SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13237
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
(Exact name of Registrant as specified in its Trust Agreement)
Delaware 13-3949418
----------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
-------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
-------------------
Shares of Beneficial Interest
Name of each exchange on which registered:
------------------------------------------
American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The approximate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant as of March 9, 2001 as $336,020,034,
based on a price of $15.00 per share, the closing sales price for the
Registrant's shares of beneficial interest on the American Stock Exchange on
that date.
As of March 9, 2001 there were 22,700,340 outstanding shares of the
Registrant's shares of beneficial interest.
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Those portions of the Registrant's Proxy Statement for Annual Meeting
of Shareholders to be held on June 12, 2001, which are incorporated into Items
10, 11, 12 and 13.
Index to exhibits may be found on page 60
Page 1 of 75
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-KPURSUANT TO THE "SAFE HARBOR" PROVISION OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF.
PART I
Item 1. Business.
General
-------
Charter Municipal Mortgage Acceptance Company (the "Company") is a Delaware
business trust principally engaged in the acquisition and ownership (directly or
indirectly) of tax-exempt multifamily housing revenue bonds. The Company may
also acquire, at times, taxable multifamily housing revenue bonds. Both the
tax-exempt and the taxable bonds are herein referred to as Revenue Bonds
("Revenue Bonds"). Accordingly, the Company produces tax-exempt income which it
directly passes through to its shareholders in the form of a quarterly
tax-exempt dividend.
Generally, Revenue Bonds are secured by mortgage loans on underlying properties
("Underlying Properties"). Revenue Bonds that contain provisions for the Company
to receive additional interest payments by participating with the borrower in a
portion of the cash flow, sale or refinancing proceeds on the Underlying
Properties are referred to as "participating"; Revenue Bonds lacking this
provision are referred to as "non-participating". As of December 31, 2000, 98.5%
of the Revenue Bond par amount owned by the Company were first mortgage bonds.
As of December 31, 2000 there were 59 Revenue Bonds, with a par value of
$429,371,365, with Underlying Properties either under construction or undergoing
major rehabilitation. The Underlying Properties securing these Revenue Bonds are
garden apartments located in major metropolitan markets in 18 states. The
properties range in size from 70 units to 549 units with an average size of 215
units. Generally, the properties have a market appropriate, competitive amenity
package which may include swimming pools, clubhouses, exercise rooms and tennis
courts. The remaining Underlying Properties in the portfolio have stabilized
occupancies. The stabilized portfolio as of December 31, 2000 reports an average
occupancy of 96.3%.
The Company does not operate as a mortgage REIT, which generally utilize high
levels of leverage and acquire subordinated interests in commercial and/or
residential mortgage-backed securities. Pursuant to its Trust Agreement, the
Company is only able to incur leverage or other financing up to 50% of the
Company's Total Market Value (as defined in the Trust Agreement) as of the date
incurred. Mortgage REITs typically incur leverage at ratios ranging from between
3:1 to 10:1. Furthermore, the Revenue Bonds owned by the Company generally call
for ten-year restrictions from prepayments, eliminating the Company's
susceptibility to significant levels of repayment risk as a result of interest
rate reductions. Due to the Company's low level of leverage, the Company is less
likely than other higher leveraged REITs to be affected by any lack of
liquidity. The Company's portfolio does not contain assets that are especially
vulnerable to volatility during periods of interest rate fluctuations.
Consistent with the foregoing, the Company focuses on providing investors with a
stable level of distributions, even through unstable markets.
Organization
------------
The Company was formed on October 1, 1997 as the result of the merger (the
"Merger") of three publicly registered limited partnerships, Summit Tax Exempt
Bond Fund, L.P., Summit Tax Exempt L.P. II and Summit Tax Exempt L.P. III (the
"Partnerships"). One of the general partners of the Partnerships was an
affiliate of Related Capital Company ("Related"), a nationwide, fully integrated
real estate financial services firm. Unless otherwise indicated, the "Company",
as hereinafter used, refers to Charter Municipal Mortgage Acceptance Company and
its consolidated subsidiaries. Pursuant to the Merger, the Company issued shares
of beneficial interest ("Common Shares") to all partners in each of the
Partnerships in exchange for their proportionate interests. The Common Shares
commenced trading on the American Stock Exchange on October 1, 1997 under the
symbol "CHC."
The Company is governed by a board of trustees comprised of three independent
managing trustees and four managing trustees who are affiliated with Related.
The Company has engaged Related Charter LP (the "Manager"), an affiliate of
Related, to manage its day-to-day affairs. Through the Manager, Related offers
the Company a core group of experienced staff and executive management providing
the Company with services on both a full and part-time basis. These services
include, among other things, acquisition, financial, accounting, capital
markets, asset monitoring, portfolio management, investor relations and public
relations services. The Company believes that it benefits significantly from its
relationship with Related, since Related provides the Company with resources
that are not generally available to smaller-capitalized, self-managed companies.
Business Plan
-------------
In order to generate tax-exempt income to pass through to the Company's
shareholders and, as a result, enhance the value of the Company's Common Shares,
the Company invests in or acquires tax-exempt bonds secured by multifamily
properties. The Company believes that it can earn above market rates of interest
on its bond acquisitions by focusing its efforts primarily on affordable
housing. The Manager estimates that nearly 50% of all new multifamily
development contains an affordable component which produces tax credits pursuant
to Section 42 of the Internal Revenue Code. The traditional method of financing
such tax-exempt properties requires the involvement of credit enhancement,
rating agencies and investment bankers. The up-front cost of such financing is
generally much higher than traditional multifamily financing. The Company has
designed a Direct Purchase Program specifically to appeal to developers of such
properties through which the Company will invest in or acquire tax-exempt bonds
without the cost associated with credit enhancement, rating agencies and
investment bankers. The Company believes that the up-front cost savings to the
developer will translate into a higher than market interest rate on the bonds
acquired by the Company.
The Company believes that it is well positioned to market its Direct Purchase
Program as a result of the Manager's affiliation with Related. The Manager is a
single purpose affiliate of Related and is controlled by the same individuals
and entities who own Related. The Manager benefits from its affiliation with
Related because the Manager is able to utilize Related's resources and
relationships in the multifamily affordable housing finance industry to source
potential borrowers of first mortgage bonds that the Company could invest in or
acquire. Related and its predecessor companies have specialized in offering debt
and equity products to mid-market multifamily owners and developers for over 29
years. Related has provided debt and equity financing to properties valued at
over $11 billion. According to the 2000 National Multihousing Council survey,
Related is the third largest owner of apartments in the United States.
In addition to tax-exempt bonds secured by multifamily properties producing tax
credits, the Company may acquire other multifamily tax-exempt bonds including
those issued to finance low-income multifamily projects and facilities for the
elderly owned by Section 501(c)(3) not-for-profit organizations. The Company
also has a portion of assets that produce a small amount of taxable income.
Revenue Bonds - General
-----------------------
The principal and interest payments on each Revenue Bond are payable only from
the cash flows of the Underlying Properties, including proceeds from a sale of
an Underlying Property or the refinancing of the mortgage loan securing such
Revenue Bonds (the "Mortgage Loans"). None of the Revenue Bonds constitute a
general obligation of any state or local government, agency or authority. The
structure of each Mortgage Loan mirrors the structure of the corresponding
Revenue Bond that it secures. In order to protect the tax-exempt status of the
Revenue Bonds, the owners of the Underlying Properties are required to enter
into certain agreements to own, manage and operate the Underlying Properties in
accordance with requirements of the Internal Revenue Code of 1986, as amended.
Revenue Bonds are generally not expected to be subject to optional prepayment
during the first five to ten years of the Company's ownership of the bonds and
may carry prepayment penalties thereafter beginning at 5% of the outstanding
principal balance, declining by 1% per annum. Certain Revenue Bonds may be
purchased at a discount from their face value. Up to 15% of the Total Market
Value of the Company (as defined in its Trust Agreement) may be invested in
Revenue Bonds secured by Underlying Properties in which affiliates of the
Manager have a controlling interest, equity interest or security interest. The
15% limit is not applicable to properties to which the Manager or its affiliates
have taken title for the benefit of the Company and only applies to Revenue
Bonds acquired after the Merger. In selected circumstances and generally only in
connection with the acquisition of tax-exempt Revenue Bonds, the Company may
acquire a small amount of taxable bonds (i) which the Company may be required to
acquire in order to satisfy state regulations with respect to the issuance of
tax-exempt bonds and (ii) to fund certain costs associated with the issuance of
Revenue Bonds, that under current law cannot be funded by such Revenue Bonds.
From time to time, the Company has advanced funds to owners of certain
Underlying Properties in order to preserve the underlying asset. Such
preservation may include funds for construction completion, past due real estate
taxes, remedial deferred maintenance or other operating deficiencies. Promissory
notes and/or second mortgages typically secure such advances. As of December 31,
2000, the face amount of such advances was $15,165,389, with rates ranging from
8% to 13% and a carrying value of $9,909,933, (net of purchase accounting
adjustments), and a reserve for collectibility of $138,000. Included in such
amounts were advances to obligors which are affiliates of the Manager at an
aggregate face amount of $5,028,812, with rates ranging from 8% to 10%.
With respect to Revenue Bonds which are subject to forbearance agreements with
their respective obligors, the difference between the stated interest rates and
the rates paid (whether deferred and payable out of available future cash flow
or, ultimately, from sale or refinancing proceeds) is not accrued for financial
statement purposes. The accrual of interest at the stated interest rate will
resume once an Underlying Property's ability to pay the stated rate has been
adequately demonstrated. Unrecorded contractual interest income was
approximately $1,609,000, $1,916,000 and $3,047,000 for the years ended December
31, 2000, 1999 and 1998, respectively. Payments under each of the existing
forbearance agreements are current as of December 31, 2000.
Participating Revenue Bonds
---------------------------
Participating Revenue Bonds with an aggregate face amount of approximately
$179,502,000 as of December 31, 2000, call for interest only debt service
payments during their respective terms (which generally are 24 to 30 years from
issuance or re-issuance) with repayment of principal due in a lump sum "balloon"
payment at the expiration of their respective terms or upon sale or refinancing.
In addition to the stated base rates of interest, these Revenue Bonds provide
for "participating interest" which is based on a percentage of the underlying
properties cash flow or net sales/refinancing proceeds. Both the stated and
participating interest on the Revenue Bonds are exempt from federal income
taxation. During the years ended December 31, 2000, 1999 and 1998, the Company
was paid participating interest amounting to approximately $1,716,000, $728,000
and $960,000, respectively.
Non-Participating Revenue Bonds
-------------------------------
Non-participating, tax-exempt revenue bonds, with an aggregate face amount of
approximately $690,518,000 as of December 31, 2000, generally bear a fixed base
interest rate and may or may not provide for amortization of principal. Terms
are expected to be 5 to 35 years, although the Company may have the right to
cause repayment prior to maturity through a mandatory redemption feature (five
to seven years with up to six month's notice). Bonds that call for amortization
or "sinking fund" payments of principal are usually based on thirty to forty
year level debt service amortization schedules with amortization generally
beginning at the completion of rehabilitation or construction.
Certain other non-participating Revenue Bonds, with an aggregate face amount of
$6,195,000 are taxable and call for amortization or sinking fund payments of
principal on a term ranging between 13 and 40 years.
Modified Revenue Bonds
----------------------
From time to time, the Company, as an alternative to foreclosure in the event of
default, enters into forbearance agreements and/or permanent modifications with
certain borrowers. The determination as to whether it is in the best interest of
the Company to enter into permanent modifications or forbearance agreements, to
advance second mortgages, or alternatively, to pursue its remedies under the
loan documents, including foreclosure, is based upon several factors. These
factors include, but are not limited to, Underlying Property operations and
performance, owner cooperation and projected costs of foreclosure and litigation
- irrespective of whether or not the obligor has an affiliation with the
Manager.
In connection with the sale of two of the Underlying Properties, Cedar Creek and
Pelican Cove, the Company has agreed to a modification of the terms of the
respective Revenue Bonds. Subject to the local issuer's approval, the stated
interest rate of the Cedar Creek and Pelican Cove Revenue Bonds will be modified
to a stated interest rate of 7.43% and 7.25%, respectively, and the maturity and
call dates for each will be extended to October 1, 2010 and October 1, 2020,
respectively.
In addition to the above two Revenue Bonds, other Revenue Bonds, with an
aggregate face amount of $130,025,000, have previously been modified. These
modifications have generally encompassed an extension of the maturity together
with a prepayment lock out feature and/or prepayment penalties together with an
extension of the mandatory redemption feature (5-10 years from modification).
Stated interest rates have also been adjusted together with a change in the
participating interest features. Base interest rates, participating interest,
prepayment lock-outs, mandatory redemption and maturity features are arrived at
through negotiations between the Company and the owners of the Underlying
Properties and vary dependent on the facts of a particular Revenue Bond, the
owner of the Underlying Property, the Underlying Property's performance and
requirements of bond counsel and local issuers. Should negotiations break down,
the Company has the option to pursue its other remedies including acceleration
and foreclosure. The Company may agree to the modification of other Revenue
Bonds to generally reflect similar terms as those modified previously, where and
as appropriate. Significant modifications to interest rates and maturity dates
are subject to final approval of the local issuers, bond counsel and indenture
trustees.
Revenue Bonds with the Obligor as an Affiliate of the Manager
-------------------------------------------------------------
The obligors of $404,263,000 of Revenue Bonds are partnerships in which
affiliates of the Manager own a 1% general partner interest. In addition, the
original owners of underlying properties and obligors of $11,282,000 of Revenue
Bonds, have been replaced with affiliates of the Manager who have not made
equity investments. These affiliate entities could have interests that do not
coincide with, and may be adverse to, the interests of the Company.
Negotiations, if any, with respect to modifications of Revenue Bonds between the
Company and obligors who are affiliates may be affected by these conflicts as
the Manager determines the appropriate terms and conditions of modifications or
otherwise opts for some other remedy including foreclosure.
The original obligors and owners of the Underlying Properties of the Cedar
Creek, Highpointe, Pelican Cove and Loveridge Revenue Bonds have been replaced
with affiliates of the Manager who have not made equity investments. These
affiliates have assumed the day-to-day responsibilities and obligations of the
Underlying Properties. On September 29, 2000, the affiliates of the Manager sold
49% of Pelican Cove and Cedar Creek, with an option from the buyers to purchase
the remaining 51% in 2001. Buyers are being sought for the remaining two
Underlying Properties. These properties are generally paying as interest an
amount equal to the net cash flow generated by operations, which in some cases
is less than the stated rate of the Revenue Bond. The Company has no present
intention of declaring default on these Revenue Bonds. The aggregate carrying
value of these remaining Revenue Bonds at December 31, 2000 and December 31,
1999 was approximately $11,282,000 and $12,280,000, respectively, and the income
earned from them for the years ended December 31, 2000 and 1999 was
approximately $849,000 and $847,500, respectively.
Revenue Bond Repayments
-----------------------
During the period January 1, 2000 through December 31, 2000, three Revenue Bonds
were repaid and two RITES were terminated as described in the table below.
Dispositions for the Year Ended December 31, 2000
Par Amortized Realized Gains
Property/Bond Name Amount Cost / (Losses)
-------------------- ------------------- ---------------- ---------------
Bonds
Bay Club $6,400,000 $6,438,942 $ (38,942)
East Ridge 8,700,000 8,437,747 262,253
Martin's Creek 7,300,000 6,842,946 457,054
RITES
Avalon 5,000 40,073 (35,073)
Meadowview Park 5,000 5,141 (141)
---------
$645,151
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As of December 31, 2000, the Company and its consolidated subsidiaries owned
participating and non-participating Revenue Bonds. Certain of the Revenue Bonds
are taxable, were acquired in connection with the purchase of tax-exempt Revenue
Bonds and are secured by the same Underlying Properties that secure the
associated tax-exempt Revenue Bonds. The following table provides certain
information with respect to each of the Revenue Bonds.
Table of Investments
--------------------
Unit
Last Year Partici- Type Revenue Bond Rental Rental Number of
Of Con- pating- (LIHTC/ Revenue Fair Value Stated Occupancy Rates at Compet-
struction Bond 501c3/ Date Bond Par at December Interest December December ing Prop-
Property Location Units /Rehab (Y)es/(N)o Other6 Closed Amount 31, 2000 1 Rate2 31, 2000 31, 2000 erties Notes
-------- -------- ----- ------- -------- ------ ------ ------ ---------- ----- -------- -------- ------- -----
Tax-Exempt First Mortgage Bonds
-------------------------------
Owned by the Company (not including its consolidated subsidiaries)
------------------------------------------------------------------
Highpointe Harrisburg, PA 240 1991 Y Other Jul-86 $ 8,900,000 $5,591,000 8.500% 96.2% $ 450-830 24 D, E
Owned by the CM Holding Trust 3
-------------------------------
Highpointe Harrisburg, PA - 1991 N Other Nov-00 3,250,000 3,927,000 9.000% - - - D
Lexington Trails Houston, TX 200 1997 N 501c3 Nov-00 4,900,000 5,921,000 9.000 88.9% 435-700 25
Reflections Casselberry, FL 336 1995 Y Other Nov-00 10,700,000 12,929,000 9.000 88.9% 280-780 9
Rolling Ridge Chino Hills, CA 110 1996 Y Other Nov-00 4,925,000 5,951,000 9.000 96.3% 830-1,005 7
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Subtotal 646 23,775,000 28,728,000
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Owned by CharterMac Equity Issuer Trust3
----------------------------------------
Armstrong Farm Jeffersonville, IN 168 - N LIHTC Oct-00 8,246,000 8,246,000 7.500% - - 158 C,G,H,J
Barnaby Manor Washington, DC 124 - N LIHTC Nov-99 4,500,000 4,418,000 7.375 82.5% 850-975 12 B,C,I,J
Bay Colony League City, TX 248 - N LIHTC Aug-00 10,100,000 10,084,000 7.500 - - 15 C,G,H,J
Chandler Creek Round Rock, TX 216 - N 501c3 Oct-00 15,850,000 15,850,000 8.500 - - 19 G,H,J,CC
Chapel Ridge of Claremore, OK 104 - N LIHTC Oct-00 4,100,000 4,100,000 7.500 - - 5 C,G,H,J
Claremore
Del Monte Pines Fresno, CA 366 2000 N LIHTC May-99 11,000,000 9,957,000 6.800 94.8% 388-544 256 A, C
Douglas Pointe Miami, FL 176 - N LIHTC Sep-99 7,100,000 6,616,000 7.000 59.1% 504-604 184A,C,G,H,J
Forest Hills Garner, NC 136 2000 N LIHTC Dec-98 5,930,000 5,580,000 7.125 91.9% 550-650 152 A, C
Fort Chaplin Washington, DC 549 - N LIHTC Dec-99 25,800,000 23,698,000 6.900 98.4% 419-1,032 158 B,C,F
Franciscan Riviera Antioch, CA 129 - N LIHTC Aug-99 6,587,500 6,248,000 7.125 100.0% 500-872 17 A,C,F
Garfield Park Washington, DC 94 2000 N LIHTC Aug-99 3,260,000 3,146,000 7.250 100.0% 585-946 158
Grace Townhomes Ennis, TX 112 - N LIHTC May-00 5,225,600 5,217,000 7.500 - - 9 G,H,J
Grandview Forest Durham, NC 92 - N LIHTC Dec-00 5,483,907 5,484,000 8.500 - - 82C,G,H,J,GG
Greenbriar Concord, CA 199 - N LIHTC May-99 9,585,000 8,772,000 6.875 98.0% 750-1,100 55 B,C,F
Greenbridge at Richardson, TX 242 - N 501c3 Nov-00 19,735,000 19,735,000 7.400 - - 30 G,H,J
Buckingham
Hamilton Gardens Hamilton, NJ 174 - N LIHTC Mar-99 6,400,000 6,054,000 7.125 98.3% 625-730 16 A,C,N
Hidden Grove Miami, FL 222 - N LIHTC Sep-00 8,600,000 8,472,000 7.400 - - 184C,G,H,J
Lake Jackson Lake Jackson, TX 160 2000 N LIHTC Dec-98 10,934,000 10,189,000 7.000 85.9% 550-1095 10 A, C
Lake Park Turlock, CA 104 2000 N LIHTC Jun-99 3,638,000 3,511,000 7.250 98.0% 452-634 24 B, C
Lakemoor Durham, NC 160 - N LIHTC Dec-99 9,000,000 8,686,000 7.250 - - 89 A,G,H,J
Lakes Edge at WaldenMiami, FL 400 1986 N LIHTC Jun-99 14,850,000 13,640,000 6.900 97.5% 618-944 184 B, F
Lenox Park Gainesville, GA 292 2000 N LIHTC Jul-99 13,000,000 11,768,000 6.800 47.2% 431-620 15 B, C
Lewis Place Gainesville, FL 112 2000 N LIHTC Jun-99 4,000,000 3,594,000 6.750 89.2% 529-642 91 B,C,T
Millpond Village East Windsor, CT 360 - N LIHTC Dec-00 14,300,000 14,300,000 8.550 62.5% 477-1,020 2 F, HH
Mountain Ranch Austin, TX 196 - N LIHTC Dec-98 9,128,000 8,658,000 7.125 99.5% 586-814 453A,C,G,
H, J
Newark Commons New Castle, DE 220 - N LIHTC May-00 14,300,000 13,896,000 7.300 - - 35 A,C,G,
H, J
Oaks at Hampton Dallas, TX 250 - N LIHTC Apr-00 9,535,000 9,139,000 7.200 - - 11 B,C,G
Parks at DeSoto, TX 250 - N LIHTC Jul-00 9,535,000 9,139,000 8.500 - - 14 G,H,J
Westmoreland X
Princess Anne House Virginia Beach, VA 186 - N LIHTC Apr-00 7,500,000 7,488,000 7.500 - - 250 A,C,G
H, J
Red Hill Villas Round Rock, TX 168 - N LIHTC Dec-00 9,900,000 9,900,000 8.400 - - 19 C,G,FF
Running Brook Miami, FL 186 - N LIHTC Sep-00 8,495,000 8,368,000 7.400 - - 15C,G,H,J
Southwest Trails Austin, TX 160 - N LIHTC Aug-00 6,500,000 6,360,000 7.350 - - 15 C,G,H,J
Standiford Modesto, CA 250 - N LIHTC Sep-99 9,520,000 9,029,000 7.125 97.1% 395-650 63 A, C, F
Sunset Creek Lancaster, CA 148 1989 N Other Mar-88 8,275,000 6,129,000 5.477 98.6% 460-869 37 B,U,V,II
Sunset Village Lancaster, CA 204 1989 N Other Mar-88 11,375,000 8,434,000 5.477 94.5% 520-840 37 B,U,V,II
Sycamore Woods Antioch, CA 186 2000 N LIHTC May-99 9,415,000 8,616,000 6.875 97.8% 575-1,003 17 A, C
Tallwood Virginia Beach, VA 120 2000 N LIHTC Sep-99 6,205,000 5,988,000 7.250 96.7% 597-688 86 A, C
Williams Run Dallas, TX 252 1986 N 501c3 Dec-00 12,650,000 12,650,000 7.650 92.1% 554-751 10
Woods Edge Charlottesville, VA 97 - N LIHTC Nov-00 4,850,000 4,850,000 7.800 - - 20 EE
------- ------------- -----------
Subtotal 7,812 364,408,007 346,009,000
------- ------------- -----------
Owned by CharterMac Origination Trust3, 4
-----------------------------------------
Cedar Pointe Nashville, TN 210 1989 N Other Apr-87 9,500,000 8,852,000 7.000% 95.7% 540-860 168
Clarendon Hills Hayward, CA 285 1989 Y Other Dec-86 17,600,000 12,933,000 5.520 99.7% 619-1,700 99 W
Cypress Run Tampa, FL 408 1988 Y Other Aug-86 15,402,428 13,156,000 5.500 89.0% 485-855 247 U
Greenway Manor St. Louis, MO 312 1987 Y Other Oct-86 12,850,000 14,540,000 8.500 99.7% 535-625 172
Lakepoint Atlanta, GA 360 1989 N Other Nov-87 15,100,000 12,061,000 6.000 98.3% 462-895 30
Lakes, The Kansas City, MO 400 1989 Y Other Dec-86 13,650,000 10,636,000 4.870 92.4% 495-700 152 W
Lexington Square Clovis, CA 130 2000 N LIHTC Aug-98 3,850,000 3,267,000 6.375 96.9% 393-471 42 C,P
Loveridge Pittsburg, CA 148 1987 Y Other Nov-86 8,550,000 5,691,000 5.000 98.6% 650-1,300 18 D,E
San Marcos San Marcos, TX 156 - N LIHTC May-00 7,231,000 7,099,000 7.375 - - 25C,G,H,J
Shannon Lake Atlanta, GA 294 1988 Y Other Jun-87 12,000,000 11,182,000 7.000 94.3% 463-855 371 L, W
Summer Lake Davie, FL 108 - N LIHTC Mar-00 5,600,000 5,516,000 7.400 - - 6 C,G,H,J
Sunset Downs Lancaster, CA 264 1987 N Other Feb-87 15,000,000 10,965,000 5.477 96.6% 535-810 37 U,V,II
Sunset Terrace Lancaster, CA 184 1987 N Other Feb-87 10,350,000 7,566,000 5.477 95.6% 530-815 37 U,V,II
------- ------------- -----------
Subtotal 3,259 146,683,428 123,464,000
------- ------------- -----------
Owned by CharterMac Owner Trust3,5
----------------------------------
Autumn Ridge San Marcos, CA 192 - N LIHTC Aug-00 9,304,230 9,475,000 8.000% 95.6% 569-930 11 C,F,Z
Bristol Village Bloomington, MN 290 1989 N Other Jul-87 17,000,000 16,973,000 7.500 93.7% 400-2,398 25
Carrington Point Los Banos, CA 80 1999 N LIHTC Sep-98 3,375,000 2,864,000 6.375 98.7% 448-565 5 C
Casa Ramon Orange County, CA 75 1976 N LIHTC Jul-00 4,744,000 4,736,000 7.500 100.0% 652-1,086 43 C, F
Cedar Creek McKinney, TX 250 1988 N Other Dec-86 8,100,000 8,011,000 7.430 93.5% 250-940 10 U, V
Cedarbrook Hanford, CA 70 1999 N LIHTC Apr-98 2,840,000 2,691,000 7.125 100.0% 418-517 18 C
Chapel Ridge at Little Rock, AR 128 - N LIHTC Aug-99 5,600,000 5,311,000 7.125 - - 83C,G,H,J
Little Rock
Chapel Ridge at Texarkana, AR 144 - N LIHTC Sep-99 5,800,000 5,694,000 7.375 72.7% 320-685 26 C
Texarkana
College Park Naples, FL 210 2000 N LIHTC Jul-98 10,100,000 9,748,000 7.250 89.8% 451-780 33 O
Columbia at Bells Cherokee Co., GA 272 - N LIHTC Apr-00 13,000,000 12,806,000 7.400 - 5 G,H J
Ferry
Country Lake W. Palm Beach, FL 192 1985 N Other Nov-99 6,255,000 6,255,000 6.000 96.3% 647-995 44 M,F
Crowne Pointe Olympia, WA 160 1986 Y Other Dec-86 5,075,000 4,898,000 7.250 97.4% 485-845 39
Falcon Creek Indianapolis, IN 131 2000 N LIHTC Sep-98 6,144,600 5,930,000 7.250 97.0% 425-800 252 C, R
Gulfstream Dania, FL 96 2000 N LIHTC Jul-98 3,500,000 3,371,000 7.250 89.5% 502-633 5 C
Highland Ridge St. Paul, MN 228 1989 Y Other Dec-86 15,000,000 14,477,000 7.250 94.7% 850-1,460 86
Jubilee Courtyards Florida City, FL 98 1999 N LIHTC Sep-98 4,150,000 3,867,000 7.125 96.9% 525-710 2 C, S
Kings Villages Pasadena, CA 313 - N LIHTC Jul-00 17,650,000 17,622,000 8.500 80.2% 456-855 12 C,F,Y
Madalyn Landing Palm Bay, FL 304 2000 N LIHTC Nov-98 14,000,000 13,046,000 7.000 67.6% 425-599 8 C
Mansion, The Independence, MO 550 1987 N Other May-86 19,450,000 19,124,000 7.250 93.0% 410-1,350 15
Marsh Landing Portsmouth, VA 250 - N LIHTC May-98 6,050,000 5,834,000 7.250 72.7% 300-475 23 C, F
Newport Village Tacoma, WA 402 1987 Y Other Feb-87 13,000,000 12,546,000 7.250 95.1% 376-690 181
North Glen Atlanta, GA 284 1987 Y Other Sep-86 12,400,000 12,380,000 7.500 95.1% 575-1,010 371 K, W
Northpointe Village Fresno, CA 406 2000 N LIHTC Aug-98 13,250,000 13,229,000 7.500 93.5% 388-583 256 C, Q
Ocean Air Norfolk, VA 434 - N LIHTC Apr-98 10,000,000 9,651,000 7.250 78.3% 590-690 60 C,I,J
Orchard Hills Tacoma, WA 176 1987 Y Other Dec-86 5,650,000 5,453,000 7.250 99.4% 475-815 181
Orchard Mill Atlanta, GA 238 1990 Y Other May-89 10,500,000 10,483,000 7.500 92.4% 459-900 371 C
Park Sequoia San Jose, CA 81 - N LIHTC Oct-00 6,740,000 6,740,000 8.500 78.2% 799-1,350 165C,F,BB
Pelican Cove St. Louis, MO 402 1989 N Other Feb-87 18,000,000 17,372,000 7.250 99.0% 390-725 172 U, V
Phoenix Stockton, CA 186 2000 N LIHTC Apr-98 3,250,000 3,055,000 7.125 99.5% 395-721 96 C
River Run Miami, FL 164 1987 Y Other Aug-87 7,200,000 7,668,000 8.000 98.8% 351-1,034 184 C
Silvercrest Clovis, CA 100 1999 N LIHTC Sep-98 2,275,000 2,158,000 7.125 100.0% 300-393 142 C
South Congress Austin, TX 172 - N LIHTC May-00 6,300,000 6,290,000 7.500 65.1% 303-504 152 C,F
Stonecreek Clovis, CA 120 2000 N LIHTC Apr-98 8,820,000 8,350,000 7.125 100.0% 654-993 5 C
Thomas Lake Eagan, MN 216 1988 N Other Sep-86 12,975,000 12,954,000 7.500 95.3% 830-1,300 16
Village Green Merced, CA - - N LIHTC Aug-00 503,528 503,000 8.500 47.7% 380-485 11C,F,AA
Village Green Merced, CA 128 - N LIHTC Aug-00 3,078,000 3,073,000 8.500 - - -C,F,AA
Walnut Creek Austin, TX - - N LIHTC May-00 360,000 349,000 7.500 76.5% 338-556 152 F
Walnut Creek Austin, TX 98 - N LIHTC May-00 3,240,000 3,235,000 7.500 - - - F
Walnut Park Plaza Philadelphia, PA 224 2000 N LIHTC Apr-00 5,500,000 5,491,000 7.500 83.9% 597-650 49 C, F
Willow Creek Ames, IA 138 1988 Y Other Feb-87 6,100,000 5,887,000 7.250 100.0% 565-810 7
------- ------------ -----------
Subtotal 8,002 326,279,358 319,600,000
------- ------------- -----------
Subtotal - Tax-Exempt First Mortgage 19,959 870,045,793 823,392,000
Bonds
------- ------------- -----------
Taxable First Mortgage Bonds
----------------------------
Owned by the Company (not including its consolidated subsidiaries)
------------------------------------------------------------------
Chandler Creek Round Rock, TX - - N 501c3 Oct-00 350,000 350,000 9.750% - - 19 G H,J,
DD
Greenbriar Concord, CA - - N LIHTC May-99 2,015,000 2,015,000 9.000 98.0% 750-1,100 55 C,F
Greenbridge at Richardson, TX - - N 501c3 Nov-00 350,000 350,000 10.000 - - G,H,J
Buckingham
Lake Park Turlock Park, CA - 2000 N LIHTC Jun-99 375,000 375,000 9.000 98.0% 452-634 24
Lakes Edge at WaldenMiami, FL - - N LIHTC Jun-99 1,400,000 1,711,111 11.000 97.5% 618-944 184 F
Oaks at Hampton Dallas, TX - - N LIHTC Apr-00 525,000 525,000 9.000 - - 11 C, G
Parks at DeSoto, TX - - N LIHTC Jul-00 455,000 455,000 9.000 - - 14 G,H,J
Westmoreland
Princess Anne House Virginia Beach, VA - - N LIHTC Apr-00 125,000 131,945 9.500 - - 250C,G,H,J
Red Hill Villas Round Rock, TX - - N LIHTC Dec-00 400,000 400,000 9.500 - - 19 C, G
Williams Run Dallas, TX - 1986 N 501c3 Dec-00 200,000 200,000 9.250 - - 10
------- ---------- -----------
Subtotal 0 6,195,000 6,513,056
------- ------------- -----------
Total First Mortgage Bonds 19,959 $876,240,793 $829,905,056
------- ------------- -----------
Tax-Exempt Subordinate Bonds
----------------------------
Owned by the CharterMac Equity Issuer Trust3
--------------------------------------------
Museum Tower Philadelphia, PA 286 N Other Nov-00 $ 6,000,000 $ 6,000,000 8.250% B
Park Landmark Alexandria, VA 396 N Other Sep-00 9,500,000 9,500,000 8.750 B
------- ------------- -----------
Total Tax-Exempt Subordinate Bonds 682 15,500,000 15,500,000
------- ------------- -----------
Total Revenue Bonds 20,641 $891,740,793 $845,405,056
======= ============= ===========
1 The Revenue Bonds are deemed to be available-for-sale debt securities and,
accordingly, are carried at their estimated fair values at December 31, 2000.
2 The stated interest rate represents the coupon rate of the Revenue Bond at
December 31, 2000.
3 This entity is a consolidated subsidiary of the Company (see Merger).
4 The Revenue Bonds are held as collateral in connection with the TOP (see
Private Label Tender Option Program below).
5 These Revenue Bonds have been transferred to CharterMac Owner Trust in
connection with the Company's Private Label Tender Option Program (see Private
Label Tender Option Program below).
6 LIHTC bonds are bonds for which the owner of the Underlying Property is
eligible to receive Low Income Housing Tax Credits. Bonds for which the obligor
is a non-for-profit entity under Section 501(c)3 of the Internal Revenue Code
are classified as 501(c)3 bonds. Other bonds are those which are neither LIHTC
or 501(c)3 bonds.
A Held by Merrill Lynch as collateral for secured borrowings (see Securitization
Transactions below).
B These Revenue Bonds are held as collateral in connection with the Merrill
Lynch RITES/P-FLOATS Program (see Securitization Transactions below).
C The obligors of these Revenue Bonds are partnerships in which affiliates of
the Manager are partners that own a controlling interest.
D The original owners of the Underlying Properties and the obligors of these
Revenue Bonds have been replaced with affiliates of the Manager.
E The minimum pay rate is the current cash flow of the property.
F The Underlying Property is undergoing substantial rehabilitation.
G The Underlying Property is still in the construction phase as of December 31,
2000.
H The Underlying Property is under construction. In the event construction is
not completed in a timely manner, the Company may "put" the Revenue Bond to the
construction lender at par.
I The Underlying Property is undergoing substantial rehabilitation. In the event
it is not completed in a timely manner, the Company may "put" the Revenue Bond
to the construction lender at par.
J All of the "puts" (see (H) and (I) above) are secured by a letter of credit
issued by the construction lender to the Company.
K Pursuant to a bond modification as of October 1, 1997, the stated interest
rate was lowered to 7% through June 30, 2000, and 7.5% thereafter.
L Pursuant to a bond modification as of October 1, 1997, the stated interest
rate was lowered to 6% through July 31, 2000, and 7% thereafter.
M The interest rate for this Revenue Bond is 6% until expected refunding in 2nd
quarter 2001.
N The interest rate for this Revenue Bond is 7.625% during the construction
period and 7.125% thereafter.
O The interest rate for this Revenue Bond is 7% during the construction period
and 7.25% thereafter.
P The interest rate for this Revenue Bond is 7% during the construction period
and 6.375% thereafter.
Q The interest rate for this Revenue Bond is 7.965% through September 23, 1998,
8.125% for the remainder of the construction period and 7.5% thereafter.
R The interest rate for this Revenue Bond is 7% through August 31, 2000 and
7.25% thereafter.
S The interest rate for this Revenue Bond is 7% through September 30, 2000 and
7.125% thereafter.
T The interest rate for this Revenue Bond is 6.75% through May 31, 2000 and 7%
thereafter.
U These Revenue Bonds are currently awaiting approval from the Issuer for
modification. The Company is confident that the modification will occur and has
therefore shown the terms of the Revenue Bond as per a forbearance agreement
which mirrors the terms of the bond modification.
V Due to the sale of the Underlying Property, the Company received deferred Base
Interest.
W The Company received participating interest during 2000.
X The interest rate for this Revenue Bond is 8.5% through October 31, 2001 and
7.2% thereafter.
Y The interest rate for this Revenue Bond is 8.5% through October 31, 2001 and
7.5% thereafter.
Z The interest rate for this Revenue Bond is 8.0% through July 31, 2001 and
7.65% thereafter.
AA The interest rate for this Revenue Bond is 8.5% through June 30, 2001 and
7.5% thereafter.
BB The interest rate for this Revenue Bond is 8.5% through August 31, 2001 and
7.5% thereafter.
CC The interest rate for this Revenue Bond is 8.5% through November 30, 2002 and
7.6% thereafter.
DD The interest rate for this Revenue Bond is 9.75% through November 30, 2002
and 9.25% thereafter.
EE The interest rate for this Revenue Bond is 7.8% through November 30, 2002 and
7.5% thereafter.
FF The interest rate for this Revenue Bond is 8.4% through December 31, 2002 and
7.4% thereafter.
GG The interest rate for this Revenue Bond is 8.5% through January 31, 2003 and
7.5% thereafter.
HH The interest rate for this Revenue Bond is 8.55% through November 30, 2001
and 7.55% thereafter.
II A third party has the option to acquire these Revenue Bonds for an aggregate
of $35,250,000. The right to exercise the option commenced January 1, 2001 and
shall continue as long as these bonds are outstanding.
Raising Capital
---------------
In order for the Company to fund its investments in Revenue Bonds and facilitate
growth, the Company will need to access additional capital. The Company has
primarily used two sources of capital: collateralized debt securitizations and
equity offerings. The most efficient and economical source of capital is
securitization. The Company has two primary securitization programs: the Private
Label Tender Option Program ("TOP") and the P-FLOATS/RITES program.
Securitizations continue to offer the lowest cost of capital, albeit with
certain covenants and leverage limits. Pursuant to its Trust Agreement, the
Company is only able to incur leverage or other financing up to 50% of the
Company's Total Market Value; this leverage restriction is generally consistent
or more conservative than leverage covenants on the Company' s securitized debt.
The Company's conservative capital structure therefore requires periodic equity
offerings to maintain leverage within required limits.
During 2000, the Company's growth was financed by the Private Label Tender
Option Program, preferred stock offerings by a subsidiary, the Company's
Convertible Community Reinvestment Act Preferred Share offerings ("Convertible
CRA Shares") and securitization transactions as well as funds generated from
operations in excess of distributions. The Company's continued growth will be
financed by the TOP or similar programs, additional securitization transactions
and funds generated from operations in excess of distributions. In addition,
before the end of 2001, the Company expects to raise funds through additional
common, preferred and Convertible CRA offerings; however, there can be no
assurance that these initiatives will be successful.
Private Label Tender Option Program
-----------------------------------
On May 21, 1998, the Company closed on its Private Label Tender Option Program
("TOP") in order to raise additional capital to acquire additional Revenue
Bonds. As of December 31, 1999, the maximum amount of capital that could be
raised under the TOP was $400,000,000. On December 7, 2000, the Company refined
the structure the TOP for the primary purpose of segregating Revenue Bonds
issued by governmental entities in California from the remainder of the Revenue
Bonds under the TOP and to increase the maximum amount of capital available
under the program to $500,000,000.
As of December 31, 2000, the Company has contributed 53 issues of Revenue Bonds
in the aggregate par amount of approximately $473,000,000 to Charter Mac
Origination Trust I (the "Origination Trust"), a wholly-owned, indirect
subsidiary of the Company. The Origination Trust then contributed 40 of its
Revenue Bonds, with an aggregate par amount of approximately $326,000,000, to
Charter Mac Owner Trust I (the "Owner Trust") which is controlled by the
Company. The Owner Trust contributes selected bonds to specific "Series Trusts"
in order to segregate Revenue Bonds issued by governmental entities selected by
state of origin. As of December 31, 2000, two such Series Trusts were created: a
"California only" series that had 12 issues of Revenue Bonds in the aggregate
par amount of approximately $76,000,000 and a "National" (non-state specific)
series that had 28 issues of Revenue Bonds in the aggregate principal amount of
approximately $250,000,000.
Each Series Trust issues two equity certificates: (i) a Senior Certificate,
which has been deposited into another Delaware business trust (a "Certificate
Trust") which issues and sells "Floater Certificates" representing proportional
interests in the Senior Certificate to new investors and (ii) a Residual
Certificate representing the remaining beneficial ownership interest in each
Series Trust, which has been issued to the Origination Trust. At December 31,
2000, the California only and National Series Trusts had Floater Certificates
with an outstanding amount of $70,000,000 and $205,000,000, respectively.
The Revenue Bonds remaining in the Origination Trust (aggregate principal amount
of approximately $147,000,000) are additional collateral for the Owner Trust's
obligations under the Senior Certificate. In addition, the Owner Trust obtained
a municipal bond insurance policy from MBIA to credit enhance Certificate
distributions for the benefit of the holders of the Floater Certificates and
arranged for a liquidity facility, issued by a consortium of highly rated
European banks, with respect to the Floater Certificates. The Company owns no
beneficial interest in and does not control the Certificate Trusts.
The effect of the TOP structure is that a portion of the interest received by
the Owner Trust on the Revenue Bonds it holds is distributed through the Senior
Certificate to the holders of the Floater Certificates with the residual
interest remitted to the Origination Trust (and thus to the benefit of the
Company) via the Residual Certificate. The effect of the December 7, 2000,
refinement of the TOP structure was to segregate the California related Floater
Certificates as they generally will pay distributions at lower rates than
National (non-state specific) Floater Certificates and thus the yield on the
Residual Certificates owned by the Origination Trust is increased.
The Owner Trust, controlled by the Company, is consolidated and is noted on the
Balance Sheet of the Company as "minority interest in subsidiary (subject to
mandatory redemption)." The Company's cost of funds relating to the TOP
(calculated as income allocated to the minority interest plus recurring fees as
a percentage of the weighted average amount of the outstanding Senior
Certificate) was approximately 5.4%, 4.5% and 4.9% for the years ended December
31, 2000, 1999 and 1998, respectively.
P-FLOATs/RITES
--------------
Another source of financing for the Company's investments is the securitization
of selected Revenue Bonds through the Merrill Lynch Pierce Fenner & Smith
Incorporated ("Merrill Lynch") P-FLOATS/RITES program. Merrill Lynch deposits
each Revenue Bond into an individual special purpose trust together with a
Credit Enhancement Guarantee ("Guarantee"). Two types of securities are then
issued by each trust, (1) Puttable Floating Option Tax-Exempt Receipts
("P-FLOATS"), a short-term senior security which bears interest at a floating
rate that is reset weekly and (2) Residual Interest Tax Exempt Securities
("RITES"), a subordinate security which receives the residual interest payment
after payment of P-FLOAT interest and ongoing transaction fees. The P-FLOATS are
sold to qualified third party, tax-exempt investors and the RITES are generally
sold back to the Company. The Company has the right, with 14 days notice to the
trustee, to purchase the outstanding P-FLOATS and to withdraw the underlying
Revenue Bonds from the trust. When the Revenue Bonds are deposited into the
P-FLOAT Trust, the Company receives the proceeds from the sale of the P-FLOATS
less certain transaction costs. In certain other cases, Merrill Lynch may
directly buy the Revenue Bonds from local issuers, deposit them in the trust,
sell the P-FLOAT security to qualified investors and then sell the RITES to the
Company.
In order to facilitate the securitization under the P-FLOATS program, the
Company has pledged certain additional Revenue Bonds, cash and cash equivalents
and temporary investments as collateral for the benefit of the credit enhancer
or liquidity provider. At December 31, 2000, the total carrying amount of such
additional Revenue Bonds, cash and cash equivalents and temporary investments
pledged as collateral was $120,058,000.
During the year 2000, the Company transferred three Revenue Bonds with an
aggregate face amount of $30,800,000 to the P-FLOATS/RITES program and received
proceeds of $29,348,725.
The Company's cost of funds relating to its secured borrowings under the Merrill
Lynch P-FLOATS/RITES program (calculated as interest expense as a percentage of
the weighted average amount of the secured borrowings) was approximately 4.96%
and 4.8%, annualized, for the years ended December 31, 2000 and for the period
June 29, 1999 (inception of this program) through December 31, 1999,
respectively.
ATEBT Merger
------------
On November 2, 1999, the Company and American Tax Exempt Bond Trust ("ATEBT"),
whose manager was an affiliate of the Manager of the Company, entered into an
Agreement and Plan of Merger providing for the merger of ATEBT into and with the
Company as the surviving trust in the merger (the "ATEBT Merger"). The ATEBT
Merger was approved by the ATEBT shareholders on September 27, 2000 and
consummated on November 14, 2000.
On the ATEBT Merger consummation date, ATEBT had total assets of approximately
$29,700,000 and net assets of approximately $28,300,000. ATEBT had four
tax-exempt first mortgage bonds financing properties in four states, with an
aggregate outstanding face amount of $23,775,000, and with individual interest
rates of 9.0%.
Pursuant to the Merger Agreement, each share of beneficial ownership in ATEBT
issued and outstanding was converted into 1.43112 Common Shares of the Company.
Following the ATEBT Merger, previous ATEBT shareholders own 2,115,722 Common
Shares (representing approximately 9.3% of the outstanding Common Shares) of the
Company.
Competition
-----------
The Company, from time to time, may be in competition with private investors,
mortgage banking companies, lending institutions, quasi-governmental agencies
such as FNMA and FHA, trust funds, mutual funds, domestic and foreign credit
enhancers, bond insurers, investment partnerships and other entities with
objectives similar to the Company. Although the Company operates in a
competitive environment, competitors focused on providing tax-exempt financing
on multifamily housing consistent with the Company's custom-designed programs
are relatively few.
The Company's business is also affected by competition to the extent that the
Underlying Properties from which it derives interest and, ultimately, principal
payments may be subject to competition relating to rental rates and relative
levels of amenities from those offered by comparable neighboring properties. See
the comprehensive table under the heading "Revenue Bonds - Characteristics",
above, for additional competitive information.
In addition, the Manager and/or its affiliates have formed, and may continue to
form, various entities to engage in businesses that may be competitive with the
Company. However, the Company generally benefits from its relationship with the
Manager and its affiliates as a "one-stop" shopping source for borrowers seeking
debt and equity financing for affordable multifamily housing.
Employees and Management
------------------------
The Company has no employees. Management and administrative services for the
Company and its subsidiaries are performed by the Manager and its affiliates
pursuant to the Management Agreement between the Company and the Manager dated
October 1, 1997, as amended (the "Management Agreement"). The Manager has
subcontracted with Related to provide the services contemplated under the
Management Agreement. The Manager receives compensation for such services and
the Company and its subsidiaries reimburses the Manager and certain of its
affiliates for expenses incurred in connection with the performance of employee
services to the Company in accordance with the Management Agreement.
Information Regarding Other Companies Managed by Affiliates of the Manager.
---------------------------------------------------------------------------
On or about February 8, 2001, a complaint was filed in the New York Supreme
Court, County of New York, against the external adviser of Aegis Realty, Inc.
("Aegis"), a public company which, like the Company, is externally advised by
affiliates of the Manager. Also individually named in the suit were Messrs.
Boesky, Hirmes, Ross, Brenner, Allen and Fisch. Messrs. Boesky, Hirmes, Brenner,
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., 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., Case No.
219736-V, was filed in the Circuit Court for Montgomery County, Maryland against
Aegis and each of Aegis's five directors (Messrs. Boesky, Brenner, Hirmes, Allen
and Fisch). Schnipper is purportedly brought as a class action. Each of these
two actions challenges Aegis' proposed acquisition of a property portfolio and
development business owned by a third party, which transaction also involves the
acquisition by Aegis of its external advisor from affiliates of the Manager.
Each suit alleges that the defendants breached their fiduciary duty to the Aegis
stockholders by, among other things, committing Aegis to pay unwarranted fees
and other consideration to affiliates of the Manager. The actions seek money
damages, injunctive and declaratory relief and attorneys' 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
those transactions. Additionally, the transaction at issue is subject to Aegis
stockholders approval and will be submitted for a vote of the Aegis stockholders
after proxy materials describing that transaction are disseminated to the Aegis
stockholders. The defendants have advised the Company that they intend to defend
both actions vigorously. With respect to the allegations in the lawsuits, the
defendants have advised that they continue to believe that the transaction is
fair and reasonable and in the best interests of Aegis and its stockholders and
will be submitted for approval by a vote of the Aegis stockholders.
The Manager has advised the Company that it does not believe that the Aegis
lawsuit will have a material impact on its operations or financial condition.
Recent Legislation
------------------
The States of California and Florida recently adopted administrative amendments
to their allocation plans pursuant to which they award bond value capital to
developers of multifamily housing. These amendments will require, in some cases,
that a certain portion of the debt financing for such properties to be taxable.
Therefore, in certain cases, the Company may be required to offer taxable
financing to California and Florida developers in order to be competitive.
Since 1986, the Internal Revenue Code has provided that any revenue bond which
is a "private activity bond" (other than certain refunding bonds and bonds
issued for Section 501(c)(3) organizations) must receive an allocation of
"volume cap" from the governmental issuer of the bond. The amount of volume cap
was established in 1986 and was not indexed for inflation. Thus, the amount of
available volume cap in real dollars has decreased each year, reducing the
number of projects that may be financed with private activity bonds. On December
21, 2000, President Clinton signed into law an omnibus funding bill (H.R. 4577)
containing $31.5 billion in tax cuts. Included in the law are provisions
increasing both the low-income housing tax credit and tax exempt bond volume
caps over a two year period as follows: (i) the tax credit cap is increased to
$1.50 per capita in 2001 and $1.75 per capita in 2002; (ii) the bond volume cap
is increased to the greater of $62.50 per resident or $187.5 million in 2001 and
$75 per resident or $225 million in 2002. Both volume caps are indexed for
inflation beginning in 2003.
Item 2. Properties
The Company does not own or lease any property. The Manager leases office space
at 625 Madison Avenue, New York, New York, 10022.
Item 3. Legal Proceedings
The Company is subject to routine litigation and administrative proceedings
arising in the ordinary course of business. Management does not believe that
such matters will have a material adverse impact on the Company's financial
position, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Shareholders
None.
PART II
Item 5. Market for the Company's Common Shares and Related Shareholder Matters.
As of March 9, 2001, there were 3,793 registered shareholders owning 22,700,340
Common Shares. The Company's Common Shares have been listed on the American
Stock Exchange since October 1, 1997 under the symbol "CHC". Prior to October 1,
1997, there was no established public trading market for the Company's Common
Shares.
The high and low prices for each quarterly period of the last two years during
which the Common Shares were traded are as follows:
2000 2000 1999 1999
Quarter Ended Low High Low High
------------- --- ---- --- ----
March 31 $11.250 $12.375 $11.9375 $13.375
June 30 11.375 12.813 12.375 13.0625
September 30 12.188 14.250 12.375 13.0625
December 31 12.400 13.930 11.375 13.125
The last reported sale price of Common Shares on the American Stock Exchange on
March 9, 2001 was $15.00.
Incentive Share Option Plan
---------------------------
The Company has adopted an incentive share option plan (the "Incentive Share
Option Plan"), the purpose of which is to (i) permit the Company and the Manager
to attract and retain qualified persons as trustees and officers and (ii) to
provide incentive and to more closely align the financial interests of the
Manager and its employees and officers with the interests of the shareholders by
providing the Manager with substantial financial interest in the Company's
success. The Compensation Committee administers the Incentive Share Option Plan.
Pursuant to the Incentive Share Option Plan, if the Company's distributions per
Common Share in the immediately preceding calendar year exceed $0.9517 per
Common Share, the Compensation Committee has the authority to issue options to
purchase, in the aggregate, that number of Common Shares which is equal to three
percent of the Common Shares outstanding as of December 31 of the immediately
preceding calendar year, provided that the Compensation Committee may only
issue, in the aggregate, options to purchase a maximum number of Common Shares
over the life of the Incentive Share Option Plan equal to 10% of the Common
Shares outstanding on October 1, 1997 (2,058,748 Common Shares).
Subject to the limitations described in the preceding paragraph, if the
Compensation Committee does not grant the maximum number of options in any year,
then the excess of the number of authorized options over the number of options
granted in such year will be added to the number of authorized options in the
next succeeding year and will be available for grant by the Compensation
Committee in such succeeding year.
All options granted by the Compensation Committee will have an exercise price
equal to or greater than the fair market value of the Common Shares on the date
of the grant. The maximum option term is ten years from the date of grant. All
Common Share options granted pursuant to the Incentive Share Option Plan may
vest immediately upon issuance or in accordance with the determination of the
Compensation Committee. For the years ended December 31, 1997 and 1998 the
Company did not grant any options since its distributions per Common Share did
not exceed the minimum threshold of $0.9517 per Common Share. In 2000 and 1999,
the Company distributed $1.070 and $0.995 per Common Share, respectively, thus
enabling the Compensation Committee, at its discretion, to issue options.
On May 1, 2000, options to purchase 297,830 common shares were granted to
officers of the Company and certain employees of an affiliate of the Manager,
none of whom are employees of the Company. The exercise price of these options
is $11.5625 per share. The term of each option is ten years. The options will
vest in equal installments on May 1, 2001, 2002 and 2003. The Company has
adopted the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" for its share options issued to non-employees. Accordingly,
compensation cost is accrued based on the estimated fair value of the options
issued, and amortized over the vesting period. Because vesting of the options is
contingent upon the recipient continuing to provide services to the Company
until the vesting date, the Company estimates the fair value of the non-employee
options at each period-end up to the vesting date, and adjusts expensed amounts
accordingly. The 297,830 options granted on May 1, 2000 had an estimated fair
value at December 31, 2000 of $.90 per option grant, or a total of $268,047. The
fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 2000: dividend yield of 8.18%, expected volatility of 18%, and
expected lives of ten years. None of the options granted during 2000 were
exercised or expired. The Company recorded compensation cost of $109,952 during
the year ended December 31, 2000 relating to these option grants.
Common Share Repurchase Plan
----------------------------
On October 9, 1998, the Board of Trustees authorized the implementation of a
Common Share repurchase plan, enabling the Company to repurchase, from time to
time, up to 1,500,000 of its Common Shares. The repurchases, if any, are to be
made in the open market and the timing is dependent on the availability of
Common Shares and other market conditions. As of December 31, 2000, the Company
had acquired 8,400 of its Common Shares for an aggregate purchase price of
$103,359 (including commissions and service charges). Repurchased Common Shares
are accounted for as treasury Common Shares of beneficial interest.
Preferred Equity Issuance by Subsidiary
---------------------------------------
On June 29, 1999 a subsidiary of the Company completed a sale to institutional
investors of $90 million tax-exempt "Series A Cumulative Preferred Shares". In
connection with this transaction, the Company caused 100% of the ownership of
the Origination Trust to be transferred to Charter Mac Equity Issuer Trust (the
"Issuer"), a newly formed Delaware business trust and an indirectly-owned
subsidiary in which the Company owns 100% of the common equity. The Issuer then
issued the Series A Cumulative Preferred Shares as well as all subsequent
cumulative preferred issuances (collectively, "Cumulative Preferred Shares"). As
a result, the Issuer became the direct and indirect owner of all of the Revenue
Bonds held by the Origination Trust and Owner Trust and its directly-owned and
indirectly-owned subsidiaries (see discussion of Private Label Tender Option
Program, above). In addition to contributing the ownership of the Origination
Trust, the Company also contributed certain additional Revenue Bonds to the
Issuer. Net proceeds of approximately $86,395,000 from the Series A preferred
offering were used to invest in or acquire additional tax-exempt assets for the
Issuer.
The Series A Cumulative Preferred Shares have an annual preferred dividend
payable quarterly in arrears on January 31, April 30, July 31 and October 31 of
each year, and payable upon declaration thereof by the Issuer's Board of
Trustees, but only to the extent of the Issuer's tax-exempt income (net of
expenses) for the particular quarter. The Series A Cumulative Preferred Shares
are subject to mandatory tender by the holders thereof for remarketing and
purchase on June 30, 2009 and each remarketing date thereafter at a price equal
to $2,000,000 per share plus an amount equal to all distributions accrued but
unpaid on the Series A Cumulative Preferred Shares.
Holders of the Series A Cumulative Preferred Shares may elect to retain their
shares upon remarketing, with a distribution rate to be determined immediately
prior to the remarketing date by the remarketing agent. Each holder of the
Series A Cumulative Preferred Shares will be required to tender its shares to
the Issuer for mandatory repurchase on June 30, 2049, unless the Issuer decides
to remarket the shares on such date. The Issuer may not redeem the Series A
Cumulative Preferred Shares before June 30, 2009. After that date, all or a
portion of the shares may be redeemed, subject to certain conditions. The Series
A Cumulative Preferred Shares are not convertible into Common Shares of the
Issuer or Common Shares of the Company.
The Series A Cumulative Preferred Shares rank, with respect to payment of
distributions and amounts upon liquidation, dissolution or winding-up of the
Issuer, senior to all classes or series of Convertible CRA Shares and Common
Shares of the Issuer and therefore, of the Company.
On July 21, 2000, the Company, through the Issuer, completed a $79 million
tax-exempt preferred equity offering comprised of "Series A-1 Cumulative
Preferred Shares" and "Series B Subordinate Cumulative Preferred Shares." The
Company received net proceeds of approximately $76,126,000 from this offering.
The Series A-1 Cumulative Preferred Shares rank senior to Convertible CRA Shares
and Common Shares and pari passu with the Issuer's Series A Cumulative Preferred
Shares and senior to the Series B Subordinate Cumulative Preferred Shares. The
Series A-1 Cumulative Preferred Shares have identical terms to the Series A
Cumulative Preferred shares except as to the annual preferred dividend rate and
the liquidation amount per share.
The Series B Subordinate Cumulative Preferred Shares rank senior to the
Company's Convertible CRA Shares and Common Shares and junior to the Issuer's
Series A and Series A-1 Cumulative Preferred Shares. The shares have an annual
preferred dividend payable quarterly in arrears on January 31, April 30, July 31
and October 31 of each year but only after payment of all distributions payable
with respect to the Series A and Series A-1 Cumulative Preferred Shares and any
other senior securities. The Series B Subordinate Cumulative Preferred Shares
are subject to mandatory tender by the holders at their liquidation amount for
remarketing and purchase on November 30, 2010 under the same terms as the Series
A and Series A-1 Cumulative Preferred Shares.
Since inception, all quarterly distributions have been declared at the stated
annualized dividend rate for each respective series and all distributions due
have been paid. Attributes of each series of Cumulative Preferred Shares are as
follows:
Preferred Date of Number Liquidation Total Face Dividend
Series Issuance of Shares Preference per Share Amount Rate
--------- ---------- ----------- ------------------ ------------- ---------
Series A June 29, 45 $2,000,000 $90,000,000 6.625%
1999
Series A-1 July 21, 48 500,000 24,000,000 7.100%
2000
Series B July 21, 110 500,000 55,000,000 7.600%
2000
Convertible Community Reinvestment Act Preferred Share Offerings
----------------------------------------------------------------
On May 10, 2000, the Company completed a $27,497,000 private placement of
Convertible Community Reinvestment Act Preferred Shares ("Convertible CRA
Shares") to three financial institutions (1,946,000 Convertible CRA Shares
priced at $14.13 per share). The Company incurred an initial purchasers'
discount of approximately $1,109,000 and other related costs of approximately
$610,000 resulting in net proceeds (less expenses) of $25,778,000. On December
14, 2000, the Company completed an additional $9,100,000 private placement of
Convertible CRA Shares to three additional financial institutions (644,000
Convertible CRA Shares priced at $14.13 per share). After an initial purchasers'
discount of approximately $367,000 and other related costs of approximately
$318,000, the Company received net proceeds (less expenses) of $8,414,000.
The Convertible CRA Shares enable financial institutions to receive certain
regulatory benefits in connection with their investment. The Company has
developed a proprietary method for specially allocating these regulatory
benefits to specific financial institutions that invest in the Convertible CRA
Shares. Other than the preferred allocation of regulatory benefits, the
investors receive the same economic benefits as Common Shareholders of the
Company, including receipt of the same dividends per share as those paid to
Common Shareholders. Other than on matters relating to the terms of the
Convertible CRA Shares or to amendments to the Company's Trust Agreement which
would adversely affect the Convertible CRA Shares, the Convertible CRA Shares do
not have any voting rights. The Company's earnings are allocated pro rata among
the Common Shares and the Convertible CRA Shares, and the Convertible CRA Shares
rank on parity with the Common Shares with respect to rights upon liquidation,
dissolution or winding up of the Company. The investors, at their option, have
the ability to convert their Convertible CRA Shares into Common Shares at a
predetermined conversion price. Upon conversion, the investors will no longer be
entitled to a special allocation of the regulatory benefit. The conversion price
is the greater of (i) the Company's book value per Common Share as set forth in
the Company's most recently issued annual or quarterly report filed with the SEC
prior to the respective Convertible CRA issuance date or (ii) 110% of the
closing price of a Common Share on the respective Convertible CRA Share's
pricing date. The conversion price for each Convertible CRA Share offering is
indicated on the following table:
Issuance Date Conversion Price Conversion Ratio
--------------------------- --------------------- --------------------
May 10, 2000 $15.33 0.9217
December 20, 2000 $14.60 0.9678
The Company expects to raise additional equity in the future from similar
financial institutions that can utilize the regulatory benefits that have not
previously been allocated to other holders of the Convertible CRA Shares. While
the Company expects that these future offerings will be a source of liquidity,
it is only one of many sources of potential liquidity. Furthermore, there is no
assurance that the Company will be able to consummate such transactions or the
price or terms on which the offering may be consummated. If the federal
regulatory agencies that monitor these regulatory benefits were to determine
that an investment in the Convertible CRA Shares did not result in the financial
institutions being able to receive these regulatory benefits, the Company would
lose this potential source of liquidity.
Other
-----
Through calendar year 1999, each independent trustee was entitled to receive
annual compensation for serving as a trustee in the aggregate amount of $15,000
payable in cash (maximum of $5,000 per year) and/or Common Shares valued at
their fair market value on the date of issuance. Beginning in calendar year
2000, the annual compensation for the two original independent trustees was
increased from $15,000 to $17,500 and the maximum payable in cash was increased
from $5,000 to $7,500. In 2000, a third independent trustee was appointed and
such trustee will receive annual compensation in the aggregate amount of $30,000
payable in cash (maximum of $20,000 per year) and/or Common Shares. As of
December 31, 2000 and 1999, 3,552 and 1,910 Common Shares, respectively, having
an aggregate value on the date of issuance of $45,000 and $25,000, respectively,
were issued to the independent trustees as compensation for their services. An
additional 2,001 shares, with an aggregate value of $30,000 at issuance, were
issued to the independent trustees in January 2001 as compensation for their
2000 service.
Distribution Information
Distributions Per Share
The Company's earnings are allocated pro rata among the Common Shares and the
Convertible CRA Shares (collectively, "Shares"), and the Convertible CRA Shares
rank on parity with the Common Shares with respect to rights upon liquidation,
dissolution or winding up of the Company. Quarterly cash distributions per Share
for the years ended December 31, 2000 and 1999 were as follows:
Shareholders of the Company
------------------------------------------------------
Cash Distribution Date Per Total Amount
for Quarter Ended Paid Share Distributed
--------------------- ------------- ------------------ ---------------------
March 31, 2000 5/15/00 $0.265 $ 5,454,406
June 30, 2000 8/15/00 0.265 5,749,086
September 30, 2000 11/15/00 0.265 5,970,096
December 31, 2000 2/15/01 0.275 6,800,306
----- -----------
Total for 2000 $1.070 $23,973,894
===== ==========
March 31, 1999 5/14/99 $0.240 $ 4,939,437
June 30, 1999 8/15/99 0.245 5,042,352
September 30, 1999 11/14/99 0.245 5,042,352
December 31, 1999 2/14/00 0.265 5,453,971
----- -----------
Total for 1999 $0.995 $20,478,112
===== ==========
In addition to the distributions set forth in the table above, the Company paid
the Manager a special distribution (equal to .375% per annum of the total
invested assets of the Company) which amounted to $2,743,465 and $2,018,822 for
the years ended December 31, 2000 and 1999, respectively.
There are no material legal restrictions upon the Company's present or future
ability to make distributions in accordance with the provisions of the Company's
Amended and Restated Trust Agreement. Future distributions paid by the Company
will be at the discretion of the Trustees based upon evaluation of the actual
cash flow of the Company, its financial condition, capital requirements and such
other factors as the Trustees deem relevant.
Item 6. Selected Financial Data
The information set forth below presents selected financial data of the Company.
Additional financial information is set forth in the audited financial
statements and notes thereto contained in "Item 8. Financial Statements and
Supplementary Data".
For the Year Ended December 31, ($000s except per share data)
-------------------------------------------------------------
OPERATIONS 2000 1999 1998 1997 1996*
---------- -------------------------------------------------------------
Total revenues $ 59,091 $ 40,437 $ 27,940 $ 14,230 $ 11,628
Operating expenses (4,563) (3,151) (2,391) (1,902) (1,783)
Interest expense and financing costs (6,414) (3,166) (1,959) (429) 0
Other-than-temporary impairments related to - (1,859) - (1,843) (4,000)
investments in Revenue Bonds
Gain/(Loss) on repayment of revenue bonds 645 (463) 0 0 0
---------- ------- ----------- --------- --------
Income before minority interests 48,759 31,798 23,590 10,056 5,845
Income allocated to preferred shareholders of (8,594) (3,014) 0 0 0
subsidiary
Minority interest in income of subsidiary (10,074) (5,602) (1,564) 0 0
-------- -------- -------- ----------- ----------
Net income $ 30,091 $ 23,182 $ 22,026 $ 10,056 $ 5,845
======== ======= ======= ======= =======
Net income applicable to Shareholders ***** $ 27,074 $ 20,951 $ 20,343 $ 2,438***
======== ======= ======= ===========
Net income per Share *****
Basic $ 1.22 $ 1.02 $ .99 $ .12*** **
========== ========== ========== ==========
Diluted $ 1.22 $ 1.02 $ .98 $ .12*** **
========== ======== ========== ==========
Weighted average Shares outstanding
Basic 22,141 20,581 20,587 20,587*** **
====== ====== ====== ======
Diluted 22,152 20,581 20,741 20,587*** **
====== ====== ====== ======
FINANCIAL POSITION
Total assets $ 925,236 $ 673,791 $ 492,586 $ 362,391 $ 154,896
========= ========= ========= ========== =========
Secured borrowings $ 110,026 $ 80,770 $ 0 $ 0 $ 0
========= ======= ========= ========== ===========
Notes payable $ 0 $ 0 $ 0 $ 21,445 $ 0
========= ========= ========= ========= ==========
Total liabilities $ 124,222 $ 91,239 $ 15,092 $ 30,722 $ 574
========= ========== ========= ======== =========
Minority interest in subsidiary (subject to $ 275,000 $ 177,000 $ 150,000 $ 0 $ 0
mandatory redemption) ======== ========= ========= ======== ==========
Preferred shares of subsidiary (subject to $ 169,000 $ 90,000 $ 0 $ 0 $ 0
mandatory repurchase) ========= ========== ======== ========= ==========
Total shareholders' equity/partners' capital $ 357,014 $ 315,552 $ 327,494 $ 331,668 $ 154,323
======== ======== ========== ========== ==========
DISTRIBUTIONS
Distributions to Series A preferred shareholders $ 5,962,000 $ 3,014,375 N/A N/A N/A
=========== =========
Distributions to Series A-1 preferred shareholders $ 762,067 N/A N/A N/A N/A
==========
Distributions to Series B preferred shareholders $ 1,869,389 N/A N/A N/A N/A
=========
Distributions to BUC$holders N/A N/A N/A $7,138,263**** $9,517,685
========= =========
Distributions to Shareholders ***** $23,973,872 $20,478,112 $19,144,597 $4,735,120***
========== ========== ========== =========
Distributions per share** $ 1.07 $ 1.00 $ .93 $ .23***
=========== =========== ============ =========
OTHER DATA
*Information prior to October 1, 1997 (the date of the Merger) is only with
respect to Summit Tax Exempt L.P. II. Information subsequent to September 30,
1997 is with respect to the Company and its consolidated subsidiaries that
include Summit Tax Exempt II and the other Partnerships pursuant to the Merger.
**Distributions per share are the same for both common shares and Convertible
CRA Shares. Net income and distribution per Share information for periods prior
to October 1, 1997 is not presented because it is not indicative of the
Company's continuing capital structure.
***Represents amount for the three months ended December 31, 1997.
****Represents amount for the nine months ended September 30, 1997.
*****Includes common shareholders and Convertible CRA Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
-------
The Company is a Delaware business trust principally engaged in the acquisition
and ownership (directly or indirectly) of tax-exempt multifamily housing revenue
bonds ("Revenue Bonds") and other investments that produce tax-exempt income
issued by various state or local governments, agencies, or authorities.
Accordingly, the Company produces tax-exempt income which it directly passes
through to its shareholders in the form of a quarterly tax-exempt dividend.
Revenue Bonds are secured by mortgage loans on underlying properties
("Underlying Properties").
The Company is governed by a board of trustees comprised of three independent
managing trustees and four managing trustees who are affiliated with Related
Capital Company, a nationwide, fully integrated real estate financial services
firm. The Company has engaged Related Charter LP (the "Manager"), an affiliate
of Related, to manage its day-to-day affairs and to provide, among other things,
acquisition, financial, accounting, capital markets, asset monitoring, portfolio
management, investor relations and public relations services.
The Company does not operate as a mortgage REIT, which generally utilize high
levels of leverage and acquire subordinated interests in commercial and/or
residential mortgage-backed securities. Unlike mortgage REITs that typically
incur leverage at ratios ranging from 3:1 to 10:1, the Company is only able to
incur leverage or other financing up to 50% of the Company's Total Market Value
(as defined and pursuant to its Trust Agreement) as of the date incurred.
Furthermore, the Revenue Bonds owned by the Company generally call for ten-year
restrictions from prepayments, eliminating the Company's susceptibility to
significant levels of repayment risk as a result of interest rate reductions.
Due to the Company's low level of leverage, the Company has not been affected by
the lack of liquidity that recently impaired mortgage REITs and its portfolio
does not contain assets that are especially vulnerable to volatility during
periods of interest rate fluctuations. Consistent with the foregoing, the
Company focuses on providing investors with a stable level of distributions,
even through unstable markets.
In order to generate increased tax-exempt income and, as a result, enhance the
value of the Company's Shares, the Company intends to invest in or acquire
additional Revenue Bonds. The Company believes that it can earn above market
rates of interest on its bond acquisitions by focusing its efforts primarily on
affordable housing. The traditional method of financing tax-exempt properties
requires the involvement of credit enhancement, rating agencies and investment
bankers. Therefore, the up-front cost of such financing is generally much higher
than traditional multifamily financing. The Company has designed a Direct
Purchase Program specifically to appeal to developers of such properties through
which the Company will invest in or acquire tax-exempt bonds without the cost
associated with credit enhancement, rating agencies and investment bankers. The
Company believes that the up-front cost savings to the developer will translate
into a higher than market interest rate on the bonds acquired by the Company.
The Company believes that it is well positioned to market its Direct Purchase
Program as a result of the Manager's affiliation with Related because the
Manager is able to utilize Related's resources and relationships in the
multifamily affordable housing finance industry to source potential borrowers of
first mortgage bonds. Related and its predecessor companies have specialized in
offering debt and equity products to mid-market multifamily owners and
developers for over 26 years. According to the 2000 National Multihousing
Council survey, Related is the third largest owner of apartments in the United
States.
Liquidity and Capital Resources
-------------------------------
In order for the Company to fund its investments in Revenue Bonds and facilitate
growth, the Company has primarily used two sources of capital: collateralized
debt securitizations and equity offerings. To date, the primary source of
long-term liquidity has come from the Company's Private Label Tender Option
Program and preferred equity offerings by the Company or a subsidiary. During
the years 1999 and 2000, the Company raised additional capital as follows:
Amount of Capital Raised During: Ending Balance
--------------------------------------------------------------------------------------------------------------
Capital Source 1999 2000 December 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Equity:
Series A Preferred $ 90,000,000 $ 0 $ 90,000,000
Series A-1 Preferred $ 0 $24,000,000 $ 24,000,000
Series B Preferred $ 0 $55,000,000 $ 55,000,000
Convertible CRA Preferred $ 0 $36,596,700 $ 36,596,700
Securitizations:
Private Label Tender Option Program $177,000,000 $98,000,000 $275,000,000
P-Floats/RITES $ 80,769,616 $29,348,725 $110,026,031
These capital raising transactions are described in more detail below.
The Company has two primary securitization programs: the Private Label Tender
Option Program and the P-FLOATS/RITES program. Securitizations continue to offer
efficient execution and the lowest cost of capital, albeit with certain
covenants and leverage limits. Pursuant to its Trust Agreement, the Company is
only able to incur leverage or other financing up to 50% of the Company's Total
Market Value; such terms are generally consistent or more conservative than
leverage covenants on the Company' s securitized debt.
Short-term liquidity is provided by interest income from Revenue Bonds and
promissory notes in excess of the related financing costs, and interest income
from cash and temporary investments. The Company believes that its financing
capacity and cash flow from current operations are adequate to meet its current
and projected liquidity requirements.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way.
Capital Raising Transactions
(i) Preferred Equity Issuances By Subsidiary
Since June 1999, the Company, through a subsidiary, has issued multiple series
of Cumulative Preferred Shares. Proceeds from these offerings were used to
invest in or acquire additional tax-exempt assets for the Company.
Preferred Date of Mandatory Mandatory Number Liquidation Total Face Dividend
Series Issuance Tender Repurchase of SharesPreference per Share Amount Rate
---------------------------------------------------------------------------------------------------------------
Series A 6/29/99 6/30/09 6/30/49 45 $2,000,000 $90,000,000 6.625%
Series A-1 7/21/00 6/30/09 6/30/49 48 500,000 24,000,000 7.100%
Series B 7/21/00 11/30/10 11/30/50 110 500,000 55,000,000 7.600%
Each series of Cumulative Preferred Shares has an annual preferred dividend
payable quarterly in arrears upon declaration thereof by the Company's Board of
Trustees, but only to the extent of tax-exempt net income for the particular
quarter. All series of Cumulative Preferred Shares are subject to mandatory
tender by the holders thereof for remarketing and purchase on their respective
mandatory tender dates and each remarketing date thereafter at their respective
liquidation preference per share plus an amount equal to all distributions
accrued but unpaid.
Holders of Cumulative Preferred Shares may elect to retain their shares upon
remarketing, with a distribution rate to be determined immediately prior to the
remarketing date by the remarketing agent. Each holder of Cumulative Preferred
Shares will be required to tender its shares to the Issuer for mandatory
repurchase on the mandatory repurchase date, unless the Company decides to
remarket the shares on such date. Cumulative Preferred Shares are not
convertible into Common Shares of the Company.
The Series A and A-1 Cumulative Preferred Shares rank, with respect to payment
of distributions and amounts upon liquidation, dissolution or winding-up of the
Company, senior to all classes or series of Convertible CRA Shares, Series B
Cumulative Preferred Shares and Common Shares of the of the Company. The Series
B Subordinate Cumulative Preferred Shares rank, with respect to payment of
distributions and amounts upon liquidation, dissolution or winding-up of the
Company, senior to the Company's Common Shares and the Company's Convertible CRA
Shares and junior to the Issuer's Series A and A-1 Cumulative Preferred Shares.
Since inception, all quarterly distributions have been declared at each stated
annualized dividend rate for each respective series and all distributions due
have been paid. In February 2001, preferred shareholder distributions that were
declared in December 2000, were paid to the preferred shareholders from cash
flow from operations for the quarter ended December 31, 2000. The per share
distributions declared and paid for this period were as follows:
Dividend per Share Total Distribution
------------------ ------------------
Series A; 6.625% $ 33,125 $1,490,625
Series A-1; 7.100% $ 8,875 $ 426,000
Series B; 7.600% $ 9,500 $1,045,000
(ii) Convertible Community Reinvestment Act Preferred Share Offerings
On May 10, 2000, the Company completed a $27,497,000 private placement of
Convertible Community Reinvestment Act Preferred Shares ("Convertible CRA
Shares") to three financial institutions (1,946,000 Convertible CRA Shares
priced at $14.13 per share.) On December 14, 2000, the Company completed an
additional $9,100,000 private placement of Convertible CRA Shares to three
additional financial institutions (644,000 Convertible CRA Shares priced at
$14.13 per share).
The Convertible CRA Shares enable financial institutions to receive certain
regulatory benefits in connection with their investment. The Company has
developed a proprietary method for specially allocating these regulatory
benefits to specific financial institutions that invest in the Convertible CRA
Shares. Other than the preferred allocation of regulatory benefits, the
preferred investors receive the same economic benefits as Common Shareholders of
the Company, including receipt of the same dividends per share as those paid to
Common Shareholders. The Company's earnings are allocated pro rata among the
Common Shares and the Convertible CRA Shares, and the Convertible CRA Shares
rank on parity with the Common Shares with respect to rights upon liquidation,
dissolution or winding up of the Company.
The investors, at their option, have the ability to convert their Convertible
CRA Shares into Common Shares at a predetermined conversion price. Upon
conversion, the investors will no longer be entitled to a special allocation of
the regulatory benefit. The conversion price is the greater of (i) the Company's
book value per Common Share as set forth in the Company's most recently issued
annual or quarterly report filed with the SEC prior to the respective
Convertible CRA Share issuance date or (ii) 110% of the closing price of a
Common Share on the respective Convertible CRA Share's pricing date. The
conversion price for each Convertible CRA Share offering is indicated on the
following table:
Issuance Date Conversion Price Conversion Ratio
------------- ---------------- ----------------
May 10, 2000 $15.33 0.9217
December 14, 2000 $14.60 0.9678
(iii) Private Label Tender Option Program
On May 21, 1998, the Company closed on its Private Label Tender Option Program
("TOP") in order to raise additional capital to acquire additional Revenue
Bonds. As of December 31, 1999, the maximum amount of capital that could be
raised under the TOP was $400,000,000. On December 7, 2000, the Company refined
the structure the TOP for the primary purpose of segregating Revenue Bonds
issued by governmental entities in California from the remainder of the Revenue
Bonds under the TOP and to increase the maximum amount of capital available
under the program to $500,000,000. In addition, the TOP's surety commitment was
extended for a five-year term. The liquidity commitment is a one-year renewable
commitment. The Company expects to renew or replace such commitments upon
expiration of their terms.
Under the TOP structure, the Company contributes Revenue Bonds to Charter Mac
Origination Trust I (the "Origination Trust"), a wholly owned, indirect
subsidiary of the Company. The Origination Trust then contributes certain of
these Revenue Bonds to Charter Mac Owner Trust I (the "Owner Trust") which is
controlled by the Company. The Owner Trust contributes selected bonds to
specific "Series Trusts" in order to segregate Revenue Bonds issued by
governmental entities selected by state of origin. As of December 31, 2000, two
such Series Trusts were created: a California only series and a National
(non-state specific) series.
Each Series Trust, issues two equity certificates: (i) a Senior Certificate
which has been deposited into a "Certificate Trust" which issues and sells
"Floater Certificates" representing proportional interests in the Senior
Certificate to new investors and (ii) a Residual Certificate, issued to the
Origination Trust which represents the remaining beneficial ownership interest
in each Series Trust.
The effect of the TOP structure is that a portion of the interest received on
Revenue Bonds in the Owner Trust is distributed through the Senior Certificate
to the holders of the Floater Certificates with any remaining interest remitted
to the Origination Trust (and thus to the benefit of the Company) via the
Residual Certificate. The effect of the December 7, 2000, refinement of the TOP
structure was to segregate the California related Floater Certificates as they
generally will pay distributions at lower rates than National (non-state
specific) Floater Certificates and thus the yield on the Residual Certificates
owned by the Origination Trust is increased. The Revenue Bonds remaining in the
Origination Trust (aggregate principal amount of approximately $147,000,000) are
an additional collateral pool for the Owner Trust's obligations under the Senior
Certificate.
The balance of the TOP at December 31, 2000 (the equity in the Owner Trust,
represented by the Senior Certificate), was $275,000,000. The Company's floating
rate cost of funds relating to the TOP (calculated as income allocated to the
minority interest plus recurring fees as a percentage of the weighted average
amount of the outstanding Senior Certificate) was approximately 5.4%, 4.5% and
4.9% for the years ended December 31, 2000, 1999 and the period May 21, 1998
(inception) through December 31, 1998, respectively.
(iv) P-FLOATs/RITES
Another source for financing the Company's investments is the securitization of
selected Revenue Bonds through the Merrill Lynch Pierce Fenner & Smith
Incorporated ("Merrill Lynch") P-FLOATS/RITES program. Merrill Lynch deposits
each Revenue Bond into an individual special purpose trust together with a
credit enhancement guarantee. Two types of securities are then issued by each
trust, (1) Puttable Floating Option Tax-Exempt Receipts ("P-FLOATS"), a
short-term senior security which bears interest at a floating rate that is reset
weekly and (2) Residual Interest Tax Exempt Securities ("RITES"), a subordinate
security which receives the residual interest payment after payment of P-FLOAT
interest and ongoing transaction fees. The P-FLOATS are sold to qualified third
party, tax-exempt investors and the RITES are generally sold back to the
Company.
During the year 2000, the Company transferred three Revenue Bonds with an
aggregate face amount of $30,800,000 to P-FLOATS/RITES program and received
proceeds of $29,348,725.
The Company's cost of funds relating to its secured borrowings under the Merrill
Lynch P-FLOATS/RITES program (calculated as interest expense as a percentage of
the weighted average amount of the secured borrowings) was approximately 4.96%
and 4.8%, annualized, for the year ended December 31, 2000 and the period June
29, 1999 (inception of this program) through December 31, 1999, respectively.
Acquisitions and Dispositions of Revenue Bonds
During 2000, the Company acquired 44 Revenue Bonds (including Revenue Bonds
acquired in the ATEBT Merger - see below) with an aggregate par value of
approximately $299.8 million, not including bond selection fees and expenses of
approximately $5.8 million.
Acquisitions for the Year Ended December 31, 2000
Bond
Closing Aggregate Interest
Property/Bond Name Date Par Amount Purchase Price Rate at
12/31/00
----------------------------------- ----------- ------------- ----------------- --------------
Summer Lake Mar-14 $5,600,000 $ 5,726,806 7.400%
Princess Anne House Apr-6 125,000 127,500 9.500%
Princess Anne House Apr-6 7,500,000 7,684,106 7.500%
Walnut Park Plaza Apr-11 5,500,000 5,611,284 7.500%
Columbia at Bells Ferry Apr-19 13,000,000 13,264,889 7.400%
Oaks at Hampton Apr-27 525,000 535,500 9.000%
Oaks at Hampton Apr-27 9,535,000 9,737,266 7.200%
Walnut Creek May-4 360,000 367,200 7.500%
Walnut Creek May-4 3,240,000 3,305,433 7.500%
South Congress May-4 6,300,000 6,431,026 7.500%
Newark Commons May-17 14,300,000 14,643,370 7.300%
Grace Townhomes May-23 5,225,600 5,330,112 7.500%
San Marcos May-23 7,231,000 7,380,311 7.375%
Casa Ramon Jul-11 4,744,000 4,856,800 7.500%
Parks at Westmoreland Jul-17 455,000 464,100 9.000%
Parks at Westmoreland Jul-17 9,535,000 9,745,037 8.500%
Kings Villages Jul-26 17,650,000 18,027,011 8.500%
Autumn Ridge Aug-11 9,304,230 9,495,593 8.000%
Bay Colony Aug-11 10,100,000 10,306,797 7.500%
Village Green Aug-14 503,528 513,598 8.500%
Village Green Aug-14 3,078,000 3,144,885 8.500%
Southwest Trails Aug-14 6,500,000 6,633,855 7.350%
Park at Landmark Sep-7 9,500,000 9,690,000 8.750%
Hidden Grove Sep-26 8,600,000 8,772,000 7.400%
Running Brook Sep-27 8,495,000 8,674,092 7.400%
Park Sequoia Oct-17 6,740,000 6,874,800 8.500%
Armstrong Farm Oct-19 8,246,000 8,410,920 7.500%
Chapel Ridge of Claremore Oct-26 4,100,000 4,182,000 7.500%
Chandler Creek Oct-31 350,000 357,000 9.750%
Chandler Creek Oct-31 15,850,000 16,167,000 8.500%
Greenbridge at Buckingham Nov-7 350,000 357,000 10.000%
Greenbridge at Buckingham Nov-7 19,735,000 20,143,757 7.400%
Woods Edge Nov-13 4,850,000 4,947,000 7.800%
Highpointe Club Nov-14 3,250,000 3,927,000 (a) 9.000%
Lexington Trails Nov-14 4,900,000 5,921,000 (a) 9.000%
Rolling Ridge Nov-14 4,925,000 5,951,000 (a) 9.000%
Reflections Nov-14 10,700,000 12,930,000 (a) 9.000%
Museum Tower Nov-29 6,000,000 6,120,000 8.250%
Williams Run Dec-6 200,000 204,000 9.250%
Williams Run Dec-6 12,650,000 12,903,000 7.650%
Red Hill Villas Dec-12 400,000 408,000 9.500%
Red Hill Villas Dec-12 9,900,000 10,112,024 8.400%
Grandview Forest Dec-22 5,483,907 5,597,602 8.500%
Millpond Village Dec-28 14,300,000 14,586,000 8.550%
(a) These bonds were purchased as part of the ATEBT merger.
During the period January 1, 2000 through December 31, 2000, three Revenue Bonds
were repaid and two RITES were terminated as more fully described in table
below.
Dispositions for the Year Ended December 31, 2000
Bond Par Amortized Realized Gains
Property/Bond Name Amount Cost / (Losses)
------------------------- ------------------- ---------------- ---------------
Bonds
Bay Club $6,400,000 $6,438,942 $ (38,942)
East Ridge 8,700,000 8,437,747 262,253
Martin's Creek 7,300,000 6,842,946 457,054
RITES
Avalon 5,000 40,073 (35,073)
Meadowview Park 5,000 5,141 (141)
---------
$645,151
Revenue Bond Modifications
--------------------------
The original obligors and owners of the Underlying Properties of the Cedar Creek
and Pelican Cove Revenue Bonds have been replaced with affiliates of the Manager
who have not made equity investments. These affiliates have assumed the
day-to-day responsibilities and obligations of the Underlying Properties. On
September 29, 2000, the affiliates of the Manager sold 49% of Pelican Cove and
Cedar Creek to a third party buyer with an option from the buyers to purchase
the remaining 51% in 2001.
In connection with the sale of two of the Underlying Properties, Cedar Creek and
Pelican Cove, the Company has agreed to a modification of the terms of the
respective Revenue Bonds. Subject to Issuer approval, the stated interest rate
of the Cedar Creek Revenue Bond will be modified to a stated interest rate of
7.43% and 7.25% and the maturity and call dates will be extended to October 1,
2010 and October 1, 2020, respectively.
ATEBT Merger
------------
On November 2, 1999, the Company and American Tax Exempt Bond Trust ("ATEBT"),
whose manager is an affiliate of the Manager of the Company, entered into an
Agreement and Plan of Merger providing for the merger of ATEBT into and with the
Company as the surviving trust in the merger (the "ATEBT Merger"). The ATEBT
Merger was approved by the ATEBT shareholders on September 27, 2000 and
consummated on November 14, 2000.
On the ATEBT Merger consummation date, ATEBT had total assets of approximately
$29,700,000 and net assets of approximately $28,300,000. ATEBT had four
tax-exempt first mortgage bonds financing properties in four states, with an
aggregate outstanding face amount of $23,775,000, and with individual interest
rates of 9.0%.
Pursuant to the Merger Agreement, each share of beneficial ownership in ATEBT
issued and outstanding was converted into 1.43112 Common Shares of the Company.
Following the ATEBT Merger, previous ATEBT shareholders own 2,115,722 Common
Shares (representing approximately 9.3% of the then outstanding Common Shares)
of the Company.
Results of Operations
---------------------
The following is a summary of the Company's results of operations for the years
ended December 31, 2000, 1999 and 1998. Net income for the years ended December
31, 2000, 1999 and 1998 was $30.1 million, $23.2 million and $22.0 million,
respectively.
2000 vs. 1999
-------------
For the year ended December 31, 2000 as compared to 1999, total revenues, total
expenses and net income increased due to the net result of the acquisition of 44
Revenue Bonds and the repayment of three Revenue Bonds.
Interest income from Revenue Bonds increased approximately $17.2 million for the
year ended December 31, 2000 as compared to 1999. This increase was primarily
due to an increase in interest income of $15.2 million on new Revenue Bonds
acquired during 1999 and 2000. Also contributing to the increase was the receipt
during 2000 of deferred, unrecorded, base interest of $2.5 million relating to
prior periods with respect to certain Revenue Bonds.
Total revenues for the year ended December 31, 2000 increased by approximately
$18,700,000, including the increases in interest income from Revenue Bonds noted
above. The remaining increase is due to an increase in interest income from
temporary investments of approximately $1,100,000 primarily due to cash pledged
as collateral during 2000 related to securitization transactions, and an
increase in interest income from promissory notes of approximately $300,000
primarily due to the Country Lake note acquired during 2000.
Interest expense and recurring fees increased approximately $3,200,000 for the
year ended December 31, 2000 as compared to 1999 primarily due to increased
secured borrowings and a higher outstanding balance of the TOP during 2000.
Loan servicing and asset management fees increased approximately $480,000 for
the year ended December 31, 2000 due to new acquisitions and the corresponding
increase in the Revenue Bond portfolio serviced. General and administrative
expenses increased approximately $737,000 for the year ended December 31, 2000,
primarily due to an increase in legal costs related in part to bond
modifications, an increase in the amortized cost related to stock options, an
increase in other fees and an increase in expense reimbursements to the Manager
and affiliates due to the 2000 and 1999 Revenue Bond acquisition.
Amortization increased approximately $195,000 for the year ended December 31,
2000 as compared to 1999 primarily due to an increase in amortization of
deferred costs relating to the TOP and issuance of preferred shares of
subsidiary.
For the year ended December 31, 2000, the Company recognized a gain on the
repayment of revenue bonds of approximately $645,000 as compared to a loss on
repayment of revenue bonds of approximately $463,000 recognized for the year
ended December 31, 1999.
Income allocated to preferred shareholders of subsidiary for the year ended
December 31, 2000 increased approximately $5,600,000, related to the Preferred
Offerings executed on June 29, 1999 and July 21, 2000. Minority interest in
income of subsidiary increased approximately $4,500,000 for the year ended
December 31, 2000 as compared to 1999 primarily due to a higher outstanding
balance of the TOP during 2000.
1999 vs. 1998
-------------
For the year ended December 31, 1999 as compared to 1998, total revenues, total
expenses and net income increased due to the net result of the acquisition of 23
Revenue Bonds and the repayment of three Revenue Bonds.
Interest income from Revenue Bonds increased approximately $11.3 million for the
year ended December 31, 1999 as compared to 1998. This increase was due
primarily to interest income of $9.5 million on new Revenue Bonds acquired
during 1999 and 1998. Also contributing to the increase was the receipt of $1.6
million in deferred, unrecorded, base interest relating to prior periods with
respect to certain Revenue Bonds, and $3 million relating to three RITES
purchased in June 1999.
Total revenues for the year ended December 31, 1999 increased by approximately
$12,500,000, including the $9.5 million increase in interest income from new
Revenue Bonds noted above. The remaining increase is due to an increase in
interest income from temporary investments primarily due to higher invested cash
balances in 1999.
Interest expense and recurring fees relating to the Private Label Tender Option
program increased approximately $1.2 million for the year ended December 31,
1999 as compared to 1998 primarily due to increased secured borrowings and a
higher outstanding balance of the TOP during 1999.
Bond servicing and asset management fees increased approximately $353,000 for
the year ended December 31, 1999 due to new acquisitions and a corresponding
increase in the Revenue Bond portfolio serviced. General and administrative
expenses increased approximately $184,000 for the year ended December 31, 1999
primarily due to an increase in public relations expenses and an increase in
audit/tax fees.
Amortization increased approximately $223,000 for the year ended December 31,
1999 as compared to 1998 primarily due to an increase in amortization of
deferred costs relating to the TOP.
A loss on impairment of assets in the amount of approximately $1,859,000 was
recorded for the year ended December 31, 1999 to recognize other than temporary
impairment losses on six modified Revenue Bonds and one Revenue Bond with
anticipated modifications. A loss on repayment on three Revenue Bonds in the
amount of approximately $463,000 was recorded for the year ended December 31,
1999.
Income allocated to preferred shareholders of subsidiary for the year ended
December 31, 1999 relates to the Preferred Offering which closed on June 29,
1999. Minority interest in income of subsidiary increased approximately
$4,038,000 for the year ended December 31, 1999 as compared to 1998 primarily
due to a higher outstanding balance of the TOP during 1999.
Recently Issued Accounting Standards
------------------------------------
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities,
and is effective for the Company beginning with the first quarter of 2001. Prior
to December 31, 2000, the Company did not use derivatives or engage in hedging
activities. Beginning in 2001, the Company has entered into interest rate swaps
in order to hedge against rising interest rates on its short-term, floating rate
borrowings. Management has implemented a formal hedging policy. Implementation
of this statement did not have a material effect on the Company's financial
statements.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extiguisment of Liabilities" replaces SFAS No. 125, which had the same name. It
revises the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but it carries
over most of SFAS No. 125's provisions without reconsideration. The Company's
management does not believe that application of this statement, required in the
second quarter of 2000, will have a material impact on the Company's financial
statements.
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.
Inflation
---------
Inflation did not have a material effect on the Company's results for the
periods presented.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The nature of the Company's investments and the instruments used to raise
capital for their acquisition expose the Company to income and expense
volatility due to fluctuations in market interest rates. Market interest rates
are highly sensitive to many factors, including governmental policies, domestic
and international economic and political considerations and other factors beyond
the control of the Company.
The Revenue Bonds generally bear interest at fixed rates, or pay interest
according to the cash flows of the Underlying Properties, which do not fluctuate
with changes in market interest rates. In contrast, payments required under the
TOP program and on the secured borrowings under the P-FLOAT program vary based
on market interest rates based on the Bond Market Association ("BMA") index and
are re-set weekly. Other long-term sources of capital, such as the Company's
various series of Cumulative Preferred Shares, carry a fixed dividend rate and
so are not impacted by changes in market interest rates.
Various financial vehicles exist which would allow Company management to
mitigate the impact of interest rate fluctuations on the Company's cash flows
and earnings. Prior to December 31, 2000, management did not engage in any of
these hedging strategies. However, beginning in 2001, and upon management's
analysis of the interest rate environment and the costs and risks of such
strategies, the Company has entered into interest rate swaps in order to hedge
against increases in the floating interest rate on its TOP and P-Floats
programs. On January 5, 2001, the Company entered into a five-year interest swap
that fixes the BMA index to 3.98% on a notional amount of $50.0 million. On
February 5, 2001, the Company entered into a three-year interest swap that fixes
the BMA index to 3.64% on a notional amount of an additional $100.0 million.
Subsequent to December 31, 2000, with respect to the portion of the Company's
floating rate financing programs which are not hedged, a change in the BMA rate
would result in increased or decreased payments under these financing programs,
without a corresponding change in cash flows from the investments in Revenue
Bonds. For example, based on the unhedged $235 million ($385 million outstanding
under these financing programs at December 31, 2000, less the $150 million
notional amount subsequently hedged and assuming a perfect hedge correlation)
the Company estimates that an increase of 1.0% in the BMA rate would decrease
the Company's annual net income by approximately $2,350,000. Conversely, a
decrease in market interest rates would generally benefit the Company in the
same amount described above, as a result of decreased allocations to the
minority interest and interest expense without corresponding decreases in
interest received on Revenue Bonds.
Changes in market interest rates would also impact the estimated fair value of
the Company's portfolio of Revenue Bonds. The Company estimates the fair value
for each Revenue Bond as the present value of its expected cash flows, using a
discount rate for comparable tax-exempt investments. Therefore, as market
interest rates for tax-exempt investments increase, the estimated fair value of
the company's Revenue Bonds will generally decline, and a decline in interest
rates would be expected to result in an increase in their estimated fair values.
For example, the Company projects that a 1% increase in market rates for
tax-exempt investments would decrease the estimated fair value of its portfolio
of Revenue Bonds from its December 31, 2000 value of $845,405,056 to
approximately $736,636,000. A 1% decline in interest rates would increase the
value of the December 31, 2000 portfolio to approximately $956,249,000. Changes
in the estimated fair value of the Revenue Bonds do not impact the Company's
reported net income, earnings per share, distributions or cash flows, but are
reported as components of other comprehensive income and affect reported
shareholders' equity.
The assumptions related to the foregoing discussion of market risk involve
judgments involving future economic market conditions, future corporate
decisions and other interrelating factors, many of which are beyond the control
of the Company and all of which are difficult or impossible to predict with
accuracy. Although the Company believes that the assumptions underlying the
forward-looking information are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
information included herein will prove to be accurate. Due to the significant
uncertainties inherent in forward-looking information, the inclusion of such
information should not be regarded as a representation of the Company that the
objectives and plans of the Company would be achieved.
Item 8. Financial Statements and Supplementary Data.
Page
--------
(a) 1. Financial Statements
Independent Auditors' Report 31
Consolidated Balance Sheets as of December 31, 2000 and 1999 32
Consolidated Statements of Income for the years ended December 31,
2000, 1999 and 1998 33
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 2000, 1999 and 1998 34
Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 1999 and 1998 36
Notes to Consolidated Financial Statements 38
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees
And Shareholders of
Charter Municipal Mortgage Acceptance Company
New York, New York
We have audited the accompanying consolidated balance sheets of Charter
Municipal Mortgage Acceptance Company and subsidiaries (the "Company") as of
December 31, 2000 and 1999, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 2000. Our audits also included the financial
statement schedule listed in Item 14(a)2. These financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Charter Municipal Mortgage
Acceptance Company and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
March 12, 2001
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------------
2000 1999
------------- --------------
ASSETS
Revenue bonds-at fair value $845,405,056 $587,892,000
Temporary investments 0 45,541,000
Cash and cash equivalents 36,116,481 8,653,503
Cash and cash equivalents-restricted 0 1,028,209
Interest receivable, net 5,202,999 2,803,278
Promissory notes receivable 9,909,933 10,148,060
Deferred costs, net 24,201,342 14,222,451
Goodwill, net 3,792,959 2,674,626
Other assets 607,095 828,097
-------------- -------------
Total assets $925,235,865 $673,791,224
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Secured borrowings $110,026,031 $ 80,769,616
Accounts payable, accrued expenses and other liabilities 2,835,144 2,306,306
Due to Manager and affiliates 1,598,921 1,218,211
Distributions payable to preferred shareholders
of subsidiary 2,961,625 1,490,625
Distributions payable to Convertible CRA Shareholders 558,250 0
Distributions payable to common shareholders 6,242,046 5,453,971
------------- -------------
Total liabilities 124,222,017 91,238,729
----------- -----------
Minority interest in subsidiary (subject to mandatory
redemption) 275,000,000 177,000,000
----------- -----------
Preferred shares of subsidiary (subject to mandatory
repurchase) 169,000,000 90,000,000
----------- ------------
Commitments and contingencies
Shareholders' equity:
Beneficial owners' equity - Convertible CRA
shareholders (2,590,000 shares, issued and outstanding) 34,397,168 0
Beneficial owner's equity-manager 715,342 441,878
Beneficial owners' equity-other common shareholders
(50,000,000 shares authorized; 22,706,739 issued and
22,698,339 outstanding and 20,589,375 issued and
20,580,975 outstanding in 2000 and 1999, respectively) 344,870,761 312,800,380
Treasury shares of beneficial interest (8,400 shares) (103,359) (103,359)
Accumulated other comprehensive income (loss) (22,866,064) 2,413,596
------------ -----------
Total shareholders' equity 357,013,848 315,552,495
----------- -----------
Total liabilities and shareholders' equity $925,235,865 $673,791,224
=========== ===========
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
2000 1999 1998
----------- ----------- -----------
Revenues:
Interest income:
Revenue bonds $55,708,904 $38,444,530 $27,124,667
Temporary investments 2,379,976 1,289,669 221,270
Promissory notes 1,001,681 702,991 594,183
----------- ------------ ------------
Total revenues 59,090,561 40,437,190 27,940,120
---------- ---------- ----------
Expenses:
Interest expense 4,216,160 1,749,225 1,504,334
Recurring fees relating to the Private
Label Tender Option Program 2,197,557 1,416,756 454,919
Bond servicing 1,817,270 1,337,738 985,198
General and administrative 2,167,862 1,430,798 1,247,226
Amortization 577,388 382,027 158,572
Loss on impairment of assets 0 1,859,042 0
---------- ------------ ----------
Total expenses 10,976,237 8,175,586 4,350,249
---------- ---------- ----------
Income before gain (loss) on repayment of
revenue bonds 48,114,324 32,261,604 23,589,871
Gain (loss) on repayment of revenue bonds 645,151 (463,147) 0
------------ ----------- -----------
Income before minority interests 48,759,475 31,798,457 23,589,871
Income allocated to preferred shareholders
of subsidiary (8,593,956) (3,014,375) 0
Minority interest in income of subsidiary (10,074,463) (5,602,264) (1,563,999)
----------- ----------- -----------
Net income $30,091,056 $23,181,818 $22,025,872
========== ========== ==========
Allocation of net income to:
Special distribution to Manager $ 2,743,465 $ 2,018,822 $ 1,477,797
=========== ============ ============
Manager $ 273,476 $ 211,630 $ 205,481
============ ============= =============
Common shareholders $25,500,984 $20,951,366 $20,342,594
Convertible CRA Shareholders 1,573,131 0 0
----------- ----------- ------------
Total for shareholders $27,074,115 $20,951,366 $20,342,594
========== ========== ==========
Net income per share:
Basic $ 1.22 $ 1.02 $ .99
============ ============ ==============
Diluted $ 1.22 $ 1.02 $ .98
============ ============ ============
Weighted average shares
outstanding:
Basic 22,140,576 20,580,756 20,587,151
========== ========== ==========
Diluted 22,152,239 20,580,756 20,740,641
========== ========== ==========
See accompanying notes to consolidated financial statements
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Beneficial
Owners' Beneficial Accumulated
Equity - Beneficial Owners' Treasury Other
Convertible Owner's Equity- Shares of Comprehensive
CRA Equity - Other Beneficial Comprehensive Income
Shareholders Manager Shareholders Interest Income (Loss) Total
------------ ------- ------------ -------- ------ ------- -----
Balance at January 1, 1998 0 $ 24,788 $311,322,765 $ 0 $20,320,646 $331,668,199
Comprehensive income:
Net income 0 1,683,278 20,342,594 0 22,025,872 0 22,025,872
Other comprehensive loss:
Net unrealized loss on revenue bonds:
Net unrealized holding loss arising during the (5,260,455) (5,260,455) (5,260,455)
----------
period
Comprehensive income 16,765,417
==========
Issuance of common shares 0 0 5,000 0 0 5,000
Purchase of treasury shares 0 0 0 (103,359) 0 (103,359)
Consolidation costs 0 0 (218,657) 0 0 (218,657)
Distributions 0 (1,477,807) (19,144,587) 0 0 (20,622,394)
----------- ---------- ---------- ---------- ----------- ----------
Balance at December 31, 1998 0 230,259 312,307,115 (103,359) 15,060,191 327,494,206
Comprehensive income:
Net income 0 2,230,452 20,951,366 0 23,181,818 0 23,181,818
Other comprehensive loss:
Net unrealized loss on revenue bonds
Net unrealized holding loss arising during the (14,968,784)
period
Add: Reclassification adjustment for losses
included in net income
2,322,189
Other comprehensive loss (12,646,595) (12,646,595) (12,646,595)
-----------
Comprehensive income 10,535,223
==========
Issuance of common shares 0 0 20,000 0 0 20,000
Distributions 0 (2,018,833) (20,478,101) 0 0 (22,496,934)
----------------------- ----------- ------------- ------- -----------
Balance at December 31, 1999 0 441,878 312,800,380 (103,359) 2,413,596 315,552,495
Comprehensive income:
Net income 1,573,131 3,016,941 25,500,984 0 30,091,056 0 30,091,056
Other comprehensive loss:
Net unrealized loss on revenue bonds
Net unrealized holding loss arising during the (24,634,509)
period
Add: Reclassification adjustment for net gain
included in net income
(645,151)
Other comprehensive loss (25,279,660) (25,279,660) (25,279,660)
-----------
Comprehensive income $ 4,811,396
=========
Issuance of common shares 0 0 29,174,649 0 0 29,174,649
Issuance of Convertible CRA Shares 34,192,657 34,192,657
Distributions (1,368,620) (2,743,477) (22,605,252) 0 0 (26,717,349)
---------- ---------- ----------- ------------ --------- -----------
0
Balance at December 31, 2000 $34,397,168 $715,342 $344,870,761 $(103,359) $(22,866,064)$357,013,848
========== ======= =========== -======== =========== ===========
See accompanying notes to consolidated financial statements
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2000 1999 1998
------------- ----------- ------------
Cash flows from operating activities:
Net income $30,091,056 $23,181,818 $22,025,872
---------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
(Gain) loss on repayments of revenue bonds (645,151) 463,147 0
Loss on impairment of assets 0 1,859,042 0
Other amortization 577,388 382,027 158,572
Amortization of goodwill 364,653 297,624 134,592
Amortization of bond selection costs 938,319 452,949 238,928
Accretion of excess of acquired net
assets over cost 0 0 (248,559)
Accretion of deferred income and purchase
accounting adjustment (163,129) (66,212) (66,212)
Income allocated to preferred shareholders
of subsidiary 8,593,956 3,014,375 0
Changes in operating assets and liabilities:
Interest receivable (2,279,045) (1,290,716) (633,043)
Other assets 51,357 (5,097) 29,971
Accounts payable, accrued expenses and
other liabilities 212,093 (4,948,125) 608,704
Due to Manager and affiliates (705,149) (87,926) 402,361
------------ ------------- ------------
Total adjustments 6,945,292 71,088 625,314
----------- ------------- ------------
Net cash provided by operating activities 37,036,348 23,252,906 22,651,186
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from repayments of revenue bonds 22,400,000 21,395,213 0
Periodic principal payments of revenue bonds 378,563 0 0
Purchase of revenue bonds (276,011,265) (165,934,618) (117,596,600)
Increase in deferred bond selection costs (6,499,035) (3,906,784) (2,598,288)
Net sale (purchase) of temporary investments45,541,000 (45,541,000) 3,500,000
(Increase) decrease in other assets 1,000 (251,500) 0
Increase in other deferred costs (545,632) (100,000) 0
Loans made to properties (200,000) (2,847,185) (1,055,695)
Principal payments received from loans made to
properties 438,127 328,045 507,040
Cash acquired in ATEBT merger 837,958 0 0
------------ ---------- ------------
Net cash used in investing activities (213,659,284) (196,857,829) (117,243,543)
------------ ------------ -----------
Cash flows from financing activities:
Proceeds from note payable 0 0 96,039,231
Repayments of note payable 0 0 (117,484,571)
Proceeds from secured borrowings 29,348,725 80,769,616 0
Principal repayments of secured borrowings (92,310) 0 0
Decrease (increase) in cash and cash
equivalents-restricted 1,028,209 (1,028,209) 0
Distributions paid to the Manager and
Common shareholders (24,343,782) (21,815,252) (20,331,395)
Distributions paid to preferred shareholders
of subsidiary (7,122,956) (1,523,750) 0
Distributions paid to Convertible CRA
shareholders (810,370) 0 0
Increase in minority interest 348,000,000 27,000,000 150,000,000
Repayment of minority interest (250,000,000) 0 0
Increase in deferred costs relating to the Private
Label Tender Option Program (2,300,639) (559,632) (2,512,768)
Issuance of preferred stock of subsidiary 79,000,000 90,000,000 0
Deferred costs relating to the issuance of
preferred stock of subsidiary (2,813,620) (3,605,331) 0
Increase in other deferred costs 0 (72,039) 0
Purchase of treasury shares of beneficial interest 0 0 (103,359)
Issuance of Convertible CRA Shares 34,192,657 0 0
Merger costs 0 0 (218,657)
-------------- ----------- ------------
Net cash provided by (used in)
financing activities 204,085,914 169,165,403 105,388,481
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 27,462,978 (4,439,520) 10,796,124
Cash and cash equivalents at the
beginning of the year 8,653,503 13,093,023 2,296,899
----------- ---------- -----------
Cash and cash equivalents at the
end of the year $36,116,481 $ 8,653,503 $13,093,023
========== =========== ==========
Supplemental information:
Interest paid $ 4,108,958 $ 1,418,865 $ 1,507,871
=========== =========== ===========
Supplemental disclosure of noncash activities:
Merger and issuance of shares:
Increase in other assets $ (150) $ 0 $ 0
Increase in revenue bonds (28,729,000) 0 0
Increase in interest receivable (120,676) 0 0
Increase in accounts payable, accrued
expenses and other liabilities 356,502 0 0
Increase in due to affiliates 1,013,987 0 0
Increase in goodwill, net (1,482,986) 0 0
Issuance of shares of common stock 29,154,649 0 0
Decrease in deferred costs 645,632 0 0
------------------------------------------
Cash acquired in ATEBT merger $ 837,958 $ 0 $ 0
============ ============ ==============
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Significant Accounting Policies
Charter Municipal Mortgage Acceptance Company (the "Company") is a Delaware
business trust principally engaged in the acquisition and ownership (directly or
indirectly) of tax-exempt multifamily housing revenue bonds ("Revenue Bonds")
and other investments that produce tax-exempt income issued by various state or
local governments, agencies, or authorities. Revenue Bonds are primarily secured
by participating and non-participating first mortgage loans on underlying
properties ("Underlying Properties").
The Company was formed on October 1, 1997 as the result of the merger (the
"Merger") of three publicly registered limited partnerships, Summit Tax Exempt
Bond Fund, L.P., Summit Tax Exempt L.P. II and Summit Tax Exempt L.P. III (the
"Partnerships"). One of the general partners of the Partnerships was an
affiliate of Related Capital Company ("Related"), a nationwide, fully integrated
real estate financial services firm. Pursuant to the Merger, the Company issued
shares of beneficial interest ("Common Shares") to all partners in each of the
Partnerships in exchange for their proportionate interests.
The Company is governed by a board of trustees comprised of three independent
managing trustees and four managing trustees who are affiliated with Related.
The Company has engaged Related Charter LP (the "Manager"), an affiliate of
Related, to manage its day-to-day affairs.
Basis of Presentation
---------------------
The consolidated financial statements of the Company are prepared on the accrual
basis of accounting in accordance with accounting principles generally accepted
in the United States of America ("GAAP"). The preparation of financial
statements in conformity with GAAP requires the Manager to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates in the financial statements include the valuation of the Company's
investments in Revenue Bonds.
The consolidated financial statements include the accounts of the Company and
four majority owned subsidiary business trusts which it controls: CM Holding
Trust, Charter Mac Equity Issuer Trust, Charter Mac Origination Trust I and
Charter Mac Owner Trust I (see Notes 8 and 9). All intercompany accounts and
transactions have been eliminated in consolidation. Unless otherwise indicated,
the "Company", as hereinafter used, refers to Charter Municipal Mortgage
Acceptance Company and its consolidated subsidiaries.
Certain amounts in the 1998 and 1999 financial statements have been reclassified
to conform to the 2000 presentation.
Investment in Revenue Bonds and Promissory Notes Receivable
-----------------------------------------------------------
The Company accounts for its investments in Revenue Bonds as available-for-sale
debt securities under the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115").
In most cases the Company has a right to require redemption of the Revenue Bonds
prior to their maturity, although it can and may elect to hold them up to their
maturity dates unless otherwise modified. As such, SFAS 115 requires the Company
to classify these investments as "available-for-sale." Accordingly, investments
in Revenue Bonds are carried at their estimated fair values, with unrealized
gains and losses reported in other comprehensive income. Unrealized gains or
losses do not affect the cash flow generated from property operations,
distributions to shareholders, the characterization of the tax-exempt income
stream or the financial obligations under the Revenue Bonds.
The Company periodically evaluates its credit risk exposure associated with its
Revenue Bonds to determine whether other than temporary impairments exist. A
decline is considered to be other than temporary if, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due, including principal and interest, according to the
existing contractual terms of the Revenue Bond. The cost basis of a Revenue Bond
with other than temporary impairment is written down to its then estimated fair
value, with the amount of the write-down accounted for as a realized loss.
Because Revenue Bonds have a limited market, the Company estimates fair value
for each bond as the present value of its expected cash flows using a discount
rate for comparable tax-exempt investments. This process is based upon
projections of future economic events affecting the real estate collateralizing
the bonds, such as property occupancy rates, rental rates, operating cost
inflation, market capitalization rates and upon determination of an appropriate
market rate of interest, all of which are based on good faith estimates and
assumptions developed by the Manager. Changes in market conditions and
circumstances may occur which would cause these estimates and assumptions to
change; therefore, actual results may vary from the estimates and the variance
may be material.
Occasionally, the Company has advanced funds to owners of certain Underlying
Properties in order to preserve the underlying asset due to difficulties
including construction completion, past due real estate taxes and/or deferred
maintenance. Such advances are typically secured by promissory notes and/or
second mortgages and are carried at cost less a valuation allowance as
periodically deemed appropriate.
For Revenue Bonds and promissory notes, interest income is recognized at the
stated rate as it accrues and when collectibility of future amounts is
reasonably assured. Contingent interest is recognized when received. Interest
income from Revenue Bonds with modified terms or where the collectibility of
future amounts is uncertain is recognized based upon expected cash receipts.
Temporary Investments
---------------------
Temporary investments consist of puttable floating option tax-exempt receipts,
short-term senior securities which bear interest at a floating rate that is
reset weekly and other short-term investments that generate tax-exempt interest
income. These investments are recorded at cost which is generally equal to
market value.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents includes cash in banks and investments in short-term
instruments with an original maturity of three months or less. Certain amounts
of cash and cash equivalents are restricted and serve as additional collateral
for borrowings under securitizations (see Note 4).
Deferred Costs
--------------
Fees paid for activities performed to originate Revenue Bonds, including their
evaluation and selection, negotiation of mortgage loan terms, coordination of
property developers and government agencies, and other direct expenditures of
acquiring or investing in Revenue Bonds, are capitalized and amortized as a
reduction to interest income over the terms of the Revenue Bonds. Direct costs
relating to unsuccessful acquisitions and all indirect costs relating to the
Revenue Bonds are charged to operations.
Costs incurred in connection with the Company's Private Label Tender Option
Program (see Note 5), such as legal, accounting documentation and other direct
costs, have been capitalized using the straight-line method over 10 years, which
approximates the average remaining term to maturity of the Revenue Bonds in this
program.
Costs incurred in connection with the issuance of cumulative preferred shares of
subsidiary (see Note 6), such as legal, accounting, documentation and other
direct costs, have been capitalized and are being amortized using the straight
line method over the period to the mandatory repurchase date of the shares,
approximately 50 years.
Costs incurred in connection with the issuance of Convertible CRA Shares (see
Note 7), such as legal, accounting, documentation and other direct costs, have
been accounted for as an offset to beneficial owners' equity of such shares.
Goodwill
--------
For financial accounting and reporting purposes, the Merger was accounted for
using the purchase method of accounting. Under this method, Summit Tax Exempt
L.P. II was deemed to be the acquirer. As the surviving entity for accounting
purposes, the assets and liabilities of Summit Tax Exempt L.P. II were recorded
at their historical cost, with the assets and liabilities of the other
Partnerships recorded at their estimated fair values.
The application of purchase accounting initially resulted in the Company
recording a deferred credit for the excess of the fair value of the net assets
acquired over their cost. The accrual of the estimated value of the Counsel Fee
Shares (see Note 11) at October 1, 1998 was considered to be a purchase price
adjustment resulting in the reversal of the carrying value of the excess of
acquired net assets over cost ($2,982,708) and the recognition of goodwill at
October 1, 1998 in the amount of $4,805,828. In April 1999, the Company
successfully negotiated a Discounted Cash Settlement (see Note 11) in lieu of
the issuance of common shares which resulted in a decrease in the liability for
Counsel Fee Shares and in goodwill in the amount of $1,698,986. Goodwill is
being amortized to interest income from Revenue Bonds using the straight-line
method over nine years, the approximate average remaining term to maturity of
the Revenue Bonds acquired in the Merger at that time.
The application of purchase accounting to the merger also resulted in certain
Revenue Bonds being initially recorded at a discount or premium to their face
amounts. These discounts and premiums are included in the applicable bond's cost
basis and amortized into interest income over the bond's remaining term to
maturity. Discounts are not amortized, however, if collectibility of amounts in
excess of the bond's amortized cost are doubtful.
The merger with American Tax-Exempt Bond Trust ("ATEBT") in 2000 (see Note 9)
resulted in the capitalization of an additional $1,482,986 of goodwill. This
goodwill is being amortized to interest income from Revenue Bonds using the
straight-line method over 10 years, the approximate average term to maturity of
the four Revenue Bonds acquired in this transaction.
Goodwill is periodically reviewed for impairment, based on the performance of
the Revenue Bonds that were acquired in the applicable merger, and would be
written down if impairment was indicated.
Fair Value of Financial Instruments
-----------------------------------
As described above, the Company's investments in Revenue Bonds are carried at
estimated fair values. The Company has determined that the fair value of its
remaining financial instruments, including its temporary investments, cash and
cash equivalents, promissory notes receivable and secured borrowings approximate
their carrying values at December 31, 2000 and 1999.
Income Taxes
------------
No provision or benefits for income taxes has been included in these financial
statement since the income or loss passes through to, and is reportable by, the
shareholders on their respective income tax returns. At December 31, 2000, the
net tax basis of the Company's assets and liabilities exceeded the net book
basis by approximately $68,163,000.
Segment Information
-------------------
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", requires enterprises to report certain financial and descriptive
information about their reportable operating segments, and certain
enterprise-wide disclosures regarding products and services, geographic areas
and major customers. The Company is an investor primarily in tax-exempt Revenue
Bonds, and operates in only one reportable segment. The Company does not have or
rely upon any major customers. All of the Company's investments are located in
the United States; accordingly, all of its revenues were derived from U.S.
operations.
New Pronouncements
------------------
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities,
and is effective for the Company beginning with the first quarter of 2001. Prior
to December 31, 2000, the Company did not use derivatives or engage in hedging
activities. Beginning in 2001, the Company has entered into interest rate swaps
in order to mitigate the impact of rising interest rates on its short-term,
floating rate borrowings (see Note 14 - Financial Risk Management and
Derivatives). Management has implemented a formal hedging policy. Implementation
of this statement did not have a material effect on the Company's financial
statements.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" replaces SFAS No. 125, which had the same name.
It revises the standards for accounting for securitizations and other transfers
of financial assets and collateral and requires certain disclosures, but it
carries over most of SFAS No. 125's provisions without reconsideration. The
Company's management does not believe that application of this statement,
required in the second quarter of 2001, will have a material impact on the
Company's financial statements.
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - Revenue Bonds
The following table provides certain information with respect to each of the
Revenue Bonds owned by the Company and its consolidated subsidiaries:
December 31, 2000
------------------------------------------
Stated
Date Interest Call Maturity Bond Par Bond Fair
Property Location Notes Closed Rate - (2) Date Date Amount Amortized Cost Value (1)
----------------- --------------- ------------- -------- --------- --------- --------- -------------- --------------- --------------
Tax-Exempt Revenue Bonds
Owned by the Company (not including its consolidated subsidiaries)
------------------------------------------------------------------
Highpointe Club Harrisburg, PA D, E, JJ 07/29/86 8.500% Jun-98 Jun-06 $8,900,000 $7,000,187 $5,591,000
Owned by CM Holding (3)
Highpointe Club Harrisburg, PA D 11/14/00 9.000% - Jun-06 3,250,000 3,927,000 3,927,000
Lexington Trails Houston, TX 11/14/00 9.000% May-07 May-22 4,900,000 5,921,000 5,921,000
Reflections Casselberry, FL 11/14/00 9.000% Dec-05 Dec-25 10,700,000 12,930,000 12,929,000
Rolling Ridge Chino Hills, CA 11/14/00 9.000% Aug-06 Aug-26 4,925,000 5,951,000 5,951,000
------------- --------------- -------------
Subtotal - CM Holding $23,775,000 $28,729,000 $28,728,000
----------- --------------- ---------------
Owned by CharterMac Equity Issuer Trust (3)
Armstrong Farm Jeffersonville, C, G, H, J 10/19/00 7.500% Oct-17 Oct-40 $ 8,246,000 $ 8,246,000 $ 8,246,000
IN
Barnaby Manor Washington, DC B, C, I, J 11/22/99 7.375% May-17 May-32 4,500,000 4,500,000 4,418,000
Bay Colony League City, TX C, G, H, J 08/11/00 7.500% Aug-17 Aug-42 10,100,000 10,100,000 10,084,000
Chandler Creek Round Rock, TX G, H, J, CC 10/31/00 8.500% Dec-17 Nov-42 15,850,000 15,850,000 15,850,000
Chapel Ridge at
Claremore Claremore, OK C, G, H, J 10/26/00 7.500% Oct-17 Oct-42 4,100,000 4,100,000 4,100,000
Del Monte Pines Fresno, CA A, C 05/05/99 6.800% May-17 May-36 11,000,000 11,000,000 9,957,000
Douglas Pointe Miami, FL A, C, G, H, J 09/28/99 7.000% Oct-26 Sep-41 7,100,000 7,100,000 6,616,000
Forest Hills Garner, NC A, C 12/15/98 7.125% Jun-16 Jun-34 5,930,000 5,869,479 5,580,000
Fort Chaplin Washington, DC B, C, F 12/21/99 6.900% Jan-17 Jan-36 25,800,000 25,800,000 23,698,000
Franciscan Riviera Antioch, CA A, C, F 08/24/99 7.125% Apr-16 Aug-36 6,587,500 6,587,500 6,248,000
Garfield Park Washington, DC 08/31/99 7.250% Aug-17 Aug-31 3,260,000 3,260,000 3,146,000
Grace Townhomes Ennis, TX G, H, J 05/23/00 7.500% Jun-17 Jun-42 5,225,600 5,225,600 5,217,000
Grandview Forest Durham, NC C,G,H,J,GG 12/22/00 8.500% Feb-18 Jan-43 5,483,907 5,483,907 5,484,000
Greenbriar Concord, CA B, C, F 05/05/99 6.875% May-17 May-36 9,585,000 9,585,000 8,772,000
Greenbridge at
Buckingham Richardson, TX G, H, J 11/07/00 7.400% Mar-17 Nov-40 19,735,000 19,735,000 19,735,000
Hamilton Gardens Hamilton, NJ A, C, N 03/26/99 7.125% Mar-17 Mar-35 6,400,000 6,368,211 6,054,000
Hidden Grove Miami, FL C, G, H, J 09/26/00 7.400% Oct-17 Oct-42 8,600,000 8,600,000 8,472,000
Lake Jackson Lake Jackson, TXA, C 12/22/98 7.000% Jan-18 Jan-41 10,934,000 10,934,000 10,189,000
Lake Park Turlock, CA B, C 06/08/99 7.250% Oct-15 Sep-35 3,638,000 3,638,000 3,511,000
Lakemoor Durham, NC A, G, H, J 12/22/99 7.250% Jan-17 Dec-41 9,000,000 9,000,000 8,686,000
Lakes Edge at Walden Miami, FL B, F 06/30/99 6.900% Jun-13 May-35 14,850,000 14,850,000 13,640,000
Lenox Park Gainesville, GA B, C 07/29/99 6.800% Aug-21 Jul-41 13,000,000 13,000,000 11,768,000
Lewis Place Gainesville, FL B, C, T 06/22/99 6.750% Jun-16 Jun-41 4,000,000 4,000,000 3,594,000
Millpond Village East Windsor, CTF, HH 12/28/00 8.550% - Dec-31 14,300,000 14,300,000 14,300,000
Mountain Ranch Austin, TX A, C, G, H, J 12/23/98 7.125% Jan-18 Jan-41 9,128,000 9,128,000 8,658,000
Newark Commons New Castle, DE A, C, G, H, J 05/17/00 7.300% May-18 May-43 14,300,000 14,300,000 13,896,000
Oaks at Hampton Dallas, TX B, C, G 04/27/00 7.200% Mar-27 Mar-40 9,535,000 9,535,000 9,139,000
Parks at Westmoreland DeSoto, TX G, H, J, X 07/17/00 8.500% Jul-17 Jul-40 9,535,000 9,535,000 9,139,000
Princess Anne House Virginia Beach, A, C, G, H, J 04/07/00 7.500% Apr-25 Apr-42 7,500,000 7,500,000 7,488,000
VA
Red Hill Villas Round Rock, TX C, G, FF 12/13/00 8.400% Dec-17 Dec-40 9,900,000 9,900,000 9,900,000
Running Brook Miami, FL C, G, H, J 09/27/00 7.400% Jan-27 Dec-42 8,495,000 8,495,000 8,368,000
Southwest Trails Austin, TX C, G, H, J 08/14/00 7.350% Jun-17 Jun-42 6,500,000 6,500,000 6,360,000
Standiford Modesto, CA A, C, F 09/20/99 7.125% Apr-16 Aug-36 9,520,000 9,520,000 9,029,000
Sunset Creek Lancaster, CA B, U, V, II 03/24/88 5.477% Dec-09 Dec-19 8,275,000 6,074,293 6,129,000
Sunset Village Lancaster, CA B, U, V, II 03/24/88 5.477% Dec-09 Dec-19 11,375,000 8,678,176 8,434,000
Sycamore Woods Antioch, CA A, C 05/05/99 6.875% May-17 May-36 9,415,000 9,415,000 8,616,000
Tallwood Virginia Beach, A, C 09/30/99 7.250% Nov-17 Oct-41 6,205,000 6,205,000 5,988,000
VA
Williams Run Dallas, TX 12/06/00 7.650% Jan-11 Nov-40 12,650,000 12,650,000 12,650,000
Woods Edge Charlottesville,EE 11/13/00 7.800% Nov-17 Nov-40 4,850,000 4,850,000 4,850,000
VA
------------- --------------- -----------
Subtotal - Charter Mac Equity Issuer Trust $364,408,007 $359,418,166 $346,009,000
----------- --------------- --------------
Owned by CharterMac Origination Trust I (3)(4)
Cedar Pointe Nashville, TN 04/22/87 7.000% Nov-06 Apr-17 $ 9,500,000 $ 8,500,000 $ 8,852,000
Clarendon Hills Hayward, CA W 12/08/86 5.520% Dec-03 Dec-03 17,600,000 14,683,645 12,933,000
Cypress Run Tampa, FL U 08/14/86 5.500% - Dec-29 15,402,428 13,749,815 13,156,000
Greenway Manor St. Louis, MO JJ 10/09/86 8.500% Oct-98 Sep-06 12,850,000 12,757,911 14,540,000
Lakepoint Atlanta, GA 11/18/87 6.000% Jul-05 Jun-17 15,100,000 13,098,387 12,061,000
Lakes, The Kansas City, MO W 12/30/86 4.870% Dec-06 Dec-06 13,650,000 12,750,000 10,636,000
Lexington Square Clovis, CA C, P 08/25/98 6.375% Sep-17 Aug-40 3,850,000 3,842,964 3,267,000
Loveridge Pittsburg, CA D, E, JJ 11/13/86 8.000% Nov-98 Nov-06 8,550,000 6,850,000 5,691,000
San Marcos San Marcos, TX C, G, H, J 05/23/00 7.375% Mar-17 Mar-42 7,231,000 7,231,000 7,099,000
Shannon Lake Atlanta, GA L, W 06/26/87 7.000% Jul-05 Jun-17 12,000,000 11,571,000 11,182,000
Summer Lake Davie, FL C, G, H, J 03/14/00 7.400% Apr-00 Mar-42 5,600,000 5,600,000 5,516,000
Sunset Downs Lancaster, CA U, V, II 02/11/87 5.477% Dec-09 Dec-19 15,000,000 11,284,000 10,965,000
Sunset Terrace Lancaster, CA U, V, II 02/11/87 5.477% Dec-09 Dec-19 10,350,000 7,888,839 7,566,000
------------- --------------- --------------
Subtotal - CharterMac Origination Trust I $146,683,428 $129,807,561 $123,464,000
------------- --------------- --------------
Owned by Charter Mac Owner Trust I (3) (5)
Autumn Ridge San Marcos, CA C, F, Z 08/11/00 8.000% Aug-17 Jul-37 $ 9,304,230 $ 9,304,230 $ 9,475,000
Bristol Village Bloomington, MN 07/31/87 7.500% Jan-10 Dec-27 17,000,000 17,000,000 16,973,000
Carrington Point Los Banos, CA C 09/24/98 6.375% Oct-17 Sep-40 3,375,000 3,370,386 2,864,000
Casa Ramon Orange County, C, F 07/11/00 7.500% Oct-15 Sep-35 4,744,000 4,736,948 4,736,000
CA
Cedar Creek McKinney, TX U, V 12/29/86 7.430% Oct-10 Oct-20 8,100,000 8,284,586 8,011,000
Cedarbrook Hanford, CA C 04/28/98 7.125% May-17 May-40 2,840,000 2,832,556 2,691,000
Chapel Ridge at
Little Rock Little Rock, AR C, G, H, J 08/12/99 7.125% Aug-15 Aug-39 5,600,000 5,591,034 5,311,000
Chapel Ridge at
Texarkana Texarkana, AR C 09/29/99 7.375% Oct-16 Sep-41 5,800,000 5,800,000 5,694,000
College Park Naples, FL O 07/15/98 7.250% Jul-25 Jul-40 10,100,000 10,081,853 9,748,000
Columbia at
Bells Ferry Cherokee Co., GAG, H, J 04/19/00 7.400% Apr-17 Apr-42 13,000,000 13,000,000 12,806,000
Country Lake W. Palm Beach, M, F 11/08/99 6.000% Jun-00 Jun-00 6,255,000 6,255,000 6,255,000
FL
Crowne Pointe Olympia, WA JJ 12/31/86 7.250% Dec-98 Aug-29 5,075,000 5,054,000 4,898,000
Falcon Creek Indianapolis, INC, R 09/14/98 7.250% Sep-16 Aug-38 6,144,600 6,135,794 5,930,000
Gulfstream Dania, FL C 07/22/98 7.250% Apr-16 Jul-38 3,500,000 3,486,977 3,371,000
Highland Ridge St. Paul, MN 12/31/86 7.250% Jun-10 Jun-18 15,000,000 14,400,000 14,477,000
Jubilee Courtyards Florida City, FLC, S 09/15/98 7.125% Oct-25 Sep-40 4,150,000 4,145,394 3,867,000
King's Village Pasadena, CA C, F, Y 07/26/00 8.500% Dec-16 Dec-36 17,650,000 17,650,000 17,622,000
Madalyn Landing Palm Bay, FL C 11/13/98 7.000% Dec-17 Nov-40 14,000,000 13,994,666 13,046,000
Mansions, The Independence, MO 05/13/86 7.250% Jan-11 Apr-25 19,450,000 18,295,732 19,124,000
Marsh Landing Portsmouth, VA C, F 05/20/98 7.250% Jul-17 Jul-30 6,050,000 6,021,250 5,834,000
Newport Village Tacoma, WA JJ 02/02/87 7.250% Jan-99 Aug-29 13,000,000 12,946,000 12,546,000
North Glen Atlanta, GA K, W 09/30/86 7.500% Jul-05 Jun-17 12,400,000 11,421,853 12,380,000
Northpointe Village Fresno, CA C, Q 08/25/98 7.500% Sep-17 Aug-40 13,250,000 13,232,307 13,229,000
Ocean Air Norfolk, VA C, I, J 04/20/98 7.250% Jan-16 Nov-30 10,000,000 10,000,000 9,651,000
Orchard Hills Tacoma, WA JJ 12/31/86 7.250% Dec-98 Aug-29 5,650,000 5,627,000 5,453,000
Orchard Mill Atlanta, GA C 05/01/89 7.500% Jul-05 Jun-17 10,500,000 8,730,239 10,483,000
Park Sequoia San Jose, CA C, F, BB 10/17/00 8.500% Mar-17 Mar-37 6,740,000 6,740,000 6,740,000
Pelican Cove St. Louis, MO U, V 02/12/87 7.250% Oct-10 Oct-20 18,000,000 17,600,000 17,372,000
Phoenix Stockton, CA C 04/28/98 7.125% Nov-16 Oct-29 3,250,000 3,212,177 3,055,000
River Run Miami, FL C, JJ 08/07/87 8.000% Aug-99 Aug-07 7,200,000 7,200,000 7,668,000
Silvercrest Clovis, CA C 09/24/98 7.125% Oct-17 Sep-40 2,275,000 2,272,474 2,158,000
South Congress Austin, TX C, F 05/04/00 7.500% Sep-16 Sep-36 6,300,000 6,300,000 6,290,000
Stonecreek Clovis, CA C 04/28/98 7.125% May-17 Apr-40 8,820,000 8,793,502 8,350,000
Thomas Lake Eagan, MN 09/02/86 7.500% Jan-10 Dec-27 12,975,000 13,424,239 12,954,000
Village Green Merced, CA C, F, AA 08/14/00 8.500% - Aug-14 503,528 503,528 503,000
Village Green Merced, CA C, F, AA 08/14/00 8.500% Jan-17 Jan-37 3,078,000 3,078,000 3,073,000
Walnut Creek Austin, TX F 05/04/00 7.500% - May-00 360,000 341,753 349,000
Walnut Creek Austin, TX F 05/04/00 7.500% Sep-16 Sep-36 3,240,000 3,240,000 3,235,000
Walnut Park Plaza Philadelphia, PAC, F 04/11/00 7.500% Apr-10 May-30 5,500,000 5,475,000 5,491,000
Willow Creek Ames, IA 02/27/87 7.250% Jul-08 Jun-22 6,100,000 6,100,000 5,887,000
------------- --------------- ---------------
Subtotal - CharterMac Owner Trust I $326,279,358 $321,678,478 $319,600,000
------------- --------------- --------------
Subtotal - Tax-Exempt First Mortgage Bonds $870,045,793 $846,633,392 $823,392,000
------------- --------------- --------------
Taxable Revenue Bonds
Owned by the Company (not including its consolidated subsidiaries)
------------------------------------------------------------------
Chandler Creek Round Rock, TX G, H, J, DD 10/31/00 9.750% Dec-42 $ 350,000 $ 350,000 $ 350,000
Greenbriar Concord, T X C, F 05/05/99 9.000% May-36 2,015,000 2,015,000 2,015,000
Greenbridge at
Buckingham Richardson, TX 11/07/00 10.000% Feb-07 350,000 350,000 350,000
Lake Park Turlock Park, CA 06/08/99 9.000% Sep-35 375,000 369,663 375,000
Lakes Edge at Walden Miami, FL F 06/30/99 11.000% Aug-10 1,400,000 1,355,436 1,711,111
Oaks at Hampton Dallas, TX C, G, H, J 04/27/00 9.000% May-10 525,000 525,000 525,000
Parks at
Westmoreland DeSoto, TX G, H, J 07/17/00 9.000% Nov-09 455,000 455,000 455,000
Princess Anne House Virginia Beach, C, G, H, J 04/06/00 9.500% Jan-06 125,000 125,000 131,945
VA
Red Hill Villas Round Rock, TX C, G 12/12/00 9.500% Jul-01 400,000 400,000 400,000
Williams Run Dallas, TX 12/06/00 9.250% Jul-04 200,000 200,000 200,000
------------- --------------- ---------------
Subtotal - Taxable Revenue Bonds $ 6,195,000 $6,145,099 $ 6,513,056
------------- --------------- --------------
Tax-Exempt Subordinate Bonds
Owned by CharterMac Equity Issuer Trust (3)
Museum Tower Philadelphia, PAB 11/00 8.250% - - $ 6,000,000 $ 6,000,000 $ 6,000,000
Park at Landmark Alexandria, VA B 09/00 8.750% - - 9,500,000 9,500,000 9,500,000
------------- --------------- ---------------
Subtotal - Tax-Exempt Subordinate Bonds $15,500,000 $15,500,000 $15,500,000
------------- --------------- --------------
Total Revenue Bonds $891,740,793 $868,278,491 $845,405,056
------------- --------------- --------------
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The Revenue Bonds are deemed to be available-for-sale debt securities and,
accordingly, are carried at their estimated fair values at December 31, 2000.
(2) The stated interest rate represents the coupon rate of the Revenue Bond at
December 31, 2000.
(3) This entity is a consolidated subsidiary of the Company (see Merger).
(4) The Revenue Bonds are held as collateral in connection with the TOP (see
Private Label Tender Option Program below).
(5) These Revenue Bonds have been transferred to CharterMac Owner Trust in
connection with the Company's Private Label Tender Option Program (see Private
Label Tender Option Program below).
A Held by Merrill Lynch as collateral for secured borrowings (see Securitization
Transactions below).
B These Revenue Bonds are held as collateral in connection with the Merrill
Lynch RITES/P-FLOATS Program (see Securitization Transactions below).
C The obligors of these Revenue Bonds are partnerships in which affiliates of
the Manager are partners that own a controlling interest.
D The original owners of the Underlying Properties and the obligors of these
Revenue Bonds have been replaced with affiliates of the Manager.
E The minimum pay rate is the current cash flow of the property.
F The Underlying Property is undergoing substantial rehabilitation.
G The Underlying Property is in the construction phase as of December 31, 2000.
H The Underlying Property is under construction. In the event construction is
not completed in a timely manner, the Company may "put" the Revenue Bond to the
construction lender at par.
I The Underlying Property is undergoing substantial rehabilitation. In the event
it is not completed in a timely manner, the Company may "put" the Revenue Bond
to the construction lender at par.
J All of the "puts" (see (H) and (I) above) are secured by a letter of credit
issued by the construction lender to the Company.
K Pursuant to a bond modification as of October 1, 1997, the stated interest
rate was lowered to 7% through June 30, 2000, and 7.5% thereafter.
L Pursuant to a bond modification as of October 1, 1997, the stated interest
rate was lowered to 6% through July 31, 2000, and 7% thereafter.
M The interest rate for this Revenue Bond is 6% until expected refunding in 2nd
quarter 2001.
N The interest rate for this Revenue Bond is 7.625% during the construction
period and 7.125% thereafter.
O The interest rate for this Revenue Bond is 7% during the construction period
and 7.25% thereafter.
P The interest rate for this Revenue Bond is 7% during the construction period
and 6.375% thereafter.
Q The interest rate for this Revenue Bond is 7.965% through September 23, 1998,
8.125% for the remainder of the construction period and 7.5% thereafter.
R The interest rate for this Revenue Bond is 7% through August 31, 2000 and
7.25% thereafter.
S The interest rate for this Revenue Bond is 7% through September 30, 2000 and
7.125% thereafter.
T The interest rate for this Revenue Bond is 6.75% through May 31, 2001 and 7%
thereafter.
U These Revenue Bonds are currently awaiting approval from the Issuer for
modification. The Company is confident that the modification will occur and has
therefore shown the terms of the Revenue Bond as per a forbearance agreement
which mirrors the terms of the bond modification.
V Due to the sale of the Underlying Property, the Company received deferred Base
Interest from the sales proceeds.
W The Company received participating interest during 2000.
X The interest rate for this Revenue Bond is 8.5% through October 31, 2001 and
7.5% therafter.
Y The interest rate for this Revenue Bond is 8.5% through October 31, 2001 and
7.5% thereafter.
Z The interest rate for this Revenue Bond is 8.0% through July 31, 2001 and
7.65% thereafter.
AA The interest rate for this Revenue Bond is 8.5% through June 30, 2001 and
7.5% thereafter.
BB The interest rate for this Revenue Bond is 8.5% through August 31, 2001 and
7.5% thereafter.
CC The interest rate for this Revenue Bond is 8.5% through November 30, 2002 and
7.6% thereafter.
DD The interest rate for this Revenue Bond is 9.75% through November 30, 2002
and 9.25% thereafter
EE The interest rate for this Revenue Bond is 7.8% through November 30, 2002 and
7.5% thereafter.
FF The interest rate for this Revenue Bond is 8.4% through December 31, 2002 and
7.4% thereafter.
GG The interest rate for this Revenue Bond is 8.5% through January 31, 2003 and
7.5% thereafter.
HH The interest rate for this Revenue Bond is 8.55% through November 30, 2001
and 7.55% thereafter.
II A third party has the option to acquire these Revenue Bonds for an aggregate
of $35,250,000. The right to exercise the option commenced January 1, 2001 and
shall continue as long as these bonds are outstanding. JJ The Company is
permitted to call the Revenue Bond with six months written notice.
Reconciliation of Revenue Bonds: 2000 1999 1998
-------------------------------- ---- ---- ----
Balance at beginning of period $587,892,000 $458,662,600 $346,300,000
Acquisitions 304,740,265 165,355,500 117,596,600
Proceeds from repayments of bonds (22,400,000) (21,395,213) 0
Periodic principal repayments of bonds (378,563) 0 0
Carrying amount of bonds in excess of proceeds 0
from the repayment 719,308 (256,000)
Loss on impairment of assets 0 (1,859,042) 0
Net change in fair value of bonds (25,291,326) (12,642,300) (5,260,455)
Accretion of deferred income and purchase
accounting adjustment 123,372 26,455 26,455
-------------- --------------- ---------------
Balance at close of period $845,405,056 $587,892,000 $458,662,600
=========== =========== ===========
The weighted average interest rates recognized on the face amount of the
portfolio of Revenue Bonds for the years ended December 31, 2000, 1999 and 1998
were 7.74%, 7.26% and 6.94%, respectively, based on weighted average face
amounts of approximately $710,544,000, $525,092,000 and $394,079,000,
respectively.
The amortized cost basis of the Company's portfolio of Revenue Bonds at December
31, 2000 and 1999 was $868,278,491 and $585,474,109, respectively. The net
unrealized loss on Revenue Bonds in the amount of $22,873,435 at December 31,
2000 consisted of gross unrealized gains and losses of $6,835,510 and
$29,708,945, respectively. The net unrealized gain on Revenue Bonds in the
amount of $2,417,891 at December 31, 1999 consisted of gross unrealized gains
and losses of $16,484,461 and $14,066,570, respectively.
The principal and interest payments on each Revenue Bond are payable only from
the cash flows of the Underlying Properties, including proceeds from a sale of
an Underlying Property or the refinancing of the mortgage loan securing such
Revenue Bonds (the "Mortgage Loans"). None of the Revenue Bonds constitute a
general obligation of any state or local government, agency or authority. The
structure of each Mortgage Loan mirrors the structure of the corresponding
Revenue Bond that it secures. In order to protect the tax-exempt status of the
Revenue Bonds, the owners of the Underlying Properties are required to enter
into certain agreements to own, manage and operate such Underlying Properties in
accordance with requirements of the Internal Revenue Code of 1986, as amended.
No single Revenue Bond provided interest income that exceeded 10% of the
Company's total revenue for the years ended December 31, 2000, 1999 or 1998.
Based on the face amount of Revenue Bonds at December 31, 2000, approximately
23.1% of the Underlying Properties are located in California, 13.6% are located
in Florida, and 17.2% are located in Texas. No other state comprises more than
10% of the total face amount at December 31, 2000. Based on the face amount of
Revenue Bonds at December 31, 1999, approximately 26% of the Underlying
Properties were located in California, 14% were located in Florida, 10% were
located in Missouri, and 10% were located in Georgia. No other state comprised
more than 10% of the total face amount at December 31, 1999.
Revenue Bonds generally bear a fixed base interest rate and, to the extent
permitted by existing regulations, may or may not also provide for contingent
interest and other features. Terms are expected to be five to 35 years, although
the Company may have the right to cause repayment prior to maturity through a
mandatory redemption feature (five to seven years with up to six month's
notice). In some cases, the bonds call for amortization or "sinking fund"
payments, generally at the completion of rehabilitation or construction, of
principal based on thirty to forty year level debt service amortization
schedules.
Revenue Bonds are generally not subject to optional prepayment during the first
5-10 years of the Company's ownership of the bonds and may carry prepayment
penalties thereafter beginning at 5% of the outstanding principal balance,
declining by 1% per annum. Certain Revenue Bonds may be purchased at a discount
from their face value. Up to 15% of the Total Market Value of the Company (as
defined in its trust agreement) may be invested in Revenue Bonds secured by
Underlying Properties in which affiliates of the Manager have a controlling
interest, equity interest or security interest. The 15% limit is not applicable
to properties to which the Manager or its affiliates have taken title for the
benefit of the Company and only applies to Revenue Bonds acquired after the
Merger. In selected circumstances and generally only in connection with the
acquisition of tax-exempt Revenue Bonds, the Company may acquire a small amount
of taxable bonds (i) which the Company may be required to acquire in order to
satisfy state regulations with respect to the issuance of tax-exempt bonds and
(ii) to fund certain costs associated with the issuance of Revenue Bonds, that
under current law cannot be funded by the Revenue Bond itself.
Certain Revenue Bonds provide for "participating interest" which is equal to a
percentage of net property cash flow of the net sale or refinancing proceeds.
Both the stated and participating interest on the Revenue Bonds are exempt from
federal income taxation. During the years ended December 31, 2000, 1999 and
1998, participating interest was collected amounting to approximately
$1,716,000, $728,000 and $960,000, respectively. Revenue Bonds that contain
provisions for contingent interest are referred to as "participating"; Revenue
Bonds lacking this provision are "non-participating".
From time to time the Company has advanced funds to owners of certain Underlying
Properties in order to preserve the underlying asset including completion of
construction and/or when Underlying Properties have experienced operating
difficulties including past due real estate taxes and/or deferred maintenance.
Promissory notes and/or second mortgages typically secure such advances. As of
December 31, 2000, the face amount of such advances was $15,165,389, with rates
ranging from 8% to 13% and a carrying value of $9,909,933, (net of purchase
accounting adjustments), and a reserve for collectibility of $138,000. Included
in such amounts were advances to obligors which are affiliates of the Manager at
an aggregate face amount of $5,028,812, rates ranging from 8% to 10%.
2000 Transactions
-----------------
Revenue Bonds acquired, including those in the ATEBT merger (see Note 9), during
2000 are summarized below:
Aggregate Weighted Weighted Average
Purchase Average Permanent
Face Amount Price Construction Interest Rate
Rate
---------------------------------------------- -------------- -------------- ---------------- ----------------
Participating Revenue Bonds
Stabilized properties $ 15,625,000 $ 18,880,000 N/A 9.000%
Non-participating Revenue Bonds
Stabilized properties 31,219,000 23,575,084 N/A 7.964%
Construction/rehabilitation properties 237,467,265 242,453,590 7.837% 7.461%
Subordinating non-participating Revenue 15,000,000 $ 15,810,000 N/A 8.460%
Bonds
(a) Includes bonds acquired as part of the ATEBT merger.
Revenue Bonds repaid and RITES (see Note 4) terminated during 2000 are
summarized below:
Face Realized Gains /
Amount Cost (Losses)
-------------------------------- ------------- -------------- -------------
Participating Revenue Bonds
Stabilized $22,400,000 $21,719,635 $680,365
Non-participating Revenue bonds
Construction/rehabilitation 10,000 10,000 (35,214)
(RITES)
In connection with these dispositions, the Company recognized $645,151 in net
realized gains and $1,941,703 in accrued but unpaid interest.
2000 Bond Modifications
-----------------------
In connection with the sale of two of the Underlying Properties, Cedar Creek and
Pelican Cove, the Company has agreed to a modification of the terms of the
respective Revenue Bonds. Subject to Issuer approval, the stated interest rate
of the Cedar Creek and Pelican Cove Revenue Bonds will be modified to a stated
interest rate of 7.43% and 7.25%, respectively, and the maturity and call dates
will be extended to October 1, 2010 and October 1, 2020, respectively.
The original obligors and owners of the Underlying Properties of the Cedar
Creek, Highpointe, Pelican Cove and Loveridge Revenue Bonds were replaced in
prior years with affiliates of the Manager who did not make equity investments.
These affiliates assumed the day-to-day responsibilities and obligations of the
Underlying Properties. On September 29, 2000, the affiliates of the Manager sold
49% of the Pelican Cove and Cedar Creek Underlying Properties, with an option
from the buyers to purchase the remaining 51% in 2001. These two Revenue Bonds
were also modified. Under the modified terms, the interest rates were reduced to
7.25% and 7.43%, respectively. Buyers are being sought for the remaining two
Underlying Properties, who would make equity investments in the Underlying
Properties and assume the nonrecourse obligations of these Revenue Bonds. These
properties are generally paying as interest an amount equal to the net cash flow
generated by operations, which in some cases is less than the stated rate of the
Revenue Bond. The Company has no present intention of declaring default on these
Revenue Bonds. The aggregate carrying value of these remaining Revenue Bonds at
December 31, 2000 and December 31, 1999 was approximately $11,282,000 and
$12,280,000, and the income earned from them for 2000 and 1999 was approximately
$849,000 and $847,500, respectively.
1999 Transactions
-----------------
In 1999, the Company acquired $165.3 million in Revenue Bonds collateralized by
multifamily apartment communities. The break-down of these acquisitons is
summarized below:
Weighted
Weighted Average
Average Permanent
Face Amount Cost Construction Interest Rate
Rate
-------------------------------------------- --------------- ------------------- -------------- ------------
Non-participating Revenue Bonds
Stabilized $ 13,860,000 $ 14,165,958 N/A 7.640%
Construction/rehabilitation properties 151,445,500 154,819,946 7.047% 7.320%
RITES 15,000 579,119
In 1999, $22,200,000 in tax-exempt mortgage revenue bonds collateralized by
multifamily apartment communities were repaid. These dispositions are summarized
below:
Amortized Realized
Face Amount Cost Gains
(Losses)
------------------------------ --------------- ------------ - --------
Participating Revenue Bonds
Stabilized $22,200,000 $22,557,353 $(463,147)
In connection with these dispositions, the Company recognized $35,000 in accrued
but unpaid interest, and $100,000 for prepayment penalties. In addition, the
Players Club and Suntree Obligor also repaid promissory note obligations in the
amounts of $472,000 and $89,000 in 1999.
1999 Bond Modifications
-----------------------
During 1999, the Company presented modified terms on five of its Revenue bonds
to their respective issuers and is currently waiting for their approval of the
following:
Project Bond Par Amount Stated Interest Rate Call Date Maturity Date
------------------- -------------------------- ----------------------------- ---------------- ----------------
Cypress Run $15,402,428 5.5% with incremental N/A Dec-2029
adjustments up to 7.0%
Sunset Creek 8,275,000 5.477% Dec-2009 Dec-2019
Sunset Downs 15,000,000 5.477% Dec-2009 Dec-2019
Sunset Terrace 10,350,000 5.477% Dec-2009 Dec-2019
Sunset Village 11,375,000 5.477% Dec-2009 Dec-2019
In addition to the Revenue Bonds, modified in 1999 and 2000, as discussed above,
ten of the Company's other Revenue Bonds, with an aggregate face amount of
$126,025,000, have previously been modified. These modifications have generally
encompassed an extension of the maturity together with a prepayment lock out
feature and/or prepayment penalties together with an extension of the mandatory
redemption feature (5-10 years from modification). Stated interest rates have
also been adjusted together with a change in the participation and contingent
interest features. Base interest rates, contingent interest, prepayment
lock-outs, mandatory redemption and maturity features vary dependent on the
facts of a particular Revenue Bond, the developer, the Underlying Property's
performance and requirements of bond counsel and local issuers. The Company may
agree to the modification of other Revenue Bonds to generally reflect similar
terms as those modified previously, where and as appropriate. Significant
modifications to interest rates and maturity dates are subject to final approval
of the local issuers, bond counsel and indenture trustees.
NOTE 3 - Deferred Costs
The components of deferred costs are as follows:
December 31,
---------------------------
2000 1999
------------- ------------
Deferred bond selection costs $16,260,545 $9,904,683
Deferred costs relating to the Private Label Tender Option
Program (see Note 5) 5,915,266 3,614,627
Deferred costs relating to the issuance of preferred shares
of subsidiary (see Note 6) 6,490,989 3,605,331
Other 0 172,039
------------ ------------
28,666,800 17,296,680
Less: Accumulated amortization (4,465,458) (3,074,229)
----------- -----------
$24,201,342 $14,222,451
========== ==========
NOTE 4 - Secured Borrowings
To raise additional capital to acquire Revenue Bonds, the Company has
securitized certain Revenue Bonds through the Merrill Lynch Pierce Fenner &
Smith Incorporated ("Merrill Lynch") P-FLOATS/RITES program. Under this program,
the Company transfers certain Revenue Bonds to Merrill Lynch. Merrill Lynch
deposits each Revenue Bond into an individual special purpose trust together
with a credit enhancement guarantee ("Guarantee"). Two types of securities are
then issued by each trust, (1) Puttable Floating Option Tax-Exempt Receipts
("P-FLOATS"), a short-term senior security which bears interest at a floating
rate that is reset weekly and (2) Residual Interest Tax Exempt Securities
("RITES"), a subordinate security which receives the residual interest payment
after payment of P-FLOAT interest and ongoing transaction fees. The P-FLOATS are
sold to third party investors and the RITES are generally sold back to the
Company. The Company has the right, with 14 days notice to the trustee, to
purchase the outstanding P-FLOATS and withdraw the underlying Revenue Bonds from
the trust. When the Revenue Bonds are deposited into the P-FLOAT Trust, the
Company receives the proceeds from the sale of the P-FLOATS less certain
transaction costs. In certain other cases, Merrill Lynch may directly buy the
Revenue Bonds from local issuers, deposit them in the trust, sell the P-FLOAT
security to investors and then the RITES to the Company.
For financial reporting purposes, due to the repurchase right, the Company
accounts for the net proceeds received upon the transfer of its Revenue Bonds
through the P-FLOATS/RITES program as secured borrowings and, accordingly,
continues to account for the Revenue Bonds as assets. When Merrill Lynch
purchases Revenue Bonds directly and sells the RITES to the Company, the RITES
are included in other assets and accounted for at fair value as
available-for-sale debt secutities.
In order to facilitate the securitization, the Company has pledged certain
additional Revenue Bonds as collateral for the benefit of the credit enhancer or
liquidity provider. At December 31, 2000, the total carrying amount of such
additional Revenue Bonds, cash and cash equivalents and temporary investments
pledged as collateral was $120,058,000.
During the year 2000, the Company transferred three Revenue Bonds with an
aggregate face amount of $30,800,000 to the P-FLOATS/RITES program and received
proceeds of $29,348,725.
The Company's cost of funds relating to its secured borrowings under the Merrill
Lynch P-FLOATS/RITES program (calculated as interest expense as a percentage of
the weighted average amount of the secured borrowings) was approximately 4.96%
and 4.8%, annualized, for the year ended December 31, 2000 and the period June
29, 1999 (inception of this program) through December 31, 1999, respectively.
NOTE 5 - Minority Interest In Subsidiary
The Company also utilitzes its Private Label Tender Option Program ("TOP") to
raise additional capital to acquire Revenue Bonds. As of December 31, 1999, the
maximum amount of capital that could be raised under the TOP was $400,000,000.
On December 7, 2000, the Company refined the structure of the TOP for the
primary purpose of segregating Revenue Bonds issued by governmental entities in
California from the remainder of the Revenue Bonds under the TOP and to increase
the maximum amount of capital available under the program to $500,000,000.
As of December 31, 2000, the Company has contributed 53 issues of Revenue Bonds
in the aggregate par amount of approximately $473,000,000 to Charter Mac
Origination Trust I (the "Origination Trust"), a wholly owned, indirect
subsidiary of the Company. The Origination Trust then contributed 40 of its
Revenue Bonds, with an aggregate par amount of approximately $326,000,000, to
Charter Mac Owner Trust I (the "Owner Trust") which is controlled by the
Company. The Owner Trust contributes selected bonds to specific "Series Trusts"
in order to segregate Revenue Bonds issued by governmental entities selected by
state of origin. As of December 31, 2000, two such Series Trusts were created: a
California only series and a National (non-state specific) series.
Each Series Trust issues two equity certificates: (i) a Senior Certificate,
which has been deposited into another Delaware business trust (a "Certificate
Trust") which issued and sold certificates with a floating interest rate
("Floater Certificates") representing proportional interests in the Senior
Certificate to new investors and (ii) a Residual Certificate representing the
remaining beneficial ownership interest in each Series Trust, which has been
issued to the Origination Trust. At December 31, 2000, the California only and
National Series Trusts had Floater Certificates with an outstanding amount of
$70,000,000 and $205,000,000, respectively.
The Revenue Bonds remaining in the Origination Trust (aggregate principal amount
of approximately $147,000,000) are an additional collateral pool for the Owner
Trust's obligations under the Senior Certificate. In addition, the Owner Trust
obtained a municipal bond insurance policy from MBIA to credit enhance
Certificate distributions for the benefit of the holders of the Floater
Certificates and has also arranged for a liquidity facility, issued by a
consortium of highly rated European banks, with respect to the Floater
Certificates. The Company owns no beneficial interest in, and does not control,
the Certificate Trusts.
The effect of the TOP structure is that a portion of the interest received by
the Owner Trust on the Revenue Bonds it holds is distributed through the Senior
Certificate to the holders of the Floater Certificates with the residual
interest remitted to the Origination Trust (and thus to the benefit of the
Company) via the Residual Certificate. The effect of the December 7, 2000,
refinement of the TOP structure was to segregate the California related Floater
Certificates as they generally will pay distributions at lower rates than
National (non-state specific) Floater Certificates and thus the yield on the
Residual Certificates owned by the Origination Trust is increased.
For financial accounting and reporting purposes, the Owner Trust, which is
controlled by the Company, is consolidated. The equity in the Owner Trust,
represented by the Senior Certificate, is classified as "minority interest in
subsidiary (subject to mandatory redemption)" in the accompanying consolidated
balance sheets. Income earned by the Owner Trust is allocated to the minority
interest in an amount equal to the distributions through the Senior Certificate
to the holders of the Floater Certificates. Such allocation of income is
classified as "minority interest in income of subsidiary" in the accompanying
consolidated statements of income.
The Company's cost of funds relating to the TOP (calculated as income allocated
to the minority interest plus recurring fees as a percentage of the weighted
average amount of the outstanding Senior Certificate) was approximately 5.4%,
4.5% and 4.9% for the years ended December 31, 2000, 1999 and the period May 21,
1998 (inception) through December 31, 1998, respectively.
NOTE 6 - Preferred Shares of Subsidiary
Since June 1999, the Company, through a consolidated subsidiary, has issued
multiple series of "Cumulative Preferred Shares". Proceeds from these offerings
were used to acquire additional Revenue Bonds.
Preferred Date of Mandatory Mandatory Number Liquidation Total Face Dividend
Series Issuance Tender Repurchase of SharesPreference per Share Amount Rate
---------------------------------------------------------------------------------------------------------------
Series A 6/29/99 6/30/09 6/30/49 45 $2,000,000 $90,000,000 6.625%
Series A-1 7/21/00 6/30/09 6/30/49 48 500,000 24,000,000 7.100%
Series B 7/21/00 11/30/10 11/30/50 110 500,000 55,000,000 7.600%
In connection with the offerings of these Cumulative Preferred Shares, the
Company caused 100% of the ownership of the Origination Trust to be transferred
to Charter Mac Equity Issuer Trust (the "Issuer"), a newly formed Delaware
business trust and an indirectly-owned subsidiary in which the Company owns 100%
of the common equity. The Issuer then issues the Cumulative Preferred Shares
and, as a result, the Issuer became the direct and indirect owner of the entire
outstanding issue of Revenue Bonds held by the Origination Trust and Owner Trust
and its directly-owned and indirectly-owned subsidiaries (see discussion of
Private Label Tender Option Program, above). In addition to contributing the
ownership of the Origination Trust, the Company also contributed certain
additional Revenue Bonds to the Issuer.
Each series of Cumulative Preferred Shares has an annual preferred dividend
payable quarterly in arrears upon declaration thereof by the Board of Trustees,
but only to the extent of tax-exempt net income for the particular quarter. All
series of Cumulative Preferred Company's Shares are subject to mandatory tender
by the holders thereof for remarketing and purchase on their respective
mandatory tender dates and each remarketing date thereafter at their respective
liquidation preference per share plus an amount equal to all distributions
accrued but unpaid.
Holders of Cumulative Preferred Shares may elect to retain their shares upon
remarketing, with a distribution rate to be determined immediately prior to the
remarketing date by the remarketing agent. Each holder of Cumulative Preferred
Shares will be required to tender its shares to the Issuer for mandatory
repurchase on the mandatory repurchase date, unless the Company decides to
remarket the shares on such date. Cumulative Preferred Shares are not
convertible into Common Shares of the Company.
The Series A and A-1 Cumulative Preferred Shares rank, with respect to payment
of distributions and amounts upon liquidation, dissolution or winding-up of the
Company, senior to all classes or series of Convertible CRA Shares, Series B
Cumulative Preferred Shares and Common Shares of the of the Company. The Series
B Subordinate Cumulative Preferred Shares rank, with respect to payment of
distributions and amounts upon liquidation, dissolution or winding-up of the
Company, senior to the Company's Common Shares and the Company's Convertible CRA
Shares and junior to the Issuer's Series A and A-1 Cumulative Preferred Shares.
Since issuance of the Cumulative Preferred Shares, all quarterly distributions
have been declared at each stated annualized dividend rate for each respective
series and all distributions due have been paid.
For financial accounting and reporting purposes, Cumulative Preferred Shares are
classified as "Preferred shares of subsidiary (subject to mandatory repurchase)"
in the accompanying consolidated balance sheets. Net income earned by the Issuer
and its two subsidiaries is allocated to the holders of Cumulative Preferred
Shares in an amount equal to the distributions to such holders. Such allocation
of income is classified as "Income allocated to preferred shareholders of
subsidiary" in the accompanying consolidated statements of income.
NOTE 7 - Convertible Community Reinvestment Act Preferred Share Offerings
On May 10, 2000, the Company completed a $27,497,000 private placement of
Convertible Community Reinvestment Act Preferred Shares ("Convertible CRA
Shares") to three financial institutions (1,946,000 Convertible CRA Shares
priced at $14.13 per share). On December 14, 2000, the Company completed an
additional $9,100,000 private placement of Convertible CRA Shares to three
additional financial institutions (644,000 Convertible CRA Shares priced at
$14.13 per share).
The Convertible CRA Shares enable financial institutions to receive certain
regulatory benefits in connection with their investment. The Company has
developed a proprietary method for specially allocating these regulatory
benefits to specific financial institutions that invest in the Convertible CRA
Shares. Other than the preferred allocation of regulatory benefits, the
investors receive the same economic benefits as Common Shareholders of the
Company, including receipt of the same dividends per share as those paid to
Common Shareholders. The Company's earnings are allocated pro rata among the
Common Shares and the Convertible CRA Shares, and the Convertible CRA Shares
rank on parity with the Common Shares with respect to rights upon liquidation,
dissolution or winding up of the Company.
The investors, at their option, have the ability to convert their Convertible
CRA Shares into Common Shares at a predetermined conversion price. Upon
conversion, the investors will no longer be entitled to a special allocation of
the regulatory benefit. The conversion price is the greater of (i) the Company's
book value per Common Share as set forth in the Company's most recently issued
annual or quarterly report filed with the SEC prior to the respective
Convertible CRA Shares issuance date or (ii) 110% of the closing price of a
Common Share on the respective Convertible CRA Shares pricing date. The
conversion price for each Convertible CRA Share offering is indicated on the
following table:
Issuance Date Conversion Price Conversion Ratio
May 10, 2000 $15.33 0.9217
December 20, 2000 $14.60 0.9678
NOTE 8 - Related Parties
Pursuant to the Management Agreement and other servicing agreements with
subsidiaries, the Manager receives (inclusive of fees paid directly to the
Manager by subsidiaries of the Company) certain fees for its ongoing management
and operations of the Company:
Fees Computation
---- -----------
I. Bond selection 2% of the principal amount of each Revenue Bond
fees or other instrument upon acquisition
II.Special equal to .375% per annum of the total invested assets of
distributions the Company
III.Bond servicing equal to .25% per annum of the outstanding principal
fees amount of Revenue Bonds held by the Company
IV. Liquidation 1.5% based on the gross sales price of assets sold by the
fees Company
V. Expense reimbursement of certain administrative costs incurred
reimbursement by the Manager and its affiliates on behalf of the Company
Fees payable to the Manager which are based on Revenue Bonds or assets of the
Company include such Revenue Bonds or assets which are either held directly by
the Company or held by other entities to whom the Company has transferred such
Revenue Bonds or assets to facilitate financing. In addition, the Manager
receives bond placement fees directly from the borrower in an amount equal to 1%
to 1.5% of the principal amount of each Revenue Bond or other instrument
acquired or invested in by the Company. In addition, affiliates of the Manager
are part of a joint venture that has a development services agreement with the
owners of certain Underlying Properties.
The Management Agreement will terminate on October 1, 2001. Thereafter, the
Management Agreement will be renewed annually by the Company, subject to
majority approval of the Company's Board of Trustees. The Management Agreement
cannot be terminated by the Company prior to October 1, 2001, other than for
gross negligence or willful misconduct of the Manager and by a majority vote of
the Company's independent trustees. The Management Agreement may be terminated
without cause by a majority vote of the Company's independent trustees following
October 1, 2001 or by the Manager at any time.
The costs, expenses and the special distributions incurred to the Manager and
its affiliates for the years ended December 31, 2000, 1999 and 1998 were as
follows:
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
2000 1999 1998
------------ ---------- ------------
Bond selection fees $ 5,995,724 $3,806,510 $ 2,351,932
Special distribution 2,743,465 2,018,822 1,477,797
Bond servicing fees 1,809,638 1,337,738 985,198
Expense reimbursement 578,191 384,231 374,315
------------ ----------- ------------
$11,127,018 $7,547,301 $ 5,189,242
========== ========= ===========
As of December 31, 2000, the obligors of certain Revenue Bonds (see footnote C
to table in Note 2) are local partnerships in which investment partnerships,
whose general partners are affiliates of the Manager, own a controlling
partnership interest. With respect to one of the above Revenue Bonds, the
Company owns the RITES (see Note 4). These affiliate entities could have
interests that do not coincide with, and may be adverse to, the interests of the
Company. Negotiations, if any, with respect to modifications of Revenue Bonds
between the Company and obligors who are affiliates may be affected by these
conflicts as the Manager determines the appropriate terms and conditions of
modifications or otherwise opts for some other remedy including foreclosure.
As of December 31, 2000, the owners of the Underlying Properties and obligors of
the Highpointe, and Loveridge Revenue Bonds are affiliates of the Manager who
have not made equity investments. These entities have assumed the day-to-day
responsibilities and obligations of the Underlying Properties. Buyers are being
sought who would make equity investments in the Underlying Properties and assume
the nonrecourse obligations for the Revenue Bond or otherwise buy the property
and payoff all or most of the Revenue Bond obligation.
NOTE 9 - ATEBT Merger
On November 2, 1999, the Company and ATEBT, whose manager was an affiliate of
the Manager of the Company, entered into an Agreement and Plan of Merger
providing for the merger of ATEBT into and with the Company as the surviving
trust in the merger (the "ATEBT Merger"). The ATEBT Merger was approved by the
ATEBT shareholders on September 27, 2000 and consummated on November 14, 2000.
On the ATEBT Merger consummation date, ATEBT had total assets of approximately
$29,700,000 and net assets of approximately $28,300,000. ATEBT had four Revenue
Bonds financing properties in four states, with an aggregate outstanding face
amount of $23,775,000, and with individual interest rates of 9.0%.
Pursuant to the Merger Agreement, each share of beneficial ownership in ATEBT
issued and outstanding was converted into 1.43112 Common Shares of the Company.
Following the ATEBT Merger, previous ATEBT shareholders own 2,115,722 Common
Shares (representing approximately 9.3% of the then outstanding Common Shares)
of the Company.
The ATEBT Merger was accounted for as a purchase, with the value of the
Company's Common Shares issued, plus transaction costs allocated to the net
assets acquired, based on their relative fair values. The excess of the purchase
price over the fair value of the net assets acquired, $1,482,986, was recorded
as goodwill. Interest income on the acquired Revenue Bonds is recorded from the
acquisition date.
NOTE 10 - Earnings Per Share, Profit and Loss Allocations and Distributions
Pursuant to the Company's Trust Agreement and the Management Agreement with the
Manager, the Manager is entitled, in its capacity as the general partner of the
Company, to a special distribution equal to .375% per annum of the Company's
total invested assets (which equals the face amount of the Revenue Bonds),
payable quarterly. After payment of the special distribution, distributions are
made to the shareholders in accordance with their percentage interests.
Income is allocated first to the Manager in an amount equal to the special
distribution. The net remaining profits or losses, after a special allocation of
1% to the Manager, are then allocated to shareholders in accordance with their
percentage interests.
Net income per share is computed in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings Per Share. Basic income per
share is calculated by dividing income allocated to Common and Convertible CRA
Shareholders ("Shareholders") (See Note 7) by the weighted average number of
Common and Convertible CRA Shares outstanding during the period. The Convertible
CRA shareholders are included in the calculation of shares outstanding as they
share the same economic benefits as Common Shareholders, including receipt of
the same dividends per share as Common Shareholders. Diluted income per share is
calculated using the weighted average number of shares outstanding during the
period plus the additional dilutive effect of common stock equivalents. The
dilutive effect of outstanding stock options is calculated using the treasury
stock method. Because each Convertible CRA Share is convertible into less than
one common share, the potential conversion would be antidilutive.
For the Year Ended December 31, 2000
Income Shares* Per Share
Numerator Denominator Amount
Net income allocable to shareholders (Basic EPS) $27,074,115 22,140,576 $1.22
====
Effect of Dilutive securities
297,830 stock options
- 11,663 -
---------- ------ ------
Diluted net income allocable to shareholders (Diluted $27,074,115 22,152,239 $1.22
EPS) ========== ========== ====
*includes Convertible CRA Shares
For the Year Ended December 31, 1999
Income Shares Per Share
Numerator Denominator Amount
Net income allocable to shareholders (Basic EPS) $20,951,366 20,580,756 $1.02
====
Effect of Dilutive securities- None
Diluted net income allocable to shareholders (Diluted $20,951,366 20,580,756 $1.02
EPS) ========== ========== ====
For the Year Ended December 31, 1998
Income Shares Per Share
Numerator Denominator Amount
Net income allocable to shareholders (Basic EPS) $20,342,594 20,587,151 $ .99
=====
Effect of Dilutive securities - None
Diluted net income allocable to shareholders (Diluted $20,342,594 20,740,641 $ .98
EPS) ========== ========== =====
NOTE 11 - Capital Stock and Share Option Plan
The Company has adopted an incentive share option plan (the "Incentive Share
Option Plan"), the purpose of which is to (i) attract and retain qualified
persons as trustees and officers and (ii) to provide incentive and more closely
align the financial interests of the Manager and its employees and officers with
the interests of the shareholders by providing the Manager with substantial
financial interest in the Company's success. The Compensation Committee of the
Company's Board of Trustees administers the Incentive Share Option Plan.
Pursuant to the Incentive Share Option Plan, if the Company's distributions per
Common Share in the immediately preceding calendar year exceed $0.9517 per
Common Share, the Compensation Committee has the authority to issue options to
purchase, in the aggregate, that number of Common Shares which is equal to three
percent of the shares (including common shares and Convertible CRA Shares)
outstanding as of December 31 of the immediately preceding calendar year,
provided that the Compensation Committee may only issue, in the aggregate,
options to purchase a maximum number of Common Shares over the life of the
Incentive Shares Option Plan equal to 10% of the Common Shares outstanding on
October 1, 1997 (2,058,748 Common Shares).
Subject to the limitations described in the preceding paragraph, if the
Compensation Committee does not grant the maximum number of options in any year,
then the excess of the number of authorized options over the number of options
granted in such year will be added to the number of authorized options in the
next succeeding year and will be available for grant by the Compensation
Committee in such succeeding year.
All options granted by the Compensation Committee have an exercise price equal
to or greater than the fair market value of the Common Shares on the date of the
grant. The maximum option term is ten years from the date of grant. All Common
Share options granted pursuant to the Incentive Share Option Plan may vest
immediately upon issuance or in accordance with the determination of the
Compensation Committee. For 1998 the Company did not grant any options as its
distributions per Share did not exceed the minimum threshold of $0.9517 per
share. In 1999, the Company distributed $.995 per Share, thus enabling the
Compensation Committee, at their discretion, to issue options. Three percent of
the Common Shares outstanding as of December 31, 1999 and 2000 is equal to a
maximum option grant of 617,430 and 680,950 Common Shares, respectively, for a
total possible option grant of 1,298,380.
On May 1, 2000, options to purchase 297,830 Common Shares were granted to
officers of the Company and certain employees of an affiliate of the Manager,
none of whom are employees of the Company. The exercise price of each option is
$11.5625 per share with a term of ten years, and vesting in equal installments
on May 1, 2001, 2002 and 2003. The Company has adopted the provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation" for its share options issued
to non-employees. Accordingly, compensation cost is accrued based on the
estimated fair value of the options issued, and amortized over the vesting
period. Because vesting of the options is contingent upon the recipient
continuing to provide services to the Company until the vesting date, the
Company estimates the fair value of the non-employee options at each period end
up to the vesting date, and adjusts expensed amounts accordingly. The 297,830
options granted on May 1, 2000 had an estimated fair value at December 31, 2000
of $.90 per option grant, or a total of $268,047. The fair value of each option
grant is estimated using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in 2000: dividend yield
of 8.18%, expected volatility of 18%, and expected lives of ten years. None of
the options granted during 2000 were exercised or expired. The Company recorded
compensation cost of $109,952 for the year ended December 31, 2000 relating to
these option grants.
Through calendar year 1999, each independent trustee was entitled to receive
annual compensation for serving as a trustee in the aggregate amount of $15,000
payable in cash (maximum of $5,000 per year) and/or Common Shares based on the
fair market value at the date of issuance. Beginning in calendar year 2000, the
annual compensation for the two original independent trustees was increased from
$15,000 to $17,500 and the maximum payable in cash was increased from $5,000 to
$7,500. In 2000, a third independent trustee was appointed and such trustee will
receive annual compensation in the aggregate amount of $30,000 payable in cash
(maximum of $20,000 per year) and/or Common Shares. As of December 31, 2000 and
1999, 3,552 and 1,910 Common Shares, respectively, having an aggregate value at
the date of issuance of $45,000 and $25,000, respectively, have been issued to
the independent trustees. An additional 2,001 shares, with an aggregate value of
$30,000 at issuance, were issued to the independent trustees in January, 2001 as
compensation for their 2000 service.
Effective May 3, 2000, the Company implemented a dividend reinvestment and
Common Share purchase plan (the "Plan"). Under the Plan, Common Shareholders may
elect to have their distributions from the Company automatically reinvested in
additional Common Shares at a purchase price equal to the average of the high
and low market price from the previous day's trading. If a Common Shareholder
participates in the Plan, such shareholder may also purchase additional Common
Shares through quarterly voluntary cash payments with a minimum contribution of
$500. There are no commissions for Common Shares purchased under the Plan.
Participation in the Plan is voluntary and a Common Shareholder may join or
withdraw at any time. The opportunity for participation in the Plan began with
the distributions paid in August 2000.
On October 9, 1998, the Board of Trustees authorized the implementation of a
Common Share repurchase plan, enabling the Company to repurchase, from time to
time, up to 1,500,000 of its Common Shares. The repurchases will be made in the
open market and the timing is dependant on the availability of Common Shares and
other market conditions. As of both December 31, 2000 and 1999, the Company had
acquired 8,400 of its Common Shares for an aggregate purchase price of $103,359
(including commissions and service charges). Repurchased Common Shares are
accounted for as treasury Shares of beneficial interest.
The Company was created as part of the settlement in 1997 of class action
litigation against, among others, the sponsors of the Partnerships which were
consolidated to form the Company. As part of that settlement, counsel ("Class
Counsel") for the partners of the Partnerships had the right to petition the
United States District Court for the Southern District of New York (the "Court")
for additional attorneys' fees ("Counsel's Fee Shares") in an amount to be
determined in the Court's sole discretion. The Counsel's Fee Shares were based
upon a percentage (which Class Counsel proposed to be 25%) of the increase in
value of the Company, ("the Added Value") if any, as of October 1, 1998 based
upon the difference between (i) the trading prices of the Company's Common
Shares of beneficial interest during the six month period ended October 1, 1998
and (ii) the trading prices of the limited partnership units and the asset
values of the Partnerships prior to October 1, 1997. As of October 1, 1998, 25%
of the Added Value amounted to $7,788,536 and, in accordance with an Order and
Stipulation of Settlement by the Court on February 18, 1999 (the "Order"), Class
Counsel was entitled to receive 608,955 Common Shares of beneficial interest in
the Company. On April 15, 1999, the Company successfully negotiated a discounted
cash settlement (the "Discounted Cash Settlement") of $6,089,550 with Class
Counsel in lieu of the issuance of Common Shares. On April 26, 1999, the Board
of Trustees approved the Discounted Cash Settlement and it was paid on May 3,
1999.
NOTE 12 - Selected Quarterly Financial Data (unaudited)
2000 Quarter Ended
-----------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------- ----------- ------------ -----------
Revenues:
Interest income:
Revenue bonds $11,341,104 $12,554,464 $14,392,775 $17,420,561
Temporary investments 467,654 656,738 861,495 394,089
Promissory notes 242,211 240,633 266,637 252,200
----------- ------------ ------------ ------------
Total revenues 12,050,969 13,451,835 15,520,907 18,066,850
---------- ---------- ---------- ----------
Expenses:
Interest expense 914,275 1,063,484 998,044 1,240,357
Recurring fees relating to the Private
Label Tender Option Program 426,978 529,478 619,086 622,015
Bond servicing 396,504 429,305 468,980 522,481
General and administrative 448,199 472,187 684,689 562,787
Amortization 110,699 126,230 139,650 200,809
------------ ------------ ------------ ------------
Total expenses 2,296,655 2,620,684 2,910,449 3,148,449
----------- ----------- ----------- -----------
Income before gain on repayment of
revenue bonds 9,754,314 10,831,151 12,610,458 14,918,401
Gain on repayment of revenue bonds 0 0 0 645,151
---------- ----------- ------------ -----------
Income before minority interests 9,754,314 10,831,151 12,610,458 15,563,552
Income allocated to preferred shareholders
of subsidiary (1,490,625) (1,490,625) (2,651,081) (2,961,625)
Minority interest in income of subsidiary (1,693,300) (2,718,458) (2,742,145) (2,920,560)
---------- ---------- ---------- ----------
Net income $ 6,570,389 $ 6,622,068 $ 7,217,232 $ 9,681,367
========== ========== ========== ==========
Allocation of net income to:
Special distribution to Manager $ 594,756 $ 641,425 $ 706,000 $ 801,281
========== ========== =========== ===========
Manager $ 59,756 $ 59,806 $ 65,112 $ 88,802
=========== =========== ============ ===========
Common shareholders 5,915,877 5,626,157 5,889,308 8,083,605
Convertible CRA Shareholders 0 294,680 556,809 707,680
------------ ----------- ---------- ----------
Total for shareholders $ 5,915,877 $ 5,920,837 $ 6,446,117 $ 8,791,284
========== ========== ========== ==========
Net income per share
(basic and diluted) $ .29 $ .27 $ .29 $ .37
========== ========= ========== ========
The results for the quarter ended December 31, 2000 reflect net gains totaling
$645,151 resulting from the repayment of Revenue Bonds (see Note 2).
2000 Quarter Ended
----------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------- ----------- ------------ -----------
Revenues:
Interest income:
Revenue bonds $7,921,003 $8,522,319 $10,200,640 $11,800,568
Temporary investments 102,522 155,475 556,614 475,058
Promissory notes 165,159 166,654 164,792 206,386
------------ ------------ ------------ ------------
Total revenues 8,188,684 8,844,448 10,922,046 12,482,012
------------ ------------ ------------ ------------
Expenses:
Interest expense 8,368 365,110 558,758 816,989
Recurring fees relating to the Private
Label Tender Option Program 319,750 348,919 364,265 383,822
Bond servicing 287,749 307,107 352,300 390,582
General and administrative 335,069 342,407 389,990 363,332
Amortization 78,512 85,814 105,944 111,757
Loss on impairment of assets 0 0 0 1,859,042
------------ ------------ ------------ ------------
Total expenses 1,029,448 1,449,357 1,771,257 3,925,524
------------ ------------ ------------ ------------
Income before loss on repayment of
revenue bonds 7,159,236 7,395,091 9,150,789 8,556,488
Loss on repayment of revenue bonds (25,493) 0 0 (437,654)
------------ ------------ ------------ ------------
Income before minority interests 7,133,743 7,395,091 9,150,789 8,118,834
Income allocated to preferred shareholders
of subsidiary 0 (33,125) (1,490,625) (1,490,625)
Minority interest in income of subsidiary (1,128,221) (1,409,729) (1,388,095) (1,676,219)
------------ ------------ ------------ ------------
Net income $6,005,522 $5,952,237 $6,272,069 $4,951,990
============ ============ ============ ============
Allocation of net income to:
Special distribution to Manager $431,623 $462,618 $540,172 $584,409
============ ============ ============ ============
Manager $55,739 $54,896 $57,319 $43,676
============ ============ ============ ============
Common shareholders $5,518,160 $5,434,723 $5,674,578 $4,323,905
============ ============ ============ ============
Net income per share
(basic and diluted) $.27 $.26 $.28 $.21
============ ============ ============ ============
The results for the quarter ended December 31, 1999 reflect losses on impairment
of assets, totaling $1,859,042 relating to certain Revenue Bonds whose terms
were modified and losses totaling $437,654 resulting from the repayment of
certain other Revenue Bonds.
NOTE 13 - Commitments and Contingencies
The Company is subject to routine litigation and administrative proceedings
arising in the ordinary course of business. Management does not believe that
such matters will have a material adverse impact on the Company's financial
position, results of operations or cash flows.
NOTE 14 - Financial Risk Management and Derivatives
The Company's Revenue Bonds generally bear fixed rates of interest income, but
the P-FLOATS and TOP financing programs incur interest expense at variable rates
reset weekly, so the Company is exposed to interest rate risks. Various
financial vehicles exist which would allow Company management to hedge against
the impact of interest rate fluctuations on the Company's cash flows and
earnings. Prior to December 31, 2000, the Company, upon management's analysis of
the interest rate environment and the costs and risks of such strategies, has
not engaged in any of these hedging strategies.
Subsequent to December 31, 2000, the Company entered into interest rate swaps in
order to reduce the Company's growing exposure to increases in the floating
interest rate on its TOP and P-FLOATS programs. Under such interest rate swap
agreements, the Company is required to pay Merrill Lynch Capital Services (the
"Counterparty") a fixed rate on a notional amount of debt. In return, the
Counterparty will pay the Company a floating rate equivalent to the BMA
Municipal Swap Index, an index of weekly tax-exempt variable rate issues on
which the Company's variable rate financing programs are based. On January 5,
2001, the Company entered into a five-year interest rate swap that fixes the BMA
index to 3.98% on a notional amount of $50.0 million. On February 5, 2001, the
Company entered into a three-year interest rate swap that fixes the BMA index to
3.64% on an additional notional amount of $100.0 million.
The average BMA rate for 2000 and 1999 was 4.12% and 3.29%, respectively. Net
swap payments received by the Company, if any, will be taxable income to the
Company and any resultant dividends paid to shareholders. A possible risk of
such swap agreements is the possible inability of the Counterparty to meet the
terms of the contracts with the Company; however, there is no current indication
of such an inability.
Under SFAS No. 133, as amended, the Company has designated these interest rate
swaps as cash flow hedges on the variable interest payments on its floating rate
financing. Accordingly, the interest rate swaps will be recorded at their fair
market values each accounting period, with changes in market values being
recorded in other comprehensive income to the extent that the hedge is effective
in achieving offsetting cash flows. Any ineffectiveness in the hedging
relationship will be recorded in earnings. The Company expects that these
hedging relationships will be highly effective in achieving offsetting changes
in cash flow throughout their terms.
NOTE 15 - Subsequent Events
On February 28, 2001, the Company sold the Greenway Manor Revenue Bond for the
par amount of $12,850,000, in connection with a sale of the Underlying Property.
Net sales proceeds were sufficient to provide for the payment of accrued and
unpaid Base Interest in the amount of $857,800. The Company expects to receive
payment of participating interest upon final reconciliation of net sales
proceeds.
On February 28, 2001 and March 30, 2001, the Company funded a Revenue Bond in
the amounts of $9,500,000 and $1,500,000, respectively, not including bond
selection fees and expenses of approximately $190,000 and $30,000, bearing
interest at 10% per annum, secured by a third mortgage on the Underlying
Property, Draper Lane. Maturity Date for this Revenue Bond is March 1, 2040 and
the Call Date is March 1, 2006. The Underlying Property is a 406 unit apartment
complex located in Silver Spring, MD.
On March 21, 2001, the Company filed a shelf registration statement on Form S-3
with the Securities and Exchange Commission, in the amount of $250,000,000
pursuant to which the Company will be able to offer securities from time to time
following effectiveness of such registration statement.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company.
Incorporated by reference to the Company's definitive proxy statement to be
filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
Item 11. Executive Compensation.
Incorporated by reference to the Company's definitive proxy statement to be
filed pursuant to Regulation 14A under the Exchange Act.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Company's definitive proxy statement to be
filed pursuant to Regulation 14A under the Exchange Act.
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference to the Company's definitive proxy statement to be
filed pursuant to Regulation 14A under the Exchange Act.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Sequential
Page
-----------
(a) 1. Financial Statements
Independent Auditors' Report 31
Consolidated Balance Sheets as of December 31, 2000 and 1999 32
Consolidated Statements of Income for the years ended December 31,
2000, 1999 and 1998 33
Consolidated Statements of Changes in Shareholders' Equity/
Partners' Capital (Deficit) for the years ended
December 31, 2000, 1999 and 1998 34
Consolidated Statements of Cash Flows for the years ended December
31, 2000, 1999 and 1998 36
Notes to Consolidated Financial Statements 38
(a) 2. Financial Statement Schedules
Schedule I - Condensed Financial Information of Registrant 68
All other schedules have been omitted because they are not applicable
or the required information is included in the financial statements
and the notes thereto.
(a) 3. Exhibits
3.1(a) Certificate of Business Trust dated as of August 12, 1996 (incorporated
by reference to the Company's Registration Statement on Form 10, File No.
001-13237)
3.1(b) Certificate of Amendment of Certificate of Business Trust dated as of
April 30, 1997 (incorporated by reference to the Company's Registration
Statement on Form 10, File No. 001-13237)
3.1(c) Trust Agreement dated as of August 12, 1996 (incorporated by reference to
the Company's Registration Statement on Form 10, File No. 001-13237)
3.1(d) Amendment No. 1 to Trust Agreement dated as of April 30, 1997
(incorporated by reference to the Company's Registration Statement on Form 10,
File No. 001-13237)
3.1(e) Amended and Restated Trust Agreement dated as of September 30, 1997
(incorporated by reference to the Company's Current Report on Form 8-K, filed
with the Commission on March 19, 1998)
3.2 Amended and Restated Bylaws (filed herewith)
4.1 Specimen Copy of Share Certificate for shares of beneficial interest of the
Company (incorporated by reference to the Company's Amendment No. 1 on Form 10/A
to the Company's Registration Statement on Form 10, File No. 001-13237)
10(a) Management Agreement dated as of October 1, 1997, between the Company and
Related Charter L.P. (incorporated by reference to the Company's Current Report
on Form 8-K, filed with the Commission on March 19, 1998)
10(b) Agreement and Plan of Merger dated as of October 1, 1997, by and among the
Company, Summit Tax Exempt Bond Fund, L.P., Summit Tax Exempt L.P. II and Summit
Tax Exempt L.P. III (incorporated by reference to the Company's Current Report
on Form 8-K, filed with the Commission on March 19, 1998)
10(c) Incentive Share Option Plan (incorporated by reference to the Company's
Current Report on Form 8-K, filed with the Commission on March 19, 1998)
10(d) Contribution Agreement between CharterMac and CharterMac Origination Trust
("Origination Trust") dated as of May 21, 1998 (incorporated by reference to
Exhibit 10 (aaaw) in the Company's June 30, 1998 Quarterly Report on Form 10-Q)
10(e) Contribution Agreement between Origination Trust and CharterMac Owner
Trust ("Owner Trust") dated as of May 21, 1998 (incorporated by reference to
Exhibit 10 (aaax) in the Company's June 30, 1998 Quarterly Report on Form 10-Q)
10(f) Insurance Agreement among MBIA, CharterMac, Origination Trust, Owner
Trust, CharterMac Floater Certificate Trust ("Floater Certificate Trust"), First
Tennessee Bank National Association ("First Tennessee"), Related Charter LP, and
Bayerische Landesbank Girozentrale, New York Branch ("Bayerische") dated as of
May 21, 1998 (incorporated by reference to Exhibit 10 (aaay) in the Company's
June 30, 1998 Quarterly Report on Form 10-Q)
10(g) Liquidity Agreement among Owner Trust, Floater Certificate Trust, First
Tennessee, MBIA and Bayerische dated as of May 21, 1998 (incorporated by
reference to Exhibit 10 (aaaz) in the Company's June 30, 1998 Quarterly Report
on Form 10-Q)
10(h) Liquidity Pledge and Security Agreement among Origination Trust, Owner
Trust, Floater Certificate Trust, MBIA, First Tennessee and Bayerische dated as
of May 21, 1998 (incorporated by reference to Exhibit 10 (aaaaa) in the
Company's June 30, 1998 Quarterly Report on Form 10-Q)
10(i) Fee Agreement among Wilmington Trust Company, Floater Certificate Trust
and CharterMac dated as of May 21, 1998 (incorporated by reference to Exhibit 10
(aaaab) in the Company's June 30, 1998 Quarterly Report on Form 10-Q)
10(j) Certificate Placement Agreement (incorporated by reference to Exhibit 10
(aaaac) in the Company's June 30, 1998 Quarterly Report on Form 10-Q)
10(k) Remarketing Agreement (incorporated by reference to Exhibit 10 (aaaad) in
the Company's June 30, 1998 Quarterly Report on Form 10-Q)
10(l) Charter Mac Equity Issuer Trust, 6 5/8% Series A Cumulative Preferred
Shares, Purchase Agreement, dated June 14, 1999 (incorporated by reference to
Exhibit 10 (aaaaz) in the Company's June 30, 1999 Quarterly Report on Form 10-Q)
10(m) Agreement and Plan of Merger by and among Charter Municipal Mortgage
Acceptance Company, CM Holding Trust and American Tax Exempt Bond Trust dated as
of November 2, 1999 (incorporated by reference to Exhibit 99.2 in the Company's
Current Report on Form 8-K dated November 2, 1999)
12 Ratio of earnings to fixed charges and preferred
share dividends of subsidiary 73
21 Subsidiaries of the Company (filed herewith) 74
99.1 Amended and Restated Trust Agreement by and among J. Michael Fried, Stuart
J. Boesky, Alan P. Hirmes, Robert W. Grier and Andrew T. Panaccione as Managing
Trustees, Charter Municipal Mortgage Acceptance Company and Wilmington Trust
Company, as Registered Trustee dated June 22, 1999 relating to Charter Mac
Equity Issuer Trust (incorporated by reference to Exhibit 99 in the Company's
June 30, 1999 Quarterly Report on Form 10-Q)
99.2 Agreement dated as of April 15, 1999 between Charter Municipal Mortgage
Acceptance Company and Melvyn I. Weiss, Esq. and Lawrence A. Sucharow, Esq., as
Class Counsel co-chairmen (incorporated by reference to the Company's current
report on Form 8-K filed with the Commission on April 29, 1999)
(b) Reports on Form 8-K
Current report on Form 8-K relating to the approval by a majority of
the shareholders of American Tax Exempt Bond Trust to the terms of
the Merger Agreement with CM Holding Trust, the Company's
subsidiary, as the surviving trust was dated October 13, 2000 and
was filed on October 13, 2000.
Current report on Form 8-K relating to the merger of American Tax
Exempt Bond Trust into CM Holding Trust was dated November 29, 2000
and was filed on November 29, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
(COMPANY)
Date: March 30, 2001 By: ________________________________
Stuart J. Boesky
Managing Trustee, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
Signature Title Date
-------------------------- ---------------------------- ----------------
____________________ Managing Trustee, President
Stuart J. Boesky and Chief Executive Officer March 30, 2001
____________________ Managing Trustee and
Stephen M. Ross Chairman of the Board March 30, 2001
--------------------
Michael J. Brenner Managing Trustee March 30, 2001
____________________ Managing Trustee, Executive
Alan P. Hirmes Vice President,
and Secretary March 30, 2001
--------------------
Michael I. Wirth Senior Vice President and Chief Financial
Officer March 30, 2001
--------------------
Peter T. Allen Managing Trustee March 30, 2001
--------------------
Arthur P. Fisch Managing Trustee March 30, 2001
--------------------
Thomas W. White Managing Trustee March 30, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
(COMPANY)
Date: March 30, 2001 By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Managing Trustee, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
Signature Title Date
-------------------------- ---------------------------- ----------------
/s/ Stuart J. Boesky Managing Trustee, President
--------------------
Stuart J. Boesky and Chief Executive Officer March 30, 2001
/s/ Stephen M. Ross Managing Trustee and
-------------------
Stephen M. Ross Chairman of the Board March 30, 2001
/s/ Michael J. Brenner
Michael J. Brenner Managing Trustee March 30, 2001
/s/ Alan P. Hirmes Managing Trustee, Executive
------------------
Alan P. Hirmes Vice President,
and Secretary March 30, 2001
/s/ Michael I. Wirth Senior Vice President and
--------------------
Michael I. Wirth Chief Financial Officer March 30, 2001
/s/ Peter T. Allen
------------------
Peter T. Allen Managing Trustee March 30, 2001
/s/ Arthur P. Fisch
-------------------
Arthur P. Fisch Managing Trustee March 30, 2001
/s/ Thomas M. White
-------------------
Thomas M. White Managing Trustee March 30, 2001
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Summarized condensed financial information of registrant (not including its
consolidated subsidiaries) CONDENSED BALANCE SHEETS
December 31,
------------------------------
2000 1999
-------------- --------------
ASSETS
Revenue bonds-at fair value $12,104,055 $9,559,000
Temporary investments 0 19,790,000
Cash and cash equivalents 9,952,594 3,523,956
Cash and cash equivalents-restricted 0 971,758
Interest receivable, net 165,759 199,548
Promissory notes receivable 9,909,933 10,148,060
Due from subsidiaries 0 439,108
Investment in subsidiaries 319,712,285 260,089,698
Deferred costs, net 17,845,534 10,653,865
Goodwill, net 2,329,422 2,674,626
Other assets 409,595 262,344
------------- -------------
Total assets $372,429,177 $318,311,963
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities$ 827,280 $423,540
Due to Manager and affiliates 1,025,210 838,567
Due to subsidiaries 6,762,543 155,717
Distributions payable to common shareholders 6,242,046 5,453,971
Distributions payable to Convertible CRA Shareholders 558,250 0
------------- -------------
Total liabilities 15,415,329 6,871,795
------------- -------------
Commitments and contingencies
Shareholders' equity:
Beneficial owners' equity - Convertible CRA share-
holders (2,590,000 shares issued and outstanding) 34,397,168 0
Beneficial owner's equity-manager 715,342 441,878
Beneficial owners' equity-other common shareholders
(50,000,000 shares authorized; 22,706,739 issued and
22,698,339 outstanding and 20,589,375 issued and
20,580,975 outstanding in 2000 and 1999, respectively) 323,206,288 312,800,380
Treasury shares of beneficial interest (8,400 shares) (103,359) (103,359)
Accumulated other comprehensive loss (1,201,591) (1,698,731)
------------- -------------
Total shareholders' equity 357,013,848 311,440,168
------------- -------------
Total liabilities and shareholders' equity $372,429,177 $318,311,963
============= =============
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
Years Ended December 31,
2000 1999 1998
----------- ----------- ----------
Revenues:
Interest income:
Revenue bonds $ 2,972,386 $ 6,050,931 $20,287,754
Temporary investments 451,768 662,728 213,138
Promissory notes 1,001,681 702,991 594,183
Income from subsidiaries 28,307,718 18,177,128 4,570,337
---------- ---------- -----------
Total revenues 32,733,553 25,593,778 25,665,412
---------- ---------- ----------
Expenses:
Interest expense 21,887 417,263 1,504,334
Bond servicing 33,694 135,767 729,840
General and administrative 2,062,719 1,406,501 1,246,794
Amortization 478,951 345,282 158,572
------------ ------------ ------------
Total expenses 2,597,251 2,304,813 3,639,540
----------- ----------- -----------
Income before loss on repayment of revenue
bonds 30,136,302 23,288,965 22,025,872
Loss on repayment of revenue bonds 45,246 107,147 0
----------- ------------- ----------
Net income $30,091,056 $23,181,818 $22,025,872
========== ========== ==========
Allocation of net income:
Special distribution to Manager $ 2,743,477 $ 2,018,822 $ 1,477,797
=========== =========== ===========
Manager $ 273,464 $ 211,630 $ 205,481
============ ============ ============
Common shareholders $25,500,984 $20,951,366 $20,342,594
Convertible CRA Shareholders 1,573,131 0 0
------------ ----------- ---------
Total for Shareholders $27,074,115 $20,951,366 $20,342,594
========== ========== ==========
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2000 1999 1998
---------- ---------- ----------
Cash flows from operating activities:
Net income $30,091,056 $23,181,818 $22,025,872
---------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on repayments of revenue bonds 45,245 107,147 0
Amortization 478,951 345,282 158,572
Amortization of goodwill 345,204 297,623 134,593
Amortization of bond selection costs 935,380 450,743 238,928
Accretion of excess of acquired net
assets over cost 0 0 (248,559)
Accretion of deferred income 0 0 (39,753)
Income from investment in subsidiaries (28,307,718) (18,177,128) (4,570,337)
Distributions from subsidiaries 0 16,467,319 151,538,426
Changes in operating assets and liabilities:
Interest receivable 33,789 105,165 574,806
Other assets 20,323 656 29,971
Accounts payable, accrued expenses and
other liabilities 403,740 (5,918,615) 70,457
Due from subsidiaries 116,180 (208,887) (230,221)
Due to subsidiaries 7,575,386 (1,328,176) 1,483,893
Due to Manager and affiliates 114,771 (343,960) 278,751
------------- ------------ ------------
Total adjustments (18,238,749) (8,202,831) 149,419,527
----------- ---------- -----------
Net cash provided by operating activities 11,852,307 14,978,987 171,445,399
----------- ---------- -----------
Cash flows from investing activities:
Proceeds from repayments of revenue bonds 49,901 5,100,000 0
Purchase of revenue bonds (2,405,000) (44,770,162) (117,596,600)
Proceeds from secured borrowings 0 52,807,000 0
Investment in subsidiaries (23,824,693) 0 0
Contribution of revenue bonds to subsidiaries 0 13,507,000 0
Increase in deferred bond selection costs (6,499,035) (3,906,784) (2,598,288)
Net sale (purchase) of temporary investments19,790,000 (19,790,000) 3,500,000
Increase in other assets (9,000) (251,500) 0
Increase in deferred costs (545,632) (100,000) 0
Loans made to properties (200,000) (2,847,185) (1,055,695)
Principal payments received from loans made to
properties 438,127 328,045 507,040
--------- ----------- -----------
Net cash provided by (used in)
investing activities (13,205,332) 76,414 (117,243,543)
----------- ----------- ----------
(continued)
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2000 1999 1998
------------ ------------- ------------
Cash flows from financing activities:
Proceeds from note payable 0 0 96,039,231
Repayments of note payable 0 0 (117,484,571)
Increase in cash and cash equivalents-restricted 971,758 (971,758) 0
Distributions paid to the Manager and
shareholders of the Company (24,343,782) (21,815,252) (20,331,395)
Distributions paid to Convertible CRA Shareholders (810,370) 0 0
Increase in deferred costs relating to the Private
Label Tender Option Program (2,300,639) (559,632) (2,512,768)
Increase in other deferred costs 72,039 (72,039) 0
Purchase of treasury shares of beneficial interest 0 0 (103,359)
Issuance of Convertible CRA Shares 34,192,657 0 0
Merger costs 0 0 (218,657)
------------- ------------- -------------
Net cash provided by (used in) financing activities 7,781,663 (23,418,681) (44,611,519)
------------- ------------- -------------
Net increase (decrease) in cash and
cash equivalents 6,428,638 (8,363,280) 9,590,337
Cash and cash equivalents at the
beginning of the year 3,523,956 11,887,236 2,296,899
------------- ------------- -------------
Cash and cash equivalents at the
end of the year $ 9,952,594 $ 3,523,956 $ 11,887,236
============= ============= =============
Supplemental information:
Interest paid $ 21,887 $ 417,263 $ 1,507,871
============= ============= =============
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Introduction and Basis of Presentation
Basis of Financial Information
The accompanying condensed financial statements (the "Parent Company Financial
Statements") are for Charter Municipal Mortgage Acceptance Company (not
including its consolidated subsidiaries).
The Parent Company Financial Statements, including the notes thereto, should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto which are included in this Form 10-K.
2. Transactions with Subsidiaries
The Company received distributions from its consolidated subsidiaries totaling
approximately $16,467,000 during the year ended December 31, 1999.
During the years ended December 31, 1999 and 1998, the Company contributed
revenue bonds with aggregate carrying value of approximately $115,567,000 and
$361,686,000, respectively, to its subsidiaries.
During 2000, in connection with the ATEBT merger, the Company issued common
shares valued, at the date of issuance, at $29,154,649 and contributed the net
assets from the merger to one of its subsidiaries.
Exhibit 12
Ratio of Earnings to Combined Fixed Charges and Preference Dividends
2000 1999 1998
------------ ---------- ------------
Interest expense $ 4,216,160 $ 1,749,225 $ 1,504,334
Minority interest in income of subsidiary 10,074,463 5,602,264 1,563,999
Recurring fees related to TOPs program 2,197,557 1,416,756 454,919
Amortized capitalized costs related to indebtedness 478,951 345,282 158,572
Preference security dividend requirements of consolidated
subsidiaries 8,593,956 3,014,375 -
------------ ------------ ------------
Total fixed charges $ 25,561,087 $ 12,127,902 $ 3,681,824
============ ============ ============
Net income before minority interest $ 48,759,475 $ 31,798,457 $ 23,589,871
Add: Total fixed charges 25,561,087 12,127,902 3,681,824
Less: Preference security dividend requirements of consolidated
subsidiaries (8,593,956) (3,014,375) -
------------ ------------ ------------
Earnings $ 65,726,606 $ 40,911,984 $ 27,271,695
============ ============ ============
Ratio of Earnings to Combined Fixed Charges and
Preference Dividends 3:1 3:1 7:1
For the purposes of computing the ratio of earnings to fixed charges and
preference dividends, earnings were calculated using income before minority
interest adding back total fixed charges less preference security dividend
requirements of consolidated subsidiaries. Fixed charges consist of interest
expense, minority interest in income of subsidiary, recurring fees and
amortization of capitalized costs related to indebtedness and preference
security dividend requirements of consolidated subsidiaries. There were no
periods in which earnings were insufficient to cover combined fixed charges and
preference dividends.
Exhibit 21
Subsidiaries of the Company
CM Holding Trust, a Delaware business trust
Charter Mac Equity Issuer Trust, a Delaware business trust
Subsidiary of Charter Mac Equity Issuer Trust, a Delaware business trust
------------------------------------------------------------------------
CharterMac Origination Trust I, a Delaware business trust
CharterMac Owner Trust I, a Delaware business trust
Exhibit 23.1
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-54802 of Charter Municipal Mortgage Acceptance Company on Form S-3, in
Registration Statement No. 333-57384 of Charter Municipal Mortgage Acceptance
Company on Form S-3, in Registration Statement No. 333-36192 of Charter
Municipal Mortgage Acceptance Company on Form S-3, and in Registration Statement
No. 333-55957 of Charter Municipal Mortgage Acceptance Company on Form S-8 of
our report dated March 12, 2001, appearing in this Annual Report on Form 10-K of
Charter Municipal Mortgage Acceptance Company for the year ended December 31,
2000.
DELOITTE & TOUCHE LLP
New York, New York
March 30, 2001