<PAGE>
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, 2000
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 SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
-------------- --------------
September 30, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
ASSETS
First mortgage bonds-at fair value $728,773,055 $587,892,000
Other bond related investments-at fair value 9,360,000 560,000
Temporary investments 36,605,000 45,541,000
Cash and cash equivalents 25,603,715 8,653,503
Cash and cash equivalents-restricted 1,387,806 1,028,209
Interest receivable, net 3,796,788 2,803,278
Promissory notes receivable 10,180,079 10,148,060
Deferred costs, net 20,522,570 14,222,451
Goodwill, net 2,416,195 2,674,626
Other assets 472,654 268,097
------------ -------------
Total assets $839,117,862 $673,791,224
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Secured borrowings $80,698,630 $80,769,616
Accounts payable, accrued expenses and
other liabilities 2,819,066 2,306,306
Due to Manager and affiliates 1,607,278 1,218,211
Distributions payable to preferred shareholders
of subsidiary 2,651,081 1,490,625
Distributions payable to convertible
preferred shareholders 515,690 0
Distributions payable to common shareholders 5,454,396 5,453,971
------------ -------------
Total liabilities 93,746,141 91,238,729
------------ -------------
Minority interest in subsidiary
(subject to mandatory redemption) 250,000,000 177,000,000
------------ -------------
Preferred shares of subsidiary (subject to mandatory
repurchase) 169,000,000 90,000,000
------------ -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Beneficial owners' equity-convertible preferred
shareholders (1,946,000 shares, issued and
outstanding) 25,838,003 0
Beneficial owner's equity-manager 626,545 441,878
Beneficial owners' equity-other common shareholders
(50,000,000 shares authorized; 20,591,017 issued
and 20,582,617 outstanding and 20,589,375
shares issued and 20,580,975 outstanding in
2000 and 1999, respectively) 313,874,559 312,800,380
Treasury shares of beneficial interest (8,400 shares) (103,359) (103,359)
Accumulated other comprehensive income (loss) (13,864,027) 2,413,596
------------ -------------
Total shareholders' equity 326,371,721 315,552,495
------------ -------------
Total liabilities and shareholders' equity $839,117,862 $673,791,224
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
--------------------------- ---------------------
--------------------------- ---------------------
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------
2000 1999 2000 1999
--------------------------- ---------------------
<S> <C> <C> <C> <C>
Revenues:
Interest income:
First mortgage bonds $14,320,276 $10,045,763 $37,999,628 $26,466,707
Other bond related
investments 72,499 154,877 288,715 177,255
Temporary investments 861,495 556,614 1,985,887 814,611
Promissory notes 266,637 164,792 749,481 496,605
----------- ----------- ----------- -----------
Total revenues 15,520,907 10,922,046 41,023,711 27,955,178
----------- ----------- ----------- -----------
Expenses:
Interest expense 998,044 558,758 2,975,803 932,236
Recurring fees relating to the
Private Label Tender Option
Program 619,086 364,265 1,575,542 1,032,934
Loan servicing and asset
management fees 468,980 352,300 1,294,789 947,156
General and administrative 684,689 389,990 1,605,075 1,092,959
Amortization 139,650 105,944 376,579 270,270
----------- ----------- ----------- -----------
Total expenses 2,910,449 1,771,257 7,827,788 4,275,555
----------- ----------- ----------- -----------
Income before minority interests 12,610,458 9,150,789 33,195,923 23,679,623
Income allocated to preferred
shareholders of subsidiary (2,651,081) (1,490,625) (5,632,331) (1,523,750)
Minority interest in income of
subsidiary (2,742,145) (1,388,095) (7,153,903) (3,926,045)
----------- ----------- ----------- -----------
Net income $ 7,217,232 $ 6,272,069 $20,409,689 $18,229,828
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Allocation of net income to:
Special distribution to Manager $ 706,003 $ 540,172 $ 1,942,184 $ 1,434,413
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Manager $ 65,112 $ 57,319 $ 184,675 $ 167,954
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shareholders:
Common shareholders $ 5,889,308 $ 5,674,578 $17,417,379 $16,627,461
Convertible Preferred
Shareholders 556,809 0 865,451 0
----------- ----------- ----------- -----------
Total for shareholders $ 6,446,117 $ 5,674,578 $18,282,830 $16,627,461
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share
Basic $ .29 $ .28 $ .85 $ .81
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted $ .29 $ .28 $ .85 $ .81
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares
outstanding
Basic 22,528,617 20,580,975 21,605,063 20,580,682
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted 22,569,179 20,580,975 21,626,702 20,580,682
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Beneficial Beneficial
Owner's Owners'
Equity - Beneficial Equity- Treasury Accumulated
Convertible Owner's Other Shares of Comprehen- Other
Preferred Equity - Common Beneficial sive Comprehensive
Shareholders Manager Shareholders Interest Income Income (Loss) Total
------------- ----------- ------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 $ 441,878 $312,800,380 $(103,359) $ 2,413,596 $315,552,495
Issuance of shares of beneficial
interest 0 20,000 0 0 20,000
Issuance of convertible preferred
shares $25,782,922 25,782,922
Comprehensive income:
Net income 865,451 2,126,859 17,417,379 0 $20,409,689 0 20,409,689
Other comprehensive loss:
Net unrealized loss on first
mortgage bonds and bond related
investments:
Net unrealized holding loss arising
during the period (16,312,696)
Add: Reclassification adjustment
for loss included in net income
35,073
-----------
Other comprehensive loss (16,277,623) (16,277,623) (16,277,623)
-----------
Comprehensive income $ 4,132,066
-----------
-----------
Distributions (810,370) (1,942,192) (16,363,200) 0 0 (19,115,762)
------------ ------------ ------------- ---------- ------------ ------------
Balance at September 30, 2000 $25,838,003 $ 626,545 $313,874,559 $(103,359) $(13,864,027) $326,371,721
------------ ------------ ------------- ---------- ------------ ------------
------------ ------------ ------------- ---------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
-----------------------------
Nine Months Ended
September 30,
-----------------------------
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,409,689 $ 18,229,828
-------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on repayment of first mortgage bond 0 25,493
Loss on disposition of other bond related
investment 35,073 0
Amortization 376,579 270,270
Amortization of goodwill 258,431 210,613
Amortization of bond selection costs 571,557 275,835
Accretion of deferred income (36,426) (49,659)
Income allocated to preferred shareholders
of subsidiary 5,632,331 1,523,750
Changes in operating assets and liabilities:
Interest receivable (993,510) (528,970)
Other assets (204,557) (39,999)
Accounts payable, accrued expenses and
other liabilities 542,578 (5,762,791)
Due to Manager and
affiliates 452,273 107,986
-------------- --------------
Total adjustments 6,634,329 (3,967,472)
-------------- --------------
Net cash provided by operating activities 27,044,018 14,262,356
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from repayment of first mortgage bonds 191,874 5,100,000
Purchase of first mortgage bonds (157,356,358) (118,400,500)
Proceeds from repayment of other bond
related investment 5,000 0
Purchase of other bond related investments (9,009,000) (540,178)
Increase in deferred bond selection costs (3,670,261) (2,735,509)
Net sale (purchase) of temporary investments 8,936,000 (30,711,000)
Increase in other deferred costs (144,111) 0
Loans made to properties (200,000) (307,185)
Principal payments received from loans made to
properties 167,981 163,338
Increase in other assets 0 (251,500)
-------------- --------------
Net cash used in investing activities (161,078,875) (147,682,534)
-------------- --------------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements
5
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
-----------------------------
Nine Months Ended
September 30,
-----------------------------
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to the Manager and common
shareholders of the Company (18,183,373) (16,232,727)
Distributions paid to preferred shareholders
of subsidiary (4,471,875) 0
Distributions paid to convertible
preferred shareholders of the Company (294,680) 0
Increase in cash and cash equivalents - restricted (359,597) (870,154)
Proceeds from secured borrowings 0 52,807,000
Principal repayments of secured borrowings (70,986) 0
Increase in minority interest in subsidiary 73,000,000 7,000,000
Increase in deferred costs relating to the
Private Label Tender Option Program (536,531) (360,132)
Issuance of preferred stock of subsidiary 79,000,000 90,000,000
Increase in deferred costs relating to
the issuance of preferred stock of subsidiary (2,880,811) (3,604,878)
Issuance of convertible preferred shares of the
Company 25,782,922 0
------------ ------------
Net cash provided by financing activities 150,985,069 128,739,109
------------ ------------
Net increase (decrease) in cash and
cash equivalents 16,950,212 (4,681,069)
Cash and cash equivalents at the
beginning of the period 8,653,503 13,093,023
------------ ------------
Cash and cash equivalents at the
end of the period $ 25,603,715 $ 8,411,954
------------ ------------
------------ ------------
SUPPLEMENTAL INFORMATION:
Interest paid $ 2,987,852 $ 746,839
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES:
Payable to trustees liquidated through the issuance
of shares of beneficial interest $ 20,000 $ 20,000
------------ ------------
------------ ------------
Adjustment to goodwill due to the
Discounted Cash Settlement:
Decrease in goodwill $ 0 $ 1,698,986
Decrease in accounts payable, accrued
expenses and other liabilities 0 (1,698,986)
------------ ------------
$ 0 $ 0
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(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"). FMBs that contain provisions for participating interest are
referred to as "participating"; FMBs lacking this provision are
"non-participating".
The Company is governed by a board of trustees comprised of three independent
managing trustees and four managing trustees who are affiliated with Related
Capital Company ("Related"), a nationwide, fully integrated real estate
services firm. The Company has engaged Related Charter LP (the "Manager"), an
affiliate of Related, to manage its day-to-day affairs.
The consolidated financial statements include the accounts of the Company and
four majority owned subsidiary business trusts which it controls: CM Holding
Trust, Charter Mac Equity Issuer Trust, Charter Mac Origination Trust I and
Charter Mac Owner Trust I (see Notes 6 and 7). 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 September 30, 2000 and the
results of its operations for the three and nine months ended September 30,
2000 and 1999 and its cash flows for the nine months ended September 30, 2000
and 1999. 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 accounting principles
generally accepted in the United States of America ("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/A-1 for the year ended December 31, 1999.
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. Significant estimates in the financial
statements include the valuation of the Company's FMBs and other investments.
Certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 presentation.
In December of 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements." This bulletin summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. The Company's management believes that the guidance
expressed in the bulletin does not affect the Company's current revenue
recognition policies.
7
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities". This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. As
amended by SFAS No. 137 and 138, it is effective for the Company beginning
with the first quarter of 2001. Because the Company does not currently
utilize derivatives or engage in hedging activities, management does not
anticipate that implementation of this statement will have a material effect
on the Company's financial statements.
In September of 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities". This
statement replaces SFAS No. 125, which had the same name. It revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it carries over
most of SFAS No. 125's provisions without consideration. The Company's
management does not believe that application of this statement will have a
material impact on the Company's financial statements.
8
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
NOTE 2 - FIRST MORTGAGE BONDS
As of September 30, 2000, the Company and its consolidated subsidiaries owned
a portfolio of investments consisting of participating tax-exempt FMBs, fixed
rate tax-exempt FMBs, RITES, and taxable FMBs. The taxable FMBs were acquired
in connection with the purchase of tax-exempt FMBs and are secured by the
same Underlying Properties which secure the associated tax-exempt FMBs. The
following table provides certain information with respect to each of the FMBs.
<TABLE>
<CAPTION>
Table of Investments
--------------------
Stated Original Fair Value
Closing Interest Face Amount at September
Property Location Date Rate Call Date Maturity Date of FMB 30, 2000 (A)
-------- -------- -------- -------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tax-Exempt First Mortgage Bonds
-------------------------------
Owned by the Company (not including its consolidated subsidiaries)
------------------------------------------------------------------
Highpointe Club (K)(N) Harrisburg, PA 7/29/86 8.50% (Z) June 2006 $ 8,900,000 $5,639,000
------------- ----------
Owned by Charter Mac Equity Issuer Trust (H)
--------------------------------------------
Autumn Ridge San Marcos, CA 8/11/00 (AA) Aug. 2027 Aug. 2037 9,304,230 9,304,000
Bay Colony League City, TX 8/9/00 7.50 Jul. 2017 Jul. 2042 10,100,000 10,100,000
Barnaby Manor (P)(S)(X) Washington, DC 11/23/99 7.375 May 2017 May 2032 4,500,000 4,456,000
Casa Ramon (P)(X) Orange County, CA 6/8/99 (Q) 7.50 Oct. 2016 Sep. 2035 4,744,000 4,777,000
Del Monte Pines (R)(P)(X) Fresno, CA 5/6/99 6.80 May 2017 May 2036 11,000,000 10,043,000
Douglas Pointe(O)(S)(R)(X) Miami, FL 9/28/99 7.00 Oct. 2026 Sept. 2041 7,100,000 6,673,000
Forest Hills (R)(P)(X) Garner, NC 12/15/98 7.125 June 2016 June 2034 5,930,000 5,628,000
Fort Chaplin (M)(P)(X) Washington, DC 12/21/99 6.90 Jan. 2016 Jan. 2036 25,800,000 23,901,000
Franciscan Riviera (P)(R)(X) Antioch, CA 8/24/99 7.125 Apr. 2016 Aug. 2036 6,587,500 6,302,000
Garfield Park (P) Washington, DC 8/31/99 7.25 Aug. 2017 Aug. 2031 3,260,000 3,173,000
Grace Townhomes (O) Ennis, TX 5/23/00 7.50 June 2017 June 2042 5,225,600 5,262,000
Greenbriar (M)(P)(X) Concord, CA 5/6/99 6.875 May 2017 May 2036 9,585,000 8,847,000
Kings Villages Pasadena, CA 7/26/00 8.50 Dec. 2016 Dec. 2036 17,650,000 17,650,000
Hamilton Gardens (R)(P)(X) Hamilton, NJ 3/26/99 (U) Apr. 2015 Mar. 2035 6,400,000 6,106,000
Hidden Grove (X) Miami, FL 9/26/00 7.40 Oct. 2017 Oct. 2042 8,600,000 8,600,000
Lake Jackson (R)(X) Lake Jackson, TX 12/22/98 7.00 Jan. 2018 Jan. 2041 10,934,000 10,276,000
Lakemoor (O)(S) Durham, NC 12/23/99 7.25 Jan. 2017 Dec. 2041 9,000,000 8,761,000
Lake Park (P)(X) Turlock, CA 6/8/99 (T) 7.25 Oct. 2015 Sep. 2035 3,638,000 3,541,000
Lakes Edge At Walden (P)(M) Miami, FL 7/1/99 6.90 June 2016 May 2035 14,850,000 13,757,000
Lennox Park (O)(S)(M)(X) Gainesville, GA 7/29/99 6.80 Aug. 2021 July 2041 13,000,000 11,869,000
Lewis Place (O)(S)(M)(X) Gainsville, FL 6/22/99 (I) June 2016 June 2041 4,000,000 3,625,000
Mountain Ranch (R)(O)(X) Austin, TX 12/23/98 7.125 Jan. 2018 Jan. 2041 9,128,000 8,732,000
Newark Commons (O)(X) New Castle, DE 5/17/00 7.30 Nov. 2017 May 2043 14,300,000 14,016,000
Oaks at Hampton (X) Dallas, TX 4/27/00 7.20 Mar. 2017 Mar. 2040 9,535,000 9,217,000
</TABLE>
9
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
NOTE 2 - FIRST MORTGAGE BONDS (CONTINUED)
<TABLE>
<CAPTION>
Stated Original Fair Value
Closing Interest Face Amount at September
Property Location Date Rate Call Date Maturity Date of FMB 30, 2000 (A)
-------- -------- -------- -------- --------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Parks at Westmoreland De Sota, TX 7/17/00 8.50 Jul. 2017 Jul. 2040 9,535,000 9,535,000
Princess Anne House (O)(X) Virginia Beach, VA 4/6/00 7.50 Apr. 2027 Apr. 2042 7,500,000 7,552,000
Running Brook (X) Miami, FL 9/27/00 7.40 Jan. 2018 Dec. 2042 8,495,000 8,495,000
San Marcos (O)(X) San Marcos, TX 5/23/00 7.375 Mar. 2017 Mar. 2042 7,231,000 7,160,000
Southwest Trails (X) Austin, TX 8/14/00 7.35 June 2017 June 2042 6,500,000 6,500,000
Standiford (P)(R)(X) Modesto, CA 9/20/99 7.125 Apr. 2016 Aug. 2036 9,520,000 9,107,000
Summerlake (O)(S)(X) Davie, FL 3/14/00 7.40 Apr. 2027 Mar. 2042 5,600,000 5,564,000
Sunset Creek (M)(Y)(AB)(AE) Lancaster, CA 3/25/88 8.50 (AC) Mar. 2008 8,275,000 6,181,000
Sunset Village (M)(Y)(AB)(AE) Lancaster, CA 3/25/88 8.50 (AC) Mar. 2008 11,375,000 8,506,000
Sycamore Woods (R)(P)(X) Antioch, CA 5/6/99 6.875 May 2017 May 2036 9,415,000 8,691,000
Tallwood (O)(S)(R)(X) Virginia Beach, VA 9/30/99 7.25 Nov. 2017 Oct. 2041 6,205,000 6,040,000
Village Green Merced, CA 8/11/00 8.50 Jan. 2017 Jan. 2037 3,078,000 3,078,000
Village Green Merced, CA 8/11/00 8.50 Jan. 2014 Jan. 2014 503,528 504,000
-------------- ------------
317,403,858 301,529,000
-------------- ------------
<CAPTION>
Stated Original Fair Value
Closing Interest Face Amount at September
Property Location Date Rate Call Date Maturity Date of FMB 30, 2000 (A)
-------- -------- -------- -------- --------- ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Owned by Charter Mac Origination Trust I (H)(L)
-----------------------------------------------
Bay Club (K) Mt. Pleasant, SC 9/11/86 8.25 Sep. 2000 Sep. 2006 6,400,000 7,089,000
Clarendon Hills (K) Hayward, CA 12/8/86 5.52 Dec. 2003 Dec. 2003 17,600,000 13,044,000
Cypress Run (AB)(AE) Tampa, FL 8/14/86 5.50 Dec. 2005 Dec. 2030 15,402,428 13,269,000
East Ridge (K) Mt. Pleasant, SC 5/20/86 8.25 Mar. 2000 May 2010 8,700,000 9,637,000
Greenway Manor (K)(N) St. Louis, MO 10/9/86 8.50 (Z) Sept. 2006 12,850,000 14,665,000
The Lakes (K) Kansas City, MO 12/30/86 4.87 Dec. 2006 Dec. 2006 13,650,000 10,728,000
Loveridge (K)(N) Contra Costa, CA 11/13/86 8.00 (Z) Nov. 2006 8,550,000 5,740,000
Martin's Creek (K) Summerville, SC 5/20/86 8.25 Mar. 2000 May 2010 7,300,000 8,086,000
---------- ----------
90,452,428 82,258,000
---------- ----------
</TABLE>
10
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
NOTE 2 - FIRST MORTGAGE BONDS (CONTINUED)
<TABLE>
<CAPTION>
Stated Original Fair Value
Closing Interest Face Amount at September
Property Location Date Rate Call Date Maturity Date of FMB 30, 2000 (A)
-------- -------- -------- -------- --------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Owned by Charter Mac Owner Trust I (J) (H)
------------------------------------------
Bedford Square (X) Clovis, CA 8/25/98 (D) Sep. 2017 Aug. 2040 3,850,000 3,295,000
Bristol Village (AB) Bloomington, MN 7/31/87 7.50 Jan. 2010 Dec. 2027 17,000,000 17,118,000
Carrington Pointe (X) Los Banos, CA 9/24/98 6.375 Oct. 2017 Sep. 2040 3,375,000 2,889,000
Cedarbrook (X) Hanford, CA 4/28/98 7.125 May 2017 May 2040 2,840,000 2,714,000
Cedar Creek (AB)(AE) McKinney, TX 12/29/86 7.43 Oct. 2003 Oct. 2020 8,100,000 8,080,000
Cedar Pointe (K)(AB) Nashville, TN 4/22/87 7.00 Apr. 2006 Apr. 2017 9,500,000 8,928,000
Chapel Ridge of
Little Rock (O)(S)(X) Little Rock, AR 8/12/99 7.125 Aug. 2015 Aug. 2039 5,600,000 5,357,000
Chapel Ridge of
Texarkana (O)(S)(X) Texarkana, AR 9/29/99 7.375 Oct. 2016 Sept. 2041 5,800,000 5,743,000
College Park (O)(S) Naples, FL 7/15/98 (C) Jul. 2025 Jul. 2040 10,100,000 9,831,000
Columbia at Bells Ferry(O) Cherokee Co., GA 4/19/00 7.40 Apr. 2017 Apr. 2042 13,000,000 12,916,000
Country Lake (P) West Palm Beach, FL 11/9/99 (V) June 2015 June 2032 6,255,000 6,255,000
Crowne Pointe (K)(AB) Olympia, WA 12/31/86 7.25 Sept. 2011 Aug. 2029 5,075,000 4,940,000
Falcon Creek (O)(S)(X) Indianapolis, IN 9/14/98 (F) Sep. 2016 Aug. 2038 6,144,600 5,981,000
Gulfstream (P)(X) Dania, FL 7/22/98 7.25 Apr. 2016 Jul. 2038 3,500,000 3,400,000
Highland Ridge (K)(AB) St. Paul, MN 2/2/87 7.25 June 2010 June 2018 15,000,000 14,601,000
Jubilee Courtyards (X) Florida City, FL 9/15/98 (G) Oct. 2025 Sep. 2040 4,150,000 3,900,000
Lakepoint (K)(AB) Stone Mountain, GA 11/18/87 6.00 Jul. 2005 June 2017 15,100,000 12,164,000
Madalyn Landing (X) Palm Bay, FL 11/13/98 7.00 Dec. 2017 Nov. 2040 14,000,000 13,158,000
The Mansion (AB) Independence, MO 5/13/86 7.25 Jan. 2011 April 2025 19,450,000 19,289,000
Marsh Landings (X) Portsmouth, VA 5/20/98 7.25 Jul. 2017 Jul. 2030 6,050,000 5,884,000
Newport Village (K)(AB) Tacoma, WA 2/11/87 7.25 Sept. 2011 Aug. 2029 13,000,000 12,654,000
North Glen (K)(AB) Atlanta, GA 9/30/86 (W) Jul. 2005 June 2017 12,400,000 12,486,000
Northpointe Village (X) Fresno, CA 8/25/98 (E) Sep. 2017 Aug. 2040 13,250,000 13,342,000
Ocean Air (P)(S)(X) Norfolk, VA 4/20/98 7.25 Jan. 2016 Nov. 2030 10,000,000 9,734,000
Orchard Hills (K)(AB) Tacoma, WA 12/31/86 7.25 Sept. 2011 Aug. 2029 5,650,000 5,500,000
Orchard Mill (K)(AB) Atlanta, GA 12/31/86 7.50 Jul. 2005 June 2017 10,500,000 10,573,000
Pelican Cove (AB)(AE) St. Louis, MO 2/27/87 7.25 Oct. 2003 Oct. 2020 18,000,000 17,521,000
Phoenix (X) Stockton, CA 4/28/98 7.125 Nov. 2016 Oct. 2029 3,250,000 3,081,000
River Run (K)(X) Miami, FL 8/7/87 8.00 (Z) Aug. 2007 7,200,000 7,733,000
Shannon Lake (K)(AB) Atlanta, GA 6/26/87 (B) Jul. 2005 June 2017 12,000,000 11,278,000
Silvercrest (X) Clovis, CA 9/24/98 7.125 Oct. 2017 Sep. 2040 2,275,000 2,176,000
South Congress (P)(X) Austin, TX 5/3/00 7.50 Sep. 2016 Sep. 2036 6,300,000 6,344,000
Stone Creek (X) Watsonville, CA 4/28/98 7.125 May 2017 Apr. 2040 8,820,000 8,422,000
Sunset Downs (Y)(AB)(AE) Lancaster, CA 2/11/87 8.00 (AD) May 2007 15,000,000 11,060,000
Sunset Terrace (Y)(AB)(AE) Lancaster, CA 2/12/87 8.00 (AD) May 2007 10,350,000 7,631,000
</TABLE>
11
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
NOTE 2 - FIRST MORTGAGE BONDS (CONTINUED)
<TABLE>
<CAPTION>
Stated Original Fair Value
Closing Interest Face Amount at September
Property Location Date Rate Call Date Maturity Date of FMB 30, 2000 (A)
-------- -------- -------- -------- --------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Owned by Charter Mac Owner Trust I (J) (H)
------------------------------------------
Thomas Lake (AB) Eagan, MN 9/2/86 7.50 Jan. 2010 Dec. 2027 12,975,000 13,065,000
Walnut Creek (P) Austin, TX 5/4/00 7.50 Sep. 2016 Sep. 2036 3,240,000 3,263,000
Walnut Creek (P) Austin, TX 5/4/00 7.50 Sep. 2014 Sep. 2014 360,000 352,000
Walnut Park Plaza (X) Philadelphia, PA 4/11/00 7.50 Apr. 2010 May 2030 5,500,000 5,538,000
Willow Creek (K)(AB) Ames, IA 2/27/87 7.25 Jan. 2010 June 2022 6,100,000 5,938,000
------------ ------------
350,059,600 334,134,000
------------ ------------
Subtotal - Tax-Exempt First Mortgage Bonds 766,815,886 723,560,000
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Stated Original Fair Value
Closing Interest Face Amount at September
Property Location Date Rate Call Date Maturity Date of FMB 30, 2000 (A)
-------- -------- -------- -------- --------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Taxable First Mortgage Bonds
----------------------------
Owned by the Company (not including its consolidated subsidiaries)
------------------------------------------------------------------
Greenbriar (P)(X) Concord, CA 5/6/99 9.00 May 2017 May 2036 2,015,000 2,015,000
Lake Park (P)(X) Turlock, CA 7/15/99 9.00 Oct. 2015 Sep. 2035 375,000 375,000
Lakes Edge at Walden (P) Miami, FL 10/6/99 11.00 June 2000 Aug. 2010 1,400,000 1,711,111
Oaks at Hampton (X) Dallas, TX 4/27/00 9.00 May 2010 May 2010 525,000 525,000
Parks at Westmoreland (X) De Sota, TX 7/17/00 9.00 Nov. 2009 Nov. 2009 455,000 455,000
Princess Anne (X) Virginia Beach, VA 5/31/00 9.50 Jan. 2006 Jan. 2006 125,000 131,944
------------ --------------
Subtotal - Taxable First Mortgage Bonds 4,895,000 5,213,055
------------ --------------
Total First Mortgage Bonds $771,710,886 $728,773,055
------------ --------------
------------ --------------
</TABLE>
12
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
NOTE 2 - FIRST MORTGAGE BONDS (CONTINUED)
(A) The FMBs are deemed to be available-for-sale debt securities and,
accordingly, are carried at their estimated fair values at September 30,
2000.
(B) Pursuant to a bond modification as of October 1, 1997, the base interest
rate was lowered to 6% through July 31, 2000 and 7% thereafter.
(C) The interest rates for College Park are 7% during the construction period
and 7.25% thereafter.
(D) The interest rates for Bedford Square are 7% during the construction
period and 6.375% thereafter.
(E) The interest rates for Northpointe Village are 7.965% through
September 23, 1998, 8.125% during the remainder of the construction
period and 7.5% thereafter.
(F) The interest rates for Falcon Creek are 7% through August 31, 2000 and 7.25%
thereafter.
(G) The interest rates for Jubilee Courtyards are 7% through
September 30, 2000 and 7.125% thereafter.
(H) This entity is a consolidated subsidiary of the Company (see Notes 6 and 7).
(I) The interest rates for Lewis Place are 6.75% through May 31, 2001
and 7.00% thereafter.
(J) These FMBs have been transferred to Charter Mac Owner Trust I in connection
with the Company's Private Label Tender Option Program (TOP) (see Note 6).
(K) These FMBs are participating FMBs which contain additional interest features
contingent on available cash flow. FMBs that contain provisions for
participating interest are referred to as "participating"; FMBs lacking
this provision are "non-participating".
(L) The FMBs are held as collateral in connection with the TOP (see Note 6).
(M) These FMBs are pledged as collateral in connection with the Merrill Lynch
RITES/P-FLOATS Program (see Note 3).
(N) The original owners of the Underlying Properties and the obligors of these
FMBs have been replaced with affiliates of the Manager.
(O) The Underlying Property is under construction. In the event construction
is not completed in a timely manner, the Company may "put" the FMB to the
construction lender at par.
(P) The Underlying Property is undergoing substantial rehabilitation. In the
event rehabilitation is not completed in a timely manner, the Company may
"put" the FMB to the construction lender at par.
(Q) Initial advance in the amount of $50,000 was funded on June 8, 1999. The
balance was funded on July 14, 2000.
(R) Held by Merrill Lynch as collateral for secured borrowings (see Note 4).
(S) All of the "puts" (see (O) and (P) above) are secured by a letter of
credit issued by the construction lender to the Company.
(T) Initial advance in the amount of $50,000 was funded on June 8, 1999. The
balance was funded on July 15, 1999.
(U) The interest rates for Hamilton Gardens are 7.625% during the
construction period and 7.125% thereafter.
(V) The interest rates for Country Lake are 6% until expected refunding in
the fourth quarter 2000 and 7.25% thereafter.
(W) Pursuant to a bond modification as of October 1, 1997, the base interest
rate was lowered to 7% through June 30, 2000 and 7.50% thereafter.
(X) The obligors of these mortgage bonds are partnerships in which affiliates
of the Manager are partners that own a controlling interest.
(Y) The Company sold an option to acquire the Sunset bonds for $35,250,000.
The right to exercise the option shall commence on January 1, 2001 and shall
continue as long as the bonds are outstanding.
(Z) The Company is permitted to call the bond due with six months written
notice.
(AA)The interest rates for Autumn Ridge are 8% through July 31, 2001 and 7.65%
thereafter.
(AB)Pursuant to forbearance agreements, these FMBs have been modified.
(AC)These bonds are being modified pursuant to a forbearance agreement dated
as of January 28, 2000 with a reduction in the interest rate to 5.4766%
and an extension to call and maturity dates to December 2005 and December
2030, respectively.
(AD)These bonds are being modified pursuant to a forbearance agreement dated
as of January 28, 2000 with a reduction in the interest rate to 5.4766%
and an extension to call and maturity dates to December 2009 and December
2019, respectively.
(AE)Modifications of these FMBs are pending subject to issuer approval.
13
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
NOTE 2 - FIRST MORTGAGE BONDS (CONTINUED)
The weighted average interest rates recognized on the face amount of the
portfolio of FMBs for the three and nine months ended September 30, 2000 and
1999 were 7.80% and 7.46% and 7.53% and 7.11%, respectively.
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, the FMBs are carried at their estimated fair values,
with unrealized gains and losses reported in other comprehensive income.
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 the 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.
The original obligors and owners of the Underlying Properties of the Cedar
Creek, Highpointe, Pelican Cove and Loveridge FMBs have been replaced with
affiliates of the Manager who have not made equity investments. These affiliates
have assumed the day-to-day responsibilities and obligations of the Underlying
Properties. On September 29, 2000, the affiliates of the Manager sold 49% of
Pelican Cove and Cedar Creek, with an option from the buyers to purchase the
remaining 51% in 2001. These two FMBs were also modified. Under the modified
terms, the interest rates were reduced to 7.25% and 7.43%, respectively. Buyers
are being sought for the remaining two FMBs, who would make equity investments
in the Underlying Properties and assume the nonrecourse obligations of these
FMBs. 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 the
stated rate of the FMB. The Company has no present intention of declaring a
default on these FMBs. The aggregate carrying value of the remaining two FMBs at
September 30, 2000 and December 31, 1999 was approximately $11,379,000 and
$12,228,000, respectively, and the income earned from them for the nine months
ended September 30, 2000 and 1999 was approximately $637,000 and $636,000,
respectively.
From time to time, the Company, as an alternative to foreclosure in the event of
a default, enters into forbearance agreements and/or permanent modifications
with certain borrowers. The determination as to whether to enter into permanent
modifications or forbearance agreements on the FMBs, advance second mortgages,
or alternatively, to pursue remedies under the loan documents, including
foreclosure, is based upon several factors. These factors include, but are not
limited to, Underlying Property performance, market conditions, owner
cooperation and the projected costs of foreclosure and litigation, irrespective
of whether or not the obligor has an affiliation with the Manager. Payments
under each of the existing forbearance agreements are current as of September
30, 2000.
14
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
The obligors of (i) 53 FMBs, as noted in footnote X to the Table of Investments
above, and (ii) 2 RITES as noted under Other Bond Related Investments, are
partnerships in which affiliates of the Manager are partners that own a
controlling interest. Additionally, as discussed above, the original owners of
underlying properties and obligors of two FMBs, as noted in footnote N to the
Table of Investments above, have been replaced with affiliates of the Manager
who have not made equity investments. These affiliates could have interests
which do not coincide with, and may be adverse to, the interests of the Company.
Negotiations, if any, with respect to modifications of FMBs between the Company
and obligors who are affiliates may be affected by these conflicts as the
Manager determines the appropriate terms and conditions of modifications or
otherwise decides to pursue some other remedy including foreclosure.
Certain of the Company's FMBs, as noted in footnote AB to the Table of
Investments above, with an aggregate original face amount of $153,750,000, have
previously been modified. FMBs with an aggregate original face amount of
$86,502,428 are pending modification subject to issuer approval. These
modifications have generally encompassed extensions of the maturities of the
FMBs and extensions of prepayment lock out features and/or prepayment penalties
as well as extensions of the mandatory redemption features. Stated interest
rates have also been adjusted together with changes in the contingent interest
features. Base interest rates, contingent interest, prepayment lock-outs,
mandatory redemption and maturity features are arrived at through negotiations
between the Company and the obligors under the FMBs and vary dependent on the
facts of a particular FMB, the owner of the Underlying Property, the Underlying
Property's performance and requirements of bond counsel and local issuers.
Should negotiations break down, the Company has the option to pursue its
remedies including acceleration and foreclosure. In the future, the Company may
modify other FMBs to reflect generally similar terms as those modified
previously, where and as appropriate. Significant modifications to interest
rates and maturity dates are subject to final approval of the local issuers,
bond counsel and indenture trustees.
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 $1,304,000 and $1,859,000 for the nine months ended September 30,
2000 and 1999, respectively.
In addition to the stated base rates of interest, 19 and 28 of the FMBs at
September 30, 2000 and 1999, respectively, were participating FMBs, and so
provided for "contingent interest". During the nine months ended September 30,
2000 and 1999, 8 and 5 FMBs paid contingent interest amounting to approximately
$1,443,000 and $595,000, 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 to mitigate operating difficulties experienced
by Underlying Properties, 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 September 30, 2000 the face amount of such
15
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
advances was $15,146,890, their rates range from 8% to 13% and their carrying
value was $9,980,079, which is net of purchase accounting adjustments, and a
reserve for collectibility of $138,000. Two advances with an aggregate face
amount of $5,028,812, rates ranging from 8% to 10% and an aggregate carrying
amount of $0 were advanced to two obligors which are affiliates of the Manager.
The amortized cost basis of the Company's portfolio of FMBs at September 30,
2000 and December 31, 1999 was $742,645,201 and $585,474,109, respectively. The
net unrealized loss on FMBs in the amount of $13,872,146 at September 30, 2000
consisted of gross unrealized gains and losses of $10,889,170 and $24,761,316
respectively. The net unrealized gain on FMBs in the amount of $2,417,891 at
December 31, 1999 consisted of gross unrealized gains and losses of $16,484,461
and $14,066,570, respectively.
NOTE 3 - SECURITIZATION TRANSACTIONS
To raise additional capital to acquire additional FMBs, the Company has
securitized certain FMBs through the Merrill Lynch Pierce Fenner & Smith
Incorporated ("Merrill Lynch") P-FLOATS/RITES program. Under this program, the
Company transfers certain FMBs to Merrill Lynch. Merrill Lynch then deposits
each FMB into an individual special purpose trust created to hold such asset,
together with a Credit Enhancement Guarantee ("Guarantee"). Two types of
securities are then issued by each trust, evidencing ownership in the FMBs and
the Guarantee: (1) Puttable Floating Option Tax-Exempt Receipts ("P-FLOATS"), a
short-term senior security which bears interest at a floating rate that is reset
weekly by the Remarketing Agent, Merrill Lynch, to result in the sale of the
P-FLOAT security at par (up to 99% of the underlying face amount of the FMB);
and (2) Residual Interest Tax Exempt Securities ("RITES), a subordinate security
which receives the residual interest payment after payment of P-FLOAT interest
and ongoing transaction fees. The P-FLOATS are sold to qualified third party,
tax-exempt investors and the RITES are sold back to the Company. The Company has
the right, with 14 days notice to the trustee, to purchase the outstanding
P-FLOATS and withdraw the underlying FMBs from the trust. When the FMBs are
deposited into the P-FLOAT Trust, the Company receives the proceeds from the
sale of the P-FLOATS less certain transaction costs. In certain other cases,
Merrill Lynch may directly buy the FMBs from local issuers, deposit them in the
trust, sell the P-FLOAT security to qualified investors and then the RITES to
the Company.
For financial reporting purposes, due to the repurchase right, the Company
accounts for the net proceeds received upon the transfer of its FMBs to Merrill
Lynch through the P-FLOATS/RITES program as secured borrowings and, accordingly,
continues to account for the FMBs as its assets in the accompanying consolidated
balance sheets. When Merrill Lynch purchases FMBs directly and sells the RITES
to the Company, such RITES are classified as other bond related investments in
the accompanying consolidated balance sheets (See Note 4).
During the period May 1999 through December 1999, the Company transferred FMBs
with an aggregate face amount of $82,219,500 to Merrill Lynch through the
Merrill Lynch P-FLOATS/RITES program and received proceeds of $80,769,616. The
amortized cost basis of these FMB's at September 30, 2000 was $80,698,630.
16
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
As of September 30, 2000, Merrill Lynch held two FMBs, with an aggregate face
amount of $14,190,000 that were placed into a trust by Merrill Lynch whereby
P-FLOATS and RITES were sold. The Company purchased the related RITES interests
with an aggregate face amount of $10,000 for an aggregate purchase price of
$373,810 which includes bond selection and other transaction costs.
In order to facilitate the securitizations, the Company has pledged certain
additional FMBs, cash and cash equivalents and temporary investments as
collateral for the benefit of the credit enhancer or liquidity provider. At
September 30, 2000, the total carrying amount of such additional FMBs, cash and
cash equivalents and temporary investments pledged as collateral was
$90,523,000, $1,387,806 and $6,655,000, respectively.
The Company's cost of funds relating to its secured borrowings under the Merrill
Lynch P-FLOATS/RITES program (calculated as interest expense as a percentage of
the weighted average amount of the secured borrowings) was approximately 4.9%,
annualized, for the nine months ended September 30, 2000.
NOTE 4 - OTHER BOND RELATED INVESTMENTS
The Company's other bond related investments consist of investments in RITES
(see Note 3) and a $9,000,000 tax-exempt Multifamily Housing Revenue Refunding
Bond. This bond, which bears interest at 8.75% and matures on July 1, 2008, is
secured by a second mortgage and pledges of the partnership interests of the
entity which owns the underlying property. The following table provides certain
information with respect to each of the RITES.
<TABLE>
<CAPTION>
Face
Amount Amortized Fair
of Rites Cost Basis at Value at
FMB Date Face Amount Interest September September
Description/Location Purchased of FMB Purchased 30, 2000 30, 2000
-------------------- --------- ----------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Owned by the Company (not including its consolidated subsidiaries)
------------------------------------------------------------------
RITES-Meadowview Park/
Santa Rosa, CA 6/17/99 $ 6,250,000 $ 5,000 $156,936 $160,000
RITES-The Courtyards/
Santa Rosa, CA 6/17/99 7,940,000 5,000 194,946 200,000
----------- -------- --------- ----------
$14,190,000 $10,000 $351,882 $360,000
----------- -------- --------- ----------
----------- -------- --------- ----------
</TABLE>
Included in general and administrative expenses is approximately $35,000 of
acquisition fees and expenses written off as a result of the termination of the
RITES-Avalon Court/Oakley, CA. Bond selection fees incurred by the Company when
it purchased this RITE of approximately $165,000, paid to an affiliate have been
waived by the affiliate and are included as a reduction in amounts Due to
Manager and Affiliates.
17
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
NOTE 5 - DEFERRED COSTS
The components of deferred costs are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------------- --------------
<S> <C> <C>
Deferred bond selection costs $ 13,574,944 $ 9,904,683
Deferred costs relating to the Private Label Tender
Option Program 4,151,158 3,614,627
Deferred costs relating to the issuance of preferred
shares of subsidiary 6,486,142 3,605,331
Other 316,150 172,039
------------ -----------
24,528,394 17,296,680
Less: Accumulated amortization (4,005,824) (3,074,229)
------------ -----------
$ 20,522,570 $ 14,222,451
------------ -----------
------------ -----------
</TABLE>
NOTE 6 - 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. In
March 2000, the Company negotiated an increase in the maximum amount of capital
that can be raised under the TOP to $300,000,000. As of September 30, 2000, the
Company has contributed FMBs in the aggregate principal amount of approximately
$440,512,000 to Charter Mac Origination Trust I (the "Origination Trust"), a
wholly-owned, indirect subsidiary of the Company, which has contributed certain
of those FMBs, with an aggregate principal amount of approximately $350,060,000,
to Charter Mac Owner Trust I (the "Owner Trust") which is controlled by the
Company. The Owner Trust has issued two equity certificates: (i) a Senior
Certificate, with an outstanding face amount of $250,000,000 at September 30,
2000, 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. The FMBs
remaining in the Origination Trust (aggregate principal amount of approximately
$90,452,000) 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 Company owns no beneficial interest in,
and does not control, the Certificate Trust.
The effect of the TOP structure 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, with the residual interest
remitted to the Origination Trust via the Residual Certificate.
18
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
For financial accounting and reporting purposes, the Owner Trust, which is
controlled by the Company, is consolidated. The equity in the Owner Trust
represented by the Senior Certificate is classified as "minority interest in
subsidiary (subject to mandatory redemption)" in the accompanying consolidated
balance sheets. Income earned by the Owner Trust is allocated to the minority
interest in an amount equal to the distributions through the Senior Certificate
to the holders of the Floater Certificates. Such allocation of income is
classified as "minority interest in income of subsidiary" in the accompanying
consolidated statements of income.
The Company's cost of funds relating to the TOP (calculated as income allocated
to the minority interest plus recurring fees as a percentage of the weighted
average amount of the outstanding Senior Certificate) was approximately 5.4% and
4.3% for the nine months ended September 30, 2000 and 1999, respectively.
NOTE 7 - PREFERRED SHARES OF SUBSIDIARY
On June 29, 1999 a subsidiary of the Company completed a $90 million tax-exempt
preferred equity offering (the "Preferred Offering") comprised of 45 shares
("Series A Cumulative Preferred Shares") which were purchased by Merrill Lynch,
Legg Mason Wood Walker, Inc. and McDonald Investments, Inc. (the "Initial
Purchasers"). The Initial Purchasers then sold the Series A Cumulative Preferred
Shares to qualified institutional investors.
In connection with this transaction, the Company caused 100% of the ownership of
the Origination Trust to be transferred to Charter Mac Equity Issuer Trust (the
"Issuer"), a newly formed Delaware business trust and an indirectly-owned
subsidiary in which the Company owns 100% of the common equity. The Issuer then
issued the Series A Cumulative Preferred Shares. As a result of such
transaction, the Issuer became the direct and indirect owner of the entire
outstanding issue of FMBs held by the Origination Trust and Owner Trust, its
directly-owned and indirectly-owned subsidiaries (see Note 6). In addition to
contributing the ownership of the Origination Trust, the Company also
contributed certain additional FMBs to the Issuer. As of the closing, the
aggregate par value of FMBs held directly or indirectly by the Issuer or its
subsidiaries was $463,699,028. The Company received net proceeds of
approximately $86,391,000 from the Preferred Offering.
The Series A Cumulative Preferred Shares have an annual preferred dividend rate
of 6 5/8% through June 30, 2009, payable quarterly in arrears on January 31,
April 30, July 31 and October 31 of each year, which commenced October 31, 1999
and is payable upon declaration thereof by the Issuer's Board of Trustees, but
only to the extent of the Issuer's tax-exempt income (net of expenses) for the
particular quarter ("Quarterly Net Income"). The Series A Cumulative Preferred
Shares are subject to mandatory tender by the holders thereof for remarketing
and purchase on June 30, 2009 and each remarketing date thereafter at a price
equal to the Liquidation Amount of $2,000,000 per share plus, to the extent of
the Issuer's Quarterly Net Income, an amount equal to all distributions accrued
but unpaid on the Series A Cumulative Preferred Shares. Since inception, all
quarterly distributions have been declared at an annualized rate of 6 5/8% and
all distributions due have been paid.
19
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
Holders of the Series A Cumulative Preferred Shares may elect to retain their
shares upon a remarketing, with a distribution rate to be determined immediately
prior to the remarketing date by the remarketing agent. Each holder of the
Series A Cumulative Preferred Shares will be required to tender its shares to
the Issuer for mandatory repurchase on June 30, 2049, unless the Issuer decides
to remarket the shares on such date. The Issuer may not redeem the Series A
Cumulative Preferred Shares before June 30, 2009. After that date, all or a
portion of the shares may be redeemed, subject to certain conditions. The Series
A Cumulative Preferred Shares are not convertible into common shares of the
Issuer or of the Company.
The Series A Cumulative Preferred Shares rank, with respect to payment of
distributions and amounts upon liquidation, dissolution or winding-up of the
Issuer, senior to all classes or series of the Company's common shares and the
Company's Convertible Preferred Shares.
On July 21, 2000, a subsidiary of the Company completed a $79 million tax-exempt
preferred equity offering comprised of 48 "Series A-1 Cumulative Preferred
Shares" with an aggregate liquidation amount of $24 million and 110 "Series B
Subordinate Cumulative Preferred Shares" with an aggregate liquidation amount of
$55 million. The shares were purchased by Merrill Lynch & Co. and then sold to
qualified institutional investors. The Company received net proceeds of
approximately $76,141,000 from this offering.
The Series A-1 Cumulative Preferred Shares rank senior to the Company's common
shares and the Company's Convertible Preferred Shares and pari passu with the
Issuer's Series A Cumulative Preferred Shares (see Note 9) and senior to the
Series B Subordinate Cumulative Preferred Shares. The Series A-1 Cumulative
Preferred Shares have identical terms to the Series A Cumulative Preferred
shares except as to the annual preferred dividend rate of 7.10% and the
Liquidation Amount of $500,000 per share.
The Series B Subordinate Cumulative Preferred Shares rank senior to the
Company's common shares and the Company's Convertible Preferred Shares and
junior to the Issuer's Series A and Series A-1 Cumulative Preferred Shares. The
shares have an annual preferred dividend rate of 7.60% through November 30, 2010
payable quarterly in arrears on January 31, April 30, July 31 and October 31 of
each year commencing October 31, 2000 but only after payment of all
distributions payable with respect to the Series A and Series A-1 Cumulative
Preferred Shares and any other senior securities. The Series B Subordinate
Cumulative Preferred Shares are subject to mandatory tender by the holders at
the Liquidation Amount of $500,000 per share thereof for remarketing and
purchase on November 30, 2010 under the same terms as the Series A and Series
A-1 Cumulative Preferred Shares.
For financial accounting and reporting purposes, the Series A and Series A-1
Cumulative Preferred Shares and Series B Subordinate Cumulative Preferred Shares
are classified as "Preferred shares of subsidiary (subject to mandatory
repurchase)" in the accompanying consolidated balance sheets. Net income earned
by the Issuer and its two subsidiaries is allocated to the holders of the Series
A and Series A-1 Cumulative Preferred Shares and Series B Subordinate Cumulative
Preferred Shares in an amount equal to the distributions to such holders. Such
allocation of income is classified as "Income allocated to preferred
shareholders of subsidiary" in the accompanying consolidated statements of
income.
20
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
NOTE 8 - CAPITAL SHARES
The Company has adopted an incentive stock option plan (the "Incentive Share
Option Plan"), the purpose of which is to (i) attract and retain qualified
persons as directors and officers and (ii) to incentivize and more closely align
the financial interests of the Manager and its affiliates and their respective
employees and officers with the interests of the shareholders by providing the
Manager and its affiliates with substantial financial interest in the Company's
success. The Compensation Committee administers the Incentive Share Option Plan.
Pursuant to the Incentive Share Option Plan, if the Company's distributions per
common share in the immediately preceding calendar year exceed $.9517 per share,
the Compensation Committee has the authority to issue options to purchase, in
the aggregate, that number of common shares which is equal to 3% of the shares
outstanding as of December 31 of the immediately preceding calendar year,
provided that the Compensation Committee may only issue, in the aggregate,
options to purchase a maximum number of common shares over the life of the
Incentive Share Option Plan equal to 10% of the shares outstanding on October 1,
1997 (2,058,747 shares).
Subject to the limitations described in the preceding paragraph, if the
Compensation Committee does not grant the maximum number of options in any year,
then the excess of the number of authorized options over the number of options
granted in such year will be added to the number of authorized options in the
next succeeding year and will be available for grant by the Compensation
Committee in such succeeding year.
All options granted will have an exercise price equal to or greater than the
fair market value of the common shares on the date of the grant. The maximum
option term is ten years from the date of grant. All share options granted
pursuant to the Incentive Share Option Plan may vest immediately upon issuance
or in accordance with the determination of the Compensation Committee. The
Company's distributions per common share for the years ended December 31, 1997
and 1998 did not exceed $.9517 per share. In 1999, the Company distributed $.995
per common share, thus enabling the Compensation Committee, at their discretion,
to issue options. Three percent of the shares outstanding as of December 31,
1999 was equal to 617,430 shares.
On May 1, 2000, options to purchase 297,830 common shares were granted to
officers of the Company and certain employees of an affiliate of the Manager,
none of whom are employees of the Company. The exercise price of these options
is $11.5625 per share. The term of each option is ten years. The options will
vest in equal installments on May 1, 2001, 2002 and 2003. The Company has
adopted the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" for its share options issued to non-employees. Accordingly,
compensation cost is accrued based on the estimated fair value of the options
issued, and amortized over the vesting period. Because vesting of the options is
contingent upon the recipient continuing to provide services to the Company
until the vesting date, the Company estimates the fair value of the non-employee
options at each period end up to the vesting date, and adjusts expensed amounts
accordingly. The 297,830 options granted on May 1, 2000 had an estimated fair
value at September 30, 2000 of $.93 per option grant, or a total of $276,982.
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 2000: dividend yield of 7.91%, expected volatility of 14%, and
expected lives of ten years. None of the options granted during 2000 were
exercised
21
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
or expired. The Company recorded compensation cost of $70,953 during
the nine months ended September 30, 2000 relating to these option grants.
Through calendar year 1999, each independent trustee was 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 common shares based on the
fair market value at the date of issuance. Beginning in calendar year 2000, the
annual compensation for the two original independent trustees was increased from
$15,000 to $17,500 and the maximum payable in cash was increased from $5,000 to
$7,500. In 2000, a third independent trustee was appointed and such trustee will
receive annual compensation in the aggregate amount of $30,000 payable in cash
(maximum of $20,000 per year) and/or common shares. As of September 30, 2000 and
December 31, 1999, 3,552 and 1,910 Shares, respectively, having an aggregate
value at the date of issuance of $45,000 and $25,000, respectively, have been
issued to the independent trustees as compensation for their services.
Effective May 3, 2000, the Company implemented a dividend reinvestment and share
repurchase plan (the "Plan"). Under the Plan, common shareholders may elect to
have their distributions from the Company automatically reinvested in additional
common shares at a purchase price equal to the average of the high and low
market price from the previous day's trading. If a common shareholder
participates in the Plan, such shareholder may also purchase additional common
shares through quarterly voluntary cash payments with a minimum contribution of
$500. There are no commissions for common shares purchased under the Plan.
Participation in the Plan is voluntary and a common shareholder may join or
withdraw at any time. The opportunity for participation in the Plan began with
the distributions paid in August 2000. In order to participate in the "voluntary
share purchase" part of the Plan, a shareholder must participate in the
"dividend reinvestment" part of the Plan.
NOTE 9 - CONVERTIBLE PREFERRED SHARES
On May 10, 2000, the Company completed a $27,496,980 private placement of
convertible preferred shares (the "Convertible Preferred Shares") to three
financial institutions (1,946,000 Convertible Preferred Shares priced at $14.13
per share). The Company incurred an initial purchasers' discount of $1,109,220
and other related costs of $604,838 resulting in net proceeds of $25,782,922.
The Convertible Preferred Shares enable financial institutions to receive
certain regulatory benefits in connection with their investment. The Company has
developed a proprietary method for specially allocating these regulatory
benefits to specific financial institutions that invest in the Convertible
Preferred Shares. Other than the preferred allocation of regulatory benefits,
the preferred investors receive the same economic benefits as common
shareholders of the Company, including receipt of the same dividends per share
as those paid to common shareholders. Other than on matters relating to the
terms of the Convertible Preferred Shares or to amendments to the Company's
trust agreement, the Convertible Preferred Shares do not have any voting rights.
The Company's earnings are allocated pro rata among the common shares and the
Convertible Preferred Shares, and the Convertible Preferred Shares rank on
parity with the common shares with respect to rights upon liquidation,
dissolution or winding up of the Company. The preferred investors, at their
option, have the ability to convert their
22
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
Convertible Preferred Shares into common shares at a predetermined conversion
price of $15.33 per common share (a conversion ratio of 0.9217) which
represents the Company's book value per common share as of December 31, 1999.
Upon conversion, the preferred investors will no longer be entitled to a
special allocation of the regulatory benefit.
NOTE 10 - RELATED PARTY TRANSACTIONS
Pursuant to the Management Agreement, the Manager receives (inclusive of fees
paid directly to the Manager by subsidiaries of the Company) (i) bond selection
fees equal to 2% of the principal amount of each FMB or other instrument
acquired or invested in by the Company; (ii) special distributions equal to
.375% per annum of the total invested assets of the Company; (iii) loan
servicing fees equal to .25% per annum of the outstanding principal amount of
FMBs held by the Company (not including its consolidated subsidiaries) and .15%
per annum of the outstanding principal amount of FMBs held by the consolidated
subsidiaries of the Company; (iv) management fees equal to .10% per annum of the
total invested assets of the consolidated subsidiaries of the Company; (v) 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 (vi) reimbursement of
certain administrative costs incurred by the Manager and its affiliates on
behalf of the Company. Fees payable to the Manager which are based on FMBs or
assets of the Company include such FMBs or assets which are either held directly
by the Company or held by other entities to whom the Company has transferred
such FMBs or assets to facilitate financing. In addition, the Manager receives
bond placement fees from the borrower in an amount up to 1.5% of the principal
amount of each FMB or other instrument acquired or invested in by the Company.
Affiliates of the Manager are part of a joint venture which has a development
services agreement with the obligors of five FMBs.
The costs, expenses and the special distributions incurred to the Manager and
its affiliates for the three and nine months ended September 30, 2000 and 1999
were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ------------------------
2000 1999 2000 1999
-----------------------------------------------------
<S> <C> <C> <C> <C>
Bond selection fees $1,758,294 $1,518,710 $3,327,126 $2,817,610
Expense reimbursement 150,950 92,823 400,798 260,873
Loan servicing fees 284,839 218,938 786,736 618,225
Management fees 184,145 133,362 508,054 328,931
Special distribution 706,003 540,172 1,942,184 1,434,413
---------- ---------- --------- ----------
$3,084,231 $2,504,005 $6,964,898 $5,460,052
---------- ---------- --------- ----------
---------- ---------- --------- ----------
</TABLE>
GENERAL
As of September 30, 2000, the obligors of certain FMBs (see Note 2, footnote X),
are local partnerships in which investment partnerships, whose general partners
are affiliates of the Manager, own a controlling partnership interest. These
affiliates could have interests which do not coincide with, and may be adverse
to, the interests of the Company. Negotiations, if any, with respect to
modifications of FMBs between the Company and obligors who are affiliates may be
23
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
affected by these conflicts as the Manager determines the appropriate terms and
conditions of modifications or otherwise opts for some other remedy including
foreclosure.
As of September 30, 2000, the original owners of the Underlying Properties and
obligors of the Highpointe and Loveridge FMBs had been replaced with affiliates
of the Manager who have not made equity investments. These affiliates 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 or
otherwise buy the property and payoff all or most of the FMB obligation.
NOTE 11 - EARNINGS PER SHARE
Net income per share is computed in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings Per Share. Basic income per
share is calculated by dividing income allocated to common and convertible
preferred shareholders ("shareholders") (See Note 9) by the weighted average
number of common and convertible preferred shares outstanding during the period.
The convertible preferred shareholders are included in both the basic and
dilutive calculation of shares as they share the same economic benefits
as common shareholders, including receipt of the same dividends per share
pari passu with common shareholders. Diluted income per share is calculated
using the weighted average number of shares outstanding during the period plus
the additional dilutive effect of common stock equivalents. The dilutive effect
of outstanding stock options is calculated using the treasury stock method, and
the dilutive effect of convertible preferred stock is calculated using the "if
converted" method.
24
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 2000
---------------------------------------------------------------
Income Shares Per - Share
(Numerator) (Denominator) Amount
------------------- ----------------- ------------------
<S> <C> <C> <C>
Allocation of income
to shareholders $6,446,117
----------
Basic net income per share 6,446,117 22,528,617 $ 0.29
---------
---------
Effect of dilutive securities:
297,830 stock options 0 40,562
----------- ----------
Diluted net income per share $6,446,117 22,569,179 $ 0.29
----------- ---------- ---------
----------- ---------- ---------
<CAPTION>
For the Nine Months Ended September 30, 2000
-------------------------------------------------------------
Income Shares Per - Share
(Numerator) (Denominator) Amount
------------------ ----------------- -----------------
<S> <C> <C> <C>
Allocation of income
to shareholders $18,282,830
-----------
-----------
Basic net income per share 18,282,830 21,605,063 $ 0.85
---------
---------
Effect of dilutive securities:
297,830 stock options 0 21,639
------------ ----------
Diluted net income per share $18,282,830 21,626,702 $ 0.85
------------ ---------- ---------
------------ ---------- ---------
</TABLE>
For the three and nine months ended September 30, 1999, the Company had no stock
options outstanding, thus basic and diluted earnings per share were the same.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
On November 2, 1999, the Company and American Tax Exempt Bond Trust ("ATEBT"),
whose manager is an affiliate of the Manager of the Company, entered into a
merger agreement pursuant to which ATEBT would merge with and into CM Holding
Trust, a wholly-owned subsidiary of the Company. Following the merger, CM
Holding Trust would continue to be a wholly-owned subsidiary of the Company.
ATEBT is a Delaware business trust which owns four tax-exempt first mortgage
bonds and had total assets of approximately $26,599,000 and net assets of
approximately $25,078,000 at September 30, 2000. The four tax-exempt first
mortgage bonds have an aggregate face amount of $23,775,000 at September 30,
2000, have interest rates of 9% and have underlying properties located in four
different states.
Under the terms of the merger agreement, each share of beneficial ownership in
ATEBT outstanding on the effective date of the proposed merger (1,501,481 shares
at September 30, 2000) will be converted into the right to receive 1.43112
common shares of the Company. In addition,
25
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
the manager of ATEBT (which owns a 1% interest in ATEBT not currently
represented by ATEBT shares) will receive 21,156 common shares of the
Company. Following the merger, current ATEBT shareholders will own
approximately 9.3% of the outstanding common shares of the Company.
ATEBT shareholders approved the merger in September 2000. Either entity has
the ability to opt out of the transaction if the 30-day average trading price
of the Company's common shares preceding the closing of the transaction is
outside of the Company's historical trading range of $11.13 to $14.50. The
Company and ATEBT expect that this transaction will close during the fourth
quarter of 2000.
NOTE 13 - SUBSEQUENT EVENTS
ACQUISITIONS
During the period October 1, 2000 through November 13, 2000 the Company acquired
eight FMBs for an aggregate purchase price of $60,221,000, not including bond
selection fees and expenses of approximately $1,204,000. Two of the FMBs are
taxable FMBs acquired in connection with the purchase of tax-exempt FMBs. The
taxable FMBs are secured by the same Underlying Properties which secure the
associated tax-exempt FMBs. Further information regarding these FMBs is as
follows:
26
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Stated Face No. of
Closing Interest Call Date/ Amount Rental
Property/Location Date Rate Maturity Date of FMB Units
----------------- -------- --------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Tax-Exempt First Mortgage Bonds
-------------------------------
Owned by Charter Mac Equity Issuer Trust
----------------------------------------
Park Sequoia 10/17/00 (A) 3/1/17 6,740,000 81
San Jose, CA 3/1/42
Armstrong Farm 10/19/00 7.50% 12/1/17 8,246,000 168
Jeffersonville, IN 11/1/40
Chapel Ridge of Claremore 10/26/00 7.50% 10/1/17 4,100,000 104
Claremore, OK 10/1/42
Chandler Creek 10/31/00 (B) 12/1/17 15,850,000 216
Round Rock, TX 11/1/42
Greenbridge at Buckingham 11/7/00 7.40% 3/1/17 19,735,000 242
Richardson, TX 11/1/40
Woods Edge 11/13/00 (D) 11/1/17 4,850,000 97
Charlottesville, VA 11/1/40
-----------
Taxable First Mortgage Bonds $59,521,000
---------------------------- -----------
-----------
Owned by the Company (not including its consolidated subsidiaries)
------------------------------------------------------------------
Chandler Creek 10/31/00 (C) 9/1/07 350,000 216
Round Rock, TX 9/1/07
Greenbridge at Buckingham 11/7/00 10.00% 2/1/07 350,000 242
Richardson, TX 2/1/07
-----------
$ 700,000
-----------
-----------
</TABLE>
(A) The interest rates for Park Sequoia are 8.50% through August 31, 2001 and
7.50% thereafter.
(B) The interest rates for tax-exempt Chandler Creek are 8.50% through November
30, 2002 and 7.60% thereafter.
(C) The interest rates for taxable Chandler Creek are 9.75% through November 30,
2002 and 9.25% thereafter.
(D) The interest rates for Woods Edge are 7.80% through November 30, 2002 and
7.50% thereafter.
27
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
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"). FMBs that
contain provisions for participating interest are referred to as
"participating"; FMBs lacking this provision are "non-participating".
In order to generate increased tax exempt income and, as a result, enhance the
value of the Company's Shares, the Company intends to invest in or 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, averaging 150 units, are smaller than traditional multifamily
housing properties. The traditional method of financing tax-exempt properties
requires credit enhancement and the involvement of 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 invest in or 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 believes that it is well positioned to market its Direct Purchase
Program as a result of the Manager's affiliation with Related Capital Company
("Related"), a nationwide, fully integrated real estate services firm. The
Manager is a single purpose affiliate of Related which is controlled by the same
individuals and entities which own Related. The Manager benefits from its
affiliation with Related because the Manager is able to utilize Related's
resources and relationships in the multifamily affordable housing finance
industry to source potential borrowers of first mortgage bonds which the Company
could invest in or acquire. For over 25 years, Related and its predecessor
companies have specialized in offering debt and equity products to mid-market
multifamily owners and developers. Related has provided debt and equity fiancing
to properties valued at over $9 billion. According to the 1999 National
Multihousing Council survey, Related is the third largest owner of apartments in
the United States.
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 invests in or 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 1999 and 1998.
Pursuant to its Trust Agreement, the Company is only able to incur leverage or
other financing up
28
<PAGE>
to 50% of the Company's Total Market Value (as defined in the
Trust Agreement) as of the date incurred. Mortgage REITs typically incur
leverage at ratios ranging from between 3:1 to 10:1.
In general, the FMBs that the Company either invests in or acquires call for
ten-year restrictions from prepayments, eliminating the Company's susceptibility
to significant levels of repayment risk as a result of declining interest rates.
Consistent with the foregoing, the Company focuses on providing investors with a
stable level of distributions, even through unstable markets.
The Company requires long-term financing in order to invest in and hold its
portfolio of FMBs. To date, this long-term liquidity has come from the Company's
Private Label Tender Option Program, preferred equity offerings by a subsidiary,
the issuance of convertible preferred shares and secured borrowings under
securitization transactions (see "Capital Raising Transactions" below). These
financing sources have expected lives equal to the expected lives of the FMBs
used to collateralize them although, in accordance with prudent business
practice and industry standards, the surety and liquidity commitment relating to
the Private Label Tender Option Program have shorter terms. The surety
commitment has three years remaining on its five year term and the liquidity
commitment is a one year renewable commitment. The Company expects to renew or
replace such commitments upon expiration of their terms. On a short-term basis,
the Company requires funds to pay its operating expenses and to make
distributions to its shareholders. The primary sources of the Company's
short-term liquidity are the interest income from the FMBs and promissory notes
in excess of the related financing costs, and interest income from cash and
temporary investments. The Company believes that its long-term financing
sources, explained in more detail below, and its short-term liquidity are
adequate to meet its current and projected long-term and short-term liquidity
requirements.
During the nine months ended September 30, 2000 cash and cash equivalents of the
Company and its consolidated subsidiaries increased approximately $16,950,000.
The increase was primarily due to cash provided by operating activities
($27,044,000), proceeds from repayment of first mortgage bonds ($192,000), the
net sale of temporary investments ($8,936,000), principal payments received from
loans made to properties ($168,000), an increase in minority interest in
subsidiary ($73,000,000), the issuance of preferred stock of subsidiary
($79,000,000) and the issuance of convertible preferred shares ($25,783,000).
Uses of cash included the purchase of first mortgage bonds ($157,356,000),
purchase of other bond related investments ($9,009,000), an increase in deferred
bond selection costs ($3,670,000), an increase in other deferred costs
($144,000), loans made to properties ($200,000), distributions paid to the
Manager and shareholders of the Company, to preferred shareholders of subsidiary
and to convertible preferred shareholders ($22,950,000), an increase in
restricted cash and cash equivalents ($360,000), an increase in deferred costs
relating to the issuance of preferred stock of subsidiary ($2,881,000) and an
increase in deferred costs relating to the Private Label Tender Option Program
($537,000). Included in the adjustments to reconcile the net income to cash
provided by operating activities is a loss on a disposition of other bond
related investment ($35,000) and net amortization of ($1,170,000).
The Company, as an alternative to foreclosure in the event of a default, 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
and RITES are anticipated to provide sufficient liquidity to fund the Company's
operating expenditures, debt service and distributions in future years.
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-
29
<PAGE>
ments, including foreclosure, is based upon several factors including, but
not limited to, Underlying Property performance, owner cooperation and
projected legal costs irrespective of whether the obligor has an affiliation
with the Manager or not.
The difference between the stated interest rates and the rates paid by FMBs,
under forbearance agreement, 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 $242,000 and $433,000
and $1,304,000 and $1,859,000 was not recognized for the three and nine months
ended September 30, 2000 and 1999, respectively.
In October and November 2000, distributions of $1,490,625 ($33,125 per Series A
preferred share), $336,067 ($7,001 per Series A-1 preferred share), $824,389
($7,494 per Series B preferred share), $515,690 ($.265 per cumulative preferred
share) and $5,454,396 ($.265 per share), respectively, which were declared in
September 2000, were paid to the preferred shareholders of subsidiary and to the
shareholders of the Company, respectively, from cash flow from operations for
the quarter ended September 30, 2000.
The Company sold an option to acquire the Sunset bonds for $35,250,000. The
right to exercise the option shall commence on January 1, 2001 and shall
continue as long as the bonds are outstanding.
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.
CAPITAL RAISING TRANSACTIONS
(i) PRIVATE LABEL TENDER OPTION PROGRAM
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 and March 2000, the Company
successfully negotiated increases in its TOP to $200,000,000 and $300,000,000,
respectively. As of September 30, 2000, the Company has contributed FMBs in the
aggregate principal amount of approximately $440,512,000 to Charter Mac
Origination Trust I (the "Origination Trust"), a wholly-owned, indirect
subsidiary of the Company, which has contributed certain of those FMBs, with an
aggregate principal amount of approximately $35,006,000, to Charter Mac Owner
Trust I (the "Owner Trust") which is controlled by the Company. The Owner Trust
has issued two equity certificates: (i) a Senior Certificate, with an
outstanding face amount of $250,000,000 at September 30, 2000, 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. The FMBs remaining in the Origination Trust
(aggregate principal amount of approximately $90,452,000) 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.
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The effect of the TOP structure 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, with the residual interest
remitted to the Origination Trust via the Residual Certificate.
The Company's cost of funds relating to the TOP (calculated as income allocated
to the minority interest plus recurring fees as a percentage of the weighted
average amount of the outstanding Senior Certificate) was approximately 5.4% and
4.39% for the nine months ended September 30, 2000 and 1999, respectively.
(ii) PREFERRED EQUITY ISSUANCE BY SUBSIDIARY
On June 29, 1999 a subsidiary of the Company completed a $90 million tax-exempt
preferred equity offering (the "Preferred Offering") comprised of 45 shares
("Series A Cumulative Preferred Shares") which were purchased by Merrill Lynch,
Legg Mason Wood Walker, Inc. and McDonald Investments, Inc. (the "Initial
Purchasers"). The Initial Purchasers then sold the Series A Cumulative Preferred
Shares to qualified institutional investors.
In connection with this transaction, the Company caused 100% of the ownership of
the Origination Trust to be transferred to Charter Mac Equity Issuer Trust (the
"Issuer"), a newly formed Delaware business trust and an indirectly-owned
subsidiary in which the Company owns 100% of the common equity. The Issuer then
issued the Series A Cumulative Preferred Shares. As a result of such
transaction, the Issuer became the direct and indirect owner of the entire
outstanding issue of FMBs held by the Origination Trust and Owner Trust, its
directly-owned and indirectly-owned subsidiaries (see (i) Private Label Tender
Option Program, above). In addition to contributing the ownership of the
Origination Trust, the Company also contributed certain additional FMBs to the
Issuer. As of the closing, the aggregate par value of FMBs held directly or
indirectly by the Issuer or its subsidiaries was $463,699,028. Net proceeds of
approximately $86,391,000 from the Preferred Offering have been used to invest
in or acquire additional tax-exempt assets for the Issuer.
The Series A Cumulative Preferred Shares have an annual preferred dividend rate
of 6 5/8% through June 30, 2009, payable quarterly in arrears on January 31,
April 30, July 31 and October 31 of each year, commencing October 31, 1999 and
payable upon declaration thereof by the Issuer's Board of Trustees, but only to
the extent of the Issuer's tax-exempt income (net of expenses) for the
particular quarter ("Quarterly Net Income"). The Series A Cumulative Preferred
Shares are subject to mandatory tender by the holders thereof for remarketing
and purchase on June 30, 2009 and each remarketing date thereafter at a price
equal to the $2,000,000 per share plus, to the extent of the Issuer's Quarterly
Net Income, an amount equal to all distributions accrued but unpaid on the
Series A Cumulative Preferred Shares. Since inception, all quarterly
distributions have been declared at an annualized rate of 6 5/8% and all
distributions due have been paid.
Holders of the Series A Cumulative Preferred Shares may elect to retain their
shares upon a remarketing, with a distribution rate to be determined immediately
prior to the remarketing date by the remarketing agent. Each holder of the
Series A Cumulative Preferred Shares will be required to tender its shares to
the Issuer for mandatory repurchase on June 30, 2049, unless the Issuer decides
to remarket the shares on such date. The Issuer may not redeem the Series A
Cumulative Preferred Shares before June 30, 2009. After that date, all or a
portion of the shares
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may be redeemed, subject to certain conditions. The Series A Cumulative
Preferred Shares are not convertible into common shares of the Issuer or
Shares of the Company.
The Series A Cumulative Preferred Shares rank, with respect to payment of
distributions and amounts upon liquidation, dissolution or winding-up of the
Issuer, senior to all classes or series of common shares of the Issuer and
therefore, of the Company.
On July 21, 2000, a subsidiary of the Company completed a $79 million tax-exempt
preferred equity offering comprised of 48 "Series A-1 Cumulative Preferred
Shares" with an aggregate liquidation amount of $24 million and 110 "Series B
Subordinate Cumulative Preferred Shares" with an aggregate liquidation amount of
$55 million. The shares were purchased by Merrill Lynch & Co. and then sold to
qualified institutional investors. The Company received net proceeds of
approximately $76,141,000 from this offering.
The Series A-1 Cumulative Preferred Shares rank senior to the Company's common
shares and the Company's Convertible Preferred Shares and pari passu with the
Issuer's Series A Cumulative Preferred Shares and senior to the Series B
Subordinate Cumulative Preferred Shares. The Series A-1 Cumulative Preferred
Shares have identical terms to the Series A Cumulative Preferred shares except
as to the annual preferred dividend rate of 7.10% and the Liquidation Amount of
$500,000 per share.
The Series B Subordinate Cumulative Preferred Shares rank senior to the
Company's common shares and the Company's Convertible Preferred Shares and
junior to the Issuer's Series A and Series A-1 Cumulative Preferred Shares. The
shares have an annual preferred dividend rate of 7.60% through November 30, 2010
payable quarterly in arrears on January 31, April 30, July 31 and October 31 of
each year commencing October 31, 2000 but only after payment of all
distributions payable with respect to the Series A and Series A-1 Cumulative
Preferred Shares and any other senior securities. The Series B Subordinate
Cumulative Preferred Shares are subject to mandatory tender by the holders at
the Liquidation Amount of $500,000 per share thereof for remarketing and
purchase on November 30, 2010 under the same terms as the Series A and Series
A-1 Cumulative Preferred Shares.
(iii) CONVERTIBLE PREFERRED SHARES
On May 10, 2000, the Company completed a $27,496,980 private placement of
convertible preferred shares (the "Convertible Preferred Shares") to three
financial institutions (1,946,000 Convertible Preferred Shares priced at $14.13
per share). The Company incurred an initial purchasers' discount of $1,109,220
and other related costs of $604,838 resulting in net proceeds of $25,782,922.
The Convertible Preferred Shares enable financial institutions to receive
certain regulatory benefits in connection with their investment. The Company has
developed a proprietary method for specially allocating these regulatory
benefits to specific financial institutions that invest in the Convertible
Preferred Shares. Other than the preferred allocation of regulatory benefits,
the preferred investors receive the same economic benefits as common
shareholders of the Company, including receipt of the same dividends per share
as those paid to common shareholders. Other than on matters relating to the
terms of the Convertible Preferred Shares or to amendments to the Company's
trust agreement, the Convertible Preferred Shares do not have any voting rights.
The Company's earnings are allocated pro rata among the common shares and the
Convertible Preferred Shares, and the Convertible Preferred Shares rank on
parity with the common shares with respect to rights upon liquidation,
dissolution or winding
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up of the Company. The preferred investors, at their option, have the ability
to convert their Convertible Preferred Shares into common shares at a
predetermined conversion price of $15.33 per common share (a conversion ratio
of 0.9217) which represents the Company's book value per common share as of
December 31, 1999. Upon conversion, the preferred investors will no longer be
entitled to a special allocation of the regulatory benefit.
The Company expects to raise additional equity in the future from similar
financial institutions that can utilize the regulatory benefits that have not
previously been allocated to other holders of the Convertible Preferred Shares.
While the Company expects that these future offerings will be a source of
liquidity, it is only one of many sources of potential liquidity. Furthermore,
there is no assurance that the Company will be able to consummate such
transactions or the price or terms on which the offering may be consummated. If
the federal regulatory agencies which monitor these regulatory benefits were to
determine that an investment in the Convertible Preferred Shares did not result
in the financial institutions being able to receive these regulatory benefits,
the Company would lose this potential source of liquidity.
(iv) SECURITIZATION TRANSACTIONS
To raise additional capital to acquire additional FMBs, the Company has
securitized certain FMBs through the Merrill Lynch Pierce Fenner & Smith
Incorporated ("Merrill Lynch") P-FLOATS/RITES program. Under this program, the
Company transfers certain FMBs to Merrill Lynch. Merrill Lynch then deposits
each FMB into an individual special purpose trust created to hold such asset,
together with a Credit Enhancement Guarantee ("Guarantee"). Two types of
securities are then issued by each trust, evidencing ownership in the FMBs and
the Guarantee: (1) Puttable Floating Option Tax-Exempt Receipts ("P-FLOATS"), a
short-term senior security which bears interest at a floating rate that is reset
weekly by the Remarketing Agent, Merrill Lynch, to result in the sale of the
P-FLOAT security at par (up to 99% of the underlying face amount of the FMB);
and (2) Residual Interest Tax Exempt Securities ("RITES), a subordinate security
which receives the residual interest payment after payment of P-FLOAT interest
and ongoing transaction fees. The P-FLOATS are sold to qualified third party,
tax-exempt investors and the RITES are sold back to the Company. The Company has
the right, with 14 days notice to the trustee, to purchase the outstanding
P-FLOATS and withdraw the underlying FMBs from the trust. When the FMBs are
deposited into the P-FLOAT Trust, the Company receives the proceeds from the
sale of the P-FLOATS less certain transaction costs. In certain other cases,
Merrill Lynch may directly buy the FMBs from local issuers, deposit them in the
trust, sell the P-FLOAT security to qualified investors and then the RITES to
the Company.
During the period May 1999 through December 1999, the Company transferred FMBs
with an aggregate face amount of $82,219,500 to Merrill Lynch through the
Merrill Lynch P-FLOATS/RITES program and received proceeds of $80,769,616. The
amortized cost basis of these FMB's at September 30, 2000 was $80,698,630.
As of September 30, 2000, Merrill Lynch held two FMBs, with an aggregate face
amount of $14,190,000 that were placed into a trust by Merrill Lynch whereby
P-FLOATS and RITES were sold. The Company purchased the related RITES interests
with an aggregate face amount of $10,000 for an aggregate purchase price of
$373,810 which includes bond selection and other transaction costs.
In order to facilitate the securitizations, the Company has pledged certain
additional FMBs, cash and cash equivalents and temporary investments as
collateral for the benefit of the credit enhancer or liquidity provider. At
September 30, 2000, the total carrying amount of such addi-
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tional FMBs, cash and cash equivalents and temporary investments pledged as
collateral was $90,523,000, $1,387,806 and $6,655,000, respectively.
The Company's cost of funds relating to its secured borrowings under the Merrill
Lynch P-FLOATS/RITES program (calculated as interest expense as a percentage of
the weighted average amount of the secured borrowings) was approximately 4.9%,
annualized, for the nine months ended September 30, 2000.
ACQUISITIONS
During the period January 1, 2000 through November 13, 2000, the Company
acquired FMBs and an investment in a Multifamily Housing Revenue Refunding Bond
for an aggregate purchase price of approximately $212,883,000 and $9,000,000,
respectively, not including bond selection fees and expenses of approximately
$4,584,000. In addition, the Company fully funded approximately $4,690,000 of
the remaining balance of the Casa Ramon FMB. The purchases were financed by
preferred stock and convertible preferred stock offerings and the TOP and
securitization transactions. Five of the FMBs are taxable FMBs acquired in
connection with the purchase of tax-exempt FMBs.
APPROVED MERGER
On November 2, 1999, the Company and American Tax Exempt Bond Trust ("ATEBT"),
whose manager is an affiliate of the Manager of the Company, entered into a
merger agreement pursuant to which ATEBT would merge with and into CM Holding
Trust, a wholly-owned subsidiary of the Company. Following the merger, CM
Holding Trust would continue to be a wholly-owned subsidiary of the Company.
ATEBT is a Delaware business trust which owns four tax-exempt first mortgage
bonds and had total assets of approximately $26,599,000 and net assets of
approximately $25,078,000 at September 30, 2000. The four tax-exempt first
mortgage bonds have an aggregate face amount of $23,775,000 at September 30,
2000, have interest rates of 9% and have underlying properties located in four
different states.
Under the terms of the merger agreement, each share of beneficial ownership in
ATEBT outstanding on the effective date of the proposed merger (1,501,481 shares
at September 30, 2000) will be converted into the right to receive 1.43112
Shares of the Company. In addition, the manager of ATEBT (which owns a 1%
interest in ATEBT not currently represented by ATEBT shares) will receive 21,156
common shares of the Company. Following the merger, current ATEBT shareholders
will own approximately 9.3% of the outstanding Shares of the Company.
ATEBT shareholders approved the merger in September 2000. Either entity has the
ability to opt out of the transaction if the 30-day average trading price of the
Company's common shares preceding the closing of the transaction is outside of
the Company's historical trading range of $11.13 to $14.50. The Company and
ATEBT expect that this transaction will close during the fourth quarter of 2000.
RESULTS OF OPERATIONS
For the three and nine months ended September 30, 2000 as compared to 1999,
total revenues, total expenses and net income increased due to the net result of
the acquisition of FMBs, an increase in funding of one FMB and the repayment of
two FMBs during 1999.
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Interest income from FMBs increased approximately $4,275,000 and $11,533,000 for
the three and nine months ended September 30, 2000 as compared to 1999. An
increase of $9,571,000 was due to the acquisition of 29 FMBs during 2000 and
1999 (the "2000 and 1999 Acquisitions") and a decrease of $1,237,000 was due to
the repayment of two of the three FMBs repaid during 1999 (the "1999
Repayments"). Excluding the above increase and decrease, interest income from
FMBs increased approximately 23% and 15% for the three and nine months ended
September 30, 2000 as compared to 1999. The increase was primarily due to the
receipt of participating interest from the Sunset Creek, Sunset Village, Sunset
Downs, Sunset Terrace FMBs and receipt of deferred Base interest relating to
prior periods with respect to the Pelican Cove and Cedar Creek FMBs partially
offset by a decrease in interest income from the Cypress Run FMB.
Interest income from other bond related investments in the amount of
approximately $72,000 and $289,000 was recorded for the three and nine months
ended September 30, 2000 relating to three RITES purchased in June 1999.
Interest income from temporary investments increased approximately $305,000 and
$1,171,000 for the three and nine months ended September 30, 2000 as compared to
1999 primarily due to cash pledged as collateral in 2000 relating to
securitization transactions.
Interest income from promissory notes increased approximately $102,000 and
$253,000 for the three and nine months ended September 30, 2000 as compared to
1999 primarily due to a loan made to the obligor of the Country Lake FMB in
November 1999.
Interest expense increased approximately $439,000 and $2,044,000 for the three
and nine months ended September 30, 2000 as compared to 1999 primarily due to
increases in secured borrowings during the period May 1999 through December
1999.
Recurring fees relating to the Private Label Tender Option program increased
approximately $255,000 and $543,000 for the three and nine months ended
September 30, 2000 as compared to 1999 primarily due to a higher outstanding
balance of the TOP in 2000.
Loan servicing and asset management fees increased approximately $117,000 and
$348,000 for the three and nine months ended September 30, 2000 as compared to
1999 primarily due to an increase of $74,000 and $333,000 and a decrease of
$10,000 and $43,000 relating to the 2000 and 1999 Acquisitions and the 1999
Repayments, respectively.
General and administrative expenses increased approximately $295,000 and
$512,000 for the three and nine months ended September 30, 2000 as compared to
1999 primarily due to an increase in legal costs relating to sales of nominee
deals, an increase in the amortized cost relating to stock options, an increase
in printing expenses, a loss on disposal of the Avalon Court RITE, an increase
in other fees and an increase in expense reimbursements to the Manager and its
affiliates due to the 2000 and 1999 Acquisitions.
Amortization increased approximately $34,000 and $106,000 for the three and nine
months ended September 30, 2000 as compared to 1999 primarily due to an increase
in amortization of deferred costs relating to the TOP and deferred costs
relating to the issuance of preferred shares of subsidiary.
Income allocated to preferred shareholders of subsidiary for the three and nine
months ended September 30, 2000 relates to the Preferred Offering executed on
June 29, 1999.
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Minority interest in income of subsidiary increased approximately $1,354,000 and
$3,228,000 for the three and nine months ended September 30, 2000 as compared to
1999 primarily due to a higher outstanding balance of the TOP in 2000.
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 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.
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
and on the secured borrowings under the P-FLOAT program vary based on market
interest rates, primarily Bond Market Association ("BMA") and are re-set weekly.
Thus, an increase in market interest rates would result in increased payments
under these financing programs, without a corresponding increase in cash flows
from the investments in FMBs. For example, based on the $330,698,630 outstanding
under these financing programs at September 30, 2000, the Company estimates that
an increase of 0.5% in the BMA rate would decrease the Company's annual net
income by approximately $1,653,000; a 1.0% increase in BMA would decrease annual
net income by approximately $3,307,000. For the same reasons, a decrease in
market interest rates would generally benefit the Company, as a result of
decreased allocations to the minority interest and interest expense without
corresponding decreases in interest received on the FMBs, in the same amounts as
described above. During June 1999 and July 2000, a subsidiary of the Company
completed two preferred offerings in the aggregate amount of $169,000,000. Since
the preferred shares carry a fixed dividend rate, they are not impacted by
changes in market interest rates.
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
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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
FMB 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 September
30, 2000 value of $728,773,055 to approximately $643,307,000. A 1% decline in
interest rates would increase the value of the September 30, 2000 portfolio to
approximately $840,618,000. 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.
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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 and Use of Proceeds
On May 10, 2000, the Company completed a $27,496,980 private
placement of convertible preferred shares (the "Convertible Preferred
Shares") to three financial institutions (1,946,000 Convertible
Preferred Shares priced at $14.13 per share). The Company incurred an
initial purchasers' discount of $1,109,220 and other related costs of
$604,838 resulting in net proceeds of $25,782,922.
The Convertible Preferred Shares enable financial institutions to
receive certain regulatory benefits in connection with their
investment. The Company has developed a proprietary method for
specially allocating these regulatory benefits to specific financial
institutions that invest in the Convertible Preferred Shares. Other
than the preferred allocation of regulatory benefits, the preferred
investors receive the same economic benefits as common shareholders
of the Company, including receipt of the same dividends per share as
those paid to common shareholders. Other than on matters relating to
the terms of the Convertible Preferred Shares or to amendments to the
Company's trust agreement, the Convertible Preferred Shares do not
have any voting rights. The Company's earnings are allocated pro rata
among the common shares and the Convertible Preferred Shares, and the
Convertible Preferred Shares rank on parity with the common shares
with respect to rights upon liquidation, dissolution or winding up of
the Company. The preferred investors, at their option, have the
ability to convert their Convertible Preferred Shares into common
shares at a predetermined conversion price of $15.33 per common share
(a conversion ratio of 0.9217) which represents the Company's book
value per common share as of December 31, 1999. Upon conversion, the
preferred investors will no longer be entitled to a special
allocation of the regulatory benefit.
The Company expects to raise additional equity in the future from
similar financial institutions that can utilize the regulatory
benefits that have not previously been allocated to other holders of
the Convertible Preferred Shares. While the Company expects that
these future offerings will be a source of liquidity, it is only one
of many sources of potential liquidity. Furthermore, there is no
assurance that the Company will be able to consummate such
transactions or the price or terms on which the offering may be
consummated. If the federal regulatory agencies which monitor these
regulatory benefits were to determine that an investment in the
Convertible Preferred Shares did not result in the financial
institutions being able to receive these regulatory benefits, the
Company would lose this potential source of liquidity.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
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John B. Roche ceased to serve as Chief Financial Officer effective
May 15, 2000. Alan P. Hirmes was appointed interim Chief Financial
Officer effective May 15, 2000. Michael I. Wirth was appointed to
the position of Chief Financial Officer and replaced Alan P. Hirmes
effective August 16, 2000.
Effective May 3, 2000, the Company implemented a dividend
reinvestment and share repurchase plan (the "Plan"). Under the Plan,
common shareholders may elect to have their distributions from the
Company automatically reinvested in additional common shares at a
purchase price equal to the average of the high and low market price
from the previous day's trading. If a common shareholder
participates in the Plan, such shareholder may also purchase
additional common shares through quarterly voluntary cash payments
with a minimum contribution of $500. There are no commissions for
common shares purchased under the Plan. Participation in the Plan is
voluntary and a common shareholder may join or withdraw at any time.
The opportunity for participation in the Plan began with the
distributions paid in August 2000. In order to participate in the
"voluntary share purchase" part of the Plan, a shareholder must
participate in the "dividend reinvestment" part of the Plan.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during this quarter.
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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: November 13, 2000 By: /s/ Stuart J. Boesky
--------------------------
Stuart J. Boesky
Managing Trustee, President
and Chief Executive Officer
Date: November 13, 2000 By: /s/ Michael I. Wirth
---------------------------
Michael I. Wirth
Chief Financial Officer and
Chief Accounting Officer
