UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
[X]
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 31, 2006
or
[
]
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission
File No. 0-28378
AmREIT
(Exact
name of registrant as specified in its charter)
Texas
(State
or other jurisdiction of incorporation or organization)
|
76-0410050
(I.R.S.
Employer Identification No.)
|
|
|
8
Greenway Plaza, Suite 1000
Houston,
Texas
(Address
of principal executive offices)
|
77046
(Zip
Code)
|
Registrant's
telephone number, including area code: (713)
850-1400
Securities
registered pursuant to Section 12 (b) of the Exchange Act:
Title
of Class
Class
A Common Shares
|
Name
of Exchange on Which Registered
American
Stock Exchange
|
Section
12 (b) of the Act:
Securities
registered under Section 12(g) of the Exchange Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer (as defined
in
Rule 405 of the Securities Act).
YES
¨
NO
x
Indicate
by check mark if the registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Act.
YES
¨
NO
x
Indicate
by check mark whether the Registrant (1) has filed all reports required
to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was
required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. YES x
NO
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment
to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer (see definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act).
Large
Accelerated Filer ¨
Accelerated Filer ¨
Non-Accelerated Filer x
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule
12b-2 of the Exchange Act).
YES
¨
NO
x
State
the
aggregate market value of the voting and non-voting common equity held
by
non-affiliates computed by reference to the price at which the common equity
was
last sold, or the average bid and asked price of such common equity as
of June
30, 2006: $34.3 million
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date: 6,401,467 Class A Common Shares,
1,050,442 Class B Common Shares, 4,154,129 Class C Common Shares, and 11,023,040
Class D Common Shares as of March 27, 2007.
DOCUMENTS
INCORPORATED BY REFERENCE
The
registrant incorporates by reference into Part III portions of its Proxy
Statement for the 2007 Annual Meeting of Shareholders.
Item
No.
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|
|
|
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1.
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5
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1A.
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9
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1B.
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|
14
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2.
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15
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3.
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19
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4.
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19
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|
|
|
|
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5.
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20
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6.
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21
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7.
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22
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7A.
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31
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8.
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31
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9.
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31
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9A.
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31
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9B.
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31
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10.
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32
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11.
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32
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12.
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32
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13.
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32
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14.
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32
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15.
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33
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General
We
are an
established real estate company that, at our core, are value creators who
have
delivered results to our investors for 22 years. We have elected to be
taxed as
a real estate investment trust (“REIT”) for federal income tax purposes. Our
mission is to build a real estate business with complementary operations
that
reduce our sensitivity to changing market cycles.
We
view
the Company as having two distinct companies in one: our
institutional-grade portfolio of Irreplaceable Corners
-
premier retail properties in high-traffic, highly populated areas - which
are
held for long-term value and provide a foundation to our funds from operations
(FFO) growth through a steady stream of rental income; and our
advisory/sponsorship business
that
broadens our access to capital and raises equity for a series of merchant
development funds, resulting in recurring income from assets under management.
We are able to add more of a growth component to the recurring-income nature
of
each company as well as provide earnings potential from multiple sources
with
our real
estate development and operating business,
which
seeks to provide value through offering an array of services to our tenants
and
properties, to our advisory/sponsorship business portfolios and to third
parties.
When
we
listed on the AMEX in July 2002, our total assets had a book value of $48
million and equity under management within our advisory/sponsorship business
totaled $15 million. As of December 31, 2006, we owned a real estate portfolio
consisting of 49 properties located in 15 states that had a book value
of $328
million; directly managed, through our five actively managed merchant
development funds, a total of $121 million in contributed capital; and
had over
600,000 square feet of retail centers in various stages of development
or in the
pipeline for both our advisory/sponsorship business and for third
parties.
Our
direct predecessor, American Asset Advisers Trust, Inc. (“AAA”), was formed as a
Maryland corporation in 1993. Prior to 1998, AAA was externally advised
by
American Asset Advisors Corp. which was formed in 1985. In June 1998, AAA
merged
with its advisor and changed its name to AmREIT, Inc. In December 2002,
AmREIT, Inc. reorganized as a Texas real estate investment trust and became
AmREIT.
Our
Class
A Common Shares are traded on the American Stock Exchange under the symbol
“AMY”. Our offices are located at 8 Greenway Plaza, Suite 1000 Houston, Texas
77046. Our telephone number is 713.850.1400 and we maintain an internet
site at
www.amreit.com.
Our
Strategy
In
2002,
after 18 years as a private company, we listed our Class A Common Shares
on the
American Stock Exchange and set a ten-year goal to build a business model
that
would enable AmREIT to outperform its peers. We set out to build a real
estate
company with the potential to create value year over year regardless of
the
market cycle. The result was two distinct ‘companies’ within one: a portfolio of
premium shopping centers that we refer to as Irreplaceable Corners and
our
advisory/sponsorship business, which manages our merchant development funds.
Those two businesses provide a measure of stability due to the recurring
income
generated by the portfolio and the fees generated from assets under management
in the advisory/sponsorship business. Our real estate development and operating
business, which is fee-driven and transaction-oriented, supports and enhances
the growth of each ‘company,’ giving us the flexibility to achieve our financial
objectives over the long-term as we navigate the changing real estate market
cycles.
In
market
cycles characterized by strong buyer demand, we place an emphasis on growing
our
advisory/sponsorship business through actively managing a blend of value-added
acquisition redevelopment and development projects that generate both
transactional fees and recurring management fees. We also provide these
real
estate services to third parties for a fee. We believe that the income
generated
by our advisory/sponsorship and our real estate development and operating
businesses will allow us to continue to grow earnings at a faster pace
than the
broader REIT market. With this strategy comes increased volatility as these
businesses have a heavy transactional component. From quarter to quarter,
our
earnings will fluctuate, but on an annual basis, and over the long term,
we
believe we are poised to produce consistent growth in earnings.
In
market
cycles where we are able to capture a greater spread between cap rates
and
fixed-rate debt terms, we place an emphasis on growing our portfolio of
Irreplaceable Corners which provide a steady and dependable income stream,
by
utilizing the acquisition, development and re-development expertise of
our real
estate development and operating business.
The
active management approach we use within our advisory/sponsorship group
combines
our expertise in acquisitions and merchant development and allows us to
participate in both declining and rising market cycles. This business was
designed to generate an additional source of recurring income for our
shareholders based on equity under management as well as a stream of profits
and
back-end interests as the funds liquidate and preferred returns are met
for
investors. We believe that this is the hidden value behind our long-term
growth.
Great
people are at the heart of our company, our strategy and our structure.
We have
focused on growing a team of professionals that display a high degree of
character, that are extremely competent, that are able to communicate clearly
in
good times and challenging times, and that are contributing to our team-oriented
culture. It is our people that are the backbone of our structure and our
ability
to generate long-term shareholder value.
Our
Structure
Our
structure consists of two distinct companies, representing three synergistic
businesses that should allow us to create value year over year in any market
cycle: A real estate development and operating business, an asset advisory
business and an institutional grade portfolio of Irreplaceable Corners.
Portfolio
of Irreplaceable Corners
During
2005 and continuing through 2006, we acquired approximately 289,000 square
feet
of shopping centers, representing over $134 million in assets and an average
cap
rate of 6.8%. We take a very hands-on approach to ownership, and directly
manage
the operations and leasing at our properties. Our portfolio consists primarily
of premier retail properties typically located on “Main and Main” intersections
in high-traffic, highly populated affluent areas. Because of their location
and
exposure as central gathering places, these centers attract well established
tenants and we believe they can withstand the test of time, providing our
shareholders a dependable rental income stream.
As
of
December 31, 2006, we owned a real estate portfolio consisting of 49 properties
located in 15 states. Leased to national, regional and local tenants, our
shopping center properties are primarily located throughout Texas. 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. Properties that we
acquire
are generally newly constructed or recently constructed at the time of
acquisition. We believe the locations of our properties, and the high barriers
to entry at those locations allow us to maximize leasing income through
comparatively higher rental rates and high occupancy rates. As of December
31,
2006, the occupancy rate at our operating properties was 96.5% based on
leasable
square footage compared to 96.4% as of December 31, 2005.
We
invest
in properties where we believe effective leasing and operating strategies,
combined with cost-effective expansion and renovation programs, can improve
the
existing properties’ value while providing superior current economic returns.
These fungible types of improvements allow us to place grocery-anchored
shopping
centers, strip centers and lifestyle centers onto our properties. We believe
that investment in and operation of commercial retail real estate is a
local
business and we focus our investments in areas where we have strong knowledge
of
the local markets. The areas where a majority of our properties are located
are
densely populated, suburban and infill communities in and around Houston,
Dallas
and San Antonio, but we have recently begun initiatives to explore new
acquisition and development opportunities in select markets throughout
the
Sunbelt regions that over time could potentially expand our geographic
reach.
Our expansion into these markets would be contingent upon finding the right
individuals who would ensure we have a strong knowledge of the local markets
and
maintain our hands-on management philosophy. Within the Sunbelt, we intend
to
focus on markets we consider ‘gateways to the world economy,’ which share
demographic characteristics similar to that of Houston. These markets would
feature large ports and/or international airports that make these cities
conduits of world economic expansion.
Our
shopping centers are primarily grocery-anchored, strip center, and lifestyle
properties whose tenants consist of national, regional and local retailers.
Our
typical grocery anchored shopping center is anchored by an established
major
grocery store operator in the region such as Kroger. Our retail shopping
centers
are leased to national and regional tenants such as GAP, Starbucks, Bank
of
America, and Verizon Wireless as well as a mix of local and value retailers.
Lifestyle centers, such as Uptown Park - Houston, are typically anchored
by a
combination of national and regional restaurant tenants that provide customer
traffic and tenant draw for specialty tenants that support the local consumer.
The balance of our retail properties are leased to national drug stores,
national restaurant chains, national value oriented retail stores and other
regional and local retailers. The majority of our leases are either leased
or
guaranteed by the parent company, not just the operator of the individual
location. All of our shopping centers are located in areas of substantial
retail
shopping traffic. Our properties generally attract tenants who provide
basic
staples and convenience items to local customers. We believe sales of these
items are less sensitive to fluctuations in the business cycle than higher
priced retail items. No single retail tenant represented more than 5% of
total
revenues for the year ended December 31, 2006.
We
own,
and may purchase in the future, fee simple retail properties (we own the
land
and the building), ground lease properties (we own the land, but not the
building and receive rental income from the owner of the building) or leasehold
estate properties (we own the building, but not the land, and therefore
are
obligated to make a ground lease payment to the owner of the land). We
may also
develop properties for our portfolio or enter into joint ventures, partnerships
or co-ownership for the development of retail properties.
As
of
December 31, 2006, two properties individually accounted for more than
10% of
the Company’s year-end consolidated total assets -Uptown Park in Houston, Texas
and MacArthur Park in Dallas, Texas accounted for 20% and 15% respectively
of
total assets. For the year ended December 31, 2006, the top three tenants
by
rental income concentration were Kroger at 9.2%, IHOP at 7.4% and CVS/pharmacy
at 3.5%. Consistent with our strategy of investing in areas that we know
well,
17 of our properties are located in the Houston metropolitan area. These
properties represented 59% of our rental income for the year ended December
31,
2006. Houston is Texas’ largest city and the fourth largest city in the United
States. See “Location of Properties” in Item 2 for further discussion regarding
Houston’s economy.
Advisory/Sponsorship
Business
Our
advisory/sponsorship business broadens the Company’s avenues to raise capital
and consists of our in-house securities group which raises equity for a
series
of merchant development partnership funds.
Securities
Operations
- The
part of our business model and operating strategy that distinguishes us
from
other publicly-traded REITs is our securities operation, or AmREIT Securities
Company (ASC), a National Association of Securities Dealers (NASD) registered
broker-dealer which is a wholly-owned subsidiary of AmREIT Realty Investment
Corporation (ARIC). For the past 22 years, we have been raising capital
for our
funds and building relationships in the financial planning and broker-dealer
community, earning fees and sharing in profits from those activities.
Historically, our securities group has raised capital in two ways: first,
directly for AmREIT through non-traded classes of common shares, and second,
for
our actively-managed merchant development funds.
During
2006, our securities operation raised approximately $60 million for AmREIT
Monthly Income and Growth Fund III, Ltd. (MIG III), an affiliated merchant
development fund sponsored by one of our subsidiaries. During 2005, the
advisory
group raised approximately $11.2 million for MIG III and approximately
$89
million through our Class D Common Share offering. The Class D offering
was a
$150 million publicly-registered offering through which we raised a total
of
$110 million before terminating the offering in September 2005.
During
the years ended December 31, 2006, 2005 and 2004, our securities operation
generated commission revenues related to the sponsorship of our merchant
development funds of $6.6 million, $1.2 million and $2.7 million, respectively.
The advisory group incurred commission expenses of $5.8 million, $1.0 million
and $2.4 million which were paid to non-affiliated broker-dealers in conjunction
with such capital-raising activities.
Merchant
Development Funds
- The
advisory/sponsorship business invests in and actively manages six merchant
development funds which were formed to develop, own, manage, and add value
to
properties with an average holding period of two to four years. We invest
as
both the general partner and as a limited partner, and our advisory/sponsorship
business sells interests in these funds to retail investors. We, as the
general
partner, manage the funds, and, in return, receive management fees as well
as
potentially significant profit participation interests as the funds enter
liquidation. However, we strive to create a structure that aligns the interests
of our shareholders with those of our limited partners. In this spirit,
the
funds are structured so that the general partner receives a significant
profit
only after the limited partners in the funds have received their targeted
return
which links our success to that of the limited partners. During the years
ended
December 31, 2006, 2005 and 2004, we earned asset management fees of $823,000,
$495,000 and $361,000, respectively, which are recurring fees earned over
the
life of the partnership.
As
of
December 31, 2006, the advisory group directly managed, through its six
actively
managed merchant development funds, a total of $121 million in contributed
capital. One of the six partnerships, AmREIT Opportunity Fund, Ltd. (AOF),
entered into the liquidation phase in 2003, and the remaining five partnerships
are scheduled to enter their liquidation phases in 2008, 2010, 2011, 2012,
and
2013. As these partnerships enter into liquidation, we, acting as the general
partner, expect to receive economic benefit from our profit participation,
after
certain preferred returns have been paid to the limited partners. During
the
years ended December 31, 2006, 2005 and 2004, AmREIT recognized approximately
$414,000, $0 and $869,000 related to its general partner interest in AOF.
See
Footnote 5 in the accompanying consolidated financial statements for more
information. In accordance with GAAP, any unrealized gains associated with
potential profit participation in our merchant development partnerships
have not
been reflected on our balance sheet or statement of operations. The income
generated from our advisory/sponsorship business, both the current return
as
well as the future benefits through back-end interests and participations,
will
be a key factor in our ability to grow FFO at a faster pace than our peers
over
our ten year journey. We also assign a portion of this back-end interest
to top
management as contingent, long-term compensation. See “Deferred Compensation” in
Note 2 to the Consolidated Financial Statements.
Real
Estate Development and Operating Business
Our
real
estate development and operating business, AmREIT Realty Investment Corporation
and subsidiaries (ARIC), is a fully integrated and wholly-owned business
consisting of brokers and real estate professionals that provide development,
acquisitions, brokerage, leasing, construction, general contracting, asset
and
property management services to our portfolio of properties, to our
advisory/sponsorship business, and to third parties. This operating subsidiary,
which is a taxable REIT subsidiary, is transaction-oriented, is very active
in
the real estate market and has the potential to generate significant earnings
on
an annual basis. This business can provide significant long-term growth;
however
due to its transactional nature, its quarter to quarter results will fluctuate,
and therefore its contributions to our quarterly earnings will be
volatile.
Having
a
full complement of real estate professionals helps secure strong tenant
relationships for both our portfolio and the merchant development portfolios
managed by our advisory/sponsorship business. We have a growing roster
of leases
with well-known national and regional tenants, and of equal importance
is that
we have affiliations with these tenants that extend across multiple sites.
Not
only does our real estate development and operating business create value
through relationships, but it also provides an additional source of fee
income
and profits. Through the development, construction, management, leasing
and
brokerage services provided to our advisory/sponsorship business, as well
as to
third parties, our real estate team continues to generate fees and profits.
During the years ended December 31, 2006, 2005 and 2004, ARIC generated
net real
estate and asset management fees of $9.1 million, $5.6 million, and $2.2
million, which represented 15%, 16%, and 15% of the Company’s total revenues,
respectively.
Through
our real estate development activity, we are able to generate additional
profits
through the selective development or acquisition and disposition of properties
within a short time period (12 to 18 months). The majority of these assets
are
listed as real estate assets held for sale on our consolidated balance
sheet. At
December 31, 2006 and 2005, assets held for sale totaled approximately
$2.7
million and $3.6 million, respectively. For the years ended December 31,
2006,
2005 and 2004, ARIC has generated gains on sales of properties acquired
for sale
of $382,000, $3.2 million, and $1.8 million, respectively.
Our
strategy and our structure, as discussed herein, are reviewed by our Board
of
Trust Managers on a regular basis and may be modified or changed without
a vote
of our shareholders.
Competition
All
of
our 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 our ability to lease space at any of our properties
or at
any newly developed or acquired properties and on the rents charged. We
may be
competing with owners, including, but not limited to, other REITs, insurance
companies and pension funds that have greater resources than us.
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.
All
of
our 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 an escrow account with predetermined funds 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
December 31, 2006, AmREIT had 64 full time employees, 1 full time contract
personnel and 3 full time dedicated brokers.
Financial
Information
Additional
financial information related to AmREIT is included in Item 8 “Consolidated
Financial Statements and Supplementary Data.”
Risks
Associated with an Investment in AmREIT
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 advisory/sponsorship
business
as well as our real estate development and operating
business;
|
·
|
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
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 been listed since July 2002, and as of
December 31, 2006, the average daily trading volume was approximately
16,475 shares based on a 90-day average. As a result, the class A
common shares currently have limited liquidity.
The
conversion and conversion premium associated with the class C and class
D common
shares may dilute the interest of the Class A common
shares.
At
December 31, 2006, there were 4,145,531 class C common shares outstanding
and
11,039,803 class D common shares outstanding.
The
class
C common shares were issued at $10.00 per share and have the ability to
convert
into class A common shares based on 110% of original investment (i.e. $1,000
of
original investment converts into $1,100 of class A common shares) after
a
seven-year lock out period from the date of issuance. The shares were issued
between September 2003 and May 2004. After
three years and beginning in August 2006, subject to the issuance date
of the
respective shares, we have the right to force conversion of the shares
into
class A shares on a one-for-one basis or to redeem the shares at a cash
redemption price of $11.00 per share at the holder’s option.
The
class
D common shares were issued at $10.00 per share and have the ability to
convert
into class A common shares based on 107.7% of original investment (i.e.
$1,000
of original investment converts into $1,077 of class A common shares) after
a
seven-year lock out period from the date of issuance. The shares were issued
between July 2004 and September 2005. The class D common shares are redeemable
by the Company one year after issuance for 100% of original investment
plus the
pro rata portion of the 7.7% conversion premium.
The
economic impact of the conversion of these non-traded shares can be affected
by
many factors, including the following:
·
|
The
price of our publicly traded class A common shares;
|
·
|
The
multiple and valuation at which our class A common shares
trade;
|
·
|
Our
ability to grow earnings, net income and FFO as well as dividends;
and
|
·
|
Our
ability to redeem these shares based on access to the debt and
equity
markets as well as liquidity in our balance sheet based on asset
sales
|
Conversion
of class B common shares could put downward pressure on the market price of
our class A common shares.
As
of
December 31, 2006, there were 1,080,180 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 exchange, 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.
Distribution
payments in respect of our Class A common shares 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.
The
economic performance and value of our shopping centers depend on many factors,
each of which could have an adverse impact on our cash flows and operating
results.
The
economic performance and value of our properties can be affected by many
factors, including the following:
·
|
Changes
in the national, regional and local economic climate;
|
·
|
Local
conditions such as an oversupply of space or a reduction in demand
for
retail real estate in the area;
|
·
|
The
attractiveness of the properties to tenants;
|
·
|
Competition
from other available space;
|
·
|
Our
ability to provide adequate management services and to maintain
our
properties;
|
·
|
Increased
operating costs, if these costs cannot be passed through to tenants;
and
|
·
|
The
expense of periodically renovating, repairing and re-leasing
spaces.
|
Our
properties consist primarily of neighborhood and community shopping centers
and,
therefore, our performance is linked to general economic conditions in
the
market for retail space. The market for retail space has been and may continue
to be adversely affected by weakness in the national, regional and local
economies where our properties are located, the adverse financial condition
of
some large retailing companies, the ongoing consolidation in the retail
sector,
the excess amount of retail space in a number of markets and increasing
consumer
purchases through catalogues and the Internet. To the extent that any of
these
conditions occur, they are likely to affect market rents for retail space.
In
addition, we may face challenges in the management and maintenance of the
properties or encounter increased operating costs, such as real estate
taxes,
insurance and utilities, which may make our properties unattractive to
tenants.
Our
dependence on rental income may adversely affect our ability to meet our
debt
obligations and make distributions to our
shareholders.
The
majority of our income is derived from rental income from our portfolio
of
properties. As a result, our performance depends on our ability to collect
rent
from tenants. Our income and therefore our ability to make distributions
would
be negatively affected if a significant number of our tenants, or any of
our
major tenants:
·
|
Delay
lease commencements;
|
·
|
Decline
to extend or renew leases upon expiration;
|
·
|
Fail
to make rental payments when due; or
|
·
|
Close
stores or declare bankruptcy
|
Any
of
these actions could result in the termination of the tenant’s leases and the
loss of rental income attributable to the terminated leases. Lease terminations
by an anchor tenant or a failure by that anchor tenant to occupy the premises
could also result in lease terminations or reductions in rent by other
tenants
in the same shopping center under the terms of some leases. In addition,
we
cannot be sure that any tenant whose lease expires will renew that lease
or that
we will be able to re-lease space on economically advantageous terms. The
loss
of rental revenues from a number of our tenants and our inability to replace
such tenants may adversely affect our profitability and our ability to
meet debt
and other financial obligations and make distributions to
shareholders.
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 reviews our properties and potential investments in
terms
of geographic and tenant diversification. Kroger, IHOP and CVS/Pharmacy
accounted for 9.2%, 7.4% and 3.5%, respectively, of our total operating
revenues
for the year ended December 31, 2006. There is a risk that any adverse
developments affecting either Kroger, IHOP or CVS/Pharmacy could materially
adversely affect our revenues (thereby affecting our ability to make
distributions to shareholders).
Approximately
59% of our rental income for the year ended December 31, 2006, is generated
from properties located in the Houston, Texas metropolitan area. Additionally,
approximately 91% of our rental income for the year was generated from
properties located throughout major metropolitan areas in the State of
Texas.
Therefore, we are vulnerable to economic downturns affecting Houston and
Texas,
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.
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
December 31, 2006, AmREIT had outstanding debt totaling
$144.5 million, $132.5 million of which was fixed-rate secured financing.
This debt represented approximately 48% of AmREIT’s net real estate investments.
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.
We
are subject to conflicts of interest arising out of our relationships with
our
merchant development funds.
We
experience competition for acquisition properties. In evaluating property
acquisitions, certain properties may be appropriate for acquisition by
either us
or one of our merchant development funds. Our shareholders do not have
the
opportunity to evaluate the manner in which these conflicts of interest
are
resolved. Generally, we 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 us and our merchant development
funds.
There
are
competing demands on our management and board. Our management team and
board are
not only responsible for us, but also for our merchant development funds,
which
include entities that may invest in the same types of assets in which we
may
invest. For this reason, the management team and trust managers divide
their
management time and services among those funds and us, will not devote
all of
their attention to us and could take actions that are more favorable to
the
other entities than to us.
We
may
invest along side our merchant development funds. We 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 merchant development
funds. In such circumstances, we will work with the applicable merchant
development fund to ascertain, and we will pay, the market value of the
property. By our dealing directly with our merchant development funds 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
less
than the price we would have been able to negotiate from an independent
third
party. These property acquisitions from the merchant development funds
will be
limited to properties that the merchant development funds developed.
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.
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 ours 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 risk, including the possibility that the developer or contractor
receiving these payments may not fully perform the construction obligations
in
accordance with the terms of his agreement with us and that we may be unable
to
enforce the contract or to recover the progress payments.
An
uninsured loss or a loss that exceeds the insurance policy limits on our
properties could subject us to lost capital or revenue on those
properties.
Under
the
terms and conditions of the leases currently in force on our properties,
tenants
generally are required to indemnify and hold us harmless from liabilities
resulting from injury to persons, air, water, land or property, on or off
the
premises, due to activities conducted on the properties, except for claims
arising from our negligence or intentional misconduct or that of our
agents. Tenants are generally required, at the tenant’s expense, to obtain
and keep in full force during the term of the lease, liability and property
damage insurance policies. We have obtained comprehensive liability, casualty,
property, flood and rental loss insurance policies on our properties. All
of
these policies may involve substantial deductibles and certain exclusions.
In
addition, we cannot assure the shareholders that the tenants will properly
maintain their insurance policies or have the ability to pay the deductibles.
Should a loss occur that is uninsured or in an amount exceeding the combined
aggregate limits for the policies noted above, or in the event of a loss
that is
subject to a substantial deductible under an insurance policy, we could
lose all
or part of our capital invested in, and anticipated revenue from, one or
more of
the properties, which could have a material adverse effect on our operating
results and financial condition, as well as our ability to make distributions
to
the 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.
We
may invest in joint ventures.
·
|
The
joint venture partner may have economic or business interest
or goals
which are inconsistent with ours
|
·
|
The
potential inability of our joint venture partner to
perform
|
·
|
The
joint venture partner may take actions contrary to our requests
or
instructions or contrary to our objectives or policies;
and
|
·
|
The
joint venture partners 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
un-resolvable 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 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.
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 our 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 our 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 herein.
None
General
At
December 31, 2006, we owned 49 properties located in 15 states. Reference
is
made to the Schedule III - Consolidated Real Estate Owned and Accumulated
Depreciation filed with this Form 10-K for a listing of the properties
and their
respective costs.
Since
1995, we have been developing and acquiring shopping centers in our
advisory/sponsorship business. During this time, we believe we have sharpened
our ability to recognize the ideal location of high-end shopping centers
and
single-tenant properties that can create long-term value which we define
as
Irreplaceable Corners. Shopping centers represent 83% of annualized rental
income from properties owned as of December 31, 2006, with the balance
being
single-tenant properties primarily leased by national tenants throughout
the
United States.
Land
- Our
property sites, on which our leased buildings sit, range from approximately
34,000 to 1.0 million square feet, depending upon building size and local
demographic factors. Our sites are in highly-populated, high traffic corridors
and have been reviewed for traffic and demographic pattern and
history.
Buildings
-
The
buildings are multi-tenant shopping centers and freestanding single-tenant
properties located at “Main and Main” locations throughout the United States.
They are positioned for good exposure to traffic flow and are constructed
from
various combinations of stucco, steel, wood, brick and tile. Shopping centers
are generally 14,000 square feet and greater, and single-tenant buildings
range
from approximately 2,000 to 14,000 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 four 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
both.
Location
of Properties
Based
in
Houston, our current focus is on property investments in Texas. Of our
49
properties, 23 are located in Texas, with 17 being located in the greater
Houston metropolitan statistical area. These 17 properties represented
59% of
our rental income for the year ended December 31, 2006. Our portfolio of
assets
tends to be located in areas we know well, and where we can monitor them
closely. Because of our proximity and deep knowledge of our markets, we
believe
we can deliver an extra degree of hands-on management to our real estate
investments. We expect over the long term we will outperform absentee landlords
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 and 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 sensitive to macroeconomic
downturns.
Additionally,
according to the Greater Houston Partnership, Houston is the 4th most
populous city in the nation, trailing only New York, Los Angeles and
Chicago. Houston 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 2000, approximately 48% of Houston’s population
growth has been from net migration with 77% of that growth attributed to
international immigration. Only 28 other nations other than the
United States have a Gross Domestic Product (GDP) exceeding Houston's Gross
Area
Product (GAP). Houston’s economic base has diversified, sharply decreasing
its dependence on upstream energy. Diversifying, or energy-independent,
sectors
account for 82% of net job growth in the economic base since 1988. Mining
represents the majority of oil and gas exploration and production and accounts
for 23%, or a fifth of Houston’s GAP, which has risen sharply in
reaction to higher energy prices and thinner worldwide surplus oil production
capacity than in previous years. The Houston MSA recorded 2.403 million
payroll jobs in July 2006 - more than the job counts of 29 states. The
Port of Houston in 2005 ranked first among U.S. ports in volume of foreign
tonnage and is the world’s 10th largest port.
A
listing
of our properties by property type and by location follows, including gross
leasable area (GLA), annualized base rent (ABR) and percent leased as of
December 31, 2006:
Multi-Tenant
Shopping Centers
|
|
Major
Tenants
|
|
City
|
|
State
|
|
Date
Acquired
|
|
GLA
|
|
ABR
|
|
%
Leased
|
|
Uptown
Park
|
|
|
McCormick
& Schmick's
|
|
|
Houston
|
|
|
TX
|
|
|
06/01/05
|
|
|
169,112
|
|
$
|
4,520,617
|
|
|
93
|
%
|
Southbank
- Riverwalk
|
|
|
Hard
Rock Café
|
|
|
San
Antonio
|
|
|
TX
|
|
|
09/30/05
|
|
|
46,673
|
|
|
1,511,552
|
|
|
100
|
%
|
MacArthur
Park
|
|
|
Kroger
|
|
|
Dallas
|
|
|
TX
|
|
|
12/04
and 12/05
|
|
|
237,381
|
|
|
3,917,651
|
|
|
97
|
%
|
Plaza
in the Park
|
|
|
Kroger
|
|
|
Houston
|
|
|
TX
|
|
|
07/01/04
|
|
|
144,062
|
|
|
2,496,892
|
|
|
95
|
%
|
Cinco
Ranch
|
|
|
Kroger
|
|
|
Houston
|
|
|
TX
|
|
|
07/01/04
|
|
|
97,297
|
|
|
1,207,722
|
|
|
98
|
%
|
Bakery
Square
|
|
|
Walgreens
& Bank of America
|
|
|
Houston
|
|
|
TX
|
|
|
07/21/04
|
|
|
34,614
|
|
|
853,738
|
|
|
100
|
%
|
Uptown
Plaza
|
|
|
CVS/pharmacy
|
|
|
Houston
|
|
|
TX
|
|
|
12/10/03
|
|
|
28,000
|
|
|
1,236,646
|
|
|
94
|
%
|
Woodlands
Plaza
|
|
|
FedEx/Kinkos
& Rug Gallery
|
|
|
The
Woodlands
|
|
|
TX
|
|
|
06/03/98
|
|
|
20,018
|
|
|
373,317
|
|
|
100
|
%
|
Sugarland
Plaza
|
|
|
Mattress
Giant
|
|
|
Sugarland
|
|
|
TX
|
|
|
07/01/98
|
|
|
16,750
|
|
|
349,612
|
|
|
100
|
%
|
Terrace
Shops
|
|
|
Starbucks
|
|
|
Houston
|
|
|
TX
|
|
|
12/15/03
|
|
|
16,395
|
|
|
436,844
|
|
|
93
|
%
|
584
N. Germantown Parkway
|
|
|
Baptist
Memorial & Auto Zone
|
|
|
Memphis
|
|
|
TN
|
|
|
07/23/02
|
|
|
15,000
|
|
|
194,026
|
|
|
75
|
%
|
Uptown
Dallas
|
|
|
Grotto,
Century Bank, Pei Wei
|
|
|
Dallas
|
|
|
TX
|
|
|
03/30/06
|
|
|
33,840
|
|
|
1,622,985
|
|
|
100
|
%
|
Courtyard
at Post Oak
|
|
|
Verizon
Wireless
|
|
|
Houston
|
|
|
TX
|
|
|
06/15/04
|
|
|
13,597
|
|
|
477,361
|
|
|
100
|
%
|
Multi-Tenant
Shopping Centers Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
872,739
|
|
$
|
19,198,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single
Tenant (Ground Leases)
|
|
|
|
|
|
City |
|
|
State
|
|
|
Date
Acquired
|
|
|
GLA
|
|
|
ABR
|
|
|
%Leased
|
|
CVS
Corporation
|
|
|
|
|
|
Houston
|
|
|
TX
|
|
|
01/10/03
|
|
|
13,824
|
|
|
327,167
|
|
|
100
|
%
|
Darden
Restaurants
|
|
|
|
|
|
Peachtree
City
|
|
|
GA
|
|
|
12/18/98
|
|
|
6,867
|
|
|
79,366
|
|
|
100
|
%
|
Carlson
Restaurants
|
|
|
|
|
|
Hanover
|
|
|
MD
|
|
|
09/16/03
|
|
|
6,802
|
|
|
141,674
|
|
|
100
|
%
|
Citibank
|
|
|
|
|
|
San
Antonio
|
|
|
TX
|
|
|
12/17/04
|
|
|
4,439
|
|
|
155,000
|
|
|
100
|
%
|
Fontana
Tract (2)
|
|
|
|
|
|
Dallas
|
|
|
TX
|
|
|
12/11/06
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Washington
Mutual
|
|
|
|
|
|
Houston
|
|
|
TX
|
|
|
12/11/96
|
|
|
3,685
|
|
|
98,160
|
|
|
100
|
%
|
Washington
Mutual
|
|
|
|
|
|
The
Woodlands
|
|
|
TX
|
|
|
09/23/96
|
|
|
3,685
|
|
|
61,794
|
|
|
100
|
%
|
Single
Tenant (Ground Leases) Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,302
|
|
$ |
863,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single
Tenant (Fee Simple)
|
|
|
|
|
|
City
|
|
|
State
|
|
|
Date
Acquired
|
|
|
GLA
|
|
|
ABR
|
|
|
%
Leased
|
|
Golden
Corral
|
|
|
|
|
|
Houston
|
|
|
TX
|
|
|
7/23/2002
|
|
|
12,000
|
|
|
182,994
|
|
|
100
|
%
|
Golden
Corral
|
|
|
|
|
|
Humble
|
|
|
TX
|
|
|
7/23/2002
|
|
|
12,000
|
|
|
181,688
|
|
|
100
|
%
|
Carlson
Restaurants
|
|
|
|
|
|
Houston
|
|
|
TX
|
|
|
7/23/2002
|
|
|
8,500
|
|
|
200,000
|
|
|
100
|
%
|
IHOP
Corporation
|
|
|
|
|
|
Sugarland
|
|
|
TX
|
|
|
9/22/1999
|
|
|
4,020
|
|
|
189,146
|
|
|
100
|
%
|
IHOP
Corporation (5)
|
|
|
|
|
|
Centerville
|
|
|
UT
|
|
|
7/25/2002
|
|
|
4,020
|
|
|
162,656
|
|
|
100
|
%
|
IHOP
Corporation (5)
|
|
|
|
|
|
Memphis
|
|
|
TN
|
|
|
8/23/2002
|
|
|
4,020
|
|
|
178,898
|
|
|
100
|
%
|
IHOP
Corporation
|
|
|
|
|
|
Topeka
|
|
|
KS
|
|
|
9/30/1999
|
|
|
4,020
|
|
|
158,359
|
|
|
100
|
%
|
AFC,
Inc.
|
|
|
|
|
|
Atlanta
|
|
|
GA
|
|
|
7/23/2002
|
|
|
2,583
|
|
|
119,279
|
|
|
100
|
%
|
Advance
Auto (1) (2) (3) (4)
|
|
|
|
|
|
Various
|
|
|
Various
|
|
|
Various
|
|
|
21,000
|
|
|
131,421
|
|
|
-
|
|
Single
Tenant (Fee Simple) Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,163
|
|
$ |
1,504,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single
Tenant (Leasehold)
|
|
|
|
|
|
City
|
|
|
State
|
|
|
Date
Acquired
|
|
|
GLA
|
|
|
ABR
|
|
|
%
Leased
|
|
IHOP
Corporation (5)
|
|
|
|
|
|
Various
|
|
|
Various
|
|
|
Various
|
|
|
60,300
|
|
$ |
1,560,215
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,044,504
|
|
$ |
23,126,780
|
|
|
96.50
|
%
|
(1) |
Under
Development (any GLA disclosed represents proposed leasable square
footage)
|
(3) |
Held
in 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, TX, CA, TN, CO, VA, NY, OR, KS,
and MO.
Each of the properties has a GLA of 4,020 square feet. These properties
are held be a consolidated subsidiary, 75.0% of which is owned
by us,
19.6% of which is owned by AmREIT Income & Growth Corporation, one of
our merchant development funds, and the remainder of which is owned
by
unaffiliated third parties. We have assigned to management approximately
50% of our back-end participation interest in this entity as part
of our
long-term incentive compensation program. Accordingly, approximately
half
of the future net cash flows from such participation interest are
owned by
management.
|
The
rental income generated by our properties during 2006 by state/city is
as
follows:
State/City
|
|
Rental
Income
|
|
Rental
Concentration
|
|
Texas
- Houston
|
|
$
|
17,785
|
|
|
58.9
|
%
|
Texas
- Dallas
|
|
|
7,318
|
|
|
24.2
|
%
|
Texas
- San Antonio
|
|
|
2,226
|
|
|
7.4
|
%
|
Texas
- other
|
|
|
230
|
|
|
0.8
|
%
|
Total
Texas
|
|
|
27,559
|
|
|
91.3
|
%
|
Tennessee
|
|
|
716
|
|
|
2.4
|
%
|
Louisiana
|
|
|
218
|
|
|
0.7
|
%
|
Kansas
|
|
|
255
|
|
|
0.8
|
%
|
Illinois
|
|
|
49
|
|
|
0.2
|
%
|
Missouri
|
|
|
115
|
|
|
0.4
|
%
|
Colorado
|
|
|
109
|
|
|
0.4
|
%
|
Georgia
|
|
|
198
|
|
|
0.7
|
%
|
Oregon
|
|
|
181
|
|
|
0.6
|
%
|
Virginia
|
|
|
173
|
|
|
0.6
|
%
|
Utah
|
|
|
163
|
|
|
0.5
|
%
|
Maryland
|
|
|
133
|
|
|
0.4
|
%
|
New
York
|
|
|
125
|
|
|
0.4
|
%
|
California
|
|
|
112
|
|
|
0.4
|
%
|
New
Mexico
|
|
|
82
|
|
|
0.3
|
%
|
Total
|
|
$
|
30,188
|
|
|
100.0
|
%
|
Grocery-Anchored
Shopping Centers
Our
grocery-anchored shopping centers comprise 33% of our annualized rental
income
from the properties owned as of December 31, 2006. 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 complementary
array
of services to support the local retail consumer. These properties are
located
in the Houston and Dallas metropolitan areas and are typically located
at an
intersection guided by a traffic light, with high visibility, significant
daily
traffic counts, and in close proximity to neighborhoods and communities
with
household incomes above those of the national average. We are dependent
upon the
financial viability of Kroger, and any downturn in Kroger’s operating results
could negatively impact our operating results.
All
of
our grocery-anchored center leases provide for the monthly payment of base
rent
plus reimbursement of 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 any underpayment being billed to the tenant.
Generally these are net lease terms and allow the landlord to recover all
of its
operating expenses, with the exception of expenses allocable to any vacant
space.
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 $22,000 to $1.0 million per year.
Neighborhood,
Lifestyle and Community Shopping Centers
As
of
December 31, 2006, we owned 10 shopping centers, excluding the grocery-anchored
centers discussed above, representing approximately 394,000 leasable square
feet. Our shopping center properties are primarily neighborhood, lifestyle
and
community centers, ranging from 14,000 to 170,000 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 tenants, leased in a manner
to
provide a complementary array of services to support the local retail consumer.
All of our centers are located in major metropolitan areas, are typically
located at an intersection guided by a traffic light, with high visibility,
significant daily traffic counts, and are in close proximity to neighborhoods
and communities with household incomes above those of the national
average.
All
of
our shopping center leases provide for the monthly payment of base rent
plus
reimbursement of 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 any underpayment being billed to the tenant.
Our
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 $13,000 to $547,000 per year and typically allow for rental increases,
or
bumps, periodically through the life of the lease.
Single-tenant
Properties
As
of
December 31, 2006, we owned 35 single-tenant properties, representing
approximately 171,765 lease-able 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
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
tenant,
they typically do not limit the Company’s 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 $60,000 to $327,000 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 shopping center. As of
December 31, 2006, we have one parcel of undeveloped property within our
REIT
portfolio. In December 2006, we acquired an undeveloped 0.9 acre parcel
contiguous to Uptown Plaza in Dallas which we acquired with the intent
to
resell.
Property
Acquisitions and Dispositions
Shopping
Centers
During
2005 and continuing through 2006, we invested approximately $134 million
through
the acquisition of four shopping center properties. The acquisitions were
accounted for as purchases and the results of their operations are included
in
the consolidated financial statements from the respective dates of
acquisition.
On
March
30, 2006, we acquired Uptown Plaza in Dallas, a 34,000
square foot multi-tenant retail complex which was developed in 2005. The
center’s tenants include, among others, Pei-Wei, Grotto and Century Bank. Uptown
Plaza is located at the corner of McKinney and Pearl Street in an infill
location with high barriers to entry, and the property services the surrounding
affluent residential and downtown areas. The property was acquired for
cash
which was substantially funded by proceeds from our credit
facility.
On
September 30, 2005, we acquired for cash The South Bank, a 47,000 square
foot
shopping center located on the San Antonio Riverwalk in San Antonio, Texas.
The
property is located at the corner of a major downtown intersection and
is
accessible from both the river and street levels. Tenants on the Property
include, among others, Hard Rock Café, Starbucks, Ben & Jerry’s,
Harley-Davidson and The County Line. The property was funded with cash
and the
placement of long-term fixed-rate debt. The cash portion of the purchase
consideration was substantially funded by the net proceeds from the secondary
offering of our class A common shares. The debt has a term of 10 years
and is
payable interest-only to maturity at a fixed interest rate of 5.91% with
the
entire principal amount due in 2016.
On
June
1, 2005, we acquired Uptown Park, a 169,000 square foot lifestyle center
located
on approximately 16.85 acres of land. The property is located on the northwest
corner of Loop 610 and Post Oak Boulevard in Houston, Texas in the heart
of the
Uptown Houston area. The property was developed in two phases — phase one
consists of approximately 147,000 square feet that was constructed in 1999,
and
construction was recently completed on phase two which consists of approximately
22,000 square feet. The
property was funded with cash and the placement of long-term fixed-rate
debt.
The cash portion of the purchase consideration was substantially funded
by the
net proceeds from the secondary offering of our class A common shares.
The debt
has a term of 10 years and is payable interest-only to maturity at a fixed
interest rate of 5.37% with the entire principal amount due in 2015.
Additionally,
during 2005, we used the net proceeds from the sale of the single-tenant
non-core assets discussed below to acquire a 39,000 square foot multi-tenant
retail project located adjacent to the MacArthur Park Shopping Center in
Las
Colinas, an affluent residential and business community in Dallas, Texas.
We
purchased the MacArthur Park Shopping Center on December 27, 2004.
Single-tenant
Properties
During
2006, we sold four single-tenant assets for gross proceeds of $6.7 million
in
cash to unrelated third parties, generating gains of $667,000. During 2005,
we
sold 10 single-tenant non-core properties for $16.6 million in cash to
unrelated
third parties resulting in gains of $3.4 million. In addition, we completed
the
sale of six single-tenant retail properties that were acquired for resale
for a
total of approximately $11.5 million in cash generating gains of $3.2
million.
We
are
not a party to any material pending legal proceedings.
No
matters were submitted to a vote of shareholders during the fourth quarter
of
the 2006 fiscal year.
As
of
March 27, 2007, there were approximately 635 holders of record for 6,401,467
of
the Company's class A common shares outstanding on such date, net of 178,367
shares held in treasury. AmREIT’s class A common shares are listed on the
American Stock Exchange (“AMEX”) and traded under the symbol “AMY.” The
following table sets forth for the calendar periods indicated high and
low sale
prices per class A common share as reported on the AMEX and the dividends
paid
per share for the two year period ended December 31, 2006.
Calendar
Period
|
|
High
|
|
Low
|
|
Dividends
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
8.65
|
|
$
|
7.25
|
|
$
|
.1242
|
|
Third
Quarter
|
|
$
|
7.46
|
|
$
|
6.85
|
|
$
|
.1242
|
|
Second
Quarter
|
|
$
|
7.60
|
|
$
|
6.95
|
|
$
|
.1242
|
|
First
Quarter
|
|
$
|
7.96
|
|
$
|
6.73
|
|
$
|
.1242
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
7.96
|
|
$
|
6.70
|
|
$
|
.1242
|
|
Third
Quarter
|
|
$
|
8.49
|
|
$
|
7.25
|
|
$
|
.1242
|
|
Second
Quarter
|
|
$
|
8.75
|
|
$
|
7.90
|
|
$
|
.1242
|
|
First
Quarter
|
|
$
|
8.75
|
|
$
|
7.90
|
|
$
|
.1236
|
|
The
payment of any future dividends on our class A common shares is dependent
upon
applicable legal and contractual restrictions, including the provisions
of the
class B and C common shares, as well as our earnings and financial
needs.
Class
B Common Shares—
As
of
March 27, 2007, there were approximately 531 holders of record for 1,050,442
of
the Company’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. The class B common shares
were
issued at $9.25 per share. They receive a fixed 8.0% cumulative and preferred
annual dividend, paid in quarterly installments, and are convertible into
the
class A common shares on a one-for-one basis at any time, at the holder’s
option. Beginning in July 2005, we have the right to call the shares and,
at the
holder’s option, either convert them on a one-for-one basis for class A shares
or redeem them for $10.18 per share in cash plus any accrued and unpaid
dividends.
Class
C Common Shares—
As
of
March 27, 2007, there were approximately 1,282 holders of record for 4,154,129
of the Company’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
were
issued at $10.00 per share. They receive a fixed 7.0% preferred annual
dividend,
paid in monthly installments, and are convertible into the class A common
shares
after a 7-year lock out period based on 110% of invested capital, at the
holder’s option. After three years and beginning in August 2006, subject to the
issuance date of the respective shares, we have the right to force conversion
of
the shares into class A shares on a one-for-one basis or to redeem the
shares at
a cash redemption price of $11.00 per share at the holder’s option. Currently,
there is a class C dividend reinvestment program that allows investors
to
reinvest their dividends into additional class C common shares. These reinvested
shares are also convertible into the class A common shares after the 7-year
lock
out period and receive the 10% conversion premium upon conversion. As of
March
27, 2007, 848 holders are participating in the dividend reinvestment
plan.
Class
D Common Shares—
As
of
March 27, 2007, there were approximately 3,464 holders of record for 11,023,040
of the Company’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
were
issued at $10.00 per share. They receive a fixed 6.5% annual dividend,
paid in
monthly installments, subject to payment of dividends then payable to class
B
and class C common shares. The class D common shares are convertible into
the
class A common shares at a 7.7% premium on original capital after a 7-year
lock
out period, at the holder’s option. After one year and beginning in July 2005,
subject to the issuance date of the respective shares, we have the right
to
force conversion of the shares into class A shares at the 7.7% conversion
premium or to redeem the shares at a cash price of $10.00 per share. In
either
case, the conversion premium will be pro rated based on the number of years
the
shares are outstanding. Currently, there is a class D dividend reinvestment
program that allows investors to reinvest their dividends into additional
class
D common shares. These reinvested shares are also convertible into the
class A
common shares after the 7-year lock out period and receive the 7.7% conversion
premium upon conversion. As of March 27, 2007, 2,388 holders are participating
in the dividend reinvestment plan.
The
following table sets forth selected consolidated financial data with respect
to
AmREIT and should be read in conjunction with Item 7 - “Management’s Discussion
and Analysis of Financial Condition and Results of Operations;” the Consolidated
Financial Statements and accompanying Notes in Item 8 - “Financial Statements
and Supplementary Data” and the financial schedule included elsewhere in this
Form 10-K.
AmREIT
Selected
Historical
Consolidated
Financial and Other Data
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
Balance
sheet data (at end of period)
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate investments before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated
depreciation……………………
|
|
$
|
312,405
|
|
$
|
290,097
|
|
$
|
198,744
|
|
$
|
98,128
|
|
$
|
72,192
|
|
Total
assets ………………………………………..
|
|
|
328,419
|
|
|
314,971
|
|
|
203,151
|
|
|
101,327
|
|
|
73,976
|
|
Notes
payable ……………………………………..
|
|
|
144,453
|
|
|
114,687
|
|
|
105,964
|
|
|
48,485
|
|
|
33,586
|
|
Shareholders'
equity …………………………
|
|
|
169,050
|
|
|
187,285
|
|
|
88,370
|
|
|
48,796
|
|
|
38,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
from operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available
to class A (1)…………………
|
|
|
4,750
|
|
|
3,644
|
|
|
(2,003
|
)
|
|
607
|
|
|
(845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues…………………………………………………
|
|
|
59,342
|
|
|
33,981
|
|
|
15,184
|
|
|
7,394
|
|
|
5,157
|
|
Expenses
(2)…………………………………………….
|
|
|
45,704
|
|
|
24,269
|
|
|
13,305
|
|
|
6,923
|
|
|
6,366
|
|
Other
expenses………………………………………….
|
|
|
6,711
|
|
|
6,165
|
|
|
2,290
|
|
|
1,684
|
|
|
1,488
|
|
Income
(loss) from discontinued operations (3)...………………..
|
|
|
254
|
|
|
3,356
|
|
|
(828
|
)
|
|
2,425
|
|
|
2,038
|
|
Gain
on sale of real estate acquired for resale…
|
|
|
382
|
|
|
3,223
|
|
|
1,827
|
|
|
787
|
|
|
-
|
|
Net
income (loss) …………………………………………
|
|
$
|
7,563
|
|
$
|
10,126
|
|
$
|
588
|
|
$
|
1,999
|
|
$
|
(659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) available to class A shareholders ……….
|
|
$
|
(3,879
|
)
|
$
|
881
|
|
$
|
(3,866
|
)
|
$
|
56
|
|
$
|
(1,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income per common share - basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before discontinued operations
|
|
$
|
(0.72
|
)
|
$
|
(1.09
|
)
|
$
|
(1.50
|
)
|
$
|
(1.13
|
)
|
$
|
(1.44
|
)
|
Income
from discontinued operations
|
|
|
0.10
|
|
|
1.26
|
|
|
0.31
|
|
|
1.15
|
|
|
0.83
|
|
Net
income (loss)
|
|
$
|
(0.62
|
)
|
$
|
0.17
|
|
$
|
(1.19
|
)
|
$
|
0.02
|
|
$
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
per share - class A ………………………..…
|
|
$
|
0.50
|
|
$
|
0.50
|
|
$
|
0.48
|
|
$
|
0.45
|
|
$
|
0.35
|
|
(1)
We
have adopted the National Association of Real Estate Investment Trusts
(NAREIT)
definition of FFO. FFO is calculated as net income (computed in accordance
with
generally accepted accounting principles) excluding gains or losses from
sales
of depreciable operating property, depreciation and amortization of real
estate
assets, and excluding results defined as "extraordinary items" under
generally
accepted accounting principles. We consider FFO to be an appropriate
supplemental measure of operating performance because, by excluding gains
or
losses on dispositions and excluding depreciation, FFO is a helpful tool
that
can assist in the comparison of the operating performance of a company's
real
estate between periods, or as compared to different companies. FFO should
not be
considered an alternative to cash flows from operating, investing and
financing
activities in accordance with general accepted accounting principles
and is not
necessarily indicative of cash available to meet cash needs. Our 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 our performance, or
of cash
flows as a measure of liquidity. Please see reconciliation of Net Income
to FFO
in Item 7 - "Management's Discussion and Analysis of Financial Condition
and
Results of Operations." For the year ended December 31, 2004, FFO includes
an
impairment charge of $2.4 million related to two single tenant, non-core
assets.
For the years ended December 31, 2004, 2003 and 2002, FFO includes deferred
merger costs of $1.7 million, $915,000 and $1.9 million resulting from
shares
issued to our CEO from the sale of his advisory company to us in June
1998.
(2)
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 our CEO as deferred merger cost stemming from the
sale of
his advisory company to us
in
June 1998.
(3)
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.
Forward-Looking
Statements
Certain
information presented in this Form 10-K constitutes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E
of the Securities Exchange Act of 1934. Although the Company believes that
the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, the Company's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors
that
might cause such a difference include the following: changes in general
economic
conditions, changes in real estate market conditions, continued availability
of
proceeds from the Company's debt or equity capital, the ability of the
Company
to locate suitable tenants for its properties, the ability of tenants to
make
payments under their respective leases, timing of acquisitions, development
starts and sales of properties and the ability to meet development
schedules.
The
following discussion should be read in conjunction with the consolidated
financial statements and notes thereto and the comparative summary of selected
financial data appearing elsewhere in this report. Historical results and
trends
which might appear should not be taken as indicative of future operations.
Executive
Overview
We
are an
established real estate company that, at our core, are value creators who
have
delivered results to our investors for 22 years and have elected to be
taxed as
a REIT for federal income tax purposes. Our mission is to build a real
estate
business with the potential to realize profitable growth year over year
regardless of market cycles. Our structure consists of two distinct companies,
representing three synergistic businesses that provide earnings potential
from
multiple sources. First, we own an institutional-grade portfolio of
Irreplaceable Corners - premier retail properties in high-traffic, highly
populated areas - which are held for long-term value and provide a foundation
to
our FFO growth through a steady stream of rental income. Second, our
advisory/sponsorship
business
broadens
the Company’s avenues to capital and raises capital for a series of merchant
development funds. And third, as a real
estate development and operating company,
we
provide value through offering an array of services to our tenants and
properties, to our advisory/sponsorship business’s portfolios and to third
parties. These
three business segments add value to the overall Company and, together,
give us
the flexibility to achieve our financial objectives over the long-term
as we
navigate the changing market cycles that come our way.
As
of
December 31, 2006, we have over 600,000 square feet of shopping centers
in
various stages of development or in the pipeline for our advisory group
and for
third parties. Since listing on the AMEX in July 2002, our total assets
have
grown from a book value of $48 million to $328 million, including 49 properties
located in 15 states. Within our asset advisory business we manage an additional
$227 million in assets, representing 20 properties in 2 states, and equity
under
management within our advisory/sponsorship business has grown from $15
million
to $121 million.
Portfolio
of Irreplaceable Corners
Our
portfolio consists primarily of premier retail properties typically located
on
“Main and Main” intersections in high-traffic, highly populated affluent areas.
Because of their location and exposure as central gathering places, we
believed
these centers attract well established tenants and can withstand the test
of
time, providing our shareholders a steady rental income stream.
During
2005 and continuing through 2006, we acquired approximately 289,000 square
feet
of multi-tenant shopping centers, representing approximately $134 million
in
assets at an average cap rate of 6.8%. We take a very hands-on approach
to
ownership, and directly manage the operations and leasing at all of our
wholly
owned properties.
As
of
December 31, 2006, we owned a real estate portfolio consisting of 49 properties
located in 15 states. The areas where a majority of our properties are
located
are densely populated, suburban communities in and around Houston, Dallas
and
San Antonio. Within these broad markets, we target locations that we believe
have the best demographics and highest long term value. We refer to these
properties as Irreplaceable Corners. Our criteria for an Irreplaceable
Corner
includes: high barriers to entry (typically infill locations in established
communities without significant raw land available for development), significant
population within a three mile radius (typically in excess of 100,000 people),
located on the hard corner of an intersection guided by a traffic signal,
ideal
average household income in excess of $80,000 per year, strong visibility
and
significant traffic counts passing by the location (typically in excess
of
30,000 cars per day). We believe that centers with these characteristics
will
provide for consistent leasing demand and rents that increase at or above
the
rate of inflation. Additionally, these areas have barriers to entry for
competitors seeking to develop new properties due to the lack of available
land.
We
expect
that single-tenant, credit leased properties, will continue to experience
cap
rate pressure during 2007 due to the low interest rate environment and
increased
buyer demand. Therefore, we will continue to divest of properties which
no
longer meet our core criteria, and, to the extent that we can do so accretively,
replace them with high-quality grocery-anchored, lifestyle, and multi-tenant
shopping centers or the development of single-tenant properties located
on
Irreplaceable Corners. Each potential acquisition is subjected to a rigorous
due
diligence process that includes site inspections, financial underwriting,
credit
analysis and market and demographic studies. Therefore, there can be no
assurance that we will ultimately purchase any or all of these projects.
Our
acquisitions program is sensitive to changes in interest rates. As of December
31, 2006, 92% of our outstanding debt had a long-term fixed interest rate
with
an average term of 7.1 years. Our philosophy continues to be matching long-term
leases with long-term debt structures while keeping our debt to total assets
ratio less than 55%.
Advisory/Sponsorship
Business
The
part
of our business model and operating strategy that distinguishes us from
other
publicly-traded REITs is our asset advisory business, or AmREIT Securities
Company, a NASD registered broker-dealer which is a wholly-owned subsidiary
of
ARIC. For the past 22 years, we have been raising capital for our merchant
development funds and building relationships in the financial planning
and
broker-dealer community, earning fees and sharing in profits from those
activities. Historically, our advisory group has raised capital in two
ways:
first, directly for AmREIT through non-traded classes of common shares,
and
second, for our actively managed merchant development funds.
The
advisory/sponsorship
business
invests
in and actively manages six merchant development partnership funds which
were
formed to develop, own, manage, and add value to properties with an average
holding period of two to four years. We invest as both the general partner
and
as a limited partner, and our advisory/sponsorship business sells interests
in
these funds to retail investors. We, as the general partner, manage the
funds
and, in return, receive management fees as well as potentially significant
profit participation interests. However, we strive to create a structure
that
aligns the interests of our shareholders with those of our limited partners.
In
this spirit, the funds are structured so that the general partner receives
a
significant profit only after the limited partners in the funds have received
their targeted return which links our success to that of the limited
partners.
Real
Estate Development and Operating Company
Our
real
estate development and operating business, ARIC, is a fully integrated
and
wholly-owned business, consisting of brokers and real estate professionals
that
provide development, acquisition, brokerage, leasing, construction, general
contracting, asset and property management services to our portfolio of
properties, to our advisory/sponsorship business, and to third parties.
This
operating subsidiary, which is a taxable REIT subsidiary, is a
transaction-oriented subsidiary that is very active in the real estate
market
and generates significant profits and fees on an annual basis. This business
can
provide significant long-term and annual growth; however, its quarter to
quarter
results will fluctuate, and therefore its contributions to our quarterly
earnings will be volatile.
Summary
of Critical Accounting Policies
Our
results of operations and financial condition, as reflected in the accompanying
consolidated financial statements and related footnotes, are subject to
management’s evaluation and interpretation of business conditions, retailer
performance, changing capital market conditions and other factors, which
could
affect the ongoing viability of our tenants. Management believes the most
critical accounting policies in this regard are revenue recognition, the
regular
evaluation of whether the value of a real estate asset has been impaired,
the
allowance for uncollectible accounts and accounting for real estate
acquisitions. We evaluate our assumptions and estimates on an on-going
basis. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable based on the circumstances.
Revenue
Recognition—
We
lease space to tenants under agreements with varying terms. The majority
of the
leases are accounted for as operating leases with revenue being recognized
on a
straight-line basis over the terms of the individual leases. Accrued rents
are
included in tenant receivables. Revenue from tenant reimbursements of taxes,
maintenance expenses and insurance is recognized in the period the related
expense is recorded. Additionally, certain of the lease agreements contain
provisions that grant additional rents based on tenants’ sales volumes
(contingent or percentage rent). Percentage rents are recognized when the
tenants achieve the specified targets as defined in their lease agreements.
The
terms of certain leases require that the building/improvement portion of
the
lease be accounted for under the direct financing method which treats the
building as if we had sold it to the lessee and entered into a long-term
financing arrangement with such lessee. This accounting method is appropriate
when the lessee has all of the benefits and risks of property ownership
that
they otherwise would if they owned the building versus leasing it from
us.
We
have
been engaged to provide various services, including development, construction,
construction management, property management, leasing and brokerage. The
fees
for these services are recognized as services are provided and are generally
calculated as a percentage of revenues earned or to be earned or of property
cost, as appropriate. Revenues from fixed-price construction contracts
are
recognized on the percentage-of-completion method, measured by the physical
completion of the structure. Revenues from cost-plus-percentage-fee contracts
are recognized on the basis of costs incurred during the period plus the
percentage fee earned on those costs. Construction management contracts
are
recognized only to the extent of the fee revenue.
Construction
contract costs include all direct material and labor costs and any indirect
costs related to contract performance. Provisions for estimated losses
on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, and estimated
profitability, including those arising from any contract penalty provisions,
and
final contract settlements may result in revisions to costs and income
and are
recognized in the period in which the revisions are determined. Any profit
incentives are included in revenues when their realization is reasonably
assured. An amount equal to contract costs attributable to any claims is
included in revenues when realization is probable and the amount can be
reliably
estimated.
Unbilled
construction receivables represent reimbursable costs and amounts earned
under
contracts in progress as of the date of our balance sheet. Such amounts
become
billable according to contract terms, which usually consider the passage
of
time, achievement of certain milestones or completion of the project. Advance
billings represent billings to or collections from clients on contracts in
advance of revenues earned thereon. Unbilled construction receivables are
generally billed and collected within the 12 months following the date
of our
balance sheet, and advance billings are generally earned within the 12
months
following the date of our balance sheet.
Securities
commission income is recognized as units of our merchant development funds
are
sold through AmREIT Securities Company. Securities commission income is
earned
as the services are performed and pursuant to the corresponding prospectus
or
private offering memorandum. Generally, it includes a selling commission
of
between 6.5% and 7.5%, a dealer manager fee of between 2.5% and 3.25% and
offering and organizational costs of 1.0% to 1.50%. The selling commission
is
then paid out to the unaffiliated selling broker dealer and reflected as
securities commission expense.
Real
Estate Valuation—
Land,
buildings and improvements are recorded at cost. Expenditures related to
the
development of real estate are carried at cost which includes capitalized
carrying charges, acquisition costs and development costs. Carrying charges,
primarily interest and loan acquisition costs, and direct and indirect
development costs related to buildings under construction are capitalized
as
part of construction in progress. The capitalization of such costs ceases
at the
earlier of one year from the date of completion of major construction or
when
the property, or any completed portion, becomes available for occupancy.
The
Company capitalizes acquisition costs once the acquisition of the property
becomes probable. Prior to that time, the Company expenses these costs
as
acquisition expenses. Depreciation is computed using the straight-line
method
over an estimated useful life of up to 50 years for buildings, up to
20 years for site improvements and over the life of lease for tenant
improvements. Leasehold estate properties, where the Company owns the building
and improvements but not the related ground, are amortized over the life
of the
lease.
Management
reviews its properties for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets, including
accrued
rental income, may not be recoverable through operations. Management determines
whether an impairment in value occurred by comparing the estimated future
cash
flows (undiscounted and without interest charges), including the residual
value
of the property, with the carrying value of the individual property. If
impairment is indicated, a loss will be recorded for the amount by which
the
carrying value of the asset exceeds its fair value.
Valuation
of Receivables—
An
allowance for the uncollectible portion of tenant receivables and accounts
receivable is determined based upon an analysis of balances outstanding,
historical payment history, tenant credit worthiness, additional guarantees
and
other economic trends. Balances outstanding include base rents, tenant
reimbursements and receivables attributed to the accrual of straight line
rents.
Additionally, estimates of the expected recovery of pre-petition and
post-petition claims with respect to tenants in bankruptcy are considered
in
assessing the collectibility of the related receivables.
Real
Estate Acquisitions—
We
account for real estate acquisitions pursuant to Statement of Financial
Accounting Standards No. 141, Business
Combinations (“SFAS
141”). Accordingly, we allocate the purchase price of the acquired properties
to
land, building and improvements, identifiable intangible assets and to
the
acquired liabilities based on their respective fair values. Identifiable
intangibles include amounts allocated to acquired out-of-market leases,
the
value of in-place leases and customer relationships, if any. We determine
fair
value based on estimated cash flow projections that utilize appropriate
discount
and capitalization rates and available market information. Estimates of
future
cash flows are based on a number of factors including the historical operating
results, known trends and specific market and economic conditions that
may
affect the property. Factors considered by management in our analysis of
determining the as-if-vacant property value include an estimate of carrying
costs during the expected lease-up periods considering market conditions,
and
costs to execute similar leases. In estimating carrying costs, management
includes real estate taxes, insurance and estimates of lost rentals at
market
rates during the expected lease-up periods, tenant demand and other economic
conditions. Management also estimates costs to
execute
similar leases including leasing commissions, tenant improvements, legal
and
other related expenses. Intangibles related to out-of-market leases and
in-place
lease value are recorded as acquired lease intangibles and are amortized
as an
adjustment to rental revenue or amortization expense, as appropriate, over
the
remaining terms of the underlying leases. Premiums or discounts on acquired
out-of-market debt are amortized to interest expense over the remaining
term of
such debt.
Recently
Issued Accounting Pronouncements
In
June 2005, the Emerging Issues Task Force issued EITF Issue No. 04-05
(“EITF 04-05”), Determining
Whether a General Partner, or the General Partners as a Group, Controls
a
Limited Partnership or Similar Entity When the Limited Partners Have Certain
Rights.
EITF
04-05 makes it more likely that general partners will be required to consolidate
limited partnerships by making it more difficult for a general partner
to
overcome the presumption that it controls the limited partnership. Under
this
new guidance, the presumption of general partner control will be overcome
only
when the limited partners have either of two types of rights - the right
to
dissolve or liquidate the partnership or otherwise remove the general partner
“without cause” or the right to effectively participate in significant decisions
made in the ordinary course of the partnership’s business. These ‘kick-out
rights’ and ‘participating rights’ must be substantive in order to overcome the
presumption of general partner control. The guidance was effective June 29,
2005 for all newly-formed limited partnerships and for existing limited
partnership agreements that are modified. The guidance was effective for
existing limited partnership agreements that are not modified no later
than the
beginning of the first reporting period in fiscal years beginning after
December 15, 2005. We adopted EITF 04-05 during the quarter ended March 31,
2006 for existing limited partnerships, and it had no impact on our financial
position or results of operations because the limited partners have substantive
kick-out rights in each of the limited partnerships for which we serve
as the
general partner.
In
December 2004, the FASB issued Statement No. 123R (“SFAS 123R”),
Share-Based
Payment that
requires companies to expense the value of employee stock options and similar
awards. SFAS 123R became effective in the first quarter of 2006. We have
historically not used stock options as a means of compensating our employees,
and therefore we have no stock options outstanding as of December 31, 2006.
Our
strategy to date has been to compensate our employees through issuance
of our
restricted class A common shares. We determine the fair value of such awards
based on the fair market value of the shares on the date of grant and then
record that expense over the vesting period of the respective awards. The
provisions of SFAS 123R did not change this accounting treatment for our
restricted share awards. Accordingly, our adoption of SFAS 123R did not
materially impact our consolidated financial position, results of operations
or
cash flows.
In
June
2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting
for Uncertainty in Income Taxes-an interpretation of FASB Statement No.
109.”
FIN 48
clarifies the accounting for uncertainty in income taxes recognized in
the
financial statements. The interpretation prescribes a recognition threshold
and
measurement attribute for the financial statement recognition of a tax
position
taken, or expected to be taken, in a tax return. A tax position may only
be
recognized in the financial statements if it is more likely than not that
the
tax position will be sustained upon examination. There are also several
disclosure requirements. We will adopt this interpretation during the first
quarter of 2007, and we do not expect the adoption of this interpretation
to
have a material effect on our consolidated financial statements.
In
September 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 108 (“SAB 108”). SAB 108 allows for the adjustment of
the cumulative effect of prior year immaterial errors in assets and liabilities
as of the beginning of the fiscal year, with an offsetting adjustment to
the
opening balance of retained earnings. We adopted SAB 108 for our annual
financial statements for the year ended December 31, 2006. Such adoption
did not
impact our results of operations or financial position.
Liquidity
and Capital Resources
At
December 31, 2006 and December 31, 2005, our cash and cash equivalents
totaled
$3.4 million and $5.9 million, respectively. Cash flows provided by
(used in) operating activities, investing activities and financing activities
for the three years ended December 31, 2006, are as follows (in thousands):
|
2006
|
2005
|
2004
|
Operating
activities
|
$16,160
|
$14,069
|
$7,250
|
Investing
activities
|
$(22,123)
|
$(107,519)
|
$(99,801)
|
Financing
activities
|
$3,463
|
$96,405
|
$93,480
|
Cash
flows from operating activities and financing activities have been the
principal
sources of capital to fund our ongoing operations and dividends. Our cash
on
hand, internally-generated cash flow, borrowings under our existing credit
facilities, issuance of equity securities, as well as the placement of
secured
debt and other equity alternatives, are expected to provide the necessary
capital to maintain and operate our properties as well as execute our growth
strategies.
Additionally,
as part of our investment strategy, we constantly evaluate our property
portfolio, systematically selling off any non-core or underperforming
assets, and replacing them with Irreplaceable
Corners and other core assets. We anticipate that we will continue to increase
our operating cash flow by selling the underperforming assets and deploying
the
capital generated into high-quality income-producing retail real estate
assets.
During 2005 and continuing through 2006, we executed this strategy through
the
acquisition of $134 million of shopping centers, comprising four premier
properties with approximately 289,000 square feet. We completed our acquisition
of Uptown Park, a 169,000 square foot multi-tenant shopping center, in
June 2005, our acquisition of The South Bank, a 47,000 square foot
multi-tenant retail center located on the San Antonio Riverwalk, in
September 2005 and our acquisition in December 2005 of 39,000 square feet
of multi-tenant retail projects located adjacent to our MacArthur Park
Shopping
Center in Las Colinas, an affluent residential and business community in
Dallas,
Texas. During the first quarter of 2006, we acquired Uptown Plaza in Dallas,
a
34,000 square foot multi-tenant retail complex located at the corner of
McKinney
Avenue and Pearl Street near downtown Dallas.
In
June 2004, we began marketing our class D common share offering, a
$170 million publicly-registered, non-traded common share offering, offered
through the independent financial planning community. We have utilized
the
proceeds from the sale of the class D shares primarily to pay down debt
and to
acquire properties. We determined during the third quarter of 2005 that
we were
in position to meet our real estate acquisition goals for the year with
our
existing capital. We therefore closed our class D common share offering
after
having raised approximately $110 million, including shares issued through
the dividend reinvestment program.
Cash
provided by operating activities as reported in the Consolidated Statements
of
Cash Flows increased by $2.1 million for the year ended December 31, 2006
when
compared to 2005. This net increase is the combination of several factors
- an
increase during 2006 of approximately $4.8 million in our income before
the
effects of gains on property sales, of income from merchant development
funds
and other affiliates and of depreciation and amortization as compared to
2005.
The acquisitions of Uptown Park in June 2005, The South Bank in
September 2005 and Uptown Plaza in Dallas in March 2006 drove this increase
in income. Additionally, we had an increase in working capital cash flow
of
approximately $6.6 million driven primarily by improved collection of
receivables during 2006. These increases were significantly offset by a
$9.3
million reduction in 2006 of cash provided by sales of real estate acquired
for
resale. During 2006, we sold four properties acquired for resale for aggregate
proceeds of $2.2 million, whereas during 2005, we sold six properties for
aggregate proceeds of $11.5 million.
Cash
flows from investing activities as reported in the Consolidated Statements
of
Cash Flows decreased from a net investing outflow of approximately $107.5
million in 2005 to a net investing outflow of $22.1 million in 2006. This
$85.4 million decrease is primarily attributable to a $86.1 million
decrease in property acquisitions during 2006, coupled with a $12.4 million
net
increase in loan payments from affiliates during 2006. These investing
cash flow
increases were partially offset by a $12.1 million reduction in proceeds
from
sales of properties held for investment. On the property acquisition side,
in
June 2005, we acquired Uptown Park, a 169,000 square foot lifestyle center
located in Houston, Texas in the Galleria shopping district. In March 2006,
we
acquired Uptown Plaza in Dallas, a 34,000
square foot multi-tenant retail complex located near downtown Dallas.
With
respect to loan payments from affiliates, we have the ability as part of
our
treasury management function to place excess cash in short term bridge
loans for
our merchant development funds for the purpose of acquiring or developing
properties. We typically provide such financing to our affiliates as a
way of
efficiently deploying our excess cash and earning a higher return than
we would
in other short term investments or overnight funds. In most cases, the
funds
have a construction lender in place, and we simply step in as the lender
and
provide financing on the same terms as the third party lender. In so doing,
we
are able to access these funds as needed by having our affiliate then draw
down
on their construction loans. These loans are unsecured, bear a market rate
of
interest and are due upon demand. With respect to the decrease in proceeds
from
sales of investment property, during 2006, we sold two properties held
for
investment, generating proceeds of $4.5 million, whereas in 2005, we sold
ten
properties held for investment, generating proceeds from sale of $16.6
million.
Cash
flows provided by financing activities decreased from $96.4 million during
the 2005 period to $3.5 million during the 2006 period. This
$92.9 million decrease was primarily attributable to us raising
$97.6 million in equity proceeds (net of issuance costs) during 2005,
whereas we did not issue any equity during 2006. The $97.6 million net
equity
proceeds were raised through an underwritten offering of 2.76 million of
our
class A common shares, including 360,000 over-allotment shares exercised
by the
underwriters, as well as through our class D common share offering, a $170
million offering which was being offered through the independent financial
planning community. The class A common share offering was priced at $8.10,
and
the net proceeds of the offering, after underwriting discounts, commissions
and
offering expenses, were approximately $20.4 million. The balance of the
capital
was raised through our class D offering which we closed during the third
quarter
of 2005. Additionally, during 2006, we elected to redeem $15.5 million
of our
non-traded common shares versus $1.8 million in redemptions in 2005. In
December
2006, we repurchased for $9.2 million approximately 998,000 of our Class
B
common shares as part of a tender offer. The shares repurchased represented
approximately 48% of the outstanding Class B common shares. Dividends paid
to
shareholders increased by approximately $1.3 million due to the increase
in the
number of class D common shares outstanding during 2006 versus 2005, and
we
bought back into treasury an additional $2.0 million of our class A common
shares during 2006 versus 2005. The above reductions in proceeds from financing
activities were partially offset by a $21.0 million net increase in debt
proceeds during the 2006 period.
We
have
an unsecured credit facility in place which is being used to provide funds
for
the acquisition of properties and working capital. The
credit facility matures in November 2007 and provides that we may borrow
up to
$40 million subject to the value of unencumbered assets. Effective November
2005, we renewed our credit facility on terms and conditions substantially
the
same as the previous facility. The credit facility contains covenants which,
among other restrictions, require us to maintain a minimum net worth, a
maximum
leverage ratio, maximum tenant concentration ratios, specified interest
coverage
and fixed charge coverage ratios and allow the lender to approve all
distributions. At December 31, 2006, we were in compliance with all financial
covenants. The credit facility’s annual interest rate varies depending upon our
debt to asset ratio, from LIBOR plus a spread of 1.35% to LIBOR plus a
spread of
2.35%. As of December 31, 2006, the interest rate was LIBOR plus 1.55%.
As of
December 31, 2006 and 2005, there was $11.9 million and $0 outstanding
on the
credit facility, respectively. As of December 31, 2006, we have approximately
$26.1 million available under our line of credit, subject to the covenant
provisions discussed above. In addition to the credit facility, we utilize
various permanent mortgage financing and other debt instruments.
Contractual
Obligations
As
of
December 31, 2006, we had the following contractual debt obligations (see
also
Note 7 of the Consolidated Financial Statements for further discussion
regarding
the specific terms of our debt):
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
Thereafter
|
|
Total
|
|
Unsecured
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
credit facility*
|
|
$
|
11,929
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
11,929
|
|
Secured
debt**
|
|
|
1,257
|
|
|
14,759
|
|
|
1,448
|
|
|
1,555
|
|
|
1,607
|
|
|
111,023
|
|
|
131,649
|
|
Interest*
|
|
|
8,606
|
|
|
7,727
|
|
|
6,868
|
|
|
6,775
|
|
|
6,543
|
|
|
32,579
|
|
|
69,098
|
|
Non-cancelable
operating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
lease
payments
|
|
|
320
|
|
|
319
|
|
|
204
|
|
|
22
|
|
|
22
|
|
|
-
|
|
|
887
|
|
Total
contractual obligations
|
|
$
|
22,112
|
|
$
|
22,805
|
|
$
|
8,520
|
|
$
|
8,352
|
|
$
|
8,172
|
|
$
|
143,602
|
|
$
|
213,563
|
|
*
Interest expense includes our interest obligations on our revolving credit
facility as well as on our fixed-rate loans. Our revolving credit facility
is a
variable-rate debt instrument, and the outstanding balance tends to fluctuate
throughout the year based on our liquidity needs. This table assumes that
the
balance outstanding ($11.9 million) and the interest rate as of December
31,
2006 (7.1%) remain constant through maturity.
**
Secured debt as shown above is $875,000 less than total secured debt as
reported
in the accompanying balance sheet due to the premium recorded on above-market
debt assumed in conjunction with certain of our property
acquisitions.
During
2006, we paid dividends to our shareholders of $14.6 million, compared
with
$11.8 million in 2005. The class A, C and D shareholders receive monthly
dividends and the class B shareholders receive quarterly dividends. All
dividends are declared on a quarterly basis. The dividends by class follow
(in
thousands):
|
|
|
Class
A
|
|
|
Class
B
|
|
|
Class
C
|
|
|
Class
D
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
776
|
|
$
|
200
|
|
$
|
723
|
|
$
|
1,790
|
|
Third
Quarter
|
|
$
|
782
|
|
$
|
385
|
|
$
|
724
|
|
$
|
1,799
|
|
Second
Quarter
|
|
$
|
788
|
|
$
|
390
|
|
$
|
726
|
|
$
|
1,798
|
|
First
Quarter
|
|
$
|
789
|
|
$
|
390
|
|
$
|
722
|
|
$
|
1,794
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
802
|
|
$
|
398
|
|
$
|
716
|
|
$
|
1,783
|
|
Third
Quarter
|
|
$
|
797
|
|
$
|
400
|
|
$
|
713
|
|
$
|
1,556
|
|
Second
Quarter
|
|
$
|
550
|
|
$
|
404
|
|
$
|
713
|
|
$
|
931
|
|
First
Quarter
|
|
$
|
430
|
|
$
|
410
|
|
$
|
698
|
|
$
|
523
|
|
Until
we
acquire properties, we use our funds to pay down outstanding debt under
the
credit facility. Thereafter, any excess cash is provided first to our affiliates
in the form of short-term bridge financing for development or acquisition
of
properties and then is invested in short-term investments or overnight
funds.
This investment strategy allows us to manage our interest costs and provides
us
with the liquidity to acquire properties at such time as those suitable
for
acquisition are located.
Inflation
has had very little effect on our income from operations. We expect that
increases in store sales volumes due to inflation as well as increases
in the Consumer Price Index, may contribute to capital appreciation of
our
properties. These factors, however, also may have an adverse impact on
the
operating margins of the tenants of the properties.
Results
of Operations
Comparison
of the year ended December 31, 2006 to the year ended December 31,
2005
Total
revenues increased by $25.3 million or 74% in 2006 as compared to 2005
($59.3
million in 2006 versus $34.0 million in 2005). Rental revenues increased
by $7.7
million, or 34%, in 2006 as compared to 2005. This increase is attributable
to
the acquisitions during 2005 of Uptown Park, South Bank and MacArthur Park
pad
sites, as well as the acquisition of Uptown Dallas in March 2006.
During
the first quarter of 2005, AmREIT Construction Company (ACC), a wholly-owned
subsidiary of ARIC, was formed to provide construction services to third
parties
as well as to our merchant development funds. ACC began executing on contracts
during the quarter ended June 30, 2005. ACC generated revenues of $13.5
million
during 2006, compared to $4.7 million in 2005. Such revenues have been
recognized under the percentage-of-completion method of accounting.
Real
estate fee income increased approximately $3.2 million, or 64%, primarily
as a
result of increased acquisition and development fees earned on property
transactions within our merchant development funds. During 2006, we acquired
eight properties with a total gross lease-able area of approximately 1.0
million
square feet within our merchant development funds compared to five properties
in
2005 with a total gross lease-able area of approximately 300 thousand square
feet.
Securities
commission revenue increased by $5.4 million or 464% in 2006 as compared
to
2005. This
increase in commission revenue was driven by the capital-raising activities
of
our advisory/sponsorship business related to one of our merchant development
funds, AmREIT Monthly Income and Growth Fund III, L.P. (MIG III). During
2006,
we raised approximately $60 million through MIG III, while in 2005, we
raised
$11.2 million. We closed the MIG III offering to investors effective October
31,
2006. This increase in commission income was partially offset by a corresponding
increase in commission expense paid to other third party broker-dealer
firms. As
we raise capital for our affiliated merchant development partnerships,
we earn a
securities commission of approximately 11% of the money raised. These commission
revenues are then offset by commission payments to non-affiliated broker-dealers
of between 8% and 9%.
Expenses
Total
operating expenses increased by $21.4 million, or 88%, from $24.3 million
in
2005 to $45.7 million in 2006. This increase was primarily attributable
to
increases in construction costs, securities commissions, property expenses,
depreciation and amortization and general and administrative expenses.
As
discussed above in “Revenues,”
ACC
was
formed in the first quarter of 2005 to provide construction services and
began
executing on contracts during the quarter ended June 30, 2005. ACC recognized
$12.3 million in construction costs during 2006, compared to $4.3 million
in
2005.
Property
expense increased $2.0 million or 41% in 2006 as compared to 2005 ($6.9
million
in 2006 versus $4.9 million in 2005) primarily as a result of the acquisitions
of the properties discussed in “Revenues”
above.
General
and administrative expense increased by $3.3 million, or 53%, during 2006
to
$9.5 million compared to $6.2 million in 2005. This increase is primarily
due to
increases in personnel. We increased our total number of employees during
2006
in order to appropriately match our resources with the growth in our portfolio
as well as in our real estate operating and development activities.
Securities
commission expense increased by $4.7 million or 470% from $1.0 million
in 2005
to $5.7 million in 2006. This increase is attributable to increased
capital-raising activity through ASC during 2006 as discussed in “Revenues”
above.
Depreciation
and amortization increased by $2.7 million, or 45%, to $8.7 million in
2006
compared to $6.0 million in 2005. The increased depreciation and amortization
is
attributable to the significant property acquisitions made during 2005
and 2006
as discussed in “Revenues”
above.
Other
Interest
and other income increased by $720,000 from $705,000 in 2005 to $1.4 million
in
2006 primarily as a result of an increase in interest earned on short-term
bridge loans made to affiliates related to their acquisition or development
of
properties.
Interest
expense increased by $1.7 million, or 26%, from $6.4 million in 2005 to
$8.1
million in 2006. The increase in interest expense is primarily attributable
to
having a full year of interest in 2006 related to our placement of $49.0
million
in debt in connection with our June 2005 Uptown Park acquisition.
Income
from merchant development funds and other affiliates increased by $806,000,
or
501%, to $967,000 in 2006. During 2006, we realized an increase of $414,000
of
back-end profit participation from our general partner interest in AOF,
one of
our merchant development funds which is currently in liquidation. We also
recognized additional income from affiliates related to our 25% limited
partner
interest in West Road Plaza, which was sold during 2006.
Results
of Operations
Comparison
of the year ended December 31, 2005 to the year ended December 31,
2004
Total
revenues increased by $18.8 million or 124% in 2005 as compared to 2004
($34.0
million in 2005 versus $15.2 million in 2004). Rental revenues increased
by
$12.3 million, or 120%, in 2005 as compared to 2004. This increase is
attributable to the significant property acquisitions that we made in the
second
half of 2004 as well as the acquisitions of Uptown Park in June 2005 and
of The
South Bank in September 2005. Real estate fee income increased approximately
$3.2 million, or 174%, primarily as a result of increased brokerage commissions
as well as acquisition and development fees earned on property transactions
within our merchant development funds.
During
the first quarter of 2005, ACC was formed to provide construction services
to
third parties as well as to our merchant development funds. ACC began executing
on contracts during the quarter ended June 30, 2005 and recognized $4.7
million
in revenues associated with those contracts during 2005, approximately
$130,000
of which represents fee income on construction management contracts. Such
revenues have been recognized under the percentage-of-completion method
of
accounting.
Securities
commission revenue decreased by $1.6 million or 58% in 2005 as compared
to 2004.
This decrease was driven by a decrease in the amount of merchant development
fund capital raised through our advisory/sponsorship business during 2005
versus
2004. During 2004, we raised $25.4 million for AmREIT Monthly Income and
Growth
Fund II, L.P. During 2005, we raised $11.2 million for MIG III. This decrease
in
commission income was partially offset by a corresponding decrease in commission
expense paid to other third party broker-dealer firms. As we raise capital
for
our affiliated merchant development partnerships, we earn a securities
commission of between 8% and 10.5% of the money raised. These commission
revenues are then offset by commission payments to non-affiliated broker-dealers
of between 8% and 9%.
Expenses
Total
operating expenses increased by $11.0 million, or 82%, from $13.3 million
in
2004 to $24.3 million 2005. This increase was primarily attributable to
increases in property expense, construction costs and depreciation and
amortization, coupled with smaller increases in general and administrative
expenses. These expense increases were partially offset by a reduction
in
securities commissions of $1.4 million as well as a reduction in deferred
merger
charges of $1.7 million.
General
and administrative expense increased by $1.9 million, or 43%, during 2005
to
$6.2 million compared to $4.3 million in 2004. This increase is primarily
due to
increases in personnel. We increased our total number of employees during
2004
and have continued to do so throughout 2005 in order appropriately match
our
resources with the growth in our portfolio as well as in our real estate
operating and development activities.
Property
expense increased $3.4 million or 243% in 2005 as compared to 2004 ($4.9
million
in 2005 versus $1.4 million in 2004) primarily as a result of the significant
property acquisitions made during 2004 as well as the acquisitions of Uptown
Park in June 2005 and The South Bank in September 2005.
As
discussed above in “Revenues,”
ACC
was
formed in the first quarter of 2005 to provide construction services and
began
executing on contracts during the quarter ended June 30, 2005. ACC recognized
$4.3 million in construction costs during 2005.
Commission
expense decreased by $1.4 million or 58%, from $2.4 million in 2004 to
$1.0
million in 2005. This decrease is attributable to reduced capital-raising
activity through ASC during 2005 as discussed in “Revenues”
above.
Depreciation
and amortization increased by $4.2 million, or 233%, to $6.0 million in
2005
compared to $1.8 million in 2004. The increased depreciation and amortization
is
attributable to the significant property acquisitions made during 2004
and 2005
as discussed above.
Deferred
merger costs were $1.7 million in 2004 whereas no such charges were recognized
in 2005. The 2004 deferred merger costs were related to deferred consideration
payable to H. Kerr Taylor, our Chairman and Chief Executive Officer, as
a result
of the acquisition of our advisor in 1998, which was owned by Mr. Taylor.
In
connection with the acquisition, Mr. Taylor agreed to payment for this
advisory
company in the form of common shares, paid as the Company increased its
outstanding equity. Mr. Taylor received 900,000 class A common shares pursuant
to this arrangement, the final installment of which was issued to him during
2004.
Other
Interest
expense increased by $3.1 million, or 95%, from $3.3 million in 2004 to
$6.4
million in 2005. The increase in interest expense is primarily due to the
debt
that we assumed in the second half of 2004 related to our property acquisitions
as well as the debt we placed in conjunction with our June 2005 Uptown
Park
acquisition. We assumed a total of $44.8 million in debt, net of a premium
of
$1.4 million, as a result of the 2004 property acquisitions and placed
$49.0
million of debt in connection with the Uptown Park acquisition in
2005.
Income
from merchant development funds and other affiliates decreased by $960,000,
or
86%, to $161,000 in 2005. During 2004, we realized $869,000 of profit
participation from our general partner interest in AOF, one of our merchant
development funds which is currently in liquidation. No such amounts were
realized during 2005.
Funds
From Operations
We
consider FFO to be an appropriate measure of the operating performance
of an
equity REIT. NAREIT defines FFO as net income (loss) computed in accordance
with
GAAP, excluding gains or losses from sales of property, plus real estate
related
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. In addition, NAREIT recommends that
extraordinary items not be considered in arriving at FFO. We calculate
our FFO
in accordance with this definition. Most industry analysts and equity REITs,
including us, consider FFO to be an appropriate supplemental measure of
operating performance because, by excluding gains or losses on dispositions
and
excluding depreciation, FFO is a helpful tool that can assist in the comparison
of the operating performance of a company’s real estate between periods, or as
compared to different companies. Management uses FFO as a supplemental
measure
to conduct and evaluate our business because there are certain limitations
associated with using GAAP net income by itself as the primary measure
of our
operating performance. Historical cost accounting for real estate assets
in
accordance with GAAP implicitly assumes that the value of real estate assets
diminishes predictably over time. Since real estate values instead have
historically risen or fallen with market conditions, management believes
that
the presentation of operating results for real estate companies that uses
historical cost accounting is insufficient by itself. There can be no assurance
that FFO presented by us is comparable to similarly titled measures of
other
REITs. FFO should not be considered as an alternative to net income or
other
measurements under GAAP as an indicator of our operating performance or
to cash
flows from operating, investing or financing activities as a measure of
liquidity.
Below
is
the calculation of FFO and the reconciliation to net income, which we believe
is
the most comparable GAAP financial measure to FFO, in thousands:
|
|
2006
|
|
2005
|
|
2004
|
|
Income
(loss) – before discontinued operations
|
|
$
|
6,927
|
|
$
|
3,547
|
|
|
($411
|
)
|
Income
– from discontinued operations
|
|
|
636
|
|
|
6,579
|
|
|
999
|
|
Plus
depreciation of real estate assets – from operations
|
|
|
8,766
|
|
|
5,952
|
|
|
1,674
|
|
Plus
depreciation of real estate assets – from
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations
|
|
|
15
|
|
|
111
|
|
|
297
|
|
Adjustments
for nonconsolidated affiliates
|
|
|
133
|
|
|
100
|
|
|
29
|
|
Less
gain on sale of real estate assets acquired
|
|
|
|
|
|
|
|
|
|
|
for
investment
|
|
|
(285
|
)
|
|
(3,400
|
)
|
|
(137
|
)
|
Less
class B, C & D distributions
|
|
|
(11,442
|
)
|
|
(9,245
|
)
|
|
(4,454
|
)
|
Total
Funds From Operations available to class A
|
|
|
|
|
|
|
|
|
|
|
shareholders
|
|
$
|
4,750
|
|
$
|
3,644
|
|
$
|
($2,003
|
)
|
We
are
exposed to interest-rate changes primarily related to the variable interest
rate
on our credit facility and related to the refinancing of long-term debt
which
currently contains fixed interest rates. To achieve these objectives, we
borrow
primarily at fixed interest rates. We currently do not use interest-rate
swaps
or any other derivative financial instruments as part of our interest-rate
risk
management approach.
At
December 31, 2006, the carrying value of our total debt obligations was
$144.5
million, $132.5 million of which represented fixed-rate obligations with
an
estimated fair value of $132.9 million. The remaining $11.9 million of
our debt
obligations have a variable interest rate. Such debt has market-based terms,
and
its carrying value is therefore representative of its fair value as of
December
31, 2006. In the event interest rates were to increase 100 basis points,
annual
net income, FFO and future cash flows would decrease by $119,000 based
on the
variable-rate debt outstanding at December 31, 2006.
The
discussion above considers only those exposures that exist as of December
31,
2006. It therefore does not consider any exposures or positions that could
arise
after that date. As a result, the ultimate impact to us of interest-rate
fluctuations will depend upon the exposures that arise during the period,
any
hedging strategies in place at that time and actual interest rates.
(a)
|
(1)
|
Financial
Statements
|
Report
of
Independent Registered Public Accounting Firm
Consolidated
Balance Sheets as of December 31, 2006 and 2005
Consolidated
Statements of Operations for the Years Ended December 31, 2006, 2005 and
2004
Consolidated
Statements of Shareholders' Equity for the Years Ended December 31, 2006,
2005
and 2004
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and
2004
Notes
to
Consolidated Financial Statements
|
(2)
|
Financial
Statement Schedule (unaudited)
|
Schedule
III - Consolidated Real Estate Owned and Accumulated Depreciation
None.
Evaluation
of Disclosure Controls and Procedures
Under
the
supervision and with the participation of our Chief Executive Officer and
Chief
Financial Officer, management has evaluated the effectiveness of the design
and
operation of our disclosure controls and procedures (as defined in Rule
13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) as of December
31, 2006. Based on that evaluation, our CEO and CFO concluded that our
disclosure controls and procedures were effective as of December 31, 2006.
Changes
in Internal Controls
There
has
been no change to our internal control over financial reporting during
the
quarter ended December 31, 2006 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Not
applicable
Information
with respect to this Item is incorporated by reference from our Proxy Statement,
relating to our annual meeting of shareholders to be held on May 29,
2007.
Information
with respect to this Item is incorporated by reference from our Proxy Statement,
relating to our annual meeting of shareholders to be held on May 29,
2007.
We
are
authorized to grant stock options up to an aggregate of 1,351,394 shares
of
common stock outstanding at any time as incentive stock options (intended
to
qualify under Section 422 of the Code) or as options that are not intended
to
qualify as incentive stock options. All of our equity compensation plans
were
approved by security holders. Information regarding our equity compensation
plans was as follows as of December 31, 2006:
|
(a)
|
(b)
|
(c)
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding
options
|
Weighted
average exercise price of outstanding options
|
Number
of securities remaining available for future issuances under
equity
compensation plans (excluding securities reflected in column
(a))
|
|
|
|
|
Equity
compensation plans approved by security holders.
|
-
|
-
|
1,351,394
|
|
|
|
|
Equity
compensation plans not approved by security holders.
|
-
|
-
|
-
|
TOTAL
|
|
|
1,351,394
|
Information
with respect to this Item is incorporated by reference from our Proxy Statement,
relating to our annual meeting of shareholders to be held on May 29,
2007.
Information
with respect to this Item is incorporated by reference from our Proxy Statement,
relating to our annual meeting of shareholders to be held on May 29,
2007.
(a)
|
(1)
|
Financial
Statements
Report
of Independent Registered Public Accounting Firm
Consolidated
Balance Sheets as of December 31, 2006 and 2005
Consolidated
Statements of Operations for the Years Ended December 31, 2006,
2005 and
2004
Consolidated
Statements of Shareholders’ Equity for the Years Ended December 31, 2006,
2005 and 2004
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2006,
2005 and
2004
Notes
to Consolidated Financial Statements
|
|
(2)
|
Financial
Statement Schedule (unaudited)
Schedule
III - Consolidated Real Estate Owned and Accumulated
Depreciation
|
(b)
|
|
Exhibits
|
|
|
|
3.1
|
|
Amended
and Restated Declaration of Trust (included as Exhibit 3.1
of the Exhibits
to the Company’s Annual Report on
Form
10-KSB for the year ended December 31, 2002, and incorporated
herein by
reference).
|
|
|
|
3.2
|
|
By-Laws,
dated December 22, 2002 (included as Exhibit 3.1 of the Exhibits
to the
Company’s Annual Report on Form 10-
KSB
for the year ended December 31, 2002, and incorporated herein
by
reference).
|
10.2
|
|
Amended
and Restated Revolving Credit Agreement, effective December
8, 2003, by
and among AmREIT 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).
|
|
|
|
10.3*
|
|
Eighth
Modification Agreement, effective November 4, 2005 by and between
AmREIT
and Wells Fargo Bank, relating to a $40,000,000 loan and modifying
the
September 4, 2003 Revolving Credit Agreement (included as Exhibit
10.3 of
the Exhibits to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2005 and incorporated herein by
reference).
|
|
|
|
10.4*
|
|
Employment
agreement dated February 19, 2007 with H. Kerr Taylor
|
|
|
|
10.5*
|
|
Employment
agreement dated February 19, 2007 with Chad C. Braun
|
|
|
|
10.6*
|
|
Employment
agreement dated February 19, 2007 with Tenel Tayar
|
|
|
|
10.7*
|
|
Employment
agreement dated February 19, 2007 with David Thailing
|
|
|
|
10.8*
|
|
Employment
agreement dated February 19, 2007 with Preston
Cunningham
|
|
|
|
21.1*
|
|
Subsidiaries
of the Company
|
|
|
|
31.1*
|
|
Certification
pursuant to Rule 13a-14(a) of Chief Executive Officer dated
December 31,
2006
|
|
|
|
31.2*
|
|
Certification
pursuant to Rule 13a-14(a) of Chief Financial Officer dated
December 31,
2006
|
|
|
|
32.1**
|
|
Chief
Executive Officer certification pursuant to 18 U.S.C. Section
1350,
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
32.2**
|
|
Chief
Financial Officer certification pursuant to 18 U.S.C. Section
1350,
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
*
Filed
herewith
**
Furnished herewith
Items
5,
6, 7, 7A and 8 of Part II and Item 15 of Part IV of this Form 10-K contain
the
financial statements, financial statement schedule and other financial
information. No Annual Report or proxy material has yet been provided to
security holders with respect to 2007.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of
1934, the registrant has duly caused this report to be signed on its behalf
on
the 26th of March 2007 by the undersigned, thereunto duly
authorized.
|
AmREIT
|
|
|
|
/s/
H. Kerr Taylor
|
|
H.
Kerr Taylor, President and Chief Executive
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report
has been
signed below by the following persons on behalf of the registrant and in
the
capacities and on the dates indicated.
/s/
H. Kerr Taylor
|
March
26, 2007
|
H.
KERR TAYLOR
|
|
President,
Chairman of the Board, Chief Executive
|
|
Officer
and Director (Principal Executive Officer)
|
|
|
|
/s/
Robert S. Cartwright, Jr.
|
March
26, 2007
|
ROBERT
S. CARTWRIGHT, JR., Trust Manager
|
|
|
|
/s/
G. Steven Dawson
|
March
26, 2007
|
G.
STEVEN DAWSON, Trust Manager
|
|
|
|
/s/
Philip W. Taggart
|
March
26, 2007
|
PHILIP
W. TAGGART, Trust Manager
|
|
|
|
/s/
H.L. Rush, Jr.
|
March
26, 2007
|
H.L.
RUSH, JR., Trust Manager
|
|
|
|
/s/
Brett P. Treadwell
|
March
26, 2007
|
BRETT
P. TREADWELL, Vice President - Finance
|
|
(Principal
Accounting Officer)
|
|