- Partners' Capital for Tax Reporting Purposes $22,051,124 $22,626,752 =========== =========== AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (8) Fair Value of Financial Instruments - The estimated fair values of the financial instruments, none of which are held for trading purposes, for the years ended December 31: 1998 1997 Carrying Fair Carrying Fair Amount Value Amount Value Cash $ 195 $ 195 $ 188 $ 188 Money Market Funds 557,451 557,451 267,421 267,421 Commercial Paper (held to maturity) 0 0 2,239,181 2,239,181 ---------- ---------- ---------- ---------- Total Cash and Cash Equivalents $ 557,646 $ 557,646 $2,506,790 $2,506,790 ========== ========== ========== ========== The amortized cost basis of the commercial paper is not materially different from its carrying amount or fair value. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The registrant is a limited partnership and has no officers, directors, or direct employees. The General Partners of the registrant are Robert P. Johnson and AFM. The General Partners manage and control the Partnership's affairs and have general responsibility and the ultimate authority in all matters affecting the Partnership's business. The director and officers of AFM are as follows: Robert P. Johnson, age 54, is Chief Executive Officer, President and Director and has held these positions since the formation of AFM in August, 1994, and has been elected to continue in these positions until December, 1999. From 1970 to the present, he had been employed exclusively in the investment industry, specializing in tax-advantaged limited partnership investments. In that capacity, he has been involved in the development, analysis, marketing and management of public and private investment programs investing in net lease properties as well as public and private investment programs investing in energy development. Since 1971, Mr. Johnson has been the president, a director and a registered principal of AEI Securities, Inc. (formerly AEI Incorporated), which is registered with the Securities and Exchange Commission as a securities broker-dealer, is a member of the National Association of Securities Dealers, Inc. (NASD) and is a member of the Security Investors Protection Corporation (SIPC). Mr. Johnson has been president, a director and the principal shareholder of AEI Fund Management, Inc., a real estate management company founded by him, since 1978. Mr. Johnson is currently a general partner or principal of the general partner in seventeen other limited partnerships. Mark E. Larson, age 46, is Executive Vice President, Secretary, Treasurer and Chief Financial Officer and has held these positions since the formation of AFM in August, 1994, and has been elected to continue in these positions until December, 1999. Mr. Larson has been employed by AEI Fund Management, Inc. and affiliated entities since 1985. From 1979 to 1985, Mr. Larson was with Apache Corporation as manager of Program Accounting responsible for the accounting and reports for approximately 46 public partnerships. Mr. Larson is responsible for supervising the accounting functions of AFM and the registrant. ITEM 10. EXECUTIVE COMPENSATION. The General Partner and affiliates are reimbursed at cost for all services performed on behalf of the registrant and for all third party expenses paid on behalf of the registrant. The cost for services performed on behalf of the registrant is actual time spent performing such services plus an overhead burden. These services include organizing the registrant and arranging for the offer and sale of Units, reviewing properties for acquisition and rendering administrative and management services. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth information pertaining to the ownership of the Units by each person known by the Partnership to beneficially own 5% or more of the Units, by each General Partner, and by each officer or director of the Managing General Partner as of February 28, 1999: Name and Address Number of Percent of Beneficial Owner Units Held of Class AEI Fund Management XXI, Inc. 0 0% 1300 Minnesota World Trade Center 30 East 7th Street, St. Paul, Minnesota 55101 Robert P. Johnson 0 0% 1300 Minnesota World Trade Center 30 East 7th Street, St. Paul, Minnesota 55101 Mark E. Larson 0 0% 1300 Minnesota World Trade Center 30 East 7th Street, St. Paul, Minnesota 55101 The General Partners know of no holders of more than 5% of the outstanding Units. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The registrant, AFM and its affiliates have common management and utilize the same facilities. As a result, certain administrative expenses are allocated among these related entities. All of such activities and any other transactions involving the affiliates of the General Partner of the registrant are governed by, and are conducted in conformity with, the limitations set forth in the Limited Partnership Agreement of the registrant. The following table sets forth the forms of compensation, distributions and cost reimbursements paid by the registrant to the General Partners or their Affiliates in connection with the operation of the Fund and its properties for the period from inception through December 31, 1998. Person or Entity Amount Incurred From Receiving Form and Method Inception (August 31, 1994) Compensation of Compensation To December 31, 1998 AEI Securities, Inc. Selling Commissions equal to 8% $2,400,000 of proceeds plus a 2% nonaccountable expense allowance, most of which was reallowed to Participating Dealers. General Partners and Reimbursement at Cost for other $ 877,000 Affiliates Organization and Offering Costs. General Partners and Reimbursement at Cost for all $ 433,447 Affiliates Acquisition Expenses ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. (Continued) Person or Entity Amount Incurred From Receiving Form and Method Inception (August 31, 1994) Compensation of Compensation To December 31, 1998 General Partners 1% of Net Cash Flow in any fiscal $ 48,780 year until the Limited Partners have received annual, non-cumulative distributions of Net Cash Flow equal to 10% of their Adjusted Capital Contributions and 10% of any remaining Net Cash Flow in such fiscal year. General Partners and Reimbursement at Cost for all $ 874,116 Affiliates Administrative Expenses attributable to the Fund, including all expenses related to management and disposition of the Fund's properties and all other transfer agency, reporting, partner relations and other administrative functions. General Partners 1% of distributions of Net Proceeds $ 7,632 of Sale until Limited Partners have received an amount equal to (a) their Adjusted Capital Contributions, plus (b) an amount equal to 12% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously distributed. 10% of distributions of Net Proceeds of Sale thereafter. The limitations included in the Partnership Agreement require that the cumulative reimbursements to the General Partners and their affiliates for administrative expenses not allowed under the NASAA Guidelines ("Guidelines") will not exceed the sum of (i) the front-end fees allowed by the Guidelines less the front-end fees paid, (ii) the cumulative property management fees allowed but not paid, (iii) any real estate commission allowed under the Guidelines, and (iv) 10% of Net Cash Flow less the Net Cash Flow actually distributed. The reimbursements not allowed under the guidelines include a controlling person's salary and fringe benefits, rent and depreciation. As of December 31, 1998, the cumulative reimbursements to the General Partners and their affiliates did not exceed these amounts. PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. A. Exhibits - Description 3.1 Certificate of Limited Partnership (incorporated by reference to Exhibit 3.1 of the registrant's Registration Statement on Form SB-2 filed with the Commission on October 10, 1994 [File No. 33-85076C]). ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued) A. Exhibits - Description 3.2 Restated Limited Partnership Agreement to the Prospectus (incorporated by reference to Exhibit A of Amendment No. 2 of the registrant's Registration Statement on Form SB-2 filed with the Commission on January 20, 1995 [File No. 33- 85076C]). 10.1 Net Lease Agreement dated May 31, 1995, between the Partnership and RTM Gulf Coast, Inc., relating to the property at 2719 Zelda Road, Montgomery, Alabama (incorporated by reference to Exhibit A of Form 8-K filed with the Commission on June 14, 1995). 10.2 Net Lease Agreement dated August 2, 1995, between TKC X, LLC and Garden Ridge, Inc. relating to the property at 11415 Carolina Place Parkway, Pineville, North Carolina (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the Commission on April 10, 1996). 10.3 First Amendment to Lease Agreement dated March 1, 1996 between TKC X, LLC and Garden Ridge, L.P. relating to the property at 11415 Carolina Place Parkway, Pineville, North Carolina (incorporated by reference to Exhibit 10.2 of Form 8-K filed with the Commission on April 10, 1996). 10.4 Assignment and Assumption of Lease dated March 28, 1996 between the Partnership, AEI Net Lease Income & Growth Fund XIX Limited Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership, and TKC X, LLC relating to the property at 11415 Carolina Place Parkway, Pineville, North Carolina (incorporated by reference to Exhibit 10.3 of Form 8-K filed with the Commission on April 10, 1996). 10.5 Net Lease Agreement dated August 29, 1996 between the Partnership, AEI Real Estate Fund XVIII Limited Partnership and Americana Dining Corporation relating to the property at 161 E. Campus View Boulevard, Columbus, Ohio (incorporated by reference to Exhibit 10.3 of Form 8-K filed with the Commission on September 12, 1996). 10.6 Surrender and Termination of Lease Agreement dated November 22, 1996 between the Partnership, AEI Net Lease Income & Growth Fund XIX Limited Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership and The Musicland Group, Inc. relating to the property at 7370 W. 153rd Street, Apple Valley, Minnesota (incorporated by reference to Exhibit 10.19 of Form 10-KSB filed with the Commission on March 6, 1997). ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued) A. Exhibits - Description 10.7 Net Lease Agreement dated March 14, 1997 between the Partnership and Champps Entertainment of Texas, Inc. relating to the property at 11440 Interstate Highway 10, San Antonio, Texas (incorporated by reference to Exhibit 10.2 of Form 8-K filed with the Commission March 25, 1997). 10.8 Net Lease Agreement dated March 19, 1997 between the Partnership and Huntington Restaurants Group, Inc. relating to the property at 720 North Highway 190, Covington, Louisiana (incorporated by reference to Exhibit 10.6 of Form 8-K filed with the Commission March 25, 1997). 10.9 Development Financing Agreement dated April 21, 1997 between the Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership, Net Lease Income & Growth Fund 84-A Limited Partnership and Champps Americana, Inc. relating to the property at 955 Golf Road, Schaumburg, Illinois (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed with the Commission on May 13, 1997). 10.10 Net Lease Agreement dated April 21, 1997 between the Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership, Net Lease Income & Growth Fund 84-A Limited Partnership and Champps Americana, Inc. relating to the property at 955 Golf Road, Schaumburg, Illinois (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed with the Commission on May 13, 1997). 10.11 Development Financing Agreement dated July 8, 1997 between the Partnership and Champps Americana, Inc. relating to the property at 19470 Haggerty Road, Livonia, Michigan (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed with the Commission on August 5, 1997). 10.12 Net Lease Agreement dated July 8, 1997 between the Partnership and Champps Americana, Inc. relating to the property at 19470 Haggerty Road, Livonia, Michigan (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed with the Commission on August 5, 1997). 10.13 Net Lease Agreement dated July 31, 1997 between the Partnership and Caribou Coffee Company, Inc. relating to the property at East Boulevard and Garden Terrace, Charlotte, North Carolina (incorporated by reference to Exhibit 10.3 of Form 10-QSB filed with the Commission on August 5, 1997). ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued) A. Exhibits - Description 10.14 Purchase Agreement dated September 12, 1997 between the Partnership and the Ainslie Living Trust relating to the property at 161 E. Campus View Boulevard, Columbus, Ohio (incorporated by reference to Exhibit 10.21 of Form 10-KSB filed with the Commission on March 16, 1998). 10.15 Purchase Agreement dated September 16, 1997 between the Partnership and Richard J. Abbott and Marjory T. Abbott relating to the property at 161 E. Campus View Boulevard, Columbus, Ohio (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed with the Commission on November 4, 1997). 10.16 Purchase Agreement dated December 15, 1997 between the Partnership and James Edward Amend relating to the property at 161 E. Campus View Boulevard, Columbus, Ohio (incorporated by reference to Exhibit 10.23 of Form 10-KSB filed with the Commission on March 16, 1998). 10.17 First Amendment to Net Lease Agreement dated December 23, 1997 between the Partnership and Champps Entertainment of Texas, Inc. relating to the property at 11440 Interstate Highway 10, San Antonio, Texas (incorporated by reference to Exhibit 10.2 of Form 8-K filed with the Commission on January 5, 1998). 10.18 First Amendment to Net Lease Agreement dated December 31, 1997 between the Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership, Net Lease Income & Growth Fund 84-A, and Champps Americana, Inc. relating to the property at 955 Golf Road, Schaumburg, Illinois (incorporated by reference to Exhibit 10.2 of Form 8-K filed with the Commission on January 5, 1998). 10.19 Purchase Agreement dated February 13, 1998 between the Partnership and Edward C. and Virginia L. Thulin relating to the property at 161 E. Campus View Boulevard, Columbus, Ohio (incorporated by reference to Exhibit 10.26 of Form 10-KSB filed with the Commission on March 16, 1998). 10.20 Purchase Agreement dated March 24, 1998 between the Partnership and Carlos W. Appleton and Mary V. Appleton relating to the property at 161 E. Campus View Boulevard, Columbus, Ohio (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed with the Commission on May 12, 1998). ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued) A. Exhibits - Description 10.21 First Amendment to Net Lease Agreement dated May 19, 1998 between the Partnership and Champps Americana, Inc. relating to the property at 19470 Haggerty Road, Livonia, Michigan (incorporated by reference to Exhibit 10.2 of Form 8-K filed with the Commission on June 16, 1998). 10.22 Purchase Agreement dated July 28, 1998 between the Partnership and Tall Pines Farm Limited Partnership relating to the property at 161 E. Campus View Boulevard, Columbus, Ohio (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed with the Commission on November 9, 1998). 10.23 Assignment of the Development Financing Agreement and Net Lease Agreement dated August 27, 1998 between the Partnership, AEI Real Estate Fund XVII Limited Partnership, AEI Real Estate Fund XVIII Limited Partnership, AEI Income & Growth Fund XXII Limited Partnership, and Americana Dining Corporation relating to the property at 7880 Washington Village Drive, Centerville, Ohio (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed with the Commission on November 9, 1998). 10.24 Development Financing Agreement dated June 29, 1998 between AEI Income & Growth Fund XXII Limited Partnership and Americana Dining Corporation relating to the property at 7880 Washington Village Drive, Centerville, Ohio (incorporated by reference to Exhibit 10.3 of Form 10-QSB filed with the Commission on November 9, 1998). 10.25 Net Lease Agreement dated June 29, 1998 between AEI Income & Growth Fund XXII Limited Partnership and Americana Dining Corporation relating to the property at 7880 Washington Village Drive, Centerville, Ohio (incorporated by reference to Exhibit 10.4 of Form 10-QSB filed with the Commission on November 9, 1998). 10.26 First Amendment to Net Lease Agreement dated January 27, 1999 between the Partnership, AEI Real Estate Fund XVII Limited Partnership, AEI Real Estate Fund XVIII Limited Partnership, AEI Income & Growth Fund XXII Limited Partnership and Americana Dining Corp. relating to the property at 7880 Washington Village Drive, Centerville, Ohio. 27 Financial Data Schedule for year ended December 31, 1998. B. Reports on Form 8-K - None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AEI INCOME & GROWTH FUND XXI Limited Partnership By: AEI Fund Management XXI, Inc. Its Managing General Partner March 12, 1999 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 12, 1999 Robert P. Johnson and Sole Director of Managing General Partner /s/ Mark E. Larson Executive Vice President, Treasurer March 12, 1999 Mark E. Larson and Chief Financial Officer (Principal Accounting Officer) EX-10.26 2 FIRST AMENDMENT TO NET LEASE AGREEMENT THIS AMENDMENT TO NET LEASE AGREEMENT, made and entered into effective as of the 27th day of January, 1999, by and between AEI Income & Growth Fund XXII Limited Partnership, a Minnesota limited partnership whose corporate general partner is AEI Fund Management XXI, Inc., a Minnesota corporation ("Fund XXII"); AEI Income & Growth Fund XXI Limited Partnership, a Minnesota limited partnership whose corporate general partner is AEI Fund Management XXI, Inc., a Minnesota corporation ("Fund XXI"); AEI Real Estate Fund XVIII Limited Partnership, a Minnesota limited partnership whose corporate general partner is AEI Fund Management XVIII, Inc., a Minnesota corporation ("Fund XVIII"); and AEI Real Estate Fund XVII Limited Partnership, a Minnesota limited partnership whose corporate general partner is AEI Fund Management XVII, Inc., a Minnesota corporation ("Fund XVII"), all of whose principal business address is 1300 Minnesota World Trade Center, 30 East Seventh Street, St. Paul, Minnesota 55101 (hereinafter collectively referred to as "Lessor"), and Americana Dining Corp. (hereinafter referred to as "Lessee"), whose principal business address is One Corporate Place, 55 Ferncroft Road, Danvers, MA 01923; WITNESSETH: WHEREAS, Lessor is the fee owner of a certain parcel of real property and improvements located at Washington Village Drive, Dayton, Ohio, and legally described in Exhibit "A", which is attached hereto and incorporated herein by reference; and WHEREAS, Lessee has constructed the building and improvements (together the "Building") on the real property described in Exhibit "A", which Building is described in the plans and specifications heretofore submitted to Lessor; and WHEREAS, Lessee and Lessor Fund XXII have entered into that certain Net Lease Agreement dated June 29, 1998 (the "Lease") providing for the lease of said real property and Building (said real property and Building hereinafter referred to as the "Leased Premises"), from Lessor upon the terms and conditions therein provided in the Lease; Whereas, effective as of August 27, 1998, Lessor Fund XXII transferred for good value: a 25% undivided interest as tenant in common in the Leased Premises and the Lease to Fund XXI; a 38% undivided interest as tenant in common in the Leased Premises and the Lease to Fund XVIII; and a 14% undivided interest as tenant in common in the Leased Premises and the Lease to Fund XVII. NOW, THEREFORE, in consideration of the Rents, terms, covenants, conditions, and agreements hereinafter described to be paid, kept, and performed by Lessee, including the completion of the Building and other improvements constituting the Leased Premises, Lessee and Lessor do hereby agree to amend the Lease as follows: 1. Article 2(A) and (B) of the Lease shall henceforth read as follows: ARTICLE 2. TERM (A) The term of this Lease ("Term") shall be Twenty (20) consecutive "Lease Years", as hereinafter defined, commencing January 27th, 1999, plus the period commencing June 29, 1998 ("Occupancy Date") through January 31, 1999 with the contemplated initial term hereof ending on January 31, 2019. (B) The first full Lease Year shall commence on the date of this First Amendment and continue through January 31, 2000. 2. Article 4(A) of the Lease shall henceforth read as follows: ARTICLE 4. RENT PAYMENTS (A) Annual Rent Payable for the first and second Lease Years: Lessee shall pay to Lessor an annual Base Rent of $405,460.65, which amount shall be payable in advance on the first day of each month in equal monthly installments of $7,771.33 to Fund XXII, $8,447.10 to Fund XXI, $12,839.59 to Fund XVIII, and $ 4,730.37 to Fund XVII. If the first day of the first full Lease Year of the Lease Term is not the first day of a calendar month, then the monthly Rent payable for that partial month shall be a prorated portion of the equal monthly installment of Base Rent. Article 35 is hereby deleted in its entirety; Lessor and Lessee agree that the referenced Development Financing Agreement is terminated in accordance with its terms. All other terms and conditions of the Lease shall remain in full force and effect. Lessee has accepted delivery of the Leased Premises and has entered into occupancy thereof. Lessee has fully inspected the Premises and found the same to be as required by the Lease, in good order and repair, and all conditions under the Lease to be performed by the Lessor have been satisfied. As of this date, the Lessor is not in default under any of the terms, conditions, provisions or agreements of the Lease and the undersigned has no offsets, claims or defenses against the Lessor with respect to the Lease. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, Lessor and Lessee have respectively signed and sealed this Lease as of the day and year first above written. LESSEE: Americana Dining Corp., By: /s/ Donna Depoian Its: Secretary Attest /s/ Muriel Smith Muriel Smith Print Name Attest /s/ Cheryl N. Carver Cheryl N Carver Print Name STATE OF MASSACHUSETTS) )SS. COUNTY OF ESSEX) The foregoing instrument was acknowledged before me this 25th day of January 1999, by Donna Depoian, as Sectray of Americana Dining Corp. on behalf of said company. /S/ Donna M Luciano Notary Public [notary seal] [Remainder of page intentionally left blank] LESSOR: AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP By: AEI Fund Management XXI, Inc. Attest /s/ Rick J Vitale By: /s/ Robert P Johnson Rick J Vitale Robert P. Johnson, President Print Name Attest /s/ Stacey R.E. Jones Stacey R.E. Jones Print Name STATE OF MINNESOTA ) )SS. COUNTY OF RAMSEY ) The foregoing instrument was acknowledged before me the 26th day of January, 1999, by Robert P Johnson , the President of AEI Fund Management XXI, Inc., a Minnesota corporation, corporate general partner of AEI Income & Growth Fund XXII Limited Partnership, on behalf of said limited partnership. /s/ Barbara J Kochevar Notary Public [notary seal] [Remainder of page intentionally left blank] AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP By: AEI Fund Management XXI, Inc. Attest /s/ Rick J Vitale By: /s/ Robert P Johnson Rick J Vitale Robert P. Johnson, President Print Name Attest /s/ Stacey R.E. Jones Stacey R.E. Jones Print Name STATE OF MINNESOTA ) )SS. COUNTY OF RAMSEY ) The foregoing instrument was acknowledged before me the 26th day of January, 1999, by Robert P Johnson , the President of AEI Fund Management XXI, Inc., a Minnesota corporation, corporate general partner of AEI Income & Growth Fund XXI Limited Partnership, on behalf of said limited partnership. [Remainder of page intentionally left blank] AEI REAL ESTATE FUND XVIII LIMITED PARTNERSHIP By: AEI Fund Management XVIII, Inc. Attest /s/ Rick J Vitale By: /s/ Robert P Johnson Rick J Vitale Robert P. Johnson, President Print Name Attest /s/ Stacey R.E. Jones Stacey R.E. Jones Print Name STATE OF MINNESOTA ) )SS. COUNTY OF RAMSEY ) The foregoing instrument was acknowledged before me the 26th day of January, 1999, by Robert P Johnson , the President of AEI Fund Management XVIII, Inc., a Minnesota corporation, corporate general partner of AEI Real Estate Fund XVIII Limited Partnership, on behalf of said limited partnership. /s/ Barbars J Kochevar Notary Public [Remainder of page intentionally left blank] AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP By: AEI Fund Management XVII, Inc. Attest /s/ Rick J Vitale By: /s/ Robert P Johnson Rick J Vitale Robert P. Johnson, President Print Name Attest /s/ Stacey R.E. Jones Stacey R.E. Jones Print Name STATE OF MINNESOTA ) )SS. COUNTY OF RAMSEY ) The foregoing instrument was acknowledged before me the 26th day of January, 1999, by Robert P Johnson , the President of AEI Fund Management XVII, Inc., a Minnesota corporation, corporate general partner of AEI Real Estate Fund XVII Limited Partnership, on behalf of said limited partnership. /s/ Barbara J Kochevar Notary Public [Remainder of page intentionally left blank] LAWYERS TITLE INSURANCE CORPORATION EXHIBIT A 2507DC MF 94-676-303 Situate in the Township of Washington, County of Montgomery and State of Ohio and being Lot Numbered Twelve (12) Washington Village Park, Section 12, as recorded in Plat Book 155, page 50 of the plat records of Montgomery County, Ohio ("Lot 12"). Together with a perpetual, nonexclusive easement for vehicular ingress and egress on, over and across a certain 1.061 acre area, more or less known as Lot Numbered Thirteen (13) Washington Village Pare, Section Twelve, as recorded in Plat Book 156, Page 50 of the Plat Records of Montgomery County, Ohio ("Lot 13"), a private roadway presently known as Jdrexel Park Lane ("Roadway Easement Area"), to provde ingress and egress between the Premises and the public roadways presently know as Washington Village Drive and Lyons Road. EX-27 3
5 0000931755 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP 12-MOS DEC-31-1998 DEC-31-1998 557,646 0 16,052 0 0 573,698 18,571,701 (816,805) 18,328,594 505,307 0 0 0 0 17,823,287 18,328,594 0 1,854,751 0 805,700 0 0 0 1,284,428 0 1,284,428 0 0 0 1,284,428 53.36 53.36
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