Unassociated Document

State of Minnesota		41-1789725
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

30 East 7th Street, Suite 1300 St. Paul, Minnesota 55101		(651) 227-7333
(Address of principal executive offices)		(Registrant’s telephone number)

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 o 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). o Yes o 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.

				Page
Part I – Financial Information

	Item 1.	Financial Statements (unaudited):

		Balance Sheet as of September 30, 2011 and December 31, 2010		3

		Statements for the Periods ended September 30, 2011 and 2010:

			Income	4

			Cash Flows	5

			Changes in Partners’ Capital	6

		Notes to Financial Statements		7 - 10

	Item 2.	Management's Discussion and Analysis of Financial
			Condition and Results of Operations	11 - 15

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		15

	Item 4.	Controls and Procedures		15 - 16

Part II – Other Information

	Item 1.	Legal Proceedings		16

	Item 1A.	Risk Factors		16

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		16

	Item 3.	Defaults Upon Senior Securities		16

	Item 5.	Other Information		16

	Item 6.	Exhibits		17

Signatures				17

		September 30,		December 31,
		2011		2010
Current Assets:
Cash	$	1,447,603	$	514,889

Real Estate Held for Investment:
Land		4,413,700		4,413,700
Buildings and Equipment		12,286,382		12,286,382
Accumulated Depreciation		(2,325,477)		(1,956,885)
Real Estate Held for Investment, Net		14,374,605		14,743,197
Real Estate Held for Sale		770,912		1,328,815
Total Real Estate		15,145,517		16,072,012
Total Assets	$	16,593,120	$	16,586,901

		September 30,		December 31,
		2011		2010
Current Liabilities:
Payable to AEI Fund Management, Inc.	$	25,732	$	24,527
Distributions Payable		293,938		294,949
Unearned Rent		63,578		27,010
Total Current Liabilities		383,248		346,486

Partners’ Capital:
General Partners		3,680		2,613
Limited Partners, $1,000 per Unit; 24,000 Units authorized and issued; 22,674 Units outstanding		16,206,192		16,237,802
Total Partners' Capital		16,209,872		16,240,415
Total Liabilities and Partners' Capital	$	16,593,120	$	16,586,901

		Three Months Ended September 30,				Nine Months Ended September 30,
		2011		2010		2011		2010

Rental Income	$	327,317	$	296,105	$	979,915	$	892,317

Expenses:
Partnership Administration – Affiliates		55,680		57,350		171,061		170,165
Partnership Administration and Property Management – Unrelated Parties		9,818		7,273		35,417		28,972
Depreciation		122,864		111,434		368,592		334,302
Total Expenses		188,362		176,057		575,070		533,439

Operating Income		138,955		120,048		404,845		358,878

Other Income:
Interest Income		2,066		4,459		5,634		10,833

Income from Continuing Operations		141,021		124,507		410,479		369,711

Income from Discontinued Operations		21,930		137,779		440,793		380,231

Net Income	$	162,951	$	262,286	$	851,272	$	749,942

Net Income Allocated:
General Partners	$	2,958	$	3,891	$	9,886	$	10,161
Limited Partners		159,993		258,395		841,386		739,781
Total	$	162,951	$	262,286	$	851,272	$	749,942

Income per Limited Partnership Unit:
Continuing Operations	$	6.16	$	5.41	$	17.92	$	16.07
Discontinued Operations		.90		5.93		19.19		16.41
Total	$	7.06	$	11.34	$	37.11	$	32.48

Weighted Average Units Outstanding – Basic and Diluted		22,674		22,779		22,674		22,779

		Nine Months Ended September 30,
		2011		2010
Cash Flows from Operating Activities:
Net Income	$	851,272	$	749,942

Adjustments to Reconcile Net Income To Net Cash Provided by Operating Activities:
Depreciation		368,592		334,437
Gain on Sale of Real Estate		(369,488)		(253,923)
(Increase) Decrease in Receivables		0		10,734
Increase (Decrease) in Payable to AEI Fund Management, Inc.		1,205		(39,241)
Increase (Decrease) in Unearned Rent		36,568		25,051
Total Adjustments		36,877		77,058
Net Cash Provided By Operating Activities		888,149		827,000

Cash Flows from Investing Activities:
Proceeds from Sale of Real Estate		927,391		1,102,212

Cash Flows from Financing Activities:
Distributions Paid to Partners		(882,826)		(884,843)

Net Increase (Decrease) in Cash		932,714		1,044,369

Cash, beginning of period		514,889		1,008,743

Cash, end of period	$	1,447,603	$	2,053,112

		General Partners		Limited Partners		Total	Limited Partnership Units Outstanding

Balance, December 31, 2009	$	1,319	$	16,565,712	$	16,567,031	22,779.11

Distributions Declared		(8,849)		(875,994)		(884,843)

Net Income		10,161		739,781		749,942

Balance, September 30, 2010	$	2,631	$	16,429,499	$	16,432,130	22,779.11


Balance, December 31, 2010	$	2,613	$	16,237,802	$	16,240,415	22,673.61

Distributions Declared		(8,819)		(872,996)		(881,815)

Net Income		9,886		841,386		851,272

Balance, September 30, 2011	$	3,680	$	16,206,192	$	16,209,872	22,673.61

(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.

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.

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.

On October 20, 2010, the Partnership purchased a 39% interest in a Scott & White Clinic in College Station, Texas for $1,433,468. The Partnership incurred $31,422 of acquisition expenses related to the purchase that were expensed. The property is leased to Scott & White Healthcare under a Lease Agreement with a remaining primary term of 9.7 years (as of the date of purchase) and initial annual rent of $120,120 for the interest purchased. The remaining interests in the property were purchased by AEI Net Lease Income & Growth Fund XX Limited Partnership and AEI Income & Growth Fund 25 LLC, affiliates of the Partnership.

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.

In December 2009, the Partnership entered into an agreement to sell the Tumbleweed restaurant in Fort Wayne, Indiana to an unrelated third party. On March 12, 2010, the sale closed with the Partnership receiving net sale proceeds of $428,016, which resulted in a net loss of $11,984. At the time of sale, the cost and related accumulated depreciation was $727,476 and $287,476, respectively.

During the first nine months of 2010, the Partnership sold 33.6699% of the KinderCare daycare center in Ballwin, Missouri, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $674,196, which resulted in a net gain of $265,907. The cost and related accumulated depreciation of the interests sold was $511,034 and $102,745, respectively.

On March 25, 2011, the Partnership sold its remaining 44.5116% interest in the KinderCare daycare center in Ballwin, Missouri, in two separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $902,133, which resulted in a net gain of $362,374. The cost and related accumulated depreciation of the interests sold was $675,587 and $135,828, respectively. At December 31, 2010, the property was classified as Real Estate Held for Sale with a carrying value of $539,759.

On January 19, 2011, the Partnership sold its remaining 0.1534% interest in the Champps Americana restaurant in Livonia, Michigan to an unrelated third party. The Partnership received net sale proceeds of $7,861, which resulted in a net gain of $3,904. The cost and related accumulated depreciation of the interest sold was $6,366 and $2,409, respectively. At December 31, 2010, the property was classified as Real Estate Held for Sale with a carrying value of $3,957.

On July 14, 2011, the Partnership sold 0.3687% of the Winn-Dixie store in Panama City, Florida to an unrelated third party. The Partnership received net sale proceeds of $17,397, which resulted in a net gain of $3,210. The cost and related accumulated depreciation of the interest sold was $17,089 and $2,902, respectively.

Subsequent to September 30, 2011, the Partnership sold an additional 8.4225% of the Winn-Dixie store in Panama City, Florida, in two separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of approximately $392,100, which resulted in a net gain of approximately $68,000. The cost and related accumulated depreciation of the interests sold was $390,387 and $66,285, respectively. The Partnership is attempting to sell its remaining 11.6113% interest in the property. At September 30, 2011 and December 31, 2010, the property was classified as Real Estate Held for Sale with a carrying value of $770,912 and $785,099, respectively.

During the first nine months of 2011 and 2010, the Partnership distributed net sale proceeds of $31,439 and $54,387 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $1.37 and $2.36 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.

		Three Months Ended September 30,				Nine Months Ended September 30,
		2011		2010		2011		2010

Rental Income	$	18,780	$	39,816	$	73,286	$	133,315
Property Management Expenses		(60)		2,679		(1,981)		(6,872)
Depreciation		0		(45)		0		(135)
Gain on Disposal of Real Estate		3,210		95,329		369,488		253,923
Income from Discontinued Operations	$	21,930	$	137,779	$	440,793	$	380,231

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:

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 investments in 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 (not including acquisition expenses). 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 future undiscounted 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 net realizable value, an impairment loss is recorded to reduce the carrying value of the property to its net 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.

For the nine months ended September 30, 2011 and 2010, the Partnership recognized rental income from continuing operations of $979,915 and $892,317, respectively. In 2011, rental income increased mainly due to additional rent received from one property acquisition in 2010. Based on the scheduled rent for the properties owned as of October 31, 2011, the Partnership expects to recognize rental income from continuing operations of approximately $1,312,000 and $1,337,000 in 2011 and 2012, respectively.

For the nine months ended September 30, 2011 and 2010, the Partnership incurred Partnership administration expenses from affiliated parties of $171,061 and $170,165, 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 $35,417 and $28,972, 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, 2011 and 2010, the Partnership recognized interest income of $5,634 and $10,833, respectively. In 2011, interest income decreased primarily due to the Partnership having less money invested in a money market account due to a property acquisition in October 2010.

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, 2011, the Partnership recognized income from discontinued operations of $440,793, representing rental income less property management expenses of $71,305 and gain on disposal of real estate of $369,488. For the nine months ended September 30, 2010, the Partnership recognized income from discontinued operations of $380,231, representing rental income less property management expenses and depreciation of $126,308 and gain on disposal of real estate of $253,923.

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.

During the nine months ended September 30, 2011, the Partnership's cash balances increased $932,714 as a result of cash generated from the sale of property and cash generated from operating activities in excess of distributions paid to the Partners. During the nine months ended September 30, 2010, the Partnership's cash balances increased $1,044,369 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 increased from $827,000 in 2010 to $888,149 in 2011 as a result of an increase in total rental and interest income in 2011 and net timing differences in the collection of payments from the tenants and the payment of expenses, which were partially offset by an increase in Partnership administration and property management expenses in 2011.

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, 2011 and 2010, the Partnership generated cash flow from the sale of real estate of $927,391 and $1,102,212, respectively.

On October 20, 2010, the Partnership purchased a 39% interest in a Scott & White Clinic in College Station, Texas for $1,433,468. The property is leased to Scott & White Healthcare under a Lease Agreement with a remaining primary term of 9.7 years (as of the date of purchase) and initial annual rent of $120,120 for the interest purchased. The remaining interests in the property were purchased by AEI Net Lease Income & Growth Fund XX Limited Partnership and AEI Income & Growth Fund 25 LLC, affiliates 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, 2011 and 2010, the Partnership declared distributions of $881,815 and $884,843, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners. The Limited Partners received distributions of $872,996 and $875,994 and the General Partners received distributions of $8,819 and $8,849 for the periods, respectively.

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 the first nine months of 2011, the Partnership did not redeem any Units from the Limited Partners. On October 1, 2010, six Limited Partners redeemed a total of 105.5 Partnership Units for $34,800 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. 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. As a result of these redemption payments and pursuant to the Partnership Agreement, the General Partners received distributions of $351 in 2010.

The impact of conditions in the current economy, including the turmoil in the credit markets, has adversely affected many real estate investment funds. 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 investment funds. 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.

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.

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.

(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.

Dated: November 11, 2011	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)

o Large accelerated filer	o Accelerated filer
o Non-accelerated filer	x Smaller reporting company