UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For the Quarter Ended: June 30, 2004
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.)
30 East 7th Street, Suite 1300, 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, 2004 and December 31, 2003
Statements for the Periods ended June 30, 2004 and 2003:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
Item 3. Controls and Procedures
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
BALANCE SHEET
JUNE 30, 2004 AND DECEMBER 31, 2003
(Unaudited)
ASSETS
2004 2003
CURRENT ASSETS:
Cash and Cash Equivalents $ 4,456,061 $ 6,018,352
Receivables 18,809 579
----------- -----------
Total Current Assets 4,474,870 6,018,931
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 4,667,846 4,770,063
Buildings and Equipment 9,230,430 10,063,261
Property Acquisition Costs 2,904 0
Accumulated Depreciation (995,099) (862,718)
----------- -----------
12,906,081 13,970,606
Real Estate Held for Sale 2,107,183 264,200
----------- -----------
Net Investments in Real Estate 15,013,264 14,234,806
----------- -----------
Total Assets $19,488,134 $20,253,737
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 16,788 $ 160,512
Distributions Payable 405,675 951,129
Unearned Rent 32,784 0
----------- -----------
Total Current Liabilities 455,247 1,111,641
----------- -----------
PARTNERS' CAPITAL:
General Partners 27,896 28,987
Limited Partners, $1,000 per Unit;
24,000 Units authorized and issued;
22,907 Units outstanding 19,004,991 19,113,109
----------- -----------
Total Partners' Capital 19,032,887 19,142,096
----------- -----------
Total Liabilities and Partners' Capital $19,488,134 $20,253,737
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
Three Months Ended Six Months Ended
6/30/04 6/30/03 6/30/04 6/30/03
RENTAL INCOME $ 330,644 $ 213,844 $ 646,218 $ 427,682
EXPENSES:
Partnership Administration -
Affiliates 57,354 39,766 108,520 107,074
Partnership Administration
and Property Management -
Unrelated Parties 8,746 2,569 17,998 15,654
Depreciation 92,997 59,717 181,360 119,442
---------- ---------- ---------- ----------
Total Expenses 159,097 102,052 307,878 242,170
---------- ----------- ---------- ----------
OPERATING INCOME 171,547 111,792 338,340 185,512
OTHER INCOME:
Interest Income 11,034 29,828 24,175 54,550
Gain on Sale of Real Estate 0 0 137,068 0
---------- ----------- ---------- ----------
Total Other Income 11,034 29,828 161,243 54,550
---------- ----------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS 182,581 141,620 499,583 240,062
Income from Discontinued
Operations 39,809 587,664 209,393 737,963
---------- ----------- ---------- ----------
NET INCOME $ 222,390 $ 729,284 $ 708,976 $ 978,025
========== =========== ========== ==========
NET INCOME ALLOCATED:
General Partners $ 2,224 $ 7,293 $ 7,090 $ 9,780
Limited Partners 220,166 721,991 701,886 968,245
---------- ----------- ---------- ----------
$ 222,390 $ 729,284 $ 708,976 $ 978,025
========== =========== ========== ==========
INCOME PER LIMITED PARTNERSHIP UNIT:
Continuing Operations $ 7.89 $ 6.09 $ 21.59 $ 10.32
Discontinued Operations 1.72 25.27 9.05 31.73
---------- ----------- ---------- ----------
Total $ 9.61 $ 31.36 $ 30.64 $ 42.05
========== =========== ========== ==========
Weighted Average Units
Outstanding 22,907 23,025 22,907 23,025
========== =========== ========== ==========
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 SIX-MONTH PERIODS ENDED JUNE 30
(Unaudited)
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 708,976 $ 978,025
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 216,512 205,593
Gain on Sale of Real Estate (265,704) (437,913)
(Increase) Decrease in Receivables (18,230) 15,194
Decrease in Payable to
AEI Fund Management, Inc. (143,724) (1,757)
Increase in Unearned Rent 32,784 0
----------- -----------
Total Adjustments (178,362) (218,883)
----------- -----------
Net Cash Provided By
Operating Activities 530,614 759,142
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (1,996,338) (1,348,836)
Proceeds from Sale of Real Estate 1,267,072 1,781,436
----------- -----------
Net Cash Provided By (Used For)
Investing Activities (729,266) 432,600
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in Distributions Payable (545,454) (242,423)
Distributions to Partners (818,185) (818,188)
----------- -----------
Net Cash Used For
Financing Activities (1,363,639) (1,060,611)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,562,291) 131,131
CASH AND CASH EQUIVALENTS, beginning of period 6,018,352 4,653,629
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 4,456,061 $ 4,784,760
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 2002 $ 17,954 $18,020,886 $18,038,840 23,025.33
Distributions (8,182) (810,006) (818,188)
Net Income 9,780 968,245 978,025
-------- ----------- ----------- -----------
BALANCE, June 30, 2003 $ 19,552 $18,179,125 $18,198,677 23,025.33
======== =========== =========== ===========
BALANCE, December 31, 2003 $ 28,987 $19,113,109 $19,142,096 22,907.49
Distributions (8,181) (810,004) (818,185)
Net Income 7,090 701,886 708,976
-------- ----------- ----------- -----------
BALANCE, June 30, 2004 $ 27,896 $19,004,991 $19,032,887 22,907.49
======== =========== =========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
(Unaudited)
(1) The condensed statements included herein have been prepared
by the Partnership, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Partnership
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
Partnership's latest annual report on Form 10-KSB.
(2) Organization -
AEI Income & Growth Fund XXI Limited Partnership
(Partnership) was formed to acquire and lease commercial
properties to operating tenants. The Partnership's
operations are managed by AEI Fund Management XXI, Inc.
(AFM), the Managing General Partner. Robert P. Johnson, the
President and sole 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 call for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. The Partnership
commenced operations on April 14, 1995 when minimum
subscriptions of 1,500 Limited Partnership Units
($1,500,000) were accepted. On January 31, 1997, the
offering terminated when the maximum subscription limit of
24,000 Limited Partnership Units was reached. Under the
terms of the Limited Partnership Agreement, the Limited
Partners and General Partners contributed funds of
$24,000,000 and $1,000, respectively.
During operations, any Net Cash Flow, as defined, which the
General Partners determine to distribute will be distributed
90% to the Limited Partners and 10% to the General Partners;
provided, however, that such distributions to the General
Partners will be subordinated to the Limited Partners first
receiving an annual, noncumulative distribution of Net Cash
Flow equal to 10% of their Adjusted Capital Contribution, as
defined, and, provided further, that in no event will the
General Partners receive less than 1% of such Net Cash Flow
per annum. Distributions to Limited Partners will be made
pro rata by Units.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(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 in the prior year's financial statements have
been reclassified to conform to 2004 presentation. These
reclassifications had no effect on Partners' capital, net
income or cash flows.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Investments in Real Estate -
On September 19, 2003, the Partnership purchased a 37%
interest in a Winn-Dixie store in Panama City, Florida for
$1,714,965. The property is leased to Winn-Dixie
Montgomery, Inc. under a Lease Agreement with a primary term
of 20 years and annual rental payments of $138,380. The
remaining interests in the property were purchased by AEI
Net Lease Income & Growth Fund XIX Limited Partnership and
AEI Income & Growth Fund 24 LLC, affiliates of the
Partnership.
Through March 31, 2004, the Partnership sold 16.5975% of the
Winn-Dixie store in Panama City, Florida, in four separate
transactions, to unrelated third parties. The Partnership
received net sale proceeds of $900,843, which resulted in a
net gain of $139,707. The cost and related accumulated
depreciation of the interest sold was $769,300 and $8,164,
respectively. For the six months ended June 30, 2004 and
2003, the net gain was $137,068 and $-0-, respectively.
On December 30, 2003, the Partnership purchased a Johnny
Carino's restaurant in Laredo, Texas for $2,605,079. The
property is leased to Kona Restaurant Group, Inc. under a
Lease Agreement with a primary term of 13 years and annual
rental payments of $215,646.
On February 9, 2004, the Partnership purchased a 50%
interest in a Jared Jewelry store in Hanover, Maryland for
$1,983,138. The property is leased to Sterling Jewelers
Inc. under a Lease Agreement with a primary term of 20 years
and annual rental payments of $153,228. The remaining
interest in the property was purchased by AEI Net Lease
Income & Growth Fund XX Limited Partnership, an affiliate of
the Partnership.
In March 2004, the Partnership entered into an agreement to
purchase a 50% interest in an Eckerd drug store in Buffalo,
New York for approximately $1,606,500. In May 2004, by
mutual agreement of the parties, the agreement was
terminated.
(5) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Partnership. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations -
During the first nine months of 2003, the Partnership sold
the Children's World in Mundelein, Illinois, in seven
separate transactions, to unrelated third parties. The
Partnership received total net sale proceeds of $2,010,839,
which resulted in a net gain of $495,127. The total cost
and related accumulated depreciation of the interests sold
was $1,618,824 and $103,112, respectively. For the six
months ended June 30, 2003, the net gain was $437,913.
During the third quarter of 2003, the Partnership sold its
25% interest in the Champps Americana restaurant in
Centerville, Ohio, in five separate transactions, to
unrelated third parties. The Partnership received total net
sale proceeds of $1,384,939, which resulted in a net gain of
$498,449. The total cost and related accumulated
depreciation of the interests sold was $984,426 and $97,936,
respectively.
During the fourth quarter of 2003, the Partnership sold
37.0128% of the Garden Ridge retail store in Pineville,
North Carolina, in eleven separate transactions, to
unrelated third parties. The Partnership received total net
sale proceeds of $3,968,116, which resulted in a net gain of
$1,347,739. The total cost and related accumulated
depreciation of the interests sold was $3,310,163 and
$689,786, respectively.
On January 13, 2004, the Partnership sold its remaining
3.7372% interest in the Garden Ridge retail store to an
unrelated third party. The Partnership received net sale
proceeds of $392,836, which resulted in a net gain of
$128,636. At December 31, 2003, the property was classified
as Real Estate Held for Sale with a book value of $264,200.
On October 31, 2002, the Partnership purchased a parcel of
land in Farmington, New Mexico for $810,000. The
Partnership obtained title to the land in the form of an
undivided fee simple interest. The land is leased to SFG
Farmington I Limited Partnership (SFG) under a Lease
Agreement with a primary term of 20 years and annual rental
payments of $85,050. Simultaneously with the purchase of
the land, the Partnership entered into a Development
Financing Agreement under which the Partnership advanced
funds to SFG for the construction of a Johnny Carino's
restaurant on the site. Pursuant to the Lease, any
improvements to the land during the term of the Lease,
become property of the lessor. The Partnership charged
interest on the advances at a rate of 10.5%. On May 28,
2003, after the development was completed, the Lease
Agreement was amended to require annual rental payments of
$231,000. Total acquisition costs, including the cost of
the land, were $2,183,344.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations - (Continued)
In June 2004, the Partnership entered into an agreement to
sell the Johnny Carino's restaurant in Farmington, New
Mexico to an unrelated third party. The sale is subject to
contingencies and may not be completed. If the sale is
completed, the Partnership expects to receive net sale
proceeds of approximately $2,900,000, which will result in a
net gain of approximately $793,000. If this sale is not
completed, it is likely the Partnership will seek another
buyer for the property and may not be able to negotiate a
similar purchase agreement. At June 30, 2004, the property
was classified as Real Estate Held for Sale with a book
value of $2,107,183.
During the first six months of 2004 and 2003, the
Partnership distributed $158,402 and $72,483 of net sale
proceeds to the Limited and General Partners as part of
their quarterly distributions, which represented a return of
capital of $6.85 and $3.12 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 for the periods ended June 30:
Three Months Ended Six Months Ended
6/30/04 6/30/03 6/30/04 6/30/03
Rental Income $ 57,750 $ 196,351 $ 116,754 $ 389,233
Property Management Expenses (365) (2,269) (845) (3,032)
Depreciation (17,576) (44,331) (35,152) (86,151)
Gain on Disposal of Real Estate 0 437,913 128,636 437,913
--------- --------- --------- ---------
Income from Discontinued
Operations $ 39,809 $ 587,664 $ 209,393 $ 737,963
========= ========= ========= =========
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS
The Management's Discussion and Analysis contains various
"forward looking statements" within the meaning of federal
securities laws which represent management's expectations or
beliefs concerning future events, including statements regarding
anticipated application of cash, expected returns from rental
income, growth in revenue, taxation levels, the sufficiency of
cash to meet operating expenses, rates of distribution, and other
matters. These, and other forward looking statements made by the
Partnership, must be evaluated in the context of a number of
factors that may affect the Partnership's financial condition and
results of operations, including the following:
Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
affects of these consequences for the Partners;
resolution by the General Partners of conflicts with
which they may be confronted;
the success of the General Partners of locating
properties with favorable risk return characteristics;
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Partnership operate.
The Application of Critical Accounting Policies
The preparation of the Partnership's financial statements
requires management to make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. Management evaluates these estimates on an ongoing
basis, including those related to the carrying value of real
estate and the allocation by AEI Fund Management, Inc. of
expenses to the Partnership as opposed to other funds they
manage.
The Partnership purchases properties and records them in
the financial statements at the lower of cost or estimated
realizable value. The Partnership initially records the
properties at cost (including capitalized acquisition expenses).
The Partnership is required to periodically evaluate the carrying
value of properties to determine whether their realizable value
has declined. For properties the Partnership will hold and
operate, management determines whether impairment has occurred by
comparing the property's probability-weighted cash flows to its
current carrying value. For properties held for sale, management
determines whether impairment has occurred by comparing the
property's estimated fair value less cost to sell to its current
carrying value. If the carrying value is greater than the
realizable value, an impairment loss is recorded to reduce the
carrying value of the property to its realizable value. A change
in these assumptions or analysis could cause material changes in
the carrying value of the properties.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
AEI Fund Management Inc. allocates expenses to each of the
funds they manage primarily on the basis of the number of hours
devoted by their employees to each fund's affairs. They also
allocate expenses at the end of each month that are not directly
related to a fund's operations based upon the number of investors
in the fund and the fund's capitalization relative to other funds
they manage. The Partnership reimburses these expenses subject
to detailed limitations contained in the Partnership Agreement.
Management of the Partnership has discussed the
development and selection of the above accounting estimates and
the management discussion and analysis disclosures regarding them
with the managing partner of the Partnership.
Results of Operations
For the six months ended June 30, 2004 and 2003, the
Partnership recognized rental income from continuing operations
of $646,218 and $427,682, respectively. In 2004, rental income
increased as a result of additional rent received from three
property acquisitions in 2003 and 2004 and rent increases on two
properties.
For the six months ended June 30, 2004 and 2003, the
Partnership incurred Partnership administration expenses from
affiliated parties of $108,520 and $107,074, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and correspondence to the Limited Partners. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $17,998 and $15,654, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit and accounting
costs, taxes, insurance and other property costs.
For the six months ended June 30, 2004 and 2003, the
Partnership recognized interest income of $24,175 and $54,550,
respectively. In 2004, interest income decreased due to the
Partnership receiving interest from construction advances in
2003.
For the six months ended June 30, 2004, the Partnership
recognized gain on sale of real estate from continuing operations
of $137,068 from the sale of the Winn-Dixie store. Since the
Partnership retains an ownership interest in the property, the
operating results and gain on sale of the property were not
classified as discontinued operations.
Through March 31, 2004, the Partnership sold 16.5975% of
the Winn-Dixie store in Panama City, Florida, in four separate
transactions, to unrelated third parties. The Partnership
received net sale proceeds of $900,843, which resulted in a net
gain of $139,707. The cost and related accumulated depreciation
of the interest sold was $769,300 and $8,164, respectively. For
the six months ended June 30, 2004 and 2003, the net gain was
$137,068 and $-0-, respectively.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, upon complete disposal of a property or
classification of a property as Real Estate Held for Sale, the
Partnership includes the operating results and sale of the
property in discontinued operations. In addition, the
Partnership reclassifies the prior periods operating results and
any partial sales of the property to discontinued operations.
For the six months ended June 30, 2004, the Partnership
recognized income from discontinued operations of $209,393,
representing rental income less property management expenses and
depreciation of $80,757 and gain on disposal of real estate of
$128,636. For the six months ended June 30, 2003, the
Partnership recognized income from discontinued operations of
$737,963, representing rental income less property management
expenses and depreciation of $300,050 and gain on disposal of
real estate of $437,913.
During the first nine months of 2003, the Partnership sold
the Children's World in Mundelein, Illinois, in seven separate
transactions, to unrelated third parties. The Partnership
received total net sale proceeds of $2,010,839, which resulted in
a net gain of $495,127. The total cost and related accumulated
depreciation of the interests sold was $1,618,824 and $103,112,
respectively. For the six months ended June 30, 2003, the net
gain was $437,913.
During the third quarter of 2003, the Partnership sold its
25.0% interest in the Champps Americana restaurant in
Centerville, Ohio, in five separate transactions, to unrelated
third parties. The Partnership received total net sale proceeds
of $1,384,939, which resulted in a net gain of $498,449. The
total cost and related accumulated depreciation of the interests
sold was $984,426 and $97,936, respectively.
During the fourth quarter of 2003, the Partnership sold
37.0128% of the Garden Ridge retail store in Pineville, North
Carolina, in eleven separate transactions, to unrelated third
parties. The Partnership received total net sale proceeds of
$3,968,116, which resulted in a net gain of $1,347,739. The
total cost and related accumulated depreciation of the interests
sold was $3,310,163 and $689,786, respectively.
On January 13, 2004, the Partnership sold its remaining
3.7372% interest in the Garden Ridge retail store to an unrelated
third party. The Partnership received net sale proceeds of
$392,836, which resulted in a net gain of $128,636. At December
31, 2003, the property was classified as Real Estate Held for
Sale with a book value of $264,200.
In June 2004, the Partnership entered into an agreement to
sell the Johnny Carino's restaurant in Farmington, New Mexico to
an unrelated third party. The sale is subject to contingencies
and may not be completed. If the sale is completed, the
Partnership expects to receive net sale proceeds of approximately
$2,900,000, which will result in a net gain of approximately
$793,000. If this sale is not completed, it is likely the
Partnership will seek another buyer for the property and may not
be able to negotiate a similar purchase agreement. At June 30,
2004, the property was classified as Real Estate Held for Sale
with a book value of $2,107,183.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In 2003 and the first quarter of 2004, the Partnership
realized significant gains from the sale of property. While the
real estate market is expected to remain attractive for sellers
of property, there can be no assurance the Partnership will be
able to achieve a similar level of sales activity or sales
profitability during the remainder of 2004 due to unforeseen
changes in the real estate market. In addition, it is likely
the Partnership will curtail its selling activity as it is
becoming more difficult to find attractive property in which to
reinvest the proceeds from property sales.
Inflation has had a minimal effect on income from
operations. Leases may contain rent increases, based on the
increase in the Consumer Price Index over a specified period,
which will result in an increase in rental income over the term
of the leases. In addition, leases may contain rent clauses
which entitle the Partnership to receive additional rent in
future years if gross receipts for the property exceed certain
specified amounts. Increases in sales volumes of the tenants,
due to inflation and real sales growth, may result in an increase
in rental income over the term of the leases. Inflation also may
cause the real estate to appreciate in value. However, inflation
and changing prices may have an adverse impact on the operating
margins of the properties' tenants, which could impair their
ability to pay rent and subsequently reduce the Net Cash Flow
available for distributions.
Liquidity and Capital Resources
During the six months ended June 30, 2004, the
Partnership's cash balances decreased $1,562,291 as a result of
cash used to purchase property and distributions paid to the
Partners in excess of cash generated from operating activities,
which were partially offset by cash generated from the sale of
property. During the six months ended June 30, 2003, the
Partnership's cash balances increased $131,131 as a result of
cash generated from the sale of property, which was partially
offset by cash used to purchase property and distributions paid
to the Partners in excess of cash generated from operating
activities.
Net cash provided by operating activities decreased from
$759,142 in 2003 to $530,614 in 2004 mainly as a result of a
decrease in total rental and interest income in 2004 and net
timing differences in the collection of payments from the lessees
and the payment of expenses.
The major components of the Partnership's cash flow from
investing activities are investments in real estate and proceeds
from the sale of real estate. During the six months ended June
30, 2004 and 2003, the Partnership generated cash flow from the
sale of real estate of $1,267,072 and $1,781,436, respectively.
During the same periods, the Partnership expended $1,996,338 and
$1,348,836, respectively, to invest in real properties (inclusive
of acquisition expenses) as the Partnership reinvested cash
generated from property sales.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
On October 31, 2002, the Partnership purchased a parcel of
land in Farmington, New Mexico for $810,000. The Partnership
obtained title to the land in the form of an undivided fee simple
interest. The land is leased to SFG Farmington I Limited
Partnership (SFG) under a Lease Agreement with a primary term of
20 years and annual rental payments of $85,050. Simultaneously
with the purchase of the land, the Partnership entered into a
Development Financing Agreement under which the Partnership
advanced funds to SFG for the construction of a Johnny Carino's
restaurant on the site. Pursuant to the Lease, any improvements
to the land during the term of the Lease, become property of the
lessor. The Partnership charged interest on the advances at a
rate of 10.5%. On May 28, 2003, after the development was
completed, the Lease Agreement was amended to require annual
rental payments of $231,000. Total acquisition costs, including
the cost of the land, were $2,183,344.
On September 19, 2003, the Partnership purchased a 37%
interest in a Winn-Dixie store in Panama City, Florida for
$1,714,965. The property is leased to Winn-Dixie Montgomery,
Inc. under a Lease Agreement with a primary term of 20 years and
annual rental payments of $138,380. The remaining interests in
the property were purchased by AEI Net Lease Income & Growth Fund
XIX Limited Partnership and AEI Income & Growth Fund 24 LLC,
affiliates of the Partnership.
On December 30, 2003, the Partnership purchased a Johnny
Carino's restaurant in Laredo, Texas for $2,605,079. The
property is leased to Kona Restaurant Group, Inc. under a Lease
Agreement with a primary term of 13 years and annual rental
payments of $215,646.
On February 9, 2004, the Partnership purchased a 50%
interest in a Jared Jewelry store in Hanover, Maryland for
$1,983,138. The property is leased to Sterling Jewelers Inc.
under a Lease Agreement with a primary term of 20 years and
annual rental payments of $153,228. The remaining interest in
the property was purchased by AEI Net Lease Income & Growth Fund
XX Limited Partnership, an affiliate of the Partnership.
In March 2004, the Partnership entered into an agreement
to purchase a 50% interest in an Eckerd drug store in Buffalo,
New York for approximately $1,606,500. In May 2004, by mutual
agreement of the parties, the agreement was terminated.
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 ten days 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 six months ended June 30, 2004 and 2003, the
Partnership declared distributions of $818,185 and $818,188,
respectively, which were distributed 99% to the Limited Partners
and 1% to the General Partners. The Limited Partners received
distributions of $810,004 and $810,006 and the General Partners
received distributions of $8,181 and $8,182 for the periods,
respectively. In December 2003, the Partnership declared a bonus
distribution of $545,455 of net sale proceeds, which resulted in
a higher distribution payable at December 31, 2003.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
During the first six months of 2004 and 2003, the
Partnership distributed $158,402 and $72,483 of net sale proceeds
to the Limited and General Partners as part of their quarterly
distributions, which represented a return of capital of $6.85 and
$3.12 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.
During 2003, eight Limited Partners redeemed a total of
117.84 Partnership Units for $81,076 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a total of
41 Limited Partners redeemed 974.67 Partnership Units for
$804,867. 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 $819 in
2003.
The continuing rent payments from the properties, together
with cash generated from property sales, should be adequate to
fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
ITEM 3. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing General Partner of the Partnership evaluated the
effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-14(c) under 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, the
disclosure controls and procedures of the Partnership are
adequately designed to ensure that information required to be
disclosed by us in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in applicable rules and forms.
(b) Changes in internal controls
There were no significant changes made in the
Partnership's internal controls during the most recent period
covered by this report that have materially affected, or are
reasonably likely to materially affect, the Partnership's
internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
There are no material pending legal proceedings to which
the Partnership is a party or of which the Partnership's
property is subject.
ITEM 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.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -
Description
10.1 Purchase Agreement dated June 14, 2004 between the
Partnership and Jaroslaw Paluha and Joseph A. Barraco
relating to the Property at 3500 East Main Street,
Farmington, New Mexico.
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.
b. Reports filed on Form 8-K - None.
SIGNATURES
In accordance with the requirements of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: August 10, 2004 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)