AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 2004
REGISTRATION NO. 333-114432
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMREIT
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENT)
8 GREENWAY PLAZA, SUITE 1000
HOUSTON, TEXAS 77046
(713) 850-1400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
H. KERR TAYLOR
CHIEF EXECUTIVE OFFICER
AMREIT
8 GREENWAY PLAZA, SUITE 1000
HOUSTON, TEXAS 77046
(713) 850-1400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
BRYAN L. GOOLSBY
KENNETH L. BETTS
LOCKE LIDDELL & SAPP LLP
2200 ROSS AVENUE, SUITE 2200
DALLAS, TEXAS 75201-6776
(214) 740-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If this form is filed to register additional Securities for offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------
This Post-Effective Amendment No. 1 consists of the following:
1. The Registrant's final form of Prospectus dated June 25, 2004,
previously filed on June 24, 2004 and refilled herewith.
2. Supplement No. 2 dated September 29, 2004 to the Registrant's
Prospectus dated June 25, 2004, included herewith, which will be delivered as an
unattached document along with the Prospectus dated June 25, 2004. Supplement
No. 2 supersedes and replaces all prior supplements to the Prospectus.
3. Part II included herewith.
4. Signatures, included herewith.
THE FOLLOWING IS TEXT TO A STICKER TO BE ATTACHED TO THE FRONT COVER PAGE OF THE
PROSPECTUS IN A MANNER THAT WILL NOT OBSCURE THE RISK FACTORS:
SUPPLEMENTAL INFORMATION - The prospectus of AmREIT consists of this
prospectus dated June 24, 2004 and Supplement No. 2 dated September 29, 2004.
Supplement No. 2 supersedes and replaces prior Supplement No. 1 (dated August
31, 2004).
[ORIGINAL PROSPECTUS]
AMREIT
SUPPLEMENT NO. TWO, DATED SEPTEMBER 29, 2004
TO PROSPECTUS, DATED JUNE 25, 2004
FOR UP TO 17,000,000 CLASS D COMMON SHARES OFFERED TO THE PUBLIC
This Supplement supplements, and should be read in conjunction with,
the Prospectus dated June 25, 2004. This Supplement No. Two supercedes and
replaces all prior supplements to the prospectus. Capitalized terms used in this
Supplement have the same meanings as in the Prospectus unless otherwise stated
herein.
Information as to the number and types of properties acquired by AmREIT
is presented as of August 31, 2004 and all references to property acquisitions
should be read in that context. Proposed properties for which AmREIT enters into
initial commitments to acquire, as well as property acquisitions, that occur
after August 31, 2004, will be reported in a subsequent Supplement.
The purpose of this Supplement is to describe the following:
(1) the status of the offering of class D common shares in AmREIT;
(2) revisions to the "Risk Factors" section of the prospectus;
(3) revisions to the "Experts" section of the prospectus to update the
information included in the prospectus relating to the acquisition of certain
properties described in this Supplement;
(4) financial information relating to the acquisition of certain
properties described in this Supplement; and
(5) all other material items that have been previously disclosed by
supplement to the Prospectus.
STATUS OF THE OFFERING
As of August 31, 2004, AmREIT had received subscriptions from this
offering for approximately 275,300 class D common shares, totaling $2.75 million
in gross proceeds. Of this amount, AmREIT has paid $289 thousand to AmREIT
Securities Company, the dealer manager of this offering and an affiliate of
AmREIT, pursuant to the terms of the dealer manager agreement between AmREIT and
AmREIT Securities. Additionally, AmREIT Securities has paid out approximately
$220 thousand in commissions to other non-affiliated NASD broker dealer firms.
RECENT DEVELOPMENTS
AmREIT has acquired four new properties: The Courtyard at Post Oak,
Bakery Square Shopping Center, Plaza in the Park and Cinco Ranch Shopping
Center. The first three are located in Houston, Texas and the last property is
located in Katy, Texas, a suburb of Houston.
The Courtyard at Post Oak:
On June 15, 2004, AmREIT acquired The Courtyard at Post Oak, consisting
of a 4,013 square foot, free standing building occupied by Verizon Wireless
(NYSE: VZ) and a 9,584 square foot,
multi-tenant shopping center occupied by Ninfa's Restaurant and Dessert Gallery.
The property was acquired for $6.35 million in cash.
Plaza in the Park:
On July 1, 2004, AmREIT acquired Plaza in the Park, a 129,955 square
foot Kroger (NYSE: KR) anchored shopping center located on approximately 14.3
acres of land. The property was acquired with approximately $15.3 million in
cash and the assumption of $18.2 million in long term fixed rate debt.
Cinco Ranch Shopping Center:
On July 1, 2004, AmREIT acquired Cinco Ranch Shopping Center, a 97,297
square foot Kroger (NYSE: KR) anchored shopping center located on approximately
12.8 acres of land. The property was acquired with approximately $6.4 million in
cash and the assumption of $8.6 million in long term fixed rate debt.
Bakery Square Shopping Center:
On July 21, 2004, AmREIT acquired Bakery Square Shopping Center, which
is comprised of a free standing Walgreen's and a 19,494 square foot shopping
center anchored by Bank of America (NYSE: BOA). The shopping center was acquired
with approximately $3.97 million in cash and the assumption of $4.52 million in
long term fixed rate debt.
Extension of Credit Facility:
On September 3, 2004, AmREIT extended its $35 million credit facility
to October 4, 2004. AmREIT is in the process of documenting an extension of the
credit facility to October 4, 2005, substantially under the same terms and
conditions as the previous credit facility.
COVER PAGE
The last sentence of the first paragraph of the Cover Page is hereby
amended to change the second reference of "$10.00" to "$9.50".
RISK FACTORS
The section of the prospectus entitled "Risk Factors" beginning on page
11 of the prospectus is supplemented with the following risk factors:
USE OF DESCRIPTIVE TERMS.
Throughout this prospectus, management of AmREIT has employed various
favorable descriptive terms, including "synergistic," "rapidly growing,"
"premier," "unique combination," "dependable growth," "high-quality," "high-end"
and "proven track record" to describe its properties, its historic growth and
its business structure. These terms have not been defined in the prospectus and
could, therefore, be interpreted too positively by prospective investors.
Although these terms reflect management's beliefs concerning these matters,
since they were not characterized as such, prospective investors are cautioned
that the use of these descriptive terms is not intended to offer projections of
the future operating performance of the properties or AmREIT as a whole.
Further, no assurance can be given that the favorable characteristics ascribed
by management to certain of its properties and/or AmREIT will prove to be
accurate, or that AmREIT will perform as well as such terms may suggest.
2
OUR FINANCIAL PERFORMANCE WILL DEPEND ON THE HEALTH OF THE TEXAS ECONOMY.
At August 31, 2004, 17 and 22 of our properties, representing 69.7% and
73.4% of our annualized rental income, were located in the greater metropolitan
Houston area and the State of Texas, respectively. Our performance is,
therefore, highly dependent upon the economic conditions in Houston and Texas
generally. A general downturn in the economy or the real estate market in
Houston or Texas could have a material adverse effect on our results of
operations and financial condition.
WE MAY CONTINUE TO RECOGNIZE IMPAIRMENT CHARGES FOR THE FORESEEABLE FUTURE.
We recognized an impairment charge during the second quarter of 2004.
We anticipate that as we sell our older triple net properties, we may recognize
additional impairment charges related to those properties in the future.
Impairments result from our regular analysis of our real property assets to
determine whether circumstances indicate that the book value of an asset may not
be fully recoverable. Additionally, any time we market a property for sale at a
price less than book value, we recognize an immediate charge. Impairments are
non-cash expenses and impact both our net income and funds from operations for
each fiscal quarter.
The risk factor entitled "AmREIT may increase its leverage without
shareholder approval" on page 12 of the prospectus is hereby amended by deleting
the second paragraph and replacing it in its entirety with the following:
At August 31, 2004, AmREIT had outstanding debt totaling $85.03 million
of which $32.21 million was unsecured. This debt represented approximately 50%
of AmREIT's total assets.
BUSINESS AND PROPERTIES
PROPERTIES
Location of Properties.
The following paragraphs update and replace the paragraph under this
caption on page 27 of the Prospectus.
AmREIT's focus is on property investments in Texas. Of our 54 properties, 23 are
located in Texas, with 17 being located in the greater Houston Metropolitan
statistical area. Our portfolio of assets tends to be located in areas we know
well, and where we can keep our eye on them. For that reason, we believe AmREIT
delivers an extra degree of hands on management to our real estate investments.
Houston is Texas' largest city and the fourth largest city in the United States.
According to a US Census, 2003 population estimates for Houston are
approximately 4,497,000, a 2.1% increase as compared to 2002, and a 27% increase
compared to 1990. In 2003, the unemployment rates for both Texas and Houston
were below the national average and inflation was less pronounced in Houston and
Texas, compared to the national average. While still highly dependent on the
petro-chemical industry, Houston has sought to diversify its business base so
the local economy does not follow the drastic rise and fall of oil prices. The
Port of Houston, one of the largest in the world, is the second busiest port in
the United States in terms of annual tonnage.
3
The national economy showed marked improvement in 2003 and many indicators show
that the Houston and Texas economies outperformed the national averages. The
Houston economy is highly diversified, with over 50% of the workforce employed
in sectors that are marginally, if at all, affected by changing energy prices.
Houston's top ten employers include:
* Houston Independent School District * Harris County
* City of Houston * MD Anderson Cancer Center
* Administaff * Halliburton
* Continental Airlines * Kroger
* Memorial Herman Healthcare Center * ARAMARK Corporation
According to RECON, Houston area retail sales per capita were reported to be
$13,525 for 2003, compared to the sate average of $12,859 per capita. The
overall occupancy rate for retail during 2003 was 86% while the average
occupancy rate for strip and shopping centers was approximately 89%.
Management believes that any downturn in the Houston economy could adversely
affect us; however, general retail and grocery anchored shopping centers, which
we primarily own, provide basic necessity-type items, and tend to be less
affected by economic changes.
DESCRIPTION.
The following sentence updates and replaces the table heading under
this caption on page 30 of the Prospectus.
Information concerning the properties owned solely by AmREIT as of
August 31, 2004, is presented in the following table:
AMREIT WHOLLY-OWNED PROPERTY INFORMATION
(AUGUST 31, 2004)
BUILDING LEASE
DATE PURCHASE LEASEABLE ANNUAL EXPIRATION
PROPERTY (LOCATION) ACQUIRED PRICE AREA RENT DATE
------------------- -------- ----- ---- ---- ----
Radio Shack
(Dallas, TX) .............................. 06/15/94 $ 1,062,000 5,200 $108,900 11/30/06
Transworld Entertainment
(Independence, MO) ........................ 11/14/94 1,550,000 14,047 135,000 01/31/05
Copperfield Medical Plaza
(Houston, TX) ............................. 07/01/95 1,680,000 14,000 201,072 04/30/07
Wherehouse Entertainment
(Wichita, KS) ............................. 09/12/95 1,700,000 15,158 (3) 12/31/04
FootStar, Inc. (1)
(Tucson, AZ) .............................. 09/11/96 3,351,000 19,550 (1) 09/30/16
Washington Mutual
(The Woodlands, TX) (4) ................... 09/23/96 500,000 -- 59,461 09/30/11
Washington Mutual
(Houston, TX) (4) ......................... 12/11/96 828,000 -- 97,861 12/31/11
4
BUILDING LEASE
DATE PURCHASE LEASEABLE ANNUAL EXPIRATION
PROPERTY (LOCATION) ACQUIRED PRICE AREA RENT DATE
------------------- -------- ----- ---- ---- ----
FootStar, Inc. (1)
(Baton Rouge, LA) ......................... 06/09/97 $ 2,806,000 20,575 (1) 05/15/12
Hollywood Video
(Lafayette, LA) ........................... 10/31/97 1,124,000 7,488 134,709 09/24/12
Hollywood Video
(Ridgeland, MS) ........................... 12/30/97 1,208,000 7,488 138,453 12/22/12
OfficeMax
(Dover, DE) ............................... 04/14/98 2,548,000 23,500 264,679 04/30/13
Woodlands Plaza
(The Woodlands, TX) ....................... 06/03/98 3,542,000 16,922 374,100 Various
Sugar Land Plaza
(Sugar Land, TX) .......................... 07/01/98 3,635,000 16,922 330,875 07/01/13
Dardin Restaurants
(Peachtree City, GA) (4) .................. 12/18/98 738,000 -- 75,000 12/17/08
IHOP, Corp.
(Sugarland, TX) ........................... 9/30/99 1,608,000 4,020 165,180 9/30/24
IHOP, Corp.
(Topeka, KS) .............................. 9/30/99 1,335,000 4,020 137,340 9/30/24
Foodmaker
(Dallas, TX) .............................. 7/23/02(2) 715,100 2,238 68,998 7/11/09
Baptist Memorial Health
(Memphis, TN) ............................. 7/23/02(2) 2,079,200 15,000 204,375 8/31/07
Payless Shoes
(Austin, TX) .............................. 7/23/02(2) 698,300 4,000 82,000 1/30/08
Golden Corral
(Houston, TX) ............................. 7/23/02(2) 1,811,800 12,000 182,994 11/30/07
Golden Corral
(Houston, TX) ............................. 7/23/02(2) 1,843,400 12,000 181,688 3/14/08
Eckerd
(Houston, TX) (4) ......................... 1/10/03 2,646,900 -- 327,167 10/31/23
TGI Friday's
(Houston, TX) ............................. 7/23/02(2) 2,036,900 8,500 180,500 1/30/08
Guitar Center
(Minnesota, MN) ........................... 7/23/02(2) 2,541,700 15,000 246,750 8/31/09
AFC, Inc. (Popeye's Chicken)
(Atlanta, GA) ............................. 7/23/02(2) 1,113,900 2,583 105,563 7/19/14
Memorial Herman Hospital
(Houston, TX) ............................. 7/23/02(2) 1,816,800 15,000 171,360 1/31/09
Blockbuster Video
(Oklahoma City, OK) ....................... 7/23/02(2) 973,800 15,000 92,610 8/31/05
Pier One
(Longmont, CO) ............................ 7/23/02(2) 1,423,600 8,014 135,560 2/29/08
IHOP, Corp.
(Grand Prairie, TX) ....................... 4/15/03 1,940,400 4,020 174,332 4/14/28
TGI Friday's
(Hanover, MD) ............................. 9/16/03 1,474,700 8,500 134,962 9/30/13
The Terrace Shops
(Houston, TX) ............................. 12/15/03 4,800,000 16,395 428,900 Various
5
BUILDING LEASE
DATE PURCHASE LEASEABLE ANNUAL EXPIRATION
PROPERTY (LOCATION) ACQUIRED PRICE AREA RENT DATE
------------------- -------- ----- ---- ---- ----
Uptown Plaza
(Houston, TX) ............................. 12/15/03 $ 13,000,000 28,000 $ 1,268,400 Various
The Courtyard at Post Oak
(Houston, TX) .............................. 6/15/04 6,350,000 13,597 481,609 Various
Plaza in the Park
(Houston, TX) .............................. 7/1/04 33,490,000 129,955 2,607,862 Various
Cinco Ranch Shopping Center
(Katy, TX) ................................. 7/1/04 14,990,000 97,297 1,218,466 Various
Bakery Square
(Houston, TX) .............................. 7/21/04 8,490,000 34,704 531,108 Various
------------ ------- -----------
TOTAL ........................................ $133,451,500 610,693 $11,047,834
(1) Footstar, Inc. filed for Chapter 11 Bankruptcy protection on March 2,
2004. In publicly released announcement, Footstar has indicated their
intent to reject the lease on all Just For Feet locations, including
the leases on our two properties.
(2) These properties were acquired as part of the merger of the affiliated
partnerships (Funds IX, X and XI) on July 23, 2002. The purchase price
reflects the pro-rata portion of the negotiated price allocated to the
properties that AmREIT paid the partnerships in common shares.
(3) Wherehouse Entertainment filed for Chapter 11 Bankruptcy protection,
and as such, rejected the Wherehouse Entertainment lease in Wichita,
Kansas. At August 31, 2004, no rental income was being received on this
property.
(4) Represents a land lease only, and as such, no building leasable area is
reflected.
The following paragraphs are inserted following the first full
paragraph on page 33 of the Prospectus.
RECENT ACQUISITIONS AND DISPOSITIONS.
On June 15, 2004, AmREIT acquired The Courtyard at Post Oak, consisting
of a 4,013 square foot, free standing building occupied by Verizon Wireless
(NYSE: VZ) and a 9,584 square foot, multi-tenant shopping center occupied by
Ninfa's Restaurant and Dessert Gallery. The property was constructed in 1994 and
is located at the northwest intersection of Post Oak and San Felipe in Houston,
Texas. This is a lighted intersection in the heart of the Galleria area, the
most significant retail corridor in the Greater Houston area. The property was
acquired for $6.35 million in cash. The weighted average remaining lease term
for the project is 5.2 years.
TENANT SQUARE FOOTAGE LEASE TERM EXPIRATION RENTAL INCREASES
------ -------------- ---------- ---------- ----------------
Verizon Wireless 4,013 10 Years November 2009 Yes
Ninfa's 7,606 15 Years November 2009 Yes
Dessert Gallery 1,978 5 Years August 2008 No
On July 21, 2004, AmREIT acquired Bakery Square Shopping Center, which
is comprised of a free standing Walgreen's and a 19,494 square foot shopping
center anchored by Bank of America (NYSE: BOA). The property was constructed in
1996 and is located at the southwest corner of Dunlavy and West Gray in Houston,
Texas. This is a strong infill location just south of the central business
district in Houston. The property was acquired with approximately $3.97 million
in cash and the assumption of $4.52 million in long term fixed rate debt. The
debt is evidenced by a note issued to New York Life
6
Insurance Company and has a current balance of $4.52 million, bears interest at
a rate of 8% per year and matures on February 10, 2017. The initial principal
balance of the note was $5.40 million. The loan has a term and amortization of
15-years, with principal and interest payments of $47,617 due monthly. The
weighted average remaining lease term for the shopping center is 4.9 years. The
Walgreen's lease is for 60 years and will expire September, 2056. The shopping
center is 100% occupied.
TENANT SQUARE FOOTAGE LEASE TERM EXPIRATION RENTAL INCREASES
------ -------------- ---------- ---------- ----------------
Blockbuster Video 6,484 10 years October 2006 No
T-Mobile 1,416 10 years September 2007 No
Fantastic Sam's 1,050 4 years April 2008 Yes
River Oaks Nails 1,050 5 years May 2009 Yes
Bell Cleaners 1,750 14 years March 2010 Yes
Boston Market 2,816 10 years May 2010 Yes
Bank of America 3,878 15 years January 2012 Yes
Philly Connection 1,050 10 years May 2014 Yes
Walgreens 15,210 60 years September 2056 No
On July 1, 2004, AmREIT acquired Plaza in the Park, a 129,955 square
foot Kroger (NYSE: KR) anchored shopping center located on approximately 14.3
acres of land. The property was constructed in 1999 and is located at the
southwest corner of Buffalo Speedway and Westpark in Houston, Texas. Plaza in
the Park's Kroger is undergoing a 13,120 square foot expansion and, when
completed, is expected to be the number one Kroger grocery store in both sales
volume and size in the State of Texas. Additionally, Kroger is the number one
grocer in the Houston marketplace, and enjoys over 26% of total market share.
The property was acquired with approximately $15.33 million in cash and the
assumption of $18.16 million in long term fixed rate debt. The debt is evidenced
by a note issued to Teachers Insurance and Annuity Association of America and
has a current balance of $18.16 million, bears interest at a rate of 5.16% per
year and matures in July 2013. The initial principal balance of the note was
approximately $18.43 million. The loan has a ten year term with a 30-year
amortization. Principal and interest payments of $105,802 are due monthly. The
weighted average remaining lease term for the project is 9.2 years. The Kroger
lease is for 20 years, containing approximately 69 thousand square feet,
expiring in August 2017. The shopping center is 96.67% occupied.
TENANT SQUARE FOOTAGE LEASE TERM EXPIRATION RENTAL INCREASES
------ -------------- ---------- ---------- ----------------
Postal Annex 900 5 years April 2006 No
Dervish Enterprises 2,427 5 years June 2006 No
Quizno's 1,600 7 years October 2006 Yes
Sprintcom, Inc. 2,500 5-Year October 2006 No
The Root of You 2,850 5 years December 2006 No
Hallmark Gold Crown 5,650 5-Year February 2007 No
Siena Interiors 2,164 5 years October 2007 No
Image America 2,276 5-Year March 2008 Yes
Avenue Chocolates 1,200 5 years March 2008 No
Tapioca Express 1,112 5 years December 2008 No
Planet Beach 1,960 7 years March 2009 Yes
Huntington Learning Center 2,518 5 years March 2009 No
West University Wellness 2,400 5 years April 2009 No
Dr. Daniel O. Howes 1,500 10 years May 2009 No
Pilgrim Cleaners 1,200 10 years June 2009 Yes
7
TENANT SQUARE FOOTAGE LEASE TERM EXPIRATION RENTAL INCREASES
------ -------------- ---------- ---------- ----------------
General Nutrition 900 10 years June 2009 Yes
Bo Hwa Oh 1,295 5 years July 2009 No
Brelian, Inc. 2,300 10 years August 2009 Yes
Envision Nails 1,200 10 years September 2009 No
Vietopia Restaurant 5,640 10 years September 2009 Yes
Vision Optique 1,800 10 years October 2009 Yes
Copperfield Liquor 3,400 10 years December 2009 Yes
Buca di Beppo 7,573 10 years August 2010 Yes
Household Finance Corp III 2,000 10 years April 2011 Yes
Kroger Texas, LP 68,658 20 years August 2017 No
Vacant 2,932
On July 1, 2004, AmREIT acquired Cinco Ranch Shopping Center, a 97,297
square foot Kroger (NYSE: KR) anchored shopping center located on approximately
12.8 acres of land. The property was constructed in 2001 and is located at the
northeast corner of Mason Road and Westheimer Parkway in Katy, Texas. The
shopping center is positioned in the heart of the affluent Cinco Ranch master
planned community, and is ranked by Kroger as one of the top 10 Kroger grocery
stores in Texas. The property was acquired with approximately $6.4 million in
cash and the assumption of $8.59 million in long term fixed rate debt. The debt
is evidenced by a note issued to Teachers Insurance and Annuity Association of
America and has a current balance of $8.59 million, bears interest at a rate of
5.16% per year and matures in July 2003. The initial principal amount of the
note was approximately $8.72 million. The loan has a ten year term with a
30-year amortization. Principal and interest payments of $50,060 are due
monthly. The weighted average remaining lease term for the project is 14 years.
The Kroger lease is for 20 years, containing approximately 63 thousand square
feet, expiring in June 2023. The shopping center is 100% occupied.
TENANT SQUARE FOOTAGE LEASE TERM EXPIRATION RENTAL INCREASES
------ -------------- ---------- ---------- ----------------
Hallmark Gold Crown 4,500 5 years February 2006 No
General Nutrition 1,400 5 years March 2006 No
L'Aglio 1,720 5 years April 2006 No
Sally Beauty Company 1,400 5 years July 2006 No
State Farm Mutual 1,400 5 years September 2006 No
I-cafe 1,000 5 years February 2008 No
Uncle Lee's Cafe 1,600 5 years June 2008 No
Itty Bitty City 2,600 5 years December 2008 No
Pizza Hut of America 1,600 10 years January 2011 Yes
Fashion Park Cleaners 1,400 10 years February 2011 Yes
Nails Today 1,400 10 years February 2011 Yes
Parkway Liquor 1,927 10 years February 2011 Yes
eDentistry 1,750 10 years February 2011 Yes
TGF Haircutters 1,400 10 years March 2011 Yes
Wishnow-Sugar Vision Center 1,820 10 years March 2011 Yes
Blockbuster Inc. 4,417 10 years March 2011 Yes
Starbucks Corp. 1,400 10 years June 2011 Yes
Mail Boxes Etc. 1,190 10 years November 2011 Yes
Kroger Texas LP 63,373 20 years June 2023 No
8
SELECTED HISTORICAL FINANCIAL DATA
The section of the prospectus entitled "Selected Historical Financial
Data", beginning on page 58 of the prospectus is supplemented with the following
tables:
9
AMREIT
SELECTED HISTORICAL
CONSOLIDATED FINANCIAL AND OTHER DATA
December 31, December 31, December 31, December 31,
2003 2002 2001 2000
---- ---- ---- ----
BALANCE SHEET DATA (AT END OF PERIOD)
Total Property ................................ $ 70,539,056 $ 47,979,848 $ 30,726,025 $ 31,622,098
Accumulated depreciation ...................... (2,520,633) (2,136,376) (2,066,067) (1,601,758)
Total Property Held For Sale .................. 4,384,342 -- -- --
Cash and cash equivalents ..................... 2,031,440 2,506,868 227,117 935,867
Total assets .................................. 101,326,607 73,975,753 38,828,393 36,522,276
Notes payable ................................. 48,484,625 33,586,085 16,971,549 15,472,183
Total liabilities ............................. 51,683,713 34,958,534 18,399,279 16,063,221
Minority interest ............................. 846,895 810,971 5,075,333 5,130,337
Shareholders' equity .......................... 48,795,999 38,206,248 15,353,781 15,328,718
Fully diluted class A common shares issued .... 6,704,714 5,236,547 2,384,117 2,384,117
Treasury shares ............................... 133,822 65,379 39,323 11,373
OTHER DATA
Cash flows provided by (used in):
Operating .................................. 1,236,727 3,729,090 1,625,417 676,430
Investing .................................. (22,031,014) (15,268,195) (2,332,891) (25,720)
Financing .................................. 20,318,859 13,818,856 (1,276) (833,589)
Net increase (decrease) in cash and cash
equivalents ................................ (475,428) 2,279,751 (708,750) (182,879)
Funds from operations, available to class A (1) 602,000 (846,000) 978,565 222,767
Adjusted funds from operations, available to
class A (2) ................................ 1,520,000 1,060,000 978,565 222,767
Book value per share .......................... 7.28 7.30 6.44 6.43
Unaudited
------------------------------
December 31, June 30, June 30,
1999 2004 2003
---- ---- ----
BALANCE SHEET DATA (AT END OF PERIOD)
Total Property ................................ $ 31,136,268 $ 70,825,947 $ 52,559,547
Accumulated depreciation ...................... (1,148,503) (2,707,431) (2,525,907)
Total Property Held For Sale .................. -- 11,031,821 --
Cash and cash equivalents ..................... 1,118,746 846,001 736,434
Total assets .................................. 37,018,186 108,712,381 80,440,990
Notes payable ................................. 15,480,378 32,534,450 40,996,381
Total liabilities ............................. 16,048,366 35,999,085 42,152,009
Minority interest ............................. 5,180,546 1,009,880 800,570
Shareholders' equity .......................... 15,789,274 71,703,416 37,488,411
Fully diluted class A common shares issued .... 2,384,117 9,698,060 5,301,926
Treasury shares ............................... 11,373 25,127 101,822
OTHER DATA
Cash flows provided by (used in):
Operating .................................. 469,700 1,940,455 (4,091,016)(3)
Investing .................................. (2,439,262) (7,909,933) (3,096,161)(3)
Financing .................................. 3,039,788 4,784,039 5,416,743 (3)
Net increase (decrease) in cash and cash
equivalents ................................ 1,070,226 (1,185,439) (1,770,434)
Funds from operations, available to class A (1) 1,605,091 (1,660,000) 643,000
Adjusted funds from operations, available to
class A (2) ................................ 1,605,091 1,140,000 643,000
Book value per share .......................... 6.62 7.39 7.07
(1) AmREIT 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 depreciable operating property,
depreciation and amortization of real estate assets, and excluding results
defined as "extraordinary items" under generally accepted accounting
principles. FFO should not be considered an alternative to cash flows from
operating, investing and financing activities in accordance with general
accepted accounting principles and is not necessarily indicative of cash
available to meet cash needs. AmREIT's computation of FFO may differ from
the methodology for calculating FFO utilized by other equity REITs and,
therefore, may not be comparable to such other REITS. FFO is not defined
by generally accepted accounting principles and should not be considered
an alternative to net income as an indication of AmREIT's performance, or
of cash flows as a measure of liquidity. Please see the reconciliation of
Net Income to FFO on Page 70.
(2) Based on the adherence to the NAREIT definition of FFO, we have not added
back the $915 thousand $1.90 million, and $1.70 million charge to earnings
during 2003, 2002 and the six months ended June 30, 2004 respectively,
resulting from shares issued to Mr. Taylor as deferred merger cost
stemming from the sale of his advisory company to AmREIT in June 1998.
Additionally, the Company added back a $1.1 million impairment charge to
earnings related to the sale of a vacant property. Adding these charges
back to earnings would result in Adjusted FFO of $1.52 million, $1.06
million and $1.14 million, respectively
10
AMREIT
SELECTED HISTORICAL
CONSOLIDATED FINANCIAL AND OTHER DATA (3)
Unaudited
December 31, December 31, December 31, December 31,
2003 2002 2001 2000
---- ---- ---- ----
(3) (3) (3)
OPERATING DATA
Revenues:
Rental income and earned income from DFL .............. $ 7,584,166 $ 5,193,147 $ 3,009,330 $ 2,848,850
Real estate fee income ................................ 1,031,201 1,222,944 -- --
Gain on sale of real estate acquired for resale ....... 787,244 --
Securities commission income .......................... 2,958,226 846,893 -- --
Asset management fee income ........................... 240,465 252,072 -- --
Interest income ....................................... 7,938 4,206 10,555 31,630
Service fee, other income, and gain and loss on sale
of property ......................................... -- -- 2,650,113 793,268
------------ ------------ ------------ ------------
Total revenues ................................... 12,609,240 7,519,262 5,669,998 3,673,748
Expenses:
General operating, administrative, and
professional ........................................ 3,936,546 2,801,946 2,956,061 1,688,799
Securities commissions ................................ 2,288,027 653,034 -- --
Legal and professional ................................ 881,283 679,154 -- --
Reimbursements and fees to related party .............. -- -- -- --
Depreciation and amortization ......................... 835,987 611,084 413,583 403,181
Merger related acquisition costs ...................... -- -- -- --
Bad debts ............................................. -- -- -- --
Merger costs .......................................... -- -- -- --
Deferred merger costs ................................. 914,688 1,904,370 -- --
Potential acquisition costs ........................... -- -- -- --
------------ ------------ ------------ ------------
Total expense .................................... 8,856,531 6,649,588 3,369,644 2,245,216
Operating income ......................................... 3,752,709 869,674 2,300,354 1,428,532
Income from non-consolidated affiliates .................. 312,147 416,904 -- --
Federal income tax expense ............................... (236,990) (60,656) 144,420 --
Interest ................................................. (2,354,159) (1,774,973) (1,063,574) (1,339,622)
Minority interest in net income of consolidated joint
ventures ............................................... (178,311) (308,010) (527,571) (527,121)
------------ ------------ ------------ ------------
Income from continuing operations ........................ 1,295,396 (857,061) 853,629 (438,211)
Income from discontinued operations (3) .................. 391,480 245,840 225,719 225,719
Gain (loss) on sale of real estate acquired for investment 311,873 (47,553) -- --
------------ ------------ ------------ ------------
Net income (loss) ........................................ $ 1,998,749 $ (658,774) $ 1,079,348 $ (212,492)
Less distributions to class B & C shareholders ........... (1,942,656) (865,293) -- --
------------ ------------ ------------ ------------
Net income (loss) available to class A shareholders ...... $ 56,093 $ (1,524,067) $ 1,079,348 $ (212,492)
============ ============ ============ ============
Basic and diluted (loss) income before discontinued
operations per share .................................. $ (0.23) $ (0.70) $ 0.36 $ (0.18)
Basic and diluted (loss) income from discontinued
operations per share .................................. 0.25 0.08 0.10 0.10
------------ ------------ ------------ ------------
Net income (loss) ........................................ $ 0.02 $ (0.62) $ 0.46 $ (0.09)
============ ============ ============ ============
Distributions per share - class A ........................ $ 0.34 $ 0.34 $ 0.26 $ 0.10
Weighted average number of Series A common shares
outstanding ........................................... 2,792,190 2,469,725 2,354,572 2,373,060
Weighted average number of common shares plus dilutive
potential common shares ............................... 2,792,190 2,469,725 2,354,572 2,373,060
Unaudited
-----------------------------
December 31, June 30, June 30,
1999 2004 2003
---- ---- ----
(3) (3)
OPERATING DATA
Revenues:
Rental income and earned income from DFL .............. $ 3,373,374 $ 4,210,961 $ 2,941,055
Real estate fee income ................................ -- 948,566 266,753
Gain on sale of real estate acquired for resale .......
Securities commission income .......................... -- 3,552,867 526,660
Asset management fee income ........................... -- 148,902 97,610
Interest income ....................................... 199,448 324,957 3,394
Service fee, other income, and gain and loss on sale
of property ......................................... 754,059 -- --
------------ ------------ ------------
Total revenues ................................... 4,326,881 9,186,253 3,835,472
Expenses:
General operating, administrative, and
professional ........................................ 1,290,433 3,008,026 1,536,074
Securities commissions ................................ -- 2,761,225 396,321
Legal and professional ................................ -- 649,558 335,737
Reimbursements and fees to related party .............. -- -- --
Depreciation and amortization ......................... 444,072 503,594 355,895
Merger related acquisition costs ...................... 262,495 -- --
Bad debts ............................................. 189,490 -- --
Merger costs .......................................... -- -- --
Deferred merger costs ................................. -- 1,681,870 --
Potential acquisition costs ........................... -- -- --
------------ ------------ ------------
Total expense .................................... 2,929,491 8,604,273 2,624,027
Operating income ......................................... 1,397,390 581,980 1,211,445
Income from non-consolidated affiliates .................. -- 186,805 85,338
Federal income tax expense ............................... -- (275,252) 15,300
Interest ................................................. (1,134,919) (1,163,005) (1,056,051)
Minority interest in net income of consolidated joint
ventures ............................................... (526,052) (93,451) (82,949)
------------ ------------ ------------
Income from continuing operations ........................ (263,581) (762,923) 173,083
Income from discontinued operations (3) .................. 225,719 (354,701) 654,814
Gain (loss) on sale of real estate acquired for investment -- 849,866 279,084
------------ ------------ ------------
Net income (loss) ........................................ $ (37,862) $ (267,758) $ 1,106,981
Less distributions to class B & C shareholders ........... -- (1,918,870) (891,667)
------------ ------------ ------------
Net income (loss) available to class A shareholders ...... $ (37,862) $ (2,186,628) $ 215,314
============ ============ ============
Basic and diluted (loss) income before discontinued
operations per share .................................. $ (0.11) $ (0.87) (0.26)
Basic and diluted (loss) income from discontinued
operations per share .................................. 0.10 0.16 0.34
------------ ------------ ------------
Net income (loss) ........................................ $ (0.02) $ (0.71) $ 0.08
============ ============ ============
Distributions per share - class A ........................ $ 0.55 $ 0.12 $ 0.11
Weighted average number of Series A common shares
outstanding ........................................... 2,372,744 3,094,216 2,779,434
Weighted average number of common shares plus dilutive
potential common shares ............................... 2,372,744 3,094,216 2,779,434
(3) In accordance with Financial Accounting Standard Statement No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" issued by
the Financial Accounting Standards Board, the consolidated statement of
operations have been restated from those originally reported for the years
ended December 31, 2003, 2002, 2001, 2000, 1999, and the six months ended
June 30, 2003 to reflect separately the results of discontined operations.
The restatement had no impact on the consolidated balance sheet,
statements of stockholders' equity or statement of cash flows. The
restatement had no impact on net earnings or net earnings per share for
the years ended December 31, 2003, 2002, 2001, 2000, 1999, and the six
months ended June 30, 2003.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The section of the prospectus entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page 61
of the prospectus is supplemented with the following information. The following
discussion should be read in conjunction with our accompanying financial
statements and the notes thereto.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
The results of operations and financial condition of AmREIT, as
reflected in the accompanying financial statements and related footnotes, are
subject to management's evaluation and interpretation of business conditions,
retailer performance, changing capital market conditions and other factors,
which could affect the ongoing viability of AmREIT's tenants. Management
believes the most critical accounting policies in this regard are the accounting
for lease revenues (including straight line rent), the regular evaluation of
whether the value of a real estate asset has been impaired and the allowance for
doubtful accounts. We evaluate our assumptions and estimates on an on-going
basis. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable based on the circumstances.
Rental Income Recognition - In accordance with accounting principles
generally accepted in the United States of America, AmREIT accounts for rental
income under the straight line method, whereby we record rental income based on
the average of the total rent obligation due under the primary term of the
lease. AmREIT prepares a straight line rent schedule for each lease entered
into. Certain leases contain a provision for percentage rent. Percentage rent is
recorded in the period when AmREIT can reasonably calculate the amount of
percentage rent owed, if any. Generally, AmREIT records percentage rent in the
period in which the percentage rent payment is made, and can thereby be
calculated and verified. For the six months ended June 30, 2004, AmREIT
collected and recorded percentage rent from tenants of $65 thousand.
Real Estate Valuation - Real estate assets are stated at cost less
accumulated depreciation, which, in the opinion of management, is not in excess
of the individual property's estimated undiscounted future cash flows, including
estimated proceeds from disposition. Depreciation is computed using the
straight-line method, generally over estimated useful lives of 39 years for
buildings and over the primary term of the lease for tenant improvements. Major
replacements that extend the life of the property, or enhance the value of the
property are capitalized and the replaced asset and corresponding accumulated
depreciation are removed. All other maintenance items are charged to expense as
incurred.
Upon the acquisition of real estate projects, AmREIT assesses the fair
value of the acquired assets (including land, building as if vacant, acquired
above and below market leases and in-place leases, and tenant relationships) and
acquired liabilities, and allocates the purchase price based on these
assessments. AmREIT assesses fair value based on estimated cash flow projections
that utilize appropriate discount and capitalization rates and available market
information. Estimates of future cash flows are based on a number of factors
including the historical operating results, known trends, and specific market
and economic conditions that may affect the property. Factors considered by
management in our analysis of determining the as if vacant property value
include an estimate of carrying costs during the expected lease-up periods
considering current market conditions, and costs to execute similar leases. In
estimating carrying costs, management includes real estate taxes, insurance and
other operating expenses and estimates of lost rentals at market rates during
the expected lease-up periods, up to 12 months depending
12
on the property location, tenant demand and other economic conditions.
Management also estimates costs to execute similar leases including leasing
commissions, tenant improvements, legal and other related expenses.
Costs incurred in the development of new operating properties,
including preacquisition costs directly identifiable with the specific project,
development and construction costs, interest and real estate taxes are
capitalized into the basis of the project. The capitalization of such costs
ceases when the property, or any completed portion, becomes available for
occupancy.
AmREIT's properties are reviewed for impairment if events or changes in
circumstances indicate that the carrying amount of the property may not be
recoverable. In such an event, a comparison is made of the current and projected
operating cash flows of each such property on an undiscounted basis, plus the
residual value of the property upon disposition, to the carrying value of such
property. The carrying value would then be adjusted, if needed, to estimate the
fair value to reflect an impairment in the value of the asset. Following the
bankruptcy of its sole tenant, and after a thorough remarketing during the
quarter, AmREIT determined that it could not replace the previously existing
value in its Wherehouse Entertainment project located in Wichita, Kansas, and
recorded an impairment charge to earnings of approximately $1.10 million in the
second quarter. Subsequent to the write-down in value, management sold the
property during the current quarter.
Valuation of Receivables - An allowance for the uncollectible portion
of accrued rents, property receivables and accounts receivable is determined
based upon an analysis of balances outstanding, historical payment history,
tenant credit worthiness, additional guarantees and other economic trends.
Balances outstanding include base rents, tenant reimbursements and receivables
attributed to the accrual of straight line rents. Additionally, estimates of the
expected recovery of pre-petition and post-petition claims with respect to
tenants in bankruptcy are considered in assessing the collectibility of the
related receivables. During the six months ended June 30, 2004, AmREIT wrote off
receivables totaling approximately $67 thousand. The receivable is attributable
to the accrual of straight line rents associated with Just for Feet. The write
off of the receivable from Just for Feet is included in income from discontinued
operations. AmREIT maintains a receivable related to Wherehouse Entertainment of
approximately $126 thousand. Based on discussions with Wherehouse Entertainment
and Blockbuster Entertainment Corporation, the guarantor of the lease, and legal
proceedings involving Wherehouse Entertainment and Blockbuster Entertainment
Corporation, AmREIT believes this receivable is collectable, and should be
collected during 2004.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities and financing activities have been the
principal sources of capital to fund AmREIT's ongoing operations and dividends.
As AmREIT deploys the capital raised, and expected to be raised from its equity
offerings, into income producing real estate, we anticipate that cash flow from
operations will provide adequate resources for future ongoing operations and
dividends. AmREIT's cash on hand, internally-generated cash flow, borrowings
under our existing credit facilities, issuance of equity securities, as well as
the placement of secured debt and other equity alternatives, is expected to
provide the necessary capital to maintain and operate our properties as well as
execute and achieve our growth strategies.
SOURCES AND USES OF FUNDS
Cash provided by operating activities as reported in the Consolidated
Statements of Cash Flows increased $6.0 million for the six months ended June
30, 2004 when compared to the six months ended June 30, 2003. Investment in real
estate acquired for resale decreased by $5.0 million. In addition,
13
proceeds from sales of real estate acquired for sale increased by $714 thousand.
AmREIT sold two properties for a profit that were acquired for sale, one in the
first quarter and one in the second quarter of 2004.
The increase in net cash provided by operating activities was primarily
due to a decrease in investment in real estate acquired for resale. During 2003,
AmREIT invested in five IHOP properties that were purchased as acquired for
resale. For the six months ended June 30, 2004, AmREIT has invested
approximately $2.2 million in real estate acquired for resale. This decrease in
investment in real estate acquired for resale was somewhat offset by a $1.1
million non-cash impairment charge related to the Wherehouse Entertainment
property located in Wichita Kansas and a $1.7 million non-cash increase in
deferred merger costs. The deferred merger expense is a result of shares issued
or payable to H. Kerr Taylor, our President and Chief Executive Officer, as a
result of the merger, which shares represented a portion of consideration
payable to Mr. Taylor as a result of the sale of his advisory company to AmREIT
in 1998. Mr. Taylor has now earned 100% of the shares eligible under the
deferred consideration agreement. Therefore, AmREIT's internal advisor has been
fully paid for, 100% with Company shares as opposed to debt, and no further
payments of shares or expense related to the issuance of shares will be made.
Cash flows used in investing activities has been primarily related to
the acquisition or development of retail properties. During the second quarter
of 2004, AmREIT purchased The Courtyard at Post Oak, consisting of a free
standing building occupied by Verizon Wireless and a multi-tenant center
occupied by Ninfa's Restaurant and Dessert Gallery. During the first quarter of
2004, AmREIT through one its taxable REIT subsidiaries, acquired a 25% equity
interest in a 45 acre retail redevelopment in Houston, Texas. The other partners
are affiliated partnerships. The investment was funded through a combination of
the $14.3 million of capital (net of $1.8 million in issuance costs) raised
through the class C common share offering and debt financing.
In addition, AmREIT received $694 thousand in proceeds during the
second quarter of 2004 from the sale of its Wherehouse Entertainment project
located in Wichita, Kansas. Prior to the sale, AmREIT recorded an impairment
charge to earnings of approximately $1.1 million to reflect the impaired value
of the property. Cash flows used in investing activities as reported in the
Consolidated Statements of Cash Flows increased from $3.1 million in the first
six months of 2003 to $7.9 million in the first six months of 2004.
Cash flows provided by financing activities decreased from $5.4 million
through June 30, 2003 to $4.8 million through June 30, 2004. Cash flows provided
by financing activities were primarily generated from our class C common share
offering. AmREIT fully subscribed its class C commons share offering during the
second quarter. 100% of the net proceeds have been used to purchase
irreplaceable corners. AmREIT has begun to market its class D common share
offering, a $170 million common share offering, offered through the independent
financial planning community. The class D common shares have a stated 6.5%
annual dividend, paid monthly, are convertible into AmREIT's class A common
shares at any time after a seven-year lock out period for a 7.7% premium on
invested capital and are callable by AmREIT after one year. One advantage of
raising capital through the independent financial planning marketplace is the
capital is received on a monthly basis, allowing for a scaleable matching of
real estate projects. Our first priority is to deploy the capital raised, and
then to moderately leverage the capital, while maintaining our philosophy of a
conservative balance sheet. AmREIT was able to reduce debt by almost $25.1
million with the proceeds from it class C common share offering.
AmREIT has a $35 million unsecured revolving credit facility, as
amended in June 2004. The facility will mature on September 4, 2004, and AmREIT
and Lender are in the process of renewing the Credit Facility for a one year
period. Management believes that the Credit Facility will be renewed on
14
terms and conditions substantially the same as the current Credit Facility. The
Credit Facility contains covenants which, among other restrictions, require
AmREIT 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. Furthermore, the Credit Facility contains
concentration covenants and limitations, limiting property level net operating
income for any one tenant to no more than 15% (35% for IHOP) of total property
net operating income. At June 30, 2004, IHOP net operating income represented
approximately 33% of total property net operating income. At June 30, 2004,
AmREIT was in compliance with all financial covenants. The Credit Facility's
annual interest rate varies depending upon AmREIT's debt to asset ratio, from
LIBOR plus a spread of 1.40% to LIBOR plus a spread of 2.35%. As of June 30,
2004, the interest rate was LIBOR plus 2.0%. As of June 30, 2004, $10.2 million
was outstanding under the Credit Facility. Thus AmREIT has approximately $24.8
million available under its line of credit, subject to Lender approval on the
use of the proceeds. In addition to the credit facility, AmREIT utilizes various
permanent mortgage financing and other debt instruments. As of June 30, 2004,
AmREIT had the following contractual debt obligations:
2004 2005 2006 2007 2008 Thereafter Total
-------- -------- -------- -------- -------- ---------- --------
Unsecured debt:
Revolving credit facility $ 10,168 $ - $ - $ - $ - $ - $ 10,168
5.46% dissenter notes - - - - - 760 760
Secured debt 230 490 530 573 620 19,163 21,606
Non-cancelable operating lease
payments 79 210 210 210 210 123 1,042
Total contractual obligations $ 10,477 $ 700 $ 740 $ 783 $ 830 $ 20,046 $ 33,576
======== ======== ======== ======== ======== ======== ========
In order to continue to expand and develop its portfolio of properties
and other investments, AmREIT intends to finance future acquisitions and growth
through the most advantageous sources of capital available at the time. Such
capital sources may include proceeds from public or private offerings of
AmREIT's debt or equity securities, secured or unsecured borrowings from banks
or other lenders, acquisitions of AmREIT's affiliated entities or other
unrelated companies, or the disposition of assets, as well as undistributed
funds from operations.
In August 2003, AmREIT commenced the class C common share offering.
This offering is being exclusively made through the NASD independent financial
planning community. It was a $44 million offering, of which $4 million has been
reserved for the dividend reinvestment plan. As of June 30, 2004, 4.04 million
shares had been issued, including shares issued through the dividend
reinvestment program, resulting in approximately $40.4 million in gross
proceeds. The proceeds are being and will be used to finance the acquisition and
development of retail real estate projects, pay down the revolving credit
facility and provide working capital for the on going operation of AmREIT and
its properties.
For the quarters ended June 30, 2004 and 2003, AmREIT paid dividends to
its shareholders of $1.489 million, and $749 thousand respectively. The class A
and class C shareholders receive monthly dividends and the class B shareholders
receive quarterly dividends. All dividends are declared on a quarterly basis.
The dividends by class follow (in thousands):
Class A Class B Class C
2004
Second quarter $383 $429 $677
First quarter $345 $434 $379
2003
Fourth quarter $320 $437 $156
Third quarter $308 $443 $15
Second quarter $310 $439 N/A
15
Until properties are acquired by AmREIT, AmREIT's funds are held in
short term, highly liquid investments which AmREIT believes to have appropriate
safety of principal. This investment strategy has allowed, and continues to
allow, high liquidity to facilitate AmREIT's use of these funds to acquire
properties at such time as properties suitable for acquisition are located. At
June 30, 2004, AmREIT's cash and cash equivalents totaled $846 thousand.
Cash flows from operating activities, investing activities, and
financing activities for the three and six months ended June 30, are presented
below in thousands:
QUARTER YEAR TO DATE
2004 2003 2004 2003
--------- --------- -------- ---------
Operating activities $ 1,635 $ (4,343) $ 1,940 $ (4,091)
Investing activities (6,182) (40) (7,910) (3,096)
Financing activities 3,214 4,294 4,784 5,417
INFLATION
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 AmREIT properties. These factors, however, also may have
an adverse impact on the operating margins of the tenants of the properties.
FUNDS FROM OPERATIONS
AmREIT considers FFO to be an appropriate measure of the operating
performance of an equity REIT. The National Association of Real Estate
Investment Trusts (NAREIT) defines FFO as net income or loss computed in
accordance with generally accepted accounting principles (GAAP), excluding gains
from sales of property held for investment, plus real estate related
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. In addition, NAREIT recommends that
extraordinary items not be considered in arriving at FFO. AmREIT calculates its
FFO in accordance with this definition. Most industry analysts and equity REITs,
including AmREIT, consider FFO to be an appropriate supplemental measure of
operating performance because, by excluding gains or losses on dispositions and
excluding depreciation, FFO is a helpful tool that can assist in the comparison
of the operating performance of a company's real estate between periods, or as
compared to different companies. There can be no assurance that FFO presented by
AmREIT is comparable to similarly titled measures of other REITs. FFO should not
be considered as an alternative to net income or other measurements under GAAP
as an indicator of our operating performance or to cash flows from operating,
investing or financing activities as a measure of liquidity.
16
Below is the calculation of FFO and the reconciliation to income (loss)
before discontinued operationsnet income, which AmREIT believes is the most
comparable GAAP financial measure to FFO, in thousands for the periods ended
June 30:
QUARTER YEAR TO DATE
2004 2003 2004 2003
------- ------ ------- ------
Income (loss) before discontinued operations $ 308 $ 13 $ (763) $ 173
Income (loss) from discontinued operations (211) 636 495 934
Plus depreciation of real estate assets - from operations 257 170 488 352
Plus depreciation of real estate assets - from discontinued operations 26 38 39 76
Less class B and class C distributions (1,106) (439) (1,919) (892)
------- ------ ------- ------
Total Funds From Operations available to class A shareholders * $ (726) $ 418 $(1,660) $ 643
Cash dividends paid to class A shareholders $ 383 $ 310 $ 728 $ 617
Dividends (in excess of) less than FFO * $(1,109) $ 108 $(2,388) $ 26
* Based on the adherence to the NAREIT definition of FFO, we have not added back
the $362 thousand or $1.7 million charge to earnings for the three and six
months ended June 30, 2004, respectively, resulting from shares issued to Mr.
Taylor. Additionally, we have not added back the $1.1 million charge to earnings
for the three and six months ended June 30, 2004, resulting from an asset
impairment and corresponding write-down of value. Adding these charges back to
earnings would result in adjusted funds from operations available to class A
shareholders of $739 thousand for the three months ended June 30, 2004 and $1.1
million for the six months ended June 30, 2004. Adding the charge to earnings
would also result in dividends paid being less than adjusted FFO of $356
thousand for the three months ended June 30, 2004 and $397 thousand for the six
months ended June 30, 2004.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2004 TO JUNE 30, 2003:
Rental revenue and earned income from direct financing leases increased
by 42%, or $619 thousand, for the three months ended June 30, 2004 when compared
to the three months ended June 30, 2003. Of this increase, $597 thousand is
related to acquisitions made after the second quarter of 2003.
Securities commission income increased by $1.2 million for the three
months ended June 30, 2004 when compared to 2003. This increase in securities
commission income is due to increased capital being raised through our broker
dealer company, AmREIT Securities Company (ASC). As ASC raises capital for
either AmREIT or its affiliated retail partnerships, ASC earns a securities
commission of between 8% and 10.5% of the money raised. During the second
quarter of 2004, AmREIT and its affiliated retail partnerships raised
approximately $15.3 million, as compared to approximately $4.3 million during
the second quarter of 2003. This increase in commission income is somewhat
mitigated by a corresponding increase in commission expense paid to other third
party broker dealer firms. Commission expense increased by $1.0 million for the
three months ended June 30, 2004 compared to the three months ended June 30,
2003. Interest and other income increased approximately $313 thousand primarily
due to the negotiated claim on the lease of the Footstar location in Baton
Rouge.
General and operating expense for the three months ended June 30, 2004
increased $804 thousand when compared to 2003. The increase in general and
operating expense is primarily due to additional personnel and the associated
salary and benefits costs related to these individuals. Since the second quarter
of 2003, AmREIT added members to each of the operating teams, two on the real
estate
17
team (property management, legal, acquisitions and leasing), four on the
securities team and three clerical and administrative support positions. By
building our various teams, we have not only been able to grow revenue and Funds
from Operations, but believe that we will be able to sustain and further enhance
our growth. Compensation expense increased $424 thousand in the three months
ended June 30, 2004 as compared to the three months ended June 30, 2003. In
addition, property expense increased $126 thousand.
Deferred merger costs increased from $0 in 2003 to $362 thousand in
2004. The deferred merger cost is related to deferred consideration payable to
Mr. Taylor as a result of the acquisition of our advisor, which was owned by Mr.
Taylor in 1998. In connection with the acquisition, Mr. Taylor agreed to payment
for this advisory company in the form of common shares, paid as AmREIT increases
its outstanding equity. To date, Mr. Taylor has received 900 thousand class A
common shares, which fulfills the shares that he is owed under the deferred
consideration agreement.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2004 TO JUNE 30, 2003:
Rental revenue and earned income from direct financing leases increased
by 43%, or $1.3 million for the six months ended June 30, 2004 when compared to
the six months ended June 30, 2003. Of this increase, $1.2 million is related to
acquisitions made after the second quarter of 2003.
Securities commission income increased by $3.0 million, from $527
thousand in 2003 to $3.6 million in 2004. This increase in securities commission
income is due to increased capital being raised through our broker dealer
company, AmREIT Securities Company (ASC). As ASC raises capital for either
AmREIT or its affiliated retail partnerships, ASC earns a securities commission
of between 8% and 10.5% of the money raised. During the six months ended June
30, 2004, AmREIT and its affiliated retail partnerships raised approximately
$33.3 million, as compared to approximately $5.2 million during the six months
ended June 30, 2003. This increase in commission income is somewhat mitigated by
a corresponding increase in commission expense paid to other third party broker
dealer firms. Commission expense increased by $2.4 million, from $396 thousand
in 2003 to $2.8 million in 2004.
General and operating expense increased $1.5 million, from $1.5 million
in 2003 to $3.0 million in 2004. The increase in general and operating expense
is primarily due to additional personnel and the associated salary and benefits
costs related to these individuals. Since the second quarter of 2003, AmREIT
added members to each of the operating teams, two on the real estate team
(property management, legal, acquisitions and leasing), four on the securities
team and three clerical and administrative support positions. By building our
various teams, we have not only been able to grow revenue and Funds from
Operations, but believe that we will be able to sustain and further enhance our
growth. Compensation expense increased $882 thousand in the six months ended
June 30, 2004 as compared to the six months ended June 30, 2003. In addition,
property expense increased $261 thousand.
Deferred merger costs increased from $0 in 2003 to $1.7 million in the
six months ended June 30, 2004. The deferred merger cost is related to deferred
consideration payable to Mr. Taylor as a result of the acquisition of our
advisor, which was owned by Mr. Taylor in 1998. In connection with the
acquisition, Mr. Taylor agreed to payment for this advisory company in the form
of common shares, paid as AmREIT increases its outstanding equity. To date, Mr.
Taylor has received 900 thousand class A common shares, which fulfills the
shares that he is owed under the deferred consideration agreement.
18
REDEMPTION OF SHARES
The second paragraph under this caption on page 57 of the prospectus is
hereby amended by addressing the following sentence at the end of such
paragraph:
At any time prior to the repurchase of his or her shares, a shareholder
may withdraw his or her shares from the Repurchase Plan by providing
written notice of such intent to withdraw to AmREIT not later than five
business days prior to the end of the applicable calendar quarter.
The first sentence of the third paragraph under this caption on page 57
of the prospectus is hereby deleted and replaced in its entirety with the
following:
In the event there are insufficient funds to redeem all of the
shares for which redemption requests have been submitted, AmREIT plans
to redeem the shares on a pro rata basis.
The third sentence of the third paragraph under this caption on page 57
of the prospectus is hereby deleted and replaced in its entirety with the
following:
In that case, the redemption request will be retained and those shares
will be repurchased on a pro rata basis with all other shares submitted
for repurchase at the end of the next quarter.
The fourth sentence of the third paragraph under this caption on page
57 of the prospectus is hereby deleted and replaced in its entirety with the
following:
Alternatively, if a repurchase request is not satisfied and the
shareholder does not make a subsequent request to repurchase its shares
at such time, if any, as sufficient funds exist, the initial repurchase
request will be treated by AmREIT as cancelled.
The following sentence updates and replaces the first sentence in the
fifth paragraph under this caption on page 57 of the Prospectus.
Upon the Redemption Agent's receipt of notice for redemption of shares,
the redemption price for this limited optional redemption right will initially
be $10.00 per share.
The second sentence of the fifth paragraph under this caption on page
57 of the prospectus is hereby deleted and replaced in its entirety with the
following:
During periods when AmREIT is not engaged in an offering, the per share
price of the class D common shares, for purposes of repurchase, will be
based on periodic updates of the value of the class D common shares as
our board reasonably determines based upon market conditions; provided,
however, that during an offering of class D common shares the
repurchase price will be equal to or below the price of the class D
common shares issued in the offering. Accordingly, the repurchase
prices paid to holders of class D common shares repurchased by AmREIT
may vary over time. Our board of trust
19
managers will announce any price adjustment and the period of its
effectiveness as part of its regular communications with shareholders.
The last sentence of the seventh paragraph under this caption on page
58 of the prospectus is hereby amended by adding the following at the end of
such sentence:
or the class D common shares are listed on a securities exchange, the
subject of bona fide quotes on any inter-dealer quotation system or
electronic communications network or are the subject of bona fide
quotes in the pink sheets.
DESCRIPTION OF AMREIT'S CAPITAL SHARES
DIVIDEND REINVESTMENT PLAN
The second paragraph under this caption on page 104 of the prospectus
is hereby amended by deleting the second and third sentences of such paragraph
in their entirety.
EXPERTS
The following paragraph updates and replaces the first paragraph under
this caption on page 123 of the Prospectus.
The consolidated financial statements and schedule of AmREIT and
subsidiaries as of and for the year ended December 31, 2003, and the historical
summary of gross income and direct operating expenses of Cinco Ranch Shopping
Center and Plaza in the Park Shopping Center for the period from June 4, 2003
through May 31, 2004 have been included herein in reliance upon the reports of
KPMG LLP, independent registered public accounting firm, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
20
EXHIBIT B
DIVIDEND REINVESTMENT PLAN
Section 1(a) of the Dividend Reinvestment Plan is hereby deleted and
replaced in its entirety with the following:
(a) The price at which the Shares will be issued under the
Reinvestment Plan will be equal to the greater of $9.50 per Share or
95% of the estimated value of one Share as estimated by the Company's
Board of Trust Managers or other firm chosen by the Company's board for
that purpose.
Section 1(b) of the Dividend Reinvestment Plan is hereby deleted and
replaced it in its entirety with the following:
(b) The number of Shares authorized for issuance under the
Reinvestment Plan is 2,000,000.
21
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AMREIT FINANCIAL STATEMENTS
Consolidated Balance Sheet as of June 30, 2004 (unaudited)
Consolidated Statements of Operations for the quarters ended June 30, 2004 and
June 30, 2003 and for the periods from January 1, 2004 through June 30, 2004 and
January 1, 2003 through June 30, 2003 (unaudited)
Consolidated Statements of Cash Flows for the quarters ended June 30, 2004 and
June 30, 2003 and for the periods from January 1, 2004 through June 30, 2004 and
January 1, 2003 through June 30, 2003 (unaudited)
Notes to Consolidated Financial Statements for the six months ended June 30,
2004 and 2003 (unaudited)
PROPERTIES ACQUIRED
Audited Financial Statements of Cinco Ranch Shopping Center
Report of Independent Registered Public Accounting Firm
Historical Summary of Gross Income and Direct Operating Expenses for
the Period from June 4, 2003 through May 31, 2004
Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the Period from June 4, 2003 through May 31, 2004
Audited Financial Statements of Plaza In The Park Shopping Center
Report of Independent Registered Public Accounting Firm
Historical Summary of Gross Income and Direct Operating Expenses for
the Period from June 4, 2003 through May 31, 2004
Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the Period from June 4, 2003 through May 31, 2004
Pro Forma Financial Information
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2004
(Unaudited)
Notes to Pro Forma Condensed Consolidated Balance Sheet as of June 30,
2004 (Unaudited)
Pro Forma Condensed Consolidated Statement of Operations for the Six
Month Period Ended June 30, 2004 (Unaudited)
Notes to Pro Forma Condensed Consolidated Statement of Operations for
the Six Month Period Ended June 30, 2004 (Unaudited)
Pro Forma Condensed Consolidated Statement of Operations for the Year
Ended December 31, 2003 (Unaudited)
Notes to Pro Forma Condensed Consolidated Statement of Operations for
the Year Ended December 31, 2003 (Unaudited)
22
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMREIT AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2004
(UNAUDITED)
ASSETS
Property:
Land $ 37,920,045
Buildings 32,285,679
Tenant improvements 620,223
------------
70,825,947
Less accumulated depreciation and amortization (2,707,431)
------------
Net real estate held for investment 68,118,516
Real estate held for sale, net 11,031,821
Net investment in direct financing leases held for investment 19,222,398
Cash and cash equivalents 846,001
Accounts receivable 1,694,495
Accounts receivable - related party 1,359,437
Notes receivable 890,445
Escrow deposits 689,112
Prepaid expenses, net 329,669
Other assets:
Preacquisition costs 146,343
Loan acquisition cost, net of $166,365 in accumulated amortization 311,257
Leasing costs, net of $78,189 in accumulated amortization 440,237
Furniture, fixtures and equipment, net of $183,316 in accumulated depreciation 410,534
Accrued rental income 550,394
Intangible lease cost, net of $105,808 in accumulated amortization 671,680
Investment in non-consolidated affiliates 2,000,042
------------
Total other assets 4,530,487
------------
TOTAL ASSETS $108,712,381
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 32,534,450
Accounts payable 2,520,462
Accounts payable - related party 236,947
Construction payable 392,068
Deferred gain 132,569
Security deposit 153,673
Prepaid rent 28,916
------------
TOTAL LIABILITIES 35,999,085
------------
Minority interest 1,009,880
Shareholders' equity:
Preferred shares, $.01 par value, 10,000,000 shares authorized, none issued -
Class A Common shares, $.01 par value, 50,000,000 shares authorized,
3,347,030 shares issued 33,470
Class B Common shares, $.01 par value, 3,000,000 shares authorized,
2,315,890 shares issued 23,159
Class C Common shares, $.01 par value, 4,400,000 shares authorized,
4,035,140 shares issued 40,351
Capital in excess of par value 85,186,612
Accumulated distributions in excess of earnings (12,530,674)
Deferred compensation (888,623)
Cost of treasury shares, 25,127 shares (160,879)
------------
TOTAL SHAREHOLDERS' EQUITY 71,703,416
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $108,712,381
============
See Notes to Condensed Consolidated Financial Statements.
F-1
AMREIT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter ended June 30, Year to date June 30,
2004 2003 2004 2003
----------- ---------- ----------- -----------
Revenues:
Rental income from operating leases $ 1,588,798 $ 970,501 $ 3,196,452 $ 1,939,976
Earned income from direct financing leases 507,307 506,799 1,014,509 1,001,079
Real estate fee income 581,207 136,001 948,566 266,753
Securities commission income 1,648,326 441,052 3,552,867 526,660
Asset management fee income 73,622 46,616 148,902 97,610
Interest and other income 313,505 281 324,957 3,394
----------- ---------- ----------- -----------
Total revenues 4,712,765 2,101,250 9,186,253 3,835,472
----------- ---------- ----------- -----------
Expenses:
General operating and administrative 1,587,601 783,210 3,008,026 1,536,074
Legal and professional 321,747 214,318 649,558 335,737
Securities commissions 1,337,593 331,286 2,761,225 396,321
Depreciation and amortization 270,330 171,155 503,594 355,895
Deferred merger costs 362,037 - 1,681,870 -
----------- ---------- ----------- -----------
Total expenses 3,879,308 1,499,969 8,604,273 2,624,027
----------- ---------- ----------- -----------
Operating income 833,457 601,281 581,980 1,211,445
Income from non-consolidated affiliates 172,207 45,033 186,805 85,338
Federal income tax (expense) benefit for taxable REIT subsidiary (104,347) (57,700) (275,252) 15,300
Interest expense (543,974) (532,503) (1,163,005) (1,056,051)
Minority interest in income of consolidated joint ventures (49,186) (43,161) (93,451) (82,949)
----------- ---------- ----------- -----------
Income (loss) before discontinued operations 308,157 12,950 (762,923) 173,083
(Loss) income from discontinued operations (452,877) 357,110 (354,701) 654,814
Gain on sales of real estate acquired for resale 241,979 279,084 849,866 279,084
----------- ---------- ----------- -----------
(Loss) income from discontinued operations (210,898) 636,194 495,165 933,898
----------- ---------- ----------- -----------
Net income (loss) $ 97,259 $ 649,144 $ (267,758) $ 1,106,981
Distributions paid to class B and class C shareholders (1,105,814) (439,124) (1,918,870) (891,667)
----------- ---------- ----------- -----------
Net (loss) income available to class A shareholders $(1,008,555) $ 210,020 $(2,186,628) $ 215,314
=========== ========== =========== ===========
Net (loss) income per common share - basic and diluted
Loss before discontinued operations $ (0.25) $ (0.15) $ (0.87) $ (0.26)
(Loss) income from discontinued operations $ (0.06) $ 0.23 $ 0.16 $ 0.34
----------- ---------- ----------- -----------
Net (loss) income $ (0.31) $ 0.08 $ (0.71) $ 0.08
=========== ========== =========== ===========
Weighted avergage class A common shares used to compute
net income per share, basic and diluted 3,235,449 2,790,492 3,094,216 2,779,434
=========== ========== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
F-2
AMREIT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Quarter ended June 30, Year to date June 30,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 97,259 $ 649,144 $ (267,758) $ 1,106,981
Adjustments to reconcile net income to net cash
provided by operating activities:
Investment in real estate acquired for resale (1,533,452) (7,233,907) (2,200,290) (7,233,907)
Proceeds from sales of real estate acquired for sale 149,020 1,898,356 2,612,742 1,898,356
Gain on sales of real estate acquired for resale (241,979) - (849,866) -
Impairment charges 1,103,144 - 1,103,144 -
Depreciation and amortization 305,039 237,319 560,524 467,016
Amortization of deferred compensation 67,677 15,457 131,960 75,385
Minority interest in income of consolidated joint ventures 169,807 43,161 214,072 82,949
Deferred merger costs 362,037 - 1,681,870 -
Decrease (increase) in accounts receivable 436,392 (151,253) 227,467 (113,233)
Decrease (increase) in accounts receivable- related party 336,777 (22,966) (1,157,663) (78,875)
(Increase) decrease in prepaid expenses, net (28,436) (30,536) 32,452 (16,459)
Cash receipts from direct financing leases
(less) more than income recognized (4,554) (4,265) (7,651) 12,795
Increase in accrued rental income (76,571) (30,328) (62,802) (79,847)
(Increase) decrease in other assets (334,707) (76,447) (323,688) 6,644
Increase (decrease) in accounts payable 743,923 270,726 (58,553) (277,198)
Increase (decrease) in accounts payable- related party 4,778 7,561 225,507 (26,425)
Increase in security deposits 56,633 - 56,633 -
Increase in prepaid rent 22,355 84,802 22,355 84,802
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities 1,635,142 (4,343,176) 1,940,455 (4,091,016)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Improvements to real estate (93,771) (121,806) (394,188) (277,569)
Acquisition of investment properties (6,388,715) - (6,388,715) (2,688,157)
Notes receivable collections 65,777 - 109,332 -
Additions to furniture, fixtures and equipment (222,647) (17,553) (341,566) (41,593)
Investment in non-consolidating affiliates (137,048) 80,939 (1,455,150) (80,832)
Proceeds from sale of investment property 693,515 - 693,515 -
Increase in preacquisition costs (99,021) 18,703 (133,161) (8,010)
----------- ----------- ----------- -----------
Net cash used in investing activities (6,181,910) (39,717) (7,909,933) (3,096,161)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable 6,142,154 6,892,959 9,106,671 9,260,758
Payments of notes payable (10,593,346) (1,749,299) (25,056,846) (1,850,462)
Purchase of treasury shares - (75,425) - (391,144)
Issuance of common shares 10,276,145 - 26,323,675 -
Issuance costs (1,096,470) - (2,892,009) -
Common dividends paid (1,488,660) (749,437) (2,646,365) (1,509,059)
Distributions to minority interests (26,056) (25,031) (51,087) (93,350)
----------- ----------- ----------- -----------
Net cash provided by financing activities 3,213,767 4,293,767 4,784,039 5,416,743
----------- ----------- ----------- -----------
Net decrease in cash and cash equivalents (1,333,001) (89,126) (1,185,439) (1,770,434)
Cash and cash equivalents, beginning of period 2,179,002 825,560 2,031,440 2,506,868
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period $ 846,001 $ 736,434 $ 846,001 $ 736,434
=========== =========== =========== ===========
Supplemental schedule of noncash investing and financing activities
In 2004 the Company issued 134,695 shares of restricted stock to employees and trust managers as
as part of their compensation plan. The restricted stock vests over a four and three period respectively.
The Company recorded $875,518 in deferred compensation related to the issuance of the restricted stock.
In 2003 the Company issued 24,257 shares of restricted stock to employees and trust managers as
as part of their compensation plan. The restricted stock vests over a four and three period respectively.
The Company recorded $152,819 in deferred compensation related to the issuance of the restricted stock.
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest 528,604 603,232 1,149,292 1,127,421
Income taxes - - 48,600 31,103
See Notes to Condensed Consolidated Financial Statements.
F-3
AMREIT AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
AmREIT is a Texas real estate investment trust ("REIT") that has elected to be
taxed as a REIT for federal income tax purposes. AmREIT is a self-managed,
self-advised REIT with, along with its predecessor, a 19-year history and a
record of investing in quality income producing retail real estate. AmREIT's
class A common shares are traded on the American Stock Exchange under the symbol
"AMY". AmREIT's business structure consists of the publicly traded REIT and
three synergistic businesses that support the Company's platform of growth: a
real estate operating and development business, a securities business and a
retail partnership business. This unique combination provides AmREIT the
opportunity to access capital through both Wall Street and the independent
financial planning marketplace and strategically invest that capital in high
quality properties for flexibility and more dependable growth.
We finance our growth and working capital needs with a combination of equity
offerings and a conservative debt philosophy. Currently, the Company is raising
capital through a series of publicly registered, non traded common share
offerings, being offered exclusively through the independent financial planning
community. As of June 30, 2004, the Company had raised approximately $40.4
million through sales of its class C common shares since the offering commenced
in August 2003, including shares issued through the dividend reinvestment
program. On June 25, 2004, the Company launched its class D common share
offering: a $170 million publicly registered, non-traded common share offering
with a stated yield of 6.5%. The class D common shares are convertible into the
Company's class A common shares after a seven-year lock out period. Through its
by-laws, the Company's debt is limited to 55% recourse debt as compared to its
gross assets. As of June 30, 2004, the Company's debt to asset ratio was
approximately 33%.
Our operating strategy and investment criteria discussed herein are reviewed by
our Board of Trust Managers on a regular basis and may be modified or changed
without a vote of our shareholders.
Portfolio
We focus on acquiring "irreplaceable corners" - premier retail frontage
properties in high-traffic, highly populated areas - which the Company expects
will create dependable income and long-lasting value. These premium properties
are expected to provide high leasing income and high occupancy rates for a
strong income stream. As of June 30, 2004, the occupancy rate of our properties
was 88.5%. Our properties attract a wide array of established commercial
tenants, and offer attractive opportunities for dependable monthly income and
potential capital appreciation. Management believes that the location and design
of its properties provide flexibility in use and tenant selection and an
increased likelihood of advantageous lease renewal terms.
Our revenues are substantially generated by corporate retail tenants such as
Starbucks, Landry's, CVS/pharmacy, International House of Pancakes ("IHOP"),
Eckerd, Nextel, Washington Mutual, TGI Friday's, and others. We own, and may
purchase in the future, fee simple retail properties (we own the land and the
building), ground lease properties (we own the land, but not the building and
receive rental income from the owner of the building) or leasehold estate
properties (we own the building, but not the land, and therefore are obligated
to make a ground lease payment to the owner of the land). AmREIT may also
develop properties for its portfolio or enter into joint ventures, partnerships
or co-ownership for the development of retail properties.
F-4
AmREIT owns a real estate portfolio consisting of 53 properties located in 19
states at June 30, 2004. Our multi-tenant shopping center properties are
primarily located throughout Texas and are leased to national, regional and
local tenants. Our single tenant properties are located throughout the United
States and are generally leased to corporate tenants where the lease is the
direct obligation of the parent company, not just the local operator, and in
most other cases, our leases are guaranteed by the parent company. In so doing,
the dependability of the lease payments is based on the strength and viability
of the entire company, not just the leased location. Properties that we acquire
are generally newly constructed or recently constructed at the time of
acquisition.
As of June 30, 2004, no single property accounted for more than 10% of the
Company's total assets. For the year to date period ended June 30, 2004, IHOP
accounted for 13.8% of the Company's total revenue and no other tenant accounted
for more than 5% of the Company's total revenue.
Real Estate Operating and Development Company
AmREIT's real estate operating and development subsidiary, AmREIT Realty
Investment Corporation ("ARIC"), comprised of a fully integrated real estate
team, provides brokerage, leasing, construction management, development and
property management services to our tenants as well as third parties. This
operating subsidiary, which is a taxable REIT subsidiary, compliments our
portfolio of retail properties by generating fee income from providing services
to third parties and affiliated funds, providing a high level of service to our
tenants, as well as maintaining our portfolio of properties to meet our
standards.
Having an internal real estate group also helps secure strong tenant
relationships for both us and our retail partnerships. Our growing roster of
leases with well-known national and regional tenants includes Bank of America,
Starbucks, TGI Friday's CVS/pharmacy, Nextel, Landry's, Eckerd, IHOP, Washington
Mutual, and others. Equally important, we have affiliations with these parent
company tenants that extend across multiple sites.
Not only does our real estate operating and development company create value
through relationships, but it also provides an additional source of fee income
and profits. Through the development, construction, management, leasing and
brokerage services provided to our affiliated actively managed retail
partnerships, as well as for third parties, our real estate team continues to
generate fees and profits for us. Through ARIC, we are able to generate
additional profits through the selective acquisitions and dispositions of
properties within twelve to eighteen months. These assets are listed as real
estate held for sale on our consolidated balance sheet, and at June 30, 2004,
these assets represented approximately $4.0 million of the $11.0 million
reported as real estate held for sale.
Securities Company
The part of our business structure and operating strategy that really separates
us from other publicly traded REITs is AmREIT Securities Company (ASC), a wholly
owned subsidiary of ARIC. Through ASC, we are able to raise capital through the
National Association of Securities Dealers (NASD) independent financial planning
community. Traditionally, we have raised capital in two ways: first, for our
actively managed retail partnerships, and second, directly for AmREIT through
non-traded classes of common shares.
During 2003, ASC raised approximately $15 million for AmREIT Monthly Income &
Growth Fund, Ltd., an affiliated retail partnership sponsored by a subsidiary of
AmREIT. Additionally, since August of 2003, ASC has raised approximately $40.4
million, including shares issued through the dividend reinvestment program,
directly for us through a class C common share offering. ASC is also the dealer
manager on our newest offering, a $170 million class D common share offering:
publicly registered, non-traded common shares receiving a stated 6.5%
F-5
annual dividend paid monthly. The class D common shares are non-cumulative and
can convert into the class A common shares at a 7.7% premium on invested capital
after a seven-year lock out period. We anticipate raising approximately $25-30
million during 2004 through this class D common share offering. Since capital is
the lifeblood of any real estate company, having the unique opportunity to raise
capital through both Wall Street and the independent financial planning
community adds additional financial flexibility and dependability to our income
stream.
Retail Partnerships
AmREIT has retail partnership subsidiaries that sell limited partnership
interests to retail investors, in which AmREIT indirectly invests through both
the general partner and as a limited partner. We wanted to create a structure
that aligns the interest of our shareholders with that of our unit holders.
Through our subsidiary general partners of the retail partnerships, value is
created for AmREIT through managing money from the sponsored funds, and in
return, receiving management fees and profit participation interests.
AmREIT's retail partnerships are structured so that an affiliate, as the general
partner, receives a significant profit only after the limited partners in the
retail partnerships have received their targeted return, again, linking AmREIT's
success to that of its unit holders.
As of June 30, 2004, AmREIT directly managed, through its four actively managed
and previously sponsored retail partnerships, over $35 million in equity. These
four partnerships have entered or will enter their liquidation phases in 2003,
2009, 2010, and 2011 respectively. As these partnerships enter into liquidation,
we expect to receive economic benefit from our profit participation, after
certain preferred returns have been paid to the partnership's limited partners.
Unrealized gains associated with this potential profit participation, if any,
have not been reflected on our balance sheet or statement of operations.
In August 2003 the Company began selling class C common shares. The offering is
a $44 million offering ($40 million offered to the public and $4 million
reserved for the dividend reinvestment program), issued on a best efforts basis
through the independent financial broker dealer community. The Company will
primarily use the proceeds for the acquisition of new properties and to pay down
existing debt. Since August 2003, the Company had issued approximately 4.04
million shares (including shares issued through the dividend reinvestment
program), representing approximately $40.4 million in proceeds from selling
class C shares.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and include all of
the disclosures required by accounting principles generally accepted in the
United States of America. The condensed consolidated financial statements
reflect all normal and recurring adjustments, which are, in the opinion of
management, necessary to present a fair statement of results for the six month
periods ended June 30, 2004 and 2003. Operating results for the three and six
months ended June 30, 2004 are not necessarily indicative of the results to be
expected for the year ended December 31, 2004.
The condensed consolidated financial statements of AmREIT contained herein
should be read in conjunction with the consolidated financial statements
included in the Company's annual report on Form 10-KSB for the year ended
December 31, 2003.
REAL ESTATE HELD FOR SALE
AmREIT constantly evaluates its real estate portfolio, identifying those assets
that are non-core and no longer meet its investment objectives. Management has
identified three portfolio properties that are considered non-core and
F-6
are listed for sale. Further, management anticipates identifying an additional
five to seven properties that it will list for sale during 2004.
Properties are classified as real estate held for sale if the properties were
purchased with intent to sell the properties within twelve to eighteen months or
if the properties are listed for sale. Additionally, if management has made the
determination to dispose of an operating property, the associated property is
reclassified to real estate held for sale and depreciation is ceased. An
evaluation for impairment is also performed. At June 30, 2004, AmREIT owned
eight properties that are classified as real estate held for sale. The eight
properties have a combined carrying value of $11.0 million.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of AmREIT and its
wholly or majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
NEW ACCOUNTING STANDARDS
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51 ("FIN 46"), which
was amended in December 2003. This Interpretation, as amended requires a
variable interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual return or
both. As amended the interpretation requires disclosures about variable interest
entities that a company is not required to consolidate, but in which it has a
significant variable interest. The adoption of FIN 46 for small business filers
is effective no later than December 31, 2004. Management anticipates the
adoption of FIN 46 will not have an impact on our consolidated financial
position, results of operations, or cash flows.
In May 2003, the Financial Accounting Standards Board issued Statement No. 150
("Statement 150") "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity". Statement 150 requires certain
financial instruments that have characteristics of both liabilities and equity
to be classified as a liability on the balance sheet. Statement 150 is effective
for financial instruments entered into or modified after May 31, 2003 and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. Statement 150 will be effected by reporting the cumulative
effect of a change in accounting principle for contracts created before the
issuance date and still existing at the beginning of that interim period. The
adoption of Statement 150 did not have an impact on our consolidated financial
position, results of operations, or cash flows.
RECLASSIFICATION
Certain amounts in the interim unaudited 2003 condensed consolidated financial
statements have been reclassified to conform to the presentation used in the
interim unaudited 2004 condensed consolidated financial statements. Such
reclassifications had no effect on previously reported net income or loss or
shareholders' equity.
3. NOTES PAYABLE
In September 2003, the Company renewed its unsecured credit facility (the
"Credit Facility"), which is being used to provide funds for the acquisition of
properties and working capital. In June 2004, the Credit Facility was amended in
order to increase the maximum availability and modify certain terms and
conditions of the Credit Facility. Under the amended Credit Facility, which
matures September 2004, the Company may borrow up to $35 million subject to the
value of unencumbered assets. The Company and the lender are in the process of
renewing the Credit Facility for a one year period. Management believes that the
Credit Facility will be renewed on terms and conditions substantially the same
as the current Credit Facility. The Credit Facility contains covenants which,
among other restrictions, require the Company to maintain a minimum net worth, a
maximum leverage ratio,
F-7
specified interest coverage and fixed charge coverage ratios and allow the
lender to approve all distributions. Furthermore, the Credit Facility contains
concentration covenants and limitations, limiting property level net operating
income for any one tenant to no more than 15% (35% for IHOP) of total property
net operating income. For the six months ended June 30, 2004, IHOP net operating
income represented approximately 33% of total property net operating income. On
June 30, 2004, the Company was in compliance with all financial covenants. The
Credit Facility's annual interest rate varies depending upon the Company's debt
to asset ratio, from LIBOR plus a spread of 1.40% to LIBOR plus a spread of
2.35%. As of June 30, 2004, the interest rate was LIBOR plus 2.0%. As of June
30, 2004, $10.2 million was outstanding under the Credit Facility. Thus the
Company has approximately $24.8 million available under its line of credit,
subject to Lender approval on the use of the proceeds.
4. MAJOR TENANTS
As of June 30, 2004, there have been no significant changes in the tenant
make-up from year end December 31, 2003, other than those delineated in Note 10.
5. EARNINGS PER SHARE
Basic earnings per share has been computed by dividing net income (loss)
available to class A shareholders by the weighted average number of class A
common shares outstanding. Diluted earnings per share has been computed by
dividing net income (as adjusted) by the weighted average number of common
shares outstanding plus the weighted average number of potentially dilutive
common shares. Diluted earnings per share information is not applicable due to
the anti-dilutive nature of the common class B and class C shares.
The following table presents information necessary to calculate basic and
diluted earnings per share for the periods indicated:
Quarter Year to Date
------------------ ------------------
2004 2003 2004 2003
-------- ------ -------- ------
BASIC EARNINGS PER SHARE
Weighted average class A common shares
outstanding (in thousands) 3,235 2,790 3,094 2,779
Basic and diluted (loss) earnings
per share* $ (0.31) $ 0.08 $ (0.71) $ 0.08
EARNINGS (LOSS) FOR BASIC AND
DILUTIVE COMPUTATION
(Loss) earnings to class A common
shareholders (in thousands) $(1,009) $ 210 $(2,187) $ 215
* The operating results for the three and six months ended June 30, 2004 include
a charge to earnings of $362 thousand and $1.7 million, respectively, which
represents the market value of the class A common shares issued to H. Kerr
Taylor, President and CEO, related to the sale of his advisory company to AmREIT
in 1998. The charge was for the deferred merger cost due from this sale that was
triggered by the issuance of additional class C common shares. Additionally,
these operating results include an impairment charge of $1.1 million, which
represents a write-down in value of the vacant Wherehouse Entertainment property
located in Wichita, Kansas, which was sold during the quarter. For additional
information see Footnote 6 - DISCONTINUED OPERATIONS.
F-8
6. DISCONTINUED OPERATIONS
The operations of fifteen properties were reported as discontinued operations
for the six months period ended June 30, 2004. Eight of the properties were
listed as held for sale at June 30, 2004, three of the properties were sold in
the current year, and five of the properties were sold in 2003. The following is
a summary of our discontinued operations (in thousands, except for per share
data):
Quarter Year to Date
----------------- -----------------
2004 2003 2004 2003
------- ----- ------- -----
Rental revenue $ 176 $ 294 $ 317 $ 558
Earned income from direct financing
leases 34 164 143 269
Interest and other income 639 -- 639 --
Gain on sale of real estate held for sale 242 279 850 279
General operating and administrative (51) (2) (150) (6)
Legal and professional -- -- -- (1)
Depreciation and amortization (25) (38) (39) (76)
Interest expense (2) (61) (41) (89)
Minority interest (121) -- (121) --
Impairment charge (1,103) -- (1,103) --
------- ----- ------- -----
(Loss) income from discontinued
operations (211) 636 495 934
======= ===== ======= =====
Basic and diluted (loss) income from
discontinued operations per common share $ (0.07) $0.23 $ 0.16 $0.34
======= ===== ======= =====
On June 21, 2004, the Company sold its Wherehouse Entertainment project located
in Wichita, Kansas. The Company recorded an impairment charge to earnings of
approximately $1.10 million in the second quarter to reflect the loss incurred
upon sale of the property, following the bankruptcy of its sole tenant. After a
thorough remarketing during the quarter, the Company could not replace the
previously existing value and determined to sell the asset and redeploy the
proceeds into more productive investments.
Gain on real estate held for sale is a result of selling two properties, one
acquired in 2003 and one acquired in 2004, with the intent to resell after a
short holding period. Through a taxable REIT subsidiary, AmREIT actively seeks
properties where there is an opportunity to purchase undervalued assets, and
after a short holding period and value creation, dispose of the asset and
capture the value created.
7. COMMITMENTS
The Company has signed a 63 month lease for office space. The lease commenced on
May 14, 2004. The annual rent will be $210 thousand. Rental expense for the six
months ended June 30, 2004 and 2003 was $60 thousand and $45 thousand,
respectively.
As of June 30, 2004, the Company has contracted to purchase approximately $57.0
million of multi-tenant real estate projects that are anticipated to close
during the third quarter of 2004. The acquisitions will be funded by cash and
the assumption of debt.
8. SEGMENT REPORTING
The operating segments presented are the segments of AmREIT for which separate
financial information is available, and revenue and operating performance is
evaluated regularly by senior management in deciding how to allocate resources
and in assessing performance.
F-9
AmREIT evaluates the performance of its operating segments primarily on revenue.
Because the real estate development and operating segment and securities and
retail partnership segment are both revenue and fee intensive, management
considers revenue the primary indicator in allocating resources and evaluating
performance.
The portfolio segment consists of our portfolio of single and multi-tenant
shopping center projects. This segment consists of 53 properties located in 19
states. Expenses for this segment include depreciation, interest, minority
interest, legal cost directly related to the portfolio of properties and the
property level expenses. The consolidated assets of AmREIT are substantially all
in this segment. Included in Corporate and Other are those costs and expenses
related to general overhead and personnel that are not solely responsible for
one of the reporting segments.
Real estate Securities &
operating & retail Corporate
Portfolio development partnerships and other Total
--------- ----------- ------------ --------- -------
Six months ended June 30, 2004:
Revenue $ 4,211 $ 949 $ 3,702 $ 325 $ 9,187
Income from non-consolidated
affiliates -- -- 187 -- 187
Expenses (1,760) (95) (2,942) (3,658) (8,455)
Deferred merger cost -- -- -- (1,682) (1,682)
------- ----- ------- ------- -------
Net income (loss) before
discontinued operations 2,451 854 947 (5,015) (763)
Six months ended June 30, 2003:
Revenue $ 2,941 $ 267 $ 624 $ 3 $ 3,835
Income from non-consolidated
affiliates -- -- 86 -- 86
Expenses (1,495) 11 (392) (1,872) (3,748)
------- ----- ------- ------- -------
Net income (loss) before
discontinued operations 1,446 278 318 (1,869) 173
Real estate Securities &
operating & retail Corporate
Portfolio development partnerships and other Total
--------- ----------- ------------ --------- -------
Three months ended June 30, 2004:
Revenue $ 2,096 $ 581 $ 1,722 $ 313 $ 4,712
Income from non-consolidated -- -- 172 -- 172
affiliates
Expenses (863) (20) (1,422) (1,909) (4,214)
Deferred merger cost -- -- -- (362) (362)
------- ----- ------- ------- -------
Net income (loss) before
discontinued operations 1,233 561 472 (1,958) 308
Three months ended June 30, 2003:
Revenue $ 1,477 $ 136 $ 488 $ -- $ 2,101
Income from non-consolidated -- 45 -- 45
affiliates --
Expenses (747) (41) (348) (997) (2,133)
------- ----- ------- ------- -------
Net income (loss) before
discontinued operations 730 95 185 (997) 13
F-10
9. PROPERTY ACQUISITIONS AND DISPOSITIONS
On June 15, 2004, AmREIT acquired The Courtyard at Post Oak, consisting of a
4,013 square-foot, free standing building occupied by Verizon Wireless (NYSE:
VZ) and a 9,584 square-foot, multi-tenant shopping center occupied by Ninfa's
Restaurant and Dessert Gallery. The property is located at the northwest
intersection of Post Oak and San Felipe in Houston, Texas which is the heart of
the Uptown Houston area, the most significant retail corridor in the Greater
Houston area. The property was acquired for cash. The weighted average remaining
lease term for the project is 5.2 years. The anticipated combined net operating
income contribution is approximately $450 thousand annually. Following is a
summary of assets acquired and liabilities assumed as of the date of the
Courtyard at Post Oak acquisition.
Summary of Assets Acquired and Liabilities Assumed
as of June 15, 2004
(In Thousands)
Assets
Buildings $1,874
Land 4,376
Intangible lease costs 101
------
TOTAL ASSETS $6,351
======
Liabilities $ 91
Net assets acquired $6,260
------
The following selected unaudited pro forma consolidated statement of operations
for AmREIT and subsidiaries gives effect to the acquisition of Uptown Plaza,
which assumes that the acquisition occurred on January 1, 2003. Uptown Plaza,
acquired in December 2003, is a 28,000 square foot retail complex located in
Houston, Texas, including a free-standing CVS/pharmacy drugstore and a retail
shopping center anchored by Grotto, a new concept of Landry's Restaurant, Inc.
Three months ended Six months ended
June 30, 2003 June 30, 2003
------------------ ----------------
Revenues
Rental income and earned income $ 1,778 $ 3,502
Other income 624 894
------- -------
Total Revenues 2,402 4,396
------- -------
Total Expenses 1,573 2,752
------- -------
Operating income 829 1,644
F-11
Three months ended Six months ended
June 30, 2003 June 30, 2003
------------------ ----------------
Income before discontinued operations 241 606
Income from discontinued operations 636 934
Pro forma net income 877 1,540
Distributions paid to class B and class C
shareholders (439) (892)
------- -------
Net income available to class A shareholders $ 438 $ 648
======= =======
Net income per common share - basic and diluted
Loss before discontinued operations (0.07) (0.10)
Income from discontinued operations 0.23 0.34
------- -------
Net income 0.16 0.24
Weaverage common shares used to compute
net income per share, basic and diluted 2,790 2,779
======= =======
10. SUBSEQUENT EVENTS
On July 1, 2004, AmREIT acquired Plaza in the Park, a 129,955 square-foot Kroger
(NYSE: KR) anchored shopping center located on approximately 14.3 acres. The
property is located at the southwest corner of Buffalo Speedway and Westpark in
Houston, Texas. Plaza in the Park's Kroger is undergoing a 13,120 square-foot
expansion. The property was acquired for cash and the assumption of long-term
fixed rate debt. The weighted average remaining lease term for the project is
9.2 years. The Kroger lease is for 20 years, containing approximately 71,000
square feet, expiring in August 2017. The shopping center is 96.67 percent
occupied.
On July 1, 2004, AmREIT acquired Cinco Ranch - Kroger, a 97,297 square-foot
Kroger (NYSE: KR) anchored shopping center located on approximately 12.8 acres
of land. The property is located at the northeast corner of Mason Road and
Westheimer Parkway in Katy, Texas. The property was acquired for cash and the
assumption of long-term fixed rate debt. The weighted average remaining lease
term for the project is 14 years. The Kroger lease is for 20 years, containing
approximately 63,000 square-feet, expiring in June 2023. The shopping center is
100 percent occupied.
On July 21, 2004, AmREIT acquired Bakery Square Shopping Center, a 34,704
square-foot retail project including a free standing Walgreen's and a shopping
center anchored by Bank of America (NYSE:BOA). This is an infill property
located just west of downtown Houston and includes other national tenants such
as T-Mobile, Blockbuster Video and Boston Market. The property as acquired for
cash and the assumption of long-term fixed rate debt. The weighted average
remaining lease term for the shopping center is 4.9 years. The Walgreen's lease
is for 60 years and will expire in October 2056. The shopping center is 100
percent occupied.
On July 21, 2004, AmREIT sold the IHOP property located in Grand Prairie, Texas.
The project was sold to an unaffiliated, buyer for cash. The project generated
approximately $202 thousand in annual rental income from operating leases and
earned income from direct financing leases, and was sold for a profit of
approximately $800 thousand.
F-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Certain information presented in this Form 10-QSB 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 these 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.
The condensed consolidated financial statements of AmREIT, and the following
discussion contained herein should be read in conjunction with the consolidated
financial statements and discussion included in the Company's annual report on
Form 10-KSB for the year ended December 31, 2003. Historical results and trends
which might appear should not be taken as indicative of future operations.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto and the comparative summary of selective
financial data appearing elsewhere in this report. Historical results and trends
which might appear should not be taken as indicative of future operations.
EXECUTIVE OVERVIEW
AmREIT (AMEX: AMY) is a rapidly growing, self-managed and self-advised REIT with
a 19-year history of delivering results to its investors. Its business model
consists of a publicly traded REIT that is supported by three synergistic
businesses - a real estate operating and development business, NASD-registered
broker dealer securities business and a retail partnership business. This unique
structure gives AmREIT access to the intellectual and financial capital required
to support a rapid growth platform.
Operated as a wholly owned subsidiary, AmREIT's real estate operating and
development business focuses on the development, acquisition, management,
brokerage and ownership of high quality commercial retail real estate to
generate monthly income and growth for our investors. The Company's in-house
NASD-registered securites group gives the company direct access to the
independent financial planning market, broadening AmREIT's avenues to raise
capital. The retail partnership business combines the skills of our real estate
team and our securities group to actively acquire and develop high quality
properties, creating potential for increasing income and capital appreciation by
opportunistically selling the properties within a defined time horizon.
The self-managed REIT focuses on the acquisition and development of
"irreplaceable corners" - premier retail frontage properties in high-traffic,
highly populated areas - to hold for long-term value. These properties are
leased to tenants located in high-end multi-tenant shopping centers, grocery
anchored centers and regional and national single tenants. AmREIT's retail
partnership business incorporates an "active management" strategy to acqire
develop and sell high quality free-standing and shopping center properties to
create shorter-term added value.
AmREIT's goal is to deliver increasing, dependable, monthly income for its
shareholders. In so doing, AmREIT strives to increase and maximize Funds From
Operations ("FFO") by issuing long term capital through both the NASD
independent financial planning marketplace as well as through Wall Street, and
investing the capital in
F-13
accretive real estate properties, acquired or developed, on irreplaceable
corners. Additionally, we strive to maintain a conservative balance sheet. To
that regard, we strive to maintain a debt to total asset ratio of less than 55%.
As of June 30, 2004, our debt to total asset ratio was 33%.
At June 30, 2004, AmREIT owned a portfolio of 53 properties located in 19
states, subject to long term leases with retail tenants, either directly or
through its interests in joint ventures or partnerships. Forty seven of the
properties are single tenant properties, and represent approximately 74% of the
rental income for the six months ended June 30, 2004. Six of the properties are
multi-tenant and represent approximately 26% of the rental income for the six
months ended June 30, 2004. In assessing the performance of the Company's
properties, management evaluates the occupancy of the Company's portfolio.
Occupancy for the total portfolio was 88.5% based on leaseable square footage as
of June 30, 2004. Additionally, the Company anticipates that the majority of its
rental income will consist of rental income generated from multi-tenant shopping
centers by the end of 2004. We have been developing and acquiring multi-tenant
shopping centers for over ten years in our retail partnership business. During
that time, we believe we have developed the ability to recognize the high-end
multi-tenant properties that can create long-term value, and with the downward
pressure on single tenant cap rates, resulting in higher priced real estate,
management anticipates strategically increasing its holdings of multi-tenant
shopping centers.
Management intends to increase total assets from $101 million as of December 31,
2003 to approximately $200 million at the end of 2004. Through June 30, 2004,
the Company fully subscribed its $40 million class C common share offering and
began marketing its $170 million class D common share offering. With the
proceeds of the class C common share offering and the assumption of debt, the
Company has purchased approximately $70 million in real estate assets since
December 31, 2003 including acquisitions subsequent to June 30, 2004 (see
Footnote 10.).
Management intends to fund future acquisitions and development projects through
a combination of equity offerings and debt financing. During 2004, the Company
anticipates raising an additional $25 to $30 million of equity from various
sources including Wall Street and the independent financial planning community.
Management expects that single tenant, credit leased properties, will continue
to experience cap rate pressure during 2004 due to the low interest rate
environment and increased buyer demand. Therefore, as it has been, our continued
strategy will be to divest of properties which no longer meet our core criteria,
and replace them with multi-tenant projects or the development of single tenant
properties located on irreplaceable corners. With respect to additional growth
opportunities, we have purchased approximately $57.0 million in grocery anchored
and multi-tenant shopping center projects subsequent to June 30, 2004 and have
over $50 million of projects in our pipeline at various stages of evaluation.
Each potential acquisition is subjected to a rigorous due diligence process that
includes site inspections, financial underwriting, credit analysis and market
and demographic studies. Therefore, there can be no assurance that any or all of
these projects will ultimately be purchased by AmREIT. Management anticipates,
and has budgeted for, an increase in interest rates during 2004. As of June 30,
2004, approximately 69% of our outstanding debt had a long term fixed interest
rate with an average term of seven years. Our philosophy continues to be
matching long term leases with long term debt structures while keeping our debt
to total assets ratio less than 55%.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
The results of operations and financial condition of the Company, as reflected
in the accompanying financial statements and related footnotes, are subject to
management's evaluation and interpretation of business conditions, retailer
performance, changing capital market conditions and other factors, which could
affect the ongoing viability of the Company's tenants. Management believes the
most critical accounting policies in this regard are the accounting for lease
revenues (including the straight line rent), the regular evaluation of whether
the value of a real estate asset has been impaired and the allowance for
doubtful accounts. We evaluate our assumptions and estimates on an on-going
basis. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable based on the circumstances.
F-14
Rental Income Recognition - In accordance with accounting principles generally
accepted in the United States of America, the Company accounts for rental income
under the straight line method, whereby we record rental income based on the
average of the total rent obligation due under the primary term of the lease.
The Company prepares a straight line rent schedule for each lease entered into.
Certain leases contain a provision for percentage rent. Percentage rent is
recorded in the period when the Company can reasonably calculate the amount of
percentage rent owed, if any. Generally, the Company records percentage rent in
the period in which the percentage rent payment is made, and can thereby be
calculated and verified. For the six months ended June 30, 2004, the Company
collected and recorded percentage rent from tenants of $65 thousand.
Real Estate Valuation - Real estate assets are stated at cost less accumulated
depreciation, which, in the opinion of management, is not in excess of the
individual property's estimated undiscounted future cash flows, including
estimated proceeds from disposition. Depreciation is computed using the
straight-line method, generally over estimated useful lives of 39 years for
buildings and over the primary term of the lease for tenant improvements. Major
replacements that extend the life of the property, or enhance the value of the
property are capitalized and the replaced asset and corresponding accumulated
depreciation are removed. All other maintenance items are charged to expense as
incurred.
Upon the acquisition of real estate projects, the Company assesses the fair
value of the acquired assets (including land, building, acquired, above and
below market leases and in-place leases, as if vacant property value and tenant
relationships) and acquired liabilities, and allocates the purchase price based
on these assessments. The Company assesses fair value based on estimated cash
flow projections that utilize appropriate discount and capitalization rates and
available market information. Estimates of future cash flows are based on a
number of factors including the historical operating results, known trends, and
specific market and economic conditions that may affect the property. Factors
considered by management in our analysis of determining the as if vacant
property value include an estimate of carrying costs during the expected
lease-up periods considering current market conditions, and costs to execute
similar leases. In estimating carrying costs, management includes real estate
taxes, insurance and other operating expenses and estimates of lost rentals at
market rates during the expected lease-up periods, up to 12 months depending on
the property location, tenant demand and other economic conditions. Management
also estimates costs to execute similar leases including leasing commissions,
tenant improvements, legal and other related expenses.
Costs incurred in the development of new operating properties, including
preacquisition costs directly identifiable with the specific project,
development and construction costs, interest and real estate taxes are
capitalized into the basis of the project. The capitalization of such costs
ceases when the property, or any completed portion, becomes available for
occupancy.
AmREIT's properties are reviewed for impairment if events or changes in
circumstances indicate that the carrying amount of the property may not be
recoverable. In such an event, a comparison is made of the current and projected
operating cash flows of each such property on an undiscounted basis, plus the
residual value of the property upon disposition, to the carrying value of such
property. The carrying value would then be adjusted, if needed, to estimate the
fair value to reflect an impairment in the value of the asset. Following the
bankruptcy of its sole tenant, and after a thorough remarketing during the
quarter, the Company determined that it could not replace the previously
existing value in its Wherehouse Entertainment project located in Wichita,
Kansas, and recorded an impairment charge to earnings of approximately $1.10
million in the second quarter. Subsequent to the write-down in value, management
sold the property during the current quarter.
Valuation of Receivables - An allowance for the uncollectible portion of accrued
rents, property receivables and accounts receivable is determined based upon an
analysis of balances outstanding, historical payment history, tenant credit
worthiness, additional guarantees and other economic trends. Balances
outstanding include base rents, tenant reimbursements and receivables attributed
to the accrual of straight line rents. Additionally, estimates of the
F-15
expected recovery of pre-petition and post-petition claims with respect to
tenants in bankruptcy are considered in assessing the collectibility of the
related receivables. During the six months ended June 30, 2004, the Company
wrote off receivables totaling approximately $67 thousand. The receivable is
attributable to the accrual of straight line rents associated with Just for
Feet. The write off of the receivable from Just for Feet is included in income
from discontinued operations. The Company maintains a receivable related to
Wherehouse Entertainment of approximately $126 thousand. Based on discussions
with Wherehouse Entertainment and Blockbuster Entertainment Corporation, the
guarantor of the lease, and legal proceedings involving Wherehouse Entertainment
and Blockbuster Entertainment Corporation, the Company believes this receivable
is collectable, and should be collected during 2004.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities and financing activities have been the
principal sources of capital to fund the Company's ongoing operations and
dividends. As AmREIT deploys the capital raised, and expected to be raised from
its equity offerings, into income producing real estate, we anticipate that cash
flow from operations will provide adequate resources for future ongoing
operations and dividends. AmREIT's cash on hand, internally-generated cash flow,
borrowings under our existing credit facilities, issuance of equity securities,
as well as the placement of secured debt and other equity alternatives, is
expected to provide the necessary capital to maintain and operate our properties
as well as execute and achieve our growth strategies.
SOURCES AND USES OF FUNDS
Cash provided by operating activities as reported in the Consolidated Statements
of Cash Flows increased $6.0 million for the six months ended June 30, 2004 when
compared to the six months ended June 30, 2003. Investment in real estate
acquired for resale decreased by $5.0 million. In addition, proceeds from sales
of real estate acquired for sale increased by $714 thousand. AmREIT sold two
properties for a profit that were acquired for sale, one in the first quarter
and one in the second quarter of 2004.
The increase in net cash provided by operating activities was primarily due to a
decrease in investment in real estate acquired for resale. During 2003, the
Company invested in five IHOP properties that were purchased as acquired for
resale. For the six months ended June 30, 2004, the Company has invested
approximately $2.2 million in real estate acquired for resale. This decrease in
investment in real estate acquired for resale was somewhat offset by a $1.1
million non-cash impairment charge related to the Wherehouse Entertainment
property located in Wichita Kansas and a $1.7 million non-cash increase in
deferred merger costs. The deferred merger expense is a result of shares issued
or payable to H. Kerr Taylor, our President and Chief Executive Officer, as a
result of the merger, which shares represented a portion of consideration
payable to Mr. Taylor as a result of the sale of his advisory company to AmREIT
in 1998. Mr. Taylor has now earned 100% of the shares eligible under the
deferred consideration agreement. Therefore, AmREIT's internal advisor has been
fully paid for, 100% with Company shares as opposed to debt, and no further
payments of shares or expense related to the issuance of shares will be made.
Cash flows used in investing activities has been primarily related to the
acquisition or development of retail properties. During the second quarter of
2004, AmREIT purchased The Courtyard at Post Oak, consisting of a free standing
building occupied by Verizon Wireless and a multi-tenant center occupied by
Ninfa's Restaurant and Dessert Gallery. During the first quarter of 2004, AmREIT
through one its taxable REIT subsidiaries, acquired a 25% equity interest in a
45 acre retail redevelopment in Houston, Texas. The other partners are
affiliated partnerships. The investment was funded through a combination of the
$14.3 million of capital (net of $1.8 million in issuance costs) raised through
the class C common share offering and debt financing.
F-16
In addition, the Company received $694 thousand in proceeds during the second
quarter of 2004 from the sale of its Wherehouse Entertainment project located in
Wichita, Kansas. Prior to the sale, the Company recorded an impairment charge to
earnings of approximately $1.1 million to reflect the impaired value of the
property. Cash flows used in investing activities as reported in the
Consolidated Statements of Cash Flows increased from $3.1 million in the first
six months of 2003 to $7.9 million in the first six months of 2004.
Cash flows provided by financing activities decreased from $5.4 million through
June 30, 2003 to $4.8 million through June 30, 2004. Cash flows provided by
financing activities were primarily generated from our class C common share
offering. AmREIT fully subscribed its class C commons share offering during the
second quarter. 100% of the net proceeds have been used to purchase
irreplaceable corners. AmREIT has begun to market its class D common share
offering, a $170 million common share offering, offered through the independent
financial planning community. The class D common shares have a stated 6.5%
annual dividend, paid monthly, are convertible into the Company's class A common
shares at any time after a seven-year lock out period for a 7.7% premium on
invested capital and are callable by the Company after one year. One advantage
of raising capital through the independent financial planning marketplace is the
capital is received on a monthly basis, allowing for a scaleable matching of
real estate projects. Our first priority is to deploy the capital raised, and
then to moderately leverage the capital, while maintaining our philosophy of a
conservative balance sheet. The Company was able to reduce debt by almost $25.1
million with the proceeds from it class C common share offering.
AmREIT has a $35 million unsecured revolving credit facility, as amended in June
2004. The facility will mature on September 4, 2004, and the Company and Lender
are in the process of renewing the Credit Facility for a one year period.
Management believes that the Credit Facility will be renewed on terms and
conditions substantially the same as the current Credit Facility. 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. Furthermore, the Credit Facility contains concentration covenants
and limitations, limiting property level net operating income for any one tenant
to no more than 15% (35% for IHOP) of total property net operating income. At
June 30, 2004, IHOP net operating income represented approximately 33% of total
property net operating income. At June 30, 2004, the Company was in compliance
with all financial covenants. The Credit Facility's annual interest rate varies
depending upon the Company's debt to asset ratio, from LIBOR plus a spread of
1.40% to LIBOR plus a spread of 2.35%. As of June 30, 2004, the interest rate
was LIBOR plus 2.0%. As of June 30, 2004, $10.2 million was outstanding under
the Credit Facility. Thus the Company has approximately $24.8 million available
under its line of credit, subject to Lender approval on the use of the proceeds.
In addition to the credit facility, AmREIT utilizes various permanent mortgage
financing and other debt instruments. As of June 30, 2004, the Company had the
following contractual debt obligations:
2004 2005 2006 2007 2008 Thereafter Total
------- ---- ---- ---- ---- ---------- -------
Unsecured debt:
Revolving credit $10,168 $ -- $ -- $ -- $ -- $ -- $10,168
facility
5.46% dissenter notes -- -- -- -- -- 760 760
Secured debt 230 490 530 573 620 19,163 21,606
Non-cancelable operating
lease payments 79 210 210 210 210 123 1,042
Total contractual
obligations $10,477 $700 $740 $783 $830 $20,046 $33,576
======= ==== ==== ==== ==== ======= =======
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 at the time.
F-17
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, acquisitions of the Company's affiliated entities or
other unrelated companies, or the disposition of assets, as well as
undistributed funds from operations.
In August 2003, the Company commenced the class C common share offering. This
offering is being exclusively made through the NASD independent financial
planning community. It was a $44 million offering, of which $4 million has been
reserved for the dividend reinvestment plan. As of June 30, 2004, 4.04 million
shares had been issued, including shares issued through the dividend
reinvestment program, resulting in approximately $40.4 million in gross
proceeds. The proceeds are being and will be used to finance the acquisition and
development of retail real estate projects, pay down the revolving credit
facility and provide working capital for the on going operation of the company
and its properties.
For the quarters ended June 30, 2004 and 2003, the Company paid dividends to its
shareholders of $1.489 million, and $749 thousand respectively. The class A and
class C shareholders receive monthly dividends and the class B shareholders
receive quarterly dividends. All dividends are declared on a quarterly basis.
The dividends by class follow (in thousands):
Class A Class B Class C
------- ------- -------
2004
Second quarter $383 $429 $677
First quarter $345 $434 $379
2003
Fourth quarter $320 $437 $156
Third quarter $308 $443 $15
Second quarter $310 $439 N/A
Until properties are acquired by the Company, the Company's funds 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 June 30, 2004, the Company's cash and cash equivalents totaled
$846 thousand.
Cash flows from operating activities, investing activities, and financing
activities for the three and six months ended June 30, are presented below in
thousands:
QUARTER YEAR TO DATE
----------------------- ---------------------
2004 2003 2004 2003
------- ------- ------- -------
Operating activities $ 1,635 $(4,343) $ 1,940 $(4,091)
Investing activities (6,182) (40) (7,910) (3,096)
Financing activities 3,214 4,294 4,784 5,417
INFLATION
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.
F-18
FUNDS FROM OPERATIONS
AmREIT considers FFO to be an appropriate measure of the operating performance
of an equity REIT. The National Association of Real Estate Investment Trusts
(NAREIT) defines FFO as net income or loss computed in accordance with generally
accepted accounting principles (GAAP), excluding gains from sales of property,
plus real estate related depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. In addition, NAREIT
recommends that extraordinary items not be considered in arriving at FFO. AmREIT
calculates its FFO in accordance with this definition. Most industry analysts
and equity REITs, including AmREIT, consider FFO to be an appropriate
supplemental measure of operating performance because, by excluding gains or
losses on dispositions and excluding depreciation, FFO is a helpful tool that
can assist in the comparison of the operating performance of a company's real
estate between periods, or as compared to different companies. There can be no
assurance that FFO presented by AmREIT is comparable to similarly titled
measures of other REITs. FFO should not be considered as an alternative to net
income or other measurements under GAAP as an indicator of our operating
performance or to cash flows from operating, investing or financing activities
as a measure of liquidity.
Below is the calculation of FFO and the reconciliation to net income, which the
Company believes is the most comparable GAAP financial measure to FFO, in
thousands for the three months ended June 30:
QUARTER YEAR TO DATE
--------------------- ---------------------
2004 2003 2004 2003
------- ----- ------- -----
Income (loss) before discontinued operations $ 308 $ 13 $ (763) $ 173
Income from discontinued operations (211) 636 495 934
Plus depreciation of real estate assets - from
operations 257 170 488 352
Plus depreciation of real estate assets - from
discontinued operations 26 38 39 76
Less class B and class C distributions (1,106) (439) (1,919) (892)
------- ----- ------- -----
Total Funds From Operations available to
class A shareholders* $ (726) 418 (1,660) $ 643
Cash dividends paid to class A shareholders $ 383 $ 310 $ 728 $ 617
Dividends (in excess of) less than FFO* $(1,109) $ 108 $(2,388) $ 26
* Based on the adherence to the NAREIT definition of FFO, we have not added back
the $362 thousand or $1.7 million charge to earnings for the three and six
months ended June 30, 2004, respectively, resulting from shares issued to Mr.
Taylor. Additionally, we have not added back the $1.1 million charge to earnings
for the three and six months ended June 30, 2004, resulting from an asset
impairment and corresponding write-down of value. Adding these charges back to
earnings would result in adjusted funds from operations available to class A
shareholders of $739 thousand for the three months ended June 30, 2004 and $1.1
million for the six months ended June 30, 2004. Adding the charge to earnings
would also result in dividends paid being less than adjusted FFO of $356
thousand for the three months ended June 30, 2004 and $397 thousand for the six
months ended June 30, 2004.
F-19
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2004 TO JUNE 30, 2003:
Rental revenue and earned income from direct financing leases increased by 42%,
or $619 thousand, for the three months ended June 30, 2004 when compared to the
three months ended June 30, 2003. Of this increase, $597 thousand is related to
acquisitions made after the second quarter of 2003.
Securities commission income increased by $1.2 million for the three months
ended June 30, 2004 when compared to 2003. This increase in securities
commission income is due to increased capital being raised through our broker
dealer company, AmREIT Securities Company (ASC). As ASC raises capital for
either AmREIT or its affiliated retail partnerships, ASC earns a securities
commission of between 8% and 10.5% of the money raised. During the second
quarter of 2004, AmREIT and its affiliated retail partnerships raised
approximately $15.3 million, as compared to approximately $4.3 million during
the second quarter of 2003. This increase in commission income is somewhat
mitigated by a corresponding increase in commission expense paid to other third
party broker dealer firms. Commission expense increased by $1.0 million for the
three months ended June 30, 2004 compared to the three months ended June 30,
2003. Interest and other income increased approximately $313 thousand primarily
due to the negotiated claim on the lease of the Footstar location in Baton
Rouge.
General and operating expense for the three months ended June 30, 2004 increased
$804 thousand when compared to 2003. The increase in general and operating
expense is primarily due to additional personnel and the associated salary and
benefits costs related to these individuals. Since the second quarter of 2003,
the Company added members to each of the operating teams, two on the real estate
team (property management, legal, acquisitions and leasing), four on the
securities team and three clerical and administrative support positions. By
building our various teams, we have not only been able to grow revenue and Funds
from Operations, but believe that we will be able to sustain and further enhance
our growth. Compensation expense increased $424 thousand in the three months
ended June 30, 2004 as compared to the three months ended June 30, 2003. In
addition, property expense increased $126 thousand.
Deferred merger costs increased from $0 in 2003 to $362 thousand in 2004. The
deferred merger cost is related to deferred consideration payable to Mr. Taylor
as a result of the acquisition of our advisor, which was owned by Mr. Taylor in
1998. In connection with the acquisition, Mr. Taylor agreed to payment for this
advisory company in the form of common shares, paid as the Company increases its
outstanding equity. To date, Mr. Taylor has received 900 thousand class A common
shares, which fulfills the shares that he is owed under the deferred
consideration agreement.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2004 TO JUNE 30, 2003:
Rental revenue and earned income from direct financing leases increased by 43%,
or $1.3 million for the six months ended June 30, 2004 when compared to the six
months ended June 30, 2003. Of this increase, $1.2 million is related to
acquisitions made after the second quarter of 2003.
Securities commission income increased by $3.0 million, from $527 thousand in
2003 to $3.6 million in 2004. This increase in securities commission income is
due to increased capital being raised through our broker dealer company, AmREIT
Securities Company (ASC). As ASC raises capital for either AmREIT or its
affiliated retail partnerships, ASC earns a securities commission of between 8%
and 10.5% of the money raised. During the six months ended June 30, 2004, AmREIT
and its affiliated retail partnerships raised approximately $33.3 million, as
compared to approximately $5.2 million during the six months ended June 30,
2003. This increase in commission income is somewhat mitigated by a
corresponding increase in commission expense paid to other third party broker
dealer firms. Commission expense increased by $2.4 million, from $396 thousand
in 2003 to $2.8 million in 2004.
General and operating expense increased $1.5 million, from $1.5 million in 2003
to $3.0 million in 2004. The increase in general and operating expense is
primarily due to additional personnel and the associated salary and
F-20
benefits costs related to these individuals. Since the second quarter of 2003,
the Company added members to each of the operating teams, two on the real estate
team (property management, legal, acquisitions and leasing), four on the
securities team and three clerical and administrative support positions. By
building our various teams, we have not only been able to grow revenue and Funds
from Operations, but believe that we will be able to sustain and further enhance
our growth. Compensation expense increased $882 thousand in the six months ended
June 30, 2004 as compared to the six months ended June 30, 2003. In addition,
property expense increased $261 thousand.
Deferred merger costs increased from $0 in 2003 to $1.7 million in the six
months ended June 30, 2004. The deferred merger cost is related to deferred
consideration payable to Mr. Taylor as a result of the acquisition of our
advisor, which was owned by Mr. Taylor in 1998. In connection with the
acquisition, Mr. Taylor agreed to payment for this advisory company in the form
of common shares, paid as the Company increases its outstanding equity. To date,
Mr. Taylor has received 900 thousand class A common shares, which fulfills the
shares that he is owed under the deferred consideration agreement.
F-21
THE BOARD OF TRUST MANAGERS
AMREIT:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Cinco Ranch Shopping Center (the
Property) for the period June 4, 2003 through May 31, 2004. This Historical
Summary is the responsibility of the management of AmREIT. Our responsibility is
to express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Current Report on Form 8-K. The presentation is not intended to
be a complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses, as described
in note 2, of Cinco Ranch Shopping Center for the period June 4, 2003 through
May 31, 2004, in conformity with U.S. general accepted accounting principles.
KPMG LLP
Houston, TX
September 14, 2004
F-22
CINCO RANCH SHOPPING CENTER HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT
OPERATING EXPENSES FOR THE PERIOD FROM JUNE 4, 2003 THROUGH MAY 31, 2004
Gross Income $1,374,246
----------
Direct Operating Expenses:
Operating expenses 132,270
Real estate taxes 101,231
Insurance 10,697
Interest 485,676
----------
Total direct operating expenses 729,874
----------
Excess of gross income over direct operating expenses $ 644,372
==========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-23
CINCO RANCH SHOPPING CENTER NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND
DIRECT OPERATING EXPENSES FOR THE PERIOD FROM JUNE 4, 2003 THROUGH MAY 31, 2004
(1) BUSINESS
The Cinco Ranch Shopping Center (the Property) is located in Katy, Texas. The
property consists of approximately 97,297 square feet of gross leasable area and
was 100% occupied at May 31, 2004. On July 1, 2004, AmREIT acquired the property
for $15.5 million.
(2) BASIS OF PRESENTATION AND COMBINATION
The Historical Summary of Gross Income and Direct Operating Expenses (Historical
Summary) has been prepared for the purpose of complying with Rule 3-14 of the
Securities and Exchange Commission Regulation S-X and for inclusion in AmREIT's
filing on Form 8-K, and is not intended to be a complete presentation of the
Property's revenues and expenses. The seller purchased the Property on June 4,
2003. The Historical Summary has been prepared on the accrual basis of
accounting. Management of the Property is required to make estimates and
assumptions that affect the reported amounts of the revenues and expenses during
the reporting period. Actual results may differ from those estimates.
(3) GROSS INCOME
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area maintenance,
real estate taxes, and insurance costs. Revenue related to these reimbursed
costs is recognized in the period the applicable costs are incurred and billed
to tenants pursuant to the lease agreements. Certain leases contain renewal
options at various periods at various rental rates. Certain of the leases
contain provisions for contingent rentals. No contingent rent was earned during
the period from June 4, 2003 through May 31, 2004.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income is recognized for the full period of occupancy
on a straight-line basis.
The weighted average remaining lease term for the project is 14 years. Minimum
rents to be received from tenants under operating leases, exclusive of common
area maintenance reimbursements, which were $187 thousand for the period from
June 4, 2003 through May 31, 2004, are as follows:
2005 $ 1,218,461
2006 1,207,697
2007 1,081,057
2008 1,064,256
2009 1,013,050
Thereafter 8,546,056
-----------
Total $14,130,577
===========
F-24
Adjustments to record rental income on a straight line basis increased gross
income by $24 thousand during the period from June 4, 2003 through May 31, 2004.
Additionally, adjustments to rental income increased gross income by $6 thousand
for such period due to adjustments to reflect rental income at market rates
related to leases acquired through acquisition.
As of May 31, 2004, 63,373 square feet was leased to one tenant, Kroger, under a
noncancelable lease that expires June 3, 2023. This tenant accounted for
approximately 42% of rental revenue during the period from June 4, 2003 through
May 31, 2004.
(4) DIRECT OPERATING EXPENSES
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation and
amortization are excluded from the Historical Summary.
(5) RELATED-PARTY TRANSACTIONS
During the period from June 4, 2003 through May 31, 2004, management fees and
leasing commissions of $37,340 and $16,380, respectively, were paid or incurred.
Such amounts were paid or owed to various entities related to the owner of the
Property either by common ownership or control. Payments and amounts due to
related parties represent amounts due under contracts for different services
provided by the related party.
(6) PROJECT FINANCING
In June 2003, a $8,720,000 non-recourse note payable was entered into with a
lender, secured by the Property. The note requires monthly installment payments
of principal and interest through its maturity on July 10, 2013, at the fixed
interest rate of 5.6%, based on a 30-year amortization. The Property is pledged
as security under the terms of the note payable. The loan may not be prepaid
before July 10, 2008 and requires prepayment fees of 5%, 4%, 3%, 2%, and 1% if
it is prepaid during the sixth, seventh, eighth, ninth, or tenth year,
respectively. In connection with the July 2004 acquisition of the Property by
AmREIT, this note was assumed.
F-25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE BOARD OF TRUST MANAGERS
AMREIT:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Plaza in the Park Shopping Center
(the Property) for the period June 4, 2003 through May 31, 2004. This Historical
Summary is the responsibility of the management of AmREIT. Our responsibility is
to express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Current Report on Form 8-K. The presentation is not intended to
be a complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses, as described
in note 2, of Plaza in the Park Shopping Center for the period June 4, 2003
through May 31, 2004, in conformity with U.S. general accepted accounting
principles.
KPMG LLP
Houston, TX
September 14, 2004
F-26
PLAZA IN THE PARK SHOPPING CENTER HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT
OPERATING EXPENSES FOR THE PERIOD FROM JUNE 4, 2003 THROUGH MAY 31, 2004
Gross Income $2,775,684
----------
Direct Operating Expenses:
Operating expenses 350,316
Real estate taxes 252,118
Insurance 34,142
Interest 1,026,493
----------
Total direct operating expenses 1,663,069
----------
Excess of gross income over direct operating expenses $1,112,615
==========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-27
PLAZA IN THE PARK SHOPPING CENTER NOTES TO HISTORICAL SUMMARY OF
GROSS INCOME AND DIRECT OPERATING EXPENSES FOR THE PERIOD FROM
JUNE 4, 2003 THROUGH MAY 31, 2004
(1) BUSINESS
Plaza in the Park Shopping Center (the Property) is located in Houston, Texas.
The Property consists of approximately 129,955 square feet of gross leasable
area and was approximately 96.7% occupied at May 31, 2004. On July 1, 2004,
AmREIT acquired the Property for $33.0 million.
(2) BASIS OF PRESENTATION AND COMBINATION
The Historical Summary of Gross Income and Direct Operating Expenses (Historical
Summary) has been prepared for the purpose of complying with Rule 3-14 of the
Securities and Exchange Commission Regulation S-X and for inclusion in AmREIT's
filing on Form 8-K, and is not intended to be a complete presentation of the
Property's revenues and expenses. The seller purchased the Property on June 4,
2003. The Historical Summary has been prepared on the accrual basis of
accounting. Management of the Property is required to make estimates and
assumptions that affect the reported amounts of the revenues and expenses during
the reporting period. Actual results may differ from those estimates.
(3) GROSS INCOME
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area maintenance,
real estate taxes, and insurance costs. Revenue related to these reimbursed
costs is recognized in the period the applicable costs are incurred and billed
to tenants pursuant to the lease agreements. Certain leases contain renewal
options at various periods at various rental rates. Certain of the leases
contain provisions for contingent rentals. No contingent rent was earned during
the period from June 4, 2003 through May 31, 2004.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income is recognized for the full period of occupancy
on a straight-line basis.
The weighted average remaining lease term for the project is 9.2 years. Minimum
rents to be received from tenants under operating leases, exclusive of common
area maintenance reimbursements, which were $480 thousand for the period from
June 4, 2003 through May 31, 2004, are as follows:
2005 $2,443,901
2006 2,455,763
2007 2,291,814
2008 2,057,938
2009 1,918,793
Thereafter 13,409,044
-----------
Total $24,577,253
===========
Adjustments to record rental income on a straight line basis increased gross
income by $44 thousand during the period from June 4, 2003 through May 31, 2004.
Additionally, adjustments to rental income decreased gross income by $66
thousand for such period due to adjustments to reflect rental income at market
rates related to leases acquired through acquisition at other than market rates.
As of May 31, 2004, 68,658 square feet was leased to one tenant, Kroger, under a
noncancelable lease that expires August 31, 2021. This tenant accounted for
approximately 41% of rental revenue during the period from June 4, 2003 through
May 31, 2004.
F-28
(4) DIRECT OPERATING EXPENSES
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation and
amortization are excluded from the Historical Summary.
(5) RELATED-PARTY TRANSACTIONS
During the period from June 4, 2003 through May 31, 2004, management fees and
leasing commissions of $75,462 and $14,712, respectively, were paid or incurred.
Such amounts were paid or owed to various entities related to the owner of the
Property either by common ownership or control. Payments and amounts due to
related parties represent amounts due under contracts for different services
provided by the related party.
(6) PROJECT FINANCING
In June 2003, a $18,430,000 non-recourse note payable was entered into with a
lender, secured by the Property. The note requires monthly installment payments
of principal and interest through its maturity on July 10, 2013, at the fixed
interest rate of 5.6%, based on a 30-year amortization. The Property is pledged
as security under the terms of the note payable. The loan may not be prepaid
before July 10, 2008 and requires prepayment fees of 5%, 4%, 3%, 2%, and 1% if
it is prepaid during the sixth, seventh, eighth, ninth, or tenth year,
respectively. In connection with the July 2004 acquisition of the Property by
AmREIT, this note was assumed.
F-29
AMREIT AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following pro forma financial statements have been prepared to provide pro
forma information with regards to the properties described below (the
"Properties") which AmREIT (the "Company") acquired from an unrelated third
party.
On July 1, 2004, the Company acquired Plaza in the Park Shopping Center, a
129,955 square-foot Kroger anchored shopping center located on approximately
14.3 acres. The property is located in Houston, Texas and is 96.7% occupied.
Also on July 1, 2004, the Company acquired Cinco Ranch Shopping Center, a 97,297
square-foot Kroger anchored shopping center located on approximately 12.8 acres
of land. The property is located in Katy, Texas and is 100% occupied.
The unaudited Pro Forma Condensed Consolidated Balance Sheet presents the
historical financial information of the Company as of June 30, 2004 as adjusted
for the acquisition of the Properties which are assumed to have occurred on June
30, 2004.
The unaudited Pro Forma Condensed Consolidated Statements of Operations for the
year ended December 31, 2003 and the six months ended June 30, 2004 combine the
historical operations of the Company with the gross income and direct operating
expenses of the Properties and are presented as if the acquisitions of the
Properties occurred on January 1, 2003.
The unaudited pro forma condensed consolidated financial statements have been
prepared by the Company's management based upon the historical financial
statements of the Company and of the Properties. These pro forma statements may
not be indicative of the results that actually would have occurred if the
combination had been in effect on the dates indicated or which may be obtained
in the future. In management's opinion, all adjustments necessary to reflect the
effects of the property acquisitions have been made. These unaudited pro forma
condensed consolidated financial statements should be read in conjunction with
the historical financial statements included in the Company's previous filings
with the Securities and Exchange Commission.
F-30
AMREIT AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2004
(unaudited)
(in thousands)
Acquisitions (2)
------------------------
AmREIT Cinco Plaza in the
Historical (1) Ranch Park Pro Forma
-------------- --------- ------------ ---------
ASSETS
Property:
Land $ 37,920 $ 2,660 $ 13,232 $ 53,812
Buildings 32,286 9,619 14,091 55,996
Tenant improvements 620 1,459 1,905 3,984
--------- --------- --------- ---------
70,826 13,738 29,228 113,792
Less accumulated depreciation and amortization (2,707) -- -- (2,707)
--------- --------- --------- ---------
Net real estate held for investment 68,119 13,738 29,228 111,085
Real estate held for sale, net 11,032 -- -- 11,032
Net investment in direct financing leases held for investment 19,222 -- -- 19,222
Intangible lease cost, net 672 1,892 3,742 6,306
Other assets 9,667 44 203 9,914
--------- --------- --------- ---------
TOTAL ASSETS $ 108,712 $ 15,674 $ 33,173 $ 157,559
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 32,534 $ 15,504(3) $ 33,007(3) $ 81,045
Other liabilities 3,465 170 166 3,801
--------- --------- --------- ---------
TOTAL LIABILITIES 35,999 15,674 33,173 84,846
--------- --------- --------- ---------
Minority interest 1,010 -- -- 1,010
Shareholders' equity 71,703 -- -- 71,703
--------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 108,712 $ 15,674 $ 33,173 $ 157,559
========= ========= ========= =========
The accompanying notes are an integral part of this pro forma condensed
consolidated financial statement.
F-31
AMREIT AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2004
(UNAUDITED)
(1) Reflects the historical condensed consolidated balance sheet of the Company
as of June 30, 2004. Please refer to the AmREIT's historical consolidated
financial statements and notes thereto included in the Company's Quarterly
Report on Form 10-QSB for the six months ended June 30, 2004.
(2) Reflects the acquisition of the Properties. The aggregate purchase price was
$48.5 million and was allocated among land, buildings, tenant improvements,
above- and below-market leases and intangible lease costs pursuant to Statement
of Financial Accounting Standards No. 141, Business Combinations (SFAS No. 141).
The buildings are depreciated over a period of 39 years.
(3) In conjunction with the acquisition of the Properties, the Company assumed
$26.8 million of secured debt with a fixed rate of 5.6%. Additionally, $21.7
million of the acquisition consideration was funded through the Company's credit
facility (rate of 3.375% on the acquisition date). The terms of the debt assumed
approximated market on the date of the acquisition; accordingly, no adjustments
were made to the carrying value of the debt in allocating the purchase price of
the Properties.
F-32
AMREIT AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(Unaudited)
(in thousands, except per share amounts)
Acquisitions (2)
------------------------
AmREIT Cinco Plaza in the Pro Forma
Historical(1) Ranch Park Adjustments Pro Forma
------------- -------- ------------ ----------- ---------
Revenues
Rental income and earned income $ 4,211 $ 687 $ 1,388 $ -- $ 6,286
Other income 4,975 -- -- -- 4,975
-------- -------- -------- -------- --------
Total Revenues 9,186 687 1,388 -- 11,261
-------- -------- -------- -------- --------
Expenses
General operating and administrative 3,008 122 318 -- 3,448
Depreciation and amortization 504 -- -- 740(3) 1,244
Other expenses 5,093 -- -- -- 5,093
-------- -------- -------- -------- --------
Total Expenses 8,605 122 318 740 9,785
-------- -------- -------- -------- --------
Operating income 581 565 1,070 (740) 1,476
Interest expense (1,163) (243) (513) (356)(4) (2,275)
Other income/expense (182) -- -- -- (182)
Income (loss) from continuing operations (764) 322 557 (1,096) (981)
Distributions paid to class B and class C shareholders (1,919) -- -- -- (1,919)
-------- -------- -------- -------- --------
Loss from continuing operations available to class A
shareholders ($ 2,682) $ 322 $ 557 ($ 1,096) ($ 2,900)
======== ======== ======== ======== ========
Loss from continuing operations - basic and diluted (0.87) (0.94)
-------- --------
Weighted average common shares used to compute
net income per share, basic and diluted 3,094 3,094
======== ========
The accompanying notes are an integral part of this pro forma condensed
consolidated financial statement.
F-33
AMREIT AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
(1) Reflects the historical condensed consolidated statement of operations of
the Company for the six months ended June 30, 2004. Please refer to AmREIT's
historical consolidated financial statements and notes thereto included in the
Company's Quarterly Report on Form 10-QSB for the six months ended June 30,
2004.
(2) The historical statements of operations for the Properties represent a
historical summary of gross income and direct operating expenses for the period
from January 1, 2004 through June 30, 2004. Costs such as depreciation and
amortization were excluded from the historical summary. See Note 3 below.
(3) Represents the depreciation of the building (over 39 years) and tenant
improvements (over the terms of the respective lease agreements) as well as the
amortization of the intangible assets based on the preliminary purchase price
allocation in accordance with SFAS No. 141.
(4) Represents the incremental interest expense related to the portion of the
acquisition consideration that was financed via the Company's credit facility,
assuming an interest rate of 3.375%.
F-34
AMREIT AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
(Unaudited)
(in thousands, except per share amounts)
Acquisitions(2)
--------------------
AmREIT Cinco Plaza in Pro Forma
Historical(1) Ranch the Park Adjustments Pro Forma
------------- ------- -------- ----------- ---------
Revenues
Rental income and earned income $ 7,584 $ 1,143 $ 2,798 $ - $ 11,525
Other income 5,025 - - - 5,025
------- ------- ------- -------- --------
Total Revenues 12,609 1,143 2,798 - 16,550
------- ------- ------- -------- --------
Expenses
General operating and administrative 3,937 245 642 4,824
Depreciation and amortization 836 - - 1,479 (3) 2,315
Other expenses 4,084 - - - 4,084
------- ------- ------- -------- --------
Total Expenses 8,857 245 642 1,479 11,223
------- ------- ------- -------- --------
Operating income 3,752 898 2,156 (1,479) 5,327
Interest expense (2,354) (491) (1,037) (712)(4) (4,594)
Other expense (102) - - - (102)
------- ------- ------- -------- --------
Income (loss) before discontinued operations 1,296 407 1,119 (2,191) 630
Distributions paid to class B and class C
shareholders (1,943) - - - (1,943)
------- ------- ------- -------- --------
Income (loss) from continuing operations
available to class A shareholders $ (647) $ 407 $ 1,119 $ (2,191) $ (1,312)
======= ======= ======= ======== ========
Loss from continuing operations-
basic and diluted (0.23) (0.47)
------- --------
Weighted average common shares used to compute
net income per share, basic and diluted 2,792 2,792
======= ========
The accompanying notes are an integral part of this pro forma condensed
consolidated financial statement.
F-35
AMREIT AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003
(UNAUDITED)
(1) Reflects the historical condensed consolidated statement of operations of
the Company for the year ended December 31, 2003. Please refer to AmREIT's
historical consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2003.
(2) The historical statements of operations for the Properties represent a
historical summary of gross income and direct operating expenses for the year
ended December 31, 2003. Costs such as depreciation and amortization were
excluded from the historical summary. See Note 3 below.
(3) Represents the depreciation of the building (over 39 years) and tenant
improvements (over the terms of the respective lease agreements) as well as the
amortization of the intangible assets based on the preliminary purchase price
allocation in accordance with SFAS No. 141.
(4) Represents the incremental interest expense related to the portion of the
acquisition consideration that was financed via the Company's credit facility,
assuming an interest rate of 3.375%.
F-36
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 31 through 35 and Item 37 of Part II are incorporated by reference from
Amendment No. 1 to the Registrant's Registration Statement on Form S-11, as
filed on June 24, 2004.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS.
[TO COME]
(b) EXHIBITS (SEE EXHIBIT INDEX).
EXHIBIT
NO. EXHIBIT
------- -------
1.1 Form of Dealer Manager Agreement*
3.1 Amended and Restated Declaration of Trust (incorporated by
reference to Exhibit 3.1 to the Registrant's Form 10-KSB
for the fiscal year ended December 31, 2002)
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the
Registrant's Form 10-KSB for the fiscal year ended
December 31, 2002)
3.3 Form of Statement of Designation for class D common
shares*
4.1 Form of Subscription Agreement and Subscription Agreement
Signature Page (included as Exhibit A to the Prospectus)
5.1 Opinion of Locke Liddell & Sapp LLP regarding legality of
the securities*
8.1 Opinion of Locke Liddell & Sapp LLP regarding tax matters*
21.1 Subsidiaries of the Registrant*
23.1 Consent of Locke Liddell & Sapp LLP (included in Exhibits
5.1 and 8.1)*
23.2 Consent of KPMG LLP
24.1 Power of Attorney*
----------------
* Previously filed
II-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-11 and has duly caused this
Post-Effective Amendment No. 1 to the Registration Statement on Form S-11 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on the 29 day of September, 2004.
AMREIT
(Registrant)
By: /s/ H. Kerr Taylor
-----------------------------------------
Name: H. Kerr Taylor
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ H. Kerr Taylor President, Chief Executive Officer September 29, 2004
---------------------------------------------- and Chairman of the Board
H. Kerr Taylor (Principal Executive Officer)
/s/ Chad C. Braun Executive Vice President and Chief September 29, 2004
---------------------------------------------- Financial Officer
Chad C. Braun (Principal Financial Officer)
* Trust Manager September 29, 2004
----------------------------------------------
Robert S. Cartwright
* Trust Manager September 29, 2004
----------------------------------------------
G. Steven Dawson
* Trust Manager September 29, 2004
----------------------------------------------
Bryan L. Goolsby
* Trust Manager September 29, 2004
----------------------------------------------
Philip W. Taggart
*By: /s/ Chad C. Braun
------------------------------------------
Chad C. Braun
Attorney-in-Fact
II-2
EXHIBIT INDEX
EXHIBIT
NO. EXHIBIT
------- -------
1.1 Form of Dealer Manager Agreement*
3.1 Amended and Restated Declaration of Trust (incorporated by
reference to Exhibit 3.1 to the Registrant's Form 10-KSB for the
fiscal year ended December 31, 2002)
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the
Registrant's Form 10-KSB for the fiscal year ended December 31,
2002)
3.3 Form of Statement of Designation for class D common shares*
4.1 Form of Subscription Agreement and Subscription Agreement Signature
Page (included as Exhibit A to the Prospectus)
5.1 Opinion of Locke Liddell & Sapp LLP regarding legality of the
securities*
8.1 Opinion of Locke Liddell & Sapp LLP regarding tax matters*
21.1 Subsidiaries of the Registrant*
23.1 Consent of Locke Liddell & Sapp LLP (included in Exhibits 5.1
and 8.1)*
23.2 Consent of KPMG LLP
24.1 Power of Attorney*
----------------
* Previously filed