AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 2004
REGISTRATION NO. 333-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AmREIT
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENT)
8 GREENWAY PLAZA, SUITE 824
HOUSTON, TEXAS 77046
(713) 850-1400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
H. KERR TAYLOR
CHIEF EXECUTIVE OFFICER
AmREIT
8 GREENWAY PLAZA, SUITE 824
HOUSTON, TEXAS 77046
(713) 850-1400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
BRYAN L. GOOLSBY
KENNETH L. BETTS
LOCKE LIDDELL & SAPP LLP
2200 ROSS AVENUE, SUITE 2200
DALLAS, TEXAS 75201-6776
(214) 740-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR OFFERING
PURSUANT TO RULE 462(b) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND
LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING.[ ]____________________
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(c)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]____________________
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(d)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]____________________
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
CHECK THE FOLLOWING BOX. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) FEE
- ------------------------------------- ------------ ---------------- ----------------- ------------
Class D Common Shares, $.01 par value 17,000,000 $ 10.00 $ 170,000,000 $ 21,539
========== ================ ================= ============
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(o), promulgated under the Securities Act of 1933, as
amended.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
AmREIT
UP TO 17,000,000 CLASS D COMMON SHARES OFFERED TO THE PUBLIC
AmREIT is a fully integrated real estate company that operates as a
real estate investment trust (REIT) under the federal income tax laws. AmREIT
acquires, owns and manages a diversified portfolio of high-end single and
multi-tenant retail centers. At December 31, 2003, AmREIT owned directly, or
through joint ventures, interests in 51 properties located in 18 states that are
leased to a total of 38 different tenants. The proceeds from the sale of the
class D common shares being offered by us pursuant to this prospectus will be
invested in these types of real estate properties. We are offering and selling
to the public up to 12.5 million class D common shares of beneficial interest
for $10.00 per share and up to 4.5 million shares to be issued pursuant to our
dividend reinvestment plan at a purchase price of $10.00 per share.
This prospectus gives you detailed information about the class D common
shares. You are encouraged to read this document carefully. IN PARTICULAR, YOU
SHOULD READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE ____ FOR A DESCRIPTION
OF VARIOUS RISKS YOU SHOULD CONSIDER IN EVALUATING AN INVESTMENT IN THE SHARES,
INCLUDING THE FOLLOWING:
- the lack of a public trading market for the class D common
shares,
- the fact that AmREIT depends on few major tenants,
- the potential dilution of your interest should we issue
additional shares,
- the speculative nature of an investment in the class D common
shares,
- the shareholders cannot evaluate property acquisitions ahead
of time,
- the ability of AmREIT to increase its current debt levels,
- the subordination of distributions on the class D common
shares to debt payments and to dividends on our class B and
class C common shares,
- the bankruptcy of a significant tenant could have a material
adverse affect on our operations, and
- the ability of AmREIT to maintain its REIT status.
The Offering:
- The shares will be offered on a best efforts basis to
investors at $10.00 per share.
- We will pay selling commissions to broker-dealers of 7.0%, due
diligence reimbursements to broker-dealers of 0.50% and a
dealer manager fee of 2.5% out of the offering proceeds
raised.
- We will invest approximately 88.5% of the offering proceeds
raised in real estate properties or to pay down existing debt,
and the balance will be used to pay fees and expenses.
- This offering will terminate on or before March ____, 2005
unless we decide to extend the offering until not later than
March ____, 2006, in any state that allows us to extend the
offering.
PER SHARE TOTAL
--------- -------------
Public Offering Price $ 10.00 $ 125,000,000
Selling Commissions, Due Diligence Reimbursement and
Dealer Management Fee $ 1.00 $ 12,500,000
Proceeds to AmREIT $ 9.00 $ 112,500,000
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE ATTORNEY GENERAL OF
THE STATE OF NEW YORK NOR ANY OTHER STATE SECURITIES REGULATOR HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. IT IS A CRIMINAL OFFENSE IF SOMEONE TELLS YOU OTHERWISE. THE USE OF
PROJECTIONS OR FORECASTS, OTHER THAN THOSE PRESENTED HEREIN, OR SPECIFICALLY
AUTHORIZED BY AMREIT, IS PROHIBITED. NO ONE IS PERMITTED TO MAKE ANY ORAL OR
WRITTEN PREDICTIONS ABOUT THE CASH BENEFITS OR TAX CONSEQUENCES YOU WILL RECEIVE
FROM YOUR INVESTMENT.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS IN CONNECTION WITH THE OFFERING OF THE CLASS D COMMON SHARES
MADE HEREBY AND, IF GIVEN OR MADE, THAT INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY
SECURITIES IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER.
April [______], 2004
SUITABILITY STANDARDS
An investment in class D common shares involves significant risks.
Although the class D common shares are convertible into AmREIT class A common
shares, subject to certain restrictions discussed herein, it may be difficult to
resell the class D shares because no public market for the class D shares
currently exists nor is one ever expected to develop. Investors who are able to
sell their class D shares at all will likely be able to sell such shares only at
a discount.
If the investor in class D common shares is an individual, including an
individual beneficiary of a purchasing IRA, or if the investor is a fiduciary,
such as a trustee of a trust or corporate pension or profit sharing plan, or
other tax-exempt organization, or a custodian under a Uniform Gifts to Minors
Act, that individual or fiduciary, as the case may be, must represent that he
meets specific investment requirements. The requirements are set out in the
Subscription Agreement attached as Exhibit A to this prospectus, and include the
following:
- that the individual, or, in the case of a fiduciary, that the
fiduciary account or the donor who directly or indirectly
supplies the funds to purchase the shares, has a minimum
annual gross income of $45,000 and a net worth excluding home,
furnishings and automobiles of not less than $45,000; or
- that the individual, or, in the case of a fiduciary, that the
fiduciary account or the donor who directly or indirectly
supplies the funds to purchase the shares, has a net worth
excluding home, furnishings and automobiles of not less than
$150,000.
Transferees will also be required to comply with applicable standards,
except for transfers to family members and transfers made by gift, inheritance
or divorce. In the case of purchases of shares by fiduciary accounts in
California, the suitability standards must be met by the beneficiary of the
account or, in those instances where the fiduciary directly or indirectly
supplies the funds for the purchase of shares, by such fiduciary.
The minimum purchase is 500 shares ($5,000) for non-qualified accounts
and 300 shares ($3,000) for qualified accounts, except in certain states as
described below. You may not transfer less than the minimum required purchase
or, except in very limited circumstances, transfer, fractionalize or subdivide
the shares so as to retain less than such minimum number thereof. For purposes
of satisfying the minimum investment requirement for retirement plans, unless
otherwise prohibited by state law, a husband and wife may jointly contribute
funds from their separate IRAs, provided that they contribute in increments of
at least $3,000. You should note, however, that an investment in AmREIT will
not, in itself, create a retirement plan as defined in Section 401(a) of the
Internal Revenue Code or an IRA as defined in Section 408(a) of the Internal
Revenue Code for any investor and that, in order to create a retirement plan or
an IRA, an investor must comply with all applicable provisions of the Internal
Revenue Code.
California, Iowa, Maine, Massachusetts, Michigan, Missouri, New
Hampshire, North Carolina, Ohio, Pennsylvania and Tennessee have established
suitability standards different from those established by the Company, and
Shares will be sold only to investors in those states who meet the special
suitability standards set forth below.
CALIFORNIA, IOWA, MASSACHUSETTS, MICHIGAN, NORTH CAROLINA AND TENNESSEE
- - The investor has either (i) a net worth (not including home, furnishings, and
personal automobiles) of at least $60,000 and an annual gross income of at least
$60,000, or (ii) a net worth (not including home, furnishings, and personal
automobiles) of at least $225,000.
MAINE -- The investor has either (i) a net worth (not including home,
furnishings, and personal automobiles) of at least $50,000 and an annual gross
income of at least $50,000, or (ii) a net worth (not including home,
furnishings, and personal automobiles) of at least $200,000.
MISSOURI - The investor (i) invests no more than 10% of the investor's
net worth (not including home, furnishings, and personal automobiles) in the
Company and (ii) has either (a) a net worth (not including home, furnishings,
and personal automobiles) of at least $60,000 and an annual gross income of at
least $60,000, or (b) a net worth (not including home, furnishings, and personal
automobiles) of at least $225,000.
NEW HAMPSHIRE - The investor has either (i) a net worth (not including
home, furnishings, and personal automobiles) of at least $125,000 and an annual
gross income of at least $50,000, or (ii) a net worth (not including home,
furnishings, and personal automobiles) of at least $250,000.
OHIO AND PENNSYLVANIA - The investor has (i) a net worth (not including
home, furnishings, and personal automobiles) of at least ten times the
investor's investment in the Company; and (ii) either (a) a net worth (not
including home, furnishings, and personal automobiles) of at least $45,000 and
an annual gross income of at least $45,000, or (b) a net worth (not including
home, furnishings, and personal automobiles) of at least $150,000.
The foregoing suitability standards must be met by the investor who
purchases the Shares. If the investment is being made for a fiduciary account
(such as an IRA, Keogh Plan, or corporate pension or profit-sharing plan), the
beneficiary, the fiduciary account, or any donor or grantor that is the
fiduciary of the account who directly or indirectly supplies the investment
funds must meet such suitability standards.
In addition, under the laws of certain states, investors may transfer
their class D common shares only to persons who meet similar standards, and
AmREIT may require certain assurances that such standards are met.
By executing the Subscription Agreement and Subscription Agreement
Signature Page, which is attached as Exhibit A to this prospectus, you represent
that you meet the foregoing applicable suitability standards for the state in
which you reside. We will not accept subscriptions from any person or entity
that does not represent that it meets such standards. We have the unconditional
right to accept or reject any subscription in whole or in part.
AmREIT and each person selling class D common shares on our behalf are
required to:
- make reasonable efforts to assure that each person purchasing
class D common shares is suitable in light of such person's
age, educational level, knowledge of investments, financial
means and other pertinent factors; and
- maintain records for at least six years of the information
used to determine that an investment in class D common shares
is suitable and appropriate for each investor.
The agreements with the selling broker-dealers require such
broker-dealers to (1) make inquiries diligently as required by law of all
prospective investors in order to ascertain whether a purchase of class D shares
is suitable for the investor, and (2) transmit promptly to AmREIT all fully
completed and duly executed Subscription Agreements.
TABLE OF CONTENTS
PAGE
SUITABILITY STANDARDS...................................................................... iii
QUESTIONS AND ANSWERS ABOUT THE OFFERING................................................... 1
SUMMARY OF THE OFFERING.................................................................... 7
RISK FACTORS............................................................................... 11
Risks Associated with an Investment in AmREIT..................................... 11
Risks Associated with an Investment in Real Estate................................ 17
Risks Associated with Federal Income Taxation of AmREIT........................... 23
BUSINESS AND PROPERTIES.................................................................... 24
MANAGEMENT................................................................................. 34
Executive Compensation............................................................ 37
Security Ownership of Certain Beneficial Owners and Management.................... 38
Certain Relationships and Related Transactions.................................... 38
Legal Proceedings................................................................. 40
ESTIMATED USE OF PROCEEDS.................................................................. 40
PRIOR PERFORMANCE.......................................................................... 41
CONFLICTS OF INTEREST...................................................................... 52
PRICE RANGE OF CLASS A COMMON SHARES....................................................... 54
REDEMPTION OF SHARES....................................................................... 55
SELECTED HISTORICAL FINANCIAL DATA......................................................... 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..... 60
INVESTMENT OBJECTIVES AND CRITERIA......................................................... 68
AMREIT'S DECLARATION OF TRUST AND BYLAWS................................................... 77
CERTAIN ANTI-TAKEOVER PROVISIONS OF THE DECLARATION OF TRUST, BYLAWS AND TEXAS LAW......... 81
DESCRIPTION OF AMREIT'S CAPITAL SHARES..................................................... 84
General........................................................................... 84
Class A Common Shares............................................................. 84
Class B Common Shares............................................................. 85
Class C Common Shares............................................................. 89
Class D Common Shares............................................................. 94
Preferred Shares.................................................................. 98
Ownership Limits and Restrictions on Transfer..................................... 98
Dividend Reinvestment Plan........................................................ 101
FEDERAL INCOME TAX CONSEQUENCES............................................................ 102
General........................................................................... 102
REIT Qualification................................................................ 103
Taxation as a REIT................................................................ 108
Failure to Qualify as a REIT...................................................... 110
Taxation of Taxable U.S. Shareholders............................................ 110
Backup Withholding................................................................ 112
Taxation of Tax-Exempt Entities................................................... 112
Taxation of Foreign Investors..................................................... 113
Jobs and Growth Tax Act........................................................... 114
State and Local Taxes............................................................. 115
CERTAIN ERISA CONSIDERATIONS............................................................... 115
General Fiduciary Rules........................................................... 115
Plan Assets....................................................................... 116
Plan Asset Regulations - Publicly Offered Securities Exemption.................... 116
i
Prohibited Transactions........................................................... 116
Governmental Plans................................................................ 117
Special Considerations for Insurance Companies.................................... 117
PLAN OF DISTRIBUTION....................................................................... 118
General........................................................................... 118
Underwriting Compensation and Terms............................................... 118
Subscription Procedures........................................................... 119
SUPPLEMENTAL SALES MATERIAL................................................................ 120
EXPERTS.................................................................................... 120
LEGAL OPINIONS............................................................................. 120
ADDITIONAL INFORMATION..................................................................... 120
GLOSSARY................................................................................... 122
CONSOLIDATED FINANCIAL STATEMENTS.......................................................... F-1
EXHIBIT A - SUBSCRIPTION AGREEMENT......................................................... A-1
EXHIBIT B - DIVIDEND REINVESTMENT PLAN..................................................... B-1
EXHIBIT C - PRIOR PERFORMANCE TABLES....................................................... C-1
ii
QUESTIONS AND ANSWERS ABOUT THE OFFERING
BELOW WE HAVE PROVIDED SOME OF THE MORE FREQUENTLY ASKED QUESTIONS AND
ANSWERS RELATING TO AN OFFERING OF THIS TYPE. PLEASE SEE "SUMMARY OF THE
OFFERING" AND THE REMAINDER OF THIS PROSPECTUS FOR MORE DETAILED INFORMATION
ABOUT THIS OFFERING. THESE QUESTIONS AND ANSWERS DO NOT, AND ARE NOT INTENDED
TO, ADDRESS ALL THE QUESTIONS THAT MAY BE IMPORTANT TO YOU. PROSPECTIVE
INVESTORS SHOULD CAREFULLY READ THE "SUMMARY OF THE OFFERING" SECTION AND THE
REMAINDER OF THIS PROSPECTUS FOR MORE INFORMATION REGARDING THE OFFERING.
Q. WHAT IS A REIT?
A. In general, a REIT is a company that:
- combines the capital of many investors to acquire or provide
financing for real estate properties;
- pays dividends to investors of at least 90% of its taxable
income;
- avoids the "double taxation" treatment of income that may
result from investments in a corporation because a REIT is not
generally subject to federal corporate income taxes on its net
income, provided certain income and distribution requirements
are satisfied; and
- allows individual investors to invest in a large-scale
diversified real estate portfolio through the purchase of
interests, typically shares, in the REIT.
Q. WHAT IS AmREIT?
A. AmREIT is a self-managed, self-advised REIT with, along with its
predecessors, a 19-year history and a record of investing in quality
income producing retail real estate. Our business organization consists
of a portfolio of high-end single and multi-tenant retail centers, a
full service real estate operating and development subsidiary, an NASD
registered broker-dealer subsidiary, and a retail partnership business.
This unique combination provides AmREIT the opportunity to access
capital through both Wall Street and the independent financial planning
marketplace for flexibility and dependable growth. AmREIT, a Texas real
estate investment trust, became the successor to AmREIT, Inc., a
Maryland corporation (the "Predecessor Corporation"), in December 2002,
through the merger of the Predecessor Corporation with AmREIT. At March
6, 2004, AmREIT had outstanding approximately 2.98 million class A
common shares which are listed on the American Stock Exchange (AMEX)
under the trading symbol "AMY," 2.35 million class B common shares that
are not listed on an exchange, which may be converted into class A
common shares, on a one-for-one basis at any time, at the holder's
option, and 2.32 million class C common shares that are not listed on
an exchange, which may be converted into class A common shares based on
110% of invested capital at any time following the seventh anniversary
of the date of issuance of the shares, at the holder's option.
Q. HOW MANY REAL ESTATE PROPERTIES DO YOU CURRENTLY OWN?
A. As of December 31, 2003, AmREIT owns, directly or through joint
venture, 51 real estate properties. These properties are located in 18
different states and include both single tenant free standing
properties as well as multi-tenant shopping centers. Some of our
tenants include Washington Mutual, Starbucks, Eckerd, Landry's, IHOP,
TGI Friday's and CVS Pharmacy. We focus on acquiring "irreplaceable
corners" - premier retail frontage properties in high-traffic, highly
populated areas - which create dependable income and long-lasting
value. These premium properties provide high leasing income and high
occupancy rates for a strong income stream.
1
Q. WHAT ARE THE TERMS OF THE CLASS D COMMON SHARES?
A. The AmREIT class D common shares will have the following terms:
- dividends will be payable in an amount per share equal to 7%
of the issue price ($10.00 per share) per annum, payable
monthly, but only if the dividends then payable on our class B
common shares and class C common shares have been paid;
- can be converted into AmREIT class A common shares (which are
currently publicly traded on the AMEX), at any time following
the seventh anniversary of the date of issuance of the shares,
with the class D common shares acquired in this offering being
convertible at a 7.7% premium on original capital (i.e.,
$1,000 of class D common shares will convert to $1,077 of
class A common shares);
- if acquired through our dividend reinvestment plan, the Class
D common shares can be converted into our class A common
shares on a one for one basis, at any time following the
seventh anniversary of the date of issuance of the common
shares, the dividends of which were used to acquire the
reinvestment shares;
- can be called by AmREIT after one year following the date of
issuance of the shares for cash at a price of $10.00, plus the
pro rata portion of the conversion premium, based on the
number of years the shares are outstanding (for example, if
the Class D shares are called on the first anniversary of
issuance the call price would be $10.11 per share); and
- can be put to us at any time after the first anniversary of
their issuance to be acquired by AmREIT on a pro rata basis to
the extent we have designated funds to make such repurchase.
The 7.7% premium that shareholders may receive upon conversion will,
together with the dividends paid through the conversion date, provide a
total return of approximately 8.1% per annum as of the end of the
seven-year lock out period (assuming all dividends to such date are
paid in full). Although the class D common shares will not be listed on
an exchange, they will be freely transferable by the holders, and will
be convertible into the class A common shares after the seven-year lock
out period. See "Risk Factors -- Risks associated with an investment in
AmREIT."
Holders of class D common shares will be entitled to vote on all
matters submitted to shareholders of AmREIT for approval. In any matter
on which the class D common shares vote, you will be entitled to one
vote for each share you own and you will vote as a single class with
the class A, class B and class C common shares.
Q. IF I BUY SHARES, WILL I RECEIVE DIVIDENDS AND HOW OFTEN?
A. We have been making and intend to continue to make dividend
distributions to our shareholders; however, the declaration of
dividends is at the sole discretion of our board of trust managers and
there can be no assurance that AmREIT will in fact declare and pay
dividends. As a holder of class D common shares, you will be entitled
to receive annual dividends in the amount of $0.70 per share, paid to
shareholders of record on a monthly basis.
The amount of each dividend distribution to be paid to holders of class
D common shares is determined by our board of trust managers and
typically depends on the amount of distributable funds, current and
projected cash requirements, tax considerations and other factors.
Class D common share dividends will be payable concurrently with the
dividends payable to class A shareholders and only if all dividends
then payable concurrently with the dividends paid on the
2
class B shares and class C shares have been paid. However, in order to
remain qualified as a REIT, we must make distributions of at least 90%
of our REIT taxable income.
Q. HOW DO YOU CALCULATE THE PAYMENT OF DIVIDENDS TO CLASS D SHAREHOLDERS?
A. We calculate our monthly dividends on a daily basis from the date the
class D common shares are issued through the end of the fiscal month in
which they were issued so your dividend benefits will begin to accrue
immediately upon becoming a shareholder. Thereafter, dividends will be
payable monthly on the same payment date and with the same record date
as our class A common shares.
Q. HOW DID YOU DETERMINE THE PRICE OF THE CLASS D COMMON SHARES?
A. The purchase price of the class D common shares was established on an
arbitrary basis by our board of trust managers for administrative
convenience, and the price bears no relationship to the underlying
value of our assets or the trading price of our class A common shares.
Because the class D common shares are convertible based on the capital
invested, their value is not contingent on the trading price of our
class A common shares.
Q. WILL THE DIVIDENDS I RECEIVE BE TAXABLE AS ORDINARY INCOME?
A. Yes and No. Generally, dividends that you receive will be taxed as
ordinary income to the extent they are from current or accumulated
earnings and profits. We expect that some portion of your dividends
will not be subject to tax in the year in which they are received
because depreciation and other non-cash expenses reduce the amount of
taxable income but do not reduce cash available for distribution. The
portion of your distribution which is not subject to tax immediately is
considered a return of capital for tax purposes and will reduce the tax
basis of your investment. This, in effect, defers a portion of your tax
until your investment is sold or AmREIT is liquidated, at which time
you will be taxed at capital gains rates. However, because each
investor's tax considerations are different, we strongly recommend that
you consult with your tax advisor. You should also review the section
of the prospectus entitled "Federal Income Tax Consequences."
Q. WHAT WILL YOU DO WITH THE MONEY RAISED IN THIS OFFERING?
A. We will use the net proceeds of this offering to acquire properties
similar to those currently owned by AmREIT or to pay down existing
debt, which should provide increased liquidity to acquire additional
properties as opportunities are available. We may also use the proceeds
for general working capital purposes. We intend to invest a minimum of
88.5% of the proceeds from this offering to acquire real estate
properties, to pay down debt or for general working capital purposes,
and the remaining proceeds will be used to pay fees and expenses of
this offering and acquisition-related expenses. The payment of these
fees and expenses will not reduce your invested capital. Your initial
invested capital amount will remain $10.00 per share, and your dividend
yield will be based on your $10.00 per share investment.
Until we invest the proceeds of this offering in real estate or pay
down existing debt, we may invest in short-term, highly liquid or other
authorized investments such as money market funds or commercial paper.
Such short-term investments will not earn as high of a return as we
expect to earn on our real estate investments, and we cannot guarantee
how long it will take to fully invest the proceeds in real estate.
3
Q. WILL THE CLASS D COMMON SHARES BE LISTED ON A STOCK EXCHANGE?
A. No. We have no plans to list the class D common shares on a stock
exchange. The AmREIT class A common shares into which the class D
common shares will be convertible, are currently listed on the AMEX.
The class A common shares currently have an average daily trading
volume of approximately 8,500 shares for the trailing 90-day period.
Q. DOES AmREIT USE ANY SPECIFIC CRITERIA WHEN SELECTING A POTENTIAL
PROPERTY FOR ACQUISITION?
A. Yes. AmREIT and its predecessors have developed over their nearly
20-year operating history a proprietary "AmREIT Decision Logic" system
of analysis for projects that it reviews. There are 25 specific factors
that are contained within this decision logic, including demographic
studies, traffic flow review, environmental review, site planning and
financial analysis. AmREIT will apply this model to each property it
proposes to acquire. AmREIT focuses on buying, developing, and joint
venturing premier retail frontage properties in high traffic, highly
populated areas. Our properties attract a wide array of established
commercial tenants, and offer attractive opportunities for dependable
monthly income and potential capital appreciation. These properties are
typically located in high traffic areas within a three-mile radius of a
population of 100,000 with an average household income of $70 thousand
or more. On average, more than 30,000 cars per day pass by these
properties. The projects may be either single or multi tenant credit
tenant properties leased primarily to credit quality parent companies.
Q. WHAT KIND OF OFFERING IS THIS?
A. We are offering the public up to 12.5 million class D common shares on
a "best efforts" basis. In addition, we are offering up to 4.5 million
class D common shares to investors who want to participate in our
reinvestment plan.
Q. WHAT IS A "BEST EFFORTS" OFFERING?
A. When common shares are offered to the public on a "best efforts" basis,
the brokers participating in the offering are only required to use
their best efforts to sell the shares and have no firm commitment or
obligation to purchase any of the shares.
Q. HOW LONG WILL THIS OFFERING LAST?
A. The offering will not last beyond March ___, 2005, unless we decide to
extend the offering until not later than March ___, 2006, in any state
that allows us to extend the offering.
Q. WHO CAN BUY CLASS D COMMON SHARES?
A. If you receive a copy of this prospectus, you may buy class D common
shares provided that you have either (1) a net worth of at least
$45,000 (excluding home, furnishings, and automobiles) and an annual
gross income of at least $45,000, or (2) a net worth of at least
$150,000 (excluding home, furnishings, and automobiles). These minimum
levels may be higher in certain states, so you should carefully read
the more detailed information set forth under the caption "Suitability
Standards" in this prospectus.
Q. IS THERE ANY MINIMUM INVESTMENT REQUIRED?
A. Yes. You must invest at least $5,000 in a non-qualified account, or
$3,000 in a qualified account. These minimum investment levels may be
higher in certain states, so you should carefully read the more
detailed description of the minimum investment requirements appearing
later in the "Suitability Standards" section of this prospectus.
4
Q. HOW DO I SUBSCRIBE FOR SHARES?
A. If you choose to purchase shares in this offering, you will need to
fill out a Subscription Agreement, like the one contained in this
prospectus as Exhibit A, for a specific number of shares and pay for
the shares at the time you subscribe.
Q. IF I BUY SHARES IN THIS OFFERING, HOW MAY I LATER SELL THEM?
A. The class D common shares are convertible into class A common shares at
any time after the seventh anniversary of the acquisition of the
shares. Upon conversion, you will be able to sell the class A common
shares on the open market. The class A common shares are listed on the
AMEX.
At the time you purchase the shares, they will not be listed for
trading on any national securities exchange or over-the-counter market.
In fact, we expect that there will not be any public market for the
class D common shares when you purchase them, and we cannot be sure if
one will ever develop. As a result, you may find it difficult to find a
buyer for your shares and realize a return on your investment. You may
sell your shares to any buyer unless such sale would cause the buyer to
own more than 9.0% of the outstanding shares. See "Description of
AmREIT's Capital Shares-Ownership Limits and Restriction on Transfer."
Q. WILL I BE NOTIFIED OF HOW MY INVESTMENT IS DOING?
A. Yes. You will receive periodic updates on the performance of your
investment with us, including:
- Twelve monthly dividend payments;
- Regular acquisition reports detailing our latest property
acquisitions through press releases available on our website,
www.amreit.com;
- A mid-year update report;
- An annual report;
- SEC filed Forms 10-KSB and Forms 10-QSB;
- An annual IRS Form 1099; and
- Supplements to this prospectus, as necessary.
Q. DOES AmREIT USE LEVERAGE?
A. Yes. AmREIT believes the conservative use of debt is very advantageous
to maximizing the monthly income to its shareholders. Our bylaws
require AmREIT to limit the level of recourse debt to less than 55% of
its gross asset value as determined by our board of trust managers.
AmREIT's total debt to asset ratio as of December 31, 2003 was 51%.
Q. WHAT ARE THE ECONOMIC TERMS OF YOUR TYPICAL LEASES?
A. We seek to secure leases with creditworthy tenants prior to or at the
time of the acquisition of a property. Our single tenant leases are
primarily economically "triple-net" leases, which means that the tenant
is responsible for the cost of repairs, maintenance, property taxes,
utilities, insurance and other operating costs. Our multi-tenant leases
are generally "net leases," but generally require AmREIT to be
responsible for certain capital improvements as well as the
5
operating and common area costs for the tenants, which are reimbursable
by the tenants on a monthly and annual basis.
Q. MAY I REINVEST MY DIVIDENDS IN ADDITIONAL CLASS D COMMON SHARES?
A. Yes. Holders of class D common shares will have the option of
participating in our dividend reinvestment plan by checking the
appropriate box on the subscription agreement or by filling out an
enrollment form we will provide to you at your request. The purchase
price for shares purchased under the dividend reinvestment plan is
currently $10.00 per share.
Q. WHAT HAPPENS TO THE VALUE OF MY INVESTMENT IF THE VALUE OF AmREIT CLASS
A COMMON SHARES DECLINES?
A. The value of the class D shares will not be affected by fluctuations in
the value of the class A common shares. The conversion of class D
shares into class A common shares, after the seven-year lockout period
expires, is based upon the amount of capital invested. Class D
investors will receive $1.077 of class A common shares for each $1.00
of invested capital regardless of the market price of the class A
common shares ($1.00 of class A common shares for each $1.00 of
invested capital in the case of class D common shares acquired through
our dividend reinvestment plan). The calculation on the conversion date
can be expressed as (capital invested x 1.077) / (stock price of class
A). For example, after the seven year lock out period expires, if class
A common shares are trading at $7.00 then class D investors will
receive, upon conversion, 153.85 class A common shares for each $1,000
invested. If, after the seven year lock out period expires, class A
shares are trading at $10.77 per share then class D investors will
receive, upon conversion, 100.00 class A common shares for each $1,000
invested.
Q. WHAT KIND OF TAX INFORMATION WILL I RECEIVE?
A. A Form 1099 will be placed in the mail by January 31st of each year.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you have more questions about the offering or if you would like
additional copies of this prospectus, you should contact your
registered representative or contact:
Investor Services Department
AmREIT
8 Greenway Plaza, Suite 1000
Houston, Texas 77046
800-888-4400
FOR CHANGE OF ADDRESS AND LOST CHECKS: EXTENSION 135
FOR OTHER QUESTIONS REGARDING YOUR INVESTMENT: EXTENSION 151
6
SUMMARY OF THE OFFERING
This prospectus summary highlights selected information contained
elsewhere in this prospectus. It is not complete and does not contain all of the
information that is important to your decision whether to invest in AmREIT. To
understand this offering fully, you should read the entire prospectus carefully,
including the "Risk Factors" section and the financial statements.
AmREIT
AmREIT is a rapidly growing, self-managed and self-advised REIT with a
19-year history of delivering results to its investors. Its business model
consists of a portfolio of retail properties, including "irreplaceable corners,"
single tenant properties and multi-tenant properties, a full service real estate
operating and development business, an NASD-registered broker dealer securities
business and a retail partnership business - a unique combination that provides
AmREIT the opportunity to access multiple sources of capital and generate fees
and profits from multiple sources, resulting in added financial flexibility and
the opportunity for dependable growth and income.
AmREIT's goal is to deliver increasing, dependable, monthly income for
its shareholders. In so doing, AmREIT strives to increase and maximize Funds
from Operations by issuing long term capital through both the NASD independent
financial planning marketplace as well as through Wall Street, and investing the
capital in accretive real estate properties, acquired or developed, on
irreplaceable corners. Additionally, we strive to maintain a conservative
balance sheet. To that regard, we strive to maintain a debt to total asset ratio
of less than 55%. As of December 31, 2003, our debt to total asset ratio was
51%.
At December 31, 2003, AmREIT owned a portfolio of 51 properties located
in 18 states, subject to long term leases with retail tenants, either directly
or through its interests in joint ventures or partnerships.
SUMMARY RISK FACTORS
Following are the most significant risks relating to an investment in
the class D common shares:
- There is limited liquidity for the class D common shares.
There is no public trading market for the class D common
shares. Tender offers and certain other changes of control may
be discouraged due to the limitations on share ownership
required to maintain our status as a REIT and provisions of
Texas law. If you are able to sell your shares at all, you may
have to sell them for substantially less than the price you
paid for them in the offering. After a seven-year lock-out
period, the class D common shares are convertible into class A
shares which are publicly traded on the AMEX.
- AmREIT depends on few major tenants. International House of
Pancakes (IHOP) accounted for approximately 32% of AmREIT's
total revenue for 2002 and 21.7% for 2003. At December 31,
2003, no other tenant accounted for more than 6% of total
revenue.
- There is no limitation on AmREIT's ability to issue additional
common shares and such issuance could potentially dilute your
interest in AmREIT.
- The acquisition of class D common shares is a speculative
investment, as AmREIT's ability to make distributions on its
shares depends on AmREIT's future business operations.
7
- The dividends on the class D common shares are non-cumulative
and are subordinate to debt payment and to dividends on our
class B and class C common shares.
- Although AmREIT has an existing portfolio of 51 operating
properties, shareholders will not be able to evaluate future
properties prior to making an investment in AmREIT.
- Although AmREIT has paid distributions since its organization
in 1993, distribution payments are subordinate to payments on
debt and are subordinate to the dividends payable on our class
B and class C common shares, so any future distributions to
shareholders will be subject to this restriction. We may
increase our leverage without shareholder approval, but our
bylaws limit the amount of recourse indebtedness we may incur
to not more than 55% of gross asset value as determined by our
board of trust managers.
- The bankruptcy of IHOP or of another significant tenant could
have a material adverse affect on AmREIT's operations.
- AmREIT has elected to be taxed as a REIT, assuming that it
meets certain financial and structural criteria. If AmREIT
does not meet this criteria, or cannot maintain its REIT
status, it may not qualify as a REIT under the Internal
Revenue Code.
- We established the offering price of the class D common shares
on an arbitrary basis.
- Real estate investments are relatively illiquid and subject to
general operating risks relating to economic conditions,
changes in zoning or tax laws and the availability of
financing.
- AmREIT's property leases may not be renewed and the cost of
any improvements constructed on certain properties by AmREIT
may not be recoverable.
- Single tenant leases account for 75% of AmREIT's rental
revenue and the failure of such a tenant could impact the
viability of the property.
- Net leases accounted for 100% of AmREIT's total rental income
for the years ended December 31, 2002 and 2003. These leases
frequently provide the tenant greater flexibility in using the
leased property and provide for early termination under
specified circumstances. In the event of a termination, AmREIT
may not be able to lease the property for the same rent amount
and may not be able to sell it without incurring a loss.
Consequently, these leases may not result in fair market lease
rates over time.
- Our involvement in joint ventures involve risks which may not
otherwise be present, such as the failure of a partner to
perform, the existence of conflicting business goals with a
partner, or the possibility that it may not be able to agree
with a partner as to a particular issue.
- Our properties may not be profitable, perform as expected or
appreciate in value.
- AmREIT may provide purchaser financing which would delay
receipt of the proceeds from a property sale. AmREIT may
provide this financing where lenders are not willing to make
loans secured by commercial real estate or may find it
desirable where a purchaser is willing to pay a higher price
for the property than it would without this
8
financing. As a consequence, AmREIT will be subject to risks
inherent in the business of lending.
- We may on occasion enter into sale/leaseback transactions. A
default or any premature termination of the leaseback
agreement could have an adverse effect on AmREIT's financial
position. In the event of a default, AmREIT may not be able to
find new tenants without incurring a loss.
- Our operating results will depend upon the availability of
suitable investment opportunities, which in turn depends on
the type of investment involved, the condition of the money
market, the nature and geographical location of the property,
competition and other factors, none of which can be predicted
with certainty.
INVESTMENT OBJECTIVES
Our investment objectives are:
- to create dependable, monthly dividends to our investors;
- to preserve and protect your capital contribution; and
- to realize growth in the value of our properties and our
publicly traded class A common shares, into which the class D
common shares convert in seven years.
PROPERTIES TO BE ACQUIRED
While we currently concentrate on high-end single and multi-tenant
rental centers, we are authorized to purchase all types of commercial
properties, including, without limitation, office buildings, shopping centers,
business and industrial parks, manufacturing facilities, warehouses and
distribution facilities and other similar real estate properties. Although no
properties have been specifically identified for purchase with the proceeds of
this offering, we are currently reviewing and analyzing opportunities whereby we
expect to purchase properties which are newly constructed, under construction or
have been constructed and have operating histories. We expect the properties to
be acquired with the proceeds of this offering will have similar operating and
revenue characteristics as those we currently own. Properties may be acquired,
developed and operated by us either alone or jointly with another party. We
anticipate that most of the properties we acquire with the proceeds of this
offering will be leased to creditworthy tenants on a "net lease" basis, as are
substantially all of the properties we currently own. In other words, the tenant
will pay as additional rent substantially all costs associated with the repair
and maintenance of the building, real estate taxes, insurance and other similar
costs associated with a building. Whenever possible, we intend to execute leases
for our properties at or prior to the closing of the acquisition of such
properties.
POSSIBLE LEVERAGE OF PROPERTIES
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. For this purpose, the term "Net Asset Value"
means the value of our total assets (less intangibles) based on market
capitalization rates and current year rental income, as determined by our board
of trust managers, before deducting depreciation or other non-cash reserves,
less total liabilities, as calculated at the end of each quarter on a basis
consistently applied. At December 31, 2003, our ratio of debt to total assets
was 51%.
9
PRIOR OFFERING SUMMARY
AmREIT's affiliates have previously sponsored three publicly offered
and 12 privately placed real estate limited partnerships, all of which were on
an unspecified property or "blind pool" basis. As of December 31, 2003, AmREIT
and its affiliates have raised approximately $60 million from approximately
3,000 investors. The "Prior Performance" on page _____ of this prospectus
contains a discussion of the AmREIT programs sponsored to date.
COMPENSATION TO AmREIT AND AFFILIATES
AmREIT's affiliates will receive compensation and fees for services
relating to this offering and the investment and management of our assets. The
most significant items of compensation are included in the following table:
Estimated Dollar Amount
for Maximum Offering
Type of Compensation Form of Compensation ($125,000,000)
- -------------------- ------------------------------- -----------------------
Dealer Manager Fee 2.5% of gross offering proceeds $ 3,125,000
Offering Expenses 1.5% of gross offering proceeds $ 1,875,000
Nonetheless, AmREIT or its affiliates may not receive compensation in
excess of the maximum amount permitted under the Statement of Policy Regarding
Real Estate Programs of the North American Securities Administrators Association
(NASAA Guidelines).
ERISA CONSIDERATIONS
The section of this prospectus entitled "Certain ERISA Considerations"
describes the effect the purchase of shares will have on individual retirement
accounts (IRAs) and retirement plans subject to the Employee Retirement Income
Security Act of 1974, as amended (ERISA), and/or the Internal Revenue Code.
ERISA is a federal law that regulates the operation of certain tax-advantaged
retirement plans. Any retirement plan trustee or individual considering
purchasing shares for a retirement plan or an IRA should read this section of
the prospectus very carefully.
GLOSSARY
We have defined certain terms which have initial capital letters in the
"Glossary" on page ____ of this prospectus.
10
RISK FACTORS
Before you decide to invest in AmREIT, you should be aware that your
purchase of class D common shares involves a number of risks. In addition to the
other information included in this prospectus, you should specifically consider
the following risks before purchasing shares. The following information
summarizes all material risks related to the acquisition of the class D common
shares.
RISKS ASSOCIATED WITH AN INVESTMENT IN AmREIT
THERE IS NO PUBLIC TRADING MARKET FOR THE CLASS D COMMON SHARES.
There is no current public market for the class D common shares, nor do
we expect a public market to develop for the class D common shares. It will,
therefore, be difficult for you to sell your shares promptly. In addition, the
price received for any shares sold is likely to be less than the proportionate
value of the real estate we own. Therefore, you should purchase the shares only
as a long-term investment. However, the shares are convertible, after a seven
year lock out period, into our class A common shares, which are listed on the
AMEX.
AmREIT DEPENDS ON A FEW MAJOR TENANTS.
There is no limit on the number of properties leased to a single tenant
which we may acquire. However, under investment guidelines established by our
board of trust managers, no single tenant may represent more than 15% of
AmREIT's total annual revenue unless approved by our board of trust managers.
The board of trust managers will review our properties and potential investments
in terms of geographic and tenant diversification. IHOP accounted for 32% of
AmREIT's total revenues for the year ended December 31, 2002 and 21.7% of total
revenue for the year ended December 31, 2003. Because of this concentration,
there is a risk that any adverse developments affecting IHOP generally could
materially adversely affect our revenues (thereby affecting our ability to make
distributions to shareholders).
If in the future we concentrate our acquisitions on another individual
tenant, or in certain geographic areas or on certain product types, it will
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 further funds at our disposal. If our assets become geographically
concentrated, 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 do not know whether we will sell all of the
shares being offered by this Prospectus. If we do not, it is possible that we
will not have the money necessary to further diversify our investments or
achieve the highest possible return on our investments. See "Prior Performance"
on page _____.
YOUR INTEREST IN AmREIT MAY BE DILUTED IF WE ISSUE ADDITIONAL SHARES.
Existing shareholders and potential investors in this offering do not
have preemptive rights to any shares issued by AmREIT in the future. Therefore,
existing shareholders and investors purchasing shares in this offering may
experience dilution of their equity investment in the event that we:
11
- sell shares in this offering or sell additional common shares
in the future, whether publicly or privately;
- sell securities that are convertible into common shares; or
- issue common shares upon the exercise of the options.
THE ACQUISITION OF THE CLASS D COMMON SHARES IS A SPECULATIVE INVESTMENT.
The class D common shares are speculative investments because AmREIT's
ability to make distributions on its class D common shares depends on AmREIT's
ability to acquire properties with the proceeds from Class D shares. While
management believes AmREIT's future operating results should be sufficient to be
able to make these distributions and payments, AmREIT may not be able to do so.
The dividends payable on the class D common shares are not preferred or
cumulative, which means if we fail to pay you a dividend in any particular
monthly dividend period, we will have no obligation to make payment on such
dividend in the future and it is lost forever. AmREIT's future operating budgets
are based on assumptions about the general economy and AmREIT's business
operations. In general, budgets project inflation, interest rates and revenues,
all of which depend substantially on factors beyond AmREIT's control. Interest
rates and levels of economic activity have been particularly volatile in recent
years, and any significant increase in interest rates or downturn in the level
of economic activity, particularly in the real estate industry, would materially
impair AmREIT's ability to achieve budgeted levels of operating income.
YOU CANNOT EVALUATE PROPERTIES THAT WE HAVE NOT YET ACQUIRED OR IDENTIFIED FOR
ACQUISITION.
We have established certain criteria for evaluating potential
properties and tenants in which we may invest. We have not set fixed minimum
standards relating to creditworthiness of tenants and, therefore, our board of
trust managers and management have flexibility in assessing potential properties
and tenants. As of December 31, 2003, we owned 51 properties, leased to 38
different tenants in 18 different states.
AmREIT MAY INCREASE ITS 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. This additional debt could adversely affect
AmREIT's ability to make shareholder distributions and would result in an
increased risk of default on its obligations. AmREIT intends to borrow future
funds through secured and/or unsecured credit facilities to finance property
investments. These borrowings may require lump sum payments of principal and
interest at maturity. Because of the significant cash requirements necessary to
make those large payments, AmREIT's ability to make these payments may depend
upon its ability to sell or refinance properties for amounts sufficient to repay
such loans. In addition, increased debt service may adversely affect cash flow
and share value.
At December 31, 2003, AmREIT had outstanding debt totaling $48.4
million of which $22.8 million was unsecured. This debt represented
approximately 51% of AmREIT's total assets.
DISTRIBUTION PAYMENTS ARE SUBORDINATE TO PAYMENTS ON DEBT AND OTHER SERIES OF
COMMON SHARES.
AmREIT has paid distributions since its organization in 1993.
Distributions to shareholders of AmREIT are, however, subordinate to the payment
of AmREIT's current debts and obligations. If
12
AmREIT has insufficient funds to pay its 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 D 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 D common shares are subordinate to
of the class B and class C common shares as to dividends.
BANKRUPTCY OF A SIGNIFICANT TENANT WOULD ADVERSELY AFFECT AmREIT'S OPERATIONS.
Footstar filed for protection under Chapter 11 of the United States
Bankruptcy Code on March 2, 2004 and pursuant thereto rejected the two Just For
Feet leases it had with AmREIT. During 2003, the Just For Feet leases accounted
for 5.6% of our total revenue. Wherehouse Entertainment declared bankruptcy on
January 31, 2003. The obligations of Wherehouse Entertainment are guaranteed by
Blockbuster Entertainment Corp., its parent corporation. Additional bankruptcies
of our tenants or the bankruptcy of a significant tenant could adversely affect
AmREIT in the following ways:
- reduction or loss of lease payments related to the termination
of the tenant's leases;
- reduction of revenue resulting from the restructuring the
original tenant's leases;
- interruptions in the receipt of lease revenues from the
tenant;
- increase in the costs associated with the maintenance and
financing of vacant properties;
- increase in costs associated with litigation and the
protection of the properties;
- increase in costs associated with improving and reletting the
properties;
- reduction in the value of AmREIT's shares; and
- decrease in distributions to shareholders.
THE CLASS A COMMON SHARES HAVE LIMITED AVERAGE DAILY TRADING VOLUME.
The class A common shares, into which the class D common shares being
offered by this prospectus are convertible on and after the seventh anniversary
of the date of issuance of the shares, are currently traded on the AMEX. The
class A common shares have only been traded since July 2002, and as of December
31, 2003, the average daily trading volume was approximately 8,500 shares. As a
result, the class A common shares currently have limited liquidity, and there
can be no assurance that the market for the class A common shares will have
improved or that the shares will be more liquid at the time the class D common
shares are convertible.
THE DEALER MANAGER HAS NOT MADE AN INDEPENDENT REVIEW OF AmREIT OR THE
PROSPECTUS.
The dealer manager, AmREIT Securities Corp., is an affiliate of AmREIT
and will not make an independent review of AmREIT or this offering. Accordingly,
you do not have the benefit of an independent review of the terms of this
offering.
THERE MAY BE DELAYS IN INVESTING THE PROCEEDS OF THIS OFFERING.
We may delay investing the proceeds from this offering and, therefore,
delay the receipt of any returns from such investments, due to our inability to
find suitable properties for investment. Until we
13
invest in properties, our investment returns on offering proceeds will be
limited to the rates of return available on short-term, highly liquid
investments that provide appropriate safety of principal. We expect these rates
of return, which affect the amount of cash available to make distributions to
shareholders, to be lower than we would receive for property investments.
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 operating and
development and securities company subsidiaries, as well as
our retail partnerships;
- The recognitions of gains or losses on property sales;
- The level of competition in our market; and
- General economic conditions, especially those which effect 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.
WE ESTABLISHED THE OFFERING PRICE ON AN ARBITRARY BASIS.
Our board of trust managers has arbitrarily determined the selling
price of the class D common shares and such price bears no relationship to any
established criteria for valuing issued or outstanding shares and does not
relate in any way to the current trading price of the class A common shares.
Furthermore, because the conversion of the class D shares into class A shares is
based on 110% of invested capital, the price per share of the class D shares has
no relation to the as converted value of the class A shares.
AmREIT'S PLAN TO GROW THROUGH THE ACQUISITION AND DEVELOPMENT OF NEW PROPERTIES
COULD BE ADVERSELY AFFECTED BY TRENDS IN THE REAL ESTATE AND FINANCING
BUSINESSES, MAY NOT GENERATE INCOME OR MAY GENERATE INSUFFICIENT INCOME FROM
OPERATIONS.
AmREIT's growth strategy is substantially based on the acquisition and
development of additional properties. We cannot assure you that AmREIT will be
able to do so successfully because AmREIT may have difficulty finding new
properties, negotiating with new or existing tenants or securing acceptable
financing. In addition, investing in additional properties is subject to many
risks. If AmREIT does not generate enough income from future operations to pay
distributions to shareholders, AmREIT may make distributions to its shareholders
in amounts exceeding its net income.
IF AmREIT CANNOT MEET ITS REIT DISTRIBUTION REQUIREMENTS, IT MAY HAVE TO BORROW
FUNDS OR LIQUIDATE ASSETS TO MAINTAIN ITS REIT STATUS.
REITs generally must distribute 90% of their taxable income annually.
In the event that AmREIT does not have sufficient available cash to make these
distributions, AmREIT's ability to acquire
14
additional properties may be limited. Also, for the purposes of determining
taxable income, AmREIT may be required to include interest payments, rent and
other items it has not yet received and exclude payments attributable to
expenses that are deductible in a different taxable year. As a result, AmREIT
could have taxable income in excess of cash available for distribution. If this
occurred, AmREIT would have to borrow funds or liquidate some of its assets in
order to make sufficient distributions and maintain its status as a REIT.
LIMITATIONS ON SHARE OWNERSHIP REQUIRED TO MAINTAIN AmREIT'S REIT STATUS MAY
DETER ATTRACTIVE TENDER OFFERS FOR AmREIT COMMON
SHARES.
For the purposes of protecting its REIT status, AmREIT's declaration of
trust limits the ownership by any single shareholder of AmREIT's common shares
to 9.0% of the issued and outstanding common shares, unless our board of trust
managers determines otherwise. These restrictions may discourage a change in
control of AmREIT, deter any attractive tender offers for AmREIT common shares
or limit the opportunity for you or other shareholders to receive a premium for
your AmREIT common shares.
AmREIT'S CHARTER CONTAINS ANTI-TAKEOVER PROVISIONS
AmREIT's charter contains provisions which may make it more difficult
to remove current management or delay or discourage an unsolicited takeover,
which could have the effect of inhibiting a non-negotiated merger or other
business combination involving AmREIT. These provisions include:
- The prohibition on any person owning, directly or indirectly,
more than 9.0% of the outstanding common shares; and
- The provisions authorizing the issuance of preferred shares on
terms that board members determine make it more difficult for
an aggressor to obtain a controlling number of shares.
For AmREIT to continue to qualify as a REIT under the Internal Revenue
Code, not more than 50% of its outstanding shares may be owned by five or fewer
individuals during the last half of each year and outstanding shares must
generally be owned by 100 or more persons during at least 335 days of a taxable
year of 12 months. AmREIT's charter restricts the accumulation or transfer of
common shares if any accumulation or transfer could result in any person
beneficially owning in excess of 9.0% of the then outstanding common shares.
PROVISIONS OF OUR CHARTER, BYLAWS AND TEXAS LAW COULD RESTRICT CHANGE IN
CONTROL.
AmREIT's declaration of trust and bylaws contain provisions that may
inhibit or impede acquisition or attempted acquisition of control of AmREIT by
means of a tender offer, a proxy contest or otherwise. These provisions are
expected to discourage certain types of coercive takeover practices and
inadequate bids and to encourage persons seeking to acquire control of AmREIT to
negotiate first with the trust managers. AmREIT believes that these provisions
increase the likelihood that proposals initially will be on more attractive
terms than would be the case in their absence and increase the likelihood of
negotiations, which might outweigh the potential disadvantages of discouraging
such proposals because, among other things, negotiation of such proposals might
result in improvement of terms. See "Certain Anti-Takeover Provisions of the
Declaration of Trust and Bylaws and Texas Law."
15
PROPERTY ACQUISITIONS MAY FAIL TO PERFORM IN ACCORDANCE WITH EXPECTATIONS AND
ESTIMATES OF THE COSTS OF IMPROVEMENTS TO BRING AN ACQUIRED PROPERTY UP TO
STANDARD MAY PROVE INACCURATE.
AmREIT anticipates that its new developments and acquisitions will be
financed under lines of credit or other interim forms of secured or unsecured
financing. Permanent financing for those newly developed or acquired projects
may not be available or may be available only on disadvantageous terms. In
addition, AmREIT's distribution requirements limit its ability to rely upon
income from operations or cash flow from operations to finance new developments
or acquisitions. As a result, if permanent financing is not available on
acceptable terms, further development activities or acquisitions might be
curtailed. In the case of an unsuccessful development or acquisition, AmREIT's
loss could exceed its project investment.
WE WILL BE SUBJECT TO CONFLICTS OF INTEREST.
We will be subject to conflicts of interest arising out of our
relationships with our affiliated retail partnerships, including certain
material conflicts discussed below.
We will experience competition for properties. In evaluating property
acquisitions, certain properties may be appropriate for AmREIT as well as its
affiliated retail partnerships. You will not have the opportunity to evaluate
the manner in which these conflicts of interest are resolved before making your
investment. Generally, we will evaluate each property, considering the
investment objectives, creditworthy nature of the tenant, expected holding
period of the property, available capital and geographic and tenant
concentration issues when determining the allocation of properties among AmREIT
and its affiliated retail partnerships.
There will be competing demands on our management and trust managers.
Our management team and trust managers are not only responsible for AmREIT, but
also for our affiliated retail partnerships, which include entities that may
invest in the same types of assets in which AmREIT may invest. For this reason,
the management team and trust managers will share their management time and
services among those companies and AmREIT, will not devote all of their
attention to AmREIT and could take actions that are more favorable to the other
entities than to AmREIT.
We may invest along side our affiliated retail partnerships. We may
invest in joint ventures, partnerships or limited liability companies for the
purpose of owning or developing retail real estate projects. Therefore, the
interest, investment objectives and timing of disposition may be different than
that of our shareholders, and there are no assurances that your investment
objectives will take priority.
We may, from time to time, purchase one or more properties from our
affiliated retail partnerships. In such circumstances, we will ascertain and pay
the Fair Market Value of the property. In so doing, there will not be any
brokerage commissions paid, however, there can be no assurance that the price
paid for such property will be equal to or greater than the price we would have
been able to negotiate from an independent third party. These property
acquisitions from the affiliated retail partnerships will be limited to
properties that the affiliated retail partnerships either developed or
re-developed.
OUR BOARD OF TRUST MANAGERS CAN TAKE MANY ACTIONS WITHOUT SHAREHOLDER APPROVAL.
Our board of trust managers has overall authority to conduct our
operations. This authority includes significant flexibility. For example, our
board of trust managers can (1) prevent the ownership, transfer and/or
accumulation of shares in order to protect our status as a REIT or for any other
reason deemed to be in the best interests of the shareholders; (2) issue
additional shares without obtaining
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shareholder approval, which could dilute your ownership; (3) direct our
investments toward investments that will not appreciate over time, such as
building only properties, with the land owned by a third party, and mortgage
loans; and (4) change minimum creditworthiness standards with respect to
tenants. Any of these actions could reduce the value of our assets without
giving you, as a shareholder, the right to vote.
OUR OFFICERS AND TRUST MANAGERS HAVE LIMITED LIABILITY.
Our declaration of trust and bylaws provide that an officer or trust
manager's liability for monetary damages to us, our shareholders or third
parties may be limited. Generally, we are obligated under our declaration of
trust and bylaws to indemnify our officers and trust managers against certain
liabilities incurred in connection with their services. These provisions could
limit our ability and the ability of our shareholders to effectively take action
against our trust managers and officers arising from their service to us.
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 AmREIT's ability to sell properties at a time
which would be in the best interest of its shareholders.
PROPERTIES ARE SUBJECT TO GENERAL REAL ESTATE OPERATING RISKS.
If you become a shareholder of AmREIT your investment will be subject
to the risks of investing in real property. In general, a downturn in the
national or local economy, changes in zoning or tax laws or the availability of
financing could adversely affect occupancy or rental rates. In addition,
increases in operating costs due to inflation and other factors may not be
offset by increased rents. If operating expenses increase, the local rental
market for properties similar to AmREIT's may limit the extent to which rents
may be increased to meet increased expenses without decreasing occupancy rates.
If any of the above occurs, AmREIT's ability to make distributions to
shareholders could be adversely affected.
AMREIT MAY CONSTRUCT IMPROVEMENTS, THE COST OF WHICH MAY NOT BE RECOVERABLE.
AmREIT 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, AmREIT may advance, on an unsecured basis, a
portion of the purchase price in the form of cash, a conditional letter of
credit and/or promissory note. AmREIT 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 the control of AmREIT.
If AmREIT acquires 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 legal action by AmREIT to rescind its
construction contract, to compel performance or to rescind its purchase
contract. These legal actions may result in increased costs to AmREIT.
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
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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 AmREIT's working capital
and reserves and in the loss of permanent mortgage loan commitments relied upon
as a primary source for repayment of construction costs.
AmREIT may make periodic progress payments to the general contractors
of properties prior to construction completion. By making these payments, AmREIT
may incur substantial additional risks, 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
AmREIT and that AmREIT may be unable to enforce the contract or to recover the
progress payments.
AmREIT LEASES TO SINGLE TENANTS WHO CAN FAIL.
Single tenant leases accounted for 89% of AmREIT's rental revenue for
the year ended December 31, 2002 and 75% for the year ended December 31, 2003.
In single tenant leases, the continued viability of the lease will depend
directly on the continued financial viability of one tenant. If the tenant fails
and the lease is terminated, AmREIT would incur a reduction in cash flow from
the property and the value of the property would be decreased. Also, where two
or more properties have the same tenant, or related tenants, the continued
viability of each property would depend directly on the financial viability of a
single tenant.
NET LEASES MAY NOT RESULT IN FAIR MARKET LEASE RATES OVER TIME.
Net leases accounted for 100% of AmREIT's total rental income for the
years ended December 31, 2002 and 2003. Net leases frequently provide the tenant
greater discretion in using the leased property than ordinary property leases,
such as the right to freely sublease the property, to make alterations in the
leased premises and to early termination of the lease under specified
circumstances. Further, net leases are typically for longer lease terms and,
thus, there is an increased risk that any rental increase clauses in future
years will fail to result in fair market rental rates during those years. The
original leases on AmREIT's existing properties are for original terms ranging
from 10 to 20 years.
In the event a lease is terminated, AmREIT may not be able to lease the
property for the previous rent and may not be able to sell the property without
incurring a loss. AmREIT could also experience delays in enforcing its rights
against defaulting tenants. If a tenant does not pay rent, AmREIT may not only
lose the net cash flow from the property but may also need to use cash flow
generated by other properties to meet mortgage payments on the defaulted
property.
AmREIT MAY INVEST IN JOINT VENTURES.
Investments in joint ventures may involve risks which may not otherwise
be present where investments are made directly by AmREIT in real property such
as:
- the potential inability of AmREIT's joint venture partner to
perform;
- the joint venture partner may have economic or business
interests or goals which are inconsistent with or adverse to
those of AmREIT;
- the joint venture partner may take actions contrary to the
requests or instructions of AmREIT or contrary to AmREIT's
objectives or policies; and
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- the joint venturers may not be able to agree on matters
relating to the property they jointly own. Although each joint
owner will have a right of first refusal to purchase the other
owner's interest, in the event a sale is desired, the joint
owner may not have sufficient resources to exercise such right
of first refusal.
AmREIT also may participate with other investors, including possibly
investment programs or other entities affiliated with management, in investments
as tenants-in-common or in some other joint venture arrangement. The risks of
such joint ownership may be similar to those mentioned above for joint ventures
and, in the case of a tenancy-in-common, each co-tenant normally has the right,
if an unresolvable dispute arises, to seek partition of the property, which
partition might decrease the value of each portion of the divided property.
OUR PROPERTIES MAY BE SUBJECT TO ENVIRONMENTAL LIABILITIES.
Under various federal and state environmental laws and regulations, as
an owner or operator of real estate, we may be required to investigate and clean
up certain hazardous or toxic substances, asbestos-containing materials, or
petroleum product releases at our properties. We may also be held liable to a
governmental entity or to third parties for property damage and for
investigation and cleanup costs incurred by those parties in connection with the
contamination. In addition, some environmental laws create a lien 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 in escrow case funds equal to a
predetermined amount greater than the estimated costs to remediate the problem;
or (B) we have negotiated other comparable arrangements, including, without
limitation, a reduction in the purchase price. We cannot be sure, however, that
any seller will be able to pay under an indemnity we obtain or that the amount
in escrow will be sufficient to pay all remediation costs. Further, we cannot be
sure that all environmental liabilities have been identified or that no prior
owner, operator or current occupant has created an environmental condition not
known to us. Moreover, we cannot be sure that (1) future laws, ordinances or
regulations will not impose any material environmental liability or (2) the
current environmental condition of our properties will not be affected by
tenants and occupants of the properties, by the condition of land or operations
in the vicinity of the properties (such as the presence of underground storage
tanks), or by third parties unrelated to us. Environmental liabilities that we
may incur could have an adverse effect on our financial condition or results of
operations.
ANTICIPATED BORROWING CREATES RISKS.
We may borrow money to acquire assets, to preserve our status as a REIT
or for other corporate purposes. We may mortgage or put a lien on one or more of
our assets in connection with any borrowing. We currently have a revolving line
of credit in an aggregate amount of up to $30 million to provide financing for
the acquisition of assets, of which approximately $48.4 million was outstanding
as of
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December 31, 2003. We may repay the line of credit using equity offering
proceeds, including proceeds from this offering, working capital, permanent
financings or proceeds from the sale of assets. We may also obtain additional
long-term, permanent financing. Our bylaws limit our recourse debt obligations
to 55% of our gross asset value. Borrowing may be risky if the cash flow from
our real estate and other investments is insufficient to meet our debt
obligations. In addition, our lenders may seek to impose restrictions on future
borrowings, distributions and operating policies. If we mortgage or pledge
assets as collateral and we cannot meet our debt obligations, the lender could
take the collateral, and we would lose both the asset and the income we were
deriving from it.
WE MAY NOT HAVE ADEQUATE INSURANCE.
An uninsured loss or a loss in excess of insured limits could have a
material adverse impact on our operating results and cash flows and returns to
the shareholders could be reduced. Certain types of losses, such as from
terrorist attacks, however, may be either uninsurable, too difficult to obtain
or too expensive to justify insuring against. Furthermore, an insurance provider
could elect to deny or limit coverage under a claim. Should an uninsured loss or
a loss in excess of insured limits occur, we could lose all or a portion of the
capital we have invested in a property, as well as the anticipated future
revenue from the property. Therefore, if we, as landlord, incur any liability
which is not fully covered by insurance, we would be liable for the uninsured
amounts, cash available for distributions to shareholders may be reduced and the
value of our assets may decrease significantly. In addition, in such an event,
we might nevertheless remain obligated for any mortgage debt or other financial
obligations related to the property.
AmREIT'S PROPERTIES MAY NOT BE PROFITABLE, MAY NOT RESULT IN DISTRIBUTIONS
AND/OR MAY DEPRECIATE.
While AmREIT will attempt to buy leased, income-producing properties at
a price at or below the appraised value of such properties, properties acquired
by AmREIT:
- may not operate at a profit,
- may not perform to AmREIT's expectations,
- may not appreciate in value,
- may depreciate in value,
- may not ever be sold at a profit and
- may result in the loss of a portion of AmREIT's investment.
The marketability and value of any properties will depend upon many factors
beyond AmREIT's control. A ready market for AmREIT's properties may not exist or
develop.
AmREIT MAY PROVIDE FINANCING TO PURCHASERS OF PROPERTIES.
AmREIT may provide purchaser financing which would delay receipt of the
proceeds from the property sale. AmREIT may provide this financing where lenders
are not willing to make loans secured by commercial real estate or where a
purchaser is willing to pay a higher price for the property than it would
without this financing.
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In those circumstances, AmREIT will be subject to risks inherent in the
business of lending, such as the risk of default of the borrower or bankruptcy
of the borrower. Upon a default by a borrower, AmREIT may not be able to sell
the property securing a mortgage loan at a price that would enable it to recover
the balance of a defaulted mortgage loan. In addition, the mortgage loans could
be subject to regulation by federal, state and local authorities which could
interfere with AmREIT's administration of the mortgage loans and any collections
upon a borrower's default. AmREIT will also be subject to interest rate risk
that is associated with the business of making mortgage loans. Since AmREIT's
primary source of financing its mortgage loans is expected to be through
variable rate loans, any increase in interest rates will also increase AmREIT's
borrowing costs. In addition, any interest rate increases after a loan's
origination could also adversely affect the value of the loans when securitized.
AmREIT MAY ENGAGE IN SALE-LEASEBACK TRANSACTIONS.
AmREIT, on occasion, may lease an investment property back to the
seller. When the seller/lessee leases space to tenants, the seller/lessee may be
unable to meet its rental obligations to AmREIT if the tenants are unable to
meet their lease payments to the seller/lessee. A default by the seller/lessee
or other premature termination of the leaseback agreement could have an adverse
effect on AmREIT's financial position. In the event of a default or termination,
AmREIT may not be able to find new tenants without incurring a loss.
Additionally, a seller may attempt to include in the acquisition price
all or some portion of the lease payments. If the seller is successful, AmREIT
may pay a premium upon acquisition where a leaseback is involved.
AmREIT MUST COMPETE FOR ACCEPTABLE INVESTMENTS.
AmREIT's operating results will depend upon the availability of
suitable investment opportunities, which in turn depends on the type of
investment involved, the condition of the money markets, the nature and
geographical location of the property, competition and other factors, none of
which can be predicted with certainty. AmREIT will continue to compete for
acceptable investments with other financial institutions, including insurance
companies, pension funds and other institutions, real estate investment trusts
and limited partnerships which have investment objectives similar to those of
AmREIT. Many of these competitors may have greater resources than AmREIT.
AmREIT MAY BE UNABLE TO RENEW LEASES OR RELET SPACES.
AmREIT's property leases might not be renewed, the space might not be
relet or the terms of renewal or reletting may be less favorable than current
lease terms. AmREIT's cash flow and ability to make expected distributions to
its shareholders may be adversely affected if: (1) it is unable to promptly
relet or renew the leases, (2) the rental rate upon renewal or reletting is
significantly lower than expected or (3) its reserves proved inadequate.
AmREIT'S PROPERTIES FACE COMPETING PROPERTIES.
All of AmREIT's properties are located in areas that include competing
properties. The number of competitive properties could have a material adverse
effect on both AmREIT's ability to lease space and the rents charged. AmREIT may
be competing with other property owners that have greater resources.
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THE INABILITY OF A TENANT TO MAKE LEASE AND MORTGAGE PAYMENTS COULD HAVE AN
ADVERSE EFFECT ON AmREIT.
AmREIT's business depends on the tenants' ability to pay their
obligations to AmREIT with respect to AmREIT's real estate leases. The ability
of the tenants to pay their obligations to AmREIT in a timely manner will depend
on a number of factors, including the successful operation of their businesses.
Various factors, many of which are beyond the control of any business, may
adversely affect the economic viability of AmREIT's tenants, including but not
limited to:
- national, regional and local economic conditions (which may be
adversely affected by industry slowdowns, employer
relocations, prevailing employment conditions and other
factors), which may reduce consumer demand for the products
offered by AmREIT's tenants;
- local real estate conditions;
- changes or weaknesses in specific industry segments;
- perceptions by prospective customers of the safety,
convenience, services and attractiveness of AmREIT's tenants;
- changes in demographics, consumer tastes and traffic patterns;
- the ability to obtain and retain capable management;
- changes in laws, building codes, similar ordinances and other
legal requirements, including laws increasing the potential
liability for environmental conditions existing on properties;
- increases in operating expenses; and
- increases in minimum wages, taxes (including income, service,
real estate and other taxes) or mandatory employee benefits.
AmREIT HAS PROPERTIES SPECIFICALLY SUITED TO FEW TENANTS.
AmREIT may acquire properties specifically suited to particular tenant
needs, including retail or commercial facilities. The value of these properties
would be adversely affected by the specific tenant's failure to renew or honor
its lease. These properties would typically require extensive renovations to
adapt them for new uses by new tenants. Also, AmREIT may experience difficulty
selling special purpose properties to persons other than the tenant.
WE DO NOT HAVE CONTROL OVER MARKET AND BUSINESS CONDITIONS.
Changes in general or local economic or market conditions, such as
increased costs of operations, cost of development, increased costs of
insurance, increased costs or shortage in labor, competitive factors, quality of
management, turnover in management, changing consumer habits, changing
demographics, changing traffic patterns, environmental changes, regulatory
changes and other factors beyond our control may reduce the value of properties
that we currently own or those that we acquire in the future, the ability of
tenants to pay rent on a timely basis, and therefore, the amount of dividends
that we are able to pay to shareholders.
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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, AmREIT will
have no economic interest in the land at the expiration of the lease, and
therefore may lose the right to the use of the properties at the end of the
ground lease.
RISKS ASSOCIATED WITH FEDERAL INCOME TAXATION OF AmREIT
AmREIT'S FAILURE TO QUALIFY AS A REIT FOR TAX PURPOSES WOULD RESULT IN AmREIT'S
TAXATION AS A CORPORATION AND THE REDUCTION OF FUNDS AVAILABLE FOR SHAREHOLDER
DISTRIBUTION.
Although AmREIT's management believes that it is organized and is
operating so as to qualify as a REIT, AmREIT may not be able to continue to
remain so qualified. In addition REIT qualification tax laws may change. AmREIT
is not aware, however, of any currently pending tax legislation that would
adversely affect its ability to continue to qualify as a REIT.
For any taxable year that AmREIT fails to qualify as a REIT, it will be
subject to federal income tax on its taxable income at corporate rates. In
addition, unless entitled to relief under certain statutory provisions, AmREIT
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 to AmREIT 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 AmREIT qualifying as a REIT, AmREIT might be required to borrow
funds or to liquidate certain of its investments to pay the applicable tax.
AmREIT 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 on AmREIT of
substantial taxes, such as the 100% tax that applies to net income from a
prohibited transaction if AmREIT is 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 AmREIT'S REIT STATUS.
The discussions of the federal income tax considerations are based on
current tax laws. Changes in the tax laws could result in tax treatment that
differs materially and adversely from that described in this proxy statement.
INVESTMENT IN AmREIT MAY NOT BE SUITABLE UNDER ERISA AND IRA REQUIREMENTS.
Fiduciaries of a pension, profit sharing or other employee benefit plan
subject to ERISA should consider whether the investment in AmREIT securities
satisfies the ERISA diversification requirements of ERISA, whether the
investment is prudent, whether the investment would be an improper delegation of
responsibility for plan assets and whether such fiduciaries have authority to
acquire such securities under the appropriate governing instrument and Title I
of ERISA. Also, fiduciaries of an individual retirement
23
account should consider that an IRA may only make investments that are
authorized by the appropriate governing instrument.
BUSINESS AND PROPERTIES
GENERAL
AmREIT is a self-managed, self-advised REIT with, along with its
predecessor, a 19-year history and a record of investing in quality income
producing retail real estate. Our business organization consists of a portfolio
of high-end single and multi-tenant retail centers, a full service real estate
operating and development subsidiary, an NASD registered broker-dealer
subsidiary, and a retail partnership business. This unique combination provides
AmREIT the opportunity to access capital through both Wall Street and the
independent financial planning marketplace for flexibility and dependable
growth. AmREIT, a Texas real estate investment trust, became the successor to
Predecessor Corporation in December 2002, through the merger of the Predecessor
Corporation with AmREIT. The merger was structured to preserve unchanged the
existing business, purpose, tax status, management, capitalization and assets,
liabilities and net worth (other than due to the costs of the transaction) of
the Predecessor Corporation, and the economic interests and voting rights of the
2,812,502 shareholders of the Predecessor Corporation (who became the
shareholders of AmREIT as a result of the merger). The term "AmREIT" includes,
as the context requires, the Predecessor Corporation and the other subsidiaries
of "AmREIT." At March 6, 2004, AmREIT had outstanding approximately 2.98 million
class A common shares, listed on the American Stock Exchange (AMEX:AMY), 2.35
million class B common shares, that are not listed on an exchange, which may be
converted into class A common shares on a one-for-one basis at any time at the
holder's option, and 2.32 million class C common shares, that are not listed on
an exchange, which may be converted into class A common shares based on 110% of
invested capital at any time following the seventh anniversary of the date of
issuance of the shares at the holder's option.
On July 23, 2002, the Predecessor Corporation successfully completed a
merger with three of its affiliated partnerships, AAA Net Realty Fund IX, Ltd,
AAA Net Realty Fund X, Ltd, and AAA Net Realty Fund XI, Ltd ("Funds IX, X and
XI") and listed its class A common stock on the American Stock Exchange. The
limited partners in Funds IX, X and XI received class B common stock of the
Predecessor Corporation, which was not listed, had a preferred 8% distribution
and was convertible one for one into the Class A common stock at the holder's
option. Each share of the Predecessor Corporation's class A common stock and
class B common stock was converted into one class A common share and class B
common share, respectively, in the merger with AmREIT.
AmREIT, its predecessors and its wholly-owned affiliates have a proven
track record over the past 19 years of completing over 200 transactions,
including acquisitions, joint ventures, ground-up developments, sale/leaseback
transactions and numerous dispositions. AmREIT and its management team have been
active in the real estate markets and understand the dynamics of real estate
transactions in these markets.
The Predecessor Corporation was formed in 1993 to continue and expand
the business of its predecessor company, American Asset Advisers Trust, which
was founded in 1985. We actively acquire, develop and manage high-quality
commercial properties leased to creditworthy tenants under net-leases. Through a
wholly owned subsidiary, we also provide advisory services to 12 real estate
limited partnerships. As of December 31, 2003, AmREIT owned 51 properties
located in 18 states. AmREIT currently has approximately 2,800 shareholders and
1,500 partners in the limited partnerships.
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OPERATING STRATEGY
Our business organization consists of a portfolio of high-end single
and multi-tenant retail centers, a full service real estate operating and
development subsidiary, an NASD registered broker-dealer subsidiary, and a
retail partnership business. This unique combination provides AmREIT the
opportunity to access capital through both Wall Street and the independent
financial planning marketplace for flexibility and dependable growth. We finance
our growth and working capital needs with a combination of equity offerings and
a conservative debt philosophy. As of December 31, 2003, we had raised
approximately $14 million through our class C common share offering. Through our
by-laws, our debt is limited to 55% recourse debt as compared to its gross
assets. As of December 31, 2003, our debt to asset ratio was approximately 51%.
PORTFOLIO. We focus on acquiring "irreplaceable corners" - premier
retail frontage properties in high-traffic, highly populated areas - which
create dependable income and long-lasting value. These premium properties
provide high leasing income and high occupancy rates for a strong income stream.
As of December 31, 2003, the occupancy rate at our properties was 92.4%. Our
properties attract a wide array of established commercial tenants, and offer
attractive opportunities for dependable monthly income and potential capital
appreciation. These properties are typically located in high traffic areas
within a three-mile radius of a population of 100,000 with an average household
income of $70 thousand or more. On average, more than 30,000 cars per day pass
by these properties. In addition, management believes that the location and
design of its properties provide flexibility in use and tenant selection and an
increased likelihood of advantageous re lease terms.
Our revenues are substantially generated by corporate retail tenants
such as Starbucks, Landry's, CVS Pharmacy, IHOP, Eckerd, Washington Mutual, TGI
Friday's, and others. AmREIT owns, and may purchase in the future, fee simple
retail properties (we own the land and the building), ground lease properties
(we own the land, but not the building and receive rental income from the owner
of the building) or leasehold estate properties (we own the building, but not
the land, and therefore are obligated to make a ground lease payment to the
owner of the land). AmREIT may also develop properties for its portfolio or
enter into joint ventures, partnerships or co-ownership for the development of
retail properties.
REAL ESTATE OPERATING AND DEVELOPMENT COMPANY. AmREIT's real estate
operating and development subsidiary, AmREIT Realty Investment Corporation
("ARIC") is a fully integrated group of brokers and real estate professionals
that provide brokerage, leasing, construction management, development and
property management services to our tenants as well as third parties. This
operating subsidiary, which is a taxable REIT subsidiary, compliments our
portfolio of retail properties by providing a high level of service to our
tenants, as well as maintaining our portfolio of properties to meet our
standards.
Having an internal real estate group also helps secure strong tenant
relationships for both us and our retail partnerships. Equally important, we
have affiliations with these parent company tenants that extend across multiple
sites.
Not only does our real estate operating and development company create
value through relationships, but it also provides an additional source of fee
income and profits. Through the development, construction, management, leasing
and brokerage services provided to our affiliated actively managed retail
partnerships, as well as for third parties, our real estate team continues to
generate fees and profits for us. Through ARIC, we are able to generate
additional profits through the selective acquisitions and dispositions of
properties within a short time period (twelve to eighteen months). These
25
assets are listed as real estate assets acquired for sale on our consolidated
balance sheet, and, at December 31, 2003, represented approximately $4.4
million.
SECURITIES COMPANY. The part of our business structure and operating
strategy that really separates us from other publicly traded REITs is AmREIT
Securities Company (ASC), a wholly-owned subsidiary of ARIC. Through ASC, we are
able to raise capital through the National Association of Securities Dealers
(NASD) independent financial planning community. Traditionally, we have raised
capital in two ways: first for our actively managed retail partnerships, and
second, directly for AmREIT through non-traded classes of common shares.
During 2003, ASC raised approximately $15 million for AmREIT Monthly
Income & Growth Fund, Ltd., an affiliated retail partnership sponsored by a
subsidiary of AmREIT. Additionally, ASC raised approximately $14 million
directly for us through our class C common share offering. During 2004, through
a combination of our actively managed retail partnerships, as well as direct
equity for AmREIT, ASC projects to raise approximately $60 million directly
through the NASD independent financial planning community. Since capital is the
lifeblood of any real estate company, having the unique opportunity to raise
capital through both Wall Street and the independent financial planning
community adds additional financial flexibility and dependability to our income
stream.
RETAIL PARTNERSHIPS. AmREIT has retail partnership subsidiaries that
sell limited partnership interests to retail investors, in which AmREIT directly
invests as both the general partner and as a limited partner. We wanted to
create a structure that aligns the interest of our shareholders with that of our
unit holders. Through our subsidiary general partners of the retail partnerships
value is created for AmREIT through managing money from the sponsored funds, and
in return, receiving management fees and profit participation interests.
AmREIT's retail partnerships are structured so that an affiliate, as the general
partner, receives a significant profit only after the limited partners in the
funds have received their targeted return, again, linking AmREIT's success to
that of its unit holders.
As of December 31, 2003, AmREIT directly managed, through its three
actively managed and previously sponsored retail partnerships, a total of $30
million in equity. These three partnerships will enter their liquidation phases
in 2003/2004, 2009/2010, and 2010/2011, respectively. As these partnerships
enter into liquidation, we will receive economic benefit from our profit
participation, after certain preferred returns have been paid to the
partnership's limited partners. In accordance with generally accepted accounting
principles, any unrealized gains associated with this potential profit
participation has not been reflected on our balance sheet or statement of
operations.
AmREIT's principal executive offices are located at 8 Greenway Plaza,
Suite 1000, Houston, Texas 77046, and its telephone number is (713) 850-1400.
PROPERTIES
GENERAL. At December 31, 2003, we owned 51 properties. Our properties
are leased to 38 tenants in 18 different states and continued an aggregate of
approximately 408 thousand square feet of gross leasable area.
We have been developing and acquiring multi-tenant shopping centers for
over ten years in our retail partnership business. During that time, we believe
we have developed the ability to recognize the high-end multi-tenant properties
that can create long-term value, and with the downward pressure on single tenant
cap rates, resulting in higher priced real estate, management anticipates
strategically increasing its holdings of multi-tenant shopping centers.
26
Land - Our property sites, on which our leased buildings sit, range
from approximately 34,000 to 125,000 square feet, depending upon building size
and local demographic factors. Sites purchased by us are in high traffic
corridors and have been reviewed for traffic and demographic pattern and
history.
Buildings - The buildings are single and multi-tenant properties and
are 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. Single tenant buildings
range from approximately 2,000 to 20,000 square feet, and multi-tenant buildings
are generally 15,000 square feet and greater. Buildings are suitable for
possible conversion to various uses, although modifications may be required
prior to use for other operations.
Leases - The primary term of the leases ranges from ten to twenty-five
years. Generally, leases also provide for one to four five-year renewal options.
The freestanding properties are primarily leased on a "triple-net" basis whereby
the tenants are responsible for the property taxes, insurance and operating
costs. Generally, the leases provide for either percentage rents based on sales
in excess of certain amounts, periodic escalations in the annual rental rates or
both.
LOCATION OF PROPERTIES. AmREIT's focus is on property investments in
Texas. Of our 51 properties, 22 are located in Texas, with 16 being located in
the greater Houston metropolitan statistical area. Our portfolio of assets tends
to be located in areas we know well, and where we can keep an eye on them. For
that reason, we believe AmREIT delivers an extra degree of hands on management
to our real estate investments. 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.
During 2003, Houston ranked nationally among the 10 most populous metro areas,
ranked fourth in nominal employment growth and fifth in employment growth rate.
At December 31, 2003, we owned 51 properties leased to 38 tenants in 18
states (however, 20 states are shown in the below table due to income being
received during the year from properties located in Wisconsin and Indiana). The
rental income by states is as follows:
State Rental Income Rental concentration
----------- ------------- --------------------
Texas $ 3,001,731 39.5%
Louisiana 711,545 9.4%
Tennessee 507,410 6.7%
Missouri 498,910 6.6%
Kansas 453,884 6.0%
Arizona 409,817 5.4%
Minnesota 267,586 3.5%
Colorado 246,423 3.2%
Georgia 202,322 2.7%
Oregon 182,717 2.4%
Virginia 170,804 2.3%
Utah 160,068 2.1%
Mississippi 155,514 2.1%
New York 123,619 1.6%
Indiana 112,156 1.5%
California 110,099 1.5%
Oklahoma 92,612 1.2%
New Mexico 85,606 1.1%
Wisconsin 50,022 0.7%
Maryland 41,321 0.5%
------------- ------
Total $ 7,584,166 100.00%
27
MULTI-TENANT PROPERTIES. As of December 31, 2003, AmREIT owned five
multi-tenant properties, representing approximately 86,000 leaseable square
feet. Our multi-tenant properties are primarily neighborhood and community strip
centers, ranging from 16,000 to 20,000 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
complimentary array of services to support the local retail consumer. All of our
strip centers are located in the greater Houston area, 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.
All of our multi-tenant leases provide for the monthly payment of base
rent plus operating expenses. This monthly operating expense payment is based an
estimate of the tenant's pro rata share of property taxes, insurance, utilities,
maintenance and other common area maintenance charges. Annually these operating
expenses are reconciled with any overage being reimbursed to the tenants, with
any underpayment being billed to the tenant.
Our multi-tenant leases range from five to ten years and generally
include one or more five-year renewal options. Annual rental income from these
leases ranges from $24 thousand to $310 thousand per year.
In December 2003, as part of the Uptown Plaza purchase, we purchased a
16,000 square foot strip center anchored by Grotto, a Landry's Restaurant
(NYSE:LNY) concept. This "irreplaceable corner" is located at the intersection
of Westheimer and Loop 610 in the Houston, Texas Galleria area. The property was
built in 2002 and is 70% occupied.
In December 2003, we purchased The Terrace Shops, a 16,395 square foot
strip center anchored by Starbucks (Nasdaq:SBUX). This "irreplaceable corner" is
located at the intersection of Buffalo Speedway and Westpark in Houston, Texas,
the gateway to the prestigious West University residential community, Rice
University and the Texas Medical Center. The property was built in 2002 and is
93% occupied.
SINGLE TENANT PROPERTIES. As of December 31, 2003, AmREIT owned 46
single tenant properties, representing approximately 322,000 leaseable square
feet. During 2003, we acquired six single tenant properties with an aggregate of
approximately 23,000 square feet of gross leasable area. 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 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, and for this reason are designated by us to
be "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 leases at these properties ranges from ten to
twenty-five years. All of the leases also provide for one to four five-year
renewal options. Annual rental income ranges from $59 thousand to $547 thousand
per year.
28
LAND TO BE DEVELOPED. As part of our investment objectives, we will
invest in land to be developed on "irreplaceable corners" across Texas. A
typical investment in land to be developed will result in a six to twelve month
holding period, followed by the execution of a ground lease with a national or
regional retail tenant, or the development of a single tenant property or
multi-tenant strip center. As of December 31, 2003, AmREIT held three sites to
be developed.
Westheimer and Yorktown is an approximately one acre pad site located
at the intersection of Westheimer and Yorktown in the Galleria area of Houston,
Texas. The property was purchased in January of 2003. Subsequent to the
purchase, AmREIT entered into a long-term ground lease with Eckerd for the
entire site. Rental income under the ground lease is scheduled to commence on
January 15, 2004. AmREIT also provided the construction management and
development for the Eckerd building.
San Felipe and Winrock is an approximately two acre pad site located at
the intersection of San Felipe and Winrock in the prestigious Tanglewood
residential community in Houston, Texas. The property was purchased in November
2003. Subsequent to the purchase, AmREIT entered into a long-term lease with a
national bank for approximately once acre, off the corner intersection. Rental
income under the ground lease is scheduled to commence in November 2004. AmREIT
is holding the remaining one acre and is in discussion with a number of national
tenants.
I-45 and West Road is a .75 acre pad site located at the intersection
of Interstate 45 and West Road in Houston, Texas. AmREIT, as a 50% joint venture
partner, purchased the land and subsequently entered into a long-term ground
lease with YUM Brands (NYSE:YUM), which will construct a restaurant under one of
their many franchisee concepts. Rental income under the ground lease is
scheduled to commence during the third quarter 2004.
29
AmREIT WHOLLY-OWNED PROPERTY INFORMATION
(DECEMBER 31, 2003)
[UPDATE]
LEASE
DATE PURCHASE LEASEABLE ANNUAL EXPIRATION
PROPERTY (LOCATION) ACQUIRED PRICE AREA RENT DATE
- ------------------------------------ ------------ ---------- ---------- -------- ----------
Radio Shack
(Dallas, TX) ..................... 06/15/94 $1,062,000 5,200 $108,900 11/30/06
Wherehouse Entertainment
(Independence, MO) ............... 11/14/94 1,550,000 14,047 187,655 04/30/04
Copperfield Medical Plaza
(Houston, TX) .................... 07/01/95 1,680,000 14,000 201,072 04/30/07
Wherehouse Entertainment
(Wichita, KS) .................... 09/12/95 1,700,000 15,158 (3) 12/31/04
FootStar, Inc. (1)
(Tucson, AZ) ..................... 09/11/96 3,351,000 19,550 419,026 09/30/16
Washington Mutual
(The Woodlands, TX) .............. 09/23/96 500,000 3,685 59,461 09/30/11
Washington Mutual
(Houston, TX) .................... 12/11/96 828,000 3,685 97,861 12/31/11
FootStar, Inc. (1)
(Baton Rouge, LA) ................ 06/09/97 2,806,000 20,575 300,539 05/15/12
Hollywood Video
(Lafayette, LA) .................. 10/31/97 1,124,000 7,488 134,709 09/24/12
Hollywood Video
(Ridgeland, MS) .................. 12/30/97 1,208,000 7,488 138,453 12/22/12
OfficeMax
(Dover, DE) ...................... 04/14/98 2,548,000 23,500 264,679 04/30/13
Woodlands Plaza
(The Woodlands, TX) .............. 06/03/98 3,542,000 16,922 374,100 Various
Sugar Land Plaza
(Sugar Land, TX) ................. 07/01/98 3,635,000 16,922 330,875 07/01/13
Dardin
(Peachtree City, GA) ............. 12/18/98 738,000 Land Lease 75,000 12/17/08
IHOP, Corp.
(Sugarland, TX) .................. 9/30/99 1,608,000 4,020 165,180 9/30/24
IHOP, Corp.
(Topeka, KS) ..................... 9/30/99 1,335,000 4,020 137,340 9/30/24
Foodmaker
(Dallas, TX) ..................... 7/23/02(2) 715,100 2,238 68,998 7/11/09
Baptist Memorial Health
(Memphis, TN) .................... 7/23/02(2) 2,079,200 15,000 204,375 8/31/07
Payless Shoes
(Austin, TX) ..................... 7/23/02(2) 698,300 4,000 82,000 1/30/08
Golden Corral
(Houston, TX) .................... 7/23/02(2) 1,811,800 12,000 182,994 11/30/07
Golden Corral
(Houston, TX) .................... 7/23/02(2) 1,843,400 12,000 181,688 3/14/08
30
LEASE
DATE PURCHASE LEASEABLE ANNUAL EXPIRATION
PROPERTY (LOCATION) ACQUIRED PRICE AREA RENT DATE
- ------------------------------------ ---------- ----------- ---------- ---------- ----------
TGI Friday's
(Houston, TX) .................... 7/23/02(2) 2,036,900 8,500 180,500 1/30/08
Guitar Center
(Minnesota, MN) .................. 7/23/02(2) 2,541,700 15,000 246,750 8/31/09
AFC, Inc. (Popeye's Chicken)
(Atlanta, GA) ...................... 7/23/02(2) 1,113,900 2,583 105,563 7/19/14
Memorial Herman Hospital
(Houston, TX)..................... 7/23/02(2) 1,816,800 15,000 171,360 1/31/09
Blockbuster Video
(Oklahoma City, OK)............... 7/23/02(2) 973,800 15,000 92,610 8/31/05
Pier One
(Longmont, CO).................... 7/23/02(2) 1,423,600 8,014 135,560 2/29/08
IHOP, Corp.
(Grand Prairie, TX) .............. 4/15/03 1,940,400 4,020 174,332 4/14/28
IHOP, Corp.
(Bridgeton, MO)................... 4/15/03 1,846,800 4,020 182,593 4/14/28
TGI Friday's
(Hanover, MD)..................... 9/16/03 1,474,700 8,500 134,962 9/30/13
The Terrace Shops................... 12/15/04 4,800,000 16,395 428,900 Various
Uptown Plaza........................ 12/15/04 13,000,000 28,000 1,268,400 Various
----------- ---------- ---------- ---------
TOTAL .............................. $70,403,200 346,530 $6,836,435
(1) Footstar, Inc. filed for Chapter 11 Bankruptcy protection on March 2,
2004. In publicly released announcement, Footstar has indicated their
intent to reject the lease on all Just For Feet locations, and as such,
the leases on our two properties may be rejected.
(2) These properties were acquired as part of the merger of the affiliated
partnerships (Funds IX, X and XI) on July 23, 2002. The purchase price
reflects the pro-rata portion of the negotiated price allocated to the
properties that AmREIT paid the partnerships in common shares.
(3) Wherehouse Entertainment filed for Chapter 11 Bankruptcy protection,
and as such, rejected the Wherehouse Entertainment lease in Wichita,
Kansas. At December 31, 2003, no rental income was being received on
this property.
In addition to the above wholly owned properties, AmREIT is the sole
shareholder of the corporate general partner and an 80% limited partner in AAA
CTL Notes, Ltd., a partnership created to purchase, hold, and manage a portfolio
of 17 IHOP leasehold estate and fee simple properties located throughout the
United States.
Through its sponsorship of retail partnerships to the independent
financial planning community, AmREIT is also the sole shareholder of the
corporate general partner and a 10.5%, 3.9% and 19% limited partner,
respectively, in AmREIT Opportunity Fund, AmREIT Income & Growth Fund and AmREIT
Monthly Income & Growth Fund, Ltd., at December 31, 2003.
RENOVATION AND IMPROVEMENTS. AmREIT manages each of its properties and
is constantly evaluating the need for renovation and capital improvements.
Currently, The Woodlands Plaza is undergoing renovation and redevelopment. The
property was originally designed and built as a Just For Feet. Following the
bankruptcy of Just For Feet in November 1999, AmREIT began a redevelopment of
this property that involved converting this property to a multi-tenant shopping
center. AmREIT's
31
development and construction management team evaluated the local market, worked
with the adjacent land and property owners as well as the local municipalities
in order to redevelop this single purpose box into a traditional multi-tenant
shopping center. The redevelopment included converting exterior walls into a
multi-tenant store front, building out the second story mezzanine space, which
increased the total leaseable area by approximately 4,000 square feet, working
with various tenants to lease the property and facilitating the tenant
improvements and build out of tenant spaces. The budget called for approximately
$1 million in total renovation costs, including hard and soft costs. Through
December 31, 2003, approximately $147 thousand had been spent on the renovation.
Other than The Woodlands Plaza, there are no significant renovations or
improvements scheduled or anticipated for any other project.
LEASES. A majority of our properties are under lease to a regional or
national tenant. When entered into, each lease was long-term. Most leases are
net leases, requiring the tenant to pay all or substantially all expenses
related to operation of the property. The following table sets forth rental
information concerning AmREIT's 15 largest tenants for the year ended December
31,
(in thousands) 2003 2002
------- -------
International House of Pancakes $ 2,731 $ 1,784
Footstar, Inc. 740 735
Golden Corral (1) 430 167
Wherehouse Entertainment 386 381
Hollywood Entertainment Corp. 312 273
Texas Children's Pediatrics (2) 286 137
Sugar Land Imaging Affiliates Ltd. 280 264
Comp USA (1) 268 123
OfficeMax, Inc 256 509
TGI Friday's (1) 240 83
Baptist Memorial Hospital (1) 223 102
Memorial Herman Healthcare (1) 189 87
Mattress Giant, Inc 179 168
Washington Mutual 159 158
Pier 1 175 62
------- -------
Total $ 6,814 $ 5,033
======= =======
- ----------
(1) Properties were purchased from three affiliated partnerships in July
2002.
(2) Texas Children's Pediatrics entered into a long-term lease with AmREIT,
beginning in May 2002, at Copperfield Medical Plaza. The lease was
entered into as a result of the negotiated lease buy out by AmREIT and
One Care Health Industries, Inc.
The following table summarizes the minimum future rentals, exclusive of
any renewals, under AmREIT's operating and direct financing leases in existence
at December 31, 2003 (in thousands).
2004.................. 8,010
2005.................. 7,712
2006.................. 7,637
2007.................. 7,504
2008.................. 6,507
2009-thereafter....... 68,120
--------
Total $105,490
========
32
SIGNIFICANT TENANTS. IHOP Corp. individually accounted for 32% of total
revenue for the year ended December 31, 2002 and 21.7% for the year ended
December 31, 2003. At February 29, 2004, IHOP accounted for approximately ___%
of AmREIT's projected total revenue for 2004.
According to its fourth quarter 2003 earning release announced on
February 26, 2004, IHOP was founded in July 1958 and operates over 1,110
restaurants in three countries and forty-five states. IHOP is a family
restaurant, serving breakfast, lunch and dinner. IHOP is a New York Stock
Exchange, publicly-held company. According to its fourth quarter 2003 earnings
release dated February 26, 2004, for the twelve months ended December 31, 2003,
comparable store sales in 2003 increased by 4.8% compared to 2002, and net
income in 2003 decreased 10% compared to 2002. The decrease in net income was
due to a $9.1 million reorganization charge to earnings. Excluding this charge
to earnings, IHOP's net income in 2003 increased 3.9% compared to 2002. For more
information on IHOP, please see the SEC web site at www.sec.gov.
Footstar, Inc. declared bankruptcy on March 2, 2004 and pursuant
thereto rejected the two Just For Feet leases it had with AmREIT. At December
31, 2003, the Footstar accounted for approximately 5.6% of AmREIT's total
revenue for 2003. See "Risk Factors - Bankruptcy of a significant tenant would
adversely affect AmREIT's operations." We do not believe the Footstar bankruptcy
will have a material affect on our results of operations or affect our ability
to pay dividends on the class D common shares due to additional revenues
generated by our real estate operating and development subsidiary and the
acquisition of additional core retail properties.
COMPETITION
AmREIT's properties are located in 18 different states, with
approximately 39.5% of its properties located in the Texas metropolitan areas,
based on rental revenue. All of AmREIT's properties are located in areas that
include competing properties. The number of competitive properties in a
particular area could have a material adverse effect on both AmREIT's ability to
lease space at any of its properties or at any newly developed or acquired
properties and the rents charged. AmREIT may be competing with owners,
including, but not limited to, other REITs, insurance companies and pension
funds that have greater resources than AmREIT. There is no dominant competitor
in any of AmREIT's markets.
EMPLOYEES
AmREIT currently has 23 full-time employees and retains the services of
three real estate brokers and three managerial consultants on an as-needed
basis.
33
MANAGEMENT
The trust managers of AmREIT are as follows:
NAME AGE POSITION HELD TRUST MANAGER SINCE
- ----------------------------- ---- ---------------------------------------------------- -------------------
H. Kerr Taylor............... Chairman of the Board, 1993
Chief Executive Officer and President
Robert S. Cartwright, Jr.... Trust Manager, Chair at Corporate Governance and 1993
Nominating Committee, Audit Committee
G. Steven Dawson............ Trust Manager, Chair of Audit Committee, Chair of 2000
Compensation Committee and Corporate Governance
and Nominating Committee
Bryan L. Goolsby............. Trust Manager, Compensation Committee 2000
Philip Taggart............... Trust Manager, Compensation Committee, Audit 2000
Committee and Corporate Governance and Nominating
Committee
H. KERR TAYLOR - Mr. Taylor is the chairman of the board of trust
managers, chief executive officer and president of AmREIT and was, prior to the
Merger, the chairman of the board of trust managers, chief executive officer and
president of the Predecessor Corporation from August 1993. Mr. Taylor was
president, director and sole shareholder of American Asset Advisers Realty Corp.
from 1989 to June 1998. Mr. Taylor has a bachelor's degree from Trinity
University, a Masters of Business Degree from Southern Methodist University and
a Doctor of Jurisprudence from South Texas College of Law. Mr. Taylor has over
twenty five years experience and has participated in over 300 real estate
transactions. Mr. Taylor has served on a board and governing bodies of a bank,
numerous private and public corporations and charitable institutions, and is
currently on the board of Millennium Relief and Development. Mr. Taylor is a
member of the National Board of Realtors, the Texas Association of Realtors, the
Texas Bar Association, the International Counsel of Shopping Centers and the
National Association of Real Estate Investment Trusts.
ROBERT S. CARTWRIGHT, JR. - Mr. Cartwright has been a trust manager or
director of AmREIT or the Predecessor Corporation since 1993. Mr. Cartwright is
a Professor of Computer Science at Rice University. Mr. Cartwright earned a
bachelor's degree magna cum laude in Applied Mathematics from Harvard College in
1971 and a doctoral degree in Computer Science from Stanford University in 1977.
Mr. Cartwright has been a member of the Rice faculty since 1980 and twice served
as department Chair. Mr. Cartwright has compiled an extensive record and Chair
of the ACM Pro-College Education Committee of professional service. He is a
Fellow of the Association for Computing Machinery (ACM). He is also a member of
the Board of Directors of the Computing Research Association, an umbrella
organization representing academic and industrial computing researchers. Mr.
Cartwright has served as a charter member of the editorial boards of two
professional journals and has also chaired several major ACM conferences. From
1991-1996, he was a member of the ACM Turing Award Committee, which selects the
annual recipient of the most prestigious international prize for computer
science research.
G. STEVEN DAWSON - Mr. Dawson has been a trust manager or director of
AmREIT or the Predecessor Corporation since 2000. From 1990 to 2003 when Mr.
Dawson retired, he has served as senior vice president and chief financial
officer of Camden Property Trust (NYSE:CPT), a public real estate company which
specializes in the acquisition, development, and management of over 159
apartment communities throughout the United States, with major concentrations in
Dallas, Houston, Las Vegas, Denver, Southern California and the Tampa/Orlando
areas. Prior to 1990, Mr. Dawson served in various related capacities with
companies involved in commercial real estate including land and office building
development as well as the construction and management of industrial facilities
located on
34
airports throughout the country. Mr. Dawson currently serves on the boards of
U.S. Restaurant Properties, Inc. (NYSE:USV) and His Grace Foundation.
BRYAN L. GOOLSBY - Mr. Goolsby has been a trust manager or director of
AmREIT or the Predecessor Corporation since 2000. Mr. Goolsby is the Managing
Partner of Locke Liddell & Sapp LLP, and has practiced in the area of corporate
and securities since 1977. Mr. Goolsby is an associate member of the Board of
Governors of the National Association of Real Estate Investment Trusts and is a
member of the National Multi-Family Housing Association and the Pension Real
Estate Association. Mr. Goolsby is currently a member of the Associate Board of
Directors of the Edwin L. Cox School of Business at Southern Methodist
University and is a member of the board of the Junior Achievement of Dallas. Mr.
Goolsby has a bachelor's degree from Texas Tech University and a Doctor of
Jurisprudence from the University of Texas.
PHILIP TAGGART - Mr. Taggart has been a trust manager or director of
AmREIT or the Predecessor Corporation since 2000. Mr. Taggart has specialized in
investor relations activities since 1964 and is the president and chief
executive officer of Taggart Financial Group, Inc. He is the co-author of the
book Taking Your Company Public, and has provided communications services for 58
initial public offerings, more than 200 other new issues, 210 mergers and
acquisitions, 3,500 analyst meetings and annual and quarterly reports for over
25 years. Mr. Taggart serves on the boards of International Expert Systems, Inc.
and Salon Group International and served on the board of the Foundation of Texas
State Technical College for 10 years. A distinguished alumnus of the University
of Tulsa, he also has been a university instructor in investor relations at the
University of Houston.
The following table sets forth certain information regarding the
officers of AmREIT.
NAME POSITION DATE OF EMPLOYMENT
H. Kerr Taylor* President and CEO Founder - 1985
Chad C. Braun* Executive Vice President and April 1999
Chief Financial Officer
Jim O'Neill Controller January 2000
Todd McDonald Managing VP-Real Estate November 2000
Jason Lax VP-Construction Management August 2002
Preston Cunningham VP-Development August 2002
David Thailing Managing VP-Securities September 2002
Tenel Tayar VP-Acquisitions January 2003
Debbie Lucas VP-Corporate Communications September 2003
- --------------------------
* Executive Officers
For information regarding Mr. Taylor, see above.
CHAD C. BRAUN CPA, Series 63, 7, 24 and 27. Mr. Braun serves as our
Executive Vice President and Chief Financial Officer, Treasurer and Secretary.
Mr. Braun oversees the financial accounting and reporting and is responsible for
AmREIT's capital formation, debt placement and joint venture initiatives. Mr.
Braun received a B.B.A degree in accounting and finance from Hardin Simmons
University and subsequently earned the CPA designation and his Series 63, 7 and
24 securities licenses. He has significant accounting, financial and real estate
experience with both Kenneth Leventhal & Co. and Ernst & Young, LLP. At Ernst &
Young, LLP, Mr. Braun served as a manager in the real estate advisory services
group and has provided extensive consulting and audit services to a number of
Real Estate Investment Trusts and private real estate companies. These services
included financial statement audits, portfolio acquisition and disposition, real
estate portfolio management, merger integration and process
35
improvement, financial analysis and due diligence. Mr. Braun is a member of the
National Association of Real Estate Investment Trusts, Financial Planning
Association, and the Texas Society of Certified Public Accountants.
JIM O'NEIL CPA. Mr. O'Neill serves as Controller and oversees the daily
accounting activities of AmREIT and its affiliated partnerships, debt placement,
and project financials. Mr. O'Neill's responsibilities also include coordinating
financial activities with auditors, banks, lenders, transfer agents, and
attorneys to assure timely and accurately financial reporting. Mr. O'Neill is a
graduate of Texas A & M University, where he received his BBA in Accounting and
subsequently earned the distinction of CPA certification. Prior to joining
AmREIT, Mr. O'Neill served in a controller capacity at Continental Emsco in
Houston, Texas, Wedge Energy Group in Houston, Texas, and Markborough
Development Company located in Denver, Colorado.
TODD MCDONALD. Mr. McDonald serves as Managing Vice President - Real
Estate and oversees the analysis, marketing, and sales process related to
properties currently being marketing by the Company. Mr. McDonald received his
B.S. in Business Economics from Wofford College. Mr. McDonald has real estate
experience in which he reviewed property level financial statements, produced
project proformas, and provided analysis on acquisition and disposition
prospects.
JASON LAX. Mr. Lax serves as Vice President - Construction Management
and oversees all development and construction projects. Mr. Lax has nationwide
experience in the commercial construction industry obtained from previous
employment with ExxonMobil Corporation and Trammell Crow Company. During his
career, he has managed over a hundred projects valued over $150 million from
grassroots development projects to minor remodeling projects and has been
involved in all phases of development from conceptual site plan preparation to
project turnover after completion of construction. Mr. Lax received a B.S. in
Mechanical Engineering from Texas Tech University and has received his Engineer
In Training certification from the Texas Board of Professional Engineers. He is
also a Texas licensed Real Estate Salesperson.
PRESTON CUNNINGHAM, JD. Mr. Cunningham serves as our Vice President -
Development Manager for existing retail properties and land suitable for infill
development. Mr. Cunningham received a B.B.A. degree in Financial Planning and
Services from Baylor University and Doctor of Jurisprudence from South Texas
College of Law. Mr. Cunningham has significant real estate experience with The
Howard Smith Company, Albritton Properties and Community Bank and Trust. Mr.
Cunningham is a member of the American Bar Association.
DAVID M. THAILING MBA, Series 63, 65, 7. Mr. Thailing serves as our
Managing Vice President - Securities and is responsible for raising capital for
AmREIT sponsored investment programs through the NASD marketplace. Mr. Thailing
received his B.B.A. degree in management from Southern Methodist University and
earned a Masters of Business Administration from the Jones Graduate School of
Management at Rice University. Prior to joining AmREIT, Mr. Thailing gained
financial consulting experience as an associate with Andersen's Corporate
Finance and Restructuring practice. He also has five years of experience as a
financial advisor and public speaker with PaineWebber.
TENEL TAYAR, MBA. Mr. Tayar joined AmREIT in January 2003 and serves as
Vice President - Acquisitions. Mr. Tayar has 10 years of experience in
commercial real estate development and investment with companies such as
Crescent Real Estate Equities and The Woodlands Operating Company. Mr. Tayar has
directed all aspects of real estate capitalization and investment for over $225
million of transactions and participated in over $500 Million. Mr. Tayar
received a BBA in Finance from the University of Texas at Austin and an MBA from
Southern Methodist University. He is also a Texas licensed Real Estate
Salesperson.
36
DEBBIE LUCAS. Ms. Lucas serves as vice president of corporate
communications and is responsible for creating, communicating, and distributing
the AmREIT corporate message and brand to a wide range of individuals including
investment professionals, rating agencies and analysts, individual investors,
and employees. Prior to joining AmREIT, Ms. Lucas gained financial consulting
and business development experience at Smith Barney and served as an
environmental consultant for Tetra Tech, EMI. In addition, Ms. Lucas provided
consulting services to a corporate communications firm located in Houston,
Texas. Ms. Lucas received a Bachelor of Science degree from Texas A&M University
and earned a Masters of Business Administration from the Jones Graduate School
of Management at Rice University, simultaneously completing the CFP
certification course. She is a member of the National Association of Real Estate
Investment Trusts and the American Marketing Association.
EXECUTIVE COMPENSATION
The below table represents the compensation paid to Mr. Taylor,
Chairman of the Board, Chief Executive Officer and President and Chad C. Braun,
Executive Vice President, Chief Financial Officer and Secretary. The table sets
forth all compensation, cash and restricted stock, received during the fiscal
years 2002, 2001 and 2000.
Annual Compensation Long-Term Compensation
Awards
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary Cash Bonus Compensation Options Compensation
- --------------------------- ---- ------------ -------------- ----------------- ---------- -------------
H. Kerr Taylor 2003 $ 195,000 $ 136,500 $ 58,500(1) --- (5)
Chief Executive 2002 $ 175,000 $ 122,500 $ 52,914(1) --- (4)
Officer and President 2001 $ 175,000 $ 61,250 $ 28,878(1) --- ---
Chad C. Braun 2003 $ 122,000 $ 100,000 $ 121,927(2) --- (5)
Executive Vice 2002 $ 115,000 $ 49,750 $ 21,488(2) --- $ 99,996(3)(4)
President and CFO 2001 $ 85,000 $ 17,500 $ 8,251(2) --- ---
- ---------
(1) Mr. Taylor was granted 9,000, 8,333 and 3,122 common shares as part of
his bonus for 2003, 2002 and 2001, respectively. The restrictions on
these shares lapse equally over a four year period beginning on
February 15, 2004, equally over a four year period beginning on
February 15, 2003 and equally over a three year period beginning
February 15, 2002, respectively.
(2) Mr. Braun was granted 7,219, 3,384 and 892 common shares as part of his
bonus for 2003, 2002 and 2001, respectively. The restrictions on these
shares lapse equally over a four year period beginning in February 15,
2004, a four year period beginning on February 15, 2003 and equally
over a three year period beginning on February 15, 2002, respectively.
Additionally Mr. Braun was granted 11,538 shares as a long term 2003
retention bonus. The restrictions on the shares lapse on the fifth
anniversary of the issuance, which is February 15, 2009.
(3) Mr. Braun was granted 14,388 common shares as a bonus related to the
completion of the merger of three affiliated investment funds with
AmREIT, completed in 2002. The restrictions on these shares lapse
equally over a four year period beginning on February 15, 2003.
(4) Mr. Taylor and Mr. Braun were assigned 45% and 5%, respectively, in the
income and cash flow of the general partner of AAA CTL Notes, Ltd.,
which is comprised of a portfolio of seventeen IHOP properties, the
remainder of which is owned by AmREIT. Mr. Taylor's interest is 100%
37
vested immediately. Mr. Braun's interest vests 100% on February 15,
2008. The value of the assigned interest can not be determined or
estimated at this time.
(5) Mr. Taylor and Mr. Braun were assigned 37% and 4%, respectively, in the
income and cash flow of the general partner of AmREIT Income & Growth
Fund, Ltd. ("AIG"), AmREIT Income & Growth Corporation. AIG is an
affiliated retail partnership with a seven year operating lifecycle. In
June 2008, AIG will enter into liquidation and commence a final sale of
all of its real estate assets. In accordance with the limited
partnership agreement, net sales proceeds will be allocated to the
limited partners, and to the general partner as, if, and when certain
annual returns have been achieved by the limited partners. Mr. Taylor
and Mr. Braun's interest vests equally over a four year period
beginning on February 15, 2004. The value of the assigned interest can
not be determined or estimated at this time.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2003, the beneficial
ownership interest of the executive officers and trust managers of AmREIT:
AMOUNT AND NATURE OF PERCENT OF VOTING
NAME BENEFICIAL OWNERSHIP COMMON SHARES
- ---------------------------------------------------------- -------------------- -----------------
H. Kerr Taylor - Chairman, President & CEO 754,388 11.48%
Robert S. Cartwright - Trust Manager 12,481 *
G. Steven Dawson - Trust Manager 8,000 *
Bryan L. Goolsby - Trust Manager 8,000 *
Philip Taggart - Trust Manager 8,800 *
Chad C. Braun - Secretary, CFO and Executive VP 37,421 *
--------------------
All trust managers and executive officers as a group 829,090 12.62%
All other employees combined 93,318 1.42
--------------------
All trust managers, executive officers, and employees as a
group 922,408 14.04%
- -----------------
* Less than 1%.
As of December 31, 2003, no other person was known by AmREIT to be the
beneficial owner of more than 5% of the shares of AmREIT.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 23, 2002, AmREIT completed a merger with three of its
affiliated partnerships, Funds IX, X and XI. AmREIT accounted for this merger as
a purchase, whereby the assets of the partnerships have been recorded at fair
market value. AmREIT increased its real estate assets by approximately $24.3
million and issued approximately 2.6 million shares of class B common stock to
the limited partners in the affiliated partnerships as a result of the merger.
Approximately $760 thousand in 8 year, 5.47% interest only, subordinated notes
were issued to limited partners of the affiliated partnerships who dissented to
the merger. The acquired properties are unencumbered, single tenant, free
standing properties on lease to national and regional tenants, where the lease
is the direct obligation of the parent company. A deferred merger expense
stemmed from stock issued to H. Kerr Taylor, President and Chief Executive
Officer, based on a deferred consideration that was approved by the shareholders
in 1998, as discussed below.
38
On June 5, 1998, our shareholders voted to approve an agreement and
plan of merger ("Merger Agreement") with American Asset Advisers Realty
Corporation (the "Former Adviser"), whereby Mr. Taylor, the sole shareholder of
the Former Adviser, agreed to exchange 100% of the outstanding common stock of
the Former Adviser for up to 900,000 of our common shares. As a result of the
merger, we became a fully integrated, self-administered real estate investment
trust. Effective June 5, 1998, we issued Mr. Taylor 213,260 shares of common
stock and the right to receive the remaining 686,740 common shares until certain
goals were achieved following the merger. As a result of the merger of Funds IX,
X and XI into AmREIT, completed on July 23, 2002, AmREIT issued to Mr. Taylor an
additional 302,281 class A common shares on September 19, 2002. During 2003, as
a result of our class C common share offering, Mr. Taylor earned approximately
143,000 class A common shares. Mr. Taylor has the ability to earn an additional
approximately 241,000 shares under the deferred consideration agreement. The
Merger Agreement, as amended, currently requires those goals to be met by June
2006.
On May 20, 1999, a wholly-owned subsidiary of AmREIT entered into a
partnership agreement with various individual investors to form AmREIT
Opportunity Fund, Ltd. The partnership was formed to develop, own, manage, hold
for investment and or resell property and to make and or invest in loans for the
development or construction of property. AmREIT invested $250,000 as a limited
partner and $1,000 through the general partner. Subject to certain restrictions
in the limited partnership agreement which require limited partner approval
(such as liquidating the partnership, withdrawing as general partner or
assigning its general partner interest), the general partner manages and
operates the daily activities of the partnership. The general partner can
however be removed, with or without cause, by a majority vote of the outstanding
limited partner units.
On January 26, 2001, a wholly-owned subsidiary of AmREIT entered into a
partnership agreement with various individual investors to form AmREIT Income &
Growth Fund, Ltd. The partnership was formed to develop, own, manage, hold for
investment and or resell property and to make and or invest in loans for the
development or construction of property. AmREIT invested $200,000 as a limited
partner and $1,000 through the general partner. Subject to certain restrictions
in the limited partnership agreement which require limited partner approval
(such as liquidating the partnership, withdrawing as general partner or
assigning its general partner interest), the general partner manages and
operates the daily activities of the partnership. The general partner can,
however, be removed, with or without cause, by a majority vote of the
outstanding limited partner units.
On November 7, 2002, a wholly-owned subsidiary of AmREIT entered into a
partnership agreement with various individual investors to form AmREIT Monthly
Income & Growth Fund, Ltd. The partnership was formed to develop, own, manage,
hold for investment and or resell property and to make and or invest in loans
for the development or construction of property. AmREIT invested $200,000 as a
limited partner and $1,000 through the general partner. Subject to certain
restrictions in the limited partnership agreement which require limited partner
approval (such as liquidating the partnership, withdrawing as general partner or
assigning its general partner interest), the general partner manages and
operates the daily activities of the partnership. The general partner can,
however, be removed, with or without cause, by a majority vote of the
outstanding limited partner units.
On December 31, 2003, a wholly-owned subsidiary of AmREIT entered into
a partnership agreement with various individual investors to form AmREIT Monthly
Income & Growth Fund II, Ltd. The partnership was formed to develop, own,
manage, hold for investment and or resell property and to make and or invest in
loans for the development or construction of property. AmREIT invested $400,000
as a limited partner and $1,000 through the general partner. Subject to certain
restrictions in the limited partnership agreement which require limited partner
approval (such as liquidating the partnership, withdrawing as general partner or
assigning its general partner interest), the general partner manages and
39
operates the daily activities of the partnership. The general partner can,
however, be removed, with or without cause, by a majority vote of the
outstanding limited partner units.
As a sponsor of real estate investment opportunities to the NASD
financial planning broker dealer community, the Company maintains a 1% general
partner interest in the investment funds that it sponsors. The funds are
typically structured such that the limited partners receive 99% of the available
cash flow until 100% of their original invested capital has been returned and a
preferred return has been met. Once this has happened, then the general partner
begins sharing in the available cash flow at various promoted levels. The
Company also assigns a portion of this general partner interest in these
investment funds to its employees as long term, contingent compensation. In so
doing, the Company believes that it will align the interest of management with
that of the shareholders, while at the same time allowing for a competitive
compensation structure in order to attract and retain key management positions
without increasing the overhead burden.
Locke Liddell & Sapp LLP acts as AmREIT's corporate counsel. Bryan
Goolsby is the managing partner of Locke Liddell & Sapp LLP and is a member of
AmREIT's board of trust managers.
LEGAL PROCEEDINGS
Neither AmREIT nor any of its properties is subject to any material
claim or legal proceeding, nor to management's best knowledge, is any such claim
or legal proceeding threatened which could have a material adverse effect on
AmREIT or its properties.
ESTIMATED USE OF PROCEEDS
The following table sets forth information about how we intend to use
the proceeds raised in this offering assuming that we sell 5,000,000 shares and
12,500,000 shares, respectively, pursuant to this offering. The use of the
5,000,000 share number was an arbitrary selection by AmREIT because there is no
minimum offering. Many of the figures set forth below represent management's
best estimate since they cannot be precisely calculated at this time. Although
there can be no assurances, we expect that at least 88.5% of the money you
invest will be used to buy real estate or pay down existing debt, while the
remaining up to 11.5% will be used for working capital and to pay expenses and
fees, including the payment of fees to AmREIT Securities, a wholly-owned
subsidiary of AmREIT and our Dealer Manager.
5,000,000 Shares 12,500,000 Shares
------------------------ ------------------------
Amount(1) Percent Amount(2) Percent
----------- ------- ------------ -------
Gross Offering Proceeds $50,000,000 100.0% $125,000,000 100.0%
Less Public Offering Expenses:
Selling Commissions and Dealer Manager 5,000,000 10.0% 12,500,000 10.0%
Fee(s) (3)
Organization and Offering Expenses(4) 750,000 1.5% 1,875,000 1.5%
----------- ------- ------------ -------
$ 5,750,000 11.5% $ 11,500,000 11.5%
Amount Available for Investment(5)(6) $44,250,000 88.5% $110,625,000 88.5%
=========== ======= ============ =======
- -----------------
1. Assumes that an aggregate of $50,000,000 will be raised in this
offering for purposes of illustrating the percentage of estimated
organization and offering expenses at two different sales levels. See
Note 4 below.
40
2. Assumes the maximum offering is sold which includes 12,500,000 shares
offered to the public at $10.00 per share.
3. Includes selling commissions equal to 7.0% of aggregate gross offering
proceeds, which commissions may be reduced under certain circumstances,
a 0.5% due diligence reimbursement and a dealer manager fee equal to
2.5% of aggregate gross offering proceeds, both of which are payable to
the Dealer Manager, an affiliate of AmREIT. The Dealer Manager, in its
sole discretion, may reallow a portion of its dealer manager fee to
Participating Dealers in the aggregate amount of up to 0.50% of gross
offering proceeds to be paid to such Participating Dealers as marketing
fees, or to reimburse representatives of such Participating Dealers the
costs and expenses of attending our educational conferences and
seminars.
4. Organization and offering expenses consist of reimbursement of actual
legal, accounting, printing and other accountable offering expenses,
other than selling commissions and the dealer manager fee, including
amounts to reimburse us for all marketing related costs and expenses,
including, but not limited to, salaries and direct expenses of our
employees while engaged in registering and marketing the shares and
other marketing and organization costs, technology costs and expenses
attributable to the offering, costs and expenses of conducting our
educational conferences and seminars, payment or reimbursement of bona
fide due diligence expenses, and costs and expenses we incur for
attending retail seminars conducted by broker-dealers. AmREIT will be
responsible for the payment of organization and offering expenses,
other than selling commissions and the dealer manager fee. We do not
expect organization and offering expenses, including selling
commissions, the dealer manager fee and all other underwriting
compensation, to exceed 11.5% of gross offering proceeds.
5. Until required in connection with the acquisition and development of
properties, substantially all of the net proceeds of this offering and,
thereafter, the working capital reserves, may be invested in
short-term, highly-liquid investments including government obligations,
bank certificates of deposit, short-term debt obligations and
investor-bearing accounts or other authorized investments as determined
by our board of trust managers.
6. Includes amounts anticipated to be invested in properties net of fees
and expenses. We estimate that at least 88.5% of the proceeds received
from the sale of shares will be used to acquire properties or pay down
existing debt.
PRIOR PERFORMANCE
The following information summarizes the historical experience of real
estate programs previously sponsored by AmREIT's affiliates. INVESTORS IN THE
OFFERING SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE RETURNS, IF ANY, COMPARABLE
TO THOSE EXPERIENCED BY INVESTORS IN THESE PRIOR INVESTMENTS.
Affiliates of AmREIT have sponsored a total of 12 non-public programs
and three public programs since 1985. As of December 31, 2003, approximately $60
million had been raised from over 3,000 investors through all programs. The
properties acquired in the prior programs are primarily single and multi-tenant
retail centers located throughout the United States, that are "actively managed"
by the partnership's general partner. As of March 31, 2004, subsidiaries of
AmREIT served as general partners of _______ non-public programs. Our executive
officers and chairman of the board, serve as executive officers and directors of
these general partners.
41
In November 1999, Just For Feet, Inc., a significant tenant in AmREIT's
portfolio, declared bankruptcy. This resulted in four stores leased by AmREIT to
Just For Feet closing. Footstar, Inc., assumed two of the leases for stores that
AmREIT owned, one which is located in Baton Rouge, Louisiana and the other is
located in Tucson, Arizona. These stores will continue to be operated under the
terms and conditions for the original Just For Feet Lease. The third store,
located in Sugarland, Texas has been 100% re-leased as AmREIT's leasing team
secured long term, guaranteed leases with Mattress Giant and River Oaks Imaging
and Diagnostics. AmREIT's construction management team re-designed the building
to accommodate these two tenants. The fourth property, located in The Woodlands,
Texas has been re-designed into a multi-tenant store front and has been
substantially re-leased, with all remaining space under a letter of intent. On
March 2, 2004, Footstar declared bankruptcy and pursuant thereto rejected the
two Just For Feet leases it had with AmREIT. We are in the process of marketing
these properties for sale; however, it may take up to 12 months to sell these
properties.
The following table sets forth a summary information on all programs
previously sponsored by AmREIT's affiliates. A more detail description of these
programs is contained in the prior performance tables included as Exhibit C to
in this prospectus.
TYPE OF METHOD OF
NAME OF FUND REAL ESTATE ACTIVITY TYPE OF PROGRAM FINANCING
- ----------------------------------------- -------------------------------------- --------------- -----------
Taylor Income Investors III, Ltd. Investment in Commercial Real Estate Non-Public All-Cash
Taylor Income Investors IV, Ltd. Investment in Commercial Real Estate Non-Public All-Cash
Taylor Income Investors V, Ltd. Investment in Commercial Real Estate Non-Public All-Cash
Taylor Income Investors VI, Ltd. Investment in Commercial Real Estate Non-Public All-Cash
AAA Net Realty Fund VII, Ltd. Investment in Commercial Real Estate Non-Public All-Cash
AAA Net Realty Fund VIII, Ltd. Investment in Commercial Real Estate Non-Public All-Cash
AAA Net Realty Fund Goodyear, Ltd. Investment in Commercial Real Estate Non-Public All-Cash
AAA Net Realty Fund IX, Ltd. Investment in Commercial Real Estate Public All-Cash
AAA Net Realty Fund X, Ltd. Investment in Commercial Real Estate Public All-Cash
AAA Net Realty Fund XI, Ltd. Investment in Commercial Real Estate Public All-Cash
AmREIT: Investment in Commercial Real Estate Public Up to 50%
Class A common shares financing
Class B common shares
Class C common shares
AAA Net Developers, Ltd. Acquisition, development and Non-Public Up to 80%
construction of commercial real estate financing
AmREIT Opportunity Fund, Ltd. Acquisition, development and Non-Public Up to 80%
construction of commercial real estate financing
AmREIT Income & Growth Fund, Ltd. Acquisition, development and Non Public Up to 75%
construction of commercial real estate financing
AmREIT Monthly Income & Growth Fund, Ltd. Acquisition, development and Non Public Targeted at
construction of commercial real estate. 50%
financing
42
AmREIT Monthly Income & Acquisition development and Non Public Targeted at
Growth Fund II, Ltd. construction of commercial real estate 50%
financing
PUBLICLY OFFERED UNSPECIFIED REAL ESTATE PROGRAMS
AAA NET REALTY FUND IX, LTD. terminated its offering in May 1992 and
received aggregate gross proceeds of $ 5,390,500, representing subscriptions
from 326 limited partners. Fund IX wholly owned four properties and owned one
property in joint venture with an affiliate of the general partner:
- Foodmaker (Jack-in-the-Box) in Dallas, Texas;
- Baptist Memorial Health System in Memphis, Tennessee;
- Payless Shoe/Walden Books in Austin, Texas;
- Golden Corral in Houston, Texas; and
- 4.08% interest in Golden Corral in Houston, Texas
The prospectus of Fund IX provided that the properties would be held
for a period of eight to twelve years, but that the general partner, in their
sole discretion, could increase or decrease this timeframe. On July 23, 2002,
the limited partners in Fund IX and the shareholders of AmREIT approved a plan
of merger whereby the limited partners of Fund IX would become class B common
shareholders in AmREIT. The class B common shares were valued by an independent
third party firm at $9.25 per share, receives an 8% cumulative and preferred
dividend quarterly and is convertible into AmREIT class A common shares at any
time, at the holders option, one for one. Per $1,000 of original invested
capital, the limited partners received a total of approximately $1,868 through
quarterly distributions and class B common shares. As of March 31, 2004, the
class A common shares were trading at $7.04 per share.
AAA NET REALTY FUND X, LTD. terminated its offering in August 1994 and
received aggregate gross proceeds of $11,453,600, representing subscriptions
from 727 limited partners. Fund X wholly owned five properties and owned three
properties in joint venture with certain affiliates of the general partner:
- 95.92% interest in Golden Corral in Houston, Texas;
- TGI Friday's in Houston, Texas;
- Goodyear Tire in Houston, Texas;
- Comp USA in Minneapolis, Minnesota;
- AFC, Inc. (Popeye's Favorite Chicken) in Atlanta, Georgia;
- 45.16% interest in Wherehouse Entertainment in Independence,
Missouri;
- Memorial Herman Hospital System (suburban doctors clinic) in
Sugarland, Texas; and
- 18.25% interest in Footstar, Inc. in Tucson, Arizona
43
The prospectus of Fund X provided that the properties would be held for
a period of eight to twelve years, but that the general partner, in their sole
discretion, could increase or decrease this timeframe. On July 23, 2002, the
limited partners in Fund X and the shareholders of AmREIT approved a plan of
merger whereby the limited partners of Fund X would become class B common
shareholders in AmREIT. The class B common shares were valued by an independent
third party firm at $9.25 per share, receives an 8% cumulative and preferred
dividend quarterly and is convertible into AmREIT class A common shares at any
time, at the holders option, one for one. Per $1,000 of original invested
capital, the limited partners received a total of approximately $1,638 through
quarterly distributions and class B common shares. As of March 31, 2004, the
class A common shares were trading at $7.04 per share.
AAA NET REALTY FUND XI, LTD. terminated its offering in January 1996
and received aggregate gross proceeds of $7,061,200, representing subscriptions
from 269 limited partners. Fund XI wholly owned two properties and owned five
properties in joint venture with certain affiliates of the general partner:
- 49% interest in Wherehouse Entertainment in Wichita, Kansas;
- Blockbuster Video in Oklahoma City, Oklahoma;
- 29.85% interest in Footstar, Inc. in Tucson, Arizona;
- 49% interest in Washington Mutual in The Woodlands, Texas;
- Pier One in Longmont, Colorado; and
- 25.42% interest in Hollywood Video in Lafayette, Louisiana
The prospectus of Fund XI provided that the properties would be held
for a period of eight to twelve years, but that the general partner, in their
sole discretion, could increase or decrease this timeframe. On July 23, 2002,
the limited partners in Fund XI and the shareholders of AmREIT approved a plan
of merger whereby the limited partners of Fund XI would become class B common
shareholders in AmREIT. The class B common shares were valued by an independent
third party firm at $9.25 per share, receives an 8% cumulative and preferred
dividend quarterly and is convertible into AmREIT class A common shares at any
time, at the holders option, one for one. Per $1,000 of original invested
capital, the limited partners received a total of approximately $1,473 through
quarterly distributions and class B common shares. As of October 31, 2003, the
class A common shares were trading at $6.50 per share.
PRIVATELY OFFERED UNSPECIFIED REAL ESTATE PROGRAMS
TAYLOR INCOME INVESTORS III, LTD. terminated its offering in December
1985 and received aggregate gross proceeds of $945,000, representing
subscriptions from 43 limited partners. Fund III owns a 44% interest in a
Bennigan's restaurant located in Houston, Texas. The property was purchased all
cash in December 1986. Additionally, in 2000, the partnership sold a Guaranty
Federal (acquired as a Bank of America) branch location in Houston, Texas that
was purchased in February 1986. The private placement memorandum provided that
the properties purchased by Fund III would typically be held for a period of 12
to 15 years, but that the general partner, in their sole discretion, could
increase or decrease this timeframe. The general partners have evaluated the
local real estate market and the Bennigan's lease and determined that the best
course of liquidation is to sell this property as part of a larger portfolio of
all properties currently owned by the AAA Funds described in this section. At
December 31, 2003, the General Partner had entered into a binding contract with
an independent third party to purchase all of the assets in Funds III through
Goodyear. The estimated proceeds from the sale of the properties is
44
anticipated to result in a return of 100% of the partners original capital, and
when added with historical quarterly distributions received, will result in a
per annum return of between 6% and 12%, depending on the fund and the time
invested.
TAYLOR INCOME INVESTORS IV, LTD. terminated its offering in June 1986
and received aggregate gross proceeds of $615,000, representing subscriptions
from 31 limited partners. Fund IV owns a 56% interest in a Bennigan's restaurant
located in Houston, Texas. Additionally, Fund IV owns a promissory note secured
by an Atlas Transmission located in Houston, Texas and matures in October 2006.
Fund IV purchased the Atlas Transmission in October 1986 and subsequently sold
the property in November 1997; however, Fund IV had to provide owner financing.
The private placement memorandum provided that the properties purchased by Fund
IV would typically be held for a period of 12 to 15 years, but that the general
partners, in their sole discretion, could increase or decrease this timeframe.
The general partners have evaluated the local real estate market and the
Bennigan's lease and determined that the best course of liquidation is to sell
this property as part of a larger portfolio of all properties currently owned by
the AAA Funds described in this section. At December 31, 2003, the General
Partner had entered into a binding contract with an independent third party to
purchase all of the assets in Funds III through Goodyear. The estimated proceeds
from the sale of the properties is anticipated to result in a return of 100% of
the partners original capital, and when added with historical quarterly
distributions received, will result in a per annum return of between 6% and 12%,
depending on the fund and the time invested.
TAYLOR INCOME INVESTORS V, LTD. terminated its offering in December
1986 and received aggregate gross proceeds of $480,000, representing
subscriptions from 21 limited partners. Fund V owns a 6.02% interest in a La
Petite Academy in Houston, Texas. Additionally, Fund V owns a promissory note
secured by an Atlas Transmission located in Houston, Texas and matures in
October 2006. Fund V purchased the Atlas Transmission in October 1986 and
subsequently sold the property in November 1997; however, Fund IV had to provide
owner financing. During 2001, the partnership sold a Pizza Inn and a Whataburger
both located in Clute, Texas that were purchased in March 1988. All of the net
sales proceeds from the sale of Pizza Inn and Whataburger allocable to Fund V
were distributed to the limited partners as a capital distribution. The private
placement memorandum provided that the properties purchased by Fund V would
typically be held for a period of 12 to 15 years, but that the general partners,
in their sole discretion, could increase or decrease this timeframe. The general
partners have evaluated the local real estate market and determined that the
best course of liquidation is to sell this property as part of a larger
portfolio of all properties currently owned by the AAA Funds described in this
section. At December 31, 2003, the General Partner had entered into a binding
contract with an independent third party to purchase all of the assets in Funds
III through Goodyear. The estimated proceeds from the sale of the properties is
anticipated to result in a return of 100% of the partners original capital, and
when added with historical quarterly distributions received, will result in a
per annum return of between 6% and 12%, depending on the fund and the time
invested.
TAYLOR INCOME INVESTORS VI, LTD. terminated its offering in June 1987
and received aggregate gross proceeds of $300,000, representing subscriptions
from 13 limited partners. Fund VI owns a 2.73% interest in a La Petite Academy
in Houston, Texas. Additionally, during 2001 the partnership sold a Pizza Inn
and a Whataburger both located in Clute, Texas that were purchased in March
1988. 100% of the net sales proceeds from the sale of Pizza Inn and Whataburger
allocable to Fund VI were distributed to the limited partners as a capital
distribution. The private placement memorandum provided that the properties
purchased by Fund VI would typically be held for a period of 12 to 15 years, but
that the general partners, in their sole discretion, could increase or decrease
this timeframe. The general partners have evaluated the local real estate market
and determined that the best course of liquidation is to sell this property as
part of a larger portfolio of all properties currently owned by the AAA Funds
described in this section. At December 31, 2003, the General Partner had entered
into a binding contract with an independent third party to purchase all of the
assets in Funds III through Goodyear. The estimated
45
proceeds from the sale of the properties is anticipated to result in a return of
100% of the partners original capital, and when added with historical quarterly
distributions received, will result in a per annum return of between 6% and 12%,
depending on the fund and the time invested.
AAA NET REALTY INVESTORS FUND VII, LTD. terminated its offering in
March 1988 and received aggregate gross proceeds of $1,125,100, representing
subscriptions from 40 limited partners. Fund VII owns the following five
properties in joint venture with affiliates of AmREIT:
- 91.25% interest in La Petite Academy in Houston, Texas;
- 54.88% interest in Whataburger in Dallas, Texas;
- 27.27% interest in Superior Sound Systems in Houston, Texas;
- 27.27% interest in AFC, Inc. (Church's Fried Chicken) in
Houston, Texas; and
- 27.27% interest in Eller Media (Billboard) in Houston, Texas
The private placement memorandum provided that the properties purchased by Fund
VII would typically be held for a period of 12 to 15 years, but that the general
partners, in their sole discretion, could increase or decrease this timeframe.
The general partners have evaluated the local real estate market and determined
the best course of liquidation is to sell these properties as part of a larger
portfolio of all properties currently owned by the AAA Funds described in this
section. At December 31, 2003, the General Partner had entered into a binding
contract with an independent third party to purchase all of the assets in Funds
III through Goodyear. The estimated proceeds from the sale of the properties is
anticipated to result in a return of 100% of the partners original capital, and
when added with historical quarterly distributions received, will result in a
per annum return of between 6% and 12%, depending on the fund and the time
invested.
AAA NET REALTY INVESTORS FUND VIII, LTD. terminated its offering in
March 1989 and received aggregate gross proceeds of $1,860,000, representing
subscriptions from 55 limited partners. Fund VIII owns a 100% interest in two
properties and five properties in joint venture with affiliates of AmREIT:
- Discount Tire Center in Ft. Worth, Texas;
- La Petite Academy in Houston, Texas;
- 45.12% interest in Whataburger in Dallas, Texas;
- 72.72% interest in Superior Sound Systems in Houston, Texas;
- 72.72% interest in AFC, Inc. (Church's Fried Chicken) in
Houston, Texas;
- 72.72% interest in Eller Media (Billboard) in Houston, Texas;
and
- 25.27% interest in Goodyear Tire in Dallas, Texas
The private placement memorandum provided that the properties purchased by Fund
VIII would typically be held for a period of 12 to 15 years, but that the
general partner, in their sole discretion, could increase or decrease this
timeframe. The general partners have evaluated the local real estate market and
determined the best course of liquidation is to sell these properties as part of
a larger portfolio of all
46
properties currently owned by the AAA Funds described in this section. At
December 31, 2003, the General Partner had entered into a binding contract with
an independent third party to purchase all of the assets in Funds III through
Goodyear. The estimated proceeds from the sale of the properties is anticipated
to result in a return of 100% of the partners original capital, and when added
with historical quarterly distributions received, will result in a per annum
return of between 6% and 12%, depending on the fund and the time invested.
AAA NET REALTY FUND GOODYEAR, LTD. terminated its offering in July 1991
and received aggregate gross proceeds of $1,335,000, representing subscriptions
from 37 limited partners. Fund Goodyear owns a Goodyear Tire in Dallas, Texas
and a 74.72% interest in another Goodyear Tire in Dallas, Texas through a joint
venture with an affiliated fund of the general partner. The private placement
memorandum provided that the properties purchased by Fund Goodyear would
typically be held for a period of 12 to 15 years, but that the general partners,
in their sole discretion, could increase or decrease this timeframe. The general
partners have evaluated the local real estate market and determined the best
course of liquidation is to sell these properties as part of a larger portfolio
of all properties currently owned by the AAA Funds described in this section. At
December 31, 2003, the General Partner had entered into a binding contract with
an independent third party to purchase all of the assets in Funds III through
Goodyear. The estimated proceeds from the sale of the properties is anticipated
to result in a return of 100% of the partners original capital, and when added
with historical quarterly distributions received, will result in a per annum
return of between 6% and 12%, depending on the fund and the time invested.
AAA NET DEVELOPERS, LTD. terminated its offering in January 1997 and
received aggregate gross proceeds of $1,862,100, representing subscriptions from
30 limited partners. Net Developers owns an interest in the following two
properties:
- 15% interest in Vista Ridge Shopping Center, a multi-tenant
retail center located in Lewisville, Texas; and
- 50% interest in Hollywood Video located in Montgomery, Alabama
Vista Ridge Shopping Center is a 36,271 square foot multi tenant center
located in Lewisville, Texas. Tenants include Caldwell Watson, Planet Tan,
American Laser Vision, Frazier Ancillary Services and The Trakz Group, Inc. At
December 31, 2003, the property was encumbered with a $4.24 million mortgage
note secured by the property that matures in March 2010. Net Developers has no
remaining equity in this project and maintains an 8.3% carried interest in the
cash flows and profit upon disposition. The project is currently being marketed
for sale.
Hollywood Video is a single tenant property located in Montgomery,
Alabama. At December 31, 2003, the property was encumbered with a $[946]
thousand mortgage note secured by the property that matures in April 2009. Net
Developers has no remaining equity in this project and maintains a 50% carried
interest in the cash flows and profit upon disposition. The project is currently
being marketed for sale.
Other projects that Net Developers made an investment in and have
already been liquidated include:
- Copper Plaza, a multi-tenant shopping center located in
Houston, Texas;
- Just For Feet located in Lewisville, Texas;
47
- Hollywood Video located in Covington, Louisiana;
- Hollywood Video located in Saraland, Alabama;
- IHOP located in Gainesville, Georgia;
- IHOP located in Falls Church, Virginia;
- IHOP located in Keyport, New Jersey; and
- Parkwood Square Shopping Center, Huntsville, Texas.
Net Developers was the first in a series of actively managed funds. Per the
private placement memorandum, it was a three-year fund that entered into
liquidation in August 1999. The remaining properties are currently listed for
sale, and upon disposition, net sales proceeds will be allocated to the general
partner and the limited partners in accordance with the limited partnership
agreement.
AmREIT OPPORTUNITY FUND, LTD. terminated its offering in January 2001
and received aggregate gross proceeds of $2,353,750, representing subscriptions
from 71 limited partners. AOF owns an interest in the following two properties:
- 50% interest in ARC Round Rock, a multi-tenant shopping center
located in Round Rock, Texas; and
- 45% interest in Temple TX 363, Ltd, a multi-pad project
located in Temple, Texas.
ARC Round Rock is a 9,600 square foot multi-tenant center located in
Round Rock, Texas. Tenants include The Sleep Shop, Noodles Etc., and ABC Liquer.
The property is newly constructed and as of October 31, 2003 is encumbered with
a construction loan in the amount of $1.61. AOF is currently negotiating a
permanent loan, which will be used to pay off the construction loan, and is in
the process of marketing the property for sale.
Temple TX 363, Ltd. is a multi-pad project located in Temple, Texas.
This project included four individual, freestanding pad sites. Three of the pad
sites have been developed and sold, which included a McDonalds restaurant, an
IHOP restaurant and a Chili's restaurant. The fourth pad site is currently being
marketed and will either be developed and sold or sold directly to a
user/operator.
Other projects that AOF made an investment in and have already been
liquidated include:
- IHOP located in Norfolk, Virginia;
- IHOP located in Houston, Texas;
- Cooper Plaza, a multi-tenant shopping center located in
Houston, Texas;
- CDP #31, two IHOP properties located in Memphis, Tennessee and
Cookeville, Tennessee;
- IHOP and pad site located in Kenosha, Wisconsin;
48
- Temple TX 363, a multi-pad project consisting of McDonalds,
IHOP and Chili's located in Temple, Texas;
- IHOP located in Hagerstown, Maryland;
- IHOP located in Orem, Utah;
- McLendon Plaza, a 16,000 square foot shopping center located
in Houston, Texas;
- River Park, a 30 acre grocery anchored joint venture developed
center in Sugarland, Texas; and
- CDP #33, three IHOP properties located in Hagerstown,
Maryland, Orem, Utah and Houston, Texas.
AOF is the second in a series of actively managed funds. Per the private
placement memorandum, AOF entered into liquidation in August 2002. The remaining
properties are still in the development stage or are currently listed for sale,
and upon disposition, net sales proceeds will be allocated to the general
partners and the limited partners in accordance with the limited partnership
agreement.
AMREIT INCOME & GROWTH FUND terminated its offering in November 2002
and received aggregate gross proceeds of $10,000,000, representing subscriptions
from 185 limited partners. AIG owns an interest in the following six properties:
- IHOP located in Irondequoit, New York;
- 20% interest in a portfolio of 17 IHOP properties, AAA CTL,
located in twelve different states;
- TGI Friday's located in Crystal Lake, Illinois;
- 45% interest in Temple TX 363, Ltd, a multi-pad project
located in Temple, Texas;
- IHOP located in Albuquerque, New Mexico;
- TGI Friday's located in Danvers, Massachusetts;
- 25% interest in Peakway market Square, a 55,000 square foot
shopping center development located in Apex, North Carolina;
and
- Blanco Pointe, a 19,612 square foot shopping center
development located in San Antonio, Texas.
IHOP - Irondequoit is an IHOP property located in Irondequoit, New
York. The property was purchased for cash in November 2002. AIG will hold this
property for investment purposes and collect rental income. During the operating
stage of the partnership, the general partner will evaluate the credit of the
tenant and the local real estate market, and when appropriate, market the
property for sale.
AAA CTL is a portfolio of 17 IHOP properties located in 12 different
states. AIG will hold its interest in the AAA for investment purposes, and
collect rental income. During the operating stage of the
49
partnership, the general partner will evaluate the credit of the tenant and the
local real estate market, and when appropriate, market the property for sale.
TGI Friday's is a full service restaurant located in Crystal Lake,
Illinois. The property was purchased for cash in November 2002. AIG will hold
this property for investment purposes and collect rental income. During the
operating stage of the partnership, the general partner will evaluate the credit
of the tenant and the local real estate market, and when appropriate, market the
property for sale.
Temple TX 363, Ltd. is a multi-pad project located in Temple, Texas.
This project included four individual, freestanding pad sites. Three of the pad
sites have been developed and sold, which included a McDonalds restaurant, an
IHOP restaurant and a Chili's restaurant. The fourth pad site is currently being
marketed and will either be developed and sold or sold directly to a
user/operator.
Other projects that AIG made an investment in and have already been
liquidated include:
IHOP - Albuquerque is an IHOP property located in Albuquerque, New
Mexico. The property was purchased for cash in March 2003. AIG will hold this
property for investment purposes and collect rental income. During the operating
state of the partnership, the general partner will evaluate the credit of the
tenant and the local real estate market, and when appropriate, market the
property for sale.
TGI Friday's - Danvers is a full service restaurant located in Danvers,
Massachusetts. The property was purchased for cash in May 2003. AIG will hold
this property for investment purposes and collect rental income. During the
operating state of the partnership, the general partner will evaluate the credit
of the tenant and the local real estate market, and when appropriate, market the
property for sale.
Peakway - Peakway Market Square ("Peakway") is a 55,000 square foot
shopping center development located at the intersection of NEC Highway 55 and
Peakway in Apex, North Carolina. The project is being developed as a joint
venture between Centdev Properties, LLC ("Centdev"), AmREIT Income & Growth
Fund, Ltd. ("AIG"), and AmREIT Monthly Income & Growth Fund, Ltd. ("MIG"). MIG
and AIG are co-general partners and Centdev is the limited partner (together,
"Peakway @ Apex, L.P."). Peakway, with estimated total costs of $7.8 million,
was funded with $1.5 million in equity contributions and a $6.3 million
construction loan. The equity was contributed 50% by MIG and 50% by AIG. As of
December 31, 2003, the project construction was substantially complete, and
leasing is estimated to be completed during 2004.
Blanco Pointe - Blanco Pointe is anticipated to be a 19,612 square foot
shopping center development located at the intersection of Blanco Road and
Huebner Road in San Antonio, Texas. AIG has purchased the 3.68 acres of land for
$1 million in cash. The total project costs are estimated to be $4.14 million.
The remaining $3.14 million are anticipated to be funded through a construction
loan, secured by the project. The project is currently approximately 46%
pre-leased, and construction is estimated to begin during the second quarter of
2004.
- CDP #27, IHOP located in Memphis, Tennessee and Tupelo,
Mississippi;
- CDP #31, two IHOP properties located in Scottsdale, Arizona
and Cookeville, Tennessee;
- IHOP and pad site located in Kenosha, Wisconsin;
- Temple TX 363, a multi-pad project consisting of McDonalds,
IHOP and Chili's located in Temple, Texas;
50
- IHOP located in Hagerstown, Maryland; and
- IHOP located in Orem, Utah
- McLendon Plaza, a 16,000 square foot shopping center located
in Houston, Texas;
- River Park, a 30 acre grocery anchored joint venture developed
center in Sugarland, Texas; and
- CDP #33, three IHOP properties located in Hagerstown,
Maryland, Orem, Utah and Houston, Texas.
AIG is the third in a series of actively managed funds. Per the private
placement memorandum, AIG is a seven year, actively managed fund that we will
enter into a final liquidation during 2008. During the operating state of the
partnership, the general partner will negotiate the acquisition, development and
disposition of properties, focusing on generating dependable, increasing,
monthly income with appreciation on original capital during a seven year
actively non-managed time period.
CUMULATIVE DISTRIBUTIONS TO PARTNERS
DISTRIBUTIONS ANNUAL PROPERTIES
CAPITAL RAISED PER $1,000 RETURN BOUGHT SOLD
-------------- ------------- ------ ---------- ----
Taylor Income Investors III (1) $ 945,000 $ 2,405 9.98% 3 2
Taylor Income Investors IV (1) 615,000 1,031 6.09% 2 1
Taylor Income Investors V (1) 480,000 1,776 7.83% 4 3
Taylor Income Investors VI (1) 300,000 1,817 6.98% 3 2
Taylor Income Investors VII (1) 1,125,000 1,124 7.79% 5 0
AAA Net Realty Fund VIII (1) 1,860,000 1,097 8.20% 7 0
AAA Net Realty Fund Gdyr (1) 1,335,000 924 8.06% 2 0
AAA Net Realty Fund IX 5,390,000 1,850 7.73% 5 5
AAA Net Realty Fund X 11,453,000 1,649 7.21% 8 8
AAA Net Realty Fund XI 7,061,000 1,471 6.73% 7 7
AAA Net Developers 1,800,000 1,227 (2) 10 7
AmREIT Opportunity Fund 2,800,000 659 (2) 20 12
AmREIT Income & Growth Fund 10,000,000 180 9.00% 17 8
AmREIT Monthly Income &
Growth Fund 15,000,000 80 8.00% 8 -
AmREIT Monthly Income &
Growth Fund II, Ltd. (3) - - -% - -
-------------- ------------- ------ ---------- ----
- ------------------------
(1) As of March 16, 2004, this partnership sold its remaining properties
and is in the process of liquidation.
(2) Paid no current return. Funds are currently in liquidation, and are
anticipated to generate a 10%-14% return.
(3) AmREIT Monthly Income & Growth Fund II was organized in December 2003.
As such, no information is provided in the above table as of December
31, 2003.
51
CONFLICTS OF INTEREST
As an internally advised REIT, we have eliminated the single largest
conflict of interest of many REITs: the conflict between the external adviser
and the shareholders. As an internally advised REIT, the interests of our board,
management team and employees are more fully aligned with those of our
shareholders. We will, however, be subject to various conflicts of interest
arising out of the normal course of business, relationships with our affiliated
investment funds, and the acquisition and allocation of properties, as described
below.
PRIOR AND FUTURE PROGRAMS
AmREIT and its affiliates have organized 15 retail partnerships,
currently have other real estate holdings, and in the future expect to form,
offer interests in, and manage other real estate programs in addition to AmREIT,
and make additional real estate investments. Future real estate programs may
involve our affiliates owning, financing, operating, leasing, and managing
properties that may be suitable for acquisition by us. AmREIT, or a wholly-owned
subsidiary of AmREIT, is the general partner of these other investment funds. As
a result, our board of trust managers may be faced with conflicting fiduciary
obligations to the shareholders of AmREIT and the limited partners of the funds.
Some of these affiliated real estate programs may in the future invest
in properties owned by us, may purchase properties concurrently with us and may
lease properties to operators who also lease or operate certain of our
properties. These properties, if located in the vicinity of, or adjacent to,
properties acquired by us, may affect our properties' gross revenues. Conflicts
between us and affiliated programs may affect the value of our investments as
well as our net income. We believe that our advisor has established guidelines
to minimize such conflicts. See "Conflicts of Interest -- Certain Conflict
Resolution Procedures" below.
COMPETITION TO ACQUIRE PROPERTIES
Affiliates of AmREIT may compete with us to acquire properties of a
type suitable for acquisition by us and may be better positioned to make such
acquisitions as a result of relationships that may develop with various owners
of real estate. See "Business -- General." A purchaser who wishes to acquire one
or more of these properties may have to do so within a relatively short period
of time, occasionally at a time when we (due to insufficient funds, for example)
may be unable to make the acquisition.
In an effort to address these situations and preserve the acquisition
opportunities, AmREIT or its affiliates may maintain lines of credit which
enable them to acquire properties on an interim basis.
AmREIT and its affiliates also may be subject to potential conflicts of
interest at the time we wish to acquire a property that also would be a suitable
investment for an affiliate of ours. Our trust managers, in this capacity, have
a fiduciary obligation to act in the best interest of our shareholders and, as
general partners or directors of our affiliates, to act in the best interests of
the investors in other programs with investments that may be similar to ours and
will use their best efforts to assure that AmREIT will be treated as favorably
as any of our affiliated investment funds. See "Management - Fiduciary
Responsibility of the Board of Trust Managers." We have also developed the
following procedures to resolve potential conflicts of interest in the
allocation of properties between AmREIT and certain of our affiliates.
Our board of trust managers, investment committee and management team
have agreed that AmREIT will have the first opportunity to purchase any asset,
other than multi-tenant shopping centers
52
under 20,000 square feet, that are expected to provide long-term value, such as
our "irreplaceable corners." Long-term value is measured by the location of the
property, the type of tenants and the area demographics. See "Business and
Properties - Operating Strategy." Once an opportunity is presented, the
investment committee and management will determine if the potential acquisition
is an appropriate opportunity for AmREIT by evaluating the following criteria:
- Whether the asset is suitable for holding long-term or more
likely to be disposed of following a brief holding period;
- Amount of funds available for investment;
- Tenant concentration exposure (limited to 15%, unless
expressly approved by the trust managers);
- Geographic concentration exposure;
- Anticipated cash flows that will support financial
underwriting for projected dividends, FFO, and cost of
capital; and
- Compliance with loan agreements and debt covenants.
Management believes that its real estate pipeline of single tenant CTL
properties, multi-tenant acquisition and development projects and joint-venture
development opportunities are sufficient to supply AmREIT and its affiliated
investment funds with the appropriate amount and diversification of suitable
properties.
We will supplement this prospectus during the offering period to
disclose the acquisition of a property at the time we believe that a reasonable
probability exists that we will acquire the property. Based upon the experience
of our management team, a reasonable probability will exist for the acquisition
of a property when: (1) a commitment letter is executed by a proposed tenant,
(2) a satisfactory credit underwriting for the proposed tenant has been
completed, (3) a satisfactory site inspection has been completed, and (4) a
refundable earnest money deposit has been paid on the property.
JOINT INVESTMENT WITH AN AFFILIATED PROGRAM
We may invest in Joint Ventures with another program sponsored by
AmREIT or its affiliates if such investment and joint venture is fair and
reasonable to AmREIT and on substantially the same terms and conditions as those
to be received by the co-venturer or co-venturers, and is approved by our
investment committee. Potential situations may arise in which the interests of
the co-venturer or co-venturers may conflict with ours. In addition, we and the
co-venturer or co-venturers may reach an impasse with regard to business
decisions, such as the purchase or sale of property, in which our approval and
each co-venturer is required. In this event, none of the parties may have the
funds necessary to purchase the interests of the other co-venturers. We may
experience difficulty in locating a third party purchaser for our Joint Venture
interest and in obtaining a favorable sales price for our Joint Venture
interest. See "Risk Factors -- Real Estate Risks -- We may not control the joint
ventures in which we enter."
PURCHASE OF PROPERTIES FROM RETAIL PARTNERSHIPS
If at any time the general partner of AmREIT Monthly Income & Growth
Fund II, Ltd. ("MIG II") determines it is in the best interests of that
partnership to sell a property that the partnership
53
developed (not a fully-developed property acquired by the partnership, whether
pursuant to a sale-lease back transaction or otherwise), the general partner
will notify AmREIT of the partnership's interest in selling such property.
AmREIT (or one of its affiliates) will then have 30 days to determine whether to
pay the Market Value for the property. If AmREIT agrees to pay the Market Value
for the property, the partnership will sell the property to AmREIT and none of
the general partner or any of its affiliates, including AmREIT, will receive a
brokerage commission with respect to such sale. If AmREIT (or its affiliates)
fails to notify the partnership of its intent to acquire the property within the
75-day period, then the partnership may sell the property to a third-party.
AmREIT may not subsequently acquire any property which it declined to acquire
when first offered by the partnership.
COMPETITION FOR MANAGEMENT TIME
The trust managers, officers, and management of AmREIT are engaged, and
in the future will engage, in the management of our affiliated investment funds,
their properties and business. They will devote as much of their time to AmREIT
as is required, however, a portion of their time will also be allocated to the
management of our affiliated investment funds. The officers and directors of
AmREIT may experience conflicts of interest in allocating management time,
services, and functions among AmREIT and its various investment funds.
RELATIONSHIP WITH THE DEALER MANAGER
The Dealer Manager is AmREIT Securities Company, a wholly-owned
affiliate of AmREIT. Certain of the officers and trust managers of AmREIT are
also officers, directors, and registered principals of the Dealer Manager. This
relationship may create conflicts in connection with the fulfillment by the
Dealer Manager of its due diligence obligations under the federal securities
laws. Although the Dealer Manager will examine the information in the prospectus
for accuracy and completeness, the Dealer Manager is an affiliate of ours and
will not make an independent review of AmREIT or this offering. Accordingly, the
investors do not have the benefit of such independent review. Certain of the
Soliciting Dealers have made, or are expected to make, their own independent due
diligence investigations. The Dealer Manager is not prohibited from acting in
any capacity in connection with the offer and sale of securities offered by
entities that may have some or all investment objectives similar to those of
AmREIT and is expected to participate in other offerings sponsored by AmREIT.
LEGAL REPRESENTATION
Locke Liddell & Sapp LLP, which serves as securities and tax counsel to
us in this offering, also serves as securities and tax counsel for certain of
our affiliates, including other real estate programs, in connection with other
matters. Neither AmREIT nor our shareholders will have separate counsel. In the
event any controversy arises following the termination of this offering in which
our interests appear to be in conflict with those of AmREIT or its affiliates,
other counsel may be retained for one or both parties. Bryan L. Goolsby, one of
our trust managers, is the managing partner of Locke Liddell & Sapp.
PRICE RANGE OF CLASS A COMMON SHARES
As of March 6, 2004, there were approximately 800 record holders of
approximately 2.98 million of the class A common shares outstanding net, of 134
thousand shares held in treasury. AmREIT's class A common shares are listed on
the AMEX and trade under the symbol "AMY." The following table sets forth for
the calendar periods indicated the high and low sale prices per class A common
share as reported on the AMEX and the dividends paid per share for the
corresponding period since the commencement of trading on July 23, 2002.
54
Calendar Period High Low Dividends
- --------------- ---- --- ---------
2002
Third Quarter (from July 23, 2002) (1)................. $7.50 $6.20 $.095
Fourth Quarter......................................... $6.55 $6.15 $.100
2003
First Quarter.......................................... $6.80 $6.05 $.109
Second Quarter......................................... $6.80 $6.55 $.111
Third Quarter.......................................... $6.55 $6.15 $.112
Fourth Quarter......................................... $6.68 $6.30 $.114
2004
First Quarter (through February 27, 2004).............. $7.20 $6.25 $.116
(1) The Company listed its class A common shares on the AMEX on July 23,
2002. Prior to July 23, 2002, the Company's shares were not listed on a
public exchange, and therefore, there is no public trading or pricing
information available.
The payment of any future dividends by AmREIT is dependent upon
applicable legal and contractual restrictions, including the provisions of the
class D common shares, as well as its earnings and financial needs.
REDEMPTION OF SHARES
Prior to the time at which the class D common shares become eligible to
be converted into class A common shares, any shareholder who has held class D
common shares for not less than one year may present all or any portion equal to
at least 25% of those shares to AmREIT for redemption at any time, in accordance
with the procedures outlined herein. At that time, AmREIT may, at its sole
option, redeem those shares presented for redemption for cash to the extent it
has sufficient funds available. There is no assurance that there will be
sufficient funds available for redemption and, accordingly, a shareholder's
shares may not be redeemed. If AmREIT elects to redeem shares, the following
conditions and limitations would apply. The full amount of the proceeds from the
sale of shares under our dividend reinvestment plan (Reinvestment Proceeds)
attributable to any calendar quarter will be used to redeem shares presented for
redemption during that quarter. In addition, AmREIT may, at its discretion, use
up to $100,000 per calendar quarter of the proceeds of any public offering of
its common shares for redemptions. Any amount of offering proceeds which is
available for redemptions, but which is unused, may be carried over to the next
succeeding calendar quarter for use in addition to the amount of offering
proceeds and Reinvestment Proceeds that would otherwise be available for
redemptions. At no time during a 12-month period, however, may the number of
shares redeemed by AmREIT exceed 5% of the number of class D shares outstanding
at the beginning of that 12-month period.
In the event there are insufficient funds to redeem all of the shares
for which redemption requests have been submitted, AmREIT plans to redeem the
shares in the order in which such redemption requests have been received. A
shareholder whose shares are not redeemed due to insufficient funds can ask that
the request to redeem the shares be honored at such time, if any, as there are
sufficient funds available for redemption. In that case, the. redemption request
will be retained and those shares will be redeemed before any subsequently
received redemption requests are honored. Alternatively, a shareholder whose
shares are not redeemed may withdraw his or her redemption request. Shareholders
will not relinquish their shares until such time as AmREIT commits to redeeming
such shares.
55
A shareholder who wishes to have his or her shares redeemed must mail
or deliver a written request on a form provided by AmREIT and executed by the
shareholder, its trustee or authorized agent, to the redemption agent
(Redemption Agent), which currently is Wells Fargo Bank Minnesota, N.A. The
Redemption Agent at all times will be registered as a broker-dealer with the SEC
and each applicable state securities commission. Within 30 days following the
Redemption Agent's receipt of the shareholder's request, the Redemption Agent
will forward to that shareholder the documents necessary to effect the
redemption, including any signature guarantee AmREIT or the Redemption Agent may
require. The Redemption Agent will effect the redemption for the calendar
quarter provided that it receives the properly completed redemption documents
relating to the shares to be redeemed from the shareholder at least one calendar
month prior to the last day of the current calendar quarter and has sufficient
funds available to redeem the shares. The effective date of any redemption will
be the last date during a quarter during which the Redemption Agent receives the
properly completed redemption documents. As a result, AmREIT anticipates that,
assuming sufficient funds are available for redemption, the effective date of
redemptions will be no later than thirty days after the quarterly determination
of the availability of funds for redemption.
Upon the Redemption Agent's receipt of notice for redemption of shares,
the redemption price for this limited optional redemption right will initially
be $10.00 per share. Our board of trust managers may change the redemption price
at any time and will announce publicly any price adjustment as part of its
regular communications with our stockholders, such adjustment being effective on
the 10th day after first public announcement of same. Any shares acquired
pursuant to a redemption will be retired and no longer available for issuance by
AmREIT.
A shareholder may present fewer than all of his or her shares to AmREIT
for redemption; provided, however, that (1) the minimum number of shares which
must be presented for redemption shall be at least 25% of his or her shares, and
(2) if the shareholder retains any shares, he or she must retain at least $2,500
worth of shares based on the current offering price ($1,000 worth of shares
based on the current offering price for an IRA, Keogh Plan or pension plan).
Our board of trust managers, in its sole discretion, may amend or
suspend the redemption plan at any time it determines that any amendment or
suspension is in the best interest of AmREIT. Our board of trust managers may
suspend the redemption of shares if (1) it determines, in its sole discretion,
that the redemption impairs the capital or the operations of AmREIT; (2) it
determines, in its sole discretion, that an emergency makes such redemption not
reasonably practical; (3) any governmental or regulatory agency with
jurisdiction over AmREIT so demands for the protection of the shareholders; (4)
it determines, in its sole discretion, that the redemption would be unlawful;
(5) it determines, in its sole discretion, that the redemption, when considered
with all other redemptions, sales, assignments, transfers and exchanges of our
common shares, could cause direct or indirect ownership of shares of our common
stock to become concentrated to an extent which would prevent AmREIT from
qualifying as a REIT under the Internal Revenue Code; or (6) it determines, in
its sole discretion, the suspension to be in the best interest of AmREIT. The
redemption plan will terminate, and AmREIT no longer shall accept shares for
redemption at such time as the class D common shares become eligible to convert
into class A common shares.
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth the selected historical financial data
for AmREIT. The selected historical operating, balance sheet and cash flow data
of AmREIT for each of the five years are derived from the audited financial
statements of AmREIT as reported in its Annual Reports on Form 10-KSB. These
historical data are not necessarily indicative of the results to be expected in
the future and should be read in conjunction with the financial statements and
notes thereto contained in this prospectus.
56
On July 23, 2002, AmREIT completed a merger with three of its
affiliated partnerships, AAA Net Realty Funds IX, X and XI. The December 31,
2002 and 2003 balance sheets and income statements do reflect the effect of this
merger for the period subsequent to the consummation of the merger. Through this
merger, AmREIT acquired approximately $24.3 million in net lease real estate
assets in exchange for issuing approximately 2.6 million class B common shares
Additionally, in 2003 and 2002 AmREIT expensed approximately $915 thousand and
$1.9 million, respectively, based on the payment of 143 thousand and 302
thousand class A common shares, respectively, as deferred merger costs paid to
Mr. Kerr Taylor in conjunction with the sale of his advisory company to AmREIT
in 1998.
57
AmREIT
SELECTED HISTORICAL
CONSOLIDATED FINANCIAL AND OTHER DATA
December 31, December 31, December 31, December 31, December 31,
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
BALANCE SHEET DATA (AT END OF PERIOD)
Total Property ................................. $ 70,539,056 $ 47,979,848 $ 30,726,025 $ 31,622,098 $ 31,136,268
Accumulated depreciation ....................... (2,520,633) (2,136,376) (2,066,067) (1,601,758) (1,148,503)
Total Property Held For Sale ................... 4,384,342 - - - -
Cash and cash equivalents ...................... 2,031,440 2,506,868 227,117 935,867 1,118,746
Total assets ................................... 101,326,607 73,975,753 38,828,393 36,522,276 37,018,186
Notes payable .................................. 48,484,625 33,586,085 16,971,549 15,472,183 15,480,378
Total liabilities .............................. 51,683,713 34,958,534 18,399,279 16,063,221 16,048,366
Minority interest .............................. 846,895 810,971 5,075,333 5,130,337 5,180,546
Shareholders' equity ........................... 48,795,999 38,206,248 15,353,781 15,328,718 15,789,274
Fully diluted class A common shares issued ..... 6,704,714 5,236,547 2,384,117 2,384,117 2,384,117
Treasury shares ................................ 133,822 65,379 39,323 11,373 11,373
OTHER DATA
Cash flows provided by (used in):
Operating ............................ 1,236,727 3,729,090 1,625,417 676,430 469,700
Investing ............................ (22,031,014) (15,268,195) (2,332,891) (25,720) (2,439,262)
Financing ............................ 20,318,859 13,818,856 (1,276) (833,589) 3,039,788
Net increase (decrease) in cash and cash
equivalents .................................. (475,428) 2,279,751 (708,750) (182,879) 1,070,226
Funds from operations, available to class A (1). 602,000 (846,000) 978,565 222,767 1,605,091
Adjusted funds from operations, available to
class A (2) ................................. 1,520,000 1,060,000 978,565 222,767 1,605,091
Book value per share ........................... 7.28 7.30 6.44 6.43 6.62
(1) AmREIT has adopted the National Association of Real Estate Investment
Tursts (NAREIT) definition of FFO. FFO is calculated as net income
(computed in accordance with generally accepted accounting principles)
excluding gains or losses from sales of depreciable operating property,
depreciation and amortization of real estate assets, and excluding results
defined as "extraordinary items" under generally accepted accounting
principles. FFO should not be considered an alternative to cash flows from
operating, investing and financing activities in accordance with general
accepted accounting principles and is not necessarily indicative of cash
available to meet cash needs. AmREIT's computation of FFO may differ from
the methodology for calculating FFO utilized by other equity REITs and,
therefore, may not be comparable to such other REITS. FFO is not defined by
generally accepted accounting principles and should not be considered an
alternative to net income as an indication of AmREIT's performance, or of
cash flows as a measure of liquidity. Please see the reconciliation of Net
Income to FFO on Page 67 of the Prospectus.
(2) Based on the adherence to the NAREIT definition of FFO, we have not added
back the $915 thousand and $1.90 million charge to earnings during 2003 and
2002, respectively, resulting from shares issued to Mr. Taylor as deferred
merger cost stemming from the sale of his advisory company to AmREIT in
June 1998. Adding this $915 thousand and $1.90 million charge back to
earnings would result in Adjusted FFO of $1.52 million and $1.06 million,
respectively.
58
AmREIT
SELECTED HISTORICAL
CONSOLIDATED FINANCIAL AND OTHER DATA (3)
December 31, December 31, December 31, December 31, December 31,
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(3) (3) (3) (3)
OPERATING DATA
Revenues:
Rental income and earned income from DFL ........... $ 7,584,166 $ 5,193,147 $ 3,009,330 $ 2,848,850 $ 3,373,374
Real estate fee income ............................. 1,031,201 1,222,944 - - -
Gain on sale of real estate acquired for resale .... 787,244 - - - -
Securities commission income ....................... 2,958,226 846,893 - - -
Asset management fee income ........................ 240,465 252,072 - - -
Interest income .................................... 7,938 4,206 10,555 31,630 199,448
Service fee, other income, and gain and loss on sale
of property ........................................ - - 2,650,113 793,268 754,059
------------ ------------ ------------ ------------ ------------
Total revenues ................. 12,609,240 7,519,262 5,669,998 3,673,748 4,326,881
Expenses:
General operating, administrative, legal and
professional ....................................... 3,936,546 2,801,946 2,956,061 1,688,799 1,290,433
Securities commissions ............................. 2,288,027 653,034 - - -
Legal and professional ............................. 881,283 679,154 - - -
Reimbursements and fees to related party ........... - - - - -
Depreciation and amortization ...................... 835,987 611,084 413,583 403,181 444,072
Merger related acquisition costs ................... - - - - 262,495
Bad debts .......................................... - - - - 189,490
Merger costs ....................................... - - - -
Deferred merger costs .............................. 914,688 1,904,370 - - -
Potential acquisition costs ........................ - - - 153,236 743,001
------------ ------------ ------------ ------------ ------------
Total expense .................. 8,856,531 6,649,588 3,369,644 2,245,216 2,929,491
Operating income ........................................... 3,752,709 869,674 2,300,354 1,428,532 1,397,390
Income from non-consolidated affiliates .................... 312,147 416,904 - - -
Federal income tax expense ................................. (236,990) (60,656) 144,420 - -
Interest ................................................... (2,354,159) (1,774,973) (1,063,574) (1,339,622) (1,134,919)
Minority interest in net income of consolidated joint
ventures ................................................... (178,311) (308,010) (527,571) (527,121) (526,052)
------------ ------------ ------------ ------------ ------------
Income from continuing operations .......................... 1,295,396 (857,061) 853,629 (438,211) (263,581)
Income from discontinued operations (3) .................... 391,480 245,840 225,719 225,719 225,719
Gain (loss) on sale of real estate acquired for investment.. 311,873 (47,553) - - -
------------ ------------ ------------ ------------ ------------
Net income (loss) .......................................... $ 1,998,749 $ (658,774) $ 1,079,348 $ (212,492) $ (37,862)
Less distributions to class B & C shareholders ............. (1,942,656) (865,293) - - -
------------ ------------ ------------ ------------
Net income (loss) available to class A shareholders ........ $ 56,093 $ (1,524,067) $ 1,079,348 $ (212,492) $ (37,862)
============ ============ ============ ============ ============
Basic and diluted (loss) income before discontinued
operations per share .................................... $ (0.23) $ (0.70) $ 0.36 $ (0.18) $ (0.11)
Basic and diluted (loss) income from discontinued
operations per share .................................... 0.25 0.08 0.10 0.10 0.10
------------ ------------ ------------ ------------ ------------
Net income (loss) .......................................... $ 0.02 $ (0.62) $ 0.46 $ (0.09) $ (0.02)
============ ============ ============ ============ ============
Distributions per share - class A .......................... $ 0.34 $ 0.34 $ 0.26 $ 0.10 $ 0.55
Weighted average number of Series A common shares
outstanding ............................................. 2,792,190 2,469,725 2,354,572 2,373,060 2,372,744
Weighted average number of common shares plus dilutive
potential common shares ................................. 2,792,190 2,469,725 2,354,572 2,373,060 2,372,744
(3) In accordance with Financial Accounting Standard Statement No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" issued by
the Financial Accounting Standards Board, the consolidated statement of
operations have been revised from those originally reported for the years
ended December 31, 2003, 2002, 2001, 2000, and 1999 to reflect seperatly
the results of discontinued operations. The revision had no impact on the
consolidated balance sheet, statements of stockholders' equity or statement
of cash flows. The revisions had no impact on net earnings or net earnings
per share for the years ended December 31, 2003, 2002, 2001, 2000, and
1999.
59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain information presented in this prospectus 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
AmREIT believes that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, AmREIT'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 AmREIT's debt or equity
capital, the ability of AmREIT to locate suitable tenants for its properties and
the ability of tenants to make payments under their respective leases, as well
as the factors set forth under the caption "Risk Factors" appearing elsewhere in
this prospectus.
GENERAL
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
prospectus. Historical results and trends which might appear should not be taken
as indicative of future operations. The results of operations and financial
condition of AmREIT, as reflected in the accompanying statements, are subject to
management's evaluation and interpretation of business conditions, retailer
performance, changing capital market conditions and other factors, which could
affect the ongoing viability of AmREIT's tenants. Management believes the most
critical accounting policies in this regard are the accounting for lease
revenues (including the straight-line rent), the regular evaluation of whether
the value of a real estate asset has been impaired and the allowance for
doubtful accounts. Each of these issues requires management to make judgments
that are subjective in nature. Management relies on its experience, collects
historical data and current market data, and analyzes these assumptions in order
to arrive at what it believes to be reasonable estimates.
EXECUTIVE OVERVIEW
AmREIT is a rapidly growing, self-managed and self-advised REIT with a
19-year history of delivering results to its investors. Its business model
consists of a portfolio of retail properties, including "irreplaceable corners,"
single tenant properties and multi-tenant properties, a full service real estate
operating and development business, an NASD-registered broker dealer securities
business and a retail partnership business - a unique combination that provides
AmREIT the opportunity to access multiple sources of capital and generate fees
and profits from multiple sources, resulting in added financial flexibility and
the opportunity for dependable growth and income.
AmREIT's goal is to deliver increasing, dependable, monthly
income for its shareholders. In so doing, AmREIT strives to increase and
maximize Funds from Operations by issuing long term capital through both the
NASD independent financial planning marketplace as well as through Wall Street,
and investing the capital in accretive real estate properties, acquired or
developed, on irreplaceable corners. Additionally, we strive to maintain a
conservative balance sheet. To that regard, we strive to maintain a debt to
total asset ratio of less than 55%. As of December 31, 2003, our debt to total
asset ratio was 51%.
At December 31, 2003, AmREIT owned a portfolio of 51 properties located
in 18 states, subject to long term leases with retail tenants, either directly
or through its interests in joint ventures or partnerships. Forty six of the
properties are single tenant properties, and represented approximately 75% of
the annual rental income as of December 31, 2003. Five of the properties are
multi-tenant and
60
represented approximately 25% of the annual rental income as of December 31,
2003. In assessing the performance of the Company's properties, management
evaluates the occupancy of the Company's portfolio. Occupancy for the total
portfolio was 92.4% as of December 31, 2003. Additionally, the Company
anticipates that the majority of its rental income will consist of rental income
generated from multi-tenant shopping centers by the end of 2004. We have been
developing and acquiring multi-tenant shopping centers for over ten years in our
retail partnership business. During that time, we believe we have developed the
ability to recognize the high-end multi-tenant properties that can create
long-term value, and with the downward pressure on single tenant cap rates,
resulting in higher priced real estate, management anticipates strategically
increasing its holdings of multi-tenant shopping centers. Management intends to
increase total assets from $101 million as of December 31, 2003 to approximately
$200 million at the end of 2004. Through its class C common share offering, the
Company raised approximately $14 million in capital in 2003, which along with
debt financing, financed $27 million in property acquisitions and developments
in 2003.
Management intends to fund future acquisitions and development projects
through a combination of equity offerings and debt financings. During 2004, the
Company anticipates raising approximately $60 million of equity from various
sources including Wall Street and the independent financial planning community.
We have already raised an additional $14 million through our class C common
share offering to date in 2004.
Management expects that single tenant, credit leased properties, will
continue to experience cap rate pressure during 2004 due to the low interest
rate environment and increased buyer demand. Therefore, as it has been, and our
continued strategy will be, to divest of properties which are no longer meet our
core criteria, and replace them with multi-tenant projects or the development of
single tenant properties located on irreplaceable corners. With respect to
additional growth opportunities, we currently have over $50 million of projects
in our pipeline at various stages of evaluation. Each potential acquisition is
subjected to a rigorous due diligence process that includes site inspections,
financial underwriting, credit analysis and market and demographic studies.
Therefore, there can be no assurance that any or all of these projects will
ultimately be purchased by AmREIT. Management anticipates, and has budgeted for,
an increase in interest rates during 2004. As of December 31, 2003,
approximately 47% of our outstanding debt had a long term fixed interest rate
with an average term of seven years. Our philosophy continues to be matching
long term leases with long term debt structures while keeping our debt to total
assets ratio less than 55%.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
The results of operations and financial condition of the Company, as
reflected in the accompanying financial statements and related footnotes, are
subject to management's evaluation and interpretation of business conditions,
retailer performance, changing capital market conditions and other factors,
which could affect the ongoing viability of the Company's tenants. Management
believes the most critical accounting policies in this regard are the accounting
for lease revenues (including the straight line rent), the regular evaluation of
whether the value of a real estate asset has been impaired and the allowance for
doubtful accounts. We evaluate our assumptions and estimates on an on-going
basis. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable based on the circumstances.
Rental Income Recognition - In accordance with accounting principles
generally accepted in the United States of America, the Company accounts for
rental income under the straight line method, whereby we record rental income
based on the average of the total rent obligation due under the primary term of
the lease. The Company prepares a straight line rent schedule for each lease
entered into. Certain leases contain a provision for percentage rent. Percentage
rent is recorded in the period when the
61
Company can reasonably calculate the amount of percentage rent owed, if any.
Generally, the Company records percentage rent in the period in which the
percentage rent payment is made, and can thereby be calculated and verified.
Real Estate Valuation - Real estate assets are stated at cost less
accumulated depreciation, which, in the opinion of management, is not in excess
of the individual property's estimated undiscounted future cash flows, including
estimated proceeds from disposition. Depreciation is computed using the
straight-line method, generally over estimated useful lives of 39 years for
buildings and over the primary term of the lease for tenant improvements. Major
replacements that extend the life of the property, or enhance the value of the
property are capitalized and the replaced asset and corresponding accumulated
depreciation are removed. All other maintenance items are charged to expense as
incurred.
Upon the acquisition of real estate projects, the Company assesses the
fair value of the acquired assets (including land, building, acquired,
out-of-market and in-place leases, as if vacant property value and tenant
relationships) and acquired liabilities, and allocates the purchase price based
on these assessments. The Company assesses fair value based on estimated cash
flow projections that utilize appropriate discount and capitalization rates and
available market information. Estimates of future cash flows are based on a
number of factors including the historical operating results, known trends, and
specific market and economic conditions that may affect the property. Factors
considered by management in our analysis of determining the as if vacant
property value include an estimate of carrying costs during the expected
lease-up periods considering current market conditions, and costs to execute
similar leases. In estimating carrying costs, management includes real estate
taxes, insurance and other operating expenses and estimates of lost rentals at
market rates during the expected lease-up periods, up to 12 months depending on
the property location, tenant demand and other economic conditions. Management
also estimates costs to execute similar leases including leasing commissions,
tenant improvements, legal and other related expenses.
Costs incurred in the development of new operating properties,
including preacquisition costs directly identifiable with the specific project,
development and construction costs, interest and real estate taxes are
capitalized into the basis of the project. The capitalization of such costs
ceases when the property, or any completed portion, becomes available for
occupancy.
AmREIT's properties are reviewed for impairment if events or changes in
circumstances indicate that the carrying amount of the property may not be
recoverable. In such an event, a comparison is made of the current and projected
operating cash flows of each such property on an undiscounted basis, plus the
residual value of the property upon disposition, to the carrying value of such
property. The carrying value would then be adjusted, if needed, to estimate the
fair value to reflect an impairment in the value of the asset. As of December
31, 2003, no impairment was identified for any of the Company's properties.
Valuation of Receivables - An allowance for the uncollectible portion
of accrued rents, property receivables and accounts receivable is determined
based upon an analysis of balances outstanding, historical payment history,
tenant credit worthiness, additional guarantees and other economic trends.
Balances outstanding include base rents, tenant reimbursements and receivables
attributed to the accrual of straight line rents. Additionally, estimates of the
expected recovery of pre-petition and post-petition claims with respect to
tenants in bankruptcy is considered in assessing the collectibility of the
related receivables. At December 31, 2003, the Company wrote off a receivable of
approximately $150 thousand related to the Wherehouse bankruptcy. The Company
maintains a receivable related to Wherehouse of approximately $126 thousand
based on discussions with Wherehouse, Blockbuster Entertainment Corporation, the
guarantor of the lease, and legal proceedings involving Wherehouse and
Blockbuster Entertainment Corporation.
62
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities and financing activities have been
the principal sources of capital to fund the Company's ongoing operations and
dividends. As AmREIT deploys the capital raised, and expected to be raised from
its equity offerings, into income producing real estate, we anticipate that cash
flow from operations will provide adequate resources for future ongoing
operations and dividends. AmREIT's cash on hand, internally-generated cash flow,
borrowings under our existing credit facilities, issuance of equity securities ,
as well as the placement of secured debt and other equity alternatives, will
provide the necessary capital to maintain and operate our properties as well as
execute and achieve our growth strategies. Cash flows from operating activities
as reported in the Consolidated Statements of Cash Flows decreased from $3.73
million in 2002 to $1.24 million in 2003.
During 2003, AmREIT invested approximately $7.81 million in retail real
estate acquired for resale. This consisted of four single tenant properties
located in Texas, Missouri, Indiana, and Wisconsin. As of December 31, 2003,
AmREIT had sold two of these properties, located in Indiana and Wisconsin,
resulting in net proceeds from the sale of $6.18 million and a gain on sale of
real estate held for resale of $787 thousand.
Cash flows used in investing activities has been primarily related to
the acquisition or development of retail properties. During 2003, AmREIT
acquired or developed $34.5 million in retail projects, which were funded
through a combination of the $12.2 million of capital (net of $1.8 million in
issuance costs) raised through the class C common share offering, the net sales
proceeds of properties divested during the year, and debt financing. This
investment consisted of two single tenant projects, two multi-tenant projects,
and three land acquisitions, of which six are located in Texas, and one is
located in Maryland. The single tenant projects are 100% occupied and generating
rental income. The multi-tenant projects are 70% and 93% occupied, respectively,
and generating rental income. One of the land acquisitions is substantially
complete and rental income commenced in January 2004. The other two land
acquisitions are under development, and are anticipated to generate rental
income during the fourth quarter 2004. These acquisitions were funded with
proceeds from the Company's class C common share offering and through the
existing revolving credit facility. The Company also sold two non-core,
underperforming properties, an Office Max in Dover, Delaware and a Goodyear Tire
Store in Houston, Texas.
Additionally, as part of its investment strategy, AmREIT constantly
evaluates its property portfolio, systematically selling off any non-core or
underperforming assets, and replacing them with "irreplaceable corners" and
other core assets. During 2003, AmREIT divested of an Office Max property
located in Dover, Delaware and a Goodyear Tire Store located in Houston, Texas.
The properties generated net sales proceeds of $3.5 million, resulting in a
profit on disposition of approximately $312 thousand. During 2004, the Company
anticipates continuing this strategy of divesting its non-core properties, which
are estimated to generate between $10 and $15 million in sales proceeds. Cash
flows used in investing activities as reported in the Consolidated Statements of
Cash Flows increased from $15.27 million in 2002 to $22.03 million in 2003.
In addition, capitalized expenditures for improvements and additions to
our existing properties were approximately $535 thousand, which were funded
through excess cash flow and through the Company's revolving credit facility.
Cash flows provided by financing activities increased from $13.82
million in 2002 to $20.32 million in 2003. Cash flows provided by financing
activities were primarily generated from our existing revolving credit facility,
secured property level mortgage financing or through our class C common share
offering. Through its class C common share offering, the Company is averaging
new capital raised of
63
between $2 and $4 million per month. One advantage of raising capital through
the independent financial planning marketplace is that the capital is received
on a monthly basis, allowing for a scaleable matching of real estate projects.
Our first priority is to deploy the capital raised, and then to moderately
leverage the capital, while maintaining our philosophy of a conservative balance
sheet.
AmREIT has a $30 million unsecured revolving credit facility. The
facility will mature on September 4, 2004. The facility bears interest at a rate
of LIBOR plus a range of 1.40 to 2.35, depending on the Company's debt to asset
ratio. The Credit Facility contains covenants which, among other restrictions,
require the Company to maintain a minimum net worth, a maximum leverage ratio,
specified interest coverage and fixed charge coverage ratios and allow the
lender to approve all distributions. Furthermore, the Credit Facility contains
concentration covenants and limitations, limiting property level net operating
income for any one tenant to no more than 15% (35% for IHOP ) of total property
net operating income. At December 31, 2003, IHOP net operating income
represented 34.7% of total property net operating income. Management estimates
that as of March 31, 2004, IHOP net operating income will represent
approximately 32% of total property net operating income. As of December 31,
2003, the spread over LIBOR was 2.00. At December 31, 2003, approximately $22.80
million was outstanding under the credit facility. In addition to the credit
facility, AmREIT utilizes various permanent mortgage financing and other debt
instruments. During the year ended December 31, 2003, approximately $39.02
million was borrowed under the credit facility and other mortgage debt
instruments for the acquisition of properties, tenant improvements and capital
expenditures as well as working capital. Additionally, approximately $24.12
million was paid down on the credit facility and other mortgage debt instruments
through out the year, primarily as a result of property sales and capital raised
through the class C common share offering.
As of December 31, 2003, the Company had the following contractual
obligations:
2004 2005 2006 2007 2008 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Unsecured debt:
Revolving credit facility $22,792 $ - $ - $ - $ - $ - $22,792
5.46% dissenter notes - - - - - 760 760
Secured debt 3,557 490 530 573 620 19,163 24,933
------- ------- ------- ------- ------- ------- -------
Total contractual obligations $26,349 $ 490 $ 530 $ 573 $ 620 $19,923 $48,485
In order to continue to expand and develop its portfolio of properties
and other investments, the Company intends to finance future acquisitions and
growth through the most advantageous sources of capital available at the time.
Such capital sources may include proceeds from public or private offerings of
the Company's debt or equity securities, secured or unsecured borrowings from
banks or other lenders, acquisitions of the Company's affiliated entities or
other unrelated companies, or the disposition of assets, as well as
undistributed funds from operations.
In August 2003, the Company commenced the class C common share
offering. This offering is being exclusively made through the NASD independent
financial planning community. It is a $44 million offering, of which $4 million
has been reserved for the dividend reinvestment plan. As of December 31, 2003,
1.4 million shares had been issued, resulting in approximately $14 million in
gross proceeds. The proceeds are being and will be used to finance the
acquisition and development of retail real estate projects, pay down the
revolving credit facility and provide working capital for the on going operation
of the company and its properties.
During 2003, the Company paid dividends to its shareholders of $3.19
million, compared with $1.73 million in 2002. The class A and C shareholders
receive monthly dividends and the class B
64
shareholders receive quarterly dividends. All dividends are declared on a
quarterly basis. The dividends by class follows (in thousands):
Class A Class B Class C
------- ------- -------
2003
Fourth Quarter $320 $437 $156
Third Quarter $308 $443 $ 15
Second Quarter $310 $439 N/A
First Quarter $307 $453 N/A
2002
Fourth Quarter $277 $456 N/A
Third Quarter $257 $409 N/A
Second Quarter $170 N/A N/A
First Quarter $165 N/A N/A
On July 23, 2002, the Company completed a merger with three of its
affiliated partnerships, which increased the Company's real estate assets by
approximately $24.3 million. Pursuant to the merger, the Company issued
approximately 2.6 million class B common shares to the limited partners in the
Affiliated Partnerships, of which, approximately 2.36 million were outstanding
as of December 31, 2003. Approximately $760 thousand in 8 year, interest only,
subordinated notes were issued to limited partners of the Affiliated
Partnerships who dissented from the merger. The acquired properties are
unencumbered, single tenant, free standing properties on lease to national and
regional tenants, where the lease is the direct obligation of the parent
company. A deferred merger expense resulted from the shares payable to H. Kerr
Taylor, our President and Chief Executive Officer, as a result of the merger,
which shares represented a portion of consideration payable to Mr. Taylor as a
result of the sale of his advisory company to AmREIT. Mr. Taylor earned
approximately 143 thousand shares during 2003 as a result of our class C common
share offering, resulting in a non-cash charge to earnings of approximately $915
thousand. As of December 31, 2003, these shares were not issued to Mr. Taylor
and were accounted for as a liability in accounts payable. Mr. Taylor has the
ability to earn an additional 241 thousand shares under the deferred
consideration agreement.
Until properties are acquired by the Company, the Company's funds are
held in short term, highly liquid investments which the Company believes to have
appropriate safety of principal. This investment strategy has allowed, and
continues to allow, high liquidity to facilitate the Company's use of these
funds to acquire properties at such time as properties suitable for acquisition
are located. At December 31, 2003, the Company's cash and cash equivalents
totaled $2.03 million.
Inflation has had very little effect on income from operations.
Management expects that increases in store sales volumes due to inflation as
well as increases in the Consumer Price Index, may contribute to capital
appreciation of the Company properties. These factors, however, also may have an
adverse impact on the operating margins of the tenants of the properties.
RESULTS OF OPERATIONS
Rental revenue and earned income from direct financing leases increased
by 46%, or $2.39 million, from $ 5.19 million in 2002 to $7.58 million in 2003.
Of this increase, $1.96 million is related to a full year of rental revenue and
earned income recorded during 2003 from the properties acquired either directly
or through the affiliated partnership merger in 2002, and $565 thousand is
related to acquisitions made during the year. This is somewhat offset by the
loss of rental income of $136 thousand due to property dispositions. Portfolio
occupancy at December 31, 2003 was 92.4%, which is a slight decrease
65
compared to 2002 occupancy of 95.2%. This decrease is mainly due to a vacancy at
one of our Wherehouse Entertainment properties.
On January 21, 2003, Wherehouse Entertainment filed for a voluntary
petition of relief under Chapter 11 of the federal bankruptcy code. AmREIT owns
two Wherehouse Entertainment properties, one located in Independence, Missouri,
and the other located in Wichita, Kansas. Through court proceedings, Wherehouse
has affirmed the lease at the Missouri location, and have vacated the Kansas
location.
Securities commission income increased by $2.11 million, from $847
thousand in 2002 to $2.96 million in 2003. This increase in securities
commission income is due to increased capital being raised through our broker
dealer company, AmREIT Securities Company (ASC). As ASC raises capital for
either AmREIT or its affiliated retail partnerships, ASC earns a securities
commission of between 8% and 10.5% of the money raised. During 2003, AmREIT and
its affiliated retail partnerships raised approximately $28.4 million, as
compared to approximately $8.5 million during 2002. This increase in commission
income is somewhat mitigated by a corresponding increase in commission expense
paid to other third party broker dealer firms. Commission expense increased by
$1.63 million, from $653 thousand in 2002 to $2.29 million in 2003.
General and operating expense increased $1.14 million, from $2.80
million in 2002 to $3.94 million in 2003. The increase in general and operating
expense is primarily due to additional personnel and the associated salary and
benefits costs related to these individuals. During the year, the Company added
members to each of the operating teams, including one individual on the
accounting and finance team, four on the real estate team (property management,
legal, acquisitions and leasing) one in corporate communications, one on the
securities team and two clerical and administrative support positions. By
building our various teams, we have not only been able to grow revenue and Funds
From Operations, but believe that we will be able to sustain and further enhance
our growth. Compensation expense increased $941 thousand for the year. In
addition, property expense increased $44 thousand and insurance expense
increased $47 thousand compared to 2002.
General and operating expense includes bad debt expense of $97 thousand
and property expenses of $49 thousand, which are related to the Wherehouse
entertainment properties. Both of the Wherehouse Entertainment leases are
guaranteed by Blockbuster Entertainment Corporation. We are in the process of
trying to collect from Blockbuster and are involved in litigation regarding the
guarantee. As a result, we are uncertain as to the likelihood or the timing of
the collection from Blockbuster. Based on our negotiations with Wherehouse
Entertainment and Blockbuster Entertainment Corporation, we expensed $97
thousand of the rent that we are owed from the Wherehouse Entertainment
properties, which results in a net balance of $73 thousand that is accrued as
rent income as of December 31, 2003. In addition, we expensed $49 thousand of
property expenses that we are owed from the Wherehouse Entertainment properties,
which results in a net balance of $53 thousand that is accrued as a receivable
as of December 31, 2003. Based on discussions with Blockbuster Entertainment
Corporation and pending litigation with Blockbuster Entertainment Corporation,
the net receivable remaining of approximately $126 thousand is anticipated to be
collected during 2004.
Deferred merger costs decreased by $990 thousand, from $1.90 million in
2002 to $915 thousand in 2003. The deferred merger cost is related to deferred
consideration payable to Mr. Taylor as a result of the acquisition of our
advisor, which was owned by Mr. Taylor in 1998. In connection with the
acquisition, Mr. Taylor agreed to payment for this advisory company in the form
of common shares, paid as the Company increases its outstanding equity. To date,
Mr. Taylor has received approximately 659 thousand class A common shares, and is
eligible to receive an additional 241 thousand shares as additional equity is
raised by the Company.
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Gain on real estate acquired for re-sale increased $787 thousand, from
$0 in 2002. Gain on real estate acquired for resale is a result of selling two
properties acquired during 2003 with the intent to resell after a short holding
period. Through a taxable REIT subsidiary, AmREIT actively seeks properties
where there is an opportunity to purchase undervalued assets, and after a short
holding period and value creation, dispose of the asset and capture the value
created.
FUNDS FROM OPERATIONS
AmREIT considers FFO to be an appropriate measure of the operating
performance of an equity REIT. The National Association of Real Estate
Investment Trusts (NAREIT) defines funds from operations (FFO) as net income
(loss) computed in accordance with generally accepted accounting principles
(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. AmREIT calculates its
FFO in accordance with this definition. Most industry analysts and equity REITs,
including AmREIT, consider FFO to be an appropriate supplemental measure of
operating performance because, by excluding gains or losses on dispositions and
excluding depreciation, FFO is a helpful tool that can assist in the comparison
of the operating performance of a company's real estate between periods, or as
compared to different companies. There can be no assurance that FFO presented by
AmREIT is comparable to similarly titled measures of other REITs. FFO should not
be considered as an alternative to net income or other measurements under GAAP
as an indicator of our operating performance or to cash flows from operating,
investing or financing activities as a measure of liquidity.
Below is the calculation of FFO and the reconciliation to net income,
which the Company believes is the most comparable GAAP financial measure to FFO,
in thousands:
2003 2002
---- ----
Income (loss) - before discontinued operations.................................. $ 1,295 $ (857)
Income - from discounted operations............................................. 703 198
Plus depreciation of real estate assets - from operations....................... 829 575
Plus depreciation of real estate assets - from discontinued operations.......... 30 55
Less (gain) loss on sale of real estate assets acquired for investment.......... (312) 48
Less class B & C distributions.................................................. (1,943) (865)
Total Funds from operations available to class A shareholders*.................. $ 602 $ (846)
Cash dividends paid to class A shareholders $ 1,245 $ 866
Dividends in excess of FFO* $ (643) $(1,712)
* Based on the adherence to the NAREIT definition of FFO, we have not added back
the $915 thousand or $1.9 million charge to earnings during 2003 and 2002,
respectively, resulting from shares issued to Mr. Taylor. Adding this $915
thousand and $1.90 million charge to earnings back to earnings would result in
$1.52 million and $1.06 million adjusted funds from operations available to
class A shareholders, respectively, and class A dividends paid less than
adjusted FFO available to class A shareholders of $272 thousand and $192
thousand, respectively.
Cash flows from operating activities, investing activities, and
financing activities are presented below in thousands:
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2003 2002
---- ----
Operating activities $ 1,237 $ 3,729
Investing activities (22,031) (15,268)
Financing activities 20,319 13,819
INVESTMENT OBJECTIVES AND CRITERIA
AmREIT'S INVESTMENT POLICIES
AmREIT's investment policies have been adopted by its board of trust
managers and set forth the policies and restrictions pursuant to which AmREIT
conducts its affairs. The board of trust managers may change any investment
policy without the approval of shareholders. Set forth below is a summary of
AmREIT's investment policies.
INVESTMENTS IN PROPERTIES. AmREIT will:
- invest only in interests in (including mortgage loan interests
secured by) income-producing, undeveloped, development stage
and improved real estate properties using borrowed capital
only where prudent as determined by the board;
- not invest more than 10% of its total assets in unimproved
real property or mortgage loans on unimproved real property;
- not acquire properties leased, or to be leased, to one tenant
generating annual rental income in excess of 15% of AmREIT's
total annual rental income, without the prior approval of our
board of trust managers;
- not engage in the purchase and sale of investments, other than
real property interests which satisfy AmREIT's investment
objectives or for the purpose of investing on a short-term
basis reserves and funds available for the purchase of
properties; and
- pay consideration for a property which is based on its fair
market value as determined by a majority of the trust
managers. In cases where the majority of the independent trust
managers determine, and in all acquisitions from interested
persons, such fair market value shall be determined by an
independent expert selected by the independent trust managers.
POLICY RESTRICTIONS. AmREIT will not:
- invest more than ten percent (10%) of its total assets in
second mortgages, excluding wrap-around type second mortgage
loans;
- make or invest in mortgage loans, including construction
loans, on any one property if the aggregate amount of all
mortgage loans outstanding on the property, including AmREIT's
loan(s), would exceed an amount equal to eighty-five percent
(85%) of the appraised value of the property as determined by
appraisal unless substantial justification exists because of
the presence of other underwriting criteria. For purposes of
this subsection, the "aggregate amount of all mortgage loans
outstanding on the property" shall include all interest
(excluding contingent participation in income and/or
appreciation in value of the mortgaged property), the current
payment of which may be
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deferred pursuant to the terms of such loans, to the extent
that deferred interest on each loan exceeds five percent (5%)
per annum of the principal balance of the loan;
- make or invest in any mortgage loans that are subordinate to
any mortgage or equity interest of any affiliate of AmREIT;
- invest in any mortgage loans that are subordinate to any liens
or other indebtedness on a property if the effect of such
mortgage loans would be to cause the aggregate value of all
such subordinated indebtedness to exceed twenty-five percent
(25%) of AmREIT's tangible assets;
- invest in equity securities of other issuers unless a majority
of the trust managers, including a majority of the independent
trust managers, not otherwise interested in the transaction
approve the transaction as being fair, competitive and
commercially reasonable;
- invest in the equity securities of any non-governmental issue,
including other real estate investment trusts or limited
partnerships for a period in excess of eighteen (18) months,
unless approved by a majority of the trust managers, including
a majority of the independent trust managers;
- engage in underwriting or the agency distribution of
securities issued by others;
- invest in commodities or commodity futures contracts, other
than solely for hedging purposes;
- engage in short sales of securities or trading, as
distinguished from investment activities;
- invest in real estate contracts of sale, otherwise known as
land sale contracts, unless such contracts are in recordable
form and appropriately recorded in the chain of title;
- issue equity securities which are redeemable at the election
of the holder of such securities;
- issue debt securities unless the historical debt service
coverage (in the most recently completed fiscal year) as
adjusted for known changes is sufficient to properly service
that higher level of debt;
- issue warrants, options or similar evidences of a right to buy
its securities, unless issued to all of its security holders
ratably, or issued as part of a financing arrangement; and
- issue shares on a deferred payment basis or other similar
arrangement.
RESTRICTIONS ON LEVERAGE. AmREIT may not borrow funds in order to
distribute the proceeds to the shareholders and thereby offset under-performance
by the properties, unless it is required to do so for REIT qualification
purposes.
The trust managers must review AmREIT's borrowings at least quarterly
for reasonableness in relation to its net assets. AmREIT may not incur
indebtedness if, after giving effect to the incurrence thereof, aggregate
indebtedness, secured and unsecured, would exceed fifty-five percent (55%) of
its net assets on a consolidated basis. For this purpose, the term "net assets"
means the value of our total assets
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(less intangibles) based on market capitalization rates and current year rental
income, as determined by our board, before deducting depreciation or other
non-cash reserves, less total liabilities, as calculated at the end of each
quarter on a basis consistently applied.
TRANSACTIONS WITH AFFILIATES. AmREIT is self-managed and does not have
an external advisor. AmREIT's dealings with and its officers, trust managers,
sponsors and any advisor are subject to the following restrictions:
Sales To Interested Persons. An advisor, officer or trust manager may
not acquire assets from AmREIT except as approved by a majority of trust
managers (including a majority of independent trust managers), not otherwise
interested in such transaction, as being fair and reasonable to AmREIT.
Acquisitions From Interested Persons. Any transaction with a trust
manager, officer or affiliate that involves the acquisition of a property from
an interested person must be approved by a majority of the independent trust
managers as being fair and reasonable to AmREIT and at a price not greater than
the cost of the property to such seller, or if at a greater price only if
substantial justification exists and such excess is reasonable and not in excess
of the properties' current appraised value.
Purchases from Affiliated Retail Partnerships. Any acquisition of a
property from MIG II will only be made at the Market Value of the property, and
no real estate commission will be paid to AmREIT or any affiliate of AmREIT in
connection with such purchases.
Leases To Interested Persons. AmREIT may lease assets to an advisor, or
a trust manager only if such transaction is approved by a majority of trust
managers (including a majority of independent trust managers), not otherwise
interested in such transaction, as being fair and reasonable to AmREIT.
Loans From Interested Persons. AmREIT may not borrow money from an
advisor or a trust manager unless a majority of the trust managers, including a
majority of the independent trust managers, not otherwise interested in such
transaction approve the transaction as being fair, competitive, and commercially
reasonable and no less favorable to AmREIT than loans between unaffiliated
parties under the same circumstances.
Loans To Interested Persons. AmREIT may not make or invest in loans to
a sponsor, advisor or trust manager, which includes any affiliate thereof,
except for mortgage loans for the construction of improvements on properties to
be acquired by AmREIT that are under lease or binding contract to be leased to
qualifying tenants and those loans insured or guaranteed by a government or
government agency or unless an appraisal is obtained on the underlying property.
An appraisal of the underlying property shall be obtained in connection with any
loan to an advisor, director or their affiliate.
Other Transactions With Interested Persons. All other transactions
between AmREIT and the sponsor, advisor or a trust manager shall require
approval by a majority of the trust managers (including a majority of the
independent trust managers) not otherwise interested in such transactions as
being fair and reasonable to AmREIT and on terms and conditions not less
favorable to AmREIT than those available from unaffiliated third parties.
JOINT VENTURE INVESTMENTS. AmREIT may enter into joint ventures with
unaffiliated third parties. AmREIT may also invest jointly with another
publicly-registered entity sponsored by a sponsor, advisor or trust manager that
has investment objectives and management compensation provisions substantially
identical to those of AmREIT, provided that the following conditions must be
satisfied:
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- the joint venture must have approval of a majority of the
trust managers, including a majority of the independent trust
managers;
- the joint venture must have investment objectives comparable
to AmREIT;
- the investment by each party to the joint venture must be on
substantially the same terms and conditions; provided,
however, AmREIT shall own more than fifty percent (50%) of any
joint venture between it and its sponsor or affiliate;
- in making any such joint venture investment, AmREIT may not
pay more than once, directly or indirectly, for the same
services and may not act indirectly through any such joint
venture if AmREIT would be prohibited from doing so directly
because of restrictions contained in the bylaws; and
- in the event of a proposed sale of the property initiated by
the other joint venture partner, AmREIT must have a right of
first refusal to purchase the other party's interest.
REAL ESTATE COMMISSIONS ON RESALE OF PROPERTY. If an advisor, officer
or trust manager provides a substantial amount of the services in the effort to
sell an AmREIT property, that such person may receive up to one-half of the
brokerage commission paid but in no event to exceed an amount equal to 3% of the
contract price for the property. In addition, the amount paid when added to the
sums paid to unaffiliated parties in such a capacity shall not exceed the lesser
of the Competitive Real Estate Commission or an amount equal to 6% of the
contract price for the property. The Competitive Real Estate Commission is the
real estate or brokerage commission paid for the purchase or sale of a property
which is reasonable, customary and competitive in light of the size, type and
location of such property. The "contract price" is the amount actually paid or
allocated to the purchase, development, or construction or improvement of a
property exclusive of the acquisition fees and acquisition expenses.
ACQUISITION FEES AND ACQUISITION EXPENSES. AmREIT may not pay
acquisition fees and acquisition expenses which are unreasonable. The total
amount of such fees may not exceed 6% of the contract price of the property, or
in the case of a mortgage loan, 6% of the funds advanced. Notwithstanding the
foregoing, a majority of the trust managers, including a majority of the
independent trust managers, not otherwise interested in the transaction may
approve fees in excess of these limits if they determine the transaction to be
commercially competitive, fair and reasonable to AmREIT.
AmREIT'S OPERATING STRATEGY
AmREIT's policies with respect to the following activities have been
determined by our board of trust managers within the restrictions of AmREIT's
stated investment policies and, in general, may be amended or revised, from time
to time, subject to the stated objectives and policies, by the board without a
vote of the shareholders.
REAL ESTATE STRATEGY. Over the years, AmREIT has emphasized the
development, acquisition and ownership of a portfolio of high-end single and
multi-tenant retail centers that are located on prime tracts of land in high
traffic, highly populated areas, which will maximize the total return to its
shareholders, consisting of both dividends paid and appreciation in value of the
shares. These properties are typically located in high traffic areas within a
three-mile radius of a population of 100,000 with an average household income of
$70 thousand or more. On average, more than 30,000 cars per day pass by these
properties. In addition, management believes that the location and design of its
properties provide flexibility in use and tenant selection and an increased
likelihood of advantageous re-lease terms. See "Business and Properties --
Operating Strategy." These properties are usually smaller in size (2,500 to
71
50,000 sq. ft.) and have a large, stable and deep pool of investors as buyers
for this type of real estate. In particular, tax concerned investors ("1031
investors"), wealthy family estates and professional investors find these types
of properties valuable. Therefore, the marketability of this type of property is
usually appealing. For these reasons, management believes that AmREIT's niche of
frontage commercial credit is among the most liquid type of real estate. AmREIT
intends to continue to focus on acquiring commercial frontage properties,
believing that this sector is capable of providing appealing returns at more
attractive risk levels than other sectors of the retail/commercial real estate
market. In pursuing its growth strategy, AmREIT intends to utilize
research-driven investment analysis, disciplined buy/sell decisions and
up-to-date operating systems. AmREIT's business has, however, expanded beyond
being solely dependent on the income produced by its real estate portfolio to
include the real estate operating and capital raising operations of its
wholly-owned taxable REIT subsidiaries. See "Business and Properties" on page
____. Today, AmREIT's lines of business are expanding, its core portfolio is
improved and more diversified, and AmREIT has the best team of people in its
history. AmREIT's real estate strategy will focus on major markets, with the
goal of achieving a significant presence in major retail corridor markets of
targeted cities. These new operations provide AmREIT with additional funds to
pay distributions to its shareholders and increased asset value through its
ownership of the equity securities of these subsidiaries.
Management believes that AmREIT's focus on upgrading its property
portfolio and its continued emphasis on commercial frontage properties which are
often adjacent to major regional malls or other high traffic generators, coupled
with increasing the size of the portfolio through the acquisition of the
properties through the merger with certain of its affiliated partnerships and of
the financing opportunities provided by these new properties, should allow
AmREIT to increase revenue distributable to shareholders in the short-term. The
revenue growth strategy is enhanced by the possibility of increased long-term
value arising from the operating success of AmREIT's subsidiaries. Management
believes that AmREIT's structure allows it to be an entrepreneurial real estate
company, with income producing assets to provide attractive returns to
shareholders plus revenue producing subsidiaries which can both support AmREIT's
distributions and produce cash flow for continued growth.
INVESTMENT STRATEGY. AmREIT will continue to invest in existing,
newly-developed, development stage or undeveloped retail properties subject to
leases under which the tenant is responsible for all operating costs (i.e., the
tenant pays non-capital costs associated with operating the leased premises),
frequently referred to as a net lease. AmREIT will continue to seek to lease to
single tenant and multiple tenant properties. AmREIT intends to continue to
concentrate its investments in the Southwest, but may invest in properties
anywhere in the continental United States.
In determining whether a property is a suitable for investment,
management considers the following factors, among others:
- the safety of the investment;
- the location, condition, use and design of the property and
its suitability for a long-term net lease or a lease that
otherwise limits the amount of expenses to be incurred by
AmREIT;
- the cash flow expected to be generated by the property;
- the terms of the proposed lease (including, specifically,
provisions relating to rent increases or percentage rent and
provisions relating to passing on operating expenses to
tenants);
72
- the creditworthiness of the lessee (based on the lessee's most
recent audited financial statement or other similar evidence
establishing net worth) and the cash flow expected to be
generated by the property;
- the prospects for long-term appreciation of the property;
- the prospects for long-range liquidity of the investment; and
- the stability and potential growth of the community.
AmREIT invests in properties which are either under current lease or
are to be leased upon completion of development to a national or regional
corporation. However, in circumstances deemed appropriate, leases may be with a
sole proprietor or franchisee operating the businesses on the property. AmREIT
has no minimum financial requirements for its tenants, which will vary depending
on individual circumstances of the property and the lease. With respect to the
credit of a prospective tenant, AmREIT will evaluate the party's
creditworthiness in terms of its most recent audited financial statements, its
general credit history, any trends exhibited by its credit rating, appropriate
references, if available, the type of business in which it engages, the size and
scope of its business, the length of its operating history, the background and
experience of its management and similar types of factors.
Management also considers a property's prospects for long-term
appreciation and the prospects for long-range liquidity of the investment. Other
considerations of AmREIT affecting appreciation of the properties and liquidity
of the investment include: inclusion of lease clauses providing for increased
rents based on a tenant's increased revenues, lease clauses providing for
periodic inflation adjustments to the base rent, minimizing deferred maintenance
by prompt attention to repair and replacement needs at the properties and by
including common area maintenance clauses in the leases.
AmREIT's procedures with respect to environmental due diligence are to
require, prior to the purchase of a property, that all conditions imposed by a
lender loaning funds towards the acquisition of the property, if applicable,
have been satisfied and that all conditions imposed by the title insurer which
exclude coverage due to environmental conditions are either removed, waived or
found acceptable by a majority of AmREIT's trust managers. Where neither lender
nor title insurer conditions raise issues regarding environmental due diligence,
AmREIT may nevertheless require certain protective representations from the
seller of a property, including a satisfactory phase one environmental study of
the property site.
AmREIT competes for both investment opportunities and the operation of
its properties with other real estate investors (both domestic and foreign),
including other real estate investment trusts and limited partnerships which
have investment objectives similar to those of AmREIT and which are likely to
have resources greater than those of AmREIT. Management continually monitors the
real estate market in order to identify potential desirable property
acquisitions and advantageous disposition opportunities for its properties.
AmREIT plans to explore possible acquisitions of properties in whole or
partial exchange for its equity securities. AmREIT has authority to issue
additional shares or other securities in exchange for property and other valid
consideration, and to repurchase or otherwise reacquire its shares or any other
securities and may engage in such activities in the future. AmREIT has
authorized preferred shares, but has not issued such senior securities.
LINE OF BUSINESS STRATEGY. AmREIT has three primary lines of business
beyond its portfolio: a full service real estate operating and development
subsidiary (ARIC), an NASD registered broker dealer
73
subsidiary (securities business) and its retail partnerships. ARIC is
contributing strongly to AmREIT's profitability through generating brokerage,
leasing, construction management, development and property management fee
income. This line of business carries little overhead burden and has proven
profitable from the beginning. ARIC provides comprehensive development and
construction services from site selection and design through building completion
for creditworthy tenants across the nation. Not only does this area of expertise
allow AmREIT to generate third party fee income, but it also allows AmREIT to
respond to its own portfolio needs when required.
AmREIT's second line of business, its securities business, continues to
grow and gain traction. This business is conducted by AmREIT Securities Company
(ASC), a wholly owned subsidiary of ARIC. Through ASC, we are able to raise
capital through the NASD independent financial planning community.
Traditionally, we have raised capital in two ways: first for our actively
managed retail partnerships, and second, directly for AmREIT through non-traded
classes of common shares. During 2003, ASC raised approximately $15 million for
retail partnerships and approximately $14 million directly for us through a
class C common share offering.
AmREIT's third line of business, its sponsorship of retail
partnerships, involves sponsoring retail partnerships through NASD financial
broker dealers. Through its retail partnerships, AmREIT is able to: (1) better
match its capital with its real estate pipeline, (2) generate fee income from
the real estate activities and asset management fees that benefit the AmREIT
shareholders, and (3) participate, as the general partner of these investment
funds, in the "back end" or "carried interest" in these funds. As a sponsor of
real estate investment opportunities to the NASD financial planning broker
dealer community, we maintain an indirect 1% general partner interest in the
retail partnerships that we sponsor. The retail partnerships are typically
structured such that the limited partners receive 99% of the available cash flow
until 100% of their original invested capital has been returned and a preferred
return has been met. Once this has happened, then the general partner begins
sharing in the available cash flow at various promoted levels. We also assign a
portion of this general partner interest in these retail partnerships to
management as long term, contingent compensation. In so doing, we believe that
we will align the interest of management with that of the shareholders, while at
the same time allowing for a competitive compensation structure in order to
attract and retain key management positions without increasing the overhead
burden.
MANAGEMENT OF PROPERTIES. AmREIT internally manages each of its
properties. Such management includes providing leasing services in connection
with identifying and qualifying prospective tenants, assisting in the
negotiation of the leases, providing statements as to the income and expense
applicable to each property, receiving and depositing monthly lease payments,
periodic verification of tenant payment of real estate taxes and insurance
coverage, and periodic inspection of properties and tenants' sales records where
applicable. AmREIT pays no property management fees or advisory fees. The
tenants will be responsible, at their expense, for day-to-day oversight and
maintenance of the properties.
AmREIT acquires marketable title to each of its properties, subject
only to such liens and encumbrances as are acceptable to management. Evidence of
title includes a policy of title insurance, an opinion of counsel or such other
evidence as is customary in the locality in which the property is situated.
DEVELOPMENT OF PROPERTIES. AmREIT intends to continue to increase its
own development of properties. Under AmREIT's investment policies, not more than
10% of AmREIT's total assets may be invested in unimproved real property and
AmREIT does not intend to exceed such percentage. Depending upon the
circumstances, improvements will be developed and/or constructed either through
joint ventures with third party development companies from whom AmREIT purchases
the properties, by the tenants to whom such properties are leased, or by
development companies other than the sellers of the
74
properties. AmREIT finances the construction or completion of improvements on
particular properties through borrowing under its current credit facilities,
which it intends to increase should the merger be consummated.
To the extent AmREIT acquires property on which improvements are to be
constructed or completed, AmREIT is subject to risk in connection with the
builder's ability to control construction costs or to build in conformity with
plans, specifications and timetables and to make the property available to the
lessee within the time projected. Performance may be affected or delayed by
conditions beyond the builder'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 of
skilled labor, and by the financial insolvency of the builder or any
subcontractors prior to completion of construction. Such factors can result in
increased costs of a project, corresponding depletion of AmREIT's offering
proceeds, working capital reserves and/or cash from operations and could
possibly result in the loss of permanent mortgage loan commitments relied upon
as a primary source for repayment of construction loans.
AmREIT may use one or more of the following techniques to reduce the
risk of any non-performance by the builder and to assure compliance with
approved plans and specifications:
- a labor and material bond, a completion bond or a performance
bond, or more than one of the foregoing, may be required;
- if, in management's opinion, the financial position of the
builder so requires, a personal guaranty or pledge of other
assets may be accepted in lieu of, or required in addition to,
a bond;
- in some cases, the builder of the property will be required to
leaseback the property from AmREIT until construction is
completed with lease payments designed to return to AmREIT a
portion of its funds paid to the builder during construction
and to require the builder to bear the risk of construction;
- where possible, AmREIT will purchase property subject to the
construction loan and management will endeavor not to have
AmREIT be liable on such loan; and
- depending on the financial condition of the builder, the
contract may provide that portions of the purchase price
payments to the former owners will be withheld until a notice
of completion of construction is obtained.
PROPERTY SALE AND DISPOSITION STRATEGY. As part of its investment
strategy, AmREIT constantly evaluates its property portfolio, systematically
selling off any non-core or underperforming assets, and replacing them with
"irreplaceable corners" and other core assets. During 2003, AmREIT divested of
an Office Max property located in Dover, Delaware and a Goodyear Tire Store
located in Houston, Texas. The properties generated net sales proceeds of $3.5
million, resulting in a profit on disposition of approximately $312 thousand.
During 2004, we anticipate continuing this strategy of divesting its non-core
properties, which sales are estimated to generate between $10 and $15 million in
sales proceeds.
The determination of whether a particular property should be sold or
otherwise disposed of will be made after consideration of performance of the
property and market conditions and will depend, in part, on the economic
benefits of continued ownership. In deciding whether to sell properties,
management will consider factors such as potential capital appreciation, cash
flow and federal income tax consequences. Affiliates of AmREIT or of one or more
of its trust managers may be selected to perform
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various substantial real estate brokerage functions in connection with the sale
of properties by AmREIT. AmREIT will not sell or lease any property to its trust
managers or their affiliates.
Management will periodically review the assets comprising AmREIT's
portfolio. AmREIT has no current intention to dispose of any of its properties
or other properties acquired in the merger with its affiliated partnerships,
unless the sale of properties is necessary or appropriate because of liquidity
problems. AmREIT reserves the right to dispose of any of the properties or any
property that may be acquired in the future if the trust managers, based in part
upon management's periodic reviews, determines that the disposition of such
property is in the best interests of AmREIT.
Any net proceeds from the sale of any property may, at the election of
our board of trust managers, based upon their then current evaluation of the
real estate market conditions, either be distributed to the shareholders or be
reinvested in other properties. A reinvestment in other properties would be
feasible only if it could be accomplished so that the status of AmREIT as a REIT
would not be adversely affected. Any properties in which net proceeds from a
sale are reinvested will be subject to the same acquisition guidelines as
properties initially acquired by AmREIT. See "Business and Properties."
In connection with the sale of a property owned by AmREIT, purchase
money obligations secured by mortgages may be taken as partial payment. The
terms of payment to AmREIT will be affected by custom in the area in which the
property being sold is located and the then prevailing economic conditions. To
the extent AmREIT receives notes and property other than cash on sales, such
proceeds will not be included in net proceeds of sale until and to the extent
the notes or other property are actually collected, sold, refinanced or
otherwise liquidated. Therefore, dividends to shareholders of the proceeds of a
sale may be delayed until the notes or other property are collected at maturity,
sold, refinanced or otherwise converted to cash. AmREIT may receive payments
(cash and other property) in the year of sale in an amount less than the full
sales price and subsequent payments may be spread over several years. The entire
balance of the principal may be a balloon payment due at maturity. For federal
income tax purposes, unless AmREIT elects otherwise it will report the gain on
such sale ratably as principal payments are received under the installment
method of accounting.
BORROWING POLICIES. AmREIT may elect to borrow funds in order to take
advantage of particular acquisition opportunities, cover the cost of improving a
property, cover costs not met by insurance or cover operating costs. The amount
of borrowings will be determined from time to time based on a number of factors,
including the use of the proceeds, the lender's restrictions, the likelihood
that the loan can be readily serviced from rents at the property where the
proceeds are applied and similar considerations. AmREIT will not borrow funds in
order to use the proceeds from the borrowing to pay dividends to AmREIT's
shareholders, unless such borrowings are necessary for REIT qualification
purposes.
AmREIT may not borrow from a trust manager, officer or any affiliate
thereof, unless a majority of trust managers, including a majority of
independent trust managers, not otherwise interested in such transaction approve
the transaction as being fair, competitive, and commercially reasonable and no
less favorable to AmREIT than loans between unaffiliated parties under the same
circumstances.
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CONFLICT OF INTEREST AND AFFILIATE TRANSACTION POLICY. Mr. Taylor, our
Chairman of the Board and Chief Executive Officer, is prohibited from engaging
in competitive real estate activities, including any real estate acquisitions,
development or management activities in connection therewith, during his
employment with AmREIT, except as may be approved by the independent trust
managers.
AmREIT will not enter into any transactions, including, without
limitation, loans, acquisitions or sales of property, joint ventures and
partnerships, in which AmREIT or a subsidiary is a party and in which any
officer, trust manager, principal security holder or affiliate has any direct or
indirect pecuniary interest, unless such transaction is approved by a majority
of the independent trust managers after full disclosure of such interests. In
determining whether to approve the transaction, the independent trust managers
will condition such approval on the transaction being fair and reasonable to
AmREIT and, to the extent deemed relevant by such independent trust managers, on
terms no less favorable to AmREIT than prevailing market terms and conditions
for comparable transactions. Independent trust managers will be considered to be
disinterested for this purpose provided they have no direct or indirect
pecuniary interest in the transaction.
SUMMARY OF AMREIT'S GROWTH STRATEGY. AmREIT has focused on
strengthening its management, its board of trust managers and, thereby, its
intellectual capital base over the past two years. Simultaneously, a stronger
emphasis on long term growth and value creation has been embraced. Along with
this long-term growth and value creation focus, AmREIT's management also
recognizes the need to provide short-term results for its shareholders. This
balances the desire to create long-term value and the short-term need to provide
an acceptable and steady current returns to its investors. This approach also
recognizes the reality of the variable nature of AmREIT's net income as profits
from its lines of business fluctuate as compared to a larger REIT that looks to
its portfolio income for its distributable cash flow. Although it is a reality
that AmREIT's net income is not as predictable as a larger portfolio REIT,
AmREIT is able to potentially generate very attractive long term yields because
its smaller equity base creates more upside for shareholders as its lines of
business create profits.
Today, AmREIT is a nimble, efficient and effective entrepreneurial real
estate company which has the ability to generate attractive non-portfolio yields
through its lines of business including investment sponsorship, merchant
development, brokerage, construction and property management.
AMREIT'S DECLARATION OF TRUST AND BYLAWS
The following summarizes the material terms of AmREIT's current
declaration of trust and bylaws, but does not set forth all the provisions of
AmREIT's declaration of trust or bylaws. For additional information about
AmREIT's declaration of trust and bylaws, you should read these documents, which
are included as exhibits to this registration statement, in their entirety.
AUTHORIZED STOCK
The charter provides that AmREIT is authorized to issue 103,000,000
equity shares consisting of 50,000,000 class A common shares, $0.01 par value
per share, 3,000,000 class B common shares, $0.01 par value per share,
40,000,000 undesignated common shares, $0.01 par value per share, and 10,000,000
preferred shares, par value $0.01 per share. The undesignated common shares and
the preferred shares may be issued from time to time, in one or more series,
each of which series shall have such voting powers, designations, preferences
and rights, and the qualifications, limitations or restrictions relating
thereto, as shall be authorized by the board of trust managers. See "Description
of AmREIT's Capital Shares" beginning on page _____.
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TRUST MANAGERS
The bylaws provide that the number of trust managers shall consist of
not less than three nor more than nine members, the exact number of which shall
be fixed by the board from time to time. The bylaws provide that, except as
otherwise provided by law or the charter, a quorum of the board for the
transaction of business shall consist of a majority of the entire board. The act
of a majority of the trust managers present at any meeting at which there is a
quorum shall be the act of the board. The charter and the bylaws do not provide
for a classified board or for cumulative voting in the election of trust
managers to the board. The bylaws provide that vacancies and any newly-created
trust manager portions resulting from an increase in the authorized number of
trust managers may be filled by a majority of the trust managers then in office,
though less than a quorum.
SHAREHOLDER MEETINGS AND SPECIAL VOTING REQUIREMENTS
The annual meetings of shareholders are held on such date as shall be
fixed by the board. The bylaws specify such date to be not fewer than 30 days
nor more than 61 days after distribution of AmREIT's annual report to
shareholders. Special meetings of shareholders may be called only upon the
request of a majority of the trust managers, a majority of the independent trust
managers, the president, or upon the written request of shareholders entitled to
cast at least 10 % of all of the votes entitled to be cast at such meeting. In
general, the presence in person or by proxy of shareholders entitled to cast a
majority of votes shall constitute a quorum at any shareholders' meeting. The
charter and the bylaws may in general be amended by a majority vote of the
shareholders. However, an amendment of any provision of the charter or bylaws
which requires a greater than majority vote must itself be approved by a vote of
the shareholders holding shares representing at least 66 2/3% of the votes
entitled to be cast thereon.
Other matters on which the shareholders are entitled to vote include:
- the election and removal of trust managers;
- a voluntary change in AmREIT's status as a REIT; and/or
- the dissolution of AmREIT.
AMENDMENT OF THE CHARTER AND BYLAWS
A majority of the trust managers may in their discretion, from time to
time, amend, without a shareholder vote, the bylaws. The shareholders may amend
the bylaws by a majority vote.
TRANSACTIONS WITH INTERESTED OFFICERS OR TRUST MANAGERS
The bylaws provide that contracts or transactions between AmREIT and a
trust manager or officer of AmREIT or a corporation or entity in which such
officer or trust manager is also an officer or trust manager or has a financial
interest, are not void or voidable solely for such reason or solely because the
officer or trust manager is present at or participates in any meeting of the
board which authorizes the transaction or contract, or solely because such
officer's or trust manager's vote is counted for such purpose, if the bylaw
restrictions regarding such transactions are satisfied (see discussion under
stated investment policies above) and:
- the material facts as to his relationship or interest are
disclosed or are known to the board or a committee and the
board or a committee in good faith authorizes such contract or
transaction;
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- the material facts as to his relationship or interest are
disclosed or are known to the shareholders entitled to vote
thereon and the shareholders in good faith specifically
approve such contract or transaction; or
- the contract or transaction is fair to AmREIT at the time it
is authorized, approved or ratified by the board, a committee
or the shareholders.
In addition, the bylaws provide that any transactions with interested
trust managers or officers or their affiliates shall be made on commercially
reasonable terms substantially equivalent to terms available from third parties
in an arm's-length transaction in the competitive marketplace.
LIMITATIONS ON HOLDINGS AND TRANSFER
For AmREIT to continue to qualify as a REIT under the Code, not more
than fifty percent (50%) of its outstanding shares may be owned by five or fewer
individuals during the last half of each year and outstanding shares must be
owned by 100 or more persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a shorter taxable year except with
respect to the first taxable year for which an election to be treated as a REIT
is made. The charter restricts the accumulation or transfer of common shares if
any accumulation or transfer could result in any person beneficially owning, in
accordance with the Code, in excess of 9.0% of the then outstanding common
shares, or could result in AmREIT being disqualified as a REIT under the Code.
Such restrictions authorize the board to refuse to give effect to such transfer
on AmREIT's books as to common shares accumulated in excess of the 9.0%
ownership limit. Although the intent of these restrictions is to preclude
transfers which would violate the ownership limit or protect the AmREIT's status
as a REIT under the Code, there can be no assurance that such restrictions will
achieve their intent. See "Description of AmREIT's Capital Shares -- Ownership
Limits and Restrictions on Transfer."
A transferee who acquires shares in a restricted transfer is required
to indemnify, defend, and hold AmREIT and its other shareholders harmless from
and against all damages, losses, costs, and expenses, including, without
limitation, reasonable attorneys' fees, incurred or suffered by AmREIT or such
shareholders by virtue of AmREIT's loss of its qualification as a REIT if such
loss is a result of the transferee's acquisition. See "Federal Income Tax
Consequences."
LIABILITY FOR MONETARY DAMAGES
The declaration of trust provides that no trust manager will be
personally liable to AmREIT or its shareholders for monetary damages for breach
of fiduciary duty as a trust manager, other than liability for breach of the
duty of loyalty to AmREIT or its shareholders, acts or omissions not in good
faith, intentional misconduct, a knowing violation of law, certain unlawful
dividends, share repurchases or redemptions or any transaction from which the
trust manager derived an improper personal benefit. Any repeal or modification
of such provision by the shareholders of AmREIT will not adversely affect any
right or protection of a trust manager existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to such repeal or
modification.
INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The declaration of trust provides for the indemnification of present
and former trust managers and officers of AmREIT and persons serving as trust
managers, officers, employees or agents of another corporation or entity at the
request of AmREIT to the fullest extent permitted by Texas law. Indemnified
parties are specifically indemnified in the charter and the bylaws for expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by an indemnified party
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(1) in connection with a threatened, pending or completed action, suit or
proceeding (whether civil, criminal, administrative or investigative) by reason
of the fact that he is or was a trust manager or officer of AmREIT or is or was
serving as a trust manager, director, officer, employee or agent of another
corporation or entity at the request of AmREIT, or (2) in connection with the
defense or settlement of a threatened, pending or completed action or suit by or
in the right of AmREIT, provided that such indemnification is permitted only
with judicial approval if the indemnified party is adjudged to be liable to
AmREIT. Such indemnified party must have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the subject
entity and, with respect to any criminal action or proceeding, must have had no
reasonable cause to believe his conduct was unlawful. Any indemnification under
the indemnification provisions must be authorized based on a determination that
the indemnification is proper if the applicable standard of conduct has been met
by the indemnified party, provided that no such authorization is required, and
indemnification is mandatory, where a trust manager or officer of AmREIT is
successful in the defense of such action, suit or proceeding or any claim or
matter therein. Otherwise, such determination will be made by a majority vote of
a quorum of the board consisting of trust managers not a party to the suit,
action or proceeding, by a written opinion of independent legal counsel or by
the shareholders. In the event that a determination is made that a trust manager
or officer is not entitled to indemnification under the indemnification
provisions, the indemnification provisions provide that the indemnified party
may seek a judicial determination of his right to indemnification. The
indemnification provisions further provide that the indemnified party is
entitled to indemnification for all expenses (including attorneys' fees)
incurred in any proceeding seeking to collect from AmREIT an indemnity claim
under the indemnification provisions if such indemnified party is successful.
Other than proceedings to enforce rights to indemnification, AmREIT is not
obligated to indemnify any person in connection with a proceeding initiated by
such person, unless authorized by the board.
AmREIT will pay expenses incurred by a trust manager or officer of
AmREIT, or a former trust manager or officer, in advance of the final
disposition of an action, suit or proceeding, if he undertakes to repay amounts
advanced if it is ultimately determined that he is not entitled to be
indemnified by AmREIT.
The indemnification provisions and provisions for advancing expenses in
the charter will be expressly not exclusive of any other rights of
indemnification or advancement of expenses pursuant to the bylaws. The
indemnification provisions and provisions for advancing expenses in the bylaws
and the charter will be expressly not exclusive of any other rights of
indemnification or advancement of expenses pursuant to any agreement, vote of
the shareholders or disinterested trust managers or pursuant to judicial
direction. AmREIT will be authorized to purchase insurance on behalf of an
indemnified party for liabilities incurred, whether or not AmREIT would have the
power or obligation to indemnify him pursuant to the charter, the bylaws or
Texas law.
In addition, AmREIT will enter into indemnification agreements with its
trust managers and certain of its executive officers pursuant to which such
persons are indemnified for costs and expenses actually and reasonably incurred
by such persons in connection with a threatened, pending or completed claim
arising out of service as a trust manager, officer, employee, trustee and/or
agent of AmREIT or another entity at the request of AmREIT.
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CERTAIN ANTI-TAKEOVER PROVISIONS OF THE
DECLARATION OF TRUST, BYLAWS AND TEXAS LAW
AmREIT's declaration of trust and bylaws contain certain provisions
that may inhibit or impede acquisition or attempted acquisition of control of
AmREIT by means of a tender offer, a proxy contest or otherwise. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of AmREIT to negotiate first with the trust managers. AmREIT
believes that these provisions increase the likelihood that proposals initially
will be on more attractive terms than would be the case in their absence and
increase the likelihood of negotiations, which might outweigh the potential
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals might result in improvement of terms. The
description set forth below is only a summary of the terms of the declaration of
trust and bylaws. See "Description of AmREIT's Capital Shares -- Ownership
Limits and Restrictions on Transfer."
NUMBER OF TRUST MANAGERS; REMOVAL; FILLING VACANCIES
Subject to any rights of holders of preferred shares to elect
additional trust managers under specified circumstances ("Preferred Holders'
Rights"), the declaration of trust provides that the number of trust managers
will be fixed by, or in the manner provided in, the bylaws, but must not be more
than nine nor less than three. See "Preferred Shares" below. In addition, the
bylaws provide that, subject to any Preferred Holders' Rights, the number of
trust managers will be fixed by the trust managers, but must not be more than
nine nor less than three. In addition, the bylaws provide that, subject to any
Preferred Holders' Rights, and unless the trust managers otherwise determine,
any vacancies (other than vacancies created by an increase in the total number
of trust managers) will be filled by the affirmative vote of a majority of the
remaining trust managers, although less than a quorum, and any vacancies created
by an increase in the total number of trust managers may be filled by a majority
of the entire trust managers. Accordingly, the trust managers could temporarily
prevent any shareholder from enlarging the trust managers and then filling the
new trust manager position with such shareholder's own nominees.
The declaration of trust and the bylaws provide that, subject to any
Preferred Holders' Rights, trust managers may be removed only for cause upon the
affirmative vote of holders of at least 80% of the entire voting power of all
the then-outstanding shares entitled to vote generally in the election of trust
managers, voting together as a single class.
RELEVANT FACTORS TO BE CONSIDERED BY THE BOARD OF TRUST MANAGERS
The declaration of trust provides that, in determining what is in the
best interest of AmREIT in evaluating a "business combination," "change in
control" or other transaction, a trust manager of AmREIT shall consider all of
the relevant factors. These factors may include (1) the immediate and long-term
effects of the transaction on AmREIT shareholders, including shareholders, if
any, who do not participate in the transaction; (2) the social and economic
effects of the transaction on AmREIT's employees, suppliers, creditors and
customers and others dealing with AmREIT and on the communities in which AmREIT
operates and is located; (3) whether the transaction is acceptable, based on the
historical and current operating results and financial condition of AmREIT; (4)
whether a more favorable price would be obtained for AmREIT's stock or other
securities in the future; (5) the reputation and business practices of the other
party or parties to the proposed transaction, including its or their management
and affiliates, as they would affect employees of AmREIT; (6) the future value
of AmREIT's securities; (7) any legal or regulatory issues raised by the
transaction; and (8) the business and financial condition and earnings prospects
of the other party or parties to the proposed transaction including, without
limitation, debt service and other existing financial obligations, financial
obligations to
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be incurred in connection with the transaction, and other foreseeable financial
obligations of such other party or parties. Pursuant to this provision, the
trust managers may consider subjective factors affecting a proposal, including
certain nonfinancial matters, and, on the basis of these considerations, may
oppose a business combination or other transaction which, evaluated only in
terms of its financial merits, might be attractive to some, or a majority, of
AmREIT's shareholders.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER PROPOSALS
The bylaws provide for an advance notice procedure for shareholders to
make nominations of candidates for trust manager or bring other business before
an annual meeting of shareholders of AmREIT (the "Shareholder Notice
Procedure").
Pursuant to the Shareholder Notice Procedure (i) only persons who are
nominated by, or at the direction of, the trust managers, or by a shareholder
who has given timely written notice containing specified information to the
Secretary of AmREIT prior to the meeting at which trust managers are to be
elected, will be eligible for election as trust managers of AmREIT and (ii) at
an annual meeting, only such business may be conducted as has been brought
before the meeting by, or at the direction of, the Chairman or the trust
managers or by a shareholder who has given timely written notice to the
Secretary of AmREIT of such shareholder's intention to bring such business
before such meeting. In general, for notice of shareholder nominations or
proposed business to be conducted at an annual meeting to be timely, such notice
must be received by AmREIT not less than 70 days nor more than 90 days prior to
the first anniversary of the previous year's annual meeting.
The purpose of requiring shareholders to give AmREIT advance notice of
nominations and other business is to afford the trust managers a meaningful
opportunity to consider the qualifications of the proposed nominees or the
advisability of the other proposed business and, to the extent deemed necessary
or desirable by the trust managers, to inform shareholders and make
recommendations about such nominees or business, as well as to ensure an orderly
procedure for conducting meetings of shareholders.
Although the bylaws do not give the trust managers power to block
shareholder nominations for the election of trust managers or proposal for
action, the Shareholder Notice Procedure may have the effect of discouraging a
shareholder from proposing nominees or business, precluding a contest for the
election of trust managers or the consideration of shareholder proposals if
procedural requirements are not met, and deterring third parties from soliciting
proxies for a non-management proposal or slate of trust managers, without regard
to the merits of such proposal or slate.
PREFERRED SHARES
The declaration of trust authorizes the trust managers to establish one
or more series of preferred shares and to determine, with respect to any series
of preferred shares, the preferences, rights and other terms of such series,
subject to the prior approval rights of the class B common shareholders. AmREIT
believes that the ability of the trust managers to issue one or more series of
preferred shares will provide AmREIT with increased flexibility in structuring
possible future financings and acquisitions, and in meeting other needs. The
authorized preferred shares are available for issuance without further action by
AmREIT's shareholders, unless such action is required by applicable law or the
rules of any stock exchange or automated quotation system on which AmREIT's
securities may be listed or traded at the time of issuance or proposed issuance.
Although the trust managers have no present intention to do so, they could, in
the future, issue a series of preferred shares which, due to its terms, could
impede a merger, tender offer or other transaction that some, or a majority, of
AmREIT's shareholders might believe to be in their best interests or in which
shareholders might receive a premium over then-prevailing market prices for
their common shares.
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AMENDMENT OF DECLARATION OF TRUST
The declaration of trust provides that it may be amended only by the
affirmative vote of the holders of not less than two-thirds of the votes
entitled to be cast, except that the provisions of the declaration of trust
relating to "business combinations" or "control shares" (as described below
under "-- Business Combinations" and "-- Control Share Acquisitions") may be
amended only with the affirmative vote of 80% of the votes entitled to be cast,
voting together as a single class.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
The declaration of trust authorizes the trust managers, subject to any
rights of holders of any series of preferred shares, to create and issue rights
entitling the holders thereof to purchase from AmREIT common shares or other
securities or property. The times at which and terms upon which such rights are
to be issued are within the discretion of the trust managers. This provision is
intended to confirm the authority of the trust managers to issue share purchase
rights which could have terms that would impede a merger, tender offer or other
takeover attempt, or other rights to purchase securities of AmREIT or any other
entity.
BUSINESS COMBINATIONS
The declaration of trust establishes special requirements with respect
to "business combinations" (including a merger, consolidation, share exchange,
or, in certain circumstances, an asset transfer or issuance of reclassification
of equity securities) between AmREIT and any person who beneficially owns,
directly or indirectly, 10% or more of the voting power of AmREIT's shares (an
"Interested Shareholder"), subject to certain exemptions. In general, the
declaration of trust provides that an Interested Shareholder or any affiliate
thereof may not engage in a "business combination" with AmREIT for a period of
five years following the date he becomes an Interested Shareholder. Thereafter,
pursuant to the declaration of trust, such transactions must be (1) approved by
the trust managers of AmREIT and (2) approved by the affirmative vote of at
least 80% of the votes entitled to be cast by holders of voting shares other
than voting shares held by the Interested Shareholder with whom the business
combination is to be effected, unless, among other things, the holders of equity
shares receive a minimum price (as defined in our declaration of trust) for
their shares and the consideration is received in cash or in the same form as
previously paid by the Interested Shareholder for his shares. These provisions
of the declaration of trust do not apply, however, to business combinations that
are approved or exempted by the trust managers of AmREIT prior to the time that
the Interested Shareholder becomes an Interested Shareholder.
CONTROL SHARE ACQUISITIONS
The declaration of trust provides that "control shares" of AmREIT
acquired in a control share acquisition have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast by the
holders of equity shares, excluding shares as to which the acquiror, officers of
AmREIT and employees of AmREIT who are also trust managers have the right to
vote or direct the vote. "Control shares" are Equity Shares which, if aggregated
with all other equity shares previously acquired which the person is entitled to
vote, would entitle the acquiror to vote (1) 20% or more but less than
one-third; (2) one-third or more but less than a majority; or (3) a majority of
the outstanding voting shares of AmREIT. Control shares do not include equity
shares that the acquiring person is entitled to vote on the basis of prior
shareholder approval. A "control share acquisition" is defined as the
acquisition of control shares, subject to certain exemptions enumerated in the
declaration of trust.
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The declaration of trust provides that a person who has made or
proposed to make a control share acquisition and who has obtained a definitive
financing agreement with a responsible financial institution providing for any
amount of financing not to be provided by the acquiring person may compel the
trust managers of AmREIT to call a special meeting of shareholders to be held
within 50 days of demand to consider the voting rights of the Equity Shares. If
no request for a meeting is made, the declaration of trust permits AmREIT itself
to present the question at any shareholders' meeting.
Pursuant to the declaration of trust, if voting rights are not approved
at a shareholders' meeting or if the acquiring person does not deliver an
acquiring person statement as required by the declaration of trust, then,
subject to certain conditions and limitations set forth in the declaration of
trust, AmREIT will have the right to redeem any or all of the control shares,
except those for which voting rights have previously been approved, for fair
value determined, without regard to the absence of voting rights of the control
shares, as of the date of the last control share acquisition or of any meeting
of shareholders at which the voting rights of such shares are considered and not
approved. Under the declaration of trust, if voting rights for control shares
are approved at a shareholders' meeting and, as a result, the acquiror would be
entitled to vote a majority of the Equity Shares entitled to vote, all other
shareholders will have the rights of dissenting shareholders under the Texas
Real Estate Investment Trust Act (the "TRA"). The declaration of trust provides
that the fair value of the Equity Shares for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiror in the
control share acquisition, and that certain limitations and restrictions of the
TRA otherwise applicable to the exercise of dissenters' rights do not apply.
These provisions of the declaration of trust do not apply to Equity
Shares acquired in a merger, consolidation or share exchange if AmREIT is a
party to the transaction, or if the acquisition is approved or excepted by the
declaration of trust or bylaws of AmREIT prior to a control share acquisition.
OWNERSHIP LIMIT
The limitation on ownership of shares of common shares set forth in
AmREIT's declaration of trust, as well as the provisions of the TRA, could have
the effect of discouraging offers to acquire AmREIT and of increasing the
difficulty of consummating any such offer. See "Description of AmREIT's Capital
Shares -- Ownership Limits and Restrictions on Transfer."
DESCRIPTION OF AMREIT'S CAPITAL SHARES
GENERAL
AmREIT's authorized equity structure consists of 93,000,000 common
shares, $0.01 par value per share, and 10,000,000 preferred shares, par value
$0.01 per share. As of March 6, 2004, AmREIT had outstanding approximately 2.98
million class A common shares, approximately 2.35 million class B common shares,
and approximately 2.32 million class C common shares and no preferred shares.
AmREIT is authorized to issue 93,000,000 common shares consisting of 50,000,000
class A common shares, 3,000,000 class B common shares and 40,000,000
undesignated common shares.
CLASS A COMMON SHARES
Subject to such preferential rights as may be granted by the board of
trust managers in connection with the future issuance of preferred shares and
the preferential rights of the holders of the class B, class C and class D
common shares, holders of class A common shares are exclusively entitled to one
vote for each class A common shares on all matters to be voted on by
shareholders and are entitled to receive ratably such dividends as may be
declared on the class A common shares by the board of trust
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managers in its discretion from legally available funds. In the event of the
liquidation, dissolution or winding up of AmREIT, holders of class A common
shares are entitled to share ratably with holders of class B common shares,
class C common shares and class D common shares that portion of aggregate assets
available for distribution as the number of outstanding class A common shares
held by such holder bears to the total number of (1) class A common shares then
outstanding, (2) the class B common shares then outstanding, (3) the class C
common shares then outstanding, (4) the class D common shares then outstanding
and (5) any other series of common shares then outstanding that rank on a parity
with the class A common shares as to the distribution of assets upon
liquidation. Holders of class A common shares have no subscription, redemption,
conversion or preemptive rights. Matters submitted for shareholder approval
generally require a majority vote of the shares present and voting thereon.
The transfer agent and registrar for the class A common shares is Wells
Fargo Shareowner Services, 161 North Concord Exchange, South St. Paul, MN 55075.
CLASS B COMMON SHARES
DIVIDENDS. Subject to the preferential rights of any series of our
preferred shares (of which there is currently none issued), holders of class B
common shares will be entitled to receive, when and as declared by the AmREIT
board of trust managers, out of funds legally available for the payment of
dividends, cumulative cash dividends in an amount per class B common share equal
to $0.74 per annum. Dividends with respect to the class B common shares will be
cumulative from the date of original issuance and will be payable quarterly in
arrears on March 31, June 30, September 30 and December 31 (each, a Dividend
Payment Date), beginning with a partial dividend on September 30, 2002, with
respect to the period from the date of original issuance to the initial Dividend
Payment Date. Any dividend payable on the class B common shares for any partial
dividend period after the initial dividend period will be computed on the basis
of a 360-day year consisting of twelve 30-day months. Dividends payable on the
class B common shares for each full dividend period will be computed by dividing
the annual dividend rate by four. Dividends will be payable to holders of record
as they appear in the share records of AmREIT at the close of business on the
applicable record date, which will be the first day of the calendar month in
which the applicable Dividend Payment Date falls or such other date designated
by the AmREIT board for the payment of dividends that is no more than thirty
(30) nor less than ten (10) days prior to the Dividend Payment Date (each, a
Dividend Record Date).
No dividends on class B common shares will be declared by the AmREIT
board or paid or set apart for payment at such time as, and to the extent that,
the terms and provisions of any AmREIT agreement, including any agreement
relating to its indebtedness, or any provisions of its charter relating to any
series of preferred stock, prohibit such declaration, payment or setting apart
for payment or provide that such declaration, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or if such
declaration or payment will be restricted or prohibited by law. Notwithstanding
the foregoing, dividends on the class B common shares will accrue whether or not
AmREIT has earnings, whether or not there are funds legally available for the
payment of such dividends and whether or not such dividends are declared.
Holders of the class B common shares will not be entitled to any dividends in
excess of full cumulative dividends as described above.
If any class B common shares are outstanding, no full dividends will be
declared or paid or set apart for payment on the class A common shares for any
period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the class B common shares for all past dividend
periods and the then current dividend period. No interest, or sum of money in
lieu of interest, will be payable in respect of any dividend payment or payments
on class B common shares which may be in arrears. Any dividend
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payment made on class B common shares will first be credited against the
earliest accrued but unpaid dividend due with respect to class B common shares
which remains payable.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of AmREIT, subject to the prior rights of any series of preferred
stock, the holders of class B common shares will share pro rata with the holders
of the class A common shares, class C common shares, class D common shares and
any other series of common shares then outstanding that rank on a parity with
the class B common shares as to the distribution of assets on liquidation, the
assets of AmREIT remaining following the payment of all liquidating
distributions payable to holders of capital shares of AmREIT with liquidation
rights senior to those of the common shares.
REDEMPTION. The class B common shares will not be redeemable prior to
July 16, 2005, except under certain limited circumstances to preserve the
AmREIT's status as a REIT. On and after July 16, 2005, AmREIT, at its option (to
the extent AmREIT has funds legally available therefore) upon not less than 30
nor more than 60 days' written notice, may redeem class B common shares, in
whole or in part, at any time or from time to time, for, at the option of the
holder thereof, either in cash at the redemption price per share of $10.18, plus
all accrued and unpaid dividends, if any, thereon (whether or not earned or
declared) to the date fixed for redemption, or for one class A common share.
Notwithstanding the foregoing, unless full cumulative dividends on all
class B common shares have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, no class B
common shares will be redeemed unless all outstanding class B common shares are
simultaneously redeemed. The foregoing, however, will not prevent the purchase
or acquisition of the class B common shares pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding class B common
shares. Unless full cumulative dividends on all outstanding class B common
shares have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, AmREIT will not purchase
or otherwise acquire directly or indirectly through a subsidiary or otherwise,
any class B common shares.
If fewer than all of the outstanding class B common shares are to be
redeemed, the number of shares to be redeemed will be determined by AmREIT and
those shares may be redeemed pro rata from the holders of record of those shares
in proportion to the number of those shares held by the holders (as nearly as
may be practicable without creating fractional class B common shares) or any
other equitable method determined by AmREIT.
Notice of redemption will be given by publication in a newspaper of
general circulation in the City of New York, such publication to be made once a
week for two successive weeks commencing not less than 30 nor more than 60 days'
prior to the redemption date. A similar notice will be mailed by AmREIT, postage
prepaid, not less than 30 nor more than 60 days' prior to the redemption date,
addressed to the respective holders of record of class B common shares to be
redeemed at their respective addresses as they appear on the stock transfer
records of AmREIT. No failure to give notice or any defect therein or in the
mailing thereof will affect the validity of the proceeding for the redemption of
any class B common shares except as to the holder to whom notice was defective
or not given. Each notice will state: (1) the redemption date; (2) the
redemption price; (3) the number of class B common shares to be redeemed; (4)
the place or places where the class B common shares are to be surrendered for
payment of the redemption price; (5) that dividends on the shares to be redeemed
will cease to accrue on the redemption date; and (6) that any conversion rights
will terminate at the close of business on the third business day immediately
preceding the redemption date. If fewer than all the class B common shares held
by any holder are to be redeemed, the notice mailed to that holder will also
specify the number of
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class B common shares to be redeemed from that holder. If notice of redemption
of any class B common shares has been properly given and if funds necessary for
redemption have been irrevocably set aside by AmREIT in trust for the benefit of
the holders of any of the class B common shares so called for redemption, then
from and after the redemption date dividends will cease to accrue on those class
B common shares, those shares will no longer be deemed to be outstanding and all
rights of the holders of those shares will terminate except for the right to
receive the applicable redemption price and other amounts payable in respect of
such shares.
The holders of class B common shares at the close of business on a
Dividend Record Date will be entitled to receive the dividend payable with
respect to class B common shares on the corresponding Dividend Payment Date
notwithstanding the redemption thereof between that Dividend Record Date and the
corresponding Dividend Payment Date or AmREIT's default in the payment of the
dividend due. Except as provided above, AmREIT will make no payment or allowance
for unpaid dividends, whether or not in arrears, on class B common shares called
for redemption.
VOTING RIGHTS. Holders of the class B common shares have the right to
vote on all matters presented to shareholders as a single class with all other
holders of common shares. In any matter in which the class B common shares may
vote, including any action by written consent, each class B common share will be
entitled to one vote.
AmREIT shall not issue any preferred shares or other class of common
shares with dividend preferences senior to the dividends payable on the class B
common shares without the approval of 66 2/3% of the class B common shares then
outstanding.
Whenever dividends on any class B common shares have been in arrears
for six or more consecutive quarterly periods, the holders of those class B
common shares will be entitled to vote for the election of two additional trust
managers of AmREIT at a special meeting called by the holders of record of at
least 10% of the class B common shares (unless the request is received less than
90 days before the date fixed for the next annual or special meeting of the
stockholders), or at the next annual meeting of shareholders, and at each
subsequent annual meeting until all dividends accumulated on the class B common
shares for the past dividend periods and the then current dividend period have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment. In this event, the entire AmREIT board of trust managers will
be increased by two trust managers. Each of these two trust managers will be
elected to serve until the earlier of (1) the election and qualification of that
trust manager's successor or (2) payment of the dividend arrearage for the class
B common shares.
In addition, AmREIT may not sell all or substantially all of its
assets, dissolve, or amend its declaration of trust in any manner that
materially and adversely affects the voting powers, rights or preferences of the
holders of class B common shares without the approval of 66 2/3% of the class B
common shares then outstanding; provided, however, the issuance of any security
with dividend or liquidation preferences that rank equally with or are junior to
the dividend or liquidation preferences of the class B common shareholders shall
not be considered to materially or adversely affect the voting powers, rights or
preferences of the class B common shareholders.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which a vote would otherwise be required is
effected, all outstanding class B common shares have been redeemed or called for
redemption upon proper notice and sufficient funds have been deposited in trust
to effect such redemption.
CONVERSION. Subject to the exceptions described under the caption
"Restrictions on Transfer" below, holders of the class B common shares will have
the right, at any time and from time to time, to
87
convert all or any of the class B common shares into class A common shares on a
one for one basis, subject to adjustment upon the occurrence of the events
described below (the Conversion Price).
Class B common shares will be deemed to have been converted immediately
prior to the close of business on the date the shares are surrendered for
conversion and notice of election to convert the same is received by AmREIT.
Upon conversion, no adjustment or prepayment will be made for dividends, but if
any holder surrenders class B common shares for conversion after the close of
business on a Dividend Record Date and prior to the opening of business on the
related Dividend Payment Date, then, notwithstanding the conversion, the
dividend payable on that Dividend Payment Date will be paid on that Dividend
Payment Date to the registered holder of those shares on that Dividend Record
Date. Class B common shares surrendered for conversion during the period from
the close of business on a Dividend Record Date to the Dividend Payment Date
must also pay the amount of the dividend which is payable. No fractional class A
common shares will be issued upon conversion and, if the conversion results in a
fractional interest, an amount will be paid in cash equal to the value of the
fractional interest based on the market price of the common shares on the last
trading day prior to the date of conversion.
The number of class A common shares or other assets issuable upon
conversion and the Conversion Price are subject to adjustment upon the
occurrence of the following events:
(1) the issuance of class A common shares as a dividend or
distribution on class A common shares;
(2) the subdivision, combination or reclassification of the
outstanding class A common shares;
(3) the issuance to all holders of class A common shares of rights
or warrants to subscribe for or purchase class A common shares
(or securities convertible into class A common shares) at a
price per share less than the then current market price per
share;
(4) the distribution to all holders of class A common shares of
evidences of indebtedness or assets (including securities, but
excluding Ordinary Cash Distributions, as defined below, and
those dividends, distributions, rights or warrants referred to
above); and
(5) the distribution to all holders of class A common shares of
rights or warrants to subscribe for securities (other than
those referred to in clause (3) above).
In the event of a distribution of evidence of indebtedness or other
assets (as described in clause (4)) or a dividend to all holders of class A
common shares of rights to subscribe for additional AmREIT's capital stock
(other than those referred to in clause (3) above), AmREIT may, instead of
making an adjustment of the Conversion Price, make proper provision so that each
holder who converts shares will be entitled to receive upon conversion, in
addition to class A common shares, an appropriate number of those rights,
warrants, evidences of indebtedness or other assets. No adjustment will be made
for "Ordinary Cash Distributions," which are distributions to holders of class A
common shares in an amount not exceeding AmREIT's accumulated funds from
operations since its formation, after deducting dividends or other distributions
(1) paid in respect of all classes of capital shares of AmREIT or (2) accrued in
respect of the class B common shares, and any preferred shares. In addition, no
adjustment of the Conversion Price will be made until cumulative adjustments
amount to one percent or more of the Conversion Price as last adjusted. Any
adjustments not so required to be made will be carried forward and taken into
account in subsequent adjustments.
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Whenever the number of class A common shares or other assets issuable
upon conversion and the Conversion Price are adjusted as herein provided, AmREIT
(1) will promptly make available at the office of the transfer agent a statement
describing in reasonable detail such adjustment, and (2) will cause to be mailed
by first class mail, postage prepaid, as soon as practicable, to each holder of
record of class B common shares, a notice stating that adjustments have been
made and stating the adjusted conversion price.
In the event of any capital reorganization or reclassification of the
capital shares of AmREIT, or consolidation or merger of AmREIT with another
corporation, or the sale, transfer or lease of all or substantially all of its
assets to another corporation, is effected in a way that holders of class A
common shares will be entitled to receive stock, securities or other assets with
respect to or in exchange for class A common shares, then, as a condition of
that reorganization, reclassification, consolidation, merger, sale, transfer or
lease, the holder of each class B common share will have the right immediately
to convert that share into the kind and amount of stock, securities or other
assets which the holders of those shares would have owned or been entitled to
receive immediately after the transaction if those holders had converted such
shares immediately before the effective date of the transaction, subject to
further adjustment upon the occurrence of the events described above.
RESTRICTIONS ON TRANSFER. The class B common shares are generally
transferable, subject to restrictions to enable AmREIT to maintain its REIT
status. See "--Ownership Limits and Restrictions on Transfer."
CLASS C COMMON SHARES
DIVIDENDS. Subject to the preferential rights of any series of our
preferred shares (of which there is currently none issued), holders of class C
common shares will be entitled to receive, when, as and if declared by the
AmREIT board of trust managers, out of funds legally available for the payment
of dividends, non-cumulative cash dividends in an amount per class C common
share equal to $0.70 per annum. Dividends payable on the class C common shares
for each full monthly dividend period will be computed by dividing the annual
dividend rate by twelve. Dividends with respect to the class C common shares
will be non-cumulative from the date of original issuance and will be payable
monthly when, as and if the AmREIT board declares a monthly dividend on the
class C common shares for that month in its sole discretion (each, a Dividend
Payment Date). Any dividend payable on the class C common shares for any partial
dividend period after the initial dividend period will be computed on the basis
of a 360-day year consisting of twelve 30-day months. Dividends will be payable
to holders of record as they appear in the share records of AmREIT at the close
of business on the applicable record date, which will be the first day of the
calendar month in which the applicable Dividend Payment Date falls or such other
date designated by the AmREIT board for the payment of dividends that is no more
than thirty (30) nor less than ten (10) days prior to the Dividend Payment Date
(each, a Dividend Record Date).
No dividends on class C common shares will be declared by the AmREIT
board or paid or set apart for payment at such time as, and to the extent that,
the terms and provisions of any AmREIT agreement, including any agreement
relating to its indebtedness, or any provisions of its charter relating to any
series of preferred stock, prohibit such declaration, payment or setting apart
for payment or provide that such declaration, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or if such
declaration or payment will be restricted or prohibited by law.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of AmREIT, subject to the prior rights of any series of preferred
stock, the holders of class C common shares will share pro rata with the holders
of the class A common shares, class B common shares, class D common shares and
any other series of common shares then outstanding that rank on a parity with
the class C common
89
shares as to the distribution of assets on liquidation, the assets of AmREIT
remaining following the payment of all liquidating distributions payable to
holders of capital shares of AmREIT with liquidation rights senior to those of
the common shares.
CALL PROVISION. The class C common shares will not be redeemable prior
to the third anniversary of the date of issuance of such shares, except under
certain limited circumstances to preserve the AmREIT's status as a REIT. On and
after such third anniversary date, AmREIT, at its option (to the extent AmREIT
has funds legally available therefore) upon not less than 30 nor more than 60
days' written notice, may redeem class C common shares, in whole or in part, at
any time or from time to time, for, at the option of the holder thereof, either
(i) cash at the redemption price per share of $11.00 or (ii) one class A common
share per each Class C common share redeemed by such holder.
Notwithstanding the foregoing, unless the full then current dividends
on all class C common shares have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period (without regard to whether
dividends were paid or not paid in any prior monthly dividend period), no class
C common shares will be redeemed unless all outstanding class C common shares
are simultaneously redeemed. The foregoing, however, will not prevent the
purchase or acquisition of the class C common shares pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding class C
common shares. Unless full current monthly dividends on all outstanding class C
common shares have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for the then
current dividend period (without regard to whether dividends were paid or not
paid in any prior monthly dividend period), AmREIT will not purchase or
otherwise acquire directly or indirectly through a subsidiary or otherwise, any
class C common shares.
If fewer than all of the outstanding class C common shares are to be
redeemed, the number of shares to be redeemed will be determined by AmREIT and
those shares may be redeemed pro rata from the holders of record of those shares
in proportion to the number of those shares held by the holders (as nearly as
may be practicable without creating fractional class C common shares) or any
other equitable method determined by AmREIT.
Notice of redemption will be given by publication in a newspaper of
general circulation in the City of New York, such publication to be made once a
week for two successive weeks commencing not less than 30 nor more than 60 days'
prior to the redemption date. A similar notice will be mailed by AmREIT, postage
prepaid, not less than 30 nor more than 60 days' prior to the redemption date,
addressed to the respective holders of record of class C common shares to be
redeemed at their respective addresses as they appear on the stock transfer
records of AmREIT. No failure to give notice or any defect therein or in the
mailing thereof will affect the validity of the proceeding for the redemption of
any class C common shares except as to the holder to whom notice was defective
or not given. Each notice will state: (1) the redemption date; (2) the
redemption price; (3) the number of class C common shares to be redeemed; (4)
the place or places where the class C common shares are to be surrendered for
payment of the redemption price; (5) that dividends on the shares to be redeemed
will cease to accrue on the redemption date; and (6) that any conversion rights
will terminate at the close of business on the third business day immediately
preceding the redemption date. If fewer than all the class C common shares held
by any holder are to be redeemed, the notice mailed to that holder will also
specify the number of class C common shares to be redeemed from that holder. If
notice of redemption of any class C common shares has been properly given and if
funds necessary for redemption have been irrevocably set aside by AmREIT in
trust for the benefit of the holders of any of the class C common shares so
called for redemption, then from and after the redemption date dividends will
cease to accrue on those class C common shares, those shares will no longer be
deemed to be outstanding and all rights of the holders of
90
those shares will terminate except for the right to receive the applicable
redemption price and other amounts payable in respect of such shares.
The holders of class C common shares at the close of business on a
Dividend Record Date will be entitled to receive the dividend payable with
respect to class C common shares on the corresponding Dividend Payment Date
notwithstanding the redemption thereof between that Dividend Record Date and the
corresponding Dividend Payment Date or AmREIT's default in the payment of the
dividend due. Except as provided above, AmREIT will make no payment or allowance
for unpaid dividends on class C common shares called for redemption.
LIMITED OPTIONAL REDEMPTION. Prior to the time at which the class C
common shares become eligible to be converted into class A common shares, any
shareholder who has held class C common shares for not less than one year may
present all or any portion equal to at least 25% of those shares to AmREIT for
redemption at any time, in accordance with the procedures outlined herein. At
that time, AmREIT may, at its sole option, redeem those shares presented for
redemption for cash to the extent it has sufficient funds available. There is no
assurance that there will be sufficient funds available for redemption and,
accordingly, a shareholder's shares may not be redeemed. If AmREIT elects to
redeem shares, the following conditions and limitations would apply. The full
amount of the proceeds from the sale of shares under our dividend reinvestment
plan (Reinvestment Proceeds) attributable to any calendar quarter will be used
to redeem shares presented for redemption during that quarter. In addition,
AmREIT may, at its discretion, use up to $100,000 per calendar quarter of the
proceeds of any public offering of its common shares for redemptions. Any amount
of offering proceeds which is available for redemptions, but which is unused,
may be carried over to the next succeeding calendar quarter for use in addition
to the amount of offering proceeds and Reinvestment Proceeds that would
otherwise be available for redemptions. At no time during a 12-month period,
however, may the number of shares redeemed by AmREIT exceed 5% of the number of
class C shares outstanding at the beginning of that 12-month period.
In the event there are insufficient funds to redeem all of the shares
for which redemption requests have been submitted, AmREIT plans to redeem the
shares in the order in which such redemption requests have been received. A
shareholder whose shares are not redeemed due to insufficient funds can ask that
the request to redeem the shares be honored at such time, if any, as there are
sufficient funds available for redemption. In that case, the. redemption request
will be retained and those shares will be redeemed before any subsequently
received redemption requests are honored. Alternatively, a shareholder whose
shares are not redeemed may withdraw his or her redemption request. Shareholders
will not relinquish their shares until such time as AmREIT commits to redeeming
such shares.
A shareholder who wishes to have his or her shares redeemed must mail
or deliver a written request on a form provided by AmREIT and executed by the
shareholder, its trustee or authorized agent, to the redemption agent
(Redemption Agent), which currently is Wells Fargo Band Minnesota, N.A. The
Redemption Agent at all times will be registered as a broker-dealer with the SEC
and each applicable state securities commission. Within 30 days following the
Redemption Agent's receipt of the shareholder's request, the Redemption Agent
will forward to that shareholder the documents necessary to effect the
redemption, including any signature guarantee AmREIT or the Redemption Agent may
require. The Redemption Agent will effect the redemption for the calendar
quarter provided that it receives the properly completed redemption documents
relating to the shares to be redeemed from the shareholder at least one calendar
month prior to the last day of the current calendar quarter and has sufficient
funds available to redeem the shares. The effective date of any redemption will
be the last date during a quarter during which the Redemption Agent receives the
properly completed redemption documents. As a result, AmREIT anticipates that,
assuming sufficient funds are available for redemption, the effective date of
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redemptions will be no later than thirty days after the quarterly determination
of the availability of funds for redemption.
Upon the Redemption Agent's receipt of notice for redemption of shares,
the redemption price for this limited optional redemption right will initially
be $10.00 per share. Our board of trust managers may change the redemption price
at any time and will announce publicly any price adjustment as part of its
regular communications with our stockholders, such adjustment being effective on
the 10th day after first public announcement of same. Any shares acquired
pursuant to a redemption will be retired and no longer available for issuance by
AmREIT.
A shareholder may present fewer than all of his or her shares to AmREIT
for redemption; provided, however, that (1) the minimum number of shares which
must be presented for redemption shall be at least 25% of his or her shares, and
(2) if the shareholder retains any shares, he or she must retain at least $2,500
worth of shares based on the current offering price ($1,000 worth of shares
based on the current offering price for an IRA, Keogh Plan or pension plan).
Our board of trust managers, in its sole discretion, may amend or
suspend the redemption plan at any time it determines that any amendment or
suspension is in the best interest of AmREIT. Our board of trust managers may
suspend the redemption of shares if (1) it determines, in its sole discretion,
that the redemption impairs the capital or the operations of AmREIT; (2) it
determines, in its sole discretion, that an emergency makes such redemption not
reasonably practical; (3) any governmental or regulatory agency with
jurisdiction over AmREIT so demands for the protection of the shareholders; (4)
it determines, in its sole discretion, that the redemption would be unlawful;
(5) it determines, in its sole discretion, that the redemption, when considered
with all other redemptions, sales, assignments, transfers and exchanges of our
common shares, could cause direct or indirect ownership of shares of our common
stock to become concentrated to an extent which would prevent AmREIT from
qualifying as a REIT under the Internal Revenue Code; or (6) it determines, in
its sole discretion, the suspension to be in the best interest of AmREIT. The
redemption plan will terminate, and AmREIT no longer shall accept shares for
redemption at such time as the class C common shares become eligible to convert
into class A common shares.
VOTING RIGHTS. Holders of the class C common shares will have the right
to vote on all matters presented to shareholders as a single class with all
other holders of common shares. In any matter in which the class C common shares
may vote, including any action by written consent, each class C common share
will be entitled to one vote.
AmREIT shall not issue any preferred shares or other class of common
shares with dividend preferences senior to the dividends payable on the class C
common shares without the approval of 66 2/3% of the class C common shares then
outstanding.
In addition, AmREIT may not sell all or substantially all of its
assets, dissolve, or amend its declaration of trust in any manner that
materially and adversely affects the voting powers, rights or preferences of the
holders of class C common shares without the approval of 66 2/3% of the class C
common shares then outstanding; provided, however, the issuance of any security
with dividend or liquidation preferences that rank equally with or are junior to
the dividend or liquidation preferences of the class C common shareholders shall
not be considered to materially or adversely affect the voting powers, rights or
preferences of the class C common shareholders.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which a vote would otherwise be required is
effected, all outstanding class C common shares have been
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redeemed or called for redemption upon proper notice and sufficient funds have
been deposited in trust to effect such redemption.
CONVERSION. Subject to the exceptions described under the caption
"Restrictions on Transfer" below, holders of the class C common shares will have
the right, from time to time after seventh anniversary of the issuance of such
shares, to convert all or any of the class C common shares into class A common
shares at a conversion price equal to the purchase price of the class C common
shares, plus a 10% premium. As a result, each $1,000 of class C common shares
owned by an investor will be able to be converted into $1,100 of class A common
shares, with the exact number of class A common shares to be acquired upon
conversion being determined by dividing the $1,100 by the market price of the
class A common shares on the date notice of conversion is delivered. Upon
conversion, no gain or loss will be then recognized by the class C shareholder.
Class C common shares will be deemed to have been converted immediately
prior to the close of business on the date the shares are surrendered for
conversion and notice of election to convert the same is received by AmREIT.
Upon conversion, no adjustment or prepayment will be made for dividends, but if
any holder surrenders class C common shares for conversion after the close of
business on a Dividend Record Date and prior to the opening of business on the
related Dividend Payment Date, then, notwithstanding the conversion, the
dividend payable on that Dividend Payment Date will be paid on that Dividend
Payment Date to the registered holder of those shares on that Dividend Record
Date. Class C common shares surrendered for conversion during the period from
the close of business on a Dividend Record Date to the Dividend Payment Date
must also pay the amount of the dividend which is payable. No fractional class A
common shares will be issued upon conversion and, if the conversion results in a
fractional interest, an amount will be paid in cash equal to the value of the
fractional interest based on the market price of the common shares on the last
trading day prior to the date of conversion.
In the event of any capital reorganization or reclassification of the
capital shares of AmREIT, or consolidation or merger of AmREIT with another
corporation, or the sale, transfer or lease of all or substantially all of its
assets to another corporation, is effected in a way that holders of class A
common shares will be entitled to receive stock, securities or other assets with
respect to or in exchange for class A common shares, then, as a condition of
that reorganization, reclassification, consolidation, merger, sale, transfer or
lease, the holder of each class C common share will have the right immediately
to convert that share into the kind and amount of stock, securities or other
assets which the holders of those shares would have owned or been entitled to
receive immediately after the transaction if those holders had converted such
shares immediately before the effective date of the transaction, subject to
further adjustment upon the occurrence of the events described above.
RESTRICTIONS ON TRANSFER. The class C common shares are generally
transferable, subject to restrictions necessary to enable AmREIT to maintain its
REIT status. See "--Ownership Limits and Restrictions on Transfer."
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CLASS D COMMON SHARES
DIVIDENDS. Subject to the preferential rights of any series of our
preferred shares (of which there is currently none issued), holders of class D
common shares will be entitled to receive, when, as and if declared by the
AmREIT board of trust managers, out of funds legally available for the payment
of dividends, non-cumulative cash dividends in an amount per class D common
share equal to $0.70 per annum. Dividends payable on the class D common shares
for each full monthly dividend period will be computed by dividing the annual
dividend rate by twelve. Dividends with respect to the class D common shares
will be non-cumulative from the date of original issuance and will be payable
monthly when, as and if the AmREIT board declares a monthly dividend on the
class D common shares for that month in its sole discretion (each, a Dividend
Payment Date). Dividends may not be paid on the class D common shares unless all
dividends then payable on the class B common shares and class C common shares
have been paid in full. Any dividend payable on the class D common shares for
any partial dividend period after the initial dividend period will be computed
on the basis of a 360-day year consisting of twelve 30-day months. Dividends
will be payable to holders of record as they appear in the share records of
AmREIT at the close of business on the applicable record date, which will be the
19th day of the calendar month in which the applicable Dividend Payment Date
falls or such other date designated by the AmREIT board for the payment of
dividends that is no more than thirty (30) nor less than ten (10) days prior to
the Dividend Payment Date (each, a Dividend Record Date).
No dividends on class D common shares will be declared by the AmREIT
board or paid or set apart for payment at such time as, and to the extent that,
the terms and provisions of any AmREIT agreement, including any agreement
relating to its indebtedness, or any provisions of its charter relating to any
series of preferred stock, prohibit such declaration, payment or setting apart
for payment or provide that such declaration, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or if such
declaration or payment will be restricted or prohibited by law.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of AmREIT, subject to the prior rights of any series of preferred
stock, the holders of class D common shares will share pro rata with the holders
of the class A common shares, class B common shares, class C common shares and
any other series of common shares then outstanding that rank on a parity with
the class D common shares as to the distribution of assets on liquidation, the
assets of AmREIT remaining following the payment of all liquidating
distributions payable to holders of capital shares of AmREIT with liquidation
rights senior to those of the common shares.
CALL PROVISION. The class D common shares will not be redeemable prior
to the first anniversary of the date of issuance of such shares, except under
certain limited circumstances to preserve the AmREIT's status as a REIT. On and
after the first anniversary date, AmREIT, at its option (to the extent AmREIT
has funds legally available therefore) upon not less than 30 nor more than 60
days' written notice, may redeem the class D common shares, in whole or in part,
at any time or from time to time, for cash at the redemption price per share of
$10.00, plus the pro rata portion of the conversion premium (discussed below),
based on the number of years the shares are outstanding (for example, if the
class D common shares are called on the first anniversary of issuance the call
price would be $1.011 per share).
Notwithstanding the foregoing, unless the full then current dividends
on all class D common shares have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period (without regard to whether
dividends were paid or not paid in any prior monthly dividend period), no class
D common shares will be redeemed unless all outstanding class D common shares
are simultaneously redeemed. The foregoing, however, will not prevent the
purchase or acquisition of the class D common shares pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding class D
common shares.
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Unless full current monthly dividends on all outstanding class D common shares
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period (without regard to whether dividends were paid or not paid in
any prior monthly dividend period), AmREIT will not purchase or otherwise
acquire directly or indirectly through a subsidiary or otherwise, any class D
common shares.
If fewer than all of the outstanding class D common shares are to be
redeemed, the number of shares to be redeemed will be determined by AmREIT and
those shares may be redeemed pro rata from the holders of record of those shares
in proportion to the number of those shares held by the holders (as nearly as
may be practicable without creating fractional class D common shares) or any
other equitable method determined by AmREIT.
Notice of redemption will be given by publication in a newspaper of
general circulation in the City of New York, such publication to be made once a
week for two successive weeks commencing not less than 30 nor more than 60 days'
prior to the redemption date. A similar notice will be mailed by AmREIT, postage
prepaid, not less than 30 nor more than 60 days' prior to the redemption date,
addressed to the respective holders of record of class D common shares to be
redeemed at their respective addresses as they appear on the stock transfer
records of AmREIT. No failure to give notice or any defect therein or in the
mailing thereof will affect the validity of the proceeding for the redemption of
any class D common shares except as to the holder to whom notice was defective
or not given. Each notice will state: (1) the redemption date; (2) the
redemption price; (3) the number of class D common shares to be redeemed; (4)
the place or places where the class D common shares are to be surrendered for
payment of the redemption price; (5) that dividends on the shares to be redeemed
will cease to accrue on the redemption date; and (6) that any conversion rights
will terminate at the close of business on the third business day immediately
preceding the redemption date. If fewer than all the class D common shares held
by any holder are to be redeemed, the notice mailed to that holder will also
specify the number of class D common shares to be redeemed from that holder. If
notice of redemption of any class D common shares has been properly given and if
funds necessary for redemption have been irrevocably set aside by AmREIT in
trust for the benefit of the holders of any of the class D common shares so
called for redemption, then from and after the redemption date dividends will
cease to accrue on those class D common shares, those shares will no longer be
deemed to be outstanding and all rights of the holders of those shares will
terminate except for the right to receive the applicable redemption price and
other amounts payable in respect of such shares.
The holders of class D common shares at the close of business on a
Dividend Record Date will be entitled to receive the dividend payable with
respect to class D common shares on the corresponding Dividend Payment Date
notwithstanding the redemption thereof between that Dividend Record Date and the
corresponding Dividend Payment Date or AmREIT's default in the payment of the
dividend due. Except as provided above, AmREIT will make no payment or allowance
for unpaid dividends on class D common shares called for redemption.
LIMITED OPTIONAL REDEMPTION. Prior to the time at which the class D
common shares become eligible to be converted into class A common shares, any
shareholder who has held class D common shares for not less than one year may
present all or any portion equal to at least 25% of those shares to AmREIT for
redemption at any time, in accordance with the procedures outlined herein. At
that time, AmREIT may, at its sole option, redeem those shares presented for
redemption for cash to the extent it has sufficient funds available. There is no
assurance that there will be sufficient funds available for redemption and,
accordingly, a shareholder's shares may not be redeemed. If AmREIT elects to
redeem shares, the following conditions and limitations would apply. The full
amount of the proceeds from the sale of shares under our dividend reinvestment
plan (Reinvestment Proceeds) attributable to any calendar quarter will be used
to redeem shares presented for redemption during that quarter. In addition,
AmREIT
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may, at its discretion, use up to $100,000 per calendar quarter of the proceeds
of any public offering of its common shares for redemptions. Any amount of
offering proceeds which is available for redemptions, but which is unused, may
be carried over to the next succeeding calendar quarter for use in addition to
the amount of offering proceeds and Reinvestment Proceeds that would otherwise
be available for redemptions. At no time during a 12-month period, however, may
the number of shares redeemed by AmREIT exceed 5% of the number of class D
shares outstanding at the beginning of that 12-month period.
In the event there are insufficient funds to redeem all of the shares
for which redemption requests have been submitted, AmREIT plans to redeem the
shares in the order in which such redemption requests have been received. A
shareholder whose shares are not redeemed due to insufficient funds can ask that
the request to redeem the shares be honored at such time, if any, as there are
sufficient funds available for redemption. In that case, the. redemption request
will be retained and those shares will be redeemed before any subsequently
received redemption requests are honored. Alternatively, a shareholder whose
shares are not redeemed may withdraw his or her redemption request. Shareholders
will not relinquish their shares until such time as AmREIT commits to redeeming
such shares.
A shareholder who wishes to have his or her shares redeemed must mail
or deliver a written request on a form provided by AmREIT and executed by the
shareholder, its trustee or authorized agent, to the redemption agent
(Redemption Agent), which currently is Wells Fargo Band Minnesota, N.A. The
Redemption Agent at all times will be registered as a broker-dealer with the SEC
and each applicable state securities commission. Within 30 days following the
Redemption Agent's receipt of the shareholder's request, the Redemption Agent
will forward to that shareholder the documents necessary to effect the
redemption, including any signature guarantee AmREIT or the Redemption Agent may
require. The Redemption Agent will effect the redemption for the calendar
quarter provided that it receives the properly completed redemption documents
relating to the shares to be redeemed from the shareholder at least one calendar
month prior to the last day of the current calendar quarter and has sufficient
funds available to redeem the shares. The effective date of any redemption will
be the last date during a quarter during which the Redemption Agent receives the
properly completed redemption documents. As a result, AmREIT anticipates that,
assuming sufficient funds are available for redemption, the effective date of
redemptions will be no later than thirty days after the quarterly determination
of the availability of funds for redemption.
Upon the Redemption Agent's receipt of notice for redemption of shares,
the redemption price for this limited optional redemption right will initially
be $10.00 per share. Our board of trust managers may change the redemption price
at any time and will announce publicly any price adjustment as part of its
regular communications with our stockholders, such adjustment being effective on
the 10th day after first public announcement of same. Any shares acquired
pursuant to a redemption will be retired and no longer available for issuance by
AmREIT.
A shareholder may present fewer than all of his or her shares to AmREIT
for redemption; provided, however, that (1) the minimum number of shares which
must be presented for redemption shall be at least 25% of his or her shares, and
(2) if the shareholder retains any shares, he or she must retain at least $2,500
worth of shares based on the current offering price ($1,000 worth of shares
based on the current offering price for an IRA, Keogh Plan or pension plan).
Our board of trust managers, in its sole discretion, may amend or
suspend the redemption plan at any time it determines that any amendment or
suspension is in the best interest of AmREIT. Our board of trust managers may
suspend the redemption of shares if (1) it determines, in its sole discretion,
that the redemption impairs the capital or the operations of AmREIT; (2) it
determines, in its sole discretion, that an emergency makes such redemption not
reasonably practical; (3) any governmental or regulatory
96
agency with jurisdiction over AmREIT so demands for the protection of the
shareholders; (4) it determines, in its sole discretion, that the redemption
would be unlawful; (5) it determines, in its sole discretion, that the
redemption, when considered with all other redemptions, sales, assignments,
transfers and exchanges of our common shares, could cause direct or indirect
ownership of shares of our common stock to become concentrated to an extent
which would prevent AmREIT from qualifying as a REIT under the Internal Revenue
Code; or (6) it determines, in its sole discretion, the suspension to be in the
best interest of AmREIT. The redemption plan will terminate, and AmREIT no
longer shall accept shares for redemption at such time as the class D common
shares become eligible to convert into class A common shares.
VOTING RIGHTS. Holders of the class D common shares will have the right
to vote on all matters presented to shareholders as a single class with all
other holders of common shares. In any matter in which the class D common shares
may vote, including any action by written consent, each class D common share
will be entitled to one vote.
In addition, AmREIT may not sell all or substantially all of its
assets, dissolve, or amend its declaration of trust in any manner that
materially and adversely affects the voting powers, rights or preferences of the
holders of class D common shares without the approval of 66 2/3% of the class D
common shares then outstanding; provided, however, the issuance of any security
with dividend or liquidation preferences that rank equally with or are junior to
the dividend or liquidation preferences of the class D common shareholders shall
not be considered to materially or adversely affect the voting powers, rights or
preferences of the class D common shareholders.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which a vote would otherwise be required is
effected, all outstanding class D common shares have been redeemed or called for
redemption upon proper notice and sufficient funds have been deposited in trust
to effect such redemption.
CONVERSION. Subject to the exceptions described under the caption
"Restrictions on Transfer" below, holders of the class D common shares acquired
in this offering, and not through our dividend reinvestment plan, will have the
right, from time to time after seventh anniversary of the issuance of such
shares, to convert all or any of the class D common shares into class A common
shares at a conversion price equal to the purchase price of the class D common
shares, plus a 7.7% premium. As a result, each $1,000 of class D common shares
owned by an investor will be able to be converted into $1,077 of class A common
shares, with the exact number of class A common shares to be acquired upon
conversion being determined by dividing the $1,077 by the market price of the
class A common shares on the date notice of conversion is delivered. Each $1.00
of capital invested in class D common shares acquired through our dividend
reinvestment plan will be convertible after the seventh anniversary of the
issuance of such shares, into $1.00 of our class A common shares. Upon
conversion, no gain or loss will be then recognized by the class D shareholder.
Class D common shares will be deemed to have been converted immediately
prior to the close of business on the date the shares are surrendered for
conversion and notice of election to convert the same is received by AmREIT.
Upon conversion, no adjustment or prepayment will be made for dividends, but if
any holder surrenders class D common shares for conversion after the close of
business on a Dividend Record Date and prior to the opening of business on the
related Dividend Payment Date, then, notwithstanding the conversion, the
dividend payable on that Dividend Payment Date will be paid on that Dividend
Payment Date to the registered holder of those shares on that Dividend Record
Date. Class D common shares surrendered for conversion during the period from
the close of business on a Dividend Record Date to the Dividend Payment Date
must also pay the amount of the dividend which is payable. No fractional class A
common shares will be issued upon conversion and, if the conversion results in a
97
fractional interest, an amount will be paid in cash equal to the value of the
fractional interest based on the market price of the common shares on the last
trading day prior to the date of conversion.
In the event of any capital reorganization or reclassification of the
capital shares of AmREIT, or consolidation or merger of AmREIT with another
corporation, or the sale, transfer or lease of all or substantially all of its
assets to another corporation, is effected in a way that holders of class A
common shares will be entitled to receive stock, securities or other assets with
respect to or in exchange for class A common shares, then, as a condition of
that reorganization, reclassification, consolidation, merger, sale, transfer or
lease, the holder of each class D common share will have the right immediately
to convert that share into the kind and amount of stock, securities or other
assets which the holders of those shares would have owned or been entitled to
receive immediately after the transaction if those holders had converted such
shares immediately before the effective date of the transaction, subject to
further adjustment upon the occurrence of the events described above.
RESTRICTIONS ON TRANSFER. The class D common shares are generally
transferable, subject to restrictions necessary to enable AmREIT to maintain its
REIT status. See "--Ownership Limits and Restrictions on Transfer."
PREFERRED SHARES
The declaration of trust of AmREIT authorizes the trust managers of
AmREIT to issue up to 10,000,000 preferred shares of beneficial interest, par
value $.01 per share, to establish one or more series of such preferred shares
and to determine, with respect to any series of preferred shares, the terms,
rights, restrictions and qualifications of such series. Although the trust
managers have no present intention to do so, they could, in the future, issue a
series of preferred shares which, due to its terms, could impede a merger,
tender offer or other transaction that some, or a majority, of AmREIT's
shareholders might believe to be in their best interests or in which
shareholders might receive a premium over then prevailing market prices for
their common shares.
OWNERSHIP LIMITS AND RESTRICTIONS ON TRANSFER
For AmREIT to qualify as a REIT under the Internal Revenue Code, (1)
not more than 50% in value of outstanding equity securities of all classes may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Internal Revenue Code to include certain entities) during the last half of a
taxable year; (2) the outstanding equity securities of all classes must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year; and
(3) certain percentages of AmREIT's gross income must come from certain
activities.
To ensure that five or fewer individuals do not own more than 50% in
value of the outstanding equity securities of all classes, AmREIT's declaration
of trust provides generally that no holder may own, or be deemed to own by
virtue of certain attribution provisions of the Internal Revenue Code, more than
9.0% of the issued and outstanding common shares or more than 9.9% of the issued
and outstanding shares of any series of preferred shares, except that H. Kerr
Taylor, the chairman of the board of trust managers and chief executive officer
of AmREIT, and certain related persons together may own, or be deemed to own, by
virtue of certain attribution provisions of the Internal Revenue Code, up to
9.8% of the issued and outstanding common shares. The board of trust managers,
upon receipt of a ruling from the IRS, an opinion of counsel, or other evidence
satisfactory to the board of trust managers, in its sole discretion, is
permitted to waive or change, in whole or in part, the application of the
ownership limit with respect to any person that is not an individual (as that
term is used in Section 542(a)(2) of the Internal Revenue Code). In connection
with any waiver or change, the board of trust managers has the authority
98
to require such representations and undertakings from such person or affiliates
and to impose such other conditions as the board of trust managers deems
necessary, advisable or prudent, in its sole discretion, to determine the
effect, if any, of a proposed transaction or ownership of outstanding equity
securities of all classes on AmREIT's status as a REIT. The board of trust
managers also has the authority to reduce the ownership limit on H. Kerr Taylor,
with the written consent of Mr. Taylor or his successor-in-interest or designee,
after any transfer permitted by the declaration of trust.
In addition, the board of trust managers will have the right, from time
to time, to increase the ownership limit on common shares, except that it will
not be permissible for the board of trust managers (i) to increase the ownership
limit or create additional limitations if, after giving effect thereto, AmREIT
would be "closely held" within the meaning of Section 856(h) of the Internal
Revenue Code, (ii) to increase either the ownership limit on common shares or
the ownership limit on preferred shares to a percentage that is greater than
9.9%, or (iii) to increase the ownership limit on H. Kerr Taylor. Prior to any
modification of the ownership limit with respect to any person, the board of
trust managers will have the right to require such opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary, advisable or
prudent, in its sole discretion, in order to determine or ensure AmREIT's status
as a REIT.
Under our declaration of trust, the ownership limit will not be
automatically removed even if the REIT provisions of the Internal Revenue Code
are changed so as to no longer contain any ownership concentration limitation or
if the ownership concentration limit is increased. In addition to preserving
AmREIT's status as a REIT for federal income tax purposes, the ownership limit
may prevent any person or small group of persons from acquiring control of
AmREIT.
Our declaration of trust also provides that if any issuance, transfer
or acquisition of equity securities (1) would result in a holder exceeding the
ownership limit, (2) would cause AmREIT to be beneficially owned by less than
100 persons, (3) would result in AmREIT being "closely held" within the meaning
of Section 856(h) of the Internal Revenue Code, or (4) would otherwise result in
the failure of AmREIT to qualify as a REIT for federal income tax purposes, then
that issuance, transfer or acquisition will be null and void to the intended
transferee or holder, and the intended transferee or holder will acquire no
rights to the shares. Pursuant to the declaration of trust, equity securities
owned, transferred or proposed to be transferred in excess of the ownership
limit or which would otherwise jeopardize AmREIT's status as a REIT under the
Internal Revenue Code automatically will be deemed to have been transferred to a
trustee appointed by AmREIT, unaffiliated with AmREIT and the intended
transferee or holder, to serve as trustee of a charitable trust for the
exclusive benefit of one or more nonprofit organizations designated by AmREIT so
that the shares proposed to be transferred in excess of the ownership limit held
in the charitable trust would not violate ownership restrictions set forth in
the declaration of trust. The transfer to the trustee will be deemed to be
effective as of the close of business on the business day prior to the purported
transfer or other event that results in the transfer to the charitable trust.
Shares proposed to be transferred in excess of the ownership limit held by the
trustee shall be issued and outstanding equity securities of AmREIT. The
intended transferee or holder will have no rights in the shares proposed to be
transferred in excess of the ownership limit, will not benefit economically from
these shares, will have no rights to dividends or other distributions associated
with the shares and shall not possess any rights to vote or other rights
attributable to the shares. The trustee will have all voting rights and rights
to dividends or other distributions to which such shares proposed to be
transferred in excess of the ownership limit are entitled with respect to such
shares held in the charitable trust, which rights shall be exercised for the
exclusive benefit of the charitable beneficiary. Any dividend or other
distribution paid prior to the discovery by AmREIT that the shares have been
deemed transferred to the trustee shall be paid with respect to the shares to
the trustee upon demand and any dividend or other distribution authorized but
unpaid shall be paid when due to the trustee. Any dividends or distributions so
paid over to the trustee shall be held in trust for the benefit of the
charitable beneficiary for distribution at
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such times as may be determined by the trustee. The prohibited owner of these
shares will have no voting rights with respect to the shares held in the
charitable trust and, subject to Texas law, effective as of the date that the
shares have been deemed transferred to the trustee, the trustee shall have the
authority (1) to rescind as void any vote cast, to the extent the shares are
entitled to vote, by a prohibited owner prior to the discovery by AmREIT that
the shares have been deemed transferred to the trustee and (2) to recast such
vote, to the extent the shares are entitled to vote, in accordance with the
desires of the trustee acting for the benefit of the charitable beneficiary.
Within twenty (20) days of receiving notice from AmREIT that shares proposed to
be transferred in excess of the ownership limit have been deemed transferred to
the charitable trust, the trustee of the charitable trust shall sell the shares
held in the charitable trust to a person, designated by the trustee, whose
ownership of the shares will not violate the ownership limit or otherwise
jeopardize AmREIT's status as a REIT under the Internal Revenue Code. Upon the
sale, the interest of the charitable beneficiary in the shares sold shall
terminate and the trustee shall distribute the net proceeds of the sale to the
prohibited owner and to the charitable beneficiary as follows: (1) the
prohibited owner shall receive the lesser of (a) the price paid by the
prohibited owner for the shares or, if the prohibited owner did not give value
for the shares in connection with the event that resulted in the transfer of
such shares to the charitable trust (e.g., in the case of a gift, devise or
other such transaction), the market price at the time of such gift, devise or
other transaction which resulted in the transfer of the shares and (b) the price
per share (net of costs of sales) received by the trustee from the sale or other
disposition of the shares held in the charitable trust; and (2) any net sales
proceeds in excess of the amount payable to the prohibited owner shall be
immediately paid to the charitable beneficiary. If, prior to the discovery by
AmREIT that the shares have been deemed transferred to the trustee, the shares
are sold by a prohibited owner, then (1) the shares shall be deemed to have been
sold on behalf of the charitable trust and (2) to the extent that the prohibited
owner received an amount for such shares that exceeds the amount that such
prohibited owner would have been entitled to receive if such shares had been
sold by the trustee such excess shall be paid to the trustee upon demand. The
shares will be subject to repurchase by AmREIT at its election and shall be
deemed to have been offered for sale to AmREIT or its designee, at a price per
share equal to the lesser of (1) the price per share in the transaction that
resulted in such deemed transfer to the charitable trust (or, in the case of a
devise or gift or event other than a transfer or acquisition which results in
the deemed transfer of the shares, the market price at the time of such devise
or gift or event other than a transfer or acquisition which results in the
deemed transfer of the shares) and (2) the market price of the shares on the
date AmREIT, or its designee, accepts such offer. AmREIT and its assignees will
have the right to accept the offer until the trustee has otherwise sold the
shares held in the charitable trust. Upon such a sale to AmREIT or its
designees, the interest of the charitable beneficiary in the shares sold shall
terminate and the trustee shall distribute all net sales proceeds of the sale to
the prohibited owner.
If the trust managers or any duly authorized committee thereof shall at
any time determine in good faith that a transfer or other event has taken or is
otherwise proposed to take place that results or will result in a violation of
the ownership limit or otherwise jeopardizes AmREIT's status as a REIT under the
Internal Revenue Code, the trust managers or a committee thereof shall take such
action as it deems advisable to refuse to give effect to or to prevent such
transfer or other event, including, without limitation, causing AmREIT to redeem
equity securities, refusing to give effect to such transfer on the books of
AmREIT or instituting proceedings to enjoin such transfer or other event;
provided, however that any transfer or attempted transfer or other event in
violation of the declaration of trust shall automatically result in the transfer
to the charitable trust described above, and, where applicable, such transfer
(or other event) shall be void ab initio as provided above irrespective of any
action (or non-action) by the board of trust managers or a committee thereof.
Under the declaration of trust, AmREIT will have the authority, at any
time, to waive the requirement that the shares be deemed outstanding in
accordance with the provisions of the declaration of
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trust if the fact that the shares are deemed to be outstanding would, in the
opinion of nationally recognized tax counsel, jeopardize the status of AmREIT as
a REIT for federal income tax purposes.
All certificates issued by AmREIT representing equity securities will
bear a legend referring to the restrictions described above.
The declaration of trust of AmREIT also will provide that all persons
who own, directly or by virtue of the attribution provisions of the Internal
Revenue Code, more than 5.0% of the outstanding equity securities (or such lower
percentage as may be set by the board of trust managers), must give written
notice to AmREIT containing information specified in the declaration of trust no
later than January 30 of each year. In addition, each shareholder will be
required, upon demand, to disclose to AmREIT in writing such information with
respect to the direct, indirect and constructive ownership of shares as the
trust managers deem necessary to comply with the provisions of the Internal
Revenue Code, as applicable to a REIT, or to comply with the requirements of a
governmental authority or agency.
The ownership limitations described above may have the effect of
inhibiting or impeding acquisitions of control of AmREIT -- Texas by a third
party. See "Certain Provisions of the Declaration of Trust, Bylaws and Texas
Law."
DIVIDEND REINVESTMENT PLAN
AmREIT's board of trust managers has authorized a dividend reinvestment
plan that allows you to have the dividends otherwise distributable to you as a
class D common shareholder invested in additional class D common shares.
You may purchase class D common shares under our dividend reinvestment
plan for $10 per share until all of the shares registered as part of this
offering have been sold. After that time, we may fund the dividend reinvestment
plan through purchasing shares on the open market, if a market then exists, or
issuing additional shares. In any case, the price per share will be equal to the
then-prevailing market price, which shall equal the price on the securities
exchange or over-the-counter market on which such shares are listed at the date
of purchase if such shares are then listed. A copy of our dividend reinvestment
plan as currently in effect is included as Exhibit B to this prospectus. You may
elect to participate in the dividend reinvestment plan by completing the
Subscription Agreement, the enrollment form or by other written notice to the
plan administrator. Participation in the plan will begin with the next
distribution made after receipt of your written notice. We may terminate the
dividend reinvestment plan for any reason at any time upon 10 days' prior
written notice to participants. Your participation in the plan will also be
terminated to the extent that a reinvestment of your dividends in class D common
shares would cause the percentage ownership limitation contained in our
declaration of trust to be exceeded. In addition, you may terminate your
participation in the dividend reinvestment plan at any time by providing us with
written notice.
If you elect to participate in the dividend reinvestment plan and are
subject to federal income taxation, you will incur a tax liability for dividends
allocated to you even though you have elected not to receive the dividends in
cash but rather to have the dividends withheld and reinvested pursuant to the
dividend reinvestment plan. Specifically, you will be treated as if you have
received the dividend from us in cash and then applied such dividend to the
purchase of additional shares. Additionally, the shares you acquire will be held
in book-entry form on the books of the plan agent and may only be resold at such
time as you request the plan agent to transfer the shares held into the plan to
the books of the transfer agent. These shares will be subject to the same
liquidity limitations as originally purchased shares. See "Risk Factors -- There
is no public trading market for the class D common shares." You will be taxed on
the amount of such dividend as ordinary income to the extent such dividend is
from current or
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accumulated earnings and profits, unless we have designated all or a portion of
the dividend as a capital gain dividend.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary of material federal income tax consequences that
may be relevant to a holder of our securities is based on current law, is for
general information only and is not intended as tax advice. The following
discussion, which is not exhaustive of all possible tax consequences, does not
include a detailed discussion of any state, local or foreign tax consequences.
Nor does it discuss all of the aspects of federal income taxation that may be
relevant to a prospective holder of our securities in light of his or her
particular circumstances or to certain types of holders (including insurance
companies, tax-exempt entities, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States and persons holding securities as part of a conversion transaction, a
hedging transaction or as a position in a straddle for tax purposes) who are
subject to special treatment under the federal income tax laws. Unless otherwise
indicated the terms "we," "us," and "our" when used herein refer to AmREIT.
The statements in this discussion are based on current provisions of
the Internal Revenue Code existing, temporary and currently proposed Treasury
Regulations under the Internal Revenue Code, the legislative history of the
Internal Revenue Code, existing administrative rulings and practices of the IRS
and judicial decisions. No assurance can be given that legislative, judicial or
administrative changes will not affect the accuracy of any statements in this
discussion with respect to transactions entered into or contemplated prior to
the effective date of such changes. Any such change could apply retroactively to
transactions preceding the date of the change. We do not plan to request any
rulings from the IRS concerning our tax treatment and the statements in this
discussion are not binding on the IRS or any court. Thus, we can provide no
assurance that these statements will not be challenged by the IRS or that such
challenge will not be sustained by a court.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING. EACH PROSPECTIVE PURCHASER OF SECURITIES IS ADVISED TO CONSULT WITH
HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF SECURITIES IN AN ENTITY ELECTING
TO BE TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, DISPOSITION AND ELECTION, AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
We have elected to be treated as a REIT under Sections 856 through 860
of the Internal Revenue Code for federal income tax purposes commencing with our
taxable year ended December 31, 1994. We believe that we have been organized and
have operated in a manner that qualifies for taxation as a REIT under the
Internal Revenue Code. We also believe that we will continue to operate in a
manner that will preserve our status as a REIT. We cannot however, assure you
that such requirements will be met in the future.
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Locke Liddell & Sapp LLP, our legal counsel, is of the opinion that we
qualified as a REIT under the Internal Revenue Code for our taxable year ended
December 31, 2003, we have been organized and our manner of operation has been
in conformity with the requirements for qualification and taxation as a REIT as
of the date of this prospectus and that our proposed manner of operation and
diversity of equity ownership should enable us to continue to satisfy the
requirements for qualification as a REIT in the future if we operate in
accordance with the methods of operations described herein including our
representations concerning our intended method of operation. However, no opinion
can be given that we will actually satisfy all REIT requirements in the future
since this depends on future events. You should be aware that opinions of
counsel are not binding on the IRS or on the courts, and, if the IRS were to
challenge these conclusions, no assurance can be given that these conclusions
would be sustained in court. The opinion of Locke Liddell & Sapp LLP is based on
various assumptions as well as on certain representations made by us as to
factual matters, including a factual representation letter provided by us. The
rules governing REITs are highly technical and require ongoing compliance with a
variety of tests that depend, among other things, on future operating results,
asset diversification, distribution levels and diversity of stock ownership.
Locke Liddell & Sapp LLP will not monitor our compliance with these
requirements. While we expect to satisfy these tests, and will use our best
efforts to do so, no assurance can be given that we will qualify as a REIT for
any particular year, or that the applicable law will not change and adversely
affect us and our shareholders. See "-- Failure to Qualify as a REIT." The
following is a summary of the material federal income tax considerations
affecting us as a REIT and our shareholders. This summary is qualified in its
entirety by the applicable Internal Revenue Code provisions, relevant rules and
regulations promulgated under the Internal Revenue Code, and administrative and
judicial interpretations of the Internal Revenue Code and these rules and
regulations.
REIT QUALIFICATION
We must be organized as an entity that would, if we do not maintain our
REIT status, be taxable as a regular corporation. We cannot be a financial
institution or an insurance company. We must be managed by one or more trust
managers. Our taxable year must be the calendar year. Our beneficial ownership
must be evidenced by transferable shares. Our capital shares must be held by at
least 100 persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a taxable year of less than 12 months. Not more
than 50% of the value of the shares of our capital shares may be held, directly
or indirectly, applying the applicable constructive ownership rules of the
Internal Revenue Code, by five or fewer individuals at any time during the last
half of each of our taxable years. We must also meet certain other tests,
described below, regarding the nature of our income and assets and the amount of
our distributions.
Our outstanding shares of common stock are owned by a sufficient number
of investors and in appropriate proportions to permit us to satisfy these share
ownership requirements. To protect against violations of these share ownership
requirements, our declaration of trust provides that no person (other than the
existing holder) is permitted to own, applying constructive ownership tests set
forth in the Internal Revenue Code, more than 9.0% of our outstanding common
shares, unless the trust managers are provided evidence satisfactory to them in
their sole discretion that our qualification as a REIT will not be jeopardized.
In addition, our declaration of trust contains restrictions on transfers of
capital shares, as well as provisions that automatically transfer capital shares
to a charitable trust for the benefit of a charitable beneficiary to the extent
that another investor's ownership of such capital shares otherwise might
jeopardize our REIT status. These restrictions, however, may not ensure that we
will, in all cases, be able to satisfy the share ownership requirements. If we
fail to satisfy these share ownership requirements, except as provided in the
next sentence, our status as a REIT will terminate. However, if we comply with
the rules contained in applicable Treasury Regulations that require us to
ascertain the actual ownership of our shares and we do not know, or would not
have known through the exercise of
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reasonable diligence, that we failed to meet the 50% requirement described
above, we will be treated as having met this requirement. See the section below
entitled "-- Failure to Qualify as a REIT."
To monitor our compliance with the share ownership requirements, we are
required to and we do maintain records disclosing the actual ownership of our
common shares. To do so, we will demand written statements each year from the
record holders of certain percentages of shares in which the record holders are
to disclose the actual owners of the shares (i.e., the persons required to
include in gross income the REIT dividends). A list of those persons failing or
refusing to comply with this demand will be maintained as part of our records.
Shareholders who fail or refuse to comply with the demand must submit a
statement with their tax returns disclosing the actual ownership of the shares
and certain other information.
We currently satisfy, and expect to continue to satisfy, each of these
requirements discussed above. We also currently satisfy, and expect to continue
to satisfy, the requirements that are separately described below concerning the
nature and amounts of our income and assets and the levels of required annual
distributions.
SOURCES OF GROSS INCOME. In order to qualify as a REIT for a particular
year, we also must meet two tests governing the sources of our income - a 75%
gross income test and a 95% gross income test. These tests are designed to
ensure that a REIT derives its income principally from passive real estate
investments. The Internal Revenue Code allows a REIT to own and operate a number
of its properties through wholly-owned subsidiaries which are "qualified REIT
subsidiaries." The Internal Revenue Code provides that a qualified REIT
subsidiary is not treated as a separate corporation, and all of its assets,
liabilities and items of income, deduction and credit are treated as assets,
liabilities and items of income, deduction and credit of the REIT.
In the case of a REIT which is a partner in a partnership or any other
entity such as a limited liability company that is treated as a partnership for
federal income tax purposes, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership. Also,
the REIT will be deemed to be entitled to its proportionate share of the income
of the partnership. The character of the assets and gross income of the
partnership retains the same character in the hands of the REIT for purposes of
Section 856 of the Code, including satisfying the gross income tests and the
asset tests. Thus, our proportionate share of the assets and items of income of
any partnership in which we own an interest are treated as our assets and items
of income for purposes of applying the requirements described in this
discussion, including the income and asset tests described below.
75% GROSS INCOME TEST. At least 75% of a REITs gross income for each
taxable year must be derived from specified classes of income that principally
are real estate related. The permitted categories of principal importance to us
are:
- rents from real property;
- interest on loans secured by real property;
- gains from the sale of real property or loans secured by real
property (excluding gain from the sale of property held
primarily for sale to customers in the ordinary course of our
business, referred to below as "dealer property");
- income from the operation and gain from the sale of property
acquired in connection with the foreclosure of a mortgage
securing that property ("foreclosure property");
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- distributions on, or gain from the sale of, shares of other
qualifying REITs;
- abatements and refunds of real property taxes;
- amounts received as consideration for entering into agreements
to make loans secured by real property or to purchase or lease
real property; and
- "qualified temporary investment income" (described below).
In evaluating our compliance with the 75% gross income test, as well as
the 95% gross income test described below, gross income does not include gross
income from "prohibited transactions." In general, a prohibited transaction is
one involving a sale of dealer property, not including foreclosure property and
not including certain dealer property we have held for at least four years.
We expect that substantially all of our operating gross income will be
considered rent from real property and interest income. Rent from real property
is qualifying income for purposes of the gross income tests only if certain
conditions are satisfied. Rent from real property includes charges for services
customarily rendered to tenants, and rent attributable to personal property
leased together with the real property so long as the personal property rent is
not more than 15% of the total rent received or accrued under the lease for the
taxable year. We do not expect to earn material amounts in these categories.
Rent from real property generally does not include rent based on the
income or profits derived from the property. However, rent based on a percentage
of gross receipts or sales is permitted as rent from real property and we will
have leases where rent is based on a percentage of gross receipts or sales. We
generally do not intend to lease property and receive rentals based on the
tenant's income or profit. Also excluded from "rents from real property" is rent
received from a person or corporation in which we (or any of our 10% or greater
owners) directly or indirectly through the constructive ownership rules
contained in Section 318 and Section 856(d)(5) of the Internal Revenue Code, own
a 10% or greater interest in either vote or value.
A third exclusion from qualifying rent income covers amounts received
with respect to real property if we furnish services to the tenants or manage or
operate the property, other than through an "independent contractor" from whom
we do not derive any income or through a "taxable REIT subsidiary." A taxable
REIT subsidiary is a corporation in which a REIT owns stock, directly or
indirectly, and with respect to which the corporation and the REIT have made a
joint election to treat the corporation as a taxable REIT subsidiary. The
obligation to operate through an independent contractor or a taxable REIT
subsidiary generally does not apply, however, if the services we provide are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not considered rendered primarily for the convenience of
the tenant (applying standards that govern in evaluating whether rent from real
property would be unrelated business taxable income when received by a
tax-exempt owner of the property). Further, if the value of the non-customary
service income with respect to a property, valued at no less than 150% of our
direct cost of performing such services, is 1% or less of the total income
derived from the property, then the provision of such non-customary services
shall not prohibit the rental income (except the non-customary service income)
from qualifying as "rents from real property."
We believe that the only material services generally to be provided to
tenants will be those usually or customarily rendered in connection with the
rental of space for occupancy only. We do not intend to provide services that
might be considered rendered primarily for the convenience of the tenants, such
as hotel, health care or extensive recreational or social services.
Consequently, we believe that
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substantially all of our rental income will be qualifying income under the gross
income tests, and that our provision of services will not cause the rental
income to fail to be included under that test.
Upon the ultimate sale of our properties, any gains realized also are
expected to constitute qualifying income, as gain from the sale of real property
(not involving a prohibited transaction).
95% GROSS INCOME TEST. In addition to earning 75% of our gross income
from the sources listed above, 95% of our gross income for each taxable year
must come either from those sources, or from dividends, interest or gains from
the sale or other disposition of stock or other securities that do not
constitute dealer property. This test permits a REIT to earn a significant
portion of its income from traditional "passive" investment sources that are not
necessarily real estate related. The term "interest" (under both the 75% and 95%
tests) does not include amounts that are based on the income or profits of any
person, unless the computation is based only on a fixed percentage of receipts
or sales.
FAILING THE 75% OR 95% TESTS; REASONABLE CAUSE. As a result of the 75%
and 95% tests, REITs generally are not permitted to earn more than 5% of their
gross income from active sources, including brokerage commissions or other fees
for services rendered. We may receive certain types of that income. This type of
income will not qualify for the 75% test or 95% test but is not expected to be
significant and that income, together with other nonqualifying income, is
expected to be at all times less than 5% of our annual gross income. While we do
not anticipate that we will earn substantial amounts of nonqualifying income, if
nonqualifying income exceeds 5% of our gross income, we could lose our status as
a REIT. We may establish taxable REIT subsidiaries to hold assets generating
non-qualifying income. The gross income generated by these subsidiaries would
not be included in our gross income. However, dividends we receive from these
subsidiaries would be included in our gross income and qualify for the 95%
income test.
If we fail to meet either the 75% or 95% income tests during a taxable
year, we may still qualify as a REIT for that year if (1) we report the amount
and nature of each item of our gross income in a schedule attached to our
federal income tax return for that year, (2) the inclusion of any incorrect
information in such schedule is not due to fraud with intent to evade tax, and
(3) the failure to meet the tests is due to reasonable cause and not to willful
neglect. It is not possible, however, to state whether in all circumstances we
would be entitled to the benefit of this relief provision. For example, if we
fail to satisfy the gross income tests because nonqualifying income that we
intentionally accrue or receive causes us to exceed the limits on nonqualifying
income, the IRS could conclude that our failure to satisfy the tests was not due
to reasonable cause. If these relief provisions do not apply to a particular set
of circumstances, we will not qualify as a REIT. As discussed below, even if
these relief provisions apply, and we retain our status as a REIT, a tax would
be imposed with respect to our non-qualifying income. We would be subject to a
100% tax based on the greater of the amount by which we fail either the 75% or
95% income tests (substituting 90% for 95% for purposes of calculating the
amount by which the 95% income test is failed) for that year multiplied by a
fraction intended to reflect our profitability. See "-- Taxation as a REIT"
below.
PROHIBITED TRANSACTION INCOME. Any gain that we realize on the sale of
any property held as inventory or other property held primarily for sale to
customers in the ordinary course of business (including our share of any such
gain realized by any subsidiary partnerships but excluding foreclosure
property), will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. This prohibited transaction income may also
adversely affect our ability to satisfy the income tests for qualification as a
REIT. Under existing law, whether property is held as inventory or primarily for
sale to customers in the ordinary course of a trade or business depends on all
the facts and circumstances surrounding the particular transaction. We intend to
hold our and our subsidiary partnerships intend to hold their properties for
investment with a view to long-term appreciation, to engage in the business of
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acquiring, developing and owning properties, and to make occasional sales of the
properties as are consistent with their investment objectives. The IRS may
contend, however, that one or more of these sales is subject to the 100% penalty
tax.
CHARACTER OF ASSETS OWNED. At the close of each calendar quarter of our
taxable year, we also must meet three tests concerning the nature of our
investments. First, at least 75% of the value of our total assets generally must
consist of real estate assets, cash, cash items (including receivables) and
government securities. For this purpose, "real estate assets" include interests
in real property, interests in loans secured by mortgages on real property or by
certain interests in real property, shares in other REITs and certain options,
but excluding mineral, oil or gas royalty interests. The temporary investment of
new capital in stock or debt instruments also qualifies under this 75% asset
test, but only for the one-year period beginning on the date we receive the new
capital. Second, although the balance of our assets generally may be invested
without restriction, other than certain debt securities, we will not be
permitted to own (1) securities of any one non-governmental issuer that
represent more than 5% of the value of our total assets, (2) securities
possessing more than 10% of the voting power of the outstanding securities of
any single issuer or (3) securities having a value of more than 10% of the total
value of the outstanding securities of any one issuer. A REIT, however, may own
100% of the stock of a qualified REIT subsidiary, in which case the assets,
liabilities and items of income, deduction and credit of the subsidiary are
treated as those of the REIT. A REIT may also own more than 10% of the voting
power or value of a taxable REIT subsidiary. Third, not more than 20% of the
value of a REIT's total assets may be represented by securities of one or more
taxable REIT subsidiaries. In evaluating a REIT's assets, if the REIT invests in
a partnership, it is deemed to own its proportionate share of the assets of the
partnership.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If we fail
to satisfy the asset tests because we acquire securities or other property
during a quarter, we can cure this failure by disposing of sufficient
nonqualifying assets within 30 days after the close of that quarter. We intend
to take such action within the 30 days after the close of any quarter as may be
required to cure any noncompliance. If we fail to cure noncompliance with the
asset tests within this time period, we would cease to qualify as a REIT.
ANNUAL DISTRIBUTIONS TO SHAREHOLDERS. To maintain our REIT status, we
generally must distribute as a dividend to our shareholders in each taxable year
at least 90% of our net ordinary income. Capital gain is not required to be
distributed. More precisely, we must distribute an amount equal to (1) 90% of
the sum of (a) our "REIT Taxable Income" before deduction of dividends paid and
excluding any net capital gain and (b) 90% of the excess of net income from
foreclosure property over the tax on such income, minus (2) certain limited
categories of "excess noncash income," including, income attributable to certain
payments for the use of property or services described under Section 467 of the
Internal Revenue Code, cancellation of indebtedness and original issue discount
income. REIT Taxable Income is defined to be the taxable income of the REIT,
computed as if it were an ordinary corporation, with certain modifications. For
example, the deduction for dividends paid is allowed, but neither net income
from foreclosure property, nor net income from prohibited transactions, is
included. In addition, the REIT may carry over, but not carry back, a net
operating loss for 20 years following the year in which it was incurred.
A REIT may satisfy the 90% distribution test with dividends paid during
the taxable year and with certain dividends paid after the end of the taxable
year. Dividends paid in January that were declared during the last calendar
quarter of the prior year and were payable to shareholders of record on a date
during the last calendar quarter of that prior year are treated as paid on
December 31 of the prior year. Other dividends declared before the due date of
our tax return for the taxable year, including extensions, also will be treated
as paid in the prior year if they are paid (1) within 12 months of the end of
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that taxable year and (2) no later than our next regular distribution payment.
Dividends that are paid after the close of a taxable year that do not qualify
under the rule governing payments made in January (described above) will be
taxable to the shareholders in the year paid, even though we may take them into
account for a prior year. A nondeductible excise tax equal to 4% will be imposed
for each calendar year to the extent that dividends declared and distributed or
deemed distributed on or before December 31 are less than the sum of (a) 85% of
our "ordinary income" plus (b) 95% of our capital gain net income plus (c) any
undistributed income from prior periods.
To be entitled to a dividends paid deduction, the amount distributed by
a REIT must not be preferential. For example, every shareholder of the class of
shares to which a distribution is made must be treated the same as every other
shareholder of that class, and no class of shares may be treated otherwise than
in accordance with its dividend rights as a class.
We will be taxed at regular corporate rates to the extent that we
retain any portion of our taxable income. For example, if we distribute only the
required 90% of our taxable income, we would be taxed on the retained 10%. Under
certain circumstances we may not have sufficient cash or other liquid assets to
meet the distribution requirement. This could arise because of competing demands
for our funds, or due to timing differences between tax reporting and cash
receipts and disbursements (i.e., income may have to be reported before cash is
received, or expenses may have to be paid before a deduction is allowed).
Although we do not anticipate any difficulty in meeting this requirement, no
assurance can be given that necessary funds will be available. In the event
these circumstances do occur, then in order to meet the 90% distribution
requirement, we may arrange for short-term, or possibly long-term, borrowings to
permit the payment of required dividends.
If we fail to meet the 90% distribution requirement because of an
adjustment to our taxable income by the IRS, we may be able to cure the failure
retroactively by paying a "deficiency dividend," as well as applicable interest
and penalties, within a specified period.
TAXATION AS A REIT
As a REIT, we generally will not be subject to corporate income tax to
the extent we currently distribute our REIT taxable income to our shareholders.
This treatment effectively eliminates the "double taxation" imposed on
investments in most corporations. Double taxation refers to taxation that occurs
once at the corporate level when income is earned and once again at the
shareholder level when such income is distributed. We generally will be taxed
only on the portion of our taxable income that we retain, which will include any
undistributed net capital gain, because we will be entitled to a deduction for
dividends paid to shareholders during the taxable year. A dividends paid
deduction is not available for dividends that are considered preferential within
any given class of shares or as between classes except to the extent that class
is entitled to a preference. We do not anticipate that we will pay any of those
preferential dividends.
Even as a REIT, we will be subject to tax in certain circumstances as
follows:
- We would be subject to tax on any income or gain from
foreclosure property at the highest corporate rate (currently
35%). Foreclosure property is generally defined as property
acquired through foreclosure or after a default on a loan
secured by the property or a lease of the property.
- A confiscatory tax of 100% applies to any net income from
prohibited transactions which are, in general, certain sales
or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than
foreclosure property.
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- If we fail to meet either the 75% or 95% source of income
tests described above, but still qualify for REIT status under
the reasonable cause exception to those tests, a 100% tax
would be imposed equal to the amount obtained by multiplying
(a) the greater of the amount, if any, by which it failed
either the 75% income test or the 95% (substituting for
purposes of calculating the amount by which the 95% gross
income test is failed, 90% for 95%) income test, times (b) a
fraction intended to reflect our profitability.
- We will be subject to the alternative minimum tax on items of
tax preference, excluding items specifically allocable to our
shareholders.
- If we should fail to distribute with respect to each calendar
year at least the sum of (a) 85% of our REIT ordinary income
for that year, (b) 95% of our REIT capital gain net income for
that year, and (c) any undistributed taxable income from prior
years, we would be subject to a 4% excise tax on the excess of
the required distribution over the amounts actually
distributed.
- Under temporary regulations, we also may be taxed at the
highest regular corporate tax rate on any built-in gain
attributable to assets that we acquire in certain tax-free
corporate transactions, to the extent the gain is recognized
during the first ten years after we acquire those assets.
Built-in gain is the excess of (a) the fair market value of
the asset over (b) our adjusted basis in the asset, in each
case determined as of the beginning of the ten-year
recognition period. The results described in this paragraph
with respect to the recognition of built-in gain assume that
we will make an election pursuant to the temporary
regulations.
- We will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net
capital gains.
As a result of recent legislation, a tax is imposed on a REIT equal to
100% of redetermined rents, redetermined deductions and excess interest.
Redetermined rents are generally rents from real property which would otherwise
be reduced on distribution, apportionment or allocation to clearly reflect
income as a result of services furnished or rendered by a taxable REIT
subsidiary to tenants of the REIT. There are a number of exceptions with regard
to redetermined rents, which are summarized below.
- Redetermined rents do not include amounts received directly or
indirectly by a REIT for services customarily furnished or
rendered in connection with the rental of real property or
services furnished through an independent contractor from whom
the REIT does not derive or receive any income or through a
taxable REIT subsidiary.
- Redetermined rents do not include de minimis payments received
by the REIT with respect to non-customary services rendered to
the tenants of a property owned by the REIT that do not exceed
1% of all amounts received by the REIT with respect to the
property.
- The redetermined rent provisions do not apply with respect to
any services rendered by a taxable REIT subsidiary to the
tenants of the REIT, as long as the taxable REIT subsidiary
renders a significant amount of similar services to persons
other than the REIT and to tenants who are unrelated to the
REIT or the taxable REIT subsidiary or the REIT tenants, and
the charge for these services is substantially comparable to
the charge for similar services rendered to such unrelated
persons.
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- The redetermined rent provisions do not apply to any services
rendered by a taxable REIT subsidiary to a tenant of a REIT if
the rents paid by tenants leasing at least 25% of the net
leaseable space in the REIT's property who are not receiving
such services are substantially comparable to the rents paid
by tenants leasing comparable space who are receiving the
services and the charge for the services is separately stated.
- The redetermined rent provisions do not apply to any services
rendered by a taxable REIT subsidiary to tenants of a REIT if
the gross income of the taxable REIT subsidiary from these
services is at least 150% of the taxable REIT subsidiary's
direct cost of rendering the service.
- The Secretary of the Treasury has the power to waive the tax
that would otherwise be imposed on redetermined rents if the
REIT establishes to the satisfaction of the Secretary that
rents charged to tenants were established on an arm's length
basis even though a taxable REIT subsidiary provided services
to the tenants.
Redetermined deductions are deductions, other than redetermined rents,
of a taxable REIT subsidiary if the amount of these deductions would be
decreased on distribution, apportionment or allocation to clearly reflect income
between the taxable REIT subsidiary and the REIT. Excess interest means any
deductions for interest payments made by a taxable REIT subsidiary to the REIT
to the extent that the interest payments exceed a commercially reasonable rate
of interest.
FAILURE TO QUALIFY AS A REIT
For any taxable year in which we fail to qualify as a REIT and certain
relief provisions do not apply, we would be taxed at regular corporate rates,
including alternative minimum tax rates on all of our taxable income.
Distributions to our shareholders would not be deductible in computing that
taxable income, and distributions would no longer be required to be made. Any
corporate level taxes generally would reduce the amount of cash available for
distribution to our shareholders and, because the shareholders would continue to
be taxed on the distributions they receive, the net after tax yield to the
shareholders from their investment likely would be reduced substantially. As a
result, failure to qualify as a REIT during any taxable year could have a
material adverse effect on an investment in our shares of common stock. If we
lose our REIT status, unless certain relief provisions apply, we would not be
eligible to elect REIT status again until the fifth taxable year which begins
after the taxable year during which our election was terminated. It is not
possible to state whether in all circumstances we would be entitled to this
statutory relief.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
Except as discussed below, distributions generally will be taxable to
taxable U.S. shareholders as ordinary income to the extent of our current or
accumulated earnings and profits. We may generate cash in excess of our net
earnings. If we distribute cash to shareholders in excess of our current and
accumulated earnings and profits (other than as a capital gain dividend), the
excess cash will be deemed to be a return of capital to each shareholder to the
extent of the adjusted tax basis of the shareholder's shares. Distributions in
excess of the adjusted tax basis will be treated as gain from the sale or
exchange of the shares. A shareholder who has received a distribution in excess
of our current and accumulated earnings and profits may, upon the sale of the
shares, realize a higher taxable gain or a smaller loss because the basis of the
shares as reduced will be used for purposes of computing the amount of the gain
or loss. Distributions we make, whether characterized as ordinary income or as
capital gains, are not eligible for the dividends received deduction for
corporations.
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Dividends we declare in October, November, or December of any year and
payable to a shareholder of record on a specified date in any of these months
shall be treated as both paid by us and received by the shareholder on December
31 of that year, provided we actually pay the dividend on or before January 31
of the following calendar year. Shareholders may not include in their own income
tax returns any of our net operating losses or capital losses.
Distributions that we properly designate as capital gain dividends will
be taxable to taxable U.S. shareholders as gains from the sale or disposition of
a capital asset to the extent that they do not exceed our actual net capital
gain for the taxable year. Depending on the period of time the tax
characteristics of the assets which produced these gains, and on certain
designations, if any, which we may make, these gains may be taxable to
non-corporate U.S. shareholders at a 15% or 25% rate. U.S. shareholders that are
corporations may, however, be required to treat up to 20% of certain capital
gain dividends as ordinary income.
We may elect to retain, rather than distribute as a capital gain
dividend, our net long-term capital gains. If we make this election, we would
pay tax on our retained net long-term capital gains. In addition, to the extent
we designate, a U.S. shareholder generally would:
- include its proportionate share of our undistributed long-term
capital gains in computing its long-term capital gains in its
return for its taxable year in which the last day of our
taxable year falls;
- be deemed to have paid the capital gains tax imposed on us on
the designated amounts included in the U.S. shareholder's
long-term capital gains;
- receive a credit or refund for the amount of tax deemed paid
by it; and
- increase the adjusted basis of its shares of common stock by
the difference between the amount of includable gains and the
tax deemed to have been paid by it; and, in the case of a U.S.
shareholder that is a corporation, appropriately adjust its
earnings and profits for the retained capital gains in
accordance with Treasury Regulations to be prescribed by the
IRS.
Distributions we make and gain arising from the sale or exchange by a
U.S. shareholder of our shares will not be treated as income from a passive
activity, within the meaning of Section 469 of the Internal Revenue Code, since
income from a passive activity generally does not include dividends and gain
attributable to the disposition of property that produces dividends. As a
result, U.S. shareholders subject to the passive activity rules will generally
be unable to apply any "passive losses" against this income or gain.
Distributions we make, to the extent they do not constitute a return of capital,
generally will be treated as investment income for purposes of computing the
investment interest limitation. Gain arising from the sale or other disposition
of our shares, however, will be treated as investment income if a shareholder so
elects, in which case the capital gain is taxed at ordinary income rates.
Generally, gain or loss realized by a shareholder upon the sale of
shares will be reportable as capital gain or loss. In general, capital gains
recognized by individuals and other non-corporate shareholders upon the sale or
disposition of shares of common stock will be subject to a maximum federal
income tax rate of 15% if the shares of common stock are held for more than 12
months, and will be taxed at ordinary income rates of up to 35% if the shares of
common stock are held for 12 months or less. Gains recognized by shareholders
that are corporations are subject to federal income tax at a maximum rate of
35%, whether or not classified as long-term capital gains. Capital losses
recognized by a shareholder upon the disposition of shares of common stock held
for more than one year at the time of
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disposition will be considered long-term capital losses, and are generally
available only to offset capital gain income of the shareholder but not ordinary
income (except in the case of individuals, who may offset up to $3,000 of
ordinary income each year). In addition, if a shareholder receives a long-term
capital gain dividend from us and has held the shares for six months or less,
any loss incurred on the sale or exchange of the shares is treated as a
long-term capital loss to the extent of the corresponding long-term capital gain
dividend received.
In any year in which we fail to qualify as a REIT, the shareholders
generally will continue to be treated in the same fashion described above,
except that none of our dividends will be eligible for treatment as capital
gains dividends, corporate shareholders will qualify for the dividends received
deduction and the shareholders will not be required to report any share of our
tax preference items.
BACKUP WITHHOLDING
We will report to our shareholders and the IRS the amount of dividends
paid during each calendar year and the amount of tax withheld, if any. If a
shareholder is subject to backup withholding, we will be required to deduct and
withhold from any dividends payable to that shareholder a tax equal to the rate
as provided under Section 3406(a)(1) of the Internal Revenue Code. These rules
may apply (1) when a shareholder fails to supply a correct taxpayer
identification number, (2) when the IRS notifies us that the shareholder is
subject to the rules or has furnished an incorrect taxpayer identification
number, or (3) in the case of corporations or others within certain exempt
categories, when they fail to demonstrate that fact when required. A shareholder
that does not provide a correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount withheld as backup
withholding may be credited against the shareholder's federal income tax
liability. We also may be required to withhold a portion of capital gain
distributions made to shareholders who fail to certify their non-foreign status.
The United States Treasury issued its final regulations regarding the
withholding and information reporting rules discussed above. In general, the
final regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and clarify
reliance standards. The final regulations were generally made effective for
payments made on or after January 1, 2001, subject to certain transition rules.
Prospective investors should consult their own tax advisors concerning these
final regulations and the potential effect on their ownership of common shares.
TAXATION OF TAX-EXEMPT ENTITIES
In general, a tax-exempt entity that is a shareholder will not be
subject to tax on distributions or gain realized on the sale of shares. A
tax-exempt entity may be subject to unrelated business taxable income, however,
to the extent that it has financed the acquisition of its shares with
"acquisition indebtedness" within the meaning of the Internal Revenue Code. In
determining the number of shareholders a REIT has for purposes of the "50% test"
described above under "-- REIT Qualification," generally, any shares held by
tax-exempt employees' pension and profit sharing trusts which qualify under
Section 401(a) of the Internal Revenue Code and are exempt from tax under
Section 501(a) of the Internal Revenue Code ("qualified trusts") will be treated
as held directly by its beneficiaries in proportion to their interests in the
trust and will not be treated as held by the trust.
A qualified trust owning more than 10% of a REIT may be required to
treat a percentage of dividends from the REIT as unrelated business taxable
income ("UBTI"). The percentage is determined by dividing the REIT's gross
income (less direct expenses related thereto) derived from an unrelated trade or
business for the year (determined as if the REIT were a qualified trust) by the
gross income (less direct expenses related thereto) of the REIT for the year in
which the dividends are paid. However, if this percentage is less than 5%,
dividends are not treated as UBTI. These UBTI rules apply only if the REIT
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qualifies as a REIT because of the "look-thru" rule with respect to the 50% test
discussed above and if the trust is "predominantly held" by qualified trusts. A
REIT is predominantly held by qualified trusts if at least one pension trust
owns more than 25% of the value of the REIT or a group of pension trusts each
owning more than 10% of the value of the REIT collectively own more than 50% of
the value of the REIT. We do not currently meet either of these requirements.
For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of
the Internal Revenue Code, respectively, income from an investment in our
capital stock will constitute UBTI unless the organization is able to deduct an
amount properly set aside or placed in reserve for certain purposes so as to
offset the UBTI generated by the investment in our capital stock. These
prospective investors should consult their own tax advisors concerning the "set
aside" and reserve requirements.
TAXATION OF FOREIGN INVESTORS
The rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
shareholders are complex and no attempt will be made herein to provide more than
a summary of such rules. Prospective non-U.S. shareholders should consult with
their own tax advisors to determine the impact of federal, state and local
income tax laws with regard to an investment in shares of common stock,
including any reporting requirements, as well as the tax treatment of such an
investment under the laws of their home country.
Dividends that are not attributable to gain from any sales or exchanges
we make of United States real property interests and which we do not designate
as capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of our current or accumulated earnings and
profits. Those dividends ordinarily will be subject to a withholding tax equal
to 30% of the gross amount of the dividend unless an applicable tax treaty
reduces or eliminates that tax. However, if income from the investment in the
shares of common stock is treated as effectively connected with the non-U.S.
shareholder's conduct of a United States trade or business, the non-U.S.
shareholder generally will be subject to a tax at graduated rates, in the same
manner as U.S. shareholders are taxed with respect to those dividends, and may
also be subject to the 30% branch profits tax in the case of a shareholder that
is a foreign corporation. For withholding tax purposes, we are currently
required to treat all distributions as if made out of our current and
accumulated earnings and profits and thus we intend to withhold at the rate of
30%, or a reduced treaty rate if applicable, on the amount of any distribution
(other than distributions designated as capital gain dividends) made to a
non-U.S. shareholder unless (1) the non-U.S. shareholder files an IRS Form
W-8BEN claiming that a lower treaty rate applies or (2) the non-U.S. shareholder
files an IRS Form W-8ECI claiming that the dividend is effectively connected
income.
Under the final regulations, which were generally effective for
distributions on or after January 1, 2001, we are not required to withhold at
the 30% rate on distributions we reasonably estimate to be in excess of our
current and accumulated earnings and profits. Dividends in excess of our current
and accumulated earnings and profits are not taxable to a shareholder to the
extent that they do not exceed the adjusted basis of the shareholder's shares,
but rather will reduce the adjusted basis of those shares. To the extent that
those dividends exceed the adjusted basis of a non-U.S. shareholder's shares,
they will give rise to tax liability if the non-U.S. shareholder would otherwise
be subject to tax on any gain from the sale or disposition of his shares, as
described below. If it cannot be determined at the time a dividend is paid
whether or not a dividend will be in excess of current and accumulated earnings
and profits, the dividend will be subject to such withholding. We do not make
quarterly estimates of that portion of dividends that are in excess of earnings
and profits, and, as a result, all dividends will be subject to such
withholding. However, the non-U.S. shareholder may seek a refund of those
amounts from the IRS.
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For any year in which we qualify as a REIT, distributions that are
attributable to gain from our sales or exchanges of United States real property
interests will be taxed to a non-U.S. shareholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980, commonly known as "FIRPTA."
Under FIRPTA, those dividends are taxed to a non-U.S. shareholder as if the gain
were effectively connected with a United States business. Non-U.S. shareholders
would thus be taxed at the normal capital gain rates applicable to U.S.
shareholders subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals. Also,
dividends subject to FIRPTA may be subject to a 30% branch profits tax in the
hands of a corporate non-U.S. shareholder not entitled to treaty exemption. We
are required by the Internal Revenue Code and applicable Treasury Regulations to
withhold 35% of any dividend that could be designated as a capital gain dividend
in connection with the sale of a United States real property interest. This
amount is creditable against the non-U.S. shareholder's FIRPTA tax liability.
Gain recognized by a non-U.S. shareholder upon a sale of shares
generally will not be taxed under FIRPTA if we are a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the shares was held directly or
indirectly by foreign persons. It is currently anticipated that we will be a
"domestically controlled REIT," and therefore the sale of shares will not be
subject to taxation under FIRPTA. Because the shares of common stock will be
publicly traded, however, no assurance can be given that we will remain a
"domestically controlled REIT." However, gain not subject to FIRPTA will be
taxable to a non-U.S. shareholder if (1) investment in the shares of common
STOCK is effectively connected with the non-U.S. shareholder's United States
trade or business, in which case the non-U.S. shareholder will be subject to the
same treatment as U.S. shareholders with respect to that gain, and may also be
subject to the 30% branch profits tax in the case of a corporate non-U.S.
shareholder, or (2) the non-U.S. shareholder is a nonresident alien individual
who was present in the United States for 183 days or more during the taxable
year in which case the nonresident alien individual will be subject to a 30%
withholding tax on the individual's capital gains. If we were not a domestically
controlled REIT, whether or not a non-U.S. shareholder's sale of shares would be
subject to tax under FIRPTA would depend on whether or not the shares of common
stock were regularly traded on an established securities market (such as the
American Stock Exchange) and on the size of selling non-U.S. shareholder's
interest in our capital shares. If the gain on the sale of shares were to be
subject to taxation under FIRPTA, the non-U.S. shareholder will be subject to
the same treatment as U.S. shareholders with respect to that gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals and the possible application of the 30%
branch profits tax in the case of foreign corporations) and the purchaser of our
shares of common stock may be required to withhold 10% of the gross purchase
price.
JOBS AND GROWTH TAX ACT
On May 28, 2003, the President of the United States signed into law the
Jobs and Growth Tax Relief Reconciliation Act of 2003, referred to herein as the
Jobs and Growth Tax Act. The Jobs and Growth Tax Act reduces the maximum
individual tax rate for long-term capital gains generally from 20% to 15% (for
sales occurring after May 6, 2003 through December 31, 2008). The Jobs and
Growth Tax Act also taxes "qualified dividend income" of individuals as net
capital gain, thus reducing the maximum individual tax rate for such dividends
to 15% (for tax years from 2003 through 2008). "Qualified dividend income"
generally includes dividends received from regular corporations and from certain
"qualified foreign corporations," provided certain required stock holding
periods are met.
Under the Jobs and Growth Tax Act, REIT dividends (other than capital
gain dividends) generally are not qualifying dividend income and continue to be
taxed at ordinary rates. Dividends received from a REIT will be treated as
qualified dividend income, however, to the extent the REIT itself has qualifying
dividend income for the taxable year in which the dividend was paid, such as
dividends
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from taxable REIT subsidiaries, and designates such dividends as qualifying for
such capital gains rate tax treatment. Qualifying dividend income of a REIT for
this purpose also includes the sum of (i) the excess of the REIT's "real estate
investment trust taxable income" for the preceding year, which would typically
include any income that the REIT did not distribute to stockholders, over the
tax payable by the REIT on such income, and (ii) the excess of the income of the
REIT for the preceding year subject to the built-in gain tax on certain assets
acquired from C corporations, including as a result of the conversion of a C
corporation to a REIT, over the tax payable by the REIT on any such income in
the preceding year.
Assuming that we distribute all of our taxable income to our
stockholders, our distributions generally will not be eligible for the new 15%
tax rate on dividends for individual taxpayers except to the extent attributable
to income on which we have paid tax as discussed above or to dividends received
by us from non-REIT corporations such as taxable REIT subsidiaries. As a result,
our ordinary REIT distributions generally will be taxed at the higher tax rates
applicable to ordinary income.
Without future congressional action, the maximum individual tax rate on
long-term capital gains will return to 20% in 2009, and the maximum individual
tax rate on dividends will move to 35% in 2009 and 39.6% in 2011.
STATE AND LOCAL TAXES
We, and our shareholders, may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in our capital shares.
CERTAIN ERISA CONSIDERATIONS
Each prospective investor that is (i) an ERISA Plan, (ii) a plan within
the meaning of Section 4975(e)(1) of the Internal Revenue Code (including an IRA
and a Keogh Plan) or (iii) a person investing assets of any ERISA Plan or plan
whose assets are deemed to include plan assets should consider the matters
described below in determining whether to invest in our capital shares. Such
ERISA Plans, plans and persons are referred to herein as "Plans."
GENERAL FIDUCIARY RULES
Investments by ERISA Plans and persons whose assets are deemed to
include plan assets are subject to ERISA's general fiduciary requirements,
including the requirements of investment prudence and diversification,
requirements respecting the delegation of investment authority and the
requirement that an ERISA Plan's investment be made in accordance with the
documents governing the Plan. Plan fiduciaries must give appropriate
consideration to, among other things, the role that an investment in our capital
shares has in the Plan's investment portfolio, taking into account the Plan's
purposes, the risk of loss and the potential return in respect of such
investment, the composition of the Plan's portfolio, the liquidity and current
return of the total portfolio relative to the anticipated cash flow needs of the
Plan, and the projected return of the portfolio relative to the Plan's funding
objectives. Keogh Plan and IRA investors should also consider whether an
investment in our capital shares is appropriate for their Keogh Plans or IRAs.
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PLAN ASSETS
Regulations issued by the U.S. Department of Labor (the "Plan Asset
Regulations") describe what constitutes the assets of a Plan for purposes of
various provisions of ERISA and Section 4975 of the Internal Revenue Code when a
Plan makes an equity investment in an entity such as an investment in our
capital shares. The U.S. Department of Labor has generally stated that an
investment by a plan in securities (within the meaning of section 3(20) of
ERISA) of a corporation or partnership will not, solely by reason of such
investment, be considered to be an investment in the underlying assets of such
corporation or partnership so as to make such assets of the entity "plan assets"
and thereby make a subsequent transaction between the party in interest and the
corporation or partnership a prohibited transaction under Section 406 of ERISA.
The Plan Asset Regulations provide that the assets of entities in which
retirement plans make equity investments will be treated as "plan assets" unless
such investments are (1) in publicly offered securities, (2) in securities
offered by an investment company registered under the Investment Company Act of
1940, or (3) within one of the other specific exemptions set forth in the Plan
Asset Regulations. Since we are not a registered investment company, the
exemption contained in the Plan Asset Regulations which may apply to an
investment in our capital shares is that that it may be an investment in
"publicly offered securities," defined generally as interests which are freely
transferable, widely-held and registered with the Securities and Exchange
Commission or an investment in which equity participation by "benefit plan
investors" is not significant. The Plan Asset Regulations provide that equity
participation in an entity by benefit plan investors is "significant" if at any
time 25% or more of the value of any class of equity interest is held by benefit
plan investors. The term "benefit plan investors" is broadly defined for this
purpose to include any employee pension or welfare benefit plan, whether or not
subject to ERISA, any plan described in Section 4975(e)(1) of the Internal
Revenue Code and any entity whose underlying assets include plan assets by
reason of plan investment in the entity. We may have equity participation in
this offering by "benefit plan investors" that is significant, as defined above.
Therefore, we may not qualify for the exemption for investments in which equity
participation by benefit plan investors is not significant.
PLAN ASSET REGULATIONS - PUBLICLY OFFERED SECURITIES EXEMPTION
As noted above, if a retirement plan acquires "publicly offered
securities," the assets of the issuer of the securities are not deemed to be
plan assets under the Plan Asset Regulations. The definition of publicly offered
securities requires that such securities must be "widely-held," "freely
transferable" and must satisfy certain registration requirements under federal
securities laws. Although we should satisfy the registration requirements under
this definition, the determinations of whether a security is "widely-held" and
"freely transferable" are inherently factual matters. Under the Plan Asset
Regulations, a class of securities will be "widely-held" if it is held by 100 or
more persons. We anticipate that this requirement will be met; however, even if
the shares are deemed to be widely-held, the "freely transferable" requirement
must also be satisfied in order to qualify for this exemption. We intend to
satisfy the freely transferable requirement set forth in the Plan Asset
Regulations with respect to our shares. Because of the factual nature of such a
determination, however, and the lack of further guidance as to the meaning of
the term "freely transferable," there can be no assurance that we will, in fact,
qualify for this exemption.
PROHIBITED TRANSACTIONS
ERISA generally prohibits a fiduciary from causing an ERISA Plan to
engage in a broad range of transactions involving the assets of the ERISA Plan
and persons having a specified relationship to the Plan ("parties in interest")
unless a statutory or administrative exemption applies. Similar prohibitions are
contained in Section 4975 of the Internal Revenue Code and generally apply with
respect to ERISA Plans, Keogh Plans, IRAs, and other Plans. An excise tax may be
imposed pursuant to Section 4975 of the Internal Revenue Code on persons having
a specified relationship with a Plan ("disqualified persons") in
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respect of prohibited transactions involving the assets of the Plan. Generally
speaking, parties in interest for purposes of ERISA would be disqualified
persons under Section 4975 of the Internal Revenue Code.
If our assets are treated for purposes of ERISA and Section 4975 of the
Internal Revenue Code as the assets of the Plans that invest in our capital
shares due to the fact that we fail to satisfy the publicly offered securities
exception, certain transactions that we might enter into in the ordinary course
of our business might constitute "prohibited transactions" under ERISA and the
Internal Revenue Code, thereby potentially subjecting fiduciaries of the Plans
to personal liability and civil penalties and potentially resulting in the
imposition of an excise tax under Section 4975 of the Internal Revenue Code on
the disqualified person that is party to the transaction with us unless a
statutory or administrative exemption exist and the plan satisfies all
conditions for such exemptive relief.
There are five class exemptions issued by the Department of Labor that
could apply in the event of a prohibited transaction. These Department of Labor
Prohibited Transaction Class Exemptions apply to:
- plan asset transactions determined by independent qualified
professional asset managers (PTE 84-14),
- certain transactions involving bank collective investment
funds (PTE 91-38),
- certain transactions involving insurance company pooled
separate accounts (PTE 90-1),
- certain transactions involving insurance company general
accounts (PTE 95-60), and
- plan asset transactions determined by in-house asset manager
(PTE 96-23).
However, there is no assurance that these exemptions or any other
exemption will apply, even if all of the conditions specified are satisfied.
GOVERNMENTAL PLANS
Although federal, state and local governmental pension plans are not
subject to ERISA, applicable provisions of federal and state law may restrict
the type of investments such a plan may make or otherwise have an impact on such
a plan's ability to invest in our capital shares. Accordingly, state and local
governmental pension plans considering an investment in our capital shares
should consult with their counsel regarding their proposed investment in our
capital shares.
SPECIAL CONSIDERATIONS FOR INSURANCE COMPANIES
An insurance company considering an investment should consider whether
it's general account may be deemed to include assets of the plans investing in
the general account, for example, through the purchase of an annuity contract.
In John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 510
U.S. 86 (1993), the United States Supreme Court held that assets held in an
insurance company's general account may be deemed to be plan assets under
certain circumstances. In that event, the insurance company might be treated as
a party in interest under such plans. However, PTE 95-60 (described above) may
exempt some or all of the transactions that could occur as the result of the
acquisition of our capital shares by an insurance company general account.
Therefore, insurance company investors should analyze whether John Hancock and
PTE 95-60 or any other exemption may have an impact on their decision to
purchase our capital shares.
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In addition, the Small Business Job Protection Act of 1996 added a new
Section 401(c) of ERISA relating to the status of the assets of insurance
company general accounts under ERISA and Section 4975 of the Internal Revenue
Code. Pursuant to Section 401(c), the Department of Labor issued final
regulations effective January 5, 2000 (the "General Account Regulations") with
respect to insurance policies issued on or before December 31, 1998 that are
supported by an insurer's general account. As a result of these regulations,
assets of an insurance company general account will not be treated as "plan
assets" for purposes of the fiduciary responsibility provisions of ERISA and
Section 4975 of the Internal Revenue Code to the extent such assets relate to
contracts issued to employee benefit plans on or before December 31, 1998 and
the insurer satisfies various conditions. The plan asset status of insurance
company separate accounts is unaffected by new Section 401(c) of ERISA, and
separate account assets continue to be treated as the plan assets of any such
plan invested in a separate account.
THE FOREGOING DISCUSSION OF ERISA AND INTERNAL REVENUE CODE ISSUES
SHOULD NOT BE CONSTRUED AS LEGAL ADVICE. FIDUCIARIES OF PLANS SHOULD CONSULT
THEIR OWN COUNSEL WITH RESPECT TO ISSUES ARISING UNDER ERISA AND THE INTERNAL
REVENUE CODE AND MAKE THEIR OWN INDEPENDENT DECISION REGARDING AN INVESTMENT IN
OUR COMMON SHARES.
PLAN OF DISTRIBUTION
GENERAL
We are offering a maximum of 12,500,000 shares to the public through
Participating Dealers, as defined below. The shares are being offered at a price
of $10.00 per share on a "best efforts" basis, which means generally that the
Participating Dealers will be required to use only their best efforts to sell
the shares and they have no firm commitment or obligation to purchase any of the
shares. We are also offering 4,500,000 shares for sale pursuant to our dividend
reinvestment plan at a price of $10.00 per share. We reserve the right in the
future to reallocate additional shares to our dividend reinvestment plan out of
our public offering shares. Therefore, a total of 17,000,000 shares are being
registered in this offering.
The offering of shares will terminate on or before March ____, 2005.
However, we reserve the right to extend the offering until not later than March
____, 2006 in any state that allows us to extend the offering.
UNDERWRITING COMPENSATION AND TERMS
Except as provided below, the Participating Dealers will receive
selling commissions of 7.0% of the gross offering proceeds. The Dealer Manager
will receive 2.5% of the gross offering proceeds in the form of a dealer manager
fee as compensation for acting as the Dealer Manager and for expenses incurred
in connection with marketing our shares. We will not pay referral or similar
fees to any accountants, attorneys or other persons in connection with the
distribution of the shares. Shareholders who elect to participate in the
dividend reinvestment plan will be charged selling commissions and dealer
manager fees on shares purchased pursuant to the dividend reinvestment plan on
the same basis as shareholders purchasing shares other than pursuant to the
dividend reinvestment plan.
118
The Dealer Manager will select other broker-dealers who are members of
the NASD (Participating Dealers) to sell our shares. In the event of the sale of
shares by such Participating Dealers, the Dealer Manager may reallow its
commissions in the amount of up to 7.0% of the gross offering proceeds to such
Participating Dealers. In addition, the Dealer Manager may reallow a portion of
its dealer manager fee to Participating Dealers in the aggregate amount of up to
0.5% of gross offering proceeds to be paid to such Participating Dealers as
marketing fees, or to reimburse representatives of such Participating Dealers
the costs and expenses of attending our educational conferences and seminars.
In addition, unless otherwise agreed with the Dealer Manager,
Participating Dealers will be reimbursed by AmREIT for bona fide due diligence
expenses, not to exceed 0.5% of gross offering proceeds in the aggregate.
Investors may agree with their broker-dealer to reduce the amount of
selling commissions payable with respect to the sale of their shares down to
zero (1) in the event that the investor has engaged the services of a registered
investment advisor or other financial advisor with whom the investor has agreed
to pay compensation for investment advisory services or other financial or
investment advice, or (2) in the event that the investor is investing in a bank
trust account with respect to which the investor has delegated the
decision-making authority for investments made in the account to a bank trust
department. The net proceeds to AmREIT will not be affected by reducing the
commissions payable in connection with such transactions.
Neither the Dealer Manager nor its affiliates will compensate any
person engaged as an investment advisor by a potential investor as an inducement
for such investment advisor to advise favorably for an investment in AmREIT.
SUBSCRIPTION PROCEDURES
You should pay for your shares by check payable to "AmREIT."
Subscriptions will be effective only upon our acceptance, and we reserve the
right to reject any subscription in whole or in part. We may not accept a
subscription for shares until at least five business days after the date you
receive this prospectus. You will receive a confirmation of your purchase. We
will initially deposit the subscription proceeds in an interest-bearing account
with Wells Fargo Bank. Subscribers may not withdraw funds from the account. We
will withdraw funds from the account periodically for the acquisition of real
estate properties, the payment of fees and expenses or other investments
approved by our board of trust managers. We generally admit shareholders to
AmREIT on a daily basis.
Except for purchases pursuant to our dividend reinvestment plan or
reinvestment plans of other public real estate programs, all accepted
subscriptions will be for whole shares and for not less than 500 shares ($5,000)
for non-qualified accounts, or 300 shares ($3,000) for qualified accounts. See
"Suitability Standards." Except in Maine, Minnesota, Nebraska and Washington,
investors who have satisfied the minimum purchase requirement and have purchased
units or shares in AmREIT programs or units or shares in other public real
estate programs may purchase less than the minimum number of shares discussed
above, provided that such investors purchase a minimum of 2.5 shares ($25).
After investors have satisfied the minimum purchase requirement, minimum
additional purchases must be in increments of at least 2.5 shares ($25), except
for purchases made pursuant to our dividend reinvestment plan or reinvestment
plans of other public real estate programs.
The proceeds of this offering will be used only for the purposes set
forth in the "Estimated Use of Proceeds" section of this prospectus.
Subscriptions will be accepted or rejected within 30 days of receipt by AmREIT
and, if rejected, all funds shall be returned to the rejected subscribers within
10 business days. The Dealer Manager and each Participating Dealer who sells
shares on behalf of AmREIT have the
119
responsibility to make every reasonable effort to determine that the purchase of
shares is appropriate for the investor and that the requisite suitability
standards are met. See "Suitability Standards." In making this determination,
the Participating Dealer will rely on relevant information provided by the
investor, including information as to the investor's age, investment objectives,
investment experience, income, net worth, financial situation, other
investments, and other pertinent information. Each investor should be aware that
the Participating Dealer will be responsible for determining suitability.
The Dealer Manager or each Participating Dealer shall maintain records
of the information used to determine that an investment in shares is suitable
and appropriate for an investor. These records are required to be maintained for
a period of at least six years.
SUPPLEMENTAL SALES MATERIAL
In addition to this prospectus, we may utilize certain sales material
in connection with the offering of the shares, although only when accompanied by
or preceded by the delivery of this prospectus. In certain jurisdictions, some
or all of such sales material may not be available. This material may include
information relating to this offering, our past performance, property brochures
and articles and publications concerning real estate. In addition, the sales
material may contain certain quotes from various publications without obtaining
the consent of the author or the publication for use of the quoted material in
the sales material.
The offering of shares is made only by means of this prospectus.
Although the information contained in such sales material will not conflict with
any of the information contained in this prospectus, such material does not
purport to be complete, and should not be considered a part of this prospectus
or the registration statement of which this prospectus is a part, or as
incorporated by reference in this prospectus or said registration statement or
as forming the basis of the offering of the shares.
EXPERTS
The consolidated financial statements and schedule of AmREIT and
subsidiaries as of December 31, 2003 and for each of the years in the two-year
period ended December 31, 2003, have been included herein in reliance upon the
report of KPMG LLP, independent accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
LEGAL OPINIONS
The legality of the shares being offered hereby has been passed upon by
Locke Liddell & Sapp LLP, Dallas, Texas. The statements under the caption
"Federal Income Tax Consequences" as they relate to federal income tax matters
have been reviewed by Locke Liddell & Sapp LLP, and Locke Liddell & Sapp LLP has
opined as to certain income tax matters relating to an investment in the
company. Locke Liddell & Sapp LLP has represented affiliates of AmREIT in other
matters and may continue to do so in the future.
ADDITIONAL INFORMATION
We have filed with the SEC in Washington, D.C., a registration
statement on Form S-11 under the Securities Act of 1933, as amended, with
respect to the shares offered pursuant to this prospectus. This prospectus does
not contain all the information set forth in the registration statement and the
exhibits related thereto filed with the SEC, reference to which is hereby made.
Copies of the registration statement and exhibits related thereto, as well as
periodic reports and information filed by AmREIT may be obtained upon payment of
the fees prescribed by the SEC, or may be examined at the offices of the
120
SEC without charge, at the public reference facility in Washington, D.C. at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the SEC maintains a Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC.
121
GLOSSARY
The following are definitions of certain terms used in this prospectus:
"Affiliate" means (1) any person or entity directly or indirectly
through one or more intermediaries controlling, controlled by, or under common
control with another person or entity; (2) any person or entity directly or
indirectly owning, controlling, or holding with power to vote 10% or more of the
outstanding voting securities of another person or entity; (3) any officer,
director, partner, or trustee of such person or entity; (4) any person 10% or
more of whose outstanding voting securities are directly or indirectly owned,
controlled or held, with power to vote, by such other person; and (5) if such
other person or entity is an officer, director, partner, or trustee of a person
or entity, the person or entity for which such person or entity acts in any such
capacity.
"AmREIT" means AmREIT, a Texas real estate investment trust, and unless
otherwise indicated to the contrary, the Predecessor Corporation and all
subsidiaries of AmREIT.
"AmREIT Decision Logic" means a system of analysis for properties being
reviewed by AmREIT, consisting of 25 specific factors, including demographic
studies, traffic flow review, environmental review, site planning and financial
analysis.
"ARIC" means AmREIT Realty Investment Corporation, a wholly-owned
subsidiary of AmREIT.
"Board of Trust Managers" means the Trust Managers of AmREIT.
"Bylaws" means the bylaws of AmREIT.
"Class A Common Shares" means the Class A Common Shares, par value
$0.01 per share, of AmREIT.
"Class B Common Shares" means the Class B Common Shares, par value
$0.01 per share, of AmREIT.
"Class C Common Shares" means the Class C Common Shares, par value
$0.01 per share, of AmREIT.
"Class D Common Shares" means the Class D Common Shares, par value
$0.01 per share, of AmREIT.
"Common Shares" means any class or series of common shares of
beneficial interest, par value $0.01, of AmREIT.
"Credit Facility" means AmREIT's $20 million unsecured credit facility
with Wells Fargo Bank, N.A., as lender.
"CTL" means single tenant, free standing, credit tenant leased
properties.
"Dealer Manager" means AmREIT Securities Corp., a wholly-owned
subsidiary of AmREIT.
"Dividend Reinvestment Plan" means the Dividend Reinvestment Plan, in
the form attached hereto as Exhibit B.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
122
"ERISA Plan" means a pension, profit-sharing, retirement, or other
employee benefit plan subject to ERISA.
"FCP" means multi-tenant frontage commercial properties.
"FFO" means Funds from Operations.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980,
as amended
"Former Advisor" means American Asset Advisors Realty Corporation,
which was wholly-owned by H. Kerr Taylor, AmREIT's Chairman of the Board and
Chief Executive Officer.
"Funds IX, X and XI" means, collectively, AAA Net Realty Fund IX, Ltd.,
AAA Net Realty Fund X, Ltd. and AAA Net Realty Fund XI, Ltd.
"Internal Revenue Code" or "Code" means the Internal Revenue Code of
1986, as amended.
"Interested Shareholder" means any person who beneficially owns,
directly or indirectly, 10% or more of the voting power of AmREIT's shares.
"IRAs" means individual retirement accounts.
"IRS" means the Internal Revenue Service.
"Joint Ventures" means the joint venture or general partnership
arrangements in which AmREIT is a co-venturer or general partner which are
established to acquire properties.
"Market Value" - Each party, at its sole cost and by giving notice to
the other party, shall appoint a real estate appraiser with at least five (5)
years full-time commercial appraisal experience and who is a member of the
Appraisal Institute (MAI designation) to determine the Market Value. If either
party fails to appoint an appraiser within five (5) days after the other party
has given notice of the name of its appraiser, the single appraiser appointed
shall be the sole appraiser and shall determine the Market Value. If two
appraisers are appointed by the parties, they shall each conduct an independent
appraisal of the Property to be completed no later than thirty (30) days after
the two appraisers are appointed. If the two appraised values are within five
percent (5%) of each other, the Market Value of the Property shall be the median
of the two appraisals. If the two appraisals are more than five percent (5%)
apart, a third appraiser meeting the qualifications stated above shall be
appointed by the two existing appraisers within five (5) days after the last day
the two appraisers are given to complete their appraisals. If they are unable to
agree on the third appraiser, either of the parties, by giving ten (10) days
notice to the other party, can apply to the then president of the Houston
Chapter of the Appraisal Institute for the selection of a third appraiser who
meets the qualifications stated above. Each of the parties shall bear one-half
(1/2) of the cost of appointing the third appraiser and of paying the third
appraiser's fee. The third appraiser, however selected, shall be a person who
has not previously acted in any capacity for either party within the previous
twelve months. Within thirty (30) days after its selection, the third appraiser
shall complete its appraisal of the Property. Upon completion of the third
appraisal, if the low appraisal and/or the high appraisal are/is more than five
percent (5%) lower and/or higher than the middle appraisal, the low appraisal
and/or the high appraisal shall be disregarded. If only one appraisal is
disregarded, the remaining two (2) appraisals shall be added together and their
total divided by two (2), with the resulting quotient being the Market Value. If
both the low appraisal and the high appraisal are disregarded as stated above,
the middle appraisal shall be the Market Value.
123
"NAREIT" means the National Association of Real Estate Investment
Trusts.
"NASAA Guidelines" means the Statement of Policy Regarding Real Estate
Programs of the North American Securities Administrators Association, Inc.
adopted on October 9 and 12, 1988, effective January 1, 1989, as amended.
"NASD" means the National Association of Securities Dealers, Inc.
"Net Asset Value" means the value of AmREIT's total assets (less
intangibles) based on market capitalization rates and current year rental
income, as determined by the Board of Trust Managers, before deducting
depreciation or other non-cash reserves, less total liabilities, calculated at
the end of each quarter on a basis consistently applied.
"Net Lease" generally means a property lease pursuant to which the
tenant is responsible for property costs associated with ongoing operations,
including repairs, maintenance, property taxes, utilities and insurance.
"Offering Expenses" means any and all costs and expenses, other than
Selling Commissions, the marketing support fee, due diligence expense
reimbursements, and the fee payable to the Dealer Manager incurred by AmREIT, or
any Affiliate, in connection with the qualification and registration of AmREIT
and the marketing and distribution of shares, including, without limitation, the
following: legal, accounting, and escrow fees; printing, amending,
supplementing, mailing, and distributing costs; filing, registration, and
qualification fees and taxes; fax and telephone costs; and all advertising and
marketing expenses, including the costs related to investor and broker-dealer
sales meetings. The Offering Expenses paid by AmREIT in connection with the
offering, together with the 7.5% Selling Commissions, the marketing support fee,
due diligence expense reimbursements, and 2.5% fee payable to the Dealer
Manager, incurred by AmREIT will not exceed 12% of the proceeds raised in
connection with this offering.
"Ownership Limit" means, with respect to Common Shares and Preferred
Shares, the percent limitation placed on the ownership of Common Shares and
Preferred Shares by any one person. As of the initial date of this prospectus,
the Ownership Limit is 9.0% of the outstanding Common Shares and 9.9% of the
outstanding Preferred Shares.
"Participants" means those shareholders who elect to participate in the
Dividend Reinvestment Plan.
"Participating Dealers" means those broker-dealers that are members of
the NASD, or that are exempt from broker-dealer registration, and that, in
either case, enter into participating broker or other agreements with the Dealer
Manager to sell shares.
"Partnerships" means the ten real estate limited partnerships under
common management that are Affiliates of AmREIT.
"Plan" means ERISA Plans, IRAs, Keogh plans, stock bonus plans, and
certain other plans.
"Plan Asset Regulations" means regulations issued by the U.S.
Department of Labor describing what constitutes the assets of a Plan for
purposes of various provisions of ERISA.
"Predecessor Corporation" means AmREIT, Inc., a Maryland corporation.
124
"Preferred Shares" means any class or series of preferred shares of
beneficial interest, par value $0.01 per share of AmREIT that may be issued in
accordance with the terms of our articles of incorporation and applicable law.
"Prospectus" means the final prospectus included in the Company's
registration statement filed with the SEC, pursuant to which the Company will
offer Class D Common Shares to the public, as the same may be amended or
supplemented from time to time after the effective date of the registration
statement.
"Qualified Plans" means qualified pension, profit-sharing, and share
bonus plans, including Keogh plans and IRAs.
"Reinvestment Agent" means the independent agent, which currently is
Wells Fargo Bank Minnesota, N.A., for Participants in the Dividend Reinvestment
Plan.
"Reinvestment Proceeds" means net proceeds available from the sale of
shares under the Dividend Reinvestment Plan to redeem shares.
"REIT" means real estate investment trust, as defined pursuant to
Sections 856 through 860 of the Internal Revenue Code.
"SEC" means the Securities and Exchange Commission.
"Selling Commissions" means any and all commissions payable to
underwriters, managing dealers, or other broker-dealers in connection with the
sale of shares as described in this prospectus, including, without limitation,
commissions payable to the Participating Dealers.
"Subscription Agreement' means the Subscription Agreement and the
Subscription Agreement Signature Page, in the forms attached hereto as Exhibit
A.
"TRA" means the Texas Real Estate Investment Trust Act, as amended.
"Trust Manager" means a member of the board of trust managers of
AmREIT.
"UBTI" means unrelated business taxable income, as that term is defined
in Sections 511 through 514 of the Internal Revenue Code.
125
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
AND FINANCIAL STATEMENT SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 2003
AMREIT AND SUBSIDIARIES
F-1
AMREIT AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
FINANCIAL STATEMENTS:
Independent Auditors' Report F-3
Consolidated Balance Sheet, December 31, 2003 F-4
Consolidated Statements of Operations for the Years Ended
December 31, 2003 and 2002 F-5
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 2003 and 2002 F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2003 and 2002 F-7
Notes to Consolidated Financial Statements for the Years Ended
December 31, 2003 and 2002 F-8 to F-22
FINANCIAL STATEMENT SCHEDULE:
Schedule III Consolidated Real Estate Owned and Accumulated
Depreciation for the Year Ended December 31, 2003 F-23
All other financial statement schedules are omitted as the required information
is either inapplicable or is included in the financial statements or related
notes.
F-2
INDEPENDENT AUDITORS' REPORT
To the Board of Trust Managers
AmREIT:
We have audited the accompanying consolidated balance sheet of AmREIT and
subsidiaries (the "Company") as of December 31, 2003, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the two-year period ended December 31, 2003. In connection
with our audits of the consolidated financial statements, we have also audited
the related financial statement schedule. These consolidated financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AmREIT and
subsidiaries as of December 31, 2003, and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
2003 in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
KPMG LLP
Houston, Texas
March 24, 2004
F-3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMREIT AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003
ASSETS
Property:
Land $ 36,242,482
Buildings 33,906,917
Tenant improvements 389,657
-------------
70,539,056
Less accumulated depreciation and amortization (2,520,633)
-------------
Net real estate held for investment 68,018,423
Real estate held for sale, net 4,384,342
Net investment in direct financing leases held for investment 22,046,210
Cash and cash equivalents 2,031,440
Accounts receivable 575,841
Accounts receivable - related party 201,774
Notes receivable 999,777
Escrow deposits 331,239
Prepaid expenses, net 291,109
Other assets:
Preacquisition costs 13,182
Loan acquisition cost, net of $135,150 in accumulated amortization 346,622
Leasing costs, net of $59,942 in accumulated amortization 325,656
Furniture, fixtures and equipment, net of $149,014 in accumulated depreciation 103,271
Accrued rental income 499,658
Intangible lease cost, net of $63,802 in accumulated amortization 613,171
Investment in non-consolidated affiliates 544,892
-------------
Total other assets 2,446,452
-------------
TOTAL ASSETS $ 101,326,607
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 48,484,625
Accounts payable 3,084,047
Accounts payable - related party 11,440
Security deposit 97,040
Prepaid rent 6,561
-------------
TOTAL LIABILITIES 51,683,713
-------------
Minority interest 846,895
Shareholders' equity:
Preferred shares, $.01 par value, 10,000,000 shares authorized, none issued -
Class A Common shares, $.01 par value, 50,000,000 shares authorized,
2,939,404 shares issued, 2,805,582 shares outstanding 29,394
Class B Common shares, $.01 par value, 3,000,000 shares authorized,
2,362,522 shares issued and outstanding 23,625
Class C Common shares, $.01 par value, 4,400,000 shares authorized,
1,402,788 shares issued and outstanding 14,028
Capital in excess of par value 59,350,988
Accumulated distributions in excess of earnings (9,616,551)
Deferred compensation (143,710)
Cost of treasury shares, 133,822 shares (861,775)
-------------
TOTAL SHAREHOLDERS' EQUITY 48,795,999
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 101,326,607
=============
See Notes to Condensed Consolidated Financial Statements.
F-4
AMREIT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
2003 2002
------------ ------------
Revenues:
Rental income from operating leases $ 4,965,593 $ 3,386,030
Earned income from direct financing leases 2,618,573 1,807,117
Real estate fee income 1,031,201 1,222,944
Gain on sales of real estate acquired for resale 787,244 -
Securities commission income 2,958,226 846,893
Asset management fee income 240,465 252,072
Interest and other income 7,938 4,206
------------ ------------
Total revenues 12,609,240 7,519,262
------------ ------------
Expenses:
General operating and administrative 3,936,546 2,801,946
Legal and professional 881,283 679,154
Securities commissions 2,288,027 653,034
Depreciation and amortization 835,987 611,083
Deferred merger costs 914,688 1,904,370
------------ ------------
Total expenses 8,856,531 6,649,587
------------ ------------
Operating income 3,752,709 869,675
Income from non-consolidated affiliates 312,147 416,904
Federal income tax expense for taxable REIT subsidiary (236,990) (60,656)
Interest expense (2,354,159) (1,774,973)
Minority interest in income of consolidated joint ventures (178,311) (308,010)
------------ ------------
Income (loss) before discontinued operations 1,295,396 (857,060)
Income from discontinued operations 391,480 245,840
Gain (loss) on sales of real estate acquired for investment 311,873 (47,553)
------------ ------------
Income from discontinued operations 703,353 198,287
Net income (loss) 1,998,749 (658,773)
Distributions paid to class B and class C shareholders (1,942,656) (865,293)
------------ ------------
Net income (loss) available to class A shareholders $ 56,093 $ (1,524,066)
============ ============
Net income per common share - basic and diluted
Loss before discontinued operations $ (0.23) $ (0.70)
Income from discontinued operations 0.25 0.08
------------ ------------
Net income (loss) $ 0.02 $ (0.62)
============ ============
Weighted average class A common shares used to
compute net income per share, basic and diluted 2,792,190 2,469,725
============ ============
See Notes to Condensed Consolidated Financial Statements.
F-5
AMREIT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Accumulated
Capital in distributions Cost of
Common Shares excess of in excess of Defered treasury
Amount par value earnings compensation shares Total
------------- ---------- ------------- ------------ ---------- ------------
BALANCE AT DECEMBER 31, 2001 $ 23,856 $21,655,852 $ (6,037,757) $ - $(288,170) $ 15,353,781
Net loss - - (658,773) - - (658,773)
Issuance of common shares, Class A 3,023 1,901,347 - - - 1,904,370
Issuance of common shares, Class A -
for class B conversion 1,248 - 1,248
Issuance of common shares, Class B, net of
124,750 shares that converted to Class A 24,642 23,468,401 - - - 23,493,043
Issuance of restricted shares, Class A 250 157,017 - (256,877) 185,119 85,509
Amortization of deferred compensation - - - 51,524 - 51,524
Repurchase of common shares, Class A
(46,069 shares) - - - - (294,138) (294,138)
Distributions - - (1,730,316) - - (1,730,316)
------------ ----------- ------------ ------------ --------- ------------
BALANCE AT DECEMBER 31, 2002 $ 53,019 $47,182,617 $ (8,426,846) $ (205,353) $(397,189) $ 38,206,248
------------ ----------- ------------ ------------ --------- ------------
Net income - - 1,998,749 - - 1,998,749
Issuance of common shares, Class A 1,017 - - - - 1,017
Repurchase of common shares, Class B (1,017) - - - - (1,017)
Issuance of restricted shares, Class A - 15,184 - (152,819) 137,635 -
Amortization of deferred compensation - - - 214,462 - 214,462
Repurchase of common shares, Class A
(92,700 shares) - - - - (602,221) (602,221)
Issuance of common shares, Class C 14,028 12,153,187 - - - 12,167,215
Distributions - - (3,188,454) - - (3,188,454)
------------ ----------- ------------ ------------ --------- ------------
BALANCE AT DECEMBER 31, 2003 $ 67,047 $59,350,988 $ (9,616,551) $ (143,710) $(861,775) $ 48,795,999
------------ ----------- ------------ ------------ --------- ------------
See Notes to Consolidated Financial Statements.
F-6
AMREIT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2003 2002
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 1,998,749 $ (658,773)
Adjustments to reconcile net income to net cash
provided by operating activities:
Investment in real estate acquired for resale (7,807,597) -
Proceeds from sales of real estate acquired for sale 6,179,145 -
Gain on sales of real estate acquired for resale (787,244) -
(Gain) loss on sales of real estate acquired for investment (311,873) 47,553
Depreciation and amortization 942,326 723,607
Amortization of deferred compensation 214,462 51,524
Minority interest in net income of consolidated joint ventures 178,311 308,010
Deferred merger costs 914,688 1,904,370
(Increase) decrease in accounts receivable (402,182) 1,056,265
(Increase) decrease in accounts receivable- related party (132,840) 378,494
Increase in prepaid expenses, net (121,411) (170,028)
Cash receipts from direct financing leases
more than income recognized 24,854 282,805
(Increase) decrease in accrued rental income (225,607) 32,095
Increase in other assets (318,539) (49,114)
Increase (decrease) in accounts payable 1,022,674 (365,018)
(Decrease) increase in accounts payable- related party (194,683) 181,123
Increase in security deposits 63,110 -
Increase in prepaid rent 384 6,177
------------ ------------
Net cash provided by operating activities 1,236,727 3,729,090
------------ ------------
Cash flows from investing activities:
Improvements to real estate (534,554) (623,124)
Acquisition of investment properties (23,922,118) (18,951,523)
Notes receivable advances (999,777) -
Additions to furniture, fixtures and equipment (64,859) (25,131)
Distributions from non-consolidating affiliates 4,444 431,604
Proceeds from sale of investment property 3,497,267 3,692,544
(Increase) decrease in preacquisition costs (11,417) 207,435
------------ ------------
Net cash used in investing activities (22,031,014) (15,268,195)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 36,203,535 19,253,403
Payments of notes payable (24,118,829) (3,399,277)
Loan acquisition costs - (38,035)
Purchase of treasury shares (602,221) (109,019)
Issuance of common shares 14,012,572 (517,857)
Retirement of common shares (106,500)
Issuance costs (1,845,357) -
Common dividends paid (3,188,454) (1,730,316)
Contributions from minority interests - 809,971
Distributions to minority interests (142,387) (343,514)
------------ ------------
Net cash provided by financing activities 20,318,859 13,818,856
------------ ------------
Net (decrease) increase in cash and cash equivalents (475,428) 2,279,751
Cash and cash equivalents, beginning of period 2,506,868 227,117
------------ ------------
Cash and cash equivalents, end of period $ 2,031,440 $ 2,506,868
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
In 2003 the Company issued 24,257 shares of restricted stock to employees and
trust managers as part of their compensation plan. The restricted stock vests
over a four and three period respectively. The Company recorded $152,819 in
deferred compensation related to the issuance of the restricted stock.
In 2003 the company assumed $2.81 million of non-recourse debt in conjunction
with a property acquisition.
In 2002 the Company issued 35,732 shares of restricted stock to employees and
trust managers as part of their compensation plan. The restricted stock vests
over a four and three period respectively. The Company recorded $256,877 in
deferred compensation related to the issuance of the restricted stock.
On July 23, 2002, the Company merged with three of its affiliated partnerships,
AAA Net Realty Fund IX, Ltd., AAA Net Realty Fund X, Ltd. and AAA Net Realty
Fund XI, Ltd. In conjunction with the merger, the Company acquired $23,890,318
worth of property and issued 2,589,179 shares of Class B common shares.
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest 2,168,546 1,691,927
Income taxes 46,838 133,841
See Notes to Condensed Consolidated Financial Statements.
F-7
AMREIT AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
AmREIT is a Texas real estate investment trust ("REIT") that has elected to be
taxed as a REIT for federal income tax purposes. AmREIT is a self-managed,
self-advised REIT with, along with its predecessor, a 19-year history and a
record of investing in quality income producing retail real estate. AmREIT's
class A common shares are traded on the American Stock Exchange under the symbol
"AMY". AmREIT's business structure consists of the publicly traded REIT and
three synergistic businesses that support the Company's platform of growth: a
real estate operating and development business, a securities business and a
retail partnership business. This is a unique combination provides AmREIT
ability to capital through both Wall Street and the independent financial
planning marketplace and strategically invest that capital in high quality
properties for flexibility and more dependable growth.
AmREIT's initial predecessor, American Asset Advisers Trust, Inc. was formed as
a Maryland Corporation in 1993. Following the merger of our external adviser
into the Company in June 1998, we changed our name to AmREIT, Inc., which was a
Maryland corporation. In December 2002, we reorganized as a Texas real estate
investment trust.
AmREIT owns a real estate portfolio that consists of 51 properties located in 18
states. Its properties include single tenant, free standing credit tenant leased
projects and multi-tenant frontage shopping center projects. Our focus is on
irreplaceable corners: premier retail frontage properties in high-traffic,
highly populated areas - which create dependable income and long-lasting value.
The single tenant projects are located from coast to coast and are primarily
leased to corporate tenants where the lease is the direct obligation of the
parent companies. In so doing, the dependability of the lease payments are based
on the strength and viability of the entire company, not just that location. The
multi-tenant projects are situated primarily throughout Texas. Our portfolio
includes tenants such as Starbucks, Landry's CVS Pharmacy, IHOP, Eckerd, Nextel,
Washington Mutual, TGI Friday's and others.
On July 23, 2002, the Company completed a merger with three of its affiliated
partnerships, AAA Net Realty Fund IX, Ltd., AAA Net Realty Fund X, Ltd., and AAA
Net Realty Fund XI, Ltd. With the merger of the affiliated partnerships, AmREIT
increased its real estate assets by approximately $24.3 million and issued
approximately 2.6 million Class B common shares to the limited partners in the
affiliated partnerships. Approximately $760 thousand in 8 year, interest only,
subordinated notes were issued to limited partners of the affiliated
partnerships who dissented against the merger. The acquired properties are
unencumbered, single tenant, free standing properties on lease to national and
regional tenants, where the lease is the direct obligation of the parent
company. A deferred merger expense resulted from the shares payable to H. Kerr
Taylor, our President and Chief Executive Officer, as a result of the merger,
which shares represented a portion of consideration payable to Mr. Taylor as a
result of the sale of his advisory company to AmREIT. Mr. Taylor earned
approximately 143 thousand shares during 2003 as a result of our class C common
share offering, resulting in a non-cash charge to earnings of approximately $915
thousand. Mr. Taylor has the ability to earn an additional 241 thousand shares
under the deferred consideration agreement, in the event the Company issues
additional common shares prior to June 6, 2006, the expiration date of the
agreement.
F-8
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of AmREIT, and its
wholly or majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
BASIS OF ACCOUNTING
The financial records of the Company are maintained on the accrual basis of
accounting whereby revenues are recognized when earned and expenses are recorded
when incurred.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. Cash and cash equivalents consist of
demand deposits at commercial banks and money market funds.
PROPERTY
Property is leased to others, primarily on a net lease basis, whereby the
operating expenses related to the properties, including property taxes,
insurance and common area maintenance are the responsibility of the tenant. The
leases are accounted for under the operating method or the direct financing
method in accordance with generally accepted accounting principles. Under the
operating lease method, the properties are recorded at cost. Rental income is
recognized ratably over the life of the lease and depreciation is charged based
upon the estimated useful life of the property. Under the direct financing lease
method, properties are recorded at their net investment. Unearned income is
deferred and amortized to income over the life of the lease so as to produce a
constant periodic rate of return.
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 Company capitalizes
acquisition costs once the acquisition of the property becomes probable. Prior
to that time, the Company expenses these costs as acquisition expense.
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.
DEPRECIATION
Buildings are depreciated using the straight-line method over an estimated
useful life of 39 years. Leasehold estate properties, where the Company owns the
building and improvements but not the related ground, therefore there is no
residual value beyond the lease, are amortized over the life of the lease.
F-9
INVESTMENT IN NON-CONSOLIDATED AFFILIATES
AmREIT Opportunity Corporation, a wholly owned subsidiary of AmREIT, invested
$250 thousand as a limited partner and $1 thousand as a general partner in
AmREIT Opportunity Fund, Ltd. ("AOF"), the operations of which are accounted for
using the equity method. The limited partners have the right to remove and
replace the general partner by a vote of the limited partners owning two-thirds
of the outstanding units. AmREIT currently owns a 10.5% limited partner interest
in AOF. AOF was formed to develop, own, manage, and hold for investment and, or
resell property and to make or invest in loans for the development or
construction of property. Liquidation of AOF commenced in July of 2002.
AmREIT Income & Growth Corporation, a wholly owned subsidiary of AmREIT,
invested $200 thousand as a limited partner and $1 thousand as a general partner
in AmREIT Income & Growth Fund, Ltd. ("AIG"), the operations of which are
accounted for using the equity method. The limited partners have the right to
remove and replace the general partner by a vote of the limited partners owning
a majority of the outstanding units. AmREIT currently owns an approximately 2.0%
limited partner interest in AIG. AIG was formed to develop, own, manage, and
hold for investment and, or resell property and to make or invest in loans for
the development or construction of property.
AmREIT Monthly Income & Growth Corporation, a wholly owned subsidiary of AmREIT,
invested $200 thousand as a limited partner and $1 thousand as a general partner
in AmREIT Monthly Income & Growth Fund, Ltd. ("MIG"), the operations of which
are accounted for using the equity method. The limited partners have the right
to remove and replace the general partner by a vote of the limited partners
owning a majority of the outstanding units. AmREIT currently owns an
approximately 1.4% limited partner interest in AIG. AIG was formed to develop,
own, manage, and hold for investment and, or resell property and to make or
invest in loans for the development or construction of property.
AmREIT invested $70 thousand as a limited partner in AmREIT CDP #27, LP ("CDP
27") the operations of which are accounted for using the equity method. CDP 27
was formed to acquire commercial real property and to develop, operate, lease,
manage, and or sell real property. CDP 27 purchased two IHOP properties in 2001
located in Memphis, Tennessee and Tupelo, Mississippi. The Memphis, Tennessee
property was sold for a profit in the first quarter of 2002. The Tupelo,
Mississippi property was sold for a profit in the first quarter of 2003. CDP 27
does not own any real property as of December 31, 2003.
AmREIT Realty Investment Corporation ("ARIC") invested $122 thousand as a
limited partner in AmREIT CDP SPE #33, Ltd. ("CDP 33") the operations of which
are accounted for using the equity method. CDP 33 was formed to acquire
commercial real property and to develop, operate, lease, manage, and or sell
real property. In December 2001, CDP 33 purchased three IHOP leasehold estate
properties located in Houston, Texas, Orem, Utah, and Hagerstown, Maryland. The
three properties were sold in the second quarter of 2003. CDP 33 does not own
any real property as of December 31, 2003.
LOAN ACQUISITION COSTS
Loan acquisitions costs are incurred in obtaining property financing and are
amortized to interest expense on the effective interest method over the term of
the debt agreements. Accumulated amortization related to loan acquisition costs
as of December 31, 2003 totaled $135 thousand.
F-10
DEFERRED COMPENSATION
Our deferred compensation and long term incentive plan is designed to attract
and retain the services of our trust managers and employees that we consider
essential to our long-term growth and success. As such, it is designed to
provide them with the opportunity to own shares, in the form of restricted
shares, in AmREIT, and provide key employees the opportunity to participate in
the success of our affiliated actively managed retail partnerships through the
economic participation in our general partner companies. All long term
compensation awards are designed to vest over a period of three to seven years,
and promote retention of our quality team.
Deferred compensation includes share grants to employees as a form of long term
compensation. The share grants vest over a period of time of three to four
years. Additionally, the Company assigns a portion, up to 45 percent, of the
economic interest in certain of its retail limited partnerships to certain of
its key employees. This economic interest is received, as, if and when the
Company receives economic benefit from its profit participation, after certain
preferred returns have been paid to the partnership's limited partners. This
assignment of economic interest generally vests over a period of five to seven
years. This allows the Company to align the interest of its employees with the
interest of our shareholders. The Company amortizes the market value,
established at the date of grant, of the restricted shares ratably over the
vesting period. Because the future profits and earnings from the retail limited
partnerships can not be reasonably predicted or estimated, and any employee
benefit is completely contingent upon the benefit received by the general
partner of the retail limited partnerships, AmREIT recognizes expense associated
with the assignment of economic interest in its retail limited partnerships as
the Company recognizes the corresponding income from the associated retail
limited partnerships.
AmREIT maintains a defined contribution 401K retirement plan for its employees.
This plan is available for all employees, immediately upon employment. The plan
allows for two open enrollment periods, June and December. The plan is
administered by Benefit Systems, Inc. and allows for contributions to be either
invested in an array of large, mid and small cap mutual funds managed by
Hartford, or directly into class A common shares. Employee contributions
invested in Company stock are limited to 50% of the employee's contributions.
The Company matches 50% of the employees contribution, up to a maximum employee
contribution of 4%. None of the employer contribution is matched in Company
stock. As of December 31, 2003 and 2002, there were 21 and 12 participants
enrolled in the plan, with employer contributions of $35 thousand and $18
thousand, respectively.
STOCK ISSUANCE COSTS
Issuance costs incurred in the raising of capital through the sale of common
shares are treated as a reduction of shareholders' equity.
REVENUE RECOGNITION
Properties are primarily leased on a net lease basis. Revenue is recognized on a
straight-line basis over the terms of the individual leases. Service fees are
recognized when earned.
FEDERAL INCOME TAXES
AmREIT has elected to be taxed as a real estate investment trust ("REIT") under
the Internal Revenue Code
F-11
of 1986, and is, therefore, not subject to Federal income taxes to the extent of
dividends paid, provided it meets all conditions specified by the Internal
Revenue Code for retaining its REIT status, including the requirement that at
least 90% of its real estate investment trust taxable income be distributed to
shareholders.
ARIC, a wholly owned subsidiary of AmREIT, is treated as a taxable REIT
subsidiary for Federal income tax purposes. Federal income taxes are accounted
for under the asset and liability method. As such, ARIC and its consolidated
subsidiaries have recorded a Federal income tax expense of in 2003 and 2002 of
$237 thousand and $61 thousand, respectively, which represents the Federal
income tax obligations on the consolidated taxable REIT subsidiary's taxable net
income. Additionally, at December 31, 2003 a deferred tax liability of $28
thousand is established to record the taxes on certain real estate assets of
ARIC.
EARNINGS PER SHARE
Basic earnings per share has been computed by dividing net income (loss)
available to class A common shareholders by the weighted average number of class
A common shares outstanding. Diluted earnings per share has been computed by
dividing net income (as adjusted) by the weighted average number of common
shares outstanding plus the weighted average number of dilutive potential common
shares. Diluted earnings per share information is not applicable due to the
anti-dilutive nature of the common class B and class C shares.
The following table presents information necessary to calculate basic and
diluted earnings per share for the periods indicated:
For the Years Ended December 31,
2003 2002
BASIC AND DILUTED EARNINGS PER SHARE
Weighted average class A common shares outstanding (in
thousands) 2,792 2,470
Basic and diluted earnings/(loss) per share * $ 0.02 $ (0.62)
======= =======
EARNINGS FOR BASIC AND DILUTED COMPUTATION
Earnings (loss) to Class A common shareholders (in
thousands) * $ 56 $(1,524)
======= =======
* The operating results for 2003 and 2002 include a charge taken to earnings of
$915 thousand and $1.9 million, respectively, which was the market value of the
class A common shares issued to H. Kerr Taylor, President & CEO, related to the
sale of his advisory company to AmREIT in 1998. The charge was for the deferred
merger cost due from this sale that was triggered by the issuance of additional
common stock as part of the merger with AmREIT's affiliated partnerships during
2002, and the issuance of common C stock in 2003.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
F-12
The Company's consolidated financial instruments consist primarily of cash,
cash equivalents, accounts receivable and accounts and notes payable. The
carrying value of cash, cash equivalents, accounts receivable and accounts
payable are representative of their respective fair values due to the short-term
maturity of these instruments. As of December 31, 2003, the Company's total debt
obligations are $48.5 million, of which $25.9 million has variable rate terms
and therefore, the fair value is representative of its carry value.
Approximately $22.6 million has fixed rate terms, of which approximately $2.8
million was entered into during 2003 and $17.2 million was entered into during
2002. Based on the dates that the debt obligations were entered into, the
pricing of the 10-year treasury rate and the corresponding changes in the
spreads over the 10-year treasury rate, the Company believes that the fair value
of its fixed rate debt obligations is materially representative of its carry
value.
NEW ACCOUNTING STANDARDS
On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses accounting
and reporting for the impairment or disposal of a segment of a business. More
specifically, this statement broadens the presentation of discontinued
operations to include a component of an entity whose operations and cash flows
can be clearly distinguished, operationally and for financial reporting
purposes, from the rest of the entity.
In 2003, we sold two properties that were previously held for investment,
located in Delaware and Texas. Accordingly, the operating results and the gain
on sale of the disposed properties have been reclassified and reported as
discontinued operations on the Consolidated Statement of Operations.
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness to Others, an
interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB
Interpretation No. 34". This Interpretation elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under guarantees issued. The Interpretation also clarifies that a
guarantor is required to recognize, at inception of a guarantee, a liability for
the fair value of the obligation undertaken. The disclosure requirements are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and did not have a material effect on the Company's consolidated
financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123". This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002, however, the Company does not have
stock based compensation that is applicable to SFAS No. 148 and therefore the
adoption of SFAS 148 did not have a material impact on our consolidated
financial position, results of operations, or cash flows.
In May 2003, the FASB issued Statement No. 150 ("SFAS 150") "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity". SFAS 150 requires certain financial instruments that have
characteristics of both liabilities and equity to be classified as a liability
on the balance sheet. Statement 150 was effective at the beginning of the first
interim period beginning after June 15,
F-13
2003. Statement 150 will be effected by reporting the cumulative effect of a
change in accounting principle for contracts created before the issuance date
and still existing at the beginning of that interim period. The adoption of
Statement 150 did not have an impact on our consolidated financial position,
results of operations, or cash flows.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51". This
Interpretation, as amended, requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. As amended, the
interpretation requires disclosures about variable interest entities that a
company is not required to consolidate, but in which it has a significant
variable interest. The adoption of FIN 46 for small business filers is effective
no later than December 31, 2004.
REAL ESTATE HELD FOR SALE
Properties are classified as real estate held for sale if the properties were
purchased with intent to hold the properties for less than a year or if the
properties are listed for sale. At December 31, 2003, AmREIT owned three
properties that are classified as real estate held for sale. The three
properties have a combined carrying value of $4.4 million. Two of the properties
have separate notes payable, which have a one year term and a combined balance
of $3.11 million at December 31, 2003.
DISCONTINUED OPERATIONS
The operations of two properties that were sold during 2003 were reported as
discontinued operations. The following is a summary of our discontinued
operations (in thousands, except for per share data):
2003 2002
----- -----
Rental revenue $ 305 $ 301
Other income 129 -
Depreciation and amortization (30) (55)
Property expenses (13) -
----- -----
Income from discontinued operations $ 391 $ 246
Basic income from discontinued operations
per common share $0.25 $0.08
RECLASSIFICATION
Certain amounts in the 2002 consolidated financial statements have been
reclassified to conform to the presentation used in the 2003 consolidated
financial statements. Such reclassifications had no effect on net income (loss)
or shareholders' equity as previously reported.
F-14
3. OPERATING LEASES
A summary of minimum future rentals to be received, exclusive of any renewals,
under noncancellable operating leases in existence at December 31, 2003 is as
follows (in thousands):
2004 5,689
2005 5,382
2006 5,299
2007 5,044
2008 3,967
2009-thereafter 25,016
--------
$ 50,397
========
4. NET INVESTMENT IN DIRECT FINANCING LEASES
The Company's net investment in its direct financing leases at December 31, 2003
included (in thousands):
Minimum lease payments receivable $ 55,094
Unguaranteed residual value 3,378
Less: Unearned income (36,426)
----------
$ 22,046
==========
A summary of minimum future rentals, exclusive of any renewals, under the
noncancellable direct financing leases follows (in thousands):
2004 2,321
2005 2,330
2006 2,338
2007 2,460
2008 2,540
2009 - thereafter 43,104
--------
TOTAL $ 55,093
========
5. INVESTMENT IN NON-CONSOLIDATED AFFILIATES
As of December 31, 2003, AmREIT, indirectly through wholly owned subsidiaries,
owned interests in three limited partnerships, which are accounted for under the
equity method since AmREIT exercises significant influence. Our interests in
these limited partnerships range from 1.4% to 10.5%. These partnerships were
formed to develop, own, manage, and hold for investment and resell property.
During 2003, the Company owned interests in two additional limited partnerships
that were liquidated after completion of their purpose. Combined condensed
financial information of these ventures (at 100%) is summarized as follows:
F-15
COMBINED BALANCE SHEET (in thousands)
December 31, 2003
Assets
Property, net $ 10,682
Cash 4,667
Notes receivable 4,173
Other assets 5,739
----------
TOTAL ASSETS $ 25,261
==========
Liabilities and partners' capital
Notes payable $ 1,228
Other liabilities 979
Partners capital 23,054
----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 25,261
==========
COMBINED STATEMENT OF OPERATIONS (in thousands)
2003 2002
Total Revenue $ 3,501 $ 2,625
-------- --------
Expense
Interest 113 359
Depreciation and amortization 168 189
Other 405 189
-------- --------
TOTAL EXPENSE 686 737
-------- --------
NET INCOME $ 2,815 $ 1,888
======== ========
6. NOTES PAYABLE
In September 2003, the Company renewed an unsecured credit facility (the "Credit
Facility"), which is being used to provide funds for the acquisition of
properties and working capital. Under the Credit Facility, which has a term of
one year, the Company may borrow up to $30 million subject to the value of
unencumbered assets. The Credit Facility contains covenants which, among other
restrictions, require the Company to maintain a minimum net worth, a maximum
leverage ratio, specified interest coverage and fixed charge coverage ratios and
allow the lender to approve all distributions. Furthermore, the Credit Facility
contains concentration covenants and limitations, limiting property level net
operating income for any one tenant to no more than 15% (35% for IHOP ) of total
property net operating income. At December 31, 2003, IHOP net operating income
represented 34.7% of total property net operating income. At December 31, 2003,
the Company was in compliance with all financial covenants. The Credit
Facility's annual interest rate varies, depending upon the Company's debt to
asset ratio, from LIBOR plus a spread of 1.40% to LIBOR plus 2.35%. As of
December 31, 2003, the interest rate was 3.19%, which was calculated as LIBOR
plus 2.0%. As of December 31, 2003, $22.8 million was outstanding under the
Credit Facility. Thus, the Company has
F-16
approximately $7.2 million available under its line of credit, subject to lender
approval of the use of the proceeds.
In March 1999, the Company entered into a ten-year mortgage note, amortized over
30 years, for $1 million with $958 thousand being outstanding at December 31,
2003. The interest rate is fixed at 8.375% with payments of principal and
interest due monthly. The note matures April 1, 2009 and as of December 31, 2003
the Company is in compliance with all terms of the agreement. The note is
collateralized by a first lien mortgage on property with an aggregate carrying
value of $1.16 million, net of $129 thousand of accumulated depreciation.
In February 2001, the Company entered into a ten-year mortgage note, amortized
over 20 years, for $1.35 million with $1.27 million being outstanding at
December 31, 2003. The interest rate is fixed at 8.25% with payments of
principal and interest due monthly. The note matures February 28, 2011 and as of
December 31, 2003 the Company is in compliance with all terms of the agreement.
The note is collateralized by a first lien mortgage on property, which is
accounted for as a direct financing lease with a net investment in direct
financing lease of $1.01 million and land of $741 thousand.
In October 2001, the Company entered into a ten-year mortgage note amortized
over 30 years, for $2.40 million with $2.36 million being outstanding at
December 31, 2003. The interest rate is fixed at 7.60% with payments of
principal and interest due monthly. The note matures November 1, 2011 and as of
December 31, 2003 the Company is in compliance with all terms of the agreement.
The note is collateralized by a first lien mortgage on property with an
aggregate carrying value of $3.88 million, net of $416 thousand of accumulated
depreciation.
In April 2003, the Company entered into a note payable for $1.73 million with
$1.73 million being outstanding at December 31, 2003. At December 31, 2003, the
interest rate was 3.99%, which was calculated as LIBOR plus 2.8%. The note
matures April 1, 2004 and as of December 31, 2003 the Company is in compliance
with all terms of the agreement. The note is collateralized by a first lien
mortgage on the property, which is accounted for as a direct financing lease
with a net investment in direct financing lease of $1.37 million and land of
$573 thousand. Subsequent to December 31, 2003, the property was sold, the note
payable was paid in full, and an estimated profit of $500 thousand was
generated.
In May 2003, the Company entered into a note payable for $1.65 million with
$1.38 million being outstanding at December 31, 2003. At December 31, 2003, the
interest rate was 3.99%, which was calculated as LIBOR plus 2.8%. The note
matures April 1, 2004 and as of December 31, 2003 the Company is in compliance
with all terms of the agreement. The note is collateralized by a first lien
mortgage on the property, which is accounted for as a direct financing lease
with a net investment in direct financing lease of $1.31 million and land of
$547 thousand. Management is working with the lender and anticipates extending
the loan term for six months, or paying off the note payable prior to maturity.
In conjunction with a property acquisition completed during December 2003, we
assumed $2.81 million of non-recourse debt secured by the related property. The
interest rate is fixed at 7.58% with payments of principal and interest due
monthly. The note matures May 11, 2012 and as of December 31, 2003 the Company
is in compliance with all terms of the agreement. The note is collateralized by
a first lien mortgage on property with an aggregate carrying value of $4.75
million, net of $3 thousand of accumulated depreciation.
Beginning in April 2002, AAA CTL Notes, Ltd., a majority owned subsidiary of
AmREIT, began entering into non-recourse ten-year mortgages, amortized over 20
years, related to the purchase of seventeen IHOP properties. The balance of the
loans at December 31, 2003 totaled $14.43 million with fixed interest rates of
7.82% on 9 properties and 7.89% on eight properties. The maturity dates range
from May 1, 2012 to September 1, 2012. The notes are collateralized by a first
lien mortgage on the properties, which are accounted for as direct
F-17
financing leases with a net investment in direct financing lease at December 31,
2003 of $17.20 million. As of December 31, 2003 the Company is in compliance
with all terms of the agreements. The non-recourse notes have
cross-collateralization and default provisions with each other.
In July of 2002, the Company issued 13, 8 year subordinated, 5.47% interest-only
notes with an aggregate principal amount of $760 thousand, maturing July 2010.
The notes, which are callable by the Company at par plus accrued interest, were
issued to partners who dissented against the Company's merger with three
affiliated public partnerships.
Aggregate annual maturity of the notes payable for each of the following five
years ending December 31 are as follows:
(in thousands)
2004 $ 26,349
2005 490
2006 530
2007 573
2008 620
Thereafter 19,923
----------
$ 48,485
==========
7. MAJOR TENANTS
The following schedule summarizes rental income by lessee for our top 15 tenants
for 2003 and 2002 (in thousands):
2003 2002
---------- ----------
International House of Pancakes $ 2,731 $ 1,784
Footstar, Inc. 740 735
Golden Corral (1) 430 167
Wherehouse Entertainment 386 381
Hollywood Entertainment Corp. 312 273
Texas Children's Pediatrics (2) 286 137
River Oaks Imaging 280 264
Comp USA (1) 268 123
OfficeMax, Inc. 256 509
TGI Friday's (1) 240 83
Baptist Memorial Hospital (1) 223 102
Dr. Pucilllo (1) 189 87
Mattress Giant, Inc. 179 168
Washington Mutual 159 158
Pier 1 135 62
---------- ----------
Total $ 6,814 $ 5,033
========== ==========
(1) Properties were purchased from three affiliated partnerships in July
2002.
(2) Texas Children's Pediatrics entered into a long-term lease with AmREIT,
beginning in May 2002, at Copperfield Medical Plaza. The lease was
entered into as a result of the negotiated lease buy out by AmREIT and
One Care Health Industries, Inc.
F-18
8. FEDERAL INCOME TAXES
The differences between net income for financial reporting purposes and taxable
income before distribution deductions relate primarily to temporary differences,
merger costs and potential acquisition costs which are expensed for financial
reporting purposes.
For income tax purposes, distributions paid to shareholders consist of ordinary
income, capital gains and return of capital as follows (in thousands):
2003 2002
-------- --------
Ordinary income $ 1,684 $ -
Return of capital 1,014 1,730
Capital gain 490 -
-------- --------
$ 3,188 $ 1,730
======== ========
9. RELATED PARTY TRANSACTIONS
See Note 4 regarding investments in non-consolidated affiliates.
On July 23, 2002, the Company completed a merger with three of its affiliated
partnerships, AAA Net Realty Fund IX, Ltd., AAA Net Realty Fund X, Ltd., and AAA
Net Realty Fund XI, Ltd. AmREIT accounted for this merger as a purchase, whereby
the assets of the partnerships have been recorded at fair market value. AmREIT
increased its real estate assets by approximately $24.3 million and issued
approximately 2.6 million shares of Class B common stock to the limited partners
in the affiliated partnerships as a result of the merger. Approximately $760
thousand in 8 year, 5.47% interest only, subordinated notes were issued to
limited partners of the affiliated partnerships who dissented to the merger. The
acquired properties are unencumbered, single tenant, free standing properties on
lease to national and regional tenants, where the lease is the direct obligation
of the parent company. A deferred merger expense resulted from the shares
payable to H. Kerr Taylor, our President and Chief Executive Officer, as a
result of the merger, which shares represented a portion of consideration
payable to Mr. Taylor as a result of the sale of his advisory company to AmREIT.
Mr. Taylor earned approximately 143 thousand shares during 2003 as a result of
our class C common share offering, resulting in a non-cash charge to earnings of
approximately $915 thousand. Mr. Taylor has the ability to earn an additional
241 thousand shares under the deferred consideration agreement.
The Company earns real estate fee income by providing property acquisition,
leasing, property management and construction management services for eleven
affiliated real estate limited partnerships that are under common management
(the "Partnerships"). Mr. Taylor, the President and Chief Executive Officer of
the Company owns between 45% and 100% of the stock of the companies that serve
as the general partner for eight of the Partnerships. The Company owns 100% of
the stock of the companies that serve as the general partner for three of the
Partnerships. Real estate fee income of $455 thousand and $606 thousand were
paid by the Partnerships to the Company for 2003 and 2002, respectively.
The Company earns asset management fees from the Partnerships for providing
accounting related services, investor relations, facilitating the deployment of
capital, and other services provided in conjunction with operating the
Partnership. Asset management fees of $240 thousand and $252 thousand were paid
by the Partnerships to the Company for 2003 and 2002, respectively.
F-19
As a sponsor of real estate investment opportunities to the NASD financial
planning broker dealer community, the Company maintains an indirect 1% general
partner interest in the investment funds that it sponsors. The funds are
typically structured such that the limited partners receive 99% of the available
cash flow until 100% of their original invested capital has been returned and a
preferred return has been met. Once this has happened, then the general partner
begins sharing in the available cash flow at various promoted levels. The
Company also assigns a portion of this general partner interest in these
investment funds to its employees as long term, contingent compensation. In so
doing, the Company believes that it will align the interest of management with
that of the shareholders, while at the same time allowing for a competitive
compensation structure in order to attract and retain key management positions
without increasing the overhead burden.
On March 20, 2002, the Company formed AAA CTL Notes, Ltd. ("AAA"), a majority
owned subsidiary which is consolidated in the financial statements of AmREIT,
through which the Company purchased fifteen IHOP leasehold estate properties and
two IHOP fee simple properties.
Locke Liddell & Sapp, LLP acts as the Company's corporate attorneys. Bryan
Goolsby is the managing director of Locke Liddell & Sapp LLP and is a member of
the Company's board of trust managers.
10. PROPERTY ACQUISITIONS AND DISPOSITIONS
During 2003, AmREIT invested $34.5 million through the acquisition of 10 retail
properties, which consisted of single tenant properties, multi-tenant properties
and land to be developed.
AmREIT acquired five single tenant properties during the year. The Company
purchased four IHOP properties, which are located in Wisconsin, Texas, Missouri
and Indiana. Two of the IHOP properties, located in Wisconsin and Indiana, were
sold for a profit during 2003. The Company also acquired a single-tenant
property in Maryland that is ground leased to TGI Friday's.
The Company acquired two multi-tenant properties during 2003. Uptown Plaza is a
28,000 square foot retail complex located in Houston, Texas, including a
free-standing CVS drugstore and a retail shopping center anchored by Grotto, a
new concept of Landry's Restaurant, Inc. The Terrace Shops is a 16,395 square
foot center located near the West University area of Houston, Texas at the
prestigious corner of Buffalo Speedway and West Park. It is anchored by the
national coffee chain Starbucks.
During 2003, we acquired three parcels of land to be developed, which are
located in Houston, Texas. One of the sites, located in the Galleria area of
Houston, has been ground leased to Eckerd. Another site is an infill development
project in the prestigious Tanglewood area of Houston. AmREIT also acquired a
one-acre parcel at the intersection of Interstate 45 and West Road. AmREIT sold
four properties during 2003. The two IHOP properties were classified as held for
resale since we intended to hold the properties for less than a year. The two
properties were sold for a combined profit of $787 thousand, which is recorded
as a gain on sale of real estate held for resale. In addition, we sold two
investment properties during 2003. We sold an Office Max, located in Delaware,
and a Goodyear Tire, located in Houston, Texas. These two properties were sold
for a combined profit of $312 thousand, which is recorded as a gain on sale of
real estate acquired for investment. Accordingly, the operating results and the
gain on sale of these two properties have been reclassified and reported as
discontinued operations on the Consolidated Statement of Operations.
F-20
The following selected unaudited pro forma consolidated statement of operations
for AmREIT and subsidiaries gives effect to the acquisition of Uptown Plaza,
which assumes that the acquisition occurred on January 1, 2003 and January 1,
2002, respectively. The pro forma statement also assumes that the merger with
its three affiliated partnership occurred on January 1, 2002. Additionally, the
Company has presented a summary of assets acquired and liabilities assumed as of
the date of the Uptown Plaza acquisition, December 10, 2003.
Pro Forma Consolidated Statement of Operations
For the Twelve Months Ended December 31,
(Unaudited) (in thousands, except shares and per share data)
2003 2002
Revenues
Rental income and earned income $ 8,715 $ 6,388
Other income 5,025 2,126
----------- -----------
Total Revenues 13,740 8,514
Total Expenses 9,110 7,022
----------- -----------
Operating income 4,630 1,492
Income before discontinued operations 2,173 67
Income from discontinued operations 703 198
Pro forma net income $ 2,876 $ 265
Distributions paid to class B and class C shareholders (1,943) (1,822)
----------- -----------
Net income (loss) available to class A shareholders $ 933 ($ 1,557)
=========== ===========
Net income per common share - basic and diluted
Loss before discontinued operations 0.08 (0.65)
Income from discontinued operations 0.25 0.07
----------- -----------
Net income (loss) 0.33 (0.58)
=========== ===========
Weighted average common shares used to compute
net income per share, basic and diluted 2,792,190 2,691,580
=========== ===========
F-21
Summary of Assets Acquired and Liabilities Assumed
as of December 10, 2003
(In Thousands)
Assets
Buildings $ 4,880
Land 7,784
Intangible lease costs 348
-------
TOTAL ASSETS $13,012
=======
Liabilities $ 147
Net assets acquired $12,865
-------
11. COMMITMENT
The Company's lease agreement for its office facilities expired December 31,
2003. The Company is currently on a month to month basis for its current office
facilities, and is in negotiations to sign a lease for a new office space.
Rental expense for the years ended December 31, 2003 and 2002 was $92 thousand
and $77 thousand, respectively.
12. SEGMENT REPORTING
In 2003, the Company began evaluating and managing the operations in a more
comprehensive manner, focusing on the specific aspects of the Company, and
measuring their performance.
The operating segments presented are the segments of AmREIT for which separate
financial information is available, and revenue and operating performance is
evaluated regularly by senior management in deciding how to allocate resources
and in assessing performance. The 2002 information has been reclassified into
these segments to provide comparable information.
AmREIT evaluates the performance of its operating segments primarily on revenue.
Because the real estate development and operating segment and securities and
retail partnership segment are both revenue and fee intensive, management
considers revenue the primary indicator in allocating resources and evaluating
performance.
The portfolio segment consists of our portfolio of single and multi-tenant
shopping center projects. This segment consists of 51 properties located in 18
states. Expenses for this segment include depreciation, interest, minority
interest, legal cost directly related to the portfolio of properties and the
property level expenses. The consolidated assets of AmREIT are substantially all
in this segment.
Included in Corporate and Other are those costs and expenses related to general
overhead and personnel that are not solely responsible for one of the reporting
segments.
F-22
Real Estate Securities
Operating & & Retail Corporate
Portfolio Development Partnerships and Other Total
- --------------------------------------------------------------------------------------------------
2003
- --------------------------------------------------------------------------------------------------
Revenue $ 7,584 $ 1,818 $ 3,199 $ 8 $ 12,609
- --------------------------------------------------------------------------------------------------
Income from non-
consolidated
affiliates - - 312 - 312
- --------------------------------------------------------------------------------------------------
Expenses (3,796) (447) (2,909) (3,557) (10,698)
- --------------------------------------------------------------------------------------------------
Deferred
merger cost - - - (915) (915)
- --------------------------------------------------------------------------------------------------
Net income
(loss) before
discontinued
operations 3,788 1,371 600 (4,464) 1,295
- --------------------------------------------------------------------------------------------------
2002
- --------------------------------------------------------------------------------------------------
Revenue $ 5,193 $ 1,223 $ 1,099 $ 4 $ 7,519
- --------------------------------------------------------------------------------------------------
Income from
non-consolidated
affiliates - 417 - - 417
- --------------------------------------------------------------------------------------------------
Expenses (3,052) (307) (881) (2,649) (6,889)
- --------------------------------------------------------------------------------------------------
Deferred merger
cost - - - (1,904) (1,904)
- --------------------------------------------------------------------------------------------------
Net income
(loss) before
discontinued
operations 2,141 1,333 218 (4,549) (857)
- --------------------------------------------------------------------------------------------------
13. SUBSEQUENT EVENTS
On March 2, 2004, Footstar (the parent company of Just For Feet) filed for a
voluntary petition of relief under Chapter 11 of the federal bankruptcy code. On
March 3, 2004, the Footstar announced that they had negotiated and obtained
approval to use a $300 million debtor-in-possession financing facility in order
to satisfy their current operating obligations during the reorganization period.
AmREIT owns two Just For Feet properties, one located in Tucson, Arizona and
another in Baton Rouge, Louisiana. Footstar has indicated that both locations
are in the top 40 percent of the Just For Feet chain, and it has not been
identified whether the leases will be affirmed or rejected. Annual rental income
from both properties for the 2003 fiscal year is approximately $740 thousand, or
5.56 of total 2003 revenue. AmREIT is working with Footstar in an effort to
cooperate with their
F-23
plan of reorganization, as well as working with local retailers, brokers and
leasing agents on alternative options for the property. As of December 31, 2003
and as of the date of March 30, 2004 (unaudited) the Company does not have a
material receivable due from Footstar.
F-24
AmREIT AND SUBSIDIARIES
SCHEDULE III - CONSOLIDATED REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 2003
COST AT
CLOSE OF YEAR
PROPERTY ENCUM- IMPROVE- ----------------------------
DESCRIPTION BRANCES BUILDING LAND MENTS BUILDING LAND
- --------------------------------------------------------------------------------------------------------------------
PROPERTIES INVESTED IN
UNDER OPERATING LEASES
RADIO SHACK RETAIL STORE, TEXAS $ - $ 788,330 $ 337,856 $ - $ 788,330 $ 337,856
BLOCKBUSTER MUSIC STORE, MISSOURI $ - $ 1,247,461 534,483 $ - $ 1,247,461 $ 534,483
ONECARE HEALTH INDUSTRIES, INC., TEXAS $ - $ 1,455,030 $ 534,086 $ - $ 1,455,030 $ 534,086
BLOCKBUSTER MUSIC STORE, KANSAS $ - $ 1,382,846 $ 592,648 $ - $ 1,382,846 $ 592,648
JUST FOR FEET STORE, ARIZONA $ - $ - $ 1,214,046 $ - $ - $ 1,214,046
BANK UNITED, WOODLANDS, TEXAS $ - $ - $ 562,846 $ - $ - $ 562,846
BANK UNITED, HOUSTON, TEXAS $ - $ - $ 851,973 $ - $ - $ 851,973
JUST FOR FEET STORE, LOUISIANA $ - $ 2,254,537 $ 966,230 $ - $ 2,254,537 $ 966,230
HOLLYWOOD VIDEO STORE, LOUISIANA $ - $ 784,123 $ 443,544 $ - $ 784,123 $ 443,544
HOLLYWOOD VIDEO STORE, MISSISSIPPI $ - $ 835,854 $ 450,000 $ - $ 835,854 $ 450,000
LAKE WOODLANDS PLAZA $ - $ 2,987,700 $ 1,369,065 $ - $ 2,987,700 $ 1,369,065
SUGAR LAND PLAZA $ - $ 2,902,157 $ 1,280,043 $ - $ 2,902,157 $ 1,280,043
DON PABLO'S, GEORGIA $ - $ - $ 773,800 $ - $ - $ 773,800
IHOP, TOPEKA $ - $ - $ 450,984 $ - $ - $ 450,984
IHOP, SUGARLAND $ - $ - $ 740,882 $ - $ - $ 740,882
JACK IN THE BOX $ - $ 504,230 $ 216,099 $ - $ 504,230 $ 216,099
BAPTIST MEMORIAL HEALTH $ - $ 1,456,017 $ 624,006 $ - $ 1,456,017 $ 624,006
PAYLESS SHOE SOURCE $ - $ 498,098 $ 212,907 $ - $ 498,098 $ 212,907
GOLDEN CORRAL $ - $ 1,099,817 $ 722,949 $ - $ 1,099,817 $ 722,949
GOLDEN CORRAL $ - $ 1,297,850 $ 556,221 $ - $ 1,297,850 $ 556,221
TGI FRIDAY'S, HOUSTON $ - $ 1,453,769 $ 623,043 $ - $ 1,453,769 $ 623,043
GUITAR CENTER $ - $ 1,782,470 $ 763,917 $ - $ 1,782,470 $ 763,917
POPEYE'S $ - $ 778,772 $ 333,758 $ - $ 778,772 $ 333,758
DR. PUCILLO $ - $ 1,276,836 $ 547,214 $ - $ 1,276,836 $ 547,214
BLOCKBUSTER VIDEO $ - $ 688,090 $ 294,896 $ - $ 688,090 $ 294,896
PIER ONE IMPORTS $ - $ 1,000,563 $ 422,722 $ - $ 1,000,563 $ 422,722
IHOP, MEMPHIS $ - $ - $ 469,502 $ - $ - $ 469,502
IHOP, CENTERVILLE $ - $ - $ 457,492 $ - $ - $ 457,492
UPTOWN PLAZA $ - $ 4,887,774 $ 7,796,383 $ - $ 4,887,774 $ 7,796,383
TERRACE SHOPS $ - $ 2,544,593 $ 2,212,278 $ - $ 2,544,593 $ 2,212,278
SAN FELIPE @ WINROCK $ - $ - $ 4,723,140 $ - $ - $ 4,723,140
TGI FRIDAY'S, HANOVER $ - $ - $ 1,474,473 $ - $ - $ 1,474,473
WESTHEIMER & YORKTOWN $ - $ - $ 2,688,996 $ - $ - $ 2,688,996
I-45 @ WEST RD. $ - $ - $ 584,877 $ - $ - $ 584,877
IHOP, GRAND PRAIRIE $ - $ - $ 572,711 $ - $ - $ 572,711
IHOP, BRIDGETON $ - $ - $ 546,623 $ - $ - $ 546,623
----------------------------------------------------------------------------
TOTAL $ - $33,906,917 $37,946,693 $ - $ 33,906,917 $ 37,946,693
====================================================================================================================
LIFE ON WHICH
DEPRECIATION
IN LATEST INCOME
PROPERTY ACCUMULATED DATE OF DATE STATEMENT
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- -------------------------------------------------------------------------------------------------
PROPERTIES INVESTED IN
UNDER OPERATING LEASES
RADIO SHACK RETAIL STORE, TEXAS $ 192,820 N/A 06-15-94 39 YEARS
BLOCKBUSTER MUSIC STORE, MISSOURI $ 170,630 N/A 11-14-94 39 YEARS
ONECARE HEALTH INDUSTRIES, INC., TEXAS $ 263,658 N/A 09-26-95 39 YEARS
BLOCKBUSTER MUSIC STORE, KANSAS $ 164,427 N/A 09-12-95 39 YEARS
JUST FOR FEET STORE, ARIZONA N/A N/A 09-11-96 N/A
BANK UNITED, WOODLANDS, TEXAS N/A N/A 09-23-96 N/A
BANK UNITED, HOUSTON, TEXAS N/A N/A 12-11-96 N/A
JUST FOR FEET STORE, LOUISIANA $ 223,168 N/A 06-09-97 39 YEARS
HOLLYWOOD VIDEO STORE, LOUISIANA $ 95,741 N/A 10-31-97 39 YEARS
HOLLYWOOD VIDEO STORE, MISSISSIPPI $ 128,593 N/A 12-30-97 39 YEARS
LAKE WOODLANDS PLAZA $ 342,258 N/A 6-3-98 39 YEARS
SUGAR LAND PLAZA $ 416,081 N/A 7-1-98 39 YEARS
DON PABLO'S, GEORGIA N/A N/A 12-18-98 N/A
IHOP, TOPEKA N/A N/A 9-30-99 N/A
IHOP, SUGARLAND N/A N/A 9-22-99 N/A
JACK IN THE BOX $ 18,855 N/A 7-23-02 39 YEARS
BAPTIST MEMORIAL HEALTH $ 54,445 N/A 7-23-02 39 YEARS
PAYLESS SHOE SOURCE $ 18,625 N/A 7-23-02 39 YEARS
GOLDEN CORRAL $ 41,126 N/A 7-23-02 39 YEARS
GOLDEN CORRAL $ 48,531 N/A 7-23-02 39 YEARS
TGI FRIDAY'S, HOUSTON $ 54,361 N/A 7-23-02 39 YEARS
GUITAR CENTER $ 66,653 N/A 7-23-02 39 YEARS
POPEYE'S $ 29,121 N/A 7-23-02 39 YEARS
DR. PUCILLO $ 47,745 N/A 7-23-02 39 YEARS
BLOCKBUSTER VIDEO $ 25,730 N/A 7-23-02 39 YEARS
PIER ONE IMPORTS $ 37,414 N/A 7-23-02 39 YEARS
IHOP, MEMPHIS N/A N/A 7-26-02 N/A
IHOP, CENTERVILLE N/A N/A 7-25-02 N/A
UPTOWN PLAZA $ 6,860 N/A 12-10-03 39 YEARS
TERRACE SHOPS $ 2,719 N/A 12-15-03 39 YEARS
SAN FELIPE @ WINROCK N/A N/A 11-17-03 N/A
TGI FRIDAY'S, HANOVER N/A N/A 9-16-03 N/A
WESTHEIMER & YORKTOWN N/A N/A 1-10-03 N/A
I-45 @ WEST RD. N/A N/A 10-14-03 N/A
IHOP, GRAND PRAIRIE N/A N/A 4-29-03 N/A
IHOP, BRIDGETON N/A N/A 5-8-03 N/A
---------------------------------------------------------
TOTAL $ 2,449,561
===================================================
F-25
AmREIT AND SUBSIDIARIES
SCHEDULE III - CONSOLIDATED REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 2003
LIFE ON WHICH
COST AT DEPRECIATION
CLOSE OF YEAR IN LATEST INCOME
PROPERTY ENCUM- IMPROVE- --------------- ACCUMULATED DATE OF DATE STATEMENT
DESCRIPTION BRANCES BUILDING LAND MENTS BUILDING LAND DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------------------- ------- ----------- ---- -------- ----------- ---- ------------ ------------ -------- ----------------
PROPERTIES INVESTED IN UNDER
DIRECT FINANCING LEASE
JUST FOR FEET STORE, ARIZONA $ - $ 2,828,744 $ - $ - $ 2,828,744 $ - (1) N/A 09-11-96 N/A
IHOP, TOPEKA $ - $ 1,004,323 $ - $ - $ 1,004,323 $ - (1) N/A 9-30-99 N/A
IHOP, SUGARLAND $ - $ 1,010,880 $ - $ - $ 1,010,880 $ - (1) N/A 9-22-99 N/A
IHOP, ALBUQUERQUE $ - $ 878,115 $ - $ - $ 878,115 $ - (1) N/A 4-23-02 N/A
IHOP, BATON ROUGE $ - $ 1,436,863 $ - $ - $ 1,436,863 $ - (1) N/A 4-23-02 N/A
IHOP, BEAVERTON $ - $ 1,048,473 $ - $ - $ 1,048,473 $ - (1) N/A 4-16-02 N/A
IHOP, CHARLOTTESVILLE $ - $ 749,809 $ - $ - $ 749,809 $ - (1) N/A 4-23-02 N/A
IHOP, EL PASO #1934 $ - $ 900,268 $ - $ - $ 900,268 $ - (1) N/A 4-16-02 N/A
IHOP, ROANOKE $ - $ 846,641 $ - $ - $ 846,641 $ - (1) N/A 6-21-02 N/A
IHOP, ROCHESTER $ - $ 1,140,349 $ - $ - $ 1,140,349 $ - (1) N/A 4-16-02 N/A
IHOP, SALEM $ - $ 722,522 $ - $ - $ 722,522 $ - (1) N/A 5-17-02 N/A
IHOP, SHAWNEE $ - $ 890,283 $ - $ - $ 890,283 $ - (1) N/A 4-16-02 N/A
IHOP, SPRINGFIELD $ - $ 1,194,802 $ - $ - $ 1,194,802 $ - (1) N/A 5-17-02 N/A
IHOP, ALEXANDRIA $ - $ 856,187 $ - $ - $ 856,187 $ - (1) N/A 7-18-02 N/A
IHOP, CENTERVILLE $ - $ 1,085,738 $ - $ - $ 1,085,738 $ - (1) N/A 7-25-02 N/A
IHOP, MEMPHIS #4462 $ - $ 1,118,073 $ - $ - $ 1,118,073 $ - (1) N/A 7-26-02 N/A
IHOP, LA VERNE $ - $ 1,002,167 $ - $ - $ 1,002,167 $ - (1) N/A 8-23-02 N/A
IHOP, EL PASO #1938 $ - $ 1,161,863 $ - $ - $ 1,161,863 $ - (1) N/A 8-23-02 N/A
IHOP, MEMPHIS #4482 $ - $ 1,066,055 $ - $ - $ 1,066,055 $ - (1) N/A 8-23-02 N/A
IHOP, PARKER $ - $ 1,104,056 $ - $ - $ 1,104,056 $ - (1) N/A 8-23-02 N/A
IHOP, GRAND PRAIRIE $ - $ 1,372,806 $ - $ - $ 1,372,806 $ - (1) N/A 4-29-03 N/A
IHOP, BRIDGETON $ - $ 1,307,324 $ - $ - $ 1,307,324 $ - (1) N/A 5-8-03 N/A
------- ----------- ---- -------- ----------- ---- ------------ ------------ -------- ----------------
TOTAL $ - $24,726,340 $ - $ - $24,726,340 $ - (1)
============================ ======= =========== ==== ======== =========== ==== ============ ============ ======== ================
AmREIT AND SUBSIDIARIES
SCHEDULE III - CONSOLIDATED REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 2003
(1) THE PORTION OF THE LEASE RELATING TO THE BUILDING OF THIS PROPERTY HAS BEEN
RECORDED AS A DIRECT FINANCING LEASE FOR FINANCIAL REPORTING PURPOSES.
CONSEQUENTLY, DEPRECIATION IS NOT APPLICABLE.
(2) TRANSACTIONS IN REAL ESTATE AND ACCUMULATED DEPRECIATION DURING 2003, 2002
AND 2001 FOR OPERATING LEASE PROPERTIES ARE SUMMARIZED AS FOLLOWS:
ACCUMULATED
COST DEPRECIATION
------------ ------------
BALANCE AT DECEMBER 31, 2000 29,895,108 1,559,049
ACQUISITIONS / ADDITIONS 1,351,201 -
DISPOSALS (797,237) -
DEPRECIATION EXPENSE - 439,652
------------ ------------
BALANCE AT DECEMBER 31, 2001 $ 30,449,072 $ 1,998,701
ACQUISITIONS / ADDITIONS $ 20,024,562 $ -
DISPOSALS $ (2,875,168) $ (238,591)
DEPRECIATION EXPENSE $ - $ 262,042
------------ ------------
BALANCE AT DECEMBER 31, 2002 $ 47,598,466 $ 2,022,152
ACQUISITIONS / ADDITIONS $ 29,239,727 $ -
DISPOSALS $ (4,984,583) $ (267,016)
DEPRECIATION EXPENSE $ - $ 694,425
------------ ------------
BALANCE AT DECEMBER 31, 2003 $ 71,853,610 $ 2,449,561
(3) THE AGGREGATE COST OF ALL PROPERTIES FOR FEDERAL INCOME TAX PURPOSES IS
$97,256,924 AT DECEMBER 31, 2003.
F-26
EXHIBIT A
SUBSCRIPTION AGREEMENT
[To come from AmREIT]
A-1
EXHIBIT B
DIVIDEND REINVESTMENT PLAN
AmREIT, a Texas real estate investment trust (the "Company"), pursuant
to its Amended and Restated Declaration of Trust has adopted this Dividend
Reinvestment Plan (the "Reinvestment Plan") on the terms and conditions set
forth below.
1. Reinvestment of Distributions. Wells Fargo Bank, N.A, the
agent (the "Reinvestment Agent") for participants (the "Participants") in the
Reinvestment Plan, will receive all cash distributions made by the Company with
respect to class D common shares of the Company (the "Shares") owned by each
Participant (collectively, the "Distributions"). The Reinvestment Agent will
apply such Distributions as follows:
(a) At any period during which the Company is making a
public offering of Shares, the Reinvestment Agent will invest Distributions in
Shares acquired from the Company at the public offering price per Share.
(b) The price of which the Shares will be issued under
the Reinvestment Plan will be $10.00 per Share.
(c) For each Participant, the Reinvestment Agent will
maintain a record which shall reflect for each month the Distributions received
by the Reinvestment Agent on behalf of such Participant. The Reinvestment Agent
will use the aggregate amount of Distributions to all Participants for each
month to purchase Shares for the Participants. Distributions shall be invested
by the Reinvestment Agent in Shares promptly following the payment date with
respect to such Distributions to the extent Shares are available. If the
aggregate amount of Distributions to Participants exceeds the amount required to
purchase all Shares then available for purchase, the Reinvestment Agent will
distribute all cash funds to participants via a check in lieu of purchasing
additional shares. The ownership of the Shares purchased pursuant to the
Reinvestment Plan shall be reflected on the books of the Company.
(d) The allocation of Shares among Participants may
result in the ownership of fractional Shares, computed to three decimal places.
(e) Distributions attributable to Shares purchased on
behalf of the Participants pursuant to the Reinvestment Plan will be reinvested
in additional Shares in accordance with the terms hereof.
(f) No certificates will be issued to a Participant for
Shares purchased on behalf of the Participant pursuant to the Reinvestment Plan.
Participants in the Reinvestment Plan will receive statements of account in
accordance with Paragraph 7 below.
2. Election to Participate. Any shareholder who participates in a
public offering of Shares and who has received a copy of the related final
prospectus filed with the Securities and Exchange Commission ("SEC") may elect
to participate in and purchase Shares through the Reinvestment Plan at any time
by written notice to the Company and would not need to receive a separate
prospectus relating solely to the Reinvestment Plan. A person who becomes a
shareholder otherwise than by participating in a public offering of Shares may
purchase Shares, with distribution dollars only, through the Reinvestment Plan
only after receipt of a separate prospectus relating solely to the Reinvestment
Plan. The purchase of additional shares through the Reinvestment Plan with
voluntary cash contributions is prohibited.
B-1
Participation in the Reinvestment Plan will commence with the next Distribution
made after receipt of the Participant's notice, provided it is received by the
record date to which such Distribution relates. A Participant who has terminated
his participation in the Reinvestment Plan pursuant to Paragraph 11 will be
allowed to participate in the Reinvestment Plan again upon receipt of a current
version of a final prospectus relating to participation in the Reinvestment Plan
which contains, at a minimum, the following: (i) the minimum investment amount;
(ii) the type or source of proceeds which may be invested; and (iii) the tax
consequences of the reinvestment to the Participant, by notifying the Company
and completing any required forms.
3. Distribution of Funds. In making purchases for Participants'
accounts, the Reinvestment Agent may commingle Distributions attributable to
Shares owned by Participants in the Reinvestment Plan.
4. Proxy Solicitation. The Reinvestment Agent will distribute to
Participants proxy solicitation material received by it from the Company which
is attributable to Shares held in the Reinvestment Plan. The Reinvestment Agent
will vote any Shares that it holds for the account of a Participant in
accordance with the Participant's written instructions. If a Participant gives a
proxy to person(s) representing the Company covering Shares registered in the
Participant's name, such proxy will be deemed to be an instruction to the
Reinvestment Agent to vote the full Shares in the Participant's account in like
manner. If a Participant does not direct the Reinvestment Agent as to how the
Shares should be voted and does not give a proxy to person(s) representing the
Company covering these Shares, the Reinvestment Agent will not vote said Shares.
5. Absence of Liability. Neither the Company nor the Reinvestment
Agent shall have any responsibility or liability as to the value of the Shares,
any change in the value of the Shares acquired for the Participant's account, or
the rate of return earned on, or the value of, the interest-bearing account in
which Distributions are invested. Neither the Company nor the Reinvestment Agent
shall be liable for any act done in good faith, or for any good faith omission
to act, including, without limitation, any claims of liability (a) arising out
of the failure to terminate a Participant's participation in the Reinvestment
Plan upon such Participant's death prior to receipt of notice in writing of such
death and the expiration of 15 days from the date of receipt of such notice and
(b) with respect to the time and the prices at which Shares are purchased for a
Participant. Notwithstanding the foregoing, liability under the federal
securities laws cannot be waived. Similarly, the Company and the Reinvestment
Agent have been advised that in the opinion of the Securities and Exchange
Commission and certain state securities commissioners indemnification is also
considered contrary to public policy and therefore unenforceable.
6. Suitability.
(a) Each Participant shall notify the Dealer Manager in
the event that, at any time during his participation in the Reinvestment Plan,
there is any material change in the Participant's financial condition or
inaccuracy of any representation under the Subscription Agreement.
(b) For purposes of this Paragraph 6, a material change
shall include any anticipated or actual decrease in net worth or annual gross
income or any other change in circumstances that would cause the Participant to
fail to meet the suitability standards set forth in the Company's prospectus.
7. Reports to Participants. Within 10 days after the end of each
fiscal month, the Reinvestment Agent will mail to each Participant a statement
of account describing, as to such Participant, the Distributions received during
the month, the number of Shares purchased during the month, the per Share
purchase price for such Shares, and the total Shares purchased on behalf of the
Participant pursuant to the Reinvestment Plan. Each statement shall also advise
the Participant that, in
B-2
accordance with Paragraph 6(d) hereof, he or she is required to notify the
Dealer Manager in the event that there is any material change in his or her
financial condition or if any representation under the Subscription Agreement
becomes inaccurate. Tax information for income earned on Shares under the
Reinvestment Plan will be sent to each participant by the Company or the
Reinvestment Agent at least annually.
8. Administrative Charges, Commissions, and Plan Expenses. The
Company shall be responsible for all administrative charges and expenses charged
by the Reinvestment Agent. Additionally, in connection with any Shares purchased
from the Company both prior to and after the termination of a public offering of
the Shares, the Company will pay to the Dealer Manager selling commissions of
7.0%, a marketing support fee of 2.5% and due diligence reimbursements of up to
0.5%.
9. No Drawing. No Participant shall have any right to draw checks
or drafts against his account or give instructions to the Company or the
Reinvestment Agent except as expressly provided herein.
10. Taxes. Taxable Participants may incur a tax liability for
Distributions made with respect to such Participant's Shares, even though they
have elected not to receive their Distributions in cash but rather to have their
Distributions held in their account under the Reinvestment Plan.
11. Termination.
(a) A Participant may terminate his or her participation
in the Reinvestment Plan at any time by written notice to the Company. To be
effective for any Distribution, such notice must be received by the Company
prior to the record date to which such Distribution relates.
(b) The Company or the Reinvestment Agent may terminate a
Participant's individual participation in the Reinvestment Plan, and the Company
may terminate the Reinvestment Plan itself at any time by ten days' prior
written notice mailed to a Participant, or to all Participants, as the case may
be, at the address or addresses shown on their account or such more recent
address as a Participant may furnish to the Company in writing.
(c) After termination of the Reinvestment Plan or
termination of a Participant's participation in the Reinvestment Plan, the
Reinvestment Agent will send to each Participant (i) a statement of account in
accordance with Paragraph 7 hereof, and (ii) a check for (A) the amount of any
Distributions in the Participant's account that have not been reinvested in
Shares, and (B) the value of any fractional Shares standing to the credit of a
Participant's account based on $10.00 per share. The record books of the Company
will be revised to reflect the ownership of record of the Participant's full
Shares and any future Distributions made after the effective date of the
termination will be sent directly to the former Participant.
12. Notice. Any notice or other communication required or
permitted to be given by any provision of this Reinvestment Plan shall be in
writing and addressed to Investor Relations Department, AmREIT Securities Corp.,
8 Greenway Plaza, Suite 1000, Houston, Texas 77046 if to the Company, or to
Wells Fargo Shareowner Services, 161 North Concord Exchange South St. Paul,
Minnesota 55075-1139, if to the Reinvestment Agent, or such other addresses as
may be specified by written notice to all Participants. Notices to a Participant
may be given by letter addressed to the Participant at the Participant's last
address of record with the Company. Each Participant shall notify the Company
promptly in writing of any change of address.
B-3
13. Amendment. The terms and conditions of this Reinvestment Plan
may be amended or supplemented by an agreement between the Reinvestment Agent
and the Company at any time, including, but not limited to, an amendment to the
Reinvestment Plan to add a voluntary cash contribution feature or to substitute
a new Reinvestment Agent to act as agent for the Participants or to increase the
administrative charge payable to the Reinvestment Agent, by mailing an
appropriate notice at least 30 days prior to the effective date thereof to each
Participant at his or her last address of record, provided, that any such
amendment must be approved by a majority of the independent trust managers of
the Company. Such amendment or supplement shall be deemed conclusively accepted
by each Participant except those Participants from whom the Company receives
written notice of termination prior to the effective date thereof.
14. Governing Law. THIS REINVESTMENT PLAN AND A PARTICIPANTS
ELECTION TO PARTICIPATE IN THE REINVESTMENT PLAN SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT CAUSES OF ACTION FOR VIOLATIONS
OF FEDERAL OR STATE SECURITIES LAWS SHALL NOT BE GOVERNED BY THIS SECTION 14.
B-4
EXHIBIT C
PRIOR PERFORMANCE TABLES
The information in this Exhibit C contains certain summary information
concerning certain prior real estate investment partnerships (the "Prior
Programs") sponsored by affiliates of AmREIT. The investment objectives of the
Prior Programs are substantially the same as those of AmREIT, and generally
include the acquisition and development or construction of commercial real
estate leased to national and regional corporate tenants and located on prime
real estate, the preservation of capital, the potential for increased income and
protection against inflation, potential for capital appreciation and
distributions that are partially sheltered from federal income tax due to
depreciation and amortization.
INVESTORS SHOULD NOT CONSTRUE INCLUSION OF THE FOLLOWING TABLES AS
IMPLYING, IN ANY MANNER, THAT AMREIT WILL HAVE RESULTS COMPARABLE TO THOSE
REFLECTED IN SUCH TABLES. DISTRIBUTABLE CASH FLOW, FEDERAL INCOME TAX DEDUCTIONS
OR OTHER FACTORS COULD BE SUBSTANTIALLY DIFFERENT. INVESTORS SHOULD NOTE THAT,
BY ACQUIRING SHARES IN AMREIT, THEY WILL NOT BE ACQUIRING ANY INTEREST IN ANY
PRIOR PROGRAM.
DESCRIPTION OF THE TABLES
The following tables are included herein:
Table I - Experience in Raising and Investing Funds
Table II - Compensation to the Sponsor
Table III - Operating Results of Prior Programs
Table IV - Results of Completed Programs
Table V - Sale or Disposition of Properties
All information contained in the Tables is as of December 31, 2003. The
following is a brief description of the tables.
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS
Table I presents information on a percentage basis showing the
experience of the Sponsor and Affiliates in raising and investing funds for the
Prior Programs, the offerings of which closed in the three-year period ended
December 31, 2003. Also included is information on one program which has not
closed.
The table sets forth information on the offering expenses incurred and
amounts available for investment expressed as a percentage of dollars raised.
The table also shows the date the offering commenced and the time required
raising funds for investment.
C-1
TABLE II - COMPENSATION TO THE SPONSOR
Table II provides information on a total dollar basis regarding amounts
and types of compensation paid to the Sponsor or Affiliates of the Prior
Programs.
The table indicates the total offering proceeds and the portion of such
offering proceeds paid to the Sponsor and Affiliates in connection with the
Prior Programs, the offerings of which closed in the three-year period ended
December 31, 2003 and one program which has not closed. The table also shows the
amounts paid to the Sponsor and Affiliates from cash generated from operations
on a cumulative basis commencing with inception and ending December 31, 2003.
TABLE III - OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents a summary of operating results of the Prior
Programs, the offerings of which closed in the five-year period ended December
31, 2003 and one program which has not closed.
TABLE IV - RESULTS OF COMPLETED PROGRAMS
Table IV presents a summary of those Prior Programs that have completed
their operations (meaning they no longer own any properties) in the most recent
five years.
TABLE V - SALE OR DISPOSITION OF PROPERTIES
Table V provides information on all property sales or disposals by the
Prior Programs from January 1, 2001 through December 31, 2003.
Additional information relating to the acquisition of properties by the
Prior Programs is contained in Table VI, which is included in the Registration
Statement which AmREIT has filed with the Securities and Exchange Commission. We
will provide to you copies of any or all information concerning the Prior
Programs at no charge upon request.
PRIOR PROGRAMS
Information in this section pertains to the following programs:
AmREIT Monthly Income & Growth Fund, Ltd. "MIG"
AmREIT Income & Growth Fund, Ltd. "AIG"
AmREIT Opportunity Fund, Ltd. "AOF"
AAA Net Developers, Ltd. "Developers"
C-2
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(UNAUDITED)
AAA Net AmREIT AmREIT AmREIT Monthly
Developers Opportunity Fund Income & Growth Fund Income & Growth Fund (7)
----------- ---------------- -------------------- ------------------------
Dollar Amount Offered $2,000,000 $ 5,000,000 $ 15,000,000 $ 15,000,000
Dollar Amount Raised 1,862,099 2,352,750 10,029,158 14,687,729
Less Offering Expenses:
Selling Commissions & Due Dilgence 8.1% 8.5% 7.0% 8.0%
Organizational expenses (1) 2.7% 1.1% 1.5% 1.4%
Marketing & Reimbursement 2.4% 0.5% 2.5% 2.5%
Less Reserve for Operations 1.0% 0.0% 0.0% 0.0%
Percent Available for Investment 85.8% 89.9% 89.0% 88.1%
Acquisition Cost:
Cash Down Payment 85.8%(3) 89.9%(3) 89.0%(3) 24.5%(3)
Acquisition/Development Fees (2) (5) (5) (5) 0.1%
Other 0.0% 0.0% 0.0% 0.0%
Total Acquisition Costs 85.8% 89.9% 89.0% 24.6%
Percent Leveraged (6) (4) (4) (4)
Date Offering Began 11/20/95 03/15/99 06/25/01 11/15/02
Length of Offering (Months) 15 23 18 15
Months to Invest 90% of Amount 32 N/A N/A N/A
Available for Investment (Measured
>From Beginning of Offering)
See Notes to Table I
C-3
NOTES TO TABLE I
(1) Organizational expenses include legal, accounting, printing, escrow,
filing, recording and other related expenses associated with the
formation and original organization of the Program and also includes
fees paid to the sponsor and to affiliates.
(2) Acquisition fees include fees paid to the sponsor and to affiliates.
(3) The investment objective of Developers and AOF is primarily capital
appreciation. The investment objective of AIG and MIG is both income
and capital appreciation. Because properties are acquired in each of
these programs with the use of some leverage, the costs for property
acquisition exceed the percentage available for investment.
Accordingly, the information reported in this table as property
acquisition costs is limited to the percentage available for investment
from the funds raised by each program.
(4) AOF, AIG and MIG operate as actively managed portfolios that use
traditional leverage to purchase and/or develop net lease commercial
real estate. As such, each project is underwritten and analyzed to
determine the appropriate amount of leverage that will be supported by
the project. Maximum leverage by memorandum is 75% loan to value on the
AIG and MIG portfolios and 80% on the AOF portfolio.
(5) Acquisition fees and development fees are paid to the general partner
or affiliates based upon the terms of the memorandum. These fees range
between 4% and 6% of total project costs including the portion which is
funded by cash and also by permanent or construction debt.
(6) Developers has never directly acquired a property with the use of
leveraged funds. However, Developers has invested in several real
estate partnerships which have made property acquisitions with both
cash and debt. These real estate partnerships have been managed by
outside partners. Consequently, no information on leverage is included.
(7) The offering period for the MIG program has not terminated. Information
included in Table I pertaining to MIG is as of December 31, 2003.
C-4
TABLE II
COMPENSATION TO SPONSOR
(UNAUDITED)
AAA Net AmREIT AmREIT AmREIT Monthly
Developers Opportunity Fund Income & Growth Fund Income & Growth Fund (4)
----------- ---------------- -------------------- ------------------------
Date of Offering 11/20/95 03/15/99 06/25/01 11/15/02
Dollar Amount Raised $ 1,862,099 $ 2,352,750 $ 10,029,158 $ 14,687,729
Amount Paid to Sponsor from
Proceeds of Offering
Underwriting Fees - - - -
Acquisition/Development Fees 58,178 (2) 272,605 (2)(3) 97,082 (2)(3) 20,833 (2)
Real Estate Commissions - 21,414 (2)(3) 20,627 (2)(3) -
Advisory Fees - - - -
Reimbursement for Org. Cost 40,922 25,000 144,812 202,759
Other 44,802 11,764 250,729 367,193
Dollar Amount of Cash Generated
from Operations before Deducting
payments to Sponsor 1,032,365 (1) 933,333 482,757 (1) (4,738,649)(5)
Amount Paid to Sponsor from Operations:
Property Management Fee 45,068 116,326 - -
Reimbursements 111,718 87,160 138,637 54,832
Leasing/Brokerage Commissions - 44,811 19,222 -
Other General Partner Distributions 343,114 63,726 - -
Dollar Amount of Property Sales and
Refinancing Before Deducting Payments
to Sponsor:
Cash 1,220,334 4,465,130 1,310,097 -
Notes N/A N/A N/A N/A
Amount Paid to Sponsor From
Property Sales and Refinancing:
Real Estate Commissions 71,117 168,375(3) 86,883 (3) -
Incentive Fees N/A N/A N/A N/A
Other N/A N/A N/A N/A
See Notes to Table II
C-5
NOTES TO TABLE II
(1) A primary investment objective of each of these programs is capital
appreciation. Commercial real estate is evaluated upon completion of
development and leasing and is either sold or held based investment
criteria, market conditions and general economic conditions. Profits
from development projects sold within one year are included in cash
generated from operations rather than from property sales.
(2) Properties are acquired with a combination of funds from offering
proceeds and leverage. The acquisition and development fees and the
leasing commissions reported in this table include the total amount of
fees paid to the sponsor or its affiliates regardless of the funding
source for these costs.
(3) AOF and AIG have invested in several real estate partnerships. Some of
the acquisition and development fees and real estate commissions that
are included in this table represent AOF and AIG's share of the
partnership that made the payment directly to the sponsor or to
affiliates.
(4) The offering period for MIG commenced in November 2002. The information
contained in this Table for MIG represents activity through December
31, 2003 at which time funds were continuing to be raised.
(5) The cash utilized by operations at December 31, 2003 for MIG is
primarily attributable to accounts receivable of $2.8 million and notes
receivable of $2.5 million from affiliated partnerships.
C-6
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS (5)
AAA NET DEVELOPERS, LTD.
(UNAUDITED)
1996 1997 1998 1999 2000 2001 2002 2003
---------- ---------- ---------- ----------- ---------- ---------- ------- -------
Gross Revenues $ 77,632 $ 34,522 $ 96,384 $ 395,643 $ 185,207 $ 40,614 31,870 15,147
Profit on Sale of Properties - - - 102,555 - 171,651 - 321,715
Less: Operating Expenses (3) 11,155 28,874 71,648 26,857 83,103 13,609 11,611 12,990
Interest Expense - - - - - - - -
Depreciation/Amortization (1) 6,944 10,000 10,000 10,000 10,000 3,056 - -
---------- ---------- ---------- ----------- ---------- ---------- ------- -------
Net Income (6) 59,533 (4,352) 14,736 461,342 92,104 195,600 20,259 323,872
Taxable Income
From Operations 59,533 (4,352) 14,736 461,452 92,104 195,600 20,259 2,157
From Gain on Sale - - - - - - - 321,715
Cash Generated From Operations (4) 74,694 26,696 (489,360) 914,794 (84,658) 391,206 32,266 9,941
Cash Generated From Sales - - - - - - - 482,568
Cash Generated From Refinancing - - - 343,309 323,340 - - -
---------- ---------- ---------- ----------- ---------- ---------- ------- -------
Total Cash Generated 74,694 26,696 (489,360) 1,258,103 238,682 391,206 32,266 492,509
Less Cash Distributions to
Investors: (2)
From Operating Cash Flow - - - - - 197,286 27,000 292,202
From Sales and Refinancing - - - - - - - -
From Return of Capital - - 93,259 500,000 959,575 302,925 - -
---------- ---------- ---------- ----------- ---------- ---------- ------- -------
Cash Generated (Deficiency) After
Cash Distributions to Investors 74,694 26,696 (582,619) 758,103 (720,893) (109,005) 5,266 200,307
Less: Cash Distributions to
General Partner (2) - - - - - 130,314 18,000 194,800
---------- ---------- ---------- ----------- ---------- ---------- ------- -------
Cash Generated (Deficiency)
After Cash Distributions 74,694 26,696 (582,619) 758,103 (720,893) (239,319) (12,734) 5,507
Special Items:
Limited Partners' Capital
Contributions 1,599,599 262,500 - - - - - -
General Partners' Capital
Contributions 1,000 - - - - - - -
Organization Costs (50,000) - - - - - - -
Syndication Costs (167,958) (27,562) - - - - - -
Property Acquisitions (7) (500,000) (338,523) (59,127) - - - - -
---------- ---------- ---------- ----------- ---------- ---------- ------- -------
Cash Generated (Deficiency)
After Cash Distributions
and Special Items 957,335 (76,889) (641,746) 758,103 (720,893) (239,319) (12,734) 5,507
See Notes to Table III
C-7
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS (5)
AMREIT OPPORTUNITY FUND
(UNAUDITED)
1999 2000 2001 2002 2003
-------- ----------- --------- ----------- ----------
Gross Revenues $ - $ 176,682 $ 163,539 $ 787,176 $ 96,427
Profit on Sale of Properties - - 171,650 526,861 932,413
Less: Operating Expens (3) 641 192,348 70,836 231,087 239,062
Interest Expense - - 24,507 81,821 21,780
Depreciation/Amortization (1) 1,250 5,000 27,544 49,544 18,929
-------- ----------- --------- ----------- ----------
Net Income (6) (1,891) (20,666) 212,302 951,585 749,069
Taxable Income
From Operations (1,891) (20,666) 212,356 647,371 (183,344)
From Gain on Sale (8) - - - 304,214 932,413
Cash Generated From Operations (4) (641) (113,046) (833,428) 1,777,283 (145,132)
Cash Generated from Sales - - - 2,019,656 2,277,099
Cash Generated From Refinancing - - - - -
-------- ----------- --------- ----------- ----------
Total Cash Generated (641) (113,046) (833,428) 3,796,939 2,131,967
Less Cash Distributions to Investors: (2)
From Operating Cash Flow - - - - 781,555
From Sales and Refinancing - - - - -
From Return of Capital - - - 1,648,031 704,719
-------- ----------- --------- ----------- ----------
Cash Generated (Deficiency) After Cash
Distributions to Investors (641) (113,046) (833,428) 2,148,908 645,693
Less: Cash Distributions to General Partner (2) - - - - 63,726
Cash Generated (Deficiency) After Cash
Distributions (641) (113,046) (833,428) 2,148,908 581,967
Special Items:
Limited Partners' Capital Contributions 918,750 1,334,000 100,000 - -
General Partners' Capital Contributions 1,000 - - - -
Note Receivable (8) - - - - (327,467)
Notes Payable - 624,389 920,889 (1,401,553) (143,725)
Organization Costs (25,000) - - - -
Syndication Costs (68,242) (132,917) (10,500) - -
Property Acquisitions (7) - (1,716,609) (747,863) (881,534) -
-------- ----------- --------- ----------- ----------
Cash Generated (Deficiency) After Cash
Distributions and Special Items 825,867 (4,183) (570,902) (134,179) 110,775
See Notes to Table III
C-8
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS (5)
AMREIT INCOME & GROWTH FUND, LTD.
(UNAUDITED)
2001 2002 2003
------------ ------------ ------------
Gross Revenues $ 4,857 $ 404,065 $ 650,330
Profit on Sale of Properties - 24,747 217,679
Less: Operating Expenses (3) 5,381 75,743 200,310
Interest Expense 47 - 38,773
Depreciation/Amortization (1) 3,590 10,938 126,114
------------ ------------ ------------
Net Income (6) (4,161) 342,131 502,812
Taxable Income
From Operations (4,161) 342,131 285,133
From Gain on Sale (8) - - 217,679
Cash Generated From Operations (4) (571,188) 158,505 737,581
Cash Generated from Sales - - 1,223,214
Cash Generated From Refinancing - - -
------------ ------------ ------------
Total Cash Generated (571,188) 158,505 1,960,795
Less Cash Distributions to Investors: (2)
From Operating Cash Flow - - -
From Sales and Refinancing - - -
From Return of Capital 14,638 352,829 901,082
------------ ------------ ------------
Cash Generated (Deficiency) After Cash
Distributions to Investors (585,826) (194,324) 1,059,713
Less: Cash Distributions to General Partner (2) - - -
Cash Generated (Deficiency) After Cash
Distributions (585,826) (194,324) 1,059,713
Special Items:
Limited Partners' Capital Contributions 1,472,258 8,556,900 -
General Partners' Capital Contributions 1,000 - -
Note Receivable (8) - - (327,966)
Notes Payable 20,872 122,853 1,084,677
Organization Costs (19,584) (125,728) -
Syndication Costs (131,264) (901,100) -
Property Acquisitions (7) (140,569) (4,110,737) (5,638,637)
------------ ------------ ------------
Cash Generated (Deficiency) After Cash
Distributions and Special Items 616,887 3,347,864 (3,822,213)
See Notes to Table III
C-9
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS (5)
AMREIT MONTHLY INCOME & GROWTH FUND, LTD.
(UNAUDITED)
2003
------------
Gross Revenues $ 250,332
Profit on Sale of Properties
Less: Operating Expenses (3) 69,895
Interest Expense -
Depreciation/Amortization (1) 26,556
------------
Net Income (6) 153,881
Taxable Income
From Operations 153,881
From Gain on Sale -
Cash Generated From Operations (4) (4,683,817)
Cash Generated from Sales -
Cash Generated From Refinancing -
------------
Total Cash Generated (4,683,817)
Less Cash Distributions to Investors: (2)
From Operating Cash Flow -
From Prior Period -
From Sales and Refinancing -
From Return of Capital 370,056
------------
Cash Generated (Deficiency) After Cash
Distributions to Investors (5,053,873)
Less: Cash Distributions to General Partner (2) -
------------
Cash Generated (Deficiency) After Cash
Distribution (5,053,873)
Special Items:
Limited Partners' Capital Contributions 14,687,729
General Partners' Capital Contributions 1,000
Organization Costs (10,000)
Syndication Costs (1,734,971)
Property Acquisitions (7) (3,592,960)
------------
Cash Generated (Deficiency) After Cash
Distributions and Special Items 4,296,925
See Notes to Table III
C-10
NOTES TO TABLE III
(1) Amortization of organizational costs is computed over a period of 60
months. Depreciation of commercial real property is determined on the
straight-line method over an estimated useful life of 39 years.
Leasehold interests are amortized over the life of the lease.
(2) Cash distributions to investors represents the amount actually
disbursed in each year to the limited partners and general partner. The
distributions are reported in this Table as a return of capital until
the partners have received back their initial capital contribution and
then as a distribution from operating profit.
(3) Operating expenses include management fees paid to affiliates for such
services as accounting, property supervision, etc.
(4) Cash generated from operations generally includes net income plus
depreciation and amortization plus any decreases in accounts receivable
and accrued rental income or increases in accounts payable minus any
increases in accounts receivable and accrued rental income or decreases
in accounts payable. In addition, cash generated from operations is
reduced for any property costs related to development projects and is
increased by proceeds when the project is sold (usually in less than
twelve months).
(5) Table III does not include certain tax distribution data per $1,000
invested because a primary objective of these programs is capital
appreciation rather than income. Management decides after projects are
completed and sold whether to reinvest the proceeds in a new project or
to distribute a portion of the proceeds back to investors. When
distributions are made, they are first applied as a return of capital
until an investor's money has been returned. Any remaining
distributions are then made from operating cash flow.
(6) The partnership's maintain their books on a tax basis rather than a
GAAP basis. There are no significant differences in tax and GAAP basis
records as pertains to the accounting for projects that are developed
and sold. If a property is acquired and held for long-term investment,
there are two potential differences in tax and GAAP basis. Rental
income is recorded on a tax basis as it is received where it is accrued
on a straight-line basis over the life of the lease for GAAP.
Additionally, all properties are recorded at cost and depreciated over
their estimated useful life on a tax basis even if they qualify as a
direct financing lease for GAAP purposes.
(7) Property acquisitions represent investments made by the partnership for
commercial real estate or for through a real estate partnership where
the properties will be held on a long-term basis.
(8) AOF and AIG sold a property in December 2003 on an installment basis.
The gain on the sale will be recognized as payments are received on the
note. In addition, the note receivable reported for 2003 has been
reduced by the amount of the deferred gain.
C-11
TABLE V
SALE OR DISPOSITION OF PROPERTIES
(UNAUDITED)
DATE OF DATE OF
PROPERTY OWNERSHIP LOCATION INVESTMENT DISPOSITION
- --------------------------------------------- ---------- --------------------- -------------- --------------
1 Copper Plaza Developers Houston, Texas March 2000 January 2001
2 Parkwood Square Developers Houston, Texas May 1999 November 2003
1 Copper Plaza AOF Houston, Texas March 2000 January 2001
2 Oxford Park (Hollywood Video, Radio Shack) AOF Houston, Texas May 2000 November 2002
3 IHOP Kenosha AOF Kenosha, Wisconsin July 2001 January 2002
4 Arby's Kenosha AOF Kenosha, Wisconsin July 2001 September 2002
5 IHOP CDP 31 AOF Scottsdale, Arizona September 2001 January 2002
6 IHOP CDP 31 AOF Cookeville, Tennessee October 2001 January 2002
7 Temple - Chili's AOF Temple, Texas October 2001 October 2002
8 Temple - IHOP AOF Temple, Texas October 2001 June 2002
9 Temple - McDonald's AOF Temple, Texas October 2001 April 2002
10 IHOP CDP 27 AOF Memphis, Tennessee November 2001 January 2002
11 IHOP CDP 27 AOF Tupelo, Mississippi November 2001 January 2003
12 IHOP CDP 33 AOF Orem, Utah December 2001 April 2003
13 IHOP CDP 33 AOF Hagerstown, Maryland December 2001 May 2003
14 IHOP CDP 33 AOF Houston, Texas December 2001 June 2003
15 Riverpark AOF Houston, Texas April 2000 October 2003
16 McLendon Plaza AOF Houston, Texas December 2002 December 2003
1 IHOP Kenosha AIG Kenosha, Wisconsin July 2001 January 2002
2 Arby's - Kenosha AIG Kenosha, Wisconsin July 2001 September 2002
3 IHOP CDP 31 AIG Scottsdale, Arizona September 2001 January 2002
4 IHOP CDP 31 AIG Cookeville, Tennessee October 2001 January 2002
4 Temple - Chili's AIG Temple, Texas October 2001 October 2002
5 Temple - IHOP AIG Temple, Texas October 2001 June 2002
6 Temple - McDonald's AIG Temple, Texas October 2001 April 2002
8 IHOP CDP 27 AIG Memphis, Tennessee November 2001 January 2002
9 IHOP CDP 27 AIG Tupelo, Mississippi November 2001 January 2003
10 IHOP CDP 33 AIG Orem, Utah December 2001 April 2003
11 IHOP CDP 33 AIG Hagerstown, Maryland December 2001 May 2003
12 IHOP CDP 33 AIG Houston, Texas December 2001 June 2003
13 McLendon Plaza AIG Houston, Texas December 2002 December 2003
SELLING CLOSING PROJECT NET
PROPERTY PRICE COSTS COSTS PROFIT
- --------------------------------------------- ------------ ------------ ------------ ------------
1 Copper Plaza $ 728,646 $ 51,965 $ 505,031 $ 171,650
2 Parkwood Square $ 1,000,000 $ 51,701 $ 807,927 $ 140,372
1 Copper Plaza $ 728,646 $ 51,965 $ 505,031 $ 171,650
2 Oxford Park (Hollywood Video, Radio Shack) $ 2,107,000 $ 87,343 $ 1,781,745 $ 237,912
3 IHOP Kenosha $ 763,565 $ 76,734 $ 568,353 $ 118,478
4 Arby's Kenosha $ 382,458 $ 33,949 $ 244,337 $ 104,172
5 IHOP CDP 31 $ 480,462 $ 7,272 $ 407,902 $ 65,288
6 IHOP CDP 31 $ 374,427 $ 5,668 $ 316,577 $ 52,182
7 Temple - Chili's $ 244,746 $ 19,291 $ 162,060 $ 63,395
8 Temple - IHOP $ 138,545 $ 22,763 $ 77,946 $ 37,836
9 Temple - McDonald's $ 180,711 $ 12,311 $ 101,735 $ 66,665
10 IHOP CDP 27 $ 867,522 $ 65,277 $ 711,236 $ 91,009
11 IHOP CDP 27 $ 813,552 $ 41,125 $ 654,678 $ 117,749
12 IHOP CDP 33 $ 290,469 $ 2,668 $ 279,693 $ 8,108
13 IHOP CDP 33 $ 297,218 $ 3,237 $ 288,024 $ 5,957
14 IHOP CDP 33 $ 343,995 $ 7,054 $ 327,888 $ 9,053
15 Riverpark $ 1,126,200 $ - $ 325,748 $ 800,452
16 McLendon Plaza $ 1,559,000 $ 66,256 $ 1,025,049 $ 467,695
1 IHOP Kenosha $ 84,935 $ 11,360 $ 60,396 $ 13,179
2 Arby's - Kenosha $ 42,542 $ 9,551 $ 21,423 $ 11,568
3 IHOP CDP 31 $ 480,462 $ 7,272 $ 407,902 $ 65,288
4 IHOP CDP 31 $ 374,427 $ 5,668 $ 316,577 $ 52,182
4 Temple - Chili's $ 152,417 $ 12,014 $ 100,924 $ 39,479
5 Temple - IHOP $ 86,280 $ 14,176 $ 48,541 $ 23,563
6 Temple - McDonald's $ 112,539 $ 7,667 $ 63,356 $ 41,516
8 IHOP CDP 27 $ 808,373 $ 60,826 $ 662,762 $ 84,785
9 IHOP CDP 27 $ 758,082 $ 38,321 $ 610,041 $ 109,720
10 IHOP CDP 33 $ 290,469 $ 2,668 $ 279,693 $ 8,108
11 IHOP CDP 33 $ 297,218 $ 3,237 $ 288,024 $ 5,957
12 IHOP CDP 33 $ 343,995 $ 7,054 $ 327,888 $ 9,053
13 McLendon Plaza $ 1,559,000 $ 66,256 $ 1,025,049 $ 467,695
NOTES
(1) This property was acquired through a joint venture investment which is
managed and operated by an outside party. The information presented
herein is based on preliminary information provided by the manager.
C-12
TABLE VI
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(UNAUDITED)
TYPE OF GROSS LEASABLE DATE OF
PROPERTY OWNERSHIP LOCATION PROPERTY SPACE (APPROX.) PURCHASE
- ---------------------- --------- --------------------- ------------- --------------- --------------
1 K-2 Plaza AOF Round Rock, Texas Retail Center 9,600 April-01
2 IHOP Kenosha AOF Kenosha, Wisconsin Restaurant 4,020 July-01
3 Arby's Kenosha AOF Kenosha, Wisconsin Restaurant Land July-01
4 IHOP CDP 31 AOF Scottsdale, Arizona Restaurant 4,020 September-01
5 IHOP CDP 31 AOF Cookeville, Tennessee Restaurant 4,020 October-01
6 Temple - Chili's AOF Temple, Texas Restaurant Land October-01
7 Temple - IHOP AOF Temple, Texas Restaurant 4,020 October-01
8 Temple - McDonald's AOF Temple, Texas Restaurant Land October-01
9 Temple - Land AOF Temple, Texas October-01
10 IHOP CDP 27 AOF Memphis, Tennessee Restaurant 4,020 November-01
11 IHOP CDP 27 AOF Tupelo, Mississippi Restaurant 4,020 November-01
12 IHOP CDP 33 AOF Orem, Utah Restaurant 4,020 December-01
13 IHOP CDP 33 AOF Hagerstown, Maryland Restaurant 4,020 December-01
14 IHOP CDP 33 AOF Houston, Texas Restaurant 4,020 December-01
15 McLendon Plaza AOF Houston, Texas Retail Center 16,000 December-02
1 IHOP Kenosha AIG Kenosha, Wisconsin Restaurant 4,020 July-01
2 Arby's - Kenosha AIG Kenosha, Wisconsin Restaurant Land July-01
3 IHOP CDP 31 AIG Scottsdale, Arizona Restaurant 4,020 September-01
4 IHOP CDP 31 AIG Cookeville, Tennessee Restaurant 4,020 October-01
5 Temple - Chili's AIG Temple, Texas Restaurant Land October-01
6 Temple - IHOP AIG Temple, Texas Restaurant 4,020 October-01
7 Temple - McDonald's AIG Temple, Texas Restaurant Land October-01
8 Temple - Land AIG Temple, Texas October-01
8 IHOP CDP 27 AIG Memphis, Tennessee Restaurant 4,020 November-01
9 IHOP CDP 27 AIG Tupelo, Mississippi Restaurant 4,020 November-01
10 IHOP CDP 33 AIG Orem, Utah Restaurant 4,020 December-01
11 IHOP CDP 33 AIG Hagerstown, Maryland Restaurant 4,020 December-01
12 IHOP CDP 33 AIG Houston, Texas Restaurant 4,020 December-01
13 17 IHOP Leaseholds AIG Various Restaurant 4,020 Each 2002
14 McLendon Plaza AIG Houston, Texas Retail Center 16,000 December-02
15 IHOP AIG Rochester, New York Restaurant 4,020 October-02
16 TGI Friday's AIG Crystal Lake, Illinois Restaurant Land November-02
17 IHOP AIG Albuquerque, NM Restaurant 4,020 March-03
18 TGI Friday's AIG Danvers, Maine Restaurant Land April-03
19 Peakway AIG Apex, North Carolina Retail Center 56,296 July-03
1 IHOP MIG St. Peters, Missouri Restaurant 4,020 April-03
2 Peakway MIG Apex, North Carolina Retail Center 56,296 July-03
3 College Park MIG Houston, Texas Restaurant Land October-03
MORTGAGE CONTRACT
FINANCING CASH PRICE & OTHER TOTAL
PROPERTY AT PURCHASE DOWNPAYMENT ACQ. FEE COSTS PRICE
- ---------------------- ------------ ------------ ------------ ---------- ------------
1 K-2 Plaza $ 803,147 $ 943,192 $ 953,192 $ - $ 953,192
2 IHOP Kenosha $ 187,669 $ 505,272 $ 568,353 $ - $ 568,353
3 Arby's Kenosha $ - $ 217,302 $ 244,337 $ - $ 244,337
4 IHOP CDP 31 $ 281,005 $ 400,189 $ 401,779 $ 6,123 $ 407,902
5 IHOP CDP 31 $ 273,091 $ 310,748 $ 311,983 $ 4,594 $ 316,577
6 Temple - Chili's $ 349,580 (5) $ 155,502 $ 162,060 $ - $ 162,060
7 Temple - IHOP (5) $ 74,792 $ 77,946 $ - $ 77,946
8 Temple - McDonald's (5) $ 97,618 $ 101,735 $ - $ 101,735
9 Temple - Land (5) $ 44,707 $ 46,592 $ - $ 46,592
10 IHOP CDP 27 $ 615,120 $ 699,222 $ 705,229 $ 6,007 $ 711,236
11 IHOP CDP 27 $ 566,280 $ 543,618 $ 649,148 $ 5,530 $ 654,678
12 IHOP CDP 33 $ 239,580 $ 272,723 $ 274,923 $ 4,770 $ 279,693
13 IHOP CDP 33 $ 245,190 $ 280,617 $ 282,881 $ 5,143 $ 288,024
14 IHOP CDP 33 $ 286,638 $ 320,769 $ 323,357 $ 4,531 $ 327,888
15 McLendon Plaza $ 675,570 $ 909,112 $ 965,562 $ 59,487 $ 1,025,049
1 IHOP Kenosha $ 20,872 $ 53,005 $ 60,396 $ - $ 60,396
2 Arby's - Kenosha $ - $ 18,801 $ 21,423 $ - $ 21,423
3 IHOP CDP 31 $ 281,005 $ 400,189 $ 401,779 $ 6,123 $ 407,902
4 IHOP CDP 31 $ 273,091 $ 310,748 $ 311,983 $ 4,594 $ 316,577
5 Temple - Chili's $ 217,714 (5) $ 96,840 $ 100,924 $ - $ 100,924
6 Temple - IHOP (5) $ 46,577 $ 48,541 $ - $ 48,541
7 Temple - McDonald's (5) $ 60,792 $ 63,356 $ - $ 63,356
8 Temple - Land (5) $ 27,841 $ 29,015 $ - $ 29,015
8 IHOP CDP 27 $ 573,180 $ 651,549 $ 657,146 $ 5,597 $ 662,743
9 IHOP CDP 27 $ 527,670 $ 599,735 $ 604,888 $ 5,153 $ 610,041
10 IHOP CDP 33 $ 239,580 $ 272,723 $ 274,923 $ 4,770 $ 279,693
11 IHOP CDP 33 $ 245,190 $ 280,617 $ 282,881 $ 5,143 $ 288,024
12 IHOP CDP 33 $ 286,638 $ 320,769 $ 323,357 $ 4,531 $ 327,888
13 17 IHOP Leaseholds $ 2,982,000 $ 3,607,411 $ 3,607,411 $ 43,565 $ 3,650,976
14 McLendon Plaza $ 675,570 $ 909,112 $ 965,562 $ 59,487 $ 1,025,049
15 IHOP $ - $ 1,303,722 $ 1,303,722 $ 29,140 $ 1,332,862
16 TGI Friday's $ - $ 1,731,479 $ 1,731,479 $ 34,244 $ 1,765,723
17 IHOP $ - $ 1,643,426 $ 1,643,426 $ 32,658 $ 1,676,084
18 TGI Friday's $ - $ 2,248,252 $ 2,248,252 $ 41,997 $ 2,290,249
19 Peakway $ 625,670 $ 1,139,785 $ 1,160,618 $ 14,091 $ 1,174,709
1 IHOP $ - $ 1,916,121 $ 1,916,121 $ - $ 1,916,121
2 Peakway $ 625,670 $ 1,139,785 $ 1,160,618 $ 14,091 $ 1,174,709
3 College Park $ - $ 673,546 $ 673,546 $ - $ 673,546
NOTES:
1) Table VI includes property acquistions completed from the period
January 1, 2001 through December 31, 2003.
2) Acquisition fees include payments made to the sponsor or to affiliates.
3) Other Costs includes loan acquistion costs or prepaid leasing
commissions.
4) Table VI reflects a partnership's pro-rata share of property costs for
acquisitions made through a separate partnership investment. Square
footage is 100% of the leasable space regardless of the percentage
ownership in the property.
5) There was one loan related to this entire property that was repaid from
sales proceeds as the property was developed and sold. At December 31,
2003 the loan has been repaid although one tract of land is still owned
by the Temple partnership.
C-13
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee......................................... $21,539
NASD Filing Fee *............................................ $
Legal fees and expenses *.................................... $
Accounting fees and expenses *............................... $
Printing, engraving and mailing expenses *................... $
Miscellaneous (including solicitation costs)*................ $
-------
TOTAL* $
- ------------------------
*Estimated
ITEM 32. SALES TO SPECIAL PARTIES
Not Applicable.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 34. INDEMNIFICATION OF TRUST MANAGERS AND OFFICERS
AmREIT's Declaration of Trust provides that the liability of each trust
manager for monetary damages shall be eliminated to the fullest extent permitted
by applicable law. In general, under current Texas law, a trust manager is
liable to the trust only for liabilities arising from such trust manager's own
willful misfeasance or willful malfeasance or gross negligence. The Declaration
of Trust also provides that no amendment thereto may limit or eliminate this
limitation of liability with respect to event occurring prior to the effective
date of such amendment.
AmREIT's Declaration of Trust provides that the trust manages and
officers shall be indemnified to the maximum extent permitted by Texas law.
Under current Texas law, the trust will indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding because
the person is or was a trust manager or officer if it is determined that the
person (i) conducted himself in good faith; (ii) reasonably believed: (a) in the
case of conduct in his official capacity as a trust manager or officer of the
real estate investment trust, that his conduct was in the real estate investment
trust's best interests; and (b) in all other cases, that his conduct was at
least not opposed to the real estate investment trust's best interests; and
(iii) in the case of any criminal proceeding, had no reasonable cause to believe
that his conduct was unlawful. Except to the extent provided in the following
sentence, a trust manager or officer may not be indemnified (i) in respect of a
proceeding in which the person is found liable on the basis that personal
benefit was improperly received by him, whether or not the benefit resulted from
an action taken in the person's official capacity; or (ii) in which the person
is found liable to the real estate investment trust. Notwithstanding the
foregoing, a person may be indemnified against judgments, penalties (including
excise and similar taxes), fines, settlements, and reasonable expenses actually
incurred by the person in connection with the proceeding; provided that if the
person is found liable to the real estate investment trust or is found liable on
the basis that personal benefit was improperly received by the person, the
indemnification (i) is limited to reasonable expenses actually incurred by the
person in connection with the proceeding, and (ii) shall not be made in respect
of any proceeding in which the person shall have been found liable for willful
or intentional misconduct in the performance of his duty to
II-1
the real estate investment trust. In addition, the Company's Declaration of
Trust and Bylaws require it to payor reimburse, in advance of the final
disposition of a proceeding, reasonable expenses incurred by a present or former
director or officer made a party to a proceeding by reason of his status as a
trust manager or officer, provided that the Company shall have received (i) a
written affirmation by the trust manager or officer of his good faith belief
that he has met the standard of conduct necessary for indemnification by the
Company as authorized by the Bylaws and (ii) a written undertaking by or on his
behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met. The Company's
Declaration of Trust and Bylaws also permit the Company to provide
indemnification, payment or reimbursement of expenses to any employee or agent
of the Company in such capacity. Any indemnification, payment or reimbursement
of the expenses permitted by the Declaration of Trust and Bylaws shall be
furnished in accordance with the procedures provided for indemnification and
payment or reimbursement of expenses under Texas Real Estate Investment Trust
Act for trust managers.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not applicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS.
AmREIT Financial Statements for the Year Ended December 31,
2002
Independent Auditor's Report
Consolidated Balance Sheet, December 31, 2002
Consolidated Statements of Operations for the Years Ended
December 31, 2002 and 2001
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 2002 and 2001
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002 and 2001
Notes to Consolidated Financial Statements for the Years Ended
December 31, 2002 and 2001
(b) EXHIBITS (SEE EXHIBIT INDEX).
EXHIBIT
NO. EXHIBIT
- ------- -------
1.1 Form of Dealer Manager Agreement
3.1 Amended and Restated Declaration of Trust (incorporated by
reference to Exhibit 3.1 to the Registrant's Form 10-KSB for
the fiscal year ended December 31, 2002)
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the
Registrant's Form 10-KSB for the fiscal year ended December
31, 2002)
* 3.3 Form of Statement of Designation for class D common shares
4.1 Form of Subscription Agreement and Subscription Agreement
Signature Page (included as Exhibit A to the Prospectus).
II-2
5.1 Opinion of Locke Liddell & Sapp LLP regarding legality of the
securities
* 8.1 Opinion of Locke Liddell & Sapp LLP regarding tax matters
10.1 Revolving Credit Agreement, dated November 6, 1998, by and among
AmREIT, Inc., certain lenders and Wells Fargo Bank, as the Agent,
relating to a $30,000,000 loan (included as Exhibit 10.1 of the
Exhibits to the Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1998 and incorporated herein by
reference).
10.2 Amended and Restated Revolving Credit Agreement, effective August 1,
2000, by and among AmREIT, Inc., certain lenders and Wells Fargo
Bank, as the Agent, relating to a $13,000,000 loan (included as
Exhibit 10.1 of the Exhibits to the Company's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1998 and incorporated
herein by reference).
10.3 Revolving Credit Agreement, effective September 4, 2003, by and
among AmREIT and Wells Fargo Bank, as the Agent, relating to a
$20,000,000 loan (included as Exhibit 10.3 of the Exhibits to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 2003, and incorporated herein by reference).
10.4 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).
21.1 Subsidiaries of the Registrant
23.1 Consent of Locke Liddell & Sapp LLP (included in Exhibits 5.1
and 8.1)
23.2 Consent of KPMG LLP
24.1 Power of Attorney (included on signature page)
* To be filed by amendment.
ITEM 37. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post effective amendment to this Registration Statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the Registration
Statement is on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-3
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trust managers, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(6) The Registrant undertakes to file a sticker supplement
pursuant to Rule 424(c) under the Securities Act of 1933 during the distribution
period describing each property not identified in the prospectus at such time as
there arises a reasonable probability that such property will be acquired and to
consolidate all such stickers into a post-effective amendment filed at least
once every three months, with the information contained in such amendment
provided simultaneously to the existing shareholders. Each sticker supplement
should disclose all compensation and fees received by the Registrant and its
affiliates in connection with any such acquisition. The post-effective amendment
shall include audited financial statements meeting the requirements of Rule 3-14
of Regulation S-X only for properties acquired during the distribution period.
The Registrant also undertakes to file, after the end of the
distribution period, a current report on Form 8-K containing the financial
statements and any additional information required by Rule 3-14 of Regulation
S-X, to reflect each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period involving the use of 10
percent or more (on a cumulative basis) of the net proceeds of the offering and
to provide the information contained in such report to the shareholders at least
once each quarter after the distribution period of the offering has ended.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-11 and has duly caused this
Registration Statement on Form S-11 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 13th day of April, 2004.
AMREIT
(Registrant)
By: /s/ H. Kerr Taylor
------------------------------------
Name: H. Kerr Taylor
Title: President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints H. Kerr Taylor and Chad C. Braun, and each of them, as his
attorney-in-fact and agent, with full power of substitution and resubstitution
for him in any and all capacities, to sign any or all amendments or
post-effective amendments to this registration statement, and to sign any and
all registration statements relating to the same offering of securities as this
registration statement that are filed pursuant to Rule 462(b) of the Securities
Act of 1933, and to file the foregoing, with all exhibits thereto, and other
documents in connection therewith, with the U.S. Securities and Exchange
Commission, the American Stock Exchange, and such other authorities as he or she
deems appropriate, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them
individually, or such substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ H. Kerr Taylor President, Chief Executive Officer
- ---------------------------------- and Chairman of the Board April 13, 2004
H. Kerr Taylor (Principal Executive Officer)
/s/ Chad C. Braun Executive Vice President and Chief
- ---------------------------------- Financial Officer April 13, 2004
Chad C. Braun (Principal Financial Officer)
/s/ Robert S. Cartwright Trust Manager April 13, 2004
- ----------------------------------
Robert S. Cartwright
/s/ G. Steven Dawson Trust Manager April 13, 2004
- ----------------------------------
G. Steven Dawson
/s/ Bryan L. Goolsby Trust Manager April 13, 2004
- ----------------------------------
Bryan L. Goolsby
II-5
Signature Title Date
--------- ----- ----
/s/ Philip W. Taggart Trust Manager April 13, 2004
- ----------------------------------
Philip W. Taggart
II-6
EXHIBIT INDEX
EXHIBIT
NO. EXHIBIT
- ------- -------
1.1 Form of Dealer Manager Agreement
3.1 Amended and Restated Declaration of Trust (incorporated by
reference to Exhibit 3.1 to the Registrant's Form 10-KSB for
the fiscal year ended December 31, 2002)
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the
Registrant's Form 10-KSB for the fiscal year ended December
31, 2002)
* 3.3 Form of Statement of Designation for class D common shares
4.1 Form of Subscription Agreement and Subscription Agreement
Signature Page (included as Exhibit A to the Prospectus)
5.1 Opinion of Locke Liddell & Sapp LLP regarding legality of the
securities
* 8.1 Opinion of Locke Liddell & Sapp LLP regarding tax matters
10.1 Revolving Credit Agreement, dated November 6, 1998, by and among
AmREIT, Inc., certain lenders and Wells Fargo Bank, as the Agent,
relating to a $30,000,000 loan (included as Exhibit 10.1 of the
Exhibits to the Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1998 and incorporated herein by
reference).
10.2 Amended and Restated Revolving Credit Agreement, effective August 1,
2000, by and among AmREIT, Inc., certain lenders and Wells Fargo
Bank, as the Agent, relating to a $13,000,000 loan (included as
Exhibit 10.1 of the Exhibits to the Company's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1998 and incorporated
herein by reference).
10.3 Revolving Credit Agreement, effective September 4, 2003, by and
among AmREIT and Wells Fargo Bank, as the Agent, relating to a
$20,000,000 loan (included as Exhibit 10.3 of the Exhibits to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 2003, and incorporated herein by reference).
10.4 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).
21.1 Subsidiaries of the Registrant
23.1 Consent of Locke Liddell & Sapp LLP (included in Exhibits 5.1
and 8.1)*
23.2 Consent of KPMG LLP
24.1 Power of Attorney (included on signature page)
* To be filed by amendment.
EXHIBIT 1.1
AmREIT
Up to 17,000,000 Class D Common Shares / $170,000,000
SELECTED DEALER AGREEMENT
Ladies and Gentlemen:
AmREIT Securities Company, as the dealer manager ("Dealer Manager")
for AmREIT, a Texas real estate investment trust (the "Company"), invites you
(the "Dealer") to participate in the distribution of shares of common stock
("Shares") of the Company subject to the following terms:
I. Dealer Manager Agreement
The Dealer Manager and the Company have entered into that certain
Dealer Manager Agreement dated April ___, 2004, in the form attached hereto as
Exhibit "A." By your acceptance of this Agreement, you will become one of the
Dealers referred to in such Dealer Manager Agreement between the Company and
the Dealer Manager and will be entitled and subject to the indemnification
provisions contained in such Dealer Manager Agreement, including specifically
the provisions of such Dealer Manager Agreement (Section 4.3) wherein each
Dealer severally agrees to indemnify and hold harmless the Company, the Dealer
Manager and each officer, trust manager and director thereof, and each person,
if any, who controls the Company and the Dealer Manager within the meaning of
the Securities Act of 1933, as amended. Except as otherwise specifically stated
herein, all terms used in this Agreement have the meanings provided in the
Dealer Manager Agreement. The Shares are offered solely through broker-dealers
who are members of the National Association of Securities Dealers, Inc.
("NASD").
The Dealer hereby agrees to use its best efforts to sell the Shares
for cash on the terms and conditions stated in the Prospectus. Nothing in this
Agreement shall be deemed or construed to make the Dealer an employee, agent,
representative or partner of the Dealer Manager or of the Company, and the
Dealer is not authorized to act for the Dealer Manager or the Company or to
make any representations on their behalf except as set forth in the Prospectus
and such other printed information furnished to the Dealer by the Dealer
Manager or the Company to supplement the Prospectus ("supplemental
information").
II. Submission of Orders
Those persons who purchase Shares will be instructed by the Dealer to
make their checks payable to "AmREIT." Any Dealer receiving a check not
conforming to the foregoing instructions shall return such check directly to
such subscriber not later than the end of the next business day following its
receipt. Checks received by the Dealer which conform to the foregoing
instructions shall be transmitted for deposit pursuant to one of the methods in
this Article II. Transmittal of received investor funds will be made in
accordance with the following procedures:
Where, pursuant to the Dealer's internal supervisory procedures,
internal supervisory review is conducted at the same location at which
subscription documents and checks are received from subscribers, checks will be
transmitted in care of the Dealer Manager by the end of the next business day
following receipt by the Dealer for deposit to AmREIT.
Where, pursuant to the Dealer's internal supervisory procedures, final
and internal supervisory review is conducted at a different location, checks
will be transmitted by the end of the next business day following receipt by
the Dealer to the office of the Dealer conducting such final internal
supervisory review (the "Final Review Office"). The Final Review Office will in
turn by the end of the next business day following receipt by the Final Review
Office, transmit such checks for deposit to AmREIT.
III. Pricing
Shares shall be offered to the public at the offering price of $10.00
per Share payable in cash. Except as otherwise indicated in the Prospectus or
in any letter or memorandum sent to the Dealer by the Company or Dealer
Manager, a minimum initial purchase of 100 Shares is required. Except as
otherwise indicated in the Prospectus, additional investments may be made in
cash in minimal increments of at least 2.5 Shares. The Shares are
non-assessable. Dealer hereby agrees to place any order for the full purchase
price.
IV. Dealers' Commissions
Except for discounts described in or as otherwise provided in the
"Plan of Distribution" section of the Prospectus, the Dealer's selling
commission applicable to the total public offering price of Shares sold by
Dealer which it is authorized to sell hereunder is 7.0% of the gross proceeds
of Shares sold by it and accepted and confirmed by the Company, which
commission will be paid by the Dealer Manager. Additionally, a due diligence
reimbursement of .50% of the gross proceeds of Shares sold by it and accepted
and confirmed by the Company, will be paid by the Dealer Manager. For these
purposes, a "sale of Shares" shall occur if and only if a transaction has
closed with a securities purchaser pursuant to all applicable offering and
subscription documents and the Company has thereafter distributed the
commission to the Dealer Manager in connection with such transaction. The
Dealer affirms that the Dealer Manager's liability for commissions payable is
limited solely to the proceeds of commissions receivable associated therewith,
and the Dealer hereby waives any and all rights to receive payment of
commissions due until such time as the Dealer Manager is in receipt of the
commission from the Company. In addition, as set forth in the Prospectus, the
Dealer Manager may, in its sole discretion, reallow out of its dealer manager
fee a marketing fee or reimbursement of expenses in conjunction with
educational conferences and seminars of 0.50% of the gross proceeds of Shares
sold by the Dealer participating in the offering.
The parties hereby agree that the foregoing commission is not in
excess of the usual and customary distributors' or sellers' commission received
in the sale of securities similar to the Shares, that Dealer's interest in the
offering is limited to such commission from the Dealer Manager and Dealer's
indemnity referred to in Section 4 of the Dealer Manager Agreement, and that
the Company is not liable or responsible for the direct payment of such
commission to the Dealer.
2
V. Payment
Payments of selling commissions will be made by the Dealer Manager (or
by the Company as provided in the Dealer Manager Agreement) to Dealer within 30
days of the receipt by the Dealer Manager of the gross commission payments from
the Company.
VI. Right to Reject Orders or Cancel Sales
All orders, whether initial or additional, are subject to acceptance
by and shall only become effective upon confirmation by the Company, which
reserves the right to reject any order. Orders not accompanied by a
Subscription Agreement Signature Page and the required check in payment for the
Shares may be rejected. Issuance and delivery of the Shares will be made only
after actual receipt of payment therefore. If any check is not paid upon
presentment, or if the Company is not in actual receipt of clearinghouse funds
or cash, certified or cashier's check or the equivalent in payment for the
Shares within 15 days of sale, the Company reserves the right to cancel the
sale without notice. In the event an order is rejected, canceled or rescinded
for any reason, the Dealer agrees to return to the Dealer Manager any
commission theretofore paid with respect to such order.
VII. Prospectus and Supplemental Information
The Dealer is not authorized or permitted to give, and will not give,
any information or make any representation concerning the Shares except as set
forth in the Prospectus and supplemental information. The Dealer Manager will
supply the Dealer with reasonable quantities of the Prospectus, any supplements
thereto and any amended Prospectus, as well as any supplemental information,
for delivery to investors, and the Dealer will deliver a copy of the Prospectus
and all supplements thereto and any amended Prospectus to each investor to whom
an offer is made prior to or simultaneously with the first solicitation of an
offer to sell the Shares to an investor. The Dealer agrees that it will not
send or give any supplements thereto and any amended Prospectus to that
investor unless it has previously sent or given a Prospectus and all
supplements thereto and any amended Prospectus to that investor or has
simultaneously sent or given a Prospectus and all supplements thereto and any
amended Prospectus with such supplemental information. The Dealer agrees that
it will not show or give to any investor or prospective investor or reproduce
any material or writing which is supplied to it by the Dealer Manager and
marked "dealer only" or otherwise bearing a legend denoting that it is not to
be used in connection with the sale of Shares to members of the public. The
Dealer agrees that it will not use in connection with the offer or sale of
Shares any material or writing which relates to another company supplied to it
by the Company or the Dealer Manager bearing a legend which states that such
material may not be used in connection with the offer or sale of any securities
other than the Company to which it relates. Dealer further agrees that it will
not use in connection with the offer or sale of Shares any materials or
writings which have not been previously approved by the Dealer Manager. Each
Dealer agrees, if the Dealer Manager so requests, to furnish a copy of any
revised preliminary Prospectus to each person to whom it has furnished a copy
of any previous preliminary Prospectus, and further agrees that it will itself
mail or otherwise deliver all preliminary and final Prospectuses required for
compliance with the provisions of Rule 15c2-8 under the Securities Exchange Act
of 1934, as amended. Regardless of the termination of this Agreement, the
3
Dealer will deliver a Prospectus in transactions in the Shares for a period of
90 days from the effective date of the Registration Statement or such longer
period as may be required by the Securities Exchange Act of 1934. On becoming a
Dealer, and in offering and selling Shares, Dealer agrees to comply with all
the applicable requirements under the Securities Act of 1933 and the Securities
Exchange Act of 1934.
VIII. License and Association Membership
The Dealer's acceptance of this Agreement constitutes a representation
to the Company and the Dealer Manager that the Dealer is a properly registered
or licensed broker-dealer, duly authorized to sell Shares under Federal and
state securities laws and regulations and in all states where it offers or
sells Shares, and that it is a member in good standing of the NASD. This
Agreement shall automatically terminate if the Dealer ceases to be a member in
good standing of such association, or in the case of a foreign dealer, so to
conform. Dealer agrees to notify the Dealer Manager immediately if Dealer
ceases to be a member in good standing, or in the case of a foreign dealer, so
to conform. The Dealer Manager hereby agrees to abide by the Rules of Fair
Practice of the NASD and to comply with Rules 2730, 2740, 2420 and 2750 of the
NASD Conduct Rules.
IX. Anti-Money Laundering Compliance Programs
The Dealer's acceptance of this Agreement constitutes a representation
to the Company and the Dealer Manager that the Dealer has established and
implemented anti-money laundering compliance programs in accordance with
proposed NASD Rule 3011 and Section 352 of the Money Laundering Abatement Act
reasonably expected to detect and cause the reporting of suspicious
transactions in connection with the sale of Shares of the Company.
X. Limitation of Offer
The Dealer will offer Shares only to persons who meet the financial
qualifications set forth in the Prospectus or in any suitability letter or
memorandum sent to it by the Company or the Dealer Manager and will only make
offers to persons in the states in which it is advised in writing that the
Shares are qualified for sale or that such qualification is not required. In
offering Shares, the Dealer will comply with the provisions of the Rules of
Fair Practice set forth in the NASD Manual, as well as all other applicable
rules and regulations relating to suitability of investors, including without
limitation, the provisions of Article III.C. of the Statement of Policy
Regarding Real Estate Investment Trusts of the North American Securities
Administrators Association, Inc.
XI. Termination
The Dealer will suspend or terminate its offer and sale of Shares upon
the request of the Company or the Dealer Manager at any time and will resume
its offer and sale of Shares hereunder upon subsequent request of the Company
or the Dealer Manager. Any party may terminate this Agreement by written
notice. Such termination shall be effective 48 hours after the mailing of such
notice. This Agreement and the exhibits hereto are the entire agreement of the
parties and supersedes all prior agreements, if any, between the parties
hereto.
4
This Agreement may be amended at any time by the Dealer Manager by
written notice to the Dealer, and any such amendment shall be deemed accepted
by Dealer upon placing an order for sale of Shares after it has received such
notice.
XII. Privacy Laws
The Dealer Manager and Dealer (each referred to individually in this
section as "party") agree as follows:
A. Each party agrees to abide by and comply with (i) the privacy standards and
requirements of the Gramm-Leach-Bliley Act of 1999 ("GLB Act"), (ii) the
privacy standards and requirements of any other applicable Federal or state
law, and (iii) its own internal privacy policies and procedures, each as may be
amended from time to time.
B. Each party agrees to refrain from the use or disclosure of nonpublic
personal information (as defined under the GLB Act) of all customers who have
opted out of such disclosures except as necessary to service the customers or
as otherwise necessary or required by applicable law; and
C. Each party shall be responsible for determining which customers have opted
out of the disclosure of nonpublic personal information by periodically
reviewing and, if necessary, retrieving a list of such customers (the "List")
as provided by each to identify customers that have exercised their opt-out
rights. In the event either party uses or discloses nonpublic personal
information of any customer for purposes other than servicing the customer, or
as otherwise required by applicable law, that party will consult the List to
determine whether the affected customer has exercised his or her opt-out
rights. Each party understands that each is prohibited from using or disclosing
any nonpublic personal information of any customer that is identified on the
List as having opted out of such disclosures.
XIII. Notice
All notices will be in writing and will be duly given to the Dealer
Manager when mailed to 8 Greenway Plaza, Suite 1000, Houston, Texas 77046, and
to the Dealer when mailed to the address specified by Dealer herein.
5
XIV.
Attorney's Fees and Applicable Law
In any action to enforce the provisions of this Agreement or to secure
damages for its breach, the prevailing party shall recover its costs and
reasonable attorney's fees. This Agreement shall be construed under the laws of
the State of Texas and shall take effect when signed by Dealer and
countersigned by the Dealer Manager.
THE DEALER MANAGER:
AmREIT Securities Company
By:
Chad C. Braun
President
6
We have read the foregoing Agreement and we hereby accept and agree to the
terms and conditions therein set forth. We hereby represent that the list below
of jurisdictions in which we are registered or licensed as a broker or dealer
and are fully authorized to sell securities is true and correct, and we agree
to advise you of any change in such list during the term of this Agreement.
1. Identity of Dealer:
Name: _________________________________________________________________________
Type of entity: _______________________________________________________________
(to be completed by Dealer) (corporation, partnership
or proprietorship)
Organized in the State of: ____________________________________________________
(to be completed by Dealer) (State)
Licensed as broker-dealer in the following States: ____________________________
(to be completed by Dealer)
Tax I.D. #: __________________________________________________________________
2. Person to receive notice pursuant to Section XI.
Name: _________________________________________________________________________
Company: ______________________________________________________________________
Address: ______________________________________________________________________
City, State and Zip Code: _____________________________________________________
Telephone No.: ________________________________________________________________
Telefax No.: ________________________________________________________________
AGREED TO AND ACCEPTED BY THE DEALER:
(Dealer's Firm Name)
By:
Signature
Title:
7
EXHIBIT A
FORM OF
DEALER MANAGER AGREEMENT
AmREIT
Up to 17,000,000 Class D Common Shares / $170,000,000
DEALER MANAGER AGREEMENT
April ____, 2004
AmREIT Securities Company
8 Greenway Plaza, Suite 1000
Houston, Texas 77046
Ladies and Gentlemen:
AmREIT, a Texas real estate investment trust (the "Company"), is
registering for public sale a maximum of 17,000,000 shares of its Class D
common shares of beneficial interest, $.01 par value per share (the
"Offering"), to be issued and sold for an aggregate purchase price of
$170,000,000 (12,500,000 shares to be offered to the public and 4,500,000
shares to be offered pursuant to the Company's dividend reinvestment plan,
collectively the "Shares"). The Shares are to be sold for a per share cash
purchase price of $10.00, and the minimum purchase by any one person shall be
100 Shares except as otherwise indicated in the Prospectus (as defined below)
or in any letter or memorandum from the Company to AmREIT Securities Company
(the "Dealer Manager"). Terms not defined herein shall have the same meaning as
in the Prospectus. The Shares are being registered with the SEC (as defined
herein). In connection therewith, the Company hereby agrees with you, the
Dealer Manager, as follows:
1. Representations and Warranties of the Company
The Company represents and warrants to the Dealer Manager and each
dealer with whom the Dealer Manager has entered into or will enter into a
Selected Dealer Agreement in the form attached to this Agreement as Exhibit "A"
(said dealers being hereinafter referred to as the "Dealers") that:
1.1. A registration statement with respect to the Company has
been prepared by the Company in accordance with applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the applicable
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "SEC") promulgated there under, covering the Shares.
Said registration statement, which includes a preliminary prospectus, was
initially filed with the SEC on April ___, 2004. Copies of such registration
statement and each amendment thereto have been or will be delivered to the
Dealer Manager. (The registration statement and prospectus contained therein,
as finally amended and revised at the effective date of the registration
statement, are respectively hereinafter referred to as the "Registration
Statement" and the "Prospectus," except that if the Prospectus first filed by
the Company pursuant to Rule 424(b) under the Securities Act shall differ from
the Prospectus, the term "Prospectus" shall also include the Prospectus filed
pursuant to Rule 424(b).)
A-1
1.2. The Company has been duly and validly organized and
formed under the laws of the state of Texas, with the power and authority to
conduct its business as described in the Prospectus.
1.3. The Registration Statement and Prospectus comply with
the Securities Act and the Rules and Regulations and do not contain any untrue
statements of material facts or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; provided, however, that the foregoing provisions of this Section
1.3 will not extend to such statements contained in or omitted from the
Registration Statement or Prospectus as are primarily within the knowledge of
the Dealer Manager or any of the Dealers and are based upon information
furnished by the Dealer Manager in writing to the Company specifically for
inclusion therein.
1.4. The Company intends to use the funds received from the
sale of the Shares as set forth in the Prospectus.
1.5. No consent, approval, authorization or other order of
any governmental authority is required in connection with the execution or
delivery by the Company of this Agreement or the issuance and sale by the
Company of the Shares, except such as may be required under the Securities Act
or applicable state securities laws.
1.6. There are no actions, suits or proceedings pending or,
to the knowledge of the Company, threatened against the Company at law or in
equity or before or by any federal or state commission, regulatory body or
administrative agency or other governmental body, domestic or foreign, which
will have a material adverse effect on the business or property of the Company.
1.7. The execution and delivery of this Agreement, the
consummation of the transactions herein contemplated and compliance with the
terms of this Agreement by the Company will not conflict with or constitute a
default under any charter, by-law, indenture, mortgage, deed of trust, lease,
rule, regulation, writ, injunction or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over the
Company, except to the extent that the enforceability of the indemnity and/or
contribution provisions contained in Section 4 of this Agreement may be limited
under applicable securities laws.
1.8. The Company has full legal right, power and authority to
enter into this Agreement and to perform the transactions contemplated hereby,
except to the extent that the enforceability of the indemnity and/or
contribution provisions contained in Section 4 of this Agreement may be limited
under applicable securities laws.
1.9. At the time of the issuance of the Shares, the Shares
will have been duly authorized and validly issued and, upon payment therefore,
will be fully paid and non-assessable and will conform to the description
thereof contained in the Prospectus.
A-2
2. Covenants of the Company
The Company covenants and agrees with the Dealer Manager that:
2.1. It will, at no expense to the Dealer Manager, furnish
the Dealer Manager with such number of printed copies of the Registration
Statement, including all amendments and exhibits thereto, as the Dealer Manager
may reasonably request. It will similarly furnish to the Dealer Manager and
others designated by the Dealer Manager as many copies as the Dealer Manager
may reasonably request in connection with the offering of the Shares of: (a)
the Prospectus in preliminary and final form and every form of supplemental or
amended prospectus; (b) this Agreement; and (c) any other printed sales
literature or other materials (provided that the use of said sales literature
and other materials has been first approved for use by the Company and all
appropriate regulatory agencies).
2.2. It will furnish such proper information and execute and
file such documents as may be necessary for the Company to qualify the Shares
for offer and sale under the securities laws of such jurisdictions as the
Dealer Manager may reasonably designate and will file and make in each year
such statements and reports as may be required. The Company will furnish to the
Dealer Manager a copy of such papers filed by the Company in connection with
any such qualification.
2.3. It will: (a) use commercially reasonable efforts to
cause the Registration Statement to become effective; (b) furnish copies of any
proposed amendment or supplement of the Registration Statement or Prospectus to
the Dealer Manager; (c) file every amendment or supplement to the Registration
Statement or the Prospectus that may be required by the SEC; and (d) if at any
time the SEC shall issue any stop order suspending the effectiveness of the
Registration Statement, it will use commercially reasonable efforts to obtain
the lifting of such order at the earliest possible time.
2.4. If at any time when a Prospectus is required to be
delivered under the Securities Act any event occurs as a result of which, in
the opinion of either the Company or the Dealer Manager, the Prospectus or any
other prospectus then in effect would include an untrue statement of a material
fact or, in view of the circumstances under which they were made, omit to state
any material fact necessary to make the statements therein not misleading, the
Company will promptly notify the Dealer Manager thereof (unless the information
shall have been received from the Dealer Manager) and will effect the
preparation of an amended or supplemental prospectus which will correct such
statement or omission. The Company will then promptly prepare such amended or
supplemental prospectus or prospectuses as may be necessary to comply with the
requirements of Section 10 of the Securities Act.
3. Obligations and Compensation of Dealer Manager
3.1. The Company hereby appoints the Dealer Manager as its
agent and principal distributor for the purpose of selling for cash up to a
maximum of 17,000,000 Shares through the Dealers, all of whom shall be members
of the National Association of Securities Dealers, Inc. ("NASD"). The Dealer
Manager may also sell Shares for cash directly to its own clients and customers
at the public offering price and subject to the terms and conditions stated in
the Prospectus. The Dealer Manager hereby accepts such agency and
A-3
distributorship and agrees to use its best efforts to sell the Shares on said
terms and conditions. The Dealer Manager represents to the Company that it is a
member of the NASD and that it and its employees and representatives have all
required licenses and registrations to act under this Agreement.
3.2. Promptly after the effective date of the Registration
Statement, the Dealer Manager and the Dealers shall commence the offering of
the Shares for cash to the public in jurisdictions in which the Shares are
registered or qualified for sale or in which such offering is otherwise
permitted. The Dealer Manager and the Dealers will suspend or terminate
offering of the Shares upon request of the Company at any time and will resume
offering the Shares upon subsequent request of the Company.
3.3. Except as provided in the "Plan of Distribution" section
of the Prospectus, as compensation for the services rendered by the Dealer
Manager, the Company agrees that it will pay to the Dealer Manager selling
commissions in the amount of 7.0% and a due a due diligence reimbursement of
..50% of the gross proceeds of the Shares sold plus a dealer manager fee in the
amount of 2.5% of the gross proceeds of the Shares sold.
The Company will not be liable or responsible to any Dealer for direct
payment of commissions to such Dealer, it being the sole and exclusive
responsibility of the Dealer Manager for payment of commissions to Dealers.
Notwithstanding the above, at its discretion, the Company may act as agent of
the Dealer Manager by making direct payment of commissions to such Dealers
without incurring any liability therefor.
3.4. The Dealer Manager represents and warrants to the
Company and each person and firm that signs the Registration Statement that the
information under the caption "Plan of Distribution" in the Prospectus and all
other information furnished to the Company by the Dealer Manager in writing
expressly for use in the Registration Statement, any preliminary prospectus,
the Prospectus, or any amendment or supplement thereto does not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading.
4. Indemnification
4.1. The Company will indemnify and hold harmless the Dealers
and the Dealer Manager, their officers and directors and each person, if any,
who controls such Dealer or Dealer Manager within the meaning of Section 15 of
the Securities Act (other than the Company) from and against any losses,
claims, damages or liabilities, joint or several, to which such Dealers or
Dealer Manager, their officers and directors, or such controlling person may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (a) any untrue statement or alleged untrue statement of a
material fact contained (i) in any Registration Statement (including the
Prospectus as a part thereof) or any post-effective amendment thereto or in the
Prospectus or any amendment or supplement to the Prospectus or (ii) in any blue
sky application or other document executed by the Company or on its behalf
specifically for the purpose of qualifying any or all of the Shares for sale
under the securities laws of any jurisdiction or based upon written information
furnished by the Company under the securities laws thereof (any such
A-4
application, document or information being hereinafter called a "Blue Sky
Application"), or (b) the omission or alleged omission to state in the
Registration Statement (including the Prospectus as a part thereof) or any
post-effective amendment thereof or in any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (c) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, if used prior to the
effective date of the Registration Statement, or in the Prospectus or any
amendment or supplement to the Prospectus or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Company will reimburse each Dealer or
Dealer Manager, its officers and directors and each such controlling person,
for any legal or other expenses reasonably incurred by such Dealer or Dealer
Manager, its officers and directors and each such controlling person, in
connection with investigating or defending such loss, claim, damage, liability
or action; provided that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of, or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished (x) to the Company by the Dealer Manager or (y) to the
Company or the Dealer Manager by or on behalf of any Dealer specifically for
use in the preparation of the Registration Statement or any such post-effective
amendment thereof, any such Blue Sky Application or any such preliminary
prospectus or the Prospectus or any such amendment thereof or supplement
thereto; and further provided that the Company will not be liable in any such
case if it is determined that such Dealer or the Dealer Manager was at fault in
connection with the loss, claim, damage, liability or action.
4.2. The Dealer Manager will indemnify and hold harmless the
Company and each person or firm which has signed the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act, from and against any losses, claims, damages or
liabilities to which any of the aforesaid parties may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (a)
any untrue statement of a material fact contained (i) in the Registration
Statement (including the Prospectus as a part thereof) or any post-effective
amendment thereof or (ii) any Blue Sky Application, or (b) the omission to
state in the Registration Statement (including the Prospectus as a part
thereof) or any post-effective amendment thereof or in any Blue Sky Application
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (c) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus, if
used prior to the effective date of the Registration Statement, or in the
Prospectus, or in any amendment or supplement to the Prospectus or the omission
to state therein a material fact required to be stated therein or necessary in
order to make the statements therein in the light of the circumstances under
which they were made not misleading in each case to the extent, but only to the
extent, that such untrue statement or omission referenced in (a), (b) and (c)
of this Section 4.2 was made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Dealer Manager
specifically for use with reference to the Dealer Manager in the preparation of
the Registration Statement or any such post-effective amendments thereof or any
such Blue Sky Application or any such preliminary prospectus or the Prospectus
or any such amendment thereof or supplement thereto, or (d) any unauthorized
use of sales materials or use of unauthorized verbal representations concerning
the Shares by the Dealer Manager. The Dealer Manager will reimburse the
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aforesaid parties, in connection with investigation or defending such loss,
claim, damage, liability or action. This indemnity agreement will be in
addition to any liability which the Dealer Manager may otherwise have.
4.3. Each Dealer severally will indemnify and hold harmless
the Company, the Dealer Manager and each of their trust managers or directors,
each of their officers who has signed any of the Registration Statements and
each person, if any, who controls the Company and the Dealer Manager within the
meaning of Section 15 of the Securities Act from and against any losses,
claims, damages or liabilities to which the Company, the Dealer Manager, any
such director or officer, or controlling person may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (a)
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement (including the Prospectus as a part thereof)
or any post-effective amendment thereof or (ii) in any Blue Sky Application, or
(b) the omission or alleged omission to state in the Registration Statement
(including the Prospectus as a part thereof or any post-effective amendment
thereof or in any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (c) any
untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, if used prior to the effective date of the
Registration Statement, or in the Prospectus, or in any amendment or supplement
to the Prospectus or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission referenced in (a), (b) and (c) of this Section 4.3 was made in
reliance upon and in conformity with written information furnished to the
Company or the Dealer Manager by or on behalf of such Dealer specifically for
use with reference to such Dealer in the preparation of the Registration
Statement or any such post-effective amendments thereof or any such Blue Sky
Application or any such preliminary prospectus or the Prospectus or any such
amendment thereof or supplement thereto, or (d) any unauthorized use of sales
materials or use of unauthorized verbal representations concerning the Shares
by such Dealer or Dealer's representations or agents in violation of Section
VII of the Selected Dealer Agreement or otherwise. Each such Dealer will
reimburse the Company and the Dealer Manager and any such directors or
officers, or controlling person, in connection with investigating or defending
any such loss, claim, damage, liability or action. This indemnity agreement
will be in addition to any liability which such Dealer may otherwise have.
4.4. Promptly after receipt by an indemnified party under
this Section 4 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 4, notify in writing the indemnifying
party of the commencement thereof and the omission so to notify the
indemnifying party will relieve it from any liability under this Section 4 as
to the particular item for which indemnification is then being sought, but not
from any other liability which it may have to any indemnified party. In case
any such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled, to the extent it may wish, jointly with any other indemnifying party
similarly notified, to participate in the defense thereof, with separate
counsel. Such participation shall not relieve such indemnifying party of the
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obligation to reimburse the indemnified party for reasonable legal and other
expenses (subject to Section 4.5) incurred by such indemnified party in
defending itself, except for such expenses incurred after the indemnifying
party has deposited funds sufficient to effect the settlement, with prejudice,
of the claim in respect of which indemnity is sought. Any such indemnifying
party shall not be liable to any such indemnified party on account of any
settlement of any claim or action effected without the consent of such
indemnifying party.
4.5. The indemnifying party shall pay all legal fees and
expenses of the indemnified party in the defense of such claims or actions;
provided, however, that the indemnifying party shall not be obliged to pay
legal expenses and fees to more than one law firm in connection with the
defense of similar claims arising out of the same alleged acts or omissions
giving rise to such claims notwithstanding that such actions or claims are
alleged or brought by one or more parties against more than one indemnified
party. If such claims or actions are alleged or brought against more than one
indemnified party, then the indemnifying party shall only be obliged to
reimburse the expenses and fees of the one law firm that has been selected by a
majority of the indemnified parties against which such action is finally
brought; and in the event a majority of such indemnified parties is unable to
agree on which law firm for which expenses or fees will be reimbursable by the
indemnifying party, then payment shall be made to the first law firm of record
representing an indemnified party against the action or claim. Such law firm
shall be paid only to the extent of services performed by such law firm and no
reimbursement shall be payable to such law firm on account of legal services
performed by another law firm.
4.6. The indemnity agreements contained in this Section 4
shall remain operative and in full force and effect regardless of (a) any
investigation made by or on behalf of any Dealer, or any person controlling any
Dealer or by or on behalf of the Company, the Dealer Manager or any officer,
trust managers or director thereof, or by or on behalf of the Company or the
Dealer Manager, (b) delivery of any Shares and payment therefore, and (c) any
termination of this Agreement. A successor of any Dealer or of any of the
parties to this Agreement, as the case may be, shall be entitled to the
benefits of the indemnity agreements contained in this Section 4.
5. Survival of Provisions
The respective agreements, representations and warranties of the
Company and the Dealer Manager set forth in this Agreement shall remain
operative and in full force and effect regardless of (a) any termination of
this Agreement, (b) any investigation made by or on behalf of the Dealer
Manager or any Dealer or any person controlling the Dealer Manager or any
Dealer or by or on behalf of the Company or any person controlling the Company,
and (c) the acceptance of any payment for the Shares.
6. Applicable Law
This Agreement was executed and delivered in, and its validity,
interpretation and construction shall be governed by, the laws of the State of
Texas; provided however, that causes of action for violations of federal or
state securities laws shall not be governed by this Section.
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7. Counterparts
This Agreement may be executed in any number of counterparts. Each
counterpart, when executed and delivered, shall be an original contract, but
all counterparts, when taken together, shall constitute one and the same
Agreement.
8. Successors and Amendment
8.1. This Agreement shall inure to the benefit of and be
binding upon the Dealer Manager and the Company and their respective
successors. Nothing in this Agreement is intended or shall be construed to give
to any other person any right, remedy or claim, except as otherwise
specifically provided herein. This Agreement shall inure to the benefit of the
Dealers to the extent set forth in Sections 1 and 4 hereof.
8.2. This Agreement may be amended by the written agreement
of the Dealer Manager and the Company.
9. Term
Any party to this Agreement shall have the right to terminate this
Agreement on 60 days' written notice.
10. Confirmation
The Company hereby agrees and assumes the duty to confirm on its
behalf and on behalf of dealers or brokers who sell the Shares all orders for
purchase of Shares accepted by the Company. Such confirmations will comply with
the rules of the SEC and the NASD and will comply with applicable laws of such
other jurisdictions to the extent the Company is advised of such laws in
writing by the Dealer Manager.
11. Suitability of Investors
The Dealer Manager will offer Shares, and in its agreements with
Dealers will require that the Dealers offer Shares, only to persons who meet
the financial qualifications set forth in the Prospectus or in any suitability
letter or memorandum sent to it by the Company and will only make offers to
persons in the states in which it is advised in writing that the Shares are
qualified for sale or that such qualification is not required. In offering
Shares, the Dealer Manager will, and in its agreements with Dealers, the Dealer
Manager will, require that the Dealer comply with the provisions of all
applicable rules and regulations relating to suitability of investors,
including without limitation, the provisions of Article III.C. of the Statement
of Policy Regarding Real Estate Investment Trusts of the North American
Securities Administrators Association, Inc.
12. Submission of Orders
12.1. Those persons who purchase Shares will be instructed by
the Dealer Manager or the Dealer to make their checks payable to "AmREIT." The
Dealer Manager and any Dealer receiving a check not conforming to the foregoing
instructions shall return such check directly to such subscriber not later than
the end of the next business day following its receipt. Checks received by the
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Dealer Manager or Dealer which conform to the foregoing instructions shall be
transmitted for deposit pursuant to one of the methods described in this
Section 12. Transmittal of received investor funds will be made in accordance
with the following procedures.
12.2. Where, pursuant to a Dealer's internal supervisory
procedures, internal supervisory review is conducted at the same location at
which subscription documents and checks are received from subscribers, checks
will be transmitted in care of the Dealer Manager by the end of the next
business day following receipt by the Dealer for deposit to AmREIT.
12.3. Where, pursuant to a Dealer's internal supervisory
procedures, final internal supervisory review is conducted at a different
location, checks will be transmitted by the end of the next business day
following receipt by the Dealer to the office of the Dealer conducting such
final internal supervisory review (the "Final Review Office"). The Final Review
Office will in turn by the end of the next business day following receipt by
the Final Review Office, transmit such checks in care of the Dealer Manager for
deposit to AmREIT.
12.4. Where the Dealer Manager is involved in the
distribution process, checks will be transmitted by the Dealer Manager for
deposit to Wells Real Estate Investment Trust, Inc. as soon as practicable, but
in any event by the end of the second business day following receipt by the
Dealer Manager. Checks of rejected subscribers will be promptly returned to
such subscribers.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us as of the date first above written.
Very truly yours,
AmREIT
By:
H. Kerr Taylor
President and Chief Executive Officer
Accepted and agreed as of the date first above written.
AmREIT Securities Company
By:
Chad C. Braun
President
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EXHIBIT 5.1
April 12, 2004
AmREIT
8 Greenway Plaza, Suite 824
Houston, Texas 77046
Dear Ladies and Gentlemen:
We have acted as counsel to AmREIT, a Texas real estate investment
trust (the "Company"), in connection with the Company's registration statement
on Form S-11 (as the same may be amended or supplemented from time to time, the
"Registration Statement"), including the prospectus included therein at the
time the Registration Statement is declared effective (the "Prospectus"), filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), for offering by the Company of
up to 17,000,000 class D common shares, par value $0.01 per share (the "Common
Shares"). This opinion is being provided at your request in connection with the
filing of the Registration Statement.
In rendering the opinions expressed herein, we have examined the
Registration Statement, the Company's Amended and Restated Declaration of Trust
(the "Charter") and Bylaws and certain minutes of corporate proceedings and/or
written consents of the Company's Board of Trust Managers. We have also
examined and relied as to factual matters upon the representations, warranties
and other statements contained in originals or copies, certified or otherwise
identified to our satisfaction, of such records, documents, certificates and
other instruments as in our judgment are necessary or appropriate to enable us
to render the opinions expressed below.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the authenticity of all documents, certificates
and instruments submitted to us as originals and the conformity with originals
of all documents submitted to us as copies.
Based on the foregoing, and such examination of law as we have deemed
necessary, we are of the opinion that when the Registration Statement has
become effective under the Act and payment for such Common Shares has been made
in the manner contemplated by the Registration Statement and the Prospectus
such Common Shares sold thereunder will be duly authorized, validly issued,
fully paid and non-assessable by the Company.
The opinions stated herein relating to the validity and binding nature
of obligations of the Company are subject to (i) the effect of any applicable
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws affecting
creditors' rights generally and (ii) the effect of general principals of equity
(regardless of whether considered in a proceeding in equity or at law).
The opinions expressed herein are as of the date hereof and are based
on the assumptions set forth herein and the laws and regulations currently in
effect, and we do not undertake and hereby disclaim any obligations to advise
you of any change with respect to any matter set forth herein. To the extent
that the opinion set forth herein is governed by laws other than the federal
laws of the United States or the laws of the State of Texas, our opinion is
based solely upon certificates from public officials or governmental offices of
such state. We express no opinion as to any matter other than as expressly set
forth herein, and no opinion is to, or may, be inferred or implied herefrom.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to us under the heading "Legal
Matters" in the Prospectus contained therein. In giving our consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act or the rules and regulations of the
Commission thereunder.
Sincerely,
LOCKE LIDDELL & SAPP LLP
By: /s/ Kenneth L. Betts
Kenneth L. Betts
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Trust Managers
AmREIT:
We consent to the use of our report included herein on the consolidated
financial statements and consolidated financial statement schedule as of
December 31, 2003 and for each of the years in the two-year period ended
December 31, 2003 and to the reference to our firm under the heading
"Experts" in the prospectus.
Houston, Texas
April 12, 2004