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 September 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
SEPTEMBER 30, 2000
(Unaudited)
ASSETS
Cash and cash equivalents $ 1,295,488
Accounts receivable 266,347
Prepaid expenses 60,732
Escrow deposits, land 35,313
Property:
Land 12,900,346
Buildings 16,983,284
Furniture, fixture and equipment 124,637
----------------
30,008,267
Accumulated depreciation (1,487,907)
----------------
Total property, net 28,520,360
----------------
Net investment in direct financing leases 5,975,171
Other assets:
Preacquisition costs 19,207
Accrued rental income 390,250
Investment in non-consolidating subsidiary 250,981
Other 71,979
----------------
Total other assets 732,417
----------------
TOTAL ASSETS $ 36,885,828
================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 15,474,259
Accounts payable 424,656
Deferred revenue 63,518
Security deposit 31,623
----------------
TOTAL LIABILITIES 15,994,056
----------------
Minority interest 5,142,855
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 (5,824,298)
Cost of treasury stock, 11,373 shares (106,493)
----------------
TOTAL SHAREHOLDERS' EQUITY 15,748,917
----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 36,885,828
================
See Notes to Consolidated Financial Statements.
2
<PAGE>
<TABLE>
AMREIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 $ 588,063 $ 818,405 $ 1,872,159 $ 2,396,370
Earned income from direct financing leases 166,392 85,484 501,421 256,286
Advisory fees 169,032 66,688 601,457 200,281
Interest income 1,989 28,945 28,695 178,180
(Loss) gain on sale of property (834) 261,776 (834) 261,776
Service fees and other income 32,052 52,540 39,220 227,873
----------- ----------- ------------ -----------
Total revenues 956,694 1,313,838 3,042,118 3,520,766
----------- ----------- ------------ -----------
Expenses:
General operating and administrative 246,563 311,734 1,011,488 740,327
Legal and professional 6,871 29,925 149,722 102,414
Interest 365,279 314,480 998,754 829,837
Depreciation 113,353 115,260 340,058 351,150
Amortization - - - 27,342
Potential acquisition costs 30,736 225,019 30,736 623,318
----------- ----------- ------------ -----------
Total expenses 762,802 996,418 2,530,758 2,674,388
----------- ----------- ------------ -----------
Income before federal income taxes
and minority interest in net income of
consolidated joint ventures 193,892 317,420 511,360 846,378
Federal income taxes from non-qualified
REIT subsidiaries - - - (63,596)
Minority interest in net income of
consolidated joint ventures (131,798) (131,675) 395,294 (394,946)
----------- ----------- ------------ -----------
Net income $ 62,094 $ 185,745 $ 116,066 $ 387,836
=========== =========== ============ ===========
Basic and diluted earnings
per share $ 0.03 $ .08 $ 0.05 $ 0.16
=========== =========== ============ ===========
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 NINE MONTHS ENDED SEPTEMBER 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 $ 62,094 $ 185,745 $ 116,066 $ 387,836
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization - - - 27,342
Depreciation 113,353 115,260 340,058 351,150
Loss (gain) on sale of property 834 (261,776) 834 (261,776)
Decrease (increase) in accounts receivable 37,201 (13,695) 165,835 (75,633)
(Increase) decrease in prepaid expense (44,997) 1,250 (39,907) 13,534
Increase (decrease) in accounts payable 110,428 3,399 (128,282) 147,372
Increase in security deposits 16,573 - 16,573 -
(Decrease) increase in deferred revenue (3,001) - 63,518 -
Cash receipts from direct financing leases
less than income recognized (5,930) (2,178) (20,021) (6,403)
(Increase) decrease in escrow deposits, net of
minority interest partners (5,313) - (35,313) 10,000
Increase in accrued rental income (19,035) (17,467) (57,082) (66,013)
(Increase) decrease in other assets (13,144) 11,644 (13,071) (44,105)
Increase in minority interest 131,798 131,675 395,294 394,946
----------- ----------- ----------- -----------
Net cash provided by operating activities 380,861 153,857 804,502 878,250
----------- ----------- ----------- -----------
Cash flows from investing activities:
Acquisition of real estate - (3,542,972) - (5,544,594)
Additions to furniture, fixtures and equipment (19,511) (9,500) (25,486) (31,758)
Proceeds from sale of property 3,496 2,786,809 3,496 2,786,809
Investment in joint venture (1,000) - (1,000) 362,149
Decrease in notes receivable - 1,540,485 - -
(Increase) decrease in prepaid acquisition costs (6,828) 116,116 (9,243) 93,039
----------- ----------- ----------- -----------
Net cash (used in) provided by investing
activities (23,843) 890,938 (32,233) (2,334,355)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock, net - - - 2,000
Proceeds from notes payable - - - 4,799,379
Payments of notes payable (2,084) (1,892) (6,119) (1,892)
Distributions paid to shareholders (59,999) (432,311) (156,423) (1,294,972)
Distributions to minority interest partners (144,321) (142,031) (432,985) (423,493)
----------- ----------- ----------- -----------
Net cash (used in) provided by financing
activities (206,404) (576,234) (595,527) 3,081,022
----------- ----------- ----------- -----------
Net increase in cash and cash equivalents 150,614 468,561 176,742 1,624,917
Cash and cash equivalents at end of period 1,144,874 1,204,876 1,118,746 48,520
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 1,295,488 $ 1,673,437 $ 1,295,488 $ 1,673,437
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 11.8 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 September 30, 2000 totaled
$9,778.
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 has evaluated the impact, and determined that the
adoption will not have a material impact 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 nine month
periods ended September 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.
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 February 2001, 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. As of September 30, 2000 the Company is in
compliance with all terms of the agreement. The Credit Facility bears interest
at an annual rate of LIBOR plus a spread of 1.875% (8.633% weighted average as
of September 30, 2000), set quarterly depending on the Company's leverage ratio.
As of September 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 $988,785 being
outstanding at September 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 September 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 $1,226,916.
Aggregate annual maturity of the mortgage note payable for each of the following
five years ending December 31 are as follows:
2000 $ 2,019
2001 8,847
2002 9,617
2003 10,454
2004 11,364
Thereafter 946,484
-----------
$ 988,785
===========
The Company assumed a 5-year lease agreement for its office telephone system.
The leases, which are treated as capital leases, terminate in September 2000 and
April 2002, at which time the Company has the option to purchase the equipment.
The leases combine for monthly lease payments totaling $424. Future minimum
lease payments required under these leases are summarized as follows:
2000 $ 1,266
2001 4,125
2002 436
-----------
$ 5,827
===========
7
<PAGE>
4. MAJOR TENANTS
The following schedule summarizes rental income by lessee for the three and
nine months ended September 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 $ 81,675 $ 81,675
America's Favorite Chicken Co. 24,570 25,860 73,709 73,668
Blockbuster Music Retail, Inc. 94,476 94,474 283,426 283,425
One Care/Memorial Hermann Hospital 50,409 50,412 151,227 151,230
Just For Feet, Inc. 177,273 365,433 657,226 1,096,145
Bank United 39,450 39,451 118,346 118,349
Hollywood Entertainment Corp. 68,288 68,293 204,872 204,874
Don Pablo's 19,612 19,612 58,836 58,836
Krispy Kreme - 12,148 - 97,408
OfficeMax, Inc. 129,623 129,623 388,869 388,868
International House of Pancakes 123,529 71,358 355,394 98,178
---------- ---------- ---------- ----------
$ 754,455 $ 903,889 $2,373,580 $2,652,656
========== ========== ========== ==========
</TABLE>
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 (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 PER SHARE
Weighted average common shares outstanding 2,372,744 2,372,744 2,372,744 2,372,744
=========== =========== =========== ===========
Basic earnings per share $ .03 $ .08 $ .05 $ .16
=========== =========== =========== ===========
DILUTED EARNINGS 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 per share $ .03 $ .08 $ .05 $ .16
=========== =========== =========== ===========
EARNINGS FOR BASIC AND DILUTED
COMPUTATION
Net income to common shareholders (basic
and diluted earnings per share computation) $ 62,094 $ 185,745 $ 116,066 $ 387,836
=========== =========== =========== ===========
</TABLE>
8
<PAGE>
6. RELATED PARTY TRANSACTIONS
Related Party Transactions Subsequent to the Merger:
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.
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. purchased the inventory of
Just For Feet, Inc., and assumed certain retail operating leases. Included in
the leases 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. 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. Just For Feet,
Inc. cured all deficiencies under the lease prior to the assumption of the
lease.
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. purchased the inventory of Just For Feet, Inc.,
and assumed certain retail operating leases. Included in the leases 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. Just For Feet, Inc. cured all
deficiencies under the lease prior to the assumption of the lease by Footstar,
Inc.
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%.
7. 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 September 30, 2000 and 1999 was $44,705 and $47,479
respectively. Future minimum lease payments required under this operating lease,
excluding renewal options, are $26,666.
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 September 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. At September 30, 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 September 30, 2000 and 1999 all warrants that were issued
in connection with the above Securities issuances 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. Under the Credit Facility, which had an
original term of one year, and has been extended through February 2001, 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. As of
September 30, 2000 the Company is in compliance with all terms of the agreement.
The Credit Facility bears interest at an annual rate of LIBOR plus a spread of
1.875%. As of September 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, and as of September 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 $1,226,916, net of
$58,938 of accumulated depreciation.
12
<PAGE>
As of September 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 September
30, 2000, the Company's cash and cash equivalents totaled $1,295,488.
The Company made cash distributions to the Shareholders for the three months
ended September 30, 2000 and 1999, distributing a total of $59,999 and $432,311
respectively. Distributions for the nine months ended September 30, 2000 and
1999 totaled $156,423 and $1,294,972 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 $282,862 or 38 % to $456,124 for the nine
months ended September 30, 2000 from $738,986 for the nine months ended
September 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 nine months ended September 30:
<TABLE> <CAPTION>
Quarter Year to Date
<S> <C> <C> <C> <C>
2000 1999 2000 1999
---- ---- ---- ----
Net income $ 62,094 $ 185,745 $ 116,066 $ 387,836
Plus depreciation 113,353 115,260 340,058 351,150
------------- -------------- -------------- --------------
Total funds from operations 175,447 301,005 456,124 738,986
============= ============== ============== ==============
Cash distributions paid 59,999 432,311 156,423 1,294,972
Distributions less (greater)
than of FFO $ 115,448 $ (131,306) $ 299,701 $ (555,986)
</TABLE>
Management has revised the 1999 FFO calculation based on NAREIT's revised
definition. FFO originally reported for the three and nine months ended
September 30, 1999 was $526,024 and $1,362,304 respectively. The difference of
$225,019 and $623,318 respectively represents potential acquisition costs
expensed and recorded during the nine months ended September 30, 1999.
13
<PAGE>
Cash flows from operating activities, investing activities, and financing
activities for the three and nine months ended September 30 are presented below:
Quarter Year to Date
2000 1999 2000 1999
---- ---- ---- ----
Operating activities $ 380,861 $ 153,857 $ 804,502 $ 878,250
Investing activities $ (23,843) $ 890,938 $ (32,233) $(2,334,355)
Financing activities $ (206,404) $ (576,234) $ (595,527) $ 3,081,022
RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 2000 to September 30, 1999:
During the three months ended September 30, 2000 and September 30, 1999, the
Company's revenues were $956,694 and $1,313,838 respectively. The $357,144
decrease in revenue is due to decreased gain on sale of property of $262,610 and
decreased rental income of $149,434 primarily caused by the stores Just For Feet
vacated due to their bankruptcy. Additionally interest income decreased $26,956
due to the collection of the note receivable outstanding in 1999. Increased
advisory fees of $102,344 offset the revenue decreases.
During the three months ended September 30, 2000 and September 30, 1999, the
Company's expenses were $762,802 and $996,418, respectively. The $233,616
decrease in expenses is primarily attributable to a $194,283 decrease in
partnership merger costs, a $65,171 decrease in general operating and
administrative and a $23,054 decrease in legal and professional expenses. The
cost decreases are partially offset by increased interest expense of $50,799 due
to higher interest rates and loan extension costs.
Comparison of the Nine Months Ended September 30, 2000 to September 30, 1999:
During the nine months ended September 30, 2000 and September 30, 1999, the
Company's revenues were $3,042,118 and $3,520,766 respectively. The $478,648
revenue decrease is primarily attributed to decreased rental income of $279,076
caused by the Just For Feet stores vacated due to their bankruptcy and a
decrease in in gain on sale of property pf $262,610. Interest income decreased
$149,485 due to the collection of the note receivable outstanding during 1999.
Increased advisory fee revenue of $401,176 helped offset the decreased rental
and interest revenue.
During the nine months ended September 30, 2000 and September 30, 1999, the
Company's expenses were $2,530,758 and $2,674,388, respectively. The $143,630
decrease in expenses is primarily attributable to a $592,582 decrease in
potential acquisition costs related to the merger of the partnerships. The
decrease in potential acquisition costs are offset by increases in general
operating and administrative of $271,161, legal and professional fees of $47,308
and interest expense of $168,917.
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)
November 14, 2000 /s/ H. Kerr Taylor
Date H. Kerr Taylor, President
November 14, 2000 /s/ Chad C. Braun
Date Chad C. Braun (Principal Accounting Officer)
16
<PAGE>
<TABLE>
EXHIBIT 11
AMREIT, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE NINE MONTHS ENDED SEPTEMBER 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 PER SHARE
Weighted average common shares outstanding 2,372,744 2,372,744 2,372,744 2,372,744
=========== =========== =========== ===========
NET INCOME $ 62,094 $ 185,745 $ 116,066 $ 387,836
=========== =========== ========== ===========
BASIC EARNINGS PER SHARE $ 0.03 $ .08 $ 0.05 $ 0.16
=========== ============ ========== ===========
DILUTED EARNINGS 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 $ 62,094 $ 185,745 $ 116,066 $ 387,836
=========== ============ =========== ============
DILUTED EARNINGS PER SHARE $ 0.03 $ 0.08 $ 0.05 $ 0.16
=========== ============ =========== ============
</TABLE>
17
