UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: September 30, 2000
Commission file number: 001-11981
MUNICIPAL MORTGAGE & EQUITY, LLC
(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 17,462,761 Common Shares outstanding as of November 6, 2000.
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, LLC
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
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
<CAPTION>
PART I. OTHER INFORMATION
Item 1. Financial Statements
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(unaudited)
September 30, December 31,
2000 1999
--------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................................ $ 41,359 $ 54,417
Interest receivable ...................................................... 7,281 8,118
Investment in mortgage revenue bonds, net (Note 3) ....................... 464,670 391,544
Investment in other bond related investments (Note 4) .................... 8,022 8,338
Loans receivable (Note 5) ................................................ 356,452 286,489
Restricted assets ........................................................ 31,498 15,833
Other assets ............................................................. 13,902 8,246
Property and equipment ................................................... 938 894
Goodwill ................................................................. 26,804 27,867
--------- ---------
Total assets ............................................................. $ 950,926 $ 801,746
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable (Note 6) ................................................... $ 326,210 $ 261,956
Accounts payable, accrued expenses and other liabilities ................. 21,461 19,327
Investment in other bond related investments (Note 4) .................... 13,004 8,249
Distributions payable .................................................... 2,606 1,444
Short-term debt .......................................................... 23,970 --
Long-term debt ........................................................... 66,876 67,000
--------- ---------
Total liabilities ........................................................ 454,127 357,976
--------- ---------
Commitments and contingencies ............................................ -- --
Preferred shareholders' equity in a subsidiary company (Note 2) .......... 137,676 80,159
Shareholders' equity:
Preferred shares:
Series I (14,933 shares issued and outstanding) ...................... 9,569 10,105
Series II (7,226 shares issued and outstanding) ...................... 4,740 5,720
Preferred capital distribution shares:
Series I (7,798 shares issued and outstanding) ....................... 3,477 3,756
Series II (3,164 shares issued and outstanding) ...................... 1,211 1,632
Term growth shares (2,000 shares issued and outstanding) ................. 172 165
Common shares (17,543,012 shares, including 17,528,011 issued, and 15,001
deferred shares at September 30, 2000 and 17,538,140 shares, including
17,528,011 issued, and 10,129 deferred shares at December 31, 1999) .. 324,605 324,443
Less common shares held in treasury at cost (80,346 shares
and 146,076, respectively) ........................................... (1,335) (2,481)
Less unearned compensation - deferred shares ............................ (4,394) (3,468)
Accumulated other comprehensive income ................................... 21,078 23,739
--------- ---------
Total shareholders' equity ............................................... 359,123 363,611
--------- ---------
Total liabilities and shareholders' equity ............................... $ 950,926 $ 801,746
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
(unaudited)
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- ----------------------------
2000 1999 2000 1999
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
INCOME:
Interest on mortgage revenue bonds and other bond related investments $ 10,293 $ 10,144 $ 30,018 $ 26,251
Interest on loans ................................................... 8,563 566 22,948 1,637
Loan origination and brokerage fees ................................. 2,833 98 4,829 242
Loan servicing fees ................................................. 1,325 206 4,163 733
Interest on short-term investments .................................. 1,158 391 3,128 1,075
Other income ........................................................ 1,519 230 3,790 397
Net gain on sales ................................................... 181 -- 200 1,478
----------- ----------- ----------- -----------
Total income ........................................................ 25,872 11,635 69,076 31,813
----------- ----------- ----------- -----------
EXPENSES:
Salaries and benefits ............................................... 3,843 1,355 10,827 3,132
Operating expenses .................................................. 2,169 634 5,675 1,617
Goodwill and other intangibles amortization ......................... 358 -- 1,074 --
Interest expense .................................................... 8,403 846 22,303 1,746
----------- ----------- ----------- -----------
Total expenses ...................................................... 14,773 2,835 39,879 6,495
----------- ----------- ----------- -----------
Net income before income allocated to preferred shareholders
in a subsidiary company and income taxes ...................... 11,099 8,800 29,197 25,318
Income allocable to preferred shareholders in a subsidiary company .. 2,606 1,444 5,868 1,989
----------- ----------- ----------- -----------
Net income before income taxes ..................................... 8,493 7,356 23,329 23,329
Income taxes ........................................................ 720 -- 904 --
----------- ----------- ----------- -----------
Net income .......................................................... $ 7,773 $ 7,356 $ 22,425 $ 23,329
=========== =========== =========== ===========
Net income allocated to:
Preferred shares:
Series I .................................................... $ 193 $ 232 $ 620 $ 816
=========== =========== =========== ===========
Series II ................................................... 78 123 254 408
=========== =========== =========== ===========
Preferred capital distribution shares:
Series I .................................................... $ 76 $ 96 $ 248 $ 352
=========== =========== =========== ===========
Series II ................................................... 20 40 67 133
=========== =========== =========== ===========
Term growth shares ............................................ $ 172 $ 156 $ 504 $ 438
=========== =========== =========== ===========
Common shares ................................................. $ 7,234 $ 6,709 $ 20,732 $ 21,182
=========== =========== =========== ===========
Basic net income per share:
Preferred shares:
Series I .................................................... $ 12.97 $ 15.52 $ 41.56 $ 54.62
=========== =========== =========== ===========
Series II ................................................... 10.68 17.07 35.09 56.51
=========== =========== =========== ===========
Preferred capital distribution shares:
Series I .................................................... $ 9.78 $ 12.40 $ 31.82 $ 45.18
=========== =========== =========== ===========
Series II ................................................... 6.12 12.60 21.10 41.96
=========== =========== =========== ===========
Common shares ................................................. $ 0.41 $ 0.40 $ 1.19 $ 1.26
=========== =========== =========== ===========
Weighted average common shares outstanding .................... 17,447,886 16,805,960 17,436,639 16,806,229
Diluted net income per share:
Common shares ................................................. $ 0.40 $ 0.39 $ 1.16 $ 1.24
=========== =========== =========== ===========
Weighted average common shares outstanding .................... 18,059,115 17,508,274 17,880,850 17,338,361
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) (unaudited)
For the three months ended For the nine months ended
September 30, September 30,
--------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net income .................................................... $ 7,773 $ 7,356 $ 22,425 $ 23,329
------------ ------------ ------------- -------------
Other comprehensive income:
Unrealized gains (losses) on investments:
Unrealized holding gains (losses) arising
during the period ......................................... (5,379) (2,291) (2,480) 756
Reclassification adjustment for (gains) losses
included in net income ................................. (181) -- (181) 787
------------ ------------ ------------- -------------
Other comprehensive income (loss) ............................. (5,560) (2,291) (2,661) 1,543
------------ ------------ ------------- -------------
Comprehensive income .......................................... $ 2,213 $ 5,065 $ 19,764 $ 24,872
============ ============ ============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except share data) (unaudited)
Preferred Capital Accumulated
Preferred Shares Distribution Shares Term Other
------------------ ------------------- Growth Common Treasury Unearned Comprehensive
SeriesI SeriesII SeriesI SeriesII Shares Shares Shares Compensation Income (Loss) Total
--------- -------- --------- -------- ------- ----------- --------- ------------ ------------- ---------
Balance,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 2000 .........$10,105 $ 5,720 $3,756 $ 1,632 $ 165 $ 324,443 $(2,481) $ (3,468) $ 23,739 $363,611
Net income .............. 620 254 248 67 504 20,732 -- -- -- 22,425
Unrealized losses on
investments, net of
reclassifications ...... -- -- -- -- -- -- -- -- (2,661) (2,661)
Distributions ........... (1,156) (1,234) (527) (488) (497) (21,586) -- -- -- (25,488)
Purchase of treasury
shares ............ .... -- -- -- -- -- -- (191) -- -- (191)
Reissuance of treasury
shares ................. -- -- -- -- -- (760) 1,337 -- -- 577
Deferred shares issued
under the Non-Employee
Directors' Share Plans.. -- -- -- -- -- 98 -- -- -- 98
Deferred share grants ... -- -- -- -- -- 1,678 -- (1,678) -- --
Amortization of deferred
compensation ........... -- -- -- -- -- -- -- 752 -- 752
--------- --------- -------- -------- ------- ----------- --------- ------------ ------------- ---------
Balance,
September 30, 2000 ......$ 9,569 $ 4,740 $3,477 $ 1,211 $ 172 $ 324,605 $(1,335) $ (4,394) $ 21,078 $359,123
========= ========= ======== ======== ======= =========== ========= ============ ============= =========
Preferred Capital
Preferred Shares Distribution Shares
----------------- ----------------- Term
Growth Common Treasury
SHARE ACTIVITY: SeriesI SeriesII SeriesI SeriesII Shares Shares Shares
--------- -------- --------- -------- ------- ----------- ---------
Balance,
January 1, 2000 ......... 14,933 7,226 7,798 3,164 2,000 17,392,064 146,076
Purchase of treasury
shares ................. -- -- -- -- -- (9,042) 9,042
Reissuance of treasury
shares ................. -- -- -- -- -- 74,772 (74,772)
Deferred shares
issued under the
Non-Employee Directors'
Share Plans ............ -- -- -- -- -- 4,872 --
--------- -------- --------- -------- ------- ----------- ---------
Balance,
September 30, 2000 ...... 14,933 7,226 7,798 3,164 2,000 17,462,666 80,346
======== ======== ========= ======== ======= =========== ========
</TABLE>
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<TABLE>
<CAPTION>
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
For the nine months ended
September 30,
--------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 22,425 $ 23,329
Adjustments to reconcile net income to net cash provided by operating activities:
Income allocated to preferred shareholders in a subsidiary company .......... 5,868 1,989
Decrease in valuation allowance on parity working capital loans ............. (32) (584)
Net gain on sales ........................................................... (200) (1,478)
Net amortization of premiums, discounts and fees on investments ............. 227 223
Depreciation and amortization ............................................... 1,217 44
Loss on disposal of fixed assets ............................................ 3 --
Deferred share compensation expense ......................................... 752 445
Deferred shares issued under the Non-Employee Directors' Share Plans ........ 98 46
Director fees paid and share awards made by reissuance of treasury shares ... 14 10
(Increase) decrease in interest receivable .................................. 837 (1,003)
Increase in other assets .................................................... (5,025) (651)
Increase in accounts payable, accrued expenses and other liabilities ........ 2,266 719
--------- ---------
Net cash provided by operating activities ....................................... 28,450 23,089
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of mortgage revenue bonds, other bond related investments,
loan originations and other investments ..................................... (366,948) (126,993)
Principal payments received ..................................................... 174,927 390
Net proceeds from sales of investments .......................................... 51,073 58,597
Purchases of property and equipment ............................................. (190) (60)
Net investment in restricted investments ........................................ (19,380) --
Net (investment) reduction in restricted cash ................................... 3,715 (2,112)
--------- ---------
Net cash used in investing activities ........................................... (156,803) (70,178)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from credit facilities ............................................... 315,958 --
Repayment of credit facilities .................................................. (252,204) --
Proceeds from short-term debt ................................................... 23,970 --
Repayment of long-term debt ..................................................... (124) --
Issuance of preferred shares in a subsidiary company ............................ 57,616 80,153
Retirement of preferred shares .................................................. -- (927)
Proceeds from stock options exercised ........................................... 563 --
Purchase of treasury shares ..................................................... (191) (289)
Distributions ................................................................... (25,488) (23,017)
Distributions to preferred shares in a subsidiary company ....................... (4,805) (545)
--------- ---------
Net cash provided by financing activities ....................................... 115,295 55,375
Net increase (decrease) in cash and cash equivalents ............................ (13,058) 8,286
Cash and cash equivalents at beginning of period ................................ 54,417 23,164
--------- ---------
Cash and cash equivalents at end of period ...................................... $ 41,359 $ 31,450
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ................................................................... $ 22,349 $ 1,290
========= =========
Income taxes paid ............................................................... $ 621 $ --
========= =========
DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Investments and long-term debt recorded under SFAS No. 125 upon conversion
of P-FLOATS to Term Securitization Facility ................................. $ -- $ 67,000
========= =========
Investment in a partnership under a note payable obligation ..................... $ 500 $ --
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Municipal Mortgage & Equity, LLC ("MuniMae") and its subsidiaries
(together with MuniMae, the "Company") are principally engaged in originating,
investing in and servicing investments in multifamily housing debt and equity.
The Company primarily holds a portfolio of tax-exempt mortgage revenue bonds
issued by state and local government authorities to finance multifamily housing
developments secured by nonrecourse mortgage loans on the underlying properties.
The assets of MuniMae TE Bond Subsidiary, LLC and its subsidiaries
(collectively, "TE Bond Sub"), a majority owned subsidiary of MuniMae, are
solely those of TE Bond Sub and are not available to creditors of MuniMae. The
equity interest in TE Bond Sub held by MuniMae is subject to the claims of
creditors of the Company and in certain circumstances could be foreclosed upon.
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
1 to the Company's Annual Report on Form 10-K for the year ended December 31,
1999, as amended (the "Company's 1999 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 1999
Form 10-K. Certain 1999 amounts have been reclassified to conform to the 2000
presentation.
New Accounting Pronouncement
During July 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133") as amended by FAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
Effective Date of FASB 133". In addition, during 2000, the Financial Accounting
Standards Board issued FAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities". These statements (collectively,
"FAS 133") establish accounting and reporting standards for derivative financial
instruments, including certain derivative financial instruments embedded in
other contracts, and for hedging activity. FAS 133 requires the Company to
recognize all derivatives as either assets or liabilities in its financial
statements and measure these instruments at their fair values. Hedging
activities must be appropriately designated, documented and proven to be
effective as a hedge of a balance sheet item pursuant to the provisions of FAS
133. FAS 133 becomes effective for all fiscal quarters of fiscal years beginning
after June 15, 2000.
The Company has several types of financial instruments that may meet the
definition of a derivative financial instrument under FAS 133, including
interest rate swaps, interest rate caps, put option contracts, loan commitments
and total return swaps. Currently the Company marks most of these instruments to
fair value on a quarterly basis. Some of these instruments are held to reduce
the Company's exposure to fluctuating interest rates. Accordingly, the change in
fair value is recorded in other comprehensive income, which corresponds to the
accounting for the underlying instrument. The exceptions are loan commitments
and put option contracts, which are currently off-balance sheet instruments.
Under FAS 133, the Company believes the loan commitments and put option
contracts may be recorded on the balance sheet with changes in fair value of
these instruments, as well as changes in fair value of other instruments which
are deemed to be derivative financial instruments, recorded in current earnings.
If the Company does not prove that its current hedging activities are effective
as a hedge of a balance sheet item pursuant to the provisions of FAS 133, the
changes in fair value would be recorded through current income rather than
through other comprehensive income. At this time, the Company is continuing to
assess the impact of FAS 133 on its financial condition and results of
operations. However, the Company believes the impact on future earnings could be
material.
NOTE 2 - PREFERRED SHAREHOLDERS' EQUITY IN SUBSIDIARY
On June 2, 2000, TE Bond Sub sold to institutional investors $60
million of Series B Cumulative Preferred Shares (the "Series B Preferred Shares"
or the "Series B Preferred Share Offering"). On May 27, 1999, TE Bond Sub sold
to institutional investors $84 million of Series A Cumulative Preferred Shares
(the "Series A Preferred Shares" or the "Series A Preferred Share Offering").
The Series A Preferred Shares bear interest at 6.875% per annum or, if lower,
the aggregate net income of the issuing company, TE Bond Sub. The Series A
Preferred Shares have a senior claim to the income derived from the investments
owned by TE Bond Sub. The Series B Preferred Shares bear interest at 7.75% per
annum or, if lower, the aggregate net income of the issuing company, TE Bond
Sub, after payment of distributions to the Series A Preferred Shares. Any income
from TE Bond Sub available after payment of the cumulative distributions of the
Series A and Series B Preferred Shares is allocated to the Company. Cash
distributions on the Series A and Series B Preferred Shares will be paid
quarterly on each January 31, April 30, July 31 and October 31. The Series A and
Series B Preferred Shares are subject to remarketing on specified dates as
indicated on the table below. On the remarketing date, the remarketing agent
will seek to remarket the shares at the lowest distribution rate that would
result in a resale of the Series A and Series B Preferred Shares at a price
equal to par plus all accrued but unpaid distributions. The Series A and Series
B Preferred Shares will be subject to mandatory tender on specified dates, as
indicated below, and on all subsequent remarketing dates at a price equal to par
plus all accrued but unpaid distributions. The following table provides a
summary of certain terms of the Series A and Series B Preferred Shares.
<TABLE>
Series A Series B
Preferred Shares Preferred Shares
------------------ ------------------
Issue date May 27, 1999 June 2, 2000
Number of shares 42 30
Par amount per share $2,000,000 $2,000,000
Dividend rate 6.875% 7.75%
First remarketing date June 30, 2009 November 1, 2010
Mandatory tender date June 30, 2009 November 1, 2010
Redemption date June 30, 2049 June 30, 2050
The following table reflects the composition of the Series A and Series
B Preferred Shareholders' equity in TE Bond Sub.
Series A Series B
Preferred Shares Preferred Shares Total
------------------ ------------------ -------
<S> <C> <C> <C>
Balance, December 31, 1999 ...................... $ 80,159 $ -- $ 80,159
Issuance of preferred shares .................... -- 57,616 57,616
Income allocable to preferred shares ............ 4,332 1,536 5,868
Distributions ................................... (4,431) (1,536) (5,967)
----------- --------- ----------
Balance, September 30, 2000 ..................... $ 80,060 $ 57,616 $ 137,676
=========== ========= ==========
</TABLE>
The assets of TE Bond Sub and its subsidiaries, while indirectly
controlled by MuniMae and thus included in the consolidated financial statements
of the Company, are legally owned by TE Bond Sub and are not available to the
creditors of the Company. The assets owned by TE Bond Sub and its subsidiaries
are identified in footnotes to the Investment in Mortgage Revenue Bonds table in
Note 3 and in footnotes to the Other Bond Related Investments table in Note 4.
The fair value of such assets aggregated $404.6 million at September 30, 2000.
NOTE 3 - INVESTMENTS IN MORTGAGE REVENUE BONDS
The Company holds a portfolio of tax-exempt mortgage revenue bonds and
certificates of participation in grantor trusts holding tax-exempt mortgage
revenue bonds ("COPs"). The tax-exempt mortgage revenue bonds are issued by
state and local government authorities to finance multifamily housing
developments secured by nonrecourse mortgage loans on the underlying properties.
The COPs represent a pro rata interest in a trust that holds a tax-exempt
mortgage revenue bond. 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 5
to the Company's 1999 Form 10-K.
The following table provides certain information with respect to the
bonds held by the Company at September 30, 2000 and December 31, 1999.
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<TABLE>
<CAPTION>
September 30, 2000
---------------------------------------------------
Base Face Amortized Unrealized Fair
Investment in Mortgage Year Interest Maturity Amount Cost Gain (Loss) Value
Revenue Bonds Acquired Rate (12) Date (000s) (000s) (000s) (000s)
--------------------------- --------- --------- ---------- ------------ ------------ ----------- ------------
Participating Bonds (1):
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alban Place ...........(2),(4),(5) 1986 7.875 Oct. 2008 $ 10,065 $ 10,065 $ (60) $ 10,005
Cobblestone ...........(4),(10) 1999 7.125 Aug. 2039 6,800 6,732 68 6,800
Creekside Village .....(2),(4),(5) 1987 7.500 Nov. 2009 11,760 7,396 477 7,873
Crossings .............(4),(10) 1997 8.000 Jul. 2007 6,857 6,764 684 7,448
Emerald Hills .........(2),(4),(5) 1988 7.750 Apr. 2008 6,725 6,725 2,179 8,904
Lakeview Garden .......(2),(4),(5) 1987 7.750 Aug. 2007 9,003 4,919 1,103 6,022
Mountain View
(Willowgreen) ........(2),(4) 1986 8.000 Dec. 2010 9,275 6,769 968 7,737
Newport On Seven ......(2),(4),(5) 1986 8.125 Aug. 2008 10,125 7,898 3,084 10,982
North Pointe ..........(2),(4) 1986 7.875 Aug. 2006 25,185 12,739 8,010 20,749
Northridge Park .......(2),(4),(5) 1987 7.500 Jun. 2012 8,815 8,815 82 8,897
Southfork Village .....(2),(7) 1988 7.875 Jan. 2009 10,375 10,375 1,672 12,047
Stone Mountain ........(8) 1997 7.875 Oct. 2027 33,900 34,085 (185) 33,900
Villas at LaRiveria ...(4),(10) 1999 7.125 Jun. 2034 8,850 8,744 150 8,894
-------------- ------------ ----------- -----------
Subtotal participating bonds 157,735 132,026 18,232 150,258
-------------- ------------ ----------- -----------
Non-Participating Bonds:
Baytown ...............(10) 2000 7.750 Jun. 2030 5,000 4,950 - 4,950
Charter House ......... 1996 7.450 Jul. 2026 25 25 - 25
Cielo Vista ...........(4),(10) 1999 7.125 Sep. 2034 9,510 9,437 (58) 9,379
Cool Springs ..........(10) 2000 7.750 Aug. 2030 14,472 14,313 14 14,327
Country Club ..........(10) 1999 7.250 Aug. 2029 2,488 2,457 (118) 2,339
Delta Village .........(10) 1999 7.125 Jun. 2035 2,011 1,977 (106) 1,871
Elmbrook-Golden .......(10) 2000 7.800 May. 2035 2,800 2,746 54 2,800
Gannon-Cedar Run ......(4),(10) 1998 7.125 Dec. 2025 13,200 13,238 (236) 13,002
Gannon-Dade ...........(9) 1998 7.125 Dec. 2029 54,999 55,277 (1,053) 54,224
Gannon-Whispering Palms(9) 1998 7.125 Dec. 2029 12,676 12,737 (263) 12,474
Gannon Bond ...........(4),(10) 1998 7.125 Dec. 2029 3,500 3,500 (53) 3,447
Hidden Valley .........(10) 1996 8.250 Jan. 2026 1,640 1,640 33 1,673
Honey Creek ...........(9),(10) 2000 7.625 Jul. 2035 20,485 20,277 (355) 19,922
Lake Piedmont .........(4),(10) 1998 7.725 Apr. 2034 19,122 19,028 (4,591) 14,437
Oakbrook ..............(4),(10) 1996 8.200 Jul. 2026 3,105 3,134 95 3,229
Oakmont/Towne Oaks ....(4),(10) 1998 7.200 Jan. 2034 11,256 11,234 (213) 11,021
Orangevale ............(4),(10) 1998 7.000 Oct. 2013 2,355 2,355 (59) 2,296
Paola .................(10) 1999 7.250 Aug. 2029 1,049 1,036 (88) 948
Parkwood ..............(4),(10) 1999 7.125 Jun. 2035 3,910 3,842 (112) 3,730
Riverset Phase II 1996 9.500 Oct. 2019 110 105 8 113
Sahuarita .............(10) 1999 7.125 Jun. 2029 2,120 2,108 (229) 1,879
Santa Fe Springs ......(9) 2000 (14) Jun. 2025 15,100 11,516 (40) 11,476
Shadowbrook ...........(4),(10) 1999 6.850 Jun. 2029 5,780 5,767 (16) 5,751
Southwinds ............(10) 2000 8.000 Sept.2030 4,350 4,263 87 4,350
Torries Chase .........(4),(10) 1996 8.150 Jan. 2026 2,010 2,010 50 2,060
University Courtyard ..(10) 2000 7.250 Mar. 2040 9,850 9,749 (47) 9,702
Villa Hialeah-refunded.(4),(5) 1999 6.000 Aug. 2019 10,250 8,005 1,528 9,533
Western Hills .........(10) 1998 7.000 Dec. 2029 3,034 3,034 (257) 2,777
Wheeler Creek .........(10) 1998 (6) Jan. 2003 7,902 7,790 191 7,981
Woodmark ..............(10) 1999 7.125 Jun. 2039 10,200 10,073 (230) 9,843
------------- ------------ ----------- ------------
Subtotal non-participating bonds ................................ 254,309 247,623 (6,064) 241,559
------------- ------------ ----------- ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------
Base Face Amortized Unrealized Fair
Investment in Mortgage Year Interest Maturity Amount Cost Gain (Loss) Value
Revenue Bonds Acquired Rate (12) Date (000s) (000s) (000s) (000s)
--------------------------- --------- --------- ---------- ----------- ------------- ------------- -----------
Participating Bonds (1):
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alban Place .......... (2),(4),(5) 1986 7.875 Oct. 2008 $ 10,065 $ 10,065 $ 209 $ 10,274
Cobblestone .......... (4),(10) 1999 7.125 Aug. 2039 6,800 6,732 - 6,732
Creekside Village .... (2),(4),(5) 1987 7.500 Nov. 2009 11,760 7,396 422 7,818
Crossings ............ (4),(10) 1997 8.000 Jul. 2007 6,910 6,817 637 7,454
Emerald Hills ........ (2),(4),(5) 1988 7.750 Apr. 2008 6,725 6,725 1,655 8,380
Lakeview Garden ...... (2),(4),(5) 1987 7.750 Aug. 2007 9,003 4,919 612 5,531
Mountain View
(Willowgreen) ....... (2),(4) 1986 8.000 Dec. 2010 9,275 6,769 1,038 7,807
Newport On Seven ..... (2),(4),(5) 1986 8.125 Aug. 2008 10,125 7,898 2,964 10,862
North Pointe ......... (2),(4) 1986 7.875 Aug. 2006 25,185 12,739 7,329 20,068
Northridge Park ...... (2),(4),(5) 1987 7.500 Jun. 2012 8,815 8,815 6 8,821
Southfork Village .... (2),(7) 1988 7.875 Jan. 2009 10,375 10,375 2,800 13,175
Stone Mountain ....... (8) 1997 7.875 Oct. 2027 33,900 34,108 (208) 33,900
Villas at LaRiveria .. (4),(10) 1999 7.125 Jun. 2034 8,850 8,744 (115) 8,629
------------ ------------- ------------- -----------
Subtotal participating bonds .................................... 157,788 132,102 17,349 149,451
------------ ------------- ------------- -----------
Non-Participating Bonds:
Baytown .............. (10) 2000 7.750 Jun. 2030 - - - -
Charter House ........ 1996 7.450 Jul. 2026 30 30 - 30
Cielo Vista .......... (4),(10) 1999 7.125 Sep. 2034 9,540 9,467 (165) 9,302
Cool Springs ......... (10) 2000 7.750 Aug. 2030 - - - -
Country Club ......... (10) 1999 7.250 Aug. 2029 2,490 2,459 (93) 2,366
Delta Village ........ (10) 1999 7.125 Jun. 2035 2,011 1,977 (94) 1,883
Elmbrook-Golden ...... (10) 2000 7.800 May 2035 - - - -
Gannon-Cedar Run ..... (4),(10) 1998 7.125 Dec. 2025 13,200 13,238 (434) 12,804
Gannon-Dade .......... (9) 1998 7.125 Dec. 2029 55,050 55,329 (1,793) 53,536
Gannon-Whispering Palms(9) 1998 7.125 Dec. 2029 12,750 12,810 (443) 12,367
Gannon Bond .......... (4),(10) 1998 7.125 Dec. 2029 3,500 3,500 (96) 3,404
Hidden Valley ........ (10) 1996 8.250 Jan. 2026 1,660 1,660 45 1,705
Honey Creek .......... (9),(10) 2000 7.625 Jul. 2035 - - - -
Lake Piedmont ........ (4),(10) 1998 7.725 Apr. 2034 19,134 19,040 (3,403) 15,637
Oakbrook ............. (4),(10) 1996 8.200 Jul. 2026 3,135 3,164 101 3,265
Oakmont/Towne Oaks ... (4),(10) 1998 7.200 Jan. 2034 11,275 11,253 (711) 10,542
Orangevale ........... (4),(10) 1998 7.000 Oct. 2013 2,435 2,435 (116) 2,319
Paola ................ (10) 1999 7.250 Aug. 2029 1,050 1,037 (39) 998
Parkwood ............. (4),(10) 1999 7.125 Jun. 2035 3,910 3,842 (113) 3,729
Riverset Phase II .... 1996 9.500 Oct. 2019 110 105 8 113
Sahuarita ............ (10) 1999 7.125 Jun. 2029 51 39 6 45
Santa Fe Springs ..... (9) 2000 (14) Jun. 2025 - - - -
Shadowbrook .......... (4),(10) 1999 6.850 Jun. 2029 5,780 5,767 13 5,780
Southwinds ........... (10) 2000 8.000 Sept.2030 - - - -
Torries Chase ........ (4),(10) 1996 8.150 Jan. 2026 2,030 2,030 75 2,105
University Courtyard . (10) 2000 7.250 Mar. 2040 - - - -
Villa Hialeah-refunded (4),(5) 1999 6.000 Aug. 2019 10,250 8,005 1,015 9,020
Western Hills ........ (10) 1998 7.000 Dec. 2029 3,040 3,040 (243) 2,797
Wheeler Creek ........ (10) 1998 (6) Jan. 2003 373 261 - 261
Woodmark ............. (10) 1999 7.125 Jun. 2039 10,200 10,073 (485) 9,588
------------ ------------- ------------- -----------
Subtotal non-participating bonds ................................ 173,004 170,561 (6,965) 163,596
------------ ------------- ------------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
September 30, 2000
----------------------------------------------------
Base Face Amortized Unrealized Fair
Investment in Mortgage Year Interest Maturity Amount Cost Gain (Loss) Value
Revenue Bonds Acquired Rate (12) Date (000s) (000s) (000s) (000s)
--------------------------- --------- --------- --------- ------------ -------------- ----------- ------------
Participating Subordinate Bonds (1):
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Barkley Place ........ (3),(4),(10) 1995 16.000 Jan. 2030 3,480 2,445 5,625 8,070
Gilman Meadows ....... (3),(4),(10) 1995 3.000 Jan. 2030 2,875 2,530 1,990 4,520
Hamilton Chase ....... (3),(4),(10) 1995 3.000 Jan. 2030 6,250 4,140 (44) 4,096
Mallard Cove I ....... (3),(4),(10) 1995 3.000 Jan. 2030 1,670 798 297 1,095
Mallard Cove II ...... (3),(4),(10) 1995 3.000 Jan. 2030 3,750 2,429 945 3,374
Meadows .............. (3),(4),(10) 1995 16.000 Jan. 2030 3,635 3,716 202 3,918
Montclair ............ (3),(4),(10) 1995 3.000 Jan. 2030 6,840 1,691 2,832 4,523
Newport Village ...... (3),(4),(10) 1995 3.000 Jan. 2030 4,175 2,973 1,392 4,365
Nicollet Ridge ....... (3),(4),(10) 1995 3.000 Jan. 2030 12,415 6,075 2,729 8,804
Riverset Phase II .... 1996 10.000 Oct. 2019 1,489 - 1,374 1,374
Steeplechase ......... (3),(4),(10) 1995 16.000 Jan. 2030 5,300 4,224 (639) 3,585
Whispering Lake ...... (3),(4),(10) 1995 3.000 Jan. 2030 8,500 4,779 3,959 8,738
Winter Oaks B bond ... (10) 1999 7.500 Jul. 2022 2,184 2,133 (15) 2,118
Winter Oaks C bond ... (10) 1999 10.000 Jul. 2022 2,141 1,654 310 1,964
------------- -------------- ----------- -----------
Subtotal participating subordinate bonds ........................ 64,704 39,587 20,957 60,544
------------- -------------- ----------- -----------
Non-Participating Subordinate Bonds:
CapReit B ............ 1999 11.000 Sept. 2005 5,000 4,949 100 5,049
Cinnamon Ridge ....... 1999 5.000 Jan. 2015 1,832 1,218 (27) 1,191
Farmington Meadows ... (10) 1999 8.000 Aug. 2039 1,993 1,948 45 1,993
Independence Ridge ... (10) 1996 12.500 Dec. 2015 1,045 1,045 94 1,139
Locarno .............. (10) 1996 12.500 Dec. 2015 675 675 41 716
Olde English Manor ... (11) 1998 10.570 Nov. 2033 1,273 1,268 (172) 1,096
Rillito Village ...... (13) 1999 13.000 Dec. 2033 1,044 1,241 (116) 1,125
------------- -------------- ----------- -----------
Subtotal non-participating subordinate bonds .................... 12,862 12,344 (35) 12,309
------------- -------------- ----------- -----------
Total investment in mortgage revenue bonds .......................... $ 489,610 $ 431,580 $ 33,090 $ 464,670
============= ============== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------
Base Face Amortized Unrealized Fair
Investment in Mortgage Year Interest Maturity Amount Cost Gain (Loss) Value
Revenue Bonds Acquired Rate (12) Date (000s) (000s) (000s) (000s)
--------------------------- --------- --------- --------- ------------ ------------- ------------- -----------
Participating Subordinate Bonds (1):
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Barkley Place .........(3),(4),(10) 1995 16.000 Jan. 2030 3,480 2,445 3,775 6,220
Gilman Meadows ........(3),(4),(10) 1995 3.000 Jan. 2030 2,875 2,530 1,903 4,433
Hamilton Chase ........(3),(4),(10) 1995 3.000 Jan. 2030 6,250 4,140 (6) 4,134
Mallard Cove I ........(3),(4),(10) 1995 3.000 Jan. 2030 1,670 798 316 1,114
Mallard Cove II .......(3),(4),(10) 1995 3.000 Jan. 2030 3,750 2,429 951 3,380
Meadows ...............(3),(4),(10) 1995 16.000 Jan. 2030 3,635 3,716 110 3,826
Montclair .............(3),(4),(10) 1995 3.000 Jan. 2030 6,840 1,691 2,511 4,202
Newport Village .......(3),(4),(10) 1995 3.000 Jan. 2030 4,175 2,973 1,323 4,296
Nicollet Ridge ........(3),(4),(10) 1995 3.000 Jan. 2030 12,415 6,075 2,605 8,680
Riverset Phase II ..... 1996 10.000 Oct. 2019 1,489 - 1,294 1,294
Steeplechase ..........(3),(4),(10) 1995 16.000 Jan. 2030 5,300 4,224 (323) 3,901
Whispering Lake .......(3),(4),(10) 1995 3.000 Jan. 2030 8,500 4,779 4,540 9,319
Winter Oaks B bond .... (10) 1999 7.500 Jul. 2022 2,184 2,133 (58) 2,075
Winter Oaks C bond .... (10) 1999 10.000 Jul. 2022 2,141 1,654 251 1,905
------------ ------------- ------------- -----------
Subtotal participating subordinate bonds ........................ 64,704 39,587 19,192 58,779
------------ ------------- ------------- -----------
Non-Participating Subordinate Bonds:
CapReit B ............. 1999 11.000 Sept.2005 13,000 12,870 - 12,870
Cinnamon Ridge ........ 1999 5.000 Jan. 2015 1,899 1,285 (145) 1,140
Farmington Meadows ....(10) 1999 8.000 Aug. 2039 1,999 1,954 45 1,999
Independence Ridge ....(10) 1996 12.500 Dec. 2015 1,045 1,045 52 1,097
Locarno ...............(10) 1996 12.500 Dec. 2015 675 675 81 756
Olde English Manor ....(11) 1998 10.570 Nov. 2033 1,273 1,268 (160) 1,108
Rillito Village .......(13) 1999 13.000 Dec. 2033 860 856 (108) 748
------------- ------------- ------------- -----------
Subtotal non-participating subordinate bonds ................... 20,751 19,953 (235) 19,718
------------- ------------- ------------- -----------
Total investment in mortgage revenue bonds ......................... $ 416,247 $ 362,203 $ 29,341 $ 391,544
============= ============= ============= ===========
(1) These bonds also contain additional interest features contingent on available cash flow.
(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, 2000.
(5) TE Bond Sub owns an 87% interest in these investments.
(6) The permanent interest rate resets monthly based on 90% of the 30 day treasury bill.
(7) The original bond was traunched into two smaller bonds with 87% ownership to TE Bond Sub. The 87% bond
owned by TE Bond Sub was pledged as collateral at September 30, 2000.
(8) The underlying bond is held in a trust; TE Bond Sub owns the principal and base interest trust certificate which
was pledged as collateral at September 30, 2000.
(9) The underlying bonds are held in a trust; TE Bond Sub owns a certificate in the trust which represents the residual
cash flows generated on the underlying bonds.
(10) Investments held by TE Bond Sub or its subsidiaries. (See Note 2 to the consolidated financial statements.)
(11) The underlying bonds are held in a trust; TE Bond Sub owns an 81% senior interest in the trust.
(12) The base interest rate represents the permanent base interest rate on the investment as of September 30, 2000.
(13) The underlying bonds are held in a trust; TE Bond Sub owns an 18% subordinate interest in the trust.
(14) The permanent interest rate resets annually based on 80% of the one year treasury bill.
(15) As od September 30, 2000, $8.0 million of this asset was pledged as collateral.
</TABLE>
<PAGE>
In the third quarter the Company originated $42.1 million (par amount) in
mortgage revenue bonds collateralized by five apartment communities with 923
units for a total purchase price of $42.1 million. The weighted average
permanent interest rate on the bonds is 7.72% per annum and the maturity dates
range from August 2030 to July 2035. The Company received $0.7 million in
construction administration and origination fees related to these transactions.
These fees are recognized into income over the life of the investment or of the
services provided.
During the third quarter, the Company securitized two bonds with a face
amount of $31.2 million to Merrill Lynch. The bonds were deposited into the
Merrill Lynch P-FLOATs(sm) program (defined in Note 4) and the Company purchased
RITES(sm) investments (defined in Note 4). Also in the third quarter, the
Company sold $8.0 million of its $13.0 million investment in the CapReit
portfolio bond to Merrill Lynch. The Company recognized a gain of $80,000 on
this transaction. These bonds were sold to generate proceeds for new
investments.
In order to facilitate the securitization of certain assets at higher
leverage ratios than otherwise available to the Company without the posting of
additional collateral, the Company has pledged additional bonds to a pool that
acts as collateral for the senior interests in certain P-FLOATs(sm) trusts.
Additionally, the Company pledged investments as collateral for the term debt
financing completed in March 1999. At September 30, 2000 the total carrying
amount of the mortgage revenue bonds pledged as collateral was $289.7 million.
The Company also purchased other investments which it has pledged to the pool
that acts as collateral for the senior interests in certain P-FLOATs(sm) trusts.
These assets totaling $19.4 million at September 30, 2000 are included in
restricted assets on the balance sheet.
NOTE 4 - OTHER BOND RELATED INVESTMENTS AND FINANCIAL RISK MANAGEMENT
The Company's other bond related investments are primarily investments
in Residual Interest Tax-Exempt Securities Receipts ("RITES(sm)"), a security
offered by Merrill Lynch through its RITES(sm)/Puttable Floating Option
Tax-Exempt Receipts ("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). In order to facilitate the securitization
of certain assets at higher leverage ratios than otherwise available, the
Company has pledged additional bonds to a pool that acts as collateral for the
senior interests in certain P-FLOATs(sm) trusts. The following table provides
certain information with respect to the other bond related investments held by
the Company at September 30, 2000 and December 31, 1999.
<PAGE>
<TABLE>
<CAPTION>
September 30, 2000
---------------------------------------------------- --------------
Face Amortized Unrealized Fair Value
Year Amount Cost Gain (Loss) Assets Liabilities (4)
Other Bond Related Investments: Acquired (000s) (000s) (000s) (000s) (000s)
--------------------------------------- --------- ----------- ------------- --------------- --------- --------------
Investment in RITES:
<S> <C> <C> <C> <C> <C> <C> <C>
Briarwood ........................(1) 1999 $ 135 $ 104 $ (745) $ - $ (641)
Charter House ....................(1) 1996 80 252 (98) 154 -
Cinnamon Ridge ...................(1) 2000 5 331 (7) 324 -
Indian Lakes .....................(1) 1997 3,250 3,361 (131) 3,230 -
LaPaloma .........................(1) 1999 8 8 (285) - (277)
LeMirador (Coleman Senior) .......(1) 1999 165 4 34 38 -
Meridian at Bridgewater ..........(1) 1999 5 45 (324) - (279)
Oklahoma City ....................(1) 1998 195 241 (2,825) - (2,584)
Olde English Manor ...............(1) 1999 76 96 (229) - (133)
Palisades Park ...................(1) 1999 100 94 (287) - (193)
Park at Landmark ................. 2000 5 21 - 21 -
Pavilion .........................(1) 1999 5 5 (357) - (352)
Queen Anne IV ....................(1) 1998 65 65 (137) - (72)
Rancho Mirage/Castle Hills .......(1) 2000 5 5 127 132 -
Rillito Village ..................(1) 1999 65 64 (469) - (405)
Riverset Phase I .................(1) 2000 5 1,078 257 1,335 -
Riverset Phase II ................(1) 1996 75 226 36 262 -
Riverview ........................(1) 2000 5 4 (107) - (103)
Sienna (Italian Gardens) .........(1) 1999 160 - (6) - (6)
Silver Springs ...................(1) 2000 5 34 (29) 5 -
Sonterra .........................(1) 1998 5 33 (747) - (714)
Southgate Crossings ..............(1) 1997 86 518 (88) 430 -
Southwood ........................(1) 1997 435 308 (1,639) - (1,331)
Village at Sun Valley ............(1) 2000 5 5 - 5 -
Village Green ....................(1) 2000 5 26 (42) - (16)
Woodglen .........................(1) 1999 5 35 (350) - (315)
----------- ------------- --------------- --------- -------------
Subtotal investment in RITES ......................... 4,955 6,963 (8,448) 5,936 (7,421)
----------- ------------- --------------- --------- -------------
------------- --------------- --------- -------------
Interest rate agreements (2) ............... Various 67 (1,725) 2,086 (3,744)
------------- --------------- --------- -------------
Investment in total return swaps (3):
Club West (3/30/99 - 7/19/02) ......... 1999 7,960 - (680) - (680)
Honey Creek (10/1/99 - 6/30/00) ........ 1999 - - - -
Willow Key (3/30/99 - 7/19/02) ......... 1999 17,440 - (1,159) - (1,159)
----------- ------------- --------------- --------- -------------
Total investment in total return swaps .............. 25,400 - (1,839) - (1,839)
----------- ------------- --------------- --------- -------------
Total other bond related investments ............................. $ 7,030 $ (12,012) $ 8,022 $ (13,004)
============= =============== ========= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------- ---------------
Face Amortized Unrealized Fair Value
Year Amount Cost Gain (Loss) Assets Liabilities (4)
Other Bond Related Investments: Acquired (000s) (000s) (000s) (000s) (000s)
--------------------------------------- --------- ----------- ------------- --------------- --------- ---------------
Investment in RITES:
<S> <C> <C> <C> <C> <C> <C> <C>
Briarwood ........................(1) 1999 $ 135 $ 104 $ (762) $ - $ (658)
Charter House ....................(1) 1996 80 283 (203) 80 -
Cinnamon Ridge ...................(1) 2000 - - - - -
Indian Lakes .....................(1) 1997 3,270 3,398 (423) 2,975 -
LaPaloma .........................(1) 1999 8 7 (372) - (365)
LeMirador (Coleman Senior) .......(1) 1999 165 4 (121) - (117)
Meridian at Bridgewater ..........(1) 1999 5 48 (43) 5 -
Oklahoma City ....................(1) 1998 195 247 (2,255) - (2,008)
Olde English Manor ...............(1) 1999 76 97 (181) - (84)
Palisades Park ...................(1) 1999 100 96 (576) - (480)
Park at Landmark ................. 2000 - - - - -
Pavilion .........................(1) 1999 5 5 (433) - (428)
Queen Anne IV ....................(1) 1998 65 65 (250) - (185)
Rancho Mirage/Castle Hills .......(1) 2000 - - - - -
Rillito Village ..................(1) 1999 65 64 (501) - (437)
Riverset Phase I .................(1) 2000 - - - - -
Riverset Phase II ................(1) 1996 75 333 (33) 300 -
Riverview ........................(1) 2000 - - - - -
Sienna (Italian Gardens) .........(1) 1999 160 - (120) - (120)
Silver Springs ...................(1) 2000 - - - - -
Sonterra .........................(1) 1998 5 34 (712) - (678)
Southgate Crossings ..............(1) 1997 96 571 (311) 260 -
Southwood ........................(1) 1997 440 298 (983) - (685)
Village at Sun Valley ............(1) 2000 - - - - -
Village Green ....................(1) 2000 - - - - -
Woodglen .........................(1) 1999 5 37 (32) 5 -
----------- ------------- --------------- --------- -------------
Subtotal investment in RITES ......................... 4,950 5,691 (8,311) 3,625 (6,245)
----------- ------------- --------------- --------- -------------
------------- --------------- --------- -------------
Interest rate agreements (2) ................Various - 4,638 4,713 (75)
------------- --------------- --------- -------------
Investment in total return swaps (3):
Club West (3/30/99 - 7/19/02) ........ 1999 7,960 - (753) - (753)
Honey Creek (10/1/99 - 6/30/00) ........ 1999 19,865 - (25) - (25)
Willow Key (3/30/99 - 7/19/02) ........ 1999 17,440 - (1,151) - (1,151)
----------- ------------- --------------- --------- -------------
Total investment in total return swaps ............... 45,265 - (1,929) - (1,929)
----------- ------------- --------------- --------- -------------
Total other bond related investments ............................. $ 5,691 $ (5,602) $8,338 $ (8,249)
============= =============== ========= =============
(1) Investment held by TE Bond Sub or it's subsidiaries.
(2) The Company enters into interest rate swap and cap contracts to hedge against interest rate exposure on the Company's investment
in RITES. The amounts disclosed represent the net fair values of all the Company's swaps at the reporting date.
(3) Face amount represents notional amount of swap agreements and the (dates) represent the effective date and the termination date
of the swap.
(4) The aggregate negative fair value of the investments is included in liabilities for financial reporting purposes. The negative
fair value of these investments is considered temporary and is not indicative of the future earnings on these investments.
</TABLE>
<PAGE>
As discussed in Note 3, two bonds with a face amount of $31.2 million were
securitized through the P-FLOATs(sm) program during the third quarter. In
addition, the Company structured a transaction whereby Merrill Lynch bought
bonds from a third party with a face amount of $16.8 million. The Company
purchased three RITES(sm) interests with a par value of $0.2 million for $0.1
million related to these transactions.
Also in the third quarter, the Company purchased a RITES(sm) interest
with a $3.4 million par value for $0.1 million related to the $15.1 million
revenue bond collateralized by the Santa Fe apartment community. This $15.1
million bond was securitized in June 2000.
Transactions where the Company securitizes a bond through the P-FLOATS(sm)
program and subsequently purchases a RITES interest are accounted for in
accordance with Statement of Financial Accounting Standards No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities" ("FAS 125"). Under FAS 125, the accounting for these transactions
is partially dependent on certain call provisions granted to the RITES(sm)
holder. If the RITES(sm) holder is granted a call provision under the terms of
the transaction effective control over the transferred assets has not been
relinguished and the transaction is accounted for as a borrowing. Two of the
transactions discussed above were accounted for as borrowings in the third
quarter. Accordingly, the Company recorded $32.0 million as short-term debt and
the related bonds are included in investments in mortgage revenue bonds.
Subsequent to the recording of this debt, the Company purchased $8.0 million of
the outstanding debt (P-FLOATs(sm)) resulting in a net short-term debt balance
of $24.0 million at September 30, 2000. Due to the fact that there were no call
provisions granted to the RITES(sm) holder, the third transaction discussed
above whereby the Company sold a bond to Merrill Lynch and subsequently
purchased a RITES(sm) interest, was accounted for as a sale. The Company
recognized a net gain of $0.1 million on this transaction.
NOTE 5 - LOANS RECEIVABLE
The Company's loans receivable primarily consist of construction loans
and taxable loans. The Company's rights and the specific terms of the loans are
defined by the various loan documents which were negotiated at the time of
settlement. The basic terms and structure of the loans are described in Note 9
to the Company's 1999 Form 10-K. The following table summarizes loans receivable
by loan type at September 30, 2000 and December 31, 1999:
(000s) September 30, December 31,
Loan Type 2000 1999
--------- ------------- ------------
Taxable construction loans ............. $ 335,954 $ 271,492
Taxable loans .......................... 13,114 10,795
Other loans ............................ 7,708 4,558
------------- ------------
356,776 286,845
Allowance for loan losses .............. (324) (356)
------------- ------------
Total .................................. $ 356,452 $ 286,489
========= =========
NOTE 6 - NOTES PAYABLE
The Company's notes payable primarily consist of advances under line of
credit arrangements and borrowings by Midland Financial Holdings, Inc.
("Midland") used to finance construction lending and working capital needs. The
general terms of the Company's notes payable are discussed in Note 11 to the
Company's 1999 Form 10-K and are summarized as follows:
September 30, December 31,
(000s) 2000 1999
------ ------------- ------------
Notes payable $241,532 $229,847
Group Trust Warehouse Facility 28,512 28,641
Residential Funding Warehouse Facility 54,481 468
Bank Line of Credit 1,685 3,000
------------- ------------
Total $326,210 $261,956
============= ============
NOTE 7 - EARNINGS PER SHARE
The following table reconciles the numerators and denominators in the
basic and diluted EPS calculations for Common Shares for the three and nine
months ended September 30, 2000 and 1999.
<PAGE>
<TABLE>
<CAPTION>
Muncipal Mortgage & Equity, LLC
Reconciliation of Basic and Diluted EPS
For the three months ended September 30, 2000 For the three months ended September 30, 1999
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------- --------------- ----------- --------------- ----------------- -----------
(in thousands, except share and per share data)
Basic EPS
<S> <C> <C> <C> <C> <C> <C>
Income allocable to common shares $ 7,234 17,447,886 $ 0.41 $ 6,709 16,805,960 $ 0.40
=========== ===========
Effect of Dilutive Securities
Options and deferred shares - 611,229 - 268,577
Convertible preferred shares
to the extent dilutive - - 163 433,737
--------------- --------------- --------------- -----------------
Diluted EPS
Income allocable to common shares
plus assumed conversions $ 7,234 18,059,115 $ 0.40 $ 6,872 17,508,274 $ 0.39
=============== =============== =========== =============== ================= ===========
For the nine months ended September 30, 2000 For the nine months ended September 30, 1999
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------- --------------- ----------- --------------- ----------------- -----------
(in thousands, except share and per share data)
Basic EPS
Income allocable to common shares $ 20,732 17,436,639 $ 1.19 $ 21,182 16,806,229 $ 1.26
=========== ===========
Effect of Dilutive Securities
Options and deferred shares - 444,211 - 245,195
Convertible preferred shares
to the extent dilutive - - 294 286,937
--------------- --------------- --------------- -----------------
Diluted EPS
Income allocable to common shares
plus assumed conversions $ 20,732 17,880,850 $ 1.16 $ 21,476 17,338,361 $ 1.24
=============== =============== =========== =============== ================= ===========
</TABLE>
NOTE 8 - DISTRIBUTIONS
On October 19, 2000, the Board of Directors declared distributions for
the three months ended September 30, 2000 for shareholders of record on October
30, 2000. The payment date is November 10, 2000. The per share distributions are
shown in the following table:
<PAGE>
<TABLE>
Preferred Capital
Common Preferred Shares Distribution Shares
------------------------------- ------------------------------
Shares Series I Series II Series I Series II
------------ --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Distributions paid on May 12, 2000
to holders of record on May 1, 2000:
For the three months ended
March 31, 2000 ............................. $ 0.4125 $ 13.00 $ 12.50 $ 10.00 $ 7.50
Distributions paid on August 15, 2000
to holders of record on August 1, 2000:
For the three months ended
June 30, 2000 .............................. $ 0.4175 $ 13.00 $ 12.50 $ 10.00 $ 7.50
Distributions paid on November 10, 2000
to holders of record on October 30, 2000:
For the three months ended
September 30, 2000 ......................... $ 0.4200 $ 13.00 $ 12.50 $ 10.00 $ 7.50
</TABLE>
NOTE 9 - BUSINESS SEGMENT REPORTING
In the fourth quarter of 1999, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which establishes standards for reporting
information about a company's operating segments. In October 1999, as a result
of the Midland acquisition, the Company restructured its operations into two
business segments: (1) an operating segment consisting of Midland and other
subsidiaries that primarily generate taxable fee income by providing loan
servicing, loan origination and other related services and (2) an investing
segment consisting primarily of subsidiaries holding investments producing
tax-exempt interest income. The accounting policies of the segments are the same
as those described in Note 1 to the Company's 1999 Form 10-K. A complete
description of the Company's reporting segments is described in Note 21 to the
Company's 1999 Form 10-K.
The following table reflects the results of the Company's segments for
the three and nine months ended September 30, 2000.
<PAGE>
<TABLE>
<CAPTION>
Municipal Mortgage & Equity, LLC
Segment Reporting
(in thousands)
For the three months ended September 30, 2000 For the nine months ended September 30, 2000
----------------------------------------------- ---------------------------------------------
Total Total
Investing Operating Adjustments Consolidated Investing Operating Adjustments Consolidated
----------- ---------- ----------- -------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on mortgage revenue
bonds and other bond related
investments ..................... $ 9,864 $ 429 $ - $ 10,293 $ 28,696 $ 1,322 $ - $ 30,018
Interest on loans ................ 418 8,145 - 8,563 1,026 21,922 - 22,948
Loan origination and brokerage
fees ............................ - 3,448 (615) (1) 2,833 - 6,455 (1,626) (1) 4,829
Loan servicing fees .............. - 1,325 - 1,325 - 4,163 - 4,163
Short-term investment income ..... 806 352 - 1,158 2,183 945 - 3,128
Other fee income ................. - 1,519 - 1,519 - 3,790 - 3,790
Net gain on sales ................ 181 - - 181 191 9 - 200
--------- ---------- --------- ---------- --------- --------- --------- --------
Total income ................. 11,269 15,218 (615) 25,872 32,096 38,606 (1,626) 69,076
--------- ---------- --------- ---------- --------- --------- --------- --------
Salaries and benefits ............ 370 3,473 - 3,843 1,057 9,770 - 10,827
Operating expenses ............... 66 2,103 - 2,169 695 4,980 - 5,675
Goodwill amortization ............ - 358 - 358 - 1,074 - 1,074
Interest expense ................. 1,051 7,352 - 8,403 2,743 19,560 - 22,303
--------- ---------- --------- ---------- --------- --------- --------- --------
Total expenses ............... 1,487 13,286 - 14,773 4,495 35,384 - 39,879
--------- ---------- --------- ---------- --------- --------- --------- --------
Net income before allocations
to preferred shareholders in
a subsidiary company ............ 9,782 1,932 (615) 11,099 27,601 3,222 (1,626) 29,197
Allocations to preferred
shareholders .................... 2,606 - - 2,606 5,868 - - 5,868
--------- ---------- --------- ---------- --------- --------- --------- --------
Net income before income taxes ... 7,176 1,932 (615) 8,493 21,733 3,222 (1,626) 23,329
Income taxes ..................... - 720 - 720 - 904 - 904
--------- ---------- --------- ---------- --------- --------- --------- --------
Net income ....................... $ 7,176 $ 1,212 $ (615) $ 7,773 $ 21,733 $ 2,318 $ (1,626) $ 22,425
========= ========== ========= ========== ========= ========= ========= ========
Notes:
(1) Adjustments represent origination fees on purchased investments which are deferred and amortized into income over the life of
the investment.
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General Business
Municipal Mortgage & Equity, LLC (the "Company") is in the business of
originating, investing in and servicing investments in multifamily housing debt
and equity. 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").
On October 20, 1999, the Company acquired Midland for approximately $45
million. The consolidated earnings of Midland are included in the Company's
results of operations from the date of the Company's acquisition of Midland.
Results of Operations
Quarterly Results Analysis
Total income for the three months ended September 30, 2000 increased by
approximately $14.2 million over the same period last year due primarily to an
increase in collections of interest totaling $8.1 million on bonds, other bond
related investments and loans and an increase in loan servicing fees, loan
origination and brokerage fees and other income of $5.1 million due primarily to
income attributable to Midland.
Salary, benefits and operating expenses for the three months ended
September 30, 2000 increased by approximately $4.0 million over the same period
last year due primarily to salary and operating expenses totaling $3.9 million
generated by Midland and increased administrative costs. The Company also
recorded amortization of goodwill and intangibles of $0.4 million associated
with the October 1999 acquisition of Midland.
The Company incurred interest expense of $8.4 million for the three
months ended September 30, 2000 as a result of interest expense from short-term
borrowings associated with construction lending activity at Midland of $7.4
million and $1.0 million in interest expense related to securitization
transactions accounted for as borrowings.
The Company recorded income allocable to preferred shareholders of TE
Bond Sub of $2.6 million for the three months ended September 30, 2000 as a
result of the June 2000 and May 1999 Preferred Equity Offerings (see Note 2 to
the consolidated financial statements).
Year-to-Date Results Analysis
Total income for the nine months ended September 30, 2000 increased by
approximately $37.3 million over the same period last year due primarily to (1)
an increase in collections of interest on bonds, other bond related investments
and loans of $25.1 million, (2) an increase in loan servicing fees, loan
origination fees and other income of $11.4 million due primarily to income
attributable to Midland, and (3) an increase in interest on short term
investments of $2.1 million primarily related to interest income on loan escrow
accounts held by Midland. This increase was partially offset by the one time
gain on sale of demand notes recorded in March 1999.
Salary, benefits and operating expenses for the nine months ended
September 30, 2000 increased by approximately $11.8 million over the same period
last year due primarily to salary and operating expenses totaling $9.9 million
generated by Midland and increased administrative costs. The Company also
recorded amortization of goodwill and intangibles of $1.1 million associated
with the October 1999 acquisition of Midland.
The Company incurred interest expense of $22.3 million for the nine
months ended September 30, 2000 as a result of interest expense from short-term
borrowings associated with construction lending activity at Midland of $19.3
million and $3.0 million in interest expense related to securitization
transactions accounted for as borrowings.
The Company recorded income allocable to preferred shareholders of TE
Bond Sub of $5.9 million for the nine months ended September 30, 2000 as a
result of the June 2000 and May 1999 Preferred Equity Offerings (see Note 2 to
the consolidated financial statements).
New Accounting Pronouncement
During July 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133") as amended by FAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
Effective Date of FASB 133". In addition, during 2000, the Financial Accounting
Standards Board issued FAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities". These statements (collectively,
"FAS 133") establish accounting and reporting standards for derivative financial
instruments, including certain derivative financial instruments embedded in
other contracts, and for hedging activity. FAS 133 requires the Company to
recognize all derivatives as either assets or liabilities in its financial
statements and measure these instruments at their fair values. Hedging
activities must be appropriately designated, documented and proven to be
effective as a hedge of a balance sheet item pursuant to the provisions of FAS
133. FAS 133 becomes effective for all fiscal quarters of fiscal years beginning
after June 15, 2000.
The Company has several types of financial instruments that may meet the
definition of a derivative financial instrument under FAS 133, including
interest rate swaps, interest rate caps, put option contracts, loan commitments
and total return swaps. Currently the Company marks most of these instruments to
fair value on a quarterly basis. Some of these instruments are held to reduce
the Company's exposure to fluctuating interest rates. Accordingly, the change in
fair value is recorded in other comprehensive income, which corresponds to the
accounting for the underlying instrument. The exceptions are loan commitments
and put option contracts, which are currently off-balance sheet instruments.
Under FAS 133, the Company believes the loan commitments and put option
contracts may be recorded on the balance sheet with changes in fair value of
these instruments, as well as changes in fair value of other instruments which
are deemed to be derivative financial instruments, recorded in current earnings.
If the Company does not prove that its current hedging activities are effective
as a hedge of a balance sheet item pursuant to the provisions of FAS 133, the
changes in fair value would be recorded through current income rather than
through other comprehensive income. At this time, the Company is continuing to
assess the impact of FAS 133 on its financial condition and results of
operations. However, the Company believes the impact on future earnings could be
material. The adoption of FAS 133 does not effect cash available for
distribution or the Company's dividend paying ability.
Liquidity and Capital Resources
The Company's primary objective is to maximize shareholder value
through increases in Cash Available for Distribution ("CAD") per Common Share
and appreciation in the value of its Common Shares. The Company seeks to achieve
its growth objectives by growing its investing and operating business segments.
The Company grows its investment segment by acquiring, servicing and managing
diversified portfolios of mortgage bonds and other bond related investments.
Growth in the operating segment is derived from increasing levels of fees
generated by affordable housing equity syndications, loan servicing and
origination and brokerage services. 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) manages 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 or Preferred Share equity offerings, to finance
its acquisitions. Through Midland's management of capital for others, including
Fannie Mae and pension funds, the Company has expanded its access to capital.
In March 1999, the Company converted a portion of its investment in the
Merrill Lynch P-FLOATs(sm) program into a longer-term securitization facility.
Going forward, the Company intends to use a combination of this longer term
securitization facility and the P-FLOATs(sm) securitization program. The
P-FLOATs(sm) program allows the Company to securitize bonds relatively quickly
and allows the Company to purchase interests in bonds it has previously
securitized. A longer term securitization facility allows the Company to reduce
its exposure to credit and annual renewal risks associated with the liquidity
and credit enhancement features of the P-FLOATs(sm) trusts and allows the
Company to reduce its reliance on interest rate swaps. The combination of these
two vehicles allows the Company the flexibility it needs to finance
acquisitions.
In the third quarter, the Company participated in $59.6 million of bond and
taxable loan investment transactions. Of this amount, $7.2 million were bond or
loan transactions retained by the Company.
<PAGE>
Through the use of securitizations, the Company expects to employ
leverage and maintain overall leverage ratios of approximately 55% or less, with
certain assets at significantly higher ratios, approximately 99%, while not
leveraging other assets at all. The Company calculates leverage by dividing the
total amount of on-balance sheet debt of the investing segment plus 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 adjusted for reserves equal to the net
assets of the operating segment. Under this method, the Company's leverage ratio
at September 30, 2000 was approximately 51%.
In order to facilitate the securitization of certain assets at higher
leverage ratios, the Company has pledged additional bonds to the pool that acts
as collateral for the senior interests in the trust.
Preferred Equity Offering by Subsidiary
On June 2, 2000, TE Bond Sub sold to institutional investors 30 shares
of $2,000,000 par-value 7 3/4 % Series B Cumulative Preferred Shares ("Series B
Preferred Shares"). The Series B Preferred Shares bear interest at 7.75% per
annum or, if lower, the aggregate net income of the issuing company, TE Bond
Sub, after payment of distributions to any senior securities. Cash distributions
on the Series B Preferred Shares will be paid quarterly on each January 31,
April 30, July 31 and October 31. The Series B Preferred Shares are subject to
remarketing on November 1, 2010. On the remarketing date, the remarketing agent
will seek to remarket the shares at the lowest distribution rate that would
result in a resale of the Series B Preferred Shares at a price equal to par plus
all accrued but unpaid distributions. The Series B Preferred Shares will be
subject to mandatory tender on November 1, 2010 and on all subsequent
remarketing dates at a price equal to par plus all accrued but unpaid
distributions. The Series B Preferred Shares must be redeemed no later than June
30, 2050.
Cash Flow
At September 30, 2000, the Company had cash and cash equivalents of
approximately $41.4 million.
Cash flow from operating activities was $28.5 million and $23.1 million
for the nine months ended September 30, 2000 and 1999, respectively. The
increase in cash flow for 2000 versus 1999 is due primarily to an increase in
income from new investments and an increase in other income attributable to
Midland.
The Company is required to distribute to the holders of its 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 cash flow is available for distribution
to the Common Shares and the Company's current policy is to distribute to Common
Shareholders at least 80% of the annual CAD to Common Shares.
Certain of the bonds held by the Company are participating bonds that
provide for payment of contingent interest in addition to base interest at a
fixed rate. Additionally, the mortgage loans underlying all of the bonds and
certain bond related investments held by the Company are nonrecourse. As a
result of these two factors, 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.
The Company uses 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 several 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 other significant differences are noncash
gains and losses associated with bond valuations and sales for GAAP purposes and
amortization of goodwill and intangibles, which are not included in the
calculation of CAD.
For the three months ended September 30, 2000 and 1999, CAD to Common
Shares was $8.1 million and $7.2 million, respectively. Regular cash
distributions to common shareholders attributable to the three months ended
September 30, 2000 and 1999 were $7.3 million and $6.8 million, respectively.
The Company's Common Share dividend for the three months ended September 30,
2000 of $0.42 represents a payout ratio of 90.9% of CAD. The Company's Common
Share dividend for the three months ended September 30, 1999 of $0.405
represents a payout ratio of 95.3% of CAD.
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,
equity proceeds and securitization proceeds. The Company's business plan
includes making additional investments during 2000.
Income Tax Considerations
MuniMae is organized as a limited liability company and as a result, no
recognition of income taxes is made. Instead, the distributive share of
MuniMae's income, deductions and credits is included in each shareholder's
income tax return. The Company records cash dividends received from subsidiaries
organized as corporations as dividend income for tax purposes.
However, as a result of the Midland acquisition, in October 1999, the
Company restructured its operations into two segments, an operating segment and
an investing segment (see Note 9 to the consolidated financial statements). The
operating segment, which is directly or indirectly wholly owned by MuniMae,
consists primarily of entities subject to income taxes. The Company provides for
income taxes in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial statement carrying
amounts and the tax basis of assets and liabilities.
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. Although
the procedure for allocating the basis adjustment is complex, the result of the
election is that each share is homogeneous, while each shareholder's basis in
the assets of the Company may be different. Consequently, the capital gains and
losses allocated to shareholders may be significantly different than the capital
gains and losses recorded by the Company.
A portion of the Company's interest income is derived from private
activity bonds that for income tax purposes, are considered tax preference items
for purposes of alternative minimum tax ("AMT"). AMT is a mechanism within the
Internal Revenue Code to ensure that all taxpayers pay at least a minimum amount
of taxes. All taxpayers are subject to the AMT calculation requirements although
the vast majority of taxpayers will not actually pay AMT. As a result of AMT,
the percentage of the Company's income that is exempt from federal income tax
may be different for each shareholder depending on that shareholder's individual
tax situation.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Since December 31, 1999 there has been no material change to the
information included in Item 7A of the Company's 1999 Form 10-K.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Amendment No. 1 to the Amended and Restated Certificate
of Formation and Operating Agreement of the Company
(filed as Item 6 (a) Exhibit 3.1 to the Company's
report on Form 10-Q, filed with the Commission on
May 14, 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:
There were no reports filed on Form 8-K for the quarter ended
September 30, 2000.
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, LLC
(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 13, 2000
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Document
27 Financial Data Schedule
