SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-------
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-23972
AMERICAN MORTGAGE ACCEPTANCE COMPANY
------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 13-6972380
-------------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
625 Madison Avenue, New York, New York 10022
-------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
============= =============
September 30, December 31,
2002 2001
------------- -------------
(Unaudited)
ASSETS
Investments in mortgage loans $ 20,406 $ 17,799
Investments in GNMA certificates-
available for sale 99,439 50,060
Investment in ARCap 20,240 20,246
Cash and cash equivalents 2,759 1,018
Notes receivable 14,997 11,373
Accrued interest receivable 900 570
Other assets 436 916
-------- --------
Total assets $159,177 $101,982
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Repurchase facilities payable $ 62,412 $ 43,610
Accrued interest payable 49 22
Accounts payable and accrued expenses 503 1,348
Due to Advisor and affiliates 441 331
Distributions payable 2,386 1,392
-------- --------
Total liabilities 65,791 46,703
-------- --------
Commitments and contingencies
Shareholders' equity:
Shares of beneficial interest; $.10 par value;
25,000,000 shares authorized; 6,738,826 issued
and 6,363,630 outstanding and 4,213,826 issued
and 3,838,630 outstanding in 2002 and 2001,
respectively 674 421
Treasury shares of beneficial interest;
375,196 shares (38) (38)
Additional paid-in capital 99,470 68,841
Distributions in excess of net income (14,399) (14,505)
Accumulated other comprehensive income 7,679 560
-------- --------
Total shareholders' equity 93,386 55,279
-------- --------
Total liabilities and shareholders' equity $159,177 $101,982
======== ========
See accompanying notes to consolidated financial statements
2
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in the thousands except per share amounts)
(Unaudited)
==================== ====================
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2002 2001 2002 2001
-------------------- --------------------
Revenues:
Interest income:
Mortgage loans $ 536 $ 350 $ 1,546 $ 2,257
GNMA certificates 1,548 859 4,002 1,354
Notes receivable 548 127 1,662 234
Temporary investments 16 20 40 47
Equity in earnings of ARCap 600 604 1,800 1,788
Other income 67 40 203 70
--------- --------- --------- ---------
Total revenues 3,315 2,000 9,253 5,750
--------- --------- --------- ---------
Expenses:
Interest 290 463 869 1,100
General and administrative 119 113 409 375
Fees to advisor 318 122 1,046 418
FNMA loan program -- -- 358 --
--------- --------- --------- ---------
Total expenses 727 698 2,682 1,893
--------- --------- --------- ---------
Net gain (loss) on repayments of
GNMA certificates and
mortgage loans -- (212) 614 (212)
--------- --------- --------- ---------
Net income $ 2,588 $ 1,090 $ 7,185 $ 3,645
========= ========= ========= =========
Net income per share (basic
and diluted) $ .41 $ .28 $ 1.22 $ .95
========= ========= ========= =========
Weighted average shares
outstanding (basic and
diluted) 6,363,630 3,838,630 5,901,176 3,838,630
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
3
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
(Dollars in thousands)
(Unaudited)
Shares of Beneficial Treasury Shares of
Interest Beneficial Interest
--------------------- -------------------
Shares Amount Shares Amount
--------- --------- -------- ---------
Balance at January 1, 2002 4,213,826 $ 421 (375,196) $ (38)
Comprehensive income:
Net income -- -- -- --
Other comprehensive income:
Unrealized holding gain arising
during the period
Less: reclassification adjustment
for gain included in net income
Total other comprehensive gain
Comprehensive income
Issuance of common shares 2,525,000 253
Distributions -- -- -- --
--------- ---------- -------- --------
Balance at September 30, 2002 6,738,826 $ 674 (375,196) $ (38)
========= ========== ======== ========
Accumulated
Additional Distributions Other
Paid-in in Excess Comprehensive Comprehensive
Capital of Net Income Income Income Total
---------- ------------- ------------- -------------- ---------
Balance at January 1, 2002 $ 68,841 $ (14,505) $ 560 $ 55,279
Comprehensive income:
Net income -- 7,185 $ 7,185 -- 7,185
Other comprehensive income:
Unrealized holding gain arising 7,733
during the period
Less: reclassification adjustment
for gain included in net income (614)
---------
Total other comprehensive gain 7,119 7,119 7,119
---------
Comprehensive income $ 14,304
=========
Issuance of common shares 30,629 30,882
Distributions -- (7,079) -- (7,079)
---------- ---------- ------- ---------
Balance at September 30, 2002 $ 99,470 $ (14,399) $ 7,679 $ 93,386
========== ========== ======= =========
See accompanying notes to consolidated financial statements.
4
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
=====================
Nine Months Ended
September 30,
---------------------
2002 2001
-------- ---------
Cash flows from operating activities:
Net income $ 7,185 $ 3,645
Adjustments to reconcile net income to net cash
provided by operating activities:
Net (gain) loss on repayments of GNMA
Certificates and mortgage loans (614) 212
Equity in earnings of ARCap, in excess of
(less than) distributions received 5 (197)
Amortization - deferred financing costs 6 35
Amortization - loan premium and
origination costs (75) 41
Accretion of GNMA discount (premium) 14 (16)
Accretion of deferred income -- (39)
Changes in operating assets and liabilities:
Accrued interest receivable (330) 254
Other assets 53 6
Due to Advisor and affiliates 110 (798)
Accounts payable and accrued expenses (845) 117
Accrued interest payable 28 2
--------- ---------
Net cash provided by operating activities 5,537 3,262
--------- ---------
Cash flows from investing activities:
Increase in investment in mortgage loans (2,566) (19,794)
Periodic principal payments of mortgage loans 34 194
Funding of notes receivable (3,520) (4,139)
Principal repayments of GNMA Certificates 287 244
Increase in investment in GNMA Certificates (41,949) (6,556)
Decrease (increase) in other assets 370 (59)
--------- ---------
Net cash used in investing activities (47,344) (30,110)
--------- ---------
See accompanying notes to consolidated financial statements
5
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
=====================
Nine Months Ended
September 30,
---------------------
2002 2001
--------- --------
Cash flows from financing activities:
Proceeds from repurchase facilities payable 18,802 30,535
Distributions paid to shareholders (6,084) (4,175)
Increase in deferred loan costs (52) (42)
Issuance of common shares 30,882 --
--------- --------
Net cash provided by financing activities 43,548 26,318
--------- --------
Net increase (decrease) in cash and cash
equivalents 1,741 (530)
Cash and cash equivalents at the beginning
of the period 1,018 1,632
--------- --------
Cash and cash equivalents at the end of the
period $ 2,759 $ 1,102
========= ========
Supplemental information:
Interest paid $ 841 $ 1,098
========= ========
Consolidation of formerly unconsolidated subsidiary:
Increase in investment in mortgage loans $ 8,353
Decrease in notes receivable (7,264)
Decrease in investment in unconsolidated
subsidiary (1,089)
--------
$ --
--------
Conversion of FHA mortgage loans to
GNMA certificates:
Investment in GNMA certificates $ 34,515
Decrease in investment in mortgage loans (34,515)
--------
$ --
--------
See accompanying notes to consolidated financial statements
6
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
Note 1 - General
American Mortgage Acceptance Company (formerly American Mortgage Investors
Trust) (the "Company") was formed on June 11, 1991 as a Massachusetts business
trust. The Company elected to be treated as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended.
The Company's business plan focuses on originating and acquiring government
insured and uninsured mortgages secured by multi-family properties, which may
take the form of government insured first mortgages and uninsured mezzanine
loans, construction loans and bridge loans. Additionally, the Company has
indirectly invested in subordinate commercial mortgage-backed securities and may
invest in other real estate assets, including non-multi-family mortgages.
Effective April 26, 1999, upon authorization by the Board of Trustees, the
Company's name was changed from American Mortgage Investors Trust to American
Mortgage Acceptance Company. The Company's shares of beneficial interest (the
"Shares") commenced trading on the American Stock Exchange on July 1, 1999 under
the symbol "AMC".
On February 25, 2002, the Company completed a public offering of 2.5 million
common shares at a price of $13.50 per share. The net proceeds from this
offering, approximately $31 million net of underwriters' discount and expenses,
have been primarily used to invest in GNMA Certificates.
The Company is governed by a board of trustees comprised of three independent
trustees and two trustees who are affiliated with Related Capital Company
("Related"). The Company has engaged Related AMI Associates, Inc. (the
"Advisor"), an affiliate of Related, to manage its day-to-day affairs. The
Advisor has subcontracted with Related to provide the services contemplated.
Through the Advisor, Related offers the Company a core group of experienced
staff and executive management providing the Company with services on both a
full and part-time basis. These services include, among other things,
acquisition, financial, accounting, capital markets, asset monitoring, portfolio
management, investor relations and public relations services. The Company
believes that it benefits significantly from its relationship with Related,
because Related provides the Company with resources that are not generally
available to smaller-capitalized, self-managed companies.
The consolidated financial statements include the accounts of the Company and
two wholly-owned subsidiaries which it controls: AMAC Repo Seller and AMAC/FM
Corporation ("AMAC/FM"). All intercompany accounts and transactions have been
eliminated in consolidation. Unless otherwise indicated, the "Company" as
hereinafter used, refers to American Mortgage Acceptance Company and its
subsidiaries.
The consolidated financial statements of the Company have been prepared without
audit. In the opinion of management, the financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of the Company as of September 30, 2002
and the results of its operations for the three and nine months ended September
30, 2002 and 2001 and its cash flows for the nine months ended September 30,
2002 and 2001. However, the operating results for the interim periods may not be
indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP") have been condensed or
omitted. It is suggested that these financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 2001.
The preparation of the consolidated financial statements in conformity with GAAP
requires the Advisor to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
7
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 141, "Business Combinations (SFAS 141) and Statement No. 142, "Goodwill and
Other Intangible Assets" (SFAS 142). These statements establish new standards
for accounting and reporting for business combinations and for goodwill and
intangible assets resulting from business combinations. SFAS 141 applies to all
business combinations initiated after June 30, 2001; the Company implemented
SFAS 142 on January 1, 2002. Implementation of these statements did not have a
material impact on the Company's consolidated financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 requires the fair value of a liability or an asset
retirement obligation to be recorded in the period in which it is incurred. SFAS
No. 143 is not effective until January 1, 2003. Management does not anticipate
that the implementation of this statement will have a material impact on the
Company's consolidated financial statements.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long Lived Assets" (effective January 1, 2002). SFAS
No. 144 supercedes existing accounting literature dealing with impairment and
disposal of long-lived assets, including discontinued operations. It addresses
financial accounting and reporting for the impairment of long-lived assets and
for long-lived assets to be disposed of, and expands current reporting for
discontinued operations to include disposals of a "component" of an entity that
has been disposed of or is classified as held for sale. The Company implemented
SFAS No. 144 on January 1, 2002. Implementation of SFAS No. 144 did not have a
material impact on the Company's consolidated financial statements.
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections".
SFAS No. 145 among other things, rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", and accordingly, the reporting of gains and
losses from the early extinguishments of debt as extraordinary items will only
be required if they meet the specific criteria for extraordinary items included
in Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations". The rescission of SFAS No. 4 is effective January 1, 2003.
Management does not anticipate that the implementation of this statement will
have a material impact on the Company's consolidated financial statements.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 replaces current
accounting literature and requires the recognition of costs associated with exit
or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 is not effective until
January 1, 2003. Management does not anticipate that the implementation of this
statement will have a material effect on the Company's consolidated financial
statements.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
8
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
Note 2 - Investments in Mortgage Loans
Information relating to investments in mortgage loans as of September 30, 2002
is as follows:
Final Periodic
Maturity Call Interest Payment Prior
Property Description Date Date Rate (B) Terms Liens
-------- ----------- -------- -------- -------- --------- ----------
First Mortgage Loans
Stony Brook II
East Haven, CT (E)(M) 125 Units 6/37 12/06 7.625% (F) --
Sunset Gardens
Eagle Pass, TX 60 Units 9/03 TBD 11.50% (H) --
Northbrooke
Harris County, TX 240 Units 8/43 N/A 7.45% (L) --
Alexandrine
Detroit, MI (N) 30 Units 11/02 N/A 11.00% (H) --
Subtotal First Mortgage Loans
Mexxanine Loans (G):
Stabilized Properties
---------------------
Stony Brook II (J)
East Haven, CT 125 Units 6/37 12/06 15.33% (H) 8,297,343
Plaza at San Jacinto (K)
Houston, TX 132 Units 1/43 6/11 11.40% (H) 6,638,300
Subtotal Stabilized Mezzanine
Loans
Properties in Lease-Up
----------------------
The Hollows (K)
Greenville, NC 184 Units 1/42 1/12 10.00% (H) 8,481,092
Elmhurst Village (J)
Oveido, FL 313 Units 1/42 3/19 10.00% (H) 21,697,184(L)
The Reserve at Autmn Creek(J)
Friendswood, TX 212 Units 1/42 9/14 10.00% (H) 16,038,089(L)
Subtotal Properties in Lease-UP
Properties in Construction
--------------------------
Club at Brazos (I)
Rosenberg, TX 200 Units 5/43 TBD 10.00% (H) 14,363,800
Northbrooke (J)
Harris County, TX 240 Units 8/43 TBD 11.50% (H) 6,143,579(L)
Subtotal Properties
in Construction
Subtotal Mezzanine Loans
Total Mortgage Loans
Interest Income
Earned Applicable
Outstanding To the Six Months
Face Amount of Carrying Amount Ended
Property Mortgages (C) of Mortgages (D) September 30, 2002
-------- --------------- ---------------- ------------------
First Mortgage Loans
Stony Brook II
East Haven, CT (E)(M) $8,297,343 $8,297,343 $ 475,383
Sunset Gardens
Eagle Pass, TX 892,902 874,411 61,235
Northbrooke
Harris County, TX -- -- 15,458
Alexandrine
Detroit, MI (N) 342,000 342,000 5,038
-------------------------------------------------
Subtotal First Mortgage Loans 9,352,245 9,513,754 557,114
-------------------------------------------------
Mezzanine Loans (G):
Stabilized Properties
---------------------
Stony Brook II (J)
East Haven, CT 763,909 656,898 67,730
Plaza at San Jacinto (K)
Houston, TX 1,250,000 1,222,189 109,281
-------------------------------------------------
Subtotal Stabilized Mezzanine
Loans 2,013,909 1,879,087 117,011
-------------------------------------------------
Properties in Lease-Up
----------------------
The Hollows (K)
Greenville, NC 1,549,200 1,394,186 99,528
Elmhurst Village (J)
Oveido, FL 2,874,000 2,446,037 237,655
The Reserve at Autmn Creek (J)
Friendswood, TX 1,987,000 1,925,753 146,772
-------------------------------------------------
Subtotal Properties in Lease-Up 6,410,200 5,765,976 483,955
-------------------------------------------------
Properties in Construction
--------------------------
Club at Brazos (I)
Rosenberg, TX 1,962,000 1,884,245 148,559
Northbrooke (J)
Harris County, TX 1,500,000 1,362,823 179,492
-------------------------------------------------
Subtotal Properties
in Construction 3,462,000 3,247,068 328,051
-------------------------------------------------
Subtotal Mezzanine Loans 11,886,109 10,892,131 989,017
-------------------------------------------------
Total Mortgage Loans $21,418,354 $20,405,885 $1,546,131
=================================================
9
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
(A) Loans are subject to mandatory prepayment at the option of the Company 10
years after construction completion, with one year's notice. Loans with a
call date of "TBD" are still under construction.
(B) Interest on the mezzanine loans is based on a fixed percentage of the
unpaid principal balance of the related first mortgage loan (prior liens).
The amount shown is the approximate effective rate earned on the balance of
the mezzanine loan. The mezzanine loans also provide for payments of
additional interest based on a percentage of cash flow remaining after debt
service (generally 50%) and participation in sale or refinancing proceeds
(generally 25%) and certain provisions that cap the Company's total yield,
including additional interest and participations, over the term of the
loan.
(C) No principal amounts of mortgage loans are subject to delinquent interest
as of September 30, 2002.
(D) Carrying amounts of the mezzanine loans include unamortized origination
costs and fees and loan discounts.
(E) Interest and principal payments on this first mortgage loan is insured by
the U.S. Department of Housing and Urban Development.
(F) Requires monthly payments of principal and interest based on a 40-year
amortization period. Loan is subject to 5-year lockout against prepayments,
as well as a prepayment penalty structure during the second 5-year term of
the loan.
(G) The principal balance of the mezzanine loans is secured by the partnership
interests of the entity that owns the underlying property and a third
mortgage deed of trust. Interest payments on the mezzanine loans are
secured by a second mortgage deed of trust and are guaranteed for the first
36 months after construction completion by an entity related to the general
partner of the entity that owns the underlying property.
(H) Interest only payments are due monthly, with loan balance due at maturity.
(I) The funding of this mezzanine loan is based on property level operational
achievements.
(J) The Company has an interest in the first lien position relating to this
mezzanine loan.
(K) The Company does not have an interest in the first lien position relating
to this mezzanine loan.
(L) The first mortgage loans related to those properties were converted from
participations in FHA loans to ownership of the GNMA Certificates and are
held by the Company.
(M) This first mortgage loan is pledged to secure the Company's obligation
under a first loss protection agreement with Fannie Mae - See Notes 9 and
10.
(N) The Alexandrine first mortgage loan was purchased in August 2002.
10
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
Note 3 - Investments in GNMA Certificates-Available for Sale
Information relating to investments in GNMA certificates as of September 30,
2002 is as follows:
Income
Earned
Date Applicable
Purchase/ Amortized Unrealized to the
Final Stated Principal Cost at Gain(Loss) Balance at Nine Months
Certificate Payment Interest at September at September at September at September Ended September
Name Number Due Rate 30, 2002 30, 2002 30, 2002 30, 2002 30, 2002
---- ----------- -------- -------- ------------- ----------- ----------- ------------ --------------
Western Manor (1) 0355540 7/27/94 7.125% $ 2,467,349 $ 2,473,044 $ 41,324 $ 2,514,368 $ 146,857
3/15/29
Copper Commons (1) 0382486 7/28/94 8.500% 2,093,372 2,162,276 (6,103) 2,156,173 134,380
8/15/29
SunCoast Capital Group, G002412 6/23/97 7.000% 641,003 641,704 23,346 665,050 39,889
Ltd. (1) 4/20/27
Hollows Apts. (2) 511909 5/29/01 -- -- -- -- 196,859
Elmhurst Village (1) 549391 6/28/01 7.745% 21,697,184 21,697,184 2,473,213 24,170,397 1,239,518
1/1/42
Reserve at Autumn Creek (1) 448747 6/28/01 7.745% 16,038,089 16,038,089 2,132,993 18,171,082 889,451
1/1/42
Casitas at Montecito (1) 519289 3/11/02 7.300% 5,787,263 6,180,818 101,194 6,282,012 218,019
10/15/42
Village at Marshfield (1) 519281 3/11/02 7.475% 19,887,779 21,522,879 821,470 22,344,349 779,777
1/15/42
Cantera Crossing 532662 3/28/02 6.500% 4,759,432 4,702,534 467,152 5,169,686 127,119
6/1/29
Fillmore Park (1) 536739 3/28/02 6.700% 1,189,095 1,202,905 31,999 1,234,904 28,376
10/15/42
Northbrooke 548972 5/24/02 7.080% 6,143,579 6,294,545 646,852 6,941,397 103,807
8/1/43
Ellington Plaza 585494 7/26/02 6.835% 8,795,268 8,844,547 945,633 9,790,180 97,426
6/1/44
-----------------------------------------------------------------
Total $89,499,413 $91,760,525 $7,679,073 $99,439,598 $4,001,478
=================================================================
(1) These GNMA Certificates are pledged as collateral for borrowings under the
repurchase facility - See Note 5.
(2) This GNMA Certificate was sold March 25, 2002.
11
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
The amortized cost, unrealized gain and fair value for the investment in GNMA
Certificates at September 30, 2002 and December 31, 2001 were as follows:
(Dollars in thousands)
September 30, December 31,
2002 2001
-------------- -------------
Amortized cost $ 91,760 $ 49,500
Unrealized gain - net 7,679 560
---------- ----------
Fair Value $ 99,439 $ 50,060
========== ==========
As of September 30, 2002, there were gross unrealized gains and losses of
$7,685,176 and $6,103, respectively. As of December 31, 2001, there were gross
unrealized gains and losses of $579,252 and $18,865, respectively.
On March 25, 2002, the Company sold the Hollows GNMA Certificate for
approximately $9.6 million. The amortized cost at the date of the sale was
approximately $9.0 million, resulting in a gain of approximately $614,000. The
Company recorded the sale on the trade date of March 25, 2002. The settlement
date was in April 2002.
12
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
NOTE 4 - Notes Receivable
The Company's notes receivable are collateralized by equity interest in the
owner of the related property and consist of the following as of September 30,
2002:
Remaining
Number of Outstanding Committed
Apartment Carrying Principal Balance to Interest
Property Location Units Amount Balance Fund Rate Maturity
------------------------------------------------------------------------------------------------------------------------------------
Alexandrine (2) Detroit, MI 30 $ 213,936 $ 213,936 -- 12.50% November 2002
Coronado
Terrace (2) San Diego, CA 312 574,292 581,360(1) $1,418,640 11.00% December 2002
Plaza Manor (2) National City, CA 372 1,499,010 1,499,010 -- 11.00% December 2002
Concorde at
Palm Houston, TX 360 3,826,254 3,850,000 -- 12.00% December 2003
Parwood (2) Long Beach, CA 528 1,969,438 2,000,000(1) 2,600,000 11.00% January 2004
Concord at
Little York Houston, TX 276 3,469,654 3,500,000 -- 12.00% February 2004
Concord at
Gulfgate Houston, TX 288 3,444,116 3,500,000 -- 12.00% May 2004
--------------------------------------------------------------------------------------------
Total 2,326 $14,996,700 $15,144,306 $4,019,640
============================================================================================
(1) Funded on an as needed basis.
(2) Affiliated transaction (see Note 6).
13
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
The Company's notes receivable pay interest only until maturity when the
principal is due. As of September 30, 2002, there were no past due amounts owed
the Company on any note.
NOTE 5 - Repurchase Facilities
During 2001, the Company was party to a $40 million repurchase facility with
Nomura Asset Capital Corporation, which enabled the Company to borrow up to 80%
(90% with a qualified hedge) of the fair market value of FHA loans owned by the
Company. The interest rate under this repurchase facility was LIBOR plus 1.25%.
As of December 31, 2001 there was no outstanding balance under this agreement.
The agreement was not renewed upon its expiration in February 2002.
Effective February 15, 2000, the Company also entered into a repurchase facility
with Nomura Securities International Inc. (the "Nomura Securities Repurchase
Facility"). This facility enables the Company to borrow up to 95% of the fair
market value of GNMA Certificates and other qualified mortgage securities owned
by the Company, some of which are pledged as collateral for the borrowings. In
past quarters, interest on borrowings was at LIBOR plus 0.50%. During the third
quarter, interest on borrowings decreased to LIBOR plus 0.05%. As of September
30, 2002 and December 31, 2001, the amounts outstanding under this facility were
$62,412,000 and $43,610,000 and interest rates were 1.87% and 2.58%,
respectively. Deferred costs relating to the Nomura Securities Repurchase
Facility have been fully amortized. All amounts outstanding at September 30,
2002, had 30-day settlement terms and are collateralized by certain GNMA
Certificates as indicated in Note 3.
NOTE 6 - Related Party Transactions
The costs incurred to related parties for the three and nine months ended
September 30, 2002 and 2001 were as follows, all of which are paid to the
Advisor:
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30, December 31,
------------------- -------------------
2002 2001 2002 2001
------------------- -------------------
Expense reimbursement $ 110 $ 61 $ 428 $ 233
Asset management fees 208 61 618 185
-------- -------- -------- --------
$ 318 $ 122 $ 1,046 $ 418
======== ======== ======== ========
Some of the Company's notes receivable (see Note 4), the guarantee on Creekside
Apartments and standby bridge loan commitments described in Note 8 are to
limited partnerships where the general partner is an affiliate of the Advisor
with a 1% interest in the limited partnership, and the 99% limited partner is a
limited partnership in which an affiliate of the Advisor owns a 1% general
partnership interest and one or more Fortune 500 companies own a 99% limited
partnership interest.
Note 7 - Earnings Per Share
Basic net income per share in the amount $.41 and $.28 and $1.22 and $.95 for
the three and nine months ended September 30, 2002 and 2001, respectively,
equals net income for the periods ($2,587,524 and $1,090,107 and $7,184,958 and
$3,645,284, respectively), divided by the weighted average number of shares
outstanding which were 6,363,630 and 3,838,630 and 5,901,176 and 3,838,630,
respectively.
Because the Company had no dilutive securities outstanding during the nine
months ended September 30, 2002 or 2001, diluted net income per share is the
same as basic net income per share.
14
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
Note 8 - Commitments and Contingencies
The Company completed a loan program with Fannie Mae, which agreed to fully fund
the origination of $250 million of Delegated Underwriter and Servicer loans for
apartment properties that qualify for low income housing tax credits under
Section 42 of the Internal Revenue Code. Under the loan program, the Company
intended to originate and contract for individual loans of up to $6 million each
over a two-year period in conjunction with American Property Financing, an
unaffiliated third party, which would underwrite and service the loans for
Fannie Mae. The Company guarantees a first loss position of up to $21.25
million, depending on the aggregate principal amount of the loans the Company
originates under this program and would receive guaranty, loan origination and
other fees. The Company also guarantees construction loans for which it has
issued a forward commitment to originate a loan under the Fannie Mae program,
with respect to which it guarantees repayment of 100% of such construction
loans. As of September 30, 2002, the Company has originated loans totaling
approximately $3.3 million under the Fannie Mae program and has made forward
commitments for an additional approximate $5.3 million. The Company's maximum
guaranty at September 30, 2002 was $8.6 million.
During August 2002, the Company purchased one construction loan in the amount of
$342,000 due to a default on a construction loan that was 100% guaranteed by the
Company under the Fannie Mae program. The loan defaulted due to problems
relating to construction issues of Alexandrine Square, a 30-unit apartment
complex in Detroit, Michigan. The construction loan is classified as a first
mortgage loan on the balance sheet at September 30, 2002.
Subsequent to creating this program, the level of loan origination competition
has increased, reducing the program's projected financing value and
profitability. As a result, the Company decided in the first quarter of 2002 to
discontinue this program. The Company has reached an agreement in principle to
terminate this program and transfer its rights and obligations to a third party.
There can be no assurance, however, that this agreement will be consummated.
Accordingly, during the first quarter of 2002, the Company wrote off the balance
of unamortized deferred costs relating to this program. This write-off totaled
approximately $358,000 and is included in FNMA loan program expenses in the
Consolidated Statement of Income.
In May of 2002, The Company guaranteed a construction loan of approximately $7.5
million for Creekside Apartments, a proposed 144-unit affordable multi-family
apartment complex located in Colorado Springs, Colorado, in exchange for a
0.375% fee, which will be received on a monthly basis after construction
completion up until the date in which permanent financing takes place ("the
guarantee period"). The construction loan guarantee will provide credit support
for the guarantee period. It is anticipated that construction will be completed
in February 2003 and that the property will reach stabilization in October 2003.
The fee will be recognized monthly during the guarantee period.
In July of 2002, the Company granted a standby bridge loan commitment to a third
party in the amount of approximately $1.7 million. The purpose of the bridge
loan, which is expected to be funded in February 2003, is to fund the
construction of a 160-unit affordable multi-family apartment complex located in
Laredo, TX, known as Clark's Crossing Apartments. The bridge loan will carry an
interest rate of 12%. The Company received a bridge loan origination fee of 2%
which has been deferred and will begin amortizing over the life of the loan when
the loan is funded.
In conjunction with the bridge loan, the Company has also guaranteed a
construction loan of approximately $4.8 million, providing credit support for
the period beginning with construction completion until the property reaches
stabilization, in exchange for an up-front construction loan guarantee fee of
0.625% of the construction loan amount, which was received by the Company and is
being amortized over the life of the construction loan, and a 0.50% construction
loan administration fee, which will be received on a monthly basis during the
guarantee period. Construction is expected to be completed in April 2003 and
stabilization achieved in October 2003.
15
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
In February of 2002, the Company issued a standby bridge loan commitment of
$400,000 for the rehabilitation of Valley View and Summertree Apartments, two
apartment complexes featuring 240 total units and located in Little Rock,
Arkansas. The loan, if funded, will bear interest at 12%. Funding, should it be
needed, is not anticipated to occur until the property reaches stabilization.
The Company received a fee of 2.5% for issuing the commitment. The first
mortgage bond relating to these apartments is held by Charter Municipal Mortgage
Acceptance Company ("CharterMac"), a publicly traded company which is managed by
an affiliate of the Advisor.
In June of 2002, the Company issued a standby bridge loan commitment of $1.4
million for the construction of Willow Creek Apartments, a 104-unit multi-family
apartment complex located in North Port, Florida. The loan, if funded, will bear
interest at a rate of 12%. Funding, should it be needed, is not anticipated to
occur until December 2003, at the earliest. The Company received a fee of 3.57%
for issuing the commitment. The first mortgage bond relating to these apartments
is held by CharterMac.
In June of 2002, the Company issued a standby bridge loan commitment of $400,000
for the rehabilitation of McMullen Square Apartments, a 100-unit complex
featuring 18 two-story buildings and two one-story buildings, located in San
Antonio, Texas. The loan, if funded, will bear interest at a rate of 12%.
Funding, should it be needed, is not anticipated to occur until February 2003.
The Company received a fee of 2.5% for issuing the commitment.
In August of 2002, the Company issued a standby permanent loan commitment of up
to approximately $4.3 million, for the rehabilitation of Highland Park
Apartments, a 200-unit garden style apartment complex located in Topeka, Kansas,
for which the Company received a loan standby commitment fee of 2.0%. If funded,
which could occur in December 2003, the Company would receive interest of 9.5%.
If funded, the Company will also receive a loan origination fee of 1.0%.
Based on the Company's experience with similar arrangements, management has
taken the position that the likelihood that any of the above described
commitments, with the exception of the standby bridge loan commitment granted to
fund the construction of Clark's Crossing Apartments in the approximate amount
of $1.7 million, will be exercised is remote. Therefore, the fees received for a
commitment to originate a loan are recognized over the commitment period on a
straight-line basis in other income. If, however, management believes that the
likelihood that the commitments will be exercised is possible or probable, the
commitment fees will be deferred and, if the commitment is exercised, recognized
over the life of the loan as an adjustment of yield, or, if the commitment
expires unexercised, recognized in other income upon expiration of the
commitment.
Note 9 - Investment in Unconsolidated Subsidiary and Note Receivable
As discussed in Note 8, the Company has entered into an agreement with Fannie
Mae whereby the Company would provide first loss protection on certain loans
funded by Fannie Mae pursuant to a Master Financing and Loss Sharing Agreement.
Through a consolidated subsidiary, AMAC/FM, and pursuant to a Guaranty and
Security Agreement with Fannie Mae, the payment of the Company's obligations
under this program is guaranteed and secured by AMAC/FM's pledge and grant to
Fannie Mae of a security interest on certain assets of AMAC/FM.
AMAC/FM was capitalized by a contribution by the Company to AMAC/FM of the
mortgage loan secured by Stony Brook Village II Apartments with a principal
amount of $8,404,092. This contribution was recorded by AMAC/FM as a $7,264,092
loan from the Company via a subordinated promissory note, with a stated interest
rate of 7.75% and a $1,140,000 capital contribution through the issuance of
AMAC/FM non-voting common stock. During 2000, the Company accounted for its
$1,140,000 investment in AMAC/FM under the equity method of accounting, because
all of AMAC/FM's voting common shares were held by the Advisor and, therefore,
the Company did not control AMAC/FM.
16
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
During January 2001, all of the voting common stock of AMAC/FM, previously owned
by the Advisor, was purchased by the Company, the effect of which is to make
AMAC/FM a wholly-owned, consolidated subsidiary of the Company. This change was
implemented as a result of the REIT Modernization Act of 1999, which allows
REITs to directly own taxable REIT subsidiaries, beginning after the year 2000.
Note 10 - Shareholders' Equity
On February 25, 2002, the Company completed a public offering of 2.5 million
common shares at a price of $13.50 per share. The net proceeds from this
offering, approximately $31 million net of underwriters' discount and expenses,
have been primarily used to invest in GNMA Certificates.
Note 11 - Subsequent Events
In November 2002, a distribution of $2,386,361, ($0.375 per share) which was
declared in September 2002, was paid to shareholders for the quarter ended
September 30, 2002.
In November 2002, the Company purchased a GNMA Permanent Loan Certificate (PLC)
secured by Burlington Apartments, a 427-unit multi-family apartment complex
located in St. Paul, Minnesota in the approximate amount of $6,830,000. The PLC
yields interest at a rate of 5.90% and matures in April 2031.
In October 2002, the Company guaranteed a construction loan of approximately
$3,675,000 for Village of Meadowbend Apartments, a proposed 138 unit affordable
multi-family apartment complex located in Temple, Texas, in exchange for an
up-front construction loan guarantee fee of 0.75% of the construction loan
amount and a 0.50% construction loan administration fee, which will be received
on a monthly basis during the guarantee period. The construction loan guarantee
will provide credit support for the guarantee period. It is anticipated that
construction will be completed in December 2003 and that the property will reach
stabilization in April 2004. The construction loan guarantee fee has been
received by the Company in October 2002. The construction loan administration
fee will be recognized monthly during the guarantee period.
During October 2002, the Company secured a Mortgage Warehouse Line of Credit
("Facility") with Fleet Securities Inc. in the amount of $40 million. Advances
under the Facility will be used to fund first mortgage loans, which the Company
will make to its customers for the acquisition/refinancing and minor renovation
of existing, lender-approved multi-family properties located in stable
sub-markets. The Facility, which matures April 2006, bears an interest rate of
LIBOR + 200 basis points, payable monthly on advances. Principal will be due
upon the earlier of refinance or sale of the underlying project or upon
maturity. The Company will pay a fee of 12.5 basis points, paid quarterly, on
any unused portion of the Facility.
During November 2002, the Company funded a $6.3 million acquisition bridge loan
for Del Mar Villas, a 260-unit multi-family apartment complex located in Dallas,
Texas. The bridge loan, which matures April 2004, bears an interest rate of
LIBOR + 462.5 basis points. Payments on the loan are interest only for the full
18-month term. The Company will receive a loan origination fee of 1.5% and will
receive a exit fee of 0.5% - 1.5%, depending upon the timing and source of the
repayment of the loan.
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
---------------------
The net income for the three and nine months ended September 30, 2002 and 2001
was $2,587,524 and $1,090,107 and $7,184,958 and $3,645,284, respectively. The
total of the annual operating expenses of the Company may not exceed the greater
of (i) 2% of the Average Invested Assets of the Company or (ii) 25% of the
Company's net income, unless such excess is approved by the Independent
Trustees. On an annualized basis, there was no such excess for the nine months
ended September 30, 2002 and 2001.
Interest income from mortgage loans increased approximately $186,000 for the
three months ended September 30, 2002 as compared to 2001 due to the addition of
Northbrooke, Sunset Gardens, and Alexandrine Square mortgage loans and decreased
approximately $711,000 for the nine months ended September 30, 2002 as compared
to 2001 primarily due to the conversion of Hollows, Elmhurst Village and Autumn
Creek mortgages to GNMA Certificates and the sale of the Columbiana mortgage
during 2001.
Interest income from GNMA certificates increased approximately $689,000 and
$2,648,000 for the three and nine months ended September 30, 2002 as compared to
2001, primarily due to the conversion of three mortgage loans to GNMA
certificates in 2001 and the purchase of an additional five GNMA Certificates in
2002, offset by the loss of interest income from the Hollows GNMA Certificate
which was sold in March of 2002.
Interest income from notes receivable increased approximately $421,000 and
$1,428,000 for the three and nine months ended September 30, 2002 as compared to
2001 due to the addition of nine notes receivable during 2001 and 2002.
During the nine months ended September 30, 2002, the Company recognized
approximately $358,000 in FNMA loan program expenses associated with the
write-off of the unamortized deferred costs related to the FNMA loan program.
Fees to advisor increased approximately $196,000 and $628,000 for the three and
nine months ended September 30, 2002 as compared to 2001 due to an increase in
the Company's assets and an increase in the reimbursements of certain
administrative and other costs incurred by the Advisor on behalf of the Company.
A gain on the repayment of GNMAs and mortgage loans in the amount of
approximately $614,000 was recorded for the nine months ended September 30,
2002, relating to the sale of the Hollows GNMA on March 25, 2002; during the
three and nine months ending September 30, 2001, a loss on repayment of
approximately $212,000 was recorded relating to the repayment of the Columbian
loans.
Liquidity and Capital Resources
-------------------------------
Effective April 26, 1999, upon authorization by the Board of Trustees, the
Company's name was changed from American Mortgage Investors Trust to American
Mortgage Acceptance Company. The Company's shares of beneficial interest
commenced trading on the American Stock Exchange on July 1, 1999 under the
symbol "AMC". As of September 30, 2002, there were 6,363,630 shares outstanding.
The Company's business plan focuses on originating and acquiring government
insured and uninsured mortgages secured by multi-family properties, which may
take the form of government insured first mortgages and uninsured mezzanine
loans, construction loans and bridge loans. Additionally, the Company has
indirectly invested in subordinate commercial mortgage-backed securities and may
invest in other real estate assets, including non-multi-family mortgages.
On February 25, 2002, the Company completed a public offering of 2.5 million
common shares at a price of $13.50 per share. The net proceeds from this
offering, approximately $31 million net of underwriters' discount and expenses,
have been primarily used to invest in GNMA Certificates.
18
During the nine months ended September 30, 2002, cash and cash equivalents
increased approximately $2 million primarily due to net proceeds from the common
share offering, approximately $31 million, proceeds from repurchase facilities
payable, approximately $18.8 million and cash provided by operating activities,
approximately $5.5 million, offset by investments in mortgage loans,
approximately $2.6 million, investments in GNMA Certificates, approximately $42
million, increase in notes receivable, approximately $3.6 million and
distributions to shareholders, approximately $6 million.
The yield on the GNMA Certificates will depend, in part, upon the rate and
timing of principal prepayments on the underlying mortgages. Generally, as
market interest rates decrease, mortgage prepayment rates increase and the
market value of interest rate sensitive obligations like the GNMA Certificates
increases. As market interest rates increase, mortgage prepayment rates tend to
decrease and the market value of interest rate sensitive obligations like the
GNMAs tends to decrease. The effect of prepayments on yield is greater the
earlier a prepayment of principal is received. The Company's GNMAs are
collateralized by mortgage loans on multi-family properties.
The yield on the mortgage loans will depend, in part, on when, and if, the
Company disposes of the mortgage loans prior to maturity or the obligor fully
repays the outstanding debt. The effect of prepayments on yield is greater the
earlier a prepayment of principal is received. Due to the uncertainty of future
economic and other factors that affect interest rates and mortgage prepayments,
it is not possible to predict the effects of future events upon the yield to
maturity or the market value of the mortgage loans upon any sale or other
disposition or whether the Company, if it chose to, would be able to reinvest
proceeds from prepayments at favorable rates relative to the current mortgage
loan rates.
The yield on the mezzanine loans is based on a fixed percentage of the
associated first mortgage loan, plus a percentage of the available cash flow
produced by the underlying multi-family property, and a participation in sale or
refinancing proceeds. The yield will vary based on the operating results of the
underlying property, its requirements for capital improvements, and the ability
of the property owners to successfully sell or refinance the underlying
property.
The yield on the bridge loans will depend, in part, on when, and if, the Company
disposes of the loans prior to maturity or the obligor repays the outstanding
debt. These loans are typically of shorter term, about 12 months, and higher
risk. However, the Company's bridge loans are collateralized by the equity
interests of the property owner. Although the loans bear a fixed rate of
interest, the shorter term somewhat reduces the Company's interest rate risk.
The Company's equity in the earnings of ARCap will generally be equal to the
Company's preferred equity dividend rate of 12%, unless ARCap does not have
earnings and cash flows adequate to meet this dividend requirement. ARCap's
investment portfolio consists of subordinated commercial mortgage backed
securities, whose yields depend, among other things, on the rate and timing of
principal payments, the pass through rate, interest rate fluctuations and
defaults on the underlying mortgages. The Company's investment in ARCap is
illiquid and its carrying amount is not necessarily representative of the amount
the Company would receive upon a sale of this investment.
The Company finances the acquisition of its assets primarily through borrowing
at short-term rates using demand repurchase agreements. Under the Company's
declaration of trust, the Company may incur permanent indebtedness of up to 50%
of total market value calculated at the time the debt is incurred. Permanent
indebtedness and working capital indebtedness may not exceed 100% of the
Company's total market value. In February of 2002, the Company sold 2.5 million
common shares at a price of $13.50 per share, raising net proceeds of
approximately $31 million. If market conditions warrant, the Company may seek to
raise additional funds for investment through further common offerings in the
future, although the timing and amount of such offerings cannot be determined at
this time.
Effective February 15, 2000, the Company entered into a repurchase facility with
Nomura Securities International Inc. This facility enables the Company to borrow
up to 95% of the fair market value of GNMA certificates and other qualified
mortgage securities owned by the Company, which are pledged as collateral for
the borrowings. Through the quarter ended June 30, 2002, interest on borrowings
were at LIBOR plus 0.50%. During the third quarter, interest on borrowings
decreased to LIBOR plus 0.05%. As of September 30, 2002 and December 31, 2001,
the amount outstanding under this facility was $62,412,000 and $43,610,000 and
interest rates were 1.87% and 2.58%, respectively. All borrowings under this
facility typically have 30-day settlement terms. However, the Company has the
option to shorten or extend the length of the settlement terms at its
discretion. The Company has not experienced any problems when renewing its
borrowing and management believes it will be able to continue to renew its
borrowings when due. If the Company were unable to renew such borrowings with
Nomura, it would have to either find replacement financing or sell assets at
prices which may be below market value.
19
During October 2002, the Company secured a Mortgage Warehouse Line of Credit
("Facility") with Fleet Securities Inc. in the amount of $40 million. Advances
under the Facility will be used to fund first mortgage loans, which the Company
will make to its customers for the acquisition/refinancing and minor renovation
of existing, lender-approved multi-family properties located in stable
sub-markets. The Facility, which matures April 2006, bears an interest rate of
LIBOR + 200 basis points, payable monthly on advances. Principal will be due
upon the earlier of refinance or sale of the underlying project or upon
maturity. The Company will pay a fee of 12.5 basis points, paid quarterly, on
any unused portion of the Facility.
In order to qualify as a REIT under the Code, the Company must, among other
things, distribute at least 90% of its taxable income. The Company believes that
it is in compliance with the REIT-related provisions of the Code.
The Company expects that cash generated from the Company's investments will meet
its needs for short-term liquidity, and will be sufficient to pay all of the
Company's expenses and to make distributions to its shareholders in amounts
sufficient to retain the Company's REIT status in the foreseeable future.
The Company completed a loan program with Fannie Mae, which agreed to fully fund
the origination of $250 million of Delegated Underwriter and Servicer loans for
apartment properties that qualify for low income housing tax credits under
Section 42 of the Internal Revenue Code. Under the loan program, the Company
will originate and contract for individual loans of up to $6 million each over a
two-year period and will work with American Property Financing, an unaffiliated
third party, which will underwrite and service the loans for Fannie Mae. The
Company guarantees a first loss position of up to $21.25 million, depending on
the aggregate principal amount of the loans the Company originates under this
program and will receive guaranty, loan origination and other fees. The Company
also guarantees construction loans for which it has issued a forward commitment
to originate a loan under the Fannie Mae program, with respect to which it
guarantees repayment of 100% of such construction loans. As of September 30,
2002, the Company has originated loans totaling approximately $3.3 million under
the Fannie Mae program and has made forward commitments for an additional
approximate $5.3 million. The Company's maximum guaranty at September 30, 2002
was $8.6 million.
Since the Company entered into the Fannie Mae loan program, the level of loan
origination competition has increased, reducing the projected financing volume
and profitability. As a result, the Company decided in the first quarter of 2002
to discontinue this program. The Company has reached an agreement in principle
to terminate this program and transfer its rights and obligations to a third
party. There can be no assurance, however, that this agreement will happen.
In November 2002, a distribution of $2,386,361 ($0.375 per share), which was
declared in September 2002, was paid to the shareholders for the quarter ended
September 30, 2002.
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.
20
Distributions
-------------
Of the total distributions of $7,079,540 and $4,174,510 for the nine months
ended September 30, 2002 and 2001, respectively, the current year has no return
of capital and for 2001, $317,654 ($.08 per share or 7.61%) represented a return
of capital determined in accordance with generally accepted accounting
principles. As of September 30, 2002, the aggregate amount of the distributions
made since the inception of the Company in 1977 representing a return of
capital, in accordance with generally accepted accounting principles, totaled
approximately $14,399,000. The portion of the distributions that constituted a
return of capital was significant during the initial acquisition stage in order
to maintain level distributions to shareholders.
Critical Accounting Policies
----------------------------
The Company's critical accounting policies are described in its Form 10-K for
the year ended December 31, 2001. These critical accounting policies have not
changed during 2002, but the Company has entered into several transactions which
involve new critical accounting policies as described in the following two
paragraphs.
The Company has entered into agreements to guarantee certain construction loans.
The Company must periodically evaluate its potential liability under these
guarantees and might be required to record a liability, or purchase the
associated loan, should the loan experience credit difficulties. To date, the
Company has not provided for any liability under its guarantees; although, it
has purchased one construction loan that was in default and was guaranteed by
the Company.
The Company has entered into standby loan commitments, for which it receives an
upfront fee. The Company must evaluate each commitment's likelihood of exercise.
To date, management has taken the position, with the exception of a standby
bridge loan commitment to fund the construction of Clark's Crossing Apartments,
that the likelihood that any of the commitments will be exercised is remote;
accordingly, the fees are being recognized as income over the commitment period.
If it is determined that the likelihood that a commitment will be exercised is
possible or probable, as in the case of the loan commitment to fund the
construction of Clark's Crossing Apartments, such fees are deferred and, if the
commitment is exercised, will be amortized over the life of the loan as an
adjustment to yield or, if the commitment expires unexercised, recognized as
income upon expiration of the commitment.
Forward-Looking Statements
--------------------------
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, which will, among other
things, affect the availability and creditworthiness of prospective tenants,
lease rents and the terms and availability of financing; adverse changes in the
real estate markets including, among other things, competition with other
companies; risks of real estate development and acquisition; governmental
actions and initiatives; and environment/safety requirements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof.
Inflation
---------
Inflation did not have a material effect on the Company's results for the
periods presented.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. The primary
market risk to which the investments of the Company is exposed is interest rate
risk, which is highly sensitive to many factors, including governmental monetary
and tax policies, domestic and international economic and political
considerations and other factors beyond the control of the Company.
21
The Company's borrowings under repurchase agreements bear interest at rates that
fluctuate with LIBOR. Based on the $62.4 million of borrowings outstanding under
these facilities at September 30, 2002, a 1% change in LIBOR would impact the
Company's annual net income and cash flows by approximately $624,000.
Cash flows and income from the Company's other financial instruments, consisting
primarily of mortgage loans, a preferred equity interest, GNMA certificates, and
cash and cash equivalents, would not be significantly affected by changes in
interest rates, because most of these instruments bear interest at fixed rates,
and are not subject to financing or are not hedged. Cash and cash equivalents
and the mortgage loans are carried at amortized cost, and so their carrying
values are not impacted by changes in interest rates. The GNMA investments are
adjusted to market value through comprehensive income in shareholders' equity.
The preferred equity interest is carried on the equity method; although changes
in interest rates would not directly impact the carrying value of this asset,
they might adversely affect the ability of the underlying entity to meet its
preferred distribution requirements.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures (as such
term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within
90 days prior to the filing date of this quarterly report (the "Evaluation
Date"). Based on such evaluation, such officers have concluded that, as of
the Evaluation Date, the Company's disclosure controls and procedures are
effective in alerting them on a timely basis to material information
relating to the Company (including its consolidated subsidiaries) required
to be included in the Company's reports filed or submitted under the
Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there have not
been any significant changes in the Company's internal controls or in other
factors that could significantly affect such controls.
22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material pending legal proceedings.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities and Use of Proceeds - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
99.1 Chief Executive Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Form 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN MORTGAGE ACCEPTANCE COMPANY
(Registrant)
Date: November 12, 2002 By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Trustee, Chairman of the Board,
President and Chief Executive Officer
Date: November 12, 2002 By: /s/ Stuart A. Rothstein
-----------------------
Stuart A. Rothstein
Chief Financial Officer
CERTIFICATION
I, Stuart J. Boesky, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q of American
Mortgage Acceptance Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors or persons
performing the equivalent functions:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ Stuart J. Boesky
----------------- --------------------
Stuart J. Boesky
Chief Executive Officer
CERTIFICATION
I, Stuart A. Rothstein, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q of American
Mortgage Acceptance Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors or persons
performing the equivalent functions:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ Stuart A. Rothstein
----------------- -----------------------
Stuart A. Rothstein
Chief Financial Officer
Exhibit 99.1
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of American Mortgage Acceptance Company
(the "Company") on Form 10-Q for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Stuart J. Boesky, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Chief Executive Officer
November 12, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of American Mortgage Acceptance Company
(the "Company") on Form 10-Q for the period ending September, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Stuart A. Rothstein, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ Stuart A. Rothstein
-----------------------
Stuart A. Rothstein
Chief Financial Officer
November 12, 2002