10QSB 1 q10-xxi.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Quarter Ended: March 31, 2003 Commission file number: 0-29274 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP (Exact Name of Small Business Issuer as Specified in its Charter) ___State of Minnesota____ __41-1789725__ (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1300 Minnesota World Trade Center, St. Paul, Minnesota 55101 (Address of Principal Executive Offices) _____________(651) 227-7333_____________ (Issuer's telephone number) ______________Not Applicable____________ (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the 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. Yes __X__ No _____ Transitional Small Business Disclosure Format: Yes _____ No __X__ AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP INDEX Page PART I. Financial Information Item 1. Balance Sheet as of March 31, 2003 and December 31,2002 3 Statements for the Periods ended March 31, 2003 and 2002: Income 4 Cash Flows 5 Changes in Partners' Capital 6 Notes to Financial Statements 7 - 10 Item 2. Management's Discussion and Analysis 10 - 14 Item 3. Controls and Procedures 14 PART II. Other Information Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 Certifications 17-18 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP BALANCE SHEET MARCH 31, 2003 AND DECEMBER 31, 2002 (Unaudited) ASSETS 2003 2002 CURRENT ASSETS: Cash and Cash Equivalents $3,156,729 $4,653,629 Receivables 44,020 15,194 -------- -------- Total Current Assets 3,200,749 4,668,823 -------- -------- INVESTMENTS IN REAL ESTATE: Land 5,368,124 5,367,113 Buildings and Equipment 10,035,149 10,035,149 Construction in Progress 1,297,234 44,281 Accumulated Depreciation (1,501,240) (1,399,695) -------- -------- Net Investments in Real Estate 15,199,267 14,046,848 -------- -------- Total Assets $18,400,016 $18,715,671 ======== ======== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 79,989 $ 28,714 Distributions Payable 405,694 648,117 Unearned Rent 35,846 0 -------- -------- Total Current Liabilities 521,529 676,831 -------- -------- PARTNERS' CAPITAL: General Partners 16,350 17,954 Limited Partners, $1,000 Unit Value; 24,000 Units authorized and issued; 23,025 Units outstanding 17,862,137 18,020,886 -------- -------- Total Partners' Capital 17,878,487 18,038,840 -------- -------- Total Liabilities and Partners' Capital $18,400,016 $18,715,671 ========= ========= The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF INCOME FOR THE PERIODS ENDED MARCH 31 (Unaudited) 2003 2002 INCOME: Rent $ 406,720 $ 383,592 Investment Income 24,722 18,105 -------- -------- Total Income 431,442 401,697 -------- -------- EXPENSES: Partnership Administration - Affiliates 67,308 80,397 Partnership Administration and Property Management - Unrelated Parties 13,848 15,240 Depreciation 101,545 98,821 -------- -------- Total Expenses 182,701 194,458 -------- -------- OPERATING INCOME 248,741 207,239 GAIN ON SALE OF REAL ESTATE 0 322,906 -------- -------- NET INCOME $ 248,741 $ 530,145 ======== ======== NET INCOME ALLOCATED: General Partners $ 2,487 $ 5,301 Limited Partners 246,254 524,844 -------- -------- $ 248,741 $ 530,145 ======== ======== NET INCOME PER LIMITED PARTNERSHIP UNIT (23,025 and 23,235 weighted average Units outstanding in 2003 and 2002, respectively) $ 10.70 $ 22.59 ======== ======== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS FOR THE PERIODS ENDED MARCH 31 (Unaudited) 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 248,741 $ 530,145 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 101,545 98,821 Gain on Sale of Real Estate 0 (322,906) (Increase) Decrease in Receivables (28,826) 9,567 Increase in Payable to AEI Fund Management, Inc. 51,275 3,265 Increase in Unearned Rent 35,846 57,973 -------- -------- Total Adjustments 159,840 (153,280) -------- -------- Net Cash Provided By Operating Activities 408,581 376,865 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (1,253,964) 0 Proceeds from Sale of Real Estate 0 1,796,330 -------- -------- Net Cash Provided By (Used For) Investing Activities (1,253,964) 1,796,330 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in Distributions Payable (242,423) 0 Distributions to Partners (409,094) (409,087) -------- -------- Net Cash Used For Financing Activities (651,517) (409,087) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,496,900) 1,764,108 CASH AND CASH EQUIVALENTS, beginning of period 4,653,629 4,460,840 -------- -------- CASH AND CASH EQUIVALENTS, end of period $3,156,729 $6,224,948 ======== ======== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE PERIODS ENDED MARCH 31 (Unaudited) Limited Partnership General Limited Units Partners Partners Total Outstanding BALANCE, December 31, 2001 $13,932 $17,592,673 $17,606,605 23,235.35 Distributions (4,090) (404,997) (409,087) Net Income 5,301 524,844 530,145 ------- -------- --------- --------- BALANCE, March 31, 2002 $15,143 $17,712,520 $17,727,663 23,235.35 ======== ======== ========= ========= BALANCE, December 31, 2002 $17,954 $18,020,886 $18,038,840 23,025.33 Distributions (4,091) (405,003) (409,094) Net Income 2,487 246,254 248,741 ------- -------- --------- --------- BALANCE, March 31, 2003 $16,350 $17,862,137 $17,878,487 23,025.33 ======== ========= ========= ========= The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS MARCH 31, 2003 (Unaudited) (1)The condensed statements included herein have been prepared by the Partnership, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of operations for the interim period, on a basis consistent with the annual audited statements. The adjustments made to these condensed statements consist only of normal recurring adjustments. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Partnership believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the Partnership's latest annual report on Form 10-KSB. (2) ORGANIZATION - AEI Income & Growth Fund XXI Limited Partnership (Partnership) was formed to acquire and lease commercial properties to operating tenants. The Partnership's operations are managed by AEI Fund Management XXI, Inc. (AFM), the Managing General Partner. Robert P. Johnson, the President and sole shareholder of AFM, serves as the Individual General Partner and an affiliate of AFM, AEI Fund Management, Inc. (AEI), performs the administrative and operating functions for the Partnership. The terms of the Partnership offering call for a subscription price of $1,000 per Limited Partnership Unit, payable on acceptance of the offer. The Partnership commenced operations on April 14, 1995 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. On January 31, 1997, the 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) INVESTMENTS IN REAL ESTATE - Through December 31, 2002, the Partnership sold its interest in the Champps Americana restaurant in Schaumburg, Illinois, in thirteen separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $2,892,414, which resulted in a net gain of $838,268. The total cost and related accumulated depreciation of the interests sold was $2,256,461 and $202,315, respectively. For the three months ended March 31, 2002, the net gain was $16,738. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (3) INVESTMENTS IN REAL ESTATE - (Continued) Through December 31, 2002, the Partnership sold 99.8466% of the Champps Americana restaurant in Livonia, Michigan, in twenty-one separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $5,490,789, which resulted in a net gain of $1,888,226. The total cost and related accumulated depreciation of the interests sold was $4,143,694 and $541,131, respectively. For the three months ended March 31, 2002, the net gain was $336,150. During 2002, the Partnership sold 23.8161% of the Johnny Carino's restaurant in Austin, Texas, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $603,681, which resulted in a net gain of $68,672. The total cost and related accumulated depreciation of the interests sold was $544,819 and $9,810, respectively. For the three months ended March 31, 2002, the net gain was $-0-. During the first three months of 2003 and 2002, the Partnership distributed $58,809 and $103,028 of net sale proceeds to the Limited and General Partners as part of their quarterly distributions which represented a return of capital of $2.53 and $4.39 per Limited Partnership Unit, respectively. The remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. On June 14, 2002, the Partnership purchased three Children's World daycare centers located in Andover, Minnesota, Ballwin, Missouri and Kimberly, Wisconsin. The properties were purchased for $1,264,207, $1,517,778 and $1,358,239, respectively. The properties are leased to ARAMARK Educational Resources, Inc. under Lease Agreements with primary terms of 15 years and annual rental payments of $120,204, $144,113 and $129,087, respectively. On October 31, 2002, the Partnership purchased a parcel of land in Farmington, New Mexico for $791,238, including acquisition expenses. The land is leased to SFG Farmington I Limited Partnership (SFG) under a Lease Agreement with a primary term of 20 years and annual rental payments of $85,050. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership will advance funds to SFG for the construction of a Johnny Carino's restaurant on the site. Through March 31, 2003, the Partnership had advanced $1,297,234 for the construction of the property and was charging interest on the advances at a rate of 10.5%. The total purchase price, including the cost of the land, will be approximately $2,290,000. After the construction is complete, the Lease Agreement will be amended to require annual rental payments of approximately $240,450. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (3) INVESTMENTS IN REAL ESTATE - (Continued) In May 2001, Huntington Restaurants Group, Inc. (HRG), the lessee of the Denny's Restaurant in Covington, Louisiana notified the Partnership that it was experiencing financial problems and would not make the lease payments while they worked out a plan which would enable them to continue operations without seeking bankruptcy protection. In October, 2001, the Partnership received an offer to buy the restaurant for $900,000 from an unrelated third party. Effective December 10, 2001, the Partnership terminated the Lease to accommodate the sale. Through this date, HRG owed $80,316 of rent, which will not be collected and was not accrued for financial reporting purposes. In the third quarter of 2001, a charge to operations for real estate impairment of $295,354 was recognized, which was the difference between the book value at September 30, 2001 of $1,145,354 and the estimated net sales proceeds of $850,000. The charge was recorded against the cost of the building and equipment. On February 19, 2002, the sale closed with the Partnership receiving net sale proceeds of $816,143 which resulted in a net loss of $29,982. (4) 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS The Management's Discussion and Analysis contains various "forward looking statements" within the meaning of federal securities laws which represent management's expectations or beliefs concerning future events, including statements regarding anticipated application of cash, expected returns from rental income, growth in revenue, taxation levels, the sufficiency of cash to meet operating expenses, rates of distribution, and other matters. These, and other forward looking statements made by the Partnership, must be evaluated in the context of a number of factors that may affect the Partnership's financial condition and results of operations, including the following: - Market and economic conditions which affect the value of the properties the Partnership owns and the cash from rental income such properties generate; - the federal income tax consequences of rental income, deductions, gain on sales and other items and the affects of these consequences for the Partners; - resolution by the General Partners of conflicts with which they may be confronted; - the success of the General Partners of locating properties with favorable risk return characteristics; - the effect of tenant defaults; and ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) - the condition of the industries in which the tenants of properties owned by the Partnership operate. The Application of Critical Accounting Policies The preparation of the Partnership's financial statements requires management to make estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management evaluates these estimates on an ongoing basis, including those related to the carrying value of real estate and the allocation by AEI Fund Management, Inc. of expenses to the Partnership as opposed to other funds they manage. The Partnership purchases properties and records them in the financial statements at the lower of cost or estimated realizable value. The Partnership initially records the properties at cost (including capitalized acquisition expenses). The Partnership is required to periodically evaluate the carrying value of properties to determine whether their realizable value has declined. For properties the Partnership will hold and operate, management determines whether impairment has occurred by comparing the property's probability-weighted cash flows to its current carrying value. For properties held for sale, management determines whether impairment has occurred by comparing the property's estimated fair value less cost to sell to its current carrying value. If the carrying value is greater than the realizable value, an impairment loss is recorded to reduce the carrying value of the property to its realizable value. A change in these assumptions or analysis could cause material changes in the carrying value of the properties. AEI Fund Management Inc. allocates expenses to each of the funds they manage primarily on the basis of the number of hours devoted by their employees to each fund's affairs. They also allocate some expenses at the end of each month that are not directly related to a fund's operations based upon the number of investors in the fund and the fund's capitalization relative to other funds they manage. The Partnership reimburses these expenses subject to detailed limitations contained in the Partnership Agreement. Management of the Partnership has discussed the development and selection of the above accounting estimates and the management discussion and analysis disclosures regarding them with the managing partner of the Partnership. Results of Operations For the three months ended March 31, 2003 and 2002, the Partnership recognized rental income of $406,720 and $383,592, respectively. During the same periods, the Partnership earned investment income of $24,722 and $18,105, respectively. In 2003, rental income increased as a result of rent received from four property acquisitions in 2002, and rent increases on three properties. These increases in rental income were partially offset by a decrease in rent due to property sales. In 2003, investment income increased due to the Partnership receiving interest income from construction advances. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) In May 2001, Huntington Restaurants Group, Inc. (HRG), the lessee of the Denny's Restaurant in Covington, Louisiana notified the Partnership that it was experiencing financial problems and would not make the lease payments while they worked out a plan which would enable them to continue operations without seeking bankruptcy protection. In October, 2001, the Partnership received an offer to buy the restaurant for $900,000 from an unrelated third party. Effective December 10, 2001, the Partnership terminated the Lease to accommodate the sale. Through this date, HRG owed $80,316 of rent, which will not be collected and was not accrued for financial reporting purposes. In the third quarter of 2001, a charge to operations for real estate impairment of $295,354 was recognized, which was the difference between the book value at September 30, 2001 of $1,145,354 and the estimated net sales proceeds of $850,000. The charge was recorded against the cost of the building and equipment. On February 19, 2002, the sale closed with the Partnership receiving net sale proceeds of $816,143 which resulted in a net loss of $29,982. During the three months ended March 31, 2003 and 2002, the Partnership paid Partnership administration expenses to affiliated parties of $67,308 and $80,397, 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 $13,848 and $15,240, respectively. These expenses represent direct payments to third parties for legal and filing fees, direct administrative costs, outside audit and accounting costs, taxes, insurance and other property costs. As of March 31, 2003, the Partnership's annualized regular cash distribution rate was 6.75%, based on the Adjusted Capital Contribution. Distributions of Net Cash Flow to the General Partners were subordinated to the Limited Partners as required in the Partnership Agreement. As a result, 99% of distributions were allocated to Limited Partners and 1% to the General Partners. Inflation has had a minimal effect on income from operations. Leases may contain rent increases, based on the increase in the Consumer Price Index over a specified period, which will result in an increase in rental income over the term of the leases. In addition, leases may contain rent clauses which entitle the Partnership to receive additional rent in future years if gross receipts for the property exceed certain specified amounts. Increases in sales volumes of the tenants, due to inflation and real sales growth, may result in an increase in rental income over the term of the leases. Inflation also may cause the real estate to appreciate in value. However, inflation and changing prices may have an adverse impact on the operating margins of the properties' tenants, which could impair their ability to pay rent and subsequently reduce the Net Cash Flow available for distributions. Liquidity and Capital Resources During the three months ended March 31, 2003, the Partnership's cash balances decreased $1,496,900 as a result of cash used to purchase property and distributions paid to the Partners in excess of cash generated from operating activities. Net cash provided by operating activities increased from $376,865 in 2002 to $408,581 in 2003 as a result of an increase in income and a decrease in Partnership administration expenses in 2003, which were partially offset by net timing differences in the collection of payments from the lessees 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 three months ended March 31, 2002, the Partnership generated cash flow from the sale of real estate of $1,796,330. During the three months ended March 31, 2003, the Partnership expended $1,253,964 to invest in real properties (inclusive of acquisition expenses) as the Partnership reinvested cash generated from property sales. Through December 31, 2002, the Partnership sold its interest in the Champps Americana restaurant in Schaumburg, Illinois, in thirteen separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $2,892,414, which resulted in a net gain of $838,268. The total cost and related accumulated depreciation of the interests sold was $2,256,461 and $202,315, respectively. For the three months ended March 31, 2002, the net gain was $16,738. Through December 31, 2002, the Partnership sold 99.8466% of the Champps Americana restaurant in Livonia, Michigan, in twenty-one separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $5,490,789, which resulted in a net gain of $1,888,226. The total cost and related accumulated depreciation of the interests sold was $4,143,694 and $541,131, respectively. For the three months ended March 31, 2002, the net gain was $336,150. During 2002, the Partnership sold 23.8161% of the Johnny Carino's restaurant in Austin, Texas, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $603,681, which resulted in a net gain of $68,672. The total cost and related accumulated depreciation of the interests sold was $544,819 and $9,810, respectively. For the three months ended March 31, 2002, the net gain was $-0-. During the first three months of 2003 and 2002, the Partnership distributed $58,809 and $103,028 of net sale proceeds to the Limited and General Partners as part of their quarterly distributions which represented a return of capital of $2.53 and $4.39 per Limited Partnership Unit, respectively. The remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. On June 14, 2002, the Partnership purchased three Children's World daycare centers located in Andover, Minnesota, Ballwin, Missouri and Kimberly, Wisconsin. The properties were purchased for $1,264,207, $1,517,778 and $1,358,239, respectively. The properties are leased to ARAMARK Educational Resources, Inc. under Lease Agreements with primary terms of 15 years and annual rental payments of $120,204, $144,113 and $129,087, respectively. On October 31, 2002, the Partnership purchased a parcel of land in Farmington, New Mexico for $791,238, including acquisition expenses. The land is leased to SFG Farmington I Limited Partnership (SFG) under a Lease Agreement with a primary term of 20 years and annual rental payments of $85,050. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership will advance funds to SFG for the construction of a Johnny Carino's restaurant on the site. Through March 31, 2003, the Partnership had advanced $1,297,234 for the construction of the property and was charging interest on the advances at a rate of 10.5%. The total purchase price, including the cost of the land, will be approximately $2,290,000. After the construction is complete, the Lease Agreement will be amended to require annual rental payments of approximately $240,450. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) The Partnership's primary use of cash flow is distribution and redemption payments to Partners. The Partnership declares its regular quarterly distributions before the end of each quarter and pays the distribution in the first ten days after the end of each quarter. The Partnership attempts to maintain a stable distribution rate from quarter to quarter. Redemption payments are paid to redeeming Partners in the fourth quarter of each year. In December 2002, the Partnership declared a bonus distribution of $242,424 of net sale proceeds, which resulted in a higher distribution payable at December 31, 2002. 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 2002, eight Limited Partners redeemed a total of 210.02 Partnership Units for $156,938 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. In prior years, 33 Limited Partners redeemed a total of 764.65 Partnership Units for $647,929. 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. ITEM 3. CONTROLS AND PROCEDURES. (a) Evaluation of disclosure controls and procedures Under the supervision and with the participation of management, including its President and Chief Financial Officer, the Managing General Partner of the Partnership evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule [13a-14(c)/15d-14(c)] under the Exchange Act) related to the Partnership as of a date (the "Evaluation Date") within 90 days prior to the filing date of this report. Based upon that evaluation, the President and Chief Financial Officer of the Managing General Partner concluded that, as of the Evaluation Date, the disclosure controls and procedures are effective in timely alerting them to the material information relating to the Partnership required to be included in periodic SEC filings. (b) Changes in internal controls There were no significant changes made in the Partnership's internal controls during the period covered by this report or, to the Managing General Partner's knowledge, in other factors that could significantly affect these controls subsequent to the date of their evaluation. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Partnership is a party or of which the Partnership's property is subject. ITEM 2. CHANGES IN SECURITIES None. 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 AND REPORTS ON FORM 8-K a. Exhibits - Description 99.1 Certification of Chief Executive Officer of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Financial Officer of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. b. Reports filed on Form 8-K - None. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: May 12, 2003 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) CERTIFICATIONS I, Robert P. Johnson, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of AEI Income & Growth Fund XXI Limited Partnership; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge; the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d- 14) for the registrant and have; a) designed such disclosure controls and procedures 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 quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, 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 in the design or operation of internal controls which could 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 controls; 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; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: May 12, 2003 /s/ Robert P. Johnson Robert P. Johnson, President AEI Fund Management XXI, Inc. Managing General Partner CERTIFICATIONS I, Patrick W. Keene, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of AEI Income & Growth Fund XXI Limited Partnership; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge; the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d- 14) for the registrant and have; a) designed such disclosure controls and procedures 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 quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, 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 in the design or operation of internal controls which could 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 controls; 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; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: May 12, 2003 /s/ Patrick W. Keene Patrick W. Keene, Chief Financial Officer AEI Fund Management XXI, Inc. Managing General Partner