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 March 31, 1999
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 Trust Agreement)
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
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
--------- ------------
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
ASSETS
First mortgage bonds-at fair value $459,969,214 $458,662,600
Temporary investments 5,000,000 0
Cash and cash equivalents 7,492,149 13,093,023
Interest receivable, net 1,443,870 1,512,562
Promissory notes receivable 7,902,901 7,628,920
Deferred costs, net 6,979,156 7,005,965
Goodwill, net 2,934,712 4,671,236
Other assets 26,692 11,500
------------ ------------
Total assets $491,748,694 $492,585,806
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and
other liabilities $ 7,407,847 $ 8,993,174
Due to Manager and affiliates 1,352,742 1,159,358
Distributions payable 4,939,437 4,939,068
------------ ------------
Total liabilities 13,700,026 15,091,600
------------ ------------
Minority interest in subsidiary
(subject to mandatory redemption) 150,000,000 150,000,000
------------ ------------
Shareholders' equity:
Beneficial owner's equity-manager 285,995 230,259
Beneficial owners' equity-other shareholders
(50,000,000 shares authorized; 20,589,375 issued
and 20,580,975 outstanding and 20,587,837
shares issued and 20,579,437 outstanding in
1999 and 1998, respectively) 312,905,841 312,307,115
Treasury shares of beneficial interest (8,400 shares) (103,359) (103,359)
Accumulated other comprehensive income 14,960,191 15,060,191
------------ ------------
Total shareholders' equity 328,048,668 327,494,206
------------ ------------
Total liabilities and shareholders' equity $491,748,694 $492,585,806
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
------------------------------
Three Months Ended
March 31,
------------------------------
1999 1998
---------- -----------
<S> <C> <C>
Revenues:
Interest income:
First mortgage bonds $ 8,000,020 $ 5,890,264
Temporary investments 102,522 41,526
Promissory notes 165,159 145,799
------------ ------------
Total revenues 8,267,701 6,077,589
------------ ------------
Expenses:
Interest expense 8,368 344,770
Loan servicing fees 287,749 217,974
General and administrative 680,312 220,027
Amortization 157,529 46,856
Minority interest in income of subsidiary 1,128,221 0
------------ ------------
Total expenses 2,262,179 829,627
------------ ------------
Net income 6,005,522 5,247,962
Special allocation of net income to the Manager (487,362) (376,171)
------------ ------------
Net income applicable to shareholders $ 5,518,160 $ 4,871,791
============ ============
Net income per share (basic and diluted) $ .27 $ .24
============ ============
Weighted average shares outstanding (basic and diluted) 20,580,086 20,587,465
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Beneficial
Beneficial Owners' Treasury
Owner's Equity- Shares of
Equity - Other Beneficial
Manager Shareholders Interest
---------- ------------ ----------
<S> <C> <C> <C>
Balance at January 1, 1999 $ 230,259 $312,307,115 $(103,359)
Comprehensive income:
Net income 487,362 5,518,160 0
Other comprehensive loss:
Net unrealized loss on first mortgage bonds:
Net unrealized holding loss arising during the period
Add: Reclassification adjustment for losses
included in net income
Other comprehensive loss
Comprehensive income
Issuance of shares of beneficial interest 0 20,000 0
Distributions (431,626) (4,939,434) 0
--------- ------------ ---------
Balance at March 31, 1999 $285,995 $312,905,841 $(103,359)
========= ============ =========
<CAPTION>
Accumulated
Other
Comprehensive Comprehensive
Income Income Total
------------- ------------- -----
<S> <C> <C> <C>
Balance at January 1, 1999 $15,060,191 $327,494,206
Comprehensive income:
Net income $6,005,522 0 6,005,522
----------
Other comprehensive loss:
Net unrealized loss on first mortgage bonds:
Net unrealized holding loss arising during the period (125,493)
Add: Reclassification adjustment for losses
included in net income 25,493
----------
Other comprehensive loss (100,000) (100,000) (100,000)
----------
Comprehensive income $5,905,522
==========
Issuance of shares of beneficial interest 0 20,000
Distributions 0 (5,371,060)
----------- ------------
Balance at March 31, 1999 $14,960,191 $328,048,668
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
-------------------------------
Three Months Ended
March 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,005,522 $ 5,247,962
----------- ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on repayment of first mortgage bond 25,493 0
Amortization 157,529 46,856
Amortization of goodwill 37,538 0
Accretion of excess of acquired net
assets over cost 0 (82,853)
Accretion of deferred income (16,553) (16,553)
Changes in operating assets and liabilities:
Interest receivable 68,692 25,426
Other assets (15,192) 6,366
Accounts payable, accrued expenses and
other liabilities 123,598 (49,501)
Due to Manager and
affiliates 199,391 (13,935)
----------- ------------
Total adjustments 580,496 (84,194)
----------- ------------
Net cash provided by operating activities 6,586,018 5,163,768
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from repayment of first mortgage bond 5,100,000 0
Purchase of first mortgage bond (6,400,000) 0
Increase in deferred bond selection costs (165,968) (35,963)
Net purchase of temporary investments (5,000,000) (1,750,000)
Loans made to property (307,185) 0
Principal payments received from loans made to
properties 33,204 45,290
----------- ------------
Net cash used in investing activities (6,739,949) (1,740,673)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid (5,356,698) (5,065,699)
Proceeds from note payable 0 954,678
Repayments of note payable 0 (859,773)
Increase in deferred costs relating to the
Private Label Tender Option Program (90,245) (901)
Consolidation costs 0 (14,374)
----------- ------------
Net cash used in financing activities (5,446,943) (4,986,069)
----------- ------------
(continued)
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
-------------------------------
Three Months Ended
March 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net decrease in cash and
cash equivalents (5,600,874) (1,562,974)
Cash and cash equivalents at the
beginning of the period 13,093,023 2,296,899
----------- ------------
Cash and cash equivalents at the
end of the period $ 7,492,149 $ 733,925
=========== ============
SUPPLEMENTAL INFORMATION:
Interest paid $ 8,368 $ 348,308
=========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of shares of beneficial
interest for trustee fees $ 20,000 $ 0
=========== ============
Adjustment to goodwill due to the Discounted Cash Settlement:
Decrease in goodwill $ 1,698,986 $ 0
Decrease in accounts payable, accrued
expenses and other liabilities (1,698,986) 0
----------- ------------
$ 0 $ 0
=========== ============
Components of basis for loss on repayment of first mortgage bond:
Decrease in first mortgage bonds $ 5,000,000 $ 0
Decrease in deferred costs, net 125,493 0
----------- ------------
$ 5,125,493 $ 0
=========== ============
Distributions $(5,371,060) $ (5,062,080)
Increase (decrease) in special distribution payable
to the Manager 13,993 (3,619)
Increase in distributions payable to shareholders 369 0
----------- ------------
Distributions paid $(5,356,698) $ (5,065,699)
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
NOTE 1 - General
Charter Municipal Mortgage Acceptance Company (the "Company") is a Delaware
business trust which is engaged in the acquisition and ownership (either
directly or indirectly) of tax-exempt participating and non-participating First
Mortgage Bonds ("FMBs") issued by various state or local governments or other
agencies or authorities and secured by participating and non-participating
mortgage loans on the underlying properties ("Underlying Properties"). As of
March 31, 1999 the Company owned a portfolio of 49 FMBs.
The Company was formed on October 1, 1997 as the result of the consolidation
(the "Consolidation") of three publicly registered limited partnerships, Summit
Tax Exempt Bond Fund, L.P., Summit Tax Exempt L.P. II and Summit Tax Exempt L.P.
III (the "Partnerships", and each individually a "Partnership"). One of the
general partners of the Partnerships was an affiliate of Related Capital Company
("Related"). Pursuant to the Consolidation, the Company issued shares of
beneficial interest (the "Shares") to all partners in each of the Partnerships
in exchange for their interests in the Partnerships based upon each partner's
proportionate interest in the Shares issued to their Partnership in the
Consolidation. As of March 31, 1999, there were 20,580,986 Shares outstanding.
The Company is governed by a board of trustees comprised of two independent
managing trustees and three managing trustees who are affiliated with Related.
The Company has engaged Related Charter LP (the "Manager"), an affiliate of
Related, to manage its day-to-day affairs. Each independent trustee is entitled
to receive annual compensation for serving as a trustee in the aggregate amount
of $15,000 payable in cash (maximum of $5,000 per year) and/or Shares valued
based on the fair market value at the date of issuance. As of March 31, 1999,
955 Shares, having an aggregate value of $12,500, were issued to each
independent trustee relating to their services for 1998 and for the quarter
ended December 31, 1997.
As part of the settlement of class action litigation relating to the
Partnerships, counsel ("Class Counsel") for the partners of the Partnerships had
the right to petition the United States District Court for the Southern District
of New York (the "Court") for additional attorneys' fees ("Counsel's Fee
Shares") in an amount to be determined in the Court's sole discretion. The
Counsel's Fee Shares were based upon a percentage (which Class Counsel proposed
to be 25%) of the increase in value of the Company, ("the Added Value") if any,
as of October 1, 1998 based upon the difference between (i) the trading prices
of the Company's shares of beneficial interest during the six month period ended
October 1, 1998 and (ii) the trading prices of the limited partnership units and
the asset values of the Partnerships prior to October 1, 1997. As of October 1,
1998, 25% of the Added Value amounted to $7,788,536 and, in accordance with an
Order and Stipulation of Settlement by the Court on February 18, 1999 (the
"Order"), Class Counsel was entitled to receive 608,955 shares of beneficial
interest in the Company. On April 15, 1999, the Company successfully negotiated
a discounted cash settlement (the "Discounted Cash Settlement") of $6,089,550
with Class Counsel in lieu of the issuance of shares. On April 26, 1999, the
Discounted Cash Settlement was approved by the Board of Trustees and it was paid
on May 3, 1999.
7
<PAGE>
As of October 1, 1998, the Company recorded an accrual of $7,788,536 as its
liability to issue Counsel Fee Shares under the Order and adjusted the goodwill
recorded in the Consolidation accordingly. The Discounted Cash Settlement
results in a decrease of $1,698,986 in this liability and in goodwill at March
31, 1999.
On October 9, 1998, the Board of Trustees authorized the implementation of a
Share repurchase plan, enabling the Company to repurchase, from time to time, up
to 1,500,000 of its Shares. The repurchases will be made in the open market and
the timing will be dependant on the availability of Shares and other market
conditions. As of March 31, 1999, the Company has acquired 8,400 of its Shares
for an aggregate purchase price of $103,359 (including commissions and service
charges). Repurchased Shares are accounted for as treasury shares of beneficial
interest.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary business trust. All intercompany accounts and
transactions have been eliminated in consolidation.
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 the Company as of March 31, 1999 and the results of
its operations and its cash flows for the three months ended March 31, 1999 and
1998. However, the operating results for the interim periods may not be
indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles ("GAAP") have been condensed or omitted. It is suggested that these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Form 10-K for the year ended
December 31, 1998.
The preparation of financial statements in conformity with GAAP requires the
Manager to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
NOTE 2 - Participating First Mortgage Bonds ("FMBs")
The Company 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 other
comprehensive income.
8
<PAGE>
Because the FMBs are not readily marketable, the Company 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, 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 the Manager. 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.
As of March 31, 1999, the Company owned 49 FMBs which are secured by mortgages
on apartment complexes in fifteen states across the continental United States.
The face amount of the FMBs ranges from $2,275,000 to $19,450,000 with carrying
amounts from $2,275,000 to $20,189,000. The FMBs have maturity dates from
December 2003 to January 2041; however, ten FMBs are callable as of March 31,
1999 and the remainder are callable from May 1999 to October 2025. The stated
interest rates range from 4.87% to 8.5%. The weighted average interest rates
recognized on the face amount of the portfolio of FMBs for the three months
ended March 31, 1999 and 1998 were 6.95% and 6.76%, respectively, based on
weighted average face amounts of approximately $115,113,000 and $87,190,000,
respectively.
At March 31, 1999, 41 FMBs with an aggregate principal amount of approximately
$403,357,000 have been transferred to affiliated trusts in connection with the
Company's Private Label Tender Option Program (see Note 4).
The original obligors and owners of the Underlying Properties of the Cedar
Creek, Cypress Run, Highpointe, Greenway Manor, Sunset Terrace, Pelican Cove,
Loveridge, Sunset Downs, Sunset Creek and Sunset Village FMBs have been replaced
with affiliates of the Manager 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 the FMB.
These properties are generally paying as interest an amount equal to the net
cash flow generated by operations, which in some cases is less than stated rate
of the FMB. The Company has no present intention of declaring a default on these
FMBs. The aggregate carrying value of these 10 FMBs at March 31, 1999 and
December 31, 1998 was approximately $105,402,000 and the income earned from them
for the three months ended March 31, 1999 and 1998 was approximately $1,799,000
and $1,615,000, respectively.
From time to time, the Company enters into forbearance agreements and/or
permanent modifications with certain borrowers. The determination as to whether
it is in the best interest of the Company to enter into permanent modifications
or forbearance agreements on the FMBs, advance second mortgages, or
alternatively, to pursue its remedies under the loan documents, including
foreclosure, is based upon several factors. These factors include, but are not
limited to, Underlying Property performance, owner cooperation and projected
costs of foreclosure and litigation. Payments under each of the existing
forbearance agreements are current as of March 31, 1999.
9
<PAGE>
Certain of the Company's FMBs have been previously modified. These modifications
have generally encompassed an extension of the maturity together with a
prepayment lock out feature and/or prepayment penalties together with an
extension of the mandatory redemption feature (5-10 years from modification).
Stated interest rates have also been adjusted together with a change in the
participation and contingent interest features. Base interest rates, contingent
interest, prepayment lock-outs, mandatory redemption and maturity features vary
dependent on the facts of a particular FMB, the developer, the Underlying
Property's performance and requirements of bond counsel and local issuers.
In addition to the stated base rates of interest, certain of the FMBs provide
for "contingent interest". During the three months ended March 31, 1999 and
1998, three and one FMBs paid contingent interest amounting to approximately
$103,000 and $83,000, respectively.
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 an Underlying Property's ability to pay the stated rate
has been adequately demonstrated. Unrecorded contractual interest income was
approximately $724,000 and $898,000 for the three months ended March 31, 1999
and 1998, respectively.
From time to time the Company has advanced funds to owners of certain Underlying
Properties in order to preserve the underlying asset including completion of
construction and/or when Underlying Properties have experienced operating
difficulties including past due real estate taxes and/or deferred maintenance
items. Such advances typically are secured by promissory notes and/or second
mortgages. As of March 31, 1999, the face amount of such advances was
$13,110,967, and their carrying value was $7,902,901, which is net of purchase
accounting adjustments, and a reserve for collectibility of $138,000.
On January 4, 1999, the obligor of the Countryside North FMB (the "Countryside
North Obligor") completed a refinancing with an unaffiliated third party. The
Countryside North Obligor then fully repaid its outstanding debt due to the
Company totaling $5,135,417 including the FMB in the amount of $5,000,000, a
$100,000 prepayment penalty and accrued interest due through the repayment date
of $35,417 resulting in a loss on the repayment (including the prepayment
penalty and the write off of bond selection fees and expenses), in the amount of
$25,493 which is included in general and administrative expenses. The interest
income on the Countryside North FMB recognized for the three months ended March
31, 1999, through the date of sale, was $4,167.
10
<PAGE>
During the period January 1, 1999 through March 31, 1999 the Company acquired
one FMB for a purchase price of $6,400,000, not including bond selection fees
and expenses of approximately $128,000. Further information regarding the FMB is
as follows:
<TABLE>
<CAPTION>
Stated No. of
Project Closing Call Date/ Face Interest Rental
Name Date Maturity Date Amount of FMB Rate Units
- ------- ------- ------------- ------------- -------- ------
<S> <C> <C> <C> <C> <C>
Hamilton Garden 4/1/15
Hamilton, NJ 3/26/99 3/1/35 $6,400,000 (a) 174
</TABLE>
(a) The interest rates for Hamilton Garden are 7.625% during the construction
period and 7.125% thereafter.
The cost basis of the Company's portfolio of 49 FMBs at March 31, 1999 and
December 31, 1998 was $445,009,023 and $443,602,409, respectively. The net
unrealized gain on FMBs at March 31, 1999 consisted of gross unrealized gains
and losses of $22,156,064 and $7,195,873, respectively. The net unrealized gain
on FMBs at December 31, 1998 consisted of gross unrealized gains and losses of
$22,256,064 and $7,195,873, respectively.
NOTE 3 - Deferred Costs
The components of deferred costs are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Deferred bond selection costs $ 6,387,574 $ 6,355,252
Deferred costs relating to the Private Label Tender
Option Program 3,145,240 3,054,995
---------- ----------
9,532,814 9,410,247
Less: Accumulated amortization (2,553,658) (2,404,282)
---------- ----------
$ 6,979,156 $ 7,005,965
========== ==========
</TABLE>
NOTE 4 - Minority Interest In Subsidiary
On May 21, 1998, the Company closed on its Private Label Tender Option Program
("TOP") in order to raise additional capital to acquire additional FMBs. As of
March 31, 1999, the maximum amount of capital which could be raised under the
TOP ($150,000,000) had been raised. In April 1999, the Company successfully
negotiated an increase in its TOP to $200,000,000. During 1999 and 1998, the
Company contributed 41 issues of FMBs in the aggregate principal amount of
approximately $403,357,000 to a Delaware business trust (the "Origination
Trust"), a wholly-owned subsidiary of the Company, which then contributed 27 of
those FMBs, with an aggregate principal amount of approximately $233,105,000, to
another Delaware business trust (the "Owner Trust"). The Owner Trust issued two
equity certificates: (i) a Senior Certificate, with an outstanding face amount
of $150,000,000 at March 31, 1999 (increased to $157,000,000
11
<PAGE>
on April 22, 1999), which has been deposited into another Delaware business
trust (the "Certificate Trust") which issued and sold Floater Certificates
representing proportional interests in the Senior Certificate to new investors
and (ii) a Residual Certificate representing the remaining beneficial ownership
interest in the Owner Trust, which has been issued to the Origination Trust,
whose sole owner is the Company. The FMBs remaining in the Origination Trust
(aggregate principal amount of approximately $170,252,000) are a collateral pool
for the Owner Trust's obligations under the Senior Certificate. In addition, the
Owner Trust obtained a municipal bond insurance policy from MBIA to credit
enhance Certificate distributions for the benefit of the holders of the Floater
Certificates and has also arranged for a liquidity facility, issued by a
consortium of highly rated European banks, with respect to the Floater
Certificates.
The end result of these transactions is that a portion of the interest received
by the Owner Trust on the FMBs it holds is distributed through the Senior
Certificate to the holders of the Floater Certificates in an amount determined
each week by the remarketing agent, Goldman Sachs & Co., at the distribution
amount that is required to enable the remarketing agent to sell the Floater
Certificates at par on any weekly determination date.
The Company's cost of funds relating to the TOP (calculated as income allocated
to the minority interest plus current fees as a percentage of the weighted
average amount of the outstanding Senior Certificate) was approximately 3.9% for
the period January 1, 1999 through March 31, 1999.
NOTE 5 - Related Party Transactions
Pursuant to the Management Agreement, the Manager receives (i) bond selection
fees equal to 2% of the principal amount of each FMB or other tax-exempt
instrument acquired or originated by the Company; (ii) special distributions
equal to .375% of the total invested assets of the Company; (iii) loan servicing
fees equal to .25% of the outstanding principal amount of FMBs; (iv) a
liquidation fee based on the gross sales price of assets sold by the Company in
connection with a liquidation of the Company's assets; and (v) reimbursement of
certain administrative costs incurred by the Manager and its affiliates on
behalf of the Company. In addition, the Manager receives bond placement fees
from the borrower in an amount equal to 1% of the principal amount of each FMB
or other tax-exempt instrument acquired or originated by the Company, and
affiliates of the Manager are part of a joint venture which has a development
services agreement with the obligors of three FMBs.
12
<PAGE>
The costs, expenses and the special distribution incurred to the Manager and its
affiliates for the three months ended March 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1999 1998
---------- ---------
<S> <C> <C>
Bond selection fees $ 128,000 $ 0
Expense reimbursement 60,466 48,734
Loan servicing fees 287,749 217,974
Special distribution 431,623 326,961
--------- ---------
$ 907,838 $ 593,669
========= =========
</TABLE>
General
The obligors of the Suntree, Players Club, River Run, Ocean Air, Phoenix, Stone
Creek, Cedarbrook, Marsh Landings, Gulfstream, Bedford Square, Northpointe
Village, Falcon Creek, Jubilee Courtyards, Silvercrest, Carrington Pointe,
Madalyn Landing, Forest Hills, Lake Jackson, Mountain Ranch and Hamilton Garden
FMBs are local partnerships in which investment partnerships, whose general
partners are affiliates of the Manager, own a controlling partnership interest.
As of March 31, 1999, the original owners of the Underlying Properties and
obligors of the Cedar Creek, Cypress Run, Highpointe, Greenway Manor, Sunset
Terrace, Pelican Cove, Loveridge, Sunset Downs, Sunset Creek and Sunset Village
FMBs had been replaced with affiliates of the Manager 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 the FMB.
NOTE 6 - Earnings Per Share
Basic net income per Share in the amount of $.27 and $.24 for the three months
ended March 31, 1999 and 1998, respectively, equals net income for the periods
($6,005,522 and $5,247,962, respectively), less the special allocations to the
Manager ($487,362 and $376,171, respectively), divided by the weighted average
number of Shares outstanding for the periods (20,580,086 and 20,587,465,
respectively).
As the Company has only one type of equity security and no contingently-issuable
Shares outstanding at March 31, 1999, diluted net income per share is the same
as basic net income per share.
NOTE 7 - Subsequent Events
On May 3, 1999, the Company securitized the Forest Hills, Lake Jackson and
Mountain Ranch FMBs through the Merrill Lynch P-FLOATS program. Through this
program, the Company sold these FMBs to Merrill Lynch. Merrill Lynch, in turn,
deposited the FMBs into a trust, created to hold these assets. Subsequently,
these FMBs were credit enhanced by Merrill Lynch. Two types of securities,
P-FLOATS and RITES, are created for each asset deposited into the trust. The
P-FLOATS are short-term floating rate interests in the trust which have priority
on the cash flows of the FMBs and bear interest at rates that are reset weekly
by the remarketing agent, Merrill Lynch. The P-FLOATS are sold to qualified
third party investors. The Company receives the proceeds from the sale of the
P-FLOATS less certain transaction costs and retains or purchases the residual
interests in the trust, the RITES. The RITES are the subordinate security and
receive the residual interest after the payment of all fees and the P-FLOATS
interest. These three FMBs, which had an aggregate face amount and carrying
value of $25,992,000 (not including the carrying value of bond selection fees
and expenses of approximately $510,000) at March 31, 1999, were sold to Merrill
Lynch for $25,992,000. The Company then paid approximately $23,000 for the RITES
interest relating to the Forest Hills FMB which has a face value of $5,000, and
will purchase the RITES interests relating to the other two FMBs shortly. For
financial reporting purposes, this securitization transaction will be recorded
as a sale of the FMBs, with gain or loss recognized based on the proceeds
received and the fair value of the RITES interests, with the carrying value of
the FMBs sold allocated between the sold and retained interests based on their
relative fair values.
During the period April 1, 1999 through May 14, 1999 the Company acquired four
FMBs for a purchase price of $32,015,000, not including bond selection fees and
expenses of approximately $640,000. One of the FMBs is a taxable FMB acquired in
connection with a tax-exempt FMB, both of which are secured by the same
Underlying Property. The obligors of the FMBs are local
13
<PAGE>
partnerships in which investment partnerships, whose general partners are
affiliates of the Manager, own a controlling partnership interest. Further
information regarding the FMBs are as follows:
<TABLE>
<CAPTION>
Face Face
Amount Amount
of Tax- of Stated No. of
Project Closing Call Date/ Exempt Taxable Interest Rental
Name Date Maturity Date FMB FMB Rate Units
- ------- -------- ------------- -------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Del Monte
Pines 5/6/99 5/1/17 $11,000,000 $ 0 6.800% 366
Fresno, CA 5/1/36
Greenbriar 5/6/99 5/1/17 9,585,000 2,015,000 (a) 199
Concord, CA 5/1/36
Sycamore
Woods 5/6/99 5/1/17 9,415,000 0 6.875% 186
Antioch, CA 5/1/36
</TABLE>
(a) The interest rates for Greenbriar are 6.875% and 9.000% with respect to the
tax-exempt FMB and the taxable FMB, respectively.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
Charter Municipal Mortgage Acceptance Company (the "Company") is a Delaware
business trust which is engaged in the acquisition and ownership (either
directly or indirectly) of tax-exempt participating and non-participating First
Mortgage Bonds ("FMBs") issued by various state or local governments or other
agencies or authorities and secured by participating and non-participating
mortgage loans on the Underlying Properties. As of March 31, 1999, the Company
owned 49 FMBs and had net assets of approximately $328,049,000.
The Company was formed by the consolidation (the "Consolidation"), on October 1,
1997, of Summit Tax Exempt Bond Fund, L.P. ("Tax Exempt I"), Summit Tax Exempt
L.P. II ("Tax Exempt II") and Summit Tax Exempt L.P. III ("Tax Exempt III"),
three publicly registered limited partnerships (the "Partnerships"). One of the
general partners of the Partnerships was an affiliate of Related Capital Company
("Related").
In order to generate increased tax exempt income and as a result enhance the
value of the Company's Shares, the Company intends to originate and acquire
additional tax-exempt bonds secured by multifamily properties. The Company
believes that it can earn above market rates of interest on its bond
acquisitions by focusing its efforts primarily on affordable housing. The
Manager estimates that nearly 50% of all new multifamily development contains an
affordable component which produces tax credits pursuant to Section 42 of the
Internal Revenue Code. The Company has designed a Direct Purchase Program
specifically designed to appeal to developers of such properties. In general,
these properties are smaller than traditional multifamily housing properties,
averaging 150 units. The traditional method of financing tax-exempt properties
requires the involvement of credit enhancement, rating agencies and investment
bankers. Therefore, the up-front cost of such financing is generally much higher
than traditional multifamily financing. Through its Direct Purchase Program, the
Company will originate and acquire tax-exempt bonds without the cost associated
with credit enhancement, rating agencies and investment bankers. The Company
believes that the up-front cost savings to the developer will translate into a
higher than market interest rate on the bonds acquired by the Company.
The Company is positioned to market its Direct Purchase Program as a result of
the Manager's affiliation with Related. Related and its predecessor companies
have specialized in offering debt and equity products to mid-market multifamily
owners and developers for over 25 years. Related has provided debt and equity
financing to properties valued at over $7.8 billion. In addition, since 1987
Related has been one of the nation's leading providers of equity to developers
of multifamily housing which benefit from tax credits. The Manager's affiliation
with Related has allowed it to become one of the dominant lenders to developers
and owners of affordable housing financed with tax-exempt bonds.
The Company does not operate as a mortgage REIT, which generally utilize high
levels of leverage and acquire subordinated interests in commercial and/or
residential mortgage-backed securities. Rather, the Company utilizes low levels
of leverage and generally originates and acquires long-term, fixed-rate,
tax-exempt FMBs. As a result, the Company did not experience the ill effects
associated with the volatile interest rate environment during 1998.
Pursuant to its Trust Agreement, the Company is only able to incur leverage or
other financing up to 50% of the Company's Total Market Value (as defined in the
Trust Agreement) as of the date incurred (the "50% Limit"). The Company expects
to seek shareholder approval at the
15
<PAGE>
1999 annual meeting to amend the Trust Agreement to permit the Company to exceed
the 50% Limit with respect to short term borrowings of no more than
approximately 5% of Total Market Value. Mortgage REITs typically incur leverage
at ratios ranging from between 3:1 to 10:1.
Due to the Company's low level of leverage, the Company has not been affected by
the recent lack of liquidity that is currently impairing mortgage REITs and its
portfolio does not contain assets that are especially vulnerable to volatility
during periods of interest rate fluctuations. In general, the FMBs that the
Company either originates or acquires call for ten-year restrictions from
prepayments, eliminating the Company's susceptibility to significant levels of
repayment risk as a result of interest rate reductions. Consistent with the
foregoing, the Company focuses on providing investors with a stable level of
distributions, even through unstable markets.
On May 21, 1998, the Company closed on its Private Label Tender Option Program
("TOP") in order to raise additional capital to acquire additional FMBs. As of
March 31, 1999, the maximum amount of capital which could be raised under the
TOP ($150,000,000) had been raised. In April 1999, the Company successfully
negotiated an increase in its TOP to $200,000,000. During 1999 and 1998, the
Company contributed 41 issues of FMBs in the aggregate principal amount of
approximately $403,357,000 to a Delaware business trust (the "Origination
Trust"), a wholly-owned subsidiary of the Company, which then contributed 27 of
those FMBs, with an aggregate principal amount of approximately $233,105,000, to
another Delaware business trust (the "Owner Trust"). The Owner Trust issued two
equity certificates: (i) a Senior Certificate, with an outstanding face amount
of $150,000,000 at March 31, 1999 (increased to $157,000,000 on April 22, 1999),
which has been deposited into another Delaware business trust (the "Certificate
Trust") which issued and sold Floater Certificates representing proportional
interests in the Senior Certificate to new investors and (ii) a Residual
Certificate representing the remaining beneficial ownership interest in the
Owner Trust, which has been issued to the Origination Trust, whose sole owner is
the Company. The FMBs remaining in the Origination Trust (aggregate principal
amount of approximately $170,252,000) are a collateral pool for the Owner
Trust's obligations under the Senior Certificate. In addition, the Owner Trust
obtained a municipal bond insurance policy from MBIA to credit enhance
Certificate distributions for the benefit of the holders of the Floater
Certificates and has also arranged for a liquidity facility, issued by a
consortium of highly rated European banks, with respect to the Floater
Certificates.
The end result of these transactions is that a portion of the interest received
by the Owner Trust on the FMBs it holds is distributed through the Senior
Certificate to the holders of the Floater Certificates in an amount determined
each week by the remarketing agent, Goldman Sachs & Co., at the distribution
amount that is required to enable the remarketing agent to sell the Floater
Certificates at par on any weekly determination date.
The Company's cost of funds relating to the TOP (calculated as income allocated
to the minority interest plus current fees as a percentage of the weighted
average amount of the outstanding Senior Certificate) was approximately 3.9% for
the period January 1, 1999 through March 31, 1999.
During 1998, an interim credit facility with Goldman Sachs & Company (the
"Interim Credit Facility") was available to the Company at prevailing rates of
interest for such accounts (5.98% at December 14, 1998). At March 31, 1999 there
were no borrowings outstanding. The Company is currently negotiating the renewal
or replacement of this facility with Goldman Sachs & Company and various other
lenders and, prior to the end of 1999, the Company expects to raise funds
through a private placement of preferred equity; however, there can be no
assurance at this time that these initiatives will be successful. If the Company
is unable to access additional capital through the foregoing initiatives, the
Company's ability to grow will be restricted.
16
<PAGE>
On January 4, 1999, the obligor of the Countryside North FMB (the "Countryside
North Obligor") completed a refinancing with an unaffiliated third party. The
Countryside North Obligor then fully repaid its outstanding debt due to the
Company totaling $5,135,417 including the FMB in the amount of $5,000,000, a
$100,000 prepayment penalty and accrued interest due through the repayment date
of $35,417 resulting in a loss on the repayment (including the prepayment
penalty and the write off of bond selection fees and expenses), in the amount of
$25,493 which is included in general and administrative expenses. The interest
income on the Countryside North FMB recognized for the three months ended March
31, 1999, through the date of sale, was $4,167.
During the period January 1, 1999 through May 14, 1999 the Company acquired five
FMBs for an aggregate purchase price of approximately $38,415,000, not including
bond selection fees and expenses of approximately $768,000.
The purchases were financed by the TOP.
During the three months ended March 31, 1999, cash and cash equivalents of the
Company and its consolidated subsidiary decreased approximately $5,601,000. This
decrease was primarily due to the purchase of an FMB ($6,400,000), the net
purchase of temporary investments ($5,000,000), an increase in deferred bond
selection costs ($166,000), loans made to property ($307,000) and distributions
paid ($5,357,000) which exceeded cash provided by operating activities
($6,586,000) and proceeds from repayment of an FMB ($5,100,000). Included in the
adjustments to reconcile the net income to cash provided by operating activities
is a loss on repayment of an FMB ($25,000) and net amortization ($179,000).
The Company's growth will be financed by the TOP or similar programs, funds
generated from operations in excess of distributions and by placements of
equity. The Company has entered into forbearance agreements on several FMBs and
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 the
Company's operating expenditures, debt service and distributions in future
years.
As part of the settlement of class action litigation relating to the
Partnerships, counsel ("Class Counsel") for the partners of the Partnerships had
the right to petition the United States District Court for the Southern District
of New York (the "Court") for additional attorneys' fees ("Counsel's Fee
Shares") in an amount to be determined in the Court's sole discretion. The
Counsel's Fee Shares were based upon a percentage (which Class Counsel proposed
to be 25%) of the increase in value of the Company, ("the Added Value") if any,
as of October 1, 1998 based upon the difference between (i) the trading prices
of the Company's shares of beneficial interest during the six month period ended
October 1, 1998 and (ii) the trading prices of the limited partnership units and
the asset values of the Partnerships prior to October 1, 1997. As of October 1,
1998, 25% of the Added Value amounted to $7,788,536 and, in accordance with an
Order and Stipulation of Settlement by the Court on February 18, 1999 (the
"Order"), Class Counsel was entitled to receive 608,955 shares of beneficial
interest in the Company. On April 15, 1999, the Company successfully negotiated
a discounted cash settlement (the "Discounted Cash Settlement") of $6,089,550
with Class Counsel in lieu of the issuance of shares. On April 26, 1999, the
Discounted Cash Settlement was approved by the Board of Trustees and it was paid
on May 3, 1999.
On May 3, 1999, the Company securitized the Forest Hills, Lake Jackson and
Mountain Ranch FMBs through the Merrill Lynch P-FLOATS program. Through this
program, the Company sold these FMBs to Merrill Lynch. Merrill Lynch, in turn,
deposited the FMBs into a trust, created to hold these assets. Subsequently,
these FMBs were credit enhanced by Merrill Lynch. Two types of securities,
P-FLOATS and RITES, are created for each asset deposited into the trust. The
P-FLOATS are short-term floating rate interests in the trust which have priority
on the cash flows of the FMBs and bear interest at rates that are reset weekly
by the remarketing agent, Merrill Lynch. The P-FLOATS are sold to qualified
third party investors. The Company receives the proceeds from the sale of the
P-FLOATS less certain transaction costs and retains or purchases the residual
interests in the trust, the RITES. The RITES are the subordinate security and
receive the residual interest after the payment of all fees and the P-FLOATS
interest. These three FMBs, which had an aggregate face amount and carrying
value of $25,992,000 (not including the carrying value of bond selection fees
and expenses of approximately $510,000) at March 31, 1999, were sold to Merrill
Lynch for $25,992,000. The Company then paid approximately $23,000 for the RITES
interest relating to the Forest Hills FMB which has a face value of $5,000, and
will purchase the RITES interests relating to the other two FMBs shortly.
In May 1999, a distribution of $4,939,437 ($.24 per share), which was declared
in March 1999, was paid to the shareholders from cash flow from operations for
the quarter ended March 31, 1999.
17
<PAGE>
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.
Results of Operations
For the three months ended March 31, 1999 as compared to 1998, total revenues,
total expenses and net income increased due to the acquisition of 18 FMBs during
1999 and 1998 and the repayment of one FMB during 1999. The Company's results of
operations for the three months ended March 31, 1999 and 1998 consisted
primarily of the results of the Company's investment in 49 and 32 FMBs,
respectively.
Interest income from FMBs increased approximately $2,110,000 for the three
months ended March 31, 1999 as compared to 1998. An increase of $2,119,000 was
due to the acquisition of 18 FMBs during 1999 and 1998 (the "1999 and 1998
Acquisitions"), a decrease of $90,000 was due to the repayment of one FMB during
1999 (the "1999 Repayment") and a decrease of $120,000 was due to the
amortization of goodwill in 1999 and the accretion of excess of acquired net
assets over cost in 1998, both relating to the Consolidation (see Note 1 to the
consolidated financial statements). Excluding the above increase and decreases,
interest income from FMBs increased approximately $201,000 for the three months
ended March 31, 1999 as compared to 1998 primarily due to an increase in
interest income from the Cypress Run FMB.
Interest income from temporary investments increased approximately $61,000 for
the three months ended March 31, 1999 as compared to 1998 primarily due to
higher invested cash balances in 1999.
Interest income from promissory notes increased approximately $19,000 for the
three months ended March 31, 1999 as compared to 1998 primarily due to loans
made to the obligors of the Lakepoint, Shannon Lake and Bristol Village FMBs
since March 31, 1998.
Interest expense decreased approximately $336,000 for the three months ended
March 31, 1999 as compared to 1998 primarily due to the repayment of the Interim
Credit Facility in December 1998.
Loan servicing fees increased approximately $70,000 for the three months ended
March 31, 1999 as compared to 1998 due to an increase of $73,000 and a decrease
of $3,000 relating to the 1999 and 1998 Acquisitions and the 1999 Repayment,
respectively.
General and administrative expenses increased approximately $460,000 for the
three months ended March 31, 1999 as compared to 1998. This increase was
primarily due to current fees relating to the TOP, an increase in audit/tax fees
and expense reimbursements to the Manager and its affiliates due to the 1999 and
1998 Acquisitions and a loss on the repayment of the Countryside North FMB in
1999.
Amortization increased approximately $111,000 for the three months ended March
31, 1999 as compared to 1998 primarily due to amortization of deferred bond
selection costs relating to the 1999 and 1998 Acquisitions and amortization of
deferred costs relating to the TOP.
Minority interest in income of subsidiary in the amount of approximately
$1,128,000 was recorded in 1999, relating to the TOP.
General
The determination as to whether it is in the best interest of the Company to
enter into forbearance agreements on the FMBs or, alternatively, to pursue its
remedies under the loan docu-
18
<PAGE>
ments, including foreclosure, is based upon several factors including, but not
limited to, Underlying Property performance, owner cooperation and projected
legal costs.
The difference between the stated interest rates and the rates paid by FMBs is
not accrued as interest income for financial reporting purposes. The accrual of
interest at the stated interest rate will resume once an Underlying Property's
ability to pay the stated rate has been adequately demonstrated. Interest income
of approximately $724,000 and $898,000 was not recognized for the three months
ended March 31, 1999 and 1998, respectively.
Cash Available for Distribution
The Company uses cash available for distribution ("CAD") as the primary measure
of its dividend paying ability. The difference between CAD and net income
results from variations between generally accepted accounting principles
("GAAP") and cash received. One difference between CAD and GAAP is the
amortization of loan origination costs, the costs of the TOP and other
intangible assets. These amounts have been excluded from CAD due to their
noncash nature. Another difference is the noncash gain or loss associated with
bond impairments, repayments and sales for GAAP purposes, which are not included
in the calculation of CAD. During the three months ended March 31, 1999, there
was a loss on the repayment of one FMB which is included in general and
administrative expenses. CAD should not be considered an alternative to net
income as a measure of the Company's financial performance or to cash flow from
operating activities (computed in accordance with GAAP) as a measure of the
Company's liquidity, nor is it necessarily indicative of sufficient cash flow to
fund all of the Company's needs.
19
<PAGE>
Cash available for distribution ("CAD") for the three months ended March 31,
1999 and 1998 is summarized in the following table:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Sources of Cash
Interest income:
First mortgage bonds $8,000,020 $5,890,264
Temporary investments 102,522 41,526
Promissory notes 165,159 145,799
Less: Accretion included in income (16,553) (99,406)
---------- ----------
Total sources of cash 8,251,148 5,978,183
---------- ----------
Uses of Cash
Total expenses and minority interest 2,262,179 829,627
Less: Amortization included in expenses (195,066) (46,856)
Loss on repayment of the Countryside North FMB (25,493) 0
---------- ----------
Total uses of cash 2,041,620 782,771
---------- ----------
Cash available for distribution 6,209,528 5,195,412
Less: distribution to the Manager (431,626) (326,963)
---------- ----------
Cash available for distribution to
shareholders $5,777,902 $4,868,449
========== ==========
Distribution to shareholders $4,939,434 $4,735,117
========== ==========
Payout ratio 85.5% 97.3%
========== ==========
Cash flows from:
Operating activities $ 6,586,018 $ 5,163,768
=========== ==========
Investing activities $(6,739,949) $(1,740,673)
=========== ==========
Financing activities $(5,446,943) $(4,986,069)
=========== ==========
</TABLE>
Forward-Looking Statements
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, which will, among other
things, affect the availability and creditworthiness of prospective tenants,
lease rents and the terms and availability of financing; adverse
20
<PAGE>
changes in the real estate markets including, among other things, competition
with other companies; risks of real estate development and acquisition;
governmental actions and initiatives; and environment/safety requirements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events.
Year 2000 Compliance
The Company utilizes the computer services of an affiliate of the Manager. The
affiliate of the Manager has upgraded its computer information systems to be
year 2000 compliant and beyond. The year 2000 compliance issue concerns the
inability of a computerized system to accurately record dates after 1999. The
affiliate of the Manager recently underwent a conversion of its financial
systems applications and upgraded all of its non-compliant, in-house software
and hardware inventory. The work stations which experienced problems during the
testing process were corrected with an upgrade patch. The costs incurred by the
Manager are not being charged to the Company. The most likely worst case
scenario that the Company faces is that computer operations will be suspended
for a few days to a week at January 1, 2000. The Company's contingency plan is
to have a complete backup done on December 31, 1999 and to have both electronic
and printed reports generated for all critical data up to and including December
31, 1999.
With regard to third parties, the Company's Manager is in the process of
evaluating the potential adverse impact that could result from the failure of
material service providers to be year 2000 compliant. A detailed survey and
assessment was sent to material third parties in the fourth quarter of 1998. The
Company has received assurances from a majority of the third parties with which
it interacts that these third parties have addressed the year 2000 issues and is
evaluating these assurances for their adequacy and accuracy. In cases where the
Company has not received assurances from third parties, it is initiating further
mail and/or phone inquiries. The Company relies heavily on third parties and is
vulnerable to the failures of third parties to address their year 2000 issues.
There can be no assurance given that the third parties will adequately address
their issues.
Inflation
Inflation did not have a material effect on the Company's results for the
periods presented.
Quantitative and Qualitative Disclosures About Market Risk
The nature of the Company's investments and the instruments used to raise
capital for their acquisition expose the Company to gains and losses due to
fluctuations in market interest rates. Market interest rates are highly
sensitive to many factors, including governmental policies, domestic and
international political considerations and other factors beyond the control of
the Company.
The FMBs generally bear interest at fixed rates, or pay interest according to
the cash flows of the Underlying Properties, which do not fluctuate with changes
in market interest rates. In contrast, payments required under the TOP program
vary based on market interest rates, primarily BMA, and are re-set weekly. Thus,
an increase in market interest rates would result in increased payments under
the TOP program, without a corresponding increase in cash flows from the
investments in FMBs. For example, based on the $150,000,000 outstanding under
the TOP program at March 31, 1999, the Company estimates that an increase of
0.5% in the BMA rate would decrease the Company's annual net income by
approximately $750,000; a 1.0% increase in BMA would decrease annual net income
by approximately $1,500,000. For the same
21
<PAGE>
reasons, a decrease in market interest rates would generally benefit the
Company, as a result of decreased allocations to the minority interest without
corresponding decreases in interest received on the FMBs. For example, based on
the $150,000,000 outstanding under the TOP program at March 31, 1999, the
Company estimates that a 0.5% decline in BMA rates would increase the Company's
annual net income by approximately $750,000, and a 1.0% decline in BMA would
increase net income by approximately $1,500,000. Various financial vehicles
exist which would allow Company management to mitigate the impact of interest
rate fluctuations on the Company's cash flows and earnings. Although management
has not engaged in any of these hedging strategies in the past, it may do so in
the future, depending on management's analysis of the interest rate environment
and the costs and risks of such strategies.
Changes in market interest rates would also impact the estimated fair value of
the Company's portfolio of FMBs. The Company estimates the fair value for each
bond as the present value of its expected cash flows, using a discount rate for
comparable tax-exempt investments. Therefore, as market interest rates for
tax-exempt investments increase, the estimated fair value of the company's FMBs
will generally decline, and a decline in interest rates would be expected to
result in an increase in the estimated fair values. For example, the Company
projects that a 1% increase in market rates for tax-exempt investments would
decrease the estimated fair value of its portfolio of FMBs from its March 31,
1999 value of $459,969,214 to approximately $417,353,000. A 1% decline in
interest rates would increase the value of the March 31, 1999 portfolio to
approximately $513,446,000. Changes in the estimated fair value of the FMBs do
not impact the Company's reported net income, earnings per share, distributions
or cash flows, but are reported as components of other comprehensive income and
affect reported shareholders' equity.
22
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings -
The Company is not a party to any material pending legal proceedings.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10(aaaar) First Mortgage Bond, dated as of March 26, 1999,
with respect to the Hamilton Garden Apartments
Project in the principal amount of $6,400,000
(filed herewith)
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
23
<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
(Registrant)
Date: May 14, 1999 By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Managing Trustee, President
and Chief Operating Officer
Date: May 14, 1999 By: /s/ John B. Roche
-----------------
John B. Roche
Chief Financial Officer
and Chief Accounting Officer
UNITED STATES OF AMERICA
STATE OF NEW JERSEY
The Mercer County Improvement Authority
Multifamily Housing Revenue Bond
(Hamilton Garden Apartments Project),
Series 1999
NEITHER THE COMMISSIONERS NOR ANY AGENTS, EMPLOYEES OR SERVANTS OF THE
ISSUER NOR ANY PERSONS EXECUTING THE BONDS SHALL BE LIABLE PERSONALLY ON THE
BONDS BY REASON OF THE ISSUANCE THEREOF. THE BONDS SHALL NOT BE A DEBT OF THE
COUNTY OF MERCER, THE STATE NEW JERSEY, OR ANY POLITICAL SUBDIVISION THEREOF
(OTHER THAN THE ISSUER), AND NEITHER THE COUNTY OF MERCER, THE STATE OF NEW
JERSEY, NOR ANY POLITICAL SUBDIVISION THEREOF (OTHER THAN THE ISSUER) SHALL BE
LIABLE THEREON, NOR IN ANY EVENT SHALL THE BONDS BE PAYABLE OUT OF ANY FUNDS OR
PROPERTIES OTHER THAN THOSE OF THE ISSUER SPECIFICALLY PLEDGED THERETO. THE
BONDS SHALL NOT CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY
CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. THE ISSUER HAS NO
TAXING POWER.
Number: R-1
Dated Date: March 26,1999
Maturity Date: March 1, 2035
Registered Owner: Charter Municipal Mortgage Acceptance Company
Principal Amount: SIX MILLION FOUR HUNDRED THOUSAND DOLLARS ($6,400,000)
Interest Rate: See "Interest on the Bonds" herein.
The Mercer County Improvement Authority (the "Issuer"), a public body
corporate and politic of the State of New Jersey (the "State"), created and
existing under and by virtue of the laws of the State, hereby acknowledges
itself indebted and for value received promises to pay to the registered owner
hereof stated above, or registered assigns, at the maturity date stated above,
but only from the sources and as hereinafter provided, upon presentation and
surrender of this Bond at the office of Commerce Bank, National Association, in
Cherry Hill, New Jersey or its successor as trustee (the "Trustee"), under the
Indenture (described below), the principal amount stated above, and to pay
interest on said principal amount at the interest rate set forth above, from and
including the dated date hereof until the principal amount shall have been paid
in accordance with the terms of this Bond and the Indenture, as and when set
forth below, but only from the sources and as hereinafter provided, by wire
transfer if there be one Owner of all of the Bonds or otherwise by check or
draft mailed to the record Owners of Bonds as the same appear upon the books of
registry to be maintained by the Trustee, as registrar.
<PAGE>
This Bond is one of a series of bonds (the "Bonds") issued pursuant to,
and is subject to, the Trust Indenture dated as of March 1, 1999 between the
Issuer and the Trustee (as amended and supplemented from time to time, the
"Indenture"), and Chapter 183 of the Pamphlet Laws of 1960 of the State of New
Jersey, as amended (the "Act"). Reference is made to the Indenture and the Act
for a full statement of their respective terms. Capitalized terms used herein
and not otherwise defined herein have the respective meanings accorded such
terms in the Indenture, which are hereby incorporated herein by reference. The
Bonds issued under the Indenture are expressly limited to S6,400,000 in
aggregate principal amount at any time Outstanding and are all of like tenor,
except as to numbers and denominations, and are issued for the purposes of
providing financing for the acquisition and substantial rehabilitation of
qualified multifamily rental housing units in the State.
The Bonds shall be special and limited obligations of the Issuer payable
only from the sources provided in the Indenture and neither the State nor any
other political subdivision thereof shall be liable on the Bonds. Neither the
State of New Jersey nor any political subdivision thereof shall in any event be
liable for the payment of the principal of or interest on any Bonds, or for the
performance of any pledge, mortgage, obligation or agreement of any kind
whatsoever that may be undertaken by the Issuer, and none of the Bonds or any
of its agreements or obligations shall be construed to constitute a debt or a
pledge of the faith and credit of the State of New Jersey or any political
subdivision thereof within the meaning of any constitutional or statutory
provision whatsoever, and shall not directly, indirectly or contingently
obligate the State of New Jersey or any of its political subdivisions to levy
or to pledge any form of taxation whatsoever therefor or to make an
appropriation for the payment thereof, nor shall any breach of any such pledge,
mortgage, obligation or agreement impose any pecuniary liability upon any
member, officer, employee or agent of the Issuer, or any charge upon the general
credit of the Issuer, or any pecuniary liability upon the Issuer payable from
any moneys, revenues, payments and proceeds other than those first above
specified.
Interest on the Bonds. The Bonds (including this Bond) shall bear
interest on the Outstanding principal amount thereof, payable on each Interest
Payment Date beginning on April 1, 1999 through and including the Interest
Payment Date next occurring after the Completion Date, at the rate of seven and
five-eighths percent (7.625%) per annum, and on each Interest Payment Date
thereafter at the rate of seven and one-eighth percent (7.125%) per annurn, in
all cases computed on the basis of a 360-day year of twelve 30-day months, until
paid on the Maturity Date or upon earlier redemption or acceleration.
Limited Recourse. Pursuant to a Loan Agreement dated as of March 1, 1999,
and a Promissory Note (the "Note") dated the date of issuance of the Bonds,
Hamilton Affordable Housing, L.L.C., a New Jersey limited liability company (the
"Developer"), has agreed to make payments to the Issuer in amounts equal to
amounts of principal of and premium, if any, and interest on the Bonds. THE
OBLIGATIONS OF THE ISSUER ON THIS BOND ARE EXPRESSLY LIMITED TO AND ARE PAYABLE
SOLELY FROM THE PAYMENTS MADE PURSUANT TO THE LOAN AGREEMENT AND THE NOTE BY
THE DEVELOPER, AND THE SECURITY THEREFOR PROVIDED BY THE FIRST MORTGAGE AND
SECURITY AGREEMENT FROM THE DEVELOPER FOR THE BENEFIT OF THE TRUSTEE, DATED AS
OF MARCH 1, 1999, THE ASSIGNMENT OF LEASES, RENTS AND OTHER INCOME FROM THE
DEVELOPER
2
<PAGE>
TO THE TRUSTEE, DATED AS OF MARCH 1, 1999, AND THE OTHER LOAN DOCUMENTS
IDENTIFIED IN THE INDENTURE, ALL OF WHICH HAVE BEEN ASSIGNED TO THE TRUSTEE
PURSUANT TO THE INDENTURE, AND (II) ANY ADDITIONAL SECURITY PROVIDED IN THE
INDENTURE.
Registration and Transfer. This Bond is transferable by the registered
owner hereof in person or by his attorney duly authorized in writing at the
office of the Trustee as registrar, but only in the manner, subject to the
limitations and upon payment of the charges provided in the Indenture, and upon
surrender and cancellation of this Bond. Upon such transfer a new registered
Bond or Bonds, of any authorized denomination or denominations, of the same
maturity and for the same aggregate principal amount will be issued to the
transferee in exchange herefor. The Bonds are issuable as fully registered Bonds
in Authorized Denominations as provided in the Indenture. The Issuer, the
Trustee, and any other person may treat the person in whose name this Bond is
registered on the books of registry as the Owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Bond be overdue, and no person shall be affected by notice to the contrary.
Redemption of Bonds. The Bonds are subject to mandatory redemption by the
Issuer and purchase in lieu of redemption by the Developer prior to maturity as
a whole or in part at such time or times, under such circumstances, at such
redemption prices and in such manner as is set forth in the Indenture. On or
after March 1, 2005, the Bonds shall be subject to optional redemption prior to
maturity in whole or in part on any Interest Payment Date with the proceeds of
an optional prepayment of the Loan by the Developer, at such redemption prices
and in such manner as is set forth in the Indenture.
Enforcement. Only the Majority Owner shall have the right to enforce the
provisions of this Bond or the Indenture or to institute any action to enforce
the covenants herein or therein, or to take any action with respect to any Event
of Default under the Indenture, or to institute, appear in or defend any suit or
other proceedings with respect thereto, except as provided in the Indenture. If
an Event of Default occurs and is continuing, the principal of all Bonds then
outstanding may be declared due and payable by the Majority Owner upon the
conditions and in the manner and with the effect provided in the Indenture. As
provided in the Indenture, and to the extent permitted by law, interest and a
penalty rate of interest shall be payable on unpaid amounts due hereon.
Discharge. The Indenture prescribes the manner in which it may be
discharged and after which the Bonds shall be deemed to be paid and no longer be
secured by or entitled to the benefits of the Indenture, except for the purposes
of registration and exchange of Bonds and of such payment.
Modifications. Modifications or alterations of the Indenture, or of any
supplements thereto, may be made only to the extent and in the circumstances
permitted by the Indenture.
This Bond shall not be valid or obligatory for any purpose until it shall
have been signed on behalf of the Issuer and such signature attested, by the
officer, and in the manner, provided in the Indenture, and authenticated by a
duly authorized officer of the Trustee, as Authenticating Agent.
3
<PAGE>
It is hereby certified and recited that all conditions, acts and things
required by the statutes of the State or by the Act or the Indenture to exist,
to have happened or to have been performed precedent to or in the issuance of
this Bond exist, have happened and have been performed and that the issue of
the Bonds, tocether with all other indebtedness of the Issuer, is within every
debt and other limit prescribed by said statutes.
4
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Bond to be executed in
its name bv the manual or facsimile signature of its Chairman, Vice Chairman or
Executive Director and attested, under a manual impression or authorized
facsimile of its corporate seal, with thc manual or facsimile signature of its
Secretary all as of the date first above written.
THE MERCER COUNTY IMPROVEMENT
AUTHORITY
By: /s/ Jay G. Destribats
---------------------------
Chairman
[SEAL]
Attest:
By: /s/ James R. Lambert
--------------------------
Secretary
5
<PAGE>
FORM OF CERTIFICATE OF AUTHENTICATION
This Bond is one of the Bonds described in the within mentioned Indenture
and is one of the Multifamily Housing Revenue Bonds (Hamilton Garden Apartments
Project), Series 1999 of The Mercer County Improvement Authority.
COMMERCE BANK, NATIONAL ASSOCIATION,
as Trustee and Authenticating Agent
By: /s/ Kenneth R. Nilson
------------------------------
Authorized Signatory
Date of Authentication: March 26, 1999
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto __________________ within and hereby authorizes the transfer of this Bond
on the registration books of the Trustee.
Dated:
------------------------------
------------------------------
Authorized Signature
------------------------------
Name of Transferee
- --------------------------------
Signature Guaranteed by
- --------------------------------
Name of Bank
By:
-----------------------------
Title:
--------------------------
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,492,149
<SECURITIES> 464,969,214
<RECEIVABLES> 9,484,771
<ALLOWANCES> 138,000
<INVENTORY> 0
<CURRENT-ASSETS> 26,692
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 491,748,694
<CURRENT-LIABILITIES> 13,700,026
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 328,048,668
<TOTAL-LIABILITY-AND-EQUITY> 491,748,694
<SALES> 0
<TOTAL-REVENUES> 8,267,701
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,253,811
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,368
<INCOME-PRETAX> 6,005,522
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,005,522
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
