Attached files
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EXCEL - IDEA: XBRL DOCUMENT - AmREIT Monthly Income & Growth Fund IV LP | Financial_Report.xls |
EX-32.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 906 - AmREIT Monthly Income & Growth Fund IV LP | amreitmigiv115317_ex32-1.htm |
EX-31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 - AmREIT Monthly Income & Growth Fund IV LP | amreitmigiv115317_ex31-2.htm |
EX-31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 - AmREIT Monthly Income & Growth Fund IV LP | amreitmigiv115317_ex31-1.htm |
EX-32.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 906 - AmREIT Monthly Income & Growth Fund IV LP | amreitmigiv115317_ex32-2.htm |
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
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EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
OR
o TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 000-53203
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AmREIT MONTHLY INCOME & GROWTH FUND IV, L.P.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware |
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20-5685431 |
(State or Other Jurisdiction of Incorporation or |
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(I.R.S. Employer Identification No.) |
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8 Greenway Plaza, Suite 1000 |
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77046 |
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713-850-1400 |
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Not applicable |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer o |
Smaller reporting company x |
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(Do not check if a smaller reporting company) |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o
No x
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Page |
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1 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations. |
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14 |
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18 |
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19 |
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21 |
PART I FINANCIAL INFORMATION
AmREIT MONTHLY INCOME & GROWTH FUND IV, L.P. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2011 and December 31, 2010
(in thousands, except unit data)
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September 30, |
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December 31, |
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(unaudited) |
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ASSETS |
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Real estate investments at cost: |
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Land |
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$ |
12,508 |
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$ |
12,381 |
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Buildings |
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12,997 |
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12,891 |
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Tenant improvements |
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339 |
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332 |
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25,844 |
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25,604 |
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Less accumulated depreciation and amortization |
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(1,771 |
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(1,446 |
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24,073 |
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24,158 |
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Investment in non-consolidated entities |
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9,676 |
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9,961 |
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Acquired lease intangibles, net |
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53 |
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80 |
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Net real estate investments |
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33,802 |
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34,199 |
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Cash and cash equivalents |
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380 |
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1,309 |
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Tenant receivables, net |
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248 |
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251 |
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Accounts receivable |
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16 |
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Accounts receivable - related party |
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2 |
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112 |
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Notes receivable |
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2 |
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Deferred costs, net |
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192 |
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66 |
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Other assets |
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255 |
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199 |
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TOTAL ASSETS |
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$ |
34,879 |
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$ |
36,154 |
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LIABILITIES AND CAPITAL |
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Liabilities: |
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Notes payable |
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$ |
6,004 |
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$ |
6,067 |
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Notes payable - related party |
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1,815 |
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1,291 |
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Accounts payable and other liabilities |
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600 |
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576 |
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Accounts payable - related party |
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320 |
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247 |
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Acquired below-market lease intangibles, net |
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9 |
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18 |
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Security deposits |
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51 |
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72 |
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TOTAL LIABILITIES |
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8,799 |
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8,271 |
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Capital: |
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Partners capital: |
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General partner |
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Limited partners, 1,988 units outstanding at September 30, 2011 and December 31, 2010, respectively |
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19,199 |
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21,004 |
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TOTAL PARTNERS CAPITAL |
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19,199 |
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21,004 |
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Non-controlling interest |
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6,881 |
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6,879 |
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TOTAL CAPITAL |
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26,080 |
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27,883 |
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TOTAL LIABILITIES AND CAPITAL |
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$ |
34,879 |
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$ |
36,154 |
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See Notes to Consolidated Financial Statements.
1
AmREIT MONTHLY INCOME & GROWTH FUND IV, L.P. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for unit and per unit data)
(unaudited)
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Three months ended September 30, |
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Nine months ended September 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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Rental income from operating leases |
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$ |
250 |
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$ |
511 |
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$ |
703 |
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$ |
2,322 |
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Expenses: |
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General and administrative |
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16 |
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17 |
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49 |
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68 |
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General and administrative - related party |
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65 |
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86 |
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177 |
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245 |
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Asset management fees - related party |
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78 |
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108 |
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263 |
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323 |
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Property expense |
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21 |
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192 |
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267 |
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862 |
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Property management fees - related party |
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12 |
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16 |
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33 |
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80 |
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Legal and professional |
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59 |
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58 |
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178 |
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194 |
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Depreciation and amortization |
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139 |
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261 |
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411 |
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7,513 |
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Total operating expenses |
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390 |
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738 |
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1,378 |
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9,285 |
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Operating loss |
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(140 |
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(227 |
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(675 |
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(6,963 |
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Other income (expense): |
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Interest and other income |
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2 |
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4 |
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Impairment |
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(618 |
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(618 |
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Interest expense |
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(107 |
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142 |
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(312 |
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(750 |
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Equity in losses from non-consolidated entities |
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(312 |
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(260 |
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(954 |
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(709 |
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Margin tax expense |
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(2 |
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(1 |
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(1 |
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(14 |
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Total other expense |
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(421 |
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(737 |
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(1,265 |
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(2,087 |
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Net loss |
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(561 |
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(964 |
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(1,940 |
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(9,050 |
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Net loss attributable to non-controlling interest |
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17 |
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173 |
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135 |
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2,991 |
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Net loss attributable to partners |
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$ |
(544 |
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$ |
(791 |
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$ |
(1,805 |
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$ |
(6,059 |
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Weighted average units outstanding |
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1,988 |
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1,988 |
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1,988 |
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1,988 |
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Net loss per unit |
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$ |
(273.64 |
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$ |
(397.89 |
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$ |
(907.95 |
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$ |
(3,047.79 |
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See Notes to Consolidated Financial Statements.
2
AmREIT MONTHLY INCOME & GROWTH FUND IV, L.P. AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF CAPITAL
For the nine months ended September 30, 2011
(in thousands)
(unaudited)
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Partners Capital |
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Non-Controlling |
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General Partner |
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Limited Partners |
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Interest |
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Total |
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Balance at December 31, 2010 |
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$ |
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$ |
21,004 |
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$ |
6,879 |
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$ |
27,883 |
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Net loss(1) |
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(1,805 |
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(135 |
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(1,940 |
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Contributions from non-controlling interest |
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137 |
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137 |
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Balance at September 30, 2011 |
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$ |
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$ |
19,199 |
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$ |
6,881 |
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$ |
26,080 |
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(1) |
The allocation of net loss includes a curative allocation to increase the General Partner capital account by $18 for the nine months ended September 30, 2011. The cumulative curative allocation since inception of the Partnership is $244. The Partnership Agreement provides that no Partner shall be required to fund a deficit balance in their capital account. |
See Notes to Consolidated Financial Statements.
3
AmREIT MONTHLY INCOME & GROWTH FUND IV, L.P. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Nine months ended September 30, |
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2011 |
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2010 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(1,940 |
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$ |
(9,050 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Impairment |
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618 |
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Bad debt expense |
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45 |
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80 |
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Equity in losses from non-consolidated entities |
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954 |
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709 |
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Depreciation and amortization |
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411 |
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7,513 |
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Amortization of above- and below-market leases, net |
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(9 |
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(215 |
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Amortization of loan acquisition costs |
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2 |
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47 |
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Realized gain on derivative |
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(260 |
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Increase in tenant receivables |
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(27 |
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(272 |
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Decrease in accounts receivable |
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16 |
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Decrease (increase) in accounts receivable - related party |
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77 |
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(366 |
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Increase in deferred costs |
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(145 |
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(81 |
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Increase in other assets |
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(56 |
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(227 |
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Decrease in accounts payable and other liabilities |
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(211 |
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(628 |
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Increase in accounts payable - related party |
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600 |
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437 |
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(Decrease) increase in security deposits |
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(21 |
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17 |
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Net cash used in operating activities |
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(304 |
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(1,678 |
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Cash flows from investing activities: |
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Improvements to real estate |
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(155 |
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(240 |
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Payments received on notes receivable |
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2 |
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5 |
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Payments received on notes receivable - related party |
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82 |
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Investment in non-consolidated entities |
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(679 |
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(855 |
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Distributions from non-consolidated entities |
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25 |
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280 |
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Net proceeds from sale of investment property |
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3,447 |
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Rental proceeds from property held for development |
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108 |
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Net cash used in investing activities |
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(699 |
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2,719 |
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Cash flows from financing activities: |
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Payments on notes payable |
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(63 |
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(61 |
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Proceeds from notes payable - related party |
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800 |
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Payments on notes payable - related party |
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(200 |
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Contributions from non-controlling interest |
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137 |
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249 |
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Distributions to non-controlling interests |
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(764 |
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Net cash provided by financing activities |
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74 |
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24 |
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Net decrease in cash and cash equivalents |
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(929 |
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1,065 |
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Cash and cash equivalents, beginning of period |
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1,309 |
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469 |
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Cash and cash equivalents, end of period |
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$ |
380 |
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$ |
1,534 |
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Supplemental schedule of cash flow information: |
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Cash paid during the period for: |
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Interest |
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$ |
253 |
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$ |
912 |
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Taxes |
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$ |
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$ |
40 |
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Supplemental schedule of noncash investing and financing activities:
During 2011, $524,000 in accounts payable - related party was reclassified to notes payable - related party
During 2011, we capitalized $235,000 of accrued property taxes into the basis of our land at Woodlake Pointe. We are in the intital stages of planning a major redevelopment at the Woodlake Pointe shopping center.
See Notes to Consolidated Financial Statements.
4
AmREIT MONTHLY INCOME & GROWTH FUND IV, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(unaudited)
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1. |
DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS |
AmREIT Monthly Income & Growth Fund IV, L.P., a Delaware limited partnership (hereinafter referred to as the Partnership, MIG IV, we, us or our), was formed on October 10, 2006 to acquire, develop and operate, directly or indirectly, a portfolio of commercial real estate consisting primarily of multi-tenant shopping centers and mixed-use developments. The General Partner of the Partnership is AmREIT Monthly Income & Growth IV Corporation, a Delaware corporation (the General Partner), which is a wholly-owned subsidiary of AmREIT, Inc., a Securities and Exchange Commission (SEC) reporting, non-traded Maryland corporation that has elected to be taxed as a real estate investment trust (AmREIT). The General Partner maintains its principal place of business in Houston, Texas.
As of September 30, 2011, our investments included a wholly-owned property comprising approximately 36,000 square feet of gross leasable area, a property in which we own a controlling interest comprising approximately 82,000 square feet of gross leasable area and four properties in which we own a non-controlling interest through joint ventures comprising approximately 1,155,000 square feet of gross leasable area.
The U.S. economy is still experiencing weakness from recent economic conditions, which resulted in increased unemployment, weakening of tenant financial condition, large-scale business failures and tight credit markets. Our results of operations may be sensitive to changes in overall economic conditions that impact tenant leasing practices. Adverse economic conditions affecting tenant income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs and other matters, could reduce overall tenant leasing or cause tenants to shift their leasing practices. In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, could result in a general decline in rents or an increased incidence of defaults under existing leases. Recently, high levels of unemployment have persisted, and rental rates and valuations for retail space have not fully recovered to pre-recession levels and may not for a number of years. It is difficult to determine the breadth and duration of the financial market problems and the many ways in which they may affect our tenants and our business in general. A significant additional deterioration in the U.S. economy or the bankruptcy or insolvency of one or more of our significant tenants could cause our current plans to meet our projected cash shortfalls as discussed below to be insufficient.
Further, recent U.S. debt ceiling and budget deficit concerns, together with signs of deteriorating sovereign debt conditions in Europe, have increased the possibility of additional credit-rating downgrades and economic slowdowns. Although U.S. lawmakers passed legislation to raise the federal debt ceiling, Standard & Poors Ratings Services lowered its long-term sovereign credit rating on the United States (the U.S.) from AAA to AA+ in August 2011. The impact of this or any further downgrades to the U.S. governments sovereign credit rating, or its perceived creditworthiness, and despite the recent European agreement intended to help resolve the Euro crisis, the impact of the current crisis in Europe with respect to the ability of certain European Union countries to continue to service their sovereign debt obligations is inherently unpredictable and could adversely affect the U.S. and global financial markets and economic conditions. There can be no assurance that governmental or other measures to aid economic recovery will be effective. These developments and the governments credit concerns in general, could cause interest rates and borrowing costs to rise, which may further negatively impact our ability to access the debt markets.
Projected cash sources (including cash on hand) and uses for the Partnership indicate periods of cash shortfalls during the year ended December 31, 2011. However, we believe that we will be able to generate sufficient liquidity to satisfy any cash shortfalls through (1) managing the timing of forecasted capital expenditures related to the lease-up of properties, (2) deferral of fees paid to our General Partner and its affiliates, (3) financings of unencumbered properties and (4) sales of certain of our investments in non-consolidated entities. No assurance can be given that we will be able to generate such liquidity. In the event that we are unable to generate sufficient liquidity, we may be forced to sell one or more properties at a time when it is disadvantageous to do so, potentially resulting in losses on the disposition of those properties. Based on the foregoing, it is possible that investors may not recover all of their original investment.
5
Effective July 15, 2009, we suspended all distributions in an effort to (1) conserve cash, (2) protect our limited partners invested capital, (3) improve our ability to fund capital improvements, tenant improvements and leasing commissions, and (4) meet our obligations, including debt service. We currently do not expect to distribute net sales proceeds or any net cash flows from operations to our partners until we enter the liquidation phase which is scheduled for November 15, 2013. However, we may seek to postpone liquidation if we believe such liquidation is not in the best interests of the partners at that time.
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2. |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
BASIS OF PRESENTATION
Our financial records are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred. The consolidated financial statements include our accounts as well as the accounts of any wholly- or majority-owned subsidiaries in which we have a controlling financial interest. Investments in joint ventures and partnerships in which we have the ability to exercise significant influence but do not exercise financial and operating control are accounted for using the equity method (see Note 3). The significant accounting policies of our non-consolidated entities are consistent with those of our subsidiaries in which we have a controlling financial interest. As applicable, we consolidate certain joint ventures and partnerships in which we own less than a 100% equity interest if the entity is a variable interest entity and we are the primary beneficiary as defined by U.S. generally accepted accounting principles (GAAP). As of September 30, 2011, we do not have any interests in variable interest entities. All significant inter-company accounts and transactions have been eliminated in consolidation.
The consolidated financial statements included in this Quarterly Report on Form 10-Q (Report) have been prepared pursuant to the rules and regulations of the SEC and are unaudited; however, amounts presented in the consolidated balance sheet as of December 31, 2010 are derived from our audited financial statements as of that date. In our opinion, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted of normal recurring items. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from these statements pursuant to the SEC rules and regulations and, accordingly, these financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010.
DECONSOLIDATION OF WOODLAKE SQUARE
As discussed further in Note 3, we and our affiliated partners sold a 90% interest in the Woodlake Square property to a third-party institutional partner in July 2010. As a result of this transaction, we retained a net 6% non-controlling financial interest in the Woodlake Square property, but such interest provides us with the ability to exercise significant influence. Accordingly, we deconsolidated this property as of the date of the transaction and began accounting for the net 6% retained interest in the property under the equity method of accounting. The conditions for discontinued operations presentation were not met as we continue to have cash flows from our retained interest and will continue to be involved with the operations of the entity through our position of significant influence. As a result, our ownership interest and results of operations from Woodlake Square subsequent to the sale are reported under the equity method of accounting as of and for the three and nine month periods ended September 30, 2011 and as of December 31, 2010. Under the equity method, we report our ownership interest on a net basis in investment in non-consolidated entities on our consolidated balance sheet and our results from operations on a net basis in equity in losses from non-consolidated entities on our consolidated statements of operations. However, our consolidated statements of operations for the three and nine months ended September 30, 2010 and our consolidated statement of cash flows for the nine months ended September 30, 2010 include the consolidated results and cash flows of Woodlake Square on a gross basis through the date of sale.
RECEIVABLES AND ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
Tenant Receivables Included in tenant receivables are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. An allowance for the uncollectible portion of accrued rents and accounts receivable is determined based upon customer credit-worthiness (including expected recovery of our claim with respect to any tenants in bankruptcy), historical bad debt levels and current economic trends. Bad debt expenses and any related recoveries related to tenant receivables are included in property expense. As of September 30, 2011 and December 31, 2010, our allowance for uncollectible accounts related to our tenant receivables was $192,000 and $179,000, respectively.
6
Accounts Receivable - Related Party - Included in accounts receivable - related party are short-term cash advances provided to certain of our affiliated investment entities primarily for their working capital needs. These cash advances are due upon demand.
DEPRECIATION
During 2010, we re-evaluated the useful lives of certain buildings within our Woodlake Square retail center as a result of our decision to sell a portion of the ownership interest, redevelop the property and demolish certain buildings. The redevelopment commenced in July 2010 and was completed in April 2011. As a result of this change in estimate, depreciation expense was approximately $6.2 million higher during the nine months ended September 30, 2010 than it otherwise would have been. Additionally, our pro rata share of depreciation expense for the nine months ended September 30, 2011 related to Woodlake Square was included in equity in losses from non-consolidated entities on our consolidated statements of operations as a result of its deconsolidation discussed above.
IMPAIRMENT OF INVESTMENTS IN NON-CONSOLIDATED ENTITIES
We review for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through operations. As further discussed in Note 9, we recorded an impairment of $618,000 in our investment in Woodlake Square during the nine months ended September 30, 2010. Due to the downturn in the real estate market, in particular for raw land, we performed an impairment test on our Cambridge & Holcombe property (a non-consolidated investment) in December 2010. We determined the fair value of the investment based on comparable market sales data, adjusted for any significant differences, to the extent known, between the identified comparable assets and the assets being valued. We recorded our share of an impairment loss at the property level of approximately $2.6 million. See Note 3 and Fair Value Measurements below.
INCOME TAXES
No provision for U.S. federal income taxes is included in the accompanying consolidated financial statements. As a partnership, we are not subject to U.S. federal income tax, and the federal tax effect of our activities is passed through to our partners. We are, however, subject to the Texas Margin Tax, which is computed by applying the applicable tax rate (1% for the Partnership) to the profit margin, which, generally, will be determined for us as total revenue less a 30% standard deduction. For the nine months ended September 30, 2011 and 2010, we recorded tax provisions of approximately $1,000 and $14,000 for Texas Margin Tax, respectively.
FAIR VALUE MEASUREMENTS
GAAP emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. GAAP requires the use of observable market data, when available, in making fair value measurements. Observable inputs are inputs that the market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of ours. When market data inputs are unobservable, we utilize inputs that we believe reflect our best estimate of the assumptions market participants would use in pricing the asset or liability. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. As a basis for considering market participant assumptions in fair value measurements, GAAP establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entitys own assumptions about market participant assumptions (unobservable inputs that are classified within Level 3 of the hierarchy). The three levels of inputs used to measure fair value are as follows:
7
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Level 1 Inputs Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Partnership has the ability to access. |
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Level 2 Inputs Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. |
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Level 3 Inputs Unobservable inputs for the asset or liability, which are typically based on the Partnerships own assumptions, as there is little, if any, related market activity. |
Recurring Fair Value Measurements and Financial Instruments Our consolidated financial instruments consist of cash and cash equivalents, tenant receivables, accounts receivable, accounts receivable related party, notes receivable, notes payable, notes payable related party, accounts payable related party, and accounts payable and other liabilities. The carrying values of all of the financial instruments, except for our notes payable are representative of the fair values due to the short-term nature of the instruments. See Note 5 for fair value disclosures of our notes payable.
Non-Recurring Fair Value Measurements, Impairment and Investments in Non-Consolidated Entities As discussed above, we recorded an impairment on our investment in the Woodlake Square property during the nine months ended September 30, 2010 (see Note 9), and we impaired our investment in the Cambridge & Holcombe property (a non-consolidated investment) during the fourth quarter of 2010. We determined the fair value of our net investment in the Woodlake Square property was $436,000 and the fair value of our net investment in the Cambridge & Holcombe property was $225,000. The fair value of our investment in Woodlake Square was based upon the transaction with our third-party institutional partner. The fair value calculation of our Cambridge & Holcombe property was based on comparable market sales data, adjusted for any significant differences to the extent known, between the identified comparable assets and the assets being valued. We have determined that these non-recurring fair value measurements falls within Level 3 of the fair value hierarchy and are included in investments in non-consolidated entities on our consolidated balance sheet at December 31, 2010.
SUBSEQUENT EVENTS
We have evaluated all events or transactions as of the date through which the financial statements were made available for issuance. During this period, we did not have any material subsequent events that impacted our consolidated financial statements.
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3. |
INVESTMENT IN NON-CONSOLIDATED ENTITIES |
Since inception, we have made the following investments in four entities through which we own an interest in four properties and account for under the equity method of accounting:
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In January 2007, we acquired a 50% interest in AmREIT Casa Linda, LP, which owns Casa Linda Plaza, a multi-tenant retail property located in Dallas, Texas with a combined gross leasable area of approximately 325,000 square feet. The remaining 50% is owned by AmREIT Monthly Income & Growth Fund III, Ltd. (MIG III), an affiliated AmREIT entity. |
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In December 2007, we acquired a 50% interest in Cambridge & Holcombe, LP, which owns 2.02 acres of raw land that may be developed, sold or contributed to a joint venture in the future. The property is located adjacent to the Texas Medical Center in Houston, Texas. The remaining 50% is owned by an unaffiliated third party. Due to the downturn in the real estate market, in particular for raw land, an impairment test was performed during 2010. We recorded our share of an impairment loss on this investment, which was approximately $2.6 million, at the property level in 2010. During 2011, the joint venture defaulted on its loan in the amount of $8.1 million that was due to mature in June 2011. We have executed a forbearance agreement with the lender, whereby we deferred the interest payments and extended the maturity of the note through March 2012. We serve as the guarantor of 50% of the loan balance. |
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In February 2008, we acquired a 10% interest in Shadow Creek Holding Company LLC, which owns Shadow Creek Ranch, a multi-tenant retail property located in Pearland, Texas with a combined gross leasable area of approximately 624,000 square feet. The remaining 90% is owned by an unaffiliated third party (80%) and AmREIT (10%). |
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Between June 2008 and July 2010, we owned a 60% interest in AmREIT Woodlake, LP (Woodlake LP), which owns Woodlake Square, a grocery-anchored, multi-tenant retail property located at the corner of Westheimer and Gessner in Houston, Texas with a combined gross leasable area of approximately 206,000 square feet. In July 2010, we and our affiliated entities sold a 90% interest in Woodlake LP to a third-party institutional partner. We ultimately retained a net 6% interest in the new property owner (VIF II/AmREIT Woodlake, LP) through our 60% controlling interest in the managing member of the new property owner. The remaining 94% is owned by the third-party institutional partner (90%), and by AmREIT Realty Investment Corporation (1%) and MIG III (3%), both affiliated AmREIT entities. Due to our retention of the controlling financial interest in the managing member of VIF II/AmREIT Woodlake, LP, the 10% interest retained by us and our affiliated entities is presented as investment in non-consolidated entities. |
We report our investments in these four entities using the equity method of accounting due to our ability to exercise significant influence over them. Combined condensed financial information for the underlying investee entities (at 100%) is summarized for the three and nine months ended September 30, 2011 and 2010, as follows (in thousands):
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Three months ended September 30, |
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Nine months ended September 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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Revenue |
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$ |
3,871 |
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$ |
3,783 |
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$ |
11,594 |
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$ |
10,553 |
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Depreciation and amortization |
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(1,626 |
) |
|
(1,455 |
) |
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(4,856 |
) |
|
(4,381 |
) |
Interest expense |
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(1,735 |
) |
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(1,671 |
) |
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(5,190 |
) |
|
(4,551 |
) |
Net loss |
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(1,032 |
) |
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(946 |
) |
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(3,320 |
) |
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(2,510 |
) |
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4. |
ACQUIRED LEASE INTANGIBLES |
In accordance with GAAP, we have identified and recorded the value of acquired lease intangibles at the property acquisition date. Such intangibles include the value of acquired in-place leases and above and below-market leases. Acquired lease intangible assets (in-place leases and above-market leases) are amortized over the leases remaining terms, which range from two months to approximately thirteen years. Acquired lease intangible liabilities (below-market leases) are accreted over the leases remaining non-cancelable lease term, plus any fixed-rate renewal options, if any, which range from two months to thirteen years. The amortization of above (and below) market leases is recorded as a reduction of (increase in) rental income, and the amortization of in-place leases is included in depreciation and amortization expense.
9
The table below details our acquired in-place lease and above- and below-market lease values and their respective accumulated amortization as recorded on our consolidated balance sheet as follows (in thousands):
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September 30, |
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December 31, |
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Acquired lease intangible assets: |
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In-place leases |
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$ |
574 |
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$ |
667 |
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In-place leases - accumulated amortization |
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(521 |
) |
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(587 |
) |
Above-market leases |
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13 |
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13 |
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Above-market leases - accumulated amortization |
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(13 |
) |
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(13 |
) |
Acquired lease intangibles, net |
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$ |
53 |
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$ |
80 |
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Acquired lease intangible liabilities: |
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Below-market leases |
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$ |
(117 |
) |
$ |
(150 |
) |
Below-market leases - accumulated amortization |
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108 |
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132 |
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Acquired below-market lease intangibles, net |
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$ |
(9 |
) |
$ |
(18 |
) |
The table below details our acquired lease intangible activity for the nine months ended September 30, 2011 and 2010, respectively (in thousands):
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Nine months ended September 30, |
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2011 |
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2010 |
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Acquired lease intangible assets: |
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Disposals of in-place leases |
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$ |
(93 |
) |
$ |
(1,900 |
) |
Amortization of in-place leases |
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(27 |
) |
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(348 |
) |
Disposals of accumulated amortization of in-place leases |
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93 |
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1,900 |
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Amortization of above-market leases |
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20 |
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Acquired lease intangible liabilities: |
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Disposals of below-market leases |
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$ |
33 |
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$ |
106 |
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Accretion of below-market leases |
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9 |
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235 |
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Disposals of accumulated amortization of below-market leases |
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(33 |
) |
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(106 |
) |
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5. |
NOTES PAYABLE |
Our outstanding debt as of September 30, 2011 and December 31, 2010 consisted of a fixed-rate mortgage loan of $6.0 million and $6.1 million, respectively secured by the Village on the Green property. This mortgage loan matures in April 2017 and may be prepaid, but is subject to a yield-maintenance premium or prepayment penalty. As of September 30, 2011, the weighted-average interest rate on our fixed-rate debt was 5.5%, and the weighted average remaining life of such debt was 5.5 years.
As of September 30, 2011, scheduled principal repayments on notes payable were as follows (in thousands):
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Scheduled Payments by Year |
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Scheduled |
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Term-Loan |
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Total |
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2011 |
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$ |
22 |
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$ |
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$ |
22 |
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2012 |
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90 |
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90 |
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2013 |
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96 |
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96 |
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2014 |
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|
102 |
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102 |
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2015 |
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108 |
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108 |
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Thereafter |
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143 |
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5,443 |
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5,586 |
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Total |
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$ |
561 |
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$ |
5,443 |
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$ |
6,004 |
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10
We serve as the guarantor of debt in the amount of $45 million that is the primary obligation of our non-consolidated joint ventures. During 2011, one of those joint ventures defaulted on its loan in the amount of $8.1 million, which was due to mature in June 2011. We have executed a forbearance agreement with the lender, whereby the joint venture deferred a portion of the interest payments and extended the agreement through March 2012. However, should the joint venture entity be unable to pay or refinance the mortgage, we believe that we may be liable for 50% of the balance, which represents our ownership interest. The remaining debt for which we serve as guarantor matures in 2014 and 2015. We have not accrued any liability with respect to these guarantees as we believe it is unlikely we would be required to perform and, therefore, the fair value of any obligation would be insignificant.
Notes Payable Related Party As of September 30, 2011 and December 31, 2010, the balance of our notes payable related party was $1.8 million and $1.3 million, respectively. The note accrues interest monthly at LIBOR plus a spread of 3.5% with a floor of 5.0% and is due on demand. The note is secured by our investment interests in the Woodlake Pointe and Woodlake Square properties.
Fair Value of Notes Payable We record our debt instruments based on contractual terms, net of any applicable premium or discount on our consolidated balance sheet. We did not elect to apply the alternative GAAP provisions of the fair value option for recording financial assets and financial liabilities. In determining the fair value of our debt instruments, we determine the appropriate treasury bill rate based on the remaining time to maturity for each of the debt instruments. We then add the appropriate yield spread to the treasury bill rate. The yield spread is a risk premium estimated by investors to account for credit risk involved in debt financing. The spread is typically estimated based on the property type and loan-to-value ratio of the debt instrument. The result is an estimate of the market interest rate a typical investor would expect to receive given the underlying subject asset (property type) and remaining time to maturity. We believe the fair value of our notes payable is classified in Level 2 of the fair value hierarchy. Based on these estimates, the fair value of notes payable was $6.4 million at September 30, 2011 and December 31, 2010.
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6. |
CONCENTRATIONS |
As of September 30, 2011 and December 31, 2010, each of our two consolidated properties individually comprised greater than 10% of our consolidated total assets. Consistent with our strategy of investing in areas that we know well, both properties are located in Texas metropolitan areas. These Texas properties represent 100% of our rental income for the nine months ended September 30, 2011 and 2010.
The following table details the base rents generated by our top tenants during the nine months ended September 30, 2011 and 2010 (in thousands):
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Three months ended September 30, |
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Nine months ended September 30, |
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Tenant |
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2011 |
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2010 |
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2011 |
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2010 |
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Paesanos |
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$ |
49 |
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$ |
49 |
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$ |
148 |
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$ |
148 |
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Alamo Heights Pediatrics |
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18 |
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18 |
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53 |
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53 |
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Rouse Dental |
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12 |
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12 |
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35 |
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35 |
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Café Salsita |
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9 |
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9 |
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27 |
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27 |
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The Mutual Fund Store |
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9 |
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10 |
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26 |
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28 |
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Total |
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$ |
97 |
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$ |
98 |
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$ |
289 |
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$ |
291 |
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7. |
PARTNERS CAPITAL AND NON-CONTROLLING INTEREST |
Redemptions Limited partners who have held their units of partnership interest (Units) for at least three years may receive the benefit of interim liquidity by presenting all of those Units to the Partnership for redemption. At that time, we may, at our sole election and subject to the conditions and limitations described below, redeem the Units presented for cash to the extent that we have sufficient funds available to us to fund such redemption. The redemption price to be paid will be 92% of the limited partners unreturned invested capital. At no time during a 12-month period, however, may the number of Units redeemed by us exceed 2% of the number of Units outstanding at the beginning of that 12-month period. We suspended the optional redemption program during the second quarter of 2009 due to macroeconomic conditions and the need to preserve cash. We received no redemption requests during the nine months ended September 30, 2011. During the nine months ended September 30, 2010, we received four redemption requests, two of which were denied in the aggregate amount of $115,000 and two of which were granted in the amount of $62,000. All redemption requests that have been granted represent a return of capital.
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Distributions We suspended all distribution payments in July 2009 and do not anticipate reinstating distributions until improvements in the real estate and liquidity markets warrant such payment. All distributions to date have been a return of capital. During the liquidation stage of the Partnership (anticipated to commence in November 2013, unless extended), net cash flow, as defined, will be distributed among the limited partners and the General Partner in the following manner:
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First - 100% to the limited partners (in proportion to their unreturned actual invested capital) until such time as the limited partners have received cumulative distributions from all sources equal to 100% of their actual invested capital (calculated using the actual purchase price per Unit); |
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Second - 100% to the General Partner until it has received cumulative distributions from all sources equal to 100% of its actual invested capital of $1,000; |
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Third - 1% to the General Partner and 99% to the limited partners on a per Unit basis until such time as the limited partners have received cumulative distributions from all sources equal to 8.5% per annum, cumulative, uncompounded return on their unreturned deemed capital contributions (which will be equal to (i) the product of $25,000 per Unit (regardless of the purchase price paid for a Unit) multiplied by the number of Units owned by a partner, reduced by (ii) the aggregate amount of any distributions received that constitute a return of capital contributions); |
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Fourth 100% to the General Partner until it has received cumulative distributions from all sources (other than with respect to the Units it purchased) in an amount equal to 40% of the net cash flow paid to date to the limited partners in excess of their actual invested capital; and |
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Thereafter - 60% to the limited partners on a per Unit basis and 40% to the General Partner. |
Non-controlling Interest Non-controlling interests includes a 40% ownership interest that our affiliates have in our Woodlake Pointe property that we consolidate as a result of our 60% controlling financial interest in such partnership.
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8. |
RELATED PARTY TRANSACTIONS |
Certain of our affiliates received fees and compensation during the organizational stage of the Partnership, including securities commissions and due diligence reimbursements, marketing reimbursements and reimbursement of organizational and offering expenses. Certain of these affiliates also receive fees for ongoing property management and administrative services. In the event that these companies are unable to provide us with the respective services, we would be required to find alternative providers of these services. The following table summarizes the amount of such compensation paid to our affiliates during the three and nine months ended September 30, 2011 and 2010 (in thousands):
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Three months ended September 30, |
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Nine months ended September 30, |
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Type of service |
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|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
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Asset management fees |
|
$ |
78 |
|
$ |
108 |
|
$ |
263 |
|
$ |
323 |
|
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Property management fees and leasing costs |
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|
137 |
|
|
18 |
|
|
173 |
|
|
138 |
|
|
Administrative costs reimbursements |
|
|
65 |
|
|
86 |
|
|
177 |
|
|
245 |
|
|
|
|
$ |
280 |
|
$ |
212 |
|
$ |
613 |
|
$ |
706 |
|
In addition to the above fees paid by us, the non-consolidated entities in which we have investments paid $887,000 and $652,000 in property management and leasing fees to one of our affiliated entities for the nine months ended September 30, 2011 and 2010, respectively. See also Note 3 regarding investments in non-consolidated entities.
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9. |
REAL ESTATE ACQUISITIONS AND DISPOSITIONS |
In July 2010, we and our affiliated joint venture partners on our Woodlake Square property, MIG III and ARIC, entered into a joint venture agreement with a third party on our Woodlake Square property sold 90% of our interest in the property and retained a 6% ownership interest, which carries a promoted interest in cash flows once an 11.65% preferred return threshold is met on the project. We recorded an impairment of approximately $618,000 in our investment in Woodlake Square during the nine months ended September 30, 2010. The sale generated cash proceeds of approximately $3.4 million (our share was approximately $2.0 million), and we, our affiliated partners, and our third party joint venture partner remained responsible for funding our pro rata amount of the redevelopment costs on the project. The new entity, of which we now own a 6% interest, VIF II/AmREIT Woodlake L.P., is the borrower on a $20.9 million loan, which has a 3-year term with two one-year extension options, provided certain conditions are met. We, along with our affiliate, MIG III are joint and several repayment guarantors on the loan. As a result of our reduced ownership interest and decision-making ability, we no longer have a controlling financial interest in the property. In accordance with ASC 810, we deconsolidated this property as of the date of the transaction and began accounting for the property under the equity method of accounting.
In conjunction with the sale of the majority of our interest in Woodlake Square and the repayment of the underlying mortgage, we terminated our interest rate swap with a notional amount of $23.8 million and a fixed rate of 5.465%, which had been designated as a hedge for financial reporting purposes with unrealized gains or losses resulting from changes in the value of this derivative recorded as an adjustment to our partners capital through accumulated other comprehensive income. Accordingly, we reclassified into earnings the gain that had been deferred in accumulated other comprehensive income of $260,000 as a credit to interest expense in July 2010. Monthly settlements (realized payments) were recorded as interest expense in accordance with GAAP. For the nine months ended September 30, 2010, we paid $461,000 in settlement payments, which is included in interest expense.
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10. |
COMMITMENTS AND CONTINGENCIES |
As the owner or operator of real property, we may incur liability based on various property conditions and may be subject to liability for personal injury or property damage sustained as a result. In addition, we are subject to ongoing compliance requirements imposed on us by environmental laws. We are not aware of any environmental matters or liabilities with respect to our properties that would have a material adverse effect on our consolidated financial statements.
We are involved in various matters of litigation arising in the normal course of business; however, we believe that we maintain comprehensive, general liability and extended insurance coverage as deemed necessary with respect to our properties. We believe that no estimate of loss or range of loss, if any, can be made at this time for such matters; however, our management, based in part upon consultation with legal counsel, is of the opinion that, when such litigation is resolved, any liability in excess of amounts covered by insurance or already included in our consolidated financial statements, if any, will not have a material effect on our consolidated financial statements.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
Certain information presented in this Report constitutes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, our 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 our debt or equity capital, our ability to locate suitable tenants for our properties, the ability of tenants to make payments under their respective leases, timing of acquisitions, development starts and sales of properties, the ability to meet development schedules and other risks, uncertainties and assumptions. Any forward-looking statement speaks only as of the date on which it was made, and the Partnership undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operation results over time.
Overview
We are a Delaware limited partnership formed on October 10, 2006 to acquire, develop and operate, directly or indirectly through joint venture arrangements, a portfolio of commercial real estate consisting primarily of multi-tenant shopping centers and mixed-use developments throughout Texas. We focus on properties characterized by high automobile traffic counts, high populations, high household incomes and limited opportunities for competition.
We have no employees and are managed by AmREIT Monthly Income & Growth IV Corporation, our General Partner, pursuant to our Partnership Agreement. Our General Partner is a wholly-owned subsidiary of AmREIT. Our General Partner has contributed $1,000 to us for its general partner interest and has contributed $800,000 to us in exchange for Units. The remaining Units are held by other limited partners. We qualify as a partnership for federal income tax purposes.
Our Units were sold pursuant to exemptions from registration under the Securities Act of 1933, as amended (the Securities Act), and are not currently listed on a national securities exchange. These Units will be transferable only if we register them under applicable securities laws (such registration is not expected) or they are transferred pursuant to an exemption under the Securities Act and applicable state securities laws. We do not anticipate that any established public trading market for the Units will develop.
As of September 30, 2011, our investments included a wholly-owned property comprised of approximately 36,000 square feet of gross leasable area, one property in which we own controlling interests comprised of approximately 82,000 square feet of gross leasable area and four properties in which we own investment interests through joint ventures comprised of approximately 1,155,000 square feet of gross leasable area. All of our properties are located in Texas, the majority of which are located in highly-populated, suburban communities. We derive a substantial portion of our revenue from rental income from these properties, primarily from net leasing arrangements, where most of the operating expenses of the properties are absorbed by our tenants. As a result, our operating results and cash flows are primarily influenced by rental income from our properties and interest expense on our property acquisition indebtedness. Rental income accounted for 100% of our total revenue during the nine months ended September 30, 2011 and 2010. As of September 30, 2011, our properties, including our non-consolidated investments, had an average occupancy rate of approximately 87%, and the average debt leverage ratio of the properties in which we own an interest was approximately 60%, with 85% of such debt carrying a fixed-rate of interest.
Results of Operations
Below is a discussion of our results of operations for the three and nine months ended September 30, 2011, as compared to the same periods in 2010. As discussed in Note 2 to our accompanying notes to consolidated financial statements, we sold a majority of our ownership interest in Woodlake Square in July 2010 and subsequently deconsolidated Woodlake Square. As a result, our results of operations from Woodlake Square for the three and nine month periods ended September 30, 2010 include the consolidated results on a gross basis of Woodlake Square through the date of sale with no comparable results for the three and nine months ended September 30, 2011. Instead, we report our remaining pro rata interest on a net basis in equity in losses from non-consolidated entities.
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Comparison of the Three Months Ended September 30, 2011 to the Three Months Ended September 30, 2010
Revenue. Revenue decreased approximately $261,000 during the three months ended September 30, 2011 as compared to the same period in 2010 ($250,000 in 2011 versus $511,000 in 2010). The decrease is primarily due to the deconsolidation of Woodlake Square in July 2010. The third quarter of 2010 includes $255,000, which is related to operations for Woodlake Square prior to its sale, whereas our 6% share of the propertys earnings was recorded through the equity in loss from non-consolidated entities for the third quarter of 2011.
Asset Management Fees Related Party. Asset management fees related party decreased approximately $30,000 during the three months ended September 30, 2011 as compared to the same period in 2010 ($78,000 in 2011 versus $108,000 in 2010). Our asset management fees are calculated based upon the net value of our assets, which has decreased between the 2010 and the 2011 periods.
Property Expense. Property expense decreased approximately $171,000 during the three months ended September 30, 2011 as compared to the same period in 2010 ($21,000 in 2011 versus $192,000 in 2010). The decrease is primarily due to the deconsolidation of Woodlake Square in July 2010. The third quarter of 2010 includes $120,000, which is related to operations and $50,000 of bad debt expense for Woodlake Square prior to its sale, whereas our 6% share of the propertys earnings was recorded through the equity in loss from non-consolidated entities for the third quarter of 2011.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased approximately $122,000 during the three months ended September 30, 2011 as compared to the same period in 2010 ($139,000 in 2011 versus $261,000 million in 2010). The decrease is primarily due to the deconsolidation of Woodlake Square in July 2010. The third quarter of 2010 includes $120,000 of depreciation, which is related to operation for Woodlake Square prior to its sale, whereas our 6% share of the propertys earnings was recorded through the equity in loss from non-consolidated entities for the third quarter of 2011.
Impairment. As discussed further in Note 9 to our accompanying consolidated financial statements, we recorded a $618,000 impairment on our investment in Woodlake Square in July 2010 with no impairment during the third quarter of 2011.
Interest Expense. Interest expense increased approximately $249,000 during the three months ended September 30, 2011 as compared to the same period in 2010 ($107,000 of interest expense in 2011 versus $142,000 of net interest income in 2010). This increase is primarily due to $260,000 of accumulated other comprehensive gain due to the termination of the interest rate swap on Woodlake Square recorded as the interest expense for the third quarter 2010.
Equity in Losses From Non-Consolidated Entities. Loss from non-consolidated entities increased approximately $52,000 during the three months ended September 30, 2011 as compared to the same period in 2010 ($312,000 in 2011 versus $260,000 in 2010). These amounts represent our ownership portion of our joint ventures net income or loss for the period. The increased loss is attributable to the addition of Woodlake Square as the result of the sale of our majority interest. We deconsolidated the property in July 2010 and account for the property under the equity method of accounting. Woodlake Squares earnings for July were included in the consolidated financials during the third quarter of 2010, whereas our share of the propertys earnings was recorded through the equity in loss from non-consolidated entities during the third quarter of 2011. For further discussion of our treatment of Woodlake Square, see Note 2 to our accompanying consolidated financial statements.
Net Loss Attributable to Non-controlling Interests. Net loss attributable to non-controlling interests decreased approximately $156,000 during the three months ended September 30, 2011 as compared to the same period in 2010 ($17,000 in 2011 versus $173,000 in 2010). The decrease is primarily due to the deconsolidation of Woodlake Square in July 2010. The third quarter of 2010 includes a loss of $132,000, which is primarily due to the impairment of Woodlake Square prior to its sale, whereas our 6% share of the propertys earnings was recorded through the equity in loss from non-consolidated entities for the third quarter of 2011. Our remaining net loss from attributable to non-controlling interests for 2011 relates to the 40% interest in Woodlake Point not owned by us.
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Comparison of the Nine Months Ended September 30, 2011 to the Nine Months Ended September 30, 2010
Revenue. Revenue decreased approximately $1.6 million during the nine months ended September 30, 2011 as compared to the same period in 2010 ($703,000 in 2011 versus $2.3 million in 2010). The decrease is primarily due to the deconsolidation of Woodlake Square in July 2010. The 2010 period includes $1.5 million, which is related to operations for Woodlake Square prior to its sale, whereas our 6% share of the propertys earnings was recorded through the equity in loss from non-consolidated entities during the 2011 period. The decrease is also due to a $150,000 decrease in rental income from Woodlake Pointe due to reduced occupancy.
General and administrative Related Party. General and administrative related party decreased approximately $68,000 during the nine months ended September 30, 2011 as compared to the same period in 2010 ($177,000 in 2011 versus $245,000 in 2010.) The decrease is primarily due to a lower allocation of administrative costs to better reflect the level of effort expended on the fund during the period by our General Partner.
Asset Management Fees Related Party. Asset management fees related party decreased approximately $60,000 during the nine months ended September 30, 2011 as compared to the same period in 2010 ($263,000 in 2011 versus $323,000 in 2010). Our asset management fees are calculated based upon the net value of our assets, which has decreased between the 2010 and the 2011 periods.
Property Expense. Property expense decreased approximately $595,000 during the nine months ended September 30, 2011as compared to the same period in 2010 ($267,000 in 2011 versus $862,000 in 2010). The decrease is primarily due to the deconsolidation of Woodlake Square in July 2010. The 2010 period includes $554,000, which related to operations for Woodlake Square prior to its sale, whereas our share of the propertys earnings was recorded through the equity in loss from non-consolidated entities during the 2011 period.
Property Management Fees Related Party. Property management fees decreased approximately $47,000 during the nine months ended September 30, 2011 as compared to the same period in 2010 ($33,000 in 2011 versus $80,000 in 2010). The decrease is primarily due to the deconsolidation of Woodlake Square in July 2010. The 2010 period includes $47,000, which is related to operations for Woodlake Square prior to its sale, whereas our share of the propertys earnings was recorded through the equity in loss from non-consolidated entities during the 2011 period.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased approximately $7.1 million during the nine months ended September 30, 2011 as compared to the same period in 2010 ($411,000 in 2011 versus $7.5 million in 2010). The decrease is primarily due to the deconsolidation of Woodlake Square in July 2010. The 2010 period includes $7.0 million, which is related to operations for Woodlake Square prior to its sale, whereas our share of the propertys earnings was recorded through the equity in loss from non-consolidated entities during the 2011 period. Of the $7.0 million in depreciation expense recorded by Woodlake Square during the nine months ended September 30, 2010, approximately $6.2 million was related to accelerated depreciation for shortened useful lives associated with its plans for redevelopment. See also Note 2 to our accompanying consolidated financial statements.
Impairment. As discussed further in Note 9 to our accompanying consolidated financial statements, we recorded a $618,000 impairment on our investment in Woodlake Square in July 2010 with no impairment during the same period in 2011.
Interest Expense. Interest expense decreased approximately $438,000 during the nine months ended September 30, 2011 as compared to the same period in 2010 ($312,000 in 2011 versus $750,000 in 2010). The decrease is primarily due to the deconsolidation of Woodlake Square in July 2010. The 2010 period includes $454,000, which is related to the operations of Woodlake Square prior to its sale, whereas our share of the propertys earnings was recorded through the equity in loss from non-consolidated entities during the 2011 period.
Equity in Losses From Non-Consolidated Entities. Loss from non-consolidated entities increased approximately $245,000 during the nine months ended September 30, 2011 as compared to the same period in 2010 ($954,000 in 2011 versus $709,000 in 2010). These amounts represent our ownership portion of our joint ventures net income or loss for the period. The increased loss is attributable to the addition of Woodlake Square as the result of the sale of our majority interest. We deconsolidated the property in July 2010 and account for the property under the equity method of accounting. Woodlake Squares earnings were included in the consolidated financials the nine months ended September 30, 2010, whereas our share of the propertys earnings during the 2011 period was recorded through the equity in loss from non-consolidated entities. For further discussion of our treatment of Woodlake Square, see Note 2 to our accompanying consolidated financial statements.
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Net Loss Attributable to Non-controlling Interests. Net loss attributable to non-controlling interests decreased approximately $2.9 million during the nine months ended September 30, 2011 as compared to the same period in 2010 ($135,000 in 2011 versus $3.0 million in 2010). The decrease is primarily due to the deconsolidation of Woodlake Square in July 2010. The 2010 period includes a loss of $2.9 million, which is related to operations for Woodlake Square prior to its sale, whereas our share of the propertys earnings during the 2011 period was recorded through the equity in loss from non-consolidated entities. Our remaining net loss attributable to non-controlling interests for 2011 relates to the 40% interest in Woodlake Point not owned by us.
Liquidity and Capital Resources
We expect that our primary uses of capital will be for selective investment in existing properties, and the payment of operating expenses, including interest expense on any outstanding indebtedness.
Projected cash sources (including cash on hand) and uses for the Partnership indicate periods of cash shortfalls during the year ended December 31, 2011. However, we believe that we will be able to generate sufficient liquidity to satisfy any cash shortfalls through (1) managing the timing of forecasted capital expenditures related to the lease-up of properties, (2) deferral of fees paid to our General Partner and its affiliates, (3) financings of unencumbered properties and (4) sales of certain of our investments in non-consolidated entities. No assurance can be given that we will be able to generate such liquidity. In the event that we are unable to generate sufficient liquidity, we may be forced to sell one or more properties at a time when it is disadvantageous to do so, potentially resulting in losses on the disposition of those properties. In the event that we are unable to generate sufficient liquidity, we may be forced to sell one or more properties at a time when it is disadvantageous to do so, potentially resulting in losses on disposition of those properties. Based on the foregoing, it is possible that the investors may not recover all of their original investment.
Distributions
Effective July 15, 2009, we suspended all distributions in an effort to (1) conserve cash, (2) protect our limited partners invested capital, (3) improve our ability to fund capital improvements, tenant improvements and leasing commissions, and (4) meet our obligations, including debt service. We currently do not expect to distribute net sales proceeds or any net cash flows from operations to our partners until we enter the liquidation phase which is scheduled for November 15, 2013. However, we may seek to postpone liquidation if we believe such liquidation is not in the best interests of the partners at that time.
Current Market Conditions
The U.S. economy is still experiencing weakness from recent economic conditions, which resulted in increased unemployment, weakening of tenant financial condition, large-scale business failures and tight credit markets. Our results of operations may be sensitive to changes in overall economic conditions that impact tenant leasing practices. Adverse economic conditions affecting tenant income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs and other matters, could reduce overall tenant leasing or cause tenants to shift their leasing practices. In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, could result in a general decline in rents or an increased incidence of defaults under existing leases. Recently, high levels of unemployment have persisted, and rental rates and valuations for retail space have not fully recovered to pre-recession levels and may not for a number of years. It is difficult to determine the breadth and duration of the financial market problems and the many ways in which they may affect our tenants and our business in general. A significant additional deterioration in the U.S. economy or the bankruptcy or insolvency of one or more of our significant tenants could cause our current plans to meet our projected cash shortfalls to be insufficient.
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Further, recent U.S. debt ceiling and budget deficit concerns, together with signs of deteriorating sovereign debt conditions in Europe, have increased the possibility of additional credit-rating downgrades and economic slowdowns. Although U.S. lawmakers passed legislation to raise the federal debt ceiling, Standard & Poors Ratings Services lowered its long-term sovereign credit rating on the United States (the U.S.) from AAA to AA+ in August 2011. The impact of this or any further downgrades to the U.S. governments sovereign credit rating, or its perceived creditworthiness, and despite the recent European agreement intended to help resolve the Euro crisis, the impact of the current crisis in Europe with respect to the ability of certain European Union countries to continue to service their sovereign debt obligations is inherently unpredictable and could adversely affect the U.S. and global financial markets and economic conditions. There can be no assurance that governmental or other measures to aid economic recovery will be effective. These developments and the governments credit concerns in general, could cause interest rates and borrowing costs to rise, which may further negatively impact our ability to access the debt markets.
While we believe that we have sufficient access to cash and we will be successful in extending our remaining debt maturities in 2011, successfully refinancing such debt with another lender or disposing of the mortgaged property in an orderly sale, a significant additional deterioration in the U.S. economy, advance impacts on the availability of credit, or the bankruptcy or insolvency of one or more of our significant tenants could cause our 2011 cash resources to be insufficient to meet our obligations.
Cash Flow Activities for the Nine Months Ended September 30, 2011 and 2010
As of September 30, 2011 and December 31, 2010, our cash and cash equivalents totaled approximately $380,000 and approximately $1.3 million, respectively. Cash flows provided by (used in) operating activities, investing activities and financing activities for the nine months ended September 30, 2011 and 2010 are as follows (in thousands):
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Nine months ended September 30, |
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2011 |
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2010 |
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Operating activities |
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(304 |
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(1,678 |
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Investing activities |
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(699 |
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2,719 |
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Financing activities |
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74 |
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24 |
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Net cash flows used in operating activities decreased approximately $1.4 million during the nine months ended September 30, 2011 as compared to the same period in 2010 ($304,000 in 2011 versus $1.7 million in 2010). This decrease in operating cash outflows was primarily attributable to a reduction in operating losses resulting from the deconsolidation of Woodlake Square prior to its sale in 2010 and a reduction in property taxes that were paid during the three months ended March 31, 2011 as compared to the same period in 2010.
Net cash flows used in investing activities increased approximately $3.4 million during the nine months ended September 30, 2011 as compared to the same period in 2010 ($699,000 of net cash flows used in investing activities in 2011 versus $2.7 million provided by investing activities in 2010). This increase in investing outflows was primarily due to $3.4 million in net proceeds that resulted from the sale of our 90% interest in Woodlake LP to a third-party institutional partner in July 2010 with no similar sale of property in 2011.
Net cash flows provided by financing activities increased approximately $50,000 during the nine months ended September 30, 2011 as compared to the same period in 2010 ($74,000 in 2011 versus $24,000 in 2010). The increase was primarily attributable to distributions made to non-controlling interests of $764,000 made during the 2010 period partially offset by net proceeds received from notes payable related party of approximately $600,000 during the nine months ended September 30, 2010. We made no such distributions during the nine months ended September 30, 2011; however, contributions received from non-controlling interests decreased by $112,000.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not applicable.
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CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our General Partners Chief Executive Officer (CEO) and Chief Financial Officer (CFO), our General Partners management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as of September 30, 2011. Based on that evaluation, our General Partners CEO and CFO concluded that, as of September 30, 2011, our disclosure controls and procedures were effective in causing material information relating to us to be recorded, processed, summarized and reported by management on a timely basis and to ensure the quality and timeliness of our public disclosures in accordance with SEC disclosure obligations.
Changes in Internal Controls Over Financial Reporting
There has been no change to our internal control over financial reporting during the quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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EXHIBITS. |
The exhibits listed on the accompanying Exhibit Index are filed, furnished or incorporated by reference (as stated therein) as part of this Report.
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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.
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AmREIT Monthly Income & Growth Fund IV, L.P. |
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By: |
AmREIT
Monthly Income & Growth IV Corporation, its |
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Date: November 14, 2011 |
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By: |
/s/ H. Kerr Taylor |
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H. Kerr Taylor |
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President, Chief Executive Officer and Director |
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By: |
/s/ Chad C. Braun |
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Chad C. Braun |
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Executive
Vice President, Chief Operating Officer, Chief |
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Exhibit 3.1 |
Certificate of Limited Partnership of AmREIT Monthly Income & Growth Fund IV, L.P., dated October 10, 2006 (incorporated herein by reference from Exhibit 3.1 to the Partnerships Registration Statement on Form 10-12G dated April 29, 2008). |
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Exhibit 3.2 |
Agreement of Limited Partnership of AmREIT Monthly Income & Growth Fund IV, L.P., dated November 15, 2006 (incorporated herein by reference from Exhibit 3.2 to the Partnerships Registration Statement on Form 10-12G dated April 29, 2008). |
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Exhibit 3.2.1 |
Amendment No. 1 to Agreement of Limited Partnership of AmREIT Monthly Income & Growth Fund IV, L.P., dated December 7, 2006 (incorporated herein by reference from Exhibit 3.3 to the Partnerships Registration Statement on Form 10-12G dated April 29, 2008). |
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Exhibit 31.1 |
Certification of the Chief Executive Officer of the Partnerships General Partner pursuant to Exchange Act Rule 13a-14(a) (filed herewith). |
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Exhibit 31.2 |
Certification of the Chief Financial Officer of the Partnerships General Partner pursuant to Exchange Act Rule 13a-14(a) (filed herewith). |
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Exhibit 32.1 |
Certification of the Chief Executive Officer of the Partnerships General Partner pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
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Exhibit 32.2 |
Certification of the Chief Financial Officer of the Partnerships General Partner pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
101.INS |
XBRL Instance Document* |
101.SCH |
XBRL Taxonomy Extension Schema Document* |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document* |
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document * |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document* |
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document* |
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* |
Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010, (ii) the Consolidated Statements of Operations for the three months ended September 30, 2011 and 2010 and the nine months ended September 30, 2011 and 2010, (iii) the Consolidated Statement of Capital for the nine months ended September 30, 2011, (iv) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 and (v) the Notes to the Consolidated Financial Statements. |
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Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
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