SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

AMERIVEST PROPERTIES INC.

(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) 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  ý  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one)

Large accelerated filer o        Accelerated filer ý         Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No  ý

The number of shares of the registrant’s common stock outstanding as of April 30, 2006 was 24,128,206.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

AMERIVEST PROPERTIES INC.

Condensed Consolidated Balance Sheets

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERIVEST PROPERTIES INC.

Condensed Consolidated Statements of Operations

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERIVEST PROPERTIES INC.

Condensed Consolidated Statement of Stockholders’ Equity

and Comprehensive Income

Three Months Ended March 31, 2006

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERIVEST PROPERTIES INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERIVEST PROPERTIES INC.

Notes to Condensed Consolidated Financial Statements

March 31, 2006

(unaudited)

1 – Organization

AmeriVest Properties Inc. (the Company) is a real estate investment trust (REIT) incorporated under the laws of the State of Maryland. The Company primarily invests in and operates commercial office buildings in selective markets and leases the commercial office buildings to small and medium size tenants. At March 31, 2006, the Company owned 12 office properties located in metropolitan Denver, Dallas and Phoenix.

On February 9, 2006, we announced that our Board of Directors approved a plan of liquidation for the Company. The Plan is subject to approval by the Company’s stockholders holding a majority of the Company’s outstanding shares of common stock at the Annual Meeting of Stockholders on May 24, 2006. Under the Plan, the Company intends to sell its assets on an orderly basis, to pay or provide for its liabilities, and to distribute its remaining cash to its stockholders. The Company currently estimates that liquidating distributions will be paid over a period of between 6 months and 24 months and that the stockholders could receive between $4.20 and $4.80 per share in total distributions over the liquidation period. This estimated distribution range is based on numerous assumptions, notably including the estimated sale prices of assets for which no definitive sale agreements or letters of intent are in place. Although the Company’s management believes its assumptions are reasonable, the assumptions may prove to be inaccurate and the ultimate amount of liquidating distributions to stockholders may be reduced or delayed.

2 – Interim Financial Statements

The unaudited consolidated financial statements included herein were prepared from the records of the Company in accordance with U.S. generally accepted accounting principles and reflect all adjustments which are, in the opinion of management, necessary to provide a fair statement of the results of operations and financial position for the interim periods. Such financial statements generally conform to the presentation reflected in the Company’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2005. The consolidated results of operations for the three months ended March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. These financial statements and notes therein should be read together with the financial statements and notes included in the Company’s Form 10-K for the year ended December 31, 2005.

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

Certain prior period balances have been reclassified to conform to current period presentation.

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3 – New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) SFAS No. 123R, “Share-Based Payment”. This Statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB No. 25, “Accounting for Stock Issued to Employees”. The Statement requires companies to recognize in the income statement the grant-date fair value of stock options and other equity based compensation issued to employees. This Statement was effective as of the beginning of the first interim or annual period that commenced after January 1, 2006. The adoption of SFAS 123R did not have a material impact on our financial position, net earnings or cash flows.

4 – Share-Based Compensation

Prior to January 1, 2006, we accounted for our stock options using the intrinsic value method of accounting provided under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB 25”) and related interpretations, as permitted by Financial Accounting Standard Board Statement of Financial Accounting Standards No. 123, “Accounting for Share-based Compensation” (“SFAS 123”). Applying the intrinsic value method of accounting for our stock options, we did not record share-based compensation in our net earnings because the exercise price of our options equaled the market price of the underlying stock on the date of the grant. Accordingly, share-based compensation for our options was included as a proforma disclosure in the financial statement footnotes and continues to be provided as proforma disclosure in the financial statement footnotes for periods prior to January 1, 2006.

Effective January 1, 2003, the Company adopted a long-term incentive plan as a means to compensate certain employees and directors with equity-based compensation. The plan provides for grants in the form of non-qualified and incentive stock options, stock appreciation rights, bonus stock, stock units, performance shares, performance units, restricted stock and restricted stock units. There were no option grants under the long-term incentive plan during the three months ended March 31, 2006 or year ended December 31, 2005. During 2005, 12,000 units of restricted stock were granted. We recognize the value of restricted stock as compensation expense based on the grant date fair value of $4.00 per share recognized over the one year vesting period. As of March 31, 2006, 9,000 restricted shares have vested with an additional 3,000 unvested restricted shares outstanding. We assume that all restricted shares will ultimately be exercised.

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123R, “Share-Based Payment” (“SFAS 123R”), using the modified-prospective transition method. Under this transition method, the Company recognized compensation expense for all unvested options as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123. Compensation expense for any share-based payments granted subsequent to January 1, 2006 will be based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. Results for periods prior to January 1, 2006 have not been restated. As a result of the adoption of SFAS 123R, we recognized approximately $1,700 of compensation expense during the three months ended March 31, 2006. The estimated compensation on the unvested options is approximately $7,000 and will be recognized over a one year period. The Company had elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended; therefore, we did not recognize a tax impact related to the adoption of SFAS 123R.

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Had compensation cost for the Company’s stock option plan been determined based on the fair value recognition provisions of SFAS No. 123, the Company’s net loss and net loss per share for the three months ended March 31, 2005 would have been calculated as shown in the following table:

The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions (excludes 2005 and 2006 since there were no option grants during either year):

The status of outstanding options granted pursuant to the Company’s options plans, as of March 31, 2006, was as follows:

The weighted-average contractual life of options outstanding at March 31, 2006 was approximately 2 years.

5 – Dispositions

On January 23, 2006, the Company sold Financial Plaza, a 310,838 square foot office property located in Phoenix, for $55.0 million to a publicly traded REIT, recording a net gain on the sale of approximately $15.3 million in the first quarter of 2006. The net cash proceeds of approximately $53 million were used to repay an outstanding first mortgage balance of approximately $23 million and approximately $30 million of indebtedness under the Company’s Unsecured Credit Facility.

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On January 24, 2006, the Company sold Keystone Office Park, a 114,980 square foot office property located in Indianapolis, for approximately $9.4 million to a foreign institutional investor. Subsequent to recording an impairment of $1.6 million on the property in the fourth quarter of 2005, the Company recognized a net gain of approximately $65,000. Of the $8.6 million in net proceeds received from the sale, the Company used approximately $4.6 million to pay the outstanding mortgage balances and approximately $300,000 to repay the remaining balance due on Unsecured Credit Facility leaving the Company with approximately $3.7 million in cash.

6 – Discontinued Operations

In accordance with SFAS No. 144, “Accounting for Impairment of Long-Lived Assets”, the operating results of properties sold during the period or designated as held-for-sale and any related impairment and gain/loss on the disposition are included in discontinued operations for the three months ended March 31, 2006 and 2005.

During the three months ended March 31, 2006, the Company completed the disposition of Financial Plaza and Keystone Office Park. The Company wrote-off unamortized deferred financing costs in connection with the dispositions of $301,463 and incurred prepayment penalties of $203,540. The Company recognized net gains of approximately $15.3 million.

During the twelve months ended December 31, 2005, the Company completed the disposition of Panorama Falls, AmeriVest Plaza at Inverness and Chateau Plaza and completed a Deed-In-Lieu Agreement to return 13 non-core Texas State Buildings to the lender. During the three months ended March 31, 2005, the Company wrote-off unamortized deferred financing costs of approximately $215,993, and recognized a loss of approximately $22,000 in connection with the Texas State Buildings dispositions, both of which are reflected in discontinued operations during the three months ended March 31, 2005. The following is a summary of the operating results of these properties included in discontinued operations:

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7 – Mortgage Loans, Notes Payable, and Lines of Credit

The Company finances its properties with mortgage loans and other debt instruments, such as lines of credit. The following is a summary of the Company’s outstanding mortgage loans, notes payable and lines of credit, classified by interest type (fixed or variable) and in order of maturity at March 31, 2006 and December 31, 2005:

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

(2)   The amount recorded reflects a net present value calculation based on a fair value rate of 8%. The actual loan balance assumed was approximately $698,000 at an interest rate of 15%.

(3)   Property was sold in January 2006.

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The following table details the scheduled maturities of debt outstanding at March 31, 2006:

The change in debt during the three months ended March 31, 2006 consisted of the following:

Secured Line of Credit

On January 23, 2006, the Company completed a loan agreement with its primary bank group which amends its unsecured revolving credit agreement and reinstates a revolving credit facility of up to $10 million to be used for working capital and other limited corporate purposes. The revolver is secured by the Company’s Greenhill Park property and matures December 28, 2006. The amendment also modifies certain covenant requirements and collateral provisions and requires the Company to extend the employment agreement with its Chief Executive Officer through the maturity of the loan. This facility has an interest rate of LIBOR plus 250 basis points. There were no borrowings on this facility during the three months ended March 31, 2006.

Other

Our debt instruments generally contain certain covenants common to the type of facility or borrowing, including financial covenants establishing minimum debt service coverage ratios and maximum leverage ratios. We were in compliance with all financial covenants pertaining to our debt instruments during the three months ended March 31, 2006.

8 – Per Share Information

For the three months ended March 31, 2006, the only adjustment necessary to the basic weighted average common shares outstanding to arrive at the diluted average common shares was the weighted-average effect of the 3,000 restricted shares issued during the quarter and 3,000 unvested restricted shares. The outstanding options were excluded from the diluted weighted-average shares due to their anti-dilutive effect as the option exercise price exceeds the stock fair value and would result in a reduction to the number of shares outstanding utilizing the treasury stock method. There are no adjustments necessary for the three months ended March 31, 2005 as the Company recognized a net loss and the impact would be anti-dilutive.

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9 – Other Comprehensive Income

In May 2003, the Company filed a bankruptcy claim of $478,700 against UAL Corporation, a former tenant, related to unpaid rent. During the three months ended March 31, 2006, the Company received 2,084 shares of UAL common stock as payment for the claim. The shares were accounted for utilizing the guidance in SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” and are deemed as available-for-sale. At the time of receipt, the value of the shares was approximately $73,924, which is included in “Other income”. At March 31, 2006, the value of the shares, based on the closing price on that date was $83,214. The $9,290 increase in the fair value was recorded to “Other Comprehensive Income” at March 31, 2006.

10 – Subsequent Events

Under the AmeriVest 401(k) plan (“Plan”), withdrawing plan participants are entitled to cash equal to the value of their accounts, including the vested shares of AmeriVest stock in their accounts. In February and March 2006, withdrawing participant requests for distributions from the Plan exceeded the available cash in the Plan. Based on the advice of the Plan consultant, the Plan sold the vested 18,240 shares of AmeriVest stock attributable to the withdrawing plan participants, at a price of $4.41 per share, to fulfill the cash requirements of the plan participants seeking distributions in March 2006. Inadvertently, an additional 22,040 shares of AmeriVest stock were concurrently sold at the same average price, representing the remaining balance of the shares in the Plan. On April 4, 2006, the Plan acquired 22,040 shares, at an average price per share of $4.45 to offset the inadvertent sale. Commissions and any differences between the sale and repurchase price of the shares will be paid with Plan forfeitures, to the extent permitted under the Plan. Any excess commissions will be paid by the Company.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included in this Form 10-Q and elsewhere.

Forward-Looking Statements

Certain statements in this Form 10-Q that are not historical facts are “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the Company’s current expectations, beliefs, assumptions, estimates and projections about the industry and markets in which the Company operates. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and variations of such words and similar expressions are intended to identify such forward-looking statements. Information concerning expected investment balances, expected funding sources, planned investments, forecasted dates and revenue and expense growth assumptions are examples of forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond the Company’s control. Therefore, actual outcomes and results may differ materially from what is expressed, forecasted or implied in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

The Company’s operating results depend primarily on income from its properties, which are substantially influenced by supply and demand for such properties, operating expense levels, property level operations and the pace and price at which the Company can develop or dispose of such properties. Capital and credit market conditions, which affect the Company’s cost of capital, also influence operating results. See “Item 1. Description of Business” in the Company’s Annual Report on Form 10-K for the period ending December 31, 2005 for a more complete discussion of risk factors that could impact the Company’s future financial performance.

Overview

As used herein, “we”, “us”, “our” and “the Company” refer to AmeriVest Properties Inc., a Maryland corporation. We were incorporated in the State of Maryland in 1999. We are a Real Estate Investment Trust (“REIT”) investing in, operating and leasing commercial office buildings primarily to small and medium size tenants. At March 31, 2006, we owned 12 properties, which included an aggregate of approximately 1,738,000 rentable square feet located in metropolitan Denver, Dallas and Phoenix. At March 31, 2005, we owned 17 properties, which included an aggregate of approximately 2,508,000 rentable square feet.

We have elected to be taxed as a REIT for federal income tax purposes and generally will not be subject to federal income tax if we distribute at least 90% of our taxable income and comply with a number of organizational and operational requirements.

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Results Of Operations

Comparison of the three months ended March 31, 2006 to March 31, 2005:

Rental revenue – Rental revenue increased $170,527, or 2.0%, during the first quarter of 2006 as compared to the same period of 2005. The change is primarily due to increased tenant operating expense recoveries at Hackberry View and Parkway Centre III. This increase was partially offset by a slight decrease in rental revenues at several properties due to a decrease in the average occupancy and rental rates during the three months ended March 31, 2006. For properties that were owned during the entire three months ended March 31, 2006 and March 31, 2005, the occupancy was 90.0% at March 31, 2006 as compared to 91.0% at March 31, 2005 and the average rent was $20.04 versus $20.20 for the same periods, respectively.

Property operating expenses – Total property operating expenses (operating expenses and real estate taxes) increased approximately $246,000, or 7.1%, during the first quarter of 2006 as compared to the same period of 2005. The $323,000 increase in operating expenses for the three months ended March 31, 2006 as compared to March 31, 2005 is primarily due to third party management fees and higher electricity expense at several of our Texas properties. The increase in electricity expense is primarily due to higher rates. The increase in operating expenses is offset by a $77,000 decrease in real estate taxes primarily due to reductions in assessments of real estate values on certain of our properties. The Company has focused, and will continue to focus, on the ongoing management of controllable operating expenses, including aggressively challenging increased real estate tax assessments.

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General and administrative expenses – General and administrative expenses increased approximately $90,000, or 7.2%, during the first quarter of 2006 as compared to the same period of 2005. This increase is primarily attributable to severance costs of $191,875, which includes $180,000 for the former Chief Investment Officer, which was recognized during the three months ended March 31, 2006. Excluding these severance costs, compensation expense decreased approximately $32,000 due to a reduction in headcount as compared to prior year. The Company also recognized approximately $100,000 in additional audit fees during the three months ended March 31, 2006, as compared to the same period of 2005, primarily due to the earlier completion of the Sarbanes-Oxley component of the audit in 2006. This increase was offset by a decrease in consulting fees during the three months ended March 31, 2006, of approximately $90,000. During the three months ended March 31, 2006, the Company also recognized a $75,000 decrease in Board compensation due to Special Committee fees recognized in 2005.

Interest expense – Interest expense decreased approximately $667,000, or 23.5%, during the first quarter of 2006 as compared to the same period of 2005. This change is attributable to the pay off of the Company’s Unsecured and Secured Credit facilities, which were paid down with the proceeds from asset sales.

Depreciation and amortization – Depreciation and amortization expense decreased approximately $33,000, or 1.0%, during the first quarter of 2006 as compared to the same period of 2005. This change is primarily attributable to the cessation of amortization of intangible assets at several properties, which were fully amortized during 2005. This decrease is partially offset by the increase in depreciation expense due to additional capital improvements, tenant improvements and leasing commissions for our real estate investments.

Strategic alternatives expenses—The $127,000 expense recognized during 2006 was primarily for legal costs incurred in connection with the Company’s strategic alternative review and proposed plan of liquidation.

Other income – The three months ended March 31, 2006 includes approximately $74,000 for UAL common shares which were received as payment for a bankruptcy claim. The Company anticipates completing the sale of these shares during the second quarter of 2006.

Discontinued operations— The results of operations for properties sold during the period or designated as held-for-sale at the end of the period are required to be classified as discontinued operations. During the three months ended March 31, 2006, the Company sold the Keystone property in Indianapolis and the Financial Plaza property in Mesa, Arizona, both of which had previously been classified as held-for-sale under the provisions of SFAS No. 144. Accordingly, we have classified the operating earnings and gain on disposition from these properties within discontinued operations for the three months ended March 31, 2006 and 2005. In December 2005, the Company completed the disposition of AmeriVest Plaza at Inverness in a submarket of Denver and the Chateau Plaza property in Dallas, both of which were previously classified as held-for-sale. In addition, the Company sold its 20% equity interest in its joint venture (Panorama Falls) in a submarket of Denver in September 2005 and completed a Deed-in-Lieu Agreement to return its 13 non-core Texas State Buildings to the lender in March 2005. The results of operations for these properties and the loss on disposition for the Texas State Buildings are also included as discontinued operations for the three months ended March 31, 2005.

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