-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q6KNhpCGvJylGEqodQImahaKK3vJ/eAUbUSMt08FDs3imd5kJRNO/dHNQYvjbMIz irXJiP2Ejj3jJe04Ox6Wwg== 0001050502-01-500333.txt : 20010816 0001050502-01-500333.hdr.sgml : 20010816 ACCESSION NUMBER: 0001050502-01-500333 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERIVEST PROPERTIES INC CENTRAL INDEX KEY: 0000927102 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 841240264 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-14462 FILM NUMBER: 1714080 BUSINESS ADDRESS: STREET 1: 1800 GLENARM PLACE STREET 2: SUITE 500 CITY: DENVER, STATE: CO ZIP: 80202 BUSINESS PHONE: 3032971800 MAIL ADDRESS: STREET 1: 7100 GRANDVIEW AVE STREET 2: SUITE 1 CITY: ARVADA STATE: CO ZIP: 80002 10QSB 1 amerivest601.txt 10QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2001. OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from _____________ to _______________ Commission file number 1-14462 AmeriVest Properties Inc. ------------------------- (Exact name of small business issuer as specified in its charter.) Maryland 84-1240264 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 1780 South Bellaire Street, Suite 515 Denver, Colorado 80222 - ------------------------------------- ----- (Zip Code) (303) 297-1800 --------------- (Issuer's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ----------- As of August 14, 2001 the Registrant had outstanding 6,350,796 shares of common stock, par value $.001. Transitional Small Business Disclosure Format (check one): Yes No X -------------- ------------- AMERIVEST PROPERTIES INC. AND SUBSIDIARIES FORM 10-QSB JUNE 30, 2001 Table of Contents ----------------- Part I Page No. - ------ -------- Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2001 (unaudited) and December 31, 2000 3 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2001 and 2000 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II - ------- Item 2. Changes in Securities and Use of Proceeds; Recent Sales Of Unregistered Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 2
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS June 30, December 31, 2001 2000 ------------ ------------ (Unaudited) ASSETS Investment in real estate Land $ 9,960,376 $ 8,761,566 Buildings and improvements 49,507,032 32,210,274 Furniture, fixtures and equipment 152,445 68,793 Tenant improvements 1,207,454 645,429 Tenant leasing commissions 233,484 585,887 Less accumulated depreciation and amortization (2,206,642) (3,349,569) ------------ ------------ Net Investment in Real Estate 58,854,149 38,922,380 Cash and cash equivalents 720,799 1,046,976 Investment in unconsolidated affiliate, net -- 584,640 Accounts receivable 292,061 52,328 Deferred rents receivable 273,329 524,581 Deferred financing costs, net 490,687 411,634 Prepaid expenses, escrows and other assets 1,129,583 821,258 ------------ ------------ Total Assets $ 61,760,608 $ 42,363,797 ============ ============ LIABILITIES Mortgage loans and notes payable $ 42,056,282 $ 28,122,856 Accounts payable and accrued expenses 3,224,848 1,025,466 Accrued real estate taxes 555,220 747,647 Prepaid rents and security deposits 969,989 737,207 Dividends payable 541,399 372,118 ------------ ------------ Total Liabilities 47,347,738 31,005,294 ------------ ------------ STOCKHOLDERS' EQUITY Preferred stock, $.001 par value Authorized - 5,000,000 shares Issued and outstanding - none -- -- Common stock, $.001 par value Authorized - 15,000,000 shares Issued and outstanding - 4,331,188 and 2,976,939 shares, respectively 4,331 2,977 Capital in excess of par value 19,617,018 11,879,099 Distributions in excess of accumulated earnings (5,208,479) (523,573) ------------ ------------ Total Stockholders' Equity 14,412,870 11,358,503 ------------ ------------ Total Liabilities and Stockholders' Equity $ 61,760,608 $ 42,363,797 ============ ============ The accompanying notes to condensed consolidated financial statements are an integral part of these consolidated balance sheets. 3 AMERIVEST PROPERTIES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the For the Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) REAL ESTATE OPERATING REVENUE Rental Revenue Commercial properties $ 2,819,810 $ 1,415,504 $ 4,798,891 $ 2,713,186 Storage properties -- 329,132 -- 644,327 ----------- ----------- ----------- ----------- 2,819,810 1,744,636 4,798,891 3,357,513 ----------- ----------- ----------- ----------- REAL ESTATE OPERATING EXPENSES Property operating expenses Operating expenses 681,249 478,525 1,267,898 890,698 Real estate taxes 226,222 173,172 374,202 330,251 Management fees 141,545 81,114 242,846 159,967 General and administrative 195,336 109,728 358,281 243,549 Impairment of deferred rents receivable 326,113 -- 326,113 -- Interest 894,575 505,516 1,490,051 954,760 Depreciation and amortization 792,011 293,530 1,133,066 569,657 ----------- ----------- ----------- ----------- 3,257,051 1,641,585 5,192,457 3,148,882 ----------- ----------- ----------- ----------- OTHER INCOME Interest income 9,444 7,818 21,182 16,891 Equity in loss of unconsolidated affiliate -- -- (10,843) -- ----------- ----------- ----------- ----------- 9,444 7,818 10,339 16,891 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE GAIN ON SALE OF REAL ESTATE (427,797) 110,869 (383,227) 225,522 ----------- ----------- ----------- ----------- GAIN ON SALE OF REAL ESTATE 1,143,698 -- 1,143,698 -- ----------- ----------- ----------- ----------- NET INCOME $ 715,901 $ 110,869 $ 760,471 $ 225,522 =========== =========== =========== =========== NET INCOME PER COMMON SHARE Basic $ 0.22 $ 0.05 $ 0.24 $ 0.10 =========== =========== =========== =========== Diluted $ 0.21 $ 0.05 $ 0.23 $ 0.10 =========== =========== =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 3,268,056 2,228,850 3,130,227 2,228,850 =========== =========== =========== =========== Diluted 3,413,289 2,229,687 3,248,541 2,229,830 =========== =========== =========== =========== The accompanying notes to condensed consolidated financial statements are an integral part of these consolidated financial statements. 4 AMERIVEST PROPERTIES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, -------------------------- 2001 2000 ----------- ----------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 760,471 $ 225,522 Adjustments to reconcile net income to net cash from operating activities- Gain on sale of real estate (1,143,698) -- Depreciation and amortization 1,133,066 569,657 Amortization of deferred financing costs 45,732 26,014 Amortization of warrants 29,869 -- Equity in loss of unconsolidated affiliate 10,843 -- Impairment of deferred rents receivable 326,113 -- Accrued interest added to mortgage payable 123,894 46,836 Changes in assets and liabilities- (Increase) decrease in accounts receivable (122,213) 21,733 Increase in deferred rents receivables (74,861) (126,279) Decrease (increase) in prepaid expenses, escrows and other assets 48,733 (26,864) Increase in accounts payable and accrued expenses 345,589 309,714 (Decrease) increase in other accrued liabilities (605,133) 230,556 ----------- ----------- Net cash from operating activities 878,405 1,276,889 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Improvements of real estate (3,419,118) (6,025,168) Net proceeds from the sale of real estate 458,030 -- Acquisition of Sheridan Plaza at Inverness, LLC, net of cash acquired (344,432) -- Leasing commissions paid (45,838) (419,937) Release of escrow deposit -- 509,556 ----------- ----------- Net cash from investing activities (3,351,358) (5,935,549) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Additions to mortgage loans and notes payable 2,390,330 5,444,860 Payments on mortgage loans and notes payable (423,599) (169,218) Net proceeds from exercising of options and warrants 972,093 -- Deferred financing costs paid (23,507) (49,020) Dividends paid (768,541) (534,924) ----------- ----------- Net cash from financing activities 2,146,776 4,691,698 ----------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (326,177) 33,038 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,046,976 458,336 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 720,799 $ 491,374 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest during the period $ 1,321,243 $ 879,564 =========== =========== The accompanying notes to condensed consolidated financial statements are an integral part of these consolidated financial statements. 5
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (Unaudited) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES During the six months ended June 30, 2001, the Company incurred $4,387,992 in costs related to the improvement of Sheridan Center, which are included in investment in real estate on the accompanying balance sheet. Of these costs, $1,738,103 were unpaid at June 30, 2001 and are included in accounts payable and accrued expenses on the accompanying balance sheet. On June 1, 2001, the Company sold its Giltedge office building for $3,650,000. From the cash at closing, $3,111,624 was used to repay the outstanding principal balance on the mortgage loan secured by the property. On June 7, 2001, the Company issued 100,211 shares of common stock to an affiliate of the property manager of the Company's buildings that are leased to agencies of the State of Texas, an unrelated third party, as consideration for improvements made to a property. For accounting purposes, the shares were valued at $557,175 ($5.56 per share) and are included in investment in real estate on the accompanying balance sheet. On June 26, 2001, the Company purchased from Sheridan Investments, LLC, an affiliate, 100% of the ownership interests of Sheridan Plaza at Inverness, LLC, an affiliate. For accounting purposes, the purchase price was $22,895,067, which consisted of: o $705,135 for the Company's 9.639% preferred membership interest in Sheridan Investments, LLC, the owner of all of the membership interests in Sheridan Plaza at Inverness LLC, which was transferred back to Sheridan Investments, LLC; o $6,474,329 paid with (1) 1,057,346 shares of common stock at a rate of $5.69 per share (as required for accounting purposes, based on an average market price of the shares over a period of several days before and after the date of the announcement of the acquisition) and (2) the cash proceeds of $458,030 from the sale of the Giltedge office building; o assumption of the mortgage in the principal amount of $14,954,425 secured by the property; and o assumption of other liabilities in the amount of $761,178. The accompanying notes to condensed consolidated financial statements are an integral part of these consolidated financial statements. 6 AMERIVEST PROPERTIES INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (Unaudited) 1. Organization AmeriVest Properties Inc. (the "Company") was incorporated under the laws of the State of Delaware on August 25, 1993 and was reincorporated in the State of Maryland in 1999. Effective January 1, 1996, the Company commenced operating as a self-administered and self-managed real estate investment trust ("REIT"). The Company owns and operates, through its wholly owned subsidiaries, an office building complex in Indianapolis, Indiana, eighteen commercial office properties in the State of Texas, and an office building, a two-building office complex and a three-building office complex in Denver, Colorado. 2. General The unaudited condensed consolidated financial statements included herein were prepared from the records of the Company in accordance with accounting principles generally accepted in the United States and reflect all adjustments which are, in the opinion of management, necessary to provide a fair statement of the results of operations and financial position for the interim periods. Such financial statements generally conform to the presentation reflected in the Company's Form 10-KSB/A-2 filed with the Securities and Exchange Commission for the year ended December 31, 2000. The consolidated results of operations for the six months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. Certain prior period balances have been reclassified to conform to current period presentation. 3. New Technical Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company was required to adopt SFAS No. 133 as of January 1, 2001. SFAS No. 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. The Company's adoption of SFAS No. 133 did not have a material impact on its financial statements. In June 2001, the FASB authorized the issuance of SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001. SFAS No. 141 requires intangible assets to be recognized if they arise from contractual or legal rights or are "separable", i.e., it is feasible that they may be sold, transferred, licensed, rented, exchanged or pledged. As a result, it is likely that more intangible assets will be recognized under SFAS No. 141 than its predecessor, Accounting Principles Board ("APB") Opinion No.16 although in some instances previously recognized intangibles will be subsumed into goodwill. Under SFAS No. 142, goodwill will no longer be amortized on a straight-line basis over its estimated useful life, but will be tested for impairment on an annual basis and whenever indicators of impairment arise. The goodwill 7 impairment test, which is based on fair value, is to be performed on a reporting unit level. A reporting unit is defined as a SFAS No. 131 operating segment or one level lower. Goodwill will no longer be allocated to other long-lived assets for impairment testing under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". Additionally, goodwill on equity method investments will no longer be amortized; however, it will continue to be tested for impairment in accordance with APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock". Under SFAS No. 142 intangible assets with indefinite lives will not be amortized. Instead they will be carried at the lower of cost or market value and tested for impairment at least annually. All other recognized intangible assets will continue to be amortized over their estimated useful lives. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, although goodwill on business combinations consummated after July 1, 2001 will not be amortized and goodwill on prior business combinations will cease to be amortized. Had the Company adopted SFAS No. 142 at January 1, 2000, there would have been no effect on the Company's financial statements. The Company's adoption of these statements will not have an impact on its financial statements, as it has not recorded any goodwill or intangible assets. 4. Agreement with Sheridan Realty Advisors, LLC Effective January 1, 2000, all of the Company's properties are managed under an agreement (the "Agreement") with Sheridan Realty Advisors, LLC ("SRA"), which also manages day-to-day operations of the Company and assists and advises the Board of Directors on real estate acquisitions and investment opportunities. Certain senior members of SRA are members of the Company's management team and of the Company's Board of Directors. SRA receives an administrative fee, a property management and accounting fee, an advisory fee and a development fee for these services. In addition, SRA received incentive compensation in the form of five-year warrants to purchase up to 750,000 shares of common stock at $5 per share. Issuance of the warrants was approved by the shareholders at the annual meeting on June 6, 2000. In accordance with the Agreement, 225,000 of these warrants were granted and vested on the approval date. The remaining 525,000 warrants vest in an amount equal to 2.1% of equity capital deployed for real property acquisitions, of which, 48,795 had vested as of December 31, 2000. During the six months ended June 30, 2001, 219,291 of the remaining warrants vested and have an estimated fair value of $163,838, which has been capitalized with the related acquisition costs on the accompanying balance sheet. 5. Stock Offering On July 27, 2001, our Registration Statement became effective with the Securities and Exchange Commission for an offering of 2,000,000 shares of common stock, with a 30-day option to the underwriter to purchase up to an additional 300,000 shares to cover over-allotments, at a price of $5.50 per share. On August 1, 2001, the Company received $10,230,000, net of the underwriting discounts and commissions, from the sale of the 2,000,000 shares. After payment of approximately $295,000 in additional offering expenses, the proceeds will be used to acquire real estate properties, to repay debt, for capital improvements and/or to increase working capital. As of the date of this filing, the underwriter has not exercised the over-allotment option. 8 6. Acquisitions and Dispositions On May 3, 2001, the Company entered into a contract to sell its Giltedge office building in Appleton, Wisconsin for $3,650,000. The sale closed on June 1, 2001, resulting in a gain on sale of $1,143,698 for accounting purposes. The cash proceeds from this transaction of $458,030 were used to complete a tax-deferred exchange under Section 1031 of the Internal Revenue Code. On May 1, 2001, the Company announced an agreement with Sheridan Investments, LLC, an affiliate, to purchase 100% of the ownership interests of Sheridan Plaza at Inverness, LLC, effective April 1, 2001. Sheridan Plaza at Inverness, LLC owns two office buildings located in Englewood, Colorado consisting of 118,720 total rentable square feet on approximately 6.7 acres of land with 405 total parking spaces, including 80 underground parking spaces. For accounting purposes, the purchase price was $22,895,067, which consisted of: o $705,135 for the Company's 9.639% preferred membership interest in Sheridan Investments, LLC, the owner of all of the membership interests in Sheridan Plaza at Inverness LLC, which was transferred back to Sheridan Investments, LLC; o $6,474,329 paid with (1) 1,057,346 shares of common stock, $.001 par value, at a rate of $5.69 per share (as required for accounting purposes, based on an average market price of the shares over a period of several days before and after the date of the announcement of the acquisition) and (2) the cash proceeds of $458,030 from the sale of the Giltedge office building; o assumption of the mortgage in the principal amount of $14,954,425 secured by the property; and o assumption of other liabilities in the amount of $761,178. The acquisition was structured as a tax-deferred exchange of the Giltedge office building under Section 1031 of the Internal Revenue Code. 9 The following unaudited pro forma condensed operating results give effect to the sale of the Giltedge office building and the related purchase of Sheridan Plaza at Inverness, LLC as if the transactions had occurred at the beginning of the periods presented, and are included for informational purposes only. This pro forma information may not be indicative of what actual results of operations would have been if such transactions had in fact occurred on such dates, nor does it purport to represent the results of future operations. The pro forma adjustments are based upon currently available information and upon certain assumptions that management believes are reasonable. Six Months Ended June 30, 2001 2000 ---- ---- (unaudited) (unaudited) Rental revenue $5,276,185 $3,987,311 Net operating income $2,631,814 $2,111,772 Net income $1,024,731 $1,126,669 Net income per common share: Basic $ 0.25 $ 0.33 Diluted $ 0.24 $ 0.33 7. Mortgage Loans and Notes Payable On June 7, 2001, the Company increased its available loan with US Bank National Association ("US Bank") secured by the Sheridan Center buildings from $9,300,000 to $10,500,000, of which $8,844,546 was outstanding as of June 30, 2001. During the six months ended June 30, 2001, the Company was advanced an additional $1,378,130 on its existing loan agreement with US Bank. The proceeds were used to fund construction costs related to the improvement of Sheridan Center. Additionally, the Company was advanced $300,000 on its short-term revolving credit line from US Bank to meet working capital needs. This credit line was repaid in August 2001. On June 13, 2001, the Company established a $500,000 short-term unsecured line of credit with Sheridan Investments, LLC, an affiliate, with an interest rate equal to the prime lending rate of US Bank, and with all outstanding principal and any unpaid accrued interest due on June 13, 2002. As of June 30, 2001, $400,000 has been borrowed and is outstanding under this facility. This credit line was repaid in August 2001. In association with the acquisition of Sheridan Plaza at Inverness, LLC, the Company assumed a mortgage that had a principal balance of $14,923,052 as of June 30, 2001. The mortgage is payable to Teachers Insurance and Annuity Association of America and is due January 10, 2006 with principal and interest (totaling $108,835) payable monthly with the unpaid principal and interest due at maturity. The loan bears interest at a fixed rate of 7.9% per year. 8. Status of Significant Tenant and Related Impairment On August 2, 2001, Rhythms NetConnections, Inc. ("Rhythms"), the primary tenant in the Company's Panorama Falls building in Englewood, Colorado, filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On August 10, 2001, Rhythms announced that it had terminated approximately 700 of its remaining 1,000 employees and notified all its customers that service will end in one month. As of the date of this filing, Rhythms has made all monthly rent payments due through August 2001 and the Company holds a security deposit from Rhythms in 10 the amount of $335,000. However, due to the bankruptcy filing and the uncertainty of future rent collections, the Company has recorded an impairment for $326,113 of unamortized deferred rents receivable and has accelerated the amortization of the $323,447 unamortized lease commission related to the Rhythms lease during the quarter ended June 30, 2001. The deferred rents receivable represents the effects of recording, for accounting purposes, straight-line rent resulting from a free rent period at the inception of the lease in exchange for Rhythms' providing all tenant improvements. The rental revenue related to Rhythms' was approximately $378,000 and $480,000 for the six months ended June 30, 2001 and the year ended December 31, 2000, which is approximately 8% and 7%, respectively. The Company will recognize revenues related to future lease payments when the proceeds are received and will continue monitoring the bankruptcy proceedings to assess and develop its plan in regards to the situation. If Rhythms were to discontinue its payment of the lease payments due to the Company, it would result in a significant decrease of our rental revenue and our operating cash flow until such time as the Company is able to either collect any amounts past due or lease the currently occupied space to new tenants. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company's Form 10-KSB/A-2 and elsewhere. Results Of Operations - --------------------- Three Months Ended June 30, 2001, Compared With Three Months Ended June 30, 2000. - --------------------------------------------------------------------------- Real estate operating revenue increased by approximately $1,075,000 and operating expenses, real estate taxes and general and administrative expenses increased by approximately $203,000, $53,000 and $86,000, respectively, for the three-month period ended June 30, 2001 as compared to the same period in 2000, due primarily to the inclusion of the operations of the Panorama Falls building (acquired in May 2000) for a full quarter in 2001, the Sheridan Center office complex (acquired in August 2000) and Sheridan Plaza at Inverness, LLC (acquired in June 2001, effective April 1, 2001) and the Giltedge office building for only two months in 2001 (sold in June 2001) offset by the exclusion of the operations of the four self-storage facilities (sold in August 2000). Management fees increased by approximately $60,000 in 2001 as a result of the net increase in operating revenue generated by the above mentioned transactions. Interest expense increased by approximately $389,000 due to the increase in mortgage loans and notes payable, and depreciation and amortization increased by approximately $498,000, of which approximately $323,000 represents the accelerated amortization of the Rhythms lease commission during the second quarter of 2001 (see below for further detail), with the remainder due to the increase in depreciable real estate assets. For accounting purposes, a gain of approximately $1,144,000 was recognized on the sale of the Giltedge office building during the three months ended June 30, 2001. As a result of the revenue and expense items described above, net income for the three months ended June 30, 2001 was $715,901, or $0.22 per share basic and $0.21 per share diluted, as compared to $110,869, or $0.05 per share (basic and diluted), for the three months ended June 30, 2000. Six Months Ended June 30, 2001, Compared With Six Months Ended June 30, 2000. - ----------------------------------------------------------------------------- Real estate operating revenue increased by approximately $1,441,000, and operating expenses, real estate taxes and general and administrative expenses increased by approximately $377,000, $44,000 and $115,000, respectively, for the six-month period ended June 30, 2001 as compared to the same period in 2000, due primarily to the inclusion of the operations of the Panorama Falls building (acquired in May 2000) for a full six months in 2001, the Sheridan Center office complex (acquired in August 2000) and Sheridan Plaza at Inverness, LLC (acquired in June 2001, effective April 1, 2001) and the Giltedge office building for only 11 five months in 2001 (sold in June 2001) partially offset by the exclusion of the operations of the four self-storage facilities (sold in August 2000). Operating expenses also increased due to planned maintenance projects undertaken at several properties and increased utility costs. Management fees increased by approximately $83,000 in 2001 as a result of the net increase in operating revenue generated by the above mentioned transactions. Interest expense increased by approximately $535,000 due to the increase in mortgage loans and notes payable, and depreciation and amortization increased by approximately $563,000 due to the accelerated amortization of the Rhythms lease commission described above, and the increase in depreciable real estate assets. Interest income increased by approximately $4,000 from 2000 due to the increase in the average outstanding balance of cash and cash equivalents and interest bearing escrows. The equity in loss of unconsolidated affiliate recognized in 2001 represents the Company's share of the net loss of Sheridan Investments, LLC. The Company acquired its interest in Sheridan Investments, LLC in September 2000. This interest was transferred back as a portion of the purchase price of Sheridan Plaza at Inverness, LLC. For accounting purposes, a gain of approximately $1,144,000 was recognized on the sale of the Giltedge office building during the six months ended June 30, 2001. As a result of the revenue and expense items described above, net income for the six months ended June 30, 2001 was $760,471, or $0.24 per share basic and $0.23 per share diluted, as compared to $225,522, or $.10 per share (basic and diluted), for the six months ended June 30, 2000. Revenues for the six months ended June 30, 2001 include approximately $378,000 of rental revenue from Rhythms NetConnections Inc., a corporation that has reported losses and announced on August 2, 2001, that it has filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On August 10, 2001, Rhythms announced that it had terminated approximately 700 of its remaining 1,000 employees and notified all its customers that service will end in one month. As of the date of this filing, Rhythms has made all monthly rent payments due through August 2001. However, due to the bankruptcy filing and the uncertainty of future rent collections, the Company has recorded an impairment for $326,113 of unamortized deferred rents receivable and has accelerated the amortization of the $323,447 unamortized lease commission related to the Rhythms lease during the quarter ended June 30, 2001. The deferred rents receivable represents the effects of recording, for accounting purposes, straight-line rent resulting from a free rent period at the inception of the lease in exchange for Rhythms' providing all tenant improvements. The rental revenue related to Rhythms' was approximately $378,000 and $480,000 for the six months ended June 30, 2001 and the year ended December 31, 2000, which is approximately 8% and 7%, respectively. The Company will recognize revenues related to future lease payments when the proceeds are received and will continue monitoring the bankruptcy proceedings to assess and develop its plan in regards to the situation. If Rhythms were to discontinue its payment of the lease payments due to the Company, it would result in a significant decrease of our rental revenue and our operating cash flow until such time as the Company is able to either collect any amounts past due or lease the currently occupied space to new tenants. Liquidity And Capital Resources ------------------------------- From December 31, 2000 to June 30, 2001, net investment in real estate increased by approximately $19,932,000. The net increase was primarily due to the acquisition of Sheridan Plaza at Inverness, LLC, the sale of the Giltedge office building and the continued renovation of Sheridan Center, net of depreciation for the six-month period of approximately $1,133,000. At June 30, 2001, the Company had approximately $721,000 of cash and cash equivalents, including approximately $430,000 of cash to be utilized for a stockholder dividend distribution, which was paid on July 17, 2001. As compared with December 31, 2000, accounts receivable increased by approximately $240,000, prepaid expenses, escrow and other assets increased by approximately $308,000 and net deferred financing costs increased by approximately $79,000 due primarily to the above mentioned acquisition and sale. 12 Mortgage loans and notes payable increased by approximately $13,933,000, primarily due to the assumption of the Sheridan Plaza at Inverness, LLC mortgage loan in the principal amount of approximately $14,954,000, additional advances on existing mortgage loans and lines of credit offset by the payoff of the Giltedge mortgage loan of approximately $3,112,000 upon the sale of that building and scheduled principal payments. Accounts payable and accrued expenses increased by approximately $2,199,000, primarily due to the increased costs related to the renovation of Sheridan Center. Accrued real estate taxes decreased by approximately $192,000 due to the payment of 2000 real estate taxes in 2001 offset by the accrual for the six-month period. Prepaid rents and security deposits increased by approximately $233,000 due primarily to the Sheridan Plaza at Inverness, LLC acquisition. Dividends payable increased by approximately $169,000, which is attributable to the increase in the number of shares of common stock outstanding. On July 27, 2001, our Registration Statement became effective with the Securities and Exchange Commission for an offering of 2,000,000 shares of common stock, with a 30-day option to the underwriter to purchase up to an additional 300,000 shares to cover over-allotments, at a price of $5.50 per share. On August 1, 2001, the Company received $10,230,000, net of the underwriting discounts and commissions, from the sale of the 2,000,000 shares. After payment of approximately $295,000 in additional offering expenses, the proceeds will be used to acquire real estate properties, to repay debt, for capital improvements and/or to increase working capital. As of the date of this filing, the underwriter has not exercised the over-allotment option. The Company desires to acquire properties in addition to those which will be acquired with the public offering proceeds. In order to do so, it will need to raise additional debt or equity capital. The Company also intends to obtain credit facilities for short and long-term borrowing with commercial banks or other financial institutions. The issuance of such securities or increase in debt for additional properties, of which there is no assurance, could adversely affect the amount of cash available to pay dividends to stockholders. Management believes that the proceeds of its recent offering and cash flow from its properties, together with its existing lines of credit, will be sufficient to meet the Company's working capital needs for the next year. The Company has a short-term revolving credit line from US Bank in the amount of $300,000 and a $500,000 short-term unsecured line of credit with Sheridan Investments, LLC, a related party. At June 30, 2001, the Company had outstanding balances of $300,000 and $400,000, respectively, on these lines of credit. The Company repaid both of these lines of credit in August 2001. On August 2, 2001, Rhythms NetConnections, Inc., the primary tenant in the Panorama Falls building, filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On August 10, 2001, Rhythms announced that it had terminated approximately 700 of its remaining 1,000 employees and notified all its customers that service will end in one month. As of the date of this filing, Rhythms has made all monthly rent payments due through August 2001 and the Company holds a security deposit from Rhythms in the amount of $335,000. The rental revenue related to Rhythms' was approximately $378,000 and $480,000 for the six months ended June 30, 2001 and the year ended December 31, 2000, which is approximately 8% and 7%, respectively. The Company will recognize revenues related to future lease payments when the proceeds are received and will continue monitoring the bankruptcy proceedings to assess and develop its plan in regards to the situation. If Rhythms were to discontinue its payment of the lease payments due to the Company, it would result in a significant decrease of our rental revenue and our operating cash flow until such time as the Company is able to either collect any amounts past due or lease the currently occupied space to new tenants. Management believes that inflation should not have a material adverse effect on the Company. The Company's office leases require the tenants to pay increases in operating expenses should any inflationary pressures materialize. 13 This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Exchange Act of 1934. Although the Company believes that the expectations reflected in the forward-looking statements and the assumptions upon which the forward-looking statements are based are reasonable, it can give no assurance that such expectations and assumptions will prove to have been correct. See the Company's Annual Report on Form 10-KSB/A-2 and the Company's Amendment No. 2 to Registration Statement on Form SB-2 filed on July 26, 2001 for additional statements concerning important factors, including occupancy and rental rates and operating costs that could cause actual results to differ materially from the Company's expectations. 14 Part II. Other Information Item 2. Changes in Securities and Use of Proceeds; Recent Sales Of Unregistered Securities - ------------------------------------------------------------------------------- During the quarter ended June 30, 2001, the Company made the following issuances of securities that were not registered under the Securities Act of 1933, as amended (the "Securities Act"): On June 7, 2001, the Company issued 100,211 shares of common stock to an affiliate of the property manager of the Company's properties that are leased to various agencies of the State of Texas buildings, an unrelated third party, as consideration for improvements made to one of those properties. For accounting purposes, the shares were valued at $557,175 ($5.56 per share) and are included in investment in real estate on the balance sheet included in this Form 10-QSB. The issuance of the shares of common stock was made pursuant to an exemption from registration in accordance with Sections 3(b) and/or 4(2) of the Securities Act. On June 26, 2001, the Company issued 1,057,346 shares of common stock, $.001 par value, at a rate of $5.69 per share (as required for accounting purposes, based on an average market price of the shares over a period of several days before and after the date of the announcement of the acquisition) to Sheridan Investments, LLC, an affiliate of the Company's advisor, as a portion of the purchase price for 100% of the ownership interests of Sheridan Plaza at Inverness, LLC, effective April 1, 2001. Sheridan Plaza at Inverness, LLC owns two office buildings located in Englewood, Colorado consisting of 118,720 total rentable square feet on approximately 6.7 acres of land with 405 total parking spaces, including 80 underground parking spaces. The issuance of the shares of common stock was made pursuant to an exemption from registration in accordance with Sections 3(b) and/or 4(2) of the Securities Act. Item 4. Submission Of Matters To A Vote Of Security Holders - ----------------------------------------------------------- The Company held its annual meeting of stockholders on June 20, 2001. At the annual meeting, each of Robert W. Holman, Jr., Charles K. Knight and Jerry J. Tepper were elected as Class 2 directors of the Company by the votes set forth below. Following the meeting, James F. Etter, Harry P. Gelles, and John A. Labate continued as Class 1 directors and William T. Atkins and Robert J. McFann continued as Class 3 directors. The stockholders approved all the matters presented at the meeting by the following votes: (1) For election of the following nominees as Class 2 directors of the Corporation: [At least 1,585,691 shares voting in favor (a majority of the total number of shares represented at the meeting) were needed to elect each nominee.] Shares Shares Not Name Shares For Shares Against Abstained Voting ---- ---------- -------------- --------- ------ Robert W. Holman, Jr. 2,583,685.0471 0 2,711 0 Charles K. Knight 2,583,685.0471 0 2,711 0 Jerry J. Tepper 2,583,685.0471 0 2,711 0 (2) Proposal to issue up to 1,121,209 shares of our common stock at $5.55 per share as a portion of the purchase price for Sheridan Plaza at Inverness LLC whose sole assets are two office buildings located in Denver, Colorado. 15 [At least 1,585,691 shares voting in favor (a majority of the total number of shares represented at the meeting) were needed to approve this proposal.] 1,784,652.0471 shares voting for 17,636 shares voting against 6,900 shares abstaining 777,208 shares not voting (3) Proposal to ratify the selection of Arthur Andersen LLP as the Corporation's certified independent accountants. [At least 1,585,691 shares voting in favor (a majority of the total number of shares represented at the meeting) were needed to approve this proposal.] 2,574,146.0471 shares voting for 450 shares voting against 11,800 shares abstaining 0 shares not voting Item 5. Other Information - ------------------------- None. Item 6. Exhibits And Reports On Form 8-K. - ----------------------------------------- (a) During the quarter ended June 30, 2001, the Registrant did not file any Current Reports on Form 8-K. (b) Exhibits: Exhibit 99.1 - Press Release dated August 13, 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERIVEST PROPERTIES INC. August 14, 2001 By: /s/ D. Scott Ikenberry ------------------------------------ D. Scott Ikenberry Chief Financial Officer 16 EX-99.1 3 amerivestex99-1.txt PRESS RELEASE EXHIBIT 99.1 FOR: AMERIVEST PROPERTIES INC. FROM: L. B. Stauffer, Sr. VP Linda Decker, Investor Relations Porter, LeVay & Rose, Inc. (212) 564-4700 COMPANY Charles Knight, President CONTACT: (303) 297-1800 x113 AMERIVEST ANNOUNCES SECOND QUARTER RESULTS: INCREASES IN OPERATING REVENUE AND NET INCOME; NON-RECURRING, NON-CASH CHARGE FOR CHAPTER 11 FILING BY RHYTHMS NETCONNECTIONS DENVER, CO, Aug. 13 -- AmeriVest Properties Inc. (AMEX: AMV) today announced results for the three and six months ended June 30, 2001. For the six months ended June 30, 2001, operating revenue was $4,798,891 and net income was $760,471 or $.23 per share, as compared with revenue of $3,357,513 and net income of $225,522 or $.10 per share, for the prior year. Funds from Operations for the six months ended June 30, 2001 were $777,286 or $.24 per share, as compared with $795,179 or $.36 per share, in 2000. The company reported, for the three months ended June 30, 2001, operating revenue of $2,819,810 and net income of $715,901 or $.21 per share, as compared with operating revenue of $1,744,636 and net income of $110,869 or $.05 per share, for the prior year. Net income for the three months ended June 30, 2001 included a gain on sale of real estate of $1,143,698 or $.34 per share, offset by the non-recurring, non-cash charge of $326,113 in unamortized deferred rents receivable and $323,447 in unamortized lease commissions for a lease with Rhythms NetConnections, Inc., a telecommunications tenant that recently filed for Chapter 11 bankruptcy protection. Funds From Operations for the quarter ended June 30, 2001, which includes the one-time charge for deferred rents receivable were $364,214 or $.11 per share, as compared with $404,399 or $.18 per share, in 2000. Before the charge, Funds From Operations per share for the quarter and the six months were $.20 and $.34, respectively, an increase of 11% for the quarter and a decrease of 6% for the six months from the comparable period in 2000. - more - - 2 - Results for the second quarter of 2001 include operations from the company's Sheridan Plaza at Inverness and Sheridan Center buildings, which were not owned by the company in the second quarter of 2000, and the Panorama Falls office building, which was acquired in May 2000. The second quarter 2001 results do not include any operations from the self-storage facilities, which were sold in the third quarter of 2000, and only two months of operations from the Giltedge office building in Wisconsin, which was sold in June 2001. On August 2, 2001, Rhythms NetConnections which leases 51,883 square feet in AmeriVest's Panorama Falls office building in Englewood, CO, voluntarily filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code (see Rhythms' Aug. 2 release - OTCBB:RTHMQ.OB). Rhythms is current on all rent payments and AmeriVest holds a security deposit from Rhythms in the amount of $335,000. Since May 2000, Rhythms has invested more than $500,000 in improvements to the building. Due to the Chapter 11 filing, AmeriVest has taken a non-recurring, non-cash charge of $326,113 in unamortized deferred rents receivable and accelerated the amortization of the $323,447 unamortized lease commission related to the Rhythms lease during the quarter ended June 30, 2001. On August 10, 2001, Rhythms announced that it had terminated about 700 of its remaining 1,000 employees and notified customers that service will end in a month. William Atkins, AmeriVest Chairman and CEO, said "Rhythms may choose to either assume or reject its unexpired lease at Panorama Falls, but is obligated to pay its rent until it rejects the lease. Rhythms has paid rent through August 31, 2001. At this time we have no information as to how long they plan to remain in our building." Comcast Corporation leases the remaining 10,080 square feet of the Panorama Falls building through May 24, 2002 and has expressed an interest in extending a portion of their lease beyond May 2002. "When AmeriVest purchased Panorama Falls, the building was configured with offices, systems and technology infrastructure designed to accommodate small to mid-sized tenants. When Rhythms ultimately vacates its space, the space is easily modified for the smaller tenants we target," Atkins continued. "We are optimistic about prospects for the Rhythms space at Panorama Falls should it become available. We believe this is good quality real estate in an excellent location." he concluded. - more - - 3 - Notwithstanding the one-time non-recurring, non-cash charge, Atkins said, "We are pleased with our quarterly results. But for the charge, our Funds from Operations on a per share basis increased 11% over the second quarter of 2000 and 43% over the first quarter of 2001. Our primary task now is to re-lease the vacant space if Rhythms rejects their lease and focus on the acquisition of high-quality small tenant buildings with the proceeds from our recent public offering. Given the Rhythms situation and our recent offering of 2 million new common shares, we do not expect our per share FFO to begin to fully reflect the results of our value-added small tenant office strategy until the first quarter of 2002," Atkins added. AmeriVest Properties Inc., with its principal office in Denver, Colorado, owns 22 office properties and is focused on serving small to mid-sized office tenants in select markets. Its common stock is listed on the American Stock Exchange under the symbol "AMV." Certain matters discussed in this release are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected, including the risks and uncertainties of acquiring, owning, operating and disposing of real estate. Such risks and uncertainties are disclosed in the Company's past and current filings with the U.S. Securities and Exchange Commission. - more -
- 4 - AMERIVEST PROPERTIES INC. Selected Income Statement Information Three Months Ended Six Months Ended June 30, June 30, (Unaudited) (Unaudited) -------------------------- -------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Real Estate Operating Revenue Commercial properties $ 2,819,810 $ 1,415,504 $ 4,798,891 $ 2,713,186 Storage properties -- 329,132 -- 644,327 ----------- ----------- ----------- ----------- 2,819,810 1,744,636 4,798,891 3,357,513 ----------- ----------- ----------- ----------- Real Estate Operating Expenses Property operating expenses Operating expenses 681,249 478,525 1,267,898 890,698 Real estate taxes 226,222 173,172 374,202 330,251 Management fees 141,545 81,114 242,846 159,967 General and administrative 195,336 109,728 358,281 243,549 Impairment of deferred rent receivable 326,113 -- 326,113 -- Interest 894,575 505,516 1,490,051 954,760 Depreciation and amortization 792,011 293,530 1,133,066 569,657 ----------- ----------- ----------- ----------- 3,257,051 1,641,585 5,192,457 3,148,882 ----------- ----------- ----------- ----------- Other Income Interest income 9,444 7,818 21,182 16,891 Share in results of affiliate 0 0 (10,843) 0 ----------- ----------- ----------- ----------- 9,444 7,818 10,339 16,891 ----------- ----------- ----------- ----------- Income before gain on sale of real estate ($ 427,797) $ 110,869 ($ 383,227) $ 225,522 ----------- ----------- ----------- ----------- Gain on sale of real estate 1,143,698 -- 1,143,698 -- ----------- ----------- ----------- ----------- Net Income $ 715,901 $ 110,869 $ 760,471 $ 225,522 =========== =========== =========== =========== Net Income Per Common Share Basic $ 0.22 $ 0.05 $ 0.24 $ 0.10 =========== =========== =========== =========== Diluted $ 0.21 $ 0.05 $ 0.23 $ 0.10 =========== =========== =========== =========== Weighted Average Common Shares Outstanding Basic 3,268,056 2,228,850 3,130,227 2,228,850 =========== =========== =========== =========== Diluted 3,413,289 2,229,687 3,248,541 2,229,830 =========== =========== =========== =========== Funds from Operations: Net Income $ 715,901 $ 110,869 $ 760,471 $ 225,522 Depreciation and Amortization 792,011 293,530 1,133,066 569,657 Share of depreciation of affiliate -- -- 27,447 -- Gain on sale of real estate (1,143,698) -- (1,143,698) -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Funds From Operations 364,214 404,399 777,286 795,179 =========== =========== =========== =========== FFO per Common Share Basic $ 0.11 $ 0.18 $ 0.25 $ 0.36 =========== =========== =========== =========== Diluted $ 0.11 $ 0.18 $ 0.24 $ 0.36 =========== =========== =========== =========== - more -
- 5 - AMERIVEST PROPERTIES INC. Selected Balance Sheet Information June 30, December 31, 2001 2000 ------------ ------------ Assets at cost $ 64,063,920 $ 45,789,184 Less accumulated depreciation and amortization (2,303,312) (3,425,387) ------------ ------------ Total assets $ 61,760,608 $ 42,363,797 Total mortgage loans and notes payable $ 42,056,282 $ 28,122,856 Total stockholders' equity $ 14,412,870 $ 11,358,503 Common shares outstanding at end of period 4,331,188 2,976,939 ##### 2001 -----END PRIVACY-ENHANCED MESSAGE-----