XXAAU 10-Q Quarterly Report June 30, 2016 | Alphaminr
AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP
ALPHAMINR

XXAAU 10-Q Quarter ended June 30, 2016

Balance Sheet
Cash Flow
Income Statement
AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP
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10-Q 1 q212-16.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: June 30, 2016

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 7 th 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. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

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

☐ Large accelerated filer
☐ Accelerated filer
☐ Non-accelerated filer
☒ Smaller reporting company

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

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

INDEX


Page
Part I – Financial Information
Item 1.
Financial Statements:
Balance Sheets as of June 30, 2016 and December 31, 2015
3
Statements for the Periods ended June 30, 2016 and 2015:
Income
4
Cash Flows
5
Changes in Partners' Capital (Deficit)
6
Notes to Financial Statements
7 - 10
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
10 - 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
17
Item 4.
Mine Safety Disclosures
17
Item 5.
Other Information
17
Item 6.
Exhibits
17

Page 2 of 17
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
BALANCE SHEETS

ASSETS

June 30,
December 31,
2016
2015
(unaudited)
Current Assets:
Cash
$
867,386
$
2,925,122
Real Estate Investments:
Land
3,839,216
3,484,216
Buildings
11,377,241
10,126,971
Acquired Intangible Lease Assets
807,178
522,129
Real Estate Held for Investment, at cost
16,023,635
14,133,316
Accumulated Depreciation and Amortization
(3,384,490
)
(3,127,521
)
Real Estate Held for Investment, Net
12,639,145
11,005,795
Total Assets
$
13,506,531
$
13,930,917

LIABILITIES AND PARTNERS' CAPITAL

Current Liabilities:
Payable to AEI Fund Management, Inc.
$
32,212
$
10,727
Distributions Payable
261,212
264,144
Unearned Rent
45,494
12,121
Total Current Liabilities
338,918
286,992
Long-term Liabilities:
Acquired Below-Market Lease Intangibles, Net
135,405
63,200
Partners' Capital (Deficit) :
General Partners
(14,611
)
(9,126
)
Limited Partners – 24,000 Units authorized;
19,841 and 20,105 Units issued and outstanding
as of 6/30/16 and 12/31/15, respectively
13,046,819
13,589,851
Total Partners' Capital
13,032,208
13,580,725
Total Liabilities and Partners' Capital
$
13,506,531
$
13,930,917




The accompanying Notes to Financial Statements are an integral part of these statements.
Page 3 of 17
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENTS OF INCOME
(unaudited)


Three Months Ended June 30
Six Months Ended June 30
2016
2015
2016
2015
Rental Income
$
327,468
$
294,898
$
642,701
$
589,796
Expenses:
Partnership Administration – Affiliates
45,084
56,236
86,357
113,480
Partnership Administration and Property
Management – Unrelated Parties
19,287
15,072
32,184
27,818
Property Acquisition
373
0
56,733
0
Depreciation and Amortization
132,964
113,275
256,969
226,550
Total Expenses
197,708
184,583
432,243
367,848
Operating Income
129,760
110,315
210,458
221,948
Other Income:
Interest Income
558
2,554
1,812
5,794
Net Income
$
130,318
$
112,869
$
212,270
$
227,742
Net Income Allocated:
General Partners
$
1,303
$
1,128
$
2,123
$
2,277
Limited Partners
129,015
111,741
210,147
225,465
Total
$
130,318
$
112,869
$
212,270
$
227,742
Net Income per Limited Partnership Unit
$
6.50
$
5.40
$
10.52
$
10.60
Weighted Average Units Outstanding –
Basic and Diluted
19,841
20,710
19,973
21,270









The accompanying Notes to Financial Statements are an integral part of these statements.
Page 4 of 17
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(unaudited)


Six Months Ended June 30
2016
2015
Cash Flows from Operating Activities:
Net Income
$
212,270
$
227,742
Adjustments to Reconcile Net Income
To Net Cash Provided by Operating Activities:
Depreciation and Amortization
248,770
221,054
Increase (Decrease) in Payable to
AEI Fund Management, Inc.
21,485
2,383
Increase (Decrease) in Unearned Rent
33,373
23,094
Total Adjustments
303,628
246,531
Net Cash Provided By (Used For)
Operating Activities
515,898
474,273
Cash Flows from Investing Activities:
Investments in Real Estate
(1,809,915
)
0
Cash Flows from Financing Activities:
Distributions Paid to Partners
(528,288
)
(573,735
)
Repurchase of Partnership Units
(235,431
)
(911,626
)
Net Cash Provided By (Used For)
Financing Activities
(763,719
)
(1,485,361
)
Net Increase (Decrease) in Cash
(2,057,736
)
(1,011,088
)
Cash, beginning of period
2,925,122
4,540,920
Cash, end of period
$
867,386
$
3,529,832



The accompanying Notes to Financial Statements are an integral part of these statements.
Page 5 of 17
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(unaudited)


General Partners
Limited Partners
Total
Limited Partnership Units Outstanding
Balance, December 31, 2014
$
10,980
$
15,580,301
$
15,591,281
21,828.71
Distributions Declared
(5,523
)
(546,793
)
(552,316
)
Repurchase of Partnership Units
(9,117
)
(902,509
)
(911,626
)
(1,118.25
)
Net Income
2,277
225,465
227,742
Balance, June 30, 2015
$
(1,383
)
$
14,356,464
$
14,355,081
20,710.46
Balance, December 31, 2015
$
(9,126
)
$
13,589,851
$
13,580,725
20,104.88
Distributions Declared
(5,253
)
(520,103
)
(525,356
)
Repurchase of Partnership Units
(2,355
)
(233,076
)
(235,431
)
(264.01
)
Net Income
2,123
210,147
212,270
Balance, June 30, 2016
$
(14,611
)
$
13,046,819
$
13,032,208
19,840.87
















The accompanying Notes to Financial Statements are an integral part of these statements.
Page 6 of 17
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016
(unaudited)

(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 United States Generally Accepted Accounting Principles (US GAAP) 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.

Page 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.

In January 2014, the Managing General Partner mailed a Consent Statement (Proxy) seeking the consent of the Limited Partners to continue the Partnership for an additional 60 months or to initiate the final disposition, liquidation and distribution of all of the Partnership's properties and assets.  On February 14, 2014, the proposal to continue the Partnership was approved with a majority of Units voted in favor of the continuation proposal.  As a result, the Managing General Partner will continue the operations of the Partnership for an additional 60 months at which time it will again ask the Limited Partners to vote on the same two proposals.

Page 8 of 17
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)

(3)  Real Estate Investments –

On February 3, 2016, the Partnership purchased a Dollar Tree store in Cincinnati, Ohio for $1,809,915.  The Partnership allocated $285,049 of the purchase price to Acquired Intangible Lease Assets, representing in-place lease intangibles, and allocated $80,404 to Acquired Below-Market Lease Intangibles. The Partnership incurred $56,733 of acquisition expenses related to the purchase that were expensed.  The property is leased to Dollar Tree Stores, Inc. under a Lease Agreement with a remaining primary term of 10 years (as of the date of purchase) and annual rent of $122,169.

For the six months ended June 30, 2016 and 2015, the value of in-place lease intangibles amortized to expense was $33,592 and $24,010 and the increase to rental income for below-market leases was $8,199 and $5,496, respectively.  For lease intangibles not held for sale as of June 30, 2016, the weighted average remaining life is 120 months for in-place lease intangibles and 89 months for below-market leases.  The estimated amortization expense is $76,764 and the estimated increase to rental income is $19,100 for each of the next five succeeding years.

(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)  Partners' Capital –

For the six months ended June 30, 2016 and 2015, the Partnership declared distributions of $525,356 and $552,316, respectively.  The Limited Partners received distributions of $520,103 and $546,793 and the General Partners received distributions of $5,253 and $5,523 for the periods, respectively.  The Limited Partners' distributions represented $26.04 and $25.71 per Limited Partnership Unit outstanding using 19,973 and 21,270 weighted average Units in 2016 and 2015, respectively.  The distributions represented $10.52 and $10.60 per Unit of Net Income and $15.52 and $15.11 per Unit of contributed capital in 2016 and 2015, respectively.

As part of the distributions discussed above, the Partnership distributed net sale proceeds (from property sales completed in 2014) of $103,520 in 2015.  The Limited Partners received distributions of $102,485 and the General Partners received distributions of $1,035.  The Limited Partners' distributions represented $4.81 per Unit.

Page 9 of 17
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)

(5)  Partners' Capital – (Continued)

On April 1, 2016, the Partnership repurchased a total of 264.01 Units for $233,076 from 12 Limited Partners in accordance with the Partnership Agreement.  On April 1, 2015, the Partnership repurchased a total of 1,118.25 Units for $902,509 from 27 Limited Partners. The Partnership acquired these Units using net sale proceeds.  The repurchases increase the remaining Limited Partners' ownership interest in the Partnership.  As a result of these repurchases and pursuant to the Partnership Agreement, the General Partners received distributions of $2,355 and $9,117 in 2016 and 2015, respectively.

(6)  Fair Value Measurements –

As of June 30, 2016 and December 31, 2015, the Partnership had no assets or liabilities measured at fair value on a recurring basis or nonrecurring basis.

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.

Page 10 of 17
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

Application of Critical Accounting Policies

The Partnership's financial statements have been prepared in accordance with US GAAP.  Preparing the financial statements requires management to use judgment in the application of these accounting policies, including making estimates and assumptions.  These judgments will affect the reported amounts of the Partnership's assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of the financial statements and will affect the reported amounts of revenue and expenses during the reporting periods.  It is possible that the carrying amount of the Partnership's assets and liabilities, or the results of reported operations, will be affected if management's estimates or assumptions prove inaccurate.

Management of the Partnership evaluates the following accounting estimates on an ongoing basis, and has discussed the development and selection of these estimates and the management discussion and analysis disclosures regarding them with the managing partner of the Partnership.

Allocation of Purchase Price of Acquired Properties

Upon acquisition of real properties, the Partnership records them in the financial statements at cost.  The purchase price is allocated to tangible assets, consisting of land and building, and to identified intangible assets and liabilities, which may include the value of above market and below market leases and the value of in-place leases.  The allocation of the purchase price is based upon the fair value of each component of the property.  Although independent appraisals may be used to assist in the determination of fair value, in many cases these values will be based upon management's assessment of each property, the selling prices of comparable properties and the discounted value of cash flows from the asset.

The fair values of above market and below market in-place leases will be recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases measured over a period equal to the non-cancelable term of the lease including any bargain renewal periods.  The above market and below market lease values will be capitalized as intangible lease assets or liabilities.  Above market lease values will be amortized as an adjustment of rental income over the remaining terms of the respective leases.  Below market leases will be amortized as an adjustment of rental income over the remaining term of the respective leases, including any bargain renewal periods.  If a lease were to be terminated prior to its stated expiration, all unamortized amounts of above market and below market in-place lease values relating to that lease would be recorded as an adjustment to rental income.

Page 11 of 17
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

The fair values of in-place leases will include estimated direct costs associated with obtaining a new tenant, and opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease.  Direct costs associated with obtaining a new tenant may include commissions, tenant improvements, and other direct costs and are estimated, in part, by management's consideration of current market costs to execute a similar lease.  These direct costs will be included in intangible lease assets on the balance sheet and will be amortized to expense over the remaining term of the respective leases.  The value of opportunity costs will be calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease.  These intangibles will be included in intangible lease assets on the balance sheet and will be amortized to expense over the remaining term of the respective leases.  If a lease were to be terminated prior to its stated expiration, all unamortized amounts of in-place lease assets relating to that lease would be expensed.

The determination of the fair values of the assets and liabilities acquired will require the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount and capitalization rates, interest rates and other variables.  If management's estimates or assumptions prove inaccurate, the result would be an inaccurate allocation of purchase price, which could impact the amount of reported net income.

Carrying Value of Properties

Properties are carried at original cost, less accumulated depreciation and amortization.  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.

Allocation of Expenses

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 12 of 17
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

Results of Operations

For the six months ended June 30, 2016 and 2015, the Partnership recognized rental income of $642,701 and $589,796, respectively.  In 2016, rental income increased due to additional rent received from one property acquisition in 2016.  Based on the scheduled rent for the properties as of July 31, 2016, the Partnership expects to recognize rental income of approximately $1,306,000 in 2016.

For the six months ended June 30, 2016 and 2015, the Partnership incurred Partnership administration expenses from affiliated parties of $86,357 and $113,480, 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 $32,184 and $27,818, 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 six months ended June 30, 2016, the Partnership incurred property acquisition expenses of $56,733 related to the purchase of the Dollar Tree store in Cincinnati, Ohio.

For the six months ended June 30, 2016 and 2015, the Partnership recognized interest income of $1,812 and $5,794, respectively.

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 six months ended June 30, 2016, the Partnership's cash balances decreased $2,057,736 as a result of cash used to purchase property and distributions paid to the Partners and cash used to repurchase Units in excess of cash generated from operating activities.  During the six months ended June 30, 2015, the Partnership's cash balances decreased $1,011,088 as a result of distributions paid to the Partners and cash used to repurchase Units in excess of cash generated from operating activities.

Page 13 of 17
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

Net cash provided by operating activities increased from $474,273 in 2015 to $515,898 in 2016 as a result of an increase in total rental and interest income in 2016, a decrease in Partnership administration and property management expenses in 2016, and net timing differences in the collection of payments from the tenants and the payment of expenses.  During 2016, cash from operations was reduced by $56,733 of acquisition expenses related to the purchase of real estate.  Pursuant to accounting guidance, these expenses were reflected as operating cash outflows.  However, pursuant to the Partnership Agreement, acquisition expenses were funded with proceeds from property sales.

The major components of the Partnership's cash flow from investing activities are investments in real estate and proceeds from the sale of real estate.  During the six months ended June 30, 2016, the Partnership expended $1,809,915 to invest in real properties as the Partnership reinvested cash generated from property sales completed in 2014.

On February 3, 2016, the Partnership purchased a Dollar Tree store in Cincinnati, Ohio for $1,809,915.  The property is leased to Dollar Tree Stores, Inc. under a Lease Agreement with a remaining primary term of 10 years (as of the date of purchase) and annual rent of $122,169.

The Partnership's primary use of cash flow, other than investment in real estate, is distribution payments to Partners and cash used to repurchase Units.  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 Partnership may repurchase tendered Units on April 1st and October 1st of each year subject to limitations.

For the six months ended June 30, 2016 and 2015, the Partnership declared distributions of $525,356 and $552,316, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners.  The Limited Partners received distributions of $520,103 and $546,793 and the General Partners received distributions of $5,253 and $5,523 for the periods, respectively.

As part of the distributions discussed above, the Partnership distributed net sale proceeds (from property sales completed in 2014) of $103,520 in 2015.  The Limited Partners received distributions of $102,485 and the General Partners received distributions of $1,035.  The Limited Partners' distributions represented $4.81 per Unit.

The Partnership may repurchase 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 more than 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.

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

On April 1, 2016, the Partnership repurchased a total of 264.01 Units for $233,076 from 12 Limited Partners in accordance with the Partnership Agreement.  On April 1, 2015, the Partnership repurchased a total of 1,118.25 Units for $902,509 from 27 Limited Partners. The Partnership acquired these Units using net sale proceeds.  The repurchases increase the remaining Limited Partners' ownership interest in the Partnership.  As a result of these repurchases and pursuant to the Partnership Agreement, the General Partners received distributions of $2,355 and $9,117 in 2016 and 2015, respectively.

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.

Off-Balance Sheet Arrangements

As of June 30, 2016 and December 31, 2015, the Partnership had no material off-balance sheet arrangements that had or are reasonably likely to have current or future effects on its financial condition, results of operations, liquidity or capital resources.

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.

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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, as amended, each Limited Partner has the right to present Units to the Partnership for purchase by submitting notice to the Managing General Partner during January or July of each year.  The purchase price of the Units is equal to 95% of the net asset value per Unit, as of the first business day of January or July of each year, as determined by the Managing General Partner in accordance with the provisions of the Partnership Agreement.  Units tendered to the Partnership during January and July may be repurchased on April 1 st and October 1 st , respectively, of each year subject to the following limitations.  The Partnership will not be obligated to purchase in any year more than 5% of the total number of Units outstanding on January 1 of such year.  In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership.

Small Business Issuer Purchases of Equity Securities

Period
Total Number
of Units
Purchased
Average
Price Paid
per Unit
Total Number of Units
Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Number
of Units that May Yet
Be Purchased Under
the Plans or Programs
4/1/16 to 4/30/16
264.01
$882.83
4,159.13(1)
(2)
5/1/16 to 5/31/16
--
--
--
--
6/1/16 to 6/30/16
--
--
--
--

(1)
The Partnership's repurchase plan is mandated by the Partnership Agreement as included in the prospectus related to the original offering of the Units.
(2)
The Partnership Agreement contains annual limitations on repurchases described in the paragraph above and has no expiration date.

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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.


Page 17 of 17


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:  August 11, 2016
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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