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, 2001
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 ____
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
------------ ------------
March 31, December 31,
2001 2000
------------- ----------
(Unaudited)
ASSETS
Investments in mortgage loans $ 48,943,115$ 31,828,733
Investments in GNMA certificates-
available for sale 5,781,622 5,851,219
Investment in ARCap 20,232,637 20,041,733
Investment in unconsolidated subsidiary 0 1,149,182
Cash and cash equivalents 839,321 1,632,652
Note receivable 1,413,750 8,677,843
Accrued interest receivable 458,895 680,728
Other assets 658,756 576,223
-------------- ------------
Total assets $ 78,328,096$ 70,438,313
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Repurchase facilities payable $ 21,527,610$ 12,655,940
Accrued interest payable 25,634 27,850
Accounts payable and accrued expenses 316,403 278,760
Due to Advisor and affiliates 253,925 1,008,387
Distributions payable 1,391,503 1,391,503
------------ ------------
Total liabilities 23,515,075 15,362,440
------------ ------------
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 (14,386,672) (14,126,317)
Accumulated other comprehensive loss (24,670) (22,173)
--------------- ------------
Total shareholders' equity 54,813,021 55,075,873
------------ ------------
Total liabilities and shareholders' equity $ 78,328,096 $ 70,438,313
============ ============
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
--------------------------
Three Months Ended
March 31,
-------------------------
2001 2000
----------- ----------
Revenues:
Interest income:
Mortgage loans $ 888,252 $ 491,400
GNMA certificates 115,624 119,631
Commercial mortgage-
backed security-related
investment 0 950,662
Note receivable 45,313 0
Temporary investments 16,979 547,104
Equity in earnings of ARCap 592,000 0
Other income 6,067 0
---------- -----------
Total revenues 1,664,235 2,108,797
--------- ---------
Expenses:
Interest 275,625 909,107
General and administrative 237,778 332,220
Amortization 19,684 13,651
----------- -----------
Total expenses 533,087 1,254,978
---------- ---------
Other gain (loss):
Net gain on repayments of GNMA
certificates and mortgage loans 0 86,439
Net loss on commercial mortgage-
backed security-related
investment and government
securities sold short 0 (457,042)
----------- ----------
Total other gain (loss) 0 (370,603)
--------- ----------
Net income $1,131,148 $ 483,216
========= ==========
Net income per share
(basic and diluted) $ .29 $ .13
=========== =============
Weighted average
shares outstanding
(basic and diluted) 3,838,630 3,838,630
========= =========
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited)
Shares of Beneficial Treasury Shares of
Interest Beneficial Interest Additional Distributions Comprehensive
--------------------- -------------------- Paid-in in Excess
Shares Amount Shares Amount Capital of Net Income Income
--------- -------- ---------- -------- ----- ------------- ---------------
Balance at January 1, 2001 4,213,826 $421,383 (375,196) $(37,520) $68,840,500 $(14,126,317)
Comprehensive income:
Net income 0 0 0 0 0 1,131,148 $1,131,148
Other comprehensive income:
Net unrealized gain on first mortgage bonds:
Net unrealized holding gain
arising during the period (2,497)
------------
Comprehensive income $1,128,651
=========
Distributions 0 0 0 0 0 (1,391,503)
-------- -------- -------- ------- ----------- ------------
Balance at March 31, 2001 4,213,826 $421,383 (375,196) $(37,520) $68,840,500 $(14,386,672)
========= ======= ======== ======= ========== ===========
Accumulated
Other
Comprehensive
Income (Loss) Total
--------------- --------------
Balance at January 1, 2001 $ (22,173) $55,075,873
Comprehensive income:
Net income 0 1,131,148
Other comprehensive income:
Net unrealized gain on first mortgage bonds:
Net unrealized holding gain
arising during the period (2,497) (2,497)
Comprehensive income
Distributions 0 (1,391,503)
------------ -----------
Balance at March 31, 2001 $ (24,670) $54,813,021
======== ==========
See accompanying notes to financial statements.
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
--------------------------
Three Months Ended
March 31,
--------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net income $ 1,131,148 $ 483,216
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on commercial mortgage-backed
security-related investment 0 (432,590)
Loss on government securities sold short 0 889,632
Net gain on repayments of GNMA certificates
and mortgage loans 0 (86,439)
Equity in earnings of ARCap, in excess of
distributions received (190,904) 0
Amortization - deferred financing costs 19,684 13,651
Amortization expense-loan premium and
origination costs 1,689 59,163
Accretion of GNMA discount (5,511) (5,639)
Accretion of discount on commercial
mortgage-backed security-related investment 0 (147,952)
Amortization of deferred costs relating to
the CMBS-related investment 0 3,685
Purchase of government security 0 (37,299,201)
Government security sold short 0 33,541,350
Changes in operating assets and liabilities:
Deposit with broker as collateral for security
sold short 0 3,868,201
Accrued interest receivable 221,832 500,895
Other assets 9,949 33,159
Due to Advisor and affiliates (715,412) 331,499
Accounts payable and accrued expenses 37,644 39,649
Accrued interest payable (2,215) (88,093)
Deferred costs relating to the CMBS-related
investment 0 (53,139)
------------- ----------
Net cash provided by operating activities 507,904 1,651,047
------------ -----------
Cash flows from investing activities:
Increase in investment in mortgage loans (8,795,948) 0
Proceeds from repayments of mortgage loans 0 1,074,884
Periodic principal payments of mortgage loans 54,082 0
Principal repayments of GNMA Certificates 72,628 3,767,573
Costs relating to repayment of mortgage loan 0 (45,000)
Increase in other assets (62,580) (14,400)
---------- -----------
Net cash (used in) provided by investing activities (8,731,818) 4,783,057
------------ -----------
Cash flows from financing activities:
Proceeds from repurchase facilities payable 8,871,670 541,000
Repayments of repurchase facilities payable 0 (399,000)
Distribution paid to shareholders (1,391,503) (1,391,504)
Increase in deferred loan costs (49,584) (108,024)
----------- -----------
Net cash provided by (used in) financing
activities 7,430,583 (1,357,528)
--------- ----------
Net (decrease) increase in cash and cash
equivalents (793,331) 5,076,576
Cash and cash equivalents at the beginning
of the period 1,632,652 3,802,298
--------- ---------
Cash and cash equivalents at the end of the
period $ 839,321 $8,878,874
========= =========
Supplemental information:
Interest paid $ 277,840 $ 997,200
========== ==========
Supplemental disclosure of noncash activities:
Proceeds from repayment of mortgage
loan which are due from loan servicing agent $8,942,630
=========
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001
(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 business plan 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 direct and indirect subordinated interests
in commercial mortgage-backed securities.
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.
The consolidated financial statements include the accounts of the Company and
two wholly owned subsidiaries which it controls: AMAC Repo Seller and (effective
January 2001) AMAC/FM Corporation. All intercompany accounts and transactions
have been eliminated in consolidation. Unless otherwise indicated, the "Company"
as hereinafter used, refers to American Mortgage Acceptance Company and its
subsidiaries.
The consolidated financial statements of the Company 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, 2001 and
the results of its operations and its cash flows for the three months ended
March 31, 2001 and 2000. However, the operating results for the interim periods
may not be indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP") have been condensed or
omitted. It is suggested that these financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 2000.
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.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It was implemented by the Company on January 1, 2001.
Because the Company does not utilize derivatives, implementation of this
statement did not have a material effect on the Company's financial statements.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001
(Unaudited)
Note 2 - Investments in Mortgage Loans
Information relating to investments in mortgage loans as of March 31, 2001 and
December 31, 2000 is as follows:
Base
Interest
Rate on Amounts Advanced
-------------------------------------
Final Mortgage Non-interest
Date Ma- Loan Additional Bearing Total Balance
of at
Invest- turitu (HUD Participa Interest Mortgage Additional Amounts March
Descrip ment -tion
Property -tion Date Insured) Rates(C) Rate Loans Loans Advanced 31, 2001
-------- -------- ----------- ------ -------- --------------- ------- ------ -------- ------------- ---------
Columbiana 204 4/94 8/29 7.90% 25%/- 0.778% $9,106,099 $563,000 $9,669,099 $9,527,371
Lakes Apt. 5/29
Apts.
Columbia, Units (A)(B)
SC
Stony 125 12/95 6/37 7.75% 1.378% 8,500,000 763,909 9,263,909 9,090,292
Brook
Village Apt. 6/37
II
Apts. Units (A)
East
Haven,
CT
Hollows 184 4/00 1/42 7.875% 50%/25% 1.4482% 5,914,855 1,549,200 7,464,055 7,282,834
Apts. Apt. 1/42
GreenvilleUnits (B)
NC
Elmhurst 313 6/00 1/42 8.00% 50%/25% 1.3232% 11,813,217 2,874,000 14,687,217 14,214,127
Village Apt. 1/42
Oveida, Units (B)
FL
Reserve 212 8/00 12/41 8.00% 50%/25% 1.202% 6,910,189 1,987,000 8,897,189 8,828,491
at
Autumn Apt. (B)
Creek Units
Friends-
wood, TX
----------------------------------------------------
Total $42,244,360 $7,737,109 $49,981,469 $48,943,115
====================================================
Interest
Earned Less
Balance at by the 2001 Net
December Company Amor- Interest
Property 31,2000 for 2001 tization Earned
-------- --------------- ------ -------- -------
Columbiana $9,563,501 $190,876 $(22,396) $168,480
Lakes
Apts.
Columbia,
SC
Stony
Brook 748,665 188,690 (22,223) 166,467
Village
II
Apts.
East
Haven,
CT
Hollows
Apts. 4,927,740 122,594 4,304 126,898
Greenville
NC
Elmhurst
Village 10,087,809 263,998 7,411 271,409
Oveida,
FL
Reserve
at 6,501,018 153,774 1,224 154,998
Autumn
Creek
Friends-
wood, TX
----------------------------------------------------
Total
$31,828,733 $919,932 $(31,680) $888,252
=====================================================
(A) The Mortgages have terms of 40 years, subject to mandatory prepayment at any
time after 10 years and upon one year's notice.
(B) Pledged as collateral in connection with a secured credit repurchase
facility with Nomura Asset Capital Corporation (See Note 5).
(C) In addition to the interest due at the base and additional interest rates,
the Company is entitled to participation in certain cash flows from the
underlying properties. The first percentage listed represents the Company's
participation in cash flows remaining, if any, after payment of debt service:
the second represents the Company's participation in sale or refinancing
proceeds.
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001
(Unaudited)
Note 3 - Investments in GNMA Certificates-Available for Sale
Information relating to investments in GNMA certificates as of March 31, 2001
and December 31, 2000 is as follows:
Accum-ulated
Date Original Amorti-zation Unrealized
Purchased Purchase at Loan Loss
/Final Stated Price Principal Discount March Origination at Balance
Certificate Payment Interest Including at March at March Costs at March at March
Seller Number Date Rate Discount 31,2001 31,2001 31,2001 March 31,2001 31,2001 31,2001
------ --------- -------- ------- -------- --------- ------- -------- ----------- ------- --------
GNMA Certificates
Bear Stearns 0355540 7/27/94 7.125% $2,407,102 $2,510,167 $(232,190) $130,863 $ 77,658 $14,658 $2,501,156
3/15/29
Malone Mortgage 0382486 7/28/94 8.500% 2,197,130 2,120,525 (7,952) 4,678 72,020 (27,501) 2,161,770
8/15/29
SunCoast Capital G22412 6/23/97 7.000% 1,981,566 1,131,761 (7,427) 6,189 0 (11,827) 1,118,696
Group, Ltd.
4/20/27
-------- --------- -------- ------- --------- -------- -------- -------- -----
Total $6,585,798 $5,762,453 $(247,569) $141,730 $149,678 $(24,670) $5,781,622
======== ========= ======== ======= ========= ======== ======== ======== =====
Interest
Earned
Balance at by the Net
December Company 2001 Interest
Seller 31, 2000 for 2001 Accretion Earned
------ ----------- ------- ------- ------
GNMA Certificates $2,498,175 $44,792 $4,912 $49,704
Bear Stearns
2,159,906 45,121 176 45,297
Malone Mortgage
1,193,138 20,200 423 20,623
SunCoast Capital
Group, Ltd. -- -------- ------
$5,851,219 $110,113 $5,511 $115,624
Total
== ======== ======
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001
(Unaudited)
The amortized cost, unrealized gain and fair value for the investment in GNMA
Certificates at March 31, 2001 and December 31, 2000 were as follows:
March 31, December 31,
2001 2000
------------- ---------
Amortized cost $5,806,292 $5,873,392
Gross unrealized loss (24,670) (22,173)
----------- ----------
Fair Value $5,781,622 $5,851,219
========= =========
Note 4 - Commercial Mortgage-Backed Security-Related Investment and Short Sale;
Investment in ARCap
On September 30, 1999, the Company acquired from ARCap a "BB+" rated
subordinated commercial mortgage-backed security ("CMBS") from a Chase Manhattan
Bank-First Union Nation Bank Commercial Mortgage 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 the Bear Stearns Repurchase Facility (see Note 5). In
connection with this acquisition, the Company entered into an agreement (the
"Agreement") with ARCap. Under the Agreement, the Company had the right to sell
the CMBS investment to ARCap and purchase a preferred equity position in ARCap,
all based on the then fair value of the CMBS investment.
This investment was accounted for as a trading asset and carried at estimated
fair value, with changes in fair value included in earnings. Interest income was
accrued as it became receivable, and included accretion of discounts, computed
using the effective yield method, after considering estimated prepayments and
credit losses. The Company recognized gains on this investment totaling $432,590
during the three months ended March 31, 2000 due to mark-to-market adjustments.
On September 30, 1999, in order to mitigate the potential income statement
effect of changes in the fair value of its CMBS investment caused by changes in
interest rates, 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"). On March 16,
2000, the Company replaced the borrowed security by purchasing such security
through Bear Stearns, 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. On November 1, 2000,
the Company terminated the short sale in connection with its sale of the
associated CMBS investment. Short sale positions were carried at estimated fair
value, with changes in fair value included in earnings. The Company recognized
losses on these positions totaling $889,632 during the three months ended March
31, 2000 due to mark-to-market adjustments.
On November 1, 2000, the Company, in accordance with the Agreement, sold the
CMBS investment to ARCap and repaid its borrowing under the repurchase facility
(see Note 5), closed out its short sales position and purchased a preferred
equity interest in ARCap in the face amount of $20,000,000, with a preferred
dividend rate of 12%. This preferred equity interest was recorded at
$19,640,637, representing the fair value of the CMBS investment at the date of
the transaction, less the Bear Stearns Repurchase Facility repayment plus
approximately $3.5 million in cash paid to ARCap.
NOTE 5 - Repurchase Facilities
On September 30, 1999, the Company entered into a repurchase facility with Bear
Stearns (the "Bear Stearns Repurchase Facility"), whereby Bear Stearns advanced
$19,568,000 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%, which was adjusted on the first day of each
month. The Bear Stearns Repurchase Facility was repaid November 1, 2000 in
connection with the CMBS sale discussed above.
Effective February 15, 2000, the Company entered into a $60 million FHA
repurchase facility with Nomura Asset Capital Corporation (the "Nomura
Repurchase Facility") with a term of 1 year. 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 was renewed February 15, 2001 for $40 million, with a one time option
to increase to $60 million, a one year term and interest at LIBOR plus 1.25%. As
of March 31, 2001 and December 31, 2000, $16,028,609 and $7,138,940,
respectively, were outstanding under The Nomura Repurchase Facility and interest
rates were 6.33% and 7.87%, respectively. 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.
Effective February 15, 2000, the Company entered into a repurchase facility with
Nomura Securities International Inc. (the "Nomura Securities Repurchase
Facility"). This agreement enables the Company to borrow up to 95% of the fair
market value of qualified mortgage securities owned by the Company. Borrowings
bear interest at LIBOR plus 0.50%. As of March 31, 2001 and December 31, 2000,
the amount outstanding under this facility was $5,499,000 and $5,517,000 and
interest rates were 5.55% and 7.12%, respectively. Deferred costs of $101,169
relating to the Nomura Securities Repurchase Facility are being amortized using
the straight-line method over five years.
NOTE 6 - Related Party Transactions
The costs incurred to related parties for the three months ended March 31, 2001
and 2000 were as follows:
Three Months Ended
March 31,
2001 2000
----------------------
Expense reimbursement $ 61,000 $115,646
Asset management fees 57,047 121,944
-------- -------
$118,047 $237,590
======== ========
Note 7 - Earnings Per Share
Basic net income per share in the amount $.29 and $.13 for the three months
ended March 31, 2001 and 2000, respectively, equals net income for the periods
($1,131,148 and $483,216, respectively), divided by the weighted average number
of shares outstanding for the periods (3,838,630 and 3,838,630, respectively).
Because the Company had no dilutive securities outstanding during the three
months ended March 31, 2001 or 2000, diluted net income per share is the same as
basic net income per share.
Note 8 - Commitments and Contingencies
The Company completed 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 (see Note 9). Under the loan venture,
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. As of March 31, 2001, the Company had originated loans totaling
$4,933,503 under this program.
Note 9 - Investment in Unconsolidated Subsidiary and Note Receivable
The Company has entered into an agreement with Fannie Mae whereby the Company
will provide first loss protection ("First Loss Obligation") on certain loans
originated by Fannie Mae pursuant to a Master Financing and Loss Sharing
Agreement. Through a consolidated subsidiary, AMAC/FM Corporation ("AMAC/FM"),
and pursuant to a Guaranty and Security Agreement with Fannie Mae, the payment
of the First Loss Obligation is guaranteed and secured by AMAC/FM's pledge and
grant to Fannie Mae of a security interest on certain assets of AMAC/FM.
AMAC/FM was capitalized by a contribution by the Company to AMAC/FM of the
mortgage loan secured by Stony Brook Village II Apartments with a principal
amount of $8,404,092. This contribution was recorded by AMAC/FM as a $7,264,093
loan from the Company via a subordinated promissory note, with a stated interest
rate of 7.75% and a $1,140,000 capital contribution through the issuance of
AMAC/FM non-voting common stock. During 2000, the Company accounted for its
$1,140,000 investment in AMAC/FM under the equity method of accounting, because
all of AMAC/FM's voting common shares were held by the Advisor and, therefore,
the Company did not control AMAC/FM.
During January 2001, all of the voting common stock of AMAC/FM, previously owned
by the Advisor, was purchased by the Company, the effect of which is to make
AMAC/FM a wholly owned, consolidated subsidiary of the Company. This change was
due to the REIT Modernization Act of 1999, allowing REITS to directly own
taxable REIT subsidiaries, beginning after the year 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
-------------------------------
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, 2001, there were 3,838,630 Shares outstanding.
The Company's 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 direct and indirect
subordinated interests in commercial mortgage-backed securities.
As of March 31, 2001, the Company's mortgage investments consisted of five
mortgage loans originated by or on behalf of the Company, three GNMA
mortgage-backed securities and pass-through certificates and a preferred equity
investment in ARCap Investors, L.L.C. ("ARCap").
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, 2001, cash and cash equivalents
decreased approximately $793,000 primarily due to cash provided by operating
activities ($508,000), an increase in investment in mortgage loans ($8,796,000),
proceeds from repurchase facilities payable ($8,872,000) and distribution paid
to shareholders ($1,392,000).
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 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 effect of prepayments 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.
The Company's equity in the earnings of ARCap will generally be equal to the
Company's preferred equity dividend rate of 12%, unless ARCap does not have
earnings and cash flows adequate to meet this dividend requirement. ARCap's
investment portfolio consists of subordinated commercial mortgage backed
securities, whose yields depend, among other things, on the rate and timing of
principal payments, the pass through rate, interest rate fluctuations and
defaults on the underlying mortgages. The Company's investment in ARCap is
illiquid and its carrying amount is not necessarily representative of the amount
the Company would receive upon a sale of this investment.
Effective February 15, 2000, the Company entered into a $60 million FHA
repurchase facility with the Nomura Asset Capital Corporation (the "Nomura
Repurchase Facility"), with a term of one year. 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 was renewed February 15, 2001, for $40 million, with a one
time option to increase to $60 million, a one year term, and interest at LIBOR
plus 1.25%. As of March 31, 2001 and December 31, 2000, $16,028,609 and
$7,138,940, respectively, were outstanding under The Nomura Repurchase Facility.
Effective February 15, 2000, the Company entered into a repurchase facility with
Nomura Securities International Inc. (the "Nomura Securities Repurchase
Facility"). This agreement enables the Company to borrow up to 95% of the fair
market value of qualified mortgage securities owned by the Company. Borrowings
bear interest at LIBOR plus 0.50%. As of March 31, 2001 and December 31, 2000,
the amount outstanding under this facility was $5,499,000 and $5,517,000 and
interest rates were 6.63125% and 7.12%, respectively.
In order to qualify as a REIT under the Code, the Company must, among other
things, distribute at least 90% 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.
The Company completed 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 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. As of
March 31, 2001, the Company has originated loans totaling $4,933,503 under this
program.
In May 2001, a distribution of $1,391,503, which was declared in March 2001, was
paid to the shareholders for the quarter ended March 31, 2001.
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, 2001 and 2000 was $1,131,148
and $483,216, 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, 2001 and 2000.
Interest income from mortgage loans increased approximately $397,000 for the
three months ended March 31, 2001 as compared to 2000 primarily due to increases
in the principal advances to Elmhurst Village, Autumn Creek and The Hollows
which were partially offset by the repayment of the Town and Country mortgage
loan.
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 sold in October 2000.
Interest income from temporary investments decreased approximately $530,000 for
the three months ended March 31, 2001 as compared to 2000 primarily due to the
closing of interest bearing bank accounts and termination of the deposits with
brokers held as collateral for short sales.
Interest income from notes receivable in the amount of approximately $45,000 was
recorded for the three months ended March 31, 2001; such investments were made
since September 2000.
Equity in earnings of ARCap in the amount of $592,000 was recorded for the three
months ended March 31, 2001. This investment was acquired in October 2000.
Other income in the amount of $6,000 was recorded for the three months ended
March 31, 2001 due to the loss sharing fees of Valley View, Alexandrine, Maple
Ridge, and Hillside Apartments.
Interest expense decreased approximately $633,000 for the three months ended
March 31, 2001 as compared to 2000 due to the termination of the Bear Stearns
Repurchase Facility and closing out of government securities sold short
positions partially offset by interest on the Nomura Securities repurchase
facilities.
General and administrative expenses decreased approximately $94,000 for the
three months ended March 31, 2001 as compared to 2000 primarily due to a
decrease in asset management fees payable to the Advisor due to the sale of
commercial mortgage-backed security-related investment and a decrease in the
reimbursements of certain administrative and other costs incurred by the Advisor
on behalf of the Company.
Amortization increased approximately $6,000 for the three months ended March 31,
2001 as compared to 2000 due to amortization of deferred costs relating to the
Nomura Repurchase Facility and the Nomura Securities Repurchase Facility.
A gain on the repayment of mortgage loans in the amount of approximately $28,000
was recorded for the three months ended March 31, 2000, relating to the
repayment of the Town & Country additional loan and FHA insured mortgage loan on
January 21, 2000. A gain of approximately $58,000 was recognized during the
three months ended March 31, 2000 from the repayment of a GNMA certificate.
There were no similar repayments or gains during the first quarter of 2001.
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. These positions were
liquidated in October of 2000.
Distributions
-------------
Of the total distributions of $1,391,503 and $1,391,504 for the three months
ended March 31, 2001 and 2000, respectively, $260,356 ($.07 per share or 19%)
and $908,288, respectively, represented a return of capital determined in
accordance with generally accepted accounting principles. As of March 31, 2001,
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 $14,378,083. 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.
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 risk to which the investments of the
Company is exposed is interest rate risk which is 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.
The Company's borrowings under repurchase agreements bear interest at rates that
fluctuate with LIBOR. Based on the $21.5 million of borrowings outstanding under
these facilities at March 31, 2001, a 1% change in LIBOR would impact the
Company's net income by approximately $215,000.
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 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material pending legal proceedings.
Information Regarding Other Companies Managed by affiliates of the Advisor.
---------------------------------------------------------------------------
On or about February 8, 2001, a complaint was filed in the New York Supreme
Court, County of New York, against the external advisor of Aegis Realty, Inc.
("Aegis"). Aegis is a public company which, like the Company, is externally
advised by affiliates of the Advisor. Also named as defendants in the suit were
certain affiliates of Aegis' advisor and Messrs. Boesky, Hirmes, Ross, Brenner,
Allen and Fisch. Messrs. Boesky, Allen and Fisch are trustees of the Company.
Aegis was also named as a nominal defendant. The action is entitled Paul v. The
Related Companies L.P., et al., Index No. 01-600669, and is purportedly a class
and derivative action. On or about March 23, 2001, a second action, entitled
Schnipper v. Aegis Realty, Inc., et al., Case No. 219736-V, was filed in the
Circuit Court for Montgomery County, Maryland against Aegis and each of Aegis'
five directors (Messrs. Boesky, Brenner, Hirmes, Allen and Fisch). Schnipper is
purportedly brought as a class action. On or about April 2, 2001, a third
action, entitled Opportunity Partners, L.P. v. Stuart J. Boesky, et al., Civ.
No. 24-C-01-001579, was filed in the Circuit Court for Baltimore County,
Maryland against, among others, Aegis, each of its five directors, and Aegis'
external advisors, which are affiliates of our Advisor. Opportunity Partners is
purportedly a class and derivative action.
Each of these three actions challenges Aegis' proposed acquisition of a property
portfolio and development business owned by a third party, which transaction
also involves the termination by Aegis of its external advisory agreements with
affiliates of the Advisor and the purchase by Aegis of various assets owned by
those external advisors. Each suit alleges that the defendants breached their
fiduciary duties to the Aegis stockholders by, among other things, committing
Aegis to pay unwarranted fees and other consideration to affiliates of the
Advisor. All three actions seek money damages, injunctive and declaratory relief
and attorney's fees. The transaction at issue in each suit, however, was
approved by Aegis' independent directors (Messrs. Allen and Fisch), who first
obtained legal advice and two fairness opinions from nationally recognized
investment banking firms before approving this transaction. Additionally, the
transaction at issue is subject to Aegis stockholder approval after proxy
materials describing that transaction are disseminated to the Aegis
stockholders. The defendants have advised the Company that they intend to defend
all three actions vigorously. The defendants filed motions to dismiss the
complaint in Paul on or about April 16, 2001. The defendants' times to answer in
Schnipper and Opportunity Partners have not yet expired.
The Company believes the lawsuit against Aegis will not have a material impact
on the Company's operations or financial condition.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
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, 2001
By: ___________________________________
Stuart J. Boesky
Trustee, Chairman of the Board,
President and Chief Executive Officer
Date: May 12, 2001
By: _______________________________
Michael I. Wirth
Chief Financial Officer
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, 2001
By: /s/ Stuart J. Boesky
-------------------------
Stuart J. Boesky
Trustee, Chairman of the Board,
President and Chief Executive Officer
Date: May 12, 2001
By: /s/ Michael I. Wirth
-------------------------
Michael I. Wirth
Chief Financial Officer