SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended June 30, 2001.
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _____________ to _______________
Commission file number 1-14462
AmeriVest Properties Inc.
-------------------------
(Exact name of small business issuer as specified in its charter.)
Maryland 84-1240264
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
1780 South Bellaire Street, Suite 515
Denver, Colorado 80222
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(Zip Code)
(303) 297-1800
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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As of August 14, 2001 the Registrant had outstanding 6,350,796 shares of common
stock, par value $.001.
Transitional Small Business Disclosure Format (check one):
Yes No X
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AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
FORM 10-QSB
JUNE 30, 2001
Table of Contents
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Part I Page No.
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Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 2001 (unaudited) and December 31, 2000 3
Condensed Consolidated Statements of Operations for
the Three and Six Months Ended June 30, 2001
and 2000 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2001 and 2000 (unaudited) 5
Notes to Condensed Consolidated Financial Statements
(unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II
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Item 2. Changes in Securities and Use of Proceeds; Recent Sales Of
Unregistered Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
2
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2001 2000
------------ ------------
(Unaudited)
ASSETS
Investment in real estate
Land $ 9,960,376 $ 8,761,566
Buildings and improvements 49,507,032 32,210,274
Furniture, fixtures and equipment 152,445 68,793
Tenant improvements 1,207,454 645,429
Tenant leasing commissions 233,484 585,887
Less accumulated depreciation and amortization (2,206,642) (3,349,569)
------------ ------------
Net Investment in Real Estate 58,854,149 38,922,380
Cash and cash equivalents 720,799 1,046,976
Investment in unconsolidated affiliate, net -- 584,640
Accounts receivable 292,061 52,328
Deferred rents receivable 273,329 524,581
Deferred financing costs, net 490,687 411,634
Prepaid expenses, escrows and other assets 1,129,583 821,258
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Total Assets $ 61,760,608 $ 42,363,797
============ ============
LIABILITIES
Mortgage loans and notes payable $ 42,056,282 $ 28,122,856
Accounts payable and accrued expenses 3,224,848 1,025,466
Accrued real estate taxes 555,220 747,647
Prepaid rents and security deposits 969,989 737,207
Dividends payable 541,399 372,118
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Total Liabilities 47,347,738 31,005,294
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STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value
Authorized - 5,000,000 shares
Issued and outstanding - none -- --
Common stock, $.001 par value
Authorized - 15,000,000 shares
Issued and outstanding - 4,331,188 and 2,976,939
shares, respectively 4,331 2,977
Capital in excess of par value 19,617,018 11,879,099
Distributions in excess of accumulated earnings (5,208,479) (523,573)
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Total Stockholders' Equity 14,412,870 11,358,503
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Total Liabilities and Stockholders' Equity $ 61,760,608 $ 42,363,797
============ ============
The accompanying notes to condensed consolidated financial statements
are an integral part of these consolidated balance sheets.
3
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REAL ESTATE OPERATING REVENUE
Rental Revenue
Commercial properties $ 2,819,810 $ 1,415,504 $ 4,798,891 $ 2,713,186
Storage properties -- 329,132 -- 644,327
----------- ----------- ----------- -----------
2,819,810 1,744,636 4,798,891 3,357,513
----------- ----------- ----------- -----------
REAL ESTATE OPERATING EXPENSES
Property operating expenses
Operating expenses 681,249 478,525 1,267,898 890,698
Real estate taxes 226,222 173,172 374,202 330,251
Management fees 141,545 81,114 242,846 159,967
General and administrative 195,336 109,728 358,281 243,549
Impairment of deferred rents receivable 326,113 -- 326,113 --
Interest 894,575 505,516 1,490,051 954,760
Depreciation and amortization 792,011 293,530 1,133,066 569,657
----------- ----------- ----------- -----------
3,257,051 1,641,585 5,192,457 3,148,882
----------- ----------- ----------- -----------
OTHER INCOME
Interest income 9,444 7,818 21,182 16,891
Equity in loss of unconsolidated affiliate -- -- (10,843) --
----------- ----------- ----------- -----------
9,444 7,818 10,339 16,891
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE GAIN ON SALE OF
REAL ESTATE (427,797) 110,869 (383,227) 225,522
----------- ----------- ----------- -----------
GAIN ON SALE OF REAL ESTATE 1,143,698 -- 1,143,698 --
----------- ----------- ----------- -----------
NET INCOME $ 715,901 $ 110,869 $ 760,471 $ 225,522
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE
Basic $ 0.22 $ 0.05 $ 0.24 $ 0.10
=========== =========== =========== ===========
Diluted $ 0.21 $ 0.05 $ 0.23 $ 0.10
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic 3,268,056 2,228,850 3,130,227 2,228,850
=========== =========== =========== ===========
Diluted 3,413,289 2,229,687 3,248,541 2,229,830
=========== =========== =========== ===========
The accompanying notes to condensed consolidated financial statements
are an integral part of these consolidated financial statements.
4
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
--------------------------
2001 2000
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(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 760,471 $ 225,522
Adjustments to reconcile net income to net cash
from operating activities-
Gain on sale of real estate (1,143,698) --
Depreciation and amortization 1,133,066 569,657
Amortization of deferred financing costs 45,732 26,014
Amortization of warrants 29,869 --
Equity in loss of unconsolidated affiliate 10,843 --
Impairment of deferred rents receivable 326,113 --
Accrued interest added to mortgage payable 123,894 46,836
Changes in assets and liabilities-
(Increase) decrease in accounts receivable (122,213) 21,733
Increase in deferred rents receivables (74,861) (126,279)
Decrease (increase) in prepaid expenses, escrows
and other assets 48,733 (26,864)
Increase in accounts payable and accrued expenses 345,589 309,714
(Decrease) increase in other accrued liabilities (605,133) 230,556
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Net cash from operating activities 878,405 1,276,889
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CASH FLOWS FROM INVESTING ACTIVITIES
Improvements of real estate (3,419,118) (6,025,168)
Net proceeds from the sale of real estate 458,030 --
Acquisition of Sheridan Plaza at Inverness, LLC, net of cash acquired (344,432) --
Leasing commissions paid (45,838) (419,937)
Release of escrow deposit -- 509,556
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Net cash from investing activities (3,351,358) (5,935,549)
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CASH FLOWS FROM FINANCING ACTIVITIES
Additions to mortgage loans and notes payable 2,390,330 5,444,860
Payments on mortgage loans and notes payable (423,599) (169,218)
Net proceeds from exercising of options and warrants 972,093 --
Deferred financing costs paid (23,507) (49,020)
Dividends paid (768,541) (534,924)
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Net cash from financing activities 2,146,776 4,691,698
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NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (326,177) 33,038
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,046,976 458,336
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 720,799 $ 491,374
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest during the period $ 1,321,243 $ 879,564
=========== ===========
The accompanying notes to condensed consolidated financial statements
are an integral part of these consolidated financial statements.
5
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (Unaudited)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the six months ended June 30, 2001, the Company incurred $4,387,992 in
costs related to the improvement of Sheridan Center, which are included in
investment in real estate on the accompanying balance sheet. Of these costs,
$1,738,103 were unpaid at June 30, 2001 and are included in accounts payable and
accrued expenses on the accompanying balance sheet.
On June 1, 2001, the Company sold its Giltedge office building for $3,650,000.
From the cash at closing, $3,111,624 was used to repay the outstanding principal
balance on the mortgage loan secured by the property.
On June 7, 2001, the Company issued 100,211 shares of common stock to an
affiliate of the property manager of the Company's buildings that are leased to
agencies of the State of Texas, an unrelated third party, as consideration for
improvements made to a property. For accounting purposes, the shares were valued
at $557,175 ($5.56 per share) and are included in investment in real estate on
the accompanying balance sheet.
On June 26, 2001, the Company purchased from Sheridan Investments, LLC, an
affiliate, 100% of the ownership interests of Sheridan Plaza at Inverness, LLC,
an affiliate. For accounting purposes, the purchase price was $22,895,067, which
consisted of:
o $705,135 for the Company's 9.639% preferred membership interest in
Sheridan Investments, LLC, the owner of all of the membership
interests in Sheridan Plaza at Inverness LLC, which was transferred
back to Sheridan Investments, LLC;
o $6,474,329 paid with (1) 1,057,346 shares of common stock at a rate of
$5.69 per share (as required for accounting purposes, based on an
average market price of the shares over a period of several days
before and after the date of the announcement of the acquisition) and
(2) the cash proceeds of $458,030 from the sale of the Giltedge office
building;
o assumption of the mortgage in the principal amount of $14,954,425
secured by the property; and
o assumption of other liabilities in the amount of $761,178.
The accompanying notes to condensed consolidated financial statements
are an integral part of these consolidated financial statements.
6
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 (Unaudited)
1. Organization
AmeriVest Properties Inc. (the "Company") was incorporated under the laws of the
State of Delaware on August 25, 1993 and was reincorporated in the State of
Maryland in 1999. Effective January 1, 1996, the Company commenced operating as
a self-administered and self-managed real estate investment trust ("REIT"). The
Company owns and operates, through its wholly owned subsidiaries, an office
building complex in Indianapolis, Indiana, eighteen commercial office properties
in the State of Texas, and an office building, a two-building office complex and
a three-building office complex in Denver, Colorado.
2. General
The unaudited condensed consolidated financial statements included herein were
prepared from the records of the Company in accordance with accounting
principles generally accepted in the United States and reflect all adjustments
which are, in the opinion of management, necessary to provide a fair statement
of the results of operations and financial position for the interim periods.
Such financial statements generally conform to the presentation reflected in the
Company's Form 10-KSB/A-2 filed with the Securities and Exchange Commission for
the year ended December 31, 2000.
The consolidated results of operations for the six months ended June 30, 2001
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2001.
Certain prior period balances have been reclassified to conform to current
period presentation.
3. New Technical Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Company was required to adopt SFAS No.
133 as of January 1, 2001. SFAS No. 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. The Company's adoption of SFAS
No. 133 did not have a material impact on its financial statements.
In June 2001, the FASB authorized the issuance of SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No.
141 requires the use of the purchase method of accounting for all business
combinations initiated after June 30, 2001. SFAS No. 141 requires intangible
assets to be recognized if they arise from contractual or legal rights or are
"separable", i.e., it is feasible that they may be sold, transferred, licensed,
rented, exchanged or pledged. As a result, it is likely that more intangible
assets will be recognized under SFAS No. 141 than its predecessor, Accounting
Principles Board ("APB") Opinion No.16 although in some instances previously
recognized intangibles will be subsumed into goodwill.
Under SFAS No. 142, goodwill will no longer be amortized on a straight-line
basis over its estimated useful life, but will be tested for impairment on an
annual basis and whenever indicators of impairment arise. The goodwill
7
impairment test, which is based on fair value, is to be performed on a reporting
unit level. A reporting unit is defined as a SFAS No. 131 operating segment or
one level lower. Goodwill will no longer be allocated to other long-lived assets
for impairment testing under SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of". Additionally,
goodwill on equity method investments will no longer be amortized; however, it
will continue to be tested for impairment in accordance with APB Opinion No. 18,
"The Equity Method of Accounting for Investments in Common Stock". Under SFAS
No. 142 intangible assets with indefinite lives will not be amortized. Instead
they will be carried at the lower of cost or market value and tested for
impairment at least annually. All other recognized intangible assets will
continue to be amortized over their estimated useful lives.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001,
although goodwill on business combinations consummated after July 1, 2001 will
not be amortized and goodwill on prior business combinations will cease to be
amortized. Had the Company adopted SFAS No. 142 at January 1, 2000, there would
have been no effect on the Company's financial statements. The Company's
adoption of these statements will not have an impact on its financial
statements, as it has not recorded any goodwill or intangible assets.
4. Agreement with Sheridan Realty Advisors, LLC
Effective January 1, 2000, all of the Company's properties are managed under an
agreement (the "Agreement") with Sheridan Realty Advisors, LLC ("SRA"), which
also manages day-to-day operations of the Company and assists and advises the
Board of Directors on real estate acquisitions and investment opportunities.
Certain senior members of SRA are members of the Company's management team and
of the Company's Board of Directors. SRA receives an administrative fee, a
property management and accounting fee, an advisory fee and a development fee
for these services. In addition, SRA received incentive compensation in the form
of five-year warrants to purchase up to 750,000 shares of common stock at $5 per
share. Issuance of the warrants was approved by the shareholders at the annual
meeting on June 6, 2000. In accordance with the Agreement, 225,000 of these
warrants were granted and vested on the approval date. The remaining 525,000
warrants vest in an amount equal to 2.1% of equity capital deployed for real
property acquisitions, of which, 48,795 had vested as of December 31, 2000.
During the six months ended June 30, 2001, 219,291 of the remaining warrants
vested and have an estimated fair value of $163,838, which has been capitalized
with the related acquisition costs on the accompanying balance sheet.
5. Stock Offering
On July 27, 2001, our Registration Statement became effective with the
Securities and Exchange Commission for an offering of 2,000,000 shares of common
stock, with a 30-day option to the underwriter to purchase up to an additional
300,000 shares to cover over-allotments, at a price of $5.50 per share. On
August 1, 2001, the Company received $10,230,000, net of the underwriting
discounts and commissions, from the sale of the 2,000,000 shares. After payment
of approximately $295,000 in additional offering expenses, the proceeds will be
used to acquire real estate properties, to repay debt, for capital improvements
and/or to increase working capital. As of the date of this filing, the
underwriter has not exercised the over-allotment option.
8
6. Acquisitions and Dispositions
On May 3, 2001, the Company entered into a contract to sell its Giltedge office
building in Appleton, Wisconsin for $3,650,000. The sale closed on June 1, 2001,
resulting in a gain on sale of $1,143,698 for accounting purposes. The cash
proceeds from this transaction of $458,030 were used to complete a tax-deferred
exchange under Section 1031 of the Internal Revenue Code.
On May 1, 2001, the Company announced an agreement with Sheridan Investments,
LLC, an affiliate, to purchase 100% of the ownership interests of Sheridan Plaza
at Inverness, LLC, effective April 1, 2001. Sheridan Plaza at Inverness, LLC
owns two office buildings located in Englewood, Colorado consisting of 118,720
total rentable square feet on approximately 6.7 acres of land with 405 total
parking spaces, including 80 underground parking spaces. For accounting
purposes, the purchase price was $22,895,067, which consisted of:
o $705,135 for the Company's 9.639% preferred membership interest in
Sheridan Investments, LLC, the owner of all of the membership
interests in Sheridan Plaza at Inverness LLC, which was transferred
back to Sheridan Investments, LLC;
o $6,474,329 paid with (1) 1,057,346 shares of common stock, $.001 par
value, at a rate of $5.69 per share (as required for accounting
purposes, based on an average market price of the shares over a period
of several days before and after the date of the announcement of the
acquisition) and (2) the cash proceeds of $458,030 from the sale of
the Giltedge office building;
o assumption of the mortgage in the principal amount of $14,954,425
secured by the property; and
o assumption of other liabilities in the amount of $761,178.
The acquisition was structured as a tax-deferred exchange of the Giltedge office
building under Section 1031 of the Internal Revenue Code.
9
The following unaudited pro forma condensed operating results give effect to the
sale of the Giltedge office building and the related purchase of Sheridan Plaza
at Inverness, LLC as if the transactions had occurred at the beginning of the
periods presented, and are included for informational purposes only. This pro
forma information may not be indicative of what actual results of operations
would have been if such transactions had in fact occurred on such dates, nor
does it purport to represent the results of future operations. The pro forma
adjustments are based upon currently available information and upon certain
assumptions that management believes are reasonable.
Six Months Ended
June 30,
2001 2000
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(unaudited) (unaudited)
Rental revenue $5,276,185 $3,987,311
Net operating income $2,631,814 $2,111,772
Net income $1,024,731 $1,126,669
Net income per common share:
Basic $ 0.25 $ 0.33
Diluted $ 0.24 $ 0.33
7. Mortgage Loans and Notes Payable
On June 7, 2001, the Company increased its available loan with US Bank National
Association ("US Bank") secured by the Sheridan Center buildings from $9,300,000
to $10,500,000, of which $8,844,546 was outstanding as of June 30, 2001. During
the six months ended June 30, 2001, the Company was advanced an additional
$1,378,130 on its existing loan agreement with US Bank. The proceeds were used
to fund construction costs related to the improvement of Sheridan Center.
Additionally, the Company was advanced $300,000 on its short-term revolving
credit line from US Bank to meet working capital needs. This credit line was
repaid in August 2001.
On June 13, 2001, the Company established a $500,000 short-term unsecured line
of credit with Sheridan Investments, LLC, an affiliate, with an interest rate
equal to the prime lending rate of US Bank, and with all outstanding principal
and any unpaid accrued interest due on June 13, 2002. As of June 30, 2001,
$400,000 has been borrowed and is outstanding under this facility. This credit
line was repaid in August 2001.
In association with the acquisition of Sheridan Plaza at Inverness, LLC, the
Company assumed a mortgage that had a principal balance of $14,923,052 as of
June 30, 2001. The mortgage is payable to Teachers Insurance and Annuity
Association of America and is due January 10, 2006 with principal and interest
(totaling $108,835) payable monthly with the unpaid principal and interest due
at maturity. The loan bears interest at a fixed rate of 7.9% per year.
8. Status of Significant Tenant and Related Impairment
On August 2, 2001, Rhythms NetConnections, Inc. ("Rhythms"), the primary tenant
in the Company's Panorama Falls building in Englewood, Colorado, filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. On August 10, 2001,
Rhythms announced that it had terminated approximately 700 of its remaining
1,000 employees and notified all its customers that service will end in one
month. As of the date of this filing, Rhythms has made all monthly rent payments
due through August 2001 and the Company holds a security deposit from Rhythms in
10
the amount of $335,000. However, due to the bankruptcy filing and the
uncertainty of future rent collections, the Company has recorded an impairment
for $326,113 of unamortized deferred rents receivable and has accelerated the
amortization of the $323,447 unamortized lease commission related to the Rhythms
lease during the quarter ended June 30, 2001. The deferred rents receivable
represents the effects of recording, for accounting purposes, straight-line rent
resulting from a free rent period at the inception of the lease in exchange for
Rhythms' providing all tenant improvements. The rental revenue related to
Rhythms' was approximately $378,000 and $480,000 for the six months ended June
30, 2001 and the year ended December 31, 2000, which is approximately 8% and 7%,
respectively. The Company will recognize revenues related to future lease
payments when the proceeds are received and will continue monitoring the
bankruptcy proceedings to assess and develop its plan in regards to the
situation. If Rhythms were to discontinue its payment of the lease payments due
to the Company, it would result in a significant decrease of our rental revenue
and our operating cash flow until such time as the Company is able to either
collect any amounts past due or lease the currently occupied space to new
tenants.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis of the consolidated financial condition
and results of operations should be read in conjunction with the Consolidated
Financial Statements and notes thereto included in the Company's Form 10-KSB/A-2
and elsewhere.
Results Of Operations
---------------------
Three Months Ended June 30, 2001, Compared With Three Months Ended June 30,
2000.
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Real estate operating revenue increased by approximately $1,075,000 and
operating expenses, real estate taxes and general and administrative expenses
increased by approximately $203,000, $53,000 and $86,000, respectively, for the
three-month period ended June 30, 2001 as compared to the same period in 2000,
due primarily to the inclusion of the operations of the Panorama Falls building
(acquired in May 2000) for a full quarter in 2001, the Sheridan Center office
complex (acquired in August 2000) and Sheridan Plaza at Inverness, LLC (acquired
in June 2001, effective April 1, 2001) and the Giltedge office building for only
two months in 2001 (sold in June 2001) offset by the exclusion of the operations
of the four self-storage facilities (sold in August 2000). Management fees
increased by approximately $60,000 in 2001 as a result of the net increase in
operating revenue generated by the above mentioned transactions. Interest
expense increased by approximately $389,000 due to the increase in mortgage
loans and notes payable, and depreciation and amortization increased by
approximately $498,000, of which approximately $323,000 represents the
accelerated amortization of the Rhythms lease commission during the second
quarter of 2001 (see below for further detail), with the remainder due to the
increase in depreciable real estate assets.
For accounting purposes, a gain of approximately $1,144,000 was recognized on
the sale of the Giltedge office building during the three months ended June 30,
2001.
As a result of the revenue and expense items described above, net income for the
three months ended June 30, 2001 was $715,901, or $0.22 per share basic and
$0.21 per share diluted, as compared to $110,869, or $0.05 per share (basic and
diluted), for the three months ended June 30, 2000.
Six Months Ended June 30, 2001, Compared With Six Months Ended June 30, 2000.
-----------------------------------------------------------------------------
Real estate operating revenue increased by approximately $1,441,000, and
operating expenses, real estate taxes and general and administrative expenses
increased by approximately $377,000, $44,000 and $115,000, respectively, for the
six-month period ended June 30, 2001 as compared to the same period in 2000, due
primarily to the inclusion of the operations of the Panorama Falls building
(acquired in May 2000) for a full six months in 2001, the Sheridan Center office
complex (acquired in August 2000) and Sheridan Plaza at Inverness, LLC (acquired
in June 2001, effective April 1, 2001) and the Giltedge office building for only
11
five months in 2001 (sold in June 2001) partially offset by the exclusion of the
operations of the four self-storage facilities (sold in August 2000). Operating
expenses also increased due to planned maintenance projects undertaken at
several properties and increased utility costs. Management fees increased by
approximately $83,000 in 2001 as a result of the net increase in operating
revenue generated by the above mentioned transactions. Interest expense
increased by approximately $535,000 due to the increase in mortgage loans and
notes payable, and depreciation and amortization increased by approximately
$563,000 due to the accelerated amortization of the Rhythms lease commission
described above, and the increase in depreciable real estate assets.
Interest income increased by approximately $4,000 from 2000 due to the increase
in the average outstanding balance of cash and cash equivalents and interest
bearing escrows. The equity in loss of unconsolidated affiliate recognized in
2001 represents the Company's share of the net loss of Sheridan Investments,
LLC. The Company acquired its interest in Sheridan Investments, LLC in September
2000. This interest was transferred back as a portion of the purchase price of
Sheridan Plaza at Inverness, LLC.
For accounting purposes, a gain of approximately $1,144,000 was recognized on
the sale of the Giltedge office building during the six months ended June 30,
2001.
As a result of the revenue and expense items described above, net income for the
six months ended June 30, 2001 was $760,471, or $0.24 per share basic and $0.23
per share diluted, as compared to $225,522, or $.10 per share (basic and
diluted), for the six months ended June 30, 2000.
Revenues for the six months ended June 30, 2001 include approximately $378,000
of rental revenue from Rhythms NetConnections Inc., a corporation that has
reported losses and announced on August 2, 2001, that it has filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. On August 10, 2001,
Rhythms announced that it had terminated approximately 700 of its remaining
1,000 employees and notified all its customers that service will end in one
month. As of the date of this filing, Rhythms has made all monthly rent payments
due through August 2001. However, due to the bankruptcy filing and the
uncertainty of future rent collections, the Company has recorded an impairment
for $326,113 of unamortized deferred rents receivable and has accelerated the
amortization of the $323,447 unamortized lease commission related to the Rhythms
lease during the quarter ended June 30, 2001. The deferred rents receivable
represents the effects of recording, for accounting purposes, straight-line rent
resulting from a free rent period at the inception of the lease in exchange for
Rhythms' providing all tenant improvements. The rental revenue related to
Rhythms' was approximately $378,000 and $480,000 for the six months ended June
30, 2001 and the year ended December 31, 2000, which is approximately 8% and 7%,
respectively. The Company will recognize revenues related to future lease
payments when the proceeds are received and will continue monitoring the
bankruptcy proceedings to assess and develop its plan in regards to the
situation. If Rhythms were to discontinue its payment of the lease payments due
to the Company, it would result in a significant decrease of our rental revenue
and our operating cash flow until such time as the Company is able to either
collect any amounts past due or lease the currently occupied space to new
tenants.
Liquidity And Capital Resources
-------------------------------
From December 31, 2000 to June 30, 2001, net investment in real estate increased
by approximately $19,932,000. The net increase was primarily due to the
acquisition of Sheridan Plaza at Inverness, LLC, the sale of the Giltedge office
building and the continued renovation of Sheridan Center, net of depreciation
for the six-month period of approximately $1,133,000.
At June 30, 2001, the Company had approximately $721,000 of cash and cash
equivalents, including approximately $430,000 of cash to be utilized for a
stockholder dividend distribution, which was paid on July 17, 2001. As compared
with December 31, 2000, accounts receivable increased by approximately $240,000,
prepaid expenses, escrow and other assets increased by approximately $308,000
and net deferred financing costs increased by approximately $79,000 due
primarily to the above mentioned acquisition and sale.
12
Mortgage loans and notes payable increased by approximately $13,933,000,
primarily due to the assumption of the Sheridan Plaza at Inverness, LLC mortgage
loan in the principal amount of approximately $14,954,000, additional advances
on existing mortgage loans and lines of credit offset by the payoff of the
Giltedge mortgage loan of approximately $3,112,000 upon the sale of that
building and scheduled principal payments. Accounts payable and accrued expenses
increased by approximately $2,199,000, primarily due to the increased costs
related to the renovation of Sheridan Center. Accrued real estate taxes
decreased by approximately $192,000 due to the payment of 2000 real estate taxes
in 2001 offset by the accrual for the six-month period. Prepaid rents and
security deposits increased by approximately $233,000 due primarily to the
Sheridan Plaza at Inverness, LLC acquisition. Dividends payable increased by
approximately $169,000, which is attributable to the increase in the number of
shares of common stock outstanding.
On July 27, 2001, our Registration Statement became effective with the
Securities and Exchange Commission for an offering of 2,000,000 shares of common
stock, with a 30-day option to the underwriter to purchase up to an additional
300,000 shares to cover over-allotments, at a price of $5.50 per share. On
August 1, 2001, the Company received $10,230,000, net of the underwriting
discounts and commissions, from the sale of the 2,000,000 shares. After payment
of approximately $295,000 in additional offering expenses, the proceeds will be
used to acquire real estate properties, to repay debt, for capital improvements
and/or to increase working capital. As of the date of this filing, the
underwriter has not exercised the over-allotment option.
The Company desires to acquire properties in addition to those which will be
acquired with the public offering proceeds. In order to do so, it will need to
raise additional debt or equity capital. The Company also intends to obtain
credit facilities for short and long-term borrowing with commercial banks or
other financial institutions. The issuance of such securities or increase in
debt for additional properties, of which there is no assurance, could adversely
affect the amount of cash available to pay dividends to stockholders.
Management believes that the proceeds of its recent offering and cash flow from
its properties, together with its existing lines of credit, will be sufficient
to meet the Company's working capital needs for the next year. The Company has a
short-term revolving credit line from US Bank in the amount of $300,000 and a
$500,000 short-term unsecured line of credit with Sheridan Investments, LLC, a
related party. At June 30, 2001, the Company had outstanding balances of
$300,000 and $400,000, respectively, on these lines of credit. The Company
repaid both of these lines of credit in August 2001.
On August 2, 2001, Rhythms NetConnections, Inc., the primary tenant in the
Panorama Falls building, filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. On August 10, 2001, Rhythms announced that it had terminated
approximately 700 of its remaining 1,000 employees and notified all its
customers that service will end in one month. As of the date of this filing,
Rhythms has made all monthly rent payments due through August 2001 and the
Company holds a security deposit from Rhythms in the amount of $335,000. The
rental revenue related to Rhythms' was approximately $378,000 and $480,000 for
the six months ended June 30, 2001 and the year ended December 31, 2000, which
is approximately 8% and 7%, respectively. The Company will recognize revenues
related to future lease payments when the proceeds are received and will
continue monitoring the bankruptcy proceedings to assess and develop its plan in
regards to the situation. If Rhythms were to discontinue its payment of the
lease payments due to the Company, it would result in a significant decrease of
our rental revenue and our operating cash flow until such time as the Company is
able to either collect any amounts past due or lease the currently occupied
space to new tenants.
Management believes that inflation should not have a material adverse effect on
the Company. The Company's office leases require the tenants to pay increases in
operating expenses should any inflationary pressures materialize.
13
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, and Section 21E of the Exchange Act of 1934.
Although the Company believes that the expectations reflected in the
forward-looking statements and the assumptions upon which the forward-looking
statements are based are reasonable, it can give no assurance that such
expectations and assumptions will prove to have been correct. See the Company's
Annual Report on Form 10-KSB/A-2 and the Company's Amendment No. 2 to
Registration Statement on Form SB-2 filed on July 26, 2001 for additional
statements concerning important factors, including occupancy and rental rates
and operating costs that could cause actual results to differ materially from
the Company's expectations.
14
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds; Recent Sales Of Unregistered
Securities
-------------------------------------------------------------------------------
During the quarter ended June 30, 2001, the Company made the following issuances
of securities that were not registered under the Securities Act of 1933, as
amended (the "Securities Act"):
On June 7, 2001, the Company issued 100,211 shares of common stock to an
affiliate of the property manager of the Company's properties that are leased to
various agencies of the State of Texas buildings, an unrelated third party, as
consideration for improvements made to one of those properties. For accounting
purposes, the shares were valued at $557,175 ($5.56 per share) and are included
in investment in real estate on the balance sheet included in this Form 10-QSB.
The issuance of the shares of common stock was made pursuant to an exemption
from registration in accordance with Sections 3(b) and/or 4(2) of the Securities
Act.
On June 26, 2001, the Company issued 1,057,346 shares of common stock, $.001 par
value, at a rate of $5.69 per share (as required for accounting purposes, based
on an average market price of the shares over a period of several days before
and after the date of the announcement of the acquisition) to Sheridan
Investments, LLC, an affiliate of the Company's advisor, as a portion of the
purchase price for 100% of the ownership interests of Sheridan Plaza at
Inverness, LLC, effective April 1, 2001. Sheridan Plaza at Inverness, LLC owns
two office buildings located in Englewood, Colorado consisting of 118,720 total
rentable square feet on approximately 6.7 acres of land with 405 total parking
spaces, including 80 underground parking spaces. The issuance of the shares of
common stock was made pursuant to an exemption from registration in accordance
with Sections 3(b) and/or 4(2) of the Securities Act.
Item 4. Submission Of Matters To A Vote Of Security Holders
-----------------------------------------------------------
The Company held its annual meeting of stockholders on June 20, 2001. At the
annual meeting, each of Robert W. Holman, Jr., Charles K. Knight and Jerry J.
Tepper were elected as Class 2 directors of the Company by the votes set forth
below. Following the meeting, James F. Etter, Harry P. Gelles, and John A.
Labate continued as Class 1 directors and William T. Atkins and Robert J. McFann
continued as Class 3 directors. The stockholders approved all the matters
presented at the meeting by the following votes:
(1) For election of the following nominees as Class 2 directors of the
Corporation:
[At least 1,585,691 shares voting in favor (a majority of the total
number of shares represented at the meeting) were needed to elect each
nominee.]
Shares Shares Not
Name Shares For Shares Against Abstained Voting
---- ---------- -------------- --------- ------
Robert W. Holman, Jr. 2,583,685.0471 0 2,711 0
Charles K. Knight 2,583,685.0471 0 2,711 0
Jerry J. Tepper 2,583,685.0471 0 2,711 0
(2) Proposal to issue up to 1,121,209 shares of our common stock at $5.55
per share as a portion of the purchase price for Sheridan Plaza at
Inverness LLC whose sole assets are two office buildings located in
Denver, Colorado.
15
[At least 1,585,691 shares voting in favor (a majority of the total
number of shares represented at the meeting) were needed to approve
this proposal.]
1,784,652.0471 shares voting for
17,636 shares voting against
6,900 shares abstaining
777,208 shares not voting
(3) Proposal to ratify the selection of Arthur Andersen LLP as the
Corporation's certified independent accountants.
[At least 1,585,691 shares voting in favor (a majority of the total
number of shares represented at the meeting) were needed to approve
this proposal.]
2,574,146.0471 shares voting for
450 shares voting against
11,800 shares abstaining
0 shares not voting
Item 5. Other Information
-------------------------
None.
Item 6. Exhibits And Reports On Form 8-K.
-----------------------------------------
(a) During the quarter ended June 30, 2001, the Registrant did not file
any Current Reports on Form 8-K.
(b) Exhibits:
Exhibit 99.1 - Press Release dated August 13, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERIVEST PROPERTIES INC.
August 14, 2001
By: /s/ D. Scott Ikenberry
------------------------------------
D. Scott Ikenberry
Chief Financial Officer
16