UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934
For the period ended: September 30, 1998 Commission file number: 001-11981
MUNICIPAL MORTGAGE & EQUITY, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 52-1449733
(State of organization) (I.R.S. Employer Identification No.)
218 North Charles Street, Suite 500, Baltimore, Maryland 21201
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:(410) 962-8044
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
The Company had 16,880,642 Growth Shares outstanding as of November 11, 1998,
the latest practicable date.
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, L.L.C.
INDEX TO FORM 10-Q
Part I- FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Part II- OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, L.L.C.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 43,617 $ 7,370
Interest receivable 2,100 1,472
Investment in mortgage revenue bonds, net (Note 2) 135,768 182,035
Investment in mortgage revenue bonds pledged, net (Note 2) 100,899 -
Investment in other bond related investments, net (Note 3) 47,020 38,926
Investment in parity working capital loans, demand
notes and other loans, net (Note 4) 27,491 11,491
Other assets 641 477
Restricted assets 1,330 1,330
----------------- --------------
Total assets $ 358,866 $ 243,101
================= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 1,693 $ 1,000
Unearned revenue 935 702
----------------- --------------
Total liabilities 2,628 1,702
----------------- --------------
Commitments and contingencies - -
Shareholders' equity:
Preferred shares:
Series I (15,590 and 16,329 shares issued and outstanding, respectively) 10,805 11,308
Series II (7,350 and 7,637 shares issued and outstanding, respectively) 5,993 6,230
Preferred capital distribution shares:
Series I (8,325 and 8,909 shares issued and outstanding, respectively) 4,267 4,559
Series II (3,535 and 3,809 shares issued and outstanding, respectively) 1,971 2,126
Term growth shares (2,000 shares issued and outstanding) 149 97
Growth shares (16,939,397 shares, including 16,916,334 issued, 5,570
deferred and 17,493 restricted shares at September 30, 1998 and
11,166,227 shares, including 11,153,168 issued, 3,685
deferred and 9,374 restricted shares at December 31, 1997) 308,355 192,504
Less growth shares held in treasury at cost (59,358
and 60,077 shares, respectively) (912) (922)
Less unearned compensation - restricted shares (1,751) (1,865)
Accumulated other comprehensive income 27,361 27,362
----------------- --------------
Total shareholders' equity 356,238 241,399
----------------- --------------
Total liabilities and shareholders' equity $ 358,866 $ 243,101
================= ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, L.L.C.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- ---------------------------
1998 1997 1998 1997
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INCOME:
Interest on mortgage revenue bonds and other bond related investments $ 6,198 $ 4,295 $ 17,319 $ 12,438
Interest on parity working capital loans, demand notes and other loans 1,204 1,013 3,419 2,569
Interest on short-term investments 493 80 1,033 550
Net gain on sale - - 524 -
Other income 443 291 1,057 792
----------- ------------ -------------- -------------
Total income 8,338 5,679 23,352 16,349
----------- ------------ -------------- -------------
EXPENSES:
Operating expenses 1,014 890 3,502 2,441
----------- ------------ -------------- -------------
Total expenses 1,014 890 3,502 2,441
----------- ------------ -------------- -------------
Net Income $ 7,324 $ 4,789 $ 19,850 $ 13,908
=========== ============ ============== =============
Net income allocated to:
Preferred shares:
Series I $ 229 $ 236 $ 659 $ 686
=========== ============ ============== =============
Series II $ 116 $ 122 $ 373 $ 366
=========== ============ ============== =============
Preferred capital distribution shares:
Series I $ 97 $ 104 $ 289 $ 303
=========== ============ ============== =============
Series II $ 41 $ 47 $ 139 $ 139
=========== ============ ============== =============
Term growth shares $ 149 $ 99 $ 400 $ 284
=========== ============ ============== =============
Growth shares $ 6,692 $ 4,181 $ 17,990 $ 12,130
=========== ============ ============== =============
Basic net income per share:
Preferred shares:
Series I $ 14.66 $ 14.44 $ 42.25 $ 41.99
=========== ============ ============== =============
Series II $ 15.79 $ 16.01 $ 50.75 $ 47.96
=========== ============ ============== =============
Preferred capital distribution shares:
Series I $ 11.66 $ 11.63 $ 34.71 $ 33.99
=========== ============ ============== =============
Series II $ 11.47 $ 12.34 $ 39.26 $ 36.56
=========== ============ ============== =============
Net income per growth share:
Basic $ 0.41 $ 0.38 $ 1.23 $ 1.10
=========== ============ ============== =============
Diluted $ 0.41 $ 0.37 $ 1.21 $ 1.09
=========== ============ ============== =============
Weighted average growth shares outstanding:
Basic 16,307,957 11,095,422 14,680,503 11,094,433
=========== ============ ============== =============
Diluted 16,487,050 11,518,832 15,388,337 11,239,322
=========== ============ ============== =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, L.L.C.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net income $ 7,324 $ 4,789 $ 19,850 $ 13,908
-------------- ------------- -------------- -------------
Other comprehensive income (loss): Unrealized gains (losses) on investments:
Unrealized holding gains (losses) arising during the period (236) 4,576 470 5,536
Less: reclassification adjustment for gains
included in net income - - (471) -
-------------- ------------- -------------- -------------
Other comprehensive income (loss) (236) 4,576 (1) 5,536
-------------- ------------- -------------- -------------
Comprehensive income $ 7,088 $ 9,365 $ 19,849 $ 19,444
============== ============= ============== =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, L.L.C.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1998 THROUGH SEPTEMBER 30, 1998
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Preferred Capital Accumulated
Preferred Shares Distribution Shares Term Other
---------------- ------------------- Growth Growth Treasury Unearned Comprehensive
Series I Series II Series I Series II Shares Shares Shares Compensation Income Total
-------- --------- -------- --------- ------ ------ ------ ------------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $ 11,308 $ 6,230 $ 4,559 $ 2,126 $ 97 $ 192,504 $ (922) $(1,865) $ 27,362 $ 241,399
Comprehensive income:
Net income 659 373 289 139 400 17,990 - - -
Unrealized losses on investments,
net of reclassification - - - - - - - - (1)
Total comprehensive income 19,849
Distributions (650) (376) (282) (141) (348) (15,035) - - - (16,832)
Reissuance of treasury shares - - - - - 4 10 - - 14
Options exercised - - - - - 288 - - - 288
Deferred shares issued under the
Non-Employee Directors' Share Plan - - - - - 42 - - - 42
Issuance of growth shares - - - - - 112,316 - - - 112,316
Retirement of preferred shares (512) (234) (299) (153) - 154 - - - (1,044)
Restricted share grants - - - - - 92 - (92) - -
Amortization of unearned
compensation - - - - - - - 206 - 206
-------- ------- ------- ------- ----- --------- ------ -------- -------- ---------
Balance, September 30, 1998 $ 10,805 $ 5,993 $ 4,267 $ 1,971 $ 149 $ 308,355 $ (912) $ (1,751) $ 27,361 $ 356,238
======== ======= ======= ======= ===== ========= ====== ======== ======== =========
SHARE ACTIVITY:
Balance, January 1, 1998 16,329 7,637 8,909 3,809 2,000 11,106,150 60,077
Reissuance of treasury shares - - - - - 719 (719)
Issuance of growth shares - - - - - 5,746,000 -
Retirement of preferred shares (739) (287) (584) (274) - - -
Options exercised - - - - - 17,166 -
Deferred shares issued under the
Non-Employee Directors' Share Plan - - - - - 1,885 -
Vesting of restricted shares - - - - - 8,119 -
------ ----- ----- ----- ----- ---------- ------
Balance, September 30, 1998 15,590 7,350 8,325 3,535 2,000 16,880,039 59,358
====== ===== ===== ===== ===== ========== ======
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-----------------------------------
1998 1997
----------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,850 $ 13,908
Adjustments to reconcile net income and comprehensive income to net cash
provided by operating activities:
Net gain on sale of bonds (524) -
Decrease in valuation allowance on parity working
capital loans, net (6) (60)
Net amortization of premiums, discounts and fees on investments 56 50
Depreciation 15 11
Restricted share compensation expense 206 34
Deferred shares issued under the Non-Employee Directors' Share Plan 42 51
Director fees paid by reissuance of treasury shares 14 12
Increase in interest receivable (628) (59)
(Increase) decrease in other assets 13 (153)
Increase in accounts payable and accrued expenses 693 75
Increase in unearned fees collected, net 260 294
----------------- ---------------
Net cash provided by operating activities 19,991 14,163
----------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of mortgage revenue bonds, other bond related investments
and origination of other loans (112,485) (22,796)
Net proceeds from sale of bond related investments 33,988 -
Purchases of furniture and equipment (192) (80)
Investment in MMACap, LLC - (1,000)
Principal payments received 217 131
----------------- ---------------
Net cash used in investing activities (78,472) (23,745)
----------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of growth shares 112,316 -
Retirement of preferred shares (1,044) -
Proceeds from stock options exercised 288 -
Distributions (16,832) (17,014)
----------------- -----------------
Net cash provided by (used in) financing activities 94,728 (17,014)
----------------- -----------------
Net increase (decrease) in cash and cash equivalents 36,247 (26,596)
Cash and cash equivalents at beginning of period 7,370 34,817
----------------- -----------------
Cash and cash equivalents at end of period $ 43,617 $ 8,221
================= =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, L.L.C.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Municipal Mortgage & Equity, L.L.C. (the "Company") is in the business
of originating, investing in and servicing tax-exempt mortgage revenue bonds
which are issued by state and local government authorities to finance
multifamily housing developments and are secured by nonrecourse mortgage loans
on the underlying properties. The Company, organized in July 1995 as a limited
liability company under Delaware law, is the successor to the business of the
SCA Tax Exempt Fund Limited Partnership (the "Partnership"), which was merged
into the Company effective August 1, 1996 (the "Merger").
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission and in the opinion of management contain all adjustments
(consisting of only normal recurring accruals) necessary to present a fair
statement of the results for the periods presented. These results have been
determined on the basis of accounting principles and policies discussed in Note
2 to the Financial Statements appearing in the Company's 1997 Annual Report on
Form 10-K, as amended (the "Company's 1997 Form 10-K"). Certain information and
footnote disclosures normally included in financial statements presented in
accordance with generally accepted accounting principles have been condensed or
omitted. The accompanying financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's 1997
Form 10-K.
NOTE 2 - INVESTMENTS IN MORTGAGE REVENUE BONDS AND MORTGAGE
REVENUE BONDS PLEDGED
The Company invests in various mortgage revenue bonds, the proceeds of
which are used to make nonrecourse mortgage loans on multifamily housing
developments. The Company's rights and the specific terms of the bonds are
defined by the various loan documents which were negotiated at the time of
settlement. The basic terms and structure of each bond are described in Note 6
to the Company's 1997 Form 10-K.
The following table provides certain information with respect to the
bonds held by the Company at September 30, 1998.
<PAGE>
<TABLE>
<CAPTION>
September 30, 1998 December 31,1997
---------------------------------- -----------------------------------
Investment in Mortgage Base Face Amortized Unrealized Fair Face Amortized Unrealized Fair
Revenue Bonds and Mortgage Year Interest Maturity Amount Cost Gain (Loss) Value Amount Cost Gain (Loss) Value
Revenue Bonds Pledged Acquired Rate Date (000s) (000s) (000s) (000s) (000s) (000s) (000s) (000s)
- ---------------------- ------- -------- -------- -------- --------- ---------- ------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Participating Bonds (1):
Alban Place ....... (2),(4) 1986 7.875 Oct. 2008 $ 10,065 $ 10,065 ($ 1,083) $ 8,982 $ 10,065 $ 10,065 ($1,170) $ 8,895
Creekside Village . (2) 1987 7.500 Nov. 2009 11,760 7,396 143 7,539 11,760 7,396 190 7,586
Emerald Hills ..... (2) 1988 7.750 Apr. 2008 6,725 6,725 1,738 8,463 6,725 6,725 579 7,304
Lakeview Garden ... (2) 1987 7.750 Aug. 2007 9,003 5,340 - 5,340 9,003 5,340 - 5,340
Newport-on-Seven .. (2) 1986 8.125 Aug. 2008 10,125 7,898 1,431 9,329 10,125 7,898 1,265 9,163
North Pointe ...... (2),(4) 1986 7.875 Aug. 2006 25,185 12,738 3,548 16,286 25,185 12,738 3,717 16,455
Northridge Park ... (2) 1987 7.500 June 2012 8,815 8,815 (1,713) 7,102 8,815 8,815 (1,547) 7,268
Riverset .......... (2),(4) 1988 7.875 Nov. 1999 19,000 19,000 1,408 20,408 19,000 19,000 1,116 20,116
Southfork Village . (2),(4) 1988 7.875 Jan. 2009 10,375 10,375 2,846 13,221 10,375 10,375 2,084 12,459
Villa Hialeah ..... (2) 1987 7.875 Oct. 2009 10,250 8,004 - 8,004 10,250 8,004 (117) 7,887
Willowgreen ....... (2) 1986 8.000 Dec. 2010 9,275 6,770 132 6,902 9,275 6,770 2 6,772
The Crossings ..... 1997 8.000 July 2007 6,911 6,895 455 7,350 6,940 6,940 245 7,185
Palisades Park 1998 7.125 Aug. 2028 9,745 9,552 - 9,552 - - - -
------ ----- ------- ------- ----- -------
Subtotal participating bonds ........ 119,573 8,905 128,478 110,066 6,364 116,430
------- ----- ------- ------- ----- -------
Non-Participating Bonds:
Riverset II .......... 1996 9.500 Oct. 2019 110 105 14 119 110 105 15 120
Charter House ........ 1996 7.450 July 2026 30 30 2 32 35 35 1 36
Hidden Valley ........ 1996 8.250 Jan. 2026 1,680 1,680 105 1,785 1,700 1,700 77 1,777
Oakbrook ............. 1996 8.200 July 2026 3,165 3,195 219 3,414 3,195 3,226 161 3,387
Torries Chase ........ 1996 8.150 Jan. 2026 2,050 2,050 179 2,229 2,070 2,070 155 2,225
Gannon Portfolio .... 1998 12.000 Dec. 2029 3,500 3,500 -- 3,500 - - - -
Italian Gardens ... (5) 1998 7.800 May 2030 8,000 7,985 135 8,120 - - - -
Coleman Manor ..... (5) 1998 8.000 May 2030 8,050 8,035 136 8,171 - - - -
Nantucket Cove ..... (4),(5) 1998 5.800 Apr. 2034 19,150 19,054 383 19,437 - - - -
Orangevale ......... 1998 7.O00 Oct. 2013 2,543 2,543 - 2,543 - - - -
-------- ----- -------- ------ ------ -----
Subtotal non-participating bonds .... 48,177 1,173 49,350 7,136 409 7,545
------ ----- -------- ------ ------ -----
Participating Subordinate Bonds (1):
Barkley Place ...... (3) 1995 16.000 Jan. 2030 3,480 2,445 1,809 4,254 3,480 2,445 1,430 3,875
Gilman Meadows ..... (3) 1995 3.000 Jan. 2030 2,875 2,530 1,784 4,314 2,875 2,530 1,409 3,939
Hamilton Chase ..... (3) 1995 3.000 Jan. 2030 6,250 4,140 189 4,329 6,250 4,140 98 4,238
Mallard Cove I ..... (3) 1995 3.000 Jan. 2030 1,670 798 552 1,350 1,670 798 645 1,443
Mallard Cove II .... (3) 1995 3.000 Jan. 2030 3,750 2,429 1,330 3,759 3,750 2,429 1,599 4,028
Meadows ............ (3) 1995 16.000 Jan. 2030 3,635 3,716 264 3,980 3,635 3,716 451 4,167
Montclair ...... (3),(4) 1995 3.000 Jan. 2030 6,840 1,691 4,243 5,934 6,840 1,691 3,914 5,605
Newport Village .... (3) 1995 3.000 Jan. 2030 4,175 2,973 1,978 4,951 4,175 2,973 1,803 4,776
Nicollet Ridge .... (3),(4) 1995 3.000 Jan. 2030 12,415 6,075 2,397 8,472 12,415 6,075 2,325 8,400
Steeplechase Falls . (3) 1995 16.000 Jan. 2030 5,300 5,852 223 6,075 5,300 5,852 744 6,596
Whispering Lake .... (3),(4) 1995 3.000 Jan. 2030 8,500 4,779 3,380 8,159 8,500 4,779 3,234 8,013
Riverset II ........ 1996 10.000 Oct. 2019 1,489 - 1,452 1,452 1,489 - 1,229 1,229
------ ------ ------ ------ ------ ------
Subtotal participating subordinate bonds ... 37,428 19,601 57,029 37,428 18,881 56,309
------ ------ ------ ------ ------ ------
Non-Participating Subordinate Bonds:
Independence Ridge .. 1996 12.500 Dec. 2015 1,045 1,045 63 1,108 1,045 1,045 21 1,066
Locarno ............. 1996 12.500 Dec. 2015 675 675 27 702 675 675 10 685
----- ------ ----- ----- ----- -----
Subtotal non-participting subordinate bonds 1,720 90 1,810 1,720 31 1,751
----- ------ ----- ----- ----- -----
Total investment in mortgage revenue bonds and
mortgage revenue bonds pledged $206,898 $29,769 $236,667 $ 156,350 $25,685 $182,035
========= ======= ======== ========= ======= ========
(1) These bonds also contain additional interest features contingent on
available cash flow, except for Barkley Place, Meadows and Steeplechase
Falls.
(2) One of the original 22 bonds.
(3) Series B Bonds derived from original 22 bonds.
(4) These assets were pledged as collateral as of September 30, 1998.
(5) The interest rate represents the rate during the construction or
rehabilitation period which is anticipated to be fifteen months for
Italian Gardens and Coleman Manor and one year for Nantucket Cove. The
permanent interest rate will be 7.25% for Italian Gardens and Coleman
Manor and 7.725% for Nantucket Cove.
</TABLE>
<PAGE>
In February 1998, the Company originated a $9.5 million taxable
mortgage loan collateralized by a 328 unit multifamily apartment community known
as Palisades Park located in Universal City, Texas. This short term financing
was made pending issuance, by the Bexar County Housing Finance Corporation, of a
tax-exempt mortgage revenue bond. In July 1998, this participating bond was
issued in the amount of $9.75 million and the $9.5 million taxable mortgage loan
was retired. The bond has a stated interest rate of 8.5% of which 7.125% must be
paid currently and the remaining 1.375% is paid from 25% of net cash flow. To
the extent that the interest payments for the year do not equal 8.5%, the
difference is deferred and accrues interest at 8.5%. For accounting purposes,
any interest received over the base rate of 7.125% will be recognized as
interest income when received.
In order to facilitate the securitization of certain assets at higher
leverage ratios than otherwise available, the Company has pledged additional
bonds to the pool that collateralizes the senior interests in the trusts. In
September 1998, the Company pledged three additional bonds to the pool of
collateral. At September 30, 1998, the total carrying amount of the mortgage
revenue bonds pledged as collateral was $100.9 million.
NOTE 3 - OTHER BOND RELATED INVESTMENTS
The Company's other bond related investments are primarily investments
in RITES(sm), a security offered by Merrill Lynch through its P-FLOATs(sm)
Program. The RITES(sm) are part of a program under which a bond is placed into a
trust and two types of securities are sold by the trust, P-FLOATs(sm) and
RITES(sm). The P-FLOATs(sm) are the senior security and bear interest at a rate
that is reset weekly by the Remarketing Agent, Merrill Lynch, to result in the
sale of the P- FLOATs(sm) at par. The RITES(sm) are the subordinate security and
receive the residual interest. The residual interest is the remaining interest
on the bond after payment of all fees and the P-FLOATs(sm) interest. In
conjunction with the purchase of the RITES(sm) with respect to fixed rate bonds,
the Company enters into interest rate swap contracts to hedge against interest
rate exposure on the Company's investment in the RITES(sm). The following table
provides certain information with respect to the other bond related investments
held by the Company at September 30, 1998.
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
--------------------------------- --------------------------------------
Face Amortized Unrealized Fair Face Amortized Unrealized Fair
Year Amount Cost Gain (Loss) Value Amount Cost Gain (Loss) Value
Other Bond Related Investments: Acquired (000s) (000s) (000s) (000s) (000s) (000s) (000s) (000s)
- ------------------------------- -------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RITES-Hunters Ridge/South Pointe . (1) 1996 $ - $ - $ - $ - $ 3,560 $ 4,248 $ 700 $ 4,948
Interest rate swap ..............(1),(2) 1996 - - - - 7,200 - (427) (427)
RITES-Indian Lake ................. 1997 3,320 3,475 536 4,011 3,360 3,530 363 3,893
Interest rate swaps................(2) 1997 64,500 - (3,225) (3,225) 64,500 - (395) (202)
RITES-Charter House ............... 1996 80 360 189 549 1,930 2,196 76 2,272
P-FLOATS-Charter House............. 1996 7,440 7,440 - 7,440
RITES-Southgate ................... 1997 107 666 229 895 2,760 3,178 217 3,395
RITES-Southwood ................... 1997 440 266 691 957 10,320 10,308 166 10,474
Stone Mountain ....................(3) 1997 33,900 34,124 1,200 35,324 10,140 10,366 661 11,027
RITES-Riverset ..................... 1996 75 615 207 822 1,875 2,222 328 2,550
Stone Mountain I/O Strip ..........(4) 1997 - 1,170 (1,170) - - 1,201 76 1,277
Cinnamon ridge total return swap (2),(5) 1997 10,570 - 317 317 10,570 - 264 264
Cinnamon ridge interest rate swap(2),(5) 1997 7,000 - (300) (300) 7,000 - (52) (52)
RITES-Gannon ...................... 1998 814 1,069 1,433 2,502 - - - -
Interest rate swaps......... .... (2) 1998 106,035 - (2,835) (2,835) - - - -
RITES-Villas at Sonterra ......... 1998 5 35 72 107 - - - -
RITES-Seasons at Cherry Creek .... 1998 5 143 216 359 - - - -
RITES-Queen Anne IV............... 1998 65 65 32 97 - - - -
------ ------ ------ ------ ----- ------
Total other bond related investments $49,428 $(2,408) $47,020 $37,249 $1,977 $39,419
====== ====== ====== ====== ===== ======
(1) The Company sold its investments in these RITES, and terminated the
related swap, during the first quarter for a net gain of $321,000.
(2) Face amount represents notional amount of swap agreements.
(3) The underlying bond is held in a trust; the Company owns all of the
custodial receipts related to the underlying bond at September 30, 1998.
(4) Custodial receipt which represents the interest generated on the
underlying bond in excess of 7.875%
(5) The Company has entered into a total return and interest rate swap on the
Cinnamon Ridge Mortgage Bond. During the term of the total return swap,
the Company will receive income approximating .625% of the face amount of
the bond.
</TABLE>
<PAGE>
From time to time, the Company may purchase or sell in the open market
interests in bonds that it has securitized depending on the Company's capital
position and needs. During the nine months ended September 30, 1998, the Company
purchased and/or sold interests in four bonds which it previously securitized.
At September 30, 1998, the Company owned the senior interests in one bond that
it had previously securitized.
In the third quarter, the Company purchased a $65,000 RITES(sm)
interest in Queen Anne IV Apartments ("Queen Anne"). Queen Anne is a 110 unit
multi-story apartment and townhouse community located in Weymouth,
Massachusetts, southeast of Boston, which serves as collateral for a $6.25
million multifamily mortgage revenue bond. The bond was placed into a trust by
Merrill Lynch whereby P-FLOATs(sm) and RITES(sm) were sold. The bond bears
interest at 7.09% per annum and matures in August 2013. The Company received an
origination fee of $63,000 for structuring the transaction whereby Merrill Lynch
purchased the Queen Anne bond.
NOTE 4 - INVESTMENT IN PARITY WORKING CAPITAL LOANS, DEMAND
NOTES AND OTHER LOANS
In conjunction with the structuring of the Queen Anne transaction
discussed above, the Company made a $50,000 loan on the property in July 1998.
The loan bears interest at an annual stated rate of 8.5%. Principal payments
began in September 1998 and continue monthly through maturity in August 2001.
As discussed in Note 2, in July 1998, a participating bond was issued
collateralized by the Palisades Park apartment community in the amount of $9.75
million. As a result, the $9.5 million taxable mortgage loan made in February
1998, which served as short term financing pending the issuance of this bond,
was retired.
In August 1998, the Company originated a $6.9 million taxable mortgage
loan collateralized by a 272 unit multifamily apartment community known as
Rillito Village located in Tucson, Arizona. The mortgage loan bears interest at
a stated annual rate of 9.0%. The two month loan was made as short term
financing pending issuance, by the City of Tucson, of two tax-exempt mortgage
revenue bonds. The Company has committed to acquire interests in these bonds
when issued. The Company received an origination fee of $35,400 on this
transaction.
Also in August 1998, the Company structured a transaction whereby
Merrill Lynch purchased a $19.5 million mortgage revenue bond collateralized by
three apartment communities located in the Oklahoma City area. In conjunction
with the structuring of this transaction, the Company made a $700,000 loan on
the property. The loan bears interest at an annual stated rate of 8.5%.
Principal payments begin in August 1999 and continue monthly through maturity in
July 2003. The Company received an origination fee of $202,000 on this
transaction.
In 1997, the Company made a loan on the Crossings property not to
exceed $844,000 of which only $744,000 was drawn by the borrower during 1997. In
September 1998, the remaining $100,000 was drawn by the borrower. All other
terms under the loan agreement remained unchanged.
NOTE 5 - SHAREHOLDERS' EQUITY
On July 22, 1998, The Company sold to the public 2.5 million Growth
Shares at a price of $21.125 per share. Net proceeds generated from the offering
approximated $49.6 million. The net proceeds from this offering will be used for
general corporate purposes, including new investments and working capital.
<PAGE>
NOTE 6 - EARNINGS PER SHARE
The following tables reconcile the numerators and denominators in the
basic and diluted EPS calculations for Growth Shares for the three and nine
months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
For the three months ended September 30, 1998 For the three months ended September 30, 1997
(in thousands, (in thousands,
except share and per share data) except share and per share data)
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income allocable to growth shares $ 6,692 16,307,957 $ 0.41 $ 4,181 11,095,422 $ 0.38
=========== ===========
Effect of Dilutive Securities
Options and restricted shares - 179,093 - 79,371
Convertible preferred shares
to the extent dilutive - - 122 344,039
--- ------- ----- -------
Diluted EPS
Income allocable to growth shares
plus assumed conversions $ 6,692 16,487,050 $ 0.41 $ 4,303 11,518,832 $ 0.37
========= =========== =========== =========== =========== ===========
For the nine months ended September 30, 1998 For the nine months ended September 30, 1997
(in thousands, (in thousands,
except share and per share data) except share and per share data)
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income allocable to growth share $ 17,990 14,680,503 $ 1.23 $ 12,130 11,094,433 $ 1.09
=========== ===========
Effect of Dilutive Securities
Options and restricted shares - 208,899 - 30,209
Convertible preferred shares
to the extent dilutive 582 498,935 122 114,680
--- ------- ----- ------
Diluted EPS
Income allocable to growth shares
plus assumed conversions $ 18,572 15,388,337 $ 1.21 $12,252 11,239,322 $ 1.09
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
NOTE 7 - DISTRIBUTIONS
On October 7, 1998, distributions for the three months ended September
30, 1998 were declared for shareholders of record on October 19, 1998 and paid
on November 2, 1998. The per share distributions are shown in the following
table:
<TABLE>
<CAPTION>
Preferred Capital
Preferred Shares Distribution Shares
Growth ----------------------------- -----------------------------
Shares Series I Series II Series I Series II
----------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Distributions paid on May 4, 1998 to holders of record on April 20, 1998:
For the three months ended
March 31, 1998 $ 0.375 $ 13.96 $ 17.13 $ 11.39 $ 13.34
Distributions paid on August 3, 1998 to holders of record on July 6, 1998:
For the three months ended
June 30, 1998 0.380 - - - -
Distributions paid on August 3, 1998 to holders of record on July 20, 1998:
For the three months ended
June 30, 1998 - 13.96 17.13 11.39 13.34
Distributions paid on November 2, 1998 to holders of record on October 19, 1998:
For the three months ended
September 30, 1998 0.385 13.96 17.13 11.39 13.34
------ ---------- -------------- --------- ----------
Total Year-to-Date September 30, 1998 $ 1.140 $ 41.88 $ 51.39 $ 34.17 $ 40.02
====== ========== ============== ========= ==========
</TABLE>
NOTE 8 - SUBSEQUENT EVENTS
New Acquisitions
In August 1998, the Company structured a transaction whereby Merrill
Lynch purchased a $19.5 million mortgage revenue bond collateralized by three
apartment communities located in the Oklahoma City area. The bond is secured by
three existing apartment communities encompassing 772 units. The bond has a
stated annual interest rate of 7.125% and matures in July 2028. Merrill Lynch
placed the bond into a trust and P-FLOATs(sm) and RITES(sm) were sold from the
trust. In October 1998, the Company purchased $19.3 million (par-value) of
Oklahoma City P-FLOATs(sm) at par and $195,000 (par-value) of Oklahoma City
RITES(sm) for $254,000. The investment in Oklahoma City P-FLOATs(sm) is a
temporary investment and may be sold in the future in order to generate
securitization capital.
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
General Business
Municipal Mortgage and Equity, L.L.C. (the "Company") is in the
business of originating, investing in and servicing tax-exempt mortgage revenue
bonds issued by state and local government authorities to finance multifamily
housing developments. The Company is a limited liability company that, as a
result of a merger effective August 1, 1996 (the "Merger"), is the successor to
the business of SCA Tax Exempt Fund Limited Partnership (the "Partnership").
The Company is required to distribute to the holders of Preferred
Shares and Preferred Capital Distribution Shares ("Preferred CD Shares") cash
flow attributable to such shares (as defined in the Company's Amended and
Restated Certificate of Formation and Operating Agreement). The Company is
required to distribute 2.0% of the net cash flow to the holders of Term Growth
Shares. The balance of the Company's net income is allocated to Growth Shares
(or "Common Shares") and the Company's current policy is to distribute to Common
Shareholders at least 80% of the cash flow associated with this income. This
payout ratio has approximated 95% for the Company's first eight quarters.
Certain of the bonds held by the Company are participating bonds that
provide for payment of contingent interest, based upon the performance of the
underlying properties, in addition to base interest at a fixed rate. Because the
mortgage loans underlying all of the bonds held by the Company are nonrecourse,
all debt service on the bonds, and therefore cash flow available for
distribution to all shareholders, is dependent upon the performance of the
underlying properties.
Results of Operations
Quarterly Results Analysis
Total income for the three months ended September 30, 1998 increased by
approximately $2.7 million over the same period last year due primarily to an
increase in interest income and construction and mortgage servicing fees on new
investments of approximately $2.2 million and an increase in interest on
short-term investments of $0.4 million as a result of temporary investing of
equity offering proceeds.
Operating expenses for the three months ended September 30, 1998
increased by approximately $0.1 million from the prior year due primarily to an
increase in salary and benefits expense as a result of an increase in the number
of employees.
Year-to-Date Results Analysis
Total income for the nine months ended September 30, 1998 increased by
approximately $7.0 million over the same period last year due primarily to (1)
an increase in interest income and construction and mortgage servicing fees on
new investments of $5.3 million, (2) an increase in interest on short-term
investments of $0.5 million as a result of temporary investing of equity
offering proceeds, (3) a one time gain on sale of $0.5 million in 1998 and (4)
collection of $0.6 million in contingent interest in 1998 over 1997.
Operating expenses for the nine months ended September 30, 1998
increased by approximately $1.1 million from the prior year due primarily to (1)
an increase in salary and benefits expense as a result of an increase in the
number of employees, (2) an increase in costs associated with growing the
company's infrastructure, (3) an increase in professional fees due to growth in
investment activity, and (4) an initial filing fee for listing the Common Shares
on the New York Stock Exchange.
New Accounting Pronouncement
During July 1998, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). This standard requires the
Company to recognize all derivatives as either assets or liabilities in its
financial statements and measure such instruments at their fair values. Hedging
activities must be redesignated and documented pursuant to the provisions of the
statement. This statement becomes effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. At this time, the Company is still
assessing the impact of SFAS No. 133 on its financial condition and results of
operations.
<PAGE>
Liquidity and Capital Resources
The Company's primary objective is to maximize shareholder value
through increases in distributable cash flow per Common Share and appreciation
in the value of its Common Shares. The Company seeks to achieve its growth
objectives by acquiring, servicing and managing diversified portfolios of
mortgage bonds and other bond related investments. In order to facilitate this
growth strategy, the Company will require additional capital in order to pursue
acquisition opportunities. The Company expects to finance its acquisitions
through a financing strategy that (1) takes advantage of attractive financing
available in the tax-exempt securities markets; (2) minimizes exposure to
fluctuations of interest rates; and (3) maintains maximum flexibility to manage
the Company's short-term cash needs. To date, the Company has primarily used two
sources, securitizations and Common Share equity offerings, to finance its
acquisitions.
In the third quarter, the Company participated in $33.4 million in
investment transactions. Of this amount, $7.7 million of these transactions were
bond or loan originations retained by the Company. The remaining investment
transactions involved the securitizations discussed below.
Securitizations
Through securitizations, the Company seeks to enhance its overall
return on its investments and to generate proceeds which, along with equity
offering proceeds, facilitate the acquisition of additional investments. The
Company securitizes bonds through the sale of bonds to an investment bank which,
in turn, deposits the bonds into a trust. Short term floating rate interests in
the trust (the "senior interests"), which have first priority on the cash flow
from the bonds, are sold to accredited qualified third party investors. The
Company purchases the residual interests in the trust and receives the proceeds
from the sale of the senior interests less certain transaction costs. The
Company may also purchase, for investment purposes, residual interests in bonds
that it did not own, in which case no proceeds are received. The residual
interests are the subordinate security and receive the residual income after the
payment of all fees and the floating rate obligation. The Company recognizes
taxable capital gains (or losses) upon the sale of the bonds.
The investment bank (the "credit enhancer") provides liquidity and
credit enhancement to the trust which enables the senior interests to be sold to
certain accredited third party investors seeking investments rated "AA" or
better. The liquidity and credit enhancement facilities are generally for one
year terms and are renewable annually by the credit enhancer. To the extent that
the credit enhancer is downgraded below "AA", either an alternative credit
enhancement provider would be substituted to reinstate the desired investment
rating or the senior interests would be marketed to other accredited investors.
In either case, it is anticipated that the return on the residual interests
would decrease which would negatively impact cash available for distribution. If
the credit enhancer does not renew the liquidity or credit enhancement
facilities, the Company would be forced to find alternative liquidity or credit
enhancement facilities, repurchase the underlying bonds or liquidate the
underlying bond and its investment in the residual interests. If the Company is
forced to liquidate its investment in the residual interests and potentially the
related swaps, the Company would recognize gains or losses on the liquidation,
for net income, tax reporting and cash available for distribution, which may be
significant depending on market conditions. As of September 30, 1998, $175
million of the senior interests are subject to annual "rollover" renewal for
liquidity and credit enhancement. $169 million of these renewals were scheduled
to come due during the first six months of 1999. The Company has already
extended, in advance, the liquidity and credit enhancement of these $169 million
of senior interests through June 30, 1999. The Company is also currently
reviewing several alternatives which would reduce and diversify credit risks.
Since the bonds securitized generally bear fixed rates of interest, the
residual interest in the trust created by the securitizations may create
interest rate risks. To reduce the Company's exposure to interest rate risks on
residual interests retained, the Company enters into interest rate swaps, which
are contracts exchanging an obligation to pay a floating rate approximating the
rate on the senior interests for an obligation to pay a fixed rate. Net swap
payments received, if any, will be taxable income, even though the investment
being hedged pays tax-exempt interest. The Company recognizes taxable capital
gains (or losses) upon the termination of an interest rate swap contract. The
interest rate swaps are for limited time periods which generally match the term
of the securitization trust. However, there is no certainty that prepayment will
occur at the end of the swap period. There can be no assurance that the Company
will be able to acquire interest rate swaps at favorable prices, or at all, when
the existing arrangements expire, in which case the Company would be fully
exposed to interest rate risk to the extent the anticipated prepayment does not
occur. In addition, there is no guarantee that the securitization trust will be
in existence for the duration of the swap, as these securitization trusts are
collapsed if the credit enhancement or liquidity facilities are not renewed, as
discussed above. If the securitization trusts are no longer in existence, the
Company would recognize gains and losses from changes in market values of the
swap instruments or from the termination of the swap agreements. Depending on
market conditions, these gains and losses on the interest rate swaps could be
significant.
From time to time, depending on the Company's capital position and
needs, the Company may purchase or sell on the open market interests in bonds
that it has securitized or bonds that the Company did not originally own but now
holds a residual interest in the bond. During the nine months ended September
30, 1998, the Company purchased and/or sold interests in four bonds which it
previously securitized. At September 30, 1998, the Company owned the senior
interests in one bond that it had previously securitized. In October 1998, the
Company used uninvested equity offering proceeds to purchase a portion of the
senior interests related to another bond in which the Company owns the residual
position.
<PAGE>
Through the use of securitizations, the Company expects to employ
leverage and maintain overall leverage ratios in the 40% to 55% range, with
certain assets at significantly higher ratios, up to approximately 99%, while
not leveraging other assets at all. The Company calculates leverage by dividing
the total amount of senior interests in its investments, which it considers the
equivalent of off-balance sheet financing, by the sum of total assets owned by
the Company plus senior interests owned by others. Under this method, the
Company's leverage ratio at September 30, 1998 was approximately 42%.
In order to facilitate the securitization of certain assets at higher
leverage ratios, the Company has pledged additional bonds to the pool that
collateralizes the senior interests in the trust.
Public Offering
On July 22, 1998, the Company sold to the public 2.5 million Common
Shares at a price of $21.125 per share. Net proceeds generated from the offering
approximated $49.6 million. The net proceeds from this offering will be used for
general corporate purposes, including new investments and working capital.
Cash Flow
At September 30, 1998, the Company had cash and cash equivalents of
approximately $43.6 million.
Cash flow from operating activities was $20.0 million and $14.2 million
for the nine months ended September 30, 1998 and 1997, respectively. The
increase in cash flow for 1998 versus 1997 is due primarily to an increase in
income from investment of the 1995 Financing proceeds and the 1998 Equity
Offering proceeds.
The Company uses Cash Available for Distribution ("CAD") as the primary
measure of its dividend paying ability. CAD differs from net income because of
slight variations between generally accepted accounting principles ("GAAP")
income and actual cash received. There are two primary differences between CAD
and GAAP income. The first is the treatment of loan origination fees, which for
CAD purposes are recognized as income when received but for GAAP purposes are
amortized into income over the life of the associated investment. The second
difference is the noncash gain and loss recognized for GAAP associated with
valuations and sales of investments, which are not included in the calculation
of CAD.
For the three months ended September 30, 1998 and 1997, cash available
for distribution to Common Shares was $6.8 million and $4.3 million,
respectively. Regular cash distributions to common shareholders attributable to
the three months ended September 30, 1998 and 1997 were $6.5 million and $4.1
million, respectively. The Company's Common Share dividend for the three months
ended September 30, 1998 of $0.385 represents a payout ratio of 94.9% of CAD.
The Company's Common Share dividend for the three months ended September 30,
1997 of $0.365 represents a payout ratio of 94.3% of CAD. The increase in CAD
for the three months ended September 30, 1998 versus 1997, is due primarily to
an increase in interest income collected on investments of $2.5 million
partially offset by an increase in operating expenses of $0.1 million.
The Company expects to meet its cash needs in the short-term, which
consist primarily of funding new investments, operating expenses and dividends
on the Common Shares and other equity, from cash on hand, operating cash flow,
securitization proceeds and equity offering proceeds raised in July 1998. The
Company's business plan includes making additional investments during the
remainder of 1998 which will be funded through securitizations and the July 1998
Common Share equity offering. Cash not used as set forth above may be used to
reduce the total amount of senior interests in the Company's securitized
facilities.
Income Tax Considerations
The Company has elected under Section 754 of the Internal Revenue Code
to adjust the basis of the Company's property on the transfer of shares to
reflect the price each shareholder paid for their shares. While the bulk of the
Company's recurring income is tax-exempt, from time to time, the Company may
sell or securitize various assets which may result in capital gains and losses
for tax purposes. Since the Company is taxed as a partnership, these capital
gains and losses are passed through to shareholders and are reported on each
shareholder's Schedule K-1. The capital gain and loss allocated from the Company
may be different to each shareholder due to the Company's 754 election and is a
function of, among other things, the timing of the shareholder's purchase of
shares and the timing of transactions which generate gains or losses for the
Company. This means that for assets purchased by the Company prior to a
shareholder's purchase of shares, the shareholder's basis in the assets may be
significantly different than the Company's basis in those same assets. While the
procedure for allocating the basis adjustment is complex, the impact of the
election is that each shareholder's basis in the assets of the Company may be
different. Consequently, the capital gains and losses allocated to shareholders
may be significant and different than the capital gains and losses recorded by
the Company.
<PAGE>
Year 2000 Compliance
The Company is evaluating Year 2000 compliance issues, including
exposure related to vendors, borrowers, software and other systems to determine
whether internal and external concerns have been addressed. The Company has
established a committee to oversee this evaluation and implementation and
expects to be in compliance by the Year 2000. Based on information currently
available, the Company does not expect to incur significant operating expenses
or material costs to become Year 2000 compliant.
PART II - OTHER INFORMATION
Item 5 - Other Information
On July 22, 1998, the Company sold to the public 2.5 million Common
Shares at a price of $21.125. Net proceeds generated from the offering
approximated $49.6 million. The net proceeds from this offering will be used for
general corporate purposes, including new investments and working capital.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Amended and Restated Certificate of Formation and
Operating Agreement of the Company (filed as Item 14
(c) Exhibit 3.1 to the Company's current report on
Form 10-K/A - Amendment #1, filed with the Commission
on May 29, 1998 and incorporated by reference
herein).
3.2 By-laws of the Company (filed as Item 16 Exhibit 4.2
to the Company's Registration Statement on
Form S-3/A- Amendment #1, File No. 333-56049,
filed with the Commission on June 29, 1998 and
incorporated by reference herein).
27 Financial Data Schedule
(b) Reports on Form 8-K:
On July 24, 1998, the Registrant filed a report on Form 8-K in
connection with the public offering of 2.5 million Common Shares.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MUNICIPAL MORTGAGE & EQUITY, L.L.C.
(Registrant)
By: /s/ Mark K. Joseph
Mark K. Joseph
Chairman of the Board, Chief Executive Officer (Principal Executive Officer),
and Director
By: /s/ Gary Mentesana
Gary Mentesana
Chief Financial Officer (Principal Financial Officer and Principal
Accounting Officer)
DATED: November 12, 1998
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Document
3.1 Amended and Restated Certificate of Formation and
Operating Agreement of the Company (filed as Item 14 (c)
Exhibit 3.1 to the Company's current report on Form
10-K/A - Amendment #1, filed with the Commission on May
29, 1998 and incorporated by reference herein).
3.2 By-laws of the Company (filed as Item 16 Exhibit 4.2 to
the Company's Registration Statement on Form S-3/A
- Amendment #1, File No. 333-56049, filed with the
Commission on June 29, 1998 and incorporated by
reference herein).
27 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THOSE FINANCIAL STATEMENTS AND THE FOOTNOTES PROVIDED WITHIN THIS
SCHEDULE.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 43,617
<SECURITIES> 0
<RECEIVABLES> 2,100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 45,717
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 358,866
<CURRENT-LIABILITIES> 2,628
<BONDS> 0
0
23,185
<COMMON> 305,692
<OTHER-SE> 27,361
<TOTAL-LIABILITY-AND-EQUITY> 358,866
<SALES> 0
<TOTAL-REVENUES> 23,352
<CGS> 0
<TOTAL-COSTS> 3,502
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,850
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,850
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,850
<EPS-PRIMARY> 1.23<F1>
<EPS-DILUTED> 1.21<F1>
<FN>
<F1> The earnings per share reflects the earning per share of the
Growth Shares.
</FN>
</TABLE>
