UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended March 31, 2002.
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
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Commission file number 1-14462
AmeriVest Properties Inc.
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(Exact name of small business issuer as specified in its charter)
Maryland 84-1240264
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1780 South Bellaire Street
Suite 515, Denver, Colorado 80222
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(Address of principal executive offices) (Zip Code)
(303) 297-1800
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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As of May 8, 2002 the Registrant had outstanding 6,709,454 shares of common
stock, par value $.001.
Transitional Small Business Disclosure Format (check one):
Yes No X
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Table of Contents
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Part I Page No.
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
March 31, 2002 (unaudited) and December 31, 2001............. 3
Consolidated Statements of Operations for
the Three Month Periods Ended March 31, 2002
and 2001 (unaudited)......................................... 4
Consolidated Statements of Cash Flows for
the Three Month Periods Ended March 31, 2002 and 2001
(unaudited)................................................... 5
Notes to Consolidated Financial Statements
(unaudited).................................................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 9
Part II
Item 6. Exhibits and Reports on Form 8-K.................................... 12
2
AMERIVEST PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2002 2001
---- ----
(unaudited)
ASSETS
Investment in real estate-
Land $ 14,137,891 $ 14,137,891
Buildings and improvements 68,130,467 67,433,077
Furniture, fixtures and equipment 313,255 237,442
Tenant improvements 2,024,798 1,788,942
Tenant leasing commissions 351,908 302,337
Less: accumulated depreciation and amortization (3,743,592) (3,058,662)
------------ ------------
Net investment in real estate 81,214,727 80,841,027
Cash and cash equivalents 628,781 1,119,355
Escrow deposits 852,207 673,213
Investment in unconsolidated affiliate 1,229,261 1,243,298
Due from related party 2,429,035 2,403,595
Accounts receivable 699,341 495,950
Deferred rents receivable 447,863 374,392
Deferred financing costs, net of accumulated amortization
of $159,381 and $118,751, respectively 571,161 597,885
Prepaid expenses and other assets 478,393 272,569
------------ ------------
Total assets $ 88,550,769 $ 88,021,284
============ ============
LIABILITIES
Mortgage loans and notes payable $ 58,616,715 $ 58,408,424
Accounts payable and accrued expenses 1,529,495 838,605
Due to related party 513,852 494,531
Accrued real estate taxes 1,569,584 1,564,341
Prepaid rents and security deposits 829,769 883,116
Dividends payable 837,518 835,282
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Total liabilities 63,896,933 63,024,299
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STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value
Authorized - 5,000,000 shares
Issued and outstanding - none -- --
Common stock, $.001 par value
Authorized - 15,000,000 shares
Issued and outstanding - 6,700,140 and 6,682,259 shares,
respectively 6,700 6,682
Capital in excess of par value 31,236,039 31,132,650
Distributions in excess of accumulated earnings (6,588,903) (6,142,347)
------------ ------------
Total stockholders' equity 24,653,836 24,996,985
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Total liabilities and stockholders' equity $ 88,550,769 $ 88,021,284
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
3
AMERIVEST PROPERTIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three
Month Periods Ended
March 31,
---------
2002 2001
---- ----
(unaudited) (unaudited)
REAL ESTATE OPERATING REVENUE
Rental revenue $ 3,626,052 $ 1,979,081
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REAL ESTATE OPERATING EXPENSES
Property operating expenses-
Operating expenses 886,095 586,649
Real estate taxes 367,023 147,980
Management fees 28,062 101,301
General and administrative expenses 352,308 162,945
Interest expense 898,356 595,476
Depreciation and amortization expense 684,930 341,055
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3,216,774 1,935,406
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OTHER INCOME
Interest income 2,081 11,738
Equity in loss of unconsolidated affiliates (20,397) (10,843)
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(18,316) 895
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NET INCOME $ 390,962 $ 44,570
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NET INCOME PER COMMON SHARE
Basic $ 0.06 $ 0.01
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Diluted $ 0.06 $ 0.01
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic 6,696,961 2,990,868
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Diluted 6,863,423 3,012,600
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The accompanying notes are an integral part of these
consolidated financial statements.
4
AMERIVEST PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Month Periods Ended
March 31,
---------
2002 2001
---- ----
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 390,962 $ 44,570
Adjustments to reconcile net income to net cash
from operating activities-
Depreciation and amortization expense 684,930 341,055
Amortization of deferred financing costs 40,630 18,608
Amortization of warrants 4,604 4,605
Equity in loss of unconsolidated affiliates 20,397 10,843
Accrued interest added to mortgage loans -- 123,894
Increase (decrease) in cash due to changes in:
Accounts receivable (203,391) (79,204)
Deferred rents receivable (73,471) (44,152)
Prepaid expenses and other assets (205,824) 6,524
Accounts payable and accrued expenses 710,211 283,590
Other accrued liabilities (48,104) (391,895)
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Net cash from operating activities 1,320,944 318,438
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CASH FLOWS FROM INVESTING ACTIVITIES
Improvements of real estate (1,009,058) (1,449,315)
Leasing commissions paid (49,571) (11,543)
(Increase) decrease in escrow deposits (178,994) 60,210
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Net cash from investing activities (1,237,623) (1,400,648)
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CASH FLOWS FROM FINANCING ACTIVITIES
Additions to mortgage loans and notes payable 300,000 645,310
Payments on mortgage loans and notes payable (123,509) (63,506)
Net proceeds from exercising of options and warrants -- 960,843
Deferred financing costs paid (13,906) --
Dividends paid (736,480) (372,118)
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Net cash from financing activities (573,895) 1,170,529
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (490,574) 88,319
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,119,355 1,046,976
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 628,781 $ 1,135,295
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest during the period $ 831,593 $ 423,907
=========== ===========
NON-CASH FINANCING ACTIVITIES:
Stock issued to the Dividend Re-Investment Plan ("DRIP") $ 98,802 $ --
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
5
AMERIVEST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 (unaudited)
1. Organization
---------------
AmeriVest Properties Inc. (the "Company") was incorporated under the laws
of the State of Delaware on August 25, 1993 and was reincorporated in the State
of Maryland in 1999. Effective January 1, 1996, the Company commenced operating
as a real estate investment trust ("REIT"). The Company owns and operates,
through its wholly-owned subsidiaries, the following properties:
Property Location
-------- --------
Sheridan Plaza at Inverness Englewood, CO
Sheridan Center Denver, CO
Kellogg Building Littleton, CO
Panorama Falls (a) Englewood, CO
Arrowhead Fountains Peoria, AZ
Keystone Office Park Indianapolis, IN
Bank of America Buildings (b) Texas
State of Texas Buildings (c) Texas
(a) 20% of the property is owned by the Company, 80% of the property
is owned by Freemark Abbey Panorama, LLC as a tenant in common
with the Company.
(b) These four buildings are leased approximately 63% to Bank of
America. The buildings are located in Mineral Wells, Georgetown,
Henderson and Clifton, Texas.
(c) These thirteen buildings are leased primarily to various agencies
of the State of Texas. The buildings are located in Arlington,
Paris, Marshall, Amarillo, El Paso (2), Belleville, Mission,
Clint, Lubbock, Temple, Hempstead and Columbus, Texas.
2. Interim Financial Statements
-------------------------------
The unaudited consolidated financial statements included herein were
prepared from the records of the Company in accordance with accounting
principles generally accepted in the United States and reflect all adjustments
which are, in the opinion of management, necessary to provide a fair statement
of the results of operations and financial position for the interim periods.
Such financial statements generally conform to the presentation reflected in the
Company's Form 10-KSB filed with the Securities and Exchange Commission for the
year ended December 31, 2001. The consolidated results of operations for the
three months ended March 31, 2002 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2002. These financial
statements and notes should be read together with the financial statements and
notes included in the Company's Form 10-KSB for the year ended December 31,
2001.
3. New Accounting Pronouncements
--------------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") authorized
the issuance of Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets". Under SFAS No. 142, goodwill will no
longer be amortized on a straight-line basis over its estimated useful life, but
will be tested for impairment on an annual basis and whenever indicators of
impairment arise. The goodwill impairment test, which is based on fair value, is
to be performed on a reporting unit level. A reporting unit is defined as a SFAS
No. 131, "Disclosure about Segments of an Enterprise and Related Information",
operating segment or one level lower. Goodwill will no longer be allocated to
other long-lived assets for impairment testing under SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". Under SFAS No. 142, intangible assets with indefinite lives will not be
amortized. Instead they will be carried at the lower of cost or market value and
tested for impairment at least annually. All other recognized intangible assets
will continue to be amortized over their estimated useful lives. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001. The Company's
adoption of SFAS No. 142 will not have an impact on its financial statements, as
it has not recorded any goodwill or intangible assets.
6
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement", which is effective for financial statements issued 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 Company is currently
evaluating the potential impact, if any, the adoption of SFAS No. 143 will have
on its financial position and results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which is effective for fiscal
periods beginning after December 15, 2001 and interim periods within those
fiscal years. SFAS No. 144 establishes an accounting model for impairment or
disposal of long-lived assets to be disposed of by sale. The Company's adoption
of SFAS No. 144 had no impact on its financial statements.
4. Agreement with Sheridan Realty Advisors, LLC
-----------------------------------------------
Effective January 1, 2000 through December 31, 2001, all of the Company's
properties were managed under a Property Management and Advisory Agreement (as
amended on March 12, 2001, the "Agreement") with Sheridan Realty Advisors, LLC
("SRA"), which also managed the day-to-day operations of the Company and
assisted and advised the Board of Directors on real estate acquisitions and
investment opportunities. Certain senior members of SRA are members of the
Company's management team and of the Company's Board of Directors. In accordance
with the Agreement, SRA received an administrative fee, a property management
and accounting fee, an advisory fee and a capital project fee for these
services. The property management fee was calculated as 5% of gross collected
rents, the advisory fee is calculated as 5% of capital deployed for real
property acquisitions and the capital project fee is calculated as 3% of the
total cost of capital projects in excess of $100,000.
The Agreement was further amended and restated as of December 31, 2001 to
provide for the Company's acquisition of SRA's administrative and property
management and accounting services business, along with elimination of those
related fees, effective January 1, 2002. As a result, most of SRA's employees,
including three of the Company's senior executives, became employees of the
Company and manage the day-to-day operations. The three senior executives will
also remain employees of SRA. SRA will continue to advise the Company with
respect to capital markets activity, real estate acquisitions and dispositions
and major capital projects. For these services, SRA will continue to earn the
advisory and capital project fees under the amended and restated Agreement.
During 2000, SRA received incentive compensation in the form of five-year
warrants to purchase up to 750,000 shares of common stock at $5.00 per share.
Issuance of the warrants was approved by the shareholders at the annual meeting
on June 6, 2000. According to the Agreement, 225,000 of these warrants were
granted and vested on the approval date. These vested warrants have an estimated
fair value of $73,668, which is being amortized over the life of the Agreement.
The remaining 525,000 warrants vest in an amount equal to 2.1% of capital
deployed for real property acquisitions. As of March 31, 2002, 436,457 of the
remaining 525,000 warrants vested and have an estimated fair value of $261,691,
which has been capitalized with the related acquisition costs on the
accompanying consolidated balance sheets.
5. Mortgage Loans and Notes Payable
-----------------------------------
The Company has a short-term revolving credit line from a bank in the
amount of $300,000 and a $1,500,000 short-term unsecured credit line from
Sheridan Investments, LLC, a related party. At March 31, 2002, the Company had
an outstanding balance of $300,000 on the bank line with an interest rate of
5.75%, and no outstanding balance on the Sheridan Investments, LLC line.
7
6. Subsequent Events
--------------------
On April 4, 2002, the Company drew down the remaining available amount of
$1,030,201 on its loan from US Bank for a total outstanding balance of
$10,500,000. The loan is secured by a mortgage on Sheridan Center.
On April 30, 2002, the Company drew down $1,000,000 on its credit line from
Sheridan Investments, LLC, a related party, to be used as working capital.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
--------------------------------------------------------------------------------
The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with the
consolidated financial statements and notes thereto included in this Form 10-QSB
and elsewhere.
Results Of Operations
---------------------
Comparison of the three months ended March 31, 2002 to the three months ended March 31, 2001
--------------------------------------------------------------------------------------------
Three Month Periods Ended
March 31,
2002 2001 Change
---- ---- ------
----------- ----------- -----------
Rental revenue $ 3,626,052 $ 1,979,081 $ 1,646,971
----------- ----------- -----------
Property operating expenses-
Operating expenses 886,095 586,649 299,446
Real estate taxes 367,023 147,980 219,043
Management fees 28,062 101,301 (73,239)
General and administrative expenses 352,308 162,945 189,363
Interest expense 898,356 595,476 302,880
Depreciation and amortization expense 684,930 341,055 343,875
----------- ----------- -----------
3,216,774 1,935,406 1,281,368
----------- ----------- -----------
Other income-
Interest income 2,081 11,738 (9,657)
Equity in loss of unconsolidated affiliates (20,397) (10,843) (9,554)
----------- ----------- -----------
(18,316) 895 (19,211)
----------- ----------- -----------
----------- ----------- -----------
Net income $ 390,962 $ 44,570 $ 346,392
=========== =========== ===========
Rental Revenue
The increase in rental revenue is due primarily to the inclusion of the
operations of Sheridan Plaza at Inverness, LLC (acquired in April 2001),
Arrowhead Fountains (acquired in November 2001) and the Kellogg Building
(acquired in December 2001), offset by the exclusion of the operations of the
Giltedge building (sold in June 2001) and the Panorama Falls building (80% of
which was sold in December 2001).
Property Operating Expenses
Operating expenses and real estate taxes increased as a result of the
above-mentioned transactions.
The decrease in management fees is due to the Company's acquisition of
Sheridan Realty Advisors, LLC ("SRA") administrative and property management and
accounting services business, along with elimination of those related fees,
effective January 1, 2002. As a result, most of SRA's employees became employees
of the Company and manage the day-to-day operations, and the Company became a
self-administered REIT. Subsequent to January 1, 2002, management fees will
decrease and general and administrative expenses will increase due to the
Company being internally managed versus externally managed in 2000 and 2001.
General and Administrative Expenses
The increase in general and administrative expenses is due to the
above-mentioned acquisition of SRA's administrative and property management and
accounting services business.
9
Interest Expense
The increase in interest expense is due to the increase in debt outstanding
at March 31, 2002 by approximately 103% from the prior year. The effect of the
increase in debt level is partially offset by a decrease in interest rates,
which resulted in lower interest costs on the Company's variable rate debt.
Depreciation and Amortization Expense
The increase in depreciation and amortization expense is due to the overall
increase in depreciable assets resulting from the acquisitions discussed above.
Interest Income
Interest income decreased due to lower average outstanding cash balances
and lower interest rates during the first quarter of 2002.
Equity in Loss of Unconsolidated Affiliates
The equity in loss of unconsolidated affiliate recognized in 2002
represents the Company's share of the net loss of Panorama Falls. The Company
sold 80% of its interest in Panorama Falls in December 2001, retaining its
current 20% interest.
The amount recognized in 2001 represents the Company's share of the net
loss of Sheridan Investments, LLC (which owned Sheridan Plaza at Inverness,
LLC). The original 9.639% interest in Sheridan Investments, LLC was acquired in
September 2000. This interest was then used as partial consideration for the
acquisition of 100% of Sheridan Plaza at Inverness, LLC in April 2001.
Liquidity And Capital Resources
-------------------------------
Liquidity
---------
Net cash from operations for the three months ended March 31, 2002 was
approximately $1.3 million and is the primary source of liquidity to fund
distributions, debt service and capital expenditures. The Company also has lines
of credit available to assist with such cash needs.
Management believes that the cash flow from its existing properties,
together with its existing lines of credit, will be sufficient to meet the
Company's working capital needs for the next year and beyond.
The Company desires to acquire additional properties. In order to do so, it
will need to raise additional debt or equity capital. The Company also intends
to obtain credit facilities for short and long-term borrowing with commercial
banks or other financial institutions. The issuance of such securities or
increase in debt for additional properties, of which there is no assurance,
could adversely affect the amount of cash available to pay dividends to
stockholders.
Financing
---------
Mortgage loans are collateralized by all properties. The following table
details the scheduled maturities of mortgages as of March 31, 2002:
2002 $ 396,268
2003 22,362,859
2004 9,654,927
2005 488,010
2006 14,579,886
Thereafter 10,834,765
-----------
Total $58,316,715
===========
Included in the 2003 maturities is the outstanding balance on the mortgage
loan on Panorama Falls in the amount of $3,036,294. Although the Company sold
80% of its interest in the property, the Company has retained 100% of the loan
balance on its balance sheet due to its continued obligation. As an offset, the
Company has recorded a receivable for 80% of this amount as due from related
party, with the remaining 20% included in the investment in unconsolidated
affiliate balance.
10
As of March 31, 2002, total mortgage loans (including the Panorama Falls
mortgage loan) consisted of approximately $27.1 million of fixed rate debt with
a weighted-average interest rate of approximately 7.9% and approximately $31.2
million of variable rate debt with a weighted-average interest rate of
approximately 4.5%. The Company intends to secure long-term financing at a fixed
interest rate to replace certain of its variable rate debt in late 2002.
The Company has a short-term revolving credit line from a bank in the
amount of $300,000 and a $1,500,000 short-term unsecured credit line from
Sheridan Investments, LLC, a related party. At March 31, 2002, the Company had
an outstanding balance of $300,000 on the bank line with an interest rate of
5.75%, and no outstanding balance on the Sheridan Investments, LLC line. On
April 30, 2002, the Company drew down $1,000,000 on the Sheridan Investments,
LLC line to be used as working capital.
On April 4, 2002, the Company drew down the remaining available amount of
$1,030,201 on its loan from US Bank for a total outstanding balance of
$10,500,000. The loan is secured by a mortgage on Sheridan Center.
Inflation
---------
Management believes that inflation should not have a material adverse
effect on the Company. The Company's office leases require the tenants to pay
increases in operating expenses should any inflationary pressures materialize.
Forward-Looking Statements
--------------------------
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Exchange Act
of 1934. Although the Company believes that the expectations reflected in the
forward-looking statements and the assumptions upon which the forward-looking
statements are based are reasonable, it can give no assurance that such
expectations and assumptions will prove to have been correct. See the Company's
Annual Report on Form 10-KSB for additional statements concerning important
factors, including occupancy and rental rates and operating costs that could
cause actual results to differ materially from the Company's expectations.
11
Part II. Other Information
Item 6. Exhibits And Reports On Form 8-K.
-----------------------------------------
(a) On January 4, 2002, the Registrant filed a Current Report on Form 8-K
describing the acquisition of the Kellogg Building.
(b) On January 23, 2002, the Registrant filed a Current Report on Form 8-K
describing materials that may be presented during meetings with
analysts and others.
(c) On January 23, 2002, the Registrant filed a Current Report on Form
8-K/A-1 as an amendment to the Current Report on Form 8-K filed on
November 21, 2001 and included disclosures under "Item 7. Financial
Statements and Exhibits" as required for the acquisition of Arrowhead
Fountains.
(d) On February 28, 2002, the Registrant filed a Current Report on Form
8-K/A-1 as an amendment to the Current Report on Form 8-K filed on
January 4, 2002 and included disclosures under "Item 7. Financial
Statements and Exhibits" as required for the acquisition of the
Kellogg Building.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERIVEST PROPERTIES INC.
May 8, 2002
By: /s/ D. Scott Ikenberry
-------------------------------
D. Scott Ikenberry
Chief Financial Officer
12