<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
Commission File Number 0-23972
AMERICAN MORTGAGE ACCEPTANCE COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 13-6972380
- ------------------------------- -------------------
(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
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
============ =============
March 31, December 31,
2000 1999
------------ -------------
<S> C> <C>
ASSETS
Investments in mortgage loans 18,889,970 $ 28,893,482
Investments in GNMA certificates-
available for sale 5,860,842 9,464,437
Commercial mortgage-backed security-
related investment 34,977,399 34,347,403
Deposit with broker as collateral for
security sold short 33,864,900 37,733,101
Due from loan servicing agent 8,942,630 0
Cash and cash equivalents 8,878,874 3,802,298
Accrued interest receivable 679,220 1,180,115
Deferred loan costs 94,373 0
Other assets 125,846 144,605
----------- -----------
Total assets $112,314,054 $115,565,441
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Repurchase facility payable $ 19,269,000 $ 19,127,000
Accrued interest payable 319,859 407,952
Accounts payable and accrued expenses 162,046 122,397
Due to Advisor and affiliates 764,764 433,265
Distributions payable 1,391,503 1,391,503
Government security sold short 34,123,740 36,991,959
----------- -----------
Total liabilities 56,030,912 58,474,076
----------- -----------
Commitments and contingencies
Shareholders' equity:
Shares of beneficial interest; $.10 par value;
12,500,000 shares authorized; 4,213,826 issued
and 3,838,630 outstanding 421,383 421,383
Treasury shares of beneficial interest;
375,196 shares (37,520) (37,520)
Additional paid-in capital 68,840,500 68,840,500
Distributions in excess of net income (12,786,347) (11,878,059)
Accumulated other comprehensive loss (154,874) (254,939)
----------- -----------
Total shareholders' equity 56,283,142 57,091,365
----------- -----------
Total liabilities and shareholders' equity $112,314,054 $115,565,441
=========== ===========
</TABLE>
See accompanying notes to financial statements
-2-
<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
==================================
Three Months Ended
March 31,
----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Interest income:
Mortgage loans $ 491,400 $ 548,365
GNMA certificates 119,631 199,646
Commercial mortgage-
backed security-related
investment 950,662 0
Temporary investments 547,104 96,528
--------- ---------
Total revenues 2,108,797 844,539
--------- ---------
Expenses:
Interest 909,107 0
General and administrative 332,220 137,534
Amortization 13,651 0
--------- ---------
Total expenses 1,254,978 137,534
--------- ---------
Other gain (loss):
Net gain (loss) on
repayments of GNMA
certificates 58,274 (86)
Net loss on commercial mortgage-
backed security-related
investment and government
securities sold short (457,042) 0
Gain on repayment of
mortgage loans 28,165 3,273,202
--------- ---------
Total other gain (loss) (370,603) 3,273,116
--------- ---------
Net income $ 483,216 $3,980,121
========= =========
Net income per share
(basic and diluted) $ .13 $ 1.03
========= =========
Weighted average
shares outstanding
(basic and diluted) 3,838,630 3,848,915
========= =========
</TABLE>
See accompanying notes to financial statements
-3-
<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Statement of Changes in Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Treasury Shares of
Shares of Beneficial Interest Beneficial Interest Additional
----------------------------- ------------------------- Paid-in
Shares Amount Shares Amount Capital
--------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 2000 4,213,826 $421,383 (375,196) $(37,520) $68,840,500
Comprehensive income:
Net income 0 0 0 0 0
Other comprehensive income:
Net unrealized gain on first
mortgage bonds:
Net unrealized holding gain arising
during the period
Less: reclassification adjustment for
gains included in net income
Other comprehensive income
Comprehensive income
Distributions 0 0 0 0 0
--------- ------- -------- ------- ----------
Balance at March 31, 2000 4,213,826 $421,383 (375,196) $(37,520) $68,840,500
========= ======= ======== ======= ==========
<CAPTION>
Accumulated
Distributions Other
in Excess Comprehensive Comprehensive
of Net Income Income Income (Loss) Total
------------- ------------- --------------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 2000 $(11,878,059) $(254,939) $57,091,365
Comprehensive income:
Net income 483,216 $483,216 0 483,216
Other comprehensive income:
Net unrealized gain on first
mortgage bonds:
Net unrealized holding gain arising
during the period 158,339
Less: reclassification adjustment for
gains included in net income (58,274)
--------
Other comprehensive income 100,065 100,065 100,065
--------
Comprehensive income $583,281
=======
Distributions (1,391,504) 0 (1,391,504)
---------- -------- ----------
Balance at March 31, 2000 $(12,786,347) $(154,874) $56,283,142
=========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
==================================
Three Months Ended
March 31,
----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 483,216 $3,980,121
---------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on commercial mortgage-backed
security-related investment (432,590) 0
Loss on government securities sold short 889,632 0
Gain on repayment of mortgage loans (28,165) (3,273,202)
Amortization expense-loan premium and
origination costs 59,163 122,235
Accretion of GNMA discount (5,639) (5,852)
Accretion of discount on commercial
mortgage-backed security-related investment (147,952) 0
Amortization of deferred costs relating to
the CMBS-related investment 3,685 0
Amortization 13,651 0
(Gain) loss on repayment of GNMA certificates (58,274) 86
Changes in operating assets and liabilities:
Deposit with broker as collateral for security
sold short 3,868,201 0
Accrued interest receivable 500,895 314,399
Other assets 33,159 0
Due to Advisor and affiliates 331,499 114,049
Accounts payable and accrued expenses 39,649 (29,941)
Accrued interest payable (88,093) 0
Deferred costs relating to the CMBS-related
investment (53,139) 0
Purchase of government security (37,299,201) 0
Government security sold short 33,541,350 0
---------- ---------
Total adjustments 1,167,831 (2,758,226)
---------- ---------
Net cash provided by operating activities 1,651,047 1,221,895
---------- ---------
Cash flows from investing activities:
Proceeds from repayments of mortgage loans 1,074,884 20,711,964
Principal repayments of GNMA Certificates 3,767,573 161,125
Costs relating to repayment of mortgage loan (45,000) 0
Increase in other assets (14,400) 0
---------- ---------
Net cash provided by investing activities 4,783,057 20,873,089
---------- ---------
</TABLE>
See accompanying notes to financial statements
-5-
<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Statements of Cash Flows
(Unaudited)
(continued)
<TABLE>
<CAPTION>
==================================
Three Months Ended
March 31,
----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from repurchase facility payable 541,000 0
Repayments of repurchase facility payable (399,000) 0
Distribution paid to shareholders (1,391,504) (1,403,165)
Proceeds from issuance of shares of beneficial
interest 0 325,995
Purchase of treasury shares 0 (325,997)
Increase in deferred loan costs (108,024) 0
---------- ---------
Net cash used in financing
activities (1,357,528) (1,403,167)
---------- ---------
Net increase in cash and cash
equivalents 5,076,576 20,691,817
Cash and cash equivalents at the beginning
of the period 3,802,298 2,953,125
---------- ---------
Cash and cash equivalents at the end of the
period $8,878,874 $23,644,942
========= ==========
Supplemental information:
Interest paid $ 997,200 $ 0
========= ==========
Supplemental disclosure of noncash activities:
Proceeds from repayment of mortgage
loan which are due from loan servicing agent $8,942,630 $ 0
========= ==========
</TABLE>
See accompanying notes to financial statements
-6-
<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Notes to Financial Statements
March 31, 2000
(Unaudited)
Note 1 - General
American Mortgage Acceptance Company (formerly American Mortgage Investors
Trust) (the "Company") was formed on June 11, 1991 as a Massachusetts business
trust for the primary purpose of investing in government-insured mortgages and
guaranteed mortgage-backed certificates. The Company elected to be treated as a
real estate investment trust ("REIT") under the Internal Revenue Code of 1986,
as amended.
On April 6, 1999, the Company received the necessary consent from its
shareholders to approve proposals (the "Proposals") to, among other things,
restructure the Company from a closed-ended, finite-life REIT to a publicly
traded, open-ended, infinite-life operating REIT. In addition to restructuring
the Company, the Proposals, among other matters, permit the Company to modify
its investment objectives, to incur a specified amount of indebtedness and to
list the Company's shares on a national exchange.
Effective April 26, 1999, upon authorization by the Board of Trustees, the
Company's name was changed from American Mortgage Investors Trust to American
Mortgage Acceptance Company. The Company's shares of beneficial interest (the
"Shares") commenced trading on the American Stock Exchange on July 1, 1999 under
the symbol "AMC". As of March 31, 2000, there were 3,838,630 Shares outstanding.
The Company's new business plan as a publicly traded REIT focuses on three types
of mortgage products: 1) origination of participating FHA insured multifamily
mortgages, 2) origination of construction and permanent mortgage financing for
affordable multifamily housing pursuant to a new venture with Federal National
Mortgage Association ("Fannie Mae"), and 3) acquisition of subordinated
interests in commercial mortgage-backed securities.
As of March 31, 2000 the Company's mortgage investments consisted of two
mortgage loans originated by or on behalf of the Company, three GNMA
mortgage-backed securities and pass-through certificates and one commercial
mortgage-backed security ("CMBS")-related investment. Due to the complexity of
the GNMA and CMBS structure and the uncertainty of future economic and other
factors that affect interest rates and mortgage prepayments, it is not possible
to predict the effect of future events upon the yield to maturity or the market
value of the GNMA Certificates or the CMBS-related investment upon any sale or
other disposition or whether the Company, if it chose to, would be able to
reinvest proceeds from prepayments at favorable rates relative to the coupon
rate.
The current composition of the Company's investment portfolio reflects the
recent change in the Company's business plan and is not comparable to its
investment portfolio prior to April 1999. Furthermore, the Company is still in
the process of implementing its new business plan and, therefore, the current
portfolio should not be considered indicative of the composition of the
portfolio that might be expected in the future.
The Company is governed by a board of trustees comprised of two independent
trustees and one trustee who is affiliated with Related Capital Company
("Related"), a nationwide, fully integrated real estate financial services firm.
The Company has engaged Related AMI Associates, Inc. (the "Advisor"), an
affiliate of Related, to manage its day-to-day affairs.
-7-
<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Notes to Financial Statements
March 31, 2000
(Unaudited)
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
Advisor 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 prior year amounts have been reclassified to conform to current year
presentation.
-8-
<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Notes to Financial Statements
March 31, 2000
(Unaudited)
Note 2 - Investments in Mortgage Loans
Information relating to investments in mortgage loans as of March 31, 2000 and
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Accum
Date of -ulated
Invest- Interest Amor-
ment/ Rate on Amounts Advanced tization-
Final FHA ----------------------------------- Out- Additional
Matu Insured FHA Insured Total standing Origi- Loans and
Descrip -rity Mortgage Mortgage Additional Amounts Loan nation Origina-
Property -tion Date Loan (A) Loans Loans (B) Advanced Balance Costs Tion Costs
- -------- ------- ------- -------- ---------- ----------- -------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Town & 330 4/94 7.375%- $ 9,348,000 $1,039,000 $10,387,000 $ 0 $ 0 $ 0
Country IV Apt. 5/29 9.167%
Apts. Units (C)
Urbana, IL
(G)
Columbiana 204 4/94 (E) 9,106,099 563,000 9,669,099 9,564,079 537,558 431,154
Lakes Apts. Apt. 11/35
Columbia, Units (D) (I)
SC
Stony Brook 125 12/95 7.75%- 8,500,000 763,909 9,263,909 9,168,004 413,492 362,009
Village II Apt. 6/37 9.128%
Apts. Units (D) (I) (F)
East Haven,
CT
------------ ----------- -------------- ----------- ------------ -----------
Total $26,954,099 $2,365,909 $29,320,008 $18,732,083 $951,050 $793,163
============ =========== ============== =========== ============ ===========
<CAPTION>
Interest
Earned Less
Balance at Balance at by the 2000 Net
March December Company Amor- Interest
Property 31, 2000 31, 1999(H) for 2000 tization earned
- -------- ---------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Town & $ 0 $ 9,936,476 $168,642 $14,470 $154,172
Country IV
Apts.
Urbana, IL
(G)
Columbiana 9,670,483 9,705,686 192,329 22,443 169,886
Lakes Apts.
Columbia,
SC
Stony Brook 9,219,487 9,251,320 189,592 22,250 167,342
Village II
Apts.
East Haven,
CT
------------ ------------ ----------- ---------- ------------
Total $18,889,970 $28,893,482 $550,563 $59,163 $491,400
============ ============ =========== ========== ============
</TABLE>
-9-
<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Notes to Financial Statements
March 31, 2000
(Unaudited)
The operations of Town & Country had not been able to support the payment of
Additional Interest for the period July 1, 1997 through December 31, 1999 which
amounted to $411,911. Accordingly, the accrued interest income that was doubtful
of collection was fully reserved and excluded from interest income from mortgage
loans in previous quarters. On January 21, 2000, the general partner of Town &
Country Estates, Ltd. (the "Town & Country Obligor"), the owner of Town &
Country Apartments, in exchange for the waiving of the prepayment penalty and
future Additional Interest and also because the obligation was secured by its
partnership interest in the obligor, repaid the additional loan and Additional
Interest due through January 21, 2000 in the amounts of $1,039,000 and $421,273,
respectively. As a result, the Additional Interest which had been fully reserved
was deemed to be fully collectible and recorded as interest income in the fourth
quarter of 1999. On March 31, 2000, the Town & Country Obligor fully repaid the
outstanding balance of the FHA insured mortgage loan and accrued Base Interest
in the amounts of $8,934,581 and $53,049, respectively. The Town & Country
Obligor has no further obligations to the Company. The repayment of the FHA
insured mortgage loan and the additional loan resulted in a gain on the
repayment (including a $45,000 loan termination fee due from the Company to the
loan servicing agent and unamortized origination costs) in the amount of
$28,165.
(A) The minimum interest rate shown represents base interest, which is fully
insured by HUD ("Base Interest"). The additional interest rate represents
interest which is not contingent upon cash flow and is secured by partnership
interests in the partnerships which own the Developments ("Additional
Interest").
(B) Additional loans are non-interest bearing.
(C) In addition to the interest rate, the Company was entitled to 30% of the
cash flow remaining after payment of Base Interest and Additional Interest.
(D) The Originated Mortgages have terms of 40 years, subject to mandatory
prepayment at any time after 10 years and upon one year's notice.
(E) The interest rates for Columbiana are 7.9%-8.678% during the permanent loan
period and was 7.4% during the construction period. In addition to the interest
rate during the permanent loan period, the Company is entitled to 25% of the
cash flow remaining after payment of 8.678% interest. The operations of
Columbiana had not been able to support the payment of Additional Interest for
the period October 1, 1997 through June 30, 1998 which amounted to $48,760.
Accordingly, the accrued interest income that was deemed doubtful of collection
was fully reserved and reversed from interest income from mortgage loans in the
fourth quarter of 1998. As a result of the final advance and conversion of the
construction loan to a permanent loan during the second quarter of 1999,
Columbiana was able to repay construction period advances from the developer as
well as Additional Interest due to the Company through the second quarter. As a
result, the Additional Interest which had been fully reserved was recorded as
interest income in the second quarter of 1999.
(F) In addition to the interest rate, the Company is entitled to 40% of the cash
flow remaining after payment of Base and Additional Interest.
(G) On January 21, 2000 and March 31, 2000 the additional loan and the FHA
insured mortgage loan, respectively, due to the Company were fully repaid (see
above).
-10-
<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Notes to Financial Statements
March 31, 2000
(Unaudited)
(H) Aggregate cost for federal income tax purposes is $29,766,598.
(I) In order for the Company to exercise an acceleration option it must
terminate the mortgage insurance contract with FHA not later than the
accelerated payment date and, in certain circumstances, must terminate the
mortgage insurance contract upon the exercise of the acceleration option. Since
the exercise of such option would be at the Company's discretion, it is intended
to be exercised only where the value of the underlying property has increased by
an amount which would justify accelerating payment in full and assuming the
risks of foreclosure if the mortgagor failed to make the accelerated payment.
-11-
<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Notes to Financial Statements
March 31, 2000
(Unaudited)
Note 3 - Investments in GNMA Certificates-Available for Sale
Information relating to investments in GNMA certificates as of March 31, 2000
and December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Accum-
ulated
Date Original Amorti-
Purchased Purchase zation
/Final Stated Price Principal at Discount at at
Certificate Payment Interest Including March March March
Seller Number Date Rate Discount 31, 2000 31, 2000 31, 2000
- ------ ---------- ------------ --------- -------- ------------ ------------ -----------
GNMA CERTIFICATES
Bear Stearns 0355540 7/27/94 7.125% $ 2,407,102 $2,536,197 $(234,598) $112,378
3/15/29
Malone Mortgage 0382486 7/28/94 8.500% 2,197,130 2,136,752 (8,013) 4,006
8/15/29
Goldman Sachs 0328502 7/29/94 8.250% 3,928,615 0 0 0
7/15/29 (A)
SunCoast Capital Group, Ltd. G22412 6/23/97 7.000% 1,981,566 1,321,331 (8,671) 5,299
4/20/27
-------------- -------------- --------------- ------------
Total $10,514,413 $5,994,280 $(251,282) $121,683
============== ============== =============== ============
Interest
Loan Unrealized Earned
Origination Loss at Balance at Balance at by the Net
Costs at March March March December Company 2000 Interest
Seller 31, 2000 31, 2000 31, 2000 31, 1999 for 2000 Accretion Earned
- ------ -------------- ----------- ------------ ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA CERTIFICATES
Bear Stearns $ 78,464 $ (53,489) $2,438,952 $ 2,431,778 $ 45,214 $4,962 $ 50,176
Malone Mortgage 72,571 (45,932) 2,159,384 2,168,686 45,433 177 45,610
Goldman Sachs 0 0 0 3,565,054 0 13 13
SunCoast Capital Group, Ltd. 0 (55,453) 1,262,506 1,298,919 23,345 487 23,832
--------------- -------------- -------------- -------------- ------------ ------------- ------------
Total $151,035 $(154,874) $5,860,842 $ 9,464,437 $113,992 $5,639 $119,631
=============== ============== ============== ============== ============ ============= ============
</TABLE>
(A) On January 18, 2000, the Company received the final repayment amounting to
$3,551,736. In addition, a prepayment penalty in the amount of $177,587 was
received on February 8, 2000.
-12-
<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Notes to Financial Statements
March 31, 2000
(Unaudited)
The amortized cost, unrealized gain and fair value for the investment in GNMA
Certificates at March 31, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Amortized cost $6,015,716 $9,719,376
Gross unrealized loss (154,874) (254,939)
---------- ---------
Fair Value $5,860,842 $9,464,437
========= =========
</TABLE>
Note 4 - Commercial Mortgage-Backed Security-Related Investment and Short Sale
On September 30, 1999, the Company acquired from ARCap Investors, L.L.C.
("ARCap") a "BB+" rated subordinated commercial mortgage-backed security
("CMBS") from a Chase Manhattan Bank-First Union Nation Bank Commercial Mortgage
Trust (the "Chase-First Union Trust"). The CMBS investment, which was purchased
for $35,622,358, has a face amount of $50,399,711 and an annual coupon rate of
6.4%. The Company purchased the CMBS investment using cash and debt provided
through a repurchase facility (see Note 5). In connection with this acquisition,
the Company entered into an agreement (the "Agreement") with ARCap. ARCap
acquired from the Chase-First Union Trust all of the commercial mortgage backed
securities that are subordinate to the CMBS investment (the "Subordinate Bonds")
acquired by the Company. Under the Agreement, the Company has the right to
acquire a portion of the Subordinate Bonds from ARCap and to exchange a portion
or all of the CMBS investment and Subordinate Bonds for a preferred equity
interest in ARCap. Furthermore, the Company has the right to participate on the
same terms with ARCap in any subsequent resecuritization by ARCap of the
Chase-First Union Trust bond issuance. In connection with such resecuritization,
ARCap has the right to cause the Company to choose between three alternative
options: (i) to sell the CMBS investment to ARCap; (ii) to participate with
ARCap in the resecuritization; or (iii) to exchange the CMBS investment for a
preferred equity position in ARCap, all based on the then fair value of the CMBS
investment.
Because the Company is required to return the CMBS to ARCap upon request by
ARCap, this transaction has been accounted for as a secured loan from the
Company to ARCap under SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities". This loan can be
contractually settled in such a way that the Company would not recover its
recorded investment, so, under SFAS 125, the Company measures its investment in
the loan like an investment in a debt security. The Company has elected to
utilize the "trading" classification for this investment, and measures the value
of the investment as the estimated value of the CMBS collateralizing the loan.
Deferred costs relating to the CMBS-related investment are included in the basis
of such investment and are being amortized as a reduction to interest income
from the CMBS-related investment over 7.25 years, which is the estimated term to
maturity of the CMBS-related investment.
-13-
<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Notes to Financial Statements
March 31, 2000
(Unaudited)
As of March 31, 2000 the 205 mortgage loans underlying the CMBS were secured by
217 properties of the types and in the states identified below:
<TABLE>
<CAPTION>
Property Type Percentage (1)
- ------------- --------------
<S> <C>
Multifamily 38%
Retail 29
Office 17
Hospitality 6
Health Care 4
Industrial 4
Other 2
State Percentage (1)
- ------------- --------------
CA 20%
NY 12
FL 6
PA 6
Others (2) 56
</TABLE>
(1) Based on a percentage of the total unpaid principal balance of the
underlying loans.
(2) No other state comprises more than 5% of the total.
As of March 31, 2000, there are no unpaid principal balances of loans that are
underlying the CMBS investment which are more than 60 days delinquent.
As of March 31, 2000 the CMBS-related investment had an estimated fair value of
$34,977,399 and an amortized cost of $35,963,825, resulting in an unrealized
loss of $986,426 at that date (partially offset by a realized gain on the
September 30, 1999 Short Sale of $894,075 and an unrealized loss of $582,390 on
the March 16, 2000 Short Sale - see below) which is included in "net unrealized
losses on commercial mortgage-backed security-related investment and government
security sold short" in the statements of income. The fair value of the
Company's CMBS-related investment is generally estimated by management based on
market prices provided by certain dealers who make a market in these financial
instruments. The market for CMBS periodically suffers from a lack of liquidity.
Accordingly, the fair value reported may not necessarily be indicative of the
amount the Company could realize in a current liquidation of this investment.
At March 31, 2000, the un-leveraged, un-hedged, weighted average yield to
maturity of the Company's CMBS-related investment was approximately 11%.
The yield to maturity on the Company's CMBS-related investment depends on, among
other things, the rate and timing of principal payments, the pass-through rate
and interest rate fluctuations. The subordinated CMBS interest provides credit
support to the more senior interests of the related commercial securitization.
Cash flow from the mortgages underlying the CMBS interest generally is allocated
first to the senior interests, with the most senior interest having a priority
entitlement to cash flow. Remaining cash flow is allocated generally among the
other CMBS interests in order of their relative seniority. To the extent that
there are defaults and unrecoverable losses on the underlying mortgages,
resulting in reduced cash flows, the most
-14-
<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Notes to Financial Statements
March 31, 2000
(Unaudited)
subordinate CMBS interest will bear this loss first. To the extent there are
losses in excess of the most subordinated interest's stated entitlement to
principal and interest, then the remaining CMBS interests will bear such losses
in order of their relative subordination. There is, therefore no assurance that
the yield to maturity discussed above will be achieved.
The Company enters into contracts to sell securities that it does not own at
the time of sale ("short sales"). The Company utilizes these contracts as a
means of mitigating the potential financial statement impact of changes in
the fair value of its CMBS-related investment due to changes in interest
rates. The broker which lends the securities to the Company retains the
proceeds from the sale until the Company replaces the borrowed security. On
September 30, 1999, the Company entered into a Short Sale involving the sale
of a U.S. Treasury Note with a face amount of $39,327,000 and an annual
coupon rate of 5.625% borrowed from Bear Stearns & Co., Inc. ("Bear Stearns")
for net proceeds of $39,028,841 (which included accrued interest of
$835,565). On March 16, 2000, the Company replaced the borrowed security by
purchasing such security through Bear Stearns for $37,299,201 resulting in a
realized gain of $894,075 and entered into an additional Short Sale contract
involving the sale of a U.S. Treasury Note with a face amount of $34,512,000
and an annual coupon rate of 6.0% borrowed from Bear Stearns for net proceeds
of $33,717,703 (which included accrued interest of $176,353). As of March 31,
2000, the U.S. Treasury Note involved in the March 16, 2000 Short Sale had an
estimated fair value of $34,123,740, resulting in an unrealized loss of
$582,390 at that date which is included in "net unrealized loss on commercial
mortgage-backed security-related investment and government security sold
short" in the statements of income. The Company earned $457,151 on Short Sale
proceeds held by Bear Stearns ($33,864,900 at March 31, 2000) and incurred
interest of $553,480 on its Short Sale contracts during the three months
ended March 31, 2000.
NOTE 5 - Repurchase Facilities
On September 30, 1999, the Company entered into a repurchase facility (the "Bear
Stearns Repurchase Facility") with Bear Stearns, whereby Bear Stearns advanced
$19,568,000 (55% of the purchase price) in cash towards the purchase of a
CMBS-related investment (see Note 4). The Bear Stearns Repurchase Facility had a
variable interest rate based on the one-month LIBOR rate plus 1.5% (7.60% at
March 31, 2000), which was adjusted on the first day of each month, and
terminated on March 17, 2000. In March 2000, the Bear Stearns Repurchase
Facility was renewed through June 17, 2000. The Bear Stearns Repurchase Facility
is collateralized by the Company's CMBS-related investment and contains
restrictions based on the then current market value of such investment as
calculated by Bear Stearns. A decline in the market value of the CMBS could
result in cash flow from such investment being diverted to reduce the
outstanding borrowing, the requirement to post additional collateral, or the
sale of such investment. The outstanding balance of the Bear Stearns Repurchase
Facility (based on 55% of the market of the CMBS at March 17, 2000) was
$19,269,000 at March 31, 2000.
Effective February 15, 2000, the Company entered into a $60 million FHA
repurchase facility (the "Nomura Repurchase Facility") with Nomura Asset Capital
Corporation. This agreement enables the Company to borrow up to 90% with a
qualified hedge or 80% without a qualified hedge of the fair market value of FHA
loans owned by the Company. The Nomura Repurchase Facility has a term of 364
days and bears interest at LIBOR plus 1.25%. As of March 31, 2000 , no amounts
were outstanding under The Nomura Repurchase Facility. Deferred costs relating
to the Nomura Repurchase Facility are being amortized using the straight-line
method over 364 days, which is the term of the facility.
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<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Notes to Financial Statements
March 31, 2000
(Unaudited)
NOTE 6 - Related Party Transactions
Prior to the adoption of the Proposals, the Company had an agreement with the
Advisor pursuant to which the Advisor received compensation consisting primarily
of (i) asset management fees calculated as .625% of total assets invested by the
Company; (ii) a subordinated incentive fee based on the economic gain on the
sale of Mortgage Investments; (iii) reimbursement of certain administrative and
other costs incurred by the Advisor on behalf of the Company; and (iv) certain
other fees. In addition, with respect to Mortgage Loans acquired by the Company,
the Advisor was entitled to receive loan placement fees paid by borrowers equal
to up to 1.5% of the principal amount of each mortgage loan.
As a result of the adoption of the Proposals (see Note 1), the Board of Trustees
amended the Advisory Agreement between the Company and the Advisor to, among
other matters, reflect the Proposals and change the Advisory Agreement's fee
structure to (a) eliminate the acquisition and disposition fees currently
payable to the Advisor; (b) modify the annual asset management fee payable to
the Advisor as set forth below; and (c) include an annual incentive fee payable
to the Advisor as also set forth below. The modified annual asset management fee
is calculated as follows: (i) .355% for investments in Mortgage Loans; (ii)
.355% for certain investment grade investments; (iii) .750% for certain
non-investment grade investments; (iv) 1.000% for unrated investments; and (v)
.625% for investments held prior to the adoption of the Proposals. The annual
incentive fee is calculated as follows: subject to a minimum annual distribution
being made to shareholders from cash available for distribution of approximately
$1.45 per Share, the Advisor will be entitled to receive incentive compensation
for each fiscal year in an amount equal to the product of (A) 25% of the dollar
amount by which (1)(a) Funds From Operations of the Company (before the
incentive fee) per Share (based on the weighted average number of Shares
outstanding) plus (b) gains (or minus losses) from debt restructuring and sales
of property per Share (based on the weighted average number of Shares
outstanding), exceed (2) an amount equal to (a) the weighted average of the
price per Share of the initial offering (i.e. $20 per Share) and the prices per
Share of any secondary offerings by the Company multiplied by (b) the ten-year
U.S. Treasury rate plus two percent per annum multiplied by (B) the weighted
average number of Shares outstanding during such fiscal year. For any period
less than a fiscal year during which the amended Advisory Agreement is in
effect, the incentive fee will be prorated according to the proportion which
such period bears to a full fiscal year, taking into account, however, the
Company's cash available for distribution for the entire fiscal year. There was
no incentive management fee accrued for the quarter ended March 31, 2000.
In addition, the Advisory Agreement's fee structure was also changed so that
with respect to the first $100 million of new Mortgage Loans acquired by the
Company, the Advisor will receive origination points (fees) paid by borrowers
equal to up to 1% of the principal amount of each Mortgage Loan and the Company
will receive origination points paid by borrowers in excess of 1%. After the
first $100 million of additional Mortgage Loans is acquired, the Company will
retain 100% of the origination points paid by borrowers.
-16-
<PAGE>
AMERICAN MORTGAGE ACCEPTANCE COMPANY
Notes to Financial Statements
March 31, 2000
(Unaudited)
The costs incurred to related parties 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>
Expense reimbursement $115,646 $ 31,388
Asset management fees 121,944 78,754
------- -------
$237,590 $110,142
======= =======
</TABLE>
Note 7 - Earnings Per Share
Basic net income per share in the amount $.13 and $1.03 for the three months
ended March 31, 2000 and 1999, respectively, equals net income for the periods
($483,216 and $3,980,121, respectively), divided by the weighted average number
of shares outstanding for the periods (3,838,630 and 3,848,915, respectively).
Because the Company had no dilutive securities outstanding at March 31, 2000 or
1999, diluted net income per share is the same as basic net income per share.
Note 8 - Commitments and Contingencies
The Company is currently in the process of completing a loan venture with Fannie
Mae which has agreed to fully fund the origination of $250 million of Delegated
Underwriter and Servicer loans for apartment properties that qualify for low
income housing tax credits under Section 42 of the Internal Revenue Code. Under
the proposed transaction, the Company will originate and contract for individual
loans of up to $6 million dollars each over a two-year period and will work with
American Property Financing, which will underwrite and service the loans for
Fannie Mae. Each property in the transaction will benefit from 9% low income
housing tax credits for no less than 90% of its units. The Company will guaranty
a first loss position of up to 10% of the pool of $250 million and will receive
guaranty and other fees.
Note 9 - Subsequent Event
On April 18, 2000, the Company acquired a 100% participation interest in an
FHA-insured first mortgage loan and an additional loan, secured by Hollows
Apartments, a multifamily market-rate housing apartment complex located in North
Carolina. The mortgage loan, in the amount of $8,946,100 is 99% insured by the
FHA, and bears interest at 7.875%. The equity loan, in the amount of $1,549,200,
has a minimum term of ten years plus the construction period, has a 10% interest
rate, and is not insured. As of May 12, 2000, $734,972 of the FHA Insured
mortgage loan and the full amount of the additional loan have been funded. Both
loans have a 5-year lockout against prepayment, as well as a prepayment penalty
structure during the second 5-year period of the loans. The Company is entitled
to 50% of cash flow, if any, remaining after the payment of debt service, and
25% of the sale or refinancing proceeds.
-17-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
American Mortgage Acceptance Company (formerly American Mortgage Investors
Trust) (the "Company") was formed on June 11, 1991 as a Massachusetts business
trust for the primary purpose of investing in government-insured mortgages and
guaranteed mortgage-backed certificates. The Company elected to be treated as a
real estate investment trust ("REIT") under the Internal Revenue Code of 1986,
as amended (the "Code").
On April 6, 1999, the Company received the necessary consent from its
shareholders to approve proposals (the "Proposals") to, among other things,
restructure the Company from a closed-ended, finite-life REIT to a publicly
traded, open-ended, infinite-life operating REIT. In addition to restructuring
the Company, the Proposals, among other matters, permit the Company to modify
its investment objectives, to incur a specified amount of indebtedness and to
list the Company's shares on a national exchange.
Effective April 26, 1999, upon authorization by the Board of Trustees, the
Company's name was changed from American Mortgage Investors Trust to American
Mortgage Acceptance Company. The Company's shares of beneficial interest (the
"Shares") commenced trading on the American Stock Exchange on July 1, 1999 under
the symbol "AMC". As of March 31, 2000, there were 3,838,630 Shares outstanding.
The Company's new business plan as a publicly traded REIT focuses on three types
of mortgage products: 1) origination of participating FHA insured multifamily
mortgages, 2) origination of construction and permanent mortgage financing for
affordable multifamily housing pursuant to a new venture with Federal National
Mortgage Association ("Fannie Mae"), and 3) acquisition of subordinated
interests in commercial mortgage-backed securities.
As of March 31, 2000, the Company's mortgage investments consisted of two
mortgage loans originated by or on behalf of the Company, three GNMA
mortgage-backed securities and pass-through certificates and one commercial
mortgage-backed security ("CMBS")-related investment. Due to the complexity of
the GNMA and CMBS structure and the uncertainty of future economic and other
factors that affect interest rates and mortgage prepayments, it is not possible
to predict the effect of future events upon the yield to maturity or the market
value of the GNMA Certificates or the CMBS-related investment upon any sale or
other disposition or whether the Company, if it chose to, would be able to
reinvest proceeds from prepayments at favorable rates relative to the coupon
rate.
The current composition of the Company's investment portfolio reflects the
recent change in the Company's business plan and is not comparable to its
investment portfolio prior to April 1999. Furthermore, the Company is still in
the process of implementing its new business plan and, therefore, the current
portfolio should not be considered indicative of the composition of the
portfolio that might be expected in the future.
During the three months ended March 31, 2000, cash and cash equivalents
increased approximately $5,077,000 primarily due to cash provided by operating
activities ($1,651,000), principal repayments of mortgage loans and GNMA
Certificates ($4,842,000) and proceeds from a repurchase facility payable
($541,000) which exceeded distributions paid to shareholders ($1,392,000),
repayments of the repurchase facility payable ($399,000) and an increase in
deferred costs ($108,000). Included in the adjustments to reconcile the net
income to cash provided by operating activities is a gain on repayment of
mortgage loans ($28,000), a gain on repayments of GNMA certificates ($58,000), a
gain on commercial mortgage-backed, security-
-18-
<PAGE>
related investment ($433,000), a loss on government securities sold short
($890,000) and net accretion ($77,000).
Net unrealized losses on GNMA investments included in shareholders' equity
pursuant to Statement of Financial Accounting Standards No. 115 aggregated
$154,874 at March 31, 2000. This represents a decrease of $100,065 in the
unrealized loss for the three months ended March 31, 2000, of which a decrease
of $107,252 is attributable to the repayments of GNMA investments (which
resulted in a net realized gain of $58,274) and an increase of $7,187 is
attributable to an increase in market prices for GNMA investments held at both
March 31, 2000 and December 31, 1999. On January 18, 2000, one of the Company's
GNMA certificates in the original amount of $3,928,615 (including the discount),
with an amortized cost basis of $3,671,107 at December 31, 1999, was repaid in
the amount of $3,551,736 along with a prepayment penalty of $177,587 which was
received in February 2000. This repayment (including the prepayment penalty)
resulted in a realized gain in the amount of $58,202.
The yield on the GNMA Certificates will depend, in part, upon the rate and
timing of principal prepayments on the underlying mortgages in the asset pool.
Generally, as market interest rates decrease, mortgage prepayment rates increase
and the market value of interest rate sensitive obligations like the GNMA
Certificates increases. As market interest rates increase, mortgage prepayment
rates tend to decrease and the market value of interest rate sensitive
obligations like the GNMAs tends to decrease. The effect of prepayments on yield
is greater the earlier a prepayment of principal is received.
The operations of Town & Country had not been able to support the payment of
Additional Interest for the period July 1, 1997 through December 31, 1999 which
amounted to $411,911. Accordingly, the accrued interest income that was doubtful
of collection was fully reserved and excluded from interest income from mortgage
loans in previous quarters. On January 21, 2000, the general partner of Town &
Country Estates, Ltd. (the "Town & Country Obligor"), the owner of Town &
Country Apartments, in exchange for the waiving of the prepayment penalty and
future Additional Interest and also because the obligation was secured by its
partnership interest in the obligor, repaid the additional loan and Additional
Interest due through January 21, 2000 in the amounts of $1,039,000 and $421,273,
respectively. As a result, the Additional Interest which had been fully reserved
was deemed to be fully collectible and recorded as interest income in the fourth
quarter of 1999. On March 31, 2000, the Town & Country Obligor fully repaid the
outstanding balance of the FHA insured mortgage loan and accrued Base Interest
in the amounts of $8,934,581 and $53,049, respectively. The Town & Country
Obligor has no further obligations to the Company. The repayment of the FHA
insured mortgage loan and the additional loan resulted in a gain on the
repayment (including a $45,000 loan termination fee due from the Company to the
loan servicing agent and unamortized origination costs) in the amount of
$28,165.
The yield on the mortgage loans will depend, in part, on when, and if, the
Company disposes of the mortgage loans prior to maturity or the obligor fully
repays the outstanding debt. The mortgage loans have fixed interest rates, the
base amount of which is insured by HUD, resulting in a minimal amount of
interest rate risk. The effects of prepayment on yield is greater the earlier a
prepayment of principal is received. Due to the uncertainty of future economic
and other factors that affect interest rates and mortgage prepayments, it is not
possible to predict the effects of future events upon the yield to maturity or
the market value of the mortgage loans upon any sale or other disposition or
whether the Company, if it chose to, would be able to reinvest proceeds from
prepayments at favorable rates relative to the current mortgage loan rates. As
described below, two mortgage loans were repaid and the Company is still in the
process of reinvesting the proceeds of such repaid mortgage loans.
-19-
<PAGE>
On September 30, 1999, the Company acquired from ARCap Investors, L.L.C.
("ARCap") a "BB+" rated subordinated commercial mortgage-backed security
("CMBS") from a Chase Manhattan Bank-First Union Nation Bank Commercial Mortgage
Trust (the "Chase-First Union Trust"). The CMBS investment, which was purchased
for $35,622,358, has a face amount of $50,399,711 and an annual coupon rate of
6.4%. The Company purchased the CMBS investment using cash and debt provided
through a repurchase facility. In connection with this acquisition, the Company
entered into an agreement (the "Agreement") with ARCap. ARCap acquired from the
Chase-First Union Trust all of the commercial mortgage backed securities that
are subordinate to the CMBS investment (the "Subordinate Bonds") acquired by the
Company. Under the Agreement, the Company has the right to acquire a portion of
the Subordinate Bonds from ARCap and to exchange a portion or all of the CMBS
investment and Subordinate Bonds for a preferred equity interest in ARCap.
Furthermore, the Company has the right to participate on the same terms with
ARCap in any subsequent resecuritization by ARCap of the Chase-First Union Trust
bond issuance. In connection with such resecuritization, ARCap has the right to
cause the Company to choose between three alternative options: (i) to sell the
CMBS investment to ARCap; (ii) to participate with ARCap in the
resecuritization; or (iii) to exchange the CMBS investment for a preferred
equity position in ARCap, all based on the then fair value of the CMBS
investment. As of March 31, 2000 the CMBS-related investment had an estimated
fair value of $34,977,399 and an amortized cost of $35,963,825, resulting in an
unrealized loss of $986,426 at that date (partially offset by a realized gain on
the September 30, 1999 Short Sale of $894,075 and an unrealized loss of $582,390
on the March 16, 2000 Short Sale - see below) which is included in "net
unrealized losses on commercial mortgage-backed security-related investment and
government security sold short" in the statements of income. The fair value of
the Company's CMBS-related investment is generally estimated by management based
on market prices provided by certain dealers who make a market in these
financial instruments. The market for CMBS periodically suffers from a lack of
liquidity. Accordingly, the fair value reported may not necessarily be
indicative of the amount the Company could realize in a current liquidation of
this investment.
The yield to maturity on the Company's CMBS-related investment depends on, among
other things, the rate and timing of principal payments, the pass-through rate
and interest rate fluctuations. The subordinated CMBS interest provides credit
support to the more senior interests of the related commercial securitization.
Cash flow from the mortgages underlying the CMBS interest generally is allocated
first to the senior interests, with the most senior interest having a priority
entitlement to cash flow. Remaining cash flow is allocated generally among the
other CMBS interests in order of their relative seniority. To the extent that
there are defaults and unrecoverable losses on the underlying mortgages,
resulting in reduced cash flows, the most subordinate CMBS interest will bear
this loss first. To the extent there are losses in excess of the most
subordinated interest's stated entitlement to principal and interest, then the
remaining CMBS interests will bear such losses in order of their relative
subordination. There is, therefore no assurance that the yield to maturity
discussed above will be achieved.
The Company enters into contracts to sell securities that it does not own at the
time of sale ("short sales"). The Company utilizes these contracts as a means of
mitigating the potential financial statement impact of changes in the fair value
of its CMBS-related investment due to changes in interest rates. The broker
which lends the securities to the Company retains the proceeds from the sale
until the Company replaces the borrowed security. On September 30, 1999, the
Company entered into a Short Sale involving the sale of a U.S. Treasury Note
with a face amount of $39,327,000 and an annual coupon rate of 5.625% borrowed
from Bear Stearns & Co., Inc. ("Bear Stearns") for net proceeds of $39,028,841
(which included accrued interest of $835,565). On March 16, 2000, the Company
replaced the borrowed security by purchasing such security through Bear Stearns
for $37,299,201 resulting in a realized gain of $894,075 and entered into an
additional Short Sale contract involving the sale of a U.S. Treasury Note with a
face amount of $34,512,000 and an annual coupon rate of 6.0% borrowed from Bear
Stearns for
-20-
<PAGE>
net proceeds of $33,717,703 (which included accrued interest of
$176,353). As of March 31, 2000, the U.S. Treasury Note involved in the March
16, 2000 Short Sale had an estimated fair value of $34,123,740, resulting in an
unrealized loss of $582,390 at that date which is included in "net unrealized
loss on commercial mortgage-backed security-related investment and government
security sold short" in the statements of income. The Company earned $457,151 on
Short Sale proceeds held by Bear Stearns ($33,864,900 at March 31, 2000) and
incurred interest of $553,480 on its Short Sale contracts during the three
months ended March 31, 2000.
On September 30, 1999, the Company entered into a repurchase facility (the "Bear
Stearns Repurchase Facility") with Bear Stearns, whereby Bear Stearns advanced
$19,568,000 (55% of the purchase price) in cash towards the purchase of a
CMBS-related investment (see above). The Bear Stearns Repurchase Facility had a
variable interest rate based on the one-month LIBOR rate plus 1.5% (7.60% at
March 31, 2000), which was adjusted on the first day of each month, and
terminated on March 17, 2000. In March 2000, the Bear Stearns Repurchase
Facility was renewed through June 17, 2000. The Bear Stearns Repurchase Facility
is collateralized by the Company's CMBS-related investment and contains
restrictions based on the then current market value of such investment as
calculated by Bear Stearns. A decline in the market value of the CMBS could
result in cash flow from such investment being diverted to reduce the
outstanding borrowing, the requirement to post additional collateral, or the
sale of such investment. The outstanding balance of the Bear Stearns Repurchase
Facility (based on 55% of the market of the CMBS at March 17, 2000) was
$19,269,000 at March 31, 2000. The Repurchase Facility currently represents the
Company's sole source of liquidity needed to finance its long-term CMBS-related
investment. If the lender fails to renew the Repurchase Facility, the Company
will be required to seek new financing or may have to liquidate the CMBS or
other investments.
Effective February 15, 2000, the Company entered into a $60 million FHA
repurchase facility (the "Nomura Repurchase Facility") with Nomura Asset Capital
Corporation. This agreement enables the Company to borrow up to 90% with a
qualified hedge or 80% without a qualified hedge of the fair market value of FHA
loans owned by the Company. The Nomura Repurchase Facility has a term of 364
days and bears interest at LIBOR plus 1.25%. As of May 12, 2000 , no amounts
were outstanding under The Nomura Repurchase Facility.
In order to qualify as a REIT under the Code, the Company must, among other
things, distribute at least 95% of its taxable income. The Company believes that
it is in compliance with the REIT-related provisions of the Code.
The Company expects that cash generated from the Company's investments will meet
its needs for short-term liquidity, and will be sufficient to pay all of the
Company's expenses and to make distributions to its shareholders in amounts
sufficient to retain the Company's REIT status in the foreseeable future.
On April 18, 2000, the Company acquired a 100% participation interest in an
FHA-insured first mortgage loan and an additional loan, secured by Hollows
Apartments, a multifamily market-rate housing apartment complex located in North
Carolina. The mortgage loan, in the amount of $8,946,100 is 99% insured by the
FHA, and bears interest at 7.875%. The equity loan, in the amount of $1,549,200,
has a minimum term of ten years plus the construction period, has a 10% interest
rate, and is not insured. As of May 12, 2000, $734,972 of the FHA Insured
mortgage loan and the full amount of the additional loan has been funded. Both
loans have a 5-year lockout against prepayment, as well as a prepayment penalty
structure during the second 5-year period of the loans. The Company is entitled
to 50% of cash flow, if any, remaining after the payment of debt service, and
25% of the sale or refinancing proceeds. It is anticipated that additional
fundings for this and future FHA-insured first mortgage loans and additional
loans will be funded by available cash or borrowings under the Nomura Repurchase
Facility.
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<PAGE>
The Company is currently in the process of completing a loan venture with Fannie
Mae which has agreed to fully fund the origination of $250 million of Delegated
Underwriter and Servicer loans for apartment properties that qualify for low
income housing tax credits under Section 42 of the Internal Revenue Code. Under
the proposed transaction, the Company will originate and contract for individual
loans of up to $6 million dollars each over a two-year period and will work with
American Property Financing, which will underwrite and service the loans for
Fannie Mae. Each property in the transaction will benefit from 9% low income
housing tax credits for no less than 90% of its units. The Company will guaranty
a first loss position of up to 10% of the pool of $250 million and will receive
guaranty and other fees.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way.
RESULTS OF OPERATIONS
The net income for the three months ended March 31, 2000 and 1999 was $483,216
and $3,980,121, respectively. The total of the annual operating expenses of the
Company may not exceed the greater of (i) 2% of the Average Invested Assets of
the Company or (ii) 25% of the Company's net income, unless such excess is
approved by the Independent Trustees. On an annualized basis, there was no such
excess for the three months ended March 31, 2000 and 1999.
Interest income from mortgage loans decreased approximately $57,000 for the
three months ended March 31, 2000 as compared to 1999 primarily due to the
repayment of the Cove and Oxford mortgage loans on March 1, 1999 and the waiving
of additional interest in 2000 with respect to Town & Country which was
partially offset by an increase due to the reversal of Additional Interest in
1999 relating to Town and Country.
Interest income from GNMA certificates decreased approximately $80,000 for the
three months ended March 31, 2000 as compared to 1999 primarily due to the
repayment, in full, of one of the GNMA certificates on January 18, 2000.
Interest income from commercial mortgage-backed security-related investment in
the amount of approximately $951,000 was recorded for the three months ended
March 31, 2000; such investment was made on September 30, 1999.
Interest income from temporary investments increased approximately $451,000 for
the three months ended March 31, 2000 as compared to 1999 primarily due to
interest on Short Sale proceeds held by Bear Stearns in 2000 as collateral for
securities sold short.
Interest expense in the amount of approximately $909,000 was recorded for the
three months ended March 31, 2000 relating to interest on the Bear Stearns
Repurchase Facility entered into on September 30, 1999 and interest on a
government securities sold short on September 30, 1999 and March 16, 2000.
General and administrative expenses increased approximately $195,000 for the
three months ended March 31, 2000 as compared to 1999. This increase was
primarily due to an increase in asset management fees payable to the Advisor due
to the commercial mortgage-backed security-related investment made on September
30, 1999, an increase in the reimbursements of certain administrative and other
costs incurred by the Advisor on behalf of the Company and an increase in public
relations and printing expenses due to the restructuring of the Company on
April 6, 1999.
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<PAGE>
Amortization in the amount of approximately $14,000 was recorded for the three
months ended March 31, 2000 due to amortization of deferred costs relating to
the Nomura Repurchase Facility.
Net gain on repayments of GNMA certificates increased approximately $58,000 for
the three months ended March 31, 2000 as compared to 1999 primarily due to the
repayment, in full, of one of the GNMA certificates on January 18, 2000.
A net loss on the commercial mortgage-backed security-related investment and
government securities sold short in the amount of approximately $457,000 was
recorded for the three months ended March 31, 2000 relating to a commercial
mortgage-backed security-related investment made on September 30, 1999 and
securities sold short on September 30, 1999 and March 16, 2000.
Gains on repayment of mortgage loans in the amounts of approximately $28,000 and
$3,273,000 were recorded for the three months ended March 31, 2000 and 1999,
respectively, relating to the repayment of the Town & Country additional loan
and FHA insured mortgage loan on January 21, 2000 and March 31, 2000,
respectively and the repayment of the Cove and Oxford FHA insured mortgage loans
and additional loans on March 1, 1999.
DISTRIBUTIONS
Of the total distributions of $1,391,504 and $1,403,165 for the three months
ended March 31, 2000 and 1999, respectively, $908,288 ($.24 per share or 65%)
and $0, respectively, represented a return of capital determined in accordance
with generally accepted accounting principles. As of March 31, 2000, the
aggregate amount of the distributions made since the commencement of the initial
public offering representing a return of capital, in accordance with generally
accepted accounting principles, totaled $12,777,756. The portion of the
distributions which constituted a return of capital was significant during the
initial acquisition stage in order to maintain level distributions to
shareholders.
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.
-23-
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates,
changes in spreads on CMBS, foreign currency exchange rates, commodity prices
and equity prices. The primary market risks to which the investments of the
Company are exposed are interest rate risk and CMBS spread risk, which are
highly sensitive to many factors, including governmental monetary and tax
policies, domestic and international economic and political considerations and
other factors beyond the control of the Company.
Changes in the general level of interest rates can affect the net interest
income of the Company. The following table demonstrates the estimated effect, at
March 31, 2000, that changes in interest rates would have on the annual net
interest income from, and the valuation of the Company's CMBS-related investment
and short positions in government securities. All changes in income and
valuation are measured as percentage changes from the projected income and
valuation if no change in interest rates were to occur.
CHANGE IN EXPECTED ANNUAL INCOME FROM THE CMBS-RELATED INVESTMENT
AND SHORT POSITIONS FROM CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
Change in Income *
------------------------------
Change in Interest Rates Amount Percentage
- ------------------------ -------- ----------
<S> <C> <C>
- -250 Basis Points $733,437 21.2%
- -200 Basis Points 586,749 16.9
- -150 Basis Points 440,062 12.7
- -100 Basis Points 293,375 8.5
- -50 Basis Points 146,687 4.2
No Change 0 0.0
+50 Basis Points -146,687 -4.2
+100 Basis Points -293,375 -8.5
+150 Basis Points -440,062 -12.7
+200 Basis Points -586,749 -16.9
+250 Basis Points -733,437 -21.2
</TABLE>
* Income includes expected interest income from the CMBS-related investment,
amortization of market discount on CMBS, net interest expense on short positions
in government securities and mark to market adjustments to the CMBS-related
investment and government securities from changes in interest rates.
The Company is further exposed to interest rate risk through its short term
financing through repurchase agreements at rates that are based on 30-day LIBOR.
Changes in interest rates may increase the Company's cost of financing its
investments. The following table demonstrates the estimated effect, at March 31,
2000, that changes in interest rates would have on the annual interest expense
of the Company.
-24-
<PAGE>
CHANGE IN ANNUAL INTEREST EXPENSE UNDER REPURCHASE AGREEMENT FROM
CHANGES IN LIBOR
<TABLE>
<CAPTION>
Change in Interest Expense
------------------------------
Change in LIBOR Amount Percentage
- ------------------------ -------- ----------
<S> <C> <C>
- -250 Basis Points $-489,200 -31%
- -200 Basis Points -391,360 -25
- -150 Basis Points -293,520 -19
- -100 Basis Points -195,680 -13
- -50 Basis Points -97,840 -6
No change in LIBOR 0 0
+50 Basis Points 97,840 6
+100 Basis Points 195,680 13
+150 Basis Points 293,520 19
+200 Basis Points 391,360 25
+250 Basis Points 489,200 31
</TABLE>
The investments of the Company are also exposed to spread risk. The price of a
fixed income security is generally determined by adding an interest rate spread
to a benchmark interest rate, such as the U.S. Treasury rate. As the spread on a
security widens (or increases), the price (or value) of the security falls. As
spreads on CMBS widen, the fair value of the Company's portfolio falls. Spread
widening in the market for CMBS can occur as a result of market concerns over
the stability of the commercial real estate market, excess supply of CMBS, or
general credit concerns in other markets. The following table demonstrates the
estimated effect that changes in CMBS spreads would have on the value of the
Company's CMBS-related investment at March 31, 2000:
CHANGE IN VALUE OF CMBS-RELATED INVESTMENT FROM CHANGES IN CMBS
SPREADS
<TABLE>
<CAPTION>
Change in CMBS Portfolio Value
------------------------------
Change in CMBS Spreads Amount Percentage
- ------------------------ -------- ----------
<S> <C> <C>
- -250 Basis Points $6,410,158 18.8%
- -200 Basis Points 5,128,126 15.1
- -150 Basis Points 3,846,095 11.3
- -100 Basis Points 2,564,063 7.5
- -50 Basis Points 1,282,032 3.8
No change in CMBS Spreads 0 0.0
+50 Basis Points -1,282,032 -3.8
+100 Basis Points -2,564,063 -7.5
+150 Basis Points -3,846,095 -11.3
+200 Basis Points -5,128,126 -15.1
+250 Basis Points -6,410,158 -18.8
</TABLE>
The above tables show the possible impact of changes in interest rates and CMBS
spreads on the Company's CMBS-related investment, the financing related to that
investment, and the associated hedging instruments. Cash flows and income from
the Company's other financial instruments, consisting primarily of mortgage
loans, GNMA certificates, and cash and cash equivalents, would not be
significantly affected by changes in interest rates, because most of
-25-
<PAGE>
these instruments bear interest at fixed rates, and are not subject to financing
or hedged. Cash and cash equivalents and the mortgage loans are carried at
amortized cost, and so their carrying values are not impacted by changes in
interest rates. The GNMA investments are adjusted to market value through
comprehensive income in the equity statement, but changes in their value have
not historically been significant to shareholders' equity.
The Company's analysis of risks is based on management's experience, estimates
and assumptions. These analyses rely on financial models, which utilize
estimates of fair value and interest rate sensitivity. Actual economic
conditions or implementation of investment decisions by management may produce
results significantly different from the projected results shown in the above
tables.
-26-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material pending legal proceedings.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
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.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
27 Financial Data Schedule (filed herewith).
(b) REPORTS ON FORM 8-K
Current Report on Form 8-K relating to the 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 Stuart J. Boesky as Chairman of the Board
of Trustees and Chief Executive Officer was dated December 16, 1999
and was filed on January 5, 2000.
-27-
<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.
AMERICAN MORTGAGE ACCEPTANCE COMPANY
(Registrant)
Date: May 12, 2000
By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Trustee, Chairman of the Board,
President and Chief Executive Officer
Date: May 12, 2000
By: /s/ John B. Roche
-----------------
John B. Roche
Senior Vice President and
Chief Financial Officer
Date: May 12, 2000
By: /s/ Richard A. Palermo
----------------------
Richard A. Palermo
Vice President, Treasurer, Controller
and Chief Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the financial
statements for American Mortgage Acceptance Company and is qualified in its
entirety by reference to such financial statements
</LEGEND>
<CIK> 0000878774
<NAME> AMERICAN MORTGAGE ACCEPTANCE COMPANY
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 8,878,874
<SECURITIES> 40,838,241
<RECEIVABLES> 62,376,720
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 112,314,054
<CURRENT-LIABILITIES> 56,030,912
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 56,283,142
<TOTAL-LIABILITY-AND-EQUITY> 112,314,054
<SALES> 0
<TOTAL-REVENUES> 2,108,797
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 345,871
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 909,107
<INCOME-PRETAX> 483,216
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 483,216
<EPS-BASIC> .13
<EPS-DILUTED> .13
</TABLE>
