SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 1998.
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
Commission file number 1-14462
AmeriVest Properties Inc.
-------------------------
(Exact name of small business issuer as specified in its charter.)
Delaware 1-14462 84-1240264
-------- ------- ----------
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
2801 Youngfield Street, Suite 300; Golden, Colorado 80401
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303) 205-7870
--------------
(Issuer's telephone number,
including area code)
Check whether the issuer (1) 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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
As of November 13, 1998 the Registrant had outstanding 1,658,770 shares of
common stock, par value $.001.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
FORM 10-QSB
SEPTEMBER 30, 1998
Table of Contents
-----------------
Part I
Item 1. Financial Statements
Balance Sheets as of December 31, 1997 and
September 30, 1998 2
Statements of Operations for the Three Months and
Nine Months Ended September 30, 1997 and 1998 3
Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1998 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5 - 8
Part II
Item 6. Exhibits and Reports on Form 8-K 8 - 9
1
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1997 1998
---- ----
ASSETS (Unaudited)
Investment in real estate
Land $ 2,668,758 $ 4,719,540
Buildings and improvements 13,064,287 22,261,791
Furniture, fixtures and equipment 248,667 253,640
Tenant improvements 519,945 563,673
Less accumulated depreciation and amortization (5,118,271) (5,616,731)
------------ ------------
Net Investment in Real Estate 11,383,386 22,181,913
Cash and cash equivalents 99,334 231,384
Tenant accounts receivable 34,625 147,942
Deferred financing costs, net 85,956 572,333
Prepaid expenses and other assets 38,767 441,953
------------ ------------
$ 11,642,068 $ 23,575,525
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Mortgage loans payable $ 7,413,077 $ 18,690,048
Accounts payable and accrued expenses 48,543 229,650
Accrued interest 56,219 115,634
Accrued real estate taxes 298,074 398,134
Prepaid rents and security deposits 120,799 79,090
Dividends payable 160,801 199,052
------------ ------------
Total Liabilities 8,097,513 19,711,608
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value
Authorized - 10,000,000 shares
Issued and outstanding - 1,429,070 shares (1997) 1,429 1,659
and 1,658,770 shares (1998)
Capital in excess of par value 4,463,955 5,598,602
Distribution in excess of accumulated earnings (920,829) (1,736,344)
------------ ------------
Total Stockholders' Equity 3,544,555 3,863,917
------------ ------------
$ 11,642,068 $ 23,575,525
============ ============
See accompanying notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1998 1997 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
REAL ESTATE OPERATING REVENUES
<S> <C> <C> <C> <C>
Rental revenue
Commercial Properties $ 287,610 $ 800,756 $ 819,534 $ 1,461,757
Storage Properties 355,477 368,732 995,957 1,089,870
----------- ----------- ----------- -----------
643,087 1,169,488 1,815,491 2,551,627
----------- ----------- ----------- -----------
REAL ESTATE OPERATING EXPENSES
Property operating expenses
Operating Expenses 147,590 303,286 397,516 605,377
Real estate taxes 65,049 120,343 185,353 269,946
Management fees 32,612 60,465 94,487 135,957
General and administrative 97,629 113,511 295,326 310,820
Interest 170,013 309,603 511,900 666,130
Expenses associated with debt refinancing -- 337,000 -- 337,000
Depreciation and amortization 148,286 236,790 433,424 531,544
----------- ----------- ----------- -----------
661,179 1,480,998 1,918,006 2,856,774
----------- ----------- ----------- -----------
OTHER INCOME
Interest income 9,780 898 36,599 2,640
----------- ----------- ----------- -----------
NET (LOSS) $ (8,312) $ (310,612) $ (65,916) $ (302,507)
=========== =========== =========== ===========
NET (LOSS) PER COMMON SHARE $ (.01) $ (.19) $ (.05) $ (.20)
=========== =========== =========== ===========
NET (LOSS) PER COMMON SHARE
ASSUMING DILUTION $ (.01) $ (.19) $ (.05) $ (.20)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,412,670 1,618,703 1,393,137 1,498,281
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
ASSUMING DILUTION 1,412,670 1,618,703 1,393,137 1,498,281
=========== =========== =========== ===========
See accompanying notes to financial statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
September 30,
-------------
1997 1998
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) $ (65,916) $ (302,507)
Adjustments to reconcile net (loss) to net cash provided
by operating activities
Depreciation and amortization 433,424 531,544
Write off of loan fees -- 33,348
Changes in assets and liabilities
(Increase) in receivables (17,349) (113,317)
Decrease (Increase) in prepaids 12,337 (404,458)
(Decrease) Increase in accounts payable (7,282) 161,132
(Decrease) Increase in accruals (22,705) 146,338
------------ ------------
Net cash provided by operating activities 332,509 52,080
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to investments in real estate (1,195,433) (8,297,923)
------------ ------------
Net cash (used) by investing activities (1,195,433) (8,297,923)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short term borrowings 160,000 980,000
Repayments of short term borrowings -- (1,130,000)
Proceeds from mortgage loans -- 15,700,000
Payments on mortgage loans (99,997) (6,137,216)
(Increase) in loan costs -- (551,537)
Dividends paid (311,146) (483,354)
------------ ------------
Net cash (used) provided by financing activities (251,143) 8,377,893
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (1,114,067) 132,050
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,230,640 99,334
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 116,573 $ 231,384
============ ============
See accompanying notes to financial statements.
4
</TABLE>
<PAGE>
AMERIVEST PROPERTIES INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998
The unaudited financial statements included herein were prepared from the
records of the Company in accordance with Generally Accepted Accounting
Principles and reflect all adjustments which are, in the opinion of management,
necessary to provide a fair statement of the results of operations and financial
position for the interim periods. Such financial statements generally conform to
the presentation reflected in the Company's Form 10-KSB filed with the
Securities and Exchange Commission for the year ended December 31,1997. The
current interim period reported herein should be read in conjunction with the
Company's Form 10-KSB subject to independent audit at the end of the year.
The results of operations for the nine months ended September 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
- --------------------------------------------------------------------------------
The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in the Company's
Form 10-KSB and elsewhere. These financial statements present the operations of
the Company prior and subsequent to the Company's acquisitions in August 1997;
June 1998; July 1998; and August 1998.
Results of Operations
---------------------
Three Months Ended September 30, 1998, Compared With Three Months Ended
September 30, 1997.
- --------------------------------------------------------------------------------
The Company's results of operations for the three months ended September
30, 1998 include 24 operating properties, whereas the September 30, 1997 results
of operations included nine operating properties. The additional 15 operating
properties were acquired between June 30, 1998 and August 18, 1998. Revenues for
the third quarter 1998 increased approximately $526,400, and operating expenses,
real estate taxes, management fees, general and administrative, interest, and
depreciation and amortization increased approximately $155,700, $55,300,
$27,900, $16,000, $139,600, and $88,500 respectively. All increases resulted
primarily from inclusion of the operations of the 15 new properties; one as of
June 30, 1998, ten as of July 1, 1998 and four as of August 18, 1998. The loss
on early retirement of debt increased $337,000 due to a one time prepayment
charge of $337,000 in connection with the Company's refinance of its four
self-storage properties.
The net loss for the three months ended September 30, 1998 was $310,612 or
$.19 per share, as compared to a net loss of $8,312 or $.01 per share, for the
three months ended September 30, 1997. Of the $310,612 net loss for the three
months ended September 1998, $337,000, or $.21 per share, relates to the
one-time prepayment charge in connection with the Company's refinance of its
four self-storage properties.
5
<PAGE>
Nine Months Ended September 30, 1998, Compared With Nine Months Ended September
30, 1997.
- --------------------------------------------------------------------------------
The Company's results of operations for the nine months ended September 30,
1998 include 24 operating properties, whereas the September 30, 1997 results of
operations include nine properties. The additional 15 properties were acquired
between June 30, 1998 and August 18, 1998. Revenues for 1998 increased
approximately $736,100, and operating expenses, real estate taxes, management
fees, general and administrative, interest, and depreciation and amortization
increased approximately $207,900, $84,600, $41,500, $15,000, $154,200, and
$98,100, respectively. All increases resulted primarily from inclusion of the
operations of the 15 new properties; one as of June 30, 1998, ten as of July 1,
1998, and four as of August 18, 1998. The loss on early retirement of debt
increased $337,000 due to a one-time prepayment charge of $337,000 in connection
with the Company's refinance of its four self-storage properties. The Company
also had interest income of $2,640 in 1998, as compared to $36,599 in 1997.
The net loss for the nine months ended September 30, 1998 was $302,507 or
$.20 per share, as compared with a net loss of $65,916 or $.05 per share, for
the nine months ended September 30, 1997. Of the $302,507 net loss for the nine
months ended September 30, 1998, $337,000, or $.22 per share, relates to the
one-time prepayment charge in connection with the refinance of the Company's
four self-storage properties.
Financial Condition, Liquidity And Capital Resources
----------------------------------------------------
From December 31, 1997 to September 30, 1998, net investment in real estate
increased approximately $10,731,000. The net increase was primarily due to the
acquisition of 15 properties for $11,205,000 and other improvements less
depreciation for the nine month period of $498,500.
On June 29, 1998, the Company completed the purchase of a small office
building in Odessa, Texas (the "Odessa Property"). On July 13, 1998 the Company
completed the acquisition of ten additional small office buildings in Texas. The
total purchase price included 207,200 shares of AmeriVest Common Stock
(including 7,300 shares for the Odessa Property) and $6.3 million in cash
(including $80,000 for the Odessa Property). The purchase was financed primarily
with a $6 million loan from TransAtlantic Capital Corporation, an affiliate of
Deutsche Bank Securities Inc., and debt to the seller of $192,000.
The eleven buildings, with approximately 200,000 total square footage, are
leased as long-term leases to the State of Texas. The Company anticipates that
their 11 newly acquired properties to have annualized revenues of $1,470,000 and
net operating income, before debt service, of $800,000. The mortgage loan from
TransAtlantic Capital Corporation is a ten year term, amortized over 30 years at
a fixed rate of 7.66 percent.
On August 18, 1998, the Company purchased four small bank buildings in
Texas. The buildings, which total approximately 60,200 square feet, are leased
primarily to NationsBank under long-term leases, the total purchase price for
the four office buildings included approximately $1,990,000 of cash and an
assumption of the existing mortgage of approximately $1,635,000. The cash for
the purchase of these properties was obtained through the refinancing of the
Company's four self-storage facilities. The refinancing of three of the
self-storage facilities was undertaken by an affiliate of Goldman Sachs &
Company on a ten-year term, and the fourth self-storage facility was refinanced
on a five-year bank note.
6
<PAGE>
Tenant accounts receivable increased approximately $100,000 due to the
timing of receipts from leases with the State of Texas, at September 30, 1998.
This is a normal occurrence each September as a result of the beginning of the
State's new fiscal year. As of November 10, 1998 the tenant accounts receivable
from leases with the State of Texas were current.
Deferred financing costs, net, increased approximately $486,000 due
primarily to the costs associated with the refinance of the Giltedge Office
Building in May 1998, the financing of ten of the eleven office buildings,
leased to the State of Texas in July 1998, and the refinancing of the Company's
four self-storage properties in August 1998.
Prepaid expenses and other assets increased by approximately $403,000 due
primarily to costs associated with the acquisition of the eleven Texas state
leased buildings and the four bank office buildings discussed elsewhere in this
report. The financing arrangements from the new properties require escrowing of
property taxes, property insurance and a repair and maintenance reserve for ten
of the office buildings leased to the State of Texas.
At September 30, 1998, the Company had approximately $231,000 of cash and
cash equivalents, including approximately $199,000 of cash in reserve for a
stockholder dividend distribution which was paid on October 14, 1998.
Mortgage loans payable increased approximately $11,277,000 primarily as a
result of refinancing the Giltedge Office Building and the four self-storage
properties, the financing of ten of the eleven office buildings leased to the
State of Texas, discussed elsewhere in this report, and the assumption of debt
in connection with the purchase of the four bank office buildings.
Accounts payable and accrued expenses, accrued interest, and accrued
property taxes and dividends payable increased approximately $181,000, $59,400,
$100,000, and $38,300, respectively. All increases resulted primarily from
inclusion of the 15 newly acquired properties. Prepaid rents and security
deposits decreased approximately $41,700 primarily from timing differences in
the course of normal operations.
The Company desires to acquire additional properties and, in order to do
so, it will need to raise additional debt or equity capital. The Company also
intends to obtain credit facilities for short and long-term borrowing with
commercial banks or other financial institutions. The issuance of such
securities or increase in debt for additional properties, of which there is no
assurance, could adversely affect the amount of dividends paid to stockholders.
Management believes that the cash flow from its properties will be
sufficient to meet the Company's working capital needs for the next year. All
properties have been maintained on an ongoing basis so that capital resources in
excess of existing cashflow to upgrade the facilities in the near future are not
anticipated.
Management believes that inflation should not have a material adverse
effect on the Company. The Company's leases of office and showroom space require
the tenants to pay increases in operating expenses, and the self-storage leases
are short-term so that there are not contractual restraints against increasing
rents to attempt to respond to inflationary pressures, if any inflationary
pressures should materialize.
7
<PAGE>
Year 2000 Compliance.
- ---------------------
Year 2000 compliance is the ability of computer hardware and software to
respond to the problems posed by the fact that computer programs traditionally
have used two digits rather than four digits to define an applicable year. As a
consequence, any of the Company's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
interruption of operations, including temporary inability to send invoices or
engage in normal business activities or to operate equipment such as elevators,
air conditioning units, and external security systems installed in the Company's
buildings. The Company currently is working with its service contractors to
review the operation of elevators, air conditioners, and other equipment
installed in the Company's buildings to confirm that this equipment is Year 2000
compliant. The Company believes that this review will be completed prior to
year-end and that the cost of this review will be included in the cost of the
Company's service contracts for this equipment.
The Company also intends to contact its major tenants to determine their
Year 2000 compliance. Failure of tenants to be Year 2000 compliant may lead to
delays in payment of rent to the Company and lost revenue to the Company. The
Company intends to complete its review of tenant compliance in the first quarter
of 1999.
The Company has purchased a new accounting and tenant service software that
is Year 2000 compliant. The Company would have purchased new software to meet
its needs regardless of potential Year 2000 issues with its prior system. The
Company anticipates installing and receiving training concerning this new
software prior to year end at an approximate cost of less than $25,000.
Until the Company's Year 2000 review has been completed, the Company has no
estimate of the cost to correct any deficiency in Year 2000 compliance for this
equipment. Upon the completion of the Company's Year 2000 review, the Company
intends to develop a contingency plan to address potential Year 2000 problems.
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Exchange Act
of 1934. Although the Company believes that the expectations reflected in the
forward-looking statements and the assumptions upon which the forward-looking
statements are based are reasonable, it can give no assurance that such
expectations and assumptions will prove to have been correct. See the Company's
Annual Report on Form 10-KSB for additional statements concerning important
factors, including occupancy and rental rates and operating costs, that could
cause actual results to differ materially from the Company's expectations.
Part II. Other Information
Item 6. Exhibits And Reports On Form 8-K.
---------------------------------
(A) The following Exhibit is filed as part of this Quarterly Report on
Form 10-QSB:
27. Financial Data Schedule
8
<PAGE>
(b) During the quarter ended September 30, 1998, the registrant filed a
Current Report on Form 8-K reporting an event occurring on July 13,
1998, which was filed on July 28, 1998 and amended by a Form 8-K/A1
filed on September 28, 1998, and a Current Report on Form 8-K
reporting an event occurring on August 18, 1998, which was filed on
August 21, 1998 and amended by a Form 8-K/A1 filed on November 2,
1998. These Current Reports on Form 8-K concerned the Registrant's
acquisitions of properties during the quarter ended September 30,
1998.
SIGNATURES
----------
Pursuant to the requirements of the Securities And Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERIVEST PROPERTIES INC.
November 19, 1998
By: /s/ James F. Etter
----------------------------------
James F. Etter, President and
Principal Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 231,384 231,384
<SECURITIES> 0 0
<RECEIVABLES> 147,942 147,942
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 27,798,644 27,798,644
<DEPRECIATION> (5,616,731) (5,616,731)
<TOTAL-ASSETS> 23,575,525 23,575,525
<CURRENT-LIABILITIES> 0 0
<BONDS> 18,690,048 18,690,048
0 0
0 0
<COMMON> 1,659 1,659
<OTHER-SE> 3,862,258 3,862,258
<TOTAL-LIABILITY-AND-EQUITY> 23,575,525 23,575,525
<SALES> 0 0
<TOTAL-REVENUES> 1,169,488 2,551,627
<CGS> 0 0
<TOTAL-COSTS> 1,171,395 2,190,644
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 309,603 666,130
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (310,612) (302,507)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (310,612) (302,507)
<EPS-PRIMARY> (.19) (.20)
<EPS-DILUTED> (.19) (.20)
</TABLE>
