Attached files
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Fiscal Year Ended: December 31, 2010
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each className of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the
Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or
Section 15(d) of the Exchange Act. Yes [ ] No [X]
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 [X] 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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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 Act). Yes [ ] No [X ]
As of June 30, 2010, there were 22,779.113 Units of limited
partnership interest outstanding and owned by nonaffiliates of
the registrant, which Units had an aggregate market value (based
solely on the price at which they were sold since there is no
ready market for such Units) of $22,779,113.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has not incorporated any documents by reference
into this report.
PART I
ITEM 1. BUSINESS.
AEI Income & Growth Fund XXI Limited Partnership (the
"Partnership" or the "Registrant") is a limited partnership which
was organized pursuant to the laws of the State of Minnesota on
August 22, 1994. The registrant is comprised of AEI Fund
Management XXI, Inc. ("AFM") as Managing General Partner, Robert
P. Johnson, the President and sole director of AFM, as the
Individual General Partner, and purchasers of partnership units
as Limited Partners. The Partnership offered for sale up to
$24,000,000 of limited partnership interests (the "Units")
(24,000 Units at $1,000 per Unit) pursuant to a registration
statement effective February 1, 1995. 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 Partnership offering terminated when the maximum
subscription limit of 24,000 Limited Partnership Units
($24,000,000) was reached.
The Partnership was organized to acquire existing and
newly constructed commercial properties located in the United
States, to lease such properties to tenants under net leases, to
hold such properties and to eventually sell such properties.
From subscription proceeds, the Partnership purchased ten
properties including partial interests in seven properties, at a
total cost of $19,686,525. The balance of the subscription
proceeds was applied to organization and syndication costs,
working capital reserves and distributions, which represented a
return of capital. The properties are commercial, single tenant
buildings leased under net leases.
The Partnership's properties were purchased without any
indebtedness. The Partnership will not finance properties in the
future to obtain proceeds for new property acquisitions. If it
is required to do so, the Partnership may incur short-term
indebtedness, which may be secured by a portion of the
Partnership's properties, to finance day-to-day cash flow
requirements (including cash flow necessary to repurchase Units).
The amount of borrowings that may be secured by the properties is
limited in the aggregate to 10% of the purchase price of all
properties. The Partnership will not incur borrowings prior to
application of the proceeds from sale of the Units, will not
incur borrowings to pay distributions, and will not incur
borrowings while there is cash available for distributions.
The Partnership will hold its properties until the General
Partners determine that the sale or other disposition of the
properties is advantageous in view of the Partnership's
investment objectives. In deciding whether to sell properties,
the General Partners will consider factors such as potential
appreciation, net cash flow and income tax considerations. The
Partnership expects to sell some or all of its properties prior
to its final liquidation and to reinvest the proceeds from such
sales in additional properties. The Partnership reserves the
right, at the discretion of the General Partners, to either
distribute proceeds from the sale of properties to the Partners
or to reinvest such proceeds in additional properties, provided
that sufficient proceeds are distributed to the Limited Partners
to pay federal and state income taxes related to any taxable gain
recognized as a result of the sale.
ITEM 1. BUSINESS. (Continued)
The prospectus under which Units were initially sold
indicated that the General Partners intended to liquidate the
Partnership 12 to 15 years after formation, depending upon the
then current real estate and money markets, the economic climate
and the income tax consequences to the Limited Partners.
Although it has been 16 years since the first admission of
Limited Partners to the Partnership, the General Partners do not
believe that current market conditions are particularly favorable
at this time. As a result, the General Partners do not believe
that sale of properties and liquidation of the Partnership is in
the best interest of the Limited Partners. Until the economic
conditions improve, it is difficult to estimate when the
Partnership may be able to commence its liquidation.
Leases
Although there are variations in the specific terms of the
leases, the following is a summary of the general terms of the
Partnership's leases. The properties are leased to various
tenants under net leases, classified as operating leases. Under
a net lease, the tenant is responsible for real estate taxes,
insurance, maintenance, repairs and operating expenses for the
property. For some leases, the Partnership is responsible for
repairs to the structural components of the building, the roof,
and the parking lot. At the time the properties were acquired,
the remaining primary lease terms varied from 10 to 20 years.
The leases provide the tenants with two to five five-year renewal
options subject to the same terms and conditions as the primary
term. The leases provide for base annual rental payments,
payable in monthly installments, and contain rent clauses which
entitle the Partnership to receive additional rent in future
years based on stated rent increases.
Property Activity During the Last Three Years
As of December 31, 2007, the Partnership owned a
significant interest in ten properties and a minor interest in
three properties with a total original cost of $14,929,096.
During the years ended December 31, 2008, 2009 and 2010, the
Partnership sold five property interests and received net sale
proceeds of $3,330,150, $329,208 and $1,102,212, which resulted
in net gains of $716,856, $135,884 and $253,923, respectively.
During 2008, 2009 and 2010, the Partnership expended $5,672,315,
$1,283,742 and $1,433,468, respectively, to purchase four
additional properties as it reinvested cash generated from
property sales. As of December 31, 2010, the Partnership owned a
significant interest in eleven properties and a minor interest in
two properties with a total original cost of $18,327,700.
Major Tenants
During 2010, five tenants each contributed more than ten
percent of the Partnership's total rental revenue. The major
tenants in aggregate contributed 76% of total rental revenue in
2010. It is anticipated that, based on minimum rental payments
required under the leases, each major tenant will continue to
contribute more than ten percent of rental revenue in 2011 and
future years. Any failure of these major tenants could
materially affect the Partnership's net income and cash
distributions.
ITEM 1. BUSINESS. (Continued)
Competition
The Partnership is a minor factor in the commercial real
estate business. There are numerous entities engaged in the
commercial real estate business which have greater financial
resources than the Partnership. At the time the Partnership
elects to dispose of its properties, the Partnership will be in
competition with other persons and entities to find buyers for
its properties.
Employees
The Partnership has no direct employees. Management
services are performed for the Partnership by AEI Fund
Management, Inc., an affiliate of AFM.
ITEM 1A. RISK FACTORS.
Not required for a smaller reporting company.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not required for a smaller reporting company.
ITEM 2. PROPERTIES.
Investment Objectives
The Partnership's investment objectives are to acquire
existing or newly-developed commercial properties throughout the
United States that offer the potential for (i) regular cash
distributions of lease income; (ii) growth in lease income
through rent escalation provisions; (iii) preservation of capital
through all-cash sale-leaseback transactions; (iv) capital growth
through appreciation in the value of properties; and (v) stable
property performance through long-term lease contracts. The
Partnership does not have a policy, and there is no limitation,
as to the amount or percentage of assets that may be invested in
any one property. However, to the extent possible, the General
Partners attempt to diversify the type and location of the
Partnership's properties.
Description of Properties
The Partnership's properties are commercial, single tenant
buildings. The properties were acquired on a debt-free basis and
are leased to various tenants under net leases, classified as
operating leases. The Partnership holds an undivided fee simple
interest in the properties.
ITEM 2. PROPERTIES. (Continued)
The Partnership's properties are subject to the general
competitive conditions incident to the ownership of single tenant
investment real estate. Since each property is leased under a
long-term lease, there is little competition until the
Partnership decides to sell the property. At this time, the
Partnership will be competing with other real estate owners, on
both a national and local level, in attempting to find buyers for
the properties. In the event of a tenant default, the
Partnership would be competing with other real estate owners, who
have property vacancies, to attract a new tenant to lease the
property. The Partnership's tenants operate in industries that
are very competitive and can be affected by factors such as
changes in regional or local economies, seasonality and changes
in consumer preference.
The following table is a summary of the properties that
the Partnership acquired and owned as of December 31, 2010.
Annual Annual
Purchase Property Lease Rent Per
Property Date Cost Tenant Payment Sq. Ft.
Arby's Restaurant
Montgomery, AL RTM Gulf
(2.6811%) 5/31/95 $ 23,049 Coast, LLC $ 2,973 $37.40
Champps Americana Restaurant Champps
Livonia, MI Operating
(.1534%) 5/19/98 $ 6,366 Corporation $ 851 $60.62
KinderCare Daycare Center KinderCare Learning
Andover, MN 6/14/02 $1,264,207 Centers, Inc. $132,224 $15.33
KinderCare Daycare Center
Ballwin, MO KinderCare Learning
(44.5116%) 6/14/02 $ 675,587 Centers, Inc. $ 70,561 $19.01
Winn-Dixie Store
Panama City, FL Winn-Dixie Stores
(20.4025%) 9/19/03 $ 945,665 Leasing, LLC $ 76,305 $ 7.23
Jared Jewelry Store
Hanover, MD Sterling Jewelers
(50%) 2/9/04 $1,989,135 Inc. $168,551 $58.04
Jared Jewelry Store
Auburn Hills, MI Sterling Jewelers
(40%) 1/14/05 $1,466,048 Inc. $112,772 $48.95
CarMax Auto Superstore
Lithia Springs, GA CarMax Auto
(20%) 3/18/05 $1,885,231Superstores, Inc. $146,286 $38.01
Applebee's Restaurant
Johnstown, PA
(62%) 9/21/06 $1,682,887B.T. Woodlipp, Inc.$121,340 $37.68
ITEM 2. PROPERTIES. (Continued)
Annual Annual
Purchase Property Lease Rent Per
Property Date Cost Tenant Payment Sq. Ft.
Best Buy Store
Eau Claire, WI Best Buy
(54%) 1/31/08 $3,637,706 Stores, L.P. $256,001 $10.01
Fresenius Medical Center Bio-Medical
Shreveport, LA Applications of
(55%) 10/2/08 $1,360,617 Louisiana, LLC $102,520 $21.93
Tractor Supply Company Store
Rapid City, SD Tractor Supply
(63%) 8/6/09 $1,957,734 Company $141,750 $11.78
Scott & White Clinic
College Station, TX Scott & White
(39%) 10/20/10 $1,433,468(1) Healthcare $120,120 $22.24
(1) Does not include acquisition costs that were expensed.
The properties listed above with a partial ownership
percentage are owned with the following affiliated entities
and/or unrelated third parties: Winn-Dixie store (AEI Net Lease
Income & Growth Fund XIX Limited Partnership and unrelated third
parties); Jared Jewelry store in Hanover, Maryland (AEI Net Lease
Income & Growth Fund XX Limited Partnership); Jared Jewelry store
in Auburn Hills, Michigan (AEI Income & Growth Fund 25 LLC);
CarMax auto superstore (AEI Income & Growth Fund 24 LLC, AEI
Income & Growth Fund 25 LLC and AEI Private Net Lease Millennium
Fund Limited Partnership); Applebee's restaurant (AEI Income &
Growth Fund XXII Limited Partnership); Best Buy store (AEI Income
& Growth Fund 23 LLC and AEI Income & Growth Fund 26 LLC);
Fresenius Medical Center (AEI Income & Growth Fund 24 LLC);
Tractor Supply Company store (AEI Income & Growth Fund 27 LLC)
and Scott & White Healthcare (AEI Net Lease Income & Growth Fund
XX Limited Partnership and AEI Income & Growth Fund 25 LLC). The
remaining interests in the Arby's restaurant, the Champps
Americana restaurant and the KinderCare daycare center in
Ballwin, Missouri are owned by unrelated third parties.
The Partnership accounts for properties owned as tenants-
in-common with affiliated entities and/or unrelated third parties
using the proportionate consolidation method. Each tenant-in-
common owns a separate, undivided interest in the properties.
Any tenant-in-common that holds more than a 50% interest does not
control decisions over the other tenant-in-common interests. The
financial statements reflect only this Partnership's percentage
share of the properties' land, building and equipment,
liabilities, revenues and expenses.
At the time the properties were acquired, the remaining
primary lease terms varied from 10 to 20 years. The leases
provide the tenants with two to five five-year renewal options
subject to the same terms and conditions as the primary term.
ITEM 2. PROPERTIES. (Continued)
Pursuant to the lease agreements, the tenants are required
to provide proof of adequate insurance coverage on the properties
they occupy. The General Partners believe the properties are
adequately covered by insurance and consider the properties to be
well-maintained and sufficient for the Partnership's operations.
For tax purposes, the Partnership's properties are
depreciated under the Modified Accelerated Cost Recovery System
(MACRS). The largest depreciable component of a property is the
building which is depreciated, using the straight-line method,
over 39 or 40 years. The remaining depreciable components of a
property are personal property and land improvements which are
depreciated, using an accelerated method, over 5 and 15 years,
respectively. Since the Partnership has tax-exempt Partners, the
Partnership is subject to the rules of Section 168(h)(6) of the
Internal Revenue Code which requires a percentage of the
properties' depreciable components to be depreciated over longer
lives using the straight-line method. In general, the federal
tax basis of the properties for tax depreciation purposes is the
same as the basis for book depreciation purposes except for
properties purchased after January 1, 2009. For those
properties, acquisition expenses that were expensed for book
purposes were capitalized and added to the basis of the property
for tax depreciation purposes.
At December 31, 2010, all properties listed above were
100% occupied.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. REMOVED AND RESERVED.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCK-
HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) As of December 31, 2010, there were 1,237 holders of
record of the registrant's Limited Partnership Units. There is
no other class of security outstanding or authorized. The
registrant's Units are not a traded security in any market.
During the period covered by this report, the Partnership did not
sell any equity securities that are not registered under the
Securities Act of 1933.
Cash distributions of $11,798 and $11,737 were made to the
General Partners and $1,167,994 and $1,161,996 were made to the
Limited Partners for 2010 and 2009, respectively. The
distributions were made on a quarterly basis and represent Net
Cash Flow, as defined, except as discussed below. These
distributions should not be compared with dividends paid on
capital stock by corporations.
As part of the Limited Partner distributions discussed
above, the Partnership distributed net sale proceeds of $92,740
and $75,388 in 2010 and 2009, respectively.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCK-
HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(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.
Small Business Issuer Purchases of Equity Securities
Total Number Maximum Number
of Units of Units that
Purchased as May Yet Be
Total Number Average Part of Publicly Purchased Under
of Units Price Paid Announced Plans the Plans or
Period Purchased per Unit or Programs Programs
10/1/10 to 10/31/10 105.5 $329.86 1,326.39(1) (2)
11/1/10 to 11/30/10 -- -- -- --
12/1/10 to 12/31/10 -- -- -- --
(1)The Partnership's repurchase plan is mandated by the
Partnership Agreement as included in the prospectus related to
the original offering of the Units.
(2)The Partnership Agreement contains annual limitations on
repurchases described in the paragraph above and has no
expiration date.
ITEM 6. SELECTED FINANCIAL DATA.
Not required for a smaller reporting company.
ITEM 7. 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.
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
investments in real estate and the allocation by AEI Fund
Management, Inc. of expenses to the Partnership as opposed to
other funds they manage.
The Partnership purchases properties and records them in
the financial statements at cost (not including acquisition
expenses). The Partnership tests long-lived assets for
recoverability when events or changes in circumstances indicate
that the carrying value may not be recoverable. For properties
the Partnership will hold and operate, management determines
whether impairment has occurred by comparing the property's
probability-weighted future undiscounted cash flows to its
current carrying value. For properties held for sale, management
determines whether impairment has occurred by comparing the
property's estimated fair value less cost to sell to its current
carrying value. If the carrying value is greater than the net
realizable value, an impairment loss is recorded to reduce the
carrying value of the property to its net realizable value.
Changes in these assumptions or analysis may cause material
changes in the carrying value of the properties.
AEI Fund Management, Inc. allocates expenses to each of
the funds they manage primarily on the basis of the number of
hours devoted by their employees to each fund's affairs. They
also allocate expenses at the end of each month that are not
directly related to a fund's operations based upon the number of
investors in the fund and the fund's capitalization relative to
other funds they manage. The Partnership reimburses these
expenses subject to detailed limitations contained in the
Partnership Agreement.
ITEM 7. 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 years ended December 31, 2010 and 2009, the
Partnership recognized rental income from continuing operations
of $1,212,317 and $1,089,511, respectively. In 2010, rental
income increased mainly due to additional rent received from two
property acquisitions in 2009 and 2010 and a rent increase on one
property. Based on the scheduled rent for the properties owned
as of February 28, 2011, the Partnership expects to recognize
rental income from continuing operations of approximately
$1,312,000 in 2011.
For the years ended December 31, 2010 and 2009, the
Partnership incurred Partnership administration expenses from
affiliated parties of $235,117 and $240,887, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and communication with the Limited Partners. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $31,582 and $31,783, 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 year ended December 31, 2010, the Partnership
incurred property acquisition expenses of $31,422 related to the
purchase of the Scott & White Clinic.
For the years ended December 31, 2010 and 2009, the
Partnership recognized interest income of $12,843 and $53,446,
respectively. In 2010, interest income decreased primarily due
to the Partnership receiving $40,189 of interest income on
construction advances in 2009.
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 year ended December 31, 2010, the
Partnership recognized income from discontinued operations of
$416,551, representing rental income less property management
expenses and depreciation of $162,628 and a gain on disposal of
real estate of $253,923. For the year ended December 31, 2009,
the Partnership recognized a loss from discontinued operations of
$251,420, representing a real estate impairment of $606,839,
which was partially offset by rental income less property
management expenses and depreciation of $219,535 and a gain on
disposal of real estate of $135,884.
On May 28, 2009, the Partnership sold its remaining
1.1839% interest in the Johnny Carino's restaurant in Austin,
Texas to an unrelated third party. The Partnership received net
sale proceeds of $22,722, which resulted in a net loss of $210.
The cost and related accumulated depreciation of the interest
sold was $27,083 and $4,151, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
On September 3, 2009, the Partnership sold 14.0515% of the
KinderCare daycare center in Ballwin, Missouri to an unrelated
third party. The Partnership received net sale proceeds of
$306,486, which resulted in a net gain of $136,094. The cost and
related accumulated depreciation of the interest sold was
$213,271 and $42,879, respectively.
During 2010, the Partnership sold an additional 33.6699%
of the KinderCare daycare center in Ballwin, Missouri, in three
separate transactions, to unrelated third parties. The
Partnership received total net sale proceeds of $674,196, which
resulted in a net gain of $265,907. The cost and related
accumulated depreciation of the interests sold was $511,034 and
$102,745, respectively. The Partnership is attempting to sell
its remaining 44.5116% interest in the property. At December 31,
2010 and 2009, the property was classified as Real Estate Held
for Sale with a carrying value of $539,759 and $948,048,
respectively.
In March 2009, Tumbleweed, Inc., the tenant of the
Tumbleweed restaurant in Fort Wayne, Indiana filed for Chapter 11
bankruptcy reorganization. Tumbleweed closed the restaurant and
filed a motion with the bankruptcy court to reject the Lease for
this property. The court approved the motion and Tumbleweed
returned possession of the property to the Partnership. The
Partnership listed the property for sale with a real estate
broker in the Fort Wayne area. While the property was vacant,
the Partnership was responsible for real estate taxes and other
costs associated with maintaining the property. Based on an
analysis of market conditions in the area, the Partnership
determined the property was impaired. As a result, in the first
quarter of 2009, a charge to discontinued operations for real
estate impairment of $396,839 was recognized, which was the
difference between the carrying value at March 31, 2009 of
$1,046,839 and the estimated fair value of $650,000. Based on
marketing efforts and an updated analysis of market conditions in
the area, the Partnership recognized an additional real estate
impairment of $210,000 to decrease the carrying value to the
estimated fair value of $440,000 as of September 30, 2009. The
charges were recorded against the cost of the land and building.
In December 2009, the Partnership entered into an
agreement to sell the Tumbleweed restaurant to an unrelated third
party. On March 12, 2010, the sale closed with the Partnership
receiving net sale proceeds of $428,016, which resulted in a net
loss of $11,984. At December 31, 2009, the property was
classified as Real Estate Held for Sale.
On January 19, 2011, the Partnership sold its remaining
.1534% interest in the Champps Americana restaurant in Livonia,
Michigan to an unrelated third party. The Partnership received
net sale proceeds of approximately $7,800, which resulted in a
net gain of approximately $3,800. The cost and related
accumulated depreciation of the interest sold was $6,366 and
$2,409, respectively. At December 31, 2010, the property was
classified as Real Estate Held for Sale with a carrying value of
$3,957.
The Partnership is attempting to sell its 20.4025%
interest in the Winn-Dixie store in Panama City, Florida. At
December 31, 2010 and 2009, the property was classified as Real
Estate Held for Sale with a carrying value of $785,099.
ITEM 7. 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 year ended December 31, 2010, the Partnership's
cash balances decreased $493,854 as a result of cash used to
purchase property and distributions paid to the Partners in
excess of cash generated from operating activities, which was
partially offset by cash generated from the sale of property.
During the year ended December 31, 2009, the Partnership's cash
balances decreased $1,059,550 as a result of cash used to
purchase property and distributions paid to the Partners in
excess of cash generated from operating activities, which was
partially offset by cash generated from the sale of property.
Net cash provided by operating activities decreased from
$1,126,053 in 2009 to $1,052,343 in 2010 as a result of a
decrease in total rental and interest income in 2010 and net
timing differences in the collection of payments from the tenants
and the payment of expenses, which were partially offset by a
decrease in Partnership administration and property management
expenses in 2010. During 2010, cash from operations was also
reduced by $31,422 of acquisition expenses related to the
purchase of real estate. Pursuant to new accounting guidance,
these expenses were reflected as operating cash outflows.
However, pursuant to the Partnership Agreement, acquisition
expenses were funded with proceeds from property sales.
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 years ended December
31, 2010 and 2009, the Partnership generated cash flow from the
sale of real estate of $1,102,212 and $329,208, respectively.
During the same periods, the Partnership expended $1,433,468 and
$1,283,742, respectively, to invest in real properties as the
Partnership reinvested cash generated from property sales.
On November 21, 2008, the Partnership purchased a 63%
interest in a parcel of land in Rapid City, South Dakota for
$576,274. The Partnership obtained title to the land in the form
of an undivided fee simple interest in the 63% interest
purchased. Simultaneous with the purchase of the land, the
Partnership entered into a Development Financing Agreement under
which the Partnership advanced funds to Brad and Dad, LLC for the
construction of a Tractor Supply Company store on the site. The
Partnership's share of the total acquisition costs, including the
cost of the land, was $1,957,734. The remaining interest in the
property was purchased by AEI Income & Growth Fund 27 LLC, an
affiliate of the Partnership.
ITEM 7. 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 (as of the date
of purchase) and initial annual rent of $141,750 for the interest
purchased. Pursuant to the Lease, the tenant commenced paying
rent on August 6, 2009, the day the store opened for business.
Pursuant to the Development Financing Agreement, for the period
from November 21, 2008 to August 5, 2009, Brad and Dad, LLC paid
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.
On October 20, 2010, the Partnership purchased a 39%
interest in a Scott & White Clinic in College Station, Texas for
$1,433,468. The property is leased to Scott & White Healthcare
under a Lease Agreement with a remaining primary term of 9.7
years and initial annual rent of $120,120 for the interest
purchased. The remaining interests in the property were
purchased by AEI Net Lease Income & Growth Fund XX Limited
Partnership and AEI Income & Growth Fund 25 LLC, affiliates of
the Partnership.
The Partnership's primary use of cash flow, other than
investment in real estate, is distribution and redemption
payments to Partners. The Partnership declares its regular
quarterly distributions before the end of each quarter and pays
the distribution in the first week after the end of each quarter.
The Partnership attempts to maintain a stable distribution rate
from quarter to quarter. Redemption payments are paid to
redeeming Partners in the fourth quarter of each year.
For the years ended December 31, 2010 and 2009, the
Partnership declared distributions of $1,179,792 and $1,173,733,
respectively, which were distributed 99% to the Limited Partners
and 1% to the General Partners. The Limited Partners received
distributions of $1,167,994 and $1,161,996 and the General
Partners received distributions of $11,798 and $11,737 for the
periods, respectively.
During 2010 and 2009, the Partnership distributed net sale
proceeds of $93,677 and $76,149 to the Limited and General
Partners as part of their quarterly distributions, which
represented a return of capital of $4.08 and $3.31 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 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
During 2010, six Limited Partners redeemed a total of
105.5 Partnership Units for $34,800 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. During 2009, the
Partnership did not redeem any Units from the Limited Partners.
In prior years, a total of 60 Limited Partners redeemed 1,220.89
Partnership Units for $958,469. The redemptions increase the
remaining Limited Partners' ownership interest in the
Partnership. As a result of these redemption payments and
pursuant to the Partnership Agreement, the General Partners
received distributions of $351 in 2010.
The 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.
The Economy and Market Conditions
The impact of conditions in the current economy, including
the turmoil in the credit markets, has adversely affected many
real estate investment funds. However, the absence of mortgage
financing on the Partnership's properties eliminates the risks of
foreclosure and debt-refinancing that can negatively impact the
value and distributions of leveraged real estate investment
funds. Nevertheless, a prolonged economic downturn may adversely
affect the operations of the Partnership's tenants and their cash
flows. If a tenant were to default on its lease obligations, the
Partnership's income would decrease, its distributions would
likely be reduced and the value of its properties might decline.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See accompanying index to financial statements.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Balance Sheet as of December 31, 2010 and 2009
Statements for the Years Ended December 31, 2010 and 2009:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners:
AEI Income & Growth Fund XXI Limited Partnership
St. Paul, Minnesota
We have audited the accompanying balance sheet of AEI Income
& Growth Fund XXI Limited Partnership (a Minnesota limited
partnership) as of December 31, 2010 and 2009, and the related
statements of income, cash flows and changes in partners' capital
for the years then ended. The Partnership's management is
responsible for these financial statements. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Partnership is
not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit
included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Partnership's
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of AEI Income & Growth Fund XXI Limited Partnership as of
December 31, 2010 and 2009, and the results of its operations and
its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
March 25, 2011
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31
ASSETS
2010 2009
CURRENT ASSETS:
Cash $ 514,889 $ 1,008,743
Receivables 0 10,734
----------- -----------
Total Current Assets 514,889 1,019,477
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 4,413,700 4,124,903
Buildings and Equipment 12,286,382 11,148,077
Accumulated Depreciation (1,956,885) (1,503,853)
----------- -----------
14,743,197 13,769,127
Real Estate Held for Sale 1,328,815 2,173,147
----------- -----------
Net Investments in Real Estate 16,072,012 15,942,274
----------- -----------
Total Assets $16,586,901 $16,961,751
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 24,527 $ 56,124
Distributions Payable 294,949 294,947
Unearned Rent 27,010 43,649
----------- -----------
Total Current Liabilities 346,486 394,720
----------- -----------
PARTNERS' CAPITAL:
General Partners 2,613 1,319
Limited Partners, $1,000 per Unit;
24,000 Units authorized and issued;
22,674 and 22,779 Units outstanding in
2010 and 2009, respectively 16,237,802 16,565,712
----------- -----------
Total Partners' Capital 16,240,415 16,567,031
----------- -----------
Total Liabilities and Partners' Capital $16,586,901 $16,961,751
=========== ===========
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 YEARS ENDED DECEMBER 31
2010 2009
RENTAL INCOME $ 1,212,317 $ 1,089,511
EXPENSES:
Partnership Administration - Affiliates 235,117 240,887
Partnership Administration and Property
Management - Unrelated Parties 31,582 31,783
Property Acquisition 31,422 0
Depreciation 455,263 411,520
----------- -----------
Total Expenses 753,384 684,190
----------- -----------
OPERATING INCOME 458,933 405,321
OTHER INCOME:
Interest Income 12,843 53,446
----------- -----------
INCOME FROM CONTINUING OPERATIONS 471,776 458,767
Income (Loss) from Discontinued Operations 416,551 (251,420)
----------- -----------
NET INCOME $ 888,327 $ 207,347
=========== ===========
NET INCOME ALLOCATED:
General Partner $ 13,443 $ 155
Limited Partners 874,884 207,192
----------- -----------
$ 888,327 $ 207,347
=========== ===========
INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ 20.53 $ 19.94
Discontinued Operations 17.92 (10.84)
----------- -----------
Total $ 38.45 $ 9.10
=========== ===========
Weighted Average Units Outstanding -
Basic and Diluted 22,753 22,779
=========== ===========
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 YEARS ENDED DECEMBER 31
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 888,327 $ 207,347
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 455,441 419,282
Real Estate Impairment 0 606,839
Gain on Sale of Real Estate (253,923) (135,884)
(Increase) Decrease in Receivables 10,734 (5,702)
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (31,597) 12,824
Increase (Decrease) in Unearned Rent (16,639) 21,347
----------- -----------
Total Adjustments 164,016 918,706
----------- -----------
Net Cash Provided By
Operating Activities 1,052,343 1,126,053
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (1,433,468) (1,283,742)
Proceeds from Sale of Real Estate 1,102,212 329,208
----------- -----------
Net Cash Used For
Investing Activities (331,256) (954,534)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions Paid to Partners (1,179,790) (1,231,069)
Redemption Payments (35,151) 0
----------- -----------
Net Cash Used For
Financing Activities (1,214,941) (1,231,069)
----------- -----------
NET DECREASE IN CASH (493,854) (1,059,550)
CASH, beginning of year 1,008,743 2,068,293
----------- -----------
CASH, end of year $ 514,889 $ 1,008,743
=========== ===========
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 YEARS ENDED DECEMBER 31
Limited
Partnership
General Limited Units
Partner Partners Total Outstanding
BALANCE, December 31, 2008 $ 12,901 $17,520,516 $17,533,417 22,779.11
Distributions Declared (11,737) (1,161,996) (1,173,733)
Net Income 155 207,192 207,347
------- ----------- ----------- ----------
BALANCE, December 31, 2009 1,319 16,565,712 16,567,031 22,779.11
Distributions Declared (11,798) (1,167,994) (1,179,792)
Redemption Payments (351) (34,800) (35,151) (105.50)
Net Income 13,443 874,884 888,327
------- ----------- ----------- ----------
BALANCE, December 31, 2010 $ 2,613 $16,237,802 $16,240,415 22,673.61
======= =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
(1) 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.
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.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
(1) Organization - (Continued)
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.
(2) Summary of Significant Accounting Policies -
Financial Statement Presentation
The accounts of the Partnership are maintained on the
accrual basis of accounting for both federal income tax
purposes and financial reporting purposes.
Accounting Estimates
Management uses estimates and assumptions in preparing
these financial statements in accordance with generally
accepted accounting principles. Those estimates and
assumptions may affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Actual results could differ from those estimates.
Significant items, subject to such estimates and
assumptions, include the carrying value of investments in
real estate.
The Partnership regularly assesses whether market events
and conditions indicate that it is reasonably possible to
recover the carrying amounts of its investments in real
estate from future operations and sales. A change in
those market events and conditions could have a material
effect on the carrying amount of its real estate.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
(2) Summary of Significant Accounting Policies - (Continued)
Cash Concentrations of Credit Risk
The Partnership's cash is deposited in one financial
institution and at times during the year it may exceed
FDIC insurance limits.
Receivables
Credit terms are extended to tenants in the normal course
of business. The Partnership performs ongoing credit
evaluations of its customers' financial condition and,
generally, requires no collateral.
Receivables are recorded at their estimated net
realizable value. The Partnership follows a policy of
providing an allowance for doubtful accounts; however,
based on historical experience, and its evaluation of the
current status of receivables, the Partnership is of the
belief that such accounts, if any, will be collectible in
all material respects and thus an allowance is not
necessary. Accounts are considered past due if payment
is not made on a timely basis in accordance with the
Partnership's credit terms. Receivables considered
uncollectible are written off.
Income Taxes
The income or loss of the Partnership for federal income
tax reporting purposes is includable in the income tax
returns of the partners. In general, no recognition has
been given to income taxes in the accompanying financial
statements.
The tax return and the amount of distributable
Partnership income or loss are subject to examination by
federal and state taxing authorities. If such an
examination results in changes to distributable
Partnership income or loss, the taxable income of the
partners would be adjusted accordingly. Primarily due to
its tax status as a partnership, the Partnership has no
significant tax uncertainties that require recognition or
disclosure.
Revenue Recognition
The Partnership's real estate is leased under net leases,
classified as operating leases. The leases provide for
base annual rental payments payable in monthly
installments. The Partnership recognizes rental revenue
according to the terms of the individual leases. For
leases that contain stated rental increases, the
increases are recognized in the year in which they are
effective. Contingent rental payments are recognized
when the contingencies on which the payments are based
are satisfied and the rental payments become due under
the terms of the leases.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
(2) Summary of Significant Accounting Policies - (Continued)
Investments in Real Estate
The Partnership purchases properties and records them at
cost. The Partnership tests real estate 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, it
compares the carrying amount of the property to the
estimated probability-weighted future undiscounted cash
flows expected to result from the property and its
eventual disposition. If the sum of the expected future
cash flows is less than the carrying amount of the
property, the Partnership recognizes an impairment loss
by the amount by which the carrying amount of the
property exceeds the fair value of the property. For
properties held for sale, the Partnership 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.
Prior to January 1, 2009, the Partnership capitalized as
Investments in Real Estate certain costs incurred in the
review and acquisition of the properties. The costs were
allocated to the land, buildings and equipment. For
acquisitions completed on or after January 1, 2009,
acquisition-related transaction costs were expensed as
incurred as a result of the Partnership adopting new
guidance on business combinations that expands the scope
of acquisition accounting.
The buildings and equipment of the Partnership are
depreciated using the straight-line method for financial
reporting purposes based on estimated useful lives of 25
years and 5 years, respectively.
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.
The Partnership accounts for properties owned as tenants-
in-common with affiliated entities and/or unrelated third
parties using the proportionate consolidation method.
Each tenant-in-common owns a separate, undivided interest
in the properties. Any tenant-in-common that holds more
than a 50% interest does not control decisions over the
other tenant-in-common interests. The financial
statements reflect only this Partnership's percentage
share of the properties' land, building and equipment,
liabilities, revenues and expenses.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
(2) Summary of Significant Accounting Policies - (Continued)
The Partnership's properties are subject to environmental
laws and regulations adopted by various governmental
entities in the jurisdiction in which the properties are
located. These laws could require the Partnership to
investigate and remediate the effects of the release or
disposal of hazardous materials at these locations if
found. For each property, an environmental assessment is
completed prior to acquisition. In addition, the lease
agreements typically strictly prohibit the production,
handling, or storage of hazardous materials (except where
incidental to the tenant's business such as use of
cleaning supplies) in violation of applicable law to
restrict environmental and other damage. Environmental
liabilities are recorded when it is determined the
liability is probable and the costs can reasonably be
estimated. There were no environmental issues noted or
liabilities recorded at December 31, 2010 and 2009.
Fair Value Measurements
Fair value, as defined by United States Generally
Accepted Accounting Principles ("US GAAP"), is the price
that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between
market participants at the measurement date in the
principal or most advantageous market. US GAAP
establishes a hierarchy in determining the fair value of
an asset or liability. The fair value hierarchy has
three levels of inputs, both observable and unobservable.
US GAAP requires the utilization of the lowest possible
level of input to determine fair value. Level 1 inputs
include quoted market prices in an active market for
identical assets or liabilities. Level 2 inputs are
market data, other than Level 1 inputs, that are
observable either directly or indirectly. Level 2 inputs
include quoted market prices for similar assets or
liabilities, quoted market prices in an inactive market,
and other observable information that can be corroborated
by market data. Level 3 inputs are unobservable and
corroborated by little or no market data.
The Tumbleweed restaurant, with a carrying amount of
$1,046,839 at March 31, 2009, was written down to its
estimated fair value of $650,000 after completing our
long-lived asset valuation analysis. The resulting
impairment charge of $396,839 was included in earnings
for the first quarter of 2009. At September 30, 2009,
after completing our long-lived asset valuation analysis,
the Tumbleweed restaurant was further written down to
$440,000, its estimated fair value at that date. The
resulting impairment charge of $210,000 was included in
earnings for the third quarter of 2009. In both
instances, the fair value of the property was based upon
comparable sales of similar properties, which are
considered Level 2 inputs in the valuation hierarchy.
The property was sold on March 12, 2010.
At December 31, 2010, the Partnership had no assets or
liabilities measured at fair value on a recurring basis
or nonrecurring basis.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
(2) Summary of Significant Accounting Policies - (Continued)
Recently Issued Accounting Pronouncements
Management has reviewed recently issued, but not yet
effective, accounting pronouncements and does not expect
the implementation of these pronouncements to have a
significant effect on the Partnership's financial
statements.
Reclassification
Certain items related to discontinued operations in the
prior year's financial statements have been reclassified
to conform to 2010 presentation. These reclassifications
had no effect on Partners' capital, net income or cash
flows.
(3) Related Party Transactions -
The Partnership owns the percentage interest shown below in
the following properties as tenants-in-common with the
affiliated entities listed: Winn-Dixie store (20.4025% -
AEI Net Lease Income & Growth Fund XIX Limited Partnership
and unrelated third parties); Jared Jewelry store in
Hanover, Maryland (50% - AEI Net Lease Income & Growth Fund
XX Limited Partnership); Jared Jewelry store in Auburn
Hills, Michigan (40% - AEI Income & Growth Fund 25 LLC);
CarMax auto superstore (20% - AEI Income & Growth Fund 24
LLC, AEI Income & Growth Fund 25 LLC and AEI Private Net
Lease Millennium Fund Limited Partnership); Applebee's
restaurant (62% - AEI Income & Growth Fund XXII Limited
Partnership); Best Buy store (54% - AEI Income & Growth Fund
23 LLC and AEI Income & Growth Fund 26 LLC); Fresenius
Medical Center (55% - AEI Income & Growth Fund 24 LLC);
Tractor Supply Company store (63% - AEI Income & Growth Fund
27 LLC) and Scott & White Clinic (39% - AEI Net Lease Income
& Growth Fund XX Limited Partnership and AEI Income & Growth
Fund 25 LLC).
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
(3) Related Party Transactions - (Continued)
AEI received the following reimbursements for costs and
expenses from the Partnership for the years ended December
31:
2010 2009
a.AEI is reimbursed for costs incurred in providing services
related to managing the Partnership's operations and
properties, maintaining the Partnership's books, and
communicating with the Limited Partners. $ 235,117 $ 240,887
======== ========
b.AEI is reimbursed for all direct expenses it paid on the
Partnership's behalf to third parties related to Partnership
administration and property management. These
expenses included printing costs, legal and filing fees,
direct administrative costs, outside audit costs, taxes
insurance and other property costs. These amounts
included $7,283 and $59,533 of expenses related to
Discontinued Operations in 2010 and 2009,
respectively. $ 38,865 $ 91,316
======== ========
c.AEI is reimbursed for costs incurred in providing
services and direct expenses related to the acquisition
of properties on behalf of the Partnership. $ 31,422 $ 17,439
======== ========
d.AEI is reimbursed for costs incurred in providing
services related to the sale of property. $ 51,470 $ 15,668
======== ========
The payable to AEI Fund Management, Inc. represents the
balance due for the services described in 3a, b, c and d.
This balance is non-interest bearing and unsecured and is to
be paid in the normal course of business.
(4) Investments in Real Estate -
The Partnership leases its properties to various tenants
under net leases, classified as operating leases. Under a
net lease, the tenant is responsible for real estate taxes,
insurance, maintenance, repairs and operating expenses for
the property. For some leases, the Partnership is
responsible for repairs to the structural components of the
building, the roof, and the parking lot. At the time the
properties were acquired, the remaining primary lease terms
varied from 10 to 20 years. The leases provide the tenants
with two to five five-year renewal options subject to the
same terms and conditions as the primary term.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
(4) Investments in Real Estate - (Continued)
The Partnership's properties are commercial, single-tenant
buildings. The Arby's restaurant was constructed and
acquired in 1995. The Champps Americana restaurant was
constructed and acquired in 1998. The KinderCare daycare
center in Andover, Minnesota was constructed in 1998 and
acquired in 2002. The KinderCare daycare center in Ballwin,
Missouri was constructed in 1999 and acquired in 2002. The
Winn-Dixie store was constructed in 1997 and acquired in
2003. The Jared Jewelry store in Hanover, Maryland was
constructed in 2001 and acquired in 2004. The Jared Jewelry
store in Auburn Hills, Michigan was constructed in 1999 and
acquired in 2005. The CarMax auto superstore was
constructed in 2003 and acquired in 2005. The Applebee's
restaurant in Johnstown, Pennsylvania was constructed in
1996 and acquired in 2006. The Best Buy store was
constructed in 1990, renovated in 1997 and acquired in 2008.
The Fresenius Medical Center was constructed and acquired in
2008. The land for the Tractor Supply Company store was
acquired in 2008 and construction of the store was completed
in 2009. The Scott & White Clinic was constructed and
acquired in 2010. There have been no costs capitalized as
improvements subsequent to the acquisitions.
The cost of the properties not held for sale and related
accumulated depreciation at December 31, 2010 are as
follows:
Buildings and Accumulated
Property Land Equipment Total Depreciation
Arby's, Montgomery, AL $ 10,033 $ 13,016 $ 23,049 $ 8,116
KinderCare, Andover, MN 179,755 1,084,452 1,264,207 370,520
Jared Jewelry, Hanover, MD 861,065 1,128,070 1,989,135 310,220
Jared Jewelry, Auburn Hills, MI 280,993 1,185,055 1,466,048 282,437
CarMax, Lithia Springs, GA 815,180 1,070,051 1,885,231 247,895
Applebee's, Johnstown, PA 431,754 1,251,133 1,682,887 214,777
Best Buy, Eau Claire, WI 853,357 2,784,349 3,637,706 324,841
Fresenius Medical Center,
Shreveport, LA 102,046 1,258,571 1,360,617 113,272
Tractor Supply, Rapid City, SD 588,967 1,368,767 1,957,734 75,283
Scott & White,
College Station, TX 290,550 1,142,918 1,433,468 9,524
---------- ----------- ----------- ----------
$4,413,700 $12,286,382 $16,700,082 $1,956,885
========== =========== =========== ==========
On November 21, 2008, the Partnership purchased a 63%
interest in a parcel of land in Rapid City, South Dakota for
$576,274. The Partnership obtained title to the land in the
form of an undivided fee simple interest in the 63% interest
purchased. Simultaneous with the purchase of the land, the
Partnership entered into a Development Financing Agreement
under which the Partnership advanced funds to Brad and Dad,
LLC for the construction of a Tractor Supply Company store
on the site. The Partnership's share of the total
acquisition costs, including the cost of the land, was
$1,957,734.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
(4) Investments in Real Estate - (Continued)
The property is leased to Tractor Supply Company under a
Lease Agreement with a primary term of 15 years (as of the
date of purchase) and initial annual rent of $141,750 for
the interest purchased. Pursuant to the Lease, the tenant
commenced paying rent on August 6, 2009, the day the store
opened for business. Pursuant to the Development Financing
Agreement, for the period from November 21, 2008 to August
5, 2009, Brad and Dad, LLC paid 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.
On October 20, 2010, the Partnership purchased a 39%
interest in a Scott & White Clinic in College Station, Texas
for $1,433,468. The Partnership incurred $31,422 of
acquisition expenses related to the purchase that were
expensed. The property is leased to Scott & White
Healthcare under a Lease Agreement with a remaining primary
term of 9.7 years and initial annual rent of $120,120 for
the interest purchased.
The Partnership owns a 2.6811% interest in an Arby's
restaurant in Montgomery, Alabama. The remaining interests
in this property are owned by unrelated third parties, who
own the property with the Partnership as tenants-in-common.
For properties owned as of December 31, 2010, the minimum
future rent payments required by the leases are as follows:
2011 $ 1,459,935
2012 1,478,281
2013 1,495,602
2014 1,503,788
2015 1,522,064
Thereafter 6,817,482
-----------
$14,277,152
===========
There were no contingent rents recognized in 2010 and 2009.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
(5) Major Tenants -
The following schedule presents rent revenue from individual
tenants, or affiliated groups of tenants, who each
contributed more than ten percent of the Partnership's total
rent revenue for the years ended December 31:
Tenants Industry 2010 2009
Sterling Jewelers Inc. Retail $ 281,323 $ 271,071
Best Buy Stores, L.P. Retail 256,001 256,001
KinderCare Learning Centers, Inc. Child Care 225,176 271,135
CarMax Auto Superstores, Inc. Retail 150,309 146,286
Tractor Supply Company Retail 141,750 N/A
---------- ----------
Aggregate rent revenue of major tenants $1,054,559 $ 944,493
========== ==========
Aggregate rent revenue of major tenants as
a percentage of total rent revenue 76% 69%
========== ==========
(6) Discontinued Operations -
On May 28, 2009, the Partnership sold its remaining 1.1839%
interest in the Johnny Carino's restaurant in Austin, Texas
to an unrelated third party. The Partnership received net
sale proceeds of $22,722, which resulted in a net loss of
$210. The cost and related accumulated depreciation of the
interest sold was $27,083 and $4,151, respectively.
On September 3, 2009, the Partnership sold 14.0515% of the
KinderCare daycare center in Ballwin, Missouri to an
unrelated third party. The Partnership received net sale
proceeds of $306,486, which resulted in a net gain of
$136,094. The cost and related accumulated depreciation of
the interest sold was $213,271 and $42,879, respectively.
During 2010, the Partnership sold an additional 33.6699% of
the KinderCare daycare center in Ballwin, Missouri, in three
separate transactions, to unrelated third parties. The
Partnership received total net sale proceeds of $674,196,
which resulted in a net gain of $265,907. The cost and
related accumulated depreciation of the interests sold was
$511,034 and $102,745, respectively. The Partnership is
attempting to sell its remaining 44.5116% interest in the
property. At December 31, 2010 and 2009, the property was
classified as Real Estate Held for Sale with a carrying
value of $539,759 and $948,048, respectively.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
(6) Discontinued Operations - (Continued)
In March 2009, Tumbleweed, Inc., the tenant of the
Tumbleweed restaurant in Fort Wayne, Indiana filed for
Chapter 11 bankruptcy reorganization. Tumbleweed closed the
restaurant and filed a motion with the bankruptcy court to
reject the Lease for this property. The court approved the
motion and Tumbleweed returned possession of the property to
the Partnership. The Partnership listed the property for
sale with a real estate broker in the Fort Wayne area.
While the property was vacant, the Partnership was
responsible for real estate taxes and other costs associated
with maintaining the property. Based on an analysis of
market conditions in the area, the Partnership determined
the property was impaired. As a result, in the first
quarter of 2009, a charge to discontinued operations for
real estate impairment of $396,839 was recognized, which was
the difference between the carrying value at March 31, 2009
of $1,046,839 and the estimated fair value of $650,000.
Based on marketing efforts and an updated analysis of market
conditions in the area, the Partnership recognized an
additional real estate impairment of $210,000 to decrease
the carrying value to the estimated fair value of $440,000
as of September 30, 2009. The charges were recorded against
the cost of the land and building.
In December 2009, the Partnership entered into an agreement
to sell the Tumbleweed restaurant to an unrelated third
party. On March 12, 2010, the sale closed with the
Partnership receiving net sale proceeds of $428,016, which
resulted in a net loss of $11,984. At December 31, 2009,
the property was classified as Real Estate Held for Sale.
On January 19, 2011, the Partnership sold its remaining
.1534% interest in the Champps Americana restaurant in
Livonia, Michigan to an unrelated third party. The
Partnership received net sale proceeds of approximately
$7,800, which resulted in a net gain of approximately
$3,800. The cost and related accumulated depreciation of
the interest sold was $6,366 and $2,409, respectively. At
December 31, 2010, the property was classified as Real
Estate Held for Sale with a carrying value of $3,957.
The Partnership is attempting to sell its 20.4025% interest
in the Winn-Dixie store in Panama City, Florida. At
December 31, 2010 and 2009, the property was classified as
Real Estate Held for Sale with a carrying value of $785,099.
During 2010 and 2009, the Partnership distributed net sale
proceeds of $93,677 and $76,149 to the Limited and General
Partners as part of their quarterly distributions, which
represented a return of capital of $4.08 and $3.31 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
DECEMBER 31, 2010 AND 2009
(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 years ended December 31:
2010 2009
Rental Income $ 170,089 $ 286,830
Property Management Expenses (7,283) (59,533)
Depreciation (178) (7,762)
Real Estate Impairment 0 (606,839)
Gain on Disposal of Real Estate 253,923 135,884
--------- ---------
Income (Loss) from Discontinued Operations $ 416,551 $(251,420)
========= =========
(7) Partners' Capital -
For the years ended December 31, 2010 and 2009, the
Partnership declared distributions of $1,179,792 and
$1,173,733, respectively. The Limited Partners received
distributions of $1,167,994 and $1,161,996 and the General
Partners received distributions of $11,798 and $11,737 for
the years, respectively. The Limited Partners'
distributions represent $51.33 and $51.01 per Limited
Partnership Unit outstanding using 22,753 and 22,779
weighted average Units in 2010 and 2009, respectively. The
distributions represent $36.92 and $9.10 per Unit of Net
Income and $14.41 and $41.91 per Unit of return of capital
in 2010 and 2009, respectively.
As part of the Limited Partner distributions discussed
above, the Partnership distributed net sale proceeds of
$92,740 and $75,388 in 2010 and 2009, respectively.
The Partnership may acquire Units from Limited Partners who
have tendered their Units to the Partnership. Such Units
may be acquired at a discount. The Partnership will not be
obligated to purchase in any year any number of Units that,
when aggregated with all other transfers of Units that have
occurred since the beginning of the same calendar year
(excluding Permitted Transfers as defined in the Partnership
Agreement), would exceed 5% of the total number of Units
outstanding on January 1 of such year. In no event shall
the Partnership be obligated to purchase Units if, in the
sole discretion of the Managing General Partner, such
purchase would impair the capital or operation of the
Partnership.
During 2010, six Limited Partners redeemed a total of 105.5
Partnership Units for $34,800 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. During 2009, the
Partnership did not redeem any Units from the Limited
Partners. The redemptions increase the remaining Limited
Partners' ownership interest in the Partnership. As a
result of these redemption payments and pursuant to the
Partnership Agreement, the General Partners received
distributions of $351 in 2010.
After the effect of redemptions, the Adjusted Capital
Contribution, as defined in the Partnership Agreement, is
$1,058.50 per original $1,000 invested.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
(8) Income Taxes -
The following is a reconciliation of net income for
financial reporting purposes to income reported for federal
income tax purposes for the years ended December 31:
2010 2009
Net Income for Financial Reporting Purposes $ 888,327 $ 207,347
Depreciation for Tax Purposes Under
Depreciation for Financial Reporting Purposes 88,947 56,162
Income Accrued for Tax Purposes Over (Under)
Income for Financial Reporting Purposes (16,638) 21,346
Acquisition Costs Expensed for Financial Reporting
Purposes, Capitalized for Tax Purposes 31,422 0
Gain on Sale of Real Estate for Tax Purposes
Over (Under) Gain for Financial Reporting
Purposes (636,661) 607,284
--------- ---------
Taxable Income to Partners $ 355,397 $ 892,139
========= =========
The following is a reconciliation of Partners' capital for
financial reporting purposes to Partners' capital reported
for federal income tax purposes for the years ended December
31:
2010 2009
Partners' Capital for Financial Reporting
Purposes $16,240,415 $16,567,031
Adjusted Tax Basis of Investments in Real Estate
Over Net Investments in Real Estate
for Financial Reporting Purposes 630,231 1,146,523
Income Accrued for Tax Purposes Over
Income for Financial Reporting Purposes 27,010 43,648
Syndication Costs Treated as Reduction
of Capital for Financial Reporting Purposes 3,208,043 3,208,043
----------- -----------
Partners' Capital for Tax Reporting Purposes $20,105,699 $20,965,245
=========== ===========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. 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) Internal Control Over Financial Reporting.
(i) Management's Report on Internal Control Over Financial
Reporting. The Managing General Partner, through its management,
is responsible for establishing and maintaining adequate internal
control over our financial reporting, as defined in Rule 13a-
15(f) under the Exchange Act, and for performing an assessment of
the effectiveness of our internal control over financial
reporting as of December 31, 2010. Internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our
system of internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
Partnership; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Partnership
are being made only in accordance with authorizations of
management of the Managing General Partner; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
Partnership's assets that could have a material effect on the
financial statements.
Management of the Managing General Partner performed an
assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2010 based upon criteria
in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission ("COSO").
Based on our assessment, management of the Managing General
Partner determined that our internal control over financial
reporting was effective as of December 31, 2010 based on the
criteria in Internal Control-Integrated Framework issued by the
COSO.
ITEM 9A. CONTROLS AND PROCEDURES. (Continued)
This annual report does not include an attestation report
of our registered public accounting firm regarding internal
control over financial reporting. Management's report was not
subject to attestation by our registered public accounting firm
pursuant to rules of the Securities and Exchange Commission that
permit us to provide only management's report in this annual
report.
(ii) 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.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The registrant is a limited partnership and has no
officers, directors, or direct employees. The General Partners
manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters
affecting the Partnership's business. The General Partners are
AEI Fund Management XXI, Inc. ("AFM"), the Managing General
Partner, and Robert P. Johnson, Chief Executive Officer,
President and sole director of AFM, the Individual General
Partner. AFM is a wholly owned subsidiary of AEI Capital
Corporation of which Mr. Johnson is the majority shareholder.
AFM has only one senior financial executive, its Chief Financial
Officer. The Chief Financial Officer reports directly to Mr.
Johnson and is accountable for his actions to Mr. Johnson.
Although Mr. Johnson and AFM require that all of their personnel,
including the Chief Financial Officer, engage in honest and
ethical conduct, ensure full, fair, accurate, timely, and
understandable disclosure, comply with all applicable
governmental laws, rules and regulations, and report to Mr.
Johnson any deviation from these principles, because the
organization is composed of only approximately 35 individuals,
because the management of a partnership by an entity that has
different interests in distributions and income than investors
involves numerous conflicts of interest that must be resolved on
a daily basis, and because the ultimate decision maker in all
instances is Mr. Johnson, AFM has not adopted a formal code of
conduct. Instead, the materials pursuant to which investors
purchase Units disclose these conflicts of interest in detail and
Mr. Johnson, as the CEO and sole director of AFM, resolves
conflicts to the best of his ability, consistent with his
fiduciary obligations to AFM and the fiduciary obligations of AFM
to the Partnership. The director and officers of AFM are as
follows:
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
(Continued)
Robert P. Johnson, age 66, is Chief Executive Officer,
President and sole director and has held these positions since
the formation of AFM in August 1994, and has been elected to
continue in these positions until December 2011. From 1970 to
the present, he has been employed exclusively in the investment
industry, specializing in limited partnership investments. In
that capacity, he has been involved in the development, analysis,
marketing and management of public and private investment
programs investing in net lease properties as well as public and
private investment programs investing in energy development.
Since 1971, Mr. Johnson has been the president, a director and a
registered principal of AEI Securities, Inc., which is registered
with the SEC as a securities broker-dealer, is a member of the
Financial Industry Regulatory Authority (FINRA) and is a member
of the Security Investors Protection Corporation (SIPC). Mr.
Johnson has been president, a director and the principal
shareholder of AEI Fund Management, Inc., a real estate
management company founded by him, since 1978. Mr. Johnson is
currently a general partner or principal of the general partner
in nine limited partnerships and a managing member in five LLCs.
Patrick W. Keene, age 51, is Chief Financial Officer,
Treasurer and Secretary and has held these positions since
January 22, 2003 and has been elected to continue in these
positions until December 2011. Mr. Keene has been employed by
AEI Fund Management, Inc. and affiliated entities since 1986.
Prior to being elected to the positions above, he was Controller
of the various entities. From 1982 to 1986, Mr. Keene was with
KPMG Peat Marwick Certified Public Accountants, first as an
auditor and later as a tax manager. Mr. Keene is responsible for
all accounting functions of AFM and the registrant.
Since Mr. Johnson serves as the Individual General Partner
of the Partnership, as well as the sole director of AFM, all of
the duties that might be assigned to an audit committee are
assigned to Mr. Johnson. Mr. Johnson is not an audit committee
financial expert, as defined. As an officer and majority owner,
through a parent company, of AFM, and as the Individual General
Partner, Mr. Johnson is not a "disinterested director" and may be
subject to a number of conflicts of interests in his capacity as
sole director of AFM.
Before the independent auditors are engaged, Mr. Johnson,
as the sole director of AFM, approves all audit-related fees, and
all permissible nonaudit fees, for services of our auditors.
Section 16(a) Beneficial Ownership Reporting Compliance
Under federal securities laws, the directors and officers
of the General Partner of the Partnership, and any beneficial
owner of more than 10% of a class of equity securities of the
Partnership, are required to report their ownership of the
Partnership's equity securities and any changes in such ownership
to the Securities and Exchange Commission (the "Commission").
Specific due dates for these reports have been established by the
Commission, and the Partnership is required to disclose in this
Annual Report on 10-K any delinquent filing of such reports and
any failure to file such reports during the fiscal year ended
December 31, 2010. Based upon information provided by officers
and directors of the General Partner, all officers, directors and
10% owners filed all reports on a timely basis in the 2010 fiscal
year.
ITEM 11. EXECUTIVE COMPENSATION.
The General Partner and affiliates are reimbursed at cost
for all services performed on behalf of the registrant and for
all third party expenses paid on behalf of the registrant. The
cost for services performed on behalf of the registrant is based
on actual time spent performing such services plus an overhead
burden. These services include organizing the registrant and
arranging for the offer and sale of Units, reviewing properties
for acquisition and rendering administrative, property management
and property sales services. The amount and nature of such
payments are detailed in Item 13 of this annual report on Form 10-
K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information pertaining to
the ownership of the Units by each person known by the
Partnership to beneficially own 5% or more of the Units, by each
General Partner, and by each officer or director of the Managing
General Partner as of February 28, 2011:
Name and Address Number of Percent
of Beneficial Owner Units Held of Class
AEI Fund Management XXI, Inc. 0 0%
Robert P. Johnson 0 0%
Patrick W. Keene 0 0%
Address for all:
1300 Wells Fargo Place
30 East 7th Street, St. Paul, Minnesota 55101
The General Partners know of no holders of more than 5% of the
outstanding Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.
The registrant, AFM and its affiliates have common
management and utilize the same facilities. As a result, certain
administrative expenses are allocated among these related
entities. All of such activities and any other transactions
involving the affiliates of the General Partner of the registrant
are governed by, and are conducted in conformity with, the
limitations set forth in the Limited Partnership Agreement of the
registrant. Reference is made to Note 3 of the Financial
Statements, as presented, and is incorporated herein by
reference, for details of related party transactions for the
years ended December 31, 2010 and 2009.
Neither the registrant, nor the Managing General Partner
of the registrant, has a board of directors consisting of any
members who are "independent." The sole director of the Managing
General Partner, Robert P. Johnson, is also the Individual
General Partner of the registrant, and is the Chief Executive
Officer, and indirectly the principal owner, of the Managing
General Partner. Accordingly, there is no disinterested board,
or other functioning body, that reviews related party
transactions, or the transactions between the registrant and the
General Partners, except as performed in connection with the
audit of its financial statements.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE. (Continued)
The limitations included in the Partnership Agreement
require that the cumulative reimbursements to the General
Partners and their affiliates for certain expenses will not
exceed an amount equal to the sum of (i) 20% of gross offering
proceeds, (ii) 5% of Net Cash Flow for property management, (iii)
3% of Net Proceeds of Sale, and (iv) 10% of Net Cash Flow less
the Net Cash Flow actually distributed to the General Partners.
The cumulative reimbursements subject to this limitation are
reimbursements for (i) organization and offering expenses,
including commissions, (ii) acquisition expenses, (iii) services
provided in the sales effort of properties, and (iv) expenses of
controlling persons and overhead expenses directly attributable
to the forgoing services or attributable to administrative
services. As of December 31, 2010, these cumulative
reimbursements to the General Partners and their affiliates did
not exceed the limitation amount.
The following table sets forth the forms of compensation,
distributions and cost reimbursements paid by the registrant to
the General Partners or their Affiliates in connection with the
operation of the Fund and its properties for the period from
inception through December 31, 2010.
Person or Entity Amount Incurred From
Receiving Form and Method Inception (August 31, 1994)
Compensation of Compensation To December 31, 2010
AEI Securities, Inc. Selling Commissions equal to 8% of $2,400,000
proceeds plus a 2% nonaccountable
expense allowance, most of which was
reallowed to Participating Dealers.
General Partners and Reimbursement at Cost for other $ 877,000
Affiliates Organization and Offering Costs.
General Partners and Reimbursement at Cost for all $ 743,758
Affiliates Acquisition Expenses.
General Partners and Reimbursement at Cost for providing $3,732,330
Affiliates administrative services to the Fund,
including all expenses related to
management of the Fund's properties
and all other transfer agency,
reporting, partner relations and
other administrative functions.
General Partners and Reimbursement at Cost for providing $1,066,989
Affiliates services related to the disposition
of the Fund's properties.
General Partners 1% of Net Cash Flow in any fiscal year $ 213,998
until the Limited Partners have
received annual, non-cumulative
distributions of Net Cash Flow equal
to 10% of their Adjusted Capital
Contributions and 10% of any remaining
Net Cash Flow in such fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE. (Continued)
Person or Entity Amount Incurred From
Receiving Form and Method Inception (August 31, 1994)
Compensation of Compensation To December 31, 2010
General Partners 1% of distributions of Net Proceeds of $ 62,031
Sale until Limited Partners have
received an amount equal to (a) their
Adjusted Capital Contributions, plus
(b) an amount equal to 12% of their
Adjusted Capital Contributions per
annum, cumulative but not compounded,
to the extent not previously
distributed. 10% of distributions of
Net Proceeds of Sale thereafter.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following is a summary of the fees billed to the
Partnership by Boulay, Heutmaker, Zibell & Co. P.L.L.P. for
professional services rendered for the years ended December 31,
2010 and 2009:
Fee Category 2010 2009
Audit Fees $ 16,670 $ 16,325
Audit-Related Fees 0 0
Tax Fees 0 0
All Other Fees 0 0
--------- --------
Total Fees $ 16,670 $ 16,325
========= ========
Audit Fees - Consists of fees billed for professional services
rendered for the audit of the Partnership's annual financial
statements and review of the interim financial statements
included in quarterly reports, and services that are normally
provided by Boulay, Heutmaker, Zibell & Co. P.L.L.P. in
connection with statutory and regulatory filings or engagements.
Audit-Related Fees - Consists of fees billed for assurance and
related services that are reasonably related to the performance
of the audit or review of financial statements and are not
reported under "Audit Fees." These services include consultations
concerning financial accounting and reporting standards.
Tax Fees - Consists of fees billed for professional services for
federal and state tax compliance, tax advice and tax planning.
All Other Fees - Consists of fees for products and services other
than the services reported above.
Policy for Preapproval of Audit and Permissible Non-Audit
Services of Independent Auditors
Before the Independent Auditors are engaged by the
Partnership to render audit or non-audit services, the engagement
is approved by Mr. Johnson acting as the Partnership's audit
committee.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) (1) A list of the financial statements contained
herein is set forth on page 14.
(a) (2) Schedules are omitted because of the absence of
conditions under which they are required or because
the required information is presented in the
financial statements or related notes.
(a) (3) The Exhibits filed in response to Item 601 of
Regulation S-K are listed below.
3.1 Certificate of Limited Partnership (incorporated by
reference to Exhibit 3.1 of the registrant's Registration
Statement on Form SB-2 filed October 10, 1994 [File No. 33-
85076C]).
3.2 Restated Limited Partnership Agreement to the
Prospectus (incorporated by reference to Exhibit A of
Amendment No. 2 of the registrant's Registration Statement
on Form SB-2 filed January 20, 1995 [File No. 33-85076C]).
10.1 Net Lease Agreement dated June 14, 2002 between the
Partnership and ARAMARK Educational Resources, Inc.
relating to the Property at 1485 Bunker Lake Boulevard NW,
Andover, Minnesota (incorporated by reference to Exhibit
10.4 of Form 8-K filed June 27, 2002).
10.2 Net Lease Agreement dated June 14, 2002 between the
Partnership and ARAMARK Educational Resources, Inc.
relating to the Property at 497 Big Bend Road, Ballwin,
Missouri (incorporated by reference to Exhibit 10.5 of Form
8-K filed June 27, 2002).
10.3 Assignment and Assumption of Lease Agreement dated
September 19, 2003 between the Partnership, AEI Net Lease
Income & Growth Fund XIX Limited Partnership, AEI Income &
Growth Fund 24 LLC and Transmitter Crossing, LLC relating to
the Property at 3621 Highway 231 North, Panama City, Florida
(incorporated by reference to Exhibit 10.2 of Form 10-QSB
filed November 13, 2003).
10.4 Assignment and Assumption of Lease dated February
9, 2004 between the Partnership, AEI Net Lease Income &
Growth Fund XX Limited Partnership and Transmills, LLC
relating to the Property at 7684 Arundel Mills, Hanover,
Maryland (incorporated by reference to Exhibit 10.2 of Form
8-K filed February 24, 2004).
10.5 Assignment and Assumption of Lease dated January 14,
2005 between the Partnership, AEI Income & Growth Fund 25
LLC and LMB Auburn Hills I LLC relating to the Property at
3960 Baldwin Road, Auburn Hills, Michigan (incorporated by
reference to Exhibit 10.26 of Form 10-KSB filed March 30,
2005).
10.6 Assignment and Assumption of Lease dated March 18, 2005
between the Partnership, AEI Income & Growth Fund 24 LLC,
AEI Income & Growth Fund 25 LLC, AEI Private Net Lease
Millennium Fund Limited Partnership and Silver Capital Net
Lease Fund II, LLC relating to the Property at 1977 Thornton
Road, Lithia Springs, Georgia (incorporated by reference to
Exhibit 10.28 of Form 10-KSB filed March 30, 2005).
10.7 Net Lease Agreement dated September 21, 2006 between
the Partnership, AEI Income & Growth Fund XXII Limited
Partnership and B.T. Woodlipp, Inc. relating to the Property
at 425 Galleria Drive, Johnstown, Pennsylvania (incorporated
by reference to Exhibit 10.2 of Form 10-QSB filed November
14, 2006).
10.8 Assignment and Assumption of Lease dated January 31,
2008 between the Partnership, AEI Income & Growth Fund 23
LLC, AEI Income & Growth Fund 26 LLC and Eau Claire Equity
Fund Limited Partnership relating to the Property at 4090
Commonwealth Avenue, Eau Claire, Wisconsin (incorporated by
reference to Exhibit 10.2 of Form 8-K filed February 6,
2008).
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (Continued)
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 Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AEI INCOME & GROWTH FUND XXI
Limited Partnership
By: AEI Fund Management XXI, Inc.
Its Managing General Partner
March 25, 2011 By: /s/ ROBERT P JOHNSON
Robert P. Johnson,
President and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Name Title Date
/s/ROBERT P JOHNSON President (Principal Executive Officer) March 25, 2011
Robert P.Johnson and Sole Director of Managing General
Partner
/s/PATRICK W KEENE Chief Financial Officer and Treasurer March 25, 2011
Patrick W. Keene (Principal Accounting Officer)