UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934
For the period ended: March 31, 1997 Commission file number: 001-11981
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 52-1449733
(State of organization) (I.R.S. Employer Identification No.)
218 North Charles Street, Suite 500, Baltimore, Maryland 21201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(410)962-8044
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
The Company had 11,092,652 Growth Shares outstanding as of May 13,
1997, the latest practicable date.
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
INDEX TO FORM 10-Q
Part I- FINANCIAL INFORMATION
Item
1. Financial Statements
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II- OTHER INFORMATION
Item
6. Exhibits and Reports on Form 8-K
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) (unaudited)
March 31, December 31,
1997 1996
----------------- -----------------
ASSETS
Cash and cash equivalents $23,738 $34,817
Interest receivable 1,302 1,352
Investment in mortgage revenue bonds and other bond
related investments, net (Note 2) 190,653 183,632
Investment in parity working capital loans, demand
notes and other loans, net (Note 3) 10,721 10,158
Other assets 164 318
----------------- -----------------
TOTAL ASSETS $226,578 $230,277
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $1,040 $1,199
Distributions payable 20 8,095
----------------- -----------------
TOTAL LIABILITIES 1,060 9,294
----------------- -----------------
Commitments and contingencies (Notes 4 and 5) -
Shareholders' equity:
Unrealized gain on mortgage revenue bonds and other
bond related investments available for sale, net (Note 2) 12,423 12,423
Preferred shares:
Series I ( 16,329 shares issued and outstanding) 11,475 11,254
Series II ( 7,637 shares issued and outstanding) 6,209 6,086
Preferred capital distribution shares:
Series I (8,909 shares issued and outstanding) 4,659 4,559
Series II (3,809 shares issued and outstanding) 2,128 2,080
Term growth shares (2,000 shares issued and outstanding) 91 -
Growth shares (11,153,168 shares issued and outstanding
including shares in treasury) 189,463 185,514
----------------- -----------------
226,448 221,916
Less growth shares held in treasury at cost (60,577 shares at
March 31, 1997 and 60,798 at December 31, 1996) (930) (933)
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 225,518 220,983
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $226,578 $230,277
================= =================
The accompanying notes are an integral part of these financial statements.
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share, per share and per BAC data)
(unaudited)
For the three months ended March 31,
-------------------------------------
1997 1996
----------------- -----------------
INCOME:
Interest on mortgage revenue bonds and other
bond related investments $4,019 $3,063
Interest on parity working capital loans, demand notes
and other loans 805 53
Interest on short-term investments 270 74
Equity in MLP II - 879
Other income 250 - -
----------------- -----------------
TOTAL INCOME 5,344 4,069
----------------- -----------------
EXPENSES
Operating expenses 812 842
Minority interest - 5
----------------- -----------------
TOTAL EXPENSES 812 847
----------------- -----------------
NET INCOME $4,532 $3,222
================= =================
NET INCOME DURING 1996 ALLOCATED TO:
General Partners $0 $32
================= =================
Limited Partners:
Series I $0 $2,070
================= =================
Series II $0 $1,120
================= =================
NET INCOME PER BAC:
Series I $0 $10.35
================= =================
Series II $0 $11.63
================= =================
NET INCOME DURING 1997 ALLOCATED TO:
Preferred shares:
Series I $221
=================
Series II $123
=================
Preferred capital distribution shares:
Series I $100
=================
Series II $48
=================
Term growth shares $91
=================
Growth shares $3,949
=================
NET INCOME PER SHARE:
Preferred shares:
Series I $13.55
=================
Series II $16.05
=================
Preferred capital distribution shares:
Series I $11.18
=================
Series II $12.61
=================
Growth shares (11,092,370 weighted average
shares oustanding) $0.36
=================
The accompanying notes are an integral part of these financial statements.
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (unaudited)
For the three months ended March 31,
-------------------------------------
1997 1996
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,532 $3,222
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in MLP II net income - (879)
Income allocated to minority interest - 5
Net amortization of discounts and premiums on bonds 14 -
Reissuance of treasury shares 3 -
(Increase) decrease in interest receivable 50 (57)
Decrease in other assets 181 190
Increase (decrease) in accounts payable and accrued expenses (159) 436
(Decrease) in due to affiliates - (2)
----------------- -----------------
Net cash provided by operating activities 4,621 2,915
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of mortgage revenue bonds and other
bond related invesments (7,055) -
Origination of a loan to the Crossings (563) -
Purchases of furniture and equipment (27) -
Principal payments received 20 -
Distributions from MLP II - 1,068
----------------- -----------------
Net cash provided by (used in) investing activities (7,625) 1,068
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (8,075) (7,971)
----------------- -----------------
NET (DECREASE) IN CASH AND CASH
EQUIVALENTS (11,079) (3,988)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 34,817 9,810
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $23,738 $5,822
================= =================
The accompanying notes are an integral part of these financial statements.
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1997 THROUGH MARCH 31, 1997
(In thousands, except share data) (unaudited)
Preferred
Preferred Shares Capital Distribution
Series I Series II Series I Series II
------------- ------------- ------------- ----------------
Balance, January 1, 1997 $11,254 $6,086 $4,559 $2,080
Net income 221 123 100 48
Reissuance of treasury stock - - - - -
------------- ------------- ------------- ----------------
Balance, March 31, 1997 $11,475 $6,209 $4,659 $2,128
============= ============= ============= ================
SHARE ACTIVITY:
Balance, January 1, 1997 16,329 7,637 8,909 3,809
Reissuance of treasury stock - - - - -
------------- ------------- ------------- ----------------
Balance, March 31, 1997 16,329 7,637 8,909 3,809
============= ============= ============= ================
The accompanying notes are an integral part of these financial statements.
Unrealized Gain on
mortgage revenue
bonds and other
bond related
investments,
Term Growth Growth Treasury available
Shares Shares Shares for sale, net Total
------------- ------------- ------------- ---------------- ------------
Balance, January 1, 1997 $0 $185,514 ($933) $12,423 $220,983
Net income 91 3,949 - - 4,532
Reissuance of treasury stock - - 3 - 3
------------- ------------- ------------- ---------------- ------------
Balance, March 31, 1997 $91 $189,463 ($930) $12,423 $225,518
============= ============= ============= ================ ============
SHARE ACTIVITY:
Balance, January 1, 1997 2,000 11,092,370 60,798
Reissuance of treasury stock - 221 (221)
------------- ------------- -------------
Balance, March 31, 1997 2,000 11,092,591 60,577
============= ============= =============
The accompanying notes are an integral part of these financial statements.
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Municipal Mortgage and Equity, L.L.C. (the "Company") is in the
business of originating, investing in and servicing tax-exempt mortgage
revenue bonds issued by state and local government authorities to finance
multifamily housing developments and secured by nonrecourse mortgage loans
on the underlying properties. The Company, organized in July 1995 as a
limited liability company under Delaware law, is the successor to the business
of the SCA Tax Exempt Fund Limited Partnership (the "Partnership"), which
was merged into the Company effective August 1, 1996 (the "Merger").
Accordingly, the accompanying financial statements represent the financial
position of the Company at March 31, 1997 and December 31, 1996; results
of operations include those of the Partnership for the three months ended
March 31, 1996 and those of the Company for the three months ended March
31, 1997.
The accompanying unaudited financial statements have been prepared
in accordance with the rules and regulations of the Securities and Exchange
Commission and in the opinion of management contain all adjustments
(consisting of only normal recurring accruals) necessary to present a fair
statement of the results for the periods presented. These results have been
determined on the basis of accounting principles and policies discussed in Note
2 to the Financial Statements appearing in the Company's 1996 Annual
Report on Form 10-K (the "Company's 1996 Form 10-K"). Certain
information and footnote disclosures normally included in financial statements
presented in accordance with generally accepted accounting principles have
been condensed or omitted. The accompanying financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's 1996 Form 10-K.
NOTE 2 - INVESTMENT IN MORTGAGE REVENUE BONDS AND
OTHER BOND RELATED INVESTMENTS
The Company invests in various mortgage revenue bonds and other
bond related investments, the proceeds of which are used to make nonrecourse
mortgage loans on multifamily housing developments. The Company's rights
and the specific terms of the bonds are defined by the various loan documents
which were negotiated at the time of settlement. The basic terms and structure
of each bond are described in Note 5 to the Company's 1996 Form 10-K. On
February 14, 1995, the Partnership refunded 11 of the original mortgage
revenue bonds into 11 Series A Bonds and 11 Series B Bonds. As part of the
financing consummated on February 14, 1995 (the "Financing"), custody
receipts in the Series A Bonds were sold to third party investors. A complete
description of the Financing and the bond terms is set forth in Notes 4 and 5
to the Company's 1996 Form 10-K.
As of March 31, 1997, the Company held 31 bonds (12 participating
bonds, five non-participating bonds, 12 participating subordinate bonds and
two non-participating subordinate bonds) and one bond related investment,
which are collateralized by 32 individual properties. The following table
provides certain information with respect to each of the bonds and other bond
related investments.
March 31, 1997 December 31, 1996
--------------------------------- ---------------------------------
Base Face Amortized Unrealized Fair Amortized Unrealized Fair
Investment in Mortgage Interest Maturity Amount Cost Gain (Loss) Value Cost Gain (Loss) Value
Revenue Bonds (Note 2) Rate Date (000s) (000s) (000s) (000s) (000s) (000s) (000s)
- -------------------------- ---------------------------------------------------------------- ---------------------------------
Participating Bonds (1):
Alban Place (2) 7.875 Oct. 2008 $10,065 $10,065 ($773) $9,292 $10,065 ($773) $9,292
Creekside Village (2) 7.500 Nov. 2009 11,760 7,396 120 7,516 7,396 120 7,516
Emerald Hills (2) 7.750 Apr. 2008 6,725 6,725 455 7,180 6,725 455 7,180
Lakeview Garden (2) 7.750 Aug. 2007 9,003 5,674 98 5,772 5,674 98 5,772
Newport-on-Seven (2) 8.125 Aug. 2008 10,125 7,898 618 8,516 7,898 618 8,516
North Pointe (2) 7.875 Aug. 2006 25,185 12,738 1,536 14,274 12,738 1,536 14,274
Northridge Park (2) 7.500 June 2012 8,815 8,815 (2,959) 5,856 8,815 (2,959) 5,856
Riverset (2) 7.875 Nov. 1999 19,000 19,000 560 19,560 19,000 560 19,560
Southfork Village (2) 7.875 Jan. 2009 10,375 10,375 1,337 11,712 10,375 1,337 11,712
Villa Hialeah (2) 7.875 Oct. 2009 10,250 10,250 (2,609) 7,641 10,250 (2,609) 7,641
Willowgreen (2) 8.000 Dec. 2010 9,275 6,770 (13) 6,757 6,770 (13) 6,757
The Crossings (7) 5.500 July 2007 7,055 7,055 - 7,055 - - -
--------------------------------- ---------------------------------
Subtotal participating bonds 112,761 (1,630) 111,131 105,706 (1,630) 104,076
--------------------------------- ---------------------------------
Non-Participating Bonds:
Riverset II (4) 9.500 Oct. 2019 7,610 7,224 826 8,050 7,222 826 8,048
Charter House (4) 7.450 July 2026 7,675 7,752 (38) 7,714 7,752 (38) 7,714
Hidden Valley (4) 8.250 Jan. 2026 1,705 1,705 (46) 1,659 1,705 (46) 1,659
Oakbrook (4) 8.200 July 2026 3,210 3,242 14 3,256 3,242 14 3,256
Torries Chase (4) 8.150 Jan. 2026 2,080 2,080 20 2,100 2,080 20 2,100
--------------------------------- ---------------------------------
Subtotal non-participating bonds 22,003 776 22,779 22,001 776 22,777
--------------------------------- ---------------------------------
Participating Subordinate Bonds (1):
Barkley Place (3) 16.000 Jan. 2030 3,480 2,445 483 2,928 2,445 483 2,928
Gilman Meadows (3) 3.000 Jan. 2030 2,875 2,530 964 3,494 2,530 964 3,494
Hamilton Chase (3) 3.000 Jan. 2030 6,250 4,140 778 4,918 4,140 778 4,918
Mallard Cove I (3) 3.000 Jan. 2030 1,670 798 146 944 798 146 944
Mallard Cove II (3) 3.000 Jan. 2030 3,750 2,429 420 2,849 2,429 420 2,849
Meadows (3) 16.000 Jan. 2030 3,635 3,716 719 4,435 3,716 719 4,435
Montclair (3) 3.000 Jan. 2030 6,840 1,691 2,798 4,489 1,691 2,798 4,489
Newport Village (3) 3.000 Jan. 2030 4,175 2,973 1,901 4,874 2,973 1,901 4,874
Nicollet Ridge (3) 3.000 Jan. 2030 12,415 6,075 573 6,648 6,075 573 6,648
Steeplechase Falls (3) 16.000 Jan. 2030 5,300 5,852 2,361 8,213 5,852 2,361 8,213
Whispering Lake (3) 3.000 Jan. 2030 8,500 4,779 1,182 5,961 4,779 1,182 5,961
Riverset II (4) 10.000 Oct. 2019 1,489 - 913 913 - 913 913
--------------------------------- ---------------------------------
Subtotal participating subordinate bonds 37,428 13,238 50,666 37,428 13,238 50,666
--------------------------------- ---------------------------------
Non-Participating Subordinate Bonds:
Independence Ridge (4) 12.500 Dec. 2015 1,045 1,045 - 1,045 1,045 - 1,045
Locarno (4) 12.500 Dec. 2015 675 675 - 675 675 - 675
--------------------------------- ---------------------------------
Subtotal non-participating subordinate bonds 1,720 - 1,720 1,720 - 1,720
--------------------------------- ---------------------------------
Other Bond Related Investments:
RITES (4) 3,600 4,318 299 4,617 4,354 299 4,653
Interest rate swap (5) 7,200 - (260) (260) - (260) (260)
Purchase commitment (6) 33,900 - - - - - -
--------------------------------- ---------------------------------
Subtotal other bond related investments 4,318 39 4,357 4,354 39 4,393
--------------------------------- ---------------------------------
Total investment in mortgage
revenue bonds and other bond related investments $178,230 $12,423 $190,653 $171,209 $12,423 $183,632
================================= =================================
(1) These bonds also contain additional interest features contingent on available cash flow, except for Barkley Place, Meadows,
and Steeplechase Falls.
(2) One of the original 22 bonds.
(3) Series B Bonds derived from original 22 bonds.
(4) 1996 Acquisitions.
(5) Amount represents notional amount of interest rate swap agreement.
(6) On November 12, 1996, the Company agreed to purchase a bond with a face amount of $33,900,000. For further discussion
see Note 5.
(7) 1997 Acquisition. This bond pays an additional yield maintenance fee of 3.31% until the bond is refunded later this year
at which time the base interest rate will be changed to 8.00%
On January 27, 1997, the Company acquired a $7.1 million tax-exempt
mortgage revenue bond collateralized by a 200-unit multifamily apartment
project known as The Crossings, located in DeKalb County, Georgia. The
bond bears interest at a stated annual rate of 5.5%. The bond is to be refunded
within six months of the acquisition and as a result, the stated annual interest
rate will be changed to 8.0% and the maturity date will be extended to a 30-year
term (2027) with a prepayment option in the twelfth year. Once refunded,
the Company will participate in the growth of the value of the underlying
property collateral through contingent interest payments from the property's
cash flow. These contingent interest payments are taxable income for federal
income tax purposes. In the interim, under the terms of the transaction, the
Company will receive an effective annual interest rate of 8.81% on the bond
as a result of a yield maintenance agreement entered into between the borrower
and the Company. The 3.31% yield maintenance fee earned on the bonds is
taxable income for federal income tax purposes. Additionally, in conjunction
with this bond purchase, the Company made a taxable loan discussed further
in Note 3.
Under the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
("FAS 115"), investments in mortgage revenue bonds and other bond related
investments are classified as available-for-sale debt securities and are carried
at fair value. The fair values of participating bonds, which are wholly
collateral dependent and for which only a limited market exists, are estimated
by the Company. The fair value of non-participating bonds and other bond related
investments are based on values from external pricing sources, such as
brokers, for these or similar bonds. There were no changes in fair value for the
three months ended March 31, 1997 and 1996 on the Company's investments
in mortgage revenue bonds. The Company will continue to use its best efforts
in estimating the fair value of its mortgage revenue bonds and other bond
related investments.
NOTE 3 - INVESTMENT IN PARITY WORKING CAPITAL LOANS, DEMAND
NOTES AND OTHER LOANS
As of March 31, 1997, the Company held ten parity working capital
loans relating to the 11 remaining original mortgage revenue bonds. The terms
of the loans are identical to the mortgage revenue bonds to which they relate.
A complete description is included in Note 6 to the Company's 1996 Form 10-K.
As of March 31, 1997, the Company held ten Working Capital
Demand Notes, eleven Accrued Interest Demand Notes and eleven Load Loan
Demand Notes (collectively the "Demand Notes"). The Demand Notes are
due on demand, but in no case later than January 2030. The Demand Notes
bear interest at a compound annual rate equal to the Blended Annual rate in
effect for that calendar year as published by the Internal Revenue Service. A
complete description is included in Note 6 to the Company's 1996 Form 10-K.
On January 9, 1997, in conjunction with the purchase of the bond
collateralized by The Crossings property, the Company made a loan on the
property not to exceed $844,000 of which approximately $563,000 has been
drawn by the borrower. The loan bears interest at an annual stated rate of
8.81%. The loan is to be amended in conjunction with the bond refunding
which will result in a new stated rate of 8% on the loan.
Interest on the parity working capital loans, Demand Notes and other
loans are taxable to the shareholders for federal income tax purposes.
NOTE 4 - RELATED PARTY TRANSACTIONS
Upon consummation of the Merger, all employees of an affiliate of the
former Managing General Partner of the Partnership who were necessary for
the prudent operations of the Company became employees of the Company,
which now incurs their salary expenses directly. Certain administrative
services, including services performed by shared personnel, continue to be
performed by an affiliate that receives direct reimbursement from the Company
on a monthly basis. The expense associated with the shared personnel was
previously charged to salaries as shown in the following table.
For the three months
ended March 31,
-----------------------
1997 1996
(000's) (000's)
---------- ----------
Charged to Series I:
Salaries of noncontrolling persons &
related expenses $0 $108
Other administrative expenses 0 24
---------- ----------
Expenses reimbursed $0 $132
========== ==========
Charged to Series II:
Salaries of noncontrolling persons &
related expenses $0 $52
Other administrative expenses 0 12
---------- ----------
Expenses reimbursed $0 $64
========== ==========
Charged to Company subsequent to July 31, 1996:
Other administrative expenses $71 $0
========== ==========
Total:
Salaries of noncontrolling persons &
related expenses $0 $160
Other administrative expenses 71 36
---------- ----------
Expenses reimbursed $71 $196
========== ==========
Mr. Mark K. Joseph, the Company's Chairman and Chief Executive
Officer, controls and is an officer of, and Mr. Michael L. Falcone, the
Company's Executive Vice President, has an interest in and is an officer of, an
entity which is responsible for a full range of property management functions
for certain properties that serve as collateral for the Company's bond
investments. For these services the affiliated entity receives property
management fees pursuant to management fee contracts. In addition, certain
former affiliated entities of the Partnership also receive property management
fees pursuant to management fee contracts. Consistent with the Company's
Restated Certificate of Formation and Operating Agreement (the "Operating
Agreement"), each affiliate and former affiliate property management contract
is presented to the independent members of the Board of Directors for
approval with information documenting the comparability of the proposed fees
to those in the market area of the property. During the three months ended
March 31, 1997 and 1996, these fees approximated $162,000 and $253,000,
respectively.
Mr. Joseph controls the general partners of 16 of the 22 Operating
Partnerships whose property collateralizes the Company's original bonds and
Mr. Thomas R. Hobbs, the Company's Senior Vice President, serves as an
officer of such general partners. These operating partnerships were created as
successors to the original borrowers to preserve the loan obligations and the
participation in cash flow for the Company and thereby assure that the
Company will continue to recognize tax-exempt income. However, such
entities could have interests which do not fully coincide with, or even are
adverse to, the interests of the Company. Such entities could choose to act in
accordance with their own interests, which could adversely affect the
Company. Among the actions such entities could desire to take might be
selling a property, thereby causing a redemption event, at a time and under
circumstances which would not be advantageous to the Company.
On September 1, 1996, the eleven operating partnerships included in the
Financing entered into an agreement with the Company whereby the principal
amortization on the Working Capital and Load Loan Demand Notes were
suspended. The managing general partner of these operating partnerships is
an entity controlled by Mr. Joseph. This action did not change the total cash
payments received from the operating partnerships, but did result in additional
interest income of $234,000 for the three months ended March 31, 1997.
Shelter Development Holdings, Inc., the "Special Shareholder", is
personally liable for the obligations and liabilities of the Company. Mr. Joseph
has an ownership interest in the Special Shareholder. In the event that a
business combination or change in control occurs, and the Special Shareholder
does not approve of such transaction, then the Special Shareholder has the
right to terminate its status as the Special Shareholder. In the event of such
termination, the Company would be obligated to pay the Special Shareholder
$1,000,000.
Prior to the Merger, the former Associate General Partner received fees
for mortgage servicing from the operating partnerships owning the original
mortgaged properties. The fees paid by all operating partnerships to the
former Associate General Partner approximated $495,000 for the three
months ended March 31, 1996. On August 1, 1996, the former General
Partners and their affiliates contributed to the Company their mortgage
servicing activities in exchange for Growth Shares, and the Company now
receives the cash flow associated with these fees. Upon receipt of the
mortgage servicing activities, the Company terminated the mortgage servicing
fees paid on bonds collateralized by properties controlled by affiliates of the
Company. As a result, the Company now receives these fees in two forms, (1)
as mortgage servicing fees from the bonds collateralized by properties
controlled by non-affiliates and paid to the former Associate General Partner
which is now substantially owned by the Company, and (2) as additional bond
interest for bonds collateralized by properties controlled by affiliates of the
Company. For the three months ended March 31, 1997, the cash flow
associated with these fees paid to the Company approximated $123,000 in
mortgage servicing fees and $370,000 in additional bond interest.
An affiliate of the former Managing General Partner was previously
engaged as a project acquisition and servicing agent. The affiliate received as
compensation, project selection and acquisition fees (one percent of the gross
proceeds) and annual mortgage servicing fees to the extent the net proceeds
raised by the Financing were permanently invested. On August 1, 1996, the
rights to these fees were exchanged for Growth Shares in connection with the
Merger transaction.
In addition, 177061 Canada Ltd. (formerly Shelter Corporation of Canada
Limited), a general partner of the former Associate General Partner, is
contractually obligated to the nonaffiliated borrowers of North Pointe and
Whispering Lake to fund operating deficits. The unaccrued and unpaid
balances due under the limited operating deficit guarantees, including interest
as of March 31, 1997, totaled $66,000 and $89,000 for North Pointe and
Whispering Lake, respectively. Scheduled payments totaling $21,000 and
$31,000 were received on the North Pointe obligation and recorded as income
for the three months ended March 31, 1997 and 1996, respectively. Under the
Whispering Lake obligation, $30,000 and $44,000 were received and recorded
as income for the three months ended March 31, 1997 and 1996, respectively.
The borrower of the funds to be provided by the $33.9 million mortgage
revenue bond described in Note 5 will be the Shelter Foundation, a public
non-profit foundation that provides housing and related services to families
of low and moderate income. Mr. Joseph is the President and one of five
directors of the Shelter Foundation. In addition, companies of which
Mr. Joseph owns an indirect minority interest and Mr. Falcone owns a direct
minority interest, will receive a consulting fee of 1.0% of the loan amount
and will serve as property manager of the related apartment project for a
fee of $13,750 per month.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
On November 12, 1996, the Company committed to purchase a
$33,900,000 mortgage revenue bond to be issued by the DeKalb County
Housing Authority for a 722-unit multifamily apartment project known as the
Village of Stone Mountain located in suburban Atlanta, Georgia. The bonds
will provide for annual interest payments of 8.75% (of which 8% will be
required to be paid on a current basis, with the remaining .75% payable from
available net cash flow) plus contingent interest equal to the lesser of
(i) 7.25% or (ii) one-third of the property's net cash flow. Pending the
issuance of the bond, which is anticipated to occur in late 1997 or early
1998, the Company on December 17, 1996 guaranteed bridge financing provided
by NationsBank for a fee of 1.0% of the loan amount and an annual guarantee
fee of 1.0% until bond issuance.
The Company's exposure (in the event of the borrower's non-performance)
for the guarantee of the bridge financing is equal to the contractual amount of
the purchase commitment. The Company does not believe that any loss is
likely.
NOTE 6 - SUBSEQUENT EVENTS
On April 15, 1997, a distribution of 34.5 cents for the three months ended
March 31, 1997 was declared for Growth Shareholders of record on April 28,
1997 and was paid on May 9, 1997. In accordance with the Company's
Operating Agreement, Preferred Shares and Preferred CD shares are paid
distributions semiannually. As a result, no distributions were declared for
Preferred Shares or Preferred CD Shares for the three months ended March
31, 1997.
On April 24, 1997, options to purchase 641,970 Growth Shares were
issued under the 1996 Share Incentive Plan. The options were issued at an
exercise price of $16 7/8, the fair value of the Growth Shares on the date of
grant and the options vest over five years. On the same day, 10,769 restricted
shares were also issued under the 1996 Share Incentive Plan.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General Business
Municipal Mortgage and Equity, L.L.C. (the "Company") is in the business
of originating, investing in and servicing tax-exempt mortgage revenue bonds
issued by state and local government authorities to finance multifamily housing
developments. The Company is a limited liability company that, as a result of
a merger effective August 1, 1996 (the "Merger"), is the successor to the
business of SCA Tax Exempt Fund Limited Partnership (the "Partnership").
Accordingly, the financial statements included herein present the financial
position of the Company at March 31, 1997 and December 31, 1996; results
of operations include the operations of the Company for the three months
ended March 31, 1997 and those of the Partnership for the three months
ended March 31, 1996.
The Partnership was a closed-end limited partnership whose assets, until
1995, consisted principally of 22 mortgage revenue bonds and related working
capital loans acquired with the $296 million proceeds from two 1986 offerings
of Beneficial Assignee Certificates ("BACs") representing the assignment of
its limited partnership interests. In 1995, the Partnership, in a financing
transaction (the "Financing") described more fully in Note 4 to the Company's
1996 Annual Report on Form 10-K (the "Company's 1996 Form 10-K"),
raised $67.7 million of Financing proceeds of which $5.0 million was invested
in demand notes and the remaining proceeds, after expenses and working
capital reserves, of $56.8 million are being used for further investment in
mortgage revenue bonds.
As a result of elections made by the Partnership's BAC holders in
connection with the Merger, the outstanding BACs were exchanged for either
Preferred Shares, Preferred Capital Distribution Shares ("Preferred CD
Shares"), or Growth Shares (including a limited number of Term Growth
Shares) of the Company. As more fully explained in Note 8 to the Company's
1996 Form 10-K, all of these shares participate, to varying degrees, in the
investment results of the bonds and related loans held by the Partnership at the
time of the Merger, and the Growth Shares alone participate in the investment
results of the bonds and other bond related investments purchased with the
proceeds from the Financing and any future financings.
The Company is required to distribute to the holders of Preferred Shares
and Preferred CD Shares cash flow attributable to such shares, as defined in
the Company's Amended and Restated Certificate of Formation and Operating
Agreement, (the "Operating Agreement"). The Company is required to
distribute 2.0% of the net cash flow to the holders of Term Growth Shares.
The balance of the Company's net income is allocated to the Growth Shares
and the Company's policy is to distribute to Growth Shareholders a portion,
not less than 80%, of the cash flow associated with this income.
Certain of the bonds held by the Company are participating bonds that
provide for payment of contingent interest, based upon the performance of the
underlying properties, in addition to base interest at a fixed rate. Because
the mortgage loans underlying all of the bonds held by the Company are
nonrecourse, all debt service on the bonds, and therefore cash flow available
for distribution to all shareholders, is dependent upon the performance of the
underlying properties.
Results of Operations
Three Months Ended March 31, 1997 Compared with Three Months Ended
March 31, 1996
Total income for the three months ended March 31, 1997 increased by
approximately $1,275,000 over the same period last year due primarily to (1)
an increase in cash generated by property operations which led to an increase
in debt service paid of approximately $323,000, (2) the contribution of
mortgage servicing activities by the former General Partners of the Partnership
which served to increase interest received from the properties collateralizing
the bonds by approximately $366,000, (3) $315,000 of interest received on
new investments; and (4) an increase in interest collected from the properties
of approximately $234,000 due to the suspension of principal payments on the
demand notes.
Operating expenses for the three months ended March 31, 1997
decreased by approximately $30,000 from the prior year due to a decrease in
merger-related expenses of approximately $274,000 offset by an increase in
costs associated with the administration of a public company and the
Company's expansion.
Liquidity and Capital Resources
At March 31, 1997, the Company had cash and cash equivalents of
approximately $23.7 million available for investment.
The Company (including the predecessor Partnership) has financed its
operations with the proceeds from the Partnership's 1986 BAC offerings, the
proceeds from the Financing and cash provided by debt service and fees
relating to the bonds and related loans and notes acquired with such proceeds.
Cash flow from operating activities was $4.6 million and $2.9 million for the
three months ended March 31, 1997 and 1996, respectively. The increase for
the three months ended March 31, 1997 over the same period in 1996 was due
primarily to the fact that in the first quarter of 1996 the income from the
temporary investment of the Financing proceeds, as well as the debt service on
certain notes both of which were held by MLP II Acquisition Limited
Partnership (a limited partnership, which was accounted for under the equity
method), were classified as cash flow from investing activities. Had they been
classified as cash flow from operating activities during this period, cash flow
from operating activities would have been $4.0 million during the three
months ended March 31, 1996.
On April 15, 1997, a distribution of 34.5 cents for the three months ended
March 31, 1997 was declared for holders of Growth Shares. For the same
period, $92,020 in distributions were declared for Term Growth Shareholders.
Both distributions were for holders of record on April 28, 1997 and were paid
on May 9, 1997. In accordance with the Company's Operating Agreement,
Preferred Shares and Preferred CD shares are paid distributions semiannually.
As a result, no distributions were declared for Preferred Shares or Preferred
CD Shares for the three months ended March 31, 1997.
The Company expects to meet its cash needs in the short-term from
operating cash flow. In addition, the Company's business plan anticipates
making additional investments of approximately $75 million to $100 million of
additional mortgage revenue bonds during 1997 (assuming the purchase of a
$33.9 million bond for which a commitment has been made ). In order to
achieve its plan, the Company will be required to obtain additional debt,
securitization or equity financing of approximately $50 million to $75 million
during 1997. The Company currently has no commitments or understandings
with respect to such financings, and there can be no assurance that any such
financings will be available when needed.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
The Registrant filed no reports on Form 8-K for the period
covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
(Registrant)
By: /s/ Mark K. Joseph
Mark K. Joseph
Chief Executive Officer and Chief Financial Officer
DATED: May 15, 1997