UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
-------- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
-------- EXCHANGE ACT OF 1934
For the transition period from ---------- to ----------
Commission File Number: 0-28378
AMREIT, INC.
MARYLAND CORPORATION IRS IDENTIFICATION NO.
76-0410050
8 GREENWAY PLAZA, SUITE 824 HOUSTON, TX 77046
(713) 850-1400
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. X Yes No
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMREIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(Unaudited)
ASSETS
Cash and cash equivalents $ 1,144,874
Accounts receivable 303,548
Prepaid expenses 15,735
Escrow deposits, land 30,000
Property:
Land 12,900,346
Buildings 16,964,271
Furniture, fixture and equipment 129,123
----------------
29,993,740
Accumulated depreciation (1,375,208)
----------------
Total property, net 28,618,532
----------------
Net investment in direct financing leases 5,969,241
Other assets:
Preacquisition costs 12,379
Accrued rental income 371,215
Investment in non-consolidating subsidiary 249,981
Other 58,835
----------------
Total other assets 692,410
----------------
TOTAL ASSETS $ 36,744,340
================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 15,476,343
Accounts payable 314,228
Deferred revenue 66,519
Security deposit 15,050
----------------
TOTAL LIABILITIES 15,872,140
----------------
Minority interest 5,155,378
Commitments (Note 8)
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
and outstanding 23,841
Capital in excess of par value 21,655,867
Accumulated distributions in excess of earnings (5,826,393)
Cost of treasury stock, 11,373 shares (106,493)
----------------
TOTAL SHAREHOLDERS' EQUITY 15,746,822
----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 36,744,340
================
See Notes to Consolidated Financial Statements.
2
<PAGE>
<TABLE>
AMREIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<CAPTION>
Quarter Year to Date
<S> <C> <C> <C> <C>
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Rental income from operating leases $ 582,013 $ 800,205 $ 1,284,096 $ 1,577,965
Earned income from direct financing leases 167,139 85,427 335,029 170,802
Advisory fees 340,448 101,849 432,425 298,796
Interest income 13,483 124,260 26,706 149,235
Service fees and other income 2,103 5,065 7,168 10,130
----------- ----------- ------------ -----------
Total revenues 1,105,186 1,116,806 2,085,424 2,206,928
----------- ----------- ------------ -----------
Expenses:
General operating and administrative 363,873 269,125 764,925 428,593
Legal and professional 68,810 48,938 142,851 72,489
Interest 320,013 267,383 633,475 515,357
Depreciation 113,423 118,220 226,705 235,890
Amortization - 11,654 - 27,342
Potential acquisition costs - 377,776 - 398,299
----------- ----------- ------------ -----------
Total expenses 866,119 1,093,096 1,767,956 1,677,970
----------- ----------- ------------ -----------
Income before federal income taxes
and minority interest in net income of
consolidated joint ventures 239,067 23,710 317,468 528,958
Federal income taxes from non-qualified
REIT subsidiaries - (11,656) - (63,596)
Minority interest in net income of
consolidated joint ventures (131,764) (131,651) (263,496) (263,271)
----------- ----------- ------------ -----------
Net income (loss) $ 107,303 $ (119,597) $ 53,972 $ 202,091
=========== =========== ============ ===========
Basic and diluted earnings (loss)
per share $ 0.05 $ (.05) $ 0.02 $ 0.09
=========== =========== ============ ===========
Weighted average number of common
shares outstanding 2,372,744 2,372,744 2,372,744 2,372,744
=========== =========== ============ ===========
Weighted average number of common
shares outstanding plus dilutive
potential common shares 2,372,744 2,372,744 2,372,744 2,372,744
=========== =========== ============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
AMREIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<CAPTION>
Quarter Year to Date
<S> <C> <C> <C> <C>
2000 1999 2000 1999
---- ---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 107,303 $ (119,597) $ 53,972 $ 202,091
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization - 11,654 - 27,342
Depreciation 113,423 118,220 226,705 235,890
(Decrease) increase in accounts receivable 46,137 15,612 128,634 (61,938)
Decrease (increase) in prepaid expense 17,165 (1,250) 5,090 12,284
(Decrease) increase in accounts payable (64,575) 35,985 (238,710) 143,973
Increase in deferred revenue 2,672 - 66,519 -
Cash receipts from direct financing leases
less than income recognized (6,670) (2,138) (14,091) (4,225)
(Increase) decrease in escrow deposits, net of
minority interest partners (10,000) - (30,000) 10,000
Increase in accrued rental income (7,706) (22,843) (38,047) (48,546)
Increase (decrease) in other assets 3,839 (8,006) 73 (55,749)
(Decrease) increase in minority interest (23,886) 131,651 (25,168) 263,271
----------- ----------- ----------- -----------
Net cash provided by operating activities 177,702 159,288 134,977 724,393
----------- ----------- ----------- -----------
Cash flows from investing activities:
Acquisition of real estate - (40,518) - (2,001,622)
Acquisition of furniture, fixtures and equipment (4,396) (21,445) (5,975) (22,258)
Investments in joint venture - 348,936 - 362,149
Decrease (increase) in notes receivable - 26,543 - (1,540,485)
Increase in prepaid acquisition costs (1,698) (10,368) (2,415) (23,077)
----------- ----------- ----------- -----------
Net cash (used in) provided by investing
activities (6,094) 303,148 (8,390) (3,225,293)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock, net - 2,000 - 2,000
Proceeds from notes payable - 299,378 - 4,799,379
Payments of notes payable (2,041) - (4,035) -
Distributions paid to shareholders (53,241) (431,839) (96,424) (862,661)
Distributions to minority interest partners - (141,381) - (281,462)
----------- ----------- ----------- -----------
Net cash (used in) provided by financing
activities (55,282) (271,842) (100,459) 3,657,256
----------- ----------- ----------- -----------
Net increase in cash and cash equivalents 116,326 190,594 26,128 1,156,356
Cash and cash equivalents at beginning of period 1,028,548 1,014,282 1,118,746 48,520
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 1,144,874 $ 1,204,876 $ 1,144,874 $ 1,204,876
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, retail properties leased to major
retail businesses under long-term commercial net leases. Through a wholly-
owned subsidiary, the Company also provides advisory services to twelve
real estate limited partnerships.
The consolidated financial statements include the accounts of AmREIT, Inc.,
its subsidiaries, AmREIT Realty Investment Corporation ("ARIC"), AmREIT
Securities Company ("ASC"), AmREIT Operating Corporation ("AOC"), AmREIT
Opportunity Corporation ("AOP"), and AmREIT SPE 1, Inc. ("SPE 1"), and its
six joint ventures with related parties. ARIC, AOC, and AOP were formed in
June, July and April 1998, respectively. ASC and SPE 1 were both formed in
February 1999. ASC is a wholly owned subsidiary of ARIC and was established
exclusively to distribute security commissions generated through direct
participation programs and private placement activities. SPE 1 is a special
purpose entity, created solely at the lenders request. SPE 1 owns a
building and land located in Ridgeland, Mississippi that is leased to
Hollywood Video. 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 and AOP. 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.
The financial records of the Company are maintained on the accrual basis of
accounting whereby revenues are recognized when earned and expenses are
reflected when incurred.
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a 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.
Property 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. Percentage rents are recognized when received.
Under the operating lease 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.
5
<PAGE>
Under the direct financing lease method, properties are recorded at their
net investment. 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.
Prior to that time the Company expenses these costs as acquisition expense.
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.
Buildings are depreciated using the straight-line method over an estimated
useful life of 39 years.
AOP invested $250,000 as a limited partner and $1,000 as a general partner
in AmREIT Opportunity Fund, Ltd. which is accounted for using the cost
method. The limited partners have the right to remove and replace the
general partner (AOP) by a vote of the limited partners owning a majority
of the outstanding units. AOP currently owns a 12.6 percent limited partner
interest in AmREIT Opportunity Fund, Ltd. AmREIT Opportunity Fund was
formed to develop, own, manage, and hold for investment and, or resell
property and to make or invest in loans for the development or construction
of property.
Other assets include loan acquisition costs. Loan acquisition costs of
$61,757 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 June 30,
2000 totaled $8,234.
Issuance costs incurred in the raising of capital through the sale of
common stock are treated as a reduction of shareholders' equity.
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.
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.
The Company's financial instruments consist primarily of cash, cash
equivalents, accounts receivable and accounts and notes payable. The
carrying value of cash, cash equivalents, accounts receivable and accounts
payable are representative of their respective fair values due to the
short-term maturity of these instruments. The fair value of the Company's
debt obligations is representative of its carrying value based upon the
variable rate terms of the credit facility.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, " Accounting for Derivative
Instruments and Hedging Activities" which deferred the effective date of
FASB Statement No. 133" ("SFAS 137"). SFAS 137 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. FASB 133, as
amended by SFAS 137, establishes a new accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. The Company is
evaluating what impact, if any, adoption of this statement will have on the
Company's consolidated financial statements.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and include all of the
disclosures required by generally accepted accounting principles. The
financial statements reflect all normal and recurring adjustments which
are, in the opinion of management, necessary to present a fair statement of
results for the three and six month periods ended June 30, 2000 and 1999.
The financial statements of AmREIT, Inc. contained herein should be read in
conjunction with the financial statements included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1999.
6
<PAGE>
2. INVESTMENT IN JOINT VENTURE
On June 29, 1998, the Company entered into a joint venture, GDC Vista Ridge
Partners, Ltd., with GDC Ltd. The joint venture was formed to acquire,
finance, develop, operate and dispose of a retail project located in
Lewisville, Texas. The Company's interest in the joint venture is
approximately 6.7%.
3. 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. The Credit Facility,
which had an original term of one year and has been extended through August
2000 and the Company is finalizing an extension through January 2001. Under
the Credit Facility, the Company may borrow up to $20 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, specified interest coverage and fixed
charge coverage ratios and allow the lender to approve all distributions.
At June 30, 2000, these covenants on the Credit Facility have been waived.
The Credit Facility bears interest at an annual rate of LIBOR plus a spread
of 1.875% (8.6875% as of June 30, 2000), set quarterly depending on the
Company's leverage ratio. As of June 30, 2000, $14,485,474 was outstanding
under the Credit Facility.
In March 1999, the Company entered into a ten-year mortgage amortized over
30 years, note payable with NW L.L.C. for $1,000,000 with $990,869 being
outstanding at June 30, 2000. The interest rate is fixed at 8.375% with
payments of principal and interest due monthly. The note matures April 1,
2009 and as of June 30, 2000 the Company is in compliance with all terms of
the agreement. The note is collateralized by a first lien mortgage on
property with an aggregate carrying value of approximately $1,232,274.
Aggregate annual maturity of the mortgage note payable for each of the
following five years ending December 31 are as follows:
2000 $ 4,103
2001 8,847
2002 9,617
2003 10,454
2004 11,364
Thereafter 946,484
-----------
$ 990,869
The Company assumed a 5-year lease agreement for its office telephone
system. The lease, which is treated as a capital lease, terminates in
September 2000, at which time the Company has the option to purchase the
equipment. The assumed lease and a telephone equipment lease entered into
in May 1999 combine for monthly lease payments totaling $313. Future
minimum lease payments required under these leases are summarized as
follows:
2000 $ 3,190
2001 1,308
2002 545
-----------
$ 5,043
===========
7
<PAGE>
4. MAJOR TENANTS
The following schedule summarizes rental income by lessee for the three and
six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Quarter Year to Date
<S> <C> <C> <C> <C>
2000 1999 2000 1999
---- ---- ---- ----
Tandy Corporation $ 27,225 $ 27,225 $ 54,450 $ 54,450
America's Favorite Chicken Co. 24,570 23,903 49,140 47,808
Blockbuster Music Retail, Inc. 94,475 94,475 188,950 188,951
One Care/Memorial Hermann Hospital 50,409 50,411 100,818 100,818
Just For Feet, Inc. 177,202 365,385 479,953 730,712
Bank United 39,448 39,447 78,896 78,898
Hollywood Entertainment Corp. 68,294 68,290 136,584 136,581
Don Pablo's 19,612 19,612 39,224 39,224
Krispy Kreme - 40,441 - 85,260
OfficeMax, Inc. 129,622 129,623 259,245 259,245
IHOP Properties, Inc. 118,295 26,820 231,865 26,820
---------- ---------- ---------- ----------
$ 749,152 $ 885,632 $1,619,125 $1,748,767
========== ========== ========== ==========
</TABLE>
5. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share has been computed by dividing net income by
the weighted average number of common shares outstanding. Diluted earnings
per share has been computed by dividing net income (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 (loss) per share for the periods indicated:
<TABLE>
<CAPTION>
Quarter To Date Year To Date
--------------- ------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
---- ---- ---- ----
BASIC EARNINGS (LOSS) PER SHARE
Weighted average common shares outstanding 2,372,744 2,372,744 2,372,744 2,372,744
=========== =========== =========== ===========
Basic earnings (loss) per share $ .05 $ (.05) $ .02 $ .09
=========== =========== =========== ===========
DILUTED EARNINGS (LOSS) PER SHARE
Weighted average common shares outstanding 2,372,744 2,372,744 2,372,744 2,372,744
Shares issuable from assumed conversion of warrants - - - -
Weighted average common shares outstanding, as
adjusted 2,372,744 2,372,744 2,372,744 2,372,744
=========== =========== =========== ===========
Diluted earnings (loss) per share $ .05 $ (.05) $ .02 $ .09
=========== =========== =========== ===========
EARNINGS (LOSS) FOR BASIC AND DILUTED
COMPUTATION
Net income (loss) to common shareholders (basic
and diluted earnings (loss) per share computation) $ 107,303 $ (119,597) $ 53,972 $ 202,091
=========== =========== =========== ===========
</TABLE>
8
<PAGE>
6. MERGER TRANSACTION
On June 5, 1998, the Company's shareholders voted to approve an agreement
and plan of merger with American Asset Advisers Trust, Inc.("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 the three
months ended March 31, 1998 of $182,322, 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 the Company was no longer obligated to pay fees under the
advisor agreement between the Company and AAA. This transaction was not
accounted for as a contract termination because the contracts AAA had with
the various entities were not terminated, but rather assumed by the
Company.
7. RELATED PARTY TRANSACTIONS
See Note 6 regarding the Merger.
Related Party Transactions Subsequent to the Merger:
Beginning June 5, 1998, the Company provides property acquisition, leasing,
administrative and management services for twelve 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.
Related Party Transactions Prior to the Merger:
Prior to June 5, 1998, the Company was party to an Omnibus Services
Agreement with AAA whereby AAA provided property acquisition, leasing,
administrative and management services for the Company.
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. 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.
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 to purchase 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%.
9
<PAGE>
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 November 4, 1999, Just For Feet, Inc. filed for a petition for
relief under Chapter 11 of the Federal bankruptcy code. On January 27, 2000
Just For feet, Inc. announced that its previous efforts of reorganization
were unsuccessful. As such, the bankruptcy court in Delaware approved a
liquidation auction of all of Just For Feet, Inc.'s retail stores and
inventory. On February 16, 2000 Just For Feet, Inc. entered into an
agreement whereby Footstar, Inc. would purchase the inventory of Just For
Feet, Inc., and assume certain retail operating leases. Included in the
leases being assumed by Footstar, Inc. is the Just For Feet located in
Baton Rouge, Louisiana. Effective February 16, 2000 Footstar began
operating this store under the Just For Feet name. The bankruptcy court in
Delaware has ordered Just For Feet, Inc. to cure any deficiencies under
the lease prior to the assumption of the lease by Footstar, Inc. These
deficiencies represent a receivable for rent, property taxes and insurance
at June 30, 2000 of approximately $27,914. Footstar Inc., the second
largest retailer of athletic footwear and apparel, is a publicly owned New
York Stock Exchange company ( FTS ) and has assumed the Just For Feet lease
as is.
On September 23, 1996, the Company entered into a joint venture with AAA
Net Realty XI, Ltd. The joint venture was formed to purchase 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%. As part of
the Just For Feet, Inc. bankruptcy plan, Footstar, Inc. has agreed to
purchase the inventory of Just For Feet, Inc., and assume certain retail
operating leases. Included in the leases being assumed by Footstar, Inc. is
the Just For Feet located in Tucson, Arizona, which is owned by AAA Joint
Venture 96-1. Effective February 16, 2000 Footstar began operating this
store under the Just For Feet name. The bankruptcy court in Delaware has
ordered Just For Feet, Inc. to cure any deficiencies under the lease prior
to the assumption of the lease by Footstar, Inc. These deficiencies
represent a receivable for rent, property taxes and insurance at June
30, 2000 of approximately $27,174.
On September 12, 1995, the Company entered into a joint venture agreement
with AAA Net Realty Fund XI, Ltd. to purchase a property, which is being
operated as a Blockbuster Music Store in Wichita, Kansas. The Company's
interest in the joint venture is 51%.
On October 27, 1994, the Company entered into a joint venture agreement
with AAA Net Realty Fund X, Ltd., an entity with common management. The
joint venture was formed to purchase a property, which is being operated as
a Blockbuster Music Store in Independence, Missouri. The Company's interest
in the joint venture is 54.84%.
8. COMMITMENTS
As part of the Merger, the Company assumed a 3-year lease agreement for its
office facilities. The lease terminates in February 2001, however the
Company has the option to renew the lease for an additional three years.
Rental expense for the three months ended June 30, 2000 and 1999 was
$16,000 and $15,610 respectively. Rent expense for the six months ended
June 30, 2000 and 1999 was $32,000 and $31,220 respectively. Future minimum
lease payments required under this operating lease, excluding renewal
options, are $42,667.
10
<PAGE>
Item 2. 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 twelve 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. At June 30, 2000 the Company did not have any public or
private equity or debt offerings on registration with the SEC, or any other
regulatory agency. The Company has approximately $5,316,000 available under its
line of credit, subject to use of proceeds by the lender.
11
<PAGE>
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. In these instances, the Company normally
requires warranties, and/or guarantees from the related vendors, suppliers and/
or contractors, to mitigate the potential costs of repairs during the primary
terms of the lease. 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 warrants) 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). At June 30, 2000 and 1999 all warrants that were issued in
connection with the above Securities issuance had expired.
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. The Credit Facility,
which had an original term of one year, has been extended through August 2000
and the Company is finalizing an extension through January 2001. Under the
Credit Facility, the Company may borrow up to $20 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. At June 30, 2000, these covenants on the Credit Facility have
been waived. The Credit Facility bears interest at an annual rate of LIBOR plus
a spread of 1.875%. As of June 30, 2000, $14,485,474 was outstanding under the
Credit Facility.
In March 1999, the Company entered into a ten-year mortgage note payable with NW
L.L.C. for $1,000,000 at March 31, 1999. The interest rate is fixed at 8.375%
with payments of principal and interest due monthly. The note matures April 1,
2009. The note is collateralized by a first lien mortgage on property with an
aggregate carrying value of approximately $1,232,274, net of $53,580 of
accumulated depreciation.
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<PAGE>
As of June 30, 2000, the Company had acquired thirteen properties directly and
six properties through joint ventures with entities with common management and
had invested $30,358,269, 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 that 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 June 30,
2000, the Company's cash and cash equivalents totaled $1,144,874.
The Company made cash distributions to the Shareholders for the three months
ended June 30, 2000 and 1999, distributing a total of $53,241 and $431,839
respectively. Distributions for the six months ended June 30, 2000 and 1999
totaled $96,424 and $862,661 respectively.
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) decreased $157,304 or 36 % to $280,677 for the six
months ended June 30, 2000 from $437,981 for the six months ended June 30, 1999.
The Company has adopted the National Association of Real Estate Investment
Trusts (NAREIT) definition of FFO, which was revised on November 8, 1999, and is
effective January 1, 2000. 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 excluding results defined as "extraordinary items" under generally
accepted accounting principles. 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 cash flow analysis and does not necessarily 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 REITs and, therefore,
may not be comparable to such other REITs. 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 (loss) to funds from operations for
the three and six months ended June 30:
<TABLE>
<CAPTION>
Quarter Year to Date
<S> <C> <C> <C> <C>
2000 1999 2000 1999
---- ---- ---- ----
Net income (loss) $ 107,303 $ (119,597) $ 53,972 $ 202,091
Plus depreciation 113,423 118,220 226,705 235,890
Total funds from (used in) ------------- -------------- -------------- --------------
operations 220,726 (1,377) 280,677 437,981
============= ============== ============== ==============
Cash distributions paid 53,241 431,839 96,424 862,661
Distributions less (greater)
than of FFO $ 167,485 $ (433,216) $ 184,253 $ (424,680)
</TABLE>
Management has revised the 1999 FFO calculation based on NAREIT's revised
definition. FFO originally reported for the three months ended June 30, 1999 was
$376,399. The revised FFO calculation is ($1,377). The difference of $377,776
represents potential acquisition costs expensed and recorded at June 30, 1999.
13
<PAGE>
Cash flows from operating activities, investing activities, and financing
activities for the three and six months ended June 30 are presented below:
Quarter Year to Date
2000 1999 2000 1999
---- ---- ---- ----
Operating activities $ 177,702 $ 159,288 $ 134,977 $ 724,393
Investing activities $ (6,094) $ 303,148 $ (8,390) $(3,225,293)
Financing activities $ (55,282) $ (271,842) $ (100,459) $ 3,657,256
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 2000 to June 30, 1999:
During the three months ended June 30, 2000 and June 30, 1999, the Company's
revenues were $1,105,186 and $1,116,806 respectively. The $11,620 decrease
in revenue is due to decreased rental income of $136,480 primarily caused by
the stores Just For Feet vacated due to their bankruptcy. Additionally interest
income decreased $110,777 due to the collection of the note receivable
outstanding in 1999. These decreases were offset by increased advisory fees of
$238,599.
During the three months ended June 30, 2000 and June 30, 1999, the Company's
expenses were $866,119 and $1,093,096, respectively. The $226,977 decrease in
expenses is primarily attributable to a $374,471 decrease in partnership merger
costs, which is offset primarily by an increase of $13,679 in franchise taxes,
an increase of $21,500 in loan acquisition costs, a $52,630 increase in interest
expense due to higher interest rates and an increased debt balance, and an
increase of $38,724 in compensation due to additional management level
positions, and increased professional fees of $19,872.
Comparison of the Six Months Ended June 30, 1999 to June 30, 1998:
During the six months ended June 30, 2000 and June 30, 1999, the Company's
revenues were $2,085,424 and $2,206,928 respectively. The $121,504 revenue
decrease is primarily attributed to decreased rental income of $129,642 caused
by the Just For Feet stores vacated due to their bankruptcy. Interest income
decreased by $122,529 due to the collection of the note receivable outstanding
during 1999. Increased advisory fee revenue of $133,629 helped offset the
decreased rental and interest revenue.
During the six months ended June 30, 2000 and June 30, 1999, the Company's
expenses were $1,767,956 and $1,677,970, respectively. The $89,986 increase in
expenses is primarily attributable to a $190,591 increase in compensation due to
additional management level positions, and increased professional fees of
$70,362. The increase is also attributable to a $118,118 increase in interest
expense due to higher interest rates and an increased debt balance. In addition
there was an increase of $54,466 in administrative expenses, an increase of $
28,500 in loan origination fees, and an increase of $ 34,895 in property
expenses. The overall increase in expense was primarily offset by a decrease in
partnership merger costs of $400,063.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the issuer
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AmREIT, Inc.
(Issuer)
August 12, 2000 /s/ H. Kerr Taylor
Date H. Kerr Taylor, President
August 12, 2000 /s/ Chad C. Braun
Date Chad C. Braun (Principal Accounting Officer)
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<PAGE>
<TABLE>
EXHIBIT 11
AMREIT, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<CAPTION>
Year to Date
Quarter To Date Year To Date
--------------- ------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
---- ---- ---- ----
BASIC EARNINGS (LOSS) PER SHARE
Weighted average common shares outstanding 2,372,744 2,372,744 2,372,744 2,372,744
=========== =========== =========== ===========
NET INCOME (LOSS) $ 107,303 $ (119,597) $ 53,972 $ 202,091
=========== =========== ========== ===========
BASIC EARNINGS (LOSS) PER SHARE $ 0.05 $ (0.05) $ 0.02 $ 0.09
=========== ============ ========== ===========
DILUTED EARNINGS (LOSS) PER SHARE:
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,372,744 2,372,744 2,372,744 2,372,744
SHARES ISSUABLE FROM ASSUMED
CONVERSION OF STOCK WARRANTS - - - -
----------- ------------ ----------- ----------
TOTAL WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING,
AS ADJUSTED 2,372,744 2,372,744 2,372,744 2,372,744
=========== ============ =========== ===========
NET INCOME (LOSS) $ 107,303 $ (119,597) $ 53,972 $ 202,091
=========== ============ =========== ============
DILUTED EARNINGS (LOSS) PER SHARE $ 0.02 $ 0.09 $ 0.02 $ 0.09
=========== ============ =========== ============
</TABLE>
17
