SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For the Quarter Ended: June 30, 1998
Commission file number: 0-29274
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer as Specified in its Charter)
State of Minnesota 41-1789725
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1300 Minnesota World Trade Center, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(651) 227-7333
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.
Yes [X] No
Transitional Small Business Disclosure Format:
Yes No [X]
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Item 1. Balance Sheet as of June 30, 1998 and December 31, 1997
Statements for the Periods ended June 30, 1998 and 1997:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
BALANCE SHEET
JUNE 30, 1998 AND DECEMBER 31, 1997
(Unaudited)
ASSETS
1998 1997
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,386,877 $ 2,506,790
Receivables 0 162,677
----------- -----------
Total Current Assets 1,386,877 2,669,467
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 6,505,950 6,612,866
Buildings and Equipment 11,434,976 8,779,112
Construction in Progress 0 1,078,108
Property Acquisition Costs 58,771 88,696
Accumulated Depreciation (578,427) (399,150)
----------- -----------
Net Investments in Real Estate 17,421,270 16,159,632
----------- -----------
Total Assets $18,808,147 $18,829,099
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 51,111 $ 56,307
Distributions Payable 481,250 324,841
Unearned Rent 100,206 0
----------- -----------
Total Current Liabilities 632,567 381,148
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (27,430) (24,706)
Limited Partners, $1,000 Unit Value;
24,000 Units authorized and issued;
23,829 outstanding 18,203,010 18,472,657
----------- -----------
Total Partners' Capital 18,175,580 18,447,951
----------- -----------
Total Liabilities and Partners' Capital $18,808,147 $18,829,099
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
Three Months Ended Six Months Ended
6/30/98 6/30/97 6/30/98 6/30/97
INCOME:
Rent $ 414,491 $ 232,114 $ 794,545 $ 416,273
Investment Income 53,809 133,677 126,242 299,128
---------- ---------- ---------- ----------
Total Income 468,300 365,791 920,787 715,401
---------- ---------- ---------- ----------
EXPENSES:
Partnership Administration -
Affiliates 62,471 62,568 129,131 114,273
Partnership Administration
and Property Management -
Unrelated Parties 29,609 30,041 63,641 52,656
Depreciation 107,804 61,507 200,625 115,837
---------- ---------- ---------- ----------
Total Expenses 199,884 154,116 393,397 282,766
---------- ---------- --------- ----------
OPERATING INCOME 268,416 211,675 527,390 432,635
GAIN ON SALE OF REAL ESTATE 0 0 169,937 0
---------- ---------- ---------- ----------
NET INCOME $ 268,416 $ 211,675 $ 697,327 $ 432,635
========== ========== ========== ==========
NET INCOME ALLOCATED:
General Partners $ 2,684 $ 2,116 $ 6,973 $ 4,326
Limited Partners 265,732 209,559 690,354 428,309
---------- ---------- ---------- ----------
$ 268,416 $ 211,675 $ 697,327 $ 432,635
========== ========== ========== ==========
NET INCOME PER
LIMITED PARTNERSHIP UNIT
(23,829, 24,000, 23,829 and
23,928 weighted average Units
outstanding for the periods,
respectively) $ 11.15 $ 8.73 $ 28.97 $ 17.90
========== ========== ========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 697,327 $ 432,635
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 200,625 115,837
Gain on Sale of Real Estate (169,937) 0
(Increase) Decrease in Receivables 162,677 (53,792)
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (5,196) (98,616)
Increase in Unearned Rent 100,206 31,998
----------- -----------
Total Adjustments 288,375 (4,573)
----------- -----------
Net Cash Provided By
Operating Activities 985,702 428,062
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (1,927,989) (2,768,617)
Proceeds from Sale of Real Estate 635,663 0
----------- -----------
Net Cash Used For
Investing Activities (1,292,326) (2,768,617)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from Limited Partners 0 436,651
Organization and Syndication Costs 0 (57,869)
Increase in Distributions Payable 156,409 51,607
Distributions to Partners (969,698) (966,756)
----------- -----------
Net Cash Used For
Financing Activities (813,289) (536,367)
----------- -----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (1,119,913) (2,876,922)
CASH AND CASH EQUIVALENTS, beginning of period 2,506,790 10,729,033
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,386,877 $ 7,852,111
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 1996 $ (9,754) $19,544,277 $19,534,523 23,563.35
Capital Contributions 0 436,651 436,651 436.65
Organization and
Syndication Costs 0 (57,869) (57,869)
Distributions (9,667) (957,089) (966,756)
Net Income 4,326 428,309 432,635
-------- ----------- ----------- ----------
BALANCE, June 30, 1997 $(15,095) $19,394,279 $19,379,184 24,000.00
======== =========== =========== ==========
BALANCE, December 31, 1997 $(24,706) $18,472,657 $18,447,951 23,828.87
Distributions (9,697) (960,001) (969,698)
Net Income 6,973 690,354 697,327
-------- ----------- ----------- ----------
BALANCE, June 30, 1998 $(27,430) $18,203,010 $18,175,580 23,828.87
======== =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
(1) The condensed statements included herein have been prepared
by the Partnership, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Partnership
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
Partnership's latest annual report on Form 10-KSB.
(2) Organization -
AEI Income & Growth Fund XXI Limited Partnership
(Partnership) was formed to acquire and lease commercial
properties to operating tenants. The Partnership's
operations are managed by AEI Fund Management XXI, Inc.
(AFM), the Managing General Partner of the Partnership.
Robert P. Johnson, the President and sole shareholder of
AFM, serves as the Individual General Partner of the
Partnership. An affiliate of AFM, AEI Fund Management, Inc.
(AEI), performs the administrative and operating functions
for the Partnership.
The terms of the Partnership offering call for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. The Partnership
commenced operations on April 14, 1995 when minimum
subscriptions of 1,500 Limited Partnership Units
($1,500,000) were accepted. On January 31, 1997, the
Partnership offering terminated when the maximum
subscription limit of 24,000 Limited Partnership Units
($24,000,000) 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 the operation
of the Partnership, any Net Cash Flow, as defined, which the
General Partners determine to distribute will be distributed
90% to the Limited Partners and 10% to the General Partners;
provided, however, that such distributions to the General
Partners will be subordinated to the Limited Partners first
receiving an annual, noncumulative distribution of Net Cash
Flow equal to 10% of their Adjusted Capital Contribution, as
defined, and, provided further, that in no event will the
General Partners receive less than 1% of such Net Cash Flow
per annum. Distributions to Limited Partners will be made
pro rata by Units.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of the Partnership's 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 the Partnership's
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 the Partnership's 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.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate -
The Partnership leases its properties to various tenants
through triple net leases, which are classified as operating
leases. Under a triple net lease, the lessee is responsible
for all real estate taxes, insurance, maintenance, repairs
and operating expenses of the property. The initial Lease
terms are 20 years except for the Caribou Coffee , which is
18 years, and the Media Play retail store discussed below.
The Leases contain renewal options which may extend the
Lease term an additional 10 years for the Arby's and Caribou
Coffee store, an additional 15 years for the Denny's and
Champps Americana restaurants and 25 years for the Garden
Ridge retail store. The Leases contain rent clauses which
entitle the Partnership to receive additional rent in future
years based on stated rent increases. Certain lessees have
been granted options to purchase the property. Depending on
the lease, the purchase price is either determined by a
formula, or is the greater of the fair market value of the
property or the amount determined by a formula. In all
cases, if the option were to be exercised by the lessee, the
purchase price would be greater than the original cost of
the property.
The Partnership's properties are all commercial, single-
tenant buildings. The cost of the property and related
accumulated depreciation at June 30, 1998 are as follows:
Buildings and Accumulated
Property Land Equipment Total Depreciation
Arby's, Montgomery, AL $ 328,310 $ 425,794 $ 754,104 $ 52,515
Media Play, Apple Valley, MN 239,690 594,170 833,860 96,893
Garden Ridge, Pineville, NC 1,181,253 2,463,138 3,644,391 221,682
Champps Americana,
Columbus, OH 300,666 592,134 892,800 48,855
Denny's, Covington, LA 532,844 772,104 1,304,948 45,389
Caribou Coffee, Charlotte, NC 705,394 605,204 1,310,598 23,831
Champps Americana,
San Antonio, TX 1,127,016 1,706,341 2,833,357 43,464
Champps Americana,
Schaumburg, IL 959,278 1,297,184 2,256,462 28,852
Champps Americana,
Livonia, MI 1,131,499 2,978,907 4,110,406 16,946
----------- ----------- ----------- ---------
$ 6,505,950 $11,434,976 $17,940,926 $ 578,427
=========== =========== =========== =========
On December 21, 1995, the Partnership purchased a 34.0%
interest in a Media Play retail store in Apple Valley,
Minnesota for $1,414,060. The property was leased to The
Musicland Group, Inc. (MGI) under a Lease Agreement with a
primary term of 18 years and annual rental payments of
$139,587.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
In December, 1996, the Partnership and MGI reached an
agreement in which MGI would buy out and terminate the Lease
Agreement by making a payment of $800,000, which was equal
to approximately two years' rent. The Partnership's share
of such payment was $272,000. Under the Agreement, MGI
remained in possession of the property and performed all of
its obligations under the net lease agreement through
January 31, 1997 at which time it vacated the property and
made it available for re-let to another tenant. MGI was
responsible for all maintenance and management costs of the
property through January 31, 1997 after which date the
Partnership became responsible for its share of expenses
associated with the property until it is re-let or sold. A
specialist in commercial property leasing has been retained
to locate a new tenant for the property.
As of December 31, 1997, based on an analysis of market
conditions in the area, it was determined the fair value of
the Partnership's interest in the Media Play was
approximately $748,000. In the fourth quarter of 1997, a
charge to operations for real estate impairment of $580,200
was recognized, which is the difference between the book
value at December 31, 1997 of $1,328,200 and the estimated
market value of $748,000. The charge was recorded against
the cost of the land, building and equipment.
On March 14, 1997, the Partnership purchased a parcel of
land in San Antonio, Texas for $1,032,299. The land is
leased to Champps Americana, Inc. (Champps) under a Lease
Agreement with a primary term of 20 years and annual rental
payments of $83,451. Effective September 9, 1997, the
annual rent was increased to $128,156. Simultaneously with
the purchase of the land, the Partnership entered into a
Development Financing Agreement under which the Partnership
advanced funds to Champps for the construction of a Champps
Americana restaurant on the site. Initially, the
Partnership charged interest on the advances at a rate of
7.0%. Effective September 9, 1997, the interest rate was
increased to 10.75%. On December 23, 1997, after the
development was completed, the Lease Agreement was amended
to require annual rental payments of $296,023. Total
acquisition costs, including the cost of the land, were
$2,833,357.
On March 19, 1997, the Partnership purchased a Denny's
restaurant in Covington, Louisiana for $1,304,949. The
property is leased to Huntington Restaurants Group, Inc.
under a Lease Agreement with a primary term of 20 years and
annual rental payments of $141,243.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
On April 21, 1997, the Partnership purchased a 49.6%
interest in a parcel of land in Schaumburg, Illinois for
$876,387. The land is leased to Champps under a Lease
Agreement with a primary term of 20 years and annual rental
payments of $66,906. Effective October 17, 1997, the annual
rent was increased to $102,749. Simultaneously with the
purchase of the land, the Partnership entered into a
Development Financing Agreement under which the Partnership
advanced funds to Champps for the construction of a Champps
Americana restaurant on the site. Initially, the
Partnership charged interest on the advances at a rate of
7.0%. Effective October 17, 1997, the interest rate was
increased to 10.75%. On December 31, 1997, after the
development was completed, the Lease Agreement was amended
to require annual rental payments of $236,479. The
Partnership's share of the total acquisition costs,
including the cost of the land, was $2,256,462. The
remaining interests in the property are owned by AEI Net
Lease Income & Growth Fund XX Limited Partnership and Net
Lease Income & Growth Fund 84-A Limited Partnership,
affiliates of the Partnership.
On July 8, 1997, the Partnership purchased a parcel of land
in Livonia, Michigan for $1,074,384. The land is leased to
Champps under a Lease Agreement with a primary term of 20
years and annual rental payments of $75,207. Effective
January 3, 1998, the annual rent was increased to $115,496.
Simultaneously with the purchase of the land, the
Partnership entered into a Development Financing Agreement
under which the Partnership will advance funds to Champps
for the construction of a Champps Americana restaurant on
the site. Initially, the Partnership charged interest on
the advances at a rate of 7.0%. Effective January 3, 1998,
the interest rate was increased to 10.75%. On May 19, 1998,
after the development was completed, the Lease Agreement was
amended to require annual rental payments of $429,135.
Total acquisition costs, including the cost of the land,
were $4,110,406.
On July 31, 1997, the Partnership purchased a 93.1% interest
in a Caribou Coffee store in Charlotte, North Carolina for
$1,310,598. The property is leased to Caribou Coffee
Company, Inc. under a Lease Agreement with a primary term of
18 years and annual rental payments of $146,438. The
remaining interest in the property is owned by AEI
Institutional Net Lease Fund '93 Limited Partnership, an
affiliate of the Partnership.
Through June 30, 1998, the Partnership sold 34.3363% of its
interest in the Champps Americana restaurant in Columbus,
Ohio, in five separate transactions to unrelated third
parties. The Partnership received total net sale proceeds
of $1,156,453 which resulted in a total net gain of
$276,488. The total cost and related accumulated
depreciation of the interests sold was $916,080 and $36,115,
respectively. For the six months ended June 30, 1998, the
net gain was $169,937.
During the first six months of 1998, the Partnership
distributed $241,683 of the net sale proceeds to the Limited
and General Partners as part of their regular quarterly
distributions which represented a return of capital of
$10.04 per Limited Partnership Unit. The remaining net sale
proceeds will either be reinvested in additional properties
or distributed to the Partners in the future.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
The Partnership has incurred net costs of $441,782 relating
to the review of potential property acquisitions. Of these
costs, $383,011 have been capitalized and allocated to land,
building and equipment. The remaining costs of $58,771 have
been capitalized and will be allocated to property
acquisitions in future periods.
(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.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
For the six months ended June 30, 1998 and 1997, the
Partnership recognized rental income of $794,545 and $416,273,
respectively. During the same periods, the Partnership earned
$126,242 and $299,128, respectively, in investment income from
subscriptions proceeds which were invested in short-term money
market accounts, commercial paper and federal agency notes. This
investment income constituted 14% and 42% respectively, of total
income for the periods. The percentage of total income
represented by investment income declines as subscription
proceeds are invested in properties.
Musicland Group, Inc. (MGI), the lessee of the Media Play
retail store in Apple Valley, Minnesota experienced financial
difficulties and was aggressively restructuring its organization.
As part of the restructuring, the Partnership and MGI reached an
agreement in December, 1996 in which MGI would buy out and
terminate the Lease Agreement by making a payment of $800,000,
which is equal to approximately two years' rent. The
Partnership's share of such payment was $272,000. Under the
Agreement, MGI remained in possession of the property and
performed all of its obligations under the net lease agreement
through January 31, 1997 at which time it vacated the property
and made it available for re-let to another tenant. MGI was
responsible for all maintenance and management costs of the
property through January 31, 1997 after which date the
Partnership became responsible for its share of expenses
associated with the property until it is re-let or sold. A
specialist in commercial property leasing has been retained to
locate a new tenant for the property.
As of December 31, 1997, based on an analysis of market
conditions in the area, it was determined the fair value of the
Partnership's interest in the Media Play was approximately
$748,000. In the fourth quarter of 1997, a charge to operations
for real estate impairment of $580,200 was recognized, which is
the difference between the book value at December 31, 1997 of
$1,328,200 and the estimated market value of $748,000. The
charge was recorded against the cost of the land, building and
equipment.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
During the six months ended June 30, 1998 and 1997, the
Partnership paid Partnership administration expenses to
affiliated parties of $129,131 and $114,273, respectively. These
administration expenses include initial start-up costs and
expenses associated with processing distributions, reporting
requirements and correspondence to the Limited Partners. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $63,641 and $52,656, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit and accounting
costs, insurance and other property costs. The increase in
these expenses in 1998, when compared to 1997, is the result of
expenses incurred in 1998 related to the Media Play situation
discussed above.
The Partnership distributes all of its net income during
the offering and acquisition phases, and if net income after
deductions for depreciation is not sufficient to fund the
distributions, the Partnership may distribute other available
cash that constitutes capital for accounting purposes.
As of June 30, 1998, the Partnership's cash distribution
rate was 8.0% on an annualized basis. Distributions of Net Cash
Flow to the General Partners are subordinated to the Limited
Partners as required in the Partnership Agreement. As a result,
99% of distributions were allocated to Limited Partners and 1% to
the General Partners.
Since the Partnership has only recently purchased its real
estate, inflation has had a minimal effect on income from
operations. The Leases contain cost of living increases which
will result in an increase in rental income over the term of the
Leases. Inflation also may cause the Partnership's real estate
to appreciate in value. However, inflation and changing prices
may also have an adverse impact on the operating margins of the
properties' tenants which could impair their ability to pay rent
and subsequently reduce the Partnership's Net Cash Flow available
for distributions.
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. AEI is currently analyzing its
computer hardware and software systems to determine what, if any,
resources need to be dedicated regarding Year 2000 issues. The
Partnership does not anticipate any significant operational
impact or incurring material costs as a result of AEI becoming
Year 2000 compliant.
Liquidity and Capital Resources
The Partnership's primary sources of cash will be proceeds
from the sale of Units, investment income, rental income and
proceeds from the sale of property. Its primary uses of cash
will be investment in real properties, payment of expenses
involved in the sale of units, the organization of the
Partnership, the management of properties, the administration of
the Partnership, and the payment of distributions.
Until the offering of Units was completed, the
Partnership's primary source of cash flow was from the sale of
Limited Partnership Units. 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. From February 1, 1995 to
April 14, 1995, the minimum number of Limited Partnership Units
(1,500) needed to form the Partnership were sold and on April 14,
1995, a total of 2,937.444 Units ($2,937,444) were transferred
into the Partnership. On January 31, 1997, the Partnership
offering terminated when the maximum subscription limit of 24,000
Limited Partnership Units ($24,000,000) was reached. From
subscription proceeds, the Partnership paid organization and
syndication costs (which constitute a reduction of capital) of
$3,277,000.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Before the acquisition of properties, cash flow from
operating activities is not significant. Net income, after
adjustment for depreciation, is lower during the first few years
of operations as administrative expenses remain high and a large
amount of the Partnership's assets remain invested on a short-
term basis in lower-yielding cash equivalents. Net income will
become the largest component of cash flow from operating
activities and the largest component of cash flow after the
completion of the acquisition phase.
The Partnership Agreement requires that all proceeds from
the sale of Units be invested or committed to investment in
properties by the later of two years after the date of the
Prospectus or six months after termination of the offer and sale
of Units. While the Partnership is purchasing properties, cash
flow from investing activities (investment in real property) will
remain negative and will constitute the principal use of the
Partnership's available cash flow.
On March 14, 1997, the Partnership purchased a parcel of
land in San Antonio, Texas for $1,032,299. The land is leased to
Champps Americana, Inc. (Champps) under a Lease Agreement with a
primary term of 20 years and annual rental payments of $83,451.
Effective September 9, 1997, the annual rent was increased to
$128,156. Simultaneously with the purchase of the land, the
Partnership entered into a Development Financing Agreement under
which the Partnership advanced funds to Champps for the
construction of a Champps Americana restaurant on the site.
Initially, the Partnership charged interest on the advances at a
rate of 7.0%. Effective September 9, 1997, the interest rate was
increased to 10.75%. On December 23, 1997, after the development
was completed, the Lease Agreement was amended to require annual
rental payments of $296,023. Total acquisition costs, including
the cost of the land, were $2,833,357.
On March 19, 1997, the Partnership purchased a Denny's
restaurant in Covington, Louisiana for $1,304,949. The property
is leased to Huntington Restaurants Group, Inc. under a Lease
Agreement with a primary term of 20 years and annual rental
payments of $141,243.
On April 21, 1997, the Partnership purchased a 49.6%
interest in a parcel of land in Schaumburg, Illinois for
$876,387. The land is leased to Champps under a Lease Agreement
with a primary term of 20 years and annual rental payments of
$66,906. Effective October 17, 1997, the annual rent was
increased to $102,749. Simultaneously with the purchase of the
land, the Partnership entered into a Development Financing
Agreement under which the Partnership advanced funds to Champps
for the construction of a Champps Americana restaurant on the
site. Initially, the Partnership charged interest on the
advances at a rate of 7.0%. Effective October 17, 1997, the
interest rate was increased to 10.75%. On December 31, 1997,
after the development was completed, the Lease Agreement was
amended to require annual rental payments of $236,479. The
Partnership's share of the total acquisition costs, including the
cost of the land, was $2,256,462. The remaining interests in the
property are owned by AEI Net Lease Income & Growth Fund XX
Limited Partnership and Net Lease Income & Growth Fund 84-A
Limited Partnership, affiliates of the Partnership.
On July 8, 1997, the Partnership purchased a parcel of
land in Livonia, Michigan for $1,074,384. The land is leased to
Champps under a Lease Agreement with a primary term of 20 years
and annual rental payments of $75,207. Effective January 3,
1998, the annual rent was increased to $115,496. Simultaneously
with the purchase of the land, the Partnership entered into a
Development Financing Agreement under which the Partnership will
advance funds to Champps for the construction of a Champps
Americana restaurant on the site. Initially, the Partnership
charged interest on the advances at a rate of 7.0%. Effective
January 3, 1998, the interest rate was increased to 10.75%. On
May 19, 1998, after the development was completed, the Lease
Agreement was amended to require annual rental payments of
$429,135. Total acquisition costs, including the cost of the
land, were $4,110,406.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
On July 31, 1997, the Partnership purchased a 93.1%
interest in a Caribou Coffee store in Charlotte, North Carolina
for $1,310,598. The property is leased to Caribou Coffee
Company, Inc. under a Lease Agreement with a primary term of 18
years and annual rental payments of $146,438. The remaining
interest in the property is owned by AEI Institutional Net Lease
Fund '93 Limited Partnership, an affiliate of the Partnership.
Through June 30, 1998, the Partnership sold 34.3363% of
its interest in the Champps Americana restaurant in Columbus,
Ohio, in five separate transactions to unrelated third parties.
The Partnership received total net sale proceeds of $1,156,453
which resulted in a total net gain of $276,488. The total cost
and related accumulated depreciation of the interests sold was
$916,080 and $36,115, respectively. For the six months ended
June 30, 1998, the net gain was $169,937.
During the first six months of 1998, the Partnership
distributed $241,683 of the net sale proceeds to the Limited and
General Partners as part of their regular quarterly distributions
which represented a return of capital of $10.04 per Limited
Partnership Unit. The remaining net sale proceeds will either be
reinvested in additional properties or distributed to the
Partners in the future.
After completion of the acquisition phase, the
Partnership's primary use of cash flow is distribution and
redemption payments to Partners. The Partnership declares its
regular quarterly distributions before the end of each quarter
and pays the distribution in the first week after the end of each
quarter. The Partnership attempts to maintain a stable
distribution rate from quarter to quarter. The redemption
payments generally are funded with cash that would normally be
paid as part of the regular quarterly distributions. As a
result, total distributions and distributions payable have
fluctuated from year to year due to cash used to fund redemption
payments.
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 is not obligated to
purchase in any year more than 5% of the number of Units
outstanding at the beginning of the 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 1997, three Limited Partners redeemed a total of
171.1 Partnership Units for $154,021 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. The redemptions increase
the remaining Limited Partners' ownership interest in the
Partnership.
Until capital is invested in properties, the Partnership
will remain liquid. At June 30, 1998, $1,386,877 or 7% of the
Partnership's assets were in cash or cash equivalents (including
accrued interest receivable). After completion of property
acquisitions, the Partnership will attempt to maintain a cash
reserve of only approximately 1% of subscription proceeds.
Because properties are purchased for cash and leased under triple-
net leases, this is considered adequate to satisfy most
contingencies.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
The foregoing Management's Discussion and Analysis
contains various "forward looking statements" within the meaning
of federal securities laws which represent management's
expectations or beliefs concerning future events, including
statements regarding anticipated application of cash, expected
returns from rental income, growth in revenue, taxation levels,
the sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward
looking statements made by the Partnership, must be evaluated in
the context of a number of factors that may affect the
Partnership's financial condition and results of operations,
including the following:
<bullet> Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
<bullet> the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
affects of these consequences for investors;
<bullet> resolution by the General Partners of conflicts with
which they may be confronted;
<bullet> the success of the General Partners of locating
properties with favorable risk return characteristics;
<bullet> the effect of tenant defaults; and
<bullet> the condition of the industries in which the tenants of
properties owned by the Partnership operate.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
There are no material pending legal proceedings to which
the Partnership is a party or of which the Partnership's
property is subject.
ITEM 2.CHANGES IN SECURITIES
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5.OTHER INFORMATION
None.
PART II - OTHER INFORMATION
(Continued)
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -
Description
27 Financial Data Schedule for period
ended June 30, 1998.
b. Reports filed on Form 8-K -
During the quarter ended June 30,
1998, the Partnership filed a Form
8-K, dated June 16, 1998, reporting
the acquisition of a Champps
Americana restaurant in Livonia,
Michigan.
SIGNATURES
In accordance with the requirements of the Exchange Act,
the Registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: July 30, 1998 AEI Income & Growth Fund XXI
Limited Partnership
By: AEI Fund Management XXI, Inc.
Its: Managing General Partner
By: /s/ Robert P Johnson
Robert P. Johnson
President
(Principal Executive Officer)
By: /s/ Mark E Larson
Mark E. Larson
Chief Financial Officer
(Principal Accounting Officer)
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<NAME> AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,386,877
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,386,877
<PP&E> 17,999,697
<DEPRECIATION> (578,427)
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<CURRENT-LIABILITIES> 632,567
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0
0
<COMMON> 0
<OTHER-SE> 18,175,580
<TOTAL-LIABILITY-AND-EQUITY> 18,808,147
<SALES> 0
<TOTAL-REVENUES> 920,787
<CGS> 0
<TOTAL-COSTS> 393,397
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 697,327
<INCOME-TAX> 0
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