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 June 30, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
Commission File Number 0-23972
AMERICAN MORTGAGE ACCEPTANCE COMPANY
------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 13-6972380
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- ---------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).Yes X No
--- ---
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
============ ============
June 30, December 31,
2003 2002
------------ ------------
(Unaudited)
ASSETS
Investments in debt securities - available for sale $ 157,688 $ 114,034
Investments in mortgage loans, net 15,581 22,384
Investment in ARCap 20,240 20,240
Real estate owned - held for sale 7,844 --
Cash and cash equivalents 3,406 10,404
Restricted cash 8,282 --
Notes receivable 43,401 25,997
Accrued interest receivable 1,617 1,170
Other assets 834 834
------------ ------------
Total assets $ 258,893 $ 195,063
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Repurchase facility payable $ 105,717 $ 87,880
Warehouse facility payable 17,660 8,788
Interest rate derivatives 1,234 --
Accrued interest payable 292 60
Accounts payable and accrued expenses 459 762
Due to Advisor and affiliates 655 690
Distributions payable 3,335 2,545
------------ ------------
Total liabilities 129,352 100,725
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common shares of beneficial interest; $.10 par value;
25,000,000 shares authorized; 8,713,376 issued and
8,338,180 outstanding in 2003 and 6,738,826 issued
and 6,363,630 outstanding in 2002, respectively 871 674
Treasury shares of beneficial interest; 375,196 shares (38) (38)
Additional paid-in capital 126,746 99,470
Distributions in excess of net income (14,587) (14,471)
Accumulated other comprehensive income 16,549 8,703
------------ ------------
Total shareholders' equity 129,541 94,338
------------ ------------
Total liabilities and shareholders' equity $ 258,893 $ 195,063
============ ============
See accompanying notes to consolidated financial statements
-2-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in the thousands except per share amounts)
(Unaudited)
========================= ==========================
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
2003 2002 2003 2002
------------------------- --------------------------
Revenues:
Interest income:
Debt securities $ 1,980 $ 1,370 $ 3,852 $ 2,454
Mortgage loans 356 609 1,763 1,010
Notes receivable 878 627 1,796 1,114
Temporary investments 7 13 15 24
Other income 82 76 110 136
----------- ----------- ----------- -----------
Total revenues 3,303 2,695 7,536 4,738
----------- ----------- ----------- -----------
Expenses:
Interest 643 307 1,050 579
General and administrative 182 164 425 284
Fees to advisor 456 371 899 728
Amortization and other 49 -- 206 6
Fannie Mae loan program -- 3 -- 358
----------- ----------- ----------- -----------
Total expenses 1,330 845 2,580 1,955
----------- ----------- ----------- -----------
Other gain:
Equity in earnings of ARCap 600 608 1,200 1,200
Net gain (loss) on repayments and sales
of debt securities -- -- (391) 614
----------- ----------- ----------- -----------
Total other gain 600 608 809 1,814
----------- ----------- ----------- -----------
Net income $ 2,573 $ 2,458 $ 5,765 $ 4,597
=========== =========== =========== ===========
Net income per share
Basic and diluted $ .32 $ .39 $ .79 $ .81
=========== =========== =========== ===========
Weighted average shares outstanding
Basic 8,144,259 6,363,630 7,258,863 5,666,116
=========== =========== =========== ===========
Diluted 8,158,524 6,363,630 7,273,128 5,666,116
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
-3-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
(Dollars in thousands)
(Unaudited)
Shares of Beneficial Treasury Shares of
Interest Beneficial Interest
--------------------- -------------------
Shares Amount Shares Amount
--------- --------- -------- ---------
Balance at January 1, 2003 6,738,826 $ 674 (375,196) $ (38)
Comprehensive income:
Net income -- -- -- --
Other comprehensive income:
Net unrealized loss on interest
rate derivatives
Unrealized holding gain arising
during the period
Less: reclassification adjustment for
loss included in net income
Total other comprehensive income
Comprehensive income
Common shares issue 1,974,550 197
Distributions -- -- -- --
--------- --------- -------- --------
Balance at June 30, 2003 8,713,376 $ 871 (375,196) $ (38)
========= ========= ======== ========
Accumulated
Additional Distributions Other
Paid-in in Excess Comprehensive Comprehensive
Capital of Net Income Income Income Total
---------- ------------- ------------- ------------- ----------
Balance at January 1, 2003 $ 99,470 $ (14,471) $ 8,703 $ 94,338
Comprehensive income:
Net income -- 5,765 $ 5,765 -- 5,765
----------
Other comprehensive income:
Net unrealized loss on interest
rate derivatives (1,234)
Unrealized holding gain arising
during the period 8,689
Less: reclassification adjustment
for loss included in net income 391
----------
Total other comprehensive income 7,846 7,846 7,846
----------
Comprehensive income $ 13,611
==========
Common shares issue 27,276 27,473
Distributions -- (5,881) -- (5,881)
---------- ----------- ----------- ----------
Balance at June 30, 2003 $ 126,746 $ (14,587) $ 16,549 $ 129,541
========== =========== =========== ==========
See accompanying notes to consolidated financial statements.
-4-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
=========================
Six Months Ended
June 30,
-------------------------
2003 2002
----------- -----------
Cash flows from operating activities:
Net income $ 5,765 $ 4,597
Adjustments to reconcile net income to net cash
provided by operating activities:
Net (gain) loss on repayments of debt securities 391 (614)
Equity in earnings of ARCap, in excess of
distributions received -- 5
Amortization - deferred financing costs -- 6
Amortization - loan premium and
origination costs and fees (224) (61)
Accretion of discount on debt securities 107 6
Changes in operating assets and liabilities:
Accrued interest receivable (448) (301)
Other assets (146) 467
Due to Advisor and affiliates (35) 133
Accounts payable and accrued expenses (304) (842)
Accrued interest payable 232 22
----------- ----------
Net cash provided by operating activities 5,338 3,418
----------- ----------
Cash flows from investing activities:
Increase in investment in mortgage loans (10,356) (2,224)
Repayments of mortgage loans 9,464 23
Funding of notes receivable (21,461) (8,244)
Repayment of notes receivable 4,057 --
Principal repayments on debt securities 8,232 197
Increase in investment in debt securities (43,304) (28,113)
Increase in restricted cash (8,282) --
Other 76 --
----------- ----------
Net cash used in investing activities (61,574) (38,361)
----------- ----------
continued
-5-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
========================
Six Months Ended
June 30,
------------------------
2003 2002
----------- ----------
Cash flows from financing activities:
Proceeds from repurchase facility payable 54,913 17,841
Proceeds from warehouse facility payable 8,872 --
Repayments of repurchase facility payable (37,076) --
Distribution paid to shareholders (5,881) (3,699)
Increase in deferred loan costs 147 --
Increase from distribution payable 790 --
Issuance of common shares 27,473 30,899
----------- ----------
Net cash provided by financing activities 49,238 45,041
----------- ----------
Net (decrease) increase in cash and cash
equivalents (6,998) 10,098
Cash and cash equivalents at the beginning
of the period 10,404 1,018
----------- ----------
Cash and cash equivalents at the end of the
period $ 3,406 $ 11,116
=========== ==========
Supplemental information:
Interest paid $ 1,029 $ 557
=========== ==========
Conversion of mortgage loans to real
estate owned:
Increase in real estate owned $ 7,920,000
Decrease in mortgage loans (7,920,000)
-----------
$ --
-----------
See accompanying notes to consolidated financial statements
-6-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
Note 1 - General
American Mortgage Acceptance Company (the "Company") was formed on June 11, 1991
as a Massachusetts business trust. The Company elected to be treated as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Code").
The Company's business plan focuses on originating and acquiring mortgages
secured by multi-family properties, which may take the form of government
insured first mortgages and uninsured mezzanine loans, construction loans and
bridge loans. Additionally, the Company has indirectly invested in subordinate
commercial mortgage-backed securities and may invest in other real estate
assets, including non-multi-family mortgages. The Company also issues guarantees
of construction and permanent financing and makes standby loan commitments.
The Company is governed by a board of trustees comprised of three independent
trustees and two non-independent trustees who are affiliated with Related
Capital Company ("Related"). The Company has engaged Related AMI Associates,
Inc. (the "Advisor"), an affiliate of Related, to manage its day-to-day affairs.
The Advisor has subcontracted with Related to provide the services contemplated.
Through the Advisor, 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, tax, capital markets, asset monitoring,
portfolio management, investor relations and public relations. 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.
The consolidated financial statements include the accounts of the Company and
three wholly-owned subsidiaries which it controls: AMAC Repo Seller, LLC,
AMAC/FM Corporation and AMAC Credit Facility, LLC. All intercompany accounts and
transactions have been eliminated in consolidation. Unless otherwise indicated,
the "Company" as hereinafter used, refers to American Mortgage Acceptance
Company and its subsidiaries.
The consolidated financial statements of the Company have been prepared without
audit. In the opinion of management, the financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of the Company as of June 30, 2003 and the
results of its operations and its cash flows for the three and six months ended
June 30, 2003 and 2002. 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, 2002.
The preparation of the consolidated financial statements in conformity with GAAP
requires the Advisor to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
-7-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections".
SFAS No. 145 among other things, rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", and accordingly, the reporting of gains and
losses from the early extinguishments of debt as extraordinary items will only
be required if they meet the specific criteria for extraordinary items included
in Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations". The rescission of SFAS No. 4 became effective January 1, 2003. The
implementation of this statement did not have a material impact on the Company's
consolidated financial statements.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 replaces current
accounting literature and requires the recognition of costs associated with exit
or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 became effective January 1,
2003. The implementation of this statement did not have a material effect on the
Company's consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantors' Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others". The Interpretation elaborates on the disclosures to be
made by a guarantor in its financial statements about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. This Interpretation
does not prescribe a specific approach for subsequently measuring the
guarantor's recognized liability over the term of the related guarantee. The
disclosure provisions of this Interpretation are included in Note 12. The
initial recognition and initial measurement provisions of this Interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The Company currently receives a fee, in advance, for acting
as a guarantor of certain construction loans. This fee is deferred and amortized
over the guarantee period. The Company believes that the fee received
approximates the fair value of the obligation undertaken in issuing the
guarantee; therefore, the Company's current accounting for these guarantees will
not be affected by this Interpretation.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123". This statement amends SFAS NO. 123, "Accounting for Stock-Based
Compensation" to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. Because the Company currently accounts for its share options using
the fair value method, implementation of this statement did not have an impact
on the Company's consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This Interpretation clarifies the
application of existing accounting pronouncements to certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties.
The provisions of FIN 46 became effective immediately for all variable interests
in variable interest entities created after January 31, 2003, and the Company
will need to apply its provisions to any existing variable interests in variable
interest entities beginning July 1, 2003. The Company believes it has no
variable interests in variable interest entities requiring consolidation.
-8-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS 149 amends and clarifies
the accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 149 is
generally effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. The adoption of
SFAS No. 149 on July 1, 2003, as required, had no impact on the Company's
consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments and Characteristics of Both Liabilities and Equity". SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that certain financial instruments be classified as liabilities
that were previously considered equity. The adoption of this standard on July 1,
2003, as required, had no impact on the Company's consolidated financial
statements.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
-9-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
Note 2 - Investments in Mortgage Loans
Information relating to the Company's investments in mortgage loans as of June
30, 2003 is as follows:
(Dollars in thousands)
Final
Maturity Lifetime
Property Description Date Call Date(A) Interest Rate Interest Cap(C)
- -------- ----------- -------- ------------ -------------- ---------------
First Mortgage Loans:
Stony Brook II
East Haven, CT 125 Units 6/37 12/06 7.625% N/A
Sunset Gardens
Eagle Pass, TX 60 Units 9/03 N/A 11.50% N/A
Alexandrine
Detroit, MI 30 Units 12/03 N/A 11.00% N/A
Desert View (P)
Coolidge, AZ 45 Units 5/04 N/A 11.00% N/A
Subtotal First Mortgage Loans
Mezzanine Loans (H):
Stabilized Properties
- ---------------------
Stony Brook II
East Haven, CT 125 Units 6/37 12/06 15.33%(B) 16%
Plaza at San Jacinto (I)
Houston, TX 132 Units 1/43 6/11 11.40%(B) 16%
Subtotal Stabilized Mezzanine Loans
Properties in Lease-Up
- ----------------------
The Hollows (J)
Greenville, NC 184 Units 1/42 1/12 10.00%(B) 16%
Elmhurst Village (K)(L)
Oveido, FL 313 Units 1/42 3/19 10.00%(B) 16%
The Reserve at Autumn Creek (K)(L)(O)
Friendswood, TX 212 Units 1/42 9/14 10.00%(B) 16%
Club at Brazos (M)(J)
Rosenberg, TX 200 Units 5/43 4/13 10.00%(B) 14%
Subtotal Properties in Lease-Up
Properties in Construction/Rehabilitation
- -----------------------------------------
Northbrooke (K)(L)
Harris County, TX 240 Units 8/43 TBD 11.50%(B) 14%
Del Mar Villas
Dallas, TX 260 Units 4/04 N/A LIBOR + 4.625% (N)
Mountain Valley
Dallas, TX 312 Units 11/04 N/A LIBOR + 4.750% (N)
Villas at Highpoint
Lewisville, TX 304 Units 4/33 3/15 14.57% N/A
Subtotal Properties in Construction/Rehabilitation
Subtotal Mezzanine Loans
Total Mortgage Loans
Share of
Share of Excess Sale or
Excess Operating Refinancing Periodic
Property Cash Flows Proceeds Payment Terms Prior Liens
- -------- ---------------- -------------- ------------- -----------
First Mortgage Loans:
Stony Brook II
East Haven, CT N/A N/A (F) --
Sunset Gardens
Eagle Pass, TX N/A N/A (G) --
Alexandrine
Detroit, MI N/A N/A (G) --
Desert View (P)
Coolidge, AZ N/A N/A (G) --
Subtotal First Mortgage Loans
Mezzanine Loans (H):
Stabilized Properties
- ---------------------
Stony Brook II
East Haven, CT 40% 35% (F) --
Plaza at San Jacinto (I)
Houston, TX 50% 50% (G) --
Subtotal Stabilized Mezzanine Loans
Properties in Lease-Up
- ----------------------
The Hollows (J)
Greenville, NC 50% 25% (G) 8,898
Elmhurst Village (K)(L)
Oveido, FL 50% 25% (G) 21,636
The Reserve at Autumn Creek (K)(L)(O)
Friendswood, TX 50% 25% (G) 15,993
Club at Brazos (M)(J)
Rosenberg, TX 50% 25% (G) 14,378
Subtotal Properties in Lease-Up
Properties in Construction/
Rehabilitation
- ---------------------------
Northbrooke (K)(L)
Harris County, TX 50% 50% (G) 13,268
Del Mar Villas
Dallas, TX N/A N/A (G) 5,554
Mountain Valley
Dallas, TX N/A N/A (G) 5,785
Villas at Highpoint
Lewisville, TX N/A N/A (G) 18,800
Subtotal Properties in Construction/Rehabilitation
Subtotal Mezzanine Loans
Total Mortgage Loans
Interest
Earned Applicable
Outstanding Carrying to the Three
Fee Amount of Unamortized Amount of Months Ended
Property Mortgages(D) Costs and Fees Mortgages(E) June 30, 2003
- -------- ------------- -------------- ------------ -----------------
First Mortgage Loans:
Stony Brook II
East Haven, CT $ -- -- -- $ 497
Sunset Gardens
Eagle Pass, TX 1,479 (4) 1,475 92
Alexandrine
Detroit, MI 342 -- 342 19
Desert View (P)
Coolidge, AZ 960 -- 960 14
--------------------------------------------------------------------
Subtotal First Mortgage Loans 2,781 (4) 2,777 622
--------------------------------------------------------------------
Mezzanine Loans (H):
Stabilized Properties
- ---------------------
Stony Brook II
East Haven, CT -- -- -- 527
Plaza at San Jacinto (I)
Houston, TX -- -- -- 39
--------------------------------------------------------------------
Subtotal Stabilized Mezzanine Loans -- -- -- 566
--------------------------------------------------------------------
Properties in Lease-Up
- ----------------------
The Hollows (J)
Greenville, NC 1,549 (142) 1,407 86
Elmhurst Village (K)(L)
Oveido, FL 2,874 (405) 2,469 159
The Reserve at Autumn Creek (K)(L)(O)
Friendswood, TX 1,197 (57) 1,930 34
Club at Brazos (M)(J)
Rosenberg, TX 1,962 (76) 1,886 99
--------------------------------------------------------------------
Subtotal Properties in Lease-Up 8,372 (680) 7,692 378
--------------------------------------------------------------------
Properties in Construction/
Rehabilitation
- ---------------------------
Northbrooke (K)(L)
Harris County, TX 1,500 (136) 1,364 88
Del Mar Villas
Dallas, TX 765 -- 765 23
Mountain Valley
Dallas, TX 776 -- 776 24
Villas at Highpoint
Lewisville, TX 2,394 (187) 2,207 62
--------------------------------------------------------------------
Subtotal Properties in Construction/Rehabilitation 5,435 (323) 5,112 197
--------------------------------------------------------------------
Subtotal Mezzanine Loans 13,807 (1,003) 12,804 1,141
--------------------------------------------------------------------
Total Mortgage Loans $ 16,588 $(1,007) $15,581 $ 1,763
====================================================================
-10-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
(A) Loans are subject to mandatory prepayment at the option of the Company
ten years after construction completion, with one year's notice. Loans
with a call date of "TBD" are still under construction.
(B) Interest on the mezzanine loans is based on a fixed percentage of the
unpaid principal balance of the related first mortgage loan (prior
liens). The amount shown is the approximate effective rate earned on
the balance of the mezzanine loan. The mezzanine loans also provide
for payments of additional interest based on a percentage of cash flow
remaining after debt service and participation in sale or refinancing
proceeds and certain provisions that cap the Company's total yield,
including additional interest and participations, over the term of the
loan.
(C) Lifetime interest cap represents the maximum annual return, including
interest, fees and participations, that can be earned by the Company
over the life of the mezzanine loan, computed as a percentage of the
balance of the first mortgage loan plus the mezzanine loan.
(D) No principal amounts of mortgage loans are subject to delinquent
interest as of June 30, 2003, except for Reserve at Autumn Creek - See
(O).
(E) Carrying amounts of the loans are net of unamortized origination costs
and fees and loan discounts.
(F) The Stonybrook II first mortgage loan and mezzanine loan were repaid
in January 2003 - see Note 5. Of the $10 million received,
approximately $8.3 million is being held as restricted cash for
collateral in the Fannie Mae DUS program.
(G) Interest only payments are due monthly, with loan balance due at
maturity.
(H) The principal balance of the mezzanine loans is secured by the
partnership interests of the entity that owns the underlying property
and a third mortgage deed of trust. Interest payments on the mezzanine
loans are secured by a second mortgage deed of trust and are
guaranteed for the first 36 months after construction completion by an
entity related to the general partner of the entity that owns the
underlying property.
(I) The Plaza at San Jacinto mezzanine loan has been reclassified to real
estate owned -- see Note 6.
(J) The Company does not have an interest in the first lien position
relating to this mezzanine loan.
(K) The Company has an interest in the first lien position relating to
this mezzanine loan.
(L) The first mortgage loans related to those properties were converted
from participations in FHA loans to ownership of the GNMA certificates
and are held by the Company.
(M) The funding of this mezzanine loan is based on property level
operational achievements.
(N) Interest cap on these loans is the maximum rate permitted by law.
(O) Certain required debt service payments have been missed, causing this
mezzanine loan to be in default. The Company has stopped accruing
income on the mezzanine loan and is in the process of taking the steps
necessary to protect its investment. The Company has obtained an
independent appraisal for the property underlying the mezzanine loan.
The appraisal determined that the value of the property exceeded the
value of the first mortgage outstanding on the property, not owned by
the Company, and the Company's mezzanine loan outstanding. As such,
-11-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
the Company believes that no reserve for impairment is necessary at
this time.
(P) Loan purchased in April 2003 in connection with a guarantee by the
Company (see Note 12).
-12-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
Note 3 - Investments in Debt Securities - Available for Sale
Information relating to debt securities owned by the Company as of June 30, 2003
is as follows:
(Dollars in thousands)
Date
Purchase/
Final Stated Amortized Unrealized Interest Income
Certificate Payment Interest Cost as Gain (Loss) at Balance at End Applicable
Name Number Due Rate June 30, 2003 June 30, 2003 June 30, 2003 to the Period
- ---- ----------- ---------- -------- ------------- -------------- ------------- ---------------
GNMA Certificates
- -----------------
Western Manor (1) 355540 7/27/94 7.125% $ 2,465 $ 29 $ 2,494 $ 97
3/15/29
Copper Commons (3) 382486 7/28/94 8.500% -- -- -- 17
8/15/29
SunCoast Capital Group, Ltd. (1) G002412 6/23/97 7.000% 361 21 382 16
4/20/27
Elmhurst Village (1) 549391 6/28/01 7.745% 21,636 5,078 26,714 839
1/1/42
Reserve at Autumn Creek (1) 448748 6/28/01 7.745% 15,993 3,753 19,746 620
1/1/42
Casitas at Montecito (2) 519289 3/11/02 7.300% -- -- -- 70
10/15/42
Village at Marshfield (1) 519281 3/11/02 7.475% 21,433 2,648 24,081 721
1/15/42
Cantera Crossing (1) 532662 3/28/02 6.500% 6,018 1,017 7,035 192
6/1/29
Filmore Park (1) 536739 3/28/02 6.700% 1,235 195 1,430 41
10/15/42
Northbrooke (1) 548972 5/24/02 7.080% 13,416 2,522 15,938 430
8/1/43
Ellington Plaza (1) 585494 7/26/02 6.835% 16,923 2,973 19,896 437
6/1/44
Burlington 595515 11/1/02 5.900% 6,862 319 7,181 199
4/15/31
FNMA DUS Certificates
- ---------------------
Cambridge 385971 4/11/03 5.560% 3,688 (21) 3,667 44
3/1/33
Bayforest 381974 4/21/03 7.430% 4,337 (7) 4,330 50
10/1/28
Coventry Place 384920 5/9/03 6.480% 795 (6) 789 6
3/1/32
Rancho de Cieto 385229 5/13/03 6.330% 2,629 (69) 2,560 17
9/1/17
Elmwood Gardens 386113 5/15/03 5.350% 5,579 (29) 5,550 37
5/1/33
30 West 380751 5/27/03 6.080% 1,378 (63) 1,315 6
10/1/16
-13-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
(continued)
Date
Purchase/
Final Stated Amortized Unrealized Interest Income
Certificate Payment Interest Cost as Gain (Loss) at Balance at End Applicable
Name Number Due Rate June 30, 2003 June 30, 2003 June 30, 2003 to the Period
- ---- ----------- ---------- -------- ------------- -------------- ------------- ---------------
Jackson Park 386139 5/30/03 5.150% 2,794 (40) 2,754 12
6/1/18
Courtwood 386274 6/26/03 4.690% 1,777 (137) 1,640 1
6/1/33
Sultana 386259 6/30/03 4.650% 4,132 (259) 3,873 --
6/1/23
Buena 386273 6/30/03 4.825% 3,075 (75) 3,000 --
6/1/33
Allegro 386324 6/30/03 5.380% 2,587 (20) 2,567 --
7/1/33
Village West 386243 6/30/03 4.910% 792 (46) 746 --
6/1/21
-------------------------------------------------------------------
Total $ 139,905 $17,783 $157,688 $3,852
===================================================================
(1) These GNMA and FNMA DUS certificates are partially or wholly-pledged
as collateral for borrowings under the repurchase facility.
(2) This GNMA certificate was repaid in March 2003 at par. As a result of
the repayment, the Company realized a loss of approximately $391,000
due to the unamortized balance of the premium that was recorded when
the GNMA certificate had been purchased.
(3) This GNMA certificate was repaid in April 2003 at par.
-14-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
The amortized cost, unrealized gain and fair value for the investment in debt
securities at June 30, 2003 and December 31, 2002 were as follows:
(Dollars in thousands)
June 30, December 31,
2003 2002
------------- -------------
Amortized cost $ 139,905 $ 105,331
Net unrealized gain 17,783 8,703
------------- -------------
Fair Value $ 157,688 $ 114,034
============= =============
As of June 30, 2003, there were gross unrealized gains and losses of $18,554,513
and $771,256, respectively. As of December 31, 2002, there were gross unrealized
gains and losses of $8,730,076 and $27,147, respectively.
-15-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
(continued)
NOTE 4 - Notes Receivable
The Company's notes receivable are collateralized by equity interests in the
owner of the related property and consist of the following as of June 30, 2003:
(Dollars in thousands)
Remaining
Outstanding Unamortized Committed
Principal Costs Carrying Balance to Interest
Property Location Balance and Fees Amount Fund (1) Rate Maturity
- ------------------------------------------------------------------------------------------------------------------------------------
Parwood (3) Long Beach, CA $ 2,683 $ 14 $ 2,669 $ 567 11.00% January 2004
Concord at Little York(6) Houston, TX 3,500 13 3,487 -- 12.00% February 2004
Concord at Gulfgate (6) Houston, TX 3,500 30 3,470 -- 12.00% May 2004
Reserve at Fox River(8) Yorkville, IL 1,350 -- 1,350 -- 12.00% May 2003
Noble Towers (3)(7) Oakland, CA 6,872 9 6,863 7,300 12.00% July 2005
Clarks Crossing (3) Laredo, TX 1,650 28 1,622 -- 12.00% October 2003
Concord at Gessner (6) Houston, TX 1,523 29 1,494 -- 12.00% March 2005
Desert View (3) Coolidge, AZ 20 -- 20 -- 11.00% May 2004
Valley View (3) North Little Rock, AR 400 -- 400 -- 12.00% December 2003
Del Mar Villas (4) Dallas, TX 5,554 25 5,529 -- LIBOR + 4.625%(5) April 2004
Mountain Valley (4) Dallas, TX 5,785 49 5,736 522 (2) LIBOR + 4.750%(5) November 2004
Baywoods (4) Antioch, CA 10,819 58 10,761 171 LIBOR + 4.000%(5) March 2005
--------------------------------------------------
Total $ 43,656 $ 255 $ 43,401 $8,560
==================================================
(1) Funded on an as needed basis.
(2) To be funded for rehabilitation.
(3) These loans are to limited partnerships who are affiliated with the Advisor
(see Note 9).
(4) Pledged as collateral in connection with warehouse facility with Fleet
National Bank (see Note 8).
(5) LIBOR at June 30, 2003 was 1.12%.
(6) These notes are in default (see below).
(7) Affiliate of the Advisor has provided a full guarantee on the payment of
principal and interest due on this note.
(8) In July 2003, the land associated with this note was sold to third party,
which assumed the note with the modification of certain terms. The note,
which now matures October of 2003, bears interest at a rate of 6% per
annum.
-16-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
(continued)
The notes receivable secured by The Concord at Little York, Concord at Gulfgate
and Concord at Gessner partnership interests each missed required debt service
payments beginning with the May 2003 payment, causing the notes to be in
default. The Company has stopped accruing income on each of the notes receivable
and is in the process of taking the steps necessary to protect its investment.
The Company obtained an independent appraisal for each of the properties
underlying the notes receivable. In each instance, the appraisal determined that
the value of the property exceeded the value of the first mortgages outstanding
on the particular property, not owned by the Company, and the Company's note
receivable outstanding. The appraisals assumed that each property, upon
completion of construction, will be sold to a qualifying 501(c)3 entity which
would qualify for full real estate tax abatement in Texas, which is consistent
with the original underwriting completed by the Company at the time these loans
were originated. The appraisals also assessed the value of the properties if the
real estate tax abatement is not received. If this occurs, the value of the
properties could be substantially less than the Company's current assessment.
The Company believes that it is probable that the properties will qualify for
the tax abatement and, accordingly, has not recorded an allowance for losses on
these impaired loans.
NOTE 5 - Restricted Cash
During February 2003, the Company received approximately $10 million in proceeds
relating to the repayment of the Stony Brook II first mortgage and mezzanine
loans. The first mortgage and mezzanine loans had carrying values of
approximately $8.3 million and $651,000, respectively. The cash proceeds from
the principal repayment of the first mortgage loan are being held as collateral
for the Company's contingent liabilities under guarantees issued in the Fannie
Mae DUS Program (see Note 12) and are recorded as restricted cash on the
consolidated balance sheet. Included in the $10 million of cash proceeds were
additional interest payments of approximately $526,000 and prepayment penalties
of approximately $331,000 that are recorded as interest income from mortgage
loans on the consolidated statement of income. The Company also recognized
approximately $113,000 in deferred fee income which is also recorded in interest
income.
NOTE 6 - Real Estate Owned
On March 7, 2003, the Company exercised its rights under the subordinated
promissory note and other documents to take possession of the real estate
collateral of the Plaza at San Jacinto, a 132-unit multifamily property located
in La Porte, Texas. The Company had provided a $1.2 million mezzanine loan to
the owner of the Plaza at San Jacinto on May 24, 2001; this loan was in default.
The Company paid an additional approximate amount of $6.7 million to purchase
the first mortgage loan on the property. On May 6, 2003, the Company acquired
the real estate at a foreclosure auction, which has enabled the Company to
secure and protect the real estate and cash collateral. Based on a recent
independent appraisal, the Company believes that the value of the collateral,
less estimated disposal costs, exceeds the amount paid for the first mortgage
loan and the carrying amount of the mezzanine loan. However, there can be no
assurance that the Company will be able to sell this property for an amount
greater than or equal to its appraised value. The Company has reclassified its
investment in the Plaza at San Jacinto mezzanine loan, as well as the balance of
the first mortgage, purchased during the first quarter, to real estate owned on
the consolidated balance sheet and ceased accrual of interest. Income from
operations of the property, in the approximate amount of $62,000, is recorded as
other income on the consolidated statement of income. The property is held for
-17-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
sale and is not being depreciated. The Company also incurred approximately
$73,000 of costs to effect this troubled debt restructuring, which are included
in amortization and other expenses.
NOTE 7 - Repurchase Facility
The Company has a repurchase facility with Nomura Securities International Inc.
(the "Nomura Securities Repurchase Facility"), which enables the Company to
borrow up to 97% of the fair market value of GNMA and FNMA DUS Certificates
owned by the Company. Interest on borrowings are at 30-day LIBOR plus 0.02%. As
of June 30, 2003 and December 31, 2002, the amounts outstanding under this
facility were $105.7 and $87.9 million, respectively, and weighted average
interest rates were 1.10% and 1.47%, respectively. Deferred costs relating to
the Nomura Securities Repurchase Facility have been fully amortized. All amounts
outstanding at June 30, 2003, had 30-day settlement terms.
NOTE 8- Warehouse Facility
In October 2002, the Company entered into a mortgage warehouse line of credit
with Fleet National Bank in the amount of up to $40 million. Advances under the
warehouse facility, up to 83% of the total loan package, will be used to fund
first mortgage loans, which the Company will make to its customers for the
acquisition/refinancing and minor renovation of existing, lender-approved
multi-family properties. This facility, which matures April 2006, bears interest
at a rate of 30, 60, 90 or 180-day LIBOR + 200 basis points, at the discretion
of the Company, payable monthly on advances. Principal is due upon the earlier
of refinance or sale of the underlying project or upon maturity. The Company
pays a fee of 12.5 basis points, paid quarterly, on any unused portion of the
facility. As of June 30, 2003 and December 31, 2002, the Company had
approximately $17.7 and $8.8 million, respectively, in borrowings outstanding
under this program.
NOTE 9 - Related Party Transactions
The costs incurred to related parties for the three and six months ended June
30, 2003 and 2002 were as follows, all of which are paid or payable to the
Advisor:
======================= ======================
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
2003 2002 2003 2002
----------------------- ----------------------
Expense reimbursement $ 186 $ 143 $ 333 $ 318
Asset management fees 254 228 503 410
Incentive fee 16* -- 63* --
---------- ---------- ---------- ----------
$ 456 $ 371 $ 899 $ 728
========== ========== ========== ==========
* Accrual based on management estimates of the Company's full-year 2003 results.
Some of the Company's notes receivable (see Note 4), the guarantee on Creekside
Apartments and standby bridge loan commitments described in Note 12 are to
limited partnerships structured as follows: the general partner is an
unaffiliated third party and the limited partner is itself a limited partnership
in which an affiliate of Related is the general partner.
-18-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
The Noble Towers notes receivable is guaranteed by an affiliate of the Advisor
(see Note 4).
The Company has issued 19,550 common shares to the Advisor (see Note 10).
In December 2002, Charter Municipal Mortgage Acceptance Company ("CharterMac")
announced a proposed acquisition of Related, which would include the Advisor.
The Company believes that this acquisition will not affect the Company's
day-to-day operations. If the proposed transaction is consummated, ownership of
the Advisor will be transferred to CharterMac, but management of the Advisor
will remain unchanged as the principals of Related who currently manage the
Advisor will become executive officers of CharterMac and will remain executive
officers of the Advisor. Due to the provision in the Company's trust agreement
which requires the Company to have a majority of "independent" trustees, it is
expected that two of the Company's independent trustees who serve on the boards
of both CharterMac and the Company will no longer qualify as "independent"
trustees if they remain on the board of CharterMac following consummation of the
proposed transaction. In such event, it is expected that such trustees will be
required to replaced with two new independent trustees.
NOTE 10 - Capital Stock and Share Option Plan
On April 23, 2003, the Company completed a public offering of 1.955 million
common shares at a price of $15.00 per share, resulting in proceeds, net of
underwriters' discount and expenses, of approximately $27.5 million. In
connection with this offering and pursuant to the Trust Agreement, the Company
issued 19,550 shares to the Advisor.
In April 2003, in accordance with the Incentive Share Option Plan, the Company's
Compensation Committee granted 190,000 options to employees of Related at an
exercise price of $15.03, which was the market price of the Company's common
shares at the grant date. These options vest equally, in thirds, in April 2004,
2005 and 2006 and expire in 10 years. These options were dilutive for the three
and six months ended June 30, 2003, and were taken into account in the
calculation of diluted earnings per share. At June 30, 2003, these options had a
fair value of $100,700 based on the Black-Scholes pricing model, using the
following assumptions: dividend yield of 9.22%, estimated volatility of 16%,
risk free interest rate of 3.86% and expected lives of 9.93 years. The Company
recorded compensation cost of $13,488, reflected in general and administrative
expenses for the three and six months ended June 30, 2003, relating to these
options.
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 fair value of each option grant is estimated
using the Black-Scholes option-pricing model.
NOTE 11 - Earnings Per Share
Basic net income per share in the amount of $.32 and $.39 and $.79 and $.81 for
the three and six months ended June 30, 2003 and 2002, respectively, equals net
income for the periods ($2,573,123 and $2,458,410 and $5,765,274 and $4,597,434,
-19-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
respectively), divided by the basic weighted average number of shares
outstanding, which were 8,144,259 and 6,363,630 and 7,258,863 and 5,666,116,
respectively.
Diluted net income per share is calculated using the weighted average number of
shares outstanding during the period plus the additional dilutive effect of
common share equivalents. The dilutive effect of outstanding share options is
calculated using the treasury stock method.
Diluted net income per share in the amount of $.32 and $.39 and $.79 and $.81
for the three and six months ended June 30, 2003 and 2002, respectively, equals
net income for the periods ($2,573,123 and $2,458,410 and $5,765,274 and
$4,597,434, respectively) divided by the diluted weighted average number of
shares outstanding, which were 8,158,524 and 6,363,630 and 7,273,128 and
5,666,116, respectively.
NOTE 12 - Commitments and Contingencies
The Company completed a loan program with Fannie Mae, which agreed to fully fund
the origination of $250 million of Delegated Underwriter and Servicer loans for
apartment properties that qualify for low income housing tax credits under
Section 42 of the Internal Revenue Code. Under the loan program, the Company
intended to originate and contract for individual loans of up to $6 million each
over a two-year period in conjunction with American Property Financing, an
unaffiliated third party, which would underwrite and service the loans for
Fannie Mae. The Company guaranteed a first loss position on the aggregate
principal amount of the loans the Company originated under this program and
receives guaranty, loan origination and other fees. The Company also guarantees
construction loans for which it has issued a forward commitment to originate a
loan under the Fannie Mae Program, with respect to which it guarantees repayment
of 100% of such construction loans. As of June 30, 2003, the Company has
originated loans totaling approximately $3.3 million under the Fannie Mae
Program. Therefore, the Company's maximum guaranty at June 30, 2003 was
approximately $3.3 million.
Subsequent to creating this program, the level of loan origination competition
increased, reducing the program's projected financing value and profitability.
As a result, the Company decided in the first quarter of 2002 to discontinue
this program. The Company has reached an agreement in principle to terminate
this program and transfer its rights and obligations to an unaffiliated third
party. There can be no assurance, however, that this agreement will be
consummated. Accordingly, during the first quarter of 2002, the Company wrote
off the balance of unamortized deferred costs relating to this program. This
write-off totaled approximately $358,000 and is included in Fannie Mae loan
program expenses on the consolidated statement of income.
During March 2003, the Company's liability under a forward commitment relating
to a loan in the Fannie Mae Program, in the amount of $3.0 million, expired.
During April 2003, the Company purchased the Desert View construction loan in
the amount of approximately $1.0 million, due to a default on such loan, which
was 100% guaranteed by the Company under the Fannie Mae loan program. This loan
is included in investments in mortgage loans on the consolidated balance sheet.
Except for the write-off of the program costs described above, the Fannie Mae
loan program has not had, and its discontinuance is not anticipated to have, a
significant impact on the Company's financial condition or results of
operations.
-20-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
The following table provides information relating to the loans originated on
Fannie Mae's behalf which remained as of June 30, 2003.
(Dollars in thousands)
Number of Loss
Apartment Originated Sharing Fee
Property Location Units Loan Amount (annual rate)
- --------------------------------------------------------------------------------
Valley View Cedar Rapids, IA 96 $2,187 0.36%
Maple Ridge Apartments Jackson, MI 69 1,137 0.52%
------------------------
Total 165 $3,324
------------------------
-21-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
Standby and Forward Loan and GNMA Commitments
- ---------------------------------------------
The Company has issued the following standby and forward bridge and permanent
loan commitments for the purpose of constructing/rehabilitating certain
multi-family apartment complexes in various locations.
(Dollars in thousands)
Standby and
Forward Bridge Loan Commitments
- ---------------------------------------
Maximum Amount of Commitments
---------------------------------------------
No. of
Issue Date Project Location Apt. Units Less than 1 Year 1-3 Years
- ------------------------------------------------------------------------------------------------------------------------
Jan-02 Parwood Long Beach, CA 528 $ 567 (3) $ --
Nov-02 Mountain Valley Dallas, TX 312 522 (3)
Feb-03 Noble Towers Oakland, CA 195 -- 7,300 (2)
Mar-03 Baywoods Apartments Antioch, CA 128 171 (3)
-------------------------------------------------------------
Total Standby and Forward Bridge Loan Commitments 1,163 $ 1,260 $ 7,300
=============================================================
Standby and Forward Permanent Loan
Commitments
--------------------------------------
Maximum Amount of Commitments
---------------------------------------------
No. of
Issue Date Project Location Apt. Units Less than 1 Year 1-3 Years
- ------------------------------------------------------------------------------------------------------------------------
Mar-02 Sunset Gardens Eagle Pass, TX 60 $ 717 (1)(7) --
May-02 Highland Park Topeka, KS 200 4,250 (1)(5)(6) --
-------------------------------------------------------------
Total Standby and Forward Permanent Loan Commitments 260 $ 4,967 --
=============================================================
Standby and Forward Mezzanine Loan
Commitments
--------------------------------------
Maximum Amount of Commitments
---------------------------------------------
No. of
Issue Date Project Location Apt. Units Less than 1 Year 1-3 Years
- ------------------------------------------------------------------------------------------------------------------------
April-03 Villas at Highpoint Lewisville, TX 304 $ 206 (3) --
April-03 Villas at Highpoint Lewisville, TX -- 693 (4)
-------------------------------------------------------------
Total Standby and Forward Mezzanine Loan Commitments 304 $ 206 693
=============================================================
-22-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
Forward GNMA Commitments
- --------------------------------
Maximum Amount of Commitments
-------------------------------------------------------------------
Date Purchased Project Less than 1 Year 1-3 Years
- ------------------------------------------------ -------------------------------------------------------------------
Mar-02 Cantera Crossing $ 439 (3) $ --
Mar-02 Fillmore Park 203 (3) --
May-02 Ellington Plaza 20,785 (3) --
May-02 Northbrooke 623 (3) --
-------------------------------------------------------------------
Total Forward GNMA Commitments $ 22,050 --
-------------------------------------------------------------------
Total Standby and Forward Loan and GNMA Commitments $ 28,483 $ 7,993
===================================================================
(1) Funding not anticipated to occur.
(2) Fundings will be on an as needed basis to complete rehabilitation of the
property.
(3) Funding has already begun. Amount represents remaining commitment to be
funded.
(4) Funding expected to occur after construction completion.
(5) The Company received a loan commitment fee of 2.0% for issuing the
commitment.
(6) The Company will receive a 1% loan origination fee if funding occurs.
(7) The Company received a loan commitment fee of 3.5% for issuing the
commitment.
-23-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
Construction Loan Guarantees
- ----------------------------
During 2002, the Company guaranteed the following loans in relation to the
construction of affordable multi-family apartment complexes in various
locations. The construction loan guarantees will provide credit support for the
following projects after construction completion, up until the date in which
permanent financing takes place.
During October 2002, the Company entered into an agreement with Wachovia Bank,
National Association ("Wachovia") to provide stabilization guarantees for new
construction of multi-family properties under the LIHTC program. Wachovia
already provides construction and stabilization guarantees to Fannie Mae, for
loans Wachovia originates under the Fannie Mae LIHTC forward commitment loan
program, but only for loans within regions of the country Wachovia has
designated to be within its territory. For loans outside Wachovia's territory,
the Company has agreed to issue a stabilization guarantee, for the benefit of
Wachovia. The Company is guarantying that properties which have completed
construction will stabilize and the associated construction loans will convert
to permanent Fannie Mae loans. The Company receives origination and guarantee
fees from the developers for providing the guarantees. If the properties do not
stabilize with enough Net Operating Income for Fannie Mae to fully fund its
commitment for a permanent loan, AMAC may be required to purchase the
construction loan from Wachovia or to fund the difference between the
construction loan amount and the reduced Fannie Mae permanent loan amount.
(Dollars in thousands)
Maximum Amount of
Guarantee
Loan Administra- Construction
Date No. of Less than tion Fee (1) Guarantee
Closed Project Location Units 1 Year 1-3 Years (annual percentage) Fee (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Jul-02 Clark's Crossing Laredo, TX 160 $ 4,790 $ -- 0.500% 0.625%
Sept-02 Creekside Apts. Colorado Springs, CO 144 7,500 -- 0.375% --
Oct-02 Village at Meadowbend (3) Temple, TX 138 -- 3,675 0.500% 0.750%
Nov-02 Mapleview Apartments (3) Saginaw, MI 104 -- 3,240 0.625% 0.247%
------------------------------------------------------------------------
Total Construction Loan Guarantees 546 $ 12,290 $ 6,915
========================================================================
(1) Loan Administration Fee is paid on a monthly basis during the guarantee
period.
(2) Construction Guarantee Fee is an up-front fee - paid at closing and
amortized over the guarantee period. (3) Guarantee was made under Wachovia
Bank, National Association Guarantee Agreement.
For each of these guarantees, and for the guarantees issued under the Fannie Mae
program discussed in the first paragraph of this Note 12, the Company monitors
the status of the underlying properties and evaluates its exposure under the
guarantees. To date, the Company has concluded that no accrual for probable
losses is required under SFAS 5.
-24-
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
NOTE 13 - Financial Risk Management and Derivatives
On March 25, 2003, the Company entered into a five year interest rate swap in
order to reduce the Company's exposure to any possible increases in the floating
interest rate on its Nomura Securities Repurchase Facility (Note 7). Under the
interest rate swap agreement, the Company is required to pay Fleet National Bank
(the "Counterparty") a fixed rate of 3.48% on a notional amount of $30 million.
In return, the Counterparty will pay the Company a floating rate equivalent to
30-day LIBOR. The average 30-day LIBOR rate for the three and six months ended
June 30, 2003, was 1.25% and 1.29%, respectively.
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 accounts for this swap under Statement of Financial Accounting
Standards No. 133, as amended and interpreted. 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. At inception, the Company designated the interest rate swap as a cash
flow hedge on the variable interest payments on its floating rate financing.
Accordingly, the interest rate swap will be recorded at its fair market value
each accounting period, with changes in the market value 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 agreement is highly effective in
offsetting changes in the cash flows of the hedged financing. Any
ineffectiveness in the hedging relationship would be recorded in earnings. The
Company's assessment is that this swap has been and will continue to be highly
effective.
At June 30, 2003, this interest rate swap was recorded as a liability with a
fair market value of approximately $1,234,000, included in interest rate
derivatives on the consolidated balance sheet.
NOTE 14 - Subsequent Events
During August 2003, a distribution of $3,335,272, ($0.40 per share) which was
declared in June 2003, will be paid to shareholders for the quarter ended June
30, 2003.
In August 2003, the Company's Board of Trustees approved a share repurchase plan
for the Company. The plan enables the Company to repurchase, from time to time,
up to 1,000,000 common shares. The repurchases will be made in the open market,
and the timing will be dependent on the availability of shares and other market
conditions. No repurchases have been made as of the date of the filing of this
report.
During July and August 2003, the Company had purchased The Concord at Gessner
and Concord at Little York first mortgage loans for the amounts of $14.2 million
and $11.7 million, respectively. Subsequent to the purchase of these first
mortgage loans, the Company has exercised its right to acquire the underlying
real estate in foreclosure auctions.
-25-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
- ---------------------
Interest income from mortgage loans decreased approximately $253,000 for the
three months ended June 30, 2003 as compared to 2002 primarily due to the
repayment of the Stonybrook II first mortgage and mezzanine loans in January
2003 and the default of required debt service payments from The Reserve at
Autumn Creek. Interest income from mortgage loans increased approximately
$753,000 for the six months ended June 30, 2003 as compared to 2002 primarily
due to the additional interest and prepayment penalties received, as well as the
recognition of deferred loan origination fees, from the repayment of the
Stonybrook II first mortgage and mezzanine loans.
Interest income from debt securities increased approximately $610,000 and
$1,398,000 for the three and six months ended June 30, 2003 as compared to 2002
primarily due to the purchase of an additional three GNMA certificates in the
latter part of 2002 and the purchase of twelve FNMA DUS certificates during 2003
at an average interest rate yield of 5.34%.
Interest income from notes receivable increased approximately $251,000 and
$682,000 for the three and six months ended June 30, 2003 as compared to 2002
due to the funding of four notes receivable during 2003 offset by the default of
required debt service payments from the Concord at Gessner, Concord at Little
York, and Concord at Gulfgate notes.
Interest expense increased approximately $336,000 and $471,000 for the three and
six months ended June 30, 2003 as compared to 2002 due to the increased
borrowings on the new warehouse facility and additional borrowings under the
repurchase facility, as well as the addition of an interest rate swap agreement,
put into place in March 2003 to mitigate the impact of interest rate
fluctuations on the Company's cash flows and earnings.
Fees to advisor increased approximately $85,000 and $171,000 for the three and
six months ended June 30, 2003 as compared to 2002 primarily due to an increase
in asset management fees payable to the Advisor due to an increase in the assets
and the accrual of estimated incentive management fees.
During the six months ended June 30, 2002, the Company recognized approximately
$358,000 in FNMA loan program expenses associated with the write-off of the
unamortized deferred costs related to the Fannie Mae loan program.
Amortization and other expenses increased approximately $49,000 and $200,000 for
the three and six months ended June 30, 2003 as compared to 2002 due to costs
incurred in the Plaza at San Jacinto debt restructuring and the amortization of
deferred costs on the Fleet Warehouse Facility.
A loss on the repayment of debt securities in the amount of approximately
$391,000 was recorded for the six months ended June 30, 2003, relating to the
write-off of a purchase premium due to the repayment of one GNMA certificate.
During 2002, the Company had a gain of approximately $614,000, resulting from
the sale of one GNMA certificate.
Liquidity and Capital Resources
- -------------------------------
As of June 30, 2003, the Company's mortgage investments consisted of three
mortgage loans and eight mezzanine loans originated by or on behalf of the
Company, twenty-two GNMA and FNMA DUS mortgage-backed securities and
-26-
pass-through certificates, twelve bridge loans and a preferred equity investment
in ARCap Investors, L.L.C. ("ARCap").
During the six months ended June 30, 2003, cash and cash equivalents decreased
approximately $6,998,000 primarily due to funding of notes receivable of
approximately $21,461,000, an increase in restricted cash of approximately
$8,282,000, an increase in investment in mortgage loans of approximately
$10,356,000, investments in GNMA and FNMA DUS certificates of approximately
$43,304,000, and repayments of repurchase facility payable of approximately
$37,076,000, partially offset by principal payments of mortgage loans of
approximately $9,464,000, proceeds from warehouse facility payable of
approximately $8,872,000, proceeds from the issuance of common shares of
approximately $27,473,000, proceeds from the repurchase facility payable of
approximately $54,913,000, principal repayments of GNMA and FNMA DUS
certificates of approximately $8,232,000 and a repayment of a note receivable of
approximately $4,057,000.
The Company finances the acquisition of its assets primarily through borrowing
at short-term rates using demand repurchase agreements and the mortgage
warehouse line of credit (see below). Under the Company's declaration of trust,
the Company may incur permanent indebtedness of up to 50% of total market value
calculated at the time the debt is incurred. Permanent indebtedness and working
capital indebtedness may not exceed 100% of the Company's total market value.
On April 23, 2003, the Company completed a public offering of 1.955 million
common shares, at a price of $15.00 per share, resulting in proceeds, net of
underwriters discount and expenses, of approximately $27.5 million. The net
proceeds from the public offering have been used to fund investment activity.
The Company has the capacity to raise an additional approximate amount of $170
million in either common or preferred shares remaining under a shelf
registration statement filed with the Securities and Exchange Commission during
2002. If market conditions warrant, the Company may seek to raise additional
funds up to this amount for investment through further common and/or preferred
offerings in the future, although the timing and amount of such offerings cannot
be determined at this time.
Effective February 15, 2000, the Company entered into a repurchase facility with
Nomura Securities International Inc. This facility enables the Company to borrow
up to 97% of the fair market value of GNMA and FNMA DUS certificates owned by
the Company, which are pledged as collateral for the borrowings. Interest on
borrowings on GNMA and FNMA DUS certificates are at 30-day LIBOR plus 0.02%. As
of June 30, 2003 and December 31, 2002, the amount outstanding under this
facility was approximately $105.7 and $87.9 million, respectively, and weighted
average interest rates were 1.10% and 1.47%, respectively. All borrowings under
this facility typically have 30-day settlement terms. However, the Company has
the option to shorten or extend the length of the settlement terms at its
discretion. The Company has not experienced any problems when renewing its
borrowing and management believes it will be able to continue to renew its
borrowings when due. If the Company were unable to renew such borrowings with
Nomura, it would have to either find replacement financing or sell assets at
prices which may be below market value.
In October 2002, the Company entered into the Fleet Warehouse Facility with
Fleet National Bank in the amount of $40 million. Advances under the warehouse
facility, up to 83% of the total loan package, will be used to fund first
mortgage loans, which the Company will make to its customers for the
acquisition/refinancing and minor renovation of existing, lender-approved
multi-family properties located in stable sub-markets. The warehouse facility,
which matures April 2006, bears interest at a rate of 30, 60, 90 or 180-day
LIBOR + 200 basis points, at the discretion of the Company, payable monthly on
advances. Principal is due upon the earlier of refinance or sale of the
-27-
underlying project or upon maturity. The Company will pay a fee of 12.5 basis
points, paid quarterly, on any unused portion of the facility. As of June 30,
2003 and December 31, 2002, the Company had approximately $17.7 million and $8.8
million, respectively, in loans outstanding under this program.
In order to qualify as a REIT under the Code, as amended, the Company must,
among other things, distribute at least 90% of its taxable income. The Company
believes that it is in compliance with the REIT-related provisions of the Code.
The Company expects that cash generated from the Company's investments will meet
its needs for short-term liquidity, and will be sufficient to pay all of the
Company's expenses and to make distributions to its shareholders in amounts
sufficient to retain the Company's REIT status in the foreseeable future.
The Company entered into a loan program with Fannie Mae, which agreed to fully
fund the origination of $250 million of Delegated Underwriter and Servicer loans
for apartment properties that qualify for low income housing tax credits under
Section 42 of the Internal Revenue Code. Under the loan program, the Company
intended to originate and contract for individual loans of up to $6 million each
over a two-year period in conjunction with American Property Financing, an
unaffiliated third party, which would underwrite and service the loans for
Fannie Mae. The Company guarantees a first loss position of up to $21.25
million, depending on the aggregate principal amount of the loans the Company
originates under this program and would receive guaranty, loan origination and
other fees. The Company also guarantees construction loans for which it has
issued a forward commitment to originate a loan under the Fannie Mae Program,
with respect to which it guarantees repayment of 100% of such construction
loans. As of June 30, 2003, the Company has originated loans totaling
approximately $3.3 million under the Fannie Mae Program. Therefore, the
Company's maximum guaranty at June 30, 2003 was $3.3 million.
Subsequent to creating this program, the level of loan origination competition
has increased, reducing the program's projected financing value and
profitability. As a result, the Company decided in the first quarter of 2002 to
discontinue this program. The Company has reached an agreement in principle to
terminate this program and transfer its rights and obligations to a
non-affiliated third party. There can be no assurance, however, that this
agreement will be consummated. Accordingly, during the first quarter of 2002,
the Company wrote off the balance of unamortized deferred costs relating to this
program. This write-off totaled approximately $358,000 and is included in Fannie
Mae loan program expenses in the June 30, 2002 consolidated statement of income.
During March of 2003, the Company's liability under a forward commitment
relating to the Fannie Mae Program, in the amount of $3.0 million expired.
During April 2003, the Company purchased the Desert View construction loan in
the amount of approximately $1.0 million, due to a default on such loan, which
was 100% guaranteed by the Company under the Fannie Mae loan program. This loan
is included in investments in mortgage loans in the consolidated balance sheet.
Except for the write-off of the program costs described above, the Fannie Mae
loan program has not had, and its discontinuance is not anticipated to have, a
significant impact on the Company's financial condition or results of
operations.
During February 2003, the Company received approximately $10 million in proceeds
relating to the repayment of the Stony Brook II first mortgage and mezzanine
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loans, of which, $8.3 million is being held as collateral for the Company's
contingent liabilities under guarantees issued in the Fannie Mae DUS program.
In August 2003, a distribution of $3,335,272 ($.40 per share), which was
declared in June 2003, was paid to the shareholders for the quarter ended June
30, 2003.
For a summary of the Company's commitments and contingencies at June 30, 2003,
see Note 12 to the consolidated financial statements.
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.
Distributions
- -------------
Of the total distributions of $5,880,724 and $4,693,177 for the six months ended
June 30, 2003 and 2002, respectively, $115,450 ($.01 per share or 1.96 %) and
$95,743 ($.02 per share or 2.04%) represented a return of capital determined in
accordance with generally accepted accounting principles, respectively. As of
June 30, 2003, the aggregate amount of the distributions made since the
commencement of the initial public offering representing a return of capital, in
accordance with generally accepted accounting principles, totaled $14,586,345.
The portion of the distributions which constituted a return of capital was
significant during the initial acquisition stage in order to maintain level
distributions to shareholders.
Critical Accounting Policies
- ----------------------------
The Company's critical accounting policies are described in its Form 10-K for
the year ended December 31, 2002. These critical accounting policies have not
changed during 2003, but the Company has entered into several transactions which
involve new critical accounting policies as described in the following two
paragraphs.
During 2003, the Company entered into a five-year interest rate swap, which is
accounted for under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Standards No. 133". At the inception, the Company designated this
interest rate swap as a cash flow hedge on the variable interest payments in its
floating rate financing. Accordingly, the interest rate swap is recorded at fair
market value each accounting period, with changes in market value being recorded
in other comprehensive income to the extent the hedge is effective in achieving
offsetting cash flows. This hedge has been highly effective, so there has been
no ineffectiveness included in earnings. Net amounts receivable or payable under
the swap agreements are recorded as adjustments to interest expense.
During 2003, the Company exercised its rights under a subordinated promissory
note and other documents to take possession of certain real estate collateral.
The Company has also purchased the first mortgage loan on the property and
acquired the real estate at a foreclosure auction. When a loan is in the process
of foreclosure, it is the Company's policy to reclassify the balance of the loan
into real estate owned at the lower of fair value of the real estate, less
estimated disposal costs or the carrying amount of the loan, and to cease
accrual of interest. When the foreclosure process is complete and the property
is owned by the Company, income or loss from operations of the property is
picked up on the Company's income statement and any payments made to the Company
reduces the Company's investment in the property.
During 2003, in accordance with the Incentive Share Option Plan, the Company's
Compensation Committee granted 190,000 options to employees of Related. The
Company has adopted the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" for its share options issued to non-employees. Accordingly,
-29-
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 fair value of each option grant is estimated using the
Black-Scholes option-pricing model.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. The primary
market risk to which the investments of the Company is exposed is interest rate
risk, which is highly sensitive to many factors, including governmental monetary
and tax policies, domestic and international economic and political
considerations and other factors beyond the control of the Company.
Interest Rate Risk
Interest rate fluctuations can adversely affect the Company's income and value
of its common shares in many ways and present a variety of risks, including the
risk of mismatch between asset yields and borrowing rates, variances in the
yield curve and changing prepayment 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. During March 2003, upon management's analysis of the interest rate
environment and the costs and risks of such strategies, the Company entered into
an interest rate swap in order to hedge against increases in the floating
interest rate on its Nomura Securities Repurchase Facility. Under the interest
rate swap agreement, the Company is required to pay Fleet National Bank (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 30-day LIBOR
-30-
rate. On March 25, 2003, the Company entered into a five-year interest rate swap
that fixes the 30-day LIBOR rate to 3.48% on a notional amount of $30 million.
This effectively fixes $30 million of the Company's secured borrowings at 3.48%,
protecting the Company in the event the 30-day LIBOR rate rises. 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's operating results will depend in large part on differences between
the income from its assets (net of credit losses) and its borrowing costs. Most
of the Company's assets, consisting primarily of mortgage loans, GNMA
certificates, and notes receivable, generate fixed returns and will have terms
in excess of five years. The Company funds the origination and acquisition of a
significant portion of these assets with borrowings which have interest rates
that reset relatively rapidly, such as monthly or quarterly. In most cases, the
income from assets will respond more slowly to interest rate fluctuations than
the cost of borrowings, creating a mismatch between asset yields and borrowing
rates. Consequently, changes in interest rates, particularly short-term interest
rates, may influence the Company's net income. The Company's debt bears interest
at rates that fluctuate with LIBOR. Based on the $93.4 million unhedged portion
of $123.4 million of borrowings outstanding under these facilities at June 30,
2003, a 1% change in LIBOR would reduce the Company's annual net income and cash
flows by approximately $934,000. However, due to the fact that interest income
from loans made under the Fleet Warehouse Facility are also based on LIBOR, a 1%
increase in LIBOR would increase the Company's annual net income and cash flows
from such loans by approximately $177,000. Increases in these rates will
decrease the net income and market value of the Company's net assets. Interest
rate fluctuations that result in interest expense exceeding interest income
would result in operating losses.
The value of the Company's assets may be affected by prepayment rates on
investments. Prepayment rates are influenced by changes in current interest
rates and a variety of economic, geographic and other factors beyond the
Company's control, and consequently, such prepayment rates cannot be predicted
with certainty. When the Company originates mortgage loans, it expects that such
mortgage loans will have a measure of protection from prepayment in the form of
prepayment lock-out periods or prepayment penalties. However, such protection
may not be available with respect to investments which the Company acquires, but
does not originate. In periods of declining mortgage interest rates, prepayments
on mortgages generally increase. If general interest rates decline as well, the
proceeds of such prepayments received during such periods are likely to be
reinvested by the Company in assets yielding less than the yields on the
investments that were prepaid. In addition, the market value of mortgage
investments may, because of the risk of prepayment, benefit less from declining
interest rates than from other fixed-income securities. Conversely, in periods
of rising interest rates, prepayments on mortgages generally decrease, in which
case the Company would not have the prepayment proceeds available to invest in
assets with higher yields. Under certain interest rate and prepayment scenarios
the Company may fail to recoup fully its cost of acquisition of certain
investments.
Real Estate Risk
Multi-family and commercial property values and net operating income derived
from such properties are subject to volatility and may be affected adversely by
a number of factors, including, but not limited to, national, regional and local
economic conditions (which may be adversely affected by industry slowdowns and
other factors); local real estate conditions (such as an oversupply of housing,
retail, industrial, office or other commercial space); changes or continued
weakness in specific industry segments; construction quality, age and design;
demographic factors; retroactive changes to building or similar codes; and
increases in operating expenses (such as energy costs). In the event net
operating income decreases, a borrower may have difficulty paying the Company's
mortgage loan, which could result in losses to the Company. In addition,
decreases in property values reduce the value of the collateral and the
potential proceeds available to a borrower to repay the Company's mortgage
loans, which could also cause the Company to suffer losses.
-31-
Risk in Owning Subordinated Interests
The Company has invested indirectly in subordinated CMBS through its ownership
of a $20.2 million preferred membership interest in ARCap. Subordinated CMBS of
the type in which ARCap invests include "first loss" and non-investment grade
subordinated interests. A first loss security is the most subordinate class in a
structure and accordingly is the first to bear the loss upon a default on
restructuring or liquidation of the underlying collateral and the last to
receive payment of interest and principal. Such classes are subject to special
risks, including a greater risk of loss of principal and non-payment of interest
than more senior, rated classes. The market values of subordinated interests in
CMBS and other subordinated securities tend to be more sensitive to changes in
economic conditions than more senior, rated classes. As a result of these and
other factors, subordinated interests generally are not actively traded and may
not provide holders with liquidity of investment. With respect to the Company's
investment in ARCap, the ability to transfer the membership interest in ARCap is
further limited by the terms of ARCap's operating agreement.
Participating Interest
In connection with the acquisition and origination of mortgages, the Company
has, on occasion, obtained and may continue to obtain participating interests
that may entitle it to payments based upon a development's cash flow, profits or
any increase in the value of the development that would be realized upon a
refinancing or sale of the development. Competition for participating interests
is dependent to a large degree upon market conditions. Participating interests
are more difficult to obtain when mortgage financing is available at relatively
low interest rates. In the current interest rate environment, the Company may
have greater difficulty obtaining participating interest. Participating
interests are not government insured or guaranteed and are therefore subject to
the general risks inherent in real estate investments. Therefore, even if the
Company is successful in investing in mortgage investments which provide for
participating interests, there can be no assurance that such interests will
result in additional payments.
Repurchase Facility Collateral Risk
Repurchase agreements involve the risk that the market value of the securities
sold by the Company may decline and that the Company will be required to post
additional collateral, reduce the amount borrowed or suffer forced sales of the
collateral. If forced sales were made at prices lower than the carrying value of
the collateral, the Company would experience additional losses. If the Company
is forced to liquidate these assets to repay borrowings, there can be no
assurance that the Company will be able to maintain compliance with the REIT
asset and source of income requirements.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness of the
Company's disclosure controls and procedures (as such term is defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) as of the end of the period covered by this report. Based
on such evaluation, such officers have concluded that, as of the end of such
report, the Company's disclosure controls and procedures are effective.
Internal Control over Financial Reporting. There have not been any significant
changes in the Company's internal control over financial reporting during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.
-32-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material pending legal proceedings.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities and Use of Proceeds
A proxy and proxy statement soliciting the vote of the Company's
shareholders for the Company's annual meeting of shareholders was sent
to shareholders on or about April 30, 2003. Such meeting was held on
June 11, 2003. Stuart Boesky, Peter Allen, Arthur Fisch, Alan Hirmes
and Scott Mannes were re-elected trustees for a one-year term. The
five individuals elected, and the number of votes cast for and
abstaining with respect to each of them, is as follows:
For Abstain
-------------- --------------
Stuart J. Boesky 7,485,283 279,499
Peter T. Allen 7,605,601 159,181
Arthur P. Fisch 7,601,799 162,983
Alan P. Hirmes 7,503,585 261,197
Scott M. Mannes 7,607,158 157,624
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
Steven Wendel has resigned his position as Chief Operating Officer
("COO") of the Company, effective April 25, 2003, in order to pursue
other endeavors. The Company has begun a search for a new COO. In the
interim, Alan Hirmes, the Executive Vice President of the Company, has
been functioning as the COO.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
31.1 Chief Executive Officer certification pursuant to Rule 13a-14 or
15d-14
31.2 Chief Financial Officer certification pursuant to Rule 13a-14 or
15d-14
32.1 Chief Executive Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Chief Financial Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Reports on Form 8-K
The following 8-K reports were filed or furnished, as noted in the
applicable Form 8-K, for the quarter ended June 30, 2003:
Current report on Form 8-K relating to the Company entering into a
five-year, 30-day London Inter-Bank offer rate interest rate swap with
a notional amount of $30 million.
-33-
Current report on Form 8-K relating to the press release regarding the
Company's announcement of its financial results for its first quarter
ended March 31, 2003.
Current report on Form 8-K relating to the Company making available
unaudited supplemental data regarding its operations for the quarter
ended March 31, 2003.
-34-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN MORTGAGE ACCEPTANCE COMPANY
(Registrant)
Date: August 12, 2003 By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Trustee, Chairman of the Board,
President and Chief Executive Officer
Date: August 12, 2003 By: /s/ Stuart A. Rothstein
-----------------------
Stuart A. Rothstein
Chief Financial Officer
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE
13a-14 or 15d-14
I, Stuart J. Boesky, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ending June 30, 2003 of American Mortgage Acceptance Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
a) designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure the material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end
of the period covered by this quarterly report based on such
evaluation; and
c) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors or persons
performing the equivalent functions:
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 12, 2003 By: /s/ Stuart J. Boesky
--------------- --------------------
Stuart J. Boesky
Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE
13a-14 or 15d-14
I, Stuart A. Rothstein, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ending June 30, 2003 of American Mortgage Acceptance Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
a) designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure the material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end
of the period covered by this quarterly report based on such
evaluation; and
c) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors or persons
performing the equivalent functions:
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 12, 2003 By: /s/ Stuart A. Rothstein
--------------- -----------------------
Stuart A. Rothstein
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of American Mortgage Acceptance Company
(the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Stuart J. Boesky, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Chief Executive Officer
August 12, 2003
Exhibit 32.2
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of American Mortgage Acceptance Company
(the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Stuart A. Rothstein, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ Stuart A. Rothstein
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Stuart A. Rothstein
Chief Financial Officer
August 12, 2003