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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - ------- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
- - ------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13237
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
---------------------------------------------
(Exact name of Registrant as specified in its Trust Agreement)
Delaware 13-3949418
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
--------------------------------------
Shares of Beneficial Interest
Name of each exchange on which registered:
-----------------------------------------
American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The approximate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant as of March 9, 2000 was $242,342,101,
based on a price of $11 15/16 per share, the closing sales price for the
Registrant's shares of beneficial interest on the American Stock Exchange on
that date.
As of March 9, 2000 there were 20,582,628 outstanding shares of the
Registrant's shares of beneficial interest.
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Those portions of the Registrant's Proxy Statement for Annual Meeting
of Shareholders to be held on June 14, 2000, which are incorporated into Items
10, 11, 12 and 13.
Index to exhibits may be found on page 53
Page 1 of 96
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED
IN THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISION OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF.
PART I
Item 1. Business.
GENERAL
Charter Municipal Mortgage Acceptance Company (the "Company") is a Delaware
business trust which is engaged in the acquisition and ownership (either
directly or indirectly) of tax-exempt participating and non-participating first
mortgage bonds ("FMBs") issued by various state or local governments or other
agencies or authorities and secured by participating and non-participating
mortgage loans on the underlying properties ("Underlying Properties"). As of
December 31, 1999, the Company owned a portfolio of 69 FMBs.
The Underlying Properties securing the bonds are garden apartments located in
nineteen metropolitan markets in fourteen states. The properties, range in size
from 70 units to 550 units with an average size of 231 units. All of the
properties have an amenity package, competitive for their respective markets,
with many including swimming pools, clubhouses, exercise rooms and tennis
courts. As of December 31, 1999 there are 30 FMBs with Underlying Properties
either under construction or undergoing major rehabilitation. The remaining
properties in the portfolio are completed and have stabilized occupancies. The
stabilized portfolio as of February 27, 2000 reports an average occupancy of
95.6%.
The Company does not operate as a mortgage REIT, which generally utilize high
levels of leverage and acquire subordinated interests in commercial and/or
residential mortgage- backed securities. Rather, the Company utilizes low levels
of leverage and generally invests in or acquires long-term, fixed-rate,
tax-exempt FMBs. As a result, the Company did not experience the ill-effects
associated with the volatile interest rate environment during 1999 and 1998.
Pursuant to its Trust Agreement, the Company is only able to incur leverage or
other financing up to 50% of the Company's Total Market Value (as defined in the
Trust Agreement) as of the date incurred. Mortgage REITs typically incur
leverage at ratios ranging from between 3:1 to 10:1.
Due to the Company's low level of leverage, the Company has not been affected by
the lack of liquidity that recently impaired mortgage REITs and its portfolio
does not contain assets that are especially vulnerable to volatility during
periods of interest rate fluctuations. In general, the FMBs that the Company
either invests in or acquires call for ten-year restrictions from prepayments,
eliminating the Company's susceptibility to significant levels of repayment risk
as a result of interest rate reductions. Consistent with the foregoing, the
Company focuses on providing investors with a stable level of distributions,
even through unstable markets.
ORGANIZATION
The Company was formed on October 1, 1997 as the result of the consolidation
(the "Consolidation") of three publicly registered limited partnerships, Summit
Tax Exempt Bond Fund, L.P. ("Tax Exempt I"), Summit Tax Exempt L.P. II ("Tax
Exempt II") and Summit Tax Exempt L.P. III ("Tax Exempt III") (the
"Partnerships", and each individually a "Partnership"). One of the general
partners of the Partnerships was an affiliate of Related Capital Company
("Related"), a nationwide, fully integrated real estate financial services firm.
Unless otherwise indicated, the "Company", as hereinafter used, refers to
Charter Municipal Mortgage Acceptance Company and its consolidated subsidiaries
and, for references prior to October 1, 1997, refers to Tax Exempt II. Pursuant
to the Consolidation, the Company issued shares of beneficial interest (the
"Shares") to all partners in each of the Partnerships in exchange for their
interests in the Partnerships based upon each partner's proportionate interest
in the Shares issued to their Partnership in the Consolidation. The Shares
commenced trading on the American Stock Exchange on October 1, 1997 under the
symbol "CHC". As of December 31, 1999, there were 20,580,986 Shares outstanding.
For financial accounting and reporting purposes, the Consolidation was accounted
for using the purchase method of accounting. Under this method, the Partnership
with the investor group receiving the largest ownership in the Company, in this
case Tax Exempt II, was deemed to be the acquirer. As the surviving entity for
accounting purposes, Tax Exempt II's assets and liabilities were recorded by the
Company at their historical cost, with the assets and liabilities of the other
Partnerships recorded at their estimated fair values for each Partnership (an
aggregate of approximately $158,129,000) as set forth in the Solicitation
Statement of the Company dated June 18, 1997 (the "Solicitation Statement").
Results of operations and other operating financial data for the Company prior
to October 1, 1997 (the date of the Consolidation) is only with respect to Tax
Exempt II. Information subsequent to September 30, 1997 is with respect to the
Company and its consolidated subsidiaries which include Tax Exempt II and the
other Partnerships pursuant to the Consolidation. Prior to the Consolidation,
Tax Exempt II was a limited partnership which was formed under the laws of the
State of Delaware on April 11, 1986. The general partners of Tax Exempt II were
Related Tax Exempt Associates II, Inc., a Delaware corporation (the "Related
General Partner"), and Prudential Bache Properties, Inc. ("PBP"). The general
partners managed and controlled the affairs of Tax Exempt II prior to the
Consolidation.
The Company is governed by a board of trustees comprised of three independent
managing trustees and four managing trustees who are affiliated with Related.
The Company has engaged Related Charter LP (the "Manager"), an affiliate of
Related, to manage its day-to-day affairs. Through the Manager, Related offers
the Company a core group of experienced staff and executive management, who
provide the Company with services on both a full and part-time basis. These
services include, among other things, acquisition, financial, accounting,
capital markets, asset monitoring, portfolio management, investor relations and
public relations services. The Company believes that it benefits significantly
from its relationship with Related, since Related provides the Company with
resources that are not generally available to small-capitalized, self-managed
companies.
-3-
BUSINESS PLAN
In order to generate increased tax exempt income and, as a result, enhance the
value of the Company's Shares, the Company intends to invest in or acquire
additional tax-exempt bonds secured by multifamily properties. The Company
believes that it can earn above market rates of interest on its bond
acquisitions by focusing its efforts primarily on affordable housing. The
Manager estimates that nearly 50% of all new multifamily development contains an
affordable component which produces tax credits pursuant to Section 42 of the
Internal Revenue Code. The Company has designed a Direct Purchase Program
specifically designed to appeal to developers of such properties. In general,
these properties are smaller than traditional multifamily housing properties,
averaging 150 units. The traditional method of financing tax-exempt properties
requires the involvement of credit enhancement, rating agencies and investment
bankers. Therefore, the up-front cost of such financing is generally much higher
than traditional multifamily financing. Through its Direct Purchase Program, the
Company will invest in or acquire tax-exempt bonds without the cost associated
with credit enhancement, rating agencies and investment bankers. The Company
believes that the up-front cost savings to the developer will translate into a
higher than market interest rate on the bonds acquired by the Company.
The Company believes that it is well positioned to market its Direct Purchase
Program as a result of the Manager's affiliation with Related. The Manager is a
single purpose affiliate of Related which is controlled by the same individuals
and entities which own Related. The Manager benefits from its affiliation with
Related because the Manager is able to utilize Related's resources and
relationships in the multifamily affordable housing finance industry to source
potential borrowers of first mortgage bonds the Company could invest in or
acquire. Related and its predecessor companies have specialized in offering debt
and equity products to mid-market multifamily owners and developers for over 25
years. Related has provided debt and equity financing to properties valued at
over $9.0 billion. According to the 1999 National Multihousing Council survey,
Related is the third largest owner of apartments in the United States.
During 1999, the Company's growth was financed by the Private Label Tender
Option Program ("TOP"), the Preferred Offering and securitization transactions
(see below) as well as funds generated from operations in excess of
distributions. The Company's continued growth will be financed by the TOP or
similar programs, additional securitization transactions and funds generated
from operations in excess of distributions. In addition, before the end of 2000,
the Company expects to raise funds through an equity offering; however, there
can be no assurance that this initiative will be successful. During 1999, the
Company acquired 23 FMBs and received repayments of three FMBs (see "First
Mortgage Bond Repayments" below). Three of the FMBs are taxable FMBs acquired in
connection with the purchase of tax-exempt FMBs.
STRUCTURE OF ORIGINAL FIRST MORTGAGE BONDS
The original 31 FMBs (owned at the date of the Consolidation) with an aggregate
face amount of $348,602,428, call for interest only debt service payments during
their respective terms (which generally are 24 to 30 years from issuance or
re-issuance) with repayment of principal due in a lump sum "balloon" payment at
the expiration of their respective terms or upon sale or refinancing. The newly
acquired bonds call for amortization or "sinking fund" payments, generally at
the completion of rehabilitation or construction, of principal based on thirty
to forty year level debt service amortization schedules. The Company generally
has the right to require redemption approximately 12 to 15 years from issuance
or re-issuance and obligors generally are locked out of prepayment for seven to
ten years from issuance or re-issuance.
In addition to the stated base rates of interest, 28, 28 and 26 of the FMBs at
December 31, 1999, 1998 and 1997, respectively, provided for "contingent
interest" which is equal to: (i) an amount equal to 50% to 100% of net property
cash flow and 50% to 100% of net sale or refinancing proceeds until the borrower
has paid, during the post-construction period, annual compound interest at a
rate ranging from 8.875% to 9.34% on a cumulative basis, and thereafter (ii) an
amount equal to 25% to 50% of the remaining net property cash flow and 25% to
50% of the remaining net sale or refinancing proceeds, until the borrower has
paid interest at a simple annual rate of 16% over the term of the FMB. Both the
stated and contingent interest on the FMBs are exempt from federal income
taxation. During the years ended December 31, 1999, 1998 and 1997, five, six and
five FMBs, paid contingent interest amounting to approximately $728,000,
$960,000 and $353,000, respectively. FMBs that contain provisions for contingent
interest are referred to as "participating"; FMBs lacking this provision are
"non-participating".
In December 1999, two of the original 31 FMBs were repaid (see "First Mortgage
Bond Repayments", below).
STRUCTURE OF MODIFIED FIRST MORTGAGE BONDS
Effective September 8, 1999, the Crowne Pointe, Orchard Hills and Newport
Village FMBs were modified to: (i) change the stated interest rate (from 8.0% to
7.25%); (ii) allow for a portion of deferred base (Newport) and other accrued
interest through August 1999 to be paid at maturity or upon a sale or
refinancing; and (iii) extend the maturity (to 2029) mandatory redemption (to
2011) and prepayment lock-out dates (to 2006). The contingent interest feature
of the bonds was also modified. These modifications resulted in realized losses
on impairment in the amounts of $21,000, $23,000 and $54,000, respectively, to
write down the cost basis of each FMB to its then estimated fair value.
Effective December 1, 1999, the obligor under the Cypress Run FMB, an affiliate
of the Manager, was transferred to a third party who provided new capital in the
amount of $1,813,000. This new capital will be used primarily to provide for
repairs to the property as well as costs of the transaction. Repairs are
expected to be completed within the next 6-9 months. In conjunction with this
transfer and infusion of capital, it is anticipated that the FMB will be
formally modified within 6 to 9 months, subject to the approval of the local
issuer of the FMB. In the interim, the property will continue to operate
pursuant to a forbearance agreement with the Company which calls for a 5.5%
minimum annual interest rate. The anticipated modification of this FMB resulted
in a realized loss on impairment in the amount of $406,796, to write down the
cost basis of this FMB to its estimated fair value.
-4-
Effective December 16, 1999, the obligors under the Sunset Terrace, Sunset
Downs, Sunset Creek and Sunset Village FMB's (together "the Sunset FMBs"),
affiliates of the Manager, transferred their interests, pursuant to a sale of
stock, to a third party equity investor. Pursuant to such transfer, the Company
entered into a modification agreement (subject to issuer approval) with the new
obligor that calls for an annual base rate of 5.48% on the FMBs. Pursuant to the
terms of the transaction, the Company received a payment on December 30, 1999 of
$1,500,000 in full settlement of all accrued and unpaid base interest on the
Sunset FMBs. In addition, in consideration for the waiver of the payment
requirement for the payment of past and future contingent interest, a payment of
$1,000,000 is expected on or before March 31, 2000. In connection with the
transaction, it is expected that the new obligor will invest $800,000-$1,000,000
for physical improvements to the properties. The modifications of the Sunset
Terrace, Sunset Downs and Sunset Village FMBs resulted in realized losses on
impairment in the amounts of $309,850, $516,000 and $528,396, respectively, to
write down the cost basis of each of these FMBs to their estimated fair values.
The estimated fair value of the Sunset Creek FMB continues to exceed its
amortized cost basis.
In addition to the above FMBs, ten of the Company's other FMBs with an aggregate
face amount of $130,025,000, have previously been modified. These modifications
have generally encompassed an extension of the maturity together with a
prepayment lock out feature and/or prepayment penalties together with an
extension of the mandatory redemption feature (5-10 years from modification).
Stated interest rates have also been adjusted together with a change in the
participation and contingent interest features. Base interest rates, contingent
interest, prepayment lock-outs, mandatory redemption and maturity features vary
dependent on the facts of a particular FMB, the developer, the Underlying
Property's performance and requirements of bond counsel and local issuers. The
Company may modify other FMBs to reflect generally similar terms as those
modified previously, where and as appropriate. Significant modifications to
interest rates and maturity dates are subject to final approval of the local
issuers, bond counsel and indenture trustees.
STRUCTURE OF NEW FIRST MORTGAGE BONDS
Newly acquired FMBs (bonds acquired after October 1, 1997) will generally bear a
fixed base interest rate and, to the extent permitted by existing regulations,
they may or may not also provide for contingent interest and other features.
Terms are expected to be 5 to 35 years, although the Company may have the right
to cause repayment prior to maturity through a mandatory redemption feature (5
to 7 years with up to 6 month's notice). In some cases, the newly acquired bonds
call for amortization or "sinking fund" payments, generally at the completion of
rehabilitation or construction, of principal based on thirty to forty year level
debt service amortization schedules.
New FMBs are generally not expected to be subject to optional prepayment during
the first 5-10 years of the Company's ownership of the bonds and may carry
prepayment penalties thereafter beginning at 5% of the outstanding principal
balance, declining by 1% per annum. Certain new FMBs may be purchased at a
discount from their face value. Up to 15% of the Total Market Value of the
Company (as defined in its trust agreement) may be invested in FMBs secured by
Underlying Properties in which affiliates of the Manager have a controlling
interest, equity interest or security interest. The 15% limit is not applicable
to properties to which the Manager or its affiliates have taken title for the
benefit of the Company and only applies to new FMBs acquired after the
Consolidation. In selected circumstances and generally only in connection with
the acquisition of tax-exempt FMBs the Company may acquire a small amount of
taxable bonds (i) which the Company may be required to acquire in order to
satisfy state regulations with respect to the issuance of tax-exempt bonds (see
"Recent Legislation", below) and (ii) to fund certain costs associated with the
issuance of FMBs, that under current law cannot be funded by FMBs.
Since October 1, 1997, the Company has acquired 38 tax-exempt FMBs with an
aggregate face amount of $284,162,100, one of which was repaid in January 1999
(see "First Mortgage Bond Repayments" below), and three taxable FMBs with an
aggregate face amount of $3,790,000.
FIRST MORTGAGE BOND REPAYMENTS
On January 4, 1999, the obligor of the Countryside North FMB (the "Countryside
North Obligor") completed a refinancing with an unaffiliated third party. The
Countryside North Obligor then fully repaid its outstanding debt due to the
Company totaling $5,135,417 including the FMB in the amount of $5,000,000, a
$100,000 prepayment penalty and accrued interest due through the repayment date
of $35,417 resulting in a loss on the repayment (including the prepayment
penalty and the write off of unamortized bond selection costs) in the amount of
$25,493.
On December 26, 1999, the obligor of the Players Club and Suntree FMBs (together
the "Players Club/Suntree Obligor") completed a sale of the properties to an
independent third party. The Players Club/Suntree Obligor then repaid the FMBs
with face amounts of $9,700,000 and $7,500,000, respectively, in the amounts of
$8,790,000 and $7,500,000 resulting in losses on the repayment (including the
write off of unamortized bond selection costs) in the amounts of $376,496 and
$61,158. In addition, the Players Club/Suntree Obligor also repaid promissory
note obligations in the amounts of $472,128 and $88,618. The Players
Club/Suntree Obligor has no further obligation to the company under the FMBs.
-5-
FIRST MORTGAGE BONDS - GENERAL
The principal and interest payments on each FMB are payable only from the cash
flows of the the Underlying Properties, including proceeds from a sale of an
Underlying Property or the refinancing of the mortgage loan securing such FMBs
(the "Mortgage Loans"). None of the FMBs constitute a general obligation of any
state or local government, agency or authority. The structure of each Mortgage
Loan mirrors the structure of the corresponding FMB which it secures.
In order to protect the tax-exempt status of the FMBs, the owners of the
Underlying Properties are required to enter into certain agreements to own,
manage and operate such Underlying Properties in accordance with requirements of
the Internal Revenue Code of 1986, as amended.
No single FMB provided interest income which exceeded 10% of the Company's total
revenue for the years ended December 31, 1999, 1998 and 1997, except for the
Bristol Village FMB which provided 10% of total revenue in 1997.
Based on the face amount of FMBs at December 31, 1999, approximately 26% of the
Underlying Properties are located in California, 14% are located in Florida, 10%
are located in Missouri and 10% are located in Georgia. No other states comprise
more than 10% of the total face amount at December 31, 1999. Based on the face
amount of FMBs at December 31, 1998, approximately 23% of the Underlying
Properties were located in California, 15% were located in Florida, 14% were
located in Missouri, 10% were located in Georgia and 10% were located in
Minnesota. No other states comprised more than 10% of the total face amount at
December 31, 1998.
From time to time the Company has advanced funds to owners of certain Underlying
Properties in order to preserve the underlying asset including completion of
construction and/or when Underlying Properties have experienced operating
difficulties including past due real estate taxes and/or deferred maintenance
items. Such advances typically are secured by promissory notes and/or second
mortgages. As of December 31, 1999, the face amount of such advances was
$15,330,075, their rates range from 8% to 13% and their carrying value was
$10,148,060, which is net of purchase accounting adjustments, and a reserve for
collectibility of $138,000. Such advances with an aggregate face amount of
$5,384,808, rates ranging from 8% to 10% and an aggregate carrying amount of
$217,996 were advanced to obligors which are affiliates of the Manager.
The original obligors and owners of the Underlying Properties of the Cedar
Creek, Highpointe, Pelican Cove and Loveridge FMBs have been replaced with
affiliates of the Manager who have not made equity investments. These entities
have assumed the day-to-day responsibilities and obligations of the Underlying
Properties. Buyers are being sought who would make equity investments in the
Underlying Properties and assume the nonrecourse obligations for the FMB. These
properties are generally paying as interest an amount equal to the net cash flow
generated by operations, which in some cases is less than stated rate of the
FMB. The Company has no present intention of declaring a default on these FMBs.
The aggregate carrying value of these four FMBs at December 31, 1999 and 1998
was approximately $41,465,000 and $42,323,000, respectively and the income
earned from them for the years ended December 31, 1999, 1998 and 1997 was
approximately $2,991,000, $3,106,000 and $2,093,000, respectively.
From time to time, the Company enters into forbearance agreements and/or
permanent modifications with certain borrowers. The determination as to whether
it is in the best interest of the Company to enter into permanent modifications
or forbearance agreements on the FMBs, advance second mortgages, or
alternatively, to pursue its remedies under the loan documents, including
foreclosure, is based upon several factors. These factors include, but are not
limited to, Underlying Property performance, owner cooperation and projected
costs of foreclosure and litigation. Payments under each of the existing
forbearance agreements are current as of December 31, 1999.
With respect to the FMBs which are subject to forbearance agreements with the
respective obligors, the difference between the stated interest rates and the
rates paid (whether deferred and payable out of available future cash flow or,
ultimately, from sale or refinancing proceeds) on FMBs is not accrued for
financial statement purposes. The accrual of interest at the stated interest
rate will resume once an Underlying Property's ability to pay the stated rate
has been adequately demonstrated. Unrecorded contractual interest income was
approximately $1,916,000, $3,047,000 and $2,415,000 for the years ended December
31, 1999, 1998 and 1997, respectively.
-6-
As of December 31, 1999, the Company and its consolidated subsidiaries owned 69
FMBs (26 participating FMBs and 43 non-participating FMBs). Three of the FMBs
are taxable FMBs acquired in connection with the purchase of tax-exempt FMBs.
The taxable FMBs are secured by the same Underlying Properties which secure the
associated tax-exempt FMBs. The following table provides certain information
with respect to each of the FMBs.
Fair Value Stated
Closing Face Amount at December Interest
Property Location Date of FMB 31, 1999 (A) Rate*
- - -------- -------- ------- ----------- ------------ --------
Tax-Exempt First Mortgage Bonds
- - -------------------------------
Owned by the Company (not including its consolidated subsidiaries)
- - ------------------------------------------------------------------
Highpointe Club (K)(N) Harrisburg, PA 7/29/86 $ 8,900,000 $ 5,769,000 8.50%
------------ ------------
Owned by Charter Mac Equity Issuer Trust (H)
- - --------------------------------------------
Barnaby Manor (P)(S) Washington, DC 11/23/99 4,500,000 4,500,000 7.375
Casa Ramon (P) Orange County, CA 6/8/99 50,000(Q) 52,000 7.50
Chapel Ridge of Little Rock, AR 8/12/99 5,600,000 5,481,000 7.125
Little Rock (O)(S)
Chapel Ridge of Texarkana, AR 9/29/99 5,800,000 5,876,000 7.375
Texarkana (O)(S)
Country Lake (P) West Palm Beach, FL 11/9/99 6,255,000 6,255,000 (V)
Del Monte Pines (R)(P) Fresno, CA 5/6/99 11,000,000 10,275,000 6.80
Douglas Pointe(O)(S)(R) Miami, FL 9/28/99 7,100,000 6,827,000 7.00
Forest Hills (R)(P) Garner, NC 12/15/98 5,930,000 5,804,000 7.125
Fort Chaplin (P) Washington, DC 12/21/99 25,800,000 25,800,000 6.90
Franciscan Riviera (P)(R) Antioch, CA 8/24/99 6,587,500 6,447,000 7.125
Garfield Park (P) Washington, DC 8/31/99 3,260,000 3,247,000 7.25
Greenbriar (M)(P) Concord, CA 5/6/99 9,585,000 9,052,000 6.875
Hamilton Gardens (R)(P) Hamilton, NJ 3/26/99 6,400,000 6,264,000 (U)
Lake Jackson (R)(O)(S) Lake Jackson, TX 12/22/98 10,934,000 10,513,000 7.00
Lakemoor (O) (S) Durham, NC 12/23/99 9,000,000 9,000,000 7.25
Lake Park (P) Turlock, CA 6/8/99 (T) 3,638,000 3,623,000 7.25
Lakes Edge At Walden
(P)(M) Miami, FL 7/1/99 14,850,000 14,075,000 6.90
Lennox Park (O)(S)(M) Gainesville, GA 7/29/99 13,000,000 12,143,000 6.80
Lewis Place (O)(S)(M) Gainsville, FL 6/22/99 4,000,000 3,709,000 (I)
Mountain Ranch (R)(O) Austin, TX 12/23/98 9,128,000 8,934,000 7.125
Standiford (P)(R) Modesto, CA 9/20/99 9,520,000 9,317,000 7.125
Sunset Creek (M)(K) Lancaster, CA 3/25/88 8,275,000 6,225,000 8.50
Sunset Village (M)(K) Lancaster, CA 3/25/88 11,375,000 8,557,000 8.50
Sycamore Woods (R)(P) Antioch, CA 5/6/99 9,415,000 8,891,000 6.875
Tallwood (O)(S)(R) Virginia Beach, VA 9/30/99 6,205,000 6,179,000 7.25
----------- -----------
207,207,500 197,046,000
----------- -----------
Minimum Average Rental
Pay Rate at Interest Occupancy Rates at Year
December Rate Paid at February December of Con-
Property 31, 1999* for 1999* 20, 2000 31, 1999 struction
- - -------- ----------- --------- ----------- -------- ---------
Tax-Exempt First Mortgage Bonds
- - -------------------------------
Owned by the Company (not including its consolidated subsidiaries)
- - ------------------------------------------------------------------
Highpointe Club (K)(N) (W) 4.72% 97% $550-725 1991
Owned by Charter Mac Equity Issuer Trust (H)
- - --------------------------------------------
Barnaby Manor (P)(S) 7.375% 7.375 0 - 1974
Casa Ramon (P) 7.50 7.50 0 - 1976
Chapel Ridge of 7.125 7.125 0 - (Y)
Little Rock (O)(S)
Chapel Ridge of 7.375 7.375 0 - (Y)
Texarkana (O)(S)
Country Lake (P) 6.00 6.00 100 657-983 1985
Del Monte Pines (R)(P) 6.80 6.80 57.7 388-538 1975
Douglas Pointe(O)(S)(R) 7.00 7.00 0 - (Y)
Forest Hills (R)(P) 7.125 7.13 68.4 550-650 1982
Fort Chaplin (P) 6.90 6.90 16.9 450-1100 (X)
Franciscan Riviera (P)(R) 7.125 7.125 67.2 640-780 1972
Garfield Park (P) 7.25 7.25 87.2 585-695 1970
Greenbriar (M)(P) 6.875 6.875 68 400-975 1966
Hamilton Gardens (R)(P) 7.625 7.625 92.4 625-730 1941
Lake Jackson (R)(O)(S) 7.00 7.00 46.5 525-1045 (Y)
Lakemoor (O) (S) 7.25 7.25 0 - (Y)
Lake Park (P) 7.25 7.25 100 452-622 1973
Lakes Edge At Walden
(P)(M) 6.90 6.90 95.8 677-898 1986
Lennox Park (O)(S)(M) 6.80 6.80 0 - (Y)
Lewis Place (O)(S)(M) 6.75 6.75 13.4 529-611 (Y)
Mountain Ranch (R)(O) 7.125 7.13 0 - (Y)
Standiford (P)(R) 7.125 7.125 56.3 455-625 1970
Sunset Creek (M)(K) 5.48 8.68 93.1 455-755 1989
Sunset Village (M)(K) 5.48 8.68 93.5 495-755 1989
Sycamore Woods (R)(P) 6.875 6.875 58.7 640-975 1970
Tallwood (O)(S)(R) 7.25 7.25 0 - (Y)
Comparable
Competing
No. of Properties
Rental within
Property Units Location
- - -------- ------ ----------
Tax-Exempt First Mortgage Bonds
- - -------------------------------
Owned by the Company (not including its consolidated subsidiaries)
- - ------------------------------------------------------------------
Highpointe Club (K)(N) 240 24
Owned by Charter Mac Equity Issuer Trust (H)
- - --------------------------------------------
Barnaby Manor (P)(S) 124 158
Casa Ramon (P) 75 43
Chapel Ridge of 128 83
Little Rock (O)(S)
Chapel Ridge of 144 26
Texarkana (O)(S)
Country Lake (P) 192 44
Del Monte Pines (R)(P) 366 256
Douglas Pointe(O)(S)(R) 176 184
Forest Hills (R)(P) 136 5
Fort Chaplin (P) 495 158
Franciscan Riviera (P)(R) 129 17
Garfield Park (P) 94 158
Greenbriar (M)(P) 199 81
Hamilton Gardens (R)(P) 174 16
Lake Jackson (R)(O)(S) 160 10
Lakemoor (O) (S) 160 89
Lake Park (P) 104 24
Lakes Edge At Walden
(P)(M) 400 184
Lennox Park (O)(S)(M) 292 15
Lewis Place (O)(S)(M) 112 91
Mountain Ranch (R)(O) 212 453
Standiford (P)(R) 249 63
Sunset Creek (M)(K) 148 37
Sunset Village (M)(K) 204 37
Sycamore Woods (R)(P) 186 17
Tallwood (O)(S)(R) 120 86
-7-
Fair Value Stated
Closing Face Amount at December Interest
Property Location Date of FMB 31, 1999 (A) Rate*
- - -------- -------- ------- ----------- ------------ --------
Owned by Charter Mac Origination Trust I (H)(L)
- - -----------------------------------------------
Bay Club (K) Mt. Pleasant, SC 9/11/86 6,400,000 7,253,000 8.25
Clarendon Hills (K) Hayward, CA 12/8/86 17,600,000 13,599,000 5.52
Cypress Run (K) Tampa, FL 8/14/86 15,402,428 13,576,000 8.50
East Ridge (K) Mt. Pleasant, SC 5/20/86 8,700,000 9,859,000 8.25
Greenway Manor (K)(N) St. Louis, MO 10/9/86 12,850,000 15,003,000 8.50
The Lakes (K) Kansas City, MO 12/30/86 13,650,000 9,821,000 4.87
Loveridge (K)(N) Contra Costa, CA 11/13/86 8,550,000 6,459,000 8.00
Martin's Creek (K) Summerville, SC 5/20/86 7,300,000 8,273,000 8.25
----------- -----------
90,452,428 83,843,000
----------- -----------
Minimum Average Rental
Pay Rate at Interest Occupancy Rates at Year
December Rate Paid at February December of Con-
Property 31, 1999* for 1999* 20, 2000 31, 1999 struction
- - -------- ----------- --------- ----------- -------- ---------
Owned by Charter Mac Origination Trust I (H)(L)
- - -----------------------------------------------
Bay Club (K) 8.25 10.11 94.0 635-805 1987
Clarendon Hills (K) 5.52 6.48 99.6 950-1600 1989
Cypress Run (K) 5.50 .68 87.6 460-775 1988
East Ridge (K) 8.25 8.24 88.9 615-875 1986
Greenway Manor (K)(N) 8.50 8.64 95.8 520-620 1987
The Lakes (K) 4.87 6.71 92.4 475-675 1989
Loveridge (K)(N) (W) 5.00 88.3 640-875 1987
Martin's Creek (K) 8.25 8.25 98.0 470-770 1986
Comparable
Competing
No. of Properties
Rental within
Property Units Location
- - -------- ------ ----------
Owned by Charter Mac Origination Trust I (H)(L)
- - -----------------------------------------------
Bay Club (K) 164 12
Clarendon Hills (K) 285 99
Cypress Run (K) 408 247
East Ridge (K) 200 12
Greenway Manor (K)(N) 312 172
The Lakes (K) 400 152
Loveridge (K)(N) 148 18
Martin's Creek (K) 200 13
-8-
Fair Value Stated
Closing Face Amount at December Interest
Property Location Date of FMB 31, 1999 (A) Rate*
- - -------- -------- ------- ----------- ------------ --------
Owned by Charter Mac Owner Trust I (J) (H)
- - ------------------------------------------
Bedford Square Clovis, CA 8/25/98 3,850,000 3,371,000 (D)
Bristol Village Bloomington, MN 7/31/87 17,000,000 17,513,000 7.50
Carrington Pointe Los Banos, CA 9/24/98 3,375,000 2,955,000 6.375
Cedarbrook Hanford, CA 4/28/98 2,840,000 2,779,000 7.125
Cedar Creek (K)(N) McKinney, TX 12/29/86 8,100,000 9,457,000 8.50
Cedar Pointe (K) Nashville, TN 4/22/87 9,500,000 9,134,000 7.00
College Park (O)(S) Naples, FL 7/15/98 10,100,000 9,711,000 (C)
Crowne Pointe (K) Olympia, WA 12/31/86 5,075,000 5,054,000 7.25
Falcon Creek (O)(S) Indianapolis, IN 9/14/98 6,144,600 6,119,000 (F)
Gulfstream (P) Dania, FL 7/22/98 3,500,000 3,486,000 7.25
Highland Ridge (K) St. Paul, MN 2/02/87 15,000,000 14,938,000 7.25
Jubilee Courtyards Florida City, FL 9/15/98 4,150,000 4,062,000 (G)
Lakepoint (K) Stone Mountain, GA 11/18/87 15,100,000 12,445,000 6.00
Madalyn Landing (O)(S) Palm Bay, FL 11/13/98 14,000,000 13,461,000 7.00
The Mansion Independence, MO 5/13/86 19,450,000 19,678,000 7.25
Marsh Landings (P)(S) Portsmouth, VA 5/20/98 6,050,000 6,025,000 7.25
Newport Village (K) Tacoma, WA 2/11/87 13,000,000 12,946,000 7.25
North Glen (K) Atlanta, GA 9/30/86 12,400,000 12,775,000 (AA)
Northpointe Village (P) Fresno, CA 8/25/98 13,250,000 13,650,000 (E)
Ocean Air (P)(S) Norfolk, VA 4/20/98 10,000,000 9,959,000 7.25
Orchard Hills (K) Tacoma, WA 12/31/86 5,650,000 5,627,000 7.25
Orchard Mill (K) Atlanta, GA 12/31/86 10,500,000 10,517,000 7.50
Pelican Cove (K)(N) St Louis, MO 2/27/87 18,000,000 19,780,000 8.00
Phoenix Stockton, CA 4/28/98 3,250,000 3,181,000 7.125
River Run (K) Miami, FL 8/7/87 7,200,000 7,912,000 8.00
Shannon Lake (K) Atlanta, GA 6/26/87 12,000,000 11,538,000 (B)
Silvercrest Clovis, CA 9/24/98 2,275,000 2,227,000 7.125
Stone Creek (O)(S) Watsonville, CA 4/28/98 8,820,000 8,632,000 7.125
Sunset Downs (K) Lancaster, CA 2/11/87 15,000,000 11,284,000 8.00
Sunset Terrace (K) Lancaster, CA 2/12/87 10,350,000 7,786,000 8.00
Thomas Lake Eagan, MN 9/02/86 12,975,000 13,367,000 7.50
Willow Creek (K) Ames, IA 2/27/87 6,100,000 6,075,000 7.25
----------- -----------
304,004,600 297,444,000
----------- -----------
Subtotal - Tax-Exempt First Mortgage Bonds 610,564,528 584,102,000
----------- -----------
Minimum Average Rental
Pay Rate at Interest Occupancy Rates at Year
December Rate Paid at February December of Con-
Property 31, 1999* for 1999* 20, 2000 31, 1999 struction
- - -------- ----------- --------- ----------- -------- ---------
Owned by Charter Mac Owner Trust I (J) (H)
- - ------------------------------------------
Bedford Square 7.00 7.00 96.1 388-466 (Y)
Bristol Village 7.50 7.50 94.7 755-1299 1989
Carrington Pointe 6.375 6.38 98.7 443-558 1999
Cedarbrook 7.125 7.13 100 434-554 1999
Cedar Creek (K)(N) 8.50 8.50 94.7 530-875 1988
Cedar Pointe (K) 7.00 7.00 96.2 550-840 1989
College Park (O)(S) 7.00 7.00 99.0 580-780 (Y)
Crowne Pointe (K) 8.00 7.76 96.1 495-795 1980
Falcon Creek (O)(S) 7.00 7.00 33.8 430-800 (Y)
Gulfstream (P) 7.25 7.25 36.2 575-650 1961
Highland Ridge (K) 7.25 7.36 95.6 855-1460 1989
Jubilee Courtyards 7.00 7.00 92.9 510-640 1999
Lakepoint (K) 6.00 6.08 96.7 585-835 1989
Madalyn Landing (O)(S) 7.00 7.00 68.8 464-654 (Y)
The Mansion 7.25 9.84 92.7 485-825 1987
Marsh Landings (P)(S) 7.25 7.25 44.3 445-475 1952
Newport Village (K) 8.00 7.76 90.6 460-600 1987
North Glen (K) 7.00 7.15 91.9 575-880 1987
Northpointe Village (P) 8.125 8.12 83.0 388-538 1972
Ocean Air (P)(S) 7.25 7.25 31.6 540-645 (Z)
Orchard Hills (K) 8.00 7.76 100 475-770 1987
Orchard Mill (K) 5.00 6.57 94.5 590-850 1990
Pelican Cove (K)(N) (W) 8.08 97.0 495-680 1989
Phoenix 7.125 7.12 97.8 245-395 1999
River Run (K) 8.00 9.10 90.0 733-1030 1987
Shannon Lake (K) 6.00 6.08 92.8 465-840 1988
Silvercrest 7.125 7.12 100 275-382 1999
Stone Creek (O)(S) 7.125 7.13 65.8 646-981 (Y)
Sunset Downs (K) 5.48 8.70 93.5 495-755 1987
Sunset Terrace (K) 5.48 8.61 92.3 495-755 1987
Thomas Lake 7.50 7.50 98.1 830-1370 1988
Willow Creek (K) 7.25 7.32 100 550-825 1988
Comparable
Competing
No. of Properties
Rental within
Property Units Location
- - -------- ------ ----------
Owned by Charter Mac Owner Trust I (J) (H)
- - ------------------------------------------
Bedford Square 130 42
Bristol Village 290 25
Carrington Pointe 80 5
Cedarbrook 70 18
Cedar Creek (K)(N) 250 10
Cedar Pointe (K) 210 168
College Park (O)(S) 210 33
Crowne Pointe (K) 160 39
Falcon Creek (O)(S) 131 252
Gulfstream (P) 96 5
Highland Ridge (K) 228 86
Jubilee Courtyards 98 2
Lakepoint (K) 360 30
Madalyn Landing (O)(S) 304 8
The Mansion 550 15
Marsh Landings (P)(S) 250 23
Newport Village (K) 402 181
North Glen (K) 284 371
Northpointe Village (P) 406 256
Ocean Air (P)(S) 434 60
Orchard Hills (K) 174 181
Orchard Mill (K) 238 371
Pelican Cove (K)(N) 402 172
Phoenix 184 96
River Run (K) 164 184
Shannon Lake (K) 294 371
Silvercrest 100 42
Stone Creek (O)(S) 120 5
Sunset Downs (K) 264 37
Sunset Terrace (K) 184 37
Thomas Lake 216 16
Willow Creek (K) 138 7
-9-
Fair Value Stated
Closing Face Amount at December Interest
Property Location Date of FMB 31, 1999 (A) Rate*
- - -------- -------- ------- ----------- ------------ --------
Taxable First Mortgage Bonds
- - ----------------------------
Owned by the Company (not including its consolidated subsidiaries)
- - ------------------------------------------------------------------
Greenbriar (P) Concord, CA 5/6/99 2,015,000 2,015,000 9.00
Lake Park (P) Turlock, CA 7/15/99 375,000 375,000 9.00
Lakes Edge at Walden (P) Miami, FL 10/6/99 1,400,000 1,400,000 11.00
----------- -----------
Subtotal - Taxable First Mortgage Bonds 3,790,000 3,790,000
----------- -----------
Total First Mortgage Bonds $614,354,528 $587,892,000
=========== ===========
Minimum Average Rental
Pay Rate at Interest Occupancy Rates at Year
December Rate Paid at February December of Con-
Property 31, 1999* for 1999* 20, 2000 31, 1999 struction
- - -------- ----------- --------- ----------- -------- ---------
Taxable First Mortgage Bonds
- - ----------------------------
Owned by the Company (not including its consolidated subsidiaries)
- - ------------------------------------------------------------------
Greenbriar (P) 9.00 9.00 68 400-975 1966
Lake Park (P) 9.00 9.00 100 452-622 1973
Lakes Edge at Walden (P) 11.00 11.00 95.8 677-898 1986
Comparable
Competing
No. of Properties
Rental within
Property Units Location
- - -------- ------ ----------
Taxable First Mortgage Bonds
- - ----------------------------
Owned by the Company (not including its consolidated subsidiaries)
- - ------------------------------------------------------------------
Greenbriar (P) 199 81
Lake Park (P) 104 24
Lakes Edge at Walden (P) 400 184
*The average interest rate paid (which in certain cases includes the receipt of
contingent interest and deferred base interest relating to prior periods)
represents the interest recorded by the Company while the stated interest rate
represents the coupon rate of the FMB and the minimum pay rate represents the
minimum rate payable pursuant to the applicable forbearance agreement, if any.
(A) The FMBs are deemed to be available-for-sale debt securities and,
accordingly, are carried at their estimated fair values at December 31,
1999.
(B) Pursuant to a bond modification as of October 1, 1997, the base interest
rate was lowered to 6% through July 31, 2000 and 7% thereafter.
(C) The interest rates for College Park are 7% during the construction period
and 7.25% thereafter.
(D) The interest rates for Bedford Square are 7% during the construction period
and 6.375% thereafter.
(E) The interest rates for Northpointe Village are 7.965% through September 23,
1998, 8.125% during the remainder of the construction period and 7.5%
thereafter.
(F) The interest rates for Falcon Creek are 7% through August 31, 2000 and
7.25% thereafter.
(G) The interest rates for Jubilee Courtyards are 7% through September 30,
2000 and 7.125% thereafter.
(H) This entity is a consolidated subsidiary of the Company (see Private Label
Tender Option Program below and Item 5. Market for the Company's Shares and
Related Shareholder Matters. - Preferred Equity Offering).
(I) The interest rates for Lewis Place are 6.75% through May 31, 2001 and 7.00%
thereafter.
(J) These FMBs have been transferred to Charter Mac Owner Trust I in connection
with the Company's Private Label Tender Option Program (TOP) (see Private
Label Tender Option Program below).
(K) These FMBs are participating FMBs which contain additional interest
features contingent on available cash flow.
(L) The FMBs are held as collateral in connection with the TOP (see Private
Label Tender Option Program below).
(M) These FMBs are pledged as collateral in connection with the Merrill Lynch
RITES/P-FLOATS Program (see Securitization Transactions below).
(N) The original owners of the Underlying Properties and the obligors of these
FMBs have been replaced with affiliates of the Manager.
(O) The Underlying Property is under construction. In the event construction is
not completed in a timely manner, the Company may "put" the FMB to the
construction lender at par.
(P) The Underlying Property is undergoing substantial rehabilitation. In the
event rehabilitation is not completed in a timely manner, the Company may
"put" the FMB to the construction lender at par.
(Q) Initial advance on an FMB which will have a face amount of $4,744,000 when
it is fully funded. The balance of $4,694,000 is expected to be funded in
the second quarter of 2000.
(R) Held by Merrill Lynch as collateral for secured borrowings (see
Securitization Transactions below).
(S) All of the "puts" (see (O) and (P) above) are secured by a letter of credit
issued by the construction lender to the Company.
(T) Initial advance in the amount of $50,000 was funded on June 8, 1999. The
balance was funded on July 15, 1999.
(U) The interest rates for Hamilton Gardens are 7.625% during the construction
period and 7.125% thereafter.
(V) The interest rates for Country Lake are 6% until expected refunding in June
2000 and 7.25% thereafter.
(W) The minimum pay rate is the current cash flow of the property.
(X) Built in two phases in 1961 and 1963.
(Y) The property is still in construction phase as of December 31, 1999.
(Z) Originally constructed in 1949 and converted into affordable housing in
1988.
(AA) Pursuant to a bond modification as of October 1, 1997, the base interest
rate was lowered to 7% through June 30, 2000 and 7.50% thereafter.
-10-
SECURITIZATION TRANSACTIONS
To raise additional capital to acquire additional FMBs, the Company has
securitized certain FMBs through the Merrill Lynch Pierce Fenner & Smith
Incorporated ("Merrill Lynch") P-FLOATS/RITES program. Under this program, the
Company transfers certain FMBs to Merrill Lynch. Merrill Lynch then deposits
each FMB into an individual special purpose trust created to hold such asset,
together with a Credit Enhancement Guarantee ("Guarantee"). Two types of
securities are then issued by each trust, evidencing ownership in the FMBs and
the Guarantee: (1) Puttable Floating Option Tax-Exempt Receipts ("P-FLOATS"), a
short-term senior security which bears interest at a floating rate that is reset
weekly by the Remarketing Agent, Merrill Lynch, to result in the sale of the
P-FLOAT security at par (up to 99% of the underlying face amount of the FMB);
and (2) Residual Interest Tax Exempt Securities ("RITES), a subordinate security
which receives the residual interest payment after payment of P-FLOAT interest
and ongoing transaction fees. The P-FLOATS are sold to qualified third party,
tax-exempt investors and the RITES are sold back to the Company. The Company has
the right, with 14 days notice to the trustee, to purchase the outstanding
P-FLOATS and withdraw the underlying FMBs from the trust. When the FMBs are
deposited into the P-FLOAT Trust, the Company receives the proceeds from the
sale of the P-FLOATS less certain transaction costs. In certain other cases,
Merrill Lynch may directly buy the FMBs from local issuers, deposit them in the
trust, sell the P-FLOAT security to qualified investors and then the RITES to
the Company.
In order to facilitate the securitization, the Company has pledged certain
additional FMBs, cash and cash equivalents and temporary investments as
collateral for the benefit of the credit enhancer or liquidity provider. At
December 31, 1999, the total carrying amount of such additional FMBs, cash and
cash equivalents and temporary investments pledged as collateral was
$53,761,000, $1,028,209 and $45,541,000, respectively.
During the period May 1999 through December 1999, the Company transferred ten
FMBs with an aggregate face amount of $82,219,500 to Merrill Lynch through the
Merrill Lynch P-FLOATS/RITES program and received proceeds of $80,769,616.
The Company's cost of funds relating to its secured borrowings under the Merrill
Lynch P-FLOATS/RITES program (calculated as interest expense as a percentage of
the weighted average amount of the secured borrowings) was approximately 4.8%,
annualized, for the period June 29, 1999 (inception of this program) through
December 31, 1999.
During June 1999, Merrill Lynch purchased three FMBs with an aggregate face
amount of $22,430,000. The FMBs were placed into a trust by Merrill Lynch
whereby P-FLOATS and RITES were sold. The Company purchased the related RITES
interests with an aggregate face amount of $15,000 for an aggregate purchase
price of $579,118 which includes bond selection and other transaction costs.
OTHER BOND RELATED INVESTMENTS
The Company's other bond related investments consist of investments in RITES
(see Securitization Transactions above). The following table provides certain
information with respect to each of the RITES.
Face
Amount Amortized Fair
of RITES Cost Basis at Value at
FMB Date Face Amount Interest December December
Description/Location Purchased of FMB Purchased 31, 1999 31, 1999
- - -------------------- --------- ----------- --------- ------------- --------
Owned by Charter Mac Equity Issuer Trust
- - ----------------------------------------
RITES-Avalon Court/
Oakley, CA 6/17/99 $ 8,240,000 $ 5,000 $200,045 $200,000
RITES-Meadowview Park/
Santa Rosa, CA 6/17/99 6,250,000 5,000 162,432 160,000
RITES-The Courtyards/
Santa Rosa, CA 6/17/99 7,940,000 5,000 201,817 200,000
----------- ------- ------- -------
$22,430,000 $15,000 $564,294 $560,000
========== ====== ======= =======
PRIVATE LABEL TENDER OPTION PROGRAM
On May 21, 1998, the Company closed on its Private Label Tender Option Program
("TOP") in order to raise additional capital to acquire additional FMBs. As of
March 31, 1999, the maximum amount of capital which could be raised under the
TOP ($150,000,000) had been raised. In April 1999, the Company successfully
negotiated an increase in its TOP to $200,000,000. As of December 31, 1999, the
Company has contributed 40 issues of FMBs in the aggregate principal amount of
approximately $394,457,000 to Charter Mac Origination Trust I (the "Origination
Trust"), a wholly-owned, indirect subsidiary of the Company, which has
contributed 32 of those FMBs, with an aggregate principal amount of
approximately $304,005,000, to Charter Mac Owner Trust I (the "Owner Trust")
which is controlled by the Company. The Owner Trust has issued two equity
certificates: (i) a Senior Certificate, with an outstanding face amount of
$177,000,000 at December 31, 1999, which has been deposited into another
Delaware business trust (the "Certificate Trust") which issued and sold Floater
Certificates representing proportional interests in the Senior Certificate to
new investors and (ii) a Residual Certificate representing the remaining
beneficial ownership interest in the Owner Trust, which has been issued to the
Origination Trust. The FMBs remaining in the Origination Trust (aggregate
principal amount of approximately $90,452,000) are a collateral pool for the
Owner Trust's obligations under the Senior Certificate. In addition, the Owner
Trust obtained a municipal bond insurance policy from MBIA to credit enhance
Certificate distributions for the benefit of the
-11-
holders of the Floater Certificates and has also arranged for a liquidity
facility, issued by a consortium of highly rated European banks, with respect to
the Floater Certificates. The Company owns no beneficial interest in, and does
not control, the Certificate Trust.
The effect of the TOP structure is that a portion of the interest received by
the Owner Trust on the FMBs it holds is distributed through the Senior
Certificate to the holders of the Floater Certificates in an amount determined
each week by the remarketing agent, Goldman Sachs & Co., at the distribution
amount that is required to enable the remarketing agent to sell the Floater
Certificates at par on any weekly determination date, with the residual interest
remitted to the Origination Trust via the Residual Certificate.
The Company's cost of funds relating to the TOP (calculated as income allocated
to the minority interest plus recurring fees as a percentage of the weighted
average amount of the outstanding Senior Certificate) was approximately 4.5% and
4.9% for the year ended December 31, 1999 and the period May 21, 1998
(inception) through December 31, 1998, respectively.
PROPOSED MERGER
On November 2, 1999, the Company and American Tax Exempt Bond Trust ("ATEBT"),
whose manager is an affiliate of the Manager of the Company, entered into a
merger agreement pursuant to which ATEBT would merge with and into CM Holding
Trust, a wholly-owned subsidiary of the Company. Following the merger, CM
Holding Trust would continue to be a wholly-owned subsidiary of the Company.
ATEBT is a Delaware business trust which owns four tax-exempt first mortgage
bonds and had total assets of approximately $27,382,000 and net assets of
approximately $26,030,000 at December 31, 1999. The four tax-exempt first
mortgage bonds have an aggregate outstanding loan balance of $23,775,000 at
December 31, 1999, have interest rates of 9% and have underlying properties
located in four different states.
Under the terms of the merger agreement, each share of beneficial ownership in
ATEBT outstanding on the effective date of the proposed merger (1,463,521 shares
at December 31, 1999) will be converted into the right to receive 1.43112 Shares
of the Company. In addition, the manager of ATEBT (which owns a 1% interest in
ATEBT not currently represented by ATEBT shares) will receive 21,156 shares of
the Company. Following the merger, current ATEBT shareholders will own
approximately 9.3% of the outstanding Shares of the Company.
Consummation of the merger is subject to several conditions, including approval
by ATEBT shareholders. In addition, either entity has the ability to opt out of
the transaction if the 30-day average trading price of the Company's Shares
preceding the closing of the transaction is outside of the Company's historical
trading range of $11.13 to $14.50. Subject to ATEBT shareholder approval, the
Company and ATEBT expect that this transaction will close during the second
quarter of 2000.
COMPETITION
The Company competes with various financial institutions and credit enhancers in
regard to acquisitions of FMBs. These institutions include quasi-governmental
agencies such as FNMA and FHA as well as sponsors of investors in affordable
housing such as high yield municipal funds, private investment funds and
financial institutions which invest in affordable housing.
The Company's business is also affected by competition to the extent that the
Underlying Properties from which it derives interest and, ultimately, principal
payments may be subject to competition relating to rental rates and relative
levels of amenities from offered by comparable neighboring properties. See the
comprehensive table under the heading "First Mortgage Bonds - General", above,
for additional competitive information.
In addition, the Manager and/or its affiliates have formed, and may continue to
form, various entities to engage in businesses which may be competitive with the
Company.
EMPLOYEES
The Company has no employees. Management and administrative services for the
Company and its subsidiaries are performed by the Manager and its affiliates
pursuant to the Management Agreement between the Company and the Manager dated
October 1, 1997, as amended (the "Management Agreement"). The Manager receives
compensation for such services and the Company and its subsidiaries reimburses
the Manager and certain of its affiliates for expenses incurred in connection
with the performance by their employees of services for the Company in
accordance with the Management Agreement (see Note 10 to the Company's Financial
Statements included in "Item 8. Financial Statements and Supplementary Data").
RECENT LEGISLATION
The States of California and Florida recently adopted administrative amendments
to their allocation plans pursuant to which they award bond value capital to
developers of multifamily housing. These amendments will require, in some cases,
a certain portion of the debt financing for such properties to be taxable.
Therefore, in certain cases, the Company may be required to offer taxable
financing to California and Florida developers in order to be competitive.
On March 9, 2000, the United States House of Representatives passed the Wage and
Employment Growth Act of 1999 ("HR3081"). Section 511 of HR3081 calls for an
acceleration of phase-in of increases in the volume cap on private activity
bonds. As of March 23,
-12-
2000, the bill has been read twice by the Senate and has been placed on the
Senate legislative calendar. This bill would increase the amount of bonds
available annually for acquisition by the Company or other financial
institutions.
Item 2. Properties
The Company does not own or lease any property.
Item 3. Legal Proceedings
The Company is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Shareholders
None.
PART II
Item 5. Market for the Company's Shares and Related Shareholder Matters.
As of March 9, 2000, there were 3,694 registered shareholders owning 20,582,628
Shares. The Company's Shares have been listed on the American Stock Exchange
since October 1, 1997 under the symbol "CHC". Prior to October 1, 1997, there
was no established public trading market for the Company's Shares.
The high and low prices for each quarterly period of the last two years for
which the Shares were traded is as follows:
1999 1999 1998 1998
Quarter Ended Low High Low High
- - ------------- ---- ---- ---- ----
March 31 11 15/16 13 3/8 12 11/16 14 1/2
June 30 12 3/8 13 1/16 12 7/8 14 7/16
September 30 12 3/8 13 1/16 12 9/16 14 1/4
December 31 11 3/8 13 1/8 11 11/16 13
The last reported sale price of Shares on the American Stock Exchange on March
9, 2000 was $11 15/16.
INCENTIVE SHARE OPTION PLAN
The Company has adopted an incentive share option plan (the "Incentive Share
Option Plan"), the purpose of which is to (i) attract and retain qualified
persons as trustees and officers and (ii) to incentivize and more closely align
the financial interests of the Manager and its employees and officers with the
interests of the shareholders by providing the Manager with substantial
financial interest in the Company's success. The Compensation Committee
administers the Incentive Share Option Plan. Pursuant to the Incentive Share
Option Plan, if the Company's distributions per Share in the immediately
preceding calendar year exceed $0.9517 per Share, the Compensation Committee has
the authority to issue options to purchase, in the aggregate, that number of
Shares which is equal to three percent of the Shares outstanding as of December
31 of the immediately preceding calendar year (or in the initial year, as of
October 1, 1997), provided that the Compensation Committee may only issue, in
the aggregate, options to purchase a maximum number of Shares over the life of
the Incentive Shares Option Plan equal to 10% of the Shares outstanding on
October 1, 1997 (2,058,748 Shares).
Subject to the limitations described in the preceding paragraph, if the
Compensation Committee does not grant the maximum number of options in any year,
then the excess of the number of authorized options over the number of options
granted in such year will be added to the number of authorized options in the
next succeeding year and will be available for grant by the Compensation
Committee in such succeeding year.
All options granted by the Compensation Committee will have an exercise price
equal to or greater than the fair market value of the Shares on the date of the
grant. The maximum option term is ten years from the date of grant. All Share
options granted pursuant to the Incentive Share Option Plan may vest immediately
upon issuance or in accordance with the determination of the Compensation
Committee. No options were granted for the year ended December 31, 1997. In
1998, the Company distributed only $.93 per Share, thus prohibiting the
Compensation Committee, from issuing options. In 1999, the Company distributed
$.995 per Share, thus enabling the Compensation Committee, at their discretion,
to issue options. The Compensation Committee is considering granting options;
however, as of March 17, 2000, no options have been granted. Three percent of
the Shares outstanding as of December 31, 1999 are equal to 617,624 Shares.
-13-
SHARE REPURCHASE PLAN
On October 9, 1998, the Board of Trustees authorized the implementation of a
Share repurchase plan, enabling the Company to repurchase, from time to time, up
to 1,500,000 of its Shares. The repurchases will be made in the open market and
the timing will be dependant on the availability of Shares and other market
conditions. As of both December 31, 1999 and 1998, the Company had acquired
8,400 of its Shares for an aggregate purchase price of $103,359 (including
commissions and service charges). Repurchased Shares are accounted for as
treasury Shares of beneficial interest.
PREFERRED EQUITY OFFERING
On June 29, 1999 a subsidiary of the Company completed a $90 million tax-exempt
preferred equity offering (the "Preferred Offering") comprising 45 shares
("Series A Cumulative Preferred Shares") which were purchased by Merrill Lynch,
Legg Mason Wood Walker, Inc. and McDonald Investments, Inc. (the "Initial
Purchasers"). The Initial Purchasers then sold the Series A Cumulative Preferred
Shares to qualified institutional investors.
In connection with this transaction, the Company caused 100% of the ownership of
the Origination Trust to be transferred to Charter Mac Equity Issuer Trust (the
"Issuer"), a newly formed Delaware business trust and an indirectly owned
subsidiary in which the Company owns 100% of the common equity. The Issuer then
issued the Series A Cumulative Preferred Shares. As a result of such
transaction, the Issuer became the direct and indirect owner of the entire
outstanding issue of 40 FMBs held by the Origination Trust and Owner Trust, its
two directly and indirectly owned subsidiaries. In addition to contributing the
ownership of the Origination Trust, the Company also contributed eight FMBs to
the Issuer. As of the closing, the aggregate par value of FMBs held directly or
indirectly by the Issuer or its subsidiaries was $463,699,028. Net proceeds of
approximately $86,395,000 from the Preferred Offering have been used to invest
in or acquire additional tax-exempt assets for the Issuer.
The Series A Cumulative Preferred Shares have an annual preferred dividend rate
of 6 5/8% through June 30, 2009, payable quarterly in arrears on January 31,
April 30, July 31 and October 31 of each year, commencing October 31, 1999 and
payable upon declaration thereof by the Issuer's Board of Trustees, but only to
the extent of the Issuer's tax-exempt income (net of expenses) for the
particular quarter ("Quarterly Net Income"). The Series A Cumulative Preferred
Shares are subject to mandatory tender by the holders thereof for remarketing
and purchase on June 30, 2009 and each remarketing date thereafter at a price
equal to the $2,000,000 per share plus, to the extent of the Issuer's Quarterly
Net Income, an amount equal to all distributions accrued but unpaid on the
Series A Cumulative Preferred Shares. Distributions in the amount of $3,014,375
(66,986.11 per share) were paid to the preferred shareholders of the Issuer for
the period June 29, 1999 (inception) through December 31, 1999.
Holders of the Series A Cumulative Preferred Shares may elect to retain their
shares upon a remarketing, with a distribution rate to be determined immediately
prior to the remarketing date by the remarketing agent. Each holder of the
Series A Cumulative Preferred Shares will be required to tender its shares to
the Issuer for mandatory repurchase on June 30, 2049, unless the Issuer decides
to remarket the shares on such date. The Issuer may not redeem the Series A
Cumulative Preferred Shares before June 30, 2009. After that date, all or a
portion of the shares may be redeemed, subject to certain conditions. The Series
A Cumulative Preferred Shares are not convertible into common shares of the
Issuer or Shares of the Company.
The Series A Cumulative Preferred Shares rank, with respect to payment of
distributions and amounts upon liquidation, dissolution or winding-up of the
Issuer, senior to all classes or series of common shares of the Issuer and
therefore, of the Company.
OTHER
Through calendar year 1999, each independent trustee was entitled to receive
annual compensation for serving as a trustee in the aggregate amount of $15,000
payable in cash (maximum of $5,000 per year) and/or Shares valued based on the
fair market value at the date of issuance. Beginning in calendar year 2000, the
annual compensation for the two original independent trustees was increased from
$15,000 to $17,500 and the maximum payable in cash was increased from $5,000 to
$7,500. In 2000, a third independent trustee was appointed and such trustee will
receive annual compensation in the aggregate amount of $30,000 payable in cash
(maximum of $20,000 per year) and or Shares. As of December 31, 1999 and 1998,
1910 and 372 Shares, respectively, having an aggregate value of $25,000 and
$5,000, respectively, have been issued to the independent trustees as
compensation for their services.
The Company was created as part of the settlement in 1997 of class action
litigation against, among others, the sponsors of the Partnerships which were
consolidated to form the Company. As part of that settlement, counsel ("Class
Counsel") for the partners of the Partnerships had the right to petition the
United States District Court for the Southern District of New York (the "Court")
for additional attorneys' fees ("Counsel's Fee Shares") in an amount to be
determined in the Court's sole discretion. The Counsel's Fee Shares were based
upon a percentage (which Class Counsel proposed to be 25%) of the increase in
value of the Company, ("the Added Value") if any, as of October 1, 1998 based
upon the difference between (i) the trading prices of the Company's shares of
beneficial interest during the six month period ended October 1, 1998 and (ii)
the trading prices of the limited partnership units and the asset values of the
Partnerships prior to October 1, 1997. As of October 1, 1998, 25% of the Added
Value amounted to $7,788,536 and, in accordance with an Order and Stipulation of
Settlement by the Court on February 18, 1999 (the "Order"), Class Counsel was
entitled to receive 608,955 shares of beneficial interest in the Company. On
April 15, 1999, the Company successfully negotiated a discounted cash settlement
(the "Discounted Cash Settlement") of $6,089,550 with Class Counsel in lieu of
the issuance of shares. On April 26, 1999, the Discounted Cash Settlement was
approved by the Board of Trustees and it was paid on May 3, 1999.
-14-
DISTRIBUTION INFORMATION
DISTRIBUTIONS PER SHARE
Quarterly cash distributions per share for the years ended December 31, 1999 and
1998 were as follows:
Shareholders of the Company
------------------------------------
Cash Distribution Total Amount
for Quarter Ended Date Paid Per Share Distributed
- - ----------------- --------- --------- ------------
March 31, 1999 5/14/99 $ .240 $ 4,939,437
June 30, 1999 8/15/99 .245 5,042,352
September 30, 1999 11/14/99 .245 5,042,352
December 31, 1999 2/14/00 .265 5,453,971
------- ----------
$ .995 $20,478,112
======= ==========
Total for 1999
March 31, 1998 5/15/98$ .23 $ 4,735,119
June 30, 1998 8/14/98 .23 4,735,205
September 30, 1998 11/14/98 .23 4,735,205
December 31, 1998 2/14/99 .24 4,939,068
------- ----------
Total for 1998 $ .93 $19,144,597
======= ==========
In addition to the distributions set forth in the table above, the Company paid
the Manager a special distribution (equal to .375% per annum of the total
invested assets of the Company) which amounted to $2,018,822 and $1,477,797 for
the years ended December 31, 1999 and 1998, respectively.
There are no material legal restrictions upon the Company's present or future
ability to make distributions in accordance with the provisions of the Company's
Amended and Restated Trust Agreement. Future distributions paid by the Company
will be at the discretion of the Trustees and will depend on the actual cash
flow of the Company, its financial condition, capital requirements and such
other factors as the Trustees deem relevant.
-15-
Item 6. Selected Financial Data.
The information set forth below presents selected financial data of the Company.
Additional financial information is set forth in the audited financial
statements and notes thereto contained in "Item 8. Financial Statements and
Supplementary Data".
Year ended December 31,
--------------------------------------------------------------------------
OPERATIONS 1999 1998* 1997* 1996* 1995*
- - ---------- ------------ ------------ ------------ ------------ ------------
Total revenues $ 40,437,190 $ 27,940,120 $ 14,229,774 $ 11,627,595 $ 11,854,566
Loss on impairment of assets***** (1,859,042) 0 (1,843,135) (4,000,000) (1,000,000)
Other expenses (6,316,544) (4,350,249) (2,330,831) (1,782,554) (1,666,763)
----------- ----------- ----------- ----------- -----------
Income before loss on repayment of first mortgage 32,261,604 23,589,871 10,055,808 5,845,041 9,187,803
bonds
Loss on repayment of first mortgage bonds (463,147) 0 0 0 0
----------- ----------- ----------- ----------- -----------
Income before minority interests 31,798,457 23,589,871 10,055,808 5,845,041 9,187,803
Income allocated to preferred shareholders of (3,014,375) 0 0 0 0
subsidiary
Minority interest in income of subsidiary (5,602,264) (1,563,999) 0 0 0
----------- ----------- ----------- ----------- -----------
Net income $ 23,181,818 $ 22,025,872 $ 10,055,808 $ 5,845,041 $ 9,187,803
=========== =========== =========== =========== ===========
Net income applicable to shareholders of beneficial
interest $ 20,951,366 $ 20,342,594 $ 2,437,538***
=========== =========== ===========
Net income per share (1)
Basic** $ 1.02 $ .99 $ .12***
=========== =========== ===========
Diluted** $ 1.02 $ .98 $ .12***
=========== =========== ===========
Weighted average shares
outstanding:
Basic** 20,580,756 20,587,151 20,587,465***
=========== =========== ===========
Diluted** 20,580,756 20,740,641 20,587,465***
=========== =========== ===========
December 31,
--------------------------------------------------------------------------
FINANCIAL POSITION 1999 1998 1997 1996* 1995*
- - ------------------ ------------ ------------ ------------ ------------ ------------
Total assets $673,791,224 $492,585,806 $362,390,563 $154,896,475 $157,019,314
=========== =========== =========== =========== ===========
Secured borrowings $ 80,769,616 $ 0 $ 0 $ 0 $ 0
=========== =========== =========== =========== ===========
Notes payable $ 0 $ 0 $ 21,445,340 $ 0 $ 0
=========== =========== =========== =========== ===========
Total liabilities $ 91,238,729 $ 15,091,600 $ 30,722,364 $ 573,874 $ 652,350
=========== =========== =========== =========== ===========
Minority interest in subsidiary (subject to
mandatory redemption) $177,000,000 $150,000,000 $ 0 $ 0 $ 0
=========== =========== =========== =========== ===========
Preferred shares of subsidiary (subject to
mandatory repurchase) $ 90,000,000 $ 0 $ 0 $ 0 $ 0
=========== =========== =========== =========== ===========
Total shareholders' equity/partners' capital $315,552,495 $327,494,206 $331,668,199 $154,322,601 $156,366,964
=========== =========== =========== =========== ===========
DISTRIBUTIONS
- - -------------
Distributions to BUCSholders N/A N/A $ 7,138,263**** $ 9,517,685 $ 9,517,685
=========== =========== ===========
Distributions to shareholders of beneficial interest $ 20,478,112 $ 19,144,597 $ 4,735,120***
=========== =========== ===========
Distributions per share** $ 1.00 $ .93 $ .23***
=========== =========== ===========
-16-
OTHER DATA
Year Ended Year Ended Three Months Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- ------------------
Cash available for distribution (2) $ 26,570,394 $ 22,243,193 $ 4,624,279
Less: distributions to the Manager (2,018,833) (1,477,807) (330,582)
------------ ------------ ------------
Cash available for distribution to
shareholders $ 24,551,561 $ 20,765,386 $ 4,293,697
============ ============ ============
Distributions to shareholders $ 20,478,101 $ 19,144,587 $ 4,735,117
============ ============ ============
Payout ratio 83.4% 92.2% 110.3%
============ =========== ============
Cash flows from:
Operating activities $ 23,252,906 $ 22,651,186 $ 4,465,552
============ ============ ============
Investing activities $(196,857,829) $(117,243,543) $ (8,497,439)
============ ============ ============
Financing activities $ 169,165,403 $ 105,388,481 $ 2,144,509
============ ============ ============
*Information prior to October 1, 1997 (the date of the Consolidation) is only
with respect to Tax Exempt II. Information subsequent to September 30, 1997 is
with respect to the Company and its consolidated subsidiaries which include Tax
Exempt II and the other Partnerships pursuant to the Consolidation.
**Net income and distribution per Share information for periods prior to October
1, 1997 is not presented because it is not indicative of the Company's
continuing capital structure.
***Represents amount for the three months ended December 31, 1997.
****Represents amount for the nine months ended September 30, 1997.
*****The losses on impairment of assets recognized in 1999, 1997, 1996 and 1995
reflect the write-down of the cost basis of certain FMBs to their estimated fair
values, upon the determination that such decline in value was other than
temporary.
(1) Net income per Share equals net income, less the special allocations to the
Manager, divided by the weighted average Shares outstanding for the period.
(2) See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a definition and calculation of Cash Available for
Distribution.
-17-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Charter Municipal Mortgage Acceptance Company (the "Company") is a Delaware
business trust which is engaged in the acquisition and ownership (either
directly or indirectly) of tax-exempt participating and non-participating first
mortgage bonds ("FMBs") issued by various state or local governments or other
agencies or authorities and secured by participating and non-participating
mortgage loans on the underlying properties ("Underlying Properties"). As of
December 31, 1999, the Company owned a portfolio of 69 FMBs and had net assets
of approximately $315,552,495.
The Company was formed by the consolidation (the "Consolidation"), on October 1,
1997, of Summit Tax Exempt Bond Fund, L.P. ("Tax Exempt I"), Summit Tax Exempt
L.P. II ("Tax Exempt II") and Summit Tax Exempt L.P. III ("Tax Exempt III"),
three publicly registered limited partnerships (the "Partnerships"). One of the
general partners of the Partnerships was an affiliate of Related Capital Company
("Related").
In order to generate increased tax exempt income and, as a result, enhance the
value of the Company's Shares, the Company intends to invest in or acquire
additional tax-exempt bonds secured by multifamily properties. The Company
believes that it can earn above market rates of interest on its bond
acquisitions by focusing its efforts primarily on affordable housing. The
Manager estimates that nearly 50% of all new multifamily development contains an
affordable component which produces tax credits pursuant to Section 42 of the
Internal Revenue Code. The Company has designed a Direct Purchase Program
specifically designed to appeal to developers of such properties. In general,
these properties are smaller than traditional multifamily housing properties,
averaging 150 units. The traditional method of financing tax-exempt properties
requires the involvement of credit enhancement, rating agencies and investment
bankers. Therefore, the up-front cost of such financing is generally much higher
than traditional multifamily financing. Through its Direct Purchase Program, the
Company will invest in or acquire tax-exempt bonds without the cost associated
with credit enhancement, rating agencies and investment bankers. The Company
believes that the up-front cost savings to the developer will translate into a
higher than market interest rate on the bonds acquired by the Company.
The Company believes that it is well positioned to market its Direct Purchase
Program as a result of the Manager's affiliation with Related. The Manager is a
single purpose affiliate of Related which is controlled by the same individuals
and entities which own Related. The Manager benefits from its affiliation with
Related because the Manager is able to utilize Related's resources and
relationships in the multifamily affordable housing finance industry to source
potential borrowers of first mortgage bonds the Company could invest in or
acquire. Related and its predecessor companies have specialized in offering debt
and equity products to mid-market multifamily owners and developers for over 25
years. Related has provided debt and equity financing to properties valued at
over $9.0 billion. According to the 1999 National Multihousing Council survey,
Related is the third largest owner of apartments in the United States.
The Company does not operate as a mortgage REIT, which generally utilize high
levels of leverage and acquire subordinated interests in commercial and/or
residential mortgage-backed securities. Rather, the Company utilizes low levels
of leverage and generally invests in or acquires long-term, fixed-rate,
tax-exempt FMBs. As a result, the Company did not experience the ill-effects
associated with the volatile interest rate environment during 1999 and 1998.
Pursuant to its Trust Agreement, the Company is only able to incur leverage or
other financing up to 50% of the Company's Total Market Value (as defined in the
Trust Agreement) as of the date incurred. Mortgage REITs typically incur
leverage at ratios ranging from between 3:1 to 10:1.
Due to the Company's low level of leverage, the Company has not been affected by
the lack of liquidity that recently impaired mortgage REITs and its portfolio
does not contain assets that are especially vulnerable to volatility during
periods of interest rate fluctuations. In general, the FMBs that the Company
either invests in or acquires call for ten-year restrictions from prepayments,
eliminating the Company's susceptibility to significant levels of repayment risk
as a result of interest rate reductions. Consistent with the foregoing, the
Company focuses on providing investors with a stable level of distributions,
even through unstable markets.
The Company requires long-term financing in order to invest in and hold its
portfolio of FMBs. To date, this long-term liquidity has come from the Company's
Private Label Tender Option Program, a preferred equity offering by a
subsidiary, and secured borrowings under securitization transactions. These
financing sources have expected lives equal to the expected lives of the FMBs
used to collateralize them, and are explained in more detail below. On a
short-term basis, the Company requires funds to pay its operating expenses and
to make distributions to its shareholders. The primary sources of the Company's
short-term liquidity needs are the interest income from the FMBs and promissory
notes in excess of the related financing costs, and interest income from cash
and temporary investments.
During the year ended December 31, 1999 cash and cash equivalents of the Company
and its consolidated subsidiaries decreased approximately $4,440,000. The
decrease was primarily due to the purchase of FMBs ($165,356,000), the purchase
of other bond related investments ($579,000), an increase in deferred bond
selection costs ($3,907,000), the net purchase of temporary investments
($45,541,000), an increase in restricted cash and cash equivalents ($1,028,000),
loans made to properties ($2,847,000), distributions paid to the Manager and
shareholders of the Company and to preferred shareholders of subsidiary,
($23,339,000), an increase in deferred costs relating to the Private Label
Tender Option Program ($560,000) and deferred costs relating to the issuance of
preferred stock of subsidiary ($3,605,000) which exceeded cash provided by
operating activities ($23,253,000), proceeds from repayments of FMBs
($21,395,000), an increase in minority interest ($27,000,000), proceeds from
secured borrowings ($80,770,000) and the
-18-
issuance of preferred shares of subsidiary ($90,000,000). Included in the
adjustments to reconcile the net income to cash provided by operating activities
is a loss on repayments of FMBs ($463,000) a loss on impairment of assets
($1,859,000) and net amortization ($1,066,000).
The Company has entered into forbearance agreements on several FMBs and may be
required to extend these agreements or enter into new agreements in the future.
Such agreements may adversely impact liquidity; however, interest payments from
FMBs and RITES are anticipated to provide sufficient liquidity to fund the
Company's operating expenditures, debt service and distributions in future
years.
The determination as to whether it is in the best interest of the Company to
enter into forbearance agreements on the FMBs or, alternatively, to pursue its
remedies under the loan documents, including foreclosure, is based upon several
factors including, but not limited to, Underlying Property performance, owner
cooperation and projected legal costs.
The difference between the stated interest rates and the rates paid by FMBs is
not accrued as interest income for financial reporting purposes. The accrual of
interest at the stated interest rate will resume once an Underlying Property's
ability to pay the stated rate has been adequately demonstrated. Interest income
of approximately $1,916,000, $3,047,000 and $2,415,000 was not recognized for
the years ended December 31, 1999, 1998 and 1997, respectively.
In January and February 2000, distributions of $1,490,625 ($33,125 per preferred
share) and $5,453,971 ($.265 per Share), respectively, which were declared in
December 1999, were paid to the preferred shareholders of subsidiary and
shareholders of the Company, respectively, from cash flow from operations for
the quarter ended December 31, 1999.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way.
CAPITAL RAISING TRANSACTIONS
(i) PRIVATE LABEL TENDER OPTION PROGRAM
On May 21, 1998, the Company closed on its Private Label Tender Option Program
("TOP") in order to raise additional capital to acquire additional FMBs. As of
March 31, 1999, the maximum amount of capital which could be raised under the
TOP ($150,000,000) had been raised. In April 1999, the Company successfully
negotiated an increase in its TOP to $200,000,000. As of December 31, 1999, the
Company has contributed 40 issues of FMBs in the aggregate principal amount of
approximately $394,457,000 to Charter Mac Origination Trust I (the "Origination
Trust"), a wholly-owned, indirect subsidiary of the Company, which has
contributed 32 of those FMBs, with an aggregate principal amount of
approximately $304,005,000, to Charter Mac Owner Trust I (the "Owner Trust")
which is controlled by the Company. The Owner Trust has issued two equity
certificates: (i) a Senior Certificate, with an outstanding face amount of
$177,000,000 at December 31, 1999, which has been deposited into another
Delaware business trust (the "Certificate Trust") which issued and sold Floater
Certificates representing proportional interests in the Senior Certificate to
new investors and (ii) a Residual Certificate representing the remaining
beneficial ownership interest in the Owner Trust, which has been issued to the
Origination Trust. The FMBs remaining in the Origination Trust (aggregate
principal amount of approximately $90,452,000) are a collateral pool for the
Owner Trust's obligations under the Senior Certificate. In addition, the Owner
Trust obtained a municipal bond insurance policy from MBIA to credit enhance
Certificate distributions for the benefit of the holders of the Floater
Certificates and has also arranged for a liquidity facility, issued by a
consortium of highly rated European banks, with respect to the Floater
Certificates. The Company owns no beneficial interest in, and does not control,
the Certificate Trust.
The effect of the TOP structure is that a portion of the interest received by
the Owner Trust on the FMBs it holds is distributed through the Senior
Certificate to the holders of the Floater Certificates in an amount determined
each week by the remarketing agent, Goldman Sachs & Co., at the distribution
amount that is required to enable the remarketing agent to sell the Floater
Certificates at par on any weekly determination date, with the residual interest
remitted to the Origination Trust via the Residual Certificate.
The Company's cost of funds relating to the TOP (calculated as income allocated
to the minority interest plus recurring fees as a percentage of the weighted
average amount of the outstanding Senior Certificate) was approximately 4.5% and
4.9% for the year ended December 31, 1999 and the period May 21, 1998
(inception) through December 31, 1998, respectively.
(ii) PREFERRED EQUITY ISSUANCE BY SUBSIDIARY
On June 29, 1999 a subsidiary of the Company completed a $90 million tax-exempt
preferred equity offering (the "Preferred Offering") comprising 45 shares
("Series A Cumulative Preferred Shares") which were purchased by Merrill Lynch,
Legg Mason Wood Walker, Inc. and McDonald Investments, Inc. (the "Initial
Purchasers"). The Initial Purchasers then sold the Series A Cumulative Preferred
Shares to qualified institutional investors.
In connection with this transaction, the Company caused 100% of the ownership of
the Origination Trust to be transferred to Charter Mac Equity Issuer Trust (the
"Issuer"), a newly formed Delaware business trust and an indirectly owned
subsidiary in which the Company owns 100% of the common equity. The Issuer then
issued the Series A Cumulative Preferred Shares. As a result of such
transaction, the Issuer became the direct and indirect owner of the entire
outstanding issue of 40 FMBs held by the Origination Trust and Owner Trust, its
two directly and indirectly owned subsidiaries (see Note 8). In addition to
contributing the ownership of the Origination Trust, the Company also
contributed eight FMBs to the Issuer. As of the closing, the aggregate par value
of FMBs held
-19-
directly or indirectly by the Issuer or its subsidiaries was $463,699,028. Net
proceeds of approximately $86,395,000 from the Preferred Offering have been used
to invest in or acquire additional tax-exempt assets for the Issuer.
The Series A Cumulative Preferred Shares have an annual preferred dividend rate
of 6 5/8% through June 30, 2009, payable quarterly in arrears on January 31,
April 30, July 31 and October 31 of each year, commencing October 31, 1999 and
payable upon declaration thereof by the Issuer's Board of Trustees, but only to
the extent of the Issuer's tax-exempt income (net of expenses) for the
particular quarter ("Quarterly Net Income"). The Series A Cumulative Preferred
Shares are subject to mandatory tender by the holders thereof for remarketing
and purchase on June 30, 2009 and each remarketing date thereafter at a price
equal to the $2,000,000 per share plus, to the extent of the Issuer's Quarterly
Net Income, an amount equal to all distributions accrued but unpaid on the
Series A Cumulative Preferred Shares. Distributions in the amount of $3,014,375
(66,986.11 per share) were paid to the preferred shareholders of the Issuer for
the period June 29, 1999 (inception) through December 31, 1999.
Holders of the Series A Cumulative Preferred Shares may elect to retain their
shares upon a remarketing, with a distribution rate to be determined immediately
prior to the remarketing date by the remarketing agent. Each holder of the
Series A Cumulative Preferred Shares will be required to tender its shares to
the Issuer for mandatory repurchase on June 30, 2049, unless the Issuer decides
to remarket the shares on such date. The Issuer may not redeem the Series A
Cumulative Preferred Shares before June 30, 2009. After that date, all or a
portion of the shares may be redeemed, subject to certain conditions. The Series
A Cumulative Preferred Shares are not convertible into common shares of the
Issuer or Shares of the Company.
The Series A Cumulative Preferred Shares rank, with respect to payment of
distributions and amounts upon liquidation, dissolution or winding-up of the
Issuer, senior to all classes or series of common shares of the Issuer and
therefore, of the Company.
(iii) SECURITIZATION TRANSACTIONS
To raise additional capital to acquire additional FMBs, the Company has
securitized certain FMBs through the Merrill Lynch Pierce Fenner & Smith
Incorporated ("Merrill Lynch") P-FLOATS/RITES program. Under this program, the
Company transfers certain FMBs to Merrill Lynch. Merrill Lynch then deposits
each FMB into an individual special purpose trust created to hold such asset,
together with a Credit Enhancement Guarantee ("Guarantee"). Two types of
securities are then issued by each trust, evidencing ownership in the FMBs and
the Guarantee: (1) Puttable Floating Option Tax-Exempt Receipts ("P-FLOATS"), a
short-term senior security which bears interest at a floating rate that is reset
weekly by the Remarketing Agent, Merrill Lynch, to result in the sale of the
P-FLOAT security at par (up to 99% of the underlying face amount of the FMB);
and (2) Residual Interest Tax Exempt Securities ("RITES), a subordinate security
which receives the residual interest payment after payment of P-FLOAT interest
and ongoing transaction fees. The P-FLOATS are sold to qualified third party,
tax-exempt investors and the RITES are sold back to the Company. The Company has
the right, with 14 days notice to the trustee, to purchase the outstanding
P-FLOATS and withdraw the underlying FMBs from the trust. When the FMBs are
deposited into the P-FLOAT Trust, the Company receives the proceeds from the
sale of the P-FLOATS less certain transaction costs. In certain other cases,
Merrill Lynch may directly buy the FMBs from local issuers, deposit them in the
trust, sell the P-FLOAT security to qualified investors and then the RITES to
the Company.
In order to facilitate the securitization, the Company has pledged certain
additional FMBs, cash and cash equivalents and temporary investments as
collateral for the benefit of the credit enhancer or liquidity provider. At
December 31, 1999, the total carrying amount of such additional FMBs, cash and
cash equivalents and temporary investments pledged as collateral was
$53,761,000, $1,028,209 and $45,541,000, respectively.
During the period May 1999 through December 1999, the Company transferred ten
FMBs with an aggregate face amount of $82,219,500 to Merrill Lynch through the
Merrill Lynch P-FLOATS/RITES program and received proceeds of $80,769,616.
The Company's cost of funds relating to its secured borrowings under the Merrill
Lynch P-FLOATS/RITES program (calculated as interest expense as a percentage of
the weighted average amount of the secured borrowings) was approximately 4.8%,
annualized, for the period June 29, 1999 (inception of this program) through
December 31, 1999.
During June 1999, Merrill Lynch purchased three FMBs with an aggregate face
amount of $22,430,000. The FMBs were placed into a trust by Merrill Lynch
whereby P-FLOATS and RITES were sold. The Company purchased the related RITES
interests with