SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

          The accompanying consolidated financial statements included in this Quarterly Report as of June 30, 2014, and December 31, 2013, and for the three and six months ended June 30, 2014 and 2013, have been prepared pursuant to the rules and regulations of the SEC and are unaudited. In our opinion, the accompanying consolidated financial statements contain all normal and recurring items and adjustments necessary for their fair presentation. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from these financial statements pursuant to the SEC rules and regulations and, accordingly, these financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.

          Our financial records are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred. The consolidated financial statements include our accounts as well as the accounts of each subsidiary in which we have a controlling financial interest. Investments in joint ventures and partnerships, where we have the ability to exercise significant influence but do not exercise financial and operating control, are accounted for using the equity method. The significant accounting policies of our non-consolidated entities are consistent with those of our subsidiaries in which we have a controlling financial interest. As of June 30, 2014, we did not have any interests in variable interest entities. All significant inter-company accounts and transactions have been eliminated through consolidation.

Use of Estimates

          The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

          We consider all highly liquid short term-investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of demand deposits at commercial banks and money market funds.

Revenue Recognition

          Rental income from operating leases – We lease space to tenants under agreements with varying terms. Our leases are accounted for as operating leases, and, although certain of our leases provide for tenant occupancy during periods for which no rent is due and/or for changes in the minimum lease payments over the terms of the leases, revenue is recognized on a straight-line basis over the terms of the individual leases. Revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset. Generally, possession or control occurs on the lease commencement date. In cases where significant tenant improvements are made prior to lease commencement, the leased asset is considered to be the finished space, and revenue recognition therefore begins when the improvements are substantially complete. Revenue from tenant reimbursements of taxes, maintenance expenses and insurance is recognized in the period the related expense is recorded. Additionally, certain of our lease agreements contain provisions that grant additional rents based upon tenants’ sales volumes (contingent or percentage rent). Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements and are equal to a percentage of sales above such targets. During the six months ended June 30, 2014 and 2013, we recognized percentage rents of $37,000 and $48,000, respectively. Accrued rents and reimbursable expenses are included in tenant and accounts receivable, net.

          Advisory services income – related party – We provide various real estate services, including development, construction management, property management, leasing and brokerage. The fees for these services are recognized as services are provided and are generally calculated as a percentage of revenues earned or to be earned or of property cost, as appropriate. We also earn asset management fees from certain of the Advised Funds for facilitating the deployment of capital and for monitoring the real estate investments. Asset management fees are calculated as a percentage of equity under management. See Note 10 for a detail of our advisory services income – related party.

Real Estate Investments

          Development Properties – Expenditures related to the development of real estate are capitalized as part of construction in progress. Costs capitalized relate to the development and redevelopment of real estate including pre-construction costs, real estate taxes, insurance, direct construction costs as well as the salaries and payroll costs of personnel directly involved. Additionally, we capitalize costs related to development and significant redevelopment activities, which includes carrying charges, primarily interest, real estate taxes and loan acquisition costs, and indirect development costs related to buildings under construction. The determination of when a development project is substantially complete and when capitalization must cease involves a degree of judgment; however, capitalization of such costs generally ceases at the earlier of the date of completion of major construction or when the property, or any completed portion, becomes available for occupancy. During the six months ended June 30, 2014 and 2013, we capitalized external and internal costs related to both development and redevelopment activities of $197,000 and $15,000, respectively.

          We capitalize costs associated with pending acquisitions of raw land as incurred and expense such costs if and when the acquisition of the property becomes no longer probable.

          Acquired Properties and Acquired Intangibles – We account for acquisitions of operating real estate properties as business acquisitions as we believe most operating real estate meets the definition of a “business” under GAAP. Accordingly, we allocate the purchase price of each acquired property to land, building and improvements, identifiable intangible assets and to the acquired liabilities based on their respective fair values. See Note 3 for a discussion of our significant acquisitions.

          Depreciation – Depreciation is computed using the straight-line method over an estimated useful life, generally, 39 to 50 years for buildings, up to 20 years for site improvements and the term of the lease for tenant improvements. Leasehold estate properties, which are improved operating properties that we lease pursuant to a ground lease, are amortized over the life of the ground lease.

          Impairment – We review our properties for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. We determine whether an impairment of value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the residual value of the property, with the carrying value of the individual property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its fair value. We did not recognize any impairment charges during the six months ended June 30, 2014 or 2013.

New Accounting Pronouncements

          In May 2014, the FASB issued “Accounting Standards Update No. 2014-09: Revenue from Contracts with Customers” that will supersede the existing revenue recognition guidance under GAAP. The accounting update states that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. It also establishes a five-step model that requires companies to exercise judgment when considering the terms of a contract and all relevant facts and circumstances. It is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and allows for alternative transition methods: (a) a full retrospective adoption in which the new guidance is applied to all of the periods presented, or (b) a modified retrospective adoption in which the new guidance is applied only to the most current period presented in the financial statements, including additional disclosures of the standard’s application impact to individual financial statement line items. We are currently evaluating this accounting update and our existing revenue recognition policies to determine what impact, if any, this new guidance could have on our consolidated financial statements as well as what transition method we would utilize, if any, upon adoption.

          In April 2014, the FASB issued “Accounting Standards Update No. 2014-08: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The update amends the previous definition of discontinued operations to only include disposals that represent a strategic shift and have (or will have) a major effect on an entity’s operations and financial results. The update also requires additional disclosures about discontinued operations as well as disposal transactions that do not meet the discontinued operations criteria. The accounting update is effective on a prospective basis for disposals or assets meeting the definition as held-for-sale for accounting periods beginning on or after December 15, 2014. Early application is permitted, but only for those disposals that have not been reported in previously issued financial statements. Historically, we have classified and reported disposals of our operating properties for which operations and cash flows are clearly distinguished as discontinued operations. See Note 4. Upon adoption of this standard, we expect that future disposals of operating real estate assets will not qualify for discontinued operations reporting treatment.

Subsequent Events

          On July 3, 2014, we entered into a purchase agreement with GDC Tuxedo, LLC to purchase the Tuxedo Festival shopping center for $27.9 million. Tuxedo Festival is located at the corner of Roswell Road and Piedmont Road in Atlanta, Georgia and has 54,310 square feet of GLA on approximately 4 acres of land. The purchase agreement is subject to standard due diligence terms that expired on July 21, 2014. We deposited $1.0 million in escrow, which is nonrefundable. We expect to close this transaction during the third quarter.

          On July 10, 2014, we received an unsolicited proposal from Regency Centers Corporation to acquire all the outstanding shares of the Company’s common stock for $22.00 per share. On July 29, 2014, we announced:

• that our Board of Directors determined it will explore strategic alternatives to enhance stockholder value;

• that after a comprehensive review and consultation with our advisors, our Board of Directors has rejected the unsolicited proposal by Regency Centers Corporation to acquire the Company for $22.00 per share; and

• that, in connection with the determination by the Board of Directors and as a part of its effort to ensure the orderly review of strategic alternatives, the Board elected to cause AmREIT to become subject to the Maryland Business Combination Act, which, subject to limitations, prohibits certain business combinations between AmREIT and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder and thereafter imposes fair price and/or supermajority voting requirements on these combinations.

          There can be no assurance that the Board’s evaluation will result in any transaction and the Board has not made a decision to pursue any specific transaction or strategic alternative. The Board of Directors has set no timetable for completion of this process.

          We did not have any additional material subsequent events subsequent to June 30, 2014, and through the date of this filing that impacted our consolidated financial statements.