AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP - FORM 10-K

Attached files

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EX-31.1 - AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP	ex31-121.htm
EX-31.2 - AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP	ex31-221.htm
EXCEL - IDEA: XBRL DOCUMENT - AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP	Financial_Report.xls
EX-32 - AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP	ex32-21.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the Fiscal Year Ended: December 31, 2014

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 7th Street, Suite 1300 St. Paul, Minnesota 55101		(651) 227-7333
	(Address of principal executive offices)		(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

	Title of each class		Name of each exchange on which registered
	None		None

Securities registered pursuant to Section 12(g) of the Act:

	Limited Partnership Units
	(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the

Securities Act. o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or

Section 15(d) of the Exchange Act. o Yes x No

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.

x Yes o 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). x Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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.

o Large accelerated filer	o Accelerated filer
o Non-accelerated filer	x Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

o Yes x No

As of June 30, 2014, there were 22,653.113 Units of limited partnership interest outstanding and owned by nonaffiliates of the registrant, which Units had an aggregate market value (based solely on the price at which they were sold since there is no ready market for such Units) of $22,653,113.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant has not incorporated any documents by reference into this report.

PART I

ITEM 1. BUSINESS.

AEI Income & Growth Fund XXI Limited Partnership (the "Partnership" or the "Registrant") is a limited partnership which was organized pursuant to the laws of the State of Minnesota on August 22, 1994. The registrant is comprised of AEI Fund Management XXI, Inc. (“AFM”) as Managing General Partner, Robert P. Johnson, the President and sole director of AFM, as the Individual General Partner, and purchasers of partnership units as Limited Partners. The Partnership offered for sale up to $24,000,000 of limited partnership interests (the "Units") (24,000 Units at $1,000 per Unit) pursuant to a registration statement effective February 1, 1995. 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 Partnership offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units ($24,000,000) was reached.

The Partnership was organized to acquire existing and newly constructed commercial properties located in the United States, to lease such properties to tenants under net leases, to hold such properties and to eventually sell such properties. From subscription proceeds, the Partnership purchased ten properties including partial interests in seven properties, at a total cost of $19,686,525. The balance of the subscription proceeds was applied to organization and syndication costs, working capital reserves and distributions, which represented a return of capital. The properties are commercial, single tenant buildings leased under net leases.

The Partnership's properties were purchased without any indebtedness. The Partnership will not finance properties in the future to obtain proceeds for new property acquisitions. If it is required to do so, the Partnership may incur short-term indebtedness, which may be secured by a portion of the Partnership's properties, to finance day-to-day cash flow requirements (including cash flow necessary to repurchase Units). The amount of borrowings that may be secured by the properties is limited in the aggregate to 10% of the purchase price of all properties. The Partnership will not incur borrowings to pay distributions and will not incur borrowings while there is cash available for distributions.

The Partnership will hold its properties until the General Partners determine that the sale or other disposition of the properties is advantageous in view of the Partnership's investment objectives. In deciding whether to sell properties, the General Partners will consider factors such as potential appreciation, net cash flow and income tax considerations. The Partnership expects to sell some or all of its properties prior to its final liquidation and to reinvest the proceeds from such sales in additional properties. The Partnership reserves the right, at the discretion of the General Partners, to either distribute proceeds from the sale of properties to the Partners or to reinvest such proceeds in additional properties, provided that sufficient proceeds are distributed to the Limited Partners to pay federal and state income taxes related to any taxable gain recognized as a result of the sale.

Page 2 of 44

ITEM 1. BUSINESS. (Continued)

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.

Leases

Although there are variations in the specific terms of the leases, the following is a summary of the general terms of the Partnership's leases. The properties are leased to tenants under net leases, classified as operating leases. Under a net lease, the tenant is responsible for real estate taxes, insurance, maintenance, repairs and operating expenses for the property. For some leases, the Partnership is responsible for repairs to the structural components of the building, the roof, and the parking lot. At the time the properties were acquired, the remaining primary lease terms varied from 10 to 20 years, except for the Tractor Supply Company store in Canton, Georgia, which had a remaining primary term of 7.3 years. The leases provide the tenants with two to four five-year renewal options subject to the same terms and conditions as the primary term. The leases provide for base annual rental payments, payable in monthly installments, and contain rent clauses which entitle the Partnership to receive additional rent in future years based on stated rent increases.

Property Activity During the Last Three Years

As of December 31, 2011, the Partnership owned a significant interest in nine properties and a minor interest in two properties with a total cost of $17,108,142. During the years ended December 31, 2012, 2013, and 2014, the Partnership sold six property interests and received net sale proceeds of $423,084, $3,781,399 and $4,328,842, which resulted in net gains of $69,896, $1,128,749 and $1,100,726, respectively. During 2014, the Partnership expended $4,335,000 to purchase two additional properties as it reinvested cash generated from property sales. As of December 31, 2014, the Partnership owned a significant interest in seven properties with a total cost of $14,052,713.

Major Tenants

During 2014, four tenants each contributed more than ten percent of the Partnership's total rental income. The major tenants in aggregate contributed 80% of total rental income in 2014. It is anticipated that, based on minimum rental payments required under the leases, each major tenant will continue to contribute more than ten percent of rental income in 2015. Any failure of these major tenants could materially affect the Partnership's net income and cash distributions.

Page 3 of 44

ITEM 1. BUSINESS. (Continued)

Competition

The Partnership is a minor factor in the commercial real estate business. There are numerous entities engaged in the commercial real estate business which have greater financial resources than the Partnership. At the time the Partnership elects to dispose of its properties, the Partnership will be in competition with other persons and entities to find buyers for its properties.

Employees

The Partnership has no direct employees. Management services are performed for the Partnership by AEI Fund Management, Inc., an affiliate of AFM.

ITEM 1A. RISK FACTORS.

Not required for a smaller reporting company.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not required for a smaller reporting company.

ITEM 2. PROPERTIES.

Investment Objectives

The Partnership's investment objectives are to acquire existing or newly-developed commercial properties throughout the United States that offer the potential for (i) regular cash distributions of lease income; (ii) growth in lease income through rent escalation provisions; (iii) preservation of capital through all-cash sale-leaseback transactions; (iv) capital growth through appreciation in the value of properties; and (v) stable property performance through long-term lease contracts. The Partnership does not have a policy, and there is no limitation, as to the amount or percentage of assets that may be invested in any one property. However, to the extent possible, the General Partners attempt to diversify the properties by tenant and geographic location.

Description of Properties

The Partnership's properties are commercial, single tenant buildings. The properties were acquired on a debt-free basis and are leased to tenants under net leases, classified as operating leases. The Partnership holds an undivided fee simple interest in the properties.

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ITEM 2. PROPERTIES. (Continued)

The Partnership's properties are subject to the general competitive conditions incident to the ownership of single tenant investment real estate. Since each property is leased under a long-term lease, there is little competition until the Partnership decides to sell the property. At this time, the Partnership will be competing with other real estate owners, on both a national and local level, in attempting to find buyers for the properties. In the event of a tenant default, the Partnership would be competing with other real estate owners, who have property vacancies, to attract a new tenant to lease the property. The Partnership's tenants operate in industries that are competitive and can be affected by factors such as changes in regional or local economies, seasonality and changes in consumer preference.

The following table is a summary of the properties that the Partnership acquired and owned as of December 31, 2014.

Property	Purchase Date		Original Property Cost		Tenant	Annual Lease Payment		Annual Rent Per Sq. Ft.

KinderCare Daycare Center Andover, MN	6/14/02	$	1,264,207		KinderCare Learning Centers LLC	$	145,447	$	16.90

Jared Jewelry Store Hanover, MD (50%)	2/9/04	$	1,989,135		Sterling Jewelers Inc.	$	185,406	$	63.83

Jared Jewelry Store Auburn Hills, MI (40%)	1/14/05	$	1,466,048		Sterling Jewelers Inc.	$	124,049	$	53.85

Best Buy Store Eau Claire, WI (54%)	1/31/08	$	3,637,706		Best Buy Stores, L.P.	$	268,800	$	10.51

Fresenius Medical Center Shreveport, LA (55%)	10/2/08	$	1,360,617		Bio-Medical Applications of Louisiana, LLC	$	112,772	$	24.12

Tractor Supply Company Store Canton, GA (50%)	5/29/14	$	2,212,500	(1)	Tractor Supply Company	$	164,355	$	13.76

Gander Mountain Store Champaign, IL (30%)	7/3/14	$	2,122,500	(1)	Gander Mountain Company	$	167,772	$	14.17

(1) Does not include acquisition costs that were expensed.

Page 5 of 44

ITEM 2. PROPERTIES. (Continued)

The properties listed above with a partial ownership percentage are owned with the following affiliated entities: Jared Jewelry store in Hanover, Maryland (AEI Net Lease Income & Growth Fund XX Limited Partnership); Jared Jewelry store in Auburn Hills, Michigan (AEI Income & Growth Fund 25 LLC); Best Buy store (AEI Income & Growth Fund 23 LLC and AEI Income & Growth Fund 26 LLC); Fresenius Medical Center (AEI Income & Growth Fund 24 LLC); Tractor Supply Company store in Canton, Georgia (AEI Accredited Investor Fund V LP); and Gander Mountain store (AEI Accredited Investor Fund V LP and AEI National Income Property Fund VIII LP).

The Partnership accounts for properties owned as tenants-in-common with affiliated entities and/or unrelated third parties using the proportionate consolidation method. Each tenant-in-common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in-common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building, liabilities, revenues and expenses.

At the time the properties were acquired, the remaining primary lease terms varied from 10 to 20 years, except for the Tractor Supply Company store in Canton, Georgia, which had a remaining primary term of 7.3 years. The leases provide the tenants with two to four five-year renewal options subject to the same terms and conditions as the primary term.

Pursuant to the lease agreements, the tenants are required to provide proof of adequate insurance coverage on the properties they occupy. The General Partners believe the properties are adequately covered by insurance and consider the properties to be well-maintained and sufficient for the Partnership's operations.

For tax purposes, the Partnership's properties are depreciated under the Modified Accelerated Cost Recovery System (MACRS). The largest depreciable component of a property is the building which is depreciated using the straight-line method over 39 years. The remaining depreciable component of a property is land improvements which are depreciated using an accelerated method over 15 years. Since the Partnership has tax-exempt Partners, the Partnership is subject to the rules of Section 168(h)(6) of the Internal Revenue Code which requires a percentage of the properties' depreciable components to be depreciated over longer lives using the straight-line method. In general, the federal tax basis of the properties for tax depreciation purposes is the same as the basis for book depreciation purposes except for properties purchased after January 1, 2009. For those properties, acquisition expenses that were expensed for book purposes were capitalized and added to the basis of the property for tax depreciation purposes.

At December 31, 2014, all properties listed above were 100% occupied.

ITEM 3. LEGAL PROCEEDINGS.

None.

Page 6 of 44

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCK-

HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a) As of December 31, 2014, there were 1,159 holders of record of the registrant's Limited Partnership Units. There is no other class of security outstanding or authorized. The registrant's Units are not a traded security in any market. During the period covered by this report, the Partnership did not sell any equity securities that are not registered under the Securities Act of 1933.

Cash distributions of $11,677 and $14,747 were made to the General Partners and $1,156,010 and $1,460,005 were made to the Limited Partners for 2014 and 2013, respectively. The distributions were made on a quarterly basis and represented Net Cash Flow, as defined, except as discussed below. These distributions should not be compared with dividends paid on capital stock by corporations.

As part of the Limited Partners’ distributions discussed above, the Partnership distributed net sale proceeds of $259,820 and $450,642 in 2014 and 2013, respectively.

(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 1st and October 1st, 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.

Page 7 of 44

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCK-

HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

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

10/1/14 to 10/31/14	824.40	$797.59	2,171.29(1)	(2)

11/1/14 to 11/30/14	--	--	--	--

12/1/14 to 12/31/14	--	--	--	--

(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.

ITEM 6. SELECTED FINANCIAL DATA.

Not required for a smaller reporting company.

ITEM 7. 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.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

Application of Critical Accounting Policies

The Partnership’s financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (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 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.

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ITEM 7. 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.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

Results of Operations

For the years ended December 31, 2014 and 2013, the Partnership recognized rental income from continuing operations of $1,105,149 and $961,708, respectively. In 2014, rental income increased due to additional rent received from two property acquisitions in 2014 and rent increases on two properties. These increases in rental income were partially offset by a decrease in rent due to the sale of the Tractor Supply Company store in Rapid City, South Dakota. Based on the scheduled rent for the properties as of February 28, 2015, the Partnership expects to recognize rental income from continuing operations of approximately $1,180,000 in 2015.

For the years ended December 31, 2014 and 2013, the Partnership incurred Partnership administration expenses from affiliated parties of $221,349 and $205,016, 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 $52,344 and $46,807, 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 year ended December 31, 2014, the Partnership incurred property acquisition expenses of $27,970 related to the purchase of the Tractor Supply Company store in Canton, Georgia and $34,052 related to the Gander Mountain store in Champaign, Illinois.

On August 29, 2014, to facilitate the sale of its 63% interest in the Tractor Supply Company store in Rapid City, South Dakota, the Partnership contributed the property via a limited liability company to AEI Net Lease Portfolio DST (“ANLP”), a Delaware statutory trust (“DST”), in exchange for 16.95% of the Class B ownership interests in ANLP. The remaining interest in the property, owned by an affiliated entity, along with two other properties owned by two other affiliated entities, were also contributed to ANLP in exchange for 83.05% of the Class B ownership interests in ANLP. In addition, cash was contributed for working capital. A DST is a recognized mechanism for selling property to investors who are looking for replacement real estate to complete like-kind exchanges under Section 1031 of the Internal Revenue Code. As investors purchase Class A ownership interests in CMLS, the proceeds received will be used to redeem, on a one-for-one basis, the Class B ownership interests of the Partnership and affiliated entities. From August 29, 2014 to October 30, 2014, ANLP sold 100% of its Class A ownership interests to investors and redeemed 100% of the Class B ownership interests from the Partnership and affiliated entities.

The investment in ANLP is recorded using the equity method of accounting in the accompanying financial statements. Under the equity method, the investment is stated at cost and adjusted for the Partnership’s share of net income or losses and reduced by proceeds received from the sale of the Class B ownership interests of the DST as well as distributions from net rental income. For the year ended December 31, 2014, the Partnership’s share of net income of ANLP was $521,659.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

For the years ended December 31, 2014 and 2013, the Partnership recognized interest income of $11,890 and $10,412, respectively.

Prior to January 1, 2014, upon complete disposal of a property or classification of a property as Real Estate Held for Sale, the Partnership included the operating results and sale of the property in discontinued operations. In addition, the Partnership reclassified the prior periods’ operating results of the property to discontinued operations. For the year ended December 31, 2014, the Partnership recognized income from discontinued operations of $647,377, representing rental income less property management expenses of $23,595 and income from an equity method investment held for sale of $623,782. For the year ended December 31, 2013, the Partnership recognized income from discontinued operations of $1,337,329, representing rental income less property management expenses and depreciation of $208,580 and gain on disposal of real estate of $1,128,749.

On August 2, 2013, the Partnership sold its 39% interest in the Scott & White Clinic in College Station, Texas to an unrelated third party. The Partnership received net sale proceeds of $1,822,494, which resulted in a net gain of $512,842. At the time of sale, the cost and related accumulated depreciation was $1,433,468 and $123,816, respectively.

In June 2013, the Partnership entered into an agreement to sell its 62% interest in the Applebee’s restaurant in Johnstown, Pennsylvania to an unrelated third party. On August 23, 2013, the sale closed with the Partnership receiving net sale proceeds of $1,958,905, which resulted in a net gain of $615,907. At the time of sale, the cost and related accumulated depreciation was $1,682,887 and $339,889, respectively.

In the fourth quarter of 2013, the Partnership decided to sell its 20% interest in the CarMax Auto Superstore in Lithia Springs, Georgia. At December 31, 2013, the property was classified as Real Estate Held for Sale with a carrying value of $1,508,930. The remaining interests in the property were owned by three affiliated entities, AEI Income & Growth Fund 24 LLC, AEI Income & Growth Fund 25 LLC and AEI Private Net Lease Millennium Fund Limited Partnership. On March 7, 2014, to facilitate the sale of the property, the Partnership and affiliated entities contributed their respective interests in the property via a limited liability company to CM Lithia Springs DST (“CMLS”) in exchange for Class B ownership interests in CMLS. In addition, a small amount of cash was contributed for working capital. From March 13, 2014 to July 25, 2014, CMLS sold 100% of its Class A ownership interests to investors and redeemed 100% of the Class B ownership interests from the Partnership and affiliated entities. The investment in CMLS is recorded using the equity method of accounting in the accompanying financial statements. For the year ended December 31, 2014, the Partnership’s share of net income of CMLS was $623,782.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

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 year ended December 31, 2014, the Partnership's cash balances decreased $1,013,040 as a result of cash used to purchase property, cash paid for equity method investments, and distributions paid to the Partners and cash used to repurchase Units in excess of cash generated from operating activities, which were partially offset by proceeds received from equity method investments. During the year ended December 31, 2013, the Partnership's cash balances increased $3,294,049 as a result of cash generated from the sale of property, which was partially offset by distributions paid to the Partners in excess of cash generated from operating activities.

Net cash provided by operating activities decreased from $989,420 in 2013 to $817,757 in 2014 as a result of a decrease in total rental and interest income in 2014 and an increase in Partnership administration and property management expenses in 2014, which were partially offset by net timing differences in the collection of payments from the tenants and the payment of expenses. During 2014, cash from operations was reduced by $62,022 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, including proceeds from equity method investments. During the year ended December 31, 2014, the Partnership expended $4,335,000 to invest in real properties as the Partnership reinvested cash generated from property sales. During the year ended December 31, 2014, the Partnership paid cash for equity method investments of $37,488. During the year ended December 31, 2013, the Partnership generated cash flow from the sale of real estate of $3,781,399. During the year ended December 31, 2014, the Partnership received proceeds from equity method investments of $4,373,557. All but a small portion of these proceeds were generated from the sales of the CarMax Auto Superstore and the Tractor Supply Company store in Rapid City as discussed above.

On May 29, 2014, the Partnership purchased a 50% interest in a Tractor Supply Company store in Canton, Georgia for $2,212,500. The property is leased to Tractor Supply Company under a Lease Agreement with a remaining primary term of 7.3 years (as of the date of purchase) and annual rent of $164,355 for the interest purchased. The remaining interest in the property was purchased by AEI Accredited Investor Fund V LP, an affiliate of the Partnership.

Page 13 of 44

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

On July 3, 2014, the Partnership purchased a 30% interest in a Gander Mountain store in Champaign, Illinois for $2,122,500. The property is leased to Gander Mountain Company under a Lease Agreement with a remaining primary term of 14.9 years and annual rent of $167,772 for the interest purchased. The remaining interests in the property were purchased by AEI Accredited Investor Fund V LP and AEI National Income Property Fund VIII LP, affiliates of the Partnership.

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 years ended December 31, 2014 and 2013, the Partnership declared distributions of $1,167,687 and $1,474,752, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners. The Limited Partners received distributions of $1,156,010 and $1,460,005 and the General Partners received distributions of $11,677 and $14,747 for the years, respectively. In September 2013, the Partnership declared a special distribution of net sale proceeds of $303,030, which resulted in higher distributions declared in 2013.

As part of the distributions discussed above, the Partnership distributed net sale proceeds of $262,444 and $455,194 in 2014 and 2013, respectively. The Limited Partners received distributions of $259,820 and $450,642 and the General Partners received distributions of $2,624 and $4,552 for the years, respectively. The Limited Partners’ distributions represented $11.57 and $19.88 per Unit for the years, 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 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.

On October 1, 2014, the Partnership repurchased a total of 824.40 Units for $657,537 from 41 Limited Partners in accordance with the Partnership Agreement. The Partnership acquired these Units using net sale proceeds. During 2013, the Partnership did not repurchase any Units from the Limited Partners. In prior years, the Partnership repurchased a total of 1,346.89 Units for $999,003 from 69 Limited Partners. 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 $6,641 in 2014.

Page 14 of 44

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

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 December 31, 2014 and 2013, 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 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for a smaller reporting company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See accompanying index to financial statements.

Page 15 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

INDEX TO FINANCIAL STATEMENTS

		Page

Report of Independent Registered Public Accounting Firm		17

Balance Sheets as of December 31, 2014 and 2013		18

Statements for the Years Ended December 31, 2014 and 2013:

	Income	19

	Cash Flows	20

	Changes in Partners’ Capital	21

Notes to Financial Statements		22 – 36

Page 16 of 44

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners:

AEI Income & Growth Fund XXI Limited Partnership

St. Paul, Minnesota

We have audited the accompanying balance sheets of AEI Income & Growth Fund XXI Limited Partnership (a Minnesota limited partnership) as of December 31, 2014 and 2013, and the related statements of income, cash flows and changes in partners' capital for each of the years then ended. The Partnership’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AEI Income & Growth Fund XXI Limited Partnership as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.


	/s/ Boulay PLLP
	Certified Public Accountants

Minneapolis, Minnesota
March 27, 2015

Page 17 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

BALANCE SHEETS

ASSETS

	December 31,			December 31,
	2014			2013
Current Assets:
Cash	$	4,540,920		$	5,553,960

Real Estate Investments:
Land		3,484,216			2,866,183
Buildings		10,126,971			8,809,264
Acquired Intangible Lease Assets		522,129			0
Real Estate Held for Investment, at cost		14,133,316			11,675,447
Accumulated Depreciation and Amortization		(2,674,423	)		(2,533,686	)
Real Estate Held for Investment, Net		11,458,893			9,141,761
Real Estate Held for Sale		0			1,508,930
Total Real Estate Investments		11,458,893			10,650,691
Total Assets	$	15,999,813		$	16,204,651

LIABILITIES AND PARTNERS' CAPITAL

Current Liabilities:
Payable to AEI Fund Management, Inc.	$	30,299	$	11,049
Distributions Payable		291,921		291,922
Unearned Rent		12,121		12,121
Total Current Liabilities		334,341		315,092

Long-term Liabilities:
Acquired Below-Market Lease Intangibles, Net		74,191		0

Partners’ Capital:
General Partners		10,980		11,205
Limited Partners – 24,000 Units authorized; 21,829 and 22,653 Units issued and outstanding as of December 31, 2014 and 2013, respectively		15,580,301		15,878,354
Total Partners' Capital		15,591,281		15,889,559
Total Liabilities and Partners' Capital	$	15,999,813	$	16,204,651

The accompanying Notes to Financial Statements are an integral part of these statements.

Page 18 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

STATEMENTS OF INCOME

	Year Ended December 31
	2014		2013

Rental Income	$	1,105,149	$	961,708

Expenses:
Partnership Administration – Affiliates		221,349		205,016
Partnership Administration and Property Management – Unrelated Parties		52,344		46,807
Property Acquisition		62,022		0
Depreciation and Amortization		416,773		352,371
Total Expenses		752,488		604,194

Operating Income		352,661		357,514

Other Income:
Income from Equity Method Investment		521,659		0
Interest Income		11,890		10,412
Total Other Income		533,549		10,412

Income from Continuing Operations		886,210		367,926

Income from Discontinued Operations		647,377		1,337,329

Net Income	$	1,533,587	$	1,705,255

Net Income Allocated:
General Partners	$	18,093	$	25,266
Limited Partners		1,515,494		1,679,989
Total	$	1,533,587	$	1,705,255

Income per Limited Partnership Unit:
Continuing Operations	$	39.01	$	16.08
Discontinued Operations		28.50		58.08
Total – Basic and Diluted	$	67.51	$	74.16

Weighted Average Units Outstanding – Basic and Diluted		22,447		22,653

The accompanying Notes to Financial Statements are an integral part of these statements.

Page 19 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

	Year Ended December 31
	2014			2013

Cash Flows from Operating Activities:
Net Income	$	1,533,587		$	1,705,255

Adjustments to Reconcile Net Income To Net Cash Provided by Operating Activities:
Depreciation and Amortization		410,361			443,053
Gain on Sale of Real Estate		0			(1,128,749	)
Income from Equity Method Investments		(1,145,441	)		0
Increase (Decrease) in Payable to AEI Fund Management, Inc.		19,250			(30,140	)
Increase (Decrease) in Unearned Rent		0			1
Total Adjustments		(715,830	)		(715,835	)
Net Cash Provided By Operating Activities		817,757			989,420

Cash Flows from Investing Activities:
Investments in Real Estate		(4,335,000	)		0
Proceeds from Sale of Real Estate		0			3,781,399
Cash Paid for Equity Method Investments		(37,488	)		0
Proceeds from Equity Method Investments		4,373,557			0
Net Cash Provided By Investing Activities		1,069			3,781,399

Cash Flows from Financing Activities:
Distributions Paid to Partners		(1,167,688	)		(1,476,770	)
Repurchase of Partnership Units		(664,178	)		0
Net Cash Used For Financing Activities		(1,831,866	)		(1,476,770	)

Net Increase (Decrease) in Cash		(1,013,040	)		3,294,049

Cash, beginning of year		5,553,960			2,259,911

Cash, end of year	$	4,540,920		$	5,553,960

Supplemental Disclosure of Non-Cash Investing Activities:
Contribution of Real Estate in Exchange for Equity Method Investments	$	3,190,628		$	0

The accompanying Notes to Financial Statements are an integral part of these statements.

Page 20 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

	General Partners			Limited Partners			Total			Limited Partnership Units Outstanding


Balance, December 31, 2012	$	686		$	15,658,370		$	15,659,056			22,653.11

Distributions Declared		(14,747	)		(1,460,005	)		(1,474,752	)

Net Income		25,266			1,679,989			1,705,255

Balance, December 31, 2013		11,205			15,878,354			15,889,559			22,653.11

Distributions Declared		(11,677	)		(1,156,010	)		(1,167,687	)

Repurchase of Partnership Units		(6,641	)		(657,537	)		(664,178	)		(824.40	)

Net Income		18,093			1,515,494			1,533,587

Balance, December 31, 2014	$	10,980		$	15,580,301		$	15,591,281			21,828.71

The accompanying Notes to Financial Statements are an integral part of these statements.

Page 21 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(1) 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.

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.

Page 22 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(1) Organization – (Continued)

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.

(2) Summary of Significant Accounting Policies –

Financial Statement Presentation

The accounts of the Partnership are maintained on the accrual basis of accounting for both federal income tax purposes and financial reporting purposes.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with United States Generally Accepted Accounting Principles (US GAAP). Those estimates and assumptions may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. Significant items, subject to such estimates and assumptions, include the carrying value of real estate held for investment, real estate held for sale and related intangible assets.

Page 23 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(2) Summary of Significant Accounting Policies – (Continued)

The Partnership regularly assesses whether market events and conditions indicate that it is reasonably possible to recover the carrying amounts of its investments in real estate from future operations and sales. A change in those market events and conditions could have a material effect on the carrying amount of its real estate.

Cash Concentrations of Credit Risk

The Partnership's cash is deposited in one financial institution and at times during the year it may exceed FDIC insurance limits.

Receivables

Credit terms are extended to tenants in the normal course of business. The Partnership performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral.

Receivables are recorded at their estimated net realizable value. The Partnership follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Partnership is of the belief that such accounts, if any, will be collectible in all material respects and thus an allowance is not necessary. Accounts are considered past due if payment is not made on a timely basis in accordance with the Partnership’s credit terms. Receivables considered uncollectible are written off.

Income Taxes

The income or loss of the Partnership for federal income tax reporting purposes is includable in the income tax returns of the partners. In general, no recognition has been given to income taxes in the accompanying financial statements.

The tax return and the amount of distributable Partnership income or loss are subject to examination by federal and state taxing authorities. If such an examination results in changes to distributable Partnership income or loss, the taxable income of the partners would be adjusted accordingly. Primarily due to its tax status as a partnership, the Partnership has no significant tax uncertainties that require recognition or disclosure. The Partnership is no longer subject to U.S. federal income tax examinations for tax years before 2011, and with few exceptions, is no longer subject to state tax examinations for tax years before 2011.

Page 24 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(2) Summary of Significant Accounting Policies – (Continued)

Revenue Recognition

The Partnership's real estate is leased under net leases, classified as operating leases. The leases provide for base annual rental payments payable in monthly installments. The Partnership recognizes rental income according to the terms of the individual leases. For leases that contain stated rental increases, the increases are recognized in the year in which they are effective. Contingent rental payments are recognized when the contingencies on which the payments are based are satisfied and the rental payments become due under the terms of the leases.

Real Estate

Page 25 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(2) Summary of Significant Accounting Policies – (Continued)

The Partnership tests real estate 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, it compares the carrying amount of the property to the estimated probability-weighted future undiscounted cash flows expected to result from the property and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the property, the Partnership recognizes an impairment loss by the amount by which the carrying amount of the property exceeds the fair value of the property. For properties held for sale, the Partnership 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.

For financial reporting purposes, the buildings owned by the Partnership are depreciated using the straight-line method over an estimated useful life of 25 years. Intangible lease assets are amortized using the straight-line method for financial reporting purposes based on the remaining life of the lease.

Prior to January 1, 2014, 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 of the property to discontinued operations.

Page 26 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(2) Summary of Significant Accounting Policies – (Continued)

The Partnership's properties are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which the properties are located. These laws could require the Partnership to investigate and remediate the effects of the release or disposal of hazardous materials at these locations if found. For each property, an environmental assessment is completed prior to acquisition. In addition, the lease agreements typically strictly prohibit the production, handling, or storage of hazardous materials (except where incidental to the tenant’s business such as use of cleaning supplies) in violation of applicable law to restrict environmental and other damage. Environmental liabilities are recorded when it is determined the liability is probable and the costs can reasonably be estimated. There were no environmental issues noted or liabilities recorded at December 31, 2014 and 2013.

Fair Value Measurements

As of December 31, 2014 and 2013, the Partnership had no assets or liabilities measured at fair value on a recurring basis or nonrecurring basis.

Income Per Unit

Income per Limited Partnership Unit is calculated based on the weighted average number of Limited Partnership Units outstanding during each period presented. Diluted income per Limited Partnership Unit considers the effect of any potentially dilutive Unit equivalents, of which the Partnership had none for each of the years ended December 31, 2014 and 2013.

Reportable Segments

The Partnership invests in single tenant commercial properties throughout the United States that are net leased to tenants in various industries. Because these net leased properties have similar economic characteristics, the Partnership evaluates operating performance on an overall portfolio basis. Therefore, the Partnership’s properties are classified as one reportable segment.

Page 27 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(2) Summary of Significant Accounting Policies – (Continued)

Recently Adopted Accounting Standards

In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This topic amends the requirements for reporting discontinued operations. The disposal of a component must represent a strategic shift that will have a major effect on the Partnership’s operations and financial results in order to be reported as discontinued operations, and require certain additional interim and annual disclosures. The amendments in this ASU are effective for reporting periods beginning after December 15, 2014 with early adoption permitted. The Partnership has early adopted this standard effective January 1, 2014 and has applied the provisions prospectively. As a result, the Partnership anticipates that properties will not be considered discontinued operations when the properties are sold after January 1, 2014, with the exception of properties that were classified as Real Estate Held for Sale at December 31, 2013.

Recently Issued Accounting Pronouncements

Management has reviewed recently issued, but not yet effective, accounting pronouncements and does not expect the implementation of these pronouncements to have a significant effect on the Partnership’s financial statements.

(3) Related Party Transactions –

The Partnership owns the percentage interest shown below in the following properties as tenants-in-common with the affiliated entities listed: Jared Jewelry store in Hanover, Maryland (50% – AEI Net Lease Income & Growth Fund XX Limited Partnership); Jared Jewelry store in Auburn Hills, Michigan (40% – AEI Income & Growth Fund 25 LLC); Best Buy store (54% – AEI Income & Growth Fund 23 LLC and AEI Income & Growth Fund 26 LLC); Fresenius Medical Center (55% – AEI Income & Growth Fund 24 LLC); Tractor Supply Company store in Canton, Georgia (50% – AEI Accredited Investor Fund V LP); and Gander Mountain store (30% – AEI Accredited Investor Fund V LP and AEI National Income Property Fund VIII LP).

The Partnership owned a 62% interest in an Applebee’s restaurant. AEI Income & Growth Fund XXII Limited Partnership, an affiliate of the Partnership, owned a 38% interest in this property until the property was sold to an unrelated third party in 2013. The Partnership owned a 39% interest in a Scott & White Clinic. AEI Net Lease Income & Growth Fund XX Limited Partnership and AEI Income & Growth Fund 25 LLC owned the remaining 61% interest in this property until the property was sold to an unrelated third party in 2013.

Page 28 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(3) Related Party Transactions – (Continued)

During 2014, the Partnership sold its 20% interest in the CarMax Auto Superstore in Lithia Springs, Georgia. The remaining interests in the property that were owned by three affiliated entities, AEI Income & Growth Fund 24 LLC, AEI Income & Growth Fund 25 LLC and AEI Private Net Lease Millennium Fund Limited Partnership, were also sold in 2014. During 2014, the Partnership sold its 63% interest in the Tractor Supply Company store in Rapid City, South Dakota. The remaining interest in the property that was owned by AEI Income & Growth Fund 25 LLC was also sold in 2014.

AEI received the following reimbursements for costs and expenses from the Partnership for the years ended December 31:

			2014		2013

a.	AEI is reimbursed for costs incurred in providing services related to managing the Partnership's operations and properties, maintaining the Partnership's books, and communicating with the Limited Partners.	$	221,349	$	205,016

b.	AEI is reimbursed for all direct expenses it paid on the Partnership's behalf to third parties related to Partnership administration and property management. These expenses included printing costs, legal and filing fees, direct administrative costs, outside audit costs, taxes, insurance and other property costs. These amounts included $3,145 and $871 of expenses related to Discontinued Operations in 2014 and 2013, respectively.	$	55,489	$	47,678

c.	AEI is reimbursed for costs incurred in providing services and direct expenses related to the acquisition of properties on behalf of the Partnership.	$	62,022	$	0

d.	AEI is reimbursed for costs incurred in providing services related to the sale of property.	$	129,657	$	77,864

The payable to AEI Fund Management, Inc. represents the balance due for the services described in 3a, b, c and d. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business.

Page 29 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(4) Real Estate Investments –

The Partnership leases its properties to tenants under net leases, classified as operating leases. Under a net lease, the tenant is responsible for real estate taxes, insurance, maintenance, repairs and operating expenses for the property. For some leases, the Partnership is responsible for repairs to the structural components of the building, the roof, and the parking lot. At the time the properties were acquired, the remaining primary lease terms varied from 10 to 20 years, except for the Tractor Supply Company store in Canton, Georgia, which had a remaining primary term of 7.3 years. The leases provide the tenants with two to four five-year renewal options subject to the same terms and conditions as the primary term.

The Partnership's properties are commercial, single-tenant buildings. The KinderCare daycare center in Andover, Minnesota was constructed in 1998 and acquired in 2002. The Jared Jewelry store in Hanover, Maryland was constructed in 2001 and acquired in 2004. The Jared Jewelry store in Auburn Hills, Michigan was constructed in 1999 and acquired in 2005. The Best Buy store was constructed in 1990, renovated in 1997 and acquired in 2008. The Fresenius Medical Center was constructed and acquired in 2008. The Tractor Supply Company store in Canton, Georgia was constructed in 2006 and acquired in 2014. The Gander Mountain store was constructed in 1994 and renovated and acquired in 2014. There have been no costs capitalized as improvements subsequent to the acquisitions.

The cost of the properties not held for sale and related accumulated depreciation at December 31, 2014 are as follows:

Property	Land		Buildings		Total		Accumulated Depreciation

KinderCare, Andover, MN	$	179,755	$	1,084,452	$	1,264,207	$	544,032
Jared Jewelry, Hanover, MD		861,065		1,128,070		1,989,135		490,712
Jared Jewelry, Auburn Hills, MI		280,993		1,185,055		1,466,048		472,045
Best Buy, Eau Claire, WI		853,357		2,784,349		3,637,706		770,337
Fresenius Medical Center, Shreveport, LA		102,046		1,258,571		1,360,617		314,644
Tractor Supply, Canton, GA		700,000		1,407,183		2,107,183		32,834
Gander Mountain, Champaign, IL		507,000		1,279,291		1,786,291		25,586
	$	3,484,216	$	10,126,971	$	13,611,187	$	2,650,190

For the years ended December 31, 2014 and 2013, the Partnership recognized depreciation expense from continuing operations of $392,540 and $352,371, respectively.

Page 30 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(4) Real Estate Investments – (Continued)

On May 29, 2014, the Partnership purchased a 50% interest in a Tractor Supply Company store in Canton, Georgia for $2,212,500. The Partnership allocated $185,920 of the purchase price to Acquired Intangible Lease Assets, representing in-place lease intangibles and allocated $80,603 to Acquired Below-Market Lease Intangibles. The Partnership incurred $27,970 of acquisition expenses related to the purchase that were expensed. The property is leased to Tractor Supply Company under a Lease Agreement with a remaining primary term of 7.3 years (as of the date of purchase) and annual rent of $164,355 for the interest purchased.

On July 3, 2014, the Partnership purchased a 30% interest in a Gander Mountain store in Champaign, Illinois for $2,122,500. The Partnership allocated $336,209 of the purchase price to Acquired Intangible Lease Assets, representing in-place lease intangibles. The Partnership incurred $34,052 of acquisition expenses related to the purchase that were expensed. The property is leased to Gander Mountain Company under a Lease Agreement with a remaining primary term of 14.9 years and annual rent of $167,772 for the interest purchased.

The following schedule presents the cost and related accumulated amortization of acquired lease intangibles not held for sale at December 31:

		2014				2013
		Cost		Accumulated Amortization		Cost		Accumulated Amortization
Acquired Intangible Lease Assets (in-place lease intangibles with a weighted average life of 140 and 0 months, respectively)	$	522,129	$	24,233	$	0	$	0

Acquired Below-Market Lease Intangibles (weighted average life of 81 and 0 months, respectively)	$	80,603	$	6,412	$	0	$	0

For the years ended December 31, 2014 and 2013, the value of in-place lease intangibles amortized to expense was $24,233 and $0 and the increase to rental income for below-market leases was $6,412 and $0, respectively. For lease intangibles not held for sale at December 31, 2014, the estimated amortization expense is $48,019 and the estimated increase to rental income is $10,991 for each of the next five succeeding years.

For properties owned as of December 31, 2014, the minimum future rent payments required by the leases are as follows:

2015	$	1,168,601
2016		1,176,574
2017		1,122,637
2018		738,456
2019		671,739
Thereafter		2,398,932
	$	7,276,939

There were no contingent rents recognized in 2014 and 2013.

Page 31 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(5) Equity Method Investments –

In the fourth quarter of 2013, the Partnership decided to sell its 20% interest in the CarMax Auto Superstore in Lithia Springs, Georgia. At December 31, 2013, the property was classified as Real Estate Held for Sale with a carrying value of $1,508,930. The remaining interests in the property were owned by three affiliated entities, AEI Income & Growth Fund 24 LLC, AEI Income & Growth Fund 25 LLC and AEI Private Net Lease Millennium Fund Limited Partnership. On March 7, 2014, to facilitate the sale of the property, the Partnership and affiliated entities contributed their respective interests in the property via a limited liability company to CM Lithia Springs DST (“CMLS”), a Delaware statutory trust (“DST”), in exchange for Class B ownership interests in CMLS. In addition, a small amount of cash was contributed for working capital. A DST is a recognized mechanism for selling property to investors who are looking for replacement real estate to complete like-kind exchanges under Section 1031 of the Internal Revenue Code. As investors purchase Class A ownership interests in CMLS, the proceeds received will be used to redeem, on a one-for-one basis, the Class B ownership interests of the Partnership and affiliated entities. From March 13, 2014 to July 25, 2014, CMLS sold 100% of its Class A ownership interests to investors and redeemed 100% of the Class B ownership interests from the Partnership and affiliated entities.

Page 32 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(5) Equity Method Investments – (Continued)

The investments in CMLS and ANLP are recorded using the equity method of accounting in the accompanying financial statements. Under the equity method, the investments are stated at cost and adjusted for the Partnership’s share of net income or losses and reduced by proceeds received from the sale of the Class B ownership interests of the DSTs as well as distributions from net rental income. As of December 31, 2014, the investment balances consist of the following:

		CMLS		ANLP		Total
Real Estate Contributed	$	1,508,930	$	1,681,698	$	3,190,628
Cash Contributed		12,169		25,319		37,488
Net Income – Rental Activity		32,965		11,750		44,715
Net Income – Gain on Sale of Real Estate		590,817		509,909		1,100,726
Distributions from Net Rental Income		(32,965)		(11,750)		(44,715)
Proceeds from Sale of Class B Interests		(2,111,916)		(2,216,926)		(4,328,842)
Equity Method Investments	$	0	$	0	$	0

(6) Major Tenants –

The following schedule presents rental income from individual tenants, or affiliated groups of tenants, who each contributed more than ten percent of the Partnership's total rental income for the years ended December 31:

Tenants	Industry		2014		2013

Sterling Jewelers Inc.	Retail	$	298,178	$	298,178
Best Buy Stores, L.P.	Retail		268,800		268,146
Tractor Supply Company	Retail		196,968		141,750
KinderCare Learning Centers LLC	Child Care		145,447		145,447
CarMax Auto Superstores, Inc.	Retail		N/A		146,286
Aggregate rental income of major tenants		$	909,393	$	999,807
Aggregate rental income of major tenants as a percentage of total rental income			80%		79%

Page 33 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(7) Discontinued Operations –

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 years ended December 31:

		2014		2013

Rental Income	$	26,740	$	300,133
Property Management Expenses		(3,145)		(871)
Depreciation		0		(90,682)
Income from Equity Method Investment Held for Sale		623,782		0
Gain on Disposal of Real Estate		0		1,128,749
Income from Discontinued Operations	$	647,377	$	1,337,329

		2014		2013

Cash Flows from Discontinued Operations:
Operating Activities	$	23,595	$	299,262
Investing Activities	$	2,132,712	$	3,781,399

Page 34 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(8) Partners’ Capital –

For the years ended December 31, 2014 and 2013, the Partnership declared distributions of $1,167,687 and $1,474,752, respectively. The Limited Partners received distributions of $1,156,010 and $1,460,005 and the General Partners received distributions of $11,677 and $14,747 for the years, respectively. The Limited Partners' distributions represented $51.50 and $64.45 per Limited Partnership Unit outstanding using 22,447 and 22,653 weighted average Units in 2014 and 2013, respectively. The distributions represented $51.50 and $64.45 per Unit of Net Income in 2014 and 2013, respectively.

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 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.

On October 1 2014, the Partnership repurchased a total of 824.40 Units for $657,537 from 41 Limited Partners in accordance with the Partnership Agreement. The Partnership acquired these Units using net sale proceeds. During 2013, the Partnership did not repurchase any Units from the Limited Partners. 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 $6,641 in 2014.

Page 35 of 44

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

(9) Income Taxes –

The following is a reconciliation of net income for financial reporting purposes to income reported for federal income tax purposes for the years ended December 31:

		2014		2013

Net Income for Financial Reporting Purposes	$	1,533,587	$	1,705,255

Depreciation for Tax Purposes Under Depreciation and Amortization for Financial Reporting Purposes		129,852		130,801

Income Accrued for Tax Purposes Over (Under) Income for Financial Reporting Purposes		0		1

Acquisition Costs Expensed for Financial Reporting Purposes, Capitalized for Tax Purposes		62,022		0

Gain on Sale of Real Estate for Tax Purposes Over (Under) Gain for Financial Reporting Purposes		(195,505)		(179,700)
Taxable Income to Partners	$	1,529,956	$	1,656,357

The following is a reconciliation of Partners' capital for financial reporting purposes to Partners' capital reported for federal income tax purposes for the years ended December 31:

		2014		2013

Partners' Capital for Financial Reporting Purposes	$	15,591,281	$	15,889,559

Adjusted Tax Basis of Investments in Real Estate Over Net Investments in Real Estate for Financial Reporting Purposes		886,357		889,988

Income Accrued for Tax Purposes Over Income for Financial Reporting Purposes		12,121		12,121

Syndication Costs Treated as Reduction of Capital For Financial Reporting Purposes		3,208,043		3,208,043
Partners' Capital for Tax Reporting Purposes	$	19,697,802	$	19,999,711

Page 36 of 44

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. 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) Internal Control Over Financial Reporting.

(i) Management’s Report on Internal Control Over Financial Reporting. The Managing General Partner, through its management, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, and for performing an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2014. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP. Our system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP, and that receipts and expenditures of the Partnership are being made only in accordance with authorizations of management of the Managing General Partner; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Partnership's assets that could have a material effect on the financial statements.

Management of the Managing General Partner performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2014 based upon criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, management of the Managing General Partner determined that our internal control over financial reporting was effective as of December 31, 2014 based on the criteria in Internal Control-Integrated Framework (1992) issued by the COSO.

Page 37 of 44

ITEM 9A. CONTROLS AND PROCEDURES. (Continued)

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

(ii) 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.

ITEM 9B. OTHER INFORMATION.

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The registrant is a limited partnership and has no officers, directors, or direct employees. The General Partners manage and control the Partnership's affairs and have general responsibility and the ultimate authority in all matters affecting the Partnership's business. The General Partners are AEI Fund Management XXI, Inc. (“AFM”), the Managing General Partner, and Robert P. Johnson, Chief Executive Officer, President and sole director of AFM, the Individual General Partner. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AFM has only one senior financial executive, its Chief Financial Officer. The Chief Financial Officer reports directly to Mr. Johnson and is accountable for his actions to Mr. Johnson. Although Mr. Johnson and AFM require that all of their personnel, including the Chief Financial Officer, engage in honest and ethical conduct, ensure full, fair, accurate, timely, and understandable disclosure, comply with all applicable governmental laws, rules and regulations, and report to Mr. Johnson any deviation from these principles, because the organization is composed of only approximately 45 individuals, because the management of a partnership by an entity that has different interests in distributions and income than investors involves numerous conflicts of interest that must be resolved on a daily basis, and because the ultimate decision maker in all instances is Mr. Johnson, AFM has not adopted a formal code of conduct. Instead, the materials pursuant to which investors purchase Units disclose these conflicts of interest in detail and Mr. Johnson, as the CEO and sole director of AFM, resolves conflicts to the best of his ability, consistent with his fiduciary obligations to AFM and the fiduciary obligations of AFM to the Partnership. The director and officers of AFM are as follows:

Page 38 of 44

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

(Continued)

Robert P. Johnson, age 70, is Chief Executive Officer, President and sole director and has held these positions since the formation of AFM in August 1994, and has been elected to continue in these positions until December 2015. From 1970 to the present, he has been employed exclusively in the investment industry, specializing in limited partnership investments. In that capacity, he has been involved in the development, analysis, marketing and management of public and private investment programs investing in net lease properties as well as public and private investment programs investing in energy development. Since 1971, Mr. Johnson has been the president, a director and a registered principal of AEI Securities, Inc., which is registered with the SEC as a securities broker-dealer, is a member of the Financial Industry Regulatory Authority (FINRA) and is a member of the Security Investors Protection Corporation (SIPC). Mr. Johnson has been president, a director and the principal shareholder of AEI Fund Management, Inc., a real estate management company founded by him, since 1978. Mr. Johnson is currently a general partner or principal of the general partner in nine limited partnerships and a managing member in five LLCs.

Patrick W. Keene, age 55, is Chief Financial Officer, Treasurer and Secretary and has held these positions since January 22, 2003 and has been elected to continue in these positions until December 2015. Mr. Keene has been employed by AEI Fund Management, Inc. and affiliated entities since 1986. Prior to being elected to the positions above, he was Controller of the various entities. From 1982 to 1986, Mr. Keene was with KPMG Certified Public Accountants, first as an auditor and later as a tax manager. Mr. Keene is responsible for all accounting functions of AFM and the registrant.

Since Mr. Johnson serves as the Individual General Partner of the Partnership, as well as the sole director of AFM, all of the duties that might be assigned to an audit committee are assigned to Mr. Johnson. Mr. Johnson is not an audit committee financial expert, as defined. As an officer and majority owner, through a parent company, of AFM, and as the Individual General Partner, Mr. Johnson is not a "disinterested director" and may be subject to a number of conflicts of interests in his capacity as sole director of AFM.

Before the independent auditors are engaged, Mr. Johnson, as the sole director of AFM, approves all audit-related fees, and all permissible nonaudit fees, for services of our auditors.

Section 16(a) Beneficial Ownership Reporting Compliance

Under federal securities laws, the directors and officers of the General Partner of the Partnership, and any beneficial owner of more than 10% of a class of equity securities of the Partnership, are required to report their ownership of the Partnership's equity securities and any changes in such ownership to the Securities and Exchange Commission (the "Commission"). Specific due dates for these reports have been established by the Commission, and the Partnership is required to disclose in this Annual Report on 10-K any delinquent filing of such reports and any failure to file such reports during the fiscal year ended December 31, 2014. Based upon information provided by officers and directors of the General Partner, all officers, directors and 10% owners filed all reports on a timely basis in the 2014 fiscal year.

Page 39 of 44

ITEM 11. EXECUTIVE COMPENSATION.

The General Partner and affiliates are reimbursed at cost for all services performed on behalf of the registrant and for all third party expenses paid on behalf of the registrant. The cost for services performed on behalf of the registrant is based on actual time spent performing such services plus an overhead burden. These services include organizing the registrant and arranging for the offer and sale of Units, reviewing properties for acquisition and rendering administrative, property management and property sales services. The amount and nature of such payments are detailed in Item 13 of this annual report on Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table sets forth information pertaining to the ownership of the Units by each person known by the Partnership to beneficially own 5% or more of the Units, by each General Partner, and by each officer or director of the Managing General Partner as of February 28, 2015:

Name and Address of Beneficial Owner	Number of Units Held	Percent of Class

AEI Fund Management XXI, Inc.	0	0.00%
Robert P. Johnson	0	0.00%
Patrick W. Keene	0	0.00%

Address for all:
1300 Wells Fargo Place 30 East 7th Street, St. Paul, Minnesota 55101

The General Partners know of no holders of more than 5% of the outstanding Units.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND

DIRECTOR INDEPENDENCE.

The registrant, AFM and its affiliates have common management and utilize the same facilities. As a result, certain administrative expenses are allocated among these related entities. All of such activities and any other transactions involving the affiliates of the General Partner of the registrant are governed by, and are conducted in conformity with, the limitations set forth in the Limited Partnership Agreement of the registrant. Reference is made to Note 3 of the Financial Statements, as presented, and is incorporated herein by reference, for details of related party transactions for the years ended December 31, 2014 and 2013.

Neither the registrant, nor the Managing General Partner of the registrant, has a board of directors consisting of any members who are “independent.” The sole director of the Managing General Partner, Robert P. Johnson, is also the Individual General Partner of the registrant, and is the Chief Executive Officer, and indirectly the principal owner, of the Managing General Partner. Accordingly, there is no disinterested board, or other functioning body, that reviews related party transactions, or the transactions between the registrant and the General Partners, except as performed in connection with the audit of its financial statements.

Page 40 of 44

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND

DIRECTOR INDEPENDENCE. (Continued)

The limitations included in the Partnership Agreement require that the cumulative reimbursements to the General Partners and their affiliates for certain expenses will not exceed an amount equal to the sum of (i) 20% of gross offering proceeds, (ii) 5% of Net Cash Flow for property management, (iii) 3% of Net Proceeds of Sale, and (iv) 10% of Net Cash Flow less the Net Cash Flow actually distributed to the General Partners. The cumulative reimbursements subject to this limitation are reimbursements for (i) organization and offering expenses, including commissions, (ii) acquisition expenses, (iii) services provided in the sales effort of properties, and (iv) expenses of controlling persons and overhead expenses directly attributable to the forgoing services or attributable to administrative services. As of December 31, 2014, these cumulative reimbursements to the General Partners and their affiliates did not exceed the limitation amount.

The following table sets forth the forms of compensation, distributions and cost reimbursements paid by the registrant to the General Partners or their Affiliates in connection with the operation of the Fund for the period from inception through December 31, 2014.

Person or Entity Receiving Compensation	Form and Method of Compensation	Amount Incurred From Inception (August 22, 1994) To December 31, 2014

AEI Securities, Inc.	Selling Commissions equal to 8% of proceeds plus a 2% nonaccountable expense allowance, most of which was reallowed to Participating Dealers.		$	2,400,000

General Partners and Affiliates	Reimbursement at Cost for other Organization and Offering Costs.		$	877,000

General Partners and Affiliates	Reimbursement at Cost for all Acquisition Expenses.		$	805,780

General Partners and Affiliates	Reimbursement at Cost for providing administrative services to the Fund, including all expenses related to management of the Fund's properties and all other transfer agency, reporting, partner relations and other administrative functions.		$	4,599,014

General Partners and Affiliates	Reimbursement at Cost for providing services related to the disposition of the Fund's properties.		$	1,367,705

General Partners	1% of Net Cash Flow in any fiscal year until the Limited Partners have received annual, non-cumulative distributions of Net Cash Flow equal to 10% of their Adjusted Capital Contributions and 10% of any remaining Net Cash Flow in such fiscal year.		$	255,458

Page 41 of 44

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND

DIRECTOR INDEPENDENCE. (Continued)

Person or Entity Receiving Compensation	Form and Method of Compensation	Amount Incurred From Inception (August 22, 1994) To December 31, 2014

General Partners	1% of distributions of Net Proceeds of Sale until Limited Partners have received an amount equal to (a) their Adjusted Capital Contributions, plus (b) an amount equal to 12% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously distributed. 10% of distributions of Net Proceeds of Sale thereafter.		$	77,211

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The following is a summary of the fees billed to the Partnership by Boulay PLLP for professional services rendered for the years ended December 31, 2014 and 2013:

Fee Category		2014		2013

Audit Fees	$	18,154	$	17,625
Audit-Related Fees		0		0
Tax Fees		0		0
All Other Fees		0		0
Total Fees	$	18,154	$	17,625

Audit Fees - Consists of fees billed for professional services rendered for the audit of the Partnership’s annual financial statements and review of the interim financial statements included in quarterly reports, and services that are normally provided by Boulay PLLP in connection with statutory and regulatory filings or engagements.

Audit-Related Fees - Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of financial statements and are not reported under "Audit Fees." These services include consultations concerning financial accounting and reporting standards.

Tax Fees - Consists of fees billed for professional services for federal and state tax compliance, tax advice and tax planning.

All Other Fees - Consists of fees for products and services other than the services reported above.

Policy for Preapproval of Audit and Permissible Non-Audit Services

Before the Independent Registered Public Accounting Firm is engaged by the Partnership to render audit or non-audit services, the engagement is approved by Mr. Johnson acting as the Partnership’s audit committee.

Page 42 of 44

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a) (1) A list of the financial statements contained herein is set forth on page 16.

(a) (2) Schedules are omitted because of the absence of conditions under which they are required or because the required information is presented in the financial statements or related notes.

(a) (3) The Exhibits filed in response to Item 601 of Regulation S-K are listed below.

3.1	Certificate of Limited Partnership (incorporated by reference to Exhibit 3.1 of the registrant's Registration Statement on Form SB-2 filed October 10, 1994 [File No. 33-85076C]).

3.2	Restated Limited Partnership Agreement to the Prospectus (incorporated by reference to Exhibit A of Amendment No. 2 of the registrant's Registration Statement on Form SB-2 filed January 20, 1995 [File No. 33-85076C]).

10.1	Net Lease Agreement dated June 14, 2002 between the Partnership and ARAMARK Educational Resources, Inc. relating to the Property at 1485 Bunker Lake Boulevard NW, Andover, Minnesota (incorporated by reference to Exhibit 10.4 of Form 8-K filed June 27, 2002).

10.2

Assignment and Assumption of Lease dated February 9, 2004 between the Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership and Transmills, LLC relating to the Property at 7684 Arundel Mills, Hanover, Maryland (incorporated by reference to Exhibit 10.2 of Form 8-K filed February 24, 2004).

10.3	Assignment and Assumption of Lease dated January 14, 2005 between the Partnership, AEI Income & Growth Fund 25 LLC and LMB Auburn Hills I LLC relating to the Property at 3960 Baldwin Road, Auburn Hills, Michigan (incorporated by reference to Exhibit 10.26 of Form 10-KSB filed March 30, 2005).

10.4

Assignment and Assumption of Lease dated January 31, 2008 between the Partnership, AEI Income & Growth Fund 23 LLC, AEI Income & Growth Fund 26 LLC and Eau Claire Equity Fund Limited Partnership relating to the Property at 4090 Commonwealth Avenue, Eau Claire, Wisconsin (incorporated by reference to Exhibit 10.2 of Form 8-K filed February 6, 2008).

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 43 of 44

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AEI INCOME & GROWTH FUND XXI
	Limited Partnership
	By:	AEI Fund Management XXI, Inc.
		Its Managing General Partner


March 27, 2015	By:	/s/ ROBERT P JOHNSON
		Robert P. Johnson, President and Director
		(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date


/s/ ROBERT P JOHNSON	President (Principal Executive Officer)	March 27, 2015
Robert P. Johnson	and Sole Director of Managing General
	Partner

/s/ PATRICK W KEENE	Chief Financial Officer and Treasurer	March 27, 2015
Patrick W. Keene	(Principal Accounting Officer)

Page 44 of 44

AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP - FORM 10-K - March 30, 2015

Attached files

AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP Reports