10QSB 1 q211-06.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Quarter Ended: March 31, 2006 Commission file number: 0-29274 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP (Exact Name of Small Business Issuer as Specified in its Charter) State of Minnesota 41-1789725 (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101 (Address of Principal Executive Offices) (651) 227-7333 (Issuer's telephone number) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No [X] Transitional Small Business Disclosure Format: Yes No [X] AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP INDEX PART I. Financial Information Item 1. Balance Sheet as of March 31, 2006 and December 31, 2005 Statements for the Periods ended March 31, 2006 and 2005: Income Cash Flows Changes in Partners' Capital Notes to Financial Statements Item 2. Management's Discussion and Analysis Item 3. Controls and Procedures PART II. Other Information Item 1. Legal Proceedings Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits Signatures AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP BALANCE SHEET MARCH 31, 2006 AND DECEMBER 31, 2005 (Unaudited) ASSETS 2006 2005 CURRENT ASSETS: Cash and Cash Equivalents $ 653,794 $ 862,160 Receivables 1,231 2,232 Prepaid Expenses 2,553 0 ----------- ----------- Total Current Assets 657,578 864,392 ----------- ----------- INVESTMENTS IN REAL ESTATE: Land 5,766,615 5,766,615 Buildings and Equipment 11,488,937 11,488,937 Accumulated Depreciation (1,744,312) (1,630,529) ----------- ----------- 15,511,240 15,625,023 Real Estate Held for Sale 1,795,224 1,795,224 ----------- ----------- Net Investments in Real Estate 17,306,464 17,420,247 ----------- ----------- Total Assets $17,964,042 $18,284,639 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 74 $ 10,510 Distributions Payable 406,482 583,254 Unearned Rent 32,784 32,784 ----------- ----------- Total Current Liabilities 439,340 626,548 ----------- ----------- PARTNERS' CAPITAL: General Partners 12,815 14,148 Limited Partners, $1,000 per Unit; 24,000 Units authorized and issued; 22,802 Units outstanding 17,511,887 17,643,943 ----------- ----------- Total Partners' Capital 17,524,702 17,658,091 ----------- ----------- Total Liabilities and Partners'Capital $17,964,042 $18,284,639 =========== =========== 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 PERIODS ENDED MARCH 31 (Unaudited) 2006 2005 RENTAL INCOME $ 412,708 $ 358,625 EXPENSES: Partnership Administration - Affiliates 55,472 57,437 Partnership Administration and Property Management - Unrelated Parties 10,751 9,750 Depreciation 113,783 104,164 ----------- ----------- Total Expenses 180,006 171,351 ----------- ----------- OPERATING INCOME 232,702 187,274 OTHER INCOME: Interest Income 5,577 16,399 ----------- ----------- INCOME FROM CONTINUING OPERATIONS 238,279 203,673 Income from Discontinued Operations 37,418 27,177 ----------- ----------- NET INCOME $ 275,697 $ 230,850 =========== =========== NET INCOME ALLOCATED: General Partners $ 2,757 $ 2,309 Limited Partners 272,940 228,541 ----------- ----------- $ 275,697 $ 230,850 =========== =========== INCOME PER LIMITED PARTNERSHIP UNIT: Continuing Operations $ 10.35 $ 8.84 Discontinued Operations 1.62 1.18 ----------- ----------- Total $ 11.97 $ 10.02 =========== =========== Weighted Average Units Outstanding 22,802 22,819 =========== =========== 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 PERIODS ENDED MARCH 31 (Unaudited) 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 275,697 $ 230,850 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 113,783 114,399 Decrease in Receivables 1,001 0 Increase in Prepaid Expenses (2,553) 0 Decrease in Payable to AEI Fund Management, Inc. (10,436) (925) Increase in Unearned Rent 0 66,569 ----------- ----------- Total Adjustments 101,795 180,043 ----------- ----------- Net Cash Provided By Operating Activities 377,492 410,893 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate 0 (3,343,880) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in Distributions Payable (176,772) (606,060) Distributions to Partners (409,086) (409,091) ----------- ----------- Net Cash Used For Financing Activities (585,858) (1,015,151) ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (208,366) (3,948,138) CASH AND CASH EQUIVALENTS, beginning of period 862,160 5,295,303 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 653,794 $ 1,347,165 =========== =========== 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 PERIODS ENDED MARCH 31 (Unaudited) Limited Partnership General Limited Units Partners Partners Total Outstanding BALANCE, December 31, 2004 $ 25,818 $18,799,339 $18,825,157 22,819.45 Distributions (4,091) (405,000) (409,091) Net Income 2,309 228,541 230,850 -------- ----------- ----------- ---------- BALANCE, March 31, 2005 $ 24,036 $18,622,880 $18,646,916 22,819.45 ======== =========== =========== ========== BALANCE, December 31, 2005 $ 14,148 $17,643,943 $17,658,091 22,802.45 Distributions (4,090) (404,996) (409,086) Net Income 2,757 272,940 275,697 -------- ----------- ----------- ---------- BALANCE, March 31, 2006 $ 12,815 $17,511,887 $17,524,702 22,802.45 ======== =========== =========== ========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS MARCH 31, 2006 (Unaudited) (1) The condensed statements included herein have been prepared by the Partnership, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of operations for the interim period, on a basis consistent with the annual audited statements. The adjustments made to these condensed statements consist only of normal recurring adjustments. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Partnership believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the Partnership's latest annual report on Form 10-KSB. (2) 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. Robert P. Johnson, the President and sole director of AFM, serves as the Individual General Partner. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AEI Fund Management, Inc. (AEI), an affiliate of AFM, performs the administrative and operating functions for the Partnership. The terms of the Partnership offering called for a subscription price of $1,000 per Limited Partnership Unit, payable on acceptance of the offer. The Partnership commenced operations on April 14, 1995 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. On January 31, 1997, the offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units 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 operations, 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. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (2) Organization - (Continued) Any Net Proceeds of Sale, as defined, from the sale or financing of properties which the General Partners determine to distribute will, after provisions for debts and reserves, be paid in the following manner: (i) first, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 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. For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of property, will be allocated first in the same ratio in which, and to the extent, Net Cash Flow is distributed to the Partners for such year. Any additional profits will be allocated in the same ratio as the last dollar of Net Cash Flow is distributed. Net losses from operations will be allocated 99% to the Limited Partners and 1% to the General Partners. For tax purposes, profits arising from the sale, financing, or other disposition of property will be allocated in accordance with the Partnership Agreement as follows: (i) first, to those partners with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Partners and 1% to the General Partners until the aggregate balance in the Limited Partners' capital accounts equals the sum of the Limited Partners' Adjusted Capital Contributions plus an amount equal to 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. (3) Reclassification - Certain items in the prior year's financial statements have been reclassified to conform to 2006 presentation. These reclassifications had no effect on Partners' capital, net income or cash flows. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (4) Investments in Real Estate - In February 2005, Winn-Dixie Montgomery, Inc., the tenant of the Winn-Dixie store in Panama City, Florida, and its parent company, Winn-Dixie, Inc., filed for Chapter 11 bankruptcy reorganization. Rents are current and the Partnership expects to continue to receive all scheduled rents in future months unless the Lease is rejected by Winn-Dixie. If the Lease is affirmed, Winn-Dixie must comply with all Lease terms. If the Lease is rejected, Winn-Dixie would be required to return possession of the property to the Partnership and the Partnership would be responsible for real estate taxes and other costs associated with maintaining the property. The Partnership has evaluated the lease and property value and decided that there is no impairment loss at this time. At March 31, 2006, the book value of this property was $868,542. On January 14, 2005, the Partnership purchased a 40% interest in a Jared Jewelry store in Auburn Hills, Michigan for $1,466,048. The property is leased to Sterling Jewelers Inc. under a Lease Agreement with a remaining primary term of 15 years and annual rental payments of $102,520. The remaining interest in the property was purchased by AEI Income & Growth Fund 25 LLC, an affiliate of the Partnership. On March 18, 2005, the Partnership purchased a 20% interest in a CarMax auto superstore in Lithia Springs, Georgia for $1,885,231. The property is leased to CarMax Auto Superstores, Inc. under a Lease Agreement with a remaining primary term of 13.4 years and annual rental payments of $136,080. The remaining interests in the property were purchased by AEI Income & Growth Fund 24 LLC, AEI Income & Growth Fund 25 LLC and AEI Private Net Lease Millennium Fund Limited Partnership, affiliates of the Partnership. (5) Payable to AEI Fund Management, Inc. - AEI Fund Management, Inc. performs the administrative and operating functions for the Partnership. The payable to AEI Fund Management represents the balance due for those services. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business. (6) Discontinued Operations - Subsequent to March 31, 2006, the Partnership sold 14.8234% of the Eckerd drug store in Utica, New York, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of approximately $827,000, which resulted in a net gain of approximately $161,700. The cost and related accumulated depreciation of the interests sold was $684,881 and $19,598, respectively. The Partnership is attempting to sell its remaining 25.1766% interest in the property. At March 31, 2006 and December 31, 2005, the property was classified as Real Estate Held for Sale with a book value of $1,795,224. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (6) Discontinued Operations - (Continued) During the first three months of 2006 and 2005, the Partnership distributed $19,606 and $63,841 of net proceeds from sales completed in 2004 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $0.85 and $2.77 per Limited Partnership Unit, respectively. The Partnership anticipates the remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. The financial results for these properties are reflected as Discontinued Operations in the accompanying financial statements. The following are the results of discontinued operations for the three months ended March 31: 2006 2005 Rental Income $ 37,418 $ 37,418 Property Management Expenses 0 (6) Depreciation 0 (10,235) --------- --------- Income from Discontinued Operations $ 37,418 $ 27,177 ========= ========= ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS The 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 the Partners; resolution by the General Partners of conflicts with which they may be confronted; the success of the General Partners of locating properties with favorable risk return characteristics; ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) the effect of tenant defaults; and the condition of the industries in which the tenants of properties owned by the Partnership operate. The Application of Critical Accounting Policies The preparation of the Partnership's financial statements requires management to make estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management evaluates these estimates on an ongoing basis, including those related to the carrying value of real estate and the allocation by AEI Fund Management, Inc. of expenses to the Partnership as opposed to other funds they manage. The Partnership purchases properties and records them in the financial statements at the lower of cost or estimated realizable value. The Partnership initially records the properties at cost (including capitalized acquisition expenses). The Partnership is required to periodically evaluate the carrying value of properties to determine whether their realizable value has declined. For properties the Partnership will hold and operate, management determines whether impairment has occurred by comparing the property's probability-weighted cash flows to its current carrying value. For properties held for sale, management determines whether impairment has occurred by comparing the property's estimated fair value less cost to sell to its current carrying value. If the carrying value is greater than the realizable value, an impairment loss is recorded to reduce the carrying value of the property to its realizable value. A change in these assumptions or analysis could cause material changes in the carrying value of the properties. AEI Fund Management, Inc. allocates expenses to each of the funds they manage primarily on the basis of the number of hours devoted by their employees to each fund's affairs. They also allocate expenses at the end of each month that are not directly related to a fund's operations based upon the number of investors in the fund and the fund's capitalization relative to other funds they manage. The Partnership reimburses these expenses subject to detailed limitations contained in the Partnership Agreement. Management of the Partnership has discussed the development and selection of the above accounting estimates and the management discussion and analysis disclosures regarding them with the managing partner of the Partnership. Results of Operations For the three months ended March 31, 2006 and 2005, the Partnership recognized rental income from continuing operations of $412,708 and $358,625, respectively. In 2006, rental income increased due to additional rent received from two property acquisitions in 2005, rent increases on two properties and income received from a permanent easement on one property. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) For the three months ended March 31, 2006 and 2005, the Partnership incurred Partnership administration expenses from affiliated parties of $55,472 and $57,437, respectively. These administration expenses include costs associated with the management of the properties, processing distributions, reporting requirements and correspondence to the Limited Partners. During the same periods, the Partnership incurred Partnership administration and property management expenses from unrelated parties of $10,751 and $9,750, respectively. These expenses represent direct payments to third parties for legal and filing fees, direct administrative costs, outside audit costs, taxes, insurance and other property costs. For the three months ended March 31, 2006 and 2005, the Partnership recognized interest income of $5,577 and $16,399, respectively. In 2006, interest income decreased due to the Partnership having less money invested in a money market account due to property acquisitions. In February 2005, Winn-Dixie Montgomery, Inc., the tenant of the Winn-Dixie store in Panama City, Florida, and its parent company, Winn-Dixie, Inc., filed for Chapter 11 bankruptcy reorganization. Rents are current and the Partnership expects to continue to receive all scheduled rents in future months unless the Lease is rejected by Winn-Dixie. If the Lease is affirmed, Winn-Dixie must comply with all Lease terms. If the Lease is rejected, Winn-Dixie would be required to return possession of the property to the Partnership and the Partnership would be responsible for real estate taxes and other costs associated with maintaining the property. The Partnership has evaluated the lease and property value and decided that there is no impairment loss at this time. At March 31, 2006, the book value of this property was $868,542. In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, upon complete disposal of a property or classification of a property as Real Estate Held for Sale, the Partnership includes the operating results and sale of the property in discontinued operations. In addition, the Partnership reclassifies the prior periods operating results and any partial sales of the property to discontinued operations. For the three months ended March 31, 2006, the Partnership recognized income from discontinued operations of $37,418, representing rental income. For the three months ended March 31, 2005, the Partnership recognized income from discontinued operations of $27,177, representing rental income less property management expenses and depreciation. Subsequent to March 31, 2006, the Partnership sold 14.8234% of the Eckerd drug store in Utica, New York, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of approximately $827,000, which resulted in a net gain of approximately $161,700. The cost and related accumulated depreciation of the interests sold was $684,881 and $19,598, respectively. The Partnership is attempting to sell its remaining 25.1766% interest in the property. At March 31, 2006 and December 31, 2005, the property was classified as Real Estate Held for Sale with a book value of $1,795,224. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) Inflation has had a minimal effect on income from operations. Leases may contain rent increases, based on the increase in the Consumer Price Index over a specified period, which will result in an increase in rental income over the term of the leases. In addition, leases may contain rent clauses which entitle the Partnership to receive additional rent in future years if gross receipts for the property exceed certain specified amounts. Increases in sales volumes of the tenants, due to inflation and real sales growth, may result in an increase in rental income over the term of the leases. Inflation also may cause the real estate to appreciate in value. However, inflation and changing prices may have an adverse impact on the operating margins of the properties' tenants, which could impair their ability to pay rent and subsequently reduce the Net Cash Flow available for distributions. Liquidity and Capital Resources During the three months ended March 31, 2006, the Partnership's cash balances decreased $208,366 as a result of distributions paid to the Partners in excess of cash generated from operating activities. During the three months ended March 31, 2005, the Partnership's cash balances decreased $3,948,138 as a result of cash used to purchase property and distributions paid to the Partners in excess of cash generated from operating activities. Net cash provided by operating activities decreased from $410,893 in 2005 to $377,492 in 2006 as a result of net timing differences in the collection of payments from the tenants and the payment of expenses, which were partially offset by an increase in total rental and interest income in 2006 and a decrease in Partnership administration and property management expenses in 2006. The major components of the Partnership's cash flow from investing activities are investments in real estate and proceeds from the sale of real estate. During the three months ended March 31, 2005, the Partnership expended $3,343,880 to invest in real properties (inclusive of acquisition expenses) as the Partnership reinvested cash generated from property sales in 2004. On January 14, 2005, the Partnership purchased a 40% interest in a Jared Jewelry store in Auburn Hills, Michigan for $1,466,048. The property is leased to Sterling Jewelers Inc. under a Lease Agreement with a remaining primary term of 15 years and annual rental payments of $102,520. The remaining interest in the property was purchased by AEI Income & Growth Fund 25 LLC, an affiliate of the Partnership. On March 18, 2005, the Partnership purchased a 20% interest in a CarMax auto superstore in Lithia Springs, Georgia for $1,885,231. The property is leased to CarMax Auto Superstores, Inc. under a Lease Agreement with a remaining primary term of 13.4 years and annual rental payments of $136,080. The remaining interests in the property were purchased by AEI Income & Growth Fund 24 LLC, AEI Income & Growth Fund 25 LLC and AEI Private Net Lease Millennium Fund Limited Partnership, affiliates of the Partnership. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) The Partnership's primary use of cash flow, other than investment in real estate, is distribution and redemption payments to Partners. The Partnership declares its regular quarterly distributions before the end of each quarter and pays the distribution in the first ten days 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. For the three months ended March 31, 2006 and 2005, the Partnership declared distributions of $409,086 and $409,091, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners. The Limited Partners received distributions of $404,996 and $405,000 and the General Partners received distributions of $4,090 and $4,091 for the periods, respectively. In September and December 2005, the Partnership declared special distributions of $303,030 and $176,768, respectively, of net sale proceeds, which resulted in a higher distribution payable at December 31, 2005. During the first three months of 2006 and 2005, the Partnership distributed $19,606 and $63,841 of net proceeds from sales completed in 2004 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $0.85 and $2.77 per Limited Partnership Unit, respectively. The Partnership anticipates the remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During 2005, four Limited Partners redeemed a total of 17 Partnership Units for $9,222 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. In prior years, a total of 54 Limited Partners redeemed 1,180.55 Partnership Units for $939,802. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. As a result of these redemption payments and pursuant to the Partnership Agreement, the General Partners received distributions of $93 in 2005. The continuing rent payments from the properties, together with cash generated from property sales, should be adequate to fund continuing distributions and meet other Partnership obligations on both a short-term and long-term basis. ITEM 3. CONTROLS AND PROCEDURES. (a) Evaluation of disclosure controls and procedures Under the supervision and with the participation of management, including its President and Chief Financial Officer, the Managing General Partner of the Partnership evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-14(c) under the Exchange Act). Based upon that evaluation, the President and Chief Financial Officer of the Managing General Partner concluded that, as of the end of the period covered by this report, the disclosure controls and procedures of the Partnership are adequately designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in applicable rules and forms. (b) Changes in internal controls There were no significant changes made in the Partnership's internal controls during the most recent period covered by this report that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1.LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Partnership is a party or of which the Partnership's property is subject. ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS (a) During the period covered by this report, the Partnership did not sell any equity securities that are not registered under the Securities Act of 1933. (b) Not applicable. (c) Pursuant to Section 7.7 of the Partnership Agreement, each Limited Partner has the right to present Units to the Partnership for purchase by submitting notice to the Managing General Partner during September of each year. The purchase price of the Units is based on a formula specified in the Partnership Agreement. Units tendered to the Partnership are redeemed on October 1st of each year subject to the following limitations. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During the period covered by this report, the Partnership did not purchase any Units. PART II - OTHER INFORMATION (Continued) ITEM 3.DEFAULTS UPON SENIOR SECURITIES None. ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5.OTHER INFORMATION None. ITEM 6.EXHIBITS 31.1 Certification of Chief Executive Officer of General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer of General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: May 5, 2006 AEI Income & Growth Fund XXI Limited Partnership By: AEI Fund Management XXI, Inc. Its: Managing General Partner By: /s/ Robert P Johnson Robert P. Johnson President (Principal Executive Officer) By: /s/ Patrick W Keene Patrick W. Keene Chief Financial Officer (Principal Accounting Officer)