AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP	Financial_Report.xls
EX-32 - AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP	ex32-21.htm
EX-31.1 - AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP	ex31-121.htm
EX-31.2 - AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP	ex31-221.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2012

Commission File Number: 000-29274

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)

State of Minnesota		41-1789725
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

30 East 7th Street, Suite 1300 St. Paul, Minnesota 55101		(651) 227-7333
(Address of principal executive offices)		(Registrant’s telephone number)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o 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). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

o Large accelerated filer	o Accelerated filer
o Non-accelerated filer	x Smaller reporting company

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

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

INDEX

				Page
Part I – Financial Information

	Item 1.	Financial Statements (unaudited):

		Balance Sheet as of September 30, 2012 and December 31, 2011		3

		Statements for the Periods ended September 30, 2012 and 2011:

			Income	4

			Cash Flows	5

			Changes in Partners’ Capital	6

		Notes to Financial Statements		7 - 10

	Item 2.	Management's Discussion and Analysis of Financial
			Condition and Results of Operations	11 - 15

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		15

	Item 4.	Controls and Procedures		15

Part II – Other Information

	Item 1.	Legal Proceedings		16

	Item 1A.	Risk Factors		16

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		16

	Item 3.	Defaults Upon Senior Securities		16

	Item 4.	Mine Safety Disclosures		16

	Item 5.	Other Information		16

	Item 6.	Exhibits		17

Signatures				17

Page 2 of 17

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

BALANCE SHEET

ASSETS

		September 30,		December 31,
		2012		2011
Current Assets:
Cash	$	2,154,785	$	1,934,854

Real Estate Held for Investment:
Land		4,403,667		4,413,700
Buildings and Equipment		12,273,366		12,286,382
Accumulated Depreciation		(2,807,906)		(2,448,341)
Real Estate Held for Investment, Net		13,869,127		14,251,741
Real Estate Held for Sale		122,708		338,776
Total Real Estate		13,991,835		14,590,517
Total Assets	$	16,146,620	$	16,525,371

LIABILITIES AND PARTNERS' CAPITAL

Current Liabilities:
Payable to AEI Fund Management, Inc.	$	32,343	$	34,777
Distributions Payable		293,935		293,935
Unearned Rent		23,933		21,889
Total Current Liabilities		350,211		350,601

Partners’ Capital:
General Partners		862		4,646
Limited Partners: 24,000 Units authorized and issued; 22,663 Units outstanding		15,795,547		16,170,124
Total Partners' Capital		15,796,409		16,174,770
Total Liabilities and Partners' Capital	$	16,146,620	$	16,525,371

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 3 of 17

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

STATEMENT OF INCOME

		Three Months Ended September 30				Nine Months Ended September 30
		2012		2011		2012		2011

Rental Income	$	335,186	$	326,562	$	998,945	$	977,670

Expenses:
Partnership Administration – Affiliates		53,588		55,680		163,845		171,061
Partnership Administration and Property Management – Unrelated Parties		7,724		9,818		35,033		35,172
Depreciation		122,734		122,734		368,202		368,202
Total Expenses		184,046		188,232		567,080		574,435

Operating Income		151,140		138,330		431,865		403,235

Other Income:
Interest Income		1,859		2,066		6,085		5,634

Income from Continuing Operations		152,999		140,396		437,950		408,869

Income from Discontinued Operations		26,582		22,555		65,495		442,403

Net Income	$	179,581	$	162,951	$	503,445	$	851,272

Net Income Allocated:
General Partners	$	1,795	$	2,958	$	5,034	$	9,886
Limited Partners		177,786		159,993		498,411		841,386
Total	$	179,581	$	162,951	$	503,445	$	851,272

Income per Limited Partnership Unit:
Continuing Operations	$	6.68	$	6.13	$	19.13	$	17.85
Discontinued Operations		1.16		.93		2.86		19.26
Total	$	7.84	$	7.06	$	21.99	$	37.11

Weighted Average Units Outstanding – Basic and Diluted		22,663		22,674		22,663		22,674

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 4 of 17

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

STATEMENT OF CASH FLOWS

		Nine Months Ended September 30
		2012		2011
Cash Flows from Operating Activities:
Net Income	$	503,445	$	851,272

Adjustments to Reconcile Net Income To Net Cash Provided by Operating Activities:
Depreciation		368,202		368,592
Gain on Sale of Real Estate		(46,795)		(369,488)
Increase (Decrease) in Payable to AEI Fund Management, Inc.		(2,434)		1,205
Increase (Decrease) in Unearned Rent		2,044		36,568
Total Adjustments		321,017		36,877
Net Cash Provided By Operating Activities		824,462		888,149

Cash Flows from Investing Activities:
Proceeds from Sale of Real Estate		277,275		927,391

Cash Flows from Financing Activities:
Distributions Paid to Partners		(881,806)		(882,826)

Net Increase (Decrease) in Cash		219,931		932,714

Cash, beginning of period		1,934,854		514,889

Cash, end of period	$	2,154,785	$	1,447,603

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 5 of 17

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

STATEMENT OF CHANGES IN PARTNERS' CAPITAL

		General Partners		Limited Partners		Total	Limited Partnership Units Outstanding

Balance, December 31, 2010	$	2,613	$	16,237,802	$	16,240,415	22,673.61

Distributions Declared		(8,819)		(872,996)		(881,815)

Net Income		9,886		841,386		851,272

Balance, September 30, 2011	$	3,680	$	16,206,192	$	16,209,872	22,673.61


Balance, December 31, 2011	$	4,646	$	16,170,124	$	16,174,770	22,663.11

Distributions Declared		(8,818)		(872,988)		(881,806)

Net Income		5,034		498,411		503,445

Balance, September 30, 2012	$	862	$	15,795,547	$	15,796,409	22,663.11

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 6 of 17

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(1) The condensed statements included herein have been prepared by the registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of operations for the interim period, on a basis consistent with the annual audited statements. The adjustments made to these condensed statements consist only of normal recurring adjustments. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the registrant’s latest annual report on Form 10-K.

(2) Organization –

AEI Income & Growth Fund XXI Limited Partnership (“Partnership”) was formed to acquire and lease commercial properties to operating tenants. The Partnership's operations are managed by AEI Fund Management XXI, Inc. (“AFM”), the Managing General Partner. Robert P. Johnson, the President and sole director of AFM, serves as the Individual General Partner. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AEI Fund Management, Inc. (“AEI”), an affiliate of AFM, performs the administrative and operating functions for the Partnership.

The terms of the Partnership offering called for a subscription price of $1,000 per Limited Partnership Unit, payable on acceptance of the offer. The Partnership commenced operations on April 14, 1995 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. On January 31, 1997, the offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units was reached. Under the terms of the Limited Partnership Agreement, the Limited Partners and General Partners contributed funds of $24,000,000 and $1,000, respectively.

During operations, any Net Cash Flow, as defined, which the General Partners determine to distribute will be distributed 90% to the Limited Partners and 10% to the General Partners; provided, however, that such distributions to the General Partners will be subordinated to the Limited Partners first receiving an annual, noncumulative distribution of Net Cash Flow equal to 10% of their Adjusted Capital Contribution, as defined, and, provided further, that in no event will the General Partners receive less than 1% of such Net Cash Flow per annum. Distributions to Limited Partners will be made pro rata by Units.

Pag 7 of 17

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

(Continued)

(2) Organization – (Continued)

Any Net Proceeds of Sale, as defined, from the sale or financing of properties which the General Partners determine to distribute will, after provisions for debts and reserves, be paid in the following manner: (i) first, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 10% of their Adjusted Capital Contribution per annum, cumulative but not compounded, to the extent not previously distributed from Net Cash Flow; (ii) any remaining balance will be distributed 90% to the Limited Partners and 10% to the General Partners. Distributions to the Limited Partners will be made pro rata by Units.

For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of property, will be allocated first in the same ratio in which, and to the extent, Net Cash Flow is distributed to the Partners for such year. Any additional profits will be allocated in the same ratio as the last dollar of Net Cash Flow is distributed. Net losses from operations will be allocated 99% to the Limited Partners and 1% to the General Partners.

For tax purposes, profits arising from the sale, financing, or other disposition of property will be allocated in accordance with the Partnership Agreement as follows: (i) first, to those partners with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Partners and 1% to the General Partners until the aggregate balance in the Limited Partners' capital accounts equals the sum of the Limited Partners' Adjusted Capital Contributions plus an amount equal to 10% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously allocated; (iii) third, the balance of any remaining gain will then be allocated 90% to the Limited Partners and 10% to the General Partners. Losses will be allocated 98% to the Limited Partners and 2% to the General Partners.

The General Partners are not required to currently fund a deficit capital balance. Upon liquidation of the Partnership or withdrawal by a General Partner, the General Partners will contribute to the Partnership an amount equal to the lesser of the deficit balances in their capital accounts or 1% of total Limited Partners' and General Partners' capital contributions.

(3) Reclassification –

Certain items related to discontinued operations in the prior year’s financial statements have been reclassified to conform to 2012 presentation. These reclassifications had no effect on Partners’ capital, net income or cash flows.

Page 8 of 17

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

(Continued)

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

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

(5) Discontinued Operations –

On January 19, 2011, the Partnership sold its remaining 0.1534% interest in the Champps Americana restaurant in Livonia, Michigan to an unrelated third party. The Partnership received net sale proceeds of $7,861, which resulted in a net gain of $3,904. The cost and related accumulated depreciation of the interest sold was $6,366 and $2,409, respectively.

On March 25, 2011, the Partnership sold its remaining 44.5116% interest in the KinderCare daycare center in Ballwin, Missouri, in two separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $902,133, which resulted in a net gain of $362,374. The cost and related accumulated depreciation of the interests sold was $675,587 and $135,828, respectively.

During the last two quarters of 2011, the Partnership sold 11.5987% of the Winn-Dixie store in Panama City, Florida, in four separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $547,411, which resulted in a net gain of $101,088. The cost and related accumulated depreciation of the interests sold was $537,605 and $91,282, respectively.

On June 22, 2012, the Partnership sold an additional 2.8075% of the Winn-Dixie store in Panama City, Florida to an unrelated third party. The Partnership received net sale proceeds of $129,722, which resulted in a net gain of $21,688. The cost and related accumulated depreciation of the interest sold was $130,129 and $22,095, respectively.

On July 24, 2012, the Partnership sold an additional 2.8075% of the Winn-Dixie store in Panama City, Florida to an unrelated third party. The Partnership received net sale proceeds of $131,353, which resulted in a net gain of $23,319. The cost and related accumulated depreciation of the interest sold was $130,129 and $22,095, respectively.

On October 5, 2012, the Partnership sold its remaining 3.1888% interest in the Winn-Dixie store in Panama City, Florida to an unrelated third party. The Partnership received net sale proceeds of approximately $146,000, which resulted in a net gain of approximately $23,000. The cost and related accumulated depreciation of the interest sold was $147,802 and $25,094, respectively. At September 30, 2012 and December 31, 2011, the property was classified as Real Estate Held for Sale with a carrying value of $122,708 and $338,776, respectively.

Page 9 of 17

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

(Continued)

(6) Discontinued Operations – (Continued)

On February 3, 2012, the Partnership sold its remaining 2.6811% interest in the Arby’s restaurant in Montgomery, Alabama to an unrelated third party. The Partnership received net sale proceeds of $16,200, which resulted in a net gain of $1,788. The cost and related accumulated depreciation of the interest sold was $23,049 and $8,637, respectively.

During the first nine months of 2012 and 2011, the Partnership distributed net sale proceeds of $56,955 and $31,439 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $2.49 and $1.37 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 financial results for these properties are reflected as Discontinued Operations in the accompanying financial statements. The following are the results of discontinued operations:

		Three Months Ended September 30				Nine Months Ended September 30
		2012		2011		2012		2011

Rental Income	$	3,630	$	19,535	$	20,100	$	75,531
Property Management Expenses		(367)		(60)		(1,400)		(2,226)
Depreciation		0		(130)		0		(390)
Gain on Disposal of Real Estate		23,319		3,210		46,795		369,488
Income from Discontinued Operations	$	26,582	$	22,555	$	65,495	$	442,403

(7) Fair Value Measurements –

As of September 30, 2012, the Partnership had no assets or liabilities measured at fair value on a recurring basis or nonrecurring basis.

Page 10 of 17

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS.

This section contains "forward-looking statements" which represent management's expectations or beliefs concerning future events, including statements regarding anticipated application of cash, expected returns from rental income, growth in revenue, the sufficiency of cash to meet operating expenses, rates of distribution, and other matters. These, and other forward-looking statements, should be evaluated in the context of a number of factors that may affect the Partnership's financial condition and results of operations, including the following:

—

Market and economic conditions which affect the value of the properties the Partnership owns and the cash from rental income such properties generate;

—

the federal income tax consequences of rental income, deductions, gain on sales and other items and the effects of these consequences for the Partners;

—

resolution by the General Partners of conflicts with which they may be confronted;

—

the success of the General Partners of locating properties with favorable risk return characteristics;

—

the effect of tenant defaults; and

—

the condition of the industries in which the tenants of properties owned by the Partnership operate.

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.

Page 11 of 17

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

Management of the Partnership has discussed the development and selection of the above accounting estimates and the management discussion and analysis disclosures regarding them with the managing partner of the Partnership.

Results of Operations

For the nine months ended September 30, 2012 and 2011, the Partnership recognized rental income from continuing operations of $998,945 and $977,670, respectively. In 2012, rental income increased due to additional rent received from rent increases on three properties. Based on the scheduled rent for the properties owned as of October 31, 2012, the Partnership expects to recognize rental income from continuing operations of approximately $1,334,000 and $1,363,000 in 2012 and 2013, respectively.

For the nine months ended September 30, 2012 and 2011, the Partnership incurred Partnership administration expenses from affiliated parties of $163,845 and $171,061, 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 $35,033 and $35,172, respectively. These expenses represent direct payments to third parties for legal and filing fees, direct administrative costs, outside audit costs, taxes, insurance and other property costs.

For the nine months ended September 30, 2012 and 2011, the Partnership recognized interest income of $6,085 and $5,634, 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. For the nine months ended September 30, 2012, the Partnership recognized income from discontinued operations of $65,495, representing rental income less property management expenses of $18,700 and gain on disposal of real estate of $46,795. For the nine months ended September 30, 2011, the Partnership recognized income from discontinued operations of $442,403, representing rental income less property management expenses and depreciation of $72,915 and gain on disposal of real estate of $369,488.

Page 12 of 17

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

Management believes inflation has not significantly affected income from operations. Leases may contain rent increases, based on the increase in the Consumer Price Index over a specified period, which will result in an increase in rental income over the term of the leases. Inflation also may cause the real estate to appreciate in value. However, inflation and changing prices may have an adverse impact on the operating margins of the properties' tenants, which could impair their ability to pay rent and subsequently reduce the Net Cash Flow available for distributions.

Liquidity and Capital Resources

During the nine months ended September 30, 2012, the Partnership's cash balances increased $219,931 as a result of cash generated from the sale of property, which was partially offset by distributions paid to the Partners in excess of cash generated from operating activities. During the nine months ended September 30, 2011, the Partnership's cash balances increased $932,714 as a result of cash generated from the sale of property and cash generated from operating activities in excess of distributions paid to the Partners.

Pag 13 of 17

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

Net cash provided by operating activities decreased from $888,149 in 2011 to $824,462 in 2012 as a result of a decrease in total rental and interest income in 2012 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 2012.

The major components of the Partnership's cash flow from investing activities are investments in real estate and proceeds from the sale of real estate. During the nine months ended September 30, 2012 and 2011, the Partnership generated cash flow from the sale of real estate of $277,275 and $927,391, respectively.

The Partnership's primary use of cash flow, other than investment in real estate, is distribution and redemption payments to Partners. The Partnership declares its regular quarterly distributions before the end of each quarter and pays the distribution in the first week after the end of each quarter. The Partnership attempts to maintain a stable distribution rate from quarter to quarter. Redemption payments are paid to redeeming Partners in the fourth quarter of each year.

For the nine months ended September 30, 2012 and 2011, the Partnership declared distributions of $881,806 and $881,815, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners. The Limited Partners received distributions of $872,988 and $872,996 and the General Partners received distributions of $8,818 and $8,819 for the periods, 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 the first nine months of 2012, the Partnership did not redeem any Units from the Limited Partners. On October 1, 2011, one Limited Partner redeemed a total of 10.5 Partnership Units for $3,127 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. In prior years, a total of 66 Limited Partners redeemed 1,326.39 Partnership Units for $993,269. 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 $32 in 2011.

Page 14 of 17

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

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 economy over the last few years, 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 3. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES.

(a) Disclosure Controls and Procedures.

Under the supervision and with the participation of management, including its President and Chief Financial Officer, the Managing General Partner of the Partnership evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the President and Chief Financial Officer of the Managing General Partner concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to management, including the President and Chief Financial Officer of the Managing General Partner, in a manner that allows timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting.

During the most recent period covered by this report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Pag 15 of 17

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

There are no material pending legal proceedings to which the Partnership is a party or of which the Partnership's property is subject.

ITEM 1A. RISK FACTORS.

Not required for a smaller reporting company.

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

(a) None.

(b) Not applicable.

(c) Pursuant to Section 7.7 of the Partnership Agreement, each Limited Partner has the right to present Units to the Partnership for purchase by submitting notice to the Managing General Partner during September of each year. The purchase price of the Units is based on a formula specified in the Partnership Agreement. Units tendered to the Partnership are redeemed on October 1st of each year subject to the following limitations. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During the period covered by this report, the Partnership did not purchase any Units.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

31.1	Certification of Chief Executive Officer of General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer of General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002.

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 12, 2012	AEI Income & Growth Fund XXI
	Limited Partnership
	By:	AEI Fund Management XXI, Inc.
	Its:	Managing General Partner



	By:	/s/ ROBERT P JOHNSON
		Robert P. Johnson
		President
		(Principal Executive Officer)



	By:	/s/ PATRICK W KEENE
		Patrick W. Keene
		Chief Financial Officer
		(Principal Accounting Officer)

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AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP - FORM 10-Q - November 14, 2012

Attached files

AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP Reports