EX-99.2 3 a04-12736_1ex99d2.htm EX-99.2

 

Selected Financial Data

 

Company Overview

 

        AmeriVest Properties Inc. is a real estate investment trust (REIT) which owns and operates commercial office buildings in selected markets catering to small and medium size businesses.  At September 30, 2004, AmeriVest owned 29 properties totaling 2,628,044 square feet located in Colorado, Texas, Arizona and Indiana.  The Company’s core portfolio (which excludes assets it owns less than 100% and smaller office buildings primarily leased to the State of Texas) included 15 properties totaling 2,345,941square feet located in metropolitan Denver, Dallas, Phoenix and Indianapolis.

 

Strategy

 

        We believe that office space for small to medium size businesses is a large and underserved market.  According to a study compiled by the Office of Advocacy of the U.S. Small Business Administration, 89% of all U.S. businesses employed fewer than 20 employees.  As a result, we believe that many businesses have office space requirements of no more than 4,000 square feet.

 

        Small to medium size businesses often have specific needs and limitations that are different from larger businesses.  For example, small and medium size businesses cannot usually afford large corporate staffs to manage office leasing.  These businesses have needs similar to larger firms, such as access to cutting edge technology, conference facilities, high quality telecommunications equipment and other amenities, but usually do not have a comparable budget to those firms.  Our strategy is to focus on providing an office product targeted to this large market and its unmet needs in a cost effective manner.  The key elements of our strategy include:

 

Provide a superior, consistent product - We seek to provide a level of amenities to small and medium size businesses in our office properties that usually only larger companies would be able to obtain, such as keyless entry card systems, use of conference rooms with the latest telecommunication and presentation equipment, and the ability to access high speed voice and data service from multiple providers.

 

Simplify the leasing process - Our leasing process is designed to meet the unique needs of a small to medium size customer base with limited staffing through our “no hassle” leasing philosophy which reduces the per lease cost for us and the customer.

 

Provide a high level of service - With our deliberate focus on small and medium size businesses, we have developed a positive, service-oriented approach specifically tailored for our customer base.

 

Target select cities - We target cities that meet specific criteria where we hope to build meaningful multi-property portfolios over the near term.

 

        As a result of our focused strategy, we believe that our properties provide office space that is particularly attractive for small and medium size businesses.  By executing on our strategy, we believe we have been able to maintain high occupancy rates while still maintaining strong rent per square foot trends in our core markets as compared to the general office market.

 

1


 

Directors and Executive Officers

 

Name

 

Position

 

Initial Date
as Director

William T. Atkins

 

Chief Executive Officer, Director and Chairman of the Board

 

1999

 

 

 

 

 

Charles K. Knight

 

President, Chief Operating Officer and Director

 

1999

 

 

 

 

 

Kathryn Hale

 

Chief Financial Officer and Secretary

 

—

 

 

 

 

 

John B. Greenman

 

Chief Investment Officer and Vice President

 

—

 

 

 

 

 

Patrice Derrington

 

Outside Director

 

2003

 

 

 

 

 

Harry P. Gelles

 

Outside Director

 

2000

 

 

 

 

 

Alexander S. Hewitt

 

Director and Vice Chairman

 

2004

 

 

 

 

 

Robert W. Holman, Jr.

 

Lead Outside Director

 

2001

 

 

 

 

 

John A. Labate

 

Outside Director

 

1995

 

 

 

 

 

Jerry J. Tepper

 

Outside Director

 

2000

 

 

 

 

 

Corporate Headquarters

 

Investor Relations

 

 

 

 

 

 

 

1780 South Bellaire Street

 

Kim P. Boswood

 

 

Suite 100

 

(303) 297-1800 x 118

 

 

Denver, Colorado 80222

 

kim@amvproperties.com

 

 

(303) 297-1800

 

 

 

 

 

 

 

 

 

Stock Exchange

 

Ticker

 

 

 

 

 

 

 

American Stock Exchange

 

AMV

 

 

 

2


 

Financial Information

 

Selected Financial Data

 

 

 

As of and for the three months ended

 

 

 

9/30/2004

 

6/30/2004

 

3/31/2004

 

12/31/2003

 

9/30/2003

 

 

 

(amounts in thousands, except share, per share and property data)

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Data -

 

 

 

 

 

 

 

 

 

 

 

Real estate operating revenue(1)

 

$

11,435

 

$

11,403

 

$

9,594

 

$

8,669

 

$

6,895

 

General and administrative expenses

 

1,106

 

984

 

933

 

1,171

 

777

 

G&A as a percentage of revenue

 

9.7

%

8.6

%

9.7

%

13.5

%

11.3

%

 

 

 

 

 

 

 

 

 

 

 

 

Loss Per Share -

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,302

)

$

(548

)

$

(375

)

$

(1,251

)

$

(24

)

Loss per share - basic

 

(0.05

)

(0.02

)

(0.02

)

(0.07

)

0.00

 

Loss per share - diluted

 

(0.05

)

(0.02

)

(0.02

)

(0.07

)

0.00

 

 

 

 

 

 

 

 

 

 

 

 

 

Funds from Operations (FFO)(2)

 

 

 

 

 

 

 

 

 

 

 

FFO

 

$

2,351

 

$

2,796

 

$

1,878

 

$

1,317

 

$

1,667

 

FFO per share - basic

 

0.10

 

0.12

 

0.11

 

0.08

 

0.10

 

FFO per share - diluted

 

0.10

 

0.12

 

0.11

 

0.07

 

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data -

 

 

 

 

 

 

 

 

 

 

 

Net investment in real estate(3)

 

$

301,152

 

$

277,569

 

$

259,921

 

$

220,698

 

$

197,671

 

Total assets

 

317,766

 

294,876

 

275,911

 

240,500

 

216,245

 

Total liabilities

 

216,074

 

188,824

 

166,477

 

170,396

 

142,834

 

Minority interest

 

1,671

 

1,775

 

1,836

 

—

 

—

 

Total stockholders’ equity

 

100,022

 

104,278

 

107,598

 

70,104

 

73,411

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock Data -

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding

 

23,948,056

 

23,928,849

 

23,859,639

 

17,401,309

 

17,375,467

 

Weighted average shares - basic

 

23,934,094

 

23,898,957

 

17,567,414

 

17,383,652

 

17,356,751

 

Weighted average shares - diluted

 

24,050,124

 

24,011,520

 

17,721,219

 

17,633,834

 

17,459,294

 

Closing share price

 

$

6.68

 

$

5.89

 

$

6.75

 

$

7.18

 

$

6.50

 

Share price range for period (high - low)

 

6.83 - 5.88

 

6.93 - 5.48

 

7.64 - 6.40

 

6.50 - 7.21

 

6.75 - 6.11

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.13

 

$

0.13

 

$

0.13

 

$

0.13

 

$

0.13

 

Annualized dividend yield

 

7.8

%

8.8

%

7.7

%

7.2

%

8.0

%

Market value of common equity

 

$

159,973

 

$

140,941

 

$

161,053

 

$

124,941

 

$

112,941

 

Total liabilities

 

216,074

 

188,824

 

166,477

 

170,396

 

142,834

 

Total market capitalization

 

$

376,047

 

$

329,765

 

$

327,530

 

$

295,337

 

$

255,775

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flow Data -

 

 

 

 

 

 

 

 

 

 

 

Net cash flow from operating activities

 

$

3,612

 

$

2,370

 

$

1,719

 

$

3,265

 

$

2,812

 

Net cash flow from investing activities

 

(24,817

)

(11,693

)

(31,231

)

(18,859

)

(16,536

)

Net cash flow from financing activities

 

20,940

 

10,125

 

30,061

 

15,899

 

6,441

 

Net change in cash and cash equivalents

 

$

(265

)

$

802

 

$

549

 

$

305

 

$

(7,283

)

 

 

 

 

 

 

 

 

 

 

 

 

Property Data -

 

 

 

 

 

 

 

 

 

 

 

Properties owned

 

29

 

28

 

27

 

30

 

28

 

Rentable square feet

 

2,628,044

 

2,480,232

 

2,365,640

 

2,222,079

 

1,891,352

 

Occupancy

 

86.2

%

85.1

%

84.5

%

84.2

%

86.8

%

(1)  Excludes the revenues of assets classified as held of resale (Texas Bank Buildings - sold March 16, 2004).

 

(2)  See page 7 for a reconciliation of FFO from net loss and a comparison of FFO per share to loss per share, the most directly comparable GAAP measures.  FFO is not intended to be a measure of cash flow or liquidity.

 

(3)  Excludes the real estate assets of properties classified as held for sale (Texas Bank Buildings - sold March 16, 2004).

 

3


 

Consolidated Statement of Operations

 

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Real Estate Operating Revenue

 

 

 

 

 

 

 

 

 

Rental revenue

 

$11,435,128

 

$6,895,235

 

$32,431,672

 

$20,124,585

 

 

 

 

 

 

 

 

 

 

 

Real Estate Operating Expenses

 

 

 

 

 

 

 

 

 

Property operating expenses -

 

 

 

 

 

 

 

 

 

Operating expenses

 

3,381,971

 

1,929,966

 

9,293,204

 

5,139,566

 

Real estate taxes

 

1,393,953

 

832,051

 

4,109,575

 

2,346,828

 

Management fees

 

17,496

 

17,756

 

52,246

 

84,930

 

General and administrative expenses

 

1,105,901

 

777,579

 

3,022,715

 

2,357,432

 

Ground rent expense

 

160,542

 

—

 

482,225

 

—

 

Interest expense

 

3,069,512

 

1,809,933

 

8,622,861

 

5,316,903

 

Depreciation and amortization expense

 

3,740,880

 

1,636,449

 

9,963,605

 

4,378,968

 

Impairment of investment in real estate

 

—

 

—

 

—

 

1,465,932

 

Total operating expenses

 

12,870,255

 

7,003,734

 

35,546,431

 

21,090,559

 

 

 

 

 

 

 

 

 

 

 

Loss From Continuing Operations

 

(1,435,127

)

(108,499

)

(3,114,759

)

(965,974

)

 

 

 

 

 

 

 

 

 

 

Other Income/(Loss)

 

 

 

 

 

 

 

 

 

Interest income

 

29,139

 

43,434

 

55,395

 

61,187

 

Equity in loss of affiliate

 

—

 

(14,537

)

(18,076

)

(38,451

)

Minority interest (1)

 

104,094

 

—

 

165,212

 

—

 

Total other income

 

133,233

 

28,897

 

202,531

 

22,736

 

 

 

 

 

 

 

 

 

 

 

Loss Before Discontinued Operations

 

(1,301,894

)

(79,602

)

(2,912,228

)

(943,238

)

 

 

 

 

 

 

 

 

 

 

Net Earnings from Discontinued Operations

 

—

 

56,134

 

687,735

 

214,683

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$(1,301,894

)

$(23,468

)

$(2,224,493

)

$(728,555

)

 

 

 

 

 

 

 

 

 

 

Loss Per Share

 

 

 

 

 

 

 

 

 

Basic

 

$(0.05

)

$0.00

 

$(0.10

)

$(0.05

)

Diluted

 

$(0.05

)

$0.00

 

$(0.10

)

$(0.05

)

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding

 

 

 

 

 

 

 

 

 

Basic

 

23,934,094

 

17,356,751

 

21,807,943

 

13,777,395

 

Diluted

 

23,934,094

 

17,356,751

 

21,807,943

 

13,777,395

 

(1)  As a result of adopting FIN 46R, “Consolidation of Variable Interest Entities (VIE)”, the Company consolidated the operations of an entity management identified as a VIE in which the Company is the primary beneficiary.  The Company recognizes minority interest equal to third party voting interests on the VIE’s reported earnings or loss.

 

4

 


Geographic Operating Information - 2004

 

 

As of and for the three months ended September 30, 2004

 

 

 

Denver

 

Dallas

 

Phoenix

 

Indianapolis

 

Non-core (1)

 

Corporate

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate operating revenue

 

$

2,386,801

 

$

3,602,163

 

$

4,483,309

 

$

417,077

 

$

545,778

 

$

—

 

$

11,435,128

 

Real estate operating expenses

 

1,042,913

 

1,356,272

 

1,825,124

 

166,933

 

402,178

 

—

 

4,793,420

 

Net operating income

 

1,343,888

 

2,245,891

 

2,658,185

 

250,144

 

143,600

 

—

 

6,641,708

 

Percent of total

 

20.2

%

33.8

%

40.0

%

3.8

%

2.2

%

0.0

%

100.0

%

Adjustments to arrive at net loss -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,105,901

)

Ground rent expense

 

 

 

 

 

 

 

 

 

 

 

 

 

(160,542

)

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,069,512

)

Depreciation and amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,740,880

)

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

29,139

 

Minority interest

 

 

 

 

 

 

 

 

 

 

 

 

 

104,094

 

Total adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,943,602

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(1,301,894

) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the nine months ended September 30, 2004

 

 

 

 

 

 

 

 

 

Real estate operating revenue

 

$

7,177,243

 

$

10,306,209

 

$

12,088,277

 

$

1,292,778

 

$

1,567,165

 

$

—

 

$

32,431,672

 

Real estate operating expenses

 

3,210,620

 

3,899,733

 

4,864,272

 

513,648

 

966,752

 

—

 

13,455,025

 

Net operating income

 

3,966,623

 

6,406,476

 

7,224,005

 

779,130

 

600,413

 

—

 

18,976,647

 

Percent of total

 

20.9

%

33.8

%

38.1

%

4.1

%

3.2

%

0.0

%

100.0

%

Adjustments to arrive at net loss -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,022,715

)

Ground rent expense

 

 

 

 

 

 

 

 

 

 

 

 

 

(482,225

)

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,622,861

)

Depreciation and amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,963,605

)

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

55,395

 

Equity in loss of affiliate

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,076

)

Minority interest

 

 

 

 

 

 

 

 

 

 

 

 

 

165,212

 

Discontinued operations (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

687,735

 

Total adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,201,140

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(2,224,493

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment in real estate

 

$

71,141,552

 

$

94,467,823

 

$

112,004,064

 

$

10,257,620

 

$

13,110,400

 

$

170,464

 

$

301,151,923

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Properties owned

 

4

 

5

 

5

 

1

 

14

 

—

 

29

 

Rentable square feet

 

555,764

 

840,319

 

835,081

 

114,777

 

282,103

 

—

 

2,628,044

 

Occupancy

 

86.4

%

89.5

%

87.5

%

81.8

%

73.6

%

—

 

86.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)  Includes the Texas State Buildings and Panorama Falls.  Due to the adoption of FASB Interpretation No.46R, the assets and liabilities of Panorama Falls are consolidated with those of AmeriVest effective March 31, 2004 and the real estate assets are reflected in the ‘net investment in real estate’ balance in the ‘non-core’ column.  Beginning April 1, 2004, the operations of Panorama Falls are consolidated with those of AmeriVest.  Prior to April 1, 2004, the investment in Panorama Falls was accounted for under the equity method and AmeriVest’s share of the net loss of the entity is reflected above as ‘equity in loss of affiliate’.

 

(2)  Includes the net operations, including gain on sale, of the Texas Bank Buildings (which were sold March 16, 2004) in the amount reported for the nine months ended September 30, 2004.

 

 

5


 

Geographic Operating Information - 2003

 

 

As of and for the three months ended September  30, 2003 

 

 

 

Denver

 

Dallas

 

Phoenix

 

Indianapolis

 

Non-core (1)

 

Corporate

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate operating revenue

 

$

2,419,762

 

$

1,874,835

 

$

1,794,013

 

$

401,501

 

$

405,124

 

$

—

 

$

6,895,235

 

Real estate operating expenses

 

1,029,050

 

748,494

 

581,788

 

178,696

 

241,745

 

—

 

2,779,773

 

Net operating income

 

1,390,712

 

1,126,341

 

1,212,225

 

222,805

 

163,379

 

—

 

4,115,462

 

Percent of total

 

33.8

%

27.4

%

29.5

%

5.4

%

4.0

%

0.0

%

100.0

%

Adjustments to arrive at net loss -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

(777,579

)

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,809,933

)

Depreciation and amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,636,449

)

Impairment of investment in real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

43,434

 

Equity in loss of affiliate

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,537

)

Discontinued operations (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

56,134

 

Total adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,138,930

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(23,468

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the nine months ended September 30, 2003

 

 

 

 

 

 

 

 

 

Real estate operating revenue

 

$

7,523,161

 

$

5,792,976

 

$

4,323,282

 

$

1,271,157

 

$

1,214,009

 

$

—

 

$

20,124,585

 

Real estate operating expenses

 

2,975,425

 

2,080,694

 

1,331,278

 

475,263

 

708,664

 

—

 

7,571,324

 

Net operating income

 

4,547,736

 

3,712,282

 

2,992,004

 

795,894

 

505,345

 

—

 

12,553,261

 

Percent of total

 

36.2

%

29.6

%

23.8

%

6.3

%

4.0

%

0.0

%

100.0

%

Adjustments to arrive at net loss -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,357,432

)

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,316,903

)

Depreciation and amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,378,968

)

Impairment of investment in real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,465,932

)

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

61,187

 

Equity in loss of affiliate

 

 

 

 

 

 

 

 

 

 

 

 

 

(38,451

)

Discontinued operations (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

214,683

 

Total adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,281,816

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(728,555

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment in real estate

 

$

68,306,797

 

$

43,198,460

 

$

69,191,125

 

$

10,095,497

 

$

10,014,374

 

$

93,016

 

$

200,899,269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Properties owned

 

4

 

2

 

3

 

1

 

18

 

—

 

28

 

Rentable square feet

 

556,807

 

323,282

 

554,589

 

114,033

 

342,641

 

—

 

1,891,352

 

Occupancy

 

81.4

%

97.6

%

88.9

%

85.4

%

82.2

%

—

 

86.8

%

(1)  Includes the Texas State Buildings and Panorama Falls.

 

(2)  Includes the net operations, including gain on sale, of the Texas Bank Buildings, which were sold March 16, 2004.

 

6


Non-GAAP Financial Measures

 

 

Funds from Operations (FFO) is a non-GAAP financial measure.  We believe FFO, as defined by the Board of Governors of the National Association of Real Estate Investment Trusts (NAREIT) in the October 1999 White Paper (amended in April 2002), to be an appropriate measure of performance for an equity REIT, for reasons, and subject to the qualifications, specified in the paragraphs entitled “Non-GAAP Financial Measures” below.  The following table reflects the reconciliation of FFO from net loss and a comparison of FFO per share to loss per share, the most directly comparable GAAP measures:

 

 

 

Three months ended

 

 

 

9/30/2004

 

6/30/2004

 

3/31/2004

 

12/31/2003

 

9/30/2003

 

 

 

(amounts in thousands, except share, per share and property data)

 

Funds from Operations (FFO) -

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,302

)

$

(548

)

$

(375

)

$

(1,251

)

$

(24

)

Depreciation and amortization expense

 

3,631

 

3,319

 

2,805

 

2,546

 

1,669

 

Share of depreciation and amortization expense of unconsolidated affiliate

 

22

 

25

 

22

 

22

 

22

 

Gain on sale

 

—

 

—

 

(574

)

—

 

—

 

FFO

 

$

2,351

 

$

2,796

 

$

1,878

 

$

1,317

 

$

1,667

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share - diluted

 

$

(0.05

)

$

(0.02

)

$

(0.02

)

$

(0.07

)

$

(0.00

)

 

 

 

 

 

 

 

 

 

 

 

 

FFO per share - diluted

 

$

0.10

 

$

0.12

 

$

0.11

 

$

0.07

 

$

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock Data -

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares - diluted

 

24,050,124

 

24,011,520

 

17,721,219

 

17,633,834

 

17,459,294

 

 

 

Non-GAAP Financial Measures - Funds from Operations (FFO) is a non-GAAP financial measure.  FFO is defined as net income or loss, computed in accordance with generally accepted accounting principles (GAAP), excluding gains or losses from sale of properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.  We believe that FFO is helpful to investors as a measure of the performance of an equity REIT because, it facilitates an understanding of the operations performance of its properties without giving effect to real estate depreciation and amortization, which assume that the value of real estate assets diminishes predictably over time.  Since real estate values have historically risen or fallen with market conditions, we believe that FFO provides a more meaningful and accurate indication of our performance.  We compute FFO in accordance with standards established by the Board of Governors of the National Association of Real Estate Investment Trusts (NAREIT), which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do.  FFO does not represent cash generated from operating activities determined by GAAP and should not be considered as an alternative to net income or loss (determined in accordance with GAAP) as an indication of our financial performance or to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.  FFO may include funds that may not be available for our management’s discretionary use due to requirements to conserve funds for capital expenditures, debt repayments, debt repayments property acquisitions and other commitments and uncertainties.

 

7

 


 

 

Consolidated Balance Sheets

 

 

 

 

September 30, 2004

 

December 31, 2003

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Investment in real estate -

 

 

 

 

 

Land

 

$

40,961,332

 

$

28,838,214

 

Buildings and improvements

 

244,540,282

 

184,519,890

 

Furniture, fixtures and equipment

 

1,273,552

 

799,730

 

Tenant improvements

 

13,030,911

 

6,144,440

 

Tenant leasing commissions

 

2,503,489

 

1,061,160

 

Intangible assets

 

21,125,721

 

11,468,120

 

Less: accumulated depreciation and amortization

 

(22,283,364

)

(12,134,025

)

Net investment in real estate

 

301,151,923

 

220,697,529

 

 

 

 

 

 

 

Cash and cash equivalents

 

2,563,176

 

1,477,585

 

Escrow deposits

 

7,129,571

 

5,778,427

 

Assets - held for sale

 

—

 

3,196,877

 

Investment in affiliate

 

—

 

1,364,032

 

Due from related party

 

—

 

3,371,526

 

Due from affiliate

 

—

 

262,347

 

Accounts receivable, net

 

666,333

 

296,377

 

Deferred rents receivable

 

2,786,040

 

1,401,455

 

Deferred financing costs, net

 

2,364,043

 

2,301,043

 

Prepaid expenses and other assets

 

1,105,200

 

353,264

 

Total assets

 

$

317,766,286

 

$

240,500,462

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Mortgage loans and notes payable

 

$

202,312,186

 

$

158,237,661

 

Liabilities - held for sale

 

—

 

1,296,049

 

Accounts payable and accrued expenses

 

2,650,358

 

2,736,657

 

Accrued real estate taxes

 

4,317,366

 

3,169,183

 

Prepaid rents, deferred revenue and security deposits

 

3,681,158

 

2,694,335

 

Dividends payable

 

3,112,513

 

2,262,170

 

Total liabilities

 

216,073,581

 

170,396,055

 

 

 

 

 

 

 

Minority Interest

 

1,671,092

 

—

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

Preferred stock, $.001 par value

 

 

 

 

 

Authorized - 5,000,000 shares

 

 

 

 

 

Issued and outstanding - none

 

—

 

—

 

 

 

 

 

 

 

Common stock, $.001 par value

 

 

 

 

 

Authorized - 75,000,000 shares

 

 

 

 

 

Issued and outstanding - 23,948,056 and 17,401,309 shares, respectively

 

23,948

 

17,401

 

Capital in excess of par value

 

132,342,983

 

91,706,371

 

Distributions in excess of accumulated earnings

 

(32,345,318

)

(21,619,365

)

Total stockholders’ equity

 

100,021,613

 

70,104,407

 

Total liabilities and stockholders’ equity

 

$

317,766,286

 

$

240,500,462

 

 

 

8


Debt Summary

 

 

 

 

 

 

 

 

September 30, 2004

 

December 31, 2003

 

 

Lender

 

Mortgaged Property

 

Maturity Date

 

Principal Balance

 

Interest
Rate (1)

 

Principal Balance

 

Interest Rate (1)

 

 

Fixed Rate -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Teachers Insurance and Annuity Association of America

 

AmeriVest Plaza at Inverness

 

1/10/2006

 

$

14,453,675

 

7.90

%

$

14,572,888

 

7.90

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Greenwich Capital Financial Products

 

Parkway Centre II Centerra
Southwest Gas Building

 

10/1/2008

 

38,311,918

 

5.13

%

38,876,849

 

5.13

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Metropolitan Life Insurance Company

 

Parkway Centre III

 

9/10/2009

 

15,210,000

 

4.47

%

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allstate Life Insurance Company

 

Financial Plaza

 

10/5/2010

 

24,299,882

 

5.25

%

24,669,760

 

5.25

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southern Farm Bureau Life Insurance Company

 

Scottsdale Norte

 

4/1/2011

 

6,583,234

 

7.90

%

6,625,460

 

7.90

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

J. P. Morgan Chase

 

Hackberry View - 1st

 

9/1/2012

 

11,457,719

 

6.57

%

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

J. P. Morgan Chase

 

Hackberry View - 2nd (2)

 

9/1/2012

 

974,755

 

8.00

%

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Teachers Insurance and Annuity Association of America

 

Sheridan Center Arrowhead Fountains
Kellogg Building

 

1/1/2013

 

28,970,110

 

7.40

%

29,309,686

 

7.40

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allstate Life Insurance Company

 

Camelback - 1st

 

9/5/2014

 

16,000,000

 

5.82

%

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allstate Life Insurance Company

 

Camelback - 2nd

 

9/5/2014

 

5,000,000

 

5.82

%

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Security Life of Denver Insurance Company

 

Keystone Office Park - 1st

 

5/1/2022

 

4,254,200

 

8.00

%

4,334,828

 

8.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Security Life of Denver Insurance Company

 

Keystone Office Park - 2nd

 

5/1/2022

 

477,209

 

8.63

%

485,638

 

8.63

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transatlantic Capital Company, LLC

 

Texas State Buildings

 

8/1/2028

 

5,600,607

 

7.66

%

5,660,436

 

7.66

%

 

 

 

 

 

Subtotal

 

$

171,593,309

 

6.17

%

$

124,535,545

 

6.39

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable Rate -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fleet National Bank -

 

Chateau Plaza

 

11/12/2005

 

$

20,650,000

 

4.50

%

$

18,470,020

 

3.90

%

 

Senior Secured Line of Credit

 

Greenhill Park

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fleet National Bank -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured Line of Credit (3)

 

Unsecured

 

11/12/2005

 

10,000,000

 

5.89

%

15,149,725

 

5.17

%

 

 

 

 

 

Subtotal

 

$

30,650,000

 

4.95

%

$

33,619,745

 

4.47

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other notes payable -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease Capital Corporation

 

Phone system

 

10/31/2007

 

68,877

 

11.11

%

82,371

 

11.11

%

 

 

 

 

 

Subtotal

 

68,877

 

11.11

%

82,371

 

11.11

%

 

 

 

Total mortgage loans and notes payable

 

$

202,312,186

 

5.99

%

$

158,237,661

 

5.98

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities - held for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jefferson Pilot

 

Texas Bank Buildings

 

 

 

$

—

 

—

 

$

1,296,049

 

9.00

%

 

Total including mortgage loan included in ‘liabilities - held for sale’

 

$

202,312,186

 

5.99

%

$

159,533,710

 

6.01

%

 

Scheduled maturities (for the years ended December 31,) -

2004

 

$

741,421

 

2005

 

23,811,458

 

2006

 

17,416,022

 

2007 (3)

 

13,368,603

 

2008

 

38,171,976

 

Thereafter

 

108,802,706

 

Total

 

$

202,312,186

 

 

 

 

 

 

Debt information (for the three months ended September 30, 2004) -

 

Additions

 

$

105,719,845

 

Repayments

 

(61,264,964

)

Scheduled principal payments

 

(1,676,405

)

Total

 

$

42,778,476

 

 

 

 

 

(1)  Interest only, does not include amortization of deferred financing costs or unused facility fees.

 

(2)  The amount recorded reflects a net present value calculation based on a fair market value rate of 8%.  The actual loan balance assumed was $697,847 at an interest rate of 15%.

 

(3)  On October 20, 2004, KeyBank National Association assumed the Company’s Unsecured Line of Credit.  The amended facility has a capacity of $40,000,000 and a maturity date of November 12, 2007.

 

9


 

Portfolio Information

 

Property Summary

 

 

 

 

 

 

 

September 30, 2004

 

December 31, 2003

 

Building / Location

 

Year Acquired

 

Rentable Area (1)

 

Occupancy Rate (2)

 

Average Rent Per SF (3)

 

Occupancy Rate (2)

 

Average Rent Per SF (3)

 

Same Store -

 

 

 

 

 

 

 

 

 

 

 

 

 

Southwest Gas Building Phoenix, AZ

 

2003

 

146,048

 

87.1

%

$23.46

 

80.4

%

$22.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chateau Plaza
Dallas, TX

 

2002

 

171,294

 

97.4

%

23.03

 

100.0

%

22.70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Centerra
Denver, CO

 

2002

 

186,582

 

81.4

%

18.12

 

72.9

%

19.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parkway Centre II

Plano, TX

 

2002

 

151,968

 

96.5

%

19.55

 

95.4

%

20.61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kellogg Building
Littleton, CO

 

2001

 

110,852

 

94.0

%

20.37

 

85.8

%

21.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arrowhead Fountains
Peoria, AZ

 

2001

 

96,090

 

98.9

%

21.88

 

100.0

%

21.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AmeriVest Plaza at Inverness Englewood, CO

 

2001

 

118,720

 

93.0

%

21.78

 

91.3

%

23.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sheridan Center
Denver, CO

 

2000

 

139,610

 

81.3

%

16.48

 

82.7

%

16.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Keystone Office Park Indianapolis, IN

 

1999/2003

 

114,777

 

81.8

%

17.71

 

86.4

%

17.71

 

 

 

Subtotal

 

1,235,941

 

89.8

%

$20.35

 

87.7

%

$20.52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2003 Acquisitions and Developments -

 

 

 

 

 

 

 

 

 

Greenhill Park
Addison, TX

 

2003

 

251,917

 

76.3

%

$18.62

 

76.7

%

$18.84

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scottsdale Norte
Scottsdale, AZ

 

2003

 

78,811

 

78.9

%

22.76

 

80.9

%

23.16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Plaza
Mesa, AZ

 

2003

 

310,838

 

84.6

%

23.50

 

80.5

%

23.02

 

 

 

Subtotal

 

641,566

 

80.6

%

$21.60

 

79.1

%

$21.57

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2004 Acquisitions -

 

 

 

 

 

 

 

 

 

 

 

 

 

Hackberry View
Irving, TX

 

2004

 

114,598

 

100.0

%

20.62

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Camelback Lakes
Phoenix, AZ

 

2004

 

203,294

 

90.2

%

21.21

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parkway Centre III
Plano, TX

 

2004

 

150,542

 

87.8

%

20.86

 

N/A

 

N/A

 

 

 

Subtotal

 

468,434

 

91.8

%

$20.95

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Joint Ventures -

 

 

 

 

 

 

 

 

 

 

 

 

 

Panorama Falls (4) Englewood, CO

 

2000

 

59,561

 

60.4

%

19.51

 

78.0

%

19.01

 

 

 

Subtotal

 

59,561

 

60.4

%

$19.51

 

78.0

%

$19.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Core -

 

 

 

 

 

 

 

 

 

 

 

 

 

Texas Bank Buildings (5) Texas

 

1998

 

N/A

 

N/A

 

N/A

 

100.0

%

$15.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Texas State Buildings (6) Texas

 

1997/1998

 

222,542

 

77.1

%

9.06

 

76.8

%

9.00

 

 

 

Subtotal

 

222,542

 

77.1

%

$9.06

 

81.7

%

$10.79

 

 

 

Total

 

2,628,044

 

86.2

%

$19.88

 

84.2

%

$19.63

 

(1)  Includes office space but excludes storage, telecommunications and garage space. 

 

(2)  Includes approximately 69,680 square feet (2.7% of total rentable area) that has been leased but is not yet occupied and approximately 30,050 square feet (1.1% of total rentable area) that is leased but has been vacated.  Excludes approximately 12,300 square feet (0.5% of total rentable area) that expired on or about September 30, 2004. 

 

(3)  Annualized cash basis revenue divided by leased area. 

 

(4)  20% of the property is owned by AmeriVest and 80% of the property is owned by one other investor as tenants in common. Beginning March 31, 2004, the balance sheet and results of operations for this joint venture are included in the Company’s consolidated financial statements. 

 

(5)  These buildings were sold March 16, 2004. 

 

(6)  11 of 13 buildings are leased primarily to various agencies of the State of Texas.  The Clint and Paris, Texas buildings are currently vacant.  

 

10


Lease Expiration Information

 

The following schedules detail the tenant (1) lease expirations for our 100%-owned properties (2) at September 30, 2004 in total and by geographic region:

 

Consolidated

 

Year

 

Number of
Leases

 

Square
Footage

 

Annual
Revenue

 

Percentage of Total
Annual Revenue

 

2004

 

31

 

139,930

 

$

2,298,766

 

5.3

%

2005

 

111

 

519,291

 

10,767,134

 

24.7

%

2006

 

98

 

307,273

 

5,815,498

 

13.3

%

2007

 

103

 

446,641

 

9,080,359

 

20.8

%

2008

 

50

 

197,047

 

3,951,262

 

9.1

%

2009

 

40

 

238,363

 

5,298,975

 

12.2

%

2010

 

16

 

213,413

 

4,016,198

 

9.2

%

2011

 

9

 

67,013

 

1,237,902

 

2.8

%

2012

 

2

 

32,910

 

749,794

 

1.7

%

2013

 

—

 

—

 

—

 

—

 

2014

 

1

 

19,798

 

235,200

 

0.5

%

2015

 

3

 

7,620

 

144,780

 

0.3

%

Total

 

464

 

2,189,299

 

$

43,595,868

 

100.0

%

 

Denver

 

Year

 

Number of
Leases

 

Square
Footage

 

Annual
Revenue

 

Percentage of Total
Annual Revenue

 

2004

 

15

 

23,817

 

$

498,337

 

5.8

%

2005

 

64

 

152,481

 

3,165,816

 

36.6

%

2006

 

44

 

61,903

 

1,137,675

 

13.1

%

2007

 

39

 

73,256

 

1,363,293

 

15.8

%

2008

 

23

 

71,720

 

1,383,027

 

16.0

%

2009

 

13

 

28,118

 

508,739

 

5.9

%

2010

 

1

 

1,568

 

29,792

 

0.3

%

2011

 

3

 

10,723

 

188,071

 

2.2

%

2012

 

—

 

—

 

—

 

—

 

2013

 

—

 

—

 

—

 

—

 

2014

 

1

 

19,798

 

235,200

 

2.7

%

2015

 

3

 

7,620

 

144,780

 

1.7

%

Total

 

206

 

451,004

 

$

8,654,730

 

100.0

%

 

Phoenix

 

Year

 

Number of
Leases

 

Square
Footage

 

Annual
Revenue

 

Percentage of Total
Annual Revenue

 

2004

 

4

 

14,170

 

$

331,707

 

2.0

%

2005

 

19

 

107,873

 

2,409,988

 

14.6

%

2006

 

28

 

116,452

 

2,649,619

 

16.1

%

2007

 

33

 

154,064

 

3,469,186

 

21.1

%

2008

 

9

 

36,563

 

842,095

 

5.1

%

2009

 

19

 

161,634

 

3,852,676

 

23.4

%

2010

 

5

 

91,692

 

1,938,132

 

11.8

%

2011

 

2

 

19,119

 

437,497

 

2.7

%

2012

 

1

 

24,444

 

546,610

 

3.3

%

2013

 

—

 

—

 

—

 

—

 

2014

 

—

 

—

 

—

 

—

 

2015

 

—

 

—

 

—

 

—

 

Total

 

120

 

726,011

 

$

16,477,510

 

100.0

%

 

 

11


 

Lease Expiration Information - continued

 

Dallas

 

Year

 

Number of
Leases

 

Square
Footage

 

Annual
Revenue

 

Percentage of Total
Annual Revenue

 

2004

 

6

 

44,522

 

$

823,180

 

5.4

%

2005

 

20

 

213,522

 

4,723,128

 

31.0

%

2006

 

12

 

48,086

 

1,004,332

 

6.6

%

2007

 

26

 

209,263

 

4,072,103

 

26.7

%

2008

 

16

 

85,384

 

1,668,278

 

10.9

%

2009

 

5

 

39,899

 

782,451

 

5.1

%

2010

 

7

 

69,225

 

1,468,236

 

9.6

%

2011

 

2

 

28,381

 

509,567

 

3.3

%

2012

 

1

 

8,466

 

203,184

 

1.3

%

2013

 

—

 

—

 

—

 

—

 

2014

 

—

 

—

 

—

 

—

 

2015

 

—

 

—

 

—

 

—

 

Total

 

95

 

746,748

 

$

15,254,459

 

100.0

%

 

Indianapolis

 

Year

 

Number of
Leases

 

Square
Footage

 

Annual
Revenue

 

Percentage of Total
Annual Revenue

 

2004

 

4

 

19,392

 

$

336,478

 

20.3

%

2005

 

6

 

12,560

 

202,143

 

12.2

%

2006

 

10

 

32,034

 

589,875

 

35.7

%

2007

 

5

 

10,058

 

175,777

 

10.6

%

2008

 

2

 

3,380

 

57,862

 

3.5

%

2009

 

3

 

8,712

 

155,109

 

9.4

%

2010

 

1

 

5,343

 

96,174

 

5.8

%

2011

 

1

 

2,400

 

40,800

 

2.5

%

2012

 

—

 

—

 

—

 

—

 

2013

 

—

 

—

 

—

 

—

 

2014

 

—

 

—

 

—

 

—

 

2015

 

—

 

—

 

—

 

 

 

Total

 

32

 

93,879

 

$

1,654,218

 

100.0

%

 

Non-core

 

Year

 

Number of
Leases

 

Square
Footage

 

Annual
Revenue

 

Percentage of Total
Annual Revenue

 

2004

 

2

 

38,029

 

$

309,064

 

19.9

%

2005

 

2

 

32,855

 

266,059

 

17.1

%

2006

 

4

 

48,798

 

433,997

 

27.9

%

2007

 

—

 

—

 

—

 

—

 

2008

 

—

 

—

 

—

 

—

 

2009

 

—

 

—

 

—

 

—

 

2010

 

2

 

45,585

 

483,864

 

31.1

%

2011

 

1

 

6,390

 

61,967

 

4.0

%

2012

 

—

 

—

 

—

 

—

 

2013

 

—

 

—

 

—

 

—

 

2014

 

—

 

—

 

—

 

—

 

2015

 

—

 

—

 

—

 

—

 

Total

 

11

 

171,657

 

$

1,554,951

 

100.0

%

 

(1)  Excludes Kellogg Executive Suite and month-to-month tenants.

 

(2)  Does not include Panorama Falls.

 

 

12


 

Other Property Information

 

The following chart illustrates the geographic distribution of our 100%-owned core properties (1) by square footage at September 30, 2004:

 

 

The following table categorizes the leased area of our 100%-owned core properties (1) by our tenant’s industry at September 30, 2004:

 

Wholesale trade and manufacturing

 

12.0%

Consulting and business services

 

10.1%

Healthcare

 

9.9%

Real estate

 

9.9%

Financial services - advisement and brokerage

 

7.9%

Financial services - mortgage

 

7.1%

Financial services - insurance

 

6.8%

Legal

 

6.4%

Computer systems and software

 

6.1%

Energy

 

6.0%

Travel, entertainment and food service

 

4.3%

Telecommunications

 

3.9%

Other

 

3.1%

Financial services - banking

 

2.8%

Accounting

 

2.8%

Engineering

 

0.4%

Advertising and marketing

 

0.4%

Government agencies

 

0.1%

 

(1)  Does not include the Texas State Buildings or Panorama Falls.

 

 

13