SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13237
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
---------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3949418
- - ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- - --------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
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 ___
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SUMMIT TAX EXEMPT L.P. II
(One of three limited partnerships which consolidated on October 1,
1997 to form Charter Municipal Mortgage Acceptance Company)
STATEMENTS OF FINANCIAL CONDITION
(unaudited)
September 30, December 31,
1997 1996
------------ ------------
ASSETS
Participating first mortgage bonds-at fair value $148,143,267 $148,123,426
Temporary investments 0 3,600,000
Cash and cash equivalents 4,184,277 249,192
Interest receivable, net 450,087 735,343
Promissory notes receivable, net 602,967 275,572
Deferred bond selection fees, net 1,666,401 1,804,942
Due from affiliate 0 84,225
Other assets 10,168 23,775
------------ ------------
Total assets $155,057,167 $154,896,475
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Deferred income $ 364,441 $ 394,259
Accrued expenses 39,186 107,421
Due to affiliates 351,813 72,194
Distributions payable to partners 2,427,981 0
------------ ------------
Total liabilities 3,183,421 573,874
------------ ------------
Partners' capital (deficit):
BUC$holders (9,151,620 BUC$
issued and outstanding) 158,222,585 160,622,463
General Partners (233,237) (184,260)
Net unrealized loss on participating
first mortgage bonds (6,115,602) (6,115,602)
------------ ------------
Total partners' capital 151,873,746 154,322,601
------------ ------------
Total liabilities and partners' capital $155,057,167 $154,896,475
============ ============
See accompanying notes to financial statements
2
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(One of three limited partnerships which consolidated on October 1, 1997
to form Charter Municipal Mortgage Acceptance Company)
STATEMENTS OF INCOME
(unaudited)
====================== =======================
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
1997 1996 1997 1996
---------------------- -----------------------
Revenues:
Interest income:
Participating first
mortgage bonds $2,872,542 $2,941,404 $ 8,527,121 $8,906,188
Temporary investments 32,831 34,843 105,977 98,646
Promissory notes 13,463 6,376 31,542 15,333
---------- ---------- ----------- ----------
Total revenues 2,918,836 2,982,623 8,664,640 9,020,167
---------- ---------- ----------- ----------
Expenses:
Management fees 202,656 202,656 607,968 607,968
Loan servicing fees 102,161 101,882 303,152 303,431
General and administrative 158,677 142,852 351,911 353,476
Amortization of deferred
bond selection fees 46,180 46,181 138,541 138,541
Loss on impairment
of assets 0 0 0 1,500,000
---------- ---------- ----------- ----------
Total expenses 509,674 493,571 1,401,572 2,903,416
---------- ---------- ----------- ----------
Net Income $2,409,162 $2,489,052 $ 7,263,068 $6,116,751
========== ========== =========== ==========
Allocation of Net
Income:
BUC$holders $2,360,979 $2,439,271 $ 7,117,807 $5,994,416
========== ========== =========== ==========
General Partners $ 48,183 $ 49,781 $ 145,261 $ 122,335
========== ========== =========== ==========
Net Income per BUC $ .26 $ .27 $ .78 $ .66
========== ========== =========== ==========
See accompanying notes to financial statements
3
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(One of three limited partnerships which consolidated on October 1, 1997
to form Charter Municipal Mortgage Acceptance Company)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(unaudited)
---------------------------------------------------------
Net Unrealized
Loss on
Participating
General First
Total BUC$holders Partners Mortgage Bonds
---------------------------------------------------------
Partners' capital
(deficit) -
January 1, 1997 $154,322,601 $160,622,463 $(184,260) $(6,115,602)
Net Income 7,263,068 7,117,807 145,261 0
Distributions (9,711,923) (9,517,685) (194,238) 0
------------ ------------ --------- -----------
Partners' capital
(deficit) -
September 30, 1997 $151,873,746 $158,222,585 $(233,237) $(6,115,602)
============ ============ ========= ===========
See accompanying notes to financial statements
4
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(One of three limited partnerships which consolidated on October 1, 1997
to form Charter Municipal Mortgage Acceptance Company)
STATEMENTS OF CASH FLOW
(unaudited)
=======================
Nine Months Ended
September 30,
-----------------------
1997 1996
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received, net $8,900,237 $9,132,495
Amount received which was due from affiliate 84,225 0
Fees and expenses paid (1,038,040) (926,587)
---------- ----------
Net cash provided by operating activities 7,946,422 8,205,908
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sale (purchase) of temporary investments 3,600,000 (1,400,000)
Loans made to properties (421,600) (300,000)
Principal payments received from loans made to
properties 94,205 40,794
---------- ----------
Net cash provided by (used in) investing activities 3,272,605 (1,659,206)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to partners (7,283,942) (7,283,942)
---------- ----------
Net increase (decrease) in cash and cash equivalents 3,935,085 (737,240)
Cash and cash equivalents at beginning of period 249,192 972,889
---------- ----------
Cash and cash equivalents at end of period $4,184,277 $ 235,649
========== ==========
SCHEDULE RECONCILING NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income $7,263,068 $6,116,751
---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on impairment of assets 0 1,500,000
Amortization of deferred bond selection fees 138,541 138,541
Amortization of deferred income (49,659) (49,659)
See accompanying notes to financial statements
5
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(One of three limited partnerships which consolidated on October 1,
1997 to form Charter Municipal Mortgage Acceptance Company)
STATEMENTS OF CASH FLOW
(continued)
(unaudited)
=========================
Nine Months Ended
September 30,
-------------------------
1997 1996
-------------------------
Changes in:
Interest receivable, net 285,256 161,987
Promissory notes receivable, net 0 21,620
Other assets 13,607 (24,614)
Accrued expenses (68,235) 40,899
Deferred income 0 (21,620)
Due from affiliates 84,225 0
Due to affiliates 279,619 322,003
----------- -----------
Total adjustments 683,354 2,089,157
----------- -----------
Net cash provided by operating activities $ 7,946,422 $ 8,205,908
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
NONCASH ACTIVITIES:
Distributions to partners $(9,711,923) $(7,283,942)
Increase in distributions payable to partners 2,427,981 0
----------- -----------
Distributions paid to partners $(7,283,942) $(7,283,942)
=========== ===========
See accompanying notes to financial statements
6
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(One of three limited partnerships which consolidated on October 1, 1997
to form Charter Municipal Mortgage Acceptance Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
NOTE 1 - General
The accompanying financial statements are being filed by Charter Municipal
Mortgage Acceptance Company ("CharterMac") on behalf of Summit Tax Exempt L.P.
II ("Summit II"), one of three limited partnerships which consolidated on
October 1, 1997 to form CharterMac. These financial statements reflect only the
financial position and results of operations of Summit II; for information
regarding the consolidation and pro forma financial information of CharterMac,
see Note 4.
The accompanying financial statements have been prepared without audit. In the
opinion of management, the financial statements contain all adjustments,
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of Summit II as of September 30, 1997, the results of its
operations for the three and nine months ended September 30, 1997 and 1996 and
its cash flows for the nine months ended September 30, 1997 and 1996. However,
the operating results for the interim periods may not be indicative of the
results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
Summit II's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1996.
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 128, "Earnings per Share" establishes
standards for computing and presenting earnings per share, and is effective for
financial statements for both interim and annual periods ending after December
15, 1997. Statement No. 129, "Disclosure of Information about Capital Structure"
establishes standards for disclosing information about an entity's capital
structure, and is effective for financial statements for periods ending after
December 15, 1997. Statement No. 130, "Reporting Comprehensive Income"
establishes standards for reporting and display of comprehensive income and its
components, and is effective for fiscal years beginning after December 15, 1997.
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers, and is effective for financial statements
for periods beginning after December 15, 1997.
Management of Summit II does not believe that these new standards will have a
material effect on Summit II's or CharterMac's reported operating results, per
unit amounts, financial position or cash flow.
Certain reclassifications have been made to prior year amounts to conform to the
current year's presentation.
7
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(One of three limited partnerships which consolidated on October 1, 1997
to form Charter Municipal Mortgage Acceptance Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
NOTE 2 - Participating First Mortgage Bonds ("FMBs")
Summit II accounts for its investments in the FMBs as "available for sale" debt
securities under the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115"). Accordingly, investments in FMBs are carried at their estimated
fair values, with unrealized gains and losses reported in a separate component
of partners' capital.
Because the FMBs are not readily marketable, Summit II estimates fair value for
each bond as the present value of its expected cash flows using a discount rate
for comparable tax-exempt investments. This process is based upon projections of
future economic events affecting the real estate collateralizing the bonds, such
as property occupancy rates, rental rates, operating cost inflation and market
capitalization rates, and upon determination of an appropriate market rate of
interest, all of which are based on good faith estimates and assumptions
developed by Summit II's management. Changes in market conditions and
circumstances may occur which would cause these estimates and assumptions to
change, therefore, actual results may vary from the estimates and the variance
may be material.
Effective January 1, 1997, forbearance agreements with respect to the Suntree
and Players Club FMBs were modified and extended due to a continuing weak rental
market and to ensure that real estate tax payments and capital improvements are
made. Pursuant to the modification, the minimum pay rate for Suntree was reduced
to 6.5% and 7.5% for the periods January 1, 1997 through June 30, 1997 and July
1, 1997 through December 31, 1997, respectively. Due to continuing weak market
conditions and a change in property management, effective with the July payment,
the forbearance agreement with Suntree was further modified extending the
minimum pay rate of 6.5% through December 31, 1997. Thereafter, it is expected
that the stated rate of 8% will be reinstated. The minimum pay rate for Players
Club was reduced to 6.5% and 6.25% for the periods January 1, 1997 through
January 31, 1997 and February 1, 1997 through December 31, 1997, respectively.
Thereafter, it is expected that the stated rate of 8% will be reinstated.
Effective as of January 30, 1997, pursuant to the terms of a forbearance
agreement entered into in August 1995, the obligor of the Sunset Downs FMB
transferred the deed to the underlying property to an affiliate of the Related
General Partner, who made no equity investment in the property but assumed the
day-to-day responsibilities of operations and obligations under the FMB. With
respect to the Sunset Downs FMB, Summit II paid certain insurance premiums on
January 31, 1997 in the amount of approximately $92,000. This loan was recorded
in operating income as a reduction of interest income from participating first
mortgage bonds because the Sunset Downs FMB is currently paying interest based
on cash flow generated from operations.
As of February 1, 1997, the Cedar Pointe FMB was formally and permanently
modified to provide for a new base interest rate of 7% and a contingent interest
rate of up to 6% payable from 25% of cash flow or sale or refinancing proceeds.
In addition, the FMB modification calls for the discharge of any accrued and
unpaid primary contingent interest, primary deferred interest, supplemental
contingent interest, supplemental deferred interest and construction period
deferred and contingent interest through September 15, 1996, whether payable
before, on, or after September 15, 1996. In addition, the maturity of the FMB
was extended to 2017 and the mandatory redemption call date extended from 1999
to 2006.
8
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(One of three limited partnerships which consolidated on October 1, 1997
to form Charter Municipal Mortgage Acceptance Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
On May 12, 1997, Summit II loaned the obligor of the Players Club FMB $280,000
to cover its shortfall on its 1996 real estate tax payment and to fund a capital
improvement account. The note bears interest at an annual rate of 8%, is
self-amortizing beginning July 1, 1997 in 48 equal monthly installments of
$6,835.62 and matures on June 1, 2001.
On August 1, 1997, Summit II loaned the obligor of the Bay Club FMB $66,600 to
fund its painting and other required maintenance of the underlying property. The
note bears interest at an annual rate of 9%, requires interest only payments
through October 1, 1997, is self amortizing beginning November 1, 1997 in 28
equal monthly installments of $2,645.93 and matures on February 1, 2000.
On August 19, 1997, Summit II loaned the obligor of the Sunset Downs FMB $75,000
to fund a capital improvement account. The note bears interest at an annual rate
of 8%, requires an interest only payment on September 1, 1997, is self
amortizing beginning October 1, 1997 in 48 equal monthly installments of
$1,830.97 and matures on September 1, 2001.
With respect to the FMBs which are subject to forbearance agreements with the
respective obligors, the difference between the stated interest rates and the
rates paid (whether deferred and payable out of available future cash flow or,
ultimately, from sale or refinancing proceeds) on FMBs is not accrued for
financial statement purposes. The accrual of interest at the stated interest
rate will resume once a property's ability to pay the stated rate has been
adequately demonstrated. Unrecorded contractual interest income was
approximately $1,087,000 and $908,000 for the nine months ended September 30,
1997 and 1996, respectively.
The cost basis of the FMBs at September 30, 1997 and December 31, 1996 was
$154,258,869 and $154,239,028, respectively. The net unrealized loss on FMBs
consists of gross unrealized gains and losses of $951,666 and $7,067,268,
respectively, at both September 30, 1997 and December 31, 1996.
9
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(One of three limited partnerships which consolidated on October 1, 1997
to form Charter Municipal Mortgage Acceptance Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
NOTE 2 - Participating First Mortgage Bonds ("FMBs") (continued)
Descriptions of the FMBs owned by Summit II at September 30, 1997 are
as follows:
<TABLE>
<CAPTION>
Annualized
Interest Rate
Paid for the
nine months Minimum Carrying
ended Pay Rate at Stated Amount at
September 30, September 30, Interest Maturity September 30,
Property Location 1997* 1997* Rate* Call Date Date Face Amount 1997(G)
- - -------- ---------------- ------------- ------------ -------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bay Club Mt. Pleasant, SC 7.98%(D) 8.25%(D) 8.25% Sept. 2000 Sept. 2006 $ 6,400,000 $ 6,154,429
Loveridge Contra Costa, CA 5.42 (B) 8.00 Nov. 1998 Nov. 2006 8,550,000 6,826,198
The Lakes Kansas City, MO 5.59 (H) 4.87 4.87 Dec. 2006 Dec. 2006 13,650,000 10,101,816
Crowne Pointe Olympia, WA 8.00 8.00 8.00 Dec. 1998 Dec. 2006 5,075,000 5,322,225
Orchard Hills Tacoma, WA 8.00 8.00 8.00 Dec. 1998 Dec. 2006 5,650,000 5,842,439
Highland Ridge St. Paul, MN 7.25 7.25 (F) 8.00 Feb. 1999 Feb. 2007 15,000,000 12,971,183
Newport Village Tacoma, WA 8.52 (C) 8.00 8.00 Jan. 1999 Jan. 2007 13,000,000 12,843,816
Sunset Downs Lancaster, CA 4.67 (B) 8.00 May 1999 May 2007 15,000,000 11,306,665
Willow Creek Ames, IA 8.00 8.00 8.00 Oct. 1999 Oct. 2006 6,100,000 6,019,067
Cedar Pointe Nashville, TN 7.00 7.00 7.00 Apr. 2006 Apr. 2017 9,500,000 8,423,412
Shannon Lake Atlanta, GA 6.00 6.00 (F) 8.00 Jun. 1999 Jun. 2007 12,000,000 10,920,358
Bristol Village Bloomington, MN 8.55(C)(E) 8.00 8.00 Jun. 1999 Jun. 2005 17,000,000 17,254,892
Suntree Ft. Myers, FL 6.61 6.50 (F) 8.00 Jul. 1999 Jul. 2007 7,500,000 7,387,848
River Run Miami, FL 9.31 (E) 8.00 8.00 Aug. 1999 Aug. 2007 7,200,000 7,457,110
Pelican Cove St. Louis, MO 7.50 (B) 8.00 Feb. 1999 Feb. 2007 18,000,000 16,907,362
Players Club (A) Ft. Myers, FL 6.31 6.25 (F) 8.00 Aug. 1999 Aug. 2007 2,500,000 2,404,447
------------ ------------
$162,125,000 $148,143,267
============ ============
</TABLE>
*The annualized interest rate paid represents the interest recorded by Summit II
while the stated interest rate represents the coupon rate of the FMB and the
minimum pay rate represents the minimum rate payable pursuant to the applicable
forbearance agreements, if any.
(A) Summit Tax Exempt L.P. III, of which the general partners are either the
same or affiliates of the General Partners of Summit II, acquired the other
$7,200,000 of the Players Club FMB.
(B) Pay rate is based on net cash flow generated by operations of the
underlying property.
(C) Includes receipt of deferred base interest related to prior periods.
(D) The minimum pay rate on the FMB increased in increments from 6.0% in 1990
to 8.25% in 1997. The actual pay rate is adjusted as of the property's
fiscal year-end based on audited financial statements to no less than the
minimum pay rate.
(E) Includes receipt of primary contingent interest.
(F) The minimum pay rate on the FMB is scheduled to increase to the stated
interest rate over the remaining term of the FMB.
(G) The FMBs are carried at their estimated fair value at September 30, 1997.
(H) Includes receipt of primary and supplemental contingent interest.
10
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(One of three limited partnerships which consolidated on October 1, 1997
to form Charter Municipal Mortgage Acceptance Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
NOTE 3 - Related Parties
Prudential-Bache Properties, Inc. ("PBP") and the Related General Partner
(collectively, the "General Partners") and their affiliates performed services
through September 30, 1997 for Summit II which included, but were not limited
to: accounting and financial management; registrar, transfer and assignment
functions; asset management; investor communications; printing and other
administrative services. The General Partners and their affiliates receive
reimbursements for costs incurred in connection with these services, the amount
of which is limited by the provisions of the Agreement of Limited Partnership
(the "Partnership Agreement"). The costs and expenses were:
=================== =====================
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ---------------------
1997 1996 1997 1996
------------------- ---------------------
PBP and affiliates:
Management fee $101,328 $101,328 $ 303,984 $303,984
General and administrative 23,448 17,848 58,170 51,526
-------- -------- ---------- --------
124,776 119,176 362,154 355,510
-------- -------- ---------- --------
Related General Partner
and affiliates:
Management fee 101,328 101,328 303,984 303,984
Loan servicing fees 102,161 101,882 303,152 303,431
General and administrative 34,913 1,942 66,222 30,112
-------- -------- ---------- --------
238,402 205,152 673,358 637,527
-------- -------- ---------- --------
$363,178 $324,328 $1,035,512 $993,037
======== ======== ========== ========
An affiliate of the Related General Partner received loan servicing fees (see
above) in an amount of .25% per annum of the principal amount outstanding on
FMBs serviced by the affiliate.
The General Partners were paid, in the aggregate, an annual management fee (see
above) equal to .5% of the original amount invested in FMBs.
During January and February of 1996, a division of Prudential Securities
Incorporated ("PSI"), an affiliate of PBP, was responsible for the purchase,
sale and safekeeping of Summit II's temporary investments. This account was
maintained in accordance with the Partnership Agreement.
PSI owned 87,015 BUC$ at September 30, 1997.
The Players Club property (securing a $2,500,000 FMB in Summit II) also secures
an FMB for $7,200,000 owned by Summit Tax Exempt L.P. III, of which the general
partners are either the same or affiliates of the General Partners of Summit II.
The original obligors of the Suntree, Players Club and River Run FMBs are
affiliates of the Related General Partner.
11
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(One of three limited partnerships which consolidated on October 1, 1997
to form Charter Municipal Mortgage Acceptance Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
As of September 30, 1997, the original owners of the underlying properties and
obligors of the Pelican Cove, Loveridge and Sunset Downs FMBs have been replaced
with affiliates of the Related General Partner who have not made equity
investments. These entities have assumed the day-to-day responsibilities and
obligations of the underlying properties. Buyers are being sought who would make
equity investments in the underlying properties and assume the nonrecourse
obligations for each of the FMBs.
NOTE 4 - Subsequent Events
In November 1997, distributions of approximately $2,379,000 and $49,000 which
were declared in September 1997, were paid to the BUC$holders and General
Partners, respectively, for the quarter ended September 30, 1997.
Previous quarterly and annual reports by Summit II have disclosed the
commencement and status of the putative class actions captioned Kinnes, et al.
v. Prudential Securities Group, Inc., et al., CV-93-654 (D.Az.), Connelly, et.
al v. Prudential-Bache Securities, Inc., et al. 93 Civ. 713 (D. Az.), and Levine
v. Prudential-Bache Properties, Inc., et. al. 92 Civ. 52 (N.D., Ill.). These
putative class actions were transferred along with certain other cases, by the
Judicial Panel on Multidistrict Panel to a single judge of the United States
District Court for the Southern District Court of New York (the "Court") for
consolidated and coordinated pre-trial proceedings under the caption In re
Prudential Securities Incorporated Limited Partnerships Litigation, MDL Docket
No. 1005 (the "Class Action"). As previously disclosed in the last quarterly
report, the Related General Partner and certain of its affiliates entered in
December 1996 into a stipulation of settlement with counsel for plaintiffs to
settle the Class Action against the Related General Partner and certain of its
affiliates (the "Related Settlement").
On June 11, 1997, the Court issued orders that, inter alia, approved the
solicitation statement dated June 18, 1997 (the "Solicitation Statement")
describing in detail the Consolidation (defined below) and other transactions
contemplated pursuant to the proposed Related Settlement, directed that it be
mailed along with the class notice to the members of the class and rescheduled
the settlement fairness hearing to consider the final approval of the Related
Settlement for August 28, 1997. In accordance with the Court's orders, the
Solicitation Statement and class notice were mailed to BUC$holders of Summit II
and the fairness hearing was held on August 28, 1997. Less than one-third of the
BUC$holders in each of the three partnerships which are part of the
Consolidation objected to the Consolidation. The Court issued its final order
approving the Related Settlement on August 28, 1997.
On October 1, 1997, as part of the settlement of the Class Action, Summit Tax
Exempt Bond Fund, L.P., Summit II, and Summit Tax Exempt L.P. III, three limited
partnerships (the "Partnerships") co-sponsored by PBP and affiliates of Related
Capital Company ("RCC"), an affiliate of Summit II, consolidated (the
"Consolidation") to form CharterMac, a Delaware Business Trust which will
specialize in the financing of tax-exempt multifamily housing. Pursuant to the
Consolidation, CharterMac issued shares to all partners in each of the
Partnerships and commenced trading on the American Stock Exchange on October 1,
1997, under the stock symbol "CHC". There are 20,587,476 shares currently
outstanding. The terms of the Consolidation are more fully described in
CharterMac's Solicitation Statement.
12
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(One of three limited partnerships which consolidated on October 1, 1997
to form Charter Municipal Mortgage Acceptance Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
CharterMac is governed by a board of five managing trustees, three of whom are
affiliated with RCC. CharterMac has engaged Related Charter LP, an affiliate of
RCC, (the "Manager") to manage its day-to-day affairs. The Manager will provide
to CharterMac substantially the same services that were provided to the
Partnerships by the general partners. The Manager will also serve as the general
partner of CharterMac for tax purposes. As part of the Consolidation, the
Manager acquired PBP's general partner interest in each of the Partnerships, and
contributed one-half of such interest back to the Partnerships prior to the
Consolidation.
For financial accounting and reporting purposes, the Consolidation is being
accounted for using the purchase method of accounting. Under this method, the
Partnership with the investor group receiving the largest ownership in
CharterMac, in this case Summit II, is deemed to be the acquirer. As the
surviving entity for accounting purposes, Summit II's assets and liabilities
will be recorded by CharterMac at their historical cost, with the assets and
liabilities of the other Partnerships recorded at their estimated fair values,
for each Partnership as set forth in the Solicitation Statement.
On a pro forma basis if the Consolidation had occurred on September 30, 1997,
CharterMac would have had total assets (principally FMBs) of approximately $333
million and shareholders' equity of approximately $308 million. For the income
statements, if the Consolidation had occurred at January 1, 1997, CharterMac's
total revenues for the nine months ended September 30, 1997 would have been
approximately $18.2 million, net income approximately $15.3 million and net
income per share approximately $.70. If the Consolidation had occurred on
January 1, 1996, CharterMac's total revenues for the nine months ended September
30, 1996 would have been approximately $19.0 million, net income approximately
$14.5 million and net income per share approximately $.66. This pro forma
financial data does not purport to represent what CharterMac's financial
position or results of operations would actually have been had the Consolidation
in fact occurred on such dates or is such data necessarily indicative of
CharterMac's financial position or results of operations for any future date or
period.
Upon the Consolidation on October 1, 1997, CharterMac increased an existing $15
million credit facility ("the Credit Facility") previously entered into by
Summit Tax Exempt Bond Fund, L.P. with a third party unaffiliated lender and
which was assumed by CharterMac under an Amendatory Agreement. Such increase was
in the amount of $2,500,000 over the existing outstanding balance of
$13,681,866. Proceeds of the additional borrowing were used to pay costs
incurred in the Consolidation. Other terms and conditions of the Credit Facility
remained substantially the same.
On October 2, 1997, the Manager signed a conditional commitment letter with
Capital Markets Assurance Corporation ("CapMAC") for a revolving credit
enhancement facility (the "Facility") for up to $150 million which will enable a
subsidiary of CharterMac to issue low cost AAA rated certificates ("Low Floater
Certificates") that will receive tax exempt distributions payable based upon
weekly remarketing. The Facility is expected to close in December, 1997 although
no assurance can be given regarding the timing of such event.
13
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(One of three limited partnerships which consolidated on October 1, 1997
to form Charter Municipal Mortgage Acceptance Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
Until the CapMAC facility is closed, Goldman Sachs & Company has agreed to open
a Margin Account ("Margin Acount") for CharterMac at prevailing rates of
interest for such accounts. It is expected that the Credit Facility will be
refinanced with proceeds of the Margin Account and that certain of CharterMac's
FMBs will be pledged as collateral.
Leverage under the Facility, the Margin Account and the Credit Facility,
together with any other indebtedness of CharterMac, will not exceed 50% of
CharterMac's Total Market Value (as defined in the Solicitation Statement) as of
the date CharterMac enters into such financing arrangements.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
- - -------------------------------
Summit Tax Exempt L.P. II ("Summit II"), one of three limited partnerships which
consolidated on October 1, 1997 to form Charter Municipal Mortgage Acceptance
Company ("CharterMac"), has invested in sixteen tax-exempt participating first
mortgage bonds ("FMBs") issued by various state or local governments or their
agencies or authorities. The FMBs are secured by participating first mortgage
loans on multi-family residential apartment projects.
CharterMac is an infinite life entity which may issue additional debt and equity
securities. CharterMac will originate, acquire and hold for investment on a
national basis, tax exempt bonds, the proceeds of which will finance the
development of or refinance ownership of multifamily housing. CharterMac owns
investments in 31 tax exempt bonds formerly held by the three limited
partnerships and has net assets of approximately $308 million at October 1,
1997. CharterMac intends to provide quarterly tax-exempt distributions to
shareholders based upon the amount of cash available for distribution. The
distributions are expected to commence after the end of the first fiscal quarter
after October 1, 1997. The initial level and future levels of distributions have
not yet been determined.
At the beginning of the year, Summit II had cash and temporary investments of
approximately $3,849,000. After payment of distributions of approximately
$7,284,000, loans made to properties net of principal payments received of
approximately $327,000 and receipt of the net cash flow from operations of
approximately $7,946,000, Summit II had approximately $4,184,000 in cash and
cash equivalents at September 30, 1997. The third quarter distribution of
$2,379,000 ($.26 per BUC) which was declared September 1997 was paid to
BUC$holders in November 1997 from cash flow from operations.
Effective January 1, 1997, forbearance agreements with respect to the Suntree
and Players Club FMBs were modified and extended due to a continuing weak rental
market and to ensure that real estate tax payments and capital improvements are
made. Pursuant to the modification, the minimum pay rate for Suntree was reduced
to 6.5% and 7.5% for the periods January 1, 1997 through June 30, 1997 and July
1, 1997 through December 31, 1997, respectively. Due to continuing weak market
conditions and a change in property management, effective with the July payment,
the forbearance agreement with Suntree was further modified extending the
minimum pay rate of 6.5% through December 31, 1997. Thereafter, it is expected
that the stated rate of 8% will be reinstated. The minimum pay rate for Players
Club was reduced to 6.5% and 6.25% for the periods January 1, 1997 through
January 31, 1997 and February 1, 1997 through December 31, 1997, respectively.
Thereafter, it is expected that the stated rate of 8% will be reinstated.
Effective as of January 30, 1997, pursuant to the terms of a forbearance
agreement entered into in August 1995, the obligor of the Sunset Downs FMB
transferred the deed to the underlying property to an affiliate of the Related
General Partner, who made no equity investment in the property but assumed the
day-to-day responsibilities of operations and obligations under the FMB. With
respect to the Sunset Downs FMB, Summit II paid certain insurance premiums on
January 31, 1997 in the amount of approximately $92,000. This loan was recorded
in operating income as a reduction of interest income from participating first
mortgage bonds because the Sunset Downs FMB is currently paying interest based
on cash flow generated from operations.
As of February 1, 1997, the Cedar Pointe FMB was formally and permanently
modified to provide for a new base interest rate of 7% and a contingent interest
rate of up to 6% payable from
15
<PAGE>
25% of cash flow or sale or refinancing proceeds. In addition, the FMB
modification calls for the discharge of any accrued and unpaid primary
contingent interest, primary deferred interest, supplemental contingent
interest, supplemental deferred interest and construction period deferred and
contingent interest through September 15, 1996, whether payable before, on, or
after September 15, 1996. In addition, the maturity of the FMB was extended to
2017 and the mandatory redemption call date extended from 1999 to 2006.
On May 12, 1997, Summit II loaned the obligor of the Players Club FMB $280,000
to cover its shortfall on its 1996 real estate tax payment and to fund a capital
improvement account. The note bears interest at an annual rate of 8%, is
self-amortizing beginning July 1, 1997 in 48 equal monthly installments of
$6,835.62 and matures on June 1, 2001.
On August 1, 1997, Summit II loaned the obligor of the Bay Club FMB $66,600 to
fund its painting and other required maintenance of the underlying property. The
note bears interest at an annual rate of 9%, requires interest only payments
through October 1, 1997, is self amortizing beginning November 1, 1997 in 28
equal monthly installments of $2,645.93 and matures on February 1, 2000.
On August 19, 1997, Summit II loaned the obligor of the Sunset Downs FMB $75,000
to fund a capital improvement account. The note bears interest at an annual rate
of 8%, requires an interest only payment on September 1, 1997, is self
amortizing beginning October 1, 1997 in 48 equal monthly installments of
$1,830.97 and matures on September 1, 2001.
Summit II has entered into forbearance agreements on several FMBs and CharterMac
may be required to extend these agreements or enter into new agreements in the
future. Such agreements may adversely impact liquidity; however interest
payments from FMBs are anticipated to provide sufficient liquidity to fund in
future years CharterMac's operating expenditures and distributions.
For a discussion of the settlement of the Class Action relating to Summit II,
see Note 4 to the financial statements.
Upon the Consolidation on October 1, 1997, CharterMac increased an existing $15
million credit facility ("the Credit Facility") previously entered into by
Summit Tax Exempt Bond Fund, L.P. with a third party unaffiliated lender and
which was assumed by CharterMac under an Amendatory Agreement. Such increase was
in the amount of $2,500,000 over the existing outstanding balance of
$13,681,866. Proceeds of the additional borrowing were used to pay costs
incurred in the consolidation transaction. Other terms and conditions of the
Credit Facility remained substantially the same.
In order to carry out its business plan of acquiring additional FMBs, CharterMac
intends to raise additional capital by incurring additional debt. In conjunction
with the issuance of such additional debt, it is expected that the Credit
Facility will be refinanced to take advantage of lower borrowing costs, as
further described below.
On October 2, 1997, the Manager signed a conditional commitment letter with
Capital Markets Assurance Corporation ("CapMAC") for a revolving credit
enhancement facility (the "Facility") for up to $150 million which will enable a
subsidiary of CharterMac to issue low cost AAA rated certificates ("Low Floater
Certificates") that will receive tax exempt distributions payable based upon
weekly remarketing. The Facility is expected to close in December, although no
assurance can be given regarding the timing of such event.
Until the CapMAC facility is closed, Goldman Sachs & Company has agreed to open
a Margin Account ("Margin Acount") for CharterMac at prevailing rates of
interest for such accounts. It
16
<PAGE>
is expected that the Credit Facility will be refinanced with proceeds of the
Margin Account and that certain of CharterMac's FMBs will be pledged as
collateral.
Leverage under the Facility, the Margin Account and the Credit Facility,
together with any other indebtedness of CharterMac, will not exceed 50% of
CharterMac's Total Market Value (as defined in the Solicitation Statement) as of
the date CharterMac enters into such financing arrangements.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way. Summit II's investments in FMBs are secured by a
partnership interest in properties which are diversified by location so that if
one area of the country is experiencing downturns in the economy, the remaining
properties may be experiencing upswings. However, the geographic diversification
of the portfolio may not protect against a general downturn in the national
economy.
Results of Operations
- - ---------------------
Net income decreased approximately $80,000 and increased approximately
$1,146,000, respectively, for the three and nine months ended September 30, 1997
as compared to 1996 primarily due to a loss on impairment of assets in 1996 and
for the reasons discussed below.
Interest income from FMBs decreased by approximately $69,000 and $379,000,
respectively, for the three and nine months ended September 30, 1997 as compared
to 1996 primarily due to a reduction in the income recorded from the Highland
Ridge FMB as a result of a forbearance agreement for which a retroactive
adjustment to October 1995 was made in the fourth quarter of 1996, a reduction
in the income recorded from the Cedar Pointe FMB as a result of a forbearance
agreement effective September 16, 1996, a reduction in the income recorded from
the Suntree FMB as a result of the modification and extension of a forbearance
agreement effective January 1, 1997, a decrease in contingent interest received
by River Run in the second quarter of 1997, a decrease in deferred base interest
received by Bristol Village in 1997 and a decrease due to an insurance loan made
to the owner of the underlying property of the Sunset Downs FMB in the first
quarter of 1997 which was recorded as a reduction of income.
Interest income from promissory notes increased by approximately $7,000 and
$16,000, respectively, for the three and nine months ended September 30, 1997 as
compared to 1996 primarily due to the $300,000 increase in the Shannon Lake loan
in July 1996 and the $280,000 Players Club loan on May 12, 1997.
General and administrative expenses increased by approximately $16,000 for the
three months ended September 30, 1997 as compared to 1996 primarily due to an
increase in expense reimbursements to the General Partners for costs incurred on
behalf of Summit II in the third quarter, partially offset by a decrease in
accounting expenses due to the filing, in the third quarter of 1996, of an
amended March 31, 1996 Form 10-Q and a December 31, 1995 Form 10-K which was
required due to a change in the Partnership's accounting for its investments in
FMBs.
A $1,500,000 loss on impairment of assets was recorded during the second quarter
of 1996 to recognize other-than-temporary impairment of one FMB based upon
continuing operating difficulties being experienced at the property securitizing
the FMB.
General
- - -------
The determination as to whether it is in the best interest of Summit II to enter
into forbearance agreements on the FMBs or, alternatively, to pursue its
remedies under the loan documents,
17
<PAGE>
including foreclosure, is based upon several factors including, but not limited
to, property performance, owner cooperation and projected legal costs.
Certain property owners have, at times, supplemented the cash flow generated by
the properties to meet the required FMB interest payments. There can be no
assurance that in the future any property owner will elect to supplement
property cash flow to satisfy bond interest requirements, if necessary. No
property owner made supplementary payments during the nine months ended
September 30, 1997 and 1996.
Property Information
- - --------------------
The following table lists the FMBs Summit II owns together with occupancy rates
of the underlying properties as of September 30, 1997:
<TABLE>
<CAPTION>
Annualized
Interest Minimum
Rate Paid Annual
for the nine Pay Rate
Stated months ended at
Face Amount Interest September 30, September 30,
Property Location of FMB Occupancy Rate* 1997* 1997*
- - -------- ---------------- ------------ --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bay Club Mt. Pleasant, SC $ 6,400,000 96.2% 8.25% 7.98%(D) 8.25%(D)
Loveridge Contra Costa, CA 8,550,000 98.0 8.00 5.42 (B)
The Lakes Kansas City, MO 13,650,000 90.8 4.87 5.59 (G) 4.87
Crowne Pointe Olympia, WA 5,075,000 89.0 8.00 8.00 8.00
Orchard Hills Tacoma, WA 5,650,000 94.3 8.00 8.00 8.00
Highland Ridge St. Paul, MN 15,000,000 96.3 8.00 7.25 7.25 (F)
Newport Village Tacoma, WA 13,000,000 95.9 8.00 8.52 (C) 8.00
Sunset Downs Lancaster, CA 15,000,000 94.7 8.00 4.67 (B)
Willow Creek Ames, IA 6,100,000 100.0 8.00 8.00 8.00
Cedar Pointe Nashville, TN 9,500,000 85.2 7.00 7.00 7.00
Shannon Lake Atlanta, GA 12,000,000 92.5 8.00 6.00 6.00 (F)
Bristol Village Bloomington, MN 17,000,000 99.6 8.00 8.55 (C)(E) 8.00
Suntree Ft. Myers, FL 7,500,000 85.2 8.00 6.61 6.50 (F)
River Run Miami, FL 7,200,000 96.9 8.00 9.31 (E) 8.00
Pelican Cove St. Louis, MO 18,000,000 95.2 8.00 7.50 (B)
Players Club(A) Ft. Myers, FL 2,500,000 88.0 8.00 6.31 6.25 (F)
------------
$162,125,000
============
</TABLE>
*The annualized interest rate paid represents the interest recorded by Summit II
while the stated interest rate represents the coupon rate of the FMB and the
minimum pay rate represents the minimum rate payable pursuant to the applicable
forbearance agreements, if any.
(A) Summit Tax Exempt L.P. III, of which the general partners are either the
same or affiliates of the General Partners of Summit II, acquired the other
$7,200,000 of the Players Club FMB.
(B) Pay rate is based on net cash flow generated by operations of the
underlying property.
(C) Includes receipt of deferred base interest related to prior periods.
(D) The minimum pay rate on the FMB increased in increments from 6.0% in 1990
to 8.25% in 1997. The actual pay rate is adjusted as of the property's
fiscal year-end based on audited financial statements to no less than the
minimum pay rate.
(E) Includes receipt of primary contingent interest.
(F) The minimum pay rate on the FMB is scheduled to increase to the stated
interest rate over the remaining term of the FMB.
(G) Includes receipt of primary and supplemental contingent interest.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information described in Note 4 to the financial statements
contained in Part I, Item 1 is incorporated herein by reference.
Item 2. Changes in Securities
The information described in Note 4 to the financial statements
contained in Part I, Item 1 is incorporated herein by reference.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
The information described in Note 4 to the financial statements
contained in Part I, Item 1 is incorporated herein by reference.
Item 5. Other Information
On October 29, 1997, Stuart J. Boesky was named President of CharterMac
and of the general partner of the Manager following J. Michael Fried's
announcement that he would relinquish the position of President of the general
partner of the Manager. The position of President of CharterMac was created by
the Board of Trustees by a unanimous vote at a Board of Trustees meeting held on
October 29, 1997. Mr. Fried will continue to serve as Chief Executive Officer of
the general partner of the Manager and Chairman of the Board of Trustees of
CharterMac. Mr. Boesky also holds the position of Chief Operating Officer of the
general partner of the Manager and is a member of the Board of Trustees of
CharterMac.
Alan P. Hirmes was named to the position of Executive Vice
President/Secretary of CharterMac, a position that was also created by a
unanimous vote at a Board of Trustees meeting held on October 29, 1997. Mr.
Hirmes will continue to hold the position of Senior Vice President and Chief
Financial Officer of the general partner of the Manager and Member of the Board
of Trustees of CharterMac.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
Current report on Form 8-K relating to the settlement of class
action litigation which resulted in the formation of the Registrant
was dated October 1, 1997 and was filed on October 14, 1997.
Current report on Form 8-K relating to a revolving credit
enhancement facility was dated October 2, 1997 and was filed on
November 6, 1997.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
By: RELATED CHARTER LP, as Manager
By: RELATED CHARTER LLC, General Partner
Date: November 13, 1997 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Senior Vice President
(Principal Financial Officer)
Date: November 13, 1997 By: /s/ Richard A. Palermo
----------------------
Richard A. Palermo
Treasurer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information
extracted from the financial statements for Charter
Municipal Mortgage Acceptance Company and is
qualified in its entirety by reference to such
financial statements
</LEGEND>
<CIK> 0001043325
<NAME> Charter Municipal Mortgage Acceptance Company
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,184,277
<SECURITIES> 148,143,267
<RECEIVABLES> 1,191,054
<ALLOWANCES> 138,000
<INVENTORY> 0
<CURRENT-ASSETS> 10,168
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 155,057,167
<CURRENT-LIABILITIES> 2,818,980
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 151,873,746
<TOTAL-LIABILITY-AND-EQUITY> 155,057,167
<SALES> 0
<TOTAL-REVENUES> 8,664,640
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,401,572
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,263,068
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,263,068
<EPS-PRIMARY> .78
<EPS-DILUTED> 0
</TABLE>
