AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 2005
REGISTRATION NO. 333-124268
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 1 TO
FORM S-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
AMREIT
(Exact Name of Registrant as specified in its charter)
TEXAS 76-0410050
(State or other jurisdiction of (IRS Employer)
incorporation or organization) Identification Number)
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 JOHN A. GOOD
KENNETH L. BETTS BASS, BERRY & SIMS PLC
LOCKE LIDDELL & SAPP LLP 100 PEABODY PLACE, SUITE 900
2200 ROSS AVENUE, SUITE 2200 MEMPHIS, TENNESSEE 38103
DALLAS, TEXAS 75201-6776 (901) 543-5900
(214) 740-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 13, 2005
PROSPECTUS
3,000,000 SHARES
AMREIT
(AMREIT LOGO)
CLASS A COMMON SHARES
AmREIT is a fully integrated, self-managed, self-advised real estate
company that operates as a real estate investment trust, or REIT, under the
federal income tax laws. AmREIT acquires, owns and manages a portfolio of multi-
and single-tenant retail properties. At March 31, 2005, AmREIT owned directly,
or through joint ventures, interests in 61 properties located in 17 states.
AmREIT is supported by three synergistic businesses: a real estate operating and
development company, a registered securities broker-dealer and a retail
partnership business. Our class A common shares are listed on the American Stock
Exchange under the symbol "AMY." The last reported sales price of our class A
common shares on May 12, 2005 was $8.50 per share.
INVESTING IN OUR CLASS A COMMON SHARES INVOLVES RISKS. SEE "RISK FACTORS"
SECTION BEGINNING ON PAGE 11 FOR A DESCRIPTION OF VARIOUS RISKS YOU SHOULD
CONSIDER IN EVALUATING AN INVESTMENT IN THE SHARES.
---------------------
PER SHARE TOTAL
--------- --------
Public offering price....................................... $ $
Underwriting discounts and commissions(1)................... $ $
Proceeds, before expenses, to us............................ $ $
---------------
(1) Excludes a financial advisory fee of approximately $ (approximately
$ if the underwriters' over-allotment option is exercised in full)
payable to Robert W. Baird & Co. Incorporated.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional 450,000 of our class A common shares to cover over-allotments, if
any. We expect the class A common shares will be ready for delivery to
purchasers on or about , 2005.
ROBERT W. BAIRD & CO.
BB&T CAPITAL MARKETS J.J.B. HILLIARD, W.L. LYONS, INC.
The date of this prospectus is , 2005
[PHOTOS]
TABLE OF CONTENTS
PAGE
----
SUMMARY..................................................... 1
RISK FACTORS................................................ 11
USE OF PROCEEDS............................................. 22
CAPITALIZATION.............................................. 23
BUSINESS AND PROPERTIES..................................... 24
PRICE RANGE OF CLASS A COMMON SHARES........................ 41
MANAGEMENT.................................................. 43
AMREIT'S DECLARATION OF TRUST AND BYLAWS.................... 46
CERTAIN ANTI-TAKEOVER PROVISIONS OF THE DECLARATION OF
TRUST, BYLAWS AND TEXAS LAW............................... 48
DESCRIPTION OF AMREIT'S CAPITAL SHARES...................... 51
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES............... 67
CERTAIN ERISA CONSIDERATIONS................................ 80
UNDERWRITING................................................ 83
EXPERTS..................................................... 84
LEGAL OPINIONS.............................................. 85
ADDITIONAL INFORMATION...................................... 85
DOCUMENTS DELIVERED WITH THIS PROSPECTUS.................... 86
You should rely only on the information contained in or incorporated by
reference into this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. The
information in this prospectus is current as of the date such information is
presented. Our business, financial condition, results of operations and
prospects may have changed since those dates.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made statements in this prospectus that are "forward-looking" in
that they do not discuss historical facts but instead note future expectations,
projections, intentions or other items relating to the future. These
forward-looking statements include those made in the documents incorporated by
reference in this prospectus.
Forward-looking statements, which are generally prefaced by the words
"anticipate," "estimate," "should," "expect," "believe," "intend" and similar
terms, are subject to known and unknown risks, uncertainties and other facts
that may cause our actual results or performance to differ materially from those
contemplated by the forward-looking statements.
Risks, uncertainties, and factors that could cause actual results to differ
materially from those projected are discussed in the "Risk Factors" section of
this prospectus, as well as in reports filed by us from time to time with the
Securities and Exchange Commission, including Forms 10-K, 10-Q and 8-K.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
except as required by law. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in or incorporated by
reference into this prospectus might not occur.
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read this entire prospectus carefully, including the section titled
"Risk Factors," and our financial statements, the notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in our Annual Report on Form 10-K and our quarterly report on Form
10-Q for the period ended March 31, 2005 accompanying this prospectus, before
making an investment in our common shares. As used in this prospectus, the terms
"company," "we," "our" and "us" refer to AmREIT, except where the context
otherwise requires. All references to AmREIT also include references to its
predecessor entities where the context requires. Unless otherwise indicated, the
information in this prospectus assumes that the underwriters will not exercise
their over-allotment option to purchase additional class A common shares.
OVERVIEW
AmREIT is a fully integrated, self-managed and self-advised equity REIT
based in Houston, Texas. We own and operate a portfolio of multi-tenant and
single-tenant retail properties consisting of 61 properties in 17 states as of
March 31, 2005, having an aggregate gross leaseable area of approximately
908,000 square feet. We also have a definitive agreement to purchase Uptown
Park, a 167,000 square foot multi-tenant shopping center in Houston, Texas.
Multi-tenant shopping centers represented 61.1% of annualized rental income for
the properties we owned as of March 31, 2005. We also manage an additional 20
properties located in six states for our affiliated retail partnerships.
We have focused geographically on the Sun Belt states with an emphasis on
the Houston market and other large metropolitan markets in Texas, such as Dallas
and San Antonio. We focus on acquiring and selectively developing multi-tenant
shopping centers anchored by major retailers. Many of our properties are located
on what we call "Irreplaceable Corners(TM)" which we define as premier retail
frontage locations in high-traffic, highly populated, affluent areas with high
barriers to entry. We focus on Irreplaceable Corners because we believe that
these properties are in greater demand, have greater prospects for upward
movement in rents and should produce higher risk-adjusted returns than similar
properties located in other locations.
AmREIT is vertically integrated with three additional synergistic
businesses that we believe enhance our earnings potential, add value and support
our portfolio expansion. These three synergistic businesses are: (1) a full
service real estate operating and development business; (2) a retail partnership
business; and (3) a registered securities business. The following diagram shows
the integration of these businesses with each other and with AmREIT:
GRAPH
1
OUR REAL ESTATE OPERATING AND DEVELOPMENT BUSINESS
AmREIT Realty Investment Corporation, our wholly owned real estate
operating and development taxable REIT subsidiary, or TRS, provides a fully
integrated real estate solution including construction and development, property
management, asset acquisition and disposition, brokerage and leasing, tenant
representation, sale/leaseback and joint venture management services. We have
used this business to develop client and referral relationships with national
and regional tenants, real estate owners and developers. From these
relationships AmREIT receives fee income and access to acquisition prospects and
a pipeline of tenants.
OUR RETAIL PARTNERSHIP BUSINESS
We also are the general partner of four limited partnerships that were
formed to develop, own, manage and add value to retail properties. Unlike
AmREIT's longer-term investment focus, our retail partnerships have a greater
focus on shorter-term value creation and a limited investment period. However,
certain properties acquired by our retail partnerships may in the future be
appropriate investments for AmREIT. By providing management and other services
to these retail partnerships we generate fee income and retain a residual
interest in the partnerships after a preferred return is paid to limited
partners, all of which benefits our shareholders. We believe our affiliated
retail partnerships may create significant income and value for our shareholders
in the future as our retail partnerships continue to grow and as we continue to
implement our active management strategy within those partnerships.
OUR SECURITIES BUSINESS
Through AmREIT Securities Corporation, our wholly owned registered
securities broker-dealer, which is also a TRS, we sell interests in our
affiliated retail partnerships and AmREIT shares through a wholesale effort
using a national network of unaffiliated, third-party financial planners. In
2004, AmREIT Securities successfully raised $25 million for our retail
partnership business and another $46 million directly for AmREIT through public
offerings of our non-publicly traded class C and D shares. Having a
broker-dealer subsidiary provides AmREIT with financial flexibility to access
capital from both traditional underwriters and the independent financial
planning marketplace. This provides us a more consistent access to the capital
markets and allows us to better manage our balance sheet.
OUR OPERATING STRATEGY
We invest in properties where we believe effective leasing and operating
strategies, combined with cost-effective expansion and renovation programs, can
improve property values while providing superior current economic returns. Our
operating strategy consists of the following elements:
- Acquiring real estate on Irreplaceable Corners, which we define as
premier retail frontage locations in a submarket generally characterized
by the following attributes:
- a population of at least 100,000 within a three-mile radius;
- area average household income of at least $80,000 per year;
- high traffic visibility;
- traffic counts of at least 30,000 cars per day; and
- little available land suitable for competitive development in the area.
- Focusing on the Sun Belt states with an emphasis on the Texas markets
where our management team has substantial experience and local market
knowledge.
- Anchoring our centers with national/regional grocery or drug stores or
chain restaurants.
- Adding value to our properties through active, hands-on management,
improving tenant quality and increasing cash flows by increasing
occupancy and rental rates.
2
- Conducting extensive due diligence using a proprietary process called
AmREIT Decision Logic, involving our integrated team of real estate
professionals with experience in construction, property management,
leasing and finance.
- Enhancing our core business through the activities of our real estate
operating and development business, our affiliated retail partnership
business and our securities broker-dealer.
OUR GROWTH STRATEGY
We intend to increase our revenues and funds from operations by executing
our growth strategy, which consists of the following elements:
- Continuing to form partnerships to develop and/or acquire retail
properties that we believe possess significant potential for short-term
appreciation in value and prospects for capturing such value through
disposition and retaining financial upside in those properties while
earning management fees. At the same time, we preserve the REIT's ability
to later acquire some or all of these properties.
- Continuing to acquire grocery-anchored strip center and lifestyle
properties on Irreplaceable Corners, primarily in the Sun Belt states,
emphasizing the major Texas markets.
- Continuing to selectively divest properties which no longer meet our core
criteria and replace them primarily with high-quality multi-tenant
shopping centers on Irreplaceable Corners.
COMPETITIVE ADVANTAGES
We believe that our business strategy and operating structure distinguish
us from many other public and private owners, operators and acquirors of real
estate in our target markets in a number of ways, including:
- Our fully-integrated business structure provides an advantage in
evaluating properties for acquisition or development, raising capital to
finance our properties and managing properties for our retail
partnerships.
- Our focus on Irreplaceable Corners provides long-term stability and
opportunities for enhanced cash flows from high occupancy and increasing
rents, resulting in higher valuations for our property portfolio.
- We place an emphasis on major Texas markets, and our senior management
team averages more than 15 years of real estate experience in one or more
of these markets.
- Our emphasis on major Texas markets provides us with a substantial
footprint in one of the largest and most economically stable states in
the United States, where our management team lives and has developed
extensive real estate contacts, market knowledge and investment
expertise.
3
OUR PROPERTIES
ANNUALIZED
MULTI-TENANT DATE BASE RENT AS OF %
SHOPPING CENTERS MAJOR TENANTS MSA STATE ACQUIRED GLA MARCH 31, 2005 LEASED
---------------- ------------- --- ----- -------- ------- --------------- ------
MacArthur Park......... Kroger Dallas TX 12/27/04 198,443 $ 2,964,192 100%
Plaza in the Park...... Kroger Houston TX 07/01/04 138,663 2,498,854 96%
Cinco Ranch............ Kroger Houston TX 07/01/04 97,297 1,245,828 100%
Bakery Square.......... Walgreens & Bank of Houston TX 07/21/04 34,614 849,456 100%
America
Uptown Plaza........... CVS/pharmacy Houston TX 12/10/03 26,400 1,236,446 100%
Woodlands Plaza........ FedEx/Kinkos & Rug Houston TX 06/03/98 20,018 377,332 100%
Gallery
Sugarland Plaza........ Mattress Giant Houston TX 07/01/98 16,750 349,545 100%
Terrace Shops.......... Starbucks Houston TX 12/15/03 16,395 457,160 100%
Copperfield Medical.... Texas Children's Houston TX 09/26/95 14,000 219,212 100%
Pediatrics
Courtyard at Post
Oak.................. Verizon Wireless Houston TX 06/15/04 13,597 477,360 100%
San Felipe and
Winrock(1)........... Houston TX 11/17/03 8,400 (1) (1)
------- ----------- ---
Multi-Tenant Shopping
Centers Total........ 584,577 $10,675,585 99%
======= =========== ===
SINGLE TENANT ANNUALIZED
(FEES SIMPLE SUBJECT DATE BASE RENT AS OF %
TO GROUND LEASES) MSA STATE ACQUIRED GLA MARCH 31, 2005 LEASED
-------------------- --- ----- -------- ------ --------------- ------
CVS Corporation..................... Houston TX 01/10/03 13,824 $ 327,167 100%
Darden Restaurants.................. Atlanta GA 12/18/98 6,867 79,366 100%
Carlson Restaurants................. Baltimore MD 09/16/03 6,802 141,674 100%
410-Blanco(1)....................... San Antonio TX 12/17/04 5,000 (1) (1)
Bank of America..................... Houston TX 11/17/03 4,420 247,975 100%
Comerica Bank(1).................... Houston TX 04/30/04 4,277 (1) (1)
Washington Mutual................... Houston TX 12/11/96 3,685 98,160 100%
Washington Mutual................... Houston TX 09/23/96 3,685 61,060 100%
Yum Brands(2)(3).................... Houston TX 10/14/03 2,818 79,440 100%
------ ---------- ---
Single Tenant (Fees Simple Subject
to Ground Leases) Total........... 51,378 $1,034,842 100%
====== ========== ===
SINGLE TENANT ANNUALIZED
(FEES SIMPLE SUBJECT DATE BASE RENT AS OF %
TO GROUND LEASES) MSA STATE ACQUIRED GLA MARCH 31, 2005 LEASED
-------------------- --- ----- -------- ------- --------------- ------
Vacant(2)...................... Baton Rouge LA 06/09/97 20,575 (1) 0%
Baptist Memorial Medical
Plaza........................ Memphis TN 07/23/02 15,000 222,643 100%
Comp USA....................... Minneapolis MN 07/23/02 15,000 267,584 100%
Energy Wellness................ Houston TX 07/23/02 15,000 187,857 100%
Transworld Entertainment....... Independence MO 07/23/02 14,047 135,000 100%
Golden Corral.................. Houston TX 07/23/02 12,000 182,994 100%
Golden Corral.................. Houston TX 07/23/02 12,000 181,688 100%
Carlson Restaurants............ Houston TX 07/23/02 8,500 200,000 100%
Pier One Imports Inc. ......... Denver CO 07/23/02 8,014 135,152 100%
Hollywood Entertainment
Corp. ....................... Lafayette LA 10/31/97 7,488 150,874 100%
4
SINGLE TENANT ANNUALIZED
(FEES SIMPLE SUBJECT DATE BASE RENT AS OF %
TO GROUND LEASES) MSA STATE ACQUIRED GLA MARCH 31, 2005 LEASED
-------------------- --- ----- -------- ------- --------------- ------
Hollywood Entertainment
Corp. ....................... Jackson MS 12/31/97 7,488 155,067 100%
Radio Shack Corporation........ Dallas TX 06/15/94 5,200 108,900 100%
IHOP Corporation #1483......... Houston TX 09/22/99 4,020 188,112 100%
IHOP Corporation #1737(5)...... Salt Lake UT 07/25/02 4,020 160,849 100%
IHOP Corporation #4462(5)...... Memphis TN 08/23/02 4,020 176,768 100%
IHOP Corporation #5318......... Topeka KS 09/30/99 4,020 156,395 100%
Payless Shoesources Inc. ...... Austin TX 07/23/02 4,000 80,000 100%
AFC, Inc. ..................... Atlanta GA 07/23/02 2,583 119,279 100%
Advance Auto(1)(2)(3)(4)....... Various Various Various 49,000 (1) (1)
------- ---------- ---
Single Tenant (Fees Simple
Subject to Building Leases)
Total........................ 211,975 $2,809,162 88%
======= ========== ===
ANNUALIZED
SINGLE TENANT DATE BASE RENT AS OF %
(GROUND LESSEE LEASEHOLDS) MSA STATE ACQUIRED GLA MARCH 31, 2005 LEASED
-------------------------- --- ----- -------- ------- --------------- ------
IHOP Corporation(5).............. Various Various Various 60,300 $ 1,565,674 100%
------- ----------- ---
Company Total.................. 908,230 $16,085,263 97%
======= =========== ===
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(1) Under Development (GLA represents proposed leasable square footage).
(2) Held for Sale.
(3) Held in a joint venture of which we are the managing 50% owner.
(4) Advance Auto properties are located in MO and IL. Each of the properties has
a proposed GLA of 7,000 square feet.
(5) IHOP properties are located in NM, LA, OR, VA, TX, CA, TN, CO, VA, NY, OR,
KS, UT and MO. Each of the properties has a GLA of 4,020 square feet. These
properties are held by a consolidated subsidiary, 79.0% of which is owned by
AmREIT, 19.6% of which is owned by AmREIT Income & Growth Corporation, one
of our affiliated retail partnerships, and 1.4% of which is owned by
unaffiliated third parties.
RECENT DEVELOPMENTS
AmREIT has entered into a contract with an unrelated third party to acquire
Uptown Park, a 167,000 square foot multi-tenant shopping center located on
approximately 16.85 acres of land. The property, which is expected to be
acquired on or about June 2, 2005 for $70.0 million, is located on the northwest
corner of Loop 610 and Post Oak Boulevard in Houston, Texas. The property was
developed in two phases. Phase one consists of approximately 144,000 square feet
that was constructed in 1999 and is 96.7% occupied. Phase two consists of
approximately 22,000 square feet and is currently under construction. There are
executed leases on approximately 10,000 square feet in phase two, and these
tenants are expected to occupy the center and commence paying rent during the
fourth quarter of 2005. Of the $70.0 million purchase price, $21.0 million will
be paid in cash generated from the net proceeds from this offering, and the rest
of the purchase price will be paid through the placement of long-term fixed-rate
debt. The debt has a term of ten years and is payable interest-only to maturity
at a fixed interest rate of
5
5.37% with the entire principal amount due in 2015. The weighted average
remaining lease term for the project is 5.5 years. The table below is a summary
of the lease expirations by year for the next five years:
YEAR TOTAL SQ. FT. EXPIRING % EXPIRING
---- ---------------------- ----------
2005........................................................ 2,261 1.36%
2006........................................................ 7,496 4.50%
2007........................................................ 12,716 7.64%
2008........................................................ 18,417 11.06%
2009........................................................ 31,379 18.84%
Thereafter.................................................. 94,251 56.60%
The table below summarizes the unaudited historical gross income and direct
operating expenses (not including interest expense) for Uptown Park:
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
2004 2005
------------ ------------
Gross Income............................................... $ 5,052,548 $1,312,103
Direct Operating Expenses.................................. (1,809,687) (500,219)
----------- ----------
Excess of gross income over direct operating expenses...... $ 3,242,861 $ 811,884
=========== ==========
We believe this property fits our irreplaceable corner concept based on its
quality of location and the demographics in the local market. Within a three
mile radius of the property, there is a population in excess of 148,000, Post
Oak Boulevard has an average of 64,000 cars per day pass the site, and on Loop
610, there are an average of 500,000 cars per day that pass the center.
Additionally, the average household income within a three mile radius is
approximately $100,000 and the average retail sales per capita is approximately
$20,000.
OUR DISTRIBUTION POLICY
To avoid corporate income and excise tax and to maintain our qualification
as a REIT, we make monthly distributions to our shareholders (except for our
class B shareholders, who receive distributions quarterly) that will result in
annual distributions of at least 90% of our REIT taxable income, determined
without regard to the deduction for dividends paid and by excluding any net
capital gains.
On March 31, 2005, we paid a monthly dividend of $0.0414 per class A common
share for the month ended March 31, 2005. We intend to continue to make regular
monthly distributions to holders of our class A common shares. Distributions
will be authorized by our board of trust managers, which we refer to in this
prospectus as our board, based upon a number of factors, including:
- the amount of funds from operations;
- our overall financial condition;
- our debt service requirements;
- our capital expenditure requirements for our properties;
- our taxable income;
- the annual distribution requirements under the REIT provisions of the
Internal Revenue Code; and
- other factors our board deems relevant.
6
Our ability to make distributions to our shareholders will depend on our
cash flows from operations, which are largely dependent upon the receipt of
lease payments from our lessees, our operating expenses and our debt service and
capital expenditure requirements, among other factors.
PRINCIPAL OFFICE
Our principal executive offices are located at 8 Greenway Plaza, Suite
1000, Houston, Texas 77046, our telephone number is 800-888-4400, and our
website is www.amreit.com. Information included on the website does not
constitute part of this prospectus.
OUR TAX STATUS
We have elected to be taxed as a REIT under the Internal Revenue Code.
Provided we continue to qualify as a REIT, we generally will not be subject to
U.S. federal corporate income tax on taxable income that we distribute to our
shareholders. REITs are subject to a number of organizational and operational
requirements, including a requirement that they currently distribute at least
90% of their annual REIT taxable income. We face the risk that we might not be
able to comply with all of the REIT requirements in the future. Failure to
qualify as a REIT would render us subject to U.S. federal income tax (including
any applicable alternative minimum tax) on our taxable income at regular
corporate rates, and distributions to our stockholders would not be deductible.
Even if we qualify for taxation as a REIT, we may be subject to certain U.S.
federal, state, local and foreign taxes on our income and property. See "Federal
Income Tax Consequences."
THE OFFERING
Class A common shares offered
by us......................... 3,000,000 shares(1)
Class A common shares to be
outstanding after this
offering...................... 6,484,212 shares(2)
Use of proceeds............... We intend to use a majority of the net proceeds
of this offering (after offering expenses and
underwriting discounts and commissions) to
acquire Uptown Park. The balance, if any, will
be used to repay debt. We intend to temporarily
invest the balance of the net proceeds of this
offering in readily marketable interest-bearing
assets consistent with our intention to qualify
as a REIT. We estimate that the expenses of
this offering will be approximately
$ . See "Use of Proceeds."
American Stock Exchange
Symbol........................ Our class A common shares are listed on the
American Stock Exchange under the symbol "AMY."
---------------
(1) Excludes up to 450,000 of our class A common shares that may be issued by us
upon exercise of the underwriters' over-allotment option.
(2) Based on 3,484,212 shares outstanding on March 31, 2005, and excludes (a) up
to 450,000 of our class A common shares that may be issued by us upon
exercise of the underwriters' over-allotment option, and (b) an aggregate of
712,192 additional of our class A common shares available for issuance under
our stock incentive plan.
7
SUMMARY FINANCIAL DATA
The following table sets forth certain summary historical and pro forma
financial data for AmREIT. The summary historical balance sheet data, other data
and operating data as of and for the year ended December 31, 2004 are derived
from the audited consolidated financial statements of AmREIT included in its
Annual Report on Form 10-K accompanying this prospectus. The summary historical
balance sheet data, other data and operating data as of and for the three months
ended March 31, 2005 are derived from the unaudited consolidated financial
statements of AmREIT included in its Quarterly Report on Form 10-Q accompanying
this prospectus. In the opinion of AmREIT's management, the unaudited historical
financial data as of and for the three months ended March 31, 2005 include all
adjustments, consisting only of normal and recurring adjustments, necessary for
a fair presentation of such data. The summary pro forma financial data as of and
for the year ended December 31, 2004 and the three months ended March 31, 2005
assume the completion of the offering, the consummation of the acquisition of
Uptown Park and the incurrence of indebtedness in connection with such
acquisition, all as of the respective balance sheet dates, with respect to
balance sheet data, and as of the beginning of the periods presented, with
respect to other data and operating data. Neither the historical nor the pro
forma data are necessarily indicative of future financial condition or operating
results.
HISTORICAL PRO FORMA HISTORICAL
------------ --------------------------- ------------------------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2005 2005 2004 2004 2003 2002
------------ ------------ ------------ ------------ ------------ ------------
BALANCE SHEET DATA (AT END OF
PERIOD)
Real estate investments before
accumulated depreciation...... $157,377,124 $220,581,733 -- $160,592,291 $70,539,056 $47,979,848
Total assets.................... 205,474,784 227,057,369 -- 203,150,530 101,326,607 73,975,753
Notes payable................... 92,751,900 140,854,900 -- 105,964,278 48,484,625 33,586,085
OTHER DATA
Funds from operations, available
to class A(1)................. 444,000 664,739 434,131 (2,032,000) 603,000 (845,000)
Adjusted funds from operations,
available to class A(2)....... 444,000 664,739 4,536,131 2,070,000 1,520,000 1,060,000
OPERATING DATA
Revenues.......................... 8,242,343 9,621,126 34,303,147 21,758,780 10,289,742 6,099,654
Operating expenses(3)............. 5,690,054 6,697,362 27,377,875 18,591,002 8,686,171 6,524,874
Other expenses (income)........... 1,535,111 2,192,936 8,302,825 2,457,271 1,773,257 1,578,472
Income from discontinued
operations(4)................... 340,682 340,682 (1,949,020) (1,949,020) 1,381,190 1,344,919
Gain (loss) on sale of real estate
acquired for resale............. -- -- 1,826,500 1,826,500 787,245 --
------------ ------------ ----------- ------------ ------------ -----------
Net income (loss)................. $ 1,357,860 $ 1,071,510 $(1,500,073) $ 587,987 $ 1,998,749 $ (658,773)
Net income (loss) available to
class A shareholders............ $ (274,071) $ (560,421) $(5,953,635) $(3,865,575) $ 56,093 $(1,524,066)
============ ============ =========== ============ ============ ===========
Net (loss) income per common
share -- basic and diluted
(Loss) income before
discontinued operations....... $ (0.18) $ (0.14) $ (0.93) $ (1.15) $ (0.76) $ (1.16)
(Loss) income from discontinued
operations.................... 0.10 0.05 (0.02) (0.04) 0.78 0.54
------------ ------------ ----------- ------------ ------------ -----------
Net income (loss)................. $ (0.08) $ (0.09) $ (0.95) $ (1.19) $ 0.02 $ (0.62)
============ ============ =========== ============ ============ ===========
Distributions per share -- class
A............................... $ 0.12 $ -- $ -- $ 0.48 $ 0.45 $ 0.34
---------------
(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. AmREIT
considers FFO to be an appropriate
8
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. 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. 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.
(2) Based on the adherence to the NAREIT definition of FFO, we have not added
back the $1.7 million, $915,000 or $1.9 million charge to earnings during
2004, 2003 and 2002, respectively, resulting from shares issued to H. Kerr
Taylor, our Chairman and Chief Executive Officer, as deferred merger cost
stemming from the sale of his advisory company to AmREIT in June 1998.
Additionally, we have not added back the $2.4 million charge to earnings for
the year ended December 31, 2004, resulting from two asset impairments and
corresponding write-downs of value. Adding these charges back to earnings
would result in Adjusted FFO of $2.07 million, $1.52 million and $1.06
million, for the years ended December 31, 2004, 2003 and 2002, respectively.
(3) Operating expenses for the years ended December 31, 2004, 2003 and 2002
include a charge of $1.7 million, $915,000 and $1.9 million, 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.
(4) Income from discontinued operations in 2004 includes an impairment charge of
$2.4 million, resulting from two asset impairments and corresponding
write-downs of value.
Below is the calculation of FFO and the reconciliation to net income, which
we believe is the most comparable GAAP financial measure to FFO, in thousands:
PRO FORMA
HISTORICAL ------------------------ HISTORICAL DECEMBER 31,
MARCH 31, MARCH 31 DECEMBER 31, ---------------------------
2005 2005 2004 2004 2003 2002
---------- --------- ------------ ------- ------- -------
Income (loss) -- before
discontinued operations.... $ 1,017 $ 731 $(1,377) $ 711 $ (169) $(2,003)
(Loss) income -- from
discontinued operations.... 341 341 (123) (123) 2,168 1,345
Plus depreciation of real
estate assets -- from
operations................. 955 1,462 6,451 1,897 713 451
Plus depreciation of real
estate assets -- from
discontinued operations.... 13 13 74 74 146 179
Less (gain) loss on sale of
real estate assets acquired
for investment............. (250) (250) (137) (137) (312) 48
Less class B, C & D
distributions........... (1,632) (1,632) (4,454) (4,454) (1,943) (865)
------- ------- ------- ------- ------- -------
Funds From Operations
available to class A....... $ 444 $ 665 $ 434 $(2,032) $ 603 $ (845)
======= ======= ======= ======= ======= =======
DESCRIPTION OF OUR OUTSTANDING COMMON SHARES
The transfer agent and registrar for the class A common shares is Wells
Fargo Shareowner Services, 161 North Concord Exchange, South St. Paul, Minnesota
55075.
9
As of March 31, 2005, we had 13,886,297 common shares outstanding. These
shares are all pari passu as to rights in liquidation and have identical voting
rights. The shares are divided into classes as follows:
CLASS A:
- 3,484,212 shares outstanding as of March 31, 2005.
- Listed on AMEX, traded under the symbol of "AMY."
- Last declared monthly dividend of $0.0414 per share.
CLASS B:
- 2,215,722 shares outstanding as of March 31, 2005, issued at $9.25 per
share.
- Not listed on any exchange; no available trading market.
- Fixed 8% cumulative preferred dividend, payable quarterly.
- Convertible into class A common shares on a one-for-one basis at any time
at the holder's option.
- Callable by AmREIT on or after July 2005 for either one class A share or
$10.18 per share in cash at the holder's option.
- The class B common shares were issued solely in connection with the June
2002 merger with certain of our affiliated investment partnerships.
CLASS C:
- 4,083,276 shares outstanding as of March 31, 2005, issued at $10.00 per
share.
- Not listed on any exchange; no available trading market.
- Fixed 7% preferred dividend, payable monthly.
- Convertible into class A common shares at $11.00 per class C common share
value on or after the seventh anniversary of issuance at the holder's
option (commencing in 2010).
- Callable by AmREIT on or after the third anniversary of issuance at
$11.00 per share in cash (commencing in 2006).
- The offering of the class C common shares was closed during the second
quarter of 2004.
CLASS D:
- 4,103,087 shares outstanding as of March 31, 2005, issued at $10.00 per
share.
- Not listed on any exchange; no available trading market
- Fixed 6.5% dividend, payable monthly.
- Convertible into class A common shares at a $10.77 per class D common
share value on or after the seventh anniversary of issuance at the
holder's option (commencing in 2011).
- Callable by AmREIT on or after the first anniversary of issuance
(commencing in 2005) at $10.00 per share plus a pro rata conversion
premium ($0.11 per share per year for seven years).
- The class D common share offering is ongoing.
10
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. Our business, prospects, financial condition or results of
operations could be harmed by any of these risks. Similarly, these risks could
cause the market price of our class A common shares to decline, and you might
lose all or part of your investment. Our forward-looking statements in this
prospectus are subject to the following risks and uncertainties. Our actual
results could differ materially from those anticipated by our forward-looking
statements as a result of the risk factors below. The risks described below are
not the only ones facing our company. Additional risks not presently known to us
or that we currently deem immaterial might also impair our business operations.
RISKS ASSOCIATED WITH AN INVESTMENT IN AMREIT
OUR CLASS A COMMON SHARES HAVE LIMITED AVERAGE DAILY TRADING VOLUME.
Our class A common shares are currently traded on the American Stock
Exchange. Our class A common shares have only been listed since July 2002, and
as of March 31, 2005, the average daily trading volume was approximately 3,777
shares based on a 90-day average. As a result, the class A common shares
currently have limited liquidity, and there can be no assurance that the market
for the class A common shares will have improved or that the shares will be more
liquid following the completion of this offering.
TENANT, GEOGRAPHIC OR RETAIL PRODUCT CONCENTRATIONS IN OUR REAL ESTATE
PORTFOLIO COULD MAKE US VULNERABLE TO NEGATIVE ECONOMIC AND OTHER TRENDS.
There is no limit on the number of properties that we may lease to a single
tenant. However, under investment guidelines established by our board, no single
tenant may represent more than 15% of AmREIT's total annual revenue unless
approved by our board. Our board will review our properties and potential
investments in terms of geographic and tenant diversification. Kroger, IHOP and
CVS accounted for 7.6%, 6.8% and 2.9%, respectively, of AmREIT's total revenues
for the quarter ended March 31, 2005. As of March 31, 2005, annualized base rent
for Kroger, IHOP and CVS represented 13.2%, 14.0% and 5.7%, respectively, of our
total annualized base rent. Because of this concentration, there is a risk that
any adverse developments affecting either Kroger, IHOP or CVS could materially
adversely affect our revenues (thereby affecting our ability to make
distributions to shareholders).
Twenty-one of our properties representing approximately 65% of our rental
income for the quarter ended March 31, 2005, are located in the Houston, Texas
metropolitan area. Therefore, we are vulnerable to economic downturns affecting
Houston, or any other metropolitan area where we might in the future have a
concentration of properties.
If in the future properties we acquire result in or extend geographic or
tenant concentrations or concentration of product types, such acquisitions may
increase the risk that our financial condition will be adversely affected by the
poor judgment of a particular tenant's management group, by poor performance of
our tenants' brands, by a downturn in a particular market sub-segment or by
market disfavor with a certain product type.
Our profitability and our ability to diversify our investments, both
geographically and by type of properties purchased, will be limited by the
amount of capital at our disposal. An economic downturn in one or more of the
markets in which we have invested could have an adverse effect on our financial
condition and our ability to make distributions.
YOU CANNOT EVALUATE PROPERTIES THAT WE HAVE NOT YET ACQUIRED OR IDENTIFIED FOR
ACQUISITION.
We have established certain criteria for evaluating acquisition properties
and the tenants occupying such properties. We have not set fixed minimum
standards relating to creditworthiness of tenants and, therefore, our board and
management have discretion in assessing potential acquisitions and tenant
relationships. Accordingly, you will have no ability to evaluate particular
investments that we may make.
11
While we have identified Uptown Park as a potential purchase, such purchase is
subject to several closing conditions. Should the Uptown Park purchase not be
completed, proceeds from this offering may be applied towards unidentified
property acquisitions.
WE MAY INCREASE OUR LEVERAGE WITHOUT SHAREHOLDER APPROVAL.
Our bylaws provide that we will not incur recourse indebtedness if, after
giving effect to the incurrence thereof, aggregate recourse indebtedness,
secured and unsecured, would exceed fifty-five percent (55%) of our gross asset
value on a consolidated basis. However, our operating at the maximum amount of
leverage permitted by our bylaws could adversely affect our cash available for
distribution to our shareholders and could result in an increased risk of
default on our obligations. We intend to borrow funds through secured and/or
unsecured credit facilities to finance property investments in the future. These
borrowings may require lump sum payments of principal and interest at maturity.
Because of the significant cash requirements necessary to make these large
payments, our ability to make these payments may depend upon our access to
capital markets and/or ability to sell or refinance properties for amounts
sufficient to repay such loans. At such times, our access to capital might be
limited or non-existent and the timing for disposing of properties may not be
optimal, which could cause us to default on our debt obligations and/or
discontinue payment of dividends. In addition, increased debt service may
adversely affect cash flow and share value.
At March 31, 2005, AmREIT had outstanding debt totaling $92.8 million of
which $25.9 million was unsecured. This debt represented approximately 45% of
AmREIT's total assets.
DISTRIBUTION PAYMENTS IN RESPECT OF OUR CLASS A COMMON SHARE ARE SUBORDINATE
TO PAYMENTS ON DEBT AND OTHER SERIES OF COMMON SHARES.
AmREIT has paid distributions since its organization in 1993. Distributions
to our shareholders, however, are subordinate to the payment of our current
debts and obligations. If we have insufficient funds to pay our debts and
obligations, future distributions to shareholders will be suspended pending the
payment of such debts and obligations. Dividends may be paid on the class A
common shares only if all dividends then payable on the class B common shares
and class C common shares have been paid. As a result, the class A common shares
are subordinate to the class B and class C common shares as to dividends.
BANKRUPTCY OF A SIGNIFICANT TENANT WOULD ADVERSELY AFFECT AMREIT'S OPERATIONS.
Footstar filed for protection under Chapter 11 of the United States
Bankruptcy Code on March 2, 2004, and pursuant thereto rejected the two Just For
Feet leases it had with AmREIT. Wherehouse Entertainment declared bankruptcy on
January 31, 2003. The obligations of Wherehouse Entertainment are guaranteed by
Blockbuster Entertainment Corp. Additional bankruptcies of our tenants or the
bankruptcy of a significant tenant could adversely affect us in the following
ways:
- reduction or loss of lease payments related to the termination of the
tenant's leases;
- reduction of revenue resulting from the restructuring the original
tenant's leases;
- interruptions in the receipt of lease revenues from the tenant;
- increase in the costs associated with the maintenance and financing of
vacant properties;
- increase in costs associated with litigation and the protection of the
properties;
- increase in costs associated with improving and reletting the properties;
- reduction in the value of our shares; and
- decrease in distributions to shareholders.
12
THERE MAY BE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS.
Our quarterly operating results will fluctuate based on a number of
factors, including, among others:
- interest rate changes;
- the volume and timing of our property acquisitions;
- the amount and timing of income generated by our real estate operating
and development and securities company subsidiaries, as well as our
retail partnerships;
- the recognitions of gains or losses on property sales;
- the level of competition in our market; and
- general economic conditions, especially those affecting the retail
industries.
As a result of these factors, results for any quarter should not be relied
upon as being indicative of performance in future quarters. The market price of
our class A common shares could fluctuate with fluctuations in our quarterly
results.
OUR PLAN TO GROW THROUGH THE ACQUISITION AND DEVELOPMENT OF ADDITIONAL
PROPERTIES COULD BE ADVERSELY AFFECTED BY TRENDS IN THE REAL ESTATE AND
FINANCING BUSINESSES.
Our growth strategy is substantially based on the acquisition and
development of additional properties. We cannot assure you that we will be able
to successfully execute our growth strategy because we may have difficulty
finding new properties, negotiating with new or existing tenants or securing
acceptable financing.
IF WE CANNOT MEET OUR REIT DISTRIBUTION REQUIREMENTS, WE MAY HAVE TO BORROW
FUNDS OR LIQUIDATE ASSETS TO MAINTAIN OUR REIT STATUS.
REITs generally must distribute 90% of their taxable income annually. In
the event that we do not have sufficient available cash to make these
distributions, our ability to acquire additional properties may be limited.
Also, for the purposes of determining taxable income, we may be required to
include interest payments, rent and other items we have not yet received and
exclude payments attributable to expenses that are deductible in a different
taxable year. As a result, we could have taxable income in excess of cash
available for distribution. In such event, we could be required to borrow funds
or sell assets in order to make sufficient distributions and maintain our REIT
status.
CONVERSION OF CLASS B COMMON SHARES COULD PUT DOWNWARD PRESSURE ON THE MARKET
PRICE OF OUR CLASS A COMMON SHARES.
As of March 31, 2005, there were 2,215,722 class B common shares
outstanding, each of which is currently convertible into class A common shares
on a one-for-one basis. The class B common shares are not listed on any
exchanges, and no trading market presently exists for the class B common shares.
As a result, holders of the class B common shares who convert to class A common
shares may be doing so, in part, to be able to liquidate some or all of their
investment in AmREIT. Due to the limited average trading volume of the class A
common shares, substantial sales of class A common shares would result in
short-term downward pressure on the price of the class A common shares.
AN INCREASE IN MARKET INTEREST RATES MAY HAVE AN ADVERSE EFFECT ON THE MARKET
PRICE OF OUR CLASS A COMMON SHARES.
One of the factors that investors may consider in deciding whether to buy
or sell our class A common shares is our distribution rate with respect to our
class A common shares as a percentage of our stock price, relative to market
interest rates. If market interest rates increase, prospective investors may
desire a higher distribution rate on our class A common shares or seek
securities paying higher dividends or interest. The market price of our class A
common shares likely will be based primarily on the earnings
13
that we derive from our properties and our distributions to shareholders, and
not from the underlying appraised value of the properties themselves. As a
result, interest rate fluctuations and capital market conditions can affect the
market price of our class A common shares. For instance, if interest rates rise
without an increase in our distribution rate, the market price of our class A
common shares could decrease because potential investors may require a higher
yield on our class A common shares as market rates on interest-bearing
securities, such as bonds, rise. In addition, rising interest rates would result
in increased interest expense on our variable rate debt, thereby adversely
affecting cash flow and our ability to service our indebtedness and make
distributions to shareholders.
LIMITATIONS ON SHARE OWNERSHIP REQUIRED TO MAINTAIN OUR REIT STATUS MAY DETER
ATTRACTIVE TENDER OFFERS FOR OUR CLASS A COMMON SHARES.
For the purposes of protecting our REIT status, our declaration of trust
limits the ownership by any single holder of our common shares to 9.0% of the
issued and outstanding common shares, unless our board waives such limitations.
These restrictions may discourage a change in control of AmREIT, deter any
attractive tender offers for AmREIT common shares or limit the opportunity for
you or other shareholders to receive a premium for your AmREIT common shares.
OUR DECLARATION OF TRUST CONTAINS ANTI-TAKEOVER PROVISIONS.
Our declaration of trust contains provisions which may make it more
difficult to remove current management or delay or discourage an unsolicited
takeover, which could have the effect of inhibiting a non-negotiated merger or
other business combination involving AmREIT. These provisions include:
- the prohibition on any person owning, directly or indirectly, more than
9.0% of the outstanding common shares; and
- provisions authorizing the issuance of preferred shares on terms that
board members determine make it more difficult for an aggressor to obtain
a controlling number of shares.
For us to continue to qualify as a REIT under the Internal Revenue Code,
not more than 50% of our outstanding shares may be owned by five or fewer
individuals during the last half of each year and outstanding shares must
generally be owned by 100 or more persons during at least 335 days of a taxable
year of 12 months. Our declaration of trust restricts the accumulation or
transfer of common shares if any accumulation or transfer could result in any
person beneficially owning in excess of 9.0% of the then outstanding common
shares.
PROVISIONS OF OUR DECLARATION OF TRUST, BYLAWS AND TEXAS LAW COULD RESTRICT
CHANGE IN CONTROL.
Our declaration of trust and bylaws contain provisions that may inhibit or
impede acquisition or attempted acquisition of control of us by means of a
tender offer, a proxy contest or otherwise. These provisions are expected to
discourage certain types of coercive takeover practices and inadequate bids and
to encourage persons seeking to acquire control of AmREIT to negotiate first
with us. See "Certain Anti-Takeover Provisions of the Declaration of Trust and
Bylaws and Texas Law."
WE MAY HAVE REFINANCING RISK WITH RESPECT TO SHORT-TERM BORROWINGS USED TO
FUND THE DEVELOPMENT OR ACQUISITION OF PROPERTIES.
We anticipate that our new developments and acquisitions will be financed
under lines of credit or other interim forms of secured or unsecured financing.
Permanent financing for those newly developed or acquired projects may not be
available or may be available only on disadvantageous terms. In addition,
AmREIT's distribution requirements limit its ability to rely upon income from
operations or cash flow from operations to finance new developments or
acquisitions. As a result, if permanent financing is not available on acceptable
terms, further development activities or acquisitions might be curtailed. In the
case of an unsuccessful development or acquisition, AmREIT's loss could exceed
its project investment.
14
WE WILL BE SUBJECT TO CONFLICTS OF INTEREST.
We will be subject to conflicts of interest arising out of our
relationships with our affiliated retail partnerships, including certain
material conflicts discussed below.
We will experience competition for acquisition properties. In evaluating
property acquisitions, certain properties may be appropriate for acquisition by
either AmREIT or one of its affiliated retail partnerships. You will not have
the opportunity to evaluate the manner in which these conflicts of interest are
resolved before making your investment. Generally, we will evaluate each
property, considering the investment objectives, creditworthiness of the
tenants, expected holding period of the property, available capital and
geographic and tenant concentration issues when determining the allocation of
properties among AmREIT and its affiliated Retail Partnerships.
There will be competing demands on our management and board. Our management
team and board are not only responsible for AmREIT, but also for our affiliated
retail partnerships, which include entities that may invest in the same types of
assets in which AmREIT may invest. For this reason, the management team and
trust managers will divide their management time and services among those
companies and AmREIT, will not devote all of their attention to AmREIT and could
take actions that are more favorable to the other entities than to AmREIT.
AmREIT may invest along side our affiliated retail partnerships. AmREIT may
also invest in joint ventures, partnerships or limited liability companies for
the purpose of owning or developing retail real estate projects. In either
event, we may be a general partner and fiduciary for and owe certain duties to
our other partners in such ventures. The interests, investment objectives and
expectations regarding timing of dispositions may be different for the other
partners than those of our shareholders, and there are no assurances that your
interests and investment objectives will take priority.
We may, from time to time, purchase one or more properties from our
affiliated retail partnerships. In such circumstances, we will work with the
applicable retail partnership to ascertain, and we will pay, the market value of
the property. By our dealing directly with our retail partnerships in this
manner, generally no brokerage commissions will be paid; however, there can be
no assurance that the price we pay for any property will be equal to or greater
than the price we would have been able to negotiate from an independent third
party. These property acquisitions from the affiliated retail partnerships will
be limited to properties that the affiliated retail partnerships developed.
OUR BOARD CAN TAKE MANY ACTIONS WITHOUT SHAREHOLDER APPROVAL.
Our board has authority to oversee our operations. This authority includes
significant flexibility and discretion. For example, our board can (1) prevent
the ownership, transfer and/or accumulation of shares in order to protect our
status as a REIT or for any other reason deemed to be in the best interests of
the shareholders; (2) cause us to issue additional shares without obtaining
shareholder approval, which could dilute your ownership; (3) direct our
investments toward investments that will not appreciate over time, such as
building only properties, with the land owned by a third party, and mortgage
loans; and (4) change minimum creditworthiness standards with respect to
tenants. Any of these actions could reduce the value of our assets without
giving you, as a shareholder, the right to vote.
OUR OFFICERS AND TRUST MANAGERS HAVE LIMITED LIABILITY.
Our declaration of trust and bylaws provide that an officer's or trust
manager's liability for monetary damages to us, our shareholders or third
parties may be limited. Generally, we are obligated under our declaration of
trust and bylaws to indemnify our officers and trust managers against certain
liabilities incurred in connection with their services. These provisions could
limit our ability and the ability of our shareholders to effectively take action
against our trust managers and officers arising from their service to us.
15
OUR SECURITIES BUSINESS IS SUBJECT TO GOVERNMENT REGULATION AND ITS ACTIVITIES
ARE SUBJECT TO A BROAD RANGE OF SECURITIES LAWS
Our broker-dealer subsidiary is registered with the SEC and is a member of
the National Association of Securities Dealers, or NASD, and, accordingly,
subject to regulation, including periodic inspection, by both the SEC and NASD.
Under various securities laws and the rules of our regulators, our broker-dealer
must maintain compliance programs, policies and procedures, adequately supervise
sales efforts and file periodic reports. These laws and regulations increase our
cost of doing business. Also, because our broker-dealer subsidiary engages in
the distribution of securities, we and our broker-dealer are subject to investor
claims under the liability provisions of the securities laws.
RISKS ASSOCIATED WITH AN INVESTMENT IN REAL ESTATE
REAL ESTATE INVESTMENTS ARE RELATIVELY ILLIQUID.
Real estate investments are relatively illiquid. Illiquidity limits the
owner's ability to vary its portfolio promptly in response to changes in
economic or other conditions. In addition, federal income tax provisions
applicable to REITs may limit our ability to sell properties at a time which
would be in the best interest of our shareholders.
OUR PROPERTIES ARE SUBJECT TO GENERAL REAL ESTATE OPERATING RISKS.
If you become a shareholder of AmREIT your investment will be subject to
the risks of investing in real property. In general, a downturn in the national
or local economy, changes in zoning or tax laws or the lack of availability of
financing could adversely affect occupancy or rental rates. In addition,
increases in operating costs due to inflation and other factors may not be
offset by increased rents. If operating expenses increase, the local rental
market for properties similar to AmREIT's may limit the extent to which rents
may be increased to meet increased expenses without decreasing occupancy rates.
If any of the above occurs, our ability to make distributions to shareholders
could be adversely affected.
WE MAY CONSTRUCT IMPROVEMENTS, THE COST OF WHICH MAY NOT BE RECOVERABLE.
We may on occasion acquire properties and construct improvements or acquire
properties under contract for development. Investment in properties to be
developed or constructed is more risky than investments in fully developed and
constructed properties with operating histories. In connection with the
acquisition of these properties, we may advance, on an unsecured basis, a
portion of the purchase price in the form of cash, a conditional letter of
credit and/or a promissory note. We will be dependent upon the seller or lessee
of the property under construction to fulfill its obligations, including the
return of advances and the completion of construction. This party's ability to
carry out its obligations may be affected by financial and other conditions
which are beyond our control.
If we acquire construction properties, the general contractors and the
subcontractors may not be able to control the construction costs or build in
conformity with plans, specifications and timetables. The failure of a
contractor to perform may necessitate our commencing legal action to rescind the
construction contract, to compel performance or to rescind our purchase
contract. These legal actions may result in increased costs to us. Performance
may also be affected or delayed by conditions beyond the contractor's control,
such as building restrictions, clearances and environmental impact studies
imposed or caused by governmental bodies, labor strikes, adverse weather,
unavailability of materials or skilled labor and by financial insolvency of the
general contractor or any subcontractors prior to completion of construction.
These factors can result in increased project costs and corresponding depletion
of our working capital and reserves and in the loss of permanent mortgage loan
commitments relied upon as a primary source for repayment of construction costs.
We may make periodic progress payments to the general contractors of
properties prior to construction completion. By making these payments, we may
incur substantial additional risks, including the possibility that the developer
or contractor receiving these payments may not fully perform the
16
construction obligations in accordance with the terms of his agreement with
AmREIT and that we may be unable to enforce the contract or to recover the
progress payments.
NET LEASES MAY NOT RESULT IN FAIR MARKET LEASE RATES OVER TIME.
Net leases accounted for 100% of AmREIT's total rental income for the years
ended December 31, 2004 and 2003. Under net leases, our tenants are generally
responsible for the payment, directly or indirectly, of insurance, property
taxes and other property-level expenses. Net leases frequently provide the
tenant greater discretion in using the leased property than ordinary property
leases, such as the right to freely sublease the property, to make alterations
in the leased premises and to early termination of the lease under specified
circumstances. Further, net leases are typically for longer lease terms and,
thus, there is an increased risk that any rental increase clauses in future
years will fail to result in fair market rental rates during those years. The
original leases on our existing properties are for original terms ranging from
10 to 20 years.
In the event a lease is terminated, we may not be able to lease the
property for the previous rent and may not be able to sell the property without
incurring a loss. We could also experience delays in enforcing our rights
against defaulting tenants. If a tenant does not pay rent, we may not only lose
the net cash flow from the property but may also need to use cash flow generated
by other properties to meet mortgage payments on the defaulted property.
WE MAY INVEST IN JOINT VENTURES.
Investments in joint ventures may involve risks which may not otherwise be
present in our direct investments such as:
- the potential inability of our joint venture partner to perform;
- the joint venture partner may have economic or business interests or
goals which are inconsistent with or adverse to ours;
- the joint venture partner may take actions contrary to our requests or
instructions or contrary to our objectives or policies; and
- the joint venturers may not be able to agree on matters relating to the
property they jointly own. Although each joint owner will have a right of
first refusal to purchase the other owner's interest, in the event a sale
is desired, the joint owner may not have sufficient resources to exercise
such right of first refusal.
We also may participate with other investors, possibly including investment
programs or other entities affiliated with our management, in investments as
tenants-in-common or in some other joint venture arrangement. The risks of such
joint ownership may be similar to those mentioned above for joint ventures and,
in the case of a tenancy-in-common, each co-tenant normally has the right, if an
unresolvable dispute arises, to seek partition of the property, which partition
might decrease the value of each portion of the divided property.
OUR PROPERTIES MAY BE SUBJECT TO ENVIRONMENTAL LIABILITIES.
Under various federal and state environmental laws and regulations, as an
owner or operator of real estate, we may be required to investigate and clean up
certain hazardous or toxic substances, asbestos-containing materials, or
petroleum product releases at our properties. We may also be held liable to a
governmental entity or to third parties for property damage and for
investigation and cleanup costs incurred by those parties in connection with the
contamination. In addition, some environmental laws create a lien in favor of
the government on the contaminated site for damages and costs the government
incurs in connection with the contamination. The presence of contamination or
the failure to remediate contaminations at any of our properties may adversely
affect our ability to sell or lease the properties or to
17
borrow using the properties as collateral. We could also be liable under common
law to third parties for damages and injuries resulting from environmental
contamination coming from our properties.
Certain of our properties have had prior tenants such as gasoline stations
and, as a result, have existing underground storage tanks and/or other deposits
that currently or in the past contained hazardous or toxic substances. Other
properties have known asbestos containing materials. The existence of
underground storage tanks, asbestos containing materials or other hazardous
substances on or under our properties could have the consequences described
above. Also, we have not recently had environmental reports produced for many of
our older properties, and, as a result, many of the environmental reports
relating to our older properties are significantly outdated. In addition, we
have not obtained environmental reports for five of our older properties. These
properties could have environmental conditions with unknown consequences.
All of our future properties will be acquired subject to satisfactory Phase
I environmental assessments, which generally involve the inspection of site
conditions without invasive testing such as sampling or analysis of soil,
groundwater or other media or conditions; or satisfactory Phase II environmental
site assessments, which generally involve the testing of soil, groundwater or
other media and conditions. Our board may determine that we will acquire a
property in which a Phase I or Phase II environmental assessment indicates that
a problem exists and has not been resolved at the time the property is acquired,
provided that (A) the seller has (1) agreed in writing to indemnify us and/or
(2) established in escrow cash equal to a predetermined amount greater than the
estimated costs to remediate the problem; or (B) we have negotiated other
comparable arrangements, including, without limitation, a reduction in the
purchase price. We cannot be sure, however, that any seller will be able to pay
under an indemnity we obtain or that the amount in escrow will be sufficient to
pay all remediation costs. Further, we cannot be sure that all environmental
liabilities have been identified or that no prior owner, operator or current
occupant has created an environmental condition not known to us. Moreover, we
cannot be sure that (1) future laws, ordinances or regulations will not impose
any material environmental liability or (2) the current environmental condition
of our properties will not be affected by tenants and occupants of the
properties, by the condition of land or operations in the vicinity of the
properties (such as the presence of underground storage tanks), or by third
parties unrelated to us. Environmental liabilities that we may incur could have
an adverse effect on our financial condition or results of operations.
ANTICIPATED BORROWING CREATES RISKS.
We may borrow money to acquire assets, to preserve our status as a REIT or
for other corporate purposes. We may mortgage or create a lien on one or more of
our assets in connection with any borrowing. We currently have a revolving line
of credit in an aggregate amount of up to $41 million to provide financing for
the acquisition of assets, of which approximately $25.1 million was outstanding
as of March 31, 2005. We may repay the line of credit using equity offering
proceeds, including proceeds from this offering, working capital, permanent
financings or proceeds from the sale of assets. We may also obtain additional
long-term, permanent financing. Our bylaws limit our recourse debt obligations
to 55% of our gross asset value. Borrowing is risky and cash flow from our real
estate and other investments may be insufficient to meet our debt obligations.
In addition, our lenders may seek to impose restrictions on future borrowings,
distributions and operating policies. If we mortgage or pledge assets as
collateral and we cannot meet our debt obligations, the lender could take the
collateral, and we would lose both the asset and the income we were deriving
from it.
WE MAY NOT HAVE ADEQUATE INSURANCE.
An uninsured loss or a loss in excess of insured limits could have a
material adverse impact on our operating results and cash flows, and returns to
the shareholders could be reduced. Certain types of losses, such as from
terrorist attacks, however, may be either uninsurable, or coverage may be too
difficult to obtain or too expensive to justify insuring against such types of
losses. Furthermore, an insurance provider could elect to deny or limit coverage
under a claim. Should an uninsured loss or a loss in excess of insured limits
occur, we could lose all or a portion of the capital we have invested in a
property, as well as the
18
anticipated future revenue from the property. Therefore, if we, as landlord,
incur any liability which is not fully covered by insurance, we would be liable
for the uninsured amounts, cash available for distributions to shareholders may
be reduced and the value of our assets may decrease significantly. In addition,
in such an event, we might nevertheless remain obligated for any mortgage debt
or other financial obligations related to the property.
OUR PROPERTIES MAY NOT BE PROFITABLE, MAY NOT RESULT IN DISTRIBUTIONS AND/OR
MAY DEPRECIATE.
While we will attempt to buy leased, income-producing properties at a price
at or below the appraised value of such properties, properties acquired by
AmREIT:
- may not operate at a profit,
- may not perform to AmREIT's expectations,
- may not appreciate in value,
- may depreciate in value,
- may not ever be sold at a profit and
- may result in the loss of a portion of AmREIT's investment.
The marketability and value of any properties will depend upon many factors
beyond our control. A ready market for our properties may not exist or develop.
WE MAY PROVIDE FINANCING TO PURCHASERS OF PROPERTIES.
We may provide purchaser financing which would delay receipt of the
proceeds from a property sale. We may provide this financing where lenders are
not willing to make loans secured by commercial real estate or where a purchaser
is willing to pay a higher price for the property than it would without this
financing.
In those circumstances, we will be subject to risks inherent in the
business of lending, such as the risk of default of the borrower or bankruptcy
of the borrower. Upon a default by a borrower, we may not be able to sell the
property securing a mortgage loan at a price that would enable it to recover the
balance of a defaulted mortgage loan. In addition, the mortgage loans could be
subject to regulation by federal, state and local authorities which could
interfere with administration of our mortgage loans and any collections upon a
borrower's default. We will also be subject to interest rate risk that is
associated with the business of making mortgage loans. Since our primary source
of financing our mortgage loans is expected to be through variable rate loans,
any increase in interest rates will also likely increase our borrowing costs. In
addition, any interest rate increases after a loan's origination could also
adversely affect the value of the loans when securitized.
WE MAY ENGAGE IN SALE-LEASEBACK TRANSACTIONS.
We, on occasion, may lease an investment property back to the seller. When
the seller/lessee leases space to tenants, the seller/lessee may be unable to
meet its rental obligations to us if the tenants are unable to meet their lease
payments to the seller/lessee. A default by the seller/lessee or other premature
termination of the leaseback agreement could have an adverse effect on our
financial position. In the event of a default or termination, we may not be able
to find new tenants without incurring a loss.
Additionally, a seller may attempt to include in the acquisition price all
or some portion of the lease payments. If the seller is successful, we may pay a
premium upon acquisition where a leaseback is involved.
19
WE MUST COMPETE FOR ACCEPTABLE INVESTMENTS.
Our operating results will depend upon the availability of suitable
investment opportunities, which in turn depends on the type of investment
involved, the condition of the money markets, the nature and geographical
location of the property, competition and other factors, none of which can be
predicted with certainty. We will continue to compete for acceptable investments
with other financial institutions, including insurance companies, pension funds
and other institutions, real estate investment trusts and limited partnerships
which have investment objectives similar to those of AmREIT. Many of these
competitors may have greater resources than we have.
WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACES.
Our property leases might not be renewed, the space might not be relet or
the terms of renewal or reletting may be less favorable than current lease
terms. Our cash flow and ability to make expected distributions to its
shareholders may be adversely affected if: (1) we are unable to promptly relet
or renew the leases, (2) the rental rate upon renewal or reletting is
significantly lower than expected or (3) our reserves proved inadequate.
OUR PROPERTIES FACE COMPETING PROPERTIES.
All of our properties are located in areas that include competing
properties. The number of competitive properties could have a material adverse
effect on both our ability to lease space and the rents we charge. We may be
competing with other property owners that have greater resources.
THE INABILITY OF A TENANT TO MAKE LEASE AND MORTGAGE PAYMENTS COULD HAVE AN
ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our business depends on the tenants' ability to pay their obligations to us
with respect to our real estate leases. The ability of our tenants to pay their
obligations in a timely manner will depend on a number of factors, including the
successful operation of their businesses. Various factors, many of which are
beyond the control of any business, may adversely affect the economic viability
of AmREIT's tenants, including but not limited to:
- national, regional and local economic conditions (which may be adversely
affected by industry slowdowns, employer relocations, prevailing
employment conditions and other factors), which may reduce consumer
demand for the products offered by our tenants;
- local real estate conditions;
- changes or weaknesses in specific industry segments;
- perceptions by prospective customers of the safety, convenience, services
and attractiveness of our tenants;
- changes in demographics, consumer tastes and traffic patterns;
- the ability to obtain and retain capable management;
- changes in laws, building codes, similar ordinances and other legal
requirements, including laws increasing the potential liability for
environmental conditions existing on properties;
- increases in operating expenses; and
- increases in minimum wages, taxes (including income, service, real estate
and other taxes) or mandatory employee benefits.
WE HAVE PROPERTIES SPECIFICALLY SUITED TO FEW TENANTS.
We may acquire properties specifically suited to particular tenant needs,
including retail or commercial facilities. The value of these properties would
be adversely affected by the specific tenant's
20
failure to renew or honor its lease. These properties would typically require
extensive renovations to adapt them for new uses by new tenants. Also, we may
experience difficulty selling special purpose properties to persons other than
the tenant.
WE DO NOT HAVE CONTROL OVER MARKET AND BUSINESS CONDITIONS.
Changes in general or local economic or market conditions, such as
increased costs of operations, cost of development, increased costs of
insurance, increased costs or shortage in labor, competitive factors, quality of
management, turnover in management, changing consumer habits, changing
demographics, changing traffic patterns, environmental changes, regulatory
changes and other factors beyond our control may reduce the value of properties
that we currently own or those that we may acquire in the future, the ability of
tenants to pay rent on a timely basis, and therefore, the amount of dividends
that we are able to pay to shareholders.
WE WILL HAVE NO ECONOMIC INTEREST IN LEASEHOLD ESTATE PROPERTIES.
We currently own properties, and may acquire additional properties, in
which we own only the leasehold interest, and do not own or control the
underlying land. With respect to these leasehold estate properties, we will have
no economic interest in the land at the expiration of the lease, and therefore
may lose the right to the use of the properties at the end of the ground lease.
RISKS ASSOCIATED WITH FEDERAL INCOME TAXATION OF AMREIT
OUR FAILURE TO QUALIFY AS A REIT FOR TAX PURPOSES WOULD RESULT IN TAXATION OF
US AS A CORPORATION AND THE REDUCTION OF FUNDS AVAILABLE FOR SHAREHOLDER
DISTRIBUTION.
Although we believe we are organized and are operating so as to qualify as
a REIT, we may not be able to continue to remain so qualified. In addition REIT
qualification provisions under the tax laws may change. We are not aware,
however, of any currently pending tax legislation that would adversely affect
its ability to continue to qualify as a REIT.
For any taxable year that we fail to qualify as a REIT, we will be subject
to federal income tax on our taxable income at corporate rates. In addition,
unless entitled to relief under certain statutory provisions, we also will be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification is lost. This treatment would reduce the net
earnings available for investment or distribution to shareholders because of the
additional tax liability for the year or years involved. In addition,
distributions no longer would qualify for the dividends paid deduction nor would
there be any requirement that such distributions be made. To the extent that
distributions to shareholders would have been made in anticipation of our
qualifying as a REIT, we might be required to borrow funds or to liquidate
certain of its investments to pay the applicable tax.
WE MAY BE LIABLE FOR PROHIBITED TRANSACTION TAX AND/OR PENALTIES.
A violation of the REIT provisions, even where it does not cause failure to
qualify as a REIT, may result in the imposition of substantial taxes, such as
the 100% tax that applies to net income from a prohibited transaction if we are
determined to be a dealer in real property. Because the question of whether that
type of violation occurs may depend on the facts and circumstances underlying a
given transaction, these violations could inadvertently occur. To reduce the
possibility of an inadvertent violation, the trust managers intend to rely on
the advice of legal counsel in situations where they perceive REIT provisions to
be inconclusive or ambiguous.
CHANGES IN THE TAX LAW MAY ADVERSELY AFFECT OUR REIT STATUS.
The discussions of the federal income tax considerations are based on
current tax laws. Changes in the tax laws could result in tax treatment that
differs materially and adversely from that described in this registration
statement.
21
INVESTMENT IN AMREIT MAY NOT BE SUITABLE UNDER ERISA AND IRA REQUIREMENTS.
Fiduciaries of a pension, profit sharing or other employee benefit plan
subject to ERISA should consider whether the investment in AmREIT securities
satisfies the diversification requirements of ERISA, whether the investment is
prudent, whether the investment would be an improper delegation of
responsibility for plan assets and whether such fiduciaries have authority to
acquire such securities under the appropriate governing instrument and Title I
of ERISA. Also, fiduciaries of an individual retirement account should consider
that an IRA may only make investments that are authorized by the appropriate
governing instrument.
USE OF PROCEEDS
We estimate that the net proceeds that we will receive in this offering
will be approximately $ million, assuming a public offering price of $
per share and after deducting the underwriting discount and estimated offering
expenses of $ payable by us. If the underwriters' over-allotment option
is exercised in full, we estimate that our net proceeds will be approximately
$ million.
We intend to use the net proceeds of this offering to acquire Uptown Park,
with the balance, if any, to repay debt and other borrowings under our credit
facility. As of March 31, 2005, we had approximately $25.1 million outstanding
under our credit facility at a weighted average interest rate of 5.23%, and our
credit facility matures in October 2005. During the year December 31, 2004, we
used borrowings under our credit facility to fund the acquisition of additional
properties and for general business purposes. Until such assets can be
identified and obtained, we intend to temporarily invest the balance of the
proceeds of this offering in readily marketable interest-bearing assets
consistent with our intention to qualify as a REIT.
22
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2005:
- On an actual basis; and
- On a pro forma, as adjusted basis to give effect to our sale of 3,000,000
of our class A common shares in this offering, at the public offering
price of $ per share and the application of the net proceeds
therefrom to acquire Uptown Park (after deducting the underwriters'
discounts and commissions and estimated offering expenses payable by us
and assuming the underwriters do not exercise their over-allotment
option), as well as to reflect the incurrence of additional debt in
connection with the proposed Uptown Park acquisition.
AS OF MARCH 31, 2005
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------------ ------------
Debt:
Notes Payable.......................................... $ 92,751,900 $
Shareholders' equity:
Preferred stock, par value $0.01: 10,000,000 shares
authorized; no shares issued and outstanding actual
or as adjusted...................................... --
Class A common shares, par value $0.01: 50,000,000 shares
authorized; 3,493,328 shares issued and outstanding
actual, 6,609,212 shares issued and outstanding as
adjusted............................................... $ 34,933 $
Class B common shares, par value $0.01: 3,000,000 shares
authorized; 2,215,722 shares issued and outstanding
actual and as adjusted................................. $ 22,157 $
Class C common shares, par value $0.01: 4,400,000 shares
authorized; 4,083,276 shares issued and outstanding
actual and as adjusted................................. $ 40,833 $
Class D common shares, par value $0.01: 17,000,000 shares
authorized; 4,103,087 shares issued and outstanding in
actual and as adjusted................................. $ 41,031 $
Capital in excess of par value........................... 122,013,317
Accumulated distributions in excess of earnings.......... (15,741,363)
Deferred Compensation.................................... (1,359,446)
Cost of Treasury Shares, 9,116 class A common shares..... (54,991)
------------ ------------
Total shareholders' equity.......................... $104,996,471 $
============ ============
The table above excludes 712,192 of our common shares available for awards
under our incentive plans as of March 31, 2005.
23
BUSINESS AND PROPERTIES
GENERAL
AmREIT is a fully integrated, self-managed and self-advised equity REIT
based in Houston, Texas. We own and operate a portfolio of multi-tenant and
single-tenant retail properties consisting of 61 properties in 17 states as of
March 31, 2005, having an aggregate gross leaseable area of approximately
908,000 square feet. Multi-tenant shopping centers represented 61.1% of
annualized rental income for the properties we owned as of March 31, 2005. We
also manage an additional 20 properties located in six states for our affiliated
retail partnerships.
We have focused geographically on the Sun Belt states with an emphasis on
the Houston market and other large metropolitan markets in Texas such as Dallas
and San Antonio. We focus on acquiring and selectively developing multi-tenant
shopping centers anchored by major retailers. Many of our properties are located
on what we call "Irreplaceable Corners(TM)" which we define as premier retail
frontage locations in high-traffic, highly populated affluent areas with high
barriers to entry. We focus on Irreplaceable Corners because we believe that
these properties are in greater demand, have greater prospects for upward
movement in rents and should produce higher risk-adjusted returns than similar
properties located in other locations.
AmREIT is vertically integrated with three additional synergistic
businesses that we believe enhance our earnings potential, add value and support
our portfolio expansion. These three synergistic businesses are: (1) a full
service real estate operating and development business; (2) a retail partnership
business; and (3) a registered securities business. The following diagram shows
the integration of these businesses with each other and with AmREIT:
OUR OPERATING STRATEGY
We invest in properties where we believe effective leasing and operating
strategies, combined with cost-effective expansion and renovation programs, can
improve property values while providing superior current economic returns. Our
operating strategy consists of the following elements:
- Acquiring real estate on Irreplaceable Corners, which we define as
premier retail frontage locations in a submarket generally characterized
by the following attributes:
- a population of at least 100,000 within a three-mile radius;
- area average household income of at least $80,000 per year;
- high traffic visibility;
- traffic counts of at least 30,000 cars per day; and
- little available land suitable for competitive development in the area.
- Focusing on the Sun Belt states with an emphasis on the Texas markets
where our management team has substantial experience and local market
knowledge.
- Anchoring our centers with national/regional grocery or drug stores or
chain restaurants.
- Adding value to our properties through active, hands-on management,
improving tenant quality and increasing cash flows by increasing
occupancy and rental rates.
- Conducting extensive due diligence using a proprietary process called
AmREIT Decision Logic, involving our integrated team of real estate
professionals with experience in construction, property management,
leasing and finance.
- Enhancing our core business through the activities of our real estate
operating and development business, our affiliated retail partnership
business and our securities broker-dealer.
24
OUR GROWTH STRATEGY
We intend to increase our revenues and funds from operations by executing
our growth strategy, which consists of the following elements:
- Continuing to form partnerships to develop and/or acquire retail
properties that we believe possess significant potential for short-term
appreciation in value and prospects for capturing such value through
disposition and retaining financial upside in those properties while
earning management fees. At the same time, we preserve the REIT's ability
to later acquire some or all of these properties.
- Continuing to acquire grocery-anchored, strip center and lifestyle
properties on Irreplaceable Corners, primarily in major Texas markets.
- Continuing to selectively divest properties which no longer meet our core
criteria and replace them primarily with high-quality multi-tenant
shopping centers on Irreplaceable Corners.
COMPETITIVE ADVANTAGES
We believe that our business strategy and operating structure distinguish
us from many other public and private owners, operators and acquirors of real
estate in our target markets in a number of ways, including:
- Our fully-integrated business structure provides an advantage in
evaluating properties for acquisition or development, raising capital to
finance our properties and managing properties for our retail
partnerships.
- Our focus on Irreplaceable Corners provides long-term stability and
opportunities for enhanced cash flows from high occupancy and increasing
rents, resulting in higher valuations for our property portfolio.
- We place an emphasis on major Texas markets, and our senior management
team averages more than 15 years of real estate experience in one or more
of these markets.
- Our emphasis on major Texas markets provides us with a substantial
footprint in one of the largest and most economically stable states in
the United States, where our management team lives and has developed
extensive real estate contacts, market knowledge and investment
expertise.
OUR STRUCTURE
Our portfolio of wholly owned multi-tenant shopping centers and
single-tenant retail properties are supported by three distinct operating
businesses:
- Real Estate Operating and Development Business;
- Retail Partnership Business; and
- Securities Business.
25
(ORG CHART)
AmREIT directly owns a portfolio of grocery-anchored, strip center,
lifestyle shopping centers and single-tenant retail properties leased to
companies such as Kroger(R), Walgreens(R), GAP(R) and Starbucks(R). Our
portfolio is supported by three synergistic businesses: a wholly-owned real
estate operating and development business, a registered securities broker-dealer
and a group of four retail partnerships, each of which owns multiple properties
and for which we act as general partner and our real estate operating company
acts as property manager. Through our retail partnerships, AmREIT captures
recurring development, leasing, property management and asset management fees
for services performed while maintaining a residual interest after a preferred
return is paid to limited partners. This unique structure provides us with the
opportunity to expand our growth both internally and externally and to access
capital through traditional underwriters and the independent financial planning
marketplace. This capital can then be deployed efficiently and accretively for
our shareholders. We finance our growth and working capital needs with a
combination of equity and debt. Our class C common share offering which was
opened in August 2003 became fully subscribed during the second quarter of 2004,
and we are currently raising capital through our class D common share offering.
The class C and class D common shares are not publicly traded and are being
offered exclusively through the independent financial planning community. Our
bylaws limit our recourse debt to 55% of gross asset value. Our strategies and
our structure, as discussed herein, are reviewed by our board on a regular basis
and may be modified or changed without a vote of our shareholders.
(ICON)
OUR PORTFOLIO
As of March 31, 2005, AmREIT owned a real estate portfolio consisting of 61
properties located in 17 states. Our multi-tenant shopping center properties are
primarily located throughout Texas, with a concentration in the Houston area,
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.
Our properties are located in affluent high-traffic, densely populated
areas that we refer to as Irreplaceable Corners and are anchored by
nationally-known retailers such as Kroger and Barnes & Noble(R), and are
supported by specialty retailers such as GAP, Starbucks and Verizon Wireless(R).
We believe our focus on Irreplaceable Corners allows us to maximize leasing
income through comparatively higher rental rates and high occupancy rates.
Additionally, we anticipate that as these properties are re-
26
leased or leases are renewed, the location on Irreplaceable Corners will enable
us to increase rents at greater than average rates. As of March 31, 2005, the
occupancy rate at our operating properties was 97% based on leasable square
footage.
A substantial percentage of our revenues are generated by corporate retail
tenants such as Bank of America(R), Barnes & Noble, Bath & Body Works(R),
CVS/pharmacy(R), GAP, International House of Pancakes(R) ("IHOP"), Kroger,
Landry's(R), Linens "n" Things(R), Nextel(R), Payless Shoes(R), TGI Friday's(R),
Starbucks, Washington Mutual(R) and others. Our multi-tenant centers comprised
61.1% of our annualized rental income from properties owned as of March 31,
2005.
(ICON)
OUR REAL ESTATE OPERATING AND DEVELOPMENT BUSINESS
AmREIT Realty Investment Corporation, our wholly owned real estate
operating and development TRS, or ARIC, provides a fully integrated real estate
solution including construction and development, property management, asset
acquisition and disposition, brokerage and leasing, tenant representation,
sale/leaseback and joint venture management services. ARIC has elected to be
taxed as a TRS, and as such is able to engage in activities that AmREIT would
not be able to undertake due to Internal Revenue Code REIT restrictions. We have
used this business to develop client and referral relationships with national
and regional tenants, real estate owners and developers. From these
relationships AmREIT receives fee income and access to acquisition prospects and
a pipeline of tenants.
ARIC consists of a deep team of real estate professionals with significant
experience in site location, development, construction, property management,
leasing and brokerage services. ARIC's brokers provide leasing and brokerage
services to us and our affiliated retail partnerships. In addition, ARIC's
tenant representatives provide services to national and regional retail tenants,
generating third party fee income to us from these services. ARIC provides
property management services to our affiliated retail partnerships in exchange
for management fees. ARIC also provides development and construction management
services to us, our affiliated retail partnerships and to third parties on a
fee-for-services basis. During the years ended December 31, 2004, 2003 and 2002,
ARIC generated fee income of $2.3 million, $1.3 million and $1.5 million, which
represented 11%, 13% and 25%, respectively, of AmREIT's total revenues.
Additionally, ARIC engages in merchant development activities, both
independently and as a co-investor with our retail partnerships, through
selective acquisitions and dispositions of properties within a short time period
that is generally 12 to 18 months. The majority of these assets are listed as
real estate assets acquired for sale on our consolidated balance sheet. At March
31, 2005 and December 31, 2004, assets held for sale totaled approximately $9.9
million and $6.3 million, respectively. For the three months ended March 31,
2005 and 2004, ARIC generated gains on sales of properties acquired for sale of
$ -- and $608,000.
(MOLECULE GRAPHIC)
OUR RETAIL PARTNERSHIP BUSINESS
We also are the general partner of four limited partnerships that were
formed to develop, own, manage and add value to multiple retail properties.
Unlike AmREIT's longer term investment focus, our retail partnerships have a
greater focus on shorter-term value creation and a limited investment period.
However, certain properties acquired by our retail partnerships may in the
future be appropriate investments for AmREIT. By providing management and other
services to these retail partnerships we generate fee income and retain a
residual interest in the partnerships after a preferred return is paid to
limited partners. We believe our affiliated retail partnerships may create
significant income and value in the future as our retail partnerships continue
to grow and as we continue to implement our active management strategy within
those partnerships.
27
Our affiliated retail partnerships were formed to develop, own, manage, and
add value to properties with an average holding period of two to four years.
ARIC manages the properties held by our affiliated retail partnerships in
exchange for various fees. These fees include an asset management fee (1% of net
invested capital), a development and acquisition fee (between 4% and 6% of
project costs), a property management fee (not greater than 4% of gross
rentals), a property leasing fee (not to exceed 2% on renewal or 6% on a new
lease of base rent) and real estate brokerage commissions (not to exceed 6% of
the sales price on co-brokered transactions or 4% of the sales price on
individually-brokered transactions). The general partner of each partnership,
each of which is a wholly owned subsidiary of AmREIT, receives a residual profit
interest in the partnership after the limited partners have received a targeted
return linking AmREIT's success to that of its limited partners. During the
years ended December 31, 2004, 2003 and 2002, AmREIT earned fees of $1.8
million, $634,000 and $668,000, respectively, by providing real estate services
to the retail partnerships.
As of March 31, 2005, AmREIT directly managed, through its four actively
managed retail partnerships, a total of $52.7 million in contributed capital.
These four partnerships have entered or will enter their liquidation phases in
2003, 2008, 2010, and 2011, respectively. As these partnerships enter into
liquidation, AmREIT will receive economic benefit from our residual interest,
after certain preferred returns have been paid to the partnerships' limited
partners. During 2004, AmREIT recognized approximately $869,000 related to its
general partner interest in AmREIT Opportunity Fund, Ltd. (AOF). In accordance
with generally accepted accounting principles, any unrealized gains associated
with this residual interest have not been reflected on our balance sheet or
statement of operations.
The following table sets forth certain financial information for the AmREIT
Income & Growth Fund, L.P. (AIG), AmREIT Monthly Income & Growth Fund, L.P.
(MIG) and AmREIT Monthly Income & Growth Fund II, L.P. (MIG II) retail
partnerships:
SHARING
RATIOS*
CAPITAL LP GP SCHEDULED ----------
RETAIL PARTNERSHIP UNDER MGMT. INTEREST INTEREST LIQUIDATION LP GP LP PREFERENCE*
------------------ ----------- -------- -------- ----------- --- --- --------------
AIG.................... $10 million 2.0% 1.0% 2008 99% 1% 8%
90% 10% 10%
80% 20% 12%
70% 30% 15%
0% 100% 40% Catch UP
60% 40% Thereafter
-- --- ------------
MIG.................... $15 million 1.4% 1.0% 2010 99% 1% 8%
90% 10% 10%
80% 20% 12%
0% 100% 40% Catch Up
60% 40% Thereafter
-- --- ------------
MIG II................. $25 million 1.6% 1.0% 2011 99% 1% 8%
85% 15% 12%
0% 100% 40% Catch Up
60% 40% Thereafter
-- --- ------------
---------------
* Illustrating the Sharing Ratios and LP Preference provisions using AIG as an
example, the LPs share in 99% of the cash distributions until they receive an
8% preferred return. Thereafter, the LPs share in 90% of the cash
distributions until they receive a 10% preferred return and so on.
28
(ICON)
OUR SECURITIES BUSINESS
Through AmREIT Securities Company, our wholly owned registered securities
broker-dealer, which is also a TRS, we sell interests in our affiliated retail
partnerships and AmREIT shares through a wholesale effort involving a national
network of unaffiliated, third-party financial planners. In 2004, AmREIT
Securities successfully raised $25 million for our retail partnership business
and another $46 million directly for AmREIT through public offerings of our
class C and D common shares. Having a broker-dealer subsidiary provides AmREIT
with financial flexibility because we have the opportunity to access capital
from both traditional underwriters and the independent financial planning
marketplace. This provides for a more consistent access to capital markets and
allows us to better manage our balance sheet.
AmREIT Securities does not maintain branch offices or a large number of
employed registered representatives. Instead, AmREIT Securities acts as a
"wholesaler," placing securities through a national network of unaffiliated
broker-dealers and financial planners. This model allows AmREIT Securities to
place securities on a national basis without the overhead of a large securities
firm. AmREIT Securities is limited to private placements of limited partnership
interests and sale of AmREIT's securities, which to date have consisted solely
of our untraded class C and D common shares. AmREIT Securities does not engage
in trading or research activities or provide other products, such as mutual
funds.
During 2004, AmREIT Securities raised approximately $25 million for AmREIT
Monthly Income and Growth Fund II, Ltd., an affiliated retail partnership.
Additionally, during the second quarter of 2004, AmREIT fully subscribed its
class C common share offering conducted by AmREIT Securities beginning in August
2003. The offering was 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. AmREIT Securities is also the dealer manager on our newest
offering, a $170 million class D common share offering ($150 million offered to
the public and $20 million reserved for the dividend reinvestment program). This
offering, a publicly registered, non-traded class of common shares with a stated
yield of 6.5%, commenced on June 25, 2004. AmREIT Securities has placed $41
million through this offering as of March 31, 2005, including shares issued
through the dividend reinvestment program.
During the years ended December 31, 2004, 2003 and 2002, AmREIT Securities
generated securities commission revenues from capital-raising activities of $7.7
million, $3.0 million and $847,000, respectively. AmREIT Securities incurred
commission expenses of $5.9 million, $2.3 million and $653,000 which were paid
to non-affiliated broker-dealers in conjunction with such capital-raising
activities. For 2005, through a combination of equity for our actively managed
retail partnerships and direct equity for AmREIT, AmREIT Securities expects to
raise approximately $120 to $150 million directly through the independent
financial planning community.
PROPERTIES
GENERAL
At March 31, 2005, we owned 61 properties located in 17 states. Since 1995,
we have focused on developing and acquiring multi-tenant shopping centers.
During this time, we believe we have sharpened our ability to identify and
acquire Irreplaceable Corners which we believe are ideal locations for high-end
shopping centers and single-tenant properties. Recent downward pressure on
single-tenant cap rates has resulted in higher priced single-tenant real estate.
As a result, while we will continue to invest in single-tenant properties
located on Irreplaceable Corners, we anticipate strategically increasing our
holdings of multi-tenant shopping centers. Multi-tenant shopping centers
represented 61.1% of annualized rental income from properties owned for the
quarter ended March 31, 2005.
Land -- Our property sites, on which our leased buildings sit, range from
approximately 34,000 to one million square feet, depending upon building size
and local demographic factors. Sites purchased by
29
AmREIT are in highly populated, high traffic corridors and have been reviewed
for traffic and demographic pattern and history.
Buildings -- Our buildings are typically multi-tenant shopping centers and
freestanding single-tenant properties that are positioned for good exposure to
traffic flow and are constructed from various combinations of stucco, steel,
wood, brick and tile. Multi-tenant buildings are generally 14,000 square feet
and greater, and single-tenant buildings range from approximately 2,000 to
20,000 square feet. Buildings are suitable for possible conversion to various
uses, although modifications may be required prior to use for other operations.
Leases -- Primary lease terms range from five to 25 years. Generally,
leases also provide for one to five-year renewal options. Our retail properties
are primarily leased on a "net" basis whereby the tenants are responsible,
either directly or through landlord reimbursement, for the property taxes,
insurance and operating costs such as water, electric, landscaping, maintenance
and security. Generally, leases provide for either percentage rents based on
sales in excess of certain amounts, periodic escalations or increases in the
annual rental rates or a combination of both.
LOCATION OF PROPERTIES
From our Houston, Texas base, our current focus is on property investments
in Texas. Of our 61 properties as of March 31, 2005, 27 were located in Texas,
with 21 being located in the greater Houston metropolitan statistical area.
These 21 properties represented 65% of our rental income for the three months
ended March 31, 2005. Our portfolio of assets tends to be located in areas we
know well and that allow us to actively manage our properties. Because of our
proximity and deep knowledge of our markets, we believe AmREIT can deliver an
extra degree of hands-on management to our real estate investments. We believe
our close proximity to our properties and our market knowledge gives us a
competitive advantage over other retail property owners in these markets.
Because of our investments in the greater-Houston area and throughout
Texas, the Houston and Texas economy have a significant impact on our business
and on the viability of our properties. Accordingly, management believes that
any downturn in the Houston or Dallas 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 change.
According to the Greater Houston Partnership, Houston is the 4th most
populous city in the nation, trailing only New York, Los Angeles and Chicago. If
Houston were a state, it would rank 36th in population. It is among the nation's
fastest growing and most diverse metropolitan areas and is growing faster than
both the state of Texas and the nation. Since 1990 approximately 49% of
Houston's population growth has been from net migration with 78% of that growth
attributed to international immigration. Houston's economic base has
diversified, sharply decreasing its dependence on upstream energy. Diversifying,
or energy-independent, sectors accounted for 91% of net job growth in the
economic base since 1987. Oil and gas exploration and production account for
11.2% of Houston's Gross Area Product (GAP), down sharply from 21% as recently
as 1985. The reduced role of oil and gas in Houston's GAP reflects the rapid
growth of such sectors as engineering services, health services and
manufacturing. The Port of Houston in 2003 ranked first among U.S. ports in
volume of foreign tonnage and is the world's 6th largest port. Two major
railroads and 150 trucking lines connect the Port to the balance of the
continental United States, Canada and Mexico. Europe and Latin America are
Houston's top seaborne trading partners.
30
A listing of our properties by property type and by location as of December
31, 2004, follows based upon gross leasable area (GLA):
ANNUALIZED
MULTI-TENANT DATE BASE RENT AS OF %
SHOPPING CENTERS MAJOR TENANTS MSA STATE ACQUIRED GLA MARCH 31, 2005 LEASED
---------------- ------------- --- ----- -------- ------- --------------- ------
MacArthur Park....... Kroger Dallas TX 12/27/04 198,443 $ 2,964,192 100%
Plaza in the Park.... Kroger Houston TX 07/01/04 138,663 2,498,854 96%
Cinco Ranch.......... Kroger Houston TX 07/01/04 97,297 1,245,828 100%
Bakery Square........ Walgreens & Bank of Houston TX 07/21/04 34,614 849,456 100%
America
Uptown Plaza......... CVS/pharmacy Houston TX 12/10/03 26,400 1,236,446 100%
Woodlands Plaza...... FedEx/Kinkos & Rug Houston TX 06/03/98 20,018 377,332 100%
Gallery
Sugarland Plaza...... Mattress Giant Houston TX 07/01/98 16,750 349,545 100%
Terrace Shops........ Starbucks Houston TX 12/15/03 16,395 457,160 100%
Copperfield Medical.. Texas Children's Houston TX 09/26/95 14,000 219,212 100%
Pediatrics
Courtyard at Post
Oak................ Verizon Wireless Houston TX 06/15/04 13,597 477,360 100%
San Felipe and
Winrock(1)......... Houston TX 11/17/03 8,400 (1) (1)
------- ----------- ---
Multi-Tenant
Shopping Centers
Total............ 584,577 $10,675,585 99%
======= =========== ===
SINGLE TENANT ANNUALIZED
(FEES SIMPLE SUBJECT DATE BASE RENT AS OF %
TO GROUND LEASES) MSA STATE ACQUIRED GLA MARCH 31, 2005 LEASED
-------------------- --- ----- -------- ------ --------------- ------
CVS Corporation........ Houston TX 01/10/03 13,824 $ 327,167 100%
Darden Restaurants..... Atlanta GA 12/18/98 6,867 79,366 100%
Carlson Restaurants.... Baltimore MD 09/16/03 6,802 141,674 100%
410-Blanco(1).......... San Antonio TX 12/17/04 5,000 (1) (1)
Bank of America........ Houston TX 11/17/03 4,420 247,975 100%
Comerica Bank(1)....... Houston TX 04/30/04 4,277 (1) (1)
Washington Mutual...... Houston TX 12/11/96 3,685 98,160 100%
Washington Mutual...... Houston TX 09/23/96 3,685 61,060 100%
Yum Brands(2)(3)....... Houston TX 10/14/03 2,818 79,440 100%
------ ---------- ---
Single Tenant (Fees
Simple Subject to
Ground Leases)
Total............. 51,378 $1,034,842 100%
====== ========== ===
31
SINGLE TENANT ANNUALIZED
(FEES SIMPLE SUBJECT DATE BASE RENT AS OF %
TO BUILDING LEASES) MSA STATE ACQUIRED GLA MARCH 31, 2005 LEASED
-------------------- --- ----- -------- ------- --------------- ------
Vacant(2)............... Baton Rouge LA 06/09/97 20,575 (1) 0%
Baptist Memorial Medical
Plaza................. Memphis TN 07/23/02 15,000 222,643 100%
Comp USA................ Minneapolis MN 07/23/02 15,000 267,584 100%
Energy Wellness......... Houston TX 07/23/02 15,000 187,857 100%
Transworld
Entertainment......... Independence MO 07/23/02 14,047 135,000 100%
Golden Corral........... Houston TX 07/23/02 12,000 182,994 100%
Golden Corral........... Houston TX 07/23/02 12,000 181,688 100%
Carlson Restaurants..... Houston TX 07/23/02 8,500 200,000 100%
Pier One Imports
Inc. ................. Denver CO 07/23/02 8,014 135,152 100%
Hollywood Entertainment
Corp. ................ Lafayette LA 10/31/97 7,488 150,874 100%
Hollywood Entertainment
Corp. ................ Jackson MS 12/31/97 7,488 155,067 100%
Radio Shack
Corporation........... Dallas TX 06/15/94 5,200 108,900 100%
IHOP Corporation #1483.. Houston TX 09/22/99 4,020 188,112 100%
IHOP Corporation
#1737(5).............. Salt Lake UT 07/25/02 4,020 160,849 100%
IHOP Corporation
#4462(5).............. Memphis TN 08/23/02 4,020 176,768 100%
IHOP Corporation #5318.. Topeka KS 09/30/99 4,020 156,395 100%
Payless Shoesources
Inc. ................. Austin TX 07/23/02 4,000 80,000 100%
AFC, Inc. .............. Atlanta GA 07/23/02 2,583 119,279 100%
Advance
Auto(1)(2)(3)(4)...... Various Various Various 49,000 (1) (1)
------- ---------- ---
Single Tenant (Fees
Simple Subject to
Building Leases)
Total.............. 211,975 $2,809,162 88%
======= ========== ===
ANNUALIZED
SINGLE TENANT DATE BASE RENT AS OF %
(GROUND LESSEE LEASEHOLDS) MSA STATE ACQUIRED GLA MARCH 31, 2005 LEASED
-------------------------- --- ----- -------- ------- --------------- ------
IHOP Corporation(5)...... Various Various Various 60,300 $ 1,565,674 100%
------- ----------- ---
Company Total.......... 908,230 $16,085,263 97%
======= =========== ===
---------------
(1) Under Development (GLA represents proposed leasable square footage).
(2) Held for Sale.
(3) Held in a joint venture of which we are the managing 50% owner.
(4) Advance Auto properties are located in MO and IL. Each of the properties has
a proposed GLA of 7,000 square feet.
(5) IHOP properties are located in NM, LA, OR, VA, TX, CA, TN, CO, VA, NY, OR,
KS, UT and MO. Each of the properties has a GLA of 4,020 square feet. These
properties are held by a consolidated subsidiary, 79.0% of which is owned by
AmREIT, 19.6% of which is owned by AmREIT Income & Growth Corporation, one
of our affiliated retail partnerships, and 1.4% of which is owned by
unaffiliated third parties.
32
The rental income generated by our properties during 2004 by state is as
follows:
RENTAL RENTAL
STATE/CITY INCOME CONCENTRATION
---------- ----------- -------------
Texas -- Houston........................................... $ 7,879,000 67.4%
Texas -- Dallas............................................ 244,000 2.1%
Texas -- other............................................. 323,000 2.8%
----------- -----
Total Texas.............................................. 8,446,000 72.3%
----------- -----
Louisiana.................................................. 373,000 3.2%
Tennessee.................................................. 517,000 4.4%
Minnesota.................................................. 268,000 2.3%
Missouri................................................... 256,000 2.2%
Kansas..................................................... 253,000 2.2%
Colorado................................................... 246,000 2.1%
Georgia.................................................... 198,000 1.7%
Oregon..................................................... 181,000 1.6%
Virginia................................................... 172,000 1.5%
Utah....................................................... 161,000 1.4%
Mississippi................................................ 155,000 1.3%
Maryland................................................... 142,000 1.2%
New York................................................... 124,000 1.1%
California................................................. 111,000 0.9%
New Mexico................................................. 85,000 0.6%
Illinois................................................... -- --
----------- -----
Total...................................................... $11,688,000 100.0%
=========== =====
33
LEASE EXPIRATIONS
The following table shows lease expirations for the next 10 years for our
properties, assuming that none of the tenants exercise renewal options.
NUMBER
OF LEASE SQUARE PERCENT
EXPIRATION YEAR EXPIRING FOOTAGE OF TOTAL
--------------- -------- ------- --------
2005...................................................... 14 37,450 4.40%
2006...................................................... 18 45,589 5.35%
2007...................................................... 9 51,431 6.04%
2008...................................................... 17 63,560 7.47%
2009...................................................... 21 74,732 8.78%
2010...................................................... 9 43,797 5.14%
2011...................................................... 25 125,064 14.69%
2012...................................................... 8 55,039 6.46%
2013...................................................... 2 11,131 1.31%
2014...................................................... 5 8,050 0.95%
2015...................................................... 0 0 0.00%
2016...................................................... 1 15,120 1.78%
2017...................................................... 0 0 0.00%
2018...................................................... 0 0 0.00%
2019...................................................... 3 12,838 1.51%
2020...................................................... 3 71,413 8.39%
2021...................................................... 2 82,265 9.66%
2022...................................................... 1 4,020 0.47%
2023...................................................... 1 63,373 7.44%
2024...................................................... 4 26,284 3.09%
2025...................................................... 6 32,100 3.77%
2026...................................................... 4 16,080 1.89%
2027...................................................... 3 12,060 1.42%
--- ------- ------
Totals.................................................... 156 851,396 100.00%
=== ======= ======
34
TOP TEN TENANTS
The following table sets forth certain information with respect to our top
ten tenants:
PERCENT OF TOTAL
ANNUALIZED BASE ANNUALIZED BASE
RENT AS OF RENT AS OF
TENANT NUMBER OF LEASES DECEMBER 31, 2004 DECEMBER 31, 2004
------ ---------------- -------------------- --------------------
IHOP Corporation..................... 19 $2,247,798 14.05%
Kroger............................... 3 2,116,165 13.22%
CVS/pharmacy......................... 2 921,945 5.76%
Bank of America...................... 2 412,198 2.58%
Linens 'n' Things.................... 1 402,500 2.52%
Golden Corral........................ 2 364,683 2.28%
TGI Friday's......................... 2 341,674 2.14%
Landry's............................. 1 338,122 2.11%
Washington Mutual.................... 3 325,396 2.03%
Hallmark............................. 3 321,200 2.01%
35
LONG-TERM DEBT MATURITY
The following table sets forth certain information by maturity date with
respect to our indebtedness as of March 31, 2005:
AMOUNT INTEREST ANNUAL DEBT
DESCRIPTION OUTSTANDING RATE SERVICE MATURITY DATE
----------- ----------- -------- ----------- -------------
Credit Facility*....................... $25,127,130 4.40% $1,672,606 10/4/2005
-----------
2005 MATURITIES...................... $25,127,130
MacArthur Park......................... $13,410,000 6.17% $ 827,397 12/1/2008
-----------
2008 MATURITIES...................... $13,410,000
Hollywood Video, MS.................... $ 943,134 8.38% $ 91,208 4/1/2009
-----------
2009 MATURITIES...................... $ 943,134
Merger Dissenters...................... $ 760,410 5.47% $ 42,583 7/23/2010
-----------
2010 MATURITIES...................... $ 760,410
Sugarland IHOP......................... $ 1,224,167 8.25% $ 138,035 3/1/2011
Sugar Land Plaza....................... 2,329,887 7.60% 203,349 11/1/2011
-----------
2011 MATURITIES...................... $ 3,554,053
Albuquerque IHOP....................... $ 706,804 7.89% $ 74,930 4/24/2012
Baton Rouge IHOP....................... 1,168,000 7.89% 123,822 4/24/2012
Beaverton IHOP......................... 828,305 7.89% 87,811 4/16/2012
Charlottesville IHOP................... 588,527 7.89% 62,391 4/24/2012
El Paso #1934 IHOP..................... 710,400 7.89% 75,311 4/16/2012
Rochester IHOP......................... 887,999 7.89% 94,139 4/16/2012
Shawnee IHOP........................... 701,128 7.89% 74,328 4/18/2012
5115 Buffalo Spdwy..................... 2,781,302 7.58% 241,008 5/11/2012
Salem IHOP............................. 581,085 7.89% 61,461 5/17/2012
Springfield IHOP....................... 964,616 7.89% 102,026 6/21/2012
Roanoke IHOP........................... 668,262 7.89% 70,855 7/26/2012
Centerville IHOP....................... 1,168,532 7.89% 123,620 7/26/2012
Memphis #4462 IHOP..................... 1,262,870 7.89% 133,600 7/19/2012
Alexandria IHOP........................ 674,124 7.89% 71,316 7/19/2012
El Paso #1938 IHOP..................... 843,590 7.89% 89,046 8/23/2012
La Verne IHOP.......................... 702,837 7.89% 74,189 8/23/2012
Memphis #4482 IHOP..................... 732,431 7.89% 77,312 8/23/2012
Parker IHOP............................ 788,294 7.89% 83,209 8/23/2012
-----------
2012 MATURITIES...................... $16,759,106
Cinco Ranch............................ $ 8,524,131 5.60% $ 600,716 7/10/2013
Plaza in the Park...................... 18,016,024 5.60% 1,269,633 7/10/2013
-----------
2013 MATURITIES...................... $26,540,155
Bakery Square.......................... $ 4,380,808 8.00% $ 571,418 2/10/2017
-----------
2017 MATURITIES...................... $ 4,380,808
TOTAL MATURITIES**................... $91,474,798
===========
---------------
* Our revolving credit facility is a variable-rate debt instrument, and its
outstanding balance fluctuates throughout the year based on our liquidity
needs. Annual Debt Service on this debt instrument
36
assumes that the amount outstanding and the interest rate as of March 31,
2005 remain constant through maturity.
** Total maturities above is $1.3 million less than total debt as reported in
our consolidated financial statements due to the premium recorded on
above-market debt assumed in conjunction with certain of our 2004 property
acquisitions.
GROCERY-ANCHORED SHOPPING CENTERS
As of March 31, 2005 we owned three grocery-anchored shopping centers
representing approximately 434,000 leaseable square feet. Our grocery-anchored
shopping centers comprise 42% of our annualized rental income from the
properties owned as of March 31, 2005. These properties are designed for maximum
retail visibility and ease of access and parking for the consumer. All of our
grocery-anchored centers are anchored by Kroger and are supported by a mix of
specialty national and regional tenants such as Barnes & Noble, GAP and
Starbucks. They are leased in a manner that provides a complimentary array of
services to support the local retail consumer. These properties are located in
the Houston and Dallas metropolitan areas and are typically located on an
Irreplaceable Corner. We are dependent upon the financial viability of Kroger,
and any downturn in Kroger's operating results could negatively impact our
operating results. Refer to Kroger's filings with the SEC at www.sec.gov.
All of our grocery-anchored shopping center leases provide for the monthly
payment of base rent plus operating expenses. This monthly operating expense
payment is based on an estimate of the tenant's pro rata share of property
taxes, insurance, utilities, maintenance and other common area maintenance
charges. Annually these operating expenses are reconciled with any overage being
reimbursed to the tenants and with any underpayment being billed to the tenant.
Generally these are net lease terms and allow the landlord to recover all of its
operating expenses without the limitation of expense stops.
Our grocery-anchored shopping center leases range from five to 20 years and
generally include one or more five-year renewal options. Annual rental income
from these leases ranges from $21,000 to $1.0 million per year.
MULTI-TENANT SHOPPING CENTERS
As of March 31, 2005, we owned eight multi-tenant shopping centers,
including one under development, representing approximately 150,000 leaseable
square feet. Our multi-tenant shopping centers are primarily neighborhood and
community strip centers, ranging from 8,400 to 35,000 square feet. None of the
centers have internal common areas, but instead are designed for maximum retail
visibility and ease of access and parking for the consumer. These properties
have a mix of national, regional and local non-grocery tenants and are leased in
a manner to provide a complimentary array of services to support the local
retail consumer. All of our multi-tenant shopping centers are located in the
greater Houston area, and are typically on an Irreplaceable Corner.
All of our multi-tenant shopping center leases provide for the monthly
payment of base rent plus operating expenses. This monthly operating expense
payment is based on an estimate of the tenant's pro rata share of property
taxes, insurance, utilities, maintenance and other common area maintenance
charges. Annually these operating expenses are reconciled with any overage being
reimbursed to the tenants, with any underpayment being billed to the tenant.
Our multi-tenant shopping center leases range from five to 20 years and
generally include one or more five-year renewal options. Annual rental income
from these leases ranges from $26,000 to $310,000 per year and typically allow
for rental increases, or bumps, periodically through the life of the lease.
SINGLE-TENANT PROPERTIES
As of March 31, 2005, we owned 50 single-tenant properties, representing
approximately 324,000 leaseable square feet. Our single-tenant leases typically
provide that the tenant bears responsibility for substantially all property
costs and expenses associated with ongoing maintenance and operation of the
37
property such as utilities, property taxes and insurance. Some of the leases
require that we will be responsible for roof and structural repairs. In these
instances, we normally require warranties and/or guarantees from the related
vendors, suppliers and/or contractors to mitigate the potential costs of repairs
during the primary term of the lease.
Because our leases are entered into with or guaranteed by the corporate
parent of the tenant, they typically do not limit our recourse against the
tenant and any guarantor in the event of a default. For this reason, these
leases are designated by us as "Credit Tenant Leases," because they are
supported by the assets of the entire company, not just the individual store
location.
The primary term of the single-tenant leases ranges from 10 to 25 years.
All of the leases also provide for one to four, five-year renewal options.
Annual rental income ranges from $61,000 to $595,000 per year.
LAND TO BE DEVELOPED
As part of our investment objectives, we will invest in land to be
developed on Irreplaceable Corners. A typical investment in land to be developed
will result in a six to 12 month holding period, followed by the execution of a
ground lease with a national or regional retail tenant or by the development of
a single-tenant property or multi-tenant strip center. As of March 31, 2005,
AmREIT directly held three sites to be developed, as further discussed below.
4-10 & Blanco is a 1.329 acre pad site located at the intersection of Loop
410 and Blanco Road in San Antonio, Texas. We are currently in discussions with
two potential tenants for lease of this space, including a national bank.
Research Forest @ Six Pines is a 1.608 acre pad site located at the
intersection of Research Forest and Six Pines, in The Woodlands, Texas. We
recently entered into a ground lease on this property with Comerica.
San Felipe and Winrock is an approximately two acre pad site located at the
intersection of San Felipe and Winrock near the Tanglewood residential community
in Houston, Texas. The property was purchased in November 2003. Subsequent to
the purchase, AmREIT entered into a long-term ground lease with Bank of America
for approximately one acre, off the corner intersection. Rental income under the
ground lease commenced in November 2004. AmREIT is holding the remaining one
acre and is in leasing discussions with a number of national tenants.
PROPERTY ACQUISITIONS AND DISPOSITIONS
During 2004, AmREIT acquired $105.2 million in assets through the
acquisition of five multi-tenant retail properties. The acquisitions were
accounted for as purchases and the results of their operations are included in
our results of operations from the respective dates of acquisition. Further
details regarding these acquisitions follows:
Grocery-anchored Shopping Centers. On December 27, 2004, AmREIT acquired
MacArthur Park Shopping Center, a Kroger anchored shopping center consisting of
198,443 square feet located on approximately 23.3 acres. The property, which was
acquired from Regency Centers, is located in Dallas, Texas, at the northwest
intersection of I-635 and MacArthur Boulevard in the heart of Las Colinas, an
affluent residential and business community. The property is surrounded by
Fortune 500 companies such as ExxonMobil, Citigroup and Sabre. The property was
acquired for cash and the assumption of long-term fixed-rate debt. The Kroger
lease is for 20 years, containing approximately 63,000 square feet, expiring in
November 2020. The shopping center was 100 percent occupied as of December 31,
2004, and the weighted average remaining lease term for the project is 8.1
years.
On July 1, 2004, AmREIT acquired Plaza in the Park, a 138,663 square-foot
Kroger anchored shopping center located on approximately 12.2 acres. The
property is located at the southwest corner of Buffalo Speedway and Westpark in
Houston, Texas. The Kroger store in Plaza in the Park expanded during 2004,
making it the largest Kroger store in the state. The property was acquired for
cash and the
38
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 82,000 square feet, expiring in August 2017. The shopping center
was 95 percent occupied as of December 31, 2004.
On July 1, 2004, AmREIT acquired Cinco Ranch, a 97,297 square-foot Kroger
anchored shopping center located on approximately 11.1 acres. The property is
located at the northeast corner of Mason Road and Westheimer Parkway in Katy,
Texas, a suburb of Houston. 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 13.5 years. The Kroger lease is for 20 years, containing
approximately 63,000 square feet expiring in June 2023. The shopping center was
100 percent occupied as of December 31, 2004.
Multi-Tenant Shopping Centers. On July 21, 2004, AmREIT acquired Bakery
Square Shopping Center, a 34,614 square-foot retail project including a free
standing Walgreens and a shopping center anchored by Bank of America. 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 was acquired for cash and the assumption of long-term fixed-rate debt.
The weighted average remaining lease term for the shopping center is 4.4 years.
The Walgreens lease covers 15,210 square feet and is non-cancelable until
October 31, 2016, with Walgreens having the option to renew the lease every five
years thereafter until the lease expires on October 31, 2056. The shopping
center was 100 percent occupied as of December 31, 2004.
On June 15, 2004, AmREIT acquired Courtyard at Post Oak, consisting of a
4,013 square-foot, free standing building occupied by Verizon Wireless 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 4.7 years.
Single-tenant Properties. For the year ended December 31, 2004 AmREIT sold
six single-tenant non-core properties, resulting in a net gain of $861,000 after
including impairment charges of $1.1 million on these properties which were
recognized during 2004. The cash proceeds from the sale of the six properties
were approximately $11.1 million after paying down debt of $1.4 million.
COMPETITION
AmREIT's properties are located in 17 states, with 28 of its properties
located in the Texas metropolitan areas. All of AmREIT's properties are located
in areas that include competing properties. The number of competitive properties
in a particular area could have a material adverse affect on both AmREIT's
ability to lease space at any of it's properties or at any newly developed or
acquired properties and the rents charged. AmREIT may be competing with owners,
including, but not limited to, other REITs, insurance companies and pension
funds that have greater resources that AmREIT.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS
Under various federal and state environmental laws and regulations, as an
owner or operator of real estate, we may be required to investigate and clean up
certain hazardous or toxic substances, asbestos-containing materials or
petroleum product releases at our properties. We may also be held liable to a
governmental entity or to third parties for property damage and for
investigation and cleanup costs incurred by those parties in connection with the
contamination. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs in
connection with the contamination. The presence of contamination or the failure
to remediate contaminations at any of our properties may adversely affect our
ability to sell or lease the properties or to borrow using the properties as
collateral. We could also be liable under common law to third parties for
damages and injuries resulting from environmental contamination coming from our
properties.
39
Certain of our properties have had prior tenants such as gasoline stations
and, as a result, have existing underground storage tanks and/or other deposits
that currently or in the past contained hazardous or toxic substances. Other
properties have known asbestos containing materials. The existence of
underground storage tanks, asbestos containing materials or other hazardous
substances on or under our properties could have the consequences described
above. Also, we have not recently had environmental reports produced for many of
our older properties, and, as a result, many of the environmental reports
relating to our older properties are significantly outdated. In addition, we
have not obtained environmental reports for five of our older properties. These
properties could have environmental conditions with unknown consequences.
All of our future properties will be acquired subject to satisfactory Phase
I environmental assessments, which generally involve the inspection of site
conditions without invasive testing such as sampling or analysis of soil,
groundwater or other media or conditions; or satisfactory Phase II environmental
assessments, which generally involve the testing of soil, groundwater or other
media and conditions. Our board of trust managers may determine that we will
acquire a property in which a Phase I or Phase II environmental assessment
indicates that a problem exists and has not been resolved at the time the
property is acquired, provided that (A) the seller has (1) agreed in writing to
indemnify us and/or (2) established in escrow case funds equal to a
predetermined amount greater than the estimated costs to remediate the problem;
or (B) we have negotiated other comparable arrangements, including, without
limitation, a reduction in the purchase price. We cannot be sure, however, that
any seller will be able to pay under an indemnity we obtain or that the amount
in escrow will be sufficient to pay all remediation costs. Further, we cannot be
sure that all environmental liabilities have been identified or that no prior
owner, operator or current occupant has created an environmental condition not
known to us. Moreover, we cannot be sure that (1) future laws, ordinances or
regulations will not impose any material environmental liability or (2) the
current environmental condition of our properties will not be affected by
tenants and occupants of the properties, by the condition of land or operations
in the vicinity of the properties (such as the presence of underground storage
tanks), or by third parties unrelated to us.
EMPLOYEES
As of March 31, 2005, AmREIT had 46 full time employees and three full time
dedicated brokers.
LEGAL PROCEEDINGS
Neither AmREIT nor any of its properties is subject to any material claim
or legal proceeding, nor to management's best knowledge, is any such claim or
legal proceeding threatened which could have a material adverse effect on AmREIT
or its properties.
40
PRICE RANGE OF CLASS A COMMON SHARES
As of December 31, 2004, there were approximately 760 record holders of
3,453,657 of the class A common shares outstanding, net of 9,116 shares held in
treasury. Our class A common shares are listed on the American Stock Exchange
and trade under the symbol "AMY." The following table sets forth for the
calendar periods indicated the high and low sale prices per class A common share
as reported on the American Stock Exchange and the dividends paid per share for
the corresponding period since the commencement of trading on the American Stock
Exchange on July 23, 2002.
CALENDAR PERIOD HIGH LOW DIVIDENDS
--------------- ----- ----- ---------
2002
Third Quarter (from July 23, 2002)(1)..................... $7.50 $6.20 $.095
Fourth Quarter............................................ $6.55 $6.15 $.100
2003
First Quarter............................................. $6.80 $6.05 $.109
Second Quarter............................................ $6.80 $6.10 $.111
Third Quarter............................................. $6.56 $6.15 $.112
Fourth Quarter............................................ $6.68 $6.30 $.114
2004
First Quarter............................................. $7.20 $6.25 $.116
Second Quarter............................................ $7.35 $6.30 $.118
Third Quarter............................................. $8.20 $6.60 $.120
Fourth Quarter............................................ $8.32 $7.45 $.122
2005
First Quarter............................................. $8.75 $7.90 $.123
---------------
(1) AmREIT listed its class A common shares on the American Stock Exchange on
July 23, 2002. Prior to July 23, 2002, AmREIT's shares were not listed on a
public exchange, and therefore, there is no public trading or pricing
information available.
The payment of any future dividends by AmREIT is dependent upon applicable
legal and contractual restrictions, including the provisions of the class B and
C common shares, as well as its earnings and financial needs.
As of March 31, 2005, there were approximately 1,080 holders of record for
2,215,722 of AmREIT's class B common shares. The class B common shares are not
listed on an exchange, and there is currently no available trading market for
the class B common shares. The class B common shares have voting rights,
together with all classes of common shares, as one class of stock. They receive
a fixed 8.0% cumulative and preferred dividend and are convertible into the
class A common shares on a one-for-one basis at any time, at the holder's
option. The class B common shares may be redeemed in whole or in part by AmREIT
beginning in July 2005 for a per share price equal to one class A common share
or $10.18 in cash at the holder's option.
As of March 31, 2005, there were approximately 1,330 holders of record for
4,083,276 of AmREIT's class C common shares. The class C common shares are not
listed on an exchange, and there is currently no available trading market for
the class C common shares. The class C common shares have voting rights,
together with all classes of common shares, as one class of stock. The class C
common shares receive a fixed 7.0% preferred annual dividend, paid in monthly
installments, and are convertible into the class A common shares after a
seven-year lock out period from date of issuance based on 110% of invested
capital, at the holder's option. The class C common shares may be redeemed in
whole or in part by AmREIT beginning three years from the date of issuance at a
price per share in cash of $11.00.
41
As of March 31, 2005, there were approximately 1,440 holders of record for
4,103,087 of AmREIT's class D common shares. The class D common shares are not
listed on an exchange and there is currently no available trading market for the
class D common shares. The class D common shares have voting rights, together
with all classes of common shares, as one class of stock. The class D common
shares receive a fixed 6.5% annual dividend, paid in monthly installments, and
are convertible into the class A common shares after a seven-year lock out
period from date of issuance based on 107.7% of invested capital, at the
holder's option. The Class D shares may be redeemed in whole or in part by
AmREIT for cash at the redemption price per share of $10.00, plus the pro rata
portion of the 7.7% conversion premium, based on the number of years the shares
are outstanding (for example, if the class D common shares are called on the
first anniversary of issuance, the call price would be $10.11 per share).
42
MANAGEMENT
Our executive officers and trust managers are as follows:
NAME AGE POSITION HELD
---- --- -------------
H. Kerr Taylor............................ 53 Chairman of the Board, Chief Executive
Officer and President
Chad C. Braun............................. 33 Executive Vice President and Chief
Financial Officer
Robert S. Cartwright, Jr. ................ 54 Trust Manager, Chair at Corporate
Governance and Nominating Committee, Audit
Committee
G. Steven Dawson.......................... 46 Trust Manager, Chair of Audit Committee,
Chair of Compensation Committee and
Corporate Governance and Nominating
Committee
Philip Taggart............................ 74 Trust Manager, Compensation Committee,
Audit Committee and Corporate Governance
and Nominating Committee
H. Kerr Taylor -- Mr. Taylor is the founder of AmREIT and has been chairman
of the board, chief executive officer, and president of AmREIT or its
predecessor entity since August 1993. His responsibilities include overseeing
all corporate initiatives, as well as building, coaching, and leading our strong
team of professionals. With over 30 years of experience, Mr. Taylor has been
involved in over 300 real estate transactions involving brokerage, development,
and/or management of premier real estate projects. Prior and in addition to his
role at AmREIT, he was president, director, and sole stockholder of American
Asset Advisers Realty Corporation from 1989 to 1998. Mr. Taylor received his
Bachelor of Arts degree from Trinity University, a Masters of Business
Administration from Southern Methodist University and a Doctor of Jurisprudence
degree from South Texas College of Law. He is a member of the Texas Association
of Realtors, Texas Bar Association, International Council of Shopping Centers,
Urban Land Institute, and is on the Session of First Presbyterian Church in
Houston, Texas. Mr. Taylor has served as chairman of the board for Lifehouse,
Inc., Millennium Relief and Development, Inc., and served on the board for Park
National Bank (now Frost National Bank).
Robert S. Cartwright, Jr. -- Mr. Cartwright has been a trust manager or
director of AmREIT or our predecessor corporation since 1993. Mr. Cartwright is
a Professor of Computer Science at Rice University. Mr. Cartwright earned a
bachelor's degree magna cum laude in Applied Mathematics from Harvard College in
1971 and a doctoral degree in Computer Science from Stanford University in 1977.
Mr. Cartwright has been a member of the Rice faculty since 1980 and twice served
as department Chair. Mr. Cartwright has compiled an extensive record of
professional service. He is a Fellow of the Association for Computing Machinery
(ACM) and a member of the ACM Education Board. From 1994- 2000, he served as a
member of the Board of Directors of the Computing Research Association, an
umbrella organization representing academic and industrial computing
researchers. Mr. Cartwright has served as a charter member of the editorial
boards of two professional journals and has also chaired several major ACM
conferences. From 1991-1996, he was a member of the ACM Turing Award Committee,
which selects the annual recipient of the most prestigious international prize
for computer science research.
G. Steven Dawson -- Mr. Dawson has been a trust manager or director of
AmREIT or our predecessor corporation since 2000. He also has been designated by
our board as the "audit committee financial expert," as such term is defined in
the Rules of the Securities and Exchange Commission. He is currently a private
investor who is active on the boards of five other real estate investment trusts
("REITs") in addition to his service at AmREIT: American Campus Communities
(NYSE: ACC), Sunset Financial Resource, Inc. (NYSE: SFO), Trustreet Properties,
Inc. (NYSE: TSY), Desert Capital REIT (a non-listed public mortgage company),
and Medical Properties Trust (currently a private company which has filed its
Form S-11 in anticipation of an initial public offering.). He serves as the
audit committee chairman of three of these companies and he serves on
governance/nominating
43
committees and compensation committees for some of these as well. From 1990 to
2003, Mr. Dawson was the Senior Vice President and Chief Financial Officer of
Camden Property Trust (NYSE:CPT) (or its predecessors), a multifamily REIT.
Prior to 1990, Mr. Dawson served in various related capacities with companies
involved in commercial real estate including land and office building
development as well as the construction and management of industrial facilities
located on airports throughout the United States.
Philip Taggart -- Mr. Taggart has been a trust manager or director of
AmREIT or our predecessor corporation since 2000. Mr. Taggart has specialized in
investor relations activities since 1964 and is the president and chief
executive officer of Taggart Financial Group, Inc. He is the co-author of the
book Taking Your Company Public, and has provided communications services for 58
initial public offerings, more than 200 other new issues, 210 mergers and
acquisitions, 3,500 analyst meetings and annual and quarterly reports for over
25 years. Mr. Taggart serves on the boards of International Expert Systems, Inc.
and Salon Group International and served on the board of the Foundation of Texas
State Technical College for 10 years. An alumnus of the University of Tulsa, he
also has been a university instructor in investor relations at the University of
Houston.
Chad C. Braun -- Mr. Braun serves as our executive vice president, chief
financial officer, treasurer, and secretary. Mr. Braun is responsible for
corporate finance, capital markets, investor relations, accounting, SEC
reporting, and oversees investment sponsorship and product creation. Mr. Braun
has over 10 years of accounting, financial, and real estate experience and prior
to joining AmREIT served as a manager in the real estate advisory services group
at Ernst & Young, LLP. He has provided extensive consulting and audit services,
including financial statement audits, portfolio acquisition and disposition,
portfolio management, merger integration and process improvement, financial
analysis, and capital markets and restructuring transactions, to a number of
REITs and private real estate companies. Mr. Braun graduated from Hardin Simmons
University with a Bachelor of Business Administration degree in accounting and
finance and subsequently earned the CPA designation and his Series 63, 7, 24,
and 27 securities licenses. He is a member of the National Association of Real
Estate Investment Trusts and the Texas Society of Certified Public Accountants.
OTHER OFFICERS OF AMREIT
Todd McDonald Mr. McDonald serves as managing vice president and oversees
joint ventures and sale leasebacks. Mr. McDonald is responsible for managing the
real estate department and directs business development for joint ventures, CTL
sale-leasebacks, and programmatic rollouts. Mr. McDonald has handled over $30
million in sales of property for AmREIT and has overseen the acquisition and
development of over $70 million of property. His real estate experience includes
providing analysis on acquisition and disposition projects, producing project
proformas, managing development, and reviewing property level financial
statements. Mr. McDonald received a Bachelor of Science degree in business
economics from Wofford College.
Jason Lax Mr. Lax serves as our vice president of construction management
and general contracting services. He is responsible for overseeing all
construction management and general contracting activities relating to new
development projects and acquisitions. In addition, Mr. Lax serves as project
manager for AmREIT's corporate building improvements and relocation activities.
Mr. Lax has over 11 years of experience in the real estate industry. Prior to
joining AmREIT, he gained nationwide experience in commercial development and
construction while working with ExxonMobil Corporation and Trammell Crow
Company. Mr. Lax has managed over a hundred projects valued at over $200 million
from ground up development to minor remodeling projects and has been involved in
all phases of development from conceptual site plan preparation to project
turnover. Mr. Lax received a Bachelor of Science degree in mechanical
engineering from Texas Tech University and subsequently earned his Engineer in
Training certification from the Texas Board of Professional Engineers and is a
licensed real estate salesperson. Mr. Lax is a member of the International
Council of Shopping Centers and the Urban Land Institute.
Preston Cunningham Mr. Cunningham serves as our vice president of
development. His responsibilities include overseeing the underwriting,
marketing, and negotiation processes related to the development
44
and re-development of multi-tenant shopping centers. In addition, he is
responsible for managing our leasing team, brokerage team, and coordinating
legal processes. Mr. Cunningham has been employed with AmREIT for over two years
during which time he has developed over $100 million in projects. Prior to
joining AmREIT, Preston was employed with The Howard Smith Company, Albritton
Properties, and Community Bank and Trust. His experience includes commercial
real estate underwriting, acquisitions, and the development of retail shopping
centers. Mr. Cunningham received a Bachelor of Business Administration in
financial planning and services and a Doctor of Jurisprudence degree from South
Texas College of Law. Mr. Cunningham is a member of the International Council of
Shopping Centers, Urban Land Institute, and Texas Bar Association.
David M. Thailing Mr. Thailing serves as the managing vice president of
investment sponsorship and is responsible for raising capital for AmREIT's
investment programs through our broker-dealer subsidiary and our network of
unaffiliated financial planners. Mr. Thailing has over eight years of combined
real estate and financial investment experience. Prior to joining AmREIT he
provided financial consulting services as an associate with Andersen's Corporate
Finance and Restructuring practice. Mr. Thailing has served as a financial
advisor with Paine Webber. Mr. Thailing received a Bachelor of Business
Administration degree in management from Southern Methodist University and
earned a Masters of Business Administration from the Jones School of Management
at Rice University.
Tenel Tayar Mr. Tayar serves as our vice president of acquisitions and is
responsible for overseeing all existing retail property acquisitions. Mr. Tayar
has over 14 years of real estate experience. Prior to joining AmREIT, he served
as the director of finance at The Woodlands Operating Company where he sourced,
negotiated and closed over $225 million in real estate transactions and
participated in over an additional $500 million of transactions. Mr. Tayar has
analyzed over $2 billion of real estate investments and has directed all aspects
of real estate capitalization and investment transactions. While at AmREIT, Mr.
Tayar has completed over $145 million of acquisitions. Mr. Tayar received a
Bachelor of Business Administration in finance from the University of Texas at
Austin and earned a Master of Business Administration from Southern Methodist
University. Mr. Tayar is a Texas licensed Real Estate Broker and is a member of
the Urban Land Institute, International Council of Shopping Centers, and
Association of Commercial Real Estate Professionals.
Brett P. Treadwell Mr. Treadwell serves as our vice president of finance.
Mr. Treadwell is responsible for AmREIT's financial reporting function as well
as for assisting in the setting and execution of AmREIT's strategic financial
initiatives. He oversees our filings with the Securities & Exchange Commission,
our periodic internal reporting to management and our compliance with the
Sarbanes-Oxley Act of 2002. Mr. Treadwell has over 12 years of accounting,
financial, and SEC reporting experience and prior to joining AmREIT served as a
senior manager with Arthur Andersen LLP and most recently with Pricewaterhouse
Coopers LLP. He has provided extensive audit services, regularly dealt with both
debt and equity offerings for publicly traded and privately owned clients in
various industries and has strong experience in SEC reporting and registration
statements and offerings. Mr. Treadwell regularly mentored and coached firm
personnel and was named as a connectivity leader for Pricewaterhouse Coopers'
Houston office. Mr. Treadwell graduated Magna Cum Laude from Baylor University
with a Bachelor of Business Administration and subsequently earned the CPA
designation.
Debbie J. Lucas Ms. Lucas serves as vice president of corporate
communications and is responsible for creating, communicating, and distributing
the AmREIT corporate message and brand to a wide range of individuals including
investment professionals, rating agencies and analysts, individual investors,
and employees. Prior to joining AmREIT, Ms. Lucas gained financial consulting
and business development experience at Smith Barney and served as an
environmental consultant for Tetra Tech, EMI. In addition, Ms. Lucas provided
consulting services to a corporate communications firm located in Houston,
Texas. Ms. Lucas received a Bachelor of Science degree from Texas A&M University
and earned a Masters of Business Administration from the Jones School of
Management at Rice University, simultaneously completing the CFP certification
course. She is a member of the National Association of Real Estate Investment
Trusts and the American Marketing Association.
45
John N. Anderson, Jr. Mr. Anderson serves as our vice president of
dispositions. He is responsible for overseeing AmREIT's property sales and asset
management activities and for developing and executing the disposition strategy
for each property, which includes creating marketing plans, coordinating sales
processes, and facilitating sales to closing. In addition, he analyzes property
performance, market conditions, and future economic benefits for all properties
under management to determine optimal disposition strategies. Mr. Anderson has
over seven years of experience in real estate investment, development,
management, and acquisitions and dispositions. Prior to joining AmREIT, he
handled all dispositions for Fairfield Residential, a large multi-family
developer based in Dallas, Texas. In addition, Mr. Anderson gained real estate
investment experience as an associate with The Archon Group, a subsidiary of
Goldman Sachs, where he was involved in the acquisition, management and
disposition of multi-family assets. Mr. Anderson received a Bachelor of Business
Administration degree in management from Baylor University and subsequently
earned his Masters of Business Administration from the McCombs School of
Business at the University of Texas in Austin. He holds a Texas real estate
license and is an associate member of the Dallas Real Estate Council and the
McCombs School of Business Center for Real Estate Finance. He is also a member
of the International Council of Shopping Centers.
Kristen Barker Ms. Barker serves as our vice president of leasing and her
responsibilities include a focus on leasing for our new development and
redevelopment projects as well as tenant representation services. Ms. Barker
worked in retail leasing with Trammel Crow prior to joining AmREIT on both
project leasing and tenant representation and has over 10 years of combined
experience in real estate appraisal and retail leasing. Ms. Barker received a
Bachelor of Science degree from the University of Richmond and graduated with
her Masters of Business Administration from Texas A&M University. Ms. Barker is
a member of the International Council of Shopping Centers and the Texas
Association of Realtors.
Max Shilstone Mr. Shilstone serves as vice president of property
management. He is responsible for the management of the assets owned by AmREIT
and its affiliates. Prior to joining AmREIT, Mr. Shilstone served as vice
president of C.P. Oles Company in Austin, Texas where his responsibilities
included managing multi-tenant shopping centers and overseeing tenant
improvements, center upgrades, and tenant leasing. In addition, Mr. Shilstone
served as asset development manager for a division of Duke Energy. Mr. Shilstone
received a Bachelor of Business Administration in management from the University
of Texas and earned a Masters of Business Administration from the University of
St. Thomas. He also received his Certified Shopping Center Manager (CSM)
designation from the International Council of Shopping Centers.
Robyn Walden Ms. Walden serves as vice president of investor relations and
is responsible for establishing and maintaining investor and shareholder
contacts and relationships for our publicly traded stock. She develops, directs
and guides investor relations policies and procedures for the organization.
Prior to joining AmREIT, Ms. Walden served as an equity research analyst on Wall
Street with Merrill Lynch and gained a strong knowledge of the investment
community. Ms. Walden received a Bachelor of Science degree in Mechanical
Engineering from the University of Texas in Austin and holds her Series 7
securities license.
AMREIT'S DECLARATION OF TRUST AND BYLAWS
The following summarizes the material terms of AmREIT's current declaration
of trust and bylaws, but does not set forth all the provisions of AmREIT's
declaration of trust or bylaws. For additional information about AmREIT's
declaration of trust and bylaws, you should read these documents, which are
included as exhibits to this registration statement, in their entirety.
AUTHORIZED STOCK
AmREIT's declaration of trust provides that AmREIT is authorized to issue
103,000,000 equity shares consisting of 50,000,000 class A common shares, $0.01
par value per share, 3,000,000 class B common shares, $0.01 par value per share,
40,000,000 undesignated common shares, $0.01 par value per
46
share, and 10,000,000 preferred shares, par value $0.01 per share. Of the
40,000,000 undesignated common shares, 4,400,000 shares have been subsequently
designated as class C common shares and 17,000,000 have been subsequently
designated as class D common shares. The remaining undesignated common shares
and the preferred shares may be issued from time to time, in one or more series,
each of which series shall have such voting powers, designations, preferences
and rights, and the qualifications, limitations or restrictions relating
thereto, as shall be authorized by the board. See "Description of AmREIT's
Capital Shares."
TRUST MANAGERS
The bylaws provide that the number of trust managers shall consist of not
less than three nor more than nine members, the exact number of which shall be
fixed by the board from time to time. The bylaws provide that, except as
otherwise provided by law or the declaration of trust, a quorum of the board for
the transaction of business shall consist of a majority of the entire board. The
act of a majority of the trust managers present at any meeting at which there is
a quorum shall be the act of the board. The declaration of trust and the bylaws
do not provide for a classified board or for cumulative voting in the election
of trust managers to the board. The bylaws provide that vacancies and any newly
created trust manager positions resulting from an increase in the authorized
number of trust managers may be filled by a majority of the trust managers then
in office, though less than a quorum.
SHAREHOLDER MEETINGS AND SPECIAL VOTING REQUIREMENTS
The annual meeting of shareholders is held on such date as shall be fixed
by the board. Special meetings of shareholders may be called only upon the
request of the chairman of the board, the vice chairman of the board, the chief
executive officer, the president, a majority of the trust managers or by the
holders of not less than 25 percent of all outstanding shares. In general, the
presence in person or by proxy of shareholders entitled to cast a majority of
votes shall constitute a quorum at any shareholders' meeting.
Matters on which the shareholders are entitled to vote include the election
and removal of trust managers and a voluntary change in AmREIT's status as a
REIT.
AMENDMENT OF THE DECLARATION OF TRUST AND BYLAWS
The declaration of trust provides that it may be amended only by the
affirmative vote of the holders of not less than two-thirds of the votes
entitled to be cast, except that the provisions of the declaration of trust
relating to "business combinations" or "control shares" (as described below
under "-- Business Combinations" and "-- Control Share Acquisitions") may be
amended only with the affirmative vote of 80% of the votes entitled to be cast,
voting together as a single class. A majority of the trust managers may in their
discretion, from time to time, amend, without a shareholder vote, the bylaws.
The shareholders may amend the bylaws by a vote of not less than two-thirds of
the outstanding voting shares.
LIMITATIONS ON HOLDINGS AND TRANSFER
For AmREIT to continue to qualify as a REIT under the Code, not more than
fifty percent (50%) of its outstanding shares may be owned by five or fewer
individuals during the last half of each year and outstanding shares must be
owned by 100 or more persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a shorter taxable year except with
respect to the first taxable year for which an election to be treated as a REIT
is made. Our declaration of trust restricts the accumulation or transfer of
shares if any accumulation or transfer could result in any person beneficially
owning, in accordance with the Code, in excess of 9.0% of the then outstanding
shares, or could result in AmREIT being disqualified as a REIT under the Code.
Such restrictions authorize the board to refuse to give effect to such transfer
on AmREIT's books as to shares accumulated in excess of the 9.0% ownership
limit. Although the intent of these restrictions is to preclude transfers which
would violate the ownership limit or protect the AmREIT's status as a REIT under
the Code, there can be no assurance that such
47
restrictions will achieve their intent. See "Description of AmREIT's Capital
Shares -- Ownership Limits and Restrictions on Transfer."
A transferee who acquires shares in a restricted transfer is required to
indemnify, defend, and hold AmREIT and its other shareholders harmless from and
against all damages, losses, costs, and expenses, including, without limitation,
reasonable attorneys' fees incurred or suffered by AmREIT or such shareholders
by virtue of AmREIT's loss of its qualification as a REIT if such loss is a
result of the transferee's acquisition. See "Federal Income Tax Consequences."
LIABILITY FOR MONETARY DAMAGES
The declaration of trust provides that no trust manager will be personally
liable to AmREIT for any act, omission, loss, damage or expense arising from the
performance of his duty under the declaration of trust save only for his own
willful misfeasance or willful malfeasance or gross negligence.
INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The declaration of trust provides for the indemnification of present and
former trust managers and officers of AmREIT and persons serving as trust
managers, officers, employees or agents of another corporation or entity at the
request of AmREIT to the fullest extent permitted by Texas law. In addition, the
declaration of trust provides for reimbursement of reasonable expenses incurred
by any present or former trust manager, officer, employee or agent of AmREIT who
was or is a witness or was, is or is threatened to be made a named defendant or
respondent in a proceeding.
CERTAIN ANTI-TAKEOVER PROVISIONS OF THE
DECLARATION OF TRUST, BYLAWS AND TEXAS LAW
AmREIT's declaration of trust and bylaws contain certain provisions that
may inhibit or impede acquisition or attempted acquisition of control of AmREIT
by means of a tender offer, a proxy contest or otherwise. These provisions are
expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
AmREIT to negotiate first with the trust managers. AmREIT believes that these
provisions increase the likelihood that proposals initially will be on more
attractive terms than would be the case in their absence and increase the
likelihood of negotiations, which might outweigh the potential disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals might result in improvement of terms. The description set forth below
is only a summary of the terms of the declaration of trust and bylaws. See
"Description of AmREIT's Capital Shares -- Ownership Limits and Restrictions on
Transfer."
NUMBER OF TRUST MANAGERS; REMOVAL; FILLING VACANCIES
Subject to any rights of holders of preferred shares to elect additional
trust managers under specified circumstances ("Preferred Holders' Rights"), the
declaration of trust provides that the number of trust managers will be fixed
by, or in the manner provided in, the bylaws but must not be more than nine nor
less than three. See "Preferred Shares" below. In addition, the bylaws provide
that, subject to any Preferred Holders' Rights, the number of trust managers
will be fixed by the trust managers, but must not be more than nine nor less
than three. In addition, the bylaws provide that, subject to any Preferred
Holders' Rights, and unless the trust managers otherwise determine, any
vacancies (other than vacancies created by an increase in the total number of
trust managers) will be filled by the affirmative vote of a majority of the
remaining trust managers, although less than a quorum, and any vacancies created
by an increase in the total number of trust managers may be filled by a majority
of the entire board. Accordingly, the trust managers could temporarily prevent
any shareholder from enlarging the board and then filling the new trust manager
position with such shareholder's own nominees.
The declaration of trust and the bylaws provide that, subject to any
Preferred Holders' Rights, trust managers may be removed only for cause upon the
affirmative vote of holders of at least 80% of the entire
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voting power of all the then-outstanding shares entitled to vote generally in
the election of trust managers, voting together as a single class.
RELEVANT FACTORS TO BE CONSIDERED BY THE BOARD OF TRUST MANAGERS
The declaration of trust provides that, in determining what is in the best
interest of AmREIT in evaluating a "business combination," "change in control"
or other transaction, a trust manager of AmREIT shall consider all of the
relevant factors. These factors may include (1) the immediate and long-term
effects of the transaction on AmREIT shareholders, including shareholders, if
any, who do not participate in the transaction; (2) the social and economic
effects of the transaction on AmREIT's employees, suppliers, creditors,
customers and others dealing with AmREIT and on the communities in which AmREIT
operates and is located; (3) whether the transaction is acceptable, based on the
historical and current operating results and financial condition of AmREIT; (4)
whether a more favorable price would be obtained for AmREIT's stock or other
securities in the future; (5) the reputation and business practices of the other
party or parties to the proposed transaction, including its or their management
and affiliates, as they would affect employees of AmREIT; (6) the future value
of AmREIT's securities; (7) any legal or regulatory issues raised by the
transaction; and (8) the business and financial condition and earnings prospects
of the other party or parties to the proposed transaction including, without
limitation, debt service and other existing financial obligations, financial
obligations to be incurred in connection with the transaction, and other
foreseeable financial obligations of such other party or parties. Pursuant to
this provision, the trust managers may consider subjective factors affecting a
proposal, including certain nonfinancial matters, and, on the basis of these
considerations, may oppose a business combination or other transaction which,
evaluated only in terms of its financial merits, might be attractive to some or
a majority of AmREIT's shareholders.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER PROPOSALS
The bylaws provide for an advance notice procedure for shareholders to make
nominations of candidates for trust manager or bring other business before an
annual meeting of shareholders of AmREIT (the "Shareholder Notice Procedure").
Pursuant to the Shareholder Notice Procedure (i) only persons who are
nominated by, or at the direction of, the trust managers, or by a shareholder
who has given timely written notice containing specified information to the
secretary of AmREIT prior to the meeting at which trust managers are to be
elected will be eligible for election as trust managers of AmREIT and (ii) at an
annual meeting, only such business may be conducted as has been brought before
the meeting by, or at the direction of, the Chairman or the trust managers or by
a shareholder who has given timely written notice to the secretary of AmREIT of
such shareholder's intention to bring such business before such meeting. In
general, for notice of shareholder nominations or proposed business to be
conducted at an annual meeting to be timely, such notice must be received by
AmREIT not less than 70 days nor more than 90 days prior to the first
anniversary of the previous year's annual meeting.
The purpose of requiring shareholders to give AmREIT advance notice of
nominations and other business is to afford the trust managers a meaningful
opportunity to consider the qualifications of the proposed nominees or the
advisability of the other proposed business and, to the extent deemed necessary
or desirable by the trust managers, to inform shareholders and make
recommendations about such nominees or business, as well as to ensure an orderly
procedure for conducting meetings of shareholders.
Although the bylaws do not give the trust managers power to block
shareholder nominations for the election of trust managers or proposal for
action, the Shareholder Notice Procedure may have the effect of discouraging a
shareholder from proposing nominees or business, precluding a contest for the
election of trust managers or the consideration of shareholder proposals if
procedural requirements are not met, and deterring third parties from soliciting
proxies for a non-management proposal or slate of trust managers, without regard
to the merits of such proposal or slate.
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PREFERRED SHARES
The declaration of trust authorizes the trust managers to establish one or
more series of preferred shares and to determine, with respect to any series of
preferred shares, the preferences, rights and other terms of such series,
subject to the prior approval rights of the class B common shareholders. AmREIT
believes that the ability of the trust managers to issue one or more series of
preferred shares will provide AmREIT with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs. The
authorized preferred shares are available for issuance without further action by
AmREIT's shareholders, unless such action is required by applicable law or the
rules of any stock exchange or automated quotation system on which AmREIT's
securities may be listed or traded at the time of issuance or proposed issuance.
Although the trust managers have no present intention to do so, they could in
the future issue a series of preferred shares which, due to its terms, could
impede a merger, tender offer or other transaction that some or a majority of
AmREIT's shareholders might believe to be in their best interests or in which
shareholders might receive a premium over then-prevailing market prices for
their common shares.
AMENDMENT OF DECLARATION OF TRUST
The declaration of trust provides that it may be amended only by the
affirmative vote of the holders of not less than two-thirds of the votes
entitled to be cast, except that the provisions of the declaration of trust
relating to "business combinations" or "control shares" (as described below
under "-- Business Combinations" and "-- Control Share Acquisitions") may be
amended only with the affirmative vote of 80% of the votes entitled to be cast,
voting together as a single class.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
The declaration of trust authorizes the trust managers, subject to any
rights of holders of any series of preferred shares, to create and issue rights
entitling the holders thereof to purchase from AmREIT common shares or other
securities or property. The times at which and terms upon which such rights are
to be issued are within the discretion of the trust managers. This provision is
intended to confirm the authority of the trust managers to issue share purchase
rights which could have terms that would impede a merger, tender offer or other
takeover attempt, or other rights to purchase securities of AmREIT or any other
entity.
BUSINESS COMBINATIONS
The declaration of trust establishes special requirements with respect to
"business combinations" (including a merger, consolidation, share exchange, or,
in certain circumstances, an asset transfer or issuance of reclassification of
equity securities) between AmREIT and any person who beneficially owns, directly
or indirectly, 10% or more of the voting power of AmREIT's shares (an
"Interested Shareholder"), subject to certain exemptions. In general, the
declaration of trust provides that an Interested Shareholder or any affiliate
thereof may not engage in a "business combination" with AmREIT for a period of
five years following the date he becomes an Interested Shareholder. Thereafter,
pursuant to the declaration of trust, such transactions must be (1) approved by
the trust managers of AmREIT and (2) approved by the affirmative vote of at
least 80% of the votes entitled to be cast by holders of voting shares other
than voting shares held by the Interested Shareholder with whom the business
combination is to be effected, unless, among other things, the holders of equity
shares receive a minimum price (as defined in our declaration of trust) for
their shares and the consideration is received in cash or in the same form as
previously paid by the Interested Shareholder for his shares. These provisions
of the declaration of trust do not apply, however, to business combinations that
are approved or exempted by the trust managers of AmREIT prior to the time that
the Interested Shareholder becomes an Interested Shareholder.
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CONTROL SHARE ACQUISITIONS
The declaration of trust provides that "control shares" of AmREIT acquired
in a control share acquisition have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast by the holders
of equity shares, excluding shares as to which the acquiror, officers of AmREIT
and employees of AmREIT who are also trust managers have the right to vote or
direct the vote. "Control shares" are equity shares which, if aggregated with
all other equity shares previously acquired which the person is entitled to
vote, would entitle the acquiror to vote (1) 20% or more but less than
one-third; (2) one-third or more but less than a majority; or (3) a majority of
the outstanding voting shares of AmREIT. Control shares do not include equity
shares that the acquiring person is entitled to vote on the basis of prior
shareholder approval. A "control share acquisition" is defined as the
acquisition of control shares, subject to certain exemptions enumerated in the
declaration of trust.
The declaration of trust provides that a person who has made or proposed to
make a control share acquisition and who has obtained a definitive financing
agreement with a responsible financial institution providing for any amount of
financing not to be provided by the acquiring person may compel the trust
managers of AmREIT to call a special meeting of shareholders to be held within
50 days of demand to consider the voting rights of the equity shares. If no
request for a meeting is made, the declaration of trust permits AmREIT itself to
present the question at any shareholders' meeting.
Pursuant to the declaration of trust, if voting rights are not approved at
a shareholders' meeting or if the acquiring person does not deliver an acquiring
person statement as required by the declaration of trust, then, subject to
certain conditions and limitations set forth in the declaration of trust, AmREIT
will have the right to redeem any or all of the control shares, except those for
which voting rights have previously been approved, for fair value determined,
without regard to the absence of voting rights of the control shares, as of the
date of the last control share acquisition or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. Under
the declaration of trust, if voting rights for control shares are approved at a
shareholders' meeting and, as a result, the acquiror would be entitled to vote a
majority of the equity shares entitled to vote, all other shareholders will have
the rights of dissenting shareholders under the Texas Real Estate Investment
Trust Act (the "TRA"). The declaration of trust provides that the fair value of
the equity shares for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition,
and that certain limitations and restrictions of the TRA otherwise applicable to
the exercise of dissenters' rights do not apply.
These provisions of the declaration of trust do not apply to equity shares
acquired in a merger, consolidation or share exchange if AmREIT is a party to
the transaction, or if the acquisition is approved or excepted by the
declaration of trust or bylaws of AmREIT prior to a control share acquisition.
OWNERSHIP LIMIT
The limitation on ownership of shares of common shares set forth in
AmREIT's declaration of trust, as well as the provisions of the TRA, could have
the effect of discouraging offers to acquire AmREIT and of increasing the
difficulty of consummating any such offer. See "Description of AmREIT's Capital
Shares -- Ownership Limits and Restrictions on Transfer."
DESCRIPTION OF AMREIT'S CAPITAL SHARES
GENERAL
AmREIT's authorized equity structure consists of 93,000,000 common shares,
$0.01 par value per share, and 10,000,000 preferred shares, par value $0.01 per
share. As of March 31, 2005, AmREIT had outstanding approximately 3,484,212
million class A common shares, approximately 2,215,722 million class B common
shares, approximately 4,083,276 million class C common shares, and approximately
4,103,087 million class D common shares and no preferred shares. Under AmREIT's
amended and
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restated declaration of trust, AmREIT is authorized to issue 93,000,000 common
shares consisting of 50,000,000 class A common shares, 3,000,000 class B common
shares and 40,000,000 undesignated common shares. Of the 40,000,000 undesignated
common shares, 4,400,000 shares have been subsequently designated as class C
common shares, and 17,000,000 shares have been subsequently designated as class
D common shares.
CLASS A COMMON SHARES
Subject to such preferential rights as may be granted by the board of trust
managers in connection with the future issuance of preferred shares and the
preferential rights of the holders of the class B, class C and class D common
shares, holders of class A common shares are exclusively entitled to one vote
for each class A common shares on all matters to be voted on by shareholders and
are entitled to receive ratably such dividends as may be declared on the class A
common shares by the board of trust managers in its discretion from legally
available funds. In the event of the liquidation, dissolution or winding up of
AmREIT, holders of class A common shares are entitled to share ratably with
holders of class B common shares, class C common shares and class D common
shares that portion of aggregate assets available for distribution as the number
of outstanding class A common shares held by such holder bears to the total
number of (1) class A common shares then outstanding, (2) the class B common
shares then outstanding, (3) the class C common shares then outstanding, (4) the
class D common shares then outstanding and (5) any other series of common shares
then outstanding that rank on a parity with the class A common shares as to the
distribution of assets upon liquidation. Holders of class A common shares have
no subscription, redemption, conversion or preemptive rights. Matters submitted
for shareholder approval generally require a majority vote of the shares present
and voting thereon.
The transfer agent and registrar for the class A common shares is Wells
Fargo Shareowner Services, 161 North Concord Exchange, South St. Paul, Minnesota
55075.
CLASS B COMMON SHARES
Dividends. Subject to the preferential rights of any series of our
preferred shares (of which there is currently none issued), holders of class B
common shares will be entitled to receive, when and as declared by the AmREIT
board of trust managers, out of funds legally available for the payment of
dividends, cumulative cash dividends in an amount per class B common share equal
to $0.74 per annum. Dividends with respect to the class B common shares will be
cumulative from the date of original issuance and will be payable quarterly in
arrears on March 31, June 30, September 30 and December 31 (each, a "Dividend
Payment Date"), beginning with a partial dividend on September 30, 2002, with
respect to the period from the date of original issuance to the initial Dividend
Payment Date. Any dividend payable on the class B common shares for any partial
dividend period after the initial dividend period will be computed on the basis
of a 360-day year consisting of twelve 30-day months. Dividends payable on the
class B common shares for each full dividend period will be computed by dividing
the annual dividend rate by four. Dividends will be payable to holders of record
as they appear in the share records of AmREIT at the close of business on the
applicable record date, which will be the fifteenth day of the calendar month in
which the applicable Dividend Payment Date falls or such other date designated
by the AmREIT board for the payment of dividends that is no more than thirty
(30) nor less than ten (10) days prior to the Dividend Payment Date (each, a
"Dividend Record Date").
No dividends on class B common shares will be declared by the AmREIT board
or paid or set apart for payment at such time as, and to the extent that, the
terms and provisions of any AmREIT agreement, including any agreement relating
to its indebtedness, or any provisions of its declaration of trust relating to
any series of preferred stock, prohibit such declaration, payment or setting
apart for payment or provide that such declaration, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or if such
declaration or payment will be restricted or prohibited by law. Notwithstanding
the foregoing, dividends on the class B common shares will accrue whether or not
AmREIT has earnings, whether or not there are funds legally available for the
payment of such dividends and whether or not such
52
dividends are declared. Holders of the class B common shares will not be
entitled to any dividends in excess of full cumulative dividends as described
above.
If any class B common shares are outstanding, no full dividends will be
declared or paid or set apart for payment on the class A common shares for any
period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the class B common shares for all past dividend
periods and the then current dividend period. No interest, or sum of money in
lieu of interest, will be payable in respect of any dividend payment or payments
on class B common shares which may be in arrears. Any dividend payment made on
class B common shares will first be credited against the earliest accrued but
unpaid dividend due with respect to class B common shares which remains payable.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of AmREIT, subject to the prior rights of any series of preferred
stock, the holders of class B common shares will share pro rata with the holders
of the class A common shares, class C common shares, class D common shares and
any other series of common shares then outstanding that rank on a parity with
the class B common shares as to the distribution of assets on liquidation, the
assets of AmREIT remaining following the payment of all liquidating
distributions payable to holders of capital shares of AmREIT with liquidation
rights senior to those of the common shares.
Redemption. The class B common shares will not be redeemable prior to July
16, 2005, except under certain limited circumstances to preserve the AmREIT's
status as a REIT. On and after July 16, 2005, AmREIT, at its option (to the
extent AmREIT has funds legally available therefore) upon not less than 30 nor
more than 60 days' written notice, may redeem class B common shares, in whole or
in part, at any time or from time to time, for, at the option of the holder
thereof, either cash at the redemption price per share of $10.18, plus all
accrued and unpaid dividends, if any, thereon (whether or not earned or
declared) to the date fixed for redemption, or for one class A common share.
Notwithstanding the foregoing, unless full cumulative dividends on all
class B common shares have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, no class B
common shares will be redeemed unless all outstanding class B common shares are
simultaneously redeemed. The foregoing, however, will not prevent the purchase
or acquisition of the class B common shares pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding class B common
shares. Unless full cumulative dividends on all outstanding class B common
shares have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, AmREIT will not purchase
or otherwise acquire directly or indirectly through a subsidiary or otherwise,
any class B common shares.
If fewer than all of the outstanding class B common shares are to be
redeemed, the number of shares to be redeemed will be determined by AmREIT and
those shares may be redeemed pro rata from the holders of record of those shares
in proportion to the number of those shares held by the holders (as nearly as
may be practicable without creating fractional class B common shares) or any
other equitable method determined by AmREIT.
Notice of redemption will be given by publication in a newspaper of general
circulation in the city of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days' prior to
the redemption date. A similar notice will be mailed by AmREIT, postage prepaid,
not less than 30 nor more than 60 days' prior to the redemption date, addressed
to the respective holders of record of class B common shares to be redeemed at
their respective addresses as they appear on the stock transfer records of
AmREIT. No failure to give notice or any defect therein or in the mailing
thereof will affect the validity of the proceeding for the redemption of any
class B common shares except as to the holder to whom notice was defective or
not given. Each notice will state: (1) the redemption date; (2) the redemption
price; (3) the number of class B common shares to be redeemed; (4) the place or
places where the class B common shares are to be surrendered for payment of the
53
redemption price; (5) that dividends on the shares to be redeemed will cease to
accrue on the redemption date; and (6) that any conversion rights will terminate
at the close of business on the third business day immediately preceding the
redemption date. If fewer than all the class B common shares held by any holder
are to be redeemed, the notice mailed to that holder will also specify the
number of class B common shares to be redeemed from that holder. If notice of
redemption of any class B common shares has been properly given and if funds
necessary for redemption have been irrevocably set aside by AmREIT in trust for
the benefit of the holders of any of the class B common shares so called for
redemption, then from and after the redemption date dividends will cease to
accrue on those class B common shares, those shares will no longer be deemed to
be outstanding and all rights of the holders of those shares will terminate
except for the right to receive the applicable redemption price and other
amounts payable in respect of such shares.
The holders of class B common shares at the close of business on a Dividend
Record Date will be entitled to receive the dividend payable with respect to
class B common shares on the corresponding Dividend Payment Date notwithstanding
the redemption thereof between that Dividend Record Date and the corresponding
Dividend Payment Date or AmREIT's default in the payment of the dividend due.
Except as provided above, AmREIT will make no payment or allowance for unpaid
dividends, whether or not in arrears, on class B common shares called for
redemption.
Voting Rights. Holders of the class B common shares do not have any voting
rights, except as set forth below or as otherwise required by law. In any matter
in which the class B common shares may vote, including any action by written
consent, each class B common share will be entitled to one vote.
AmREIT shall not issue any preferred shares or other class of common shares
with dividend preferences senior to the dividends payable on the class B common
shares without the approval of 66 2/3% of the class B common shares then
outstanding.
Whenever dividends on any class B common shares have been in arrears for
six or more consecutive quarterly periods, the holders of those class B common
shares will be entitled to vote for the election of two additional trust
managers of AmREIT at a special meeting called by any holder of the class B
common shares, or at the annual meeting of shareholders, and at each subsequent
annual meeting until all dividends accumulated on the class B common shares for
the past dividend periods and the then current dividend period have been fully
paid or declared and a sum sufficient for the payment thereof set aside for
payment. In this event, the entire AmREIT board of trust managers will be
increased by two trust managers. Each of these two trust managers will be
elected to serve until the earlier of (1) the election and qualification of that
trust manager's successor or (2) payment of the dividend arrearage for the class
B common shares.
In addition, AmREIT may not authorize the creation of, or the increase in
the amount of, any security ranking prior or senior to the class B common
shares, sell all or substantially all of its assets, dissolve, or amend its
declaration of trust in any manner that materially and adversely affects the
voting powers, rights or preferences of the holders of class B common shares
without the approval of 66 2/3% of the class B common shares then outstanding;
provided, however, the issuance of any security with dividend or liquidation
preferences that ranks equally with or are junior to the dividend or liquidation
preferences of the class B common shareholders shall not be considered to
materially or adversely affect the voting powers, rights or preferences of the
class B common shareholders.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which a vote would otherwise be required is
effected, all outstanding class B common shares have been redeemed or called for
redemption upon proper notice and sufficient funds have been deposited in trust
to effect such redemption.
Conversion. Subject to the exceptions described under the caption
"Restrictions on Transfer" below, holders of the class B common shares will have
the right, at any time and from time to time, to convert all
54
or any of the class B common shares into class A common shares on a one for one
basis, subject to adjustment upon the occurrence of the events described below
(the Conversion Price).
Class B common shares will be deemed to have been converted immediately
prior to the close of business on the date the shares are surrendered for
conversion and notice of election to convert the same is received by AmREIT.
Upon conversion, no adjustment or prepayment will be made for dividends, but if
any holder surrenders class B common shares for conversion after the close of
business on a Dividend Record Date and prior to the opening of business on the
related Dividend Payment Date, then, notwithstanding the conversion, the
dividend payable on that Dividend Payment Date will be paid on that Dividend
Payment Date to the registered holder of those shares on that Dividend Record
Date. Class B common shares surrendered for conversion during the period from
the close of business on a Dividend Record Date to the Dividend Payment Date
must also pay the amount of the dividend which is payable. No fractional class A
common shares will be issued upon conversion and, if the conversion results in a
fractional interest, an amount will be paid in cash equal to the value of the
fractional interest based on the market price of the common shares on the last
trading day prior to the date of conversion.
The number of class A common shares or other assets issuable upon
conversion and the Conversion Price are subject to adjustment upon the
occurrence of the following events:
(1) the issuance of class A common shares as a dividend or
distribution on class A common shares;
(2) the subdivision, combination or reclassification of the
outstanding class A common shares;
(3) the issuance to all holders of class A common shares of rights or
warrants to subscribe for or purchase class A common shares (or securities
convertible into class A common shares) at a price per share less than the
then current market price per share;
(4) the distribution to all holders of class A common shares of
evidences of indebtedness or assets (including securities, but excluding
Ordinary Cash Distributions, as defined below, and those dividends,
distributions, rights or warrants referred to above); and
(5) the distribution to all holders of class A common shares of rights
or warrants to subscribe for securities (other than those referred to in
clause (3) above).
In the event of a distribution of evidence of indebtedness or other assets
(as described in clause (4)) or a dividend to all holders of class A common
shares of rights to subscribe for additional AmREIT's capital stock (other than
those referred to in clause (3) above), AmREIT may, instead of making an
adjustment to the Conversion Price, make proper provision so that each holder
who converts shares will be entitled to receive upon conversion, in addition to
class A common shares, an appropriate number of those rights, warrants,
evidences of indebtedness or other assets. No adjustment of the Conversion Price
will be made until cumulative adjustments amount to one percent or more of the
Conversion Price as last adjusted. Any adjustments not so required to be made
will be carried forward and taken into account in subsequent adjustments.
Whenever the number of class A common shares or other assets issuable upon
conversion and the Conversion Price are adjusted as herein provided, AmREIT (1)
will promptly make available at the office of the transfer agent a statement
describing in reasonable detail such adjustment and (2) will cause to be mailed
by first class mail, postage prepaid, as soon as practicable, to each holder of
record of class B common shares a notice stating that adjustments have been made
and the adjusted conversion price.
In the event of any capital reorganization or reclassification of the
capital shares of AmREIT, a consolidation or merger of AmREIT with another
corporation, or the sale, transfer or lease of all or substantially all of its
assets to another corporation is effected in a way that holders of class A
common
55
shares will be entitled to receive stock, securities or other assets with
respect to or in exchange for class A common shares, then, as a condition to
that reorganization, reclassification, consolidation, merger, sale, transfer or
lease, the holder of each class B common share will have the right immediately
to convert that share into the kind and amount of stock, securities or other
assets which the holders of those shares would have owned or been entitled to
receive immediately after the transaction if those holders had converted such
shares immediately before the effective date of the transaction, subject to
further adjustment upon the occurrence of the events described above.
Restrictions on Transfer. The class B common shares are generally
transferable, subject to restrictions to enable AmREIT to maintain its REIT
status. See "-- Ownership Limits and Restrictions on Transfer."
CLASS C COMMON SHARES
Dividends. Subject to the preferential rights of any series of our
preferred shares (of which there is currently none issued), holders of class C
common shares will be entitled to receive when, as and if declared by the AmREIT
board of trust managers, out of funds legally available for the payment of
dividends, non-cumulative cash dividends in an amount per class C common share
equal to $0.70 per annum. Dividends payable on the class C common shares for
each full monthly dividend period will be computed by dividing the annual
dividend rate by twelve. Dividends with respect to the class C common shares
will be non-cumulative from the date of original issuance and will be payable
monthly when, as and if the AmREIT board declares a monthly dividend on the
class C common shares for that month in its sole discretion (each, a Dividend
Payment Date). Any dividend payable on the class C common shares for any partial
dividend period after the initial dividend period will be computed on the basis
of a 360-day year consisting of twelve 30-day months. Dividends will be payable
to holders of record as they appear in the share records of AmREIT at the close
of business on the applicable record date, which will be the fifteenth day of
the calendar month in which the applicable Dividend Payment Date falls or such
other date designated by the AmREIT board for the payment of dividends that is
no more than thirty (30) nor less than ten (10) days prior to the Dividend
Payment Date (each, a Dividend Record Date).
No dividends on class C common shares will be declared by the AmREIT board
or paid or set apart for payment at such time as, and to the extent that, the
terms and provisions of any AmREIT agreement, including any agreement relating
to its indebtedness, or any provisions of its declaration of trust relating to
any series of preferred stock, prohibit such declaration, payment or setting
apart for payment or provide that such declaration, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or if such
declaration or payment will be restricted or prohibited by law.
No dividends will be declared or paid or set apart for payment on the class
A common shares for any period unless full dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the class C common shares for the
then current monthly dividend period. This does not apply to declaration for any
past monthly dividend.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of AmREIT, subject to the prior rights of any series of preferred
stock, the holders of class C common shares will share pro rata with the holders
of the class A common shares, class B common shares, class D common shares and
any other series of common shares then outstanding that rank on a parity with
the class C common shares as to the distribution of assets on liquidation, the
assets of AmREIT remaining following the payment of all liquidating
distributions payable to holders of capital shares of AmREIT with liquidation
rights senior to those of the common shares.
Call Provision. The class C common shares will not be redeemable prior to
the third anniversary of the date of issuance of such shares, except under
certain limited circumstances to preserve AmREIT's status as a REIT. On and
after such third anniversary date, AmREIT, at its option (to the extent AmREIT
has funds legally available therefore) upon not less than 30 nor more than 60
days' written notice, may redeem class C common shares, in whole or in part, at
any time or from time to time, for, at
56
the option of the holder thereof, either (i) cash at the redemption price per
share of $11.00 or (ii) one class A common share per each Class C common share
redeemed by such holder.
Notwithstanding the foregoing, unless the full then current dividends on
all class C common shares have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for the then current dividend period (without regard to whether dividends were
paid or not paid in any prior monthly dividend period), no class C common shares
will be redeemed unless all outstanding class C common shares are simultaneously
redeemed. The foregoing, however, will not prevent the purchase or acquisition
of the class C common shares pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding class C common shares. Unless full
current monthly dividends on all outstanding class C common shares have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period
(without regard to whether dividends were paid or not paid in any prior monthly
dividend period), AmREIT will not purchase or otherwise acquire directly or
indirectly through a subsidiary or otherwise, any class C common shares.
If fewer than all of the outstanding class C common shares are to be
redeemed, the number of shares to be redeemed will be determined by AmREIT and
those shares may be redeemed pro rata from the holders of record of those shares
in proportion to the number of those shares held by the holders (as nearly as
may be practicable without creating fractional class C common shares) or any
other equitable method determined by AmREIT.
Notice of redemption will be given by publication in a newspaper of general
circulation in the city of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days' prior to
the redemption date. A similar notice will be mailed by AmREIT, postage prepaid,
not less than 30 nor more than 60 days' prior to the redemption date, addressed
to the respective holders of record of class C common shares to be redeemed at
their respective addresses as they appear on the stock transfer records of
AmREIT. No failure to give notice or any defect therein or in the mailing
thereof will affect the validity of the proceeding for the redemption of any
class C common shares except as to the holder to whom notice was defective or
not given. Each notice will state: (1) the redemption date; (2) the redemption
price; (3) the number of class C common shares to be redeemed; (4) the place or
places where the class C common shares are to be surrendered for payment of the
redemption price; (5) that dividends on the shares to be redeemed will cease to
accrue on the redemption date; and (6) that any conversion rights will terminate
at the close of business on the third business day immediately preceding the
redemption date. If fewer than all the class C common shares held by any holder
are to be redeemed, the notice mailed to that holder will also specify the
number of class C common shares to be redeemed from that holder. If notice of
redemption of any class C common shares has been properly given and if funds
necessary for redemption have been irrevocably set aside by AmREIT in trust for
the benefit of the holders of any of the class C common shares so called for
redemption, then from and after the redemption date dividends will cease to
accrue on those class C common shares, those shares will no longer be deemed to
be outstanding and all rights of the holders of those shares will terminate
except for the right to receive the applicable redemption price and other
amounts payable in respect of such shares.
The holders of class C common shares at the close of business on a Dividend
Record Date will be entitled to receive the dividend payable with respect to
class C common shares on the corresponding Dividend Payment Date notwithstanding
the redemption thereof between that Dividend Record Date and the corresponding
Dividend Payment Date or AmREIT's default in the payment of the dividend due.
Except as provided above, AmREIT will make no payment or allowance for unpaid
dividends on class C common shares called for redemption.
Limited Optional Redemption. Prior to the time at which the class C common
shares become eligible to be converted into class A common shares and prior to
the seventh anniversary of issue, any shareholder who has held class C common
shares for not less than one year may present all or any portion equal to at
least 25% of those shares to AmREIT for redemption at any time, in accordance
with the
57
procedures outlined herein. At that time, AmREIT may, at its sole option, redeem
those shares presented for redemption for cash to the extent it has sufficient
funds available. There is no assurance that there will be sufficient funds
available for redemption and, accordingly, a shareholder's shares may not be
redeemed. If AmREIT elects to redeem shares, the following conditions and
limitations would apply. The full amount of the proceeds from the sale of shares
under our dividend reinvestment plan ("Reinvestment Proceeds") attributable to
any calendar quarter may be used to redeem shares presented for redemption
during that quarter. In addition, AmREIT may, at its discretion, use up to
$100,000 per calendar quarter of the proceeds of any public offering of its
common shares for redemptions. Any amount of offering proceeds which is
available for redemptions, but which is unused, may be carried over to the next
succeeding calendar quarter for use in addition to the amount of offering
proceeds and Reinvestment Proceeds that would otherwise be available for
redemptions. At no time during a 12-month period, however, may the number of
shares redeemed by AmREIT exceed 5% of the number of class C shares outstanding
at the beginning of that 12-month period.
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
in the order in which such redemption requests have been received. A shareholder
whose shares are not redeemed due to insufficient funds can ask that the request
to redeem the shares be honored at such time, if any, as there are sufficient
funds available for redemption. In that case, the redemption request will be
retained and those shares will be redeemed before any subsequently received
redemption requests are honored. Alternatively, a shareholder whose shares are
not redeemed may withdraw his or her redemption request. Shareholders will not
relinquish their shares until such time as AmREIT commits to redeeming such
shares.
A shareholder who wishes to have his or her shares redeemed must mail or
deliver a written request on a form provided by AmREIT and executed by the
shareholder, its trustee or authorized agent, to the redemption agent
("Redemption Agent"), which currently is Wells Fargo Band Minnesota, N.A. The
Redemption Agent at all times will be registered as a broker-dealer with the SEC
and each applicable state securities commission. Within 30 days following the
Redemption Agent's receipt of the shareholder's request, the Redemption Agent
will forward to that shareholder the documents necessary to effect the
redemption, including any signature guarantee AmREIT or the Redemption Agent may
require. The Redemption Agent will effect the redemption for the calendar
quarter provided that it receives the properly completed redemption documents
relating to the shares to be redeemed from the shareholder at least one calendar
month prior to the last day of the current calendar quarter and has sufficient
funds available to redeem the shares. The effective date of any redemption will
be the last date during a quarter during which the Redemption Agent receives the
properly completed redemption documents. As a result, AmREIT anticipates that,
assuming sufficient funds are available for redemption, the effective date of
redemptions will be no later than thirty days after the quarterly determination
of the availability of funds for redemption.
Upon the Redemption Agent's receipt of notice for redemption of shares, the
redemption price for this limited optional redemption right will initially be
$9.00 per share, which was calculated by subtracting a discount of 10% off the
$10.00 per share offering price. Our board of trust managers may change the
redemption price at any time and will announce publicly any price adjustment as
part of its regular communications with our stockholders, such adjustment being
effective on the 10th day after first public announcement of same. Any shares
acquired pursuant to a redemption will be retired and no longer available for
issuance by AmREIT.
A shareholder may present fewer than all of his or her shares to AmREIT for
redemption; provided, however, that (1) the minimum number of shares which must
be presented for redemption shall be at least 25% of his or her shares, and (2)
if the shareholder retains any shares, he or she must retain at least $2,500
worth of shares based on the current offering price ($1,000 worth of shares
based on the current offering price for an IRA, Keogh Plan or pension plan).
Our board of trust managers, in its sole discretion, may amend or suspend
the redemption plan at any time it determines that any amendment or suspension
is in the best interest of AmREIT. Our board of
58
trust managers may suspend the redemption of shares if (1) it determines, in its
sole discretion, that the redemption impairs the capital or the operations of
AmREIT; (2) it determines, in its sole discretion, that an emergency makes such
redemption not reasonably practical; (3) any governmental or regulatory agency
with jurisdiction over AmREIT so demands for the protection of the shareholders;
(4) it determines, in its sole discretion, that the redemption would be
unlawful; (5) it determines, in its sole discretion, that the redemption, when
considered with all other redemptions, sales, assignments, transfers and
exchanges of our common shares, could cause direct or indirect ownership of
shares of our common stock to become concentrated to an extent which would
prevent AmREIT from qualifying as a REIT under the Internal Revenue Code; or (6)
it determines, in its sole discretion, the suspension to be in the best interest
of AmREIT. The redemption plan will terminate, and AmREIT no longer shall accept
shares for redemption at such time as the class C common shares become eligible
to convert into class A common shares.
Voting Rights. Holders of the class C common shares will have the right to
vote on all matters presented to shareholders as a single class with all other
holders of common shares. In any matter in which the class C common shares may
vote, including any action by written consent, each class C common share will be
entitled to one vote.
AmREIT shall not issue any preferred shares or other class of common shares
with dividend preferences senior to the dividends payable on the class C common
shares without the approval of 66 2/3% of the class C common shares then
outstanding.
In addition, AmREIT may not sell all or substantially all of its assets,
dissolve, or amend its declaration of trust in any manner that materially and
adversely affects the voting powers, rights or preferences of the holders of
class C common shares without the approval of 66 2/3% of the class C common
shares then outstanding; provided, however, the issuance of any security with
dividend or liquidation preferences that rank equally with or are junior to the
dividend or liquidation preferences of the class C common shareholders shall not
be considered to materially or adversely affect the voting powers, rights or
preferences of the class C common shareholders.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which a vote would otherwise be required is
effected, all outstanding class C common shares have been redeemed or called for
redemption upon proper notice and sufficient funds have been deposited in trust
to effect such redemption.
Conversion. Subject to the exceptions described under the caption
"Restrictions on Transfer" below, holders of the class C common shares will have
the right, from time to time after seventh anniversary of the issuance of such
shares, to convert all or any of the class C common shares into class A common
shares at a conversion price equal to the purchase price of the class C common
shares, plus a 10% premium. As a result, each $1,000 of class C common shares
owned by an investor will be able to be converted into $1,100 of class A common
shares, with the exact number of class A common shares to be acquired upon
conversion being determined by dividing the $1,100 by the market price of the
class A common shares on the date notice of conversion is delivered. Upon
conversion, no gain or loss will be then recognized by the class C shareholder.
Class C common shares will be deemed to have been converted immediately
prior to the close of business on the date the shares are surrendered for
conversion and notice of election to convert the same is received by AmREIT.
Upon conversion, no adjustment or prepayment will be made for dividends, but if
any holder surrenders class C common shares for conversion after the close of
business on a Dividend Record Date and prior to the opening of business on the
related Dividend Payment Date, then, notwithstanding the conversion, the
dividend payable on that Dividend Payment Date will be paid on that Dividend
Payment Date to the registered holder of those shares on that Dividend Record
Date. Class C common shares surrendered for conversion during the period from
the close of business on a Dividend Record Date to the Dividend Payment Date
must also pay the amount of the dividend which is payable. No fractional class A
common shares will be issued upon conversion and, if the conversion results in a
fractional interest, an amount will be paid in cash equal to the value of the
fractional interest based on the market price of the common shares on the last
trading day prior to the date of conversion.
59
In the event of any capital reorganization or reclassification of the
capital shares of AmREIT, a consolidation or merger of AmREIT with another
corporation, or the sale, transfer or lease of all or substantially all of its
assets to another corporation, is effected in a way that holders of class A
common shares will be entitled to receive stock, securities or other assets with
respect to or in exchange for class A common shares, then, as a condition of
that reorganization, reclassification, consolidation, merger, sale, transfer or
lease, the holder of each class C common share will have the right immediately
to convert that share into the kind and amount of stock, securities or other
assets which the holders of those shares would have owned or been entitled to
receive immediately after the transaction if those holders had converted such
shares immediately before the effective date of the transaction, subject to
further adjustment upon the occurrence of the events described above.
Restrictions on Transfer. The class C common shares are generally
transferable, subject to restrictions necessary to enable AmREIT to maintain its
REIT status. See "-- Ownership Limits and Restrictions on Transfer."
CLASS D COMMON SHARES
Dividends. Subject to the preferential rights of any series of our
preferred shares (of which there is currently none issued), holders of class D
common shares will be entitled to receive, when, as and if declared by the
AmREIT board of trust managers, out of funds legally available for the payment
of dividends, non-cumulative cash dividends in an amount per class D common
share equal to $0.65 per annum. Dividends payable on the class D common shares
for each full monthly dividend period will be computed by dividing the annual
dividend rate by twelve. Dividends with respect to the class D common shares
will be non-cumulative from the date of original issuance and will be payable
monthly when, as and if the AmREIT board declares a monthly dividend on the
class D common shares for that month in its sole discretion (each, a Dividend
Payment Date). Dividends may not be paid on the class D common shares unless all
dividends then payable on the class B common shares and class C common shares
have been paid in full. Any dividend payable on the class D common shares for
any partial dividend period after the initial dividend period will be computed
on the basis of a 360-day year consisting of twelve 30-day months. Dividends
will be payable to holders of record as they appear in the share records of
AmREIT at the close of business on the applicable record date, which will be the
19th day of the calendar month in which the applicable Dividend Payment Date
falls or such other date designated by the AmREIT board for the payment of
dividends that is no more than thirty (30) nor less than ten (10) days prior to
the Dividend Payment Date (each, a "Dividend Record Date").
No dividends on class D common shares will be declared by the AmREIT board
or paid or set apart for payment at such time as, and to the extent that, the
terms and provisions of any AmREIT agreement, including any agreement relating
to its indebtedness, or any provisions of its declaration of trust relating to
any series of preferred stock, prohibit such declaration, payment or setting
apart for payment or provide that such declaration, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or if such
declaration or payment will be restricted or prohibited by law. Dividends may
not be paid on the class D common shares unless all dividends then payable on
the B and C common shares have been paid in full.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of AmREIT, subject to the prior rights of any series of preferred
stock, the holders of class D common shares will share pro rata with the holders
of the class A common shares, class B common shares, class C common shares and
any other series of common shares then outstanding that rank on a parity with
the class D common shares as to the distribution of assets on liquidation, the
assets of AmREIT remaining following the payment of all liquidating
distributions payable to holders of capital shares of AmREIT with liquidation
rights senior to those of the common shares.
Call Provision. The class D common shares will not be redeemable prior to
the first anniversary of the date of issuance of such shares, except under
certain limited circumstances to preserve the AmREIT's status as a REIT. On and
after the first anniversary date, AmREIT, at its option (to the extent AmREIT
60
has funds legally available therefore) upon not less than 30 nor more than 60
days' written notice, may redeem the class D common shares, in whole or in part,
at any time or from time to time, for cash at the redemption price per share of
$10.00, plus the pro rata portion of the 7.7% conversion premium (discussed
below), based on the number of years the shares are outstanding (for example, if
the class D common shares are called on the first anniversary of issuance the
call price would be $10.11 per share).
Notwithstanding the foregoing, unless the full then current dividends on
all class D common shares have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for the then current dividend period (without regard to whether dividends were
paid or not paid in any prior monthly dividend period), no class D common shares
will be redeemed unless all outstanding class D common shares are simultaneously
redeemed. The foregoing, however, will not prevent the purchase or acquisition
of the class D common shares pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding class D common shares. Unless full
current monthly dividends on all outstanding class D common shares have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period
(without regard to whether dividends were paid or not paid in any prior monthly
dividend period), AmREIT will not purchase or otherwise acquire directly or
indirectly through a subsidiary or otherwise, any class D common shares.
If fewer than all of the outstanding class D common shares are to be
redeemed, the number of shares to be redeemed will be determined by AmREIT and
those shares may be redeemed pro rata from the holders of record of those shares
in proportion to the number of those shares held by the holders (as nearly as
may be practicable without creating fractional class D common shares) or any
other equitable method determined by AmREIT.
Notice of redemption will be given by publication in a newspaper of general
circulation in the city of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days' prior to
the redemption date. A similar notice will be mailed by AmREIT, postage prepaid,
not less than 30 nor more than 60 days' prior to the redemption date, addressed
to the respective holders of record of class D common shares to be redeemed at
their respective addresses as they appear on the stock transfer records of
AmREIT. No failure to give notice or any defect therein or in the mailing
thereof will affect the validity of the proceeding for the redemption of any
class D common shares except as to the holder to whom notice was defective or
not given. Each notice will state: (1) the redemption date; (2) the redemption
price; (3) the number of class D common shares to be redeemed; (4) the place or
places where the class D common shares are to be surrendered for payment of the
redemption price; (5) that dividends on the shares to be redeemed will cease to
accrue on the redemption date; and (6) that any conversion rights will terminate
at the close of business on the third business day immediately preceding the
redemption date. If fewer than all the class D common shares held by any holder
are to be redeemed, the notice mailed to that holder will also specify the
number of class D common shares to be redeemed from that holder. If notice of
redemption of any class D common shares has been properly given and if funds
necessary for redemption have been irrevocably set aside by AmREIT in trust for
the benefit of the holders of any of the class D common shares so called for
redemption, then from and after the redemption date dividends will cease to
accrue on those class D common shares, those shares will no longer be deemed to
be outstanding and all rights of the holders of those shares will terminate
except for the right to receive the applicable redemption price and other
amounts payable in respect of such shares.
The holders of class D common shares at the close of business on a Dividend
Record Date will be entitled to receive the dividend payable with respect to
class D common shares on the corresponding Dividend Payment Date notwithstanding
the redemption thereof between that Dividend Record Date and the corresponding
Dividend Payment Date or AmREIT's default in the payment of the dividend due.
Except as provided above, AmREIT will make no payment or allowance for unpaid
dividends on class D common shares called for redemption.
61
Limited Optional Redemption. Prior to the time at which the class D common
shares become eligible to be converted into class A common shares and prior to
the seventh anniversary of issue, any shareholder who has held class D common
shares for not less than one year may present all or any portion equal to at
least 25% of those shares to AmREIT for redemption at any time, in accordance
with the procedures outlined herein. At that time, AmREIT may, at its sole
option, redeem those shares presented for redemption for cash to the extent it
has sufficient funds available. There is no assurance that there will be
sufficient funds available for redemption and, accordingly, a shareholder's
shares may not be redeemed. If AmREIT elects to redeem shares, the following
conditions and limitations would apply. The full amount of the proceeds from the
sale of shares under our dividend reinvestment plan (Reinvestment Proceeds)
attributable to any calendar quarter may be used to redeem shares presented for
redemption during that quarter. In addition, AmREIT may, at its discretion, use
up to $100,000 per calendar quarter of the proceeds of any public offering of
its common shares for redemptions. Any amount of offering proceeds which is
available for redemptions, but which is unused, may be carried over to the next
succeeding calendar quarter for use in addition to the amount of offering
proceeds and Reinvestment Proceeds that would otherwise be available for
redemptions. At no time during a 12-month period, however, may the number of
shares redeemed by AmREIT exceed 5% of the number of class D shares outstanding
at the beginning of that 12-month period.
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
in the order in which such redemption requests have been received. A shareholder
whose shares are not redeemed due to insufficient funds can ask that the request
to redeem the shares be honored at such time, if any, as there are sufficient
funds available for redemption. In that case, the redemption request will be
retained and those shares will be redeemed before any subsequently received
redemption requests are honored. Alternatively, a shareholder whose shares are
not redeemed may withdraw his or her redemption request. Shareholders will not
relinquish their shares until such time as AmREIT commits to redeeming such
shares.
A shareholder who wishes to have his or her shares redeemed must mail or
deliver a written request on a form provided by AmREIT and executed by the
shareholder, its trustee or authorized agent, to the redemption agent
("Redemption Agent"), which currently is Wells Fargo Band Minnesota, N.A. The
Redemption Agent at all times will be registered as a broker-dealer with the SEC
and each applicable state securities commission. Within 30 days following the
Redemption Agent's receipt of the shareholder's request, the Redemption Agent
will forward to that shareholder the documents necessary to effect the
redemption, including any signature guarantee AmREIT or the Redemption Agent may
require. The Redemption Agent will effect the redemption for the calendar
quarter provided that it receives the properly completed redemption documents
relating to the shares to be redeemed from the shareholder at least one calendar
month prior to the last day of the current calendar quarter and has sufficient
funds available to redeem the shares. The effective date of any redemption will
be the last date during a quarter during which the Redemption Agent receives the
properly completed redemption documents. As a result, AmREIT anticipates that,
assuming sufficient funds are available for redemption, the effective date of
redemptions will be no later than thirty days after the quarterly determination
of the availability of funds for redemption.
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. Our board of trust managers may change the redemption price at
any time and will announce publicly any price adjustment as part of its regular
communications with our stockholders, such adjustment being effective on the
10th day after first public announcement of same. Any shares acquired pursuant
to a redemption will be retired and no longer available for issuance by AmREIT.
A shareholder may present fewer than all of his or her shares to AmREIT for
redemption; provided, however, that (1) the minimum number of shares which must
be presented for redemption shall be at least 25% of his or her shares, and (2)
if the shareholder retains any shares, he or she must retain at least $2,500
worth of shares based on the current offering price ($1,000 worth of shares
based on the current offering price for an IRA, Keogh Plan or pension plan).
62
Our board of trust managers, in its sole discretion, may amend or suspend
the redemption plan at any time it determines that any amendment or suspension
is in the best interest of AmREIT. Our board of trust managers may suspend the
redemption of shares if (1) it determines, in its sole discretion, that the
redemption impairs the capital or the operations of AmREIT; (2) it determines,
in its sole discretion, that an emergency makes such redemption not reasonably
practical; (3) any governmental or regulatory agency with jurisdiction over
AmREIT so demands for the protection of the shareholders; (4) it determines, in
its sole discretion, that the redemption would be unlawful; (5) it determines,
in its sole discretion, that the redemption, when considered with all other
redemptions, sales, assignments, transfers and exchanges of our common shares,
could cause direct or indirect ownership of shares of our common stock to become
concentrated to an extent which would prevent AmREIT from qualifying as a REIT
under the Internal Revenue Code; or (6) it determines, in its sole discretion,
the suspension to be in the best interest of AmREIT. The redemption plan will
terminate, and AmREIT no longer shall accept shares for redemption at such time
as the class D common shares become eligible to convert into class A common
shares.
Voting Rights. Holders of the class D common shares will have the right to
vote on all matters presented to shareholders as a single class with all other
holders of common shares. In any matter in which the class D common shares may
vote, including any action by written consent, each class D common share will be
entitled to one vote.
In addition, AmREIT may not sell all or substantially all of its assets,
dissolve, or amend its declaration of trust in any manner that materially and
adversely affects the voting powers, rights or preferences of the holders of
class D common shares without the approval of 66 2/3% of the class D common
shares then outstanding; provided, however, the issuance of any security with
dividend or liquidation preferences that rank equally with or are junior to the
dividend or liquidation preferences of the class D common shareholders shall not
be considered to materially or adversely affect the voting powers, rights or
preferences of the class D common shareholders.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which a vote would otherwise be required is
effected, all outstanding class D common shares have been redeemed or called for
redemption upon proper notice and sufficient funds have been deposited in trust
to effect such redemption.
Conversion. Subject to the exceptions described under the caption
"Restrictions on Transfer" below, holders of the class D common shares will have
the right, from time to time after seventh anniversary of the issuance of such
shares, to convert all or any of the class D common shares into class A common
shares at a conversion price equal to the purchase price of the class D common
shares, plus a 7.7% premium. As a result, each $1,000 of class D common shares
owned by an investor will be able to be converted into $1,077 of class A common
shares, with the exact number of class A common shares to be acquired upon
conversion being determined by dividing the $1,077 by the market price of the
class A common shares on the date notice of conversion is delivered. All class D
common shares acquired through our dividend reinvestment plan will be
convertible on a dollar-for-dollar basis, based on the dividends invested in
such reinvestment plan shares, into our class A common shares, with no premium
associated with the conversion. The reinvestment plan shares will be convertible
on or after the seventh anniversary of the issuance of the original class D
common shares, the dividends of which were used to acquire the reinvestment plan
shares. Upon conversion, no gain or loss will be then recognized by the class D
shareholder.
Class D common shares will be deemed to have been converted immediately
prior to the close of business on the date the shares are surrendered for
conversion and notice of election to convert the same is received by AmREIT.
Upon conversion, no adjustment or prepayment will be made for dividends, but if
any holder surrenders class D common shares for conversion after the close of
business on a Dividend Record Date and prior to the opening of business on the
related Dividend Payment Date, then, notwithstanding the conversion, the
dividend payable on that Dividend Payment Date will be paid on that Dividend
Payment Date to the registered holder of those shares on that Dividend Record
Date. Class D common shares surrendered for conversion during the period from
the close of business on a Dividend
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Record Date to the Dividend Payment Date must also pay the amount of the
dividend which is payable. No fractional class A common shares will be issued
upon conversion and, if the conversion results in a fractional interest, an
amount will be paid in cash equal to the value of the fractional interest based
on the market price of the common shares on the last trading day prior to the
date of conversion.
In the event of any capital reorganization or reclassification of the
capital shares of AmREIT, a consolidation or merger of AmREIT with another
corporation, or the sale, transfer or lease of all or substantially all of its
assets to another corporation, is effected in a way that holders of class A
common shares will be entitled to receive stock, securities or other assets with
respect to or in exchange for class A common shares, then, as a condition of
that reorganization, reclassification, consolidation, merger, sale, transfer or
lease, the holder of each class D common share will have the right immediately
to convert that share into the kind and amount of stock, securities or other
assets which the holders of those shares would have owned or been entitled to
receive immediately after the transaction if those holders had converted such
shares immediately before the effective date of the transaction, subject to
further adjustment upon the occurrence of the events described above.
Restrictions on Transfer. The class D common shares are generally
transferable, subject to restrictions necessary to enable AmREIT to maintain its
REIT status. See "-- Ownership Limits and Restrictions on Transfer."
PREFERRED SHARES
The declaration of trust of AmREIT authorizes the trust managers of AmREIT
to issue up to 10,000,000 preferred shares of beneficial interest, par value
$.01 per share, to establish one or more series of such preferred shares and to
determine, with respect to any series of preferred shares, the terms, rights,
restrictions and qualifications of such series. Although the trust managers have
no present intention to do so, they could, in the future, issue a series of
preferred shares which, due to its terms, could impede a merger, tender offer or
other transaction that some or a majority of AmREIT's shareholders might believe
to be in their best interests or in which shareholders might receive a premium
over then prevailing market prices for their common shares.
OWNERSHIP LIMITS AND RESTRICTIONS ON TRANSFER
For AmREIT to qualify as a REIT under the Internal Revenue Code, (1) not
more than 50% in value of outstanding equity securities of all classes may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Internal Revenue Code to include certain entities) during the last half of a
taxable year; (2) the outstanding equity securities of all classes must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year; and
(3) certain percentages of AmREIT's gross income must come from certain
activities.
To ensure that five or fewer individuals do not own more than 50% in value
of the outstanding equity securities of all classes, AmREIT's declaration of
trust provides generally that no holder may own, or be deemed to own by virtue
of certain attribution provisions of the Internal Revenue Code, more than 9.0%
of the issued and outstanding common shares or more than 9.9% of the issued and
outstanding shares of any series of preferred shares, except that H. Kerr
Taylor, the chairman of the board of trust managers and chief executive officer
of AmREIT, and certain related persons together may own, or be deemed to own, by
virtue of certain attribution provisions of the Internal Revenue Code, up to
9.8% of the issued and outstanding common shares. The board of trust managers,
upon receipt of a ruling from the IRS, an opinion of counsel or other evidence
satisfactory to the board of trust managers, in its sole discretion, is
permitted to waive or change, in whole or in part, the application of the
ownership limit with respect to any person that is not an individual (as that
term is used in Section 542(a)(2) of the Internal Revenue Code). In connection
with any waiver or change, the board of trust managers has the authority to
require such representations and undertakings from such person or affiliates and
to impose such other conditions as the board of trust managers deems necessary,
advisable or prudent, in its sole discretion, to determine the effect, if any,
of a proposed transaction or ownership of outstanding equity securities of all
classes on
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AmREIT's status as a REIT. The board of trust managers also has the authority to
reduce the ownership limit on H. Kerr Taylor, with the written consent of Mr.
Taylor, his successor-in-interest or designee, after any transfer permitted by
the declaration of trust.
In addition, the board of trust managers will have the right, from time to
time, to increase the ownership limit on common shares, except that it will not
be permissible for the board of trust managers (i) to increase the ownership
limit or create additional limitations if, after giving effect thereto, AmREIT
would be "closely held" within the meaning of Section 856(h) of the Internal
Revenue Code, (ii) to increase either the ownership limit on common shares or
the ownership limit on preferred shares to a percentage that is greater than
9.9% or (iii) to increase the ownership limit on H. Kerr Taylor. Prior to any
modification of the ownership limit with respect to any person, the board of
trust managers will have the right to require such opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary, advisable or
prudent, in its sole discretion, in order to determine or ensure AmREIT's status
as a REIT.
Under our declaration of trust, the ownership limit will not be
automatically removed even if the REIT provisions of the Internal Revenue Code
are changed so as to no longer contain any ownership concentration limitation or
if the ownership concentration limit is increased. In addition to preserving
AmREIT's status as a REIT for federal income tax purposes, the ownership limit
may prevent any person or small group of persons from acquiring control of
AmREIT.
Our declaration of trust also provides that if any issuance, transfer or
acquisition of equity securities (1) would result in a holder exceeding the
ownership limit, (2) would cause AmREIT to be beneficially owned by less than
100 persons, (3) would result in AmREIT being "closely held" within the meaning
of Section 856(h) of the Internal Revenue Code, or (4) would otherwise result in
the failure of AmREIT to qualify as a REIT for federal income tax purposes, then
that issuance, transfer or acquisition will be null and void to the intended
transferee or holder, and the intended transferee or holder will acquire no
rights to the shares. Pursuant to the declaration of trust, equity securities
owned, transferred or proposed to be transferred in excess of the ownership
limit or which would otherwise jeopardize AmREIT's status as a REIT under the
Internal Revenue Code automatically will be deemed to have been transferred to a
trustee appointed by AmREIT, unaffiliated with AmREIT and the intended
transferee or holder, to serve as trustee of a charitable trust for the
exclusive benefit of one or more nonprofit organizations designated by AmREIT so
that the shares proposed to be transferred in excess of the ownership limit held
in the charitable trust would not violate ownership restrictions set forth in
the declaration of trust. The transfer to the trustee will be deemed to be
effective as of the close of business on the business day prior to the purported
transfer or other event that results in the transfer to the charitable trust.
Shares proposed to be transferred in excess of the ownership limit held by the
trustee shall be issued and outstanding equity securities of AmREIT. The
intended transferee or holder will have no rights in the shares proposed to be
transferred in excess of the ownership limit, will not benefit economically from
these shares, will have no rights to dividends or other distributions associated
with the shares and shall not possess any rights to vote or other rights
attributable to the shares. The trustee will have all voting rights and rights
to dividends or other distributions to which such shares proposed to be
transferred in excess of the ownership limit are entitled with respect to such
shares held in the charitable trust, which rights shall be exercised for the
exclusive benefit of the charitable beneficiary. Any dividend or other
distribution paid prior to the discovery by AmREIT that the shares have been
deemed transferred to the trustee shall be paid with respect to the shares to
the trustee upon demand and any dividend or other distribution authorized but
unpaid shall be paid when due to the trustee. Any dividends or distributions so
paid over to the trustee shall be held in trust for the benefit of the
charitable beneficiary for distribution at such times as may be determined by
the trustee. The prohibited owner of these shares will have no voting rights
with respect to the shares held in the charitable trust and, subject to Texas
law, effective as of the date that the shares have been deemed transferred to
the trustee, the trustee shall have the authority (1) to rescind as void any
vote cast, to the extent the shares are entitled to vote, by a prohibited owner
prior to the discovery by AmREIT that the shares have been deemed transferred to
the trustee and (2) to recast such vote, to the extent the shares are entitled
to vote, in accordance with the desires of the trustee acting for the benefit of
65
the charitable beneficiary. Within twenty (20) days of receiving notice from
AmREIT that shares proposed to be transferred in excess of the ownership limit
have been deemed transferred to the charitable trust, the trustee of the
charitable trust shall sell the shares held in the charitable trust to a person,
designated by the trustee, whose ownership of the shares will not violate the
ownership limit or otherwise jeopardize AmREIT's status as a REIT under the
Internal Revenue Code. Upon the sale, the interest of the charitable beneficiary
in the shares sold shall terminate and the trustee shall distribute the net
proceeds of the sale to the prohibited owner and to the charitable beneficiary
as follows: (1) the prohibited owner shall receive the lesser of (a) the price
paid by the prohibited owner for the shares or, if the prohibited owner did not
give value for the shares in connection with the event that resulted in the
transfer of such shares to the charitable trust (e.g., in the case of a gift,
devise or other such transaction), the market price at the time of such gift,
devise or other transaction which resulted in the transfer of the shares and (b)
the price per share (net of costs of sales) received by the trustee from the
sale or other disposition of the shares held in the charitable trust; and (2)
any net sales proceeds in excess of the amount payable to the prohibited owner
shall be immediately paid to the charitable beneficiary. If, prior to the
discovery by AmREIT that the shares have been deemed transferred to the trustee,
the shares are sold by a prohibited owner, then (1) the shares shall be deemed
to have been sold on behalf of the charitable trust and (2) to the extent that
the prohibited owner received an amount for such shares that exceeds the amount
that such prohibited owner would have been entitled to receive if such shares
had been sold by the trustee such excess shall be paid to the trustee upon
demand. The shares will be subject to repurchase by AmREIT at its election and
shall be deemed to have been offered for sale to AmREIT or its designee, at a
price per share equal to the lesser of (1) the price per share in the
transaction that resulted in such deemed transfer to the charitable trust (or,
in the case of a devise or gift or event other than a transfer or acquisition
which results in the deemed transfer of the shares, the market price at the time
of such devise or gift or event other than a transfer or acquisition which
results in the deemed transfer of the shares) and (2) the market price of the
shares on the date AmREIT, or its designee, accepts such offer. AmREIT and its
assignees will have the right to accept the offer until the trustee has
otherwise sold the shares held in the charitable trust. Upon such a sale to
AmREIT or its designees, the interest of the charitable beneficiary in the
shares sold shall terminate and the trustee shall distribute all net sales
proceeds of the sale to the prohibited owner.
If the trust managers or any duly authorized committee thereof shall at any
time determine in good faith that a transfer or other event has taken or is
otherwise proposed to take place that results or will result in a violation of
the ownership limit or otherwise jeopardizes AmREIT's status as a REIT under the
Internal Revenue Code, the trust managers or a committee thereof shall take such
action as it deems advisable to refuse to give effect to or to prevent such
transfer or other event, including, without limitation, causing AmREIT to redeem
equity securities, refusing to give effect to such transfer on the books of
AmREIT or instituting proceedings to enjoin such transfer or other event;
provided, however that any transfer or attempted transfer or other event in
violation of the declaration of trust shall automatically result in the transfer
to the charitable trust described above, and, where applicable, such transfer
(or other event) shall be void ab initio as provided above irrespective of any
action (or non-action) by the board of trust managers or a committee thereof.
Under the declaration of trust, AmREIT will have the authority, at any
time, to waive the requirement that the shares be deemed outstanding in
accordance with the provisions of the declaration of trust if the fact that the
shares are deemed to be outstanding would, in the opinion of nationally
recognized tax counsel, jeopardize the status of AmREIT as a REIT for federal
income tax purposes.
All certificates issued by AmREIT representing equity securities will bear
a legend referring to the restrictions described above.
The declaration of trust of AmREIT also will provide that all persons who
own, directly or by virtue of the attribution provisions of the Internal Revenue
Code, more than 5.0% of the outstanding equity securities (or such lower
percentage as may be set by the board of trust managers), must give written
notice to AmREIT containing information specified in the declaration of trust no
later than January 30 of each year. In addition, each shareholder will be
required, upon demand, to disclose to AmREIT in writing
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such information with respect to the direct, indirect and constructive ownership
of shares as the trust managers deem necessary to comply with the provisions of
the Internal Revenue Code, as applicable to a REIT, or to comply with the
requirements of a governmental authority or agency.
The ownership limitations described above may have the effect of inhibiting
or impeding acquisitions of control of AmREIT by a third party. See "Certain
Anti-Takeover Provisions of the Declaration of Trust, Bylaws and Texas Law."
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary of material United States federal income tax
consequences that may be relevant to a holder of our securities is based on
current law, is for general information only and is not intended as tax advice.
The following discussion, which is not exhaustive of all possible tax
consequences, does not include a detailed discussion of any state, local or
foreign tax consequences. Nor does it discuss all of the aspects of federal
income taxation that may be relevant to a prospective holder of our securities
in light of his or her particular circumstances or to certain types of holders
(including insurance companies, pension plans and other tax-exempt entities,
financial institutions or broker-dealers, foreign corporations and persons who
are not citizens or residents of the United States and persons holding
securities as part of a conversion transaction, a hedging transaction or as a
position in a straddle for tax purposes) who are subject to special treatment
under the federal income tax laws. Unless otherwise indicated the terms "we,"
"us," and "our" when used herein refer to AmREIT.
The statements in this discussion are based on current provisions of the
Internal Revenue Code, existing, temporary and currently proposed Treasury
Regulations under the Internal Revenue Code, the legislative history of the
Internal Revenue Code, existing administrative rulings and practices of the IRS
and judicial decisions. No assurance can be given that legislative, judicial or
administrative changes will not affect the accuracy of any statements in this
discussion with respect to transactions entered into or contemplated prior to
the effective date of such changes. Any such change could apply retroactively to
transactions preceding the date of the change. We do not plan to request any
rulings from the IRS concerning our tax treatment and the statements in this
discussion are not binding on the IRS or any court. Thus, we can provide no
assurance that these statements will not be challenged by the IRS or that such
challenge will not be sustained by a court.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
EACH PROSPECTIVE PURCHASER OF SECURITIES IS ADVISED TO CONSULT WITH HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF SECURITIES IN AN ENTITY ELECTING TO BE
TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, DISPOSITION AND ELECTION, AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
We have elected to be treated as a REIT under Sections 856 through 860 of
the Internal Revenue Code for federal income tax purposes commencing with our
taxable year ended December 31, 1994. We believe that we have been organized and
have operated in a manner that qualifies for taxation as a REIT under the
Internal Revenue Code. We also believe that we will continue to operate in a
manner that will preserve our status as a REIT. We cannot however, assure you
that such requirements will be met in the future.
Locke Liddell & Sapp LLP, our legal counsel, is of the opinion that we have
been organized and, for the taxable year ended December 31, 2004, we have
operated in conformity with the requirements for qualification and taxation as a
REIT and that our current manner of organization and proposed manner of
operation will enable us to continue to satisfy the requirements for
qualification as a REIT for taxable years ending after December 31, 2004, if we
operate in accordance with the methods of operations
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described herein including our representations concerning our intended method of
operation. However, no opinion can be given that we will actually satisfy all
REIT requirements in the future since this depends on future events. You should
be aware that opinions of counsel are not binding on the IRS or on the courts,
and, if the IRS were to challenge these conclusions, no assurance can be given
that these conclusions would be sustained in court. The opinion of Locke Liddell
& Sapp LLP is based on various assumptions as well as on certain representations
made by us as to factual matters, including a factual representation letter
provided by us. The rules governing REITs are highly technical and require
ongoing compliance with a variety of tests that depend, among other things, on
future operating results, asset diversification, distribution levels and
diversity of stock ownership. Locke Liddell & Sapp LLP will not monitor our
compliance with these requirements. While we expect to satisfy these tests, and
will use our best efforts to do so, no assurance can be given that we will
qualify as a REIT for any particular year, or that the applicable law will not
change and adversely affect us and our shareholders. See "-- Failure to Qualify
as a REIT." The following is a summary of the material federal income tax
considerations affecting us as a REIT and our shareholders. This summary is
qualified in its entirety by the applicable Internal Revenue Code provisions,
relevant rules and regulations promulgated under the Internal Revenue Code, and
administrative and judicial interpretations of the Internal Revenue Code and
rules and regulations promulgated thereunder.
REIT QUALIFICATION
We must be organized as an entity that would, if we do not maintain our
REIT status, be taxable as a regular corporation. We cannot be a financial
institution or an insurance company. We must be managed by one or more trust
managers. Our taxable year must be the calendar year. Our beneficial ownership
must be evidenced by transferable shares. Our capital shares must be held by at
least 100 persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a taxable year of less than 12 months. Not more
than 50% of the value of the shares of our capital shares may be held, directly
or indirectly, applying the applicable constructive ownership rules of the
Internal Revenue Code, by five or fewer individuals at any time during the last
half of each of our taxable years. We must also meet certain other tests,
described below, regarding the nature of our income and assets and the amount of
our distributions.
Our outstanding shares of common stock are owned by a sufficient number of
investors and in appropriate proportions to permit us to satisfy these share
ownership requirements. To protect against violations of these share ownership
requirements, our declaration of trust provides that no person (other than the
existing holder) is permitted to own, applying constructive ownership tests set
forth in the Internal Revenue Code, more than 9.0% of our outstanding common
shares, unless the trust managers are provided evidence satisfactory to them in
their sole discretion that our qualification as a REIT will not be jeopardized.
In addition, our declaration of trust contains restrictions on transfers of
capital shares, as well as provisions that automatically transfer capital shares
to a charitable trust for the benefit of a charitable beneficiary to the extent
that another investor's ownership of such capital shares otherwise might
jeopardize our REIT status. These restrictions, however, may not ensure that we
will, in all cases, be able to satisfy the share ownership requirements. If we
fail to satisfy these share ownership requirements, except as provided in the
next sentence, our status as a REIT will terminate. However, if we comply with
the rules contained in applicable Treasury Regulations that require us to
ascertain the actual ownership of our shares and we do not know, or would not
have known through the exercise of reasonable diligence, that we failed to meet
the 50% requirement described above, we will be treated as having met this
requirement. See the section below entitled "-- Failure to Qualify as a REIT."
To monitor our compliance with the share ownership requirements, we are
required to and we do maintain records disclosing the actual ownership of our
common shares. To do so, we will demand written statements each year from the
record holders of certain percentages of shares in which the record holders are
to disclose the actual owners of the shares (i.e., the persons required to
include in gross income the REIT dividends). A list of those persons failing or
refusing to comply with this demand will be maintained as part of our records.
Shareholders who fail or refuse to comply with the demand must submit a
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statement with their tax returns disclosing the actual ownership of the shares
and certain other information.
We currently satisfy, and expect to continue to satisfy, each of these
requirements discussed above. We also currently satisfy, and expect to continue
to satisfy, the requirements that are separately described below concerning the
nature and amounts of our income and assets and the levels of required annual
distributions.
Ownership of a Partnership Interest. In the case of a REIT which is a
partner in a partnership or any other entity such as a limited liability company
that is treated as a partnership for federal income tax purposes, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership. Also, the REIT will be deemed to be entitled
to its proportionate share of the income of the partnership. The character of
the assets and gross income of the partnership retains the same character in the
hands of the REIT for purposes of Section 856 of the Code, including satisfying
the gross income tests and the asset tests. Thus, our proportionate share of the
assets and items of income of any partnership in which we own an interest are
treated as our assets and items of income for purposes of applying the
requirements described in this discussion, including the income and asset tests
described below.
Sources of Gross Income. In order to qualify as a REIT for a particular
year, we also must meet two tests governing the sources of our income -- a 75%
gross income test and a 95% gross income test. These tests are designed to
ensure that a REIT derives its income principally from passive real estate
investments. The Internal Revenue Code allows a REIT to own and operate a number
of its properties through wholly-owned subsidiaries which are "qualified REIT
subsidiaries." The Internal Revenue Code provides that a qualified REIT
subsidiary is not treated as a separate corporation, and all of its assets,
liabilities and items of income, deduction and credit are treated as assets,
liabilities and items of income, deduction and credit of the REIT.
75% Gross Income Test. At least 75% of a REITs gross income for each
taxable year must be derived from specified classes of income that principally
are real estate related. The permitted categories of principal importance to us
are:
- rents from real property;
- interest on loans secured by real property;
- gains from the sale of real property or loans secured by real property
(excluding gain from the sale of property held primarily for sale to
customers in the ordinary course of our business, referred to below as
"dealer property");
- income from the operation and gain from the sale of property acquired in
connection with the foreclosure of a mortgage securing that property
("foreclosure property");
- distributions on, or gain from the sale of, shares of other qualifying
REITs;
- abatements and refunds of real property taxes;
- amounts received as consideration for entering into agreements to make
loans secured by real property or to purchase or lease real property; and
- "qualified temporary investment income" (described below).
In evaluating our compliance with the 75% gross income test, as well as the
95% gross income test described below, gross income does not include gross
income from "prohibited transactions." In general, a prohibited transaction is
one involving a sale of dealer property, not including foreclosure property and
not including certain dealer property we have held for at least four years.
We expect that substantially all of our operating gross income will be
considered rent from real property and interest income. Rent from real property
is qualifying income for purposes of the gross income tests only if certain
conditions are satisfied. Rent from real property includes charges for services
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customarily rendered to tenants, and rent attributable to personal property
leased together with the real property so long as the personal property rent is
not more than 15% of the total rent received or accrued under the lease for the
taxable year. We do not expect to earn material amounts in these categories.
Rent from real property generally does not include rent based on the income
or profits derived from the property. However, rent based on a percentage of
gross receipts or sales is permitted as rent from real property and we will have
leases where rent is based on a percentage of gross receipts or sales. We
generally do not intend to lease property and receive rentals based on the
tenant's income or profit. Also excluded from "rents from real property" is rent
received from a person or corporation in which we (or any of our 10% or greater
owners) directly or indirectly through the constructive ownership rules
contained in Section 318 and Section 856(d)(5) of the Internal Revenue Code, own
a 10% or greater interest in either vote or value.
A third exclusion from qualifying rent income covers amounts received with
respect to real property if we furnish services to the tenants or manage or
operate the property, other than through an "independent contractor" from whom
we do not derive any income or through a "taxable REIT subsidiary." A taxable
REIT subsidiary is a corporation in which a REIT owns stock, directly or
indirectly, and with respect to which the corporation and the REIT have made a
joint election to treat the corporation as a taxable REIT subsidiary. The
obligation to operate through an independent contractor or a taxable REIT
subsidiary generally does not apply, however, if the services we provide are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not considered rendered primarily for the convenience of
the tenant (applying standards that govern in evaluating whether rent from real
property would be unrelated business taxable income when received by a
tax-exempt owner of the property). Further, if the value of the non-customary
service income with respect to a property, valued at no less than 150% of our
direct cost of performing such services, is 1% or less of the total income
derived from the property, then the provision of such non-customary services
shall not prohibit the rental income (except the non-customary service income)
from qualifying as "rents from real property."
We believe that the only material services generally to be provided to
tenants will be those usually or customarily rendered in connection with the
rental of space for occupancy only. We do not intend to provide services that
might be considered rendered primarily for the convenience of the tenants, such
as hotel, health care or extensive recreational or social services.
Consequently, we believe that substantially all of our rental income will be
qualifying income under the gross income tests, and that our provision of
services will not cause the rental income to fail to be included under that
test.
Upon the ultimate sale of our properties, any gains realized also are
expected to constitute qualifying income, as gain from the sale of real property
(not involving a prohibited transaction).
95% Gross Income Test. In addition to earning 75% of our gross income from
the sources listed above, 95% of our gross income for each taxable year must
come either from those sources, or from dividends, interest or gains from the
sale or other disposition of stock or other securities that do not constitute
dealer property. This test permits a REIT to earn a significant portion of its
income from traditional "passive" investment sources that are not necessarily
real estate related. The term "interest" (under both the 75% and 95% tests) does
not include amounts that are based on the income or profits of any person,
unless the computation is based only on a fixed percentage of receipts or sales.
Failing the 75% or 95% Tests; Reasonable Cause. As a result of the 75% and
95% tests, REITs generally are not permitted to earn more than 5% of their gross
income from active sources, including brokerage commissions or other fees for
services rendered. We may receive certain types of that income. This type of
income will not qualify for the 75% test or 95% test but is not expected to be
significant, and that income, together with other nonqualifying income, is
expected to be at all times less than 5% of our annual gross income. While we do
not anticipate that we will earn substantial amounts of nonqualifying income, if
nonqualifying income exceeds 5% of our gross income, we could lose our status as
a REIT. We may establish taxable REIT subsidiaries to hold assets generating
non-qualifying income. The gross income generated by these subsidiaries would
not be included in our gross income. However, dividends we receive from these
subsidiaries would be included in our gross income and qualify for the 95%
income test.
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Beginning in the 2005 taxable year, if we fail to meet either the 75% or
95% income tests during a taxable year, we may still qualify as a REIT for that
year if (1) we file a schedule for the year in accordance with Regulations
describing each item of income for such year, and (2) the failure to meet the
tests is due to reasonable cause and not to willful neglect. It is not possible,
however, to state whether in all circumstances we would be entitled to the
benefit of this relief provision. For example, if we fail to satisfy the gross
income tests because nonqualifying income that we intentionally accrue or
receive causes us to exceed the limits on nonqualifying income, the IRS could
conclude that our failure to satisfy the tests was not due to reasonable cause.
If these relief provisions do not apply to a particular set of circumstances, we
will not qualify as a REIT. As discussed below, even if these relief provisions
apply, and we retain our status as a REIT, a tax would be imposed with respect
to our non-qualifying income. We would be subject to a 100% tax based on the
greater of the amount by which we fail either the 75% or 95% income tests for
that year multiplied by a fraction intended to reflect our profitability. See
"-- Taxation as a REIT" below.
Prohibited Transaction Income. Any gain that we realize on the sale of any
property held as inventory or other property held primarily for sale to
customers in the ordinary course of business (including our share of any such
gain realized by any subsidiary partnerships but excluding foreclosure
property), will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. This prohibited transaction income may also
adversely affect our ability to satisfy the income tests for qualification as a
REIT. Under existing law, whether property is held as inventory or primarily for
sale to customers in the ordinary course of a trade or business depends on all
the facts and circumstances surrounding the particular transaction. We intend to
hold our and our subsidiary partnerships intend to hold their properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing and owning properties, and to make occasional sales of the
properties as are consistent with their investment objectives. The IRS may
contend, however, that one or more of these sales is subject to the 100% penalty
tax.
Character of Assets Owned. At the close of each calendar quarter of our
taxable year, we also must meet three tests concerning the nature of our
investments. First, at least 75% of the value of our total assets generally must
consist of real estate assets, cash, cash items (including receivables) and
government securities. For this purpose, "real estate assets" include interests
in real property, interests in loans secured by mortgages on real property or by
certain interests in real property, shares in other REITs and certain options,
but excluding mineral, oil or gas royalty interests. Stock or debt instruments
attributable to the temporary investment of the proceeds of a stock offering or
a public debt offering with a term of least five years, also qualify under this
75% asset test, but only for the one-year period beginning on the date we
receive the new capital. Second, although the balance of our assets generally
may be invested without restriction, other than certain debt securities, we will
not be permitted to own (1) securities of any one non-governmental issuer that
represent more than 5% of the value of our total assets, (2) securities
possessing more than 10% of the voting power of the outstanding securities of
any single issuer or (3) securities having a value of more than 10% of the total
value of the outstanding securities of any one issuer. A REIT, however, may own
100% of the stock of a qualified REIT subsidiary, in which case the assets,
liabilities and items of income, deduction and credit of the subsidiary are
treated as those of the REIT. A REIT may also own more than 10% of the voting
power or value of a taxable REIT subsidiary. Third, not more than 20% of the
value of a REIT's total assets may be represented by securities of one or more
taxable REIT subsidiaries. In evaluating a REIT's assets, if the REIT invests in
a partnership, it is deemed to own its proportionate share of the assets of the
partnership.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values provided that
we have not acquired any securities or other property, including securities of a
taxable REIT subsidiary, since the close of the quarter in which the asset tests
were met. If we acquire securities or other property during a quarter our
properties will be revalued, and if we fail to satisfy the asset tests, we can
cure this failure by disposing of sufficient nonqualifying assets within 30 days
after the close of that
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quarter. We intend to take such action within the 30 days after the close of any
quarter as may be required to cure any noncompliance.
Beginning in the 2005 taxable year, if we fail to satisfy one or more of
the asset tests for any quarter of a taxable year, we nevertheless may qualify
as a REIT for such year if we qualify for relief under certain provisions of the
Internal Revenue Code. These relief provisions generally will be available for
(i) a failure of the 5% asset test or the 10% asset test if the failure is due
to the ownership of assets that do not exceed the lesser of 1% of our total
assets or $10 million, and the failure is corrected within 6 months following
the quarter in which it was discovered, or (ii) a failure of any asset test due
to ownership of assets that exceed the amount in (i) above, if the failure is
due to reasonable cause and not due to willful neglect, we file a schedule with
a description of each asset causing the failure in accordance with the
Regulations, the failure is corrected within 6 months following the quarter in
which it was discovered, and we pay a tax consisting of the greater of $50,000
or a tax computed at the highest corporate rate on the amount of net income
generated by the assets causing the failure from the date of failure until the
assets are disposed of or we otherwise return to compliance with the asset test.
We may not qualify for the relief provisions in all circumstances.
Annual Distributions to Shareholders. To maintain our REIT status, we
generally must distribute as a dividend to our shareholders in each taxable year
at least 90% of our net ordinary income. Capital gain is not required to be
distributed. More precisely, we must distribute an amount equal to (1) the sum
of (a) our "REIT Taxable Income" before deduction of dividends paid and
excluding any net capital gain and (b) 90% of the excess of net income from
foreclosure property over the tax on such income, minus (2) certain limited
categories of "excess noncash income," including, income attributable to certain
payments for the use of property or services described under Section 467 of the
Internal Revenue Code, cancellation of indebtedness and original issue discount
income. REIT Taxable Income is defined to be the taxable income of the REIT,
computed as if it were an ordinary corporation, with certain modifications. For
example, the deduction for dividends paid is allowed, but neither net income
from foreclosure property, nor net income from prohibited transactions, is
included. In addition, the REIT may carry over, but not carry back, a net
operating loss for 20 years following the year in which it was incurred.
A REIT may satisfy the 90% distribution test with dividends paid during the
taxable year and with certain dividends paid after the end of the taxable year.
Dividends paid in January that were declared during the last calendar quarter of
the prior year and were payable to shareholders of record on a date during the
last calendar quarter of that prior year are treated as paid on December 31 of
the prior year. Other dividends declared before the due date of our tax return
for the taxable year, including extensions, also will be treated as paid in the
prior year if they are paid (1) within 12 months of the end of that taxable year
and (2) no later than the REIT's next regular distribution payment. Dividends
that are paid after the close of a taxable year that do not qualify under the
rule governing payments made in January (described above) will be taxable to the
shareholders in the year paid, even though we may take them into account for a
prior year. A nondeductible excise tax equal to 4% will be imposed for each
calendar year to the extent that dividends declared and distributed or deemed
distributed on or before December 31 are less than the sum of (a) 85% of our
"ordinary income" plus (b) 95% of our capital gain net income plus (c) any
undistributed income from prior periods.
To be entitled to a dividends paid deduction, the amount distributed by a
REIT must not be preferential. For example, every shareholder of the class of
shares to which a distribution is made must be treated the same as every other
shareholder of that class, and no class of shares may be treated otherwise than
in accordance with its dividend rights as a class.
We will be taxed at regular corporate rates to the extent that we retain
any portion of our taxable income. For example, if we distribute only the
required 90% of our taxable income, we would be taxed on the retained 10%. Under
certain circumstances we may not have sufficient cash or other liquid assets to
meet the distribution requirement. This could arise because of competing demands
for our funds, or due to timing differences between tax reporting and cash
receipts and disbursements (i.e., income may have to be reported before cash is
received, or expenses may have to be paid before a deduction is allowed).
Although
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we do not anticipate any difficulty in meeting this requirement, no assurance
can be given that necessary funds will be available. In the event these
circumstances do occur, then in order to meet the 90% distribution requirement,
we may arrange for short-term, or possibly long-term, borrowings to permit the
payment of required dividends.
If we fail to meet the 90% distribution requirement because of an
adjustment to our taxable income by the IRS, we may be able to cure the failure
retroactively by paying a "deficiency dividend," as well as applicable interest
and penalties, within a specified period.
TAXATION AS A REIT
As a REIT, we generally will not be subject to corporate income tax to the
extent we currently distribute our REIT taxable income to our shareholders. This
treatment effectively eliminates the "double taxation" imposed on investments in
most corporations. Double taxation refers to taxation that occurs once at the
corporate level when income is earned and once again at the shareholder level
when such income is distributed. We generally will be taxed only on the portion
of our taxable income that we retain, which will include any undistributed net
capital gain, because we will be entitled to a deduction for dividends paid to
shareholders during the taxable year. A dividends paid deduction is not
available for dividends that are considered preferential within any given class
of shares or as between classes except to the extent that class is entitled to a
preference. We do not anticipate that we will pay any of those preferential
dividends.
Even as a REIT, we will be subject to tax in certain circumstances as
follows:
- We would be subject to tax on any income or gain from foreclosure
property which is held primarily for sale to customers in the ordinary
course of business at the highest corporate rate (currently 35%).
Foreclosure property is generally defined as property acquired through
foreclosure or after a default on a loan secured by the property or a
lease of the property.
- A confiscatory tax of 100% applies to any net income from prohibited
transactions which are, in general, certain sales or other dispositions
of property held primarily for sale to customers in the ordinary course
of business other than foreclosure property.
- If we fail to meet either the 75% or 95% source of income tests described
above, but still qualify for REIT status under the reasonable cause
exception to those tests, a 100% tax would be imposed equal to the amount
obtained by multiplying (a) the greater of the amount, if any, by which
it failed either the 75% income test or the 95% income test, times (b) a
fraction intended to reflect our profitability.
- We will be subject to the alternative minimum tax on items of tax
preference, excluding items specifically allocable to our shareholders.
- If we should fail to distribute with respect to each calendar year at
least the sum of (a) 85% of our REIT ordinary income for that year, (b)
95% of our REIT capital gain net income for that year, and (c) any
undistributed taxable income from prior years, we would be subject to a
4% excise tax on the excess of the required distribution over the amounts
actually distributed.
- Treasury Regulations provide that we will be taxed at the highest regular
corporate tax rate on any built-in gain attributable to assets that we
acquire in certain tax-free corporate transactions, to the extent the
gain is recognized during the first ten years after we acquire those
assets. Built-in gain is the excess of (a) the fair market value of the
asset over (b) our adjusted basis in the asset, in each case determined
as of the beginning of the ten-year recognition period. The results
described in this paragraph with respect to the recognition of built-in
gain assume that the transferor C corporation refrains from making an
election to receive different treatment pursuant to the Treasury
Regulations.
- We will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains.
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- Beginning in the 2005 taxable year, if we fail, in more than a de minimis
fashion, to satisfy one or more of the asset tests under the REIT
provisions of the Internal Revenue Code for any quarter of a taxable
year, but nonetheless continue to qualify as a REIT because we qualify
under certain relief provisions, we may be required to pay a tax of the
greater of $50,000 or a tax computed at the highest corporate rate on the
amount of net income generated by the assets causing the failure from the
date of failure until the assets are disposed of or we otherwise return
to compliance with the asset test.
- Beginning in the 2005 taxable year, if we fail to satisfy one or more of
the requirements for REIT qualification under the REIT provisions of the
Internal Revenue Code (other than the income tests or the asset tests),
we nevertheless may avoid termination of our REIT election in such year
if the failure is due to reasonable cause and not due to willful neglect
and we pay a penalty of $50,000 for each failure to satisfy the REIT
qualification requirements.
A tax is imposed on a REIT equal to 100% of redetermined rents,
redetermined deductions and excess interest. In general, redetermined rents are
rents from real property that are overstated as a result of services furnished
by a taxable REIT subsidiary to any of the tenants of the REIT, and redetermined
deductions and excess interest represent amounts that are deducted by a taxable
REIT subsidiary for amounts paid to the REIT that are in excess of the amounts
that would have been deducted based on arm's length negotiations. There are a
number of exceptions with regard to redetermined rents, which are summarized
below.
- Redetermined rents do not include de minimis payments received by the
REIT with respect to non-customary services rendered to the tenants of a
property owned by the REIT that do not exceed 1% of all amounts received
by the REIT with respect to the property.
- The redetermined rent provisions do not apply with respect to any
services rendered by a taxable REIT subsidiary to the tenants of the
REIT, as long as the taxable REIT subsidiary renders a significant amount
of similar services to persons other than the REIT and to tenants who are
unrelated to the REIT, the taxable REIT subsidiary and the REIT tenants,
and the charge for these services is substantially comparable to the
charge for similar services rendered to such unrelated persons.
- The redetermined rent provisions do not apply to any services rendered by
a taxable REIT subsidiary to a tenant of a REIT if the rents paid by
tenants leasing at least 25% of the net leaseable space in the REIT's
property who are not receiving such services are substantially comparable
to the rents paid by tenants leasing comparable space who are receiving
the services and the charge for the services is separately stated.
- The redetermined rent provisions do not apply to any services rendered by
a taxable REIT subsidiary to tenants of a REIT if the gross income of the
taxable REIT subsidiary from these services is at least 150% of the
taxable REIT subsidiary's direct cost of rendering the service.
- The Secretary of the Treasury has the power to waive the tax that would
otherwise be imposed on redetermined rents if the REIT establishes to the
satisfaction of the Secretary that rents charged to tenants were
established on an arm's length basis even though a taxable REIT
subsidiary provided services to the tenants.
RELIEF FROM CERTAIN FAILURES OF THE REIT QUALIFICATION PROVISIONS
Beginning in the 2005 taxable year, if we fail to satisfy one or more of
the requirements for REIT qualification (other than the income tests or the
asset tests), we nevertheless may avoid termination of our REIT election in such
year if the failure is due to reasonable cause and not due to willful neglect
and we pay a penalty of $50,000 for each failure to satisfy the REIT
qualification requirements. We may not qualify for this relief provision in all
circumstances.
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FAILURE TO QUALIFY AS A REIT
For any taxable year in which we fail to qualify as a REIT and certain
relief provisions do not apply, we would be taxed at regular corporate rates,
including alternative minimum tax rates on all of our taxable income.
Distributions to our shareholders would not be deductible in computing that
taxable income, and distributions would no longer be required to be made. Any
corporate level taxes generally would reduce the amount of cash available for
distribution to our shareholders and, because the shareholders would continue to
be taxed on the distributions they receive, the net after tax yield to the
shareholders from their investment likely would be reduced substantially. As a
result, failure to qualify as a REIT during any taxable year could have a
material adverse effect on an investment in our shares of common stock. If we
lose our REIT status, unless certain relief provisions apply, we would not be
eligible to elect REIT status again until the fifth taxable year which begins
after the taxable year during which our election was terminated. It is not
possible to state whether in all circumstances we would be entitled to this
statutory relief.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
The term "U.S. shareholder" means a holder of our common shares who, for
federal income tax purposes:
- is a citizen or resident of the United States;
- is a corporation, partnership, limited liability company or other entity
treated as a corporation or partnership for federal income tax purposes
created or organized in or under the laws of the United States or of any
State thereof or in the District of Columbia unless, in the case of a
partnership or limited liability company, Treasury Regulations provide
otherwise;
- is an estate the income of which is subject to federal income taxation
regardless of its source; or
- is a trust whose administration is subject to the primary supervision of
a United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in the
Treasury Regulations, certain trusts in existence on August 20, 1996 and
treated as United States persons prior to this date that elect to
continue to be treated as United States persons, shall also be considered
U.S. shareholders.
The term "non-U.S. shareholder" means a holder or our common shares who is
not a U.S. shareholder.
Except as discussed below, distributions generally will be taxable to
taxable U.S. shareholders as ordinary income to the extent of our current or
accumulated earnings and profits. We may generate cash in excess of our net
earnings. If we distribute cash to shareholders in excess of our current and
accumulated earnings and profits (other than as a capital gain dividend), the
excess cash will be deemed to be a return of capital to each shareholder to the
extent of the adjusted tax basis of the shareholder's shares. Distributions in
excess of the adjusted tax basis will be treated as gain from the sale or
exchange of the shares. A shareholder who has received a distribution in excess
of our current and accumulated earnings and profits may, upon the sale of the
shares, realize a higher taxable gain or a smaller loss because the basis of the
shares as reduced will be used for purposes of computing the amount of the gain
or loss. Distributions we make, whether characterized as ordinary income or as
capital gains, are not eligible for the dividends-received deduction for
corporations. As a REIT, dividends by us of our ordinary income will generally
not qualify as "qualified dividend income" eligible to be taxed in the case of
individuals at capital gains rates. See "Jobs and Growth Tax Act" below.
Dividends we declare in October, November, or December of any year and
payable to a shareholder of record on a specified date in any of these months
shall be treated as both paid by us and received by the shareholder on December
31 of that year, provided we actually pay the dividend on or before
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January 31 of the following calendar year. Shareholders may not include in their
own income tax returns any of our net operating losses or capital losses.
Distributions that we properly designate as capital gain dividends will be
taxable to taxable U.S. shareholders as gains from the sale or disposition of a
capital asset to the extent that they do not exceed our actual net capital gain
for the taxable year. Depending on the period of time the tax characteristics of
the assets which produced these gains, and on certain designations, if any,
which we may make, these gains may be taxable to non-corporate U.S. shareholders
at a 15% or 25% rate. U.S. shareholders that are corporations may, however, be
required to treat up to 20% of certain capital gain dividends as ordinary
income.
We may elect to retain, rather than distribute as a capital gain dividend,
our net long-term capital gains. If we make this election, we would pay tax on
our retained net long-term capital gains. In addition, to the extent we
designate, a U.S. shareholder generally would:
- include its proportionate share of our undistributed long-term capital
gains in computing its long-term capital gains in its return for its
taxable year in which the last day of our taxable year falls;
- be deemed to have paid the capital gains tax imposed on us on the
designated amounts included in the U.S. shareholder's long-term capital
gains;
- receive a credit or refund for the amount of tax deemed paid by it; and
- increase the adjusted basis of its shares of common stock by the
difference between the amount of includable gains and the tax deemed to
have been paid by it; and, in the case of a U.S. shareholder that is a
corporation, appropriately adjust its earnings and profits for the
retained capital gains in accordance with Treasury Regulations to be
prescribed by the IRS.
Distributions we make and gain arising from the sale or exchange by a U.S.
shareholder of our shares will not be treated as income from a passive activity,
within the meaning of Section 469 of the Internal Revenue Code, since income
from a passive activity generally does not include dividends and gain
attributable to the disposition of property that produces dividends. As a
result, U.S. shareholders subject to the passive activity rules will generally
be unable to apply any "passive losses" against this income or gain.
Distributions we make, to the extent they do not constitute a return of capital,
generally will be treated as investment income for purposes of computing the
investment interest limitation. Gain arising from the sale or other disposition
of our shares, however, will be treated as investment income if a shareholder so
elects, in which case the capital gain is taxed at ordinary income rates.
If a U.S. shareholder sells or disposes of our common shares held by it, it
will recognize gain or loss for federal income tax purposes in an amount equal
to the difference between the amount of cash and the fair market value of any
property received on the sale or other disposition and its adjusted basis in the
shares for tax purposes. Generally, this gain or loss will be reportable as
capital gain or loss. In general, capital gains recognized by individuals and
other non-corporate shareholders upon the sale or disposition of shares of
common stock will be subject to a maximum federal income tax rate of 15% if the
shares of common stock are held for more than 12 months, and will be taxed at
ordinary income rates of up to 35% if the shares of common stock are held for 12
months or less. Gains recognized by shareholders that are corporations are
subject to federal income tax at a maximum rate of 35%, whether or not
classified as long-term capital gains. Capital losses recognized by a
shareholder upon the disposition of shares of common stock held for more than
one year at the time of disposition will be considered long-term capital losses,
and are generally available only to offset capital gain income of the
shareholder but not ordinary income (except in the case of individuals, who may
offset up to $3,000 of ordinary income each year). In addition, if a shareholder
receives a long-term capital gain dividend from us and has held the shares for
six months or less, any loss incurred on the sale or exchange of the shares is
treated as a long-term capital loss to the extent of the corresponding long-term
capital gain dividend received.
In any year in which we fail to qualify as a REIT, the shareholders
generally will continue to be treated in the same fashion described above,
except that none of our dividends will be eligible for
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treatment as capital gains dividends, corporate shareholders will qualify for
the dividends received deduction and the shareholders will not be required to
report any share of our tax preference items.
BACKUP WITHHOLDING
We will report to our shareholders and the IRS the amount of dividends paid
during each calendar year and the amount of tax withheld, if any. If a
shareholder is subject to backup withholding, we will be required to deduct and
withhold from any dividends payable to that shareholder a tax equal to the rate
as provided under Section 3406(a)(1) of the Internal Revenue Code. These rules
may apply (1) when a shareholder fails to supply a correct taxpayer
identification number, (2) when the IRS notifies us that the shareholder is
subject to the rules or has furnished an incorrect taxpayer identification
number, or (3) in the case of corporations or others within certain exempt
categories, when they fail to demonstrate that fact when required. A shareholder
that does not provide a correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount withheld as backup
withholding may be credited against the shareholder's federal income tax
liability. We also may be required to withhold a portion of capital gain
distributions made to shareholders who fail to certify their non-foreign status.
The United States Treasury issued its final regulations regarding the
withholding and information reporting rules discussed above. In general, the
final regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and clarify
reliance standards. The final regulations were generally made effective for
payments made on or after January 1, 2001, subject to certain transition rules.
Prospective investors should consult their own tax advisors concerning these
final regulations and the potential effect on their ownership of common shares.
TAXATION OF TAX-EXEMPT ENTITIES
In general, a tax-exempt entity that is a shareholder will not be subject
to tax on distributions from us or gain realized on the sale of shares. This
income or gain will be unrelated business taxable income, however, to the extent
that the tax-exempt entity has financed the acquisition of its shares with
"acquisition indebtedness" within the meaning of the Internal Revenue Code or
that it uses the shares in a trade or business of the tax-exempt shareholder. In
determining the number of shareholders a REIT has for purposes of the "50% test"
described above under "-- REIT Qualification," generally, any shares held by
tax-exempt employees' pension and profit sharing trusts which qualify under
Section 401(a) of the Internal Revenue Code and are exempt from tax under
Section 501(a) of the Internal Revenue Code ("qualified trusts") will be treated
as held directly by its beneficiaries in proportion to their interests in the
trust and will not be treated as held by the trust.
A qualified trust owning more than 10% of a REIT may be required to treat a
percentage of dividends from the REIT as unrelated business taxable income
("UBTI"). The percentage is determined by dividing the REIT's gross income (less
direct expenses related thereto) derived from an unrelated trade or business for
the year (determined as if the REIT were a qualified trust) by the gross income
(less direct expenses related thereto) of the REIT for the year in which the
dividends are paid. However, if this percentage is less than 5%, dividends are
not treated as UBTI. These UBTI rules apply only if the REIT qualifies as a REIT
because of the "look-thru" rule with respect to the 50% test discussed above and
if the REIT is "predominantly held" by qualified trusts. A REIT is predominantly
held by qualified trusts if at least one pension trust owns more than 25% of the
value of the REIT or a group of pension trusts each owning more than 10% of the
value of the REIT collectively own more than 50% of the value of the REIT. We do
not currently meet either of these requirements.
For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of
the Internal Revenue Code, respectively, income from an investment in our
capital stock will constitute UBTI unless the organization is able to deduct an
amount properly set aside or placed in reserve for certain purposes so as to
offset the UBTI generated by the investment in our
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capital stock. These prospective investors should consult their own tax advisors
concerning the "set aside" and reserve requirements.
TAXATION OF FOREIGN INVESTORS
The rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
shareholders are complex and no attempt will be made herein to provide more than
a summary of such rules. Prospective non-U.S. shareholders should consult with
their own tax advisors to determine the impact of federal, state and local
income tax laws with regard to an investment in shares of common stock,
including any reporting requirements, as well as the tax treatment of such an
investment under the laws of their home country.
Dividends that are not attributable to gain from any sales or exchanges we
make of United States real property interests and which we do not designate as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of our current or accumulated earnings and
profits. Those dividends ordinarily will be subject to a withholding tax equal
to 30% of the gross amount of the dividend unless an applicable tax treaty
reduces or eliminates that tax. However, if income from the investment in the
shares of common stock is treated as effectively connected with the non-U.S.
shareholder's conduct of a United States trade or business, the non-U.S.
shareholder generally will be subject to a tax at graduated rates, in the same
manner as U.S. shareholders are taxed with respect to those dividends, and may
also be subject to the 30% branch profits tax in the case of a shareholder that
is a foreign corporation. For withholding tax purposes, we are currently
required to treat all distributions as if made out of our current and
accumulated earnings and profits and thus we intend to withhold at the rate of
30%, or a reduced treaty rate if applicable, on the amount of any distribution
(other than distributions designated as capital gain dividends) made to a
non-U.S. shareholder unless (1) the non-U.S. shareholder files an IRS Form
W-8BEN claiming that a lower treaty rate applies or (2) the non-U.S. shareholder
files an IRS Form W-8ECI claiming that the dividend is effectively connected
income.
Under final Treasury Regulations, we are not required to withhold at the
30% rate on distributions we reasonably estimate to be in excess of our current
and accumulated earnings and profits. Dividends in excess of our current and
accumulated earnings and profits are not taxable to a shareholder to the extent
that they do not exceed the adjusted basis of the shareholder's shares, but
rather will reduce the adjusted basis of those shares. To the extent that those
dividends exceed the adjusted basis of a non-U.S. shareholder's shares, they
will give rise to tax liability if the non-U.S. shareholder would otherwise be
subject to tax on any gain from the sale or disposition of his shares, as
described below. If it cannot be determined at the time a dividend is paid
whether or not a dividend will be in excess of current and accumulated earnings
and profits, the dividend will be subject to such withholding. We do not make
quarterly estimates of that portion of dividends that are in excess of earnings
and profits, and, as a result, all dividends will be subject to such
withholding. However, the non-U.S. shareholder may seek a refund of those
amounts from the IRS.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from our sales or exchanges of United States real property
interests will be taxed to a non-U.S. shareholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980, commonly known as "FIRPTA."
Under FIRPTA, those dividends are taxed to a non-U.S. shareholder as if the gain
were effectively connected with a United States business. Non-U.S. shareholders
would thus be taxed at the normal capital gain rates applicable to U.S.
shareholders subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals. Also,
dividends subject to FIRPTA may be subject to a 30% branch profits tax in the
hands of a corporate non-U.S. shareholder not entitled to treaty exemption. We
are required by the Internal Revenue Code and applicable Treasury Regulations to
withhold 35% of any dividend that could be designated as a capital gain dividend
in connection with the sale of a United States real property interest. This
amount is creditable against the non-U.S. shareholder's FIRPTA tax liability.
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Beginning in the 2005 taxable year, the above taxation under FIRPTA of
distributions attributable to gains from our sales or exchanges of U.S. real
property interests (or such gains that are retained and deemed to be
distributed) will not apply, provided our common shares are "regularly traded"
on an established securities market in the United States, and the non-U.S.
shareholder does not own more than 5% of the common shares at any time during
the taxable year. Instead, such amounts will be taxable as a dividend of
ordinary income not effectively connected with a U.S. trade or business.
Gain recognized by a non-U.S. shareholder upon a sale of shares generally
will not be taxed under FIRPTA if we are a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period less than 50% in value of the shares was held directly or indirectly by
foreign persons. It is currently anticipated that we will be a "domestically
controlled REIT," and therefore the sale of shares will not be subject to
taxation under FIRPTA. Because the shares of common stock will be publicly
traded, however, no assurance can be given that we will remain a "domestically
controlled REIT." However, gain not subject to FIRPTA will be taxable to a
non-U.S. shareholder if (1) investment in the shares of common stock is
effectively connected with the non-U.S. shareholder's United States trade or
business, in which case the non-U.S. shareholder will be subject to the same
treatment as U.S. shareholders with respect to that gain, and may also be
subject to the 30% branch profits tax in the case of a corporate non-U.S.
shareholder, or (2) the non-U.S. shareholder is a nonresident alien individual
who was present in the United States for 183 days or more during the taxable
year in which case the nonresident alien individual will be subject to a 30%
withholding tax on the individual's capital gains. If we were not a domestically
controlled REIT, whether or not a non-U.S. shareholder's sale of shares would be
subject to tax under FIRPTA would depend on whether or not the shares of common
stock were regularly traded on an established securities market (such as the
American Stock Exchange) and on the size of selling non-U.S. shareholder's
interest in our capital shares. If the gain on the sale of shares were to be
subject to taxation under FIRPTA, the non-U.S. shareholder will be subject to
the same treatment as U.S. shareholders with respect to that gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals and the possible application of the 30%
branch profits tax in the case of foreign corporations) and the purchaser of our
shares of common stock may be required to withhold 10% of the gross purchase
price.
JOBS AND GROWTH TAX ACT
On May 28, 2003, the President of the United States signed into law the
Jobs and Growth Tax Relief Reconciliation Act of 2003, referred to herein as the
Jobs and Growth Tax Act. The Jobs and Growth Tax Act reduces the maximum
individual tax rate for long-term capital gains generally from 20% to 15% (for
sales occurring after May 6, 2003, through December 31, 2008). The Jobs and
Growth Tax Act also taxes "qualified dividend income" of individuals as net
capital gain, thus reducing the maximum individual tax rate for such dividends
to 15% (for tax years from 2003 through 2008). "Qualified dividend income"
generally includes dividends received from regular corporations and from certain
"qualified foreign corporations," provided certain required stock holding
periods are met.
Under the Jobs and Growth Tax Act, REIT dividends (other than capital gain
dividends) generally are not qualified dividend income and continue to be taxed
at ordinary rates. Dividends received from a REIT will be treated as qualified
dividend income, however, to the extent the REIT itself has qualified dividend
income for the taxable year in which the dividend was paid, such as dividends
from taxable REIT subsidiaries, and designates such dividends as qualifying for
such capital gains rate tax treatment. Qualified dividend income of a REIT for
this purpose also includes the sum of (i) the excess of the REIT's "real estate
investment trust taxable income" for the preceding year, which would typically
include any income that the REIT did not distribute to stockholders, over the
tax payable by the REIT on such income, and (ii) the excess of the income of the
REIT for the preceding year subject to the built-in gain tax on certain assets
acquired from C corporations, including as a result of the conversion of a C
corporation to a REIT, over the tax payable by the REIT on any such income in
the preceding year.
Assuming that we distribute all of our taxable income to our stockholders,
our distributions generally will not be eligible for the new 15% tax rate on
dividends for individual taxpayers except to the extent
79
attributable to income on which we have paid tax as discussed above or to
dividends received by us from non-REIT corporations such as taxable REIT
subsidiaries. As a result, our ordinary REIT distributions generally will be
taxed at the higher tax rates applicable to ordinary income.
Without future congressional action, the maximum individual tax rate on
long-term capital gains will return to 20% in 2009, and the maximum individual
tax rate on dividends will move to 35% in 2009 and 39.6% in 2011.
STATE AND LOCAL TAXES
We and our shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in our capital shares.
CERTAIN ERISA CONSIDERATIONS
Each prospective investor that is (i) an ERISA Plan, (ii) a plan within the
meaning of Section 4975(e)(1) of the Internal Revenue Code (including an IRA and
a Keogh Plan) or (iii) a person investing assets of any ERISA Plan or plan whose
assets are deemed to include plan assets should consider the matters described
below in determining whether to invest in our capital shares. Such ERISA Plans,
plans and persons are referred to herein as "Plans."
GENERAL FIDUCIARY RULES
Investments by ERISA Plans and persons whose assets are deemed to include
plan assets are subject to ERISA's general fiduciary requirements, including the
requirements of investment prudence and diversification, requirements respecting
the delegation of investment authority and the requirement that an ERISA Plan's
investment be made in accordance with the documents governing the Plan. Plan
fiduciaries must give appropriate consideration to, among other things, the role
that an investment in our capital shares has in the Plan's investment portfolio,
taking into account the Plan's purposes, the risk of loss and the potential
return in respect of such investment, the composition of the Plan's portfolio,
the liquidity and current return of the total portfolio relative to the
anticipated cash flow needs of the Plan, and the projected return of the
portfolio relative to the Plan's funding objectives. Keogh Plan and IRA
investors should also consider whether an investment in our capital shares is
appropriate for their Keogh Plans or IRAs.
PLAN ASSETS
Regulations issued by the U.S. Department of Labor (the "Plan Asset
Regulations") describe what constitutes the assets of a Plan for purposes of
various provisions of ERISA and Section 4975 of the Internal Revenue Code when a
Plan makes an equity investment in an entity such as an investment in our
capital shares. The U.S. Department of Labor has generally stated that an
investment by a plan in securities (within the meaning of section 3(20) of
ERISA) of a corporation or partnership will not, solely by reason of such
investment, be considered to be an investment in the underlying assets of such
corporation or partnership so as to make such assets of the entity "plan assets"
and thereby make a subsequent transaction between the party in interest and the
corporation or partnership a prohibited transaction under Section 406 of ERISA.
The Plan Asset Regulations provide that the assets of entities in which
retirement plans make equity investments will be treated as "plan assets" unless
such investments are (1) in publicly offered securities, (2) in securities
offered by an investment company registered under the Investment Company Act of
1940, or (3) within one of the other specific exemptions set forth in the Plan
Asset Regulations. Since we are not a registered investment company, the
exemption contained in the Plan Asset Regulations which may apply to an
investment in our capital shares is that that it may be an investment in
"publicly offered securities," defined generally as interests which are freely
transferable, widely-held and registered with the Securities and Exchange
Commission or an investment in which equity
80
participation by "benefit plan investors" is not significant. The Plan Asset
Regulations provide that equity participation in an entity by benefit plan
investors is "significant" if at any time 25% or more of the value of any class
of equity interest is held by benefit plan investors. The term "benefit plan
investors" is broadly defined for this purpose to include any employee pension
or welfare benefit plan, whether or not subject to ERISA, any plan described in
Section 4975(e)(1) of the Internal Revenue Code and any entity whose underlying
assets include plan assets by reason of plan investment in the entity. We may
have equity participation in this offering by "benefit plan investors" that is
significant, as defined above. Therefore, we may not qualify for the exemption
for investments in which equity participation by benefit plan investors is not
significant.
PLAN ASSET REGULATIONS -- PUBLICLY OFFERED SECURITIES EXEMPTION
As noted above, if a retirement plan acquires "publicly offered
securities," the assets of the issuer of the securities are not deemed to be
plan assets under the Plan Asset Regulations. The definition of publicly offered
securities requires that such securities must be "widely-held," "freely
transferable" and must satisfy certain registration requirements under federal
securities laws. Although we should satisfy the registration requirements under
this definition, the determinations of whether a security is "widely-held" and
"freely transferable" are inherently factual matters. Under the Plan Asset
Regulations, a class of securities will be "widely-held" if it is held by 100 or
more persons. We anticipate that this requirement will be met; however, even if
the shares are deemed to be widely-held, the "freely transferable" requirement
must also be satisfied in order to qualify for this exemption. We intend to
satisfy the freely transferable requirement set forth in the Plan Asset
Regulations with respect to our shares. Because of the factual nature of such a
determination, however, and the lack of further guidance as to the meaning of
the term "freely transferable," there can be no assurance that we will, in fact,
qualify for this exemption.
PROHIBITED TRANSACTIONS
ERISA generally prohibits a fiduciary from causing an ERISA Plan to engage
in a broad range of transactions involving the assets of the ERISA Plan and
persons having a specified relationship to the Plan ("parties in interest")
unless a statutory or administrative exemption applies. Similar prohibitions are
contained in Section 4975 of the Internal Revenue Code and generally apply with
respect to ERISA Plans, Keogh Plans, IRAs, and other Plans. An excise tax may be
imposed pursuant to Section 4975 of the Internal Revenue Code on persons having
a specified relationship with a Plan ("disqualified persons") in respect of
prohibited transactions involving the assets of the Plan. Generally speaking,
parties in interest for purposes of ERISA would be disqualified persons under
Section 4975 of the Internal Revenue Code.
If our assets are treated for purposes of ERISA and Section 4975 of the
Internal Revenue Code as the assets of the Plans that invest in our capital
shares due to the fact that we fail to satisfy the publicly offered securities
exception, certain transactions that we might enter into in the ordinary course
of our business might constitute "prohibited transactions" under ERISA and the
Internal Revenue Code, thereby potentially subjecting fiduciaries of the Plans
to personal liability and civil penalties and potentially resulting in the
imposition of an excise tax under Section 4975 of the Internal Revenue Code on
the disqualified person that is party to the transaction with us unless a
statutory or administrative exemption exist and the plan satisfies all
conditions for such exemptive relief.
There are five class exemptions issued by the Department of Labor that
could apply in the event of a prohibited transaction. These Department of Labor
Prohibited Transaction Class Exemptions apply to:
- plan asset transactions determined by independent qualified professional
asset managers (PTE 84-14),
- certain transactions involving bank collective investment funds (PTE
91-38),
- certain transactions involving insurance company pooled separate accounts
(PTE 90-1),
81
- certain transactions involving insurance company general accounts (PTE
95-60), and
- plan asset transactions determined by in-house asset manager (PTE 96-23).
However, there is no assurance that these exemptions or any other exemption
will apply, even if all of the conditions specified are satisfied.
GOVERNMENTAL PLANS
Although federal, state and local governmental pension plans are not
subject to ERISA, applicable provisions of federal and state law may restrict
the type of investments such a plan may make or otherwise have an impact on such
a plan's ability to invest in our capital shares. Accordingly, state and local
governmental pension plans considering an investment in our capital shares
should consult with their counsel regarding their proposed investment in our
capital shares.
SPECIAL CONSIDERATIONS FOR INSURANCE COMPANIES
An insurance company considering an investment should consider whether it's
general account may be deemed to include assets of the plans investing in the
general account, for example, through the purchase of an annuity contract. In
John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 510
U.S. 86 (1993), the United States Supreme Court held that assets held in an
insurance company's general account may be deemed to be plan assets under
certain circumstances. In that event, the insurance company might be treated as
a party in interest under such plans. However, PTE 95-60 (described above) may
exempt some or all of the transactions that could occur as the result of the
acquisition of our capital shares by an insurance company general account.
Therefore, insurance company investors should analyze whether John Hancock and
PTE 95-60 or any other exemption may have an impact on their decision to
purchase our capital shares.
In addition, the Small Business Job Protection Act of 1996 added a new
Section 401(c) of ERISA relating to the status of the assets of insurance
company general accounts under ERISA and Section 4975 of the Internal Revenue
Code. Pursuant to Section 401(c), the Department of Labor issued final
regulations effective January 5, 2000 (the "General Account Regulations") with
respect to insurance policies issued on or before December 31, 1998, that are
supported by an insurer's general account. As a result of these regulations,
assets of an insurance company general account will not be treated as "plan
assets" for purposes of the fiduciary responsibility provisions of ERISA and
Section 4975 of the Internal Revenue Code to the extent such assets relate to
contracts issued to employee benefit plans on or before December 31, 1998, and
the insurer satisfies various conditions. The plan asset status of insurance
company separate accounts is unaffected by new Section 401(c) of ERISA, and
separate account assets continue to be treated as the plan assets of any such
plan invested in a separate account.
THE FOREGOING DISCUSSION OF ERISA AND INTERNAL REVENUE CODE ISSUES SHOULD
NOT BE CONSTRUED AS LEGAL ADVICE. FIDUCIARIES OF PLANS SHOULD CONSULT THEIR OWN
COUNSEL WITH RESPECT TO ISSUES ARISING UNDER ERISA AND THE INTERNAL REVENUE CODE
AND MAKE THEIR OWN INDEPENDENT DECISION REGARDING AN INVESTMENT IN OUR COMMON
SHARES.
82
UNDERWRITING
AmREIT and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to the terms and
conditions stated in the underwriting agreement, each underwriter named below
has agreed to purchase, and we have agreed to sell to that underwriter, the
number of common shares set forth opposite the underwriter's name.
NUMBER OF
CLASS A
UNDERWRITERS COMMON SHARES
------------ -------------
Robert W. Baird & Co. Incorporated .........................
BB&T Capital Markets........................................
A division of Scott & Stringfellow
J.J.B. Hilliard, W.L. Lyons, Inc. ..........................
Total..................................................
The underwriting agreement provides that the obligations of the
underwriters to purchase the common shares included in this offering are subject
to approval of legal matters by counsel and to other conditions. The
underwriters are obligated to purchase all the class A common shares (other than
those covered by the over-allotment option described below) if they purchase any
of the common shares.
The underwriters propose to offer some of the common shares directly to the
public at the public offering price set forth on the cover page of this
prospectus and some of the common shares to dealers at the public offering price
less a concession not to exceed $ per share. The underwriters may allow, and
dealers may reallow, a concession not to exceed $ per share on sales to
other dealers. If all of the common shares are not sold at the initial offering
price, the representatives may change the public offering price and the other
selling terms.
In addition to the underwriting discount paid to the underwriters, we will
also pay to Robert W. Baird & Co. Incorporated financial advisory fees relating
to the offering in the aggregate amount of $
($ if the underwriters' over-allotment option is exercised in full).
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 450,000 additional class A common
shares at the public offering price less the underwriting discount. The
underwriters may exercise the option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent the
option is exercised, each underwriter must purchase a number of additional
common shares approximately proportionate to that underwriter's initial purchase
commitment.
We and our trust managers and certain officers have agreed that, for a
period of 90 days from the date of this prospectus, we and they will not,
without the prior written consent of Robert W. Baird & Co. Incorporated, dispose
of or hedge any of our class A common shares or any securities convertible into
or exchangeable for our class A common shares, except under limited
circumstances. Robert W. Baird & Co. Incorporated in its sole discretion may
release any of the securities subject to these lock-up agreements at any time
without notice.
Our class A common shares are listed on the American Stock Exchange under
the symbol "AMY."
The following table shows the underwriting discounts and commissions that
we are to pay to the underwriters in connection with this offering. Theses
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional common shares.
NO FULL
EXERCISE EXERCISE
-------- --------
Per share................................................... $ $
Total....................................................... $ $
83
In connection with this offering, Robert W. Baird & Co., on behalf of the
underwriters, may purchase and sell common shares in the open market. These
transactions may include short sales, syndicate covering transactions and
stabilizing transactions. Short sales involve syndicate sales of common shares
in excess of the number of common shares to be purchased by the underwriters in
the offering, which creates a syndicate short position. "Covered" short sales
are sales of shares made in an amount up to the number of shares represented by
the underwriters' over-allotment option. In determining the source of shares to
close out the covered syndicate short position, the underwriters will consider,
among other things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase shares through the
over-allotment option. Transactions to close out the covered syndicate short
position involve either purchases of common shares in the open market after the
distribution has been completed or the exercise of the over-allotment option.
The underwriters may also make "naked" short sales of shares in excess of the
over-allotment option. The underwriters must close out any naked short position
by purchasing common shares in the open market. A naked short position is more
likely to be created if the underwriters are concerned that there may be
downward pressure on the price of the shares in the open market after pricing
that could adversely affect investors who purchase in the offering. Stabilizing
transactions consist of bids for or purchases of shares in the open market while
the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when Robert
W. Baird & Co. repurchases shares originally sold by that syndicate member in
order to cover syndicate short positions or to make stabilizing purchases.
Any of these activities may have the effect of preventing or retarding a
decline in the market price of our common shares. They may also cause the price
of our common shares to be higher than the price that would otherwise exist in
the open market in the absence of these transactions. The underwriters may
conduct these transactions on the American Stock Exchange or in the
over-the-counter market, or otherwise. If the underwriters commence any of these
transactions, they may discontinue them at any time.
We estimate that our total expenses of this offering will be approximately
$441,755.
A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters. The representatives may agree to
allocate a number of common shares to underwriters for sale to their online
brokerage account holders. The representatives will allocate common shares to
underwriters that may make Internet distributions on the same basis as other
allocations. In addition, common shares may be sold by the underwriters to
securities dealers who resell common shares to online brokerage account holders.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make because of any of those
liabilities.
EXPERTS
The consolidated financial statements and schedule of AmREIT and
subsidiaries as of December 31, 2004 and 2003, and for each of the years in the
three year period ended December 31, 2004, have been incorporated by reference
herein in reliance upon the report of KPMG LLP, independent registered public
accounting firm, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The historical summary of gross income and direct operating expenses of
MacArthur Park Shopping Center for the year ended December 31, 2003, has been
incorporated by reference herein in reliance upon the report of KPMG LLP,
independent auditor, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
84
LEGAL OPINIONS
The legality of the shares being offered hereby will be passed upon by
Locke Liddell & Sapp LLP, Dallas, Texas. The statements under the caption
"Federal Income Tax Consequences" as they relate to federal income tax matters
have been reviewed by Locke Liddell & Sapp LLP, and Locke Liddell & Sapp LLP
will opine as to certain income tax matters relating to an investment in AmREIT.
Certain legal matters related to the class A common shares offered by this
prospectus will be passed upon for the underwriters by Bass, Berry & Sims PLC,
Memphis, Tennessee. Bass, Barry & Sims PLC will rely as to matters of Texas law
on the opinion of Locke Liddell & Sapp LLP.
ADDITIONAL INFORMATION
We have filed with the SEC in Washington, D.C., a registration statement on
Form S-2 under the Securities Act of 1933, as amended, with respect to the
shares offered pursuant to this prospectus. This prospectus does not contain all
the information set forth in the registration statement and the exhibits related
thereto filed with the SEC, reference to which is hereby made. Copies of the
registration statement and exhibits related thereto, as well as periodic reports
and information filed by AmREIT may be obtained upon payment of the fees
prescribed by the SEC, or may be examined at the offices of the SEC without
charge, at the public reference facility in Washington, D.C. at Judiciary Plaza,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the SEC
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC.
The Commission allows us to "incorporate" into this Prospectus information
that we file with the SEC in other documents. This means that we can disclose
important information to you by referring to other documents that contain that
information. The information incorporated by reference is considered to be part
of this Prospectus. Information contained in this Prospectus automatically
updates and supersedes previously filed information. We are incorporating by
reference the documents listed below and all of our filings pursuant to the
Exchange Act after the date of filing the initial Registration Statement and
prior to effectiveness of the Registration Statement.
The following documents filed by AmREIT with the SEC are incorporated
herein by reference:
- Annual Report on Form 10-K for the year ended December 31, 2004, as filed
with the SEC on March 31, 2005;
- Definitive Proxy Statement on Schedule 14A as filed with the SEC on April
22, 2005;
- Form 8-A registering the class A common shares as filed with the SEC on
July 17, 2002;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2005;
- Current Report on Form 8-K/A as filed with the SEC on March 10, 2005;
- Current Report on Form 8-K as filed with the SEC on March 18, 2005; and
- Current Report on Form 8-K as with SEC on May 13, 2005.
85
DOCUMENTS DELIVERED WITH THIS PROSPECTUS
This Prospectus is accompanied by a copy of:
- our most recent Quarterly Report on Form 10-Q (which is currently our
Quarterly Report for the quarter ended March 31, 2005);
- our most recent Annual Report on Form 10-K (which is currently our Annual
Report for the fiscal year ended December 31, 2004); and
- our definitive Proxy Statement on Schedule 14A relating to our 2005
annual meeting.
If you need an additional copy of these documents, or if you would like to
receive a copy of any of the other items referenced above, you may request
copies, at no cost, by writing or telephoning us at the address set forth below.
We will provide copies of the exhibits to these filings only if they are
specifically incorporated by reference in these filings.
Robyn Walden
8 Greenway Plaza, Suite 1000
Houston, Texas 77046
(713) 850-1400
86
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
3,000,000 SHARES
(AMREIT LOGO)
CLASS A COMMON SHARES
-------------------------
PROSPECTUS
-------------------------
ROBERT W. BAIRD & CO.
BB&T CAPITAL MARKETS J.J.B. HILLIARD, W.L. LYONS, INC.
May , 2005
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee........................................ $ 3,382
AMEX Listing Fee............................................ $ 45,000
NASD Filing Fee*............................................ $ 3,373
Legal fees and expenses*.................................... $260,000
Accounting fees and expenses *.............................. $ 50,000
Printing, engraving and mailing expenses*................... $ 65
Miscellaneous (including solicitation costs)*............... $ 15,000
--------
TOTAL*.................................................... $441,755
========
---------------
* Estimated.
+ To be filed by amendment.
ITEM 15. INDEMNIFICATION OF TRUST MANAGERS AND OFFICERS
AmREIT's declaration of trust provides that the liability of each trust
manager for monetary damages shall be eliminated to the fullest extent permitted
by applicable law. In general, under current Texas law, a trust manager is
liable to the trust only for liabilities arising from such trust manager's own
willful misfeasance or willful malfeasance or gross negligence. The declaration
of trust also provides that no amendment thereto may limit or eliminate this
limitation of liability with respect to event occurring prior to the effective
date of such amendment.
AmREIT's declaration of trust provides that the trust manages and officers
shall be indemnified to the maximum extent permitted by Texas law. Under current
Texas law, the trust will indemnify a person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding because the person is or
was a trust manager or officer if it is determined that the person (i) conducted
himself in good faith; (ii) reasonably believed: (a) in the case of conduct in
his official capacity as a trust manager or officer of the real estate
investment trust, that his conduct was in the real estate investment trust's
best interests; and (b) in all other cases, that his conduct was at least not
opposed to the real estate investment trust's best interests; and (iii) in the
case of any criminal proceeding, had no reasonable cause to believe that his
conduct was unlawful. Except to the extent provided in the following sentence, a
trust manager or officer may not be indemnified (i) in respect of a proceeding
in which the person is found liable on the basis that personal benefit was
improperly received by him, whether or not the benefit resulted from an action
taken in the person's official capacity; or (ii) in which the person is found
liable to the real estate investment trust. Notwithstanding the foregoing, a
person may be indemnified against judgments, penalties (including excise and
similar taxes), fines, settlements, and reasonable expenses actually incurred by
the person in connection with the proceeding; provided that if the person is
found liable to the real estate investment trust or is found liable on the basis
that personal benefit was improperly received by the person, the indemnification
(i) is limited to reasonable expenses actually incurred by the person in
connection with the proceeding, and (ii) shall not be made in respect of any
proceeding in which the person shall have been found liable for willful or
intentional misconduct in the performance of his duty to the real estate
investment trust. In addition, AmREIT's declaration of trust and Bylaws require
it to payor reimburse, in advance of the final disposition of a proceeding,
reasonable expenses incurred by a present or former director or officer made a
party to a proceeding by reason of his status as a trust manager or officer,
provided that AmREIT shall have received (i) a written affirmation by the trust
manager or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by AmREIT as authorized by the Bylaws and
(ii) a written undertaking by or on his behalf to repay the amount paid or
reimbursed by AmREIT if it shall ultimately be determined that the standard of
conduct was not met. AmREIT's declaration of trust and Bylaws also permit AmREIT
to provide indemnification, payment or
II-1
reimbursement of expenses to any employee or agent of AmREIT in such capacity.
Any indemnification, payment or reimbursement of the expenses permitted by the
declaration of trust and Bylaws shall be furnished in accordance with the
procedures provided for indemnification and payment or reimbursement of expenses
under Texas Real Estate Investment Trust Act for trust managers.
ITEM 16. EXHIBITS
EXHIBIT
NO. EXHIBIT
------- -------
1.1+ Form of Underwriting Agreement.
4.1 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).
4.2 Bylaws (included as Exhibit 4.2 to the Registrant's Form S-2
filed with the SEC on April 22, 2005 and incorporated herein
by reference).
4.3 Statement of Designation of Class C Common Shares
(incorporated by reference to Exhibit 3.3 to the
Registrant's Form S-11/A filed on August 7, 2003).
4.4 Statement of Designation of Class D Common Shares (included
as Exhibit 4.4 to the Registrant's Form S-2 filed with the
SEC on April 22, 2005 and incorporated herein by reference).
5.1 Opinion of Locke Liddell & Sapp LLP regarding legality of
the securities (included as Exhibit 5.1 to the Registrant's
Form S-2 filed with the SEC on April 22, 2005 and
incorporated herein by reference).
8.1* Opinion of Locke Liddell & Sapp LLP regarding tax matters.
10.1 Revolving Credit Agreement, effective September 4, 2003, by
and among the Registrant and Wells Fargo Bank, as the Agent,
relating to a $20,000,000 loan (included as Exhibit 10.3 of
the Exhibits to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2003 and incorporated herein
by reference).
10.2 Amended and Restated Revolving Credit Agreement, effective
December 8, 2003, by and among the Registrant and Wells
Fargo Bank, as the Agent, relating to a $30,000,000 loan
(included as Exhibit 10.4 of the Exhibits to the Company's
Annual Report on Form 10-KSB for the year ended December 31,
2003 and incorporated herein by reference).
23.1* Consent of Locke Liddell & Sapp LLP (included in Exhibits
5.1 and 8.1).
23.2* Consent of KPMG LLP.
23.3* Consent of KPMG LLP.
24.1 Power of Attorney (included on signature page).
---------------
* Filed herewith.
+ To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b)
II-2
if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the Registration
Statement is on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trust managers, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(6) The undersigned registrant hereby undertakes to deliver or cause
to be delivered with the prospectus, to each person to whom the prospectus
is sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and where interim financial information required to
be presented by Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
II-3
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-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on the 13th day of May,
2005.
AMREIT
(Registrant)
By: /s/ H. Kerr Taylor
------------------------------------
Name: H. Kerr Taylor
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
H. Kerr Taylor and Chad C. Braun, and each of them, as his attorney-in-fact and
agent, with full power of substitution and resubstitution for him in any and all
capacities, to sign any or all amendments or post-effective amendments to this
registration statement, and to sign any and all registration statements relating
to the same offering of securities as this registration statement that are filed
pursuant to Rule 462(b) of the Securities Act of 1933, and to file the
foregoing, with all exhibits thereto, and other documents in connection
therewith, with the U.S. Securities and Exchange Commission, the American Stock
Exchange, and such other authorities as he or she deems appropriate, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, and each of them individually, or such
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
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 May 13, 2005
------------------------------------------------ and Chairman of the Board
H. Kerr Taylor (Principal Executive Officer)
/s/ Chad C. Braun Executive Vice President and May 13, 2005
------------------------------------------------ Chief Financial Officer
Chad C. Braun (Principal Financial Officer)
/s/ * Trust Manager May 13, 2005
------------------------------------------------
Robert S. Cartwright
/s/ * Trust Manager May 13, 2005
------------------------------------------------
G. Steven Dawson
/s/ * Trust Manager May 13, 2005
------------------------------------------------
Philip W. Taggart
*By: Chad C. Braun, as Attorney-in-Fact
II-4
EXHIBIT INDEX
EXHIBIT
NO. EXHIBIT
------- -------
1.1+ Form of Underwriting Agreement.
4.1 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).
4.2 Bylaws (included as Exhibit 4.2 to the Registrant's Form S-2
filed with the SEC on April 22, 2005 and incorporated herein
by reference).
4.3 Statement of Designation of Class C Common Shares
(incorporated by reference to Exhibit 3.3 to the
Registrant's Form S-11/A filed on August 7, 2003).
4.4 Statement of Designation of Class D Common Shares (included
as Exhibit 4.4 to the Registrant's Form S-2 filed with the
SEC on April 22, 2005 and incorporated herein by reference).
5.1 Opinion of Locke Liddell & Sapp LLP regarding legality of
the securities (included as Exhibit 5.1 to the Registrant's
Form S-2 filed with the SEC on April 22, 2005 and
incorporated herein by reference).
8.1* Opinion of Locke Liddell & Sapp LLP regarding tax matters.
10.1 Revolving Credit Agreement, effective September 4, 2003, by
and among the Registrant and Wells Fargo Bank, as the Agent,
relating to a $20,000,000 loan (included as Exhibit 10.3 of
the Exhibits to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2003 and incorporated herein
by reference).
10.2 Amended and Restated Revolving Credit Agreement, effective
December 8, 2003, by and among the Registrant and Wells
Fargo Bank, as the Agent, relating to a $30,000,000 loan
(included as Exhibit 10.4 of the Exhibits to the Company's
Annual Report on Form 10-KSB for the year ended December 31,
2003 and incorporated herein by reference).
23.1* Consent of Locke Liddell & Sapp LLP (included in Exhibits
5.1 and 8.1).
23.2* Consent of KPMG LLP.
23.3* Consent of KPMG LLP.
24.1 Power of Attorney (included on signature page).
---------------
* Filed herewith.
+ To be filed by amendment.