<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-1
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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>
============ ============
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
First mortgage bonds-at fair value $592,125,000 $587,892,000
Other bond related investments-at fair value 560,000 560,000
Temporary investments 33,200,000 45,541,000
Cash and cash equivalents 15,308,440 8,653,503
Cash and cash equivalents-restricted 1,606,225 1,028,209
Interest receivable, net 2,996,310 2,803,278
Promissory notes receivable 10,084,061 10,148,060
Deferred costs, net 14,435,051 14,222,451
Goodwill, net 2,588,797 2,674,626
Other assets 265,049 268,097
------------ ------------
Total assets $673,168,933 $673,791,224
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Secured borrowings $ 80,769,616 $ 80,769,616
Accounts payable, accrued expenses and
other liabilities 2,403,289 2,306,306
Due to Manager and affiliates 1,316,624 1,218,211
Distributions payable to preferred shareholders
of subsidiary 1,490,625 1,490,625
Distributions payable to shareholders 5,454,394 5,453,971
------------ ------------
Total liabilities 91,434,548 91,238,729
------------ ------------
Minority interest in subsidiary
(subject to mandatory redemption) 177,000,000 177,000,000
------------ ------------
Preferred shares of subsidiary (subject to mandatory
repurchase) 90,000,000 90,000,000
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Beneficial owner's equity-manager 501,631 441,878
Beneficial owners' equity-other 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) 313,281,866 312,800,380
Treasury shares of beneficial interest
(8,400 shares) (103,359) (103,359)
Accumulated other comprehensive income 1,054,247 2,413,596
----------- -----------
Total shareholders' equity 314,734,385 315,552,495
----------- -----------
Total liabilities and shareholders' equity $673,168,933 $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
March 31,
-----------------------
2000 1999
-----------------------
<S> <C> <C>
Revenues:
Interest income:
First mortgage bonds $11,205,357 $ 7,921,003
Other bond related
investments 135,747 0
Temporary investments 467,654 102,522
Promissory notes 242,211 165,159
----------- -----------
Total revenues 12,050,969 8,188,684
----------- -----------
Expenses:
Interest expense 914,275 8,368
Recurring fees relating to the
Private Label Tender Option
Program 426,978 319,750
Loan servicing and asset
management fees 396,504 287,749
General and administrative 448,199 335,069
Amortization 110,699 78,512
----------- -----------
Total expenses 2,296,655 1,029,448
----------- -----------
Income before loss on repayment
of first mortgage bonds 9,754,314 7,159,236
Loss on repayment of first mortgage bond 0 (25,493)
----------- -----------
Income before minority interests 9,754,314 7,133,743
Income allocated to preferred
shareholders of subsidiary (1,490,625) 0
Minority interest in income of
subsidiary (1,693,300) (1,128,221)
----------- -----------
Net income $ 6,570,389 $ 6,005,522
=========== ===========
Allocation of net income:
Special distribution to Manager $ 594,756 $ 431,623
=========== ===========
Manager $ 59,756 $ 55,739
=========== ===========
Shareholders $ 5,915,877 $ 5,518,160
=========== ===========
Net income per share (basic and
diluted) $ .29 $ .27
=========== ===========
Weighted average shares
outstanding (basic and
diluted) 20,581,805 20,580,086
=========== ===========
</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 Owners' Treasury Accumulated
Owner's Equity- Shares of Other Compre-
Equity - Other Beneficial Comprehensive hensive
Manager Shareholders Interest Income Income Total
------- ------------ -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 $441,878 $312,800,380 $(103,359) $ 2,413,596 $315,552,495
Comprehensive income:
Net income 654,512 5,915,877 0 $6,570,389 0 6,570,389
Other comprehensive loss:
Net unrealized loss on first mortgage bonds and
bond related investments:
Net unrealized holding loss arising during the
period (1,359,349) (1,359,349) (1,359,349)
----------
Comprehensive income $5,211,040
==========
Issuance of shares of beneficial interest 0 20,000 0 0 20,000
Distributions (594,759) (5,454,391) 0 0 (6,049,150)
-------- ------------ ------- ------ ----------
Balance at March 31, 2000 $501,631 $313,281,866 $(103,359) $ 1,054,247 $314,734,385
======== =========== ======== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
=======================
Three Months Ended
March 31,
-----------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,570,389 $ 6,005,522
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on repayment of first mortgage bond 0 25,493
Amortization 110,699 78,512
Amortization of goodwill 85,829 37,538
Amortization of bond selection costs 176,079 79,017
Accretion of deferred income (16,547) (16,553)
Income allocated to preferred shareholders
of subsidiary 1,490,625 0
Changes in operating assets and liabilities:
Interest receivable (193,032) 68,692
Other assets 3,048 (15,192)
Accounts payable, accrued expenses and
other liabilities 106,922 123,598
Due to Manager and
affiliates 108,026 199,391
----------- -----------
Total adjustments 1,871,649 580,496
----------- -----------
Net cash provided by operating activities 8,442,038 6,586,018
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from repayment of first mortgage bond 7,937 5,100,000
Purchase of first mortgage bond (5,600,000) (6,400,000)
Increase in deferred bond selection costs (205,670) (165,968)
Net sale (purchase) of temporary investments 12,341,000 (5,000,000)
Increase in other deferred costs (174,039) 0
Loans made to property 0 (307,185)
Principal payments received from loans made to
properties 63,999 33,204
----------- -----------
Net cash provided by (used in) investing activities 6,433,227 (6,739,949)
----------- -----------
</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>
=======================
Three Months Ended
March 31,
-----------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to the Manager and shareholders
of the Company (6,038,340) (5,356,698)
Distributions paid to preferred shareholders
of subsidiary (1,490,625) 0
Increase in cash and cash equivalents - restricted (578,016) 0
Increase in deferred costs relating to the
Private Label Tender Option Program (38,004) (90,245)
Increase in deferred costs relating to
the issuance of preferred stock of subsidiary (3,827) 0
Increase in other deferred costs (71,516) 0
----------- -----------
Net cash used in financing activities (8,220,328) (5,446,943)
----------- -----------
Net increase (decrease) in cash and
cash equivalents 6,654,937 (5,600,874)
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 $15,308,440 $ 7,492,149
=========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid $ 943,117 $ 8,368
=========== ===========
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
MARCH 31, 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". As of
March 31, 2000 the Company owned a portfolio of 70 FMBs.
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 March 31, 2000 and the results of
its operations and its cash flows for the three months ended March 31, 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 generally accepted accounting
principles ("GAAP") have been condensed or omitted. It is suggested that these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Form 10-K for the year ended
December 31, 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.
Certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 presentation.
7
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
NOTE 2 - FIRST MORTGAGE BONDS
As of March 31, 2000, the Company and its consolidated subsidiaries owned 70
FMBs (22 participating FMBs (see Footnote K below) and 48 non-participating
FMBs). Three 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. The following table
provides certain information with respect to each of the FMBs.
TABLE OF INVESTMENTS
<TABLE>
<CAPTION>
Stated Fair Value
Closing Interest Face Amount at March
Property Location Date Rate Call Date Maturity Date of FMB 31, 2000 (A)
-------- -------- -------- -------- --------- ------------- ----------- ------------
Tax-Exempt First Mortgage Bonds
-------------------------------
Owned by the Company (not including its consolidated subsidiaries)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Highpointe Club (K)(N) Harrisburg, PA 7/29/86 8.50% June 1998 June 2006 $ 8,900,000 $ 5,769,000
------------ ------------
<CAPTION>
Owned by Charter Mac Equity Issuer Trust (H)
--------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Barnaby Manor (P)(S)(X) Washington, DC 11/23/99 7.375 May 2017 May 2032 4,500,000 4,559,000
Casa Ramon (P)(X) Orange County, CA 6/8/99 7.50 Oct. 2015 Sep. 2035 50,000(Q) 52,000
Chapel Ridge of Little Rock Little Rock, AR 8/12/99 7.125 Aug. 2015 Aug. 2039 5,600,000 5,481,000
(O)(S)(X)
Chapel Ridge of Texarkana Texarkana, AR 9/29/99 7.375 Oct. 2016 Sept. 2041 5,800,000 5,876,000
(O)(S)(X)
Country Lake (P) West Palm Beach, FL 11/9/99 (V) June 2015 June 2032 6,255,000 6,255,000
Del Monte Pines (R)(P)(X) Fresno, CA 5/6/99 6.80 May 2017 May 2036 11,000,000 10,275,000
Douglas Pointe(O)(S)(R)(X) Miami, FL 9/28/99 7.00 Oct. 2026 Sept. 2041 7,100,000 6,827,000
Forest Hills (R)(P)(X) Garner, NC 12/15/98 7.125 June 2016 June 2034 5,930,000 5,775,000
Fort Chaplin (P)(X) Washington, DC 12/21/99 6.90 Jan. 2016 Jan. 2036 25,800,000 24,453,000
Franciscan Riviera (P)(R)(X) Antioch, CA 8/24/99 7.125 Apr. 2016 Aug. 2036 6,587,500 6,447,000
Garfield Park (P) Washington, DC 8/31/99 7.25 Aug. 2017 Aug. 2031 3,260,000 3,247,000
Greenbriar (M)(P)(X) Concord, CA 5/6/99 6.875 May 2017 May 2036 9,585,000 9,052,000
Hamilton Gardens (R)(P)(X) Hamilton, NJ 3/26/99 (U) Apr. 2015 Mar. 2035 6,400,000 6,264,000
Lake Jackson (R)(X) Lake Jackson, TX 12/22/98 7.00 Jan. 2018 Jan. 2041 10,934,000 10,513,000
Lakemoor (O)(S) Durham, NC 12/23/99 7.25 Jan. 2017 Dec. 2041 9,000,000 8,963,000
Lake Park (P)(X) Turlock, CA 6/8/99 (T) 7.25 Oct. 2015 Sep. 2035 3,638,000 3,623,000
Lakes Edge At Walden (P)(M) Miami, FL 7/1/99 6.90 June 2016 May 2035 14,850,000 14,075,000
Lennox Park (O)(S)(M)(X) Gainesville, GA 7/29/99 6.80 Aug. 2021 July 2041 13,000,000 12,143,000
Lewis Place (O)(S)(M)(X) Gainsville, FL 6/22/99 (I) June 2016 June 2041 4,000,000 3,709,000
Mountain Ranch (R)(O)(X) Austin, TX 12/23/98 7.125 Jan. 2018 Jan. 2041 9,128,000 8,934,000
Standiford (P)(R)(X) Modesto, CA 9/20/99 7.125 Apr. 2016 Aug. 2036 9,520,000 9,317,000
Summerlake (0)(S)(X) Davie, FL 3/14/00 7.40 Apr. 2027 Mar. 2042 5,600,000 5,600,000
Sunset Creek (M) Lancaster, CA 3/25/88 8.50 Mar. 2000 Mar. 2008 8,275,000 6,225,000
Sunset Village (M) Lancaster, CA 3/25/88 8.50 Mar. 2000 Mar. 2008 11,375,000 8,557,000
Sycamore Woods (R)(P)(X) Antioch, CA 5/6/99 6.875 May 2017 May 2036 9,415,000 8,891,000
Tallwood (O)(S)(R)(X) Virginia Beach, VA 9/30/99 7.25 Nov. 2017 Oct. 2041 6,205,000 6,179,000
----------- ------------
212,807,500 201,292,000
----------- ------------
</TABLE>
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
NOTE 2 - FIRST MORTGAGE BONDS (continued)
<TABLE>
<CAPTION>
Stated Fair Value
Closing Interest Face Amount at March
Property Location Date Rate Call Date Maturity Date of FMB 31, 2000 (A)
-------- -------- -------- -------- --------- ------------- ----------- ------------
Owned by Charter Mac Origination Trust I (H)(L)
-----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bay Club (K) Mt. Pleasant, SC 9/11/86 8.25 Sep. 2000 Sep. 2006 6,400,000 7,253,000
Clarendon Hills (K) Hayward, CA 12/08/86 5.52 Dec. 2003 Dec. 2003 17,600,000 13,599,000
Cypress Run (K) Tampa, FL 8/14/86 8.50 Aug. 1998 Aug. 2006 15,402,428 13,576,000
East Ridge (K) Mt. Pleasant, SC 5/20/86 8.25 Mar. 2000 May 2010 8,700,000 9,859,000
Greenway Manor (K)(N) St. Louis, MO 10/09/86 8.50 Oct. 1998 Sept. 2006 12,850,000 15,003,000
The Lakes (K) Kansas City, MO 12/30/86 4.87 Dec. 2006 Dec. 2006 13,650,000 9,821,000
Loveridge (K)(N) Contra Costa, CA 11/13/86 8.00 Nov. 1998 Nov. 2006 8,550,000 6,459,000
Martin's Creek (K) Summerville, SC 5/20/86 8.25 Mar. 2000 May 2010 7,300,000 8,273,000
------------ ------------
90,452,428 83,843,000
------------ ------------
</TABLE>
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
NOTE 2 - FIRST MORTGAGE BONDS (continued)
<TABLE>
<CAPTION>
Stated Fair Value
Closing Interest Face Amount at March
Property Location Date Rate Call Date Maturity Date of FMB 31, 2000 (A)
-------- -------- -------- -------- --------- ------------- ----------- ------------
Owned by Charter Mac Owner Trust I (J)(H)
-----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bedford Square (X) Clovis, CA 8/25/98 (D) Sep. 2017 Aug. 2040 3,850,000 3,371,000
Bristol Village Bloomington, MN 7/31/87 7.50 Jan. 2010 Dec. 2027 17,000,000 17,513,000
Carrington Pointe (X) Los Banos, CA 9/24/98 6.375 Oct. 2017 Sep. 2040 3,375,000 2,955,000
Cedarbrook (X) Hanford, CA 4/28/98 7.125 May 2017 May 2040 2,840,000 2,779,000
Cedar Creek (K)(N) McKinney, TX 12/29/86 8.50 Dec. 1998 Dec. 2006 8,100,000 9,457,000
Cedar Pointe (K) Nashville, TN 4/22/87 7.00 Apr. 2006 Apr. 2017 9,500,000 9,134,000
College Park (O)(S) Naples, FL 7/15/98 (C) Jul. 2025 Jul. 2040 10,100,000 9,711,000
Crowne Pointe (K) Olympia, WA 12/31/86 7.25 Dec. 1998 Aug. 2029 5,075,000 5,054,000
Falcon Creek (O)(S)(X) Indianapolis, IN 9/14/98 (F) Sep. 2016 Aug. 2038 6,144,600 6,119,000
Gulfstream (P)(X) Dania, FL 7/22/98 7.25 Apr. 2016 Jul. 2038 3,500,000 3,486,000
Highland Ridge (K) St. Paul, MN 2/02/87 7.25 June 2010 June 2018 15,000,000 14,938,000
Jubilee Courtyards (X) Florida City, FL 9/15/98 (G) Oct. 2025 Sep. 2040 4,150,000 4,062,000
Lakepoint (K) Stone Mountain, GA 11/18/87 6.00 Jul. 2005 June 2017 15,100,000 12,445,000
Madalyn Landing (X) Palm Bay, FL 11/13/98 7.00 Dec. 2017 Nov. 2040 14,000,000 13,461,000
The Mansion Independence, MO 5/13/86 7.25 Jan. 2011 April 2025 19,450,000 19,678,000
Marsh Landings (X) Portsmouth, VA 5/20/98 7.25 Jul. 2017 Jul. 2030 6,050,000 6,025,000
Newport Village (K) Tacoma, WA 2/11/87 7.25 Jan. 1999 Aug. 2029 13,000,000 12,946,000
North Glen (K) Atlanta, GA 9/30/86 (W) Jul. 2005 June 2017 12,400,000 12,775,000
Northpointe Village (X) Fresno, CA 8/25/98 (E) Sep. 2017 Aug. 2040 13,250,000 13,650,000
Ocean Air (P)(S)(X) Norfolk, VA 4/20/98 7.25 Jan. 2016 Nov. 2030 10,000,000 9,959,000
Orchard Hills (K) Tacoma, WA 12/31/86 7.25 Dec. 1998 Aug. 2029 5,650,000 5,627,000
Orchard Mill (K) Atlanta, GA 12/31/86 7.50 Jul. 2005 June 2017 10,500,000 10,517,000
Pelican Cove (K)(N) St. Louis, MO 2/27/87 8.00 Feb. 1999 Feb. 2007 18,000,000 19,780,000
Phoenix (X) Stockton, CA 4/28/98 7.125 Nov. 2016 Oct. 2029 3,250,000 3,168,000
River Run (K)(X) Miami, FL 8/7/87 8.00 Aug. 1999 Aug. 2007 7,200,000 7,912,000
Shannon Lake (K) Atlanta, GA 6/26/87 (B) Jul. 2005 June 2017 12,000,000 11,538,000
Silvercrest (X) Clovis, CA 9/24/98 7.125 Oct. 2017 Sep. 2040 2,275,000 2,227,000
Stone Creek (X) Watsonville, CA 4/28/98 7.125 May 2017 Apr. 2040 8,820,000 8,632,000
Sunset Downs Lancaster, CA 2/11/87 8.00 May 1999 May 2007 15,000,000 11,284,000
Sunset Terrace Lancaster, CA 2/12/87 8.00 Feb. 1999 May 2007 10,350,000 7,786,000
Thomas Lake Eagan, MN 9/02/86 7.50 Jan. 2010 Dec. 2027 12,975,000 13,367,000
Willow Creek (K) Ames, IA 2/27/87 7.25 Jan. 2010 June 2022 6,100,000 6,075,000
------------ ------------
304,004,600 297,431,000
------------ ------------
Subtotal - Tax-Exempt First
Mortgage Bonds 616,164,528 588,335,000
------------ ------------
</TABLE>
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
NOTE 2 - FIRST MORTGAGE BONDS (continued)
<TABLE>
<CAPTION>
Stated Fair Value
Closing Interest Face Amount at March
Property Location Date Rate Call Date Maturity Date of FMB 31, 2000 (A)
-------- -------- -------- -------- --------- ------------- ----------- ------------
Taxable First Mortgage Bonds
----------------------------
Owned by the Company (not including its consolidated subsidiaries)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Greenbriar (P) Concord, CA 5/6/99 9.00 May 2017 May 2036 2,015,000 2,015,000
Lake Park (P) 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 1,400,000
------------ ------------
Subtotal - Taxable First
Mortgage Bonds 3,790,000 3,790,000
------------ ------------
Total First Mortgage Bonds $619,954,528 $592,125,000
============ ============
</TABLE>
(A) The FMBs are deemed to be available-for-sale debt securities and,
accordingly, are carried at their estimated fair values at March 31, 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 4).
(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 on an FMB which will have a face amount of $4,744,000 when
it is fully funded. The balance of $4,694,000 is expected to be funded in
the second quarter of 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 June
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.
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 months ended March 31, 2000 and 1999 were 7.37%
and 6.79%, respectively, based on weighted average face amounts of approximately
$608,242,440 and $466,792,362, 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 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 entities
have assumed the day-to-day responsibilities and obligations of the Underlying
Properties. Buyers are being sought who would make equity investments in the
Underlying Properties and assume the nonrecourse obligations for the FMB. These
properties are generally paying as interest an amount equal to the net cash flow
generated by operations, which in some cases is less than the stated rate of the
FMB. The Company has no present intention of declaring a default on these FMBs.
The aggregate carrying value of these four FMBs at March 31, 2000 and December
31, 1999 was approximately $41,465,000 and the income earned from them for the
three months ended March 31, 2000 and 1999 was approximately $742,000 and
$735,000, 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 it is in the best
interest of the Company to enter into permanent modifications or forbearance
agreements on the FMBs, advance second mortgages, or alternatively, to pursue
its remedies under the loan documents, including foreclosure, is based upon
several factors. These factors include, but are not limited to, Underlying
Property performance, owner cooperation and projected costs of foreclosure and
litigation irrespective of whether the obligor has an affiliation with the
Manager or not. Payments under each of the existing forbearance agreements are
current as of March 31, 2000.
The obligors of (i) thirty-four FMBs, as noted in footnote X to the Table of
Investments above, and (ii) three RITES as noted under Other Bond Related
Investments, are partnerships in which affiliates of the Manager are partners
that own a controlling interest. In addition, the original
12
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
owners of underlying properties and obligors of five 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 affiliate entities 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 opts for some other remedy including foreclosure.
Seventeen of the Company's FMBs, with an aggregate face amount of $198,750,000,
have previously been modified (the modifications of four of such FMBs with an
aggregate face amount of $45,000,000 are subject to issuer approval). These
modifications have generally encompassed an extension of the maturity together
with a prepayment lock out feature and/or prepayment penalties together with an
extension of the mandatory redemption feature (5-10 years from modification).
Stated interest rates have also been adjusted together with a change in the
participation and contingent interest features. Base interest rates, contingent
interest, prepayment lock-outs, mandatory redemption and maturity features are
arrived at through negotiations between the Company and the owners of the
Underlying Properties 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 always has the option to pursue its other remedies including
acceleration and foreclosure. 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 $684,000 and $724,000 for the three months ended March 31, 2000
and 1999, respectively.
In addition to the stated base rates of interest, 22 and 30 of the FMBs at March
31, 2000 and 1999, respectively, provided for "participating interest". During
the three months ended March 31, 2000 and 1999, six and three FMBs paid
participating interest amounting to approximately $1,050,000 and $103,000,
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 when Underlying Properties have experienced operating
difficulties including past due real estate taxes and/or deferred maintenance
items. Such advances typically are secured by promissory notes and/or second
mortgages. As of March 31, 2000 the face amount of such advances was
$15,257,019, their rates range from 8% to 13% and their carrying value was
$10,084,061, which is net of purchase accounting adjustments, and a reserve for
collectibility of $138,000. Such advances with an aggregate face amount of
$5,028,812, rates ranging from 8%
13
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
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 70 FMBs at March 31, 2000
and 69 FMBs at December 31, 1999 was $591,072,780 and $585,474,109,
respectively. The net unrealized gain on FMBs in the amount of $1,052,220 at
March 31, 2000 consisted of gross unrealized gains and losses of $16,536,853 and
$15,484,633, 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 ten
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.
During June 1999, Merrill Lynch purchased three FMBs with an aggregate face
amount of $22,430,000. The FMBs 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 $15,000 for an aggregate purchase
price of $579,118 which includes bond selection and other transaction costs.
14
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
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
March 31, 2000, the total carrying amount of such additional FMBs, cash and cash
equivalents and temporary investments pledged as collateral was $53,761,000,
$1,606,225 and $33,200,000 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 4.5%,
annualized, for the three months ended March 31, 2000.
NOTE 4 - OTHER BOND RELATED INVESTMENTS
The Company's other bond related investments consist of investments in RITES
(see Note 3). 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 March March
Description/location Purchased of FMB Purchased 31, 2000 31, 2000
-------------------- --------- ---------------- --------- ------------ --------
Owned by the Company (not including its consolidated subsidiaries)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RITES-Avalon Court/
Oakley, CA 6/17/99 $ 8,240,000 $ 5,000 $197,800 $200,000
RITES-Meadowview Park/
Santa Rosa, CA 6/17/99 6,250,000 5,000 160,621 160,000
RITES-The Courtyards/
Santa Rosa, CA 6/17/99 7,940,000 5,000 199,552 200,000
----------- ------- ------- -------
$22,430,000 $15,000 $557,973 $560,000
========== ===== ======= =======
</TABLE>
15
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
NOTE 5 - DEFERRED COSTS
The components of deferred costs are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Deferred bond selection costs $10,110,353 $ 9,904,683
Deferred costs relating to the Private Label Tender
Option Program 3,652,631 3,614,627
Deferred costs relating to the issuance of preferred
shares of subsidiary 3,609,158 3,605,331
Other 417,594 172,039
----------- -----------
17,789,736 17,296,680
Less: Accumulated amortization (3,354,685) (3,074,229)
----------- -----------
$14,435,051 $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. 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 March 31, 2000, the Company has contributed 40 issues of
FMBs in the aggregate principal amount of approximately $394,457,000 to Charter
Mac Origination Trust I (the "Origination Trust"), a wholly-owned, indirect
subsidiary of the Company, which has contributed 32 of those FMBs, with an
aggregate principal amount of approximately $304,005,000, 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 $177,000,000 at March 31, 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
16
<PAGE>
Certificates at par on any weekly determination date, with the residual interest
remitted to the Origination Trust via the Residual Certificate.
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 4.8% and
3.9% for the three months ended March 31, 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") comprising 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 40 FMBs held by the Origination Trust and Owner Trust, its
two directly and indirectly owned subsidiaries (see Note 6). In addition to
contributing the ownership of the Origination Trust, the Company also
contributed eight 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.
17
<PAGE>
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 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.
For financial accounting and reporting purposes, the Series A 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 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.
NOTE 8 - CAPITAL SHARES
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 Shares valued 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 Shares. As of March 31, 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 trustee 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
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 Shares through quarterly
voluntary cash payments with a minimum contribution of $500. There are no
commissions for 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 will begin 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.
18
<PAGE>
NOTE 9 - 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 equal to 1% to 1.5% of the
principal amount of each FMB or other instrument acquired or invested in by the
Company, and 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 months ended March 31, 2000 and 1999 were as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
2000 1999
---------------------
<S> <C> <C>
Bond selection fees $ 112,000 $128,000
Expense reimbursement 133,085 60,466
Loan servicing fees 241,058 172,649
Management fees 155,446 115,100
Special distribution 594,756 431,623
--------- -------
$1,236,345 $907,838
========= =======
</TABLE>
GENERAL
As of March 31, 2000, the obligors of the River Run, Ocean Air, Phoenix, Stone
Creek, Cedarbrook, Marsh Landings, Gulfstream, Bedford Square, Northpointe
Village, Falcon Creek, Jubilee Courtyards, Silvercrest, Carrington Pointe,
Madalyn Landing, Forest Hills, Lake Jackson, Mountain Ranch, Hamilton Garden,
Del Monte Pines, Greenbriar, Sycamore Woods, Avalon Court, The Courtyards,
Meadowview Park, Casa Ramon, Lake Park, Lewis Place, Lennox Park, Chapel Ridge
of Little Rock, Franciscan Riviera, Standiford, Douglas Pointe, Chapel Ridge of
Texarkana, Tallwood, Barnaby Manor, Fort Chaplin and Summer Lake FMBs are local
partnerships in which investment partnerships, whose general partners are
affiliates of the Manager, own a controlling partnership interest. With respect
to 13 of the above FMBs, the Company owns the RITES, ten of which are accounted
for as FMBs and secured borrowings (see Notes 2 and 3) and three of which are
accounted for as other bond related investments (see Note 5).
19
<PAGE>
These affiliate entities 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 opts for some
other remedy including foreclosure.
As of March 31, 2000, the original owners of the Underlying Properties and
obligors of the Cedar Creek, Highpointe, Pelican Cove and Loveridge FMBs had
been replaced with affiliates of the Manager who have not made equity
investments. These entities have assumed the day-to-day responsibilities and
obligations of the Underlying Properties. Buyers are being sought who would make
equity investments in the Underlying Properties and assume the nonrecourse
obligations for the FMB or otherwise buy the property and payoff all or most of
the FMB obligation.
NOTE 10 - EARNINGS PER SHARE
Basic net income per Share in the amount of $.29 and $.27 for the three months
ended March 31, 2000 and 1999, respectively, equals net income for the periods
($6,570,389 and $6,005,522, respectively), less the special allocations to the
Manager ($654,512 and $487,362, respectively), divided by the weighted average
number of Shares outstanding for the periods (20,581,805 and 20,580,086,
respectively).
As the Company had no contingently-issuable Shares or potentially dilutive
securities outstanding at March 31, 2000 and 1999, diluted net income per share
is the same as basic net income per share.
NOTE 11 - 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 $26,826,000 and net assets of
approximately $25,485,000 at March 31, 2000. The four tax-exempt first mortgage
bonds have an aggregate outstanding loan balance of $23,775,000 at March 31,
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 (1,463,521 shares
at March 31, 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 shares of
the Company. Following the merger, current ATEBT shareholders will own
approximately 9.3% of the outstanding Shares of the Company.
20
<PAGE>
Consummation of the merger is subject to several conditions, including approval
by ATEBT shareholders. In addition, either entity has the ability to opt out of
the transaction if the 30-day average trading price of the Company's Shares
preceding the closing of the transaction is outside of the Company's historical
trading range of $11.13 to $14.50. Subject to ATEBT shareholder approval, the
Company and ATEBT expect that this transaction will close during the third
quarter of 2000.
NOTE 12 - SUBSEQUENT EVENTS
On April 4, 2000, the Owner Trust increased the outstanding face amount of the
Senior Certificate (see Note 6) from $177,000,000 to $225,000,000 and received
net proceeds of $47,855,000.
During the period April 1, 2000 through May 12, 2000 the Company acquired eight
FMBs for an aggregate purchase price of $45,960,000, not including bond
selection fees and expenses of approximately $919,000. One of the FMBs is a
taxable FMB acquired in connection with the purchase of a tax-exempt FMB. The
taxable FMB is secured by the same Underlying Property which secures the
associated tax-exempt FMB. Further information regarding the FMBs is as follows:
<TABLE>
<CAPTION>
Stated Face No. of
Closing Interest Call Date/ Amount Rental
Property/Location Date Rate Maturity Date of FMB Units
----------------- ------- -------- ------------- ---------- ------
TAX-EXEMPT FIRST MORTGAGE BONDS
OWNED BY CHARTER MAC EQUITY ISSUER TRUST
<S> <C> <C> <C> <C> <C>
Princess Anne House/ 4/7/00 7.5% 4/1/25 $7,500,000 186
Virginia Beach, VA 4/1/42
Walnut Park Plaza/ 4/11/00 7.5% 4/1/10 5,500,000 224
Philadelphia, PA 10/1/18
Columbia at Bells Ferry/ 4/19/00 7.4% 4/1/17 13,000,000 272
Cherokee County, GA 4/1/42
Oaks at Hampton/ 4/27/00 7.2% 3/1/27 9,535,000 250
Dallas, TX 3/1/40
South Congress/ 5/3/00 7.5% 9/1/16 6,300,000 172
Austin, TX 9/1/36
Walnut Creek/ 5/3/00 7.5% 9/1/16 3,240,000 98
Austin, TX 9/1/36
Walnut Creek/ 5/3/00 7.5% 9/1/16 360,000 98
Austin, TX 5/1/14
----------
$45,435,000
==========
21
<PAGE>
<CAPTION>
TAXABLE FIRST MORTGAGE BONDS
OWNED BY THE COMPANY (NOT INCLUDING ITS CONSOLIDATED SUBSIDIARIES)
<S> <C> <C> <C> <C> <C>
Oaks at Hampton/ 4/27/00 9.0% 3/1/27 $ 525,000 250
===========
Dallas, TX 5/1/10
</TABLE>
On May 10, 2000, the Company completed a private placement ( the "Convertible
Preferred Offering") of $27,496,980 convertible preferred shares (the
"Convertible Preferred Shares") to three financial institutions (1,946,000
Convertible Preferred Shares priced at $14.13 per share).
The Convertible Preferred Offering enables 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. In addition to the preferred allocation of
regulatory benefits, the preferred investors will receive the same economic
benefits as common shareholders of the Company. The preferred investors, at
their option, have the ability to convert their Convertible Preferred Shares
into Shares of the Company's common stock at a predetermined conversion price of
$15.33 per Share which represents the Company's book value per Share as of
December 31, 1999. Upon conversion, the preferred investors will no longer be
entitled to retain their preferential regulatory benefits.
22
<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". As of
March 31, 2000, the Company owned a portfolio of 70 FMBs and had net assets of
approximately $314,734,385.
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 are smaller than traditional multifamily housing properties,
averaging 150 units. The traditional method of financing tax-exempt properties
requires the involvement of credit enhancement, rating agencies and investment
bankers. Therefore, the up-front cost of such financing is generally much higher
than traditional multifamily financing. Through its Direct Purchase Program, the
Company will 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 the Company could
invest in or acquire. Related and its predecessor companies have specialized in
offering debt and equity products to mid-market multifamily owners and
developers for over 25 years. Related has provided debt and equity financing to
properties valued at over $9.0 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.
Pur-
23
<PAGE>
suant to its Trust Agreement, the Company is only able to incur leverage or
other financing up to 50% of the Company's Total Market Value (as defined in the
Trust Agreement) as of the date incurred. 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 interest rate reductions.
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, a preferred equity offering by a
subsidiary, the issuance of convertible preferred shares and secured borrowings
under securitization transactions. 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 three months ended March 31, 2000 cash and cash equivalents of the
Company and its consolidated subsidiaries increased approximately $6,655,000.
The increase was primarily due to cash provided by operating activities
($8,442,000) and the net sale of temporary investments ($12,341,000) which
exceeded the purchase of a first mortgage bond ($5,600,000), an increase in
deferred bond selection costs ($206,000), an increase in other deferred costs
($174,000), distributions paid to the Manager and shareholders of the Company
and to preferred shareholders of subsidiary ($7,529,000) and an increase in
restricted cash and cash equivalents ($578,000). Included in the adjustments to
reconcile the net income to cash provided by operating activities is net
amortization of $356,000.
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 documents, 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 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 ade-
24
<PAGE>
quately demonstrated. Interest income of approximately $684,000 and $724,000 was
not recognized for the three months ended March 31, 2000 and 1999, respectively.
In April and May 2000, distributions of $1,490,625 ($33,125 per preferred share)
and $5,454,391 ($.265 per Share), respectively, which were declared in March
2000, were paid to the preferred shareholders of subsidiary and shareholders of
the Company, respectively, from cash flow from operations for the quarter ended
March 31, 2000.
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 March 31, 2000, the Company has contributed 40 issues of
FMBs in the aggregate principal amount of approximately $394,457,000 to Charter
Mac Origination Trust I (the "Origination Trust"), a wholly-owned, indirect
subsidiary of the Company, which has contributed 32 of those FMBs, with an
aggregate principal amount of approximately $304,005,000, 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 $177,000,000 at March 31, 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.
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 4.8% and
3.9% for the three months ended March 31, 2000 and 1999, respectively.
25
<PAGE>
(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") comprising 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 40 FMBs held by the Origination Trust and Owner Trust, its
two directly 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 eight 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 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.
(iii) CONVERTIBLE PREFERRED SHARES
On May 10, 2000, the Company completed a private placement ( the "Convertible
Preferred Offering") of $27,496,980 convertible preferred shares (the
"Convertible Preferred Shares") to three financial institutions (1,946,000
Convertible Preferred Shares priced at $14.13 per share).
26
<PAGE>
The Convertible Preferred Offering enables 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. In addition to the preferred allocation of
regulatory benefits, the preferred investors will receive the same economic
benefits as common shareholders of the Company. The preferred investors, at
their option, have the ability to convert their Convertible Preferred Shares
into Shares of the Company's common stock at a predetermined conversion price of
$15.33 per Share which represents the Company's book value per Share as of
December 31, 1999. Upon conversion, the preferred investors will no longer be
entitled to retain their preferential regulatory benefits.
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,
you should be aware, that 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. Of course, 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 ten
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.
During June 1999, Merrill Lynch purchased three FMBs with an aggregate face
amount of $22,430,000. The FMBs 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
27
<PAGE>
amount of $15,000 for an aggregate purchase price of $579,118 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
March 31, 2000, the total carrying amount of such additional FMBs, cash and cash
equivalents and temporary investments pledged as collateral was $53,761,000,
$1,606,225 and $33.200,000, 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 4.5%,
annualized, for the three months ended March 31, 2000.
ACQUISITIONS
During the period January 1, 2000 through May 12, 2000 the Company acquired nine
FMBs for an aggregate purchase price of approximately $51,560,000, not including
bond selection fees and expenses of approximately $1,031,000 The purchases were
financed by the TOP and securitization transactions. One of the FMBs is a
taxable FMB acquired in connection with the purchase of a tax-exempt FMB.
PROPOSED 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 $26,826,000 and net assets of
approximately $25,485,000 at March 31, 2000. The four tax-exempt first mortgage
bonds have an aggregate outstanding loan balance of $23,775,000 at March 31,
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 (1,463,521 shares
at March 31, 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 shares of
the Company. Following the merger, current ATEBT shareholders will own
approximately 9.3% of the outstanding Shares of the Company.
28
<PAGE>
Consummation of the merger is subject to several conditions, including approval
by ATEBT shareholders. In addition, either entity has the ability to opt out of
the transaction if the 30-day average trading price of the Company's Shares
preceding the closing of the transaction is outside of the Company's historical
trading range of $11.13 to $14.50. Subject to ATEBT shareholder approval, the
Company and ATEBT expect that this transaction will close during the third
quarter of 2000.
RESULTS OF OPERATIONS
For the three months ended March 31, 2000 as compared to 1999, total revenues,
total expenses and net income increased due to the net result of the acquisition
of 24 FMBs during 2000 and 1999, and the repayment of two of three FMBs repaid
during 1999. The Company's results of operations for the three months ended
March 31, 2000 and 1999 consisted primarily of the results of the Company's
investment in 70 and 49 FMBs, respectively.
Interest income from FMBs increased approximately $3,284,000 for the three
months ended March 31, 2000 as compared to 1999. An increase of $2,844,000 was
due to the acquisition of 24 FMBs during 2000 and 1999 (the "2000 and 1999
Acquisitions") and a decrease of $240,000 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 9% for
the three months ended March 31, 2000 as compared to 1999. The increase was
primarily due to the receipt of participating interest from the Sunset Creek,
Sunset Village, Sunset Downs and Sunset Terrace 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 $136,000 was recorded for the three months ended March 31, 2000
relating to three RITES purchased in June 1999.
Interest income from temporary investments increased approximately $365,000 for
the three months ended March 31, 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 $77,000 for the
three months ended March 31, 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 $906,000 for the three months ended
March 31, 2000 as compared to 1999 primarily due to secured borrowings during
the period May 1999 through December 1999.
Recurring fees relating to the Private Label Tender Option program increased
approximately $107,000 for the three months ended March 31, 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 $109,000 for
the three months ended March 31, 2000 as compared to 1999 primarily due to an
increase of $118,000 and a decrease of $11,000 relating to the 2000 and 1999
Acquisitions and the 1999 Repayments, respectively.
29
<PAGE>
General and administrative expenses increased approximately $113,000 for the
three months ended March 31, 2000 as compared to 1999 primarily due to an
increase in public relations expenses and an increase in expense reimbursements
to the Manager and its affiliates due to the 2000 and 1999 Acquisitions.
Amortization increased approximately $32,000 for the three months ended March
31, 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.
A loss on repayment of one FMB in the amount of approximately $25,000 was
recorded for the three months ended March 31, 1999.
Income allocated to preferred shareholders of subsidiary for the three months
ended March 31, 2000 relates to the Preferred Offering executed on June 29,
1999.
Minority interest in income of subsidiary increased approximately $565,000 for
the three months ended March 31, 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 in-
30
<PAGE>
creased payments under these financing programs, without a corresponding
increase in cash flows from the investments in FMBs. For example, based on the
$257,769,616 outstanding under these financing programs at March 31, 2000, the
Company estimates that an increase of 0.5% in the BMA rate would decrease the
Company's annual net income by approximately $1,289,000; a 1.0% increase in BMA
would decrease annual net income by approximately $2,578,000. 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 of 1999, a subsidiary
of the Company completed a $90 million Preferred Offering. These preferred
shares carry a fixed dividend rate of 6 5/8% through June 30, 2009, and so 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 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 March 31,
2000 value of $592,125,000 to approximately $521,832,000. A 1% decline in
interest rates would increase the value of the March 31, 2000 portfolio to
approximately $684,794,000. 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.
31
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings -
The Company is not a party to any material pending legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
On May 10, 2000, the Company completed a private placement ( the
"Convertible Preferred Offering") of $27,496,980 convertible preferred
shares (the "Convertible Preferred Shares") to three financial
institutions (1,946,000 Convertible Preferred Shares priced at $14.13
per share). The Convertible Preferred Offering enables 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. In
addition to the preferred allocation of regulatory benefits, the
preferred investors will receive the same economic benefits as common
shareholders of the Company. The preferred investors, at their option,
have the ability to convert their Convertible Preferred Shares into
Shares of the Company's common stock at a predetermined conversion
price of $15.33 per Share which represents the Company's book value
per Share as of December 31, 1999. Upon conversion, the preferred
investors will no longer be entitled to retain their preferential
regulatory benefits.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
John B. Roche will cease to serve as Chief Financial Officer effective
May 15, 2000. Alan P. Hirmes has been appointed interim Chief
Financial Officer effective May 15, 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 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 Shares through
quarterly voluntary cash payments with a minimum contribution of $500.
There are no commissions for 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 will begin 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
32
<PAGE>
(a) Exhibits:
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
Current report on Form 8-K relating to the resignation of J. Michael
Fried as Chairman of the Board of Trustees and Chief Executive Officer
and Stuart J. Boesky as Chief Operating Officer and the unanimous
appointment of Stephen M. Ross as Chairman of the Board of Trustees
and Stuart J. Boesky as Chief Executive Officer was dated December 16,
1999 and was filed on January 5, 2000.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
(Registrant)
Date: July 31, 2000 By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Managing Trustee, President and
Chief Executive Officer
Date: July 31, 2000 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Managing Trustee, Executive Vice
President, Chief Financial Officer,
Chief Accounting Officer
and Secretary
