Focus Company: AMEN Properties (AMEN)
By: Max R. Bowser - The Bowser Report - Date: May 1, 2004
Company History
With Amen Properties, you are witnessing the transformation of a failed dot.com into a viable brick-and-mortar business operation.
Through the end of December 31, 2002 AMEN Properties, Inc., operated under the name Crosswalk.com, Inc. and was primarily known as the creator of crosswalk.com(TM), an interactive website that provides information and resources to the English speaking Christian and family-friendly community.
From the inception through September 2002, revenue was generated through the development and aggregation of internet content and services, online and offline advertising sales, royalty sales, as well as the resale of products specifically designed to meet the needs of Christian users of the internet and the World Wide Web. Crosswalk.com however, was never profitable.
In October 2002, it was purchased by Salem Communications (Nasdaq:SALM) for $4.l million. The sale included the portal site and the related e-mail business.
After the sale, the ex-Crosswalk managers had three assets: $4.1 million in cash, a listing on Nasdaq, and a net operating tax loss carryforward (NOL) of $29 million, which could be used to shelter future profits.
To employ these assets, a new business plan was drawn up. The business plan recommended a new management team that would attempt to acquire cash generating assets in order to exploit the tax loss carryforward.
Commercial Business
This plan initially focused on growing the business through selective acquisitions in three distinct areas that have historically generated large amounts of ordinary income. These three areas are commercial real estate in secondary stagnant markets, commercial real estate in out of favor growth markets and acquiring investments in oil and gas royalties.
Out of Favor Growth Market Acquisition:
The market for acquiring multi-tenant office complexes in primary growth markets is highly competitive and is dominated by large capitalized real estate investment trusts along with local and regional seasoned private investors. In these markets, AMEN's competitive advantage will be through the value they can add by having a qualified on-sight team to manage and lease the building while being proactive on operating expenses by implementing audits of contracts for energy, janitorial, elevator, and other systems.
Secondary Stagnant Market Acquisition
The market for acquiring multi-tenant office properties in secondary stagnant markets is controlled mainly by local or regional investors who operate for sustained profitability versus a timelined exit strategy. These markets tend to yield greater return on capital while not delivering as impressively on appreciation potential. In addition to the hands-on operational audits described above, the company's competitive advantage will be their ability to add value by structuring anchor or major tenant leases to possibly share in building ownership through equity participation.
Oil and Gas Royalty Acquisition
Oil and gas royalty properties are revenue generating interests in oil and gas leases which do not bear any of the costs of producing oil or gas, and do not bear all of the risks associated with the ownership and operation of other oil and gas interests. The market for oil and gas royalty is highly competitive and dominated by mainly wealthy individuals and small focused royalty companies. Many middle to large sized oil and gas independents are also markets for individual oil and gas royalty properties.
Properties
The first step in this new business plan was accomplished in October 31, 2002 with the purchase of a 64.9% interest in a limited real estate partnership, called TCTB Partners, for $4,375,000-of which, $1,946,000 was in cash. Effective January 1, 2004 AMEN entered into an agreement with certain limited partners of TCTB in which the company acquired an additional 6.485533% limited partnership interest in TCTB. This additional interest purchased combined with the initial limited partnership interest purchased in 2002 gives the company a total of 71.348013 % limited partnership interest in TCTB.
The partnership owns two buildings, one in Midland, Texas, and the other in Lubbock, Texas.
The twenty-four-story Midland property, where the company's headquarters are located, was completed in 1977 and encompasses 329,178 rentable square feet. It is approximately 78% occupied. There are two tenants who account for ten percent or more of the rentable space, consisting of Bank of America and Pioneer Natural Resources, Inc., a public oil and gas company. It also includes a 17-lane drive through bank and a 900 space-parking garage. The average lease term is 4 years.
The Lubbock property was built in 1966 and is a fifteen story high rise with 210,659 rentable square feet, a 214 space parking garage, and is approximately 79% occupied. TCTB has a non-cancelable operating lease for land on which a portion of the Lubbock, TX rental property is built. The lease will expire in 2013 and the existing monthly lease payments are $3,930. There are two tenants who account for ten percent or more of the rentable space, consisting of Wells Fargo Bank and a law firm. The average lease term is 5 years.
The 2003 average annual net rental per occupied square foot for the Midland and Lubbock buildings was $8.42 and $11.03, respectively.
Results
On April 1st fourth quarter and year end results were announced.
| Fiscal Year 2003 | Fiscal Year 2002 | |
| Revenues | 4,345,099 | 1,060,413 |
| Earnings | 391,829 | -2,148,951 (a) |
| Earnings/Share | 0.19 | -1.08 |
| Shares_Outstanding | 2,961,051 | |
(a): The net loss in 2002 was primarily attributable to the prior website business and direct mail business.
For the year ended December 31, 2003, the company showed net income of $391,829, or $.19 per share, as compared to a net loss of $2,148,951, or ($1.08) per share for the same period ended December 31, 2002.
During the fourth quarter of 2003, the company realized positive income from continued operations of $218,324 as compared to $167,391 for the fourth quarter 2002.
Balance Sheet
At December 31, 2003, the AMEN had working capital and investments of $2,178,092 comprised of cash of $2,741,527, accounts receivable of $51,859, short-term investments of $50,225, other current assets of $78,507 and long-term investments of $62,350.
Conclusion
With AMEN Properties we are looking at very small but solid company.
Its revenues are almost certain and stable. They don't fluctuate as much as they do with other companies.
The company is also sitting on a nice pile of cash which it can use when a good opportunity accurse. Management has already proven they don't rush into things. They study every investment opportunity carefully, and only make their move when all signs are positive.
Because the company only has 2.9 million shares outstanding, the slightest increase in income immediately has its impact on the earnings per share.
General information
| Market: | NASDAQ |
| Symbol: | AMEN |
| Price: | $2.7 |
| Contact: | AMEN Properties Inc - 303 W. Wall Street, Suite 1700 - Midland, TX 79701 |
| Telephone: | (432) 684-3821 |
| Website: | no website available |
© Max R. Bowser - The Bowser Report
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