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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the year ended December 31, 2000 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 1-13991
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
Maryland 13-3974868
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
399 Park Avenue, 36th Floor, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 935-8760
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on which Registered
---------------------------- ------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
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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 (229.405 of the chapter) is not contained herein,
and will not be contained, to the best of the 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 aggregate market value of the common stock held by non-affiliates of the
Registrant on March 19, 2001, based on the final sales price per share as
reported in The Wall Street Journal on March 20, 2001, was $59,135,629.
The number of shares of the Registrant's common stock outstanding on
March 19, 2001, was 8,692,825.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive proxy statement relating to the Company's 2001 Annual Meeting of
Stockholders to be filed hereafter (incorporated into Part III hereof).
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TABLE OF CONTENTS
Page
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . 10
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . 12
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. . . . . 17
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . 21
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . 40
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . 40
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 40
Item 12. Security Ownership of Certain Beneficial Owners and Management . . 40
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . 40
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . 40
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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PART I
Item 1. Business.
THE COMPANY
America First Mortgage Investments, Inc. (the "Company") is primarily engaged
in the business of investing in high-grade adjustable rate mortgage-backed
securities. The Company's investment strategy also provides for the
acquisition of multifamily housing properties, REIT securities and high-yield
corporate securities. Its principle business objective is to generate net
income for distribution to its stockholders resulting from the spread between
the interest income it earns on its investments and its cost of financing.
The Company's business and investment strategy is discussed in more detail
below.
The Company has elected to be taxed as a real estate investment trust (a
"REIT"). One of the requirements of maintaining its status as a REIT is that
the Company distribute at least 95% (90% effective January 1, 2001) of its
annual taxable net income to its stockholders, subject to certain
adjustments. For additional information, one should refer to the information
under "Certain Federal Income Tax Considerations," below.
The Company was incorporated in Maryland on July 24, 1997, and began business
operations on April 10, 1998, when the Company consummated a merger
transaction (the "Merger") with America First Participating/Preferred Equity
Mortgage Fund Limited Partnership ("PREP Fund 1" or the "Predecessor"),
America First PREP Fund 2 Limited Partnership ("PREP Fund 2") and America
First PREP Fund 2 Pension Series Limited Partnership ("Pension Fund")
(collectively referred to as the "PREP Funds"). As a result of the Merger,
PREP Fund 1 and PREP Fund 2 were merged into the Company and Pension Fund
became a partnership subsidiary of the Company. Pension Fund was liquidated
and dissolved in December, 1999, and, as a result, the Company acquired
approximately 99% of the assets of Pension Fund. The remaining assets,
consisting solely of cash, were distributed to the remaining holders of
Pension Fund BUCs. The Company issued a total of 9,035,084 shares of its
common stock to former partners of PREP Fund 1, PREP Fund 2 and Pension Fund.
Upon completion of the Merger, the Company began implementing the investment
strategy described below. The Company's investment strategy differs from that
of the PREP Funds.
The Company is an externally managed REIT. As such it has no employees of its
own. The Company has entered into an Advisory Agreement with America First
Mortgage Advisory Corporation (the "Advisor"), which is a subsidiary of
America First Companies L.L.C. ("America First"). Under the Advisory
Agreement, the Advisor provides day-to-day management of the Company's
operations. The executive officers of the Company are employees of America
First and are officers of the Advisor. More information relating to the
Company's management is discussed under "Executive Officers of the Company" in
Item 4 below and in the Company's Proxy Statement relating to its 2001 Annual
Meeting of Stockholders.
BUSINESS AND INVESTMENT STRATEGY
The Company is primarily engaged in the business of investing in high-grade
adjustable rate mortgage-backed securities. The Company's investment strategy
also provides for the acquisition of multifamily housing properties, REIT
securities and high-yield corporate securities. The Company is not in the
business of originating mortgage loans or providing other types of financing
to the owners of real estate. During the period from the consummation of the
Merger through December 31, 2000, the Company purchased mortgage securities
with a face value at the time of purchase of approximately $669.2 million
(mortgage securities with a face value of approximately $98.0 million were
purchased during the year ended December 31, 2000).
The Company's investment policy requires that at least 50% of its investment
portfolio consist of mortgage securities or mortgage loans that are either (i)
insured or guaranteed as to principal and interest by an agency of the U.S.
government, such as the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC") or (ii) rated in one of the two highest rating
categories by either Standard & Poor's or Moody's. The remainder of the
Company's assets may be either: (i) direct investment (mezzanine or equity) in
multifamily apartment properties; (ii) investments in limited partnerships or
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real estate investment trusts or (iii) other fixed-income instruments
(corporate debt or equity securities or mortgage-backed securities) that
provide increased call protection relative to the Company's mortgage assets.
At December 31, 2000, approximately 79% of the Company's assets consisted of
mortgage-backed securities insured or guaranteed by GNMA, FNMA or FHLMC
("Agency Certificates") backed by single-family mortgage loans. Remaining
assets at that date consisted of corporate debt and equity securities,
investments in limited partnerships owning real estate, and non-voting
preferred stock of a corporation owning interests in real estate limited
partnerships.
The Company intends that at least 50% of its assets be adjustable-rate
mortgage-backed securities ("ARMs") or mortgages. Included within the
Company's ARMs portfolio are hybrid ARMs which have an interest rate that is
fixed for an initial period of time, generally three to five years, which then
converts to an adjustable rate for the balance of the term of the loan. Most
ARMs are indexed to the one-year constant maturity treasury ("CMT") rate with
interest rates that are reset annually. Other ARMs are indexed to the London
Interbank Offered Rate ("LIBOR"), the six-month certificate of deposit rate,
the six-month CMT rate or the 11th District Cost of Funds Index. ARMs that
are indexed to the CMT are generally subject to a limitation on the amount of
the annual interest rate change. This limit is usually 1% or 2% per year.
Generally, all ARMS have lifetime limits on interest rate increases over the
initial interest rate. In general, such lifetime interest rate caps do not
exceed 600 basis points over the initial interest rate.
FINANCING STRATEGY
The Company intends to finance the acquisition of additional adjustable rate
mortgage-backed securities and other assets by borrowing against its portfolio
of assets and investing the proceeds of the borrowings and/or equity in
additional assets. When fully invested, the Company plans to maintain an
assets-to-equity ratio of less than 11 to 1. The assets-to-equity ratio was
approximately 7.47 to 1 as of December 31, 2000.
The Company's borrowings for mortgage and corporate securities are financed
primarily at short-term borrowing rates through the utilization of repurchase
agreements. A repurchase agreement, although structured as a sale and
repurchase obligation, operates as a financing under which the Company
effectively pledges its mortgage and corporate debt securities as collateral
to secure a short-term loan which is equal in value to a specified percentage
of the market value of the pledged collateral. Repurchase agreements take the
form of a sale of the pledged collateral to a lender at an agreed upon price
in return for such lender's simultaneous agreement to resell the same
securities back to the borrower at a future date (the maturity of the
borrowing) at a higher price. The price difference is the cost of borrowing
under these agreements. The Company will retain beneficial ownership of the
pledged collateral, including the right to distributions. At the maturity of
a repurchase agreement, the Company will be required to repay the loan and
concurrently will receive back its pledged collateral from the lender or will
rollover such agreement at the then prevailing financing rate. The repurchase
agreements may require the Company to pledge additional assets to the lender
in the event the market value of any existing pledged collateral declines. To
date, the Company has not had any significant margin calls on its repurchase
agreements that were related to a decrease in the market value of its
collateral.
Repurchase agreements tend to be short-term in nature. Should the providers
of the repurchase agreements decide not to renew, the Company must either
refinance these obligations prior to maturity or be in a position to retire
the obligations. If, during the term of a repurchase agreement, a lender
should file for bankruptcy, the Company might experience difficulty recovering
its pledged assets and may have an unsecured claim against the lender's assets.
To reduce its exposure, the Company enters into repurchase agreements only
with financially sound institutions whose holding or parent company's
long-term debt rating is single A or better as determined by both Standard and
Poor's and Moody's, where applicable. If this minimum criterion is not met,
then the Company will not enter into repurchase agreements with such
counterparty without the specific approval of its Board of Directors. In the
event an existing counterparty is downgraded below single A, the Company will
seek Board approval before entering into additional repurchase agreements with
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such counterparty. In addition, once the Company is fully invested, it
intends to enter into repurchase agreements with at least four lenders with a
maximum exposure to each lender of three times the Company's shareholders'
equity. As of December 31, 2000, the Company had repurchase agreements with
11 lenders with a maximum exposure to any one lender of not more than 1.4
times the Company's shareholders' equity.
The Company finances its investments in publicly traded limited partnerships
and corporate equity securities through margin borrowing with an asset to
equity ratio of as much as two to one. The Company anticipates that
borrowings to finance acquisitions of multifamily apartment properties will
typically be non-recourse mortgage instruments.
RISK FACTORS
The results of the Company's operations are affected by various factors, many
of which are beyond the control of the Company. The results of the Company's
operations depend on, among other things, the level of net interest income
generated by the Company's mortgage assets, the market value of its assets and
the supply of and demand for such assets. The Company's net interest income
varies primarily as a result of changes in short-term interest rates,
borrowing costs and prepayment rates, the behavior of which involves various
risks and uncertainties as set forth below. Prepayment rates, interest rates
and borrowing costs depend on the specific type of asset, conditions in
financial markets, competition and other factors, none of which can be
predicted with any certainty. Since changes in interest rates may
significantly affect the Company's activities, the operating results of the
Company depend, in large part, upon the ability of the Company to effectively
manage its interest rate and prepayment risks while maintaining its status as
a REIT.
INTEREST RATE RISKS
The Company has financed the acquisition of additional mortgage assets through
borrowings under numerous repurchase agreements. As a result, the Company is
exposed to the following principal interest rate risks:
The cost of the Company's borrowings under its repurchase agreements is
based on the prevailing short-term market rates that adjust over periods
of one to 12 months. However, a substantial majority of the Company's
mortgage assets have either fixed interest rates or interest rates that
reset only every 12 months. At December 31, 2000, the repricing
gap between the Company's assets and obligations was approximately eight
months.
There is no limitation on the interest rate that the Company could have
to pay in order to borrow money to finance its mortgage assets. However,
the ability to raise interest rates on its assets is limited, either
because such rates are fixed for the life of the asset or, in the case of
ARMs, the ability to raise interest rates is limited on both an annual
basis and over the term of the ARM. Generally, interest rates on ARMs
can change a maximum of 100 or 200 basis points per annum and only up to
600 basis points from the initial interest rate over the term of the ARM.
The cost of the Company's borrowings is generally based on LIBOR while
interest rates on its ARM portfolio are primarily based on one-year CMT
rates. Therefore, any increase in the LIBOR relative to the CMT rates
will result in an increase in the Company's borrowing cost that is not
matched by a corresponding increase in the interest earnings on its ARM
portfolio.
In any of these cases, increasing short-term interest rates may cause the
Company's financing costs to increase faster than it is able to increase
interest rates on its ARMs. As a result, the net interest margin earned by
the Company will be reduced or eliminated during such periods. Accordingly,
in a period of increasing interest rates, the Company could experience a
decrease in net interest income or a net loss because the interest rates on
borrowings could adjust faster than the interest rates on the Company's ARMs.
Such a decrease in the Company's net interest income could negatively impact
the level of dividend distributions made by the Company and reduce the market
price of its common stock.
In order to mitigate its interest rate risks, the Company intends to have a
substantial majority of its mortgage assets consist of ARMs rather than fixed
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rate mortgages. This allows the Company to increase its interest income
during periods of rising interest rates. While the lag in its ability to reset
interest rates on its ARMs portfolio relative to changes in the interest rates
it pays on its liabilities and the annual and lifetime limitations on
adjustments to interest rates on ARMs can negatively affect earnings over the
short term, the ability to make interest rate adjustments on the ARMs does
help mitigate this risk over a longer time period.
The Company's policy is to maintain an asset/borrowings repricing gap (as
measured by the average time period to assets repricing, less the average time
period to liability repricing) at less than 18 months. At December 31, 2000,
the Company's leverage ratio equaled 6.88 to 1 and the repricing gap stood at
approximately eight months. For purposes of this analysis, equity assets,
corporate equity securities and mortgage securities acquired from the PREP
funds held as a hedge against prepayments are excluded from the calculation.
As discussed above, the relationship between LIBOR and the CMT can change over
time. At December 31, 2000, the one-year LIBOR was 6.00% and the one-year CMT
was 5.36%. However, as of December 31, 2000, the average interest rate on the
Company's CMT based ARMs was 196 basis points over the CMT. Therefore, the
LIBOR index would have to increase by approximately 74 basis points relative
to the CMT in order to eliminate the positive spread between the yield on
these ARMs and the Company's cost of borrowing. During 2000, the largest
differential between the one-year LIBOR and one-year CMT was 134 basis points
and the average differential was 77 basis points.
Lifetime interest rate caps on ARMs could impact the earnings on the Company's
assets. However, based on the assets available in the current market, such an
impact should only occur if the one-month LIBOR rate increased to
approximately 10%. This rate was 6.57% at December 31, 2000. Periodic caps
could also have an impact on the earnings of the Company's assets. At
December 31, 2000, approximately 58% of the Company's adjustable rate
mortgages and 50% of the total assets had a 1% periodic cap. The impact of
periodic caps, if any, would be slight since the weighted average coupon of
these assets equals 7.97% (261 basis points greater than the one-year CMT.)
The Company may attempt to partially offset the potential negative effect of
lifetime and periodic maximum interest rates on its ARMs through the purchase
of interest rate caps on its liabilities. An interest rate cap agreement is a
contractual agreement whereby the Company pays a fee in exchange for the right
to receive payments equal to the difference between a contractually specified
interest rate and a periodically determined future interest rate times a
specified principal, or notional amount. Such interest rate cap agreements
are subject to the risk that the other party to the agreement will not be able
to perform its obligations. Although the Company would seek to enter interest
rate agreements only with financially sound institutions and to monitor the
financial strength of such institutions on a periodic basis, no assurance can
be given that the Company can avoid such third party risks. As of December
31, 2000 the Company had not utilized this hedging strategy.
As a part of its hedging strategy, the Company may engage in limited amounts
of the buying and selling of mortgage derivative securities or other
derivative products including interest rate swap agreements, financial futures
contracts and options. Although the Company and its Predecessor have not
historically used such instruments, it is not precluded from doing so. In the
future, management anticipates using such instruments only as hedges to manage
interest rate risk. Management does not anticipate entering into derivatives
for speculative or trading purposes. Any such strategies will be selected by
the Advisor and approved by the Company's investment committee. While the
Company may hedge certain risks associated with interest rate increases, no
hedging strategy can insulate the Company completely from interest rate
risks. In addition, there can be no assurance that any such hedging
activities will have the desired impact on the Company's results of operations
or financial condition. Hedging typically involves costs, including
transaction costs, which increase dramatically as the period covered by the
hedge increases and which also increase during periods of rising or volatile
interest rates. Such hedging costs may cause the Company to conclude that a
particular hedging transaction is not appropriate for the Company, thereby
affecting the Company's ability to mitigate interest rate risk. As of
December 31, 2000, the Company had not entered into any interest rate hedging
agreements.
PREPAYMENT RISKS
In general, the borrower under a mortgage loan may prepay the loan at any time
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without penalty or premium. Prepayments result when a homeowner sells his
home or decides to either retire or refinance his existing mortgage loan. In
addition, defaults and foreclosures have the same effect as a prepayment in
that no future interest payments are earned on the mortgage. Prepayments
usually can be expected to increase when mortgage interest rates decrease
significantly and decrease when mortgage interest rates increase, although
such effects are not entirely predictable. Prepayment experience also may be
affected by the conditions in the housing and financial markets, general
economic conditions and the relative interest rates on fixed-rate and
adjustable-rate mortgage loans. During 2000, prepayments generally slowed due
to an increase in mortgage interest rates and a widening of the short-term and
long-term interest rate spread.
Prepayments are the primary feature of mortgage-backed securities that
distinguishes them from other types of bonds. While a certain percentage of
the pool of mortgage loans underlying a mortgage-backed security are expected
to prepay during a given period of time, the actual rate of prepayment can,
and often does, vary significantly from the anticipated rate of prepayment.
Accordingly, the Company incurs a risk that its mortgage assets will prepay at
a more rapid pace than anticipated. The potential negative impact on the
Company of prepayments is twofold. In the first instance, prepayments reduce
the amount of the Company's interest earning assets. In addition, if the
Company has paid more than par for a mortgage-backed security, the premium is
amortized against earnings over the life of the security. Higher than
expected prepayments lead to an increase in premium amortization, which
reduces the Company's earnings.
One way the Company seeks to reduce its exposure to prepayment risk is to
purchase mortgage assets trading closer to par and thus reduce the Company's
earnings exposure resulting from accelerated amortization of premiums. In the
current marketplace, ARM securities are trading at 96% to 104% of par
depending on seasoning and the interest rate. The Company's current policy is
to maintain the average purchase price of the Company's mortgage portfolio at
less than 102.5% of par. The Company's weighted average purchase price for
the mortgage assets it acquired in 2000 and 1999 were approximately 102.0%
and 101.7% of par, respectively. Another way the Company seeks to address
this risk is to use less leverage in less advantageous market environments.
While this strategy may not maximize earnings potential in the short term, it
should lead to more predictable earnings with less potential risk to capital.
The Company seeks to minimize prepayment risk through a number of other means,
including structuring a diversified portfolio with a variety of prepayment
characteristics. An additional hedge to prepayment risk is for the Company to
own interests in entities which own multifamily properties. These assets do
not face prepayment risk and should increase in value in a declining interest
rate environment where prepayments would have the largest negative impact.
Another hedge for the Company is to hold high-yielding corporate securities
with more call protection than ARMs which should gain in value when interest
rates decline. As of December 31, 2000 the Company had invested in corporate
debt and equity securities with a fair value of $20,906,163 as of that date.
No strategy, however, can completely insulate the Company from prepayment
risks arising from the effects of interest rate changes.
RISKS ASSOCIATED WITH LEVERAGE
The Company's financing strategy is designed to increase the size of its
mortgage investment portfolio by borrowing a substantial portion of the market
value of its mortgage assets. If the interest income on the mortgage assets
purchased with borrowed funds fails to cover the cost of the borrowings, the
Company will experience net interest losses and may experience net losses.
Such losses could be increased substantially as a result of the Company's
substantial leverage.
The ability of the Company to achieve its investment objectives depends on its
ability to borrow money in sufficient amounts and on favorable terms.
Currently, all of the Company's borrowings are collateralized borrowings in
the form of repurchase agreements. The ability of the Company to enter into
repurchase agreements in the future will depend on the market value of the
mortgage assets pledged to secure the specific borrowings, the availability of
financing, and other conditions then applicable in the lending market. The
Company may effect additional borrowings through the use of other types of
collateralized borrowings, loan agreements, lines of credit, dollar-roll
agreements and other credit facilities with institutional lenders or through
the issuance of debt securities. The cost of borrowings under repurchase
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agreements generally corresponds to LIBOR plus or minus a margin, although
such agreements may not expressly incorporate a LIBOR index. The cost of
borrowings under other sources of funding which the Company may use may refer
or correspond to other short-term indices, plus or minus a margin. Through
increases in haircuts (i.e., the over-collateralization amount required by a
lender), decreases in the market value of the Company's mortgage assets,
increases in interest rate volatility, and changes in the availability of
financing in the market, the Company may not be able to achieve the degree of
leverage it believes to be optimal. As a result, the Company may be less
profitable than it would be otherwise.
RISKS OF DECLINE IN MARKET VALUE
The value of interest-bearing obligations such as mortgages and
mortgage-backed securities may move inversely with interest rates.
Accordingly, in a rising interest rate environment, the value of such
instruments may decline. Because the interest earned on ARMs may increase as
interest rates increase subject to a delay until each such security's next
reset date, the values of these assets are generally less sensitive to changes
in interest rates than are fixed-rate instruments. Therefore, in order to
mitigate this risk, the Company intends to maintain a substantial majority of
its mortgage assets as ARMs. At December 31, 2000, ARMs constituted
approximately 96% of the Company's total mortgage assets.
A decline in the market value of the Company's mortgage assets may limit the
Company's ability to borrow or result in lenders initiating margin calls
(i.e., requiring a pledge of cash or additional mortgage assets to
re-establish the ratio of the amount of the borrowing to the value of the
collateral). The Company could be required to sell mortgage assets under
adverse market conditions in order to maintain liquidity. If these sales were
made at prices lower than the amortized cost of the mortgage assets, the
Company would experience losses. A default by the Company under its
collateralized borrowings could also result in a liquidation of the
collateral, and a resulting loss of the difference between the value of the
collateral and the amount borrowed.
Additionally, in the event of a bankruptcy of the Company, certain repurchase
agreements may qualify for special treatment under the Bankruptcy Code, the
effect of which is, among other things, to allow the creditors under such
agreements to avoid the automatic stay provisions of the Bankruptcy Code and
to liquidate the collateral under such agreements without delay. To the
extent the Company is compelled to liquidate mortgage assets qualifying as
Qualified REIT Real Estate Assets to repay borrowings, the Company may be
unable to comply with the REIT provisions of the Internal Revenue Code
regarding assets and sources of income requirements, ultimately jeopardizing
the Company's status as a REIT.
The value of the Company's other investments, such as corporate debt and
equity securities, is also subject to fluctuation due to changes in interest
rates and many other factors.
CREDIT RISKS ASSOCIATED WITH INVESTMENTS
The holder of a mortgage or mortgage-backed security assumes a risk that the
borrowers may default on their obligations to make full and timely payments of
principal and interest. The Company seeks to mitigate this risk of credit
loss by requiring that at least 50% of its investment portfolio consist of
mortgage loans or mortgage securities that are either (i) insured or
guaranteed as to principal and interest by an agency of the U.S. government,
such as GNMA, FNMA or FHLMC, or (ii) rated in one of the two highest rating
categories by either Standard and Poor's or Moody's. The remainder of the
Company's assets may be either (i) direct investment (mezzanine or equity) in
multifamily apartment properties; (ii) investments in limited partnerships or
real estate investment trusts; or (iii) other fixed-income instruments
(corporate debt or equity securities or mortgage-backed securities) that
provide increased call protection relative to the Company's mortgage assets
through diversification. Currently, other fixed-income instruments in which
the Company has invested are below investment grade in quality. These other
below investment grade fixed-income instruments constituted 3% of the
Company's total assets as of December 31, 2000. As of December 31, 2000,
approximately 79% of the Company's assets consisted of mortgage-backed
securities insured or guaranteed by the U.S. government or an agency thereof.
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RISKS OF ASSET CONCENTRATION
Although the Company seeks geographic diversification of the properties
underlying its mortgage assets, it does not set specific limitations on the
aggregate percentage of underlying properties which may be located in any one
area. Consequently, properties underlying such mortgage assets may be located
in the same or a limited number of geographical regions. Adverse changes in
the economic conditions of the geographic regions in which the properties
securing mortgage assets are concentrated likely would have an adverse effect
on real estate values, interest rates and prepayment rates and increase the
risk of default by the obligors on the underlying mortgage loans.
Accordingly, the Company's results of operations could be adversely affected.
The Company is not aware of any such geographic concentrations which could
adversely affect the Company's results of operations.
INVESTMENT COMPANY ACT
The Company at all times intends to conduct its business so as to not become
regulated as an investment company under the Investment Company Act of 1940.
If the Company were to become regulated as an investment company, then, among
other things, the Company's ability to use leverage would be substantially
reduced. The Investment Company Act exempts entities that are "primarily
engaged in the business of purchasing or otherwise acquiring mortgages and
other liens on and interests in real estate" (i.e. "Qualifying Interests").
Under the current interpretation of the staff of the SEC, in order to qualify
for this exemption, the Company must maintain at least 55% of its assets
directly in Qualifying Interests. In addition, unless certain mortgage
securities represent an undivided interest in the entire pool backing such
mortgage securities (i.e. "whole pool" mortgage securities), such mortgage
securities may be treated as securities separate from the underlying mortgage
loan, thus, may not be considered Qualifying Interests for purposes of the 55%
exemption requirement. Accordingly, the Company monitors its compliance with
this requirement in order to maintain its exempt status. As of December 31,
2000, the Company determined that it is in and has maintained compliance with
this requirement.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain federal income tax considerations
to the Company and its stockholders. This discussion is based on existing
federal income tax law, which is subject to change, possibly retroactively.
This discussion does not address all aspects of federal income taxation that
may be relevant to a particular stockholder in light of its personal
investment circumstances or to certain types of investors subject to special
treatment under the federal income tax laws (including financial institutions,
insurance companies, broker-dealers and, except to the extent discussed below,
tax-exempt entities and foreign taxpayers) and it does not discuss any aspects
of state, local or foreign tax law. This discussion assumes that stockholders
will hold their common stock as a "capital asset" (generally, property held
for investment) under the Internal Revenue Code of 1986, as amended (the
"Code"). Stockholders are advised to consult their tax advisors as to the
specific tax consequences to them of purchasing, holding and disposing of the
common stock, including the application and effect of federal, state, local
and foreign income and other tax laws.
GENERAL
The Company has elected to become subject to tax as a REIT, for federal income
tax purposes, commencing with the taxable year ending December 31, 1998.
Management currently expects that the Company will continue to operate in a
manner that will permit the Company to maintain its qualifications as a REIT.
This treatment will permit the Company to deduct dividend distributions to its
stockholders for federal income tax purposes, thus effectively eliminating the
"double taxation" that generally results when a corporation earns income and
distributes that income to its stockholders. There can be no assurance that
the Company will continue to qualify as a REIT in any particular taxable year,
given the highly complex nature of the rules governing REITs, the ongoing
importance of factual determinations and the possibility of future changes in
the circumstances of the Company. If the Company failed to qualify as a REIT
in any particular year, it would be subject to federal income tax as a
regular, domestic corporation, and its stockholders would be subject to tax in
the same manner as stockholders of such corporation. In this event, the
Company could be subject to potentially substantial income tax liability in
respect of each taxable year that it fails to qualify as a REIT, and the
- 7 -
amount of earnings and cash available for distribution to its stockholders
could be significantly reduced or eliminated. The following is a brief
summary of certain technical requirements that the Company must meet on an
ongoing basis in order to qualify, and remain qualified, as a REIT under the
Code.
STOCK OWNERSHIP TESTS
The capital stock of the Company must be held by at least 100 persons and no
more than 50% of the value of such capital stock may be owned, directly or
indirectly, by five or fewer individuals at all times during the last half of
the taxable year. Under the Code, most tax-exempt entities including employee
benefit trusts and charitable trusts (but excluding trusts described in 401(a)
and exempt under 501(a)) are generally treated as individuals for these
purposes. These stock ownership requirements must be satisfied by the Company
each taxable year. The Company must solicit information from certain of its
shareholders to verify ownership levels and its Articles of Incorporation
provide restrictions regarding the transfer of the Company's shares in order
to aid in meeting the stock ownership requirements. If the Company were to
fail either of the stock ownership tests, it would generally be disqualified
from REIT status, unless, in the case of the "five or fewer" requirement, the
recently enacted "good faith" exemption is available.
ASSET TESTS
The Company must generally meet the following asset tests (the "REIT Asset
Tests") at the close of each quarter of each taxable year: (a) at least 75% of
the value of the Company's total assets must consist of Qualified REIT Real
Estate Assets, government securities, cash, and cash items (the "75% Asset
Test"); and (b) the value of securities held by the Company, but not taken into
account for purposes of the 75% Asset Test, must not exceed (i) 5% of the value
of the Company's total assets in the case of securities of any one
non-government issuer, and (ii) 10% of the outstanding voting securities of
any such issuer.
The Company does not expect that the value of any non-qualifying security of
any one entity would ever exceed 5% of the Company's total assets, and the
Company does not expect to own more than 10% of any one issuer's voting
securities. The Company intends to monitor closely the purchase, holding and
disposition of its assets in order to comply with the REIT Asset Tests. In
particular, the Company intends to limit and diversify its ownership of any
assets not qualifying as Qualified REIT Real Estate Assets to less than 25% of
the value of the Company's assets and to less than 5%, by value, of any single
issuer. If it is anticipated that these limits would be exceeded, the Company
intends to take appropriate measures, including the disposition of
non-qualifying assets, to avoid exceeding such limits.
GROSS INCOME TESTS
The Company must generally meet the following gross income tests (the "REIT
Gross Income Tests") for each taxable year: (a) at least 75% of the Company's
gross income must be derived from certain specified real estate sources
including interest income and gain from the disposition of Qualified REIT Real
Estate Assets or "qualified temporary investment income" (i.e., income derived
from "new capital" within one year of the receipt of such capital) (the "75%
Gross Income Test") and; (b) at least 95% of the Company's gross income for
each taxable year must be derived from sources of income qualifying for the
75% Gross Income Test, or from dividends, interest, and gains from the sale of
stock or other securities (including certain interest rate swap and cap
agreements, options, futures and forward contracts entered into to hedge
variable rate debt incurred to acquire Qualified REIT Real Estate Assets) not
held for sale in the ordinary course of business (the "95% Gross Income Test").
The Company intends to maintain its REIT status by carefully monitoring its
income, including income from liability hedging transactions and sales of
mortgage assets, to comply with the REIT Gross Income Tests. In particular,
the Company will treat income generated by its interest rate caps and other
liability hedging instruments, if any, as non-qualifying income for purposes
of the 95% Gross Income Tests unless it receives advice from counsel that such
income constitutes qualifying income for purposes of such test. Under certain
circumstances, for example, (i) the sale of a substantial amount of mortgage
assets to repay borrowings in the event that other credit is unavailable or
(ii) unanticipated decrease in the qualifying income of the Company which may
result in the non-qualifying income exceeding 5% of gross income, the Company
- 8 -
may be unable to comply with certain of the REIT Gross Income Tests. See
"Taxation of the Company" below for a discussion of the tax consequences of
failure to comply with the REIT Provisions of the Code.
DISTRIBUTION REQUIREMENT
The Company must generally distribute to its stockholders an amount equal to
at least a certain percentage of the Company's REIT taxable income before
deductions of dividends paid and excluding net capital gain. Such percentage
was 95% through December 31, 2000. As a result of the REIT Modification Act
which was effective January 1, 2001, the distribution requirement was changed
from 95% to 90%.
TAXATION OF THE COMPANY
In any year in which the Company qualifies as a REIT, the Company will
generally not be subject to federal income tax on that portion of its REIT
taxable income or capital gain which is distributed to its stockholders. The
Company will, however, be subject to federal income tax at normal corporate
income tax rates upon any undistributed taxable income or capital gain.
Notwithstanding its qualification as a REIT, the Company may also be subject
to tax in certain other circumstances. If the Company fails to satisfy either
the 75% or the 95% Gross Income Test, but nonetheless maintains its
qualification as a REIT because certain other requirements are met, it will
generally be subject to a 100% tax on the greater of the amount by which the
Company fails either the 75% or the 95% Gross Income Test multiplied by net
income and divided by gross income. The Company will also be subject to a tax
of 100% on net income derived from any "prohibited transaction," and if the
Company has (i) net income from the sale or other disposition of "foreclosure
property" which is held primarily for sale to customers in the ordinary course
of business or (ii) other non-qualifying income from foreclosure property, it
will be subject to federal income tax on such income at the highest corporate
income tax rate. In addition, if the Company fails to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year and (ii) 95% of its REIT capital gain net income for such year, the
Company would be subject to a 4% federal excise tax on the excess of such
required distribution over the amounts actually distributed during the taxable
year, plus any undistributed amount of ordinary and capital gain net income
from the preceding taxable year. The Company may also be subject to the
corporate alternative minimum tax, as well as other taxes in certain
situations not presently contemplated. If the Company fails to qualify as a
REIT in any taxable year, and certain relief provisions of the Code do not
apply, the Company would be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at the regular
corporate income tax rates. Distributions to stockholders in any year in
which the Company fails to qualify as a REIT would not be deductible by the
Company, nor would they generally be required to be made under the Code.
Further, unless entitled to relief under certain other provisions of the Code,
the Company would also be disqualified from re-electing REIT status for the
four taxable years following the year in which it became disqualified.
The Company intends to monitor on an ongoing basis its compliance with the
REIT requirements described above. In order to maintain its REIT status, the
Company will be required to limit the types of assets that the Company might
otherwise acquire, or hold certain assets at times when the Company might
otherwise have determined that the sale or other disposition of such assets
would have been more prudent.
TAXATION OF STOCKHOLDERS
Distributions (including constructive distributions) made to holders of common
stock other than tax-exempt entities (and not designated as capital gain
dividends) will generally be subject to tax as ordinary income to the extent
of the Company's current and accumulated earnings and profits as determined
for federal income tax purposes. If the amount distributed exceeds a
stockholder's allocable share of such earnings and profits, the excess will be
treated as a return of capital to the extent of the stockholder's adjusted
basis in the common stock, which will not be subject to tax, and thereafter as
a taxable gain from the sale or exchange of a capital asset.
Distributions designated by the Company as capital gain dividends will
generally be subject to tax as long-term capital gain to stockholders, to the
extent that the distribution does not exceed the Company's actual net capital
gain for the taxable year. Distributions by the Company, whether
- 9 -
characterized as ordinary income or as capital gain, are not eligible for the
corporate dividends received deduction. In the event that the Company realizes
a loss for the taxable year, stockholders will not be permitted to deduct any
share of that loss.
STATE AND LOCAL TAXES
The Company and its stockholders may be subject to state or local taxation in
various jurisdictions, including those in which it or they transact business
or reside. The state and local tax treatment of the Company and its
stockholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
the common stock.
COMPETITION
The Company believes that its principal competitors in the business of
acquiring and holding mortgage assets of the type in which it invests are
financial institutions such as banks and savings and loans, life insurance
companies, institutional investors such as mutual funds and pension funds, and
certain mortgage REITs. Such investors may not be subject to similar
regulatory constraints (i.e., REIT tax compliance or maintaining 1940 Act
exemption). In addition, many of the other entities purchasing mortgages and
mortgage-backed securities have greater financial resources and better access
to capital than the Company. The existence of these competitive entities, as
well as the possibility of additional entities forming in the future, may
increase the competition for the acquisition of mortgages and mortgage-backed
securities resulting in higher prices and lower yields on such assets.
Item 2. Properties. The Company does not directly own or lease any physical
properties.
Item 3. Legal Proceedings. There are no material pending legal proceedings
to which the Company or any of its assets are subject.
Item 4. Submission of Matters to a Vote of Security Holders. No matter was
submitted during the fourth quarter of the fiscal year ending December 31,
2000, to a vote of the Company's security holders.
- 10 -
Executive Officers of the Company.
The Company's executive officers are as follows:
Name Position Held Position Held Since
- ----------------------- -------------------------- -------------------
Stewart Zimmerman President and Chief 1998
Executive Officer
Gary Thompson Chief Financial Officer 1998
and Treasurer
William S. Gorin Executive Vice President 1998
and Secretary
Ronald A. Freydberg Senior Vice President 1998
Stewart Zimmerman, 56, serves as president and chief executive officer of the
Company. He served as executive vice president of America First Companies
L.L.C. since January 1989, during which time he has served in a number of
positions: president and chief operating officer of America First REIT, Inc.;
president of several America First Mortgage funds including America First
Participating/Preferred Equity Mortgage Fund, America First PREP Fund 2
Limited Partnership, America First PREP Fund 2 Pension Series Limited
Partnership, Capital Source L.P., Capital Source II L.P.-A, America First Tax
Exempt Mortgage Fund Limited Partnership and America First Tax Exempt Fund 2
Limited Partnership. From September 1986 to September 1988, he served as a
managing director and director of Security Pacific Merchant Bank responsible
for Mortgage Trading and Finance. Prior to that time, he served as first vice
president of E.F. Hutton & Company, Inc., where he was responsible for
mortgage-backed securities trading and sales distribution, and vice president
of Lehman Brothers, where he was responsible for the distribution of mortgage
products. From 1968 to 1972, Mr. Zimmerman was vice president of Zenith
Mortgage Company and Zenith East Inc., a national mortgage banking and
brokerage company specializing in the structuring and sales of mortgage assets
to the institutional financial community.
Gary Thompson, 58, serves as chief financial officer and treasurer of the
Company. He serves as financial vice president of America First Companies
L.L.C. and is responsible for financial accounting and tax reporting for all
America First funds. Prior to 1989, Mr. Thompson was an audit partner at KPMG
Peat Marwick. He is a certified public accountant.
William S. Gorin, 42, serves as executive vice president and secretary of the
Company. From 1989 to 1997, Mr. Gorin held various positions with PaineWebber
Incorporated/Kidder, Peabody & Co. Incorporated, New York, New York, most
recently serving as a first vice president in the Research Department. Prior
to that position, Mr. Gorin was senior vice president in the Special Products
Group. From 1982 to 1988, Mr. Gorin was employed by Shearson Lehman Hutton,
Inc./E.F. Hutton & Company, Inc., New York, New York, in various positions in
corporate finance and direct investments.
Ronald A. Freydberg, 40, serves as senior vice president of the Company. From
1995 to 1997, Mr. Freydberg served as a vice president of Pentalpha Capital,
in Greenwich, Connecticut, where he was a fixed-income quantitative analysis
and structuring specialist. In that capacity he designed a variety of
interactive pricing and forecasting models, including a customized subordinate
residential and commercial mortgage-backed analytical program and an ARM REIT
five-year forecasting model. In addition, he worked with various financial
institutions on the acquisition and sale of residential, commercial and
asset-backed securities. From 1988 to 1995, Mr. Freydberg held various
positions with J.P. Morgan & Co. in New York, New York. From 1994 to 1995, he
was with the Global Markets Group. In that position he was involved in all
aspects of commercial mortgage-backed securitization and sale of distressed
commercial real estate, including structuring, due diligence and marketing.
From 1985 to 1988, Mr. Freydberg was employed by Citicorp in New York, New
York.
- 11 -
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) Market Information. The Company's common stock began trading on the New
York Stock Exchange on April 10, 1998, under the symbol "MFA." The following
table sets forth the high and low sale prices for the Company's shares of
common stock for the twelve months ending December 31, 2000 and 1999.
2000 1999
Sale Prices Sale Prices
----------------------- ----------------------
High Low High Low
1st Quarter $ 5-13/16 $ 4-1/2 $ 5-26/32 $ 4-1/4
2nd Quarter $ 5-5/8 $ 4-1/2 $ 5-3/8 $ 4
3rd Quarter $ 5-15/16 $ 4-15/16 $ 5-1/8 $ 4-10/32
4th Quarter $ 5-3/4 $ 4-3/4 $ 5-3/8 $ 4-1/4
(b) Investors. The approximate number of common stockholders as of March 26,
2001, was 5,700.
(c) Dividends. The Company currently pays cash dividends on a quarterly
basis. Total cash dividends declared by the Company to common stockholders
during the fiscal years ended December 31, 2000 and 1999, were $5,428,230
($0.59 per share) and $6,174,870 ($0.67 per share), respectively. For tax
purposes, a portion of the dividend declared on December 14, 2000, and paid on
January 30, 2001, will be treated as a 2001 dividend for shareholders.
Similarly, for tax purposes, the dividend declared on December 16, 1999, and
paid on February 18, 2000, was treated in its entirety as a 2000 dividend for
shareholders. As part of the Merger transaction, the Company made quarterly
distributions of $.265 per common share ($1.06 per common share per year) in
the first year following the Merger (i.e. through the first quarter of 1999.)
A portion of the distributions received by shareholders in 1999 and 1998
consisted in part of a dividend and in part of a cash merger payment. There
is no commitment by the Company to distribute amounts in excess of taxable
income beyond the first year of operations. The Company intends to continue
to distribute to its shareholders an amount equal to at least 90% of the
Company's taxable income before deductions of dividends paid and excluding net
capital gains in order to maintain its REIT status.
See Item 7, Management's Discussion and Analysis of Financial Conditions and
Results of Operations, for information regarding the sources of funds used for
dividends and for a discussion of factors, if any, which may adversely affect
the Company's ability to pay dividends at the same levels in 2001 and
thereafter.
Item 6. Selected Financial Data.
Set forth below is selected financial data for the Company (for periods after
April 9, 1998) and the Predecessor (for periods up to April 9, 1998). The
information set forth below should be read in conjunction with the
consolidated and combined financial statements and notes to the consolidated
and combined financial statements filed in response to Item 8 hereof.
For financial accounting purposes, PREP Fund 1 was considered the sole
predecessor to the Company and, accordingly, the historical operating results
presented in this report as those of the "Predecessor" are those of PREP Fund
1. Under generally accepted accounting principles, the Merger was accounted
for as a purchase by PREP Fund 1 of 100% of the assigned limited partnership
interests (known as "BUCs") of PREP Fund 2 and approximately 99% of the BUCs
of Pension Fund. As a result of this treatment, the Company, as the successor
to PREP Fund 1, recorded all of the assets and liabilities of PREP Fund 1 at
their book value, but was required to record the assets of PREP Fund 2 and
Pension Fund at their fair value as of the date of the Merger. The amount by
which the fair value of the Company's stock issued to the BUC holders of PREP
Fund 2 and Pension Fund exceeded the fair value of the total net assets of
PREP Fund 2 and Pension Fund was recorded as goodwill by the Company.
- 12 -
Company and Predecessor
Company Company As of or for the Year Ended December 31, 1998
-----------------------------------------------
As of or As of or Company and
for the for the Company Predecessor
Year Ended Year Ended From April 10 to Through
Dec. 31, 2000 Dec. 31, 1999 December 31, 1998 April 9, 1998 Total
-------------- -------------- ----------------- -------------- -------------
OPERATING DATA:
Mortgage securities income $ 33,390,494 $ 24,302,401 $ 7,626,742 $ 613,793 $ 8,240,535
Corporate debt securities income 1,335,974 674,747 164,738 - 164,738
Dividend income 928,310 331,233 - - -
Interest income on temporary cash
investments 645,013 365,897 439,889 148,799 588,688
Income from other investments 3,670,199 (1) 3,012,688 (3) 581,716 145,167 726,883
Net gain on sale of investments 456,398 54,994 414,951 - 414,951
General and administrative expenses (2,457,196)(2) (2,672,333) (4) (1,674,114) (421,293) (2,095,407)
Interest expense on borrowed funds (30,103,076) (18,465,529) (4,619,500) - (4,619,500)
Minority interest - (4,218) (3,353) - (3,353)
------------- -------------- -------------- -------------- -------------
Net income $ 7,866,116 $ 7,599,880 $ 2,931,069 $ 486,466 $ 3,417,535
============= ============== ============== ============== =============
Net income, basic, per share $ .89 $ .84 $ 0.32 $ N/A
============= ============== ============== ==============
Net income, fully diluted, per share $ .89 $ .84 $ 0.32 $ N/A
============= ============== ============== ==============
Net income, basic, per exchangeable unit $ N/A $ N/A $ N/A $ 0.08
============= ============== ============== ==============
Net income, fully diluted,
per exchangeable unit $ N/A $ N/A $ N/A $ 0.08
============= ============== ============== ==============
Dividends declared per common share or
cash distributions paid or accrued
per exchangeable unit $ .5900 $ 0.6700 $ 0.7950 $ 0.2649 $ 1.0599
============= ============== ============== ============== =============
BALANCE SHEET DATA:
Investment in mortgage securities $ 470,575,671 $ 475,719,711 $ 241,895,462
Investment in corporate debt securities $ 15,665,727 $ 8,020,026 $ 4,673,127
Investment in corporate equity securities $ 9,010,538 $ 3,130,823 $ 1,153,800
Total assets - Company $ 522,490,312 $ 524,384,473 $ 264,668,902
Repurchase agreements $ 448,583,432 $ 452,101,803 $ 190,250,084
Total stockholders' equity $ 69,911,496 $ 67,614,613 $ 70,932,757
Explanatory Notes:
(1) Includes income of approximately $2,600,000 resulting from the sale of
the underlying real estate of an unconsolidated real estate limited partnership
as described in Note 6 to the consolidated and combined financial
statements.
(2) Includes an incentive fee of approximately $519,000 earned by the
Advisor in connection with the sale described in (1) above.
(3) Includes income of approximately $2,163,000 resulting from the sale of
undivided interests in the net assets of four assisted living centers
as described in Note 6 to the consolidated and combined financial
statements.
(4) Includes an incentive fee of approximately $433,000 earned by the
Advisor in connection with the sale described in (3) above.
- 13 -
Company and
Predecessor Predecessor
As of or As of or
for the for the
Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996
------------- -------------
Mortgage securities income $ 2,654,975 $ 3,011,347
Interest income on temporary cash investments
and U.S. government securities 569,624 442,931
Income from other investments 606,582 504,611
General and administrative expenses (1,405,514) (895,961)
------------- -------------
Net income $ 2,425,667 $ 3,062,928
============= =============
Net income, basic, per exchangeable unit $ 0.42 $ 0.52
============= =============
Net income, fully diluted, per exchangeable unit $ 0.42 $ 0.52
============= =============
Net income per passthrough certificate $ - $ 1,201.57
============= =============
Cash distributions paid or accrued per
exchangeable unit $ 1.0596 $ 1.0596
============= =============
Cash distributions paid or accrued per
passthrough certificate $ - $ 2,428.25
============= =============
Investment in mortgage securities $ 33,506,388 $ 37,322,028
============= =============
Total assets - Company $ 1,000 -
============= =============
Total assets - Predecessor $ 54,439,993 $ 60,144,705
============= =============
Total stockholders' equity $ 1,000 -
============= =============
Total partners' capital $ 46,252,826 $ 49,702,829
============= =============
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
The Company was incorporated in Maryland on July 24, 1997, and began
operations on April 10, 1998.
On April 10, 1998, the Company and three partnerships: America First
Participating/Preferred Equity Mortgage Fund Limited Partnership ("Prep Fund
1"), America First Prep Fund 2 Limited Partnership ("Prep Fund 2"), America
First Prep Fund 2 Pension Series Limited Partnership ("Pension Fund"),
consummated a merger transaction whereby their pre-existing net assets and
operations or majority interest in the pre-existing partnership were
contributed to the Company in exchange for 9,035,084 shares of the Company's
common stock. For financial accounting purposes, Prep Fund 1, the largest of
the three Partnerships, was considered the Predecessor entity (the
"Predecessor") and its historical operating results are presented in the
financial statements contained herein. The Merger was accounted for using the
purchase method of accounting in accordance with generally accepted accounting
principles. Prep Fund 1 was deemed to be the acquirer of the other
Partnerships under the purchase method. Accordingly, the Merger resulted, for
financial accounting purposes, in the effective purchase by Prep Fund 1 of all
the Beneficial Unit Certificates ("BUCs") of Prep Fund 2 and approximately 99%
of the BUCs of Pension Fund. (Pension Fund was liquidated and dissolved
during December, 1999.) As the surviving entity for financial accounting
purposes, the assets and liabilities of Prep Fund 1 were recorded by the
Company at their historical cost and the assets and liabilities of Prep Fund 2
and Pension Fund were adjusted to fair value. The excess of the fair value of
stock issued over the fair value of net assets acquired has been recorded as
goodwill in the accompanying balance sheet of the Company.
- 14 -
Concurrent with the Merger, the Company entered into an Advisory Agreement
with America First Mortgage Advisory Corporation (the "Advisor") and adopted
an investment policy which significantly differed from that pursued by the
predecessor partnerships. This strategy includes leveraged investing in
adjustable rate mortgage securities and mortgage loans. The Company began
implementing this investment strategy in the second quarter of 1998. During
the period from the consummation of the Merger through December 31, 2000, the
Company purchased mortgage securities with a face value at the time of
purchase of approximately $669.2 million (mortgage securities with a face
value of approximately $98.0 million were purchased during the year ended
December 31, 2000).
The Company has elected to become subject to tax as a real estate investment
trust ("REIT") under the Code beginning with its 1998 taxable year and, as
such, anticipates distributing annually at least 95% (90% effective January 1,
2001) of its taxable income, subject to certain adjustments. Generally, cash
for such distributions is expected to be largely generated from the Company's
operations, although the Company may borrow funds to make distributions.
Since the Merger, the Company has made dividend and distribution payments of
$0.59, $0.67 and $0.795 per share for 2000, 1999 and 1998, respectively. Such
amounts include $1.06 per share distributed through the first year of
operations (i.e. through the first quarter of 1999) which the Company
committed to distribute to shareholders as part of the Merger transaction. A
portion of distributions received by shareholders in 1999 and 1998 consisted
in part of a dividend and in part of a cash merger payment. There is no
commitment by the Company to distribute amounts in excess of taxable income
beyond the first year of operations. For tax purposes, a portion of the
dividend declared on December 14, 2000, and paid on January 30, 2001, will be
treated as a 2001 tax event for shareholders. Similarly, for tax purposes,
the dividend declared on December 16, 1999, and paid on February 18, 2000, was
treated in its entirety as a 2000 tax event for shareholders.
The Company's operations for any period may be affected by a number of factors
including the investment assets held, general economic conditions affecting
underlying borrowers and, most significantly, factors which affect the
interest rate market. Interest rates are 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.
The Merger, other related transactions and on-going implementation of the
change in investment strategy will materially impact the Company's future
operations as compared to those of the Predecessor. Accordingly, the
currently reported financial information is not necessarily indicative of the
Company's future operating results or financial condition.
Liquidity and Capital Resources
The Company's principal sources of capital consist of borrowings under
repurchase agreements, principal payments received on its portfolio of
mortgage securities and cash provided by operations. Principal uses of cash
include the acquisition of investment securities, the payment of operating
expenses and the payment of dividends to shareholders.
During the year ended December 31, 2000, the Company acquired mortgage
securities, corporate debt securities and corporate equity securities for
$121.0 million. Financing for these acquisitions was provided primarily
through the utilization of repurchase agreements, supplemented by cash flow
from operations of $9.0 million. The Company also received principal payments
of $106 million on its mortgage securities during 2000 and had proceeds of
$6.6 million from the sale of mortgage securities, corporate equity securities
and corporate debt securities. In addition, the Company received proceeds of
$2.6 million from the sale of the underlying real estate of an unconsolidated
real estate limited partnership. Such proceeds were reinvested in the real
estate limited partnership and utilized to acquire another multifamily housing
property. Other uses of funds in 2000 consisted of dividend payments of $5.3
million and $1.5 million for the acquisition of 283,621 shares of its own
common stock pursuant to a stock repurchase program as described below.
The Company's borrowings under repurchase agreements totaled $448.6 million at
December 31, 2000, and had a weighted average borrowing rate of 6.60% as of
such date. At December 31, 2000, the repurchase agreements had balances of
between $0.3 million and $55.9 million. These arrangements have original
terms to maturity ranging from one month to twelve months and annual interest
- 15 -
rates based on LIBOR. To date, the Company has not had any significant margin
calls on its repurchase agreements that were related to a decrease in the
value of its collateral.
In connection with the Company's 400,000 share repurchase program, the Company
purchased and retired 293,621 shares during the year ended December 31, 2000,
at an aggregate cost of $1,511,613. Since implementing the stock repurchase
program during the fourth quarter of 1999, through December 31, 2000, the
Company has purchased and retired 378,221 shares at an aggregate cost of
$1,923,821.
The Company may raise additional equity dependent upon market conditions and
other factors.
The Company believes it has adequate financial resources to meet its
obligations as they come due and fund dividends as well as to actively pursue
its investment policy and share repurchase program.
Results of Operations
Year Ended December 31, 2000, Compared to 1999
During the year ended December 31, 2000, total interest income earned by the
Company increased $10.6 million (41%) compared to total interest income earned
in 1999. This increase is primarily attributable to a 33% growth in the
Company's average interest earning assets from $382 million to $507 million
for the years ended December 31, 1999 and 2000, respectively. Also
contributing to the increase was a 6.4% growth in the yield on the Company's
interest earning assets from 6.72% per annum in 1999 to 7.15% per annum in
2000.
The Company's interest expense increased $11.6 million (63%) for the year
ended December 31, 2000 compared to 1999 due to a 40% increase in the average
repurchase agreement balance from $321 million in 1999 to $450 million in
2000, as well as an increase in the average interest cost from 5.75% per annum
in 1999 to 6.68% per annum in 2000. The Company had outstanding borrowings of
$449 million at December 31, 2000 compared to $452 million at December 31,
1999.
The Company's interest rate margin was 1.22% for the year ended December 31,
2000 compared to 1.89% for the year ended December 31, 1999. As a result of
the narrowing of such margin, net interest and dividend income decreased $1.0
million (14%) from $7.2 million to $6.2 million for the years ended December
31, 1999 and 2000, respectively.
Income from other investments increased from $3.0 million to $3.7 million for
the years ended December 31, 2000 and 1999, respectively. Included in such
income for the year ended December 31, 2000 is a gain of approximately $2.6
million which resulted from the sale of the underlying real estate of an
unconsolidated real estate limited partnership. Included in such income for
the year ended December 31, 1999 is approximately $2.2 million attributable
to a gain recognized by a non-consolidated subsidiary's sale of its undivided
interests in the net assets of four assisted living centers. Excluding such
sales, income from other investments increased $0.3 million due to higher
income generated by the Company's investments in unconsolidated real estate
limited partnerships.
During the year ended December 31, 2000, the Company realized a net gain of
$0.5 million on the sale of investments compared to a net gain of $0.1 million
during the year ended December 31, 1999. Such gains resulted from the sale of
corporate debt and equity securities and the sale and/or payoff of several
pools of fixed-rate mortgage securities.
General and administrative expenses of the Company decreased $0.2 million (8%)
for the year ended December 31, 2000, compared to the same period of 1999.
Approximately $0.1 million of such decrease is due to expenses incurred in
1999 by a consolidated subsidiary which was liquidated in December 1999. The
remaining $0.1 million decrease is primarily attributable to net decreases in
various general and administrative expenses, including various servicing fees,
filing fees and printing costs.
Year Ended December 31, 1999, Compared to 1998
During the year ended December 31, 1999, total interest income earned by the
- 16 -
Company increased $16.7 million compared to total interest income earned by
the Company and its Predecessor in 1998. This increase is attributable to the
growth in the Company's interest-earning assets pursuant to its investment
strategy. In addition, the yield on the Company's interest earning assets
increased 11.3% from 6.04% per annum in 1998 to 6.72% per annum in 1999.
The Company's interest expense increased $13.8 million for the year ended
December 31, 1999 compared to 1998 primarily due to an increase in funds
borrowed to finance the Company's asset growth. The Company had outstanding
borrowings of $452 million at December 31, 1999 compared to $190 million at
December 31, 1998. The Company's interest cost averaged 5.75% per annum in
1999 compared to 4.86% per annum in 1998.
The Company's interest rate margin was 1.89% for the year ended December 31,
1999 compared to 2.33% for the year ended December 31, 1998.
Income from other investments increased $2.3 million during the year ended
December 31, 1999, compared to the year ended December 31, 1998.
Approximately $2.2 million of such increase is attributable to the sale by a
non-consolidated subsidiary of its undivided interests in the net assets of
four assisted living centers. The remaining decrease of approximately $0.1
million is due to a reduction in the amount of income generated on the
Company's investments in real estate limited partnerships. During the year
ended December 31, 1999, the Company realized a gain of $0.1 million on the
sale of investments whereas the Company realized a gain of $0.4 million during
the comparable period in 1998. The majority of the gain realized in 1998 was
due to the payoff of a participating loan acquired by the Company in the
Merger.
General and administrative expenses of the Company in 1999 increased $0.6
million as compared to that of the Company and the Predecessor in 1998.
Approximately $0.4 million of such increase is attributable to non-recurring
incentive compensation earned by the Company's Advisor as a result of the sale
by a non-consolidated subsidiary of its undivided interests in the net assets
of four assisted living centers as described in Note 6 to the Company's
consolidated and combined financial statements. The remaining increase of
approximately $0.2 million was due to: (i) an increase of $0.3 million in
incentive compensation earned by the Advisor due to the improved financial
results of the Company, and (ii) an increase of $0.2 million in base
management fees earned by the Advisor primarily due to the Company operating a
full year in 1999 compared to operating approximately nine months in 1998
offset by (iii) a decrease of $0.3 million in other general and administrative
expenses primarily attributable to the difference in scope of the Company's
operations in 1999 compared to that of the Company and Predecessor in 1998.
Forward Looking Statements
When used in this Form 10-K, in future SEC filings or in press releases or
other written or oral communications, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project" or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. The Company cautions that such forward looking statements
speak only as of the date made and that various factors including regional
and national economic conditions, changes in levels of market interest
rates, credit and other risks of lending and investment activities, and
competitive and regulatory factors could affect the Company's financial
performance and could cause actual results for future periods to differ
materially from those anticipated or projected.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect events or circumstances after
the date of such statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company seeks to manage the interest rate, market value, liquidity,
prepayment and credit risks inherent in all financial institutions in a
prudent manner designed to insure the longevity of the Company while, at the
same time, seeking to provide an opportunity to shareholders to realize
attractive total rates of return through stock ownership of the Company.
While the Company does not seek to avoid risk, it does seek, to the best of
its ability, to assume risk that can be quantified from historical experience,
to actively manage such risk, to earn sufficient compensation to justify the
- 17 -
taking of such risks and to maintain capital levels consistent with the risks
it does undertake.
Interest Rate Risk
The Company primarily invests in fixed-rate, hybrid and adjustable-rate
mortgage investments. The hybrid investments represent fixed-rate coupons for
a given period and variable rate coupons thereafter. The Company's debt
obligations are generally repurchase agreements of limited duration which are
periodically refinanced at new market rates.
Most of the Company's adjustable-rate assets are dependent on the one-year CMT
rate and debt obligations are generally dependent on LIBOR. These indexes
generally move in parallel, but there can be no assurance that this will
continue to occur.
The Company's adjustable-rate investment assets and debt obligations reset at
various different dates for the specific asset or obligation. In general, the
repricing of the Company's debt obligations occurs more quickly than on the
Company's assets. Therefore, on average, the Company's cost of funds may rise
or fall more quickly than does its earnings rate on the assets. Further, the
Company's net income may vary somewhat as the yield curve between one-month
interest rates and six and twelve month interest rates varies.
As of December 31, 2000, the Company's investment assets and debt obligations
will prospectively reprice based on the following time frames:
Assets Debt Obligations
------------------------ ------------------------
Amount Percent of Amount Percent of
Total Total
Investments Investments
-------- ----------- ------- -----------
Investment type/rate reset dates
Fixed-Rate Investments $ 44.3 9% $ - -
Adjustable Rate Investments/Obligations:
Less than 3 months 73.4 15% 448.6 100%
Greater than 3 months and less than 1 year 324.7 65% - -
Greater than 1 year and less than 2 years - - - -
Greater than 2 years and less than 3 years 52.9 11% - -
Greater than 3 years and less than 4 years - - - -
Greater than 4 years and less than 5 years - - - -
------- ------ ------ -----
451.0 91% 448.6 100%
------- ------ ------ -----
Total $ 495.3 100% $ 448.6 100%
======= ====== ====== =====
Weighted average roll date
of adjustable-rate
investments/obligations 9 months 1 month
Market Value Risk
Substantially all of the Company's investments are "available-for-sale"
assets. As such, they are reflected at fair value (i.e. market value) with
the adjustment to fair value reflected as part of accumulated other
comprehensive income which is included in the equity section of the Company's
balance sheet. (See Note 2 to the Company's consolidated financial
statements.) The market value of the Company's assets can fluctuate due to
changes in interest rates and other factors.
Liquidity Risk
The primary liquidity risk of the Company arises from financing long-maturity
mortgage assets with short-term debt. The Company had no long-term debt at
- 18 -
December 31, 2000. Although the interest rate adjustments of these assets and
liabilities are matched within the Company's operating policies, maturities
are not matched.
The Company's assets which are pledged to secure short-term borrowings are
high-quality, liquid assets. As a result, the Company has not had difficulty
rolling over its short-term debt as it matures. Still, the Company cannot
give assurances that it will always be able to roll over its short-term debt.
At December 31, 2000, the Company had unrestricted cash of $8.4 million
available to meet margin calls on short-term debt that could be caused by
asset value declines or changes in lender over-collateralization requirements.
Such unrestricted cash is approximately 2% of short-term debt.
Prepayment Risk
As the Company receives repayments of mortgage principal, it amortizes into
income its mortgage premium balances as a reduction to income and its mortgage
discount balances as an increase to income. Mortgage premium balances arise
when the Company acquires mortgage assets at a price in excess of the
principal value of the mortgages, or when an asset appreciates and is
marked-to-market at a price above par. Mortgage discount balances arise when
the Company acquires mortgage assets at a price below the principal value of
the mortgages, or when an asset depreciates and is marked-to-market at a price
below par. For financial accounting purposes, the premium is amortized based
on the effective yield of the asset at each financial reporting date. For tax
accounting purposes, the premium is amortized based on the asset yield at the
purchase date. Therefore, if prepayments are higher than anticipated, it is
anticipated that the yield for financial accounting purposes will decline and
there will be greater premium amortization under tax accounting requirements
than for financial accounting purposes. At December 31, 2000, unamortized
mortgage premium balances of adjustable rate assets for financial accounting
purposes was $7.2 million (1.4% of total assets) and $9.7 million for federal
tax purposes (1.8% of total assets).
In general, the Company believes it will be able to reinvest prepayments at
acceptable yields; however, no assurances can be given that, should
significant prepayments occur, market conditions would be such that acceptable
investments could be identified and the proceeds reinvested.
Tabular Presentation
The information presented in the table below, projects the impact of changes
in interest rates on 2001 projected net income and net assets as more fully
discussed below based on investments in place on December 31, 2000, and
includes all the Company's interest-rate sensitive assets and liabilities.
The Company acquires interest-rate sensitive assets and funds them with
interest-rate sensitive liabilities. The Company generally plans to retain
such assets and the associated interest rate risk to maturity.
The table below includes information about the possible future repayments and
interest rates of the Company's assets and liabilities and constitutes a
"forward-looking statement." There are many assumptions used to generate this
information and there can be no assurance that assumed events will occur as
assumed or that other events will occur that would affect the outcomes.
Furthermore, future sales, acquisitions, calls, and restructuring could
materially change the Company's interest rate risk profile. The table
quantifies the potential changes in net income should interest rates go up or
down (shocked) by 100 and 200 basis points, assuming the yield curves of the
rate shocks will be parallel to each other. The cash flows associated with
the adjustable rate securities for each rate shock are calculated based on a
variety of assumptions, including prepayment vectors, repurchase rates,
repurchase haircuts, yield on reinvestment of prepayment, and growth in the
portfolio.
When interest rates are shocked, these prepayment assumptions are further
adjusted based on management's best estimate of the effects of changes on
interest rates or prepayment speeds. For example, under current market
conditions, a 100 basis point decline in interest rates is estimated to result
in a 275% increase in the prepayment rate of the ARM portfolio. The base
interest rate scenario assumes interest rates at December 31, 2000. Actual
results could differ significantly from those estimated in the table.
- 19 -
As of December 31, 2000, all interest-rate sensitive liabilities were scheduled
to mature in 2001.
Change in Percentage Change Percentage Change
Interest Rates in Net Income in Net Assets
-------------- ----------------- -----------------
-2% +56.5% +2.6%
-1% +28.6% +0.5%
0 0.0 0.0
1% -11.7% -0.8%
2% -22.5% -1.7%
- 20 -
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Financial Statements: Page
Report of Independent Accountants........................................22
Consolidated Balance Sheets of the Company as of December 31, 2000, and
December 31, 1999........................................................23
Consolidated Statements of Income of the Company for the years
ended December 31, 2000 and 1999 and for the period from April 10, 1998
through December 31, 1998, and Combined Statements of Income of the
Predecessor from January 1, 1998 through April 9, 1998...................24
Consolidated Statements of Stockholders' Equity of the Company for the
years ended December 31, 2000, 1999 and 1998, and Combined Statements of
Partners' Capital of the Predecessor from January 1, 1998 through April 9,
1998.....................................................................25
Consolidated Statements of Cash Flows of the Company for the years ended
December 31, 2000 and 1999, and for the period from April 10, 1998 through
December 31, 1998, and Combined Statements of Cash Flows of the
Predecessor from January 1, 1998 through April 9, 1998 ..................27
Notes to Consolidated and Combined Financial Statements of Company and
the Predecessor..........................................................29
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated or combined statements
or notes thereto.
Financial statements of one 95%-owned company, two real estate limited
partnerships in which the Company owns 99% limited partnership interests and
two real estate limited partnerships in which the Company owns 50% limited
partnership interests have been omitted because the Company's
proportionate share of the income from continuing operations before income
taxes is less than 20% of the respective consolidated amount, and the
investment in, and advances to, each entity is less than 20% of
consolidated total assets.
- 21 -
Report of Independent Accountants
To the Board of Directors of
America First Mortgage Investments, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
statements of income, shareholders' equity and cash flows present fairly, in
all material respects, the financial position of America First Mortgage
Investments, Inc. and its subsidiaries (the "Company") at December 31, 2000
and 1999, and the results of their operations and their cash flows for the
year ended December 31, 2000 and 1999 and for the period from April 10, 1998
to December 31, 1998, and the results of operations and cash flows of America
First Participating/Preferred Equity Mortgage Fund Limited Partnership and
America First Participating/Preferred Equity Mortgage Fund (the "Fund") for
the period from January 1, 1998 to April 9, 1998 in conformity with accounting
principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
January 26, 2001
- 22 -
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
CONSOLIDATED BALANCE SHEETS
As of As of
Dec. 31, 2000 Dec. 31, 1999
--------------- ---------------
Assets
Investment in mortgage securities (Note 3) $ 470,575,671 $ 475,719,711
Investment in corporate debt securities (Note 4) 15,665,727 8,020,026
Investment in corporate equity securities (Note 5) 9,010,538 3,130,823
Cash and cash equivalents
Unrestricted 8,400,539 19,895,833
Restricted 498,875 3,709,577
Accrued interest receivable 3,433,256 2,855,321
Other investments (Note 6) 6,540,570 3,220,346
Goodwill, net 7,388,247 7,587,948
Other assets 976,889 244,888
--------------- ---------------
$ 522,490,312 $ 524,384,473
=============== ===============
Liabilities
Repurchase agreements (Note 7) $ 448,583,432 $ 452,101,803
Accrued interest payable 2,038,887 2,778,842
Accounts payable 550,209 595,805
Dividends or distributions payable 1,406,288 1,293,410
--------------- ---------------
452,578,816 456,769,860
--------------- ---------------
Stockholders' Equity
Common stock, $.01 par value; 375,000,000 shares authorized
8,692,825 and 8,978,642 issued and outstanding in 2000 and 1999, respectively 86,928 89,786
Additional paid-in capital 74,362,801 75,831,560
Accumulated deficit (440,084) (2,877,971)
Accumulated other comprehensive income (4,098,149) (5,428,762)
--------------- ---------------
69,911,496 67,614,613
--------------- ---------------
$ 522,490,312 $ 524,384,473
=============== ===============
The accompanying notes are an integral part of the consolidated and combined financial statements.
- 23 -
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
For the Year Ended December 31, 1998
-----------------------------------------------
Company Company Company Company and
For the For the Predecessor
Year Ended Year Ended From April 10 Through
Dec. 31, 2000 Dec. 31, 1999 to Dec. 31, 1998 April 9, 1998 Total
---------------- --------------- --------------- --------------- ------------
Mortgage securities income $ 33,390,494 $ 24,302,401 $ 7,626,742 $ 613,793 $ 8,240,535
Corporate debt securities income 1,335,974 674,747 164,738 - 164,738
Dividend income 928,310 331,233 - - -
Interest income on temporary cash investments 645,013 365,897 439,889 148,799 588,688
---------------- --------------- --------------- --------------- -------------
Total interest and dividend income 36,299,791 25,674,278 8,231,369 762,592 8,993,961
Interest expense on borrowed funds 30,103,076 18,465,529 4,619,500 - 4,619,500
---------------- --------------- --------------- --------------- ------------
Net interest and dividend income 6,196,715 7,208,749 3,611,869 762,592 4,374,461
---------------- --------------- --------------- --------------- ------------
Income from other investments 3,670,199 3,012,688 581,716 145,167 726,883
Net gain on sale of investments 456,398 54,994 414,951 - 414,951
---------------- --------------- --------------- --------------- ------------
4,126,597 3,067,682 996,667 145,167 1,141,834
---------------- --------------- --------------- --------------- ------------
General and administrative expenses 2,457,196 2,672,333 1,674,114 421,293 2,095,407
Minority interest in consolidated
partnership (Note 1) - 4,218 3,353 - 3,353
---------------- --------------- --------------- --------------- ------------
2,457,196 2,676,551 1,677,467 421,293 2,098,760
---------------- --------------- --------------- --------------- ------------
Net income $ 7,866,116 $ 7,599,880 $ 2,931,069 $ 486,466 $ 3,417,535
================ =============== =============== =============== =============
Net income, basic, per share $ .89 $ .84 $ 0.32 N/A
================ =============== =============== ===============
Net income, fully diluted, per share $ .89 $ .84 $ 0.32 N/A
================ =============== =============== ===============
Net income, basic, per unit N/A $ 0.08
=============== ===============
Net income, fully diluted, per unit N/A $ 0.08
=============== ===============
Net income allocated to:
General Partner $ 3,931
BUC Holders 482,535
---------------
$ 486,466
===============
Weighted average number of shares outstanding,
basic 8,869,456 9,046,467 9,043,172 N/A
Weighted average number of shares outstanding,
fully diluted 8,852,245 9,046,467 9,043,172
Weighted average number of units outstanding,
basic and fully diluted N/A N/A N/A 5,775,797
The accompanying notes are an integral part of the consolidated and combined financial statements.
- 24 -
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Stockholders' Equity - Company
---------------------------------------------------------------------------------
Accumulated
Treasury Other
Common Stock Paid-in Stock Accumulated Comprehensive
# of Shares Amount Capital At Cost Deficit Income Total
------------ ------------ ------------ ---------- ----------- ------------- --------
Balance at November 11, 1997 (date of
capitalization) and
December 31, 1997 90,621 $ 906 $ 94 $ - $ - $ - $ 1,000
Effects of Merger:
Issuance of stock of the Company
in exchange for Units of
the Predecessor 5,775,797 57,758 45,126,359 - - - 45,184,117
Issuance of stock of the Company in
exchange for Units of Prep Fund 2
and Pension Fund 3,168,666 31,687 29,949,413 - - - 29,981,100
Issuance of stock options - - 942,390 - - - 942,390
Comprehensive income:
Net income - - - - 2,931,069 - 2,931,069
Other comprehensive income:
Change in classification of mortgage
securities from held-to-maturity to
available-for-sale - - - - - (704,828) (704,828)
Net unrealized holding losses
arising during the period - - - - - (352,994) (352,994)
------------ ------------ ------------ ----------- ------------- ------------ ------------
Comprehensive income - - - - 2,931,069 (1,057,822) 1,873,247
Dividends paid or accrued - - - - (7,234,050) - (7,234,050)
Common stock issued 20,058 200 184,753 - - - 184,953
------------ ------------ ------------ ------------ ------------- ------------ -----------
Balance at December 31, 1998 9,055,142 90,551 76,203,009 - (4,302,981) (1,057,822) 70,932,757
Comprehensive income:
Net income - - - - 7,599,880 - 7,599,880
Other comprehensive income:
Net unrealized holding losses
arising during the period - - - - - (4,370,940) (4,370,940)
------------ ------------ ------------ ------------- ------------ ------------ -----------
Comprehensive income - - - - 7,599,880 (4,370,940) 3,228,940
Dividends paid or accrued - - - - (6,174,870) - (6,174,870)
Common stock issued 8,100 81 39,913 - - - 39,994
Purchase of shares for treasury - - - (412,208) - - (412,208)
Retirement of treasury stock (84,600) (846) (411,362) 412,208 - - -
------------ ------------ ------------ ------------- ------------ ------------ -----------
Balance at December 31, 1999 8,978,642 89,786 75,831,560 - (2,877,971) (5,428,762) 67,614,613
Comprehensive income:
Net income - - - - 7,866,116 - 7,866,116
Other comprehensive income:
Net unrealized holding losses
arising during the period - - - - - 1,330,613 1,330,613
------------ ------------ ------------ ------------- ------------ ------------ -----------
Comprehensive income - - - - 7,866,116 1,330,613 9,196,729
Dividends paid or accrued - - - - (5,428,229) - (5,428,229)
Common stock issued 7,804 78 39,918 - - - 39,996
Purchase of shares for treasury - - - (1,511,613) - - (1,511,613)
Retirement of treasury stock (293,621) (2,936) (1,508,677) 1,511,613 - - -
------------ ------------ ------------ ------------- ------------ ------------ -----------
Balance at December 31, 2000 8,692,825 $ 86,928 $74,362,801 $ - $ (440,084) $(4,098,149)$69,911,496
============ ============ ============ ============= ============ ============ ===========
The accompanying notes are an integral part of the consolidated and combined financial statements.
- 25 -
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
COMBINED STATEMENTS OF PARTNERS' CAPITAL
Partners' Capital - Predecessor
---------------------------------------------------
Exchangeable Unit
Holders
-------------------------
General
Partner # of Units Amount Total
-------- ---------- ------------ ------------
Balance at December 31, 1997 $ 100 5,775,797 $ 45,682,774 $ 45,682,874
Net income 3,931 - 482,535 486,466
Cash distributions paid or accrued (3,931) - (1,530,009) (1,533,940)
-------- ------------ ------------ -----------
Balance at April 10, 1998 100 5,775,797 44,635,300 44,635,400
-------- ------------ ------------ -----------
Accumulated other comprehensive income
Balance at December 31, 1997 - - 569,952 569,952
Other comprehensive income - - (21,235) (21,235)
-------- ------------ ------------ ------------
Balance at April 10, 1998 - - 548,717 548,717
-------- ------------ ------------ ------------
Issuance of stock of the Company in
exchange for Units of the Predecessor (100) (5,775,797) (45,184,017) (45,184,117)
-------- ------------ ------------ -------------
Total Partners' Capital-Predecessor
at April 10, 1998 $ - - $ - $ -
======== ============ ============ ==============
The accompanying notes are an integral part of the consolidated and combined
financial statements.
- 26 -
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1998
-----------------------------------------------
Company Company Company Company and
Predecessor
For the For the
Year Ended Year Ended From April 10 Through
Dec. 31, 2000 Dec. 31, 1999 to Dec. 31, 1998 April 9, 1998 Total
--------------- -------------- ----------------- --------------- ----------
Cash flows from operating activities
Net income $ 7,866,116 $ 7,599,880 $ 2,931,069 $ 486,466 $ 3,417,535
Adjustments to reconcile net income to
net cash provided by operating activities:
Net gain on sale of investments (3,021,831) (54,994) (414,951) - (414,951)
Minority interest in consolidated partnership - 4,218 3,353 - 3,353
Other - 44,701 - - -
Amortization of premium (discount) 1,484,917 1,004,430 161,800 (1,959) 159,841
Amortization of goodwill 199,701 187,005 146,584 - 146,584
Other amortization 207,616 233,200 - - -
Changes in assets and liabilities:
Decrease (increase) in interest receivable (577,935) (1,301,925) (1,134,069) 8,302 (1,125,767)
Decrease (increase) in other assets (451,393) 329,448 (252,473) 6,241 (246,232)
Increase (decrease) in accounts payable (45,596) 233,719 (1,860,513) 565,608 (1,294,905)
Increase (decrease) in accrued interest payable (739,955) 1,983,057 795,785 - 795,785
------------- ------------- -------------- --------------- -----------
Net cash provided by operating activities 4,921,640 10,262,739 376,585 1,064,658 1,441,243
------------- ------------- -------------- --------------- -----------
Cash flows from investing activities
Principal payments on mortgage securities 105,990,927 113,346,110 46,682,908 867,630 47,550,538
Proceeds from sale of corporate equity securities 1,168,761 1,127,500 - - -
Proceeds from sale of corporate debt securities 372,500 - - - -
Proceeds from sale of mortgage securities 5,018,677 - - - -
Proceeds from sale of other investments 2,565,433 - 1,290,000 - 1,290,000
Net cash from Merger - - 4,820,481 - 4,820,481
Purchases of mortgage securities (106,413,464) (352,732,908) (236,107,915) - (236,107,915)
Purchases of corporate debt securities (7,718,750) (3,307,750) (4,662,500) - (4,662,500)
Purchases of corporate equity securities (6,942,511) (3,091,997) (1,081,773) - (1,081,773)
Decrease (increase) in other investments (3,320,224) (2,149,060) (58,567) 42,869 (15,698)
Merger transaction costs paid - - - (729,509) (729,509)
------------- ------------- -------------- --------------- ------------
Net cash provided by (used in)
investing activities (9,278,651) (246,808,105) (189,117,366) 180,990 (188,936,376)
------------- ------------- -------------- --------------- -----------
Cash flows from financing activities
Net borrowings from (payments on)
repurchase agreements (3,518,371) 261,851,719 190,250,084 - 190,250,084
Decrease (increase) in restricted cash 3,210,702 (3,709,577) - - -
Stock purchased for retirement (1,511,613) (412,208) - - -
Dividends and distributions paid (5,319,001) (7,334,691) (5,600,169) (1,535,007) (7,135,176)
------------- ------------- -------------- --------------- ------------
Net cash provided by (used in)
financing activities (7,138,283) 250,395,243 184,649,915 (1,535,007) 183,114,908
------------- ------------- -------------- --------------- ------------
Net increase (decrease) in unrestricted cash
and cash equivalents (11,495,294) 13,849,877 (4,090,866) (289,359) (4,380,225)
Unrestricted cash and cash equivalents at
beginning of period 19,895,833 6,045,956 10,136,822 10,426,181 10,426,181
------------- ------------- --------------- --------------- ------------
Unrestricted cash and cash equivalents at
at end of period $ 8,400,539 $ 19,895,833 $ 6,045,956 $ 10,136,822 $ 6,045,956
============= ============= =============== =============== =============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 30,843,031 $ 16,482,472 $ 3,823,715 $ - $ 3,823,715
The accompanying notes are an integral part of the consolidated and combined financial statements.
- 27 -
Supplemental disclosure on non-cash investing activities:
The following assets and liabilities were assumed by the Company in
conjunction with the Merger and issuance of common stock (see Note 1):
From April 10 Through
to Dec. 31, 1998 April 9, 1998 Total
----------------- --------------- ------------
Mortgage securities $ 20,420,336 $ - $ 20,420,336
Accrued interest receivable 142,545 - 142,545
Other investments 175,369 - 175,369
Accounts payable 712,888 - 712,888
Distributions payable 265,545 - 265,545
The Company recorded goodwill of $7,507,902 in 1998 as a result of the
Merger. The Company recorded $413,615 of additional goodwill in 1999 due to
the resolution of contingencies associated with the Merger.
During 2000, 1999 and 1998, the Company issued 7,804, 8,100 and 7,440
shares, respectively, of common stock to its non-employee directors in
partial payment of the annual retainer paid by the Company to such
directors for the respective year. The Company also issued 12,618 shares
of common stock in 1998 to unit holders of Pension Fund who exchanged their
units of Pension Fund for shares of the Company subsequent to April 10, 1998.
The aggregate value of such common stock issued was $39,918 in 2000, $39,994
in 1999 and $184,953 in 1998.
- 28 -
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. Organization
America First Mortgage Investments, Inc. (the Company) was incorporated in
Maryland on July 24, 1997, and began operations on April 10, 1998.
On April 10, 1998, (the Merger Date) the Company and three partnerships:
America First Participating/Preferred Equity Mortgage Fund Limited Partnership
(Prep Fund 1), America First Prep Fund 2 Limited Partnership (Prep Fund 2),
America First Prep Fund 2 Pension Series Limited Partnership (Pension Fund),
consummated a merger transaction whereby their pre-existing net assets and
operations or majority interest in the pre-existing partnership were
contributed to the Company in exchange for 9,035,084 shares of the Company's
common stock. For financial accounting purposes, Prep Fund 1, the largest of
the three partnerships, was considered the Predecessor entity (the
Predecessor) and its historical operating results are presented in the
financial statements contained herein. The Merger was accounted for using the
purchase method of accounting in accordance with generally accepted accounting
principles. Prep Fund 1 was deemed to be the acquirer of the other
partnerships under the purchase method. Accordingly, the Merger resulted, for
financial accounting purposes, in the effective purchase by Prep Fund 1 of all
the Beneficial Unit Certificates (BUCs) of Prep Fund 2 and approximately 99%
of the BUCs of Pension Fund. Pension Fund was liquidated and dissolved during
December, 1999, and, as a result, the Company acquired approximately 99% of
the assets of Pension Fund. The remaining assets, consisting solely of cash,
were distributed to the remaining holders of Pension Fund BUCs. As the
surviving entity for financial accounting purposes, the assets and liabilities
of Prep Fund 1 were recorded by the Company at their historical cost and the
assets and liabilities of Prep Fund 2 and Pension Fund were adjusted to fair
value. The excess of the fair value of stock issued over the fair value of
net assets acquired has been recorded as goodwill in the accompanying balance
sheet.
The Company has entered into an advisory agreement with America First Mortgage
Advisory Corporation (the Advisor) which provides advisor services in
connection with the conduct of the Company's business activities.
2. Summary of Significant Accounting Policies
A) Method of Accounting
The accompanying 2000 consolidated and combined financial statements
include the consolidated accounts of the Company from April 10, 1998
through December 31, 2000, and the combined accounts of the Company,
Prep Fund 1 and America First Participating/Preferred Equity Mortgage
Fund (the managing general partner of Prep Fund 1) (together referred
to as the Predecessor) for periods prior to the Merger. The financial
statements are prepared on the accrual basis of accounting in accordance
with generally accepted accounting principles utilized in the United
States.
The consolidated financial statements through December 31, 1999, include
the accounts of the Company and its subsidiaries, Pension Fund and Pension
Fund's general partner, America First Capital Associates Limited
Partnership Six (AFCA 6). Pension Fund and AFCA 6 were liquidated and
dissolved under the terms of their respective partnership agreements
during December, 1999. All significant intercompany transactions and
accounts have been eliminated in consolidation. As more fully discussed in
Note 7, the Company also has an investment in a corporation and investments
in four real estate limited partnerships, none of which are controlled by
the Company. These investments are accounted for under the equity method.
Neither the corporation nor the real estate limited partnerships are
consolidated for income tax purposes.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
- 29 -
B) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and highly liquid
investments with original maturities of three months or less. The
carrying amount of cash equivalents approximates their fair value.
Restricted cash represents amounts held with certain lending
institutions with which the Company has repurchase agreements.
Such amounts may be used to make principal and interest payments
on the related repurchase agreements.
C) Mortgage Securities, Corporate Debt Securities and Corporate Equity
Securities
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115), requires
the Company to classify its investments in mortgage securities,
corporate debt securities and corporate equity securities (collectively
referred to as investment securities) as either held-to-maturity,
available-for-sale or trading.
Although the Company generally intends to hold most of its mortgage
securities until maturity, it may, from time to time, sell any of its
mortgage securities as part of its overall management of its business.
In order to be prepared to respond to potential future opportunities in
the market, to sell mortgage securities in order to optimize the
portfolio's total return and to retain its ability to respond to economic
conditions that require the Company to sell assets in order to maintain an
appropriate level of liquidity, the Company has classified all its mortgage
securities as available-for-sale. Likewise, the Company has classified all
its corporate equity securities investments as available-for-sale.
Mortgage securities and corporate equity securities classified as
available-for-sale are reported at fair value, with unrealized gains and
losses excluded from earnings and reported in other comprehensive income.
Corporate debt securities are classified as held-to-maturity and are
carried at amortized cost.
Unrealized losses on investment securities that are considered
other-than-temporary, as measured by the amount of decline in fair value
attributable to factors other than temporary, are recognized in income and
the cost basis of the investment security is adjusted.
Other-than-temporary unrealized losses are based on management's assessment
of various factors affecting the expected cash flow from the investment
securities, including an other-than-temporary deterioration of the credit
quality of the underlying mortgages and/or the credit protection available
to the related mortgage pool.
Gains or losses on the sale of investment securities are based on the
specific identification method.
Interest income is accrued based on the outstanding principal amount of
the investment securities and their contractual terms. Premiums and
discounts associated with the purchase of the investment securities are
amortized into interest income over the lives of the securities using the
effective yield method based on, among other things, anticipated estimated
prepayments. Such calculations are periodically adjusted for actual
prepayment activity.
D) Credit Risk
The Company limits its exposure to credit losses on its investment
portfolio by requiring that at least 66% (through December 31, 2000)
of its investment portfolio consist of mortgage securities or mortgage loans
that are either (i) insured or guaranteed as to principal and interest by an
agency of the U.S. government, such as the Government National Mortgage
Association (GNMA), the Federal National Mortgage Association (FNMA), or the
Federal Home Loan Mortgage Corporation (FHLMC) or (ii) rated in one of the
two highest rating categories by either Standard & Poor's or Moody's. The
remainder of the Company's assets may be either: (i) direct investment
(mezzanine or equity) in multifamily apartment properties; (ii) investments
in limited partnerships or real estate investment trusts, or (iii) other
fixed-income instruments (corporate debt or equity securities or mortgage
backed securities) that provide increased call protection relative to the
Company's mortgage assets. Corporate debt and equity securities of any
single below-investment-grade issuer will be limited to no more than 4% of
the Company's total assets. As of December 31, 2000 and 1999, approximately
78% and 79%, respectively, of the Company's assets
- 30 -
consisted of mortgage securities insured or guaranteed by the U.S.
government or an agency thereof. Management determined no allowance for
credit losses was necessary at December 31, 2000 or 1999.
E) Other Investments
Other investments consist of certain non-consolidated investments accounted
for under the equity method, including: (i) non-voting preferred stock of a
corporation owning interests in real estate limited partnerships, and (ii)
investments in limited partnerships owning real estate.
F) Net Income per Share
Net income per share is based on the weighted average number of common
shares and common equivalent shares (e.g., stock options), if dilutive,
outstanding during the period. Basic net income per share is computed by
dividing net income available to shareholders by the weighted average
number of common shares outstanding during the period. Diluted net
income per share is computed by dividing the diluted net income available
to common shareholders by the weighted average number of common shares and
common equivalent shares outstanding during the period. The common
equivalent shares are calculated using the treasury stock method which
assumes that all dilutive common stock equivalents are exercised and the
funds generated by the exercise are used to buy back outstanding common
stock at the average market price during the reported period.
As more fully discussed in Note 8, options to purchase 520,000 and
300,000 shares of common stock were granted on April 6, 1998, and August
13, 1999, respectively. During the year ended December 31, 2000, the
average price of the Company's stock was greater than the exercise price
of the options granted on August 13, 1999. As such, exercise of such
options under the treasury stock method is dilutive. Accordingly, these
dilutive securities were considered in fully diluted earnings per share.
For the year ended December 31, 1999, the average price of the Company's
stock was less than the exercise price; therefore exercise of such options
under the treasury stock method would be anti-dilutive. Accordingly, for
the year ended December 31, 1999, these potentially dilutive securities
were not considered in fully diluted earnings per share. With regard to
the options granted on April 6, 1998, the exercise price is greater than
the average stock price during the years ended December 31, 2000, 1999 and
for the period from April 10, 1998 through December 31, 1998; therefore,
exercise of such options under the treasury stock method would be
anti-dilutive. Accordingly, these potentially dilutive securities were not
considered in fully diluted earnings per share.
The following table sets forth the reconciliation of the weighted average
shares outstanding for the calculation of basic earnings per share to the
weighted average shares outstanding for the calculation of fully diluted
earnings per share for each period presented:
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 1998
-------------- -------------- -------------
Weighted average shares outstanding for
basic earnings per share 8,869,456 9,046,467 9,043,172
Add effect of assumed shares issued under
treasury stock method for stock options (17,211) - -
Weighted average shares outstanding for -------------- -------------- -------------
fully diluted earnings per share 8,852,245 9,046,467 9,043,172
============== ============== =============
G) Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires the Company and the Predecessor to display
and report comprehensive income, which includes all changes in
Stockholders' Equity or Partners' Capital with the exception of additional
investments by or dividends to shareholders of the Company or additional
investments by or distributions to partners of the Predecessor.
Comprehensive income for the Company and the Predecessor includes net
income and the change in net unrealized holding gains (losses) on
- 31 -
investments. Comprehensive income for the years ended December 31, 2000,
1999 and 1998 was as follows:
For the Year Ended December 31, 1998
--------------------------------------------
Company for Company for Company for Company Company and
the Year Ended the Year Ended the Year Ended From April 10 to Predecessor
through
Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 1998 April 9, 1998 Total
--------------- ---------------- ---------------- --------------- -------------
Net income $ 7,866,116 $ 7,599,880 $ 2,931,069 $ 486,466 $ 3,417,535
Change in classification of mortgage
securities from held-to-maturity to
available-for-sale - - (704,828) - (704,828)
Other comprehensive income (loss)
Unrealized holding gains (losses)
Net unrealized holding gains
(losses) arising during the period 1,330,613 (4,370,940) (352,994) (21,235) (374,229)
---------------- -------------- --------------- --------------- --------------
Comprehensive income $ 9,196,729 $ 3,228,940 $ 1,873,247 $ 465,231 $ 2,338,478
================ ============== =============== =============== ===============
H) Federal Income Taxes
The Company has elected to be taxed as a real estate investment trust
(REIT) under the provisions of the Internal Revenue Code and the
corresponding provisions of state law. As such, no provision for income
taxes has been made in the accompanying consolidated financial statements.
Since the Predecessor was a partnership and generally not subject to taxes
directly, it did not make a provision for income taxes. The Predecessor's
Beneficial Unit Certificate (BUC) holders were required to report their
share of the Predecessor's income for federal and state income tax
purposes.
I) New Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities " (FAS 133). Certain provisions of FAS
133 were amended by Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities" (FAS 138)
in June, 2000. These statements provide new accounting and reporting
standards for the use of derivative instruments. Adoption of these
statements is required by the Company effective January 1, 2001.
Management intends to adopt these statements as required in fiscal 2001.
Although the Company and its Predecessor have not historically used such
instruments, it is not precluded from doing so. In the future, management
anticipates using such derivative instruments only as hedges to manage
interest rate risk. Management does not anticipate entering into derivatives
for speculative or trading purposes. As of January 1, 2001, the Company
had no outstanding derivative hedging instruments nor any imbedded
derivatives requiring bifurcation and separate accounting under FAS 133.
Accordingly, there was no cumulative effect upon adoption of FAS 133 on
January 1, 2001.
In March, 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation." The
Company was required to adopt FIN 44 effective July 1, 2000, with respect
to certain provisions applicable to new awards, exchanges of awards in a
business combination, modifications to outstanding awards, and changes in
grantee status that occur on or after that date. FIN 44 addresses practice
issues related to the application of Accounting Practice Bulletin Opinion
No. 25, "Accounting for Stock Issued to Employees." The initial adoption
of FIN 44 by the Company did not have a material impact on its consolidated
financial position or results of operations.
- 32 -
3. Mortgage Securities
The following table presents the Company's mortgage securities as of December
31, 2000 and 1999.
As of As of
December 31, 2000 December 31, 1999
----------------- -----------------
FNMA Certificates $ 377,668,990 $ 359,891,164
GNMA Certificates 24,529,046 43,678,897
FHLMC Certificates 8,981,226 13,220,884
Commercial mortgage-backed securities 17,135,031 16,650,544
Private label CMOs 42,261,378 42,278,222
----------------- -----------------
$ 470,575,671 $ 475,719,711
================= =================
At December 31, 2000, and 1999 mortgage securities consisted of pools of
adjustable-rate mortgage securities with carrying values of $450,992,165 and
$444,140,267, respectively and fixed-rate mortgage securities with carrying
values of $19,583,506 and $31,579,444, respectively.
The Federal National Mortgage Association (FNMA) Certificates are backed by
first mortgage loans on pools of single-family properties. The FNMA
Certificates are debt securities issued by FNMA and are guaranteed by FNMA as
to the full and timely payment of principal and interest on the underlying
loans.
The Government National Mortgage Association (GNMA) Certificates are backed by
first mortgage loans on multifamily residential properties and pools of
single-family properties. The GNMA Certificates are debt securities issued
by a private mortgage lender and are guaranteed by GNMA as to the full and
timely payment of principal and interest on the underlying loans.
Federal Home Loan Mortgage Corporation (FHLMC) Certificates are backed by
first mortgage loans on pools of single-family properties. The FHLMC
Certificates are debt securities issued by FHLMC and are guaranteed by FHLMC
as to the full and timely payment of principal and interest on the underlying
loans.
The commercial mortgage-backed securities are rated AA or A by Standard and
Poor's.
The private label CMOs (collateralized mortgage obligations) are rated AAA by
Standard and Poor's.
As of December 31, 2000 and 1999, all the mortgage securities were classified
as available-for-sale and as such are carried at their fair value.
The following table presents the amortized cost, gross unrealized gains, gross
unrealized losses and fair value of mortgage securities as of December 31,
2000 and 1999:
As of As of
December 31, 2000 December 31, 1999
------------------ ------------------
Amortized cost $ 474,638,436 $ 481,176,498
Gross unrealized gains 351,662 461,675
Gross unrealized losses (4,414,427) (5,918,462)
------------------ ------------------
Fair value $ 470,575,671 $ 475,719,711
================== ==================
- 33 -
4. Corporate Debt Securities
Corporate debt securities are classified as held-to-maturity. The following
table presents the amortized cost, gross unrealized gains, gross unrealized
losses and fair value of the corporate debt securities as of December 31, 2000
and 1999:
As of As of
December 31, 2000 December 31, 1999
----------------- -----------------
Amortized cost $ 15,665,727 $ 8,020,026
Gross unrealized gains 24,900 92,211
Gross unrealized losses (3,795,002) (174,487)
----------------- -----------------
Fair value $ 11,895,625 $ 7,937,750
================= =================
5. Corporate Equity Securities
Corporate equity securities are classified as available-for-sale. The
following table presents the cost, gross unrealized gains, gross unrealized
losses and fair value of the corporate equity securities as of December 31,
2000 and 1999:
As of As of
December 31, 2000 December 31, 1999
------------------ ------------------
Cost $ 9,045,923 $ 3,102,798
Gross unrealized gains 613,843 224,865
Gross unrealized losses (649,228) (196,840)
------------------ -------------------
Fair value $ 9,010,538 $ 3,130,823
================== ==================
6. Other Investments
Other investments consisted of the following as of December 31, 2000 and 1999:
As of As of
December 31, 2000 December 31, 1999
----------------- -----------------
Investment in Retirement Centers Corporation $ 2,540,180 $ 2,389,980
Investment in and advances to real estate limited partnerships 4,000,390 830,366
----------------- -----------------
Total $ 6,540,570 $ 3,220,346
================= =================
The Company's investment in Retirement Centers Corporation (RCC) represents a
95% ownership interest in such corporation. The Company owns 100% of the
non-voting preferred stock of RCC and a third party owns 100% of the common
stock. The Company accounts for its investment in RCC on the equity method.
As of December 31, 2000, RCC owned (i) a limited partnership interest in a
real estate limited partnership which operates an assisted living center
located in Salt Lake City, Utah, and (ii) a 128-unit apartment property
located in Omaha, Nebraska, which was acquired on January 12, 2000. As of
December 31, 1999, RCC's investments consisted of (i) its interest in the real
estate limited partnership referenced above and (ii) cash which was utilized
to acquire the apartment property on January 12, 2000.
RCC previously owned limited partnership interests in five real estate limited
partnerships which operated assisted living centers. However, during 1999,
four of the real estate limited partnerships were liquidated with RCC
- 34 -
receiving an undivided interest in the net assets of each such limited
partnership. RCC then sold its undivided interests in the net assets of each
such assisted living center. On a consolidated basis, such sale contributed
approximately $1,730,000 ($2,163,000 less an incentive fee of approximately
$433,000 (see Note 9), to the Company's net income for 1999. Also see Note 12
- - Subsequent Events.
Investments in and advances to unconsolidated real estate limited partnerships
consist of investments in or advances made to limited partnerships which own
properties. These investments are not insured or guaranteed but rather are
collateralized by the underlying value of the real estate owned by such
limited partnerships. They are accounted for under the equity method of
accounting. Certain of the investments have a zero carrying value and, as
such, earnings are recorded only to the extent distributions are received.
Such investments have not been reduced below zero through recognition of
allocated investment losses since the Company has no legal obligation to
provide additional cash support to the underlying property partnerships as it
is not the general partner, nor has it indicated any commitment to provide
this support. At December 31, 2000 and 1999, the Company had investments in
four such limited partnerships. On September 26, 2000, one of the
partnerships sold its interest in the underlying real estate. Such sale
contributed approximately $2,100,000 ($2,600,000 gain less an incentive fee of
approximately $519,000 (see Note 9)), to the Company's net income for the year
ended December 31, 2000. The proceeds of such sale were reinvested in the
limited partnership and utilized to acquire another multifamily housing
property in November 2000.
7. Repurchase Agreements
As of December 31, 2000, the Company had outstanding balances of $448,583,432
under 55 repurchase agreements with a weighted average borrowing rate of 6.60%
and a weighted average remaining maturity of approximately one month. As of
December 31, 2000, all of the Company's borrowings were fixed-rate term
repurchase agreements with original maturities that range from one to twelve
months. As of December 31, 1999, the Company had outstanding balances of
$452,101,803 under 38 repurchase agreements with a weighted average borrowing
rate of 5.72% and a weighted average maturity of approximately one month.
As of December 31, 2000 and 1999, the repurchase agreements had the following
remaining maturities:
As of As of
December 31, 2000 December 31, 1999
----------------- -----------------
Within 30 days $ 278,497,916 $ 287,416,803
30 to 90 days 170,085,516 164,685,000
------------- -------------
$ 448,583,432 $ 452,101,803
============= =============
The repurchase agreements are collateralized by the Company's mortgage
securities with a principal balance of $466,981,306 at December 31, 2000, and
bear interest at rates that are LIBOR-based.
8. Stockholders' Equity
1997 Stock Option Plan
- ---------------------
The Company has a 1997 Stock Option Plan (the Plan) which authorizes the
granting of options to purchase an aggregate of up to 1,000,000 shares of the
Company's common stock, but not more than 10% of the total outstanding shares
of the Company's common stock. The Plan authorizes the Board of Directors, or
a committee of the Board of Directors, to grant Incentive Stock Options (ISOs)
as defined under section 422 of the Internal Revenue Code, Non-Qualified Stock
Options (NQSOs) and Dividend Equivalent Rights (DERs) to eligible persons,
other than non-employee directors. Non-employee directors are eligible to
receive grants of NQSOs with DERs pursuant to the provisions of the Plan. The
exercise price for any options granted to eligible persons under the Plan
shall not be less than the fair market value of the common stock on the day of
the grant. The options expire if not exercised ten years after the date
granted.
- 35 -
On April 6, 1998, 500,000 ISOs were granted to buy common shares at an
exercise price of $9.375 per share (the 1998 Grant). In addition, 20,000
NQSOs were issued at an exercise price of $9.375 per share. On August 13,
1999, 300,000 ISOs were granted to buy common shares at an exercise price of
$4.875 per share (the 1999 Grant). Prior to the 1998 Grant, no other options
were outstanding. As of December 31, 2000 and 1999, respectively, 525,000 and
325,000 ISOs were vested and exercisable. As of December 31, 2000 and 1999,
20,000 NQSOs were vested and exercisable. As of December 31, 2000, no options
had been exercised.
In addition to the options granted on April 6, 1998, 500,000 and 5,000 DERs
were also granted on the ISOs and NQSOs, respectively, based on the provisions
of the Plan. No DERs were granted on the ISOs granted on August 13, 1999.
DERs on the ISOs vest on the same basis as the options. DERs on NQSOs became
fully vested in April, 1999. Payments are made on vested DERs only. Vested
DERs are paid only to the extent of ordinary income and not on returns of
capital. Dividends paid on ISOs are charged to stockholders' equity when
declared and dividends paid on NQSOs are charged to earnings when declared.
For the years ended December 31, 2000, 1999 and 1998, the Company recorded
charges of $221,250, $117,500 and $42,500, respectively, to stockholders'
equity (included in dividends paid or accrued) associated with the DERs on
ISOs and charges of $3,650, $4,700 and $1,700, respectively, to earnings
associated with DERs on NQSOs.
The options and related DERs issued were accounted for under the provisions of
SFAS 123, "Accounting for Stock Based Compensation". Because the ISOs were
not issued to officers who are direct employees of the Company, ISOs granted
were accounted for under the option value method as variable plan grants and a
periodic charge is recognized based on the vesting schedule. The charge for
options which vested immediately with the 1998 Grant was included as
capitalized transaction costs in connection with the Merger. Until fixed and
determinable, management estimates the value of the ISOs granted as of each
balance sheet date using a Black-Scholes valuation model, as adjusted for the
discounted value of dividends not to be received under the unvested DERs. In
the absence of comparable historical market information for the Company,
management originally utilized assumptions consistent with activity of a
comparable peer group of companies including an estimated option life, a
volatility rate, a risk-free rate and a current dividend yield (or 0% if the
related DERs are issued). For the years ended December 31, 2000, 1999 and
1998, as part of operations, the Company reflected earnings charges of
$113,115, $42,707 and $170,154, respectively, representing the value of
ISOs/DERs granted over their vesting period. NQSOs granted were accounted for
using the intrinsic method and, accordingly, no earnings charge was reflected
since the exercise price was equal to the fair market value of the common
stock at the date of the grant.
Dividends/Distributions
- -----------------------
The Company declared the following distributions during 2000, 1999 and 1998:
Declaration Date Record Date Payment Date Amount per Share
- ---------------- ----------- ------------ ----------------
During 2000:
March 17, 2000 April 14, 2000 May 17, 2000 $ .140
June 14, 2000 June 30, 2000 August 17, 2000 $ .140
September 18, 2000 October 16, 2000 November 17, 2000 $ .155
December 14, 2000 January 15, 2001 January 30, 2001 $ .155
During 1999:
March 24, 1999 April 5, 1999 May 17, 1999 $ .265 (1)
June 14, 1999 June 30, 1999 August 17, 1999 $ .125
September 21, 1999 September 30, 1999 November 17, 1999 $ .140
December 16, 1999 January 3, 2000 February 18, 2000 $ .140
During 1998:
June 18, 1998 June 30, 1998 August 14, 1998 $ .265 (1)
September 9, 1998 September 30, 1998 November 16, 1998 $ .265 (1)
December 15, 1998 December 31, 1998 February 19, 1999 $ .265 (1)
(1) As part of the Merger transaction, the Company made quarterly distributions of
$.265 per common share ($1.06 per common share per year) in the first year
- 36 -
following the Merger (i.e. through the first quarter of 1999.) Accordingly,
cash distributions paid by the Company in the first quarter of 1999 and in 1998
consisted in part of a dividend and in part of a cash merger payment.
Cash distributions paid or accrued by the Predecessor were $.2649 pr Unit
prior to the Merger in 1998.
For tax purposes, a portion of the dividend declared on December 14, 2000, and
paid on January 30, 2001, will be treated as a 2001 dividend for shareholders.
Similarly, the dividend declared on December 16, 1999, and paid February 18,
2000, was treated in its entirety as a 2000 dividend for shareholders and the
dividend declared on December 15, 1998, and paid February 19, 1999, was
treated as a 1999 dividend for shareholders.
Stock Repurchase Plan
- ---------------------
In connection with the Company's 400,000 share repurchase program, the Company
purchased and retired 293,621 shares during the year ended December 31, 2000,
at an aggregate cost of $1,511,613. During the year ended December 31, 1999,
the Company purchased and retired 84,600 share at an aggregate cost of
$412,208. Since implementing the stock repurchase program during the fourth
quarter of 1999, through December 31, 2000, the Company has purchased and
retired 378,221 shares at an aggregate cost of $1,923,821. See Note 12 -
Subsequent Events.
9. Related Party Transactions
The Advisor manages the operations and investments of the Company and performs
administrative services for the Company. In turn, the Advisor receives a
management fee payable monthly in arrears in an amount equal to 1.10% per
annum of the first $300 million of Stockholders' Equity of the Company, plus
.80% per annum of the portion of Stockholders' Equity of the Company above
$300 million. The Company also pays the Advisor, as incentive compensation
for each fiscal quarter, an amount equal to 20% of the dollar amount by which
the annualized Return on Equity for such fiscal quarter exceeds the amount
necessary to provide an annualized Return on Equity equal to the Ten-Year U.S.
Treasury Rate plus 1%. For the years ended December 31, 2000, 1999 and the
period from April 10, 1998 (Merger Date) to December 31, 1998, the Advisor
earned a base management fee of $740,437, $761,646 and $590,875, respectively
and incentive compensation of $797,054, $741,233 and $2,807, respectively.
Approximately $519,000 of the incentive fee earned in 2000 was attributable to
the sale described in Note 6. Approximately $433,000 of the incentive fee
earned in 1999 was attributable to the sale described in Note 6.
America First Properties Management Company L.L.C., (the Manager), provides
property management services for certain of the multifamily properties in
which the Company has an interest. The Manager also provided property
management services to certain properties previously associated with the
Predecessor which were acquired in the Merger. The Manager receives a
management fee equal to a stated percentage of the gross revenues generated by
the properties under management, ranging from 3.5% to 5% of gross revenues.
Such fees paid by the Company for the years ended December 31, 2000, 1999 and
the period from April 10, 1998 through December 31, 1998, amounted to
$374,923, $325,213 and $250,912, respectively. Such fees paid by the three
Partnerships which merged amounted to $83,017 (including $45,527 paid by the
Predecessor) for the period in 1998 prior to the Merger Date.
Prior to the Merger Date, the general partner of the Predecessor (AFCA 3) was
entitled to an administrative fee of .35% per annum of the outstanding amount
of investments of the Predecessor to be paid by the Predecessor to the extent
such amount is not paid by property owners. AFCA 3 earned administrative fees
of $53,617 in 1998 of which $38,659 was paid by the Predecessor and the
remainder was paid by owners of real properties financed by the Predecessor.
Prior to the Merger Date, substantially all of Predecessor's general and
administrative expenses and certain costs capitalized by the Predecessor were
paid by AFCA 3 or an affiliate and reimbursed by the Predecessor. The amounts
of such expenses reimbursed to AFCA 3 or an affiliate were $165,439 in 1998.
The capitalized costs consist of transaction costs incurred in conjunction
with the merger described in Note 1.
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10. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating
the fair value of its financial instruments:
Investments in mortgage securities, corporate debt securities and corporate
equity securities: Fair values are based on broker quotes or amounts
obtained from independent pricing sources.
Cash and cash equivalents: Fair value approximates the carrying value of
such assets.
Repurchase agreements: Fair value approximates the carrying value of such
liabilities.
As of December 31, 2000 As of December 31, 1999
------------------------------- --------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ ------------- ------------- --------------
Investment in mortgage securities $ 470,575,671 $ 470,575,671 $ 475,719,711 $ 475,719,711
Investment in corporate debt securities 15,665,727 11,895,625 8,020,026 7,937,750
Investment in corporate equity securities 9,010,538 9,010,538 3,130,823 3,130,823
Cash and cash equivalents
Unrestricted 8,400,539 8,400,539 19,895,833 19,895,833
Restricted 498,875 498,875 3,709,577 3,709,577
Repurchase agreements 448,583,432 448,583,432 452,101,803 452,101,803
11. Summary of Quarterly Results of Operations (Unaudited)
First Second Third Fourth
From January 1, 2000, to December 31, 2000 Quarter Quarter Quarter Quarter
-------------- -------------- -------------- --------------
Total income $ 1,956,216 $ 1,932,983 $ 4,292,650 $ 2,141,463
Total expenses (461,465) (512,495) (994,723)(1) (488,513)
-------------- -------------- -------------- --------------
Net income $ 1,494,751 $ 1,420,488 $ 3,297,927 (1) $ 1,652,950
============== ============== ============== ==============
Net income, basic and diluted,
per share $ 0.17 $ 0.16 $ 0.37 (1) $ 0.19
============== ============== ============== ==============
First Second Third Fourth
From January 1, 1999, to December 31, 1999 Quarter Quarter Quarter Quarter
-------------- -------------- -------------- --------------
Total income $ 1,869,081 $ 2,146,590 $ 4,223,361 $ 2,037,399
Total expenses (616,193) (628,400) (1,052,855) (2) (374,885)
Minority interest (490) (4,230) 327 175
-------------- -------------- -------------- --------------
Net income $ 1,252,398 $ 1,513,960 $ 3,170,833 (2) $ 1,662,689
============== ============== ============== ==============
Net income, basic and diluted,
per share $ 0.14 $ 0.17 $ 0.35 (2) $ 0.18
============== ============== ============== ==============
Explanatory Notes:
(1) Includes income of approximately $2.1 million (net of the incentive fee of $519,000)
or approximately $0.24 per share related to the sale described in Note 6.
(2) Includes income of approximately $1.7 million (net of the incentive fee of $433,000)
or approximately $0.19 per share related to the sale described in Note 6.
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12. Subsequent Events
On January 12, 2001, the Company's Board of Directors approved the
repurchase of up to an additional 200,000 shares of its common stock.
On January 2, 2001, the limited partnership which owned an assisted living
center located in Salt Lake City, Utah, was liquidated with Retirement Centers
Corporation (RCC) receiving an undivided interest in the net assets of such
partnership. RCC then sold its undivided interest in the net assets of such
assisted living center resulting in a gain to RCC of approximately $2.9
million.
On January 18, 2001, RCC acquired an 88.3% undivided interest and the Company
acquired an 11.7% undivided interest in Lealand Place Apartments, a 192-unit
multifamily housing property located in Lawrenceville, Georgia, for
approximately $13.3 million. The acquisition was financed with the proceeds
of a $10.3 million mortgage loan and cash of $3.0 million.
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Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. There were no disagreements with the Company's or its
Predecessor's independent accountants on accounting principles and practices
or financial disclosure during the fiscal years ended December 31, 2000 and
1999.
PART III
Item 10. Directors and Executive Officers of Registrant. The information
about directors required to be furnished pursuant to this Item 10 is
incorporated by reference to the Company's definitive proxy statement for its
2001 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after December
31, 2000 (the "Proxy Statement") under the heading "Election of Directors."
Information about the executive officers of the Company is shown under Item 4
of this filing.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and certain persons who own more
than ten percent of the Company's common stock, to file with the Securities
and Exchange Commission (the "SEC") reports of their ownership of Company
common stock. Officers, directors and greater-than-ten-percent beneficial
owners are required by SEC regulation to furnish the Company with copies of
all Section 16(a) reports they file. Based solely upon review of the copies
of such reports received by the Company and written representations from each
such person who did not file an annual report with the SEC (Form 5) that no
other reports were required, the Company believes that there was compliance
for the year ended December 31, 2000, with all Section 16(a) filing
requirements applicable to the Company's officers, directors and
greater-than-ten-percent beneficial owners.
Item 11. Executive Compensation. The information required to be furnished
pursuant to this Item 11 is incorporated by reference to the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required to be furnished pursuant to this Item 12 is
incorporated by reference to the Proxy Statement under the heading "Voting
Securities and Beneficial Ownership Thereof by Principal Stockholders,
Directors and Officers" and "Long-Term Incentive Plans and Other Matters."
Item 13. Certain Relationships and Related Transactions. The information
required to be furnished pursuant to this Item 13 is incorporated by reference
to the Proxy Statement under the heading "Certain Relationships and Related
Transactions."
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Consolidated and Combined Financial Statements. The consolidated and
combined financial statements of the Company and the Predecessor, together
with the Independent Accountants' Report thereon, are set forth on pages 22
through 39 of this Form 10-K and are incorporated herein by
reference.
2. Financial Statement Schedules. The information required to be set forth in
the financial statement schedules is included in the Consolidated and Combined
Financial Statements and/or in the Notes to Consolidated and Combined
Financial Statements filed in response to Item 8 hereof.
3. Exhibits.
2.1 Agreement and Plan of Merger by and among the Registrant,
America First Participating/Preferred Equity Mortgage Fund
Limited Partnership, America First Prep Fund 2 Limited
Partnership, America First Prep Fund 2 Pension Series
Limited Partnership and certain other parties, dated as of
July 29, 1997 (incorporated herein by reference to Exhibit
2.1 of the Registration Statement on Form S-4 dated
February 12, 1998, filed by the Registrant pursuant to the
Securities Act of 1933 (Commission File No. 333-46179)).
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3.1 Amended and Restated Articles of Incorporation of the
Registrant (incorporated herein by reference to Form 8-K
dated April 10, 1998, filed by the Registrant pursuant to
the Securities Exchange Act of 1934 (Commission File No.
1-13991)).
3.2 Amended and Restated Bylaws of the Registrant (incorporated
herein by reference to Form 8-K dated April 10, 1998,
filed by the Registrant pursuant to the Securities Exchange
Act of 1934 (Commission File No. 1-13991)).
4.1 Specimen of Common Stock Certificate of the Company.
(incorporated herein by reference to Exhibit 4.1 of the
Registration Statement on Form S-4 dated February 12, 1998,
filed by the Registrant pursuant to the Securities Act of
1933 (Commission File No. 333-46179)).
10.1 Advisory Agreement, dated April 9, 1998, by and between
the Company and the Advisor (incorporated herein by
reference to Form 8-K dated April 10, 1998 filed by
the Company pursuant to the Securities Exchange Act of
1934 (Commission File No. 1-13991)).
10.2 Employment Agreement of Stewart Zimmerman (incorporated
herein by reference to Exhibit 10.2 of the Registration
Statement on Form S-4 dated February 12, 1998, filed by
the Company pursuant to the Securities Act of 1933
(Commission File No. 333-46179)).
10.3 Employment Agreement of William S. Gorin (incorporated
herein by reference to Exhibit 10.3 of the Registration
Statement on Form S-4 dated February 12, 1998, filed by
the Company pursuant to the Securities Act of 1933
(Commission File No. 333-46179)).
10.4 Employment Agreement of Ronald A. Freydberg (incorporated
herein by reference to Exhibit 10.4 of the Registration
Statement on Form S-4 dated February 12, 1998, filed by
the Company pursuant to the Securities Act of 1933
(Commission File No. 333-46179)).
10.5 Addendum to Employment Agreement of Stewart Zimmerman
(incorporated herein by reference to Form 10-Q dated
March 31, 2000, filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934
(Commission File No. 1-13991)).
10.6 Addendum to Employment Agreement of William S. Gorin
(incorporated herein by reference to Form 10-Q dated
March 31, 2000, filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934
(Commission File No. 1-13991)).
10.7 Addendum to Employment Agreement of Ronald A. Freydberg
(incorporated herein by reference to Form 10-Q dated
March 31, 2000, filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934
(Commission File No. 1-13991)).
10.8 Amended and Restated 1997 Stock Option Plan of the Company
(incorporated herein by reference to Form 10-K dated
December 31, 1999, filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934
(Commission File No. 1-13991)).
10.9 Form of Dividend Reinvestment Plan (incorporated herein by
reference to Appendix C of the Registration Statement on
Form S-4 dated February 12, 1998, filed by the Registrant
pursuant to the Securities Act of 1933 (Commission File No.
333-46179)).
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24. Power of Attorney
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the
fourth quarter of the year for which this report is filed.
- 42 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 2001 America First Mortgage Investments, Inc.
By /s/ Stewart Zimmerman
Stewart Zimmerman
Chief Executive Officer
- 43 -
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Date: March 28, 2001 By /s/ Michael B. Yanney*
Michael B. Yanney
Chairman of the Board
Date: March 28, 2001 By /s/ Stewart Zimmerman
Stewart Zimmerman
Chief Executive Officer and Director
Date: March 28, 2001 By /s/ Gary Thompson
Gary Thompson
Chief Financial Officer
Date: March 28, 2001 By /s/ Michael L. Dahir*
Michael L. Dahir
Director
Date: March 28, 2001 By /s/ George V. Janzen*
George V. Janzen
Director
Date: March 28, 2001 By /s/ George H. Krauss*
George H. Krauss
Director
Date: March 28, 2001 By /s/ Gregor Medinger*
Gregor Medinger
Director
Date: March 28, 2001 By /s/ W. David Scott*
W. David Scott
Director
* By Stewart Zimmerman, Attorney-in-fact
/s/ Stewart Zimmerman
Stewart Zimmerman
- 44 -
EXHIBIT 24
POWER OF ATTORNEY
- 45 -
POWER OF ATTORNEY
The undersigned hereby appoints Stewart Zimmerman as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 2000, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
America First Mortgage Investments, Inc.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
the 1st day of February 2001.
/s/ Michael B. Yanney
Michael B. Yanney
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POWER OF ATTORNEY
The undersigned hereby appoints Stewart Zimmerman as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 2000, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
America First Mortgage Investments, Inc.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
the 1st day of February 2001.
/s/ Michael L. Dahir
Michael L. Dahir
- 47 -
POWER OF ATTORNEY
The undersigned hereby appoints Stewart Zimmerman as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 2000, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
America First Mortgage Investments, Inc.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
the 1st day of February 2001.
/s/ George V. Janzen
George V. Janzen
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POWER OF ATTORNEY
The undersigned hereby appoints Stewart Zimmerman as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 2000, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
America First Mortgage Investments, Inc.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
the 1st day of February 2001.
/s/ George H. Krauss
George H. Krauss
- 49 -
POWER OF ATTORNEY
The undersigned hereby appoints Stewart Zimmerman as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 2000, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
America First Mortgage Investments, Inc.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
the 1st day of February 2001.
/s/ Gregor Medinger
Gregor Medinger
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POWER OF ATTORNEY
The undersigned hereby appoints Stewart Zimmerman as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 2000, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
America First Mortgage Investments, Inc.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
the 1st day of February 2001.
/s/ W. David Scott
W. David Scott
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