10-K: AEI Income & Growth Fund XXI Begins Liquidation

AEI Income & Growth Fund XXI Limited Partnership has initiated its final liquidation process, marked by a property sale and a decrease in net asset value per unit in 2025.

Summary

• The Partnership has commenced its final liquidation process by disposing of its assets.
• During 2025, one property interest was sold, generating net proceeds of $1,345,607 and a net gain of $825,611.
• As of December 31, 2025, the Partnership owned interests in four properties with a total cost of $12,591,449, down from five properties with a cost of $14,057,497 at December 31, 2022.
• Net income significantly increased to $1,059,863 in 2025 from $260,390 in 2024, primarily due to the gain on property sale.
• Rental income decreased to $922,355 in 2025 from $999,825 in 2024, mainly due to the property sale, partially offset by a rent increase on one property.
• The estimated value of the Partnership's Units was $754 per Unit as of December 31, 2025, a decrease from $767.49 per Unit at December 31, 2024.
• The Partnership repurchased 1,105.87 Units for $794,534 from 46 Limited Partners in 2025, using net sales proceeds.
• Four major tenants contributed 97% of total rental income in 2025, posing a concentration risk.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a negative development given the initiation of the final liquidation process and the decline in unit value, despite a one-time gain from a property sale boosting net income.

Positives

• A significant net gain of $825,611 was realized from the sale of one property interest in 2025.
• Net income increased substantially to $1,059,863 in 2025 from $260,390 in 2024, driven by the property sale gain.
• The cash balance increased by $371,758 in 2025, primarily due to property sale proceeds and cash provided by operating activities.
• Partnership administration expenses from affiliates decreased in 2025 due to headcount reductions and lower property related management expenses.
• All properties were 100% occupied as of December 31, 2025, indicating stable current tenancy.
• The Dollar Tree lease in Cincinnati, Ohio, was extended for five years, securing future rental income until January 31, 2031.

Negatives

• The Partnership has initiated its final liquidation process, signaling a winding down of operations rather than growth.
• Rental income decreased by $77,470 (7.75%) in 2025 compared to 2024, primarily due to the property sale.
• Net cash provided by operating activities decreased from $752,432 in 2024 to $708,715 in 2025.
• The estimated value per Limited Partnership Unit decreased from $767.49 in 2024 to $754 in 2025.
• Total assets decreased from $10,056,699 in 2024 to $9,443,562 in 2025.
• Total Partners' Capital decreased from $9,785,573 in 2024 to $9,170,407 in 2025.

Risks

• Any failure of the four major tenants, who collectively contributed 97% of total rental income in 2025, could materially affect the Partnership's net income and cash distributions.
• Market and economic conditions, including higher interest rates and global inflation, could affect property values, rental income, and tenant operating margins, potentially impairing their ability to pay rent.
• Competition from other entities with greater financial resources may affect the Partnership's ability to find buyers for its properties during the liquidation process or attract new tenants in case of default.
• Future potential cybersecurity threats, including exploitation of vulnerabilities, ransomware, denial of service, or supply chain attacks, may materially affect the Management Company's business strategy, reputation, results of operations, and/or financial condition.
• The General Partners are confronted with potential conflicts of interest due to their different interests in distributions and income compared to investors, which must be resolved daily.

Future Outlook

The Partnership expects to recognize rental income of approximately $896,000 in 2026, based on scheduled rent for properties owned as of February 28, 2026. Management believes that continuing rent payments from properties, combined with cash generated from property sales, should be sufficient to fund ongoing distributions and meet other Partnership obligations on both a short-term and long-term basis. The Managing General Partner has decided to begin the final liquidation process by disposing of its assets.

Management Comments

• The Management Company believes the people who work for the Company are its most important resources and are critical to its continued success.
• The Management Company believes its compensation package and benefits are competitive with others in its industry.
• Management believes inflation has not significantly affected income from operations.
• 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.

Industry Context

StockSavvy.ai notes that the commercial real estate sector, particularly single-tenant net lease properties, faces ongoing challenges from national economic conditions, including higher interest rates and inflation. While the Partnership's strategy of long-term net leases provides some stability, the reliance on a few major tenants (97% of rental income from four tenants) introduces significant concentration risk, a common concern in smaller, specialized real estate funds. The decision to liquidate suggests a strategic response to market conditions or the natural conclusion of the fund's lifecycle, potentially aiming to return capital to partners in a challenging environment for new acquisitions or sustained growth.

Comparison to Industry Standards

• The Partnership's estimated value per unit of $754 as of December 31, 2025, represents a decline from the prior year, which could be compared to the performance of other non-traded REITs or limited partnerships focused on commercial real estate. For example, while direct comparisons are difficult without specific NAV data for similar private funds, publicly traded net lease REITs like Realty Income (O) or National Retail Properties (NNN) often trade at multiples of FFO, and their unit values are subject to broader market sentiment and interest rate fluctuations.
• The 97% rental income concentration from four major tenants is significantly higher than typical diversification targets for larger, more established net lease REITs, which usually aim for a broader tenant base to mitigate default risk. For instance, a diversified REIT might have no single tenant accounting for more than 5% of revenue.
• The Partnership's debt-free acquisition strategy is conservative compared to many real estate investment vehicles that utilize leverage to enhance returns, though it aligns with the objective of capital preservation.
• The decision to liquidate, while a strategic choice for this specific fund, contrasts with the ongoing growth and acquisition strategies of many active commercial real estate funds and REITs that continuously seek to expand their portfolios.

Management Changes

Corporate Governance

Related Party Transactions

• AEI Fund Management XXI, Inc. (AFM) serves as the Managing General Partner, and the Estate of Robert P. Johnson as the Individual General Partner.
• AEI Fund Management, Inc. (AEI), an affiliate of AFM, performs administrative and operating functions for the Partnership.
• The Partnership reimbursed AEI for costs incurred in managing operations and properties, maintaining books, and communicating with Limited Partners, totaling $111,540 in 2025 and $156,179 in 2024.
• The Partnership reimbursed AEI for direct expenses paid to third parties for Partnership administration and property management, totaling $124,284 in 2025 and $74,777 in 2024.
• The payable to AEI Fund Management, Inc. was $106,782 as of December 31, 2025.
• The Partnership owns a 40% interest in Memorial Hospital in Diamondhead, Mississippi, as tenants-in-common with an affiliated entity, AEI Net Lease Income Fund 36 LP.
• Cumulative reimbursements to General Partners and affiliates from inception through December 31, 2025, include $2,400,000 for selling commissions, $877,000 for other organization and offering costs, $1,045,009 for acquisition expenses, $6,306,550 for administrative services, and $1,426,478 for property disposition services.
• General Partners received $341,522 in Net Cash Flow distributions and $134,685 in Net Proceeds of Sale distributions from inception through December 31, 2025.

Stakeholder Impact

• Limited Partners will receive distributions from asset sales as part of the liquidation process. Their ownership interest in the Partnership increased due to unit repurchases in 2025. However, the estimated value per unit decreased, and the fund is winding down, limiting future growth potential.
• General Partners will continue to manage the liquidation process and receive distributions and reimbursements as per the Partnership Agreement. Their distributions from Net Cash Flow and Net Proceeds of Sale are subject to specific allocation rules.
• Tenants: The Partnership's properties are leased under long-term net leases, providing stability for tenants. The extension of the Dollar Tree lease indicates continued tenant commitment. However, the liquidation process could eventually lead to new property owners.
• Employees (of Management Company): The Management Company made headcount reductions in 2024, which resulted in expense reductions. The ongoing liquidation may impact future staffing needs at the Management Company.

Next Steps

• Continue the final liquidation process by disposing of remaining assets in accordance with the Partnership Agreement.
• Reinvest proceeds from property sales in additional properties or distribute them to Partners, ensuring sufficient distributions for federal and state income taxes related to taxable gains.
• Manage the existing portfolio of four properties, including the extended Dollar Tree lease, to generate rental income.
• Continue to repurchase tendered Units from Limited Partners on April 1st and October 1st of each year, subject to limitations.

Key Dates

Recommendation

The initiation of the final liquidation process signals the winding down of the fund, limiting future growth and investment opportunities. While a property sale generated a one-time gain, the overall trend shows decreasing rental income, declining net asset value per unit, and reduced operating cash flow. The concentration risk with major tenants and the lack of a formal independent board for governance oversight further add to the cautious outlook. For investors seeking active growth or long-term income, this fund is no longer suitable, and a 'sell' recommendation is appropriate to realize current value as the liquidation proceeds.

Keywords

Real Estate Investment, Limited Partnership, Commercial Properties, Net Lease, Property Liquidation, SEC Filing, Annual Report, Real Estate Fund, Asset Disposition, Partnership Units