SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13237
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
(Exact name of Registrant as specified in its Trust Agreement)
Delaware 13-3949418
------------------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
-------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
------------ ------------
March 31, December 31,
2001 2000
------------- -----------
(Unaudited)
ASSETS
Revenue bonds-at fair value $841,367,698 $845,405,056
Temporary investments 1,000,000 0
Cash and cash equivalents 29,759,312 36,116,481
Interest receivable, net 5,070,340 5,202,999
Promissory notes receivable 10,410,934 9,909,933
Deferred costs, net 23,981,155 24,201,342
Goodwill, net 3,671,274 3,792,959
Other assets 314,930 607,095
----------------------------
Total assets $915,575,643 $925,235,865
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Secured borrowings $101,507,980 $110,026,031
Interest rate swaps 1,366,541 0
Accounts payable, accrued expenses and
other liabilities 2,847,861 2,835,144
Due to Manager and affiliates 1,639,657 1,598,921
Distributions payable to preferred shareholders
of subsidiary 2,961,625 2,961,625
Distributions payable to convertible CRA
shareholders 712,249 558,250
Distributions payable to common shareholders 6,242,587 6,242,046
--------------------------
Total liabilities 117,278,500 124,222,017
----------- -----------
Minority interest in subsidiary
(subject to mandatory redemption) 275,000,000 275,000,000
----------- -----------
Preferred shares of subsidiary (subject to mandatory
repurchase) 169,000,000 169,000,000
----------- -----------
Commitments and contingencies
Shareholders' equity:
Beneficial owners' equity - convertible CRA share-
holders (2,590,000 shares issued and outstanding 34,400,652 34,397,168
Beneficial owner's equity-manager 792,425 715,342
Beneficial owners' equity-other common shareholders
(50,000,000 shares authorized; 22,708,740 issued
and 22,700,340 outstanding and 22,706,739
shares issued and 22,698,339 outstanding in
2001 and 2000, respectively) 345,508,072 344,870,761
Treasury shares of beneficial interest (8,400 shares) (103,359) (103,359)
Accumulated other comprehensive loss (26,300,647) (22,866,064)
----------- -----------
Total shareholders' equity 354,297,143 357,013,848
----------- -----------
Total liabilities and shareholders' equity $915,575,643 $925,235,865
=========== ===========
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
2001 2000
-----------------------
Revenues:
Interest income:
Revenue bonds $16,340,627 $11,341,104
Temporary investments 224,578 467,654
Promissory notes 256,934 242,211
-----------------------
Total revenues 16,822,139 12,050,969
---------- ----------
Expenses:
Interest expense 1,273,373 914,275
Recurring fees relating to the
Private Label Tender Option
Program 564,573 426,978
Bond servicing 541,886 396,504
General and administrative 742,279 448,199
Amortization 198,574 110,699
------------------------
Total expenses 3,320,685 2,296,655
----------------------
Income before gain on repayment
of revenue bonds 13,501,454 9,754,314
Gain on repayment of revenue bonds 136,864 0
---------------------
Income before minority interests 13,638,318 9,754,314
Income allocated to preferred
shareholders of subsidiary (2,961,625)(1,490,625)
Minority interest in income of
subsidiary (2,140,485) (1,693,300)
----------- -----------
Net income $ 8,536,208$ 6,570,389
=========== ===========
Allocation of net income to:
Special distribution to Manager $ 827,652$ 594,756
========== ===========
Manager $ 77,086$ 59,756
=========== ============
Common shareholders $6,849,905 $5,915,877
Convertible CRA shareholders 781,565 0
----------------------
Total for shareholders $7,631,470 $5,915,877
========= =========
Net income per share
Basic $ .30 $ .29
=========== ===========
Diluted $ .30 $ .29
============ ===========
Weighted average shares
outstanding :
Basic 25,289,651 20,581,805
========== ==========
Diluted 25,350,314 20,581,805
========== ==========
See accompanying notes to consolidated financial statements
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited)
Beneficial Beneficial Accumulated
Owners' Beneficial Owners' Treasury Other
Equity - Owner's Equity- Shares of Compre-
Convertible CRA Equity - Other Beneficial Comprehensive hensive
Shareholders Manager Shareholders Interest Income Loss Total
----------- ------- ------------ -------- ------ ---- -----
Balance at January 1, 2001 $34,397,168 $715,342 $344,870,761 $(103,359) $(22,866,064)$357,013,848
Comprehensive income:
Net income 781,565 904,738 6,849,905 0 $8,536,208 0 8,536,208
---------
Other comprehensive (gain) loss:
Net unrealized loss on (1,366,541)
interest rate swaps
Net unrealized loss on revenue bonds:
Net unrealized holding loss arising (1,931,178)
during the period
Add: Reclassification adjustment
for (136,864)
net gain included in net income
Other comprehensive loss (3,434,583) (3,434,583) (3,434,583)
----------
Comprehensive income $5,101,625
=========
Costs of issuance of convertible CRA (65,831) (65,831)
shares
Issuance of common shares 0 0 30,000 0 0 30,000
Distributions (712,250) (827,655) (6,242,594) 0 0 (7,782,499)
------------- -------- ----------- ------------ -------- ----------
Balance at March 31, 2001 $34,400,652 $792,425 $345,508,072 $(103,359) $(26,300,647)$354,297,143
========== ======= =========== ======== ============ ===========
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
--------------------------
Three Months Ended
March 31,
2001 2000
----------- ------------
Cash flows from operating activities:
Net income $ 8,536,208 $ 6,570,389
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on repayment of revenue bonds (136,864) 0
Other amortization 199,757 110,699
Amortization of goodwill 121,685 85,829
Amortization of bond selection costs 416,724 176,079
Accretion of deferred income and purchase
accounting adjustment (109,121) (16,547)
Income allocated to preferred shareholders
of subsidiary 2,961,625 1,490,625
Changes in operating assets and liabilities:
Interest receivable 132,659 (193,032)
Other assets 151,118 3,048
Accounts payable, accrued expenses and
other liabilities 22,656 106,922
Due to Manager and
affiliates 203,165 108,026
------------ ------------
Net cash provided by operating activities 12,499,612 8,442,038
---------- -----------
Cash flows from investing activities:
Proceeds from repayment of revenue bonds 12,855,000 7,937
Periodic principal payments of revenue bonds 331,426 0
Purchase of revenue bond (11,000,000) (5,600,000)
Increase in deferred bond selection costs (344,861) (205,670)
Net (purchase) sale of temporary investments (1,000,000) 12,341,000
Increase in other deferred costs 0 (174,039)
Loan made to property (550,000) 0
Principal payments received from loans made to
properties 48,999 63,999
--------------------------
Net cash provided by investing activities 340,564 6,433,227
------------ -----------
(continued)
Cash flows from financing activities:
Distributions paid to the Manager and Common
shareholders (7,043,337) (6,038,340)
Distributions paid to preferred shareholders
of subsidiary (2,961,625) (1,490,625)
Distributions paid to Convertible CRA
shareholders (558,251) 0
Principal repayments of secured borrowings (8,518,051) 0
Increase in cash and cash equivalents - restricted 0 (578,016)
Increase in deferred costs relating to the
Private Label Tender Option Program (50,250) (38,004)
Increase in deferred costs relating to
the issuance of preferred stock of subsidiary 0 (3,827)
Increase in other deferred costs 0 (71,516)
Increase in costs of Convertible CRA Shares (65,831) 0
-------------- -----------
Net cash used in financing activities (19,197,345) (8,220,328)
----------- -----------
Net (decrease) increase in cash and
cash equivalents (6,357,169) 6,654,937
Cash and cash equivalents at the
beginning of the period 36,116,481 8,653,503
---------- -----------
Cash and cash equivalents at the
end of the period $29,759,312 $15,308,440
========== ==========
Supplemental information:
Interest paid $ 1,187,010 $ 943,117
=========== ============
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
NOTE 1 - 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 ("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 is governed by a board of trustees comprised of three independent
managing trustees and four managing trustees who are affiliated with Related
Capital Company ("Related"), a nationwide, fully integrated real estate services
firm. The Company has engaged Related Charter L.P. (the "Manager"), an affiliate
of Related, to manage its day-to-day affairs.
The consolidated financial statements include the accounts of the Company and
four majority owned subsidiary business trusts which it controls: CM Holding
Trust, Charter Mac Equity Issuer Trust, Charter Mac Origination Trust I and
Charter Mac Owner Trust I. 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.
The accompanying financial statements have been prepared without audit. In the
opinion of management, the financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of the Company as of March 31, 2001 and the results of
its operations and its cash flows for the three months ended March 31, 2001 and
2000. However, the operating results for the interim periods may not be
indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP") have been condensed or
omitted. It is suggested that these financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 2000.
The consolidated financial statements of the Company are prepared using the
accrual method of accounting in conformity with GAAP, which 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 and interest rate swaps.
Certain amounts in the 2000 financial statements have been reclassified to
conform to the 2001 presentation.
NOTE 2 - Revenue Bonds
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"). Accordingly, the Revenue Bonds are carried at their
estimated fair values, with unrealized gains and losses reported in other
comprehensive income.
The weighted average interest rates recognized on the face amount of the
portfolio of Revenue Bonds for the three months ended March 31, 2001 and 2000
were 7.34% and 7.37%, respectively, based on weighted average face amounts of
approximately $890,036,000 and $608,242,000, respectively.
The amortized cost basis of the Company's portfolio of Revenue Bonds at March
31, 2001 and December 31, 2000 was $866,301,804 and $868,278,491, respectively.
The net unrealized loss on Revenue Bonds in the amount of $24,934,106 at March
31, 2001 consisted of gross unrealized gains and losses of $6,656,252 and
$31,590,358, respectively. The net unrealized loss on Revenue Bonds of
$22,873,435 at December 31, 2000 consisted of gross unrealized gains and losses
of $6,835,510 and $29,708,945, respectively.
2001 Transactions
-----------------
On February 28 and March 30, 2001, the Company acquired an $11 million
subordinate Revenue Bond (Draper Lane), in two installments of $9.5 million and
$1.5 million respectively. The Revenue Bond bears interest at 10% per annum,
matures on March 1, 2040 and is secured by a third mortgage on a 406 unit
affordable multifamily property, located in Silver Spring, MD.
During the first quarter of 2001, one Revenue Bond was repaid and one RITE was
terminated. The Revenue Bond (Greenway) had a face amount of $12.85 million, and
a carrying value of $12.7 million. The Company recognized a gain on this
transaction of $105,557. The RITE had a face amount and carrying value of
$5,000. The Company recognized a gain of $31,307 on this transaction.
NOTE 3 - Deferred Costs
The components of deferred costs are as follows:
March 31, December 31,
2001 2000
-------------- -----------
Deferred bond selection costs $16,605,406 $16,260,545
Deferred costs relating to the Private Label
Tender Option Program 5,965,516 5,915,266
Deferred costs relating to the issuance of preferred
shares of subsidiary 6,490,989 6,490,989
----------- -----------
29,061,911 28,666,800
Less: Accumulated amortization (5,080,756) (4,465,458)
----------- -----------
$23,981,155 $24,201,342
========== ==========
NOTE 4 - Related Party Transactions
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 and subsidiaries as follows:
Fees Computation
---- -----------
I. Bond selection fees 2% of the principal amount of each Revenue Bond or other investment upon acquisition.
II. Special distributions .375% per annum of the Total Invested Assets of the Company.
III. Bond servicing fees .25% per annum of the outstanding principal amount of Revenue Bonds.
IV. Liquidation fees 1.5% based on the gross sales price of assets sold by the Company.
V. Expense reimbursement reimbursement of certain administrative costs incurred by the Manager and its affiliates on
behalf of the Company.
Fees payable to the Manager which are based on Revenue Bonds or assets of the
Company include such Revenue Bonds or assets which are held either directly by
the Company or held by other entities to which 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
1.0% to 1.5% of the principal amount of each Revenue Bond or other investment.
In addition, affiliates of the Manager are part of a joint venture that has
development services agreements with the owners of certain Underlying
Properties.
The original term of each management agreement will terminate on October 1,
2001, thereafter each management agreement will be renewed, subject to
evaluation of the performance of the Manager by the relevant entity's board of
trustees. Each management agreement may be terminated (i) without cause by the
Manager, or (ii) for cause by a majority of such entity's independent trustees,
in each case without penalty and each upon 60 days prior written notice to the
non-terminating party. Neither the Company nor its subsidiaries may terminate
its respective management agreement prior to October 1, 2001 other than for
cause. If the Manager terminates an entity's management agreement, such entity
may not be able to find an adequate replacement manager.
The costs, expenses and the special distributions incurred to the Manager and
its affiliates for the three months ended March 31, 2001 and 2000 were as
follows:
Three Months Ended
March 31,
2001 2000
--------------------
Bond selection fees $ 190,000$ 112,000
Expense reimbursement 165,369 133,085
Bond servicing fees 541,886 396,504
Special distribution 827,652 594,756
---------- ----------
$1,724,907 $1,236,345
========== ==========
NOTE 5 - Earnings Per Share
Net income per share is computed in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings Per Share. Basic income per
share is calculated by dividing income allocated to common and convertible CRA
shareholders ("shareholders") by the weighted average number of common and
convertible CRA shares outstanding during the period. The convertible CRA shares
are included in both the basic and dilutive calculation of shares because they
are entitled to the same economic benefits as common shareholders, including
receipt of the same dividends per share pari passu with common shareholders.
Diluted income per share is calculated using the weighted average number of
shares outstanding during the period plus the additional dilutive effect of
common stock equivalents. The dilutive effect of outstanding stock options is
calculated using the treasury stock method. Because each convertible CRA share
is convertible into less than one common share, the potential conversion would
be antidilutive.
Pursuant to the Company's Trust Agreement and the management agreement, 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 and other
investments), payable quarterly. After allocation of the special distributions,
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.
Three Months Ended March 31, 2001
---------------------------------
Income Shares Per Share
Numerator Denominator Amount
Net income allocable to shareholders
(Basic EPS) $7,631,470 25,289,651 $ .30
=======
Effect of dilutive securities
297,830 stock options - 60,663
---------- ---------
Diluted net income allocable to share-
holders (Diluted EPS) $7,631,470 25,350,314 $ .30
========= ========== =======
Three Months Ended March 31, 2000
---------------------------------
Income Shares Per Share
Numerator Denominator Amount
Net income allocable to shareholders
(Basic EPS) $5,915,877 20,581,805 $ .29
=======
Effect of dilutive securities -- None
- -
---------- -----------
Diluted net income allocable to share-
holders (Diluted EPS) $5,915,877 20,581,805 $ .29
========= ========== =======
NOTE 6 - 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 7 - 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
re-set weekly, thus 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, upon management's analysis of the interest
rate environment and the costs and risks of such strategies, the Company had not
engaged in any of these hedging strategies.
Subsequent to December 31, 2000, the Company entered into two 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 the quarter ended March 31, 2001 and the year ended
December 31, 2000 was 3.17% and 4.12%, respectively. Net swap payments received
by the Company, if any, will be taxable income to the Company and, accordingly,
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.
The Company adopted statement of Financial Accounting Standards No. 133, as
amended on January 1, 2001. Accordingly, the Company has documented its
established policy for risk management and its objectives and strategies for the
use of derivative instruments to potentially mitigate such risks. Currently, the
Company has a strategy to reduce its interest rate risk through the use of
interest rate swaps. At inception, the Company designated these interest rate
swaps as cash flow hedges on the variable interest payments on its floating rate
financing. Accordingly, the interest rate swaps are 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. The Company assesses, both at the inception
of the hedge and on an ongoing basis whether the swap agreements are highly
effective in offsetting changes in the cash flows of the hedged financing. Any
ineffectiveness in the hedging relationship is recorded in earnings. There was
no ineffectiveness in the hedging relationship during the first quarter of 2001,
and the Company expects that these hedging relationships will be highly
effective in achieving offsetting changes in cash flow throughout their terms.
Net amounts payable or receivable under the swap agreements are recorded as
adjustments to interest expense.
At March 31, 2001, the combined fair market value of the two interest rate swaps
was a liability of $1,366,541, included in interest rate swaps on the
consolidated balance sheet. Interest payable under the terms of the swaps, of
$187,452, is included in interest expense.
NOTE 8 - Subsequent Events
On April 24, 2001, the Company acquired a tax-exempt rehabilitation Revenue
Bond, in the face amount of $4,100,000, secured by a 149-unit affordable
multifamily apartment complex located in Tampa, FL, known as Sherwood Lake
Apartments. The stated interest rate on this Revenue Bond is 8.45% during the
first 18 months and 7.45% thereafter. The bond matures September 1, 2037,
however the obligor may prepay the bond without penalty beginning on November 1,
2017.
On April 26, 2001, the Company acquired a tax-exempt new construction Revenue
Bond and a taxable Revenue Bond in the face amounts of $12,500,000 and
$1,000,000, respectively, secured by a 250-unit affordable multifamily apartment
complex located in Covington, GA., to be known as Magnolia Arbors. These bonds
bear interest at annual rates of 7.50% and 8.95% and mature on April 1, 2043 and
July 1, 2018, respectively. Each bond may be prepaid without penalty beginning
on April 1, 2008.
On May 3, 2001, the Company acquired a tax-exempt new construction Revenue Bond
in the face amount of $10,700,000 secured by a 250-unit affordable multifamily
property in Denton, TX, to be known as Bluffview Senior Housing. The stated
annual interest rate on this Revenue Bond is 8.6% during construction and 7.6%
thereafter. The bond matures May 1, 2041, however, it may be prepaid without
penalty beginning on May 1, 2018.
On May 3, 2001, the Company acquired a tax-exempt new construction Revenue Bond
in the face amount of $13,750,000 secured by a 264-unit affordable multifamily
property in Denton, TX, to be known as Knollwood Villas. This stated annual
interest rate on this Revenue Bond is 8.6% during construction and 7.6%
thereafter. The bond matures May 1, 2041, however, it may be prepaid without
penalty beginning on May 1, 2018.
On May 11, 2001, the Company announced the public offering of 7,900,000 common
shares of beneficial interest at a price of $14.64 per share. Net proceeds of
the offering to the Company will be approximately $109 million. The underwriters
have an option to purchase an additional 1,185,000 shares to cover
over-allotments. If the option is exercised in full, the net proceeds to the
Company would then be approximately $125 million. The proceeds from the offering
will be used to pay down outstanding debt and fund new investments. The offering
is expected to close on May 15, 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
-------
Charter Municipal Mortgage Acceptance Company (the "Company") is a Delaware
business trust principally engaged in the acquisition and ownership (either
directly or indirectly) of tax-exempt multifamily housing revenue bonds
("Revenue Bonds") and other instruments that produce tax-exempt income, issued
by various state or local governments, agencies, or authorities. Revenue Bonds
are secured by participating and non-participating first mortgage loans on
underlying properties ("Underlying Properties").
In order to generate increased tax-exempt income and, as a result, enhance the
value of the Company's shares, the Company intends to invest in or acquire
additional tax-exempt Revenue Bonds secured by affordable multifamily
properties. The Company believes that it can earn above market rates of interest
on its bond acquisitions by focusing its efforts primarily on affordable
housing. The Manager estimates that nearly 50% of all new multifamily
development contains an affordable component which produces tax credits pursuant
to Section 42 of the Internal Revenue Code. The Company's Manager has designed a
Direct Purchase Program specifically designed to appeal to developers of such
properties. In general, these properties are smaller than traditional
multifamily housing properties, averaging 150 units. The traditional method of
financing tax-exempt properties requires the involvement of credit enhancement,
rating agencies and investment bankers. Therefore, the up-front cost of such
financing is generally much higher than traditional multifamily financing.
Through its Direct Purchase Program, the Company will invest in or acquire
tax-exempt bonds without the cost associated with credit enhancement, rating
agencies and investment bankers. The Company believes that the up-front cost
savings to the developer will translate into a higher than market interest rate
on the Revenue Bonds acquired by the Company.
The Company believes that it is well positioned to market its Direct Purchase
Program as a result of the Manager's affiliation with Related Capital Company
("Related"), a nationwide, fully integrated real estate services firm, because
the Manager is able to utilize Related's resources and relationships in the
multifamily affordable housing finance industry to source potential borrowers of
Revenue 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 securitization and equity offerings. To date, the primary source of
long-term liquidity has come from the Company's Private Label Tender Option
Program (TOP) and preferred equity offerings by the Company or a subsidiary, the
issuance of Convertible CRA Shares, and the Merrill Lynch Pierce Fenner & Smith
Incorporated P-FLOATS/RITES program.
The Company intends to continue to use these same sources of capital. 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, which will
allow the Company to offer Common Shares from time to time. On May 11, 2001, the
Company announced the public offering of 7,900,000 common shares of beneficial
interest at a price of $14.64 per share. Net proceeds of the offering to the
Company will be approximately $109 million. The underwriters have an option to
purchase an additional 1,185,000 shares to cover over-allotments. If the option
is exercised in full, the net proceeds to the Company would then be
approximately $125 million. The proceeds from the offering will be used to pay
down outstanding debt and fund new investments. The offering is expected to
close on May 15, 2001.
During the three months ended March 31, 2001 cash and cash equivalents of the
Company and its consolidated subsidiaries decreased approximately $6,357,000.
The decrease was primarily due to cash provided by operating activities ($12.5
million) and proceeds from the repayment of a Revenue Bond and RITE ($13.2
million) less funds used to purchase a Revenue Bond ($11 million), a loan made
to property (.6 million), principal payments of secured borrowings ($8.5
million) and distributions to common, convertible CRA and preferred shareholders
($10.6 million).
In April and May 2001, distributions declared in March 2001 were paid to
preferred shareholders of subsidiary Series A, A-1 and B in the amounts of
$1,490,625 ($33,125 per preferred share), $426,000 ($8,875 per preferred share),
and $1,045,000 ($9,500 per preferred share), respectively. Also paid were
distributions of $6,242,606 ($.275 per share) to holders of common and
convertible CRA shares. All distributions were paid from cash flow from
operations for the quarter ended March 31, 2001.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way.
Acquisitions
------------
During the period January 1, 2001 through May 12, 2001 the Company acquired five
Revenue Bonds for an aggregate purchase price of approximately $53,050,000, not
including bond selection fees and expenses of approximately $1,031,000.
Results of Operations
---------------------
For the three months ended March 31, 2001 as compared to 2000, total revenues,
total expenses and net income increased due to the net result of the acquisition
of 45 Revenue Bonds during 2001 and 2000, and the repayment of four Revenue
Bonds.
Interest income from Revenue Bonds increased approximately $5,000,000 for the
three months ended March 31, 2001 as compared to 2000. This increase was
primarily due to an increase in interest income of $5,391,000 on new Revenue
Bonds acquired during 2000 and 2001, partially offset by a decrease due to
Revenue Bond repayments of $664,000. Also contributing to the increase was
$294,000 which consisted primarily of a one time charge of $413,000 taken in the
first quarter of 2000 with respect to a certain Revenue Bond.
Total revenues for the three months ended March 31, 2001, increased by
approximately $4,771,000, including the increases in interest income from
Revenue Bonds noted above, partially offset by a decrease in interest income
from temporary investments of approximately $243,000, primarily due to lower
cash balances.
Interest expense and recurring fees increased approximately $497,000 for the
three months ended March 31, 2001 as compared to 2000 primarily due to increased
secured borrowings, a higher outstanding balance of the TOP during 2001, and
interest accrued under the terms of the interest rate swaps.
Bond servicing and asset management fees increased approximately $145,000 for
the three months ended March 31, 2001 as compared to 2000 primarily due to new
acquisitions and the corresponding increase in the Revenue Bond portfolio
serviced.
General and administrative expenses increased approximately $294,000 for the
three months ended March 31, 2001 as compared to 2000 primarily due to an
increase in expense reimbursements to the Manager and its affiliates due to the
2001 and 2000 Revenue Bond acquisitions.
Income allocated to preferred shareholders of subsidiary for the three months
ended March 31, 2001 increased approximately $1,471,000, related to the
preferred offerings consummated on June 29, 1999 and July 21, 2000.
Minority interest in income of subsidiary increased approximately $447,000 for
the three months ended March 31, 2001 as compared to 2000 primarily due to a
higher outstanding balance of the TOP in 2001.
Forward-Looking Statements
--------------------------
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, which will, among other
things, affect the availability and creditworthiness of prospective tenants,
lease rents and the terms and availability of financing; adverse changes in the
real estate markets including, among other things, competition with other
companies; risks of real estate development and acquisition; governmental
actions and initiatives; and environment/safety requirements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof.
Inflation
---------
Inflation did not have a material effect on the Company's results for the
periods presented.
Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The nature of the Company's investments and the instruments used to raise
capital for their acquisition expose the Company to gains and losses due to
fluctuations in market interest rates. Market interest rates are highly
sensitive to many factors, including governmental policies, domestic and
international political considerations and other factors beyond the control of
the Company.
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-FLOATS program vary based on
market interest rates based on the Bond Market Association ("BMA") and are
re-set weekly.
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 BMA rate
would result in increased or decreased payments under the financing programs,
without a corresponding change in cash flows from the investments in Revenue
Bonds. For example, based on the unhedged $227 million outstanding under these
financing programs at March 31, 2001, the Company estimates that an increase of
1.0% in the BMA rate would decrease annual net income by approximately
$2,265,000. Conversely, a decrease in market interest rates would generally
benefit the Company in the same amount describe above, as a result of decreased
allocations to the minority interest and interest expense without corresponding
decreases in interest received on the Revenue Bonds.
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 entered into two interest rate swaps in order to hedge
against 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. This effectively fixes $50 million and $100 million of
the Company's secured borrowings at 3.98% and 3.64%, respectively, protecting
the Company in case the BMA Municipal Swap Index rises. For the quarter ended
March 31, 2001, the Company's cost to borrow funds through the TOP and P-FLOATS
programs averaged 3.99% and 4.06%, respectively.
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 the estimated fair values.
For example, the Company projects that a 1% increase in market rates for
tax-exempt investments would decrease the estimated fair value of its portfolio
of Revenue Bonds from its March 31, 2001 value of $841,368,000 to approximately
$746,489,000. A 1% decline in interest rates would increase the value of the
March 31, 2001 portfolio to approximately $965,362,000. 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings -
The Company is not a party to any material pending legal proceedings.
Information Regarding Other Companies Managed by affiliates of our Manager.
-----------------------------------------------------------------------------
On or about February 8, 2001, a complaint was filed in the New York Supreme
Court, County of New York, against the external advisor of Aegis Realty, Inc.
("Aegis"). Aegis is a public company which, like the Company, is externally
advised by affiliates of the Manager. Also named as defendants in the suit were
certain affiliates of Aegis' advisor and Messrs. Boesky, Hirmes, Ross, Brenner,
Allen and Fisch, each of whom is a trustee of the Company. Aegis was also named
as a nominal defendant. The action is entitled Paul v. The Related Companies,
L.P., et al., Index No. 01-600669, and is purportedly a class and derivative
action. On or about March 23, 2001 a second action, entitled Schnipper v. Aegis
Realty, Inc., et al., Case No. 219736-V, was filed in the Circuit Court for
Montgomery County, Maryland against Aegis and each of Aegis' five directors
(Messrs. Boesky, Brenner, Hirmes, Allen and Fisch). Schnipper is purportedly
brought as a class action. On or about April 2, 2001 a third action, entitled
Opportunity Partners, L.P. v. Stuart J. Boesky, et al., Civ. No. 24-C-01-001579,
was filed in the Circuit Court for Baltimore County, Maryland against, among
others, Aegis, each of its five directors, and Aegis' external advisors, which
are affiliates of the Manager. Opportunity Partners is purportedly a class and
derivative action.
Each of these three actions challenges Aegis' proposed acquisition of a property
portfolio and development business owned by a third party, which transaction
also involves the termination by Aegis of its external advisory agreements with
affiliates of the Manager and the purchase by Aegis of various assets owned by
those external advisors. Each suit alleges that the defendants breached their
fiduciary duties to the Aegis stockholders by, among other things, committing
Aegis to pay unwarranted fees and other consideration to affiliates of the
Manager. All three actions seek money damages, injunctive and declaratory relief
and attorneys' fees. The transaction at issue in each suit, however, was
approved by Aegis' independent director (Messrs. Allen and Fisch), who first
obtained legal advice and two fairness opinions from nationally recognized
investment baking firms before approving those transaction. Additionally, the
transaction at issue is subject to Aegis stockholder approval after proxy
materials describing that transaction are disseminated to the Aegis
stockholders. The defendants have advised the Company that they intend to defend
all three actions vigorously. The defendants filed motions to dismiss the
complaint in Paul on or about April 16, 2001. The defendants' times to answer in
Schnipper and Opportunity Partners have not yet expired.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
As set forth in the attached press release dated May 11, 2001.
On May 11, 2001, CharterMac announced the public offering 7,900,000 common
shares of beneficial interest at a price of $14.64 per share. Net proceeds of
the offering to CharterMac will be approximately $109 million. The underwriters,
led by UBS Warburg, also include First Union Securities, Inc. and Legg Mason
Wood Walker Incorporated. The underwriters have an option to purchase an
additional 1,185,000 shares to cover over-allotments. If the option is exercised
in full, the net proceeds to CharterMac would then be approximately $125
million. The proceeds from the offering will be used to pay down outstanding
debt and fund new investments. The offering is expected to close on May 15,
2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99.3 Press release issued May 11, 2001, regarding public offering of
7.900,000 common shares.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during this quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
(Registrant)
Date: May 12, 2001 By: ______________________________
Stuart J. Boesky
Managing Trustee, President and
Chief Executive Officer
Date: May 12, 2001 By: ______________________________
Michael I. Wirth
Chief Financial Officer and Chief
Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
(Registrant)
Date: May 12, 2001 By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Managing Trustee, President
and Chief Executive Officer
Date: May 12, 2001 By: /s/ Michael I. Wirth
--------------------
Michael I. Wirth
Chief Financial Officer and Chief
Accounting Officer