AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 2003
REGISTRATION NO. 333-104652
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMEND NO. 1
TO
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 C Common Shares of Beneficial Interest, 4,400,000 $10.00 $44,000,000 $4,048
$.01 par value
================================================ ================= ========================= ======================= ==============
(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 THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
SUBJECT TO COMPLETION, DATED AUGUST ___, 2003
AMREIT
UP TO 4,400,000 CLASS C 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 single-tenant
freestanding and multi-tenant commercial frontage properties leased to
national, regional and local tenants with a focus on general retail, banking and
financial institutions, restaurant and medical sectors. As of the date of this
prospectus, AmREIT owned directly, or through joint ventures, interests in 50
properties located in 20 states that are leased to a total of 27 different
tenants and that contain an aggregate of approximately 380 thousand square
feet of gross leaseable area. The proceeds from the sale of the class C 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 4,000,000 class C common shares of beneficial interest for $10.00
per share and up to 400,000 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 C
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:
o the lack of a public trading market for the class C common shares,
o the speculative nature of an investment in the class C common shares,
o the shareholders cannot evaluate property acquisitions ahead of time,
o the potential dilution of your interest should we issue additional shares,
o the ability of AmREIT to increase its current debt levels,
o the subordination of distributions on the class C common shares to
payments of our debt.
o the ability of AmREIT to maintain its REIT status, and
o the fact that AmREIT depends on few major tenants.
The Offering:
o The shares will be offered on a best efforts basis to investors at $10.00
per share.
o We will pay selling commissions to broker-dealers of 7.5% and a dealer
manager fee of 2.5% out of the offering proceeds raised.
o We will invest approximately 88% 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.
o This offering will terminate on or before August __, 2004 unless we
decide to extend the offering until not later than August __, 2005, in any
state that allows us to extend the offering.
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 THE COMPANY, 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 C 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.
August ______, 2003
TABLE OF CONTENTS
PAGE
Questions and Answers About The Offering....................................................... 2
Summary of the Offering........................................................................ 8
Risk Factors................................................................................... 12
Risks Associated with an Investment in AmREIT............................................. 12
Risks Associated with an Investment in Real Estate........................................ 16
Risks Associated with Federal Income Taxation of AmREIT................................... 21
Suitability Standards.......................................................................... 23
Business and Properties........................................................................ 28
Management..................................................................................... 34
Executive Compensation.................................................................... 37
Security Ownership of Certain Beneficial Owners and Management............................ 38
Certain Relationships and Related Transactions............................................ 38
Legal Proceedings......................................................................... 39
Estimated Use of Proceeds...................................................................... 40
Prior Performance.............................................................................. 42
Conflicts of Interest..........................................................................
Price Range of Class A Common Shares...........................................................
Repurchase of Shares...........................................................................
Selected Historical Financial Data............................................................. 52
Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 54
Investment Objectives and Criteria............................................................. 60
AmREIT's Declaration of Trust and Bylaws....................................................... 69
Certain Anti-Takeover Provisions of AmREIT's Declaration of Trust and Bylaws and Texas Law..... 72
Description of AmREIT's Capital Shares......................................................... 76
General...................................................................................
Class A Common Shares.....................................................................
Class B Common Shares.....................................................................
Class C Common Shares.....................................................................
Preferred Shares..........................................................................
Ownership Limitations and Restrictions or Transfer........................................
Dividend Reinvestment Plan................................................................
Federal Income Tax Consequences................................................................ 88
General................................................................................... 88
REIT Qualification........................................................................ 89
Taxation as a REIT........................................................................ 94
Failure to Qualify as a REIT.............................................................. 96
Taxation of Taxable U.S. Shareholders..................................................... 96
Backup Withholding........................................................................ 98
Taxation of Tax-Exempt Entities........................................................... 98
Taxation of Foreign Investors............................................................. 99
State and Local Taxes..................................................................... 100
Certain ERISA Considerations................................................................... 101
General Fiduciary Rules................................................................... 101
Plan Assets............................................................................... 101
Plan Asset Regulations - Publicly Offered Securities Exemption............................ 102
Prohibited Transactions................................................................... 102
Governmental Plans........................................................................ 103
Special Considerations for Insurance Companies............................................ 103
Plan of Distribution........................................................................... 104
General...................................................................................
Compensation and Terms....................................................................
Subscription Procedures...................................................................
Supplemental Sales Material.................................................................... 107
Experts........................................................................................
Legal Opinions................................................................................. 108
Additional Information......................................................................... 108
Glossary....................................................................................... 109
Financial Statements...........................................................................
i
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:
o combines the capital of many investors to acquire or provide
financing for real estate properties;
o pays dividends to investors of at least 90% of its taxable income;
o 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
o 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 fully integrated real estate company dedicated to the
ownership, development and acquisition of commercial real estate
specializing in general retail, financial services and banking, medical
and restaurant sectors. In addition, AmREIT is a sponsor of real estate
investment opportunities, available through the financial planning
community. 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. AmREIT has outstanding approximately 2.9 million
class A common shares which are listed on the American Stock Exchange
(AMEX)under the trading symbol "AMY", and approximately 2.4 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.
Q. HOW MANY REAL ESTATE PROPERTIES DO YOU CURRENTLY OWN?
A. As of the date of this prospectus, AmREIT owns, directly or through joint
venture, 50 real estate properties. These properties are located in 20
different states and include both single tenant free standing properties
as well as multi-tenant shopping centers. Some of our tenants include
Washington Mutual, Eckerd's, Radio Shack, IHOP, TGI Friday's, Sketchers,
Texas Children's Pediatric Association, and Memorial Herman Hospital.
1
Q. WHAT ARE THE TERMS OF THE CLASS C COMMON SHARES?
A. The AmREIT class C common shares will have the following terms:
o dividends, which are preferred to the class A common shares and rank
equally to the class B common shares, will be in an amount per share
equal to 7% of the issue price ($10.00 per share) per annum, payable
monthly in advance of any dividends paid on the AmREIT class A common
shares;
o can be converted into AmREIT class A common shares (which are
currently publicly traded on the AMEX) with a 10% premium
on original capital(i.e., $1,000 of class C common shares will
convert to $1,100 of class A common shares), at any time following
the seventh anniversary of the date of issuance of the shares; and
o can be called by AmREIT after three years following the date of
issuance of the shares for either one class A common share or for
cash at a price of $11.00 (representing a 10% premium over the issue
price), at the holder's option.
The 10% premium that shareholders will receive upon conversion will,
together with the dividends paid through the conversion date, provide a
total return of approximately 8.5% per annum as of the end of the
seven-year lock out period assuming all dividends to such date are paid in
full. The total return would be higher if AmREIT redeems the shares prior
to the end of the lock-out period. Although the class C 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.
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
C 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 C 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 C
common share dividends will be payable prior to dividends payable to class
A shareholders and concurrently with the dividends paid to class B shares.
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 C SHAREHOLDERS?
A. We calculate our monthly dividends on a daily basis from the date the
class C 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 are
determined on a monthly basis.
2
Q. How did you determine the price of the class C common shares?
A. The purchase price of the class C 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.
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 intend to invest a minimum of 88% of
the proceeds from this offering to acquire real estate properties or to
pay down debt, 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.
Q. WILL THE CLASS C COMMON SHARES BE LISTED ON A STOCK EXCHANGE?
A. No. We have no plans to list the class C common shares on a stock
exchange. The AmREIT class A common shares into which the class C common
shares will be convertible, are currently listed on the American Stock
Exchange.
Q. DOES AMREIT USE ANY SPECIFIC CRITERIA WHEN SELECTING A POTENTIAL PROPERTY
FOR ACQUISITION?
A. Yes. AmREIT and its predecessors have developed over their 18-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
commercial net lease properties located out in front of large traffic
generators. The projects may be either single or multi tenant credit tenant
properties leased primarily to credit quality parent companies.
3
Q. WHAT KIND OF OFFERING IS THIS?
A. We are offering the public up to 4,000,000 class C common shares on a
"best efforts" basis. In addition, we are offering up to 400,000 class
C 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 August __, 2004, unless we decide
to extend the offering until not later than August __, 2005, in any
state that allows us to extend the offering.
Q. WHO CAN BUY CLASS C COMMON SHARES?
A. If you receive a copy of this prospectus, you may buy class C 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.
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 [__], 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. 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 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."
4
The class C 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.
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:
o Twelve monthly dividend statements;
o A mid-year update report;
o An annual report;
o SEC filed 10-KSBs and 10-QSBs;
o An annual IRS Form 1099;
o Supplements to the prospectus, as necessary; and
o Regular acquisition reports detailing our latest property
acquisitions.
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.
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 mutli-tenant leases
are generally "net leases", but generally require AmREIT to be responsible
for certain capital improvements as well as the 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 C COMMON SHARES?
A. Yes. Holders of class C 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.
5
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 C shares will not be affected by fluctuations in
the value of the class A common shares. The conversion of class C shares
into class A common shares is based upon the amount of capital invested.
Class C investors will receive $1.10 of class A common shares for each
$1.00 of invested capital regardless of the market price of the class A
common shares. The calculation on the conversion date can be expressed as
(capital invested x 1.10) / (stock price of class A). For example, after
the seven year lock out period expires, if class A common shares are
trading at $6.50 then class C investors will receive, upon conversion,
169.23 class A common shares for each $1,000 invested. If, after the
seven year lock out period expires, class A shares are trading at
$11.00 per share then class C 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 824
Houston, Texas 77046
800-888-4400
FOR CHANGE OF ADDRESS AND LOST CHECKS: EXTENSION 110
FOR OTHER QUESTIONS REGARDING YOUR INVESTMENT: EXTENSION 124
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 fully integrated real estate company that operates as a
real estate investment trust under the federal income tax laws. AmREIT, a Texas
real estate investment trust, became the successor to AmREIT, Inc., a Maryland
corporation (the "Predecessor Corporation"), on December 22, 2002, through the
merger of the Predecessor Corporation and AmREIT. As of the date of this
prospectus, AmREIT owned directly, or through joint ventures, interests in 50
properties. These properties are leased to a total of 27 different tenants and
are located in 20 states and contain an aggregate of approximately 380 thousand
square feet of gross leaseable area. AmREIT's principal executive offices are
located at 8 Greenway Plaza, Suite 824, Houston, Texas, 77046, and its
telephone number is (713) 850-1400.
SUMMARY RISK FACTORS
Following are the most significant risks relating to an investment in
the class C shares:
o There is limited liquidity for the class C common shares. There is no
public trading market for the class C shares. After a seven-year
lock-out period, the class C shares are convertible into class A
shares which are publicly traded on the AMEX. 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.
o The acquisition of the class C shares is a speculative investment, as
AmREIT's ability to make distributions on its shares depends on
AmREIT's future business operations. The dividends on the class C
common shares are non-cumulative, and there can be no guaranty that
we will continue to make monthly dividend payments on such shares.
o Although AmREIT has an existing portfolio of 50 operating properties,
shareholders will not be able to evaluate future properties prior to
making an investment in AmREIT.
o There is no limitation on AmREIT's ability to issue additional common
shares and such issuance could potentially dilute your interest in
AmREIT.
o Although AmREIT has paid regular distributions since its
organization, distribution payments are subordinate to payments on
debt, 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.
o 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.
o AmREIT depends on few major tenants.
o We established the offering price on an arbitrary basis.
7
o 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.
o AmREIT's property leases may not be renewed and the cost of any
improvements constructed on certain properties by AmREIT may not be
recoverable.
o Single tenant leases account for 87% of AmREIT's total revenue and
the failure of such a tenant could impact the viability of the
property. Additionally, IHOP accounted for approximately 32% of
AmREIT's rental income for 2002 and the first quarter of 2003. The
bankruptcy of IHOP or of another significant tenant could have a
material adverse affect on AmREIT's operations.
o Net leases accounted for 100% of AmREIT's total rental income during
the year ended December 31, 2002 and the first quarter of 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.
o 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.
o Our properties may not be profitable, perform, or appreciate in value.
o 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
financing. As a consequence, AmREIT will be subject to risks inherent
in the business of lending.
o We may on occasion lease an investment property back to the seller. 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.
o 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.
8
PROPERTIES TO BE ACQUIRED
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
will purchase properties which are newly constructed, under construction or
have been constructed and have operating histories. Properties may be acquired,
developed and operated by us either alone or jointly with another party. We
anticipate that most of our properties will be leased to creditworthy tenants
on a "net lease" basis. 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 "Gross 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, as
calculated at the end of each quarter on a basis consistently applied.
ESTIMATED USE OF PROCEEDS OF OFFERING
We anticipate that we will invest approximately 88% of the proceeds of this
offering in real estate or to pay down existing debt. We will use the remainder
of offering proceeds to pay selling commissions and fees and expenses relating
to the selection and acquisition of properties and the costs of the offering.
INVESTMENT OBJECTIVES
Our investment objectives are:
o to create dependable, monthly dividends to our investors;
o to preserve and protect your capital contribution; and
o to realize growth in the value of our properties and our publicly
traded class A common shares.
PRIOR OFFERING SUMMARY
AmREIT's affiliates have previously sponsored three publicly offered and 11
privately placed real estate limited partnerships, all of which were on an
unspecified property or "blind pool" basis. As of March 31, 2003, AmREIT and
its affiliates have raised approximately $75 million from approximately 3,100
investors. The "Prior Performance Summary" on page ____ of this prospectus
contains a discussion of the AmREIT programs sponsored to date.
9
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
Type of Compensation Form of Compensation for Maximum Offering ($40,000,000)
Dealer Manager Fee 2.5% of gross offering proceeds $1,000,000
Offering Expenses 1.5% of gross offering proceeds $ 600,000
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.
DESCRIPTION OF CLASS C COMMON SHARES
General
Your investment will be recorded on our books only. We will not issue
stock certificates. If you wish to transfer your shares, you are required to
send us an executed transfer form. We will provide you the required form upon
request.
The AmREIT class C common shares will have the following terms:
o dividends, which are preferred to the class A common shares and
rank equally with the class B common shares, will be in an amount
per share equal to 7% of the issue price ($10.00 per share) per
annum, payable monthly in advance of any dividends paid on the
AmREIT class A common shares;
o can be converted into AmREIT class A common shares (which are
currently publicly traded on the AMEX) with a 10% premium on
original capital (i.e., $1,000 of class C common shares will
convert to $1,100 of class A common shares), at any time
following the seventh anniversary of the date of issuance of the
shares; and
o can be called by AmREIT after three years following the date of
issuance of the shares for either one class A common
share or for cash at a price of $11.00 (representing a 10%
premium over the issue price), at the holder's option.
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Shareholder Voting Rights and Limitations
Holders of class C common shares will be entitled to vote on all
matters submitted to shareholders of AmREIT for approval. In any matter on
which the class C 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 and class B
common shares.
Restriction on Share Ownership
Our declaration of trust contains restrictions on ownership of the
shares that prevents one person from owning more than 9.0% of the outstanding
shares. These restrictions are designed to enable us to comply with share
accumulation restrictions imposed on REITs by the Internal Revenue Code. See
"Description of AmREIT's Capital Shares-Restriction on Ownership of Shares."
For a more complete description of the shares, including restrictions
on the ownership of shares, please see the "Description of AmREIT's Capital
Shares" section of this prospectus on page ____.
DIVIDEND REINVESTMENT PLAN
You may participate in our dividend reinvestment plan pursuant to
which you may have the dividends you receive on your class C common shares
reinvested in additional class C shares. If you participate, you will be taxed
on your share of our taxable income even though you will not receive the cash
from your dividends. As a result, you may have a tax liability without
receiving cash dividends to pay such liability. We may terminate the dividend
reinvestment plan at our discretion at any time upon 10 days' prior notice to
you. See "Description of AmREIT's Capital Shares--Dividend Reinvestment Plan."
GLOSSARY
We have defined certain terms which have initial capital letters in
the "Glossary" on page ______ of this prospectus.
11
RISK FACTORS
Before you decide to invest in AmREIT, you should be aware that your
purchase of class C 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 C common shares.
RISKS ASSOCIATED WITH AN INVESTMENT IN AMREIT
THERE IS NO PUBLIC TRADING MARKET FOR THE CLASS C COMMON SHARES.
There is no current public market for the class C common shares, nor
do we expect a public market to develop for the class C 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.
THE ACQUISITION OF THE CLASS C COMMON SHARES IS A SPECULATIVE INVESTMENT.
The class C common shares are speculative investments because AmREIT's
ability to make distributions on its class C common shares depends on AmREIT's
future business operations. 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 C
common shares are not 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. Further, while
we cannot presently make any monthly dividend payments on the class A common
shares unless and until dividends on the class C common shares have been paid
with respect to that monthly dividend period, we could alter the dividend
policy on our class A common shares to make dividend payments quarterly, rather
than monthly as is our present policy. While we have no present intention to do
so, in such event, the class A common shares could receive full quarterly
dividend payments provided that we make all dividend payments on the class C
common shares for the current month only. 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 CAN NOT 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 July 31, 2003, we owned 50 properties, leased to 27 different
tenants in 20 different states.
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:
o sell shares in this offering or sell additional common shares in the
future, whether publicly or privately;
o sell securities that are convertible into common shares; or
o issue common shares upon the exercise of the options.
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THE DEALER MANAGER HAS NOT MADE AN INDEPENDENT REVIEW OF THE COMPANY 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 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.
DISTRIBUTION PAYMENTS ARE SUBORDINATE TO PAYMENTS ON DEBT.
AmREIT has paid regular distributions since its organization.
Distributions to shareholders of AmREIT are, however, subordinate to the
payment of AmREIT's current debts and obligations. If 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.
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 March 31, 2003, AmREIT had outstanding debt totaling $35.8 million
of which $14.1 million was unsecured. This debt represented approximately 47%
of AmREIT's total assets.
THERE MAY BE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS.
Our quarterly operating results will fluctuate based on a number of
factors, including, among others:
o Interest rate changes;
o The volume and timing of our property acquisitions;
o The recognitions of gains or losses on property sales;
o The level of competition in our market; and
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o 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.
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 rental income 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, Corp. and
Footstar, Inc. accounted for 32% and 13%, respectively, of AmREIT's total
rental revenues for the year ended December 31, 2002 and the three months ended
March 31, 2003. Because of this concentration, there is a risk that any adverse
developments affecting these tenants or IHOP or Footstar generally could
materially adversely affect our revenues (thereby affecting our ability to make
distributions to shareholders). In addition, if in the future we concentrate
our acquisitions on another single 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 __.
BANKRUPTCY OF A SIGNIFICANT TENANT WOULD ADVERSELY AFFECT AMREIT'S OPERATIONS.
The bankruptcy of a tenant could adversely affect AmREIT in the following
ways:
o reduction or loss of lease payments related to the termination of the
tenant's leases;
o reduction of revenue resulting from the restructuring the original
tenant's leases;
o interruptions in the receipt of lease revenues from the tenant;
o increase in the costs associated with the maintenance and financing
of vacant properties;
o increase in costs associated with litigation and the protection of
the properties;
o increase in costs associated with improving and reletting the
properties;
o reduction in the value of AmREIT's shares; and
o decrease in distributions to shareholders.
14
WE ESTABLISHED THE OFFERING PRICE ON AN ARBITRARY BASIS.
Our board of trust managers has arbitrarily determined the selling price
of the class C 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.
THE CLASS A COMMON SHARES HAVE LIMITED LIQUIDITY.
The class A common shares, into which the class C 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 the historical
average weekly trading volume is extremely small. 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 C common shares are
convertible.
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, as it has in the past, 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 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 the AmREIT board
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.
15
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:
o The prohibition on any person owning, directly or indirectly, more
than 9.0% of the outstanding common shares; and
o 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 AmREIT's Declaration of Trust and Bylaws and Texas Law."
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.
16
WE WILL BE SUBJECT TO CONFLICTS OF INTEREST.
We will be subject to conflicts of interest arising out of our
relationship with our affiliated investment funds, 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 investment funds. 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
AmREITand its affiliated funds.
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 investment funds, 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 investment funds. 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.
THE 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 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.
17
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 occur, 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 investment 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, either 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 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
project 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 87% of AmREIT's total revenue for the
year ended December 31, 2002 and the three months ended March 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 87% of AmREIT's total rental income for the year
ended December 31, 2002 and the three months ended March 31, 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.
18
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, WHICH ADDS ANOTHER LAYER OF RISK TO ITS
BUSINESS.
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:
o the potential ability in AmREIT's joint venture partner to perform;
o the joint venture partner may have economic or business interests or
goals which are inconsistent with or adverse to those of AmREIT;
o the joint venture partner may take actions contrary to the requests
or instructions of AmREIT or contrary to AmREIT's objectives or
policies; and
o 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.
19
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 $20 million to provide financing for
the acquisition of assets, of which approximately $14.1 million was outstanding
as of March 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. We anticipate that our debt obligations
generally will not exceed 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:
o may not operate at a profit,
20
o may not perform to AmREIT's expectations,
o may not appreciate in value,
o may depreciate in value,
o may not ever be sold at a profit and
o 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.
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.
21
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. There
is no dominant competitor in any of AmREIT's markets.
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:
o 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;
o local real estate conditions;
o changes or weaknesses in specific industry segments;
o perceptions by prospective customers of the safety, convenience,
services and attractiveness of AmREIT's tenants;
o changes in demographics, consumer tastes and traffic patterns;
o the ability to obtain and retain capable management;
o changes in laws, building codes, similar ordinances and other legal
requirements, including laws increasing the potential liability for
environmental conditions existing on properties;
o increases in operating expenses; and
o increases in minimum wages, taxes (including income, service, real
estate and other taxes) or mandatory employee benefits.
22
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 of 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.
WE WILL HAVE NO ECONOMIC INTEREST IN GROUND LEASED 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 ground leased 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.
23
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, such as the proposed legislation
under review by congress which may or may not have an impact on the taxability
of corporate dividends, 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 account
should consider that an IRA may only make investments that are authorized by
the appropriate governing instrument.
24
SUITABILITY STANDARDS
An investment in AmREIT's class C common shares involves significant
risks. Although the class C common shares are convertible into AmREIT class A
common shares, subject to certain restrictions discussed herein, it may be
difficult to resell the class C shares because no public market for the shares
currently exists nor is one ever expected to develop. Investors who are able to
sell their class C shares at all will likely be able to sell such shares only
at a discount.
If the investor in AmREIT class C 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 __ to this prospectus, and include
the following:
o 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
o 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 $3,000. You should note, however, that an investment in AmREIT will
not, in itself, create a retirement plan as defined in Section 401(a) of the
Internal Revenue Code or an IRA as defined in Section 408(a) of the Internal
Revenue Code for any investor and that, in order to create a retirement plan or
an IRA, an investor must comply with all applicable provisions of the Internal
Revenue Code.
25
We have listed the suitability standards in the following table for
those states that have any requirements different from those set by AmREIT:
------------------------------- ---------------------------- ---------------------------- ----------------------------
INCOME/NET WORTH MINIMUM
STATE REQUIREMENTS PURCHASE OTHER LIMITATIONS
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Arizona (1) Current annual gross 500 shares ($ 5,000) N/A
income of $60,000 and net
worth of $60,000, or (2)
net worth of $225,000
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
California (1) Current annual gross 500 shares ($ 5,000) The following legend must
income of $60,000, or (2) be placed on each
net worth of $225,000 certificate: "It is
unlawful to consummate a
sale or transfer of this
security, or any
interest therein, or to
receive any consideration
therefore, without the
prior written consent of
the Commissioner of
Corporations of the State
of the State of
of California, except as
permitted in the
Commissioner's rules."
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Florida (1) Current annual gross 500 shares ($ 5,000) Shares of subsequent
income of $45,000 and net reinvestment plan must be
worth of $45,000, or (2) registered or exempt from
net worth of $150,000 registration in Florida,
and such shares must be
purchased from a Florida
broker.
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Iowa (1) Current annual gross 500 shares ($ 5,000) Husband and wife may not
income of $45,000 and net jointly contribute from
worth of $45,000, or (2) separate IRAs to satisfy
net worth of $200,000 minimum purchase.
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Maine (1) Current annual gross 500 shares ($ 5,000) Husband and wife may not
income of $50,000 and net jointly contribute from
worth of $50,000, or (2) separate IRAs to satisfy
net worth of $200,000 minimum purchase.
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Massachusetts (1) Current annual gross 500 shares ($ 5,000) N/A
income of $60,000 and net
worth of $60,000, or (2)
net worth of $225,000
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Michigan (1) Current annual gross 500 shares ($ 5,000) Investor may not invest
income of $45,000 and net more than 10% of net worth.
worth of $45,000, or (2)
net worth of $150,000
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
26
------------------------------- ---------------------------- ---------------------------- ----------------------------
INCOME/NET WORTH MINIMUM
STATE REQUIREMENTS PURCHASE OTHER LIMITATIONS
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Minnesota (1) Current annual gross 500 shares ($ 5,000); N/A
income of $45,000 and net 250 shares ($ 2,500) for
worth of $45,000, or (2) IRAs and qualified
net worth of $150,000 retirement plans
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Mississippi (1) Current annual gross 500 shares ($ 5,000) N/A
income of $60,000 and net
worth of $60,000, or (2)
net worth of $225,000
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Missouri (1) Current annual gross 500 shares ($ 5,000) Husband and wife may not
income of $60,000 and net jointly contribute from
worth of $60,000, or (2) separate IRAs to satisfy
net worth of $225,000 minimum purchase.
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Nebraska (1) Current annual gross 500 shares ($ 5,000) Investments in additional
income of $60,000 and net except for IRAs and shares pursuant to
worth of $60,000, or (2) qualified retirement plans reinvestment plan must be
net worth of $225,000 at least $50 per year and
made through a Nebraska
broker.
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
New Hampshire (1) Current annual gross 500 shares ($ 5,000) N/A
income of $50,000 and net
worth of $125,000, or (2)
net worth of $250,000
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
New York (1) Current annual gross 500 shares ($ 5,000) No proceeds from New York
income of $50,000 and net except for IRAs investors released from
worth of $50,000, or (2) escrow until $2,500,000
net worth of $150,000 raised in offering.
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
North Carolina (1) Current annual gross 500 shares ($ 5,000) N/A
income of $45,000 and net except for IRAs
worth of $45,000, or (2)
net worth of $150,000
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Ohio (1) Current annual gross 500 shares ($ 5,000) Investor may not invest
income of $45,000 and net except for IRAs more than 10% of net worth.
worth of $45,000, or (2)
net worth of $150,000
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Oklahoma (1) Current annual gross 500 shares ($ 5,000) Husband and wife may not
income of $45,000 and net jointly contribute from
worth of $45,000, or (2) separate IRAs to satisfy
net worth of $150,000 minimum purchase.
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Oregon (1) Current annual gross 500 shares ($ 5,000) N/A
income of $60,000 and net
worth of $60,000, or (2)
net worth of $225,000
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
27
------------------------------- ---------------------------- ---------------------------- ----------------------------
INCOME/NET WORTH MINIMUM
STATE REQUIREMENTS PURCHASE OTHER LIMITATIONS
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Pennsylvania (1) Current annual gross 500 shares ($ 5,000) Investor must have a net
income of $45,000 and net worth of at least ten
worth of $45,000, or (2) times amount of
net worth of $150,000 investment. Subscription
proceeds from Pennsylvania
proceeds
investors held in escrow
until $2,500,000 raised
from all investors. If
proceeds held in escrow
more than 120 days, funds
returned to investors
unless they choose to
$2,500,000
reinvest.
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
South Carolina (1) Net worth of $150,000, 250 shares ($2,500) except N/A
or (2) State and federal IRAs and qualified
income subject to maximum retirement plans
rate of income tax
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
South Dakota (1) Current annual gross 100 shares ($1,000) N/A
income of $60,000 and net
worth of $60,000, or (2)
net worth of $225,000
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Tennessee (1) Current annual gross 100 shares ($1,000) N/A
income of $60,000 and net
worth of $60,000, or (2)
net worth of $225,000
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Texas (1) Current annual gross 100 shares ($1,000) Investments through
income of $45,000 and net reinvestment plan must be
worth of $45,000, or (2) made through Texas
net worth of $150,000 registered broker.
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Wisconsin (1) Current annual gross 100 shares ($1,000) Husband and wife may not
income of $45,000 and net jointly contribute from
worth of $45,000, or (2) separate IRAs to satisfy
net worth of $150,000 minimum purchase.
------------------------------- ---------------------------- ---------------------------- ----------------------------
Net worth in all cases excludes home, furnishings and automobiles.
28
By executing the Subscription Agreement and Subscription Agreement
Signature Page, which is attached as Exhibit __ 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 C common shares on our behalf are
required to:
o make reasonable efforts to assure that each person purchasing class C
common shares is suitable in light of such person's age, educational
level, knowledge of investments, financial means and other pertinent
factors; and
o maintain records for at least six years of the information used to
determine that an investment in class C 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 C shares is
suitable for the investor, and (2) transmit promptly to AmREIT all fully
completed and duly executed Subscription Agreements.
29
BUSINESS AND PROPERTIES
GENERAL
AmREIT is a fully integrated real estate company dedicated to the
ownership, development and acquisition of commercial real estate specializing
in general retail, financial services and banking, medical and restaurant
sectors, and is a sponsor of high quality real estate investment opportunities
to the financial planning community. 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 shareholders of the Predecessor
Corporation (who became the shareholders of AmREIT as a result of the merger).
The board of trust managers and the executive officers of AmREIT are identical
to, and have the same terms of office as, the board of directors and executive
officers of the Predecessor Corporation. The term "AmREIT" includes, as the
context requires, the Predecessor Corporation and the other subsidiaries of
"AmREIT." AmREIT has outstanding approximately 2.9 million class A common
shares, listed on the American Stock Exchange (AMEX:AMY), and approximately 2.4
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.
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 and its predecessors have a proven track record over the past 18
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 14 real estate
limited partnerships. As of July 31, 2003, AmREIT and its affiliated
investment funds owned 63 properties (50 properties owned directly by AmREIT or
a majority controlled subsidiary and 13 properties owned through affiliated
investment funds). AmREIT currently has approximately 2,500 shareholders and
600 partners in the limited partnerships.
AmREIT is a synergistic combination of two complementary lines of
business. For 18 years AmREIT (and its predecessors) has been an
entrepreneurial real estate company and a sponsor of high quality real estate
investment products. AmREIT's first line of business consists of the ownership
of a quality portfolio of single tenant free standing credit tenant leased
projects ("CTL") and multi-tenant frontage commercial projects ("FCP") located
contiguous to major thoroughfares and traffic generators (real estate line of
30
business). Supporting this line of business is a wholly-owned subsidiary of
AmREIT which is a full service operating company that provides a full range of
real estate services, including development, construction management, property
management, brokerage and leasing. AmREIT's real estate customer list includes
some of the finest companies in the U.S.: Goodyear Tire, Washington Mutual,
IHOP, McDonalds, Hermann Hospital, Radio Shack, Sprint, Coldwell Banker, Jack
in the Box, Guaranty Federal, Bennigan's, Chili's, Texas Children's Hospital,
Eckerd's and Discount Tire. AmREIT's second line of business consists of the
sponsorship of high quality real estate investment products (sponsorship line
of business) and is built upon an established track record and an outstanding
group of selected financial planning and broker/dealer firms operating under
licenses issued by the National Association of Securities Dealers, Inc.
("NASD").
AmREIT's real estate line of business includes a portfolio of freestanding
CTL properties and FCP projects, primarily located at major intersections,
lighted corners, primary interstates and roadways, and out in front of
significant traffic generators such as a regional mall, super center or power
center. This portfolio provides a stable base of rental income because the
leases are normally guaranteed by creditworthy companies such as Radio Shack,
Washington Mutual and IHOP which means that the monthly rent payments are
supported by the financial strength and stability of the parent company, not
just the individual location. It is our experience that CTL and FCP properties
are among the most liquid type of commercial real estate because there is a
deep and financially viable group of investors who desire this type of property
and can afford to buy them. AmREIT has extensive experience in buying and
selling these types of projects. This means AmREIT can frequently generate a
substantial profit through the sale of the project which, in turn, can be
reinvested in building AmREIT's lines of business or investing in new portfolio
projects. In the sponsorship line of business, AmREIT sponsors investment funds
that take advantage of the company's core competency. Capital is raised through
the AmREIT's select group of financial planning and broker/dealer firms on an
ongoing basis. These investment funds are the foundation of AmREIT's second
line of business. As AmREIT invests this capital into its various real estate
projects, it creates fees and "carried interests" for AmREIT and its
shareholders. This line of business provides the proverbial "win-win" situation
for the investors of these funds and for AmREIT. For the investors, they invest
along side a stable, strong company that serves as the investment sponsor. The
"win" for AmREIT is that it is able to leverage its relationships and core
competency to generate fees and profits after certain investor performance
hurdles to its investors have been met. AmREIT has raised capital consistently
by sponsoring investment partnerships through the financial planning
broker-dealer community since 1985. During this time period, AmREIT and its
affiliates have raised approximately $70 million in equity to build, develop,
or buy its real estate projects.
AmREIT's principal executive offices are located at 8 Greenway Plaza,
Suite 824, Houston, Texas 77046, and its telephone number is (713) 850-1400.
PROPERTIES
DESCRIPTION. AmREIT currently own 50 properties consisting of single
structure, single and multi-tenant retail properties. Each of AmREIT's
properties is initially leased under a full-credit, long-term net lease, under
which the tenant is responsible for the operating costs of the property,
including taxes, insurance and maintenance costs. These 50 properties are
leased to a total of 27 different tenants and are located in 20 states.
AmREIT's properties contain an aggregate of approximately 380 thousand square
feet of gross leaseable area. Information concerning the properties owned
solely by AmREIT as of March 31, 2003, is presented in the following tables:
31
AMREIT WHOLLY-OWNED PROPERTY INFORMATION
CURRENT LEASE
DATE PURCHASE LEASEABLE ANNUAL EXPIRATION
PROPERTY (LOCATION) ACQUIRED PRICE AREA RENT DATE
------------------- -------- -------- --------- ------- ----------
Radio Shack
(Dallas, Texas)......... 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 15,158 206,833 12/31/04
FootStar, Inc.
(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.
(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 (1) (1)
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.
(St. Peters, MO) ....... 11/14/01 1,565,000 4,020 189,223 11/15/26
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
TGI Friday's
(Houston, TX)............ 7/23/02 (2) 2,036,900 8,500 180,500 1/30/08
Goodyear Tire
(Houston, TX)............ 7/23/02 (2) 535,900 5,209 51,756 3/31/09
Guitar Center
(Minneapolis, 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
----------- ------- ----------
TOTAL ..................... $48,370,400 294,824 $4,720,960
32
(1) Due to the bankruptcy of Just For Feet, this property is being remodeled
to accommodate multiple tenants with approximately 70% of the property
currently leased.
(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.
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 real estate investment
programs 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 March 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 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 March 31, 2003, approximately $632 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.
33
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 tenants for the year ended December 31,
(IN THOUSANDS)
2002 2001
International House of Pancakes $ 1,784 $ 510
Footstar, Inc. 735 713
OfficeMax, Inc 509 518
Wherehouse Entertainment 381 378
Hollywood Entertainment Corp. 273 273
Sugar Land Imaging Affiliates Ltd. 264 217
Mattress Giant, Inc 168 106
Golden Corral 167 (0)
Washington Mutual 158 158
Texas Children's Pediatrics 137 0
Comp USA 123 0
Radio Shack 109 109
Baptist Memorial Hospital 102 0
Dr. Pucillo 87 0
TGI Friday's 83 0
Don Pablos 78 79
Pier 1 62 0
One Care Health Industries, Inc. 57 204
America's Favorite Chicken Co. 55 21
Blockbuster 42 0
Waldenbooks 38 0
Jack in the Box 34 0
Goodyear 25 0
Skewers 18 0
Hope Rehabilitation 5 0
---------------- ----------------
Total $5,494 $3,286
================ ================
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, 2002.
2003.................. 6,787,594
2004.................. 6,714,025
2005.................. 6,478,355
2006.................. 6,465,798
2007.................. 6,359,957
2008-2027............. 64,152,589
------------
Total $ 96,958,318
============
34
SIGNIFICANT TENANTS. IHOP Corp. and Footstar, Inc. individually accounted
for 32% and 13%, respectively, of rental income for the year ended December 31,
2002. These tenants represented approximately 33%, 14% and 10%, respectively,
of rental income for the nine- months ended September 30, 2002 AND FOR THE
FIRST QUARTER OF 2003..
International House of Pancakes was founded in July 1958 and operates over
1,100 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 with a current market capitalization over $460
million, based on reports filed with the SEC. For the twelve months ended
December 31, 2002, system-wide sales were up 9.9% to $1.5 billion, same store
sales increased 0.7% over 2001 and reported net income of $40.8 million which
is a 1.4% increase over 2001. For more information on IHOP, please see the SEC
web site at www.sec.gov.
Footstar, Inc. was founded in October 1996 and operates three distinct business
lines: Just For Feet, Footaction and Meldisco. The Just For Feet Superstores
division operate 95 locations, primarily in the southern portion of the United
States and is headquartered in Birmingham, AL. Footaction is headquartered in
Irving, Texas and operates 459 primarily mall based stores in 41 states, Puerto
Rico, and the U.S. Virgin Islands. The Company's Meldisco division is a leader
in the discount footwear segment, operating 5,532 leased footwear departments,
located in various discount stores, superstores and malls, including Wal-Mart.
Footstar had consolidated store sales of $1,146 million for the six months
ended June 29, 2002, compared to $1,166 million for the previous year. Footstar
reported total assets of $893 million and total liabilities of $610 million for
the six months ended June 29, 2002, compared to total assets of $955 million
and total liabilities of $614 million for the previous year, based on reports
filed with the SEC. Footstar has not reported financial statements or results
of operations beyond June 29, 2002. For more information on Footstar, please
see the SEC web site at www.sec.gov.
COMPETITION
AmREIT's properties are located in 20 different states, with approximately
50% of its properties located in the Texas metropolitan areas. All of AmREIT's
properties are located in areas that include competing properties. The number
of competitive properties in a particular area could have a material adverse
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 18 full-time employees and retains the services of
three real estate brokers and three managerial consultants on an as-needed
basis.
35
MANAGEMENT
The trust managers and executive officers of AmREIT are as follows:
NAME AGE POSITION HELD TRUST MANAGER
OR OFFICER SINCE
H. Kerr Taylor............... 52 Chairman of the Board, 1993
Chief Executive Officer and President
Robert S. Cartwright, Jr..... 51 Trust Manager 1993
G. Steven Dawson............ 45 Trust Manager 2000
Bryan L. Goolsby............. 52 Trust Manager 2000
Philip Taggart............... 73 Trust Manager 2000
Charles C. Braun............. 31 Executive Vice President, 1999
Chief Financial Officer and
Secretary
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. Additionally, Mr. Taylor
serves as the general partner for seven private partnerships managed by
AmREIT. 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 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, the Financial Planners Association, the National
Association of Real Estate Investment Trusts and the Urban Land Institute.
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 of professional service. He is
a Fellow of the Association for Computing Machinery (ACM), a member of the
ACM Education Board and a member of the Sun Microsystems Developer
Advisory Council. He recently served as a member of the Board of Directors
of the Computing Research Association, an umbrella organization
representing academic and industrial computing researchers. Mr. Cartwright
has served as a charter member of the editorial boards of two professional
journals and has also chaired several major ACM conferences. From
1991-1996, he was a member of the ACM Turing Award Committee, which
selects the annual recipient of the most prestigious international prize
for computer science research.
G.Steven Dawson - Mr. Dawson has been a trust manager or director of
AmREIT or the Predecessor Corporation since 2000. Since 1990, Mr. Dawson
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 airports throughout the
country. Mr. Dawson currently serves on the boards of U.S. Restaurant
Properties, Inc. (NYSE:USV) and His Grace Foundation.
36
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 a 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.
Charles C. Braun - Mr. Braun serves as Executive Vice President of
Finance, 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 joined
the Predecessor Corporation in 1999 and has over nine years of accounting
and real estate experience, including five years with 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 improvement, financial analysis and due
diligence. 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, 24 and 27 securities licenses.
AmREIT's other officers and senior management include:
JIM O'NEILL CPA. Mr. O'Neill serves as Corporate 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, Inc.,
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.
Max Shilstone. Mr. Shilstone services as Vice President of Asset
Management and oversees divestitures for existing retail properties as
well as property management functions for AmREIT. Mr. Shilstone received
his BBA in Management from the University of Texas and his MBA in Finance
from St. Thomas University. Prior to joining AmREIT, Mr. Shilstone gained
experience in property management having worked for many years with
Barshop & Oles Company in Austin, Texas as well as asset development for a
division of Duke Energy.
37
David M. Thailing MBA, Series 63, 65. As the East Coast Regional
Sales Manager, Mr. Thailing 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 from the Jones Graduate School
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.
Jason Lax. Mr. Lax serves as Vice President 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.
Todd McDonald. Mr. McDonald serves as Vice President and oversees the
analysis, marketing, and sales process related to properties currently
being marketed 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.
Preston Cunningham, JD. Mr. Cunningham serves as our Vice President
and oversees our credit tenant build-to-suit operations. 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.
Tenel Tayar. Mr. Tayar serves as Vice President and oversees new
development and dispositions. He has 10 years of experience in commercial
real estate development and investment. Mr. Tayar has directed all aspects
of real estate capitalization and investment for over $225 million of
transactions and participated in over $500 million. He 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.
Horst Hendrecks. Mr. Hendrecks represents investors from overseas
purchasing primarily single tenant properties, such as T.G.I. Fridays,
Circuit City, Landry's, Chili's and others. Mr. Hendrecks has been with
AmREIT for eight years and has over 18 years experience representing
private investors in the acquisition of quality triple-net retail
facilities.
Phil Moss. Mr. Moss oversees leasing of AmREIT's properties and
credit tenant lease expansion. Mr. Moss has been with AmREIT for 15 years
and has extensive experience, participating in over 100 lease
transactions, including an exclusive four-state Credit Tenant Lease
rollout.
Wade Greene. Mr. Greene facilitates the business development and
growth of the company's third party brokerage. Mr. Greene has 20 years of
experience in the real estate investment banking/services industry and has
successfully developed and implemented investment strategies and capital
market transactions. He has managed over a billion dollars of real estate
investment, lease and development transactions. Mr. Greene received a B.S.
in Economics from the University of South Alabama and is a licensed Real
Estate Broker, a Certified Commercial Investment Member and holds an NASD
Series 7 license.
38
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
Other Annual Underlying All Other
Name and Principal Position Year Salary Cash Bonus Compensation Options Compensation
--------------------------- ---- ------ ---------- ------------ ------- ------------
H. Kerr Taylor 2002 $175,000 $122,500 $52,914(1) --- (4)
Chief Executive Officer and 2001 $175,000 $ 61,250 $28,878(1) --- ---
President 2000 $102,500 --- --- --- ---
Chad C. Braun 2002 $115,000 $49,750 $21,488(2) --- $99,996(3),(4)
Executive Vice President and 2001 $ 85,000 $17,500 $ 8,251(2) --- ---
Chief Financial Officer 2000 $ 82,500 $7,125 --- --- ---
---------
(1) Mr. Taylor was granted 8,333 and 3,122 common shares as part of his
bonus for 2002 and 2001, respectively. The restrictions on these
shares lapse equally over a four year period beginning on February 15,
2003 and equally over a three year period beginning February 15, 2002.
(2) Mr. Braun was granted 3,384 and 892 common shares as part of his bonus
for 2002 and 2001, respectively. The restrictions on these shares
lapse equally over a four year period beginning on February 15, 2003
and equally over a three year period beginning on February 15, 2002.
(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 the
Company, 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.
Mr. Taylor's interest is 100% 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.
39
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2002, the beneficial
ownership interest of the executive officers and trust managers of AmREIT:
NAME AMOUNT AND NATURE OF PERCENT OF CLASS(1)
BENEFICIAL OWNERSHIP
H. Kerr Taylor - Chairman, President & CEO 580,096 21.43%
Robert S. Cartwright - Trust Manager 8,166 *
G. Steven Dawson - Trust Manager 6,000 *
Bryan L. Goolsby - Trust Manager 6,000 *
Philip Taggart - Trust Manager 6,800 *
Chad C. Braun - Secretary, CFO and Executive VP 18,664 *
------
All trust managers and executive officers as a group 625,726 23.12%
All other employees combined 12,381 *
------
All trust managers, executive officers, and employees as a group 638,107 23.58%
-----------------
* Less than 1%.
As of December 31, 2002, 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, the Company 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 itsw 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 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.
On June 5, 1998, our shareholders voted to approve an agreement and plan
of merger (the "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 he deferred the right to receive the remaining 686,740 common shares
until certain goals were achieved following the merger. See "Proposal Two --
Amendment of the Merger Agreement." 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. Since July 23,
2002, Mr. Taylor has not earned any of the remaining 384,459 class A common
shares payable to him pursuant to the terms of the Merger Agreement. The Merger
Agreement as amended currently requires those goals to be met by June 2006.
40
AmREIT provides property acquisition, leasing, administrative and
management services for ten affiliated real estate limited partnerships that
are under common management (the "Partnerships"). Mr. Taylor owns between 45%
and 100% of the stock of the companies that serve as the general partner of the
Partnerships. Service fees of $245 thousand and $335 thousand were paid by the
Partnerships to AmREIT for 2002 and 2001 respectively.
On May 20, 1999, 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 as the sole 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, 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 as the sole 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, 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 as the sole 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.
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 investment 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 those
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.
41
Locke Liddell & Sapp LLP acts as the Company's corporate counsel. Bryan
Goolsby is the managing partner of Locke Liddell & Sapp LLP and is a member of
the Company'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.
42
ESTIMATED USE OF PROCEEDS
The following tables set forth information about how we intend to use the
proceeds raised in this offering assuming that we sell 2,000,000 shares and
4,000,000 shares, respectively, pursuant to this offering. The use of the
2,000,000 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% of the money you invest
will be used to buy real estate or pay down existing debt, while the remaining
up to 12% 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.
2,000,000 Shares 4,000,000 Shares
Amount(1) Percent Amount(2) Percent
Gross Offering Proceeds $20,000,000 100.0% $40,000,000 100.0%
Less Public Offering Expenses:
Selling Commissions and Dealer Manager Fee(s) (3) 2,100,000 10.5% 4,200,000 10.5%
Organization and Offering Expenses(4) 300,000 1.5% 600,000 1.5%
__________ _____ ___________ _____
$2,400,000 12.0% $ 4,800,000 12.0%
Amount Available for Investment(5) $17,600,000 88.0% 35,200,000 88.0%
=========== ===== ========== =====
(6) (6)
-----------------
1. Assumes that an aggregate of $20,000,000 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.
2. Assumes the maximum offering is sold which includes 4,000,000 shares
offered to the public at $10.00 per share.
3. Includes selling commissions equal to 7.5% 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 ours. The
Dealer Manager, in its sole discretion, may reallow selling
commissions of up to 7.5% of gross offering proceeds to other
broker-dealers participating in this offering attributable to the
amount of shares sold by them. In addition, the Dealer Manager may
reallow a portion of its dealer manager fee to Participating Dealers
in the aggregate amount of up to 1% 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
43
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, to the
extent they exceed 1.5% of aggregate gross offering proceeds from
this offering. Notwithstanding the above, we do not expect
organization and offering expenses, including selling commissions,
the dealer manager fee and all other underwriting compensation,
to exceed 12% 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% of the proceeds received
from the sale of shares will be used to acquire properties or pay
down existing debt.
44
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 eleven non-public programs
and four public programs since 1985. As of March 31, 2003, approximately $75
million had been raised from over 3,100 investors through all programs. The
properties acquired in the prior programs are located throughout the United
States.
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., a New York Stock Exchange company
with a market capitalization of over $200 million, 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.
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 continued elsewhere 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, Inc. Investment in Commercial Real Estate Public Up to 50%
financing
-------------------------------------------- ----------------------------------------------- ----------------- ---------------
-------------------------------------------- ----------------------------------------------- ----------------- ---------------
AAA Net Developers, Ltd. Acquisition, development and construction of Non-Public Up to 80%
commercial real estate financing
-------------------------------------------- ----------------------------------------------- ----------------- ---------------
-------------------------------------------- ----------------------------------------------- ----------------- ---------------
AmREIT Opportunity Fund, Ltd. Acquisition, development and construction of Non-Public Up to 80%
commercial real estate financing
-------------------------------------------- ----------------------------------------------- ----------------- ---------------
-------------------------------------------- ----------------------------------------------- ----------------- ---------------
AmREIT Income & Growth Fund, Ltd. Acquisition, development and construction of Non Public Up to 75%
commercial real estate financing
-------------------------------------------- ----------------------------------------------- ----------------- ---------------
-------------------------------------------- ----------------------------------------------- ----------------- ---------------
AmREIT Monthly Income & Growth Fund, Ltd. Acquisition, development and construction of Non Public Targeted at
commercial real estate. 50% financing
-------------------------------------------- ----------------------------------------------- ----------------- ---------------
45
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 owns four properties and owns one
property in joint venture with an affiliate of the general partner:
o Foodmaker (Jack-in-the-Box) in Dallas, Texas;
o Baptist Memorial Health System in Memphis, Tennessee;
o Payless Shoe/Walden Books in Austin, Texas;
o Golden Corral in Houston, Texas; and
o 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
stock shareholders in AmREIT. The class B common shares were valued by an
independent third party firm at $9.25 per share, receive an 8% cumulative and
preferred dividend quarterly and are 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 July 31,
2003, the class A common shares were trading at $6.32 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 owns five properties and owns three
properties in joint venture with certain affiliates of the general partner:
o 95.92% interest in Golden Corral in Houston, Texas;
o TGI Friday's in Houston, Texas;
o Goodyear Tire in Houston, Texas;
o Comp USA in Minneapolis, Minnesota;
o AFC, Inc. (Popeye's Favorite Chicken) in Atlanta, Georgia;
o 45.16% interest in Wherehouse Entertainment in Independence, Missouri;
o Memorial Herman Hospital System (suburban doctors clinic) in
Sugarland, Texas; and
o 18.25% interest in Footstar, Inc. in Tucson, Arizona
46
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, receive an 8% cumulative and preferred
dividend quarterly and are 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 stock. As of July 31, 2003, the
class A common shares were trading at $6.32 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 owns two properties and owns five
properties in joint venture with certain affiliates of the general partner:
o 49% interest in Wherehouse Entertainment in Wichita, Kansas;
o Blockbuster Video in Oklahoma City, Oklahoma;
o 29.85% interest in Footstar, Inc. in Tucson, Arizona;
o 49% interest in Washington Mutual in The Woodlands, Texas;
o Pier One in Longmont, Colorado; and
o 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, receive an 8% cumulative and preferred
dividend quarterly and are 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 July 31, 2003, the
class A common shares were trading at $6.32 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. The
general partners are currently interviewing third-party brokers to list the
property for sale. The exact timing of the disposition will depend on market
conditions which are outside the control of the general partners.
47
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. The general partners are currently
interviewing third-party brokers to list the property for sale. The exact
timing of the disposition will depend on market conditions which are outside
the control of the general partners.
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. The general partners are currently interviewing third-party brokers to
list the property for sale. The exact timing of the disposition will depend on
market conditions which are outside the control of the general partners.
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. The general partners are currently
interviewing third-party brokers to list the property for sale. The exact
timing of the disposition will depend on market conditions which are outside
the control of the general partners.
48
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:
o 91.25% interest in La Petite Academy in Houston, Texas;
o 54.88% interest in Whataburger in Dallas, Texas;
o 27.27% interest in Superior Sound Systems in Houston, Texas;
o 27.27% interest in AFC, Inc. (Church's Fried Chicken) in Houston,
Texas; and
o 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. The general partners are currently interviewing
third-party brokers to sell the properties. The exact timing of the
dispositions will depend on market conditions which are outside the control of
the general partners.
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 the General
Partner:
o Discount Tire Center in Ft. Worth, Texas;
o La Petite Academy in Houston, Texas;
o 45.12% interest in Whataburger in Dallas, Texas;
o 72.72% interest in Superior Sound Systems in Houston, Texas;
o 72.72% interest in AFC, Inc. (Church's Fried Chicken) in Houston,
Texas;
o 72.72% interest in Eller Media (Billboard) in Houston, Texas; and
o 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 properties currently owned by the AAA Funds
described in this section. The general partners are currently interviewing
third-party brokers to sell the properties. The exact timing of the
dispositions will depend on market conditions which are outside the control of
the general partners.
49
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. The general partners are currently interviewing third-party brokers to
sell the properties. The exact timing of the dispositions will depend on market
conditions which are outside the control of the general partners.
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
three properties:
o 50% interest in Parkwood Square Shopping Center, a multi-tenant
retail center located in Huntsville, Texas;
o 15% interest in Vista Ridge Shopping Center, a multi-tenant
retail center located in Lewisville, Texas; and
o 50% interest in Hollywood Video located in Montgomery, Alabama
Parkwood Square Shopping Center is a 14,271 square foot multi tenant
center located in Huntsville, Texas. Tenants include H&R Block, GNC, Friedman
Jewelers, Cingular Wireless, Pizza Hut, IHOP and A1 Liquer. At March 31, 2003,
the property was encumbered with a $1.473 million first lien by GMAC that
matures in June 2010. Net Developers has approximately $166,000 equity
remaining in this project, receives a 15% preferred return on its equity and
then 50% of the cash flow and profit upon disposition above the preferred
return. The project is currently under contract to sell, with the closing
expected to occur in September 2003, subject to certain closing conditions.
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
March 31, 2003, the property was encumbered with a $4.243 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 March 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:
o Copper Plaza, a multi-tenant shopping center located in Houston,
Texas;
o Just For Feet located in Lewisville, Texas;
50
o Hollywood Video located in Covington, Louisiana;
o Hollywood Video located in Saraland, Alabama;
o IHOP located in Gainesville, Georgia;
o IHOP located in Falls Church, Virginia; and
o IHOP located in Keyport, New Jersey
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 five
properties:
o 50% interest in McLendon Plaza, a multi-tenant shopping center
located in Houston, Texas;
o 50% interest in ARC Round Rock, a multi-tenant shopping center
located in Round Rock, Texas;
o 10% interest in River Park Shopping Center, a multi- tenant,
multi-pad shopping center located in Sugarland, Texas;
o 45% interest in Temple TX 363, Ltd, a multi-pad project located in
Temple, Texas;
o 29% interest in CDP #33, three IHOP properties located in
Haggarstown, Maryland; Orem, Utah and Houston, Texas
McLendon Plaza is a 16,000 square foot multi-tenant center located in
Houston, Texas. Tenants include Sprint PCS, Sketchers and Subway. The property
is under construction, with approximately 80% of the construction complete. The
property is subject to a construction loan in the amount of $286,550 as of
October 31, 2002. Upon completion of construction and leasing, the general
partner expects to pay off the construction loan with a permanent loan and list
the property for sale.
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, 2002 is encumbered with a
construction loan in the amount of $1,606,294. 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.
River Park Shopping Center is a 40 acre foot multi-tenant, multi-pad
shopping center located in Sugarland, Texas. The property is anchored by HEB
and includes significant shadow space and free standing pad sites. The property
is currently under construction. AOF has a 10% interest in the project. As the
project is completed, the intent is to fully lease the space and market the
entire project for sale.
51
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.
CDP # 33 is three IHOP properties located in Haggarstown, Maryland; Orem,
Utah; and Houston, Texas. The properties are encumbered with three separate
mortgage notes totaling $2,293,540 that are secured by the property and mature
in January 2012. Two of these properties have been sold, and the third property
located in Houston is under contract to sell, subject to certain closing
conditions.
Other projects that AOF made an investment in and have already been
liquidated include:
o IHOP located in Norfolk, Virginia;
o IHOP located in Houston, Texas;
o Cooper Plaza, a multi-tenant shopping center located in Houston,
Texas;
o CPD # 31, two IHOP properties located in Memphis, Tennessee and
Cookeville, Tennessee;
o IHOP and pad site located in Kenosha, Wisconsin;
o Temple TX 363, a multi-pad project consisting of McDonalds, IHOP and
Chili's located in Temple, Texas
o IHOP located in Haggarstown, Maryland; and
o IHOP located in Orem, Utah.
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:
o IHOP located in Irondequoit, New York;
o 50% interest in McLendon Plaza, a multi-tenant shopping center
located in Houston, Texas;
o 20% interest in a portfolio of 17 IHOP properties, AAA CTL, located
in twelve different states;
o TGI Friday's located in Crystal Lake, Illinois;
o 45% interest in Temple TX 363, Ltd, a multi-pad project located in
Temple, Texas;
o 38% interest in CDP #33, three IHOP properties located in
Haggarstown, Maryland; Orem, Utah and Houston, Texas
52
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.
McLendon Plaza is a 16,000 square foot multi-tenant center located in
Houston, Texas. Tenants include Sprint PCS, Sketchers and Subway. The property
is under construction, with approximately 80% of the construction complete. The
property is subject to a construction loan in the amount of $286,550 as of
October 31, 2002. Upon completion of construction and leasing, the general
partner expects to pay off the construction loan with a permanent loan and list
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 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.
CDP # 33 is three IHOP properties located in Haggarstown, Maryland; Orem,
Utah; and Houston, Texas. The properties are encumbered with three separate
mortgage notes totaling $2,293,540 that are secured by the property and mature
in January 2012. Two of these properties have been sold, and the third property
located in Houston is under contract to sell, subject to certain closing
conditions.
Other projects that AIG made an investment in and have already been
liquidated include:
o CDP #27, IHOP located in Memphis, Tennessee and Tupelo, Mississippi;
o CDP # 31, two IHOP properties located in Scottsdale, Arizona and
Cookeville, Tennessee;
o IHOP and pad site located in Kenosha, Wisconsin;
o Temple TX 363, a multi-pad project consisting of McDonalds, IHOP and
Chili's located in Temple, Texas
o IHOP located in Haggarstown, Maryland; and
o IHOP located in Orem, Utah.
53
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 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 managed time period.
Cumulative Distributions to Partners
Capital Raised Distributions Per Annual Return Properties Sold
$1,000 Bought
Taylor Income Investors III $ 945,000 $ 2,405 9.98% 3 2
Taylor Income Investors IV 615,000 1,031 6.09% 2 1
Taylor Income Investors V 480,000 1,776 7.83% 4 3
Taylor Income Investors VI 300,000 1,817 6.98% 3 2
Taylor Income Investors VII 1,125,000 1,124 7.79% 5 0
AAA Net Realty Fund VIII 1,860,000 1,097 8.20% 7 0
AAA Net Realty Fund Gdyr 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 (1) 10 7
AmREIT Opportunity Fund 2,800,000 659 (1) 20 12
AmREIT Income & Growth Fund 10,000,000 180 9.00% 17 8
(1) Paid no current return. Funds are currently in liquidation, and are
anticipated to generate a 10%-14% return.
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
The Company and its affiliates have organized 15 other real estate
investment funds, 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 the Company, 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.
54
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 the Company 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, the Company or its affiliates may maintain lines of credit which
enable them to acquire properties on an interim basis.
The Company 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 the Company
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 the Company 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 under 20,000 square feet. 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:
o Whether the asset is suitable for holding long-term or more likely to
be disposed of following a brief holding period;
o Amount of funds available for investment;
o Tenant concentration exposure (limited to 15%, unless expressly
approved by the trust managers);
o Geographic concentration exposure;
o Anticipated cash flows that will support financial underwriting for
projected dividends, FFO, and cost of capital; and
o Compliance with loan agreements and debt covenants.
55
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 the Company 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 the
Company or its affiliates if such investment and joint venture is fair and
reasonable to the Company 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."
COMPETITION FOR MANAGEMENT TIME
The trust managers, officers, and management of the Company 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
the Company 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 the Company may experience conflicts of interest in allocating
management time, services, and functions among the Company and its various
investment funds.
RELATIONSHIP WITH THE DEALER MANAGER
The Dealer Manager is AmREIT Securities Company, a wholly-owned affiliated
of the Company. Certain of the officers and directors of the Company 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 the Company 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 the Company and is expected to participate in other offerings
sponsored by the Company.
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 the Company 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 the Company or
its affiliates, other counsel may be retained for one or both parties.
56
PRICE RANGE OF CLASS A COMMON SHARES
As of June 30, 2003, there were approximately 863 record holders
of 2,794,225 of the Company's class a common shares net of 90,322 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.
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
(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 C
common shares, as well as its earnings and financial needs.
REDEMPTION OF SHARES
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.
57
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 ___________. The Redemption Agent at all
times will be registered as a broker-dealer with the SEC and each applicable
state securities commission. Within 30 days following the Redemption Agent's
receipt of the shareholder's request, the Redemption Agent will forward to that
shareholder the documents necessary to effect the redemption, including any
signature guarantee AmREIT or the Redemption Agent may require. The Redemption
Agent will effect the redemption for the calendar quarter provided that it
receives the properly completed redemption documents relating to the shares to
be redeemed from the shareholder at least one calendar month prior to the last
day of the current calendar quarter and has sufficient funds available to
redeem the shares. The effective date of any redemption will be the last date
during a quarter during which the Redemption Agent receives the properly
completed redemption documents. As a result, AmREIT anticipates that, assuming
sufficient funds are available for redemption, the effective date of
redemptions will be no later than thirty days after the quarterly determination
of the availability of funds for redemption.
Upon the Redemption Agent's receipt of notice for redemption of shares,
the redemption price for this limited optional redemption right will initially
be $9.00 per share $10.00 per share, which was calculated by AmREIT by
subtracting a discount of 10% off the $10.00 per share offering price, for a
net redemption price of $9.00 per share. The net redemption price was intended
to approximates the per share net proceeds received by AmREIT in this offering,
after deducting selling commissions of 7.5% and the Dealer Manager fee. 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
the 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).
58
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.
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 four years are derived from the audited financial
statements of AmREIT as reported in its Annual Reports on form 10-KSB. The
selected historical operating balance sheet and cash flow data for AmREIT for
the three months ended March 31, 2003 and 2002 are derived from AmREIT's
unaudited financial statements and include, in management's opinion, all
adjustments necessary to present fairly the data for such periods. 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. Prior to 1998, AmREIT (formerly
American Asset Advisors Trust) was an externally advised REIT. As an externally
advised REIT, the results of operations and balance sheet presentation are
materially different and not comparable to AmREIT as an internally advised
REIT.
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 balance
sheet and income statement 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, AmREIT expensed approximately $1.9 million, based on the payment
of 302,281 class A common shares, as deferred merger costs paid to Mr. Kerr
Taylor in conjunction with the sale of his advisory company to AmREIT in 1998.
59
AmREIT
Selected Historical
Combined Financial and Other Data
December 31, December 31, December 31, December 31,
2002 2001 2000 1999
Balance sheet data (at end of period)
Total Property ................................... $47,979,848 $ 30,726,025 $ 31,622,098 $31,136,268
Accumulated depreciation ......................... (2,136,376) (2,066,067) (1,601,758) (1,148,503)
Cash and cash equivalents ........................ 2,506,868 227,117 935,867 1,118,746
Total assets ..................................... 73,975,753 38,828,393 36,522,276 37,018,186
Notes payable .................................... 33,586,085 16,971,549 15,472,183 15,480,378
Total liabilities ................................ 34,958,534 18,399,279 16,063,221 16,048,366
Minority interest ................................ 810,971 5,075,333 5,130,337 5,180,546
Shareholders' equity ............................. 38,206,248 15,353,781 15,328,718 15,789,274
Fully diluted class A common shares issued (3).... 5,236,547 2,384,117 2,384,117 2,384,117
Treasury shares .................................. 65,379 39,323 11,373 11,373
Other data
Cash flows provided by (used in):
Operating .................... 3,729,090 1,625,417 676,430 469,700
Investing .................... (15,268,195) (2,332,891) (25,720) (2,439,262)
Financing .................... 13,818,856 (1,276) (833,589) 3,039,788
Net increase (decrease) in cash and cash
equivalents ...................................... 2,279,751 (708,750) (182,879) 1,070,226
Funds from operations (1) ........................ 6,000 978,565 222,767 1,605,091
Adjusted funds from operations (2) ............... 1,910,370 978,565 222,767 1,605,091
Book value per share ............................. 7.30 6.44 6.43 6.62
Un-Audited
December 31, March 31, March 31,
1998 2003 2002
Balance sheet data (at end of period)
Total Property ................................... $ 29,574,366 $ 48,520,661 $28,837,053
Accumulated depreciation ......................... (696,384) (2,327,147) (2,186,281)
Cash and cash equivalents ........................ 48,520 825,560 679,302
Total assets ..................................... 33,137,546 75,082,173 38,614,567
Notes payable .................................... 10,580,110 35,852,721 17,326,725
Total liabilities ................................ 10,796,439 36,651,061 17,997,289
Minority interest ................................ 5,218,999 782,440 5,057,606
Shareholders' equity ............................. 17,122,108 37,648,672 15,559,672
Fully diluted class A common shares issued (3).... 2,384,117 5,301,916 2,384,117
Treasury shares .................................. 11,373 90,322 19,310
Other data
Cash flows provided by (used in):
Operating .................... 1,510,069 252,160 322,400
Investing .................... (7,687,454) (3,056,444) 63,991
Financing .................... 4,824,165 1,122,976 65,794
Net increase (decrease) in cash and cash
equivalents ...................................... (1,353,220) (1,681,308) 452,185
Funds from operations (1) ........................ 1,436,063 680,140 309,159
Adjusted funds from operations (2) ............... 1,436,063 680,140 309,159
Book value per share ............................. 7.18 7.10 6.53
(1) AmREIT has adopted the National Association of Real Estate Investment
Trusts (NAREIT) definition of FFO. FFO is calculated as net income
(computed in accordance with generally accepted accounting principles)
excluding gains or losses from sales of depreciable operating property,
depreciation and amortization of real estate assets, and excluding results
defined as "extraordinary items" under generally accepted accounting
principles. 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 difer 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 __.
(2) Based on the adherence to the NAREIT definition of FFO, we have not added
back the $1.90 million charge to earnings in the third quarter of 2002
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 $1.90 million charge back to earnings would result in Adjusted
FFO of $1.91 million.
(3) Fully diluted class A common shares at December 31, 2002 include the class
B common shares, which are convertible, at the option of the holder for no
additional consideration, into the class A common shares on a one-for-one
basis.
60
AmREIT
Selected Historical
Combined Financial and Other Data
December 31, December 31, December 31, December 31,
2002 2001 2000 1999
Operating Data
Revenues:
Rental income and earned income from DFL ................$ 5,494,211 $ 3,285,774 $ 3,125,294 $ 3,649,818
Interest income ......................................... 4,206 10,555 31,630 199,448
Service fee, other income, and gain and loss
on sale of property...................................... 2,691,260 2,650,113 793,268 754,059
Total revenues ...................... 8,189,677 5,946,442 3,950,192 4,603,325
Expenses:
General operating, administrative, legal and
professional ............................................ 4,134,134 2,956,061 1,688,799 1,290,433
Reimbursements and fees to realted party................. - - - -
Interest ................................................ 1,774,973 1,063,574 1,339,622 1,134,919
Depreciation and amortization ........................... 666,307 464,308 453,906 494,797
Merger related acquisition costs ........................ - - - 262,495
Bad debts ............................................... - - - 189,490
Merger costs ............................................ - - - -
Deferred merger costs.................................... 1,904,370 - - -
Potential acquisition costs ............................. - - 153,236 743,001
Total expense ....................... 8,479,784 4,483,943 3,635,563 4,115,135
Income (loss) before federal income taxes and minority
interest in net income of consolidated joint ventures ...... (290,107) 1,462,499 314,629 488,190
Federal income tax expense ................................. 60,656 144,420 - -
Minority interest in net income of consolidated joint
ventures ................................................... (308,010) (527,571) (527,121) (526,052)
Net income (loss) .......................................... (658,773) $ 790,508 $ (212,492) $ (37,862)
Basic earnings (loss) per share ............................$ (0.62) $ 0.34 $ (0.09) $ (0.02)
Diluted earnings (loss) per share ..........................$ (0.62) $ 0.34 $ (0.09) $ (0.02)
Distributions per share - class A ..........................$ 0.34 $ 0.26 $ 0.10 $ 0.55
Weighted average number of Series A common shares
outstanding ................................................ 2,469,725 2,354,572 2,373,060 2,372,744
Weighted average number of common shares plus dilutive
potential common shares .................................... 2,469,725 2,354,572 2,373,060 2,372,744
Un-Audited
December 31, March 31, March 31,
1998 2003 2002
Operating Data
Revenues:
Rental income and earned income from DFL ................$ 2,741,757 $ 1,831,460 $ 897,922
Interest income ......................................... 98,692 1,839 1,014
Service fee, other income, and gain and loss
on sale of property...................................... 187,577 308,933 853,204
Total revenues ...................... 3,028,026 2,142,232 1,752,140
Expenses:
General operating, administrative, legal and
professional ............................................ 562,110 943,863 973,488
Reimbursements and fees to realted party................. 40,607 - -
Interest ................................................ 402,707 551,441 253,648
Depreciation and amortization ........................... 417,868 222,303 126,848
Merger related acquisition costs ........................ - - -
Bad debts ............................................... - - -
Merger costs ............................................ 2,427,658 - -
Deferred merger costs.................................... - - -
Potential acquisition costs ............................. 464,303 - -
Total expense ....................... 4,315,253 1,717,607 1,353,984
Income (loss) before federal income taxes and minority
interest in net income of consolidated joint ventures ...... (1,287,227) 424,625 398,156
Federal income tax expense ................................. - 73,000 (84,000)
Minority interest in net income of consolidated joint
ventures ................................................... (518,559) (39,788) (131,845)
Net income (loss) ..........................................$ (1,805,786) $ 457,837 $ 182,311
Basic earnings (loss) per share ............................$ (0.81) $ 0.002 $ 0.08
Diluted earnings (loss) per share ..........................$ (0.81) $ 0.002 $ 0.08
Distributions per share - class A ..........................$ 0.71 $ 0.11 $ 0.07
Weighted average number of Series A common shares
outstanding ................................................ 2,226,403 2,768,253 2,351,687
Weighted average number of common shares plus dilutive
potential common shares .................................... 2,226,403 2,768,253 2,351,687
61
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
the Company believes that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, the Company's actual results
could differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference include the following:
changes in general economic conditions, changes in real estate market
conditions, continued availability of proceeds from the Company's debt or
equity capital, the ability of the Company to locate suitable tenants for its
properties and the ability of tenants to make payments under their respective
leases.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Company's
Form 10-KSB for the fiscal year ended December 31, 2002 and Form 10-QSB for the
fiscal quarter ended March 31, 2003, and the of selected financial data
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 the Company, as reflected in
the accompanying statements and related footnotes, are subject to management's
evaluation and interpretation of business conditions, retailer performance,
changing capital market conditions and other factors, which could affect the
ongoing viability of the Company's tenants. Management believes the most
critical accounting policies in this regard are the accounting for lease
revenues (including the straight-line rent), the regular evaluation of whether
the value of a real estate asset has been impaired and the allowance for
doubtful accounts. Each of these issues requires management to make judgments
that are subjective in nature. Management relies on its experience, collects
historical data and current market data, and analyzes these assumptions in
order to arrive at what it believes to be reasonable estimates.
AmREIT, a Texas real estate investment trust, is listed on the American
Stock Exchange (AMY), owns a portfolio of 47 properties, leased to 26 different
tenants located in 18 states, and is a pre-eminent sponsor of high quality real
estate investment opportunities to the financial planning community. The
Company researches, identifies and participates in real estate opportunities
and works hand in hand with the broker-dealer community to sponsor real estate
investment products and services.
For 18 years we have established a track record of investing in commercial
real estate leased primarily to corporate tenants in the retail, financial
services and banking, medical and restaurant sectors. AmREIT's real estate team
focuses on development, management, brokerage and ownership of freestanding
credit tenant leased and frontage shopping centers that are located contiguous
to major thoroughfares and traffic generators. AmREIT's real estate customer
list includes national and regional tenants such as: Walgreen's, Goodyear Tire,
Washington Mutual, IHOP, McDonald's, Herman Hospital, Radio Shack, Sprint,
Coldwell Banker, Guaranty Federal, Bennigan's, Chili's, Texas Children's
Hospital, Discount Tire, etc.
Liquidity and Capital Resources
Cash flow from operations has been the principal source of capital to fund
the Company's ongoing operations. The Company's issuance of common stock and
the use of the Company's credit facility have been the principal sources of
capital to fund its growth.
Net cash provided by operating activities decreased for the three months
ended March 31, 2003 when compared to the three month period ended March 31,
2002 from $322,400 in 2002 to $252,160 in 2003. The decrease in cash provided
62
by operating activities was due primarily to the following components: (1) a
decrease in accounts receivable collections of $150 thousand, from $188
thousand in 2002 to $38 thousand in 2003, and (2) a decrease in collections of
accounts receivable - related party of $354 thousand, from an increase of $298
thousand in 2002 to a decrease of $56 thousand in 2003. The above decreases are
offset somewhat by (1) an increase in net income of $276 thousand, from $182
thousand in 2002 to $458 thousand in 2003, and (2) the increase in the paydown
of accounts payable of $124 thousand, from $672 thousand in 2002 to $548
thousand in 2003.
Net cash used in investing activities increased $3.1 million for the three
month period ended March 31, 2003 when compared to the three month period ended
March 31, 2002. The increase in cash used was primarily due to an increase in
acquisitions of real estate from $0 in 2002 to $2.7 million in 2003.
Additionally, $162 thousand was invested in joint ventures in 2003, where as
distributions from investments were $381 thousand in 2002.
Net cash provided by financing activities increased $1.1 million for the
three month period ended March 31, 2003 compared to the three month period
ended March 31, 2002. The increase was primarily due to proceeds from notes
payable, which totaled $2.4 million in 2003, compared to $370 thousand in 2002.
This increase was somewhat offset by an increase in common dividends paid,
which was $760 thousand in 2003, compared to $162 thousand in 2002.
Net cash provided by operating activities increased from $1.64 million in
2001 to $3.73 million in 2002. The increase in cash provided by operating
activities was due primarily to the following components: (1) an increase in
deferred merger costs of $1.9 million in 2002, compared to $0 in 2001. The
deferred merger costs represent a charge to earnings taken for class A common
shares issued to H. Kerr Taylor as deferred consideration as a result of the
sale of his advisory company to AmREIT in June 1998. The merger of the
Affiliated Partnerships triggered a payment under the deferred consideration
agreement, and 302,281 class A common shares of AmREIT were issued and the
charge taken to earnings, which is the primary cause of the $659 thousand loss
in 2002, (2) a decrease in accounts receivable from during 2002 of $1.53
million compared to an increase in accounts receivable during 2001 of $388
thousand, and (3) an increase in deferred compensation of $0 in 2001 to $48
thousand in 2002. The increase in deferred compensation was due to restricted
shares issued to employees and the board of trust managers as compensation in
2002. The above changes are offset by the operating loss of $659 thousand in
2002 compared to an operating profit of $790 thousand in 2001. The primary
cause for the loss in 2002 is the $1.9 million charge to earnings for the
deferred acquisition costs.
Net cash used in investing activities increased by $12.94 million to
$15.27 million in 2002 when compared to 2001. The increase was primarily due to
an increase in property acquisitions of $15.51 million to $18.95 million in
2002. This increase is related to the purchase of seventeen IHOP properties
purchased during 2002 through a majority owned subsidiary. Eighty-three percent
of the $17.96 million aggregate purchase price was financed with 83%
non-recourse debt. This increase in net cash was partially offset by the
proceeds from the sale of the Office Max property located in Lake Jackson,
Texas, which increased $1.17 million from $2.52 million in 2001 to $3.69
million in 2002.
Net cash provided by financing activities increased $13.84 million in 2002
to $13.82 million in 2002 when compared to 2001. The increase was primarily due
to: (1) proceeds from notes payable, which totaled $19.25 million in 2002
compared to $8.04 million in 2001, the proceeds of which were primarily used to
fund the acquisition of the seventeen IHOP properties purchased during 2002,
(2) a decrease in payments of notes payables from $6.54 million in 2001 to
$3.40 million in 2002, and (3) an increase in dividends paid from $605 thousand
in 2001 to $1.73 million in 2002. The increase in dividends paid is a result of
a 28% increase in the dividends per share paid to holders of class A shares,
the issuance of additional class A common shares, and the dividends paid on the
issuance of class B shares in July 2002 pursuant to the merger described below.
63
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.
On July 23, 2002, the Company completed a merger with the Affiliated
Partnerships, which increased the Company's real estate assets by approximately
$24.3 million. Pursuant to the merger, the Company issued approximately 2.6
million Class B common shares to the limited partners in the Affiliated
Partnerships. Approximately $760 thousand in 8 year, interest only,
subordinated notes were issued to limited partners of the Affiliated
Partnerships who dissented against the merger. The acquired properties are
unencumbered, single tenant, free standing properties on lease to national and
regional tenants, where the lease is the direct obligation of the parent
company. A deferred merger expense stemmed from stock issued to H. Kerr Taylor,
President and Chief Executive Officer, based on deferred consideration that was
approved by the stockholders in 1998 as a result of the sale of his advisory
company to AmREIT. Mr. Taylor was issued 302,281 Class A common shares, which
resulted in a charge to earnings in the third quarter 2002.
The Company's leases typically provide that the tenant bear responsibility
for substantially all property costs and expenses associated with ongoing
maintenance and operation, including utilities, property taxes and insurance.
In addition, the Company's leases generally provide that the tenant be
responsible for roof and structural repairs. Some of the tenants' leases
require the Company to be responsible for roof and structural repairs. In these
instances, the Company normally requires warranties and/or guarantees from the
related vendors, suppliers and/or contractors, to mitigate the potential costs
of repairs during the primary terms of the leases. Because many of the
properties which are subject to leases that place these responsibilities on the
Company are recently constructed, management anticipates that capital demands
to meet obligations with respect to these properties will be minimal for the
foreseeable future and can be met with funds from operations and working
capital. The Company may be required to use bank borrowing or other sources of
capital in the event of unforeseen significant capital expenditures.
In November 1998, the Company entered into an unsecured credit facility
(the "Credit Facility"), which is being used to provide funds for the
acquisition of properties and working capital, and repaid all amounts
outstanding under the Company's prior credit facility. Under the Credit
Facility, which had an original term of one year, and has been extended through
April 2004, the Company may borrow up to $20 million subject to the value of
unencumbered assets. The Company is working on a modification of the Credit
Facility, and the lender has agreed to extend the term by a period of fifteen
months under comparable terms and conditions. The Credit Facility contains
covenants which, among other restrictions, require the Company to maintain a
minimum net worth, a maximum leverage ratio, and specified interest coverage
and fixed charge coverage ratios. At March 31, 2003, the Company was in
compliance with all financial covenants. The Credit Facility bears interest at
an annual rate of LIBOR plus a spread of 2.00%, which resulted in an effective
interest rate of 3.30% at March 31, 2003. As of March 31, 2003, $14.1 million
was outstanding under the Credit Facility. The Company has approximately $5.9
million availability under its line of credit, subject to use of proceeds
approval by the lender.
As of March 31, 2003, the Company owned 47 properties directly and through
a majority controlled subsidiary and, since its inception, had invested $73.7
million, exclusive of any minority interests, including certain acquisition
expenses related to the Company's investment in these properties. These
expenditures resulted in a corresponding decrease in the Company's liquidity.
64
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 March 31, 2003, the Company's cash and cash equivalents totaled
$826 thousand.
The Company paid aggregate cash dividends to the holders of its class A
and class B common shares, as applicable, during 2002 and 2001, distributing a
total of $1.73 million and $605 thousand, respectively, for each such fiscal
year. For the three months ended March 31, 2003 and 2002, the Company paid
aggregate cash dividends to the holders of its class A and class B common
shares of $760 thousand and $162 thousand, respectively.
Inflation has had very little effect on income from operations. Management
expects that increases in store sales volumes due to inflation as well as
increases in the Consumer Price Index, may contribute to capital appreciation
of the Company properties. These factors, however, also may have an adverse
impact on the operating margins of the tenants of the properties.
FUNDS FROM OPERATIONS
Funds from operations (FFO) decreased $973 thousand to $6 thousand in 2002
from $979 thousand in 2001. The decrease in FFO is primarily due to the $1.90
million charge to earnings in the third quarter 2002 resulting from 302,281
class A common shares issued to Mr. Taylor, resulting from the merger of the
Affiliated Partnerships. FFO increased $376 thousand or 127% to $672 thousand
for the three months ended March 31, 2003 from $296 thousand for the three
months ended March 31, 2002. Management considers FFO to be an appropriate
measure of performance of an equity REIT. The Company has adopted the National
Association of Real Estate Investment Trust's (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 ("GAAP"). We believe that in order to facilitate a clear
understanding of our historic operating results, FFO should be examined in
conjunction with net income as presented in the consolidated statement of
operations and data included elsewhere in this prospectus. FFO should not be
considered an alternative to cash flows from operating, investing and financing
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to meet cash needs. The Company's
computation of FFO may differ from the methodology for calculating FFO utilized
by other equity REIT's and, therefore, may not be comparable to such other
REIT's. FFO is not defined by GAAP and should not be considered an alternative
to net income as an indication of the Company's performance.
65
Below is the reconciliation of net income, which the Company believes is
the most comparable GAAP financial measure, to FFO in thousands:
2002 2001
---------------- ------------------
Net (loss) income $ (659) $ 791
Plus depreciation of real estate assets 617 442
Less loss (gain) on sale of real estate assets 48 (254)
----------------- ------------------
Total Funds From Operations * $ 6 $ 979
Cash dividends paid $ 1,730 $ 605
Dividends in excess of (less than) FFO * $ 1,724 $ (374)
* Based on the adherence to the NAREIT definition of FFO, we have not added
back the $1.90 million charge to earnings in the third quarter 2002 resulting
from shares issued to Mr.Taylor. Adding this $1.90 million charge to earnings
back to earnings would result in $1.90 million adjusted funds from operations,
and dividends paid less than adjusted FFO of $170 thousand.
Below is the reconciliation of net income to funds from operations for the
three months ended March 31:
2003 2002
Net income $ 457,837 $ 182,311
Plus depreciation and amortization 214,245 113,365
--------- ---------
Total funds from operations $ 672,082 $ 295,676
Cash distributions paid $ 759,622 $ 161,540
Distributions less (more) than FFO $ (87,540) $ 134,136
Cash flows from operating activities, investing activities, and financing
activities are presented below in thousands:
2002 2001
------- -------
Operating activities $ 3,729 $ 1,642
Investing activities (15,268) (2,333)
Financing activities 13,819 (18)
Cash flows from operating activities, investing activities, and financing
activities for the three months ended March 31 are presented below:
2003 2002
---------- ---------
Operating activities $ 252,160 $ 322,400
Investing activities (3,056,444) 63,991
Financing activities 1,122,976 65,794
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2003 TO MARCH 21, 2002.
During the three months ended March 31, 2003 and March 31, 2002, the Company
earned $1.8 million and $898 thousand, respectively, in rental income from
operating leases and earned income from direct financing leases. The additional
properties purchased by the Company, as well as the properties acquired through
the merger of three affiliated partnerships, resulted in the increased income
66
from rents and earned income from direct financing leases. Service fees and
other income decreased $269 thousand, from $480 thousand in 2002 to $211
thousand in 2003. The decrease in service fees and other income was primarily
due to a decrease in advisory fees, which decreased because the affiliated
partnerships involved in the merger paid advisory fees to AmREIT during the
first quarter of 2002. After the merger, the affiliated partnerships stopped
paying advisory fees to AmREIT.
During the three months ended March 31, 2003 and March 31, 2002, the
Company's expenses were $1.7 million and $1.4 million respectively. The $364
thousand increase in expenses is primarily attributable to interest expense,
which increased $297 thousand, from $254 thousand in 2002 to $551 thousand in
2003. The increase in interest expense is due to additional debt used to
finance the acquisition of additional properties. Additionally, depreciation
and amortization increased by $95 thousand, from $127 thousand in 2002 to $222
thousand in 2003.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2002 AND 2001
As of December 31, 2002 and 2001, the Company owned and leased 46 and 19
properties, respectively. During the years ended December 31, 2002 and 2001,
the Company had revenues of: (1) $5.49 million and $3.29 million, respectively,
in rental income from operating leases and earned income from direct financing
leases, (2) $2.04 million and $2.03 million, respectively, in service fee and
other income, (3) $280 thousand and $342 thousand, respectively, in management
fee income, (4) $417 thousand and $20 thousand, respectively, in income from
non-consolidated affiliates and (5) $(48) thousand and $254 thousand,
respectively, in (loss) gain on sale of property.
The increase in gross revenue is primarily attributed to the merger of the
Affiliated Partnerships in July 2002 and the acquisition of the 17 IHOP
properties during 2002, which generated increases in both rental income from
operating leases and earned income from direct financing leases.
The Company sold an OfficeMax in Lake Jackson, Texas during 2002. The
Company recorded a loss on the sale of this property primarily due to the
write-off of accrued rental income.
The decrease in management fee income is primarily due to the merger of
the Affiliated Partnerships in July 2002, which resulted in a decrease in
management fees that had historically been paid from the Affiliated
Partnerships. The increase in income from non-consolidated affiliates is
primarily due to Company's interest in AmREIT Opportunity Fund and AmREIT
Income & Growth Fund. The Company is the general partner of AmREIT Opportunity
Fund and AmREIT Income & Growth Fund, and receives a profit interest in these
funds as certain investment objectives and returns are met for the third party
limited partners.
Service fees and other income increased based on:(1) additional asset
management and advisory fee income and commissions generated by an increase in
capital raised through the Company's direct participation investment funds and
(2) income earned in our non-consolidated affiliates, which are a result of the
Company's general partner interest's in its direct participation investment
funds.
General and administrative costs were $2.80 million in 2002 compared to
$1.95 million in 2001. The increased general and administrative costs are
primarily related to: (1) property costs incurred due to a vacancy and required
maintenance at Copper Plaza, and (2) increase in the number of employees during
2002 as we built the management and facilitation teams, resulting in an
increase in personnel and benefit costs.
67
Legal and professional fees increased from $1.00 million in 2001 to $1.33
million in 2002. The primary increase was an increase in commission expense to
third party broker dealers as a result of an increase in capital raised through
the Company's direct participation investment funds and an increase in transfer
agent costs due to the issuance of 2.6 million class B common shares as a
result of the merger of the Affiliated Partnerships.
Interest expense was $1.77 million in 2002 compared to $1.06 million in
2001. The increase in interest expense is due to the acquisition of seventeen
IHOP properties, which were purchased utilizing approximately $14.76 million in
non-recourse debt with an average interest rate of 7.85%. Included in interest
expense is $131 thousand and $8 thousand, respectively for 2002 and 2001, for
amortized loan acquisition costs.
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:
o 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;
o not invest more than 10% of its total assets in unimproved real
property or mortgage loans on unimproved real property;
o 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;
o 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
o 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:
o invest more than ten percent (10%) of its total assets in second
mortgages, excluding wrap-around type second mortgage loans;
o 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
68
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 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;
o make or invest in any mortgage loans that are subordinate to any
mortgage or equity interest of any affiliate of AmREIT;
o 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;
o 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;
o 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;
o engage in underwriting or the agency distribution of securities
issued by others;
o invest in commodities or commodity futures contracts, other than
solely for hedging purposes;
o engage in short sales of securities or trading, as distinguished from
investment activities;
o 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;
o issue equity securities which are redeemable at the election of the
holder of such securities;
o 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;
o issue warrants, options or similar evidences of a right to buy its
securities, unless issued to all of its security holders ratably,
o issued as part of a financing arrangement; or
o 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.
69
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 (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.
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 directors), 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 directors, 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, trust manager 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 IMPROVEMENTS. 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:
70
o the joint venture must have approval of a majority of the trust
managers, including a majority of the independent trust managers;
o the joint venture must have investment objectives comparable to
AmREIT;
o 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;
o 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
o 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, ownership and sale of commercial frontage properties that are
located on prime tracts of land, which will maximize the total return to its
shareholders, consisting of both dividends paid and appreciation in value of
the shares. These properties are often adjacent to major regional malls and
other high traffic generators and are either single tenant projects leased to
national and/or regional companies or strip centers leased to national,
regional and local tenants. These properties are usually smaller in size (2,500
to 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
71
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:
o the safety of the investment;
o 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;
o the cash flow expected to be generated by the property;
o 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);
o 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;
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o the prospects for long-term appreciation of the property;
o the prospects for long-range liquidity of the investment; and
o 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 toward 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 two primary areas of business
beyond its portfolio: an operating company and its affiliates (ARIC)
and its capital formation subsidiaries (investment sponsorship business). ARIC
is contributing strongly to AmREIT's profitability through brokerage and
development fee income. AmREIT's commercial brokerage activity allows it to buy
and sell properties, thereby creating potential fee income for shareholders.
This line of business carries little overhead burden and has proven profitable
from the beginning. During the past year, AmREIT was successful in selling a
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number of projects to investors across the United States. AmREIT's facility
development division provides comprehensive development and construction
services from site selection and design through building completion for
creditworthy tenants across the nation. These tenants include retail, banking,
medical and other diversified types of business. Not only does this area of
expertise allow AmREIT to generate third party fee income, but also respond to
its own portfolio needs when the situation calls for it. AmREIT's second line
of business, its sponsorship activity, continues to grow and gain traction. By
sponsoring investment funds through the NASD financial broker dealers, 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, 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 management 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.
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 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
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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:
o a labor and material bond, a completion bond or a performance bond,
or more than one of the foregoing, may be required;
o 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;
o 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;
o 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
o 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. AmREIT intends to sell some
properties over time. 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
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."
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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.
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
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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 [___].
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.
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Other matters on which the shareholders are entitled to vote include:
o the election and removal of trust managers;
o a voluntary change in AmREIT's status as a REIT; and/or
o 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:
o 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;
o 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 transact; or
o 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."
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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" beginning on page [___].
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 (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.
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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.
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.
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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 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.
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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.
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,
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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.
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.
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OWNERSHIP LIMIT
The limitation on ownership of shares of common shares set forth in
AmREIT's declaration of trust, as well as the provisions of the TRA, could have
the effect of discouraging offers to acquire AmREIT and of increasing the
difficulty of consummating any such offer. See "Description of AmREIT's Capital
Shares -- Ownership Limits and Restrictions on Transfer."
DESCRIPTION OF AMREIT'S CAPITAL SHARES
GENERAL
AmREIT's authorized equity structure consists of 93,000,000 common shares,
$0.01 par value per share, and 10,000,000 preferred shares, par value $0.01 per
share. As of March 31, 2003, AmREIT had outstanding approximately 2.8 million
class A common shares, 2.4 million class B 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 and class C common
shares, holders of class A common shares are exclusively entitled to one vote
for each class A common shares on all matters to be voted on by shareholders
and are entitled to receive ratably such dividends as may be declared on the
class A common shares by the board of trust managers in its discretion from
legally available funds. In the event of the liquidation, dissolution or
winding up of AmREIT, holders of class A common shares are entitled to share
ratably with holders of class B common shares and class C 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 and (4) 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
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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 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 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.
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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 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.
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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 our are or junior to
the dividend or liquidation preferences of the class B common shareholders
shall not be considered to materially or adversely affect the voting powers,
rights or preferences of the class B common shareholders.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which a vote would otherwise be required is
effected, all outstanding class B common shares have been redeemed or called
for redemption upon proper notice and sufficient funds have been deposited in
trust to effect such redemption.
CONVERSION. Subject to the exceptions described under the caption
"Restrictions on Transfer" below, holders of the class B common shares will
have the right, at any time and from time to time, to convert all 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;
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(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.
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."
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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 and any other
series of common shares then outstanding that rank on a parity with the class C
common shares as to the distribution of assets on liquidation, the assets of
AmREIT remaining following the payment of all liquidating distributions payable
to holders of capital shares of AmREIT with liquidation rights senior to those
of the common shares.
REDEMPTION. 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.
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If fewer than all of the outstanding class C common shares are to be
redeemed, the number of shares to be redeemed will be determined by AmREIT and
those shares may be redeemed pro rata from the holders of record of those
shares in proportion to the number of those shares held by the holders (as
nearly as may be practicable without creating fractional class C common shares)
or any other equitable method determined by AmREIT.
Notice of redemption will be given by publication in a newspaper of
general circulation in the City of New York, such publication to be made once a
week for two successive weeks commencing not less than 30 nor more than 60
days' prior to the redemption date. A similar notice will be mailed by AmREIT,
postage prepaid, not less than 30 nor more than 60 days' prior to the
redemption date, addressed to the respective holders of record of class C
common shares to be redeemed at their respective addresses as they appear on
the stock transfer records of AmREIT. No failure to give notice or any defect
therein or in the mailing thereof will affect the validity of the proceeding
for the redemption of any class C common shares except as to the holder to whom
notice was defective or not given. Each notice will state: (1) the redemption
date; (2) the redemption price; (3) the number of class C common shares to be
redeemed; (4) the place or places where the class C common shares are to be
surrendered for payment of the redemption price; (5) that dividends on the
shares to be redeemed will cease to accrue on the redemption date; and (6) that
any conversion rights will terminate at the close of business on the third
business day immediately preceding the redemption date. If fewer than all the
class C common shares held by any holder are to be redeemed, the notice mailed
to that holder will also specify the number of class C common shares to be
redeemed from that holder. If notice of redemption of any class C common shares
has been properly given and if funds necessary for redemption have been
irrevocably set aside by AmREIT in trust for the benefit of the holders of any
of the class C common shares so called for redemption, then from and after the
redemption date dividends will cease to accrue on those class C common shares,
those shares will no longer be deemed to be outstanding and all rights of the
holders of those shares will terminate except for the right to receive the
applicable redemption price and other amounts payable in respect of such
shares.
The holders of class C common shares at the close of business on a
Dividend Record Date will be entitled to receive the dividend payable with
respect to class C common shares on the corresponding Dividend Payment Date
notwithstanding the redemption thereof between that Dividend Record Date and
the corresponding Dividend Payment Date or AmREIT's default in the payment of
the dividend due. Except as provided above, AmREIT will make no payment or
allowance for unpaid dividends on class C common shares called for redemption.
Limited Optional Redemption. Prior to the time at which the class C common
shares become eligible to be converted into class A common shares, 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 ___________. The Redemption Agent at all
times will be registered as a broker-dealer with the SEC and each applicable
state securities commission. Within 30 days following the Redemption Agent's
receipt of the shareholder's request, the Redemption Agent will forward to that
shareholder the documents necessary to effect the redemption, including any
signature guarantee AmREIT or the Redemption Agent may require. The Redemption
Agent will effect the redemption for the calendar quarter provided that it
receives the properly completed redemption documents relating to the shares to
be redeemed from the shareholder at least one calendar month prior to the last
day of the current calendar quarter and has sufficient funds available to
redeem the shares. The effective date of any redemption will be the last date
during a quarter during which the Redemption Agent receives the properly
completed redemption documents. As a result, AmREIT anticipates that, assuming
sufficient funds are available for redemption, the effective date of
redemptions will be no later than thirty days after the quarterly determination
of the availability of funds for redemption.
Upon the Redemption Agent's receipt of notice for redemption of shares,
the redemption price for this limited optional redemption right will initially
be $9.00 per share, which was calculated by AmREIT by subtracting a discount of
10% off of the $10.00 per share offering price, for a net redemption price of
$9.00 per share. The net redemption price was intended to approximate the per
share net proceeds received by AmREIT in this offering, after deducting selling
commissions of 7.5% and the Dealer Manager fee. 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 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 the 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
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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."
PREFERRED SHARES
The declaration of trust of AmREIT authorizes the trust managers of AmREIT
to issue up to 10,000,000 preferred shares of beneficial interest, par value
$.01 per share, to establish one or more series of such preferred shares and to
determine, with respect to any series of preferred shares, the terms, rights,
restrictions and qualifications of such series. Although the trust managers
have no present intention to do so, they could, in the future, issue a series
of preferred shares which, due to its terms, could impede a merger, tender
offer or other transaction that some, or a majority, of AmREIT's shareholders
might believe to be in their best interests or in which shareholders might
receive a premium over then prevailing market prices for their common shares.
OWNERSHIP LIMITS AND RESTRICTIONS ON TRANSFER
For AmREIT to qualify as a REIT under the Internal Revenue Code, (1) not
more than 50% in value of outstanding equity securities of all classes may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Internal Revenue Code to include certain entities) during the last half of a
taxable year; (2) the outstanding equity securities of all classes must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year; and
(3) certain percentages of AmREIT's gross income must come from certain
activities.
To ensure that five or fewer individuals do not own more than 50% in value
of the outstanding equity securities of all classes, AmREIT's declaration of
trust provides generally that no holder may own, or be deemed to own by virtue
of certain attribution provisions of the Internal Revenue Code, more than 9.0%
of the issued and outstanding common shares or more than 9.9% of the issued and
outstanding shares of any series of preferred shares, except that H. Kerr
Taylor, the chairman of the board of trust managers and chief executive officer
of AmREIT, and certain related persons together may own, or be deemed to own,
by virtue of certain attribution provisions of the Internal Revenue Code, up to
9.8% of the issued and outstanding common shares. The board of trust managers,
upon receipt of a ruling from the IRS, an opinion of counsel, or other evidence
satisfactory to the board of trust managers, in its sole discretion, is
permitted to waive or change, in whole or in part, the application of the
ownership limit with respect to any person that is not an individual (as that
term is used in Section 542(a)(2) of the Internal Revenue Code). In connection
with any waiver or change, the board of trust managers has the authority to
require such representations and undertakings from such person or affiliates
and to impose such other conditions as the board of trust managers deems
necessary, advisable or prudent, in its sole discretion, to determine the
effect, if any, of a proposed transaction or ownership of outstanding equity
securities of all classes on 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.
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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 (1) 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, (2) 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 (3) to increase the ownership limit on H. Kerr Taylor. Prior to any
modification of the Ownership limit with respect to any person, the board of
trust managers will have the right to require such opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary, advisable or
prudent, in its sole discretion, in order to determine or ensure AmREIT's
status as a REIT.
Under our declaration of trust, the ownership limit will not be
automatically removed even if the REIT provisions of the Internal Revenue Code
are changed so as to no longer contain any ownership concentration limitation
or if the ownership concentration limit is increased. In addition to preserving
AmREIT's status as a REIT for federal income tax purposes, the ownership limit
may prevent any person or small group of persons from acquiring control of
AmREIT.
Our declaration of trust also provides that if any issuance, transfer or
acquisition of equity securities (1) would result in a holder exceeding the
ownership limit, (2) would cause AmREIT to be beneficially owned by less than
100 persons, (3) would result in AmREIT being "closely held" within the meaning
of Section 856(h) of the Internal Revenue Code, or (4) would otherwise result
in the failure of AmREIT to qualify as a REIT for federal income tax purposes,
then that issuance, transfer or acquisition will be null and void to the
intended transferee or holder, and the intended transferee or holder will
acquire no rights to the shares. Pursuant to the declaration of trust, equity
securities owned, transferred or proposed to be transferred in excess of the
ownership limit or which would otherwise jeopardize AmREIT's status as a REIT
under the Internal Revenue Code automatically will be deemed to have been
transferred to a trustee appointed by AmREIT, unaffiliated with AmREIT and the
intended transferee or holder, to serve as trustee of a charitable trust for
the exclusive benefit of one or more nonprofit organizations designated by
AmREIT so that the shares proposed to be transferred in excess of the ownership
limit held in the charitable trust would not violate ownership restrictions set
forth in the declaration of trust. The transfer to the trustee will be deemed
to be effective as of the close of business on the business day prior to the
purported transfer or other event that results in the transfer to the
charitable trust. Shares proposed to be transferred in excess of the ownership
limit held by the trustee shall be issued and outstanding equity securities of
AmREIT. The intended transferee or holder will have no rights in the shares
proposed to be transferred in excess of the ownership limit, will not benefit
economically from these shares, will have no rights to dividends or other
distributions associated with the shares and shall not possess any rights to
vote or other rights attributable to the shares. The trustee will have all
voting rights and rights to dividends or other distributions to which such
shares proposed to be transferred in excess of the ownership limit are entitled
with respect to such shares held in the charitable trust, which rights shall be
exercised for the exclusive benefit of the charitable beneficiary. Any dividend
or other distribution paid prior to the discovery by AmREIT that the shares
have been deemed transferred to the trustee shall be paid with respect to the
shares to the trustee upon demand and any dividend or other distribution
authorized but unpaid shall be paid when due to the trustee. Any dividends or
distributions so paid over to the trustee shall be held in trust for the
benefit of the charitable beneficiary for distribution at such times as may be
determined by the trustee. The prohibited owner of these shares will have no
voting rights with respect to the shares held in the charitable trust and,
subject to Texas law, effective as of the date that the shares have been deemed
transferred to the trustee, the trustee shall have the authority (1) to rescind
as void any vote cast, to the extent the shares are entitled to vote, by a
prohibited owner prior to the discovery by AmREIT that the shares have been
deemed transferred to the trustee and (2) to recast such vote, to the extent
the shares are entitled to vote, in accordance with the desires of the trustee
acting for the benefit of 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
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shares will not violate theownership limit or otherwise jeopardize AmREIT's
status as a REIT under the Internal Revenue Code. Upon the sale, the interest
of the charitable beneficiary in the shares sold shall terminate and the
trustee shall distribute the net proceeds of the sale to the prohibited owner
and to the charitable beneficiary as follows: (1) the prohibited owner shall
receive the lesser of (a) the price paid by the prohibited owner for the shares
or, if the prohibited owner did not give value for the shares in connection
with the event that resulted in the transfer of such shares to the charitable
trust (e.g., in the case of a gift, devise or other such transaction), the
market price at the time of such gift, devise or other transaction which
resulted in the transfer of the shares and (b) the price per share (net of
costs of sales) received by the trustee from the sale or other disposition of
the shares held in the charitable trust; and (2) any net sales proceeds in
excess of the amount payable to the prohibited owner shall be immediately paid
to the charitable beneficiary. If, prior to the discovery by AmREIT that the
shares have been deemed transferred to the trustee, the shares are sold by a
prohibited owner, then (1) the shares shall be deemed to have been sold on
behalf of the charitable trust and (2) to the extent that the prohibited owner
received an amount for such shares that exceeds the amount that such prohibited
owner would have been entitled to receive if such shares had been sold by the
trustee such excess shall be paid to the trustee upon demand. The shares will
be subject to repurchase by AmREIT at its election and shall be deemed to have
been offered for sale to AmREIT or its designee, at a price per share equal to
the lesser of (1) the price per share in the transaction that resulted in such
deemed transfer to the charitable trust (or, in the case of a devise or gift or
event other than a transfer or acquisition which results in the deemed transfer
of the shares, the market price at the time of such devise or gift or event
other than a transfer or acquisition which results in the deemed transfer of
the shares) and (2) the market price of the shares on the date AmREIT, or its
designee, accepts such offer. AmREIT and its assignees will have the right to
accept the offer until the trustee has otherwise sold the shares held in the
charitable trust. Upon such a sale to AmREIT or its designees, the interest of
the charitable beneficiary in the shares sold shall terminate and the trustee
shall distribute all net sales proceeds of the sale to the prohibited owner.
If the trust managers or any duly authorized committee thereof shall at
any time determine in good faith that a transfer or other event has taken or is
otherwise proposed to take place that results or will result in a violation of
the ownership limit or otherwise jeopardizes AmREIT's status as a REIT under
the Internal Revenue Code, the trust managers or a committee thereof shall take
such action as it deems advisable to refuse to give effect to or to prevent
such transfer or other event, including, without limitation, causing AmREIT to
redeem equity securities, refusing to give effect to such transfer on the books
of AmREIT or instituting proceedings to enjoin such transfer or other event;
provided, however that any transfer or attempted transfer or other event in
violation of the declaration of trust shall automatically result in the
transfer to the charitable trust described above, and, where applicable, such
transfer (or other event) shall be void ab initio as provided above
irrespective of any action (or non-action) by the board of trust managers or a
committee thereof.
Under the declaration of trust, AmREIT will have the authority, at any
time, to waive the requirement that the shares be deemed outstanding in
accordance with the provisions of the declaration of trust if the fact that the
shares are deemed to be outstanding would, in the opinion of nationally
recognized tax counsel, jeopardize the status of AmREIT as a REIT for federal
income tax purposes.
All certificates issued by AmREIT representing equity securities will bear
a legend referring to the restrictions described above.
The declaration of trust of AmREIT also will provide that all persons who
own, directly or by virtue of the attribution provisions of the Internal
Revenue Code, more than 5.0% of the outstanding equity securities (or such
lower percentage as may be set by the board of trust managers), must give
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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," below.
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 C common shareholder invested in additional class C common shares.
You may purchase class C 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 __ 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 C
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 C common
shares." You will be taxed on the amount of such dividend as ordinary income to
the extent such dividend is from current or accumulated earnings and profits,
unless we have designated all or a portion of the dividend as a capital gain
dividend.
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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 RevenueCode, existing administrative rulings and practices of the IRS
and judicial decisions. No assurance can be given that legislative, judicial or
administrative changes will not affect the accuracy of any statements in this
discussion with respect to transactions entered into or contemplated prior to
the effective date of such changes. Any such change could apply retroactively
to transactions preceding the date of the change. We do not plan to request any
rulings from the IRS concerning our tax treatment and the statements in this
discussion are not binding on the IRS or any court. Thus, we can provide no
assurance that these statements will not be challenged by the IRS or that such
challenge will not be sustained by a court.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING. EACH PROSPECTIVE PURCHASER OF SECURITIES IS ADVISED TO CONSULT WITH
HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR
HER OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF SECURITIES IN AN ENTITY
ELECTING TO BE TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, DISPOSITION AND
ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
We have elected to be treated as a REIT under Sections 856 through 860 of
the Internal Revenue Code for federal income tax purposes commencing with our
taxable year ended December 31, 1994. We believe that we have been organized
and have operated in a manner that qualifies for taxation as a REIT under the
Internal Revenue Code. We also believe that we will continue to operate in a
manner that will preserve our status as a REIT. We cannot however, assure you
that such requirements will be met in the future.
Locke Liddell & Sapp LLP, our legal counsel, is of the opinion that we
qualified as a REIT under the Internal Revenue Code for our taxable year ended
December 31, 2002, 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.
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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 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.
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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:
o rents from real property;
o interest on loans secured by real property;
o 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");
o 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");
o distributions on, or gain from the sale of, shares of other
qualifying REITs;
o abatements and refunds of real property taxes;
o amounts received as consideration for entering into agreements to
make loans secured by real property or to purchase or lease real
property; and
o "qualified temporary investment income" (described below).
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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 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
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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 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
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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
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.
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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.
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:
o 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.
o 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.
o 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.
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o We will be subject to the alternative minimum tax on items of
tax preference, excluding items specifically allocable to our
shareholders.
o 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.
o 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; and
o 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.
o 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.
o 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.
o 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.
o 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.
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o 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.
o 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.
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.
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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:
o 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;
o 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;
o receive a credit or refund for the amount of tax deemed paid by
it; and
o 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 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.
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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
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.
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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.
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.
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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 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.
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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.
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CERTAIN ERISA CONSIDERATIONS
Each prospective investor that is (i) an ERISA Plan, (ii) a plan within
the meaning of Section 4975(e)(1) of the Internal Revenue Code (including an
IRA and a Keogh Plan) or (iii) a person investing assets of any ERISA Plan or
plan whose assets are deemed to include plan assets should consider the matters
described below in determining whether to invest in our capital shares. Such
ERISA Plans, plans and persons are referred to herein as "Plans."
GENERAL FIDUCIARY RULES
Investments by ERISA Plans and persons whose assets are deemed to include
plan assets are subject to ERISA's general fiduciary requirements, including
the requirements of investment prudence and diversification, requirements
respecting the delegation of investment authority and the requirement that an
ERISA Plan's investment be made in accordance with the documents governing the
Plan. Plan fiduciaries must give appropriate consideration to, among other
things, the role that an investment in our capital shares has in the Plan's
investment portfolio, taking into account the Plan's purposes, the risk of loss
and the potential return in respect of such investment, the composition of the
Plan's portfolio, the liquidity and current return of the total portfolio
relative to the anticipated cash flow needs of the Plan, and the projected
return of the portfolio relative to the Plan's funding objectives. Keogh Plan
and IRA investors should also consider whether an investment in our capital
shares is appropriate for their Keogh Plans or IRAs.
PLAN ASSETS
Regulations issued by the U.S. Department of Labor (the "Plan Asset
Regulations") describe what constitutes the assets of a Plan for purposes of
various provisions of ERISA and Section 4975 of the Internal Revenue Code when
a Plan makes an equity investment in an entity such as an investment in our
capital shares. The U.S. Department of Labor has generally stated that an
investment by a plan in securities (within the meaning of section 3(20) of
ERISA) of a corporation or partnership will not, solely by reason of such
investment, be considered to be an investment in the underlying assets of such
corporation or partnership so as to make such assets of the entity "plan
assets" and thereby make a subsequent transaction between the party in interest
and the corporation or partnership a prohibited transaction under Section 406
of ERISA. The Plan Asset Regulations provide that the assets of entities in
which retirement plans make equity investments will be treated as "plan assets"
unless such investments are (1) in publicly offered securities, (2) in
securities offered by an investment company registered under the Investment
Company Act of 1940, or (3) within one of the other specific exemptions set
forth in the Plan Asset Regulations. Since we are not a registered investment
company, the exemption contained in the Plan Asset Regulations which may apply
to an investment in our capital shares is that 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.
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PLAN ASSET REGULATIONS - PUBLICLY OFFERED SECURITIES EXEMPTION
As noted above, if a retirement plan acquires "publicly offered
securities," the assets of the issuer of the securities are not deemed to be
plan assets under the Plan Asset Regulations. The definition of publicly
offered securities requires that such securities must be "widely-held," "freely
transferable" and must satisfy certain registration requirements under federal
securities laws. Although we should satisfy the registration requirements under
this definition, the determinations of whether a security is "widely-held" and
"freely transferable" are inherently factual matters. Under the Plan Asset
Regulations, a class of securities will be "widely-held" if it is held by 100
or more persons. We anticipate that this requirement will be met; however, even
if the shares are deemed to be widely-held, the "freely transferable"
requirement must also be satisfied in order to qualify for this exemption. We
intend to satisfy the freely transferable requirement set forth in the Plan
Asset Regulations with respect to our shares. Because of the factual nature of
such a determination, however, and the lack of further guidance as to the
meaning of the term "freely transferable," there can be no assurance that we
will, in fact, qualify for this exemption.
PROHIBITED TRANSACTIONS
ERISA generally prohibits a fiduciary from causing an ERISA Plan to engage
in a broad range of transactions involving the assets of the ERISA Plan and
persons having a specified relationship to the Plan ("parties in interest")
unless a statutory or administrative exemption applies. Similar prohibitions
are contained in Section 4975 of the Internal Revenue Code and generally apply
with respect to ERISA Plans, Keogh Plans, IRAs, and other Plans. An excise tax
may be imposed pursuant to Section 4975 of the Internal Revenue Code on persons
having a specified relationship with a Plan ("disqualified persons") in respect
of prohibited transactions involving the assets of the Plan. Generally
speaking, parties in interest for purposes of ERISA would be disqualified
persons under Section 4975 of the Internal Revenue Code.
If our assets are treated for purposes of ERISA and Section 4975 of the
Internal Revenue Code as the assets of the Plans that invest in our capital
shares due to the fact that we fail to satisfy the publicly offered securities
exception, certain transactions that we might enter into in the ordinary course
of our business might constitute "prohibited transactions" under ERISA and the
Internal Revenue Code, thereby potentially subjecting fiduciaries of the Plans
to personal liability and civil penalties and potentially resulting in the
imposition of an excise tax under Section 4975 of the Internal Revenue Code on
the disqualified person that is party to the transaction with us unless a
statutory or administrative exemption exist and the plan satisfies all
conditions for such exemptive relief.
There are five class exemptions issued by the Department of Labor that
could apply in the event of a prohibited transaction. These Department of Labor
Prohibited Transaction Class Exemptions apply to:
o plan asset transactions determined by independent qualified
professional asset managers (PTE 84-14),
o certain transactions involving bank collective investment funds
(PTE 91-38),
o certain transactions involving insurance company pooled separate
accounts (PTE 90-1),
o certain transactions involving insurance company general
accounts (PTE 95-60), and
o 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.
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GOVERNMENTAL PLANS
Although federal, state and local governmental pension plans are not
subject to ERISA, applicable provisions of federal and state law may restrict
the type of investments such a plan may make or otherwise have an impact on
such a plan's ability to invest in our capital shares. Accordingly, state and
local governmental pension plans considering an investment in our capital
shares should consult with their counsel regarding their proposed investment in
our capital shares.
SPECIAL CONSIDERATIONS FOR INSURANCE COMPANIES
An insurance company considering an investment should consider whether
it's general account may be deemed to include assets of the plans investing in
the general account, for example, through the purchase of an annuity contract.
In John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 510
U.S. 86 (1993), the United States Supreme Court held that assets held in an
insurance company's general account may be deemed to be plan assets under
certain circumstances. In that event, the insurance company might be treated as
a party in interest under such plans. However, PTE 95-60 (described above) may
exempt some or all of the transactions that could occur as the result of the
acquisition of our capital shares by an insurance company general account.
Therefore, insurance company investors should analyze whether John Hancock and
PTE 95-60 or any other exemption may have an impact on their decision to
purchase our capital shares.
In addition, the Small Business Job Protection Act of 1996 added a new
Section 401(c) of ERISA relating to the status of the assets of insurance
company general accounts under ERISA and Section 4975 of the Internal Revenue
Code. Pursuant to Section 401(c), the Department of Labor issued final
regulations effective January 5, 2000 (the "General Account Regulations") with
respect to insurance policies issued on or before December 31, 1998 that are
supported by an insurer's general account. As a result of these regulations,
assets of an insurance company general account will not be treated as "plan
assets" for purposes of the fiduciary responsibility provisions of ERISA and
Section 4975 of the Internal Revenue Code to the extent such assets relate to
contracts issued to employee benefit plans on or before December 31, 1998 and
the insurer satisfies various conditions. The plan asset status of insurance
company separate accounts is unaffected by new Section 401(c) of ERISA, and
separate account assets continue to be treated as the plan assets of any such
plan invested in a separate account.
THE FOREGOING DISCUSSION OF ERISA AND INTERNAL REVENUE CODE ISSUES SHOULD
NOT BE CONSTRUED AS LEGAL ADVICE. FIDUCIARIES OF PLANS SHOULD CONSULT THEIR OWN
COUNSEL WITH RESPECT TO ISSUES ARISING UNDER ERISA AND THE INTERNAL REVENUE
CODE AND MAKE THEIR OWN INDEPENDENT DECISION REGARDING AN INVESTMENT IN OUR
COMMON SHARES.
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PLAN OF DISTRIBUTION
GENERAL
We are offering a maximum of 4,000,000 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 400,000 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 4,400,000 shares are
being registered in this offering.
The offering of these shares will terminate on or before August __, 2004.
However, we reserve the right to extend the offering until not later than
August __, 2005 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 7.5% 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.
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 7.5% 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 1.0% 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.
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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 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.
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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
GENERAL
The consolidated financial statements and related consolidated financial
statement schedule of AmREIT as of and for the year ended December 31, 2002
have been audited by KPMG LLP, independent auditors, as stated in their report
appearing herein, and have been so included in reliance upon the report of such
firm given upon their authority in accounting and auditing.
The consolidated financial statements and related consolidated financial
statement schedule of AmREIT as of and for the year ended December 31, 2001
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein, and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
CHANGE IN ACCOUNTANTS
In December 2002, AmREIT changed its independent public accountants from
Deloitte & Touche LLP to KPMG LLP. The change was made by the audit committee
of our board. In connection with making this change, management sought and
received proposals from three independent public accounting firms. These
proposals were submitted to the audit committee, which selected KPMG LLP as
AmREIT's new auditors.
Deloitte & Touche's reports on the AmREIT's consolidated financial
statements for the latest two fiscal years ended December 31, 2001 and December
31, 2000 did not contain an adverse opinion or disclaimer of opinion and were
not qualified as to uncertainty, audit scope or accounting principles. During
AmREIT's fiscal years ended December 31, 2001 and December 31, 2000 and
subsequent interim periods preceding the dismissal, there were no disagreements
with Deloitte & Touche on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Deloitte & Touche, would
have caused it to make reference to the subject matter of the disagreement in
connection with its reports. During the two most recent fiscal years and the
subsequent interim period through December 12, 2002, there were no reportable
events.
On December 12, 2002, AmREIT engaged KPMG LLP to audit AmREIT's financial
statements for the year ending December 31, 2002. During AmREIT's two most
recent fiscal years ended December 31, 2001 and December 31, 2000, and the
subsequent interim period through December 12, 2002, AmREIT did not consult
with KPMG LLP regarding any of the matters or events set forth in Item
304(a)(2)(i) or (ii) of Regulation S-K
115
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 LLC, 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, 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 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.
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.
116
"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.
"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 .
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"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" 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.
117
"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.
"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.
118
"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.
"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 C 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
_________, 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
..
"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.
119
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
AND FINANCIAL STATEMENT SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 2002
AMREIT AND SUBSIDIARIES
AMREIT AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
FINANCIAL STATEMENTS FOR THE
THREE MONTHS ENDED MARCH 31, 2003 AND 2002:
Consolidated Balance Sheets as of March 31, 2003 (unaudited)
and December 31, 2002....................................................................................
Consolidated Statements of Operations for the three months
ended March 31, 2003 and 2002 (unaudited)................................................................
Consolidated Statements of Shareholders' Equity for the three
months ended March 31, 2003 and 2002 (unaudited).........................................................
Consolidated Statements of Cash Flows for the three months
ended March 31, 2003 and 2002 (unaudited)................................................................
Notes to Consolidated Financial Statements for the three months
ended March 31, 2003 and 2002............................................................................
FINANCIAL STATEMENTS FOR THE YEARS
ENDED DECEMBER 31, 2002 AND 2001:
Independent Auditors' Report................................................................................
Independent Auditors' 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...............................................................................
FINANCIAL STATEMENT SCHEDULE:
Schedule III Consolidated Real Estate Owned and Accumulated
Depreciation for the Year Ended December 31, 2002........................................................
All other financial statement schedules are omitted as the required information
is either inapplicable or is included in the financial statements or related
notes.
AMREIT AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
March 31,
(unaudited)
ASSETS 2003
Property:
Land $21,631,162
Buildings 28,765,695
Tenant improvements 239,486
Furniture, fixtures and equipment 211,465
__________
50,847,808
__________
Accumulated depreciation (2,327,147)
__________
Total property, net 48,520,661
__________
Net investment in direct financing leases 23,388,264
Cash and cash equivalents 825,560
Accounts receivable 135,639
Accounts receivable - related party 124,843
Escrow deposits 45,176
Prepaid expenses, net 424,619
Other assets:
Preacquisition costs 28,478
Loan acquisition cost, net of $92,981 in accumulated amortization 242,171
Accrued rental income 409,581
Intangible lease cost, net of $31,524 in accumulated amortization 226,075
Investment in non-consolidated affiliates 711,106
__________
Total other assets 1,617,411
__________
TOTAL ASSETS $75,082,173
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $35,852,721
Accounts payable 578,295
Accounts payable - related party 172,137
Security deposit 41,731
Prepaid rent 6,177
__________
TOTAL LIABILITIES 36,651,061
__________
Minority interest 782,440
Shareholders' equity:
Preferred shares, $.01 par value, 10,000,000 shares authorized, none issued
Class A Common shares, $.01 par value, 50,000,000 shares authorized,
2,869,187 shares issued 28,692
Class B Common shares, $.01 par value, 3,000,000 shares authorized,
2,432,729 shares issued 24,328
Capital in excess of par value 47,182,617
Accumulated distributions in excess of earnings (8,728,632)
Deferred compensation (298,244)
Cost of treasury shares, 90,322 shares (560,089)
__________
TOTAL SHAREHOLDERS' EQUITY 37,648,672
__________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $75,082,173
==========
See Notes to Condensed Consolidated Financial Statements.
AMREIT AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter ended March 31,
2003 2002
Revenues:
Rental income from operating leases $1,232,740 $ 706,740
Earned income from direct financing leases 598,720 191,182
Service fees and other income 210,997 480,032
Management fees 57,631 91,130
Income from non-consolidated affiliates 40,305 282,042
Interest income 1,839 1,014
_________ _________
Total revenues 2,142,232 1,752,140
_________ _________
Expenses:
General operating and administrative 774,686 778,982
Legal and professional 169,177 194,506
Interest 551,441 253,648
Depreciation and amortization 222,303 126,848
_________ _________
Total expenses 1,717,607 1,353,984
_________ _________
Income before federal income taxes and minority
interest in net income of consolidated joint ventures 424,625 398,156
Federal income tax benefit (expense) for taxable REIT subsidiary 73,000 (84,000)
Minority interest in net income of consolidated joint ventures (39,788) (131,845)
_________ _________
Net income 457,837 182,311
Distributions paid to class B shareholders (452,543) -
_________ _________
Net income available to class A shareholders $ 5,294 $ 182,311
========= =========
Net income per common share - basic $ .002 $ .078
========= =========
Weighted avergage common shares used to compute
net income per share, basic 2,768,253 2,351,687
========= =========
See Notes to Condensed Consolidated Financial Statements.
AMREIT AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(unaudited)
Quarter ended March 31,
2003 2002
Cash flows from operating activities:
Net income $ 457,837 $ 182,311
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 229,697 126,848
Amortization of deferred compensation 59,928 5,152
Minority interest in net income of consolidated join 39,788 131,845
Decrease in accounts receivable 38,020 187,944
(Increase) decrease in accounts receivable- related (55,909) 297,894
Decrease in prepaid expenses, net 14,077 44,836
Cash receipts from direct financing leases
more (less) than income recognized 17,060 (4,260)
Increase in accrued rental income (49,519) (2,225)
Decrease in other assets 83,091 23,711
Decrease in accounts payable (547,924) (671,656)
Decrease in accounts payable- related party (33,986) -
_________ _________
Net cash provided by operating activities 252,160 322,400
_________ _________
Cash flows from investing activities:
Improvements to real estate (155,763) (300,005)
Acquisitions of real estate (2,688,157) -
Additions to furniture, fixtures and equipment (24,040) (3,938)
(Investment in) distributions from joint ventures (161,771) 380,846
Increase in preacquisition costs (26,713) (12,912)
_________ _________
Net cash (used in) provided by investing activities (3,056,444) 63,991
_________ _________
Cash flows from financing activities:
Proceeds from notes payable 2,367,799 369,952
Payments of notes payable (101,163) (14,776)
Loan acquisition costs - 21,730
Purchase of treasury shares (315,719) -
Common dividends paid (759,622) (161,540)
Distributions to minority interests (68,319) (149,572)
_________ _________
Net cash provided by financing activities 1,122,976 65,794
_________ _________
Net (decrease) increase in cash and cash equivalents (1,681,308) 452,185
Cash and cash equivalents at January 1 2,506,868 227,117
_________ _________
Cash and cash equivalents at March 31 $ 825,560 $ 679,302
========= =========
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest 524,189 236,439
Income taxes 31,103 -
See Notes to Condensed Consolidated Financial Statements.
AMREIT AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-QSB and
include all of the disclosures required by generally accepted accounting
principles. The condensed consolidated financial statements reflect all
normal and recurring adjustments, which are, in the opinion of management,
necessary to present a fair statement of results for the three-month
periods ended March 31, 2003 and 2002.
The consolidated financial statements of AmREIT contained herein should be
read in conjunction with the consolidated financial statements included in
the Company's annual report on Form 10-KSB for the year ended December 31,
2002.
DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
AmREIT, formerly AmREIT, Inc. or American Asset Advisers Trust, Inc. (the
"Company"), was organized in the state of Maryland in August 1993, is a
real estate investment trust ("REIT") based in Houston, Texas and is
listed on the American Stock Exchange (AMY). AmREIT was re-organized in
the state of Texas on December 22, 2002, and is a sponsor of real estate
direct participation programs to the financial planning community. For
more than 18 years, the Company has established a track record of
investing in commercial real estate leased to parent companies in the
retail, financial services and banking, medical and restaurant sectors.
AmREIT's real estate team focuses on development, management, brokerage
and ownership of freestanding credit tenant leased ("CTL") and frontage
shopping centers ("FSC") that are located contiguous to major
thoroughfares and traffic generators. AmREIT's customer list includes
national and regional tenants such as: Walgreens, Goodyear Tire,
Washington Mutual, IHOP, McDonald's, Herman Hospital, Radio Shack,
Coldwell Banker, Guaranty Federal, Bennigan's, Chili's, Texas Children's
Pediatric Associates, Discount Tire, tc.
AmREIT owns a real estate portfolio that consists of 47 properties located
in 18 states. Its properties include single-tenant; free standing credit
tenant leased projects and multi-tenant frontage projects. The single
tenant projects are located from coast to coast and are primarily leased
to corporate tenants where the lease is the direct obligation of the
parent companies. In so doing, the dependability of the lease payments are
based on the strength and viability of the entire company, not just that
location. The multi-tenant projects are situated primarily throughout
Texas. Supporting the real estate portfolio is an operating company
subsidiary of AmREIT that provides a complete range of services including
development, construction management, property management, brokerage and
leasing.
On July 23, 2002, the Company completed a merger with three of its
affiliated partnerships, AAA Net Realty Fund IX, Ltd., AAA Net Realty Fund
X, Ltd., and AAA Net Realty Fund XI, Ltd. With the merger of the
affiliated partnerships, AmREIT increased its real estate assets by
approximately $24.3 million and issued approximately 2.6 million Class B
common shares to the limited partners in the affiliated partnerships.
Approximately $760 thousand in 8 year, interest only, subordinated notes
were issued to limited partners of the affiliated partnerships who
dissented against the merger. The acquired properties are unencumbered,
single tenant, free standing properties on lease to national and regional
tenants, where the lease is the direct obligation of the parent company.
The following selected unaudited pro forma consolidated statement of
operations for AmREIT and subsidiaries gives effect to the merger with its
three affiliated partnerships, which assumes that the merger occurred on
January 1, 2002. Additionally, we have presented a summary of assets
acquired and liabilities assumed as of the date of the merger, July 23,
2002.
Pro Forma Consolidated Statement of Operations
For the Three Months Ended March 31,
(Unaudited)
2002
Revenues
Rental income and earned income $ 1,519,368
Other income 774,183
_________
Total Revenues 2,293,551
_________
Total Expense 1,522,994
_________
Proforma Income Before Minority Interest in Net Income of Consolidated
Joint Ventures 770,557
Federal Income Tax Benefit from Non-Qualified Subsidiary (84,000)
Minority Interest in Net Income of Consolidated Joint Ventures (131,845)
________
Pro Forma Net Income $ 554,712
Summary of Assets Acquired and Liabilities Assumed
As of July 23, 2002,
(Unaudited)
Assets
Buildings $ 16,330,088
Land 7,560,231
Accounts receivable 1,105,612
Prepaid expenses 15,757
__________
TOTAL ASSETS $ 25,011,688
==========
Liabilities $ 132,630
Shareholders' equity
Class B common stock $ 24,879,058
__________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 25,011,688
==========
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of AmREIT, and
its wholly or majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
NEW ACCOUNTING STANDARDS
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements
No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under
guarantees issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability for the
fair value of the obligation undertaken. The disclosure requirements are
effective for financial statements of interim or annual periods ending
after December 15, 2002. The initial recognition and measurement
provisions of the Interpretation are applicable to guarantees issued or
modified after December 31, 2002 and did not have a material effect on the
Company's consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement
No. 123. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for
a voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements. Certain of the disclosure
modifications are required for fiscal years ending after December 15,
2002, however, these disclosure modifications are not applicable to the
Company as the Company does not have stock based compensation other than
restricted stock grants. Therefore adoption of SFAS 148 did not have a
material impact on our consolidated financial position, results of
operations, or cash flows.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of
variable interest entities as defined in the Interpretation. The
Interpretation applies immediately to variable interests in variable
interest entities created after January 31, 2003, and to variable
interests in variable interest entities obtained after January 31, 2003.
The application of this Interpretation did not have a material effect on
the Company's consolidated financial statements. The Interpretation
requires certain disclosures in financial statements issued after January
31, 2003 if it is reasonably possible that the Company will consolidate or
disclose information about variable interest entities when the
Interpretation becomes effective.
RECLASSIFICATION
Certain amounts in the interim unaudited 2002 condensed consolidated
financial statements have been reclassified to conform to the presentation
used in the interim unaudited 2003 condensed consolidated financial
statements.
2. NOTES PAYABLE
In November 1998, the Company entered into an unsecured credit facility
(the "Credit Facility"), which is being used to provide funds for the
acquisition of properties and working capital, and repaid all amounts
outstanding under the Company's prior credit facility. Under the Credit
Facility, which had an original term of one year, and has been extended
through June 2003, the Company may borrow up to $20 million subject to the
value of unencumbered assets. The Lender has given AmREIT a commitment to
extent the Credit Facility for a period of 15 months from the date of
execution. The Company and Lender are currently working through the
documentation of the Credit Facility and expect that it will be finalized
prior to June. The Credit Facility contains covenants which, among other
restrictions, require the Company to maintain a minimum net worth, a
maximum leverage ratio, specified interest coverage and fixed charge
coverage ratios and allow the lender to approve all distributions. At
March 31, 2003, Company was in compliance with all applicable financial
covenants. The Credit Facility bears interest at an annual rate of LIBOR
plus a spread of 2.00% (3.30% as of March 31, 2003). As of March 31, 2003,
$14.1 million was outstanding under the Credit Facility. Thus the
Company has approximately $5.9 million available under its line of
credit, subject to use of proceeds by the lender.
3. MAJOR TENANTS
There were no significant changes in the tenant make-up from year end
December 31, 2002.
4. EARNINGS PER SHARE
Basic earnings per share has been computed by dividing net income by the
weighted average number of class A common shares outstanding. Diluted
earnings per share has been computed by dividing net income (as adjusted)
by the weighted average number of class A common shares outstanding plus
dilutive potential common shares.
The following table presents information necessary to calculate basic and
diluted earnings per share for the periods indicated:
For the Three Months Ended March 31,
2003 2002
BASIC EARNINGS PER SHARE
Weighted average class A common shares outstanding 2,768,253 2,351,687
========= =========
Basic earnings per share $ .002 $ .078
========= =========
EARNINGS FOR BASIC COMPUTATION
Net income available to class A common shareholders (basic earnings
per share computation) $ 5,294 $ 182,311
========= =========
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, 2002, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year ended December 31, 2002. In connection with our audit of the
consolidated financial statements, we have also audited the related financial
statement schedule. These 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 audit.
We conducted our audit 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
audit provides 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, 2002, and the results of their operations and
their cash flows for the year ended December 31, 2002 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 31, 2003
INDEPENDENT AUDITORS' REPORT
To the Board of Trust Managers
AmREIT
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of AmREIT (formerly AmREIT, Inc.) and
subsidiaries (the "Company") for the year ended December 31, 2001. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements
based on our audit.
We conducted our audit 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
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
audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, AmREIT and subsidiaries results of operations and cash
flows for the year ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Houston, Texas
March 15, 2002
AMREIT AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2002
2002
ASSETS
Property:
Land $18,945,607
Buildings 28,652,858
Furniture, fixtures and equipment 381,383
__________
47,979,848
Accumulated depreciation (2,136,376)
__________
Total property, net 45,843,472
Net investment in direct financing leases 23,405,324
Cash and cash equivalents 2,506,868
Accounts receivable 173,659
Accounts receivable - related party 68,934
Escrow deposits 120,466
Prepaid expenses, net 438,696
Other assets:
Preacquisition costs 1,765
Loan acquisition cost, net of $85,579 in accumulated amortization 249,572
Accrued rental income 360,062
Intangible lease cost 257,600
Investment in non-consolidated affiliates 549,335
__________
Total other assets 1,418,334
__________
TOTAL ASSETS $73,975,753
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $33,586,085
Accounts payable 1,126,219
Accounts payable - related party 206,123
Security deposit 33,930
Prepaid rent 6,177
___________
TOTAL LIABILITIES 34,958,534
___________
Minority interest 810,971
Shareholders' equity:
Preferred stock, $.01 par value, 10,001,000 shares authorized, none issued -
Class A Common stock, $.01 par value, 100,010,000 shares authorized,
2,772,340 shares issued and outstanding 27,723
Class B Common stock, $.01 par value, 3,000,000 shares authorized,
2,464,207 shares issued and outstanding 24,642
Capital in excess of par value 47,183,271
Accumulated distributions in excess of earnings (8,426,846)
Deferred compensation (205,353)
Cost of treasury stock, 65,379 shares (397,189)
___________
TOTAL SHAREHOLDERS' EQUITY 38,206,248
___________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $73,975,753
===========
See Notes to Consolidated Financial Statements.
AMREIT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
2002 2001
Revenues:
Rental income from operating leases $ 3,687,094 $ 2,648,237
Earned income from direct financing leases 1,807,117 637,537
Service fees and other income 2,041,999 2,033,008
Management fees 279,910 342,349
Income from non-consolidated affiliates 416,904 20,743
(Loss) gain on sale of property (47,553) 254,013
Interest income 4,206 10,555
_________ _________
Total revenues 8,189,677 5,946,442
_________ _________
Expenses:
General operating and administrative 2,801,946 1,953,285
Legal and professional 1,332,188 1,002,776
Interest 1,774,973 1,063,574
Depreciation 666,307 464,308
Deferred merger costs 1,904,370 -
_________ _________
Total expenses 8,479,784 4,483,943
_________ _________
(Loss) income before federal income taxes and minority
interest in net income of consolidated joint ventures (290,107) 1,462,499
Federal income tax expense for taxable REIT subsidiary 60,656 144,420
Minority interest in net income of consolidated joint ventures (308,010) (527,571)
__________ _________
Net (loss) income (658,773) 790,508
Distributions paid to Class B shareholders (865,293) -
__________ _________
Net (loss) income available to Class A shareholders $(1,524,066) $ 790,508
========== =========
Net (loss) income per common share, basic and diluted (0.62) 0.34
========== =========
Common shares used to compute net (loss) and income
per share, basic and diluted 2,469,725 2,354,572
========== =========
See Notes to Consolidated Financial Statements.
AMREIT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 2002 and 2001
Capital in
Common Shares excess of
Number Amount par value
Balance at December 31, 2000 2,384,117 $ 23,841 $ 21,655,867
Net income - - -
Repurchase of common shares, Class A (24,723 shares) - - -
Distributions - - -
_________ ______ __________
Balance at December 31, 2001 2,384,117 23,841 21,655,867
_________ ______ __________
Net loss - - -
Issuance of common shares Class A 388,200 3,882 2,057,755
Issuance of common shares Class B, net of 124,750 that
converted to Class A 2,464,207 24,642 23,469,649
Issuance of restricted shares Class A - - -
Repurchase of common shares Class A (46,069 shares) - - -
Distributions - - -
_________ ______ __________
Balance at December 31, 2002 5,236,524 $52,365 $47,183,271
========= ====== ==========
Accumulated
distributions Defered Cost of
in excess of Compensation treasury
earnings Obligation shares Total
Balance at December 31, 2000 $ (6,223,523) $ - $ (127,467) $ 15,328,718
Net income 790,508 - - 790,508
Repurchase of common shares Class A (24,723 shares) - - (160,703) (160,703)
Distributions (604,742) - - (604,742)
_________ _________ ________ __________
Balance at December 31, 2001 (6,037,757) - (288,170) 15,353,781
_________ _________ ________ __________
Net loss (658,773) - - (658,773)
Issuance of common shares, Class A - - - 2,061,637
Issuance of common shares, Class B, net of 124,750 that
converted to Class A - - - 23,494,291
Issuance of restricted shares Class A - (205,353) 185,119 (20,234)
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 $(8,426,846) $ (205,353) $(397,189) $38,206,248
========= ======== ======= ==========
See Notes to Consolidated Financial Statements.
AMREIT AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years ended December 31,
2002 2001
Cash flows from operating activities:
Net (loss) income $ (658,773) $ 790,508
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Loss (gain) on sale of property 47,553 (254,013)
Depreciation and amortization 723,607 481,265
Increase in minority interest in net income of consolidated
joint ventures 308,010 527,571
Deferred merger costs 1,904,370 -
Decrease (increase) in accounts receivable 1,155,875 (89,921)
Decrease (increase)in accounts receivable - related party 378,494 (298,521)
Increase in prepaid expenses, net (170,028) (128,324)
(Decrease) increase in accounts payable (365,018) 821,168
Increase in accounts payable- related party 181,123 15,524
Cash receipts from direct financing leases
less than income recognized 282,805 (38,581)
Decrease (increase) in accrued rental income 32,095 (102,757)
Increase in prepaid rent 6,177 -
Increase in other assets (49,114) (81,545)
Increase in deferred compensation (48,086) -
_________ _________
Net cash provided by operating activities 3,729,090 1,642,374
_________ _________
Cash flows from investing activities:
Improvements to real estate (623,124) (432,276)
Acquisitions of real estate (18,951,523) (3,445,279)
Additions to furniture, fixtures and equipment (25,131) (37,061)
Distributions from (investment in) joint ventures 431,604 (729,958)
Proceeds from sale of property 3,692,544 2,520,259
Decrease (increase) in preacquisition costs 207,435 (208,576)
__________ _________
Net cash used in investing activities (15,268,195) (2,332,891)
__________ _________
Cash flows from financing activities:
Proceeds from notes payable 19,253,403 8,038,500
Payments of notes payable (3,399,277) (6,539,134)
Loan acquisition costs (38,035) (169,579)
Issuance of treasury stock 185,119 -
Purchase of treasury stock (294,138) (160,703)
Issuance of common stock (517,857) -
Retirement of common stock (106,500) -
Common dividends paid (1,730,316) (604,742)
Contributions from minority interests 809,971 -
Distributions to minority interests (343,514) (582,575)
__________ ___________
Net cash provided by (used in) financing activities 13,818,856 (18,233)
__________ ___________
Net increase (decrease) in cash and cash equivalents 2,279,751 (708,750)
Cash and cash equivalents at January 1 227,117 935,867
__________ ___________
Cash and cash equivalents at December 31 $ 2,506,868 $ 227,117
========== ===========
Supplemental schedule of noncash investing and financing activities
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 $23,890,319 worth of property and issued 2,589,179 shares of Class
B common stock.
Supplemental schedule of cash flow information: Cash paid during the year
for:
Interest 1,691,927 1,063,574
Income taxes 133,841 -
See Notes to Consolidated Financial Statements.
AMREIT AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
AmREIT, ("AmREIT" or the "Company") formally AmREIT, Inc., which was
incorporated in the state of Maryland in August 1993, is a real estate
investment trust ("REIT") based in Houston, Texas and is listed on the
American Stock Exchange (AMY). AmREIT was organized in the state of Texas on
December 22, 2002 and is a pre-eminent sponsor of real estate direct
participation programs to the financial planning community. For more than 17
years, the Company has established a track record of investing in commercial
real estate leased to parent companies in the retail, financial services and
banking, medical and restaurant sectors. AmREIT's real estate team focuses on
development, management, brokerage and ownership of freestanding credit tenant
leased ("CTL") and frontage shopping centers ("FSC") that are located
contiguous to major thoroughfares and traffic generators. AmREIT's customer
list includes national and regional tenants such as: Walgreens, Goodyear Tire,
Washington Mutual, IHOP, McDonald's, Herman Hospital, Radio Shack, Coldwell
Banker, Guaranty Federal, Bennigan's, Chili's, Texas Children's Pediatric
Associates, Discount Tire, etc.
AmREIT owns a real estate portfolio that consists of over 46 properties located
in 18 states. Its properties include single-tenant; free standing credit tenant
leased projects and multi-tenant frontage projects. The single tenant projects
are located from coast to coast and are primarily leased to corporate tenants
where the lease is the direct obligation of the parent companies. In so doing,
the dependability of the lease payments are based on the strength and viability
of the entire company, not just that location. The multi-tenant projects are
situated primarily throughout Texas. Supporting the real estate portfolio is an
operating company subsidiary of AmREIT that provides a complete range of
services including development, construction management, property management,
brokerage and leasing.
Through AmREIT's direct participation programs, it creates new investment
entities that buy and develop commercial real estate with proceeds raised from
third-party investors. AmREIT has extensive experience and long-term
relationships in the commercial real estate market - the basis of its ability
to sponsor real estate investment opportunities while creating fee income and
carried interests for AmREIT and its shareholders.
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. This merger transaction triggered a payment under the
deferred consideration agreement between AmREIT and H. Kerr Taylor, President
and Chief Executive Officer. The deferred consideration agreement was approved
by the shareholders in 1998 as part of the sale of Mr. Taylor's advisory
company to AmREIT. In the agreement, Mr. Taylor would receive additional class
A common shares, in exchange for the sale of his advisory company, as AmREIT
issued additional capital. Mr. Taylor was issued approximately 302 thousand
Class A common shares, which resulted in a deferred merger expense of $1.9
million in the third quarter 2002. Under the deferred consideration agreement,
approximately 384 thousand shares remain to be issued to Mr. Taylor in the
event the Company issues additional shares prior to June 4, 2004, the
expiration date of the agreement.
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 plus
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 cost 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 depreciated over the life of the lease.
INVESTMENT IN NON-CONSOLIDATED AFFILIATES
AmREIT invested $250 thousand as a limited partner and $1,000 as a general
partner in AmREIT Opportunity Fund, Ltd. ("AOF"), which is 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. Based
on the general partner's analysis of owned real estate as of December 31, 2002,
none of the assets owned or in liquidation by AOF are impaired.
AmREIT invested $200 thousand as a limited partner and $1,000 as a general
partner in AmREIT Income & Growth Fund, Ltd. ("AIG") that is 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 3.9% 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 that is
accounted for using the equity method. AmREIT CDP #27, LP was formed to acquire
commercial real property and to develop, operate, lease, manage, and or sell
real property. AmREIT CDP #27, LP 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.
ARIC invested $122 thousand as a limited partner in AmREIT CDP SPE #33, Ltd.
that is accounted for using the equity method. AmREIT CDP SPE #33, Ltd. was
formed to acquire commercial real property and to develop, operate, lease,
manage, and or sell real property. In December 2001, AmREIT CDP #33, Ltd.
purchased three IHOP leasehold estate properties located in Houston, Texas,
Orem, Utah, and Hagerstown, Maryland.
AmREIT invested $330 thousand as a member in AmREIT CDP #31, LLC ("CDP 31")
that is accounted for using the equity method. CDP 31 was formed to acquire
commercial real property and to develop, operate, lease, manage, and or sell
real property. CDP 31 purchased two IHOP properties in 2001 located in
Cookeville, Tennessee and Scottsdale, Arizona. Both properties were sold during
the first quarter 2002, and CDP 31 does not own any real property as of
December 31, 2002.
OTHER ASSETS
Other assets include loan acquisition costs, net of accumulated amortization,
of $250 thousand. 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, 2002 totaled $86 thousand.
DEFERRED COMPENSATION
Deferred compensation includes stock grants to employees as a form of long term
compensation. The stock grants vest over a period of time not to exceed four
years. This allows the Company to align the interest of its employees with the
interest of our shareholders. As the stock grants vest, the Company will
amortize the vested portion to compensation expense. The expense will be
calculated by taking the number of shares vested multiplied by the market price
per share as determined on the vesting dates.
Effective January 1, 2003, AmREIT will adopt SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB
Statement No. 123".
STOCK ISSUANCE COSTS
Issuance costs incurred in the raising of capital through the sale of common
stock 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 is qualified as a real estate investment trust ("REIT") under the
Internal Revenue Code 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 is distributed by March 15 of the following year.
AmREIT Realty Investment Corporation ("ARIC"), a wholly owned subsidiary of
AmREIT, is treated as a taxable REIT subsidiary for Federal income tax
purposes. As such, ARIC and its consolidated subsidiaries have recorded a
Federal income tax expense at December 31, 2002 of $61 thousand, which
represents the Federal income tax obligations on the consolidated taxable REIT
subsidiary's taxable net income. Additionally, in 2002, a deferred tax
liability of $28 thousand was 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 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.
The following table presents information necessary to calculate basic and
diluted earnings per share for the periods indicated:
For the Years Ended December 31,
BASIC AND DILUTED EARNINGS PER SHARE 2002 2001
Weighted average common shares outstanding (in thousands) 2,470 2,355
Basic and diluted (loss)/earnings per share * $(0.62) $0.34
------- -----
EARNINGS FOR BASIC AND DILUTED COMPUTATION
(Loss) earnings to Class A common shareholders (in thousands) * $(1,524) $791
====== ====
* For 2002, the loss of $1.524 million includes the charge taken against
earnings during the third quarter of $1.9 million, 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 the third quarter of 2002.
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
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. The Company's total debt obligations
are $33.6 million, of which $13.42 million has variable rate terms and
therefore, the fair value is representative of its carry value. Approximately
$20.18 million has fixed rate terms, of which approximately $15.5 million was
entered into during 2002. Based on the dates that the debt obligations were
entered into and the pricing on current debt obligations, the Company believes
that the fair value of its fixed rate debt obligations is materially
representative of its carry value.
NEW ACCOUNTING STANDARDS
On June 29, 2001, SFAS No. 141, "Business Combinations" was approved by the
Financial Accounting Standards Board ("FASB"). SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Goodwill and certain intangible assets will remain on the
balance sheet and not be amortized. On an annual basis, and when there is
reason to suspect that their values have been diminished or impaired, these
assets must be tested for impairment, and write-downs may be necessary. The
Company implemented SFAS No. 141 on July 1, 2001. The adoption of this
Statement had no effect on the Company's consolidated financial position or
results of operations.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets " was
approved by the FASB. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. The Company implemented SFAS No. 142 on January 1,
2002. The adoption of SFAS No. 142 did not have a material impact on our
consolidated financial position, results of operations, or cash flows.
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which is effective for fiscal years beginning after June 15,
2002. SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The adoption of SFAS No. 143 did not have a material
impact on our consolidated financial position, results of operations, or cash
flows.
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, opertionally and for financial reporting
purposes, from the rest of the entity. The adoption of SFAS No. 144 did not
have a material impact on our consolidated financial position, results of
operations, or cash flows.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002. The initial
recognition and measurement provisions of the Interpretation are applicable to
guarantees issued or modified after December 31, 2002 and are not expected to
have a material effect on the Company's consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002, however, these disclosure
modifications are not applicable to the Company and adoption of SFAS 148 is not
anticipated to have a material impact on our consolidated financial position,
results of operations, or cash flows.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. The application of this Interpretation is not
expected to have a material effect on the Company's financial statements. The
Interpretation requires certain disclosures in financial statements issued
after January 31, 2003 if it is reasonably possible that the Company will
consolidate or disclose information about variable interest entities when the
Interpretation becomes effective.
Reclassification
Certain amounts in the 2001 consolidated financial statements have been
reclassified to conform to the presentation used in the 2002 consolidated
financial statements.
2. OPERATING LEASES
A summary of minimum future rentals to be received, exclusive of any renewals,
under noncancellable operating leases in existence at December 31, 2002 is as
follows:
2003 4,342,650
2004 4,260,343
2005 4,015,934
2006 3,994,020
2007 3,754,100
2008-2027 15,285,089
----------
$35,652,136
3. NET INVESTMENT IN DIRECT FINANCING LEASES
The Company's net investment in its direct financing leases at December 31,
2002 included:
Minimum lease payments receivable $ 61,306,182
Unguaranteed residual value 3,858,403
Less: Unearned income (41,759,261)
------------
$ 23,405,324
A summary of minimum future rentals, exclusive of any renewals, under the
noncancellable direct financing leases follows:
2003 2,444,944
2004 2,453,682
2005 2,462,421
2006 2,471,778
2007 2,605,857
2008 - 2027 48,867,500
-----------
Total $61,306,182
===========
4. INVESTMENT IN NON-CONSOLIDATED AFFILIATES
AmREIT owns interests in 5 limited liability companies or limited
partnerships, which are accounted for under the equity method since
AmREIT exercises significant influence. Our interests in these joint ventures
and limited partnerships range from 2% to 40%, which are primarily single and
multi-tenant net lease retail real estate assets. Combined condensed financial
information of these ventures (at 100%) is summarized as follows:
Combined Balance Sheet December 31, 2002
Assets
Property, net $ 8,698,634
Cash 4,172,585
Other assets 2,456,268
-------------
TOTAL ASSETS $15,327,487
===========
Liabilities and partners' capital
Notes payable $ 3,859,810
Other liabilities 493,454
Partners capital 10,974,223
------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $15,327,487
===========
Combined Statement of Operations
2002 2001
Total Revenue $ 2,624,850 $ 582,001
Expense
Interest 358,672 83,110
Depreciation and amortization 189,066 71,640
Other 188,834 188,598
-------------- ---------
TOTAL EXPENSE 736,572 343,348
-------------- ---------
NET INCOME $ 1,888,278 $ 238,653
============= ============
5. NOTES PAYABLE
In November 1998, the Company entered into an unsecured credit facility (the
"Credit Facility"), which is being used to provide funds for the acquisition of
properties and working capital, and repaid all amounts outstanding under the
Company's prior credit facility. Under the Credit Facility, which had an
original term of one year, and has been extended through April 2003, the
Company may borrow up to $20 million subject to the value of unencumbered
assets. The Company is negotiating with the Lender for an extension of the
Credit Facility, which would extend the maturity of the Credit Facility beyond
December 31, 2003. The Credit Facility contains covenants, which among other
restrictions, require the Company to maintain a minimum net worth and a maximum
leverage ratio. As of December 31, 2002, the Lender had waived these financial
covenants. The Credit Facility bears interest at an annual rate of LIBOR plus a
spread of 2.0% (3.4375% as of December 31, 2002). On December 31, 2002, $11.76
million was outstanding under the Credit Facility. Thus the Company has
approximately $8.24 million available under its line of credit subject to use
of proceeds by the lender.
In March 1999, the Company entered into a ten-year mortgage note, amortized
over 30 years, for $1 million with $968 thousand being outstanding at December
31, 2002. 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,
2002 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 $1.179 million, net of $107 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 $1.3 million being outstanding at
December 31, 2002. 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, 2002 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 million and land of $741 thousand.
In October 2001, the Company entered into a ten-year mortgage note amortized
over 30 years, for $2.4 million with $2.378 million being outstanding at
December 31, 2002. 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, 2002 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 $3.967 million, net of $330 thousand of accumulated
depreciation.
In October 2001, the Company entered into a note payable for $1.658 million
with $1.658 million being outstanding at December 31, 2002. The interest rate
is equal to the thirty day LIBOR rate plus 280 basis points, but in no event
lower than 6.75%, which equated to 6.75% at December 31, 2002. The note matures
November 1, 2004 and as of December 31, 2002 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 $1.33 million and land of $564
thousand.
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 following
table summarizes the terms of loan agreements and the property collateralizing
the non-recourse notes. As of December 31, 2002 the Company is in compliance
with all terms of the agreement. The non-recourse notes have
cross-collateralization and default provisions with each other.
Loan amount at Net investment in
Location Original loan December 31, Fixed direct financing
amount 2002 interest Date loan lease
(in thousands) (in thousands) rate matures (in thousands)
Shawnee, KS $ 751 $ 741 7.82% May 1, 2012 $ 889
El Paso, TX 760 751 7.82% May 1, 2012 897
Beaverton, OR 887 876 7.82% May 1, 2012 1,046
Rochester, NY 951 939 7.82% May 1, 2012 1,136
Baton Rouge, LA 1,250 1,235 7.82% May 1, 2012 1,460
Charlottesville, VA 630 622 7.82% May 1, 2012 749
Albuquerque, NM 767 747 7.82% May 1, 2012 887
Springfield, MO 1,030 1,019 7.82% June 1, 2012 1,208
Salem, OR 621 614 7.82% June 1, 2012 732
Roanoke, VA 712 706 7.89% July 1, 2012 845
Alexandria, LA 716 711 7.89% Aug. 1, 2012 855
Centerville, UT 1,242 1,233 7.89% Aug. 1, 2012 1,078
Memphis, TN 1,342 1,333 7.89% Aug. 1, 2012 1,088
La Verne, CA 745 741 7.89% Sept. 1, 2012 998
El Paso, TX 894 890 7.89% Sept. 1, 2012 1,156
Memphis, TN 777 773 7.89% Sept. 1, 2012 1,062
Parker, CO 835 831 7.89% Sept. 1, 2012 1,112
----------------- ----------------- --------------------
Total $14,910 $14,762 $17,198
================= ================= ====================
In July of 2002, the Company issued thirteen, 8 year subordinated, 5.47%
interest-only notes totaling $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)
2003 $ 12,172
2004 447
2005 483
2006 522
2007 565
Thereafter 19,397
------------
$ 33,586
6. MAJOR TENANTS
The following schedule summarizes rental income by lessee for 2002 and 2001 (in
thousands):
2002 2001
International House of Pancakes $ 1,784 $ 510
Footstar, Inc. 735 713
OfficeMax, Inc. 509 518
Wherehouse Entertainment 381 378
Hollywood Entertainment Corp. 273 273
Sugar Land Imaging Affiliates Ltd. 264 217
Mattress Giant, Inc. 168 106
Washington Mutual 158 158
Radio Shack 109 109
Golden Corral (4) 167 0
Texas Children's Pediatrics (2) 137 0
Don Pablos 78 79
One Care Health Industries, Inc. (1) 57 204
Comp USA (4) 123 0
Baptist Memorial Hospital (4) 102 0
TGI Friday's (4) 83 0
Dr. Pucillo (4) 87 0
Pier 1 62 0
America's Favorite Chicken Co. (3) (4) 55 21
Blockbuster (4) 42 0
Waldenbooks (4) 38 0
Jack in the Box (4) 34 0
Goodyear (4) 25 0
Skewers 18 0
Hope Rehab 5 0
------- -------
Total $ 5,494 $ 3,286
======= =======
(1) One Care Health Industries, Inc. was a tenant at Copperfield Medical
Plaza. In April of 2002, AmREIT negotiated a lease buy out agreement
with One Care for approximately $190 thousand. As a result, AmREIT
immediately released approximately 75% of the available space to Texas
Children's Pediatrics and the Company has negotiated a lease for
balance of the space.
(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.
(3) The America's Favorite Chicken Co. restaurant located in Atlanta
was sold by AmREIT during the first quarter 2001.
(4) Properties were purchased from three affiliated partnerships in
July 2002.
7. 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):
2002 2001
-------- --------
Ordinary income $ - $ 6
Return of capital 1,730 143
Capital gain - 456
-------- --------
$ 1,730 $ 605
======== ========
8. 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
stemmed from stock issued to H. Kerr Taylor, President and Chief Executive
Officer, based on a deferred consideration that was approved by the
stockholders in 1998. Mr. Taylor was issued 302 thousand shares of Class A
common stock, which resulted in a $1.9 million charge to earnings in the third
quarter 2002. As the Company raises additional equity, Mr. Taylor is eligible
to receive up to an additional 384 thousand shares of Class A common stock
pursuant to the deferred consideration agreement approved by the stockholders
in 1998 related to the sale of Mr. Taylor's advisory company to AmREIT.
The Company provides property acquisition, leasing, administrative and
management services for ten affiliated real estate limited partnerships that
are under common management (the "Partnerships"). The president and director of
the Company owns between 45% and 100% of the stock of the companies that serve
as the general partner of the Partnerships. Service fees of $245 thousand and
$335 thousand were paid by the Partnerships to the Company for 2002 and 2001
respectively.
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.
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 and Sapp, LLP acts as the Company's corporate attorneys. Bryan
Goolsby is the managing director of Locke Liddell and Sapp LLP and is a member
of the Company's board of trust managers. During 2002 and 2001, the Company
paid Locke Liddell and Sapp LLP approximately $777 thousand and $133 thousand,
respectively, for legal services rendered.
9. PROPERTY ACQUISITIONS AND DISPOSITIONS
During the third quarter, the Company purchased seventeen IHOP restaurant
properties. Fifteen of the properties are leasehold estate properties, whereby
the Company owns the physical improvements, but does not own the underlying
land. Two of the properties were purchased in fee simple. The total purchase
price was $17.25 million. The properties were purchased utilizing $2.34 million
cash and $14.91 million non-recourse, 10-year debt with an average
interest rate of 7.85%. Each lease agreement extends for a period of 18-25
years, however, the tenant has the ability to extend the primary term of the
lease for two to three additional terms of five years each. Additionally, each
lease is subject to a corresponding ground lease with the same term of 18-25
years and two to three additional terms of five years each. The Company
recorded $1.18 million in rental income during 2002 from properties acquired
in this transaction.
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., which was accounted for as an acquisition. With
the merger of the affiliated partnerships, 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. The class B common shares are not listed on an exchange and
there is currently no available trading market for the class B common shares.
The class B common shares do not have voting rights, receive a fixed 8%
cumulative and preferred dividend, and are convertible into the class A common
shares on a one-for-one basis at any time, at the holder's option.
Approximately $760 thousand in 8 year, interest only, subordinated notes were
issued to limited partners of the affiliated partnerships who dissented against
the merger. The acquired properties are unencumbered, single tenant, free
standing properties on lease to national and regional tenants, where the lease
is the direct obligation of the parent company.
The following selected unaudited pro forma consolidated statement of operations
for AmREIT and subsidiaries gives effect to the merger with its three
affiliated partnerships, which assumes that the merger occurred on January 1,
2002 and January 1, 2001, respectively. Additionally, we have presented a
summary of assets acquired and liabilities assumed as of the date of the
merger, July 23, 2002.
Pro Forma Consolidated Statement of Operations
For the Twelve Months Ended December 31,
(Unaudited)
2002 2001
Revenues
Rental income and earned income $ 6,399,475 $ 5,012,747
Other income 2,542,974 2,459,287
----------- -----------
Total Revenues 8,942,449 7,472,034
----------- -----------
Total Expense 8,806,471 6,811,762
----------- -----------
Proforma Income Before Minority Interest in Net Income of
Consolidated Joint Ventures 135,978 660,272
Federal Income Tax Expense from Non-Qualified Subsidiary (20,524) (144,420)
------------ ------------
Minority Interest in Net Income of Consolidated Joint Ventures (46,419) -
Pro Forma Net Income $ 69,035 $ 515,852
Distributions to Class B Shareholders (1,822,262) (1,915,992)
____________ ____________
Net (Loss) available to Class A Shareholders (1,753,227) (1,400,140)
Pro Forma Basic and Diluted (Loss)Per Share $ (0.65) $ (0.52)
============ ============
Pro Forma Weighted Average Common Shares Outstanding 2,691,580 2,706,961
Summary of Assets Acquired and Liabilities Assumed
As of July 23, 2002,
(Unaudited)
Assets
Buildings $ 16,330,088
Land 7,560,231
Accounts receivable 1,105,612
Prepaid expenses 15,757
-------------
TOTAL ASSETS $ 25,011,688
=============
Liabilities $ 132,630
Shareholders' equity
Class B common stock $ 24,879,058
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 25,011,688
=============
10. COMMITMENT
The Company has a one-year lease agreement for its office facilities through
December 31, 2003. Rental expense for the years ended December 31, 2002 and
2001 was $77 thousand and $71 thousand, respectively.
AmREIT and subsidiaries
SCHEDULE III - Consolidated Real Estate Owned and Accumulated Depreciation For
the year ended December 31, 2002
Cost at
Property Encum- Improve- Close of Year
Description brances Building Land ments Building
Properties Invested in
Under Operating Leases
Radio Shack Retail Store, Texas $ - $ 788,330 $ 337,856 $ - $ 788,330
Blockbuster Music Store, Missouri $ - $ 1,247,461 $ 534,483 $ - $ 1,247,461
OneCare Health Industries, Inc., Texas $ - $ 1,436,615 $ 534,086 $ - $ 1,436,615
Blockbuster Music Store, Kansas $ - $ 1,382,846 $ 592,648 $ - $ 1,382,846
Just For Feet Store, Arizona $ - $ - $ 1,214,046 $ - $ -
Bank United, Woodlands, Texas $ - $ - $ 562,846 $ - $ -
Bank United, Houston, Texas $ - $ - $ 851,973 $ - $ -
Just For Feet Store, Louisiana $ - $ 2,254,537 $ 966,230 $ - $ 2,254,537
Hollywood Video Store, Louisiana $ - $ 784,123 $ 443,544 $ - $ 784,123
Hollywood Video Store, Mississippi $ - $ 835,854 $ 450,000 $ - $ 835,854
OfficeMax, Delaware $ - $ 1,978,313 $ 870,480 $ - $ 1,978,313
Lake Woodlands Plaza $ - $ 2,832,540 $ 1,369,065 $ - $ 2,832,540
Sugar Land Plaza $ - $ 2,902,157 $ 1,280,043 $ - $ 2,902,157
Don Pablo's, Georgia $ - $ - $ 773,800 $ - $ -
IHOP, Topeka $ - $ - $ 450,984 $ - $ -
IHOP, Sugarland $ - $ - $ 740,882 $ - $ -
IHOP, St. Peters $ - $ - $ 564,096 $ - $ -
Jack in the Box $ - $ 504,230 $ 216,099 $ - $ 504,230
Baptist Memorial Health $ - $ 1,456,017 $ 624,006 $ - $ 1,456,017
Payless Shoe Source $ - $ 498,098 $ 212,907 $ - $ 498,098
Golden Corral $ - $ 1,097,215 $ 725,552 $ - $ 1,097,215
Golden Corral $ - $ 1,297,851 $ 556,221 $ - $ 1,297,851
TGI Friday's $ - $ 1,453,769 $ 623,043 $ - $ 1,453,769
Goodyear Tire $ - $ 376,172 $ 161,217 $ - $ 376,172
Guitar Center $ - $ 1,782,470 $ 763,917 $ - $ 1,782,470
Popeye's $ - $ 778,771 $ 333,758 $ - $ 778,771
Dr. Pucillo $ - $ 1,276,836 $ 547,214 $ - $ 1,276,836
Blockbuster Video $ - $ 688,091 $ 294,896 $ - $ 688,091
Pier One Imports $ - $ 1,000,562 $ 422,722 $ - $ 1,000,562
IHOP, Memphis $ - $ - $ 469,502 $ - $ -
IHOP, Centerville $ - $ - $ 457,492 $ - $ -
________________________________________________________________________________
Total $ - $ 28,652,858 $ 18,945,608 $ - $ 28,652,858
===============================================================================================================================
Properties Invested in Under
Direct Financing Lease
Just For Feet Store, Arizona $ - $ 2,848,151 $ - $ - $ 2,848,151
IHOP, Topeka $ - $ 993,774 $ - $ - $ 993,774
IHOP, Sugarland $ - $ 999,517 $ - $ - $ 999,517
IHOP, St. Peters $ - $ 1,331,121 $ - $ - $ 1,331,121
IHOP, Albuquerque $ - $ 886,692 $ - $ - $ 886,692
IHOP, Baton Rouge $ - $ 1,460,170 $ - $ - $ 1,460,170
IHOP, Beaverton $ - $ 1,045,672 $ - $ - $ 1,045,672
IHOP, Charlottesville $ - $ 748,859 $ - $ - $ 748,859
IHOP, El Paso #1934 $ - $ 896,644 $ - $ - $ 896,644
IHOP, Roanoke $ - $ 845,051 $ - $ - $ 845,051
IHOP, Rochester $ - $ 1,135,950 $ - $ - $ 1,135,950
IHOP, Salem $ - $ 731,642 $ - $ - $ 731,642
IHOP, Shawnee $ - $ 889,229 $ - $ - $ 889,229
IHOP, Springfield $ - $ 1,207,602 $ - $ - $ 1,207,602
IHOP, Alexandria $ - $ 854,837 $ - $ - $ 854,837
IHOP, Centerville $ - $ 1,077,649 $ - $ - $ 1,077,649
IHOP, Memphis #4462 $ - $ 1,088,114 $ - $ - $ 1,088,114
IHOP, La Verne $ - $ 997,980 $ - $ - $ 997,980
IHOP, El Paso #1938 $ - $ 1,156,194 $ - $ - $ 1,156,194
IHOP, Memphis #4482 $ - $ 1,098,749 $ - $ - $ 1,098,749
IHOP, Parker $ - $ 1,111,727 $ - $ - $ 1,111,727
________________________________________________________________________________
Total $ - $ 23,405,324 $ - $ - $ 23,405,324
===============================================================================================================================
Life on Which
Depreciation
Cost at in Latest Income
Close of Year Accumulated Date of Date Statement
Land Depreciation Construction Acquired is Computed
Properties Invested in
Under Operating Leases
Radio Shack Retail Store, Texas $ 337,856 $ 172,606 N/A 06-15-94 39 Years
Blockbuster Music Store, Missouri $ 534,483 $ 138,644 N/A 11-14-94 39 Years
OneCare Health Industries, Inc., Texas $ 534,086 $ 236,890 N/A 09-26-95 39 Years
Blockbuster Music Store, Kansas $ 592,648 $ 128,969 N/A 09-12-95 39 Years
Just For Feet Store, Arizona $ 1,214,046 N/A N/A 09-11-96 N/A
Bank United, Woodlands, Texas $ 562,846 N/A N/A 09-23-96 N/A
Bank United, Houston, Texas $ 851,973 N/A N/A 12-11-96 N/A
Just For Feet Store, Louisiana $ 966,230 $ 165,360 N/A 06-09-97 39 Years
Hollywood Video Store, Louisiana $ 443,544 $ 75,635 N/A 10-31-97 39 Years
Hollywood Video Store, Mississippi $ 450,000 $ 107,161 N/A 12-30-97 39 Years
OfficeMax, Delaware $ 870,480 $ 232,494 N/A 4-14-98 39 Years
Lake Woodlands Plaza $ 1,369,065 $ 288,585 N/A 6-3-98 39 Years
Sugar Land Plaza $ 1,280,043 $ 330,195 N/A 7-1-98 39 Years
Don Pablo's, Georgia $ 773,800 N/A N/A 12-18-98 N/A
IHOP, Topeka $ 450,984 N/A N/A 9-30-99 N/A
IHOP, Sugarland $ 740,882 N/A N/A 9-22-99 N/A
IHOP, St. Peters $ 564,096 N/A N/A 11-30-01 N/A
Jack in the Box $ 216,099 $ 6,003 N/A 7-23-02 39 Years
Baptist Memorial Health $ 624,006 $ 17,453 N/A 7-23-02 39 Years
Payless Shoe Source $ 212,907 $ 5,866 N/A 7-23-02 39 Years
Golden Corral $ 725,552 $ 13,109 N/A 7-23-02 39 Years
Golden Corral $ 556,221 $ 15,474 N/A 7-23-02 39 Years
TGI Friday's $ 623,043 $ 17,098 N/A 7-23-02 39 Years
Goodyear Tire $ 161,217 $ 4,498 N/A 7-23-02 39 Years
Guitar Center $ 763,917 $ 21,336 N/A 7-23-02 39 Years
Popeye's $ 333,758 $ 9,351 N/A 7-23-02 39 Years
Dr. Pucillo $ 547,214 $ 15,251 N/A 7-23-02 39 Years
Blockbuster Video $ 294,896 $ 8,174 N/A 7-23-02 39 Years
Pier One Imports $ 422,722 $ 12,000 N/A 7-23-02 39 Years
IHOP, Memphis $ 469,502 N/A N/A 7-26-02 N/A
IHOP, Centerville $ 457,492 N/A N/A 7-25-02 N/A
____________________________________________________________________
Total $ 18,945,608 $ 2,022,152
========================================================================
Properties Invested in Under
Direct Financing Lease
Just For Feet Store, Arizona $ - (1) N/A 09-11-96 N/A
IHOP, Topeka $ - (1) N/A 9-30-99 N/A
IHOP, Sugarland $ - (1) N/A 9-22-99 N/A
IHOP, St. Peters $ - (1) N/A 11-30-01 N/A
IHOP, Albuquerque $ - (1) N/A 4-23-02 N/A
IHOP, Baton Rouge $ - (1) N/A 4-23-02 N/A
IHOP, Beaverton $ - (1) N/A 4-16-02 N/A
IHOP, Charlottesville $ - (1) N/A 4-23-02 N/A
IHOP, El Paso #1934 $ - (1) N/A 4-16-02 N/A
IHOP, Roanoke $ - (1) N/A 6-21-02 N/A
IHOP, Rochester $ - (1) N/A 4-16-02 N/A
IHOP, Salem $ - (1) N/A 5-17-02 N/A
IHOP, Shawnee $ - (1) N/A 4-16-02 N/A
IHOP, Springfield $ - (1) N/A 5-17-02 N/A
IHOP, Alexandria $ - (1) N/A 7-18-02 N/A
IHOP, Centerville $ - (1) N/A 7-25-02 N/A
IHOP, Memphis #4462 $ - (1) N/A 7-26-02 N/A
IHOP, La Verne $ - (1) N/A 8-23-02 N/A
IHOP, El Paso #1938 $ - (1) N/A 8-23-02 N/A
IHOP, Memphis #4482 $ - (1) N/A 8-23-02 N/A
IHOP, Parker $ - (1) N/A 8-23-02 N/A
____________________________________________________________________
Total $ - (1)
=================================================================================================================
(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 2002, 2001
and 2000 for operating lease properties are summarized as follows:
Accumulated
Cost Depreciation
Balance at December 31, 1999 29,861,678 1,123,790
Acquisitions / additions 33,430 -
Depreciation expense - 435,259
__________ _________
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
(3) The aggregate cost of all properties for Federal Income Tax purposes is
$71,261,389 at December 31, 2002.
(AMREIT LOGO)
SPECIAL INSTRUCTIONS:
CLASS C COMMON SHARES
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
See pages of the Prospectus for instructions
1. INVESTMENT
MAKE INVESTMENT CHECKS PAYABLE TO:
AMREIT
-------------- ---------------- [ ] Initial Investment - Qualified Plans (min. $3,000)
# of Shares Total $ Invested [ ] Initial Investment - Non-Qualified Plans (min. $5,000)
(# Shares x $10 = $ Invested) [ ] Additional Investment (increments of $10.00)
Minimum purchase $1,000 or 100 Shares
2. ADDITIONAL INVESTMENTS
I have received and reviewed the prospectus and understand that this investment is considered illiquid, not
convertible into the AmREIT class A shares for a period of seven years. I further understand that AmREIT's class A
shares are publicly traded on the American Stock Exchange.
-------- --------
Initials Initials
3. TYPE OF OWNERSHIP
[ ] IRA [ ] Joint Tenants With Right of Survivorship
(Enter Custodial Information under section 4) [ ] Community Property
[ ] Keogh [ ] Tenants in Common ____________________
[ ] Qualified Pension Plan [ ] Custodian: A Custodian for _______under
[ ] Qualified Profit Sharing Plan the Uniform Gift to Minors Act or the
[ ] Trust / Trust Type:___________________________________ Uniform Transfers to Minors Act of the State of ______________
(Please specify, i.e. Family. Living, Revocable, etc.) [ ] Other ____________________________________
[ ] Individual
4. REGISTRATION NAME AND ADDRESS
Please print name(s) in which Shares are to be registered. INCLUDE TRUST OR CUSTODIAL NAME IF APPLICABLE. AMREIT DOES
NOT PROVIDE CUSTODIAL SERVICES; THEREFORE, IF THIS IS A CUSTODIAL ACCOUNT, A CUSTODIAN MUST BE SELECTED AND INDICATED
BELOW.
[ ] Mr [ ] Mrs [ ] Ms [ ] PhD [ ] DDS [ ] Other ______________ Taxpayer Identification Number
[ ][ ] - [ ][ ][ ][ ][ ][ ][ ]
----------------------------------------------------------
Social Security Number
[ ][ ][ ] - [ ][ ] - [ ][ ][ ][ ]
----------------------------------------------------------
Street Address
--------------------------------------------------------------------------------------------------------
City State Zip Code
------------------------------- -------------------------------- ------------------------------
Home Phone
Number
-----------------------------------
Birth Date
-----------------------------------
Email Address (E-mail addresses will not be sold or distributed and will only be used for
----------------------------------- corporate communication.)
5. INVESTOR NAME AND ADDRESS
[ ] Check here if investor information is the same as registration information,
and skip to section 6.
[ ] Mr [ ] Mrs [ ] Ms [ ] PhD [ ] DDS [ ] Other Taxpayer Identification Number
Name
[ ] [ ] - [ ][ ][ ][ ][ ][ ][ ]
----------------------------------------------------------
Social Security Number
[ ][ ][ ] - [ ][ ] - [ ][ ][ ][ ]
Street Address or P.O. Box
--------------------------------------------------------------------------------------------
City State Zip Code
------------------------------- -------------------------------- ------------------------------
Home Phone
Number Email Address
----------------------------------- -----------------------------------
Birth Date (E-mail addresses will not be sold or distributed and will only be
----------------------------------- used for corporate communication.)
-----------------------------------------------------------------------------------------------------------------------
(REVERSE SIDE MUST BE COMPLETED)
6 REGISTRATION NAME AND ADDRESS
Please separately initial each of the representations below. In order to induce AmREIT to accept this subscription, I
hereby represent and warrant to you as follows:
(a) I have received the Prospectus. ------------- -------------
Initials Initials
(b) I (i) either have a net worth (exclusive of home, home furnishings, and
automobiles) of at least $150,000, or have a net worth (as described above)
of at least $45,000 and had during the last tax year, or estimate that I
will have during the current tax year, a minimum annual gross income of ------------- -------------
$45,000; and (ii) if the state of my primary residence imposes a higher Initials Initials
suitability standard, I meet the higher suitability requirements imposed by
my state of primary residence as set forth in the Prospectus under
"Suitability Standards".
(c) This investment represents approximately ____% of my net worth, and allows ------------- -------------
the appropriate liquid net worth to meet my current needs. Initials Initials
(d) I acknowledge that the shares are not liquid. ------------- -------------
Initials Initials
I declare that the information supplied above is true and correct and may be relied upon by AmREIT in connection with my
investment in AmREIT. Under penalties of perjury, by signing this Signature Page, I hereby certify that (a) I have
provided herein my correct Taxpayer Identification Number, and (b) I am not subject to back-up withholding as a result
of a failure to report all interest or dividends, or the Internal Revenue Service has notified me that I am no longer
subject to back-up withholding.
--------------------------------- --------------------------------------- ------------------------------
Signature of Investor or Trustee Signature of Joint Owner, if applicable Date
(MUST BE SIGNED BY TRUSTEE(S) IF IRA, KEOGH OR QUALIFIED PLAN)
7 DIVIDENDS (YOU MUST CHECK ONE OF THE FOLLOWING)
NOTE: AmREIT DOES NOT PROVIDE CUSTODIAL SERVICES. IF THIS IS A CUSTODIAL ACCOUNT, PLEASE ENSURE THAT YOU HAVE COMPLETED
SECTION 4 APPROPRIATELY AND INDICATED THE NAME OF THE CUSTODIAN.
[ ] I prefer to participate in the Dividend Reinvestment Plan and have completed the enclosed DRIP enrolment form
[ ] I prefer to direct dividends to a party other than the registered owner per my instructions below
[ ] I prefer dividends to be deposited directly into the following account: Checking _______ Savings _______
(If you wish to have your dividends deposited via electronic deposits,
please complete the attached electronic deposit form and include the
appropriate voided check or deposit slip)
Institution Account
Name Number
----------------------------------------------------- ----------------------------
Name on
Account
---------------------------------------------------------------------------------------------------
Street Address
or P.O. Box
---------------------------------------------------------------------------------------------------
-------------------------------------- -------------- ----------------------------
City State Zip Code
[ ] I prefer dividends be paid to me at my address listed under Section 4
8 BROKER DEALER (TO BE COMPLETED BY REGISTERED REPRESENTATIVE)
THE BROKER-DEALER OR AUTHORIZED REPRESENTATIVE MUST SIGN BELOW to complete order. Broker-Dealer or authorized
representative warrants that it is a duly licensed Broker-Dealer or authorized representative and may lawfully offer
Shares in the state designated as the investor's address or the state in which the sale was made, if different. The
Broker-Dealer or authorized representative warrants that he has reasonable grounds to believe this investment is
suitable for the subscriber and that he has informed subscriber of all aspects of liquidity and marketability of this
investment.
Broker Dealer
Name
--------------------------------------------------------------------------------------------------------
BD Address
--------------------------------------------------------------------------------------------------------
City State Zip Code
--------------------- -------------------------------- -----------------------------
Reg. Rep. Phone Number
-------------------------------------------------------------- -----------------------------
Rep Address
--------------------------------------------------------------------------------------------------------
City State Zip Code
--------------------- -------------------------------- -----------------------------
Email Address (E-mail addresses will not be sold or distributed and will only be used for
------------------------------------ corporate communication.)
------------------------------------------------- --------------------------------------------------------
Registered Representative Signature Broker-Dealer Signature, if required
Please Mail completed Subscription Agreement (with all signatures) and personal check(s) made payable to
AmREIT
8 Greenway Plaza, Suite 824, Houston, TX 77046
1-800-888-4400
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee......................................... $ 4,048
NASD Filing Fee *............................................ $ 4,900
Legal fees and expenses *.................................... $200,000
Accounting fees and expenses *............................... $ 40,000
Printing, engraving and mailing expenses *................... $150,000
Blue Sky Fees and Expenses *................................. $ -
Miscellaneous (including solicitation costs)*................ $251,000
--------
TOTAL* $659,948
*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
II-1
reasonable expenses actually incurred by the person in connection with the
proceeding, and (ii) shall not be made in respect of any proceeding in which
the person shall have been found liable for willful or intentional misconduct
in the performance of his duty to the real estate investment trust. In
addition, 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 C 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 Amended and Restated Revolving Credit Agreement, effective August 1, 2000,
by and among the Registrant, certain lenders named therein and Wells Fargo
Bank, as Agent (incorporated by reference to Exhibit 10.1 of the Registrant's
Form 10-KSB for the quarter end September 30, 2000.
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
23.3 Consent of Deloitte & Touche LLP
----------------
II-2
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.
(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 trust officer, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trust officer, 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.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Amendment No. 1
to the 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 7th day of August, 2003.
AMREIT
(Registrant)
By: /s/ H. Kerr Taylor
------------------------------------------
Name: H. Kerr Taylor
Title: President and Chief Executive Officer
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
--------- ----- ----
President, Chief Executive Officer August 7, 2003
/s/ H. Kerr Taylor and Chairman of the Board
---------------------------------------------- (Principal Executive Officer)
H. Kerr Taylor
Executive Vice President
/s/ Chad C. Braun and Chief Financial Officer August 7, 2003
---------------------------------------------- (Principal Financial Officer)
Chad C. Braun
* Trust Manager August 7, 2003
----------------------------------------------
Robert S. Cartwright
* Trust Manager August 7, 2003
----------------------------------------------
G. Steven Dawson
* Trust Manager August 7, 2003
----------------------------------------------
Bryan L. Goolsby
* Trust Manager August 7, 2003
----------------------------------------------
Philip W. Taggart
----------------------------------------------
* Signed by Chad C. Braun as Attorney in Fact
II-4
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 C 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 Amendment and Restated Revolving Credit Agreement, effective
August 1, 2000, by and among the Registrant, certain lenders
named therein and Wells Fargo Bank, as Agent (incorporated by
reference to Exhibit 10.1 of the Registrant's Form 10-KSB for
the quarter end September 30, 2000
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
23.3 Consent of Deloitte & Touche LLP
II-5
EXHIBIT 1.1
FORM OF
DEALER MANAGER AGREEMENT
AmREIT
Up to 4,400,000 Class C Common Shares / $44,000,000
DEALER MANAGER AGREEMENT
_______________, 2003
AmREIT Securities Company
8 Greenway Plaza, Suite 824
Houston, Texas 77046
Ladies and Gentlemen:
AmREIT, a Texas real estate investment trust (the "Company"), is
registering for public sale a maximum of 4,400,000 shares of its Class C common
shares of beneficial interest, $.01 par value per share (the "Offering"), to be
issued and sold for an aggregate purchase price of $44,000,000 (4,000,000
shares to be offered to the public and 400,000 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 thereunder, covering the Shares.
Said registration statement, which includes a preliminary prospectus, was
initially filed with the SEC on April 21, 2003. 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).)
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
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 therefor, will be fully
paid and nonassessable and will conform to the description thereof contained in
the Prospectus.
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
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
4,400,000 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 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 7.5% 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
3
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
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 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
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 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.
5
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 therefor, 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.
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.
6
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
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
7
EXHIBIT "A"
AmREIT
Up to 4,400,000 Class C Common Shares / $44,000,000
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 MANAGEMENT AGREEMENT
The Dealer Manager and the Company have entered into that certain Dealer
Manager Agreement dated ______________, 2003, 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.
A-1
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 nonassessable. 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 7.5% 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 1.0% 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.
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 therefor. 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.
A-2
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
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.
A-3
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.
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 824, Houston, Texas 77046, and
to the Dealer when mailed to the address specified by Dealer herein.
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
Attest:
By: ______________________________ By: _________________________________
Name: ______________________________ Chad C. Braun
Title: ______________________________ President
A-4
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: ___________________________________
A-5
Exhibit 3.3
STATEMENT OF DESIGNATION
OF
CLASS C COMMON SHARES
OF
AMREIT
ARTICLE ONE
AmREIT (the "Trust"), pursuant to the provisions of Section 3.30 of the
Texas Real Estate Investment Trust Act (the "Texas REIT Act"), hereby files
this Statement of Designation of Class C Common Shares of the Trust (the
"Statement") prior to the issuance of any Class C Common Shares, such series of
unissued shares having been established by a resolution duly adopted by all
necessary action on the part of the Trust and the Board of Trust Managers, as
provided for in the Amended and Restated Declaration of Trust, as amended
("Declaration of Trust").
ARTICLE TWO
The name of the Trust is AmREIT.
ARTICLE THREE
Pursuant to the authority conferred upon the Board of Trust Managers by
the Declaration of Trust and Section 3.30 of the Texas REIT Act, the Board of
Trust Managers, pursuant to Section 10.20 of the Texas REIT Act, adopted a
resolution establishing the Class C Common Shares of the Trust and designating
the series and fixing and determining the preferences, limitations, and
relative rights thereof, as set forth in the true and correct copy of the
resolution attached hereto as Exhibit A (the "Designating Resolution").
ARTICLE FOUR
The Designating Resolution was adopted effective as of August 5, 2003.
ARTICLE FIVE
The Designating Resolution was duly adopted by all necessary action on the
part of the Trust.
IN WITNESS WHEREOF, the undersigned officer has executed this Statement
effective as of August ____, 2003.
By: /s/ Chad C. Braun
___________________________________
Name: Chad C. Braun
Title: Executive Vice President and
Chief Financial Officer
THE STATE OF TEXAS
COUNTY OF HARRIS
BEFORE ME, the undersigned Notary Public, duly commissioned and qualified
within and for the State and County aforesaid, personally came and appeared
CHAD C. BRAUN, in his capacity as Executive Vice President and Chief Financial
Officer of AmREIT, and acknowledged to me that he executed the above and
foregoing instrument on behalf of the said AmREIT, as his own free and
voluntary act and deed, for the uses, purposes and considerations therein
expressed.
IN WITNESS WHEREOF, has executed these presents together with me, Notary,
on this _____ day of August, 2003.
NOTARY PUBLIC
My commission expires:
EXHIBIT A
DESIGNATING RESOLUTIONS OF
THE BOARD OF TRUST MANAGERS OF
AMREIT
August 5, 2003
Authorization of Class C Common Shares
WHEREAS, the Board of Trust Managers of AmREIT (the "Trust") has deemed it
to be in the best interest of the Trust and its shareholders for the Trust to
establish a series of common shares pursuant to the authority granted to the
Board of Trust Managers in the Restated Declaration of Trust, as amended (the
"Declaration of Trust") of the Trust:
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority vested in
the Board of Trust Managers by the Declaration of Trust, a series of common
shares, par value $0.01 per share, is hereby established, and the terms of the
same shall be as follows:
A. TITLE. The series of preferred shares is hereby designated as the
"Class C Common Shares" (the "Class C Common Shares").
B. NUMBER. The maximum number of authorized shares of the Class C Shares
shall be 4,400,000.
C. DIVIDENDS. Subject to the preferential rights of any series of
Preferred Shares, holders of Class C Common Shares will be entitled to receive,
when, as and if declared by the 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 (the "Issue Date") and will be payable monthly when, as and if the
Board of Trust Managers declares a monthly dividend on the Class C Common
Shares for that month in its discretion (the last day of each month being 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 shares records of
the Trust at the close of business on the applicable record date, which will be
the fifteenth day of the calendar month in which the applicable Dividend
Payment Date falls or such other date designated by the Board of Trust Managers
for the payment of dividends that is no more than thirty (30) nor less than ten
(10) days prior to the Dividend Payment Date. Holders of Series C Common Shares
shall not be entitled to any dividends, whether payable in cash, property or
shares, in excess of non-cumulative dividends, as herein provided on the Class
C Common Shares.
If any Class C Common Shares are outstanding, no dividends will be
declared or paid or set apart for payment on the Class A Common Shares for any
period unless full dividends have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
such payment on the Class C Common Shares for the then current monthly dividend
period; provided however, that dividends on the Class A Common Shares may be
declared and paid and set apart for payment without regard to whether any
dividends were paid or not paid (or declared or not declared) by the Trust on
the Class C Common Shares for any past monthly dividend period.
D. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Trust, subject to the prior rights of any series of Preferred
Shares, the holders of Class C Common Shares will share pro rata, with the
holders of the Class A Common Shares, the Class B Common Shares, the Class C
Common Shares and the holders of any other series of Common Shares that rank on
a parity with the Class C Common Shares as to the distribution of assets upon
liquidation, the assets of the Trust remaining following the payment of all
liquidating distributions payable to holders of capital shares of the Trust
with liquidation rights senior to those of the common shares.
E. MANDATORY REDEMPTION BY THE TRUST. The Class C Common Shares will not
be redeemable prior to the third anniversary of the Issue Date. On and after
such third anniversary date, the Trust, at its option (to the extent the Trust
has funds legally available therefor) 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 monthly
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 monthly dividend period (without regard
to whether any 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 shares 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 monthly dividend period (without regard
to whether any dividends were paid or not paid in any prior monthly dividend
period), the Trust 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 the Trust
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 the Trust.
Class C Common Shares shall be redeemed by the Trust on the date specified
in a notice to the holders of the Class C Common Shares (the "Call Date").
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 the Trust,
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 shares transfer records of the Trust. 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 Call 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 Call Date; and (6)
that any conversion rights will terminate at the close of business on the third
business day immediately preceding the Call 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. Notice having been given as aforesaid, from and after the
Call Date (unless the Trust shall fail to issue and make available the number
of Class A Common Shares and/or amount of cash necessary to effect such
redemption), (i) except as otherwise provided herein, dividends on the Class C
Common Shares so called for redemption shall cease to accrue on the Class C
Common Shares called for redemption (except that, in the case of a Call Date
after a dividend record date and prior to the related Dividend Payment Date,
holders of Class C Common Shares on the dividend record date will be entitled
on such Dividend Payment Date to receive the dividend payable on such shares,
if any), (ii) said shares shall no longer be deemed to be outstanding, and
(iii) all rights of the holders thereof as holders of Class C Common Shares
shall cease (except the rights to receive the Class A Common Shares and/or cash
payable upon such redemption, without interest thereon, upon surrender and
endorsement of their certificates if so required and to receive any dividends
payable thereon). As promptly as practicable after the surrender in accordance
with said notice of the certificates for any such shares so redeemed (properly
endorsed or assigned for transfer, if the Trust shall so require and if the
notice shall so state), such holders will be issued certificates representing
Class A Common Shares and/or any cash (without interest thereon) for which such
shares have been redeemed in accordance with such notice.
Upon any redemption of Class C Common Shares, the Trust shall pay in cash
to the holder of such shares an amount equal to the dividend accrued and unpaid
for the then currently monthly dividend period only (without regard to whether
any dividends were paid or not paid in any prior monthly dividend period), if
any. Immediately prior to authorizing any redemption of the Class C Common
Shares, and as a condition precedent for such redemption, the Trust, by
resolution of the Board of Trust Managers, shall declare a mandatory dividend
on the Class C Common Shares payable in cash on the Call Date in an amount
equal to the dividend owed and unpaid for the then current monthly dividend
period (without regard to whether any dividends were paid or not paid in any
prior monthly dividend period) on the Class C Common Shares to be redeemed, if
any, which amount shall be added to the redemption price. If the Call Date
falls after a dividend payment record date and prior to the corresponding
Dividend Payment Date, then each holder of Class C Common Shares at the close
of business on such dividend payment record date shall be entitled to the
dividend payable on such shares on the corresponding Dividend Payment Date
notwithstanding the redemption of such shares prior to such Dividend Payment
Date. Except as provided above, the Trust shall make no payment or allowance
for accrued dividends on Class C Common Shares called for redemption.
F. LIMITED OPTIONAL REDEMPTION. Subject to and upon compliance with the
provisions of this Section F, at any time prior to the seventh anniversary of
the Issue Date of the Class C Common Shares, any holder of Class C Common
Shares who has held Class C Common Shares for not less than one year may
present all or any portion (but not less than 25%) of those shares to the Trust
for redemption at any time (the "Limited Put Right"). The Trust may, at its
sole option, redeem those shares presented for redemption for cash to the
extent it has sufficient funds available thereof. Notwithstanding anything to
the contrary contained in this Section F, at no time during a 12-month period,
may the number of Class C Common Shares redeemed by the Trust exceed 5% of the
number of Class C Common Shares outstanding at the beginning of that 12-month
period.
To the extent that the Trust's board of trust managers decides to accept
any shares for redemption under this Section F, the Trust will only use the
following amounts for redemptions effected under this Section F: (1) the full
amount of the proceeds from the sale of shares under our dividend reinvestment
plan ("Reinvestment Proceeds") attributable to any calendar quarter may be used
to redeem shares presented for redemption pursuant to his Section F during that
quarter, and (2) at the sole discretion of the Trust's board of trust managers,
up to $100,000 per calendar quarter of the proceeds of any public offering of
its common shares. Any amount of offering proceeds which is available for
redemptions under this Section F, but which is unused in any quarter, 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 under this Section F in such quarter.
In the event there are insufficient funds to redeem all of the shares for
which Limited Put Right requests have been submitted, the Trust will redeem the
shares in the order in which such Limited Put Right requests have been
received. A holder of Class C Common Shares whose shares are not redeemed
pursuant to a Limited Put Right request due to insufficient funds can either:
(1) ask that the request to redeem the Class C Common Shares be honored at such
time, if any, as there are sufficient funds available for redemption of shares
pursuant to this Section F (in which event the. Limited Put Right request will
be retained and those shares will be redeemed before any subsequently received
Limited Put Right requests are honored), or (2) withdraw his or her Limited Put
Right request. A holder of Class C Common Shares will not relinquish his or her
Class C Common Shares until such time as the Trust commits to redeeming such
shares pursuant to this Section F.
Any holder of Class C Common Shares who wishes to have his or her shares
redeemed pursuant to this Section F must mail or deliver a written request on a
form provided by the Trust and executed by such holder, its trustee or
authorized agent, to the Trust or a redemption agent designated by it on such
form (such person or entity, the "Redemption Agent"). The Redemption Agent at
all times will be registered as a broker-dealer with the Securities and
Exchange Commission and each applicable state securities commission. Within 30
days following the Redemption Agent's receipt of such holder's request, the
Redemption Agent will forward to that holder the documents necessary to effect
the redemption, including any signature guarantee the Trust 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 holder 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 under this Section F will be the last date during a quarter during
which the Redemption Agent receives the properly completed redemption
documents.
Upon the Redemption Agent's receipt of notice for redemption of shares
pursuant to this Section F, the redemption price for Class C Common Shares
redeemed pursuant to this Section F (the "Optional Redemption Price") will
initially be $9.00 per share. The Trust's board of trust managers may, in its
sole discretion, adjust the Optional Redemption Price at any time and from time
to time in its sole discretion. Any such change in the Optional Redemption
Price will be effective on the 10th day after the public announcement of such
change in the Optional Redemption Price. Any Class C Common Shares acquired
pursuant to a redemption under this Section F will be retired and no longer
available for issuance by the Trust.
A holder of Class C Common Shares may present fewer than all of his or her
shares to the Trust for redemption; provided, however, that (1) the minimum
number of Class C Common Shares which must be presented for redemption pursuant
to this Section F shall be at least 25% of his or her shares, and (2) if such
holder retains any Class C Common Shares, he or she must retain at least $2,500
worth of such shares; provided further, that he or she must only retain $1,000
worth of Class C Common Shares if such shares are held by an Individual
Retirement Plan, Keogh Plan or pension plan.
Notwithstanding anything contained in the Section F or any other provision
hereof to the contrary, the Trust's 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 the Trust. The
Trust's 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 the Trust; (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 the Trust 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 the Trust's common shares, could cause
direct or indirect ownership of shares of the Trust's common stock to become
concentrated to an extent which would prevent the Trust from qualifying as a
real estate investment trust under the Internal Revenue Code of 1986, as
amended, and/or the rules and regulations promulgated thereunder; or (6) it
determines, in its sole discretion, the suspension to otherwise be in the best
interest of the Trust. The redemption plan will terminate, and the Trust 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
G. VOTING RIGHTS. Holders of the Class C Common Shares shall have the
right to vote on all matters presented to common 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. The holders of Class C Common Shares
may separately designate a proxy for the vote to which the Class C Common
Shares are entitled.
So long as any Class C Common Shares are outstanding, in addition to any
other vote or consent of shareholders required by law or by the Declaration of
Trust, the affirmative vote of at lease 66 2/3% of the votes entitled to be
cast by the holders of the Class C Common Shares, at the time outstanding,
acting as a single class, given in person or by proxy, either in writing
without a meeting or by vote at any meeting called for the purpose, shall be
necessary for effecting or validating:
(1) Any sale of all or substantially all of the assets of the Trust,
any liquidation of the Trust or any amendment, alteration or repeal of any
of the provisions of the Declaration of Trust or the Bylaws of the Trust
that materially and adversely affects the voting powers, rights or
preferences of the holders of the Class C Common Shares; provided,
however, that the amendment of the provisions of the Declaration of Trust
so as to authorize or create, or to increase the authorized amount of, any
shares of any class or series ranking on a parity with the Class C Common
Shares in the distribution of assets on any liquidation, dissolution or
winding up of the Trust or in the payment of dividends shall not be deemed
to materially adversely affect the voting powers, rights or preferences of
the holders of Class C Common Shares; or
(2) The authorization or creation of, or the increase in the
authorized amount of, any shares of any class or series or any security
convertible into shares of any class or series ranking prior or senior to
the Class C Common Shares in the distribution of assets on any
liquidation, dissolution or winding up of the Trust or in the payment of
dividends;
provided, however, that no such vote of the holders of Class C Common Shares
shall be required if, at or prior to the time when such amendment, alteration
or repeal is to take effect, or when the issuance of any such prior shares or
convertible security is to be made, as the case may be, provision is made for
the redemption of all Class C Common Shares at the time outstanding.
H. CONVERSION.
Holders of Class C Common Shares shall have the right to convert all
or a portion of such shares into Class A Common Shares, as follows:
(1) Subject to and upon compliance with the provisions of this Section H,
a holder of Class C Common Shares shall have the right, at such holder's
option, at any time on or after the seventh anniversary of the Issue Date of
such shares, to convert such shares, in whole or in part, into fully-paid and
non-assessable shares of authorized but unissued Class A Common Shares at a
conversion price equal to the purchase price of the Class C Common Shares plus
10% (the "Conversion Amount"). The number of Class A Common Shares to be issued
upon conversion shall be determined by dividing the Conversion Amount by the
Market Price (as defined in the Declaration of Trust) of the Class A Common
Shares on the date the notice of conversion is received by the Trust; provided,
however, that the right to convert Class C Common Shares called for redemption
shall terminate at the close of business on the Call Date fixed for such
redemption, unless the Trust shall default in making payment upon such
redemption.
(2) In order to exercise the conversion right, the holder of each Class C
Common Share to be converted shall send, to the office of the Trust, a written
notice to the Trust that the holder thereof elects to convert such share. Each
share surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Trust, duly executed by the holder or
such holder's duly authorized attorney and an amount sufficient to pay any
transfer or similar tax (or evidence reasonably satisfactory to the Trust
demonstrating that such taxes have been paid).
Holders of Class C Common Shares at the close of business on a dividend
payment record date shall be entitled to receive the dividend payable on such
shares of the corresponding Dividend Payment Date notwithstanding the
conversion thereof following such dividend payment record date and prior to
such Dividend Payment Date. However, Class C Common Shares surrendered for
conversion during the period between the close of business on any dividend
payment record date and the opening of business on the corresponding Dividend
Payment Date (except shares converted after the issuance of notice of
redemption with respect to a Call Date during such period, such shares being
entitled to such dividend on the Dividend Payment Date) must be accompanied by
payment of an amount equal to the dividend payable on such shares on such
Dividend Payment Date. Except as provided above, the Trust shall make not
payment or allowance for unpaid dividends on converted shares or for dividends
on the Class A Common Shares issued upon such conversion.
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for Class C Common
Shares shall have been surrendered and such notice shall have been received by
the Trust as aforesaid (and, if applicable, payment of an amount equal to the
dividend payable on such shares shall have been received by the Trust as
above-described) and the person or persons in whose name or names any
certificate or certificates for Class A Common Shares shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby at such time on such date.
(3) No fractional Class A Common Share shall be issued upon conversion.
Instead any fractional share that would otherwise be deliverable upon the
conversion of Class C Common Shares, the Trust shall pay to the holder of such
share an amount in cash based upon the Market Price (as defined in the
Declaration of Trust) of the Class A Common Shares.
(4) The Conversion Amount shall be adjusted from time to time as follows:
(i) If the Trust shall after the Issue Date (a) pay a dividend or
make a distribution on any class or series of its capital stock in Class A
Common Shares, (b) subdivide its outstanding Class A Common Shares into a
greater number of shares, (c) combine its outstanding Class A Common
Shares into a smaller number of shares or (d) issue any shares of capital
stock by reclassification of its Class A Common Shares, the Conversion
Amount in effect at the opening of business on the date following the date
fixed for the determination of a shareholder entitled to receive such
dividend or distribution or at the opening of business on the date
following the day on which such subdivision, combination or
reclassification becomes effective, as the case may be, shall be adjusted
so that the holder of any Class C Common Shares thereafter surrendered for
conversion shall be entitled to receive the number of Class A Common
Shares (or fraction of a share) that such holder would have owned or have
been entitled to receive after the happening of any of the events
described above had such Class C Common Shares been converted immediately
prior to the record date in the case of a dividend or distribution or the
effective date in the case of a subdivision, combination or
reclassification. An adjustment made pursuant to this paragraph H(4) shall
become effective immediately after the opening of business on the day next
following the record date (except as provided in paragraph H(4)(vi) below)
in the case of a dividend or distribution and shall become effective
immediately after the opening of business on the date next following the
effective date in the case of a subdivision, combination or
reclassification.
(ii) If the Trust shall distribute to all holders of its Class A
Common Shares any shares of capital stock of the Trust (other than Class A
Common Shares), evidence of its indebtedness or assets (including cash,
but excluding regularly scheduled cash dividends) or rights or warrants to
subscribe for or purchase any of its securities (excluding those rights
and warrants issued to all holders of Class A Common Shares entitling them
for a period expiring within forty-five (45) days after the record date
referred to in paragraph H(4)(ii) above to subscribe for or purchase Class
A Common Shares, which rights and warrants are referred to in and treated
under such paragraph H(4)(ii) above) (any of the foregoing being
hereinafter in this paragraph H(4)(iii) called the "Distribution"), then
in each such case the Conversion Amount in effect at the opening of
business on the date following the date fixed for the determination of a
shareholder entitled to receive such distribution or at the opening of
business on the date following the day on which such subdivision,
combination or reclassification becomes effective, as the case may be,
shall be adjusted so that the holder of any Class C Common Shares
thereafter surrendered for conversion shall be entitled to receive the
number of Class A Common Shares (or fraction of a share) that such holder
would have owned or have been entitled to receive after the happening of
any of the events described above had such Class C Common Shares been
converted immediately prior to the record date in the case of a dividend
or distribution or the effective date in the case of a subdivision,
combination or reclassification. An adjustment made pursuant to this
paragraph H(4) shall become effective immediately after the opening of
business on the day next following the record date (except as provided in
paragraph H(4)(vi) below) in the case of a dividend or distribution and
shall become effective immediately after the opening of business on the
date next following the effective date in the case of a subdivision,
combination or reclassification.
(iii) If the Trust shall be a party to any transaction (including,
without limitation, a merger, consolidation, statutory share exchange,
issuer or self tender offer for all or a substantial portion of the Class
A Common Shares outstanding, sale of all or substantially all of the
Trust's assets or recapitalization of the Class A Common Shares, but
excluding any transaction as to which paragraph (i) of this Section H(4)
applies) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which Class A Common Shares
shall be converted into the right to receive stock, securities or other
property (including cash or any combination thereof), each Class C Common
Share which is not converted into the right to receive stock, securities
or other property in connection with such Transaction shall thereupon be
convertible into the kind and amount of shares of stock, securities and
other property (including cash or any combination thereof) receivable upon
consummation of such Transaction by a holder of that number of Class A
Common Shares, or fraction thereof, into which one (1) Class A Common
Share was convertible immediately prior to such Transaction. The Trust
shall not be a party to any Transaction unless the terms of such
Transaction are consistent with the provisions of this paragraph
H(4)(iii), and it shall not consent or agree to the occurrence of any
Transaction until the Trust has entered into an agreement with the
successor or purchasing entity, as the case may be, for the benefit of the
holders of the Class C Common Shares that will contain provisions enabling
the holders of the Class C Common Shares that remain outstanding after
such Transaction to convert into the consideration received by holders of
Class A Common Shares at the Conversion Amount in effect immediately prior
to such Transaction. The provisions of paragraph H(4)(v) shall similarly
apply to successive Transactions.
(iv) If:
(1) the Trust shall authorize the granting to the holders of the
Class A Common Shares of rights or warrants to subscribe for or
purchase any shares of any class or series of capital stock or any
other rights or warrants; or
(2) the Trust shall authorize the granting to the holders of the
Class A Common Shares of rights or warrants to subscribe for or
purchase any shares of any class or series of capital stock or any
other rights or warrants; or
(3) there shall be any reclassification of the Class A Common
Shares or any consolidation or merger to which the Trust is a party
and for which approval of any shares of the Trust is required, or a
statutory share exchange, or an issuer or self tender offer by the
Trust for all or a substantial portion of its outstanding Class A
Common Shares (or an amendment thereto changing the maximum number of
shares sought or the amount or type of consideration being offered
therefor) or the sale or transfer of all or substantially all of the
assets of the Trust as an entirety; or
(4) there shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the Trust,
then the Trust shall cause to be mailed to each holder of Class C Common
Shares at such holder's address as shown on the stock records of the
Trust, as promptly as possible, but at least fifteen (15) days prior to
the applicable date hereinafter specified, a notice stating (A) the record
date for the payment of such dividend, distribution or rights or warrants,
or, if a record date is not established, the date as of which the holders
of Class A Common Shares of record to be entitled to such dividend,
distribution or rights or warrants are to be determined or (B) the date on
which such reclassification, consolidation, merger, statutory share
exchange, sale, transfer, liquidation, dissolution or winding up is
expected to become effective, and the date as of which it is expected that
holders of Class A Common Shares of record shall be entitled to exchange
their Class A Common Shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, statutory
share exchange, sale, transfer, liquidation, dissolution or winding up or
(C) the date on which such tender offer commenced, the date on which such
tender offer is scheduled to expire unless extended, the consideration
offered and the other material terms thereof (or the material terms of any
amendment thereto). Failure to give or receive such notice or any defect
therein shall not affect the legality or validity of the proceedings
described in this Section H(4).
(v) Whenever the Conversion Amount is adjusted as herein provided,
the Trust shall promptly prepare a notice of such adjustment of the
Conversion Amount setting forth the adjusted Conversion Amount and the
effective date such adjustment becomes effective and shall mail such
notice of such adjustment of the Conversion Amount to each holder of Class
C Common Shares at such holder's last address as shown on the stock
records of the Trust.
(vi) In any case in which this Section H(4) provides that an
adjustment shall become effective on the day next following the record
date for an event, the Trust may defer until the occurrence of such event
(A) issuing to the holder of any Class C Common Shares converted after
such record date and before the occurrence of such event the additional
Class A Common Shares issuable upon such conversion by reason of the
adjustment required by such event over and above the Class A Common Shares
issuable upon such conversion before giving effect to such adjustment and
(B) paying to such holder any amount of cash in lieu of any fraction.
(vii) There shall be no adjustment of the Conversion Amount in case
of the issuance of any capital stock of the Trust in a reorganization,
acquisition or other similar transaction except as specifically set forth
in this Section H. If any action or transaction would require adjustment
of the Conversion Amount pursuant to more than one paragraph of this
Section H(4)E, only one adjustment shall be made and such adjustment shall
be the amount of adjustment that has the highest absolute value.
(viii) If the Trust shall take any action affecting the Class A
Common Shares, other than action described in this Section H(4), that in
the opinion of the Board of Trust Managers would materially adversely
affect the conversion rights of the holders of Class C Common Shares, the
Conversion Amount for the Class C Common Shares may be adjusted, to the
extent permitted by law, in such manner, if any, and at such time as the
Board of Trust Managers, in its sole discretion, may determine to be
equitable under the circumstances.
(ix) The Trust shall at all times reserve and keep available, free
from preemptive rights, out of the aggregate of its authorized but
unissued Class A Common Shares solely for the purpose of effecting
conversion of the Class C Common Shares, the full number of Class A Common
Shares deliverable upon the conversion of all outstanding Class C Common
Shares not theretofore converted into Class A Common Shares. For purposes
of this paragraph H(4)(ix), the number of Class A Common Shares that shall
be deliverable upon the conversion of all outstanding Class C Common
Shares shall be computed as if at the time of computation all such
outstanding shares were held by a single holder.
The Trust covenants that any Class A Common Shares issued upon conversion
of the Class C Common Shares shall be validly issued, fully-paid and
non-assessable.
RATIFICATION AND AUTHORIZATION
RESOLVED, that any and all acts and deeds of any officer or Trust Manager
of the Trust taken prior to the date hereof on behalf of the Trust with regard
to the foregoing resolutions are hereby approved, ratified and confirmed in all
respects as and for the acts and deeds of the Trust; and
FURTHER RESOLVED, that the officers of the Trust be, and each of them
hereby is, severally and without the necessity for joinder of any other person,
authorized, empowered and directed to execute and deliver any and all such
further documents and instruments and to do and perform any and all such
further acts and deeds that may be necessary or advisable to effectuate and
carry out the purposes and intents of the foregoing resolutions, including, but
not limited to, the filing of a statement with the County Clerk of Harris
County, Texas, setting forth the designations, preferences, limitations and
rights of Class C Shares pursuant to Section 3.30 of the Texas REIT Act, all
such actions to be performed in such manner, and all such documents and
instruments to be executed and delivered in such form, as the officer
performing or executing the same shall approve, the performance or execution
thereof by such officer to be conclusive evidence of the approval thereof by
such officer and by the Board of Trust Managers.
Exhibit 5.1
LOCKE LIDDELL & SAPP LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
(214) 740-8000 (Telephone)
(214) 740-8800 (Facsimile)
Writer's Direct No.: (214) 740-8743
e-mail: kbetts@lockeliddell.com
August 6, 2003
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 4,400,000 class C 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
Exhibit 8.1
Locke Liddell & Sapp LLP
Attorneys & Counselors
Austin o Dallas o Houston o New Orleans
2200 Ross Avenue (214) 740-8000
Suite 2200 Fax: (214) 740-8800
Dallas, Texas 75201-6776 www.lockeliddell.com
August 7, 2003
AmREIT
8 Greenway Plaza, Suite 824
Houston, Texas 77046
Ladies and Gentlemen:
We have acted as counsel to AmREIT, a Texas real estate investment trust
(the "Company"), in connection with the issuance and sale of class C common
shares of beneficial interest in the Company in accordance with the
Registration Statement of the Company on Form S-11 (the "Registration
Statement") and related prospectus in connection therewith (the "Prospectus"),
which Form S-11 was filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"). For purposes of this
opinion, the term "Company" shall include AmREIT, Inc., a Maryland corporation,
and predecessor in interest to AmREIT, a Texas real estate investment trust,
that was merged into AmREIT, a Texas real estate investment trust, on December
22, 2002.
For the purposes of rendering our opinion, we have examined and are
relying upon such documents (including all exhibits and schedules attached
thereto) as of this date that we have deemed relevant or necessary, including:
1. The declaration of trust of the Company, as amended, and bylaws of
the Company, as amended;
2. The Registration Statement; and
3. Such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinion referred to in this
letter, and our opinion is conditioned upon (without any independent
investigation or review thereof) the truth and accuracy, at all relevant
times, of the factual representations and warranties, covenants and
statements contained therein.
This opinion is also subject to and conditioned upon the factual
representations contained in written officer's certificates to counsel executed
by officers of the Company (the "Representation Letters"). The initial and
continuing truth and accuracy of the representations contained in the
Representation Letters at all relevant times constitutes an integral basis for
the opinion expressed herein and this opinion is conditioned upon the initial
and continuing truth and accuracy of these representations at all relevant
times.
We have reviewed the descriptions set forth in the Registration Statement
of the Company and its investments, activities, operations and governance. We
have relied upon the facts set forth in the Registration Statement and upon the
factual representations of officers of the Company. In addition, we have relied
on certain additional facts and assumptions described below. In connection with
rendering this opinion, we have assumed to be true and are relying upon
(without any independent investigation or review thereof), and our opinion is
conditioned upon the correctness of, the following:
A. The authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as
copies, and authenticity of the originals of such documents, and the
conformity of final documents to all documents submitted to us as
drafts, and the authenticity of such final documents;
B. The genuineness of all signatures, the due authorization, execution
and delivery of all documents by all parties thereto and the due
authority of all persons executing such documents (other than persons
executing such documents on behalf of the Company);
C. All representations and statements set forth in such documents
(including the Representation Letters) are true and correct;
D. All obligations imposed by any such documents on the parties thereto
have been or will be performed or satisfied in accordance with their
terms;
E. All records made available to us are accurate and complete;
F. All representations, warranties and other statements made by all
parties are true and correct; and
G. All covenants contained in the Representation Letters have been and
will be performed without waiver or breach of any provision thereof.
We have further assumed the accuracy of the statements and descriptions of
the Company's intended activities as described in the Registration Statement
and the Prospectus and that the Company will operate in accordance with the
method of operation described in the Registration Statement and the Prospectus.
We have also assumed, without investigation, that all documents, certificates,
representations, warranties and covenants upon which we have relied in
rendering the opinions set forth below and that were given or dated earlier
than the date of this letter continue to remain accurate, insofar as relevant
to the opinions set forth herein, from such earlier date through and including
the date of this letter.
Based upon our examination of the foregoing items, subject to the
assumptions, exceptions, limitations and qualifications set forth herein and
therein, we are of the opinion that the Company qualified as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code") for its taxable year
ended December 31, 2002, the Company's form of organization and its manner of
operation is in conformity with the requirements for qualification and taxation
as a REIT as of the date of this opinion, the Company's proposed manner of
operation and diversity of equity ownership should enable the Company to
continue to satisfy the requirements for qualification as a REIT for the
calendar year 2003 and the discussion contained under the caption "Federal
Income Tax Consequences" in the Prospectus accurately reflects existing law and
fairly addresses the material federal income tax issues described therein;
provided that, the Company operates in accordance with the methods of operation
described in the Registration Statement and the Prospectus, consistent with the
representations in the Representation Letters concerning the Company's intended
method of operation.
In addition to the assumptions set forth above, this opinion is subject to
the following exceptions, limitations and qualifications:
1. Our opinions expressed herein are based upon interpretation of the
current provisions of the Code and existing judicial decisions,
administrative regulations and published rulings and procedures. Our
opinions only represent our best judgment and are not binding upon the
Internal Revenue Service or courts and there is no assurance that the
Internal Revenue Service will not successfully challenge the conclusions
set forth herein. The Internal Revenue Service has not yet issued
regulations or administrative interpretations with respect to various
provisions of the Code relating to REIT qualification. Consequently, no
assurance can be given that future legislative, judicial or administrative
changes, on either a prospective or retroactive basis, would not adversely
affect the accuracy of the conclusions stated herein. We undertake no
obligation to advise you of changes in law which may occur after the date
hereof.
2. Our opinions are limited to the federal income tax matters
addressed herein, and no other opinions are rendered with respect to any
other matter not specifically set forth in the foregoing opinion.
3. Our opinions are limited in all respects to the federal tax law of
the United States and we express no opinion as to various state, local or
foreign tax consequences.
4. The Company's qualification and taxation as a REIT depend upon the
Company's ability to satisfy through actual operating results the
applicable asset composition, source of income, shareholder
diversification, distribution, record keeping and other requirements of
the Code necessary to qualify and be taxed as a REIT.
5. The foregoing opinions are based upon the proposed method of
operation as described in the Registration Statement and facts stated in
the Representation Letters and other documents described herein. We
undertake no obligation to review at any time in the future whether the
Company has fulfilled the requirements listed in paragraph 4 and,
consequently, no assurance can be given that the actual results of the
Company's operations for any taxable year will satisfy the requirements of
the Code necessary to qualify or be taxed as a REIT.
6. In the event any one of the statements, representations,
warranties, covenants or assumptions we have relied upon to issue this
opinion is incorrect in a material respect, our opinions might be
adversely affected and may not be relied upon.
This opinion is furnished to you for the purpose of complying with
applicable securities laws. This opinion may not be used or relied upon by any
other person other than your investors or for any other purpose and may not be
circulated, quoted or otherwise referred to for any purpose without our prior
written consent. We hereby consent to the reference to us under the caption
"Federal Income Tax Consequences" in the Registration Statement, and to the
filing of this opinion as an Exhibit to the Registration Statement, without
implying or admitting that we are experts within the meaning of the Securities
Act with respect to any part of the Registration Statement.
LOCKE LIDDELL & SAPP LLP
By: /s/
_________________________________
Jeffrey D. Wallace
Exhibit 21.1
AmREIT
Subsidiaries of the Registrant
Set forth below is certain information with respect to each of the Company's
subsidiaries:
SUBSIDIARY STATE OF DOMICILE
AmREIT Realty Investment Corporation Texas
AmREIT Operating Corporation Texas
AmREIT Opportunity Corporation Texas
AmREIT Securities Company Texas
AmREIT SPE 1 Inc. Texas
AmREIT Income & Growth Corporation Texas
AAA CTL Notes, LTD Texas
Sugarland Plaza, LP Texas
Sugarland IHOP, LP Texas
AmREIT Monthly Income & Growth Corporation Texas
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
To 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
and for the year ended December 31, 2002 and to the reference to our firm
under the heading "Experts" in the prospectus.
KPMG LLP
/s/
_______________________________
Houston, Texas
August 4, 2003
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
To the Board of Trust Managers
AmREIT:
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-104652 of AmREIT on Form S-11 of our report dated March 15, 2002, appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
/s/
_________________________________
Houston, Texas
August 6, 2003