U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
or
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 0-28378
AMREIT, INC.
(Name of small business issuer in its charter)
Maryland 76-0410050
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
8 Greenway Plaza, Suite 824
Houston, Texas 77046
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (713) 850-1400
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Shares of Common
Stock
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days: Yes X No_____
Check if there is no disclosure of delinquent filers in response to Item 405
of Registration S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or informative
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $3,028,026
Aggregate market value of the voting stock held by non-affiliates of the issuer:
No Established Trading Market
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 2,372,744 shares of Common Stock as
of March 24, 1999
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Prospectus of Registrant dated June 18, 1996 (included in
Registration Statement No. 0-28378 of Registrant) and as supplemented February
28, 1997, October 16, 1997, December 1, 1997 and February 11, 1998 are
incorporated by reference into Part III.
2. Issuer incorporates by reference into Part III portions of its Proxy
Statement for the 1999 Annual Meeting of Shareholders.
Transitional Small Business Disclosure Format (check one): Yes No X
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PART I
Item 1. Description of Business
General
AmREIT, Inc., which changed its name from American Asset Advisers Trust, Inc. in
conjunction with the Merger (as described below) which was completed in June
1998 ("Issuer" or the "Company"), was incorporated in the state of Maryland on
August 17, 1993. The Company is a real estate investment trust (a "REIT") that
acquires, develops, owns and manages high-quality, freestanding properties
leased to major retail businesses under long-term commercial net leases. Through
a wholly-owned subsidiary, the Company also provides advisory services to eleven
real estate limited partnerships.
The Company focuses on acquiring frontage retail properties that are located
primarily on corner or out-parcel locations in strong commercial corridors near
traffic generators, such as major regional malls. These properties, which
attract a wide array of established retail tenants, offer attractive
opportunities for stable current return and potential capital appreciation. In
addition, management believes that the location and design of properties in this
niche provide flexibility in use and tenant selection and an increased
likelihood of advantageous re-lease terms.
The Company has been successful in attracting tenants that operate in different
retail segments, including Radio Shack (leased to the Tandy Corporation),
Blockbuster Music (lease guaranteed by Viacom, Inc.), Popeye's Famous Chicken
(lease guaranteed by AFC, Inc.), OfficeMax, Inc., Just For Feet, Inc., Hollywood
Video (leased to Hollywood Entertainment Corp.) and Bank United, a Federal
Savings Bank.
Properties acquired by the Company are generally newly constructed or recently
constructed as of the time of acquisition. To date, the Company has acquired
only properties that are subject to a lease in order to avoid the risks inherent
in initial leasing. The Company's leases typically provide that the tenant bears
responsibility for substantially all property costs and expenses associated with
ongoing maintenance and operation such as utilities, property taxes and
insurance. Some of the tenants' leases require that the Company is responsible
for roof and structural repairs. In these instances, the Company normally
requires warranties and/or guarantees to mitigate the potential costs of repairs
during the primary terms of the leases.
The Company's leases typically do not limit the Company's recourse against the
tenant and any guarantor in the event of a default, and for this reason are
considered "full-credit" leases. The Company's properties were 100 percent
leased at December 31, 1998.
A further description of the Company's business is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Item 6 of this Form 10-KSB.
The objectives of the Company are:
(1) to provide regular distributions to shareholders. The Company has
paid quarterly distributions to shareholders since July 1994 and
intends to continue paying quarterly distributions to shareholders.
Distribution payments may fluctuate during the life of the Company.
(2) to provide shareholders with long-term appreciation on their
investment. Management believes that the Company can realize its
objective of long-term appreciation of its property portfolio based on
the fact that most of the leases on the properties which the Company
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currently owns contain, and the Company expects that most of the leases
on the additional properties that it will acquire will contain,
periodic rent escalation provisions over the original and renewal terms
of such leases. Because the Company's properties are and are expected
to continue to be valued on the basis of their ability to produce
income, the Company believes that successive periodic rental income
increases resulting from such escalation provisions should increase the
value of the Company's properties over the long term. There is of
course no assurance the Company will in fact realize portfolio
appreciation.
(3) to conserve capital. The Company will attempt to conserve capital
by endeavoring to continue to invest in a diversified portfolio of
quality real estate under long-term leases to creditworthy tenants. The
amount of money raised in future offerings will affect the number of
properties the Company will be able to purchase. The more properties
the Company acquires, the more diversified it will be and the less it
will be affected by any single property that does not perform as
expected.
There is no assurance these objectives can be achieved.
The Merger
From 1993 to June 5, 1998, the Company and American Asset Advisers Realty
Corporation ("AAA") were party to an advisory agreement, pursuant to which AAA
provided certain management, advisory and acquisition services. AAA received an
annual fee, payable monthly, equal to 5% of rental income. Under the advisory
agreement, AAA generally was responsible for administering the day-to-day
investment operations of the Company, including investment analysis and
development, acquisitions, due diligence, and asset management and accounting
services. These duties included collecting rental payments, inspecting and
managing the properties, assisting the Company in responding to tenant inquiries
and notices, providing information to the Company about the status of the leases
and the properties, maintaining the Company's accounting books and records, and
preparing and filing various reports, returns or statements with various
regulatory agencies. In addition, AAA served as the Company's consultant in
connection with policy decisions to be made by the Board of Directors, managed
the Company's properties and rendered other services as the Board of Directors
deemed appropriate.
Historically, the Company did not have a large enough asset base to provide the
economies of scale needed to efficiently support the extensive general and
administrative expenses of an in-house management team. As a result, AAA had
incurred the full expense of a management and acquisition team while receiving
advisory and acquisition fees that have offset this expense. In 1997, however,
due to the Company's historical and anticipated growth, management believed that
the efficiencies derived from being externally advised had diminished and that
it would be more cost effective to become self-administered. As a result, at a
special meeting of the Company's Board of Directors held on December 31, 1997,
the Board of Directors, other than Mr. H. Kerr Taylor, who abstained from the
vote due to his interest in the transaction, approved an agreement and plan of
merger with AAA, which when approved by the shareholders of the Company on June
5, 1998 at a special meeting, resulted in the Company becoming a
self-administered and self-managed real estate investment trust. The Agreement
and Plan of Merger provided for the merger of AAA into a wholly owned subsidiary
of the Company pursuant to which all of the outstanding common stock of AAA was
exchanged for up to 900,000 shares (the "Share Consideration") of the Company's
common stock (the "Merger"). The common stock of AAA was wholly owned by the
president and director of the Company. Effective June 5, 1998, 213,260 shares
were issued and the balance (the "Share Balance") of the Share Consideration is
to be paid over a six year period to the extent certain goals are achieved after
the Merger. None of the Share Balance has been earned subsequent to June 5,
1998. Upon consummation of the Merger on June 5, 1998, certain employees of AAA
became employees of the Company, and any obligation to pay fees under the
advisor agreement between the Company and AAA was terminated.
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Properties
At December 31, 1998, the Company owned seventeen properties, eleven directly
and six through joint ventures, all in fee simple. Eight of these properties are
located in Texas, two each are located in Louisiana and Georgia and one each in
Arizona, Delaware, Kansas, Mississippi and Missouri. Although the specific terms
of each lease vary, a summary of the terms of the leases is as follows:
The primary term of the leases ranges from ten to twenty years. Fourteen of the
leases also provide for two to four five-year renewal options. The leases are
all "triple-net" leases under which the tenants are responsible for the property
taxes, insurance and operating costs. Annual rental income ranges from $59,641
to $406,648. Fifteen of the leases provide for either percentage rents based on
sales in excess of certain amounts, periodic escalations in the annual rental
rates or both.
As of December 31, 1998, three of the Company's properties each accounted for
more than 10% of the Company's total assets. Summarized as follows are the
significant items pertaining to each of these leases:
On July 1, 1998, the Company acquired a newly constructed property on lease to
Just For Feet, Inc. for a purchase price of $3,928,997. This 1.59 acre property
is being operated as a Just For Feet retail store on U.S. 59 at First Colony
Boulevard in Sugar Land, Texas. The improvements are a single-tenant retail
building that contains approximately 16,900 square feet. The lease agreement
extends for fifteen years, however the tenant has the option to renew the lease
for two additional terms of five years each. The lease has provisions for an
escalation in the rent after the fifth and tenth years of the lease. The Company
recorded $190,853 of revenue from this property in 1998.
On June 3, 1998, the Company acquired a newly constructed property on lease to
Just For Feet, Inc. for a purchase price of $3,751,555. This 2.561 acre property
is being operated as a Just For Feet retail store on Lake Woodlands Drive in The
Woodlands, Texas. The improvements are a single-tenant retail building that
contains approximately 16,900 square feet. The lease agreement extends for
fifteen years, however the tenant has the option to renew the lease for two
additional terms of five years each. The lease has provisions for an escalation
in the rent after the fifth and tenth years of the lease. The Company recorded
$213,851 of revenue from this property in 1998.
On September 11, 1996, the Company acquired a 51.9% interest in a newly
constructed property on lease to Just For Feet, Inc. through a joint venture
with two entities with common management for the combined purchase price of
$3,680,383. This 2.938 acre property is being operated as a Just For Feet retail
store on the northwest corner of North Oracle Road and Old Tucson Florence
Highway in Tucson, Arizona. The improvements are a single-tenant retail building
that contains approximately 15,200 square feet. The lease agreement extends for
twenty years, however the tenant has the option to renew the lease for two
additional terms of five years each. The lease has provisions for an escalation
in the rent after the fifth, tenth, and fifteenth years of the lease. The
Company recorded $406,648 of revenue from this property in 1998.
For information regarding the results of operations and financial condition of
Just For Feet, Inc. refer to their Annual Report on Form 10-K as filed with the
Securities and Exchange Commission for the year ended January 31, 1998.
The Company's leases specify the amount, if any, of insurance coverage required
to be carried by each tenant. Management of the Company believes that the
insurance policies required to be carried by the tenants combined with the
insurance carried by the Company will adequately cover the replacement cost of
the properties and any personal liability losses which the Company may sustain.
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Financing - Borrowing Policies
The Company may incur unsecured and secured borrowings, so long as the total
amounts of such borrowings do not exceed 300% of the Company's net assets on a
consolidated basis.
Competitive Conditions
The Company generally competes with other REIT's, real estate limited
partnerships and other investors, including, but not limited to, insurance
companies, pension funds and financial institutions, in the acquisition,
leasing, financing and disposition of investments in net-leased retail
properties.
Employees
At December 31, 1998, the Company had 8 employees, of which all were full-time
employees.
Item 2. Description of Property
At December 31, 1998, the Company owned seventeen properties in fee simple,
eleven directly and six through joint ventures with related parties. Properties
are located in Texas, Georgia, Arizona, Missouri, Louisiana, Delaware,
Mississippi and Kansas. Reference is made to the Schedule III - Consolidated
Real Estate Owned and Accumulated Depreciation filed with this Form 10-KSB for a
listing of the properties and their respective costs.
Land - The Company's property sites range from approximately 34,000 to 125,000
square feet, depending upon building size and local demographic factors. Sites
purchased by the Company are in high traffic corridors and have been reviewed
for traffic and demographic pattern and history.
Buildings - The buildings are all single tenant and are generally rectangular.
They are positioned for good exposure to traffic flow and are constructed from
various combinations of stucco, steel, wood, brick and tile. Buildings range
from approximately 2,350 to 24,000 square feet. Buildings are suitable for
possible conversion to various uses, although modifications may be required
prior to use for other operations. There are no plans for renovations or
improvements.
Leases - The primary term of the leases ranges from ten to twenty years.
Fourteen of the leases also provide for two to four five-year renewal options.
The leases are all "triple-net" leases whereby the tenants are responsible for
the property taxes, insurance and operating costs. Annual rental income ranges
from $59,641 to $406,648. Fifteen of the leases provide for either percentage
rents based on sales in excess of certain amounts, periodic escalations in the
annual rental rates or both.
Geographic Location - The properties are generally located within major
metropolitan areas (Standard Metropolitan Statistical Areas) with populations
that exceed 250,000. For additional information, see Note 6 to the financial
statements included in this Form 10-KSB.
As of December 31, 1998, a total of $32,667,057 has been invested in properties
by the Company on a consolidated basis. This includes land, building and
acquisition costs. A further description of the Company properties, including
acquisition fees and certain acquisition expenses, is included in Item 1
"Properties" and in Schedule III - Consolidated Real Estate Owned and
Accumulated Depreciation of this Form 10-KSB.
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Item 3. Legal Proceedings
The Company does not have any material legal proceedings pending.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to shareholders during the fourth quarter of the
fiscal year.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
As of March 24, 1999, there were approximately 1,065 record holders of 2,372,744
shares of the Company's common stock, net of 11,373 shares held in treasury. No
established public trading market currently exists for the stock.
For the years ended December 31, 1998 and 1997, the Company paid distributions
of $1,591,545 and $1,093,439, respectively. A summary of the distributions by
quarter is as follows:
Quarter Ended 1998 1997
------------- ---- ----
March 31 $ 341,965 $ 227,387
June 30 387,634 257,901
September 30 428,990 289,679
December 31 432,956 318,472
The second quarter of 1994 marked the beginning of the Company's regular
operations and, consequently, the beginning of regular quarterly distribution
payments. The Company intends to continue the payment of regular quarterly
distributions. Other than certain loan covenants, there are currently no
material legal restrictions that would limit the Company's ability to pay
distributions.
For every two shares of stock acquired pursuant to the Company's initial public
offering, an investor also received one warrant. These warrants were exercisable
at $9 per share between March 17, 1997 and March 15, 1998. A total of 57,316
shares were issued from the exercise of the Warrants.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The Company is a fully integrated, self-administered real estate investment
trust. The Company was organized on August 17, 1993 to acquire, either directly
or through joint venture arrangements, undeveloped, newly constructed and
existing net-lease real estate that is located primarily on corner or out-parcel
locations in strong commercial corridors, to lease on a net-lease basis to major
retail businesses and to hold the properties with the expectation of equity
appreciation producing a steadily rising income stream for its shareholders.
Through a wholly-owned subsidiary, the Company also provides advisory services
to eleven real estate limited partnerships.
Liquidity and Capital Resources
Cash flow from operations has been the principal source of capital to fund the
Company's ongoing operations. The Company's issuance of common stock and the use
of the Company's credit facility have been the principal sources of capital
required to fund its growth.
In order to continue to expand and develop its portfolio of properties and other
investments, the Company intends to finance future acquisitions and growth
through the most advantageous sources of capital available to the Company at the
time. Such capital sources may include proceeds from public or private offerings
of the Company's debt or equity securities, secured or unsecured borrowings from
banks or other lenders, or the disposition of assets, as well as undistributed
funds from operations. For the years ended December 31, 1998 and 1997, the
Company generated $1,510,069 and $1,080,157, respectively, in net cash provided
by operating activities.
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The Company's leases typically provide that the tenant bears responsibility for
substantially all property costs and expenses associated with ongoing
maintenance and operation, including utilities, property taxes and insurance. In
addition, the Company's leases generally provide that the tenant is responsible
for roof and structural repairs. Certain of the Company's properties are subject
to leases under which the Company retains responsibility for certain costs and
expenses associated with the property. Because many of the properties which are
subject to leases that place these responsibilities on the Company are recently
constructed, management anticipates that capital demands to meet obligations
with respect to these properties will be minimal for the foreseeable future and
can be met with funds from operations and working capital. The Company may be
required to use bank borrowing or other sources of capital in the event of
unforeseen significant capital expenditures.
The initial issuance of 20,001 shares of stock for $200,010 was to AAA. On March
17, 1994, the Company commenced an offering of 2,000,000 Shares of Common Stock,
together with 1,000,000 Warrants (collectively "Securities"). Until the
completion of the offering in March 1996, the Securities were offered on the
basis of two (2) Shares of Common Stock and one (1) Warrant for a total purchase
price of $20.00. The Shares and Warrants are separately transferable by an
investor. Each Warrant entitled the holder to purchase one Share for $9.00 until
March 15, 1998. The offering period for the initial public offering terminated
on March 15, 1996 with gross proceeds totaling $10,082,520 (1,008,252 shares).
In addition, $515,844 (57,316 shares) was received from the exercise of the
Warrants. On June 18, 1996, the Company commenced a follow-on offering of up to
$29,250,000 (2,853,659 shares) of additional shares of its common stock. The
offering terminated on May 22, 1998 with gross proceeds totaling $10,827,300
(1,056,946 shares).
In December 1997, the Company entered into an amended and restated unsecured
revolving credit facility (the "Amended Credit Facility") with a borrowing
capacity up to $15 million. The actual amount available to the Company was
dependent on certain covenants such as the value of unencumbered assets. The
Amended Credit Facility bore interest at 2.00% over varying London Interbank
Offered Rates and it was being used to acquire additional properties. The
Amended Credit Facility was terminated in November 1998.
In November 1998, the Company entered into an unsecured credit facility (the
"Credit Facility"), which is being used to provide funds for the acquisition of
properties and working capital, and repaid all amounts outstanding under the
Company's prior credit facility. Under the Credit Facility, which has a one year
term, the Company may borrow up to $30 million subject to the value of
unencumbered assets. The Credit Facility contains covenants which, among other
restrictions, require the Company to maintain a minimum net worth, a maximum
leverage ratio, and specified interest coverage and fixed charge coverage
ratios. The Credit Facility bears interest at an annual rate of LIBOR plus a
spread ranging from 1.625% to 2.150%, set quarterly depending on the Company's
leverage ratio. As of December 31, 1998, $10,580,110 was outstanding under the
Credit Facility.
As of December 31, 1998, the Company had acquired eleven properties directly and
six properties through joint ventures with entities with common management and
had invested $27,348,958, exclusive of any minority interests, including certain
acquisition expenses related to the Company's investment in these properties.
These expenditures resulted in a corresponding decrease in the Company's
liquidity.
Until properties are acquired by the Company, proceeds are held in short-term,
highly liquid investments which the Company believes to have appropriate safety
of principal. This investment strategy has allowed, and continues to allow, high
liquidity to facilitate the Company's use of these funds to acquire properties
at such time as properties suitable for acquisition are located. At December 31,
1998, the Company's cash and cash equivalents totaled $48,520.
The Company made cash distributions to the Shareholders during each quarter of
1998 and 1997, distributing a total of $1,591,545 and $1,093,439, respectively,
for each such fiscal year.
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Inflation has had very little effect on income from operations. Management
expects that increases in store sales volumes due to inflation as well as
increases in the Consumer Price Index (C.P.I.), may contribute to capital
appreciation of the Company properties. These factors, however, also may have an
adverse impact on the operating margins of the tenants of the properties.
Funds From Operations
Funds from operations (FFO) increased $468,301 or 48% to $1,436,063 in 1998 from
$967,762 in 1997. The Company has adopted the National Association of Real
Estate Investment Trusts (NAREIT) definition of FFO. FFO is calculated as net
income (computed in accordance with generally accepted accounting principles)
excluding gains or losses from sales of property, depreciation and amortization
of real estate assets, and nonrecurring items of income or expense. For purposes
of the table below, FFO excludes nonrecurring merger costs and potential
acquisition costs. Management considers FFO an appropriate measure of
performance of an equity REIT because it is predicated on a cash flow analysis.
FFO does not represent cash provided by operating activities in accordance with
generally accepted accounting principles and is not necessarily indicative of
cash available to meet cash needs. The Company's computation of FFO may differ
from the methodology for calculating FFO utilized by other equity REIT's and,
therefore, may not be comparable to such other REIT's. FFO is not defined by
generally accepted accounting principles and should not be considered an
alternative to net income as an indication of the Company's performance.
Below is the reconciliation of net income to funds from operations:
1998 1997
---- ----
Net income (loss) $(1,805,786) $ 538,857
Plus depreciation of real estate assets 349,888 146,015
Plus merger costs 2,427,658 282,890
Plus potential acquisition costs 464,303 -
----------- -----------
Total funds from operations $ 1,436,063 $ 967,762
=========== ===========
Cash distributions paid $ 1,591,545 $ 1,093,439
Distributions in excess of FFO $ 155,482 $ 125,677
Cash flows from operating activities, investing activities, and financing
activities are presented below:
1998 1997
---- ----
Operating activities $ 1,510,069 $ 1,080,157
Investing activities $ (7,687,454) $(11,708,075)
Financing activities $ 4,824,165 $ 10,413,347
Results of Operations
Years Ended December 31, 1998 and 1997:
During the years ended December 31, 1998 and 1997, the Company owned and leased
17 and 11 properties, respectively. During the years ended December 31, 1998 and
1997, the Company earned $2,741,757 and $1,556,815, respectively, in rental
income from operating leases and earned income from direct financing leases. The
76 percent increase in rental income and earned income during 1998, as compared
to 1997, is primarily attributable to rental income earned on the six properties
acquired during 1998. In addition, rental and earned income increased during
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1998 as a result of the fact that the three properties acquired during 1997 were
operational for a full fiscal year in 1998. Rental and earned income is expected
to increase in 1999 as the Company acquires additional properties and due to the
fact that the six properties acquired during 1998 will contribute to the
Company's income for a full fiscal year in 1999.
During the years ended December 31, 1998 and 1997, the Company's expenses were
$4,315,253 and $716,627, respectively. The $3,598,626 increase in expenses is
primarily attributable to $2,427,658 of merger costs incurred during 1998
related to the acquisition of the Company's advisor, AAA, on June 5, 1998. The
increase is also attributable to (i) $464,303 increase in costs incurred during
1998 related to potential acquisition costs related to the proposed acquisition
of properties, (ii) a $209,099 increase in depreciation as a result of the
depreciation of the additional properties owned during 1998, and (iii) a
$396,707 increase in interest expense as a result of higher average borrowing
levels. In addition, the increase in expenses is attributable to a $449,646
increase in general operating and administrative expenses. Pursuant to the
Merger, the Company acquired AAA and became internally managed. Effective June
5, 1998, the reimbursements and fees paid to AAA were replaced with the actual
personnel and other operating costs associated with being internally managed.
Year 2000 Compliance
The Year 2000 problem ("Y2K") concerns the inability of information and
non-information technology systems to properly recognize and process
date-sensitive information beyond January 1, 2000. The Company's information
technology system consists of a network of personal computers and servers built
using hardware and software from mainstream suppliers. The Company has no
internally generated programmed software coding to correct, as all of the
software utilized by the Company is purchased or licensed from external
providers.
In 1998, the Company formed a Year 2000 committee (the "Y2K Team") for the
purpose of identifying, understanding and addressing the various issues
associated with the Year 2000 problems. The Y2K Team consists of members from
the Company, including representatives from senior management, accounting and
computer consultants. The Y2K Team's initial step in assessing the Company's Y2K
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have potential Y2K problems. The Y2K Team is in the process
of conducting inspections, interviews and tests to identify which of the
Company's systems could have a potential Y2K problem.
The Company's information system is comprised of hardware and software
applications from mainstream suppliers; accordingly, the Y2K Team is in the
process of contacting the respective vendors and manufacturers to verify the Y2K
compliance of their products. In addition, the Y2K Team has also requested and
is evaluating documentation from other companies with which the Company has a
material third party relationship, including the Company's tenants, major
vendors, financial institutions and the Company's transfer agent. The Company
depends on its tenants for rents and cash flows, its financial institutions for
availability of cash and financing and its transfer agent to maintain and track
investor information. Although the Company continues to receive positive
responses from its third party relationships regarding their Y2K compliance, the
Company cannot be assured that the tenants, financial institutions, transfer
agent and other vendors have adequately considered the impact of the Year 2000.
The Company does not expect the Y2K impact of third parties to have a materially
adverse effect on its results of operation or financial position.
The Company has identified and has implemented upgrades for certain hardware
equipment. In addition, the Company has identified certain software applications
which will require upgrades to become Year 2000 compliant. The Company expects
all of these upgrades as well as any other necessary remedial measures on the
information technology systems used in the business activities and operations of
the Company to be completed by September 30, 1999. The Company does not expect
the aggregate cost of the Year 2000 remedial measures to exceed $10,000.
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Based upon the progress the Company has made in addressing its Year 2000 issues,
the Company does not foresee significant risks associated with its Year 2000
compliance at this time. The Company plans to address its significant Year 2000
issues prior to being affected by them; therefore, it has not developed a
comprehensive contingency plan. However, if the Company identifies significant
risks related to its Year 2000 compliance, the Company will develop contingency
plans as deemed necessary at that time.
Forward-Looking Statements
Certain information presented in this Form 10-KSB constitutes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Although the Company
believes that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, the Company's actual results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference include the following: changes in
general economic conditions, changes in real estate market conditions, continued
availability of proceeds from the Company's debt or equity capital, the ability
of the Company to locate suitable tenants for its properties and the ability of
tenants to make payments under their respective leases.
Item 7. Financial Statements.
The response to this item is submitted in Item 13(a) of this report and is
incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
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PART III
Item 9. Directors and Executive Officers
Reference is made to the Company's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14(a).
Item 10. Executive Compensation
Reference is made to the Company's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14(a).
Item 11. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the Company's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14(a).
Item 12. Certain Relationships and Related Transactions
Reference is made to the Company's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14(a).
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PART IV
Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a) (1) Financial Statements
Independent Auditors' Report
Consolidated Balance Sheet, December 31, 1998
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997
Notes to Consolidated Financial Statements for the Years
Ended December 31, 1998 and 1997
(2) Financial Statement Schedules: See (d) below
(3) Exhibits See (c) below
(b) Reports on Form 8-K filed after September 30, 1998:
None
(c) Exhibits
3.1 Articles of Incorporation (included as Exhibit 3.1 of the
Exhibits to Registration Statement No. 33-70654 of the
Company and incorporated herein by reference).
3.2 Articles of Amendment to the Articles of Incorporation
(included as Exhibit 3 (ii) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994
and incorporated herein by reference).
3.3 Articles of Amendment to the Articles of Incorporation
dated December 16, 1997 (included as Exhibit 3 (v) of the
Exhibits to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997 and incorporated
herein by reference).
3.4 Amended and Restated By-Laws, dated November 12, 1997
(included as Exhibit 3 (vi) of the Exhibits to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997 and incorporated herein by reference).
4 Form of Sales Warrant (included as Exhibit 4.3 to
Registration Statement No. 33-70654 of Company and
incorporated herein by reference).
10.1 Lease between Ironwood Development Corporation, as
landlord and Tandy Corporation, a Delaware corporation,
dated August, 1991 (included as Exhibit 10 (b) (2) of the
Exhibits to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein
by reference).
14
<PAGE>
10.2 Assignment and Assumption of the Lease between Ironwood
Development Corporation and American Asset Advisers
Trust, Inc., dated June 14, 1994 (included as Exhibit 10
(b) (1) of the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference).
10.3 Assignment of Guaranties and Warranties from Ironwood
Development Corporation to American Asset Advisers Trust,
Inc., dated June 14, 1994 (included as Exhibit 10 (b) (4)
of the Exhibits to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.4 Real Estate Sales Agreement between America's Favorite
Chicken Company and AAA Net Realty Fund X, Ltd., dated
June 13, 1994 (included as Exhibit 10 (b) (5) of the
Exhibits to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein
by reference).
10.5 Lease (the "AFCC Lease") between AAA Net Realty Fund X,
Ltd., as landlord and America's Favorite Chicken Company,
as tenant, dated June 13, 1994 (included as Exhibit 10
(b) (6) of the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.6 Assignment of the Agreement and the Lease form AAA Net
Realty Fund X, Ltd. to American Asset Advisers Trust,
Inc. (included as Exhibit 10 (b) (7) of the Exhibits to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by
reference).
10.7 First Amendment to AFCC Lease, dated July 22, 1994
(included as Exhibit 10 (b) (8) of the Exhibits to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference).
10.8 Agreement for Purchase and Sale of Real Estate (the "KCBB
Contract") between KCBB, Inc. and AAA Net Realty Fund X,
Ltd., dated October 12, 1994 (included as Exhibit 10 (b)
(9) of the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.9 Lease (the "KCBB Lease") between KCBB, Inc., as landlord
and Sound Warehouse, Inc., as tenant, dated November 19,
1993 (included as Exhibit 10 (b) (10) of the Exhibits to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by
reference).
10.10 Guaranty of KCBB Lease by Blockbuster Entertainment
Corporation (included as Exhibit 10 (b) (11) of the
Exhibits to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein
by reference).
10.11 Amendment to the KCBB Contract (included as Exhibit 10
(b) (12) of the Exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
15
<PAGE>
10.12 Joint Venture Agreement between the Company and AAA Net
Realty Fund X, Ltd., dated October 27, 1994 (included as
Exhibit 10 (b) (3) of the Exhibits to the Company's
Annual Report on Form 10-K for the year ended December
31, 1994, and incorporated herein by reference).
10.13 Assignment and Assumption of the Lease between KCBB, Inc.
and AAA Joint Venture 94-1, dated November 11, 1994
(included as Exhibit 10 (b) (4) of the Exhibits to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994, and incorporated herein by reference).
10.14 Assignment from KCBB, Inc. to AAA Joint Venture 94-1,
dated November 11, 1994 (included as Exhibit 10 (b) (15)
of the Exhibits to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.15 Assignment from KCBB, Inc., to AAA Joint Venture 94-1 of
warranties, dated November 11, 1994 (included as Exhibit
10 (b) (16) of the Exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
and incorporated herein by reference).
10.16 Agreement for Purchase and Sale of Real Estate (the "KCBB
Contract II") between KCBB, Inc. and the Company, dated
August 9, 1995 (included as Exhibit 10 (b) (17) of the
Exhibits to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein
by reference).
10.17 Lease (the "KCBB Lease II") between KCBB, Inc., as
landlord and Blockbuster Music Retail, Inc., as tenant,
dated August 9, 1995 (included as Exhibit 10 (b) (18) of
the Exhibits to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated
herein by reference).
10.18 Amendment to Agreement for Purchase and Sale of Real
Estate Assigning Agreement to AAA Joint Venture 95-2
(included as Exhibit 10 (b) (19) of the Exhibits to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference).
10.19 Joint Venture Agreement between the Company and AAA Net
Realty Fund XI, Ltd., dated August 24, 1995 (included as
Exhibit 10 (b) (20) of the Exhibits to the Company's
Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference).
10.20 Assignment and Assumption of the KCBB Lease II between
KCBB, Inc. and AAA Joint Venture 95-2, dated September
12, 1995 (included as Exhibit 10 (b) (21) of the Exhibits
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by
reference).
10.21 Assignment from KCBB, Inc. to AAA Joint Venture 95-2 of
Contracts and Warranties, dated September 12, 1995
(included as Exhibit 10 (b) (22) of the Exhibits to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference).
16
<PAGE>
10.22 Agreement for the Purchase and Sale of Real Estate
between Turner Adreac, L.C. and the Company, dated March
31, 1995 (included as Exhibit 10 (b) (23) of the Exhibits
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by
reference).
10.23 Assignment of Rents, Leases and Profits from
Turner Adreac, L.C. to American Asset Advisers
Trust, Inc., dated March 31, 1995 (included as
Exhibit 10 (b) (24) of the Exhibits to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by
reference).
10.24 Lease (the AOneCare Lease@) between Turner Adreac,
L.C. and OneCare Health Industries, Inc., a Texas
non-profit corporation, dated February 17, 1995
(included as Exhibit 10 (b) (25) of the Exhibits
to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated
herein by reference).
10.25 Assignment and Assumption of the OneCare Lease
between Turner Adreac, L.C. and American Asset
Advisers Trust, Inc., dated September 26, 1995
(included as Exhibit 10 (b) (26) of the Exhibits
to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated
herein by reference).
10.26 Assignment of Warranties from Turner Adreac, L.C. to the
Company, dated September 26, 1995 (included as Exhibit 10
(b) (27) of the Exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.27 Agreement for Purchase and Sale of Real Estate
between Company and Tucson Oracle Limited
Partnership (AZ LP), dated January 19, 1996
(included as Exhibit 10 (b) (28) of the Exhibits
to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated
herein by reference).
10.28 First Amendment to Agreement for the Purchase and
Sale of Real Estate between Company and Tucson
Oracle Limited Partnership (AZ LP), dated June 10,
1996 (included as Exhibit 10 (b) (29) of the
Exhibits to the Company's Annual Report on Form
10-K for the year ended December 31, 1996 and
incorporated herein by reference).
10.29 Lease (the "Just For Feet Lease") between
Cumberland America Development Company, Inc. and
Just for Feet, Inc., dated August 10, 1995
(included as Exhibit 10 (b) (30) of the Exhibits
to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 and incorporated
herein by reference).
10.30 First Amendment to Just For Feet Lease, dated February
29, 1996 (included as Exhibit 10 (b) (31) of the Exhibits
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by
reference).
10.31 Second Amendment to Just For Feet Lease, dated May 29,
1996 (included as Exhibit 10 (b) (32) of the Exhibits to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by
reference).
17
<PAGE>
10.32 Third Amendment to Just For Feet Lease, dated January,
1997 (included as Exhibit 10 (b) (33) of the Exhibits to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by
reference).
10.33 Joint Venture Agreement between the Company and
AAA Net Realty Fund X, Ltd. and AAA Net Realty
Fund XI, Ltd., dated April 5, 1996 (included as
Exhibit 10 (b) (34) of the Exhibits to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by
reference).
10.34 Bill of Sale and Assignment between Tucson Oracle Limited
Partnership and AAA Joint Venture 96-1, dated September
6, 1996 (included as Exhibit 10 (b) (35) of the Exhibits
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by
reference).
10.35 Joint Venture Agreement between the Company and AAA Net
Realty Fund XI, Ltd., dated August 8, 1996 (included as
Exhibit 10 (b) (36) of the Exhibits to the Company's
Annual Report on Form 10-K for the year ended December
31, 1996 and incorporated herein by reference).
10.36 Revolving Credit Agreement, dated November 6,
1998, by and among AmREIT, Inc., certain lenders
and Wells Fargo Bank, as the Agent, relating to a
$30,000,000 loan (included as Exhibit 10.1 of the
Exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1998
and incorporated herein by reference).
11 Computation of earnings per common share.
21 Subsidiaries of the Company.
27 Financial Data Schedule.
Items 5, 6 and 7 of Part II and Item 13 of Part IV of this Form 10-KSB contain
the financial statements, financial statement schedule and other financial
information. No Annual Report or proxy material has yet been provided to
security holders with respect to 1999.
(d) Financial Statements Schedules
Schedule III - Consolidated Real Estate Owned and Accumulated
Depreciation
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Issuer has duly caused this report to be signed on its behalf
on the 31st of March 1999 by the undersigned, thereunto duly authorized.
AmREIT, Inc.
/s/ H. Kerr Taylor
------------------
H. Kerr Taylor, President and
Chief 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 Issuer and in
the capacities and on the dates indicated.
/s/ H. Kerr Taylor March 31, 1999
- ------------------
H. KERR TAYLOR
President, Chairman of the Board, Chief Executive
Officer and Director (Principal Executive Officer)
/s/ Robert S. Cartwright, Jr. March 31, 1999
- -----------------------------
ROBERT S. CARTWRIGHT, JR., Director
/s/ George A. McCanse, Jr. March 31, 1999
- --------------------------
GEORGE A. McCANSE, JR., Director
/s/ L. Larry Mangum March 31, 1999
- -------------------
L. LARRY MANGUM, Chief Financial Officer and
Treasurer (Principal Accounting Officer)
19
<PAGE>
ANNUAL REPORT ON FORM 10-KSB
ITEMS 7, 13(a)(1) AND (2) AND 13(d)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FINANCIAL STATEMENT SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 1998
AMREIT, INC. AND SUBSIDARIES
F-1
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
FINANCIAL STATEMENTS:
Independent Auditors' Report F-3
Consolidated Balance Sheet, December 31, 1998 F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997 F-5
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1998 and 1997 F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 F-7
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1998 and 1997 F-8 to F-16
FINANCIAL STATEMENT SCHEDULE:
Schedule III Consolidated Real Estate Owned and Accumulated
Depreciation for the Year Ended December 31, 1998 F-17
All other financial statement schedules are omitted as the required information
is either inapplicable or is included in the financial statements or related
notes.
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
AmREIT, Inc.
We have audited the accompanying consolidated balance sheet of AmREIT, Inc. and
subsidiaries (the "Company") as of December 31, 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the two years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1998, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Houston, Texas
March 12, 1999
F-3
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Cash and cash equivalents $ 48,520
Accounts receivable 13,138
Prepaid expenses 13,534
Investment in joint venture 362,149
Property:
Escrow deposits 10,000
Land 11,663,291
Buildings 17,832,096
Furniture, fixtures and equipment 68,979
---------------
29,574,366
Accumulated depreciation (696,384)
---------------
Total property 28,877,982
---------------
Net investment in direct financing leases 3,171,670
Other assets:
Preacquisition costs 355,623
Accrued rental income 245,588
Other 49,342
---------------
Total other assets 650,553
---------------
TOTAL ASSETS $ 33,137,546
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Note payable $ 10,580,110
Accounts payable 201,279
Security deposit 15,050
---------------
TOTAL LIABILITIES 10,796,439
---------------
Minority interest 5,218,999
Commitments (Note 11)
Shareholders' equity:
Preferred stock, $.01 par value,
10,001,000 shares authorized, none issued
Common stock, $.01 par value,
100,010,000 shares authorized,
2,384,117 shares issued 23,841
Capital in excess of par value 21,655,867
Accumulated distributions in excess of earnings (4,451,107)
Cost of treasury stock, 11,373 shares (106,493)
---------------
TOTAL SHAREHOLDERS' EQUITY 17,122,108
---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 33,137,546
===============
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
1998 1997
---- ----
Revenues:
Rental income from operating leases $ 2,401,048 $ 1,217,187
Earned income from direct financing leases 340,709 339,628
Interest income 98,692 153,895
Service fees and other income 187,577 -
------- -------
Total revenues 3,028,026 1,710,710
--------- ---------
Expenses:
General operating and administrative 562,110 112,464
Reimbursements and fees to related party 40,607 106,504
Interest 402,707 6,000
Depreciation 355,114 146,015
Amortization 62,754 62,754
Merger costs (Note 8) 2,427,658 282,890
Potential acquisition costs 464,303 -
------- -------
Total expenses 4,315,253 716,627
--------- -------
Income (loss) before minority interest
in net income of consolidated joint ventures (1,287,227) 994,083
Minority interest in net income of
consolidated joint ventures (518,559) (455,226)
-------- --------
Net income (loss) $ (1,805,786) $ 538,857
============= =============
Basic earnings (loss) per share $ (0.81) $ 0.34
============= =============
Diluted earnings (loss) per share $ (0.81) $ 0.33
============= =============
Weighted average number of common
shares outstanding 2,226,403 1,563,048
========= =========
Weighted average number of common
shares outstanding
plus dilutive potential common shares 2,226,403 1,624,217
========= =========
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Capital in distributions Cost of
Common Stock excess of in excess of treasury
Number Amount par value earnings stock Total
------ ------ --------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,204,925 $ 12,049 $ 10,780,847 $ (499,194) $ - $ 10,293,702
Net income - - - 538,857 - 538,857
Distributions ($.72 per share) - - - (1,093,439) - (1,093,439)
Issuance of common stock 663,288 6,633 6,783,642 - - 6,790,275
Stock issuance costs - - (899,189) - - (899,189)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1997 1,868,213 18,682 16,665,300 (1,053,776) - 15,630,206
Net income (loss) - - - (1,805,786) - (1,805,786)
Distributions ($.73 per share) - - - (1,591,545) - (1,591,545)
Issuance of common stock 515,904 5,159 5,252,768 - - 5,257,927
Stock issuance costs - - (262,201) - - (262,201)
Cost of treasury stock, 11,373 shares - - - - (106,493) (106,493)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1998 2,384,117 $ 23,841 $ 21,655,867 $ (4,451,107) $(106,493) $ 17,122,108
========= ======== ============ ============ ========= ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1998 1997
---- ----
Cash flows from operating activities:
Net income (loss) $ (1,805,786) $ 538,857
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Amortization 62,754 62,754
Depreciation 355,114 146,015
Merger costs 2,283,322 -
Decrease (increase) in accounts
receivable 111,462 (119,481)
Increase in prepaid expenses (13,534) -
Increase in accounts payable 106,961 72,588
Cash receipts from direct
financing leases less than
income recognized (10,474) (9,398)
Decrease in escrow deposits,
net of minority interest
partners 1,100 27,150
Increase in accrued rental income (77,409) (93,554)
Increase in other assets (22,000) -
Increase in minority interest 518,559 455,226
------- -------
Net cash provided by operating
activities 1,510,069 1,080,157
--------- ---------
Cash flows from investing activities:
Acquisition of real estate (7,337,349) (11,409,725)
Additions of furniture, fixtures
and equipment (5,019) -
Investment in joint venture (362,149) -
Change in preacquisition costs 17,063 (298,350)
------ --------
Net cash used in investing activities (7,687,454) (11,708,075)
---------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock, net 2,480,782 5,891,086
Common stock repurchases (106,493) -
Prepaid issuance costs - 101,399
Proceeds from note payable 4,601,778 5,981,489
Distributions paid to shareholders (1,591,545) (1,093,439)
Distributions to minority interest
partners (560,357) (467,188)
-------- --------
Net cash provided by financing
activities 4,824,165 10,413,347
--------- ----------
Net decrease in cash and cash equivalents (1,353,220) (214,571)
Cash and cash equivalents at beginning
of year 1,401,740 1,616,311
--------- ---------
Cash and cash equivalents at end of year $ 48,520 $ 1,401,740
============== ===============
Supplemental disclosure of non-cash
financing activities:
Real estate and escrow deposit
contributed by partners of the
consolidated joint ventures
(minority interest) $ - $ 1,677,659
============== ===============
Issuance of stock in lieu of note payment $ 270,564 $ -
============== ===============
Issuance of stock in connection with Merger $ 2,244,380 $ -
============== ===============
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
AmREIT, Inc., formerly American Asset Advisers Trust, Inc. ("Issuer" or the
"Company"), was incorporated in the state of Maryland on August 17, 1993. The
Company is a real estate investment trust (a "REIT") that acquires, develops,
owns and manages high-quality, freestanding properties leased to major retail
businesses under long-term commercial net leases. Through a wholly-owned
subsidiary, the Company also provides advisory services to eleven real estate
limited partnerships.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of AmREIT, Inc., its
wholly-owned subsidiaries, AmREIT Realty Investment Corporation ("ARIC"), AmREIT
Operating Corporation ("AOC"), and AmREIT Opportunity Corporation ("AOP"), and
its six joint ventures with related parties. The three subsidiaries were formed
in June, July and April 1998, respectively. ARIC was organized to acquire,
develop, hold and sell real estate in the short-term for capital gains and/or
receive fee income. The Company owns 100% of the outstanding preferred shares of
ARIC. The preferred shares are entitled to receive dividends equal to 95% of net
income and are expected to be paid from cash flows, if any. AOC and AOP were
formed with the intention to qualify and to operate as a real estate investment
trust under federal tax laws. All significant intercompany accounts and
transactions have been eliminated in consolidation. The Company owns greater
than 50% of the aforementioned joint ventures and exercises control over
operations.
BASIS OF ACCOUNTING
The financial records of the Company are maintained on the accrual basis of
accounting whereby revenues are recognized when earned and expenses are recorded
when incurred.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds.
REAL ESTATE
Real estate is leased to others on a net lease basis whereby all operating
expenses related to the properties, including property taxes, insurance and
common area maintenance are the responsibility of the tenant. The leases are
accounted for under the operating method or the direct financing method.
F-8
<PAGE>
Under the operating method, the properties are recorded at cost. Rental income
is recognized ratably over the life of the lease and depreciation is charged
based upon the estimated useful life of the property. Under the direct financing
method, properties are recorded at their net investment (see Note 3). Unearned
income is deferred and amortized to income over the life of the lease so as to
produce a constant periodic rate of return.
Expenditures related to the development of real estate are carried at cost plus
capitalized carrying charges, acquisition costs and development costs. Carrying
charges, primarily interest and loan acquisition costs, and direct and indirect
development costs related to buildings under construction are capitalized as
part of construction in progress. The Company capitalizes acquisition costs once
the acquisition of the property becomes probable. Interest of $316,492 and
$155,108 was capitalized on properties under construction during 1998 and 1997,
respectively.
Management reviews its properties for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets, including accrued
rental income, may not be recoverable through operations. Management determines
whether an impairment in value occurred by comparing the estimated future cash
flows (undiscounted and without interest charges), including the residual value
of the property, with the carrying cost of the individual property. If an
impairment is indicated, a loss will be recorded for the amount by which the
carrying value of the asset exceeds its fair value.
DEPRECIATION
Buildings are depreciated using the straight-line method over an estimated
useful life of 39 years.
OTHER ASSETS
Other assets include organization costs and loan acquisition costs. Organization
costs of $313,768 incurred in the formation of the Company are amortized on a
straight-line basis over five years. Accumulated amortization related to
organization costs as of December 31, 1998 totaled $286,426. Loan acquisition
costs of $24,000 incurred in obtaining property financing are amortized to
interest expense on a straight-line basis over the term of the debt agreements.
Accumulated amortization related to loan acquisition costs as of December 31,
1998 totaled $2,000.
STOCK ISSUANCE COSTS
Issuance costs incurred in the raising of capital through the sale of common
stock are treated as a reduction of shareholders' equity.
STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
There has been no cash paid for income taxes during 1998 or 1997. During 1998
and 1997, the Company paid interest of $635,177 and $149,108, respectively, of
which $316,492 and $149,108 were capitalized on properties under construction.
F-9
<PAGE>
FEDERAL INCOME TAXES
The Company is qualified as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, and is, therefore, not subject to Federal income
taxes provided it meets all conditions specified by the Internal Revenue Code
for retaining its REIT status, including the requirement that at least 95% of
its real estate investment trust taxable income is distributed by March 15 of
the following year.
EARNINGS PER SHARE
Basic earnings per share has been computed by dividing net income to common
shareholders by the weighted average number of common shares outstanding.
Diluted earnings per share has been computed by dividing net income to common
shareholders (as adjusted) by the weighted average number of common shares
outstanding plus dilutive potential common shares.
The following table presents information necessary to calculate basic and
diluted earnings per share for the periods indicated:
For the Year Ended December 31,
1998 1997
---- ----
BASIC EARNINGS (LOSS) PER SHARE
Weighted average common shares
outstanding 2,226,403 1,563,048
============ ============
Basic earnings (loss) per share $ (.81) $ .34
============ ============
DILUTED EARNINGS (LOSS) PER SHARE
Weighted average common shares
outstanding 2,226,403 1,563,048
Shares issuable from assumed
conversion of warrants - 61,169
------------ ------------
Weighted average common shares
outstanding, as adjusted 2,226,403 1,624,217
============ ============
Diluted earnings (loss)
per share $ (.81) $ .33
============ ============
EARNINGS (LOSS) FOR BASIC AND DILUTED
COMPUTATION
Net income (loss) to common
shareholders (basic and diluted
earnings per share computation) $ (1,805,786) $ 538,857
============ ============
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes the carrying value of financial instruments consisting of
cash, cash equivalents, accounts receivable and accounts and notes payable
approximate their fair value.
F-10
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Statement, which is effective for all Fiscal
quarters of fiscal years beginning after June 1, 1999, establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. The Statement requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The Company is currently reviewing
the Statement to see what impact, if any, it will have on the Company's
consolidated financial statements.
2. OPERATING LEASES
A summary of minimum future rentals, exclusive of any renewals, under
noncancellable operating leases in existence at December 31, 1998 is as follows:
1999 $ 2,860,477
2000 $ 2,885,305
2001 $ 2,894,342
2002 $ 2,929,325
2003 $ 2,948,914
2004-2016 $ 21,782,827
3. NET INVESTMENT IN DIRECT FINANCING LEASES
The Company's net investment in its direct financing leases at December 31, 1998
included:
Minimum lease payments receivable $ 6,780,584
Unguaranteed residual value 1,557,904
Less: Unearned income 5,166,818
------------
$ 3,171,670
============
A summary of minimum future rentals, exclusive of any renewals, under the
noncancellable direct financing leases follows:
1999 $ 333,165
2000 $ 336,590
2001 $ 343,251
2002 $ 363,233
2003 $ 363,226
2004-2016 $ 5,041,100
F-11
<PAGE>
4. JOINT VENTURES
INVESTMENT IN JOINT VENTURE
On June 29, 1998, the Company entered into a joint venture agreement with GDC,
Ltd. The joint venture was formed to develop a multi-tenant retail center and to
sell to a third party upon completion. The Company's interest in the joint
venture is approximately 6.67% and is accounted for using the cost method. In
addition, the Company shall receive a preferred return on its investment. The
Company is not required to contribute any additional money to the joint venture.
CONSOLIDATED JOINT VENTURES
The Company consolidates its joint ventures listed below due to its ability to
control operations. Pursuant to the Joint Venture Agreements that incorporate
the provisions to the Texas Revised Partnership Act, the Company as majority
owner may make management decisions, such as the sale of the property, without
the consent of the minority joint venture interests.
On October 16, 1997, the Company entered into a joint venture with AAA Net
Realty XI, Ltd., an entity with common management. The joint venture was formed
for the purchase of a property, which is being operated as a Hollywood Video
store in Lafayette, Louisiana. The property was purchased on October 31, 1997
after the construction was completed. The Company's interest in the joint
venture is 74.58%.
On February 11, 1997, the Company entered into a joint venture with AAA Net
Realty XI, Ltd. The joint venture was formed for the purchase of a property,
which is being operated as a Just For Feet retail store in Baton Rouge,
Louisiana. The property was purchased on June 9, 1997 after the construction was
completed. The Company's interest in the joint venture is 51%.
On September 23, 1996, the Company formed a joint venture, AAA Joint Venture
96-2, with AAA Net Realty Fund XI, Ltd. The joint venture was formed for the
purpose of acquiring a parcel of land in The Woodlands, Texas upon which the
tenant, Bank United, constructed a branch bank building at its cost. At the
termination of the lease the improvements will be owned by the joint venture.
The Company's interest in the joint venture is 51%.
On April 5, 1996, the Company formed a joint venture, AAA Joint Venture 96-1,
with AAA Net Realty Fund XI, Ltd. and AAA Net Realty Fund X, Ltd., entities with
common management, for the purpose of acquiring a property which is being
operated as a Just For Feet retail store in Tucson, Arizona. The property was
purchased on September 11, 1996 after construction was completed. The Company's
interest in the joint venture is 51.9%.
On September 12, 1995, the Company formed a joint venture, AAA Joint Venture
95-2, with AAA Net Realty Fund XI, Ltd. for the purpose of acquiring a property
in Wichita, Kansas on lease to Blockbuster Music Retail, Inc. The Company's
interest in the joint venture is 51%.
On October 27, 1994, the Company formed a joint venture, AAA Joint Venture 94-1,
with AAA Net Realty Fund X, Ltd. for the purpose of acquiring a property in
Independence, Missouri on lease to Blockbuster Music Retail, Inc. The Company's
interest in the joint venture is 54.84%.
F-12
<PAGE>
5. NOTES PAYABLE
In November 1998, the Company entered into an unsecured credit facility (the
"Credit Facility"), which is being used to provide funds for the acquisition of
properties and working capital, and repaid all amounts outstanding under the
Company's prior credit facility. Under the Credit Facility, which has a one-year
term, the Company may borrow up to $30 million subject to the value of
unencumbered assets. The Credit Facility contains covenants which, among other
restrictions, require the Company to maintain a minimum net worth, a maximum
leverage ratio, and specified interest coverage and fixed charge coverage
ratios. The Credit Facility bears interest at an annual rate of LIBOR plus a
spread ranging from 1.625% to 2.150% (6.938% as of December 31, 1998), set
quarterly depending on the Company's leverage ratio. As of December 31, 1998,
$10,580,110 was outstanding under the Credit Facility.
As part of the Merger, the Company assumed a 5-year lease agreement for its
office telephone system. The lease terminates in September 2000, at which time
the Company has the option to purchase the equipment. Monthly lease payments
total $313. Future minimum lease payments required under this lease are
summarized as follows:
1999 $ 3,760
2000 $ 2,820
6. MAJOR TENANTS
The Company's operations are related to the acquisition and leasing of
commercial real estate properties. The following schedule summarizes rental
income by lessee for 1998 and 1997 under both operating and direct financing
methods of accounting:
1998 1997
---- ----
Tandy Corporation
(Mesquite, Texas) $ 108,900 $ 108,900
America's Favorite
Chicken Company (Smyrna, Georgia) 98,265 97,931
Blockbuster Music Retail, Inc.
(Independence, Missouri and
Wichita, Kansas) 377,901 377,901
OneCare Health Industries, Inc.
(Houston, Texas) 202,800 201,638
Just For Feet, Inc.
(Tucson, Arizona; Baton Rouge, Louisiana;
The Woodlands, Texas and Sugar Land, Texas) 1,096,233 590,192
Bank United (The Woodlands, Texas and
Houston, Texas) 157,801 157,801
Hollywood Entertainment Corp. (Lafayette,
Louisiana and Ridgeland, Mississippi 273,931 22,452
OfficeMax, Inc. (Lake Jackson, Texas
and Dover, Delaware) 406,622 -
D F & R Operating Company, Inc.
(Peachtree City, Georgia) 3,288 -
Krispy Kreme Doughnuts of the Gulf
Coast, Ltd. (Houston, Texas) 16,016 -
------------ ------------
Total $ 2,741,757 $ 1,556,815
============ ============
F-13
<PAGE>
7. FEDERAL INCOME TAXES
The differences between net income for financial reporting purposes and taxable
income before distribution deductions relate primarily to temporary differences,
to certain organization costs which are amortized for financial reporting
purposes only and to merger costs and potential acquisition costs which are
expensed for financial reporting purposes.
For income tax purposes, distributions paid to shareholders consist of ordinary
income, capital gains and return of capital as follows:
1998 1997
---- ----
Ordinary Income $ 780,588 $ 795,918
Return of capital 810,957 297,521
--------------- ----------------
$ 1,591,545 $ 1,093,439
=============== ================
8. MERGER TRANSACTION
On June 5, 1998, the Company's shareholders voted to approve an agreement and
plan of merger with AAA, whereby the stockholder of AAA agreed to exchange 100%
of the outstanding shares of common stock of AAA for up to 900,000 shares (the
"Share Consideration") of the Company's common stock (the "Merger"). The common
stock of AAA was wholly owned by the president and director of the Company. As a
result of the Merger, the Company became a fully integrated, self-administered
real estate investment trust ("REIT") effective June 5, 1998. Effective June 5,
1998, 213,260 shares were issued and the balance (the "Share Balance") of the
Share Consideration is to be paid over a six year period to the extent certain
goals are achieved after the Merger. None of the Share Balance has been earned
subsequent to June 5, 1998. The market value of the common shares issued
effective June 5, 1998 was $2,185,915 which was accounted for as expenses
incurred in acquiring AAA from a related party. In addition, the Company assumed
an obligation to the stockholder of AAA in the amount of $97,407. This
obligation and the related accrued interest of $3,157 were subsequently paid
with the issuance of 9,811 shares. In connection with the Merger, the Company
incurred costs during 1998 and 1997 of $144,336 and $282,890, respectively,
consisting primarily of legal and accounting fees, valuation opinions and
fairness opinions. For accounting purposes, AAA was not considered a "business"
for purposes of applying APB Opinion No. 16, "Business Combinations," and
therefore, the market value of the common shares issued in excess of the fair
value of the net tangible assets acquired was charged to expense rather than
capitalized as goodwill. To the extent the Share Balance is paid over time, the
market value of the common shares issued will also be charged to expense. Upon
consummation of the Merger on June 5, 1998, certain employees of AAA became
employees of the Company, and any obligation to pay fees under the advisor
agreement between the Company and AAA was terminated.
9. RELATED PARTY TRANSACTIONS
See Note 8 regarding the Merger and Note 4 regarding joint venture agreements
with related parties.
F-14
<PAGE>
RELATED PARTY TRANSACTIONS SUBSEQUENT TO THE MERGER:
Beginning June 5, 1998, the Company provides property acquisition, leasing,
administrative and management services for eleven affiliated real estate limited
partnerships (the "Partnerships"). The president and director of the Company
owns between 45% and 100% of the stock of the companies that serve as the
general partner of the Partnerships. Service fees of $138,340 were paid by the
Partnerships to the Company for 1998.
RELATED PARTY TRANSACTIONS PRIOR TO THE MERGER:
Prior to June 5, 1998, the Company was a party to an Omnibus Services Agreement
with AAA whereby AAA provided property acquisition, leasing, administrative and
management services for the Company. Service fees of $40,607 were incurred and
charged to expense for the period beginning January 1, 1998 through June 5,
1998. Service fees of $106,504 were incurred and charged to expense for 1997.
AAA had incurred certain costs in connection with the organization and
syndication of the Company. Reimbursement of these costs become obligations of
the Company in accordance with the terms of the offering. Costs of $56,164 were
incurred by AAA for the period ended June 5, 1998 in connection with the
issuance and marketing of the Company's stock. Costs of $164,985 were incurred
by AAA during 1997 in connection with the issuance and marketing of the
Company's stock. These costs are reflected as issuance costs and are recorded as
a reduction to capital in excess of par value.
Acquisition fees, including real estate commissions, finders fees, consulting
fees and any other non-recurring fees incurred in connection with locating,
evaluating and selecting properties and structuring and negotiating the
acquisition of properties are included in the basis of the properties.
Acquisition fees of $123,389 were incurred and paid to AAA for the period ended
June 5, 1998. Acquisition fees of $1,059,805 were incurred and paid to AAA
during 1997. Acquisition fees paid to AAA included $355,623 that was earned
prior to purchasing certain properties.
10. PROPERTY ACQUISITIONS IN 1998
On December 18, 1998, the Company acquired a parcel of land for a purchase price
of $773,800 upon which the tenant, D F & R Operating Company, Inc., constructed
a restaurant building at its cost. At the termination of the lease, the
improvements will be owned by the Company. This property is being operated as a
Don Pablo's Mexican restaurant on State Highway 54 in Peachtree City, Georgia.
The lease agreement extends for ten years, however the tenant has the option to
renew the lease for four additional terms of five years each. The lease has
provisions for an escalation in the rent after the fifth year of the lease. The
Company recorded $3,288 of revenue from this property in 1998.
F-15
<PAGE>
On November 23, 1998, the Company acquired a newly constructed property on lease
to Krispy Kreme Doughnuts of the Gulf Coast, Ltd. for a purchase price of
$1,371,742. This property is being operated as a Krispy Kreme restaurant on
Westheimer Road in Houston, Texas. The lease agreement extends for fifteen
years, however the tenant has the option to renew the lease for four additional
terms of five years each. The lease has provisions for an escalation in the rent
after the fifth and tenth years of the lease. The Company recorded $16,016 of
revenue from this property in 1998.
On July 1, 1998, the Company acquired a newly constructed property on lease to
Just For Feet, Inc. for a purchase price of $3,928,997. This property is being
operated as a Just For Feet retail store on U.S. 59 at First Colony Boulevard in
Sugar Land, Texas. The lease agreement extends for fifteen years, however the
tenant has the option to renew the lease for two additional terms of five years
each. The lease has provisions for an escalation in the rent after the fifth and
tenth years of the lease. The Company recorded $190,853 of revenue from this
property in 1998.
On June 3, 1998, the Company acquired a newly constructed property on lease to
Just For Feet, Inc. for a purchase price of $3,751,555. This property is being
operated as a Just For Feet retail store on Lake Woodlands Drive in The
Woodlands, Texas. The lease agreement extends for fifteen years, however the
tenant has the option to renew the lease for two additional terms of five years
each. The lease has provisions for an escalation in the rent after the fifth and
tenth years of the lease. The Company recorded $213,851 of revenue from this
property in 1998.
On April 14, 1998, the Company acquired a newly constructed property on lease to
OfficeMax, Inc. for a purchase price of $2,848,793. This property is being
operated as an OfficeMax store on U.S. Route 13 in Dover, Delaware. The lease
agreement extends for fifteen years, however the tenant has the option to renew
the lease for four additional terms of five years each. The lease has provisions
for an escalation in the rent after the fifth and tenth years of the lease. The
Company recorded $196,793 of revenue from this property in 1998.
On February 20, 1998, the Company acquired a newly constructed property on lease
to OfficeMax, Inc. for a purchase price of $2,405,666. This property is being
operated as an OfficeMax store on the northwest corner of State Highway 332 and
This Way in Lake Jackson, Texas. The lease agreement extends for fifteen years,
however the tenant has the option to renew the lease for three additional terms
of five years each. The lease has provisions for an escalation in the rent after
the fifth and tenth years of the lease. The Company recorded $209,829 of revenue
from this property in 1998.
11. COMMITMENT
As part of the Merger, the Company assumed a 3-year lease agreement for its
office facilities. The lease terminates in September 2000, however the Company
has the option to renew the lease for an additional three years. Rental expense
for the year ended December 31, 1998 was $36,256. Future minimum lease payments
required under this operating lease, excluding renewal options, are summarized
as follows:
1999 $ 58,635
2000 $ 43,976
F-16
<PAGE>
AmREIT, INC. AND SUBSIDIARIES
SCHEDULE III - CONSOLIDATED REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
LIFE ON
WHICH
DEPR. IN
LATEST
COST AT INCOME
PROPERTY ENCUM- IMPROVE- CLOSE OF YEAR ACCUM. DATE OF DATE STMT. IS
DESCRIPTION BRANCES BUILDING LAND MENTS BUILDING LAND DEPR. CONSTR. ACQUIRED COMPUTED
----------- ------- -------- ---- ----- -------- ---- ----- ------- -------- --------
PROPERTIES INVESTED IN
UNDER OPERATING LEASES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Radio Shack Retail Store,
Texas $0 $788,330 $337,856 $0 $788,330 $337,856 $91,752 N/A 06-15-94 39 Years
Church's Chicken Restaurant,
Georgia $0 $0 $251,071 $0 $0 $251,071 N/A N/A 07-22-94 N/A
Blockbuster Music Store,
Missouri $0 $1,145,410 $490,747 $0 $1,145,410 $490,747 $121,128 N/A 11-14-94 39 Years
OneCare Health Industries,
Inc., Texas $0 $1,246,199 $534,086 $0 $1,246,199 $534,086 $103,881 N/A 09-26-95 39 Years
Blockbuster Music Store,
Kansas $0 $1,255,774 $538,189 $0 $1,255,774 $538,189 $105,991 N/A 09-12-95 39 Years
Just For Feet Store, Arizona $0 $0 $1,101,425 $0 $0 $1,101,425 N/A N/A 09-11-96 N/A
Bank United, Woodlands, Texas $0 $0 $531,693 $0 $0 $531,693 N/A N/A 09-23-96 N/A
Bank United, Houston, Texas $0 $0 $851,973 $0 $0 $851,973 N/A N/A 12-11-96 N/A
Just For Feet Store, Louisiana $0 $2,036,150 $872,635 $0 $2,036,150 $872,635 $81,359 N/A 06-09-97 39 Years
Hollywood Video Store, Louisiana $0 $729,286 $418,156 $0 $729,286 $418,156 $21,816 N/A 10-31-97 39 Years
Hollywood Video Store, Mississippi $0 $835,854 $450,000 $0 $835,854 $450,000 $21,432 N/A 12-30-97 39 Years
OfficeMax, Texas $0 $1,914,572 $491,094 $0 $1,914,572 $491,094 $42,224 N/A 02-20-98 39 Years
OfficeMax, Delaware $0 $1,978,313 $870,480 $0 $1,978,313 $870,480 $29,590 N/A 04-14-98 39 Years
Just For Feet Store, Woodlands,
Texas $0 $2,385,103 $1,366,452 $0 $2,385,103 $1,366,452 $35,675 N/A 06-03-98 39 Years
Just For Feet Store, Sugar Land,
Texas $0 $2,648,954 $1,280,043 $0 $2,648,954 $1,280,043 $33,961 N/A 07-01-98 39 Years
Don Pablo's, Georgia $0 $0 $773,800 $0 $0 $773,800 N/A N/A 12-18-98 N/A
Krispy Kreme, Texas $0 $868,151 $503,591 $0 $868,151 $503,591 $2,351 N/A 11-23-98 39 Years
-- -------- -------- -- -------- -------- ------
Total $0 $17,832,096 $11,663,291 $0 $17,832,096 $11,663,291 $691,160
== =========== =========== == =========== =========== ========
PROPERTY INVESTED IN UNDER
DIRECT FINANCING LEASE
Church's Chicken Restaurant,
Georgia $0 $585,345 $0 $0 $585,345 $0 (1) N/A 07-22-94 N/A
Just For Feet Store, Arizona $0 $2,586,325 $0 $0 $2,586,325 $0 (1) N/A 09-11-96 N/A
-- ---------- -- -- ---------- --
Total $0 $3,171,670 $0 $0 $3,171,670 $0 (1)
== ========== == == ========== ==
(1) The portion of the lease relating to the building of this property has been
recorded as a direct financing lease for financial reporting purposes.
Consequently, depreciation is not applicable.
(2) Transactions in real estate and accumulated depreciation during 1998, 1997
and 1996 for operating lease properties are summarized as follows:
Accumulated
Cost Depreciation
---- ------------
Balance at December 31, 1995 $6,588,177 $81,512
Acquisitions $2,482,477 $0
Depreciation expense $0 $113,744
----------- --------
Balance at December 31, 1996 $9,070,654 $195,256
Acquisitions $5,346,024 $0
Depreciation expense $0 $146,016
----------- --------
Balance at December 31, 1997 $14,416,678 $341,272
Acquisitions $15,078,709 $0
Depreciation expense $0 $349,888
----------- --------
Balance at December 31, 1998 $29,495,387 $691,160
=========== ========
(3) The aggregate cost of all properties for Federal Income Tax purposes is
$32,667,057 at December 31, 1998.
</TABLE>
F-17
EXHIBIT 11
AMREIT, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
For the Year Ended December 31,
1998 1997
---- ----
BASIC EARNINGS (LOSS) PER SHARE:
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,226,403 1,563,048
=========== =========
NET INCOME (LOSS) ($1,805,786) $538,857
=========== =========
BASIC EARNINGS (LOSS) PER SHARE ($0.81) $0.34
=========== =========
DILUTED EARNINGS (LOSS) PER SHARE:
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,226,403 1,563,048
SHARES ISSUABLE FROM ASSUMED
CONVERSION OF STOCK WARRANTS - 61,169
----------- ---------
TOTAL WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, AS ADJUSTED 2,226,403 1,624,217
=========== =========
NET INCOME (LOSS) ($1,805,786) $538,857
=========== =========
DILUTED EARNINGS (LOSS) PER SHARE ($0.81) $0.33
=========== =========
<PAGE>
Exhibit 21
AMREIT, INC.
SUBSIDIARIES OF THE COMPANY
Set forth below is certain information with respect to each of the Company's
subsidiaries:
STATE OF
SUBSIDIARY DOMICILE
AmREIT Realty Investment Corporation Texas
AmREIT Operating Corporation Texas
AmREIT Opportunity Corporation Texas
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 48,520
<SECURITIES> 0
<RECEIVABLES> 13,138
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 75,192
<PP&E> 29,574,366
<DEPRECIATION> 696,384
<TOTAL-ASSETS> 33,137,546
<CURRENT-LIABILITIES> 10,796,439
<BONDS> 0
0
0
<COMMON> 23,841
<OTHER-SE> 17,098,267
<TOTAL-LIABILITY-AND-EQUITY> 33,137,546
<SALES> 2,741,757
<TOTAL-REVENUES> 3,028,026
<CGS> 0
<TOTAL-COSTS> 4,315,253
<OTHER-EXPENSES> 518,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,805,786)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,805,786)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,805,786)
<EPS-PRIMARY> (.81)
<EPS-DILUTED> (.81)
</TABLE>
