UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2008
Commission File Number: 000-29274
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
State of Minnesota 41-1789725
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101
(Address of principal executive offices)
(651) 227-7333
(Registrant's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [X] No
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
INDEX
Part I - Financial Information
Item 1. Financial Statements:
Balance Sheet as of September 30, 2008 and December 31, 2007
Statements for the Periods ended September 30, 2008 and 2007:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4T.Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A.Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
Signatures
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
BALANCE SHEET
SEPTEMBER 30, 2008 AND DECEMBER 31, 2007
ASSETS
2008 2007
CURRENT ASSETS:
Cash and Cash Equivalents $ 4,001,754 $ 4,904,162
INVESTMENTS IN REAL ESTATE:
Land 4,194,799 4,759,346
Buildings and Equipment 10,058,277 9,987,497
Accumulated Depreciation (1,423,719) (1,643,293)
----------- -----------
12,829,357 13,103,550
Real Estate Held for Sale 1,212,625 159,557
----------- -----------
Net Investments in Real Estate 14,041,982 13,263,107
----------- -----------
Total Assets $18,043,736 $18,167,269
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 12,551 $ 4,976
Distributions Payable 352,283 381,193
Unearned Rent 36,420 36,286
----------- -----------
Total Current Liabilities 401,254 422,455
----------- -----------
PARTNERS' CAPITAL:
General Partners 13,992 15,015
Limited Partners, $1,000 per Unit;
24,000 Units authorized and issued;
22,779 Units outstanding 17,628,490 17,729,799
----------- -----------
Total Partners' Capital 17,642,482 17,744,814
----------- -----------
Total Liabilities and Partners' Capital $18,043,736 $18,167,269
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
Three Months Ended Nine Months Ended
9/30/08 9/30/07 9/30/08 9/30/07
RENTAL INCOME $ 289,632 $ 223,256 $ 844,737 $ 663,712
EXPENSES:
Partnership Administration -
Affiliates 54,963 56,327 167,809 166,554
Partnership Administration
and Property Management -
Unrelated Parties 5,067 3,259 31,194 27,113
Depreciation 100,223 72,444 291,409 217,332
---------- ---------- ---------- ----------
Total Expenses 160,253 132,030 490,412 410,999
---------- ---------- ---------- ----------
OPERATING INCOME 129,379 91,226 354,325 252,713
OTHER INCOME:
Interest Income 19,067 35,938 52,333 78,395
---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS 148,446 127,164 406,658 331,108
Income from Discontinued
Operations 39,230 1,137,478 789,992 1,581,481
---------- ---------- ---------- ----------
NET INCOME $ 187,676 $1,264,642 $1,196,650 $1,912,589
========== ========== ========== ==========
NET INCOME ALLOCATED:
General Partners $ 1,877 $ 12,647 $ 11,967 $ 19,126
Limited Partners 185,799 1,251,995 1,184,683 1,893,463
---------- ---------- ---------- ----------
$ 187,676 $1,264,642 $1,196,650 $1,912,589
========== ========== ========== ==========
INCOME PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ 6.45 $ 5.52 $ 17.67 $ 14.38
Discontinued Operations 1.71 49.39 34.34 68.66
---------- ---------- ---------- ----------
Total $ 8.16 $ 54.91 $ 52.01 $ 83.04
========== ========== ========== ==========
Weighted Average Units
Outstanding 22,779 22,802 22,779 22,802
========== ========== ========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,196,650 $ 1,912,589
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 331,106 342,047
Gain on Sale of Real Estate (635,909) (1,170,293)
Increase (Decrease) in Payable to
AEI Fund Management, Inc. 7,575 (46,155)
Increase in Unearned Rent 134 1,045
----------- -----------
Total Adjustments (297,094) (873,356)
----------- -----------
Net Cash Provided By
Operating Activities 899,556 1,039,233
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (3,629,090) 0
Proceeds from Sale of Real Estate 3,155,018 3,889,014
----------- -----------
Net Cash Provided By (Used For)
Investing Activities (474,072) 3,889,014
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in Distributions Payable (28,910) (25,455)
Distributions to Partners (1,298,982) (1,390,696)
----------- -----------
Net Cash Used For
Financing Activities (1,327,892) (1,416,151)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (902,408) 3,512,096
CASH AND CASH EQUIVALENTS, beginning of period 4,904,162 1,588,082
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 4,001,754 $ 5,100,178
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2006 $ 11,566 $17,388,339 $17,399,905 22,802.45
Distributions (13,907) (1,376,789) (1,390,696)
Net Income 19,126 1,893,463 1,912,589
-------- ----------- ----------- ----------
BALANCE, September 30, 2007 $ 16,785 $17,905,013 $17,921,798 22,802.45
======== =========== =========== ==========
BALANCE, December 31, 2007 $ 15,015 $17,729,799 $17,744,814 22,779.11
Distributions (12,990) (1,285,992) (1,298,982)
Net Income 11,967 1,184,683 1,196,650
-------- ----------- ----------- ----------
BALANCE, September 30, 2008 $ 13,992 $17,628,490 $17,642,482 22,779.11
======== =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(1) The condensed statements included herein have been prepared
by the registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the registrant
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
registrant's latest annual report on Form 10-KSB.
(2) Organization -
AEI Income & Growth Fund XXI Limited Partnership
("Partnership") was formed to acquire and lease commercial
properties to operating tenants. The Partnership's
operations are managed by AEI Fund Management XXI, Inc.
("AFM"), the Managing General Partner. Robert P. Johnson,
the President and sole director of AFM, serves as the
Individual General Partner. AFM is a wholly owned
subsidiary of AEI Capital Corporation of which Mr. Johnson
is the majority shareholder. AEI Fund Management, Inc.
("AEI"), an affiliate of AFM, performs the administrative
and operating functions for the Partnership.
The terms of the Partnership offering called for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. The Partnership
commenced operations on April 14, 1995 when minimum
subscriptions of 1,500 Limited Partnership Units
($1,500,000) were accepted. On January 31, 1997, the
offering terminated when the maximum subscription limit of
24,000 Limited Partnership Units was reached. Under the
terms of the Limited Partnership Agreement, the Limited
Partners and General Partners contributed funds of
$24,000,000 and $1,000, respectively.
During operations, any Net Cash Flow, as defined, which the
General Partners determine to distribute will be distributed
90% to the Limited Partners and 10% to the General Partners;
provided, however, that such distributions to the General
Partners will be subordinated to the Limited Partners first
receiving an annual, noncumulative distribution of Net Cash
Flow equal to 10% of their Adjusted Capital Contribution, as
defined, and, provided further, that in no event will the
General Partners receive less than 1% of such Net Cash Flow
per annum. Distributions to Limited Partners will be made
pro rata by Units.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the General Partners determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Partners and 1% to the General Partners until the
Limited Partners receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to
10% of their Adjusted Capital Contribution per annum,
cumulative but not compounded, to the extent not previously
distributed from Net Cash Flow; (ii) any remaining balance
will be distributed 90% to the Limited Partners and 10% to
the General Partners. Distributions to the Limited Partners
will be made pro rata by Units.
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of property, will be
allocated first in the same ratio in which, and to the
extent, Net Cash Flow is distributed to the Partners for
such year. Any additional profits will be allocated in the
same ratio as the last dollar of Net Cash Flow is
distributed. Net losses from operations will be allocated
99% to the Limited Partners and 1% to the General Partners.
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Partnership Agreement as follows: (i)
first, to those partners with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Partners
and 1% to the General Partners until the aggregate balance
in the Limited Partners' capital accounts equals the sum of
the Limited Partners' Adjusted Capital Contributions plus an
amount equal to 10% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, the balance of any
remaining gain will then be allocated 90% to the Limited
Partners and 10% to the General Partners. Losses will be
allocated 98% to the Limited Partners and 2% to the General
Partners.
The General Partners are not required to currently fund a
deficit capital balance. Upon liquidation of the
Partnership or withdrawal by a General Partner, the General
Partners will contribute to the Partnership an amount equal
to the lesser of the deficit balances in their capital
accounts or 1% of total Limited Partners' and General
Partners' capital contributions.
(3) Reclassification -
Certain items related to discontinued operations in the
prior period's financial statements have been reclassified
to conform to 2008 presentation. These reclassifications
had no effect on Partners' capital, net income or cash
flows.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Investments in Real Estate -
On January 31, 2008, the Partnership purchased a 54%
interest in a Best Buy store in Eau Claire, Wisconsin for
$3,629,090. The property is leased to Best Buy Stores, L.P.
under a Lease Agreement with a remaining primary term of 10
years and initial annual rent of $256,001 for the interest
purchased. The remaining interests in the property were
purchased by AEI Income & Growth Fund 23 LLC and AEI Income
& Growth Fund 26 LLC, affiliates of the Partnership.
Subsequent to September 30, 2008, the Partnership purchased
a 55% interest in a Fresenius Medical Center in Shreveport,
Louisiana for approximately $1,340,000. The property is
leased to Bio-Medical Applications of Louisiana, LLC, a
subsidiary of Fresenius Medical Care Holdings, Inc., under a
Lease Agreement with a remaining primary term of 9.8 years
and initial annual rent of $102,520 for the interest
purchased. The remaining interest in the property was
purchased by AEI Income & Growth Fund 24 LLC, an affiliate
of the Partnership.
Subsequent to September 30, 2008, the Partnership issued a
commitment to purchase a 63% interest in a parcel of land in
Rapid City, South Dakota for approximately $598,500.
Simultaneous with the purchase of the land, the Partnership
will enter into a Development Financing Agreement under
which the Partnership will advance funds to Brad and Dad,
LLC for the construction of a Tractor Supply Company store
on the site. The purchase price, including the cost of the
land, will be approximately $1,915,000. The remaining
interest in the property will be purchased by AEI Income &
Growth Fund 27 LLC, an affiliate of the Partnership.
The property is leased to Tractor Supply Company under a
Lease Agreement with a primary term of 15 years and initial
annual rent of $141,750 for the interest purchased.
Pursuant to the Lease, the tenant will commence paying rent
on the day the store opens for business, which is expected
to be in May 2009. Pursuant to the development agreement,
for the period from the day the land is purchased to the day
that the tenant commences paying rent, Brad and Dad, LLC
will pay the Partnership interest at a rate of 6.9% on the
purchase price of the land and the amounts advanced for
construction of the building. Pursuant to the Lease, any
improvements to the land during the term of the Lease become
the property of the Partnership.
(5) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Partnership. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations -
During the first three months of 2007, the Partnership sold
its remaining 10.0242% interest in the Eckerd drug store in
Utica, New York, in two separate transactions, to unrelated
third parties. The Partnership received total net sale
proceeds of $509,303, which resulted in a net gain of
$59,412. The cost and related accumulated depreciation of
the interests sold was $463,144 and $13,253, respectively.
On April 12, 2007, the Partnership sold 12.1042% of the
KinderCare daycare center in Kimberly, Wisconsin to an
unrelated third party. The Partnership received net sale
proceeds of $236,188, which resulted in a net gain of
$92,257. The cost and related accumulated depreciation of
the interest sold was $164,404 and $20,473, respectively.
On January 15, 2008, the Partnership sold its remaining
13.4184% interest in the KinderCare daycare center in
Kimberly, Wisconsin to an unrelated third party. The
Partnership received net sale proceeds of $258,749, which
resulted in a net gain of $99,192. The cost and related
accumulated depreciation of the interest sold was $182,253
and $22,696, respectively. At December 31, 2007, the
property was classified as Real Estate Held for Sale with a
book value of $159,557.
On August 30, 2007, the Partnership sold the Champps
Americana restaurant in San Antonio, Texas to the tenant.
The Partnership received net sale proceeds of $3,143,523,
which resulted in a net gain of $1,018,624. At the time of
sale, the cost and related accumulated depreciation was
$2,833,357 and $708,458, respectively.
In March 2008, the Partnership entered into an agreement to
sell the Johnny Carino's restaurant in Laredo, Texas to an
unrelated third party. On May 15, 2008, the sale closed
with the Partnership receiving net proceeds of $2,896,269,
which resulted in a net gain of $536,717. At the time of
sale, the cost and related accumulated depreciation was
$2,605,079 and $245,527, respectively.
The Partnership is attempting to sell the KinderCare daycare
center in Ballwin, Missouri. At September 30, 2008, the
property was classified as Real Estate Held for Sale with a
book value of $1,212,625.
During the first nine months of 2008 and 2007, the
Partnership distributed net sale proceeds of $407,134 and
$306,354 to the Limited and General Partners as part of
their quarterly distributions, which represented a return of
capital of $17.70 and $13.29 per Limited Partnership Unit,
respectively. The Partnership anticipates the remaining net
sale proceeds will either be reinvested in additional
property or distributed to the Partners in the future.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations - (Continued)
The financial results for these properties are reflected as
Discontinued Operations in the accompanying financial
statements. The following are the results of discontinued
operations for the periods ended September 30:
Three Months Ended Nine Months Ended
9/30/08 9/30/07 9/30/08 9/30/07
Rental Income $ 39,631 $ 157,895 $ 202,032 $ 539,358
Property Management Expenses (401) (1,094) (8,252) (3,455)
Depreciation 0 (37,947) (39,697) (124,715)
Gain on Disposal of Real Estate 0 1,018,624 635,909 1,170,293
-------- ---------- --------- ----------
Income from Discontinued
Operations $ 39,230 $1,137,478 $ 789,992 $1,581,481
======== ========== ========= ==========
(7) Recently Issued Accounting Pronouncements -
In December 2007, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
141(R) ("SFAS 141(R)"), Business Combinations. SFAS 141(R)
requires, among other things, the expensing of acquisition-
related transaction costs. Management anticipates that SFAS
141(R) will be effective for property acquisitions completed
on or after January 1, 2009. Management is evaluating the
effect that the adoption of SFAS 141(R) will have on the
Partnership's results of operations, financial position, and
the related disclosures.
In September 2006, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 157
("SFAS 157"), Fair Value Measurements. SFAS 157 defines
fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value
measurements. The statement is effective for (1) financial
assets and liabilities in financial statements issued for
fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years and (2) certain non-
financial assets and liabilities in financial statements
issued for fiscal years beginning after November 15, 2008,
and interim periods within those fiscal years. When testing
for recoverability of properties under SFAS 144, Accounting
for Impairment or Disposal of Long-Lived Assets, the
provisions of this statement are used when comparing fair
value to carrying value. Management is evaluating the
effect that the adoption of SFAS 157 will have on the
Partnership's results of operations, financial position, and
the related disclosures.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This section contains "forward looking statements" which
represent management's expectations or beliefs concerning future
events, including statements regarding anticipated application of
cash, expected returns from rental income, growth in revenue, the
sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward
looking statements, should be evaluated in the context of a
number of factors that may affect the Partnership's financial
condition and results of operations, including the following:
Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
effects of these consequences for the Partners;
resolution by the General Partners of conflicts with
which they may be confronted;
the success of the General Partners of locating
properties with favorable risk return characteristics;
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Partnership operate.
The Application of Critical Accounting Policies
The preparation of the Partnership's financial statements
requires management to make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. Management evaluates these estimates on an ongoing
basis, including those related to the carrying value of real
estate and the allocation by AEI Fund Management, Inc. of
expenses to the Partnership as opposed to other funds they
manage.
The Partnership purchases properties and records them in
the financial statements at cost (including capitalized
acquisition expenses). The Partnership anticipates that for
acquisitions completed on or after January 1, 2009, acquisition-
related transaction costs will be expensed as incurred as a
result of the adoption of Statement of Financial Accounting
Standards No. 141(R), Business Combinations. The Partnership
tests long-lived assets for recoverability when events or changes
in circumstances indicate that the carrying value may not be
recoverable. For properties the Partnership will hold and
operate, management determines whether impairment has occurred by
comparing the property's probability-weighted cash flows to its
current carrying value. For properties held for sale, management
determines whether impairment has occurred by comparing the
property's estimated fair value less cost to sell to its current
carrying value. If the carrying value is greater than the
realizable value, an impairment loss is recorded to reduce the
carrying value of the property to its realizable value. Changes
in these assumptions or analysis may cause material changes in
the carrying value of the properties.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
AEI Fund Management, Inc. allocates expenses to each of
the funds they manage primarily on the basis of the number of
hours devoted by their employees to each fund's affairs. They
also allocate expenses at the end of each month that are not
directly related to a fund's operations based upon the number of
investors in the fund and the fund's capitalization relative to
other funds they manage. The Partnership reimburses these
expenses subject to detailed limitations contained in the
Partnership Agreement.
Management of the Partnership has discussed the
development and selection of the above accounting estimates and
the management discussion and analysis disclosures regarding them
with the managing partner of the Partnership.
Results of Operations
For the nine months ended September 30, 2008 and 2007, the
Partnership recognized rental income from continuing operations
of $844,737 and $663,712, respectively. In 2008, rental income
increased due to additional rent received from one property
acquisition in 2008 and rent increases on three properties.
For the nine months ended September 30, 2008 and 2007, the
Partnership incurred Partnership administration expenses from
affiliated parties of $167,809 and $166,554, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and correspondence to the Limited Partners. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $31,194 and $27,113, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit costs, taxes,
insurance and other property costs.
For the nine months ended September 30, 2008 and 2007, the
Partnership recognized interest income of $52,333 and $78,395,
respectively. Interest income decreased due to lower money
market interest rates in 2008, when compared to the same period
in 2007.
In accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, upon complete disposal of a property or
classification of a property as Real Estate Held for Sale, the
Partnership includes the operating results and sale of the
property in discontinued operations. In addition, the
Partnership reclassifies the prior periods' operating results of
the property to discontinued operations. For the nine months
ended September 30, 2008, the Partnership recognized income from
discontinued operations of $789,992, representing rental income
less property management expenses and depreciation of $154,083
and gain on disposal of real estate of $635,909. For the nine
months ended September 30, 2007, the Partnership recognized
income from discontinued operations of $1,581,481, representing
rental income less property management expenses and depreciation
of $411,188 and gain on disposal of real estate of $1,170,293.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
During the first three months of 2007, the Partnership
sold its remaining 10.0242% interest in the Eckerd drug store in
Utica, New York, in two separate transactions, to unrelated third
parties. The Partnership received total net sale proceeds of
$509,303, which resulted in a net gain of $59,412. The cost and
related accumulated depreciation of the interests sold was
$463,144 and $13,253, respectively.
On April 12, 2007, the Partnership sold 12.1042% of the
KinderCare daycare center in Kimberly, Wisconsin to an unrelated
third party. The Partnership received net sale proceeds of
$236,188, which resulted in a net gain of $92,257. The cost and
related accumulated depreciation of the interest sold was
$164,404 and $20,473, respectively.
On January 15, 2008, the Partnership sold its remaining
13.4184% interest in the KinderCare daycare center in Kimberly,
Wisconsin to an unrelated third party. The Partnership received
net sale proceeds of $258,749, which resulted in a net gain of
$99,192. The cost and related accumulated depreciation of the
interest sold was $182,253 and $22,696, respectively. At
December 31, 2007, the property was classified as Real Estate
Held for Sale with a book value of $159,557.
On August 30, 2007, the Partnership sold the Champps
Americana restaurant in San Antonio, Texas to the tenant. The
Partnership received net sale proceeds of $3,143,523, which
resulted in a net gain of $1,018,624. At the time of sale, the
cost and related accumulated depreciation was $2,833,357 and
$708,458, respectively.
In March 2008, the Partnership entered into an agreement
to sell the Johnny Carino's restaurant in Laredo, Texas to an
unrelated third party. On May 15, 2008, the sale closed with the
Partnership receiving net proceeds of $2,896,269, which resulted
in a net gain of $536,717. At the time of sale, the cost and
related accumulated depreciation was $2,605,079 and $245,527,
respectively.
The Partnership is attempting to sell the KinderCare
daycare center in Ballwin, Missouri. At September 30, 2008, the
property was classified as Real Estate Held for Sale with a book
value of $1,212,625.
Inflation has had a minimal effect on income from
operations. Leases may contain rent increases, based on the
increase in the Consumer Price Index over a specified period,
which will result in an increase in rental income over the term
of the leases. In addition, leases may contain rent clauses
which entitle the Partnership to receive additional rent in
future years if gross receipts for the property exceed certain
specified amounts. Increases in sales volumes of the tenants,
due to inflation and real sales growth, may result in an increase
in rental income over the term of the leases. Inflation also may
cause the real estate to appreciate in value. However, inflation
and changing prices may have an adverse impact on the operating
margins of the properties' tenants, which could impair their
ability to pay rent and subsequently reduce the Net Cash Flow
available for distributions.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
Liquidity and Capital Resources
During the nine months ended September 30, 2008, the
Partnership's cash balances decreased $902,408 as a result of
cash used to purchase property and distributions paid to the
Partners in excess of cash generated from operating activities,
which were partially offset by cash generated from the sale of
property. During the nine months ended September 30, 2007, the
Partnership's cash balances increased $3,512,096 as a result of
cash generated from the sale of property, which was partially
offset by distributions paid to the Partners in excess of cash
generated from operating activities.
Net cash provided by operating activities decreased from
$1,039,233 in 2007 to $899,556 in 2008 as a result of a decrease
in total rental and interest income in 2008 and an increase in
Partnership administration and property management expenses in
2008, which were partially offset by net timing differences in
the collection of payments from the tenants and the payment of
expenses.
The major components of the Partnership's cash flow from
investing activities are investments in real estate and proceeds
from the sale of real estate. During the nine months ended
September 30, 2008 and 2007, the Partnership generated cash flow
from the sale of real estate of $3,155,018 and $3,889,014,
respectively. During the nine months ended September 30, 2008,
the Partnership expended $3,629,090 to invest in real properties
(inclusive of acquisition expenses) as the Partnership reinvested
cash generated from property sales.
On January 31, 2008, the Partnership purchased a 54%
interest in a Best Buy store in Eau Claire, Wisconsin for
$3,629,090. The property is leased to Best Buy Stores, L.P.
under a Lease Agreement with a remaining primary term of 10 years
and initial annual rent of $256,001 for the interest purchased.
The remaining interests in the property were purchased by AEI
Income & Growth Fund 23 LLC and AEI Income & Growth Fund 26 LLC,
affiliates of the Partnership.
Subsequent to September 30, 2008, the Partnership
purchased a 55% interest in a Fresenius Medical Center in
Shreveport, Louisiana for approximately $1,340,000. The property
is leased to Bio-Medical Applications of Louisiana, LLC, a
subsidiary of Fresenius Medical Care Holdings, Inc., under a
Lease Agreement with a remaining primary term of 9.8 years and
initial annual rent of $102,520 for the interest purchased. The
remaining interest in the property was purchased by AEI Income &
Growth Fund 24 LLC, an affiliate of the Partnership.
Subsequent to September 30, 2008, the Partnership issued a
commitment to purchase a 63% interest in a parcel of land in
Rapid City, South Dakota for approximately $598,500.
Simultaneous with the purchase of the land, the Partnership will
enter into a Development Financing Agreement under which the
Partnership will advance funds to Brad and Dad, LLC for the
construction of a Tractor Supply Company store on the site. The
purchase price, including the cost of the land, will be
approximately $1,915,000. The remaining interest in the property
will be purchased by AEI Income & Growth Fund 27 LLC, an
affiliate of the Partnership.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The property is leased to Tractor Supply Company under a
Lease Agreement with a primary term of 15 years and initial
annual rent of $141,750 for the interest purchased. Pursuant to
the Lease, the tenant will commence paying rent on the day the
store opens for business, which is expected to be in May 2009.
Pursuant to the development agreement, for the period from the
day the land is purchased to the day that the tenant commences
paying rent, Brad and Dad, LLC will pay the Partnership interest
at a rate of 6.9% on the purchase price of the land and the
amounts advanced for construction of the building. Pursuant to
the Lease, any improvements to the land during the term of the
Lease become the property of the Partnership.
The Partnership's primary use of cash flow, other than
investment in real estate, is distribution and redemption
payments to Partners. The Partnership declares its regular
quarterly distributions before the end of each quarter and pays
the distribution in the first week after the end of each quarter.
The Partnership attempts to maintain a stable distribution rate
from quarter to quarter. Redemption payments are paid to
redeeming Partners in the fourth quarter of each year.
For the nine months ended September 30, 2008 and 2007, the
Partnership declared distributions of $1,298,982 and $1,390,696,
respectively, which were distributed 99% to the Limited Partners
and 1% to the General Partners. The Limited Partners received
distributions of $1,285,992 and $1,376,789 and the General
Partners received distributions of $12,990 and $13,907 for the
periods, respectively. In 2008, distributions were lower due to
a decrease in the regular distribution rate per Unit, effective
January 1, 2008. In June and September 2007, the Partnership
declared special distributions of net sale proceeds of $70,707
and $118,182, respectively. In March and June 2008, the
Partnership declared special distributions of net sale proceeds
of $58,586 and $176,768, respectively.
During the first nine months of 2008 and 2007, the
Partnership distributed net sale proceeds of $407,134 and
$306,354 to the Limited and General Partners as part of their
quarterly distributions, which represented a return of capital of
$17.70 and $13.29 per Limited Partnership Unit, respectively.
The Partnership anticipates the remaining net sale proceeds will
either be reinvested in additional property or distributed to the
Partners in the future.
The Partnership may acquire Units from Limited Partners
who have tendered their Units to the Partnership. Such Units may
be acquired at a discount. The Partnership will not be obligated
to purchase in any year any number of Units that, when aggregated
with all other transfers of Units that have occurred since the
beginning of the same calendar year (excluding Permitted
Transfers as defined in the Partnership Agreement), would exceed
5% of the total number of Units outstanding on January 1 of such
year. In no event shall the Partnership be obligated to purchase
Units if, in the sole discretion of the Managing General Partner,
such purchase would impair the capital or operation of the
Partnership.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
During 2008, the Partnership did not redeem any Units from
the Limited Partners. During 2007, two Limited Partners redeemed
a total of 23.34 Partnership Units for $9,445 in accordance with
the Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a total of
58 Limited Partners redeemed 1,197.55 Partnership Units for
$949,024. The redemptions increase the remaining Limited
Partners' ownership interest in the Partnership. As a result of
these redemption payments and pursuant to the Partnership
Agreement, the General Partners received distributions of $96 in
2007.
The continuing rent payments from the properties, together
with cash generated from property sales, should be adequate to
fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4T. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures.
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing General Partner of the Partnership evaluated the
effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based
upon that evaluation, the President and Chief Financial Officer
of the Managing General Partner concluded that, as of the end of
the period covered by this report, our disclosure controls and
procedures were effective in ensuring that information required
to be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in applicable rules and forms
and that such information is accumulated and communicated to
management, including the President and Chief Financial Officer
of the Managing General Partner, in a manner that allows timely
decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting.
During the most recent period covered by this report,
there has been no change in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which
the Partnership is a party or of which the Partnership's property
is subject.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
(a) None.
(b) Not applicable.
(c) Pursuant to Section 7.7 of the Partnership Agreement,
each Limited Partner has the right to present Units to the
Partnership for purchase by submitting notice to the Managing
General Partner during September of each year. The purchase
price of the Units is based on a formula specified in the
Partnership Agreement. Units tendered to the Partnership are
redeemed on October 1st of each year subject to the following
limitations. The Partnership will not be obligated to purchase
in any year any number of Units that, when aggregated with all
other transfers of Units that have occurred since the beginning
of the same calendar year (excluding Permitted Transfers as
defined in the Partnership Agreement), would exceed 5% of the
total number of Units outstanding on January 1 of such year. In
no event shall the Partnership be obligated to purchase Units if,
in the sole discretion of the Managing General Partner, such
purchase would impair the capital or operation of the
Partnership. During the period covered by this report, the
Partnership did not purchase any Units.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5.OTHER INFORMATION.
None.
PART II - OTHER INFORMATION
(Continued)
ITEM 6.EXHIBITS
31.1 Certification of Chief Executive Officer of General
Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer of General
Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Officer of General Partner pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Dated: November 7, 2008 AEI Income & Growth Fund XXI
Limited Partnership
By: AEI Fund Management XXI, Inc.
Its: Managing General Partner
By: ROBERT P JOHNSON
ROBERT P JOHNSON
President
(Principal Executive Officer)
By: PATRICK W KEENE
PATRICK W KEENE
Chief Financial Officer
(Principal Accounting Officer)