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:  SeptemberJune 30, 20192020

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
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)

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. 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
Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No

1


AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

INDEX


  
Page
Page
Part I – Financial Information
 
    
 
Item 1.
Financial Statements:Statements (unaudited):
 
    
  
Balance Sheets as of SeptemberJune 30, 20192020 and December 31, 20182019
3
    
  
Statements for the Periods ended SeptemberJune 30, 20192020 and 2018:2019:
 
     
   
Income
4
     
   
Cash Flows
5
     
   
Changes in Partners’ Capital (Deficit)
6
     
  
Notes to Financial Statements
7 - 10
    
 
Item 2.
Management's Discussion and Analysis of Financial
 
   
Condition and Results of Operations
11 - 1615
    
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
16
    
 
Item 4.
Controls and Procedures
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
17
    
 
Item 3.
Defaults Upon Senior Securities
17
    
 
Item 4.
Mine Safety Disclosures
17
    
 
Item 5.
Other Information
17
    
 
Item 6.
Exhibits
17
    
Signatures
18

- 2 -

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
BALANCE SHEETS

ASSETS

 September 30,  December 31,  June 30, December 31,
 
2019
  
2018
  2020 2019
 (unaudited)     (unaudited)  
Current Assets:          
Cash 
$
829,804
  
$
993,307
 $3,028,531 $3,197,449 
Receivables  
1,466
   
3,664
 
Rent Receivable 21,493  0 
Total Current Assets  
831,270
   
996,971
  3,050,024  3,197,449 
          
Real Estate Investments:          
Land 
2,959,461
  
3,659,461
  2,959,461  2,959,461 
Buildings 
8,932,356
  
10,339,539
  8,932,356  8,932,356 
Acquired Intangible Lease Assets  
621,258
   
807,178
  621,258  621,258 
Property Acquisition Costs 6,241  0 
Real Estate Held for Investment, at cost 
12,513,075
  
14,806,178
  12,519,316  12,513,075 
Accumulated Depreciation and Amortization  
(4,157,139
)
  
(4,239,689
)
 (4,448,772 (4,254,350
Real Estate Held for Investment, Net 
8,355,936
  
10,566,489
  8,070,544  8,258,725 
Real Estate Held for Sale  
1,925,710
   
0
 
Total Real Estate Investments  
10,281,646
   
10,566,489
 
Long-Term Rent Receivable 30,091  0 
Total Assets 
$
11,112,916
  
$
11,563,460
 $11,150,659 $11,456,174 

LIABILITIES AND PARTNERS' CAPITAL

Current Liabilities:          
Payable to AEI Fund Management, Inc. 
$
102,025
  
$
107,167
 $75,676 $94,400 
Distributions Payable  
198,178
   
198,186
  104,546  198,178 
Total Current Liabilities  
300,203
   
305,353
  180,222  292,578 
          
Long-term Liabilities:          
Acquired Below-Market Lease Intangibles, Net 
51,350
  
87,655
  45,269  49,323 
          
Partners’ Capital :
          
General Partners 
(1,093
)
 
2,998
  6,102  7,992 
Limited Partners – 24,000 Units authorized;
19,264 and 19,329 Units issued and outstanding
as of 9/30/2019 and 12/31/2018
  
10,762,456
   
11,167,454
 
Limited Partners – 24,000 Units authorized;
18,791 Units issued and outstanding
as of 6/30/2020 and 12/31/2019
 10,919,066  11,106,281 
Total Partners' Capital  
10,761,363
   
11,170,452
  10,925,168  11,114,273 
Total Liabilities and Partners' Capital 
$
11,112,916
  
$
11,563,460
 $11,150,659 $11,456,174 
The accompanying Notes to Financial Statements are an integral part of these statements.
- 3 -

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENTS OF INCOME
(unaudited)


        
 
Three Months Ended September 30
  
Nine Months Ended September 30
  Three Months Ended June 30 Six Months Ended June 30
 
2019
  
2018
  
2019
  
2018
  2020 2019 2020 2019
                    
Rental Income 
$
259,213
  
$
259,212
  
$
777,638
  
$
777,389
 $208,699 $259,213 $417,398 $518,425 
                    
Expenses:                    
Partnership Administration – Affiliates 
42,893
  
38,925
  
116,781
  
111,021
  24,174  36,209  67,451  73,888 
Partnership Administration and Property
Management – Unrelated Parties
 
22,456
  
18,614
  
83,639
  
84,356
  27,130  35,779  51,888  61,183 
Depreciation and Amortization  
117,621
   
117,621
   
352,863
   
352,863
  97,211  117,621  194,422  235,242 
Total Expenses  
182,970
   
175,160
   
553,283
   
548,240
  148,515  189,609  313,761  370,313 
                    
Operating Income 
76,243
  
84,052
  
224,355
  
229,149
  60,184  69,604  103,637  148,112 
                    
Other Income:                    
Interest Income  
3,051
   
2,351
   
9,635
   
4,724
  747  3,237  6,654  6,584 
                    
Net Income 
$
79,294
  
$
86,403
  
$
233,990
  
$
233,873
 $60,931 $72,841 $110,291 $154,696 
                    
Net Income Allocated:                    
General Partners 
$
793
  
$
864
  
$
2,340
  
$
2,339
 $609 $728 $1,103 $1,547 
Limited Partners  
78,501
   
85,539
   
231,650
   
231,534
  60,322  72,113  109,188  153,149 
Total 
$
79,294
  
$
86,403
  
$
233,990
  
$
233,873
 $60,931 $72,841 $110,291 $154,696 
                    
Net Income per Limited Partnership Unit 
$
4.08
  
$
4.41
  
$
12.01
  
$
11.89
 $3.21 $3.74 $5.81 $7.94 
                    
Weighted Average Units Outstanding –
Basic and Diluted
  
19,264
   
19,402
   
19,286
   
19,473
  18,791  19,264  18,791  19,296 
                    










The accompanying Notes to Financial Statements are an integral part of these statements.
- 4 -

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(unaudited)


    
 
Nine Months Ended September 30
  Six Months Ended June 30
 
2019
  
2018
  2020 2019
Cash Flows from Operating Activities:          
Net Income 
$
233,990
  
$
233,873
 $110,291 $154,696 
          
Adjustments to Reconcile Net Income
To Net Cash Provided by Operating Activities:
          
Depreciation and Amortization 
338,538
  
338,538
  190,368  225,692 
(Increase) Decrease in Receivables 
2,198
  
47,153
 
(Increase) Decrease in Rent Receivable (51,584 2,199 
Increase (Decrease) in Payable to
AEI Fund Management, Inc.
  
(5,142
)
  
67,971
  (18,724 (27,770
Total Adjustments  
335,594
   
453,662
  120,060  200,121 
Net Cash Provided By (Used For)
Operating Activities
  
569,584
   
687,535
  230,351  354,817 
          
Cash Flows from Investing Activities:          
Investments in Real Estate  
(90,000
)
  
0
  (6,241 0 
          
Cash Flows from Financing Activities:          
Distributions Paid to Partners 
(594,550
)
 
(1,614,745
)
 (393,028 (396,372
Repurchase of Partnership Units  
(48,537
)
  
(188,845
)
 0  (48,537
Net Cash Provided By (Used For)
Financing Activities
  
(643,087
)
  
(1,803,590
)
 (393,028 (444,909
          
Net Increase (Decrease) in Cash 
(163,503
)
 
(1,116,055
)
 (168,918 (90,092
          
Cash, beginning of period  
993,307
   
2,142,394
  3,197,449  993,307 
          
Cash, end of period 
$
829,804
  
$
1,026,339
 $3,028,531 $903,215 
          
    
    
    







The accompanying Notes to Financial Statements are an integral part of these statements.
- 5 -

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(unaudited)

  
General Partners
  
Limited Partners
  
Total
  
Limited Partnership Units Outstanding
 
             
Balance, December 31, 2017 
$
10,072
  
$
11,867,738
  
$
11,877,810
   
19,615.64
 
                 
Distributions Declared  
(1,982
)
  
(196,198
)
  
(198,180
)
    
                 
Net Income  
762
   
75,427
   
76,189
     
                 
Balance, March 31, 2018  
8,852
   
11,746,967
   
11,755,819
   
19,615.64
 
                 
Distributions Declared  
(1,982
)
  
(196,199
)
  
(198,181
)
    
                 
Repurchase of Partnership Units  
(1,888
)
  
(186,957
)
  
(188,845
)
  
(213.34
)
                 
Net Income  
713
   
70,568
   
71,281
     
                 
Balance, June 30, 2018  
5,695
   
11,434,379
   
11,440,074
   
19,402.30
 
                 
Distributions Declared  
(1,982
)
  
(196,199
)
  
(198,181
)
    
                 
Net Income  
864
   
85,539
   
86,403
     
                 
Balance, September 30, 2018 
$
4,577
  
$
11,323,719
  
$
11,328,296
   
19,402.30
 
                 
                 
                 
Balance, December 31, 2018 
$
2,998
  
$
11,167,454
  
$
11,170,452
   
19,328.64
 
                 
Distributions Declared  
(1,982
)
  
(196,204
)
  
(198,186
)
    
                 
Net Income  
819
   
81,036
   
81,855
     
                 
Balance, March 31, 2019  
1,835
   
11,052,286
   
11,054,121
   
19,328.64
 
                 
Distributions Declared  
(1,982
)
  
(196,196
)
  
(198,178
)
    
                 
Repurchase of Partnership Units  
(486
)
  
(48,051
)
  
(48,537
)
  
(64.66
)
                 
Net Income  
728
   
72,113
   
72,841
     
                 
Balance, June 30, 2019  
95
   
10,880,152
   
10,880,247
   
19,263.98
 
                 
Distributions Declared  
(1,981
)
  
(196,197
)
  
(198,178
)
    
                 
Net Income  
793
   
78,501
   
79,294
     
                 
Balance, September 30, 2019 
$
(1,093
)
 
$
10,762,456
  
$
10,761,363
   
19,263.98
 
                 
  General Partners Limited Partners Total Limited Partnership Units Outstanding
         
Balance, December 31, 2018$2,998 $11,167,454 $11,170,452   19,328.64 
         
Distributions Declared (1,982 (196,204 (198,186  
         
Net Income 819  81,036  81,855   
         
Balance, March 31, 2019 1,835  11,052,286  11,054,121   19,328.64 
         
Distributions Declared (1,982 (196,196 (198,178  
         
Repurchase of Partnership Units (486 (48,051 (48,537  (64.66
         
Net Income 728  72,113  72,841   
         
Balance, June 30, 2019$95 $10,880,152 $10,880,247   19,263.98 
         
         
         
Balance, December 31, 2019$7,992 $11,106,281 $11,114,273   18,791.14 
         
Distributions Declared (1,948 (192,902 (194,850  
         
Net Income 494  48,866  49,360   
         
Balance, March 31, 2020 6,538  10,962,245  10,968,783   18,791.14 
         
Distributions Declared (1,045 (103,501 (104,546  
         
Net Income 609  60,322  60,931   
         
Balance, June 30, 2020$6,102 $10,919,066 $10,925,168   18,791.14 
         
The accompanying Notes to Financial Statements are an integral part of these statements.
- 6 -

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20192020
(unaudited)

(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 United States Generally Accepted Accounting Principles (US GAAP) 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.10K.

(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 PresidentChief Executive Officer 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 theand his wife own a majority shareholder.interest. 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.

- 7 -

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS

(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.

In January 2014, the Managing General Partner mailed a Consent Statement (Proxy) seeking the consent of the Limited Partners to continue the Partnership for an additional 60 months or to initiate the final disposition, liquidation and distribution of all of the Partnership’s properties and assets. On February 14, 2014, the proposal to continue the Partnership was approved with a majority of Units voted in favor of the continuation proposal. As a result, the Managing General Partner will continue the operations of the Partnership. In consideration of the adverse impact COVID-19 is having on the World and U.S. economy, the General Partner believes it is in the best interest of the Partnership for an additional 60to continue operations. The General Partner will re-evaluate the situation in 12 to 24 months at which time it intendsand may again submit the option to again askliquidate to a vote by the Limited Partners to vote on the same two proposals.at that time.

- 8 -

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS

(3)  Recently AdoptedIssued Accounting Pronouncements –

In August 2018,Management has reviewed recently issued, but not yet effective, accounting pronouncements and does not expect the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded.  In addition, the amendments expanded the disclosure requirements for the analysisimplementation of partners’ capital for interim financial statements.  Under the amendments, an analysis of changes in each caption of partners’ capital presented in the balance sheet must be provided in a note or separate statement.  The analysis should present a reconciliation of the beginning balancethese pronouncements to the ending balance of each period for which a statement of income is required to be filed.  The Partnership’s first presentation of year-to-date quarterly changes in partners’ capital was included in its Form 10‑Q for the quarter ended March 31, 2019.

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, which provides guidance for accounting for leases.  The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets, initially measured at the present value of the lease payments.  The accounting guidance for lessors is largely unchanged.  The ASU is effective for annual and interim periods beginning after December 15, 2018. It is to be adopted using a modified retrospective approach.  The Partnership has adopted the accounting pronouncement effective January 1, 2019 and the adoption of the standard did not have a material impactsignificant effect on the Partnership’s financial statements.

(4)  Real Estate Investments –

The Partnership owns a 30% interest in the Gander Mountain store in Champaign, Illinois. The remaining interests in the property are owned by affiliates of the Partnership. On March 10, 2017, Gander Mountain Company filed for Chapter 11 reorganization and announced it was closing the store, following a liquidation sale of its on‑siteonsite assets. In June 2017, the tenant filed a motion with the bankruptcy court to reject the lease for this store effective June 30, 2017. At this time, the tenant returned possession of the property to the owners and the Partnership became responsible for its 30% share of real estate taxes and other costs associated with maintaining the property. The tenant paid rent through June 2017. The owners have listed the property for lease with a real estate broker in the Champaign area.

In March 2019, the Partnership entered into an agreement with the tenant of the Jared Jewelry store in Auburn Hills, Michigan to extend the lease term five years to end on December 31, 2024. As part of the agreement, the annual rent will decrease from $124,049 to $105,560 effective January 1, 2020.

In September 2019, the Partnership entered into an agreement with the tenant of the Tractor Supply Company store in Canton, Georgia to extend the lease term ten years to end on September 30, 2034.  The annual rent remained the same with a 3.0% increase scheduled to occur after five years.  As part of the agreement, the Partnership paid a tenant improvement allowance of $90,000 that was capitalized.
- 9 -

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS

(4)  Real Estate Investments – (Continued)

In September 2019, the Partnership entered into an agreement to sell its 50% interest in the Tractor Supply Company store to an unrelated third party.  On October 23, 2019, the sale closed with the Partnership receiving net proceeds of approximately $2,739,000, which resulted in a net gain of approximately $813,300.  At the time of sale, the cost and related accumulated depreciation and amortization was $2,302,500 and $376,790, respectively.  At September 30, 2019, the property was classified as Real Estate Held for Sale with a carrying value of $1,925,710.

(5)  Payable to AEI Fund Management, Inc. –

AEI Fund Management, Inc. performs the administrative and operating functions for the Partnership. The payable to AEI Fund Management represents the balance due for those services. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business.

(6)  Partners’ Capital –

For the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Partnership declared distributions of $594,542 for both years.$299,396 and $396,364, respectively. The Limited Partners received distributions of $588,597$296,403 and $588,596$392,400 and the General Partners received distributions of $5,945$2,993 and $5,946$3,964 for the periods, respectively. The Limited Partners' distributions represented $30.52$15.77 and $30.23$20.34 per Limited Partnership Unit outstanding using 19,28618,791 and 19,47319,296 weighted average Units in 20192020 and 2018,2019, respectively. The distributions represented $9.52$5.81 and $2.25$5.45 per Unit of Net Income and $21.00$9.96 and $27.98$14.89 per Unit of contributed capital in 20192020 and 2018,2019, respectively.

As part of the distributions discussed above, the Partnership distributed net sale proceeds of $64,513 and $197,980 in 2019 and 2018, respectively.2019. The Limited Partners received distributions of $63,868 and $196,000 and the General Partners received distributions of $645 and $1,980 for the periods, respectively.$645. The Limited Partners’ distributions represented $3.32 and $10.10$3.29 per Unit forUnit.
9

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(6)  Partners’ Capital – (Continued)
On April 1, 2020, the periods, respectively.

Partnership did not repurchase any Units from the Limited Partners. On April 1, 2019, the Partnership repurchased a total of 64.66 Units for $48,051 from five Limited Partners in accordance with the Partnership Agreement.  On April 1, 2018, the Partnership repurchased a total of 213.34 Units for $186,957 from eight Limited Partners. The Partnership acquired these Units using Net Cash Flow from operations. The repurchases increase the remaining Limited Partners' ownership interest in the Partnership. As a result of these repurchases and pursuant to the Partnership Agreement, the General Partners received distributions of $486 and $1,888 in 2019 and 2018, respectively.2019.

(7)  Fair Value Measurements –

As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Partnership had no assets or liabilities measured at fair value on a recurring basis or nonrecurring basis.
- (8)  Coronavirus Outbreak –
During the first quarter of 2020, there was a global outbreak of a new strain of coronavirus, COVID-19 which continues to adversely impact global commercial activity and has contributed to significant volatility in financial markets. The global impact of the outbreak has been rapidly evolving, and as cases of the virus have continued to be identified in additional countries, many countries have reacted by instituting quarantines, placing restrictions on travel, and limiting hours of operations of non-essential offices and retail centers. Such actions are creating disruption in global supply chains, and adversely impacting a number of industries, such as retail, restaurants and transportation. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of the coronavirus. Nevertheless, the coronavirus presents material uncertainty and risk with respect to the Partnership’s performance and financial results, such as the potential negative impact to the tenants of its properties, the potential closure of certain of its properties, increased costs of operations, decrease in values of its properties, changes in law and/or regulation, and uncertainty regarding government and regulatory policy. Up to the date of this filing, the Partnership has entered into rent deferral agreements with two tenants of the six properties owned by the Partnership. In June 2020, the Partnership entered into an agreement with the tenant of the Jared Jewelry store in Auburn Hills, Michigan and Hanover, Maryland to defer base rent in April and May 2020. The tenant shall pay the deferred amounts in twelve equal monthly installments beginning on February 1, 2021. The Partnership has elected not to account for these deferrals of rent as a lease modification under COVID-19 guidance issued by the Financial Accounting Standards Board. Deferred rent of $51,584 was recognized as rental income during the three months ended June 30, 2020 and a corresponding rent receivable was recorded. The Partnership continues to work closely with tenants to determine the best course of action to meet the tenants short-term rental needs during these unprecedented times.
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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;

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 federal income tax consequences of rental income, deductions, gain on sales and other items and the effects of these consequences for the Partners;
the success of the General Partners of locating properties with favorable risk return characteristics;
the effect of tenant defaults; and

resolution by the General Partners of conflicts with which they may be confronted;
the condition of the industries in which the tenants of properties owned by the Partnership operate.

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.

Application of Critical Accounting Policies

The Partnership’s financial statements have been prepared in accordance with US GAAP. Preparing the financial statements requires management to use judgment in the application of these accounting policies, including making estimates and assumptions. These judgments will affect the reported amounts of the Partnership’s assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of the financial statements and will affect the reported amounts of revenue and expenses during the reporting periods. It is possible that the carrying amount of the Partnership’s assets and liabilities, or the results of reported operations, will be affected if management’s estimates or assumptions prove inaccurate.

Management of the Partnership evaluates the following accounting estimates on an ongoing basis, and has discussed the development and selection of these estimates and the management discussion and analysis disclosures regarding them with the managing partner of the Partnership.

Allocation of Purchase Price of Acquired Properties

Upon acquisition of real properties, the Partnership records them in the financial statements at cost. The purchase price is allocated to tangible assets, consisting of land and building, and to identified intangible assets and liabilities, which may include the value of above market and below market leases and the value of in-place leases. The allocation of the purchase price is based upon the fair value of each component of the property. Although independent appraisals may be used to assist in the determination of fair value, in many cases these values will be based upon management’s assessment of each property, the selling prices of comparable properties and the discounted value of cash flows from the asset.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

The fair values of above market and below market in-place leases will be recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases measured over a period equal to the non-cancelable term of the lease including any bargain renewal periods. The above market and below market lease values will be capitalized as intangible lease assets or liabilities. Above market lease values will be amortized as an adjustment of rental income over the remaining term of the respective leases. Below market lease values will be amortized as an adjustment of rental income over the remaining term of the respective leases, including any bargain renewal periods. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of above market and below market in-place lease values relating to that lease would be recorded as an adjustment to rental income.

The fair values of in-place leases will include estimated direct costs associated with obtaining a new tenant, and opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease. Direct costs associated with obtaining a new tenant may include commissions, tenant improvements, and other direct costs and are estimated, in part, by management’s consideration of current market costs to execute a similar lease. These direct costs will be included in intangible lease assets on the balance sheet and will be amortized to expense over the remaining term of the respective leases. The value of opportunity costs will be calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These intangibles will be included in intangible lease assets on the balance sheet and will be amortized to expense over the remaining term of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of in-place lease assets relating to that lease would be expensed.

The determination of the fair values of the assets and liabilities acquired will require the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount and capitalization rates, interest rates and other variables. If management’s estimates or assumptions prove inaccurate, the result would be an inaccurate allocation of purchase price, which could impact the amount of reported net income.

Carrying Value of Properties

Properties are carried at original cost, less accumulated depreciation and amortization. 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.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

Allocation of Expenses

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.

Factors Which May Influence Results of Operations
The Partnership is not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues and investment property value. However, due to the recent outbreak of the coronavirus (COVID-19) in the U.S. and globally, our tenants and operating partners may be impacted. The impact of the coronavirus on our future results could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus, the success of actions taken to contain or treat the coronavirus, and reactions by consumers, companies, governmental entities and capital markets.
Results of Operations

For the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Partnership recognized rental income of $777,638$417,398 and $777,389,$518,425, respectively. In 2019,2020, rental income increaseddecreased due to a rent increase onthe sale of one property.property in 2019. Based on the scheduled rent for the properties owned as of OctoberJuly 31, 2019,2020, the Partnership expects to recognize rental income of approximately $1,001,000 and $835,000 in 2019 and 2020, respectively.2020.

For the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Partnership incurred Partnership administration expenses from affiliated parties of $116,781$67,451 and $111,021,$73,888, respectively. These administration expenses include costs associated with the management of the properties, processing distributions, reporting requirements and communicating with the Limited Partners. During the same periods, the Partnership incurred Partnership administration and property management expenses from unrelated parties of $83,639$51,888 and $84,356,$61,183, 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.

The Partnership owns a 30% interest in the Gander Mountain store in Champaign, Illinois. The remaining interests in the property are owned by affiliates of the Partnership. On March 10, 2017, Gander Mountain Company filed for Chapter 11 reorganization and announced it was closing the store, following a liquidation sale of its on‑siteonsite assets. In June 2017, the tenant filed a motion with the bankruptcy court to reject the lease for this store effective June 30, 2017. At this time, the tenant returned possession of the property to the owners and the Partnership became responsible for its 30% share of real estate taxes and other costs associated with maintaining the property. The tenant paid rent through June 2017. The owners have listed the property for lease with a real estate broker in the Champaign area.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In March 2019, the Partnership entered into an agreement with the tenant of the Jared Jewelry store in Auburn Hills, Michigan to extend the lease term five years to end on December 31, 2024. As part of the agreement, the annual rent will decrease from $124,049 to $105,560 effective January 1, 2020.

For the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Partnership recognized interest income of $9,635$6,654 and $4,724,$6,584, respectively.

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

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 ninesix months ended SeptemberJune 30, 2020, the Partnership's cash balances decreased $168,918 as a result of distributions paid to the Partners in excess of cash generated from operating activities and cash used for property acquisition costs. During the six months ended June 30, 2019, the Partnership's cash balances decreased $163,503 as a result of cash paid for a tenant improvement allowance and distributions paid to the Partners and cash used to repurchase Units in excess of cash generated from operating activities.  During the nine months ended September 30, 2018, the Partnership's cash balances decreased $1,116,055$90,092 as a result of distributions paid to the Partners and cash used to repurchase Units in excess of cash generated from operating activities.

Net cash provided by operating activities decreased from $687,535$354,817 in 20182019 to $569,584$230,351 in 20192020 as a result of an increasea decrease in Partnership administrationtotal rental and property management expensesinterest income in 20192020 and net timing differences in the collection of payments from the tenants and the payment of expenses, which were partially offset by an increasea decrease in total rentalPartnership administration and interest incomeproperty management expenses in 2019.2020.

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 ninesix months ended SeptemberJune 30, 2019,2020, the Partnership expended $90,000$6,241 of property acquisition costs related to investits property in real properties.Champaign, Illinois.

In September 2019, the Partnership entered into an agreement with the tenant of the Tractor Supply Company store in Canton, Georgia to extend the lease term ten years to end on September 30, 2034.  The annual rent remained the same with a 3.0% increase scheduled to occur after five years.  As part of the agreement, the Partnership paid a tenant improvement allowance of $90,000 that was capitalized.

In September 2019, the Partnership entered into an agreement to sell its 50% interest in the Tractor Supply Company store to an unrelated third party.  On October 23, 2019, the sale closed with the Partnership receiving net proceeds of approximately $2,739,000, which resulted in a net gain of approximately $813,300.  At the time of sale, the cost and related accumulated depreciation and amortization was $2,302,500 and $376,790, respectively.  At September 30, 2019, the property was classified as Real Estate Held for Sale with a carrying value of $1,925,710.

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

The Partnership's primary use of cash flow, other than investment in real estate, is distribution payments to Partners and cash used to repurchase Units. 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. The Partnership may repurchase tendered Units on April 1st and October 1st of each year subject to limitations.

14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
For the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Partnership declared distributions of $594,542 for both years,$299,396 and $396,364, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners. The Limited Partners received distributions of $588,597$296,403 and $588,596$392,400 and the General Partners received distributions of $5,945$2,993 and and $5,946$3,964 for the periods, respectively. In December 2017,The Partnership has temporarily reduced distribution rates for the Partnership declared a special distribution of net sale proceeds of $1,010,101 which was paid inperiod ended June 30, 2020 due to rent deferral agreements entered with tenants and concerns regarding the first week of January 2018 and resulted in higher distributions paid in 2018.ongoing COVID-19 situation.

As part of the distributions discussed above, the Partnership distributed net sale proceeds of $64,513 and $197,980 in 2019 and 2018, respectively.2019. The Limited Partners received distributions of $63,868 and $196,000 and the General Partners received distributions of $645 and $1,980 for the periods, respectively.$645. The Limited Partners’ distributions represented $3.32 and $10.10$3.29 per Unit for the periods, respectively.Unit.

The Partnership may repurchase 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.

On April 1, 2020, the Partnership did not repurchase any Units from the Limited Partners. On April 1, 2019, the Partnership repurchased a total of 64.66 Units for $48,051 from five Limited Partners in accordance with the Partnership Agreement.  On April 1, 2018, the Partnership repurchased a total of 213.34 Units for $186,957 from eight Limited Partners. The Partnership acquired these Units using Net Cash Flow from operations. The repurchases increase the remaining Limited Partners' ownership interest in the Partnership. As a result of these repurchases and pursuant to the Partnership Agreement, the General Partners received distributions of $486 and $1,888 in 2019 and 2018, respectively.2019.

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.

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

Off-Balance Sheet Arrangements

As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Partnership had no material off-balance sheet arrangements that had or are reasonably likely to have current or future effects on its financial condition, results of operations, liquidity or capital resources.

15

ITEM 3. QUANTITATIVE & 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.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES & USE OF PROCEEDS.

(a) None.

(b) Not applicable.

(c) Pursuant to Section 7.7 of the Partnership Agreement, as amended, each Limited Partner has the right to present Units to the Partnership for purchase by submitting notice to the Managing General Partner during January or July of each year. The purchase price of the Units is equal to 95% of the net asset value per Unit, as of the first business day of January or July of each year, as determined by the Managing General Partner in accordance with the provisions of the Partnership Agreement. Units tendered to the Partnership during January and July may be repurchased on April 1st and October 1st, respectively, of each year subject to the following limitations. The Partnership will not be obligated to purchase in any year more than 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. MINE SAFETY DISCLOSURES.

Not Applicable.

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.
31.1
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.
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.
32
Certification of Chief Executive Officer and Chief Financial Officer of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



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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:  NovemberAugust 13, 20192020
AEI Income & Growth Fund XXI
 
Limited Partnership
 
By:
AEI Fund Management XXI, Inc.
 
Its:
Managing General Partner
   
   
   
 
By:
 /s/ MARNI J NYGARD
  
Marni J. Nygard
  
President
  
(Principal Executive Officer)
   
   
   
 
By:
 /s/ PATRICK W KEENE
/s/ KEITH E PETERSEN 
  Patrick W. Keene
Keith E. Petersen
  
Chief Financial Officer
  
(Principal Accounting Officer)


18

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