U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
or
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 0-28378
AMREIT, INC.
(Name of small business issuer in its charter)
Maryland 76-0410050
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
8 Greenway Plaza, Suite 824
Houston, Texas 77046
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (713) 850-1400
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Shares of Common
Stock
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days: Yes X No_____
Check if there is no disclosure of delinquent filers in response to Item 405
of Registration S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or informative
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $4,603,325
Aggregate market value of the voting stock held by non-affiliates of the issuer:
No Established Trading Market
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 2,372,744 shares of Common Stock as
of March 24, 2000
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Prospectus of Registrant dated June 18, 1996 (included in
Registration Statement No. 0-28378 of Registrant) and as supplemented February
28, 1997, October 16, 1997, December 1, 1997 and February 11, 1998 are
incorporated by reference into Part III.
2. Issuer incorporates by reference into Part III portions of its Proxy
Statement for the 1999 Annual Meeting of Shareholders.
Transitional Small Business Disclosure Format (check one): Yes No X
2
<PAGE>
PART I
Item 1. Description of Business
General
AmREIT, Inc., which changed its name from American Asset Advisers Trust, Inc. in
conjunction with the Merger (as described below) which was completed in June
1999 ("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 Company focuses on acquiring frontage retail properties that are located
primarily on corner or out-parcel locations in strong commercial corridors near
traffic generators, such as major regional malls. These properties, which
attract a wide array of established retail tenants, offer attractive
opportunities for stable current return and potential capital appreciation. In
addition, management believes that the location and design of properties in this
niche provide flexibility in use and tenant selection and an increased
likelihood of advantageous re-lease terms.
The Company has been successful in attracting tenants that operate in different
retail segments, including Radio Shack (leased to the Tandy Corporation),
Blockbuster Music (lease guaranteed by Viacom, Inc.), Popeye's Famous Chicken
(lease guaranteed by AFC, Inc.), OfficeMax, Inc.,International House of Pancakes
Hollywood Video ( leased to Hollywood Entertainment Corp.) and Bank United, a
Federal Savings Bank.
The Company owns four Just For Feet properties in fee simple. Two of these
properties are wholly-owned by the Company and two of these properties, located
in Baton Rouge, Louisiana and Tucson, Arizona, are owned in joint venture with
the Company owning a 51% and 51.9% majority. On November 4, 1999 Just For Feet,
Inc. filed 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. were the two properties that are owned by the Company through
a joint venture. The two wholly-owned properties were rejected by Just For Feet
on March 5, 2000. ( the "Bankruptcy" ). The company has both wholly-owned
properties currently listed for re-lease with local retail brokers. The
bankruptcy court in Delaware has ordered Just For Feet, Inc. to cure and pay any
deficiencies under the lease prior to the assumption of the two leases by
Footstar, Inc. These deficiencies include rent, property taxes and property
insurance. Footstar, the second largest retailer of athletic footwear and
apparel, is a public company, whose common stock is traded on the New York Stock
Exchange.
Properties acquired by the Company are generally newly constructed or recently
constructed as of the time of acquisition. To date, the Company has acquired
only properties that are subject to a lease in order to avoid the risks inherent
in initial leasing. The Company's leases typically provide that the tenant bears
responsibility for substantially all property costs and expenses associated with
ongoing maintenance and operation such as utilities, property taxes and
insurance. Some of the tenants' leases require that the Company is responsible
for roof and structural repairs. In these instances, the Company normally
requires warranties and/or guarantees from the related vendors, suppliers and/or
contractors, to mitigate the potential costs of repairs during the primary terms
of the leases.
<PAGE>
The Company's leases typically do not limit the Company's recourse against the
tenant and any guarantor in the event of a default, and for this reason are
considered "full-credit" leases.
A further description of the Company's business is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Item 6 of this Form 10-KSB.
The objectives of the Company are:
(1) to provide regular distributions to shareholders. The Company has
paid quarterly distributions to shareholders since July 1994 with
the exception of December 31, 1999 distribution which was eliminated
primarily due to the Just For Feet Bankruptcy. The Company reinstated
its dividend as of March 31, 2000 and intends to continue paying
quarterly distributions to shareholders. Distribution payments may
fluctuate during the life of the Company.
(2) to provide shareholders with long-term appreciation on their
investment. Management believes that the Company can realize its
objective of long-term appreciation of its property portfolio based on
the fact that most of the leases on the properties which the Company
3
<PAGE>
currently owns contain, and the Company expects that most of the leases
on the additional properties that it will acquire will contain,
periodic rent escalation provisions over the original and renewal terms
of such leases. Because the Company's properties are and are expected
to continue to be valued on the basis of their ability to produce
income, the Company believes that successive periodic rental income
increases resulting from such escalation provisions should increase the
value of the Company's properties over the long term. There is of
course no assurance the Company will in fact realize portfolio
appreciation.
(3) to conserve capital. The Company will attempt to conserve capital
by endeavoring to continue to invest in a diversified portfolio of
quality real estate under long-term leases to creditworthy tenants. The
amount of money raised in future offerings will affect the number of
properties the Company will be able to purchase. The more properties
the Company acquires, the more diversified it will be and the less it
will be affected by any single property that does not perform as
expected.
There is no assurance these objectives can be achieved.
The Merger
From 1993 to June 5, 1998, the Company and American Asset Advisers Realty
Corporation ("AAA") were party to an advisory agreement, pursuant to which AAA
provided certain management, advisory and acquisition services. AAA received an
annual fee, payable monthly, equal to 5% of rental income. Under the advisory
agreement, AAA generally was responsible for administering the day-to-day
investment operations of the Company, including investment analysis and
development, acquisitions, due diligence, and asset management and accounting
services. These duties included collecting rental payments, inspecting and
managing the properties, assisting the Company in responding to tenant inquiries
and notices, providing information to the Company about the status of the leases
and the properties, maintaining the Company's accounting books and records, and
preparing and filing various reports, returns or statements with various
regulatory agencies. In addition, AAA served as the Company's consultant in
connection with policy decisions to be made by the Board of Directors, managed
the Company's properties and rendered other services as the Board of Directors
deemed appropriate.
Historically, the Company did not have a large enough asset base to provide the
economies of scale needed to efficiently support the extensive general and
administrative expenses of an in-house management team. As a result, AAA had
incurred the full expense of a management and acquisition team while receiving
advisory and acquisition fees that have offset this expense. In 1997, however,
due to the Company's historical and anticipated growth, management believed that
the efficiencies derived from being externally advised had diminished and that
it would be more cost effective to become self-administered. As a result, at a
special meeting of the Company's Board of Directors held on December 31, 1997,
the Board of Directors, other than Mr. H. Kerr Taylor, who abstained from the
vote due to his interest in the transaction, approved an agreement and plan of
merger with AAA, which when approved by the shareholders of the Company on June
5, 1998 at a special meeting, resulted in the Company becoming a
self-administered and self-managed real estate investment trust. The Agreement
and Plan of Merger provided for the merger of AAA into a wholly owned subsidiary
of the Company pursuant to which all of the outstanding common stock of AAA was
exchanged for up to 900,000 shares (the "Share Consideration") of the Company's
common stock (the "Merger"). The common stock of AAA was wholly owned by the
president and director of the Company. Effective June 5, 1998, 213,260 shares
were issued and the balance (the "Share Balance") of the Share Consideration is
to be paid over a six year period to the extent certain goals are achieved after
the Merger. The 213,260 shares issued on June 5, 1999 were appropriately
accounted for as an expense in the Company's statement of operations. During
1999, no additional shares have been earned, paid or expensed. Upon consummation
of the Merger on June 5, 1998, certain employees of AAA became employees of the
Company, and any obligation to pay fees under the advisor agreement between
the Company and AAA was terminated and the Company assumed/took over AAA's
existing management contracts.
4
<PAGE>
Properties
At December 31, 1998, the Company owned nineteen properties, thirteen directly
and six through joint ventures, all in fee simple. Eight of these properties are
located in Texas, two each are located in Louisiana, Kansas and Georgia and one
each in Arizona, Delaware, Nevada, Mississippi and Missouri. Although the
specific terms of each lease vary, a summary of the terms of the leases is as
follows:
The primary term of the leases ranges from ten to twenty-five years. Sixteen of
the leases also provide for two to four five-year renewal options. The leases
are all "triple-net" leases under which the tenants are responsible for the
property taxes, insurance and operating costs. Annual rental income ranges from
$59,641 to $403,409. Seventeen of the leases provide for either percentage rents
based on sales in excess of certain amounts, periodic escalations in the annual
rental rates or both.
As of December 31, 1999, three of the Company's properties each accounted for
more than 10% of the Company's total assets. Summarized as follows are the
significant items pertaining to each of these leases:
On July 1, 1998, the Company acquired a newly constructed property on lease to
Just For Feet, Inc. for a purchase price of $3,928,997. This 1.59 acre property
is being operated as a Just For Feet retail store on U.S. 59 at First Colony
Boulevard in Sugar Land, Texas. The improvements are a single-tenant retail
building that contains approximately 16,900 square feet. The lease agreement
extends for fifteen years, however the tenant has the option to renew the lease
for two additional terms of five years each. The lease has provisions for an
escalation in the rent after the fifth and tenth years of the lease. The Company
recorded $381,705 of revenue from this property in 1999. This lease was rejected
by Just For Feet on March 5, 2000 in connection with the bankruptcy.
On June 3, 1998, the Company acquired a newly constructed property on lease to
Just For Feet, Inc. for a purchase price of $3,751,555. This 2.561 acre property
is being operated as a Just For Feet retail store on Lake Woodlands Drive in The
Woodlands, Texas. The improvements are a single-tenant retail building that
contains approximately 16,900 square feet. The lease agreement extends for
fifteen years, however the tenant has the option to renew the lease for two
additional terms of five years each. The lease has provisions for an escalation
in the rent after the fifth and tenth years of the lease. The Company recorded
$371,914 of revenue from this property in 1999. This lease was rejected by Just
For Feet on March 5, 2000 in connection with the bankruptcy.
On September 11, 1996, the Company acquired a 51.9% interest in a newly
constructed property on lease to Just For Feet, Inc. through a joint venture
with two entities with common management for the combined purchase price of
$3,680,383. This 2.938 acre property is being operated as a Just For Feet retail
store on the northwest corner of North Oracle Road and Old Tucson Florence
Highway in Tucson, Arizona. The improvements are a single-tenant retail building
that contains approximately 15,200 square feet. The lease agreement extends for
twenty years, however the tenant has the option to renew the lease for two
additional terms of five years each. The lease has provisions for an escalation
in the rent after the fifth, tenth, and fifteenth years of the lease. The
Company recorded $403,409 of revenue from this property in 1999. This lease was
assumed by Just For Feet on February 16, 2000 in connection with the bankruptcy.
For information regarding the results of operations and financial condition of
Just For Feet, Inc. or Footstar, Inc., refer to their Annual Report on Form 10-K
as filed with the Securities and Exchange Commission for the year ended January
31, 1999 and December 31, 1999, respectively.
The Company's leases specify the amount, if any, of insurance coverage required
to be carried by each tenant. Management of the Company believes that the
insurance policies required to be carried by the tenants combined with the
insurance carried by the Company will adequately cover the replacement cost of
the properties and any personal liability losses which the Company may sustain.
5
<PAGE>
Financing - Borrowing Policies
The Company may incur unsecured and secured borrowings, so long as the total
amounts of such borrowings do not exceed 300% of the Company's net assets on a
consolidated basis.
Competitive Conditions
The Company generally competes with other REIT's, real estate limited
partnerships and other investors, including, but not limited to, insurance
companies, pension funds and financial institutions, in the acquisition,
leasing, financing and disposition of investments in net-leased retail
properties.
Employees
At December 31, 1999, the Company had 13 employees, of which all were full-time
employees.
Item 2. Description of Property
At December 31, 1999, the Company owned nineteen properties in fee simple,
thirteen directly and six through joint ventures with related parties.
Properties are located in Texas, Georgia, Arizona, Missouri, Louisiana,
Delaware, Mississippi, Nevada and Kansas. Reference is made to the Schedule III
- - Consolidated Real Estate Owned and Accumulated Depreciation filed with this
Form 10-KSB for a listing of the properties and their respective costs.
Land - The Company's property sites range from approximately 34,000 to 125,000
square feet, depending upon building size and local demographic factors. Sites
purchased by the Company are in high traffic corridors and have been reviewed
for traffic and demographic pattern and history.
Buildings - The buildings are all single tenant and are generally rectangular.
They are positioned for good exposure to traffic flow and are constructed from
various combinations of stucco, steel, wood, brick and tile. Buildings range
from approximately 2,350 to 24,000 square feet. Buildings are suitable for
possible conversion to various uses, although modifications may be required
prior to use for other operations. The Company anticipates improvements costing
between $200,000 and $500,000 being required at each of the two Just For Feet
stores located in Sugarland, Texas and The Woodlands, Texas, in order to
accomodate a new tenant(s).
Leases - The primary term of the leases ranges from ten to twenty-five years.
Sixteen of the leases also provide for two to four five-year renewal options.
The leases are all "triple-net" leases whereby the tenants are responsible for
the property taxes, insurance and operating costs. Annual rental income ranges
from $59,641 to $406,648. Seventeen of the leases provide for either percentage
rents based on sales in excess of certain amounts, periodic escalations in the
annual rental rates or both.
Geographic Location - The properties are generally located within major
metropolitan areas (Standard Metropolitan Statistical Areas) with populations
that exceed 250,000. For additional information, see Note 6 to the financial
statements included in this Form 10-KSB.
As of December 31, 1999, a total of $35,816,828 has been invested in properties
by the Company on a consolidated basis. This includes land, building and
acquisition costs. A further description of the Company properties, including
acquisition fees and certain acquisition expenses, is included in Item 1
"Properties" and in Schedule III - Consolidated Real Estate Owned and
Accumulated Depreciation of this Form 10-KSB.
6
<PAGE>
Item 3. Legal Proceedings
The Company does not have any material legal proceedings pending.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to shareholders during the fourth quarter of the
fiscal year.
7
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
As of March 24, 2000, there were approximately 1,065 record holders of 2,372,744
shares of the Company's common stock, net of 11,373 shares held in treasury. No
established public trading market currently exists for the stock.
For the years ended December 31, 1999 and 1998, the Company paid distributions
of $1,294,972 and $1,591,545 respectively. A summary of the distributions by
quarter is as follows:
Quarter Ended 1999 1998
------------- ---- ----
March 31 $ 430,822 $ 341,965
June 30 431,839 387,634
September 30 432,311 428,990
December 31 - 432,956
The second quarter of 1994 marked the beginning of the Company's regular
operations and, consequently, the beginning of regular quarterly distribution
payments. The Company eliminated its quarterly dividend for the quarter ended
December 31, 1999 primarily due to the bankruptcy of Just For Feet. The Company
has reinstated its dividend for the first quarter 2000. The Company intends to
continue the payment of regular quarterly distributions. Other than loan
covenants, which have been waived by the Company's lender, there are currently
no material legal restrictions that would limit the Company's ability to pay
distributions.
For every two shares of stock acquired pursuant to the Company's initial public
offering, an investor also received one warrant. These warrants were exercisable
at $9 per share between March 17, 1997 and March 15, 1998. A total of 57,316
shares were issued from the exercise of the Warrants. At December 31, 1999 and
1998, the Company had no obligation for the warrants which are expired.
On June 5, 1998, the Company issued 213,260 shares of common stock to Mr. H.
Kerr Taylor in connection with the Company's merger with AAA. The 213,260 shares
were appropriately accounted for as an expense in the statement of operations
for the year ended December 31, 1998. This represents approximately 8.99% of the
Company's outstanding common stock at December 31, 1999.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The Company is a fully integrated, self-administered real estate investment
trust. The Company was organized on August 17, 1993 to acquire, either directly
or through joint venture arrangements, undeveloped, newly constructed and
existing net-lease real estate that is located primarily on corner or out-parcel
locations in strong commercial corridors, to lease on a net-lease basis to major
retail businesses and to hold the properties with the expectation of equity
appreciation producing a steadily rising income stream for its shareholders.
Through a wholly-owned subsidiary, the Company also provides advisory services
to 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.
Net cash provided by operating activities decreased by ($1,041,369) when
compared to 1998. This decrease in cash provided by operating activities was due
to the following components: (1) The decrease in merger costs of $2,283,322
related to the acquisition of American Asset Advisers Realty Corporation on June
5, 1998; (2) The gain on sale of assets of $278,000 in 1999 related to the sale
of certain real estate properties and (3) an increase in accounts receivable
of $530,506 primarily due to amounts due on the Just For Feet properties. This
overall decrease was partially offset by the increase in accounts payable of
$244,698 and the decrease in the net loss from $1,805,786 in 1998 to $37,862 in
1999.
Net cash used in investing activities decreased by $5,248,192 to $2,439,262 in
1999 when compared to 1998. This decrease was primarily due to proceeds from
sales of real estate properties of $3,646,821, the return on investment in joint
venture of $362,149 and the overall decrease in real estate acquisitions of
$859,842. Additionally, pre-acquisition costs increased by $321,596.
Net cash provided by financing activities decreased by $1,784,377 when compared
to 1998. The decrease was primarily due to the proceeds from the sale of common
stock in 1998 of $2,480,782. This decrease was partially offset by an increase
in proceeds from notes payable of $303,586 and a decrease in the distributions
paid to shareholders of $296,573.
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 December 31, 1999, 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
availability under its Line Of Credit, subject to use of proceeds approval by
the lender.
8
<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. Some of the tenants' leases require that the
Comapny is responsible for roof and structural repairs. 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 leases. Because many of the properties which are
subject to leases that place these responsibilities on the Company are recently
constructed, management anticipates that capital demands to meet obligations
with respect to these properties will be minimal for the foreseeable future and
can be met with funds from operations and working capital. The Company may be
required to use bank borrowing or other sources of capital in the event of
unforeseen significant capital expenditures.
The initial issuance of 20,001 shares of stock for $200,010 was to AAA. On March
17, 1994, the Company commenced an offering of 2,000,000 Shares of Common Stock,
together with 1,000,000 Warrants (collectively "Securities"). Until the
completion of the offering in March 1996, the Securities were offered on the
basis of two (2) Shares of Common Stock and one (1) Warrant for a total purchase
price of $20.00. The Shares and Warrants are separately transferable by an
investor. Each Warrant entitled the holder to purchase one Share for $9.00 until
March 15, 1998. The offering period for the initial public offering terminated
on March 15, 1996 with gross proceeds totaling $10,082,520 (1,008,252 shares).
In addition, $515,844 (57,316 shares) was received from the exercise of the
Warrants. On June 18, 1996, the Company commenced a follow-on offering of up to
$29,250,000 (2,853,659 shares) of additional shares of its common stock. The
offering terminated on May 22, 1998 with gross proceeds totaling $10,827,300
(1,056,946 shares). At December 31, 1999 and 1998 all Warrants that were issued
in connection with the above Securities issuance were 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 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 December 31, 1999, 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 December 31,
1999, $14,485,474 was outstanding under the Credit Facility.
As of December 31, 1999, 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 which the Company believes to have appropriate safety
of principal. This investment strategy has allowed, and continues to allow, high
liquidity to facilitate the Company's use of these funds to acquire properties
at such time as properties suitable for acquisition are located. At December 31,
1999, the Company's cash and cash equivalents totaled $1,118,746.
The Company made cash distributions to the Shareholders during each quarter of
1999 and 1998, distributing a total of $1,294,972 and $1,591,545, respectively,
for each such fiscal year.
9
<PAGE>
Inflation has had very little effect on income from operations. Management
expects that increases in store sales volumes due to inflation as well as
increases in the Consumer Price Index (C.P.I.), may contribute to capital
appreciation of the Company properties. These factors, however, also may have an
adverse impact on the operating margins of the tenants of the properties.
Funds From Operations
Funds from operations (FFO) increased $169,028 or 11.8% to $1,605,091 in 1999
from $1,436,063 in 1998. The Company has adopted the National Association of
Real Estate Investment Trusts (NAREIT) definition of FFO. FFO is calculated as
net income ( computed in accordance with generally accepted accounting
principles) excluding gains or losses from sales of property, depreciation and
amortization of real estate assets, and nonrecurring items of income or expense.
For purposes of the table below, FFO excludes nonrecurring merger costs, bad
debt expense related to the Just For Feet bankruptcy, pre-paid merger
acquisition costs and potential acquisition costs. FFO should not be considered
an alternative to cash flows from operating, investing and financing activities
in accordance with generally accepted accounting principles and is not
necessarily indicative of cash available to meet cash needs. The Company's
computation of FFO may differ from the methodology for calculating FFO
utilized by other equity REIT's and, therefore, may not be comparable to such
other REIT's. FFO is not defined by generally accepted accounting principles
and should not be considered an alternative to net income as an indication
of the Company's performance.
Below is the reconciliation of net income to funds from operations:
1999 1998
---- ----
Net income (loss) $ (37,862) $(1,805,786)
Plus depreciation of real estate assets 447,967 349,888
Plus bad debt related to Just For Feet 189,490 -
Plus pre-paid merger acquisition costs 262,495 -
Plus merger costs - 2,427,658
Plus potential acquisition costs 743,001 464,303
----------- -----------
Total funds from operations $ 1,605,091 $ 1,431,063
=========== ===========
Cash distributions paid $ 1,294,972 $ 1,591,545
Distributions in excess of FFO $ (310,119) $ 155,482
Cash flows from operating activities, investing activities, and financing
activities are presented below:
1999 1998
---- ----
Operating activities $ 468,700 $ 1,510,069
Investing activities $ (2,439,262) $ (7,687,454)
Financing activities $ 3,040,788 $ 4,824,165
Results of Operations
Years Ended December 31, 1999 and 1998:
During the years ended December 31, 1999 and 1998, the Company owned and leased
nineteen and seventeen properties, respectively. During the years ended December
31, 1999 and 1998, the Company earned $3,649,818 and $2,741,757, respectively,
in rental income from operating leases and earned income from direct financing
leases. The 33 percent increase in rental income and earned income during 1999,
as compared to 1998, is primarily attributable to rental income earned on the
three IHOP properties acquired during 1999. In addition, rental and earned
10
<PAGE>
income increased during 1999 as a result of the fact that the five properties
acquired during 1998 were operational for a full fiscal year in 1999.
The Company bought and sold three properties during 1999; an IHOP in Wichita,
Kansas, an IHOP in Visalia, California, and a Krispy Kreme in Houston, Texas.
The Company purchased these properties in ARIC, its consolidated affiliate,
with the intention to sell. The Company realized a gain on sale of these
properties of approximately $278,000.
No Merger costs for 1999 were incurred compared to Merger costs of $2,427,658 in
1998. These Merger costs were related to the merger of AAA. This merger was
finalized on June 5, 1998 and accordingly, no additional expense was recorded in
1999.
General and administrative costs were $1,290,433 in 1999 compared to $562,110 in
1998. Pursuant to the Merger with AAA, the Company acquired AAA and became
internally managed. Effective June 5, 1998, the reimbursements and fees paid to
AAA were replaced with the actual personnel and other operating costs associated
with being internally managed.
Potential acquisition costs for 1999 were $743,001 compared to only $464,303
in 1998. These potential acquisition costs are related to the proposed
acquisition of the ten affiliated limited partnerships. These potential
acquisition costs are primarily due to transaction related legal fees,
appraisals, accounting fees and underwriting/fairness fees.
Bad debt expense was $189,490 in 1999 compared to no amounts in 1998. This bad
debt expense is related to the Bankruptcy of Just For Feet. This represents
back rent, property taxes and property insurance for the properties located
in The Woodlands, Texas and Sugar Land, Texas. The Company has both properties
listed with local retail brokers and is working with brokers and tenants to re-
lease these properties.
Pre-paid merger related acquisition costs were $262,495 in 1999 compared to no
amounts in 1998. These costs are related to acquisition costs paid to AAA in
connection with locating, evaluating and selecting properties and structuring
and negotiating the acquisition of properties. As additional properties were
acquired, these costs were capitalized into the basis of the property.
At December 31, 1999 all properties and relationships with which AAA was
involved have been accounted for and the appropriate acquisition costs
capitalized into the basis of the property As such, AmREIT expensed the
remaining balance as of December 31, 1999.
Interest expense was $1,134,919 in 1999 compared to $402,707 in 1998. This is
due to an increase in the interest rates and the advancement of additional
funds on the Company's line of credit. The interest rate at December 31, 1999
was 8.375% compared to December 31, 1998 of 6.938%. Additionally, the amount
outstanding at December 31, 1999 was $14,485,474 compared to $10,580,110 at
December 31, 1998. The advancement of funds was primarily due to the purchase of
the three IHOP's located in Topeka, Kansas, Sugar Land, Texas and Reno, Nevada.
Year 2000 Compliance
The Year 2000 problem ("Y2K") concerns the inability of information and
non-information technology systems to properly recognize and process
date-sensitive information beyond January 1, 2000. The Company's information
technology system consists of a network of personal computers and servers built
using hardware and software from mainstream suppliers. The Company has no
internally generated programmed software coding to correct, as all of the
software utilized by the Company is purchased or licensed from external
providers.
In 1998, the Company formed a Year 2000 committee (the "Y2K Team") for the
purpose of identifying, understanding and addressing the various issues
associated with the Year 2000 problems. The Y2K Team consists of members from
the Company, including representatives from senior management, accounting and
computer consultants. The Y2K Team's initial step in assessing the Company's Y2K
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have potential Y2K problems.
The Company's information system is comprised of hardware and software
applications from mainstream suppliers; accordingly, the Y2K Team contacted
the respective vendors and manufacturers to verify the Y2K compliance of their
products. In addition, the Y2K Team also requested and evaluated documentation
from other companies with which the Company has a material third party
relationship, including the Company's tenants, major vendors, financial
institutions and the Company's transfer agent. The Company depends on its
tenants for rents and cash flows, its financial institutions for availability
of cash and financing and its transfer agent to maintain and track investor
information. The Company did not encounter any material Y2K impact of third
parties nor did they have a materially adverse effect on its results of
operation or financial position.
The Company has identified and has implemented upgrades for certain hardware
equipment and software applications. The Company did not incur more than $2,500
in Year 2000 remedial measures.
11
<PAGE>
Through March 30, 2000, the Company has not experienced any significant issues
related to the Year 2000. Based on this, the Company does not forsee significant
risks associated with the Year 2000.
Forward-Looking Statements
Certain information presented in this Form 10-KSB constitutes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Although the Company
believes that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, the Company's actual results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference include the following: changes in
general economic conditions, changes in real estate market conditions, continued
availability of proceeds from the Company's debt or equity capital, the ability
of the Company to locate suitable tenants for its properties and the ability of
tenants to make payments under their respective leases.
Item 7. Financial Statements.
The response to this item is submitted in Item 13(a) of this report and is
incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
12
<PAGE>
PART III
Item 9. Directors and Executive Officers
Reference is made to the Company's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14(a).
Item 10. Executive Compensation
Reference is made to the Company's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14(a).
Item 11. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the Company's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14(a).
Item 12. Certain Relationships and Related Transactions
Reference is made to the Company's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14(a).
13
<PAGE>
PART IV
Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a) (1) Financial Statements
Independent Auditors' Report
Consolidated Balance Sheet, December 31, 1999
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998
Notes to Consolidated Financial Statements for the Years
Ended December 31, 1999 and 1998
(2) Financial Statement Schedules: See (d) below
(3) Exhibits See (c) below
(b) Reports on Form 8-K filed after September 30, 1999:
None
(c) Exhibits
3.1 Articles of Incorporation (included as Exhibit 3.1 of the
Exhibits to Registration Statement No. 33-70654 of the
Company and incorporated herein by reference).
3.2 Articles of Amendment to the Articles of Incorporation
(included as Exhibit 3 (ii) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994
and incorporated herein by reference).
3.3 Articles of Amendment to the Articles of Incorporation
dated December 16, 1997 (included as Exhibit 3 (v) of the
Exhibits to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997 and incorporated
herein by reference).
3.4 Amended and Restated By-Laws, dated November 12, 1997
(included as Exhibit 3 (vi) of the Exhibits to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997 and incorporated herein by reference).
4 Form of Sales Warrant (included as Exhibit 4.3 to
Registration Statement No. 33-70654 of Company and
incorporated herein by reference).
10.1 Lease between Ironwood Development Corporation, as
landlord and Tandy Corporation, a Delaware corporation,
dated August, 1991 (included as Exhibit 10 (b) (2) of the
Exhibits to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein
by reference).
14
<PAGE>
10.2 Assignment and Assumption of the Lease between Ironwood
Development Corporation and American Asset Advisers
Trust, Inc., dated June 14, 1994 (included as Exhibit 10
(b) (1) of the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference).
10.3 Assignment of Guaranties and Warranties from Ironwood
Development Corporation to American Asset Advisers Trust,
Inc., dated June 14, 1994 (included as Exhibit 10 (b) (4)
of the Exhibits to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.4 Real Estate Sales Agreement between America's Favorite
Chicken Company and AAA Net Realty Fund X, Ltd., dated
June 13, 1994 (included as Exhibit 10 (b) (5) of the
Exhibits to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein
by reference).
10.5 Lease (the "AFCC Lease") between AAA Net Realty Fund X,
Ltd., as landlord and America's Favorite Chicken Company,
as tenant, dated June 13, 1994 (included as Exhibit 10
(b) (6) of the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.6 Assignment of the Agreement and the Lease form AAA Net
Realty Fund X, Ltd. to American Asset Advisers Trust,
Inc. (included as Exhibit 10 (b) (7) of the Exhibits to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by
reference).
10.7 First Amendment to AFCC Lease, dated July 22, 1994
(included as Exhibit 10 (b) (8) of the Exhibits to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference).
10.8 Agreement for Purchase and Sale of Real Estate (the "KCBB
Contract") between KCBB, Inc. and AAA Net Realty Fund X,
Ltd., dated October 12, 1994 (included as Exhibit 10 (b)
(9) of the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.9 Lease (the "KCBB Lease") between KCBB, Inc., as landlord
and Sound Warehouse, Inc., as tenant, dated November 19,
1993 (included as Exhibit 10 (b) (10) of the Exhibits to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by
reference).
10.10 Guaranty of KCBB Lease by Blockbuster Entertainment
Corporation (included as Exhibit 10 (b) (11) of the
Exhibits to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein
by reference).
10.11 Amendment to the KCBB Contract (included as Exhibit 10
(b) (12) of the Exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
15
<PAGE>
10.12 Joint Venture Agreement between the Company and AAA Net
Realty Fund X, Ltd., dated October 27, 1994 (included as
Exhibit 10 (b) (3) of the Exhibits to the Company's
Annual Report on Form 10-K for the year ended December
31, 1994, and incorporated herein by reference).
10.13 Assignment and Assumption of the Lease between KCBB, Inc.
and AAA Joint Venture 94-1, dated November 11, 1994
(included as Exhibit 10 (b) (4) of the Exhibits to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994, and incorporated herein by reference).
10.14 Assignment from KCBB, Inc. to AAA Joint Venture 94-1,
dated November 11, 1994 (included as Exhibit 10 (b) (15)
of the Exhibits to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.15 Assignment from KCBB, Inc., to AAA Joint Venture 94-1 of
warranties, dated November 11, 1994 (included as Exhibit
10 (b) (16) of the Exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
and incorporated herein by reference).
10.16 Agreement for Purchase and Sale of Real Estate (the "KCBB
Contract II") between KCBB, Inc. and the Company, dated
August 9, 1995 (included as Exhibit 10 (b) (17) of the
Exhibits to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein
by reference).
10.17 Lease (the "KCBB Lease II") between KCBB, Inc., as
landlord and Blockbuster Music Retail, Inc., as tenant,
dated August 9, 1995 (included as Exhibit 10 (b) (18) of
the Exhibits to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated
herein by reference).
10.18 Amendment to Agreement for Purchase and Sale of Real
Estate Assigning Agreement to AAA Joint Venture 95-2
(included as Exhibit 10 (b) (19) of the Exhibits to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference).
10.19 Joint Venture Agreement between the Company and AAA Net
Realty Fund XI, Ltd., dated August 24, 1995 (included as
Exhibit 10 (b) (20) of the Exhibits to the Company's
Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference).
10.20 Assignment and Assumption of the KCBB Lease II between
KCBB, Inc. and AAA Joint Venture 95-2, dated September
12, 1995 (included as Exhibit 10 (b) (21) of the Exhibits
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by
reference).
10.21 Assignment from KCBB, Inc. to AAA Joint Venture 95-2 of
Contracts and Warranties, dated September 12, 1995
(included as Exhibit 10 (b) (22) of the Exhibits to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference).
16
<PAGE>
10.22 Agreement for the Purchase and Sale of Real Estate
between Turner Adreac, L.C. and the Company, dated March
31, 1995 (included as Exhibit 10 (b) (23) of the Exhibits
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by
reference).
10.23 Assignment of Rents, Leases and Profits from Turner
Adreac, L.C. to American Asset Advisers Trust, Inc.,
dated March 31, 1995 (included as Exhibit 10 (b) (24)
of the Exhibits to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and incorporated
herein by reference).
10.24 Lease (the "OneCare Lease") between Turner Adreac, L.C.
and OneCare Health Industries, Inc., a Texas non-profit
corporation, dated February 17, 1995 (included as Exhibit
10 (b) (25) of the Exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
and incorporated herein by reference).
10.25 Assignment and Assumption of the OneCare Lease between
Turner Adreac, L.C. and American Asset Advisers Trust,
Inc., dated September 26, 1995 (included as Exhibit 10
(b) (26) of the Exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.26 Assignment of Warranties from Turner Adreac, L.C. to the
Company, dated September 26, 1995 (included as Exhibit 10
(b) (27) of the Exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.27 Agreement for Purchase and Sale of Real Estate between
Company and Tucson Oracle Limited Partnership (AZ
LP), dated January 19, 1996 included as Exhibit 10 (b)
(28) of the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.28 First Amendment to Agreement for the Purchase and Sale of
Real Estate between Company and Tucson Oracle Limited
Partnership (AZ LP), dated June 10, 1996 ( included as
Exhibit 10 (b) (29) of the Exhibits to the Company's
Annual Report on Form 10-K for the year ended December
31, 1996 and incorporated herein by reference).
10.29 Lease (the "Just For Feet Lease") between Cumberland
America Development Company, Inc. and Just for Feet,
Inc., dated August 10, 1995 (included as Exhibit 10
(b) (30) of the Exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
10.30 First Amendment to Just For Feet Lease, dated February
29, 1996 (included as Exhibit 10 (b) (31) of the Exhibits
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by
reference).
10.31 Second Amendment to Just For Feet Lease, dated May 29,
1996 (included as Exhibit 10 (b) (32) of the Exhibits to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by
reference).
17
<PAGE>
10.32 Third Amendment to Just For Feet Lease, dated January,
1997 (included as Exhibit 10 (b) (33) of the Exhibits to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by
reference).
10.33 Joint Venture Agreement between the Company and AAA Net
Realty Fund X, Ltd. and AAA Net Realty Fund XI, Ltd.,
dated April 5, 1996 (included as Exhibit 10 (b) (34) of
the Exhibits to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated
herein by reference).
10.34 Bill of Sale and Assignment between Tucson Oracle Limited
Partnership and AAA Joint Venture 96-1, dated September
6, 1996 (included as Exhibit 10 (b) (35) of the Exhibits
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by
reference).
10.35 Joint Venture Agreement between the Company and AAA Net
Realty Fund XI, Ltd., dated August 8, 1996 (included as
Exhibit 10 (b) (36) of the Exhibits to the Company's
Annual Report on Form 10-K for the year ended December
31, 1996 and incorporated herein by reference).
10.36 Revolving Credit Agreement, dated November 6, 1998, by
and among AmREIT, Inc., certain lenders and Wells Fargo
Bank, as the Agent, relating to a $30,000,000 loan
(included as Exhibit 10.1 of the Exhibits to the Company's
Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1998 and incorporated herein by reference).
11 Computation of earnings per common share.
21 Subsidiaries of the Company.
27 Financial Data Schedule.
Items 5, 6 and 7 of Part II and Item 13 of Part IV of this Form 10-KSB contain
the financial statements, financial statement schedule and other financial
information. No Annual Report or proxy material has yet been provided to
security holders with respect to 1999.
(d) Financial Statements Schedules
Schedule III - Consolidated Real Estate Owned and Accumulated
Depreciation
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Issuer has duly caused this report to be signed on its behalf
on the 30th of March 2000 by the undersigned, thereunto duly authorized.
AmREIT, Inc.
/s/ H. Kerr Taylor
------------------
H. Kerr Taylor, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Issuer and in
the capacities and on the dates indicated.
/s/ H. Kerr Taylor March 30, 2000
- ------------------
H. KERR TAYLOR
President, Chairman of the Board, Chief Executive
Officer and Director (Principal Executive Officer)
/s/ Robert S. Cartwright, Jr. March 30, 2000
- -----------------------------
ROBERT S. CARTWRIGHT, JR., Director
/s/ George A. McCanse, Jr. March 30, 2000
- --------------------------
GEORGE A. McCANSE, JR., Director
/s/ Chad C. Braun March 30, 2000
- -------------------
CHAD C. BRAUN, Vice President - Financial and
Secretary (Principal Accounting Officer)
19
<PAGE>
ANNUAL REPORT ON FORM 10-KSB
ITEMS 7, 13(a)(1) AND (2) AND 13(d)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
AND FINANCIAL STATEMENT SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 1999
AMREIT, INC. AND SUBSIDARIES
F-1
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
FINANCIAL STATEMENTS:
Independent Auditors' Report F-3
Consolidated Balance Sheet, December 31, 1999 F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 F-5
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 F-7
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1999 and 1998 F-8 to F-16
FINANCIAL STATEMENT SCHEDULE:
Schedule III Consolidated Real Estate Owned and Accumulated
Depreciation for the Year Ended December 31, 1999 F-17
All other financial statement schedules are omitted as the required information
is either inapplicable or is included in the financial statements or related
notes.
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
AmREIT, Inc.
We have audited the accompanying consolidated balance sheet of AmREIT, Inc. and
subsidiaries (the "Company") as of December 31, 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the two years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1999, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Houston, Texas
March 23, 2000
F-3
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Cash and cash equivalents $ 1,118,746
Accounts receivable, net of $189,490
in allowance for doubtful accounts 432,182
Prepaid expenses 20,825
Property:
Land 12,897,732
Buildings 16,963,946
Furniture, fixtures and equipment 126,087
---------------
29,987,765
Accumulated depreciation (1,148,503)
---------------
Total property, net 28,839,262
---------------
Net investment in direct financing leases 5,955,150
Other assets:
Preacquisition costs 9,964
Accrued rental income 333,168
Investment in non-consolidating subsidiary 249,981
Other 58,908
---------------
Total other assets 652,021
---------------
TOTAL ASSETS $ 37,018,186
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Note payable $ 15,480,378
Accounts payable 552,938
Security deposit 15,050
---------------
TOTAL LIABILITIES 16,048,366
---------------
Commitments and contingencies -
Minority interest 5,180,546
Shareholders' equity:
Preferred stock, $.01 par value,
10,001,000 shares authorized, none issued
Common stock, $.01 par value,
100,010,000 shares authorized,
2,384,117 shares issued 23,841
Capital in excess of par value 21,655,867
Accumulated distributions in excess of earnings (5,783,941)
Cost of treasury stock, 11,373 shares (106,493)
---------------
TOTAL SHAREHOLDERS' EQUITY 15,789,274
---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 37,018,186
===============
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
1999 1998
---- ----
Revenues:
Rental income from operating leases $ 3,119,594 $ 2,401,048
Earned income from direct financing leases 530,224 340,709
Interest income 199,448 98,692
Gain on sale of assets 278,000 -
Service fees and other income 476,059 187,577
------- -------
Total revenues 4,603,325 3,028,026
--------- ---------
Expenses:
General operating and administrative 1,290,433 562,110
Reimbursements and fees to related party - 40,607
Interest 1,134,919 402,707
Depreciation 467,455 355,114
Amortization 27,342 62,754
Merger related acquisition costs 262,495 -
Bad debt 189,490 -
Merger costs (note 8) - 2,247,658
Potential acquisition costs 743,001 464,303
------- -------
Total expenses 4,115,135 4,315,253
--------- -------
Income (loss) before minority interest
in net income of consolidated joint ventures 488,190 (1,287,227)
Minority interest in net income of
consolidated joint ventures (526,052) (518,559)
-------- --------
Net (loss) $ (37,862) $ (1,805,786)
============= =============
Basic (loss) per share $ (0.02) $ (0.81)
============= =============
Diluted (loss) per share $ (0.02) $ (0.81)
============= =============
Weighted average number of common
shares outstanding 2,372,744 2,226,403
========= =========
Weighted average number of common
shares outstanding
plus dilutive potential common shares 2,372,744 2,226,403
========= =========
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Accumulated
Capital in distributions Cost of
Common Stock excess of in excess of treasury
Number Amount par value earnings stock Total
------ ------ --------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1,868,213 $ 18,682 $ 16,665,300 $ (1,053,776) $ - $ 15,630,206
Net loss - - - (1,805,786) - (1,805,786)
Distributions ($.73 per share) - - - (1,591,545) - (1,591,545)
Issuance of common stock 515,904 5,159 5,252,768 - - 5,257,927
Stock issuance costs - - (262,201) - - (262,201)
Cost of treasury stock, 11,373 share - - - - (106,493) (106,493)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1998 2,384,117 23,841 21,665,867 (4,451,107) (106,493) 17,122,108
Net loss - - - (37,862) - (37,862)
Distributions ($.55 per share) - - - (1,294,972) - (1,294,972)
-------- -------- -------- -------- -------- --------
Balance at December 31,1999 $2,384,117 $23,841 $21,665,867 $(5,783,941) $(106,493) $15,789,274
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1999 1998
---- ----
Cash flows from operating activities:
Net (loss) $ (37,862) $ (1,805,786)
Adjustments to reconcile net (loss)
to net cash provided by
operating activities:
Amortization 27,342 62,754
Depreciation 467,455 355,114
Gain on sale of property (278,000) -
Merger costs - 2,283,322
(Increase) decrease in accounts
receivable (419,044) 111,462
Increase in prepaid expenses (7,291) (13,534)
Increase in accounts payable 351,659 106,961
Cash receipts from direct
financing leases less than
income recognized (35,093) (10,474)
Decrease in escrow deposits,
net of minority interest
partners 10,000 1,100
Increase in accrued rental income (94,952) (77,409)
Increase in other assets (41,566) (22,000)
Earnings of minority interest 527,052 518,559
------- -------
Net cash provided by operating
activities 469,700 1,510,069
--------- ---------
Cash flows from investing activities:
Acquisition of real estate (3,729,122) (7,337,349)
Acquisition of property under direct
financing lease (2,748,385) -
Proceeds from property sales 3,646,821 -
Additions of furniture, fixtures
and equipment (57,108) (5,019)
Investment in non consolidating
subsidiary (249,981) -
Investment in joint venture 362,149 (362,149)
-
Preacquisition costs 338,659 17,063
Short term investments (2,295) -
------ --------
Net cash used in investing activities (2,439,262) (7,687,454)
---------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock, net - 2,480,782
Common stock repurchases - (106,493)
Proceeds from note payable 4,905,364 4,601,778
Payments of notes payable (5,096) -
Distributions paid to shareholders (1,294,972) (1,591,545)
Distributions to minority interest
partners (564,508) (560,357)
-------- --------
Net cash provided by financing
activities 3,039,788 4,824,165
--------- ----------
Net Increase (decrease) in cash and
cash equivalents 1,070,226 (1,353,220)
Cash and cash equivalents at beginning
of year 48,520 1,401,740
--------- ---------
Cash and cash equivalents at end of year $ 1,118,746 $ 48,520
============== ===============
Supplemental disclosure of non-cash
financing activities:
Issuance of stock in lieu of note payment $ - $ 270,564
============== ===============
Issuance of stock in connection with Merger $ - $ 2,244,380
============== ===============
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
AMREIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
AmREIT, Inc., formerly American Asset Advisers Trust, Inc. ("Issuer" or the
"Company"), was incorporated in the state of Maryland on August 17, 1993. The
Company is a real estate investment trust (a "REIT") that acquires, develops,
owns and manages high-quality, freestanding properties leased to major retail
businesses under long-term commercial net leases. Through a wholly-owned
subsidiary, the Company also provides advisory services to twelve real estate
limited partnerships.
BASIS OF CONSOLIDATION
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 SPE 1 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. H Kerr
Taylor ownes 100% of the outstanding common shares of ARIC and AOP. The common
shares are entitled to receive dividends equal to 5% of the net income and are
expected to be paid from cash flows, if any, and are accounted for as minority
interest on the balance sheet at December 31, 1999. AOC and AOP were formed with
the intention to qualify and to operate as a real estate investment trust under
federal tax laws. All significant intercompany accounts and transactions have
been eliminated in consolidation. The Company owns greater than 50% of the
aforementioned joint ventures and exercises control over operations.
BASIS OF ACCOUNTING
The financial records of the Company are maintained on the accrual basis of
accounting whereby revenues are recognized when earned and expenses are recorded
when incurred.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds.
PROPERTY
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.
F-8
<PAGE>
Under the operating method, the properties are recorded at cost. Rental income
is recognized ratably over the life of the lease and depreciation is charged
based upon the estimated useful life of the property. Under the direct financing
method, properties are recorded at their net investment (see Note 3). Unearned
income is deferred and amortized to income over the life of the lease so as to
produce a constant periodic rate of return.
Expenditures related to the development of real estate are carried at cost plus
capitalized carrying charges, acquisition costs and development costs. Carrying
charges, primarily interest and loan acquisition costs, and direct and indirect
development costs related to buildings under construction are capitalized as
part of construction in progress. The Company capitalizes acquisition costs once
the acquisition of the property becomes probable. Prior to that time the
Company expenses these costs as acquisition expense. Interest of $316,492 was
capitalized on properties under construction during 1998 and no interest costs
were capitalized for 1999.
Management reviews its properties for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets, including accrued
rental income, may not be recoverable through operations. Management determines
whether an impairment in value occurred by comparing the estimated future cash
flows (undiscounted and without interest charges), including the residual value
of the property, with the carrying cost of the individual property. If an
impairment is indicated, a loss will be recorded for the amount by which the
carrying value of the asset exceeds its fair value.
DEPRECIATION
Buildings are depreciated using the straight-line method over an estimated
useful life of 39 years.
INVESTMENT IN NON CONSOLIDATED SUBSIDIARY
AOP invested $250,000 as a limited partner and $1,000 as a general partner in
AmREIT Opportunity Fund, Ltd. that 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 15 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
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 December 31, 1999 totaled
$5,146.
STOCK ISSUANCE COSTS
Issuance costs incurred in the raising of capital through the sale of common
stock are treated as a reduction of shareholders' equity.
STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
There has been no cash paid for income taxes during 1999 or 1998. During 1999
and 1998, the Company paid interest of $1,143,310 and $635,177, respectively,
of which none was capitalized for 1999 and $316,492 was capitalized on
properties under construction for 1998.
REVENUE RECOGNITION
Properties are leased on a triple-net basis. Revenue is recognized on a straight
- -line basis over the terms of the individual leases. Percentage rents are
recognized when received.
F-9
<PAGE>
FEDERAL INCOME TAXES
The Company is qualified as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, and is, therefore, not subject to Federal income
taxes provided it meets all conditions specified by the Internal Revenue Code
for retaining its REIT status, including the requirement that at least 95% of
its real estate investment trust taxable income is distributed by March 15 of
the following year.
EARNINGS (LOSS) PER SHARE
Basic earnings per share has been computed by dividing net income to common
shareholders by the weighted average number of common shares outstanding.
Diluted earnings per share has been computed by dividing net income to common
shareholders (as adjusted) by the weighted average number of common shares
outstanding plus dilutive potential common shares.
The following table presents information necessary to calculate basic and
diluted earnings per share for the periods indicated:
For the Years Ended December 31,
1999 1998
---- ----
BASIC EARNINGS (LOSS) PER SHARE
Weighted average common shares
outstanding 2,372,744 2,226,403
============= =============
Basic earnings (loss) per share $ (.02) $ (.81)
============= =============
DILUTED EARNINGS (LOSS) PER SHARE
Weighted average common shares
outstanding 2,372,744 2,226,403
============= =============
Diluted earnings (loss)per share $ (.02) $ (.81)
============= =============
EARNINGS (LOSS) FOR BASIC AND DILUTED
COMPUTATION
Net income (loss) to common
shareholders (basic and diluted
earnings per share computation) $ (37,862) $ (1,805,786)
============= =============
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company'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.
NEW ACCOUNTING PRONOUNCEMENTS
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 ammended 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 Comapny's consolidated financial statements.
F-10
<PAGE>
2. OPERATING LEASES
A summary of minimum future rentals to be received, exclusive of any renewals,
under noncancellable operating leases in existence at December 31, 1999 is as
follows:
2000 $ 2,388,120
2001 2,271,553
2002 2,306,537
2003 2,327,109
2004 2,217,489
2005-2024 14,512,504
-------------
$ 26,023,312
=============
3. NET INVESTMENT IN DIRECT FINANCING LEASES
The Company's net investment in its direct financing leases at December 31, 1999
included:
Minimum lease payments receivable $ 15,484,758
Unguaranteed residual value 2,811,998
Less: Unearned income 12,341,606
--------------
$ 5,955,150
==============
A summary of minimum future rentals, exclusive of any renewals, under the
noncancellable direct financing leases follows:
2000 $ 641,861
2001 648,523
2002 668,508
2003 668,508
2004 684,222
2005-2016 12,173,137
--------------
$ 15,484,759
==============
F-11
<PAGE>
4. JOINT VENTURES
CONSOLIDATED JOINT VENTURES
The Company consolidates its joint ventures listed below due to its ability to
control operations. Pursuant to the Joint Venture Agreements that incorporate
the provisions to the Texas Revised Partnership Act, the Company as majority
owner may make management decisions, such as the sale of the property, without
the consent of the minority joint venture interests.
On 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 15%.
On October 16, 1997, the Company entered into a joint venture with AAA Net
Realty XI, Ltd., an entity with common management. The joint venture was formed
for the purchase of a property, which is being operated as a Hollywood Video
store in Lafayette, Louisiana. The property was purchased on October 31, 1997
after the construction was completed. The Company's interest in the joint
venture is 74.58%.
On February 11, 1997, the Company entered into a joint venture with AAA Net
Realty XI, Ltd. The joint venture was formed for the purchase of a property,
which is being operated as a Just For Feet retail store in Baton Rouge,
Louisiana. The property was purchased on June 9, 1997 after the construction was
completed. The Company's interest in the joint venture is 51%. On 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
property located in Baton Rouge, Louisiana. The bankruptcy court in Delaware has
ordered Just For Feet, Inc.to cure and pay any deficiencies under the lease
prior to the assumption of the lease by Footstar, Inc. These deficiencies
include rent, property taxes and property insurance. Footstar, Inc.is the second
largest retailer of athletic footwear and apparel. Footstar Inc. is a publicly
owned company whose common stock is traded on the New York Stock Exchange.
On September 23, 1996, the Company formed a joint venture, AAA Joint Venture
96-2, with AAA Net Realty Fund XI, Ltd. The joint venture was formed for the
purpose of acquiring a parcel of land in The Woodlands, Texas upon which the
tenant, Bank United, constructed a branch bank building at its cost. At the
termination of the lease the improvements will be owned by the joint venture.
The Company's interest in the joint venture is 51%.
On April 5, 1996, the Company formed a joint venture, AAA Joint Venture 96-1,
with AAA Net Realty Fund XI, Ltd. and AAA Net Realty Fund X, Ltd., entities with
common management, for the purpose of acquiring a property which is being
operated as a Just For Feet retail store in Tucson, Arizona. The property was
purchased on September 11, 1996 after construction was completed. The Company's
interest in the joint venture is 51.9%. As part of the Just For Feet, Inc.
bankruptcy 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 has ordered Just
For Feet, Inc. to cure and pay any deficiencies under the lease prior to the
assumption of the lease by Footstar, Inc. These deficiencies include rent,
property taxes and property insurance. Footstar, Inc. is the second largest
retailer of athletic footwear and apparel. Footstar Inc. is a publicly owned
company whose common stock is traded on the New York Stock Exchange.
On September 12, 1995, the Company formed a joint venture, AAA Joint Venture
95-2, with AAA Net Realty Fund XI, Ltd. for the purpose of acquiring a property
in Wichita, Kansas on lease to Blockbuster Music Retail, Inc. The Company's
interest in the joint venture is 51%.
On October 27, 1994, the Company formed a joint venture, AAA Joint Venture 94-1,
with AAA Net Realty Fund X, Ltd. for the purpose of acquiring a property in
Independence, Missouri on lease to Blockbuster Music Retail, Inc. The Company's
interest in the joint venture is 54.84%.
F-12
<PAGE>
5. NOTES PAYABLE
In November 1998, the Company entered into an unsecured credit facility (the
"Credit Facility"), which is being used to provide funds for the acquisition of
properties and working capital, and repaid all amounts outstanding under the
Company's prior credit facility. Under the Credit Facility, which 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 Decenber 31, 1999, 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% (8.375% as of December 31, 1999),
set quarterly depending on the Company's leverage ratio. As of December 31,
1999, $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 $994,904 being
outstanding at December 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 December 31, 1999 the Company is in compliance with all terms of the
agreement.The note is collateralized by a first lein mortgage on propert with an
aggregate carrying value of approximately $1,242,990.
Aggregate annual maturity of the mortgage note payable for each of the following
five years ending December 31 are as follows:
2000 $ 8,138
2001 8,847
2002 9,617
2003 10,454
2004 11,364
Thereafter 946,484
------------
$ 994,904
============
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. Monthly lease payments total $313. Future
minimum lease payments required under these leases are summarized as follows:
2000 $ 5,068
2001 1,308
2002 545
------------
$ 6,921
============
6. MAJOR TENANTS
The Company's operations are related to the acquisition and leasing of
commercial real estate properties. The following schedule summarizes rental
income by lessee for 1999 and 1998 under both operating and direct financing
methods of accounting:
1999 1998
---- ----
Tandy Corporation
(Mesquite, Texas) $ 108,900 $ 108,900
America's Favorite
Chicken Company (Smyrna, Georgia) 98,896 98,265
Blockbuster Music Retail, Inc.
(Independence, Missouri and
Wichita, Kansas) 376,682 377,901
OneCare Health Industries, Inc.
(Houston, Texas) 201,637 202,800
Just For Feet, Inc.
(Tucson, Arizona; Baton Rouge, Louisiana;
The Woodlands, Texas and Sugar Land, Texas)(1) 1,461,584 1,096,233
Bank United (The Woodlands, Texas and
Houston, Texas) 157,801 157,801
Hollywood Entertainment Corp. (Lafayette,
Louisiana and Ridgeland, Mississippi) 273,163 273,931
OfficeMax, Inc. (Lake Jackson, Texas
and Dover, Delaware) 518,493 406,622
D F & R Operating Company, Inc.
(Peachtree City, Georgia) 78,447 3,288
Krispy Kreme Doughnuts of the Gulf
Coast, Ltd. (Houston, Texas) 97,408 16,016
International House of Pancakes ( Reno, Nevada;
Topeka and Wichita, Kansas; Visalia, California
and Houston, Texas) 276,807 -
------------ ------------
Total $ 3,649,818 $ 2,741,757
============ ============
(1) The Woodlands, Texas and Sugar Land, Texas Just For Feet stores are vacant
due to the Just For Feet bankruptcy. The Company is in the process of re-leasing
these properties.
F-13
<PAGE>
7. FEDERAL INCOME TAXES
The differences between net income for financial reporting purposes and taxable
income before distribution deductions relate primarily to temporary differences,
and to merger costs and potential acquisition costs which are expensed for
financial reporting purposes.
For income tax purposes, distributions paid to shareholders consist of ordinary
income, capital gains and return of capital as follows:
1999 1998
---- ----
Ordinary Income $ 689,996 $ 780,588
Return of capital 604,976 810,957
--------------- ----------------
$ 1,294,972 $ 1,591,545
=============== ================
8. MERGER TRANSACTION
On June 5, 1998, the Company's shareholders voted to approve an agreement and
plan of merger with American Asset Advisers Realty Corporation ("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 no costs during 1999
and costs of $144,336 during 1998, 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. The Company assumed / took over AAA's existing management
contracts. 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.
9. RELATED PARTY TRANSACTIONS
See Note 8 regarding the Merger and Note 4 regarding joint venture agreements
with related parties.
F-14
<PAGE>
RELATED PARTY TRANSACTIONS SUBSEQUENT TO THE MERGER:
Beginning June 5, 1998, the Company provides property acquisition, leasing,
administrative and management services for eleven affiliated real estate limited
partnerships (the "Partnerships"). The president and director of the Company
owns between 45% and 100% of the stock of the companies that serve as the
general partner of the Partnerships. Service fees of $259,871 and $138,340 were
paid by the Partnerships to the Company for 1999 and 1998 respectively.
On May 20, 1999, the Company entered into a partnership agreement with various
individual investors to form AmREIT Opportunity Fund, Ltd. The partnership was
formed to develop, own, manage, hold for investment and or resell property to
make and or invest in loans for the development or construction of property. The
Company invested $250,000 as a Limited Partner and $1,000 as the General
Partner.
RELATED PARTY TRANSACTIONS PRIOR TO THE MERGER:
Prior to June 5, 1998, the Company was a party to an Omnibus Services Agreement
with AAA whereby AAA provided property acquisition, leasing, administrative and
management services for the Company. Service fees of $40,607 were incurred and
charged to expense for the period beginning January 1, 1998 through June 5,
1998.
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. AAA incurred Costs of
$56,164 for the period ended June 5, 1998 in connection with the issuance
and marketing of the Company's stock. These costs are reflected as issuance
costs and are recorded as a reduction to capital in excess of par value.
Acquisition fees, including real estate commissions, finders fees, consulting
fees and any other non-recurring fees incurred in connection with locating,
evaluating and selecting properties and structuring and negotiating the
acquisition of properties are included in the basis of the properties.
Acquisition fees of $123,389 were incurred and paid to AAA for the period ended
June 5, 1998.
F-15
<PAGE>
10. PROPERTY ACQUISITIONS AND DISPOSITIONS IN 1999
On September 30, 1999, the Company acquired a newly constructed property on
lease to IHOP Properties, Inc. for a purchase price of $1,409,959. This property
is being operated as an IHOP restaurant on Wanamaker Road in Topeka, Kansas. The
lease agreement extends for twenty five years, however the tenant has the option
to renew the lease for three additional terms of five years each. The lease has
provisions for an escalation in the rent every the fifth year of the lease. The
Company recorded $62,076 of revenue from this property in 1999.
On September 30, 1999, the Company acquired a newly constructed property on
lease to IHOP Properties, Inc. for a purchase price of $1,703,634. This property
is being operated as an IHOP restaurant on U.S. 59 frontage road in Sugar Land,
Texas. The lease agreement extends for twenty five years, however the tenant has
the option to renew the lease for three additional terms of five years each. The
lease has provisions for an escalation in the rent every fifth year of the lease
The Company recorded $75,427 of revenue from this property in 1999.
On September 22, 1999, the Company acquired a newly constructed property on
lease to IHOP Properties, Inc. for a purchase price of $1,372,825. This property
is being operated as an IHOP restaurant on North McCarren in Reno, Nevada. The
lease agreement extends for twenty five years, however the tenant has the option
to renew the lease for three additional terms of five years each. The lease has
provisions for an escalation in the rent every fifth year of the lease. The
Company recorded $61,552 of revenue from this property in 1999.
In November of 1998, the Company acquired a newly constructed property in
Houston, Texas leased to KK Shadowlake, Ltd. for a purchase price of $1,371,459.
This property is being operated as a Krispy Kreme doughnut shop. In July of
1999, the Company disposed of this property for $1,577,287 resulting in a gain
on sale of $136,576 after selling expenses. The Company recorded $97,408 of
rental income from this property in 1999.
In October of 1999, the Company acquired newly constructed property located on a
ground lease in Visalia, California leased to IHOP Properties, Inc. for a
purchase price of $825,603. This property is being operated as an IHOP
restaurant. In December of 1999, the Company disposed of this property for
$973,575 resulting in a gain on sale of $16,953 after selling expenses. The
Company recorded $75,453 of rental income from this property in 1999.
In July of 1999, the Company finalized an acquisition of a newly constructed
property in Wichita, Kansas leased to IHOP Properties, Inc. for a total
purchase price of $1,124,749. This property is being operated as an IHOP
restaurant. In August of 1999, the Company disposed of this property for
$1,334,000 resulting in a gain on sale of $125,200 after selling expenses. The
Company recorded $2,299 of rental income from this property in 1999.
11. COMMITMENT
As part of the Merger, the Company assumed a 3-year lease agreement for its
office facilities. The lease terminates in September 2000, however the Company
has the option to renew the lease for an additional three years. Rental expense
for the years ended December 31, 1999 and 1998 was $63,520 and $36,256
respectively. Future minimum lease payments required under this operating lease,
excluding renewal options, are summarized as follows:
2000 $ 43,976
F-16
<PAGE>
AmREIT, INC. AND SUBSIDIARIES
SCHEDULE III - CONSOLIDATED REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
LIFE ON
WHICH
DEPR. IN
LATEST
COST AT INCOME
PROPERTY ENCUM- IMPROVE- CLOSE OF YEAR ACCUM. DATE OF DATE STMT. IS
DESCRIPTION BRANCES BUILDING LAND MENTS BUILDING LAND DEPR. CONSTR. ACQUIRED COMPUTED
----------- ------- -------- ---- ----- -------- ---- ----- ------- -------- --------
PROPERTIES INVESTED IN
UNDER OPERATING LEASES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Radio Shack Retail Store, Tx. $0 $788,330 $337,856 $0 $788,330 $337,856 $111,965 N/A 06-15-94 39 Years
Church's Chicken Restaurant, Ga. $0 $0 $251,071 $0 $0 $251,071 N/A N/A 07-22-94 N/A
Blockbuster Music Store, Mo. $0 $1,145,410 $490,747 $0 $1,145,410 $490,747 $150,497 N/A 11-14-94 39 Years
OneCare Health Ind.,Inc.,Tx. $0 $1,246,200 $534,086 $0 $1,246,200 $534,086 $135,843 N/A 09-26-95 39 Years
Blockbuster Music Store, Ks. $0 $1,255,774 $538,189 $0 $1,255,774 $538,189 $138,189 N/A 09-12-95 39 Years
Just For Feet Store, Az. $0 $0 $1,101,425 $0 $0 $1,101,425 N/A N/A 09-11-96 N/A
Bank United, Woodlands, Tx. $0 $0 $531,693 $0 $0 $531,693 N/A N/A 09-23-96 N/A
Bank United, Houston, Tx. $0 $0 $851,973 $0 $0 $851,973 N/A N/A 12-11-96 N/A
JustForFeet Store, La. $0 $2,036,150 $872,635 $0 $2,036,150 $872,635 $133,569 N/A 06-09-97 39 Years
Hollywood Video Store, La. $0 $729,286 $418,156 $0 $729,286 $418,156 $40,517 N/A 10-31-97 39 Years
Hollywood Video Store, Ms. $0 $835,854 $450,000 $0 $835,854 $450,000 $42,864 N/A 12-30-97 39 Years
OfficeMax, Tx. $0 $1,914,572 $491,094 $0 $1,914,572 $491,094 $91,316 N/A 02-20-98 39 Years
OfficeMax, De. $0 $1,978,313 $870,480 $0 $1,978,313 $870,480 $80,316 N/A 04-14-98 39 Years
JustForFeet Store, Woodlands,Tx. $0 $2,385,103 $1,366,452 $0 $2,385,103 $1,366,452 $96,831 N/A 06-03-98 39 Years
JustForFeet Store, Sugar Land,Tx. $0 $2,648,954 $1,280,043 $0 $2,648,954 $1,280,043 $101,883 N/A 07-01-98 39 Years
Don Pablo's, Ga. $0 $0 $773,800 $0 $0 $773,800 N/A N/A 12-18-98 N/A
IHOP, Reno, Nv. $0 $0 $546,166 $0 $0 $546,166 N/A N/A 09-30-99 N/A
IHOP, Topeka, Ks. $0 $0 $450,984 $0 $0 $450,984 N/A N/A 09-30-99 N/A
IHOP, Sugar Land, Tx. $0 $0 $740,882 $0 $0 $740,882 N/A N/A 09-22-99 N/A
-- -------- -------- -- -------- -------- ------
Total $0 $16,963,946 $12,897,732 $0 $16,963,946 $12,897,732 $1,123,790
== =========== =========== == =========== =========== ==========
PROPERTY INVESTED IN UNDER
DIRECT FINANCING LEASE
Church's Chicken Restaurant, Ga. $0 $585,798 $0 $0 $585,798 $0 (1) N/A 07-22-94 N/A
JustForFeet Store, Az. $0 $2,594,532 $0 $0 $2,594,532 $0 (1) N/A 09-11-96 N/A
IHOP, Reno, Nv. $0 $834,685 $0 $0 $834,685 $0 (1) N/A 09-30-99 N/A
IHOP, Topeka, Ks. $0 $967,185 $0 $0 $967,185 $0 (1) N/A 09-30-99 N/A
IHOP, Sugar Land, Tx. $0 $972,950 $0 $0 $972,950 $0 (1) N/A 09-22-99 N/A
-- ---------- -- -- ---------- --
Total $0 $5,955,150 $0 $0 $5,955,150 $0 (1)
== ========== == == ========== ==
(1) The portion of the lease relating to the building of this property has been
recorded as a direct financing lease for financial reporting purposes.
Consequently, depreciation is not applicable.
(2) Transactions in real estate and accumulated depreciation during 1999, 1998
and 1997 for operating lease properties are summarized as follows:
Accumulated
Cost Depreciation
---- ------------
Balance at December 31, 1996 $9,070,654 $195,256
Acquisitions $5,346,024 $0
Depreciation expense $0 $146,016
----------- ----------
Balance at December 31, 1997 $14,416,678 $341,272
Acquisitions $15,078,709 $0
Depreciation expense $0 $349,888
----------- ----------
Balance at December 31, 1998 $29,495,387 $691,160
Acquisitions $3,729,122 $0
Disposals ($3,362,831) ($15,337)
Depreciation expense $0 $447,967
----------- ----------
Balance at December 31, 1999 $29,861,678 $1,123,790
=========== ==========
(3) The aggregate cost of all properties for Federal Income Tax purposes is
$35,816,828 at December 31, 1999.
</TABLE>
F-17
EXHIBIT 11
AMREIT, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
For the Year Ended December 31,
1999 1998
---- ----
BASIC EARNINGS (LOSS) PER SHARE:
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING $2,372,744 $2,226,403
=========== ============
NET INCOME (LOSS) ($37,862) ($1,805,786)
=========== ============
BASIC EARNINGS (LOSS) PER SHARE ($0.02) ($0.81)
=========== ============
DILUTED EARNINGS (LOSS) PER SHARE:
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING $2,372,744 $2,226,403
SHARES ISSUABLE FROM ASSUMED
CONVERSION OF STOCK WARRANTS - -
----------- ------------
TOTAL WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, AS ADJUSTED $2,372,744 $2,226,403
=========== ============
NET INCOME (LOSS) ($37,862) ($1,805,786)
=========== ============
DILUTED EARNINGS (LOSS) PER SHARE ($0.02) ($0.81)
=========== ============
<PAGE>
Exhibit 21
AMREIT, INC.
SUBSIDIARIES OF THE COMPANY
Set forth below is certain information with respect to each of the Company's
subsidiaries:
STATE OF
SUBSIDIARY DOMICILE
AmREIT Realty Investment Corporation Texas
AmREIT Operating Corporation Texas
AmREIT Opportunity Corporation Texas
AmREIT Securities Corporation Texas
AmREIT SPE 1 Texas
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,121,041
<SECURITIES> 0
<RECEIVABLES> 7,057,883
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,178,924
<PP&E> 29,987,765
<DEPRECIATION> 1,148,503
<TOTAL-ASSETS> 37,018,186
<CURRENT-LIABILITIES> 16,048,366
<BONDS> 0
0
0
<COMMON> 23,841
<OTHER-SE> 20,945,979
<TOTAL-LIABILITY-AND-EQUITY> 37,018,186
<SALES> 3,649,818
<TOTAL-REVENUES> 4,603,325
<CGS> 0
<TOTAL-COSTS> 4,115,135
<OTHER-EXPENSES> 526,052
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (37,862)
<INCOME-TAX> 0
<INCOME-CONTINUING> (37,862)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,862)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
