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AEI Core Property Income Trust, Inc.
10-Q
--12-31
20000
20000
false
0001527378
Yes
No
Non-accelerated Filer
No
2012
Q3
2012-09-30
<div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font style="font-weight: bold;">(1)</font> <font>The
condensed statements included herein have been prepared by
the registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the registrant
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
registrant's latest annual report included in Post-Effective
Amendment No. 1 to the Registration Statement on Form S-11
filed on April 16, 2012.</font>
</div><br/>
<div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;">
<font>(2) Organization –</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>AEI Core Property Income Trust, Inc. (the
“Company”) was formed on June 15, 2011 and
is a Minnesota corporation that intends to qualify as a real
estate investment trust (“REIT”) for federal
income tax purposes. AEI Trust Advisors, Inc.
(“ATA”), will be responsible for the
Company’s day-to-day operations under an advisory
agreement approved by the Company’s Board of Directors.
On July 15, 2011, the Company sold 20,000 shares of common
stock, at $10.00 per share, to AEI Capital Corporation, the
parent company of ATA.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>On January 23, 2012, pursuant to a registration
statement filed on Form S-11 with the Securities and Exchange
Commission, the Company commenced a public offering (the
“Offering”) of $298.5 million in shares of
common stock. A maximum of $270 million in shares of
common stock may be sold to the public at a price of $10.00
per share. In addition, the Company registered an additional
$28.5 million in shares of common stock that is
available only to shareholders who elect to participate in
the Company’s distribution reinvestment plan under
which shareholders may elect to have their distributions
reinvested in additional shares of the Company’s common
stock at $9.50 per share during the Offering.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The Company intends to use substantially all of the net
proceeds from the Offering to acquire and operate a portfolio
of debt-free, net leased, single tenant, income-producing
commercial properties, primarily in the retail, office,
medical, and service sectors.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The Company is in the development stage and has not
begun its planned operations. There were no real estate
transactions from June 15, 2011 to September 30,
2012.</font>
</div><br/>
20000
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9.50
<div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;">
<font>(3) Summary of Significant Accounting Policies
–</font>
</div><br/><div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;">
<font>Financial Statement Presentation</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The accounts of the Company are maintained on the
accrual basis of accounting for both federal income tax
purposes and financial reporting purposes.</font>
</div><br/><div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;">
<font>Accounting Estimates</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>Management uses estimates and assumptions in preparing
these financial statements in accordance with generally
accepted accounting principles. 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.</font>
</div><br/><div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;">
<font>Organization and Offering Expenses</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The Company’s advisor and its affiliates fund all
of the organization and offering expenses on the
Company’s behalf and may be reimbursed for such costs
subject to certain limits based on the amount of offering
proceeds raised. These costs are not included in the balance
sheet of the Company because such costs are not a liability
of the Company until subscriptions for the minimum number of
shares of common stock are received and accepted by the
Company. When recorded by the Company, organization costs
will be expensed as incurred and offering costs will be
recorded as a reduction of capital in excess of par value. As
of September 30, 2012 and December 31, 2011, ATA
had incurred approximately $1,152,000 and $532,000,
respectively, of costs related to the organization of the
Company and the Offering.</font>
</div><br/><div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;">
<font>Related Party Transactions and Agreements</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The Company has entered into agreements with ATA and
its affiliates, whereby the Company will pay certain fees to,
or reimburse certain expenses of, ATA or its affiliates such
as acquisition expenses, organization and offering expenses,
selling commissions, dealer manager fees, asset management
fees and expenses, and reimbursement of certain operating
costs. See Note 5 for a further explanation of the
various related-party transactions, agreements and
fees.</font>
</div><br/><div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;">
<font>Income Taxes</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The Company intends to make an election to be taxed as
a REIT under Sections 856 through 860 of the Internal
Revenue Code commencing with its taxable year ending December
31 for the year in which the escrow period concludes. If the
Company qualifies for taxation as a REIT, the Company
generally will not be subject to federal corporate income tax
to the extent it distributes its taxable income to its
stockholders. REITs are subject to a number of other
organizational and operational requirements. Even if the
Company qualifies for taxation as a REIT, it may be subject
to certain state and local taxes on its income and property,
and federal income and excise taxes on its undistributed
income. In general, no recognition has been given to income
taxes in the accompanying balance sheet. As of
December 31, 2011, the Company had not qualified for
taxation as a REIT so an income tax provision was provided
based on the estimated statutory tax rate. As of
September 30, 2012, the Company is in a net loss
position, but has not provided for an income tax benefit
provision as it has recorded a valuation allowance against
any net deferred tax asset.</font>
</div><br/><div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;">
<font>Investments in Real Estate</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>Upon acquisition of real properties, the Company will
record them in the financial statements at cost (not
including acquisition expenses). The purchase price will be
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.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>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 term of the respective leases. Below market leases
will be amortized as an adjustment of rental income over the
remaining terms 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.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>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.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The Company tests real estate for recoverability when
events or changes in circumstances indicate that the carrying
value may not be recoverable. For properties the Company
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 Company 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 Company 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.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The buildings and equipment of the Company will be
depreciated using the straight-line method for financial
reporting purposes based on estimated useful lives of 25
years and 5 years, respectively. Intangible lease assets are
amortized using the straight-line method for financial
reporting purposes based on the remaining life of the
lease.</font>
</div><br/>
<div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;"><font>Financial Statement Presentation</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The accounts of the Company are maintained on the
accrual basis of accounting for both federal income tax
purposes and financial reporting purposes.</font></div>
<div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;"><font>Accounting Estimates</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>Management uses estimates and assumptions in preparing
these financial statements in accordance with generally
accepted accounting principles. 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.</font></div>
<div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;"><font>Organization and Offering Expenses</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The Company’s advisor and its affiliates fund all
of the organization and offering expenses on the
Company’s behalf and may be reimbursed for such costs
subject to certain limits based on the amount of offering
proceeds raised. These costs are not included in the balance
sheet of the Company because such costs are not a liability
of the Company until subscriptions for the minimum number of
shares of common stock are received and accepted by the
Company. When recorded by the Company, organization costs
will be expensed as incurred and offering costs will be
recorded as a reduction of capital in excess of par value. As
of September 30, 2012 and December 31, 2011, ATA
had incurred approximately $1,152,000 and $532,000,
respectively, of costs related to the organization of the
Company and the Offering.</font></div>
1152000
532000
<div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;"><font>Related Party Transactions and Agreements</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The Company has entered into agreements with ATA and
its affiliates, whereby the Company will pay certain fees to,
or reimburse certain expenses of, ATA or its affiliates such
as acquisition expenses, organization and offering expenses,
selling commissions, dealer manager fees, asset management
fees and expenses, and reimbursement of certain operating
costs. See Note 5 for a further explanation of the
various related-party transactions, agreements and
fees.</font></div>
<div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;"><font>Income Taxes</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The Company intends to make an election to be taxed as
a REIT under Sections 856 through 860 of the Internal
Revenue Code commencing with its taxable year ending December
31 for the year in which the escrow period concludes. If the
Company qualifies for taxation as a REIT, the Company
generally will not be subject to federal corporate income tax
to the extent it distributes its taxable income to its
stockholders. REITs are subject to a number of other
organizational and operational requirements. Even if the
Company qualifies for taxation as a REIT, it may be subject
to certain state and local taxes on its income and property,
and federal income and excise taxes on its undistributed
income. In general, no recognition has been given to income
taxes in the accompanying balance sheet. As of
December 31, 2011, the Company had not qualified for
taxation as a REIT so an income tax provision was provided
based on the estimated statutory tax rate. As of
September 30, 2012, the Company is in a net loss
position, but has not provided for an income tax benefit
provision as it has recorded a valuation allowance against
any net deferred tax asset.</font></div>
<div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;"><font>Investments in Real Estate</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>Upon acquisition of real properties, the Company will
record them in the financial statements at cost (not
including acquisition expenses). The purchase price will be
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.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>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 term of the respective leases. Below market leases
will be amortized as an adjustment of rental income over the
remaining terms 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.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>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.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The Company tests real estate for recoverability when
events or changes in circumstances indicate that the carrying
value may not be recoverable. For properties the Company
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 Company 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 Company 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.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The buildings and equipment of the Company will be
depreciated using the straight-line method for financial
reporting purposes based on estimated useful lives of 25
years and 5 years, respectively. Intangible lease assets are
amortized using the straight-line method for financial
reporting purposes based on the remaining life of the
lease.</font></div>
<div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;">
<font>(4) Economic Dependency –</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The Company has engaged ATA and its affiliates to
provide certain services that are essential to the Company,
including services related to the sale of shares of the
Company’s common stock, property acquisitions and
dispositions, property management, and administration of the
Company, including investor relations, financial and tax
reporting. As a result of these relationships, the Company is
dependent upon ATA and its affiliates. In the event that
these companies were unable to provide the Company with the
respective services, the Company would be required to find
alternative providers of these services.</font>
</div><br/>
<div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;">
<font>(5) Related Party Transactions and Arrangements
–</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>The Company has incurred, and will continue to incur,
commissions, fees and expenses payable to its advisor (ATA)
and certain affiliates in connection with the Offering and
the acquisition, management and sale of the assets of the
Company.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font style="font-style: italic;">Organization and Offering
Expenses</font> <font style="font-weight: bold;">–</font> <font>The Company
will use a portion of the offering proceeds to reimburse ATA
for expenses incurred and services rendered related to the
offering of securities. These expenses may include up to 0.5%
of the gross offering proceeds for third party due diligence
expenses included in detailed and itemized invoices. The
Company will not pay organization and offering expenses to
the extent that they exceed, when combined with selling
commissions and dealer manager fees, 15% of the gross
proceeds raised through the offering.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font style="font-style: italic;">Selling
Commissions</font> <font style="font-weight: bold;">–</font> <font>The
Company will pay an affiliate of ATA 7.0% of the gross
proceeds from the offering, all of which will be re-allowed
as selling commissions to participating broker-dealers. The
Company will not pay any selling commissions for sales of
shares under the distribution reinvestment plan.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font style="font-style: italic;">Dealer Manager
Fee</font> <font style="font-weight: bold;">–</font> <font>The Company
will pay an affiliate of ATA a dealer manager fee of 3.0% of
the gross proceeds from the offering. The Company will not
pay a dealer manager fee for sales of shares under the
distribution reinvestment plan.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font style="font-style: italic;">Acquisition Expenses</font>
<font>– The Company will reimburse ATA for the expenses
it incurs in evaluating and acquiring properties on the
Company’s behalf, regardless of whether the Company
actually acquires the properties.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font style="font-style: italic;">Asset Management Fee</font>
<font>– The Company will pay ATA an annual asset
management fee equal to six tenths of one percent (0.60%) of
the Company’s average invested assets.</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font style="font-style: italic;">Operating
Expenses</font> <font style="font-weight: bold;">–</font> <font>The Company
will reimburse ATA for its costs in managing the
Company’s operations and properties and providing
administrative services, subject to the limitation that the
Company will not reimburse ATA for any amount by which the
Company’s operating expenses (which include, among
other things, the asset management fee, but exclude the
expenses of raising capital, interest payments, taxes,
non-cash items such as depreciation, amortization and bad
debt reserves and acquisition expenses) at the end of the
four preceding fiscal quarters exceeds the greater of (i) 2%
of average invested assets, or (ii) 25% of net income, other
than any additions to reserves for depreciation, bad debt or
other similar non-cash reserves and excluding any gain from
the sale of properties for that period.</font>
</div><br/>
<div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;">
<font>(6) Payable to AEI Fund Management, Inc. –</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>AEI Fund Management, Inc. performs the administrative
and operating functions for the Company. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and unsecured
and is to be paid in the normal course of business.</font>
</div><br/>
<div style="text-align: justify; font-weight: bold; font-family: Times New Roman; font-size: 12.0pt;">
<font>(7) Fair Value Measurements –</font>
</div><br/><div style="text-align: justify; font-family: Times New Roman; font-size: 12.0pt;">
<font>As of September 30, 2012, the Company had no
assets or liabilities measured at fair value on a recurring
basis or nonrecurring basis.</font>
</div><br/>