AmREIT, Inc., announced financial results for the fourth quarter and year ended December 31, 2013, its 2014 guidance and declared dividends for the first quarter ended March 31.
In a release on February 18, the Company noted fourth quarter and year-end highlights:
-Core Funds from Operations (Core FFO) available to common stockholders for the fourth quarter of 2013 was $5.1 million, or $0.26 per share, compared to $3.9 million, or $0.24 per share for the comparable period in 2012. For the year ended December 31, 2013, Core FFO was $18.0 million, or $1.02 per share, compared to $15.0 million, or $1.11 per share for the comparable period in 2012. Weighted average shares outstanding in 2013 were 17.7 million, compared to 13.5 million in 2012.
-FFO available to common stockholders for the fourth quarter of 2013 was $7.4 million, or $0.38 per share, compared to $3.2 million, or $0.20 per share for the comparable period in 2012. For the year ended December 31, 2013, FFO was $20.4 million, or $1.15 per share, compared to $13.9 million, or $1.03 per share for the comparable twelve month period in 2012. Included in FFO for the three months ended December 31, 2013 was a $2.3 million gain from the sale of the build-to-suit CVS Pharmacy at Loop 610 & Ella in Houston. Included in FFO for the year ended December 31, 2013 is the aforementioned gain on the CVS project, a $799,000 gain from the sale of a non- core single tenant asset, $173,000 in acquisition costs related to the Woodlake Square acquisition in September 2013, a $279,000 one- time charge recorded in connection with our acquisition of the underlying land at Preston Royal Village in July 2013, $164,000 in acquisition costs (our 30 percent portion) recorded by the MacArthur Park joint venture with Goldman Sachs in March 2013 and $126,000 in acquisition costs related to the Fountain Oaks acquisition in June 2013.
-Net income available to common stockholders for the fourth quarter of 2013 was $4.2 million, or $0.21 per share, compared to $734,000, or $0.04 per share, for the same period in 2012. For the year ended December 31, 2013, net income available to common stockholders was $14.8 million, or $0.83 per share, compared to $4.5 million, or $0.32 per share. Included in net income for the three months ended December 31, 2013 was a $2.3 million gain from the sale of the build-to-suit CVS at Loop 610 & Ella in Houston. Included in net income for the year ended December 31, 2013 is the aforementioned gain on the CVS project, a $799,000 gain from the sale of a non-core single tenant asset, $173,000 in acquisition costs related to the Woodlake Square acquisition in September 2013, a $279,000 one-time charge recorded in connection with our acquisition of the underlying land at Preston Royal Village in July 2013, $164,000 in acquisition costs (our 30 percent portion) recorded by the MacArthur Park joint venture with Goldman Sachs in March 2013 and $126,000 in acquisition costs related to the Fountain Oaks acquisition in June 2013.
-During the third quarter of 2013, we began the process of terminating leases with or relocating tenants occupying a portion of our Uptown Park property, which we refer to as the "Baker Site" and our Courtyard at Post Oak property at Post Oak and San Felipe in Houston, in order to prepare those sites for vertical re- development. In the fourth quarter of 2013, excluding our redevelopment properties (Uptown Park - Baker Site and The Courtyard on Post Oak), same-store net operating income (NOI) increased 3.0 percent over the same period in the prior year. Including those two redevelopment properties, same-store NOI increased 0.4 percent over the same period in the prior year. For the year ended December 31, 2013, same-store NOI, excluding redevelopment properties, increased 3.1 percent and, including the two redevelopment properties, increased 1.3 percent over the same period in the prior year. While the same-store NOI in the short term has been negatively impacted by our redevelopments, we believe that the mid-term and long term benefits of re-development of these sites will provide outsized same- store NOI growth. For example, the anticipated ground lease at the Uptown Park - Baker Site, if executed, would represent a 200 percent increase over the in-place NOI generated by the existing 12,200 square feet of inline retail space.
-With the 2013 acquisitions of Fountain Oaks and Woodlake Square, which were 79 percent and 93 percent occupied respectively, portfolio occupancy as of December 31, 2013 was 94.2 percent, a decrease of approximately 250 basis points as compared to portfolio occupancy of 96.7 percent as of December 31, 2012. We have initiated vacancies at The Courtyard on Post Oak and at the Uptown Park - Baker Site in preparation for their anticipated redevelopments, which has put pressure on our occupancy in the short term. Excluding these redevelopments, our portfolio occupancy was 95.1 percent. On a leased basis, which includes leases that have been executed but where rent has not yet commenced, the portfolio was 94.8 percent leased as of December 31, 2013. We anticipate rent commencement on these signed leases over the next 90 days.
-During the fourth quarter of 2013, AmREIT signed 11 leases for 37,890 square feet of gross leasable area, including both new and renewal leases. Of these, 8 leases for 26,909 square feet were renewals or replacements of expiring leases, which were deemed to be comparable leases. Cash leasing spreads, which is the new leasing rate per square foot compared to the expiring leasing rate per square foot on comparable leases, increased 10.4 percent. On a GAAP basis, which includes the effects of straight-line rent, leasing spreads increased 12.8 percent. For the year ended December 31, 2013, AmREIT signed 61 leases for 149,696 square feet of gross leasable area, including both new and renewal leases. Of these, 46 leases, or 113,991 square feet, were comparable leases. Cash leasing spreads increased 10.6 percent. On a GAAP basis, leasing spreads increased 16.1 percent.
-AmREIT also announced that the Company's Board of Directors has approved a regular quarterly cash dividend of $0.20 per share. The dividend will be paid on March 31, to all common stockholders of record at the close of business on March 21.
Acquisitions and Dispositions
-On November 12, 2013, AmREIT sold its recently completed build- to-suit CVS property at Loop 610 and Ella in Houston, Texas, and reported a gain on sale of approximately $2.3 million. AmREIT developed the property for approximately $5.2 million, financed through cash and its unsecured credit facility and sold the property at a 5.5 percent cap rate, or approximately $7.5 million net of expenses. Although not included in Core FFO, this activity is a key component of our business strategy and is a benefit of being a 'local sharpshooter' within our core markets.
-On September 18, 2013, AmREIT completed the previously announced acquisition of Woodlake Square Shopping Center, a 156,888 square foot Randalls (Safeway parent company) and Walgreens-anchored shopping center in Houston Texas. Average household incomes within a one-mile radius of Woodlake Square are $69,595, and there are 82,692 households within a three-mile radius of the property. Daytime employment within a three-mile radius is 126,883. Woodlake Square was acquired from a joint venture, the partners of which were one of our Advised Funds and AEW Value Investors II, L.P., a value-added real estate fund managed by AEW Capital Management. The asset was 90 percent owned by AEW Capital Management, 6 percent by AmREIT Monthly Income & Growth Fund IV, LP., 3 percent by AmREIT Monthly Income & Growth Fund III, Ltd., and 1 percent by AmREIT. We managed the joint venture and the property. Woodlake Square was acquired for approximately $41.6 million, funded by a $23.0 million new first mortgage with a 4.3 percent fixed interest rate and a 10-year term, and the balance of $18.6 million was funded in cash.
-On July 17, 2013, AmREIT completed the acquisition of the underlying land of Preston Royal Village NEC. This acquisition resulted in termination of our ground lease that we acquired in December 2012 and provided us with complete ownership of this property. Average household incomes within a one-mile radius of Preston Royal Village are $279,562 and there are 42,163 households within a three-mile radius. The Preston Royal Village NEC land was purchased for approximately $15.0 million in cash.
-On June 25, 2013, AmREIT completed the acquisition of Fountain Oaks Shopping Center, a 160,600 square foot Kroger-anchored shopping center in the north Buckhead submarket of Atlanta, Georgia. Average household incomes within a one-mile radius of Fountain Oaks are $96,771, and there are 31,887 households within a three-mile radius of the property. Fountain Oaks was acquired for approximately $27.7 million, is unencumbered, and was funded with borrowings under AmREIT's unsecured revolving credit facility.
-On March 26, 2013, AmREIT entered into a joint venture agreement with Goldman Sachs pursuant to which AmREIT contributed equity in its MacArthur Park property to a single-purpose entity in exchange for a 30 percent interest in the joint venture, and Goldman Sachs contributed cash for a 70 percent interest in the joint venture. The joint venture entity concurrently purchased the contiguous property to the north known as MacArthur Park Phase I, excluding a Target store, for approximately $25.5 million and placed mortgage financing on the combined property of $43.9 million. Upon closing the transaction, AmREIT received net cash proceeds of approximately $35.6 million, which it used to repay borrowings under its unsecured revolving credit facility. AmREIT continues to manage and lease MacArthur Park on behalf of the joint venture and retains a right of first offer to acquire the project in the future, after expiration of a two-year lock-out period.
-On June 21, 2013, AmREIT filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (SEC) registering the offer and sale, from time to time, of up to $350 million of securities, which was declared effective by the SEC on July 1, 2013.
-On July 19, 2013AmREIT completed the public underwritten offering of 3,450,000 shares of common stock, including 450,000 shares sold pursuant to the exercise of the underwriter's over- allotment option, at a public offering price of $18.25 per share. The offering generated net proceeds of approximately $60 million, after deducting the underwriting discount and offering expenses. AmREIT used a portion of the net proceeds to repay borrowings under its unsecured revolving credit facility and to acquire the underlying land on our Preston Royal East property. AmREIT used a portion of the remaining proceeds to fund the cash portion of the acquisition of Woodlake Square.
-Our 2014 Core FFO and FFO guidance is based on the following assumptions:
-Same-Store NOI growth target of 2.5 percent - 3.0 percent;
-Average portfolio occupancy of 94.5 percent - 95.5 percent;
-Portfolio growth through acquisitions totaling $50 million;
-Off balance sheet growth through joint ventures totaling $70 million;
-Uptown Park Phase I redevelopment:
-Termination of Baker Furniture lease in September 2014, annual NOI of $200,000
-Multi-family ground lease of $850,000 annually, commencing in October 2014
-Disposition of 3-4 single tenant properties, targeted for the second half of the year totaling $14 million to $15 million in proceeds;
-Recurring Advised Fund real estate fee income of $2.3 million (asset management and property management fees);
-Transactional Advised Fund real estate fee income of $600,000 (leasing commissions, development and brokerage commissions);
-Interest income on notes receivable of $125,000;
-Annual G&A run rate of $8.8 million
Preliminary 2015 Full Year Guidance
"As we close out 2013, our Irreplaceable CornerTM portfolio and our experienced management team delivered another solid quarter, and we are well positioned for success in 2014," said Kerr Taylor, Chairman & Chief Executive Officer of AmREIT. "We are pleased to announce our continued progress towards the groundbreaking of our first redevelopment phase at Uptown Park. Further, we have released on our website the master plan and a brief redevelopment video, which showcase the estimated $1.2 Billion of future redevelopment opportunities at Uptown Park."
AmREIT considers FFO to be an appropriate measure of the operating performance of an equity REIT. FFO is computed as net income (loss) determined in accordance with GAAP, excluding gains or losses from sales of property and impairment charges on properties held for investment, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. NAREIT recommends that extraordinary items not be considered in arriving at FFO. AmREIT calculates FFO in accordance with this definition.
Most industry analysts and equity REITs, including AmREIT, consider FFO to be an appropriate supplemental non-GAAP financial measure of operating performance because, by excluding gains or losses from sales of property and impairment charges on properties held for investment and by excluding real estate related depreciation and amortization, FFO is a helpful tool that can assist in the comparison of the operating performance of a company's real estate between periods, or as compared to different companies. Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income by itself as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that uses historical cost accounting is insufficient by itself.
Additionally, AmREIT considers Core FFO, which adjusts FFO for items that do not reflect ongoing operations, such as acquisition expenses, non-recurring intangible asset write-offs and recoveries, expensed issuance costs and gains on the sale of real estate held for resale, to be a meaningful performance measurement. The computation of FFO in accordance with NAREIT's definition includes certain items such as acquisition costs, issuance costs, non- recurring asset write-offs and recoveries and gains on sale of real estate held for resale that management believes are not indicative of AmREIT's ongoing results and therefore affect the comparability of our period-over-period performance with the performances of similar REITs. Accordingly, management believes that it is helpful to investors to adjust FFO for such items. There can be no assurance that FFO or Core FFO presented by AmREIT is comparable to similarly titled measures of other REITs. FFO and Core FFO should not be considered as an alternative to net income or other measurements under GAAP as an indicator of our operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity.
Projected FFO and Core FFO are calculated in a method consistent with historical FFO and Core FFO, and AmREIT considers projected FFO and Core FFO to be an appropriate supplemental measure when compared with projected earnings per share.
Net Operating Income (NOI)
AmREIT believes that NOI is a useful measure of its operating performance. AmREIT defines NOI as operating revenues (rental income, tenant recovery income, percentage rent, excluding straight- line rental income and amortization of acquired above- and below- market rents) less property operating expenses (real estate tax expense and property operating expense, excluding straight-line rent bad debt expense). Other REITs may use different methodologies for calculating NOI, and accordingly, AmREIT's NOI may not be comparable to other REITs.
AmREIT believes that reporting NOI provides an operating perspective not immediately apparent from GAAP operating income, GAAP net income, FFO or Core FFO. AmREIT uses NOI to evaluate its performance on a property-by-property basis because NOI allows it to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by property, have on its operating results. However, NOI should only be used as a supplemental measure of AmREIT's financial performance.
((Comments on this story may be sent to email@example.com))