10-K: AEI Income & Growth Fund XXI Reports Stable Performance in 2023 Amidst Strategic Portfolio Adjustments

AEI Income & Growth Fund XXI Limited Partnership reports a net income of $241,882 for 2023, reflecting a year of stable operations and strategic portfolio adjustments.

Summary

• AEI Income & Growth Fund XXI Limited Partnership reported a net income of $241,882 for the year ended December 31, 2023, a decrease from $1,531,185 in 2022.
• The partnership's rental income increased to $997,334 in 2023 from $885,848 in 2022, primarily due to a full year of income from a property acquired in May 2022 and rent increases on two properties.
• The partnership did not acquire or sell any property interests during 2023, maintaining its portfolio of five properties with a total cost of $14,057,497.
• The partnership distributed $692,933 to its partners in 2023, with $686,004 allocated to Limited Partners and $6,929 to General Partners.
• The estimated value of the Partnership's Units was $796 per Unit as of December 31, 2023, down from $866 per unit in 2022.
• The partnership's cash balance decreased by $14,309 in 2023, primarily due to distributions exceeding cash generated from operations.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While rental income increased and occupancy remained at 100%, the significant decrease in net income and unit value, along with the lack of unit repurchases, temper the positive aspects. The overall sentiment is neutral to slightly negative.

Positives

• Rental income increased by approximately 12.6% year-over-year, indicating strong performance in the leasing of properties.
• The Partnership maintained 100% occupancy across all its properties as of December 31, 2023.
• The Partnership has a diversified portfolio of commercial properties across different states.
• The Partnership's leases include rent escalation clauses, which can provide future income growth.
• The Partnership has a history of making regular distributions to its partners.

Negatives

• Net income decreased significantly from $1,531,185 in 2022 to $241,882 in 2023.
• The estimated value per unit decreased from $866 in 2022 to $796 in 2023.
• The Partnership's cash balance decreased by $14,309 in 2023.
• The Partnership did not repurchase any units in 2023, which may be a concern for some investors.

Risks

• The Partnership is a minor factor in the commercial real estate business and faces competition from larger entities.
• The Partnership's income is heavily reliant on a few major tenants, and any failure of these tenants could materially affect the Partnership's net income and cash distributions.
• Economic factors, higher interest rates, and inflation could impact the tenants' ability to pay rent.
• Cybersecurity threats could materially affect the Management Company's business strategy, reputation, results of operations, and/or financial condition.
• The Partnership's properties are subject to general competitive conditions incident to the ownership of single tenant investment real estate.

Future Outlook

The Partnership expects to recognize rental income of approximately $992,000 in 2024 based on the scheduled rent for the properties owned as of February 28, 2024.

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 focuses significant attention toward attracting and retaining talented and experienced individuals to manage and support its operations.
• Management believes inflation has not significantly affected income from operations.

Industry Context

The Partnership operates in the competitive commercial real estate market, where it faces competition from larger entities with greater financial resources. The Partnership's performance is influenced by broader economic conditions, including interest rates and inflation, which can affect both property values and tenants' ability to pay rent.

Comparison to Industry Standards

• The document does not provide specific industry benchmarks for comparison.
• However, the Partnership's strategy of acquiring single-tenant commercial properties with long-term net leases is a common approach in the real estate investment sector.
• The Partnership's focus on all-cash transactions and avoiding debt for property acquisitions is a conservative approach compared to some other real estate investment firms.
• The Partnership's reliance on a few major tenants is a risk that is not uncommon in the single-tenant net lease sector, but it highlights the importance of tenant creditworthiness and lease terms.
• The Partnership's unit valuation methodology, based on capitalization rates and third-party appraisals, is consistent with industry practices for valuing real estate assets.

Management Changes

Related Party Transactions

• The Partnership has related party transactions with AEI Fund Management, Inc. for management services and expense reimbursements.
• The Partnership owns properties as tenants-in-common with affiliated entities.

Stakeholder Impact

• Shareholders (Limited Partners) experienced a decrease in the estimated value of their units.
• Shareholders received distributions, but the amount was lower than the previous year due to lower net income.
• Employees of the Management Company are considered critical to the Partnership's success.
• Tenants are subject to economic factors that could impact their ability to pay rent.

Next Steps

• The Managing General Partner will continue the operations of the Partnership for an additional 60 months.
• The Managing General Partner will ask the Limited Partners to vote on the same two proposals (continue the Partnership or initiate liquidation) at the end of the 60-month period.

Key Dates

Keywords

commercial real estate, limited partnership, net lease, rental income, property investment, real estate, distributions, partnership units, asset valuation