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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, 1998
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, 1999 was $262,831,309,
based on a price of $13 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, 1999 there were 20,580,986 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 16, 1999, which are incorporated into Items
10, 11, 12 and 13.
Index to exhibits may be found on page 40
Page 1 of 97
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. THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS
OR CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
PART I
Item 1. Business.
General
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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, 1998, the Company owned a portfolio of 49 FMBs. The Company is
organized and managed as a single business segment.
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. There are 18 FMBs, which were acquired in 1997 and 1998, with Underlying
Properties either under construction or undergoing major rehabilitation. The
remaining 31 properties in the portfolio average 9-11 years in age. The
portfolio reports an average occupancy of 94.3% as of February 28, 1999. Net
operating income, in the aggregate, at the Underlying Properties has increased
an average of approximately 3% per annum since 1992.
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 originates and acquires long-term, fixed-rate,
tax-exempt FMBs. As a result, the Company did not expect to experience the
ill-effects associated with the volatile interest rate environment during 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 (the "50% Limit"). The Company expects
to seek shareholder approval at the 1999 annual meeting to amend the Trust
Agreement to permit the Company to exceed the 50% Limit with respect to short
term borrowings of no more than approximately 5% of Total Market Value. Mortgage
REITs typically incur leverage at ratios ranging from between 3:1 to 10:1. In
general, the FMBs that the Company either originates 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.
Due to the Company's low level of leverage, the Company has not been affected by
the recent lack of liquidity that is currently impairing mortgage REITs and its
portfolio does not contain assets that are especially vulnerable to volatility
during periods of interest rate fluctuations.
Organization
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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"). Unless otherwise indicated, the "Company", as hereinafter used,
refers to Charter Municipal Mortgage Acceptance Company and its subsidiary 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, 1998, there were 20,579,448 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, is 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 for the
years ended December 31, 1998, 1997 and 1996 include information for the entire
periods presented with respect to Tax Exempt II, but only include information
for the period October 1, 1997 to December 31, 1998 with respect to the other
Partnerships. 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 two independent
managing trustees and three 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. Each independent trustee is 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. On June 4, 1998, 186
shares, having an aggregate value of $2,500 as of that date, were issued to each
independent trustee as compensation for their services for the quarter ended
December 31, 1997. Through the Manager, Related offers the Company
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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.
As part of the settlement of class action litigation relating to the
Partnerships, 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 are 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, Class
Counsel is entitled to receive 608,955 shares of beneficial interest in the
Company. The shares will be distributed to Class Counsel quarterly in eight
equal distributions commencing within ten business days after Class Counsel
advises the Company in writing of the persons in whose name the shares are to be
issued. One-half of such shares will be in the form of Restricted Securities
(restricted only with respect to the sale, assignment, pledge or other transfer
of such securities) and the remaining one-half of such shares will be
unrestricted. Restrictions on the Restricted Securities expire one year from the
date of issuance. Management is currently negotiating a discounted cash
settlement with Class Counsel in lieu of the issuance of shares; however, any
such settlement would require the approval of the Board of Trustees and there
can be no assurance that such negotiations will be successful.
Business Plan
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The Company has initiated a focused business/strategic plan designed to increase
cash available for distribution ("CAD"), generate increased tax-exempt income
and as a result enhance the value of its stock. The plan concentrates
principally on the origination and acquisition of additional tax-exempt FMBs
secured by multfamily 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 Manager also
believes that each year a growing number of these properties are financed with
tax-exempt bonds. 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 originate and 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 is positioned to market its Direct Purchase Program as a result of
the Manager's affiliation with Related. 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 $7.8 billion. In addition, since 1987
Related has been one of the nation's leading provider of equity to developers of
multifamily housing which benefits from tax credits. During 1998, the Manager's
affiliation with Related allowed it to become one of the dominant lenders to
developers and owners of affordable housing financed with tax-exempt bonds.
During 1998, the Company's growth was financed by the Private Label Tender
Option Program ("TOP") or similar programs, borrowings under the Interim Credit
Facility (see below), funds generated from operations in excess of distributions
and placements of equity. The Company is currently negotiating an increase in
its TOP from $150 million to $200 million and, before the end of 1999, the
Company expects to raise funds through an equity offering; however, there can be
no assurance that either of these initiatives will be successful. During the
period January 1, 1998 through December 31, 1998, the Company acquired 17 FMBs
(see Note 3 to the financial statements in "Item 8. Financial Statements and
Supplementary Data").
Structure of Existing First Mortgage Bonds
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The principal and interest payments on each FMB are payable only from the cash
flows of the Underlying Properties, including proceeds from a sale of an
Underlying Property or the refinancing of the mortgage loan securing such 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.
The seasoned original 31 FMBs 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 (bonds acquired in 1997 and 1998) 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. On all the FMBs 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 of the FMBs which range from
4.87% to 8.5% per annum, certain of the FMBs provide 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
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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, 1998, 1997 and 1996, six, five and
two FMBs, paid contingent interest amounting to approximately $960,000, $353,000
and $220,000, respectively.
Structure of Modified First Mortgage Bonds
- - ------------------------------------------
Certain of the FMB's have been modified reflecting current market conditions.
These modifications have generally encompassed an extension of the maturity
(10-20 years) 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. During 1998, the Highland Ridge, Willow Creek,
Bristol Village, Thomas Lake and Mansion FMBs were modified (see Note 3 to the
financial statements in "Item 8. Financial Statements and Supplementary Data").
The Company currently anticipates that it will modify certain other FMBs to
reflect generally similar terms as those modified previously and in 1998, where
and as appropriate.
Structure of New First Mortgage Bonds
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Newly acquired FMBs 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. 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 principal of an FMB may amortize.
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 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 only in connection with the acquisition of tax-exempt FMBs the
Company may acquire a small amount of taxable bonds to fund certain costs
associated with the issuance of FMBs, that under current law cannot be funded by
FMBs.
First Mortgage Bonds - General
- - ------------------------------
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, 1998, 1997 and 1996, except for the
Bristol Village and Pelican Cove FMBs which provided 14% and 11%, respectively,
of total revenue in 1996.
Based on the face amount of FMBs at December 31, 1998, approximately 23% of the
Underlying Properties are located in California, 15% are located in Florida, 14%
are located in Missouri, 10% are located in Georgia and 10% are located in
Minnesota. No other states comprise more than 10% of the total face amount.
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, 1998, the face amount of such advances was
$12,845,308, and their carrying value was $7,628,920, which is net of purchase
accounting adjustments, and a reserve for collectibility of $138,000.
The original obligors and owners of the Underlying Properties of the Cedar
Creek, Cypress Run, Highpointe, Greenway Manor, Sunset Terrace, Pelican Cove,
Loveridge, Sunset Downs, Sunset Creek and Sunset Village 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 the stated
rate of the FMB. The Company has no present intention of declaring a default on
these FMBs. The aggregate carrying value of these ten FMBs at December 31, 1998
was approximately $105,402,000 and the income earned from them for the year
ended December 31, 1998 was approximately $7,497,000.
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, 1998.
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
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will resume once an Underlying Property's ability to pay the stated rate
has been adequately demonstrated. Unrecorded contractual interest income was
approximately $3,047,000, $2,415,000 and $1,407,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
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CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
The following table lists the FMBs that the Company owns together with the
occupancy and rental rates of the Underlying Properties:
Carrying Average Minimum
Face Amount Interest Stated Pay Rate at Occupancy at Rental Rates No. of
Closing Amount at December Rate Paid Interest December 31, February 14, at December Rental
Property Date of Bond 31, 1998 (G) for 1998* Rate* 1998* 1999 31, 1998 Units
- - ------------------ ------- ----------- ----------- -------- -------- ----------- ------------ ------------ ------
The Mansion,
Independence, MO 5/13/86 $19,450,000 $20,084,000 7.68%(C) 7.25% 7.25% 92.3% $460-805 550
Martin's Creek,
Summerville, SC 5/20/86 7,300,000 8,443,000 8.25 8.25 8.25 99.0 450-710 200
East Ridge,
Mt. Pleasant, SC 5/20/86 8,700,000 10,063,000 8.25 8.25 8.25 99.0 565-820 200
Highpointe Club,
Harrisburg, PA 7/29/86 8,900,000 5,888,000 6.12 8.50 (B) 90.3 530-725 240
Cypress Run,
Tampa, FL 8/14/86 15,402,428 13,067,000 5.84 8.50 (B) 87.6 460-775 408
Thomas Lake,
Eagan, MN 9/02/86 12,975,000 13,643,000 7.50 7.50 7.50 98.6 758-1,247 216
North Glen,
Atlanta, GA 9/30/86 12,400,000 12,914,000 7.00 7.00 7.00(K) 94.3 560-875 284
Greenway Manor,
St. Louis, MO 10/09/86 12,850,000 15,313,000 8.93(D) 8.50 8.50 90.6 495-595 312
Clarendon Hills,
Hayward, CA 12/08/86 17,600,000 13,880,000 6.31(I) 5.52 5.52 96.4 925-1,395 285
Cedar Creek,
McKinney, TX 12/29/86 8,100,000 9,653,000 8.50 8.50 8.50 89.8 525-845 250
Sunset Terrace,
Lancaster, CA 2/12/87 10,350,000 7,981,000 5.23 8.00 (B) 96.2 485-740 184
Bay Club,
Mt. Pleasant, SC 9/11/86 6,400,000 7,403,000 8.25 8.25 8.25 97.5 620-680 164
Loveridge,
Contra Costa, CA 11/13/86 8,550,000 6,593,000 5.00 8.00 (B) 86.3 640-875 148
The Lakes,
Kansas City, MO 12/30/86 13,650,000 10,024,000 5.64(E) 4.87 4.87 92.9 435-630 400
Crowne Pointe,
Olympia, WA 12/31/86 5,075,000 5,692,000 8.00 8.00 8.00 95.5 495-795 160
Orchard Hills,
Tacoma, WA 12/31/86 5,650,000 6,337,000 8.00 8.00 8.00 98.8 465-755 174
Highland Ridge,
St. Paul, MN 2/02/87 15,000,000 15,247,000 7.30(C) 7.25 7.25 97.4 775-1,285 228
Newport Village,
Tacoma, WA 2/11/87 13,000,000 14,581,000 8.77(D) 8.00 8.00 90.7 460-600 402
Sunset Downs,
Lancaster, CA 2/11/87 15,000,000 11,566,000 5.07 8.00 (B) 94.7 485-740 264
Pelican Cove,
St. Louis, MO 2/27/87 18,000,000 20,189,000 7.89 8.00 (B) 95.7 495-680 402
Willow Creek,
Ames, IA 2/27/87 6,100,000 6,200,000 7.44(C) 7.25 7.25 100.0 525-825 138
Cedar Pointe,
Nashville, TN 4/22/87 9,500,000 9,323,000 7.00 7.00 7.00 96.2 525-810 210
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Carrying Average Minimum
Face Amount Interest Stated Pay Rate at Occupancy at Rental Rates No. of
Closing Amount at December Rate Paid Interest December 31, February 14, at December Rental
Property Date of Bond 31, 1998 (G) for 1998* Rate* 1998* 1999 31, 1998 Units
- - ------------------ ------- ----------- ----------- -------- -------- ----------- ------------ ------------ ------
Shannon Lake,
Atlanta, GA 6/26/87 $12,000,000 $11,536,000 6.00% (M) 6.00% 94.5% $405-810 294
Bristol Village,
Bloomington, MN 7/31/87 17,000,000 17,875,000 7.50 7.50% 7.50 96.5 735-1,269 290
Suntree,
Ft. Myers, FL 7/31/87 7,500,000 7,586,000 6.59 8.00 6.50(F) 97.5 465-620 240
River Run,
Miami, FL 8/07/87 7,200,000 8,075,000 9.11(I) 8.00 8.00 92.6 673-890 164
Players Club,
Ft. Myers, FL 8/14/87 9,700,000 8,704,000 6.22 8.00 6.25(F) 75.7 460-600 288
Lakepoint,
Dekalb City, GA 11/18/87 15,100,000 12,702,000 6.00 6.00 6.00 95.3 575-825 360
Sunset Village,
Lancaster, CA 3/25/88 11,375,000 8,771,000 5.45 8.50 (B) 94.4 485-740 204
Sunset Creek,
Lancaster, CA 3/25/88 8,275,000 6,381,000 5.14 8.50 (B) 94.4 485-740 148
Orchard Mill,
Atlanta, GA 5/1/89 10,500,000 10,252,000 6.57 7.50 5.00(J) 96.6 535-745 238
Countryside North
Memphis, TN 12/11/97 5,000,000 5,100,000 7.50 7.50 7.50 86.0 431-586 152
Ocean Air
Norfolk, VA 4/20/98 10,000,000 10,000,000 7.25 7.25 7.25 85.0(L) 320-395 434
Phoenix
Stockton, CA 4/28/98 3,250,000 3,250,000 7.125 7.125 7.125 38.0(H) 409-562 184
Stone Creek
Watsonville, CA 4/28/98 8,820,000 8,820,000 7.125 7.125 7.125 (H) (H) 120
Cedarbrook
Hanford, CA 4/28/98 2,840,000 2,840,000 7.125 7.125 7.125 100 434-554 70
Marsh Landings
Portsmouth, VA 5/20/98 6,050,000 6,050,000 7.25 7.25 7.25 16.8(L) 295-335 250
College Park
Naples, FL 7/15/98 10,100,000 10,100,000 7.00 (N) 7.00 (H) (H) 210
Gulfstream
Dania, FL 7/22/98 3,500,000 3,500,000 7.25 7.25 7.25 31.3(L) 575-650 96
Bedford Square
Clovis, CA 8/25/98 3,850,000 3,850,000 7.00 (O) 7.00 55.5(L) 381-456 130
Northpointe Villag
Fresno, CA 8/25/98 13,250,000 13,250,000 8.085 (P) 8.125 43.3(L) 381-456 406
Falcon Creek
Indianapolis, IN 9/14/98 6,144,600 6,144,600 7.00 (Q) 7.00 (H) (H) 131
Jubilee Courtyards
Florida City, FL 9/15/98 4,150,000 4,150,000 7.00 (A) 7.00 (H) (H) 98
Silvercrest
Clovis, CA 9/24/98 2,275,000 2,275,000 7.125 7.125 7.125 (H) (H) 100
Carrington Pointe
Los Banos, CA 9/24/98 3,375,000 3,375,000 6.375 6.375 6.375 (H) (H) 80
Madalyn Landing
Palm Bay, FL 11/13/98 14,000,000 14,000,000 7.00 7.00 7.00 (H) (H) 304
-8-
Carrying Average Minimum
Face Amount Interest Stated Pay Rate at Occupancy at Rental Rates No. of
Closing Amount at December Rate Paid Interest December 31, February 14, at December Rental
Property Date of Bond 31, 1998 (G) for 1998* Rate* 1998* 1999 31, 1998 Units
- - ------------------ ------- ----------- ----------- -------- -------- ----------- ------------ ------------ ------
Forest Hills
Garner, NC 12/15/98 $ 5,930,000 $ 5,930,000 7.125% 7.125% 7.125% 83.0%(L) $540-650 136
Lake Jackson
Lake Jackson, TX 12/22/98 10,934,000 10,934,000 7.00 7.00 7.00 (H) (H) 160
Mountain Ranch
Austin, TX 12/23/98 9,128,000 9,128,000 7.125 7.125 7.125 (H) (H) 212
----------- -----------
$471,199,028 $458,662,600
============ ============
*The average interest rate paid 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 interest rates for Jubilee Courtyards are 7% through September 30,
2000 and 7.125% thereafter.
(B) The minimum pay rate is the current cash flow of the property.
(C) Includes contingent interest paid during 1998.
(D) Includes receipt of deferred base interest relating to prior periods.
(E) Includes receipt of primary and supplemental contingent interest.
(F) The minimum pay rate on the FMB is scheduled to increase to the stated
interest rate over the remaining term of the FMB.
(G) The FMBs are carried at their estimated fair values at December 31, 1998.
(H) The property is still in the construction phase.
(I) Includes receipt of primary contingent interest.
(J) Pursuant to a bond modification as of October 1, 1997 which lowered the
base interest rate to 7.50% effective October 1, 1997, subject to a
minimum pay rate of 5% through June 30, 2000.
(K) Pursuant to a forbearance agreement as of October 1, 1997 which lowered
the base interest rate to 7% through June 30, 2000 and 7.50% thereafter.
(L) The property is still in the rehabilitation phase.
(M) 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.
(N) The interest rates for College Park are 7% during the construction period
and 7.25% thereafter.
(O) The interest rates for Bedford Square are 7% during the construction
period and 6.375% thereafter.
(P) 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.
(Q) The interest rates for Falcon Creek are 7% through August 31, 2000 and
7.25% thereafter.
-9-
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 of $150 million to acquire
additional FMBs. During 1998, the Company contributed 39 issues of FMBs in the
aggregate principal amount of approximately $385,907,000 to a Delaware business
trust (the "Origination Trust"), a wholly owned subsidiary of the Company, which
then contributed 27 of those FMBs with an aggregate principal amount of
approximately $233,105,000, to another Delaware business trust (the "Owner
Trust"). The Owner Trust issued two equity certificates: ( i) a Senior
Certificate, with an outstanding face amount of $150,000,000 at December 31,
1998, 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, whose sole
owner is the Company. 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 end result of these transactions 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.
Currently, the maximum amount of Floater Certificates that can be issued to
raise capital under the TOP is $150 million and as of December 31, 1998 such
maximum has been issued. The Company is currently negotiating an increase in its
TOP to $200 million; however, there can be no assurance that such negotiations
will be successful.
The Company's cost of funds relating to the TOP (calculated as income allocated
to the minority interest plus current fees as a percentage of the weighted
average amount of the outstanding Senior Certificate) was approximately 4.9% for
the period May 21, 1998 (inception) through December 31, 1998.
Note Payable
- - ------------
During 1998, an interim credit facility with Goldman Sachs & Company (the
"Interim Credit Facility") was available to the Company at prevailing rates of
interest for such accounts (5.98% at December 14, 1998). At December 31, 1998
there were no borrowings outstanding. The Company is currently negotiating with
Goldman Sachs & Company and various other lenders the renewal or replacement of
this facility.
The outstanding face amount of the Senior Certificate and indebtedness under the
Interim Credit Facility, together with any other leveraging of the Company, will
not exceed 50% of the Company's total Market Value (as defined in the Trust
Agreement) as of the date incurred.
Competition
- - -----------
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.
The Company's business is 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.
Employees
- - ---------
The Company has no employees. Management and administrative services for the
Company are performed by the Manager and its affiliates pursuant to the
Management Agreement between the Company and the Manager dated October 1, 1997
(the "Management Agreement"). The Manager receives compensation for such
services and the Company 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 7
to the Company's Financial Statements included in "Item 8. Financial Statements
and Supplementary Data").
Recent Legislation
- - ------------------
The State of California recently adopted an administrative amendment to the
allocation plan pursuant to which they award bond value capital to developers
of multifamily housing. The amendment will require, in many cases, up to 15% of
debt financing for such properties to be a form of taxable financing. Therefore,
in certain cases, the Company may be required to offer taxable financing to
California developers in order to be competitive.
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.
-10-
PART II
Item 5. Market for the Company's Shares and Related Shareholder Matters.
As of March 24, 1999, there were 4,044 holders of record owning 20,580,975
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:
1998 1998 1997 1997
Quarter Ended Low High Low High
- - ------------- ---- ---- ---- ----
March 31 12 11/16 14 1/2
June 30 12 7/8 14 7/16
September 30 12 9/16 14 1/4
December 31 11 11/16 13 11 1/8 13 5/16
The last reported sale price of Shares on the American Stock Exchange on March
26, 1999 was $12 3/8.
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.
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 $.93 per Share, thus prohibiting the Compensation
Committee from issuing options. Three percent of the Shares outstanding as of
the effective date of the Consolidation are equal to 617,624 Shares.
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. During the period October 9, 1998 through December 31, 1998, the
Company 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.
-11-
Distribution Information
- - ------------------------
Charter Municipal Mortgage Acceptance Company (After the Consolidation)
- - -----------------------------------------------------------------------
Distributions Per Share
- - -----------------------
Quarterly cash distributions per share for the year ended December 31, 1998 and
the quarter ended December 31, 1997 were as follows:
Cash Distribution Total Amount
for Quarter Ended Date Paid Per Share Distributed
- - ----------------- --------- --------- -----------
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
====== ==========
December 31, 1997 2/14/98 $ .23 $ 4,735,120
====== ===========
In addition to the distributions set forth in the table above, the Company paid
the Manager a special distribution (equal to .375% of the total invested assets
of the Company) which amounted to $1,477,797 and $330,580 for the year ended
December 31, 1998 and the three months ended December 31, 1997, 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.
Tax Exempt II (Prior to the Consolidation)
- - ------------------------------------------
Distributions per BUC
- - ---------------------
Cash distributions per BUC of Tax Exempt II for the nine months ended September
30, 1997 were as follows:
Cash Distribution Approximate Total Quarterly Total Amount
for Quarter Ended Date Paid Distribution Per BUC of Distribution
- - ----------------- --------- -------------------- ---------------
March 31, 1997 5/14/97 $ .26 $2,379,421
June 30, 1997 8/14/97 .26 2,379,421
September 30, 1997 11/12/97 .26 2,379,421
------ ---------
Total for 1997 $ .78 $7,138,263
====== =========
Approximately $2,400,000 of the $9,518,000 paid to the BUC$holders of Tax Exempt
II in 1997, represented a return of capital on a generally accepted accounting
principles ("GAAP") basis. The return of capital on a GAAP basis is calculated
as BUC$holder distributions less net income allocated to BUC$holders.
-12-
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 ------------------------------------------------------------------------------
- - ---------- 1998* 1997* 1996* 1995* 1994*
------------- ------------- ------------- ------------- -------------
Total revenues $ 28,179,048 $ 14,414,625 $ 11,812,316 $ 12,039,287 $ 11,870,490
Loss on impairment of assets 0 (1,843,135) (4,000,000) (1,000,000) (500,000)
Other expenses and minority interest (6,153,176) (2,515,682) (1,967,275) (1,851,484) (1,747,441)
------------- ------------- ------------- ------------- -------------
Net income $ 22,025,872 $ 10,055,808 $ 5,845,041 $ 9,187,803 $ 9,623,049
============= ============= ============= ============= =============
Net income applicable to shareholders
of beneficial $ 20,342,594 $ 2,437,538***
============= =============
Net income per share (1)
Basic** $ .99 $ .12***
============= =============
Diluted** $ .98 $ .12***
============= =============
Weighted average shares outstanding:
Basic** 20,587,151 20,587,465***
============= =============
Diluted** 20,740,641 20,587,465***
============= =============
FINANCIAL POSITION Year ended December 31,
- - ------------------ ------------------------------------------------------------------------------
1998* 1997* 1996* 1995* 1994*
------------- ------------- ------------- ------------- --------------
Total assets $ 492,585,806 $ 362,390,563 $ 154,896,475 $ 157,019,314 $ 157,436,945
============= ============= ============= ============= =============
Notes payable $ 0 $ 21,445,340 $ 0 $ 0 $ 0
============= ============= ============= ============= =============
Total liabilities $ 15,091,600 $ 30,722,364 $ 573,874 $ 652,350 $ 1,088,738
============= ============= ============= ============= =============
Minority interest $ 150,000,000 $ 0 $ 0 $ 0 $ 0
============= ============= ============= ============= =============
Total shareholders' equity/partners' capital $ 327,494,206 $ 331,668,199 $ 154,322,601 $ 156,366,964 $ 156,348,207
============= ============= ============= ============= =============
DISTRIBUTIONS
- - -------------
Distributions to BUC$holders N/A $ 7,138,263 $ 9,517,685 $ 9,517,685 $ 9,517,685
============= ============= ============= =============
Distributions to shareholders of beneficial interest $ 19,144,597 $ 4,735,120***
============= =============
Distributions per share $ .93 $ .23***
============= =============
-13-
OTHER DATA
- - ----------
Year Ended Three Months Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Cash Available for Distribution (2) $ 22,243,193 $ 4,624,279
Less: distributions to the Manager (1,477,807) (330,582)
------------- -----------
Cash available for distribution to
shareholders $ 20,765,386 $ 4,293,697
============= ===========
Distributions to shareholders $ 19,144,587 $ 4,735,117
============= ===========
Payout ratio 92.2% 110.3%
============= ===========
Cash flows from:
Operating activities $ 22,651,186 $ 4,465,552
============= ===========
Investing activities $(117,243,543) $(8,497,439)
============= ===========
Financing activities $ 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 which includes Tax Exempt II and the other
Partnerships pursuant to the Consolidation.
**Net income and distribution per unit 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.
(1) Net income per Share equals net income, less the special allocations to the
Manager, divided by the weighted average Shares (basic and diluted) outstanding
for the period.
(2) See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a definition of Cash Available for Distribution.
-14-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
- - -------------------------------
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. As of December 31, 1998, the
Company owned 49 FMBs and had net assets of approximately $332,102,000.
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").
For a discussion of the Company's Incentive Share Option Plan and Share
Repurchase Plan, see "Item 5. Market for the Company's Common stock and Related
Shareholder Matters".
In order to generate increased tax exempt income and as a result enhance the
value of the Company's Shares, the Company intends to originate and 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 originate and 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 is positioned to market its Direct Purchase Program as a result of
the Manager's affiliation with Related. 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 $7.8 billion. In addition, since 1987
Related has been one of the nation's leading provider of equity to developers of
multifamily housing which benefits from tax credits. During 1998, the Manager's
affiliation with Related allowed it to become one of the dominant lenders to
developers and owners of affordable housing financed with tax-exempt bonds.
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 originates and 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 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 (the "50% Limit"). The Company expects
to seek shareholder approval at the 1999 annual meeting to amend the Trust
Agreement to permit the Company to exceed the 50% Limit with respect to short
term borrowings of no more than approximately 5% of Total Market Value. Mortgage
REITs typically incur leverage at ratios ranging from between 3:1 to 10:1. In
general, the FMBs that the Company either originates 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.
Due to the Company's low level of leverage, the Company has not been affected by
the recent lack of liquidity that is currently impairing mortgage REITs and its
portfolio does not contain assets that are especially vulnerable to volatility
during periods of interest rate fluctuations.
On May 21, 1998, the Company closed on its Private Label Tender Option Program
("TOP") in order to raise additional capital of $150 million to acquire
additional FMBs. During 1998, the Company contributed 39 issues of FMBs in the
aggregate principal amount of approximately $385,907,000 to a Delaware business
trust (the "Origination Trust"), a wholly owned subsidiary of the Company, which
then contributed 27 of those FMBs, with an aggregate principal amount of
approximately $233,105,000, to another Delaware business trust (the "Owner
Trust"). The Owner Trust issued two equity certificates: (i) a Senior
Certificate, with an outstanding face amount of $150,000,000 at December 31,
1998, 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, whose sole
owner is the Company. 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.
-15-
The end result of these transactions 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.
Currently, the maximum amount of Floater Certificates that can be issued to
raise capital under the TOP is $150 million and as of December 31, 1998, such
maximum has been issued. The Company is currently negotiating an increase in its
TOP to $200 million and, before the end of 1999, the Company expects to raise
funds through an equity offering; however, there can be no assurance that either
of these initiatives will be successful. If the Company is unable to access
additional capital through the foregoing initiatives, the Company's ability to
grow will be restricted.
The Company's cost of funds relating to the TOP (calculated as income allocated
to the minority interest plus current fees as a percentage of the weighted
average amount of the outstanding Senior Certificate) was approximately 4.9% for
the period May 21, 1998 (inception) through December 31, 1998.
During 1998, an interim credit facility with Goldman Sachs & Company (the
"Interim Credit Facility") was available to the Company at prevailing rates of
interest for such accounts (5.98% at December 14, 1998). At December 31, 1998
there were no borrowings outstanding. The Company is currently negotiating with
Goldman Sachs & Company and various other lenders the renewal or replacement of
this facility.
During the period January 1, 1998 through March 30, 1999 the Company acquired 18
FMBs for an aggregate purchase price of approximately $123,997,000, not
including bond selection fees and expenses of approximately $2,669,000. The
purchases were financed by the TOP and from borrowings under the Interim Credit
Facility.
During the year ended December 31, 1998, cash and cash equivalents of the
Company and its consolidated subsidiary increased approximately $10,796,000.
This increase was primarily due to cash provided by operating activities
($22,651,000), the net sale of temporary investments ($3,500,000), principal
payments received from loans made to properties ($507,000) and an increase in
minority interest ($150,000,000) which exceeded the purchase of FMBs
($117,597,000), an increase in deferred bond selection costs ($2,598,000), loans
made to properties ($1,056,000), net repayments of note payable ($21,445,000),
an increase in deferred costs relating to the TOP ($2,513,000) and distributions
paid ($20,331,000). Included in the adjustments to reconcile the net income to
cash provided by operating activities is amortization in the amount of $217,000.
The Company's growth will be financed by the TOP or similar programs, borrowings
under the Interim Credit Facility, funds generated from operations in excess of
distributions and by placements of equity. 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 are anticipated
to provide sufficient liquidity to fund the Company's operating expenditures,
debt service and distributions in future years.
Effective January 1, 1998, the Highland Ridge, Willow Creek, Bristol Village and
Thomas Lake FMBs were modified to (i) reflect a change in their stated interest
rates, (ii) allow for deferred base and other interest accrued and unpaid
through December 1997 to be paid at maturity or upon an event of sale or
refinancing and (iii) extend the mandatory call and prepayment lock-out dates.
In addition, the maturities of the Highland Ridge and Willow Creek FMBs were
extended to 2018 and 2022, respectively, and the maturities of the Bristol
Village and Thomas Lake FMBs were extended to 2027 with mandatory call dates at
January 2010. On December 23, 1998, the Mansion FMB was modified to (i) reflect
a change in base interest rate, effective December 31, 1998 (from 5.23% to
7.25%), (ii) allow for certain equal quarterly payments of supplemental
contingent interest ($150,000 per quarter) to be paid initially at closing and
then quarterly over the second, third and fourth quarters of 1999 and (iii)
extend the maturity date, the mandatory call date and the prepayment lock-out
dates (to 2029, 2011 and 2006, respectively). Pursuant to the modified terms of
the Mansion FMB, no additional contingent interest is to be paid from this FMB.
The Company currently anticipates that it will modify certain other FMBs in
generally similar terms as Mansion and those done previously and effective in
1998, where and as appropriate.
As part of the settlement of class action litigation relating to the
Partnerships, 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 are 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, Class
Counsel is entitled to receive 608,955 Shares. The Shares will be distributed to
Class Counsel quarterly in eight equal distributions commencing within ten
business days after Class Counsel advises the Company in writing of the persons
in whose name the Shares are to be issued. One-half of such Shares will be in
the form of Restricted Securities (restricted only with respect to the sale,
assignment, pledge or other transfer of such securities) and the remaining
one-half of such Shares will be unrestricted. Restrictions on the Restricted
Securities expire one year from the date of issuance. Management is currently
attempting to negotiate a discounted cash settlement with Class Counsel in lieu
of the issuance of Shares; however, there can be no assurance that such
negotiations will be successful.
In February 1999, a distribution of $4,939,068 ($.24 per share), which was
declared in December 1998, was paid to the shareholders from cash flow from
operations for the quarter ended December 31, 1998.
-16-
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.
Results of Operations
- - ---------------------
The following is a summary of the results of operations of the Company for the
years ended December 31, 1998, 1997 and 1996. The net income for the years ended
December 31, 1998, 1997 and 1996 was $22,025,872, $10,055,808 and $5,845,041,
respectively.
1998 vs. 1997
- - -------------
For the year ended December 31, 1998 as compared to 1997, total revenues, total
expenses and net income increased and the results of operations are not
comparable due to (i) the Consolidation of Tax Exempt II with two other
Partnerships on October 1, 1997, which resulted in the formation of the Company
and (ii) the acquisition of 18 FMBs after the Consolidation. The Company's
results of operations for the year ended December 31, 1998 consisted primarily
of the results of the Company's investment in 49 FMBs. The Company's results of
operations for the year December 31, 1997 consisted primarily of the results of
Tax Exempt II's investment in 16 FMBs. In addition, the results of operations
are not reflective of future operations due to the anticipated continued
acquisition of FMBs.
Interest income from FMBs increased approximately $13,276,000 for the year ended
December 31, 1998 as compared to 1997. An increase of $9,815,000 was due to the
16 FMBs (including Tax Exempt III's portion of the Players Club FMB) acquired
from Tax Exempt I and Tax Exempt III in the Consolidation (the "Tax Exempt I and
III Acquisitions") and an increase of $3,252,000 was due to the acquisition of
18 FMBs after the Consolidation (the "New Acquisitions"). Excluding these
acquisitions, interest income from FMBs increased approximately 2% for the year
ended December 31, 1998 as compared to 1997.
Interest income from temporary investments increased approximately $66,000 for
the year ended December 31, 1998 as compared to 1997 primarily due to higher
invested cash balances in 1998.
Interest income from promissory notes increased approximately $422,000 for the
year ended December 31, 1998 as compared to 1997. An increase of $405,000 was
due to the Tax Exempt I and III Acquisitions. Excluding these acquisitions,
interest income from promissory notes increased approximately $17,000 for the
year ended December 31, 1998 as compared to 1997 primarily due to loans to the
owners of the Suntree and Bristol Village Underlying Properties in November 1997
and June 1998, respectively.
Interest expense increased approximately $1,075,000 for the year ended December
31, 1998 as compared to 1997 primarily due to higher outstanding balances of the
Interim Credit Facility during 1998.
Management fees incurred to the general partners of Tax Exempt II in the amount
of approximately $608,000 were recorded in 1997.
Loan servicing fees increased approximately $462,000 for the year ended December
31, 1998 as compared to 1997 due to increases of $349,000 and $113,000 relating
to the Tax Exempt I and III Acquisitions and the New Acquisitions, respectively.
General and administrative expenses increased approximately $973,000 for the
year ended December 31, 1998 as compared to 1997. This increase was primarily
due to current fees relating to the TOP, an increase in printing and investor
service expenses resulting from an increase in investors, an increase in
insurance expense, an increase in audit/tax fees and expense reimbursements to
the Manager and its affiliates due to the Tax Exempt I and III Acquisitions and
the New Acquisitions and fees to the independent trustees relating to their
services for 1998.
Amortization increased approximately $171,000 for the year ended December 31,
1998 as compared to 1997 primarily due to amortization of deferred bond
selection costs relating to the New Acquisitions and amortization of deferred
costs relating to the TOP.
A loss on impairment of assets in the amount of approximately $1,843,000 was
recorded in 1997 to recognize other than temporary impairment of the Shannon
Lake, Players Club and Lakepoint FMBs based upon operating difficulties at the
properties securing the FMBs.
Minority interest in income of subsidiary in the amount of approximately
$1,564,000 was recorded in 1998, relating to the TOP.
1997 vs. 1996
- - -------------
For the year ended December 31, 1997 as compared to 1996, total revenues, total
expenses (excluding loss on impairment of assets) and net income increased and
the results of operations are not comparable due to the Consolidation of Tax
Exempt II with two other Partnerships on October 1, 1997, which resulted in the
formation of the Company. The Company's results of operations for the year ended
December 31, 1997 consisted primarily of the results of the Company's investment
in sixteen FMBs for the nine months ended September 30, 1997 and the results of
the Company's investment in thirty-two FMBs for the three months ended December
31, 1997. The Company's results of operations for the year December 31, 1996
consisted primarily of the results of Tax Exempt II's investment in sixteen
FMBs. In addition, the results of operations are not reflective of future
operations due to the anticipated continued acquisition of FMBs.
Interest income from FMBs increased approximately $2,440,000 for the year ended
December 31, 1997 as compared to 1996. An increase of $2,996,000 was due to the
sixteen FMBs (including Tax Exempt III's portion of the Players Club FMB)
acquired from Tax Exempt I and Tax Exempt III in the Consolidation (the "Tax
Exempt I and III Acquisitions"). Excluding these acquisitions, interest income
from FMBs decreased approximately 5% for the year ended December 31, 1997 as
compared to 1996.
-17-
Interest income from temporary investments increased approximately $17,000 for
the year ended December 31, 1997 as compared to 1996 primarily due to higher
invested cash balances in 1997.
Interest income from promissory notes increased approximately $145,000 for the
year ended December 31, 1997 as compared to 1996. An increase of $140,000 was
due to the Tax Exempt I Acquisitions. Excluding these acquisitions, interest
income from promissory notes increased approximately $5,000 for the year ended
December 31, 1997 as compared to 1996.
Interest expense in the amount of approximately $429,000 was recorded in 1997
relating to the Interim Credit Facility.
Management fees incurred to the general partners of Tax Exempt II decreased
approximately $203,000 for the year ended December 31, 1997 as compared to 1996
due to the Consolidation on October 1, 1997.
Loan servicing fees increased approximately $118,000 for the year ended December
31, 1997 as compared to 1996 due to the Tax Exempt I and III Acquisitions.
General and administrative expenses increased approximately $162,000 for the
year ended December 31, 1997 as compared to 1996. This increase was primarily
due to an increase in printing and investor service expenses resulting from an
increase in investors, an increase in insurance expense and an increase in
audit/tax fees and expense reimbursements to the Manager and its affiliates due
to the Tax Exempt I and III Acquisitions.
Amortization increased approximately $42,000 for the year ended December 31,
1997 as compared to 1996 primarily due to amortization of deferred loan costs
relating to debt assumed from Tax Exempt I in the Consolidation.
Losses on impairment of assets in the amounts of approximately $1,843,000 and
$4,000,000 were recorded for the years ended December 31, 1997 and 1996,
respectively, to recognize other than temporary impairment of the Shannon Lake,
Players Club and Lakepoint FMBs and the Cedar Pointe, Sunset Downs and Loveridge
FMBs, respectively, based upon operating difficulties at the properties securing
the FMBs.
General
- - -------
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 $3,047,000, $2,415,000 and $1,407,000 was not recognized for
the years ended December 31, 1998, 1997 and 1996, respectively.
Cash Available for Distribution
- - -------------------------------
The Company uses cash available for distribution ("CAD") as the primary measure
of its dividend paying ability. The difference between CAD and net income
results from variations between generally accepted accounting principles
("GAAP") and cash received. One difference between CAD and GAAP is the
amortization of loan origination costs, the costs of the TOP and other
intangible assets. These amounts have been excluded from CAD due to their
noncash nature. Another difference is the noncash gain and loss associated with
bond impairments and sales for GAAP purposes, which are not included in the
calculation of CAD. During the year ended December 31, 1998 and the three months
ended December 31, 1997, there were FMB impairments in the amounts of $0 and
$1,843,135, respectively. CAD should not be considered an alternative to net
income as a measure of the Company's financial performance or to cash flow from
operating activities (computed in accordance with GAAP) as a measure of the
Company's liquidity, nor is it necessarily indicative of sufficient cash flow to
fund all of the Company's needs.
-18-
Cash available for distribution ("CAD") for the year ended December 31, 1998 and
the three months ended December 31, 1997 is summarized in the following table:
Year Ended Three Months Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Sources of Cash
Interest income:
First mortgage bonds $ 27,363,595 $ 5,560,321
Temporary investments 221,270 49,483
Promissory notes 594,183 140,180
Less: Accretion of amounts included
in income (180,179) (99,406)
------------- -----------
Total sources of cash 27,998,869 5,650,578
------------- -----------
Uses of Cash
Total expenses and minority interest 6,153,176 2,957,244
Less: Amortization of amounts included
in expenses (397,500) (87,810)
Loss on impairment of assets 0 (1,843,135)
------------- -----------
Total uses of cash 5,755,676 1,026,299
------------- -----------
Cash available for distribution $ 22,243,193 $ 4,624,279
Less: distributions to the Manager (1,477,807) (330,582)
------------- -----------
Cash available for distribution to
shareholders $ 20,765,386 $ 4,293,697
============= ===========
Distributions to shareholders $ 19,144,587 $ 4,735,117
============= ===========
Payout ratio 92.2% 110.3%
============= ===========
Cash flows from:
Operating activities $ 22,651,186 $ 4,465,552
============= ===========
Investing activities $(117,243,543) $(8,497,439)
============= ===========
Financing activities $ 105,388,481 $ 2,144,509
============= ===========
Recently Issued Accounting Standards
- - ------------------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It is effective for the Company
beginning with the first quarter of 2000. Because the Company does not currently
utilize derivatives or engage in hedging activities, management does not
anticipate that implementation of this statement will have a material effect on
the Company's financial statements.
Forward-Looking Statements
- - --------------------------
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, which will, among other
things, affect the availability and creditworthiness of prospective tenants,
lease rents and the terms and availability of financing; adverse changes in the
real estate markets including, among other things, competition with other
companies; risks of real estate development and acquisition; governmental
actions and initiatives; and environment/safety requirements.
-19-
Year 2000 Compliance
- - --------------------
The Company utilizes the computer services of an affiliate of the Manager. The
affiliate of the Manager has upgraded its computer information systems to be
year 2000 compliant and beyond. The year 2000 compliance issue concerns the
inability of a computerized system to accurately record dates after 1999. The
affiliate of the Manager recently underwent a conversion of its financial
systems applications and upgraded all of its non-compliant, in-house software
and hardware inventory. The work stations that experienced problems from the
testing process were corrected with an upgrade patch. The costs incurred by the
Manager are not being charged to the Company. The most likely worst case
scenario that the Company faces is that computer operations will be suspended
for a few days to a week at January 1, 2000. The Company's contingency plan is
to have a complete backup done on December 31, 1999 and to have both electronic
and printed reports generated for all critical data up to and including December
31, 1999.
With regard to third parties, the Company's Manager is in the process of
evaluating the potential adverse impact that could result from the failure of
material service providers to be year 2000 compliant. A detailed survey and
assessment was sent to material third parties in the fourth quarter of 1998. The
Company has received assurances from a majority of its third parties with which
it interacts that they have addressed the year 2000 issues and is evaluating
these assurances for their adequacy and accuracy. In cases where the Company has
not received assurances from third parties, it is initiating further mail and/or
phone correspondence. The Company relies heavily on third parties and is
vulnerable to the failures of third parties to address their year 2000 issues.
There can be no assurance given that the third parties will adequately address
their issues.
Inflation
- - ---------
Inflation did not have a material effect on the Company's results for the
periods presented.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The nature of the Company's investments and the instruments used to raise
capital for their acquisition expose the Company to gains and losses due to
fluctuations in market interest rates. Market interest rates are highly
sensitive to many factors, including governmental policies, domestic and
international political considerations and other factors beyond the control of
the Company.
The FMBs generally bear interest at fixed rates, or pay interest according to
the cash flows of the underlying property, which do not fluctuate with changes
in market interest rates. In contrast, payments required under the TOP program
vary based on market interest rates, primarily BMA, and are re-set weekly. Thus,
an increase in market interest rates would result in increased payments under
the TOP program, without a corresponding increase in cash flows from the
investments in FMBs. For example, based on the $150,000,000 outstanding under
the TOP program at December 31, 1998, the Company estimates that an increase of
0.5% in the BMA rate would decrease the Company's annual net income by
approximately $750,000; a 1.0% increase in BMA would decrease annual net income
by approximately $1,500,000. For the same reasons, a decrease in market interest
rates would generally benefit the Company, as a result of decreased allocations
to the minority interest without corresponding decreases in interest received on
the FMBs. For example, based on the $150,000,000 outstanding under the TOP
program at December 31, 1998, the Company estimates that a 0.5% decline in BMA
rates would increase the Company's annual net income by approximately $750,000,
and a 1.0% decline in BMA would increase net income by approximately
$1,500,000. Various financial vehicles exist which would allow Company
management to mitigate the impact of interest rate fluctuations on the Company's
cash flows and earnings. Although management has not engaged in any of these
hedging strategies in the past, it may do so in the future, depending on
management's analysis of the interest rate environment and the costs and risks
of such strategies.
Changes in market interest rates would also impact the estimated fair value of
the company's portfolio of FMBs. The Company estimates the fair value for each
bond as the present value of its expected cash flows, using a discount rate for
comparable tax-exempt investments. Therefore, as market interest rates for
tax-exempt investments increase, the estimated fair value of the company's FMBs
will generally decline, and a decline in interest rates would be expected to
result in an increase in the estimated fair values. For example, the Company
projects that a 1% increase in market rates for tax-exempt investments would
decrease the estimated fair value of its portfolio of FMBs from its December 31,
1998 value of $458,662,600 to approximately $417,353,000. A 1% decline in
interest rates would increase the value of the December 31, 1998 portfolio to
approximately $513,446,000. Changes in the estimated fair value of the FMBs do
not impact the Company's reported net income, earnings per share, distributions
or cash flows, but are reported as components of other comprehensive income and
affect reported shareholders' equity.
-20-
Item 8. Financial Statements and Supplementary Data.
Page
----
(a) 1. Financial Statements
--------------------
Independent Auditors' Report 22
Consolidated Balance Sheets as of December 31, 1998 and 1997 23
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996 24
Consolidated Statements of Changes in Shareholders'
Equity/Partners' Capital (Deficit) for the years ended
December 31, 1998, 1997 and 1996 25
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 27
Notes to Consolidated Financial Statements 29
-21-
INDEPENDENT AUTITORS' REPORT
To the Board of Trustees
And Shareholders of
Charter Municipal Mortgage Acceptance Company
New York, New York
We have audited the accompanying consolidated balance sheets of Charter
Municipal Mortgage Acceptance Company and subsidiary as of December 31, 1998 and
1997, and the related consolidated statements of income, changes in
shareholders' equity/partners' capital (deficit) and cash flows for each of the
three years in the period ended December 31, 1998. Our audits also included the
financial statement schedule listed in Item 14(a)2. These financial statements
and the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Charter Municipal Mortgage
Acceptance Company and subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth
therein.
DELOITTE & TOUCHE LLP
New York, New York
March 19, 1999
-22-
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------------
1998 1997
------------- ------------
ASSETS
First mortgage bonds-at fair value $ 458,662,600 $346,300,000
Temporary investments 0 3,500,000
Cash and cash equivalents 13,093,023 2,296,899
Interest receivable, net 1,512,562 879,519
Promissory notes receivable 7,628,920 7,080,265
Deferred costs, net 7,005,965 2,292,409
Goodwill, net 4,671,236 0
Other assets 11,500 41,471
------------- ------------
Total assets $ 492,585,806 $362,390,563
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 0 $ 21,445,340
Accounts payable, accrued expenses and other liabilities 8,993,174 635,691
Due to Manager and affiliates 1,159,358 674,947
Distributions payable 4,939,068 4,735,119
Excess of acquired net assets over cost, net 0 3,231,267
------------- ------------
Total liabilities 15,091,600 30,722,364
------------- ------------
Minority interest in subsidiary (subject to mandatory
redemption) 150,000,000 0
------------- ------------
Commitments and Contingencies
Shareholders' equity:
Beneficial owner's equity-manager 230,259 24,788
Beneficial owners' equity-other shareholders
(50,000,000 shares authorized; 20,587,837 issued and
20,579,437 outstanding and 20,587,465 shares issued
and outstanding in 1998 and 1997, respectively) 312,307,115 311,322,765
Treasury shares of beneficial interest
(8,400 shares, in 1998) (103,359) 0
Accumulated other comprehensive income 15,060,191 20,320,646
------------- ------------
Total shareholders' equity 327,494,206 331,668,199
------------- ------------
Total liabilities and shareholders' equity $ 492,585,806 $362,390,563
============= ============
See accompanying notes to consolidated financial statements
-23-
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
Revenues:
Interest income:
First mortgage bonds $27,363,595 $14,087,443 $11,647,431
Temporary investments 221,270 155,460 138,088
Promissory notes 594,183 171,722 26,797
----------- ----------- -----------
Total revenues 28,179,048 14,414,625 11,812,316
----------- ----------- -----------
Expenses:
Interest expense 1,504,334 429,012 0
Management fees 0 607,969 810,625
Loan servicing fees 985,198 523,538 405,313
General and administrative 1,702,145 728,812 566,616
Amortization 397,500 226,351 184,721
Loss on impairment of assets 0 1,843,135 4,000,000
Minority interest in income of subsidiary 1,563,999 0 0
----------- ----------- -----------
Total expenses 6,153,176 4,358,817 5,967,275
----------- ----------- -----------
Net income $22,025,872 $10,055,808 $ 5,845,041
=========== =========== ===========
Special allocation of net income
to the Manager $ 1,683,278 355,202**
=========== =======
Net income applicable to shareholders $20,342,594 2,437,538**
=========== =======
Net income per share:
Basic* $ .99 $ .12**
=========== ===========
Diluted* $ .98 $ .12**
=========== ===========
Weighted average shares outstanding:
Basic** 20,587,151 20,587,465***
=========== ===========
Diluted** 20,740,641 20,587,465***
=========== ===========
*Net income per unit information for periods before October 1, 1997 is not
presented because it is not indicative to the Company's continuing capital
structure.
**Represents amount for the three months ended December 31, 1997.
See accompanying notes to consolidated financial statements
-24-
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY/PARTNERS' CAPITAL (DEFICIT)
Beneficial
Beneficial Owners'
Owner's Equity
General Equity Other
BUC$holders Partners Manager Shareholders
----------- -------- ------- ------------
Balance at January 1, 1996 $ 164,412,008 $(106,923) $ 0 $ 0
Comprehensive income:
Net income 5,728,140 116,901 0 0
Other comprehensive income (loss):
Net unrealized gain (loss) on first mortgage bonds:
Net unrealized holding loss arising during the period
Add: reclassification adjustment for losses included in net
income
Other comprehensive income
Comprehensive income
Distributions (9,517,685) (194,238) 0 0
------------- --------- ----------- ------------
Balance at December 31, 1996 160,622,463 (184,260) 0 0
Net income - January 1, 1997 to September 30, 1997 7,117,807 145,261 0 0
Distributions - January 1, 1997 to September 30, 1997 (9,517,685) (194,238) 0 0
Consolidation and issuance of shares (158,222,585) 233,237 169 316,117,946
Consolidation costs 0 0 (1) (2,497,602)
Net income - October 1, 1997 to December 31, 1997 0 0 355,202 2,437,538
Comprehensive income:
Net Income - January 1, 1997 to December 31, 1997
Other comprehensive income (loss):
Net unrealized gain (loss) on first mortgage bonds:
Net unrealized holding gain arising during the period
Add: reclassification adjustment for losses included in net
income
Other comprehensive income
Comprehensive income
Distributions - October 1, 1997 to December 31, 1997 0 0 (330,582) (4,735,117)
------------- --------- ----------- ------------
Balance at December 31, 1997 0 0 24,788 311,322,765
Treasury Accumulated
Shares of Other
Beneficial Comprehensive Comprehensive
Interest Income Income Total
-------- ------ ------ -----
Balance at January 1, 1996 $ 0 $(7,938,121) $156,366,964
Comprehensive income:
Net income 0 $5,845,041 0 5,845,041
----------
Other comprehensive income (loss):
Net unrealized gain (loss) on first mortgage bonds:
Net unrealized holding loss arising during the period (2,177,481)
Add: reclassification adjustment for losses included in net
income 4,000,000
----------
Other comprehensive income 1,822,519 1,822,519 1,822,519
----------
Comprehensive income 7,667,560
==========
Distributions 0 0 (9,711,923)
---------- ----------- ------------
Balance at December 31, 1996 0 (6,115,602) 154,322,601
Net income - January 1, 1997 to September 30, 1997 0 7,263,068 0 7,263,068
Distributions - January 1, 1997 to September 30, 1997 0 0 (9,711,923)
Consolidation and issuance of shares 0 0 158,128,767
Consolidation costs 0 0 (2,497,603)
Net income - October 1, 1997 to December 31, 1997 0 2,792,740 0 2,792,740
----------
Comprehensive income:
Net Income - January 1, 1997 to December 31, 1997 10,055,808
----------
Other comprehensive income (loss):
Net unrealized gain (loss) on first mortgage bonds:
Net unrealized holding gain arising during the period 24,593,113
Add: reclassification adjustment for losses included in net
income 1,843,135
----------
Other comprehensive income 26,436,248 26,436,248 26,436,248
----------
Comprehensive income 36,492,056
==========
Distributions - October 1, 1997 to December 31, 1997 0 0 (5,065,699)
---------- ----------- ------------
Balance at December 31, 1997 0 20,320,646 331,668,199
-25-
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY/PARTNERS' CAPITAL (DEFICIT)
Beneficial
Beneficial Owners'
Owner's Equity
General Equity Other
BUC$holders Partners Manager Shareholders
----------- -------- ------- ------------
Comprehensive income:
Net income 0 0 1,683,278 20,342,594
Other comprehensive income (loss):
Net unrealized gain (loss) on first mortgage bonds:
Net unrealized holding loss arising during the period
Comprehensive income
Issuance of shares of beneficial interest 0 0 0 5,000
Purchase of treasury shares of beneficial interest 0 0 0 0
Consolidation costs 0 0 0 (218,657)
Distributions 0