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Table of Contents



 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

 

 

FORM 10-Q

 

 

 

 


(Mark One)
x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

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

 

 

 

 

 

 

 

 

 

AmREIT MONTHLY INCOME & GROWTH FUND IV, L.P.

(Exact Name of Registrant as Specified in Its Charter)


 

 

Delaware

20-5685431

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

 

 

8 Greenway Plaza, Suite 1000

 

Houston, Texas

77046

(Address of Principal Executive Offices)

(Zip Code)


 

 

 

713-850-1400

(Registrant’s Telephone Number, Including Area Code)

 

 

 

Not applicable

(Former Name, Former Address and Formal Fiscal Year, if Changed Since Last Report)

 

 

 

 

 

 

          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):

 

 

 

 

 

Large accelerated filer o

Accelerated filer o

 

 

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company x

 

          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




TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

Page

Definitions

 

ii

Part I – Financial Information

 

 

 

Item 1.

Financial Statements.

 

1

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

13

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

17

 

Item 4.

Controls and Procedures.

 

17

 

 

 

 

 

Part II – Other Information

 

 

 

Item 1.

Legal Proceedings.

 

18

 

Item 1A.

Risk Factors.

 

18

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

18

 

Item 3.

Defaults Upon Senior Securities.

 

18

 

Item 4.

Mine Safety Disclosures.

 

18

 

Item 5.

Other Information.

 

18

 

Item 6.

Exhibits.

 

18

Signatures

 

19

Exhibit Index

 

20

i


Table of Contents

DEFINITIONS

          As used in this Quarterly Report, the following abbreviations and terms have the meanings as listed below. Additionally, the terms “we,” “our,” “MIG IV,” the “Partnership” and “us” refer collectively to AmREIT Monthly Income & Growth Fund IV, L.P. and its subsidiaries, including joint ventures, unless the context clearly indicates otherwise.

 

 

 

ABBREVIATION

 

DEFINITION

 

 

 

AmREIT

 

AmREIT, Inc., a Maryland corporation and parent of our General Partner.

 

 

 

Annual Report

 

Annual report on Form 10-K filed with the SEC for the year ended December 31, 2013.

 

 

 

ARIC

 

AmREIT Realty Investment Corporation and its consolidated subsidiaries, a wholly-owned taxable REIT subsidiary of AmREIT.

 

 

 

ASU

 

Accounting Standards Update

 

 

 

CFO

 

Chief Financial Officer.

 

 

 

Exchange Act

 

Securities Exchange Act of 1934, as amended.

 

 

 

FASB

 

Financial Accounting Standards Board.

 

 

 

GAAP

 

U.S. generally accepted accounting principles.

 

 

 

General Partner

 

AmREIT Monthly Income & Growth IV Corporation, a wholly-owned subsidiary of AmREIT.

 

 

 

GLA

 

Gross leasable area.

 

 

 

LIBOR

 

London interbank offered rate.

 

 

 

Limited Partners

 

Owners / holders of our Units.

 

 

 

MIG III

 

AmREIT Monthly Income & Growth Fund III, Ltd., an affiliated entity.

 

 

 

NYSE

 

New York Stock Exchange.

 

 

 

Offering

 

Both the issuance and sale of our initial 40 Units pursuant to the terms of a private placement memorandum dated November 15, 2006, and the subsequent sale of Units through March 31, 2008 (a total of 1,991 Units).

 

 

 

Partners

 

Collectively our General Partner and Limited Partners.

 

 

 

Quarterly Report

 

Quarterly Report on Form 10-Q filed with the SEC for the three and nine months ended September 30, 2014.

 

 

 

REIT

 

Real Estate Investment Trust.

 

 

 

SEC

 

Securities and Exchange Commission.

 

 

 

Securities Act

 

Securities Act of 1933, as amended.

 

 

 

Units

 

Limited partnership units sold in our Offering.

ii


Table of Contents

PART I – FINANCIAL INFORMATION

 

 

ITEM 1.

FINANCIAL STATEMENTS.

AmREIT MONTHLY INCOME & GROWTH FUND IV, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except Unit data)

 

 

 

 

 

 

 

 

 

 

September 30,
2014

 

December 31,
2013

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Real estate investments at cost:

 

 

 

 

 

 

 

Land

 

$

7,464

 

$

7,505

 

Buildings

 

 

12,947

 

 

12,925

 

Tenant improvements

 

 

332

 

 

360

 

 

 

 

20,743

 

 

20,790

 

Less accumulated depreciation and amortization

 

 

(3,099

)

 

(2,814

)

 

 

 

17,644

 

 

17,976

 

 

 

 

 

 

 

 

 

Investment in non-consolidated entities

 

 

9,804

 

 

8,211

 

Acquired lease intangibles, net

 

 

 

 

21

 

Net real estate investments

 

 

27,448

 

 

26,208

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

271

 

 

403

 

Tenant and accounts receivables, net

 

 

79

 

 

83

 

Accounts receivable - related party

 

 

2

 

 

419

 

Notes receivable, net

 

 

2

 

 

9

 

Deferred costs, net

 

 

56

 

 

73

 

Other assets

 

 

302

 

 

160

 

TOTAL ASSETS

 

$

28,160

 

$

27,355

 

 

 

 

 

 

 

 

 

LIABILITIES AND CAPITAL

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Notes payable

 

$

5,720

 

$

5,795

 

Notes payable - related party

 

 

1,511

 

 

1,091

 

Accounts payable and other liabilities

 

 

373

 

 

301

 

Accounts payable - related party

 

 

185

 

 

241

 

Acquired below-market lease intangibles, net

 

 

 

 

4

 

Security deposits

 

 

42

 

 

43

 

TOTAL LIABILITIES

 

 

7,831

 

 

7,475

 

 

 

 

 

 

 

 

 

Capital:

 

 

 

 

 

 

 

Partners’ capital:

 

 

 

 

 

 

 

General partner

 

 

 

 

 

Limited partners, 1,988 Units outstanding at September 30, 2014 and December 31, 2013

 

 

16,415

 

 

15,829

 

TOTAL PARTNERS’ CAPITAL

 

 

16,415

 

 

15,829

 

 

 

 

 

 

 

 

 

Non-controlling interests

 

 

3,914

 

 

4,051

 

TOTAL CAPITAL

 

 

20,329

 

 

19,880

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND CAPITAL

 

$

28,160

 

$

27,355

 

See Notes to Consolidated Financial Statements.

1


Table of Contents

AmREIT MONTHLY INCOME & GROWTH FUND IV, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per Unit data)
(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income from operating leases

 

$

226

 

$

265

 

$

692

 

$

761

 

Total revenues

 

 

226

 

 

265

 

 

692

 

 

761

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

16

 

 

30

 

 

56

 

 

67

 

General and administrative - related party

 

 

65

 

 

75

 

 

207

 

 

208

 

Asset management fees - related party

 

 

63

 

 

38

 

 

191

 

 

115

 

Property expense

 

 

132

 

 

158

 

 

392

 

 

349

 

Property management fees - related party

 

 

10

 

 

12

 

 

31

 

 

35

 

Legal and professional

 

 

51

 

 

42

 

 

174

 

 

158

 

Depreciation and amortization

 

 

126

 

 

147

 

 

413

 

 

406

 

Total operating expenses

 

 

463

 

 

502

 

 

1,464

 

 

1,338

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(237

)

 

(237

)

 

(772

)

 

(577

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

 

 

 

11

 

 

 

 

12

 

Interest expense

 

 

(92

)

 

(115

)

 

(271

)

 

(344

)

Income from non-consolidated entities

 

 

1,857

 

 

1,565

 

 

1,622

 

 

1,250

 

Margin tax benefit

 

 

 

 

6

 

 

 

 

6

 

Total other income (expense)

 

 

1,765

 

 

1,467

 

 

1,351

 

 

924

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

1,528

 

 

1,230

 

 

579

 

 

347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from real estate operations

 

 

(1

)

 

170

 

 

(28

)

 

359

 

Loss on sale of real estate

 

 

 

 

(576

)

 

 

 

(576

)

Income (loss) from discontinued operations

 

 

(1

)

 

(406

)

 

(28

)

 

(217

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income, including non-controlling interests

 

 

1,527

 

 

824

 

 

551

 

 

130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (income) loss attributable to non-controlling interests

 

 

39

 

 

(501

)

 

35

 

 

(476

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to partners

 

$

1,566

 

$

323

 

$

586

 

$

(346

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average Units outstanding

 

 

1,988

 

 

1,988

 

 

1,988

 

 

1,988

 

Net income (loss) per Unit

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

768.61

 

$

618.71

 

$

291.25

 

$

174.55

 

Income (loss) from discontinued operations

 

$

(0.50

)

$

(204.23

)

 

(14.09

)

 

(109.15

)

(Income) loss attributable to non-controlling interests

 

$

19.62

 

$

(252.01

)

 

17.61

 

 

(239.44

)

Net income (loss) attributable to partners

 

$

787.73

 

$

162.47

 

$

294.77

 

$

(174.04

)

See Notes to Consolidated Financial Statements.

2


Table of Contents

AmREIT MONTHLY INCOME & GROWTH FUND IV, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CAPITAL
For the nine months ended September 30, 2014
(in thousands)
(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital

 

 

 

 

 

 

 

 

 

General
Partner

 

Limited
Partners

 

Non-Controlling
Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

$

 

$

15,829

 

$

4,051

 

$

19,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to partners (1)

 

 

 

 

586

 

 

(35

)

 

551

 

Distributions to non-controlling interests

 

 

 

 

 

 

(102

)

 

(102

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2014

 

$

 

$

16,415

 

$

3,914

 

$

20,329

 


 

 

 

 

(1)

The allocation of net income includes a curative allocation to decrease the General Partner’s capital account by $6 for the period. The cumulative curative allocation since inception of the Partnership is $271. 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


Table of Contents

AmREIT MONTHLY INCOME & GROWTH FUND IV, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

2014

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income, including non-controlling interests

 

$

551

 

$

130

 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

Loss on sale of property

 

 

 

 

576

 

Bad debt expense

 

 

11

 

 

16

 

Income from non-consolidated entities

 

 

(1,622

)

 

(1,250

)

Depreciation and amortization

 

 

407

 

 

508

 

Increase in tenant and accounts receivable

 

 

(7

)

 

(342

)

Increase in accounts receivable - related party

 

 

 

 

(92

)

Increase in other assets

 

 

(142

)

 

(153

)

Increase in accounts payable and other liabilities

 

 

41

 

 

38

 

Increase in accounts payable - related party

 

 

451

 

 

171

 

Increase in security deposits

 

 

 

 

2

 

Net cash provided by (used in) operating activities

 

 

(310

)

 

(396

)

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Improvements to real estate

 

 

(83

)

 

(558

)

Payments received on notes receivable

 

 

7

 

 

14

 

Repayments from related party

 

 

417

 

 

 

Advances to related party

 

 

(87

)

 

 

Investment in non-consolidated entities

 

 

(3,455

)

 

(240

)

Distributions from non-consolidated entities

 

 

3,484

 

 

3,573

 

Net proceeds from sale of interest in an investment property

 

 

 

 

11,584

 

Net proceeds applied to land basis

 

 

72

 

 

108

 

Net cash provided by (used in) investing activities

 

 

355

 

 

14,481

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from notes payable

 

 

 

 

460

 

Payments on notes payable

 

 

(75

)

 

(6,780

)

Proceeds from notes payable - related party

 

 

 

 

860

 

Payments on notes payable - related party

 

 

 

 

(2,050

)

Contributions from non-controlling interests

 

 

 

 

146

 

Distributions to non-controlling interests

 

 

(102

)

 

(1,355

)

Net cash provided by (used in) financing activities

 

 

(177

)

 

(8,719

)

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(132

)

 

5,366

 

Cash and cash equivalents, beginning of period

 

 

403

 

 

129

 

Cash and cash equivalents, end of period

 

$

271

 

$

5,495

 

 

 

 

 

 

 

 

 

Supplemental schedule of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest

 

$

243

 

$

415

 

Taxes

 

$

10

 

$

6

 

 

 

 

 

 

 

 

 

Supplemental schedule of noncash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capitalization of accrued property taxes into the basis of our land at Woodlake Pointe

 

$

31

 

$

192

 

 

 

 

 

 

 

 

 

Reclassification from accounts payable - related party to notes payable - related party

 

$

420

 

$

439

 

 

 

 

 

 

 

 

 

Reclassification from accounts receivable to notes receivable

 

$

 

$

137

 

 

 

 

 

 

 

 

 

Construction fees included in accounts payable

 

$

 

$

27

 

See Notes to Consolidated Financial Statements.

4


Table of Contents

AmREIT MONTHLY INCOME & GROWTH FUND IV, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(unaudited)

 

 

1.

DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

General

          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. Our General Partner is a subsidiary of AmREIT, an SEC reporting, Maryland corporation whose common stock is listed on the NYSE and that has elected to be taxed as a REIT.

          As of September 30, 2014, our investments included a wholly-owned property comprising 36,306 square feet of GLA, one property in which we own a controlling interest comprising 82,120 square feet of GLA and three properties in which we own a non-controlling interest through joint ventures comprising 941,678 square feet of GLA.

Strategic Plan

          Our operating period ended in November 2013, and we have entered into our liquidation period pursuant to the terms of our partnership agreement. Accordingly, our General Partner has begun in good faith to review market sales opportunities, but attractive sales opportunities may not exist in the near term. As such, an orderly liquidation of our assets and wind-down of our operations may take several years for our General Partner to complete. During the liquidation period, we plan to complete any developments and redevelopments of existing properties, and we do not intend to invest in any new properties without the consent of the Limited Partners. Although our General Partner will pursue sales opportunities that are in the best interest of our Limited Partners, we do not expect that our investors will recover all of their original investment.

          On October 31, 2014, AmREIT announced that it had entered into a definitive agreement with Edens Investment Trust (“EDENS”) pursuant to which EDENS will acquire all of the outstanding common stock of AmREIT for $26.55 per share in an all-cash transaction. The transaction, which is expected to close in the first quarter of 2015, is contingent on customary closing conditions and the approval of AmREIT stockholders. We can provide no assurances that this transaction will close, or if it closes, that it will close within the timeframe or on the terms described herein. The Limited Partners will not be entitled to any compensation or consideration from the closing of the transaction. If the transaction closes, the Partnership and the General Partner will remain intact as surviving entities, but as subsidiaries of EDENS’ merger subsidiary, which will survive the merger of that entity and AmREIT, and certain officers and board members of the General Partner may change upon the closing of the transaction. We believe that the proposed EDENS’ acquisition of AmREIT will not impact the orderly planned liquidation of our assets.

Economic Conditions and Liquidity

          As of September 30, 2014, we have $271,000 in cash on hand, and we continue to face liquidity challenges. Our results of operations and valuations of our real estate assets have been negatively impacted by overall economic conditions from the recent recession. Most of our retail properties were purchased prior to 2008 when retail real estate market prices were much higher, and our property valuations were negatively impacted by these market dynamics. The United States has experienced recent improvements in the general economy; however, it is difficult to determine if these improvements will continue through 2014 and into the future.

          Our continuing short-term liquidity requirements consist primarily of operating expenses and other expenditures associated with our properties, regular debt service requirements and capital expenditures. We anticipate that our primary long-term liquidity requirements will include, but will not be limited to, operating expenses, making scheduled debt service payments, funding renovations, expansions, and other significant capital expenditures for our existing portfolio of properties including those of with our joint ventures.

          We have been successful in meeting our historic cash shortfalls through (1) managing the timing of forecasted capital expenditures related to the lease-up of properties, (2) managing the timing of operating expense payments and, to the extent possible, accelerating cash collections, (3) deferring the payment of fees owed to our General Partner and its affiliates, (4) selling certain of our properties and investments in non-consolidated entities (see Note 3) and/or (5) obtaining funds through additional borrowings from AmREIT.

          On August 27, 2014, our Cambridge and Holcombe joint venture, in which we owned a 50% interest, sold its 2.02 acres of raw land in Houston, Texas for $13.0 million to the Millennium Cambridge Apartments joint venture, in which we concurrently invested $3.0 million for an approximate 7.3% ownership interest. See Note 3. The Cambridge & Holcombe joint venture repaid its $6.3 million loan outstanding and distributed the remaining net proceeds of approximately $6.2 million equally to each of the joint venture partners. The joint venture recorded a gain on sale of $3.9 million, of which, our pro rata share was $1.9 million.

5


Table of Contents

          During 2013, our Woodlake Square joint venture sold its Woodlake Square property, and our Woodlake Pointe joint venture sold a single tenant building and land parcel at our Woodlake Pointe property. Together, these dispositions and related net proceeds allowed us to repay approximately $4.0 million of our notes payable –related party.

          During 2012, we and MIG III initiated a lease-up strategy at our Casa Linda property (a 50% joint venture between us and MIG III). We expect to fund a total of approximately $1.5 million in capital expenditures representing our 50% share of this strategy, which includes certain tenant build-out and site improvements. As of September 30, 2014, the joint venture has incurred approximately $1.4 million of the planned capital expenditures. The property is secured by a $38.0 million mortgage loan that was refinanced in December 2013 with a four-year, non-recourse loan. The new loan contains a provision that would allow for an additional funding of approximately $4.5 million should we elect to acquire an adjacent property. The mortgage matures in December 2017. The mortgage bears interest at a variable rate; however, in connection with the refinancing, we and MIG III entered into an interest rate cap agreement that provides for a maximum rate of 3.0% per annum.

          Although no assurance can be given, we believe that we will be able to generate liquidity sufficient to continue to execute an orderly liquidation of our assets; however, there is no guarantee that we and our joint ventures will be successful with our liquidity initiatives, and we may continue to look to AmREIT to provide additional financial support to us to meet our operating cash needs. Historically, AmREIT has deferred payment of advisory fees and payment of notes payable – related party to the extent such deferral of payments was necessary for our continued operation. In the event our liquidity is not sufficient to execute our strategy, AmREIT has agreed to defer payments, subject to its continued ability to do so.

 

 

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 of September 30, 2014, 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 have been prepared pursuant to the rules and regulations of the SEC and are unaudited. 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, 2013.

          Because liquidation was not imminent as of September 30, 2014, the financial statements are presented assuming we continue as a going concern.

Use of Estimates

          The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

          We consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of demand deposits at commercial banks and money market funds.

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Revenue Recognition

          Rental income from operating leases – We lease space to tenants under agreements with varying terms. Our leases are accounted for as operating leases, and, although certain leases of the properties provide for tenant occupancy during periods for which no rent is due and/or for changes in the minimum lease payments over the terms of the leases, revenue is recognized on a straight-line basis over the terms of the individual leases. Revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset. Generally, possession or control occurs on the lease commencement date. In cases where significant tenant improvements are made prior to lease commencement, the leased asset is considered to be the finished space, and revenue recognition therefore begins when the improvements are substantially complete. Revenue from tenant reimbursements of taxes, maintenance expenses and insurance is recognized in the period the related expense is recorded. Additionally, certain of our lease agreements contain provisions that grant additional rents based upon tenants’ sales volumes (contingent or percentage rent). Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements. Accrued rents are included in tenant and accounts receivable, net.

Redevelopment Properties

          Expenditures related to the development of real estate are capitalized as part of construction in progress. Costs capitalized related to the development and redevelopment of real estate include pre-construction costs, real estate taxes, insurance, direct construction costs as well as the salaries and payroll costs of personnel directly involved. The determination of when a development project is substantially complete and when capitalization must cease involves a degree of judgment; however, capitalization of such costs generally ceases at the earlier of the date of completion of major construction or when the property, or any completed portion, becomes available for occupancy.

Depreciation

          Depreciation is computed using the straight-line method over an estimated useful life of up to 39 years for buildings and site improvements and over the life of the respective leases for tenant improvements. We re-evaluate the useful lives of our buildings and improvements as warranted by changing conditions at our properties. As part of this re-evaluation, we may also consider whether such changing conditions indicate a potential impairment, and we perform an impairment analysis, as necessary, at the property level. In the case of a property redevelopment, we reassess the useful lives of specific buildings or other improvements to be demolished as part of that redevelopment once the redevelopment is probable of occurring.

Impairment

          We review our properties for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including acquired lease intangibles and accrued rental income, may not be recoverable through operations. We determine whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the residual value of the property, with the carrying value of the individual property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its fair value. Both the estimated undiscounted cash flow analysis and fair value determination are based upon various factors that require complex and subjective judgments to be made by management. Such assumptions include projecting lease-up periods, holding periods, cap rates, rental rates, operating expenses, lease terms, tenant creditworthiness, tenant improvement allowances, terminal sales value and certain macroeconomic factors among other assumptions to be made for each property. For our multi-building retail centers, we consider the entire retail center as the asset group for purposes of our impairment analysis. We review our investments in non-consolidated entities for impairment based on a similar review of the properties held by the investee entity. No impairment charges were recognized during the three and nine months ended September 30, 2014 or 2013.

New Accounting Pronouncements:

          In May 2014, the FASB issued ASU No. 2014-09: “Revenue from Contracts with Customers” that will supersede the existing revenue recognition guidance under GAAP. The accounting update states that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. It also establishes a five-step model that requires companies to exercise judgment when considering the terms of a contract and all relevant facts and circumstances. It is effective for annual reporting periods beginning after December 15, 2016. This standard does not supersede current accounting literature for lease contracts. We are currently evaluating this accounting update and our existing revenue recognition policies for contracts other than our lease contracts with tenants to determine what impact, if any, this new guidance could have on our consolidated financial statements.

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          In April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” Under the update, discontinued operations as defined as either 1) A component of and entity (or group of components) that (i) has been disposed of or meets the criteria to be classified as held-for-sale and (ii) represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results, or 2) is a business or nonprofit activity that on acquisition, meets the criteria to be classified as held-for-sale. The accounting update is effective on a prospective basis for disposals or assets meeting the definition as held-for-sale for accounting periods beginning on or after December 15, 2014. Early application is permitted, but only for those disposals that have not been reported in previously issued financial statements. We did not elect to early adopt this update.

Subsequent Events

          On October 31, 2014, AmREIT announced that it had entered into a definitive agreement under which EDENS will acquire all of the outstanding common stock of AmREIT. See Note 1.

          We identified no additional subsequent events as of the date of this filing that materially impacted our consolidated financial statements.

 

 

3.

INVESTMENT IN NON-CONSOLIDATED ENTITIES

          As of September 30, 2014, we have investments in three entities that are accounted for using the equity method of accounting due to our ability to exercise significant influence over them. Our investment balances as reported on our consolidated balance sheet are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Investment

 

Ownership

 

September 30,
2014

 

December 31,
2013

 

Casa Linda

 

50

%

 

$

2,944

 

$

3,104

 

Cambridge & Holcombe

 

50

%

 

 

 

 

894

 

Shadow Creek Ranch

 

10

%

 

 

3,860

 

 

3,996

 

Woodlake Square

 

6

%

 

 

 

 

217

 

Millennium Cambridge Apartments

 

7.3

%

 

 

3,000

 

 

 

Total

 

 

 

 

$

9,804

 

$

8,211

 

          Casa Linda - We own a 50% interest in AmREIT Casa Linda, LP, which owns a 325,000 square foot retail shopping center located in Dallas, Texas. The remaining 50% is owned by MIG III, an affiliate of our General Partner. During 2012, we and MIG III initiated a lease-up strategy at Casa Linda. We expect to fund a total of approximately $1.5 million in capital expenditures representing our 50% share of this strategy, which includes certain tenant build-out and site improvements. As of September 30, 2014, the joint venture has incurred approximately $1.4 million of the planned capital expenditures.

          The property is secured by a $38.0 million mortgage loan that was refinanced in December 2013 with a four-year, non-recourse loan. The new loan contains a provision that would allow for an additional funding of approximately $4.5 million should we elect to acquire an adjacent property. The mortgage matures in December 2017. The mortgage bears interest at a variable rate; however, in connection with the refinancing, we and MIG III entered into an interest rate cap agreement that provides for a maximum rate of 3.0% per annum. The interest rate cap was not designated as a hedge for financial reporting purposes, and our portion of the change in fair value is recognized in income (loss) from non-consolidated entities. For the nine months ended September 30, 2014 and 2013, our portion of the decrease in fair value totaled $47,000 and $0, respectively, and is included in income (loss) from non-consolidated entities on our Consolidated Statements of Operations.

          Cambridge & Holcombe - We previously owned a 50% interest in Cambridge & Holcombe, LP, which owned 2.02 acres of raw land adjacent to the Texas Medical Center in Houston, Texas. The remaining 50% was owned by an unaffiliated third party. On August 27, 2014, our Cambridge and Holcombe joint venture sold its 2.02 acres of raw land for $13.0 million to the Millennium Cambridge Apartments joint venture, in which we concurrently invested $3.0 million for an approximate 7.3% ownership interest discussed below. The Cambridge & Holcombe joint venture repaid its $6.3 million loan outstanding and distributed the remaining net proceeds of approximately $6.2 million equally to each of the joint venture partners. The joint venture recorded a gain on sale of $3.9 million, of which, our pro rata share was $1.9 million.

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          Millennium Cambridge Apartments - Upon the sale of the Cambridge & Holcombe land by our Cambridge & Holcombe joint venture as described above, we concurrently invested $3.0 million (the majority of the distributions we received from the Cambridge & Holcombe joint venture upon the property’s sale) for a 7.3% ownership interest in the Millennium Cambridge Apartments joint venture, which will develop a 374 unit luxury high rise multifamily rental project with 22 stories of residential space over a five-story parking garage on the land that was acquired from our Cambridge & Holcombe joint venture. Total estimated costs are $101 million and the project is anticipated to commence construction in late 2014 or early 2015.

          Shadow Creek Ranch - We own 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 GLA of approximately 617,000 square feet. The remaining 90% is owned by an unaffiliated third party (80%) and AmREIT (10%). The property is secured by a loan in the amount of $65.0 million at an annual interest rate of 5.48% until its maturity in March 2015.

          Woodlake Square We previously owned a 6% interest in the Woodlake Square property through a joint venture arrangement with affiliates of our General Partner, MIG III (3% ownership interest), ARIC (1% ownership interest) and an unaffiliated third party institutional partner (the remaining 90% ownership interest). On September 18, 2013, VIF II/AmREIT Woodlake L.P. sold Woodlake Square to AmREIT for $41.6 million based on arms-length negotiations between AmREIT and our third party institutional partner that owned a 90% interest in the property. Our remaining interest at December 31, 2013 represented undistributed sales proceeds, which we received during 2014.

          Combined condensed financial information for the underlying investee entities (at 100%) is summarized for the three and nine months ended September 30, 2014 and 2013, as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Revenue

 

$

7,949

 

$

4,545

 

$

15,861

 

$

14,251

 

Gain on sale of real estate

 

 

3,882

 

 

10,532

 

 

3,882

 

 

10,532

 

Depreciation and amortization

 

 

(1,477

)

 

(1,661

)

 

(4,468

)

 

(5,088

)

Interest expense

 

 

(1,374

)

 

(1,588

)

 

(4,024

)

 

(4,862

)

Net income

 

 

3,649

 

 

10,177

 

 

2,980

 

 

9,415

 


 

 

4.

NOTES PAYABLE

          Our outstanding debt as of September 30, 2014 and December 31, 2013 relates to the mortgage loan securing our Village on the Green property. The loan bears interest at 5.5% and matures in April 2017. It may be prepaid, but is subject to a yield-maintenance premium or prepayment penalty.

          As of September 30, 2014, we serve as the guarantor of debt in the amount of $20.0 million related to our Shadow Creek joint venture, which matures in March 2015. We have not accrued any liability with respect to this debt as we believe it is unlikely we would be required to perform.

 

 

5.

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 entity’s 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:

 

 

 

 

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.

 

 

 

 

Level 3 Inputs – Unobservable inputs for the asset or liability, which are typically based on the Partnership’s own assumptions, as there is little, if any, related market activity.

          Our consolidated financial instruments consist of cash and cash equivalents, tenant and accounts receivable, accounts receivable – related party, 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. In determining the fair value of our fixed-rate debt instruments, we determine the appropriate treasury note rate based on the remaining time to maturity for each of the debt instruments. We then add the appropriate yield spread to the treasury note 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. The fair value of our fixed-rate notes payable is classified in Level 2 of the fair value hierarchy. As of September 30, 2014 and December 31, 2013, the fair value of fixed-rate notes payable was approximately $6.0 million and $6.3 million, respectively.

 

 

6.

CONCENTRATIONS

          As of September 30, 2014 and December 31, 2013, 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 three and nine months ended September 30, 2014 and 2013. The following table details the base rents generated by our top tenants during the three and nine months ended September 30, 2014 and 2013 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

Tenant

 

2014

 

2013

 

2014

 

2013

 

Paesano’s

 

$

54

 

$

39

 

$

163

 

$

163

 

Rouse Dental

 

 

23

 

 

20

 

 

68

 

 

48

 

The Mutual Fund Store

 

 

9

 

 

9

 

 

26

 

 

26

 

KT Nails and Spa

 

 

8

 

 

8

 

 

24

 

 

24

 

Rangoni Shoes

 

 

8

 

 

6

 

 

22

 

 

19

 

Total

 

$

102

 

$

82

 

$

303

 

$

280

 


 

 

7.

PARTNERS’ CAPITAL AND NON-CONTROLLING INTEREST

          Distributions We suspended all distribution payments in July 2009 and do not anticipate reinstating distributions until we generate liquidity that could allow us to re-commence distributions. All distributions to date have been a return of capital. Net cash flow, as defined, will be distributed among the Limited Partners and the General Partner in the following manner:

 

 

 

 

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);

 

 

 

 

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;

 

 

 

 

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

 

 

 

 

Thereafter - 60% to the Limited Partners on a per Unit basis and 40% to the General Partner.

          Non-controlling InterestsNon-controlling interests includes a 40% ownership interest that our affiliates have in our Woodlake Pointe property and a 40% interest that our affiliates have in our investment in Woodlake Holdco that we consolidate as a result of our 60% controlling financial interest.

 

 

8.

RELATED PARTY TRANSACTIONS

          We have no employees or officers. Certain of our affiliates receive fees and compensation during the operating stage of the Partnership, including compensation for providing services to us in the areas of asset management, development and acquisitions, property management and leasing, financing, brokerage and administration. We reimburse our General Partner for an allocation of salary and other overhead costs. The following table summarizes the amount of such compensation paid to our affiliates during the three and nine months ended September 30, 2014 and 2013 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

Type of service

 

2014

 

2013

 

2014

 

2013

 

Asset management fees

 

$

63

 

$

38

 

$

191

 

$

115

 

Property management fees

 

 

10

 

 

12

 

 

31

 

 

35

 

Leasing costs

 

 

 

 

 

 

4

 

 

8

 

Administrative costs reimbursements

 

 

65

 

 

75

 

 

207

 

 

208

 

Interest expense-related party (1)

 

 

10

 

 

64

 

 

27

 

 

96

 

 

 

$

148

 

$

189

 

$

460

 

$

462

 


 

 

 

 

 

 

 

 

 

 

September 30, 2014

 

December 31, 2013

 

Notes payable - related party (2)

 

$

1,511

 

$

1,091

 


 

 

 

(1)

Amounts are included in interest expense on our Consolidated Statements of Operations.

(2)

The note accrues interest monthly at 2.8% and is secured by our investment interest in the Woodlake Pointe property.

          In addition to the above fees incurred by us, the non-consolidated entities in which we have investments paid $551,000 and $653,000 in property management and leasing fees to one of our affiliated entities for the nine months ended September 30, 2014 and 2013, respectively. See also Note 3 regarding investments in non-consolidated entities.

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9.

ASSET DISPOSITIONS AND DISCONTINUED OPERATIONS

          On September 30, 2013, our Woodlake Pointe joint venture sold a single tenant building and land parcel at our Woodlake Pointe property for $12.0 million to an unrelated third party. The sale resulted in net proceeds of $4.9 million after payoff of a $6.6 million mortgage and other closing costs. Our 60% portion of the net cash proceeds was approximately $3.0 million. We have presented the operating results of this property as discontinued operations in the accompanying consolidated statements of operations for all periods presented. A summary of our discontinued operations for the periods presented is detailed below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended
September 30,

 

For the Nine Months Ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income from operating leases

 

$

 

$

263

 

$

 

$

882

 

Total revenues

 

 

 

 

263

 

 

 

 

882

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Property expense

 

 

 

 

2

 

 

19

 

 

190

 

Legal and professional

 

 

1

 

 

30

 

 

9

 

 

56

 

Depreciation and amortization

 

 

 

 

 

 

 

 

94

 

Total operating expenses

 

 

1

 

 

32

 

 

28

 

 

340

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(1

)

 

231

 

 

(28

)

 

542

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

(61

)

 

 

 

(183

)

Total other expense

 

 

 

 

(61

)

 

 

 

(183

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from real estate operations

 

 

(1

)

 

170

 

 

(28

)

 

359

 

Loss on sale of real estate

 

 

 

 

(576

)

 

 

 

 

(576

)

Income (loss) from discontinued operations

 

$

(1

)

$

(406

)

$

(28

)

$

(217

)


 

 

10.

COMMITMENTS AND CONTINGENCIES

          Litigation - In the ordinary course of business, we may become subject to litigation or claims. There are no material legal proceedings known to be contemplated against us.

          Environmental matters - In connection with the ownership and operation of real estate, we may be potentially liable for costs and damages related to environmental matters. We are not aware of any pending environmental proceedings with respect to our properties that would have a material adverse effect on our consolidated financial statements.

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ITEM 2.

MANAGEMENT’S 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 Quarterly Report constitutes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of 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, but are not limited to 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 and redevelopment schedules and other risks, uncertainties and assumptions. Any forward-looking statement speaks only as of the date on which it was made, and we undertake no duty or obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

OVERVIEW

          We are a Delaware limited partnership formed 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 properties. Our Units are not currently listed on a securities exchange, and there currently is no established public trading market for our Units. We do not intend to list our Units at this time and have no plans to list our Units on a securities exchange in the future.

          Our general partner is a Delaware corporation and a wholly-owned subsidiary of AmREIT, an SEC reporting, Maryland corporation that is publicly traded on the NYSE and that has elected to be taxed as a REIT. Our General Partner has the exclusive right to manage our business and affairs on a day-to-day basis pursuant to our limited partnership agreement. The Limited Partners have the right to remove and replace our General Partner, with or without cause, by a vote of the Limited Partners owning a majority of the outstanding Units (excluding any Units held by our General Partner). Our General Partner is responsible for all of our investment decisions, including decisions relating to the properties to be developed, the method and timing of financing or refinancing the properties, the selection of tenants, the terms of the leases, the method and timing of the sale of our properties and the reinvestment of net sales proceeds. Our General Partner utilizes the services of AmREIT and its affiliates in performing its duties under our limited partnership agreement.

          As of September 30, 2014, our investments included a wholly-owned property comprising 36,306 square feet of GLA, one property in which we own a controlling interest comprising 82,120 square feet of GLA and three properties in which we own a non-controlling interest through joint ventures comprising 941,678 square feet of GLA. Rental income accounted for 100% of our total revenue during the nine months ended September 30, 2014 and 2013, 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 indebtedness. As of September 30, 2014, our properties had an average occupancy of 92.9%.

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Strategic Plan

          Our operating period ended in November 2013, and we have entered into our liquidation period pursuant to the terms of our partnership agreement. Accordingly, our General Partner has begun in good faith to review market sales opportunities, but attractive sales opportunities may not exist in the near term. As such, an orderly liquidation of our assets and wind-down of our operations may take several years for our General Partner to complete. During the liquidation period, we plan to complete any developments and redevelopments of existing properties, and we do not intend to invest in any new properties without the consent of the Limited Partners. Although our General Partner will pursue sales opportunities that are in the best interest of our Limited Partners, we do not expect that our investors will recover all of their original investment.

          On October 31, 2014, AmREIT announced that it had entered into a definitive agreement with Edens Investment Trust (“EDENS”) pursuant to which EDENS will acquire all of the outstanding common stock of AmREIT for $26.55 per share in an all-cash transaction. The transaction, which is expected to close in the first quarter of 2015, is contingent on customary closing conditions and the approval of AmREIT stockholders. We can provide no assurances that this transaction will close, or if it closes, that it will close within the timeframe or on the terms described herein. The Limited Partners will not be entitled to any compensation or consideration from the closing of the transaction. If the transaction closes, the Partnership and the General Partner will remain intact as surviving entities, but as subsidiaries of EDENS’ merger subsidiary, which will survive the merger of that entity and AmREIT, and certain officers and board members of the General Partner may change upon the closing of the transaction. We believe that the proposed EDENS’ acquisition of AmREIT will not impact the orderly planned liquidation of our assets.

          In executing our liquidation strategy, we could incur individual setbacks and possibly significant losses. Accordingly, we still may incur cash shortfalls, which could result in lender repossession of one or more properties or we and/or our joint ventures being 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 such properties.

RESULTS OF OPERATIONS

          Below is a discussion of our results of operations for the three and nine months ended September 30, 2014, as compared to the same periods in 2013.

Comparison of the Three Months Ended September 30, 2014, to the Three Months Ended September 30, 2013

          Revenues. Revenues decreased $39,000 for the three months ended September 30, 2014 as compared to the same period in 2013. The decrease was due to the continued vacancy by one of our tenants beginning in the first quarter of 2014 and a new vacancy during the third quarter of 2014 at Village on the Green.

          Asset management fees – related party. Asset management fees – related party increased approximately $25,000 for the three months ended September 30, 2014, as compared to the same period in 2013. Our asset management fees are calculated based upon the net fair value of our assets, which increased between the 2013 and 2014 periods.

          Property expense. Property expense decreased approximately $26,000 for the three months ended September 30, 2014, as compared to the same period in 2013. The decrease was due to parking lot repairs that occurred in 2013 with no such expenses incurred during the comparable period in 2014.

          Interest expense. Interest expense decreased approximately $23,000 for the three months ended September 30, 2014 as compared to the same period in 2013. The decrease is due to lower balances owed on our notes payable - related party as a result of repayments made during 2013.

          Income from non-consolidated entities. Income from non-consolidated entities increased approximately $292,000 for the three months ended September 30, 2014 as compared to the same period in 2013. These amounts represent our ownership portion of our joint ventures’ net income or loss for the period. We recorded a gain of $1.9 million related to the sale of Cambridge & Holcombe in 2014 and we recorded our pro rata share of the gain on the sale of Woodlake Square of approximately $1,050,000 by our Woodlake Square joint venture in 2013.

          Income (loss) from discontinued operations. Loss from discontinued operations decreased approximately $405,000 during the three months ended September 30, 2014 as compared to the same period in 2013. Our loss from discontinued operations in 2013 relates to our single-tenant building at our Woodlake Pointe property that we sold during the third quarter of 2013.

          Net (income) loss attributable to non-controlling interests. Net (income) loss attributable to non-controlling interests increased approximately $540,000 from income of $501,000 during the three months ended September 30, 2013 as compared to a loss of $39,000 during the three months ended September 30, 2014. Our 2013 loss primarily represents the 40% portion of the loss from the sale of a portion of the land and single tenant building at our Woodlake Pointe property.

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Comparison of the Nine Months Ended September 30, 2014, to the Nine Months Ended September 30, 2013

          Revenues. Revenues decreased $69,000 for the nine months ended September 30, 2014 as compared to the same period in 2013. The decrease was due to continued vacancy by one of our tenants beginning in the first quarter of 2014 at Village on the Green.

          Asset management fees – related party. Asset management fees – related party increased approximately $76,000 for the nine months ended September 30, 2014, as compared to the same period in 2013. Our asset management fees are calculated based upon the net fair value of our assets, which increased between the 2013 and 2014 periods.

          Property expense. Property expense increased $43,000 for the nine months ended September 30, 2014, as compared to the same period in 2013. The increase is primarily related to increased security incurred of $22,000 during 2014 at our Village on the Green property. The increase is also due to an increase in vacant suite expense of $11,000 in 2014 for additional vacancy at our Village on the Green property.

          Interest expense. Interest expense decreased approximately $73,000 for the nine months ended September 30, 2014 as compared to the same period in 2013. The decrease is due to lower balances owed on our notes payable - related party as a result of repayments made during 2013.

          Income (loss) from non-consolidated entities. Income from non-consolidated entities increased approximately $372,000 for the nine months ended September 30, 2014 as compared to the same period in 2013. These amounts represent our ownership portion of our joint ventures’ net income or loss for the period. We recorded a gain of $1.9 million related to the sale of Cambridge & Holcombe in 2014 and we recorded our pro rata share of the gain on the sale of Woodlake Square of approximately $1,050,000 by our Woodlake Square joint venture in 2013 of $1.7 million.

          Income (loss) from discontinued operations. Loss from discontinued operations decreased approximately $189,000 during the nine months ended September 30, 2014 as compared to the same period in 2013. Our loss from discontinued operations during 2013 relates to the sale of our single-tenant building at our Woodlake Pointe property during the third quarter of 2013. The loss incurred during the nine months ended September 30, 2014 represents a final sales price adjustment on our Woodlake Pointe property related to tenant property tax reimbursements.

          Net (income) loss attributable to non-controlling interests. Net (income) loss attributable to non-controlling interests increased approximately $511,000 from a loss of $476,000 during the nine months ended September 30, 2013 as compared to income of $35,000 during the nine months ended September 30, 2014. Our 2013 loss primarily represents the 40% portion of the loss from the sale of a portion of the land and single tenant building at our Woodlake Pointe property.

LIQUIDITY AND CAPITAL RESOURCES

          As of September 30, 2014, we have $271,000 in cash on hand, and we continue to face liquidity challenges. Our results of operations and valuations of our real estate assets have been negatively impacted by overall economic conditions from the recent recession. Most of our retail properties were purchased prior to 2008 when retail real estate market prices were much higher, and our property valuations were negatively impacted by these market dynamics. The United States has experienced recent improvements in the general economy; however, it is difficult to determine if the improvements experienced will continue through 2014 and beyond.

          Our continuing short-term liquidity requirements consist primarily of operating expenses and other expenditures associated with our properties, regular debt service requirements and capital expenditures. We anticipate that our primary long-term liquidity requirements will include, but will not be limited to, operating expenses, making scheduled debt service payments, funding renovations, expansions, and other significant capital expenditures for our existing portfolio of properties, including those of with our joint ventures.

          We have been successful in meeting our historic cash shortfalls through (1) managing the timing of forecasted capital expenditures related to the lease-up of properties, (2) managing the timing of operating expense payments and, to the extent possible, accelerating cash collections, (3) deferring the payment of fees owed to our General Partner and its affiliates, (4) selling certain of our properties and investments in non-consolidated entities (see Note 3) and/or (5) obtaining funds through additional borrowings from AmREIT.

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          On August 27, 2014, our Cambridge and Holcombe joint venture, in which we owned a 50% interest, sold its 2.02 acres of raw land in Houston, Texas for $13.0 million to the Millennium Cambridge Apartments joint venture, in which we concurrently invested $3.0 million for an approximate 7.3% ownership interest. See Note 3 of the Notes to Consolidated Financial Statements. The Cambridge & Holcombe joint venture repaid its $6.3 million loan outstanding and distributed the remaining net proceeds of approximately $6.2 million equally to each of the joint venture partners. The joint venture recorded a gain on sale of $3.9 million, of which, our pro rata share was $1.9 million.

          During 2013, our Woodlake Square joint venture sold its Woodlake Square property and our Woodlake Pointe joint venture sold a single tenant building and land parcel at our Woodlake Pointe property. Together, these transactions allowed us to repay approximately $4.0 million of our notes payable – related party.

          During 2012, we and MIG III initiated a lease-up strategy at our Casa Linda property (a 50% joint venture between us and MIG III). We expect to fund a total of approximately $1.5 million in capital expenditures representing our 50% share of this strategy, which includes certain tenant build-out and site improvements. As of September 30, 2014, the joint venture has incurred approximately $1.4 million of the planned capital expenditures. The property is secured by a $38.0 million mortgage loan that was refinanced in December 2013 with a four-year, non-recourse loan. The new loan contains a provision that would allow for an additional funding of approximately $4.5 million should we elect to acquire an adjacent property. The mortgage matures in December 2017. The mortgage bears interest at a variable rate; however, in connection with the refinancing, we and MIG III entered into an interest rate cap agreement that provides for a maximum rate of 3.0% per annum.

          Although no assurance can be given, we believe that we will be able to generate liquidity sufficient to continue to execute an orderly liquidation of our assets; however, there is no guarantee that we and our joint ventures will be successful with the above liquidity initiatives, and we may continue to look to AmREIT to provide additional financial support to us to meet our operating cash needs. Historically, AmREIT has deferred payment of advisory fees and payment of notes payable – related party to the extent such deferral of payments were necessary for our continued operation. In the event our liquidity is not sufficient to execute our strategy, AmREIT has agreed to defer payments, subject to its continued ability to do so.

          In executing our liquidation strategy, we could incur individual setbacks and possibly significant losses. Accordingly, we still may incur cash shortfalls, which could result in lender repossession of one or more properties or we and/or our joint ventures being 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 such properties.

Market Conditions

          Our operations are sensitive to changes in overall economic conditions that impact our tenants, including, market and economic challenges experienced by the U.S. economy, the real estate industry or within the geographic markets where our properties are located. Most of our retail properties were purchased prior to 2008 when retail real estate market prices were much higher, and our property valuations were negatively impacted by these market dynamics. The U.S. economy has improved from the recent severe recession; however, should recessionary conditions return, such conditions could prevent us or from maintaining the value of our properties. Even if such conditions do not impact us directly, such conditions could adversely affect our tenants.

          A general reduction in the level of tenant leasing or shifts in tenant leasing practices could adversely affect our business, financial condition, liquidity, results of operations, our redevelopment projects and future property dispositions. Additionally, if credit markets and/or debt or equity capital markets contract, our ability to obtain financing on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to refinance existing debt and increase our future interest expense.

Cash Flow Activities for the Nine months Ended September 30, 2014 and 2013

          Cash flows provided by (used in) operating activities, investing activities and financing activities for the nine months ended September 30, 2014 and 2013 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

2014

 

2013

 

Operating activities

 

$

(310

)

$

(396

)

Investing activities

 

 

355

 

 

14,481

 

Financing activities

 

 

(177

)

 

(8,719

)

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          Net cash flows used in operating activities decreased approximately $86,000 during the nine months ended September 30, 2014, as compared to the same period in 2013. This decrease is primarily due to additional payments of tenant and accounts receivable and accounts receivable – related party of $427,000 and fewer payments of accounts payable and accounts payable – related party of $283,000 during the nine months ended September 30, 2014, partially offset by an increase in net loss exclusive of income from non-consolidated entities, loss on the sale of property and depreciation of $628,000, as compared to the same period in 2013.

          Net cash flows provided by investing activities decreased approximately $14.1 million during the nine months ended September 30, 2014, as compared to the same period in 2013. This decrease in cash inflows is primarily due to:

 

 

 

 

proceeds of $11.6 million received during 2013 related to the sale of a single-tenant building and land parcel at our Woodlake Pointe property with no such sale during 2014; and

 

 

 

 

an increase in advances to and investments in non-consolidated entities of $3.2 million during 2014 related to our re-investment in the Millennium Cambridge Apartments.

          Net cash flows used in financing activities decreased approximately $8.5 million during the nine months ended September 30, 2014, as compared to the same period in 2013. The decrease was primarily due to fewer repayments of notes payable and notes payable – related party during 2014.

OFF BALANCE SHEET ARRANGEMENTS

          As of September 30, 2014, we serve as the guarantor of debt in the amount of $20.0 million that is the primary obligation of our non-consolidated joint ventures. The debt for which we serve as guarantors matures in March 2015. We have not accrued any liability with respect to this debt as we believe it is unlikely we would be required to perform as we believe the fair value of the property exceeds the amount of the loan.

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

          Not applicable.

 

 

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

          Under the supervision and with the participation of our General Partner’s CEO and CFO, our General Partner’s 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, 2014. Based on that evaluation, our General Partner’s CEO and CFO concluded that, as of September 30, 2014, 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, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

 

 

ITEM 1.

LEGAL PROCEEDINGS.

          In the ordinary course of business, we may become subject to litigation or claims. Neither we nor our properties are the subject of any material pending legal proceeding, nor are we aware of any legal proceeding that a government authority is contemplating against us.

 

 

ITEM 1A.

RISK FACTORS.

          Not applicable.

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

          None.

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

          None.

 

 

ITEM 4.

MINE SAFETY DISCLOSURES.

          Not applicable.

 

 

ITEM 5.

OTHER INFORMATION.

          None.

 

 

ITEM 6.

EXHIBITS

          The exhibits listed on the accompanying Exhibit Index are filed, furnished, or incorporated by reference (as stated therein) as part of this Quarterly Report.

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SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

AmREIT Monthly Income & Growth Fund IV, L.P.

 

 

 

 

By:

AmREIT Monthly Income & Growth IV
Corporation, its General Partner

 

 

 

Date: November 13, 2014

By:

/s/ H. Kerr Taylor

 

 

H. Kerr Taylor

 

 

President, Chief Executive Officer and Director

 

 

 

Date: November 13, 2014

By:

/s/ Chad C. Braun

 

 

Chad C. Braun

 

 

Executive Vice President, Chief Operating Officer, Chief
Financial Officer, Treasurer and Secretary

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EXHIBIT INDEX

 

 

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 Partnership’s Registration Statement on Form 10-12G dated April 29, 2008).

 

 

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 Partnership’s Registration Statement on Form 10-12G dated April 29, 2008).

 

 

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 Partnership’s Registration Statement on Form 10-12G dated April 29, 2008).

 

 

Exhibit 31.1

Certification of the Chief Executive Officer of the Partnership’s General Partner pursuant to Exchange Act Rule 13a-14(a) (filed herewith).

 

 

Exhibit 31.2

Certification of the Chief Financial Officer of the Partnership’s General Partner pursuant to Exchange Act Rule 13a-14(a) (filed herewith).

 

 

Exhibit 32.1

Certification of the Chief Executive Officer of the Partnership’s 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).

 

 

Exhibit 32.2

Certification of the Chief Financial Officer of the Partnership’s 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).

 

 

Exhibit 101.INS

XBRL Instance Document*

 

 

Exhibit 101.SCH

XBRL Taxonomy Extension Schema Document*

 

 

Exhibit 101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document*

 

 

Exhibit 101.LAB

XBRL Taxonomy Extension Label Linkbase Document*

 

 

Exhibit 101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document*

 

 

Exhibit 101.DEF

XBRL Taxonomy Extension Definition Linkbase Document*


 

 

 

 

 

*

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, 2014 (unaudited) and December 31, 2013, (ii) the Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013 (unaudited), (iii) the Consolidated Statement of Capital for the nine months ended September 30, 2014 (unaudited), (iv) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited) and (v) the Notes to the Consolidated Financial Statements (unaudited).

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