UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For the Quarter Ended: September 30, 2002
Commission file number: 0-29274
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer as Specified in its Charter)
State of Minnesota 41-1789725
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1300 Minnesota World Trade Center, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(651) 227-7333
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.
Yes [X] No
Transitional Small Business Disclosure Format:
Yes No [X]
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Item 1. Balance Sheet as of September 30, 2002 and December 31, 2001
Statements for the Periods ended September 30, 2002 and 2001:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
Item 3. Controls and Procedures
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Certifications
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
BALANCE SHEET
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(Unaudited)
ASSETS
2002 2001
CURRENT ASSETS:
Cash and Cash Equivalents $ 5,045,472 $ 4,460,840
Receivables 0 9,567
----------- -----------
Total Current Assets 5,045,472 4,470,407
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 4,728,124 4,976,315
Buildings and Equipment 10,433,312 9,175,172
Accumulated Depreciation (1,366,814) (1,418,203)
----------- -----------
13,794,622 12,733,284
Real Estate Held for Sale 0 846,124
----------- -----------
Net Investments in Real Estate 13,794,622 13,579,408
----------- -----------
Total Assets $18,840,094 $18,049,815
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 102,792 $ 37,491
Distributions Payable 405,719 405,719
Unearned Rent 237 0
----------- -----------
Total Current Liabilities 508,748 443,210
----------- -----------
PARTNERS' CAPITAL:
General Partners 21,179 13,932
Limited Partners, $1,000 Unit Value;
24,000 Units authorized and issued;
23,235 Units outstanding 18,310,167 17,592,673
----------- -----------
Total Partners' Capital 18,331,346 17,606,605
----------- -----------
Total Liabilities and Partners' Capital $18,840,094 $18,049,815
=========== ===========
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
(Unaudited)
Three Months Ended Nine Months Ended
9/30/02 9/30/01 9/30/02 9/30/01
INCOME:
Rent $ 425,700 $ 424,785 $ 1,187,531 $ 1,371,592
Investment Income 14,066 20,205 53,473 61,048
--------- --------- ----------- -----------
Total Income 439,766 444,990 1,241,004 1,432,640
--------- --------- ----------- -----------
EXPENSES:
Partnership Administration -
Affiliates 54,290 82,427 198,789 220,151
Partnership Administration
and Property Management -
Unrelated Parties 11,769 10,918 49,101 24,379
Depreciation 113,249 121,520 305,024 366,704
Real Estate Impairment 0 295,354 0 295,354
--------- --------- ----------- -----------
Total Expenses 179,308 510,219 552,914 906,588
--------- --------- ----------- -----------
OPERATING INCOME (LOSS) 260,458 (65,229) 688,090 526,052
GAIN ON SALE OF REAL ESTATE 603,426 494,429 1,263,914 945,049
--------- --------- ----------- -----------
NET INCOME $ 863,884 $ 429,200 $ 1,952,004 $ 1,471,101
========= ========= =========== ===========
NET INCOME ALLOCATED:
General Partners $ 8,639 $ 16,292 $ 19,520 $ 38,711
Limited Partners 855,245 412,908 1,932,484 1,432,390
--------- --------- ----------- -----------
$ 863,884 $ 429,200 $ 1,952,004 $ 1,471,101
========= ========= =========== ===========
NET INCOME PER
LIMITED PARTNERSHIP UNIT
(23,235 and 23,322 weighted
average Units outstanding
in 2002 and 2001,
respectively) $ 36.81 $ 17.70 $ 83.17 $ 61.42
========= ========= =========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,952,004 $ 1,471,101
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 305,024 366,704
Real Estate Impairment 0 295,354
Gain on Sale of Real Estate (1,263,914) (945,049)
(Increase) Decrease in Receivables 9,567 (1,071)
Increase (Decrease) in Payable to
AEI Fund Management, Inc. 65,301 (61,934)
Increase in Unearned Rent 237 80,450
----------- -----------
Total Adjustments (883,785) (265,546)
----------- -----------
Net Cash Provided By
Operating Activities 1,068,219 1,205,555
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (4,140,223) (2,174,765)
Proceeds from Sale of Real Estate 4,883,899 3,152,532
Payments Received on Short-Term Note Receivable 0 675,920
----------- -----------
Net Cash Provided By
Investing Activities 743,676 1,653,687
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Distributions Payable 0 15,025
Distributions to Partners (1,227,263) (1,212,110)
----------- -----------
Net Cash Used For
Financing Activities (1,227,263) (1,197,085)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 584,632 1,662,157
CASH AND CASH EQUIVALENTS, beginning of period 4,460,840 1,388,156
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 5,045,472 $ 3,050,313
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2000 $(38,243) $17,132,557 $17,094,314 23,322.18
Distributions (12,121) (1,199,989) (1,212,110)
Net Income 38,711 1,432,390 1,471,101
-------- ----------- ----------- -----------
BALANCE, September 30, 2001 $(11,653) $17,364,958 $17,353,305 23,322.18
======== =========== =========== ===========
BALANCE, December 31, 2001 $ 13,932 $17,592,673 $17,606,605 23,235.35
Distributions (12,273) (1,214,990) (1,227,263)
Net Income 19,520 1,932,484 1,952,004
-------- ----------- ----------- -----------
BALANCE, September 30, 2002 $ 21,179 $18,310,167 $18,331,346 23,235.35
======== =========== =========== ===========
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, 2002
(Unaudited)
(1) The condensed statements included herein have been prepared
by the Partnership, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Partnership
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
Partnership's latest annual report on Form 10-KSB.
(2) Organization -
AEI Income & Growth Fund XXI Limited Partnership
(Partnership) was formed to acquire and lease commercial
properties to operating tenants. The Partnership's
operations are managed by AEI Fund Management XXI, Inc.
(AFM), the Managing General Partner. Robert P. Johnson, the
President and sole shareholder of AFM, serves as the
Individual General Partner and an affiliate of AFM, AEI Fund
Management, Inc. (AEI), performs the administrative and
operating functions for the Partnership.
The terms of the Partnership offering call for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. The Partnership
commenced operations on April 14, 1995 when minimum
subscriptions of 1,500 Limited Partnership Units
($1,500,000) were accepted. On January 31, 1997, the
offering terminated when the maximum subscription limit of
24,000 Limited Partnership Units was reached. Under the
terms of the Limited Partnership Agreement, the Limited
Partners and General Partners contributed funds of
$24,000,000 and $1,000, respectively.
During operations, any Net Cash Flow, as defined, which the
General Partners determine to distribute will be distributed
90% to the Limited Partners and 10% to the General Partners;
provided, however, that such distributions to the General
Partners will be subordinated to the Limited Partners first
receiving an annual, noncumulative distribution of Net Cash
Flow equal to 10% of their Adjusted Capital Contribution, as
defined, and, provided further, that in no event will the
General Partners receive less than 1% of such Net Cash Flow
per annum. Distributions to Limited Partners will be made
pro rata by Units.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(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) Short-Term Note Receivable -
On August 2, 2000, the Partnership received a Contract for
Deed from an affiliate of the buyer of the Media Play store
in Apple Valley, Minnesota. The Note bore interest at 9%
and was secured by the land, building and equipment. As of
December 31, 2000, the Partnership's share of outstanding
principal due on the Note was $675,920. On January 16,
2001, the Partnership received the outstanding principal and
accrued interest on the Note.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Continued)
(4) Investments in Real Estate -
Through December 31, 2001, the Partnership sold its interest
in the Champps Americana restaurant in Columbus, Ohio, in
eleven separate transactions, to unrelated third parties.
The Partnership received total net sale proceeds of
$2,295,174, which resulted in a total net gain of $631,607.
The total cost and related accumulated depreciation of the
interests sold was $1,808,880 and $145,313, respectively.
For the nine months ended September 30, 2001, the net gain
was $289,679.
Through September 30, 2002, the Partnership sold its
interest in the Champps Americana restaurant in Schaumburg,
Illinois, in thirteen separate transactions, to unrelated
third parties. The Partnership received total net sale
proceeds of $2,892,414, which resulted in a total net gain
of $838,268. The total cost and related accumulated
depreciation of the interests sold was $2,256,461 and
$202,315, respectively. For the nine months ended
September 30, 2002 and 2001, the net gain was $16,738 and
$605,992, respectively.
Through September 30, 2002, the Partnership sold 86.6082% of
the Champps Americana restaurant in Livonia, Michigan, in
eighteen separate transactions, to unrelated third parties.
The Partnership received total net sale proceeds of
$4,765,601, which resulted in a net gain of $1,631,869. The
total cost and related accumulated depreciation of the
interests sold was $3,594,292 and $460,560, respectively.
For the nine months ended September 30, 2002, the net gain
was $1,208,486.
Subsequent to September 30, 2002, the Partnership sold an
additional 8.5171% of the Champps Americana restaurant in
Livonia, Michigan, in two separate transactions, to
unrelated third parties. The Partnership received net sale
proceeds of approximately $468,000, which resulted in a net
gain of approximately $166,000.
During the first nine months of 2002, the Partnership
distributed $234,149 of the net sale proceeds to the Limited
and General Partners as part of their regular quarterly
distributions which represented a return of capital of $9.98
per Limited Partnership Unit. The remaining net sale
proceeds will either be reinvested in additional property or
distributed to the Partners in the future.
On March 30, 2001, the Partnership purchased a Children's
World daycare center in Mundelein, Illinois for $1,618,824.
The property is leased to ARAMARK Educational Resources,
Inc. under a Lease Agreement with a primary term of 15 years
and annual rental payments of $153,710.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Continued)
(4) Investments in Real Estate - (Continued)
On March 8, 2001, the Partnership purchased a 25% interest
in a parcel of land in Austin, Texas for $283,000. The land
is leased to Kona Restaurant Group, Inc. (KRG) under a Lease
Agreement with a primary term of 17 years and annual rental
payments of $29,715. Simultaneously with the purchase of
the land, the Partnership entered into a Development
Financing Agreement under which the Partnership advanced
funds to KRG for the construction of a Johnny Carino's
restaurant on the site. The Partnership charged interest on
the advances at a rate of 10.5%. On September 26, 2001,
after the development was completed, the Lease Agreement was
amended to require annual rental payments of $60,191. The
Partnership's share of the total acquisition costs,
including the cost of the land, was $571,902. The remaining
interests in the property were purchased by AEI Real Estate
Fund 85-A Limited Partnership, AEI Net Lease Income & Growth
Fund XX Limited Partnership, and AEI Income & Growth Fund 23
LLC, affiliates of the Partnership.
In the third quarter of 2002, the Partnership sold 23.8161%
of the Johnny Carino's restaurant in Austin, Texas, in three
separate transactions, to unrelated third parties. The
Partnership received total net sale proceeds of $603,681,
which resulted in a net gain of $68,672. The total cost and
related accumulated depreciation of the interests sold was
$544,819 and $9,810, respectively.
On June 14, 2002, the Partnership purchased three Children's
World daycare centers located in Andover, Minnesota,
Ballwin, Missouri and Kimberly, Wisconsin. The properties
were purchased for $1,264,207, $1,517,777 and $1,358,239,
respectively. The properties are leased to ARAMARK
Educational Resources, Inc. under Lease Agreements with
primary terms of 15 years and annual rental payments of
$120,204, $144,113 and $129,087, respectively.
On October 31, 2002, the Partnership purchased a parcel of
land in Farmington, New Mexico for $810,000. The land is
leased to SFG Farmington I Limited Partnership (SFG) under a
Lease Agreement with a primary term of 17 years and annual
rental payments of $85,050. Simultaneously with the
purchase of the land, the Partnership entered into a
Development Financing Agreement under which the Partnership
will advance funds to SFG for the construction of a Johnny
Carino's restaurant on the site. The total purchase price,
including the cost of the land, will be approximately
$2,290,000. After the construction is complete, the Lease
Agreement will be amended to require annual rental payments
of approximately $240,450.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Continued)
(4) Investments in Real Estate - (Continued)
In May, 2001, Huntington Restaurants Group, Inc. (HRG), the
lessee of the Denny's Restaurant in Covington, Louisiana
notified the Partnership that it was experiencing financial
problems and would not make the lease payments while they
worked out a plan which would enable them to continue
operations without seeking bankruptcy protection. In
October, 2001, the Partnership received an offer to buy the
restaurant for $900,000 from an unrelated third party.
Effective December 10, 2001, the Partnership terminated the
Lease to accommodate the sale. Through this date, HRG owed
$80,316 of rent, which will not be collected and was not
accrued for financial reporting purposes. In the third
quarter of 2001, a charge to operations for real estate
impairment of $295,354 was recognized, which was the
difference between the book value at September 30, 2001 of
$1,145,354 and the estimated net sales proceeds of $850,000.
The charge was recorded against the cost of the building and
equipment. At December 31, 2001, the land and building were
classified as Real Estate Held for Sale. On February 19,
2002, the sale closed with the Partnership receiving net
sale proceeds of $816,143 which resulted in a net loss of
$29,982.
(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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The Management's Discussion and Analysis contains various
"forward looking statements" within the meaning of federal
securities laws which represent management's expectations or
beliefs concerning future events, including statements regarding
anticipated application of cash, expected returns from rental
income, growth in revenue, taxation levels, the sufficiency of
cash to meet operating expenses, rates of distribution, and other
matters. These, and other forward looking statements made by the
Partnership, must be evaluated in the context of a number of
factors that may affect the Partnership's financial condition and
results of operations, including the following:
Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
affects of these consequences for the Partners;
resolution by the General Partners of conflicts with
which they may be confronted;
the success of the General Partners of locating
properties with favorable risk return characteristics;
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Partnership operate.
The Application of Critical Accounting Policies
The preparation of the Partnership's financial statements
requires management to make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. Management evaluates these estimates on an ongoing
basis, including those related to the carrying value of real
estate and the allocation by AEI Fund Management, Inc. of
expenses to the Partnership as opposed to other funds they
manage.
The Partnership purchases properties and records them in
the financial statements at the lower of cost or estimated
realizable value. The Partnership initially records the
properties at cost (including capitalized acquisition expenses).
The Partnership is required to periodically evaluate the carrying
value of properties to determine whether their realizable value
has declined. For properties the Partnership will hold and
operate, management determines whether impairment has occurred by
comparing the property's probability-weighted cash flows to its
current carrying value. For properties held for sale, management
determines whether impairment has occurred by comparing the
property's estimated fair value less cost to sell to its current
carrying value. If the carrying value is greater than the
realizable value, an impairment loss is recorded to reduce the
carrying value of the property to its realizable value. A change
in these assumptions or analysis could cause material changes in
the carrying value of the properties.
AEI Fund Management Inc. allocates expenses to each of the
funds they manage primarily on the basis of the number of hours
devoted by their employees to each fund's affairs. They also
allocate some expenses at the end of each month that are not
directly related to a fund's operations based upon the number of
investors in the fund and the fund's capitalization relative to
other funds they manage. The Partnership reimburses these
expenses subject to detailed limitations contained in the
Partnership Agreement.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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, 2002 and 2001, the
Partnership recognized rental income of $1,187,531 and
$1,371,592, respectively. During the same periods, the
Partnership earned investment income of $53,473 and $61,048,
respectively. In 2002, rental income decreased as a result of
the loss of rent from the Denny's restaurant and the property
sales discussed below. These decreases in rental income were
partially offset by additional rent received from five property
acquisitions in 2001 and 2002, and rent increases on four
properties.
In May, 2001, Huntington Restaurants Group, Inc. (HRG),
the lessee of the Denny's Restaurant in Covington, Louisiana
notified the Partnership that it was experiencing financial
problems and would not make the lease payments while they worked
out a plan which would enable them to continue operations without
seeking bankruptcy protection. In October, 2001, the Partnership
received an offer to buy the restaurant for $900,000 from an
unrelated third party. Effective December 10, 2001, the
Partnership terminated the Lease to accommodate the sale. Through
this date, HRG owed $80,316 of rent, which will not be collected
and was not accrued for financial reporting purposes. In the
third quarter of 2001, a charge to operations for real estate
impairment of $295,354 was recognized, which was the difference
between the book value at September 30, 2001 of $1,145,354 and
the estimated net sales proceeds of $850,000. The charge was
recorded against the cost of the building and equipment. At
December 31, 2001, the land and building were classified as Real
Estate Held for Sale. On February 19, 2002, the sale closed with
the Partnership receiving net sale proceeds of $816,143 which
resulted in a net loss of $29,982.
During the nine months ended September 30, 2002 and 2001,
the Partnership paid Partnership administration expenses to
affiliated parties of $198,789 and $220,151, 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 $49,101 and $24,379, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit and accounting
costs, taxes, insurance and other property costs.
As of September 30, 2002, the Partnership's annualized
cash distribution rate was 6.75%, based on the Adjusted Capital
Contribution. Distributions of Net Cash Flow to the General
Partners were subordinated to the Limited Partners as required in
the Partnership Agreement. As a result, 99% of distributions
were allocated to Limited Partners and 1% to the General
Partners.
Inflation has had a minimal effect on income from
operations. Leases may contain rent increases, based on the
increase in the Consumer Price Index over a specified period,
which will result in an increase in rental income over the term
of the leases. In addition, leases may contain rent clauses
which entitle the Partnership to receive additional rent in
future years if gross receipts for the property exceed certain
specified amounts. Increases in sales volumes of the tenants,
due to inflation and real sales growth, may result in an increase
in rental income over the term of the leases. Inflation also may
cause the real estate to appreciate in value. However, inflation
and changing prices may have an adverse impact on the operating
margins of the properties' tenants, which could impair their
ability to pay rent and subsequently reduce the Net Cash Flow
available for distributions.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Liquidity and Capital Resources
During the nine months ended September 30, 2002, the
Partnership's cash balances increased $584,632 mainly as the
result of cash generated from the sale of property, which was
partially offset by cash used to purchase property. Net cash
provided by operating activities decreased from $1,205,555 in
2001 to $1,068,219 in 2002 as a result of a decrease in income
and an increase in Partnership administration expenses in 2002,
which were partially offset by net timing differences in the
collection of payments from the lessees 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, 2002 and 2001, the Partnership generated cash flow
from the sale of real estate of $4,883,899 and $3,152,532,
respectively. During the same periods, the Partnership expended
$4,140,223 and $2,174,765, respectively, to invest in real
properties (inclusive of acquisition expenses) as the Partnership
reinvested cash generated from property sales.
Through December 31, 2001, the Partnership sold its
interest in the Champps Americana restaurant in Columbus, Ohio,
in eleven separate transactions, to unrelated third parties. The
Partnership received total net sale proceeds of $2,295,174, which
resulted in a total net gain of $631,607. The total cost and
related accumulated depreciation of the interests sold was
$1,808,880 and $145,313, respectively. For the nine months ended
September 30, 2001, the net gain was $289,679.
Through September 30, 2002, the Partnership sold its
interest in the Champps Americana restaurant in Schaumburg,
Illinois, in thirteen separate transactions, to unrelated third
parties. The Partnership received total net sale proceeds of
$2,892,414, which resulted in a total net gain of $838,268. The
total cost and related accumulated depreciation of the interests
sold was $2,256,461 and $202,315, respectively. For the nine
months ended September 30, 2002 and 2001, the net gain was
$16,738 and $605,992, respectively.
Through September 30, 2002, the Partnership sold 86.6082%
of the Champps Americana restaurant in Livonia, Michigan, in
eighteen separate transactions, to unrelated third parties. The
Partnership received total net sale proceeds of $4,765,601, which
resulted in a net gain of $1,631,869. The total cost and related
accumulated depreciation of the interests sold was $3,594,292 and
$460,560, respectively. For the nine months ended September 30,
2002, the net gain was $1,208,486.
Subsequent to September 30, 2002, the Partnership sold an
additional 8.5171% of the Champps Americana restaurant in
Livonia, Michigan, in two separate transactions, to unrelated
third parties. The Partnership received net sale proceeds of
approximately $468,000, which resulted in a net gain of
approximately $166,000.
During the first nine months of 2002, the Partnership
distributed $234,149 of the net sale proceeds to the Limited and
General Partners as part of their regular quarterly distributions
which represented a return of capital of $9.98 per Limited
Partnership Unit. The remaining net sale proceeds will either be
reinvested in additional property or distributed to the Partners
in the future.
On March 30, 2001, the Partnership purchased a Children's
World daycare center in Mundelein, Illinois for $1,618,824. The
property is leased to ARAMARK Educational Resources, Inc. under a
Lease Agreement with a primary term of 15 years and annual rental
payments of $153,710.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
On March 8, 2001, the Partnership purchased a 25% interest
in a parcel of land in Austin, Texas for $283,000. The land is
leased to Kona Restaurant Group, Inc. (KRG) under a Lease
Agreement with a primary term of 17 years and annual rental
payments of $29,715. Simultaneously with the purchase of the
land, the Partnership entered into a Development Financing
Agreement under which the Partnership advanced funds to KRG for
the construction of a Johnny Carino's restaurant on the site.
The Partnership charged interest on the advances at a rate of
10.5%. On September 26, 2001, after the development was
completed, the Lease Agreement was amended to require annual
rental payments of $60,191. The Partnership's share of the total
acquisition costs, including the cost of the land, was $571,902.
The remaining interests in the property were purchased by AEI
Real Estate Fund 85-A Limited Partnership, AEI Net Lease Income &
Growth Fund XX Limited Partnership, and AEI Income & Growth Fund
23 LLC, affiliates of the Partnership.
In the third quarter of 2002, the Partnership sold
23.8161% of the Johnny Carino's restaurant in Austin, Texas, in
three separate transactions, to unrelated third parties. The
Partnership received total net sale proceeds of $603,681, which
resulted in a net gain of $68,672. The total cost and related
accumulated depreciation of the interests sold was $544,819 and
$9,810, respectively.
On June 14, 2002, the Partnership purchased three
Children's World daycare centers located in Andover, Minnesota,
Ballwin, Missouri and Kimberly, Wisconsin. The properties were
purchased for $1,264,207, $1,517,777 and $1,358,239,
respectively. The properties are leased to ARAMARK Educational
Resources, Inc. under Lease Agreements with primary terms of 15
years and annual rental payments of $120,204, $144,113 and
$129,087, respectively.
On October 31, 2002, the Partnership purchased a parcel of
land in Farmington, New Mexico for $810,000. The land is leased
to SFG Farmington I Limited Partnership (SFG) under a Lease
Agreement with a primary term of 17 years and annual rental
payments of $85,050. Simultaneously with the purchase of the
land, the Partnership entered into a Development Financing
Agreement under which the Partnership will advance funds to SFG
for the construction of a Johnny Carino's restaurant on the site.
The total purchase price, including the cost of the land, will be
approximately $2,290,000. After the construction is complete,
the Lease Agreement will be amended to require annual rental
payments of approximately $240,450.
The Partnership's primary use of cash flow is distribution
and redemption payments to Partners. The Partnership declares
its regular quarterly distributions before the end of each
quarter and pays the distribution in the first 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. Effective April 1, 2001, the Partnership's distribution
rate was increased from 6.5% to 6.75%. As a result,
distributions were higher in 2002 when compared to 2001.
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)
On October 1, 2002, eight Limited Partners redeemed a
total of 210.02 Partnership Units for $156,938 in accordance with
the Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, thirty-
three Limited Partners redeemed a total of 764.65 Partnership
Units for $647,929. The redemptions increase the remaining
Limited Partners' ownership interest in the Partnership.
The continuing rent payments from the properties, together
with cash generated from property sales, should be adequate to
fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing General Partner of the Partnership evaluated the
effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule [13a-14(c)/15d-14(c)]
under the Exchange Act) related to the Partnership as of a date
(the "Evaluation Date") within 90 days prior to the filing date
of this report. Based upon that evaluation, the President and
Chief Financial Officer of the Managing General Partner concluded
that, as of the Evaluation Date, the disclosure controls and
procedures are effective in timely alerting them to the material
information relating to the Partnership required to be included
in periodic SEC filings.
(b) Changes in internal controls
There were no significant changes made in the
Partnership's internal controls during the period covered by this
report or, to the Managing General Partner's knowledge, in other
factors that could significantly affect these controls subsequent
to the date of their evaluation.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
There are no material pending legal proceedings to which
the Partnership is a party or of which the Partnership's
property is subject.
ITEM 2.CHANGES IN SECURITIES
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5.OTHER INFORMATION
None.
PART II - OTHER INFORMATION
(Continued)
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
Description
10.1 Development Financing Agreement dated October 31, 2002
between the Partnership and SFG Farmington I Limited
Partnership relating to the property at 3500 East Main
Street, Farmington, New Mexico.
10.2 Net Lease Agreement dated October 31, 2002 between the
Partnership and SFG Farmington I Limited Partnership.
relating to the property at 3500 East Main Street,
Farmington, New Mexico.
99.1 Certification of Chief Executive Officer of General
Partner pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2 Certification of Chief Financial Officer of General
Partner pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports filed on Form 8-K - None
SIGNATURES
In accordance with the requirements of the Exchange Act,
the Registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: November 1, 2002 AEI Income & Growth Fund XXI
Limited Partnership
By: AEI Fund Management XXI, Inc.
Its: Managing General Partner
By: /s/ Robert P Johnson
Robert P. Johnson
President
(Principal Executive Officer)
By: /s/ Mark E Larson
Mark E. Larson
Chief Financial Officer
(Principal Accounting Officer)
CERTIFICATIONS
I, Robert P. Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of AEI
Income & Growth Fund XXI Limited Partnership;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge; the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and have;
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Dated: November 1, 2002 /s/ Robert P Johnson
Robert P. Johnson, President
AEI Fund Management XXI, Inc.
Managing General Partner
CERTIFICATIONS
I, Mark E. Larson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of AEI
Income & Growth Fund XXI Limited Partnership;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge; the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and have;
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Dated: November 1, 2002 /s/ Mark E Larson
Mark E. Larson, Chief Financial Officer
AEI Fund Management XXI, Inc.
Managing General Partner