UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-28378
AMREIT
(Name of Small Business Issuer in its Charter)
TEXAS 76-0410050
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
8 GREENWAY PLAZA, SUITE 824
HOUSTON, TX 77046
(Address of Principal Executive Offices) (Zip Code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMREIT AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
March 31,
(unaudited)
ASSETS 2003
Property:
Land $21,631,162
Buildings 28,765,695
Tenant improvements 239,486
Furniture, fixtures and equipment 211,465
__________
50,847,808
__________
Accumulated depreciation (2,327,147)
__________
Total property, net 48,520,661
__________
Net investment in direct financing leases 23,388,264
Cash and cash equivalents 825,560
Accounts receivable 135,639
Accounts receivable - related party 124,843
Escrow deposits 45,176
Prepaid expenses, net 424,619
Other assets:
Preacquisition costs 28,478
Loan acquisition cost, net of $92,981 in accumulated amortization 242,171
Accrued rental income 409,581
Intangible lease cost, net of $31,524 in accumulated amortization 226,075
Investment in non-consolidated affiliates 711,106
__________
Total other assets 1,617,411
__________
TOTAL ASSETS $75,082,173
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $35,852,721
Accounts payable 578,295
Accounts payable - related party 172,137
Security deposit 41,731
Prepaid rent 6,177
__________
TOTAL LIABILITIES 36,651,061
__________
Minority interest 782,440
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,
2,869,187 shares issued 28,692
Class B Common shares, $.01 par value, 3,000,000 shares authorized,
2,432,729 shares issued 24,328
Capital in excess of par value 47,182,617
Accumulated distributions in excess of earnings (8,728,632)
Deferred compensation (298,244)
Cost of treasury shares, 90,322 shares (560,089)
__________
TOTAL SHAREHOLDERS' EQUITY 37,648,672
__________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $75,082,173
==========
See Notes to Condensed Consolidated Financial Statements.
Page 2
AMREIT AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter ended March 31,
2003 2002
Revenues:
Rental income from operating leases $1,232,740 $ 706,740
Earned income from direct financing leases 598,720 191,182
Service fees and other income 210,997 480,032
Management fees 57,631 91,130
Income from non-consolidated affiliates 40,305 282,042
Interest income 1,839 1,014
_________ _________
Total revenues 2,142,232 1,752,140
_________ _________
Expenses:
General operating and administrative 774,686 778,982
Legal and professional 169,177 194,506
Interest 551,441 253,648
Depreciation and amortization 222,303 126,848
_________ _________
Total expenses 1,717,607 1,353,984
_________ _________
Income before federal income taxes and minority
interest in net income of consolidated joint ventures 424,625 398,156
Federal income tax benefit (expense) for taxable REIT subsidiary 73,000 (84,000)
Minority interest in net income of consolidated joint ventures (39,788) (131,845)
_________ _________
Net income 457,837 182,311
Distributions paid to class B shareholders (452,543) -
_________ _________
Net income available to class A shareholders $ 5,294 $ 182,311
========= =========
Net income per common share - basic $ .002 $ .078
========= =========
Weighted avergage common shares used to compute
net income per share, basic 2,768,253 2,351,687
========= =========
See Notes to Condensed Consolidated Financial Statements.
Page 3
AMREIT AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(unaudited)
Quarter ended March 31,
2003 2002
Cash flows from operating activities:
Net income $ 457,837 $ 182,311
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 229,697 126,848
Amortization of deferred compensation 59,928 5,152
Minority interest in net income of consolidated join 39,788 131,845
Decrease in accounts receivable 38,020 187,944
(Increase) decrease in accounts receivable- related (55,909) 297,894
Decrease in prepaid expenses, net 14,077 44,836
Cash receipts from direct financing leases
more (less) than income recognized 17,060 (4,260)
Increase in accrued rental income (49,519) (2,225)
Decrease in other assets 83,091 23,711
Decrease in accounts payable (547,924) (671,656)
Decrease in accounts payable- related party (33,986) -
_________ _________
Net cash provided by operating activities 252,160 322,400
_________ _________
Cash flows from investing activities:
Improvements to real estate (155,763) (300,005)
Acquisitions of real estate (2,688,157) -
Additions to furniture, fixtures and equipment (24,040) (3,938)
(Investment in) distributions from joint ventures (161,771) 380,846
Increase in preacquisition costs (26,713) (12,912)
_________ _________
Net cash (used in) provided by investing activities (3,056,444) 63,991
_________ _________
Cash flows from financing activities:
Proceeds from notes payable 2,367,799 369,952
Payments of notes payable (101,163) (14,776)
Loan acquisition costs - 21,730
Purchase of treasury shares (315,719) -
Common dividends paid (759,622) (161,540)
Distributions to minority interests (68,319) (149,572)
_________ _________
Net cash provided by financing activities 1,122,976 65,794
_________ _________
Net (decrease) increase in cash and cash equivalents (1,681,308) 452,185
Cash and cash equivalents at January 1 2,506,868 227,117
_________ _________
Cash and cash equivalents at March 31 $ 825,560 $ 679,302
========= =========
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest 524,189 236,439
Income taxes 31,103 -
See Notes to Condensed Consolidated Financial Statements.
Page 4
AMREIT AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
1. 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 generally accepted accounting
principles. 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 three-month
periods ended March 31, 2003 and 2002.
The 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,
2002.
DESCRIPTION OF BUSINESS AND NATURE OF OPERTATIONS
AmREIT, formerly AmREIT, Inc. or American Asset Advisers Trust, Inc. (the
"Company"), was organized in the state of Maryland in August 1993, is a
real estate investment trust ("REIT") based in Houston, Texas and is
listed on the American Stock Exchange (AMY). AmREIT was re-organized in
the state of Texas on December 22, 2002, and is a sponsor of real estate
direct participation programs to the financial planning community. For
more than 18 years, the Company has established a track record of
investing in commercial real estate leased to parent companies in the
retail, financial services and banking, medical and restaurant sectors.
AmREIT's real estate team focuses on development, management, brokerage
and ownership of freestanding credit tenant leased ("CTL") and frontage
shopping centers ("FSC") that are located contiguous to major
thoroughfares and traffic generators. AmREIT's customer list includes
national and regional tenants such as: Walgreens, Goodyear Tire,
Washington Mutual, IHOP, McDonald's, Herman Hospital, Radio Shack,
Coldwell Banker, Guaranty Federal, Bennigan's, Chili's, Texas Children's
Pediatric Associates, Discount Tire, tc.
AmREIT owns a real estate portfolio that consists of 47 properties located
in 18 states. Its properties include single-tenant; free standing credit
tenant leased projects and multi-tenant frontage projects. The single
tenant projects are located from coast to coast and are primarily leased
to corporate tenants where the lease is the direct obligation of the
parent companies. In so doing, the dependability of the lease payments are
based on the strength and viability of the entire company, not just that
location. The multi-tenant projects are situated primarily throughout
Texas. Supporting the real estate portfolio is an operating company
subsidiary of AmREIT that provides a complete range of services including
development, construction management, property management, brokerage and
leasing.
On July 23, 2002, the Company completed a merger with three of its
affiliated partnerships, AAA Net Realty Fund IX, Ltd., AAA Net Realty Fund
X, Ltd., and AAA Net Realty Fund XI, Ltd. With the merger of the
affiliated partnerships, AmREIT increased its real estate assets by
approximately $24.3 million and issued approximately 2.6 million Class B
common shares to the limited partners in the affiliated partnerships.
Approximately $760 thousand in 8 year, interest only, subordinated notes
were issued to limited partners of the affiliated partnerships who
dissented against the merger. The acquired properties are unencumbered,
single tenant, free standing properties on lease to national and regional
tenants, where the lease is the direct obligation of the parent company.
The following selected unaudited pro forma consolidated statement of
operations for AmREIT and subsidiaries gives effect to the merger with its
three affiliated partnerships, which assumes that the merger occurred on
January 1, 2002. Additionally, we have presented a summary of assets
acquired and liabilities assumed as of the date of the merger, July 23,
2002.
Page 5
Pro Forma Consolidated Statement of Operations
For the Three Months Ended March 31,
(Unaudited)
2002
Revenues
Rental income and earned income $ 1,519,368
Other income 774,183
_________
Total Revenues 2,293,551
_________
Total Expense 1,522,994
_________
Proforma Income Before Minority Interest in Net Income of Consolidated
Joint Ventures 770,557
Federal Income Tax Benefit from Non-Qualified Subsidiary (84,000)
Minority Interest in Net Income of Consolidated Joint Ventures (131,845)
________
Pro Forma Net Income $ 554,712
Summary of Assets Acquired and Liabilities Assumed
As of July 23, 2002,
(Unaudited)
Assets
Buildings $ 16,330,088
Land 7,560,231
Accounts receivable 1,105,612
Prepaid expenses 15,757
__________
TOTAL ASSETS $ 25,011,688
==========
Liabilities $ 132,630
Shareholders' equity
Class B common stock $ 24,879,058
__________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 25,011,688
==========
Page 6
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 November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements
No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under
guarantees issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability for the
fair value of the obligation undertaken. The disclosure requirements are
effective for financial statements of interim or annual periods ending
after December 15, 2002. The initial recognition and measurement
provisions of the Interpretation are applicable to guarantees issued or
modified after December 31, 2002 and did not have a material effect on the
Company's consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement
No. 123. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for
a voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements. Certain of the disclosure
modifications are required for fiscal years ending after December 15,
2002, however, these disclosure modifications are not applicable to the
Company as the Company does not have stock based compensation other than
restricted stock grants. Therefore adoption of SFAS 148 did not have a
material impact on our consolidated financial position, results of
operations, or cash flows.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of
variable interest entities as defined in the Interpretation. The
Interpretation applies immediately to variable interests in variable
interest entities created after January 31, 2003, and to variable
interests in variable interest entities obtained after January 31, 2003.
The application of this Interpretation did not have a material effect on
the Company's consolidated financial statements. The Interpretation
requires certain disclosures in financial statements issued after January
31, 2003 if it is reasonably possible that the Company will consolidate or
disclose information about variable interest entities when the
Interpretation becomes effective.
RECLASSIFICATION
Certain amounts in the interim unaudited 2002 condensed consolidated
financial statements have been reclassified to conform to the presentation
used in the interim unaudited 2003 condensed consolidated financial
statements.
Page 7
2. NOTES PAYABLE
In November 1998, the Company entered into an unsecured credit facility
(the "Credit Facility"), which is being used to provide funds for the
acquisition of properties and working capital, and repaid all amounts
outstanding under the Company's prior credit facility. Under the Credit
Facility, which had an original term of one year, and has been extended
through June 2003, the Company may borrow up to $20 million subject to the
value of unencumbered assets. The Lender has given AmREIT a commitment to
extent the Credit Facility for a period of 15 months from the date of
execution. The Company and Lender are currently working through the
documentation of the Credit Facility and expect that it will be finalized
prior to June. The Credit Facility contains covenants which, among other
restrictions, require the Company to maintain a minimum net worth, a
maximum leverage ratio, specified interest coverage and fixed charge
coverage ratios and allow the lender to approve all distributions. At
March 31, 2003, Company was in compliance with all applicable financial
covenants. The Credit Facility bears interest at an annual rate of LIBOR
plus a spread of 2.00% (3.30% as of March 31, 2003). As of March 31, 2003,
$14.1 million was outstanding under the Credit Facility. Thus the
Company has approximately $5.9 million available under its line of
credit, subject to use of proceeds by the lender.
3. MAJOR TENANTS
There were no significant changes in the tenant make-up from year end
December 31, 2002.
4. EARNINGS PER SHARE
Basic earnings per share has been computed by dividing net income 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 class A common shares outstanding plus
dilutive potential common shares.
The following table presents information necessary to calculate basic and
diluted earnings per share for the periods indicated:
For the Three Months Ended March 31,
2003 2002
BASIC EARNINGS PER SHARE
Weighted average class A common shares outstanding 2,768,253 2,351,687
========= =========
Basic earnings per share $ .002 $ .078
========= =========
EARNINGS FOR BASIC COMPUTATION
Net income available to class A common shareholders (basic earnings
per share computation) $ 5,294 $ 182,311
========= =========
Page 8
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
such forward-looking statements are based upon reasonable assumptions, the
Company's actual results could differ materially from those set forth in
the forward-looking statements. Certain factors that might cause such a
difference include the following: changes in general economic conditions,
changes in real estate market conditions, continued availability of
proceeds from the Company's debt or equity capital, the ability of the
Company to locate suitable tenants for its properties and the ability of
tenants to make payments under their respective leases.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto and the comparative
summary of selected financial data appearing elsewhere in this report.
Historical results and trends which might appear should not be taken as
indicative of future operations. The results of operations and financial
condition of the Company, as reflected in the accompanying 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. Each of these issues requires management
to make judgments that are subjective in nature. Management relies on its
experience, collects historical data and current market data, and analyzes
these assumptions in order to arrive at what it believes to be reasonable
estimates.
AmREIT, a Texas real estate investment trust, is listed on the American
Stock Exchange (AMY), owns a portfolio of 47 properties, leased to 26
different tenants located in 18 states and is a sponsor of high quality
real estate investment opportunities to the financial planning community.
The Company researches, identifies and participates in real estate
opportunities and works hand in hand with the broker-dealer community to
sponsor real estate investment products and services.
For 18 years we have established a track record of investing in commercial
real estate leased primarily to corporate tenants in the retail, financial
services and banking, medical and restaurant sectors. AmREIT's real estate
team focuses on development, management, brokerage and ownership of
freestanding CTL and FSC properties that are located contiguous to major
thoroughfares and traffic generators. AmREIT's real estate customer list
includes national and regional tenants such as: Walgreen's, Goodyear Tire,
Washington Mutual, IHOP, McDonald's, Herman Hospital, Radio Shack, Sprint,
Coldwell Banker, Guaranty Federal, Bennigan's, Chili's, Texas Children's
Hospital, Discount Tire, etc.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations has been the principal source of capital
to fund the Company's ongoing operations. The Company's issuance of
common stock and the use of the Company's credit facility have
been the principal sources of capital required to fund its growth. Net
cash provided by operating activities decreased for the three months ended
March 31, 2003 and March 31, 2002 from $322,400 in 2002 to $252,160 in
2003. The decrease in cash provided by operating activities was due
primarily to the following components: (1) a decrease in accounts
receivable collections of $150 thousand, from $188 thousand in 2002 to $38
thousand in 2003, and (2) a decrease in collections of accounts receivable
- related party of $354 thousand, from an increase of $298 thousand in
2002 to a decrease of $56 thousand in 2003. The above decreases are offset
somewhat by (1) an increase in net income of $276 thousand, from $182
thousand in 2002 to $458 thousand in 2003, and (2) the increase in the
paydown of accounts payable of $124 thousand, from $672 thousand in 2002
to $548 thousand in 2003.
Page 9
Net cash used in investing activities increased $3.1 million for the three
month period ended March 31, 2003 when compared to the three month period
ended March 31, 2002. The increase in cash used was primarily due to an
increase in acquisitions of real estate from $0 in 2002 to $2.7 million in
2003. Additionally, $162 thousand was invested in joint ventures in 2003,
where as distributions from investments were $381 thousand in 2002.
Net cash provided by financing activities increased $1.1 million for the
three month period ended March 31, 2003 compared to the three month period
ended March 31, 2002. The increase was primarily due to proceeds from
notes payable, which totaled $2.4 million in 2003, compared to $370
thousand in 2002. This increase was somewhat offset by an increase in
common dividends paid, which was $760 thousand in 2003, compared to $162
thousand in 2002.
In order to continue to expand and develop its portfolio of properties and
other investments, the Company intends to finance future acquisitions and
growth through the most advantageous sources of capital available to the
Company at the time. Such capital sources may include proceeds from public
or private offerings of the Company's debt or equity securities, secured
or unsecured borrowings from banks or other lenders, a merger with certain
affiliated partnerships or other unrelated companies, or the disposition
of assets, as well as undistributed funds from operations.
On July 23, 2002, the Company completed a merger with the Affiliated
Partnerships, which increased the Company's real estate assets by
approximately $24.3 million. Pursuant to the merger, the Company issued
approximately 2.6 million class B common shares to the limited partners in
the Affiliated Partnerships. Approximately $760 thousand in 8 year,
interest only, subordinated notes were issued to limited partners of the
Affiliated Partnerships who dissented against the merger. The acquired
properties are unencumbered, single tenant, free standing properties on
lease to national and regional tenants, where the lease is the direct
obligation of the parent company. The Company's leases typically provide
that the tenant bears responsibility for substantially all property costs
and expenses associated with ongoing maintenance and operation, including
utilities, property taxes and insurance. In addition, the Company's leases
generally provide that the tenant is responsible for roof and structural
repairs. Some of the tenant's leases require the Company to be responsible
for roof and structural repairs. In these instances, the Company normally
requires warranties, and/or guarantees from the related vendors, suppliers
and/or contractors, to mitigate the potential costs of repairs during the
primary terms of the leases. Because many of the properties which are
subject to leases that place these responsibilities on the Company are
recently constructed, management anticipates that capital demands to meet
obligations with respect to these properties will be minimal for the
foreseeable future and can be met with funds from operations and working
capital. The Company may be required to use bank borrowings or other
sources of capital in the event of unforeseen significant capital
expenditures.
In November 1998, the Company entered into an unsecured credit facility
(the "Credit Facility"), which is being used to provide funds for the
acquisition of properties and working capital, and repaid all amounts
outstanding under the Company's prior credit facility. Under the Credit
Facility, which had an original term of one year, and has been extended
through June 2003, the Company may borrow up to $20 million subject to the
value of unencumbered assets. The Lender has given AmREIT a commitment to
extent the Credit Facility for a period of 15 months from the date of
execution. The Company and Lender are currently working through the
documentation of the Credit Facility and expect that it will be finalized
prior to June. The Credit Facility contains covenants which, among other
Page 10
restrictions, require the Company to maintain a minimum net worth, a
maximum leverage ratio, and specified interest coverage and fixed charge
coverage ratios. At March 31, 2003, the Company was in compliance with all
applicable financial covenants. The Credit Facility bears interest at an
annual rate of LIBOR plus a spread of 2.00%, which resulted in an
effective interest rate of 3.30% at March 31, 2003. As of March 31, 2003,
$14.1 million was outstanding under the Credit Facility. The Company has
approximately $5.9 million availability under its line of credit,
subject to use of proceeds approval by the lender.
As of March 31, 2003, the Company owned 47 properties directly and, since
its inception, had invested $73.7 million, exclusive of any minority
interests, including certain acquisition expenses related to the Company's
investment in these properties. These expenditures resulted in a
corresponding decrease in the Company's liquidity.
Until properties are acquired by the Company, cash is held in short-term,
highly liquid investments that the Company believes to have appropriate
safety of principal. This investment strategy has allowed, and continues
to allow, high liquidity to facilitate the Company's use of these funds to
acquire properties at such time as properties suitable for acquisition are
located. At March 31, 2003, the Company's cash and cash equivalents
totaled $826 thousand.
The Company paid aggregate cash dividends to the holders of its class A
and class B common shares, for the three month ended of March 31, 2003 and
2002 of $760 thousand and $162 thousand, respectively.
Inflation has had very little effect on income from operations. Management
expects that increases in store sales volumes due to inflation as well as
increases in the Consumer Price Index (C.P.I.), may contribute to capital
appreciation of the Company properties. These factors, however, also may
have an adverse impact on the operating margins of the tenants of the
properties.
FUNDS FROM OPERATIONS
Funds from operations (FFO) increased $376 thousand or 127% to $672
thousand for the three months ended March 31, 2003 from $296 thousand for
the three months ended March 31, 2002. Management considers FFO to be an
appropriate measure of performance for an equity REIT. The Company has
adopted the National Association of Real Estate Investment Trusts (NAREIT)
definition of FFO. FFO is calculated as net income (computed in accordance
with generally accepted accounting principles) excluding gains or losses
from sales of depreciable operating property, depreciation and
amortization of real estate assets, and excluding results defined as
"extraordinary items" under generally accepted accounting principles. We
believe that in order to facilitate a clear understanding of our historic
operating results, FFO should be examined in conjunction with net income
as presented in the consolidated statement of operations and data included
elsewhere in this report. FFO should not be considered an alternative to
cash flows from operating, investing and financing activities in
accordance with generally accepted accounting principles and is not
necessarily indicative of cash available to meet cash needs. The Company's
computation of FFO may differ from the methodology for calculating FFO
utilized by other equity REITs and, therefore, may not be comparable to
such other REITs. FFO is not defined by generally accepted accounting
principles and should not be considered an alternative to net income as an
indication of the Company's performance.
Page 11
Below is the reconciliation of net income to funds from operations for the
three months ended March 31:
2003 2002
Net income $ 457,837 $ 182,311
Plus depreciation and amortization 214,245 113,365
_______ _______
Total funds from operations $ 672,082 $ 295,676
======= =======
Cash distributions paid 759,622 $ 161,540
Distributions (more) less
than FFO $ (87,540) $ 134,136
Cash flows from operating activities, investing activities, and financing
activities for the three months ended March 31 are presented below:
2003 2002
Operating activities $ 252,160 $ 322,400
Investing activities (3,056,444) 63,991
Financing activities 1,122,976 65,794
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 2003 to March 31, 2002:
During the three months ended March 31, 2003 and March 31, 2002, the
Company earned $1.8 million and $898 thousand, respectively, in rental
income from operating leases and earned income from direct financing
leases. The additional properties purchased by AAA as well as the newly
merged properties from the three affiliated partnerships resulted in the
increased income from rents and earned income from direct financing
leases. Service fees and other income decreased $269 thousand, from $480
thousand in 2002 to $211 thousand in 2003. The decrease in service fees
and other income was primarily due to a decrease in advisory fees, which
decreased because the affiliated partnerships involved in the merger paid
advisory fees to AmREIT during the first quarter of 2002. However, after
the merger, the affiliated partnerships are no longer paying advisory fees
to AmREIT.
During the three months ended March 31, 2003 and March 31, 2002, the
Company's expenses were $1.7 million and $1.4 million respectively. The
$364 thousand increase in expenses is primarily attributable to interest
expense, which increased $297 thousand, from $254 thousand in 2002 to $551
thousand in 2003. The increase in interest expense is due to additional
debt used to finance the acquisition of additional properties.
Additionally, depreciation and amortization increased by $95 thousand,
from $127 thousand in 2002 to $222 thousand in 2003.
SUBSEQUENT EVENTS
On April 23, 2003, the Company filed an S-11 registration statement with
the Securities and Exchange Commission, in which it registered $44 million
in class C common shares to be issued.
Page 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
Page 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the issuer
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AmREIT
_______________________________________
(Issuer)
May 15, 2003 /s/ H. Kerr Taylor
Date _______________________________________
H. Kerr Taylor, President
May 15, 2003 /s/ Chad C. Braun
Date _______________________________________
Chad C. Braun
(Principal Accounting Officer)
Page 14
FORM OF SARBANES-OXLEY SECTION 302(a) CERTIFICATION
I, H. Kerr Taylor, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of AmREIT;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the consolidated financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could aversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 By: /s/ H. Kerr Taylor
_________________________________________________
H. Kerr Taylor, Chief Executive Officer
Page 15
FORM OF SARBANES-OXLEY SECTION 302(a) CERTIFICATION
I, Chad C. Braun, Executive Vice President of Finance, certify that:
7. I have reviewed this quarterly report on Form 10-QSB of AmREIT;
8. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
9. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the consolidated financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this quarterly
report;
10. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
11. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal controls
which could aversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
12. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 By: /s/ Chad C. Braun
__________________________________________________
Chad C. Braun, Executive Vice President of Finance
Page 16
EXHIBITS
99.1 Chief Executive Officer certification pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.2 Chief Financial Officer certification pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
Page 17
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AmREIT (the "Company") on
Form 10-QSB for the period ended March 31, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, H. Kerr Taylor,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.
1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ H. Kerr Taylor
_______________________________________
H. Kerr Taylor
Chief Executive Officer
May 15, 2003
Page 18
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AmREIT (the "Company") on
Form 10-QSB for the period ended March 31, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Chad C. Braun,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.
1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
3. The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
4. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Chad C. Braun
_______________________________________
Chad C. Braun
Chief Financial Officer
May 15, 2003
Page 19