10-Q: AEI Income & Growth Fund XXI Reports Strong Q3 Net Income

AEI Income & Growth Fund XXI Limited Partnership reported a significant increase in net income for the nine months ended September 30, 2025, driven by a property sale.

Summary

• Net income for the nine months ended September 30, 2025, surged to $1,006,067, a substantial increase from $177,740 in the same period of 2024.
• This increase was primarily due to a net gain of $825,611 from the sale of a 40% interest in the Jared Jewelry property in Auburn Hills, Michigan, on March 31, 2025.
• Rental income decreased to $697,938 for the nine months ended September 30, 2025, from $749,550 in 2024, attributed to the property sale, partially offset by a rent increase on an existing property.
• Cash balances significantly increased by $345,362 during the nine months ended September 30, 2025, reaching $585,421 at period-end.
• The Partnership repurchased 1,095.87 Limited Partnership Units for $787,350 from 45 Limited Partners on April 1, 2025, using net sales proceeds.
• Distributions declared for the nine months ended September 30, 2025, totaled $706,771, up from $519,699 in 2024, with Limited Partners receiving $42.81 per unit.
• Total assets decreased to $9,533,392 as of September 30, 2025, from $10,056,699 as of December 31, 2024, primarily due to the property sale and unit repurchases.

Sentiment

Score: 7

Explanation: The significant gain from a property sale and subsequent increase in net income and cash balance are strong positives. The unit repurchase also benefits remaining partners. However, the underlying rental income decreased, and operating cash flow slightly declined, indicating that the strong performance is largely event-driven rather than from core operational growth. The general economic risks are also noted.

Positives

• Significant increase in net income to $1,006,067 for the nine months ended September 30, 2025, compared to $177,740 in 2024.
• Realized a substantial net gain of $825,611 from the sale of a real estate investment.
• Cash balance increased significantly by $345,362 to $585,421 as of September 30, 2025.
• Repurchase of 1,095.87 Limited Partnership Units for $787,350 increases the ownership interest of remaining Limited Partners.
• Increased distributions declared to $706,771 for the nine months ended September 30, 2025, from $519,699 in 2024, with Limited Partners receiving $42.81 per unit.
• Partnership administration expenses from affiliated parties decreased to $86,168 in 2025 from $121,129 in 2024.

Negatives

• Rental income decreased to $697,938 for the nine months ended September 30, 2025, from $749,550 in 2024, primarily due to the property sale.
• Operating income slightly decreased to $170,742 for the nine months ended September 30, 2025, from $175,045 in 2024.
• Net cash provided by operating activities decreased to $509,304 in 2025 from $533,842 in 2024.
• Total assets decreased to $9,533,392 as of September 30, 2025, from $10,056,699 as of December 31, 2024.
• Partnership administration and property management expenses from unrelated parties increased to $92,355 in 2025 from $69,150 in 2024, mainly due to timing of tax and audit services.

Risks

• Market and economic conditions may affect the value of properties and rental income.
• Federal income tax consequences of rental income, deductions, and gains on sales can impact partners.
• Potential for conflicts of interest with the General Partner.
• Challenges in the General Partner locating properties with favorable risk-return characteristics.
• Risk of tenant defaults impacting cash flow.
• The condition of the industries in which the tenants operate can affect their ability to pay rent.
• Higher interest rates and inflation in the U.S. and globally may impact tenants' operating margins and ability to pay rent, potentially reducing Net Cash Flow available for distributions.
• Management's estimates and assumptions in allocating purchase price of acquired properties and determining carrying value could prove inaccurate, affecting reported net income and property values.

Future Outlook

Based on scheduled rent for properties owned as of October 31, 2025, the Partnership expects to recognize rental income of approximately $922,000 in 2025. The continuing rent payments from properties, together with cash generated from property sales, are expected to be adequate to fund continuing distributions and meet other Partnership obligations on both a short-term and long-term basis.

Management Comments

• 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.
• The Partnership attempts to maintain a stable distribution rate from quarter to quarter.
• 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.

Industry Context

The real estate industry generally faces impacts from national economic conditions. Current economic factors, including higher interest rates and global inflation, are noted as potential influences on the operating margins of the Partnership's tenants, which could impair their ability to pay rent and subsequently reduce cash flow available for distributions.

Corporate Governance

Related Party Transactions

• Payable to AEI Fund Management, Inc. (an affiliate of AFM, the Managing General Partner) for administrative and operating functions. The balance was $75,366 as of September 30, 2025.
• Partnership administration expenses from affiliated parties were $86,168 for the nine months ended September 30, 2025.
• The General Partner received distributions of $7,068 for the nine months ended September 30, 2025, and $7,953 in the second quarter of 2025 as a result of the unit repurchase.

Stakeholder Impact

• Limited Partners: Benefited from increased net income per unit and higher distributions per unit. Those who participated in the unit repurchase received cash proceeds. Remaining Limited Partners saw an increase in their ownership interest.
• General Partner (AEI Fund Management XXI, Inc. and Estate of Robert P. Johnson): Received distributions and manages the partnership's operations.
• Tenants: Potentially impacted by higher interest rates and inflation, which could affect their operating margins and ability to pay rent.
• Creditors: Liabilities decreased, suggesting improved financial health from a creditor perspective.

Next Steps

• The Managing General Partner will continue operations for an additional 60 months (from March 2021) and then ask Limited Partners to vote again on partnership continuation or final disposition/liquidation.
• The Partnership may repurchase tendered Units on April 1st and October 1st of each year, subject to limitations.

Key Dates

Recommendation

While the significant net income increase and cash generation from the property sale are positive, the underlying rental income declined, and operating cash flow saw a slight decrease. The unit repurchase benefits remaining limited partners by increasing their ownership, but the long-term strategy for the partnership's continuation remains uncertain with another vote expected in approximately a year. Given the mixed operational performance and the event-driven nature of the strong net income, a 'hold' recommendation is appropriate, advising investors to monitor future operational trends and the outcome of the upcoming partnership continuation vote.

Keywords

real estate investment, limited partnership, commercial properties, SEC filing, Form 10-Q, property sale, rental income, unit repurchase, distributions, financial results