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UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION  

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One) 

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

For the quarterly period ended September 30, 2015

OR

☐  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 ☒  No ☐

  

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 ☒  No ☐

  

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 ☐	Accelerated filer ☐
	Non-accelerated filer  ☐ (Do not check if a smaller reporting company)	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 ¨ 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.		14
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		17
	Item 4.	Controls and Procedures.		17
Part II – Other Information
	Item 1.	Legal Proceedings.		17
	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

 

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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.

 

As further defined below, “AmREIT” (the parent of our General Partner) and its wholly-owned subsidiaries “ARIC” and AmREIT Monthly Income & Growth IV Corporation (our General Partner) were acquired by Edens on February 18, 2015 in an all-cash transaction whereby AmREIT and its wholly-owned subsidiaries were merged with and into Saturn Subsidiary, LLC (an indirect, wholly-owned subsidiary of Edens) with Saturn Subsidiary, LLC as the surviving entity. Subsequent to the acquisition, all of the functions formerly performed by AmREIT and its designated affiliates are performed on our behalf by Edens, Saturn Subsidiary, LLC or one of its designated affiliates, including that of our General Partner. References herein to “AmREIT” (including its wholly-owned subsidiaries), “ARIC” or AmREIT Monthly Income & Growth IV Corporation refer to the period prior to the acquisition. References herein to “Edens” (including Saturn Subsidiary, LLC or one of its designated affiliates) refer to periods after the acquisition.

  

ABBREVIATION

DEFINITION

  

AmREIT

AmREIT, Inc., formerly a Maryland corporation that, prior to February 18, 2015, was a SEC reporting corporation that had a class of securities listed on the NYSE and that had elected to be taxed as a REIT. From January 1, 2015 through February 18, 2015, AmREIT was the owner of our General Partner. On February 18, 2015, all of AmREIT’s common stock was acquired by Edens in the AmREIT Acquisition when AmREIT and its wholly-owned subsidiaries were merged with and into Saturn Subsidiary, LLC (an indirect, wholly-owned subsidiary of Edens, “Saturn”) with Saturn being the surviving entity. Upon the acquisition of all of the outstanding common stock of AmREIT, Edens became the parent company of our General Partner.

 

AmREIT Acquisition

The purchase of all of AmREIT’s common stock for $26.55 per share in an all-cash transaction by Edens on February 18, 2015. Upon the acquisition of all of the outstanding common stock of AmREIT, Edens became the parent company of our General Partner. Effective February 18, 2015, all of the functions formerly performed by AmREIT and its wholly-owned subsidiaries are now performed by Edens or one of its designated subsidiaries, including those of our General Partner.

 

Annual Report

Annual report on Form 10-K filed with the SEC as of and for the year ended December 31, 2014.

  

ARIC

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

 

ASU

Accounting Standards Update.

 

Edens

Edens Investment Trust, which acquired all of AmREIT’s common stock in an all-cash transaction on February 18, 2015. Effective February 18, 2015, Edens is the parent company of our General Partner.

 

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. From January 1, 2015 through February 18, 2015, our General Partner was a wholly-owned subsidiary of AmREIT, Inc. On February 18, 2015, all of AmREIT’s common stock was acquired by Edens in an all cash transaction. Subsequent to this acquisition, Edens is the parent company of our General Partner.

  

GLA

Gross leasable area.

 

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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 as of and for the three and nine months ended September 30, 2015.

  

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.

 

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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, 2015				December 31, 2014
		(unaudited)
ASSETS
Real estate investments at cost:
Land		$	—			$	7,583
Buildings			—				10,948
Tenant improvements			—				357
			—				18,888
Less accumulated depreciation and amortization			—				(3,217	)
			—				15,671
Real estate held for sale, net			7,395				—
Investment in non-consolidated entities			9,355				9,768
Net re Net real estate investments			16,750				25,439
Cash and cash equivalents			9,958				246
Tenant and accounts receivables, net			57				78
Accounts receivable - related party			2				2
Notes receivable, net			—				2
Deferred costs, net			34				48
Other assets			300				160
TOTAL ASSETS		$	27,101			$	25,975
LIABILITIES AND CAPITAL
Liabilities:
Note payable held for sale		$	5,614			$	—
Note payable			—				5,693
Note payable - related party			2,143				1,649
Accounts payable and other liabilities			311				463
Accounts payable - related party			3,219				231
Security deposits			46				42
TOTAL LIABILITIES			11,333				8,078
Capital:
Partners’ capital:
General partner			—				—
Limited partners, 1,988 Units outstanding at September 30, 2015 and December 31, 2014			15,749				14,823
TOTAL PARTNERS’ CAPITAL			15,749				14,823
Non-controlling interests			19				3,074
TOTAL CAPITAL			15,768				17,897
TOTAL LIABILITIES AND CAPITAL		$	27,101			$	25,975

 

See Notes to Consolidated Financial Statements.

 

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AmREIT MONTHLY INCOME & GROWTH FUND IV, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for Unit data)  

(unaudited)  

		Three months ended September 30,								Nine months ended September 30,
		2015				2014				2015				2014
Income (loss) from non-consolidated entities		$	141			$	1,857			$	169			$	1,622
Expenses:
General and administrative			11				11				47				48
General and administrative - related party			65				65				204				207
Asset management fees - related party			63				63				191				191
Legal and professional			54				49				181				159
Depreciation and amortization			—				—				1				—
Total operating expenses			193				188				624				605
Operating (loss) income			(52	)			1,669				(455	)			1,017
Other income (expense):
Interest expense			(9	)			(10	)			(27	)			(27	)
Total other income (expense)			(9	)			(10	)			(27	)			(27	)
Income (loss) from continuing operations			(61	)			1,659				(482	)			990
Income (loss) from discontinued operations:
Gain on sale of real estate acquired for investment			2,682				—				2,682				—
Income (loss) from real estate operations			(105	)			(132	)			(306	)			(439	)
Total income (loss) from discontinued operations			2,577				(132	)			2,376				(439	)
Net income (loss), including non-controlling interests			2,516				1,527				1,894				551
Net (income) loss attributable to non-controlling interests			(1,042	)			(4	)			(968	)			35
Net income (loss) attributable to partners		$	1,474			$	1,523			$	926			$	586
Weighted average Units outstanding			1,988				1,988				1,988				1,988
Net income (loss) per Unit
Income (loss) from continuing operations		$	(30.68	)		$	834.51			$	(242.45	)		$	497.99
Income (loss) from discontinued operations		$	1,296.28			$	(66.40	)			1,195.17				(220.82	)
(Income) loss attributable to non-controlling interests		$	(524.14	)		$	(2.01	)			(486.92	)			17.61
Net income (loss) attributable to partners		$	741.46			$	766.10			$	465.80			$	294.78

 

See Notes to Consolidated Financial Statements.

 

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

CONSOLIDATED STATEMENT OF CAPITAL

For the nine months ended September 30, 2015

(in thousands)

(unaudited)

  

		Partners’ Capital
		General Partner				Limited Partners				Non-Controlling Interests				Total
Balance at December 31, 2014		$	—			$	14,823			$	3,074			$	17,897
Net income (loss) attributable to partners (1)			—				926				968				1,894
Distributions to non-controlling interests			—				—				(4,237	)			(4,237	)
Contributions from non-controlling interests			—				—				214				214
Balance at September 30, 2015		$	—			$	15,749			$	19			$	15,768

 

(1)

The allocation of net income includes a curative allocation to increase the General Partner’s capital account by $9 for the period. The cumulative curative allocation since inception of the Partnership is $278. 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.

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

		Nine months ended September 30,
		2015				2014
Cash flows from operating activities:
Net income (loss), including non-controlling interests		$	1,894			$	551
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Gain on sale of real estate acquired for investment			(2,682	)			—
Bad debt expense			—				11
(Income) loss from non-consolidated entities			(169	)			(1,622	)
Depreciation and amortization			339				407
(Increase) decrease in tenant and accounts receivable			21				(7	)
(Increase) decrease in other assets			(142	)			(142	)
Increase (decrease) in accounts payable and other liabilities			(142	)			41
Increase (decrease) in accounts payable - related party			463				451
Increase (decrease) in security deposits			4				—
Net cash provided by (used in) operating activities			(414	)			(310	)
Cash flows from investing activities:
Improvements to real estate			(38	)			(83	)
Payments received on notes receivable			2				7
Repayments from related party			—				417
Repayments to related party			(12	)			(87	)
Investment in and advances to non-consolidated entities			—				(3,455	)
Distributions from non-consolidated entities			589				3,484
Net proceeds applied to land basis			96				72
Proceeds from property sales			10,567				—
Net cash provided by (used in) investing activities			11,204				355
Cash flows from financing activities:
Payments on notes payable			(79	)			(75	)
Contributions from non-controlling interests			68				—
Distributions to non-controlling interests			(1,067	)			(102	)
Net cash provided by (used in) financing activities			(1,078	)			(177	)
Net increase (decrease) in cash and cash equivalents			9,712				(132	)
Cash and cash equivalents, beginning of period			246				403
Cash and cash equivalents, end of period		$	9,958			$	271
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest		$	237			$	243
Taxes		$	—			$	10
Supplemental schedule of noncash investing and financing activities:
Capitalization of accrued property taxes into the basis of our land at Woodlake Pointe		$	171			$	31
Reclassification from accounts payable - related party to notes payable - related party		$	494			$	420
Distribution payable		$	(3,170	)		$	—
Contributions from non-controlling interests		$	146			$	—

 

See Notes to Consolidated Financial Statements.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(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 Texas corporation and, prior to February 18, 2015, was a wholly-owned subsidiary of AmREIT. Effective February 18, 2015, Edens has become the parent company of our General Partner in connection with the AmREIT Acquisition when AmREIT merged with and into Saturn Subsidiary, LLC (an indirect, wholly-owned subsidiary of Edens, “Saturn”), with Saturn being the surviving entity, after Edens acquired all of the outstanding common stock of AmREIT in an all cash transaction.

 

As of September 30, 2015, our investments included one wholly-owned property (Village on the Green) comprising 36,306 square feet of GLA and three properties in which we own a non-controlling interest through three joint ventures (Casa Linda, Shadow Creek Ranch and Millennium Cambridge Apartments) comprising 942,238 square feet of GLA. All of these properties are located in highly populated, suburban communities in Texas.

 

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. Our General Partner is reviewing market sales opportunities in good faith, but attractive sales opportunities may not exist in the near term. While we believe an orderly liquidation of our assets will be completed within the next 3-6 months, successful wind-down of our operations may take longer for our General Partner to complete. During the liquidation period, we plan to distribute net proceeds generated from property sales to our 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. We do not expect that the AmREIT Acquisition will impact the orderly liquidation of our assets.

 

Economic Conditions and Liquidity

 

As of September 30, 2015, we have $10.0 million in cash on hand as a result of the sale of Woodlake Pointe. Most of our retail properties were purchased prior to 2008 when retail real estate market prices were much higher, and our results of operations and property valuations were negatively impacted by the severe recession. The United States has experienced recent improvements in the general economy; however, it is difficult to determine if these improvements will continue through 2015 and into the future.

 

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.

 

A significant portion of Houston’s and Dallas’ industry is in oil and gas as well as oilfield services. The price of oil declined to five-year lows set in late March of 2015. Oil benchmarks have rallied somewhat from their lows; however, the recovery is only moderate with prices trading in a narrow range between $40-$50 a barrel since early May 2015. It is unknown when or whether oil prices will continue to increase, and if they increase, how much and for what duration. We are unable to predict the impact, if any, that lower oil prices could have on economies in which our properties are located. However, a prolonged period of depressed oil prices could potentially be adverse to these economies, the profitability of our tenants and, ultimately, the value of our properties.

 

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Current strategies and recent transactions that have impacted current and future liquidity include:

 

·

On September 9, 2015, we sold our Woodlake Pointe property to a third party for $11.0 million in an all-cash transaction with a gain on sale of approximately $2.7 million, $1.6 million of which represents our 60% portion.

·

We intend to sell our interests in the Casa Linda and Shadow Creek Ranch joint ventures and, Edens has elected to exercise its option to acquire our interests in the properties. In accordance with pre-established procedures, we and Edens obtained separate appraisals on the properties from two independent, national appraisal groups. Because the appraisals were within 5% of one another, the sale price will be the average of the two appraisals. The sales price for our 50% interest in Casa Linda has been determined as $28.6 million and the sales price for our 10% interest in Shadow Creek Ranch has been determined as $13.4 million. Estimated net sales proceeds, after debt and closing costs, are expected to be $9.1 million for our interest in Casa Linda and $7.0 million for our interest in Shadow Creek Ranch. Our Limited Partners have approved both of the proposed transactions with Edens. We expect the sales to close in the fourth quarter of 2015, subject to satisfaction of customary closing conditions therein. There can be no assurances that these conditions will be satisfied or that we will complete the dispositions on the terms described herein or at all.

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 4) and/or (5) obtaining funds through additional borrowings from AmREIT prior to the AmREIT Acquisition.

 

Future liquidity sources will include cash on hand, cash flows from our wholly-owned properties, distributions from our joint venture properties, and sales proceeds from the sales of our real estate investments. Our continuing short-term and long-term liquidity requirements will include, but will not be limited to, corporate and administrative expenses of the Partnership, operating expenses related to our wholly-owned properties, funding our proportionate share of renovations, expansions, and other significant capital expenditures for our existing joint venture properties to the extent our properties and joint ventures are unable to fund such expenditures on their own and, ultimately, distributions to our Limited Partners upon sale of our real estate investments.

 

We believe that we will be able to generate liquidity sufficient to continue to execute an orderly liquidation of our assets in accordance with our strategic plan; however, no assurance can be given that we and our joint ventures will be successful with our liquidity initiatives, and we may look to Edens to provide additional financial support to us to meet our operating cash needs. Historically, Edens and AmREIT (prior to the AmREIT Acquisition) have 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, Edens has agreed to continue deferring 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 4). 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, 2015, 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 as of and for the year ended December 31, 2014.

 

The approved plan for liquidation does not differ from our partnership agreement. As such, as of September 30, 2015, the financial statements are presented assuming we continue as a going concern.

 

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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.

 

Investments In and Income (loss) from Non-consolidated Investments

 

Our investments in non-consolidated entities are accounted for under the equity method because we exercise significant influence over such entities. We record our percentage interest in the earnings and losses of these entities in our statements of operations on a net basis as prescribed under GAAP. See Note 4 for further disclosure related to our investments in non-consolidated entities. The significant accounting policies of our non-consolidated entities are consistent with those of our subsidiaries in which we have a controlling financial interest.

 

Real Estate Held for Sale, net

 

Properties are classified as held for sale if we have decided to market the property for immediate sale in its present condition with the belief that the sale will be completed within one year. Properties held for sale are carried at the lower of cost or fair value less cost to sell and depreciation and amortization are suspended during the held for sale period. As of September 30, 2015, our Village on the Green property was classified as real estate held for sale as it is currently under contract and expected to close in the fourth quarter of 2015. No properties were classified as held for sale as of December 31, 2014.

 

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. As of September 30, 2015, we ceased depreciating our Village on the Green property as it met the criteria as real estate held for sale.

 

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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, 2015 or 2014. During the three months ended December 31, 2014, we recorded a $2.0 million impairment related to the remaining portion of our Woodlake Pointe property. See Note 6.

 

New Accounting Pronouncements

 

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” This update changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity (“VIE”), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. It also eliminates the VIE consolidation model based on majority exposure to variability that applied to certain investment companies and similar entities. The new guidance is effective for public business entities in fiscal years beginning after December 15, 2015. Early adoption is allowed, including early adoption in an interim period. We are currently evaluating this accounting to determine what impact, if any, this new guidance could have on our consolidated financial statements.

 

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, 2017. 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.

 

Subsequent Events

 

We did not identify any additional subsequent events as of the date of this filing that materially impacted our consolidated financial statements.

 

3.

ASSET DISPOSITIONS AND DISCONTINUED OPERATIONS

 

Effective January 1, 2015 we adopted ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“the ASU”). The ASU 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. Under the ASU, discontinued operations are defined as either:

 

	1)	a component of an 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)

a business or nonprofit activity that on acquisition, meets the criteria to be classified as held-for-sale.

 

 

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As of September 30, 2015, our Village on the Green property was being actively marketed for sale and is currently under contract. As such, we have classified our Village on the Green property as real estate held for sale at September 30, 2015. The ASU notes that a strategic shift could include a disposal of a major geographical area, a major line of business, a major equity investment, or other major parts of an entity. We believe that the results of operations from our Village on the Green property constitute “a major part” of our operations. Accordingly, we have classified the results of operations of our Village on the Green property as discontinued operations.

 

On September 9, 2015, we sold our Woodlake Pointe property to a third party for $11.0 million in an all-cash transaction with a gain on sale of approximately $2.7 million, $1.62 million of which represents our 60% portion. We have presented the operating results of this property as discontinued operations. 

 

A summary of our discontinued operations for the periods presented is detailed below. The operations of these properties have been eliminated from ongoing operations, and we will not have continuing involvement after disposition. Prior period operating activity related to such properties has been reclassified as discontinued operations in our Consolidated Statements of Operations for all periods presented (amounts in thousands):

 

		Three Months Ended September 30, 2015												Three Months Ended September 30, 2014
		Woodlake Pointe				Village on the Green				Total				Woodlake Pointe				Village on the Green				Total
Revenues:
Rental income from operating leases		$	—			$	219			$	219			$	—			$	226			$	226
Total revenues			—				219				219				—				226				226
Expenses:
General and administrative			—				4				4				1				4				5
Property expense			29				100				129				26				107				133
Property management fees- related party			1				9				10				2				8				10
Legal and professional			1				2				3				2				—				2
Depreciation and amortization			45				53				98				65				61				126
Total operating expenses			76				168				244				96				180				276
Operating income (loss)			(76	)			51				(25	)			(96	)			46				(50	)
Other income (expense):
Interest expense			—				(80	)			(80	)			—				(82	)			(82	)
Gain on sale of real estate - investment			2,682				—				2,682				—				—				—
Taxes and fees - state			—				—				—				—				—				—
Total other income (expense), net			2,682				(80	)			2,602				—				(82	)			(82	)
Income (loss) from discontinued operations		$	2,606			$	(29	)		$	2,577			$	(96	)		$	(36	)		$	(132	)

 

		Nine Months Ended September 30, 2015												Nine Months Ended September 30, 2014
		Woodlake Pointe				Village on the Green				Total				Woodlake Pointe				Village on the Green				Total
Revenues:
Rental income from operating leases		$	—			$	646			$	646			$	—			$	692			$	692
Total revenues			—				646				646				—				692				692
Expenses:
General and administrative			—				5				5				1				7				8
Property expense			63				250				313				104				307				411
Property management fees- related party			4				26				30				4				27				31
Legal and professional			15				7				22				21				3				24
Depreciation and amortization			180				163				343				197				216				413
Impairment			—				—				—				—				—				—
Total operating expenses			262				451				713				327				560				887
Operating income (loss)			(262	)			195				(67	)			(327	)			132				(195	)
Other income (expense):
Interest expense			—				(239	)			(239	)			—				(244	)			(244	)
Gain on sale of real estate - investment			2,682				—				2,682				—				—				—
Taxes and Fees - State			—				—				—				—				—				—
Total other income (expense), net			2,682				(239	)			2,443				—				(244	)			(244	)
Income (loss) from discontinued operations		$	2,420			$	(44	)		$	2,376			$	(327	)		$	(112	)		$	(439	)

 

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4.       INVESTMENT IN NON-CONSOLIDATED ENTITIES

  

As of September 30, 2015, 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. We intend to sell our interests in the Casa Linda and Shadow Creek joint ventures and, Edens has elected to exercise its option to acquire our interests in the properties. See Note 1. Our investment balances as reported on our Consolidated Balance Sheets are as follows (amounts in thousands):

 

Investment		Ownership			September 30, 2015				December 31, 2014
Casa Linda		50	%		$	2,735			$	2,875
Shadow Creek Ranch		10	%			3,620				3,893
Millennium Cambridge Apartments		7	%			3,000				3,000
Total					$	9,355			$	9,768

  

Casa Linda - We own a 50% interest in AmREIT Casa Linda, LP, which owns a 324,569 square foot retail shopping center located in Dallas, Texas. The remaining 50% is owned by MIG III, an affiliate of our General Partner. Albertson’s is the largest tenant, occupying 59,561 square feet with a lease scheduled to expire in July 2016.

 

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). As of September 30, 2015, the joint venture had substantially completed the lease-up strategy and incurred approximately $2.6 million of $3.0 million in planned capital expenditures, including certain tenant build-out and site improvements. The property is secured by a $38.0 million non-recourse mortgage loan that matures on December 31, 2017. Additionally, the loan contains a provision that allows for additional funding of approximately $4.5 million should the joint venture elect to acquire an adjacent property. The mortgage loan bears interest at a variable rate; however, AmREIT Casa Linda, LP entered into an interest rate cap agreement that provides for a maximum rate of 3% 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, 2015 and 2014, our portion of the decrease in fair value totaled $9,000 and $47,000, respectively, and is included in income (loss) from non-consolidated entities on our Consolidated Statements of Operations.

 

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 618,000 square feet. The remaining 90% is owned by an unaffiliated third party (80%) and Edens (10%). The property is secured by a $63.0 million mortgage loan that matures on December 1, 2050, with a fixed interest rate of 3.7% with interest-only payments through December 1, 2020 and amortizing payments for the remaining term. The lender has the right to call the entire amount of outstanding principal and interest once every five years, beginning December 1, 2024, with six months’ notice required.

 

Millennium Cambridge Apartments – 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, the joint venture sold the property to a multi-family development joint venture for $13.0 million. The joint venture repaid the $6.3 million outstanding loan 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. We concurrently invested $3.0 million for an approximate 7.3 % ownership interest in the Millennium Cambridge Apartments joint venture to construct a 374-unit luxury high rise multifamily rental project consisting of 22 stories of residential over a five story parking garage. Total estimated costs of the multifamily project are $106.5 million, and construction commenced in January 2015. We do not expect (and we are not required) to make any additional investment in this joint venture.

 

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Combined condensed financial information for the underlying investee entities (at 100%) is summarized for the three and nine months ended September 30, 2015 and 2014, as follows (in thousands):

 

		Three months ended September 30,								Nine months ended September 30,
		2015				2014				2015				2014
Revenues		$	4,250			$	7,949			$	12,257			$	15,861
Gain on sale of real estate			—				3,882				—				3,882
Depreciation and amortization			(487	)			(1,477	)			(2,967	)			(4,468	)
Interest expense			(988	)			(1,374	)			(3,053	)			(4,024	)
Net income (loss)			1,619				3,649				2,416				2,980

 

5.       NOTE PAYABLE HELD FOR SALE AND NOTE PAYABLE

 

Our outstanding debt as of September 30, 2015 and December 31, 2014 relates to the mortgage loan securing our Village on the Green property. The loan bears interest at 5.5% and matures on April 6, 2017. It may be prepaid, but is subject to a yield-maintenance premium or prepayment penalty. The loan will be repaid with the sale of our Village on the Green property. 

 

6.       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.

 

·

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 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 and negligible credit risks. 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, 2015 and December 31, 2014, the fair value of fixed-rate notes payable was approximately $5.8 million and $6.0 million, respectively.

 

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Non-Recurring Fair Value Measurements, Impairment – We determine whether an impairment in value occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the residual value of the property, with the carrying value of the individual property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its fair value.  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.  We review our investments in non-consolidated entities for impairment based on a similar review of the properties held by the investee entity.

 

During the quarter ended December 31, 2014, we recorded a $2.0 million impairment related to the remaining portion of our Woodlake Pointe property. We experienced challenges in executing a long term lease with a tenant to redevelop the property. Accordingly, we reviewed this property for impairment as of December 31, 2014.  In arriving at the appraised value, the appraiser utilized both comparable sales information of similar properties assuming a “sell as is” scenario and a discounted cash flow model assuming that the joint venture entered into a long term lease with a tenant and redeveloped the property. The appraised value determined under each of these scenarios was approximately $8.2 million.

 

We have determined that our impairments are non-recurring fair value measurements that fall within Level 3 of the fair value hierarchy. 

 

7.      PARTNERS’ CAPITAL AND NON-CONTROLLING INTEREST

 

Distributions – We suspended all regular distribution payments in July 2009 and do not anticipate reinstating regular distributions until we have stabilized our properties and we generate liquidity that could allow us to re-commence regular distributions. See Note 1. 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);

 

·

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 Interests – Non-controlling interests includes a 40% ownership interest that our affiliates had in our Woodlake Pointe property prior to the sale of the property on September 9, 2015.

 

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8.       RELATED PARTY TRANSACTIONS

 

We have no employees or offices. Certain of our affiliates receive fees and compensation from 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, 2015 and 2014 (in thousands):  

 

		Three months ended September 30,								Nine months ended September 30,
Type of service		2015				2014				2015				2014
Asset management fees		$	63			$	63			$	191			$	191
Interest expense - related party (1)			9				10				27				27
Leasing costs			—				—				—				4
Administrative costs reimbursements			65				65				204				207
		$	137			$	138			$	422			$	429
		September 30, 2015				December 31, 2014
Notes payable - related party (2)		$	2,143			$	1,649

 

(1)   Amounts are included in interest expense on our Consolidated Statements of Operations

(2)   The note accrues interest monthly at LIBOR plus 95 basis points, which is Edens’ corporate facility borrowing rate

 

In addition to the above fees incurred by us, the non-consolidated entities in which we have investments paid $534,000 and $551,000 in property management and leasing fees to one of our affiliated entities for the nine months ended September 30, 2015 and 2014, respectively. See also Note 4 regarding investments in non-consolidated entities.

 

9.       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. In particular, we are subject to numerous environmental laws and regulations as they apply to real estate pertaining to chemicals used by the dry cleaning industry, the existence of asbestos in older shopping centers, and underground petroleum storage tanks. We have not been notified by any governmental authority of any non-compliance, liability or other claim.

 

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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 Texas 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 Texas corporation, and, prior to February 18, 2015, was a wholly-owned subsidiary of AmREIT. Effective February 18, 2015, Edens became the parent company of our General Partner in connection with the AmREIT Acquisition when AmREIT merged with and into Saturn Subsidiary, LLC (an indirect, wholly-owned subsidiary of Edens, “Saturn”) with Saturn being the surviving entity after Edens acquired all of the outstanding common stock of AmREIT in an all cash transaction.

 

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 Edens and its affiliates in performing its duties under our limited partnership agreement.

 

As of September 30, 2015, our investments included one wholly-owned property (Village on the Green) comprising 36,306 square feet of GLA and three properties in which we own a non-controlling interest through three joint ventures (Casa Linda, Shadow Creek Ranch and Millennium Cambridge Apartments) comprising 938,037 square feet of GLA. All of these properties are located in highly populated, suburban communities in Texas. As of September 30, 2015, our properties had an average occupancy of 89.0% excluding Millennium Cambridge Apartments, which is under development.

 

On September 9, 2015, we sold our Woodlake Pointe property to a third party for $11.0 million in an all-cash transaction with a gain on sale of approximately $2.7 million, $1.6 million of which represents our 60% portion.

 

We intend to sell our interests in the Casa Linda and Shadow Creek Ranch joint ventures and, Edens has elected to exercise its option to acquire our interests the properties. In accordance with pre-established procedures, we and Edens obtained separate appraisals on the properties from two independent, national appraisal groups. Because the appraisals were within 5% of one another, the purchase price will be the average of the two appraisals. The sales price for our 50% interest in Casa Linda has been determined as $28.6 million and the sales price for our 10% interest in Shadow Creek Ranch has been determined as $13.4 million. Estimated net sales proceeds, after debt and closing costs, are expected to be $9.1 million for our interest in Casa Linda and $7.0 million for our interest in Shadow Creek Ranch. We estimate that the net proceeds to be distributed per unit will be approximately $8,000. Our Limited Partners have approved both of the proposed transactions with Edens. We expect the sales to close in the fourth quarter of 2015, subject to satisfaction of customary closing conditions therein. There can be no assurances that these conditions will be satisfied or that we will complete the dispositions on the terms described herein or at all.

 

 

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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. Our General Partner is reviewing market sales opportunities in good faith, but attractive sales opportunities may not exist in the near term. While we believe an orderly liquidation of our assets will be completed within the next three to six months, successful wind-down of our operations may take longer for our General Partner to complete. During the liquidation period, we plan to distribute net proceeds generated from property sales to our 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. We do not expect that the AmREIT Acquisition will impact the orderly 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, 2015, as compared to the same periods in 2014.

 

Comparison of the Three Months Ended September 30, 2015, to the Three Months Ended September 30, 2014

 

Income (loss) from non-consolidated entities. Income from non-consolidated entities decreased approximately $1.7 million for the three months ended September 30, 2015, as compared to the same period in 2014. These amounts represent our ownership portion of our joint ventures’ net income or loss for the period. The decrease is due to a gain of $1.9 million recorded during the third quarter of 2014 related to the sale of Cambridge & Holcombe.

 

Income (loss) from discontinued operations. Income from discontinued operations increased approximately $2.7 million for the three months ended September 30, 2015, as compared to the same period in 2014. The increase in income is driven by the gain recorded for the sale of Woodlake Pointe during the third quarter of 2015.

 

Net (income) loss attributable to non-controlling interests. Net income attributable to non-controlling interests increased approximately $1.0 million for the three months ended September 30, 2015, as compared to the same period in 2014. This amount represents the 40% interest in the Woodlake Pointe property that we did not own but that we consolidate in our financial statements. The increase in income is due to the gain recorded for the sale of Woodlake Pointe during the third quarter of 2015.

 

Comparison of the Nine Months Ended September 30, 2015, to the Nine Months Ended September 30, 2014

 

Income (loss) from non-consolidated entities. Income from non-consolidated entities decreased approximately $1.5 million for the nine months ended September 30, 2015, as compared to the same period in 2014. These amounts represent our ownership portion of our joint ventures’ net income or loss for the period. The decrease is due to a gain of $1.9 million recorded during the third quarter of 2014 related to the sale of Cambridge & Holcombe.

 

Income (loss) from discontinued operations. Income from discontinued operations increased approximately $2.8 million from a loss of $439,000 for the nine months ended September 30, 2014 to income of $2.4 million for the nine months ended September 30, 2015. The increase in income is driven by the gain recorded for the sale of Woodlake Pointe during the third quarter of 2015.

 

Net (income) loss attributable to non-controlling interests. Net income attributable to non-controlling interests increased approximately $1.0 million from a loss of $35,000 for the nine months ended September 30, 2014 to income of $968,000 for the nine months ended September 30, 2015. This amount represents the 40% interest in the Woodlake Pointe property that we did not own but that we consolidate in our financial statements. The increase in income is due to the gain recorded for the sale of Woodlake Pointe during the third quarter of 2015.

 

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LIQUIDITY AND CAPITAL RESOURCES

 

As of September 30, 2015, we have $10.0 million in cash on hand. With the sale of Woodlake Pointe and the potential sales of our interests in Casa Linda and Shadow Creek Ranch, we expect that we will make a distribution for the net sales proceeds during the fourth quarter of 2015.

 

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). As of September 30, 2015, the joint venture had substantially completed the lease-up strategy and incurred approximately $2.6 million of $3.0 million in planned capital expenditures, including certain tenant build-out and site improvements. The property is secured by a $38.0 million mortgage loan.

 

We believe that we will be able to generate liquidity sufficient to continue to execute an orderly liquidation of our assets in accordance with our strategic plan; however, no assurance can be given that we and our joint ventures will be successful with our liquidity initiatives, and we may continue to look to Edens to provide additional financial support to us to meet our operating cash needs. Historically, Edens and AmREIT (prior to the AmREIT Acquisition) 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, Edens has agreed to continue deferring payments, subject to its continued ability to do so.

  

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 results of operations and property valuations were negatively impacted by the severe recession. The United States has experienced recent improvements in the general economy; however, it is difficult to determine if the improvements experienced will continue through 2015 and into the future.

 

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.

 

A significant portion of Houston’s and Dallas’ industry is in oil and gas as well as oilfield services. The price of oil in the recent months declined to five-year lows set in March 2015. Oil benchmarks have rallied somewhat from their lows; however, the recovery is only moderate with prices trading in a narrow range around $40-50 a barrel since early May 2015. It is unknown when or whether oil prices will increase, and if they increase, how much and for what duration. We are unable to predict the impact, if any, that lower oil prices could have on economies in which our properties are located. However, a prolonged period of depressed oil prices could potentially be adverse to these economies, the profitability of our tenants as well as, ultimately, the value of our properties.

 

Cash Flow Activities for the Nine months Ended September 30, 2015 and 2014

 

Cash flows provided by (used in) operating activities, investing activities and financing activities for the nine months ended September 30, 2015 and 2014 are as follows (in thousands):

		Nine months ended September 30,
		2015				2014
Operating activities		$	(414	)		$	(310	)
Investing activities			11,204				355
Financing activities			(1,078	)			(177	)

 

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Net cash flows used in operating activities increased approximately $104,000 during the nine months ended September 30, 2015, as compared to the same period in 2014. This increase is primarily due to an increase in net income inclusive of income (loss) from non-consolidated entities of $2.8 million, offset by the gain on sale of Woodlake Pointe of $2.7 million and a decrease in accounts payable of $183,000.

 

Net cash flows provided by investing activities increased approximately $10.8 million during the nine months ended September 30, 2015, as compared to the same period in 2014. The increase in cash inflows is primarily due to proceeds of $10.6 million received for the sale of Woodlake Pointe in 2015 with no proceeds received in 2014, advances made to the former Cambridge and Holcombe joint venture in 2014 of $3.4 million with no advances made in 2015, offset by a distribution of approximately $3.0 million received for the former Cambridge and Holcombe joint venture sale received in 2014 and $417,000 cash received from Casa Linda for the repayment of advances made by us for property taxes that did not occur in 2015.

 

Net cash flows used in financing activities increased approximately $900,000 during the nine months ended September 30, 2015, as compared to the same period in 2014. The increase was primarily due to a distribution of approximately $1.0 million made to ARIC for the sale of Woodlake Pointe during 2015 off-set by contributions of $68,000 in 2015 with no contributions in 2014.

 

OFF BALANCE SHEET ARRANGEMENTS

 

          As of September 30, 2015, none of our off-balance sheet arrangements had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures. However, we own interests in several unconsolidated joint ventures that are accounted for under the equity method as we exercise significant influence over, but do not control, the investee.

  

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 principal executive officer and principal financial officer, 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, 2015. Based on that evaluation, our General Partner’s principal executive officer and principal financial officer concluded that, as of September 30, 2015, 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, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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.

 

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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 12, 2015	By:	/s/ Jodie W. McLean
		Jodie W. McLean
		President and Director (authorized officer)
Date: November 12, 2015	By:	/s/ Mark P. Garside
		Mark P. Garside
		Secretary, Vice President and Director
Date: November 12, 2015	By:	/s/ Chad C. Braun
		Chad C. Braun
		Vice President

 

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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 principal executive officer of the Partnership’s General Partner pursuant to Exchange Act Rule 13a-14(a) (filed herewith).
Exhibit 31.2	Certification of the principal financial officer of the Partnership’s General Partner pursuant to Exchange Act Rule 13a-14(a) (filed herewith).
Exhibit 32.1	Certification of the principal 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 principal 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, 2015 (unaudited) and December 31, 2014, (ii) the Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014 (unaudited), (iii) the Consolidated Statement of Capital for the nine months ended September 30, 2015 (unaudited), (iv) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 (unaudited) and (v) the Notes to the Consolidated Financial Statements (unaudited).