-----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, K8S/dNE1ob85pHw+AHYwoik+hYTvRVK/kDAsTvK8mb93VVv7yAESdl98gA0nSiO8 rmUkyzs77J/tdV8sFQd6YA== 0000819577-09-000055.txt : 20090814 0000819577-09-000055.hdr.sgml : 20090814 20090814140659 ACCESSION NUMBER: 0000819577-09-000055 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20090630 FILED AS OF DATE: 20090814 DATE AS OF CHANGE: 20090814 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: 091014510 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 q212-09.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: June 30, 2009 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] 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 June 30, 2009 and December 31, 2008 Statements for the Periods ended June 30, 2009 and 2008: Operations 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 4. 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 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP BALANCE SHEET JUNE 30, 2009 AND DECEMBER 31, 2008 ASSETS 2009 2008 CURRENT ASSETS: Cash $ 1,430,034 $ 2,068,293 Receivables 24,642 5,032 ----------- ----------- Total Current Assets 1,454,676 2,073,325 ----------- ----------- INVESTMENTS IN REAL ESTATE: Land 4,142,603 4,712,813 Buildings and Equipment 9,779,310 10,564,859 Construction in Progress 601,701 72,964 Accumulated Depreciation (1,287,739) (1,376,198) ----------- ----------- 13,235,875 13,974,438 Real Estate Held for Sale 2,553,539 1,903,539 ----------- ----------- Net Investments in Real Estate 15,789,414 15,877,977 ----------- ----------- Total Assets $17,244,090 $17,951,302 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 44,619 $ 43,300 Distributions Payable 265,658 352,283 Unearned Rent 31,813 22,302 ----------- ----------- Total Current Liabilities 342,090 417,885 ----------- ----------- PARTNERS' CAPITAL: General Partners 6,586 12,901 Limited Partners, $1,000 per Unit; 24,000 Units authorized and issued; 22,779 Units outstanding 16,895,414 17,520,516 ----------- ----------- Total Partners' Capital 16,902,000 17,533,417 ----------- ----------- Total Liabilities and Partners' Capital $17,244,090 $17,951,302 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF OPERATIONS FOR THE PERIODS ENDED JUNE 30 Three Months Ended Six Months Ended 6/30/09 6/30/08 6/30/09 6/30/08 RENTAL INCOME $ 258,288 $ 230,095 $ 516,570 $ 439,520 EXPENSES: Partnership Administration - Affiliates 55,025 57,088 113,609 112,846 Partnership Administration and Property Management - Unrelated Parties 10,628 14,307 22,893 25,154 Depreciation 97,792 85,153 195,584 161,022 ---------- ---------- ---------- ---------- Total Expenses 163,445 156,548 332,086 299,022 ---------- ---------- ---------- ---------- OPERATING INCOME 94,843 73,547 184,484 140,498 OTHER INCOME: Interest Income 21,797 12,275 39,654 33,266 ---------- ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS 116,640 85,822 224,138 173,764 Income (Loss) from Discontinued Operations 37,666 624,811 (271,716) 835,210 ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ 154,306 $ 710,633 $ (47,578) $1,008,974 ========== ========== ========== ========== NET INCOME (LOSS) ALLOCATED: General Partners $ 1,543 $ 7,107 $ (476) $ 10,090 Limited Partners 152,763 703,526 (47,102) 998,884 ---------- ---------- ---------- ---------- $ 154,306 $ 710,633 $ (47,578) $1,008,974 ========== ========== ========== ========== INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT: Continuing Operations $ 5.07 $ 3.73 $ 9.74 $ 7.55 Discontinued Operations 1.64 27.15 (11.81) 36.30 ---------- ---------- ---------- ---------- Total $ 6.71 $ 30.88 $ (2.07) $ 43.85 ========== ========== ========== ========== Weighted Average Units Outstanding 22,779 22,779 22,779 22,779 ========== ========== ========== ========== 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 SIX MONTHS ENDED JUNE 30 2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ (47,578) $ 1,008,974 Adjustments to Reconcile Net Income To Net Cash Provided by Operating Activities: Depreciation 203,168 230,883 Real Estate Impairment 396,839 0 (Gain) Loss on Sale of Real Estate 210 (635,909) Increase in Receivables (19,610) 0 Increase in Payable to AEI Fund Management, Inc. 1,319 25,843 Increase (Decrease) in Unearned Rent 9,511 (11,805) ----------- ----------- Total Adjustments 591,437 (390,988) ----------- ----------- Net Cash Provided By Operating Activities 543,859 617,986 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (534,376) (3,629,090) Proceeds from Sale of Real Estate 22,722 3,155,018 ----------- ----------- Net Cash Used For Investing Activities (511,654) (474,072) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions Paid to Partners (670,464) (796,579) ----------- ----------- NET DECREASE IN CASH (638,259) (652,665) CASH, beginning of period 2,068,293 4,904,162 ----------- ----------- CASH, end of period $ 1,430,034 $ 4,251,497 =========== =========== 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 SIX MONTHS ENDED JUNE 30 Limited Partnership General Limited Units Partners Partners Total Outstanding BALANCE, December 31, 2007 $ 15,015 $17,729,799 $17,744,814 22,779.11 Distributions Declared (9,444) (934,995) (944,439) Net Income 10,090 998,884 1,008,974 -------- ----------- ----------- --------- BALANCE, June 30, 2008 $ 15,661 $17,793,688 $17,809,349 22,779.11 ======== =========== =========== ========= BALANCE, December 31, 2008 $ 12,901 $17,520,516 $17,533,417 22,779.11 Distributions Declared (5,839) (578,000) (583,839) Net Loss (476) (47,102) (47,578) -------- ----------- ----------- --------- BALANCE, June 30, 2009 $ 6,586 $16,895,414 $16,902,000 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 JUNE 30, 2009 (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-K. (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 2009 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 $3,637,706. 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. On October 2, 2008, the Partnership purchased a 55% interest in a Fresenius Medical Center in Shreveport, Louisiana for $1,360,617. 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. On November 21, 2008, the Partnership purchased a 63% interest in a parcel of land in Rapid City, South Dakota for $606,667, including acquisition expenses. The Partnership obtained title to the land in the form of an undivided fee simple interest in the 63% interest purchased. Simultaneous with the purchase of the land, the Partnership entered 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. Through June 30, 2009, the Partnership had advanced $601,701 for the construction of the building. The purchase price, including the cost of the land and acquisition expenses, will be approximately $1,940,000. The remaining interest in the property was 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 commenced paying rent on August 6, 2009, the day the store opened for business. Pursuant to the development agreement, for the period from November 21, 2008 to August 5, 2009, Brad and Dad, LLC paid 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 - 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. 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. On December 23, 2008, the Partnership sold 7.767% of the KinderCare daycare center in Ballwin, Missouri to an unrelated third party. The Partnership received net sale proceeds of $175,132, which resulted in a net gain of $80,947. The cost and related accumulated depreciation of the interest sold was $117,886 and $23,701, respectively. The Partnership is attempting to sell its remaining 92.233% interest in the property. At June 30, 2009 and December 31, 2008, the property was classified as Real Estate Held for Sale with a carrying value of $1,118,440. On May 28, 2009, the Partnership sold its remaining 1.1839% interest in the Johnny Carino's restaurant in Austin, Texas to an unrelated third party. The Partnership received net sale proceeds of $22,722, which resulted in a net loss of $210. The cost and related accumulated depreciation of the interest sold was $27,083 and $4,151, respectively. The Partnership is attempting to sell its 20.4025% interest in the Winn-Dixie store in Panama City, Florida. At June 30, 2009 and December 31, 2008, the property was classified as Real Estate Held for Sale with a carrying value of $785,099. In March 2009, Tumbleweed, Inc., the tenant of the Tumbleweed restaurant in Fort Wayne, Indiana filed for Chapter 11 bankruptcy reorganization. Tumbleweed closed the restaurant and filed a motion with the bankruptcy court to reject the Lease for this property. The court approved the motion and Tumbleweed returned possession of the property to the Partnership. The Partnership has listed the property for sale with a real estate broker in the Fort Wayne area. While the property is vacant, the Partnership is responsible for real estate taxes and other costs associated with maintaining the property. Based on an analysis of market conditions in the area, the Partnership determined the property was impaired in accordance with the requirements of Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". As a result, in the first quarter of 2009, a charge to discontinued operations for real estate impairment of $396,839 was recognized, which was the difference between the carrying value at March 31, 2009 of $1,046,839 and the estimated fair value of $650,000. The charge was recorded against the cost of the land and building. At June 30, 2009, the property was classified as Real Estate Held for Sale. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (6) Discontinued Operations - (Continued) During the first six months of 2009 and 2008, the Partnership distributed net sale proceeds of $17,938 and $340,491 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $0.78 and $14.80 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 six months ended June 30: Three Months Ended Six Months Ended 6/30/09 6/30/08 6/30/09 6/30/08 Rental Income $ 73,940 $ 124,145 $ 168,974 $ 277,986 Property Management Expenses (35,975) (8,342) (36,057) (8,824) Depreciation (89) (27,709) (7,584) (69,861) Real Estate Impairment 0 0 (396,839) 0 Gain (Loss) on Disposal of Real Estate (210) 536,717 (210) 635,909 -------- --------- --------- --------- Income (Loss) from Discontinued Operations $ 37,666 $ 624,811 $ (271,716) $ 835,210 ======== ========= ========= ========= (7) Fair Value Measurements - Statement of Financial Accounting Standard No. 157 "Fair Value Measurements" ("SFAS 157") defines fair value, outlines a framework for measuring fair value, details the required disclosures and was effective January 1, 2008 for certain financial assets and liabilities and January 1, 2009 for certain nonfinancial assets and liabilities. Under SFAS 157, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. SFAS 157 establishes a hierarchy in determining the fair value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. SFAS 157 requires the utilization of the lowest possible level of input to determine fair value. Level 1 inputs include quoted market prices in an active market for identical assets or liabilities. Level 2 inputs are market data, other than Level 1 inputs, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (7) Fair Value Measurements - (Continued) The Partnership had no financial assets or liabilities measured at fair value on a recurring basis or nonrecurring basis that would require disclosure under this pronouncement. In accordance with the provisions of Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," ("SFAS 144") the Tumbleweed restaurant, with a carrying amount of $1,046,839 at March 31, 2009, was written down to its fair value of $650,000 after completing our SFAS 144 valuation analysis. The fair value of the property was based upon comparable sales of similar properties, which are considered Level 3 inputs in the SFAS 157 valuation hierarchy. The resulting impairment charge in the first quarter of $396,839 was included in earnings for the period. (8) Subsequent Events - The Partnership has evaluated subsequent events through August 11, 2009, the date which the financial statements were available to be issued. Subsequent events, if any, were disclosed in the appropriate note in the Notes to Financial Statements. 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) 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. Prior to January 1, 2009, the Partnership purchased properties and recorded them in the financial statements at cost (including capitalized acquisition expenses). 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. 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 six months ended June 30, 2009 and 2008, the Partnership recognized rental income from continuing operations of $516,570 and $439,520, respectively. In 2009, rental income increased due to additional rent received from two property acquisitions in 2008 and a rent increase on one property. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) For the six months ended June 30, 2009 and 2008, the Partnership incurred Partnership administration expenses from affiliated parties of $113,609 and $112,846, respectively. These administration expenses include costs associated with the management of the properties, processing distributions, reporting requirements and communication with the Limited Partners. During the same periods, the Partnership incurred Partnership administration and property management expenses from unrelated parties of $22,893 and $25,154, 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 six months ended June 30, 2009 and 2008, the Partnership recognized interest income of $39,654 and $33,266, respectively. In 2009, interest income increased as result of $31,273 of interest received on construction advances in 2009, which was partially offset by the Partnership having less money invested in a money market account due to property acquisitions and lower money market rates in 2009, when compared to 2008. 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 six months ended June 30, 2009, the Partnership recognized a loss from discontinued operations of $271,716, representing a real estate impairment loss of $396,839 and a loss on disposal of real estate of $210, which were partially offset by rental income less property management expenses and depreciation of $125,333. For the six months ended June 30, 2008, the Partnership recognized income from discontinued operations of $835,210, representing rental income less property management expenses and depreciation of $199,301 and gain on disposal of real estate of $635,909. 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. 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. On December 23, 2008, the Partnership sold 7.767% of the KinderCare daycare center in Ballwin, Missouri to an unrelated third party. The Partnership received net sale proceeds of $175,132, which resulted in a net gain of $80,947. The cost and related accumulated depreciation of the interest sold was $117,886 and $23,701, respectively. The Partnership is attempting to sell its remaining 92.233% interest in the property. At June 30, 2009 and December 31, 2008, the property was classified as Real Estate Held for Sale with a carrying value of $1,118,440. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) On May 28, 2009, the Partnership sold its remaining 1.1839% interest in the Johnny Carino's restaurant in Austin, Texas to an unrelated third party. The Partnership received net sale proceeds of $22,722, which resulted in a net loss of $210. The cost and related accumulated depreciation of the interest sold was $27,083 and $4,151, respectively. The Partnership is attempting to sell its 20.4025% interest in the Winn-Dixie store in Panama City, Florida. At June 30, 2009 and December 31, 2008, the property was classified as Real Estate Held for Sale with a carrying value of $785,099. In March 2009, Tumbleweed, Inc., the tenant of the Tumbleweed restaurant in Fort Wayne, Indiana filed for Chapter 11 bankruptcy reorganization. Tumbleweed closed the restaurant and filed a motion with the bankruptcy court to reject the Lease for this property. The court approved the motion and Tumbleweed returned possession of the property to the Partnership. The Partnership has listed the property for sale with a real estate broker in the Fort Wayne area. While the property is vacant, the Partnership is responsible for real estate taxes and other costs associated with maintaining the property. Based on an analysis of market conditions in the area, the Partnership determined the property was impaired in accordance with the requirements of Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". As a result, in the first quarter of 2009, a charge to discontinued operations for real estate impairment of $396,839 was recognized, which was the difference between the carrying value at March 31, 2009 of $1,046,839 and the estimated fair value of $650,000. The charge was recorded against the cost of the land and building. At June 30, 2009, the property was classified as Real Estate Held for Sale. Management believes inflation has not significantly affected income from operations. Leases may contain rent increases, based on the increase in the Consumer Price Index over a specified period, which will result in an increase in rental income over the term of the leases. Inflation also may cause the real estate to appreciate in value. However, inflation and changing prices may have an adverse impact on the operating margins of the properties' tenants, which could impair their ability to pay rent and subsequently reduce the Net Cash Flow available for distributions. Liquidity and Capital Resources During the six months ended June 30, 2009, the Partnership's cash balances decreased $638,259 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 six months ended June 30, 2008, the Partnership's cash balances decreased $652,665 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. Net cash provided by operating activities decreased from $617,986 in 2008 to $543,859 in 2009 as a result of a decrease in total rental and interest income in 2009, an increase in Partnership administration and property management expenses in 2009 and net timing differences in the collection of payments from the tenants and the payment of expenses. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) 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 six months ended June 30, 2009 and 2008, the Partnership generated cash flow from the sale of real estate of $22,722 and $3,155,018, respectively. During the same periods, the Partnership expended $534,376 and $3,629,090, respectively, to invest in real properties 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 $3,637,706. 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. On October 2, 2008, the Partnership purchased a 55% interest in a Fresenius Medical Center in Shreveport, Louisiana for $1,360,617. 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. On November 21, 2008, the Partnership purchased a 63% interest in a parcel of land in Rapid City, South Dakota for $606,667, including acquisition expenses. The Partnership obtained title to the land in the form of an undivided fee simple interest in the 63% interest purchased. Simultaneous with the purchase of the land, the Partnership entered 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. Through June 30, 2009, the Partnership had advanced $601,701 for the construction of the building. The purchase price, including the cost of the land and acquisition expenses, will be approximately $1,940,000. The remaining interest in the property was 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 commenced paying rent on August 6, 2009, the day the store opened for business. Pursuant to the development agreement, for the period from November 21, 2008 to August 5, 2009, Brad and Dad, LLC paid 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) For the six months ended June 30, 2009 and 2008, the Partnership declared distributions of $583,839 and $944,439, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners. The Limited Partners received distributions of $578,000 and $934,995 and the General Partners received distributions of $5,839 and $9,444 for the periods, respectively. In March 2008 and June 2008, the Partnership declared special distributions of net sale proceeds of $58,586 and $176,768, respectively. In 2009, distributions were lower due to decreases in the distribution rate per Unit, effective January 1, 2009 and April 1, 2009, and the special distributions in 2008. During the first six months of 2009 and 2008, the Partnership distributed net sale proceeds of $17,938 and $340,491 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $0.78 and $14.80 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 2009 and 2008, the Partnership did not redeem any Units from the Limited Partners. In prior years, a total of 60 Limited Partners redeemed 1,220.89 Partnership Units for $958,469. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. The continuing rent payments from the properties, together with cash generated from property sales, should be adequate to fund continuing distributions and meet other Partnership obligations on both a short-term and long-term basis. The Economy and Market Conditions The impact of conditions in the current economy, including the turmoil in the credit markets, has adversely affected many real estate companies. However, the absence of mortgage financing on the Partnership's properties eliminates the risks of foreclosure and debt-refinancing that can negatively impact the value and distributions of leveraged real estate companies. Nevertheless, a prolonged economic downturn may adversely affect the operations of the Partnership's tenants and their cash flows. If a tenant were to default on its lease obligations, the Partnership's income would decrease, its distributions would likely be reduced and the value of its properties might decline. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) Historically, the Partnership has sold properties at a gain and distributed the gain proceeds as part of its regular quarterly distributions, and to make special distributions on occasion. The remaining sales proceeds were reinvested in additional properties. Beginning in the fourth quarter of 2008, general economic conditions caused the volume of property sales to slow dramatically for all real estate sellers. In 2009, the Partnership will likely complete fewer property sales than it has in the past. Until property sales occur, quarterly distributions going forward will reflect the distribution of net core rental income and capital reserves, if any. Distribution rates in 2009 are expected to be variable and less than recent distribution rates until such time as economic conditions allow the Partnership to, once again, begin selling properties at acceptable prices and generating gains for distribution. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not required for a smaller reporting company. ITEM 4. 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 required for a smaller reporting company. 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. 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: August 11, 2009 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) EX-31.1 3 ex31-211.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 officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) 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 d) 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; and 5. The registrant's other certifying officer 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 the 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 control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2009 /s/ ROBERT P JOHNSON Robert P. Johnson, President AEI Fund Management XXI, Inc. Managing General Partner EX-31.2 4 ex31-212.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 officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) 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 d) 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; and 5. The registrant's other certifying officer 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 the 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 control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2009 /s/ PATRICK W KEENE Patrick W. Keene, Chief Financial Officer AEI Fund Management XXI, Inc. Managing General Partner EX-32 5 ex32-21.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 June 30, 2009, 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 August 11, 2009 /s/ PATRICK W KEENE Patrick W. Keene, Chief Financial Officer AEI Fund Management XXI, Inc. Managing General Partner August 11, 2009 -----END PRIVACY-ENHANCED MESSAGE-----