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 March 31, 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
March 31, 2000
(Unaudited)
ASSETS
Cash and cash equivalents $ 1,028,548
Accounts receivable 350,685
Prepaid expenses 32,900
Escrow deposits, land 20,000
Property:
Land 12,897,732
Buildings 16,964,271
Furniture, fixtures and equipment 127,341
-------------
29,989,344
Accumulated depreciation (1,261,785
-------------
Total property, net 28,727,559
-------------
Net investment in direct financing leases 5,962,571
Other assets:
Preacquisition costs 10,681
Accrued rental income 363,509
Investment in non-consolidated subsidiary 249,981
Other 62,674
-------------
Total other assets 686,845
-------------
TOTAL ASSETS $ 36,809,108
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 15,478,384
Accounts payable 379,803
Deferred revenue 63,847
Security deposit 15,050
-------------
TOTAL LIABILITIES 15,937,084
-------------
Minority interest 5,179,264
Commitments (Note 9)
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 (5,880,455)
Cost of treasury stock, 11,373 shares (106,493)
-------------
TOTAL SHAREHOLDERS' EQUITY 15,692,760
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 36,809,108
=============
See Notes to Consolidated Financial Statements.
2
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AMREIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
2000 1999
---- ----
Revenues:
Rental income from operating leases $ 702,083 $ 777,760
Earned income from direct financing leases 167,890 85,375
Interest income 13,223 24,975
Advisory fees 91,977 65,734
Service fees and other income 5,065 136,278
------------ ------------
Total revenues 980,238 1,090,122
------------ ------------
Expenses:
General operating and administrative 401,052 159,468
Legal and professional 74,041 23,551
Interest 313,462 247,974
Depreciation 113,282 117,670
Amortization - 15,688
Potential acquisition costs - 20,523
------------ ------------
Total expenses 901,837 584,874
------------ ------------
Income before federal income taxes and
minority interest in net income of
consolidated joint ventures 78,401 505,248
Federal income taxes from non-qualified
REIT subsidiaries - (51,940)
Minority interest in net income of
consolidated joint ventures (131,732) (131,620)
------------ ------------
Net (loss) income $ (53,331) $ 321,688
============ ============
Basic and diluted (loss) earnings per share $ (0.02) $ 0.14
============ ============
Weighted average number of common shares
outstanding 2,372,744 2,372,744
============ ============
Weighted average number of common shares
outstanding plus dilutive potential
common shares 2,372,744 2,372,744
============ ============
See Notes to Consolidated Financial Statements.
3
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
2000 1999
---- ----
Cash flows from operating activities:
Net (loss)income (53,331) $ 321,688
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Amortization - 15,688
Depreciation 113,282 117,670
Decrease (increase) in accounts receivable 82,497 (77,550)
(Increase) decrease in prepaid expense (12,075) 13,534
(Decrease) increase in accounts payable (174,135) 107,988
Increase in deferred revenue 63,847 -
Cash receipts from direct financing leases
less than income recognized (7,421) (2,087)
(Increase) decrease in escrow deposits, net of
minority interest partners (20,000) 10,000
Increase in accrued rental income (30,341) (25,703)
Increase in other assets (3,766) (47,743)
Decrease (increase)in minority interest (1,282) 131,620
Net cash (used in) provided by ----------- -----------
operating activities (42,725) 565,105
----------- -----------
Cash flows from investing activities:
Acquisitions of real estate (325) (1,961,104)
Additions to furniture, fixtures and equipment (1,254) (813)
Investment in joint venture - 13,213
Change in notes receivable - (1,567,028)
Change in prepaid acquisition costs (717) (12,709)
----------- -----------
Net cash used in investing activities (2,296) (3,528,441)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable - 4,500,001
Payments of notes payable (1,994) -
Distributions paid to shareholders (43,183) (430,822)
Distributions to minority interest partners - (140,081)
Net cash (used in) provided by ----------- -----------
financing activities (45,177) 3,929,098
----------- -----------
Net (decrease) increase in cash and cash equivalents (90,198) 965,762
Cash and cash equivalents at beginning of period 1,118,746 48,520
----------- -----------
Cash and cash equivalents at end of period $ 1,028,548 $ 1,014,282
=========== ===========
See Notes to Consolidated Financial Statements.
4
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(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, 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
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
SPE1 Inc. ("SPE 1") and AmREIT Opportunity Corporation ("AOP"), 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 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 14 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 March 31,
2000 totaled $6,690.
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-month periods ended March 31, 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. Under the Credit
Facility, which had an original term of one year, and has been extended
through June 2000, 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 March 31, 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% (8.0625% as of March 31, 2000), set quarterly depending on the
Company's leverage ratio. As of March 31, 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 $992,910 being
outstanding at March 31, 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 March 31, 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 $1,237,632.
Aggregate annual maturity of the mortgage note payable for each of the
following five years ending December 31 are as follows:
2000 $ 6,144
2001 8,847
2002 9,617
2003 10,454
2004 11,364
Thereafter 946,484
---------
$ 992,910
7
<PAGE>
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 $ 4,129
2001 1,308
2002 545
---------
$ 5,982
=========
4. MAJOR TENANTS
The following schedule summarizes rental income by lessee for the three
months ended March 31, 2000 and March 31, 1999:
2000 1999
---- ----
Tandy Corporation $ 27,225 $ 27,225
America's Favorite Chicken Co. 24,570 23,905
Blockbuster Music Retail, Inc. 94,474 94,476
One Care Health Industries, Inc. 50,409 50,409
Just For Feet, Inc. 302,750 365,327
Bank United 39,448 39,449
Hollywood Entertainment Corp. 68,290 68,291
Don Pablos 19,612 19,612
Krispy Kreme - 44,819
OfficeMax, Inc. 129,623 129,622
International House of Pancakes 113,572 -
---------- ----------
$ 869,973 $ 863,135
========== ==========
5. EARNINGS PER SHARE
Basic earnings 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 per share for the periods indicated:
For the Three Months Ended March 31,
2000 1999
---- ----
BASIC EARNINGS PER SHARE
Weighted average common shares
outstanding 2,372,744 2,372,744
========== ==========
Basic (loss) earnings per share $ (.02) $ .14
========== ==========
DILUTED EARNINGS PER SHARE
Weighted average common shares
outstanding 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
========== ==========
Diluted (loss) earnings per share $ (.02) $ .14
========== ==========
EARNINGS FOR BASIC AND DILUTED COMPUTATION
Net (loss) income to common shareholders
(basic and diluted (loss) earnings
per share computation) $ (53,331) $ 321,688
========= ==========
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. 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 March 31, 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. The bankruptcy court 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 March 31, 2000 of approximately $26,816.
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 September 2000, however the
Company has the option to renew the lease for an additional three years.
Rental expense for the three months ended March 31, 2000 and 1999 was
$16,000 and $15,610 respectively. Future minimum lease payments required
under this operating lease, excluding renewal options, are $27,976 in the
year ended Dec. 31, 2000.
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 March 31, 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.
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 warants) 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 March 31, 2000 and 1999 all warrants that were issued in
connection with the above Securities issuance had expired.
11
<PAGE>
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 had an
original term of one year, and has been extended through June 2000, 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 March 31, 2000, these
covenants on the Credit Facility have been waived. The Credit Facility bears
interest at an annual rate of LIBO plus a spread of 1.875%. As of March 31,
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 $1,237,632, net of $48,222
of accumulated depreciation.
As of March 31, 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 March 31,
2000, the Company's cash and cash equivalents totaled $1,028,548.
The Company made cash distributions to the Shareholders for the three months
ended March 31, 2000 and 1999, distributing a total of $43,183 and $430,822
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 $379,407 or 86% to $59,951 for the three
months ended March 31, 2000 from $439,358 for the three months ended March 31,
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. 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 to funds from operations for the three
months ended March 31:
2000 1999
---- ----
Net income $ (53,331) $ 321,688
Plus depreciation 113,282 117,670
--------- ---------
Total funds from operations $ 59,951 $ 439,358
========= =========
Cash distributions paid $ 43,183 $ 430,822
Distributions in excess of FFO $ 16,768 $ 8,536
Management has revised the 1999 FFO calculation based on NAREIT's revised
definition. FFO originally reported for the three months ended March 31, 1999
was $459,881. The revised FFO calculation is $439,358. The difference of $20,253
represents potential acquisition costs expensed and recorded at March 31, 1999.
12
<PAGE>
Cash flows from operating activities, investing activities, and financing
activities for the three months ended March 31 are presented below:
2000 1999
---- ----
Operating activities $ (42,725) $ 565,105
Investing activities $ (2,296) $ (3,528,441)
Financing activities $ (45,177) $ 3,929,098
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 1999 to March 31, 1998:
During the three months ended March 31, 2000 and March 31, 1999, the Company
owned and leased 19 and 16 properties, respectively. During the three months
ended March 31, 2000 and March 31, 1999, the Company earned $869,973 and
$863,135, respectively, in rental income from operating leases and earned income
from direct financing leases.
During the three months ended March 31, 2000 and March 31, 1999, the Company's
expenses were $901,837 and $584,874, respectively. The $316,963 increase in
expenses is primarily attributable to a $241,584 increase in general and
administrative expenses primarily due to additional management level positions,
and increased professional fees of $49,347. The increase is also attributable
to an $65,488 increase in interest expense due to higher interest rates and
an increased debt balance. The overall increase in expense was partially offset
by a decrease in potential acquisition costs of $20,523.
13
<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
14
<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)
May 11, 2000 /s/ H. Kerr Taylor
- ------------ ------------------
Date H. Kerr Taylor, President
May 11, 2000 /s/ Chad C. Braun
- ------------ -------------------
Date Chad C. Braun (Principal Accounting Officer)
15
<PAGE>
EXHIBIT 11
AMREIT, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
2000 1999
---- ----
BASIC EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,372,744 2,372,744
=========== ===========
NET (LOSS) INCOME $ (53,331) $ 321,688
=========== ===========
BASIC (LOSS) EARNINGS PER SHARE $ (0.02) $ 0.14
=========== ===========
DILUTED EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 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
=========== ===========
NET (LOSS) INCOME $ (53,331) $ 321,688
=========== ===========
DILUTED (LOSS) EARNINGS PER SHARE $ (0.02) $ 0.14
=========== ===========
16
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,028,548
<SECURITIES> 0
<RECEIVABLES> 350,685
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,671,998
<PP&E> 29,989,344
<DEPRECIATION> 1,261,785
<TOTAL-ASSETS> 36,809,108
<CURRENT-LIABILITIES> 15,937,084
<BONDS> 0
0
0
<COMMON> 23,841
<OTHER-SE> 21,655,867
<TOTAL-LIABILITY-AND-EQUITY> 36,809,108
<SALES> 869,973
<TOTAL-REVENUES> 980,238
<CGS> 0
<TOTAL-COSTS> 901,837
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (53,331)
<INCOME-TAX> 0
<INCOME-CONTINUING> (53,331)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53,331)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
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