-----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, JY715ljMLXhQtquqGOfO2EYuw35JRJ8p4MBnDaPBmHhcji9s4QeBbJP3JTZk75T1 SIOIzlXBkbRD1guxz31I9g== 0000819577-08-000074.txt : 20081113 0000819577-08-000074.hdr.sgml : 20081113 20081113125406 ACCESSION NUMBER: 0000819577-08-000074 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080930 FILED AS OF DATE: 20081113 DATE AS OF CHANGE: 20081113 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-85076 FILM NUMBER: 081183906 BUSINESS ADDRESS: STREET 1: 30 EAST 7TH ST SUITE 1300 CITY: ST PAUL STATE: MN ZIP: 55101 BUSINESS PHONE: 6512277333 MAIL ADDRESS: STREET 1: 30 EAST 7TH ST SUITE 1300 CITY: ST PAUL STATE: MN ZIP: 55101 10-Q 1 q213-08.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2008 Commission File Number: 000-29274 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP (Exact name of registrant 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 (Registrant's telephone number) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. [X] Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP INDEX Part I - Financial Information Item 1. Financial Statements: Balance Sheet as of September 30, 2008 and December 31, 2007 Statements for the Periods ended September 30, 2008 and 2007: Income Cash Flows Changes in Partners' Capital Notes to Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4T.Controls and Procedures Part II - Other Information Item 1. Legal Proceedings Item 1A.Risk Factors 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 SEPTEMBER 30, 2008 AND DECEMBER 31, 2007 ASSETS 2008 2007 CURRENT ASSETS: Cash and Cash Equivalents $ 4,001,754 $ 4,904,162 INVESTMENTS IN REAL ESTATE: Land 4,194,799 4,759,346 Buildings and Equipment 10,058,277 9,987,497 Accumulated Depreciation (1,423,719) (1,643,293) ----------- ----------- 12,829,357 13,103,550 Real Estate Held for Sale 1,212,625 159,557 ----------- ----------- Net Investments in Real Estate 14,041,982 13,263,107 ----------- ----------- Total Assets $18,043,736 $18,167,269 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 12,551 $ 4,976 Distributions Payable 352,283 381,193 Unearned Rent 36,420 36,286 ----------- ----------- Total Current Liabilities 401,254 422,455 ----------- ----------- PARTNERS' CAPITAL: General Partners 13,992 15,015 Limited Partners, $1,000 per Unit; 24,000 Units authorized and issued; 22,779 Units outstanding 17,628,490 17,729,799 ----------- ----------- Total Partners' Capital 17,642,482 17,744,814 ----------- ----------- Total Liabilities and Partners' Capital $18,043,736 $18,167,269 =========== =========== 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 SEPTEMBER 30 Three Months Ended Nine Months Ended 9/30/08 9/30/07 9/30/08 9/30/07 RENTAL INCOME $ 289,632 $ 223,256 $ 844,737 $ 663,712 EXPENSES: Partnership Administration - Affiliates 54,963 56,327 167,809 166,554 Partnership Administration and Property Management - Unrelated Parties 5,067 3,259 31,194 27,113 Depreciation 100,223 72,444 291,409 217,332 ---------- ---------- ---------- ---------- Total Expenses 160,253 132,030 490,412 410,999 ---------- ---------- ---------- ---------- OPERATING INCOME 129,379 91,226 354,325 252,713 OTHER INCOME: Interest Income 19,067 35,938 52,333 78,395 ---------- ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS 148,446 127,164 406,658 331,108 Income from Discontinued Operations 39,230 1,137,478 789,992 1,581,481 ---------- ---------- ---------- ---------- NET INCOME $ 187,676 $1,264,642 $1,196,650 $1,912,589 ========== ========== ========== ========== NET INCOME ALLOCATED: General Partners $ 1,877 $ 12,647 $ 11,967 $ 19,126 Limited Partners 185,799 1,251,995 1,184,683 1,893,463 ---------- ---------- ---------- ---------- $ 187,676 $1,264,642 $1,196,650 $1,912,589 ========== ========== ========== ========== INCOME PER LIMITED PARTNERSHIP UNIT: Continuing Operations $ 6.45 $ 5.52 $ 17.67 $ 14.38 Discontinued Operations 1.71 49.39 34.34 68.66 ---------- ---------- ---------- ---------- Total $ 8.16 $ 54.91 $ 52.01 $ 83.04 ========== ========== ========== ========== Weighted Average Units Outstanding 22,779 22,802 22,779 22,802 ========== ========== ========== ========== 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 NINE MONTHS ENDED SEPTEMBER 30 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 1,196,650 $ 1,912,589 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 331,106 342,047 Gain on Sale of Real Estate (635,909) (1,170,293) Increase (Decrease) in Payable to AEI Fund Management, Inc. 7,575 (46,155) Increase in Unearned Rent 134 1,045 ----------- ----------- Total Adjustments (297,094) (873,356) ----------- ----------- Net Cash Provided By Operating Activities 899,556 1,039,233 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (3,629,090) 0 Proceeds from Sale of Real Estate 3,155,018 3,889,014 ----------- ----------- Net Cash Provided By (Used For) Investing Activities (474,072) 3,889,014 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in Distributions Payable (28,910) (25,455) Distributions to Partners (1,298,982) (1,390,696) ----------- ----------- Net Cash Used For Financing Activities (1,327,892) (1,416,151) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (902,408) 3,512,096 CASH AND CASH EQUIVALENTS, beginning of period 4,904,162 1,588,082 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 4,001,754 $ 5,100,178 =========== =========== 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 NINE MONTHS ENDED SEPTEMBER 30 Limited Partnership General Limited Units Partners Partners Total Outstanding BALANCE, December 31, 2006 $ 11,566 $17,388,339 $17,399,905 22,802.45 Distributions (13,907) (1,376,789) (1,390,696) Net Income 19,126 1,893,463 1,912,589 -------- ----------- ----------- ---------- BALANCE, September 30, 2007 $ 16,785 $17,905,013 $17,921,798 22,802.45 ======== =========== =========== ========== BALANCE, December 31, 2007 $ 15,015 $17,729,799 $17,744,814 22,779.11 Distributions (12,990) (1,285,992) (1,298,982) Net Income 11,967 1,184,683 1,196,650 -------- ----------- ----------- ---------- BALANCE, September 30, 2008 $ 13,992 $17,628,490 $17,642,482 22,779.11 ======== =========== =========== ========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2008 (1) The condensed statements included herein have been prepared by the registrant, 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 registrant 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 registrant'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 related to discontinued operations in the prior period's financial statements have been reclassified to conform to 2008 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 - On January 31, 2008, the Partnership purchased a 54% interest in a Best Buy store in Eau Claire, Wisconsin for $3,629,090. The property is leased to Best Buy Stores, L.P. under a Lease Agreement with a remaining primary term of 10 years and initial annual rent of $256,001 for the interest purchased. The remaining interests in the property were purchased by AEI Income & Growth Fund 23 LLC and AEI Income & Growth Fund 26 LLC, affiliates of the Partnership. Subsequent to September 30, 2008, the Partnership purchased a 55% interest in a Fresenius Medical Center in Shreveport, Louisiana for approximately $1,340,000. The property is leased to Bio-Medical Applications of Louisiana, LLC, a subsidiary of Fresenius Medical Care Holdings, Inc., under a Lease Agreement with a remaining primary term of 9.8 years and initial annual rent of $102,520 for the interest purchased. The remaining interest in the property was purchased by AEI Income & Growth Fund 24 LLC, an affiliate of the Partnership. Subsequent to September 30, 2008, the Partnership issued a commitment to purchase a 63% interest in a parcel of land in Rapid City, South Dakota for approximately $598,500. Simultaneous with the purchase of the land, the Partnership will enter into a Development Financing Agreement under which the Partnership will advance funds to Brad and Dad, LLC for the construction of a Tractor Supply Company store on the site. The purchase price, including the cost of the land, will be approximately $1,915,000. The remaining interest in the property will be purchased by AEI Income & Growth Fund 27 LLC, an affiliate of the Partnership. The property is leased to Tractor Supply Company under a Lease Agreement with a primary term of 15 years and initial annual rent of $141,750 for the interest purchased. Pursuant to the Lease, the tenant will commence paying rent on the day the store opens for business, which is expected to be in May 2009. Pursuant to the development agreement, for the period from the day the land is purchased to the day that the tenant commences paying rent, Brad and Dad, LLC will pay the Partnership interest at a rate of 6.9% on the purchase price of the land and the amounts advanced for construction of the building. Pursuant to the Lease, any improvements to the land during the term of the Lease become the property 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. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (6) Discontinued Operations - During the first three months of 2007, the Partnership sold its remaining 10.0242% interest in the Eckerd drug store in Utica, New York, in two separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $509,303, which resulted in a net gain of $59,412. The cost and related accumulated depreciation of the interests sold was $463,144 and $13,253, respectively. On April 12, 2007, the Partnership sold 12.1042% of the KinderCare daycare center in Kimberly, Wisconsin to an unrelated third party. The Partnership received net sale proceeds of $236,188, which resulted in a net gain of $92,257. The cost and related accumulated depreciation of the interest sold was $164,404 and $20,473, respectively. On January 15, 2008, the Partnership sold its remaining 13.4184% interest in the KinderCare daycare center in Kimberly, Wisconsin to an unrelated third party. The Partnership received net sale proceeds of $258,749, which resulted in a net gain of $99,192. The cost and related accumulated depreciation of the interest sold was $182,253 and $22,696, respectively. At December 31, 2007, the property was classified as Real Estate Held for Sale with a book value of $159,557. On August 30, 2007, the Partnership sold the Champps Americana restaurant in San Antonio, Texas to the tenant. The Partnership received net sale proceeds of $3,143,523, which resulted in a net gain of $1,018,624. At the time of sale, the cost and related accumulated depreciation was $2,833,357 and $708,458, respectively. In March 2008, the Partnership entered into an agreement to sell the Johnny Carino's restaurant in Laredo, Texas to an unrelated third party. On May 15, 2008, the sale closed with the Partnership receiving net proceeds of $2,896,269, which resulted in a net gain of $536,717. At the time of sale, the cost and related accumulated depreciation was $2,605,079 and $245,527, respectively. The Partnership is attempting to sell the KinderCare daycare center in Ballwin, Missouri. At September 30, 2008, the property was classified as Real Estate Held for Sale with a book value of $1,212,625. During the first nine months of 2008 and 2007, the Partnership distributed net sale proceeds of $407,134 and $306,354 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $17.70 and $13.29 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. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (6) Discontinued Operations - (Continued) The financial results for these properties are reflected as Discontinued Operations in the accompanying financial statements. The following are the results of discontinued operations for the periods ended September 30: Three Months Ended Nine Months Ended 9/30/08 9/30/07 9/30/08 9/30/07 Rental Income $ 39,631 $ 157,895 $ 202,032 $ 539,358 Property Management Expenses (401) (1,094) (8,252) (3,455) Depreciation 0 (37,947) (39,697) (124,715) Gain on Disposal of Real Estate 0 1,018,624 635,909 1,170,293 -------- ---------- --------- ---------- Income from Discontinued Operations $ 39,230 $1,137,478 $ 789,992 $1,581,481 ======== ========== ========= ========== (7) Recently Issued Accounting Pronouncements - In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141(R) ("SFAS 141(R)"), Business Combinations. SFAS 141(R) requires, among other things, the expensing of acquisition- related transaction costs. Management anticipates that SFAS 141(R) will be effective for property acquisitions completed on or after January 1, 2009. Management is evaluating the effect that the adoption of SFAS 141(R) will have on the Partnership's results of operations, financial position, and the related disclosures. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 ("SFAS 157"), Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The statement is effective for (1) financial assets and liabilities in financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years and (2) certain non- financial assets and liabilities in financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. When testing for recoverability of properties under SFAS 144, Accounting for Impairment or Disposal of Long-Lived Assets, the provisions of this statement are used when comparing fair value to carrying value. Management is evaluating the effect that the adoption of SFAS 157 will have on the Partnership's results of operations, financial position, and the related disclosures. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This section contains "forward looking statements" which represent management's expectations or beliefs concerning future events, including statements regarding anticipated application of cash, expected returns from rental income, growth in revenue, the sufficiency of cash to meet operating expenses, rates of distribution, and other matters. These, and other forward looking statements, should be evaluated in the context of a number of factors that may affect the Partnership's financial condition and results of operations, including the following: Market and economic conditions which affect the value of the properties the Partnership owns and the cash from rental income such properties generate; the federal income tax consequences of rental income, deductions, gain on sales and other items and the effects of these consequences for the Partners; resolution by the General Partners of conflicts with which they may be confronted; the success of the General Partners of locating properties with favorable risk return characteristics; the effect of tenant defaults; and the condition of the industries in which the tenants of properties owned by the Partnership operate. 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 cost (including capitalized acquisition expenses). The Partnership anticipates that for acquisitions completed on or after January 1, 2009, acquisition- related transaction costs will be expensed as incurred as a result of the adoption of Statement of Financial Accounting Standards No. 141(R), Business Combinations. The Partnership tests long-lived assets for recoverability when events or changes in circumstances indicate that the carrying value may not be recoverable. For properties the Partnership will hold and operate, management determines whether impairment has occurred by comparing the property's probability-weighted 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. Changes in these assumptions or analysis may cause material changes in the carrying value of the properties. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) 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 nine months ended September 30, 2008 and 2007, the Partnership recognized rental income from continuing operations of $844,737 and $663,712, respectively. In 2008, rental income increased due to additional rent received from one property acquisition in 2008 and rent increases on three properties. For the nine months ended September 30, 2008 and 2007, the Partnership incurred Partnership administration expenses from affiliated parties of $167,809 and $166,554, 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 $31,194 and $27,113, 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 nine months ended September 30, 2008 and 2007, the Partnership recognized interest income of $52,333 and $78,395, respectively. Interest income decreased due to lower money market interest rates in 2008, when compared to the same period in 2007. 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 of the property to discontinued operations. For the nine months ended September 30, 2008, the Partnership recognized income from discontinued operations of $789,992, representing rental income less property management expenses and depreciation of $154,083 and gain on disposal of real estate of $635,909. For the nine months ended September 30, 2007, the Partnership recognized income from discontinued operations of $1,581,481, representing rental income less property management expenses and depreciation of $411,188 and gain on disposal of real estate of $1,170,293. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) During the first three months of 2007, the Partnership sold its remaining 10.0242% interest in the Eckerd drug store in Utica, New York, in two separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $509,303, which resulted in a net gain of $59,412. The cost and related accumulated depreciation of the interests sold was $463,144 and $13,253, respectively. On April 12, 2007, the Partnership sold 12.1042% of the KinderCare daycare center in Kimberly, Wisconsin to an unrelated third party. The Partnership received net sale proceeds of $236,188, which resulted in a net gain of $92,257. The cost and related accumulated depreciation of the interest sold was $164,404 and $20,473, respectively. On January 15, 2008, the Partnership sold its remaining 13.4184% interest in the KinderCare daycare center in Kimberly, Wisconsin to an unrelated third party. The Partnership received net sale proceeds of $258,749, which resulted in a net gain of $99,192. The cost and related accumulated depreciation of the interest sold was $182,253 and $22,696, respectively. At December 31, 2007, the property was classified as Real Estate Held for Sale with a book value of $159,557. On August 30, 2007, the Partnership sold the Champps Americana restaurant in San Antonio, Texas to the tenant. The Partnership received net sale proceeds of $3,143,523, which resulted in a net gain of $1,018,624. At the time of sale, the cost and related accumulated depreciation was $2,833,357 and $708,458, respectively. In March 2008, the Partnership entered into an agreement to sell the Johnny Carino's restaurant in Laredo, Texas to an unrelated third party. On May 15, 2008, the sale closed with the Partnership receiving net proceeds of $2,896,269, which resulted in a net gain of $536,717. At the time of sale, the cost and related accumulated depreciation was $2,605,079 and $245,527, respectively. The Partnership is attempting to sell the KinderCare daycare center in Ballwin, Missouri. At September 30, 2008, the property was classified as Real Estate Held for Sale with a book value of $1,212,625. 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. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) Liquidity and Capital Resources During the nine months ended September 30, 2008, the Partnership's cash balances decreased $902,408 as a result of cash used to purchase property and distributions paid to the Partners in excess of cash generated from operating activities, which were partially offset by cash generated from the sale of property. During the nine months ended September 30, 2007, the Partnership's cash balances increased $3,512,096 as a result of cash generated from the sale of property, which was partially offset by distributions paid to the Partners in excess of cash generated from operating activities. Net cash provided by operating activities decreased from $1,039,233 in 2007 to $899,556 in 2008 as a result of a decrease in total rental and interest income in 2008 and an increase in Partnership administration and property management expenses in 2008, which were partially offset by net timing differences in the collection of payments from the tenants and the payment of expenses. 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 nine months ended September 30, 2008 and 2007, the Partnership generated cash flow from the sale of real estate of $3,155,018 and $3,889,014, respectively. During the nine months ended September 30, 2008, the Partnership expended $3,629,090 to invest in real properties (inclusive of acquisition expenses) as the Partnership reinvested cash generated from property sales. On January 31, 2008, the Partnership purchased a 54% interest in a Best Buy store in Eau Claire, Wisconsin for $3,629,090. The property is leased to Best Buy Stores, L.P. under a Lease Agreement with a remaining primary term of 10 years and initial annual rent of $256,001 for the interest purchased. The remaining interests in the property were purchased by AEI Income & Growth Fund 23 LLC and AEI Income & Growth Fund 26 LLC, affiliates of the Partnership. Subsequent to September 30, 2008, the Partnership purchased a 55% interest in a Fresenius Medical Center in Shreveport, Louisiana for approximately $1,340,000. The property is leased to Bio-Medical Applications of Louisiana, LLC, a subsidiary of Fresenius Medical Care Holdings, Inc., under a Lease Agreement with a remaining primary term of 9.8 years and initial annual rent of $102,520 for the interest purchased. The remaining interest in the property was purchased by AEI Income & Growth Fund 24 LLC, an affiliate of the Partnership. Subsequent to September 30, 2008, the Partnership issued a commitment to purchase a 63% interest in a parcel of land in Rapid City, South Dakota for approximately $598,500. Simultaneous with the purchase of the land, the Partnership will enter into a Development Financing Agreement under which the Partnership will advance funds to Brad and Dad, LLC for the construction of a Tractor Supply Company store on the site. The purchase price, including the cost of the land, will be approximately $1,915,000. The remaining interest in the property will be purchased by AEI Income & Growth Fund 27 LLC, an affiliate of the Partnership. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) The property is leased to Tractor Supply Company under a Lease Agreement with a primary term of 15 years and initial annual rent of $141,750 for the interest purchased. Pursuant to the Lease, the tenant will commence paying rent on the day the store opens for business, which is expected to be in May 2009. Pursuant to the development agreement, for the period from the day the land is purchased to the day that the tenant commences paying rent, Brad and Dad, LLC will pay the Partnership interest at a rate of 6.9% on the purchase price of the land and the amounts advanced for construction of the building. Pursuant to the Lease, any improvements to the land during the term of the Lease become the property of the Partnership. The Partnership's primary use of cash flow, other than investment in real estate, is distribution and redemption payments to Partners. The Partnership declares its regular quarterly distributions before the end of each quarter and pays the distribution in the first week after the end of each quarter. The Partnership attempts to maintain a stable distribution rate from quarter to quarter. Redemption payments are paid to redeeming Partners in the fourth quarter of each year. For the nine months ended September 30, 2008 and 2007, the Partnership declared distributions of $1,298,982 and $1,390,696, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners. The Limited Partners received distributions of $1,285,992 and $1,376,789 and the General Partners received distributions of $12,990 and $13,907 for the periods, respectively. In 2008, distributions were lower due to a decrease in the regular distribution rate per Unit, effective January 1, 2008. In June and September 2007, the Partnership declared special distributions of net sale proceeds of $70,707 and $118,182, respectively. In March and June 2008, the Partnership declared special distributions of net sale proceeds of $58,586 and $176,768, respectively. During the first nine months of 2008 and 2007, the Partnership distributed net sale proceeds of $407,134 and $306,354 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $17.70 and $13.29 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. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) During 2008, the Partnership did not redeem any Units from the Limited Partners. During 2007, two Limited Partners redeemed a total of 23.34 Partnership Units for $9,445 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. In prior years, a total of 58 Limited Partners redeemed 1,197.55 Partnership Units for $949,024. 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 $96 in 2007. 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.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 4T. CONTROLS AND PROCEDURES. (a) Disclosure Controls and Procedures. Under the supervision and with the participation of management, including its President and Chief Financial Officer, the Managing General Partner of the Partnership evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based upon that evaluation, the President and Chief Financial Officer of the Managing General Partner concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to management, including the President and Chief Financial Officer of the Managing General Partner, in a manner that allows timely decisions regarding required disclosure. (b) Changes in Internal Control Over Financial Reporting. During the most recent period covered by this report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 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 1A. RISK FACTORS. Not applicable. ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. (a) None. (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. ITEM 3.DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5.OTHER INFORMATION. None. PART II - OTHER INFORMATION (Continued) 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 Pursuant to the requirements 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. Dated: November 7, 2008 AEI Income & Growth Fund XXI Limited Partnership By: AEI Fund Management XXI, Inc. Its: Managing General Partner By: ROBERT P JOHNSON ROBERT P JOHNSON President (Principal Executive Officer) By: PATRICK W KEENE PATRICK W KEENE Chief Financial Officer (Principal Accounting Officer) EX-31.1 3 ex31-1.txt Exhibit 31.1 CERTIFICATIONS I, Robert P. Johnson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of AEI Income & Growth Fund XXI Limited Partnership; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge; the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal control over financial reporting; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Dated: November 7, 2008 /s/ Robert P Johnson Robert P. Johnson,President AEI Fund Management XXI, Inc. Managing General Partner EX-31.2 4 ex31-2.txt Exhibit 31.2 CERTIFICATIONS I, Patrick W. Keene, certify that: 1. I have reviewed this quarterly report on Form 10-Q of AEI Income & Growth Fund XXI Limited Partnership; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge; the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal control over financial reporting; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Dated: November 7, 2008 /s/ Patrick W Keene Patrick W. Keene, Chief Financial Officer AEI Fund Management XXI, Inc. Managing General Partner EX-32 5 ex32.txt Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of AEI Income & Growth Fund XXI Limited Partnership (the "Partnership") on Form 10-Q for the period ended September 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Robert P. Johnson, President of AEI Fund Management XXI, Inc., the Managing General Partner of the Partnership, and Patrick W. Keene, Chief Financial Officer of AEI Fund Management XXI, Inc., each certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ Robert P Johnson Robert P. Johnson, President AEI Fund Management XXI, Inc. Managing General Partner November 7, 2008 /s/ Patrick W Keene Patrick W. Keene, Chief Financial Officer AEI Fund Management XXI, Inc. Managing General Partner November 7, 2008 -----END PRIVACY-ENHANCED MESSAGE-----