UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark
One)
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934
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For the year ended
December 31, 2011
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OR
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
OF 1934
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COMMISSION FILE NUMBER
001-16785
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American Spectrum Realty,
Inc.
(Exact name of Registrant as
specified in its charter)
State of Maryland
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52-2258674
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(State or other
jurisdiction of
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(I.R.S.
Employer
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incorporation or
organization)
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Identification
No.)
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2401 Fountain View, Suite 510
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77057
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Houston, Texas
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(Address of
principal executive offices)
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(Zip
Code)
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(713)
706-6200
(Registrants telephone
number, including area code)
Securities registered under Section 12(b) of the
Act:
Title of each
class
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Name of each exchange on
which
registered
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Common Stock, $.01 par
value
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NYSE
Amex
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Securities registered pursuant to
Section 12(g) of the Act:
None
Indicate by check mark if the
Registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes No
x
Indicate by check mark if the
Registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes No
x
Indicate by check mark whether the
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
x
No
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files). Yes
x
No
Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K
Indicate by check mark whether the
Registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definition of accelerated filer,
large accelerated filer and small reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated
filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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Indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
x
As of June 30, 2011, the last
business day of the Registrants most recent completed second quarter, the
aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $27,703,690. The aggregate market value was
computed with reference to the price on the American Stock Exchange at which the
voting stock was last sold as of such date. For this purpose, 1,328,826 shares
of Common Stock held by officers and directors are deemed to be held by
affiliates but exclusion of shares held by any person should not be construed to
indicate that such person is an affiliate of the Registrant for any other
purpose.
As of March 26, 2012, 3,577,783
shares of Common Stock ($.01 par value) were outstanding.
1
TABLE OF CONTENTS
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Page
No.
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PART I
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Item 1
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Business
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3
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Item 1A
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Risk
Factors
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5
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Item 1B
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Unresolved Staff Comments
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11
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Item 2
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Properties
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12
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Item 3
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Legal Proceedings
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16
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Item 4
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Submission of
Matters to a Vote of Security Holders
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16
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PART II
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Item 5
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Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of
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Equity Securities
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17
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Item 6
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Selected
Financial Data
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18
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Item 7
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Managements Discussion and Analysis of Financial Condition and
Results of Operations
Overview
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18
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Item 7A
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Quantitative and
Qualitative Disclosures About Market Risk
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28
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Item 8
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Financial Statements and Supplementary Data
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28
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Item 9
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Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
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60
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Item 9A(T)
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Controls and Procedures
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60
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Item 9B
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Other
Information
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61
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PART III
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Item 10
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Directors, Executive Officers and Corporate Governance
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61
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Item 11
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Executive
Compensation
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64
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Item 12
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Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder
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Matters
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66
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Item 13
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Certain
Relationships and Related Transactions, and Director
Independence
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68
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Item 14
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Principal Accountant Fees and Services
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69
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PART IV
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Item 15
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Exhibits and Financial Statement Schedules
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70
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2
PART I
NOTE ABOUT FORWARD LOOKING
STATEMENTS
Certain statements either contained
in or incorporated by reference into this report, other than purely historical
information, including estimates, projections, statements relating to our
business plans, objectives and expected operating results, and the assumptions
upon which those statements are based, are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements generally
include statements that are predictive in nature and depend upon or refer to
future events or conditions, and include words such as believes, plans,
anticipates, projects, estimates, expects, intends, strategy,
future, opportunity, may, will, should, could, potential, or
similar expressions. Forward-looking statements are based on current
expectations and assumptions that are subject to risks and uncertainties which
may cause actual results to differ materially from the forward-looking
statements. A detailed discussion of these and other risks and uncertainties
that could cause actual results and events to differ materially from such
forward-looking statements is included in this report in the sections entitled
Risk Factors (Part I, Item 1A) and Managements Discussion and Analysis of
Financial Condition and Results of Operations (Part II, Item 7). The reader is
cautioned not to unduly rely on these forward-looking statements. We expressly
disclaim any intent or obligation to update or revise publicly these
forward-looking statements except as required by law.
ITEM 1. BUSINESS
General
We provide comprehensive integrated
real estate solutions for our own property portfolio (properties in which we own
a controlling interest or in properties where we are the primary beneficiary of
a variable interest entity, (VIE)) and the portfolios of our third party
clients. We own and manage commercial, industrial, retail, self-storage and
multi-family, student housing income properties, and offer our third party
clients comprehensive integrated real estate solutions, including management and
transaction services based on our market expertise. We conduct our business in
the continental United States. American Spectrum Realty, Inc. was incorporated
in Maryland in August of 2000.
Our business is conducted through an
Operating Partnership in which we are the sole general partner and a limited
partner with a total equity interest of 73% at December 31, 2011. As the sole
general partner of the Operating Partnership, we have the exclusive power to
manage and conduct the business of the Operating Partnership. In general, except
as noted below, the Operating Partnership units that are not held by us
(approximately 27% of the outstanding units) are exchangeable for either common
stock on a one-to-one basis or cash equal to the value of such stock at our sole
discretion.
We refer to ourselves throughout
this report as the the Company or ASR.
Corporate Background
Our principal offices are located at
2401 Fountain View, Suite 510, Houston, Texas 77057 and our telephone number is
(713) 706-6200. Our Annual Reports on Form 10-K, as well as our Code of Ethics,
Corporate Governance Guidelines, and Audit Committee, Compensation Committee and
Nominating Committee Charters are available through our website,
www.americanspectrum.com, under the Investor Relations section, free of
charge. Our filings with the Securities and Exchange Commission, or SEC, are
posted as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. Our Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, are available free of charge at www.sec.gov.
3
Description of Business
We operate as one segment that
encompasses all geographic regions. We provide one group of comprehensive real
estate services. The following is a summary of the percentage of our net
revenues by revenue source within our single segment:
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Years
ended
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December 31,
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2011
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2010
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Rental
revenue
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93
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%
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91
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%
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Third party management and
leasing revenue
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6
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%
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8
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%
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Interest and
other income
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1
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%
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1
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%
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100
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%
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100
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%
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At December 31, 2011, we
consolidated fifty-two properties(including properties owned by variable
interest entities (VIEs) in which we were deemed the primary beneficiary),
which consisted of eighteen office properties, thirteen self-storage facilities,
twelve commercial/industrial properties, six multi-family, two retail property,
and one parcel of land. The properties are located in sixteen states.
We deliver integrated property,
facility, asset, business and engineering management services to a host of third
party clients as well as to our own properties. We offer customized programs
that focus on tenant retention through cost-efficient operations.
We are committed to expanding the
scope of products and services offered. We believe this expansion will help us
meet our own portfolio property needs as well as the needs of our third party
clients. During 2012, we intend to expand the number of third party properties
that we manage.
We have a management presence in 18
states.
Industry, Competition and
Strategy
The availability of real estate
financing has greatly diminished over the past few years as a result of the
global credit crisis and overall decline in the real estate market. These events
have had an adverse impact on our liquidity and capital resources. These
economic conditions have increased the complexity in obtaining real estate
loans, as well as, reduced the number of loans available to finance new real
estate opportunities and refinance existing real estate. It has also increased
the time and marketing costs necessary to sell properties.
We are currently focused on a
strategy that includes;
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Disposing of properties in our portfolio to lower our total debt, and
improve our liquidity. Starting in 2010 we took the following steps;
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During 2010 we sold one property that generated $5.2 million in net
proceeds.
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During 2011 we sold one property generating $6.1 million in net proceeds
that we used to reduce debt. We also had lenders foreclose on three
properties as a result of our election to strategically default on the
approximately $18.1 million of non recourse debt associated with them.
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Currently we have thirteen of our consolidated properties listed for
sale (from seven of which we will receive substantially all of the net
proceeds and from six of which we will receive transaction fees when and if
the sales are consummated).
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Currently we are strategically defaulting on the debt of nine additional
consolidated properties including two VIEs and seven ASR properties, as a
result of the properties sustained and significant negative cash flows. We
are in negotiations with the lenders of these nine properties in an effort
to restructure and or modify the debt. Five of the nine properties have had
foreclosure proceedings initiated by the lender, and one property was
foreclosed on in March 2012. Our efforts to work with the lenders may fail.
If we cannot successfully negotiate new terms, the properties will
eventually return to the lender. Substantially all of the debt is
non-recourse. See Note 11 Notes Payable.
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Concentrating our leasing and management efforts on those portfolio
properties where we can improve the cash flows, economic returns and long term
values.
We believe that stabilizing our
portfolio and
improving
our liquidity, if we are successful in doing so, will
provide us with an opportunity to acquire interests in or ownership of
undervalued and undermanaged properties as well as allow us to expand our
transaction services to additional third party clients. We believe that there
are many properties currently priced below their replacement costs. We believe
that with a stable portfolio and greater liquidity, our presence in
approximately 18 states, coupled with our local market knowledge and management
expertise, will allow us to capitalize on these opportunities.
4
We face competition from other
regional and national service providers. Many of our competitors are local or
regional firms that are similarly sized; some competitors are substantially
larger than we are on a local, regional, national and/or international basis. In
most of the markets in which we do business, both institutional and private
investors and developers of properties compete vigorously for the acquisition,
development and leasing of space. Many of these competitors have greater
resources and more experience than we do.
Employees
As of December 31, 2011, the Company
employed a total of 183 individuals.
Environmental Matters
Federal, state and local laws and
regulations impose environmental restrictions, use controls, disclosure
obligations and other restrictions that impact the management, development, use,
and/or sale of real estate. Such laws and regulations tend to discourage sales
and leasing activities, as well as the willingness of mortgage lenders to
provide financing, with respect to some properties. These laws and regulations
could cause transactions that we are involved in to be delayed or abandoned as a
result of these restrictions. In addition, if we fail to disclose known
environmental concerns in connection with a real estate transaction we may be
subject to liability.
We generally undertake a third party
Phase I investigation of potential environmental risks when evaluating an
acquisition. A Phase I investigation is an investigation for the presence or
likely presence of hazardous substances or petroleum products under conditions
that indicate an existing release, a post release or a material threat of a
release. A Phase I investigation does not typically include any sampling. We may
acquire a property with environmental contamination, subject to a determination
of the level of risk and potential cost of remediation.
Various environmental laws and
regulations also can impose liability for the costs of investigating or
remediation of hazardous or toxic substances at sites currently or formerly
owned or operated by a party, or at off-site locations to which such party sent
wastes for disposal. In addition, an increasing number of federal, state, local
and foreign governments have enacted various treaties, laws and regulations that
apply to environmental and climate change, in particular seeking to limit or
penalize the discharge of materials such as green house gas into the environment
or otherwise relating to the protection of the environment. As a property
manager, we could be held liable as an operator for any such contamination or
discharges; even if the original activity was legal and we had no knowledge of,
or did not cause, the release or contamination. Further, because liability under
some of these laws is joint and several, we could be held responsible for more
than our share, or even all, of the costs for such contaminated site if the
other responsible parties are unable to pay. We could also incur liability for
property damage or personal injury claims alleged to result from environmental
contamination or discharges, or from asbestos-containing materials or lead-based
paint present at the properties that we manage. Insurance for such matters may
not always be available, or sufficient to cover our losses. Certain requirements
governing the removal or encapsulation of asbestos-containing materials, as well
as recently enacted local ordinances obligating property managers to inspect for
and remove lead-based paint in certain buildings, could increase our costs to
comply and could potentially subject us to violations or claims. Although such
costs have not had a material impact on our financial results in 2011, the
enactment of additional regulations, or more stringent enforcement of existing
regulations, could cause us to incur significant costs in the future, and/or
adversely impact our business.
ITEM 1A. RISK FACTORS
Risks Related to Our Business
in General
The ongoing downturn in the
general economy and the real estate market has negatively impacted and could
continue to negatively impact our business and financial results.
Periods of economic slowdown or
recession, significantly reduced access to credit, declining employment levels,
decreasing demand for real estate, declining real estate values or the
perception that any of these events may occur, can reduce transaction volumes or
demand for our services. The current recession and the downturn in the real
estate market have resulted in and may continue to result in:
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a decline in acquisition, disposition and leasing
activity;
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a decline in the supply of capital invested in commercial
and residential real estate; and
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a decline in the value of real estate and in rental rates,
which would cause us to realize lower revenue from:
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property management and transaction fees, which in
certain cases are calculated as a percentage of the revenue of the property
under management; and
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rental revenue, respectively.
5
The declining real estate market in
the United States, the availability and cost of credit, increased unemployment,
volatile oil prices, declining consumer confidence and the instability of United
States banking and financial institutions, have contributed to increased
volatility, an overall economic slowdown and diminished expectations for the
economy and markets going forward. The fragile state of the credit markets, the
fear of a global recession for an extended period and the current economic
environment have impacted real estate services and management firms like ours
through reduced transaction volumes, falling transaction values, lower real
estate valuations, liquidity restrictions, market volatility, and the loss of
consumer confidence.
Due to the economic downturn, it may
take us longer to sell real estate assets and investments and the selling prices
may be lower than originally anticipated. In addition, the performance of
certain properties in our management portfolio may be negatively impacted, which
would likewise affect our fees. As a result, the carrying value of certain of
our real estate investments may become impaired and we could record losses as a
result of such impairment or we could experience reduced profitability related
to declines in real estate values.
We are not able to predict the
severity or duration of the current adverse economic environment or the
disruption in the financial markets. The real estate market tends to be cyclical
and related to the condition of the overall economy and to the perceptions of
investors, developers and other market participants as to the economic outlook.
The ongoing downturn in the general economy and the real estate market has
negatively impacted and could continue to negatively impact our business and our
results of operations.
The ongoing adverse
conditions in the credit markets and the risk of continued market deterioration
have adversely affected our revenues, expenses and operating results and may
continue to do so.
We are sensitive to credit cost and
availability as well as market place liquidity. We anticipate needing to borrow
funds to meet our operating cash flow needs. In addition, the revenues in our
business are dependent to some extent on overall volume of activity and pricing
in the real estate market. In 2010, the credit markets experienced an
unprecedented level of disruption and uncertainty. This disruption and
uncertainty has continued to reduce the availability and significantly increased
the cost of most sources of funding. In certain cases, sources of funding have
been eliminated.
Disruptions in the credit markets
have adversely affected, and may continue to adversely affect, our business of
providing services to owners, purchasers, sellers, investors and occupants of
real estate in connection with acquisitions, dispositions and leasing of real
property. If we and/or our clients are unable to obtain credit on favorable
terms, there will be fewer completed acquisitions, dispositions and leases of
property. In addition, if purchasers of real estate are not able to obtain
favorable financing resulting in a lack of disposition opportunities for funds,
our property management fee revenues will decline and we may also experience
losses on real estate held for investment.
The recent decline in real estate
values and the inability to obtain financing has either eliminated or severely
reduced the availability of our historical funding sources and to the extent
credit remains available, it is currently more expensive. We may not be able to
continue to access sources of funding for our needs, or, if sources are
available to us, those sources may not be available with favorable terms. Any
decision by lenders to make additional funds available to us in the future for
our operational or investment needs will depend upon a number of factors, such
as industry and market trends in our business, the lenders own resources and
policies concerning loans and investments, and the relative attractiveness of
alternative investment or lending opportunities.
The depth and duration of the
current credit market and liquidity disruptions are impossible to predict. In
fact, the magnitude of the recent credit market disruption has exceeded the
expectations of most if not all market participants. This uncertainty limits our
ability to develop future business plans and we believe that it limits the
ability of other participants in the credit markets and the real estate markets
to do so as well. This uncertainty may lead market participants to act more
conservatively than in recent history, which may continue to depress demand and
pricing in our markets.
A potential change in U.S.
accounting standards regarding operating leases may make the leasing of our
properties less attractive to our potential tenants, which could reduce overall
demand for our leasing services.
Under current authoritative
accounting guidance for leases, a lease is classified by a tenant as a capital
lease if the significant risks and rewards of ownership are considered to reside
with the tenant. Under capital lease accounting for a tenant, both the leased
asset and liability are reflected on their balance sheet. If the lease does not
meet any of the criteria for a capital lease, the lease is considered an
operating lease by the tenant, and the obligation does not appear on the
tenant's balance sheet; rather, the contractual future minimum payment
obligations are only disclosed in the footnotes thereto. Thus, entering into an
operating lease can appear to enhance a tenant's balance sheet in comparison to
direct ownership. The Financial Accounting Standards Board, or the FASB, and the
International Accounting Standards Board, or the IASB, conducted a joint project
to re-evaluate lease accounting. In August 2010, the FASB and the IASB jointly
released exposure drafts of a proposed accounting model that would significantly
change lease accounting. The final standards have yet to be released. Changes to
the accounting guidance could affect both our accounting for leases as well as
that of our current and potential tenants. These changes may affect how our real
estate leasing business is conducted. For example, if the accounting standards
regarding the financial statement classification of operating leases are
revised, then companies may be less willing to enter into leases with us in
general or desire to enter into leases with us with shorter terms because the
apparent benefits to their balance sheets could be reduced or
eliminated.
6
We are in a highly
competitive business with numerous competitors; some competitors may have
greater financial and operational resources than we do.
We compete in a variety of service
disciplines within the real estate industry. Each of these areas is highly
competitive on a national as well as on a regional and local level. We face
competition not only from national real estate service providers, but also from
global real estate service providers and boutique real estate firms. Depending
on the service, we also face competition from other real estate service
providers, institutional lenders, insurance companies, investment banking firms,
investment managers and accounting firms, some of which may have greater
financial resources than we do. We are also subject to competition from other
large national firms and from multi-national firms that have similar service
competencies to us. Although many of our competitors are local or regional firms
that are similarly sized, many of our competitors are substantially larger than
us on a local, regional, national or international basis. In general, there can
be no assurance that we will be able to continue to compete effectively with
respect to any of our business or on an overall basis, or to maintain current
fee levels, or maintain or increase our market share.
As a service-oriented
company, we depend upon the retention of senior management and key personnel,
and the loss of our current personnel or our failure to hire and retain
additional personnel could harm our business.
Our success is dependent upon our
ability to retain our executive officers and other key employees and to attract
and retain highly skilled personnel. We believe that our future success in
developing our business and maintaining a competitive position will depend in
large part on our ability to identify, recruit, hire, train, retain and motivate
highly skilled executive, managerial, sales, marketing and customer service
personnel. Competition for these personnel is intense, and we may not be able to
successfully recruit, assimilate or retain sufficiently qualified personnel. We
use equity incentives to attract and retain our key personnel. Poor performance
of our stock may diminish our ability to offer attractive incentive awards to
new hires. Our failure to recruit and retain necessary executive, managerial,
sales, marketing and customer service personnel could harm our business and our
ability to obtain new customers.
If we fail to manage any
future growth effectively, we may experience a material adverse effect on our
financial condition and results of operations.
The future integration of
acquisitions and additional growth may place a significant strain upon
management, administrative, operational and financial infrastructure. Our
ability to grow also depends upon our ability to successfully hire, train,
supervise and manage additional executive officers and new employees, obtain
financing for our capital needs, expand our systems effectively, allocate our
human resources optimally, maintain clear lines of communication between our
transactional and management functions and our finance and accounting functions,
and manage the pressures on our management and administrative, operational and
financial infrastructure. Additionally, managing future growth may be difficult
due to the new geographic locations and service offerings. There can be no
assurance that we will be able to accurately anticipate and respond to the
changing demands we will face as we integrate and continue to expand our
operations, and we may not be able to manage growth effectively or to achieve
growth at all. Any failure to manage our future growth effectively could have a
material adverse effect on our business, financial condition and results of
operations.
Risks Related to Property
Management
If the properties that we
manage fail to perform, then our business and results of operations could be
harmed.
Our success partially depends upon
the performance of the properties we manage. We could be adversely affected by
the nonperformance of, or the deteriorating financial condition of, certain of
our clients. The revenue we generate from our property management fees is
generally a percentage of aggregate rent collections from the properties. The
performance of these properties will depend upon the following factors, among
others, many of which are partially or completely outside of our control:
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our ability to attract and retain creditworthy tenants;
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the magnitude of defaults by tenants under their respective leases;
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our ability to control operating expenses;
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governmental regulations, local rent control or stabilization ordinances
which are in, or may be put into, effect;
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various uninsurable risks;
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financial condition of certain clients;
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the nature and extent of competitive properties; and
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the general real estate market.
7
These or other factors may
negatively impact the properties that we manage, which could have a material
adverse effect on our business and results of operations.
We may have liabilities in
connection with property and facilities management activities.
We could become subject to claims by
participants in real estate sales, as well as building owners and companies for
whom we provide management services, claiming that we did not fulfill our
statutory obligations as a broker.
In addition, with regard to our
property and facilities management services, we hire and supervise third party
contractors to provide construction and engineering services for our properties
and our third party clients properties. While our role is limited to that of a
supervisor, we may be subject to claims for construction defects or other
similar actions. Adverse outcomes of property and facilities management
litigation could have a material adverse effect on our business, financial
condition and results of operations.
Third party management contracts can
be terminated. Loss of a significant number of contracts and fees could have a
material adverse effect on our business, results of operations and financial
condition.
Environmental regulations
may adversely impact our business and/or cause us to incur costs for cleanup of
hazardous substances or wastes or other environmental liabilities.
Federal, state and local laws and
regulations impose various environmental restrictions, use controls, and
disclosure obligations which impact the management, development, use, and/or
sale of real estate. Such laws and regulations tend to discourage sales and
leasing activities, as well as mortgage lending availability, with respect to
some properties. A decrease or delay in such transactions may adversely affect
our results of operations and financial condition. In addition, a failure by us
to disclose environmental concerns in connection with a real estate transaction
may subject us to liability to a buyer or lessee of property.
In addition, in our role as a
property manager, we could incur liability under environmental laws for the
investigation or remediation of hazardous or toxic substances or wastes at
properties we currently or formerly managed, or at off-site locations where
wastes from such properties were disposed. Such liability can be imposed without
regard for the lawfulness of the original disposal activity, or our knowledge
of, or fault for, the release or contamination. Further, liability under some of
these laws may be joint and several, meaning that one liable party could be held
responsible for all costs related to a contaminated site. We could also be held
liable for property damage or personal injury claims alleged to result from
environmental contamination, or from asbestos-containing materials or lead-based
paint present at the properties we manage. Insurance for such matters may not be
available or sufficient.
Certain requirements governing the
removal or encapsulation of asbestos-containing materials, as well as recently
enacted local ordinances obligating property managers to inspect for and remove
lead-based paint in certain buildings, could increase our cost to comply with
the law and potentially subject us to violations or claims. Although such costs
have not had a material impact on our financial results or competitive position
during fiscal year 2011 or 2010, the enactment of additional regulations, or
more stringent enforcement of existing regulations, could cause us to incur
significant costs in the future, and/or adversely impact our management services
fees.
8
Risks Related to Investment in
Properties
We are subject to the risks
related to the ownership and operation of real estate that can adversely impact
our business and financial condition.
The
value of our investments may be reduced by general risks of real estate
ownership:
Since we derive income from
real estate operations, we are subject to the general risks of acquiring and
owning real estate-related assets, including:
-
changes in the national, state and local
economic climate and real estate conditions, such as oversupply of or reduced
demand for real estate space and changes in market rental rates;
-
how prospective tenants perceive the
attractiveness, convenience and safety of our properties;
-
difficulties in consummating and financing
acquisitions and/or enhancements on advantageous terms and the failure of
properties to perform as expected;
-
our ability to provide adequate management,
maintenance and insurance;
-
natural disasters, such as earthquakes,
hurricanes and floods, which could exceed the aggregate limits of our
insurance coverage;
-
the expense of periodically renovating,
repairing and re-letting spaces;
-
the impact of environmental protection laws;
-
compliance with federal, state, and local
laws and regulations;
-
increasing operating and maintenance costs,
including property taxes, insurance and utilities, if these increased costs
cannot be passed through to tenants;
-
adverse changes in tax, real estate and
zoning laws and regulations;
-
increasing competition from other properties
in our market;
-
tenant defaults and bankruptcies;
-
tenants right to sublease space; and
-
concentration of properties leased to
non-rated private companies with uncertain financial strength.
Certain
significant costs, such as mortgage payments, real estate taxes, insurance and
maintenance, generally are not reduced even when a propertys rental income is
reduced. In addition, environmental and tax laws, interest rate levels, the
availability of financing and other factors may affect real estate values and
property income. Furthermore, the supply of space fluctuates with market
conditions.
If our properties do not generate
sufficient income to meet operating expenses, including any debt service, tenant
improvements, lease commissions and other capital expenditures, we may have to
borrow additional amounts to cover fixed costs, we may elect to not service the
debt and attempt to negotiate different terms with the bank, or we may sell the
property, or the property may be repossessed by the lender.
Properties that we acquire
may be located in new markets where we may face risks associated with investing
in an unfamiliar market.
We may acquire or accept management
responsibilities for properties in markets that are new to us. When we acquire
or manage properties located in these markets, we may face risks associated with
a lack of market knowledge or understanding of the local economy, forging new
business relationships in the area and unfamiliarity with local government and
local procedures.
Because real estate
investments are generally illiquid, and various factors limit our ability to
dispose of assets, we may not be able to sell properties when
appropriate.
Real estate investments are relatively
illiquid and, therefore, we have limited ability to vary our portfolio quickly
in response to changes in economic or other conditions.
Climate change and weather
pattern shifts may adversely affect our profitability.
We consider our largest risk related to
climate change to be legislative and regulatory changes intended to slow or
prevent it, and the potential costs to us to implement these changes. We are
also subject to physical risks inherent in owning real property that include but
are not limited to; severe weather events such as hurricanes, tornadoes, and
wildfires. To the extent that changes in climate effect changes in weather
patterns (such as more severe weather events) or changes in sea level where we
have properties, we could be adversely affected. To the extent that climate
change results in changes in sea level, we would expect such effects to be
gradual and amenable to structural mitigation during the useful life of our
buildings. However, if this is not the case it is possible that we would be
impacted in an adverse way, potentially materially so. We could experience both
risks and opportunities as a result of related physical impacts. For example,
more extreme weather patterns namely, a warmer summer or a cooler winter
could increase demand for our properties in areas that are not as adversely
impacted as other areas. However, we also could experience more difficult
operating conditions in that type of environment. We maintain various types of
insurance in amounts we consider appropriate for risks associated with weather
events.
9
Should an
uninsured loss or a loss in excess of insured limits occur, we could lose our
capital invested in the property, as well as the anticipated future revenues
from the property and, in the case of debt which has recourse provisions, we
would remain obligated for any mortgage debt or other financial obligations
related to the property. Any such loss would adversely affect us. We will
generally be liable for any unsatisfied obligations other than non-recourse
obligations. We believe that our properties are adequately insured. No assurance
can be given that material losses in excess of insurance proceeds will not occur
in the future.
Joint venture investments
will expose us to certain risks.
We may from time to time enter into joint
venture transactions for portions of our existing or future real estate assets.
Investing in this manner subjects us to certain risks, among them the
following:
-
we will not exercise sole
decision making authority regarding the joint ventures business and assets and,
thus, we may not be able to take actions that we believe are in our companys
best interests;
-
we may be required to accept liability for obligations of the
joint venture (such as recourse carve-outs on mortgage loans beyond our economic
interest;
-
our returns on joint venture assets may be adversely affected if the
assets are not held for the long-term.
Our ability to renew leases
or re-lease space on favorable terms as leases expire significantly affects our
business.
We are subject to the risks that, upon
expiration of leases for space located in our properties, the premises may not
be re-let or the terms of re-letting (including the cost of concessions to
tenants) may be less favorable than current lease terms. If a tenant does not
renew its lease or if a tenant defaults on its lease obligations, there is no
assurance we could obtain a substitute tenant on acceptable terms. If we cannot
obtain another tenant with comparable needs, we may be required to modify the
property for a different use, which may involve a significant capital
expenditure and a delay in re-leasing the property. Further, if we are unable to
re-let promptly all or a substantial portion of our space or if the rental rates
upon such re-letting were significantly lower than expected rates, our revenues
and ability to provide cash for our operations would be adversely affected.
There can be no assurance that we will be able to retain tenants in any of our
properties upon the expiration of their leases.
A property that incurs a
vacancy could be difficult to sell or re-lease.
A property may incur a vacancy either by
the continued default of a tenant under its lease or the expiration of one of
our leases. Certain of our properties may be specifically suited to the
particular needs of a tenant. We may have difficulty obtaining a new tenant for
any vacant space we have in our properties. If the vacancy continues for a long
period of time, we may suffer reduced revenues resulting in less cash available
to meet our operational needs. In addition, the resale value of a property could
be diminished because the market value of a particular property will depend
principally upon the value of the leases of such property.
Leveraging our portfolio
subjects us to increased risk of loss, including loss of properties in the event
of a foreclosure.
Our portfolio is highly leveraged. The
use of leverage presents an additional element of risk in the event
that;
-
the cash flow from lease payments on our properties is insufficient to meet
debt obligations;
-
we are unable to refinance our debt obligations as necessary or on as favorable terms; or
-
there is an increase
in interest rates.
If a
property is mortgaged to secure payment of indebtedness and we are unable to
meet mortgage payments, the property could be foreclosed upon with a consequent
loss of income and asset value to us.
Our
organization documents contain no limitation on the amount or percentage of indebtedness which we may incur. Therefore, our board
of directors, without a vote of the stockholders, could alter the general policy on borrowings at any time. If our debt capitalization
policy were changed, we could become more highly leveraged, resulting in an increase in debt service that could adversely affect
our operating cash flow and our ability to make expected cash distributions for our operating needs, and could result in an increased
risk of default on our obligations. See Item 8 Consolidated Financial Statements
and Supplementary Data
Note 11.
Notes Payable for additional information on our debt.
10
Covenants in our credit
agreements could limit our flexibility and adversely affect our financial
condition.
The terms
of our credit facilities and other indebtedness require us to comply with a
number of customary financial and other covenants
.
These covenants may limit our
flexibility in our operations, and breaches of these covenants could result in
defaults under the instruments governing the applicable indebtedness even if we
have satisfied our payment obligations. If our properties were foreclosed upon,
or if we are unable to refinance our indebtedness at maturity or meet our
payment obligations, the amount of our cash flows and our financial condition
could be adversely affected. See Item 8 Consolidated Financial Statements Note
11. Notes Payable, for additional information regarding our debt.
Other Risks
Certain officers and
directors may have interests that conflict with the interests of stockholders.
Certain of our officers and members of
our board of directors may have personal interests that conflict with the
interests of our stockholders with respect to business decisions affecting us
and our Operating Partnership, such as interests in the timing and pricing of
property sales or refinancing in order to obtain favorable tax treatment. As a
result, the effect of certain transactions on these members of management may
influence our decisions affecting these properties.
Our goodwill and other
intangible assets could become further impaired, which may require us to take
significant non-cash charges against earnings.
Under current accounting guidelines, we
must assess, at least annually and potentially more frequently, whether the
value of our goodwill and other intangible assets has been impaired. Any
impairment of goodwill or other intangible assets as a result of such analysis
would result in a non-cash charge against earnings, which charge could
materially adversely affect our reported results of operations, stockholders
equity and our stock price. A significant and sustained decline in our future
cash flows, a significant adverse change in the economic environment, slower
growth rates or if our stock price falls below our net book value per share for
a sustained period, all could result in the need to perform additional
impairment analysis in future periods. If we were to conclude that a future
write-down of goodwill or other intangible assets is necessary, then we would
record such additional charges, which could materially adversely affect our
results of operations.
We have a history of losses
which may continue, which may negatively impact our ability to achieve our
business objectives.
We cannot assure you that we can achieve
or sustain profitability on a quarterly or annual basis in the future. Our
operations are subject to the risks and competition inherent in the
establishment of a business enterprise. There can be no assurance that future
operations will be profitable. Revenues and profits, if any, will depend upon
various factors, including whether we will be able to continue expansion of our
revenue. We may not achieve our business objectives and the failure to achieve
such goals would have an adverse impact on us.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
Not applicable.
11
ITEM 2. PROPERTIES
The Location and
Type
The
following table sets forth the location, type and size of the properties (by
rentable square feet) along with annualized net rent, rented square feet,
occupancy, and rent per square foot consolidated by us as of December 31, 2011.
All properties listed below are encumbered by debt.
|
|
|
|
|
|
Total
|
|
Percent
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasable
|
|
Leasable
|
|
Rented
|
|
|
|
Rent per
|
|
|
Percentage
|
|
|
|
Square
|
|
Area
|
|
Square
|
|
Annualized Net
|
|
Square
|
Property
Name
|
|
owned
|
|
City/State
|
|
Footage
|
|
Occupied
|
|
Feet
|
|
Rent
|
|
Feet
|
|
|
|
|
|
|
|
|
(1)
|
|
|
|
(2)
|
|
(3)
|
ASR
Owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11500 Northwest Freeway
|
|
100%
|
|
Houston, TX
|
|
81,034
|
|
84%
|
|
68,416
|
|
966,097
|
|
14.12
|
1501
Mockingbird Lane
|
|
100%
|
|
Victoria, TX
|
|
70,311
|
|
84%
|
|
58,759
|
|
848,342
|
|
14.44
|
2620-2630 Fountain View
|
|
51%
|
|
Houston, TX
|
|
124,418
|
|
74%
|
|
92,538
|
|
1,263,587
|
|
13.65
|
2640-2650 Fountain View
|
|
100%
|
|
Houston, TX
|
|
175,545
|
|
83%
|
|
144,833
|
|
2,218,389
|
|
15.32
|
2855 Mangum
|
|
100%
|
|
Houston, TX
|
|
72,054
|
|
50%
|
|
35,843
|
|
509,732
|
|
14.22
|
5450
Northwest Central
|
|
100%
|
|
Houston, TX
|
|
56,290
|
|
86%
|
|
48,192
|
|
645,836
|
|
13.40
|
800 & 888 Sam Houston Pkwy
|
|
100%
|
|
Houston, TX
|
|
89,598
|
|
66%
|
|
58,891
|
|
891,154
|
|
15.13
|
8100
Washington
|
|
100%
|
|
Houston, TX
|
|
44,060
|
|
93%
|
|
40,878
|
|
877,179
|
|
21.46
|
8300 Bissonnet
|
|
100%
|
|
Houston, TX
|
|
91,871
|
|
49%
|
|
44,797
|
|
477,220
|
|
10.65
|
Atrium
6420
|
|
100%
|
|
Houston, TX
|
|
77,328
|
|
74%
|
|
57,228
|
|
812,423
|
|
14.20
|
Atrium 6430
|
|
100%
|
|
Houston, TX
|
|
44,884
|
|
72%
|
|
32,417
|
|
420,292
|
|
12.97
|
Bristol
Bay
|
|
100%
|
|
Newport
Beach, CA
|
|
50,073
|
|
71%
|
|
35,414
|
|
1,130,209
|
|
31.91
|
FMC Technology
|
|
100%
|
|
Houston, TX
|
|
93,912
|
|
100%
|
|
93,912
|
|
850,000
|
|
9.05
|
Fountain
View Office Tower
|
|
51%
|
|
Houston, TX
|
|
175,150
|
|
89%
|
|
155,669
|
|
3,138,292
|
|
20.16
|
Gray Falls Center & 1200 Westheime
|
|
100%
|
|
Houston, TX
|
|
99,314
|
|
79%
|
|
78,892
|
|
1,067,894
|
|
13.54
|
Pacific
Spectrum
|
|
100%
|
|
Phoenix, AZ
|
|
71,112
|
|
53%
|
|
37,473
|
|
446,802
|
|
11.92
|
Park Ten Place I
|
|
100%
|
|
Houston, TX
|
|
73,210
|
|
72%
|
|
53,065
|
|
1,036,527
|
|
19.53
|
Park Ten Place
II
|
|
100%
|
|
Houston, TX
|
|
68,599
|
|
85%
|
|
58,085
|
|
938,681
|
|
16.16
|
Office
Properties
|
|
|
|
|
|
1,558,763
|
|
77%
|
|
1,195,302
|
|
18,538,656
|
|
15.51
|
|
Beltway Industrial Park
|
|
100%
|
|
Houston, TX
|
|
389,720
|
|
84%
|
|
327,720
|
|
1,659,096
|
|
5.06
|
Morenci
Professional Park
|
|
100%
|
|
Indianapolis, IN
|
|
105,600
|
|
43%
|
|
45,600
|
|
256,584
|
|
5.63
|
Sierra Southwest
Pointe
|
|
100%
|
|
Houston,
TX
|
|
101,056
|
|
91%
|
|
92,423
|
|
715,659
|
|
7.74
|
Industrial/Commercial
Properties
|
|
|
|
|
|
596,376
|
|
78%
|
|
465,743
|
|
2,631,339
|
|
5.65
|
|
Northwest Spectrum Plaza
|
|
100%
|
|
Houston, TX
|
|
48,000
|
|
64%
|
|
30,560
|
|
342,720
|
|
11.21
|
Windrose Plaza
|
|
100%
|
|
Spring, TX
|
|
28,000
|
|
43%
|
|
12,115
|
|
120,000
|
|
9.91
|
Retail
Properties
|
|
|
|
|
|
76,000
|
|
56%
|
|
42,675
|
|
462,720
|
|
10.84
|
|
Sabo Road Self
Storage
|
|
55%
|
|
Houston,
TX
|
|
54,975
|
|
82%
|
|
45,080
|
|
450,252
|
|
9.99
|
Self-Storage
Properties
|
|
|
|
|
|
54,975
|
|
82%
|
|
45,080
|
|
450,252
|
|
9.99
|
|
Land
|
|
100%
|
|
Houston,
TX
|
|
11
Acres
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Land
|
|
|
|
|
|
11 Acres
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
12
|
|
|
|
|
|
Total
|
|
Percent
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasable
|
|
Leasable
|
|
Rented
|
|
|
|
Rent per
|
|
|
Percentage
|
|
|
|
Square
|
|
Area
|
|
Square
|
|
Annualized
|
|
Square
|
Property
Name
|
|
owned
|
|
City/State
|
|
Footage
|
|
Occupied
|
|
Feet
|
|
Net
Rent
|
|
Feet
|
|
|
|
|
|
|
|
|
(1)
|
|
|
|
(2)
|
|
(3)
|
Variable Interest Entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commerce Distributions Center
|
|
1%
|
|
Commerce, CA
|
|
200,000
|
|
100%
|
|
200,000
|
|
1,056,000
|
|
5.28
|
Dixon
& 51st Logistics Center
|
|
0%
|
|
Des
Moines, IA
|
|
731,160
|
|
100%
|
|
731,169
|
|
2,128,026
|
|
2.91
|
Fishers Indiana Distribution Center
|
|
1%
|
|
Fishers, IN
|
|
637,531
|
|
100%
|
|
637,531
|
|
2,399,877
|
|
3.76
|
Foxborough Business Park
|
|
0%
|
|
Victorville, CA
|
|
127,992
|
|
83%
|
|
105,635
|
|
912,053
|
|
8.63
|
Ohio Commerce Center
|
|
0%
|
|
Strongsville, OH
|
|
194,558
|
|
100%
|
|
194,558
|
|
2,276,652
|
|
11.70
|
Springs
Commerce Center I
|
|
0%
|
|
OK,GA,SC,VA,PA
|
|
1,006,993
|
|
100%
|
|
1,006,993
|
|
2,366,989
|
|
2.35
|
Springs Commerce Center II
|
|
0%
|
|
GA, AL
|
|
1,439,300
|
|
62%
|
|
886,450
|
|
1,960,793
|
|
2.21
|
Springs
Office
|
|
0%
|
|
Fort
Mill/Lancaster, SC
|
|
265,493
|
|
100%
|
|
265,493
|
|
1,993,576
|
|
7.51
|
Strongsville Corporate
Center
|
|
2%
|
|
Strongsville,
OH
|
|
125,006
|
|
100%
|
|
125,006
|
|
2,084,609
|
|
16.68
|
Industrial/Commercial
Properties
|
|
|
|
|
|
4,728,033
|
|
88%
|
|
4,152,835
|
|
17,178,575
|
|
4.14
|
|
Campus Court Student Housing
|
|
11%
|
|
Cedar Falls, IA
|
|
72,480
|
|
99%
|
|
71,760
|
|
583,222
|
|
8.13
|
Muirwood
Village
|
|
0%
|
|
Zanesville, OH
|
|
157,600
|
|
88%
|
|
138,601
|
|
1,504,192
|
|
10.85
|
Ohio II - Residences at Newark & Sheffield
|
|
0%
|
|
Newark/Circleville, OH
|
|
203,740
|
|
92%
|
|
187,574
|
|
1,872,106
|
|
9.98
|
College
Park Student Apartments
|
|
0%
|
|
Cedar
Rapids, IA
|
|
485,720
|
|
100%
|
|
485,720
|
|
1,557,681
|
|
3.21
|
University Fountains Lubbock
|
|
0%
|
|
Lubbock, TX
|
|
284,436
|
|
93%
|
|
265,655
|
|
4,544,911
|
|
17.11
|
University Springs San
Marcos
|
|
0%
|
|
San Marcos, TX
|
|
176,944
|
|
99%
|
|
174,290
|
|
2,557,324
|
|
14.67
|
Multi-Family/Student
Housing Properties
|
|
|
|
|
|
1,380,920
|
|
96%
|
|
1,323,600
|
|
12,619,436
|
|
9.53
|
|
Loop 1604 Self Storage
|
|
38%
|
|
San Antonio, TX
|
|
164,325
|
|
91%
|
|
149,655
|
|
891,560
|
|
5.96
|
Aldine
Westfield Self Storage
|
|
0%
|
|
Houston, TX
|
|
64,975
|
|
64%
|
|
41,313
|
|
384,718
|
|
9.31
|
Attic Space Self Storage - Blanco Rd
|
|
0%
|
|
San Antonio, TX
|
|
48,130
|
|
79%
|
|
38,135
|
|
313,222
|
|
8.21
|
Attic
Space Self Storage - Laredo Road
|
|
0%
|
|
San
Antonio, TX
|
|
47,870
|
|
100%
|
|
47,870
|
|
472,388
|
|
9.87
|
Charleston Blvd Self Storage
|
|
0%
|
|
Las Vegas, NV
|
|
55,600
|
|
72%
|
|
40,275
|
|
219,725
|
|
5.46
|
Florida
2 - Ocala Self Storage
|
|
0%
|
|
Ocala,
FL
|
|
42,091
|
|
55%
|
|
22,989
|
|
157,936
|
|
6.87
|
Florida 2 - Tampa Self Storage
|
|
0%
|
|
Tampa, FL
|
|
60,900
|
|
70%
|
|
42,350
|
|
252,505
|
|
5.96
|
Ft.
Worth Northwest Self Storage
|
|
0%
|
|
Fort
Worth, TX
|
|
69,275
|
|
63%
|
|
43,850
|
|
462,410
|
|
10.55
|
Ft. Worth River Oaks Self Storage
|
|
0%
|
|
River Oaks, TX
|
|
104,265
|
|
50%
|
|
51,749
|
|
583,457
|
|
11.27
|
Grissom
Road Self Storage
|
|
0%
|
|
San
Antonio, TX
|
|
90,120
|
|
99%
|
|
89,545
|
|
554,467
|
|
6.19
|
Houston South Mason (Patrick's)
|
|
0%
|
|
Katy, TX
|
|
58,730
|
|
70%
|
|
41,350
|
|
319,318
|
|
7.72
|
San Antonio 3
|
|
0%
|
|
San Antonio, TX
|
|
233,213
|
|
82%
|
|
191,364
|
|
1,336,732
|
|
6.99
|
Self-Storage
Properties
|
|
|
|
|
|
1,039,494
|
|
77%
|
|
800,445
|
|
5,948,438
|
|
7.43
|
|
Total ASR
Properties
|
|
|
|
|
|
2,286,114
|
|
76%
|
|
1,748,800
|
|
22,082,967
|
|
12.63
|
Total Variable Interest Entity
Properties
|
|
|
|
|
|
7,148,447
|
|
88%
|
|
6,276,880
|
|
35,746,449
|
|
5.69
|
Total Consolidated
Properties
|
|
|
|
|
|
9,434,561
|
|
85%
|
|
8,025,680
|
|
57,829,416
|
|
7.21
|
____________________
(1) Includes gross leasable area for leases that
have been executed and have commenced as of December 31, 2011.
13
(2)
|
|
Represents base
rent at December 31, 2011 for occupied square footage.
|
(3)
|
|
Represents
annualized net rent divided by rented square
feet.
|
For the
year ended December 31, 2011, no tenant contributed 10% or more of our total
rental revenue. A complete listing of properties consolidated by us at December
31, 2011, is included as part of Schedule III in Item 15. Thirteen of the
properties listed above are held for sale at December 31, 2011, please see Part
II, Item 8 Financial Statements and Supplementary Data, Note 4 Assets Held for
Sale for the listing.
Lease Expirations
The following table sets forth, for the
periods specified, the number of expiring leases by property category (excluding
multi-family, student housing and self-storage due to their prevailing month to
month nature), the total rented area subject to expiring leases, annual base
rent represented by expiring leases, and percentage of total annual base rent
represented by expiring leases for our consolidated properties.
LEASE EXPIRATION
|
|
|
|
|
|
Rented
square
|
|
Annual base rent
|
|
Percentage of total
|
|
|
Number
of
|
|
footage
subject
|
|
under expiring
|
|
annual
base rent
|
Expiration
|
|
expiring
|
|
to
expiring leases
|
|
leases (in
|
|
represented by
|
Year (2)
|
|
leases
|
|
(3)
|
|
thousands) (4)
|
|
expiring leases
(1)
|
For Office
Properties
|
2012
|
|
283
|
|
293,455
|
|
$
|
14,931
|
|
40%
|
2013
|
|
139
|
|
206,506
|
|
|
9,802
|
|
26%
|
2014
|
|
83
|
|
236,951
|
|
|
6,540
|
|
17%
|
2015
|
|
41
|
|
148,897
|
|
|
3,439
|
|
9%
|
2016
|
|
20
|
|
263,641
|
|
|
1,931
|
|
5%
|
thereafter
|
|
20
|
|
45,852
|
|
|
1,077
|
|
3%
|
|
|
586
|
|
1,195,302
|
|
$
|
37,720
|
|
100%
|
|
For Industrial/Commercial
Properties
|
2012
|
|
52
|
|
846,284
|
|
$
|
19,008
|
|
10%
|
2013
|
|
28
|
|
118,479
|
|
|
15,997
|
|
8%
|
2014
|
|
23
|
|
100,065
|
|
|
15,655
|
|
8%
|
2015
|
|
11
|
|
207,746
|
|
|
15,013
|
|
8%
|
2016
|
|
17
|
|
752,156
|
|
|
12,541
|
|
7%
|
thereafter
|
|
10
|
|
2,593,848
|
|
|
111,841
|
|
59%
|
|
|
141
|
|
4,618,578
|
|
$
|
190,055
|
|
100%
|
|
For Retail
Property
|
2012
|
|
-
|
|
-
|
|
$
|
-
|
|
0%
|
2013
|
|
1
|
|
6,000
|
|
|
485
|
|
29%
|
2014
|
|
4
|
|
22,560
|
|
|
363
|
|
22%
|
2015
|
|
-
|
|
-
|
|
|
-
|
|
0%
|
2016
|
|
2
|
|
8,000
|
|
|
230
|
|
14%
|
thereafter
|
|
2
|
|
6,115
|
|
|
585
|
|
35%
|
|
|
9
|
|
42,675
|
|
$
|
1,663
|
|
100%
|
____________________
Footnotes
|
|
|
(1)
|
|
Annual base rent expiring
during each period, divided by total annual base rent (both adjusted for
contractual increases).
|
(2)
|
|
2012 includes leases that
have initial terms of less than one year.
|
(3)
|
|
This figure is
based on square footage actually occupied (which excludes vacant space),
which accounts for the difference between this figure and total gross
leasable area (which includes vacant space).
|
(4)
|
|
This figure is
based on square footage actually occupied and incorporates contractual
rent increases arising after 2011, and thus differs from annualized net
rent in the table under The Location and Type of the Companys
Properties, which is based on 2011 rents.
|
14
Office
Properties
At
December 31 2011, we owned eighteen office properties with total rentable square
footage of 1,558,763. The office properties range in size from 44,060 square
feet to 175,545 square feet, and have remaining lease terms ranging from less
than one to ten years. Most of the leases are for one to three years. So we are
constantly renewing leases. Of the approximately 293,000 square feet of leases
expiring in the next twelve months, we are currently working on renewing the
expiring leases or attracting new tenants. If the tenants elect not to renew we
can make no guarantees that we will be able to lease the space timely or at
historic rent levels.
The office leases generally require the
tenant to reimburse us for increases in building operating costs over a base
amount. Certain of the leases provide for rent increases that are either fixed
or based on a consumer price index. As of December 31, 2011, the weighted
average occupancy of the office properties was 77%. The weighted average base
rent per square foot, calculated as total annualized base rents divided by gross
leasable area actually occupied as of December 31, 2011, was $15.51.
The change in weighted average
percentages over the prior year is due to the change in total office properties
consolidated from twenty-three in 2010 to eighteen in 2011 and reduced occupancy
in the remaining buildings. We compared the same eighteen properties performance
year over year and found that in 2010 weighted average occupancy was 84% and the
weighted average rent was $16.86 per square foot. Many of our tenants in our
office buildings have been impacted by the economy. Some of our tenants have
gone out of business, been acquired, or moved to smaller/lower cost spaces. We
are currently actively marketing our empty square footage but do not know if,
when or at what rent rates we will be able to lease the vacant office spaces.
Industrial/Commercial
Properties
At December 31, 2011, we consolidated
twelve industrial properties (three owned by us and nine relating to VIEs) with
total rentable square footage of 5,324,409. The industrial properties are
primarily designed for warehouse, distribution and light manufacturing usage and
range in size from 101,000 square feet to 1,439,000 square feet. As of December
31, 2011, the weighted average occupancy of the industrial properties was 87%.
The weighted average base rent per square foot, calculated as total annualized
base rents divided by gross leasable area actually occupied as of December 31,
2011, was $4.29.
The industrial properties have leases
whose remaining terms range from less than one to five years. Of the
approximately 846,000 square feet of leases expiring in the next twelve months,
we are currently working on renewing the expiring leases or attracting new
tenants. If the tenants elect not to renew we can make no guarantees that we
will be able to lease the space timely or at historic rent levels. Most of the
leases are industrial gross leases whereby the tenant pays as additional rent
its pro rata share of common area maintenance and repair costs and its share of
the increase in taxes and insurance over a base amount. Certain of these leases
call for fixed or consumer-price-index-based rent increases. Some of the leases
are triple net leases whereby the tenants are required to pay their pro rata
share of the properties' operating costs, common area maintenance, property
taxes, insurance and non-structural repairs.
Retail Property
At December 31, 2011, we owned two retail
properties in Houston, Texas with rentable square footage of 76,000. The leases
require the tenant to reimburse us for certain building operating costs. As of
December 31, 2011, the occupancy of the retail property was 56%. The average
base rent per square foot, calculated as total annualized base rents divided by
gross leasable area actually occupied as of December 31, 2011, was
$10.84.
Multi-Family, Student Housing
Properties
At December 31, 2011, we consolidated six
multi-family/student housing properties (six relating to VIEs) with total
rentable square footage of 1,380,920. These properties are typically leased for
one year or on a month to month basis. Due to the economy, our rental rates for
these properties have dropped from last year in our effort to maintain and
increase our occupancy percentages.
As of December 31, 2011, multiple
tenants occupied all of these properties. As of December 31, 2011, the weighted
average occupancy of the multi-family/student housing properties was 96%. The
weighted average base rent per square foot, was $9.53.
We do not
anticipate a drop in occupancy or additional rental rate declines for these
properties in the foreseeable future.
15
Self-Storage Property
At
December 31, 2011, we consolidated thirteen self-storage properties (one owned
by us and twelve relating to VIEs) with total rentable square footage of
1,094,469. The self-storage properties are primarily month-to-month lease terms.
Due to the economy, our rental rates for these properties have dropped from last
year in our effort to maintain and increase our occupancy
percentages.
As of December 31, 2011, the weighted average occupancy
of the self-storage properties was 77%. The weighted average base rent per
square foot, calculated as total annualized base rents divided by gross leasable
area actually occupied as of December 31, 2011, was $7.57. We do not anticipate
a drop in occupancy or additional rental rate declines for these properties in
the foreseeable future.
Development Land
The
Company owns an 11.86 acre parcel of land in Houston, Texas. The land is
adjacent to an industrial property owned by the Company and is held for future
development.
ITEM 3. LEGAL PROCEEDINGS
In June
2011, we reached a settlement with our insurance carrier, ACE American Insurance
Company, with respect to our Hurricane Ike claims. We received net proceeds of
approximately $4.0 million as a result of the settlement, which was net of
attorney fees, expert fees, consulting fees and other costs associated with the
claims. We recognized a gain on the settlement of approximately $4.1, million
which is included as a component of other income on our consolidated statement
of operations for the year ended December 31, 2011.
On March
2, 2011, we filed an action against Evergreen Realty Group, LLC and certain of
its affiliates ("Evergreen") relating to its acquisition of assets from
Evergreen in January 2010. The purchase price of the assets was $18.0 million,
subject to adjustment as provided in the purchase agreement, and was paid in the
form of (a) the assumption of $500,000 of payables, (b) the issuance of a $9.5
million promissory note and (c) the issuance of operating partnership units
which would
be redeemable by Evergreen after June 30, 2011 for a number of
shares of our common stock (or, at our option, the cash equivalent) equal to the
quotient obtained by dividing $8.0 million by the greater of our share price or
net asset value as of December 31, 2010. (Our share price as of December 31,
2010 was $17.52; our net asset value as of December 31, 2010 has not been
definitively determined.) In our action, we are alleging various offsets and
adjustments to the purchase price, as well as defaults by Evergreen, and are
seeking damages and a declaration that the principal amount of the promissory
note should be reduced to zero, that the operating partnership units should be
cancelled and that Evergreen should refund to us payments of at least $578,000
which have been made on the promissory note. On March 7, 2011, New West Realty,
Inc. (New West), an affiliate of Evergreen, filed a complaint for damages in
Orange County Superior Court against ASR and other related entities. New West
alleges in the complaint that ASR had failed to pay amounts then due under a
$9.5 million promissory note held by New West. We have subsequently paid all
amounts currently due and payable under the note and therefore dispute the claim
and deny that any payment is now due under the note, and we have filed a
separate lawsuit against New West and others seeking damages in excess of the
amount of New Wests claim.
The
litigation is ongoing and we cannot give any assurances that we will obtain the
declaration or the damages that it seeks.
Certain
other claims and lawsuits have arisen against us in our normal course of
business, including lawsuits by creditors with respect to past due accounts
payable. We have renegotiated some of our accounts payable which resulted in
extended payment terms or settlement with the issuance of common stock in lieu
of cash (See Part II Item 8 Note 11 Notes Payable and Note 16 Restructuring of
Debt). We believe that such claims and lawsuits will not have a material adverse
effect on our financial position, cash flows or results of operations.
ITEM 4. SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS
There was
no submission of matters to a vote of security holders during the quarter ended
December 31, 2011.
16
PART II
ITEM 5. MARKET FOR REGISTRANTS
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market
Information
The
Companys Common Stock trades on the NYSE Amex under the symbol AQQ. The
following table sets forth the high and low closing prices per share of the
Companys Common Stock for the periods indicated, as reported by the NYSE Amex.
|
|
|
High:
|
|
Low:
|
|
Year Ended December 31, 2011
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
20.00
|
|
$
|
16.36
|
|
Second
Quarter
|
|
$
|
18.94
|
|
$
|
16.05
|
|
Third Quarter
|
|
$
|
17.25
|
|
$
|
13.11
|
|
Fourth
Quarter
|
|
$
|
13.04
|
|
$
|
4.82
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
11.56
|
|
$
|
9.12
|
|
Second Quarter
|
|
$
|
14.50
|
|
$
|
7.90
|
|
Third
Quarter
|
|
$
|
14.05
|
|
$
|
10.00
|
|
Fourth Quarter
|
|
$
|
18.59
|
|
$
|
12.25
|
As of
February 29, 2012, there were approximately 2,000 holders of record of our
common stock.
Dividend Policy
Common Stock
Cash dividends were last declared to
holders of the Companys Common Stock in 2003.
The Companys Board of Directors has a
policy of meeting on or about the 45th day after the end of each calendar
quarter to consider the declaration and payment of dividends on Common Stock.
Preferred Stock
Series A Preferred Stock holders are
entitled to cumulative dividends at a rate of 15% per year. These dividends are
payable quarterly. The Company has paid $180,000 and $240,000 in dividends
during each of the years ended December 31, 2011 and 2010, respectively. As of
December 31, 2011 there were accrued and unpaid dividends on the outstanding
preferred stock of $60,000. The shares were issued in a private transaction
exempt from registration pursuant to Section 4(2) under the Securities Act of
1933, as amended.
Securities Authorized for
Issuance under Equity Compensation Plan
See the information incorporated by
reference into Part III, Item 12 Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters of this report for information
regarding securities authorized for issuance under our equity compensation
plans.
During the years ended December 31, 2011
and 2010 we issued 34,500 and 28,500 shares of restricted stock to certain
employees and board members, respectively, under our equity compensation plan.
The recipient has the right to vote all shares, to receive and retain all cash
dividends payable to holders of shares of record on or after the date of
issuance and to exercise all other rights, powers and privileges of a holder of
our shares, with the exception that the recipient may not transfer the shares
during the restriction period that lapses over various periods ranging from one
to five years. The issuances of Common Stock were exempt from registration
pursuant to Section 4(2) under the Securities Act of 1933, as amended.
Unregistered Sales of Equity
Securities
In 2011, the Company issued 43,685 shares
of common stock to vendors in satisfaction of accounts payable for
services in the amount of $559,650. The issuance of
common stock was exempt from the registration requirements of the Securities Act
of 1933, as amended, pursuant to section 4(2) and Rule 506 of Regulation D
promulgated thereafter. See Part II, Item 8 Note 11. Notes Payable for further
discussion of the transaction.
17
Issuer Purchases of Equity
Securities
Neither
we nor any affiliated purchaser of ours purchased any of our equity securities
during the year ended December 31, 2011.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW
The following Managements
Discussion and Analysis (MD&A) is intended to help the reader understand
the results of operations and financial condition of American Spectrum Realty,
Inc. MD&A is provided as a supplement to, and should be read in conjunction
with, our consolidated financial statements and the accompanying notes to the
consolidated financial statements (Notes).
Business Overview
We
provide comprehensive integrated real estate solutions for our own property
portfolio and the portfolios of our third party clients. We own and manage;
commercial, industrial, retail, self-storage and multi-family, student housing
income properties, and offer our third party clients comprehensive integrated
real estate solutions, including management and transaction services based on
our market expertise. We conduct our business in the continental United States.
Our business is conducted through an
Operating Partnership in which we are the sole general partner and a limited
partner with a total equity interest of 73% at December 31, 2011. As the sole
general partner of the Operating Partnership, we have the exclusive power to
manage and conduct the business of the Operating Partnership. We periodically
examine our corporate structure in order to evaluate if we are positioned to
take advantage of the most favorable tax treatments for ourselves, our
shareholders and our clients. We evaluate the potential tax benefits and
consequences of a variety of business models that include but are not limited
to; joint ventures, partnerships, limited liability companies (LLC), limited
liability partnerships (LLP) and real estate investment trusts (REIT) for
ourselves and our investors. It is our objective to consider all applicable tax
laws that legally reduce the tax consequences and maximize the tax benefits
associated with real estate transactions.
The REIT structure has many specific
requirements that must be met and maintained in order to qualify. As of December
31, 2011 the companys ownership structure does not allow the company to elect
REIT status.
Our primary business objective is to
acquire and manage multiple tenant real estate in strategically located areas
where our cost effective enhancements combined with effective leasing and
management strategies, can improve the long term values and economic returns of
those properties. We focus on the following fundamentals to achieve this
objective:
-An opportunistic and disciplined
disposition strategy that enhances investment performance and takes advantage of
realized gains. We typically dispose of properties when the return from selling
is higher than the projected return from holding the property
;
-Organic (internally developed
opportunities) and in-organic (acquisition generated opportunities) growth of
our third party property management contracts and transaction service fees
coupled with;
-An opportunistic yet disciplined
acquisition strategy that focuses on mid-tier multi-tenant real estate in
locations that allow us to capitalize on our existing management infrastructure
currently servicing our own properties and that of our third party clients.
18
As of December 31, 2011, the
properties that we manage were as follows:
|
ASR owned
|
|
Consolidated VIE's
|
|
Third Party
|
|
Total
|
|
|
Square
|
|
|
Square
|
|
|
Square
|
|
|
Square
|
Property type
|
Number
|
footage
|
|
Number
|
footage
|
|
Number
|
footage
|
|
Number
|
footage
|
Office
|
18
|
1,558,763
|
|
-
|
-
|
|
3
|
196,872
|
|
21
|
1,755,635
|
Industrial/Commercial
|
3
|
596,376
|
|
9
|
4,728,033
|
|
1
|
16,000
|
|
13
|
5,340,409
|
Retail
|
2
|
76,000
|
|
-
|
-
|
|
9
|
304,752
|
|
11
|
380,752
|
Residential/Multi-family
|
-
|
-
|
|
6
|
1,380,920
|
|
7
|
1,050,595
|
|
13
|
2,431,515
|
Self-Storage
|
1
|
54,975
|
|
12
|
1,039,494
|
|
6
|
462,360
|
|
19
|
1,556,829
|
Land
|
1
|
-
|
|
-
|
-
|
|
2
|
-
|
|
3
|
-
|
Total
|
25
|
2,286,114
|
|
27
|
7,148,447
|
|
28
|
2,030,579
|
|
80
|
11,465,140
|
During
the year ending 2011, we had strategically defaulted on the non recourse debt of
three of our properties that were returned to the lender. We sold one property
during 2011. We deconsolidated four VIE properties due to our determination that
we ceased to be the primary beneficiary. During the year the net change in third
party management contracts was an overall decrease of thirteen contracts. We
anticipate that there will be fluctuation in the number of third party
management contracts due to many circumstances, which include change of property
ownership, change of management structure, change of properties
ability/willingness to pay us for our management services. We continue to have
policies in place to grow our total number of third party management contracts.
We cannot guarantee that we will be able
to
grow the overall number of management
contracts and our third party management revenues could be adversely affected.
Financial Operations Overview
Revenues:
Rental Revenues
.
We
derive rental revenues from tenants that occupy space in our portfolio of
consolidated properties. There are three key drivers to rental revenue;
|
1.
|
|
Occupancy
-
Rental revenues are dependent on our ability to lease spaces to quality
tenants.
|
|
Weighted Average Occupancy
|
|
as of December 31,
|
Property Type
|
2011
|
|
2010
|
Office properties
|
77
|
%
|
|
85
|
%
|
Industrial
properties
|
87
|
%
|
|
96
|
%
|
Retail properties
|
56
|
%
|
|
48
|
%
|
Multi-family/Student Housing properties
|
96
|
%
|
|
94
|
%
|
Self Storage properties
|
77
|
%
|
|
71
|
%
|
We were able to achieve occupancy
increases in our portfolios self-storage, multi-family/student housing
properties and retail properties. Our industrial properties experienced a
decline in occupancy that we are attempting to reverse in the coming year
through our initiatives to attract additional tenants. With regard to our office
properties, we saw a reduction in the number of buildings in our consolidated
portfolio over last year by five buildings which on average had higher
occupancies. We are currently in the process of aggressively marketing all
vacated spaces but cannot make any guarantees as to the speed
at
which we will
be able to find quality tenants or
what, if any, reduction
in rental rates we
might experience.
|
2.
|
|
Rental rates
Market rental rates are often
inversely related to vacancy rates. Increased vacancy in the market place
tends to drive down rental rates. Our leases typically have one to ten
year terms based on property type. As leases expire, we replace the
existing leases with new leases at the current market rental
rate.
|
19
|
|
Weighted Average Base Rent
|
|
|
per
occupied square foot
|
|
|
as
of December 31,
|
Property Type
|
|
2011
|
|
2010
|
Office
properties
|
|
$
|
15.51
|
|
$
|
18.16
|
Industrial properties
|
|
$
|
4.29
|
|
$
|
5.07
|
Retail
properties
|
|
$
|
10.84
|
|
$
|
11.59
|
Multi-family/Student Housing
properties
|
|
$
|
9.53
|
|
$
|
13.02
|
Self storage
Properties
|
|
$
|
7.57
|
|
$
|
8.92
|
We have
experienced declines in our weighted average base rents across all sectors.
The change in weighted average base rent
over the prior year in office properties is due to the change in total office
properties consolidated from twenty-three in 2010 to eighteen in 2011 and
reduced occupancy in the remaining buildings. The five properties no longer
consolidated had higher average base rents, approximately $1.30 more per square
foot than the remaining eighteen. Many of our tenants in our office buildings
have been impacted by the economy. Some of our tenants have gone out of
business, been acquired, or moved to smaller/lower cost spaces. We are currently
actively marketing our empty square footage but do not know if, when or at what
rent rates we will be able to lease the vacant office spaces.
The change in industrial properties is
the result of a drop in occupancy. We are attempting to increase occupancy but
do not know if, when or at what rent rates we will be able to lease the vacant
space.
Retail, multi-family/student housing and
self-storage declines are related to pressures on rent as a result of the
economy. We have been able to increase the weighted average occupancy percentage
over the prior year but have not been able to do so at historic rent levels. We
do not anticipate rent rates to continue to decline in the near term for these
properties and anticipate that our weighted average base rent will be consistent
in the coming year with its present level.
|
3.
|
|
Tenant
retention
- Retaining existing
tenants is essential, as high customer retention leads to increased
occupancy, less downtime between leases, and reduced leasing costs. We
believe in providing superior customer service; hiring, training,
retaining and empowering our employees. We strive to create an environment
of open communication both internally and externally with our
customers.
|
Of the leases that expired during 2011,
we were able to retain tenants leasing approximately 60% of the expiring square
footage. Many of our tenants have experienced financial difficulties due to the
economy. We continue to aggressively pursue high quality tenants for all of our
vacant square footage. We can make no guarantees as to our ability to fill
vacant space in a timely manner or at the same or higher rents than historically
charged.
Third party management and
leasing revenue.
We derive these
revenues from the fees charged to our third party clients for management
services, tenant acquisition fees, leasing fees and loan advisory fees for
arranging financing related to properties under management. When and if our
third party clients elect to sell a property we manage for them, we will receive
transaction fees and commissions relating to the sale of the property. Our same
core skill set that influences our rental income also drives our third party
client revenue. Many of the fees we charge our third party clients are linked to
occupancy, rental rates and customer retention.
Expenses:
Property operating expenses.
Property operating expenses consist
primarily of property taxes, insurance, repairs and maintenance, personnel costs
and building service contracts.
General and administrative
expenses.
General and administrative
expenses consist primarily of personnel expenses for accounting, human
resources, information technology and corporate administration, professional
fees including audit and legal fees.
Depreciation and amortization
expenses.
Depreciation and amortization
expenses
consist primarily of depreciation associated with our real estate held
for investment, amortization of purchased intangibles, depreciation of
additional capital improvements and the amortization of lease costs associated
with consolidated properties.
Interest expenses.
Interest expenses consist primarily of the interest owed
to creditors for debt associated with our
consolidated properties.
20
CRITICAL ACCOUNTING POLICIES
The
preparation of financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States requires us to
make judgments, estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, we re-evaluate our
judgments and estimates. We base our estimates and judgments on our historical
experience, knowledge of current conditions and our belief of what could occur
in the future considering available information, including assumptions that are
believed to be reasonable under the circumstances. By their nature, these
estimates and judgments are subject to an inherent degree of uncertainty and
actual results could differ materially from the amounts reported based on these
policies.
We believe the following critical
accounting policies reflect our most significant estimates, judgments and
assumptions used in the preparation of our consolidated financial statements:
-
Variable Interest Entity (VIE)
accounting;
-
Business combinations;
-
Investment in real estate assets;
-
Assets held for sale;
-
Discontinued operations;
-
Sales of real estate assets;
-
Fair value measurements;
-
Impairment or assets; and
-
Income taxes.
Variable Interest Entity Accounting
Our determination of the appropriate
accounting method with respect to our VIEs is based on Accounting Standards
Update, or ASU, 2009-17,
Consolidations
(Topic 810): Improvements to Financial Reporting by Enterprises Involved with
Variable Interest Entities
. This ASU
incorporates Statement of Financial Accounting Standards, or SFAS, No. 167,
Amendments to FASB Interpretation No.
46(R)
, issued by the Financial
Accounting Standards Board, or FASB, in June 2009. The amendments in this ASU
replace the quantitative-based risks and rewards calculation for determining
which reporting entity, if any, has a controlling financial interest in a
variable interest entity with a primarily qualitative approach focused on
identifying which reporting entity has both (1) the power to direct the
activities of a variable interest entity that most significantly impact such
entitys economic performance and (2) the obligation to absorb losses or the
right to receive benefits from such entity that could potentially be significant
to such entity. The entity which satisfies these criteria is deemed to be the
primary beneficiary of the VIE.
We analyze our interests in VIEs to
determine if we are the primary beneficiary. We consider a variety of factors in
identifying the entity that holds the power to direct matters that most
significantly impact the VIEs economic performance including, but not limited
to, (a) sign and enter into leases; set, distribute, and implement the capital
budgets, the authority to refinance or sell the property within contractually
defined limits and, (b) the ability to receive fees that are significant to the
property and (c) a necessity of funding any deficit cash flows.
We consolidate any VIE of which we are
the primary beneficiary (see Note 5 of the Notes to Consolidated Financial
Statements set forth in Item 8 of this Annual Report). We determine whether an
entity is a VIE and, if so, whether it should be consolidated by utilizing
judgments and estimates that are inherently subjective. If we made different
judgments or utilized different estimates in these evaluations, it could result
in differing conclusions as to whether or not an entity is a VIE and whether or
not to consolidate such entity.
Business Combinations
We apply the provisions of FASB ASC Topic
805 to all transactions or events in which we obtain control of one or more
businesses, including those effected without the transfer of consideration, for
example, by contract or through a lapse of minority veto rights. These
provisions require the acquiring entity in a business combination to recognize
the full fair value of assets acquired and liabilities assumed in the
transaction (whether a full or partial acquisition); establish the
acquisition-
date fair value as the measurement
objective for all assets acquired and liabilities assumed; and require expensing
of most transaction and restructuring costs.
21
We
determine and allocate the purchase price of an acquired company to the tangible
and intangible assets acquired and liabilities assumed as of the business
combination date. The purchase price allocation process requires us to use
significant estimates and assumptions, including fair value estimates, as of the
business combination date. We utilize third-party valuation companies to help us
determine certain fair value estimates used for assets and liabilities.
Additionally, the purchase price of the
applicable property is allocated to the above or below market value of in-place
leases and the value of in-place leases and related tenant relationships. The
value allocable to the above or below market component of the acquired in-place
leases is determined based upon the present value (using a discount rate which
reflects the risks associated with the acquired leases) of the difference
between (i) the contractual amounts to be paid pursuant to the lease over its
remaining term, and (ii) our estimate of the amounts that would be paid using
fair market rates over the remaining term of the lease. The amounts allocated to
below market lease values are included in accrued and other liabilities in the
accompanying consolidated balance sheets and are amortized to rental income over
the remaining non-cancelable lease term plus any below market renewal options of
the acquired leases with each property.
While we use our best estimates and
assumptions as a part of the purchase price allocation process to accurately
value assets acquired and liabilities assumed at the business combination date,
our estimates and assumptions are inherently uncertain and subject to
refinement. As a result, during the purchase price allocation period, which is
generally one year from the business combination date, we record adjustments to
the assets acquired and liabilities assumed, with the corresponding offset to
goodwill.
Investment in Real Estate
Assets
Rental properties are stated at cost, net
of accumulated depreciation, unless circumstances indicate that cost, net of
accumulated depreciation, cannot be recovered.
Depreciation is provided using the
straight-line method over the estimated useful lives of the respective assets.
The useful lives are as follows:
|
Building and
Improvements
|
|
5 to 40 years
|
|
Tenant Improvements
|
|
Term of the related
lease
|
|
Furniture and
Equipment
|
|
3 to 5
years
|
We
evaluate each of our real estate assets on a quarterly basis in order to
determine the classification of each asset in our consolidated balance sheet.
This evaluation requires judgment by us in considering certain criteria that
must be evaluated under Topic 360, such as the estimated timeframe in which we
expect to sell our real estate assets. The classification of real estate assets
determines which real estate assets are to be depreciated as well as what method
is used to evaluate and measure impairment. Had we evaluated our assets
differently, the balance sheet classification of such assets, depreciation
expense and impairment losses could have been different.
Assets Held for Sale
We classify assets as held for sale when
management a) approves the action and commits to a plan to sell the asset(s); b)
the asset(s) are available for immediate sale in its present condition customary
for sales of those types of assets; c) an active program to locate a buyer and
other actions required to complete the plan to sell the asset(s) have been
initiated; d) the sale of the asset(s) is probable, and transfer of the asset(s)
is expected to within one year; e) the asset(s) is being actively marketed for
sale at a price that is reasonable in relation to its current fair value and; f)
actions required to complete the plan indicate that it is unlikely that
significant changes to the plan will be made or that the plan will be withdrawn.
We disclose operating properties as properties held for sale in the period in
which all of the required criteria are met.
Assets held for sale is recorded at the
lower of cost or estimated fair value less cost to sell. If an assets fair
value less cost to sell, based on discounted future cash flows, management
estimates or market comparisons, is less than its carrying amount, an allowance
is recorded against the asset. Determining an assets fair value and the related
allowance to record requires us to utilize judgment and estimates.
22
Discontinued Operations
Topic 360
extends the reporting of a discontinued operation to a component of an entity,
and further requires that a component be classified as a discontinued operation
if the operations and cash flows of the component have been or will be
eliminated from the ongoing operations of the entity in the disposal transaction
and the entity will not have any significant continuing involvement in the
operations of the component after the disposal transaction. As defined in Topic
360, a component of an entity comprises operations and cash flows that can be
clearly distinguished, operationally and for financial reporting purposes, from
the rest of the entity. Because each of our real estate assets is generally
accounted for in a discrete subsidiary, many constitute a component of an entity
under Topic 360, increasing the likelihood that the disposition of assets are
required to be recognized and reported as operating profits and losses on
discontinued operations in the periods in which they occur. The evaluation of
whether the components cash flows have been eliminated and the level of our
continuing involvement require judgment by us and a different assessment could
result in items not being reported as discontinued operations.
Sales of Real Estate Assets
Gains on property sales are recognized in
full when real estate is sold, provided (i) the gain is determinable, that is,
the collectability of the sales price is reasonably assured or the amount that
will not be collectible can be estimated, and (ii) the earnings process is
virtually complete, that is, we are not obligated to perform significant
activities after the sale to earn the gain. Losses on property sales are
recognized immediately.
Fair Value Measurements
Our acquisitions require the application
of purchase accounting, which results in tangible and identifiable intangible
assets and liabilities of the acquired entity being recorded at fair value. The
difference between the purchase price and the fair value of net assets acquired
is recorded as goodwill. In determining the fair values of assets and
liabilities acquired in a business combination, we use a variety of valuation
methods including present value, depreciated replacement cost, market values
(where available) and selling prices less costs to dispose. We are responsible
for determining the valuation of assets and liabilities and for the allocation
of purchase price to assets acquired and liabilities assumed.
Assumptions must often be made in
determining fair values, particularly where observable market values do not
exist. Assumptions may include discount rates, growth rates, cost of capital,
royalty rates, tax rates and remaining useful lives. These assumptions can have
a significant impact on the value of identifiable assets and accordingly can
impact the value of goodwill recorded. Different assumptions could result in
different values being attributed to assets and liabilities. Since these values
impact the amount of annual depreciation and amortization expense, different
assumptions could also impact our statement of operations and could impact the
results of future impairment reviews.
Impairment of Assets
We are required to test goodwill and
other intangible assets deemed to have indefinite useful lives for impairment
annually or more often if circumstances or events indicate a change in the
impairment status. The goodwill impairment analysis is a two-step process. The
first step used to identify potential impairment involves comparing each
reporting units estimated fair value to its carrying value, including goodwill.
We use a discounted cash flow approach to estimate the fair value of our
reporting units. Management judgment is required in developing the assumptions
for the discounted cash flow model. These assumptions include revenue growth
rates, profit margin percentages, discount rates, etc. If the estimated fair
value of a reporting unit exceeds its carrying value, goodwill is considered to
not be impaired. If the carrying value exceeds estimated fair value, there is an
indication of potential impairment and the second step is performed to measure
the amount of impairment. The second step of the process involves the
calculation of an implied fair value of goodwill for each reporting unit for
which step one indicated impairment. The implied fair value of goodwill is
determined similar to how goodwill is calculated in a business combination, by
measuring the excess of the estimated fair value of the reporting unit as
calculated in step one, over the estimated fair values of the individual assets,
liabilities and identifiable intangibles as if the reporting unit was being
acquired in a business combination. Due to the many variables inherent in the
estimation of a businesss fair value and the relative size of our goodwill, if
different assumptions and estimates were used, it could have an adverse effect
on our impairment analysis.
Impairment indicators for our rental
properties are assessed by property and include, but is not limited to,
significant fluctuations in estimated net operating income, occupancy changes,
rental rates and other market factors. When these indicators of impairment are
present, real estate held for investment is evaluated for impairment and losses
are recorded when undiscounted cash flows estimated to be generated by an asset
or market comparisons are less than the assets carrying amount. The amount of
the impairment loss is calculated as the excess of the assets carrying value
over its fair
value, which is determined using a
discounted cash flow analysis, management estimates or market
comparisons.
23
When we performed our impairment review, we
determined that impairment existed, refer to Part II Item 8 Financial Statements
and Supplementary Data Note 8
Asset Impairments
for additional information regarding our
impairment charges taken during the year.
Income Taxes
We account for income taxes under the
liability method whereby deferred tax asset or liability account balances are
calculated at the balance sheet date using current tax laws and rates in effect
for the year in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. Deferred tax assets and
liabilities are determined based on temporary differences between income and
expenses reported for financial reporting and tax reporting. We have assessed,
using all available positive and negative evidence, the likelihood that the
deferred tax assets will be recovered from future taxable income.
An enterprise must use judgment in
considering the relative impact of negative and positive evidence. The weight
given to the potential effect of negative and positive evidence should be
commensurate with the extent to which it can be objectively verified. The more
negative evidence that exists (i) the more positive evidence is necessary and
(ii) the more difficult it is to support a conclusion that a valuation allowance
is not needed for some portion, or all, of the deferred tax asset. Among the
more significant types of evidence that we considered are: that future
anticipated property sales will produce more than enough taxable income to
realize the deferred tax asset; taxable income projections in future years; and
whether the carryforward period is so brief that it would limit realization of
tax benefits.
Historically, we have incurred taxable
losses in years in which we do not sell any real estate assets for gains. A
property was sold during 2011 and a gain of $23.3 million was realized. In 2010
a gain of $4.3 million was realized on the sale of another property. We expect
to sell real estate assets in the future and have determined that it is more
likely than not that future taxable income, primarily from gains on the sales of
real estate assets, will be sufficient to enable us to realize all of our
deferred tax assets. Therefore, for each of the two years ended December 31,
2011 and 2010, no valuation allowance has been recorded. See Part II Item 8.
Financial Statements and Supplementary Data, Note 19. Subsequent Events for
additional information on the pending sale of a property.
RESULTS OF OPERATIONS
In January 2010, the Company
acquired certain property management and asset management contracts from
Evergreen that created Variable Interest relationships in which the Company is
the primary beneficiary. The consolidation of VIEs significantly impacted our
revenues and expenses as compared to the prior year.
Revenues by Period
The following table sets forth revenues
for the years ending 2011 and 2010, and the change between periods.
|
|
Years ended,
|
|
|
|
|
|
|
|
|
December 31,
|
|
Dollar
|
|
Percentage
|
|
|
2011
|
|
2010
|
|
Change
|
|
Change
|
|
|
(in thousands,
except percentages)
|
Rental
revenue
|
|
$
|
65,146
|
|
$
|
45,185
|
|
$
|
19,961
|
|
44
|
%
|
Third party management and
leasing revenue
|
|
$
|
3,859
|
|
$
|
3,692
|
|
$
|
167
|
|
5
|
%
|
The
changes in revenues during 2011 as compared to 2010 were primarily due to the
following:
-
Rental revenue increased by approximately
$20.0 million. This increase was due to the consolidation of VIEs which
accounted for an increase of approximately $23.1 million. This increase was
partially offset by a decrease in rental revenue attributable to our owned
properties of approximately $3.1 million. The decrease in rental revenue
attributable to our wholly-owned properties was primarily due to a decrease in
weighted average occupancy. The decrease was also due to a decline in rental
rates.
-
The increased third party management and
leasing revenue was primarily due to increased leasing commissions and
transaction fees.
24
Operating Expenses by Period
The
following table sets forth expenses for the fiscal years ending 2011 and 2010,
and the percentage and dollar change between periods.
|
Years ended
|
|
|
|
|
|
|
|
December 31,
|
|
Dollar
|
|
Percentage
|
|
2011
|
|
2010
|
|
Change
|
|
Change
|
|
(in thousands,
except percentages)
|
Property
operating expenses
|
$
|
22,789
|
|
$
|
18,337
|
|
$
|
4,452
|
|
24
|
%
|
Corporate general and
administrative
|
$
|
11,916
|
|
$
|
9,659
|
|
$
|
2,257
|
|
23
|
%
|
Depreciation and
amortization
|
$
|
29,189
|
|
$
|
18,937
|
|
$
|
10,252
|
|
54
|
%
|
Interest
expense
|
$
|
27,096
|
|
$
|
17,754
|
|
$
|
9,342
|
|
53
|
%
|
Impairment of
real estate assets
|
$
|
4,485
|
|
$
|
3,387
|
|
$
|
1,098
|
|
32
|
%
|
The changes in operating expenses
during 2011 as compared to 2010 were primarily due to the following:
-
Property operating expenses increased by
approximately $4.5 million for all of 2011 versus a partial year in 2010. The
increase was primarily due to the consolidation of VIEs, which accounted for
an increase of approximately $8.3 million. This increase was partially offset
by a decrease in property operating expenses attributable to our owned
properties of approximately $3.8 million. This decrease was in large part
attributable to a decrease in utilities and repairs and maintenance. The
decrease was also attributable to a decrease in personnel costs and property
taxes.
-
General and administrative expenses increased
by approximately $2.3 million. The increase was primarily due to higher
accounting, consulting, legal and professional fees.
-
Depreciation and amortization expense
increased by approximately $10.3 million. The increase was primarily due to
the consolidation of VIEs, which accounted for $9.6 million of this
increase.
-
Interest expense increased by approximately
$9.3 million due to a full year of VIE consolidation. This increase was
primarily due to the consolidation of VIEs,
which accounted
for
an increase of approximately $9.5 million. This increase was partially offset
by a decrease in interest expense attributable to our owned properties of $0.2
million.
-
Impairment expense increased by $1.1 million.
This increase was primarily due to impairment charges on real estate held for
investment of $2.5 million and goodwill of $1.3 million for the year ended
December 31, 2011. This increase was partially offset by a $2.7 million
decrease in impairment charges recorded on purchased intangibles for the year
ended December 31, 2011 compared to the year ended December 31, 2010. See Part
II Item 8 Note
8 Asset Impairments.
All of our expenses are
significantly influenced by VIE consolidation activity. We expect all our
operating expenses to remain relatively the same over the next year for our
consolidated properties at December 31, 2011.
Other Income Statement Items
by Period
The following table sets forth our other
income statement items for the fiscal years ending 2011 and 2010, and the dollar
and percentage change between periods.
|
Years Ended
|
|
|
|
|
|
|
|
|
December 31,
|
|
Dollar
|
|
Percentage
|
|
2011
|
|
2010
|
|
Change
|
|
Change
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Interest
income
|
$
|
345
|
|
$
|
324
|
|
|
$
|
21
|
|
|
6
|
%
|
Discontinued
operations
|
$
|
17,313
|
|
$
|
(784
|
)
|
|
$
|
18,097
|
|
|
2309
|
%
|
Non-controlling
interest
|
$
|
4,215
|
|
$
|
6,959
|
|
|
$
|
(2,744
|
)
|
|
-39
|
%
|
Gain on litigation
settlement
|
$
|
4,076
|
|
$
|
-
|
|
|
$
|
4,076
|
|
|
-
|
|
Other
Income
|
$
|
485
|
|
$
|
-
|
|
|
$
|
485
|
|
|
-
|
|
25
The changes in other income
statement items during 2011 as compared to 2010 were primarily due to the
following:
-
Discontinued operations for 2011 reflects the
gain on the sale of the property at 7700 Irvine Center, the disposition of
Sierra Creekside, Sierra Technology, Northwest Corporate Center and the
results of operations of the properties. Discontinued operations for 2010
reflects results of operations of these properties and the gain on sale of
5850 San Felipe.
-
Non-controlling interests consist of
operating partnership unit holders other than us and, the non-controlling
interests held in our VIEs and held by others. The decrease was primarily
attributable to the gain on sale of the partially owned 7700 Irvine
Center.
-
Gain on litigation settlement for 2011
represents a settlement of our lawsuit with our insurance carrier related to
our Hurricane Ike claims.
-
Other income for 2011 represents discounts
negotiated with several of our accounts payable creditors.
We
anticipate continuing to offer certain properties for sale and currently have
thirteen consolidated properties on the market. We can make no guarantees as to
the timing of the sale of any of our consolidated properties or the cash that we
will be able to receive as a result of those sales. See Part II Item 8 Financial
Statements - Note 4. Assets Held for Sale
LIQUIDITY AND CAPITAL RESOURCES
We have a need for significant amounts of
cash to fund our operations. Not all cash generated by our consolidated business
is available to pay all liabilities presented on the balance sheet. We
separately disclose on the face of the balance sheet (in parentheses) assets and
liabilities relating to our consolidated VIEs. Those assets and liabilities are
the exclusive responsibility of the VIEs as our actual ownership percentage and
the business structure of the VIEs does not allow the assets and liabilities to
be comingled with ASR.
With regards to our wholly owned
properties, we experienced a decline in rental revenues of approximately $3.1
million dollars. This decline was partially offset by an increase in our
transaction fees of $1.7 million. With regards to the properties in which we
have a variable interest and the cash associated with these properties is only
available to service their own debts, we experienced an increase in rental
revenues of $23.1 million dollars. This increase was the result of having a full
year of consolidated results in 2011 versus a partial year in 2010.
As of December 31, 2011, we had accounts
payable over 90 days totaling $4.6 million (all of it relating to ASR
properties). In addition, we have terms with creditors holding payables of
approximately $4.4 million that were in excess of 90 days old; as of December
31, 2011, these payables are included as notes payable with a total principal of
$3.2 million.
We currently have thirteen of our
consolidated properties listed for sale (seven wholly owned by ASR and six VIE
properties). In addition to these thirteen properties, another nine are in some
stage of foreclosure (seven wholly owned by ASR and two relating to VIEs) with
the debt holder, and we are strategically defaulting on the related debts
totaling $37.1 million on these nine properties. We can make no guarantee as to
the timing of the sale of any of the thirteen properties. In March 2012, one of
the nine properties in some stage of foreclosure was taken back by the debt
holder. We cannot guarantee that the lenders on the remaining eight properties
in some stage of foreclosure will not take back the properties before we can
sell them or renegotiate the debt.
All of the notes on which we have
strategically defaulted have payment acceleration clauses, and payment in full
could be demanded by the lenders holding these notes. The loans not being paid
are secured only by the real estate assets with the exception of the one
property. That property is Bristol Bay, that has a $1.7 million note that is
guaranteed by the Company. We evaluated the impairment related to the long-lived
assets of the properties secured by these loans and recorded $2.5 million of
impairment due to the debt exceeding the respective carrying value of each of
the properties. For further discussion, see Part II Item 8 Note 11 - Notes
Payable. See Part II Item 8 Note 4 - Assets Held for Sale for a listing of all
properties listed for sale.
The sale of 7700 Irvine Center and
settlement of an insurance related lawsuit generated cash of $10.1 million
during the second quarter of 2011 (See Note 7 Discontinued Operations and Note
17 Commitments and Contingencies). We spent $9.9 million of these proceeds in
the second and third quarters to reduce payables and debt, and other accrued
liabilities. Our discontinued operations are
not stated separately in the Statement of Cash Flow. Our discontinued operations
used cash of $0.7 million for their operations. In the future we anticipate that
the absence of these properties will decrease our use of cash.
26
We have
taken the following steps to meet our liquidity needs:
|
1.
|
|
We have reduced
our overhead structure in the third quarter of 2011, reducing annual
overhead by $1.3 million.
|
|
2.
|
|
We continue to
strategically default on mortgages where we have determined that the
market value of the property does not and will not exceed the balance of
the notes payable securing the property in the foreseeable future and/or
the property is in a severe and sustained negative cash flow
position.
|
|
3.
|
|
We are currently
marketing properties for sale in an effort to generate cash for operations
and debt reduction in the next year.
|
|
4.
|
|
Through 2012, we
will continue to focus on increasing occupancy rates and managing our cost
structure.
|
|
5.
|
|
Through 2012, we
will continue to reduce our expenses, restructure our operations, and
negotiate with our creditors for extended terms in order to meet our cash
flow needs.
|
Most of our mortgage debt is not
cross-collateralized. We have one mortgage loan that is
cross-collateralized
by
a second property.
Because of uncertainties caused by the
current credit crisis, our current debt level and our historic losses, there can
be no assurance as to our ability to obtain the funds necessary for the
refinancing of our maturing debts. If refinancing transactions are not
consummated, we will seek extensions and/or modifications from existing lenders.
If these refinancing or extensions do not occur, we will not have sufficient
cash to meet our obligations.
DISCUSSION OF THE CONSOLIDATED
STATEMENT OF CASH FLOWS
FROM OPERATIONS:
Historically and currently, our
consolidated cash from operations has been provided by rent payments, management
fees and transaction fees. Our historic and current uses of consolidated cash
from operations have mainly been property operating costs, general and
administrative costs and interest on debt service. During the year ending
December 31, 2011, our consolidated operations provided $18.3 million in cash,
$13.2 million from the VIEs.
FROM INVESTING ACTIVITIES:
Historically and currently, our
consolidated cash from investing activities has been provided by proceeds from
the sale of assets. Our historic and current uses of consolidated cash from
investing activities have primarily been property improvements. During the year
ending December 31, 2011, our consolidated investing activities provided $45.8
million in cash. This cash provided by investing activities was driven by the
proceeds from the sale of real estate assets.
FROM FINANCING ACTIVITIES:
Historically and currently, our
consolidated cash from financing activities has been provided by proceeds from
borrowing money and proceeds from equity placements. Our historic and current
uses of consolidated cash from financing activities have primarily been
principal payments on borrowings and cash used to acquire assets. During the
year ending December 31, 2011, our consolidated financing activities used $65.7
million in cash. This cash used by financing activities was driven by the use of
cash to service debt.
FUNDS FROM OPERATIONS
We believe that Funds From Operations
(FFO) is a useful supplemental measure of our operating performance. We
computed FFO in accordance with standards established by the White Paper on FFO
approved by the Board of Governors of the National Association of Real Estate
Investment Trusts (NAREIT) in April 2002. The White Paper defines FFO as net
income or loss computed in accordance with Generally Accepted Accounting
Principles (GAAP), excluding extraordinary items, as defined by GAAP, and
gains and losses from sales of depreciable operating property 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 our performance because, along with cash flow from
operating activities, FFO provides investors with an indication of our ability
to incur and service debt, to make capital expenditures and to fund other cash
needs. FFO is a non-GAAP financial measure. FFO does not represent net income or
cash flows from operations, as defined by GAAP, and should not be considered as
an alternative to net income
(determined in
accordance with GAAP) as an indicator of our operating performance or as an
alternative to cash flows from operating, investing and financing activities
(determined in accordance with GAAP) as a measure of liquidity. FFO does not
necessarily indicate that cash flows will be sufficient to fund all of our cash
needs, including principal amortization, capital improvements and distributions
to stockholders. Further, FFO as disclosed by other companies may not be
comparable to our calculation of FFO.
27
The following table sets forth our
calculation of FFO for the year ending December 31, 2011 and December 31, 2010:
|
Years ended
|
|
December 31,
|
|
2011
|
|
2010
|
|
(in thousands)
|
|
(restated)
|
Net income (loss) attributable to ASR
|
$
|
3,999
|
|
|
$
|
(8,037
|
)
|
Depreciation and amortization from discontinued
operations
|
|
1,921
|
|
|
|
4,878
|
|
Gain from sale of discontinued operations
|
|
(17,129
|
)
|
|
|
(4,315
|
)
|
Deferred
income tax expense (benefit)
|
|
2,115
|
|
|
|
(5,108
|
)
|
Depreciation and amortization attributable to ASR
properties
|
|
11,203
|
|
|
|
8,456
|
|
FFO
|
$
|
2,109
|
|
|
$
|
(4,126
|
)
|
The increase in FFO was primarily
due to the gain recognized on the litigation settlement. See Item 3 - Legal
Proceedings.
INFLATION
Inflation has not had a significant
impact on our results because of the relatively low inflation rate in our
geographic areas of operation. Additionally, most of our leases require the
customers to pay their pro rata share of operating expenses, including common
area maintenance, real estate taxes, utilities and insurance, thereby reducing
our exposure to increases in operating expenses resulting from
inflation.
ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not applicable.
ITEM 8. CONSOLIDATED FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
AMERICAN SPECTRUM REALTY,
INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
No.
|
Report of Independent Registered Public Accounting Firm
|
29
|
Consolidated Balance Sheets at December 31, 2011 and 2010
|
30
|
Consolidated Statements of Operations for the years ended December
31, 2011 and 2010
|
31
|
Consolidated Statements of Equity (Deficit) for the years ended
December 31, 2011 and 2010
|
32
|
Consolidated Statements of Cash Flows for the years ended December
31, 2011 and 2010
|
33
|
Notes to
Consolidated Financial Statements
|
35
|
28
Report of Independent
Registered Public Accounting Firm
Board of Directors and
Stockholders
American Spectrum Realty, Inc.
Houston, Texas
We have audited the accompanying
consolidated balance sheets of American Spectrum Realty, Inc. as of December 31,
2011 and 2010, and the related consolidated statements of operations, equity,
and cash flows for the periods ended December 31, 2011 and 2010. American
Spectrums management is responsible for these consolidated financial
statements. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of American Spectrum Realty, Inc. as of
December 31, 2011 and 2010, and the results of its operations and its cash flows
for the periods ended December 31, 2011 and 2010 in conformity with accounting
principles generally accepted in the United States of America.
We were not engaged to examine
managements assertion about the effectiveness of American Spectrum Realty,
Inc.s internal controls over financial reporting as of December 31, 2011 and
2010 included in the accompanying Managements Report on Internal Control over
Financial Reporting and, accordingly, we do not express an opinion thereon.
EEPB, PC
Houston, Texas
March 30, 2012
29
AMERICAN SPECTRUM REALTY,
INC
CONSOLIDATED BALANCE
SHEETS
(Dollars in thousands, except per share amounts)
|
|
December
31,
|
|
|
2011
|
|
2010
|
ASSETS
|
|
|
|
|
|
|
|
|
Real estate held
for investment (includes $338,845 and $381,354 from consolidated Variable
Interest Entities
|
|
|
|
|
|
|
|
|
("VIE's"),
respectively)
|
|
$
|
520,841
|
|
|
$
|
646,255
|
|
Accumulated depreciation (includes $22,484 and $8,446 from
consolidated VIE's, respectively
|
|
|
(81,657
|
)
|
|
|
(94,090
|
)
|
|
Real estate held for investment, net (includes $316,361 and
$372,908 from consolidated VIE's, respectively)
|
|
|
439,184
|
|
|
|
552,165
|
|
|
Cash and cash equivalents
|
|
|
473
|
|
|
|
2,003
|
|
Restricted cash
(includes $4,157 and $4,016 from consolidated VIE's,
respectively)
|
|
|
5,184
|
|
|
|
5,008
|
|
Tenant and other receivables, net of allowance for doubtful
accounts of $1,006 and $421, respectively (includes
|
|
|
|
|
|
|
|
|
$864 and $1,515 from consolidated VIE's, respectively)
|
|
|
1,338
|
|
|
|
2,403
|
|
Deferred rents
receivable (includes $1,501 and $0 from consolidated VIE's,
respectively)
|
|
|
3,459
|
|
|
|
2,331
|
|
Purchased intangibles subject to amortization
|
|
|
7,636
|
|
|
|
9,060
|
|
Deferred tax
assets
|
|
|
12,123
|
|
|
|
14,083
|
|
Goodwill
|
|
|
2,687
|
|
|
|
4,003
|
|
Investment in
management company
|
|
|
4,000
|
|
|
|
4,000
|
|
Investment in unconsolidated real estate assets from related
parties
|
|
|
245
|
|
|
|
194
|
|
Notes receivable
from Evergreen
|
|
|
2,000
|
|
|
|
2,000
|
|
Interest receivable from Evergreen
|
|
|
272
|
|
|
|
272
|
|
Accounts
receivable from related parties
|
|
|
-
|
|
|
|
262
|
|
Accounts receivable from Evergreen
|
|
|
414
|
|
|
|
414
|
|
Prepaid and
other assets, net (includes $8,123 and $8,858 from consolidated VIE's,
respectively)
|
|
|
17,752
|
|
|
|
20,164
|
|
Total Assets
|
|
|
496,767
|
|
|
|
618,362
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Notes payable (includes $237,276 and $268,776 from consolidated
VIE's, respectively)
|
|
|
384,022
|
|
|
|
482,819
|
|
Accounts payable (includes $634 and $5,734 from consolidated VIE's,
respectively)
|
|
|
7,712
|
|
|
|
16,292
|
|
Accounts payable to related parties
|
|
|
-
|
|
|
|
286
|
|
Accrued and other liabilities (includes $7,144 and $1,809 from
consolidated VIE's, respectively)
|
|
|
16,068
|
|
|
|
12,154
|
|
Total Liabilities
|
|
|
407,802
|
|
|
|
511,551
|
|
|
Commitments and Contingencies (Note 17):
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
American Spectrum Realty, Inc, stockholders' deficit:
|
|
|
|
|
|
|
|
|
Preferred stock par value $0.01 per share, 100,000,000 authorized
shares, 55,172 issued December 31, 2011 and
|
|
|
|
|
|
|
|
|
2010 respectively
|
|
|
1
|
|
|
|
1
|
|
Common stock par value $0.01 per share, 100,000,000 authorized
shares, 3,816,016 issued at December 31,
|
|
|
|
|
|
|
|
|
2011, and 3,422,706 issued at December 31, 2010 respectively;
3,344,604 outstanding at December 31, 2011
|
|
|
|
|
|
|
|
|
and 2,951,294 outstanding at December 31, 2010
respectively
|
|
|
34
|
|
|
|
34
|
|
Additional paid-in capital
|
|
|
51,923
|
|
|
|
49,067
|
|
Accumulated deficit
|
|
|
(56,510
|
)
|
|
|
(60,509
|
)
|
Treasury stock, at cost, 471,412 shares at December 31, 2011 and
December 31, 2010, respectively
|
|
|
(3,095
|
)
|
|
|
(3,095
|
)
|
Total American Spectrum
Realty, Inc. stockholders' deficit
|
|
|
(7,647
|
)
|
|
|
(14,502
|
)
|
Non-controlling interest
|
|
|
96,612
|
|
|
|
121,313
|
|
Total Equity
|
|
|
88,965
|
|
|
|
106,811
|
|
Total Liabilities and Equity
|
|
$
|
496,767
|
|
|
$
|
618,362
|
|
The accompanying notes are an
integral part of these consolidated financial statements
30
AMERICAN SPECTRUM REALTY, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
Year Ended
|
|
|
December
31,
|
|
|
2011
|
|
2010
|
REVENUES:
|
|
|
|
|
|
|
|
|
Rental
revenue
|
|
$
|
65,146
|
|
|
$
|
45,185
|
|
Third party management and leasing revenue
|
|
|
3,859
|
|
|
|
3,692
|
|
Interest
income
|
|
|
345
|
|
|
|
324
|
|
Total revenues
|
|
|
69,350
|
|
|
|
49,201
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
Property
operating expense
|
|
|
22,789
|
|
|
|
18,337
|
|
Corporate general and administrative
|
|
|
11,916
|
|
|
|
9,659
|
|
Depreciation and
amortization
|
|
|
29,189
|
|
|
|
18,937
|
|
Interest expense
|
|
|
27,096
|
|
|
|
17,754
|
|
Impairment
expense
|
|
|
4,485
|
|
|
|
3,387
|
|
Total expenses
|
|
|
95,475
|
|
|
|
68,074
|
|
|
OTHER INCOME:
|
|
|
|
|
|
|
|
|
Gain on
litigation settlement
|
|
|
4,076
|
|
|
|
-
|
|
Other income
|
|
|
485
|
|
|
|
-
|
|
Total other
income
|
|
|
4,561
|
|
|
|
-
|
|
|
Loss from continuing operation before deferred income tax
|
|
|
(21,564
|
)
|
|
|
(18,873
|
)
|
|
Deferred income tax benefit
|
|
|
4,035
|
|
|
|
4,661
|
|
|
Loss from continuing operations
|
|
|
(17,529
|
)
|
|
|
(14,212
|
)
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,553
|
)
|
|
|
(5,546
|
)
|
Gain on sale and foreclosure
of discontinued operations
|
|
|
26,016
|
|
|
|
4,315
|
|
Income tax (expense)
benefit
|
|
|
(6,150
|
)
|
|
|
447
|
|
Income (loss) from discontinued operations
|
|
|
17,313
|
|
|
|
(784
|
)
|
|
|
|
|
|
|
|
|
Net Loss, including non-controlling interests
|
|
|
(216
|
)
|
|
|
(14,996
|
)
|
|
Net loss attributable to non-controlling interests
|
|
|
4,215
|
|
|
|
6,959
|
|
|
Net Income (Loss) attributable to American Spectrum Realty,
Inc.
|
|
|
3,999
|
|
|
|
(8,037
|
)
|
|
Less: Preferred stock dividend
|
|
|
(240
|
)
|
|
|
(240
|
)
|
|
Net Income (Loss) attributable to American Spectrum Realty, Inc.
common stockholders
|
|
$
|
3,759
|
|
|
$
|
(8,277
|
)
|
|
Basic and diluted per share data:
|
|
|
|
|
|
|
|
|
Loss from
continuing operations attributable to American Spectrum Realty, Inc.
common stockholders
|
|
|
($1.79
|
)
|
|
$
|
(2.66
|
)
|
Income (Loss) from discontinued operations attributable to American
Spectrum Realty, Inc. common
|
|
|
|
|
|
|
|
|
stockholders
|
|
|
3.11
|
|
|
|
(0.10
|
)
|
Net Income
(Loss) attributable to American Spectrum Realty, Inc. common
stockholders
|
|
$
|
1.32
|
|
|
$
|
(2.76
|
)
|
|
Basic and diluted weighted average shares used
|
|
|
3,008,836
|
|
|
|
2,916,145
|
|
|
Amounts attributable to American Spectrum Realty, Inc. common
stockholders:
|
|
|
|
|
|
|
|
|
Loss from
continuing operations
|
|
$
|
(5,605
|
)
|
|
$
|
(7,998
|
)
|
Income (Loss) from discontinued operations
|
|
|
9,364
|
|
|
|
(279
|
)
|
Net Income
(Loss)
|
|
$
|
3,759
|
|
|
$
|
(8,277
|
)
|
The accompanying notes are an
integral part of these consolidated financial statements
31
AMERICAN SPECTRUM REALTY
INC.
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
(In thousands, except
share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
Common
|
|
Non-controlling
|
|
Preferred
|
|
Common
|
|
Paid-In
|
|
Accumulated
|
|
Treasury
|
|
Total
|
|
|
Shares
|
|
Shares
|
|
Interests
|
|
Stock
|
|
Stock
|
|
in Capital
|
|
Deficit
|
|
Stock
|
|
Equity (Deficit)
|
Balance January 1, 2010
|
|
55,172
|
|
1,645,655
|
|
|
$
|
2,036
|
|
|
$
|
1
|
|
$
|
16
|
|
$
|
48,563
|
|
|
$
|
(52,472
|
)
|
|
$
|
(3,095
|
)
|
|
$
|
(4,951
|
)
|
Issuance of
one-for-one stock split
|
|
|
|
1,645,655
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
(240
|
)
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
181
|
|
Conversion of OP units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
to common stock
|
|
|
|
102,896
|
|
|
|
(211
|
)
|
|
|
|
|
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Issuance of
common stock
|
|
|
|
28,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Issuance of operating partnership units
|
|
|
|
|
|
|
|
12,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,316
|
|
Noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
in acquired
properties
|
|
|
|
|
|
|
|
1,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,386
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
in consolidated
VIE's
|
|
|
|
|
|
|
|
108,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,973
|
|
Acquisition of
non-controlling interest in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
the operating
partnership
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
Reclassification of non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
from temporary
equity
|
|
|
|
|
|
|
|
3,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,962
|
|
Reclassification
of non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
to additional paid-in
capital
|
|
|
|
|
|
|
|
(370
|
)
|
|
|
|
|
|
|
|
|
370
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Repurchase of non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
in consolidated
partnership
|
|
|
|
|
|
|
|
(1,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,785
|
)
|
Repurchase of
preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
partnership interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Distributions to non-controlling interests
|
|
|
|
|
|
|
|
(514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(514
|
)
|
Non-controlling
interests share of loss
|
|
|
|
|
|
|
|
(6,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,959
|
)
|
Preferred interest in consolidated subsidiary
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,037
|
)
|
|
|
|
|
|
|
(8,037
|
)
|
Balance December 31, 2010
|
|
55,172
|
|
3,422,706
|
|
|
|
121,313
|
|
|
|
1
|
|
|
34
|
|
|
49,067
|
|
|
|
(60,509
|
)
|
|
|
(3,095
|
)
|
|
|
106,811
|
|
|
Preferred stock dividends
|
|
-
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
(240
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(240
|
)
|
Stock-based
compensation
|
|
-
|
|
34,500
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
195
|
|
|
|
-
|
|
|
|
-
|
|
|
|
195
|
|
Restricted stock forfeitures
|
|
-
|
|
(10,338
|
)
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Conversion of OP
units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to common stock
|
|
-
|
|
325,463
|
|
|
|
(2,342
|
)
|
|
|
-
|
|
|
-
|
|
|
2,342
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of common stock
|
|
|
|
43,685
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
559
|
|
|
|
-
|
|
|
|
-
|
|
|
|
559
|
|
Acquisition of
non-controlling interest
|
|
|
|
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
Interest in the operating partnership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation of
VIE's
|
|
-
|
|
-
|
|
|
|
9,241
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,241
|
|
Deconsolidation of VIE's
|
|
-
|
|
-
|
|
|
|
(18,111
|
)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,111
|
)
|
Noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
share of income
|
|
-
|
|
-
|
|
|
|
(4,215
|
)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,215
|
)
|
Repurchase of preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
partnership interest
|
|
|
|
|
|
|
|
(2,500
|
)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,500
|
)
|
Distributions
|
|
-
|
|
-
|
|
|
|
(7,555
|
)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,555
|
)
|
Contributions
|
|
-
|
|
-
|
|
|
|
981
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
981
|
|
Net
income
|
|
-
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
3,999
|
|
|
|
-
|
|
|
|
3,999
|
|
Balance December 31, 2011
|
|
55,172
|
|
3,816,016
|
|
|
$
|
96,612
|
|
|
$
|
1
|
|
$
|
34
|
|
$
|
51,923
|
|
|
$
|
(56,510
|
)
|
|
$
|
(3,095
|
)
|
|
$
|
88,965
|
|
The accompanying notes are an
integral part of these consolidated financial statements
32
AMERICAN SPECTRUM REALTY,
INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Year Ended
|
|
|
December 31,
|
|
|
2011
|
|
2010
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(216
|
)
|
|
$
|
(14,996
|
)
|
Adjustment to reconcile net loss to net cash provided by (used in)
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
31,111
|
|
|
|
23,791
|
|
Impairment expense
|
|
|
4,485
|
|
|
|
3,387
|
|
Income tax
expense/(benefit)
|
|
|
2,115
|
|
|
|
(5,108
|
)
|
Gain on sales and foreclosure
of real estate assets
|
|
|
(26,016
|
)
|
|
|
(4,315
|
)
|
Stock-based
compensation
|
|
|
195
|
|
|
|
181
|
|
Deferred rental
income
|
|
|
(1,446
|
)
|
|
|
(446
|
)
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease in tenant and other
receivables
|
|
|
1,373
|
|
|
|
280
|
|
(Decease) increase in accounts
payable
|
|
|
(872
|
)
|
|
|
4,944
|
|
(Decrease) increase in accounts receivable from related parties
|
|
|
(286
|
)
|
|
|
317
|
|
Decrease (increase) in related
party receivables
|
|
|
262
|
|
|
|
(226
|
)
|
(Increase) decrease in prepaid
and other assets
|
|
|
(2,730
|
)
|
|
|
105
|
|
Increase (decrease) in accrued and other liabilities
|
|
|
10,899
|
|
|
|
(246
|
)
|
Change in restricted cash
|
|
|
(541
|
)
|
|
|
(488
|
)
|
Net cash
provided by operating activities:
|
|
|
18,333
|
|
|
|
7,180
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
received from sales of real estate assets
|
|
|
51,080
|
|
|
|
10,166
|
|
Capital improvements to real estate assets
|
|
|
(5,214
|
)
|
|
|
(3,567
|
)
|
Real estate
acquisition
|
|
|
-
|
|
|
|
(2,017
|
)
|
Investments in unconsolidated real estate assets
|
|
|
(60
|
)
|
|
|
(82
|
)
|
Payments for
damages related to insurance claims
|
|
|
-
|
|
|
|
(30
|
)
|
Net cash provided by investing activities:
|
|
|
45,806
|
|
|
|
4,470
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
5,750
|
|
|
|
8,194
|
|
Repayment of borrowings-property sales
|
|
|
(45,000
|
)
|
|
|
(5,067
|
)
|
Repayment of borrowings-scheduled payments
|
|
|
(9,647
|
)
|
|
|
(6,537
|
)
|
Repayment of borrowings-other
|
|
|
(7,352
|
)
|
|
|
(1,260
|
)
|
Repurchase of preferred partnership interest
|
|
|
(2,500
|
)
|
|
|
(1,785
|
)
|
Proceeds from partial sale of consolidated partnership
interests
|
|
|
-
|
|
|
|
2,500
|
|
Proceeds from issuance of operating partnership units
|
|
|
-
|
|
|
|
727
|
|
Acquisition of non-controlling interest in the operating
partnership
|
|
|
(201
|
)
|
|
|
(21
|
)
|
Acquisition of notes receivable
|
|
|
-
|
|
|
|
(2,905
|
)
|
Dividend payments to preferred stockholders
|
|
|
(145
|
)
|
|
|
(302
|
)
|
Contributions from non-controlling interests
|
|
|
981
|
|
|
|
-
|
|
Distributions to non-controlling interests
|
|
|
(7,555
|
)
|
|
|
(3,653
|
)
|
Net cash used in financing activities:
|
|
|
(65,669
|
)
|
|
|
(10,109
|
)
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(1,530
|
)
|
|
|
1,541
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
2,003
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
473
|
|
|
$
|
2,003
|
|
The accompanying notes are an
integral part of these consolidated financial statements
33
SUPPLEMENTAL DISCLOSURE OF
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
Year Ended
|
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
|
(in
thousands)
|
Conversion of
operating partnership units to common stock
|
|
2,342
|
|
211
|
Conversion of accounts payable
to note payable
|
|
4,671
|
|
|
Conversion of
accounts payable to common stock
|
|
559
|
|
-
|
Issuance of operating
partnership (OP) units in connection with Evergreen acquisition
|
|
-
|
|
8,000
|
Issuance of OP
units in connection with notes receivable and account receivable
acquisition
|
|
-
|
|
3,081
|
Issuance of OP units in
connection with real estate acquisition
|
|
-
|
|
2,586
|
Issuance of OP
units in connection with investment in unconsolidated real estate
asset
|
|
-
|
|
28
|
Debt assumed in connection with
real estate acquisition
|
|
-
|
|
6,297
|
Conversion of
accounts payable to notes payable
|
|
|
|
498
|
Financing in connection with
investment in unconsolidated real estate asset
|
|
-
|
|
33
|
Financing in
connection with Evergreen acquisition
|
|
-
|
|
9,500
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
|
|
|
|
|
Cash paid for
interest
|
|
25,250
|
|
16,767
|
Cash paid for income
taxes
|
|
149
|
|
70
|
The accompanying notes are an
integral part of these consolidated financial statements
34
NOTE 1. Business
Overview
Business Overview
We
provide comprehensive integrated real estate solutions for our own property
portfolio and the portfolios of our third party clients. We own and manage;
commercial, industrial, retail, self-storage and multi-family, student housing
income properties, and offer our third party clients comprehensive integrated
real estate solutions, including management and transaction services based on
our market expertise. We conduct our business in the continental United States.
Our business is conducted through an
Operating Partnership in which we are the sole general partner and a limited
partner with a total equity interest of 73% at December 31, 2011. As the sole
general partner of the Operating Partnership, we have the exclusive power to
manage and conduct the business of the Operating Partnership. We periodically
examine our corporate structure in order to evaluate if we are positioned to
take advantage of the most favorable tax treatments for ourselves, our
shareholders and our clients. We evaluate the potential tax benefits and
consequences of a variety of business models that include but are not limited
to; joint ventures, partnerships, limited liability companies (LLC), limited
liability partnerships (LLP) and real estate investment trusts (REIT) for
ourselves and our investors. It is our objective to consider all applicable tax
laws that legally reduce the tax consequences and maximize the tax benefits
associated with real estate transactions.
The REIT structure has many specific
requirements that must be met and maintained in order to qualify. As of December
31, 2011 the companys ownership structure does not allow the company to elect
REIT status.
Our primary business objective is to
acquire and manage multiple tenant real estate in strategically located areas
where cost effective enhancements combined with effective leasing and management
strategies, can improve the long term values and economic returns of those
properties. We focus on the following fundamentals to achieve this objective:
-An opportunistic and disciplined
disposition strategy that enhances investment performance and takes advantage of
realized gains. We typically dispose of properties when the return from selling
is higher than the projected return from holding the property;
-Organic (internally developed
opportunities) and in-organic (acquisition generated opportunities) growth of
our third party property management contracts and transaction service fees,
coupled with;
-An opportunistic yet disciplined
acquisition strategy that focuses on mid-tier multi-tenant real estate in
locations that allow us to capitalize on our existing management infrastructure
currently servicing our own properties and that of our third party clients.
NOTE 2. Summary of Significant
Accounting Policies
BASIS OF PRESENTATION
The consolidated financial
statements and accompanying notes are prepared in accordance with accounting
principles generally accepted in the United States of America.
Principles of consolidation and
basis of presentation.
The consolidated financial
statements include the accounts of American Spectrum Realty, Inc., its
subsidiaries and those variable interest entities in which American Spectrum
Realty, Inc. is the primary beneficiary. Intercompany transactions and balances
have been eliminated.
Use of
Estimates.
Accounting estimates are an integral
part of the financial statements prepared by management and are based on
managements knowledge and experience about past and current events and
assumptions about future events. Certain accounting estimates are particularly
sensitive because of their significance to the financial statements and because
of the possibility that future events affecting them may differ significantly
from those expected. The most sensitive estimate affecting the financial
statements was managements estimate of the fair value of its real estate assets
that is based on a discounted cash flow method of valuing the property. The
discounted cash flow method included assumptions concerning future net cash
flows and also capitalization rates. Management evaluated the key factors and
assumptions used to develop the fair value in determining that it is reasonable
in relation to the financial statements taken as a whole. Actual results could
differ from those estimates.
35
Reclassifications
Certain balance sheet amounts in the
2010 financial statements have been reclassified to conform to the 2011
presentation.
SIGNIFICANT ACCOUNTING
POLICIES
Cash and Cash
Equivalents
We consider all highly-liquid
investment instruments with an original maturity of three months or less to be
cash equivalents. As of December 31, 2011 and 2010, we held our cash and cash
equivalents in checking accounts, money market accounts and investment accounts
with several financial institutions. Some accounts exceeded FDIC insurance
limits.
Restricted Cash
We had restricted cash of $5.2
million as of December 31, 2011. The cash includes $4.2 million related to
consolidated VIEs. The remaining cash of $0.9 million secures a bank loan,
which matures in June 2012.
Fair Value of Financial
Instruments
Our financial instruments, including
cash, prepaid expenses and other current assets, accrued liabilities and
accounts payable are carried at cost, which approximates fair value because of
the short term nature of those instruments.
Deferred Financing and Other
Fees
Fees paid in connection with the
financing and leasing of our properties are amortized to interest expense using
the effective interest method over the term of the related note payable or lease
and are included in other assets.
Rental Revenue.
We record rental income for the full
term of each lease on a straight-line basis. Any rent holidays given to the
tenant as part of their lease is recorded as a deferred rent receivable. When a
property is acquired, the term of existing leases is considered to commence as
of the acquisition date for purposes of this calculation.
Many of our leases provide for
Common Area Maintenance Escalations (CAM/ESC) as additional rental revenue.
Each tenant is typically responsible for their prorated share of increases in
operating expenses. Tenants are billed an estimated CAM/ESC charge based on the
budgeted operating expenses for the year. Within 90 days after the end of each
fiscal year, a reconciliation and true up billing of CAM/ESC charges is
performed based on actual operating expenses.
For each of the two years ended
December 31, 2011 and 2010 no tenant represented 10% or more of our rental
revenue.
Allowance for Doubtful
Accounts
We maintain an allowance for
accounts receivable which may not be ultimately collected. The allowance balance
maintained is based upon historical collection experience, current aging of
amounts due and specific evaluations of the collectability of individual
balances. All tenant account balances over 90 days past due are fully reserved.
Accounts are written off against the reserve when they are deemed to be
uncollectible.
Goodwill and Intangible
Assets
Goodwill is tested for impairment at
least annually or whenever events or changes in circumstances indicate that
goodwill carrying amounts may be impaired. If the implied fair value of goodwill
is lower than its carrying amount, impairment is indicated and goodwill is
written down to its implied fair value. Subsequent increases in goodwill value
are not recognized in the financial statements.
36
Intangible assets are amortized on a
straight-line basis over their estimated lives. Such assets are evaluated for
impairment whenever events or changes in circumstances indicate that the
recoverability of their carrying value may be impaired.
Variable Interest Entity
Accounting
Our
determination of the appropriate accounting method with respect to our VIEs is based on Accounting Standards Update, or ASU, 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities
.
This ASU incorporates Statement of Financial Accounting Standards, or SFAS, No. 167,
Amendments to FASB Interpretation
No. 46(R)
, issued by the Financial Accounting Standards Board, or FASB, in June 2009. The amendments in this ASU replace
the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial
interest in a variable interest entity with a primarily qualitative approach focused on identifying which reporting entity has
both (1) the power to direct the activities of a variable interest entity that most significantly impact such entitys economic
performance and (2) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be
significant to such entity. The entity which satisfies these criteria is deemed to be the primary beneficiary of the VIE.
We analyze our interests in VIEs to
determine if we are the primary beneficiary. We consider a variety of factors in
identifying the entity that holds the power to direct matters that most
significantly impact the VIEs economic performance including, but not limited
to, (a) sign and enter into leases; set, distribute, and implement the capital
budgets, the authority to refinance or sell the property within contractually
defined limits and, (b) the ability to receive fees that are significant to the
property and (c) a necessity of funding any deficit cash flows.
We consolidate any VIE of which we
are the primary beneficiary (see Note 5 of the Notes to Consolidated Financial
Statements set forth in Item 8 of this Annual Report). We determine whether an
entity is a VIE and, if so, whether it should be consolidated by utilizing
judgments and estimates that are inherently subjective. If we made different
judgments or utilized different estimates in these evaluations, it could result
in differing conclusions as to whether or not an entity is a VIE and whether or
not to consolidate such entity.
Assets Held for Sale
We classify assets as held for sale
when management a) approves the action and commits to a plan to sell the
asset(s); b) the asset(s) are available for immediate sale in its present
condition customary for sales of those types of assets; c) an active program to
locate a buyer and other actions required to complete the plan to sell the
asset(s) have been initiated; d) the sale of the asset(s) is probable, and
transfer of the asset(s) is expected to within one year; e) the asset(s) is
being actively marketed for sale at a price that is reasonable in relation to
its current fair value and; f) actions required to complete the plan indicate
that it is unlikely that significant changes to the plan will be made or that
the plan will be withdrawn.
At the time a property is held for
sale, the property is carried at the lower of (i) its carrying amount or (ii)
fair value less costs to sell. We disclose operating properties as properties
held for sale in the period in which all of the required criteria are met.
Discontinued Operations
We report, for both current and
prior periods, the assets, liabilities and results of operations of any
component of the Company which has either been disposed of, or is under contract
with all contingencies removed, as discontinued operations.
Sales of Real Estate Assets
Gains on property sales are
recognized in full when real estate is sold, provided (i) the gain is
determinable, that is, the collectability of the sales price is reasonably
assured or the amount that will not be collectible can be estimated, and (ii)
the earnings process is virtually complete, that is, we are not obligated to
perform significant activities after the sale to earn the gain. Losses on
property sales are recognized immediately.
Real Estate Held for Investment
Rental properties are stated at
cost, net of accumulated depreciation, unless circumstances indicate that cost,
net of accumulated depreciation, cannot be recovered, in which case the carrying
value of the property is reduced to estimated fair value. Estimated fair value
(i) is based upon the Company's plans for the continued operation of each
property and (ii) is computed using estimated sales price, as determined by
prevailing market values for comparable properties and/or the use of
capitalization rates multiplied by annualized net operating income based upon
the age, construction and use of the building. The fulfillment of the Company's
plans related to each of its properties is dependent upon, among other things,
the presence of economic conditions which will enable the Company to continue to
hold and operate the properties prior to their eventual sale. Due to
uncertainties inherent in the valuation process and in the economy, actual
results could be materially different from current expectations.
37
Depreciation is provided using the
straight-line method over the estimated useful lives of the respective assets.
The useful lives are as follows:
|
Building and
Improvements
|
|
5 to 40
years
|
|
Tenant Improvements
|
|
Term of the related
lease
|
|
Furniture and
Equipment
|
|
3 to 5
years
|
Rental properties are individually
evaluated for impairment when conditions exist which may indicate it is probable
that the sum of expected future undiscounted cash flows for each property is
less than the carrying amount of that property. Impairment indicators for our
rental properties are assessed by property and include, but are not limited to,
significant fluctuations in estimated net operating income, occupancy changes,
rental rates and other market factors. The Company assesses the expected
undiscounted cash flows based upon numerous factors, including, but not limited
to, appropriate capitalization rates, available market information, historical
operating results, known trends and market/economic conditions that may affect
the property and our assumptions about the use of the
asset.
Upon determination
that impairment has occurred and that the future undiscounted cash flows are
less than the carrying amount, a write-down will be recorded to reduce the
carrying amount to its estimated fair value.
Recent Accounting
Pronouncements
In
December 2010, the FASB issued ASU 2010-29, Business Combinations (Topic 805):
Disclosure of Supplementary Pro Forma Information for Business Combinations.
ASU 2010-29 specifies that when a public company completes a business
combination, the company should disclose revenue and earnings of the combined
entity as though the business combination occurred as of the beginning of the
comparable prior annual reporting period. The update also expands the
supplemental pro forma disclosures under Topic 805 to include a description of
the nature and amount of material, non-recurring pro forma adjustments directly
attributable to the business combination included in the pro forma revenue and
earnings. The requirements of ASU 2010-29 are effective for business
combinations that occur on or after the beginning of the first annual reporting
period beginning on or after December 15, 2010. We adopted this ASU during the
year ended December 31, 2011 and do not believe the adoption of this update had
a material impact on the disclosure requirements for our consolidated financial
statements.
In
April 2011, the FASB issued ASU 2011-03, Transfers and Servicing (Topic 860):
Reconsideration of Effective Control for Repurchase Agreements. ASU 2011-03
specifies when an entity may or may not recognize a sale upon the transfer of
financial assets subject to repurchase agreements. That determination is based,
in part, on whether the entity has maintained effective control over the
transferred financial assets. The requirements of ASU 2011-03 will be effective
for the first interim or annual period beginning on or after December 15, 2011,
with early adoption prohibited. We do not believe the adoption of this update
will have a material effect on our consolidated financial position or results of
operations.
In
May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820):
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements
in U.S. GAAP and
IFRS
. These amendments were issued to provide a consistent
definition of fair value and ensure that the fair value measurement and
disclosure requirements are similar between GAAP and International Financial
Reporting Standards (IFRS). ASU 2011-04 changes certain fair value measurement
principles and enhances the disclosure requirements, particularly for
Level
3
fair value measurements. This ASU is effective for interim and annual periods
beginning after December 15, 2011, with early adoption prohibited. We do not
believe the adoption of this update will have a material effect on our
consolidated financial position or results of operations.
In
June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220):
Presentation of Comprehensive Income. This ASU eliminates the option to report
other comprehensive income and its components in the statement of changes in
stockholders equity and requires an entity to present the total of
comprehensive income, the components of net income and the components of other
comprehensive income either in a single continuous statement or in two separate
but consecutive statements. In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments
to the Presentation of Reclassification of Items Out of Accumulated Other
Comprehensive Income in Accounting Standards Update No. 2011-05. This ASU
defers indefinitely certain requirements from ASU 2011-05 that relate to the
presentation of reclassification adjustments out of accumulated other
comprehensive income. ASU 2011-05 and ASU 2011-12 are effective for fiscal
years, and interim periods within those years, beginning after December 15,
2011, with early adoption permitted, and requires retrospective application for
all periods presented. We do not believe the adoption of this update will have a
material impact on the disclosure requirements for our consolidated financial
statements.
38
In
September 2011, the FASB issued ASU 2011-08, Intangibles-Goodwill and Other
(Topic 350): Testing Goodwill for Impairment This ASU gives companies the
option to perform a qualitative assessment to first assess whether the fair
value of a reporting unit is less than its carrying amount. If an entity
determines it is not more likely than not that the fair value of the reporting
unit is less than its carrying amount, then performing the two-step impairment
test is unnecessary. ASU 2011-08 is effective for annual and interim goodwill
impairment tests performed for fiscal years beginning after December 15, 2011,
with early adoption permitted. We do not believe the adoption of this update
will have a material impact on the disclosure requirements for our consolidated
financial statements.
In December 2011, the FASB issued
ASU 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in
Substance Real Estatea Scope Clarification. This ASU requires that a reporting
entity that ceases to have a controlling financial interest in a subsidiary that
is in substance real estate as a result of default on the subsidiarys
nonrecourse debt would apply FASB ASC Subtopic 360-20, Property, Plant, and
EquipmentReal Estate Sales, to determine whether to derecognize assets and
liabilities of that subsidiary. ASU 2011-10 is effective prospectively for a
deconsolidation event that takes place in fiscal years, and interim periods
within those years, beginning on or after June 15, 2012. We do not believe the
adoption of this update will have a material effect on our consolidated
financial position or results of operations.
In December 2011, the FASB issued
ASU 2011-11, Balance Sheet (Topic 210): Derecognition of in Substance Real
Estatea Scope Clarification. This ASU adds certain additional disclosure
requirements about financial instruments and derivative instruments that are
subject to netting arrangements. ASU 2011-11 is effective for fiscal years, and
interim periods within those years, beginning after January 1, 2013, with
retrospective application required. We do not believe the adoption of this
update will have a material impact on the disclosure requirements for our
consolidated financial statements.
NOTE 3. ACQUISITION ACTIVITIES
Acquisition of Property
Management and Asset Management Contracts
In January 2010, we acquired the
property management and asset management contracts held by Evergreen Realty
Group, LLC and affiliates ("Evergreen") as well as (i) Evergreen's interest as
the manager of limited liability companies which have invested in 27 of the
managed properties (in eight of which it has also acquired an equity interest);
(ii) Evergreen's interest as the general partner of limited partnerships which
have invested in four of the managed properties (in none of which it acquired an
equity interest), and (iii) direct tenant-in-common interests in two properties.
The total consideration for the acquisition was $18.0 million.
We completed the Evergreen
acquisition by assuming $0.5 million of Evergreen payables, issuing 1.6 million
OP units with redemption terms that are different from the Company's other OP
units
(the "Evergreen OP
units
") and issuing a $9.5 million promissory note. The
promissory note is an obligation of American Spectrum Realty Management, LLC, a
subsidiary, which matures on December 31, 2019 and bears an annual interest rate
of 5.0%. Due to the litigation with Evergreen as more fully described in Note
17. Commitments and Contingencies, the purchase price adjustment and effect on
the amount of the Evergreen OP units convertible into cash or stock cannot be
determined at this time, although management believes that an adjustment is
likely. Any adjustment made will influence the amount of debt, OP units and the
assets those instruments were used to purchase including goodwill.
The fair value of the management
contracts acquired in the Evergreen transaction was adjusted through the
remainder of the year for impairment and amortization. Amortization expense was
$0.8 million and $1.0 million for the years ended December 31, 2011 and 2010,
respectively. Amortization expense associated with the acquisition will be $0.8
million per year for the next five years ending December 31.
39
When
acquired management contracts are terminated, the associated value with those
contracts is considered impaired and written off in the period the contract
terminates. We recorded $0.7 million and $3.4 million related to such
impairments for the years ending December 31, 2011 and 2010, respectively. See
Note 8. Asset Impairment, for additional discussion.
Acquisition of Notes Receivable
and Accounts Receivable
In September 2010, the Company
acquired two notes receivable, each with a face amount of $0.5 million from
American Spectrum REIT I, Inc. (ASRI). The acquisition was funded by the
issuance of 154,524 OP
units
. The two $0.5 million notes bear interest at a rate
of 12% per annum and are payable on demand from Evergreen. The Company
anticipates the notes receivable will be offset against either its note payable
to Evergreen or through a reduction in OP
units
currently held by Evergreen.
Please refer to Part I Item 3 Legal Proceedings.
In June 2010, the Company acquired a
note receivable and an account receivable with a total face amount of
approximately $1.6 million from Evergreen Income and Growth REIT, LP (EIGRLP),
whose general partner is Evergreen Income and Growth REIT, Inc. (EIGRI). The
acquisition was funded by the issuance of 334,789 OP
units
. The note, in the
amount of approximately $1.0 million, bears interest at 12% per annum. The note
and accrued interest is payable on demand from Central Florida Self Storage
Acquisitions, LLC. Accrued and unpaid interest on the note totaled approximately
$0.2 million as of December 31, 2011. The note was acquired to ultimately
acquire certain real estate assets in which the obligors on the note have
ownership interests. The Company is not recognizing interest income on the note.
The account receivable acquired,
which totaled approximately $0.4 million is due from Evergreen. The account
receivable is related to organizational and offering costs paid in excess of the
amounts established in EIGRIs 2008 private placement agreement. The Company
anticipates the receivable from Evergreen will be offset against either its note
payable to Evergreen or through a reduction in OP
units
currently held by
Evergreen in 2012.
Property Acquisitions
No properties were acquired in 2011.
During 2010
,
we incurred
approximately $0.1 million in costs related to the acquisitions that were
included in the consolidated statements of operations in general and
administrative expenses. One of the properties was acquired from ASRI. See the
disclosure related to the Sabo Road property in Note 10-Related Party
Transactions for additional information.
During 2010, controlling interests
were acquired in certain properties we managed. The total consideration for
these controlling interests was $7.6 million. The consideration was a
combination of cash $0.3 million, assumed debt $5.3 million, a third party
equity contribution of $1.0 million and OP units valued at $1.0 million.
INTANGIBLE ASSETS PURCHASED
Upon acquisitions of real estate, we
assess the fair value of acquired tangible and intangible assets (including
land, buildings, tenant improvements, above and below market leases, origination
costs, acquired in-place leases, other identified intangible assets and assumed
liabilities), and allocates the purchase price to the acquired assets and
assumed liabilities. We also consider an allocation of purchase price of other
acquired intangibles, including acquired in-place leases.
We evaluate acquired above and
below market leases at their fair value (using a discount rate which reflects
the risks associated with the leases acquired) equal to the difference between
(i) the contractual amounts to be paid pursuant to each in-place lease and (ii)
managements estimate of fair market lease rates for each corresponding in-place
lease, measured over a period equal to the remaining term of the lease for
above-market leases and the initial term plus the term of any below-market fixed
rate renewal options for below-market leases.
Acquired lease intangible assets
(in-place leases and above-market leases) are amortized over the leases
remaining terms, which range from 1 month to 6 years. Amortization of
above-market leases is recorded as a reduction of rental income and the
amortization of in-place leases is recorded to amortization expense. We
currently have no intangible lease costs related to above-market
leases.
40
Acquired lease intangible liabilities (below-market leases) are accreted
over the leases remaining terms, which range from 1 month to 6 years. Accretion
of below-market leases was approximately $0.44 million and $0.4 million for the
two years ended December 31, 2011 and December 31, 2010, respectively. Such
accretion is recorded as an increase to rental income.
The estimated aggregate amortization
amounts from acquired lease intangibles for each of the next five years are as
follows (in thousands):
|
|
Amortization
|
Year Ending
|
|
Expense (in-place
|
December 31,
|
|
lease
value)
|
2012
|
|
$
|
343
|
2013
|
|
|
314
|
2014
|
|
|
289
|
2015
|
|
|
67
|
2016
|
|
|
0
|
|
|
$
|
1,013
|
NOTE 4. ASSETS HELD FOR
SALE
Below is a listing of the consolidated properties we have listed for
sale. We can make no guarantees as to our ability to
sell
any of our
consolidated properties. We further cannot assure you that we will achieve a
sales price that allows us to receive cash to fund our operations.
For those consolidated properties
listed for sale that we do not have an ownership percentage in (VIE properties),
we will receive transaction fees if/when a sale is successfully
executed.
|
|
|
|
ASR
|
|
Carrying
|
|
Carrying
|
|
|
Property
|
|
Ownership
|
|
Value of
|
|
Value of
|
Property Name
|
|
Type
|
|
Precentage
|
|
Property
|
|
debt
|
|
|
|
|
|
|
(in
thousands)
|
Beltway Industrial Park
|
|
Industrial
|
|
100%
|
|
$
|
14,629
|
|
$
|
16,445
|
Foxborough
Business Park
|
|
Industrial
|
|
0%
|
|
|
5,246
|
|
|
3,683
|
Sierra Southwest Pointe
|
|
Industrial
|
|
100%
|
|
|
2,667
|
|
|
3,570
|
800 & 888
Sam Houston Parkway
|
|
Office
|
|
100%
|
|
|
3,238
|
|
|
4,411
|
Fountain View Office Tower
|
|
Office
|
|
51%
|
|
|
12,817
|
|
|
11,750
|
Park Ten Place
I
|
|
Office
|
|
100%
|
|
|
3,775
|
|
|
4,790
|
Park Ten Place II
|
|
Office
|
|
100%
|
|
|
3,132
|
|
|
3,753
|
Attic
self-storage - Blanco
|
|
Self Storage
|
|
0%
|
|
|
1,608
|
|
|
1,316
|
Attic self-storage - Laredo
|
|
Self Storage
|
|
0%
|
|
|
3,144
|
|
|
1,758
|
Florida 2 -
Ocala Self Storage
|
|
Self Storage
|
|
0%
|
|
|
1,880
|
|
|
1,376
|
Florida 2 - Tampa Self Storage
|
|
Self Storage
|
|
0%
|
|
|
2,151
|
|
|
1,466
|
Grissom Road
Self Storage
|
|
Self Storage
|
|
0%
|
|
|
3,860
|
|
|
2,336
|
Sabo Road Self Storage
|
|
Self Storage
|
|
55%
|
|
|
2,618
|
|
|
1,911
|
|
|
|
|
|
|
$
|
60,765
|
|
$
|
58,565
|
NOTE 5. VARIABLE INTEREST
ENTITIES
We
have identified multiple Variable Interest Entities where we are the primary
beneficiary for accounting purposes. As a result, these
VIE were
consolidated in
the consolidated
financial statements, after
eliminating intercompany transactions and presenting the interests that are not
owned by us as non-controlling interests in the condensed consolidated balance
sheets.
41
The entities being consolidated as
of December 31, 2011 include twelve self-storage properties, two multifamily
properties, four student housing properties and nine commercial properties. This
represents an increase of one self-storage property, one multifamily and one
commercial property and a decrease of one assisted living facility, one
multifamily, one commercial property and one student housing property as
compared to the year ended December 31, 2010.
The Variable Interest Entities at
December 31, 2011 were:
|
|
|
|
|
|
Total
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasable
|
|
Leasable
|
|
Rented
|
|
|
|
Rent
per
|
|
|
Percentage
|
|
|
|
Square
|
|
Area
|
|
Square
|
|
Annualized
|
|
Square
|
Property Name
|
|
owned
|
|
City/State
|
|
Footage
|
|
Occupied
|
|
Feet
|
|
Net
Rent
|
|
Feet
|
Commerce Distributions Center
|
|
1%
|
|
Commerce, CA
|
|
200,000
|
|
100%
|
|
200,000
|
|
1,056,000
|
|
5.28
|
Dixon & 51st Logistics Center
|
|
0%
|
|
Des
Moines, IA
|
|
731,160
|
|
100%
|
|
731,169
|
|
2,128,026
|
|
2.91
|
Fishers Indiana Distribution
Center
|
|
1%
|
|
Fishers, IN
|
|
637,531
|
|
100%
|
|
637,531
|
|
2,399,877
|
|
3.76
|
Foxborough Business Park
|
|
0%
|
|
Victorville, CA
|
|
127,992
|
|
83%
|
|
105,635
|
|
912,053
|
|
8.63
|
Ohio Commerce Center
|
|
0%
|
|
Strongsville, OH
|
|
194,558
|
|
100%
|
|
194,558
|
|
2,276,652
|
|
11.70
|
Springs Commerce Center I
|
|
0%
|
|
OK, GA, SC, VA, PA
|
|
1,006,993
|
|
100%
|
|
1,006,993
|
|
2,366,989
|
|
2.35
|
Springs Commerce Center II
|
|
0%
|
|
GA, AL
|
|
1,439,300
|
|
62%
|
|
886,450
|
|
1,960,793
|
|
2.21
|
Springs Office
|
|
0%
|
|
Fort Mill/Lancaster, SC
|
|
265,493
|
|
100%
|
|
265,493
|
|
1,993,576
|
|
7.51
|
Strongsville Corporate
Center
|
|
2%
|
|
Strongsville,
OH
|
|
125,006
|
|
100%
|
|
125,006
|
|
2,084,609
|
|
16.68
|
Industrial/Commercial
Properties
|
|
|
|
|
|
4,728,033
|
|
88%
|
|
4,152,835
|
|
17,178,575
|
|
4.14
|
|
Campus Court Student Housing
|
|
11%
|
|
Cedar Falls, IA
|
|
72,480
|
|
99%
|
|
71,760
|
|
583,222
|
|
8.13
|
Muirwood Village
|
|
0%
|
|
Zanesville, OH
|
|
157,600
|
|
88%
|
|
138,601
|
|
1,504,192
|
|
10.85
|
Ohio II - Residences at Newark &
Sheffield
|
|
0%
|
|
Newark/Circleville, OH
|
|
203,740
|
|
92%
|
|
187,574
|
|
1,872,106
|
|
9.98
|
College Park Student Apartments
|
|
0%
|
|
Cedar Rapids, IA
|
|
485,720
|
|
100%
|
|
485,720
|
|
1,557,681
|
|
3.21
|
University Fountains Lubbock
|
|
0%
|
|
Lubbock, TX
|
|
284,436
|
|
93%
|
|
265,655
|
|
4,544,911
|
|
17.11
|
University Springs San Marcos
|
|
0%
|
|
San Marcos, TX
|
|
176,944
|
|
99%
|
|
174,290
|
|
2,557,324
|
|
14.67
|
Multi-Family/Student Housing Properties
|
|
|
|
|
|
1,380,920
|
|
96%
|
|
1,323,600
|
|
12,619,436
|
|
9.53
|
|
Loop 1604 Self Storage
|
|
38%
|
|
San Antonio, TX
|
|
164,325
|
|
91%
|
|
149,655
|
|
891,560
|
|
5.96
|
Aldine Westfield Self Storage
|
|
0%
|
|
Houston, TX
|
|
64,975
|
|
64%
|
|
41,313
|
|
384,718
|
|
9.31
|
Attic Space Self Storage - Blanco
Rd
|
|
0%
|
|
San Antonio, TX
|
|
48,130
|
|
79%
|
|
38,135
|
|
313,222
|
|
8.21
|
Attic Space Self Storage - Laredo Road
|
|
0%
|
|
San
Antonio, TX
|
|
47,870
|
|
100%
|
|
47,870
|
|
472,388
|
|
9.87
|
Charleston Blvd Self Storage
|
|
0%
|
|
Las Vegas, NV
|
|
55,600
|
|
72%
|
|
40,275
|
|
219,725
|
|
5.46
|
Florida 2 - Ocala Self Storage
|
|
0%
|
|
Ocala, FL
|
|
42,091
|
|
55%
|
|
22,989
|
|
157,936
|
|
6.87
|
Florida 2 - Tampa Self Storage
|
|
0%
|
|
Tampa, FL
|
|
60,900
|
|
70%
|
|
42,350
|
|
252,505
|
|
5.96
|
Ft.
Worth Northwest Self Storage
|
|
0%
|
|
Fort Worth, TX
|
|
69,275
|
|
63%
|
|
43,850
|
|
462,410
|
|
10.55
|
Ft. Worth River Oaks Self Storage
|
|
0%
|
|
River Oaks, TX
|
|
104,265
|
|
50%
|
|
51,749
|
|
583,457
|
|
11.27
|
Grissom Road Self Storage
|
|
0%
|
|
San
Antonio, TX
|
|
90,120
|
|
99%
|
|
89,545
|
|
554,467
|
|
6.19
|
Houston South Mason (Patrick's)
|
|
0%
|
|
Katy, TX
|
|
58,730
|
|
70%
|
|
41,350
|
|
319,318
|
|
7.72
|
San Antonio Self Storage
|
|
0%
|
|
San Antonio, TX
|
|
233,213
|
|
82%
|
|
191,364
|
|
1,336,732
|
|
6.99
|
Self-Storage Properties
|
|
|
|
|
|
1,039,494
|
|
77%
|
|
800,445
|
|
5,948,438
|
|
7.43
|
The pro forma information below is
based on estimates and assumptions that have been made solely for purposes of
developing such pro forma information by including the newly consolidated VIEs
to the Companys results of operations during the year ending December 31, 2011.
The pro forma financial information presented below also includes depreciation
and amortization plus consolidation of the VIEs as if such consolidation had
occurred as of January 1, 2010. The pro forma financial information does not
include any synergies or operating cost reductions that may be achieved from the
combined operations.
42
Proforma Results of
Operations
|
|
Year
ended
|
|
|
December
31,
|
|
|
2011
|
|
2010
|
|
|
(in
thousands)
|
Total
Revenue
|
|
$
|
74,443
|
|
|
$
|
52,808
|
|
Total Expense
|
|
|
(96,001
|
)
|
|
|
(71,851
|
)
|
Net loss before
non-controling interest and tax
|
|
|
(21,558
|
)
|
|
|
(19,043
|
)
|
Deferred tax benefit
|
|
|
4,035
|
|
|
|
4,661
|
|
Income from
discontinued operations
|
|
|
17,313
|
|
|
|
(784
|
)
|
Non-controlling
interest
|
|
|
4,209
|
|
|
|
7,129
|
|
Net income
(loss)
|
|
$
|
3,999
|
|
|
$
|
(8,037
|
)
|
The
accompanying financial statements include the operations of the newly
consolidated VIEs in 2011 from the acquisition date and consolidation date in
accordance with our business combination and VIE policies. A summary of the
effect on operations follows:
VIE
component of the consolidated statement of operations
|
for
the year ending December 31, 2011
|
(in
thousands)
|
Total
Revenue
|
|
$
|
2,864
|
|
Total Expenses
|
|
|
(3,665
|
)
|
|
|
|
|
|
Net Loss before
Noncontrolling
|
|
|
|
|
Interest &
Tax
|
|
|
(801
|
)
|
Deferred Tax Benefit
|
|
|
-
|
|
Non-Controlling
Interest
|
|
|
801
|
|
|
|
|
|
|
Net Loss
|
|
$
|
-
|
|
The
deconsolidation of certain VIEs in 2011 was due to a change in our management
relationship with the properties. We no longer manage or have a continuing
involvement with three of these properties. We continue to manage the fourth
property, which is a student housing property, although we no longer are the
primary beneficiary because we no longer control the property. The impact on our
year to date Consolidated Financial Statements was a decrease in total assets of
$74.8 million, a decrease in total liabilities of $56.7 million and a decrease
in non-controlling interest of $18.1 million. In addition, total net income
attributable to non-controlling interests of $0.5 million was recorded from the
deconsolidated properties. The de-consolidation of these entities did not result
in a gain or loss in the Consolidated Statement of Operations as the carrying
amount of the non-controlling interest in the former subsidiaries at the
deconsolidation
date was the same as the carrying amount of the former
subsidiarys assets minus liabilities at the date of the
deconsolidation
.
We own an insignificant interest in
most of the VIEs, and therefore, substantially all operations are included in
the net income attributable to non-controlling interests.
43
The carrying
amounts associated with the VIEs, after eliminating the effect of intercompany
transactions, were as follows (in thousands):
|
|
December 31,
|
|
|
2011
|
|
2010
|
Assets
|
|
|
|
|
|
|
Restricted Cash
|
|
$
|
4,157
|
|
$
|
4,016
|
Receivables
|
|
|
2,365
|
|
|
1,515
|
Fixed Assets Net of
depreciation
|
|
|
316,361
|
|
|
372,908
|
Other
Assets
|
|
|
8,123
|
|
|
8,858
|
Total Assets
|
|
$
|
331,006
|
|
$
|
387,297
|
|
Liabilities
|
|
|
|
|
|
|
Accounts payable
|
|
|
634
|
|
|
5,734
|
Notes
payable
|
|
|
237,276
|
|
|
268,776
|
Other liabilities
|
|
|
7,144
|
|
|
1,809
|
Total liabilities
|
|
$
|
245,054
|
|
$
|
276,319
|
|
Variable interest entity net carrying
amount
|
|
$
|
85,952
|
|
$
|
110,978
|
At
December 31, 2011, the liabilities in the above table are solely the obligations
of the VIEs and are not guaranteed by us. We do not have the ability to
leverage the assets of the above identified VIEs for the purpose of providing
ourselves cash. The debt is solely secured by the property of the respective
VIEs.
During the year ended December 31,
2011, we did not provide short term advances to any properties that have been
consolidated or deconsolidated. A minimal balance is still owed to us as of
December 31, 2011 relating to advances during 2010. We do not believe we have
significant exposure to losses related to the VIEs.
NOTE 6. REAL
ESTATE
The cost and accumulated
depreciation of rental property held for investment as of December 31, 2011 and
2010 are as
follows (in thousands):
|
|
|
|
|
|
Building and
|
|
|
|
|
Accumulated
|
|
Net Recorded
|
|
|
2011
|
|
Land
|
|
Improvements
|
|
Total
Cost
|
|
Depreciation
|
|
Value
|
|
|
ASR Owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
$
|
40,572
|
|
$
|
103,196
|
|
$
|
143,768
|
|
$
|
(48,439
|
)
|
|
$
|
95,329
|
|
|
Industrial
|
|
|
6,419
|
|
|
20,160
|
|
|
26,579
|
|
|
(7,738
|
)
|
|
|
18,841
|
|
|
Retail
|
|
|
2,811
|
|
|
5,077
|
|
|
7,888
|
|
|
(2,074
|
)
|
|
|
5,814
|
|
|
Self-Storage
|
|
|
535
|
|
|
2,439
|
|
|
2,974
|
|
|
(356
|
)
|
|
|
2,618
|
|
|
Other
|
|
|
-
|
|
|
787
|
|
|
787
|
|
|
(566
|
)
|
|
|
221
|
|
|
|
|
|
50,337
|
|
|
131,659
|
|
|
181,996
|
|
|
(59,173
|
)
|
|
|
122,823
|
|
|
|
|
|
VIE
Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
|
32,272
|
|
|
161,525
|
|
|
193,797
|
|
|
(14,330
|
)
|
|
|
179,467
|
|
|
Residential
|
|
|
16,187
|
|
|
83,930
|
|
|
100,117
|
|
|
(6,367
|
)
|
|
|
93,750
|
|
|
Self-Storage
|
|
|
18,949
|
|
|
25,982
|
|
|
44,931
|
|
|
(1,787
|
)
|
|
|
43,144
|
|
|
|
|
|
67,408
|
|
|
271,437
|
|
|
338,845
|
|
|
(22,484
|
)
|
|
|
316,361
|
|
|
|
|
|
TOTAL
|
|
$
|
117,745
|
|
$
|
403,096
|
|
$
|
520,841
|
|
$
|
(81,657
|
)
|
|
$
|
439,184
|
|
44
|
|
|
|
|
|
Building and
|
|
|
|
|
Accumulated
|
|
Net Recorded
|
|
|
2010
|
|
Land
|
|
Improvements
|
|
Total
Cost
|
|
Depreciation
|
|
Value
|
|
|
ASR Owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
$
|
52,512
|
|
$
|
155,785
|
|
$
|
208,297
|
|
$
|
(69,371
|
)
|
|
$
|
138,926
|
|
|
Industrial
|
|
|
8,709
|
|
|
31,866
|
|
|
40,575
|
|
|
(11,071
|
)
|
|
|
29,504
|
|
|
Retail
|
|
|
2,650
|
|
|
9,973
|
|
|
12,623
|
|
|
(4,716
|
)
|
|
|
7,907
|
|
|
Self-Storage
|
|
|
536
|
|
|
2,216
|
|
|
2,752
|
|
|
(38
|
)
|
|
|
2,714
|
|
|
Other
|
|
|
-
|
|
|
654
|
|
|
654
|
|
|
(448
|
)
|
|
|
206
|
|
|
|
|
|
64,407
|
|
|
200,494
|
|
|
264,901
|
|
|
(85,644
|
)
|
|
|
179,257
|
|
|
|
|
|
VIE
Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
$
|
37,959
|
|
$
|
176,264
|
|
$
|
214,223
|
|
$
|
(5,374
|
)
|
|
$
|
208,849
|
|
|
Residential
|
|
|
21,763
|
|
|
112,072
|
|
|
133,835
|
|
|
(2,765
|
)
|
|
|
131,070
|
|
|
Self-Storage
|
|
|
12,279
|
|
|
21,017
|
|
|
33,296
|
|
|
(307
|
)
|
|
|
32,989
|
|
|
|
|
|
72,001
|
|
|
309,353
|
|
|
381,354
|
|
|
(8,446
|
)
|
|
|
372,908
|
|
|
|
|
|
TOTAL
|
|
$
|
136,408
|
|
$
|
509,847
|
|
$
|
646,255
|
|
$
|
(94,090
|
)
|
|
$
|
552,165
|
|
FUTURE MINIMUM
RENTS
The
Company leases its office, industrial, retail center and self-storage property
under non-cancelable operating lease agreements. Future minimum rents to be
received as of December 31, 2011, are as follows (in thousands):
MINIMUM RENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending
|
|
Future Minimum
Rents
|
December 31,
|
|
|
ASR
|
|
|
VIE
|
|
Total
|
2012
|
|
$
|
17,912
|
|
$
|
27,166
|
|
$
|
45,078
|
2013
|
|
|
11,842
|
|
|
14,514
|
|
|
26,356
|
2014
|
|
|
8,080
|
|
|
14,478
|
|
|
22,558
|
2015
|
|
|
4,335
|
|
|
14,370
|
|
|
18,705
|
2016
|
|
|
2,580
|
|
|
12,121
|
|
|
14,701
|
Thereafter
|
|
|
2,543
|
|
|
110,961
|
|
|
113,504
|
|
|
$
|
47,292
|
|
$
|
193,610
|
|
$
|
240,902
|
NOTE 7. DISCONTINUED
OPERATIONS
In
December 2011, the lender for our Technology property foreclosed on the asset.
The 118,413 square foot industrial property is located in Austin, Texas. We had
elected to discontinue servicing the unpaid balance of the debt, which totaled
$7.1 million, due to the balance exceeding the market value of the property. The
property securing the debt was held by a consolidated wholly-owned subsidiary
that had not guaranteed the debt. The transaction generated a gain of $1.7
million. No proceeds were received as a result of the transaction.
In November 2011, the lender for our
Northwest Corporate Center property foreclosed on the asset. The 86,900 square
foot office property is located in St. Louis, Missouri. We had elected to
discontinue servicing the unpaid balance of the debt, which totaled $5.3
million, due to the balance exceeding the market value of the property. The
property securing the debt was held by a consolidated wholly-owned subsidiary
that had not guaranteed the debt. The transaction generated a gain of $0.6
million. No proceeds were received as a result of the transaction.
In August 2011, the lender for our
Creekside property foreclosed on the asset. The 47,810 square foot office
property is located in San Ramon, California. We had elected to discontinue
servicing the unpaid balance of the debt, which totaled $5.7 million, due to the
balance exceeding the market value of the property. The property securing the
debt was held by a consolidated wholly-owned subsidiary that had not guaranteed
the debt. The transaction generated a gain of $0.4 million. No proceeds were
received as a result of the transaction.
45
7700
Irvine Center, a 209,343 square foot office property, located in Irvine,
California was sold on June 28, 2011 for $56.5 million, resulting in net
proceeds of approximately $6.1 million. The transaction generated a gain on sale
before income tax expense of $23.3 million. The gain on the sale of the property
significantly diminished our federal net operating loss carry-forward. The
proceeds from the sale were used to distribute $2.5 million to the
non-controlling interest in 7700 Irvine Center, and to reduce debt, accrued
liabilities and accounts payables.
During March 2010, we closed escrow
on 5850 San Felipe Road and realized proceeds of $5.2
million.
The
proceeds allowed us to repurchase the preferred interest in the partnership that
owned the property, reduce debt and payables. We recorded a gain on the sale of
discontinued operations before income taxes in our consolidated statements of
operations of $4.3 million.
The consolidated statements of
operations of discontinued operations for the years ending December 31, 2011 and
2010 are summarized below:
|
|
Years Ended
|
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
|
(In thousands)
|
Rental Revenue
|
|
$
|
3,969
|
|
|
$
|
6,924
|
|
Less Expenses
(1)
|
|
|
(6,522
|
)
|
|
|
(12,470
|
)
|
Loss from discontinued operations before gain
|
|
|
|
|
|
|
|
|
on sale, foreclosure and income tax (expense)/benefit
|
|
|
(2,553
|
)
|
|
|
(5,546
|
)
|
Gain on sale of real estate asset
|
|
|
23,299
|
|
|
|
4,315
|
|
Gain on foreclosure of real estate asset
|
|
|
2,717
|
|
|
|
-
|
|
Income tax (expense)/benefit
|
|
|
(6,150
|
)
|
|
|
447
|
|
Income/(loss) from discontinued operations
|
|
$
|
17,313
|
|
|
$
|
(784
|
)
|
____________________
(1)
|
|
Includes interest expense of
approximately $2.2 million and $4.2 million for
the years
ending December 31,
2011 and December 31, 2010, respectively. Mortgage debt related to the
property included in discontinued operations was individually secured, and
as such, interest expense was based on the propertys
debt.
|
Income from discontinued operations for the year ending December 31, 2011
includes the gain resulting from the sale of 7700 Irvine Center, the gain on the
foreclosures of Creekside, Northwest Corporate Center and Technology and the
operating results of these properties through the date of disposition. Loss from
discontinued operations for the year ended December 31, 2010 represents the gain
on sale of 5850 San Felipe, a 101,880 square foot office property sold in March
2010 and the operating results of 5850 San Felipe, 7700 Irvine Center,
Creekside, Northwest Corporate Center and Technology. See Note 16
Restructuring of Debt.
Our total assets and total
liabilities decreased by $50.2 million and $70.2 million respectively, as a
result of the 2011 dispositions.
NOTE 8. ASSET
IMPAIRMENTS
Goodwill
During the year ending December 31,
2011, we performed an assessment of goodwill that indicated the carrying value
of goodwill exceeded the fair value requiring us to perform the second step of
the impairment test. In the second step, we estimated the fair value of the
goodwill using the income approach. Using the income approach required
management to estimate the gross probable income for the reporting unit
associated with the goodwill. Management then estimated and deducted from the
gross probable income, the estimated probable expenses that would be incurred to
generate the income. After the estimated probable expenses were deducted from
the estimated gross probable income the resulting estimated probable net income
was present valued using a factor that management believed was
reasonable.
The assumptions used by management can have a significant
impact on the value of identifiable assets and accordingly can impact the value
of goodwill recorded. These assumptions are based on managements internal
analysis and are not derived from an observable market. The assumptions would be
considered Level 3 assumptions in the Fair Value Hierarchy. Different
assumptions could result in different values being attributed to assets and
liabilities. Since these values impact the amount of impairment expense,
different assumptions could impact our statement of operations and could impact
the results of future impairment reviews.
46
As a
result of the analysis, we determined the carrying value of the goodwill
exceeded its fair value and recorded $1.3 million of impairment expense related
to goodwill. The impairment reduced the beginning value of goodwill of $4.0
million to $2.7 million as of December 31, 2011.
The assessment was performed as a
result of losing contracts acquired in the Evergreen acquisition and if we
experience a significant or sustained decline in our future cash flows as a
result of losing additional management contracts or if other events and/or
circumstances occur, we may need to perform additional impairment analysis in
the future which may result in additional expense.
Purchased Intangibles Subject
to Amortization
During the year ending December 31,
2011, we had our contractual relationships terminated or modified by the
entities that owned some of the third party properties we manage. Based on this
triggering event we evaluated the management contracts associated with some of
our purchased intangibles for impairment and determined that impairment had
occurred. We recorded impairment charges of $0.7 and $3.4 million for the years
ending December 31, 2011 and December 31, 2010, respectively, that reduced the
fair value of the impaired contracts to zero.
Real Estate Held for Investment
Rental properties are individually
evaluated for impairment when conditions exist which may indicate it is probable
that the sum of expected future undiscounted cash flows is less than the
carrying amount. Impairment indicators for our rental properties are assessed by
project and include, but are not limited to, significant fluctuations in
estimated net operating income, occupancy changes, rental rates and other market
factors. We assess the expected undiscounted cash flows based upon numerous
factors and estimates, including, but not limited to, appropriate capitalization
rates, available market information, historical operating results, known trends
and market/economic conditions that may affect the property and our assumptions
about the use of the asset, including, if necessary, a probability-weighted
approach if multiple outcomes are under consideration. Upon determination that
impairment has occurred and that the future undiscounted cash flows are less
than the carrying amount, a write-down will be recorded to reduce the carrying
amount to its estimated fair value. During the year ending December 31, 2011, we
determined certain conditions existed that an evaluation for impairment was
needed on certain of our properties. For the year ending
December 31, 2011, we recorded impairment charges of
$2.5 million on real estate held for investment. The impairment charges were
primarily due a determination that the market value of three of our assets were
lower than their carrying value as a result of an analysis of future
undiscounted cash flows and market data. Based on our evaluation as of December
31, 2011 we do not believe that any other properties in our portfolio should be
impaired.
NOTE 9. FAIR VALUE MEASUREMENTS
The
Fair Value Measurements and Disclosures
Topic of the FASB ASC (Topic 820) defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at the
measurement date. Topic 820 also establishes a three-level fair value hierarchy
that prioritizes the inputs used to measure fair value. This hierarchy requires
entities to maximize the use of observable inputs and minimize the use of
unobservable inputs. The three levels of inputs used to measure fair value are
as follows:
Level 1Quoted prices in active
markets for identical assets or liabilities.
Level 2Observable inputs other
than quoted prices included in Level 1, such as quoted prices for similar assets
and liabilities in active markets; quoted prices for identical or similar assets
and liabilities in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data.
Level 3Unobservable inputs that
are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities. This includes certain pricing models,
discounted cash flow methodologies and similar techniques that use significant
unobservable inputs. The fair value measurements employed for our impairment
evaluations were generally based on a discounted cash flow approach and/or
review of comparable activities in the market place. Inputs used in these
evaluations included risk-free rates of return, estimated risk premiums as well
as other economic variables.
47
Assets Measured at Fair Value
on a Non-Recurring Basis
. We measure our goodwill and real estate assets on
a non-
recurring basis for impairment of fair
value using an income approach. Using the income approach requires management to
estimate the gross probable income for the reporting unit associated with the
asset. Management then estimates and deducts from the gross probable income, the
estimated probable expenses that would be incurred to generate the income. After
the estimated probable expenses were deducted from the estimated gross probable
income the resulting estimated probable net income was present valued using a
factor that management believes is reasonable.
The assumptions used by
management can have a significant impact on the value of identifiable assets and
accordingly can impact the value recorded. These assumptions are based on
managements internal analysis and are not derived from an observable market.
The assumptions would be considered Level 3 assumptions in the Fair Value
Hierarchy. Different assumptions could result in different values being
attributed to assets and liabilities. Since these values impact the amount of
impairment expense, different assumptions could impact our statement of
operations and could impact the results of future impairment reviews.
See
Note 8. Asset
Impairments
for information relating to impairment expense recorded
in prior interim periods in 2011 as the result of the assessment of impairment
of goodwill and real estate assets using this approach.
NOTE 10. RELATED PARTY
TRANSACTIONS
The following transactions are
related party transactions which may include amounts that were eliminated in the
consolidation of VIEs and controlled entities.
In December 2011
,
John Galardi, a
principal stockholder and director, loaned $0.25 million to the Company and
pledged $0.4 million in certificates of deposit to additionally secure another
loan of the Company.
In September 2010, the Company
acquired two notes receivable, each with a face amount of $0.5 million, and
interests in three apartment complexes (Centennial Park Investors, LLC, Town
Center Investors, LLC and EP Investors
LLC) and
one student housing facility
(Campus Court TIC 1, LLC). The acquisitions, which were acquired from American
Spectrum REIT I, Inc. (ASRI) for a total purchase price of $1.3 million, were
funded by the issuance of 102,697 OP
units
. The number of units have been
adjusted to effect a two- for one- reverse split of all OP units. William J.
Carden is a director and President of ASRI. Mr. Carden is Chief Executive
Officer, Chairman of the Board, and a principal stockholder in the Company. The
two $0.5 million notes bear interest at a rate of 12% per annum and are payable
on demand from Evergreen Realty Group, LLC (ERG).
In June 2010, the Company acquired a
55% interest in Sabo Road Acquisitions, LP, which owns a 57,850 square foot
self-storage property located in Houston, Texas (A Plus Self Storage). The
partnership interest acquired consists of the sole general partnership interest
and a limited partnership interest. Also in June 2010, the Company acquired a
38.4% undivided interest in Loop 1604, a 178,595 square foot self-storage
property located in San Antonio, Texas. The acquisitions were acquired from ASRI
for a total purchase price of approximately $1.7 million, consisting of the
150,475 OP
units
and cash of $0.1 million. In June 2010, the Company acquired
two notes receivable ($1.0 million and $0.4 million each) and an account
receivable of $0.4 million from Evergreen Income & Growth REIT, LP
(EIGRLP) with a total carrying value of $2.1 million, including $0.3 million
of accrued and unpaid interest. The acquisition was funded by the issuance of
214,340 OP
units
.
The note, in the amount of $1.0
million, has a stated interest rate of 12% per annum. The note and accrued
interest is receivable on demand from Central Florida Self Storage Acquisitions,
LLC, an entity in which the Company has a non-economic tenant in common
interest. Accrued and unpaid interest on the note totaled approximately $0.2
million at December 31, 2011. The Company has not recognized interest income on
the note since its acquisition. The note is secured by two properties in
Florida. The Company has commenced foreclosure proceedings against these two
properties. The note in the amount of $0.4 million, which was due from ASRI,
bore interest at 10% per annum. This note and accrued interest of approximately
$0.1 million, was paid to the Company in January 2011. The account receivable
acquired, which totaled approximately $0.4 million, is due from ERG. The account
receivable is related to organizational and offering costs paid in excess of the
amounts established in EIGRIs 2008 private placement agreement.
In May 2010, the Company obtained
financing for insurance premiums on both its owned and third party managed
properties of which approximately $2.1 million was attributable to the Evergreen
property portfolio. During 2010, the Company received approximately $2.0 million
from these properties as payment on the premiums.
Mr. Carden is a director and
President of Evergreen Income & Growth REIT, Inc. (EIGRI), the general
partner of EIGRLP. The Company does not have an ownership interest in EIRGI or
EIGRLP.
48
The Company pays a guarantee fee to
Mr. Carden, Mr. Galardi and CGS Real Estate Company, Inc., a company owned
indirectly by Messrs. Carden and Galardi (the Guarantors), in consideration
for their guarantees of certain obligations of the Company. The Guarantors are
paid an annual guarantee fee equal to between .25% and .75% (depending on the
nature of the guarantee) of the outstanding balance as of December 31 of the
guaranteed obligations (Guarantee Fee). The Guarantee Fee paid for the year
ended December 31, 2010 was approximately $80,000. The Guarantee Fee paid for
the year ended December 31, 2011 was approximately $165,000. The following
property notes are being guaranteed: 800/888 Sam Houston Parkway, Beltway
Industrial, 2620/2630 Fountain View, 2640/2650 Fountain View. There are also six
corporate notes being guaranteed. These guaranteed notes total $32.1 million.
See Note 11
.
Notes Payable.
During 2007, the Company entered
into a lease agreement with Galardi Group as a tenant for 15,297 square feet of
office space at the Companys 7700 Irvine Center property. Mr. Galardi is a
principal stockholder, director and officer of Galardi Group. The lease
commenced March 1, 2008 and has a five-year term. The annual base rent due to
the Company pursuant to the lease was approximately $0.5 million over the term
of the lease. 7700 Irvine Center Drive was sold in June 2011. During the same
year, the Company
subleased back
from the Galardi Group 2,396 square feet
of office space. This sublease expires February 28, 2013. The annual base rent
on this sublease is $79,000. As of December 31, 2011, $26,356 was due to the
Galardi Group.
49
NOTE 11. NOTES PAYABLE
We had the following notes payable
outstanding as of December 31, 2011 and 2010 secured by the following properties
(dollars in thousands):
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Principal
|
|
|
|
|
Property (unless otherwise noted)
|
|
Maturity Date
|
|
|
Balance
|
|
|
Interest Rate
|
|
|
Balance
|
|
|
Interest Rate
|
|
ASR Owned -
Fixed Rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pacific Spectrum (1)
|
|
6/10/2010
|
|
|
|
5,191
|
|
|
8.02%
|
|
|
|
5,191
|
|
|
8.02%
|
|
Bristol Bay
(1)
|
|
8/1/2011
|
|
|
|
6,687
|
|
|
7.58%
|
|
|
|
6,792
|
|
|
7.58%
|
|
Technology
|
|
8/1/2011
|
|
|
|
-
|
|
|
7.44%
|
|
|
|
7,091
|
|
|
7.44%
|
|
Creekside
|
|
12/1/2011
|
|
|
|
-
|
|
|
7.17%
|
|
|
|
5,747
|
|
|
7.17%
|
|
Corporate Secured by 6430
Atrium, 1501 Mockingbird Lane & CD (7) (8)
|
|
3/18/2012
|
|
|
|
890
|
|
|
5.50%
|
|
|
|
890
|
|
|
8.75%
|
|
2640 - 2650
Fountain View (5)(7)
|
|
4/29/2012
|
|
|
|
822
|
|
|
10.00%
|
|
|
|
1,031
|
|
|
10.00%
|
|
Sabo Road Self Storage
|
|
4/30/2012
|
|
|
|
1,911
|
|
|
7.42%
|
|
|
|
1,973
|
|
|
7.42%
|
|
Park Ten Place
I
|
|
5/11/2012
|
|
|
|
4,314
|
|
|
7.45%
|
|
|
|
4,402
|
|
|
7.45%
|
|
Park Ten Place II
|
|
5/11/2012
|
|
|
|
3,380
|
|
|
7.45%
|
|
|
|
3,449
|
|
|
7.45%
|
|
2855 Mangum
(1)
|
|
5/11/2012
|
|
|
|
2,495
|
|
|
7.45%
|
|
|
|
2,535
|
|
|
7.45%
|
|
2855 Mangum (1)
|
|
5/11/2012
|
|
|
|
1,355
|
|
|
6.00%
|
|
|
|
1,380
|
|
|
6.00%
|
|
Atrium 6430
(1)
|
|
5/11/2012
|
|
|
|
2,094
|
|
|
7.45%
|
|
|
|
2,127
|
|
|
7.45%
|
|
Corporate Unsecured
(7)
|
|
5/31/2012
|
|
|
|
1,000
|
|
|
9.50%
|
|
|
|
1,000
|
|
|
9.50%
|
|
Sierra Southwest
Pointe
|
|
6/1/2012
|
|
|
|
2,620
|
|
|
7.33%
|
|
|
|
2,671
|
|
|
7.33%
|
|
Corporate Secured by Sierra
Southwest Point (6) (7)
|
|
6/12/2012
|
|
|
|
950
|
|
|
5.50%
|
|
|
|
950
|
|
|
8.75%
|
|
Corporate -
Secured by Certificates of Deposits (7)
|
|
6/15/2012
|
|
|
|
992
|
|
|
4.50%
|
|
|
|
992
|
|
|
4.50%
|
|
Park Ten Place I
|
|
8/11/2012
|
|
|
|
476
|
|
|
7.45%
|
|
|
|
484
|
|
|
7.45%
|
|
Park Ten Place
II
|
|
8/11/2012
|
|
|
|
373
|
|
|
7.45%
|
|
|
|
380
|
|
|
7.45%
|
|
Corporate - Secured by NW
Spectrum Plaza & FMC Technology (4) (7)
|
|
12/3/2012
|
|
|
|
500
|
|
|
5.50%
|
|
|
|
750
|
|
|
8.75%
|
|
Corporate
Unsecured (8)
|
|
1/27/2013
|
|
|
|
250
|
|
|
6.00%
|
|
|
|
-
|
|
|
0.00%
|
|
Corporate Secured by Bristol
Bay (7)
|
|
2/1/2013
|
|
|
|
1,703
|
|
|
5.50%
|
|
|
|
1,736
|
|
|
5.50%
|
|
Corporate
Secured by Management Contracts (7)
|
|
3/5/2013
|
|
|
|
697
|
|
|
5.50%
|
|
|
|
863
|
|
|
8.75%
|
|
11500 Northwest Freeway
|
|
6/1/2014
|
|
|
|
3,932
|
|
|
5.93%
|
|
|
|
4,008
|
|
|
5.93%
|
|
11500 Northwest
Freeway
|
|
6/1/2014
|
|
|
|
285
|
|
|
5.93%
|
|
|
|
290
|
|
|
5.93%
|
|
Morenci Professional Park
(1)
|
|
7/1/2014
|
|
|
|
1,579
|
|
|
7.25%
|
|
|
|
1,632
|
|
|
7.25%
|
|
Northwest
Corporate Center
|
|
8/1/2014
|
|
|
|
-
|
|
|
6.26%
|
|
|
|
5,312
|
|
|
6.26%
|
|
FMC Technology
|
|
9/1/2014
|
|
|
|
8,428
|
|
|
5.32%
|
|
|
|
8,545
|
|
|
5.32%
|
|
8100
Washington
|
|
2/22/2015
|
|
|
|
2,117
|
|
|
5.59%
|
|
|
|
2,156
|
|
|
5.59%
|
|
8300 Bissonnet (1)
|
|
5/1/2015
|
|
|
|
4,484
|
|
|
5.51%
|
|
|
|
4,484
|
|
|
5.51%
|
|
2620 - 2630
Fountain View (7)
|
|
6/30/2015
|
|
|
|
5,350
|
|
|
7.00%
|
|
|
|
5,350
|
|
|
7.00%
|
|
1501 Mockingbird Lane
|
|
7/1/2015
|
|
|
|
3,135
|
|
|
5.28%
|
|
|
|
3,189
|
|
|
5.28%
|
|
5450 Northwest
Central
|
|
9/1/2015
|
|
|
|
2,536
|
|
|
5.38%
|
|
|
|
2,585
|
|
|
5.38%
|
|
Corporate Secured by Florida
Tampa and Ocala (7) (9)
|
|
12/22/2015
|
|
|
|
-
|
|
|
5.00%
|
|
|
|
2,900
|
|
|
5.00%
|
|
800 & 888 Sam
Houston Parkway (7)
|
|
12/29/2015
|
|
|
|
4,411
|
|
|
6.25%
|
|
|
|
4,528
|
|
|
6.25%
|
|
Fountain View Office
Tower
|
|
3/1/2016
|
|
|
|
11,750
|
|
|
5.82%
|
|
|
|
11,967
|
|
|
5.82%
|
|
Gray Falls and
12000 Westheimer
|
|
1/1/2017
|
|
|
|
7,173
|
|
|
5.70%
|
|
|
|
7,267
|
|
|
5.70%
|
|
Atrium 6420 (1)(11)
|
|
6/5/2017
|
|
|
|
6,262
|
|
|
5.87%
|
|
|
|
6,286
|
|
|
5.87%
|
|
7700 Irvine
Center
|
|
8/1/2017
|
|
|
|
-
|
|
|
5.99%
|
|
|
|
45,000
|
|
|
5.99%
|
|
2640 - 2650 Fountain View
(7)
|
|
4/29/2018
|
|
|
|
12,191
|
|
|
6.50%
|
|
|
|
12,361
|
|
|
6.50%
|
|
Corporate
Secured by management contracts
|
|
12/31/2019
|
|
|
|
9,380
|
|
|
5.00%
|
|
|
|
9,410
|
|
|
5.00%
|
|
Corporate Unsecured
(3)
|
|
Variable
|
|
|
|
1,409
|
|
|
(3)
|
|
|
|
1,237
|
|
|
(3)
|
|
Corporate -
Secured by various (3)
|
|
Variable
|
|
|
|
1,802
|
|
|
(3)
|
|
|
|
-
|
|
|
(3)
|
|
|
|
|
|
Subtotal
|
|
|
$
|
124,924
|
|
|
|
|
|
$
|
190,941
|
|
|
|
|
50
|
|
|
December
31,
|
|
|
|
|
2011
|
|
|
2010
|
Property (unless otherwise noted)
|
Maturity Date
|
|
|
Principal
|
|
|
Interest Rate
|
|
|
Principal
|
|
|
Interest Rate
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
|
|
Owned - Variable
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest Spectrum
Plaza
|
4/19/2012
|
|
|
|
2,585
|
|
|
2.66%
|
|
|
|
2,820
|
|
|
2.90%
|
|
Windrose
Plaza
|
4/19/2012
|
|
|
|
2,492
|
|
|
2.66%
|
|
|
|
2,612
|
|
|
2.90%
|
|
Beltway Industrial Park (2)
(7)
|
6/9/2013
|
|
|
|
16,282
|
|
|
7.00%
|
|
|
|
17,170
|
|
|
7.00%
|
|
Beltway
Industrial Park (7)
|
6/9/2013
|
|
|
|
163
|
|
|
7.00%
|
|
|
|
-
|
|
|
7.00%
|
|
Corporate Unsecured
(7)
|
12/12/2013
|
|
|
|
300
|
|
|
6.00%
|
|
|
|
500
|
|
|
6.00%
|
|
|
Subtotal
|
|
|
$
|
21,822
|
|
|
|
|
|
$
|
23,102
|
|
|
|
|
|
|
Subtotal ASR Owned
|
|
|
|
146,746
|
|
|
|
|
|
|
214,043
|
|
|
|
|
|
Consolidated
VIEs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston South Mason (Patrick's)
(1)
|
12/25/2011
|
|
|
|
2,745
|
|
|
7.25%
|
|
|
|
2,898
|
|
|
7.25%
|
|
Redmond
Commerce
|
|
|
|
|
-
|
|
|
|
|
|
|
16,125
|
|
|
5.46%
|
|
Centennial Park
|
|
|
|
|
-
|
|
|
|
|
|
|
12,320
|
|
|
5.06%
|
|
Foxborough
Business Park (10)
|
3/1/2012
|
|
|
|
3,683
|
|
|
7.70%
|
|
|
|
-
|
|
|
7.70%
|
|
Ft. Worth Northwest Self
Storage
|
7/1/2012
|
|
|
|
1,936
|
|
|
6.23%
|
|
|
|
2,049
|
|
|
6.23%
|
|
San Antonio 3 -
AAA Stowaway / FOE
|
8/1/2012
|
|
|
|
10,504
|
|
|
6.05%
|
|
|
|
-
|
|
|
6.05%
|
|
Phoenix Assisted Living
51
|
9/1/2012
|
|
|
|
-
|
|
|
6.88%
|
|
|
|
3,794
|
|
|
6.88%
|
|
Fishers Indiana
Distribution Center
|
10/1/2012
|
|
|
|
17,331
|
|
|
5.42%
|
|
|
|
17,953
|
|
|
5.42%
|
|
Commerce Distribution
Center
|
12/1/2012
|
|
|
|
9,598
|
|
|
6.12%
|
|
|
|
9,783
|
|
|
6.12%
|
|
Charleston Blvd.
Self Storage (1)
|
1/1/2015
|
|
|
|
2,526
|
|
|
5.77%
|
|
|
|
2,570
|
|
|
5.77%
|
|
University Heights San
Marcos
|
8/1/2015
|
|
|
|
-
|
|
|
5.21%
|
|
|
|
21,148
|
|
|
5.21%
|
|
University
Springs San Marcos
|
12/1/2015
|
|
|
|
9,505
|
|
|
5.55%
|
|
|
|
9,644
|
|
|
5.55%
|
|
Florida 2 - Ocala Self
Storage
|
12/22/2015
|
|
|
|
1,376
|
|
|
5.00%
|
|
|
|
-
|
|
|
5.00%
|
|
Florida 2 -
Tampa Self Storage
|
12/22/2015
|
|
|
|
1,466
|
|
|
5.00%
|
|
|
|
653
|
|
|
5.00%
|
|
Campus Court Student
Housing
|
5/11/2016
|
|
|
|
4,683
|
|
|
5.78%
|
|
|
|
4,747
|
|
|
5.78%
|
|
University
Fountains Lubbock
|
1/1/2016
|
|
|
|
21,149
|
|
|
5.57%
|
|
|
|
21,456
|
|
|
5.57%
|
|
Dixon & 51st Logistics
Center
|
1/1/2016
|
|
|
|
17,538
|
|
|
5.69%
|
|
|
|
17,805
|
|
|
5.69%
|
|
Grissom Road
Self Storage
|
6/1/2017
|
|
|
|
2,336
|
|
|
7.00%
|
|
|
|
2,363
|
|
|
7.00%
|
|
Loop 1604 Self Storage
|
9/11/2017
|
|
|
|
4,298
|
|
|
6.70%
|
|
|
|
4,345
|
|
|
6.70%
|
|
College Park
Student Apartments
|
11/6/2017
|
|
|
|
14,431
|
|
|
6.35%
|
|
|
|
14,610
|
|
|
6.35%
|
|
Ohio II Residences at Newark
& Sheffield
|
1/1/2018
|
|
|
|
9,422
|
|
|
6.74%
|
|
|
|
9,532
|
|
|
6.74%
|
|
Muirwood
Village
|
2/1/2018
|
|
|
|
7,790
|
|
|
6.58%
|
|
|
|
-
|
|
|
6.58%
|
|
Aldine Westfield Self
Storage
|
10/31/2018
|
|
|
|
1,057
|
|
|
4.76%
|
|
|
|
-
|
|
|
4.76%
|
|
Attic Space Self
Storage - Blanco Rd.
|
4/1/2021
|
|
|
|
1,316
|
|
|
6.63%
|
|
|
|
1,682
|
|
|
6.63%
|
|
Attic Space Self Storage -
Laredo Rd.
|
4/1/2021
|
|
|
|
1,758
|
|
|
6.63%
|
|
|
|
1,549
|
|
|
6.63%
|
|
Aldine Westfield
Self Storage
|
8/14/2019
|
|
|
|
1,289
|
|
|
6.07%
|
|
|
|
2,465
|
|
|
6.07%
|
|
Ft. Worth River Oaks Self
Storage
|
7/1/2021
|
|
|
|
2,155
|
|
|
6.00%
|
|
|
|
2,419
|
|
|
6.00%
|
|
Strongsville
Corporate Center
|
11/11/2034
|
|
|
|
14,687
|
|
|
5.50%
|
|
|
|
15,027
|
|
|
5.50%
|
|
Ohio Commerce Center
|
6/11/2035
|
|
|
|
18,727
|
|
|
5.64%
|
|
|
|
19,028
|
|
|
5.64%
|
|
Springs Commerce
Center 1
|
5/11/2036
|
|
|
|
16,849
|
|
|
5.75%
|
|
|
|
17,136
|
|
|
5.75%
|
|
Springs Office
|
6/11/2036
|
|
|
|
14,560
|
|
|
5.75%
|
|
|
|
14,806
|
|
|
5.75%
|
|
Spring Commerce
Center II
|
7/11/2036
|
|
|
|
20,512
|
|
|
6.00%
|
|
|
|
20,773
|
|
|
6.00%
|
|
Other Unsecured Notes
|
|
|
|
|
2,049
|
|
|
6.00%
|
|
|
|
96
|
|
|
6.00%
|
|
|
|
Subtotal VIE
|
|
|
$
|
237,276
|
|
|
|
|
|
$
|
268,776
|
|
|
|
|
|
Grand Total
|
|
|
|
$
|
384,022
|
|
|
|
|
|
$
|
482,819
|
|
|
|
|
____________________
(1)
|
|
We are currently electing
not to pay our monthly payments and negotiating extension terms with the
lender. See additional information regarding
these debts below.
|
51
(2)
|
|
In June 2011, we made a principal
pay-down of approximately $0.5 million on the note and the lender extended
the maturity date to June 9, 2013.
|
(3)
|
|
We have re-negotiated some of our
accounts payable which resulted in extended payment terms and/or
discounted amounts. Six agreements have promissory notes with interest
rates that range between 5%-9% and the maturities of all
fifteen
arrangements
vary between July 2011 to December 2015, of which some of these
arrangements are past due.
|
(4)
|
|
In January 2011, we made a
principal pay-down of approximately $0.25 million on the note and the
lender extended the maturity date to December 3, 2012.
|
(5)
|
|
The loan was extended for one
year and the note was reduced by $0.09 million.
|
(6)
|
|
The loan was extended for one
year.
|
(7)
|
|
This debt is guaranteed by the
Company and in some cases by at least one of our executive officers and/or
board members.
|
(8)
|
|
In December 2011
,
John Galardi
loaned $0.25 million to the Company and pledged $0.4 million in
Certificate of Deposits to secure another loan.
|
(9)
|
|
This loan has been reclassified
to the consolidated VIE section.
|
(10)
|
|
Foxborough Business Park was sold
in March 2012.
|
(11)
|
|
Atrium 6420 was foreclosed upon
by the lender in March 2012.
|
The required principal payments on
our consolidated debt for the next five years and thereafter, as of December 31,
2011 are as follows (in thousands)
:
Year
|
|
ASR
|
|
VIE
|
|
Total
|
2012
|
|
58,945
|
|
47,997
|
|
106,942
|
2013
|
|
19,148
|
|
4,407
|
|
23,555
|
2014
|
|
13,076
|
|
3,546
|
|
16,622
|
2015
|
|
17,358
|
|
22,256
|
|
39,614
|
2016
|
|
18,069
|
|
84,875
|
|
102,944
|
Thereafter
|
|
20,150
|
|
74,195
|
|
94,345
|
Total
|
|
146,746
|
|
237,276
|
|
384,022
|
We are in default on the notes
listed below due to non-payment of scheduled debt service. The balances
disclosed on the table below exclude additional fees that may be the result of
non-payment. These notes have been marked with a (1) in the above table (in
thousands):
|
|
ASR
Ownership
|
|
Balance
|
Property Secured by
|
|
Percentage
|
|
December 31, 2011
|
Pacific
Spectrum
|
|
100
|
%
|
|
5,191
|
2855 Mangum
|
|
100
|
%
|
|
3,850
|
Atrium
6430
|
|
100
|
%
|
|
2,094
|
Bristol Bay
|
|
100
|
%
|
|
8,390
|
Morenci
Professional Park
|
|
100
|
%
|
|
1,579
|
8300 Bissonnet
|
|
100
|
%
|
|
4,484
|
Atrium
6420
|
|
100
|
%
|
|
6,262
|
Charleston Blvd Self
Storage
|
|
0
|
%
|
|
2,526
|
Houston S Mason
(Patricks)
|
|
0
|
%
|
|
2,745
|
TOTAL
|
|
|
|
|
37,121
|
52
We have elected not to make payments
on debt of $37.1 million due to the unpaid balances of the mortgages exceeding
the market value of the properties. We are actively negotiating with the
lenders, but there can be no assurance that these negotiations, which may result
in loan modifications or discounted pay-offs, will be successful, and the
lenders could initiate foreclosure proceedings. The lenders holding the debt on
8300 Bissonnet, Pacific Spectrum 2855 Magnum, Bristol Bay and Morenci
Professional Parke have placed these properties into receivership and have
initiated foreclosure proceedings. In March 2012, Atrium 6420 was foreclosed
upon.
All but one of the properties
securing the debt in default is held by a consolidated wholly owned subsidiary
and the mortgages are not guaranteed by us. One note for $1.7 million secured by
Bristol Bay was guaranteed by us. Negotiations are in progress to settle this
debt. All of the notes which we have elected not to pay have payment
acceleration clauses and payment in full, including additional fees and
interest, could be demanded by the lenders holding these notes. Certain of these
properties currently have operating deficits. We evaluated the properties
carrying value related to the long-lived assets of the properties secured by
these loans and determined that impairment of $2.5 million should be recorded at
December 31, 2011. For further discussion see Note 8
.
Asset
Impairments.
We were able to negotiate new loan
terms with several holders of our accounts payable. The outstanding balance of
these notes is $3.3 million.
During 2011, we issued 43,685 shares
of common stock to three different creditors.
Unamortized financing costs at
December 31, 2011 and December 31, 2010 were $1.2 million and $1.1 million,
respectively. Most of our mortgage debt is not cross-collateralized. We have one
mortgage loan that is cross-collateralized with a second
property.
NOTE 12. NON-CONTROLLING
INTERESTS AND OPERATING PARTNERSHIP UNITS
The following table summarizes the
activity for the operating partnership units (OP Units):
|
|
Years ended,
|
|
|
December 31,
|
Operating Partnership units
|
|
2011
|
|
2010
|
|
|
(in
thousands)
|
Balance, beginning of period
|
|
4,554
|
|
|
3,208
|
Issuance for Evergreen
Acquisition
|
|
-
|
|
|
800
|
Issuance for
other acquisitions
|
|
-
|
|
|
518
|
Other Issuances
|
|
78
|
|
|
28
|
Redemptions
|
|
(44
|
)
|
|
-
|
Balance, end of period
|
|
4,588
|
|
|
4,554
|
|
|
Ownership of Operating Partnership
units
|
|
|
|
|
|
ASR
|
|
3,345
|
|
|
2,968
|
Non-controlling
Interest
|
|
1,243
|
|
|
1,586
|
|
|
4,588
|
|
|
4,554
|
53
The following represents the effects
of changes in the Companys equity related to non-controlling interests:
|
|
Years ended,
|
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
|
(in
thousands)
|
Net income
(loss) attributable to the Company
|
|
$
|
3,999
|
|
$
|
(8,037
|
)
|
Increase in the Company's
paid-in-capital on exchange of OP Units for shares of
|
|
|
|
|
|
|
|
common stock
|
|
|
2,342
|
|
|
211
|
|
Increase in the
Company's paid-in-capital on reclassification of preferred
interest
|
|
|
|
|
|
|
|
from temporary
equity
|
|
|
-
|
|
|
370
|
|
Change from net income (loss)
attributable to the Company related to non-
|
|
|
|
|
|
|
|
controlling interest
transactions
|
|
$
|
6,341
|
|
$
|
(7,456
|
)
|
NOTE 13. INCOME TAXES
The provision for income taxes
from continuing operations on income consists of the following for the years
ended December 31, 2011 and 2010 (in thousands):
|
|
2011
|
|
2010
|
Current expense
(benefit):
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
155
|
|
|
|
163
|
|
|
|
$
|
155
|
|
|
$
|
163
|
|
|
Deferred expense
(benefit):
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,996
|
|
|
$
|
(4,608
|
)
|
State
|
|
|
(1,036
|
)
|
|
|
(663
|
)
|
|
|
$
|
1,960
|
|
|
$
|
(5,271
|
)
|
We have federal and state net
operating loss carryforwards of approximately $26.7 million and $12.3 million,
respectively, as of December 31, 2011.
We are a loss corporation as
defined in Section 382 of the Internal Revenue Code. Therefore, if certain
changes in our ownership should occur, there could be a significant annual
limitation on the amount of loss carryforwards and future recognized losses that
can be utilized and ultimately some amount of loss carryforwards may not be
available. Such changes could result in additional tax provision. The net
operating loss carryforwards expire in 2023 through 2031.
For the two years ended December
31, 2011, the reported income tax benefit differs from the amount of benefit
determined by applying the federal statutory rate of 34% before income taxes as
a result of the following:
|
|
Years ended
|
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
|
(in
thousands)
|
Expected income
tax expense (benefit) at statutory federal rate
|
|
$
|
414
|
|
$
|
(6,959
|
)
|
Permanent differences:
|
|
|
|
|
|
|
|
Non-controlling
interest
|
|
|
1,433
|
|
|
2,170
|
|
Meals and
entertainment
|
|
|
19
|
|
|
14
|
|
Share-based
compensation
|
|
|
4
|
|
|
22
|
|
Return to provision
|
|
|
-
|
|
|
(20
|
)
|
State income tax
expense (benefit)
|
|
|
102
|
|
|
(335
|
)
|
Other
|
|
|
143
|
|
|
-
|
|
Income tax
expense (benefit)
|
|
$
|
2,115
|
|
$
|
(5,108
|
)
|
54
The components of deferred tax
assets and liabilities consist of the following as of December 31, 2011 and
December 31, 2010, respectively:
|
|
Years ended
|
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
|
(in
thousands)
|
Deferred tax
assets:
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
9,765
|
|
|
$
|
9,805
|
|
Built in
gains
|
|
|
2,067
|
|
|
|
3,684
|
|
Intangible assets
|
|
|
642
|
|
|
|
1,151
|
|
Allowance for
bad debts
|
|
|
219
|
|
|
|
154
|
|
Share-based
compensation
|
|
|
54
|
|
|
|
50
|
|
Charitable
contributions
|
|
|
8
|
|
|
|
8
|
|
Alternative minimum
tax
|
|
|
85
|
|
|
|
85
|
|
Total deferred
tax asset
|
|
$
|
12,840
|
|
|
$
|
14,937
|
|
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
|
|
|
Straight-line rents
receivable
|
|
|
(717
|
)
|
|
|
(854
|
)
|
Total deferred
tax liabilities
|
|
|
(717
|
)
|
|
|
(854
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax
asset
|
|
$
|
12,123
|
|
|
$
|
14,083
|
|
Deferred tax assets and liabilities
are determined based on temporary differences between income and expenses
reported for financial reporting and tax reporting. We have assessed, using all
available positive and negative evidence, the likelihood that the deferred tax
assets will be recovered from future taxable income.
An enterprise must use judgment in
considering the relative impact of negative and positive evidence. The weight
given to the potential effect of negative and positive evidence should be
commensurate with the extent to which it can be objectively verified. The more
negative evidence that exists (i) the more positive evidence is necessary and
(ii) the more difficult it is to support a conclusion that a valuation allowance
is not needed for some portion, or all, of the deferred tax asset. Among the
more significant types of evidence that we considered are: that future
anticipated property sales will produce more than enough taxable income to
realize the deferred tax asset; taxable income projections in future years; and
whether the carryforward period is so brief that it would limit realization of
tax benefits.
We had no unrecognized tax benefits
as of December 31, 2011. We do not expect that this will change significantly
within the next
twelve
months. Our policy is to recognize interest related to any
unrecognized tax benefits as interest expense and penalties as operating
expenses. There are no penalties or interest accrued at December 31, 2011
related to unrecognized tax benefits. We believe that we have the appropriate
support for the income tax positions taken and to be taken on our tax returns
and that our accruals for tax liabilities are adequate for all open years based
on an assessment of many factors including past experience and interpretations
of tax law applied to the facts of each matter. Our federal and state tax
returns open to audit generally include all years from 2008 and
beyond.
We expect to sell real estate assets
in the future and
have
determined that it
is
more likely than not that future
taxable income, primarily from gains on the sales of real estate assets, will be
sufficient to enable us to realize all of our deferred tax assets. Therefore,
for each of the two years ended December 31, 2011 and 2010, no valuation
allowance has been recorded.
55
NOTE 14. NET INCOME (LOSS) PER
SHARE
Net income (loss) per share is
calculated based on the weighted average number of common shares outstanding.
Stock options outstanding, OP Units and preferred shares have not been included
in the net loss per share calculation since their effect on the losses would be
antidilutive. Net income (loss) per share for each of the two years ended
December 31, 2011 and 2010 is as follows (in thousands, except for shares and
per share amounts):
|
|
Years ended
|
|
|
December 31,
|
|
|
2011
|
|
2010
|
Loss from continuing
operations
|
|
$
|
(17,529
|
)
|
|
$
|
(14,212
|
)
|
Net loss attributable to
non-controlling interests from continuing operations
|
|
|
12,164
|
|
|
|
6,454
|
|
Loss from
continuing operations attributable to American Spectrum Realty Inc.
common
|
|
|
|
|
|
|
|
|
stockholders
|
|
|
(5,365
|
)
|
|
|
(7,758
|
)
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
(Loss)
income from discontinued operations
|
|
|
(2,553
|
)
|
|
|
(5,546
|
)
|
Gain on
sale of discontinued operations
|
|
|
26,016
|
|
|
|
4,315
|
|
Income
tax(expense) benefit
|
|
|
(6,150
|
)
|
|
|
447
|
|
Net (income)
loss attributable to non-controlling interests from discontinued
operations
|
|
|
(7,949
|
)
|
|
|
505
|
|
|
Income (loss)
from discontinued
operations
|
|
|
9,364
|
|
|
|
(279
|
)
|
Preferred stock
dividend
|
|
|
(240
|
)
|
|
|
(240
|
)
|
Net Income
(loss) attributable to American Spectrum Realty , Inc. common
stockholders
|
|
|
3,759
|
|
|
|
(8,277
|
)
|
|
Basic and
diluted per share data:
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations attributable to American Spectrum Realty, Inc. common
|
|
|
|
|
|
|
|
|
stockholders
|
|
|
($1.79
|
)
|
|
$
|
(2.66
|
)
|
Income (loss)
from discontinued operations attributable to American Spectrum Realty,
Inc. common
|
|
|
|
|
|
|
|
|
stockholders
|
|
|
3.11
|
|
|
|
(0.10
|
)
|
Net income (loss) attributable
to American Spectrum Realty, Inc. common stockholders
|
|
$
|
1.32
|
|
|
$
|
(2.76
|
)
|
|
Basic weighted
average shares used
|
|
|
3,008,836
|
|
|
|
2,916,145
|
|
The following outstanding preferred
shares, employee stock options and OP units that can be converted into common
stock on a one for one basis were excluded from the computation of diluted net
income per share as they had an anti-dilutive effect:
|
|
Years ended,
|
|
|
December 31,
|
|
|
2011
|
|
2010
|
Preferred
shares
|
|
55,172
|
|
55,172
|
Stock Options
|
|
17,500
|
|
58,750
|
OP
Units
|
|
1,243,732
|
|
1,586,338
|
Total
|
|
1,316,404
|
|
1,700,260
|
NOTE 15. SHARE-BASED
COMPENSATION
Share-based compensation expense is
measured at grant date, based on the fair value of the instrument, and is
recognized as expense over the requisite service period.
The following table sets forth the
total share-based compensation expense included in our Consolidated Statements
of Operations:
|
|
Years Ended
|
|
|
2011
|
|
2010
|
|
|
(in
thousands)
|
General and
administrative
|
|
|
195
|
|
|
181
|
Total
|
|
$
|
195
|
|
$
|
181
|
As of December 31, 2011,
approximately $0.7 million total unrecognized share-based compensation expense
related to non-vested awards is expected to be recognized over the respective
vesting terms of each award over the weighted average period of 3.8
years.
56
Valuation
Assumptions
Our determination of fair value of
share-based payment awards on the date of grant using an option-pricing model is
affected by our stock price as well as assumptions regarding a number of highly
complex and subjective variables.
No options were granted during the
twelve month periods ending December 31, 2011 and 2010.
The fair value of each option award
is estimated on the date of grant using the Black-Scholes valuation model,
consistent with the provisions of ASC 718. The Black-Scholes option-pricing
model was developed for use in estimating the fair value of short-lived exchange
traded options that have no vesting restrictions and are fully transferable. In
addition, option-pricing models require the input of highly subjective
assumptions, including the options expected life and the price volatility of
the underlying stock.
Our issued and outstanding stock
options for the years ended December 31, 2011 and 2010 are fully vested and
expensed.
We declared and paid cash dividends
to common shareholders in 2003 but do not plan to pay cash dividends to common
stock shareholders in the foreseeable future.
The fair value of each restricted
stock award (RSA) is estimated on the date of grant based on the closing price
of our stock on the grant date. Share-based compensation expense related to RSAs
is recognized over the requisite service period.
Equity Incentive Program and
Restricted Stock Awards
We grant incentive and nonqualified
stock options and RSAs to employees, consultants and directors under the
Omnibus Stock Incentive Plan (the Plan). Stock options expire 10 years from
the date they are granted and generally vest over service periods that range
over three years. New shares are issued for options exercised and RSAs
released. RSAs give the recipient the right to vote all shares, to receive and
retain all cash dividends payable to holders of shares of record on or after the
date of issuance and to exercise all other rights, powers and privileges of a
holder of our shares, with the exception that the recipient may not transfer the
shares during the restriction period that lapses over various periods ranging
from one to three years.
We have reserved 360,000 shares
under the Plan. As of December 31, 2011, we had issued 160,264 shares under the
Plan.
The following table summarizes the
combined activity under the equity incentive plans for the indicated
periods:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
Number of
|
|
Average
|
|
|
|
|
Grant-date
|
|
|
Options
|
|
Exercise Price
|
|
Number of
|
|
fair value
|
|
|
Outstanding
|
|
per Share
|
|
RSAs
|
|
per Share
|
Balances at
December 31, 2009
|
|
58,750
|
|
|
$
|
11.97
|
|
20,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
-
|
|
|
$
|
-
|
|
28,500
|
|
|
$
|
13.76
|
Options Exercised
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
RSA
Releases
|
|
|
|
|
|
|
|
(9,500
|
)
|
|
$
|
11.03
|
Forfeited/Expired
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
Balances at
December 31, 2010
|
|
58,750
|
|
|
$
|
11.97
|
|
39,012
|
|
|
$
|
12.86
|
|
Granted
|
|
-
|
|
|
$
|
-
|
|
34,500
|
|
|
$
|
17.09
|
Options Exercised
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
RSA
Releases
|
|
|
|
|
|
|
|
(14,166
|
)
|
|
$
|
12.45
|
Forfeited/Expired
|
|
(41,250
|
)
|
|
$
|
14.78
|
|
(10,338
|
)
|
|
$
|
12.87
|
Balances at Dec
31, 2011
|
|
17,500
|
|
|
$
|
7.03
|
|
49,008
|
|
|
$
|
15.96
|
57
The intrinsic value of RSAs was
approximately $0.2 million as of December 31, 2011. The intrinsic value of RSAs
and the intrinsic value of exercisable in-the-money options was approximately
$0.2 million as of December 31, 2011. The aggregate intrinsic value of the
options and restricted stock awards outstanding at December 31, 2011 represents
the total pretax intrinsic value, based on our closing stock price of $4.85 per
share as of December 31, 2011, which would have been received by the grant
holders, had all option holders with in-the-money options exercised their
options as of that date and if all restricted stock awards were vested as of
December 31, 2011.
Options outstanding, vested and
currently exercisable by exercise price at December 31, 2011 are as follows:
|
|
|
|
|
|
Number
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Average
|
|
Weighted
|
Range
of
|
|
and
|
|
Remaining
|
|
Average
|
Exercise Prices
|
|
Exercisable
|
|
Contractual Term
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
(in
years)
|
|
|
|
$
|
4.05
|
|
$
|
6.10
|
|
10,000
|
|
2.09
|
|
$
|
5.46
|
$
|
9.13
|
|
$
|
9.13
|
|
7,500
|
|
4.35
|
|
$
|
9.13
|
$
|
4.05
|
|
$
|
9.13
|
|
17,500
|
|
|
|
|
|
During the years ended December 31,
2011 and 2010, we granted 34,500 and 28,500 restricted stock awards to certain
officers and employees, respectively. The value of the restricted stock awards
was based on the closing market price of our common stock on the date of each
award. The total grant date fair value of the restricted stock awards granted
during the year ended December 31, 2011 and 2010 was approximately $0.6 million
and $0.4 million, respectively, which will be recognized over the vesting
periods ranging from three to five years from the date of grant. The expense
recorded for the years ended December 31, 2011 and 2010 was approximately $0.2
million and $0.2 million, respectively.
Awards to Non-Employees
In February 2011, we issued 15,000
shares of Common Stock to a firm as consideration for business advisory
services. The fair value of the stock was based on the closing market price of
our common stock on the date of the grant. The consideration for the shares
amounted to $209,650.
In July 2011, we issued 3,000 shares
of Common Stock to a firm as consideration for consulting services. The fair
value of the stock was based on the closing market price of our common stock on
the date of the grant. The consideration for the shares amounted to $50,000.
In November 2011, we issued 25,685
shares of Common Stock to a firm as consideration as consideration for utility
services. The fair value of the stock was based on the closing market price of
our common stock on the date of grant. The consideration for the shares amounted
to $300,000.
NOTE 16. RESTRUCTURING OF DEBT
We have re-negotiated some of our
accounts payable which resulted in extended payment terms and/or discounted
amounts. Six agreements have promissory notes with interest rates that range
between 5%-9% and the maturities of all fifteen arrangements occur between July
2011 and December 2015. We settled certain accounts payable during the year
ending December 31, 2011 with creditors on a discounted basis and recorded other
income of $0.5 million. We also recorded a gain of $2.7 million on the
foreclosure of three properties, which is included as a component of
discontinued operations. The combined gain of $3.2, million, net of taxes,
amounts to $0.67 per share.
NOTE 17. COMMITMENTS AND
CONTINGENCIES
In June 2011, we reached a
settlement with our insurance carrier, ACE American Insurance Company, with
respect to our Hurricane Ike claims. We received net proceeds of approximately
$4.0 million as a result of the settlement, which was net of attorney fees,
expert fees, consulting fees and other costs associated with the claims. We
recognized a gain on the settlement of approximately $4.1 million which is
included as a component of other income on our consolidated statement of
operations for the year ended December 31, 2011.
Certain other claims and lawsuits
have arisen against us in our normal course of business including lawsuits by
creditors with respect to past due accounts payable. We believe that such claims
and lawsuits will not have a material adverse effect on our financial position,
cash flows or results of operations.
58
Some of our notes payable require
that we maintain minimum cash and tangible net worth. We believe we are in
compliance with these requirements, except as to our loans in default.
On March 2, 2011, we filed an action
against Evergreen Realty Group, LLC and certain of its affiliates ("Evergreen")
relating to its acquisition of assets from Evergreen in January 2010. The
purchase price of the assets was $18.0 million, subject to adjustment as
provided in the purchase agreement, and was paid in the form of (a) the
assumption of $500,000 of payables, (b) the issuance of a $9.5 million
promissory note and (c) the issuance of operating partnership
units which
would
be redeemable by Evergreen after June 30, 2011 for a number of shares of our
common stock (or, at our option, the cash equivalent) equal to the quotient
obtained by dividing $8.0 million by the greater of our share price or net asset
value as of December 31, 2010. (Our share price as of December 31, 2010 was
$17.52; our net asset value as of December 31, 2010 has not been definitively
determined.) In our action, we are alleging various offsets and adjustments to
the purchase price, as well as defaults by Evergreen, and are seeking damages
and a declaration that the principal amount of the promissory note should be
reduced to zero, that the operating partnership units should be cancelled and
that Evergreen should refund to us payments of at least $578,000 which have been
made on the promissory note. On March 7, 2011, New West Realty, Inc. (New
West), an affiliate of Evergreen, filed a complaint for damages in Orange
County Superior Court against ASR and other related entities. New West alleges
in the complaint that ASR had failed to pay amounts then due under a $9.5
million promissory note held by New West. We have subsequently paid all amounts
currently due and payable under the note and therefore dispute the claim and
deny that any payment is now due under the note, and we have filed a separate
lawsuit against New West and others seeking damages in excess of the amount of
New Wests claim.
NOTE 18. PREFERRED STOCK
We are authorized to issue up to
25.0 million shares of one or more classes or series of preferred stock with a
par value of $.01 per share.
On December 30, 2008, we filed
Articles Supplementary to our Articles of Incorporation, which authorized the
issuance of 68,965 of Series A Preferred Stock (Preferred Stock).
On December 31, 2008, we issued
55,172 shares of the Preferred Stock to Messrs. Carden, Galardi, and Brown (Also
see Note
10.
Related Party Transactions). Each share of Preferred Stock was sold
for $29.00 and is entitled to annual dividends, payable quarterly, at an annual
rate of 15%, and to a preference on liquidation equal to the following: (a) if
on or prior to December 31, 2011, the sum of $29.00 and any accrued and unpaid
dividends or (b) if after December 31, 2011, the greater of (x) the sum of
$29.00 and any accrued and unpaid dividends or (y) the amount which would be
paid on account of each share of common stock upon liquidation if each share of
Preferred Stock had hypothetically been converted into one share of common
stock. The Preferred Stock is not required to be redeemed by us and the holders
will have no right to require redemption. The Preferred Stock is redeemable at
our option at any time after December 31, 2011. The shares were issued in a
private transaction exempt from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended.
As of December 31, 2011 there were
accrued and unpaid dividends on the outstanding preferred shares of $60,000, or
$.02 per share
.
NOTE 19. SUBSEQUENT EVENTS
In
March 2012, we received a loan in the amount of $2.0 million. The loan,
which matures in March 2013, is secured by several of the Company's
assets.
The loan will primarily be used for general corporate obligations and working capital.
In March 2012, Foxborough Business
Park Center was sold for $4.9 million. In addition, Atrium 6420 was foreclosed
on in March 2012. We anticipate recording a gain as a result of the foreclosure.
In March 2012, we sold Park Ten Place I and II for $10.7 million and Sierra Southwest Pointe for $3.9 million. Net proceeds generated from the sales will be used to reduce
corporate debt by approximately $2.0 million and accounts payable by approximately $1.0 million.
We anticipate a gain will be recognized as a result of these sales.
59
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. Controls and
Procedures
Our Chief Executive Officer and
Chief Financial Officer, are responsible for evaluating the effectiveness of the
Companys disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end
of the period covered by this annual report.
Evaluation of Disclosure
Controls and Procedures
Disclosure controls and procedures
are designed to ensure that information required to be disclosed in the reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time period specified in the rules and forms of the SEC.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in the
reports filed under the Securities Exchange Act is accumulated and communicated
to management, including our Chief Executive Officer and Chief Financial
Officer, to allow timely decisions regarding required disclosure. As of the date
of this report, we carried out an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based upon and as of the date of that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed in the reports our Company files and submits under the Securities
Exchange Act is recorded, processed, summarized and reported as and when
required.
Managements Report on Internal
Control over Financial Reporting
Management of the Company is
responsible for establishing and maintaining adequate internal control over
financial reporting. As defined in Rules 13a-15(f) under the Securities Exchange
Act of 1934, internal control over financial reporting is a process designed by,
or under the supervision of, the Companys principal executive, principal
accounting and principal financial officers, or persons performing similar
functions, and effected by the Companys Board of Directors, management and
other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America.
The Companys internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records, that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the Companys assets; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of the Companys management
and directors; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the financial statements.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
The Companys management, including
the Companys Chief Executive Officer and Principal Financial Officer assessed
the effectiveness of the Companys internal control over financial reporting as
of December 31, 2011. In making this assessment, management used the framework
in Internal Control - Integrated Framework promulgated by the Committee of
Sponsoring Organizations of the Treadway Commission, commonly referred to as the
COSO criteria. Based on the assessment performed, management believes that as
of December 31, 2011, the Companys internal control over financial reporting
was effective based upon the COSO criteria. Additionally, based on managements
assessment, the Company determined that there were no material weaknesses in its
internal control over financial reporting as of December 31, 2011.
This Annual Report does not include
an attestation report of the Companys independent registered public accounting
firm regarding internal control over financial reporting. Managements report
was not subject to attestation by the Companys registered public accounting
firm pursuant to temporary rules of the SEC that permit the Company to provide only managements report in this
Annual Report.
60
Changes in Internal
Controls
There has
not been any change in our internal control over financial reporting during the
fourth quarter of 2011 that has materially affected, or is reasonably likely to
materially affect our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth
certain information concerning the directors and executive officers of the
Company and its principal subsidiaries:
NAME
|
POSITION
|
AGE
|
TIME IN OFFICE
|
William J. Carden
|
Chairman of the Board and Chief Executive Officer
|
67
|
Since 2000
|
|
President
|
|
Since 2002
|
|
President, ASRM
|
|
Since 2011
|
G. Anthony
Eppolito
|
Chief Financial
Officer,
|
44
|
Since
2007
|
|
Vice President,
Treasurer and Secretary
|
|
Since
2006
|
Elisa R. Grainger
|
Chief Accounting Officer and Vice President
|
45
|
Since 2011
|
Paul E.
Perkins
|
Managing
Director, ASRA
|
46
|
Since
2010
|
John N. Galardi
|
Director
|
74
|
Since 2003
|
Presley E.
Werlein, III
|
Director
|
65
|
Since
2006
|
D. Brownell Wheless
|
Director
|
63
|
Since 2011
|
William J. Carden - Mr. Carden is
Chairman of the Board, Chief Executive Officer and President. Mr. Carden has
served as Chairman of the Board and Chief Executive Officer since the formation
of the Company and as President since 2002. Mr. Carden has also served as
President of American Spectrum Realty Management, LLC (ASRM), a wholly-owned
subsidiary of the Company, since November 2011. Mr. Carden also serves as
President and a director of American Spectrum REIT, Inc. and Evergreen Income
& Growth REIT, Inc. Mr. Carden has been a director of CGS Real Estate
Company, Inc. since 1989. He received an accounting degree from California State
University, in Long Beach, California. Mr. Carden brings real estate development
and management, investment, business development, and executive leadership
expertise to the Board.
G. Anthony Eppolito Mr. Eppolito was
appointed Chief Financial Officer in March 2007. Mr. Eppolito has served as Vice
President, Treasurer and Secretary since January 2006. Mr. Eppolito has been
with the Company since inception. Mr. Eppolito holds a Bachelor of Business
Administration in Accounting from Texas A&M University in College Station,
Texas and is a Certified Public Accountant.
Elisa R. Grainger
Ms. Grainger was appointed Chief Accounting Officer and Vice President in May 2011. For over 15 years, Mrs. Grainger has
held senior level financial positions that involved creating, managing and maintaining accounting and financial systems in
public, private and entrepreneurial real estate companies. Ms. Grainger holds a Bachelor of Science and Administration in
Accounting from California State University - Los Angeles. She became a Certified Public Accountant while working at KPMG.
Paul E. Perkins Mr. Perkins was
appointed Managing Director of American Spectrum Realty Advisors, LLC (ASRA),
in January 2010. ASRA is a wholly-owned subsidiary of the Company. Mr. Perkins
provides advisory services to owners and managers of real estate in the areas of
finance, recapitalization, loan work outs, acquisitions, dispositions and all
related matters. Mr. Perkins also served as interim President of ASRM from
February 2011 to November 2011. Prior to returning to ASR (2000-2004) Mr.
Perkins worked for CBRE Institutional Properties Investment Sales Group
(2005-2008) and Red Mountain Development Group (2008-2010) as VP of Finance and
Investments. Mr. Perkins holds an undergraduate degree in business and finance
from the University of Southern California and a masters degree in real estate
investments from New York University.
61
John N.
Galardi Mr. Galardi is a director of the Company. Mr. Galardi has been the
Chairman and Chief Executive Officer of Galardi Group, Inc., a privately-held
franchising company encompassing more than 450 restaurants, including the
Wienerschnitzel and Tastee Freez chains for more than the last five years. Mr.
Galardi has been a director of CGS Real Estate Company, Inc. since 1989. Mr.
Galardi has served on the Boards of BCT International, Inc. in Fort Lauderdale,
Florida, and Renovar Energy Corporation in Midland, Texas. He has also served on
the Board of Advisors of National Bank of Southern California and Marine
National Bank. Mr. Galardi attended Southwest Baptist University in Missouri.
Mr. Galardi brings investment, business development, real estate development and
executive leadership expertise to the Board.
Presley E. Werlein, III Mr. Werlein is
a shareholder in Werlein & Harris, P.C., a certified public accounting firm
in Houston, Texas. He serves as President and Chief Executive Officer of Verde
Capital, LLC, which is involved with institutions energy retrofits. He also
serves as President of Parismina Advisors, LLC, which provides consulting
services with respect to New Markets Tax Credits. Mr. Werlein is a Certified
Public Accountant and holds a Bachelor of Business Administration in Accounting
from the University of Texas in Austin, Texas. Mr. Werlein is Chairman of the
Companys Audit Committee and is a member of the Companys Compensation and
Nominating/Corporate Governance Committees. Mr. Werlein brings accounting,
financial services and business development expertise to the Board.
D. Brownell Wheless - Mr. Wheless is a
partner in NuSource Financial Group, LLP and is a Certified Public Accountant.
He holds an undergraduate degree in Economics from Rice University and has
performed post graduate work at the University of Texas in Austin with a
concentration in accounting. Mr. Wheless is a member of the Companys Audit,
Compensation and Nominating/Corporate Governance Committees. Mr. Wheless brings
accounting, financial services and executive leadership expertise to the Board.
The Company has adopted Standards of
Business Conduct, a copy of which is available on the Companys website:
www.americanspectrum.com, which are applicable to its executive officers and
directors.
Director Independence
The Board has determined that each person
who served as a director during 2011, other than Mr. Carden and Mr. Galardi, was
and is independent under the standards of the NYSE Amex (Exchange)
applicable to the Company.
The Structure of the Board of
Directors
The Board is structured to provide for an
appropriate balance between the powers of the CEO and the independent directors
such that the ability of the independent directors to be informed, to discuss
and debate issues they deem important, and to act objectively on an informed
basis is not compromised. In creating the structure of the Board, the Company
believes that the objective is to strengthen the independence and role of the
Board with appropriate checks and balances on the power, actions and performance
of the CEO. The Company firmly believes that the board structure allows for
appropriate oversight by the Board in fulfilling its duties to the Company and
to its stockholders. The Board has not designated a lead director position.
The Board believes that having the same
person serve as Chairman of the Board and CEO is in the best interests of its
shareholders because it demonstrates for our employees, vendors, tenants, and
other stakeholders that the Company is under strong leadership, with a single
person setting the tone and having primary responsibility for managing our
operations. The Board believes that separating the two positions could cause
duplication of efforts or confusion among parties that deal with the Company on
a daily basis. Like the Company, many real estate companies and U.S.-based
companies believe that combining the positions of Chairman of the Board and CEO,
when coupled with an independent Board, is an efficient and effective method in
protecting the interests of stockholders and enhancing stockholder
value.
Our Board of Directors is primarily
responsible for overseeing the Companys risk management processes. This
responsibility has been delegated by the Board to the Audit Committee, the
Compensation Committee and the Investment Committee, each with respect to the
assessment of the Companys risks and risk management in its respective areas of
oversight. These committees and the full Board focus on the most significant
risks facing the Company and the Companys general risk management strategy, and
also ensure that risks undertaken by the Company are consistent with the Boards
appetite for risk. While the Board oversees the Companys risk management,
Company management is responsible for day-to-day risk management processes. The
Company believes this division of responsibilities is the most effective
approach for addressing the risks facing the Company and that the leadership
structure of the Board supports this approach.
62
Information on Meetings and
Committees of the Board of Directors
In 2002, the Board established an Audit Committee
and a Compensation Committee and in 2003 established a Nominating/Corporate
Governance Committee and an Investment Committee. During 2011, the Board held
seven meetings. During 2011, the Audit Committee held four meetings, the
Compensation Committee held two meetings and the Nominating/Corporate Governance
Committee held one meeting. All directors attended at least 75% of the meetings
of the Board and the committees of which they are members.
Audit Committee
The Audit Committee is composed of Mr.
Werlein and Mr. Wheless. Each of the members of the Audit Committee is
independent within the meaning of the listing standards of the Exchange. The
Board has determined that Mr. Werlein is an audit committee financial expert
within the meaning of the rules of the Securities and Exchange Commission
(SEC). In 2011, the Audit Committee held regular and quarterly meetings
throughout the year. The Audit Committee has the authority, among other things,
to appoint and dismiss the Company's independent auditors, discuss the scope and
results of the audit with the independent auditors, review with management and
the independent auditors the Company's interim and year-end operating results,
consider the adequacy of the Company's internal accounting controls and audit
procedures and review non-audit services to be performed by the independent
auditors.
Report of the Audit
Committee
The Audit Committee is composed of two
directors, acts under the written charter adopted and approved by the Board, and
is independent, within the meaning of the listing standards of the Exchange. A
copy of the charter can be found on the Companys website at
www.americanspectrum.com
. The Audit Committee members do not serve as professional accountants or
auditors and their functions are not intended to duplicate or to certify the
activities of management and the independent auditors. The Committee assists the
Board in its oversight of the Company's financial reporting process and selects
the independent auditors. The Committee receives information from, consults
with, and provides its views and direction to, management and the independent
auditors on the basis of the information it receives and the experience of its
members in business, financial and accounting matters.
Management has the primary responsibility
for the financial statements and the reporting process. The independent auditors
are responsible for expressing an opinion on the conformity of the Company's
audited financial statements to generally accepted accounting principles. The
Audit Committee reviews the Company's financial reporting process on behalf of
the Board.
In this context, the Audit Committee (i)
appointed the independent auditors and (ii) reviewed and discussed with
management and EEPB, P.C. the Company's audited financial statements for 2011.
The Audit Committee has also discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees) and has received from the independent
auditors the written disclosures and the letter required by Independence
Standards Board Standard No. 1 (Independence Discussion with Audit Committees)
and discussed with them their independence from the Company and its management.
Further, the Audit Committee has considered whether the independent auditors'
provision of certain non-audit services, namely tax return preparation, to the
Company is compatible with the auditor's independence.
In reliance on the reviews and
discussions referred to above, the Audit Committee recommended to the Board that
the audited financial statements be included in the Company's Annual Report
filed with the Securities and Exchange Commission on Form 10-K for 2011.
Respectfully submitted,
AUDIT COMMITTEE
Presley E. Werlein III,
Chairman
D. Brownell Wheless
63
Nominating Committee
The
Nominating/Corporate Governance Committee (the Nominating Committee) was
established by the Board in 2003 and is composed of Mr. Werlein and Mr. Wheless,
each of whom is independent within the meaning of the listing standards of the
Exchange. The Nominating Committee has a charter, a copy of which can be found
on the Companys website at
www.americanspectrum.com
. The
Nominating Committee selects or recommends that the Board select all candidates
for all directorships and will consider candidates put forward by stockholders,
who should follow the procedures set forth below under Stockholder Proposals
for the Companys 2013 Annual Meeting. In identifying candidates for membership
on the Board of Directors, the Nominating Committee takes into account all
factors it considers appropriate, which may include ensuring that the Board of
Directors, as a whole, consists of individuals with various and relevant career
experience, relevant technical skills, industry knowledge and experience,
financial expertise, local or community ties and minimum individual
qualifications, including strength of character, mature judgment, familiarity
with the Companys business and industry, independence of thought and an ability
to work collegially. The Nominating Committee also may consider the extent to
which the candidate would fill a particular need on the Board.
Diversity is an important strategic
initiative at the Company and has relevance with respect to the Companys
employees, clients, tenants and shareholders. Accordingly, the Nominating
Committee also recognizes the importance of diversity in identifying its
director nominees. The Nominating Committee does not currently have a policy in
place regarding diversity in director nominations, but recognizes that
diversity has several dimensions and is important for the Board of Directors.
Compensation
Committee
The Compensation Committee was
established by the Board in 2002 and is composed of Mr. Werlein and Mr. Wheless.
No member of the Compensation Committee has served as an officer of the Company
or any of its subsidiaries. The Compensation Committee has the authority to
review and approve salary arrangements, including grants of annual incentive
awards for the Company's directors, officers and other employees, adopt and
amend employment agreements for its officers and other employees, and administer
the Company's stock plan. The Compensation Committee has full authority to
determine executive and director compensation. Management recommendations may be
considered by the Compensation Committee. The Compensation Committee does not
generally engage compensation consultants but may do so in the future. The
Compensation Committee has a charter, a copy of which can be found on the
Companys website at
www.americanspectrum.com
.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities Exchange
Act of 1934, as amended, requires the Company's directors, executive officers
and persons who own more than 10% of the Company's Common Stock, to file reports
of ownership of, and transactions in, the Company's securities with the SEC, the
Exchange and the Company. Based solely on the review of copies of such filings
received by the Company or any written representations from certain reporting
persons, the Company believes that its directors, officers and 10% or more
stockholders timely filed all reports required of them during 2011 under Section
16(a) except for one late Form 4 filing by Mr. Carden reporting three
transactions.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the
compensation paid by the Company to its named executive officers.
SUMMARY COMPENSATION TABLE
Name and Principal
|
|
|
|
Stock Awards
|
|
Position
|
Year
|
Salary ($)
|
Bonus ($)
|
($) (a)
|
Total ($)
|
William J. Carden
|
2011
|
589,491
|
--
|
17,090
|
606,581
|
Chief Executive Officer
|
2010
|
557,000
|
--
|
11,550
|
568,550
|
G. Anthony
Eppolito
|
2011
|
155,209
|
--
|
85,450
|
240,659
|
Chief Financial Officer
|
2010
|
171,901
|
--
|
23,100
|
195,001
|
Paul E. Perkins
|
2011
|
225,000
|
--
|
170,900
|
395,900
|
President, ASRA
|
2010
|
146,920
|
--
|
76,250
|
223,170
|
____________________
(a)
|
|
For 2011,
represents the following numbers of restricted shares granted on July 1,
2011: 1,000 shares to Mr. Carden, 5,000 shares to Mr. Eppolito and 10,000
shares to Mr. Perkins. For 2010, represents the following numbers of
restricted shares granted on May 12, 2010: 1,000 shares to Mr. Carden and
2,000 shares to Mr. Eppolito; and on
November 10, 2010: 5,000 shares to Mr. Perkins. The dollar values are
based on the fair market value on the date of grant. The restricted shares
are subject to repurchase by the Company upon termination of the
individuals employment for a price of $.02 per share. With respect to Mr.
Carden, the repurchase restriction for the shares granted in 2011 and 2010
lapses in three equal installments with the first investment lapsing on
the anniversary of the grant date. With respect to Mr. Eppolito, the
repurchase restriction for the shares granted in 2011 lapses in five equal
annual installments with the first investment lapsing on the anniversary
of the grant date; and for the shares granted in 2010 lapses in three
equal annual installments with the first investment lapsing on the
anniversary of the grant date. With respect to Mr. Perkins, the repurchase
restriction for the shares granted in 2011 lapses in five equal annual
installments with the first investment lapsing on the anniversary of the
grant date; and for the shares granted in 2010 lapses in five equal annual
installments with the first investment lapsing on January 1, 2011. The
recipients of restricted stock paid no consideration to the Company for
their shares, have the right to vote their shares, to receive and retain
all cash dividends payable to the Companys stockholders and to exercise
all rights, powers and privileges of a stockholder, with the exception
that the recipient may not transfer the Common Stock during the restricted
period.
|
64
Stock Incentive Plan
The
Company has in effect Omnibus Stock Incentive Plan (the Plan), which was
established by the Board in 2001, is administered by the Compensation Committee
and provides for the granting of options, stock appreciation rights, restricted
stock and performance units and shares, as may be determined by the Board. Under
the Plan, up to a total of 360,000 shares of the Company's Common Stock may be
issued to executive officers, directors or other key employees of the Company.
Options to acquire Common Stock are expected to be in the form of incentive and
non-qualified stock options and are exercisable for up to ten years following
the date of the grant. The Board sets the exercise price of each option, but the
Plan requires that the exercise price per share equal or exceed the fair market
value of the Company's Common Stock on the grant date. As of December 31, 2011,
the Plan had 199,716 shares available for issuance.
Employment Agreements
On January 1, 2012, Mr. Eppolito and the
Company entered into a three month employment that provided for a monthly base
salary of $9,000 and the accelerated vesting of Mr. Eppolito 6,834 unvested
restricted shares. The agreement also provides for a three month severance in
the event the agreement is not extended upon expiration.
Mr. Carden and Mr. Perkins do not have
employment contacts.
OUTSTANDING EQUITY AWARDS AT
FISCAL YEAR-END
The
following table sets forth information regarding option award and stock awards
as of December 31, 2011
by the named executive officers.
|
Option Awards
|
|
Stock Awards
|
|
Number of
|
|
|
|
|
|
|
securities
|
Option
|
|
|
Number of
|
Market value of
|
|
underlying
|
exercise
|
Option
|
|
shares of stock
|
shares of stock
|
|
unexercised
|
price per
|
expiration
|
|
that have not
|
that have not
|
Name
|
options (#)
|
share ($)
|
date
|
|
vested (#)(a)
|
vested ($)(b)
|
William J. Carden
|
--
|
--
|
--
|
|
2,002
|
28,352
|
G. Anthony
Eppolito
|
--
|
--
|
--
|
|
6,834
|
106,156
|
Paul E. Perkins
|
--
|
--
|
--
|
|
14,000
|
231,900
|
____________________
(a)
|
|
Represents unvested
shares of restricted stock granted in 2009, 2010 and 2011. For 2009,
represents the following numbers of restricted shares granted on May 8,
2009: 1,000 shares to Mr. Carden and 1,500 shares to Mr. Eppolito. For
2010, represents the following numbers of restricted shares granted on May
12, 2010: 1,000 shares to Mr. Carden and 2,000 shares to Mr. Eppolito; and
on November 10, 2010: 5,000 shares to Mr. Perkins. For 2011, represents
the following number of restricted shares granted on July 1, 2011: 1,000
shares to Mr. Carden; 5,000 shares to Mr. Eppolito and 10,000 shares to
Mr. Perkins. With respect to Mr. Carden, the repurchase restriction for
the shares granted in 2009, 2010 and 2011 lapses in three equal
installments with the first investment lapsing on the anniversary of the
grant date. With respect
to Mr. Eppolito, the
repurchase restriction for the shares granted in 2009 and 2010 lapses in
three equal installments with the first investment lapsing on the
anniversary of the grant date; and lapses for the shares granted in 2011
in five equal installments with the first investment lapsing on the
anniversary of the grant date. With respect to Mr. Perkins, the repurchase
restriction for the shares granted in 2010 lapses in five equal annual
installments with the first investment lapsing on January 1, 2011; and for
the shares granted in 2011 lapses in five equal installments with the
first investment lapsing on the anniversary of the grant date. The
restricted shares are subject to repurchase by the Company upon
termination of the individuals employment for a price of $.02 per
share
.
|
|
|
|
(b)
|
|
The
market value of shares is based on the fair market value on the date of
grant.
|
65
Compensation of Directors
Each
non-employee director receives $12,000 annually for serving on the Board, $1,000
for each meeting attended in person and $500 for each telephonic meeting in
which the director participates, including any committee meetings. Mr. Werlein
also received a total of
$52,000
in 2011 for serving as Chairman of the Audit
Committee. A director may elect to receive the fee in cash or in Common Stock
valued at its then fair market value. Each director is also reimbursed for
travel expenses for attending meetings. During 2011, each non-employee director
was also granted 1,000 shares of restricted stock, which vest in three equal
installments on the first, second and third anniversary of the grant date.
The following table sets forth
information regarding director compensation for the year ended December 31, 2011
(excludes named executive officers).
DIRECTOR COMPENSATION
Name
|
Fees earned or
|
Stock awards
|
Option awards
|
|
paid in cash ($)
|
($) (a)
|
($) (b)
|
Total ($)
|
John N. Galardi
|
17,000
|
17,090
|
--
|
34,090
|
Presley E.
Werlein
|
83,000
|
17,090
|
--
|
100,090
|
D. Brownell Wheless
|
12,000
|
--
|
--
|
12,000
|
Timothy R.
Brown
|
20,000
|
17,090
|
--
|
37,090
|
William W. Geary, Jr.
|
13,000
|
--
|
--
|
13,000
|
____________________
(a)
|
|
Represents the following number of restricted shares granted on July 1, 2011: Mr. Galardi - 1,000; Mr. Werlein - 1,000; and Mr. Brown - 1,000. The market value of the shares is based on the fair market value on the date of grant. At December 31, 2011, the aggregate number of restricted stock awards outstanding was: Mr. Galardi - 2,002; and Mr. Werlein - 2,002.
|
|
|
|
(b)
|
|
At December 31, 2011, the
aggregate number of option awards outstanding was: Mr. Galardi 12,500; and Mr.
Werlein 5,000. All of these option awards were vested at December 31, 2011.
|
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
SECURITY OWNERSHIP OF
MANAGEMENT AND PRINCIPAL
STOCKHOLDERS
The
following table provides information regarding the beneficial ownership of
Common Stock as of February 29, 2012, by (i) each of the Company's directors and
nominees, (ii) each of the Companys executive officers, (iii) all directors,
nominees and executive officers as a group and (iv) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock. This table is based on information provided to the Company or
filed with the SEC by the Company's directors, nominees, executive officers and
principal stockholders. Except as otherwise indicated, the Company believes that
the beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable.
66
|
|
|
|
PERCENTAGE
|
|
|
NUMBER OF SHARES
OF
|
|
OF
OUTSTANDING
|
NAME OF BENEFICIAL OWNER
(1)
|
|
COMMON STOCK
(2)
|
|
COMMON STOCK
(3)
|
William J. Carden
(4)
|
|
873,750
|
|
24.4
|
%
|
John N. Galardi (5)
|
|
632,025
|
|
17.6
|
%
|
Paul E. Perkins
(6)
|
|
15,000
|
|
*
|
|
G. Anthony Eppolito (7)
|
|
11,500
|
|
*
|
|
Presley E.
Werlein, III (8)
|
|
9,668
|
|
*
|
|
Elisa R. Grainger (9)
|
|
5,000
|
|
*
|
|
|
All Directors,
Nominees
|
|
1,521,787
|
|
42.3
|
%
|
and Executive Officers as a Group
|
|
|
|
|
|
(6 persons)
(10)
|
|
|
|
|
|
|
John V. Winfield
(11)
|
|
361,950
|
|
9.3
|
%
|
Evergreen Income & Growth
REIT, LP (12)
|
|
214,340
|
|
6.0
|
%
|
|
Cynthia L.
Galardi (13)
|
|
202,130
|
|
5.6
|
%
|
____________________
*
|
|
Less than 1%
|
|
|
|
(1)
|
|
Except as specifically noted in
the footnotes below, the address of each of the named beneficial owners is
c/o American Spectrum Realty, Inc., 2401 Fountain View, Suite 510,
Houston, Texas 77057.
|
|
|
|
(2)
|
|
For each beneficial owner,
includes Common Stock subject to options or conversion rights exercisable,
respectively, within 60 days of February 29, 2012. Includes, as to Mr.
Galardi, Common Stock issuable upon exchange of Operating Partnership
Units.
|
|
|
|
(3)
|
|
The percentage ownership is based
on 3,577,783 outstanding shares of Common Stock as of February 29, 2012 as
well as shares deemed outstanding pursuant to Rule 13d-3(d)(1) under the
Exchange Act.
|
|
|
|
(4)
|
|
Includes 603,259 shares of Common
Stock owned by Mr. Carden and the persons or entities listed as follows:
(i) 217,576 shares of Common Stock owned by Mr. Carden's spouse, (ii)
22,764 shares of Common stock owned by a company controlled by Mr. Carden,
and (iii) 25,156 shares of Common Stock owned by a company controlled by
Mr. Carden in which Mr. Galardi owns a significant interest. Certain
shares referenced above may be deemed to be beneficially owned by Mr.
Carden and may also be deemed to be beneficially owned by Mr. Galardi. Mr.
Carden disclaims beneficial ownership of the shares held by his spouse.
Includes 603,254 shares of Common Stock owned by Mr. Carden. Also includes
1,000 shares of restricted stock granted May 8, 2007, 1,000 shares of
restricted stock granted May 13, 2008, 1,000 shares of restricted stock
granted May 8, 2009, 1,000 shares of restricted stock granted May 12, 2010
and 1,000 shares of restricted stock granted July 1, 2011 to Mr. Carden,
which vest in three equal annual installments with the first installment
vesting on the anniversary of the date of grant.
|
|
|
|
(5)
|
|
Includes 462,004 shares of Common
Stock and 2,268 shares issuable upon exchange of Operating Partnership
Units owned by Mr. Galardi. Includes 25,156 shares of Common Stock owned
by a company in which Mr. Galardi owns a significant interest. Certain
shares referenced above may be deemed to be beneficially owned by Mr.
Galardi and may also be deemed to be beneficially owned by Mr. Carden.
Includes 125,097 shares owned jointly with Timothy R. Brown, a former
director of the Company. Also includes 12,500 shares, which Mr. Galardi
has the right to acquire upon the exercise of stock options within sixty
days of February 29, 2011. Also includes 1,000 shares of restricted stock
granted May 8, 2007, 1,000 shares of restricted stock granted May 13,
2008, 1,000 shares of restricted stock granted May 8, 2009, 1,000 shares
of restricted stock granted May 12, 2010 and 1,000 shares of restricted
stock granted July 1, 2011, which vest in three equal annual installments
with the first installment vesting on the anniversary of the date of
grant.
|
|
|
|
(6)
|
|
Includes 5,000 restricted shares
granted November 10, 2010, which vest in five equal annual installments
with the first installment vesting on January 1, 2011. Also includes
10,000 restricted shares granted July 1, 2011 which vest in five equal
installments with the first installment vesting on the anniversary of the
date of grant.
|
|
|
|
(7)
|
|
Includes 1,500 restricted shares
granted May 8, 2007, 1,500 restricted shares granted May 13, 2008, 1,500
restricted shares granted May 8, 2009 and 2,000 restricted shares granted
on May 12, 2010, which vest in three equal annual
installments with the first installment vesting on the anniversary
of the date of grant. Also includes 5,000 restricted shares granted July
1, 2011 which vest in five equal annual installments with the first
installment vesting on the anniversary of the date of
grant.
|
67
(8)
|
|
Includes
5,000 shares of Common Stock which Mr. Werlein has the right to acquire
upon the exercise of stock options within sixty days of February 29, 2012.
Also includes 668 shares of restricted stock granted May 8, 2007, 1,000
shares of restricted stock granted May 13, 2008, 1,000 shares of
restricted stock granted May 8, 2009, 1,000 shares of restricted stock
granted on May 12, 2010 and 1,000 shares of restricted stock granted July
1, 2011, which vest in three equal annual installments with the first
installment vesting on the anniversary of the date of grant.
|
|
|
|
(9)
|
|
Represents 5,000 restricted shares granted July 1, 2011, which vest
in five equal annual installments with the first installment vesting on
the anniversary of the date of grant.
|
|
|
|
(10)
|
|
Includes (i) 217,576 shares of Common Stock owned by Mr. Carden's
spouse, (ii) 22,764 shares of Common Stock owned by a company controlled
by Mr. Carden, (iii) 25,156 shares of Common Stock owned by a company
controlled by Mr. Carden and in which Mr. Galardi owns a significant
interest, (iv) 2,268 shares issuable upon exchange of Operating
Partnership units owned by Mr. Galardi, (v) 4,168 shares of restricted
stock granted May 8, 2007, 4,500 shares of restricted stock granted May
13, 2008, 4,500 shares of restricted stock granted May 8, 2009, 5,000
shares of restricted stock granted on May 12, 2010, 5,000 shares of
restricted stock granted November 10, 2010 and 23,000 shares of restricted
stock granted July 1, 2011, and (vi) 17,500 shares of Common Stock, which
certain directors have the right to acquire upon the exercise of stock
options within sixty days of February 29, 2011. Mr. Carden disclaims
beneficial ownership of the shares and held by his spouse and trusts for
his children. Does not include shares owned by Evergreen Income and Growth
REIT, L.P.
|
|
|
|
(11)
|
|
Mr. Winfields address is 820 Moraga Drive, Los Angeles, California
90049.
|
|
|
|
(12)
|
|
Evergreen Income & Growth REIT, LPs address is 7700 Irvine
Center, Suite 780, Irvine, California 92618. Evergreen Income & Growth
REIT, Inc. is the general partner of Evergreen Income & Growth REIT,
LP. Mr. Carden is the Chief Executive Officer and a director of Evergreen
Income and Growth REIT, L.P.
|
|
|
|
(13)
|
|
Ms. Galardis address is 3511 Race St., Portsmouth, Virginia,
23707.
|
In addition, Evergreen owns
certain operating partnership units which are redeemable for an indeterminate
number of shares or amount of cash. See Item #3.
ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and
Related Transactions
In
December 2011 John Galardi, a principal stockholder and director, loaned $0.25
million to the Company and pledged $0.4 million in certificates of deposit to
additionally secure another loan of the Company.
In September 2010, the Company acquired
two notes receivable, each with a face amount of $0.5 million, and interests in
three apartment complexes (Centennial Park Investors, LLC, Town Center
Investors, LLC and EP Investors LLC). and one student housing facility (Campus
Court TIC 1, LLC). The acquisitions, which were acquired from American Spectrum
REIT I, Inc. (ASRI) for a total purchase price of $1.3 million, were funded by
the issuance of 102,697 OP Units. The number of units have been adjusted to
effect a two- for one- reverse split of all OP units. William J. Carden is a
director and President of ASRI. Mr. Carden is Chief Executive Officer, Chairman
of the Board, and a principal stockholder in the Company. The two $0.5 million
notes bear interest at a rate of 12% per annum and are payable on demand from
Evergreen Realty Group, LLC (ERG).
In June 2010, the Company acquired a 55%
interest in Sabo Road Acquisitions, LP, which owns a 57,850 square foot
self-storage property located in Houston, Texas (A Plus Self Storage). The
partnership interest acquired consists of the sole general partnership interest
and a limited partnership interest. Also in June 2010, the Company acquired a
38.4% undivided interest in Loop 1604, a 178,595 square foot self-storage
property located in San Antonio, Texas. The acquisitions were acquired from ASRI
for a total purchase price of approximately $1.7 million, consisting of the
150,475 OP Units and cash of $0.1 million. In June 2010, the Company acquired
two notes receivable ($1.0 million and $0.4 million each) and an account
receivable of $0.4 million from Evergreen Income & Growth REIT, LP
(EIGRLP) with a total carrying value of $2.1 million, including $0.3 million
of accrued and unpaid interest. The acquisition was funded by the issuance of
214,340 OP Units.
68
The note,
in the amount of $1.0 million, has a stated interest rate of 12% per annum. The
note and accrued interest is receivable on demand from Central Florida Self
Storage Acquisitions, LLC, an entity in which the Company has a non-economic
tenant in common interest. Accrued and unpaid interest on the note totaled
approximately $0.2 million at December 31, 2011. The Company has not recognized
interest income on the note since its acquisition. The note is secured by two
properties in Florida. The Company has commenced foreclosure proceedings against
these two properties. The note in the amount of $0.4 million, which was due from
ASRI, bore interest at 10% per annum. This note and accrued interest of
approximately $0.1 million, was paid to the Company in January 2011. The account
receivable acquired, which totaled approximately $0.4 million, is due from ERG.
The account receivable is related to organizational and offering costs paid in
excess of the amounts established in EIGRIs 2008 private placement
agreement.
In May 2010, the Company obtained
financing for insurance premiums on both its owned and third party managed
properties of which approximately $2.1 million was attributable to the Evergreen
property portfolio. During 2010, the Company received approximately $2.0 million
from these properties as payment on the premiums.
Mr. Carden is a director and President of
Evergreen Income & Growth REIT, Inc. (EIGRI), the general partner of
EIGRLP. The Company does not have an ownership interest in EIRGI or EIGRLP.
The Company pays a guarantee fee to Mr.
Carden, Mr. Galardi and CGS Real Estate Company, Inc., a company owned
indirectly by Messrs. Carden and Galardi (the Guarantors), in consideration
for their guarantees of certain obligations of the Company. The Guarantors are
paid an annual guarantee fee equal to between .25% and .75% (depending on the
nature of the guarantee) of the outstanding balance as of December 31 of the
guaranteed obligations (Guarantee Fee). The Guarantee Fee paid for the year
ended December 31, 2010 was approximately $80,000. The Guarantee Fee paid for
the year ended December 31, 2011 was approximately $165,000. The following
property notes are being guaranteed: 800/888 Sam Houston Parkway, Beltway
Industrial, 2620/2630 Fountain View, 2640/2650 Fountain View. There are also six
corporate notes being guaranteed. These guaranteed notes total $32.1 million.
See Note 11
.
Notes Payable.
During 2007, the Company entered into a
lease agreement with Galardi Group as a tenant for 15,297 square feet of office
space at the Companys 7700 Irvine Center property. Mr. Galardi is a principal
stockholder, director and officer of Galardi Group. The lease commenced March 1,
2008 and has a five-year term. The annual base rent due to the Company pursuant
to the lease was approximately $0.5 million over the term of the lease. 7700
Irvine Center Drive was sold in June 2011. During the same year, the Company
subleased space back from the Galardi Group 2,396 square feet of office space.
This sublease expires February 28, 2013. The annual base rent on this sublease
is $79,000. As of December 31, 2011, $26,356 was due to the Galardi Group.
Director Independence
The Board has determined that each person
who served as a director during 2011, other than Mr. Carden and Mr. Galardi, was
and is independent under the standards of the NYSE Amex (Exchange)
applicable to the Company.
ITEM 14. PRINCIPAL ACCOUNTANT
FEES AND SERVICES
EEPB, P.C. has served as the Companys
independent auditors since August 2010. Hein & Associates, LLP served as the
Companys independent auditors from April 2006 to August 2010.
The Audit Committee reviewed and
pre-approved all audit and permissible non-audit services performed by EEPB,
P.C. and Hein & Associates, LLP, as well as the fees paid for such services.
Fees billed by EEPB, P.C. and Hein & Associates, LLP in 2011 and 2010 were
as follows:
Fees billed by EEPB,
P.C.:
|
Year
|
Audit
Fees
|
Audit-Related
|
Tax
Fees
|
All Other
Fees
|
|
|
|
Fees
|
|
|
|
2011
|
$
|
253,647
|
--
|
--
|
--
|
|
2010
|
$
|
195,780
|
--
|
--
|
--
|
69
Fees billed by Hein &
Associates, LLP:
Year
|
Audit Fees
|
Audit-Related
|
Tax Fees
|
All Other Fees
|
|
|
|
Fees
|
|
|
2011
|
$
|
--
|
--
|
--
|
--
|
2010
|
$
|
35,427
|
--
|
--
|
--
|
PART IV
ITEM 15. EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES
(a)
1.
Consolidated Financial Statements and Supplementary Data
The following financial statements
are included herein under Item 8 of this report:
|
|
|
|
Page
|
|
|
|
|
No.
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
29
|
|
|
Consolidated Balance Sheets at December 31, 2011 and 2010
|
|
30
|
|
|
Consolidated Statements of Operations for the years ended December
31, 2011 and 2010
|
|
31
|
|
|
Consolidated Statements of Equity (Deficit) for the years ended
December 31, 2011 and 2010
|
|
32
|
|
|
Consolidated Statements of Cash Flows for the years ended December
31, 2011 and 2010
|
|
33
|
|
|
Notes to
Consolidated Financial Statements
|
|
35
|
|
(2)
|
|
Financial Statement Schedules
|
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
|
|
71
|
|
|
Schedule
III Real Estate
Investments
and Accumulated Depreciation
|
|
72
|
|
(3)
|
|
Exhibits to Financial Statements
|
|
|
|
|
|
On December 12, 2011, a report on Form 8-K was filed with respect
to Item 8.01.
|
|
|
|
|
On November
15, 2011, a report on Form 8-K was filed with respect to Item
2.02.
|
|
|
|
|
On November 17, 2011, a report on Form 8-K was filed with respect
to Item 5.02.
|
|
|
|
(b)
|
|
Exhibits
|
|
|
|
|
|
The Exhibit Index attached hereto is hereby incorporated by
reference to this Item.
|
|
|
70
AMERICAN SPECTRUM REALTY,
INC.
SCHEDULE II VALUATION AND
QUALIFYING ACCOUNTS
(Dollars in thousands)
|
Balance at
|
|
|
|
|
|
|
Balance at
|
|
Beginning of
|
|
|
|
|
|
|
End of
|
|
Period
|
|
Additions
|
|
Utilized
|
|
Period
|
Allowance for Doubtful
|
|
|
|
|
|
|
|
|
|
|
Accounts
Year Ended:
|
(in thousands)
|
December 31, 2011
|
$
|
421
|
|
1,583
|
|
(998
|
)
|
|
$
|
1,006
|
December
31, 2010
|
$
|
701
|
|
703
|
|
(983
|
)
|
|
$
|
421
|
71
NOTE TO SCHEDULE IIIREAL ESTATE
INVESTMENTS AND ACCUMULATED DEPRECIATION
Changes in real estate investments
and accumulated depreciation for the year ended December 31 were as follows:
|
Years ended,
|
|
December 31,
|
|
2011
|
|
2010
|
|
(in thousands)
|
ASR owned properties
|
|
|
|
|
|
|
Rental
Property:
|
|
|
|
|
|
|
Balance at beginning of year
|
$
|
264,901
|
|
|
$
|
251,336
|
Additions during
year:
|
|
|
|
|
|
|
Property acquisitions and additions
|
|
4,175
|
|
|
|
13,565
|
Retirements
|
|
(84,553
|
)
|
|
|
-
|
Impairments
|
|
(2,527
|
)
|
|
|
-
|
Balance at
end of year
|
$
|
181,996
|
|
|
$
|
264,901
|
|
Accumulated Depreciation:
|
|
|
|
|
|
|
Balance at
beginning of year
|
$
|
85,644
|
|
|
$
|
72,404
|
Additions during year:
|
|
|
|
|
|
|
Depreciation
|
|
11,267
|
|
|
|
13,240
|
Retirements
|
|
(37,738
|
)
|
|
|
-
|
Balance at
end of year
|
$
|
59,173
|
|
|
$
|
85,644
|
|
Variable Interest Entities
|
|
|
|
|
|
|
Rental
Property:
|
|
|
|
|
|
|
Balance at beginning of year
|
$
|
381,354
|
|
|
$
|
-
|
Additions during
year:
|
|
|
|
|
|
|
Property acquisitions and additions
|
|
32,231
|
|
|
|
381,354
|
Retirements
|
|
(74,740
|
)
|
|
|
-
|
Balance at end of year
|
$
|
338,845
|
|
|
$
|
381,354
|
|
Accumulated Depreciation:
|
|
|
|
|
|
|
Balance at
beginning of year
|
$
|
8,446
|
|
|
$
|
-
|
Additions during year:
|
|
|
|
|
|
|
Depreciation
|
|
18,011
|
|
|
|
8,446
|
Retirements
|
|
(3,973
|
)
|
|
|
-
|
Balance at
end of year
|
$
|
22,484
|
|
|
$
|
8,446
|
72
NOTE TO SCHEDULE IIIREAL
ES
TATE INVEST
MENTS
AND
ACCUMULATED
DEPRECIATION
|
|
|
|
|
|
|
|
Initial
cost (1)
|
|
|
|
|
Gross
amount carried at Dec. 31, 2011 (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
Bldgs.
&
|
|
costs
|
|
|
|
Bldgs.
&
|
|
|
|
|
|
Date
|
|
|
|
|
Property
Name
|
|
owned
|
|
Location
|
|
Encumb.
|
|
Land
|
|
Improv.
|
|
capitalized(2)
|
|
Land
|
|
Improv.
|
|
Total
|
|
Accum
Depr
|
|
Constructed
|
|
Date
Acq.
|
|
Life
|
ASR Owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11500 Northwest Freeway
|
|
100%
|
|
Houston,
TX
|
|
4,217
|
|
2,278
|
|
3,602
|
|
654
|
|
|
2,278
|
|
4,256
|
|
6,534
|
|
1,990
|
|
1983
|
|
2004
|
|
40
|
1501 Mockingbird
Lane
|
|
100%
|
|
Victoria, TX
|
|
3,135
|
|
1,000
|
|
3,583
|
|
84
|
|
|
1,000
|
|
3,667
|
|
4,667
|
|
1,224
|
|
1981
|
|
2006
|
|
40
|
2620-2630 Fountain View
|
|
51%
|
|
Houston,
TX
|
|
5,350
|
|
5,300
|
|
1,868
|
|
16
|
|
|
5,300
|
|
1,884
|
|
7,184
|
|
75
|
|
1976
|
|
2010
|
|
40
|
2640-2650
Fountain View
|
|
100%
|
|
Houston, TX
|
|
13,014
|
|
6,900
|
|
9,575
|
|
529
|
|
|
6,900
|
|
10,104
|
|
17,004
|
|
2,480
|
|
1979
|
|
2008
|
|
40
|
2855 Mangum
|
|
100%
|
|
Houston,
TX
|
|
3,850
|
|
2,134
|
|
3,119
|
|
339
|
|
|
2,134
|
|
3,458
|
|
5,592
|
|
1,957
|
|
1979
|
|
2006
|
|
40
|
5450 NW
Central
|
|
100%
|
|
Houston, TX
|
|
2,536
|
|
854
|
|
2,410
|
|
1,002
|
|
|
854
|
|
3,412
|
|
4,266
|
|
1,864
|
|
1979
|
|
2003
|
|
40
|
800 & 888 Sam Houston
Pkwy
|
|
100%
|
|
Houston,
TX
|
|
4,411
|
|
1,500
|
|
1,335
|
|
1,910
|
|
|
1,500
|
|
3,245
|
|
4,745
|
|
2,185
|
|
1980
|
|
2004
|
|
40
|
8100
Washington
|
|
100%
|
|
Houston, TX
|
|
2,117
|
|
600
|
|
2,279
|
|
657
|
|
|
600
|
|
2,936
|
|
3,536
|
|
1,440
|
|
1980
|
|
2003
|
|
40
|
8300 Bissonnet
|
|
100%
|
|
Houston,
TX
|
|
4,484
|
|
1,400
|
|
3,385
|
|
1,283
|
|
|
1,400
|
|
4,668
|
|
6,068
|
|
2,202
|
|
1981
|
|
2003
|
|
40
|
Atrium
6420
|
|
100%
|
|
Houston, TX
|
|
6,262
|
|
3,384
|
|
3,002
|
|
425
|
|
|
3,384
|
|
3,427
|
|
6,811
|
|
1,227
|
|
1979
|
|
2006
|
|
40
|
Atrium 6430
|
|
100%
|
|
Houston,
TX
|
|
2,094
|
|
1,645
|
|
1,765
|
|
672
|
|
|
1,645
|
|
2,437
|
|
4,082
|
|
2,367
|
|
1974
|
|
2006
|
|
40
|
Bristol
Bay
|
|
100%
|
|
Newport Beach, CA
|
|
6,687
|
|
1,620
|
|
7,880
|
|
1,633
|
|
|
1,620
|
|
9,513
|
|
11,133
|
|
5,668
|
|
1988
|
|
2001
|
|
40
|
FMC Technology
|
|
100%
|
|
Houston,
TX
|
|
8,428
|
|
2,375
|
|
9,502
|
|
4
|
|
|
2,375
|
|
9,506
|
|
11,881
|
|
3,205
|
|
1996
|
|
2006
|
|
40
|
Fountain View
Office Tower
|
|
51%
|
|
Houston, TX
|
|
11,750
|
|
3,500
|
|
13,269
|
|
1,333
|
|
|
3,500
|
|
14,602
|
|
18,102
|
|
5,467
|
|
1980
|
|
2006
|
|
40
|
Gray Falls Center & 12000
Westhe
|
|
100%
|
|
Houston,
TX
|
|
7,173
|
|
2,548
|
|
4,350
|
|
1,913
|
|
|
2,548
|
|
6,263
|
|
8,811
|
|
3,318
|
|
1983
|
|
2006
|
|
40
|
Pacific
Spectrum
|
|
100%
|
|
Phoenix, AZ
|
|
5,191
|
|
1,460
|
|
6,880
|
|
1,807
|
|
|
1,460
|
|
8,687
|
|
10,147
|
|
5,322
|
|
1986
|
|
2001
|
|
40
|
Park Ten Place I
|
|
100%
|
|
Houston,
TX
|
|
4,791
|
|
1,174
|
|
5,324
|
|
695
|
|
|
1,174
|
|
6,019
|
|
7,193
|
|
3,524
|
|
1979
|
|
2002
|
|
40
|
Park Ten Place II
|
|
100%
|
|
Houston, TX
|
|
3,753
|
|
900
|
|
4,148
|
|
964
|
|
|
900
|
|
5,112
|
|
6,012
|
|
2,924
|
|
1981
|
|
2002
|
|
40
|
Office Properties
|
|
|
|
|
|
99,243
|
|
40,572
|
|
87,276
|
|
15,920
|
|
|
40,572
|
|
103,196
|
|
143,768
|
|
48,439
|
|
|
|
|
|
|
|
Beltway
Industrial Park
|
|
100%
|
|
Houston, TX
|
|
16,445
|
|
3,829
|
|
14,716
|
|
415
|
|
|
3,829
|
|
15,131
|
|
18,960
|
|
4,379
|
|
1999
|
|
2007
|
|
40
|
Morenci Professional
Park
|
|
100%
|
|
Indianapolis,
IN
|
|
1,578
|
|
790
|
|
2,680
|
|
253
|
|
|
790
|
|
2,933
|
|
3,723
|
|
2,082
|
|
1975-1979
|
|
2001
|
|
40
|
Sierra Southwest Pointe
|
|
100%
|
|
Houston, TX
|
|
2,620
|
|
1,800
|
|
1,483
|
|
613
|
|
|
1,800
|
|
2,096
|
|
3,896
|
|
1,277
|
|
1972
|
|
2001
|
|
40
|
Industrial/Commercial Properties
|
|
|
|
|
|
20,643
|
|
6,419
|
|
18,879
|
|
1,281
|
|
|
6,419
|
|
20,160
|
|
26,579
|
|
7,738
|
|
|
|
|
|
|
|
Northwest
Spectrum Plaza
|
|
100%
|
|
Houston, TX
|
|
2,585
|
|
1,711
|
|
2,044
|
|
351
|
|
|
1,711
|
|
2,395
|
|
4,106
|
|
999
|
|
2004
|
|
2007
|
|
25
|
Windrose Plaza
|
|
100%
|
|
Spring, TX
|
|
2,491
|
|
1,100
|
|
2,429
|
|
253
|
|
|
1,100
|
|
2,682
|
|
3,782
|
|
1,075
|
|
2005
|
|
2007
|
|
25
|
Retail Properties
|
|
|
|
|
|
5,076
|
|
2,811
|
|
4,473
|
|
604
|
|
|
2,811
|
|
5,077
|
|
7,888
|
|
2,074
|
|
|
|
|
|
|
|
Sabo Road Self Storage
|
|
55%
|
|
Houston, TX
|
|
1,911
|
|
535
|
|
1,696
|
|
743
|
|
|
535
|
|
2,439
|
|
2,974
|
|
356
|
|
2006
|
|
2010
|
|
39
|
Self-Storage Properties
|
|
|
|
|
|
1,911
|
|
535
|
|
1,696
|
|
743
|
|
|
535
|
|
2,439
|
|
2,974
|
|
356
|
|
|
|
|
|
|
|
Creekside
|
|
N/A
|
|
San
Ramon, CA
|
|
-
|
|
2,790
|
|
6,460
|
|
(6,460
|
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1984
|
|
2001
|
|
40
|
7700 Irvine Center
|
|
N/A
|
|
Irvine,
CA
|
|
-
|
|
9,150
|
|
40,390
|
|
(40,390
|
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1989
|
|
2001
|
|
40
|
Northwest
Corporate Center
|
|
N/A
|
|
St.
Louis, MO
|
|
-
|
|
1,550
|
|
5,230
|
|
(5,230
|
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1983-1987
|
|
2001
|
|
40
|
Technology
|
|
N/A
|
|
Austin, TX
|
|
-
|
|
580
|
|
9,360
|
|
(9,360
|
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1986
|
|
2001
|
|
40
|
Sold/Foreclosed Properties
|
|
|
|
|
|
-
|
|
14,070
|
|
61,440
|
|
(61,440
|
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
ASR, Inc.
|
|
N/A
|
|
Irvine, CA
|
|
19,873
|
|
-
|
|
129
|
|
658
|
|
|
-
|
|
787
|
|
787
|
|
566
|
|
|
|
|
|
|
Corporate Properties
|
|
|
|
|
|
19,873
|
|
-
|
|
129
|
|
658
|
|
|
-
|
|
787
|
|
787
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ASR owned
|
|
|
|
|
|
146,746
|
|
64,407
|
|
173,893
|
|
(42,234
|
)
|
|
50,337
|
|
131,659
|
|
181,996
|
|
59,173
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
Initial cost (1)
|
|
|
|
|
Gross
amount carried at Dec. 31, 2011 (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
Bldgs.
&
|
|
costs
|
|
|
|
Bldgs.
&
|
|
|
|
|
|
Date
|
|
|
Property
Name
|
|
owned
|
|
Location
|
|
Encumb.
|
|
Land
|
|
Improv.
|
|
capitalized(2)
|
|
Land
|
|
Improv.
|
|
Total
|
|
Accum
Depr
|
|
Constructed
|
|
Date
Acq.
|
Variable Interest Entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commerce Distributions Center
|
|
1%
|
|
Commerce, CA
|
|
9,598
|
|
8,628
|
|
12,537
|
|
21
|
|
|
8,628
|
|
12,558
|
|
|
21,186
|
|
1,109
|
|
1957
|
|
2010
|
Dixon &
Logistics Center
|
|
0%
|
|
Des Moines, IA
|
|
17,686
|
|
3,682
|
|
19,128
|
|
-
|
|
|
3,682
|
|
19,128
|
|
|
22,810
|
|
1,683
|
|
1961
|
|
2010
|
Fisher Indiana Distribution Center
|
|
1%
|
|
Fishers, IN
|
|
17,331
|
|
2,805
|
|
23,018
|
|
-
|
|
|
2,805
|
|
23,018
|
|
|
25,823
|
|
2,025
|
|
1993
|
|
2010
|
Foxborough
Business Park
|
|
0%
|
|
Victorville, CA
|
|
3,447
|
|
694
|
|
-
|
|
4,811
|
|
|
694
|
|
4,811
|
|
|
5,505
|
|
259
|
|
2010
|
|
2010
|
Ohio Commerce Center
|
|
0%
|
|
Strongsville, OH
|
|
18,727
|
|
1,917
|
|
24,585
|
|
-
|
|
|
1,917
|
|
24,585
|
|
|
26,502
|
|
2,163
|
|
1968
|
|
2010
|
Springs Commerce
I
|
|
0%
|
|
OK, GA,SC,VA,PA
|
|
16,849
|
|
3,009
|
|
22,550
|
|
-
|
|
|
3,009
|
|
22,550
|
|
|
25,559
|
|
1,984
|
|
95',[64',93'],98',[98',99'],[00',02']
|
|
2010
|
Springs Commerce II
|
|
0%
|
|
GA, AL
|
|
20,445
|
|
1,709
|
|
21,356
|
|
85
|
|
|
1,709
|
|
21,441
|
|
|
23,150
|
|
1,904
|
|
1964,1955,1973
|
|
2010
|
Springs
Office
|
|
0%
|
|
Fort Mill/Lancaster,SC
|
|
14,560
|
|
2,288
|
|
19,197
|
|
-
|
|
|
2,288
|
|
19,197
|
|
|
21,485
|
|
1,742
|
|
1971,1953,1998
|
|
2010
|
Strongville Corporate
Center
|
|
2%
|
|
Strongsville,
OH
|
|
14,687
|
|
7,540
|
|
14,236
|
|
1
|
|
|
7,540
|
|
14,237
|
|
|
21,777
|
|
1,461
|
|
1989
|
|
2010
|
Industrial/Commercial
Properties
|
|
|
|
|
|
133,330
|
|
32,272
|
|
156,607
|
|
4,918
|
|
|
32,272
|
|
161,525
|
|
|
193,797
|
|
14,330
|
|
|
|
|
|
Campus Court Student Housing
|
|
11%
|
|
Cedar Falls, IA
|
|
4,684
|
|
320
|
|
7,056
|
|
-
|
|
|
320
|
|
7,056
|
|
|
7,376
|
|
429
|
|
1998
|
|
2010
|
Muirwood
Village
|
|
0%
|
|
Zanesville, OH
|
|
7,803
|
|
1,043
|
|
-
|
|
13,380
|
|
|
1,043
|
|
13,380
|
|
|
14,423
|
|
661
|
|
2010
|
|
2010
|
Ohio II - Residences at Newark & Sheffield
|
|
0%
|
|
Newark/Circleville, OH
|
|
9,422
|
|
2,530
|
|
11,136
|
|
148
|
|
|
2,530
|
|
11,284
|
|
|
13,814
|
|
985
|
|
2010
|
|
2010
|
College Park
Student Apartments
|
|
0%
|
|
Cedar Rapids, IA
|
|
14,454
|
|
2,788
|
|
13,486
|
|
51
|
|
|
2,788
|
|
13,537
|
|
|
16,325
|
|
967
|
|
2002
|
|
2010
|
University Fountains Lubbock
|
|
0%
|
|
Lubbock, TX
|
|
21,149
|
|
7,975
|
|
23,734
|
|
147
|
|
|
7,975
|
|
23,881
|
|
|
31,856
|
|
2,058
|
|
2005
|
|
2010
|
University Springs San
Marcos
|
|
0%
|
|
San Marcos, TX
|
|
9,504
|
|
1,531
|
|
14,683
|
|
109
|
|
|
1,531
|
|
14,792
|
|
|
16,323
|
|
1,267
|
|
1998
|
|
2010
|
Multi-Family/Student Housing
Properties
|
|
|
|
|
|
67,016
|
|
16,187
|
|
70,095
|
|
13,835
|
|
|
16,187
|
|
83,930
|
|
|
100,117
|
|
6,367
|
|
|
|
|
|
Loop 1604 Self Storage
|
|
38%
|
|
San Antonio, TX
|
|
4,320
|
|
4,897
|
|
3,132
|
|
393
|
|
|
4,897
|
|
3,525
|
|
|
8,422
|
|
233
|
|
1985
|
|
2010
|
Aldine Westfield
Self Storage
|
|
0%
|
|
Houston, TX
|
|
2,417
|
|
112
|
|
2,284
|
|
5
|
|
|
112
|
|
2,289
|
|
|
2,401
|
|
202
|
|
2006
|
|
2010
|
Attic Space Self Storage - Blanco Rd
|
|
0%
|
|
San Antonio, TX
|
|
1,321
|
|
203
|
|
1,516
|
|
-
|
|
|
203
|
|
1,516
|
|
|
1,719
|
|
111
|
|
1982
|
|
2010
|
Attic Space Self
Storage - Laredo Road
|
|
0%
|
|
San Antonio, TX
|
|
1,758
|
|
455
|
|
2,903
|
|
(1
|
)
|
|
455
|
|
2,902
|
|
|
3,357
|
|
213
|
|
1998
|
|
2010
|
Charleston Blvd Self Storage
|
|
0%
|
|
Las Vegas, NV
|
|
2,526
|
|
524
|
|
1,575
|
|
-
|
|
|
524
|
|
1,575
|
|
|
2,099
|
|
115
|
|
1989
|
|
2010
|
Florida 2 -
Ocala Self Storage
|
|
0%
|
|
Ocala, FL
|
|
2,150
|
|
585
|
|
1,376
|
|
-
|
|
|
585
|
|
1,376
|
|
|
1,961
|
|
81
|
|
1989
|
|
2010
|
Florida 2 - Tampa Self Storage
|
|
0%
|
|
Tampa, FL
|
|
2,424
|
|
669
|
|
1,575
|
|
-
|
|
|
669
|
|
1,575
|
|
|
2,244
|
|
92
|
|
1987
|
|
2010
|
Ft. Worth
Northwest Self Storage
|
|
0%
|
|
Forth Worth, TX
|
|
1,939
|
|
1,356
|
|
1,238
|
|
-
|
|
|
1,356
|
|
1,238
|
|
|
2,594
|
|
91
|
|
1985
|
|
2010
|
Ft. Worth River Oaks Self Storage
|
|
0%
|
|
River Oaks, TX
|
|
2,156
|
|
355
|
|
2,273
|
|
-
|
|
|
355
|
|
2,273
|
|
|
2,628
|
|
167
|
|
1985
|
|
2010
|
Grissom Road
Self Storage
|
|
0%
|
|
San Antonio, TX
|
|
2,336
|
|
2,224
|
|
1,765
|
|
-
|
|
|
2,224
|
|
1,765
|
|
|
3,989
|
|
129
|
|
1985
|
|
2010
|
Houston South Mason (Patrick's)
|
|
0%
|
|
Katy, TX
|
|
2,833
|
|
899
|
|
1,380
|
|
-
|
|
|
899
|
|
1,380
|
|
|
2,279
|
|
101
|
|
2000
|
|
2010
|
San Antonio 3
|
|
0%
|
|
San Antonio, TX
|
|
10,503
|
|
6,670
|
|
-
|
|
4,568
|
|
|
6,670
|
|
4,568
|
|
|
11,238
|
|
252
|
|
2010
|
|
2010
|
Self-Storage
Properties
|
|
|
|
|
|
36,683
|
|
18,949
|
|
21,017
|
|
4,965
|
|
|
18,949
|
|
25,982
|
|
|
44,931
|
|
1,787
|
|
|
|
|
|
Rose Ct.
|
|
N/A
|
|
Phoenix, AZ
|
|
-
|
|
909
|
|
3,591
|
|
(3,591
|
)
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
1974
|
|
2010
|
Redmond
Commerce
|
|
N/A
|
|
Redmond, WA
|
|
-
|
|
6,379
|
|
19,658
|
|
(26,037
|
)
|
|
6,379
|
|
(6,379
|
)
|
|
-
|
|
-
|
|
1981,1986
|
|
2010
|
Centennial Park
|
|
N/A
|
|
Overland Park, KS
|
|
-
|
|
2,589
|
|
13,132
|
|
(15,721
|
)
|
|
2,589
|
|
(2,589
|
)
|
|
-
|
|
-
|
|
1997
|
|
2010
|
University Heights
|
|
N/A
|
|
San Marcos, TX
|
|
-
|
|
3,121
|
|
25,000
|
|
(28,121
|
)
|
|
3,121
|
|
(3,121
|
)
|
|
-
|
|
-
|
|
2005
|
|
2010
|
Sold/Foreclosed
Properties
|
|
|
|
|
|
-
|
|
12,998
|
|
61,381
|
|
(73,470
|
)
|
|
12,089
|
|
(12,089
|
)
|
|
-
|
|
-
|
|
|
|
|
|
Other
|
|
|
|
|
|
247
|
|
-
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
|
|
|
Corporate
Properties
|
|
|
|
|
|
247
|
|
-
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total VIE
owned
|
|
|
|
|
|
237,276
|
|
80,406
|
|
309,100
|
|
(49,752
|
)
|
|
79,497
|
|
259,348
|
|
|
338,845
|
|
22,484
|
|
|
|
|
Total ASR owned
|
|
|
|
|
|
146,746
|
|
64,407
|
|
173,893
|
|
(42,234
|
)
|
|
50,337
|
|
131,659
|
|
|
181,996
|
|
59,173
|
|
|
|
|
Total Consolidated
Properties
|
|
|
|
|
|
384,022
|
|
144,813
|
|
482,993
|
|
(91,986
|
)
|
|
129,834
|
|
391,007
|
|
|
520,841
|
|
81,657
|
|
|
|
|
____________________
(1)
|
|
Initial cost and date
acquired, where applicable.
|
|
|
|
(2)
|
|
Costs are offset by
retirements and write-offs.
|
|
|
|
(3)
|
|
The aggregate cost for
federal income tax purposes is $105,007.
|
|
|
|
(4)
|
|
Valuation allowance
established in 2011 as the estimated fair value decline below book value;
2855 Mangum - $703, Atrium 6430 - $1,395 and Morenci Professional Park -
$429.
|
74
SIGNATURES
Pursuant to the requirements of
Section l3 or l5(d) of the Securities Exchange Act of l934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICAN SPECTRUM REALTY INC
By: American Spectrum Realty Inc.,
Date:
March 30, 2012
|
/s/ William J.
Carden
|
|
William J.
Carden
|
|
Chairman of
the Board, President and
|
|
Chief
Executive Officer
|
|
(Principal
Executive Officer)
|
|
Date:
March 30, 2012
|
/s/ G. Anthony
Eppolito
|
|
G. Anthony
Eppolito
|
|
Vice
President, Chief Financial Officer
|
|
(Principal
Financial Officer)
|
|
Treasurer
and Secretary
|
|
Date:
March 30, 2012
|
/s/ Elisa
Grainger
|
|
Elisa
Grainger
|
|
Chief
Accounting Officer
|
|
(Principal
Accounting Officer)
|
|
|
/s/ David Brownell
Wheless
|
|
David
Brownell Wheless
|
|
Director
|
|
Date:
March 30, 2012
|
/s/ Presley E. Werlein,
III
|
|
Presley E.
Werlein, III
|
|
Director
|
|
Date:
March 30, 2012
|
/s/ John N.
Galardi
|
|
John N.
Galardi
|
|
Director
|
75
EXHIBIT INDEX
Exhibit No.
|
|
Exhibit Title
|
3.1
|
|
Form of Amended and Restated Articles of
Incorporation of the Company (1)
|
|
|
3.2
|
|
Bylaws of the Company (1)
|
|
|
|
3.3
|
|
Amended and Restated Bylaws
of the Company are incorporated herein by reference to Exhibit 3.01 to the
Companys Form 10-Q for the quarter ended June 30, 2002
|
|
|
|
3.4
|
|
Articles of Amendment of the
Company are incorporated herein by reference to the Companys Annual
Report on Form 10-K for the year ended December 31, 2003
|
|
|
|
3.5
|
|
Articles of Amendment of the
Company are incorporated herein by reference to the Companys Form 10-Q
for the quarter ended March 31, 2006
|
|
|
|
3.6
|
|
Articles Supplementary for
15% Cumulative Preferred Stock, Series A of the Company dated December 30,
2008 are incorporated herein by reference to the Companys Form 8-K filed
January 8, 2009
|
|
|
|
4.1
|
|
Form of Stock Certificate
(1)
|
|
|
|
10.1
|
|
Form of Agreement and Plan of Merger of
Sierra-Pacific Development Fund (1)
|
|
|
|
10.2
|
|
Form of Agreement and Plan
of Merger of Sierra-Pacific Development Fund II (1)
|
|
|
|
10.3
|
|
Form of Agreement and Plan
of Merger of Sierra-Pacific Development Fund III (1)
|
|
|
|
10.4
|
|
Form of Agreement and Plan
of Merger of Sierra Pacific Pension Investors 84 (1)
|
|
|
|
10.5
|
|
Form of Agreement and Plan
of Merger of Sierra Pacific Institutional Properties V
(1)
|
|
|
|
10.6
|
|
Form of Agreement and Plan
of Merger of Nooney Income Fund Ltd., L.P. (1)
|
|
|
|
10.7
|
|
Form of Agreement and Plan
of Merger of Nooney Income Fund Ltd., L.P. (1)
|
|
|
|
10.8
|
|
Form of Agreement and Plan
of Merger of Nooney Real Property Investors Two, L.P.
(1)
|
|
|
|
10.9
|
|
Omnibus Stock Incentive Plan
(1)
|
|
|
|
10.10
|
|
Agreement of Limited
Partnership of American Spectrum Realty Operating Partnership, L.P.
(1)
|
|
|
|
10.11
|
|
Agreement and Plan of
Merger, dated August 6, 2000, between the Company and CGS Properties
(Mkt./Col.), L.P. (1)
|
|
|
|
10.12
|
|
Agreement and Plan of
Merger, dated August 6, 2000, between the Company and Creekside/Riverside,
L.L.C. (1)
|
|
|
|
10.13
|
|
Agreement and Plan of
Merger, dated August 6, 2000, between the Company and McDonnell
Associates, L.L.C. (1)
|
|
|
|
10.14
|
|
Agreement and Plan of
Merger, dated August 6, 2000, between the Company and Pacific Spectrum,
L.L.C. (1)
|
|
|
|
10.15
|
|
Agreement and Plan of
Merger, dated August 6, 2000, between the Company and Pasadena Autumn
Ridge L.P. (1)
|
76
10.16
|
|
Agreement and Plan of Merger, dated August 6, 2000, between the
Company and Seventy Seven, L.L.C. (1)
|
|
|
10.17
|
|
Agreement and Plan of Merger, dated August 6, 2000, between the
Company and Villa Redondo L.L.C. (1)
|
|
10.18
|
|
Agreement and Plan of Merger, dated August 6, 2000, between the
Company and Third Coast L.L.C. (1)
|
|
10.19
|
|
Agreement and Plan of Contribution, dated August 6, 2000, between
the Company and No.-So., Inc. (1)
|
|
10.20
|
|
Form of Restricted Stock Agreement (1)
|
|
10.21
|
|
Form of Stock Option Agreement (Incentive Stock Options)
(1)
|
|
10.22
|
|
Form of Stock Option Agreement (Directors) (1)
|
|
10.23
|
|
Form of Stock Option Agreement (Non-Qualified Options)
(1)
|
|
10.24
|
|
Form of Indenture Relating to Notes (1)
|
|
10.25
|
|
Contribution Agreement, dated May 31, 2000, between the Company and
CGS Real Estate Company, Inc. (1)
|
|
10.26
|
|
Contribution Agreement, dated May 31, 2000, between the Company and
American Spectrum Real Estate Services, Inc. (1)
|
|
10.27
|
|
Agreement and Plan of Merger, dated May 31, 2001, between the
Company and Lindbergh Boulevard Partners (Lindbergh), L.P.
(1)
|
|
10.28
|
|
Agreement and Plan of Merger, dated May 31, 2001, between the
Company and Nooney Rider Trail L.L.C. (1)
|
|
10.29
|
|
Agreement and Plan of Merger, dated May 31, 2001, between the
Company and Back Bay L.L.C. (1)
|
|
10.30
|
|
Contribution Agreement, dated May 31, 2001, between American
Spectrum Realty Management, Inc. and CGS Real Estate Company, Inc.,
American Spectrum Midwest, American Spectrum Arizona, American
Spectrum California and American Spectrum Texas, Inc. (1)
|
|
10.31
|
|
Amendment of Agreement Plan of Merger between the Company and Villa
Redondo L.L.C. is incorporated herein by reference to the Companys Annual
Report on Form 10-K for the year ended December 31, 2001
|
|
10.32
|
|
Amendment of Agreement Plan of Merger between the Company and
Pasadena Autumn Ridge, L.P. is incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31,
2001
|
|
10.33
|
|
Amendment of Agreement Plan of Merger between the Company and Third
Coast L.L.C. is incorporated herein by reference to the Companys Annual
Report on Form 10-K for the year ended December 31, 2001
|
|
10.34
|
|
Registration Rights Agreement between the Company, the Operating
Partnership, and other parties is incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31,
2001
|
|
10.35
|
|
Employment Agreement dated October 15, 2001 between the Company and
Harry A. Mizrahi is incorporated herein by reference to Exhibit 10.01 to
the Companys Form 10-Q for the quarter ended March 31, 2002
|
|
10.36
|
|
Employment Agreement dated April 3, 2002 between the Company and
Paul E. Perkins is incorporated herein by reference to Exhibit 10.02 to
the Companys Form 10-Q for the quarter ended March 31,
2002
|
77
10.37
|
Employment Agreement dated April 16, 2002 between the Company and
Patricia A. Nooney is incorporated herein by reference to Exhibit 10.03 to
the Companys Form 10-Q for the quarter ended March 31, 2002
|
|
|
10.38
|
Employment Agreement dated September 1, 2002 between the Company
and Thomas N. Thurber is incorporated herein by reference to Exhibit 10.04
to the Companys Form 10-Q for the quarter ended June 30, 2002 (Exhibits
pursuant to the Agreement have not been filed by the Company, who hereby
undertakes to file such exhibits upon the request of the SEC)
|
|
10.39
|
Employment Agreement dated October 15, 2001 between the Company and
William J. Carden is incorporated herein by reference to Exhibit 10.5 to
the Companys Form 10-Q for the quarter ended September 30,
2002
|
|
10.40
|
Letter Agreement dated February 25, 2003 between the Company and
William J. Carden and John N. Galardi is incorporated herein by reference
to the Companys Annual Report on Form 10-K for the year ended December
31, 2002
|
|
10.41
|
Letter Agreement dated February 25, 2003 between the Company and
CGS Real Estate Company, Inc. is incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31,
2002
|
|
10.42
|
Letter Agreement dated February 25, 2003 between the Company and
William J. Carden and John N. Galardi is incorporated herein by reference
to the Companys Annual Report on Form 10-K for the year ended December
31, 2002
|
|
10.43
|
Amendment No. 1 to Employment Agreement dated October 6, 2003
between the Company and Patricia A. Nooney incorporated herein by
reference to the Companys Annual Report on Form 10-K for the year ended
December 31, 2003
|
|
10.44
|
Purchase Agreement dated December 15, 2009 between the Company and
Evergreen Parties incorporated herein by reference to the Companys Annual
Report on Form 10-K/A for the year ended December 31, 2009
|
|
10.45
|
Letter Agreement to Purchase Agreement dated December 18, 2009
between the Company and Evergreen Parties (First Amendment to Purchase
Agreement) incorporated herein by reference to the Companys Annual Report
on Form 10-K/A for the year ended December 31, 2009
|
|
10.46
|
Second Amendment to Purchase Agreement dated January 17, 2010
between the Company and Evergreen Parties incorporated herein by reference
to the Companys Annual Report on Form 10-K/A for the year ended December
31, 2009
|
|
21
|
Significant Subsidiaries of the Company
|
|
23.1
|
EEPB, PC Consent Form 10-K
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act
|
|
32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
|
|
|
32.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
|
|
EX-101.INS
|
XBRL INSTANCE DOCUMENT
|
|
|
EX-101.SCH
|
XBRL TAXONOMY EXTENSION SCHEMA
|
|
|
EX-101.PRE
|
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
|
|
|
EX-101.LAB
|
XBRL TAXONOMY EXTENSION LABEL LINKBASE
|
|
|
EX-101.CAL
|
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
|
|
|
EX-101.DEF
|
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
|
____________________
|
(1)
|
|
Incorporated herein by
reference to the Companys Registration Statement on Form S-4
(Registration No. 333-43686), which became effective August 8,
2001.
|
78
SUBSIDIARIES OF THE COMPANY
Corporations
|
State of Organization
|
American Spectrum Management
Group, Inc.
|
Delaware
|
|
Limited Partnerships
|
|
American Spectrum Realty
Operating Partnership, L.P.
|
Delaware
|
ASR Park Ten
350, L.P.
|
Texas
|
ASR Park Ten 360, L.P.
|
Texas
|
ASR 2401
Fountainview, L.P
|
Delaware
|
ASR 2620-2630 Fountainview,
LP
|
Delaware
|
ASR 5450 NW,
L.P.
|
Delaware
|
ASR 5850 San Felipe,
L.P.
|
Delaware
|
ASR 6677
Gessner, L.P.
|
Delaware
|
ASR 11500 NW, L.P.
|
Delaware
|
ASR Washington,
L.P.
|
Texas
|
ASR-8 Centre, L.P.
|
Delaware
|
ASR-1501
Mockingbird, L.P.
|
Delaware
|
ASR-2855 Mangum, L.P.
|
Delaware
|
ASR-6420
Richmond Atrium, L.P.
|
Delaware
|
ASR-6430 Richmond Atrium,
L.P.
|
Delaware
|
ASR-Beltway
Industrial, L.P.
|
Delaware
|
ASR-Fountain View Place,
L.P.
|
Delaware
|
ASR-Parkway One
& Two, L.P.
|
Delaware
|
ASR-West Gray, L.P.
|
Delaware
|
ASR-Windrose,
L.P.
|
Delaware
|
Nooney Rider Trail,
L.P.
|
Delaware
|
Sierra Pacific
Development Fund II, L.P.
|
Delaware
|
Sabo Road Acquisitions,
LP
|
Delaware
|
|
Limited Liability Companies
|
|
American Spectrum Holdings
(Washington), LLC
|
Delaware
|
American
Spectrum Investments, LLC
|
Delaware
|
American Spectrum Realty
Advisors, LLC
|
Delaware
|
American
Spectrum Realty Management, LLC
|
Delaware
|
American Spectrum Realty-1501
Mockingbird, LLC
|
Delaware
|
American
Spectrum Realty-2855 Mangum, LLC
|
Delaware
|
American Spectrum Realty-6420
Richmond Atrium, LLC
|
Delaware
|
American
Spectrum Realty-6430 Richmond Atrium, LLC
|
Delaware
|
American
Spectrum Realty 5850 San Felipe, LLC
|
Delaware
|
American
Spectrum Realty 5450 NW, LLC
|
Delaware
|
American Spectrum Realty 11500
NW, LLC
|
Delaware
|
American
Spectrum Realty-8 Centre, LLC
|
Delaware
|
American Spectrum Realty-1501
Mockingbird, LLC
|
Delaware
|
American
Spectrum Realty-6420 Richmond, LLC
|
Delaware
|
American Spectrum Realty-6430
Richmond, LLC
|
Delaware
|
American
Spectrum Realty-Beltway Industrial, LLC
|
Delaware
|
American Spectrum
Realty-Fountain View Place, LLC
|
Delaware
|
American
Spectrum Realty-Parkway One & Two, LLC
|
Delaware
|
American Spectrum
Realty-Windrose, LLC
|
Delaware
|
ASR 2401
Fountainview, LLC
|
Delaware
|
ASR 2620-2630 Fountainview GP,
LLC
|
Delaware
|
ASR 6677
Gessner, LLC
|
Delaware
|
ASR Centennial Park,
LLC
|
Delaware
|
ASR-Newport,
L.L.C.
|
Delaware
|
79
ASR NRT,
LLC
|
Delaware
|
ASR-Risk Management,
L.L.C.
|
Delaware
|
ASR-West Gray,
LLC
|
Delaware
|
Back Bay, LLC
|
Delaware
|
Centennial Park
Kansas, LLC
|
Delaware
|
McDonnell Associates,
LLC
|
Delaware
|
Nooney Income
Fund II, LLC
|
Delaware
|
Nooney Real Property Investors
Two, LLC
|
Delaware
|
Pacific
Spectrum, LLC
|
Arizona
|
Rooftop Spectrum, LLC
|
Delaware
|
Sabo Road
Manager, LLC
|
Delaware
|
Seventy Seven, LLC
|
Delaware
|
Sierra
Creekside, LLC
|
Delaware
|
Sierra Pacific Development Fund
II, LLC
|
Delaware
|
Sierra Pacific
Development Fund, LLC
|
Delaware
|
Sierra Southwest Pointe,
LLC
|
Delaware
|
Solar Spectrum,
LLC
|
Delaware
|
Tampa Ocala Acquisitions,
LLC
|
Delaware
|
|
Partnerships
|
|
Sierra Creekside
Partners
|
California
|
Sierra Mira Mesa
Partners
|
California
|
80
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